<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 1999.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CRL NETWORK SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE NO. 4813 68-0312353
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE KEARNY STREET, SUITE 1450
SAN FRANCISCO, CALIFORNIA 94108
(415) 837-5300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES G. COUCH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ONE KEARNY STREET, SUITE 1450
SAN FRANCISCO, CALIFORNIA 94108
(415) 837-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
KENNETH R. LAMB, ESQ. NORA L. GIBSON, ESQ.
LISA A. FONTENOT, ESQ. PETER S. BUCKLAND, ESQ.
PATRICK L. WONG, ESQ. TAYLOR L. STEVENS, ESQ.
GIBSON, DUNN & CRUTCHER LLP PATRICK J. O'LOUGHLIN, ESQ.
ONE MONTGOMERY STREET, TELESIS TOWER BROBECK, PHLEGER & HARRISON LLP
SAN FRANCISCO, CALIFORNIA 94104 ONE MARKET, SPEAR STREET TOWER
SAN FRANCISCO, CALIFORNIA 94015
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement of the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Common Stock, $.01 par value............................ $80,000,000 $22,240
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Calculated pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED MARCH 22, 1999
THE INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE JURISDICTION WHERE THE OFFER OR SALE
IS NOT PERMITTED.
PROSPECTUS
SHARES
[LOGO] CRL NETWORK SERVICES, INC.
COMMON STOCK
$ PER SHARE
- --------------------------------------------------------------------------------
This is the initial public offering of CRL Network Services, Inc. We are
offering shares and a stockholder identified in this prospectus
is offering shares. We will not receive any of the proceeds from
the sale of shares of our common stock by the selling stockholder. This is a
firm commitment underwriting.
There is currently no public market for the shares. We expect that the price to
the public in the offering will be between $ and $ per share. The
market price of the shares after the offering may be higher or lower than the
offering price.
We have applied to have the common stock approved for quotation on the Nasdaq
National Market under the symbol "CRLX."
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Price to Public............................................. $ $
Underwriting discounts...................................... $ $
Proceeds to CRL Network Services, Inc....................... $ $
Proceeds to the selling stockholder......................... $ $
</TABLE>
CRL Network Services and the selling stockholder have granted an over-allotment
option to the underwriters. Under this option, the underwriters may elect to
purchase a maximum of shares from the selling stockholder or
CRL Network Services within 30 days from the date of this prospectus to cover
over-allotments.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C>
Joint Lead Manager and Bookrunner Joint Lead Manager
CIBC WORLD MARKETS LEHMAN BROTHERS
</TABLE>
The date of this prospectus is , 1999.
<PAGE> 3
[INSIDE FRONT COVER]
[Graphic depicts a map of United States entitled "Networks Built for Business"
with the CRL logo, reflecting CRL's network connecting cities nationwide,
including symbols designating CRL's Regional Hubs, CRL Points of Presence or
Service Areas, Internet Protocol Backbone and Switched Backbone]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
How We Intend to Use the Proceeds from the Offering......... 21
Dividend Policy............................................. 21
Capitalization.............................................. 22
Dilution.................................................... 23
Selected Consolidated Financial Data........................ 24
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 25
Business.................................................... 32
Management.................................................. 51
Principal and Selling Stockholders.......................... 57
Description of Capital Stock................................ 58
Shares Eligible for Future Sale............................. 61
Underwriting................................................ 63
Legal Matters............................................... 65
Experts..................................................... 65
Additional Information...................................... 65
Index to Financial Statements............................... F-1
</TABLE>
i
<PAGE> 5
PROSPECTUS SUMMARY
This summary contains basic information about us and this offering. Because it
is a summary, it does not contain all of the information that you should
consider before investing. You should read this entire prospectus carefully,
including the section entitled "Risk Factors" and the financial statements and
the related notes to those statements included in this prospectus. The term
"you" refers to prospective investors in our common stock. This prospectus
assumes that the underwriters have not exercised the over-allotment option and
gives effect to our reincorporation in Delaware and the associated exchange of
one share of common stock of CRL for every three shares of common stock of CRL's
California predecessor. The reincorporation will occur before the closing of
this offering. Unless the context otherwise requires, "CRL," "we," "us" or "our"
refer to CRL Network Services, Inc., a Delaware corporation, our predecessor,
CRL Network Services, Inc., a California corporation, and our subsidiary,
Integral Networking Corporation.
CRL NETWORK SERVICES, INC.
CRL Network Services is a Tier 1 Internet service provider focused on offering
tailored Internet and network management solutions to small and medium-sized
businesses. We provide an extensive array of high performance, reliable and
scalable Internet and network connectivity and value-added services designed to
meet our customers' needs. Our services include:
- connectivity to the Internet and secure private networks
- value-added network services such as remote management and systems
integration
- hosting services
We believe we were among the first companies involved in the development of
connectivity solutions and services for the commercial Internet. We have
developed our own high speed network, which enables us to reliably and
cost-effectively deliver customized, end-to-end solutions. Our competitive
strengths include our:
- engineering and technical expertise arising from our direct participation in
the evolution of the commercial Internet, which has enabled us to develop
and construct our own sophisticated network infrastructure
- high speed, facilities-based, private Layer 2 switched network, which
enables us to maximize our quality of service by reducing latency and data
loss as well as increasing the level of security
- status as one of the first commercial Internet providers, which allows us to
peer directly with other major Tier 1 providers reducing the costs of
operating our network
- our proprietary remote management process, acquired through our recent
merger with Integral Networking Corporation in December 1998, which enables
us to connect our network directly to our customer's network and provide
remote management of our customer's network from the server to the desktop
As of March 15, 1999, we had 30 points of presence in major metropolitan areas
that connect to all of the interexchange points sanctioned by the National
Science Foundation for the transfer of Internet Protocol-based traffic between
Internet backbone networks. Our network is comprised of several elements,
including 23 Cascade switches, 54 Cisco routers, facilities and clear channel
fiber-optic bandwidth, which together provide a fast, secure, high quality and
fault tolerant network. Our customers include Internet service and content
providers like Internet America, Inc. and Walnut Creek CDROM, Incorporated;
companies engaged in electronic commerce like Office Depot, Inc. and Joe Boxer
Corporation; government agencies like the U.S. Federal Reserve Board and the
U.S. Department of Commerce; and educational institutions like the University of
California, Hastings College of the Law and the Woodland Hills School District.
1
<PAGE> 6
Our objective is to become the leading nationwide provider of tailored,
end-to-end Internet and network services to small and medium-sized businesses.
To achieve this objective, we intend to:
- LEVERAGE OUR EXISTING NETWORK INFRASTRUCTURE. We intend to leverage our
status as a Tier 1 Internet service provider and competitive local exchange
carrier in California as well as our fast, secure, reliable and scalable
network to cost-effectively expand our customer base and deliver additional
services to our customers.
- CROSS SELL VALUE-ADDED SERVICES. We intend to leverage our existing customer
base and future customers by aggressively cross selling our current and
future value-added services to address their Internet and other network
management requirements.
- PROVIDE BUNDLED, END-TO-END NETWORKING SOLUTIONS. By combining our network
infrastructure with our existing and planned array of networking services,
we believe we are well positioned to become one of the premier, end-to-end
providers of bundled networking solutions.
- EXPAND CUSTOMER BASE AND SALES EFFORTS. We believe we will be able to
successfully market and sell our comprehensive networking solutions to a
large national customer base by significantly increasing our direct sales
force and expanding our relationships with potential channel partners.
- DRIVE REVENUE GROWTH BY INCREASING HOSTING SERVICES. We intend to leverage
our physical presence and facilities located at key Internet network access
points, which provide an attractive opportunity for us to market and sell
hosting services to existing and potential customers.
- ACCELERATE GROWTH THROUGH TARGETED ACQUISITIONS. We intend to seek
acquisition candidates that we believe we can integrate with our existing
network to increase our customer base or provide additional value-added
services. In this regard, we recently acquired Integral Networking
Corporation, which enables us to provide our remote management services.
------------------------
Our principal executive offices are located at One Kearny Street, Suite 1450,
San Francisco, California 94108, and our telephone number at that address is
(415) 837-5300.
CRL Network Services, Integral Networking and Network 56 are trademarks of our
company. We intend to apply for federal trademark registration for these
trademarks. This prospectus contains other product names, trade names and
trademarks that belong to us or to other organizations.
This prospectus includes statistical data regarding the Internet industry. The
statistical data are taken or derived from information published by sources
including International Data Corporation and Forrester Research, Inc., providers
of market and strategic information for the information technology industry.
Although we believe such data are generally indicative of the matters reflected
therein, such data are inherently imprecise and you are cautioned not to place
undue reliance on them.
2
<PAGE> 7
THE OFFERING
Common stock offered by us.... shares
Common stock offered by the
selling stockholder........... shares
Common stock to be outstanding
after the offering(1)......... shares
Use of proceeds by CRL Network
Services.................... We intend to use the net proceeds from the sale
of common stock offered by us to repay certain
indebtedness, for working capital and other
general corporate purposes, including expansion
of our sales and marketing activities. We may
also use a portion of the net proceeds for
acquisitions. We will not receive any proceeds
from the sale of the common stock offered by
the selling stockholder. See "How We Intend to
Use the Proceeds from the Offering."
Proposed Nasdaq National
Market symbol................. CRLX
Risk Factors.................. See "Risk Factors" for a discussion of factors
you should carefully consider before deciding
to invest in our common stock.
- -------------------------
(1) Based on 18,978,833 shares outstanding on March 15, 1999, which excludes
1,006,320 shares issuable upon exercise of currently outstanding options
with a weighted average exercise price of $2.18 per share and 1,000,000
shares available for the grant of additional options under our 1999 Stock
Incentive Plan. See "Management -- Stock Options."
3
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial data as of December 31, 1998 and for the
years ended December 31, 1996, 1997 and 1998 are calculated from our audited
consolidated statements included in this prospectus. The summary consolidated
financial data for the years ended December 31, 1994 and 1995 are calculated
from unaudited consolidated financial statements not included in this
prospectus. The unaudited financial statements have been prepared by us on a
basis consistent with our audited consolidated financial statements and include,
in the opinion of our management, all adjustments consisting only of normal
recurring adjustments necessary for a fair presentation of our results of
operations and financial position for those years.
You should read the following data with the more detailed information contained
in "Selected Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to the consolidated financial statements, each included
in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:.................................. $ 1,961 $ 3,831 $ 6,353 $10,375 $11,692
Total costs and expenses:.................. 1,555 3,184 6,043 8,904 11,726
Operating income (loss):................... 406 647 310 1,471 (34)
Net interest income (expense):............. (1) 1 1 5 (30)
Net income (loss).......................... 248 437 161 885 (151)
Net Income (loss) per common share basic
and diluted............................. $ 0.01 $ 0.02 $ 0.01 $ 0.05 $ (0.01)
Weighted average common shares outstanding:
Basic................................... 18,979 18,979 18,979 18,979 18,979
Diluted................................. 18,979 18,979 18,979 19,142 18,979
</TABLE>
The following table indicates a summary of our balance sheet at December 31,
1998, which has been adjusted to reflect the sale of shares of common
stock offered by us after deducting underwriting discounts and commissions and
estimated offering expenses at an assumed initial public offering price of
$ per share.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
---------------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 840 $
Working capital........................................... 430
Total assets.............................................. 4,855
Total liabilities......................................... 3,095
Long-term obligations, excluding current portion.......... 847
Stockholders' equity...................................... 1,760
</TABLE>
- -------------------------
See notes 1 and 12 of the notes to the consolidated financial statements
included in this prospectus for an explanation of the determination of the
number of shares used in computing per share data.
4
<PAGE> 9
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing us. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair our business operations.
If any of the following risks actually occur, our business, financial condition
or results of operations could be materially adversely affected. If that
happens, the trading price of our common stock could decline, and you may lose
all or part of your investment. These risk factors are not intended to represent
a complete list of the general or specific risk factors that may affect us.
This prospectus contains forward-looking statements. When used in this
prospectus, the words "anticipate," "believe," "estimate," "will," "may,"
"should," "plan," "future," "intend," "expect" and similar expressions identify
some of these forward-looking statements. These statements may discuss future
expectations or contain projections of results of operations or financial
condition or expected benefits to us resulting from possible acquisitions,
transactions or developments. Although we believe that our plans, intentions and
expectations reflected in these forward-looking statements are reasonable, we
can give no assurance that such plans, intentions or expectations will be
achieved. Actual results, performance or achievements could differ materially
from those contemplated, expressed or implied by the forward-looking statements
contained in this prospectus. Important factors that could cause actual results
to differ materially from our forward-looking statements are contained in this
prospectus, including under the heading "Risk Factors."
THE SUCCESS OF OUR GROWTH STRATEGY DEPENDS ON OUR ABILITY TO MARKET AND SELL OUR
EXISTING AND FUTURE SERVICES.
Historically, our business has focused on selling Internet and other network
connectivity. A critical component to the successful implementation of our
growth strategy is our ability to offer and expand the range of our value-added
services and the acceptance of those services by our existing and potential
customers. In December 1998 we merged with Integral Networking Corporation, a
systems integrator and a developer of advanced remote management services.
Before this merger, we had very little experience in either the remote
management or systems integration markets and to date have derived insignificant
revenues from services in these markets. Our future growth depends, in part, on
the acceptance and use of our remote management and systems integration services
by small and medium-sized businesses. In particular, the market for remote
management services is new, making it difficult to determine the size and growth
of the market and to predict how this market will develop. Changes in
technology, the availability of qualified information technology professionals
and other factors that make internal network management more cost-effective than
remote network management would negatively impact the market for our services.
Our business may be seriously damaged if this market fails to grow, grows more
slowly than we expect or develops in some way that is different from our
expectations. We are also actively seeking to develop or acquire a variety of
other services we can offer and cross sell. For many reasons, including the
reasons described in the risk factors below, we cannot assure you that we will
be successful in developing or acquiring those or any other services or, that if
we do, we will be successful in marketing and selling those services to our
existing or potential customers.
5
<PAGE> 10
OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES
ANALYSTS OR INVESTORS.
We expect to experience significant fluctuations in our future quarterly and
annual results of operations due to a variety of factors, some of which are
outside our control, including:
- demand for and market acceptance of our services
- capacity utilization of our facilities
- fluctuations in data communications and telecommunications costs
- reliable continuity of service and network availability
- customer retention
- the timing and success of sales and marketing efforts
- the timely expansion of existing facilities and completion of new facilities
- the ability to increase bandwidth as necessary
- fluctuations in bandwidth used by customers
- the timing and magnitude of expenditures for sales and marketing and capital
expenditures
- introductions of new services or enhancements by us and our competitors
- the timing of customer installations and related payments
- the ability to maintain or increase peering relationships
- increased competition including the introduction by third parties of new
Internet and network services
- general growth of Internet use and establishment of Internet operations by
enterprises
- changes in our pricing policies and those of our competitors
- changes in regulatory laws and policies
- the success of our acquisition strategy
- the timing and amount of charges related to acquisitions
- economic conditions specific to the Internet and networking industry
In addition, a relatively large portion of our expenses are fixed in the short
term, particularly telecommunications costs, depreciation, real estate and
personnel. Consequently, our future results of operations will be particularly
sensitive to fluctuations in revenues. Over the next five years, we will record
an expense related to some of our option grants. For more information about
these charges, see "Management's Discussion and Analysis of Financial Conditions
and Results of Operations."
We may also encounter significant difficulties in collecting accounts receivable
in the future, particularly because many of our customers are in an emerging
stage. We cannot assure you that we will be able to collect our receivables on a
timely basis or at all.
Due to all of the factors listed above and the other risk factors described in
this section of the prospectus, we believe that comparisons of our results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. As a result, our results of operations in
future periods may fall below the expectations of securities analysts and
investors. The trading price of our common stock will likely suffer a
significant decrease if that happens. For more information about our
period-to-period results, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
6
<PAGE> 11
THE GROWTH OF OUR BUSINESS DEPENDS ON OUR ACQUISITION STRATEGY.
As part of our growth strategy, we will seek strategic acquisitions of
additional assets, technologies and businesses complementary to our operations.
We may not be able to locate suitable acquisition targets or be able to acquire
any target companies we locate on acceptable terms. Our recent merger with
Integral Networking Corporation is, and any future acquisitions would be,
accompanied by the risks commonly encountered with these kind of transactions.
These risks include, among other things:
- loss of customers and key personnel of an acquired company
- inability to achieve cost savings
- acquisition expenses and charges incurred
- difficulties integrating the operations and personnel of acquired companies
- additional financial resources that may be needed to fund the combined
company operations
- the potential disruption of our business
- our management's ability to realize financial and strategic benefits of
incorporating acquired technologies or businesses into our service offerings
- difficulty of maintaining uniform quality control and other standards,
policies and procedures in a larger organization
- impairment of employee relationships due to changes in management or
perceived conflicts
- assumption of unexpected liabilities and incurrence of significant
unexpected expenses in completing acquisitions
Any of the above risks could prevent us from realizing significant benefits from
our acquisitions. In addition, issuing our common stock in acquisitions will
dilute our stockholders' percentage interests in our company, while using cash
will deplete our cash reserves. Finally, if we are unable to account for our
acquisitions under the "pooling of interests" method of accounting, we may incur
significant, one-time write-offs and amortization charges for acquisition or
debt-related expenses, goodwill and other intangible assets. These write-offs
and charges would decrease our future earnings or increase our future losses and
could hurt the trading price of our common stock.
THE MARKETS FOR OUR SERVICES ARE CHARACTERIZED BY MANY COMPETING TECHNOLOGIES,
AND THE TECHNOLOGIES ON WHICH OUR SERVICES ARE BASED MAY NOT COMPETE
EFFECTIVELY.
The markets for network connectivity services such as Internet access,
value-added network services and hosting services, are extremely competitive and
fragmented. There are no substantial barriers to entry in these markets, and we
expect that competition will intensify in the future. We believe that our
ability to compete successfully depends upon a number of factors, including:
- the capacity, reliability, low latency and security of our network
infrastructure
- our ability to maintain existing and develop future peering relationships
- our technical expertise and the functionality, performance and quality of
services
- our ability to provide custom solutions for our customers
- the experience and technical expertise of our sales force and engineers
- the ease of access to our services
- our remote management capabilities
- the pricing policies of our competitors and suppliers
- our ability to operate as a competitive local exchange carrier
7
<PAGE> 12
- our ability to scale our services to meet growing customer demand
- the variety of services we offer
- our geographical presence
- the timing of introductions of new services by us and our competitors
- the responsiveness and quality of our customer support
- our financial resources
- our ability to support industry standards
Many of our competitors have greater market presence, engineering and marketing
capabilities, and financial, technological and personnel resources than those
available to us. As a result, they may develop, deploy and expand their
communications and network infrastructures more quickly, adapt more swiftly to
new technologies and changes in customer requirements, take advantage of
acquisition and other opportunities more readily, and devote greater resources
to the marketing and sale of their services than we can. Additionally, various
organizations have entered into or are forming joint ventures or consortiums to
provide services competitive with ours.
Our competitors generally may be divided into four principal groups:
- telecommunications carriers including regional Bell operating companies,
often referred to as "RBOCs"
- Internet service providers
- network and system integrators
- online network service providers
We believe the market for network management services will be highly competitive
if it grows as we expect. Competition will probably increase significantly as
new companies enter the market and current competitors expand their services and
product lines. Many potential competitors are likely to enjoy substantial
competitive advantages, including those listed above.
To be competitive, we must respond promptly and effectively to the challenges of
technological change, evolving standards and our competitors' innovations by
continuing to enhance our services, as well as our sales programs and channels.
Any pricing pressures, reduced margins or loss of market share resulting from
increased competition or our failure to compete effectively, could seriously
damage our business and financial results.
For a list of our principal competitors, see "Business -- Competition."
OUR BUSINESS MAY BE HARMED IF NEW COMPETITORS ENTER OUR MARKETS.
We believe that new competitors will enter our markets. These new competitors
could include large computer hardware, software, media and other technology and
telecommunications companies. Telecommunications companies and online services
providers currently offer or have announced plans to offer or expand their
network services, in some cases through acquisitions. These acquisitions may
permit our competitors to devote greater resources to developing and marketing
competitive products and services. In addition, the ability of some of our
competitors to bundle other services and products could place us at a
competitive disadvantage. Other companies are also exploring the possibility of
providing or are currently providing high speed data services using alternative
delivery methods. These alternate delivery methods include cable infrastructure,
direct broadcast satellites, digital subscriber loop technology and wireless
networks. Increased competition from new competitors could negatively affect our
business and financial results.
8
<PAGE> 13
WE MAY HAVE TO REDUCE THE COST OF OUR SERVICES TO REMAIN COMPETITIVE.
Increased competition and industry consolidation could result in significant
pricing pressure. This pricing pressure could cause large reductions in the
average selling price of our services. For example, telecommunications companies
that compete with us may provide customers with reduced communications costs for
their Internet access or private network services, reducing the overall cost of
their solutions and significantly increasing pricing pressures on us. We may not
be able to offset the effects of any price reductions by increasing the number
of our customers, generating higher revenues from enhanced services, reducing
cost, or by obtaining approvals to operate as a competitive local exchange
carrier. We believe that the businesses of providing network connectivity,
value-added network services and hosting services will likely see increased
consolidation in the future. Consolidation could decrease selling prices and
increase competition in these industries which could erode our market share and
could have a material negative effect on our business and financial results.
WE DEPEND ON OUR NETWORK INFRASTRUCTURE AND OTHER SUPPLIERS TO PROVIDE
AFFORDABLE, RELIABLE, SCALABLE AND SECURE SERVICES.
Our success will depend upon our network infrastructure's capacity, scalability,
reliability and security, including the capacity leased from telecommunications
network suppliers. In particular, we rely on Metropolitan Fiber Systems, IXC
Communications, Inc., Qwest Communications Corporation, Cable & Wireless USA,
Inc. and other telecommunications providers for backbone and local loop
capacity. These companies provide our dedicated clear channel network, the
backbone connecting our wide area data switches. These companies also permit our
networks to interexchange Internet traffic with other Internet service providers
and distribute our services to our customers. We depend on the ability of those
companies to maintain the operational integrity of our backbone and
interconnections. If one or more of these companies is unable or unwilling to
provide or expand its current levels of service to us in the future, our
operations could be seriously and adversely affected. In addition, rapid changes
within the telecommunications industry have led to the merging of many
telecommunications companies. These mergers may cause the pricing we receive for
the services we use and the quality of service that we receive to vary
significantly, and could cause the length of time it takes to deliver the
telecommunications services that we use to increase significantly.
We are currently in a dispute with Qwest Communications Corporation involving
certain fiber cable they own connecting several cities. Qwest agreed to lease
fiber to us to be installed and available to us by certain specified dates.
Qwest did not complete installation as agreed. Despite their failure to install
the fiber in a timely manner, Qwest alleges that we owe them approximately
$479,000 through March 31, 1999 for use of the fiber cable. We believe Qwest is
obligated to provide us with free service as a result of this installation
delay. We are currently attempting to resolve this dispute by negotiation or
arbitration. We cannot assure you that the dispute will be resolved to our
satisfaction or that Qwest will not suspend service, potentially resulting in an
interruption of service.
WE DEPEND ON OUR RELATIONSHIPS WITH TELECOMMUNICATIONS CARRIERS TO PROVIDE OUR
DATA COMMUNICATIONS CAPACITY.
We rely on local telephone companies and other companies to provide data
communications capacity via local telecommunications lines and leased long
distance lines. These arrangements are generally terminable at will or are for a
short term. We are also subject to potential disruptions or capacity constraints
in these telecommunications services and may have no means of replacing these
services on a timely basis or at all if disruption or capacity constraints
occur. In addition, local phone service is sometimes available only from one
local telephone company in a particular market we serve. We believe that the
federal Telecommunications Act of 1996 generally will lead to increased
competition in the provision of local telephone service, but we cannot predict
the timing or extent of any such developments or the effect of increased
competition on pricing or supply. Some of our suppliers, including the regional
Bell operating companies and competitive local exchange carriers, are subject to
various price constraints, including tariff controls, which in the future may
change. Recent regulatory changes and industry consolidation may
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increase the prices that these carriers may charge us. Those increases may have
a serious and negative effect on our business and financial results.
WE DEPEND ON OUR PEERING RELATIONSHIPS AND TIER 1 STATUS TO DELIVER OUR SERVICES
ECONOMICALLY.
The Internet consists of many network providers operating their own networks and
interconnecting them at various public and private peering points, through
peering arrangements with one another. Our establishment through our Tier 1
status and ongoing maintenance of peering relationships allows us to maintain
high network performance levels without paying higher non-peered transit costs
to exchange traffic with other Internet service providers. These arrangements
are not regulated, are rarely subject to any written agreement, and are subject
to revision in terms, conditions or costs over time. Network service providers
may unilaterally elect at any time not to maintain peering relationships with us
which could increase requirements or costs to maintain these peering
relationships. A loss of any of these relationships or increased pricing would
diminish the level of connectivity available to our customers or cause us to
incur additional operating expenses by requiring us to identify alternative
methods to transmit our customers' information and to pay for transit. No
economical alternatives may be available if that happens.
If corresponding increases in bandwidth are not added as traffic through these
exchange points increases, our ability to distribute content rapidly and
reliably through these networks will be negatively affected. Many operators of
the private peering interexchanges are also our competitors.
OUR FAILURE TO PROPERLY MANAGE OUR GROWTH AND EXPANSION MAY STRAIN OR EXCEED OUR
RESOURCES OR COULD HARM OUR BUSINESS.
To effectively grow our operations, we must continue to implement and improve
our operational, financial and management information systems and identify,
attract, train, integrate and retain qualified personnel. These demands will
require us to add new management personnel and develop additional expertise. In
particular, for us to successfully integrate newly acquired assets and continue
to implement a nationwide strategy and network, we must:
- closely monitor service quality
- increase our direct and indirect sales and marketing efforts
- continue to implement and improve our operational, financial and management
information systems and controls
- hire, train and retain qualified personnel
- continue to expand and upgrade our network infrastructure
We must continue to enhance and develop our network to maintain our competitive
position and continue to meet the increasing demands for service quality,
availability and competitive pricing. Despite the availability of additional
network capacity from third-party network providers, we intend to maintain the
flexibility to expand or open new points of presence or make other capital
investments as dictated by customer demand or strategic considerations. To open
new points of presence, we must spend significant amounts of money for new
equipment and leased telecommunications facilities. In addition, to expand our
customer base nationwide, we will likely have to spend significant amounts of
money on additional equipment to maintain the high speed and reliability of our
Internet and other network access services.
We intend to begin consolidation of our San Francisco administrative operations
in a new, larger facility during the second quarter of 1999 and to complete the
consolidation in the fourth quarter of 1999. We also anticipate completing the
expansion of our Sacramento operations center by the end of the fourth quarter
of 1999. We expect management of the transition of our information systems,
personnel and operational equipment to new facilities to place additional strain
on our resources. This transition may not be completed successfully or on a
timely basis and may require a significant amount of management's attention.
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Our increasing customer base necessitates that our network infrastructure and
technical support resources grow accordingly. We may experience difficulties
meeting the demand for our access services and technical support. We cannot
assure you that our technical support or other resources will be sufficient to
facilitate our growth. We are striving to increase total network utilization and
to optimize this utilization throughout a 24 hour period. There will be
additional demands on our customer support, sales and marketing resources as we
pursue this utilization strategy. If we fail to manage our growth effectively,
our business and financial results will be seriously adversely affected.
OUR SUCCESS WILL DEPEND ON THE PERFORMANCE AND INTEGRATION OF OUR KEY PERSONNEL.
We recently hired several key employees and officers, including our Vice
President of Business Development. As a result, our management team has worked
together for only a brief time, and may have a limited understanding of our
specific business. Our ability to effectively execute our strategies will depend
in part upon our ability to integrate these and future managers into our
operations. We also plan to hire additional executive management personnel,
including a Chief Financial Officer, a Vice President of Sales, a Vice President
of Marketing, Vice President of Operations and Vice President of Engineering. If
our executives do not integrate effectively, our business could be materially
negatively affected. Our success also depends in significant part upon the
continued services of our senior management and key technical and sales
personnel, particularly our President and Chief Executive Officer, James Couch.
We do not maintain key man insurance on the life of Mr. Couch or any other
executive officers. Any of our officers or employees can terminate his or her
relationship with us at any time. Only Mr. Couch and Robert Ross, the President
of our subsidiary, Integral Networking Corporation, have employment agreements
for specified terms with us. For more information about Messrs. Ross' and
Couch's employment agreements, see "Management -- Employment Agreements."
OUR SUCCESS WILL DEPEND ON ATTRACTING AND RETAINING ADDITIONAL PERSONNEL.
Our success depends upon our ability to attract and retain additional highly
qualified management, technical, sales and marketing and customer support
personnel. Locating personnel with the combination of skills and attributes
required to carry out our strategy is often a lengthy process. Our future growth
particularly depends upon our ability to increase substantially the size of our
sales and marketing organization. The market for highly qualified sales and
marketing personnel is intensely competitive. We may not be successful in
meeting our hiring goals. The loss of key personnel, or the inability to attract
additional, qualified personnel, would have a material adverse effect on our
business and financial results.
OUR NETWORK SYSTEM COULD FAIL, AND WE MAY BE UNABLE TO PROVIDE OUR SERVICES.
Network expansion and growth in usage will place increased stress upon our
network hardware and traffic management systems. Our network has been designed
with redundant backbone circuits permitting traffic re-routing to make it fault
tolerant. However, we could experience failures relating to individual network
points of presence or even catastrophic failure of the entire network. Our
operations depend on our ability to protect our network infrastructure against
damage from power loss, telecommunications failures and similar events such as
damage from human error or sabotage, acts of nature, power failures and
telecommunications failures. A significant portion of our computer equipment,
including critical equipment dedicated to our Internet access services and our
switches and routers that serve large areas of the United States, are located at
our facilities in San Francisco, Palo Alto and Los Angeles, California, and
Vienna, Virginia. Our network operations center, which manages the entire
network, is in San Francisco, California. At each site, we maintain off-site
backups for our network configurations in case a natural disaster occurs. We do
not, however, have a comprehensive disaster recovery program in place. In the
past, unanticipated problems outside of our control have caused service
interruptions. A natural disaster, such as an earthquake, or other unanticipated
problem at the network operations center, at one of our hubs, sites where
routers, switches and other computer equipment that make up the backbone of our
network infrastructure are located, or at a number of our points of presence in
the future could cause, interruptions in our services, including a complete loss
of operations. In addition, our services could be interrupted if our
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telecommunications providers fail to provide the data communications capacity in
the time frame we require as a result of a natural disaster or for some other
reason. Any damage or failure that causes interruptions in our operations could
have a material adverse effect on our business and financial results.
IF OUR NETWORK SYSTEM FAILS, WE COULD BE LIABLE TO OUR CUSTOMERS FOR DAMAGES.
Our customer contracts for several of our services currently provide a limited
service warranty related to the continuous availability of service on a 24
hour-a-day, seven day-a-week basis, except for certain scheduled maintenance
periods. This warranty is generally limited to a credit of free service for a
specified limited period of time for disruptions in Internet transmission
services. To date, only a limited number of customers has received warranty
credits for free service. Should we incur significant warranty obligations in
connection with system downtime, we cannot assure you that our liability
insurance would cover these expenses. Our customer contracts provide for our
liability for personal injury or equipment damage in only limited circumstances.
Although these customer contracts typically provide for no recovery with respect
to incidental, punitive, indirect and consequential damages resulting from
damages to equipment or disruption of service, we cannot assure you that we
would not be found liable if these damages occurred or that these damages would
be covered by or would not exceed our liability insurance.
OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF THE INTERNET.
Many of our existing and proposed services are targeted toward Internet users.
Increased Internet use for retrieving, sharing and transferring information
among businesses, consumers, suppliers and partners has only recently begun to
develop. Our success will depend in large part on continued growth in Internet
use, which in turn will depend on a variety of factors including security,
reliability, cost, ease of access, quality of service and necessary increases in
bandwidth availability. As is typical in the case of a new and rapidly evolving
industry characterized by rapidly changing technology, evolving industry
standards and frequent new product and service introductions, demand and market
acceptance for recently introduced products and services is highly uncertain. In
addition, critical issues concerning the commercial use of the Internet remain
unresolved and may impact the growth of Internet use, especially in the business
market we target. Despite growing interest in commercial Internet uses, many
businesses have not purchased Internet access and other related services for a
number of reasons, including:
- inconsistent quality of service
- lack of availability of cost-effective, high speed options
- a limited number of points of presence for corporate users
- inability to integrate business applications on the Internet
- the need to use multiple and frequently incompatible vendors
- inadequate protection of the confidentiality of stored data and information
moving across the Internet
- a lack of tools to simplify Internet access and use
- increased risk that third parties may obtain unauthorized access to
confidential information
- concerns arising from the year 2000 problem
Individuals and enterprises historically relying upon alternative means of
commerce and communication must understand and accept a new way of conducting
business and exchanging information to adopt the Internet for their means of
commerce and communication. Enterprises with substantial resources invested in
other means of commerce and exchanging information may be particularly reluctant
or slow to adopt a new strategy that may make their existing personnel and
infrastructure obsolete.
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OUR SUCCESS DEPENDS ON THE CONTINUED ACCEPTANCE OF THE INTERNET AS A VIABLE
COMMERCIAL MEDIUM.
Demand for and market acceptance of the Internet are subject to a high level of
uncertainty and depend on a number of factors, including growth in consumer
access to and acceptance of new interactive technologies, the development of
technologies facilitating interactive communication between organizations and
targeted audiences, and increases in user bandwidth. If the Internet as a
commercial or business medium fails to develop or develops more slowly than
expected, our business would be materially adversely affected. The recent growth
in Internet use has caused frequent periods of performance degradation,
requiring the upgrade of routers and switches, telecommunications links and
other components forming the Internet's infrastructure by Internet service
providers, operators of interexchange points and other organizations with links
to the Internet. Any perceived degradation in the Internet's performance could
undermine the benefits of our services. Potentially increased performance
provided by our services and others is ultimately limited by and reliant upon
the speed and reliability of the networks operated by third parties.
Consequently, the emergence and growth of the market for our services depends on
improvements being made to the entire Internet infrastructure to alleviate
overloading and congestion.
WE MUST KEEP UP WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS
TO COMPETE EFFECTIVELY IN OUR MARKETS.
The markets for our services are characterized by rapidly changing technology,
evolving industry standards, changes in customer needs, rapidly growing
competition and frequent new product and service introductions. Our future
success will depend, in part, on our ability to:
- effectively use and offer leading technologies
- continue to develop our technical expertise
- enhance our current networking services
- develop new products and services that meet changing customer needs
- advertise and market our services
- influence and respond to emerging industry standards and other technological
changes
We must accomplish these tasks in a timely and cost-effective manner. New
technologies or industry standards may replace or provide lower cost
alternatives to our existing products and services or could render our existing
products and services obsolete and unmarketable. We also believe that our
ability to compete successfully depends on the continued compatibility and
interoperability of our services with products and architectures offered by
other vendors. Although we intend to support emerging standards in the market
for Internet and other network connectivity, new industry standards could
emerge, and we may not be able to conform to these new standards in a timely
fashion and maintain a competitive position in the market. Our pursuit of
necessary technological advances and maintenance of technological compatibility
may require substantial time and expense.
We face the risk of fundamental changes in the way Internet access is delivered.
Internet services are currently accessed primarily by computers connected by
telephone lines. Several companies have announced the development and sales of
cable television modems, wireless modems and satellite modems to provide
Internet access. Cable television, satellite and wireless modems can transmit
data at much faster speeds than the modems we and our customers currently use.
In addition, wireless modems may reduce the cost of network services. As the
Internet becomes more accessible through these cable television, wireless and
satellite modems and by screen based telephones, televisions or other consumer
electronic devices, or customer requirements change the way Internet access is
provided, we will have to develop new technology or modify our existing
technology to accommodate these new developments. We may also have to modify how
we deliver our services. Our pursuit of these technological advances may require
substantial time and expense, and we may not succeed in adapting our Internet
access business to alternate access devices and conduits.
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OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN EXISTING AND ATTRACT NEW CUSTOMERS.
Our success depends on the continued growth of our customer base and the
retention of our customers. Our ability to attract new customers will depend on
a variety of factors, including:
- the willingness of businesses to outsource their mission-critical Internet
and network operations
- the capacity, reliability and cost-effectiveness of our services
- our ability to effectively market and sell our services
Substantially all of our dedicated access customer contracts have terms of one
to three years. We have lost customers to other service providers for various
reasons, including lower pricing, incentives offered and more effective
marketing. We cannot assure you that our customers will maintain or renew their
commitments to use our services.
WE MAY HAVE PROBLEMS MAINTAINING HIGH QUALITY STANDARDS.
Market acceptance of new or enhanced services could be significantly delayed or
hindered if we introduce services with reliability or compatibility problems.
Our services may contain undetected errors or defects when first introduced.
Despite testing by us or our customers, errors may be found in new services or
enhancements after commencement of commercial deployment. Any problems or delays
could adversely affect our ability to attract or retain customers.
In the past we have experienced shortages in bandwidth capacity, both at the
level of particular points of presence affecting only those customers using that
particular point of presence and with system-wide services such as e-mail and
news group services. If we do not maintain sufficient bandwidth capacity in our
network connections, or insufficient bandwidth is maintained on the networks
operated by our peering partners, our customers will experience a general
slowdown of all Internet services. To protect the service levels for our
customers, we may sometimes temporarily delay adding new customers in cities or
regions experiencing significant capacity constraints until we alleviate these
capacity constraints. While our objective is to maintain excess capacity, our
failure to expand or enhance our network infrastructure on a timely basis or to
adapt it to an expanding customer base, changing customer requirements or
evolving industry standards could seriously adversely affect us.
If we do not achieve balanced network utilization over a 24 hour period, our
network could become overburdened at certain periods during the day, which could
diminish our quality of service by increased latency or causing our system to
fail. Conversely, due to the high fixed cost nature of our infrastructure,
under-utilization of our network during certain periods of the day could hinder
our ability to provide cost-efficient services at other times. Any failure to
achieve balanced network utilization could harm our business, financial
condition and results of operations.
WE MAY FACE POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED THROUGH OUR
NETWORK.
The law relating to liability of Internet service providers for information
carried on or disseminated through their networks is not settled. A number of
lawsuits have sought to impose liability for defamatory speech, indecent
materials and infringement of copyrighted materials. The United States Supreme
Court has let stand a lower court ruling that an Internet service provider was
protected from liability for material posted on its system by a provision of the
Communications Decency Act. However, the findings in that case may not apply in
other circumstances. Other courts have held that online service providers and
Internet service providers may, under certain circumstances, be subject to
damages for copying or distributing copyrighted materials. Certain provisions of
the Communications Decency Act that imposed criminal penalties for using an
interactive computer service for transmitting obscene or indecent communications
have been found unconstitutional by the United States Supreme Court. However, on
October 21, 1998, new federal legislation was enacted that requires limits on
access to pornography and other material deemed "harmful to minors." This
legislation has been challenged in court as a violation of the First Amendment
of the United States Constitution. We are unable to predict the outcome of this
case. Potential liability imposed
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on Internet service providers like us for material carried on or disseminated
through network systems could require us to implement measures to reduce our
exposure to that liability. These measures may require us to spend substantial
resources or discontinue certain service offerings. Our errors and omissions
insurance coverage may not be adequate or available to compensate us for all
liability that may be imposed. The imposition of liability in excess of, or the
unavailability in the future of, such coverage could have a material adverse
effect on our business or financial results.
WE MAY BECOME SUBJECT TO BURDENSOME AND EXPENSIVE GOVERNMENT REGULATION THAT MAY
HARM OUR BUSINESS.
Consistent with our growth and acquisition strategy, we are now engaged in, or
will soon be engaged in, activities that subject us to varying degrees of
federal, state and local regulation. Currently only a small body of laws and
regulations directly apply to access to or commerce on the Internet. However,
due to the Internet's increasing popularity and use, laws and regulations may be
adopted at the international, federal, state and local levels with respect to
the Internet, covering a range of issues. Moreover, a number of laws and
regulations have been proposed and are currently being considered by federal,
state and foreign legislatures with respect to such issues. The nature of any
new laws and regulations and the manner in which existing and new laws and
regulations may be interpreted and enforced cannot be fully determined. The
adoption of any future laws might decrease the Internet's growth, decrease
demand for our services, impose taxes or other costly technical requirements or
otherwise increase the cost of doing business or in some other manner have a
material adverse effect on us. In addition, applicability to the Internet of
existing laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel, obscenity and personal privacy is
uncertain. As our services are available over the Internet in multiple states,
and as we facilitate sales by our customers to end users located in such states,
such jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each such state. Any such new legislation or regulation,
or the application of laws or regulations from jurisdictions whose laws may not
currently apply to our business, could have a material adverse effect on us.
Both the provisioning of Internet access service and the provisioning of
underlying telecommunications services are affected by federal, state and local
regulation. In March 1998, the California Public Utilities Commission approved
our ability to operate as a competitive local exchange carrier in that state.
Subsequently, we negotiated an Interconnection Agreement with Pacific Bell, the
incumbent local exchange carrier in California, which was approved by the
California Public Utilities Commission in December 1998. The agreement provides
for reciprocal compensation payments for the termination of local traffic by
either party onto the other's network. While we believe that Pacific Bell will
send more traffic to our network than we will send to theirs, we cannot assure
you that this will continue, or that Pacific Bell will pay the amounts we
believe are required under the agreement. In the past, Pacific Bell has taken
the position that Internet traffic is considered inherently long distance and
not subject to reciprocal compensation. We do not believe any amounts that we
might receive as reciprocal compensation are material to our business, but we do
intend to defend our position regarding our rights to receive fair compensation
under the agreement. On February 25, 1999, the Federal Communications Commission
ruled that calls to Internet service providers for Internet access were long
distance, not local, calls. However, the ruling upheld existing reciprocal
compensation agreements in some states, including California. If incumbent local
exchange carriers charge fees for carrying Internet traffic and Internet access
becomes more expensive, this ruling may have an adverse effect on our potential
future revenues as well as increase our costs.
We intend to apply for competitive local exchange carrier status in other
states. As we become a competitive local exchange carrier in additional states,
we will become subject to state requirements applicable to such carriers.
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We cannot predict what regulations may be adopted in the future, or to what
extent existing laws and regulations may be found applicable, or the impact such
new or existing laws may have on our business. New laws or regulations relating
to Internet or network services, or existing laws found to apply to them, could
have a material adverse effect on our business or financial results. For a
detailed discussion of government regulation impacting our business, see
"Business -- Government Regulation."
WE FACE RISKS ASSOCIATED WITH BECOMING YEAR 2000 COMPLIANT.
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, date
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. In addition, the year 2000 is a leap year, and some computer
programs may not properly provide for February 29, 2000. System failures and
miscalculations causing disruptions of normal business activities may occur. We
are currently in the process of reviewing our services, as well as our internal
management information systems, in order to identify and modify those services
and systems that are not year 2000 compliant. We do not have and are not
developing a contingency plan in the event our systems fail due to year 2000
related problems. For a detailed discussion of our Year 2000 readiness review,
see "Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Year 2000 Compliance Disclosure."
Based on our assessment to date, we believe that our internally developed
software is year 2000 compliant. However, we utilize software and hardware
developed by third parties both for our network and internal information
systems. We have reviewed the Year 2000 compliance statements issued by, and
have sought assurances from, some of our vendors that these vendors products are
or will be Year 2000 compliant. We intend to continue to seek assurance from
some of our suppliers that their products are or will be Year 2000 compliant. To
the extent that our systems are not year 2000 compliant, we are modifying such
systems to make them compliant. To date, we have not incurred material costs in
upgrading and replacing non-compliant items. Additionally, we are continuing to
assess the year 2000 compliance of our services and systems. We believe our
services and systems assessed to date do not contain material year 2000
deficiencies. We estimate that the capital and other costs associated with the
upgrade and conversion of our existing services and systems relating to the year
2000 issue will not be material. However, we may experience material
unanticipated problems and costs caused by undetected errors or defects in the
technology, including embedded technology, used in our internal information
technology and non-information technology systems.
Our services and systems operate in complex network environments and directly
and indirectly interact with a number of other hardware and software systems. We
face risks to the extent that suppliers of products, services and systems
purchased by us and others with whom we transact business, including those which
form significant portions of our network and may be sole or limited source
suppliers, do not have business systems or products that comply with year 2000
requirements. We have not received significant assurances from all of our
suppliers that their networks are year 2000 compliant. If these networks fail,
our business will be significantly impacted.
We do not currently have any information regarding the Year 2000 status of our
customers, many of whom are private companies. As is the case with similarly
situated companies, if our customers experience Year 2000 problems, which result
in business interruptions or otherwise impact their operations, we could
experience a decrease in the demand for our services, which could have a
material adverse impact on our business, results of operations and financial
condition.
We have not incurred any significant expenses to date associated with our Year
2000 plan and are not aware of any material costs associated with our
anticipated Year 2000 efforts. Our expectation that we will be able to upgrade
our services and systems to address the year 2000 issue and our expectation
regarding the costs associated with these upgrades are forward-looking
statements subject to a number of risks and uncertainties. Actual results may
vary materially as a result of a number of factors. We cannot assure you that we
will be able to timely and successfully modify our services and systems to
comply with year 2000 requirements. Any failure to do so could have a material
adverse effect on our business, results of
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operations and financial condition. Furthermore, despite testing by us and our
vendors, our services and systems may contain undetected errors or defects
associated with Year 2000 date functions. In the event any material errors or
defects are not detected and fixed or third parties cannot timely provide us
with products, services or systems that meet the Year 2000 requirements, on our
business, results of operations and financial condition could be materially
adversely affected. Known or unknown errors or defects that affect the operation
of our services or systems could result in delay or loss of revenues,
interruption of network services, cancellation of customer contracts, diversion
of development resources, damage to our reputation, damages paid to customers
and litigation costs.
WE ARE SUBJECT TO THE RISKS FROM OUR LENGTHY SALES CYCLE.
Our customers and potential customers often take a long time to evaluate our
services. We spend a lot of time educating and providing information to our
prospective customers regarding the benefits of the Internet and our services.
Changes in the growth rate in our customer base, customer renewal rates and the
sales cycle for our services have caused, and are expected in the future to
cause, significant fluctuations in our results of operations from period to
period. In addition, we intend to significantly increase our sales and marketing
expenditures. Due to the lengthy sales cycle for our services, these expenses
will occur prior to customer commitments for our services. As a result, the
increase in our sales and marketing efforts may not result in increased sales of
our services.
OUR NETWORK IS SUBJECT TO SECURITY RISKS.
Our business depends upon the security of our network and, in part, on the
security of the network infrastructures of our third-party providers, which we
do not control. Despite implementing network security measures, the core of our
network infrastructure and the infrastructure of our network providers is
vulnerable to computer viruses, break-ins and similar disruptive problems such
as the sending of excessive volumes of unsolicited bulk e-mail caused by our
customers or other Internet or network users. Computer viruses, break-ins or
other problems caused by third parties could lead to interruptions, delays or
cessation in service to our customers, which could cause losses to us or our
customers or deter businesses from subscribing to our services. Also,
inappropriate network use by third parties could jeopardize the security of
confidential information stored in our computer systems and our customers'
computer systems and cause commercial transactions to be delayed, not completed
or completed with compromised security. We may face liability and may lose
existing or potential customers as a result. Although we intend to continue to
implement industry-standard security measures, these measures occasionally have
been circumvented in the past, and others may be able to circumvent our security
measures or the security measures of our third-party network providers in the
future. The costs and resources required to eliminate computer viruses and
alleviate other security problems may require significant expenditures,
distractions to management, and interruptions, delays or cessation of service to
our customers, all of which could harm us. Further, until more comprehensive
security technologies are developed, the security and privacy concerns of
existing and potential customers may inhibit Internet service industry growth in
general and our customer base and revenues in particular.
WE MAY REQUIRE SUBSTANTIAL FUTURE CAPITAL TO IMPLEMENT OUR BUSINESS PLAN.
We anticipate that our available cash resources, combined with the net proceeds
from this offering, will be sufficient to meet our anticipated working capital
and capital expenditure requirements for the foreseeable future. However, these
resources may not be sufficient for unanticipated working capital and capital
expenditure requirements. We may need to raise additional funds through public
or private debt or equity financings to take advantage of unanticipated
opportunities, including more rapid expansion or acquisitions of complementary
businesses or technologies or to develop new products or services. Any
additional financing we may need may not be available on terms favorable to us,
or at all.
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WE DEPEND ON THIRD PARTIES TO SUPPLY US WITH CERTAIN HARDWARE.
We depend on certain third-party equipment suppliers. We purchase the components
we use to provide our networking services from third parties, including wide
area data switches supplied by Ascend Communications, Inc. and high performance
routers from Cisco Systems, Inc. The expansion of our network infrastructure and
network services places a significant demand on our suppliers, some of which
have limited resources and production capacity. We have experienced delayed
delivery from suppliers of new communications lines, switches, routers, terminal
servers, and other equipment. If our suppliers cannot adjust to meet increasing
demand, the higher demand levels may prevent them from continuing to supply
components and products in the quantities, at the quality levels and at the
times we require, or at all. If we are unable to develop alternative sources of
supply, we could experience delays and increased costs in expanding our network
infrastructure.
WE DEPEND ON OUR PROPRIETARY TECHNOLOGY AND TECHNOLOGICAL EXPERTISE.
We believe our success depends more upon our technical expertise than our
proprietary rights. We rely upon a combination of copyright, trademark and trade
secret laws and contractual restrictions to protect our proprietary technology
and rights in our services. We have no patented technology that would preclude
or inhibit competitors from entering our market. We have entered into
confidentiality and invention assignment agreements with certain of our
employees, and nondisclosure agreements with our suppliers, distributors and
appropriate customers to control access to and disclosure of our proprietary
information. Despite these precautions, a third party could potentially copy or
otherwise obtain and use our products or technology without authorization or to
develop similar technology independently. We cannot assure you that such
measures have been, or will be, adequate to protect our proprietary technology
or deter third party development of similar technologies. We also rely on
certain technologies that we license from third parties such as network
management software. We do not license any other technology that is not
generally available. These third-party technology licenses may not always
continue to be available to us on commercially reasonable terms. The loss of
such technology could require us to obtain substitute technology of lower
quality or performance standards or at greater cost, which could affect us in a
material adverse manner. To date, we have not been notified that we infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by us. We expect that participants in our
markets will be increasingly subject to infringement claims as the number of
technologies and competitors in our industry grows. Any such claim, whether
meritorious or not, could be time consuming, result in costly litigation, cause
service delays or require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements might not be available on terms acceptable to us
or at all. As a result, any such claim could have a material adverse effect upon
our business, results of operations and financial condition.
THE INTERESTS OF OUR CONTROLLING STOCKHOLDER MAY CONFLICT WITH OUR AND YOUR
INTERESTS.
After completion of this offering, our President and Chief Executive Officer,
James Couch, will own approximately % of our outstanding common stock,
% if the underwriters' over-allotment option is exercised in full, and will
continue to be the President, Chief Executive Officer and Chairman of our Board
of Directors. As a result of his stock ownership and board representation, Mr.
Couch will be in a position to affect corporate actions that could conflict with
your interests and ours. Mr. Couch will have the ability to control all matters
submitted to our stockholders for approval, including the election and removal
of directors and any merger, consolidation or sale of all or substantially all
of our assets, and to control our management and affairs. This ownership
concentration may delay, defer or prevent a change in corporate control, may
impede a merger, consolidation, takeover or other business combination involving
us, or discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us. These circumstances could cause the price of
our common stock to decline. See "Management" and "Principal and Selling
Stockholders."
18
<PAGE> 23
WE HAVE BROAD DISCRETION IN HOW WE USE THE NET PROCEEDS FROM THIS OFFERING.
Our management can spend most of the proceeds from this offering in ways in
which the stockholders may not agree.
ANTITAKEOVER PROVISIONS COULD NEGATIVELY IMPACT OUR STOCKHOLDERS.
Certain provisions of our certificate of incorporation and bylaws, and certain
provisions of the Delaware General Corporation Law could make it more difficult
for a third party to acquire us, even if a change of ownership would benefit our
stockholders. For more information see "Description of Capital Stock."
WE MAY EXPERIENCE SUBSTANTIAL SALES OF OUR COMMON STOCK AFTER THE OFFERING.
Sales of a substantial number of shares of common stock after the offering could
cause the market price of our common stock to decline and could impair our
ability to raise capital through the sale of additional equity securities. Upon
completion of this offering, we will have shares of common stock
outstanding or subject to currently exercisable options or shares if
we issue shares upon exercise of the underwriters over-allotment option. The
shares sold in the offering, or shares if the underwriters
over-allotment option is fully exercised, will be freely tradable without
restriction or further registration under the federal securities laws unless
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act. The remaining shares of common stock outstanding on
completion of the offering will be "restricted securities" as that term is
defined in Rule 144.
Our stockholders and stock option holders are limited by lock-up agreements
restricting their ability to sell their CRL common stock. These securityholders
cannot sell or otherwise dispose of any shares of our common stock for a period
of at least 180 days after the date of this prospectus without the prior written
consent of CIBC Oppenheimer. When the lock-up agreements expire, the shares and
the shares underlying the options will be eligible for sale, in some cases only
by complying with the volume, manner and sale notice requirements of Rule 144.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK.
Prior to this offering, you could not buy our common stock publicly. An active
trading market may not develop or be sustained after this offering. The initial
public offering price will be determined by negotiation among us and the
representatives of the underwriters and may not be indicative of the price that
will prevail in the open market. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
WE EXPECT THE PRICE OF OUR COMMON STOCK TO BE VOLATILE.
The market price of our shares of common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to factors such as, among
others:
- actual or anticipated variations in our results of operations
- announcements of technological innovations
- new services introduced by us or our competitors
- changes in financial estimates by security analysts, conditions and trends
in the Internet and computer industries
- fluctuations in the valuation of companies perceived by investors to be
comparable to us
- any shortfall in reserve or net income or any increase in losses from levels
expected by securities analysts
- general market conditions
19
<PAGE> 24
Furthermore, the stock markets, and in particular Nasdaq, have experienced
extreme price and volume fluctuations that have affected and continue to affect
the market prices of equity securities of many technology companies. These
fluctuations often have been unrelated or disproportionate to the operating
performance of those companies. The trading prices of many technology companies'
stocks are at or near historical highs and reflect price to earnings ratios well
above historical levels. These trading prices and price to earnings ratios may
not be sustained. These broad market factors may cause the market price of our
common stock to decline. These market fluctuations, as well as general economic,
political and market conditions such as recessions, interest rate changes or
international currency fluctuations, may negatively impact the market price of
our common stock. In the past, following periods of volatility in the market
price of a company's securities, class action litigation has often been brought
against such companies. We may in the future be the target of similar
litigation. Securities litigation could result in substantial costs and distract
management's attention and resources, which would likely have a material adverse
effect on us.
NEW INVESTORS WILL SUFFER IMMEDIATE SUBSTANTIAL DILUTION.
This offering is expected to create a public market for our common stock and
will substantially increase the market value of the initial investments of our
management and other existing stockholders, particularly James Couch, our
President and Chief Executive Officer. As of March 15, 1999, our existing
stockholders hold 18,978,833 shares of our common stock. Based on an assumed
initial public offering price of $ per share, the value of the shares held
by the existing stockholders following this offering would be approximately
$ million, representing an aggregate increase of approximately $ million
over the amount of consideration paid for those shares by the existing
stockholders. In addition, the initial public offering price is substantially
higher than the book value per share of our outstanding common stock. As a
result, investors purchasing common stock in this offering will incur immediate
and substantial dilution of $ per share in the net tangible book value of
the common stock from the initial public offering price. We also have issued
options to acquire common stock at prices significantly below the initial public
offering price. As these outstanding options are exercised, there will be
further dilution. See "Dilution."
20
<PAGE> 25
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
Our net proceeds from the sale of the shares of common stock
offered by us are estimated to be approximately $ , based on an assumed
initial public offering price per share of $ , and after deducting estimated
underwriting discounts and commissions and offering expenses payable by us. If
the underwriters exercise the over-allotment option in full, and the
over-allotment shares are sold by us instead of the selling stockholder, our net
proceeds are estimated to be $ . See "Underwriting." We will not
receive any proceeds from the sale of shares by the selling stockholder. The
principal purposes of this offering are to obtain additional capital, create a
public market for our common stock and facilitate our future access to the
public capital markets.
We intend to use a portion of the net proceeds to repay amounts then outstanding
under our loan agreements with our banks and our capital lease. As of December
31, 1998, approximately $1,106,000 was outstanding under these agreements.
Amounts borrowed under these agreements are secured by substantially all of our
assets and bear interest at a weighted average rate equal to 9.6% as of March
15, 1999. Various portions of these borrowed amounts must be repaid in full
between July 2000 and March 2003. We also expect to use a portion of the net
proceeds for working capital and other general corporate purposes, including
expansion of our sales and marketing activities.
As part of our growth strategy, we intend to aggressively seek suitable
acquisition candidates, such as regional Internet service providers, that have
an existing customer base that we can add to our customer base, and companies
that have products that will enable us to expand the range of our value-added
network and hosting services. We may use a portion of the net proceeds for those
acquisitions. We have no current plans, agreements or commitments with respect
to any acquisitions, and we are not currently engaged in any negotiations with
respect to any acquisitions.
Pending the uses described above, we will invest our net proceeds in high
quality, income-producing securities such as short-term investment grade or
United States Government interest-bearing securities.
DIVIDEND POLICY
We have not paid and do not anticipate paying any cash dividends on our common
stock in the foreseeable future. We intend to retain our earnings, if any, for
use in our growth and ongoing operations.
21
<PAGE> 26
CAPITALIZATION
The table below sets forth our capitalization as of December 31, 1998, (i) on an
actual basis and (ii) on an as adjusted basis and to reflect our sale of the
shares of common stock offered by us at an assumed initial
public offering price of $ , after deducting the estimated underwriting
discounts and commissions and offering expenses, and the anticipated application
of the net proceeds. See "How We Intend to Use the Proceeds From the Offering."
The capitalization information in the table below is qualified by the more
detailed consolidated financial statements and related notes beginning on page
F-1 of this prospectus. The table should be read in conjunction with those
consolidated financial statements and related notes and the sections of this
prospectus titled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The number of shares of common stock in the table below for the purposes of
determining stockholders' equity excludes 1,006,320 shares issuable upon
exercise of currently outstanding options and 1,000,000 shares available for the
grant of additional options under our 1999 Stock Incentive Plan. See
"Management -- Stock Options."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------
AS
ACTUAL ADJUSTED
------ --------
<S> <C> <C>
Current portion of long-term obligations:................... $ 270 $
====== ====
Long-term obligations, less current portion................. $ 847 $
------ ----
Stockholders' equity:
Preferred stock, $.01 par value; shares
authorized; none issued and outstanding................
Common stock, $.01 par value; shares authorized;
18,978,833 shares outstanding; shares
outstanding as adjusted for this offering.............. 6
Common Stock options........................................ 948
Deferred stock compensation................................. (792)
Additional paid-in capital..................................
Retained earnings........................................... 1,598
------
Total stockholders' equity........................ 1,760
------ ----
Total capitalization.............................. $2,607 $
====== ====
</TABLE>
22
<PAGE> 27
DILUTION
At December 31, 1998, our net tangible book value was approximately $ million,
or $ per share of common stock. Net tangible book value per share represents
the amount of our total tangible assets less total liabilities, divided by the
number of shares of common stock outstanding. Net tangible book value dilution
represents the difference between the amount per share of common stock paid by
new purchasers in this offering and the net tangible book value per share after
this offering. Without taking into account any changes in net tangible book
value after December 31, 1998, other than to give effect to the sale of the
shares of common stock offered by us, assuming an initial public
offering price of $ per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses, our adjusted net
tangible book value at December 31, 1998 would have been approximately $
million, or $ per share of common stock. This amount represents an immediate
increase in net tangible book value of $ per share to the existing
stockholders and an immediate net tangible book value dilution of $ per
share to purchasers of common stock in the offering. The following table
illustrates this per share dilution.
<TABLE>
<S> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share at December 31, 1998.... $
Increase in net tangible book value per share attributable
to new investors.......................................
Adjusted net tangible book value per share after the
offering..................................................
------
Net tangible book value dilution per share to new
investors................................................. $
======
</TABLE>
The table below summarizes, as of December 31, 1998, the difference between the
number of shares of common stock purchased from us, the total cash consideration
paid and the average price per share paid by existing stockholders and to be
paid by new investors purchasing shares in this offering assuming the sale of
shares by us at an assumed initial public offering price of $ per
share.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
-------------------- ---------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).................. 18,978,833 % $6,000 % $0.0003
New investors(1)
---------- --- ------ ----
Total........................... 100% $ $100%
========== === ====== ====
</TABLE>
- -------------------------
(1) Sales by the selling stockholder in this offering will reduce the number of
shares held by existing stockholders to , or % of the total
number of shares of common stock outstanding after the offering and will
increase the number of shares held by new investors to or % of
the total number of shares of common stock outstanding after the offering.
If the overallotment option is exercised in full by the selling
stockholder, sales by the selling stockholder in this offering will reduce
the number of shares held by new investors to or % of the total
number of shares of common stock outstanding after the offering.
23
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except share and per share data)
The following selected financial data should be read with the consolidated
financial statements and related notes beginning on page F-1 of this prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 25 of this prospectus. The consolidated statement
of operations data for each of the three years ended December 31, 1998 and
consolidated balance sheet data as of December 31, 1997 and 1998 are calculated
from financial statements that have been audited by Deloitte & Touche LLP,
independent auditors, and are included elsewhere in this prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The selected consolidated financial data for the years ended December 31, 1994
and 1995 is calculated from unaudited consolidated financial statements not
included in this prospectus. The unaudited financial statements have been
prepared by us on a basis consistent with our audited consolidated financial
statements and include, in the opinion of our management, all adjustments
consisting only of normal recurring adjustments necessary for a fair
presentation of our results of operations and financial position for those
years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:.................................... $ 1,961 $ 3,831 $ 6,353 $10,375 $11,692
------- ------- ------- ------- -------
Costs and Expenses:
Cost of revenues........................... 965 2,131 3,346 4,640 6,166
Selling and marketing...................... 93 380 345 522 371
General and administrative................. 411 448 1,840 2,997 4,124
Depreciation expense....................... 86 225 512 745 909
Stock-based compensation expense........... -- -- -- -- 156
Total costs and expenses........... 1,555 3,184 6,043 8,904 11,726
------- ------- ------- ------- -------
Operating income (loss):..................... 406 647 310 1,471 (34)
Net interest income (expense):............... (1) 1 1 5 (30)
------- ------- ------- ------- -------
Income (loss) before income taxes............ 405 648 311 1,476 (64)
Income tax provision......................... 157 211 150 591 87
------- ------- ------- ------- -------
Net income (loss)............................ $ 248 $ 437 $ 161 $ 885 $ (151)
======= ======= ======= ======= =======
Net income (loss) per common share basic and $ 0.01
diluted.................................... $ 0.02 $ 0.01 $ 0.05 $ (0.01)
Weighted average common shares outstanding:
Basic...................................... 18,979 18,979 18,979 18,979 18,979
Diluted.................................... 18,979 18,979 18,979 19,142 18,979
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996 1997 1998
---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents................................ $289 $ 210 $ 235 $1,115 $ 840
Working capital..................................... (36) 95 (182) 554 430
Total assets........................................ 777 1,377 2,339 4,455 4,855
Total liabilities................................... 493 666 1,468 2,700 3,095
Long-term obligations, excluding current portion.... 0 20 76 402 847
Stockholders' equity................................ 284 709 870 1,755 1,760
</TABLE>
24
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read with the consolidated financial
statements and related notes beginning on page F-1 of this prospectus. The
results shown in this prospectus do not necessarily suggest or predict the
results to be expected in any future periods. This discussion contains
forward-looking statements based on current expectations which involve risks and
uncertainties. Actual results and the timing of certain events may differ
significantly from those projected in these forward-looking statements due to a
number of factors, including those contained in the section entitled "Risk
Factors" and elsewhere in this prospectus.
OVERVIEW
We are a Tier 1 Internet service provider focused on offering tailored Internet
and network management solutions to small and medium-sized businesses. We
provide an extensive array of high performance, reliable and scalable Internet
and private network connectivity, value-added network and hosting services
designed to meet our customers' needs. Our operations are based in San
Francisco, California. As a Tier 1 Internet service provider, we have peering
relationships at all major domestic network access points and private peering
relationships with other major Internet service providers. We are also a
national backbone provider with a facilities-based, switched network with points
of presence in 30 major metropolitan areas. As a result of our Tier 1 status and
network, we are able to provide high speed and reliable access to the Internet,
secure private networks and hosting services. Also, our network serves as the
platform by which we are able to deliver value-added services, such as remote
management services, to our customer base. Historically, we have provided our
services to a variety of customers including consumers, other Internet service
providers, government agencies, educational institutions and businesses of
various sizes. We intend to expand our direct and indirect sales force to
increase our customer base. We also intend to cross sell our value-added service
offerings to both existing and future customers in order to provide end-to-end
service offerings. We view being an end-to-end service provider as a key element
to our strategy to increase revenues and reduce customer churn.
In December 1998, we acquired Integral Networking Corporation in a merger
accounted for as a pooling of interests. Integral has a ten year operating
history in the area of systems integration. Over the past three years, Integral
has developed a proprietary process to remotely manage customer networks from
the server to the desktop. We are able to leverage our existing network to
provide cost-effective remote management services to our customers from a single
location. With our remote management service, customers are able to outsource a
portion or all of their information technology departments as well as add
functionality and applications to their networks. We intend to offer remote
management services on a nationwide basis. Prior to the merger with Integral, we
had little experience in, and derived insignificant revenues from, remote
management services and systems integration.
Revenues. We derive our revenues from four principal services:
- Internet and secure private network connectivity
- remote management and other value-added services
- hosting services
- systems integration and hardware sales
Revenues from Internet and private network connectivity are typically derived
from monthly fixed prices paid by customers based upon access speed. We offer
dedicated connectivity in a range of access speeds, including fractional T1
(from 64 kilobits per second up to 1.536 megabits per second), T1 (1.536
megabits per second), T3 (45 megabits per second) and OC3 (155 megabits per
second) as well as dial-up access and transit services. We also offer our
customers the ability to upgrade access speeds as their needs
25
<PAGE> 30
increase. We currently generate Internet and private network connectivity
revenues from a wide range of customers including Internet service and content
providers, businesses, government agencies and educational institutions. We
intend to increase our sales and marketing focus, particularly on small and
medium-sized businesses.
Revenues from our remote management services are typically derived from monthly
fees for a fixed level of service. Pricing for our remote management services is
based on the number of users and a fixed maximum number of calls per month. Our
remote management services are focused on small and medium-sized businesses.
Historically, revenues from value-added services have represented an
insignificant portion of our total revenues. With our acquisition of Integral
Networking, we intend to increase our focus on our value-added services, as
evidenced by our recent rollout of remote management services.
Revenues from hosting services are typically derived from monthly rates for
colocation based on space, usage-sensitive storage and access speeds. Our
customers can select from a variety of options in terms of access speeds and
space such as rack, half-rack or shelf. Our customers can purchase additional
space and increase their access speeds as needed. We will be required to expand
our facilities if our space requirements exceed our existing capacity.
Revenues from systems integration services are derived from hardware sales and
consulting fees. Our systems integration services including hardware sales are
currently provided primarily in California. Prior to our merger with Integral
Networking we derived insignificant revenues from hardware sales to customers,
and no revenues from systems integration services.
Cost of Revenues. Cost of revenues from Internet and private network
connectivity consists primarily of backbone costs and monthly access charges by
local exchange carriers to connect our customers to our network and colocation
costs. Backbone costs include all leased fiber-optic capacity to interconnect
our points of presence and to connect to public and private peering points. We
lease our fiber-optic capacity typically under short-term leases and are billed
monthly by our bandwidth providers. Colocation costs consist of monthly fees for
leasing space in facilities in which we colocate with other telecommunications
providers.
Cost of revenues from remote management services consists primarily of personnel
costs to provide customer support and network monitoring services. We believe
our cost of revenues from remote management services and other value-added
services as a percentage of revenues may decline as we increasingly provide
remote management services and other value-added services to existing customers
over the existing connection we provide to the customer.
Cost of revenues from hosting services consists primarily of rent expenses for
colocation space.
Cost of revenues from systems integration services consists primarily of the
cost of hardware purchased.
Selling and Marketing Expense. Selling and marketing expense consists primarily
of sales commissions, travel and entertainment and sales and marketing programs.
We intend to expand our investment in our sales and marketing personnel to
achieve and properly support the intended expansion in our customer base.
General and Administrative Expense. General and administrative expense consists
primarily of personnel expense, occupancy, general operating costs, professional
fee expenses and bad debt. We expect general and administrative expense to
increase in dollar amount in the future, reflecting anticipated growth in our
operations and the costs associated with being a publicly held company.
Stock-Based Compensation Expense. In connection with the grant of stock options
to employees in 1998, we recorded an aggregate deferred compensation expense of
approximately $948,000, representing the difference between the estimated fair
market value of the common stock and the option exercise price at the date of
grant. This amount is represented as a reduction of stockholder's equity and is
amortized over the vesting period of the applicable options. These valuations
resulted in charges to operations of $156,000 in the year ended December 31,
1998, and will result in charges of the remaining $792,000 over the next 5
years.
26
<PAGE> 31
Depreciation. Depreciation expense consists primarily of depreciation of
computer equipment, office furniture and leasehold improvements. On January 1,
1998, we changed the estimated useful lives for certain networking equipment
from three to five year lives as a result of our determination, based on
historical experience, that the vast majority of assets in this class have
service lives of approximately five years.
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data for the years
indicated as a percentage of revenues. This information should be read in
conjunction with the financial statements and notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1997 1998
----- ------ -----
<S> <C> <C> <C>
Revenues................................................... 100.0% 100.0 % 100.0%
----- ------ -----
Costs and expenses:
Costs of revenues........................................ 52.7 44.7 52.7
Selling and marketing.................................... 5.4 5.0 3.2
General and administrative............................... 29.0 28.9 35.3
Depreciation............................................. 8.1 7.2 7.8
Stock-based compensation expense......................... -- -- 1.3
Total costs and expenses......................... 95.1 85.8 100.3
----- ------ -----
Operating income (loss).................................... 4.9 14.2 (0.3)
Net interest income (expense).............................. -- -- (0.3)
Income tax provision (benefit)............................. 2.4 5.7 0.7
----- ------ -----
Net income (loss).......................................... 2.5% 8.5 % (1.3)%
===== ====== =====
</TABLE>
COMPARISON OF 1998 TO 1997
Revenues
Our revenues increased 12.7% to $11.7 million in 1998, compared to $10.4 million
in 1997. This growth in revenues resulted from an 11% increase in sales of
dedicated Internet connectivity and hosting services, a tenfold increase in
revenues derived from private network connectivity services and a 34% increase
in sales generated by systems integration services. Offsetting these increases
were reductions in revenues of $545,000 realized from dial-up customers and
reduced fees for installation services. This decrease resulted from our
increased focus on providing dedicated Internet and higher value services to
business and government customers.
Cost of Revenues
Our cost of revenues increased 32.9% to $6.2 million in 1998, compared with $4.6
million in 1997. Of this increase, $1.2 million was primarily due to increased
connectivity charges arising from the expansion of our network. In addition, we
had increased costs of $286,000 arising from hardwares sales with our systems
integration services.
Selling and Marketing
Our selling and marketing expenses decreased 28.9% to $371,000 in 1998, compared
to $522,000 in 1997. This decrease is attributable primarily to reduced
commissions expense. Commissions in 1998 were based upon total contract value
equalling the term of the contract multiplied by monthly service fees. The
decrease in commissions expense in 1998 results from fewer sales of longer-term
versus shorter-term contracts than in 1997 and increased purchases by our
existing customer base of increased access speeds and additional space rather
than increases in the number of new customers. We also experienced a reduction
in sales personnel in 1998.
27
<PAGE> 32
General and Administrative
General and administrative expenses increased 37.6% to $4.1 million for 1998,
compared to $3.0 million for 1997. Approximately $675,000 of this increase
relates to salaries and benefits resulting from an increase in personnel.
Facilities and related expenses increased by $424,000 primarily as a result of
the buildout of our network infrastructure.
Depreciation
Our depreciation expense increased 22.0% to $909,000 in 1998, compared to
$745,000 in 1997. The increase is due to additional capital expenditures
incurred during 1998 for telecommunications equipment and facilities
improvements. On January 1, 1998, we changed the estimated useful lives for
certain switches and routers from three to five year lives. This change reduced
1998 depreciation by $237,000. We made this change to more accurately reflect
our historical experience with respect to the actual useful lives of the
equipment.
Stock-Based Compensation
Stock-based compensation of $156,000 was amortized during the year ended
December 31, 1998, and stock-based compensation of $792,000 will be amortized
over the remaining vesting periods of the related options, including $394,000 in
the year ending December 31, 1999. In addition, we issued stock options to
employees during the first quarter of 1999, which will result in additional
stock-based compensation of $98,000 being recorded in 1999, $50,000 of which
will be amortized as an expense 1999. Based on these issuances of stock options
below the fair value of our stock we will record a total stock-based
compensation charge in 1999 of approximately $444,000.
Net Interest Income (Expense)
We incurred net interest expense of $30,000 in 1998, compared to $5,000 in
income in 1997. This change was a result of increased borrowing for network
equipment under our lines of credit.
COMPARISON OF 1997 TO 1996
Revenues
Our revenues increased 63.3% to $10.4 million in 1997, compared to $6.4 million
in 1996. Approximately $4.9 million of this increase is due to growth in
revenues generated by our Internet connectivity services and installation fees.
This increase was slightly offset by a $917,000 aggregate decrease in dial-up
customer and systems integration services revenues.
Cost of Revenues
Our cost of revenues increased 38.7% to $4.6 million in 1997, compared to $3.3
million in 1996. This increase resulted from a $1.4 million increase due to
larger connectivity charges and other costs incurred with our network expansion.
In addition, costs arising from our systems integration services were $118,000
less than the prior year.
Selling and Marketing
Our selling and marketing expenses increased 51.3% to $522,000 in 1997, compared
to $345,000 in 1996. This increase is attributable primarily to increased
commissions and travel and entertainment expenses.
General and Administrative
General and administrative expenses increased 62.9% to $3.0 million in 1997,
compared to $1.8 million in 1996. Salaries and general office expenses increased
by $584,000 as we hired more personnel to keep pace with the growth in demand
for our services. In addition, bad debt expenses increased by $573,000.
28
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Depreciation
Our depreciation expense increased 45.5% to $745,000 in 1997, compared to
$512,000 in 1996. The increase was primarily the result of additional capital
expenditures incurred for telecommunications equipment and facilities
improvements.
FACTORS AFFECTING OPERATING RESULTS
We expect to experience significant fluctuations in our future quarterly and
annual results of operations due to a variety of factors, most of which are
outside our control. For a list of certain factors affecting our operating
results, see "Risk Factors -- Our operating results in one or more future
periods are likely to fluctuate significantly and may fail to meet or exceed the
expectations of securities analysts or investors" and the other risk factors
described in this prospectus. Due to all of these factors, we believe that
period-to-period comparisons of our operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
YEAR 2000 COMPLIANCE DISCLOSURE
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,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. In addition, the year 2000 is a leap year, and some computer
programs may not properly provide for February 29, 2000. System failures and
miscalculations causing disruptions of normal business activities may occur
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. As a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with Year 2000 requirements. We are currently in the
process of reviewing our services, as well as our internal management
information systems, in order to identify and modify those services and systems
that are not year 2000 compliant. We do not have and are not developing a
contingency plan in the event our systems fail due to year 2000 related
problems.
We have begun the first phase of our Year 2000 readiness review. The review will
include assessment, implementation, testing, and upgrading or replacing
non-compliant items as appropriate. To date, we have evaluated our internally
developed software and believe that it is Year 2000 compliant. However, we
utilize software and hardware developed by third parties both for our network
and internal information systems. We have reviewed the Year 2000 compliance
statements issued by, and have sought assurances from, some of our suppliers
that their products are or will be Year 2000 compliant. We intend to continue to
seek assurances from our other suppliers. To the extent that our systems are not
year 2000 compliant, we are modifying such systems to make them compliant. We
expect these modifications will be made on a timely basis and do not believe
that the cost of the modifications will have a material effect on our business,
results of operations or financial condition. To date, we have not incurred
material costs in upgrading and replacing non-compliant items. Additionally, we
are continuing to assess the Year 2000 compliance of our services and systems.
We believe our services and systems assessed to date do not contain material
year 2000 deficiencies. We estimate that the capital and other costs associated
with any upgrade and conversion of our existing services and systems relating to
the Year 2000 issue will not be material.
We expect to continue assessing and testing our internal information technology,
which we refer to as IT, and non-IT systems into 1999. We are not currently
aware of any material operations issues or costs associated with preparing our
internal IT and non-IT systems for the year 2000. However, we may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology, including embedded technology, used in our internal IT and
non-IT systems.
Based upon the public filings, press releases and other publicly available
information regarding our primary equipment, telecommunications and data
communications providers, we are aware that these providers are in the process
of reviewing and implementing their own Year 2000 compliance programs. We do not
believe that we will be afforded the opportunity to test the systems of these
providers. If our primary providers experience business interruptions as a
result of the failure to achieve Year 2000 compliance, our
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ability to provide Internet connectivity could be impaired, which could have a
material adverse effect on our business, results of operations and financial
condition.
Our services and systems operate in complex network environments and directly
and indirectly interact with a number of other hardware and software systems. We
face risks to the extent that suppliers of products, services and systems
purchased by us and others with whom we transact business, including those which
form significant portions of our network and may be sole or limited source
suppliers, do not have business systems or products that comply with Year 2000
requirements. We have not received significant assurances from all our suppliers
that their networks are Year 2000 compliant. If these networks fail, our
business will be significantly impacted.
We do not currently have any information regarding the Year 2000 status of our
customers, many of whom are private companies. As is the case with similarly
situated companies, if our customers experience Year 2000 problems, which result
in business interruptions or otherwise impact their operations, we could
experience a decrease in the demand for our services, which could have a
material adverse impact on our business, results of operations and financial
condition.
We have not incurred any significant expenses to date associated with our Year
2000 plan and are not aware of any material costs associated with our
anticipated Year 2000 efforts. Our expectation that we will be able to upgrade
our services and systems to address the year 2000 issue and our expectation
regarding the costs associated with these upgrades are forward-looking
statements subject to a number of risks and uncertainties. Actual results may
vary materially as a result of a number of factors. We cannot assure you that we
will be able to timely and successfully modify our services and systems to
comply with year 2000 requirements. Any failure to do so could have a material
adverse effect on our business, results of operations and financial condition.
Furthermore, despite testing by us and our vendors, our services and systems may
contain undetected errors or defects associated with Year 2000 date functions.
In the event any material errors or defects are not detected and fixed or third
parties cannot timely provide us with products, services or systems that meet
the Year 2000 requirements, our business, results of operations and financial
condition could be materially adversely affected. Known or unknown errors or
defects that affect the operation of our services or systems could result in
delay or loss of revenues, interruption of network services, cancellation of
customer contracts, diversion of development resources, damage to our
reputation, damages paid to customers and litigation costs.
LIQUIDITY AND CAPITAL RESOURCES
We have historically generated positive cash flows from operating activities and
have financed our growth, as well as all necessary capital expenditures and
working capital needs, primarily through the use of internally generated funds
and lines of credit. In addition, we have made limited use of capital lease
financing. We expect to experience a substantial increase in our operating
expenses as we implement our growth strategy and incur expenses for hiring new
personnel and for additional leased network capacity. We also anticipate an
increase in our capital expenditures consistent with our anticipated need for
additional network infrastructure. We expect our operating expenses and capital
expenditures will be a significant use of our cash resources.
We currently have agreements with commercial lenders providing a revolving line
of credit and equipment financing arrangements. Integral also has a line of
credit with a commercial lender. As of December 31, 1998, approximately
$1,106,000 was outstanding under these agreements. Amounts borrowed under these
agreements are secured by substantially all of our assets and bear interest at a
weighted average rate equal to 9.6% as of March 15, 1999. Various portions of
these borrowed amounts must be repaid in full between July 2000 and March 2003.
We intend to use a portion of the proceeds from the offering to repay the
amounts outstanding under these loan agreements. See "How We Intend to Use the
Proceeds from the Offering."
Our net cash flows from operating activities were $705,000 for 1998, $1.7
million for 1997, and $944,000 for 1996. Our borrowings were $703,000 for 1998,
$358,000 for 1997 and zero for 1996. At December 31, 1998, we had $840,000 in
cash and cash equivalents.
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Net cash used in investing activities was $1,529,000 for the year ended December
31, 1998, $1,182,000 for the year ended December 31, 1997, and $905,000 for the
year ended December 31, 1996. Cash used in investing activities was primarily
used to purchase property and network equipment.
Net cash provided by (used in) financing activities was $549,000 for the year
ended December 31, 1998, $316,000 for the year ended December 31, 1997 and
$(14,000) for the year ended December 31, 1996. In the years ended December 31,
1998 and 1997, net cash provided by financing activities resulted primarily from
borrowings. Net cash used in financing activities in the year ended December 31,
1996, resulted from debt payments.
We believe that the net proceeds of this offering, together with our existing
cash, cash equivalents and short-term investments and available credit
facilities, will be sufficient to meet our anticipated cash needs for working
capital, repayment of debt and capital expenditures for the foreseeable future.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1
provides guidance for an enterprise on accounting for the costs of computer
software developed or obtained for internal use. SOP 98-1 is effective for us in
fiscal 1999. We anticipate that accounting for transactions under SOP 98-1 will
not have a material impact on our financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. SFAS No. 133 is effective for us in fiscal 2000. We
do not believe adoption of this statement will have a material impact on our
financial position or results of operations.
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BUSINESS
GENERAL
CRL Network Services is a Tier 1 Internet service provider focused on offering
tailored Internet and network management solutions to small and medium-sized
businesses. We provide an extensive array of high performance, reliable and
scalable Internet and network connectivity and value-added services designed to
meet our customers' needs. Our services include:
- connectivity to the Internet and secure private networks
- value-added network services such as remote management and systems
integration
- hosting services
We believe we were among the first companies involved in the development of
connectivity solutions and services for the commercial Internet. We have
developed our own high speed network, which enables us to reliably and
cost-effectively deliver customized, end-to-end solutions. Our competitive
strengths include our:
- engineering and technical expertise arising from our direct participation in
the evolution of the commercial Internet, which has enabled us to develop
and construct our own sophisticated network infrastructure
- high speed, facilities-based, private Layer 2 switched network, which
enables us to maximize our quality of service by reducing latency and data
loss as well as increasing the level of security
- status as one of the first commercial Internet providers, which allows us to
peer directly with other major Tier 1 providers reducing the costs of
operating our network
- our proprietary remote management process, acquired through our recent
merger with Integral Networking Corporation in December 1998, which enables
us to connect our network directly to our customer's network and provide
remote management of our customer's network from the server to the desktop
As of March 15, 1999, we had 30 points of presence in major metropolitan areas
that connect to the interexchange points sanctioned by the National Science
Foundation for the transfer of Internet Protocol-based traffic between Internet
backbone networks. Our network is comprised of several elements, including 23
Cascade switches, 54 Cisco routers, facilities and clear channel fiber-optic
bandwidth, which together provide a fast, secure, high quality and fault
tolerant network. Our customers include Internet service and content providers
like Internet America, Inc. and Walnut Creek CDROM, Incorporated; companies
engaged in electronic commerce like Office Depot, Inc. and Joe Boxer
Corporation; government agencies like the U.S. Federal Reserve Board and the
U.S. Department of Commerce; and educational institutions like the University of
California, Hastings College of the Law and the Woodland Hills School District.
INDUSTRY OVERVIEW
To remain competitive, businesses today must have the ability to reliably access
and share information both externally and internally. In response, companies are
increasingly conducting business over the public Internet and their own private
networks. As a result, businesses are expanding their connectivity to the
Internet and use of both local area networks, commonly referred to as LANs, and
wide area networks, commonly referred to as WANs. The Internet's functionality
and accessibility have created an increasingly attractive commercial medium to
quickly and efficiently provide services and distribute information that
historically has been more difficult to obtain through traditional communication
channels. At the same time, businesses are continuing to develop private
networks to distribute and share information, resulting in a dramatic increase
in private network traffic as well as heightened performance requirements for
these networks. Increased use of the Internet and public and private networks
has also driven growth in the amount of sensitive corporate information shared
over networks, causing network security to become a high
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priority for many businesses. As a result of these trends, a growing number of
businesses view responsive, reliable and secure networks as mission-critical to
their operations.
The proliferation of Internet use is driven by the emergence of electronic
commerce and availability of applications such as the outsourcing of help desk
functions, Internet Protocol-based voice, fax and video conferencing, purchasing
and provisioning functions, and corporate and product marketing. Businesses are
confronted with increasing customer demand for offerings of products and
services over the Internet as a result of the immediacy and convenience it
affords. As the Internet evolves, companies are transitioning from utilizing the
Internet for mission-supportive functions such as marketing and customer
support, to mission-critical functions such as transaction execution, including
sales orders and customer billing. Also, many businesses have emerged that focus
solely on delivering services over the Internet through Web sites and electronic
commerce applications. Their ability to offer these kinds of products and
services requires high bandwidth Internet sites and operations. Due to advances
in on-line security and payment mechanisms, the number of businesses
establishing commerce-enabled Web sites is expected to increase dramatically.
International Data Corporation estimates that the number of consumers buying
goods and services on the Internet will grow from 18 million in 1997 to 128
million in 2002, and that the total value of goods and services purchased over
the Internet will increase from approximately $12 billion in 1997 to
approximately $425 billion by 2002. Businesses are positioning themselves to
capture this rapid growth opportunity by enhancing their Internet presence.
The need for businesses to establish secure private wide area networks has been
driven by the growing importance of connecting the geographically dispersed
sites of their business, their customers and their suppliers. As networks become
a more integral part of day-to-day operations, many companies seek to minimize
network costs and improve operating efficiencies. Traditional wide area network
architectures consist of dedicated circuits between computing facilities
utilizing the same fixed bandwidth regardless of traffic flow. New switched data
technologies share and dynamically allocate bandwidth based on prevailing
traffic patterns. The shared bandwidth of switched data technologies typically
results in wide area networks that are more reliable and cost-efficient than
those based on traditional leased-line services.
Local area networks have emerged from businesses' need to access and share
internal electronic information. To enable effective internal communication and
distribution of company information, the local area network is used by
businesses seeking to decentralize their information databases. Local area
networks facilitate access to client/server-based technology such as Web-enabled
databases, shared file servers, e-mail, electronic commerce applications, and
other online information. Use of local area networks will continue to grow as
businesses increasingly decentralize information.
As local area networks and wide area networks become more prominent, businesses
increasingly need remote access to their network for mobile workers. Many
businesses recognize the importance of controlling the method by which
electronic automation takes place and ensuring the security of communications
between mobile workers and the proprietary networked resources they access. The
benefits of efficiently distributing proprietary information to those with a
need to know must be weighed carefully against the possibility that unauthorized
access to sensitive information can occur due to failed security mechanisms or
poor network design.
Internet access services provided by Internet service providers interconnect
businesses and individuals to the Internet, private data networks and other
interconnected networks. Access services include high speed dedicated access
used primarily by medium-sized and larger organizations and dial-up access for
individuals and small or home office businesses. In addition to Internet access
services, business-focused Internet service providers are increasingly providing
a range of value-added communications services, including remote management,
shared and dedicated Web hosting, server colocation, network security services,
electronic commerce applications and new applications such as Internet
Protocol-based voice, fax and video conferencing.
Several different types of Internet service providers have emerged and are
generally referred to as Tier 1, Tier 2, and Tier 3 network service providers.
International Data Corporation defines a Tier 1 network service provider as an
operator of a high quality, national backbone facility, specializing in leased
line
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connectivity. Also according to International Data Corporation, Tier 1 network
service providers peer directly at the National Science Foundation-approved
network access points. International Data Corporation defines Tier 2 and Tier 3
network service providers as those who do not have a national backbone network.
Peering is critical to providing high quality, high speed Internet access. By
peering directly with other networks, Tier 1 Internet service providers are able
to send Internet traffic via the most direct and reliable path to its final
destination (the fewest "hops"), thereby minimizing potential delay and lost or
corrupted data. Additionally, Tier 1 Internet service providers usually maintain
and control their own national backbones and are better able to control the
quality of service, level of data integrity and degree of reliability than
non-Tier 1 Internet service providers. Because Tier 1 Internet service providers
typically do not pay for the privilege of interconnecting with other Tier 1
networks, they can increase their available Internet capacity by expanding
existing peering connections with their peer networks without the high costs
associated with the retail purchase of additional Internet access. As the number
of Internet service providers has grown, Tier 1 Internet service providers have
increased their requirements for peering arrangements, which has raised the
barriers to acquiring and maintaining Tier 1 status.
The internal network design of the Internet service provider's network is also a
significant factor in determining the speed and reliability of data delivery
from source to destination. Traditional networks constructed solely of routing
devices require that a packet of information stop at a router in every point of
presence along the traveled network path. Each of these routed hops requires the
data packet to be examined by the router and a policy-based routing decision to
be made regarding the egress of the packet back onto the network. Many routing
decisions can delay the delivery of the packet to its destination. By contrast,
switched data networks can deliver information directly between the source and
destination without the need to disassemble the data packets during transit. As
a result, switched data networks generally provide higher speeds, lower latency
and overall better quality of service than traditionally routed networks.
THE MARKET OPPORTUNITY
Overview
Internet and private network operations are increasingly becoming
mission-critical to the commercial and communication operations of businesses.
The evolution and expansion of Internet services and the networks over which
they are delivered has led to a growing need for end-to-end, bundled Internet
and network services.
The Need for Internet Connectivity Services
The Internet continues to increase in size and importance as its role in
mission-critical business operations expands. Businesses are looking to third
party providers for expertise in implementing their Internet strategies.
According to Forrester Research, Internet access revenues from businesses are
expected to increase from less than $1 billion in 1997 to more than $16 billion
in 2002. Internet service providers are ideally positioned to capitalize on this
growing need of businesses to access and utilize more of the Internet.
Demand for Secure Private Networks
Historically, data communications services offered over private leased lines
were expensive, not monitored or managed for quality of service nor fault
tolerant. Seeking a less expensive alternative, some businesses use the public
Internet for communications but are confronted with potential problems inherent
in the structure and management of the Internet, such as unauthorized access and
data loss and reduced transmission speed, commonly referred to as degradation.
Virtual private networks are also used as another less expensive alternative,
but similarly include security concerns and unreliable performance due to their
reliance on the Internet for data transmission. By contrast, Layer 2, switched
private networks offer a
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networking option which is more cost-effective than traditional point-to-point
private leased lines but is an owned and controlled network not depending upon
the Internet for data transfer, eliminating security concerns and permitting
lower and more stable latency levels than data communications alternatives
relying upon the Internet.
Enhanced Network Management Services
Businesses need to ensure that their networks, information systems and
applications operate continuously as their reliance on public and private
networks increases. While large businesses are able to build and maintain
information technology departments capable of servicing their networks,
information systems and applications, small and medium-sized businesses find it
difficult to cost-effectively maintain information technology departments
capable of ensuring the continuous availability of complex networks running
multiple applications. It is also difficult and expensive for small and
medium-sized businesses to continuously train their information technology
departments to support new technologies and applications. As a result, many
small and medium-sized businesses have chosen to outsource their information
technology department functions to third parties capable of offering a full
range of these services. Traditionally, outsourcing information technology
services has required site visits from the service provider even for routine
problems often resulting in lengthy delays. As a result, small and medium-sized
businesses are seeking the ability to affordably outsource their information
technology departments to third parties capable of rapidly responding to
problems and minimizing network downtime. International Data Corporation reports
that the U.S. market for network monitoring and management was $2.4 billion in
1998 and is projected to reach $4.7 billion in 2002, representing an 18% annual
growth rate.
Hosting Services
As Internet presence becomes increasingly critical to business operations, many
businesses are seeking to outsource hosting services, including Internet
colocation, to network service providers. By outsourcing these functions,
businesses can establish a strong Internet presence while remaining focused on
their core business operations. According to Forrester Research, revenues from
complex Web hosting will increase from approximately $200 million in 1997 to $8
billion in 2002, while intranet hosting will generate nearly $400 million in
revenues for Internet service providers by 2002. Traditional hosting companies
operate geographically dispersed networks that are subject to increased risks of
latency and data degradation or loss, as data travels across multiple network
connections, or hops. Many hosting companies also do not have the flexibility,
peering arrangements or capacity to quickly scale their services to meet the
sharp growth and high bandwidth requirements of mission-critical Internet
operations. Network service providers who are able to overcome these obstacles
will be well positioned to capitalize on the growth of the Web hosting market.
OUR SOLUTION
Through our national, facilities-based, fully-peered network, we offer our
customers high performance, flexible and scalable services, including:
- connectivity to the Internet and secure private networks
- value-added services such as remote network management and systems
integration
- hosting services
Our comprehensive suite of services enables our customers to easily and more
cost-effectively address their networking needs without having to assemble
services from different vendors including value-added resellers, Internet
service providers and information technology service providers. Our ability to
provide "one-stop," customized network solutions facilitates our customers'
ability to exploit opportunities created by the Internet and other network
systems on a timely basis. Key advantages of our solution are:
High-Quality Performance and Reliability. Our national, facilities-based, Layer
2, switched backbone network, coupled with our status as a Tier 1 Internet
service provider, enables us to provide our customers
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with some of the fastest and most reliable data transmission solutions
available. Our network operations center controls and monitors the switches,
routers and fiber-optic capacity for all data transmitted over our network 24
hours-a-day, seven days-a-week, allowing our staff to be immediately aware and
responsive to problems as they arise. This control of our network infrastructure
allows us to improve quality of service by minimizing network down time.
Outsourcing of Mission-Critical and Support Operations. We offer our clients the
ability to outsource their network management operations to us. Through a remote
connection and our proprietary process, we are capable of managing our
customers' internal networks as well as solving common problems that our
customers encounter. When end-users encounter a problem, we are able to attach
in real-time to our customer's desktop computers and servers to evaluate and
solve the problem as if located on-site at the customer's premise. In addition,
we proactively monitor our customers' networks to predict and, in some cases,
prevent outages. The ability to manage our customers' systems remotely enables
us to offer tailored and cost-effective network management solutions. Businesses
able to outsource many aspects of an information technology department, from the
"help desk" to enterprise-wide server maintenance, can implement more complex
applications without being constrained by a lack of in-house computer
professionals. We believe that our services can enable our customers to
implement selected intranet and extranet business functions such as electronic
commerce, free of any information technology-related concerns. Our solutions
allow our customers to more rapidly grow their businesses with relatively modest
initial and recurring information technology-related expenditures.
Scalability and Flexibility. Our services are designed to be highly scalable and
flexible in order to meet the needs of our customers as their Internet, network
operations, and bandwidth requirements expand. Our network is designed to
provide our customers with available and uncongested bandwidth during network
traffic spikes by maintaining excess capacity and additional sources of
bandwidth. We also provide flexibility for our customers by supporting most
leading Internet hardware and software systems vendor platforms.
Bundled Service Offerings. Many enterprises today, especially those in the small
and medium-sized business market, often purchase services from a number of
vendors. For example, a company may receive its Internet access, file/Web server
connection and colocation space all from different vendors. We are able to offer
these services under customized packages through a single network connection and
also offer additional customer support and management expertise. We are able to
serve our customers' Internet and network management requirements without the
need for any additional service providers or connections.
STRATEGY
Our objective is to become the leading nationwide provider of tailored,
end-to-end Internet and network services to small and medium-sized businesses.
To achieve this objective, we intend to:
Leverage Our Existing Network Infrastructure. Through our direct participation
in the development and evolution of the commercial Internet, we are one of only
a small number of Tier 1 Internet service providers, which means we have legacy
peering relationships with major Internet service providers, including MCI
WorldCom, Inc., Sprint Corporation and Cable & Wireless P.L.C. As a result, we
can transfer traffic efficiently to other networks without paying the costs
typically associated with transport. During the past year, we became a licensed
competitive local exchange carrier in the State of California and have begun the
application process to become a competitive local exchange carrier in several
other states to complement our national backbone network. As a competitive local
exchange carrier in any particular state, we are able to purchase unbundled
network elements from the applicable regional Bell operating company operating
in that state rather than purchase retail local loops, resulting in a
significant cost savings to us. Also, our 15 years of experience developing our
network provides us with an in-depth understanding of the key elements of
network connectivity technology. As a result, over the past decade we have built
a national backbone network which currently consists of clear channel
fiber-optic capacity, Cascade switches and Cisco routers, which are controlled
through our network operations center. Our network is fast, secure and reliable,
as well as scalable to approximately one hundred times the traffic our
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current customers generate. We intend to aggressively leverage our existing
network infrastructure to cost-effectively expand our customer base and deliver
additional service to our customers.
Cross Sell Value-Added Services. We intend to leverage our existing customer
base and future customers by aggressively cross selling our value-added
services. We are committed to offering our customers reliable value-added
network services necessary to address their Internet and network management
requirements. We believe we are currently one of only a few companies remotely
managing the customer's network from the Internet all the way to the desktop.
Based on our existing network infrastructure and expertise, we are able to offer
these services continuously, reliably and on a cost-effective basis. Through
acquisitions or development of relationships with providers of leading Internet
and other network technologies, we intend to enhance and increase the services
we offer to include other value-added services, such as enhanced network
security solutions, that address our customers' rapidly evolving
mission-critical networking needs such as electronic commerce.
Provide Bundled, End-to-End Networking Solutions. The fragmentation among
Internet and other network service providers has resulted in users often faced
with an overwhelming array of providers and services from which to choose. For
example, it is typical for a user to purchase local loop connectivity from a
regional Bell operating company or a competitive local exchange carrier, to
purchase Internet or other wide area network connectivity from a separate
Internet or other network service provider, and to purchase network services,
like remote management, systems integration and network security, from one or
more other companies. We believe the Internet and network service provider model
is evolving towards providers who are capable of providing end-to-end solutions
by bundling several or all of these functions efficiently, reliably and on a
cost-effective basis. By combining our network infrastructure with our existing
and planned array of value-added networking services, we believe we are well
positioned to become one of the premier, end-to-end providers of bundled
networking solutions to small and medium-sized businesses. Additionally, we
believe that by offering bundled services, we can reduce customer loss, commonly
known as "churn," increase network usage by existing customers, cross sell
additional services to existing customers and differentiate ourselves from our
competitors.
Expand Customer Base and Sales Efforts. We intend to expand our customer base by
significantly increasing our direct and indirect sales forces as well as our
marketing efforts. Our direct sales force consisted of 20 persons in three sales
offices as of March 15, 1999. As of that date, we had sales offices in three
major metropolitan areas. Our sales force is supported in their efforts by sales
engineers and, in many instances, our senior management. We intend to increase
the number of our sales offices and to significantly expand the size of our
direct sales force with the goal of having an effective selling presence in all
major domestic metropolitan and regional markets. In addition, we are exploring
other strategies to grow our direct sales force, including developing an inside
sales center to generate additional sales. We also intend to establish and
expand relationships with potential channel partners including hardware vendors,
value-added resellers, system integrators and Web hosting companies to leverage
their sales organizations and existing customer bases. By combining an expanding
direct sales force with the sales and marketing power of targeted channel
partners, we believe we will be able to effectively market and sell our
comprehensive networking solutions to a large potential customer base throughout
the United States.
Drive Revenue Growth by Increasing Hosting Services. Our physical presence at
key network access points provides attractive opportunities for many customers
to lease a portion of our space and purchase our colocation services. Our
hosting services permit our customers to install their equipment in close
physical proximity to major Internet access points. These connections at the
"edge" of the Internet are among the most reliable connections available. Our
presence in these locations, as well as the hardware we have installed there,
are designed to satisfy the electronic commerce and other requirements of the
most demanding Internet service providers, content providers, businesses and
government agencies. We intend to aggressively market our existing hosting
services to service these mission-critical applications.
Accelerate Growth Through Targeted Acquisitions. The goal of our acquisition
strategy is to accelerate market penetration, build upon our core competencies
and expand our technical staff and sales force. We evaluate acquisition
candidates based on their fit with our overall business plan. When a candidate
is
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acquired, we will integrate our existing Internet and network connectivity and
value-added services with the service offerings of the acquired company and
leverage the acquired sales force and customer base to expand market
opportunities. The types of acquisitions we target include business Internet
service providers and companies with leading edge network connectivity and
services technologies that expand or enhance our existing services. Other types
of targeted acquisitions include local or regional business Internet service
providers in markets where we have established points of presence and would
benefit from the acquired company's local sales force and installed customer
base through the potential increase in our network utilization. Our recent
acquisition of Integral Networking Corporation, a systems integrator and
developer of advanced remote management services, is an example of the
implementation of this strategy.
SERVICES
We currently offer our customers tailored, end-to-end Internet and private
network solutions as well as network connectivity and value-added network
services. The diversity of the services we offer permits each customer to
purchase individual services or a bundle of services that provide the most
efficient, reliable and cost-effective solution to that customer's particular
needs.
Network Connectivity Services
We are a national provider of connectivity services, including a variety of
dedicated and dial-up access and customized wide area networking solutions in
both stand-alone and bundled packages, which provide high-speed continuous
access to the Internet and other networks for our customers. We also provide
turnkey configuration solutions encompassing such services as domain name
registration, leased-line ordering and installation assistance, Internet
Protocol address assignment, router configuration, installation and management,
and technical consultation services. All of our connectivity customers receive
24 hour-a-day, seven day-a-week technical support.
Dedicated Access. We offer a broad line of high speed dedicated connectivity
services providing business customers with direct access to a full range of
Internet applications. Our dedicated access service provides companies with
robust, full-time, dedicated Internet connectivity in a range of access speeds,
including fractional T1 (from 64 kilobits per second up to 1.536 megabits per
second), T1 (1.536 megabits per second), T3 (45 megabits per second) and OC3
(155 megabits per second). Our dedicated Internet access is designed to help
ensure bandwidth availability for priority business applications. We believe
that the traffic-management advantages of the data switching technology deployed
in our network provide our customers with fully integrated Internet access and
improved performance.
Customized Wide Area Networking Solutions. We are dedicated to providing high
performance, privately managed wide area networking services. Our customized
wide area networking services combine the high performance of private lines with
the redundancy and bandwidth efficiency of a switched service. These wide area
networking services utilize the superior line management features and
cost-effectiveness of data switching technology to provide a high performance
and secure wide area network that is scalable to our customers' growing network
demands.
The versatility of data switching technology allows our customers to easily
manage connectivity to multiple sites at a wide range of connection speeds. With
our customized wide area networking services, our engineers can help a customer
design a network to match the specific needs of the customer. Locations can be
partially or fully-meshed, offering route redundancy where necessary, and
allowing the customer to provision only the bandwidth they need.
By linking a wide area network with our Internet backbone, our customers can
optimize the bandwidth of their businesses and minimize expenses. We also offer
service level guarantees and extensive 24 hour-a-day, seven day-a-week customer
support with all of our integrated solution products.
Dial-Up Access. Our dial-up services offer a cost-effective, entry-level
Internet solution that provides access to our advanced network backbone via
ordinary telephone lines at speeds of up to 56 kilobits per second using V.90
protocol.
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Transit Service. Our transit service is designed for Internet service providers
with existing connectivity to one or more peering points. The service provides
for the announcement of our customer's networks to our other peering partners,
the announcement of our other peers' networks to our customer, and for the
transit of data between our customer and our other peers. This service can
usually be installed in a short time frame and gives our customers the
flexibility they need to expand their operations.
Value-Added Services
We believe that businesses will continue to increase their use of the Internet
and private networks to remain competitive and will increasingly rely upon an
expanding range of value-added services to enhance productivity, reduce costs
and improve service reliability. We offer a variety of value-added services,
including remote management and systems integration. As part of our strategic
plan, we also intend to offer network security services. In addition, to
capitalize on our technologically advanced, high-capacity network
infrastructure, we intend to continue developing new value-added services that
facilitate customer use of the Internet and other networks, including
bandwidth-intensive multimedia services such as video conferencing.
Remote Management Services. Traditional outsourced network management solutions
require network problems to be diagnosed and resolved at the customer's site,
which often results in a lengthy response time. Through our alarm notification
capability, our monitoring service immediately alerts us to our customers'
network problems and details the reason for the problem. We are capable of
managing our customers' internal networks and solving common problems
encountered by our customers through a remote connection and proprietary process
which permits us to attach in real-time to our customers' desktop computers and
servers and evaluate and solve the problem as if located on-site at our
customers' premise. For these reasons, our remote management services help to
significantly reduce the necessary time and expense to diagnose and resolve
network and application-oriented problems. Our remote management solution is
also structured to be scalable to our customers' growing needs.
Systems and Network Integration. We provide integration services such as local
and wide area network configurations, Web and database server integration and
application-specific software solutions. We configure equipment by loading
customer programs, connecting equipment to the network and servicing hardware
and software. Our staff of engineers, many of whom are Novell Platinum providers
or Microsoft MCSP-certified, work closely with our customers to design,
assemble, configure and install a network architecture meeting our customers'
requirements.
Firewall Solutions. The sensitive nature of business Internet traffic demands
protection from unauthorized access. Our firewall solutions provide users with
secure access to the Internet as well as create an electronic barrier between a
customer's internal network and the public Internet. Our firewalls can also
restrict access between departments as well as track communications to ensure
that these communications follow a customer's established security procedures.
We work with a variety of vendors to provide customized firewall solutions for
each of our customers with specialized security needs.
Hosting Services
Our existing network infrastructure, with a presence at all major domestic
network access points, provides an easy and cost-effective solution for
businesses to directly connect their equipment to the Internet and other
networks through our existing nationwide backbone. Our colocation facilities
allow our customers to install their equipment as close to our network core as
physically possible and are configured in a manner to satisfy their
mission-critical networking and Internet operations. Our infrastructure supports
the Internet hardware and software vendor platforms of most leading vendors,
including Intel Corporation, Microsoft Corporation and Sun Microsystems, Inc.
The flexibility and scalability of our network infrastructure permits our
customers to purchase additional space and power as needed, and to install and
maintain their own hardware and software. Our primary colocation facilities have
uninterruptible AC or DC power supply and back up equipment, fire suppression
equipment, HVAC
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(heating, ventilation and air conditioning), separate cooling zones,
seismically-braced racks and high levels of physical security, including card
key access and video surveillance.
Customers can select from a variety of options including shared rack facilities,
highly secure cabinets and enclosed cage facilities based upon their business
and technical requirements. Because many applications are dynamic and require
immediate hardware and software upgrades to maintain or achieve targeted service
levels, our colocation customers are offered 24 hour-a-day, seven day-a-week
physical and remote access to our facilities. We offer five options to satisfy
our customers' needs:
- Switched Ethernet Service, which is a 10 megabit per second service
connection onto our backbone router shared by other customers
- Dedicated Ethernet Service, which is a 10 megabit per second service
connection directly onto our backbone router not shared with any other
customers
- Switched Fast Ethernet Service, which is a switched ethernet service with a
100 megabit per second Internet connection
- Dedicated Fast Ethernet Service, which is a dedicated ethernet service with
a 100 megabit per second Internet connection
- Gigabit Fast Ethernet Service, which is a switched ethernet service with a
1,000 megabit per second Internet connection
CUSTOMERS
We have established a diverse customer base including Internet service and
content providers, businesses, government agencies and educational institutions
to whom we offer a wide range of services including Internet and network
connectivity, value-added and hosting services. In addition, we provide dial-up
Internet access services to consumers. No customer accounted for more than 2.6%
of our revenues in either 1997 or 1998. The revenues derived from our top 10
customers accounted for 16% of our total revenues in 1998. The following is a
representative list of customers as of March 15, 1999:
<TABLE>
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
INTERNET SERVICE INTERNET CONTENT BUSINESSES ENGAGED GOVERNMENTAL AGENCIES
PROVIDERS PROVIDERS IN ELECTRONIC AND EDUCATIONAL
--------------------- --------------------- COMMERCE INSTITUTIONS
--------------------- ---------------------
CTSNET Gamepro, Inc. CalFarm Insurance City of Vallejo
Company Police
Internet America, Pathlink Technology Department
Inc. Corporation Joe Boxer
Corporation U.S. Federal Reserve
Interaccess Co. Walnut Creek Board
CDROM, Office Depot, Inc.
Information Access Incorporated U.S. Department of
Technologies, Inc. Southwest Airlines Commerce
AdForce, Inc.
GST Call America (Imgis.com) Toshiba America, University of
Inc. California, Hastings
Traveller Silicon Reef, Inc. College of the Law
Information
Services, Inc. Reiter Associates, Pacific Union College
Inc.
Woodland Hills School
District
------------------------------------------------------------------------------------------
</TABLE>
We aggressively pursue small and medium-sized business customers and seek to
provide them with connectivity and customized, cost-effective network management
solutions. The following are examples of solutions we currently provide to our
customers.
WALNUT CREEK CDROM, INCORPORATED: Walnut Creek CDROM, Incorporated, an
Internet-based freeware site, is one of the nation's busiest public FTP sites.
According to Walnut Creek CDROM, more than five
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million visitors download the latest computer software, ranging from games to
operating systems, from this location each month. Walnut Creek CDROM needed a
reliable, Tier 1 provider to support its traffic flows, which can often reach 98
megabits per second for a sustained period of time. Walnut Creek CDROM uses our
100 megabits per second dedicated fast ethernet service to connect directly to
our core backbone at our San Francisco network operations center. This high
speed, direct Internet solution meets our customer's bandwidth requirements and
increases network reliability by reducing the number of router hops to the
Internet. We provide the 24 hour-a-day, seven day-a-week network management
required to deliver Walnut Creek CDROM's round-the-clock Internet applications.
J. LINNEMAN & CO.: J. Linneman & Co., a reinsurance agency associated with
Lloyd's of London, required a reliable, private data switched network to handle
sensitive and mission-critical information. Without a managed network to
facilitate internal company communication, company officials were concerned that
underwriters could potentially over-insure national clients. Using our wide area
networking services, we developed and deployed a customized data network between
J. Linneman's headquarters in San Francisco and regional offices in Atlanta,
Chicago and Hartford. An Internet connection was also secured for each location.
In order to meet J. Linneman's demand for scalability and cost control, we
provide varying bandwidth to each city, with the option for an increase at any
time.
RIVER CITY PETROLEUM: River City Petroleum, Inc., a fleet fueling and wholesale
fuels provider, was listed by the Sacramento Business Journal as one of
Sacramento's "50 Fastest Growing Companies" and the 19th largest private company
in the Sacramento region. The company built a local area network but had little
expertise to install new network elements, nor did they want to oversee the
day-to-day management and administration activities a network requires. Using
our proprietary remote management services, we developed and deployed a
customized solution for River City Petroleum that reduces costly systems
administrator fees and protects the firm's mission-critical data by handing off
the day-to-day management to us. River City Petroleum can now focus on
continuing its acquisition-oriented growth, not its local area network.
Our success substantially depends on the continued growth of our customer base
and retention of our customers. Our ability to attract new customers will depend
on a variety of factors, including the willingness of businesses to outsource
their mission-critical networking and Internet operations, the reliability and
cost-effectiveness of our services and our ability to effectively market such
services. Substantially all of our customer contracts have terms ranging from
one to three years.
A failure on our part to develop these relationships could materially and
adversely impact our ability to generate increased revenues, which would
negatively affect our financial results. We also intend to significantly
increase our sales and marketing expenditures, which may not necessarily result
in increased sales of our services. For a detailed discussion of the risks, see
"Risk Factors -- Our success depends on our ability to retain existing and
attract new customers" and "-- We are subject to the risks from our lengthy
sales cycle."
OUR NETWORK
Our network enables us to provide our current service offerings and is the
platform from which we intend to expand our service offerings. Our network is
comprised of several elements, including routers, switches, facilities and clear
channel fiber-optic capacity, which together provide a fast, secure, high
quality and fault tolerant network. In addition, we have both public and private
peering agreements allowing us to connect directly with all major Internet
service providers. The following map illustrates our network and peering
relationships:
[Graphics depict a map of United States Entitled "Networks Built for Business"
with CRL logo, reflecting CRL's network connecting cities nationwide, including
symbols designating CRL's Regional Hubs, CRL Points of Presence or Service
Areas, Internet Protocol Backbone and Switched Backbone]
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Network Equipment
Our network consists of 23 Cascade data switches and 54 Cisco routers located
throughout our points of presence. Routers are "Layer 3" networking devices,
which must disassemble each packet of data they receive, make a policy-based
routing destination decision according to Internet Protocol-based routing
tables, and then reassemble the packet and send it to the destination determined
by the routing protocol then in effect. These routing protocol tables must be
frequently updated by the router to reflect changes in the tables arising from
numerous events, including changes in peering relationships.
Switches are typically "Layer 2" networking devices, which means they make
connections a layer below the Internet. Switches determine routing destinations
based on the Layer 2 addresses attached to each packet without disassembling the
data packets. By operating one layer below the Internet without the need to
disassemble packets, switches can significantly reduce latency and data
degradation, as well as increase security. As a result of the complexity and
multitude of networks that transport information over the Internet, switches are
often an essential component to deliver information in the fastest and most
reliable manner.
Unlike many of our competitors, we have invested significant capital in
switches, which are more expensive than routers. Switches, when properly
configured with routers, enhance the speed and reliability of networks by
- minimizing the number of connections, or hops, a data packet must take,
which minimizes the time required to deliver the packet
- reducing the number of times a packet must be disassembled by routers, which
reduces the opportunities for router errors
- decreasing the instances where packets must travel over public networks,
which decreases the likelihood of latency and data degradation
Our national network of switches and routers permits us to customize our network
connectivity by creating an efficient "virtual circuit" for each customer, a
logical connection between the physical devices transmitting, directing and
receiving the data packets. The following illustrations show the difference
between a network that utilizes switches and routers to maximize the quality of
network service and a network based solely on routers.
[Graphics depicting traditionally routed networks including the transit of a
data packet across different cities in the U.S. requiring multiple hops among
various points from the origin to the destination of the data packet and a
depiction of switched networks including a map of the U.S. overlayed by a cloud
showing a direct transfer of a data packet through this cloud.]
Switches have other advantages over routers as well. If a network outage occurs,
our Cascade switches can re-route data between our routers so that our network
does not experience an interruption of service during the outage. This process
allows our routers to forward more packets without making complex routing
decisions. Our Cascade switches are multi-protocol capable, allowing us to
operate Internet Protocol and other protocols as required.
Network Facilities
We have constructed a national backbone network with points of presence in 30
cities including 16 of the largest 20 cities in the United States. We control
our points of presence, including our network operations center in San
Francisco, under leases with terms ranging from month-to-month to four years,
that allow us to control the quality and security of the operations. We can
upgrade our points of presence as desired and are able to significantly reduce
the length of time of network interruptions because we control our facilities.
We have points of presence in San Francisco, Los Angeles, San Diego, Phoenix,
Denver, Dallas, Vienna (Virginia), Chicago and 22 other cities.
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Many of our points of presence are located in, or in close physical proximity
to, "carrier hotels." Carrier hotels are facilities where major interexchange
carriers and Internet service providers have physical points of presence. Our
actual location in, or in close proximity to, the same building in which the
switches and routers of these carriers and providers are located offers us the
ability to quickly and easily interconnect our equipment to theirs by our simply
installing a "pipe" connection between our equipment and theirs. Without this
close physical proximity, the services and expense of a third party, like an
incumbent local exchange carrier or competitive access provider, would be
necessary to connect us to the interexchange carrier or other provider. Because
many of these carrier hotels have fully leased their space, we have an advantage
over many of our competitors who are unable to lease space in the facility or in
close enough proximity to the facility and need the services of a third party to
provide similar connectivity.
As we expand, we expect to increase our number of points of presence. Each point
of presence is monitored through our network operations center on a 24
hour-a-day, seven day-a-week basis, which allows us to rapidly identify and
resolve any service interruptions. All of our points of presence are connected
directly to local operators including regional Bell operating companies and
competitive local exchange carriers. Where practical, our local connections are
made at the DS-3 level, which allows us to install up to 28 customers at a time
on an expedited basis without the need for any wiring or physical changes within
our point of presence.
We currently lease clear channel fiber-optic capacity on networks from companies
such as Qwest Communications Corporation and IXC Communications, Inc. We have
chosen short-term leases of fiber-optic capacity as opposed to acquiring
indefeasible rights of use for fiber-optic capacity due to rapidly declining
bandwidth costs. We believe that our choice has had a significant impact on our
ability to maintain a relatively low cost structure network. Through our leased
fiber-optic cable, we are able to easily create customized data switched
networks for ourselves or others. As we expand and seek additional leased
capacity, we believe that capacity will be available. Several major fiber
construction projects have commenced in the domestic United States, and
frequently the developer of a fiber route will exchange access with other fiber
carriers in a "route swap." Such "route swaps" bring a new vendor of fiber along
a particular route to the marketplace, and ultimately serve to drive the price
of fiber-optic capacity down.
Our network operations center located in San Francisco is operated on a 24
hour-a-day, seven day-a-week basis. This network operations center functions
primarily to ensure that our backbone network is operational at an optimal level
and has the ability to ingress and egress traffic. In addition, the center
monitors the connections between the backbone network and the customer. If the
customer's network fails, we notify the customer of their network failure and
begin working immediately to correct the failure.
Peering Relationships
We have both public and private peering relationships. A peering relationship
permits the direct connection of two providers without the necessity of a third
party. We believe we were one of the first companies to provide commercial
Internet access to both consumers and corporations. As the Internet and Internet
interexchange points have evolved, we have been well positioned to become and
have become a significant peering partner. We currently have public peering at
the major interexchange points including:
- MAE East in Vienna, Virginia,
- MAE West at Nasa Ames Research Center in Palo Alto, California,
- the Fix West Federal Interconnect Exchange at Nasa Ames Research Center in
Palo Alto, California,
- the Sprint Network Access Point in Pensauken, New Jersey,
- the AADS Network Access Point in Chicago, Illinois,
- the Pacific Bell Network Access Point in San Francisco, California,
- the Pacbell Switched Multimegabit Data Service Cloud in Northern California,
and
- the Commercial Internet Exchange router in Santa Clara, California.
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As is typical industry practice, we have reciprocal peering relationships with
other Internet service providers that offer significant traffic exchange. Our
open network policy allows us to make cost-based peering decisions between
public and private peering points.
Subject to few exceptions, our peering relationships are not subject to any
written agreements. As the Internet has evolved, network service providers have
determined whether they will recognize a second provider as a peer based on the
impact on the first provider of failing to do so. The first provider makes this
determination by analyzing how many customers rely on the second provider as
their sole source of connectivity to the Internet. In many cases, either the
customer has more than one provider that supplies that connectivity or the
second provider relies on another Internet service provider to supply the first
provider's connectivity to the Internet. If the second provider has customers
who look to that provider as their sole source, and the first and second
providers refuse to peer with one another, the portions of each provider's
customer base that are sole source will be unable to connect with each other
over the Internet.
As a result of our early involvement in the Internet, we are a Tier 1 Internet
service provider and have peering relationships with other Tier 1 Internet
service providers.
SALES AND MARKETING
Our sales and marketing objective is to achieve broad market penetration and
increase brand name recognition among small and medium-sized businesses,
Internet service and content providers, government agencies and educational
institutions on a national basis through the expansion of our sales organization
and extensive marketing activities. As of March 15, 1999, we employed 24 persons
in sales and marketing. We have developed a multi-tiered sales strategy to sell
and market to our target markets through direct sales, Internet alliances,
channel relationships and customer referrals.
Direct Sales. Our direct sales force currently consists of highly trained
individuals located in San Francisco, California and two other sales offices in
the United States. Substantially all of our sales are currently generated by our
direct sales force. Our sales force is supported in their sales efforts by a
sales engineer and, in many instances, by senior management. We believe that the
integration of our sales engineers with our sales account managers assists both
the establishment of customer relationships as well as the migration of
customers to increased use of our services through cross selling of our
value-added services. We have developed programs to attract and retain high
quality, motivated sales representatives with the necessary technical skills,
consultative sales experience and knowledge of their local markets. These
programs include technical and sales process training and instruction in
consultative selling techniques. We have also developed sales compensation plans
that provide significant incentives for exceeding performance targets. We are
actively seeking to expand our direct sales force and sales engineering staff.
Our direct sales process consists of a multifaceted approach to lead generation
and includes direct mail, advertising, Web-based marketing, networking and cold
calling. We target small and medium-sized businesses nationwide with particular
emphasis on those geographic areas where we have points of presence. Prospects
are qualified through a needs-based consultative sales process and, depending
upon the complexity of the client need, sales engineers and senior management
are called upon to develop solutions.
Develop Channel Relationships. We are in the process of developing relationships
with potential channel partners including hardware vendors, value-added
resellers, system integrators and Web hosting companies to leverage their sales
organizations. We believe that by leveraging the sales forces of these
companies, we can attract customers in a cost-effective manner, as well as
provide co-branded Internet and network management service offerings for our
channel partners. We are actively engaged in hiring experienced channel managers
to focus exclusively on developing these relationships.
By providing Internet and network management solutions, our partners can satisfy
the demands of their customers, as well as create opportunities for new
business. We will offer the expertise involved with a complex networking
infrastructure that will allow our partners to focus on their own areas of
expertise. This relationship will provide our partner with the tools needed to
bundle Internet access with a variety of
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services provided by us or our partner, and gain the competitive edge needed to
attract and maintain more customers, increase market share and grow.
Because we realize that most companies have specific operating requirements, we
have designed a flexible program to accommodate specific needs. We will both
provide the necessary network connectivity and serve as a technical resource for
our partners. Engineers in our networking operating center monitor the network
around the clock to ensure the highest quality Internet, remote management
service, and hosting services and technical support for our partner and its
customers. Instead of spending time and money building a national network
infrastructure, partners will be able to simply add Internet, remote management
service and hosting services to their existing products by becoming part of our
network. By bundling Internet, remote management service and hosting services
with existing products, the partner will be able to offer a high quality network
connection to the Internet with the ease of one bill and one point-of-contact
for customers.
Marketing. Our marketing program is intended to build national and local
strength and brand awareness. We use print advertising and direct mail in
targeted markets and publications to enhance awareness and acquire leads for our
direct sales force. We also use telemarketing programs, Web marketing and joint
promotional efforts.
CUSTOMER SUPPORT
We offer a high level of customer service and quality assurance by understanding
the technical requirements and business objectives of our customers and
addressing their needs proactively on an individual basis. By working closely
with our customers, we are able to enhance the performance of our customers'
Internet and network operations, avoid downtime, rapidly resolve problems and
make appropriate adjustments in services as customer needs change over time. We
work with our customers over time to ensure that we are offering the appropriate
types and quality of service. As of March 15, 1999, we had 15 employees
dedicated to customer service and quality assurance.
Upon receipt of a signed sales contract, the salesperson prepares a sales order
form and sends it to our provisioning department which, after initial review,
forwards the sales order to our finance department for approval and set up on
the billing system.
Within the provisioning department the sales order is logged into a tracking
system that is reviewed by management on a weekly basis. The provisioning
department arranges all internal and external activities to complete the
installation of the sales order. As necessary, they arrange for purchase,
delivery and setup of equipment, arrange for necessary circuits with various
telecommunications vendors, and complete necessary changes to our network
through our engineering department.
Upon completion of all necessary installations, the customer is contacted for
testing and acceptance. Customer information is entered into an operations
database and our finance department is notified to begin billing.
Ongoing customer service is provided by our technical support group. Our network
operations center operates and is available for technical support 24
hours-a-day, seven days-a-week, 365 days-a-year. They monitor customer circuits
real-time on the same basis. As problems are identified or customer calls are
received they are logged into a trouble ticket system and worked through to
resolution. Inquiries can be accepted by voice or e-mail and are typically
answered within a few minutes or hours of receipt. Resolution times vary
depending upon the problem's severity and complexity. Resolution times that
exceed a few hours are escalated to management.
Our enhanced customer support systems monitor and track support questions from
our customers. These systems were developed to help the network engineers track
problems efficiently and reliably. They provide an accurate history of each
account enabling the engineers to quickly access support inquiries and provide
us with valuable historical data about each account. Every time a support
question is called in, a historical record, commonly referred to as a
"trouble-ticket," is opened. Until the problem is resolved, the trouble-
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ticket remains open. When necessary, the trouble-ticket is escalated in order to
reach the fastest possible resolution. The escalation chart is made available to
our customers.
COMPETITION
Our competitors generally may be divided into four principal groups:
- telecommunications carriers including regional Bell operating companies,
often referred to as "RBOCs"
- Internet service providers
- network and system integrators
- online network service providers
Telecommunications Carriers. Many long distance companies including AT&T
Corporation, Cable & Wireless P.L.C., Sprint Corporation, MCI WorldCom, Inc.,
Qwest Communications International Inc., Level 3 Communications Inc., IXC
Communications, Inc. and Frontier Corporation offer Internet access services and
network services. Recent reforms in federal regulation of the telecommunications
industry have created greater opportunities for incumbent local exchange
carriers such as PacBell Internet, and competitive local exchange carriers such
as WinStar Communications, Inc., to enter the Internet connectivity market. We
believe that there is a move toward horizontal integration by these kinds of
carriers through acquisitions of, joint ventures with, or the wholesale purchase
of connectivity from, Internet service providers in order to meet the Internet
connectivity requirements of their business customers. Accordingly, we expect
that we will experience increased competition from the traditional
telecommunications carriers. In addition to their greater network coverage,
market presence and financial, technical and personnel resources, many of these
telecommunications carriers also have large existing commercial customer bases.
Internet Service Providers. Our competitors include Internet service providers
with a national or global presence that focus on business customers, such as
PSINet, Inc. and UUNET Technologies, Inc. We also compete with Internet service
providers that cluster in major markets and regional Internet service providers
that have facilities in key metropolitan areas, including Verio, Inc., and
specialized Internet service providers such as Concentric Network Corporation,
Exodus Communications, Inc., AboveNet Communications Inc. and AppliedTheory
Corporation, as well as emerging Internet service providers. While we believe
that our state-of-the-art network infrastructure, quality customer service and
proactive support teams distinguish us from most Internet service providers,
many of these competitors have greater financial, technical, and marketing
resources, larger customer bases, greater name recognition and more established
relationships in the industry.
Network and System Integrators. We compete with large information technology
outsourcing firms such as the Big 5 accounting firms, EDS Corp., Perot Systems
Corporation and similar firms. These firms tend to focus on large customers who
outsource entire information technology functions or re-engineer their
information technology infrastructure. We believe that we are distinguished from
these competitors because we specialize in Internet Protocol-based integration
for the businesses and government agencies focused on Internet and other network
operations. We also compete with smaller network and systems integrators.
However, we believe that our expertise with large and complex systems, our
methodology and our ability to offer one-stop solutions for integration, data
center services and network connectivity set us apart from this segment of the
competition.
Online Network Service Providers. In providing consumer Internet access, we
compete with online network service providers such as America Online,
Compuserve, MSN (The Microsoft Network) and Prodigy Communication Corporation.
The services offered by these companies often includes access to content
specific to each company. While we believe that our consumer products are
competitively priced and that our support and proactive network maintenance give
us an advantage over our competitors, many of these competitors have greater
financial, technical and marketing resources, larger customer bases, greater
name recognition, wider customer reach and more established relationships in the
industry.
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We believe the primary competitive factors in our markets are:
- a reliable and powerful network infrastructure
- a broad range of services and technical expertise
- quality of customer service
- experienced and knowledgeable sales force and engineers
Many of our competitors may be able to develop and expand their communications
and network infrastructures more quickly, adapt more swiftly to new or emerging
technologies and changes in customer requirements, take advantage of acquisition
and other opportunities more readily, and devote greater resources to the
marketing and sale of their services than we can. In addition, we believe
competition in our markets will intensify as new competitors enter our markets
which have no significant barriers to entry. In addition, some of our
competitors may bundle other services and products, offer their services at more
attractive prices, or offer other high speed data services using alternative
delivery methods.
We do not currently compete internationally. If the ability to provide Internet
access internationally becomes a competitive advantage in the Internet access
industry, we may be at a competitive disadvantage relative to our competitors.
For more information concerning the competition we face and the factors
affecting our ability to compete, see "Risk Factors -- The markets for our
services is characterized by many competing technologies, and the technologies
on which our services are based may not compete effectively" and "-- We may have
to reduce the cost of our services to remain competitive."
INTELLECTUAL PROPERTY RIGHTS
We believe our success depends more upon our technical expertise than our
proprietary rights. We rely upon a combination of copyright, trademark and trade
secret laws and contractual restrictions to protect our proprietary technology
and rights in our services. We have no patented technology that would preclude
or inhibit competitors from entering our market. We have entered into
confidentiality and invention assignment agreements with certain of our
employees, and nondisclosure agreements with our suppliers, distributors and
appropriate customers to control access to and disclosure of our proprietary
information. Despite these precautions, a third party could potentially copy or
otherwise obtain and use our products or technology without authorization or to
develop similar technology independently. We cannot assure you that such
measures have been, or will be, adequate to protect our proprietary technology
or deter third party development of similar technologies. We also rely on
certain technologies that we license from third parties such as network
management software. We do not license any other technology that is not
generally available. These third-party technology licenses may not always
continue to be available to us on commercially reasonable terms. The loss of
such technology could require us to obtain substitute technology of lower
quality or performance standards or at greater cost, which could affect us in a
material adverse manner. To date, we have not been notified that we infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by us. We expect that participants in our
markets will be increasingly subject to infringement claims as the number of
technologies and competitors in our industry grows. Any such claim, whether
meritorious or not, could be time consuming, result in costly litigation, cause
service delays or require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements might not be available on terms acceptable to us
or at all. As a result, any such claim could have a material adverse effect upon
our business, results of operations and financial condition.
GOVERNMENT REGULATION
Currently only a small body of laws and regulations directly apply to access to
or commerce on the Internet. However, due to the Internet's increasing
popularity and use, laws and regulations may be adopted at the international,
federal, state and local levels with respect to the Internet, covering issues
such as user privacy, freedom of expression, pricing, characteristics and
quality of products and services,
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<PAGE> 52
taxation, advertising, intellectual property rights, information security and
the convergence of traditional telecommunications services with Internet
communications. Moreover, a number of laws and regulations have been proposed
and are currently being considered by federal, state and foreign legislatures
with respect to such issues. The nature of any new laws and regulations and the
manner in which existing and new laws and regulations may be interpreted and
enforced cannot be fully determined. The adoption of any future laws or
regulations might decrease the Internet's growth, decrease demand for our
services, impose taxes or other costly technical requirements or otherwise
increase the cost of doing business or in some other manner have a material
adverse effect on us. In addition, applicability to the Internet of existing
laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel, obscenity and personal privacy is
uncertain. As our services are available over the Internet in multiple states,
and as we facilitate sales by our customers to end users located in such states,
such jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each such state. Any such new legislation or regulation,
or the application of laws or regulations from jurisdictions whose laws may not
currently apply to our business, could have a material adverse effect on us.
The Telecommunications Act of 1996 imposes criminal liability on persons sending
or displaying in a manner available to minors indecent material on an
interactive computer service such as the Internet and on an entity knowingly
permitting facilities under its control to be used for such activities. Sections
of the Communications Decency Act of 1996 that, among other things, proposed to
impose criminal penalties on anyone distributing "indecent" material to minors
over the Internet, were held to be unconstitutional by the United States Supreme
Court. Legislation similar to the Communications Decency Act could subject us
and/or our customers to potential liability, which in turn could have an adverse
effect on us. Additionally, the Child Online Protection Act of 1998 prohibits
and imposes criminal penalties and civil liability on anyone engaged in the
business of selling or transferring, by means of the World Wide Web, material
that is harmful to minors without restricting access to such material by persons
under seventeen years of age. Numerous states have adopted or are currently
considering similar types of legislation. The imposition upon us, our customers
or other persons of potential liability for such materials carried on or
disseminated through our systems could require us to implement measures to
reduce our exposure to such liability. Such measures may require the expenditure
of substantial resources or the discontinuation of certain product or service
offerings. Further, the costs of defending against any such claims and potential
adverse outcomes of such claims could have a material adverse effect on us. The
Child Online Protection Act has been challenged by civil rights organizations in
part on the grounds that it violates the First Amendment. A United States
District Court has preliminary enjoined enforcement of the law until final
resolution of the case. A similar statute was held unconstitutional by the
United States Supreme Court in 1997.
The law relating to the liability of online service providers, private network
operators and Internet service providers for information carried on or
disseminated through the facilities of their networks is continuing to evolve
and remains unsettled. In the past, at least one court has ruled that Internet
service providers could be found liable for copyright infringement as a result
of information disseminated through their networks. We cannot assure you that
similar claims will not be asserted in the future. Federal laws have been
enacted, however, which, under certain circumstances, provide Internet service
providers with immunity from liability for information that is disseminated
through their networks when they are acting as mere conduits of information. A
Federal Court of Appeals has recently held that the Telecommunications Act
creates immunity from liability on the part of Internet service providers for
libel claims arising out of information disseminated over their services by
third-party content providers. In addition, the Digital Millennium Copyright
Act, enacted in 1998, creates a safe-harbor from copyright infringement
liability for Internet service providers that meet certain requirements. These
requirements include certain technical measures and registering with the
Copyright Office the identity of the provider's Designated Infringement Agent
who is to receive notice of any claims of copyright infringement. We cannot
assure you, however, that the Digital Millennium Copyright Act or any other
legislation will protect us from copyright infringement liability. We maintain
general liability insurance. However, any imposition of liability on us for
alleged negligence, intentional torts such as infringement, or other liability
could have a material adverse effect on us.
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Both the provisioning of Internet access service and the provisioning of
underlying telecommunications services are affected by federal, state and local
regulation. The Federal Communications Commission exercises jurisdiction over
all facilities of, and services offered by, telecommunications carriers to the
extent that they involve the provision, origination or termination of
jurisdictionally interstate or international communications, including by
competitive local exchange carriers. The state regulatory commissions retain
jurisdiction over the same facilities and services to the extent they involve
origination or termination of jurisdictionally intrastate communications. In
addition, as a result of the passage of the Telecommunications Act, state and
federal regulators share responsibility for implementing and enforcing the
domestic pro-competitive policies of the Telecommunications Act. In particular,
state regulatory commissions have substantial oversight over the provision of
interconnection and non-discriminatory network access by incumbent local
exchange carriers. Municipal authorities generally have some jurisdiction over
access to rights of way, franchises, zoning and other matters of local concern.
Government agencies do not regulate Internet operations distinctly from their
regulation of businesses generally. However, the Federal Communications
Commission continues to review its regulatory position on the usage of the basic
network and communications facilities by Internet and other network service
providers. In an April 1998 report, the Federal Communications Commission
determined that Internet service providers should not be treated as
telecommunications carriers and should consequently not regulated. However, this
report stated that it expected the regulatory status of Internet service
providers in the future to continue to be uncertain. The report concluded that
certain services offered over the Internet, such as phone-to-phone Internet
protocol telephony, may be functionally indistinguishable from traditional
telecommunications service offerings, and their non-regulated status may have to
be re-examined.
Changes in the regulatory structure and environment affecting the Internet
access market, including regulatory changes that directly or indirectly affect
telecommunications costs or increase the likelihood of competition from regional
Bell operating companies or other telecommunications companies, could have an
adverse effect on our business. Although the Federal Communications Commission
has decided not to allow local telephone companies to impose per-minute access
charges on Internet service providers, and that decision has been upheld by the
reviewing court, further regulatory and legislative consideration of this issue
is likely. In addition, some telephone companies are seeking relief through
state regulatory agencies. Such rules, if adopted, are likely to have a greater
impact on consumer-oriented Internet access providers than on business-oriented
Internet service providers, such as us. Nonetheless, the imposition of access
charges would affect our costs of serving dial-up customers and could have a
material adverse effect on us.
We have recently received approval to operate as a competitive local exchange
carrier in California and intend to apply to receive similar status in other
states. Where we have competitive local exchange carriers status, regional Bell
operating companies are obligated to provide us with local connectivity loops at
prices that are substantially below the prices paid by Internet and other
network service providers that are not competitive local exchange carriers. As a
provider of domestic basic telecommunications services, particularly competitive
local exchange services, we could become subject to further regulation by the
Federal Communications Commission and/or other regulatory agencies, including
those at the state and local levels. The Telecommunications Act has caused
fundamental changes in the markets for local exchange services. In particular,
the Telecommunications Act and the Federal Communications Commission rules
issued pursuant to it mandate competition in local markets and require that
incumbent local exchange carriers interconnect with competitive local exchange
carriers. Under the provisions of the Telecommunications Act, the Federal
Communications Commission and state public utility commissions share
jurisdiction over the implementation of local competition, the Federal
Communication Commission was required to promulgate general rules and the state
commissions were required to arbitrate and approve individual agreements.
However, the Federal Communication Commission interconnection rules implementing
the Telecommunications Act were appealed and, in the case of the "national
pricing" rules, vacated. The Supreme Court has agreed to review this lower court
decision and heard oral arguments on this matter on October 13, 1998. Pending
the Supreme Court's decision, state public utility commissions are free to
develop independent pricing policies for interconnection, unbundled access,
resale, and transport and termination of local telecommunications traffic.
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A critical issue for competitive local exchange carriers is the right to receive
reciprocal compensation for the transport and termination of Internet traffic.
We believe that, under the Telecommunications Act and current Federal
Communications Commission rules, competitive local exchange carriers are
entitled to receive reciprocal compensation from incumbent local exchange
carriers. However, some incumbent local exchange carriers have disputed payment
of reciprocal compensation for Internet traffic, arguing that Internet service
provider traffic is not local traffic. Most states have required incumbent local
exchange carriers to pay Internet service providers reciprocal compensation.
However, federal regulators and some state regulators are currently considering
the proper jurisdictional classification of local calls placed to an Internet
service provider and whether Internet service provider calling triggers an
obligation to pay reciprocal compensation. On October 30, 1998, the Federal
Communications Commission determined that dedicated digital subscriber line
service is an interstate service and properly tariffed at the interstate level.
On February 25, 1999, the Federal Communications Commission ruled that calls to
Internet service providers for Internet access were long distance, not local,
calls. However, the ruling upheld existing reciprocal compensation agreements in
some states, including California. If incumbent local exchange carriers charge
fees for carrying Internet traffic and Internet access becomes more expensive,
this ruling may have an adverse effect on our potential future revenues as well
as increase our costs.
As we become a competitor in local exchange markets, we will become subject to
state requirements regarding provision of intrastate services. These
requirements may include the filing of tariffs containing rates and conditions.
As a new entrant without market power, we expect to face a relatively flexible
regulatory environment. Nevertheless, it is possible that some states could
impose a variety of requirements on our operations, such as the approval of the
public utilities commission for the issuance of debt or equity or other
transactions that would result in a lien on our property used to provide
intrastate services.
EMPLOYEES
As of March 15, 1999, we had 59 employees, of which 24 were employed in sales
and marketing, eight were assigned to engineering and service development, 15
were employed in customer service and technical support, and 12 were in finance
and administration. We believe that our future success will depend in part upon
our continued ability to attract, hire and retain qualified personnel. The
competition for such personnel is intense, and we may not be able to identify,
attract and retain such personnel in the future. None of our employees is
represented by a labor union, and management believes that our employee
relations are good.
FACILITIES
Our executive offices are located in San Francisco, California and consist of
approximately 4,650 square feet that are leased pursuant to an agreement that
expires in May 1999 with a three year renewal option. Additionally, we sublease
additional offices in San Francisco, California of approximately 3,500 square
feet pursuant to an agreement that expires in September 1999. We also have a
network operating center in San Francisco of approximately 4,000 square feet
under a lease expiring in 2005. Beginning in the second quarter 1999, we intend
to commence relocating and consolidating our San Francisco operations to a
single site. We intend to complete the relocation and consolidation in the
fourth quarter of 1999. We are also currently in negotiations with the lessor of
our San Francisco network operating center to lease additional space. We also
intend to complete the expansion of our main operational center in Sacramento,
California in the fourth quarter of 1999. This Sacramento facility consists of
4,000 square feet under a lease agreement that expires in 2001. In addition, we
lease approximately 1,100 square feet in Vienna, Virginia (a major network
access point often referred to as MAE East) under an agreement that expires in
2000 with a five year renewal option. We also lease approximately 1,400 square
feet in the One Wilshire Building in Los Angeles under an agreement that expires
in 2001. We lease facilities in 26 other cities throughout the United States for
our sales offices and regional network operating centers.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our directors, director nominees, executive officers and key employees are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS:
James G. Couch............. 34 President, Chief Executive Officer, Chairman of the
Board and Secretary, Member of the Compensation
Committee
John A. Blair.............. 52 Vice President of Business Development and Director
Nominee
Steven T. Stenberg......... 38 Director and Member of the Audit and Compensation
Committees
Jack M. Fields, Jr......... 47 Director Nominee and Member of the Audit and
Compensation Committees
Thor Geir Ramleth.......... 40 Director Nominee
KEY EMPLOYEES:
Robyn L. Raschke........... 34 Vice President of Finance
Philip A. Burkhart......... 37 Vice President of Channel Sales
Robert L. Ross............. 29 President, Integral Networking Corporation
Tracy M. Corrington........ 33 Director of Marketing
David L. Greenman.......... 31 Director of Systems Engineering
Richard J. Quosig.......... 45 National Sales Director
</TABLE>
JAMES G. COUCH founded our company in 1983 and has been President, Chief
Executive Officer and Chairman of the Board since incorporation in 1993. He
began developing applications for advanced networking systems with CRL and
worked closely with the National Science Foundation and Bellcore in the
transition of the Internet to a commercial medium.
JOHN A. BLAIR has served as Vice President of Business Development since October
1998 and has agreed to serve as a director of our company upon completion of the
offering. Prior to joining us, Mr. Blair had been, since 1996, the President and
a director of Executive Strategies, a management consulting company that serves
the hi-tech and Internet service provider markets. From 1994 to 1996, Mr. Blair
was the Vice President of Operations with DG Systems, a Silicon Valley start-up.
Mr. Blair also has more than 15 years experience with financial institutions
including Citibank N.A., Ameritrust, and Crocker Bank, and additional experience
in the manufacturing and engineering sectors.
JACK M. FIELDS, JR. has agreed to serve as a director of our company upon
completion of the offering. Since January 1997, Mr. Fields has been the Chief
Executive Officer of Twenty-First Century Group, a government affairs company,
and the Chief Executive Officer of Texana Global, a firm dealing with
entrepreneurial projects in the telecommunications industry. From 1981 to 1996,
Mr. Fields was a member of the United States Congress. During 1995 and 1996, Mr.
Fields served as Chairman of the House Telecommunications and Finance
Subcommittee, which authored the Telecommunications Act of 1996 and has
jurisdiction and oversight over the Federal Communications Commission and the
Securities and Exchange Commission. Mr. Fields is also a director of AIM
Management, Administaff, Inc. and Telscape International, Inc.
STEVEN T. STENBERG has served as a director of our company since March 1999.
Since 1992, Mr. Stenberg has been President and Chief Executive Officer of his
own accounting firm and is a certified public accountant.
THOR GEIR RAMLETH has agreed to serve as director of our company upon completion
of the offering. Mr. Ramleth was the President and Chief Executive Officer of
Genuity, Inc., an Internet service provider,
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from December 1995 to November 1998. Prior to that, Mr. Ramleth was the Manager
of Commercial Systems at Bechtel Group, Inc. from February 1995 to December
1995, where he was responsible for consolidating all commercial systems
activities. From February 1993 to February 1995, Mr. Ramleth was the Practice
Director at Oracle Corporation. Since January 1998, Mr. Ramleth has served as a
director at UWI.com.
ROBYN L. RASCHKE was appointed as our Vice President of Finance effective March
1, 1999. Prior to that, she served as Controller of our company since March
1997. She held the position of Assistant Controller at Greenbrier Capital
Corporation from 1992 to 1997. She has also worked at Touche Ross & Co. as a
senior auditor. Ms. Raschke has a masters degree in accounting from the
University of Georgia and is a certified public accountant.
PHILIP A. BURKHART has served as Vice President of Channel Sales since December
1998. Prior to that, he served as our Vice President of Operations since May
1995. He was instrumental in the build-out of our national backbone network and
developed the technical support/customer service and provisioning departments
within our company. Between 1991 and 1994, Mr. Burkhart worked for KBLCOM/Time
Warner where he managed its data, voice communications and video services and
Internet network throughout South Texas.
ROBERT L. ROSS founded Integral Networking Corporation in 1989 and continues to
serve as its President since our merger with Integral in December 1998. He has
prior experience as a systems engineer at Microage Corp. and is a Certified
Novell Platinum Engineer.
TRACY M. CORRINGTON has served as Director of Marketing since September 1998 and
is responsible for marketing communications, marketing product development and
media relations. Ms. Corrington worked previously with Teleport Communications
Group, Inc. between 1994 and 1998, holding management positions in marketing,
public relations and communications. Prior to that, she worked for seven years
as a print investigative reporter with several media/newspaper companies.
DAVID L. GREENMAN has served as Director of Systems Engineering since December
1998. Mr. Greenman has prior systems management and consulting experience at
Walnut Creek CDROM, Incorporated, where he has been the Systems Manager from
1995 to the present. He also was cofounder and principal architect in 1993 of
The FreeBSD Project, an operating support system that is currently used by a
variety of Fortune 500 businesses, and remains active in that project. Mr.
Greenman has also held positions with Artisans Northwest Productions, Telecom
Broadcasting, Inc., Clear View Satellite Systems and Reynolds Media Services.
RICHARD J. QUOSIG has served as National Sales Director since September 1998 and
has 12 years of telecommunications sales experience. Prior to joining us, Mr.
Quosig worked as General Manager of the flagship Silicon Valley office of
Frontier Global Center from 1997 to September 1998. From March 1996 to February
1997, Mr. Quosig worked as a Strategic Account Manager with Teleport
Communications Group, Inc. From January 1995 to January 1996, Mr. Quosig was a
Regional Sales Manager with Winstar Wireless, where he managed the eastern
portion of the United States. Prior to that, Mr. Quosig was a sales manager with
Nynex Mobile Communications from January 1994 to January 1995. Mr. Quosig was
also the national account manager at McCaw Communications (AT&T Wireless) from
January 1992 to January 1994.
BOARD COMMITTEES
The Audit Committee has the responsibility of reviewing our audited financial
statements and accounting practices, and to consider and recommend the
employment of, and approve the fee arrangements with, independent accountants
for both audit functions and for advisory and other consulting services. Upon
completion of the offering, the Audit Committee will be comprised of Messrs.
Fields and Stenberg. The Compensation Committee reviews and approves the
compensation and benefits for our key executive officers, administers our
employee benefit plans and makes recommendations to the Board of Directors
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regarding such matters. Upon completion of the offering, the Compensation
Committee will be comprised of Messrs. Couch, Fields and Stenberg.
DIRECTORS COMPENSATION
Each non-employee director receives an initial option grant for 30,000 shares
upon becoming a director of CRL and a minimum annual option grant under our 1999
Stock Incentive Plan to purchase 5,000 shares. This amount may be increased for
any particular non-employee directors or all non-employee directors at the
discretion of the Board of Directors, but the maximum number of shares
underlying any annual option granted to any non-employee director may not exceed
shares. The initial option grants and annual option grants generally vest
over a period of three years. See "Management -- Stock Options." We also pay the
expenses of our non-employee directors in attending Board meetings. No
additional compensation is paid to any of our employee directors for serving on
our Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, our Board of Directors did not have a compensation
committee and all compensation decisions were made by the full Board of
Directors. In the year ended December 31, 1998, the full Board of Directors,
which solely consisted of James G. Couch, determined the compensation of all
executive officers, including Mr. Couch in his capacity as President and Chief
Executive Officer. Upon completion of this offering, the Compensation Committee
will make all compensation decisions. No interlocking relationship exists
between the Board of Directors or Compensation Committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
EXECUTIVE COMPENSATION
The table below summarizes the annual and long term compensation paid by us
during the fiscal year ended December 31, 1998 to those persons who were, as of
December 31, 1998, (i) our President and Chief Executive Officer and (ii) our
other compensated executive officer whose total annual salary and bonus exceeded
$100,000 during the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS(#)
--------------------------- -------- ----- --------------- ------------
<S> <C> <C> <C> <C>
James G. Couch........................ $329,527 $ -- -- --
President, Chief
Executive Officer and Director
Philip Burkhart....................... $115,972 $ -- $8,730 --
Vice President of Channel Sales
</TABLE>
- -------------------------
(1) The figures shown in the last column designated "Other Compensation"
represent our forgiveness of a portion of a loan made by CRL to Mr.
Burkhart. Until December 1998, Mr. Burkhart served as the Vice President of
Operations and was an executive officer of CRL.
No options were granted to the named executives in the last fiscal year.
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AGGREGATED OPTION EXERCISES DURING LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The table below sets forth information regarding options exercised during the
year ended December 31, 1998 by the executive officers identified in the Summary
Compensation Table above, as well as the aggregate value of unexercised options
held by those executive officers at December 31, 1998. We have no outstanding
stock appreciation rights.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James G. Couch............ -- -- 38,421 153,685 $125,637 $502,550
Philip Burkhart........... -- -- 38,421 153,685 125,637 502,550
</TABLE>
- -------------------------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of fair
market value of common stock of $5.10 per share. Therefore, the value of
options in the table is calculated based on the $5.10 per share value, less
the applicable exercise price per share, multiplied by the number of shares
underlying these options.
401(K) PLAN
We have an employee profit sharing plan that is intended to qualify as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under our 401(k) Plan, our officers and other employees may elect to defer up to
15% of their compensation, subject to limitations under the Internal Revenue
Code. We may from time to time also make contributions on behalf of each officer
or other employee, which contributions vest depending on the length of
employment of each respective officer or employee. Amounts deferred are
deposited by us in a trust account for distribution to employees upon
retirement, attaining age 65, permanent disability, death, termination of
employment or the occurrence of conditions constituting extraordinary hardship.
We have not made matching contributions on behalf of our officers and other
employees in the past.
STOCK OPTIONS
1997 Equity Incentive Plan
On August 8, 1997, our Board of Directors adopted, and our stockholders
approved, the CRL Network Services, Inc. 1997 Equity Incentive Plan. The 1997
Equity Incentive Plan provides for the grant of incentive and non-statutory
options, restricted stock or stock bonuses to purchase up to an aggregate of the
number of shares of common stock equal to 10% of the total number of shares of
our authorized common stock. Incentive stock options can be granted only to our
full-time employees, including officers and directors who are also employees,
while non-statutory stock options, restricted stock and stock bonuses can be
granted to our employees, officers and directors, consultants and advisors.
Participants in the 1997 Equity Incentive Plan are selected by our Board of
Directors, or by a committee of directors selected by the Board of Directors.
The Board of Directors or the committee is empowered to determine the terms and
conditions of each award granted under the 1997 Equity Incentive Plan, subject
to limitations including that no option can have a term in excess of ten years,
or five years if granted to an employee owning more than 10% of our outstanding
common stock. In the event of:
- a merger or consolidation in which we are not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary or a
reincorporation in a different jurisdiction)
- our dissolution or liquidation
- a sale of all or substantially all of our assets
- any other transaction that qualifies as a "corporate action" under Section
424(a) of the Internal Revenue Code
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the number of vested shares under all options granted pursuant to the 1997
Equity Incentive Plan will increase as if the holder had remained our employee
for an additional one year from the date of such event. The Board of Directors
may amend or modify the 1997 Equity Incentive Plan at any time subject to any
required shareholder approval. The 1997 Equity Incentive Plan will terminate on
the earliest of:
- August 7, 2007
- the date in which all shares available for issuance under the 1997 Equity
Incentive Plan have been issued as fully-vested shares
- the termination of all outstanding options in connection with a change of
control in which the successor corporation does not assume the 1997 Equity
Incentive Plan
As of December 31, 1998, options to purchase 952,987 shares, at a weighted
average exercise price of $2.11, were outstanding under the 1997 Equity
Incentive Plan. There have been no restricted stock awards or stock bonuses
awarded. We do not intend to make any further option grants under this plan.
1999 Stock Incentive Plan
On March 18, 1999, our Board of Directors adopted, and our stockholders
approved, the CRL Network Services, Inc. 1999 Stock Incentive Plan. The 1999
Stock Incentive Plan does not limit any award to any specified form or
structure. The types and amount of awards will be determined at the discretion
of the Board of Directors or committee of the Board of Directors empowered to
administer the 1999 Stock Incentive Plan. The maximum number of shares of common
stock that may be issued under the 1999 Stock Incentive Plan is 1,000,000
shares. If incentive stock options are issued, these options must comply with
Section 422 of the Internal Revenue Code. Participants in the 1999 Stock
Incentive Plan are selected by a committee of directors selected by the Board of
Directors as a whole, each member of which must be a "non-employee director" as
this term is defined under the Securities Exchange Act of 1934, as amended. This
committee is also empowered to determine the terms and conditions of each option
or other stock-based award granted under the 1999 Stock Incentive Plan, subject
to the limitations regarding incentive stock options imposed by the Internal
Revenue Code. The Board of Directors may amend or modify the 1999 Stock
Incentive Plan at any time subject to any required shareholder approval. The
1999 Stock Incentive Plan will terminate on March 17, 2009. There are currently
no options or other awards outstanding under the 1999 Stock Incentive Plan.
EMPLOYMENT AGREEMENTS
We entered into an employment agreement with James G. Couch, our President and
Chief Executive Officer, on March 15, 1999. Under the terms of this employment
agreement, Mr. Couch will receive an annual base salary of $320,000, which may
be increased at the discretion of the Board of Directors, and at the discretion
of the Board of Directors, a bonus. The term of this employment agreement ends
on February 28, 2002, and is automatically renewable for consecutive one-year
periods unless advance notice is given by either party. We may terminate Mr.
Couch or Mr. Couch may voluntarily resign at any time. If Mr. Couch is
terminated by us without cause, he will by entitled to receive twelve months'
salary, payable in equal monthly installments over the twelve month period
following termination. We are not obligated to pay any specified amount if we
terminate Mr. Couch for cause.
In connection with our merger with Integral Networking Corporation, we entered
into an employment agreement and a non-competition agreement with Robert L.
Ross, Integral's President, to continue to serve as President of Integral
Networking Corporation, our wholly-owned subsidiary. The employment agreement's
term expires December 21, 2000. Mr. Ross receives a specified salary and a bonus
based upon targeted personal and company performance. We may terminate Mr. Ross
at any time upon written notice. Mr. Ross may terminate his employment with us
if we fail to cure any breach within 30 days following written notice from him
to us describing the breach. In the event that we terminate Mr. Ross's
employment without cause before the end of its term, we are obligated to pay Mr.
Ross his salary until the end of the term or for three months, whichever is
less.
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For more information regarding our arrangements with our key employees, See
"Risk Factors -- Our success will depend on the performance and integration of
our key personnel."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Certificate of Incorporation and Bylaws require us to indemnify our
officers, directors, employees and other agents to the full extent permitted by
law, including those circumstances in which indemnification would otherwise be
discretionary. Delaware law provides that a corporation's certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director for monetary damages for breach of their fiduciary
duties as directors, except for liability for any breach of their duty of
loyalty to the corporation or its stockholders, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law or any
transaction from which the director derived an improper personal benefit. Our
Bylaws also permit us to advance expenses incurred by an indemnified director or
officer in connection with the defense of any action or proceeding arising out
of such director's or officer's status or service as one of our directors or
officers upon any undertaking by such director or officer to repay such advances
if it is ultimately determined that such director or officer is not entitled to
such indemnification. In addition, our Certificate of Incorporation expressly
authorizes the use of indemnification agreements. We currently have no
indemnification agreements with our officers, directors or employees.
CERTAIN TRANSACTIONS
We are party to an airplane leasing agreement with FBN Holding Corp., the sole
stockholder of which is James G. Couch, our President and Chief Executive
Officer. Under the terms of this agreement, we can elect to lease aircraft from
FBN on an hourly basis at FBN's then prevailing rate, which includes, without
additional charge, all fuel, insurance, repairs and maintenance. Changes in the
FBN prevailing hourly rate require 30 days written prior notice to us. Either
party may terminate the lease upon 15 days prior notice. During 1998, we paid
FBN an aggregate of approximately $144,000 for our use, at various times during
the year, of an airplane owned by FBN. We believe the rates charged by FBN are
equivalent to the rates we could obtain from unaffiliated third parties. We have
sent written notice to FBN terminating this airplane leasing agreement effective
April 30, 1999.
In August 1995, we made a loan in the amount of $106,000 with an interest rate
of 7.5% to Mr. Couch. The promissory note delivered to us specified that the
entire principal amount plus accrued interest was to be repaid by July 10, 2000.
During 1998, the stockholder repaid the entire remaining amount outstanding
under the promissory note.
We have employment agreements with Messrs. Couch and Ross. See
"Management -- Employment Agreements."
All future transactions among us, our directors, principal stockholders and
their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested directors.
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<PAGE> 61
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 15, 1999, and as adjusted to reflect
the sale of shares by us and the sale of shares by the
selling stockholder, by (i) each of our directors and director nominees, (ii)
each person or group known to us to be the beneficial owner of more than 5% of
our outstanding common stock, (iii) our named executive officers whose total
salary and bonus exceeded $100,000 during the year ended December 31, 1998, (iv)
the selling stockholder, and (v) all of our directors and executive officers as
a group. Each of these persons has the sole voting and investment power with
respect to the shares owned. Except as otherwise indicated, the address of each
holder identified below is care of CRL Network Services, Inc., One Kearny
Street, Suite 1450, San Francisco, California 94108.
<TABLE>
<CAPTION>
SHARES NUMBER SHARES
BENEFICIALLY OWNED OF BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES AFTER THE OFFERING(1)
--------------------- BEING ---------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ---------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
James G. Couch........................ 18,582,421(2) 97.7% %
Philip Burkhart(3).................... 38,421(4) 0.2% -- 38,421
John A. Blair......................... -- -- -- -- --
Steven T. Stenberg.................... -- -- -- -- --
Jack M. Fields, Jr. .................. -- -- -- -- --
Thor Geir Ramleth..................... -- -- -- -- --
All directors and executive officers
as a group (3 persons).............. 18,582,421(2) 97.7% %
</TABLE>
- -------------------------
(1) In calculating beneficial and percentage ownership, all shares of common
stock that a named stockholder or specified group will have the right to
acquire within 60 days of the date of this prospectus upon exercise of
stock options are deemed to be outstanding for the purpose of computing the
ownership of such stockholder, but are not deemed to be outstanding for the
purpose of computing the percentage of common stock owned by any other
stockholder. As of March 15, 1999, an aggregate of 18,978,833 shares of
common stock were outstanding.
(2) Includes 38,421 shares issuable upon exercise of stock options held by Mr.
Couch but does not include 153,685 shares issuable upon exercise of stock
options that have been granted but are not exercisable within 60 days of
the date of this prospectus.
(3) Until December 1998, Mr. Burkhart was an executive officer of CRL, serving
as Vice President of Operations.
(4) Includes 38,421 shares issuable upon exercise of stock options held by Mr.
Burkhart but does not include 153,685 shares issuable upon exercise of
stock options which have been granted but are not exercisable within 60
days of the date of this prospectus.
57
<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist of
shares of common stock, $.01 par value, and shares of
preferred stock, $.01 par value. The description of our capital stock below and
certain provisions of our charter documents is not complete and is qualified by
our Certificate of Incorporation and Bylaws, which are included as exhibits to
the Registration Statement that this prospectus is a part of, and by applicable
provisions of the Delaware General Corporation Law.
COMMON STOCK
As of March 15, 1999, there were 18,978,833 shares of common stock outstanding
that were held of record by four stockholders. Upon completion of this offering,
there will be shares of our common stock outstanding
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options. Holders of the common stock are entitled to one vote per
share on each matter submitted to a vote of our stockholders. Cumulative voting
for the election of directors is not authorized by our Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. Subject to
preferences that may be applicable to the holders of any outstanding series of
our preferred stock, each holder of common stock is entitled to receive
dividends, if any, as may be declared by our Board of Directors out of funds
legally available for the payment of dividends. We have not granted dividends in
the past and have no current plans to do so in the future. See "Dividend
Policy." Upon our liquidation, dissolution or winding up, our common
stockholders are entitled to share ratably in all of our assets which are
legally available for distribution, after payment of all debts and other
liabilities and the liquidation preference of any outstanding series of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of common stock are, and
the shares to be sold by us in the offering will be, when issued and delivered,
validly issued, fully-paid and non-assessable under the Delaware General
Corporation Law.
PREFERRED STOCK
As of March 15, 1999, no shares of preferred stock are outstanding. Our Board of
Directors is authorized, subject to any limitations of the Delaware General
Corporation Law, but without further vote or action by our stockholders, to
issue preferred stock in one or more series. The Board of Directors can
establish the number of shares of each series, to fix the designations, powers,
preferences and rights of the shares of each such series and any qualifications,
limitations or restrictions of the preferred stock, and to increase or decrease
the number of shares of any such series, but not below the number of shares of
such series then outstanding. The Board of Directors may authorize the issuance
of preferred stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of common stock. While providing
flexibility in connection with possible acquisitions and other corporate
purposes, the issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of our company. We have no current
plans to issue any shares of preferred stock.
CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Stockholder Meetings
Our Bylaws provide that any action required to be taken or that may be taken at
any meeting of our stockholders may only be taken at a meeting of stockholders
and may not be taken by the written consent of the stockholders. Special
meetings of stockholders may only be called by the Board of Directors, the
Chairman of the Board or the President and only such business brought forth by
or at the direction of the Board of Directors or the stockholders may be
conducted. If a stockholder wishes to propose an item for consideration at any
meeting, the stockholder must give written notice to us not less than 90 days
before the meeting or, if later, the tenth day following the date of the first
public announcement of the meeting, or such other date as is necessary to comply
with applicable federal proxy solicitation rules and other regulations.
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<PAGE> 63
Board of Directors
Our Bylaws provide that the number of directors may not be less than three nor
more than seven until changed by an amendment duly adopted by the Board of
Directors or stockholders. The Bylaws further provide that the exact number of
directors shall be fixed from time to time, within such range, by the Board of
Directors. Currently, the number of directors is fixed at . The
Bylaws provide that the Board of Directors will be divided into three classes of
directors, which serve for staggered three-year terms. The Bylaws do not provide
for cumulation of stockholder votes in the election of directors. According to
the Bylaws, each director may be removed only for cause and only by the
affirmative vote of at least 80% of the outstanding shares of common stock. The
Bylaws provide that nominations for election of directors may be made by the
Board of Directors or any stockholder entitled to vote in the election of
directors. If a stockholder wishes to nominate a director, the stockholder must
give written notice to us not less than 90 days before the meeting or, if later,
the tenth day following the date of the first public announcement of the
meeting.
Amendment of Our Charter Documents
Our Certificate of Incorporation may not be amended without the approval the
holders of a majority of our outstanding voting shares or the approval of at
least a majority of our directors. Our Bylaws contain provisions requiring the
affirmative vote of at least 80% of outstanding shares of common stock to amend,
alter or repeal the provisions of the Bylaws relating to the calling of special
meetings of stockholders, advance notice of stockholder business or nominees,
removal of directors or stockholder action without a meeting.
These provisions of our charter documents may delay, defer or prevent a change
in control without further action by our stockholders, may discourage bids for
the common stock at a premium over the market price of the common stock and may
adversely affect the market price of the common stock.
Effect of Delaware Anti-takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any "business combination" which includes a merger or sale of more than 10% of
the corporation's assets, with any interested stockholder for a period of three
years following the date that such stockholder became an interested stockholder,
unless:
- before such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon completion of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding those shares owned by persons who are
directors and also officers; or
- on or after such date, the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders,
and not by written consent, by the affirmative vote of at least two-thirds
of the outstanding voting stock which is not owned by the interested
stockholder.
In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or any entity or person affiliated with or controlling or controlled
by such entity or person. See "Risk Factors -- Anti-takeover provisions could
negatively impact our stockholders."
59
<PAGE> 64
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is . Its
address is and its telephone number is .
LISTING
Application has been made to have our common stock approved for quotation on the
Nasdaq National Market under symbol "CRLX."
60
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. Future
sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices.
Upon completion of this offering, there will be shares of our common
stock outstanding assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, the
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, except for any such shares held
by our "affiliates" (as defined below). The remaining shares held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted securities and any shares
purchased in the offering by one of our "affiliates" may not be sold in the
public market without registration under the Securities Act or in compliance
with an applicable exemption from registration as provided in Rule 144 or 701
under the Securities Act, which rules are summarized below.
In general, under Rule 144 as currently in effect, a person or persons whose
shares are aggregated who has beneficially owned shares of our common stock for
at least one year including the holding period of any prior owner other than any
of our "affiliates," or who is one of our "affiliates," is entitled to sell
within any three-month period a number of shares or, in the case of an
"affiliate," a number of such restricted securities and shares purchased in the
public market, that does not exceed the greater of:
- 1% of the shares of our common stock then outstanding, equaling
approximately shares immediately after this offering, or
- the average weekly trading volume of our common stock in the public market
during the four calendar weeks immediately before such sale.
Sales under Rule 144 are also subject to certain requirements as to the manner
of sale, notice and availability of current public information about us.
Under Rule 144(k), a person who has not been one of our "affiliates" at any time
during the 90 days before a sale, and who has beneficially owned shares proposed
to be sold for at least two years, is entitled to sell such shares without
regard to the volume limitations, manner of sale provisions or notice
requirements.
Subject to certain limitations on the aggregate offering price of a transaction
and other conditions, Rule 701 of the Securities Act, as currently in effect,
permits the resale of securities originally purchased from us by our employees,
directors, officers, consultants or advisers prior to the closing of this
offering in connection with a compensatory stock or option plan or written
agreement, by persons who are not our "affiliates" subject only to the
manner-of-sale provisions of Rule 144 and by our affiliates under Rule 144
without compliance with its minimum holding period requirement.
All of our officers, directors and stockholders have agreed that they will not,
without the prior written consent of CIBC Oppenheimer Corp., which consent may
be withheld in its sole discretion, and subject to certain limited exceptions,
directly or indirectly, sell, offer, contract or grant any option to sell, make
any short sale, pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of any shares of common stock, options or warrants to acquire common stock, or
securities exchangeable or exercisable for or convertible into common stock
currently owned either of record or beneficially by them or announce the
intention to do any of the acts listed above, for a period beginning on the date
of this prospectus and continuing to the date which is 180 days after the date
of this prospectus. CIBC Oppenheimer Corp. may, in its sole discretion and any
time without notice, release all or any portion of the securities subject to
these lock-up agreements. In addition, we have agreed that, for a period of 180
days after the date of this prospectus, we will not, without the consent of CIBC
Oppenheimer Corp., issue, offer, sell or grant options to purchase or otherwise
dispose of any equity securities or securities convertible into or exchangeable
for equity securities except for (i) the issuance of shares of common stock
offered hereby and (ii) the grant of options to
61
<PAGE> 66
purchase shares of common stock under the 1999 Stock Incentive Plan and shares
of common stock issued upon the exercise of outstanding options on or after the
date of this prospectus. See "Underwriting."
There are no restrictions on resale with respect to any of our securities, other
than restrictions imposed by lock-up agreements and applicable securities laws.
As a result of the lock-up agreements described above and the provisions of Rule
144 and 701, the restricted shares will be available for sale in the public
market immediately upon expiration of the 180 day lock-up period, subject to the
volume limitations and other conditions of Rule 144. Sales of our common stock
by these stockholders could have a material adverse effect on the trading price
of our common stock.
We have granted options to purchase up to 1,006,320 shares of common stock under
the 1997 Equity Incentive Plan. Concurrently with the sale of the shares offered
hereby, we will grant options to purchase an additional shares of
common stock pursuant to the 1999 Equity Incentive Plan. An additional
shares currently are reserved for issuance under the 1999 Stock
Incentive Plan. No options are outstanding under the 1999 Stock Incentive Plan.
Immediately after this offering, we intend to register the sale of the shares of
common stock issuable under the 1997 Equity Incentive Plan and 1999 Stock
Incentive Plan under the Securities Act. See "Management -- Stock Options."
Accordingly, as awards under the stock option plans vest, shares issued upon
exercise of these stock options will be freely tradable and available for sale
in the open market, immediately after the 180-day lock-up agreements expire,
except such shares as may be acquired by one of our "affiliates."
62
<PAGE> 67
UNDERWRITING
CRL Network Services, Inc. and the selling stockholder have entered into an
underwriting agreement with the underwriters named below. CIBC Oppenheimer Corp.
and Lehman Brothers Inc. are acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
CIBC Oppenheimer Corp. .....................................
Lehman Brothers Inc.........................................
Total.......................................................
</TABLE>
This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased.
The representatives have advised CRL and the selling stockholder that the
underwriters propose to offer the shares directly to the public at the public
offering price that appears on the cover page of this prospectus. In addition,
the representatives may offer some of the shares to certain securities dealers
at such price less a concession of $ per share. The underwriter may also
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After the shares are released for sale to the
public, the representatives may change the offering price and other selling
terms at various times.
CRL and the selling stockholder have granted the underwriters an over-allotment
option. This option, which is exercisable for up to 30 days after the date of
this prospectus, permits the underwriters to purchase a maximum of
additional shares from the selling stockholder or, at the selling stockholder's
option, CRL, to cover over-allotments. If the underwriters exercise all or part
of this option, they will purchase shares covered by the option at the initial
public offering price that appears on the cover page of this prospectus, less
the underwriting discount. If this option is exercised in full from the selling
stockholder, the total price to public will be $ , the total proceeds
to CRL will be $ and the total proceeds to the selling stockholder will
be $ . If this option is exercised in full from CRL, the total proceeds to
CRL will be $ and the total proceeds to the selling stockholder will be
$ . The underwriters have severally agreed that, to the extent the
over-allotment option is exercised, they will each purchase a number of
additional shares proportionate to the underwriter's initial amount reflected in
the foregoing table.
The following table provides information regarding the amount of the discount to
be paid to the underwriters by CRL and the selling stockholder.
<TABLE>
<CAPTION>
TOTAL WITH FULL TOTAL WITH FULL
EXERCISE OF EXERCISE OF
TOTAL WITHOUT EXERCISE OF OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OVER-ALLOTMENT OPTION OPTION(1) OPTION(2)
--------- ------------------------- --------------- ---------------
<S> <C> <C> <C> <C>
CRL Network Services, Inc......... $ $ $ $
Selling Stockholder............... $ $ $ $
Total................... $ $ $ $
</TABLE>
- -------------------------
(1) Assumes the over-allotment shares are sold by the selling stockholder.
(2) Assumes the over-allotment shares are sold by CRL.
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<PAGE> 68
CRL and the selling stockholder estimate that their portions of the total
expenses of the offering, excluding the underwriting discount, will be
approximately $ and $ , respectively.
CRL and the selling stockholder have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
CRL, its officers and directors and other stockholders have agreed to a 180-day
"lock up" with respect to shares of common stock and certain
other CRL securities that they beneficially own, including securities that are
convertible into shares of common stock and securities that are exchangeable or
exercisable for shares of common stock. This means that, for a period of 180
days following the date of this prospectus, CRL and such persons may not offer,
sell, pledge or otherwise dispose of these CRL securities without the prior
written consent of CIBC Oppenheimer Corp.
The representatives have informed CRL that they do not expect discretionary
sales by the underwriters to exceed five percent of the shares offered by this
prospectus.
There is no established trading market for the shares. The offering price for
the shares has been determined by CRL and the representatives, based on the
following factors:
- negotiations among CRL and the representatives
- prevailing market and economic conditions
- certain financial information of CRL
- the history of, and the prospects for CRL
- CRL and the industry in which it competes
- an assessment of CRL management, its past and present operations, the
prospects for, and timing of, future revenues of CRL
- the present stage of CRL's development and the above factors in relation to
market values and various valuation measures of other companies engaged in
activities similar to those of CRL's
The initial public offering price set forth on the cover page of this prospectus
should not, however, be considered an indication of the actual value of the
common stock. Such price is subject to change as a result of market conditions
and other factors. There can be no assurance that an active trading market will
develop for the common stock or that the common stock will trade in the public
market subsequent to this offering at or above the initial offering price.
The underwriters may engage in the following activities in accordance with the
rules of the Securities and Exchange Commission:
- Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions -- The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.
- Penalty bids -- If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group members
who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
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<PAGE> 69
Neither CRL nor the underwriters makes any representation or prediction as to
the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the shares
of common stock offered hereby will be passed upon for us and the selling
stockholder by Gibson, Dunn & Crutcher LLP, San Francisco, California. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California.
EXPERTS
The financial statements included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein in the registration statement, and have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a Registration Statement on
Form S-1 under the Securities Act with respect to the shares of common stock
offered hereby. This prospectus does not contain all of the information
contained in the Registration Statement and the exhibits and schedule filed with
the Registration Statement. For further information with respect to CRL Network
Services, Inc. and the common stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete; reference is made in each instance to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Securities and Exchange Commission's public reference facilities
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Securities and Exchange Commission's regional offices located at the Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of
all or any part of the Registration Statement may be obtained from such offices
after payment of fees prescribed by the Securities and Exchange Commission. The
Securities and Exchange Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange Commission
at http://www.sec.gov.
65
<PAGE> 70
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets As of December 31, 1997 and
1998...................................................... F-3
Consolidated Statements of Operations for the Years ended
December 31, 1996, 1997 and 1998.......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 1996, 1997
and 1998.................................................. F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 1996, 1997 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 71
INDEPENDENT AUDITORS' REPORT
"To the Stockholders and Board of Directors of
CRL Network Services, Inc.:
We have audited the accompanying consolidated balance sheets of CRL Network
Services, Inc. and subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of CRL Network Services, Inc. and
subsidiary as of December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles.
San Francisco, California
March 18, 1999 (March ,1999 as to the last paragraph in note 12)"
The consolidated financial statements included herein reflect the
reincorporation of the Company in the state of Delaware and the associated
exchange of one share of common stock of the Company for every three shares of
common stock of the Company's California predecessor entity as described in Note
12 to the consolidated financial statements. The above report is in the form
which will be signed by Deloitte & Touche LLP upon the effectiveness of such
event, which is described in Note 12 of Notes to the Financial Statements and
assuming that from March 18, 1999 to the effective date of such events, no other
events shall have occurred, other than those described in Note 12 of Notes to
the Financial Statements, that would affect the accompanying consolidated
financial statements and notes thereto.
DELOITTE & TOUCHE LLP
San Francisco, California
March 19, 1999
F-2
<PAGE> 72
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1998
------ ------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents...................................... $1,115 $ 840
Accounts receivable, net of allowances for doubtful
accounts of $162 and $484 in 1997 and 1998,
respectively........................................... 1,229 1,309
Deferred tax assets....................................... 101 85
Other..................................................... 161 131
------ ------
Total current assets................................... 2,606 2,365
Property and equipment, net................................. 1,801 2,445
Other assets................................................ 48 45
------ ------
Total assets...................................... $4,455 $4,855
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 637 $ 892
Deferred revenue.......................................... 603 594
Accrued liabilities....................................... 628 170
Current portion of long-term obligations.................. 166 270
Other..................................................... 18 9
------ ------
Total current liabilities.............................. 2,052 1,935
Deferred tax liabilities.................................... 246 313
Long-term obligations....................................... 402 847
------ ------
Total liabilities...................................... 2,700 3,095
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value shares
authorized; 18,978,833 shares issued and outstanding in
1997 and 1998.......................................... 6 6
Common stock options...................................... 948
Deferred stock compensation............................... (792)
Retained earnings......................................... 1,749 1,598
------ ------
Total stockholders' equity............................. 1,755 1,760
------ ------
Total liabilities and stockholders' equity........ $4,455 $4,855
====== ======
</TABLE>
See notes to the consolidated financial statements.
F-3
<PAGE> 73
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
REVENUES:
Colocation and internet connectivity...................... $4,600 $8,873 $9,681
Systems integration and services.......................... 1,753 1,502 2,011
------ ------ ------
Total revenues.................................... 6,353 10,375 11,692
------ ------ ------
COSTS AND EXPENSES:
Cost of colocation and internet connectivity.............. 2,219 3,631 4,871
Cost of system integration and services................... 1,127 1,009 1,295
Selling and marketing..................................... 345 522 371
General and administrative................................ 1,840 2,997 4,124
Depreciation.............................................. 512 745 909
Stock-based compensation expense.......................... 156
------ ------ ------
Total costs and expenses.......................... 6,043 8,904 11,726
------ ------ ------
OPERATING INCOME (LOSS)..................................... 310 1,471 (34)
Net interest income (expense)............................... 1 5 (30)
------ ------ ------
Income (loss) before income taxes........................... 311 1,476 (64)
Income tax provision........................................ 150 591 87
------ ------ ------
NET INCOME (LOSS)........................................... $ 161 $ 885 $ (151)
====== ====== ======
Net income (loss) per common share --
Basic and diluted......................................... $ 0.01 $ 0.05 $(0.01)
Weighted average common shares outstanding:
Basic..................................................... 18,979 18,979 18,979
Diluted................................................... 18,979 19,142 18,979
</TABLE>
See notes to the consolidated financial statements.
F-4
<PAGE> 74
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON DEFERRED TOTAL
------------------- STOCK STOCK RETAINED STOCKHOLDERS'
SHARES AMOUNT OPTIONS COMPENSATION EARNINGS EQUITY
---------- ------ ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996........... 18,978,833 $6 $ $ $ 703 $ 709
Net income......................... 161 161
---------- -- ---- ----- ------ ------
Balance, December 31, 1996......... 18,978,833 6 864 870
Net income......................... 885 885
---------- -- ---- ----- ------ ------
Balance, December 31, 1997......... 18,978,833 6 1,749 1,755
Compensatory stock arrangements.... 948 (948)
Amortization of deferred stock
compensation..................... 156 156
Net loss........................... (151) (151)
---------- -- ---- ----- ------ ------
Balance, December 31, 1998......... 18,978,833 $6 $948 $(792) $1,598 $1,760
========== == ==== ===== ====== ======
</TABLE>
See notes to the consolidated financial statements.
F-5
<PAGE> 75
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1997 1998
----- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................................... $ 161 $ 885 $ (151)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 512 745 909
Stock-based compensation expense....................... 156
Loss on disposal of fixed assets....................... 13
Deferred taxes......................................... 52 50 89
Changes in assets and liabilities:
Accounts receivable, net............................. (372) (588) (80)
Other assets......................................... 4 (64) 9
Accounts payable and accrued expenses................ 337 535 209
Other liabilities.................................... 250 170 (18)
----- ------- -------
Net cash provided by operating activities......... 944 1,746 705
----- ------- -------
Cash Flows from Investing Activities:
Additions to property and equipment....................... (988) (1,336) (1,553)
Proceeds from sale of property and equipment.............. 17 143
Decrease in notes receivable from related parties, net.... 66 11 24
----- ------- -------
Net cash used in investing activities............. (905) (1,182) (1,529)
----- ------- -------
Cash Flows from Financing Activities:
Credit line borrowings.................................... 358 703
Principal payments on borrowings.......................... (14) (42) (154)
----- ------- -------
Net cash provided by (used in) financing
activities...................................... (14) 316 549
----- ------- -------
Net Increase (Decrease) in Cash and Equivalents............. 25 880 (275)
Cash and Equivalents at Beginning of Year................... 210 235 1,115
----- ------- -------
Cash and Equivalents at End of Year......................... $ 235 $ 1,115 $ 840
===== ======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest.................................... $ 7 $ 23 $ 70
Cash paid for taxes....................................... 165 166 577
Supplemental Disclosure of Noncash Financing Activities:
Equipment acquired under capital lease.................... $ 133 $ 133
</TABLE>
See notes to the consolidated financial statements.
F-6
<PAGE> 76
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY -- CRL Network Services, Inc. and subsidiary ("CRL" or the
"Company") was incorporated in the state of California in 1993. CRL is a Tier 1
Internet service provider focused on offering tailored Internet and network
management solutions to small and medium-sized businesses across the United
States through a national fiber-optic data network.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
accounts of CRL and its wholly owned subsidiary. All intercompany balances and
transactions have been eliminated.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND EQUIVALENTS -- The Company considers all highly liquid monetary
instruments with an original maturity of three months or less from the date of
purchase to be cash equivalents.
PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost and
depreciated using the straight-line method over their useful lives. Equipment
held under capital leases is amortized on the straight-line method over the
shorter of the lease term or the estimated useful life of the asset. Estimated
useful lives are as follows:
<TABLE>
<S> <C>
Machinery, equipment and purchased software................. 3 to 5
Furniture and fixtures...................................... 5 to 7
Airplane.................................................... 10
</TABLE>
REVENUE RECOGNITION -- Revenues from colocation and internet connectivity are
recognized when the services are performed. Revenues from systems integration
and services are recognized when hardware is shipped and the installation and
integration is complete. Deferred revenue represents amounts billed in advance
of services not yet provided.
ADVERTISING EXPENSES -- All costs related to marketing and advertising the
Company's products are expensed in the periods incurred. Advertising expenses
were $80, $27 and $60 for 1996, 1997 and 1998, respectively.
INCOME TAXES -- The Company accounts for income taxes using the asset and
liability method in accordance with Statement of Financial Accounting Standards
No. 109 ("SFAS 109"). Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
STOCK-BASED COMPENSATION -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees. Accordingly, no accounting recognition
is given to stock options granted at fair market value until they are exercised.
Compensation expense related to employee stock options is recorded if, on the
date of grant, the fair value of the underlying stock exceeds the exercise
price.
CONCENTRATION OF CREDIT RISK -- Financial instruments that potentially subject
the Company to concentration of credit risk consist of trade receivables. The
Company's receivables are subject to geographic concentrations of credit risk.
This risk is mitigated by the Company's credit evaluation process
F-7
<PAGE> 77
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and the reasonably short collection terms. The Company does not require
collateral or other security to support accounts receivable and maintains
reserves for potential credit losses.
FINANCIAL INSTRUMENTS -- The Company's financial instruments include cash and
equivalents, accounts receivable and debt. At December 31, 1997 and 1998, the
carrying amounts of these instruments approximates their fair values.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF -- The
Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
NET INCOME (LOSS) PER SHARE -- Basic income (loss) per share excludes dilution
and is computed by dividing net income (loss) by the weighted-average number of
common shares outstanding for the period. Diluted income (loss) per share
reflects the potential dilution that could occur if options to issue common
stock were exercised.
STOCKHOLDERS' EQUITY -- In August 1997, the Company's Board of Directors
authorized a 2,318 for 1 stock split. The stock split was effective and
distributed to the sole stockholder of record on August 8, 1997. Additionally,
in December 1998, the Company's Board of Directors authorized a 20 for 1 stock
split. The stock split was effective and distributed to the sole stockholder of
record on December 2, 1998. All share information in the financial statements
has been restated to give retroactive recognition to the stock splits.
In December 1998, the Board also authorized an increase in the number of
authorized shares of common stock to 200,000,000 (not giving effect to the
reincorporation).
COMPREHENSIVE INCOME -- There are no differences between comprehensive income
and net income as reported in the Company's statements of operations.
RECLASSIFICATIONS -- Certain prior years amounts have been reclassified to
conform to the current year presentation. Such reclassifications had no effect
on stockholders' equity or net income (loss).
RECENTLY ISSUED ACCOUNTING STANDARDS -- In March 1998, the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
issued SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 provides guidance for an enterprise on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 is effective for the Company in fiscal 1999. The Company
anticipates that accounting for transactions under SOP 98-1 will not have a
material impact on the Company's financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. SFAS No. 133 is effective for the Company in fiscal
2000. The Company does not believe adoption of this statement will have a
material impact on the Company's financial position or results of operations.
F-8
<PAGE> 78
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- MERGER
On December 21, 1998, the merger of Integral Networking Corporation ("Integral")
was completed. Under the terms of the Integral merger, which was accounted for
as a pooling-of-interests, 434,833 shares of CRL common stock were exchanged for
all of the outstanding Integral common shares at an exchange ratio of 5.80
shares of CRL for each share of Integral.
The financial information for all prior periods presented has been restated to
present the combined financial condition and results of operations for both
companies as if the merger had been in effect for all periods presented.
The following table presents a reconciliation of net sales and net income (loss)
previously reported by the company to those presented in the accompanying
consolidated financial statements.
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Net sales:
CRL.......................................... $5,206 $ 9,340 $ 9,929
Integral..................................... 1,147 1,035 1,763
------ ------- -------
Combined....................................... $6,353 $10,375 $11,692
------ ------- -------
Net income (loss):
CRL.......................................... $ 237 $ 891 $ (123)
Integral..................................... (76) (6) (28)
------ ------- -------
Combined....................................... $ 161 $ 885 $ (151)
====== ======= =======
</TABLE>
NOTE 3 -- ALLOWANCES FOR DOUBTFUL ACCOUNTS
Allowances for doubtful accounts are estimated and established based on
historical experience and specific circumstances of each customer. Additions to
the allowance are charged to general and administrative expenses. Accounts
receivable are written off against the allowance for doubtful accounts when an
account is deemed uncollectible. Recoveries on accounts receivable previously
charged off as uncollectible are credited to the allowance for doubtful
accounts. Changes in the allowance for doubtful accounts were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ----- ----
<S> <C> <C> <C>
Beginning balance.................................... $ 7 $ 96 $162
Additions............................................ 112 624 508
Writeoffs............................................ (23) (558) (186)
---- ----- ----
Balance, end of year................................. $ 96 $ 162 $484
==== ===== ====
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Machinery, equipment and purchased software................ $2,892 $4,208
Furniture and equipment held under capital lease........... 265 135
Furniture and fixtures..................................... 191 558
Airplane................................................... 40 40
------ ------
Total............................................ 3,388 4,941
Less accumulated depreciation.............................. (1,587) (2,496)
------ ------
Total............................................ $1,801 $2,445
====== ======
</TABLE>
F-9
<PAGE> 79
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- PROPERTY AND EQUIPMENT (CONTINUED)
On April 15, 1997, the Company sold an airplane with book value of $148 for
$143.
The accumulated depreciation associated with furniture and equipment held under
capital lease was $70 and $67 at December 31, 1997 and 1998, respectively.
Effective January 1, 1998, the Company changed the estimated service lives of
certain equipment from three to five years. The effect of this change in
estimate increased 1998 operating income by $237.
NOTE 5 -- LONG-TERM OBLIGATIONS
On September 2, 1997, the Company entered into a revolving line of credit
agreement for $50 with a bank. As of December 31, 1998, the line had no
available credit and a variable interest rate that is 2.5% above the prime rate
(10.25% at December 31, 1998). All borrowings are to be repaid over a period of
no more than five years.
On September 26, 1997, the Company entered into a line of credit agreement for
$500 with a bank. As of December 31, 1998 the line has no available credit and
has a variable interest rate that is 1.75% above the prime rate (9.5% at
December 31, 1998). All borrowings are personally guaranteed by the Chief
Executive Officer and are to be repaid over a period of no more than 8 years. On
March 30, 1998, the Company entered into an equipment line of credit agreement
for $692 with a bank. The equipment line is available for one year at an
interest rate of prime plus 1.5% (9.25% at December 31, 1998). As of December
31, 1998 the line had $95 of available credit. All borrowings are personally
guaranteed by the Chief Executive Officer and are to be repaid over a period of
no more than eight years. At December 31, 1998, principal repayments under these
credit agreement are required as follows:
<TABLE>
<S> <C>
1999........................................................ $ 222
2000........................................................ 223
2001........................................................ 222
2002........................................................ 257
2003........................................................ 104
------
Total............................................. $1,028
======
</TABLE>
In September 1998 the Company entered into two additional credit agreements with
a bank. The first agreement makes $200 available for one year at an interest
rate of prime plus 1.5% for general business purpose. The second agreement is an
equipment line of credit for $650. The equipment line of credit is available for
one year with a variable interest rate of prime plus 1.8%. As of December
31,1998 the Company has had no borrowings under these agreements. All future
borrowings are to be repaid over a period of no more than eight years.
Amounts borrowed under these agreements are secured by substantially all of the
Company's assets.
F-10
<PAGE> 80
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -- INCOME TAXES
Income taxes consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current:
Federal............................................. $ 72 $412 $ 21
State............................................... 26 129 (23)
---- ---- ----
Total current............................... 98 541 (2)
---- ---- ----
Deferred:
Federal............................................. 42 49 41
State............................................... 10 1 48
---- ---- ----
Total deferred.............................. 52 50 89
---- ---- ----
Total provision............................. $150 $591 $ 87
==== ==== ====
</TABLE>
The primary components of the deferred tax accounts as of December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Current deferred tax assets (liabilities):
Allowance for bad debts and other................ $ 27 $ 111 $ 120
Deferred rent.................................... (48) 1
Other............................................ 46 (10) (36)
----- ----- -----
Total current deferred tax assets........ $ 25 $ 101 $ 85
===== ===== =====
Noncurrent deferred tax assets (liabilities):
Deferred rent.................................... $ 8 $ 8 $ 9
Depreciation..................................... (84) (215) (386)
Federal net operating loss....................... 89
Cash to accrual adjustment....................... (42) (33) (25)
Other............................................ (6)
----- ----- -----
Total noncurrent deferred tax
liabilities............................ $(118) $(246) $(313)
===== ===== =====
</TABLE>
The Company's effective tax rate differs from the federal statutory tax rate as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate.............................. 34% 34% (34)%
State taxes, net of federal benefit..................... 6 6 (6)
Tax effect of permanent items........................... 72
50% disallowance of state tax net operating loss........ 7
Nondeductible compensation expense...................... 97
Disallowance of net operating losses.................... 12
Other................................................... (4) (1)
-- -- ---
Effective tax rate...................................... 48% 39% 136%
== == ===
</TABLE>
No valuation allowance has been established for the deferred tax asset.
Management believes that the Company will be able to realize the tax benefit of
the deferred tax assets based on expected future taxable income and the future
reversal of taxable temporary differences.
F-11
<PAGE> 81
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 -- STOCK OPTION AND OTHER EMPLOYEE BENEFIT PLANS
401(K) PLAN -- In September 1997, the Company implemented a 401(k) plan covering
all employees who have met certain eligibility requirements. Under the 401(k)
plan, employees may elect to contribute up to 15% of their eligible compensation
(to a maximum of $10) to the 401(k) plan, subject to certain limitations. The
Company may make matching contributions at its discretion. As of December 31,
1997 and 1998, the Company had not made any contributions to the 401(k) plan.
STOCK BASED COMPENSATION PLAN -- In August 1997, the Board of Directors approved
and the Company adopted the 1997 Equity Incentive Plan (the "Plan"). Under the
Plan, the Company may grant options to purchase 1,812,107 shares of common stock
to officers and employees. These options generally expire 10 years from the date
of grant and vest over a period of five years.
Option activity under the plans is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance, January 1, 1997........................... -- $ --
Granted............................................ 647,547 1.83
Canceled........................................... (66,667) 1.83
--------- -----
Balance, December 31, 1997 (no shares vested)...... 580,880 1.83
Granted............................................ 468,773 2.40
Canceled........................................... (96,666) 1.83
--------- -----
Balance, December 31, 1998......................... 952,987 $2.11
========= =====
</TABLE>
At December 31, 1998, 96,843 shares were exercisable and 899,120 were available
for grant under the 1997 stock option plan.
During the year ended December 31, 1998, deferred compensation of $948 was
recorded for options granted of which $156 was amortized to compensation
expense. The remaining deferred compensation will be amortized over the balance
of the five-year vesting period of the stock options.
The following table summarizes information about currently outstanding and
vested stock options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
--------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OUTSTANDING AT REMAINING AVERAGE VESTED AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE 1998 LIFE PRICE 1998 PRICE
-------------- -------------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$1.83............................ 484,213 8.69 $1.83 96,843 $1.83
2.28............................ 332,107 9.71 2.28
2.73............................ 136,667 9.98 2.73
--------- ----- ------- -----
952,987 $2.11 96,843 $1.83
========= ===== ======= =====
</TABLE>
ADDITIONAL STOCK PLAN INFORMATION -- As discussed in Note 1, the Company
accounts for its stock-based awards to employees using the intrinsic value
method in accordance with APB No. 25, Accounting for Stock Issued to Employees,
and its related interpretations.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the disclosure
of pro forma net income (loss) and earnings (loss) per share had the Company
adopted the fair value method since the Company's inception. Under SFAS No. 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate
F-12
<PAGE> 82
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 -- STOCK OPTION AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
The Company's calculations for employee grants were made using the minimum
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Dividend yield.............................................. None None
Risk free interest rate..................................... 5.7% 4.4%
Expected term, in years..................................... 5.5 3
</TABLE>
The weighted average minimum value per option as of the date of grant for
options granted during 1997 and 1998 was $0.48 and $2.13, respectively.
If the computed minimum values of the Company's stock-based awards to employees
had been amortized to expense over the vesting period of the awards as specified
under SFAS No. 123, loss attributable to common stockholders and basic and
diluted loss per share on a pro forma basis (as compared to such items as
reported) would have been:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1997 1998
----- ------
<S> <C> <C>
Net income (loss) attributable to common stockholders:
As reported............................................... $ 885 $ (151)
Pro forma................................................. 828 (192)
Diluted net income (loss) per share:
As reported............................................... $0.05 $(0.01)
Pro forma................................................. 0.04 (0.01)
</TABLE>
NOTE 8 -- NET INCOME (LOSS) PER SHARE
The following is a reconciliation of the denominators used in computing basic
and diluted net income (loss) per share (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Shares used in the computation of Basic EPS...... 18,979 18,979 18,979
Effect of dilutive stock options................. 163
------ ------ ------
Shares used in the computation of Diluted EPS.... 18,979 19,142 18,979
====== ====== ======
</TABLE>
NOTE 9 -- RELATED PARTY TRANSACTIONS
In August 1995, the Company received a 7.5% promissory note for $106 from a
stockholder for cash. The note specified that the entire principal plus accrued
interest were to be paid by July 10, 2000. During 1998, the stockholder repaid
the remaining amount outstanding.
In April 1996, the Company received an 8% promissory note for $25 from an
employee. The note specified that payment of principal and interest is to be
paid annually in the amount of $5 plus accrued interest until fully paid. At
December 31, 1998, the remaining balance on this note was $15.
F-13
<PAGE> 83
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -- RELATED PARTY TRANSACTIONS (CONTINUED)
In 1997 CRL entered into an agreement with FBN Holding Co. ("FBN") to lease
aircraft time. The sole owner of FBN is also the President and Chief Executive
Officer of CRL. This agreement may be canceled at any time by either party with
30-day notice. The amount paid to FBN for travel services under the agreement
amounted to $0, $104 and $144 for the years ended December 31, 1996, 1997 and
1998, respectively.
NOTE 10 -- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company operates in a single industry segment encompassing internet access
and related managed data services and equipment sales. All of the Company's
revenues in each year is received from customers based in the United States.
Approximately $5,221, $8,181 and $8,950 of the Company's revenues were received
from customers in the thirteen Western U.S. states and $5,010, $7,653 and $8,174
was received from customers in California for 1996, 1997 and 1998, respectively.
No single customer accounted for 10% or more of the Company's net sales in any
year.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LEASES -- The Company leases office and storage space under operating leases
that expire at various times through 2001. Rent expense under all leases was
$145, $224 and $377 for 1996, 1997 and 1998, respectively. Future minimum lease
payments for capital lease obligations and net lease payments under
noncancelable operating leases with remaining terms in excess of one year at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASE OPERATING
OBLIGATIONS LEASES
------------- ---------
<S> <C> <C>
Year ending December 31:
1999............................................... $49 $ 453
2000............................................... 38 326
2001............................................... 253
2002............................................... 205
2003............................................... 121
Thereafter......................................... 201
--- ------
Total minimum lease payments............... 87 $1,559
======
Less amount representing interest.................... (9)
---
Capital lease obligations............................ 78
Less current portion................................. (49)
---
Long-term portion.................................... $29
===
</TABLE>
TELECOMMUNICATIONS AND PEERING ARRANGEMENTS -- The Company enters into
telecommunications agreements with telephone companies who provide local access
for dial-up customers to the Company's Internet backbone. The terms of the
service agreements vary from one to two years and provide the Company with
preferred rates. If the Company prematurely cancels one of these service
contracts, the service provider, at their discretion, can charge the difference
between their regular rates and the preferred rate over the term of the service.
In the past, no service provider has exercised this option. Management believes
that potential additional charges, if any, from early cancellation of vendor
service contracts would not have a material effect on the financial statements.
F-14
<PAGE> 84
CRL NETWORK SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is party to numerous peering arrangements with other internet
providers to allow for the exchange of internet traffic. The Company does not
record any revenue or expense associated with these non-cash transactions as
such transactions do not represent the culmination of the earnings process and
the fair value of such transactions are not reasonably determinable.
LEGAL MATTERS -- The Company is involved in various claims and legal actions
arising out of the normal course of business. Management does not expect that
the outcome of these cases will have a material effect on the Company's
financial position, results of operations or cash flow.
QWEST DISPUTE -- The Company is currently in a dispute with Qwest Communications
Corporation involving certain fiber cable they own connecting several cities.
Qwest agreed to lease fiber that was to be installed and available to the
Company by certain specified dates. Qwest did not complete installation as
agreed. The Company believes that Qwest is obligated to provide free service as
a result of the installation delay. As of December 31, 1998, Qwest has demanded
payment of $136 which includes a credit of $108 for free service. The Company
disputes the installation dates and application of service order terms and is
seeking arbitration of the dispute. As of December 31, 1998, no accrual had been
made for the Qwest dispute.
NOTE 12 -- SUBSEQUENT EVENTS
On January 19, 1999, the Company granted 43,333 stock options at a weighted
average exercise price of $2.73. These grants were made under the 1997 Equity
Incentive Plan. These options were granted below the fair market value of the
stock on the grant date. These transactions resulted in total deferred
compensation expense of $98. The compensation expense will be recorded over the
five-year vesting period of the options.
On March 11, 1999, the Company terminated its relationship with FBN effective
April 30, 1999 (see Note 9).
On March 18, 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Stock Incentive Plan. A total of 1,000,000 shares of common
stock have initially been reserved for issuance under the 1999 Stock Incentive
Plan.
On March 18, 1999, the Board of Directors adopted, subject to stockholder
approval, the reincorporation of the Company in the State of Delaware and the
associated exchange of one share of common stock of the Company for every three
shares of common stock of the Company's California predecessor. Such
reincorporation and stock exchange will become effective prior to the effective
date of the initial public offering contemplated by the Company. All share and
per share amounts in these financial statements have been adjusted to give
effect to the reincorporation and one for three stock exchange.
On March , 1999 the Company completed the reincorporation of the Company in
the State of Delaware and the associated exchange of one share of common stock
of the Company for every 3 shares of common stock of the Company's California
predecessor.
F-15
<PAGE> 85
[Inside Back Cover]
Graphics: CRL NETWORKING SOLUTIONS WITH CRL LOGO
Dedicated Access
We provide businesses with robust, full-time, dedicated Internet
connectivity in a wide range of access speeds.
Customized Wide Area Networking Solutions
Our customized wide area networking solutions cost-effectively provide a
secure, high-quality network to businesses looking to connect to various
locations.
Remote Management Services
Our remote connection and proprietary remote management process enable our
customers to outsource their network management operations to us from the "help
desk" to enterprise-wide server maintenance.
High Performance Network
Our facilities-based, private, Layer 2 national switched backbone network,
coupled with our status as a Tier 1 Internet service provider, enables us to
provide our customers with some of the fastest and most reliable data
transmission solutions available.
Customer Support
Our highly-trained technical support representatives provide personalized
service to each of our customers and 24 hours a day, seven days a week, 365 days
a year via the Web or by telephone.
<PAGE> 86
- --------------------------------------------------------------------------------
[LOGO]
SHARES
COMMON STOCK
--------------------
PROSPECTUS
--------------------
, 1999
CIBC WORLD MARKETS
LEHMAN BROTHERS
- --------------------------------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL
INFORMATION FROM THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN
OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY
CIRCUMSTANCES WHERE THE OFFER OR SALE IS UNLAWFUL. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF
THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 1999 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE THESE SHARES
OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following costs and expenses, other than underwriting discounts and
commissions, payable by the Registrant in connection with this offering. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 22,240
NASD fee.................................................... 8,500
Nasdaq National Market listing fee.......................... *
Printing and engraving costs................................ 140,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 300,000
Blue Sky fees and expenses.................................. 3,000
Transfer agent and registrar fees and expenses.............. *
Miscellaneous............................................... $ *
--------
Total............................................. $ *
========
</TABLE>
- -------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware provides for
the indemnification of officers and directors under certain circumstances
against expenses incurred in successfully defending against a claim and
authorizes Delaware corporations to indemnify their officers and directors under
certain circumstances against expenses and liabilities incurred in legal
proceedings involving such persons because of their being or having been an
officer or director. Article VIII of the Registrant's Certificate of
Incorporation and the Registrant's Bylaws provide that all persons who the
Registrant is empowered to indemnify pursuant to the provisions of Section 145
of the Delaware General Corporation Law (or any similar provision or provisions
of applicable law at the time in effect), shall be indemnified by the Registrant
to the full extent permitted thereby. The foregoing right of indemnification
shall not be deemed to be exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise.
Section 102(b) of the Delaware General Corporation Law permits a corporation, by
so providing in its certificate of incorporation, to eliminate or limit
director's liability to the corporation and its stockholders for monetary
damages arising out of certain alleged breaches of their fiduciary duty. Section
102(b)(7) provides that no such limitation of liability may affect a director's
liability with respect to any of the following: (i) breaches of the director's
duty of loyalty to the corporation or its stockholders; (ii) acts or omissions
not made in good faith or which involve intentional misconduct of knowing
violations of law; (iii) liability for dividends paid or stock repurchased or
redeemed in violation of the Delaware General Corporation law; or (iv) any
transaction from which the director derived an improper personal benefit.
Section 102(b)(7) does not authorize any limitation on the ability of the
corporation or its stockholders to obtain injunction relief, specific
performance or other equitable relief against directors.
Reference is made to the Underwriting Agreement, the proposed form of which is
filed as Exhibit 1.1, pursuant to which the underwriters agree to indemnify the
directors and certain officers of the Registrant and certain other persons in
certain circumstances.
II-1
<PAGE> 88
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1996, the Registrant's predecessor company has issued and sold
the following securities:
On December 21, 1998, the Registrant issued and sold an aggregate of 434,832
shares of common stock (giving effect to the Registrant's reincorporation in
Delaware and the associated exchange of one share of common stock of CRL for
every three shares of common stock of CRL's California predecessor) to three
former shareholders of Integral Network Corporation in connection with the
merger of Integral Network Corporation with a wholly-owned subsidiary of the
Registrant.
The issuance and sale of the above securities were exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and now with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access to
information about the Registrant.
Prior to the closing of this offering, CRL Network Services, Inc., a California
corporation ("CRL California"), will merge with and into its wholly-owned
subsidiary, CRL Network Services, Inc., a Delaware corporation ("CRL Delaware").
In connection with the merger, CRL Delaware will issue shares of common stock to
the holders of common stock of CRL California, such that the holders of common
stock of CRL California will receive a proportionate interest in CRL Delaware
common stock, without giving effect to the offering. The issuance of the
securities and such reincorporation will be exempt from the registration
requirements of the Securities Act of 1933, as amended, due to the exemptions
from registration provided by Sections 3(a)(9) and 4(2) thereof.
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1+ Form of Plan of Merger between the Registrant and CRL
Network Services, Inc., a California corporation.
3.1 Articles of Incorporation of the Registrant.
3.2 Amended Certificate of Incorporation of the Registrant to be
filed prior to completion of the offering.
3.3 Bylaws of the Registrant.
3.4 Form of Bylaws to be in effect upon completion of the
offering.
4.1+ Specimen form of Registrant's Common Stock Certificate.
5.1+ Opinion of Gibson, Dunn & Crutcher LLP.
10.1 Employment Agreement between the Registrant and James G.
Couch dated as of March 15, 1999.
10.2 Employment Agreement between the Registrant and Robert A.
Ross dated December 21, 1998.
10.3 1997 Equity Incentive Plan.
10.4 1999 Stock Incentive Plan.
10.5 Equipment Lease between Saddleback Financial Corporation and
CRL Network Services, Inc. executed on June 12, 1997.
10.6 Addendum to Lease between Saddleback Financial Corporation
and CRL Network Services, Inc. executed June 12, 1997.
</TABLE>
II-2
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.7 Mandatory Purchase Option Letter between Saddleback
Financial Corporation and CRL Network Services, Inc.
executed June 12, 1997.
10.8 Wells Fargo Bank $500,000 Equipment Line of Credit made
available to CRL Network Services dated September 25, 1997.
10.9 Wells Fargo Bank $692,000 Equipment Line of Credit made
available to CRL Network Services dated March 30, 1998.
10.10 Wells Fargo Bank $650,000 Equipment Line of Credit made
available to CRL Network Services dated September 29, 1998.
10.11 Wells Fargo Bank $200,000 PrimeLine of Credit made available
to CRL Network Services dated September 28, 1998.
10.12** Agreement between Pacific Bell and CRL Network Services
dated as of September 22, 1998.
10.13 Reserved
10.14 Reserved
10.15** Agreement between CRL Network Services, Inc. and the
National Aeronautics and Space Administration dated July 16,
1998.
10.16 Reserved
10.17 Reserved
10.18** Terms and Conditions Governing the Provision of Network
Connectivity Products and Services by Sprint dated January
6, 1998.
10.19 Reserved
10.20 Reimbursable Space Act Agreement between the National
Aeronautics and Space Administration Ames Research Center
and CRL Network Services, Inc. dated December 3, 1996 and
executed March 7, 1997.
10.21 Office Lease Agreement between Maria Chen, as Lessor and the
Registrant dated December 5, 1995.
10.22 Amendment to lease by and between Maria Chen and the
Registrant dated December 1, 1998.
10.23 The 120 Montgomery Street Office Lease dated February 4,
1994 between the Equitable Montgomery Company and Orrell &
Company, Inc.
10.24 Sublease between Orrell & Company, Inc., 120 Montgomery
Associates, LLC and the Registrant dated February 20, 1998
10.25 Office Lease between WHLNF Real Estate Limited Partnership
and the Registrant dated August 28, 1998
10.26 Office Lease between One Wilshire Arcade Imperial, Ltd. by
Paramount Group, Inc. and the Registrant dated March 8,
1998.
10.27 Deed of Lease between Gosnell Properties, Inc. and the
Registrant dated September 20, 1996.
10.28 Standard Industrial Lease -- Multi Tenant between Robert A.
Bell and Bob Ross, d/b/a/ Integral Network Corporation dated
March 30, 1998
10.29 Qualified Retirement Plan and Trust Defined Contribution
Basic Plan Document.
10.30 Defined Contribution Plan and Trust Adoption Agreement
10.31 Agreement and Plan of Reorganization among the Registrant,
Integral Networking Corporation, RMS Sub Inc. and the
shareholders of Integral Networking Corporation dated
December 21, 1998.
</TABLE>
II-3
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.32 U.S. Simply Business Premium Line Agreement between Integral
Networking Corporation and U.S. Bank dated September 2, 1997
10.33 Airplane Leasing Agreement dated February 15, 1999, between
the Registrant and FBN Holding Corp.
21.1 Subsidiaries of the Registrant.
23.1+ Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.1).
23.2+ Consent of Deloitte & Touche LLP.
23.3 Consent of Jack M. Fields, Jr.
23.4 Consent of Steven T. Stenberg.
23.5 Consent of John A. Blair.
23.6 Consent of Thor Geir Ramleth.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
+ To be filed by amendment.
** Confidential treatment request as to certain portions of exhibit.
(b) Financial Statement Schedule
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to the underwriters at the closing specified in
the underwriting agreement to provide certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the Delaware General
Corporation Law, the Registrant's Amended Certificate of Incorporation, the
Registrant's Bylaws, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act is part of this Registration Statement as of the time
it was declared effective.
(ii) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement for the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on the 18th day of March 1999.
CRL Network Services, Inc.
By: /s/ JAMES G. COUCH
------------------------------------
James G. Couch
President and Chief Executive
Officer
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James G. Couch, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and any and all Registration Statements filed pursuant to Section 462
of the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or agent or substitute lawfully does or causes to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES G. COUCH President, Chief Executive Officer, March 18, 1999
- ------------------------------------------ Chairman of the Board and Secretary
James G. Couch (Principal Executive Officer)
/s/ ROBYN L. RASCHKE Vice President of Finance (Principal March 18, 1999
- ------------------------------------------ Financial Officer and Principal
Robyn L. Raschke Accounting Officer)
/s/ STEVEN T. STENBERG Director March 18, 1999
- ------------------------------------------
Steven T. Stenberg
</TABLE>
II-5
<PAGE> 1
EXHIBIT 1.1
______________ Shares
CRL NETWORK SERVICES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
March___, 1999
CIBC Oppenheimer Corp.
Lehman Brothers, Inc.
c/o CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
World Financial Center
New York, New York 10281
On behalf of the Several Underwriters named on Schedule I attached hereto.
Ladies and Gentlemen:
CRL Network Services, Inc., a Delaware corporation (the
"Company"), and James Couch, the Chief Executive Officer and a Shareholder of
the Company (the "Selling Stockholder"), proposes to sell to you and the other
underwriters named on Schedule I to this Agreement (the "Underwriters"), for
whom you are acting as Representatives, an aggregate of ____________ shares (the
"Firm Shares") of the Company's Common Stock, (the "Common Stock"). The Company
proposes to issue and sell ____ shares of its authorized and unissued Common
Stock (the "Company Shares") and the Selling Stockholder proposes to sell in
aggregate of _____ shares of the Company's authorized and outstanding Common
Stock (the "Selling Stockholder Shares") to the Underwriters. In addition, the
Selling Stockholder and the Company propose to grant, jointly and severally, to
the several Underwriters an option to purchase severally and not jointly, up to
an additional ___________ shares (the "Option Shares") of Common Stock from them
for the purpose of covering over-allotments in connection with the sale of the
Firm Shares. The Firm Shares and the Option Shares are together called the
"Shares."
1. Sale and Purchase of the Shares.
On the basis of the representations, warranties and agreements
contained in, and subject to the terms and conditions of, this Agreement:
(a) The Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at $_____
<PAGE> 2
per share (the "Initial Price"), the number of Company Shares set forth opposite
the name of such Underwriter on Schedule I to this Agreement.
(b) The Selling Stockholder agrees to sell to each of the
Underwriters, and each of the Underwriters agree, severally and not jointly, to
purchase from the Selling Stockholder at the Initial Price, the number of
Selling Stockholder Shares set forth opposite the name of such Underwriter on
Schedule I to this Agreement.
(c) The Selling Stockholder and the Company grants,
jointly and severally, to the several Underwriters an option to purchase,
severally and not jointly, all or any part of the Option Shares at the Initial
Price. The Selling Stockholder shall have the first option to grant to the
Underwriters an option to purchase all or any part of the Option Shares at the
Initial Price. In the event the Selling Stockholder elects not to sell any
Option Shares or elects to sell less than all of the Option Shares, then in such
event the Company ________________ Underwriters an Option _________________ of
the Option Shares at the Initial Price. The number of Option Shares to be
purchased by each Underwriter shall be the same percentage (adjusted by the
Representatives to eliminate fractions) of the total number of Option Shares to
be purchased by the Underwriters as such Underwriter is purchasing of the Firm
Shares. Such option may be exercised only to cover over-allotments in the sales
of the Firm Shares by the Underwriters and may be exercised in whole or in part
at any time on or before 12:00 noon, New York City time, on the business day
before the Firm Shares Closing Date (as defined below), and on one or more
occasions thereafter within 30 days after the date of this Agreement, in each
case upon written or telegraphic notice, or verbal or telephonic notice
confirmed by written or telegraphic notice, by the Representatives to the
Company no later than 12:00 noon, New York City time, on the business day before
the Firm Shares Closing Date or at least two business days before the Option
Shares Closing Date (as defined below), as the case may be, setting forth the
number of Option Shares to be purchased and the time and date (if other than the
Firm Shares Closing Date) of such purchase.
2. Delivery and Payment. Delivery by the Company and the Selling
Stockholders of the Firm Shares to the Representatives for the respective
accounts of the Underwriters, and payment of the purchase price by certified or
official bank check or checks payable in next day funds to the Company, shall
take place at the offices of CIBC Oppenheimer Corp., at CIBC Oppenheimer Tower,
World Financial Center, New York, New York 10281, at 10:00 a.m., New York City
time, on the third full business day following the first day the Shares are
traded, or at such time on such other date, not later than 10 business days
after the date of this Agreement, as shall be agreed upon by the Company and the
Representatives (such time and date of delivery and payment are called the "Firm
Shares Closing Date"); provided, however, that if the Company has not made
available to the Representatives copies of the Prospectus within the time
provided in Section 7 hereof the Representative may in their sole discretion,
postpone the Closing Date until no later than two (2) full business days
following delivery of copies of the Prospectus to the Representatives. If the
Representatives so elect, delivery of the Firm Shares may be made buy credit
through full fast transfer to the accounts at the Depository Trust Company
designate by the Representative.
In the event the option with respect to the Option Shares is
exercised, delivery by the Company of the Option Shares to the Representatives
for the respective accounts of the
2
<PAGE> 3
Underwriters and payment of the purchase price by certified or official bank
check or checks payable in next day funds to the Selling Stockholder and/or the
Company shall take place at the offices of CIBC Oppenheimer Corp. specified
above at the time and on the date or dates (which may be the same date as, but
in no event shall be earlier than, the Firm Shares Closing Date) specified in
the notice referred to in Section 1(c) (such time and date of delivery and
payment are called the "Option Shares Closing Date"). The Firm Shares Closing
Date and the Option Shares Closing Date are called, individually, a "Closing
Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such
names and shall be in such denominations as the Representatives shall request at
least two full business days before the Firm Shares Closing Date or, in the case
of Option Shares, on the day of notice of exercise of the option as described in
Section l(c) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, on the full
business day before the Firm Shares Closing Date (or the Option Shares Closing
Date in the case of the Option Shares).
3. Registration Statement and Prospectus; Public Offering. The
Company has prepared in conformity with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-_____), including a preliminary prospectus relating to the Shares, and has
filed with the Commission the Registration Statement (as hereinafter defined)
and such amendments thereof as may have been required to the date of this
Agreement. Copies of such Registration Statement (including all amendments
thereto) to and of the related preliminary prospectus have heretofore been
delivered by the Company to you.
The Company understands that the Underwriters propose to make a
public offering of the Shares, as set forth in and pursuant to the Prospectus,
as soon after the Effective Date and the date of this Agreement as the
Representatives deem advisable. The Company hereby confirms that the
Underwriters and dealers have been authorized to distribute or cause to be
distributed each preliminary prospectus and are authorized to distribute the
Prospectus (as from time to time amended or supplemented if the Company
furnishes amendments or supplements thereto to the Underwriters).
4. Representations and Warranties of the Company and the Selling
Stockholder. The Company and the Selling Stockholder hereby, jointly and
severally, represent, warrant and covenant to each Underwriter as follows:
(a) If the registration statement relating to the Shares
has been declared effective under the Securities Act by the Commission, the
Company will prepare and promptly file with the Commission the information
omitted from the registration statement pursuant to Rule 430A(a) or, if the
Representatives, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules, the information required to be included in
any term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules
pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules or as part
of a post-effective amendment to the registration statement (including a final
form of prospectus). If the registration statement relating to the Shares has
not been declared effective under the Securities Act by the
3
<PAGE> 4
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if the
Representatives, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules, the information required to be included in
any term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the
Rules. The term "Registration Statement" as used in this Agreement shall mean
such registration statement, including consolidated financial statements,
schedules and exhibits, in the form in which it became or becomes, as the case
may be, effective (including, if the Company omitted information from the
registration statement pursuant to Rule 430A(a) or files a term sheet pursuant
to Rule 434 of the Rules, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
or Rule 434(d) of the Rules) and, in the event of any amendment thereto or the
filing of any abbreviated registration statement pursuant to Rule 462(b) of the
Rules relating thereto after the effective date of such registration statement
(the "Effective Date"), shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules, the information deemed to be a part of the Registration Statement at the
time it became effective pursuant to Rule 430A(b) of the Rules); provided,
however, that if in reliance on Rule 434 of the Rules and with the consent of
the Representatives, on behalf of the several Underwriters, the Company shall
have provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c),
as applicable, prior to the time that a confirmation is sent or given for
purposes of Section 2(10)(a) of the Securities Act, the term "Prospectus" shall
mean the "prospectus subject to completion" (as defined in Rule 434(g) of the
Rules) last provided to the Underwriters by the Company and circulated by the
Underwriters to all prospective purchasers of the Shares (including the
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 434(d) of the Rules). Notwithstanding the
foregoing, if any revised prospectus shall be provided to the Underwriters by
the Company for use in connection with the offering of the Shares that differs
from the prospectus referred to in the immediately preceding sentence (whether
or not such revised prospectus is required to be filed with the Commission
pursuant to Rule 424(b) of the Rules), the term "Prospectus" shall refer to such
revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and with the
consent of the Representatives, on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Securities Act, the Prospectus and
the term sheet, together, will not be materially different from the prospectus
in the Registration Statement.
On the Effective Date the Registration Statement complied, and on the
date of the Prospectus, on the date any post-effective amendment to the
Registration Statement shall become effective, on the date any supplement or
amendment to the Prospectus is filed with the Commission and on each Closing
Date, the Registration Statement and the Prospectus (and any amendment thereof
or supplement thereto) will comply, in all material respects, with the
applicable provisions of the Securities Act and the Rules and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder; the Registration Statement did not, as
of the Effective Date, contain any untrue
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<PAGE> 5
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and on the other dates referred to above neither the Registration
Statement nor the Prospectus, nor any amendment thereof or supplement thereto,
will contain any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. When any related preliminary prospectus was
first filed with the Commission (whether filed as part of the Registration
Statement or any amendment thereto or pursuant to Rule 424(a) of the Rules) and
when any amendment thereof or supplement thereto was first filed with the
Commission, such preliminary prospectus as amended or supplemented complied in
all material respects with the applicable provisions of the Securities Act and
the Rules and did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. Notwithstanding the foregoing, the
Company and the Selling Stockholder make no representation or warranty as to the
paragraph with respect to stabilization on the inside front cover page of the
Prospectus and the statements contained under the caption "Underwriting" in the
Prospectus. The Company and the Selling Stockholder acknowledge that the
statements referred to in the previous sentence constitute the only information
furnished in writing by the Representatives on behalf of the several
Underwriters specifically for inclusion in the Registration Statement, any
preliminary prospectus or the Prospectus.
(b) All contracts and other documents required to be filed
as exhibits to the Registration Statement have been filed with the Commission as
exhibits to the Registration Statement.
(c) The consolidated financial statements of the Company
and its subsidiaries (including all notes and schedules thereto) included in the
Registration Statement and Prospectus present fairly the financial position, the
results of operations and cash flows and the stockholders' equity and the other
information purported to be shown therein of the Company and its subsidiaries at
the respective dates and for the respective periods to which they apply; and
such financial statements have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods
involved, and all adjustments necessary for a fair presentation of the results
for such periods have been made. The selected and summary consolidated financial
and operational data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with the
audited financial statements. No other financial statements or schedules are
required to be included in the Registration Statement.
(d) Deloitte & Touche LLP whose reports are filed with the
Commission as a part of the Registration Statement, are and, during the periods
covered by their reports, were independent public accountants as required by the
Securities Act and the Rules.
(e) The Company has been duly incorporated and is validly
existing as corporation in good standing under the laws of the State of Delaware
and the Company's subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of California. The
Company has no subsidiary or subsidiaries and does not control, directly or
indirectly, any corporation, partnership, joint venture, association or other
business organization other than the subsidiaries listed on Exhibit 21 to the
Registration
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<PAGE> 6
Statement. Each of the Company and its subsidiary are duly qualified and in good
standing as foreign corporations in each jurisdiction in which the character or
location of its assets or properties (owned, leased or licensed) or the nature
of its businesses makes such qualification necessary except for such
jurisdictions where the failure to so qualify would not have a material adverse
effect on the assets or properties, business, results of operations or financial
condition of the Company or its subsidiary. Except as disclosed in the
Registration Statement and the Prospectus, neither the Company nor its
subsidiary own, lease or license any asset or property or conduct any businesses
outside the United States of America. Each of the Company and its subsidiary has
all requisite corporate power and authority, and all necessary authorizations,
approvals, consents, orders, licenses, certificates and permits of and from all
governmental or regulatory bodies or any other person or entity, to own, lease
and license its assets and properties and conduct its businesses as now being
conducted and as described in the Registration Statement and the Prospectus
except for such authorizations, approvals, consents, orders, material licenses,
certificates and permits the failure to so obtain would not have a material
adverse effect upon the assets or properties, business, results of operations,
prospects or condition (financial or otherwise) of the Company or its subsidiary
and each of the Company and its subsidiary has all such corporate power and
authority, and such authorizations, approvals, consents, orders, licenses,
certificates and permits to enter into, deliver and perform this Agreement and
to issue and sell the Shares (except as may be required under the Securities Act
and state and foreign Blue Sky laws).
(f) Each of the Company and its subsidiary owns or
possesses adequate rights to use all patents, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names and copyrights which
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; the expiration of any patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company or its subsidiary.
Neither the Company, its subsidiary nor the Selling Stockholder have received
any notice of, and neither the Company, its subsidiary nor the Selling
Stockholder has any knowledge of, any infringement of or conflict with asserted
rights of the Company or its subsidiary by others with respect to any patent,
patent rights, inventions, trade secrets, know-how, trademarks, service marks,
trade names or copyrights; and each of the Company and its subsidiary has not
received any notice of, and neither the Company, its subsidiary nor the Selling
Stockholder has any knowledge of, any infringement of or conflict with asserted
rights of others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
or its subsidiary.
(g) Each of the Company and its subsidiary has good title
to each of the items of personal property which are reflected in the financial
statements referred to in Section 4(c) or are referred to in the Registration
Statement and the Prospectus as being owned by it and valid and enforceable
leasehold interests in each of the items of real and personal property which are
referred to in the Registration Statement and the Prospectus as being leased by
it, in each case free and clear of all liens, encumbrances, claims, security
interests and defects, other than those described in the Registration Statement
and the Prospectus and those which do
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<PAGE> 7
not and will not have a material adverse effect upon the assets or properties,
business, results of operations or financial condition of the Company or its
subsidiary.
(h) There is not any pending or, to the best of the
Company's and the Selling Stockholder or its subsidiaries' knowledge, threatened
action, suit, claim or proceeding against the Company, any of its respective
officers or any of its respective properties, assets or rights before any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or its subsidiary, or over its respective officers
or properties or otherwise which (i) might result in any material adverse change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company or its subsidiary or might materially and
adversely affect its properties, assets or rights, (ii) might prevent
consummation of the transactions contemplated hereby or (iii) is required to be
disclosed in the Registration Statement or Prospectus and is not so disclosed.
(i) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, except as
described therein, (i) there has not been any material adverse change in the
assets or properties, business, results of operations, prospects or condition
(financial or otherwise), of the Company or its subsidiary, whether or not
arising from transactions in the ordinary course of business; (ii) neither the
Company nor its subsidiary has sustained any material loss or interference with
its assets, businesses or properties (whether owned or leased) from fire,
explosion, earthquake, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree; and (iii) since the date of the latest
balance sheet included in the Registration Statement and the Prospectus, except
as reflected therein, neither the Company nor its subsidiary has (a) issued any
securities or incurred any liability or obligation, direct or contingent, for
borrowed money, except such liabilities or obligations incurred in the ordinary
course of business, (b) entered into any transaction not in the ordinary course
of business or (c) declared or paid any dividend or made any distribution on any
shares of its stock or redeemed, purchased or otherwise acquired or agreed to
redeem, purchase or otherwise acquire any shares of its stock.
(j) There is no document or contract required to be
described in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. Each agreement listed in the Exhibits to the Registration Statement is
in full force and effect and is valid and enforceable by and against the Company
or its subsidiaries in accordance with its terms, assuming the due
authorization, execution and delivery thereof by each of the other parties
thereto. Neither the Company nor its subsidiary, nor to the best of the
Company's and its subsidiary's knowledge, any other party is in default in the
observance or performance of any term or obligation to be performed by it under
any such agreement, and no event has occurred which with notice or lapse of time
or both would constitute such a default, in any such case which default or event
would have a material adverse effect on the assets or properties, business,
results of operations, prospects or condition (financial or otherwise) of the
Company or its subsidiary. No default exists, and no event has occurred which
with notice or lapse of time or both would constitute a default, in the due
performance and observance of any term, covenant or condition, by the Company or
its subsidiary of any other agreement or instrument to which the Company or its
subsidiary is a party or by which it or its properties or business may be bound
or affected which default or event would have a material
7
<PAGE> 8
adverse effect on the assets or properties, business, results of operations,
prospects or condition (financial or otherwise) of the Company or its
subsidiary.
(k) Neither the Company nor its subsidiary is in violation
of any term or provision of its charter or by-laws or of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation, where the
consequences of such violation would have a material adverse effect on the
assets or properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company or its subsidiary.
(l) Neither the execution, delivery and performance of
this Agreement by the Company or its subsidiary nor the consummation of any of
the transactions contemplated hereby (including, without limitation, the
issuance and sale by the Company of the Shares) will give rise to a right to
terminate or accelerate the due date of any payment due under, or conflict with
or result in the breach of any term or provision of, or constitute a default (or
an event which with notice or lapse of time or both would constitute a default)
under, or require any consent or waiver under, or result in the execution or
imposition of any lien, charge or encumbrance upon any properties or assets of
the Company or its subsidiary pursuant to the terms of, any indenture, mortgage,
deed of trust or other agreement or instrument to which the Company or its
subsidiary is a party or by which it or any of its properties or businesses is
bound, or any franchise, license, permit, judgment, decree, order, statute, rule
or regulation applicable to the Company or its subsidiary or violate any
provision of the charter or by-laws of the Company or its subsidiary, except for
such consents or waivers which have already been obtained and are in full force
and effect.
(m) The Company has an authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus. All of
the outstanding shares of Common Stock have been duly and validly issued and are
fully paid and nonassessable were not issued in violation of or subject to any
preemptive rights and none of them was issued in violation of any preemptive or
other similar right. The Shares, when issued and sold pursuant to this
Agreement, will be duly and validly issued, fully paid and nonassessable, were
not issued in violation of or subject to any preemptive rights and none of them
will be issued in violation of any preemptive or other similar rights. Except as
disclosed in the Registration Statement and the Prospectus, there is no
outstanding option, warrant or other right calling for the issuance of, and
there is no commitment, plan or arrangement to issue, any share of stock of the
Company or any security convertible into, or exercisable or exchangeable for,
such stock. The Common Stock and the Shares conform in all material respects to
all statements in relation thereto contained in the Registration Statement and
the Prospectus. The description of the Company's stock option, stock bonus and
other stock plans or arrangements set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such plans,
arrangements, options and rights. All the outstanding shares of capital stock of
the Company's subsidiary have been duly and validly authorized and issued and
are fully paid and nonassessable, and, except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the subsidiary are owned
by the Company free and clear of any security interests, claims, liens or
encumbrances.
(n) Each officer and director of the Company, the Selling
Stockholder and each beneficial owner of [10,000] or more shares of Common Stock
has agreed in writing that such person will not, for a period of 180 days from
the date that the Registration Statement
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<PAGE> 9
is declared effective by the Commission (the "Lock-up Period"), offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to (collectively, a "Disposition") any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock
(collectively, "Securities") now owned or hereafter acquired directly by such
person or with respect to which such person has or hereafter acquires the power
of disposition, otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction, (ii)
as a distribution to partners or shareholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of the Representatives. The
foregoing restriction has been expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than such holder. Such prohibited hedging or other transactions
would include, without limitation, any short sale (whether or not against the
box) or any purchase, sale or grant of any right (including, without limitation,
any put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Furthermore, such person has also agreed and consented to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
the Securities held by such person except in compliance with this restriction.
The Company has provided to counsel for the Underwriters a complete and accurate
list of all securityholders of the Company and the number and type of securities
held by each securityholder. The Company has provided to counsel for the
Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and shareholders have agreed to such
or similar restrictions (the "Lock-up Agreements") presently in effect or
effected hereby. The Company hereby represents and warrants that it will not
release any of its officers, directors or other shareholders from any Lock-up
Agreements currently existing or hereafter effected without the prior written
consent of the Representatives.
(o) All necessary corporate action has been duly and
validly taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Shares by the
Company. This Agreement has been duly and validly authorized, executed and
delivered by the Company and will constitute a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except (A) as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
and (B) to the extent that rights to indemnity or contribution under this
Agreement may be limited by Federal and state securities laws or the public
policy underlying such laws.
(p) The Company is not involved in any labor dispute nor,
to the knowledge of the Company and the Selling Stockholder, is any such dispute
threatened, which dispute would have a material adverse effect on the assets or
properties, business, results of operations, prospects or condition (financial
or otherwise) of the Company.
9
<PAGE> 10
(q) No transaction has occurred between or among the
Company and any of its officers or directors or any affiliate or affiliates of
any such officer or director that is required to be described in and is not
described in the Registration Statement and the Prospectus.
(r) The Company has not taken, nor will it take, directly
or indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of any of the Shares.
(s) The Company has filed all Federal, state, local and
foreign tax returns which are required to be filed through the date hereof, or
has received extensions thereof, and has paid all taxes shown on such returns
and all assessments received by it to the extent that the same are material and
have become due.
(t) The Shares have been duly authorized for quotation on
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System.
(u) The Company has complied with all of the requirements
and filed the required forms as specified in Florida Statutes Section 517.075.
(v) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its subsidiary is in compliance with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, (ii) neither the Company nor its
subsidiary has received notice from any governmental authority or third party of
an asserted claim under Environmental Laws, which claim is required to be
disclosed in the Registration Statement and the Prospectus, (iii) neither the
Company nor its subsidiary will be required to make future material capital
expenditures to comply with Environmental Laws and (iv) no property which is
owned, leased or occupied by the Company or its subsidiary has been designated
as a Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), or
otherwise designated as a contaminated site under applicable state or local law.
(w) Each of the Company and its subsidiary maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
5. The Selling Stockholder represents and warrants to and agrees
with each Underwriter and the Company that:
(a) The Selling Stockholder now has and on the Firm Share
Closing Date will have valid marketable title to the Shares to be sold by such
Selling Stockholder, free
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<PAGE> 11
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than pursuant to this Agreement; and upon delivery of
such Shares hereunder and payment of the purchase price as herein contemplated,
each of the Underwriters will obtain valid marketable title to the Shares
purchased by it from such Selling Stockholder, free and clear of any pledge,
lien, security interest pertaining to such Selling Stockholder or such Selling
Stockholder's property, encumbrance, claim or equitable interest, including any
liability for estate or inheritance taxes, or any liability to or claims of any
creditor, devisee, legatee or beneficiary of such Selling Stockholder.
(b) All consents, approvals, authorizations and orders
required for the execution and delivery by or on behalf of such Selling
Stockholder of this Agreement and the sale and delivery of the Selling
Stockholder Shares under this Agreement (other than, at the time of the
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws) have been obtained and are in full force and effect; such Selling
Stockholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be; and such Selling
Stockholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement and to sell, assign, transfer and deliver
the Shares to be sold by such Selling Stockholder under this Agreement.
(c) Such Selling Stockholder will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Stockholder or with respect to which such Selling
Stockholder has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners or
shareholders of such Selling Stockholder, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of the Representatives. The foregoing restriction is
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than the Selling
Stockholder. Such prohibited hedging or other transactions would including,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Such Selling
Stockholder also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the securities held by
such Selling Stockholder except in compliance with this restriction.
(d) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
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<PAGE> 12
(e) Such Selling Stockholder has not distributed and will
not distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(f) All information furnished by or on behalf of such
Selling Stockholder relating to such Selling Stockholder and the Selling
Stockholder Shares that is set forth in the Registration Statement or the
Prospectus is, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date was or will be, true, correct and complete, and does not, and at
the time the Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the Closing Date will
not, contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make such information not
misleading.
(g) Such Selling Stockholder will review the Prospectus
and will comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the Closing
Date and will advise the Representatives prior to the Closing Date if any
statement to be made on behalf of such Selling Stockholder in the certificate
contemplated by Section 6 would be inaccurate if made as of the Closing Date.
(h) Such Selling Stockholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares that are to be sold
by the Company to the Underwriters pursuant to this Agreement; such Selling
Stockholder does not have, or has waived prior to the date hereof, any
registration right or other similar right to participate in the offering made by
the Prospectus, other than such rights of participation as have been satisfied
by the participation of such Selling Stockholder in the transactions to which
this Agreement relates in accordance with the terms of this Agreement; and such
Selling Stockholder does not own any warrants, options or similar rights to
acquire, and does not have any right or arrangement to acquire, any capital
stock, rights, warrants, options or other securities from the Company, other
than those described in the Registration Statement and the Prospectus.
6. Conditions of the Underwriters' Obligations. The obligations
of the Underwriters under this Agreement are several and not joint. The
respective obligations of the Underwriters to purchase the Shares are subject to
each of the following terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 7(a) of this Agreement.
(b) No order preventing or suspending the use of any
preliminary prospectus or the Prospectus shall have been or shall be in effect
and no order suspending the effectiveness of the Registration Statement shall be
in effect and no proceedings for such purpose shall be pending before or
threatened by the Commission, and any requests for additional information on the
part of the Commission (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
the counsel to the Representatives.
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<PAGE> 13
(c) The representations and warranties of the Company and
its subsidiary and the Selling Stockholder contained in this Agreement and the
representations and warranties of the Company and its subsidiary in the
certificates delivered pursuant to Section 6(d) shall be true and correct when
made and on and as of each Closing Date as if made on such date and the Company
shall have performed all covenants and agreements and satisfied all the
conditions contained in this Agreement required to be performed or satisfied by
it at or before such Closing Date.
(d) The Representatives shall have received on each
Closing Date a certificate, addressed to the Representatives and dated such
Closing Date, of the chief executive or chief operating officer and the chief
financial officer or chief accounting officer of the Company to the effect that,
and you shall be satisfied that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the Closing Date
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any amendments
or supplements thereto, contained all material information required to be
included therein by the Securities Act and the Rules and in all material
respects conformed to the requirements of the Securities Act and the Rules, the
Registration Statement, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, the Prospectus, and any amendment or supplement thereto,
did not and does not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and (iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (b) any
transaction that is material to the Company except transactions entered into in
the ordinary course of business, (c) any obligation, direct or contingent, that
is material to the Company, incurred by the Company or its subsidiaries, except
obligations incurred in the ordinary course of business, (d) any change in the
capital stock or outstanding indebtedness of the Company that is material to the
Company, (e) any dividend or distribution of any kind declared, paid or made on
the capital stock of the Company, or (f) any loss or damage (whether or not
insured) to the property of the Company which has been
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<PAGE> 14
sustained or will have been sustained which has a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company.
(e) The Representatives shall have received on the
Effective Date, at the time this Agreement is executed and on each Closing Date
a signed letter from Deloitte & Touche LLP addressed to the Representatives and
dated, respectively, the Effective Date, the date of this Agreement and each
such Closing Date, in form and substance reasonably satisfactory to the
Representatives, confirming that they are independent accountants within the
meaning of the Securities Act and the Rules, and shall:
(i) represent, to the extent true, that they are
independent auditors with respect to the Company within the meaning of the
Securities Act and the applicable published Rules;
(ii) set forth their opinion with respect to their
examination of the balance sheet of the Company as of December 31, 1998 and
related statements of operations, shareholders' equity, and cash flows for the
twelve (12) months ended December 31, 1998;
(iii) state that Deloitte & Touche LLP has performed
the procedures set out in Statement on Auditing Standards No. 71 ("SAS 71") for
a review of interim financial information and providing the report of Deloitte &
Touche LLP as described in SAS 71 on the financial statements for the
first-quarter period ended March 31, 1998 (the "Quarterly Financial
Statements");
(iv) state that in the course of such review, nothing
came to their attention that leads them to believe that any material
modifications need to be made to any of the Quarterly Financial Statements in
order for them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented; and
(v) address other matters agreed upon by Deloitte &
Touche LLP and you. In addition, you shall have received from Deloitte & Touche
LLP a letter addressed to the Company and made available to you for the use of
the Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's financial statements as of December
31, 1998, did not disclose any weaknesses in internal controls that they
considered to be material weaknesses.
References to the Registration Statement and the Prospectus in
this paragraph (e) are to such documents as amended and supplemented at the date
of the letter.
(f) The Representatives shall have received on each
Closing Date from Gibson, Dunn and Crutcher LLP, counsel for the Company, an
opinion, addressed to the Representatives and dated such Closing Date, and
stating in effect that:
(i) Each of the Company and its subsidiary has been
duly organized and is validly existing as a corporation in good standing under
the laws of its state of organization. To the best of such counsel's knowledge,
the Company has no subsidiary and does not control, directly or indirectly, any
corporation, partnership, joint venture, association or other
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<PAGE> 15
business organization other than the subsidiary set forth in Exhibit 21 to the
Registration Statement. Each of the Company and its subsidiary is duly qualified
and in good standing as a foreign corporation in each jurisdiction in which the
character or location of its assets or properties (owned, leased or licensed) or
the nature of its businesses makes such qualification necessary, except for such
jurisdictions where the failure to so qualify would not have a material adverse
effect on the assets or properties, business, results of operations, prospects
or condition (financial or otherwise) of the Company or its subsidiary.
(ii) Each of the Company and its subsidiary has all
requisite corporate power and authority to own, lease and license its assets and
properties and conduct its business as now being conducted and as described in
the Registration Statement and the Prospectus; and each of the Company and its
subsidiary has all requisite corporate power and authority and all necessary
authorizations, approvals, consents, orders, licenses, certificates and permits
to enter into, deliver and perform this Agreement and to issue and sell the
Shares other than those required under the Securities Act and state and foreign
Blue Sky laws.
(iii) Each of the Company and its subsidiary has
authorized and issued capital stock as set forth in the Registration Statement
and the Prospectus; the certificates evidencing the Shares are in due and proper
legal form and have been duly authorized for issuance by each of the Company and
its subsidiary; all of the outstanding shares of capital stock of each of the
Company and its subsidiary have been duly and validly authorized and have been
duly and validly issued and are fully paid and nonassessable and none of them
was issued in violation of any preemptive or other similar right. The Shares
when issued and sold pursuant to this Agreement , will be duly and validly
issued, outstanding, fully paid and nonassessable and none of them will have
been issued in violation of any preemptive or other similar right. To the best
of such counsel's knowledge, except as disclosed in the Registration Statement
and the Prospectus, there is no outstanding option, warrant or other right
calling for the issuance of, and no commitment, plan or arrangement to issue,
any share of stock of the Company or any security convertible into, exercisable
for, or exchangeable for stock of the Company. The Common Stock, the Shares
conform in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.
(iv) The agreement of the Company's stockholders,
directors and officers stating that for a period of 180 days from the date of
this Agreement they will not, without the Representatives' prior written
consent, sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of Common Stock (or any securities
convertible into, exercisable for, or exchangeable for any shares of Common
Stock) owned by them has been duly and validly delivered by such persons and
constitutes the legal, valid and binding obligation of each such person
enforceable against each such person in accordance with its terms, except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
(v) All necessary corporate action has been duly and
validly taken by the Company to authorize the execution, delivery and
performance of this Agreement, and the issuance and sale of the Shares. This
Agreement has been duly and validly authorized, executed and delivered by the
Company and this Agreement constitutes the legal, valid and
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<PAGE> 16
binding obligation of the Company enforceable against the Company in accordance
with their respective terms except (A) as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles and (B) to the extent that rights to indemnity or
contribution under this Agreement may be limited by Federal or state securities
laws or the public policy underlying such laws.
(vi) Neither the execution, delivery and performance
of this Agreement by each of the Company and its subsidiary nor the consummation
of any of the transactions contemplated hereby (including, without limitation,
the issuance and sale by the Company of the Shares) will give rise to a right to
terminate or accelerate the due date of any payment due under, or conflict with
or result in the breach of any term or provision of, or constitute a default (or
any event which with notice or lapse of time, or both, would constitute a
default) under, or require consent or waiver under, or result in the execution
or imposition of any lien, charge or encumbrance upon any properties or assets
of each of the Company and its subsidiary pursuant to the terms of any
indenture, mortgage, deed trust, note or other agreement or instrument of which
such counsel is aware and to which the Company or its subsidiary is a party or
by which it or any of its properties or businesses is bound, or any franchise,
license, permit, judgment, decree, order, statute, rule or regulation of which
such counsel is aware or violate any provision of the charter or by-laws of the
Company or its subsidiary.
(vii) To the best of such counsel's knowledge, no
default exists, and no event has occurred which with notice or lapse of time, or
both, would constitute a default, in the due performance and observance of any
term, covenant or condition by the Company or its subsidiary of any indenture,
mortgage, deed of trust, note or any other agreement or instrument to which the
Company or its subsidiary is a party or by which it or any of its assets or
properties or businesses may be bound or affected, where the consequences of
such default would have a material and adverse effect on the assets, properties,
business, results of operations, prospects or condition (financial or otherwise)
of the Company or its subsidiary.
(viii) To the best of such counsel's knowledge, the
Company nor its subsidiary is in violation of any term or provision of its
charter or by-laws or any franchise, license, permit, judgment, decree, order,
statute, rule or regulation, where the consequences of such violation would have
a material and adverse effect on the assets or properties, businesses, results
of operations, prospects or condition (financial or otherwise) of the Company or
its subsidiary.
(ix) No consent, approval, authorization or order of
any court or governmental agency or body is required for the performance of this
Agreement by the Company or its subsidiary or the consummation of the
transactions contemplated hereby or thereby, except such as have been obtained
under the Securities Act and such as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Shares by
the several Underwriters.
(x) To the best of such counsel's knowledge, there is
no litigation or governmental or other proceeding or investigation, before any
court or before or by any public body or board pending or threatened against, or
involving the assets, properties or
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<PAGE> 17
businesses of, the Company or its subsidiary which would have a material adverse
effect upon the assets or properties, business, results of operations, prospects
or condition (financial or otherwise) of the Company or its subsidiary.
(xi) The statements in the Prospectus under the
captions "Description of Capital Stock," "Liquidity and Capital Resources,"
"Business," "Shares Eligible for Future Sale," "Management-_____,"
"Management-_____" ["__________"], ["__________"] and "Certain Transactions,"
insofar as such statements constitute a summary of documents referred to therein
or matters of law, are fair summaries in all material respects and accurately
present the information called for with respect to such documents and matters.
All contracts and other documents required to be filed as exhibits to, or
described in, the Registration Statement have been so filed with the Commission
or are fairly described in the Registration Statement, as the case may be.
(xii) The Registration Statement, all preliminary
prospectuses and the Prospectus and each amendment or supplement thereto (except
for the financial statements and schedules and other financial and statistical
data included therein, as to which such counsel expresses no opinion) comply as
to form in all material respects with the requirements of the Securities Act and
the Rules.
(xiii) The Selling Stockholder has full right, power
and authority to enter into and to perform its obligations under this Agreement
and to sell, transfer, assign and deliver the Shares to be sold by such Selling
Stockholder hereunder.
(xiv) The Registration Statement has become effective
under the Securities Act, and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are threatened, pending or contemplated.
To the extent deemed advisable by such counsel, they may rely as
to matters of fact on certificates of responsible officers of the Company and
public officials and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the laws of
the State of New York, the General Corporation Law of the State of Delaware and
the Federal laws of the United States; provided that such counsel shall state
that in their opinion the Underwriters and they are justified in relying on such
other opinions. Copies of such certificates and other opinions shall be
furnished to the Representatives and counsel for the Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the Representatives and representatives of the
independent certified public accountants of the Company, at which conferences
the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel is not passing upon and does
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except as
specified in the foregoing opinion), on the basis of the foregoing, no facts
have come to the attention of such counsel which lead such counsel to believe
that the Registration Statement at the time it became effective (except
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<PAGE> 18
with respect to the financial statements and notes and schedules thereto and
other financial data, as to which such counsel need express no belief) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus as amended or supplemented (except with
respect to the financial statements and notes schedules thereto and other
financial data, as to which such counsel need make no statement) on the date
thereof contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(g) All proceedings taken in connection with the sale of
the Firm Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and their counsel.
(h) The Representatives shall have received on each
Closing Date a certificate, addressed to the Representative, and dated such
Closing Date, of an executive officer of the Company to the effect that the
signer of such certificate has reviewed and understands the provisions of
Section 517.075 of the Florida Statutes, and represents that the Company has
complied, and at all times will comply, with all provisions of Section 517.075
and further, that as of such Closing Date, neither the Company nor any of its
affiliates does business with the government of Cuba or with any person or
affiliate located in Cuba.
(i) The Representative shall have received on each Closing
Date, a certificate addressed to each representative and ___________________
officer of the __________ to the effect that the financial statement of Inkngral
Networking Corporation __________.
7. Covenants of the Company and the Selling Stockholder.
(a) The Company covenants and agrees as follows:
(i) The Company will use its best efforts to cause
the Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; the Company will use its
best efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules, the
Company will provide evidence satisfactory to you that the Prospectus contains
such information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules or as
part of a post-effective amendment to such Registration Statement as originally
declared effective which is declared effective by the Commission; if the Company
files a term sheet pursuant to Rule 434 of the Rules, the Company will provide
evidence satisfactory to you that the Prospectus and term sheet meeting the
requirements of Rule 434(b) or
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(c), as applicable, of the Rules, have been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (7) of Rule 424(b) of
the Rules; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules, it will provide evidence
satisfactory to you that the Prospectus contains such information and has been
filed with the Commission within the time period prescribed; it will notify you
promptly of any request by the Commission for the amending or supplementing of
the Registration Statement or the Prospectus or for additional information;
promptly upon your request, it will prepare and file with the Commission any
amendments or supplements to the Registration Statement or Prospectus which, in
the opinion of counsel for the several Underwriters, may be necessary or
advisable in connection with the distribution of the Shares by the Underwriters;
it will promptly prepare and file with the Commission, and promptly notify you
of the filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Securities Act, any event shall have occurred as a result of which the
Prospectus or any other prospectus relating to the Shares as then in effect
would include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; in case any
Underwriter is required to deliver a prospectus nine (9) months or more after
the effective date of the Registration Statement in connection with the sale of
the Shares, it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and such
prospectus or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Securities Act; and it will file no
amendment or supplement to the Registration Statement or Prospectus which shall
not previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing,
subject, however, to compliance with the Securities Act and the Rules and the
provisions of this Agreement. The Company shall use its best efforts to prevent
the issuance of any stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(ii) The Company will advise you, promptly after it
shall receive notice or obtain knowledge, of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued
(iii) If, at any time when a prospectus relating to
the Shares is required to be delivered under the Securities Act and the Rules,
any event occurs as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein in the light of
the circumstances under which they were made not misleading, or if it shall be
necessary to amend or supplement the Prospectus to comply with the Securities
Act or the Rules, the Company promptly shall prepare and file with the
Commission, subject to this Section 7, an amendment or supplement which shall
correct such statement or omission or an amendment which shall effect such
compliance.
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(iv) The Company shall make generally available to
its security holders and to the Representatives as soon as practicable, but not
later than 45 days after the end of the 12-month period beginning at the end of
the fiscal quarter of the Company during which the Effective Date occurs (or 90
days if such 12-month period coincides with the Company's fiscal year), an
earning statement (which need not be audited) of the Company, covering such
12-month period, which shall satisfy the provisions of Section 11(a) of the
Securities Act or Rule 158 of the Rules.
(v) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Securities Act, all in such quantities as you may from
time to time reasonably request. Notwithstanding the foregoing, if the
Representatives, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules, the Company shall provide to you copies of
a Preliminary Prospectus updated in all respects through the date specified by
you in such quantities as you may from time to time reasonably request.
(vi) The Company will use its best efforts to qualify
the Shares for offering and sale under the securities laws of such jurisdictions
as you may designate and to continue such qualifications in effect for so long
as may be required for purposes of the distribution of the Shares, except that
the Company shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction in which it is not otherwise required to
be so qualified or to so execute a general consent to service of process. In
each jurisdiction in which the Shares shall have been qualified as above
provided, the Company will make and file such statements and reports in each
year as are or may be required by the laws of such jurisdiction.
(vii) During a period of five (5) years after the
date hereof, the Company will furnish to its shareholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
shareholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's shareholders, (ii)
concurrently with furnishing to its shareholders, a balance sheet of the Company
as of the end of such fiscal year, together with statements of operations, of
shareholders' equity, and of cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of independent
certified public accountants, (iii) as soon as they are available, copies of all
reports (financial or other) mailed to shareholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, any securities exchange or the National Association of
Securities Dealers, Inc. ("NASD"), (v) every material press release and every
material news item or article in respect of the Company or its affairs which was
generally released to shareholders or prepared by the Company or any of its
subsidiaries, and (vi) any additional information of a public nature
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concerning the Company or its subsidiaries, or its business which you may
reasonably request. During such five (5) year period, if the Company shall have
active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(viii) Without the prior written consent of the
Representatives, for a period of 180 days after the date of this Agreement, the
Company shall not issue, sell or register with the Commission, (except for any
registration on Form S-8 or on any successor form) or otherwise dispose of,
directly or indirectly, any equity securities of the Company (or any securities
convertible into or exercisable or exchangeable for equity securities of the
Company), except for the issuance of the Shares pursuant to the Registration
Statement and the issuance of shares pursuant to the Company's existing stock
option plan or bonus plan. In the event that during this period, (i) any shares
are issued pursuant to the Company's existing stock option plan or bonus plan or
(ii) any registration is effected on Form S-8 or on any successor form, the
Company shall obtain the written agreement of such grantee or purchaser or
holder of such registered securities that, for a period of 180 days after the
date of this Agreement, such person will not, without the prior written consent
of the Representatives, offer for sale, sell, distribute, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, or exercise any
registration rights with respect to, any shares of Common Stock (or any
securities convertible into, exercisable for, or exchangeable for any shares of
Common Stock) owned by such person.
(ix) On or before completion of this offering, the
Company shall make all filings required under applicable securities laws and by
the NASDAQ National Market System (including any required registration under the
Exchange Act).
(x) The Company shall cause to be prepared and
delivered, at its expense, within one business day from the effective date of
this Agreement, to the Representatives an "electronic Prospectus" to be used by
the Underwriters in connection with the offering and sale of the Common Shares.
As used herein, the term "electronic Prospectus" means a form of Prospectus, and
any amendment or supplement thereto, that meets each of the following
conditions: (i) it shall be encoded in an electronic format, satisfactory to the
Representatives, that may be transmitted electronically by the Representatives
to offerees and purchasers of the Common Shares for at least the Prospectus
delivery period; (ii) it shall disclose the same information as the paper
Prospectus and Prospectus filed pursuant to EDGAR, except to the extent that
graphic and image material cannot be disseminated electronically, in which case
such graphic and image material shall be replaced in the electronic Prospectus
with a fair and accurate narrative description or tabular representation of such
material, as appropriate; and (iii) it shall be in or convertible into a paper
format or an electronic format, satisfactory to the Representatives, that will
allow investors to store and have continuously ready access to the Prospectus at
any future time, without charge to investors (other than any fee charged for
subscription to the system as a whole and for on-line time). Such electronic
Prospectus may consist of a Rule 434 preliminary prospectus, together with the
applicable term sheet, provided that it otherwise satisfies the format and
conditions described in the immediately preceding sentence. The Company hereby
confirms that it has included or will include in the Prospectus filed pursuant
to EDGAR or otherwise with the Commission and in the Registration Statement at
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the time it was declared effective an undertaking that, upon receipt of a
request by an investor or his or her representative within the Prospectus
delivery period, the Company shall transmit or cause to be transmitted promptly,
without charge, a paper copy of the Prospectus.
(xi) The Company will apply the net proceeds from the
sale of the Shares being sold by it in the manner set forth under the caption
"Use of Proceeds" in the Prospectus.
(xii) The Company will maintain a transfer agent and,
if necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(xiii) If the transactions contemplated hereby are
not consummated by reason of any failure, refusal or inability on the part of
the Company or any Selling Stockholder to perform any agreement on their
respective parts to be performed hereunder or to fulfill any condition of the
Underwriters' obligations hereunder, or if the Underwriters shall terminate this
Agreement pursuant to Section 10, the Company will reimburse the several
Underwriters for all out-of-pocket expenses (including fees and disbursements of
Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares.
(xiv) If at any time during the ninety (90) day
period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Common Stock has been or
is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(b) The Company and the Selling Stockholder agrees to
pay, or reimburse if paid by the Representatives, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the public offering of the Shares
and the performance of the obligations of the Company under this Agreement
including those relating to: (i) the preparation, printing, filing and
distribution of the Registration Statement including all exhibits thereto, each
preliminary prospectus, the electronic Prospectus, the Prospectus, all
amendments and supplements to the Registration Statement and the Prospectus, and
the printing, filing and distribution of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Underwriter's Questionnaire and
Power of Attorney and any instruments related to any of the foregoing; (ii) the
issuance and delivery of the Shares hereunder to the several Underwriters,
including transfer taxes, if any, and the cost of all certificates representing
the Shares and transfer agents' and registrars' fees; (iii) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the various jurisdictions referred to in Section 7(A)(e), including the
reasonable fees and disbursements of counsel for the Underwriters in connection
with such registration and qualification and the preparation, printing,
distribution and shipment of preliminary and
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supplementary Blue Sky memoranda; (iv) the furnishing (including costs of
shipping and mailing) to the Representatives and to the Underwriters of copies
of each preliminary prospectus, the Prospectus and all amendments or supplements
to the Prospectus, and of the several documents required by this Section to be
so furnished, as may be reasonably requested for use in connection with the
offering and sale of the Shares by the Underwriters or by dealers to whom Shares
may be sold; (v) the filing fees of the National Association of Securities
Dealers, Inc. in connection with its review of the terms of the public offering;
(vi) the furnishing (including costs of shipping and mailing) to the
Representatives and to the Underwriters of copies of all reports and information
required by Section 7(A)(f); (vii) inclusion of the Shares for quotation on the
NASDAQ National Market System; (viii) the fees and disbursements of counsel for
the Company; (ix) all fees and other charges of the Company's independent
certified public accountants and (x) all transfer taxes, if any, with respect to
the sale and delivery of the Shares by the Company to the Underwriters. Subject
to the provisions of Section 10, the Underwriters agree to pay, whether or not
the transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of the
obligations of the Underwriters under this Agreement not payable by the Company
pursuant to the preceding sentence, including, without limitation, the fees and
disbursements of counsel for the Underwriters.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
against any and all losses, claims, damages and liabilities, joint or several
(including any reasonable investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other Federal or state law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of the Company herein or (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, the Registration Statement, the electronic
Prospectus or the Prospectus or any amendment thereof or supplement thereto, or
arise out of or are based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that such indemnity shall
not inure to the benefit of any Underwriter (or any person controlling such
Underwriter) on account of any losses, claims, damages or liabilities arising
from the sale of the Shares to any person by such Underwriter if such untrue
statement or omission or alleged untrue statement or omission was made in such
preliminary prospectus, the Registration Statement or the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with information
furnished in writing to the Company by the Representatives on behalf of any
Underwriter specifically for use therein. This indemnity agreement will be in
addition to any liability which the Company and the Selling Stockholder may
otherwise have.
(b) The Selling Stockholder agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act against any and all losses,
23
<PAGE> 24
claims, damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus, the Registration Statement, the electronic Prospectus or the
Prospectus or any amendment thereof or supplement thereto, or arise out of or
are based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of any Underwriter (or any person controlling such Underwriter) on
account of any losses, claims, damages or liabilities arising from the sale of
the Shares to any person by such Underwriter if such untrue statement or
omission or alleged untrue statement or omission was made in such preliminary
prospectus, the Registration Statement or the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with information furnished in
writing to the Company by the Representatives on behalf of any Underwriter
specifically for use therein. This indemnity agreement will be in addition to
any liability which the Company and the Selling Stockholder may otherwise have.
The liability of the Selling Stockholder under the representations, warranties
and agreements contained herein and under the indemnity agreements contained in
the provisions of this Section 8 shall be limited to an amount equal to the
initial public offering price of the Shares, if any, sold by the Selling
Stockholder to the Underwriters minus the amount of the underwriting discount
paid thereon to the Underwriters by the Selling Stockholder. The Company and the
Selling Stockholder may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, the Selling Stockholder and each director of the Company and
each officer of the Company who signs the Registration Statement, to the same
extent as the foregoing indemnity from the Company and the Selling Stockholder
to each Underwriter, but only insofar as such losses, claims, damages or
liabilities arise out of or are based upon (i) any breach of any representation,
warranty, agreement or covenant of the Company herein or (ii) any untrue
statement or omission or alleged untrue statement or omission which was made in
any preliminary prospectus, electronic Prospectus, the Registration Statement or
the Prospectus, or any amendment thereof or supplement thereto, contained in the
last paragraph of the cover page, in the paragraph relating to stabilization on
the inside front cover page of the Prospectus and the statements contained under
the caption "Underwriting" in the Prospectus; provided, however, that the
obligation of each Underwriter to indemnify the Company (including any
controlling person, director or officer thereof) shall be limited to the net
proceeds received by the Company from such Underwriter.
(d) Any party that proposes to assert the right to be
indemnified under this Section 8 will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of
24
<PAGE> 25
such action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 8(a) or 8(b) shall be available to any
party who shall fail to give notice as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give such notice
but the omission so to notify such indemnifying party of any such action, suit
or proceeding shall not relieve it from any liability that it may have to any
indemnified party for contribution or otherwise than under this Section 8. In
case any such action, suit or proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in, and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the defense
thereof. The indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying parties,
(ii) the indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the indemnified party
in the conduct of the defense of such action (in which case the indemnifying
parties shall not have the right to direct the defense of such action on behalf
of the indemnified party) or (iii) the indemnifying parties shall not have
employed counsel to assume the defense of such action within a reasonable time
after notice of the commencement thereof, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement of any action, suit,
proceeding or claim effected without its written consent.
(e) The parties to this Agreement hereby acknowledge
that they are sophisticated business persons who were represented by counsel
during the negotiations regarding the provisions hereof including, without
limitation, the provisions of this Section 8, and are fully informed regarding
said provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Securities Act
and the Exchange Act.
9. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnification provided
for in Section 8(a) is due in accordance with its terms but for any reason is
held to be unavailable from the Company or the Selling Stockholder, the Company,
the Selling Stockholder, and the Underwriters shall contribute to the aggregate
losses, claims, damages and liabilities (including any investigation, legal and
other expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting any contribution received by the Company or the Selling Stockholder
from persons other than the Underwriters, such as persons who control the
Company within the meaning of the Securities Act, officers of the Company who
signed the Registration Statement and directors of the Company, who may also be
liable for contribution) to which the Company, the Selling Stockholder and one
or more of the
25
<PAGE> 26
Underwriters may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholder on the one
hand and the Underwriters on the other from the offering of the Shares or, if
such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 8 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company and the Selling Stockholder on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the offering (net of underwriting discounts but before deducting
expenses) received by the Company, as set forth in the table on the cover page
of the Prospectus, bear to (y) the underwriting discounts received by the
Underwriters, as set forth in the table on the cover page of the Prospectus. The
relative fault of the Company and the Selling Stockholder or the Underwriters
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact related to information supplied by
the Company or the Selling Stockholder or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling Stockholder and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this Section 9, (i) in no
case shall any Underwriter (except as may be provided in the Agreement Among
Underwriters) be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder, and (ii) the Company and the Shareholder shall be liable and
responsible for any amount in excess of such underwriting discount; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any, who controls the Company within
the meaning of the Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) in the
immediately preceding sentence of this Section 9. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section. No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent. The Underwriter's
obligations to contribute pursuant to this Section 9 are several in proportion
to their respective underwriting commitments and not joint.
26
<PAGE> 27
10. Termination. This Agreement may be terminated with respect to
the Shares to be purchased on a Closing Date by the Representatives by notifying
the Company at any time:
(a) in the absolute discretion of the Representatives at
or before any Closing Date: (i) if on or prior to such date, any domestic or
international event or act or occurrence has materially disrupted, or in the
opinion of the Representatives will in the future materially disrupt, the
securities markets; (ii) if there has occurred any new outbreak or material
escalation of hostilities or other calamity or crisis the effect of which on the
financial markets of the United States is such as to make it, in the judgment of
the Representatives, inadvisable to proceed with the offering; (iii) if there
shall be such a material adverse change in general financial, political or
economic conditions or the effect of international conditions on the financial
markets in the United States is such as to make it, in the judgment of the
Representatives, inadvisable or impracticable to market the Shares; (iv) if
trading in the Shares has been suspended by the Commission or trading generally
on the New York Stock Exchange, Inc. or on the American Stock Exchange, Inc. has
been suspended or limited, or minimum or maximum ranges for prices for
securities shall have been fixed, or maximum ranges for prices for securities
have been required, by said exchanges or by order of the Commission, the
National Association of Securities Dealers, Inc., or any other governmental or
regulatory authority; or (v) if a banking moratorium has been declared by any
state or Federal authority, or
(b) at or before any Closing Date, that any of the
conditions specified in Section 6 shall not have been fulfilled when and as
required by this Agreement.
If this Agreement is terminated pursuant to any of its
provisions, the Company shall not be under any liability to any Underwriter, and
no Underwriter shall be under any liability to the Company, except that (y) if
this Agreement is terminated by the Representatives or the Underwriters because
of any failure, refusal or inability on the part of the Company to comply with
the terms or to fulfill any of the conditions of this Agreement, the Company
will reimburse the Underwriters for all out-of-pocket expenses (including the
reasonable fees and disbursements of their counsel) incurred by them in
connection with the proposed purchase and sale of the Shares or in contemplation
of performing their obligations hereunder and (z) no Underwriter who shall have
failed or refused to purchase the Shares agreed to be purchased by it under this
Agreement, without some reason sufficient hereunder to justify cancellation or
termination of its obligations under this Agreement, shall be relieved of
liability to the Company or to the other Underwriters for damages occasioned by
its failure or refusal.
11. Substitution of Underwriters. If one or more of the
Underwriters shall fail (other than for a reason sufficient to justify the
cancellation or termination of this Agreement under Section 10) to purchase on
any Closing Date the Shares agreed to be purchased on such Closing Date by such
Underwriter or Underwriters, the Representatives may find one or more substitute
underwriters to purchase such Shares or make such other arrangements as the
Representatives may deem advisable or one or more of the remaining Underwriters
may agree to purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date:
27
<PAGE> 28
(a) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date shall not exceed 10% of the Shares
that all the Underwriters are obligated to purchase on such Closing Date, then
each of the nondefaulting Underwriters shall be obligated to purchase such
Shares on the terms herein set forth in proportion to their respective
obligations hereunder; provided, that in no event shall the maximum number of
Shares that any Underwriter has agreed to purchase pursuant to Section 1 be
increased pursuant to this Section 11 by more than one-ninth of such number of
Shares without the written consent of such Underwriter; or
(b) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to an additional business day within which it may, but
is not obligated to, find one or more substitute underwriters reasonably
satisfactory to the Representatives to purchase such Shares upon the terms set
forth in this Agreement.
In any such case, either the Representatives or the Company shall
have the right to postpone the applicable Closing Date for a period of not more
than five business days in order that necessary changes and arrangements
(including any necessary amendments or supplements to the Registration Statement
or Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company and without liability
on the part of the Company, except in both cases as provided in Sections 7, 8, 9
and 10. The provisions of this Section shall not in any way affect the liability
of any defaulting Underwriter to the Company or the nondefaulting Underwriters
arising out of such default. A substitute underwriter hereunder shall become an
Underwriter for all purposes of this Agreement.
12. Miscellaneous. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers, the
Selling Stockholder and of the Underwriters set forth in or made pursuant to
this Agreement shall remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter, the Selling Stockholder
or the Company or any of the officers, directors or controlling persons referred
to in Sections 8 and 9 hereof, and shall survive delivery of and payment for the
Shares. The provisions of Sections 7, 8, 9 and 10 shall survive the termination
or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters, the Selling Stockholder and the Company and their respective
successors and assigns, and, to the extent expressed herein, for the benefit of
persons controlling any of the Underwriters, or the Company, and directors and
officers of the Company, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement.
28
<PAGE> 29
The term "successors and assigns" shall not include any purchaser of Shares from
any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or telegraph if subsequently confirmed in
writing, (a) if to the Representatives, c/o CIBC Oppenheimer Corp., CIBC
Oppenheimer Tower, World Financial Center, New York, New York 10281 Attention:
Richard D. White, (b) if to the Selling Stockholder, to the Company as the
Company's address appears on the cover page of the Registration Statement and
(c) if to the Company, to its agent for service as such agent's address appears
on the cover page of the Registration Statement.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflict
of laws.
This Agreement may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
<PAGE> 30
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
CRL Network Services, Inc.
By:
-------------------------------------
Name: James Couch
Title: Chief Executive Officer
Confirmed:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
CIBC Oppenheimer Corp. Lehman Brothers, Inc.
- ----------------------------------- ---------------------------------
Acting severally on behalf of itself Acting severally on behalf of itself
and as a representative of the several and as a representative of the several
Underwriters named in Schedule I Underwriters named in Schedule I annexed
annexed hereto. hereto.
CIBC Oppenheimer Corp. Lehman Brothers, Inc.
By By
-------------------------------- ---------------------------------
Title: Title:
- ------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Firm Shares to
Name Be Purchased
---- ------------
<S> <C>
CIBC Oppenheimer Corp.
Lehman Brothers, Inc.
------------
Total
------------
</TABLE>
31
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
CRL Network Services, Inc.
ONE: The name of this corporation is CRL Network Services, Inc.
TWO: The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE: The name and address in this state of the corporation's initial
agent for service of process is:
James C. Couch, 11 San Rafael Ave., San Anselmo, Ca. 94960-2119
FOUR: This corporation is authorized to issue only one class of shares of
stock which shall be designated common stock. The total number of shares it is
authorized to issue is one hundred thousand (100,000) shares.
FIVE: The names and addresses of the persons who are appointed to act as
the initial directors of this corporation are:
James G. Couch
P.O. Box 326 Larkspur, CA 94977
Michelle Vogel
P.O. Box 326, Larkspur, CA 94977
SIX: The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
SEVEN: The corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the Corporations Code) for breach or duty to the
corporation and its stockholders through bylaw provisions or through agreements
with the agents, or both, in excess of the indemnification otherwise permitted
by Section 317 of the Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the Corporations Code.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned, being all the persons named above
as the initial directors, have executed these Articles of Incorporation.
Dated: 9/30/93
/S/ James G. Couch
---------------------
James G. Couch
/S/ Michelle Vogel
---------------------
Michelle Vogel
The undersigned, being all the persons named above as the initial
directors, declare that they are the persons who executed the foregoing Articles
of Incorporation, which execution is their act and deed.
Dated: 9/30/93
/S/ James G. Couch
---------------------
James G. Couch
/S/ Michelle Vogel
---------------------
Michelle Vogel
2
<PAGE> 3
CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION
OF CRL NETWORK SERVICES, INC.
James G. Couch Certifies that:
1. He is the President and Secretary of CRL Network Services, Inc.,
a California Corporation.
2. Article Four of the Articles of Incorporation is amended to read
in full as follows:
FOUR. The corporation is authorized to issue two hundred million
(200,000,000) shares of Common Stock of one class. Upon the
amendment of this article, each outstanding share is split into
20 shares.
3. The amendment herein set forth has been duly approved by the
board of directors.
4. The corporation has only one class of shares outstanding and the
amendment effects only a stock split.
5. The foregoing amendment of the Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance
to Section 902, California Corporations Code. The total number of
outstanding shares is 2,781,600. The number of shares voting in
favor of the amendment equaled or exceeded the vote required. The
percentage vote required was more than 50%.
/S/ James G. Couch
-----------------------------------
JAMES G. COUCH
President and Secretary
The undersigned declares under penalty of perjury under the laws of the
State of California that he has read the foregoing certificate and knows the
contents thereof and that the same is true of his own knowledge.
Executed at San Francisco, California on December 2nd, 1998.
/S/ James G. Couch
-----------------------------------
JAMES G. COUCH
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION
OF CRL NETWORK SERVICES, INC.
James G. Couch Certifies that:
1. He is the President and Secretary of CRL Network Services, Inc.,
a California Corporation.
2. Article Four of the Articles of Incorporation is amended to read
in full as follows:
FOUR. The corporation is authorized to issue fifty million
(50,000,000) shares of Common Stock of one class. Upon the
amendment of this article, each outstanding share is split into
2,318 shares.
3. The amendment herein set forth has been duly approved by the
board of directors.
4. The corporation has only one class of shares outstanding and the
amendment effects only a stock split. The foregoing amendment of
the Articles of Incorporation has been duly approved by the
required vote of shareholders in accordance to Section 902,
California Corporations Code. The total number of outstanding
shares is 1,200. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage
vote required was more than 50%.
/S/ James G. Couch
-----------------------------------
JAMES G. COUCH
President and Secretary
The undersigned declares under penalty of perjury under the laws of the
State of California that he has read the foregoing certificate and knows the
contents thereof and that the same is true of his own knowledge.
Executed at San Francisco, California on August 8, 1997.
/S/ James G. Couch
-----------------------------------
JAMES G. COUCH
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
CRL NETWORK SERVICES, INC.
ARTICLE I
NAME OF CORPORATION
The name of this corporation is:
CRL NETWORK SERVICES, INC.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the corporation in the
State of Delaware is 9 East Loockerman Street, in the City of Dover 19901,
County of Kent, and the name of its registered agent at that address is National
Registered Agents, Inc.
ARTICLE III
PURPOSE
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
The total number of shares of stock which the corporation shall
have authority to issue is __________________, _________ of which shall be
designated shares of Common Stock, par value of one cent ($0.01) per share (the
"Common Stock"),
<PAGE> 2
and _____________ of which shall be designated shares of Preferred Stock, par
value of one cent ($0.01) per share (the "Preferred Stock").
Authority is hereby expressly granted to the Board of Directors
from time to time to create one or more series of Preferred Stock and to issue
Preferred Stock in series, and in connection with the designation of any such
series, by resolution or resolutions providing for the issue of shares of such
series, to determine and fix such voting powers, full or limited, or lack of
voting powers, and such designations, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof including, without limitation, dividend rights, conversion rights,
redemption privileges and liquidation preferences, all to the full extent now or
hereafter permitted by law. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. No vote of
the holders of the Preferred Stock or Common Stock shall be a prerequisite to
the issuance of any shares of any series of Preferred Stock authorized by and
complying with the conditions of the Certificate of Incorporation, unless
provided in the Certificate of Incorporation or in any designation creating any
series.
ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator of the
corporation is:
------------
c/o National Corporate Research, LTD.
9 East Loockerman Street
Dover, Delaware 19901
ARTICLE VI
BOARD POWER REGARDING BYLAWS
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind the bylaws of the corporation.
2
<PAGE> 3
ARTICLE VII
NUMBER OF DIRECTORS; ELECTION OF DIRECTORS
The number of directors which will constitute the whole Board of
Directors of the corporation shall be specified in the bylaws of the
corporation. Elections of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
ARTICLE VIII
LIMITATION OF DIRECTOR LIABILITY
To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a director of
the corporation shall not be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. If the Delaware
General Corporation Law is amended after the date of the filing of this
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended from time to
time. No repeal or modification of this Article VIII by the stockholders shall
adversely affect any right or protection of a director of the corporation
existing by virtue of this Article VIII at the time of such repeal or
modification. In furtherance of this Article VIII, the Board of Directors is
authorized to enter into indemnification agreements with its directors or
officers.
ARTICLE IX
CORPORATE POWER
The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
ARTICLE X
CREDITOR COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor
3
<PAGE> 4
or stockholder thereof or on the application of any receiver or receivers
appointed for this corporation under the provisions of Section 291 of Title 8 of
the Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this corporation under the provisions of
Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for
the purpose of forming a corporation to do business both within and without the
State of Delaware, and in pursuance of the Delaware General Corporation Law,
does make and file this Certificate.
Dated: ________________ ___, 1999
___________________________________
_____________, Incorporator
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
CRL NETWORK SERVICES, INC.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE
The location of the principal executive office of the corporation shall
be fixed by the board of directors. It may be located at any place within or
outside the State of California. The secretary of this corporation shall keep
the original or a copy of those bylaws, as amended to date, at the principal
executive office of the corporation if this office is located in California. If
this office is located outside California, the bylaws shall be kept at the
principal business office of the corporation within California. The officers of
this corporation shall cause the corporation to file an annual statement with
the Secretary of State of California as required by Section 1502 of the
California Corporations Code specifying the street address of the corporation's
principal executive office.
SECTION 2. OTHER OFFICES
The corporation may also have offices at such other places as the board
of directors may from time to time designate, or as the business of the
corporation may require.
ARTICLE II
SHAREHOLDERS' MEETING
SECTION 1. PLACE OF MEETINGS
All meetings of the shareholders shall be held at the principal
executive office or the corporation or at such other place as may be determined
by the board of directors.
SECTION 2. ANNUAL MEETINGS
The annual meeting of the shareholders shall be held each year on the
second Monday in December, at which time the shareholders shall elect a board of
directors and transact any other proper business. If this date falls on a legal
holiday, then the meeting shall be held on the following business day at the
same hour.
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SECTION 3. SPECIAL MEETINGS
Special meetings of the shareholders may be called by the board of
directors; the chairperson of the board of directors, the president, or any one
or more shareholders holding at least 10 percent of the voting power of the
corporation.
SECTION 4. NOTICES OF MEETINGS
Notices of meetings, annual or special, shall be given in writing
shareholders entitled to vote at the meeting by the secretary or an assistant
secretary or, if there be no such officer, or in the case of his or her neglect
or refusal, by any director or shareholder.
Such notices shall be given either personally or by first-class mail or
other means of written communication, addressed to the shareholder at the
address of such shareholder appearing on the stock transfer books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. Notice shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting.
Such notice shall state the place, date, and hour of the meeting and (1)
in the case of a special meeting, the general nature of the business to be
transacted, and that no other business may be transacted, or (2) in the case of
an annual meeting, those matters which the board at the time of the mailing of
the notice, intends to present for action by the shareholders, but, subject to
the provisions of Section 6 of this Article, any proper matter may be presented
at the annual meeting for such action. The notice of any meeting at which
directors are to be elected shall include the names to the nominees which, at
the time of the notice, the board of directors intends to present for election.
Notice of any adjourned meeting need not be given unless a meeting is adjourned
for forty-five (45) days or more from the date set for the original meeting.
SECTION 5. WAIVER OF NOTICE
The transactions of any meeting of shareholders, however called and
noticed, and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, it a quorum is present, whether in person or by
proxy, and it, either before or after the meeting, each of the persons, entitled
to vote, not present in person or by proxy, signs a written waiver of notice or
a consent to the holding of the meeting or an approval of the minutes thereof.
All such waivers or consents shall be filed with the corporate records or made
part of the minutes of the meeting. Neither the business to be transacted at the
meeting, nor the purpose of any annual or special meeting of shareholders need
be specified in any written waiver of notice, except as provided in Section 6 of
this Article.
SECTION 6. SPECIAL NOTICE AND WAIVER OF NOTICE REQUIREMENTS
Except as provided below, any shareholder approval at meeting, with
respect to the following proposals, shall be valid only if the general nature of
the proposal so approved was stated in the notice of meeting, or in any written
waiver of notice:
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a. Approval of a contract or other transaction between the corporation
and one or more of its directors or between the corporation and any corporation,
firm, or association in which one or more of the directors has a material
financial interest, pursuant to Section 310 of the California Corporations Code;
b. Amendment of the Articles of Incorporation after any shares have been
issued pursuant to Section 902 of the California Corporations Code;
c. Approval of the principal terms of a reorganization pursuant to
Section 1201 of the California Corporations Code;
d. Election to voluntarily wind up and dissolve the corporation pursuant
to Section 1900 of the California Corporations Code;
e. Approval of a plan of distribution or shares as part of the winding
up of the corporation pursuant to Section 2007 of the California Corporations
Code.
Approval of the above proposals at a meeting shall be valid with or
without such notice, if it is by the unanimous approval of those entitled to
vote at the meeting.
SECTION 7. ACTION WITHOUT MEETING
Any action that may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice if a
consent, in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number voted that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, notice of any shareholders' approval, with respect to any
one of the following proposals, without a meeting, by less than unanimous
written consent shall be given at least ten (10) days before the consummation of
the action authorized by such approval:
a. Approval of a contract or other transaction between the corporation
and one or more of its directors or another corporation, firm or association in
which one or more of its directors has a material financial interest, pursuant
to Section 310 of the California Corporations Code;
b. To indemnify an agent of the corporation pursuant to Section 317 of
the California Corporations Code;
c. To approve the principal terms of a reorganization, pursuant to
Section 1201 of the California Corporations Code; or
d. Approval of a plan of distribution as part of the winding up of the
corporation pursuant to Section 2007 of the California Corporations Code.
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Prompt notice shall be given of the taking of any other corporate action
approved by shareholders without a meeting by less than a unanimous written
consent to those shareholders entitled to vote who have not consented in
writing.
Notwithstanding any of the foregoing provisions of this section, and
except as provided in Article III, Section 4 of these bylaws, directors may not
be elected by written consent except by the unanimous written consent of all
shares entitled to vote for the election of directors.
A written consent may be revoked by a writing received by the
corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the secretary of
the corporation, but may not be revoked thereafter. Such revocation is effective
upon its receipt by the secretary of the Corporation.
SECTION 8. QUORUM AND SHAREHOLDER ACTION
A majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of shareholders. If a quorum is
present, the affirmative vote of the majority of shareholders represented at the
meeting and entitled to vote on any matter shall be the act of the shareholders,
unless the vote of a greater number is required by law and except as provided in
the following paragraphs of this section.
The shareholders present at a duly called or held meeting at which a
quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action is approved by at least a majority of the shares required
to constitute a quorum.
In the absence of a quorum any meeting of shareholders may be adjourned
from time to time by the vote of a majority of the shares represented either in
person or by proxy, but no other business may be transacted except as provided
in the foregoing provisions of this section.
SECTION 9. VOTING
Only shareholders of record on the record date fixed for voting purposes
by the board of directors pursuant to Article III Section 3 of these bylaws, or,
if there be no such date fixed, on the record date given below, shall by
entitled to vote at a meeting.
If no record date is fixed:
a. The record date for determining shareholders entitled to notice of,
or to vote at a meeting of shareholders, shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held.
b. The record date for determining the shareholders entitled to give
consent to corporate actions in writing without a meeting, when no prior action
by the board is necessary, shall be the day on which the first written consent
is given.
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c. The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the board adopts the
resolution relating thereto, or the 60th day prior to the date of such other
action, whichever is later.
Every shareholder entitled to vote shall be entitled to one vote for
each share held, except as otherwise provided by law, by the Articles of
Incorporation or by other provisions of these bylaws. Except with respect to
elections of directors, any shareholder entitled to vote may vote part of his or
her shares in favor of a proposal and refrain from voting the remaining shares
or vote them against the proposal. If a shareholder fails to specify the number
of shares he or she is affirmatively voting, it will be conclusively presumed
that the shareholder's approving vote is with respect to all shares the
shareholder is entitled to vote.
At each election of directors, shareholders shall not be entitled to
cumulate votes unless the candidates' names have been placed in nomination
before the commencement of the voting and a shareholder has given notice at the
meeting, and before the voting has begun, of his or her intention to cumulate
votes. If any shareholder has given such notice, then all shareholders entitled
to vote may cumulate their votes by giving one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of his or her
shares or by distributing such votes on the same principle among any number of
candidates as he or she thinks fit. The candidates receiving the highest number
of votes, up to the number of directors to be elected, shall be elected. Votes
cast against a candidate or which are withheld shall have no effect. Upon the
demand of any shareholder made before the voting begins, the election of
directors shall be by ballot rather than by voice vote.
SECTION 10. PROXIES
Every person entitled to vote shares may authorize another person or
persons to act by proxy with respect to such shares by filing a written proxy
with the secretary of the corporation, executed by such person or his or her
duly authorized agent.
A proxy shall not be valid after the expiration of eleven (11) months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
continue in full force and effect until revoked by the person executing it prior
to the vote pursuant thereto, except as otherwise provided in Section 705 of the
California Corporations Code.
ARTICLE III
DIRECTORS
SECTION 1. POWERS
Subject to any limitations in the Articles of Incorporation and to the
provisions of the California Corporations Code, the business and affairs of the
corporation shall be managed and all corporate powers be exercised by, or under
the direction of, the board directors.
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SECTION 2. NUMBER
The authorized number of directors shall be two until changed by
amendment to this article of these bylaws.
After issuance of shares, this bylaw may only be amended by approval of
a majority of the outstanding shares entitled to vote; provided, moreover, that
a bylaw reducing the fixed number of directors to a number less than five (5)
cannot be adopted unless in accordance with the additional requirements of
Article IX of these Bylaws.
SECTION 3. ELECTION AND TENURE OF OFFICE
The directors shall by elected at the annual meeting of the shareholders
and hold office until the next annual meeting and until their successors have
been elected and qualified.
SECTION 4. VACANCIES
A vacancy on the board of directors shall exist in the case of death,
resignation, or removal of any director or in case the authorized number of
directors is increased, or in case the shareholders fail to elect the full
authorized number of directors at any annual or special meeting of the
shareholders at which any director is elected. The board of directors may
declare vacant the office of a director who has been declared of unsound mind by
an order of court or who has been convicted of a felony.
Except for a vacancy created by the removal of a director, vacancies on
the board of directors may be filled by approval of the board or if the number
of directors then in office is less than a quorum, by (1) the unanimous written
consent of the directors then in office, (2) the affirmative vote of a majority
of the directors then in office at a meeting held pursuant to notice or waivers
of notice complying with this Article of these Bylaws, or (3) a sole remaining
director. Vacancies occurring on the board by reason of the removal of directors
may be filled only by approval of the shareholders. Each director so elected
shall hold office until the next annual meeting of the shareholders and until
his or her successor has been elected and qualified.
The shareholders may elect a director at any time to fill a vacancy not
filled by the directors. Any such election by written consent other than to fill
a vacancy created by the removal of a director requires the consent of a
majority of the outstanding shares entitled to vote.
Any director may resign effective upon giving written notice to the
chairperson of the board of directors, the president, the secretary or to the
board of directors unless the notice specifies a later time for the
effectiveness of the resignation. If the resignation is effective at a later
time, a successor may be elected to take office when the resignation becomes
effective. Any reduction of the authorized number of directors does not remove
any director prior to the expiration of such director's term in office.
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SECTION 5. REMOVAL
Any or all of the directors may be removed without cause if such removal
is approved by a majority of the outstanding shares entitled to vote, subject to
the provisions of Section 303 of the California Corporations Code. Except as
provided in Sections 302, 303 and 304 of the California Corporations Code, a
director may not be removed prior to the expiration of such director's term of
office.
The Superior Court of the proper county may, on the suit of shareholders
holding at least 10 percent of the number of outstanding shares of any class,
remove from office any director in case of fraudulent or dishonest acts or gross
abuse of authority or discretion with reference to the corporation and may bar
from re-election any director so removed for a period prescribed by the court.
The corporation shall be made a party to such action.
SECTION 6. PLACE OF MEETINGS
Meetings of the board of directors shall be held at any place, within or
without the State of California, which has been designated in the notice of the
meeting or, if not stated in the notice or if there is no notice, at the
principal executive office of the corporation or as may be designated from time
to time by resolution of the board of directors. Meetings of the board may be
held through use of conference telephone or similar communications equipment, as
long as all directors participating in the meeting can hear one another.
SECTION 7. ANNUAL, REGULAR AND SPECIAL DIRECTORS' MEETINGS
An annual meeting of the board of directors shall be held without notice
immediately after and at the same place as the annual meeting of the
shareholders.
Other regular meetings of the board of directors shall be held at such
time and place as may be fixed from time to time by the board of directors. Call
and notice of these regular meetings shall not be required.
Special meetings of the board of directors may be called by the
chairperson of the board, the president, vice president, secretary, or any two
directors. Special meetings of the board of directors to be held upon four (4)
days notice by mail, or forty-eight (48) hours' notice delivered personally or
by telephone or telegraph. A notice or waiver of notice need not specify the
purpose of any special meeting of the board of director.
If any meeting is adjourned for more than 24 hours, notice of the
adjournment to another time or place shall be given before the time of the
resumed meeting to all directors who were not present at the time of adjournment
of the original meeting.
SECTION 8. QUORUM AND BOARD ACTION
A quorum for all meetings of the board of directors shall consist of a
majority of the members of the board of directors until changed by amendment to
this article of these bylaws.
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Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present is the act of the
board, subject to the provisions of Section 310 (relating to the approval of
contracts and transactions in which a director has a material financial
interest); the provisions of Section 311 (designation of committees); and
Section 317(e) (indemnification of directors) of the California Corporations
Code. 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 such meeting.
A majority of the directors present at a meeting may adjourn any meeting
to another time and place, whether or not a quorum is present at the meeting.
SECTION 9. WAIVER OF NOTICE
The transactions of any meeting of the board, however called and noticed
or wherever held, are as valid as though undertaken at a meeting duly held after
regular call and notice if a quorum is present and if, either before or after
the meeting, each of the directors not present signs a written waiver of notice,
a consent to holding the meeting, or an approval of the minutes thereof. All
such waivers, consents, and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting. Waivers of notice or consents need
not specify the purpose of the meeting.
SECTION 10. ACTION WITHOUT MEETING
Any action required or permitted to be taken by the board may be taken
without a meeting, if all members of the board shall individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the board. Such action by
written consent shall have the same force and effect as a unanimous vote of the
directors.
SECTION 11. COMPENSATION
No salary shall be paid directors, as such, for their services but, by
resolution, the board of directors may allot a reasonable fixed sum and expenses
to be paid for attendance at regular or special meetings. Nothing contained
herein shall prevent a director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special of standing
committees may be allowed like compensation for attendance at meetings.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS
The officers of the corporation shall be a president, a vice president,
a secretary, and a treasurer who shall be the chief financial officer of the
corporation. The corporation also may
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have such other officers with such title and duties as shall be determined by
the board of directors. Any number of offices may be held by the same person.
SECTION 2. ELECTION
All officers of the corporation shall be chosen by, and serve at the
pleasure of, the board of directors.
SECTION 3. REMOVAL AND RESIGNATION
An officer may be removed at any time, either with or without cause, by
the board. An officer may resign at any time upon written notice to the
corporation given to the board, the president, or the secretary of the
corporation. Any such resignation shall take effect at the date of receipt of
such notice or at any other time specified therein. The removal or resignation
of an officer shall be without prejudice to the rights, if any, of the officer
or the corporation under any contract of employment to which the officer is a
party.
SECTION 4. PRESIDENT
The president shall be the chief executive officer and general manager
of the corporation and shall, subject to the direction and control of the board
of directors, have general supervision, direction, and control of the business
and affairs of the corporation. He/she shall preside at all meetings of the
shareholders and directors and be an ex-officio member of all the standing
committees, including the executive committee, if any, and shall have the
general powers and duties of a management usually vested in the office of
president of a corporation and shall have such other powers and duties as may
from time to time be prescribed by the board of directors or these bylaws.
SECTION 5. VICE PRESIDENT
In the absence or disability of the president, the vice president, in
order of their rank as fixed by the board of directors (or if not ranked, the
vice president designated by the board) 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. Each vice president shall have such
other powers and perform such other duties as may from time to time be
prescribed by the board of directors or these bylaws.
SECTION 6. SECRETARY
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation, a book of minutes of all meetings of
directors and shareholders. The minutes shall state the time and place of
holding of all meetings; whether regular or special, and if special, how called
or authorized; the notice thereof given or the waivers of notice received; the
names of those present at directors' meetings; the number of shares present or
represented at shareholders' meetings; and an account of all proceedings
thereof.
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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, a share register, showing the names of the shareholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for shares, and the number and rate of cancellation
of every certificate surrendered for cancellation.
The secretary shall keep, or cause to by kept, at the principal
executive office of the corporation, the original or a copy of the bylaws of the
corporation, as amended or, otherwise altered to date, certified by him or her.
The secretary shall give, or cause to be given, notice of all meetings
of shareholders and directors required to be given by law or by the provisions
of these bylaws.
The secretary shall have charge of the seal of the corporation and have
such other powers and perform such other duties as may from time to time be
prescribed by the board or these bylaws.
In the absence or disability of the secretary, the assistant secretaries
if any, in order of their rank as fixed by the board or directors (or if not
ranked, the assistant secretary designated by the board of directors), shall
have all the powers of, and be subject to all the restrictions upon, the
secretary. The assistant secretaries, if any, shall have such other powers and
perform such other duties as may from time to time be prescribed by the board of
directors or these bylaws.
SECTION 7. TREASURER
The treasurer shall be the chief financial officer of the corporation
and 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.
The treasurer shall deposit monies 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. He or she shall disburse the funds of the corporation in
payment of the just demands against the corporation as authorized 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 treasurer and of the financial
condition of the corporation; and shall have such other powers and perform such
other duties as may from time to time be prescribed by the board of directors or
the bylaws.
In the absence or disability of the treasurer, the assistant treasurers,
if any, in order of their rank as fixed by the board of directors (or if not
ranked, the assistant treasurer designated by the board of directors), shall
perform all the duties of the treasurer and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the treasurer. The
assistant treasurers, if any, shall have such other powers and perform such
other duties as may from time to time be prescribed by the board of directors or
these bylaws.
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SECTION 8. COMPENSATION
The officers of this corporation shall receive such compensation for
their services as may be fixed by resolution of the board of directors.
EXECUTIVE COMMITTEES
SECTION 1.
The board may, by resolution adopted by a majority of the authorized
number of directors, designate one or more committees, each consisting of two or
more directors, to serve at the pleasure of the board. Any such committee, to
the extent provided in the resolution of the board, shall have all the authority
of the board, except with respect to:
a. The approval of any action for which the approval of the shareholder
or approval of the outstanding shares is also required.
b. The filling of vacancies on the board or in any committee.
c. The fixing of compensation of the directors for serving on the board
or on any committee.
d. The amendment or repeal of bylaws or the adoption of new bylaws.
e. The amendment or repeal of any resolution of the board which by its
express terms is not so amendable or repealable.
f. A distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the board.
g. The appointment of other committees of the board or the members
thereof.
ARTICLE VI
CORPORATE RECORDS AND REPORTS
SECTION 1. INSPECTION BY SHAREHOLDERS
The share register shall be open to inspection and copying by any
shareholder or holder of a voting trust certificate at any time during usual
business hours upon written demand on the corporation, for a purpose reasonably
related to such holder's interest as a shareholder or holder of a voting trust
certificate. Such inspection and copying under this section may be made in
person or by agent or attorney.
The accounting books and records of the corporation and the minutes of
proceedings of the shareholders and the board and committees of the board shall
be open to inspection upon the
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written demand of the corporation by any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours, for any proper
purpose reasonably related to such holder's interests as a shareholder or as the
holder of such voting trust certificate. Such inspection by a shareholder or
holder of voting trust certificate may be made in person or by agent or
attorney, and the right of inspection includes the right to copy and make
extracts.
Shareholders shall also have the right to inspect the original or copy
of these bylaws, as amended to date and kept at the corporation's principal
executive office, at all reasonable times during business hours.
SECTION 2. INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the corporation, domestic or foreign. Such inspection
by a director may be made in person or by agent or attorney. The right of
inspection includes the right to copy and make extracts.
SECTION 3. RIGHT TO INSPECT WRITTEN RECORDS
If any record subject to inspection pursuant to this chapter is not
maintained in written form, a request for inspection is not complied with unless
and until the corporation at its expense makes such record available in written
form.
SECTION 4. WAIVER OF ANNUAL REPORT
The annual report to shareholders, described in Section 1501 of the
California Corporations Code is hereby expressly waived, as long as this
corporation has less than 100 holders of record of its shares. This waiver shall
be subject to any provision of law, including Section 1501(c) of the California
Corporations Code, allowing shareholders to request the corporation to furnish
financial statements.
SECTION 5. CONTRACTS, ETC.
The board of directors, except as otherwise provided in the bylaws, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name and on behalf of the corporation. Such
authority may be general or confined to specific instances. Unless so authorized
by the board of directors, no officer, agent, or employee shall have any power
or authority to bind the corporation by any contract, or to pledge its credit,
or to render it liable for any purpose or to any amount.
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ARTICLE VII
INDEMNIFICATION AND INSURANCE OF CORPORATE AGENTS
SECTION 1. INDEMNIFICATION
The directors and officers of the corporation shall be indemnified by
the corporation to the fullest extent not prohibited by the California
Corporations Code.
SECTION 2. INSURANCE
The corporation shall have the power to purchase and maintain insurance
on behalf of any agent (as defined in Section 317 of the California Corporations
Code) against any liability asserted against or incurred by the agent in such
capacity or arising out of the agent's status as such, whether or not the
corporation would have the power to indemnify the agent against such liability
under the provision of Section 317 of the California Corporations Code.
ARTICLE VIII
SHARES
SECTION 1. CERTIFICATES
The corporation shall issue certificates for its shares when fully paid.
Certificates of stock shall be issued in numerical order, and shall state the
name of the recordholder of the shares represented thereby; the number,
designation, if any, and the class or series of shares represented thereby; and
contain any statement or summary required by any applicable provision of the
California Corporations Code.
Every certificate for shares shall be signed in the name of the
corporation by 1) the chairperson or vice-chairperson of the board or the
president or a vice president and 2) by the treasurer or the secretary or an
assistant secretary.
SECTION 2. TRANSFER OF SHARES
Upon surrender to the secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment, or authority to transfer, it shall be the duty of the
secretary of the corporation to issue a new certificate to the person entitled
thereto, to cancel the old certificate, and to record the transaction upon the
share register of the corporation.
SECTION 3. RECORD DATE
The board of directors may fix a time in the future as a record date for
the determination of the shareholders entitled to notice of and to vote at any
meeting of shareholders or entitled to receive payment of any dividend or
distribution, or any allotment of rights, or to exercise rights in respect to
any other lawful action. The record date so fixed shall not be more than sixty
(60) days nor less than ten (10) days prior to the date of the meeting nor more
than sixty (60) days
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prior to any other action. When a record date is so fixed, only shareholders of
record on that date are entitled to notice of and to vote at the meeting or to
receive the dividend, distribution, or allotment of rights, or to exercise the
rights as the case may be, notwithstanding any transfer of any shares on the
books or the corporation after the record date.
ARTICLE IX
AMENDMENT OF BYLAWS
SECTION 1. BY SHAREHOLDERS
Bylaws may be adopted, amended, or repealed by the affirmative vote or
by the written consent of holders of a majority of the outstanding shares of the
corporation entitled to vote. However, a bylaw amendment which reduces the fixed
number of directors to a number less than five (5) shall not be effective if the
votes cast against the amendment or the shares not consenting to its adoption
are equal to more than 16 2/3 percent of the outstanding shares entitled to
vote.
SECTION 2. BY DIRECTORS
Subject to the right of shareholders to adopt, amend, or repeal bylaws,
the directors may adopt, amend or repeal any bylaw, except that a bylaw
amendment changing the authorized number of directors may be adopted by the
board of directors only if prior to the issuance of shares.
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EXHIBIT 3.4
CRL NETWORK SERVICES, INC.
(a Delaware corporation)
BYLAWS
ARTICLE I
OFFICES
SECTION 1.01 Registered Office. The registered office of CRL
Network Services, Inc. (hereinafter called the Corporation) in the State of
Delaware shall be at 9 East Loockerman Street, City of Dover, County of Kent,
and the name of the registered agent in charge thereof shall be National
Registered Agents, Inc.
SECTION 1.02 Other Offices. The Corporation may also have an
office or offices at such other place or places, either within or without the
State of Delaware, as the Board of Directors (hereinafter called the Board) may
from time to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 Annual Meetings. Annual meetings of the stockholders
of the Corporation for the purpose of electing directors and for the transaction
of such other proper business as may come before such meetings may be held at
such time, date and place as the Board shall determine by resolution.
SECTION 2.02 Special Meetings. A special meeting of the
stockholders for the transaction of any proper business may be called at any
time by the Board, or by the chairman of the Board, or by the President. No
other person or persons are permitted to call a special meeting.
SECTION 2.03 Place of Meetings. All meetings of the stockholders
shall be held at such places, within or without the State of Delaware, as may
from time to time be designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers of notice thereof.
SECTION 2.04 Notice of Meetings. Except as otherwise required by
law, notice of each meeting of the stockholders, whether annual or special,
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of record entitled to vote at such
meeting by delivering a typewritten or printed notice thereof to him personally,
or by depositing such notice in the United States mail, in a postage prepaid
envelope, directed to him at his post office address furnished by him to the
Secretary of the Corporation for such purpose or, if he shall not have furnished
to the Secretary his address for
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such purpose, then at his post office address last known to the Secretary.
Except as otherwise expressly required by law, no publication of any notice of a
meeting of the stockholders shall be required. Every notice of a meeting of the
stockholders shall state the place, date and hour of the meeting, and, in the
case of a special meeting, shall also state the purpose or purposes for which
the meeting is called. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall have waived such notice and
such notice shall be deemed waived by any stockholder who shall attend such
meeting in person or by proxy, except as a stockholder who shall attend such
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. Except as otherwise expressly required by law, notice of any adjourned
meeting of the stockholders need not be given if the time and place thereof are
announced at the meeting at which the adjournment is taken.
SECTION 2.05 Quorum. Except in the case of any meeting for the
election of directors summarily ordered as provided by law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders of the Corporation or any adjournment thereof. In the absence of a
quorum at any meeting or any adjournment thereof, a majority in voting interest
of the stockholders present in person or by proxy and entitled to vote thereat
or, in the absence therefrom of all the stockholders, any officer entitled to
preside at, or to act as secretary of, such meeting may adjourn such meeting
from time to time. At any such adjourned meeting at which a quorum is present
any business may be transacted which might have been transacted at the meeting
as originally called.
SECTION 2.06 Voting.
(a) Each stockholder shall, at each meeting of the stockholders,
be entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by him and registered in his name on the books of the
Corporation:
(i) on the date fixed pursuant to Section 6.05 of these
Bylaws as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then
(a) at the close of business on the day next preceding the day on
which notice of the meeting shall be given or (b) if notice of
the meeting shall be waived, at the close of business on the day
next preceding the day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary
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capacity shall be entitled to vote such stock. Persons whose stock is pledged
shall be entitled to vote, unless in the transfer by the pledgor on the books of
the Corporation he shall have expressly empowered the pledgee to vote thereon,
in which case only the pledgee, or his proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants in
common, tenants by entirety or otherwise, or with respect to which two or more
persons have the same fiduciary relationship, shall be voted in accordance with
the provisions of the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders all
matters, except as otherwise provided in the Certificate of Incorporation, in
these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and it shall state
the number of shares voted.
SECTION 2.07 List of Stockholders. The Secretary of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 2.08 Judges. If at any meeting of the stockholders a vote
by written ballot shall be taken on any question, the chairman of such meeting
may appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and according to the best of his
ability. Such judges shall decide upon the qualification of the voters and shall
report the number of shares represented at the meeting and entitled to vote on
such question, shall conduct and accept the votes, and, when the voting is
completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The judges
need not be stockholders of the Corporation, and any officer of the Corporation
may be a judge
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on any question other than a vote for or against a proposal in which he shall
have a material interest.
SECTION 2.09 Action Without Meeting. 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, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing. Notwithstanding the foregoing, if at any time the
Corporation shall have a class of stock registered pursuant to the provisions of
the Securities Exchange Act of 1934, as amended, for so long as such class is so
registered, any action by the stockholders of such class must be taken at an
annual or special meeting of stockholders and may not be taken by written
consent.
SECTION 2.10 Advance Notice of Stockholder Business. At any
meeting of the stockholders, only such business shall be conducted as shall have
been brought before the meeting (i) by or at the direction of the Board or (ii)
by any stockholder of the Corporation who complies with the notice procedures
set forth in this Section 2.10 and Section 2.11 of Article II. For business to
be properly brought before any meeting of the stockholders by a stockholder, the
stockholder must have given notice thereof in writing to the Secretary of the
Corporation not less than 90 days in advance of such meeting or, if later, the
tenth day following the first public announcement of the date of such meeting,
and such business must be a proper matter for stockholder action under the
General Corporation Law of the State of Delaware. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (1) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(2) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (3) the class and number of shares of the
Corporation that are beneficially owned by the stockholder, and (4) any material
interest of the stockholder in such business. In addition, the stockholder
making such proposal shall promptly provide any other information reasonably
requested by the Corporation. The chairman of any such meeting shall have the
power and the duty to determine whether any business proposed to be brought
before the meeting has been made in accordance with the procedure set forth in
these Bylaws and shall direct that any business not properly brought before the
meeting shall not be considered. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any meeting of the stockholders
except in accordance with the procedures set forth in this Section 2.10 and
Section 2.11 of Article II. For purposes of this Section 2.10 and Section 2.11
of Article II, "public announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or a comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, or any successor provision.
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SECTION 2.11 Advance Notice of Stockholder Nominees. Nominations
for the election of directors may be made by the Board or by any stockholder
entitled to vote in the election of directors; provided, however, that a
stockholder may nominate a person for election as a director at a meeting only
if written notice of such stockholder's intent to make such nomination has been
given to the Secretary of the Corporation not later than 90 days in advance of
such meeting or, if later, the tenth day following the first public announcement
of the date of such meeting. Each such notice shall set forth: (i) the name and
address of the stockholder who intends to make the nomination and of the person
or persons to be nominated; (ii) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting and nominate the
person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder, (iv) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, by the Board; and (v) the consent of each nominee to
serve as a director of the Corporation if so elected. In addition, the
stockholder making such nomination shall promptly provide any other information
reasonably requested by the Corporation. Notwithstanding the foregoing
provisions of this Section 2.11 of Article II, in the event that the number of
directors to be elected to the Board is increased and there is no public
announcement naming either all of the nominees for director or specifying the
size of the increased Board made by the Corporation at least 100 days in advance
of such meeting, a stockholder's notice required by this Section 2.11 of Article
II shall be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary of
the Corporation not later than the tenth day following the day on which such
public announcement is first made by the Corporation. 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 2.11 of Article II. The
chairman of any meeting of stockholders shall have the power and the duty to
determine whether a nomination has been made in accordance with the procedure
set forth in this Section 2.11 of Article II and shall direct that any
nomination not made in accordance with these procedures be disregarded.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 General Powers. The property, business and affairs
of the Corporation shall be managed by the Board.
SECTION 3.02 Number and Term of Office. The number of directors
which shall constitute the whole board shall not be less than three (3) nor more
than seven (7). The first board shall consist of _________ (___) directors.
Thereafter, within the limits specified, the number of directors shall be
determined by resolution of the board of directors. Directors need not be
stockholders. Each of the directors of the Corporation shall hold office until
his successor shall have been duly elected and shall qualify or until he shall
resign or shall have been removed in the manner hereinafter provided.
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SECTION 3.03 Election of Directors. Subject to the provisions of
the Certificate of Incorporation, the Board of Directors shall be classified
into three classes and the members of each class shall serve for a term of three
years. At the first annual meeting of stockholders, one-third of the directors
shall be elected for a term of three years, one-third of the directors shall be
elected for a term of two years and one-third of the directors shall be elected
for a term of one year. If the number of directors is not divisible by three,
the first extra director shall be elected for a term of three years and the
second extra director, if any, shall be elected for a term of two years. At any
subsequent annual meeting of stockholders, a number of directors shall be
elected equal to the number of directors with terms expiring at that annual
meeting. Directors elected at each such annual meeting shall be elected for a
term expiring with the annual meeting of stockholders three years thereafter.
There shall be no right with respect to the shares of stock of the Corporation
to cumulate votes in the election of directors.
SECTION 3.04 Resignations. Any director of the Corporation may
resign at any time by giving written notice to the Board or to the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05 Vacancies. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors, or
any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum. Each director so chosen to fill a
vacancy shall hold office until his successor shall have been elected and shall
qualify or until he shall resign or shall have been removed in the manner
hereinafter provided. If at any time the corporation should have no directors in
office, then any officer or any stockholder or an executor, administrator,
trustee or guardian of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation and these
bylaws, or may apply to the Court of Chancery for a decree summarily ordering an
election as provided in Section 211 of the General Corporation Law of Delaware.
SECTION 3.06 Place of Meeting, Etc. The Board may hold any of its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time by resolution designate or as shall be designated by
the person or persons calling the meeting or in the notice or a waiver of notice
of any such meeting. Directors may participate in any regular or special meeting
of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 3.07 First Meeting. The Board shall meet as soon as
practicable after each annual election of directors and notice of such first
meeting shall not be required.
SECTION 3.08 Regular Meetings. Regular meetings of the Board may
be held at such times as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be a legal holiday at
the place where the meeting is to be held, then
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the meeting shall be held at the same hour and place on the next succeeding
business day not a legal holiday. Except as provided by law, notice of regular
meetings need not be given.
SECTION 3.09 Special Meetings. Special meetings of the Board
shall be held whenever called by the President, the Chairman of the Board or a
majority of the authorized number of directors. Except as otherwise provided by
law or by these Bylaws, notice of the time and place of each such special
meeting shall be mailed to each director, addressed to him at his residence or
usual place of business, at least five (5) days before the day on which the
meeting is to be held, or shall be sent to him or her at such place via
facsimile or be delivered personally or by telephone not less than forty-eight
(48) hours before the time at which the meeting is to be held. Except where
otherwise required by law or by these Bylaws, notice of the purpose of a special
meeting need not be given. Notice of any meeting of the Board shall not be
required to be given to any director who shall have waived such notice and such
notice shall be deemed waived by any director who shall attend such meeting,
except a director who shall attend such 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.
SECTION 3.10 Quorum and Manner of Acting. Except as otherwise
provided in these Bylaws, the presence of a majority of the authorized number of
directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
SECTION 3.11 Action by Consent. Any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 3.12 Removal of Directors. Subject to the provisions of
the Certificate of Incorporation, any director may be removed at any time, but
only for cause and only by the affirmative vote of the stockholders having 80%
of the total number of shares of the Corporation entitled to vote thereon, but
only if notice of such proposal was contained in the notice of the stockholders'
meeting.
SECTION 3.13 Compensation. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him because of his attendance at any
meetings of the Board or Committees of the Board. Neither the payment of such
compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
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SECTION 3.14 Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board and except as otherwise
limited by law, shall have and may exercise all the powers and authority of the
Board 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. Any such committee shall keep written minutes of its meetings and
report the same to the Board at the next regular meeting of the Board. 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 to act at the meeting in the place of any such absent or disqualified
member.
ARTICLE IV
OFFICERS
SECTION 4.01 Number. The officers of the Corporation shall be a
President, one or more Vice Presidents (the number thereof and their respective
titles to be determined by the Board), a Secretary and a Chief Financial
Officer. A president may be elected by the Board and the Board may elect such
other officers as the Board deems necessary to the Corporation.
SECTION 4.02 Election, Term of Office and Qualifications. The
officers of the Corporation, except such officers as may be appointed in
accordance with Section 4.03, shall be elected by the Board. Each officer shall
hold office until his successor shall have been duly chosen and shall qualify or
until his resignation or removal in the manner hereinafter provided.
SECTION 4.03 Assistants, Agents and Employees, Etc. In addition
to the officers specified in Section 4.01, the Board may appoint other
assistants, agents and employees as it may deem necessary or advisable,
including one or more Assistant Secretaries, and one or more Assistant
Treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as the Board may from time to time determine. The Board
may delegate to any officer of the Corporation or any committee of the Board the
power to appoint, remove and prescribe the duties of any such assistants, agents
or employees.
SECTION 4.04 Removal. Any officer, assistant, agent or employee
of the Corporation may be removed, with or without cause, at any time: (i) in
the case of an officer, assistant, agent or employee appointed by the Board,
only by resolution of the Board; and (ii) in the case of an officer, assistant,
agent or employee, by any officer of the Corporation or committee of the Board
upon whom or which such power of removal may be conferred by the Board.
SECTION 4.05 Resignations. Any officer or assistant may resign at
any time by giving written notice of his resignation to the Board or the
Secretary of the Corporation.
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Any such resignation shall take effect at the time specified therein, or, if the
time be not specified, upon receipt thereof by the Board or the Secretary, as
the case may be; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 4.06 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.
SECTION 4.07 The President. The President of the Corporation
shall have, subject to the control of the Board, general and active supervision
and management over the business of the Corporation and over its several
officers, assistants, agents and employees. 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 or these bylaws.
SECTION 4.08 The Vice Presidents. Each Vice President shall have
such powers and perform such duties as the Board may from time to time
prescribe. At the request of the President, or in case of the President's
absence or inability to act upon the request of the Board, a Vice President
shall perform 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.
SECTION 4.09 The Secretary. The Secretary shall, if present,
record the proceedings of all meetings of the Board, of the stockholders, and of
all committees of which a secretary shall not have been appointed in one or more
books provided for that purpose; he shall see that all notices are duly given in
accordance with these Bylaws and as required by law; he shall be custodian of
the seal of the Corporation and shall affix and attest the seal to all documents
to be executed on behalf of the Corporation under its seal; and, in general, he
shall perform all the duties incident to the office of Secretary and such other
duties as may from time to time be assigned to him by the Board.
SECTION 4.10 The Chief Financial Officer. The Chief Financial
Officer shall have the general care and custody of the funds and securities of
the Corporation, and shall deposit all such funds in the name of the Corporation
in such banks, trust companies or other depositories as shall be selected by the
Board. He shall receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever. He shall exercise general supervision
over expenditures and disbursements made by officers, agents and employees of
the Corporation and the preparation of such records and reports in connection
therewith as may be necessary or desirable. He shall, in general, perform all
other duties incident to the office of Chief Financial Officer and such other
duties as from time to time may be assigned to him by the Board.
SECTION 4.11 Representation of Shares of Other Corporations. The
chairman of the Board, the President, any Vice President, the Chief Financial
Officer or any other person authorized by the Board or the President or Vice
President, is authorized to vote,
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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.
SECTION 4.12 Compensation. The compensation of the officers of
the Corporation shall be fixed from time to time by the Board. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving such compensation by reason of
the fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving proper compensation therefor.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.01 Execution of Contracts. The Board, except as in
these Bylaws otherwise provided, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board or by these Bylaws, 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 in any amount.
SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other
orders for payment of money, notes or other evidence of indebtedness, issued in
the name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.
SECTION 5.03 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the purpose
of collection for the account of the Corporation, the President, any Vice
President or the Chief Financial Officer (or any other officer or officers,
assistant or assistants, agent or agents, or attorney or attorneys of the
Corporation who shall from time to time be determined by the Board) may endorse,
assign and deliver checks, drafts and other orders for the payment of money
which are payable to the order of the Corporation.
SECTION 5.04 General and Special Bank Accounts. The Board may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by
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any officer or officers, assistant or assistants, agent or agents, or attorney
or attorneys of the Corporation to whom such power shall have been delegated by
the Board. The Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these Bylaws, as it
may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.01 Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President or a Vice President, and by the Secretary or an Assistant Secretary or
by the Chief Financial Officer or the Treasurer or an Assistant Treasurer. Any
of or all of the signatures on the certificates may be a facsimile. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any such certificate, shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued,
such certificate may nevertheless be issued by the Corporation with the same
effect as though the person who signed such certificate, or whose facsimile
signature shall have been placed thereupon, were such officer, transfer agent or
registrar at the date of issue. A record shall be kept of the respective names
of the persons, firms or corporations owning the stock represented by such
certificates, the number and class of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of cancellation, the
respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases provided
for in Section 6.04.
SECTION 6.02 Transfers of Stock. Transfers of shares of stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary, or with a transfer clerk or
a transfer agent appointed as provided in Section 6.03, and upon surrender of
the certificate or certificates for such shares properly endorsed and the
payment of all taxes thereon. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof for all purposes
as regards the Corporation. Whenever any transfer of shares shall be made for
collateral security, and not absolutely, such fact shall be so expressed in the
entry of transfer if, when the certificate or certificates shall be presented to
the Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
SECTION 6.03 Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer clerks or one or more transfer
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agents and one or more registrars, and may require all certificates for stock to
bear the signature or signatures of any of them.
SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates.
In any case of loss, theft, destruction, or mutilation of any certificate of
stock, another may be issued in its place upon proof of such loss, theft,
destruction, or mutilation and upon the giving of a bond of indemnity to the
Corporation in such form and in such sum as the Board may direct; provided,
however, that a new certificate may be issued without requiring any bond when,
in the judgment of the Board, it is proper so to do.
SECTION 6.05 Fixing Date for Determination of Stockholders of
Record. 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 to express consent to corporate action in writing without a meeting, 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 other
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action. If in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders or expressing consent to corporate action without a meeting the
Board shall not fix such a record date, the record date for determining
stockholders for such purpose shall be the close of business on the day on which
the Board shall adopt the resolution relating thereto. A determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of such meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01 Action, Etc. Other Than by or in the Right of the
Corporation. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with
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respect to any criminal action or proceeding, that he had reasonable cause to
believe that his conduct was unlawful.
SECTION 7.02 Actions, Etc., by or in the Right of the
Corporation. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 7.03 Determination of Right of Indemnification. Unless
otherwise ordered by a court of competent jurisdiction, any indemnification
under Sections 7.01 or 7.02 of this Article VII shall be made by the Corporation
to 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, unless a determination is reasonably and
promptly made, either (i) by the Board of Directors acting by a majority vote of
a quorum consisting of directors who were not a party to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, if obtainable, such
quorum so directs, by independent legal counsel in a written opinion, or (iii)
by the stockholders, that such person acted in bad faith and in a manner that
such person did not believe to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe, that his or her conduct was
unlawful.
SECTION 7.04 Indemnification Against Expenses of Successful
Party. Notwithstanding the other provisions of this Article, to the extent that
a director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 7.05 Prepaid Expenses. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it shall ultimately be determined that he is entitled to be
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indemnified by the Corporation as authorized in this Article. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board deems appropriate.
SECTION 7.06 Other Rights and Remedies. The indemnification
provided by this Article shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any Bylaws, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 7.07 Insurance. Upon resolution passed by the Board, 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 this Article.
SECTION 7.08 Constituent Corporations. For the purposes of this
Article, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation, so that any person who is or was a director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article with respect to
the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
SECTION 7.09 Other Enterprises, Fines, and Serving at
Corporation's Request. For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Seal. The Board may provide a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures
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showing that the Corporation was incorporated in the State of Delaware and the
year of incorporation.
SECTION 8.02 Waiver of Notices. Whenever notice is required to be
given by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
SECTION 8.03 Amendments. These Bylaws, or any of them, may be
altered, amended or repealed, and new Bylaws may be made, (i) by the Board, by
vote of a majority of the number of directors then in office as directors,
acting at any meeting of the Board, or (ii) by the stockholders, by a vote of a
majority of the shares entitled to vote thereon, provided that notice of such
proposed amendment, modification, repeal or adoption is given in the notice of
the stockholders' meeting. Any Bylaws made or altered by the stockholders may be
altered or repealed by either the Board or the stockholders. Notwithstanding the
foregoing, the affirmative vote of 80% of the total number of the then
outstanding shares of capital stock of this Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal, or adopt any provision inconsistent with the
purpose or intent of, the following sections of these Bylaws: Sections 2.02
(Special Meeting), 2.09 (Action without Meeting), 2.10 (Advance Notice of
Stockholder Business), 2.11 (Advance Notice of Stockholder Nominees), 3.12
(Removal of Directors) and 8.03 (Amendments).
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CERTIFICATE OF SECRETARY
The undersigned, being the duly elected Secretary of CRL Network
Services, Inc., a Delaware corporation, hereby certifies that the Bylaws to
which this Certificate is attached were duly adopted by the Board of Directors
of said Corporation as of ___th day of _______________, 1999.
-----------------------------------
James G. Couch, Secretary
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), dated March 15, 1999, is by and between
CRL Network Systems, Inc., a Delaware corporation (the "Company"), and James G.
Couch ("Executive") residing in Incline Village, Nevada 89451.
RECITALS
WHEREAS, Executive has served as President and Chief Executive Officer
of the Company since its formation and has been instrumental in helping the
Company achieve its objectives; and
WHEREAS, the parties wish to continue this relationship and to provide
for certain matters, recognizing the value to the Company of the efforts and
activities of Executive;
NOW, THEREFORE, in consideration of foregoing recitals, the mutual
promises of the parties and the mutual benefits they will gain by the
performance thereof, and other good an valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. TERM OF EMPLOYMENT. The Company agrees to continue to employ Executive in his
current executive capacity, and Executive agrees to remain in the full-time
employ of the Company in such executive capacity and to perform his duties
provided herein, through February 28, 2002 (the period from the date hereof
through February 28, 2002, or such later date as this Agreement may be extended
in accordance with its provisions, being referred to herein as the "Term"),
unless earlier terminated pursuant to the provisions of this Agreement or upon
his earlier death. The Term shall automatically be extended for consecutive
one-year periods unless terminated by either party by written notice given at
least three (3) months prior to the expiration of the unextended initial term or
any subsequent one-year extension period.
2. AUTHORITY AND PERFORMANCE OF DUTIES. During the Term, the Company agrees to
employ Executive, and Executive agrees to serve, as the President and Chief
Executive Officer of the Company. At a minimum, Executive's duties,
responsibilities and authority will include all traditional duties,
responsibilities and authority of a President and Chief Executive Officer of a
corporation, and all duties, responsibilities and authority that Executive has
had prior to the date hereof. Without limiting the generality of the foregoing,
Executive's duties, responsibilities and authority shall include the authority
to hire, fire and discipline the workforce, set the terms and conditions of
work, and establish the compensation, benefits, bonuses and awards for the
Company's employees, all under the general policies and budget set forth by the
Board of Directors. Neither the Board of Directors nor any other person shall
interfere with Executive's day-to-day management of the Company's employees or
affairs. Executive agrees to devote his entire time and attention to the
business of the Company except insofar as he may be otherwise permitted by the
Board of Directors. The Company acknowledges Executive's residence and principal
place of performance of his duties in the State of Nevada. However, Executive
shall perform his duties at all such Company
<PAGE> 2
offices and other locations as are reasonably necessary or appropriate to
fulfill his duties and functions as requested by the Company.
3. COMPENSATION AND BENEFITS.
A. Salary. Executive shall receive for his services rendered hereunder
an annual base salary of Three Hundred Twenty Thousand Dollars ($320,000) (the
"Base Salary") payable on a monthly basis in twelve (12) equal monthly
installments, subject to standard withholdings for taxes and social security and
the like. Executive's compensation may be increased at any time by resolution of
the Board of Directors without the necessity of amending this Agreement or any
renewal thereof, and such increase shall not be deemed to be a change in the
terms or conditions of this Agreement.
B. Bonus. During the Term, Executive may receive, at the discretion of
the Board of Directors, such annual or special bonuses as it may determine.
C. Benefits. During the Term, Executive shall be entitled to participate
in any group insurance, hospitalization, medical, dental, health and accident,
disability or similar plan or program of the Company now existing or established
hereafter, to the extent that he is eligible under the general provisions
thereof. Notwithstanding the foregoing, Executive shall only be entitled to
participate in any such plan or program if executive officers of the Company are
generally eligible to participate in such plan or program. The Company may, in
its sole discretion and from time to time, establish additional senior
management benefit programs as it deems appropriate. Executive understands that
any such plans may be modified or eliminated in the discretion of the Company in
accordance with applicable law.
D. Vacation. Executive shall be entitled to a period of annual paid
vacation time equal to not less than four (4) weeks per year. The days selected
for Executive's vacation shall be mutually agreeable to the Company and
Executive.
E. Board Membership. During the Term, Executive shall serve as a member
of the Board of Directors of the Company.
4. REASONABLE BUSINESS EXPENSES AND SUPPORT. Executive shall be reimbursed for
documented and reasonable business expenses in connection with the performance
of his duties hereunder and in accordance with the Company's general policies
relating thereto. Executive shall be furnished reasonable office space,
assistance and facilities.
5. TERMINATION OF EMPLOYMENT.
A. Termination by the Company. This Agreement may be terminated by the
Company at any time with or without cause as set forth in this Agreement.
(i) Without Cause. If, for any reason other than any "Certain
Event" (as defined below) during the Term, Executive's services hereunder shall
be terminated by the Company, he shall be entitled to receive, and the Company
shall pay to Executive, twelve (12)
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months salary, which shall be paid in twelve (12) equal monthly installments
over the 12-month period following such termination. In addition, upon such
termination, Executive shall continue to be entitled to receive, for a period of
twelve (12) months following the date of termination, whatever other employee
benefits he was receiving at the time of such termination. The Company shall
also pay to Executive any salary earned but unpaid, and accrued but unused
vacation, as of the date of termination. Apart from the salary and benefit
continuation described in this subparagraph, Executive acknowledges that he is
entitled to no additional compensation in the event he is terminated without
cause. As used herein, a "Certain Event" means termination for "Cause" (as
hereinafter defined), Total and Permanent Disability (as hereinafter defined),
or death.
(ii) For Cause. Notwithstanding the provisions of paragraph 1
hereof, the Company may at any time terminate Executive's employment hereunder
for cause. For purposes of this Agreement, the Company shall have "cause" to
terminate Executive's employment hereunder only upon (a) the continued use of
drugs or alcohol to the extent Executive becomes unable to substantially perform
his duties hereunder, (b) the engaging by Executive in willful misconduct that
is demonstrably and materially injurious to the Company, monetarily or
otherwise, (c) the commission by Executive or an act of fraud or embezzlement
against the Company, (d) the conviction of Executive of a felony involving moral
turpitude, or (e) the material breach by Executive of the provisions of
paragraphs 6 and 7 of this Agreement. Executive may not be terminated for cause
unless the Company first shall have given or delivered to Executive (i)
reasonable written notice setting forth the reasons for the Company's intention
to terminate for cause, and (ii) a notice of termination stating that in the
good faith opinion of the Board of Directors, Executive was guilty of conduct
set forth above in clauses (a), (b), (c), (d) or (e), and specifying the
particulars thereof in detail. In the event Executive is terminated for cause,
the Company shall pay to Executive any salary earned but unpaid, and accrued but
unused vacation as of the date of termination, and nothing more.
B. Termination By Executive.
(i) Voluntary Resignation. If at any time Executive wishes to
terminate his obligations under this Agreement, he shall give the Company at
least thirty (30) days notice. If Executive resigns his employment under this
subparagraph, the Company shall pay to Executive any salary earned but unpaid,
and accrued but unused vacation as of the last day worked by Executive, and
nothing more.
(ii) Death Of Executive. In the event of the death of Executive
while employed under this Agreement, the Company shall pay to Executive's
designated beneficiary(s) as shown in the records of the Company any salary
earned but unpaid, and accrued but unused vacation as of the end of the month in
which Executive dies, and nothing more.
(iii) Disability. For purposes hereof, "Total and Permanent
Disability" means inability to perform the services required hereunder due to
physical or mental disability that continues for 180 consecutive days or more,
or for an aggregate of 180 days in any period
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of twelve months. Evidence of such disability shall be certified by a physician
acceptable to both the Company and Executive. In the event Executive's
employment is terminated as a result of his disability as defined herein, the
Company shall pay to Executive any salary earned but unpaid and accrued but
unused vacation as of the end of the month in which the termination for
disability occurs.
C. Notice. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been duly given or
delivered if delivered personally or mailed by registered or certified mail,
return receipt requested, with first class postage prepaid, to each of the
members of the Board of Directors in the case of the Company and to the
Executive at: Box 8343, Incline Village, Nevada 89451.
6. NON-COMPETITION. Executive agrees that, during the Term, he will not engage
or participate directly or indirectly in the conduct or management of any other
business that is similar to or in competition with the business of the Company
or its affiliates except as otherwise permitted by the Board of Directors.
7. DISCLOSURE OF INFORMATION. Executive recognizes and acknowledges that the
Company's confidential and proprietary information, as may exist from time to
time, are valuable, special and unique assets of the Company access to and
knowledge of which are essential to the performance of the duties of Executive
hereunder. Executive will not, during or after the Term in whole or in part,
disclose such confidential or proprietary information to any person, firm,
corporation or other entity for any reason or purpose whatsoever, nor shall
Executive make use of any such property for his own purposes for the benefit of
any person, firm, corporation or other entity (except the Company) under any
circumstances, during or after the Term, provided that after the Term these
restrictions shall not apply to such information which is then in the public
domain (provided that Executive was not responsible, directly or indirectly, for
such information entering the public domain without the Company's consent).
8. KEY MAN LIFE INSURANCE. Executive shall take such actions as may be
reasonably necessary or appropriate to permit the Company to obtain a key man
life insurance policy insuring Executive and naming the Company as beneficiary.
Notwithstanding the foregoing, for purposes of this Section 8, Executive shall
not be required to cease or be subject to restriction of his lawful activities
provided such activities would not be a basis for the Company's termination of
his employment for cause under this Agreement.
9. SUCCESSORS. This Agreement shall be binding upon the parties hereto, their
heirs, executors, administrators, successors and assigns. Executive, however,
shall not assign any part of his rights under this Agreement unless the Company
agrees thereto in writing. In event of a merger, consolidation or reorganization
involving the Company, this Agreement shall continue in force and become an
obligation of the Company's successor or successors.
10. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties. It may not be changed orally but only by an agreement in writing signed
by the party against whom enforcement of any waiver, change, modification,
extension, or discharge is sought.
11. BINDING ARBITRATION. All disputes and differences which may arise out of or
in connection with this Agreement will be settled as far as possible by means of
negotiations
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<PAGE> 5
between the parties hereto. Except with regard to any disputes and differences
arising in connection with Paragraphs 6 and 7 of this Agreement, in which case
relief may be sought in any court of competent jurisdiction and proper venue,
such disputes and differences which are not settled by common accord are to be
resolved only by submission to binding arbitration to be conducted in San
Francisco, California in conformity with the Commercial Arbitration Rules of the
American Arbitration Association. The award of the arbitrator or arbitration
panel shall be final and binding on both parties hereto.
12. ATTORNEY FEES. If any legal proceeding is necessary to enforce or interpret
the terms of this Agreement, or to recover damages for breach therefor, the
prevailing party shall be entitled to reasonable attorney's fees, as well as
costs and disbursements, in addition to any other relief to which he or it may
be entitled.
13. CHOICE OF LAW. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the laws of the internal
law, and not the law of conflicts, of the State of Nevada.
This Agreement has been entered into the parties effective as of the date set
forth above.
/S/ James G. Couch
- ---------------------------
James G. Couch
CRL NETWORK SERVICES, INC.
By: /S/ James G. Couch
----------------------
Title: President and Chief Executive Officer
5
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of the Effective
Date indicated below by and between CRL Network Services, Inc., a California
corporation ("CRL"), Integral Networking Corporation, a California corporation
("INTEGRAL NETWORKING") and Robert L. Ross("Employee").
BACKGROUND
This Agreement is entered into in connection with an Agreement and Plan
of Reorganization (the "Plan") dated as of December 21, 1998 by and among CRL,
RMS Sub Inc., a Delaware corporation, INTEGRAL NETWORKING, and certain
shareholders of INTEGRAL NETWORKING, pursuant to which CRL Acquisition Corp., a
wholly-owned subsidiary of CRL, is to merge with and into INTEGRAL NETWORKING.
The date on which the merger becomes effective will be the effective date of
this Agreement (the "Effective Date").
Employee is a founder, principal shareholder and President of INTEGRAL
NETWORKING and has been actively involved in the development and marketing of
INTEGRAL NETWORKING's products. To preserve and protect the assets of INTEGRAL
NETWORKING, including INTEGRAL NETWORKING's goodwill, customers and trade
secrets of which Employee has and will have knowledge, and in consideration for
CRL entering into and performing under the Plan, Employee has agreed to enter
into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements of the parties contained herein, CRL and Employee hereby agree as
follows:
1. Employment. CRL will employ Employee and Employee accepts employment
with CRL for a period of two years from the Effective Date (the "Initial
Period"), unless Employee's employment is sooner terminated in accordance with
this Agreement. Employee's employment may continue after this Initial Period but
will then be terminable by either party at will, with or without cause. The
obligations of CRL and Employee set forth in the Proprietary Information and
Inventions Agreement (as defined in Section 7) (referring to confidentiality),
and in Section 8 (referring to termination), and in Section 9(i) (referring to
dispute resolution) and, to the extent specifically provided therein, the
obligations of CRL and Employee set forth in Section 5 (referring to employee
benefits) and Section 6 (referring to reimbursement of expenses), will survive
the termination of Employee's employment, regardless of cause.
2. Duties. Employee will be employed as a full-time employee of CRL and
will serve as President, Integral Networking Corporation, a CRL Company
responsible for INTEGRAL NETWORKING operations, reporting to Jim Couch,
President of CRL or his delegate. Employee agrees that, to the best of his
ability and experience, he will at all times conscientiously perform all of the
duties and obligations assigned to him under this Agreement. At CRL's option, it
will be entitled to reasonable use of Employee's name in promotional,
advertising and other materials used in the ordinary course of business.
<PAGE> 2
3. Full-time Employment. Employee's employment will be on a full-time
basis, in accordance with standard employee policies for CRL. Employee will sign
a standard CRL employment agreement. Employee will not engage in any other
business or render any commercial or professional services, directly or
indirectly, to any other person or organization, whether for compensation or
otherwise, provided that Employee may (i) provide incidental assistance to
family members on matters of family business; and (ii) sit on the boards of
charitable and nonprofit organizations or other companies which do not, at the
time of Employee's appointment or election, to Employee's knowledge, compete
with CRL; provided in each case that such activities do not conflict with or
interfere with Employee's obligations to CRL. Employee may make personal
investments in non-publicly traded corporations, partnerships or other entities,
which, to the knowledge of Employee, do not at the time of such investment
design, research, distribute or otherwise market products similar to or
competitive with CRL in the customer relationship management system for the
financial services industry software product market. Employee may make personal
investments in publicly traded corporations regardless of the business they are
engaged in, provided that Employee does not at any time own in excess of 1% of
the issued and outstanding stock of any such corporation.
4. Salary. Employee's salary for the period commencing on the Effective
Date will be no less than $56,500 per year, payable on CRL's regular payroll
dates, less required withholdings and will be eligible for a target bonus of
$100,000 based on targeted personal and company performance.
5. Employee Benefits. Employee will be entitled to insurance, vacation
and other benefits commensurate with other executive officers of CRL. Employee
has received a summary of CRL's standard employee benefits policies in effect as
of the date hereof.
6. Reimbursement of Business Expenses. CRL will, in accordance with
CRL's policies in effect from time to time, reimburse Employee for all
reasonable business expenses incurred by Employee in connection with the
performance of his duties under this Agreement, including, without limitation,
reasonable expenditures for office space, supplies, equipment and expenses and
for business entertainment and travel, upon submission of the required
documentation required pursuant to CRL's standard policies and record keeping
procedures.
7. Confidentiality. Simultaneously with the execution of this Agreement,
Employee is executing and delivering and hereby adopts and agrees to be bound by
CRL's standard Employee Proprietary Information and Inventions Agreement, a copy
of which is attached to this Agreement as Exhibit A (the "Proprietary
Information and Inventions Agreement").
8. Termination.
(a) By CRL. CRL may terminate Employee's employment at any time
with or without cause upon written notice to Employee.
(b) By Employee. Employee may terminate Employee's employment in
the event that CRL is in material breach of this Agreement upon written notice
to CRL, provided that such termination will become effective only upon the
expiration of 30 days following such notice
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and then only if the alleged breach remains uncured. Such termination shall be
deemed a termination by CRL of Employee's employment under Section 8(a) for
which Employee shall have the remedy set forth in Section 8(d).
(c) If Employee resigns or otherwise terminates Employee's
employment without cause, Employee shall receive no Termination Payments
(defined below).
(d) If CRL terminates Employee For Cause (as defined below), this
Agreement shall terminate and Employee shall not be entitled to any further
benefits hereunder, except as specifically set forth herein. If, during the
Initial Period, CRL terminates Employee and such termination is not For Cause,
CRL will pay to Employee, for the lesser of three months or the remainder of the
Initial period, on a monthly basis an amount equal to Employee's monthly salary
at the monthly rate paid to Employee immediately prior to such termination (the
"Termination Payments"). CRL's obligation to make these Termination Payments
pursuant to this Section 8(d) is in lieu of any damages or any other payment
which CRL might otherwise be obligated to pay Employee as a result of Employee's
termination of employment. CRL and Employee agree that, in view of the nature of
the issues likely to arise in the event of such a termination, it would be
impracticable or extremely difficult to fix the actual damages resulting from
such termination and proving actual damages, causation and foreseeability in the
case of such termination would be costly, inconvenient and difficult. In
requiring CRL to make the Termination Payments as set forth herein, it is the
intent of the parties to provide, as of the date of this Agreement, for a
liquidated amount of damages to be paid by CRL to Employee. Such liquidated
amount shall be deemed full and adequate damages for such termination and is not
intended by either party to be a penalty. For purposes of this Agreement, "For
Cause" shall mean:
(i) Employee's continued failure to perform his duties
hereunder in good faith, after written notice of such failure from CRL or
INTEGRAL NETWORKING to Employee and an opportunity to cure such failure to
perform;
(ii) Employee engaging in knowing and intentional illegal
conduct which is injurious to CRL or INTEGRAL NETWORKING or their affiliates;
(iii) Employee being convicted of a felony or committing
an act of dishonesty or fraud against, or the misappropriation of property
belonging to, CRL or INTEGRAL NETWORKING or their affiliates;
(iv) Employee breaching in any material respect the terms
of this Agreement or the Noncompetition Agreement;
(v) Employee's commencement of employment with another
employer while an employee of CRL or INTEGRAL NETWORKING; and
(vi) Any behavior or breach of CRL's standards of business
conduct which would be cause for termination under CRL's employment policies as
they currently exist or
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as effected in the future, after written notice of such behavior or breach from
CRL or INTEGRAL NETWORKING to Employee and an opportunity to cure such behavior
or breach.
(e) Upon Death. If Employee dies during the term of this
Agreement, CRL will pay his estate an amount equal to all salary, bonuses and
benefits accrued as of the date of his death.
9. Miscellaneous.
(a) Notices. Any and all notices permitted or required to be
given under this Agreement must be in writing. Notices will be deemed given (i)
when personally received or when sent by facsimile transmission (to the
receiving party's facsimile number), (ii) on the first business day after having
been sent by commercial overnight courier with written verification of receipt,
or (iii) on the third business day after having been sent by registered or
certified mail from a location on the United States mainland, return receipt
requested, postage prepaid, whichever occurs first, at the address set forth
below or at any new address, notice of which will have been given in accordance
with this Section 9(a):
If to CRL: CRL Network Services
One Kearny Street
San Francisco, California 94107
Attn: Jim Couch
With a copy to: Fenwick & West LLP
Two Palo Alto Square
Suite 800
Palo Alto, California 94306
Attn: Jacqueline Daunt, Esq.
If to Employee: Mr. Robert L. Ross
7165 Canelo Hills Drive
Citrus Heights, CA 95610
Copy to: Gary L. Bradus
Weintraub, Genshlea & Sproul
400 Capitol Mall
11th floor
Sacramento, CA 95814
p) 916-558-6000
f) 916-446-1611
(b) Amendments. This Agreement, including Exhibit A hereto,
contains the entire agreement and supersedes and replaces all prior agreements
between CRL and Employee or INTEGRAL NETWORKING and Employee concerning
Employee's employment. This Agreement may not be changed or modified in whole or
in part except by a writing signed by the party against whom enforcement of the
change or modification is sought.
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(c) Successors and Assigns. This Agreement will not be assignable
by either Employee or CRL, except that the rights and obligations of CRL under
this Agreement may be assigned to a corporation which becomes the successor to
CRL as the result of a merger or other corporate reorganization and which
continues the business of CRL, or any other subsidiary of CRL, provided that CRL
guarantees the performance by such assignee of CRL's obligations hereunder.
(d) Governing Law. This Agreement will be governed by and
interpreted according to the substantive laws of the State of California without
regard to such state's conflicts law.
(e) No Waiver. The failure of either party to insist on strict
compliance with any of the terms of this Agreement in any instance or instances
will not be deemed to be a waiver of any term of this Agreement or of that
party's right to require strict compliance with the terms of this Agreement in
any other instance.
(f) Severability. Employee and CRL recognize that the limitations
contained herein are reasonably and properly required for the adequate
protection of the interests of CRL. If for any reason a court of competent
jurisdiction or binding arbitration proceeding finds any provision of this
Agreement, or the application thereof to be unenforceable, the remaining
provisions of this Agreement will be interpreted so as best to reasonably effect
the intent of the parties. The parties further agree to replace any such invalid
or unenforceable provisions with valid and enforceable provisions designed to
achieve, to the extent possible, the business purposes and intent of such
unenforceable provisions.
(g) Counterparts. This Agreement may be executed in counterparts
which when taken together will constitute one instrument. Any copy of this
Agreement with the original signatures of all parties appended will constitute
an original.
(h) Effect of Agreement. This Agreement will be void and have no
effect if the Effective Date does not occur on or before January 31, 1999.
(i) Dispute Resolution.
(i) Arbitration of Disputes. Any dispute under this
Agreement shall be resolved by arbitration in San Francisco, California and,
except as herein specifically stated, in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA Rules") then in
effect. However, in all events, these arbitration provisions shall govern over
any conflicting rules which may now or hereafter be contained in the AAA Rules.
Any judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction over the subject matter thereof The arbitrator shall
have the authority to grant any equitable and legal remedies that would be
available in any judicial proceeding instituted to resolve such dispute; except
that the arbitrator shall not grant any punitive, consequential or incidental
damages.
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(ii) Compensation of Arbitrator. Any such arbitration will
be conducted before a single arbitrator who will be compensated for his or her
services at a rate to be determined by the parties or by the American
Arbitration Association, but based upon reasonable hourly or daily consulting
rates for the arbitrator in the event the parties are not able to agree upon his
or her rate of compensation.
(iii) Selection of Arbitrator. The American Arbitration
Association will have the authority to select an arbitrator from a list of
arbitrators who are partners in a nationally recognized firm of independent
certified public accountants from the management advisory services department
(or comparable department or group) of such firm; provided, however, that such
firm cannot be the firm of certified public accountants then auditing the books
and records of either party or providing management or advisory services for
either party.
(iv) Payment of Costs. CRL and Employee will each pay 50%
of the initial compensation to be paid to the arbitrator in any such arbitration
and 50% of the costs of transcripts and other normal and regular expenses of the
arbitration proceedings; provided, however, that the prevailing party in any
arbitration will be entitled to an award of attorneys' fees and costs, and all
costs of arbitration, other than those provided for above, will be paid by the
losing party, and the arbitrator will be authorized to make such determinations.
(v) Burden of Proof. For any dispute submitted to
arbitration, the burden of proof will be as it would be if the claim were
litigated in a judicial proceeding.
(vi) Award. Upon the conclusion of any arbitration
proceedings hereunder, the arbitrator will render findings of fact and
conclusions of law and a written opinion setting forth the basis and reasons for
any decision reached and will deliver such documents to each party to this
Agreement along with a signed copy of the award.
(vii) Terms of Arbitration. The arbitrator chosen in
accordance with these provisions will not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or the provisions of
this Agreement.
(viii) Exclusive Remedy. Except as specifically otherwise
provided in this Agreement, arbitration will be the sole and exclusive remedy of
the parties for any dispute arising out of this Agreement.
IN WITNESS WHEREOF, this Agreement is made and effective as of the day
and year first above written.
CRL NETWORK SERVICES, INC. EMPLOYEE
By: /s/ James G. Couch /s/ Robert L. Ross
---------------------------- ----------------------------
James G. Couch Robert L. Ross
President and
Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.3
CRL NETWORK SERVICES, INC.
1997 EQUITY INCENTIVE PLAN
As Adopted August 8, 1997
1. PURPOSE. The purpose of the Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent, Subsidiaries and
Affiliates, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 22.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
the total number of Shares reserved and available for grant and issuance
pursuant to the Plan shall not exceed ten percent (10%) of the Company's
authorized common stock ("Shares"). Subject to Sections 2.2 and 18, Shares shall
again be available for grant and issuance in connection with future Awards under
the Plan that: (a) are subject to issuance upon exercise of an Option but cease
to be subject to such Option for any reason other than exercise of such Option,
(b) are subject to an Award granted hereunder but are forfeited or are
repurchased by the Company at the original issue price, or (c) are subject to an
Award that otherwise terminates without Shares being issued.
2.2 Adjustment of Shares. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under the Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards shall be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
provided, however, fractions of a Share shall not be issued but shall either be
paid in cash at Fair Market Value or shall be rounded up to the nearest Share,
as determined by the Committee.
3. ELIGIBILITY. ISO's (as defined in Section 5 below) may be granted
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants and advisors of the
Company or any Parent, Subsidiary of Affiliate of the Company; provided such
consultants and advisors render bona fide services not in connection with the
offer and sale of securities in a capital-raising transaction. A person may be
granted more than one Award under the Plan.
<PAGE> 2
4. ADMINISTRATION.
4.1 Committee Authority. The Plan shall be administered by the
Committee or the Board acting as the Committee. Subject to the general purposes,
terms and conditions of the Plan, and to the direction of the Board, the
Committee shall have full power to implement and carry out the Plan. The
Committee shall have the authority to:
(a) construe and interpret the Plan, any Award
Agreement and any other agreement or document
executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations
relating to the Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other
consideration subject to Awards;
(f) determine whether Awards will be granted singly, in
combination, in tandem with, in replacement of, or
as alternatives to, other Awards under the Plan or
any other incentive or compensation plan of the
Company or any Parent, Subsidiary or Affiliate of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment
of Awards;
(i) correct any defect, supply any omission, or
reconcile any inconsistency in the Plan, any Award
or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or
advisable for the administration of the Plan.
4.2 Committee Discretion. Any determination made by the Committee
with respect to any Award shall be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of the Plan
or Award, at any later time, and such determination shall be final and binding
on the Company and all persons having an interest in any Award under the Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under the Plan to Participants who are not Insiders of the
Company.
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4.3 Exchange Act Requirements. If the Company is subject to the
Exchange Act, the Company will take appropriate steps to comply with the
disinterested director requirements of Section 16(b) of the Exchange Act,
including but not limited to, the appointment by the Board of a Committee
consisting of not less than two persons (who are members of the Board), each of
whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible persons and
shall determine whether such Options shall be incentive stock options within the
meaning of the Code ("ISOs") or nonqualified stock options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under the Plan
shall be evidenced by an Award Agreement which shall expressly identify the
Option as an ISO or NQSO ("Stock Option Agreement"), and be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee shall from time to time approve, and which shall comply with and be
subject to the terms and conditions of the Plan.
5.2 Date of Grant. The date of grant of an Option shall be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
the Plan will be delivered to the Participant within a reasonable time after the
granting of the Option.
5.3 Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement, provided, however, that no Option shall be exercisable after
the expiration of ten (10) years from the date the Option is granted, and
provided further that no Option granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary of the
Company ("Ten Percent Shareholder") shall be exercisable after the expiration of
five (5) years from the date the Option is granted. The Committee also may
provide for the Options to become exercisable at one time or from time to time,
periodically or otherwise, in such number or percentage of the Shares as the
Committee determines. Options which provide for the attainment of certain
performance goals or criteria set forth in the Stock Option Agreement as a
condition to the exercisability of all or a portion of the shares granted
thereunder shall only be granted to key employees, executive managers and sales
personnel of the Company who are able to materially affect the attainment of
such goals.
5.4 Exercise Price. The Exercise Price shall be determined by the
Committee when the Option is granted and may be not less than 85% of the Fair
Market Value of the Shares on the date of grant; provided that (i) the Exercise
Price of an ISO shall be not less than 100% of the Fair Market Value of the
Shares on the date of grant and (ii) the Exercise Price of any Option granted to
a Ten Percent Shareholder shall not be less than 110% of the Fair Market Value
of the Shares on the date of grant. Payment for the Shares purchased may be made
in accordance with Section 8 of the Plan.
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5.5 Method of Exercise. Options may be exercised only by delivery
to the Company of a written stock option exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares, if any, and such representations and
agreements regarding Participant's investment intent and access to information
and other matters, if any, as may be required or desirable by the Company to
comply with applicable securities laws, together with payment in full of the
Exercise Price for the number of Shares being purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
in the Stock Option Agreement, exercise of an Option shall always be subject to
the following:
(a) If the Participant is Terminated for any reason
except death or Disability, then Participant may
exercise such Participant's Options only to the
extent that such Options would have been
exercisable upon the Termination Date no later than
three (3) months after the Termination Date (or
such shorter time period as may be specified in the
Stock Option Agreement), but in any event, no later
than the expiration date of the Options.
(b) If the Participant is terminated because of death
or Disability (or the Participant dies within three
months of such termination), then Participant's
Options may be exercised only to the extent that
such Options would have been exercisable by
Participant on the Termination Date and must be
exercised by Participant (or Participant's legal
representative or authorized assignee) no later
than twelve (12) months after the Termination Date
(or such shorter time period as may be specified in
the Stock Option Agreement), but in any event no
later than the expiration date of the Options.
5.7 Limitation on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
the Plan or under any other incentive stock option plan of the Company or any
Affiliate, Parent or Subsidiary of the Company) shall not exceed $100,000. If
the Fair Market Value of Shares on the date of grant with respect to which ISOs
are exercisable for the first time by a Participant during any calendar year
exceeds $100,000, the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year shall be ISOs and the Options for the amount
in excess of $100,000 that become exercisable in that calendar year shall be
NQSOs. In the event that the Code or the regulations promulgated
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thereunder are amended after the Effective Date of the Plan to provide for a
different limit on the Fair Market Value of Shares permitted to be subject to
ISOs, such different limit shall be automatically incorporated herein and shall
apply to any Options granted after the effective date of such amendment.
5.9 Modification Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of Participant, impair any of Participant's rights under any
Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of the Plan for Options
granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
the Plan, no term of the Plan relating to ISOs shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to restrictions. The
Committee shall determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares shall be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
Restricted Stock Award made pursuant to the Plan shall be evidenced by an Award
Agreement ("Restricted Stock Purchase Agreement") that shall be in such form
(which need not be the same for each Participant) as the Committee shall from
time to time approve, and shall comply with and be subject to the terms and
conditions of the Plan. The offer of Restricted Stock shall be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within (30) days from the date
the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer shall terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to
a Restricted Stock Award shall be determined by the Committee and shall be at
least 85% of the Fair Market value of the Shares on the date the Restricted
Stock Award is granted, except in the case of a sale to a Ten Percent
Shareholder, in which case the Purchase Price shall be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
the Plan.
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<PAGE> 6
6.3 Restrictions. Restricted Stock Awards shall be subject to
such restrictions as the Committee may impose. The Committee may provide for the
lapse of such restrictions in installments and may accelerate or waive such
restrictions, in whole or part, based on length of service, performance or such
other factors or criteria as the Committee may determine.
7. STOCK BONUSES.
7.1 Awards of Stock. A stock Bonus is an award of Shares (which
may consist of Restricted Stock) for services rendered to the Company or any
Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be awarded for
past services already rendered to the Company, or any Parent, Subsidiary or
Affiliate of the Company pursuant to an Award Agreement (the "Stock Bonus
Agreement") that shall be in such form (which need not be the same for each
Participant) as the Committee shall from time to time approve, and shall comply
with and be subject to the terms and conditions of the Plan. A Stock Bonus may
be awarded upon satisfaction of such performance goals as are set out in advance
(a "Performance Stock Bonus") in Participant's individual Award Agreement (the
"Performance Stock Bonus Agreement") that shall be in such form (which need not
be the same for each Participant) as the Committee shall from time to time
approve, and shall comply with and be subject to the terms and conditions of the
Plan. Stock Bonuses may vary from Participant to Participant and between groups
of Participants, and may be based upon the achievement of the Company, Parent,
Subsidiary or Affiliate and/or individual performance factors or upon such other
criteria as the Committee may determine. Performance Stock Bonuses shall only be
granted to executive managers of the Company who are, in the scope of their
employment, able to materially affect the attainment of any performance goals
set forth in the Performance Stock Bonus Agreement.
7.2 Terms of Stock Bonuses. The Committee shall determine the
number of Shares to be awarded to the Participant and whether such Shares shall
be Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of
performance goals pursuant to a Performance Stock Bonus Agreement, then the
Committee shall determine: (a) the nature, length and starting date of any
period during which performance is to be measured (the "Performance Period") for
each Stock Bonus; (b) the performance goals and criteria to be used to measure
the performance, if any; (c) the number of Shares that may be awarded to the
Participant; and (d) the extent to which such Stock Bonuses have been earned.
Performance Periods may overlap and Participants may participate simultaneously
with respect to Stock Bonuses that are subject to different Performance Periods
and different performance goals and other criteria. The number of Shares may be
fixed or may vary in accordance with such performance goals and criteria as may
be determined by the Committee. The Committee may adjust the performance goals
applicable to the Stock Bonuses to take into account changes in law and
accounting or tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the impact of extraordinary or unusual
items, events or circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash,
whole Shares, including
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Restricted Stock, or a combination thereof, either in a lump sum payment or in
installments, all as the Committee shall determine.
7.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
shall be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee
shall determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to the Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to
the Participant;
(b) by surrender of Shares that either: (1) have been
owned by Participant for more than six (6) months
and have been paid for within the meaning of SEC
Rule 144 (and, if such shares were purchased from
the Company by use of a promissory note, such note
has been fully paid with respect to such Shares);
or (2) were obtained by Participant in the public
market;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and
bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of
the Code; provided, however, that Participants who
are not employees of the Company shall not be
entitled to purchase Shares with a promissory note
unless the note is adequately secured by collateral
other than the Shares; provided, further that the
portion of the Purchase Price equal to the par
value of the Shares, if any, must be paid in cash;
(d) by waiver of compensation due or accrued to
Participant for services rendered;
(e) by tender of property;
(f) with respect only to purchases upon exercise of an
Option, and provided that a public market for the
Company's stock exists:
(1) through a "same day sale" commitment from
Participant and a broker-dealer that is a
member of the National Association of
Securities Dealers (an "NASD Dealer")
whereby the Participant irrevocably elects
to exercise the
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Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price,
and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to
forward the Exercise Price directly to the
Company; or
(2) through a "margin" commitment from
Participant and an NASD Dealer whereby
Participant irrevocably elects to exercise
the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin
account as security for a loan from the NASD
Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to
forward the exercise price directly to the
Company;
or
(g) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
for Shares purchased under the Plan by authorizing a guarantee by the Company of
a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under the Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under the Plan, payments
in satisfaction of Awards are to be made in cash, such payment shall be net of
an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may allow the
Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date"). All elections by a Participant to have Shares withheld for
this purpose shall be made in writing in a form acceptable to the Committee and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the
applicable Tax Date,
(b) once made, then except as provided below, the
election shall be irrevocable as to the particular
Shares as to which the election is made;
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(c) all elections shall be subject to the consent or
disapproval of the Committee;
(d) if the Participant is an Insider and if the Company
is subject to Section 16(b) of the Exchange Act:
(1) the election may not be made within six (6)
months of the date of grant of the Award, except as
otherwise permitted by SEC Rule 16b-3(e) under the
Exchange Act, and (2) either (A) the election to
use stock withholding must be irrevocably made at
least six (6) months prior to the Tax Date
(although such election may be revoked at any time
at least six (6) month prior to the Tax Date) or
(B) the exercise of the Option or election to use
stock withholding must be made in the ten (10) day
period beginning on the third day following the
release of the Company's quarterly or annual
summary statement of sales or earnings; and
(e) in the event that the Tax Date is deferred until
six (6) months after the delivery of Shares under
Section 83(b) of the Code, the Participant shall
receive the full number of Shares with respect to
which the exercise occurs, but such Participant
shall be unconditionally obligated to tender back
to the Company the proper number of Shares on the
Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant shall have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
shall be a shareholder and have all rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company shall be subject to the same restrictions as
the Restricted Stock; provided, further, that the Participant shall have no
right to retain such stock dividends or stock distributions with respect to
Shares that are repurchased at the Participant's original Purchase Price
pursuant to Section 12.
10.2 Financial Statement. The Company shall provide financial
statements to each Participant prior to such Participant's purchase of Shares
under the Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company shall not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under the Plan, and any interest
therein, shall not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as
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consistent with the specific Plan and Award Agreement provisions relating
thereto. During the lifetime of the Participant an Award shall be exercisable
only by the Participant, and any elections with respect to an Award may be made
only by the Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement (a)
a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, and/or (b) a
right to repurchase a portion of or all Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after the
later of Participant's Termination Date and the date Participant purchases
Shares under the Plan, for cash or cancellation of purchase money indebtedness,
at: (A) with respect to Shares that are "Vested" (as defined in the Award
Agreement), the higher of: (1) Participant's original Purchase Price, or (2) the
Fair Market Value of such Shares on Participant's Termination Date, provided,
such right of repurchase terminates when the Company's securities become
publicly traded; or (B) with respect to Shares that are not "Vested" (as defined
in the Award Agreement), at the Participant's original Purchase Price, provided,
that the right to repurchase at the original Purchase Price lapses at the rate
of at least 20% per year over 5 years from the date the Shares were purchased,
and if the right to repurchase is assignable, the assignee must pay the Company,
upon assignment of the right to repurchase, cash equal to the excess of the Fair
Market Value of the Shares over the original Purchase Price.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under the Plan shall be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed.
14. ESCROW: PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under the Plan shall be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company shall have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant shall be required to execute and deliver a written
pledge agreement in such form as the Committee shall from time to time approve.
The Shares purchased with the promissory note may be released from the pledge on
a pro rata basis as the promissory note is paid.
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15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant shall agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed, as they are in effect on the date of grant of the
Award and also on the date of exercise or other issuance. Notwithstanding any
other provision in the Plan, the Company shall have no obligation to issue or
deliver certificates for Shares under the Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) completion of any registration or other qualification
of such shares under an, state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
shall have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted
under the Plan shall confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent, Subsidiary or Affiliate of the Company or limit in any
way the right of the Company or any Parent. Subsidiary or Affiliate of the
Company to terminate Participant's employment or other relationship at any time,
with or without cause.
18 CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. In the
event of (a) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the Company and the Awards granted under the Plan are assumed or replaced by the
successor corporation, which assumption shall be binding on all Participants),
(b) a dissolution or liquidation of the Company, (c) the sale of substantially
all of the assets of the Company, or (d) any other transaction which qualifies
as a "corporate action" under Section 424(a) of the Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(except for the acquisition, sale or transfer of all or substantially all of the
outstanding shares of the Company) (any or all of the events described in (a)
through (d) above constituting a "Change in Control"), any or all outstanding
Awards may be assumed or replaced by the successor corporation (if any), which
assumption or replacement shall be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent
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Awards or provide substantially similar consideration to Participants as was
provided to shareholders (after taking into account the existing provisions of
the Awards). The successor corporation may also issue, in place of outstanding
Shares of the Company held by the Participant, substantially similar shares or
other property subject to repurchase restrictions no less favorable to the
Participant.
In the event such successor corporation (if any) refuses to assume or
substitute Options, as provided above, pursuant to a transaction described in
this Subsection 18.1, such Options shall expire upon the happening of such
transaction at such time and on such conditions as the Board shall determine.
18.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
18.3 Assumption of Awards by the Company. The Company, from time
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Award under the Plan in substitution of
such other company's award, or (b) assuming such award as if it had been granted
under the Plan if the terms of such assumed award could be applied to an Award
granted under the Plan. Such substitution or assumption shall be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under the Plan if the other company had applied the rules of
the Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award shall remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
18.4 Additional Vesting of Options. In the event of a Change in
Control, the vesting schedule in each Stock Option Agreement for Options granted
pursuant to this Plan shall automatically be modified so that, as of the date a
Change in Control occurs, the number of Options vested and exercisable by each
Option Holder shall be increased to such number the Option holder would
otherwise be entitled to exercise if the Option holder remained an employee of
the Company one year from the date of the Change in Control.
19. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall become effective
on the date that it is adopted by the Board (the "Effective Date"), The Plan
shall be approved by the shareholders of the Company (excluding Shares issued
pursuant to this Plan), consistent with applicable laws, within twelve months
before or after the Effective Date. Upon the Effective Date, the Board may grant
Awards pursuant to the Plan, provided, however, that: (a) no Option may be
exercised prior to initial shareholder approval of the Plan; (b) no Option
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<PAGE> 13
granted pursuant to an increase in the number of Shares approved by the Board
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company; and (c) in the event that shareholder approval is
not obtained within the time period provided herein, all Awards granted
hereunder shall be canceled, any Shares issued pursuant to any Award shall be
canceled and any purchase of Shares hereunder shall be rescinded. After the
Company becomes subject to Section 16(b) of the Exchange Act, the Company will
comply with the requirements of Rule 16b-3 (or its successor), as amended, with
respect to shareholder approval.
20. TERM OF PLAN. The Plan will terminate ten (10) years from the
Effective Date or, if earlier, the date of shareholder approval.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend the Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to the Plan; provided, however, that the Board shall not, without the approval
of the shareholders of the Company, amend the Plan in any manner that requires
such shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act
or Rule 16b-3 (or its successor), as amended, thereunder.
22. DEFINITIONS. As used in the Plan, the following terms shall have the
following meanings:
"Affiliate" means any corporation that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
"Award" means any award under the Plan, including any Option, Restricted
Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.
"Board" means the Board of Directors of the Company.
"Change in Control" means the occurrence of an event described in
Section 18.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee appointed by the Board to administer the
Plan, or if no committee is appointed, the Board.
"Company" means CRL Network Services, Inc., a corporation organized
under the laws of the State of California, or any successor corporation.
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"Disability" means a disability, whether temporary or permanent, partial
or total as determined by the Committee.
"Disinterested Person" means a director who has not, during the period
that person is a member of the Committee and for one year prior to service as a
member of the Committee, been granted or awarded equity securities pursuant to
the Plan or any other plan of the Company or any Parent, Subsidiary or Affiliate
of the Company, except in accordance with the requirements set forth in Rule
16b-3(c)(2)(I) (and any successor regulation thereto) as promulgated by the SEC
under Section 16(b) of the Exchange Act, as such rule is amended from time to
time and as interpreted by the SEC.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its last reported sale price on the Nasdaq National Market or, if no
such reported sale takes place on such date, the average of the closing bid and
asked prices;
(b) if such Common Stock is publicly traded and is then listed on
a national securities exchange, the last reported sale price or, if no such
reported sale takes place on such date, the average of the closing bid and asked
prices on the principal national securities exchange on which the Common Stock
is listed or admitted to trading;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on such
date, as reported by The Wall Street Journal, for the over-the counter market;
or
(d) if none of the foregoing is applicable, by the Board of
Directors of the Company in good faith.
"Insider" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"Option" means an award of an option to purchase Shares pursuant to
Section 5.
"Parent" 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
an Award under the Plan, each of such 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.
"Participant" means a person who receives an Award under the Plan.
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"Plan" means this CRL Network Services, Inc. 1996 Incentive Plan, as
amended from time to time.
"Restricted Stock Award" means an award of Shares pursuant to Section 6.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of the Company's Common Stock reserved for
issuance under the Plan, as adjusted pursuant to Sections 2 and 18 and any
successor security.
"Stock Bonus" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Award, each of the corporations other than the last corporation
in the 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.
"Termination" or "Terminated" means, for purposes of the Plan with
respect to a Participant, that the Participant has ceased to provide services as
an employee, director, consultant or adviser, to the Company or a Parent,
Subsidiary or Affiliate of the Company, except in the case of sick leave,
military leave, or any other leave of absence approved by the Committee,
provided, that such leave is for a period of not more than ninety (90) days, or
reinstatement upon the expiration of such leave is guaranteed by contract or
statute. The Committee shall have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "Termination Date").
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EXHIBIT 10.4
1999 STOCK INCENTIVE PLAN
OF
CRL NETWORK SERVICES, INC.
March 18, 1999
SECTION 1. PURPOSE OF PLAN
The purpose of this 1999 Stock Incentive Plan (this "Plan") of CRL
Network Services, Inc. (the "Company"), is to enable the Company to attract,
retain and motivate its employees and consultants by providing for or increasing
the proprietary interests of such employees and consultants in the Company, and
to enable the Company to attract, retain and motivate its non-employee directors
and further align their interest with those of the stockholders of the Company
by providing for or increasing the proprietary interest of such directors in the
Company.
SECTION 2. PERSONS ELIGIBLE UNDER PLAN
Any person, including any director of the Company, who is an
officer or employee of or consultant to the Company or any of its subsidiaries
(an "Employee") and any director of the Company who is not an Employee (a
"Nonemployee Director") shall be eligible to be considered for the grant of
Awards (as defined herein); provided that only persons who are employees of the
Company shall be eligible to be considered for the grant of "Incentive Stock
Options" (as defined herein).
SECTION 3. AWARDS
(a) The Board of Directors or the Committee (as hereinafter
defined), on behalf of the Company, is authorized under this Plan to enter into
any type of arrangement with an Employee or a Nonemployee Director that is not
inconsistent with the provisions of this Plan and that, by its terms, involves
or might involve the issuance of (i) shares of Common Stock, par value $.01 per
share, of the Company (collectively "Common Shares"), or (ii) a right or
interest with an exercise or conversion privilege at a price related to the
Common Shares or with a value derived from the value of the Common Shares, which
right or interest may, but need not, constitute a Derivative Security (as such
term is defined in Rule 16a-1 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as such rule may be amended from time to
time). The entering into of any such arrangement is referred to herein as the
"grant" of an "Award."
(b) Common Shares may be issued pursuant to an Award for any
lawful consideration as determined by the Committee, including, without
limitation, services rendered by the recipient of such Award.
<PAGE> 2
(c) Awards are not restricted to any specified form or structure
and may include, without limitation, sales or bonuses of stock, restricted
stock, stock options, reload stock options, stock purchase warrants, other
rights to acquire stock, securities convertible into or redeemable for stock,
stock appreciation rights, limited stock appreciation rights, phantom stock,
dividend equivalents, performance units or performance shares, and an Award may
consist of one such security or benefit or two or more of them in tandem or in
the alternative.
(d) Subject to the provisions of this Plan, the Committee, in its
sole and absolute discretion, shall determine all of the terms and conditions of
each Award granted under this Plan, which terms and conditions may include,
among other things:
(i) a provision permitting the recipient of such Award,
including any recipient who is a director or officer of the Company, to
pay the purchase price of the Common Shares or other property issuable
pursuant to such Award, and/or such recipient's tax withholding
obligation with respect to such issuance, in whole or in part, by any
one or more of the following:
(A) the delivery of cash or a promissory note, the
terms and conditions of which shall be determined by the
Committee,
(B) the delivery of previously owned shares of
capital stock of the Company (including "pyramiding") or other
property deemed acceptable by the Committee, provided that the
Company is not then prohibited from purchasing or acquiring
shares of its capital stock or such other property,
(C) a reduction in the amount of Common Shares or
other property otherwise issuable pursuant to such Award, or
(D) any other lawful consideration deemed
acceptable by the Committee.
(ii) a provision specifying the exercise or settlement
price for any option, stock appreciation right or similar Award, or
specifying the method by which such price is determined; provided, that,
if the Company is subject to the reporting requirements of the Exchange
Act, the exercise or settlement price of any option, stock appreciation
right or similar Award that is intended to qualify as performance based
compensation ("Performance Based Compensation") for purposes of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
shall be not less than the fair market value of a Common Share on the
date such Award is granted;
(iii) a provision relating to the exercisability and/or
vesting of Awards, lapse and non-lapse restrictions upon the Common
Shares obtained or obtainable under Awards or under the Plan and the
termination, expiration and/or forfeiture of Awards;
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(iv) a provision conditioning or accelerating the receipt
of benefits pursuant to such Award, either automatically or in the
discretion of the Committee, upon the occurrence of specified events,
including, without limitation, a change of control of the Company (as
defined by the Committee), an acquisition of a specified percentage of
the voting power of the Company, the dissolution or liquidation of the
Company, a sale of substantially all of the property and assets of the
Company or an event of the type described in Section 8 hereof; and/or
(v) any provisions required in order for such Award to
qualify as an incentive stock option (an "Incentive Stock Option") under
Section 422 of the Code, provided that the recipient of such Award is
eligible under the Code to receive an Incentive Stock Option, and, if
the Company is subject to the reporting requirements of the Exchange
Act, any provisions required in order for such Award to qualify (A) as
Performance Based Compensation and/or (B) for an exemption from Section
16 of the Exchange Act.
(e) Notwithstanding any other provision of this Plan, no Employee
shall be granted Awards for in excess of ________ shares of Common Stock and no
Nonemployee Director shall be granted Awards in excess of _______ shares of
Common Stock during any one calendar year. The limitation set forth in this
Section 3(d) shall be subject to adjustment as provided in Section 8 hereof, but
only to the extent such adjustment would not affect the status of compensation
attributable to Awards hereunder as Performance-Based Compensation.
SECTION 4. GRANTS TO NON-EMPLOYEE DIRECTORS
(a) Each non-employee director of the Company shall receive an
option to purchase a minimum of a number of shares of Common Stock upon such
director's appointment to the Board of Directors as is determined by resolution
of the Board of Directors. The terms and conditions of such award shall be
determined by the Committee.
(b) On the date of the Company's next annual meeting of
stockholders, and each subsequent year thereafter, each non-employee director
who has been re-elected as director shall receive an option to purchase
15,000 shares of Common Stock. The terms and conditions of such award shall
be determined by the Committee.
(c) In its discretion, the Committee may increase the number of
shares purchasable upon exercise of such option for any director individually,
provided that the total number of shares purchasable upon exercise of all
options granted to any non-employee director in any year shall not be greater
than _____________ shares.
SECTION 5. STOCK SUBJECT TO PLAN
(a) The aggregate number of Common Shares that may be issued
pursuant to all Incentive Stock Options granted under this Plan shall not exceed
3,000,000, subject to adjustment as provided in Section 8 hereof.
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(b) The aggregate number of Common Shares issued and issuable
pursuant to all Awards (including Incentive Stock Options) granted under this
Plan shall not exceed 3,000,000, subject to adjustment as provided in Section
8 hereof.
(c) For purposes of Section 5(b) hereof, the aggregate number of
Common Shares issued and issuable pursuant to all Awards granted under this Plan
shall at any time be deemed to be equal to the sum of the following:
(i) the number of Common Shares that were issued prior to
such time pursuant to Awards granted under this Plan, other than Common
Shares that were subsequently reacquired by the Company pursuant to the
terms and conditions of such Awards and with respect to which the holder
thereof received no benefits of ownership such as dividends; plus
(ii) the number of Common Shares that were otherwise
issuable prior to such time pursuant to Awards granted under this Plan,
but that were withheld by the Company as payment of the purchase price
of the Common Shares issued pursuant to such Awards or as payment of the
recipient's tax withholding obligation with respect to such issuance;
plus
(iii) the maximum number of Common Shares issuable at or
after such time pursuant to Awards granted under this Plan prior to such
time.
(d) The "Fair Market Value" of a Common Share or other security
on any date (the "Determination Date") shall be determined as follows:
(i) If the Common Shares are not publicly traded on the
business day immediately preceding the Determination Date, then Fair
Market Value shall equal the price at which one could reasonably expect
such Common Shares to be sold in an arm's length transaction, for cash,
other than on an installment basis, to a person not employed by,
controlled by, in control of or under common control with the issuer of
such Common Shares. Such Fair Market Value shall be that which has
currently or most recently been determined for this purpose by the Board
or at the discretion of the Board, by an independent appraiser or
appraisers selected by the Board, in either case giving due
consideration to recent transactions involving shares of such Common
Shares, if any, the Company's net worth, prospective earning power and
dividend-paying capacity, the goodwill of the Company's business, the
issuer's industry position and its management, that Company's economic
outlook, the values of securities of issuers whose stock is publicly
traded and which are engaged in similar businesses, the effect of
transfer restrictions to which such Common Shares may be subject under
law and under the applicable terms of any contract governing such stock,
the absence of a public market for such Common Shares and such other
matters as the Board or its appraiser or appraisers deem pertinent. The
determination by the Board or its appraiser or appraisers of the Fair
Market Value shall, if not unreasonable, be conclusive and binding
notwithstanding the possibility that other persons might make a
different, and also reasonable, determination. If the Fair Market Value
to be used was thus fixed
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more than sixteen months prior to the day as of which Fair Market Value
is being determined, it shall in any event be no less than the book
value of the Common Shares being valued at the end of the most recent
period for which financial statements of the issuer are available; or
(ii) If the Common Shares are publicly traded on the
business day immediately preceding the Determination Date, then Fair
Market Value shall equal the closing price per Common Share or unit of
such other security on the business day immediately preceding the
Determination Date, as reported in The Wall Street Journal, Western
Edition (or, if such day is not a trading day in the principal
securities market or markets for such Common Shares, on the nearest
preceding trading day), as reported with respect to the market (or the
composite of markets, if more than one) in which shares of such Common
Shares are then traded, or, if no such closing prices are reported, on
the basis of the mean between the high bid and low asked prices that day
on the principal market or quotation system on which Common Shares are
then quoted, or, if not so quoted, as furnished by a professional
securities dealer making a market in the Common Shares selected by the
Board or the Committee.
SECTION 6. DURATION OF PLAN
Options shall not be granted under this Plan after March 17,
2009. Although Common Shares may be issued on or after March 17, 2009 pursuant
to Options granted prior to such date, no Common Shares shall be issued under
this Plan after March 16, 2019.
SECTION 7. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by a committee (the
"Committee") of the Board of Directors of the Company (the "Board") consisting
of two or more directors, each of whom is a "non-employee director" (as such
term is defined in Rule 16b-3 promulgated under the Exchange Act, as such Rule
may be amended from time to time); provided, however, that in the event the
Committee is not comprised of two or more "non-employee directors," then (i) the
Committee shall only be authorized and empowered to recommend to the Board all
things necessary or desirable in connection with the administration of this
Plan, including, without limitation, the things listed in Section 7, (ii) all
recommendations of the Committee relating to this Plan shall be subject to final
approval by the Board and (iii) all references herein to the Committee shall be
deemed to refer to the Board; provided further, that unless otherwise determined
by the Board, with respect to any Award that is intended to qualify as
Performance-Based Compensation, the Plan shall be administered by a committee
consisting of two or more directors, each of whom is an "outside director" (as
such term is defined under Section 162(m) of the Code).
(b) Subject to the provisions of this Plan, the Committee shall
be authorized and empowered to do all things necessary or desirable in
connection with the administration of this Plan, including, without limitation,
the following:
5
<PAGE> 6
(i) adopt, amend and rescind rules and regulations
relating to this Plan;
(ii) determine which persons are Employees and to which of
such Employees, if any, Awards shall be granted hereunder;
(iii) grant Awards to Employees and Nonemployee Directors
(provided that Nonemployee Directors shall not be eligible to be
considered for the grant of Incentive Stock Options) and determine the
terms and conditions thereof, including (A) the number of Common Shares
issuable pursuant thereto and (B) the exercise price for any Awards;
(iv) determine whether, and the extent to which,
adjustments are required pursuant to Section 8 hereof; and
(v) interpret and construe this Plan and the terms and
conditions of all Awards granted hereunder.
SECTION 8. ADJUSTMENTS
If the outstanding securities of the class then subject to this
Plan are increased, decreased or exchanged for or converted into cash, property
or a different number or kind of securities, or if cash, property or securities
are distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular, quarterly cash
dividend) or other distribution, stock split, reverse stock split or the like,
or if substantially all of the property and assets of the Company are sold,
then, unless the terms of such transaction shall provide otherwise, the
Committee may make appropriate and proportionate adjustments in (a) the number
and type of shares or other securities or cash or other property that may be
acquired pursuant to Incentive Stock Options and other Awards theretofore
granted under this Plan, (b) the maximum number and type of shares or other
securities that may be issued pursuant to Incentive Stock Options and other
Awards thereafter granted under this Plan, and (c) the maximum number of Common
Shares for which options may be granted during any one calendar year; provided,
however, that no adjustment shall be made under this Section 8 to the number of
Common Shares that may be acquired pursuant to outstanding Incentive Stock
Options or the maximum number of Common Shares with respect to which Incentive
Stock Options may be granted under this Plan to the extent such adjustment would
result in such options being treated as other than Incentive Stock Options;
provided further that no such adjustment shall be made to the extent the
Committee determines that such adjustment would result in the disallowance of a
federal income tax deduction for compensation attributable to Options hereunder
by causing such compensation to be other than Performance-Based Compensation.
6
<PAGE> 7
SECTION 9. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time and in any
manner; provided, however, that no such amendment or termination shall deprive
the recipient of any Award theretofore granted under this Plan, without the
consent of such recipient, of any of his or her rights thereunder or with
respect thereto; provided, further, that the Board shall not, without the
approval of the shareholders of the Company, amend the Plan in any manner that
requires such shareholder approval pursuant to the Code or any applicable
securities laws.
SECTION 10. EFFECTIVE DATE OF PLAN
The Stock Incentive Plan shall be effective as of March 18,
1999, the date upon which it was approved by the Board; provided, however, that
no Awards may be granted nor may Common Shares be issued under this Stock
Incentive Plan until it has been approved, directly or indirectly, by the
affirmative votes of the holders of a majority of the securities of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of Delaware.
SECTION 11. COMPLIANCE WITH OTHER LAWS AND REGULATIONS
This Plan, the grant and exercise of Awards thereunder, and the
obligation of the Company to sell and deliver Common Shares under such Awards,
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any governmental or regulatory agency as may be
required. The Company shall not be required to issue or deliver any certificates
for shares of Common Stock prior to the completion of any registration or
qualification of such shares under any federal or state law or issuance of any
ruling or regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable.
SECTION 12. NO RIGHT TO COMPANY EMPLOYMENT
Nothing in this Plan or as a result of any Award granted pursuant to
this Plan shall confer on any individual any right to continue in the employ of
the Company or any of its subsidiaries or affiliates or interfere in any way
with the right of the Company (or its subsidiaries or affiliates, as applicable)
to terminate an individual's employment at any time, with or without cause. The
agreement evidencing an Award may contain such provisions as the Committee may
approve with respect to the effect of approved leaves of absence.
SECTION 13. LIABILITY OF COMPANY
The Company and any affiliate which is in existence or hereafter comes
into existence shall not be liable to an Employee, Nonemployee Director or other
persons as to:
(a) The Non-Issuance of Common Shares. The non-issuance or sale
of Common Shares as to which the Company has been unable to obtain from any
regulatory body having jurisdiction the authority deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder;
and
7
<PAGE> 8
(b) Tax Consequences. Any tax consequence expected, but not
realized, by any Employee or Nonemployee Director or other person due to the
issuance, exercise, settlement, cancellation or other transaction involving any
Award granted hereunder.
SECTION 14. GOVERNING LAW
This Plan and any Awards and agreements hereunder shall be interpreted
and construed in accordance with the laws of the State of Delaware and
applicable federal law.
8
<PAGE> 1
EXHIBIT 10.5
LESSOR LEASE NUMBER
SADDLEBACK FINANCIAL CORPORATION
625 THE CITY DRIVE, SUITE 140 #10973-0697
ORANGE, CA 92868 (714) 938-9500
- -------------------------------------------------------------------------------
FULL LEGAL NAME AND ADDRESS OF LESSEE SUPPLIER OF EQUIPMENT
CRL NETWORK SERVICES, INC. (COMPLETE ADDRESS)
ONE KEARNEY STREET, Suite 1450 CASCADE COMMUNICATIONS CORP.
SAN FRANCISCO, CA 94108 P.O. BOX 6095
BOSTON, MA 02212
JOINTLY AND SEVERALLY RESPONSIBLE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
QUANTITY DESCRIPTION MODEL # CATALOG # SERIAL # OR OTHER IDENTIFICATION
- -------------------------------------------------------------------------------
ONE (I) CASCADE COMMUNICATIONS MODEL #60019A B-STDX 9000 16 SLOT BASE SYSTEM W/:
AC POWER AND OTHER DATA SWITCH EQUIPMENT MORE THOROUGHLY DESCRIBED ON THE
SCHEDULE "A" ATTACHED HERETO AND MADE A PART HEREOF.
EQUIPMENT LOCATION ONE KEARNEY STREET, SUITE 1450 COUNTY
IF DIFFERENT SAN FRANCISCO CA 94108 SAN FRANCISCO
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMOUNT OF EACH PAYMENT MONTHLY TERM OF LEASE NO OF PAYMENTS SECURITY
TERMS PLUS SALES TAX IF APPLICABLE NO OF MONTHS DEPOSIT
$4,087.00 (INCL. SALES TAX) 1 ADV PMT ** 36 36 N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
**FIRST PAYMENT IN ADVANCE TERMS AND CONDITIONS OF LEASE
1. LEASE. Lessee hereby lease from Lessor and Lessor leases to Lessee, the
personal property described above, together with any replacement parts,
additions, reports or accessories now or hereafter incorporated in or affixed to
if (hereinafter referred to as the "Equipment").
2. ACCEPTANCE OF EQUIPMENT. Lessee agrees to inspect the Equipment and to
execute an Acknowledgment and Acceptance of Equipment by Lessee notice as
provided by Lessor, after the Equipment has been delivered and offer Lessee a
and after Lessee is satisfied that the Equipment is satisfactory in every
respect. Lessee hereby authorizes Lessor to insert in this Lease serial number
or other identifying data with respect to the Equipment.
3. DISCLAIMER OF WARRANTIES AND CLAIMS; LIMITATION OF REMEDIES. THERE ARE NO
WARRANTIES BY OR ON BEHALF OF LESSOR. LESSEE ACKNOWLEDGES AND AGREES BY HIS
SIGNATURE BELOW AS FOLLOWS:
(a) LESSOR MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED AS TO THE
CONDITION OF THE EQUIPMENT, ITS FITNESS OR SUITABILITY FOR ANY
PARTICULAR PURPOSE, ITS DESIGN, ITS CAPACITY, ITS QUALITY, OR WITH
RESPECT TO ANT CHARACTERISTICS OF THE EQUIPMENT;
(b) Lessee has fully inspected the Equipment which it has requested
Lessor to acquire, and the Equipment is in good condition and to
Lessee's complete satisfaction;
(c) Lessee leases the Equipment "as is" and with all faults;
(d) Lessee specifically acknowledges that the Equipment is leased to
Lessee solely for commercial or business purposes and not for personal,
family, household or agricultural purposes;
(e) The Equipment is not properly installed, does not operate as
represented or warranted by the supplier or manufacturer or Is
unsatisfactory for any reason, regardless of cause or consequence,.
Lessee's only remedy, if any. shall be against the supplier or
manufacturer of the Equipment and not against Lessor;
(f) Provided Lessee is not in default under this Lease, Lessor assigns
to Lessee any warranties made by the supplier or the manufacturer of the
equipment;
(g) LESSEE SHALL NAVE NO REMEDY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES
AGAINST LESSOR; and
(h) NO DEFECT, DAMAGE OR UNFITNESS OF THE EQUIPMENT FOR ANY PURPOSE
SHALL RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR RELIEVE LESSEE OF
ANY OBLIGATION UNDER THIS LEASE.
- -------------------------------------------------------------------------------
THE PARTIES HAVE SPECIFICALLY NEGOTIATED AND AGREED TO THE FOREGOING PARAGRAPH
- -------------------------------------------------------------------------------
4. STATUTORY FINANCE LEASE. Lessee agrees and acknowledges that it IS the intent
of both parties to this Lease that it qualify as a statutory finance lease under
Article 2A of the Uniform Commercial Code. Lessee acknowledges and agrees that
Lessee has selected both: (1) the Equipment; and (2) the supplier from whom
Lessor is to purchase the Equipment. Lessee acknowledges that Lessor has not
participated in any way in Lessee's selection of the Equipment or of the
supplier, and Lessor has not selected, manufactured. or supplied the Equipment.
LESSEE IS ADVISED THAT IT MAY HAVE RIGHTS UNDER THE CONTRACT EVIDENCING THE
LESSOR'S PURCHASE OF THE EQUIPMENT FROM THE SUPPLIER CHOSE BY LESSEE AND THAT
LESSEE SHOULD CONTACT THE SUPPLIER OF THE EQUIPMENT FOR A DESCRIPTION OF ANY
SUCH RIGHTS.
5. ASSIGNMENT BY LESSEE PROHIBITED, WITHOUT LESSOR'S PRIOR WRITTEN CONSENT,
LESSEE SHALL NOT ASSIGN THIS LEASE OR SUBLEASE THE EQUIPMENT OF ANY INTEREST
THEREIN, OR PLEDGE OR TRANSFER THIS LEASE, OR OTHERWISE DISPOSE OF THE EQUIPMENT
COVERED HEREBY.
6. RENTAL PAYMENTS. LESSEE AGREES TO PAY THE TOTAL RENT EQUAL TO THE "AMOUNT OF
EACH PAYMENT MULTIPLIED BY THE NUMBER OF PAYMENTS SPECIFIED IN NO. OF
PAYMENTS." PAYMENTS WE BE MADE IN ADVANCE AND AS SPECIFIED IN "TERMS" ABOVE.
PAYMENTS SHALL BE MADE BY LESSEE AT LESSOR'S SET FORTH ABOVE, OR AS OTHERWISE
DIRECTLY BY LESSOR. LESSEE SHALL NOT ABATE, SET OFF, DEDUCT ANY AMOUNT OR REDUCE
ANY PAYMENT FOR ANY REASON. THE FIRST PAYMENT SHALL BE DUE ON THE DATE OF
ACCEPTANCE OF THE EQUIPMENT BY LESSEE, AND SUBSEQUENT PAYMENTS SHALL BE DUE ON
THE SAME DAY OF EACH SUCCEEDING MONTH THROUGHOUT THE TERM OF THE LEASE.
a) THIS LEASE IS NOT CANCELABLE OR TERMINABLE BY LESSEE.
b) SEE REVERSE FOR ADDITIONAL TERMS AND CONDITIONS WHICH ARE A PART OF THIS
LEASE.
c) LESSEE UNDERSTANDS AND ACKNOWLEDGES THAT NO BROKER OR SUPPLIER, NOR ANY
SALESMAN. BROKER OR AGENT OF ANY BROKER OR SUPPLIER IS AN AGENT OF LESSOR,. NO
BROKER OR SUPPLIER. NOR ANY SALESMAN, BROKER. OR AGENT OF ANY BROKER OR
SUPPLIER. IS AUTHORIZED TO WAIVE OR ALTER ANY TERM OR CONDITION OF THIS LEASE
AND NO REPRESENTATION AS TO THE EQUIPMENT OR ANY OTHER MATTER BY THE BROKER OR
SUPPLIER, NOR ANY SALESMAN. BROKER. OR AGENT OF ANY BROKER OR SUPPLIER. SHALL IN
ANY WAY AFFECT LESSEE'S DUTY TO PAY THE RENTALS AND TO PERFORM LESSEE'S
OBLIGATIONS SET FORTH IN THIS LEASE.
<PAGE> 2
7. CHOICE OF LAW. This Lease shall not be effective until signed by Lessor at
its principal office listed above. This Lease shall be considered to have been
made in the state of Lessor's principal place of business listed above and shall
be interpreted in accordance with the laws and regulations of the state of
Lessor's principal place of business. Lessee agrees to jurisdiction in the state
of Lessor's principal place of business listed above in any action. suit or
proceeding regarding this Lease. and concedes that it. and each of them.
transacted business in the state of Lessor's principal of business listed above
by entering into this Lease. In the event of any legal action with regard to
this lease or the equipment covered hereby. Lessee agrees that venue may be laid
in the County of Lessor's principal place of business.
<TABLE>
<S> <C> <C>
LESSEE: CRL NETWORK SERVICES, INC. LESSOR: SADDLEBACK FINANCIAL CORPORATION
/s/ James G. Couch DATE: 6/12/97 _______________________ DATE: _______
- ----------------------------------
JAMES G. COUCH PRESIDENT
DATE: _________
</TABLE>
2
<PAGE> 1
EXHIBIT 10.6
ADDENDUM TO LEASE NO. 10973-0697
BETWEEN SADDLEBACK FINANCIAL CORPORATION AS LESSOR
AND CRL NETWORK SERVICES, INC. AS LESSEE
DISCLAIMER OF WARRANTIES AND CLAIMS; LIMITATION OF REMEDIES. THERE ARE NO
WARRANTIES BY OR ON BEHALF OF LESSOR. Lessee acknowledges and agrees by its
signature below as follows:
(a) LESSOR MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED AS TO THE CONDITION OF
THE LEASED EQUIPMENT, ITS MERCHANTABILITY, ITS FITNESS OR SUITABILITY FOR ANY
PARTICULAR PURPOSE, ITS DESIGN, ITS CAPACITY, ITS QUALITY, OR WITH RESPECT TO
ANY CHARACTERISTICS OF THE EQUIPMENT;
(b) Lessee has fully inspected the Equipment which it has requested Lessor to
acquire and lease to Lessee, and the Equipment is in good condition and to
Lessee's complete satisfaction;
(c) Lessee leases the Equipment "as is" and with all faults;
(d) Lessee specifically acknowledges that the Equipment is leased to Lessee
solely for commercial or business purposes and not for personal, family,
household, or agricultural purposes;
(e) If the Equipment is not properly installed, does not operate as represented
or warranted by the supplier or manufacturer, or is unsatisfactory for any
reason, regardless of cause or consequence, Lessee's only remedy, if any, shall
be against the supplier or manufacturer of the Equipment and not against Lessor;
(f) Provided Lessee is not in default under this Lease, Lessor assigns to Lessee
any warranties made by the supplier or the manufacturer of the Equipment;
(g) LESSEE SHALL HAVE NO REMEDY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES AGAINST
LESSOR; and
(h) NO DEFECT, DAMAGE, OR UNFITNESS OF THE EQUIPMENT FOR ANY PURPOSE SHALL
RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR RELIEVE LESSEE OF ANY OTHER
OBLIGATION UNDER THIS LEASE.
This Addendum is intended to supplement Paragraph 3 of the Lease Agreement. By
signature below, Lessee and each of them acknowledge that they have specifically
negotiated and agreed to Paragraph 3 of the above-referenced Lease.
LESSEE: CRL NETWORK SERVICES, INC.
/S/ James G. Couch DATE 6/12/97
- --------------------------
JAMES G. COUCH, PRESIDENT
- -------------------------- DATE _____________
<PAGE> 1
EXHIBIT 10.7
MANDATORY PURCHASE OPTION LETTER
WHEREAS, Saddleback Financial Corporation ("Lessor"), may have for sale
the property ("Equipment") described under the Lease Agreement No.10973-00697
dated _______________.
WHEREAS, CRL NETWORK SERVICES, INC. ("Lessee") desires to acquire by
purchase, title to the Equipment; and
WHEREAS, the parties hereto desire to reduce to writing the conditions
under which Lessee will purchase Equipment and to fix the time and price to such
purchase;
NOW THEREFORE, the parties hereto, in consideration of the premises and
covenants hereinafter contained, agree as follows:
1. Lessee hereby irrevocably agrees to purchase the Equipment upon the
expiration of the Lease at a Price of $13,256.00 ("Purchase Price") plus any
applicable taxes, filing and documentation costs.
In the event the Lease is terminated in accordance with its terms,
Lessee agrees to pay Lessor the Purchase Price in addition to all other amounts
payable to Lessor as a result of said termination.
2. A demand for purchase of the Equipment may be made by Lessor or its
successors and assigns at any time after the expiration of the Lease in which
event, the effective date for Purchase of the Equipment shall be the first (1st)
day of the month after such demand or such other date as may be mutually agreed
upon between Lessor or its successors and assigns and Lessee. THE EQUIPMENT
SHALL BE SOLD TO LESSEE AND POSSESSION MADE AVAILABLE TO LESSEE "AS IS'; IT
BEING EXPRESSLY UNDERSTOOD THAT LESSOR AND ITS SUCCESSORS AND ASSIGNS MAKE NO
REPRESENTATION OR WARRANTY EXPRESSED OR IMPLIED. INCLUDING BUT NOT LIMITED TO
ANY WARRANTY OF FITNESS FOR ANY PARTICULAR OR OTHER PURPOSE, MERCHANTABILITY, OR
PATENT INFRINGEMENT. NOTWITHSTANDING THE FOREGOING, LESSOR OR ITS SUCCESSORS AND
ASSIGNS REPRESENT AND WARRANT THAT IT OR THEY HAVE GOOD AND MERCHANTABLE TITLES
TO THE EQUIPMENT AND CAN CONVEY SAME TO LESSEE FREE AND CLEAR OF ANY SUPERIOR
LIEN OR ENCUMBRANCE. LESSEE IS LIABLE FOR ANY TAXES PAYABLE AS A RESULT OF THIS
SALE OF EQUIPMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day, month, and year indicated below.
Accepted and Agreed to: Accepted and Agreed to:
(LESSOR) (LESSEE)
SADDLEBACK FINANCIAL CORPORATION CRL NETWORK SERVICES, INC.
By: By:/S/ JAMES G. COUCH
------------------------------ ------------------------------
JAMES G. COUCH, PRESIDENT
Date: Date: 6/12/1997
---------------------------
<PAGE> 1
EXHIBIT 10.8
[Wells Fargo Bank letterhead]
BUSINESS LENDING DIVISION
CONFIRMATION LETTER
SEPTEMBER 25, 1997
CRL NETWORK SERVICES, INC.
ONE KEARNY STREET
STE. 1450
SAN FRANCISCO, CA 94108-5501
RE: $500,000.00 Equipment Line
WELLS FARGO BANK, N.A. ("Bank"), agrees to make available to CRL NETWORK
SERVICES, INC. ("Borrower") a Equipment Line ("Credit"). The Credit shall bear
interest and be repayable in accordance with the terms and conditions of the
Agreement. The Agreement consists of (1) this Confirmation Letter (this
"Letter"), (2) the Business Lending Disclosure dated August 01,1997 (the
"Disclosure") and (3) any Related Documents. All terms and conditions of the
Disclosure and Related Documents are incorporated herein by reference for all
purposes. All capitalized terms not defined in this Letter are defined in the
Disclosure.
PROMISE TO PAY. Borrower promises to pay to Bank, or order, the principal amount
of $500,000.00, or so much as may be advanced and outstanding from time to time,
together with interest on the unpaid outstanding principal balance of each
Advance. Interest shall be calculated from the date of each Advance until
repayment of each Advance. Borrower will pay Bank at Bank's address shown in
this letter or at such other place as Bank may designate in writing.
EQUIPMENTLINE; TERM. Your EquipmentLine is a credit facility under which you may
request loans and/or equipment leases to facilitate your acquisition of
equipment. During the term of this EquipmentLine, you may request and the Bank
may approve loans or leases in its discretion whenever you desire financing for
qualifying pieces of equipment. The total amount of such loans and leases may
not exceed your preapproved credit limit referenced above. This EquipmentLine
credit facility is available to you for a term of 12 months, commencing with the
date your EquipmentLine is opened by the Bank.
REPAYMENT OPTIONS. At the time of each Advance under an EquipmentLine. Borrower
shall choose between the following two interest rate/loan repayment options, or
in lieu of an Advance, may choose an Equipment Lease. In each instance, the
amount available under this Credit shall be reduced by the amount of the Advance
or Equipment Lease.
OPTION 1. FIXED OPTION.
If Borrower elects to have a fixed rate of interest apply to an Advance:
<PAGE> 2
FIXED INTEREST RATE: The interest rate applicable to the Advance shall
be the rate 5.000% above the Treasury Rate in effect as of the close of
business on the Thursday of the week preceding disbursement of the
Advance; provided, however, that such interest rate shall be rounded to
the nearest 0.05%.
PAYMENTS: Borrower shall pay principal of and interest on each Advance
on the fifth day of each month in equal successive monthly installments
sufficient to amortize the principal and accruing interest of such
Advance over a payment schedule of not less than 36 months or more than
96 months, as agreed by Borrower and Bank at the time of such Advance,
depending on the type of equipment financed and the interest rate
applicable at the time of such Advance. If the Advance occurs on or
before the eighteenth day of a month, the first payment due date shall
be the 5th day of the next month; if the Advance occurs after the
eighteenth day of a month, the first payment due date shall be the 5th
day of the second month following the Advance. All unpaid principal and
accrued and unpaid interest and any other amounts owed in connection
with this Credit shall be due and payable in full at maturity on the
final payment date.
PREPAYMENT TERMS. Borrower may prepay principal of the Credit as
follows:
If the original Credit amount is $10,000 or more, and there are (12)
months or more remaining until maturity, Borrower shall pay to Bank a
prepayment fee equal to (i) 5% of the amount prepaid if the remaining
term is five or more years, (ii) 4% of the amount prepaid if the
remaining term is four to five years, (iii) 3% of the amount prepaid if
the remaining term is three to four years, (iv) 2% of the amount prepaid
if the remaining term is two to three years, and (v) 1% of the amount
prepaid if the remaining term is one to two years. All prepayments of
principal shall be applied on the most remote principal installment or
installments then unpaid.
Borrower(s) Initials ________________
OPTION 2. VARIABLE OPTION.
If Borrower elects to have a variable rate of interest apply to an
Advance:
VARIABLE INTEREST RATE: The interest rate applicable to the Advance
shall be subject to change from time to time based on changes in the
Prime Rate. The Prime Rate currently is 8.500% per annum. The variable
interest rate to be applied to the unpaid principal balance of the
Advance will be 1.750% percentage points above the Prime Rate, resulting
in a currently applicable initial rate of 10.250% per annum.
PAYMENTS: Borrower shall pay principal on each Advance on the fifth day
of each month in equal successive monthly installments sufficient to
amortize the principal amount of such Advance over a payment schedule of
not less than 36
2
<PAGE> 3
months or more than 96 months, as agreed by Borrower and Bank at the
time of such Advance, depending on the type of equipment financed and
the interest rate applicable at the time of such Advance. In addition,
Borrower shall pay all accrued unpaid interest on each payment date. If
the Advance occurs on or before the eighteenth day of a month, the first
payment due date shall be the 5th day of the next month; if the Advance
date occurs after the eighteenth day of a month, the first payment due
date shall be the 5th day of the second month following the Advance. All
unpaid principal and accrued and unpaid interest and any other amounts
owed in connection with this Credit shall be due and payable in full at
maturity on the final payment date.
PREPAYMENT TERMS. Borrower may prepay principal of the Credit at any
time, in any amount, without penalty.
Advances: Advances shall be subject to the following terms and conditions:
This Credit shall be a non-revolving line of credit. Once the total amount
available under the Credit has been advanced, Borrower shall not be entitled to
further Advances-
* Borrower shall deliver to Bank an acceptable purchase agreement or an
invoice from vendor - not more than 90 days old - for equipment to be
purchased in whole or in part with the Advance.
* Bank may fund Advances to Borrower or directly to vendor at Bank's sole
discretion.
* For new equipment the Advance shall not exceed 100% of the selling
price.
* For used equipment the Advance shall not exceed 75% of the selling
price, or the appraised liquidation value (if required), whichever is
less.
* If an Advance or Advances to acquire an item of used equipment
aggregate(s) $100,000.00 or more, Borrower shall obtain, at Borrower's
sole cost and expense, an appraisal to determine the liquidation value
of such equipment. The appraisal must be performed by an independent
appraiser satisfactory to Bank, at Bank's sole discretion.
* The minimum Advance shall be $5,000.00.
INTEREST ACCRUAL BASIS. Interest shall be computed on a 365/360 simple interest
basis; that is, by multiplying the ratio of the annual interest rate over a year
of 360 days, times the outstanding principal balance, times the actual number of
days the principal is outstanding.
AUTOMATIC DEBIT OF PAYMENTS. At the time of an Advance, Borrower may elect to
have Bank automatically debit payments and other amounts owed in connection with
this Credit from Borrower's Account, or Borrower can request Bank to invoice
Borrower for payments.
DISBURSEMENT INFORMATION. Bank is not obligated to make an Advance under the
Agreement until Borrower delivers to Bank an acceptable purchase agreement or
invoice from vendor - not
3
<PAGE> 4
more than 90 days old - for equipment to be purchased with the Advance. Bank
shall disburse to Borrower or directly to the vendor at Bank's sole discretion.
COLLATERAL. Subject to the terms and conditions of the Disclosure, as security
for the obligations set forth in Section 2.1 of the Disclosure, CRL NETWORK
SERVICES, INC., as Grantor, pledges and grants to Bank a first priority security
interest in the following personal property, whether existing or hereafter
arising, now owned or hereafter acquired, and wherever located, and all Proceeds
of the foregoing (including insurance):
Any property described in Exhibit(s) (if any) attached hereto and made a
part hereof. (NONE)
All equipment purchased or acquired in whole or in part with an Advance.
COMMITMENT FEES. Borrower shall pay a commitment fee of $2,500.00 for the
availability of the Credit through the maturity date.
THIRD PARTY FEES. Borrower shall pay an estimated fee of:
$50.00 UCC Filing Fee
PAYMENT OF FEES. Payments and fees will be paid as follows:
Commitment Fee From Account 0524033941
EXTENSIONS, RENEWALS AND INCREASES. The Credit may be extended, renewed or
increased at Bank's sole discretion. Bank will notify Borrower in writing of any
modification and the terms of any such modification will be deemed to have been
accepted if Borrower does not deliver to Bank a written rejection within 10 days
from the date of notification, or draws additional funds at any time following
the date of notification.
INSURANCE. Borrower shall provide and maintain insurance coverage as required by
the Disclosure and any Related Documents.
COUNTERPART. This document may be signed in any number of separate copies, each
of which shall be effective as an original, but all of which taken together
shall constitute a single document.
FACSIMILE. An electronic transmission or other facsimile of this Letter or any
signed document shall be deemed an original and shall be admissible as evidence
of the document and the signer's execution.
PURPOSE. The proceeds of the Credit shall be used primarily for business or
commercial purposes.
At the time the Agreement is signed and delivered to Bank, the persons signing
below, including without limitation the Borrower(s), any Grantors(s) and any
Guarantor(s), acknowledge receipt
4
<PAGE> 5
of the Agreement, including the Disclosure and Related Documents, and accept all
terms and conditions contained in them. Unless a fully signed copy of this
Letter and all Related Documents is received by Bank within 30 days, this offer
to extend credit will expire. This offer is not transferable or assignable, and
may be withdrawn or modified at any time prior to Bank's receipt of the above
fully signed documents.
ALL STATES (EXCEPT OREGON). THIS LETTER, THE DISCLOSURE, AND ANY RELATED
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES RELATING TO THIS CREDIT.
OREGON ONLY. STATUTORY DISCLOSURE TO OREGON RESIDENTS: UNDER OREGON LAW, MOST
AGREEMENTS, PROMISES AND COMMITMENTS MADE BY A LENDER AFTER OCTOBER 3, 1989,
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.
If you have any questions, please contact me at (415) 396-1135. For future
reference, please send all correspondence to the Bank to the following address:
Business Lending Division, 177 Park Center Plaza, MAC #0514-011, San Jose, CA
95113.
WELLS FARGO BANK, N.A. ("Bank")
By: /S/ W. Jeffrey Grupe
--------------------------------------
Name: W. Jeffrey Grupe
Title: Commercial Loan Officer
Dated: September 25,1997
GUARANTOR ACKNOWLEDGMENT:
By signing below, Guarantor acknowledges receipt of a copy of the Disclosure,
guarantees the Credit, and agrees to the terms and provisions of this Letter and
Chapter 3 of the Disclosure. The guaranty amount is $500,000.00. The Guarantor's
address is: 10 Century Drive, Mill Valley, CA 94941.
JAMES COUCH
By:/S/ James Couch 9/26/97 By:
--------------------------------------- -------------------------------
Name: James Couch
Title: Individual
BORROWER AND GRANTOR ACKNOWLEDGMENT AND ACCEPTANCE:
By signing below, Borrower and Grantor acknowledge receipt of the Agreement,
including the Disclosure and Related Documents, and agree to the terms and
provisions contained in them.
5
<PAGE> 6
CRL NETWORK SERVICES, INC., a Corporation
By:/S/ James Couch 9/26/97 By:
---------------------------------------- -------------------------
Name: James Couch
Title: President
6
<PAGE> 7
[WELL FARGO BANK LOGO]
SIMPLYDOCS[TM]
BUSINESS LENDING DISCLOSURE
We appreciate the opportunity to do business with you. Your time is valuable,
and we know you have choices. This folder contains our SimplyDocs[TM] business
loan disclosure. This disclosure is written in a straightforward easy to read
fashion and covers the loan for which you are applying. We designed it so save
you time and to make your loan agreement easy to understand.
IF YOU SELECT WELLS FARGO, THIS DISCLOSURE, ALONG WITH A CONFIRMATION LETTER
AND ANY RELATED DOCUMENTS, WILL CONSTITUTE YOUR LOAN AGREEMENT. PLEASE REVIEW
AND RETAIN THESE MATERIALS FOR YOUR FUTURE REFERENCE.
Your business success is important to us. In fact, Wells Fargo specializes in
lending to small companies. We are the only small business lender to be
endorsed by the National Association of Women Business Owners, and we support
our commitment to helping small business grow through SBA lending. We have a
wide range of products and services to offer you, and our commercial loan
officers can customize a financing option for your specific needs.
We are available to serve you through our Business Banking Officers, our
24-hour customer service telephone center, and Business Gateway - on-line
banking just for small businesses. Of course, we are also happy to serve you
at any of our local Wells Fargo branches. You may also visit us on the Internet
at www.wellsfargo.com.
Thank you for choosing Wells Fargo.
Sincerely yours
/s/ Colleen Anderson
Colleen Anderson
Executive Vice President
<PAGE> 8
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
This Business Lending Disclosure is one part of the Agreement regarding the
Credit. The other parts include the Confirmation Letter and any Related
Documents. Parties to the Agreement are encouraged to read the Agreement in its
entirety. Capitalized terms are defined in the Glossary at the end of this
Disclosure.
<TABLE>
<S> <C>
Section 1 ....................... TERMS AND CONDITIONS THAT APPLY TO ALL CREDITS
Section 2 ................................................... SECURITY AGREEMENT
Section 3 ............................................................. GUARANTY
Appendix A ............................................ MISCELLANEOUS PROVISIONS
Appendix B ................................................. ARBITRATION PROGRAM
Appendix C ............................................ TRADE FINANCE SUBFEATURE
Appendix D ........................... ACCOUNTS RECEIVABLE & INVENTORY PRIMELINE
Glossary ............................... DEFINITIONS OF TERMS USED IN DISCLOSURE
</TABLE>
<PAGE> 9
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SECTION 1 TERMS & CONDITIONS THAT APPLY TO ALL CREDITS
- -------------------------------------------------------------------------------
By signing the Confirmation Letter, Borrower agrees, unless otherwise
disclosed to and acknowledged by Bank in writing, that the following is
true now, and at the time of each advance will be true:
1.1 REPRESENTATIONS MADE BY BORROWER
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FINANCIAL AND OTHER INFORMATION
Each financial statement submitted by Borrower gives a full and complete
picture of Borrower's financial condition as of the statement's date,
including all material contingent obligations, and there has been no
significant adverse change to Borrower's financial condition since the
date of the most recent statement; all information furnished by Borrower to
Bank in connection with the application for credit was true and accurate in
every significant respect as of the date of the information; and no
material facts were omitted so as to make the information incomplete or
misleading.
PROPERTIES
Borrower owns and has good title to all of Borrower's properties, and the
titles to the properties are all in Borrower's legal name. Borrower has
used due diligence in investigating Borrower's properties for Hazardous
Substances.
COMPLIANCE, LITIGATION AND CLAIMS
Borrower is in compliance with all applicable laws, ordinances, rules and
regulations; no litigation, claim, investigation, arbitration,
administrative proceeding, or similar action against Borrower is pending
or threatened (including any concerning unpaid taxes or Hazardous
Substances); and no other event has occurred or is expected to occur which
might have a significant adverse affect on Borrower's financial condition
or properties. Any use, generation, manufacture, storage, treatment,
disposal, release, or threatened release of any Hazardous Substance by
anyone at the properties while Borrower has owned the properties was
conducted in full compliance with all applicable federal, state, and local
laws, regulations, and ordinances, except as disclosed on the loan
application by Borrower. Borrower is not aware of any violations of any
such local laws, regulations, and ordinances with respect to Hazardous
Substances by previous owners or occupants of the properties.
TAXES
Borrower has filed all required tax returns and reports and paid all
taxes, assessments, and other governmental charges -- except any contested
by Borrower in good faith in the ordinary course of business, and for
which adequate reserves have been provided.
PRINCIPAL OFFICE
Borrower's principal office is located at the address specified in the
Confirmation Letter.
CONTINUATION AND SURVIVAL
The foregoing representations are continuing and shall remain true and in
full force and effect at all times until the Credit is paid in full, or
until this Agreement is terminated, whichever is the last to occur.
1.2 RESPONSIBILITIES OF BORROWER
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FINANCIAL AND OTHER INFORMATION
Borrower will maintain its financial books and records in accordance with
generally accepted accounting principles, consistently applied; and when
requested by Bank, Borrower, at no cost to Bank, will furnish additional
information and statements relating to Borrower's (including its general
partners, if any) financial condition and business operations, including
tax returns, and verification of use of loan proceeds. Borrower will
permit, at Bank's request, employees or agents of Bank to examine or audit
Borrower's books, accounts, and records; and make copies and memoranda of
Borrower's books, accounts, and records. If Borrower maintains any records
in the possession of a third party (including computer-generated records
and computer
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<PAGE> 10
software programs used to generate the records), at Bank's request,
Borrower will notify the party to give Bank open access, at not cost to
Bank, to the records at all reasonable times and to provide Bank with
copies of any records it requests.
OPERATION OF BUSINESS
Borrower will comply with all applicable laws, ordinances, rules and
regulations; notify Bank in writing prior to any change in any aspect of
Borrower's business that directly or indirectly relates to any agreements
between Borrower and Bank; and permit Bank to inspect any and all of
Borrower's property.
Borrower will maintain fire, other hazard, public liability and such other
insurance policies as is customary for businesses similar to Borrower's,
each in form, amounts, coverages and with an Acceptable Insurance Company.
Borrower will not: (a) engage in any business activities substantially
different from those in which Borrower is presently engaged; (b) dissolve,
cease operations, liquidate, merge, transfer, acquire, or consolidate with
any other entity, or change ownership, location or name; (c) transfer or
sell any of its assets out of the ordinary course of business except for
fair consideration; (d) purchase or retire any of Borrower's outstanding
shares, or alter or amend Borrower's capital structure; and (e) if Borrower
is a Trust, terminate or revoke the Trust, in whole or in part.
HAZARDOUS SUBSTANCES
Borrower agrees that any use, generation, manufacture, storage, treatment,
disposal, release, or threatened release of any Hazardous Substance by any
occupant or user of any of Borrower's properties will be conducted in
compliance with all applicable federal, state, and local laws, regulations,
and ordinances. Bank and its agents may make any inspections and tests of
the properties that Bank considers appropriate in order to determine
compliance with this section of the Disclosure. Borrower will indemnify and
hold Bank harmless against any and all claims, losses, liabilities,
damages, penalties, and expenses that Bank may directly or indirectly
sustain or suffer as a consequence of any use, generation, manufacture,
storage, disposal, release, or threatened release occurring prior to or
during Borrower's ownership, control or interest in the properties, whether
or not this was or should have been known to Borrower. Borrower releases
and waives any future claims against Bank for damages, indemnity or
contribution in connection with Hazardous Substances. The provisions of
this section of the Disclosure, including the obligation to indemnify, will
survive the repayment of the Credit and the termination or expiration of
the Agreement and will not be affected by Bank's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
ADDITIONAL ASSURANCES
Borrower agrees to do all things deemed necessary by Bank in order to
evidence the Credit, cure any defects in the execution, delivery, or
substance of the Agreement, secure the Credit and perfect all security
interests (if any) granted to Bank.
1.3 GENERAL TERMS AND CONDITIONS
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EXTENSIONS, RENEWALS AND INCREASES
The Credit may be extended, renewed or increased at Bank's sole
discretion. Bank will notify Borrower in writing of any modifications and
the terms of any such modification will be deemed to have been accepted if
Borrower does not deliver to Bank a written rejection within 10 days from
the date of notification, or draws additional funds at any time following
the date of notification.
INTEREST
If Borrower fails to maintain its Primary Deposit Account with Bank or if
Bank is not able to collect all payments related to the Credit by charging
Borrower's deposit account with Bank, whether because Borrower cancels the
authorization to Bank to do so, or Borrower fails at any time to maintain
sufficient immediately available funds in the Primary Deposit Account, or
the account is closed by Borrower or Bank or for any other reason. Bank
may increase the interest rate up to one percent (1%) per annum
immediately or anytime thereafter and without notice.
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<PAGE> 11
Under no circumstances shall interest taken, reserved, contracted for,
charged or received under this loan exceed the maximum permitted by
applicable law. The Bank does not agree or intend to contract for, charge,
collect, reserve, take or receive any amount of interest, fees, penalties
or other charges, which would in any way or event (including demand,
prepayment, or acceleration) exceed the maximum permitted by applicable
law. Any excess interest shall be applied first to reduce the true
indebtedness, and any remaining excess interest or other unauthorized
amounts will be refunded. For Texas borrower's, all sums paid or agreed to
be paid to Bank for the use, forbearance or detention of sums due
hereunder shall be amortized prorated, allocated and spread throughout the
full term of the Credit, including renewals, if any, until payment in full
for purposes of determining the effective rate of interest.
PAYMENTS AND LATE CHARGES
Unless otherwise agreed, all sums received from Borrower may be applied to
interest, fees, principal or any other amounts due to Bank in any order at
Bank's sole discretion. For each payment of principal, interest and or
fees which has not been paid in full within fifteen days after its date
due. Borrower will pay to Bank a late charge of $15.00 or five percent
(5%) of the amount due, whichever is greater.
1.4 EVENTS OF DEFAULT
- --------------------------------------------------------------------------------
This section describes the events that, should they occur, would cause
Borrower to be in default of the Agreement: (a) Borrower fails to pay any
principal, interest, fees, or charges when due under the terms of the
Agreement; (b) a petition is filed by or against Borrower under the
Bankruptcy Code (Title 11 of the United States Code, as amended), or any
other law relating to bankruptcy, insolvency, reorganization, or other
relief for debtors; (c) a receiver, trustee, custodian, or liquidator of
any assets or property of Borrower is appointed; (d) Borrower becomes
insolvent, or makes a general assignment for the benefit of creditors, or
is generally not paying debts as they become due; (e) any property of
Borrower is attached, garnished, or similarly levied; (f) Borrower is
dissolved or liquidated; (g) Borrower dies or becomes incapacitated; (h)
a change in ownership of twenty-five percent (25%) or more of the common
stock/ownership interests of Borrower occurs; (i) if Borrower is a Trust,
a revocation or termination of the Trust or transfer of a substantial
part of the assets of the Trust occurs; (j) Borrower fails to comply with
all terms and conditions of the Agreement; (k) Borrower fails to comply
with all terms and conditions of any agreement with any bank or anyone
else, which failure may materially affect any of Borrower's property or
Borrower's ability to repay this Credit or perform Borrower's obligations
under this Credit or any of the Related Documents; (l) Bank, in good
faith, believes any or all of the Collateral is in danger or misuse,
dissipation, commingling, loss, theft, damage, or destruction, or is
otherwise in jeopardy or unsatisfactory in character or value; (m) Bank
believes the prospect of payment or performance under the Agreement is
impaired; or (n) if any of the preceding events occurs with respect to
any Guarantor, Grantor, or member or general partner of Borrower or with
respect to any party to any Related Documents, or any such party revokes
or disputes the validity of, or his/her/its liability under, any such
agreement.
1.5 BANK REMEDIES
- --------------------------------------------------------------------------------
If a default occurs: (a) any obligation of Bank to permit further
borrowings will immediately end and (b) Bank may, at its sole option,
declare the entire balance of principal, interest, fees, and charges
immediately due and payable. However, if the default is for bankruptcy or
insolvency, as described above, such acceleration will be automatic and
not optional; and (c) Bank may use any other remedies available to it
under the Agreement or otherwise provided by law.
To the extent not prohibited by applicable law, following acceleration
after default or the maturity of a Credit, Bank may at its option
increase the interest rate applicable to such Credit by up to five
percent (5%) per annum.
1.6 ARBITRATION
- --------------------------------------------------------------------------------
Bank, Borrower, and any other party to this Agreement agree to be bound
by the terms and provisions of Arbitration Program set forth in Appendix
B of this Disclosure, by which Disputes shall be resolved by binding
arbitration upon the request of any party.
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<PAGE> 12
1.6 MISCELLANEOUS
ADVANCES
With respect to disbursements and advances under the Credit, Borrower will
be liable for sums credited to any of Borrower's accounts with Bank or
advanced according to the written, verbal, telephone, or electronic
request of any person believed by Bank in good faith to be authorized to
make the request. Bank will have no liability for any such transfers.
Borrower will indemnify and hold Bank harmless from and against damages,
liabilities, costs or expenses (including attorney's fees) arising out of
any claim by Borrower or any third party against Bank in connection with
Bank's performance of transfers as described above.
CONSENT TO SELL THE CREDIT OBLIGATION
Borrower agrees: (a) Bank may sell or transfer all or part of the Credit
to one or more purchasers, whether related or unrelated to Bank; (b) Bank
may provide to any purchaser, or potential purchaser, any information or
knowledge Bank may have about Borrower or about any other matter relating
to this credit obligation, and Borrower waives any rights to privacy it
may have with respect to such matters; (c) the purchaser of a Credit will
be considered its absolute owner and will have all the rights granted
under the Agreement or agreements governing the sale of the Credit; and
(d) the purchaser of a Credit may enforce its interests irrespective of
any claims or defenses that Borrower may have against Bank.
Borrower waives all notices of sale of a Credit, as well as all notices of
any repurchase, and all rights of offset or counterclaim that Borrower may
have now or later against Bank or against any purchaser of a Credit.
DEPOSIT ACCOUNTS
Borrower grants to Bank a security interest in Borrower's accounts with
Bank (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however, all IRAs, Keogh
accounts, and trust accounts to the extent a security interest would be
invalid or prohibited by law.
OTHER
Time is of the essence in the performance of the Agreement. In addition,
Bank, Borrower, and any other party to this Agreement agree to be bound by
the miscellaneous provisions set forth in Appendix A of this Disclosure.
SECTION 2 SECURITY AGREEMENT
Grantor Grants Bank a security interest in Collateral as described in the
Confirmation Letter.
By signing the Confirmation Letter, Grantor agrees, unless otherwise
disclosed to and acknowledged by Bank in writing, that the following is
true now, and at the time of each advance will be true:
2.1 OBLIGATIONS SECURED
The obligations secured are the payment and performance of all present and
future Credits, all rights of Bank and obligations of Borrower and/or
Grantor under the Agreement, and all present and future obligations of
Borrower to Bank of other kinds.
2.2 REPRESENTATIONS MADE BY THE GRANTOR
Grantor represents: (a) Grantor owns the Collateral and has possession or
right of possession of the Collateral (other than rights to payment and
securities) and is not in the business of selling equipment of the kind
included within the Collateral; (b) Grantor has the right to pledge and
grant a security interest in the Collateral; (c) Collateral is genuine,
free from liens, adverse claims, setoffs, default, prepayment, defenses
and conditions precedent of any kind or character, except as previously
disclosed to Bank in writing; (d) insurance on the Collateral against all
risks commonly insured by owners of similar Collateral has been obtained
with loss payable to Bank; (e) no financing statement covering any of the
Collateral, and naming any secured party
4
<PAGE> 13
other than Bank, is on file in any public office; and (f) all information
furnished by Grantor to Bank is true and accurate in every significant
respect as of the date of the information. The foregoing representations
are continuing and shall remain true at all times until the Credit is paid
in full, or until this Agreement is terminated, whichever is the last to
occur.
2.3 RESPONSIBILITIES OF THE GRANTOR
- --------------------------------------------------------------------------------
GENERAL
While the Agreement is in effect, Grantor will; (a) indemnify Bank against
all losses, claims, demands, and liabilities of every kind caused by or
relating to the Collateral; (b) not change its chief place of business or
the place where any of the Collateral or Grantor's records concerning the
Collateral is kept, without giving Bank advance written notice of the new
address; (c) operate, maintain and use the Collateral in accordance with
all applicable statutes, rules, and regulations relating to the
Collateral; (d) pay when due all license fees, registration fees, and
other charges in connection with the Collateral; (e) not use the
Collateral for any unlawful purpose nor use it in any way that would void
any insurance required to be carried under the Agreement; (f) do all
things necessary to maintain, preserve and protect the Collateral; (g)
keep the Collateral in good and salable condition and repair; (h) deal
with the Collateral according to the standards and practices generally
adhered to by owners of similar Collateral; (i) maintain complete and
accurate records regarding all Collateral, in accordance with generally
accepted accounting principles, consistently applied; (j) not commingle
Collateral with other property; (k) give only normal allowances and
credits and, when they are given, advise Bank immediately in writing; (l)
provide any service and do all things necessary to keep the Collateral
free and clear of all defenses, rights of offset, and counterclaims; (m)
on demand, deliver to Bank returned property resulting from, or payment
equal to, any allowances or credits on rights to payment and execute such
documents and do such things as Bank may reasonably request for the
purpose of perfecting, preserving and enforcing its security interest in
such returned property; (n) from time to time when requested by Bank,
prepare and deliver a schedule of all rights to payment, inventory, and
proceeds and assign in writing and deliver to Bank all such Collateral;
(o) not remove the Collateral from Grantor's premises without the prior
written consent of Bank, unless the Collateral consists of mobile goods as
defined in the Uniform Commercial Code, in which case, Grantor agrees not
to remove or permit the removal of the Collateral from its present
location, as shown in the Confirmation Letter, for a period in excess of
thirty (30) calendar days; (p) not sell, offer to sell, hypothecate,
assign, rent, lease, charter or otherwise transfer the Collateral, or any
part of it or any interest in it, except sales in the ordinary course of
Grantor's business, without the prior written consent of Bank; (q) clean,
feed, shelter, water, medicate, fertilize, cultivate, irrigate, prune, and
otherwise deal with Collateral in accordance with the standards and
practices generally adhered to by owners of similar Collateral; and (r)
allow inspections of the Collateral by Bank or its agents.
INSURANCE
Per the terms of this Agreement, if so indicated in the Confirmation
Letter, Grantor agrees to provide Bank with copies of all insurance
policies covering the Collateral (or other proof that appropriate
insurance has been purchased) and maintain insurance on the Collateral
issued by an Acceptable Insurance Company against all risks commonly
insured by owners of similar Collateral at the lesser of the fair market
value of the Collateral or the loan amount, and specify Bank as the loss
payee with such lender's loss payable or other endorsements as Bank may
require.
WARNING: UNLESS YOU PROVIDE BANK WITH EVIDENCE OF THE INSURANCE COVERAGE
AS REQUIRED BY THIS AGREEMENT, BANK MAY PURCHASE INSURANCE AT YOUR EXPENSE
TO PROTECT BANK'S INTEREST. THIS INSURANCE MAY, BUT NEED NOT, ALSO PROTECT
YOUR INTEREST, IF A COVERED LOSS OR CLAIM OCCURS, THE COVERAGE BANK
PURCHASED MAY NOT PAY ANY CLAIM YOU MAKE OR ANY CLAIM MADE AGAINST YOU.
YOU MAY LATER CANCEL THIS COVERAGE BY PROVIDING EVIDENCE THAT YOU HAVE
OBTAINED PROPER COVERAGE ELSEWHERE.
YOU ARE RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY BANK. THE
COST OF THIS INSURANCE MAY BE ADDED TO YOUR LOAN BALANCE. IF THE COST IS
ADDED TO THE LOAN BALANCE, THE INTEREST RATE ON THE UNDERLYING LOAN WILL
APPLY TO THIS ADDED AMOUNT. THE EFFECTIVE DATE OF COVERAGE MAY BE THE DATE
YOUR PRIOR COVERAGE LAPSED OR THE DATE YOU FAILED TO PROVIDE PROOF OF
COVERAGE.
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<PAGE> 14
THE COVERAGE BANK PURCHASES MAY BE CONSIDERABLY MORE EXPENSIVE THAN
INSURANCE YOU CAN OBTAIN ON YOUR OWN AND MAY NOT SATISFY ANY NEED FOR
PROPERTY DAMAGE COVERAGE OR ANY STATE MANDATORY LIABILITY INSURANCE LAWS.
If Texas insurance law applies. YOU UNDERSTAND THAT INSURANCE IS REQUIRED
IN CONNECTION WITH THE LOAN AND THAT YOU MAY FURNISH THE REQUIRED INSURANCE
WHETHER THROUGH EXISTING POLICIES OWNED OR CONTROLLED BY YOU OR THROUGH
EQUIVALENT INSURANCE FROM ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT
BUSINESS IN THE STATE OF TEXAS IF INSURANCE IS OBTAINED BY BANK FOR SUCH
COLLATERAL AND IS SOLD FOR A PREMIUM NOT FIXED OR APPROVED BY THE TEXAS
STATE BOARD OF INSURANCE. YOU WILL BE SO NOTIFIED AT THE TIME OF PURCHASE
THEREOF AND MAY CANCEL SUCH INSURANCE WITHOUT CHARGE WITHIN FIVE (5) DAYS
FROM THE DATE OF SUCH NOTICE IF YOU PROVIDE SUBSTITUTE EQUIVALENT COVERAGE
FROM A COMPANY AUTHORIZED TO TRANSACT BUSINESS IN TEXAS.
2.4 POWERS OF BANK
Grantor authorizes Bank to do the following: (a) Perform any obligation of
Grantor under the Agreement in Grantor's name or otherwise: (b) Give notice
of Bank's rights in the Collateral, enforce those rights, and make
extension agreements with respect to them; (c) Release Collateral; (d)
Resort to Collateral in any order; (e) Receive, open and read mail
addressed to Grantor; (f) Take cash, notes, and instruments for the payment
of money, and other property to which Bank is entitled; (g) Verify facts
concerning the Collateral by inquiry of the obligors or others in Bank's
own name or a fictitious name; and (h) Exercise all rights, powers and
remedies which Grantor would have - but for the Agreement - relating to the
Collateral subject to the Agreement.
Grantor appoints Bank its true attorney in fact to perform the following
actions on behalf of Grantor; (a) release persons liable on Collateral,
give receipts and acquittances, and compromise disputes in connection with
Collateral; (b) prepare, execute, file, record, or deliver credits,
assignments, schedules, designation statements, financing statements,
continuation statements, termination statements, statements of assignment,
applications for registration, or like papers to perfect, preserve, or
release Bank's interests in the Collateral; (c) endorse, collect, deliver,
and receive payment under instruments for the payment of money constituting
or relating to Collateral; (d) prepare, adjust, execute, deliver, and
receive payment under insurance claims; collect and receive payment of -
and endorse any instrument in payment of - loss or returned premiums or any
other insurance refund or return; and apply such amounts received by Bank,
at Bank's sole option, toward repayment of the Credit or replacement of the
Collateral; (e) make withdrawals from and close deposit or other accounts
with any financial institution, wherever located, into which Collateral may
have been deposited, and apply those funds to payment of the Credit; (f)
preserve or release the interest evidenced by chattel paper to which Bank
is entitled and endorse and deliver evidences of title incident thereto;
(g) collect all dividends, interest, principal or other sums now or in the
future payable upon or on account of the Collateral; (h) enter into any
extension, reorganization, deposit, merger, or consolidation agreement, or
any other agreement relating to or affecting the Collateral, and in
connection with such agreement, deposit or surrender control of the
Collateral, accept other property in exchange for Collateral, or make any
compromise or settlement Bank deems desirable or proper regarding the
Collateral; (i) cause any Collateral to be transferred to Bank's name or
the name of Bank's nominee; and (j) do all things - and execute all
documents in the name of Grantor or otherwise - Bank deems necessary,
proper, or convenient in order to preserve, perfect, or enforce its rights
in the Collateral.
Bank's officers and employees may exercise these powers from time to time,
whether or not Borrower is in default. Grantor may not revoke these powers
so long as the Agreement is in effect.
2.5 BANK's CARE AND DELIVERY
Bank's obligation with respect to Collateral in its possession will be
strictly limited to taking reasonable care of and preserving the
Collateral. Bank will have no obligation to ascertain, take any action with
respect to, or inform Grantor of maturity dates, conversion, call, exchange
rights, offers to purchase the Collateral or any similar matters whether or
not Bank has any knowledge of them.
Bank will have no duty to take any steps necessary to preserve the rights
of Grantor against prior parties, or to initiate any action to protect
against the possibility of a decline in the market value of the Collateral.
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<PAGE> 15
Bank will not be obligated to take any action with respect to the
Collateral requested by Grantor unless the request is made in writing and
Bank determines, in its sole discretion, that the action would not
unreasonably jeopardize the value of the Collateral. Bank may at any time
deliver the Collateral, or any part of it, to any Grantor, and the receipt
thereof by any Grantor will be a complete and full acquittance for the
Collateral delivered. Bank will then have no further liability or
responsibility for the Collateral delivered.
2.6 REMEDIES
- -------------------------------------------------------------------------------
If a default occurs Bank may: (a) direct Grantor not to dispose of the
Collateral except on terms approved by Bank; (b) direct Grantor to
assemble and deliver all Collateral and related books and records to Bank
at a reasonably convenient place designated by Bank; (c) to the extent
allowable by the law, Bank may, without notice to Grantor, enter on to
Grantor's premises and take possession of the Collateral; (d) at any time
and at Bank's sole option, liquidate any time deposits pledged to Bank,
whether or not the deposits have matured and notwithstanding the fact that
such liquidation may give rise to penalties for early withdrawal of funds;
(e) liquidate the Collateral and apply all Proceeds toward repayment of
the credit obligation in such order of application as Bank may from time
to time elect or, at Bank's sole option, place any Proceeds in the cash
collateral account; (f) without notice to Grantor, enter on to Grantor's
premises and care for and harvest any or Grantor's Collateral that is
growing crops, with all expenses of care and harvesting to be paid by
Grantor; and (g) exercise all rights of a secured party under the
Commercial Code and other applicable law.
To the extent allowable by the law, it is agreed that public or private
sales (for cash or on credit, to a wholesaler, retailer, investor, or user
of collateral of the types subject to the Agreement) or public auction are
all commercially reasonable.
2.7 DISPOSITION OF COLLATERAL
- -------------------------------------------------------------------------------
Any proceeds of any disposition of any of the Collateral may be applied by
Bank to the payment of expenses incurred by Bank in connection with the
disposition, including reasonable attorney's fees; the balance of such
proceeds may be applied by Bank toward the payment of the Credit and in
such order of application as Bank may from time to time elect. Any money
received by Bank in respect of the Collateral will, for all purposes, be
deemed Collateral and may, at Bank's option, be retained in a non-interest
bearing cash collateral account. While Borrower is not in default, Bank
will -- except to the amount of contingent liabilities secured -- either
release or apply to any debt secured by the Agreement, at Bank's option,
all security in the form of cash or irrevocable bank credit. Any sums
withheld to secure contingent liabilities may be deposited at Bank's
option in a non-interest bearing account over which Grantor will have no
control.
2.8 TRANSFER OF COLLATERAL
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Upon the transfer of all or any part of the Credit, Bank may transfer all
or any part of the Collateral and will have no liability and
responsibility with respect to the Collateral so transferred. The
transferee will be vested with all the rights of Bank under the Agreement
with respect to the Collateral; but with respect to any part of the
Collateral not transferred. Bank shall retain all rights, powers,
privileges and remedies granted under this Agreement.
2.9 ARBITRATION
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Bank, Grantor, and any other party to this Agreement agree to be bound by
the terms and provisions of Arbitration Program set forth in Appendix B of
this Disclosure, by which Disputes shall be resolved by binding
arbitration upon the request of any party.
2.10 MISCELLANEOUS
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The obligations of Grantor are joint and several. Grantor hereby waives
any right to require Bank to make any presentment or demand, or give any
notice of nonpayment or nonperformance, protest, notice of protest, notice
of dishonor, notice of intention to accelerate or notice of acceleration
hereunder, to direct the application of payments or security for credit
obligation(s) of Borrower under the Agreement, or indebtedness owed to
customers of Borrower, and to require proceedings against others or to
require exhaustion of security.
Grantor consents to extensions, forbearances, or alterations of the terms
of the Credit, the release or substitution of Collateral, and the release
of Guarantors.
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Until the Credit is paid in full, Grantor will have no right of
subrogation or contribution, and Grantor hereby waives any benefit of or
any right to participate in any Collateral or other security whatsoever
now or hereafter held by Bank.
In addition, Bank, Grantor, and any other party to this Agreement agree to
be bound by the miscellaneous provisions set forth in Appendix A of this
Disclosure.
2.11 ADDITIONAL TERMS FOR SPECIFIC TYPES OF COLLATERAL
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The following additional terms and conditions apply only to specific types
of Collateral and are in addition to -- and not a substitute for -- those
listed in the other sections of this Disclosure.
INVENTORY
RESPONSIBILITIES OF GRANTOR:
Grantor agrees: (a) not to remove inventory from Grantor's premises
without the prior written consent of Bank and upon such terms and
conditions as Bank may require -- except sales to buyers in the ordinary
course of business and inventory that consists of mobile goods as defined
in the Uniform Commercial Code, in which case, Grantor agrees not to
remove or permit the removal of the inventory from its current location as
shown in the Confirmation Letter for a period in excess of thirty (30)
calendar days; and (b) to furnish reports to Bank of all acquisitions,
returns, sales, and other dispositions of the inventory in such form and
detail and at such times as Bank may require.
REMEDIES:
With respect to any sale by Bank of any inventory subject to the
Agreement, Grantor expressly grants to Bank the right to sell the
inventory using any or all of Grantor's trade names, trade name rights,
and/or proprietary labels or marks.
SECURITIES
RESPONSIBILITIES OF GRANTOR:
Grantor agrees: (a) to vote the securities and to give consents, waivers,
and ratifications with respect to them -- provided that no vote will be
cast or consent, waiver or ratification given or action taken that would
impair Bank's interests in the Collateral; (b) if requested by Bank, to
receive and use reasonable diligence to collect securities, rights to
payment, and proceeds, in trust and as the property of Bank, and
immediately endorse (if appropriate) and deliver them to Bank daily in the
exact form in which they are received together with a collection report in
a form satisfactory to Bank; and (c) in the event Bank elects to receive
payments of securities, rights to payment, or proceeds, to pay all expenses
incurred by Bank in receiving and processing them, including expenses of
accounting, correspondence, collection efforts, reporting to account or
contract debtors, filing, recording, record keeping, and incidental related
expenses.
REMEDIES:
If an event of default has occurred and is continuing, Bank will be under
no obligation to delay a sale of any portion of the securities for the
period of time necessary to permit the issuer of the securities to
register them for public sale under any applicable state or federal law --
even if the issuer would agree to do so. Any or all Collateral consisting
of securities may be registered, without notice, in the name of Bank or
its nominee, and thereafter Bank or its nominee may exercise, without
notice: (a) all voting and corporate rights at any meeting of the
shareholders of the securities issuer; and (b) any and all rights of
conversion, exchange, or subscription, or any other rights, privileges or
options pertaining to any Collateral, as if it were the absolute owner of
the securities. The foregoing shall include, without limitation, the right
of Bank or its nominee to exchange, at its discretion, any and all
Collateral upon the merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof, or upon the
exercise by the issuer thereof or Bank of any right, privilege or option
pertaining to any shares of the Collateral, and in connection therewith,
the right to deposit and deliver any and all of the Collateral with any
committee, depository, transfer agent, registrar or other designated
agency upon such terms and conditions as Bank may determine.
All of these rights, privileges, and options may be exercised without
liability, except to account for property actually received by Bank. Bank
will have no duty to exercise any of the foregoing -- or any other rights,
privileges, or options -- and will not be responsible for any failure to
do so or delay in so doing.
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SECTION 3 GUARANTY
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By signing the Confirmation Letter, Guarantor agrees, unless otherwise
disclosed to and acknowledged by Bank in writing, that the following is true
now, and at the time of each advance will be true:
3.1 CONTINUING GUARANTY
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For valuable consideration, Guarantor absolutely and unconditionally
guarantees and promises to pay to Bank or its order, the indebtedness of
Borrower to Bank on the terms and conditions set forth in the Agreement.
IF MORE THAN ONE GUARANTOR EXECUTES THE AGREEMENT, THE LIABILITY OF EACH
AND EVERY GUARANTOR (COLLECTIVELY REFERRED TO HEREIN AS "GUARANTOR") SHALL
BE JOINT AND SEVERAL. The maximum liability of each Guarantor under this
Agreement shall not exceed the sum of the principal amount set forth in
the Confirmation Letter for such Guarantor, plus all interest thereon,
plus all of Bank's costs, expenses, and attorney's fees incurred in
connection with or relating to the collection of the Indebtedness, the
collection and sale of any collateral for the Indebtedness or this
Agreement, and the enforcement of this Agreement.
The above limitation on liability is not a restriction on the amount of
the Indebtedness of Borrower to Bank either in the aggregate or at any one
time. If Bank presently holds one or more guaranties, or hereafter
receives additional guaranties from Guarantor, the rights of Bank under
all guaranties shall be cumulative. This Guaranty shall not (unless
specifically provided below to the contrary) affect or invalidate any such
other guaranties. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guaranty at all times the performance and prompt payment when
due, whether at maturity or earlier by reason of acceleration or
otherwise, of all Indebtedness within the limits (if any) of the Guaranty
set forth in this Agreement. Accordingly, no payments made upon the
Indebtedness will discharge or diminish the continuing liability of
Guarantor in connection with any remaining portions of the Indebtedness or
any of the Indebtedness which subsequently arises or is thereafter
incurred or contracted. Any married person who signs this Guaranty as the
Guarantor hereby expressly agrees that recourse may be had against both
his or her separate property and community property.
3.2 DURATION OF GUARANTY
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This Guaranty will take effect when received by Bank without the necessity
of any acceptance by Bank, or any notice to Guarantor or to Borrower, and
will continue in full force until all Indebtedness incurred or contracted
before receipt by Bank or any notice of revocation shall have been fully
and finally paid and satisfied, and all other obligations of Guarantor
under this Guaranty shall have been performed in full.
If Guarantor elects to revoke this Guaranty, Guarantor may only do so in
writing. Guarantor's written notice of revocation must be mailed to Bank,
by certified mail, at the address of Bank listed on the Confirmation
Letter or such other place as Bank may designate in writing. Written
revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Bank of Guarantor's written
revocation. For this purpose and without limitation, the term "new
Indebtedness" does not include Indebtedness which at the time of notice of
revocation is contingent, unliquidated, undetermined or not due and which
later becomes absolute, liquidated, determined or due. This Guaranty will
continue to bind Guarantor for all Indebtedness incurred by Borrower or
committed by Bank prior to receipt of Guarantor's written notice of
revocation, including any extensions, renewals, substitutions or
modifications of such Indebtedness.
This Guaranty shall bind the estate of Guarantor as to Indebtedness
created both before and after the death or incapacity of Guarantor,
regardless of Bank's actual notice of Guarantor's death. Subject to the
foregoing, Guarantor's executor or administrator or other legal
representative may terminate this Guaranty in the same manner in which
Guarantor might have terminated it and with the same effect. Release of
any other Guarantor or termination of any other Guaranty of the
Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Bank from any one or more Guarantor's
shall not affect the liability of any remaining Guarantor(s) under
this Guaranty.
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<PAGE> 18
it is anticipated that fluctuations may occur in the aggregate amount of
Indebtedness covered by this Guaranty and it is specifically acknowledged
and agreed by Guarantor that reductions in the amount of Indebtedness even
to zero dollars ($0.00), prior to written revocation in this Guaranty by
Guarantor shall not constitute a termination of this Guaranty.
3.3 GUARANTOR'S AUTHORIZATION TO BANK
Guarantor authorizes Bank, either before or after any revocation hereof,
without notice or demand and without lessening Guarantor's liability under
this Guaranty, from time to time: (a) prior to revocation as set forth
above to make one or more additional secured or unsecured loans to
Borrower, to lease property to Borrower, or otherwise to extend additional
credit to Borrower; (b) to alter, compromise, renew, extend, accelerate or
otherwise change the time for payment or other terms of the Indebtedness
or any part of the Indebtedness including increases and decreases of the
rate of interest on the Indebtedness; extensions may be repeated and may
be for longer than the original loan term; (c) to take and hold security
for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fail or decide not to perfect, and release any
such security, with or without the substitution of new Collateral; (d) to
release, substitute, agree not to sue, settle or deal with any one or more
of Borrower's sureties, endorsers or other Guarantors on any terms or in
any manner Bank may choose; (e) to determine how, when and what
application of payments and credits shall be made on the Indebtedness;
(f) to apply such security and direct the order or manner of sale thereof,
including without limitation, any nonjudicial sale permitted by the terms
of any security agreement or deed of trust, as Bank in its discretion may
determine; and (g) to assign or transfer this Guaranty in whole or in part.
3.4 GUARANTOR'S REPRESENTATIONS AND WARRANTIES
Guarantor represents and warrants to Bank that: (a) no representations or
agreements of any kind have been made to Guarantor as to the credit
worthiness of Borrower which would limit or qualify in any way the terms of
this Guaranty; (b) upon Bank's request Guarantor will provide to Bank
financial and credit information in form acceptable to Bank, and all such
financial information which currently has been, and all future financial
information which will be provided to Bank is and will be true and correct
in all material respects and fairly present the financial condition of
Guarantor as of the dates the financial information is provided; (c) no
material adverse change has occurred in Guarantor's financial condition
since the date of the most recent financial statements provided to Bank and
no event has occurred which may materially adversely affect Guarantor's
financial condition, and Guarantor agrees to the extent possible to not do
or allow anything in the future which would adversely affect the
Guarantor's financial condition; and (d) Guarantor has established adequate
means of obtaining from Borrower on a continuing basis information
regarding Borrower's financial condition and will keep adequately informed
from such means of any facts, events or circumstances which might in any
way affect Guarantor's risks under this Guaranty. Bank shall have no
obligation to disclose to Guarantor any information or documents acquired
by Bank in the course of its relationship with Borrower.
3.5 GUARANTOR'S WAIVERS
Except as prohibited by applicable law, Guarantor waives any right to
require Bank to: (a) make any presentmemt, protest, demand or notice of
any kind, including notice of change of any terms of repayment of the
Indebtedness, default by Borrower or any other guarantor or surety, any
action or nonaction taken by Borrower, Bank or any other guarantor or
surety of Borrower, or the creation of new or additional Indebtedness;
(b) proceed against any Collateral or any person, including Borrower,
before proceeding against Guarantor; (c) apply any payments or proceeds
received against the Indebtedness in any order; (d) give notice of the
terms, time and place of any sale of the Collateral pursuant to the Uniform
Commercial Code or any other law governing such sale; (e) disclose any
information about the Indebtedness, Borrower, the Collateral, or any other
guarantor or surety, or about any action or nonaction of Bank; or
(f) pursue any remedy or course of action in Bank's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of:
(a) any disability or other defense of Borrower, any other guarantor or
surety or any other person; (b) the cessation from any cause whatsoever,
other than payment in full, of the Indebtedness; (c) the application of
proceeds of the Indebtedness by Borrower for purposes other than the
purposes understood and intended by Guarantor and Bank; (d) any act of
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<PAGE> 19
omission or commission by Bank which directly or indirectly results in or
contributes to the discharge of Borrower or any other guarantor or surety,
or the Indebtedness, or the loss or release of any Collateral by operation
of law or otherwise: (e) any statutes of limitations in any action under
this Guaranty or on the Indebtedness; or (f) any modification or change in
terms of the Indebtedness whatsoever, including without limitation, the
renewal, extension, acceleration or other change in the time payment of the
Indebtedness is due and any change in the interest rate, and including any
such modification or change in terms after revocation of this Guaranty on
Indebtedness incurred prior to such revocation.
Until all Indebtedness is paid in full, Guarantor waives all rights and any
defenses Guarantor may have arising out of an election of remedies by Bank
even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for a guarantied obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower or any
other guarantor or surety by operation of Section 580a, 580b, 580d and 726
of the California Code of Civil Procedure or otherwise. This waiver
includes, without limitation, any loss of rights Guarantor may suffer by
reason of any rights or protections of Borrower in connection with any
anti-deficiency laws or other laws limiting or discharging the Indebtedness
or Borrower's obligations (including, without limitation, Sections 726,
580a, 580b, and 580d of the California Code of Civil Procedure). Guarantor
waives all rights and protections of any kind which Guarantor may have for
any reason, which would affect or limit the amount of any recovery by Bank
from Guarantor following a nonjudicial sale or judicial foreclosure of any
real or personal property security for the Indebtedness including, but not
limited to, the right to any fair market value hearing pursuant to
California Code of Civil Procedure Section 580a.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be
entitled under state and federal law. The rights and defenses waived
include, without limitation, those provided by California laws of
suretyship and guaranty, anti-deficiency laws, and the Uniform Commercial
Code. Guarantor acknowledges that Guarantor has provided these waivers of
rights and defenses with the intention that they be fully relied upon by
Bank. Until all Indebtedness is paid in full, Guarantor waives any right to
enforce any remedy Bank may have against Borrower or any other guarantor,
surety, or other person, and further, Guarantor waives any right to
participate in any Collateral for the Indebtedness now or hereafter held by
Bank.
Guarantor warrants and agrees that each of the waivers set forth above is
made with Guarantor's full knowledge of its significance and consequences
and that under the circumstances, the waivers are reasonable and not
contrary to public policy or law. If any such waiver is determined to be
contrary to any applicable law or public policy, such waiver shall be
effective only to the extent permitted by law or public policy.
3.6 BANK'S RIGHT OF SETOFF
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In addition to all liens upon and rights of setoff against the moneys,
securities or other property of Guarantor given to Bank by law, Bank shall
have, with respect to Guarantor's obligations to Bank under this Guaranty
and to the extent permitted by law, a contractual possessory security
interest in and a right of setoff against, and Guarantor hereby assigns,
conveys, delivers, pledges and transfers to Bank all of Guarantor's right,
title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession or on deposit
with Bank, whether held in a general or special account or deposit, whether
held jointly with someone else, or whether held for safekeeping or
otherwise, excluding however all IRA and Keogh accounts. Every such
security interest and right of setoff may be exercised without demand upon
or notice to Guarantor.
3.7 SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR
- -------------------------------------------------------------------------------
Guarantor agrees that the Indebtedness of Borrower to Bank, whether now
existing or hereafter created, shall be prior to any claim that Guarantor
may now have or hereafter acquire against Borrower, whether or not Borrower
becomes insolvent. Guarantor hereby expressly subordinates any claim
Guarantor may have against Borrower, upon any account whatsoever, to any
claim that Bank may now or hereafter have against Borrower. In the event of
insolvency and consequent liquidation of the assets of Borrower, through
bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation, or otherwise, the assets of Borrower applicable to the payment
of the claims of both Bank and Guarantor shall be paid to Bank and shall
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<PAGE> 20
be first applied by Bank to the indebtedness of Borrower to Bank.
Guarantor does hereby assign to Bank all claims which it may have or
acquire against Borrower or against any assignee or trustee in bankruptcy
of Borrower; provided however, that such assignment shall be effective
only for the purpose of assuring to Bank full payment in legal tender of
the Indebtedness. If Bank so requests, any notes or credit agreements now
or hereafter evidencing any debts or obligations of Borrower to Guarantor
shall be marked with a legend that the same are subject to this Guaranty
and shall be delivered to Bank. Guarantor agrees, and Bank hereby is
authorized, in the name of Guarantor, from time to time to execute and
file financing statements and continuation statements and to execute such
other documents and to take such other actions as Bank deems necessary or
appropriate to perfect, preserve and enforce its rights under this
Guaranty.
3.8 ARBITRATION
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Bank, Guarantor, and any other party to this Agreement agree to be bound
by the terms and provisions of Arbitration Program set forth in Appendix B
of this Disclosure, by which Disputes shall be resolved by binding
arbitration upon the request of any party.
3.9 MISCELLANEOUS
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The following miscellaneous provisions are a part of this Guaranty:
The obligations of Guarantor are joint and several. Guarantor hereby
waives any right to require Bank to make any presentment or demand, or
give any notice of nonpayment or nonperformance, protest, notice of
protest, notice of dishonor, notice of intention to accelerate or notice
of acceleration hereunder, to direct the application of payments or
security for credit obligation(s) of Borrower under the Agreement, or
indebtedness owed to customers of Borrower, and to require proceedings
against others or to require exhaustion of security.
Guarantor consents to extensions, forbearances, or alterations of the
terms of the Credit, the release or substitution of Collateral, and the
release of Borrower, Grantor, and any Guarantors.
Until the Credit is paid in full, Guarantor will have no right of
subrogation or contribution, and Guarantor hereby waives any benefit of or
any right to participate in any Collateral or other security whatsoever
now or hereafter held by Bank.
In addition, Bank, Guarantor, and any other party to this Agreement agree
to be bound by the miscellaneous provisions set forth in Appendix A of
this Disclosure.
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APPENDIX A MISCELLANEOUS PROVISIONS
- --------------------------------------------------------------------------------
In addition to the general terms and conditions set forth above, the following
additional provisions are included as a part of Sections 1, 2, and 3 of this
Business Lending Disclosure, wherein the term "you" means and refers to
Borrower, Grantor, and Guarantor, respectively.
CREDIT INQUIRIES
You and any of your Authorized Representative signing the Confirmation Letter
agree that Bank may obtain business and/or personal credit reports and tax
returns on you and each of them.
INTEGRATION, AMENDMENT, ASSIGNMENT
This Agreement supersedes all prior negotiations, communications, discussions,
and correspondence concerning these matters. The terms of this Agreement may be
amended or modified only by a written instrument signed by both Bank and the
party or parties to be bound by the change. This Agreement will be binding on
and may be enforced by the respective successors, assigns, administrators,
executors and heirs of you and Bank; however, you may not assign or transfer
any interest or rights without the prior written consent of Bank.
APPLICABLE LAW
If the Confirmation Letter identifies Bank as Wells Fargo Bank, N.A., this
Agreement will be governed by the laws of the State of California and
applicable federal law. If the Confirmation Letter identifies Bank as Wells
Fargo Bank (Texas), N.A., this Agreement will be governed by the laws of the
State of Texas and applicable federal law, with respect to lines of credit, the
parties agree that Chapter 15 of the Texas Credit Code shall not apply. To the
extent that Bank has greater rights or remedies under federal law, the choice
of state law will not be deemed to deprive Bank of the rights and remedies
available under federal law. If the Bank enforces its rights and/or initiates
collection of any amounts that become due to Bank under the Agreement, to the
extent that Bank has greater rights or remedies under the law of the forum
state, the choice of state law will not be deemed to deprive Bank of the rights
and remedies available under the law of the forum state.
ATTORNEY'S FEES AND EXPENSES
You agree to pay upon demand all of Bank's costs and expenses incurred in
connection with the enforcement of the Bank's rights regarding your obligations
under this Agreement, including attorney's fees, Bank's legal expenses, amounts
paid to third parties that assist the Bank in such enforcement efforts, and any
other costs and expenses of such enforcement efforts. Costs and expenses
include, among other things, Bank's attorney's fees (outside counsel fees as
well as allocated costs of Bank's in-house counsel), and legal expenses whether
or not there is a lawsuit, including attorney's fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services, to the extent allowed by applicable law. You also shall pay any
court costs and such additional fees as may be directed by the court or
arbitrator. Any amounts not immediately paid shall accrue interest at the
interest rate applicable to the Credit.
OBLIGATIONS OF MARRIED PERSONS
In addition to the rights of Bank under applicable community property laws,
anyone signing the Confirmation Letter who is married expressly agrees that
recourse may be had against his or her separate property for all of his or her
obligations to Bank, in addition to the other property that may be subject to
rights of Bank.
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NOTICES
All notices, requests, and demands required under the Agreement must be in
writing addressed to the applicable party at the address specified in the
Confirmation Letter or Related Document(s), as applicable, or to another
address as designated by written notice to the other party, and will be
deemed to have been given or made upon the earlier of: when actually
delivered physically or by facsimile and received at the address specified:
or two days being deposited in the United States mail, first class postage
prepaid: or two days after being given to a nationally recognized courier
service, delivery prepaid. You agree to keep Bank informed at all times of
your current address and the address of the Collateral.
INTERPRETATION
In all cases where there is more than one Borrower, Grantor or Guarantor,
then all words used in this Agreement in the singular shall be deemed to
have been used in the plural where the context and construction so require:
and where there is more than one Borrower, Grantor or Guarantor named in
this Agreement or when this Agreement is executed by more than one Borrower,
Grantor or Guarantor, the word "Borrower", "Grantor", and "Guarantor" shall
mean all and any one or more of them. If any provision of this Agreement is
held to be prohibited or invalid under applicable law, the provision will be
ineffective only to the extent of such prohibition or invalidity - and will
not invalidate the remainder of the provision or any other provisions of
this Agreement. Caption headings in this Agreement are for convenience
purposes only and are not be used to interpret or define the provisions of
this Agreement.
AUTHORITY OF SIGNERS
If any one or more of you are corporations or partnerships, it is not
necessary for Bank to inquire into the powers of such entities or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf; and any indebtedness and agreements made or created in
reliance upon the professed exercise of such powers shall be valid and
enforceable.
WAIVER
Bank shall not be deemed to have waived any rights under this Agreement
unless such waiver is given in writing and signed by Bank. No delay or
omission on the part of Bank in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Bank of a provision of
this Agreement shall not prejudice or constitute a waiver of Bank's right
otherwise to demand strict compliance with that provision or any other
provision of this Agreement. No prior waiver by Bank, nor any course of
dealing between you and Bank, shall constitute a waiver of any of Bank's
rights or of any of your obligations as to any future transactions. Whenever
the consent of Bank is required under this Agreement, the granting of such
consent by Bank in any instance shall not constitute continuing consent to
subsequent instances where such consent is required and in all cases such
consent may be granted or withheld in the sole discretion of Bank.
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APPENDIX B ARBITRATION PROGRAM
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In addition to the General Terms and Conditions set forth above, the following
terms and conditions also apply to the Disclosure, Confirmation Letter, and
other Related Documents.
BINDING ARBITRATION
Any of the Bank, Borrower, Guarantor, Grantor, or any other party to the
Disclosure, the Confirmation Letter, or any other Related Document may
require that any Dispute be resolved by binding arbitration in accordance
with the terms of this Arbitration Program, administered by the American
Arbitration Association (the "AAA") pursuant to its Commercial Arbitration
Rules and the Federal Arbitration Act (Title 9 of the United States Code).
DISPUTES SUBMITTED TO ARBITRATION ARE NOT RESOLVED IN COURT BY A JUDGE OR
JURY. Any party who fails to submit to binding arbitration following a
lawful demand by the opposing party shall bear all costs and expenses
incurred by the opposing party in compelling arbitration of a Dispute.
Arbitration may be demanded at any time, and may be compelled by summary
proceedings in Court.
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ARBITRATORS; PRESERVATION OF REMEDIES
A Dispute involving claims or amounts in controversy of $5,000,000 or less
shall be decided by a single arbitrator who shall not render an award of
greater than $5,000,000 (including damages, costs, fees and expenses), and
each party expressly waives any right or claim to recover more than
$5,000,000 in such cases. A Dispute involving greater amounts shall be
heard by and decided by a majority vote of a panel of three (3)
arbitrators. Every arbitrator must be a retired member of the state or
federal judiciary or a practicing attorney experienced and knowledgeable
in the substantive laws applicable to the subject matter of the Dispute.
Arbitrator(s) (i) may grant any remedy or relief within the scope hereof
that a court of competent jurisdiction could, including ancillary relief
as is necessary to make effective any award, (ii) shall have the power to
award recovery of all costs and fees, and (iii) may impose sanctions and
take other actions as they deem necessary to the same extent a judge
could. The determination of the arbitrator(s) shall be binding on all
parties and shall not be subject to further review or appeal except as
otherwise allowed by applicable law. Judgment upon an award made hereunder
may be entered in any court having jurisdiction. Any claim or dispute
related to the exercise of any self-help, auxiliary or other rights under
this paragraph shall be a Dispute hereunder. However, no provision of, nor
the exercise of any rights under, this Arbitration Program shall limit the
right of any party to seek, use, and employ ancillary or preliminary
remedies, judicial or otherwise, for the purposes of (i) preserving,
foreclosing, or obtaining possession of real or personal property, (ii)
exercising self-help remedies including setoff and repossession rights, or
(iii) obtaining provisional or ancillary remedies such as injunctive
relief, sequestration, attachment, garnishment, or the appointment of a
receiver from a court having jurisdiction. Such rights can be exercised at
any time, unless contrary to a final award or decision in an arbitration
proceeding, and shall not constitute a waiver of the arbitration rights of
any party. The involvement of any party in judicial or other proceedings
as plaintiff or in any other capacity shall not impair such party's rights
to demand arbitration of the Dispute at any reasonable time. Any party may
proceed against all liable persons, or against any one or more of them,
and may release or settle with any of them, without impairing rights
against other liable persons.
JUDICIAL REVIEW; REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE
Notwithstanding anything herein to the contrary, in any arbitration in
which the amount in controversy exceeds $25,000,000, the arbitrators shall
be required to make specific, written findings of fact and conclusions of
law. In such arbitrations (i) the arbitrators shall not have the power to
make any award which is not supported by substantial evidence or which is
based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under applicable substantive law, and
(iii) the parties shall have, in addition to the grounds referred to in
the Federal Arbitration Act for vacating, modifying or correcting an
award, the right to judicial review of whether the findings of fact
rendered by the arbitrators are supported by substantial evidence, and
whether the conclusions of law are erroneous under applicable substantive
law. Judgment confirming an award in such a proceeding may be entered only
if a court determines the award is supported by substantial evidence and
not based on legal error under applicable substantive law. Notwithstanding
contrary provisions herein, no Dispute shall be submitted to arbitration
if the Dispute concerns indebtedness secured by real property and if
arbitration of the Dispute would preclude enforcement of a mortgage, lien
or security interest securing such indebtedness, unless the holder of such
mortgage, lien or security interest specifically elects in writing to
proceed with the arbitration. If such a Dispute is not submitted to
arbitration under such circumstances, the Dispute shall be determined by
Judicial Reference at the election of any Party. If such an election is
made, the Dispute shall be determined by a reference in accordance with
California Code of Civil Procedure Section 638, et seq., or the judicial
reference procedures of some other state if such state in which the real
property is located offers a comparable judicial reference procedure. A
referee shall be selected pursuant to AAA procedures and must meet the
selection criteria set forth herein for an arbitrator.
MISCELLANEOUS
To the maximum extent practicable, the AAA, the arbitrator and the parties
shall act to assure that any arbitration proceeding shall be concluded
within 180 days of the filing of the Dispute with the AAA. Arbitration
proceedings hereunder shall be conducted at a location mutually agreeable
to the parties, or if they cannot agree, then in the state of the
applicable substantive law designated in the Documents relating to the
Dispute at a location selected by the AAA. All discovery activities shall
be expressly limited to matters directly relevant
15
<PAGE> 24
to the Dispute. No party or arbitrator may disclose the existence,
content or results of any arbitration hereunder, except for disclosures
of information required in the ordinary course of a party's business or
by applicable law or regulation. The parties agree that by engaging in
activities with or involving each other as described above, they are
participating in transactions involving interstate commerce. This
Arbitration Program shall be administered and construed in accordance
with the Federal Arbitration Act, other applicable Federal law, and to
the extent inapplicable or unenforceable, other applicable law providing
for arbitration. If there is any inconsistency between the terms hereof
and any governing rules or statutes, the terms hereof shall control. This
Arbitration Program constitutes the entire agreement of the parties and
supersedes all prior arrangements and other communications on dispute
resolution concerning Disputes relating to the Business Banking Group of
Bank. In the event more than one arbitration program entered into by the
parties is potentially applicable to a Dispute, the one most directly
related to the Documents or transaction that is the subject of the
Dispute shall control. The provisions of this Arbitration Program shall
survive any termination, amendment, or expiration of the Documents or
relationships of the parties.
- --------------------------------------------------------------------------------
APPENDIX C TRADE FINANCE SUBFEATURE
- --------------------------------------------------------------------------------
In addition to the General Terms and Conditions set forth above, the following
terms and conditions also apply to Trade Finance Subfeature (if any)
established in the Confirmation Letter.
LETTERS OF CREDIT
Bank agrees to issue -- or cause to be issued by an affiliate of Bank --
commercial and/or stand-by letters of credit for the account of Borrower from
time to time during the term of the Agreement.
- - The form and substance of each letter of credit will be subject to
approval by Bank. Each letter of credit will be issued for a term
designated by Borrower; however, no letter of credit will have an
expiration date later than the last day of the Availability Period
specified in the Confirmation Letter.
- - Each letter of credit will be subject to the terms and conditions of the
letter of credit agreement required by Bank for the issuing of letters of
credit.
- - The amount of all outstanding letters of credit will be reserved and not
available for Advances under the Credit and shall not exceed the
subfeature limit, if any, specified in the Confirmation Letter.
- - The amounts reserved against outstanding letters of credit, the amounts
reserved against foreign exchange contracts, and the principal amounts of
any advances outstanding under the Credit will at no time exceed the
principal amount specified in the Confirmation Letter unless otherwise
authorized by Bank and Bank's full discretion.
- - Each draft paid by Bank under a letter of credit will be deemed an
Advance and will be repaid by Borrower according to the terms and
conditions of the Agreement. If for any reason there are not sufficient
funds available to fund such an Advance, the full amount of such
insufficiency shall be immediately due and payable, together with
interest thereon, from the date such amount is paid by Bank to the date
such amount is fully repaid by Borrower, at the rate of interest
applicable to the Credit. In such event, Borrower agrees that Bank, at
Bank's sole discretion, may debit Borrower's deposit account with Bank
for the amount of any such insufficiency.
- - Each Letter of Credit shall be issued for a term designated by Borrower
and no Letter of Credit shall have an expiration subsequent to the
maturity of the Credit.
FOREIGN EXCHANGE
Subject to the terms, conditions and renewal process of the Agreement and
Related Documents, Bank hereby agrees to make available to Borrower a foreign
exchange facility under which Bank, from time to time up to and including the
maturity date of the Credit, will enter into foreign exchange contracts for the
account of Borrower for the purchase and/or sale by Borrower in United States
Dollars of the foreign currency or currencies specified in the foreign exchange
agreement required by Bank for the establishment of the foreign exchange
facility.
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<PAGE> 25
- - The amount of all outstanding contracts multiplied by the reserve
percentage specified in the Confirmation Letter will be reserved and not
available for Advances under the Line of Credit and shall not exceed the
Subfeature Limit, if any, specified in the Confirmation Letter.
- - The amount reserved against outstanding letters of credit, the amounts
reserved against foreign exchange contracts, and the principal amounts of
any advances outstanding under the Credit will at no time exceed the
principal amount specified in the Confirmation Letter unless otherwise
authorized by Bank at Bank's full discretion.
- - Each foreign exchange transaction will be subject to the terms and
conditions of the foreign exchange agreement.
- - Bank agrees to send Borrower a confirmation of each transaction duly
requested by Borrower and agreed to by Bank.
- - Upon receipt of confirmation, Borrower agrees to promptly sign and return
a copy of the confirmation to Bank.
- -------------------------------------------------------------------------------
APPENDIX D ACCOUNTS RECEIVABLE & INVENTORY PRIMELINE
- -------------------------------------------------------------------------------
In addition to the General Terms and Conditions set forth above, the following
terms and conditions also apply to Accounts Receivable and Inventory PrimeLines.
ADVANCE RATE
Amounts outstanding under the Credit, to a maximum of the Credit Limit, shall
not at any time exceed the sum of:
- - Accounts Receivable Advance Rate times Borrower's Eligible Accounts
Receivable (as defined below); plus
- - If applicable, Inventory Advance Rate times Borrower's Eligible Inventory
(as defined below); however, the outstanding principal balance of all
advances against Borrower's Eligible Inventory shall not at any time
exceed the aggregate sum identified in the Confirmation Letter as the
Maximum Inventory Advance.
ELIGIBILITY
Eligible Accounts Receivable shall consist solely of trade accounts which have
been created in the ordinary course of Borrower's business and upon which
Borrower's right to receive payment is absolute and not contingent upon the
fulfillment of any condition whatsoever, excluding:
- - any account which is past due more than twice Borrower's standard selling
terms; provided however the Borrower has provided extended payment terms
not to exceed 180 days, then any such account shall be ineligible if it is
more than thirty (30) days past due;
- - any account which represents an obligation of any account debtor when
twenty percent (20%) or more of Borrower's accounts from such account
debtor are not eligible pursuant to past due restrictions covered in the
immediately proceeding item;
- - any account for which there exists any right of setoff, defense or
discount (except regular discounts allowed in the ordinary course of
business to promote prompt payment) or for which any defense or
counterclaim has been asserted;
- - any account which represents an obligation of any state or municipal
government or of the United States government or any political
subdivision thereof;
- - any account which represents an obligation of any account debtor located in
a foreign country; with the exception of the Canadian provinces of
Manitoba, Ontario and Saskatchewan, Alberta, British Columbia, and the
Yukon territory and the U.S. territories of Guam, Northern Mariana Islands
and the Virgin Islands;
- - any account which represents an obligation of an employee, affiliate,
partner, parent or subsidiary of Borrower;
- - that portion of any account which represents interim or progress billings
or retention rights on the part of the account debtor.
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<PAGE> 26
o that portion of an account debtors total Eligible Accounts Receivable
payable to Borrower which exceeds 25% of Borrower's total accounts; or
o any account deemed ineligible by Bank in its sole discretion, based upon
unsatisfactory creditworthiness or financial condition of the account
debtor or the industry in which the account debtor is engaged.
Borrower acknowledges that the Advance Rate for Eligible Accounts Receivable
was established by Bank with the understanding that, among other items, the
aggregate of all returns, rebates, discounts, credits and allowances for the
immediately preceding three (3) months at all times shall be less than five
percent (5%) of Borrower's gross sales for preceding three (3) months. If such
dilution of borrower's accounts for the immediately preceding three (3) months
at any time exceeds five percent (5%) of Borrower's gross sales for said
period, or if there at any time exists any other matters, event, conditions or
contingencies which Bank reasonably believes may affect payment of any portion
of Borrower's accounts, Bank, in its sole discretion, may reduce said Advance
Rate to a percentage appropriate to reflect such additional dilution and/or
establish additional reserves against Borrower's Eligible Accounts Receivable.
Eligible inventory shall consist solely of goods that in Bank's determination
have broad, well-defined markets and for which grading and valuation are
standardized, excluding:
o goods with limited liquidation value, including but not limited to, work in
process, and goods that are obsolete, damaged, slow moving, custom, private
labeled, proprietary or perishable, packaging materials, supplies, samples,
demos, prototypes or cost capitalized to inventory for tax purposes;
o goods over which Borrower has limited control, including but not limited
to, goods consigned to others, goods not on Borrower's premises and goods
in transit; or
o goods subject to legal restrictions, including but not limited to, goods
consigned to Borrower by others, goods located in foreign nations, U.S.
territories or possessions, bill and hold inventory, goods subject to a
vendor's purchase money security interest or other lien, goods in which
there are questions of title, and unsubordinated grower payables.
Eligible Inventory shall be valued at the lower of cost or market value,
exclusive of raw material, work-in-process and inventory which is obsolete,
unsalable or damaged as determine by Bank upon receipt and review of collateral
reports and documents as Bank may require.
BORROWER'S RESPONSIBILITIES
Borrower agrees to:
o maintain accounts receivable, accounts payable, inventory, books and
records and audit system acceptable to Bank in its sole discretion;
o prepare accounts receivable aging, accounts payable aging, inventory
listing and Borrowing Base Certificate as of each month and deliver them to
Bank and within fifteen (15) days after the end of each month; and
o submit to Bank a list of the names and addresses of all Borrower's account
debtors effective at and as of each year end or upon request from Bank.
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<PAGE> 27
GLOSSARY
ACCEPTABLE INSURANCE An insurer listed in the current Best's Insurance Guide
COMPANY - Property and Casualty with a B+ or better rating and
$25 million or more in policyholder surplus.
ADJUSTMENT DATE Date the 12th payment is due and annually thereafter.
ADVANCE RATE The percentage rate(s) applied to Eligible Accounts
Receivable and Eligible Inventory (if applicable) to
determine the eligible credit availability on an
Accounts Receivable PrimeLine or Accounts
Receivable/Inventory PrimeLine. If applicable, the
Advance Rate(s) will be identified in the Confirmation
Letter.
ADVANCES The individual borrowings under a revolving or
non-revolving Credit.
AGREEMENT The Disclosure, the Confirmation Letter and any Related
Documents.
AMERICAN ARBITRATION The American Arbitration Association (the "AAA") is a
ASSOCIATION public service non-profit organization that offers a
broad range of dispute resolution services, with offices
in most major cities throughout the United States. It
was founded in 1926 and is one of the largest, most
respected and best known organizations of its kind.
AMORTIZED The process of reducing principal (and interest, if
applicable) through equal installment payments over a
set period of time. The amortization of a loan may
exceed the Term of a loan resulting in a Balloon Payment
at the end of the Term.
ARBITRATION PROGRAM The terms and provisions governing arbitration of
disputes specified in Appendix B of this Disclosure.
ASSIGNED VALUE The Assigned Value of a marketable security is the
security's currently market value multiplied by a
percentage, as determined by Bank. The percentage
applied differs among the various types of securities
that Bank takes as Collateral.
ASSUMED BUSINESS NAME The name(s) sometimes used by individuals or entities as
a "store front", "trade", or day to day business name
which is not the legal name of the individual or
business entity.
AUTHORIZED Designated officers, partners, members, trustees or
REPRESENTATIVES representatives empowered to take action on behalf of
the business.
AVAILABILITY PERIOD For lines of credit the period during which Borrower may
request advances from Bank as specified in the
Confirmation Letter. The Availability Period commences
upon the later of satisfaction of all conditions to or
the boarding of the Credit. At the end of the
Availability Period as specified in Confirmation Letter,
no more advances will be made.
BANK Wells Fargo Bank, N.A.; or Wells Fargo Bank (Texas),
N.A., as so designated in the Confirmation Letter.
BORROWER The individual or entity specified in the Confirmation
Letter as Borrower.
BORROWING BASE A report completed by Borrower, subject to Bank's review
CERTIFICATE and approval, on which eligible credit availability on
an Accounts Receivable or Accounts Receivable/Inventory
PrimeLine is calculated.
COLLATERAL With respect to each Grantor, the real or personal
property of such Grantor securing the Credit and all
Proceeds thereof, as specified in the Confirmation
Letter.
CONFIRMATION LETTER A letter from Bank to Borrower stating the terms and
conditions in which Credit will be extended, in
accordance with the Agreement.
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<PAGE> 28
CONVERSION DATE An adjustment date on which the Borrower elects to fix
the rate of interest to maturity.
CONVERTIBLE LOANS A term loan featuring an option to change to a fixed
rate once during the Term of the loan.
CREDIT The loan or line of credit described in the
Confirmation Letter made available to Borrower
pursuant to the terms of the Agreement. Credit
includes any and all advances, debts, obligations and
liabilities of Borrower to Bank, arising in connection
with the Confirmation Letter, existing now or in the
future, whether voluntary or involuntary and however
arising, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or
undetermined, and whether Borrower may be liable
individually or jointly, or whether recovery upon such
Credit may now be or later become unenforceable.
CREDIT LIMIT The maximum dollar amount of a Credit, not necessarily
the available amount of Credit if an Advance Rate
applies. However, the Bank in its sole discretion may
allow the Credit Limit to be exceeded, and such
amounts shall be a part of the Indebtedness subject to
this Agreement.
DEFAULT An event as described in the section entitled Events
of Default.
DISPUTE Any action, disagreement, claim or controversy of any
kind, whether in contract or in tort, legal or
equitable, now existing or hereafter arising between
the parties relating in any way to this Agreement or
any related agreement incorporating the Arbitration
Program, and all past, present, or future loans,
transactions, contracts, agreements, relationships,
incidents or injuries of any kind whatsoever relating
to or involving the Bank's Business Group or any
successor group or department of Bank.
ELIGIBLE ACCOUNTS The amount of Borrower's Accounts Receivable available
RECEIVABLE as identified in Appendix D of this Disclosure.
ELIGIBLE INVENTORY The amount of Borrower's inventory available as
identified in Appendix D of this Disclosure.
GRANTOR The owner(s) of Collateral identified in the
Confirmation Letter as Grantor.
GUARANTOR An individual or entity which promises jointly and
severally to pay the Credit(s) or perform
obligation(s) for Borrower if Borrower fails to
perform as agreed.
GUARANTY The guaranty described in Section 3 of the Disclosure.
HAZARDOUS SUBSTANCES Terms used in this Disclosure that refer to hazardous
substances, including "hazardous substance,"
"hazardous waste," "disposal," "release" and
"threatened release," will have the broadest meaning
given by the following laws:
o Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C.
Section 9601 and following
o "CERCLA," the Superfund Amendment and
Reauthorization Act of 1986, Publication L.
No. 99-499
o "SARA," the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801 and following
o The Resource Conservation and Recovery Act, 49
U.S.C. Section 6901 and following
o Other applicable state and federal laws, rules,
and regulations, adopted pursuant to the foregoing
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<PAGE> 29
INDEBTEDNESS The word "Indebtedness" is used in its most
comprehensive sense and means and includes any and all
of Borrower's liabilities, obligations, debts and
indebtedness to a Bank, now existing or hereinafter
incurred or created, including, without limitation,
all loans, advances, interest, costs, debts, overdraft
indebtedness, credit card indebtedness, lease
obligations, other obligations and liabilities of
Borrower, or any of them, and any present or future
judgments against Borrower, or any of them; and
whether any such indebtedness is voluntarily or
involuntarily incurred, due or not due, absolute or
contingent, liquidated or unliquidated, determined or
undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or
secondarily, or as guarantor or surety; whether
recovery on the Indebtedness is or may become barred
or unenforceable against Borrower for any reason
whatsoever; and whether the Indebtedness arises from
transactions which may be voidable on account of
infancy, insanity, ultra vires or otherwise.
MAXIMUM INVENTORY A dollar amount set by Bank, identified in the
ADVANCE Confirmation Letter, which is the maximum amount
available for advances against Eligible Inventory
under any Accounts Receivable/Inventory PrimeLine.
PRIMARY DEPOSIT ACCOUNT The deposit account into which substantially all of
Borrower's receipts from its operations are deposited
and from which substantially all of Borrower's
disbursements for its operations are made.
PRIME RATE A base rate set periodically by Bank that serves as
the basis upon which effective rates of interest are
calculated for certain credit obligations and
effective as of the date of each announcement. The
Prime Rate is not necessarily the lowest or best rate
at which Bank makes loans.
PROCEEDS Proceeds consist of whatever is receivable or received
when any Collateral (or Proceeds of Collateral) are
sold, leased, collected, exchanged, or otherwise
disposed of -- whether the disposition is voluntary or
involuntary -- including, without limitation:
o all accounts, deposit accounts, contract rights,
chattel paper, instruments, documents, general
intangibles and rights to payment of every kind now
or at any time in the future arising out of any
such disposition of any of the Collateral.
o all rights to payment, including returned premiums,
with respect to any insurance relating to any of
the Collateral.
o all rights to payment with respect to any cause of
action affecting or relating to any of the
Collateral.
o any stock rights, rights to subscribe, stock
splits, liquidating dividends, cash dividends,
dividends paid in stock, new securities, or other
property of any kind which Borrower is or may in
the future be entitled to receive on account of any
securities pledged as Collateral.
RELATED DOCUMENTS All instruments, agreements and documents other than
the disclosure and the Confirmation Letter which have
been or will be signed in connection with the
Agreement, or which otherwise relate to the Credit.
SECURITY AGREEMENT The security agreement described in Section 2 of the
Disclosure.
SELLING PRICE Selling price as evidenced by an invoice or bill of
sale net of credits and other allowances.
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<PAGE> 30
TERM The period of time commencing with the availability of a
Credit and ending at the maturity of a Credit.
THIRD PARTY FEES Fees charged to cover non-bank expense, recordation fees,
and bank handling expense. For example, UCC filing fees,
appraisal fees, county recording fees, etc.
TREASURY CONSTANT The term "Treasury Constant Maturity Index" means the weekly
MATURITY INDEX average rate on United States Treasury Securities adjusted
to a constant maturity of one year, as quoted by the Federal
Reserve Board in the Federal Reserve Statistical Release
H.15(519), rounded to the nearest .05%. If the Index becomes
unavailable during the term of the Credit, Bank may
designate a substitute index, with notice to Borrower.
TREASURY RATE The term "Treasury Rate" means yield to maturity at the
asked price of the most recently auctioned U.S. Treasury
obligation with a maturity date matching the Credit maturity
date. However, if the Term of an Advance is a number of
months that is not a multiple of twelve, the total number of
months for determining the term of the matching U.S.
Treasury obligation will be rounded up to the next largest
number which is a multiple of twelve (12), or the maturity
closes to a multiple of twelve (12). Yield to maturity will
be those quoted in The Wall Street Journal or similar
publications as of the date of the Advance.
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<PAGE> 1
EXHIBIT 10.9
[Wells Fargo Bank letterhead]
BUSINESS LENDING DIVISION
CONFIRMATION LETTER
MARCH 30, 1998
CRL NETWORK SERVICES, INC.
ONE KEARNY STREET
SUITE 1450
SAN FRANCISCO, CA 94108-5501
RE: $692,000.00 Equipment Line
WELLS FARGO BANK. N.A. ("Bank"), agrees to make available to CRL NETWORK
SERVICES. INC. ("Borrower") a Equipment Line ("Credit"). The Credit shall bear
interest and be repayable in accordance with the terms and conditions of the
Agreement. The Agreement consists of (1) this Confirmation Letter (this
"Letter"), (2) the Business Lending Disclosure dated August 01, 1997 (the
"Disclosure") and (3) any Related Documents. All terms and conditions of the
Disclosure and Related Documents are incorporated herein by reference for all
purposes. All capitalized terms not defined in this Letter are defined in the
Disclosure.
PROMISE TO PAY. Borrower promises to pay to Bank, or order, the principal amount
of $692,000.00, or so much as may be advanced and outstanding from time to time,
together with interest on the unpaid outstanding principal balance of each
Advance. Interest shall be calculated from the date of each Advance until
repayment of each Advance. Borrower will pay Bank at Bank's address shown in
this letter or at such other place as Bank may designate in writing.
EQUIPMENTLINE; TERM. Your EquipmentLine is a credit facility under which you may
request loans and/or equipment leases to facilitate your acquisition of
equipment. During the term of this EquipmentLine, you may request and the Bank
may approve loans or leases in its discretion whenever you desire financing for
qualifying pieces of equipment. The total amount of such loans and leases may
not exceed your preapproved credit limit referenced above. This EquipmentLine
credit facility is available to you for a term of 12 months, commencing with the
date your EquipmentLine is opened by the Bank.
REPAYMENT OPTIONS. At the time of each Advance under an EquipmentLine. Borrower
shall choose between the following two interest rate/loan repayment options, or
in lieu of an Advance, may choose an Equipment Lease. In each instance, the
amount available under this Credit shall be reduced by the amount of the Advance
or Equipment Lease. If this credit is granted under a Capital Access Program,
then the lease option does not apply.
OPTION 1. FIXED OPTION.
If Borrower elects to have a fixed rate of interest apply to an Advance:
<PAGE> 2
FIXED INTEREST RATE: The interest rate applicable to the Advance shall
be the rate 4.610% above the Treasury Rate in effect as of the close of
business on the Thursday of the week preceding disbursement of the
Advance; provided. however. that such interest rate shall be rounded to
the nearest 0.05%.
PAYMENTS: Borrower shall pay principal of and interest on each Advance
on the fifth day of each month in equal successive monthly installments
sufficient to amortize the principal and accruing interest of such
Advance over a payment schedule of not less than 36 months or more than
96 months, as agreed by Borrower and Bank at the time of such Advance,
depending on the type of equipment financed and the interest rate
applicable at the time of such Advance. If the Advance occurs on or
before the eighteenth day of a month, the first payment due date shall
be the 5th day of the next month; if the Advance occurs after the
eighteenth day of a month, the first payment due date shall be the 5th
day of the second month following the Advance. All unpaid principal and
accrued and unpaid interest and any other amounts owed in connection
with this Credit shall be due and payable in full at maturity on the
final payment date.
PREPAYMENT TERMS. Borrower may prepay principal of the Credit as
follows:
If the original Credit amount is $10,000 or more, and there are (12)
months or more remaining until maturity, Borrower shall pay to Bank a
prepayment fee equal to (i) 5% of the amount prepaid if the remaining
term is five or more years, (ii) 4% of the amount prepaid if the
remaining term is four to five years, (iii) 3% of the amount prepaid if
the remaining term is three to four years, (iv) 2% of the amount prepaid
if the remaining term is two to three years, and (v) 1% of the amount
prepaid if the remaining term is one to two years. All prepayments of
principal shall be applied on the most remote principal installment or
installments then unpaid.
Borrower(s) Initials /s/ JGC
--------------
OPTION 2. VARIABLE OPTION.
If Borrower elects to have a variable rate of interest apply to an
Advance:
VARIABLE INTEREST RATE: The interest rate applicable to the Advance
shall be subject to change from time to time based on changes in the
Prime Rate. The Prime Rate currently is 8.500% per annum. The variable
interest rate to be applied to the unpaid principal balance of the
Advance will be 1.500% percentage points above the Prime Rate, resulting
in a currently applicable initial rate of 10.000% per annum.
PAYMENTS: Borrower shall pay principal on each Advance on the fifth day
of each month in equal successive monthly installments sufficient to
amortize the principal amount of such Advance over a payment schedule of
not less than 36 months or more than 96 months, as agreed by Borrower
and Bank at the time of such Advance, depending oh the type of equipment
financed and the interest rate applicable at the time of such Advance.
In addition, Borrower shall pay all accrued unpaid interest on each
payment date. If the
2
<PAGE> 3
Advance occurs on or before the eighteenth day of a month, the first
payment due date shall be the 5th day of the next month; if the Advance
date occurs after the eighteenth day of a month, the first payment due
date shall be the 5th day of the second month following the Advance. All
unpaid principal and accrued and unpaid interest and any other amounts
owed in connection with this Credit shall be due and payable in full at
maturity on the final payment date.
PREPAYMENT TERMS. Borrower may prepay principal of the Credit at any
time, in any amount, without penalty.
ADVANCES: Advances shall be subject to the following terms and conditions:
* This Credit shall be a non-revolving line of credit. Once the total
amount available under the Credit has been advanced. Borrower shall not
be entitled to further Advances.
* Borrower shall deliver to Bank an acceptable purchase agreement or an
invoice from vendor - not more than 90 days old - for equipment to be
purchased in whole or in part with the Advance.
* Bank may fund Advances to Borrower or directly to vendor at Bank's sole
discretion.
* If an Advance or Advances to acquire an item of used equipment
aggregate(s) $100,000.00 or more, Borrower shall obtain, at Borrower's
sole cost and expense, an appraisal to determine the liquidation value
of such equipment. The appraisal must be performed by an independent
appraiser satisfactory to Bank, at Bank's sole discretion.
* The minimum Advance shall be $5,000.00.
INTEREST ACCRUAL BASIS. Interest shall be computed on a 365/360 simple interest
basis; that is, by multiplying the ratio of the annual interest rate over a year
of 360 days, times the outstanding principal balance, times the actual number of
days the principal is outstanding.
AUTOMATIC DEBIT OF PAYMENTS. At the time of an Advance, Borrower may elect to
have Bank automatically debit payments and other amounts owed in connection with
this Credit from Borrower's Account, or Borrower can request Bank to invoice
Borrower for payments.
DISBURSEMENT INFORMATION. Bank is not obligated to make an Advance under the
Agreement until Borrower delivers to Bank an acceptable purchase agreement or
invoice from vendor not more than 90 days old - for equipment to be purchased
with the Advance. Bank shall disburse to Borrower or directly to the vendor at
Bank's sole discretion.
COLLATERAL. Subject to the terms and conditions of the Disclosure, as security
for the obligations set forth in Section 2.1 of the Disclosure. CRL NETWORK
SERVICES, INC. as Grantor, pledges and grants to Bank a first priority security
interest in the following personal property, whether existing or hereafter
arising, now owned or hereafter acquired, and wherever located. and all Proceeds
of the foregoing (including insurance):
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<PAGE> 4
All accounts, inventory, equipment, instruments, general intangibles and
contract rights. All equipment purchased or acquired in whole or in part with an
Advance.
COMMITMENT FEES. Borrower shall pay a commitment fee of $1,326.00 for the
availability of the Credit through the maturity date.
THIRD PARTY FEES. Borrower shall pay estimated fee(s) as follows:
$50.00 UCC Filing Fee
PAYMENT OF FEES. Estimated fees will be paid as follows:
<TABLE>
<S> <C> <C>
Commitment Fee From Account 0524033941
UCC Filing Fee From Account 0524033941
</TABLE>
EXTENSIONS, RENEWALS AND INCREASES. The Credit may be extended, renewed or
increased at Bank's sole discretion Bank will notify Borrower in writing of any
modification and the terms of any such modification will be deemed to have been
accepted if Borrower does not deliver to Bank a written rejection within 10 days
from the date of notification, or draws additional funds at any time following
the date of notification.
INSURANCE. Borrower shall provide and maintain insurance coverage as required by
the Disclosure and any Related Documents.
COUNTERPART. This document may be signed in any number of separate copies, each
of which shall be effective as an original. but all of which taken together
shall constitute a single document.
FACSIMILE. An electronic transmission or other facsimile of this Letter or any
signed document shall be deemed an original and shall be admissible as evidence
of the document and the signer's execution.
PURPOSE. The proceeds of the Credit shall be used primarily for business or
commercial purposes.
OTHER TERMS AND CONDITIONS. Guarantee amount of $750,000.00 is a continuing
guarantee for all of the Borrower's indebtedness to Well Fargo Bank, N.A., now
or hereafter in effect.
The Borrower and the Bank agree that borrowings under this Equipment line will
be limited to 80% of new equipment invoice amounts.
At the time the Agreement is signed and delivered to Bank, the persons signing
below, including without limitation the Borrower(s), any Grantors(s) and any
Guarantor(s), acknowledge receipt of the Agreement, including the Disclosure and
Related Documents, and accept all terms and conditions contained in them. Unless
a fully signed copy of this Letter and all Related Documents is received by Bank
within 30 days, this offer to extend credit will expire. This offer
4
<PAGE> 5
is not transferable or assignable, and may be withdrawn or modified at any time
prior to Bank's receipt of the above fully signed documents.
ALL STATES (EXCEPT OREGON). THIS LETTER, THE DISCLOSURE, AND ANY RELATED
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES RELATING TO THIS CREDIT.
OREGON ONLY. STATUTORY DISCLOSURE TO OREGON RESIDENTS: UNDER OREGON LAW, MOST
AGREEMENTS, PROMISES AND COMMITMENTS MADE BY A LENDER AFTER OCTOBER 3, 1989,
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.
If you have any questions, please contact me at (415) 396-7047. For future
reference, please send all correspondence to the Bank to the following address:
Business Lending Division, 177 Park Center Plaza, MAC #0514-011, San Jose, CA
95113.
WELLS FARGO BANK, N.A. ("Bank")
By: /S/ Barbara Duff
------------------------------------
Name: Barbara Duff
Title: Assistant Vice-President
Dated: March 30, 1998
GUARANTOR ACKNOWLEDGMENT:
By signing below, Guarantor acknowledges receipt of a copy of the Disclosure,
guarantees the Credit, and agrees to the terms and provisions of this Letter and
Chapter 3 of the Disclosure. The Guarantor's address is: 335 SKI WAY #342, P O
Box 8343, INCLINE VILLAGE, NV 89452. * SEE "OTHER TERMS AND CONDITIONS."
JAMES G. COUCH
By:/S/ James G. Couch By:
--------------------------------------- --------------------------------
Name: JAMES G. COUCH
Title: PRESIDENT
5
<PAGE> 6
BORROWER AND GRANTOR ACKNOWLEDGMENT AND ACCEPTANCE:
By signing below, Borrower and Grantor acknowledge receipt of the Agreement,
including the Disclosure and Related Documents, and agree to the terms and
provisions contained in them.
CRL NETWORK SERVICES, INC., a Corporation
By:/S/ James G. Couch By:
--------------------------------------- --------------------------------
Name: JAMES G. COUCH
Title: President
6
<PAGE> 1
EXHIBIT 10.10
[Wells Fargo Bank letterhead]
BUSINESS LENDING DIVISION
CONFIRMATION LETTER
SEPTEMBER 29, 1998
CRL NETWORK SERVICES, INC.
ONE KEARNY STREET
SUITE 1450
SAN FRANCISCO, CA 94108-5501
RE: $650,000.00 Equipment Line
WELLS FARGO BANK, N.A. ("Bank"), agrees to make available to CRL NETWORK
SERVICES. INC. ("Borrower") a Equipment Line ("Credit"). The Credit shall bear
interest and be repayable in accordance with the terms and conditions of the
Agreement. The Agreement consists of (1) this Confirmation Letter (this
"Letter"), (2) the Business Lending Disclosure dated August 01, 1997 (the
"Disclosure") and (3) any Related Documents. All terms and conditions of the
Disclosure and Related Documents are incorporated herein by reference for all
purposes. All capitalized terms not defined in this Letter are defined in the
Disclosure.
PROMISE TO PAY. Borrower promises to pay to Bank, or order, the principal amount
of $650,000.00, or so much as may be advanced and outstanding from time to time,
together with interest on the unpaid outstanding principal balance of each
Advance. Interest shall be calculated from the date of each Advance until
repayment of each Advance. Borrower will pay Bank at Bank's address shown in
this letter or at such other place as Bank may designate in writing.
EQUIPMENTLINE; TERM. Your EquipmentLine is a credit facility under which you may
request loans and/or equipment leases to facilitate your acquisition of
equipment. During the term of this EquipmentLine, you may request and the Bank
may approve loans or leases in its discretion whenever you desire financing for
qualifying pieces of equipment. The total amount of such loans and leases may
not exceed your preapproved credit limit referenced above. This EquipmentLine
credit facility is available to you for a term of 12 months, commencing with the
date your EquipmentLine is opened by the Bank.
REPAYMENT OPTIONS. At the time of each Advance under an EquipmentLine, Borrower
shall choose between the following two interest rate/loan repayment options, or
in lieu of an Advance, may choose an Equipment Lease. In each instance, the
amount available under this Credit shall be reduced by the amount of the Advance
or Equipment Lease. If this credit is granted under a Capital Access Program,
then the lease option does not apply.
OPTION 1. FIXED OPTION.
If Borrower elects to have a fixed rate of interest apply to an Advance:
<PAGE> 2
FIXED INTEREST RATE: The interest rate applicable to the Advance shall
be the rate 4.625% above the Treasury Rate in effect as of the close of
business on the Thursday of the week preceding disbursement of the
Advance; provided, however, that such interest rate shall be rounded to
the nearest 0.05%.
PAYMENTS: Borrower shall pay principal of and interest on each Advance
on the fifth day of each month in equal successive monthly installments
sufficient to amortize the principal and accruing interest of such
Advance over a payment schedule of not less than 36 months or more than
96 months, as agreed by Borrower and Bank at the time of such Advance,
depending on the type of equipment financed and the interest rate
applicable at the time of such Advance. If the Advance occurs on or
before the eighteenth day of a month, the first payment due date shall
be the 5th day of the next month; if the Advance occurs after the
eighteenth day of a month, the first payment due date shall be the 5th
day of the second month following the Advance. All unpaid principal and
accrued and unpaid interest and any other amounts owed in connection
with this Credit shall be due and payable in full at maturity on the
final payment date.
PREPAYMENT TERMS. BORROWER MAY PREPAY PRINCIPAL OF THE CREDIT AS
FOLLOWS:
If the original Credit amount is $10,000 or more, and there are (12)
months or more remaining until maturity, Borrower shall pay to Bank a
prepayment fee equal to (i) 5% of the amount prepaid if the remaining
term is five or more years, (ii) 4% of the amount prepaid if the
remaining term is four to five years, (iii) 3% of the amount prepaid if
the remaining term is three to four years, (iv) 2% of the amount prepaid
if the remaining term is two to three years, and (v) 1% of the amount
prepaid if the remaining term is one to two years. All prepayments of
principal shall be applied on the most remote principal installment or
installments then unpaid.
Borrower(s) Initials /s/ JGC
------------
OPTION 2. VARIABLE OPTION.
If Borrower elects to have a variable rate of interest apply to an
Advance:
VARIABLE INTEREST RATE: The interest rate applicable to the Advance
shall be subject to change from time to time based on changes in the
Prime Rate. The Prime Rate currently is 8.500% per annum. The variable
interest rate to be applied to the unpaid principal balance of the
Advance will be 1.800% percentage points above the Prime Rate, resulting
in a currently applicable initial rate of 10.300% per annum.
PAYMENTS: Borrower shall pay principal on each Advance on the fifth day
of each month in equal successive monthly installments sufficient to
amortize the principal amount of such Advance over a payment schedule of
not less than 36 months or more than 96 months, as agreed by Borrower
and Bank at the time of such Advance, depending on the type of equipment
financed and the interest rate applicable at the time of such Advance.
In addition, Borrower shall pay all accrued unpaid interest on each
payment date. If the
2
<PAGE> 3
Advance occurs on or before the eighteenth day of a month, the first
payment due date shall be the 5th day of the next month; if the Advance
date occurs after the eighteenth day of a month, the first payment due
date shall be the 5th day of the second month following the Advance. All
unpaid principal and accrued and unpaid interest and any other amounts
owed in connection with this Credit shall be due and payable in full at
maturity on the final payment date.
PREPAYMENT TERMS. Borrower may prepay principal of the Credit at any
time, in any amount, without penalty.
ADVANCES: Advances shall be subject to the following terms and conditions:
* This Credit shall be a non-revolving line of credit. Once the total
amount available under the Credit has been advanced, Borrower shall not
be entitled to further Advances.
* Borrower shall deliver to Bank an acceptable purchase agreement or an
invoice from vendor - not more than 90 days old - for equipment to be
purchased in whole or in part with the Advance.
* Bank may fund Advances to Borrower or directly to vendor at Bank's sole
discretion.
* If an Advance or Advances to acquire an item of used equipment
aggregate(s) $100,000.00 or more, Borrower shall obtain, at Borrower's
sole cost and expense, an appraisal to determine the liquidation value
of such equipment. The appraisal must be performed by an independent
appraiser satisfactory to Bank, at Bank's sole discretion.
* The minimum Advance shall be $5,000.00.
INTEREST ACCRUAL BASIS. Interest shall be computed on a 365/360 simple interest
basis; that is, by multiplying the ratio of the annual interest rate over a year
of 360 days, times the outstanding principal balance, times the actual number of
days the principal is outstanding.
AUTOMATIC DEBIT OF PAYMENTS. At the time of an Advance, Borrower may elect to
have Bank automatically debit payments and other amounts owed in connection with
this Credit from Borrower's account, or Borrower can request Bank to invoice
Borrower for payments.
DISBURSEMENT INFORMATION. Bank is not obligated to make an Advance under the
Agreement until Borrower delivers to Bank an acceptable purchase agreement or
invoice from vendor not more than 90 days old - for equipment to be purchased
with the Advance. Bank shall disburse to Borrower or directly to the vendor at
Bank's sole discretion.
COLLATERAL. Subject to the terms and conditions of the Disclosure, as security
for the obligations set forth in Section 2.1 of the Disclosure, CRL NETWORK
SERVICES. INC., as Grantor, pledges and grants to Bank a first priority security
interest in the following personal property. whether existing or hereafter
arising, now owned or hereafter acquired, and wherever located, and all Proceeds
of the foregoing (including insurance):
3
<PAGE> 4
All accounts, inventory, equipment, instruments, general intangibles and
contract rights.
All equipment purchased or acquired in whole or in part with an Advance.
COMMITMENT FEES. Borrower shall pay a commitment fee of $1,950.00 for the
availability of the Credit through the maturity date.
THIRD PARTY FEES. Borrower shall pay estimated fee(s) as follows:
$50.00 UCC Filing Fee
Payment of Fees. Estimated fees will be paid as follows:
<TABLE>
<S> <C> <C> <C>
UCC Filing Fee From Account 0524 033941
Commitment Fee From Account 0524 033941
</TABLE>
EXTENSIONS, RENEWALS AND INCREASES. The Credit may be extended, renewed or
increased at Bank's sole discretion. Bank will notify Borrower in writing of any
modification and the terms of any such modification will be deemed to have been
accepted if Borrower does not deliver to Bank a written rejection within 10 days
from the date of notification, or draws additional funds at any time following
the date of notification.
INSURANCE. Borrower shall provide and maintain insurance coverage as required by
the Disclosure and any Related Documents.
COUNTERPART. This document may be signed in any number of separate copies, each
of which shall be effective as an original, but all of which taken together
shall constitute a single document.
FACSIMILE. An electronic transmission or other facsimile of this Letter or any
signed document shall be deemed an original and shall be admissible as evidence
of the document and the signer's execution.
PURPOSE. The proceeds of the Credit shall be used primarily for business or
commercial purposes.
OTHER TERMS AND CONDITIONS. Bank and Borrower hereby agree that continuing
guarantee for all advances under any existing Equipment Lines shall be limited
to 50% of the original total amounts committed. Bank and Borrower further agree
that borrowings under this Equipment Line shall be limited to 80% of new
equipment invoice amount.
At the time the Agreement is signed and delivered to Bank, the persons signing
below, including without limitation the Borrower(s), any Grantors(s) and any
Guarantor(s), acknowledge receipt of the Agreement, including the Disclosure and
Related Documents, and accept all terms and conditions contained in them. Unless
a fully signed copy of this Letter and all Related Documents is received by Bank
within 30 days, this offer to extend credit will expire. This offer
4
<PAGE> 5
is not transferable or assignable, and may be withdrawn or modified at any time
prior to Bank's receipt of the above fully signed documents.
ALL STATES (EXCEPT OREGON). THIS LETTER, THE DISCLOSURE, AND ANY RELATED
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES RELATING TO THIS CREDIT.
OREGON ONLY. STATUTORY DISCLOSURE TO OREGON RESIDENTS: UNDER OREGON LAW, MOST
AGREEMENTS, PROMISES AND COMMITMENTS MADE BY A LENDER AFTER OCTOBER 3, 1989,
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.
If you have any questions, please contact me at (415) 396-7047. For future
reference, please send all correspondence to the Bank to the following address:
Business Lending Division, 177 Park Center Plaza, MAC #0514-011, San Jose, CA
95113.
WELLS FARGO BANK, N.A. ("Bank")
By:/S/ Barbara Duff
---------------------------------------
Name: Barbara Duff
Title: Assistant Vice-President
Dated: September 29, 1998
GUARANTOR ACKNOWLEDGMENT:
By signing below, Guarantor acknowledges receipt of a copy of the Disclosure,
guarantees the Credit, and agrees to the terms and provisions of this Letter and
Chapter 3 of the Disclosure. The Guarantor's address is: 333 SKI WAY #342, P O
Box 8343, INCLINE VILLAGE, NV 89452
JAMES G. COUCH
By: /S/ James G. Couch By: J. Couch
-------------------------------------- --------------------------
Name: CRL NETWORK SERVICES, INC.
Title: Individual
5
<PAGE> 6
BORROWER AND GRANTOR ACKNOWLEDGMENT AND ACCEPTANCE:
By signing below, Borrower and Grantor acknowledge receipt of the Agreement,
including the Disclosure and Related Documents, and agree to the terms and
provisions contained in them.
CRL NETWORK SERVICES, INC., a Corporation
By:/S/ James G. Couch By: J. Couch
--------------------------------------- --------------------------
Name: JAMES G. COUCH
Title: President
6
<PAGE> 1
EXHIBIT 10.11
[Wells Fargo Bank letterhead]
BUSINESS LENDING DIVISION
CONFIRMATION LETTER
SEPTEMBER 28, 1998
CRL NETWORK SERVICES, INC.
ONE KEARNY STREET
SUITE 1450
SAN FRANCISCO, CA 94108-5501
RE: $200,000.00 PrimeLine
WELLS FARGO BANK, N.A. ("Bank"), agrees to make available to CRL NETWORK
SERVICES, INC. ("Borrower") a PrimeLine ("Credit"). The Credit shall bear
interest and be repayable in accordance with the terms and conditions of the
Agreement. The Agreement consists of (1) this Confirmation Letter (this
"Letter"), (2) the Business Lending Disclosure dated August 01, 1997 (the
"Disclosure") and (3) any Related Documents. All terms and conditions of the
Disclosure and Related Documents are incorporated herein by reference for all
purposes. All capitalized terms not defined in this Letter are defined in the
Disclosure.
PROMISE TO PAY. Borrower promises to pay to Bank, or order, the principal amount
of $200,000.00, or so much as may be advanced and outstanding from time to time,
together with interest on the unpaid outstanding principal balance of each
Advance. Interest shall be calculated from the date of each Advance until
repayment of each Advance. Borrower will pay Bank at Bank's address shown in
this letter or at such other place as Bank may designate in writing.
AVAILABILITY PERIOD. The Availability Period ends the 10th day of the 12th month
following the first payment due date as described below. During the Availability
Period Borrower may borrow. repay, and borrow again from time to time under this
revolving line of credit up to the Credit Limit.
INTEREST. The interest rate applicable to this Credit is subject to change from
time to time based on changes in the Prime Rate. The Prime Rate currently is
8.500% per annum. The interest rate to be applied to the unpaid principal
balance of Credit will be 1.500% above the Prime Rate resulting in an initial
rate of 10.000% per annum.
INTEREST ACCRUAL BASIS. Interest shall be computed on a 365/360 simple interest
basis; that is, by multiplying the ratio of the annual interest rate over a year
of 360 days, times the outstanding principal balance, times the actual number of
days the principal is outstanding.
PAYMENTS. Borrower shall pay regular monthly payments of accrued unpaid
interest. If the Availability Period begins on or before the 24th day of any
month, the first payment due date shall be the 10th day of the next month; if
the Availability Period begins after the 24th day of any
<PAGE> 2
month, the first payment due date shall be the 10th day of the second month
following the beginning of the Availability Period. Payments shall be due on the
same day of each month thereafter until maturity of the Credit, which is the
last day of the Availability Period, at which time all remaining unpaid
principal. accrued interest and any other amounts owed in connection with this
Credit shall become due and payable in full.
AUTOMATIC DEBIT OF PAYMENTS. Bank is authorized to automatically debit payments
and other amounts owed in connection with this Credit from Borrower's Wells
Fargo account number 0829-780733.
COLLATERAL. Subject to the terms and conditions of the Disclosure, as security
for the obligations set forth in Section 2.1 of the Disclosure, CRL NETWORK
SERVICES, INC., as Grantor, pledges and grants to Bank a first priority security
interest in the following personal property, whether existing or hereafter
arising, now owned or hereafter acquired, and wherever located, and all Proceeds
of the foregoing (including insurance):
All accounts, inventory, equipment, instruments, general intangibles and
contract rights.
COMMITMENT FEES. Borrower shall pay a commitment fee of $1,000.00 for the
availability of the Credit through the maturity date.
THIRD PARTY FEES. Borrower shall pay estimated fee(s) as follows:
$50.00 UCC Filing Fee
Payment of Fees. Estimated fees will be paid as follows:
<TABLE>
<S> <C> <C> <C>
UCC Filing Fee From Account 0524 033941
Commitment Fee From Account 0524 033941
</TABLE>
OVERDRAFT PROTECTION FOR LINES OF CREDIT. During the Availability Period Bank
shall automatically transfer from Borrower 5 Credit sufficient funds to cover
overdrafts in 0829780733. Bank may in its sole discretion decline to transfer
funds if a Default has occurred and is continuing, or if Bank believes that the
transfer results from a payment on the Credit, or if the transfer would cause
the outstanding balance of the Credit to exceed the maximum amount available
under the Credit.
TRADE FINANCE SUBFEATURE. During the Availability Period Borrower shall have
available a $200,000.00 Trade Finance Subfeature subject to the terms described
in the Appendix of the Disclosure.
PREPAYMENT TERMS. Borrower may prepay principal of the Credit at any time, in
any amount, without penalty.
EXTENSIONS, RENEWALS, AND INCREASES. The Credit may be extended, renewed or
increased at Bank's sole discretion. Bank will notify Borrower in writing of any
modification and the terms
2
<PAGE> 3
of any such modification will be deemed to have been accepted if Borrower does
not deliver to Bank a written rejection within 10 days from the date of
notification, or draws additional funds at any time following the date of
notification.
OTHER INDEBTEDNESS. Borrower shall not obtain a working capital line of credit
from another lender without the prior written consent of Bank.
COUNTERPART. This document may be signed in any number of separate copies, each
of which shall be effective as an original, but all of which taken together
shall constitute a single document.
FACSIMILE. An electronic transmission or other facsimile of this Letter or any
signed document shall be deemed an original and shall be admissible as evidence
of the document and the signer's execution.
PURPOSE. The proceeds of the Credit shall be used primarily for business or
commercial purposes.
At the time the Agreement is signed and delivered to Bank, the persons signing
below, including without limitation the Borrower(s), any Grantors(s) and any
Guarantor(s), acknowledge receipt of the Agreement, including the Disclosure and
Related Documents, and accept all terms and conditions contained in them. Unless
a fully signed copy of this Letter and all Related Documents is received by Bank
within 30 days, this offer to extend credit will expire. This offer is not
transferable or assignable, and may be withdrawn or modified at any time prior
to Bank's receipt of the above fully signed documents.
ALL STATES (EXCEPT OREGON). THIS LETTER, THE DISCLOSURE, AND ANY RELATED
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES RELATING TO THIS CREDIT.
OREGON ONLY. STATUTORY DISCLOSURE TO OREGON RESIDENTS: UNDER OREGON LAW, MOST
AGREEMENTS, PROMISES AND COMMITMENTS MADE BY A LENDER AFTER OCTOBER 3, 1989,
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.
If you have any questions, please contact me at (415) 396-7047. For future
reference please send all correspondence to the Bank to the following address:
Business Lending Division, 177 Park Center Plaza, MAC #0514-011, San Jose, CA
95113.
WELLS FARGO BANK, N.A. ("Bank")
By:/S/ Barbara Duff
------------------------------------
Name: Barbara Duff
Title: Assistant Vice-President
3
<PAGE> 4
Dated: September 28,1998
GUARANTOR ACKNOWLEDGMENT:
By signing below, Guarantor acknowledges receipt of a copy of the Disclosure,
guarantees the Credit. and agrees to the terms and provisions of this Letter and
Chapter 3 of the Disclosure. The guaranty amount is $200,000.00. The Guarantor's
address is: 335 SKI WAY #342, P O Box 8343, INCLINE VILLAGE, NV 89452.
JAMES G. COUCH
By:/S/ James G. Couch By:
-------------------------------------- ---------------------------------
Name: CRL NETWORK SERVICES, INC.
Title: Individual
BORROWER AND GRANTOR ACKNOWLEDGMENT AND ACCEPTANCE:
By signing below, Borrower and Grantor acknowledge receipt of the Agreement,
including the Disclosure and Related Documents, and agree to the terms and
provisions contained in them.
CRL NETWORK SERVICES, INC., a Corporation
By:/S/ James G. Couch By:
-------------------------------------- ---------------------------------
Name: JAMES G. COUCH
Title: President
4
<PAGE> 1
EXHIBIT 10.12
AGREEMENT
BETWEEN
PACIFIC BELL
AND
CRL NETWORK SERVICES
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
PREFACE 1
AGREEMENT 1
RECITALS 1
DEFINITIONS and ACRONYMS 2
GENERAL TERMS AND CONDITIONS 2
1. Reservation of Rights to Appeal or Petition for Reconsideration 2
2. Provision of Local Service and Unbundled Network Elements 2
3. Term of Agreement; Transitional Support 4
4. Good Faith Performance 5
5. Option to Obtain Local Services or Network Elements Under Other
Agreements 5
6. Responsibility of Each Party 5
7. Governmental Compliance 5
8. Responsibility For Environmental Contamination 6
9. Regulatory Matters 7
10. Liability and Indemnity 8
11. Audits and Inspections 10
12. Service Performance Measures and Related Remedies 12
13. Uncollectible or Unbillable Revenues 13
14. Customer Credit History 13
15. Force Majeure 14
16. Certain State and Local Taxes 15
17. Alternative Dispute Resolution 15
18. Notices 16
19. Confidentiality and Proprietary Information 17
20. Branding 19
21. Miscellaneous 19
</TABLE>
<PAGE> 3
ATTACHMENTS
Attachment 1 Definitions
Attachment 2 Acronyms
Attachment 3 Alternative Dispute Resolution
Attachment 4 Directory Listing Requirements
Attachment 5 Local Services Resale
Attachment 6 Specifications, Service Descriptions and Implementation
Schedule for Unbundled Network Elements
Attachment 7 Network Element Combinations
Attachment 8 Pricing
Attachment 9 Access to Verigate and LEX Operations Support Systems
Attachment 10 Ancillary Functions
Attachment 11 Provisioning and Ordering
Attachment 12 Maintenance
Attachment 13 Connectivity Billing and Recording
Attachment 14 Provision of Customer Usage Data
Attachment 15 Local Number Portability and Number Assignment
Attachment 16 Security
Attachment 17 Service Performance Measures and Related Remedies
Attachment 18 Interconnection
<PAGE> 4
PREFACE
AGREEMENT
This Agreement, which shall become effective as of the _____ day of
_________, 1998 ("Effective Date"), is entered into by and between CRL Network
Services ("CLEC"), a California corporation, having an office at One Kearny
Street, Suite 1450, San Francisco, CA and PACIFIC BELL ("PACIFIC"), a California
corporation, having an office at 2150 Webster St., Oakland, California.
RECITALS
WHEREAS, The Telecommunications Act of 1996 was signed into law on
February 8, 1996 (the "Act") and substantially amends the Communications Act of
1934; and
WHEREAS, the Act places certain duties and obligations upon, and
grants certain rights to, Telecommunications Carriers; and
WHEREAS, PACIFIC is an Incumbent Local Exchange Carrier; and
WHEREAS, PACIFIC is willing to sell unbundled Network Elements and
Ancillary Functions and additional features, as well as services for resale, on
the terms and subject to the conditions of this Agreement; and
WHEREAS, CLEC is a Telecommunications Carrier and has requested that
PACIFIC negotiate an Agreement with CLEC for the provision of interconnection,
unbundled Network Elements (including Ancillary Functions and additional
features), and services pursuant to the Act and in conformance with PACIFIC's
duties under the Act; and
WHEREAS, the Parties have arrived at this Agreement through voluntary
negotiations and arbitration undertaken pursuant to the Act,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants of this Agreement, CLEC and PACIFIC hereby agree as follows:
DEFINITIONS AND ACRONYMS
For purposes of this Agreement, certain terms have been defined in
Attachment 1 and elsewhere in this Agreement to encompass meanings that may
differ from, or be in addition to, the normal connotation of the defined word.
Unless the context clearly indicates otherwise, any term defined or used in the
singular shall include the plural. The words "shall" and "will" are used
interchangeably throughout this Agreement and the use of either connotes a
mandatory requirement. The use of one or the other shall not mean a different
degree of right or obligation for either Party. A defined word intended to
convey its special meaning is capitalized when used. Other terms that are
capitalized, and not defined in this Agreement, shall have the meaning
<PAGE> 5
2
in the Act, unless the context clearly indicates otherwise. For convenience of
reference only, Attachment 2 provides a list of acronyms used throughout this
Agreement.
GENERAL TERMS AND CONDITIONS
1. RESERVATION OF RIGHTS TO APPEAL OR PETITION FOR RECONSIDERATION
1.1. The filing of this arbitrated Agreement with the Commission in
accordance with Decision No. 96-12-034 dated December 9,1996
("Decision") In the Matter of the Petition of AT&T
Communications of California, Inc. for Arbitration Pursuant to
Section 252 of the Telecommunications Act of 1996 to Establish
an Interconnection Agreement with Pacific Bell, Application
96-08-040 (Filed August 20,1996) does not in any way constitute
a waiver by either CLEC or PACIFIC of any right which either
Party may have to appeal or to petition the Commission for
reconsideration of any determination contained in the Decision,
or to seek modification of any language of the Agreement which
was included (or excluded) due to mistake or clear inadvertence
caused by the limited amount of time given to prepare this
Agreement under the Commission's rules.
2. PROVISION OF LOCAL SERVICE AND UNBUNDLED ELEMENTS
2.1. This Agreement and its Attachments are subject to the Act,
regulations thereunder and relevant FCC and Commission decisions
in effect on the Effective Date of this Agreement. The effect on
this Agreement of changes in the Act, regulations thereunder and
relevant FCC and Commission decisions is set forth in Section 9
of this Agreement.
2.2. This Agreement, which consists of this statement of General
Terms and Conditions, and Attachments 1 through 18, inclusive,
sets forth the terms, conditions and prices under which PACIFIC
agrees to provide to CLEC (a) services for resale (hereinafter
referred to as "Local Services") and (b) certain unbundled
Network Elements, Ancillary Functions and additional features
and (c) other services or combinations of such Local Services,
Network Elements, Ancillary Functions and other services
("Combinations") for CLEC's own use or for resale to others, and
for purposes of offering telecommunications services of any
kind. This Agreement also sets forth the terms and conditions
for the interconnection of CLEC's network to PACIFIC's network
and the reciprocal compensation for the transport and
termination of telecommunications traffic. Unless otherwise
provided in this Agreement, and except where not technically
feasible in a given area, PACIFIC will perform all of its
obligations hereunder throughout its entire service area,
provided, however, that PACIFIC is not required, except at
CLEC's request pursuant to Section 1.6 of Attachment 6, to
install new or improved facilities in areas where they do not
currently exist.
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2.3. Subject to this Agreement and its Attachments, the Network
Elements, Ancillary Functions, Combinations, Local Services, or
other services provided pursuant to this Agreement may be
connected to other Network Elements, Ancillary Functions,
Combinations, Local Services, or other services provided by
PACIFIC or to any Network Elements, Ancillary Functions,
Combinations, Local Services or other services provided by CLEC
itself or by any other vendor. Subject to the requirements of
this Agreement and its Attachments, CLEC may, at any time add,
delete, relocate or modify the Network Elements, Ancillary
Functions, Local Services, Combinations or other services
purchased hereunder.
2.4. PACIFIC will not discontinue any unbundled Network Element,
Ancillary Service or Combination thereof during the term of this
Agreement without CLEC's consent, except (i) to the extent
required by network changes or upgrades, in which event PACIFIC
will comply with the network disclosure requirements stated in
the Act and FCC regulations thereunder; or (ii) if required by a
final order of a court, the FCC or the Commission as a result of
remand or appeal of the FCC's First Interconnection Order. In
the event such a final order allows but does not require
discontinuance, PACIFIC may, on thirty (30) days written notice,
require that such terms be renegotiated, and the Parties shall
renegotiate in good faith such mutually acceptable new terms as
may be required or appropriate to reflect the results of such
action. In the event that such new terms are not renegotiated
within ninety (90) days after such notice, or if the Parties are
unable to agree, either Party may submit the matter to the
Alternative Dispute Resolution Process described in Attachment
3.
2.5. PACIFIC will not withdraw any Local Service without providing
one-hundred five (105) days advance notice, from the date of
notice to the date of withdrawal of the service, to CLEC of
PACIFIC's intent to withdraw the service, inclusive of the time
required to file and the Commission to consider an advice letter
to withdraw the service pursuant to General Order 96A. If
PACIFIC discontinues a Local Service or Combination of Local
Services, PACIFIC shall either (a) limit the discontinuance to
new customers and grandfather the service for all CLEC resale
customers who subscribe to the service as of the date of
discontinuance; or (b) offer to CLEC for resale an alternative
service, having substantially similar capabilities and terms and
conditions.
3. TERM OF AGREEMENT; TRANSITIONAL SUPPORT
3.1. This Agreement shall expire on 12/19/99, and thereafter the
Agreement shall continue in force and effect unless and until a
new agreement, addressing all of the terms of this Agreement,
becomes effective between the Parties. The Parties agree to
commence negotiations on a new agreement no less than six (6)
months before the end of the three (3) years after this
Agreement becomes effective. In the event that such new terms
are not renegotiated within such six (6) month
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period, either Party may submit the matter to the Alternative
Dispute Resolution Process described in Attachment 3.
3.2. PACIFIC recognizes that the Network Elements, Ancillary
Functions, Combinations, Local Services and other services
provided hereunder are vital to CLEC and must be continued
without interruption, and that CLEC may itself provide or retain
another vendor to provide such comparable Network Elements,
Ancillary Functions, Combinations, Local Services or other
services. PACIFIC and CLEC agree to cooperate in an orderly and
efficient transition to CLEC or another vendor. PACIFIC and CLEC
further agree to cooperate in effecting the orderly transition
to CLEC or another vendor such that the level and quality of the
Network Elements, Ancillary Functions, Combinations, Local
Services, and other services are not degraded and to exercise
their best efforts to effect an orderly and efficient
transition. CLEC shall be responsible for coordinating such
transition.
4. GOOD FAITH PERFORMANCE
In the performance of their obligations under this Agreement, the
Parties shall act in good faith and consistently with the intent of the
Act. Where notice, approval or similar action by a Party is permitted or
required by any provision of this Agreement (including, without
limitation, the obligation of the Parties to further negotiate the
resolution of new or open issues under this Agreement), such action
shall not be unreasonably delayed, withheld or conditioned.
5. OPTION TO OBTAIN LOCAL SERVICES OR NETWORK ELEMENTS UNDER OTHER
AGREEMENTS
At CLEC's request and pursuant to section 252 of the Act, regulations
thereunder and relevant court decisions, PACIFIC shall make available to
CLEC, without unreasonable delay, any interconnection, service or
network element contained in any agreement to which PACIFIC is a party
that has been filed and approved by the Commission.
6. RESPONSIBILITY OF EACH PARTY
Each Party is an independent contractor, and has and hereby retains the
right to exercise full control of and supervision over its own
performance of its obligations under this Agreement and retains full
control over the employment, direction, compensation and discharge of
all employees assisting in the performance of such obligations. Each
Party will be solely responsible for all matters relating to payment of
such employees, including compliance with social security taxes,
withholding taxes and all other regulations governing such matters. Each
Party will be solely responsible for proper handling, storage, transport
and disposal at its own expense of all (i) substances or materials that
it or its contractors or agents bring to, create or assume control over
at Work Locations or, (ii) Waste resulting therefrom or otherwise
generated in connection with its or its contractors' or agents'
activities at the Work Locations. Subject to the limitations on
liability and except as otherwise provided in this Agreement, each Party
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shall be responsible for (i) its own acts and performance of all
obligations imposed by Applicable Law in connection with its activities,
legal status and property, real or personal and, (ii) the acts of its
own affiliates, employees, agents and contractors during the performance
of that Party's obligations hereunder.
7. GOVERNMENTAL COMPLIANCE
CLEC and PACIFIC each shall comply at its own expense with all
Applicable Law that relates to (i) its obligations under or activities
in connection with this Agreement; or (ii) its activities undertaken at,
in connection with or relating to Work Locations. CLEC and PACIFIC each
agree to indemnify, defend (at the other Party's request) and save
harmless the other, each of its officers, directors and employees from
and against any losses, damages, claims, demands, suits, liabilities,
fines, penalties and expenses (including reasonable attorneys' fees)
that arise out of or result from (i) its failure or the failure of its
contractors or agents to so comply or (ii) any activity, duty or status
of it or its contractors or agents that triggers any legal obligation to
investigate or remediate environmental contamination. PACIFIC will be
solely responsible for obtaining from Governmental Authorities, building
owners, other carriers, and any other persons or entities, all rights
and privileges (including, but not limited to, space and power), which
are necessary for PACIFIC to provide the Network Elements, Ancillary
Functions, Combinations, Local Services and other services pursuant to
this Agreement. To the extent necessary, CLEC will cooperate with
PACIFIC in obtaining such rights and privileges.
8. RESPONSIBILITY FOR ENVIRONMENTAL CONTAMINATION
8.1. CLEC shall in no event be liable to PACIFIC for any costs
whatsoever resulting from the presence or release of any
environmental hazard that CLEC did not introduce to the affected
work location, provided that activities of CLEC or its agents
did not cause or contribute to a release. PACIFIC shall
indemnify, defend (at CLEC's request) and hold harmless CLEC,
each of its officers, directors and employees from and against
any losses, damages, claims, demands, suits, liabilities, fines,
penalties and expenses (including reasonable attorneys' fees)
that arise out of or result from (i) any environmental hazard
that PACIFIC, its contractors or agents introduce to the work
locations or (ii) the presence or release of any environmental
hazard for which PACIFIC is responsible under applicable law.
8.2. PACIFIC shall in no event be liable to CLEC for any costs
whatsoever resulting from the presence or release of any
environmental hazard that PACIFIC did not introduce to the
affected work location, provided that actions of PACIFIC or its
agents did not cause or contribute to a release. CLEC shall
indemnify, defend (at PACIFIC's request) and hold harmless
PACIFIC, each of its officers, directors and employees from and
against any losses, damages, claims, demands, suits,
liabilities, fines, penalties and expenses (including reasonable
attorneys fees) that arise out of or result from (i) any
environmental hazard that CLEC, its contractors
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or agents introduce to the work locations or (ii) the presence
or release of any environmental hazard for which CLEC is
responsible under applicable law.
9. REGULATORY MATTERS
9.1. PACIFIC shall be responsible for obtaining and keeping in effect
all FCC, state regulatory commission, franchise authority and
other regulatory approvals that may be required in connection
with the performance of its obligations under this Agreement.
CLEC shall be responsible for obtaining and keeping in effect
all FCC, state regulatory commission, franchise authority and
other regulatory approvals that may be required in connection
with its obligations under this Agreement, and with its offering
of services to CLEC Customers contemplated by this Agreement.
CLEC shall reasonably cooperate with PACIFIC in obtaining and
maintaining any required approvals for which PACIFIC is
responsible, and PACIFIC shall reasonably cooperate with CLEC in
obtaining and maintaining any required approvals for which CLEC
is responsible.
9.2. To the extent that PACIFIC is required by any Governmental
Authority to file a tariff or make another similar filing in
connection with the performance of any action that would
otherwise be governed by this Agreement, the terms of this
Agreement shall control, unless this Agreement links a term,
condition or price in this Agreement to a specific tariff, in
which case the terms of the tariff as modified from time to time
will apply. If, subsequent to the effective date of any tariff
incorporated by reference into this Agreement, PACIFIC is
ordered not to file tariffs with the state regulatory commission
or the FCC, or is permitted not to file tariffs (and elects not
to do so), either generally or for specific Network Elements,
Ancillary Functions, Combinations, Local Services or other
services provided hereunder, the terms and conditions of such
tariffs as of the date on which the requirement to file such
tariffs was lifted shall, to the degree not inconsistent with
this Agreement, be deemed incorporated in this Agreement by
reference.
9.3. In the event that any final and nonappealable legislative,
regulatory, judicial or other legal action renders this
Agreement or any Attachment hereto inoperable, materially
affects any material terms of this Agreement, or materially
affects the ability of CLEC or PACIFIC to perform any material
terms of this Agreement, CLEC or PACIFIC may, on thirty (30)
days written notice (delivered not later than thirty (30) days
following the date on which such action has become legally
binding and has otherwise become final and nonappealable)
require that such terms be renegotiated, and the Parties shall
renegotiate in good faith such mutually acceptable new terms as
may be required. In the event that such new terms are not
renegotiated within ninety (90) days after such notice, the
dispute shall be referred to the Alternative Dispute Resolution
procedures set forth in Section 17 and Attachment 3.
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9.4. Pursuant to the Decision (at 11-12), unless the Parties
voluntarily agree otherwise, all terms of this Agreement will be
subject to modification based on future Commission decisions.
10. LIABILITY AND INDEMNITY
10.1. Liabilities of CLEC - CLEC's liability to PACIFIC during any
Contract Year resulting from any and all causes, other than as
specified in Sections 7, 8, 10.3 and 10.4, shall not exceed the
total of any amounts due and owing by CLEC to PACIFIC under this
Agreement during the Contract Year during which such cause
accrues or arises.
10.2. Liabilities of PACIFIC - PACIFIC's liability to CLEC during any
Contract Year resulting from any and all causes, other than as
specified in Sections 7, 8, 10.3 and 10.4, shall not exceed
Twenty Five Million Dollars ($25,000,000).
10.3. No Consequential Damages - NEITHER CLEC NOR PACIFIC SHALL BE
LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, RELIANCE, OR SPECIAL DAMAGES SUFFERED BY SUCH
OTHER PARTY (INCLUDING WITHOUT LIMITATION DAMAGES FOR HARM TO
BUSINESS, LOST REVENUES, LOST SAVINGS, OR LOST PROFITS SUFFERED
BY SUCH OTHER PARTY), REGARDLESS OF THE FORM OF ACTION, WHETHER
IN CONTRACT, WARRANTY, STRICT LIABILITY, OR TORT, INCLUDING
WITHOUT LIMITATION NEGLIGENCE OF ANY KIND WHETHER ACTIVE OR
PASSIVE, AND REGARDLESS OF WHETHER THE PARTIES KNEW OF THE
POSSIBILITY THAT SUCH DAMAGES COULD RESULT. EACH PARTY HEREBY
RELEASES THE OTHER PARTY (AND SUCH OTHER PARTY'S SUBSIDIARIES
AND AFFILIATES, AND THEIR RESPECTIVE OFFICERS, DIRECTORS;
EMPLOYEES AND AGENTS) FROM ANY SUCH CLAIM. NOTHING CONTAINED IN
THIS SECTION 10 SHALL LIMIT PACIFIC'S OR CLEC'S LIABILITY TO THE
OTHER FOR (i) WILLFUL OR INTENTIONAL MISCONDUCT (INCLUDING GROSS
NEGLIGENCE); (ii) BODILY INJURY, DEATH OR DAMAGE TO TANGIBLE
REAL OR TANGIBLE PERSONAL PROPERTY PROXIMATELY CAUSED BY
PACIFIC'S OR CLEC'S NEGLIGENT ACT OR OMISSION OR THAT OF THEIR
RESPECTIVE AGENTS SUBCONTRACTORS OR EMPLOYEES, NOR SHALL
ANYTHING CONTAINED IN THIS SECTION 10 LIMIT THE PARTIES'
INDEMNIFICATION OBLIGATIONS, AS SPECIFIED BELOW. FOR PURPOSES OF
THIS SECTION 10, AMOUNTS DUE AND OWING TO EITHER PARTY PURSUANT
TO ATTACHMENT 17 SHALL NOT BE CONSIDERED TO BE INDIRECT,
INCIDENTAL, CONSEQUENTIAL, RELIANCE, OR SPECIAL DAMAGES.
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10.4. Obligation to Indemnify - Each Party shall, and hereby agrees
to, defend at the other's request, indemnify and hold harmless
the other Party and each of its officers, directors, employees
and agents (each, an "Indemnitee") against and in respect of any
loss, debt, liability, damage, obligation, claim, demand,
judgment or settlement of any nature or kind, known or unknown,
liquidated or unliquidated, including without limitation all
reasonable costs and expenses incurred (legal, accounting or
otherwise) (collectively, "Damages") arising out of, resulting
from or based upon any pending or threatened claim, action,
proceeding or suit by any third party (a "Claim") (i) alleging
any breach of any representation, warranty or covenant made by
such indemnifying Party (the "Indemnifying Party") in this
Agreement, (ii) based upon injuries or damage to any person or
property or the environment arising out of or in connection with
this Agreement that are the result of the Indemnifying Party's
actions, breach of Applicable Law, or status or the actions,
breach of Applicable Law, or status of its employees, agents and
subcontractors, or (iii) for actual or alleged infringement of
any patent, copyright, trademark, service mark, trade name,
trade dress, trade secret or any other intellectual property
right, now known or later developed (referred to as
"Intellectual Property Rights") to the extent that such claim or
action arises from the Indemnifying Party's or the Indemnifying
Party's customer's use of the Network Elements, Ancillary
Functions, Combinations, Local Services or other services
provided under this Agreement.
10.5. Obligation to Defend; Notice; Co-operation - Whenever a Claim
shall arise for indemnification under Section 10.4, the relevant
Indemnitee, as appropriate, shall promptly notify the
Indemnifying Party and request the Indemnifying Party to defend
the same. Failure to so notify the Indemnifying Party shall not
relieve the Indemnifying Party of any liability that the
Indemnifying Party might have, except to the extent that such
failure prejudices the Indemnifying Party's ability to defend
such Claim. The Indemnifying Party shall have the right to
defend against such liability or assertion in which event the
Indemnifying Party shall give written notice to the Indemnitee
of acceptance of the defense of such Claim and the identity of
counsel selected by the Indemnifying Party. Except as set forth
below, such notice to the relevant Indemnitee shall give the
Indemnifying Party full authority to defend, adjust, compromise
or settle such Claim with respect to which such notice shall
have been given, except to the extent that any compromise or
settlement shall prejudice the Intellectual Property Rights of
the relevant Indemnitees. The Indemnifying Party shall consult
with the relevant Indemnitee prior to any compromise or
settlement that would affect the Intellectual Property Rights or
other rights of any Indemnitee, and the relevant Indemnitee
shall have the right to refuse such compromise or settlement
and, at the refusing Party's or refusing Parties' cost, to take
over such defense, provided that in such event the Indemnifying
Party shall not be responsible for, nor shall it be obligated to
indemnify the relevant Indemnitee against, any cost or liability
in excess of such refused compromise or settlement. With respect
to any defense accepted by the Indemnifying Party, the relevant
Indemnitee shall be entitled to participate with
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the Indemnifying Party in such defense if the Claim requests
equitable relief or other relief that could affect the rights of
the Indemnitee and also shall be entitled to employ separate
counsel for such defense at such Indemnitee's expense. In the
event the Indemnifying Party does not accept the defense of any
indemnified Claim as provided above, the relevant Indemnitee
shall have the right to employ counsel for such defense at the
expense of the Indemnifying Party. Each Party agrees to
cooperate and to cause its employees and agents to cooperate
with the other Party in the defense of any such Claim and the
relevant records of each Party shall be available to the other
Party with respect to any such defense.
11. AUDITS AND INSPECTIONS
11.1. Subject to PACIFIC's reasonable security requirements and except
as may be otherwise specifically provided in this Agreement,
CLEC may audit PACIFIC's books, records, and other documents
once in each Contract Year for the purpose of evaluating the
accuracy of PACIFIC's billing and invoicing for services
provided by PACIFIC to CLEC hereunder. CLEC may employ other
persons or firms for this purpose. Such audit shall take place
at a time and place agreed on by the Parties no later than
thirty (30) days after notice thereof to PACIFIC.
11.2. Subject to CLEC's reasonable security requirements and except as
may be otherwise specifically provided in this Agreement,
PACIFIC may audit CLEC's books, records, and other documents
once in each Contract Year for the purpose of evaluating the
accuracy of CLEC's billing and invoicing for services provided
by CLEC to PACIFIC hereunder. PACIFIC may employ other persons
or firms for this purpose. Such audit shall take place at a time
and place agreed on by the Parties no later than thirty (30)
days after notice thereof to CLEC.
11.3. Each Party shall promptly correct any billing or invoicing
errors that are revealed in an audit, including making refund of
any overpayment in the form of a credit, or payment of any under
payment in the form of a debit, on the invoice for the first
full billing cycle after the Parties have agreed upon the
accuracy of the audit results. Any disputes concerning audit
results shall be resolved pursuant to the Alternate Dispute
Resolution procedures described in Attachment 3.
11.4. Each Party shall cooperate fully in any such audit, providing
reasonable access to any and all appropriate employees and
books, records and other documents reasonably necessary to
assess the accuracy of each Party's billing and invoicing.
11.5. Either Party may audit the other Party's books, records and
documents more than once during any Contract Year if the
previous audit found previously uncorrected net variances or
errors in invoices in the other Party's favor with an aggregate
value of at least three percent (3%) of the amounts payable by
the Party being audited under this Agreement during the period
covered by the audit.
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11.6. Audits shall be at the requesting Party's expense, subject to
reimbursement by the audited Party in the event that an audit
finds an adjustment in the charges or in any invoice paid or
payable by the requesting Party hereunder by an amount that is,
on an annualized basis, greater than three percent (3%) of the
aggregate charges to the requesting Party under this Agreement
during the period covered by the audit.
11.7. Upon (i) the discovery by a Party of overcharges not previously
reimbursed to the other Party or (ii) the resolution of disputed
audits, the audited Party shall promptly reimburse the
requesting Party the amount of any overpayment, plus interest at
the prime rate compounded daily for the number of days from the
date of overpayment to and including the date that payment is
actually made. In no event, however, shall interest be assessed
on any previously assessed or accrued late payment charges.
11.8. Upon (i) the discovery by either Party of underpayments not
previously paid to the other Party, or (ii) the resolution of
disputed audits, the audited Party shall promptly pay the other
Party the amount of any underpayment, plus interest at the prime
rate compounded daily from the date of underpayment to and
including the date that payment is actually made.
11.9. Subject to PACIFIC's reasonable security requirements and except
as may be otherwise specifically provided in this Agreement,
CLEC shall have the following audit rights in addition to the
financial audit rights provided above: (a) if CLEC has a
reasonable basis to believe that an audit is required to confirm
PACIFIC's compliance with the Act or this Agreement, CLEC may
inspect once, in each Contract Year, PACIFIC's books, records,
and other documents relevant to the Network Elements, Ancillary
Functions, Combinations, Local Services, or other services
provided to CLEC for the purpose of evaluating PACIFIC's
compliance with the terms and conditions of this Agreement; and
(b) CLEC shall have the audit rights specified in Attachments 17
and 18. CLEC employees may conduct audits pursuant to this
Section 11.9, unless PACIFIC reasonably maintains that the
books, records and other documents relating to CLEC are
impossible or impractical to segregate from documents containing
proprietary information of other parties, in which case, the
audit shall be conducted by a mutually designated third Party
auditor, with the expense shared equally by the Parties,
provided, however, that (a) if the auditor finds that PACIFIC
has complied with the Act or this Agreement, CLEC shall pay for
the audit; and (b) if the auditor finds that PACIFIC has not
complied with the Act or this Agreement, PACIFIC shall pay for
the audit.
12. SERVICE PERFORMANCE MEASURES AND RELATED REMEDIES
12.1. Remedies. The remedies set forth in Attachment 17 shall apply
when default has occurred as defined in this Agreement, and,
where appropriate, default notice has
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been given. Payment of remedies shall be in the nature of
liquidated damages to the non-defaulting Party, and shall be in
lieu of all other damages related to the default, including
without limitation liability imposed by tariff for the same
default. Where more than one performance category is subject to
the remedy, a remedy payment for each category will be made by
the defaulting Party to the non-defaulting Party, except where
remedies involve waiver of non-recurring charges, the charge
will only be waived once per affected service order. Remedies
for comparative measures will be paid only for those defaulting
performance areas for the number of provisioning and maintenance
items that would restore service levels to parity based on the
measured performance for the same class of service, at the same
time in the same geographic area.
12.2. In order that both Parties may have the opportunity to evaluate
the forecasting, operational processes and service levels
provided under the Agreement, remedies will not be applied in
the first six months from the Effective Date of the Agreement.
Prior to the commencement of remedies, each Party will measure
performance and, as mutually agreed, will change measurements,
objectives and remedy limits when actual performance indicates
that any of the measurements, objectives or remedy limits are
ineffective or inappropriate for the service or Network Element
being provided.
12.3. The Parties may amend, modify, delete or add remedies by mutual
agreement and modification of Attachment 17.
13. UNCOLLECTIBLE OR UNBILLABLE REVENUES
13.1. Uncollectible or unbillabel revenues resulting from, but not
confined to, provisioning, maintenance, or signal network
routing errors shall be the responsibility of the Party causing
such error.
14. CUSTOMER CREDIT HISTORY
CLEC and PACIFIC agree to make available to the Centralized Credit Check
System (CCCS) on a timely basis the following customer payment history
components for each person or entity that applies for local or intraLATA
toll Telecommunications Service(s) from either carrier, and for each
unpaid closed account. Such information shall be provided on the
condition that the CCCS will only make such information available to the
carrier to which the person or entity in question has applied for
telephone service when CCCS has unpaid closed account information for
that applicant.
Customer's full name, surname, given name, middle name or initial;
Service address, when service was/is provided;
Mailing address, where bills are sent;
Current telephone number;
Applicant's previous phone number; if any;
Spouse's name, if applicable;
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Valid identifying number(s) for customer and/or spouse, e.g.
Social Security Number, Driver's License, etc.;
Specific Data regarding accounts that have left an unpaid debt with the
utility; and
Payments and adjustments on unpaid accounts to update current balance
due information.
15. FORCE MAJEURE
15.1. Except as otherwise specifically provided in this Agreement,
neither Party shall be liable for any delay or failure in
performance of any part of this Agreement caused by a Force
Majeure condition, including acts of the United States of
America or any state, territory or political subdivision
thereof, acts of God or a public enemy, fires, floods, disputes,
freight embargoes, earthquakes, volcanic actions, wars, civil
disturbances, or other causes beyond the reasonable control of
the Party claiming excusable delay or other failure to perform.
Provided, Force Majeure shall not include acts of any
Governmental Authority relating to environmental, health or
safety conditions at Work Locations. If any Force Majeure
condition occurs, the Party whose performance fails or is
delayed because of such Force Majeure condition shall give
prompt notice to the other Party, and upon cessation of such
Force Majeure condition, shall give like notice and commence
performance hereunder as promptly as reasonably practicable.
15.2. Notwithstanding subsection 15.1, preceding, no delay or other
failure to perform shall be excused pursuant to this Section:
(i) by the acts or omissions of a Party's subcontractors,
material men, suppliers or other third persons providing
products or services to such Party unless such acts or omissions
are themselves the product of a Force Majeure condition, (ii) if
the delay or failure relates to environmental, health or safety
conditions at Work Locations and, (iii) unless such delay or
failure and the consequences thereof are beyond the control and
without the fault or negligence of the Party claiming excusable
delay or other failure to perform.
16. CERTAIN STATE AND LOCAL TAXES
Any state or local excise, sales, or use taxes (excluding any taxes
levied on income) resulting from the performance of this Agreement shall
be borne by the Party upon which the obligation for payment is imposed
under applicable law, even if the obligation to collect and remit such
taxes is placed upon the other Party, provided, however, that the other
Party has not acted in a manner that has materially impaired the ability
of the liable Party to contest the tax or the amount of the tax (and
interest and penalties, etc.) regardless of whether the impairment was
foreseeable. If the other Party has materially impaired the ability of
the liable Party to contest the tax or the amount of the tax, the Party
causing the impairment shall be liable for the tax (interest and
penalties, etc.) caused by the Party's impairment. Any such taxes shall
be shown as separate items on applicable billing documents between the
Parties. The Party so obligated to pay any such taxes may contest the
same in good faith, at its own expense, and shall be entitled to the
benefit of any refund or recovery, provided that such Party shall not
permit any lien to
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exist on any asset of the other Party by reason of the contest. The
Party obligated to collect and remit shall cooperate in any such contest
by the other Party;
17. ALTERNATIVE DISPUTE RESOLUTION
All disputes, claims or disagreements (collectively "Disputes") arising
under or related to this Agreement or the breach hereof, except those
arising pursuant to Attachment 13, Connectivity Billing, shall be
resolved according to the procedures set forth in Attachment 3. Disputes
involving matters subject to the Connectivity Billing provisions
contained in Attachment 13, shall be resolved in accordance with the
Billing Disputes section of Attachment 13. In no event shall the Parties
permit the pendency of a Dispute to disrupt service to any CLEC Customer
contemplated by this Agreement. The foregoing notwithstanding, neither
this Section 17 nor Attachment 3 shall be construed to prevent either
Party from (a) invoking a remedy required or permitted by the Act or FCC
regulations thereunder or (b) seeking and obtaining temporary equitable
remedies, including temporary restraining orders. A request by a Party
to a court or a regulatory authority for interim measures or equitable
relief shall not be deemed a waiver of the obligation to comply with
Attachment 3.
18. NOTICES
Any notices or other communications required or permitted to be given or
delivered under this Agreement shall be in hard-copy writing (unless
otherwise specifically provided herein) and shall be sufficiently given
if delivered personally or delivered by prepaid overnight express
service to the following (unless otherwise specifically required by this
Agreement to be delivered to another representative or point of
contact):
If to CRL Network Services:
Jim Couch
President
One Kearny Street, Suite 1450
San Francisco, CA 94108
and
Contracts Administrator
One Kearny Street, Suite 1450
San Francisco, CA 94108
If to PACIFIC:
Director, Competitor Provider Accounts
370 Third Street, Room 716
San Francisco, CA 94107
<PAGE> 17
14
and
James B. Young
General Attorney & Assistant General Counsel
Pacific Telesis Legal Group
140 New Montgomery Street, Room 1811
San Francisco, CA 94105
Fax: (415) 974-5570
Either Party may unilaterally change its designated representative
and/or address for the receipt of notices by giving seven (7) days prior
written notice to the other Party in compliance with this Section. Any
notice or other communication shall be deemed given when received.
19. CONFIDENTIALITY AND PROPRIETARY INFORMATION
19.1. For the purposes of this Agreement, "Confidential Information"
means confidential or proprietary technical or business
Information given by the Discloser to the Recipient. All
information which is disclosed by one Party to the other in
connection with this Agreement shall automatically be deemed
proprietary to the Discloser and subject to this Agreement,
unless otherwise confirmed in writing by the Discloser. In
addition, by way of example and not limitation, all orders for
Network Elements Ancillary Functions, Combinations, Local
Services or other services placed by CLEC pursuant to this
Agreement, and information that would constitute Customer
Proprietary Network Information of CLEC Customers pursuant to
the Act and the rules and regulations of the FCC, and Recorded
Usage Data as described in Attachment 14, whether disclosed by
CLEC to PACIFIC or otherwise acquired by PACIFIC in the course
of the performance of this Agreement, shall be deemed
Confidential Information of CLEC for all purposes under this
Agreement.
19.2. For a period of five (5) years from the receipt of Confidential
Information from the Discloser, except as otherwise specified in
this Agreement, the Recipient agrees (a) to use it only for the
purpose of performing under this Agreement; (b) to hold it in
confidence and disclose it to no one other than its employees
having a need to know for the purpose of performing under this
Agreement; and (c) to safeguard it from unauthorized use or
disclosure with at least the same degree of care with which the
Recipient safeguards its own Confidential Information. If the
Recipient wishes to disclose the Discloser's Confidential
Information to a third party agent or consultant, such
disclosure must be mutually agreed to in writing by the Parties
to this Agreement, and the agent or consultant must have
executed a written agreement of non-disclosure and non-use
comparable in scope to the terms of this Section.
19.3. The Recipient may make copies of Confidential Information only
as reasonably necessary to perform its obligations under this
Agreement. All such copies shall
<PAGE> 18
15
bear the same copyright and proprietary rights notices as are
contained on the original.
19.4. The Recipient agrees to return all Confidential Information in
tangible form received from the Discloser, including any copies
made by the Recipient, within thirty (30) days after a written
request is delivered to the Recipient, or to destroy all such
Confidential Information. except for Confidential Information
that the Recipient reasonably requires to perform its
obligations under this Agreement. If either Party loses or makes
an unauthorized disclosure of the other Party's Confidential
Information, it shall notify such other Party immediately and
use reasonable efforts to retrieve the lost or wrongfully
disclosed information.
19.5. The Recipient shall have no obligation to safeguard Confidential
Information: (a) which was in the possession of the Recipient
free of restriction prior to its receipt from the Discloser; (b)
after it becomes publicly known or available through no breach
of this Agreement by the Recipient; (c) after it is rightfully
acquired by the Recipient free of restrictions on its
disclosure; or (d) after it is independently developed by
personnel of the Recipient to whom the Discloser's Confidential
Information had not been previously disclosed. In addition,
either Party shall have the right to disclose Confidential
Information to any mediator, arbitrator, state or federal
regulatory body, the Department of Justice or any court in the
conduct of any mediation, arbitration or approval of this
Agreement or in any proceedings concerning the provision of
interLATA services by PACIFIC. Additionally, the Recipient may
disclose Confidential Information if so required by law, a
court, or governmental agency, so long as the Discloser has been
notified of the requirement promptly after the Recipient becomes
aware of the intended disclosure, and so long as the Recipient
undertakes all lawful measures to avoid disclosing such
information until Discloser has had reasonable time to seek a
protective order that covers the Confidential Information to be
disclosed.
19.6. Each Party's obligations to safeguard Confidential Information
disclosed prior to expiration or termination of this Agreement
shall survive such expiration or termination.
19.7. Except as otherwise expressly provided elsewhere in this
Agreement, no license is hereby granted under any patent,
trademark, or copyright, nor is any such license implied, solely
by virtue of the disclosure of any Confidential Information.
19.8. Each Party agrees that the Discloser would be irreparably
injured by a breach of this Agreement by the Recipient or its
representatives and that the Discloser shall be entitled to seek
equitable relief, including injunctive relief and specific
performance, in the event of any breach of the provisions of
this Agreement. Such remedies shall not be deemed to be the
exclusive remedies for a breach of this Agreement, but shall be
in addition to all other remedies available at law or in equity.
<PAGE> 19
16
19.9. Nothing in this Section 19 shall prevent PACIFIC from using
Recorded Usage Data for the limited purpose of network planning
and management.
20. BRANDING
20.1. Services offered by CLEC that incorporate Network Elements,
Ancillary Functions or Combinations made available to CLEC
pursuant to this Agreement, and Local Services that CLEC offers
for resale shall be branded as stated in the Attachments to this
Agreement. In no event shall PACIFIC personnel installing or
repairing CLEC Local Service, Network Elements, or Combinations
initiate a conversation with the end user customer to market
PACIFIC products or services. PACIFIC personnel shall respond to
any inquires from end users or consumers concerning PACIFIC's
products or services by providing a telephone number to call for
information.
21. MISCELLANEOUS
21.1. Delegation or Assignment - Neither Party shall assign any of its
rights or delegate any of its obligations under this Agreement
without the prior written consent of the other Party which will
not be unreasonably withheld. Any prohibited assignment or
delegations shall be null and void.
21.2. Subcontracting - Neither Party shall subcontract the performance
of any obligation under this Agreement without the prior written
consent of the other Party, which shall not be unreasonably
withheld. If any obligation is performed through a
subcontractor, the original Party shall remain fully responsible
for the performance of this Agreement in accordance with its
terms, including any obligations it performs through
subcontractors, and shall be solely responsible for payments due
its subcontractors. No contract, subcontract or other agreement
entered into by either Party with any third party in connection
with the provision of Local Services or Network Elements
hereunder shall provide for any indemnity, guarantee or
assumption of liability by, or other obligation of, the other
Party to this Agreement with respect to such arrangement, except
as consented to in writing by the other Party. No subcontractor
shall be deemed a third party beneficiary for any purposes under
this Agreement.
21.3. Nonexclusive Remedies - Except as otherwise expressly provided
in this Agreement, each of the remedies provided under this
Agreement is cumulative and is in addition to any remedies that
may be available at law or in equity.
21.4. No Third-Party Beneficiaries - Except as may be specifically set
forth in this Agreement, this Agreement does not provide and
shall not be construed to provide third parties with any remedy,
claim, liability, reimbursement, cause of action, or other
privilege.
<PAGE> 20
17
21.5. Referenced Documents - Whenever any provision of this Agreement
refers to a technical reference, technical publication, CLEC
practice, PACIFIC practice, any publication of
telecommunications industry administrative or technical
standards, or any other document specifically incorporated into
this Agreement, it will be deemed to be a reference to the most
recent version or edition (including any amendments,
supplements, addenda, or successors) of such document that is in
effect, and will include the most recent version or edition
(including any amendments, supplements, addenda, or successors)
of each document incorporated by reference in such a technical
reference, technical publication, CLEC practice, PACIFIC
practice, or publication of industry standards. Should there be
an inconsistency between or among publications or standards, the
Parties shall mutually agree which requirement shall apply.
21.6. Governing Law - The validity of this Agreement, the construction
and enforcement of its terms, and the interpretation of the
rights and duties of the Parties shall be governed by the laws
of the State of California other than as to conflicts of laws,
except insofar as federal law may control any aspect of this
Agreement, in which case federal law shall govern such aspect.
The Parties submit to personal jurisdiction in San Francisco,
California and waive any and all objections to California venue.
21.7. Publicity and Advertising - Neither Party shall publish or use
any advertising, sales promotions or other publicity materials
that use the other Party's logo, trademarks or service marks
without the prior written approval of the other Party.
21.8. Amendments or Waivers - Except as otherwise provided in this
Agreement, no amendment or waiver of any provision of this
Agreement, and no consent to any default under this Agreement
shall be effective unless the same is in writing and signed
either by an officer of the Party against whom such amendment,
waiver or consent is claimed or by the designated representative
of such an officer. In addition, no course of dealing or failure
of a Party strictly to enforce any term, right or condition of
this Agreement shall be construed as a waiver of such term,
right or condition. By entering into this Agreement neither
Party waives any right granted to it pursuant to the Act.
21.9. Severability - If any term, condition or provision of this
Agreement is held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not invalidate the
entire Agreement, unless such construction would be
unreasonable. The Agreement shall be construed as if it did not
contain the invalid or unenforceable provision or provisions,
and the rights and obligations of each Party shall be construed
and enforced accordingly; provided, however, that in the event
such invalid or unenforceable provision or provisions are
essential elements of this Agreement and substantially impair
the rights or obligations of either Party, the Parties shall
promptly negotiate a replacement provision or provisions.
<PAGE> 21
18
21.10. Entire Agreement - This Agreement, which shall include the
Attachments, Appendices and other documents referenced herein,
constitutes the entire Agreement between the Parties concerning
the subject matter hereof and supersedes any prior agreements,
representations, statements, negotiations, understandings,
proposals or undertakings, oral or written, with respect to the
subject matter expressly set forth herein.
21.11. Definitions and Diagrams: The definitions contained in
Attachment 1 are meant to accurately describe the meaning
accorded the term as required by the Act and as used in this
Agreement. In the event of any disagreement between a definition
of the term in the Act, in Attachment 1 or any other part of
this Agreement (including the Attachments), the definition in
the Act shall supersede any definition in the Agreement or
Attachments and any specific definition in an Attachment other
than Attachment 1 shall supersede the definition in Attachment
1. Throughout this Agreement and its Attachments, various
diagrams are used. These diagrams are illustrative only, and, in
the event of any disagreement between the diagram and the words
of this Agreement, the words of this Agreement shall control.
21.12. Survival of Obligations - Any liabilities or obligations of a
Party for acts or omissions prior to the cancellation or
termination of this Agreement, any obligation of a Party under
the provisions regarding indemnification, Confidential
Information, limitations on liability, and any other provisions
of this Agreement which, by their terms, are contemplated to
survive (or to be performed after) termination of this
Agreement, shall survive cancellation or termination thereof.
21.13. Executed in Counterparts - This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original; but such counterparts shall together constitute one
and the same instrument.
21.14. Headings of No Force or Effect - The headings of Articles and
Sections of this Agreement are for convenience of reference
only, and shall in no way define, modify or restrict the meaning
or interpretation of the terms or provisions of this Agreement.
<PAGE> 22
19
In witness whereof, the Parties have executed this Agreement through their
authorized representatives.
PACIFIC BELL CRL NETWORK SERVICES
Signature: /S/ Sandy Kinney Signature: /S/ James Couch
------------------------ ------------------------
Printed Name: Sandy Kinney Printed Name: James Couch
--------------------- ---------------------
Title: VP-GM Industry Markets Title: President
---------------------------- ----------------------------
Date: 9/22/98 Date: 9/9/98
----------------------------- -----------------------------
<PAGE> 23
ATTACHMENT 1
Page 1
ATTACHMENT 1
DEFINITIONS
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<PAGE> 24
ATTACHMENT 1
Page 2
1. "Access Tandem Switches" are switches used to connect End Offices to
Interexchange Carrier switches. PACIFIC's Access Tandem Switches are
also used to connect and switch traffic between and among Central
Office Switches.
2. "Act" means the Communications Act of 1934, 47 U.S.C. 151 et seq., as
amended by the Telecommunications Act of 1996, and as interpreted
from time to time in the duly authorized rules and regulations of the
FCC or the Commission.
3. "Advanced Intelligent Network (AIN) Trigger Capability" is a network
functionality that permits specific conditions to be programmed into
a switch which, when met, directs the switch to suspend call
processing and to receive special instructions for further call
handling instructions in order to enable carriers to offer advanced
features and services.
4. "AMA" means the Automated Message Accounting structure inherent in
switch technology that initially records telecommunication message
information. AMA format is contained in the Automated Message
Accounting document, published by Bellcore as GR-1100-CORE which
defines the industry standard for message recording.
5. "Ancillary Functions" are services or facilities that PACIFIC offers
to CLEC so that CLEC may obtain and use unbundled Network Elements or
PACIFIC services to provide telecommunications services to CLEC's
customers. Ancillary Functions include collocation and rights of way,
and may include other services or facilities as mutually agreed to by
the parties.
6. "Applicable Law" shall mean all laws, statutes, common law,
regulations, ordinances, codes, rules, guidelines, orders, permits
and approvals of any Governmental Authority, including without
limitation those relating to the environment, health and safety,
which apply or relate to Work Locations or the subject matter of this
Agreement.
7. "CLEC Customer" means the relationship for a specific service with
any business or residential customer to the extent such customer
purchases CLEC services.
8. "Automatic Number Identification" or "ANI" means a Feature Group D
signaling parameter that refers to the number transmitted through the
network identifying the billing number of the calling party.
9. "Automatic Location Identification/(ALI)" means the feature of E911
that displays at the PSAP the address of the calling telephone
number. This feature requires a data storage and retrieval system for
translating telephone numbers to the associated address. ALI
information may include Emergency Service Number (ESN), street
address, room or floor, and names of the enforcement, fire and
medical agencies with jurisdictional responsibility for the address.
The Management System (E911) database is used to update the Automatic
E911 Location Identification (ALI) databases.
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ATTACHMENT 1
Page 3
10. "Automatic Route Selection (ARS)" is a service feature that provides
for automatic selection of the most appropriate outbound route for
each call based on criteria programmed into the system.
11. "Busy Line Verification" or "BLV" means a service in which an end
user requests an operator to confirm the busy status of a line.
12. "Busy Line Verification and Interrupt" or "BLVI" means a service in
which an end user requests an operator to confirm the busy status of
a line and requests an interruption of the call.
13. "CABS" means the Carrier Access Billing System.
14. "Calling Party Number (CPN)" means a Common Channel Signaling
parameter which refers to the number transmitted through the network
identifying the calling party.
15. "Central Office Switch" or "Central Office" means a switching entity
within the public switched telecommunications network, including but
not limited to End Office Switches and Tandem Switches. Central
Office Switches may be employed as combination End Office/Tandem
Switches.
16. "CLC Operations Handbook" means Sections 16.6 and 16.7 of the CLC
Handbook, which address PACIFIC's Operations and Administration
interfaces for local interconnection and SS7.
17. "Centralized Message Distribution System" ("CMDS") means the
transport system that LECs use to exchange outcollect and CABS access
messages among each other and other parties connected to CMDS.
18. "Charge Number" means a CCS signaling parameter that refers to the
number transmitted through the network identifying the billing number
of the calling party.
19. "Centrex" means a Telecommunications Service that uses central office
switching equipment for call routing to handle direct dialing of
calls, and to provide many private branch exchange-like features.
20. "CLASS (Custom Local Area Signaling Service) and Custom Features"
means a grouping of optional enhancements to basic local exchange
service that offers special call handling features to end users
(e.g., call waiting, call forwarding and automatic redial).
21. "Combination" shall have the meaning set forth in 47 C.F.R. Sec.
51.315.
22. "Commission" means the California Public Utilities Commission.
23. "Common Channel Signaling" or "CCS" means a method of digitally
transmitting call set-up and network control data over a special
network fully separate from the public
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<PAGE> 26
ATTACHMENT 1
Page 4
switched network elements that carry the actual call. Signaling
System 7 ("SS7") is the CCS network presently used by
telecommunications carriers.
24. "Competitive Local Carrier (CLC) or Competitive Local Exchange
Carrier (CLEC)" is a carrier who competes in the provision of local
exchange telecommunications service as set forth in Opinion, Appendix
C, Section 3(B), and is not an Incumbent LEC as defined by 47 U.S.C.,
Section 251(h) of the Act.
25. "Conduit" means a tube or similar enclosure that may be used to house
communication or communications-related power cables. Conduit may be
underground or above ground (for example, inside buildings) and may
contain one or more inner ducts. An inner duct means a separate tube
or enclosure within a conduit.
26. "Confidential Information" has the meaning set forth in Section 18.1
of the General Terms and Conditions.
27. "Contract Year" means a twelve (12) month period during the term of
the contract commencing on the Effective Date and each anniversary
thereof.
28. "Control Office" means an exchange carrier center or office
designated as its company 5 single point of contact for the
provisioning and maintenance of its portion of interconnection
arrangements
29. "Cross Connection" means an intra-wire center channel connecting
separate pieces of telecommunications equipment
30. "Customer Usage Data" means the local Telecommunications Services
usage data of an CLEC Customer, measured in minutes, sub-minute
increments, message units, or otherwise, that is recorded by PACIFIC
and forwarded to CLEC.
31. "Directory Number Call Forwarding (DNCF)" means an interim form of
Service Provider Number Portability ("SPNP") which is provided
through existing and available call routing and call forwarding
capabilities. DNCF will forward calls dialed to an original telephone
number to a new telephone number on a multi-path basis. DNCF is not
limited to listed directory numbers.
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ATTACHMENT 1
Page 5
32. "Discloser" means that party to this Agreement which has disclosed
Confidential Information to the other party.
33. "DSX Panel" means a cross-connect bay or panel used for the
termination of equipment and facilities operating at digital rates.
34. "DS-0" means a digital signal rate of 64 Kilobits per second
("kbps").
35. "DS-1" means a digital signal rate of 1.544 Megabits Per Second
("Mbps").
36. "DS-3" means a digital signal rate of 44.736 Mbps.
37. "E911 Management System (MS)" A system of computer programs used by
PACIFIC to create, store and update the data that provides Selective
Routing (SM) and/or Automatic Location Identification (ALI).
38. "E911 Management System Gateway" is a processor that can relieve the
host computer (management system) of performing certain tasks, such
as message handling, code conversion, error control and application
functions.
39. "E911 Service" is a method of routing 911 calls to a PSAP that uses
customer location data in the ALI/DMS to determine the PSAP to which
a call should be routed.
40. "Effective Date" is the date indicated in the Preface on which the
Agreement shall become effective.
41. "EISCC" or "Expanded Interconnection Cross Connection" means the
connection between the collocation point of termination ("POT') and
the unbundled Network Element or interconnection point to a switched
or dedicated service in PACIFIC's network.
42. "Electronic File Transfer" means any system or process that utilizes
an electronic format and protocol to send or receive data files.
43. "End Office Switches" are switches from which end users' Exchange
services are directly connected and offered.
44. "Environmental Hazard" means any substance the presence, use,
transport, abandonment or disposal of which (i) requires
investigation, remediation, compensation, fine or penalty under any
Applicable Law (including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act, Superfund
Amendment and Reauthorization Act, Resource Conservation Recovery
Act, the Occupational Safety and
5
<PAGE> 28
ATTACHMENT 1
Page 6
Health Act and provisions with similar purposes in applicable
foreign, state and local jurisdictions) or (ii) poses risks to human
health, safety or the environment (including, without limitation,
indoor, outdoor or orbital space environments) and is regulated under
any Applicable Law.
45. "Exchange Message Record" or "EMR" means the standard used for
exchange of telecommunications message information among LECs for
billable, non-billable, sample, settlement and study data. EMR format
is contained in BR-010-200-010 CRIS Exchange Message Record, a
Bellcore document which defines industry standards for exchange
message records.
46. "Exchange Service" is as defined in the Act.
47. "FCC" means the Federal Communications Commission.
48. "First Interconnection Order" means the First Report and Order issued
In the Matter of Implementation of the Local Competition provision in
the Telecommunications Act of 1996 (CC Docket No. 96-98, FCC 96-325)
(released August 8,1996).
49. "Governmental Authority" means any federal, state, local, foreign or
international court, government, department, commission, board,
bureau, agency, official, or other regulatory, administrative,
legislative or judicial authority with jurisdiction.
50. "Interconnection" is as described in the Act.
51. "Interexchange Carrier (IEC or IXC)" means a provider of
interexchange telecommunications services.
52. "Interim Number Portability" or "INP" means the delivery of service
provider Number Portability capabilities through the use of
switch-based call routing as described in 47 C.F.R. Sec. 52.7.
53. "Integrated Services Digital Network" or "ISDN" means a digital
switched network service. "Basic Rate ISDN" provides for channelized
(23 bearer and 1 data) end-to-end digital connectivity for the
transmission of voice or data on either or both bearer channels and
packet data on the data channel. "Primary Rate ISDN" provides for 24
bearer and 1 data channels.
54. "LATA-Wide Terminating Interconnection" means an interconnection
arrangement whereby one Party interconnects to a single designated
tandem switch of the other Party to terminate local and intraLATA
toll. The Party providing such termination will designate the tandem
switch where such interconnection is to occur.
55. "Line Information Data Base(s) (LIDB)" means one or all, as the
context may require, of the Line Information Databases owned
individually by ILECs and other entities which provide, among other
things, calling card validation functionality for telephone line
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<PAGE> 29
ATTACHMENT 1
Page 7
number cards issued by ILECs and other entities. A LIDB also contains
validation data for collect and third number-billed calls, which
include billed number screening.
56. "Line Side" refers to End Office switch connections that have been
programmed to treat the circuit as a local line connected to a
terminating station (e.g., an ordinary subscriber's telephone station
set, a PBX, answering machine, facsimile machine or computer). Line
Side connections offer only those transmission and signal features
appropriate for a connection between an End Office and such
terminating station.
57. "Link" has the meaning set forth in Attachment 6, Section 3.
58. "Local Calls" are as defined by the Commission. Local Calls currently
include all 0-12 mile calls based on the rate centers of the
originating and terminating NPA-NXXs of the callers (these include
ZUM Zone 1 and ZUM Zone 2 calls) and, where established in incumbent
LEC tariffs, ZUM Zone 3 and Extended Area Service (EAS) calls.
59. "Local Exchange Routing Guide" or "LERG" means a Bellcore Reference
Document used by LECs and IXCs to identify NPA-NXX routing and homing
information as well as Network Element and equipment designations.
60. "Local Exchange Traffic" means traffic originated on the network of a
LEC in a LATA and completed directly between that LEC's network and
the network of another LEC in that same LATA, including intraLATA
toll traffic and traffic originated to or terminated from LECs not
party to this Agreement. Local Exchange Traffic does not include
traffic that is routed to or terminated from the network of an IXC.
61. "Local Interconnection Trunks/Trunk Groups" are used for the
termination of Local Exchange Traffic, using Bellcore Technical
Reference GR-317-CORE ("GR-317").
62. "Local Loop" shall have the meaning set forth in 47 C.F.R. Section
51.319(a).
63. "Local Number Portability (LNP)" means the ability of users of
telecommunications services to retain, at the same location, existing
telecommunications numbers without impairment of quality,
reliability, or convenience when switching from one
telecommunications carrier to another.
64. "Local Service" has the meaning set forth in Attachment 5, Section
1.1.
65. "Loop" has the meaning set forth in Attachment 6, Section 3.
66. "MECAB" means the Multiple Exchange Carrier Access Billing document
prepared under the direction of the Billing Committee of the Ordering
and Billing Forum "OB F", which functions under the auspices of the
Carrier Liaison Committee of the Alliance for Telecommunications
Industry Solutions (ATIS), Section 23.1 of Part 1. The MECAB
document, published by Bellcore as Special Report SR-BDS-000983,
contains the recommended guidelines for the billing of access and
other connectivity services
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ATTACHMENT 1
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provided by two or more LECs (including LECs and CLECs), or by one
LEC or CLEC in two or more states within a single LATA.
67. "Meet Point Trunks/Trunk Groups" ("MPTGs") are used for the joint
provision of Switched Access services, utilizing Bellcore Technical
References GR-394-CORE ("GR-394") and GR-317 CORE ("GR-317"). MPTGs
are those between a local End Office and an Access Tandem as
described in FSD 20-24-0000 and 20-24-0300.
68. "MECOD" means the Multiple Exchange Carriers Ordering and Design
Guidelines for Access Services - Industry Support Interface, a
document developed by the Ordering/Provisioning Committee under the
auspices of the OBF, which functions under the auspices of the
Carrier Liaison Committee of the ATI S. The MECOD document, published
by Bellcore as Special Report SR STS-002643, establishes methods for
processing orders for access and other connectivity service which is
to be provided by two or more local carriers (including a LEC and a
CLC), or by one LEC or CLEC in two or more states within a single
LATA.
69. "Mid-Span Meet" means an interconnection between two LECs whereby
each provides its own cable and equipment up to the meet point of the
cable facilities. The meet point is the demarcation establishing
ownership of and responsibility for each LEC's portion of the
transmission facility.
70. "911 Service" means a universal telephone number which gives the
public direct access to the PSAP. Basic 911 service collects 911
calls from one or more local exchange switches that serve a
geographic area. The calls are then sent to the authority designated
to receive such calls.
71. "Network Element" is as defined in the Act.
72. "North American Numbering Plan (NANP)" means the system of telephone
numbering employed in the United States, Canada, and certain
Caribbean countries.
73. "Numbering Plan Area (NPA)" is also sometimes referred to as an area
code and the three digit indicator that is defined by the "A", "B"
and "C" digits of each 10-digit telephone number within the NANP.
Each NPA contains 800 possible NXX Codes. There are two general
categories of NPA. "Geographic NPA" is associated with a defined
geographic area, and all telephone numbers bearing such NPA are
associated with services provided within that Geographic area. A
"Non-Geographic NPA," also known as a "Service Access Code" ("SAC
Code"), is typically associated with a specialized telecommunications
service which may be provided across multiple geographic NPA areas;
500, Toll Free Service NPAs, 700, and 900 are examples of
Non-Geographic NPAs.
74. "Number Portability" is as defined in the Act.
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ATTACHMENT 1
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75. "NXX", "NXX Code" or "Central Office Code" means the three digit
switch entity indicator that is defined by the "D", "E" and "F"
digits of a 10-digit telephone number within the NANP. Each NXX Code
contains 10,000 station numbers.
76. "OBF" means the Ordering and Billing Forum (OBF), which functions
under the auspices of the Carrier Liaison Committee (CLC) of the
Alliance for Telecommunications Industry Solutions (ATIS).
77. "Originating Line Information (OLI)" is an SS7 Feature Group D
signaling parameter which refers to the number transmitted through
the network identifying the billing number of the calling party.
78. "PACIFIC" means Pacific Bell.
79. "Party" means either CLEC or PACIFIC. "Parties" means CLEC and
PACIFIC.
80. "Percent Local Usage or "PLU" means a percentage amount that
represents the ratio of the local minutes to the sum of local and
intraLATA toll minutes sent between the Parties over Local
Interconnection Trunks. Directory Assistance, BLV/BLVI, 900, 976,
transiting calls from other LECs, WSP traffic and interLATA Switched
Access calls are not included in the calculation of PLU.
81. "Permanent Number Portability (PNP)" means a long-term solution to
provide LNP for all customers and all providers consistent with the
Act and implementing regulations.
82. "Physical Collocation" shall have the meaning set forth in 47 C.F.R.
Section 51.5.
83. "Point of Interconnection" or "P0I" means a physical location at
which the Parties' networks meet for the purpose of establishing
interconnection. POIs include a number of different technologies and
technical interfaces based on the Parties' mutual agreement.
84. "Pole Attachment" means the connection of a facility to a utility
pole. Some examples of facilities are mechanical hardware, grounding
and transmission cable, and equipment boxes.
85. "Port" means a termination point in the end office switch. For
purposes of general illustration, a Port includes a line card and
associated peripheral equipment on an End Office Switch which serves
as the hardware termination for line or trunk side facilities
connected to the End Office switch. Each line side Port is typically
associated with one or more telephone numbers that serve as the
customer's network address.
86. "Public Safety Answering Point (PSAP)" means the designated agency to
which calls to E911/911 services are routed.
87. "Rate Center" identifies the specific geographic point and
corresponding geographic area which are associated with one or more
particular NPA-NXX codes which have been assigned to a LEC (or CLEC)
for its provision of Exchange Services. The rate point is a
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ATTACHMENT 1
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geographic location identified by specific V&H (vertical and
horizontal coordinates), which are used to measure distance sensitive
end user traffic to/from the particular NPA-NXX designations with the
specific Rate Center.
88. "Rating Point" means the Vertical and Horizontal ("V&H") coordinates
associated with a particular telephone number for rating purposes.
89. "Real Time" means the actual time in which an event takes place, with
the reporting on or the recording of the event practically
simultaneous with its occurrence.
90. "Recipient" means that party to this Agreement to which Confidential
Information has been disclosed by the other party.
91. "Recorded Usage Data" has the meaning set forth in Attachment 14.
92. "Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching, or
migration, including without limitation, the movement of
Environmental Hazards through or in the air, soil, surface water or
groundwater, or any action or omission that causes Environmental
Hazards to spread or become more toxic or more expensive to
investigate or remediate.
93. "Right of Way (ROW)" means the right to use the land or other
property of a third party or governmental authority to place poles,
conduits, cables, other structures and equipment, or to provide
passage to access such structures and equipment. A ROW may run under,
on, or above public or private property (including air space above
public or private property) and may include the right to use discrete
space in buildings, building complexes or other locations.
94. "Routing Point" means a location which a LEC has designated on its
own network as the homing or routing point for traffic inbound to
Exchange Service provided by the LEC which bears a certain NPA-NXX
designation. The Routing Point is employed to calculate mileage
measurements for the distance-sensitive transport element charges of
Switched Access services. The Routing Point need not be the same as
the Rating Point, nor must it be located within the Rate Center area,
but must be in the same LATA as the NPA-NXX.
95. "Served Premises" means collectively, the CLEC designated locations
to which CLEC orders Network Elements, Ancillary Functions or
Combinations.
96. "Service Control Point" or "SCP" means a node in the CCS network to
which information requests for service handling, such as routing, are
directed and processed. The SCP is a real time database system that,
based on a query from a Service Switching Point ("SSP"), performs
subscriber or application-specific service logic and then sends
instructions back to the SSP on how to continue call processing.
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97. "Service provider local number portability" shall have the same
meaning as Number Portability as defined in the Act and FCC
regulations thereunder.
98. "Signal Transfer Point" or "STP" means equipment that performs a
packet switching function that routes signaling messages among SSPs,
SCPs, Signaling Points ("SPs"), and other STPs in order to set up
calls and to query databases for advanced services.
99. "Special Construction" shall have the meaning set forth in PACIFIC's
Schedule P.U.C. No. 175-T, Section 15.1(B) and (H) as of the
Effective Date of this Agreement and shall not be subject to change
except upon mutual agreement of the Parties (even if the underlying
tariff changes), provided that CLEC will be treated no less favorably
than PACIFIC treats its own end-user customers.
100. "Switched Access" service means an offering of access to services or
facilities for the purpose of the origination or termination of
traffic from or to Exchange Service customers in a given area
pursuant to a Switched Access tariff Switched Access services
includes: Feature Group A ("FGA)", Feature Group B ("FGB"), Feature
Group C ("FGC"), Feature Group D ("FGD"), Toll Free Service, 700 and
900 access. Switched Access service does not include traffic
exchanged between LECs for purpose of local exchange interconnection.
101. "Switched Access Meet Point Billing" means a billing arrangement used
when two or more LECs jointly provide a Switched Access service over
Meet Point Trunks, with each LEC receiving an appropriate share of
the revenues. The access services will be billed using Switched
Access rate structures, and the LECs will decide whether a single
bill or multiple bill will be sent. If the LECs cannot agree,
multiple bills will be sent.
102. "Tandem Switches" are switches that are used to connect and switch
trunk circuits between and among Central Office Switches.
103. "Toll Traffic" means IntraLATA traffic falling outside of the normal
free calling area as defined by the Commission.
104. "Toll Free Service" means service provided with any dialing sequence
that invokes toll-free, i.e., 800-like, service processing. Toll Free
Service includes calls to the Toll Free Service 800/888 NPA SAC
codes.
105. "Transit Rate" is the rate that applies to local and toll calls sent
between a LEC and a CLC destined for a third-party LEC or CLC.
106. "Trunk-Side" refers to a Central Office switch connection that is
capable of, and has been programmed to treat the circuit as
connecting to another switching entity, for example, another Central
Office switch. Trunk-Side connections offer those transmission and
signaling features appropriate for the connection of switching
entities and cannot be used for the direct connection of ordinary
telephone station sets.
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107. "Unbundled Services Cross Connector" "USCC" is a connection between
an unbundled link, which terminates at the distribution frame, and
the cross connect system, for the purpose of combining an unbundled
link and PACIFIC unbundled transport when multiplexing is required.
108. "Virtual Collocation" shall have the meaning set forth in 47 C.F.R.
Sec. 51.5.
109. "Voluntary Federal Customer Financial Assistance Programs" are
Telecommunications Services provided to low-income subscribers,
pursuant to requirements established by the appropriate state
regulatory body.
110. "Waste" means all hazardous and non-hazardous substances and
materials which are intended to be discarded, scrapped, or recycled,
associated with activities CLEC or PACIFIC or their respective
contractors or agents perform at Work Locations. It shall be presumed
that all substances or materials associated with such activities,
that are not in use or incorporated into structures (including
without limitation damaged components or tools, leftovers,
containers, garbage, scrap, residues or by products), except for
substances and materials that CLEC, PACIFIC or their respective
contractors or agents intend to use in their original form in
connection with similar activities, are Waste. "Waste" shall not
include substances, materials or components incorporated into
structures (such as cable routes) even after such components or
structure are no longer in current use.
111. "Wire Center" denotes a building or space within a building which
serves as an aggregation point on a given carrier's network, where
transmission facilities and circuits are connected or switched.
PACIFIC Bell's Wire Center can also denote a building in which one or
more Central Offices, used for the provision of Exchange Services and
access services, are located. However, for purposes of collocation,
Wire Center shall mean those points eligible for such connections as
specified in FCC Docket No.91-141, and rules adopted pursuant
thereto, as modified by subsequent FCC decisions.
112. "Wireless Service Provider or "WSP" means a provider of Commercial
Mobile Radio Services ("CMRS") e.g., cellular service provider,
Personal Communications Services provider, or paging service
provider.
113. "Work Locations" means any real estate that CLEC or PACIFIC, as
appropriate, owns, leases or licenses or in which it holds easements
or other rights to use, or does use, in connection with this
Agreement.
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ATTACHMENT 2
ACRONYMS
<PAGE> 36
ATTACHMENT 2
ACRONYMS
<TABLE>
<CAPTION>
ACRONYM DEFINITION
<S> <C>
ACRONYM DEFINITION
AAA American Arbitration Association
AIN Advanced Intelligent Network
ALI Automatic Location Identification/
AMA Automated Message Accounting
AMI Alternate Mark Inversion
ANSI American National Standards Institute
ARPM Average Revenue Per Message
APTOS Automated Pricing, Terminals, Options and Services
ATIS Alliance for Telecommunications Industry Solutions
ATM Asynchronous Transfer Mode
B8ZS Bipolar 8 Zero Substitution
BICI Broadband Inter-Carrier Interface
BITS Building Integrated Timing Supply
BLV/BLVI Busy Line Verification/Interrupt
BOSS Billing & Ordering Support System
BRCS Business and Residential Customer Service
C Network Element Combination
C-DTTA Combination of Dedicated Transport & Tandem
C-LPLS Combination of Loop & Local Switching
C- Combination Local Service, Common Transport Signaling, Databases and/or
LSCTSSDBTS Tandem Switching
CABS Carrier Access Billing System
CAMA ANI Centralized Automatic Message Accounting - Automatic Number
Identification
CAP Competitive Access Provider
CCITT Consultative Committee on International Telegraph & Telephone
CCS Common Channel Signaling
CCSNIS Common Channel Signaling Network Interface Specification
CESAR Customer's Enhanced System for Access Requests
CIC Carrier Identification Code
CLASS Custom Local Area Signaling Service
CLC/CLEC Competitive Local Exchange Carrier
CLEO Cleopatra (subsystem of CESAR)
CLFI Common Language Facility Interface
CLLI Common Language Location Identifier
CMDS Centralized Message Distribution Systems
CMIP Coded Mark Inversion Protocol
CO Central Office
CPE Customer Premises Equipment
</TABLE>
<PAGE> 37
ATTACHMENT 2
<TABLE>
<S> <C>
CPN Calling Party Number
CRDD Customer Requested Due Dates
CT Common Transport
CY Current Year
D4 Digital Channel Bank Type 4
DA Directory Assistance
DACS Digital Access Crossconnect Systems
DB Database
DB Service Central Points/Databases
DCC Data Communications Channel
DCS Digital Cross-Connect System
DF Distribution Frame
DID Direct Inward Dialing
DLC Digital Loop Carrier
DLCI Data Link Connection Identifier
DMOQs Direct Measures Of Quality
DN Directory Numbers
DN-RI Directory Number - Route Index
DS-1 Digital Signal Level One
DS-3 Digital Signal Level Three
DS0 Digital Signal Level Zero
DSN Data Set Name
DSX Digital Cross Connect
DT Dedicated Transport
DTMF Dual-Tone Multi Frequency
E Network Element
E&M Ear & Mouth Signaling
E-LP Element Loop
EAMF Equal Access Multi-Frequency
EBCDIC Extended Binary-Coded Decimal Interexchange Code
EBI Electronic Bonding Interface
EFT Electronic Fund Transfer
EI Electronic Interface
EICC Expanded Interconnection Cross Connect
EMR Exchange Message Record
EO End Office
ESF Extended Super Frame
ESL Essential Service Line
ESN Emergency Service Number
ETTR Estimated Time To Repair
FCC Federal Communications Commission
FDI Feeder Distribution Interface
</TABLE>
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ATTACHMENT 2
<TABLE>
<S> <C>
FN Fiber Node
FOC Firm Order Confirmation
FRF Frame Relay Forum
FUNI Framebased User To Network Interface
GTT Global Title Translation
HDT Host Digital Terminal
HFC Hybrid Fiber Coax
HFC-HDT Hybrid Fiber Coax - Host Digital Terminal
ID Remote Identifiers
IEC Interexchange Carrier
IECs Interexchange Carriers
IEEE Institute Of Electrical And Electronic Engineers
IISP Interim Interswitch Signaling Protocol
ILEC Incumbent Local Exchange Carrier
IN Intelligent Network
INA Integrated Network Access
INP Interim Number Portability
ISC Interconnection Services Center
ISDN Integrated Services Digital Network
ISDNUP Integrated Services Digital Network User Part
ISNI Intermediate Signal Network Identifier
ISO International Standardization Organization
ISUP Integrated Services Userpart
ITU International Telecommunications Union
IVMS Interswitch Voice Messaging Service
LARG LIDB Access Routing Guide
LASS Local Area Signaling Services
LATA Local Access Transport Area
LC Loop Concentrator/Multiplexor
LCC Line Class Code
LD Loop Distribution
LEC Local Exchange Carrier
LEC DA LEC Directory Assistance
LEC SCE LEC Service Creation Environment
LEC SCP LEC Service Control Point
LEC SMS LEC Service Management System
LEC SSP LEC Service Switching Point
LERG Local Exchange Carrier Routing Guide
LF Loop Feeder
LFACS Loop Facilities Assignment and Control System
LGX Lightguide Cross-Connect
LIDB Line Information Data Base
</TABLE>
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ATTACHMENT 2
<TABLE>
<S> <C>
LIDB/AS Line Information Data Base Administrative System
LI-OFFICE Local Interconnection Office
LMI Local Management Interface
LNP Local Number Portability
LP Loop
LRECL Logical Record Length
LRN Local Routing Number
LS Local Switching
LSNE Local Switching Network Element
LSO Local Serving Office
LSSGR LATA Switching Systems Generic Requirements
MDF Main Distribution Frame
MDU Multiple Dwelling Unit
MDU/BCL Multiple Dwelling Unit/Business Customer Location
MECAB Multiple Exchange Carrier Billing
MECOD Multiple Exchange Carriers Ordering And Design
MF Multi-Frequency
MIB Management Information Base
MLT Mechanized Loop Tests
MOP Methods Of Procedure
MOS Modified Operator Services
MOU Minutes Of Use
MR Modification Request
MRVT MTP Routing Verification Test
MSAG Master Street & Address Guide
MTP Message Transfer Port
NANP North American Numbering Plan
NDM Network Data Mover
NEBS Network Equipment Building System
NI Network Interface Device
NID Network Interface Device
NIU Network Interface Unit
NMS Network Management System
NNI Network To Network Interface
NPA Numbering Plan Area
NVT Network Validation Test
OA Operator Assistance
OAM Operation And Maintenance
OAM&P Operations Administration Maintenance & Provisioning
OBF Ordering & Billing Forum
OC Optical Carrier
OC3 Optical Carrier Level 3
</TABLE>
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ATTACHMENT 2
<TABLE>
<S> <C>
ODS Optical Distribution
OLI Originating Line Indicator
OMAP Operations, Maintenance & Administration Part
ORT Operational Readiness Test
OS Operator Services
OSS Operations Support Systems
OSSGR Operator Services Systems Generic Requirements
PBSM Pacific Bell Service Manager
PBX Private Branch Exchange
PDH Plesiochronous Digital Hierarchy
PEC Primary Exchange Carrier
PIC Primary Interexchange Carrier
PLU Percent Local Usage
PNP Permanent Number Portability
POI Point Of Interface
POI Points Of Interconnection
POT Point Of Termination
POTS Plain Old Telephone Service
PREMIS Premise Information System
PRI Primary Rate Interface
PSAP Public Safety Answering Point
PUC Public Utilities Commission
RAO Regional Accounting Office
RCF Remote Call Forwarding
RECFM Record Format
RI Route Index
RI-PH Route Index - Portability Hub
ROW Right Of Way
RPC Regional Processing Center
RSM Remote Switch Module
RT Remote Terminal
SAC Service Area Code
SAG Street Address Guide
SCCP Signaling Connection Control Point
SCE Service Creation Environmental
SCP Service Control Points
SDH Synchronous Digital Hierarchy
SECAB Small Exchange Carrier Access Billing
SL Signaling Link Transport
SMDI-E Standard Message Desk Interface - Enhanced
SMS Service Management System
SNI Simple Network Interface
</TABLE>
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ATTACHMENT 2
<TABLE>
<S> <C>
SNMP Simple Network Management Protocol
SONET Synchronous Optical Network
SORD Service Order Retrieval And Distribution
SPOC Single Point Of Contact
SPOI Signaling Point Of Interconnection
SRVT SCP Routing Verification Test
SS SS7 Message Transfer & Connection Control
SS7 Signaling System 7
SSP Switching Services Port
STP Signaling Transfer Point
STS Synchronous Transport Signal
STS-1 Synchronous Transport Signal Level 1
STSn Synchronous Transport Signal Level N
SWF-DSI Switched Functional DS1 Service Capability
T1.5 T Carrier Transport @ 1.544 mb
T3 T Carrier Transport @ 45 mb
T&M Time & Material
TCAP Transaction Capabilities Application Port
TDEV Time Deviation
TDI Tie Down Information
TIA/EIA Telecommunications Industries Association/Electronic Industries
Association
TR Technical Requirements
TS Tandem Switching
TSG Trunk Sub-Group
TSGR Transport System Generic Requirements
TSLRIC Total Service Long Run Incremental Cost
TSP Telecommunications Services Priority
UNI User to Network Interface
USCC Unbundled Service Cross Connect
VB Variable Block
VCI Virtual Channel Identifier
VF Voice Frequency
V&H Vertical & Horizontal
WDM Wavelength Division Multiplexing
WSP Wireless Service Provider
WTN Working Telephone Number
</TABLE>
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ATTACHMENT 3
ATTACHMENT 3
ALTERNATIVE DISPUTE RESOLUTION
ATTACHMENT 3: TABLE OF CONTENTS
<TABLE>
<S> <C>
ALTERNATIVE DISPUTE RESOLUTION
1 Purpose.................................................................1
2. Exclusive Remedy........................................................1
3. Informal Resolution of Disputes.........................................2
4. Initiation of an Arbitration............................................2
5. Governing Rules for Arbitration.........................................2
6. Appointment and Removal of Arbitrator...................................3
7. Duties and Powers of the Arbitrator.....................................3
8. Discovery...............................................................4
9. Privileges..............................................................4
10. Location of Hearing.....................................................4
11. Decision................................................................4
12. Fees....................................................................4
13. Confidentiality.........................................................5
14. Service of Process......................................................5
</TABLE>
<PAGE> 43
ATTACHMENT 3
Page 1
ALTERNATIVE DISPUTE RESOLUTION
1. PURPOSE
This Attachment 3 is intended to provide for the expeditious,
economical, and equitable resolution of disputes between PACIFIC and
CLEC arising under this Agreement.
2. EXCLUSIVE REMEDY
2.1 Except for disputes or matters (i) for which the total value of the
amount in controversy exceeds Twenty Five Million Dollars ($25,000,000),
(ii) for which this Agreement or the Telecommunications Act of 1996
specifies a particular remedy or procedure, (iii) for which a Party
seeks injunctive relief and/or specific performance in any Court of
competent jurisdiction, or (iv) which are covered by the Billing
Disputes provisions contained in Attachment 13 (Connectivity Billing and
Recording), informal resolution and arbitration under the procedures
provided herein shall be the exclusive remedy for all disputes between
PACIFIC and CLEC arising out of this Agreement or its breach. PACIFIC
and CLEC agree not to resort to any court, agency, or private group with
respect to such disputes except in accordance with this Attachment.
2.1.1 If, for any reason, certain claims or disputes are deemed to be
nonarbitrable, the non-arbitrability of those claims or disputes shall
in no way affect the arbitrability of any other claims or disputes.
2.1.2 If, for any reason, the FCC or any other federal or state regulatory
agency exercises jurisdiction over and decides any dispute related to
this Agreement, or to the Act, or to any tariff and, as a result, a
claim is adjudicated in both an agency proceeding and an arbitration
proceeding under this Attachment 3, the following provisions shall
apply:
2.1.2.1 To the extent required by law, the agency ruling shall be binding upon
the parties and shall take precedence over any contrary ruling of the
arbitrator for those matters within the jurisdiction and authority of
such agency.
2.1.2.2 The arbitration ruling rendered pursuant to this Attachment 3 shall be
binding upon the parties for purposes of establishing their respective
contractual rights and obligations under this Agreement.
3. INFORMAL RESOLUTION OF DISPUTES
3.1 Prior to initiating an arbitration pursuant to the American Arbitration
Association ("AAA") rules, as described below, the parties to this
Agreement shall submit any dispute between PACIFIC and CLEC for
resolution to an Inter-Company Review Board consisting of one
representative from CLEC at the Director-or-above level and one
representative from PACIFIC at the Vice-President-or-above level (or at
such lower level as each Party may designate).
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ATTACHMENT 3
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3.2 The Parties may enter into a settlement of any dispute at any time The
Settlement Agreement shall be in writing, and shall identify how the
Arbitrator's fee for the particular proceeding, if any, will be
apportioned.
3.3 At no time, for any purposes, may a Party introduce into evidence or
inform the Arbitrator of any statement or other action of a Party in
connection with negotiations between the Parties pursuant to the
Informal Resolution of Disputes provision of this Attachment 3.
4. INITIATION OF AN ARBITRATION
If the Inter-Company Review Board is unable to resolve the dispute
within 30 days (or such longer period as agreed to in writing by the
Parties) of such submission, and the Parties have not otherwise entered
into a settlement of their dispute, either Party may initiate an
arbitration in accordance with the AAA rules.
5. GOVERNING RULES FOR ARBITRATION
The rules set forth below and the rules of the AAA shall govern all
arbitration proceedings initiated pursuant to this Attachment; however,
such arbitration proceedings shall not be conducted under the auspices
of the AAA unless the Parties mutually agree. Where any of the rules set
forth herein conflict with the rules of the AAA, the rules set forth in
this Attachment shall prevail.
6. APPOINTMENT AND REMOVAL OF ARBITRATOR
6.1 A sole Arbitrator (the "Arbitrator") will preside over each dispute
submitted for arbitration under this Agreement.
6.2 The Parties shall appoint each Arbitrator. Each Arbitrator will serve
until a decision is rendered. Each appointment will be made by mutual
agreement in writing within thirty (30) days after the Parties have
initiated an arbitration proceeding (or such longer period as the
Parties may mutually agree to in writing).
6.3 In the event that an Arbitrator resigns or becomes unable to discharge
his or her duties, the Parties shall, by mutual written Agreement,
appoint a replacement Arbitrator within thirty (30) days after such
resignation, removal, or inability, unless a different time period is
mutually agreed upon in writing by the Parties. Any matters pending
before the Arbitrator at the time he or she resigns, is removed, or
becomes unable to discharge his or her duties, will be assigned to the
replacement Arbitrator as soon as the replacement Arbitrator is
appointed.
6.4 In the event that the Parties do not appoint an Arbitrator within the
time limit set forth in Section 6.2 of this Attachment 3, or a
replacement Arbitrator within the time limit set forth in Section 6.3 of
this Attachment 3, either Party may apply to AAA for appointment of such
Arbitrator. Prior to filing an application with the AAA, the Party
filing such
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ATTACHMENT 3
Page 3
application shall provide ten (10) days prior written notice to the
other Party to this Agreement.
7. DUTIES AND POWERS OF THE ARBITRATOR
7.1 The Arbitrator shall receive complaints, and other permitted pleadings,
oversee any discovery which is permitted, administer oaths and subpoena
witnesses pursuant to the United States Arbitration Act, hold hearings,
issue decisions, and maintain a record of proceedings. The Arbitrator
shall have the power to award any remedy or relief that a court with
jurisdiction over this Agreement could order or grant, including,
without limitation, the awarding of damages, pre-judgement interest, or
imposition of sanctions for abuse or frustration of the arbitration
process, except that the Arbitrator may not award injunctive relief,
punitive damages or any remedy rendered unavailable to the Parties
pursuant to Section 10.3 of this Agreement.
7.2 The Arbitrator shall not have the authority to limit, expand, or
otherwise modify the terms of this Agreement.
8. DISCOVERY
There shall be no discovery except for the exchange of documents deemed
necessary by the Arbitrator to an understanding and determination of the
dispute. PACIFIC and CLEC shall attempt, in good faith, to agree on a
plan for document discovery. Should they fail to agree, either PACIFIC
or CLEC may request a joint meeting or conference call with the
Arbitrator. The Arbitrator shall resolve any disputes between PACIFIC
and CLEC, and such resolution with respect to the need, scope, manner,
and timing of discovery shall be final and binding.
9. PRIVILEGES
Although conformity to certain legal rules of evidence may not be
necessary in connection with arbitrations initiated pursuant to this
Attachment, the Arbitrator shall, in all cases, apply the
attorney-client privilege and the work product immunity doctrine.
10. LOCATION OF HEARING
Unless both Parties agree otherwise, any hearings shall take place in
San Francisco, California.
11. DECISION
The Arbitrator's decision and award shall be final and binding, and
shall be in writing unless the Parties mutually agree in writing to
waive the requirement of a written opinion. Judgment upon the award
rendered by the Arbitrator may be entered in any court having
jurisdiction thereof. Either Party may apply to the United States
District Court for the district in which the hearing occurred for an
order enforcing the decision.
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ATTACHMENT 3
Page 4
12 FEES
12.1 The Arbitrator shall, in his or her discretion, apportion the
Arbitrator's fees and expenses to reflect the relative success of each
Party. In accordance with Section 3.2. of this Attachment 3, in the
event that the Parties settle a dispute before the Arbitrator reaches a
decision with respect to that dispute, the Settlement Agreement must
specify how the Arbitrator's fees for the particular proceeding will be
apportioned.
12.2 In an action to enforce or confirm a decision of the Arbitrator, the
prevailing Party shall be entitled to its reasonable attorneys' fees,
costs, and expenses necessarily incurred in the enforcement proceedings
without regard to the local rules of the district in which the suit is
brought.
13. CONFIDENTIALITY
13.1 PACIFIC, CLEC, and the Arbitrator will treat the arbitration proceeding,
including the hearings and conferences, discovery, or other related
events, as confidential, except as necessary in connection with a
judicial challenge to, or enforcement of, an award, or unless otherwise
required by an order or lawful process of a court or governmental body.
13.2 In order to maintain the privacy of all arbitration conferences and
hearings, the Arbitrator shall have the power to require the exclusion
of any person, other than a Party, counsel thereto, or other essential
persons.
13.3 To the extent that any information or materials disclosed in the course
of an arbitration proceeding contains proprietary or confidential
information (Confidentiality Information) of either Party, it shall be
safeguarded in accordance with Section 19 of the Agreement. However,
nothing in Section 19 of the Agreement shall be construed to prevent
either Party from disclosing the other Party's Confidential Information
to the Arbitrator in connection with or in anticipation of an
arbitration proceeding. In addition, the Arbitrator may issue orders to
protect the confidentiality of proprietary information, trade secrets,
or other sensitive information.
14. SERVICE OF PROCESS
Service may be made by submitting one copy of all pleadings and
attachments and any other documents requiring service to each Party and
one copy to the Arbitrator. Service shall be deemed made (i) upon
receipt if delivered by hand; (ii) the next business day if sent by
overnight courier service; or (iii) upon confirmed receipt if
transmitted by facsimile. If service is by facsimile, a copy shall be
sent the same day by hand delivery or overnight courier service.
14.1 Service by CLEC to PACIFIC and by PACIFIC to CLEC at the address
designated for delivery of notices in this Agreement shall be deemed to
be service to PACIFIC or CLEC, respectfully.
4
<PAGE> 47
ATTACHMENT 4
DIRECTORY LISTING REQUIREMENTS
<PAGE> 48
Attachment 4
Page 1
ATTACHMENT 4
DIRECTORY LISTING REQUIREMENTS
1. GENERAL
PACIFIC shall make available to CLEC, for CLEC Customers,
nondiscriminatory access to its telephone number and address directory
listings ("Directory Listings"), under the following terms and
conditions:
2. WHITE AND YELLOW PAGE LISTINGS
PACIFIC publishes and distributes white pages directories through its
wholly owned subsidiary PBD, as its agent for the white pages. PBD also
publishes and distributes yellow pages directories. With respect to
those directories, upon receipt of the necessary customer information
from CLEC, PACIFIC will include, at no charge, a standard, basic listing
(i) of CLEC's residence customers in the appropriate white pages
directory and, (ii) of CLEC's business customers in the appropriate
white pages and yellow pages directories. Additionally, CLEC's customers
each will have delivered to them at no charge one copy of appropriate
white and yellow pages directories. Where an CLEC Customer has two
numbers for a line due to the implementation of interim Local Number
Portability; the second number shall be considered part of the one White
Pages basic listing. PACIFIC shall permit CLEC Customers the option of
not having a published White Pages listing; this option will be provided
at the same price PACIFIC charges its end user customers for the same
option. PACIFIC shall include in its master subscriber list database all
Subscriber Listing Information for CLEC Customers; PACIFIC's use of CLEC
Subscriber Listing information is subject to Section 6 of this
Attachment 4.
3. DIRECTORIES
3.1 Upon receipt of the necessary customer information from CLEC, PACIFIC
shall deliver Directory Listings in book form ("Telephone Directories")
to each of CLEC's exchange service Customers with or without charge on
the same basis that it delivers Telephone Directories to its own
customers with or without charge. There is no limit on the total number
of directories that may be delivered by PACIFIC. Timing of such delivery
and the determination of which Telephone Directories shall be delivered
(whether by customer address, NPNNXX or other criteria), and the number
of Telephone Directories to be provided per customer, shall be provided
under the same terms that PACIFIC delivers Telephone Directories to its
own local service customers.
3.2 PACIFIC shall make available recycling services for Telephone
Directories to CLEC Customers under the same terms and conditions that
PACIFIC makes such services available to its own local service
customers.
<PAGE> 49
Attachment 4
Page 2 of 3
4. DIRECTORY LISTING CRITERIA
The general terms relating to white and yellow page listings and
non-published listings are set forth in PACIFIC's Schedule Cal.P.U.C.
No. 175T, Sec. 93. Information relating to paid advertising, publication
schedules and coverage of specific directories may be obtained by CLEC
from PBD. PACIFIC's listing handbook will be available in the CLC
Handbook. PACIFIC will update the CLC Handbook as product offerings or
product process changes are made. The changes will be available
automatically to CLEC through LI-OFFICE. Until such time as PACIFIC's
Listings Handbook is available through LI-OFFICE, PACIFIC shall provide
an updated paper copy of the CLC Listings Handbook on a quarterly basis
starting not later than ten (10) days after the Effective Date of this
Agreement. This Listing Handbook update will include all changes to the
directory listing criteria.
5. CUSTOMER INFORMATION LISTING
In areas where CLEC provides (or plans to provide service within the
next 12 months) exchange service, PACIFIC shall include, in the Customer
Guide section of each Telephone Directory, not less than one full page
of information about CLEC services, including addresses and telephone
numbers for CLEC Customer service. A maximum of two pages will be
provided without charge to CLEC. Pages in excess of two will be charged
by PACIFIC in accordance with the nondiscriminatory rates contained in
PACIFIC's Schedule Cal P.U.C. tariff No. 175-T, Sec.9.2 ("Customer Guide
Service Tariff"). The form and content of such customer information
section shall be determined by CLEC and shall be provided by CLEC to
PACIFIC. However neither Party's content can contain puffery or rate
comparisons with other companies. At CLEC's option, the form and content
of this customer information may vary per community directory.
6. SALE OF CLEC SUBSCRIBER LISTING INFORMATION
PACIFIC will include Subscriber List Information of published CLEC local
exchange customers in PACIFIC's Telephone Directory Reproductions Rights
Service, unless instructed in writing by CLEC not to release Subscriber
List Information to independent directory publications. PACIFIC will
include the Subscriber List Information of CLEC local exchange customers
in PACIFIC's voice and electronic
Directory Assistance Services.
Section 2 notwithstanding and subject to the following conditions, CLEC
may direct PACIFIC not to release CLEC's Customers' Subscriber List
Information to independent directory publications if the Parties first
agree:
1) on the timing and method for CLEC to specify which CLEC
Customer Subscriber List Information is not to be
included in sales to independent directory publications;
and,
<PAGE> 50
2) on the appropriate charge for listing such CLEC
Customers in PACIFIC's directories
If the Parties can not agree on the timing, method or price the Parties
shall use the Alternative Dispute Resolution Process set forth in
Attachment 3.
3
<PAGE> 51
ATTACHMENT 5
LOCAL SERVICES RESALE
<PAGE> 52
Attachment 5
2
LOCAL SERVICES RESALE
1. TELECOMMUNICATIONS SERVICES PROVIDED FOR RESALE
1.1 This Attachment describes services which PACIFIC shall make
available to CLEC for resale pursuant to this Agreement. This
list of services is neither all inclusive nor exclusive. All
Telecommunications Services or offerings of PACIFIC which are to
be offered for resale at wholesale rates pursuant to the Act,
regulations thereunder, and relevant Commission decisions, are
subject to the terms herein, even though they are not
specifically enumerated or described. PACIFIC shall also provide
Support Functions and Service Functions, as set forth in Sections
4 and 5 of this Attachment 5. The Telecommunications Services,
Service Functions and Support Functions provided by PACIFIC
pursuant to this Agreement for resale to CLEC are collectively
referred to as "Local Service."
1.2 The rights, obligations and duties set forth in this Attachment
are subject to the Act, regulations thereunder and relevant
Commission decisions.
2. GENERAL TERMS AND CONDITIONS FOR RESALE
2.1 PRICING
The prices charged to CLEC for Local Service are set forth in
Attachment 8 of this Agreement. All Telecommunications Services,
including without limitation, promotions of more than 90 days
duration, shall be available to CLEC at wholesale rates as
specified in Attachment 8, and shall be no less favorable than
the wholesale rates made available by PACIFIC to similarly
situated CLCs; provided, however, pursuant to section 252 of the
Act, implementing regulations and any court decisions applicable
thereto, PACIFIC shall make available to CLEC, without
unreasonable delay, any Local Service contained in any agreement
to which PACIFIC is a party that has been filed and approved by
the Commission. CLEC shall be subject to the same term
commitments, volume commitments, and prohibitions against end
user aggregation to satisfy volume discounts as apply to
PACIFIC's retail customers and the resale discount set forth in
Attachment 8 shall be applied to CLEC on a customer-by-customer
basis. In no event shall CLEC be required to agree to volume or
term commitments (other than those which may be applicable to
PACIFIC's end user customers) as a condition for obtaining Local
Service at wholesale rates.
2.2 RESALE RESTRICTIONS
To the extent consistent with applicable rules and
regulations of the FCC and the Commission, including, without
limitation, Decision 96-03-020 of the Commission, CLEC may resell
Local Services to provide Telecommunications Services. PACIFIC
will not impose unreasonable or discriminatory conditions or
<PAGE> 53
Attachment 5
3
limitations on the resale of its Telecommunications Services.
Services that PACIFIC has grandfathered or grandfathers in the
future may only be resold to grandfathered subscribers.
2.3 DIALING AND SERVICE PARITY; NUMBER PORTABILITY
2.3.1 Unless technically infeasible, for resold services,
PACIFIC shall ensure that all CLEC Customers experience
the same dialing parity as similarly-situated PACIFIC
customers.
2.3.2 For resold services, PACIFIC shall ensure that all CLEC
Customers experience the same service levels as similarly
situated PACIFIC customers, and, unless technically
infeasible, that there is no loss of features or
functionalities, including, but not limited to: same dial
tone and ringing; same capability for either dial pulse or
touch tone recognition; flat and measured services; speech
recognition as available; same extended local free calling
area; 1+ IntraLATA toll calling; InterLATA toll calling
and international calling; 500, 700, 800, 900, 976 and
Dial Around (IOXXX) Services; and restricted collect and
third number billing.
2.4 CHANGES IN RETAIL SERVICE
PACIFIC will notify CLEC of any changes in the terms and
conditions under which it offers Telecommunications Services at
retail to subscribers who are not telecommunications service
providers or carriers, including, but not limited to, the
introduction of any new or discontinuance of any features,
functions, services, or promotions or the discontinuance of
current features or services, at least sixty (60) days prior to
the effective date of such change; provided, however, that with
respect to terms and conditions contained in a contract between
PACIFIC and one of its end users, PACIFIC shall notify CLEC of
changes in such terms and conditions immediately upon signing any
amendment to such contract.
2.5 PRIMARY LOCAL EXCHANGE CARRIER SELECTION
PACIFIC shall apply the principles set forth in Section 64.1100
of the FCC Rules (47 C.F.R. Section 64.1100) to the process for
end-user selection of a primary local exchange carrier. PACIFIC
shall not require a written letter of authorization from the
customer in order to process an CLEC order for Local Service for
the customer; provided, however, that if CLEC requests a
customer's service record, the provisions of Section 5.5.1 of
this Attachment shall apply.
<PAGE> 54
Attachment 5
4
3. REQUIREMENTS FOR SPECIFIC SERVICES
3.1 CENTREX REQUIREMENTS
3.1.1 At CLEC's option, CLEC may purchase the entire set of
CENTREX features or a subset of any one or any combination
of such features. The CENTREX Service provided for resale
will meet the following requirements:
3.1.1.1 All deployed features and functions of CENTREX
Service offered to any PACIFIC customer, whether
offered under tariff or otherwise, shall be
available to CLEC, where deployed, for resale,
without any customer class restrictions other
than those which may be imposed by applicable
orders of the FCC or the Commission, including,
without limitation, Commission Decision
96-03-020.
3.1.1.2 PACIFIC shall provide to CLEC a list of all
CENTREX features and functions offered by
PACIFIC within ten (10) days of the Effective
Date of this Agreement.
3.1.1.3 All service levels and features of CENTREX
Service provided by PACIFIC for resale by CLEC
shall be at parity to those provided to
PACIFIC's end user customers.
3.1.1.4 CLEC shall pay a one time, non-recurring charge,
as set forth in Attachment 8 of this Agreement
to pay for the cost of suppressing the need for
CLEC Customers to dial "9" ("Assumed Dial 9")
when placing calls outside the CENTREX System.
CLEC recognizes that there are certain problems
with Assumed Dial 9 on Centrex but such problems
would also be experienced by a PACIFIC Centrex
customer using Assumed Dial 9.
3.1.1.5 CLEC may utilize Automatic Route Selection
("ARS").
3.2 CLASS AND CUSTOM FEATURES REQUIREMENTS
CLEC may purchase the entire set of CLASS and Custom Calling
Features and functions where deployed by PACIFIC and made
available to its end-user customers, or any one or any
combination of such features, on a customer-specific basis,
without restriction on the minimum or maximum number of lines or
features that may be purchased. PACIFIC shall provide to CLEC a
list of all such CLASS and Custom features and functions within
ten (10) days of the Effective Date.
<PAGE> 55
Attachment 5
5
3.3 LIFELINE SERVICE
When a customer eligible for the Lifeline Service chooses to
obtain Local Service from CLEC, PACIFIC shall flag the account as
a Lifeline Service Customer and forward this information in
electronic format in accordance with the procedures set forth
herein. For the first ninety (90) days after the Effective Date
of this Agreement, PACIFIC will make Lifeline Service available
to CLEC at the wholesale discount specified in Attachment 8; for
such period of time, CLEC will provide PACIFIC with information
sufficient to permit PACIFIC to seek reimbursement from the
Universal Lifeline Telecommunications Service Fund. Thereafter,
CLEC will purchase basic local exchange service from PACIFIC,
less the applicable wholesale discount, for resale to Lifeline
Service customers (including customers who continue as CLEC
Lifeline Service customers after the first ninety days) and will
seek reimbursement from the Universal Lifeline Telecommunications
Service Fund.
3.4 INTERCEPT AND TRANSFER SERVICE
Upon request from CLEC, PACIFIC will provide an intercept
referral message that includes any new CLEC telephone number, for
residential customers for three (3) months, and business
customers for twelve (12) months, and PACIFIC will provide
directory updates at the next publication. This intercept
referral message shall be approved by CLEC and shall be similar
in format to the intercept referral messages currently provided
by PACIFIC for its own end users. Custom messages or extension in
duration of the referral shall be subject to the charges set
forth in Attachment 8.
3.5 E9111911 SERVICES
PACIFIC shall provide to CLEC, for CLEC Customers, E91 1/911 call
routing to the appropriate Public Safety Answering Point
(~'PSAP") with a parity level equal to that provided to PACIFIC's
end-user customers. PACIFIC shall provide and validate CLEC
Customer information to the PSAP. Upon request, PACIFIC will
provide documentation to CLEC showing the correlation between
PACIFIC's LSOs/rate centers to their E91 1 Selective Router
tandems. At the price set forth in Attachment 8, PACIFIC will
provide CLEC with access to PACIFIC's Master Street Address Guide
(MSAG), in paper form and magnetic tape, for purposes of allowing
CLEC to update and validate customer records in the E91 1
Management System (E91 1 MS) database used to support E91 1/911
services. PACIFIC will offer to CLEC a diskette version of the
MSAG, when available; availability is expected in the first
quarter of 1997. Nothing in this Agreement precludes CLEC from
establishing and updating its own ALI/DMS data base
<PAGE> 56
Attachment 5
6
4. SUPPORT FUNCTIONS FOR RESOLD SERVICES:
4.1 The following Support Functions are offered in conjunction with a
resold service: Operator Systems and Repair Services. Operator
Systems consist of Directory Assistance and Operator Services.
4.2 ROUTING TO OPERATOR SYSTEMS
Where CLEC purchases Local Service, at CLEC's option, PACIFIC
will provide the functionality and features required to modify
the originating subscriber's line at PACIFIC's local switch (LS)
or, when intraLATA presubscription is implemented, PACIFIC's
Access Tandem (AT) to route all calls to the CLEC Network for
Operator Systems. Such routing to CLEC's Operator Systems shall
be available as specified in Attachment 6, Section 4.1.4.4.
4.2.1 OPERATOR SYSTEMS: Operator Systems calls which, at CLEC's
option, are routed to PACIFIC will meet the following
requirements:
4.2.1.1 The calls will be unbranded, with no reference,
express or implied, to PACIFIC.
4.2.1.2 PACIFIC will provide Operator Systems to CLEC
which meets those which PACIFIC provides to
itself and its own end-user customers.
4.2.2 DIRECTORY ASSISTANCE:
4.2.2.1 At CLEC's option, PACIFIC shall route local
Directory Assistance calls dialed via 411 by
CLEC Customers directly to the CLEC Network. The
Parties will meet and confer immediately after
the Effective Date of this Agreement in an
effort to find a solution which can be
implemented by April 30,1997 for PACIFIC to
route local Directory Assistance dialed via
(NPA) 555-1212 by CLEC Customers directly to the
CLEC Network. In the event the Parties are
unable to agree within forty-five (45) days of
the Effective Date on a solution, the Parties
shall submit any dispute to Alternative Dispute
Resolution as set forth in Attachment 3.
4.2.2.2 PACIFIC will include the CLEC Customer's listing
in its Directory Assistance database as part of
the Service Order process. PACIFIC will honor
CLEC Customer's preferences for listing status,
including non-published and unlisted, as noted
on the Service Order Request or similar form and
will ensure that the listing appears as the
subscriber requested in the PACIFIC database
which is used to perform Directory Assistance
functions. Performance Standards associated with
this service are set forth in
<PAGE> 57
Attachment 5
7
Attachment 17 and are incorporated by this
reference. PACIFIC will provide Directory
Assistance service to CLEC that equals the
Directory Assistance Service PACIFIC provides to
itself and its own end users.
4.3 OPERATOR SERVICES
4.3.1 PACIFIC will provide the full range of Operator Services,
at the rates set forth in Attachment 8, including, but not
limited to, collect, person to person, station to station,
bill-to-third party, busy line verification and busy line
interrupt, handicapped caller assistance and emergency
call assist.
4.3.1.1 At CLEC's option, and consistent with the
implementation schedule set forth in Attachment
6, Section 4.1.4.4, PACIFIC shall route local
Operator Services calls (0+, 0-) dialed by CLEC
Customers directly to the CLEC Local Operator
Services platform. Such traffic shall be routed
over trunk groups specified by CLEC which
connect PACIFIC end offices and the CLEC Local
Operator Services platform, using standard
Operator Services dialing protocols of 0+ or
4.3.1.2 PACIFIC will provide the functionality and
features within its local switch (LS) to route
CLEC customer dialed 0- and 0+ IntraLATA calls
to the CLEC designated trunk on the Main
Distributing Frame (MDF) or Digital Cross
Connect (DSX) panel via Modified Operator
Services Signaling (MOSS) Feature Group C
signaling. In addition and at CLEC's request,
when intraLATA presubscription is implemented,
PACIFIC will provide the functionality and
features within its Access Tandem to route CLEC
customer dialed 0- and 0+ IntraLATA calls to the
CLEC designated trunk on the Main Distributing
Frame (MDF) or Digital Cross Connect (DSX) panel
via Feature Group D signaling. In all cases,
PACIFIC will provide post-dial delay at least
equal to that provided by PACIFIC for its end
user customers.
4.3.1.3 PACIFIC will warm-line transfer any CLEC
customer requesting rate information to CLEC, as
follows:
4.3.1.3.1 Warm-line transfers without charge:
PACIFIC will warm-line transfer any
CLEC customer requesting intraLATA
rate information (except calling
plan information), at no charge to
CLEC.
4.3.1.3.2 Warm-line transfers at tariffed
rate: PACIFIC will warm-line
transfer any CLEC customer
requesting
<PAGE> 58
Attachment 5
8
interLATA, interstate or
international rate information, as
well as intraLATA calling plan
information, and charge CLEC the
tariffed rate for
carrier-to-carrier warm-line
transfers.
4.3.2 Repair Calls:
Either Party shall refer repair calls (e.g., 611) dialed
by the other Party's end-user customer to the 800/888
number supplied by the other Party for the other Party's
repair center.
4.3.3 Non-discriminatory Treatment:
All direct routing capabilities described herein shall
permit CLEC Customers to dial the same telephone numbers
for CLEC Directory 12/13/96 Assistance or Local Operator
that similarly-situated PACIFIC customers dial for
reaching equivalent PACIFIC services. Such
non-discriminatory dialing to reach CLEC's Directory
Assistance or Local Operator shall be available consistent
with the implementation schedule in Attachment 6, Section
4.1.4.4
4.3.4 Emergency Calls:
PACIFIC, no later than ten (10) business days after the
Effective Date, shall provide to CLEC the emergency public
agency (e.g., police, fire, ambulance) telephone numbers
linked to each NPA-NXX. Such data will be transmitted via
the Electronic Interface described in Attachment 11, or by
an interim means agreed by the parties. PACIFIC will
electronically transmit to CLEC, in a timely manner, all
changes, alterations, modifications and updates to such
data. PACIFIC shall accurately transmit information
provided to PACIFIC by the emergency public agency, but
assumes no liability for the accuracy of such information.
4.4 BUSY LINE VERIFICATION AND EMERGENCY LINE INTERRUPT
Until such time that an electronic interface is made available by
PACIFIC to access PACIFIC's data base for Operator Services, if
CLEC has purchased the resale line without PACIFIC's Operator
Services, PACIFIC will offer Operator-to-Operator BLV/BLVI to
CLEC on a non-discriminatory basis, in accordance with LERG
instructions. PACIFIC requires that a reciprocal BLV/BLVI network
be established between PACIFIC and CLEC's operator service
provider.
<PAGE> 59
Attachment 5
9
4.5 ACCESS TO THE LINE INFORMATION DATABASE
PACIFIC shall update and maintain CLEC Customer information in
the Line Information Database LIDB in the same manner and on the
same schedule that it maintains information in LIDB for PACIFIC
customers.
4.6 TELEPHONE LINE NUMBER CALLING CARDS
Effective as of the date of an end-user's subscription to CLEC
Service, PACIFIC will remove any PACIFIC-assigned telephone line
calling card number (including area code) ("TLC") from the LIDB.
4.7 CALL BLOCKING
Upon CLEC's request, PACIFIC will provide blocking on a line by
line basis of an CLEC Customer's access to any or all of the
following call types: 900, 976, bill to third and collect, and
such other call types for which PACIFIC provides blocking to
similarly situated customers
4.8 PAY PHONE SERVICES
4.8.1 "Pay Phone Services" is defined by Section 276 of the Act
and any FCC and Commission regulations adopted thereto.
These services may include the provision of service from
public pay telephones, the provision of inmate telephone
service in correctional institutions, and the provision of
any ancillary services within the meaning of Section 276
of the Act.
4.8.2 Pay phone lines are defined as the loop from the pay phone
set point of demarcation to the Serving Wire Center. Pay
phone lines are attached to coinless and coin pay phone
sets (e.g. PACIFIC's COPT service).
4.8.3 PACIFIC will provide CLEC all retail telecommunications
functions and features provided by PACIFIC through pay
phone lines, in the same form, made available by PACIFIC
to customers for its pay phone lines customers (e.g. COPT
providers).
4.8.4 Each Party will comply with Section 276 of the Act and FCC
regulations adopted thereunder in connection with
selection of carriers for intraLATA, interLATA and
international telephone services from pay phone sets.
5. SERVICE FUNCTIONS
5.1 ELECTRONIC INTERFACE
5.1.1 PACIFIC shall provide an interim electronic
interface known as Network Data Mover ("NDM)" for
transferring and receiving all Service Orders and related
information such as Firm Order Confirmations (FOC),
Jeopardies,
<PAGE> 60
Attachment 5
10
Rejects, Simple and Complex Completions. The NDM shall be
administered through a gateway that will serve as a single
point of contact for the transmission of data from CLEC to
PACIFIC, and from PACIFIC to CLEC. The requirements and
implementation of such a data transfer system are/will be
set forth in Attachment 11 and are incorporated by this
reference as though fully set forth herein.
5.1.2 For the Long Term, PACIFIC and CLEC agree to adopt an
Electronic Bonding ("EB") standard to transmit and receive
Pre-Order, Order and Provisioning data in a "real time"
environment. Both companies agree that this solution is in
their mutual best interest and will negotiate in good
faith for the earliest possible deployment of an EB
standard, as set forth in Attachment 11. In the event the
parties are unable to reach agreement on implementation of
an EB standard, any unresolved issues will be resolved
pursuant to the Alternative Dispute Resolution procedures
in Attachment 3 to this Agreement.
5.2 WORK ORDER PROCESSES
5.2.1 PACIFIC shall ensure that all work order processes used to
provision Local Service to CLEC for resale meet the
service parity requirements set forth in this Agreement or
its Attachments
5.2.2 Additional Service Ordering, Provisioning, Maintenance,
Billing and Customer Usage Data requirements and
procedures are set forth in Attachments 11.12, 13 and 14.
5.3 POINT OF CONTACT FOR CLEC CUSTOMERS
5.3.1 Except as otherwise provided in this Agreement, CLEC shall
be the single and sole point of contact for all CLEC
Customers.
5.3.2 Each Party shall refer all questions regarding the other
Party's service or product directly to the other Party at
a telephone number specified by the other Party.
5.3.3 Each Party shall ensure that all their representatives who
receive inquiries regarding the other Party's services:
(i) provide such numbers to callers who inquire about the
other Party's services or products; and (ii) do not in any
way disparage or discriminate against the other Party, or
its products or services.
<PAGE> 61
Attachment 5
11
5.4 SINGLE POINT OF CONTACT
Each party shall provide the other party with a single point of contact
("SPOC") for all inquiries regarding the implementation of this Attachment. Each
Party shall accept all inquiries from the other Party and provide timely
responses.
5.5 PRE-SERVICE ORDER INFORMATION
To facilitate the ordering of new service for resale or changes to such
service to an CLEC Customer ("Service Order"), PACIFIC shall provide, consistent
with the implementation schedule set forth in Section 5.1.1., CLEC's
representatives with gateway access to PACIFIC's PREMIS and APTOS information.
This will allow CLEC to perform functions such as, but not limited to, Telephone
Number Assignment, an LSO to address correlation, service and feature
availability by switch type and other such functions which are deemed necessary
to provide the customer with a common experience when dealing with CLEC. Through
PREMIS, APTOS, NDM or using other methods. PACIFIC shall comply with CLEC
requests to:
5.5.1 Obtain customer information, including customer name, billing and
residence address, billing telephone number(s), current
participation in Voluntary Federal Customer Financial Assistance
Program, Telephone Relay, and other similar services, and
identification of PACIFIC features and services subscribed to by
customer. The following additional terms shall apply to
AT&T's access:
5.5.1.1 For business customers, prior to accessing such
information, AT&T shall provide Pacific with a written or
electronic statement indicating that it has the
customer's approval (verbal or written) to receive such
information. Where accessing such information via an
electronic interface, AT&T shall have obtained an
authorization to become the end user's local service
provider. AT&T shall receive and retain such information
in conformance with the requirements of 47 USC 222 (and
implementing FCC decisions thereunder).
5.5.1.2 For residence customers, prior to accessing such
information, AT&T shall, on its own behalf and on behalf
of PACIFIC, comply with all applicable requirements of
Section 2891 of the California Public Utilities Code and
47 USC 222 (and implementing FCC decisions thereunder),
and, where accessing such information via an electronic
interface, AT&T shall have obtained an authorization to
become the end user's local service provider. Accessing
such information by AT&T shall constitute certification
that AT&T is in compliance with the applicable
requirements of Section 2891 and Section 222 (and
implementing FCC decisions thereunder) and has complied
with the prior sentence. AT&T shall receive and retain
such information in conformance with the requirements of
47 USC 222 (and implementing FCC decisions thereunder).
Pursuant to Section 10 of this Agreement, AT&T agrees to
indemnify, defend and hold harmless PACIFIC against
<PAGE> 62
Attachment 5
12
any claim made by a residence customer or governmental
entity against PACIFIC or AT&T under Section 2891 or
Section 222 (and implementing FCC decisions thereunder)
or for any breach by AT&T of this Section."
5.5.2 Obtain information on all features and Telecommunication services
available, including new services, trial offers and promotions;
5.5.3 Enter the CLEC Customer order for all desired features and
services;
5.5.4 Assign a telephone number (if the CLEC Customer does not have one
assigned);
5.5.5 Identify the appropriate primary directory for each end-user
location;
5.5.6 For single-line residential service, determine if a service call
is needed to install the line or service;
5.5.7 Identify "next available due date" for service installation;
5.5.8 Provide service availability dates,
5.5.9 Order local intraLATA toll service and enter CLEC Customer's
choice of primary interexchange carrier on a single, unified
order; and
5.5.10 Suspend or terminate service to an CLEC Customer for nonpayment
and restore service, as appropriate, at parity with PACIFIC's
ability to suspend or terminate service.
5.6 PROVISIONING
After receipt and acceptance of a service order, PACIFIC shall provision
such service order in accordance with the intervals and performance standards
set forth in Attachment 17 and as set forth below
5.6.1 PACIFIC shall provide CLEC with service status notices, within
mutually agreed-upon intervals. Such status notices shall include
the following:
5.6.1.1 Firm order confirmation, including service availability
date;
5.6.1.2 Notice of service installation issued at time of
installation including any additional information, such
as material charges;
5.6.1.3 Rejections/errors in Service Orders;
5.6.1.4 Jeopardies and missed appointments;
5.6.1.5 Charges associated with necessary construction
<PAGE> 63
Attachment 5
13
5.6.1.6 Except for basic exchange service, order status at
critical intervals;
5.6.1.7 Except for basic exchange service, test results, where
available, will be provided in a form mutually
agreeable.
5.6.2 Where PACIFIC provides installation, PACIFIC shall advise an CLEC
customer to notify CLEC immediately if the CLEC Customer requests
a service change at the time of installation.
5.6.3 PACIFIC shall provide provisioning support to CLEC during normal
business hours (Monday through Friday, 8 a.m. to 5 p.m. PACIFIC
time, excluding holidays).
5.6.4 PACIFIC shall provide training for all PACIFIC employees who may
communicate, either by telephone or face-to-face, with CLEC
Customers, during the provisioning process. Such training shall
instruct the PACIFIC employees not to disparage or discriminate
against CLEC, its products or services, and shall comply with the
branding requirements of this Agreement.
5.7 MAINTENANCE
Maintenance shall be provided in accordance with the requirements and
standards set forth in Attachment 12. Maintenance will be provided by PACIFIC in
accordance with the service parity requirements set forth in this Attachment.
5.8 PROVISION OF CUSTOMER USAGE DATA
PACIFIC shall provide the Customer Usage Data recorded by the PACIFIC.
Such data shall include CLEC Customer usage data for Local Service, including
both local and intraLATA toll service, all in accordance with the terms and
conditions set forth in Attachment 14.
5.9 SERVICE/OPERATION READINESS TESTING
5.9.1 In addition to testing described elsewhere in this Section,
PACIFIC shall test the systems used to perform the following
functions sixty (60) days prior to commencement of PACIFIC's
provision of Local Service to CLEC, in order to establish system
readiness capabilities.
5.9.1.1 All interfaces between CLEC and PACIFIC work centers for
Service Order, Provisioning,
5.9.1.2 Maintenance, Billing and Customer Usage Data;
5.9.1.3 The process for PACIFIC to provide customer service
records;
5.9.1.4 The installation scheduling process;
<PAGE> 64
Attachment 5
14
5.9.1.5 Telephone number assignment;
5.9.1.6 Procedures for communications and coordination between
CLEC SPOC and PACIFIC's Interconnection Service Center
(ISC);
5.9.1.7 Procedures for transmission of Customer Usage Data; and
5.9.1.8 Procedures for transmitting bills to CLEC for Local
Service.
5.9.2 The functionalities identified above shall be tested in order to
determine whether PACIFIC performance meets the applicable
service parity requirements and other performance standards set
forth herein. PACIFIC and CLEC shall make available sufficient
technical staff to perform such testing. PACIFIC and CLEC
technical staffs shall be available to meet as necessary to
facilitate testing. PACIFIC and CLEC shall mutually agree on the
schedule for such testing.
5.9.3 At either Party's request, each Party shall provide to the other
Party any results of the testing performed pursuant to the terms
of this Attachment. Either Party may review such results and
shall notify the other Party of any failures to meet the
requirements of this Agreement.
5.9.4 During the term of this Agreement, PACIFIC shall participate in
cooperative testing requested by CLEC whenever it is deemed
necessary by CLEC to ensure service performance, reliability and
customer serviceability.
5.10 BILLING FOR LOCAL SERVICE
5.10.1 PACIFIC shall bill CLEC for Local Service provided by PACIFIC to
CLEC pursuant to the terms of this Attachment, and in accordance
with the terms and conditions for Connectivity Billing and
Recording in Attachment 13.
5.10.2 PACIFIC shall recognize CLEC as the customer of record for all
Local Service and will send all notices, bills and other
pertinent information directly to CLEC unless CLEC specifically
requests otherwise.
<PAGE> 65
ATTACHMENT 6
SPECIFICATIONS, SERVICE DESCRIPTIONS, AND IMPLEMENTATION
SCHEDULE FOR UNBUNDLED NETWORK ELEMENTS
<PAGE> 66
Attachment 6
1
ATTACHMENT 6
SPECIFICATIONS, SERVICE DESCRIPTIONS, AND IMPLEMENTATION
SCHEDULE FOR UNBUNDLED NETWORK ELEMENTS
1. GENERAL: UNBUNDLED NETWORK ELEMENTS
1.1. Access To Unbundled Elements Shall Be Specified Herein and Not
Presumed. The Network Elements offered under this Agreement shall
be clearly specified in this Agreement or the attachments hereto.
In no event will it be presumed that access to an Network Element
is offered unless so specified. The methods of access to Network
Elements described in this Attachment are not exclusive. PACIFIC
will make available any other form of access requested by CLEC
that is consistent with the Act and the regulations thereunder.
Requests for Network Elements not specified in this Attachment
shall be processed according to the process described in Section
1.6 below.
1.2 Consistent with the terms and conditions in this Attachment and
the Act and regulations thereunder, PACIFIC shall offer each
Network Element individually and in combination with any other
Network Element or Network Elements in order to permit CLEC to
combine such Network Element or Network Elements with another
Network Element or other Network Elements obtained from PACIFIC
or with network components provided by itself or by third parties
to provide Telecommunications Services to its customers.
1.3. Consistent with the terms and conditions in this Attachment and
the Act and regulations thereunder, PACIFIC will permit CLEC to
interconnect CLEC's facilities or facilities provided by CLEC or
by third parties with each of PACIFIC's Network Elements at any
point designated by CLEC that is technically feasible.
1.4. CLEC may use one or more Network Elements to provide any
Telecommunications Service. If CLEC requests a Combination not
specified in this Agreement and for which the Parties have not
agreed on methods and procedures for pre-ordering, ordering,
provisioning, maintenance, billing and pricing, the Parties will
meet and confer pursuant to Section 1 6, below, to establish the
processes necessary to provide the combination. In the event the
Parties can not agree on technical feasibility or any of the
matters specified in the foregoing sentence, the Parties will
follow the dispute resolution process set forth in Attachment 3
to the Agreement.
1.5. For each Network Element, PACIFIC shall specify a demarcation
point (e.g., an interconnection point at a Digital Signal Cross
Connect or Light Guide Cross Connect panel or a Main Distribution
Frame) and, if necessary, access to such demarcation point, which
is mutually agreed to by the Parties. However, where PACIFIC
provides contiguous Network Elements to CLEC, PACIFIC may
<PAGE> 67
Attachment 6
2
provide the existing interconnections and no demarcation point
shall exist between such contiguous Network Elements.
1.6. Attachments 6 and 7, together with Attachments 5,11,12, 13 and
14, which collectively describe the Operating Support System
Network Element, list the Network Elements and Combinations that
CLEC and PACIFIC have identified as of the Effective Date of this
Agreement. CLEC and PACIFIC agree that the Network Elements and
Combinations identified in this Agreement are not exclusive. The
process of requesting access to an Network Element or Combination
not identified herein shall be as follows:
1.6.1 Either Party may identify an Network Element or
Combination, that is not currently available in
PACIFIC's network, by providing written notice to the
other Party, which notice shall include a description of
the Network Element or Combination adequate to determine
technical feasibility and development requirements.
1.6.2 The Parties agree to immediately work together to
determine (a) the technical feasibility of the request
and (b) the requirements to develop the request, and the
anticipated cost of developing the quote. If the Network
Element or Combination is identified by CLEC, PACIFIC
shall be allowed a commercially reasonable period of
time to evaluate the technical feasibility of the
request and the requirements to develop the requested
Network Element or Combination. Notwithstanding the
foregoing, if the Parties cannot agree within forty-five
(45) days (or such other period of time as may be
mutually agreeable), whether the Network Element or
Combination is technically feasible, or on the
requirements necessary to develop the Network Element or
Combination, the Parties shall use the alternate dispute
resolution process set forth in Attachment 3 to this
Agreement.
1.6.3 The costs of developing the Network Element or
Combination, which includes, but is not limited to, the
cost of developing the quote, shall be recovered from
any entity which utilizes the Network Element or
Combination so identified, including PACIFIC and its
affiliates. In addition, CLEC shall pay its share of
PACIFIC's costs of developing any Network Element or
Combination, not identified in this Agreement
(including, but not limited to, the cost of developing
the quote) if CLEC requests development of the Network
Element or Combination but subsequently determines not
to purchase the Element or Combination. In all cases,
CLEC and PACIFIC shall meet and confer on the amount of
such costs, each Party's respective share of such costs,
and the method of recovery. In the event the Parties
cannot agree on the amount and method of recovery, the
Parties shall track their respective development costs
and will use the alternative dispute resolution process
set forth in
<PAGE> 68
Attachment 6
3
Attachment 3 to this Agreement. Any determination made
in alternative dispute resolution shall be subject to
modification by a subsequent decision of the Commission.
In no event shall either Party allow the pendancy of a
dispute concerning development costs to delay analysis
or implementation of the Network Element or Combination.
1.7 Unless specified otherwise in this Attachment, PACIFIC will make
the Network Elements identified in this Agreement, and all
Combinations specified herein used by PACIFIC in its network,
available on the Effective Date of this Agreement.
1.8 The charge(s) for Network Elements requested pursuant to Section
1.6 above shall be specified by amendment to Attachment 8.
1.9 Implementation Costs Implementation costs for all Network
Elements set forth in this Attachment will be determined and
recovered as specified in Attachment 8.
2. NETWORK INTERFACE DEVICE (NID)
2.1 General Description and Specifications of the Network Element
2.1.1 Description. NID is PACIFIC's terminal that is used to
connect the end user customer's inside wire with the
telephone network. In addition, the NID is the final
termination point, or DEMARC (demarcation point) in the
loop network where an end user customer connects its
inside wire to a telephone company's loop network.
Connection to PACIFIC's NID will permit CLEC to obtain
direct access to the end user customer's inside wire by
attaching its connecting facility directly to the same
screws or lugs being used by PACIFIC to serve the
customer.
2.1.2. Types of NID. Under this Agreement, PACIFIC shall offer
access to two general types of NIDs:
2.1.2.1. Simple NID, which is a standard network interface
(SNI) the use of which permits the end user's
customer wiring to be isolated from PACIFIC's
network.
2.1.2.2. Complex NID, which is a building terminal where
end user customer wiring terminates on PACIFIC's
network.
2.2. Form of Access
2.2.1. Form of Access Applicable to All NIDs In all
cases (simple and complex), access to PACIFIC's NID will
only be available through a separate NID provided by
CLEC, and a separate connecting facility running either
between the two NIDs, or, where a connector block is
available, between CLEC's NID and the connector block
where the end
<PAGE> 69
Attachment 6
4
user customer's inside wire is attached. Unless
otherwise agreed in writing, CLEC shall be responsible
for providing its own NID and its own connecting
facility. In addition, CLEC shall be responsible for
obtaining all approvals necessary to place its NID and
the connecting facility on the owner's premise. Nothing
in the agreement precludes the end-user customer from
re-terminating its inside wire to the CLEC-provided NID
thus eliminating the need for NID-to-NID cross-connects.
In addition, should CLEC purchase a combination of
PACIFIC's NID and PACIFIC's Links, a separate CLEC NID
will not be required.
2.2.2. Ordering. CLEC shall order access to PACIFIC's unbundled
NID by placing an order, requesting access to the
unbundled NID with PACIFIC's Local Interconnection
Service Center (LISC).
2.2.3. When orders for simple unbundled NIDs are received by
PACIFIC, PACIFIC shall make available to CLEC
information, where available, indicating the type of NID
currently employed (e.g., SNI, MPOE with Binding post
identification, MPOE with color code identification, or
neither); When orders for complex unbundled NIDs are
received by PACIFIC, PACIFIC shall make available to
CLEC information indicating the type of NID currently
employed ~ SNI, MPOE with Binding post identification,
MPOE with color code identification, or neither).
2.3. General Terms and Conditions
2.3.1. When CLEC purchases a combination of a PACIFIC NID and a
PACIFIC Link. Section 2.3.2 through 2.3.7, 2.3.10 and
2.4 will not be applied.
2.3.2. Dispatch. If the Parties agree that dispatch is required
(e.g., to clear or make available spare Binding posts in
the PACIFIC NID or to secure PACIFIC's facilities at the
premises), then PACIFIC will dispatch a service
technician to complete all necessary work at the
customer's premise to protect PACIFIC's facilities.
Dispatch charges as set forth in Attachment 8, shall
apply with each such order.
2.3.3. Protection of Facilities. In no case shall either Party
connect to the NID or tie down its connecting facility
directly over the other Party's facility without prior
approval of the other Party and without conditioning
having been performed to isolate each Party's network.
Furthermore, in no instance shall either Party attach
its connecting facility in any manner so as to cause
voltage or its own dial tone to occur on the other
Party's network.
<PAGE> 70
Attachment 6
5
2.3.4. Coordination. Unless requested by CLEC, no coordination
is provided. If CLEC requests coordination, charges will
be applied as specified in Attachment 8. In addition,
unless otherwise agreed by CLEC and PACIFIC, neither
Party shall access the other Party's NID unless the
owning Party's service technician is present, or unless
the owning Party has already made the necessary
modifications to isolate its network.
2.3.5 SNI Conversion. In all residential or small business
locations where a protector is used to connect to the
end user customer's inside wire instead of a SNI, at
CLEC's option, either the protector will be replaced and
a SNI installed or CLEC will install its own SNI and
connect the customer's inside wire to the new SNI. If
CLEC requests PACIFIC to install a new SNI, PACIFIC and
CLEC agree that the placement of a SNI will benefit each
Party, and therefore the cost of installing the new SNI
will be shared equally by PACIFIC and CLEC. The charges
for new SNI installation are specified in Attachment 8.
2.3.6. Connector Blocks When connecting to a connector block,
CLEC and PACIFIC will ensure that PACIFIC's jumpers will
be completely disconnected and not left hanging free so
as to cause potential interference with other facilities
of CLEC, PACIFIC, or the end user customer.
2.3.7. Drops. Either Party shall be permitted to secure its
drop facility to its SNI by grounding same in an
appropriate manner. Upon disconnection of service to the
end user customer, either Party may leave its drop in
place until another LEC or CLC needs access to the NID
to provide service to the customer.
2.3.8 Gaining Access the NID. The Parties each acknowledge and
agree that a special tool is necessary for access to
PACIFIC's side of the SNI. Neither Party shall attempt
to access any type of NID without the proper tool, and
any party accessing the SNI, protector, connector block,
or any other form of NID, shall exercise reasonable care
and sound technician practices so as to avoid damage to
the NID. Nothing in this section shall be construed to
allow either Party to connect its loops directly to the
other Party's NID.
2.3.9 Tagging End User Customer Facilities. Upon request,
PACIFIC will dispatch a technician to tag the end user
customer's inside wire facilities on the customer's side
of the NID. In such cases, a dispatch charge shall
apply, as specified in Attachment 8.
2.3.10. Special Construction Charges. In the event any Special
Construction is required to implement this unbundled
element at any given location,
<PAGE> 71
Attachment 6
6
Special Construction charges, as defined in Attachment I
and set forth in Attachment 8 may apply.
2.4 Rates CLEC agrees to pay NID rates as specified in Attachment 8.
2.5 Implementation Schedule PACIFIC will make unbundled NIDs
available no later than March 31,1997.
3. LOOPS
3.1. General Terms and Conditions
3.1.1. The terms Loops and Links are synonymous.
3.1.2 Use and Suitability of Loop Service. Unbundled loops may
not be used to provide any service that would degrade or
otherwise adversely affect PACIFIC's network services.
3.1.3. Assigned Telephone Number. CLEC, when not using
PACIFIC's switching capabilities, is responsible for
assigning any telephone numbers necessary to provide its
end users with Exchange Service.
3.2 Types of Loops/Links
3.2.1. 2-Wire or 4-wire Analog Basic Link. This PACIFIC
unbundled Network Element is Plain Old Telephone (POTS)
grade two-wire or 4-wire circuit or equivalent voice
frequency channel that supports analog transmission of
300-3000 Hertz (Hz) with loss no greater than 8.0 db
measured at 1004 Hz with 900 ohms at the central office
P01 and 600 ohms at the MPOE. In addition, coin
supervision and ground start signaling options are
available.
3.2.2. 2-Wire or 4-wire Analog (Assured) Link. The PACIFIC
unbundled Network Element (2-wire or 4 wire) is a voice
frequency channel that supports analog transmission of
300-3000 Hertz ("Hz") with loss no greater than 5.5db
measured at 1004 Hz with 900 ohms at the central office
P01 and 600 ohms at the MPOE.
3.2.3. 2-Wire Digital (ISDN/xDSL Capable) Link. This PACIFIC
unbundled Network Element (2-wire) is an ISDN capable
Link, which is an upgrade to the Basic Link for the
transmission of digital services having no greater loss
than 38db end-to-end, measured at 40,000 HZ with 135
ohms at the central office P01 and 135 ohms at the MPOE;
without loop repeaters, midspan repeaters may be
required. This Link will not have any load coils or
bridge taps within limits defined by the specification
applicable to the ISDN/xDSL Links. In addition, the ISDN
Capable Link, without midspan repeaters, will be used
for Link requests to support xDSL type transmission
rates.
<PAGE> 72
Attachment 6
7
3.2.4. 4-Wire Digital (1.544 mbps Capable) Link. This PACIFIC unbundled
Network Element (4-wire) is a 1.544 mbps capable Link which is an
upgrade to the Basic Link. It will be conditioned with or without
digital repeaters.
3.2.5 2 Wire Copper Link. This offering (2 wire continuous copper loop
from DF to MPOE, where facilities are available) is a physical
link which can be used to support alarm type Direct Current (DC)
service offerings. This Link will not have any load coils and
bridge taps will be within limits. This 2-wire copper link will
work with most DC alarm circuits.
3.2.6 2 Wire Copper Switched Digital Link. This offering (2 wire
continuous copper loop from DF to MPOE, where facilities are
available) is a physical link which can be used when digital
connectivity is required to the customer's premise having no
greater loss than 31 db end-to-end, measured at 80,000 HZ with
135 ohms at the central office P01 and 135 ohms at the MPOE. This
link will not have any load coils and bridge taps will be within
limits.
3.3. Form of Access Interconnection to loops will be at the central
office P01. Access to unbundled loops may occur in the following
manner:
3.3.1 By purchasing an EISCC to CLEC's collocated equipment in
the same PACIFIC Central Office, or
3.3.2. By purchasing PACIFIC's unbundled transport service, or
Special Access service at rates as specified in
Attachment 8.
3.3.3 Combining Links and PACIFIC's LSNE. In addition to the
connections described above, CLEC may combine PACIFIC's
Links with PACIFIC's LSNE.
3.3.4 Combining NID, Links and PACIFIC's LSNE. In addition to
the connections described above, CLEC may combine
PACIFIC's NID, Links and LSNE
3.4. Responsibilities of the Parties
3.4.1. For the first six months after CLEC's first order for a
Link, CLEC shall provide to PACIFIC forecasts of the
number of Links at a LATA level. Thereafter, CLEC shall
make a good faith effort to provide such forecasts to
PACIFIC at a wire center level. This includes associated
additional line ("ADL") requirements when PACIFIC's
primary residential POTS service is not to be
disconnected in the establishment of Link Service. CLEC
shall provide such forecasts to PACIFIC on a semi-annual
basis.
<PAGE> 73
Attachment 6
8
3.4.2. CLEC will provide end-user customer listing information
for the purpose of providing E91 1 Service.
3.5. Implementation Schedule
3.5.1 2-Wire Basic and 2-Wire Assured Link Service will be
available on an unbundled basis on the Effective Date
from all PACIFIC Wire Centers on a first-come,
first-served basis, applicable to all carriers,
including PACIFIC, and subject to the availability of
PACIFIC's facilities and facilities at the MPOE at the
premise of the CLEC end user customer. However, certain
of PACIFIC's geographical areas are currently served
solely via integrated digital loop carrier ("IDLC"). In
such areas PACIFIC will make reasonable efforts to
provide Links using copper facilities. Where copper
facilities are not available, PACIFIC will use other
methods to provide such Links and Special Construction
charges may apply.
3.5.2 Combination of PACIFIC's NID and its 2-Wire Basic/2-Wire
Assured Link Service will be available on the Effective
Date.
3.5.3 Implementation of other Link products. 2-Wire Digital
(ISDN/xDSL Capable) Links and 4-Wire Digital (1.544 mbps
Capable) Links shall be available on March 31,1997.
4-Wire Analog Basic Links, 4-Wire Analog Assured Links
and 2-Wire Copper Links will be available on March
31,1997; prior to this date, these facilities will be
installed on a case-by-case basis pursuant to the mutual
agreement of the Parties, provided, the provisioning
intervals in Attachments 11 and 17 will not apply to
these facilities until the Parties agree on
pre-ordering, ordering, provisioning and maintenance for
these facilities.
3.5.4 Implementation of Links combined with LSNE (Options A, B
and C). Links may be combined with LSNE simultaneously
with the availability of the particular LSNE Option
pursuant to the LSNE implementation schedule specified
in this Attachment.
3.6 Rates CLEC agrees to pay the rates for Loops specified in
Attachment 8. There will be no separate charge for NID when CLEC
purchases an unbundled loop.
4. UNBUNDLED SWITCHING
4.1. Unbundled Local Switching Network Element (LSNE). PACIFIC shall
make available unbundled switching capacity, including dial
tone, digit reception, access to signaling, deployed AIN
capabilities and vertical features, with routing to interoffice
trunks and interoffice transport provided by PACIFIC or to
designated trunk specified and purchased by CLEC. PACIFIC
designates this service "Local Switching Network Element"
(LSNE). In purchasing LSNE,
<PAGE> 74
Attachment 6
9
CLEC must obtain a Line Side Port (including a telephone number
and, at CLEC's option, a directory listing) for access to the
switching functions and vertical features provided by the
switch, and some designation of trunking for completion of
calls, with the exception of intra-switch calls. All
intra-switch calls are completed using PACIFIC's switch and no
trunk designation is made for completion of such calls.
4.1.1. Types of charges
4.1.1.1. Line Port charges as set forth in Attachment 8.
4.1.1.2. Nothing in this Section 4 means that the vertical
features are included or excluded from the prices
for switching. The issue of the appropriate
charges for vertical features, if any, shall be
as specified in Attachment 8.
4.1.1.3. Any applicable directory assistance or operator
assistance charges as set forth in Attachment 8.
4.1.1.4. Usage sensitive (per minute of use) local
switching charges, as set forth in Attachment 8
and Attachment 18. Usage will be recorded in one
second increments. Usage seconds will be totaled
for the entire monthly bill and then rounded to
the next whole minute. Usage sensitive local
switching charges will be on a per minute of use
basis and applied to all originating and
terminating traffic, including, but not limited
to local, toll, E 911 calls, calls to time and
weather announcements, etc. PACIFIC will (where
feasible) measure and charge for all
non-conversation time (e.g., ringing, calls to
busy lines, intercept). Where non-conversation
time cannot be measured the Parties will mutually
agree on the appropriate measure and charge.
4.1.1.5 Charges for completion of interconnection traffic
(local and toll) shall be determined pursuant to
Attachment 18 at the rates set forth in
Attachment 8.
4.1.2 Form of Line Port Access. Access to LSNE, as specified in Section
4.1.3 may occur in the following manner:
4.1.2.1 LSNE Access, Cross-Connection Through
Collocation: From CLEC's collocation space, CLEC
may purchase an EISCC cross-connection to
PACIFIC's Line Side Port to obtain access to
LSNE.
4.1.2.2. Combining Links and LSNE: CLEC may
combine Links and PACIFIC's LSNE. Under this
scenario, CLEC shall not be required to purchase
a cross connection facility from PACIFIC's
<PAGE> 75
Attachment 6
10
central office distribution frame to the Line
Side Port of the switch.
4.1.2.3. Combining Links, LSNE and Transport: CLEC may
combine Links (with or without a NID), the LSNE,
and transport facilities, which can be dedicated,
shared or common transport from PACIFIC. Under
this scenario. CLEC shall not be required to
purchase any cross-connection facility from
PACIFIC.
4.1.3. Types of LSNE
4.1.3.1 Option A: PACIFIC-Provided Interoffice Transport
and PACIFIC-Provided Operator and Directory
Assistance Services. In this configuration, CLEC
purchases a Line Port and receives a telephone
number and directory listing, switching capacity,
switch features including deployed AIN
capabilities and completion to PACIFIC's
interoffice trunks for all multiple-switch local
calls, calls to operator and directory assistance
services, E-91 1, intraLATA toll calls and
switched access calls. In this configuration,
intra-switch calls are also provided through
PACIFIC's switch. PACIFIC will be solely
responsible for design and engineering of the
trunks under this option. In addition, PACIFIC
will provide all 0-, operator and directory
assistance services under this option. PACIFIC's
switching capacity will be programmed to allow
routing to and from CLEC's line ports, including
operator and directory assistance calls, to
PACIFIC's network.
4.1.3.1.1 Rates The charges set forth in Section
4.1.1 shall apply.
4.1.3.2. Option B: PACIFIC-Provided Interoffice Transport
with Customized Routing-Simple and with Operator
and/or Directory Assistance (DA) Services
Unbundled from PACIFIC's Line Port Switching
Capacity. In this configuration, CLEC purchases a
Line Port and receives a telephone number and a
directory listing, Switching Capacity, switch
features (including deployed AIN capabilities)
and completion to PACIFIC's interoffice trunks
for all multiple-switch local calls, E-91 1
calls, intraLATA toll and Switched Access calls.
In this configuration, intra-switch calls are
also provided through PACIFIC's switch. With the
exception of trunks for operator and/or directory
assistance services, or both, PACIFIC will be
solely responsible for design and engineering of
its interoffice trunks. CLEC will be required to
order separate trunks for operator services
provided by itself or a third party identified by
CLEC to provide such services.
<PAGE> 76
Attachment 6
11
Transport facilities may be purchased from
PACIFIC, or connected to CLEC's facilities
through a collocation cage by obtaining a cross
connection from PACIFIC. CLEC will be responsible
for design and engineering of the operator and/or
directory assistance trunks under this option,
and shall also be responsible for designating the
transport facilities it desires, if any, from
PACIFIC and the points where these facilities
shall terminate. In addition, CLEC shall be
responsible for providing all operator and/or
directory assistance services. PACIFIC's
switching capacity will be programmed for CLEC to
allow routing of calls to PACIFIC's shared
network, except operator and/or directory
assistance calls will be routed to the trunks
designated by CLEC. In this configuration, the
following charges specified in Attachment 8 will
apply:
4.1.3.2.1 The charges set forth in 41.1 above.
4.1.3.2.2 Non recurring switch programming charges
as specified in Attachment 8.
4.1.3.2.3 Trunk Port Cross Connect Charge (EISCC).
(a) If CLEC provides its own dedicated
transport to CLEC designated DA and/or
operator platform, a cross-connection
charge from the unbundled switch element
to CLEC's designated collocation cage
located in the same office shall apply
at the rates set forth in Attachment 8.
(b) There will be no cross-connect
charge if CLEC selects dedicated
transport from PACIFIC's intrastate
Special access tariffs or PACIFIC's
unbundled dedicated transport tariff for
connection to CLEC's designated P01.
4.1.3.3. Option C: Customized Routing - Complex for CLEC
Traffic Using Routes Designated by CLEC This
option is Customized Routing for CLEC traffic in
the manner designated by CLEC, and it requires
that special, customized routing programming be
provided by CLEC. This option will include all of
the features listed in Options A and B. However,
with this Option, CLEC has the option of
directing traffic on an NPA-NXX basis to a Port
other than the standard used for PACIFIC's
routing. In this configuration, CLEC obtains one
or more Line Ports and receives a telephone
number and directory listing, switching capacity,
switch features, including deployed AIN
capabilities, and transport, that will permit the
completion of multiple-switch local calls, calls
to either operator or directory assistance
services, or
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12
both, E-91 1 calls, intraLATA toll calls, and
either operator or directory assistance services,
or both, E-91 1 calls, intraLATA toll calls, and
Switched Access calls. In this configuration,
intra-switch calls will be provided through
PACIFIC's switch. Inter-switch calls will be
provided from either designated common or
dedicated transport facilities. CLEC will be
solely responsible for design and engineering of
any dedicated transport under this option.
PACIFIC will be solely responsible for design and
engineering of any PACIFIC-provided shared or
common transport used under this option.
Dedicated transport may be purchased from PACIFIC
or CLEC may provide its own. In this
configuration, the following charges will apply:
4.1.3.3.1. Rates The charges set forth in Section
4.1.3.2 shall apply.
4.1.4. Implementation Schedule
4.1.4.1. PACIFIC will make Option A available no later
than April 30,1997. CLEC can place orders for
Option A beginning March 1,1997. PACIFIC will
deploy Option A within forty-five (45) days after
CLEC's order for a particular switch, provided
that CLEC places orders for no more than fifty
(50) switches for Option A in any thirty (30) day
period.
4.1.4.2. PACIFIC will make Option B available no later
than April 30,1997. CLEC can place orders for
Option B beginning April 30,1997. Deployment of
Option B will be on a project specific basis as
mutually agreed by the Parties.
4.1.4.3. PACIFIC will make Option C available no later
than June 1, 1997. CLEC can place orders for
Option C beginning May 1,1997. PACIFIC will
deploy Option C within thirty (30) days after
CLEC's order for a particular switch, provided
that CLEC places orders for Option C for no more
than fifty (50) switches in any thirty (30) day
period. The rates in Section 4.1.3.3.1 shall
include the costs incurred in meeting this
implementation schedule.
4.1.4.4 PACIFIC will make direct routing of operator and
directory assistance as specified in Section 4.2
of Attachment 5 no later than April 30, 1997.
CLEC can place orders for direct routing
beginning on April 30, 1997. Deployment will be
on a project specific basis as mutually agreed by
the Parties.
4.2. Tandem Switching
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4.2.1. General Description and Specifications of the Unbundled
Element PACIFIC will provide, subject to the terms and
conditions specified herein, the following unbundled
Tandem Switching:
4.2.1.1. Standard Tandem Switching Tandem Switching allows
use of the Tandem Switch itself for the
transmission of calls between two switches
connected to that tandem, without any customized
routing. PACIFIC's unbundled Tandem Switching
will permit access to the Tandem Switch to
originate a call to, or terminate a call from, a
CLC to a PACIFIC End Office, another LEC,
Wireless Service Provider, or another switch,
using the normal routing established in PACIFIC's
tandem.
4.2.1.2. Custom Tandem Switching. In addition to the
standard Tandem Switching capabilities, custom
Tandem Switching will allow CLEC to originate a
call through PACIFIC's tandem to a CLC, another
LEC, Wireless Service Provider, or another switch
using CLEC's own interoffice facilities. Custom
Tandem Switching consists of three options:
4.2.1.2.1 Option 1: Custom Basic--Use of PACIFIC's
Shared Transport. This option uses
screening that treats CLEC as a homing
End Office. The Custom Basic unbundled
Tandem Switching may use dedicated tandem
trunk groups that allow full LATA-wide
completion over PACIFIC's shared
transport. [EMR records will need to be
exchanged with ILECs who receive calls
initiated from a CLC completing over
PACIFIC's network.] Calls routed to CLEC
will use normal LERG routing.
4.2.1.2.2 Option 2: Custom Simple--Use of PACIFIC's
Common Transport This option uses
screening that treats CLEC as an IEC. The
Custom Simple unbundled Tandem Switching
will use dedicated trunk groups towards
PACIFIC's common transport that will
limit calls to the single tandem serving
area. This option is only able to use
common transport in the terminating
direction. Originating calls from
PACIFIC's End Offices must use shared
transport to the tandem. Custom Simple
uses a Type 2A trunk port with unique
screening capabilities to route traffic
to common transport trunk groups.
4.2.1.2.3 Option 3: Custom Complex--Routing
Designed to CLEC's Specifications. The
Custom Complex tandem unbundled switching
will use customized routing for calls
<PAGE> 79
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sent from CLEC to PACIFIC's tandem that
will be designed to CLEC's
specifications, where technically
feasible. The use of route advance or
overflows with this option will not
advance to or from dedicated trunk ports
to PACIFIC common or shared transport.
PACIFIC cannot bill the overflow.
Notwithstanding the foregoing, the
Parties will meet and confer immediately
after the Effective Date of this
Agreement in an effort to find a solution
which can be implemented to enable
PACIFIC to bill the overflow. In the
event the Parties are unable to agree
within forty-five (45) days of the
Effective Date on a solution, the Parties
shall submit any dispute to Alternative
Dispute Resolution as set forth in
Attachment 3.
4.2.1.3 When CLEC uses PACIFIC's LSNE (except where CLEC
requests Dedicated Transport using Options B or
C), use of the tandem is included in the common
transport charges set forth in Attachment 8.
4.2.2 Implementation Schedule
4.2.2.1. Standard Tandem Switching as described herein
will be available as of the Effective Date of
this Agreement.
4.2.2.2 Customized Tandem Switching as described in
Options 1 and 2 will be available no later than
May 31, 1997. CLEC can place orders for
Customized Tandem Switching Options 1 and 2
beginning May 1,1997. PACIFIC will deploy
Customized Tandem Switching within thirty (30)
days after CLEC places an order, provided that
CLEC places no more than four (4) such orders in
any thirty day period. Option 3 is available
where technically feasible on a mutually
agreeable date based on CLEC's design
specifications.
4.2.3 Tandem Switching Rate CLEC agrees to pay the Tandem
Switching rate listed in Attachment 8.
5. UNBUNDLED INTEROFFICE TRANSMISSION FACILITIES (TRANSPORT)
5.1 General Description and Specifications of the Network Element
PACIFIC will make available, subject to the terms and conditions
specified herein, the following unbundled transport facilities:
<PAGE> 80
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5.1.1. Entrance Facilities in Connection with Dedicated
Transport. PACIFIC will make available the following
entrance facilities, pursuant to the charges set forth
in Attachment 8, upon request of CLEC:
5.1.1.1. Connections between the PACIFIC's Wire Center
that serves an CLEC switch and the CLEC switch.
5.1.1.2. Connections between PACIFIC's serving Wire
Center and the Point of Presence of CLEC's
IXC's switch.
5.1.2 Dedicated Transport Is an interoffice transmission path
between CLEC designated locations. Such locations may
include PACIFIC Central Offices or other equipment
locations, CLEC network components, other carrier
network components or customer premises. Digital
Cross-Connect System (DCS) functionality is available as
an option which can be used in connection with Dedicated
Transport. PACIFIC will make available the following
dedicated connections, upon request of CLEC:
5.1.2.1. Connections between PACIFIC End Offices or
between PACIFIC End Offices and PACIFIC serving
Wire Centers;
5.1.2.2. Connections between a PACIFIC End Office and
CLEC collocation space located in a distant
PACIFIC End Office;
5.1.2.3. Connections between PACIFIC's End Office or
Tandem Switch and an CLEC designated premise.
5.1.3 Common Transport Common transport will be available
between PACIFIC End Offices and PACIFIC's Tandem Switch
and either Party's connecting End Office, Tandem
Switches or designated P01.
5.1.4 Shared Interoffice Transport Shared transport will only
be available where CLEC purchases LSNE. Shared transport
provides call completion from a PACIFIC End Offices
where LSNE is purchased and the terminating PACIFIC End
Office or P01 where the call leaves PACIFIC's network.
5.1.4.1. Use of the tandem is included in the Shared
Interoffice Transport charges set forth in
Attachment 8.
5.2 Form of Access
5.2.1 Dedicated Transport. CLEC may order dedicated transport
from PACIFIC from the unbundled LSNE to any other point.
5.2.2. Common Transport. Access to common transport will be
available through interconnection at the access tandem.
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5.2.3 Shared Interoffice Transport. Access to shared transport
will only be available where CLEC purchases LSNE. The
Parties acknowledge that there is no physical shared
transport to unbundle between PACIFIC's End Office
switches and PACIFIC's End Offices and Tandem Switches,
and CLEC's interest is in the shared use of transport
between PACIFIC's switches and the associated underlying
performance characteristics. PACIFIC will make available
to CLEC shared transport as currently implemented within
PACIFIC's interoffice network. PACIFIC will engineer,
provision and maintain such shared interoffice transport
facilities and equipment under existing methods and
procedures.
5.2.4. Use of DCS. PACIFIC will make available the use of DCS
equipment, which is a separate unbundled Network
Element. When unbundled DCS is provided with unbundled
transport as a combination, it shall be available on
March 31,1997. When DCS is provided without transport,
it shall be available on May 30, 1997.
5.2.5 CLEC may connect Links at PACIFIC's DF to unbundled
transport through a multiplexing, e.g., D4 channel bank,
DCS or Unbundled Services Cross Connect (USCC) at the
charges set forth in Attachment 8.
5.3. General Terms and Conditions
5.3.1. For dedicated transport, PACIFIC will provide transport
unbundled from switching and other services. Such
transport services will allow CLEC to send individual or
multiplexed switched and dedicated services between
PACIFIC's Wire Centers.
5.3.2. Dedicated transport will be available with the following
functionality or optional services:
5.3.2.1. Protection and restoration of equipment and
interfaces at parity with levels PACIFIC
maintains for its own transport facilities;
5.3.2.2. Compliance with Bellcore and industry standards
to the extent implemented in PACIFIC's transport
network
5.3.2.3. Redundant power supply or battery back-up to the
extent implemented in PACIFIC's transport
network;
5.3.2.4. Provisioning and maintenance performed to the
same extent such provisioning and maintenance is
performed on PACIFIC's own transport network.
5.3.3. Where deployed, PACIFIC will make available interoffice
transport services capable of interfacing on copper,
coaxial cable, and optical fiber
<PAGE> 82
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facilities. Consistent with current bundled offerings,
the interoffice transport services will be capable of
handling transmission rates ranging from voice grade up
through Optical Carrier ("OC")-48.
5.3.4. Transmission Levels. Where deployed, PACIFIC will make
dedicated transport available at the following speeds:
DS0, DS1, D53, and commercially available Optical
Carrier levels (e.g., OC-3/12/48).
5.4. Implementation Schedule. Unbundled transport will be available as
of the effective date of this Agreement, except that unbundled
transport combined with LSNE will be available simultaneously
with the availability of the particular LSNE Option pursuant to
the LSNE implementation schedule specified in this Attachment.
Unbundled dedicated transport will be available on March 31,1997.
5.5. Rates. CLEC agrees to pay the transport rates specified in
Attachment 8.
6. SIGNALING AND DATABASES
6.1. Signaling Networks
6.1.1. General Description and Specifications of the Unbundled Element.
As described in this section, PACIFIC will make available
interconnection to its SS7 signaling network to enable signaling
necessary for call routing and completion. PACIFIC will also make
available unbundled nondiscriminatory access to SS7 signaling
links and PACIFIC's Signaling Transfer Points (STPs).
6.2. Form of Access and General Terms and Conditions
6.2.1. The Parties will interconnect their networks using SS7
signaling protocol as defined in Bellcore Technical
Reference GR-246, and GR-31 7 and GR-394 for ISDN User
Part (ISUP) for trunk signaling.
6.2.2. CLEC may establish CCS interconnections with PACIFIC
either directly or through a third party. CCS
interconnection, whether direct or by third party, shall
be pursuant to the PACIFIC Bell/Nevada Bell CCS network
interface specification document PUB L-780023-PB/NB,
which will be updated to include interconnection
interface specifications for unbundled signaling links
and access to PACIFIC's STPs. The Parties will cooperate
in the exchange of ISUP and Transaction Capabilities
Application Part (TCAP) messages to facilitate full
interoperability of CCS-based features between their
respective networks, including all CLASS features and
functions, to the extent each Party offers such features
and functions to its own end users.
6.2.3 PACIFIC's current CCS/5S7 Interconnect questionnaire
will be revised to facilitate the exchange of routing
and network architecture
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information between the Parties to provision unbundled
signaling links and STP access. The Parties shall
mutually exchange all S57 signaling parameters,
including Calling Party Number (CPN), and procedures
that are implemented within their SS7 networks as
identified in the CCS/557 Interconnect questionnaire
provided by PACIFIC's CLEC account team or other
mutually agreed process. All privacy indicators of the
Parties will be honored. Also, CLEC will provide their
SS7 network node, address information and identify the
SS7 services they request using the SS7 questionnaire.
6.2.4 PACIFIC will make available to CLEC PACIFIC's signaling
links and access to PACIFIC's STPs or access to
PACIFIC's STPs with CLEC-provided signaling links to
provide capability to support call set-up and to support
CCS-based features being provided on the effective date
of this Agreement. Signaling links will be provisioned
at 56 Kbps, or at 1.5 Mbps if available.
6.2.5. PACIFIC will provide CLEC with access through PACIFIC's
STPs to the following elements connected to PACIFIC's
SS7 network: (1) PACIFIC's SS7-capable End Offices and
Access Tandem Switches; (2) third-party CLC switches;
(3) third-party CLC STPs, if the third-party CLC and
PACIFIC have STP-to-STP interconnection; and (4) PACIFIC
will provide CLC signaling links and/or access to
PACIFIC's STPs for signaling between CLC's switches or
between CLEC and third-party switches (including
unbundled switching elements) when CLEC's and/or
third-party's switches are interconnected to PACIFIC's
SS7 signaling network.
6.2.6. At CLEC's option, CLEC may connect its switches to
PACIFIC's STPs by means of "A" link access and may
connect CLEC STPs to PACIFIC's STPs by means of "D" link
access. PACIFIC will designate the STP pair for
interconnection, and CLEC will then designate the
Signaling Point of Interconnection ("SPOI") within the
STP pair.
6.2.7. All "A" links provided by PACIFIC or CLEC will consist
of two link sets, and "D" links will consist of four
link sets.
6.2.8. CLEC's SS7 links will be interconnected to PACIFIC's
STPs in the same manner that PACIFIC connects its links
to its own STPs. When CLEC connects its links to
PACIFIC's STP a Port charge will apply as specified in
Attachment 8; provided, when CLEC provides its own links
it must access PACIFIC's STP Port through a collocation
cage.
6.2.9. PACIFIC will provide to CLEC all the signaling link
functions, and all the Signaling Connection Control
Point ("SCCP") functions that are deployed in PACIFIC's
SS7 network.
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6.2.10. PACIFIC's current CLC Handbook will be revised to
include ordering and provisioning procedures for
obtaining unbundled signaling links and/or STP access.
6.3. Implementation Schedule and Rates. SS7 STP interconnection is
available in PACIFIC access tariffs today.
6.3.1 Implementation will include testing consistent with
industry standards. Testing of SS7 interconnection shall
include completion of all tests described in PACIFIC's
CCS Network Interconnection Testing documents and
defined by the Internetwork Interoperability Test Plan
(IITP). These tests shall serve as the minimum amount of
testing required to ensure successful signaling network
internetworking.
6.3.2. Rates CLEC agrees to pay the signaling link charge
and/or signaling port charge listed in Attachment 8.
6.4 Call-Related Databases
6.4.1. Toll Free Service Database (800/888)
6.4.2 General Description and Specifications of the Unbundled
Element PACIFIC will provide access to its 800/888
database if CLEC requests such access from PACIFIC as
described below.
6.4.3. Form of Access
6.4.3.1. CLEC's query access to PACIFIC's toll free
service database (800/888) will be via
interconnection at PACIFIC's Regional or Local
STPs consistent with existing network interface
specifications. Specific terms for routing Toll
Free Services are addressed in Attachment 18.
PACIFIC's current CLC Handbook will be revised to
include ordering and provisioning procedures for
obtaining access to PACIFIC's 800/888 database.
6.4.4. Implementation Schedule Query access to 800/888 is
available today in PACIFIC's access tariffs.
6.4.5. Rates. CLEC agrees to pay the toll free service
(800/888) database query rate(s) as specified in
Attachment 8 when CLEC is the intraLATA service provider
for the toll free service customer.
6.5. Line Information Databases ("LIDB")
6.5.1. General Description and Specifications of the Unbundled
Element PACIFIC will provide access to LIDB through
interconnection at the STP. LIDB Service is provided by
PACIFIC to support alternate billing
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services. LIDB provides access to billing validation
data (calling card and billed number screening) which
resides in PACIFIC's LIDB database for use with
alternate billing services, such as Calling Card,
Collect Calls, and Third Number Billing. LIDB will
receive and respond to American National Standards
Institute Signaling System 7 protocol queries as defined
in Bellcore publication TR-TSV-000905, and PACIFIC
publication PUBL-780023 PB/NB.
6.5.2 At this time, PACIFIC has not implemented other LIDB
features such as Calling Name or Domestic Cards. If
PACIFIC offers Customer Name Address Message (CNAM)
capability, PACIFIC will offer this service to CLEC.
6.5.3. Form of Access
6.5.3.1. CLEC's query access to PACIFIC's LIDB database
will be via interconnection at PACIFIC's
Regional or Local STPs consistent with existing
network interface specifications.
6.5.3.2. If CLEC uses PACIFIC's LIDB, CLEC will send
queries to LIDB from an Operator Service System
(OSS).
6.5.3.3. PACIFIC's current CLC Handbook will be revised
to include ordering and provisioning procedures
for obtaining access to PACIFIC's LIDB
database.
6.5.4. Implementation Schedule Query access to LIDB will be
available as of the Effective Date of this Agreement.
6.5.5. Rates CLEC agrees to pay the LIDB rate as specified in
Attachment 8.
6.6 Advanced Intelligent Network Databases ("AIN")
6.6.1 General Description and Specifications of the Unbundled
Element: CLEC may purchase the entire set of Advanced
Intelligent Network ("AIN") features or functions, or
any one or any combination of such features or
functions, on a customer-specific basis. PACIFIC will
provide CLEC with query access to AIN databases to
support AIN services in two ways: from PACIFIC's
unbundled switch element or resold line; from CLEC's own
switch. PACIFIC will provide CLEC access to PACIFIC's
End-Office triggers when CLEC purchases PACIFIC's LSNE
and any available AIN services. AIN database access may
not be used to access other PACIFIC databases.
6.6.2 Form of Access. CLEC's query access to PACIFIC's AIN
SCPs will be via interconnection at PACIFIC's Regional
or Local STPs consistent
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with existing network interface specifications and using
messages conforming with Bellcore's Technical Reference
TR-NWT-001285. The requirements for these messages may
be modified by AIN access mediation (specifications not
yet available).
6.6.2.1 PACIFIC's current CLC Handbook will be revised to
include ordering and provisioning procedures to
obtain access to PACIFIC's AIN databases and/or
End-Office capabilities.
6.6.3 General Terms and Conditions. PACIFIC will require
access mediation to prevent unauthorized changes or
access to data resident in its AIN database. Such access
mediation will also provide network management functions
to prevent CLEC traffic overloads from interfering with
PACIFIC's AIN SCP operation.
6.6.4. Implementation Schedule for Query Access to AIN Using
PACIFIC's Resold Basic Exchange Service Or PACIFIC's
LSNE PACIFIC will make available such unbundled query
access to AIN no later than March 31,1997.
Implementation will include testing consistent with
standards applicable to this database.
6.6.5. Implementation Schedule for Query Access to AIN Using
CLEC's Switch Through PACIFIC's STP Implementation of
query access to AIN using CLEC's switch through
PACIFIC's STP requires special work specific to each
request, and therefore implementation shall occur on a
case-by-case basis.
6.6.6. Rates. CLEC agrees to pay the AIN rates as specified in
Attachment 8.
7. SERVICE MANAGEMENT SYSTEM ("SMS")
7.1. SMS For LIDB
7.1.1 General Description and Specifications of the Unbundled
Element. PACIFIC will provide access to the Service
Management System for LIDB, referred to as the LIDB
Administrative System (LIDB/AS) if CLEC requests such
access. Access to LIDB/AS will allow CLEC to create,
modify, update or delete the end user line information
in PACIFIC's LIDB database for CLEC Customers when
PACIFIC is the carrier of record in the LERG. For an
CLEC end user, line information includes telephone
number and preassigned calling card PIN and billed
number screening data (collect and third number billing
indicators). PACIFIC's LIDB updates are processed
continuously through service order input to LIDB/AS,
which then updates LIDB.
7.1.2. Form of Access
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7.1.2.1. PACIFIC will provide access to LIDB/AS in a
manner equivalent to how access is provided to
PACIFIC itself. CLEC shall have the ability to
create, modify, update, or delete information in
LIDB through service order processing, generated
through PACIFIC's Local Interconnection Service
Center (LISC) or electronic service order entry.
7.1.2.2. In the event CLEC requires an emergency update to
its end user line information in the LIDB
database, CLEC will be directed to PACIFIC's Data
Base Administration Center (DBAC) to process this
request. The DBAC organization provides
administrative support into LIDB/AS for PACIFIC's
business office organizations. This is the same
process used today by PACIFIC service
representatives to initiate emergency updates to
LIDB.
7.1.3. General Terms and Conditions
7.1.3.1. PACIFIC will process CLEC service order updates
to LIDB/AS in the same manner and time frames
that such updates are processed for PACIFIC
itself.
7.1.3.2. PACIFIC shall use the end user line information
of an CLEC subscriber only to update and maintain
LIDB and not for any other purpose.
7.1.3.3. CLEC may create, update, modify, or delete end
user line information of its own subscribers
through the issuance of service order activity.
CLEC shall not create, update, modify, or delete
end user line information of other carriers' end
users.
7.1.3.4. PACIFIC and CLEC will comply with the Privacy of
Customer Information requirements of Section 222
of the Act, with respect to information obtained
as a result of access to call related databases
and associated SMSs described in this Agreement.
7.1.4. Implementation Schedule
7.1.4.1 CLEC may currently update end user line
information in LIDB/AS through the service order
process. PACIFIC Bell will make available the
capability to allow provisioning and changes to
preassigned Personal Identification Number (PIN)
no later than March 31,1997.
7.1.5. Rates The SMS for LIDB is included in the LIDB query
rate specified in Attachment 8.
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7.2. SMS For AIN
7.2.1 General Description and Specifications of the Unbundled
Element
7.2.1.1 This product will allow CLEC to update AIN
service data residing in PACIFIC's AIN network
for use on the CLEC tines.
7.2.2. Form of Access
7.2.2.1 Access to AIN Service management will be provided
via electronic file transfer of CLEC data to
PACIFIC for entry by PACIFIC at one of PACIFIC's
AIN administrative terminals as is currently used
by PACIFIC for maintenance of AIN service and
subscriber data. Electronic access to an AIN SMS
system will be provided when that system is
deployed according to the implementation schedule
listed below.
7.2.3. Rates. Included in the SMS query charge specified in
Attachment 8.
7.2.4. Implementation. PACIFIC will make access to AIN Service
management available by March 31,1997.
7.3 Access to the Service Creation Environment ("SCE") of the AIN
Database
7.3.1. General Description and Specifications of the Unbundled
Element
7.3.1.1. PACIFIC will provide CLEC with access to
PACIFIC's AIN Service Creation Environment
("SCE") for the creation and modification of AIN
services. All AIN services may require testing in
PACIFIC's AIN laboratory prior to deployment into
the network. Testing will evaluate compatibility
with PACIFIC's network nodes, interaction with
other AIN, 800/888, Operator Services, and other
switch-based features, and appropriate use of
network resources.
7.3.2. Form of Access. CLEC may choose among the following
forms of access:
7.3.2.1. Under Option 1, CLEC provides PACIFIC with
documentation and logic design for the desired
service. PACIFIC Bell personnel will operate the
AIN SCE terminal to create the service as
described by CLEC.
7.3.2.2. Under Option 2, CLEC personnel will operate
PACIFIC's SCE terminals themselves.
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7.3.4.3 Under Option 3, CLEC will develop service logic
using CLEC's Bellcore SPACE platform and will
transfer the file to PACIFIC for testing and
deployment.
7.3.3. General Terms and Conditions
7.3.3.1. In all options described above, newly created or
modified services will be transferred to the AIN
laboratory for testing prior to deployment into
the network using the same tests currently
performed on PACIFIC's AIN services.
7.3.4. Implementation Schedule for SCE
7.3.4.1. PACIFIC will make Option 1 available no later
than March 31,1997.
7.3.4.2. PACIFIC will make Option 2 available when
partitioning of PACIFIC's SCE is available.
7.3.4.3. PACIFIC will make Option 3 available no later
than March 31,1997.
7.3.5. Rates. Rates for all Options shall be as specified in
Attachment 8.
8. OPERATOR SERVICES
8.1. General Description and Specifications of the Unbundled Element
8.1.1. Unbundled Operator Services allows CLEC to offer
intraLATA operator assistance services to its end user
customers using PACIFIC's Operators on an unbundled
basis.
8.1.2. PACIFIC Operator Services provides the calling party
with general assistance, assistance in completing
intraLATA calls, and a means to alternately bill calls
by dialing 0- or 0+, as follows:
8.1.2.1 IntraLATA call completion services include
Station-to-Station, Person-to-Person, connection
to DA, dialing assistance for trouble conditions,
and transfers to repair services;
8.1.2.2 Alternate billing services include Station
Collect, Station Billed to Third Number, Station
Calling Card, Person Collect, Person Billed to
Third Number, and Person Calling Card.
8.1.2.3 General assistance calls include general
assistance (e.g., time and area code requests),
dialing instructions, Busy Line Verification,
Busy Line Interrupt, credit requests (wrong
number, etc.),
<PAGE> 90
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emergency assistance, disabled customer
assistance, IXC requests (customer will be
referred to "00"), and language assistance in
Spanish.
8.1.3. Branding. Whenever PACIFIC provides Operator Services on
behalf of CLEC, at CLEC's option, PACIFIC will brand the
call as an CLEC call, where technically feasible. Where
not technically feasible, such calls will be unbranded.
8.2. Form of Access
8.2.1. Trunking. If CLEC purchases the Operator Services
unbundled element, CLEC may either provision its own
trunk group or order unbundled common or dedicated
Operator Services trunks from PACIFIC to connect from an
End Office(s) to PACIFIC's DMS 200 TOPS switch. These
dedicated one-way trunk groups will conform to Modified
Operator Services Signaling ("MOSS") or Exchange Access
Operator Services Signaling ("EAOSS").
8.2.1.1. "0" and "0+" Access. If CLEC purchases the
Operator Services unbundled element, PACIFIC will
permit CLEC's local exchange customers to connect
to PACIFIC's Operator Services by dialing "0," or
"0" plus the desired intraLATA telephone number.
8.2.2. On CLEC to TOPS trunk group, PACIFIC will complete
intraLATA 0-, 0+, and 1+ coin dialed traffic only
8.2.3. With ANI 07 and ANI 06 signaling, PACIFIC will perform
all necessary switch translations in the DMS 200 TOPS
switch in order to provide billing restrictions. Call
screening and billing restrictions are provided by using
Automatic Number Identification (ANI) and screening
codes. CLEC must provide timely screening data updates
using Operator Services Screen Code Assignment List.
8.2.4. PACIFIC will access PACIFIC's LIDB for CLEC's customers
on an as-needed basis to obtain:
8.2.4.1 Billing telephone number;
8.2.4.2 Associated billing restrictions using PACIFIC's
screen code categories; and
8.2.4.3 Adds, deletes, and changes.
8.2.5 Switching and Signaling
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8.2.5.1 MOSS or EAOSS signaling are required. Documents
providing the signaling interface between CLEC EO
and TOPS are found in TR144 and TR506.
8.2.5.2 Where MOSS is selected, CLEC must order separate
trunk groups for each NPA served.
8.2.5.3. CLEC must also have a point of presence ("POP")
at PACIFIC's DMS 200 switch within each LATA
served by CLEC.
8.2.5.4. In LATAs 722, 724, and 730, CLEC may select any
of PACIFIC's DMS 200 TOPS switches as its POP.
8.2.6. Billing records will be recorded at the TOPS switch and
billing detail will be passed to CABS. Detailed billing
records will be passed to CLEC for end user billing.
8.2.6.1 AMA billing will be created at the selected DMS
200 TOPS switch. These records will be created in
Expanded Bellcore AMA Format ("EBAF") Phase 2.
8.2.6.2 Billing will be based on operator work seconds as
specified in Attachment 8.
8.2.7 For customer rate quote requests, PACIFIC's operators
will provide rating information if CLEC concurs with
PACIFIC's rates; if CLEC does not concur in PACIFIC's
rates, rate quote requests will be handled per Section
4.3.1.3 of Attachment 5.
8.3. General Terms and Conditions
8.3.1. If CLEC purchases the Operator Services unbundled
element, PACIFIC will provide CLEC nondiscriminatory
access to PACIFIC's Operator Services. The service
level, including any dialing delays, of the Unbundled
Operator Service provided to CLEC shall be at parity
with the Operator Service provided by PACIFIC to its own
customers.
8.3.2. BLV and BLVI. PACIFIC will offer operator-to-operator
BLV and BLVI to CLEC on a nondiscriminatory basis, in
accordance with LERG instructions. CLEC OS requires that
a reciprocal BLV/BLVI network be established between
PACIFIC and CLEC.
8.3.3 Operator-Assisted Calls to DA ("OADA"). PACIFIC will
offer OADA to CLEC on a nondiscriminatory basis. OADA
refers to the situation in which a customer dials "0"
and asks the operator for DA; in such situations, the
customer is automatically transferred to a DA operator.
In
<PAGE> 92
Attachment 6
27
providing OADA to CLEC, PACIFIC will connect CLEC's end
user customer to PACIFIC's DA operators, and PACIFIC
will charge CLEC as specified in Attachment 8.
8.3.4. PACIFIC shall not be obligated, under any circumstances,
to provide call handling methods or credit card or other
alternate billing arrangements that are different from
those PACIFIC provides to itself or its affiliates.
8.3.5. PACIFIC shall have no duty, apart from factors within
PACIFIC's control, to ensure that CLEC's customers can
in fact access PACIFIC's Operator Services.
8.4. Implementation Schedule
8.4.1. PACIFIC will make available unbundled Operator Services
no later than April 30, 1997.
8.5. Rates CLEC will pay the rates for Operator Services as specified
in Attachment 8.
9. DIRECTORY ASSISTANCE SERVICES
9.1. General Description and Specifications of the Unbundled Element
9.1.1. PACIFIC's unbundled Directory Assistance Service
provides unbundled Directory Assistance ("DA") services
to CLEC by utilizing PACIFIC's DA database. This service
includes PACIFIC's listed customers and listings
supplied to PACIFIC for DA use by other carriers. This
DA service shall be provided at parity with PACIFIC DA
service and will utilize the same Directory Listing
source of information as PACIFIC uses for its own DA
service. PACIFIC's unbundled DA has the following
service attributes:
9.1.1.1 Database and retrieval system for PACIFIC's DA
Operator use;
9.1.1.2 Retrieval of listed telephone number and
address information for residence, business,
and government listings, requested by locality
and name, or a report that the number is not
available;
9.1.1.3 Up to three search requests per call;
9.1.1.4. Area code information for the United States and
Canada:
9.1.1.5. Exchange locality information for California;
9.1.1.6. Use of Automated Response Unit for number
quotation;
<PAGE> 93
Attachment 6
28
9.1.1.7 Express Call Completion at parity with what
PACIFIC provides for itself or its affiliates.
9.1.1.8. PACIFIC's DA is available on a statewide basis
(throughout California) or by individual NPA.
9.1.1.9. PACIFIC's DA provides telephone numbers and
address information within the State of
California only.
9.1.2. Nondiscriminatory Access to Directory Listings PACIFIC
will provide CLEC with nondiscriminatory access to
PACIFIC's directory listings for DA applications. CLEC
shall pay PACIFIC for the cost of the transfer media
(magnetic tape), plus PACIFIC's reasonable costs for
preparation and shipping of the magnetic tape. PACIFIC
will not permit CLEC to have access to PACIFIC's unlisted
customer names or unlisted customer telephone numbers.
9.2. Form of Access
9.2.1. Access to Unbundled DA Services. PACIFIC will provide CLEC
nondiscriminatory access to PACIFIC's DA Services. The
service level, including any answer delays, of the
Unbundled DA Service provided to CLEC shall be at parity
with the DA Service provided by PACIFIC to its own
customers.
9.2.2. Trunking Access to PACIFIC DA may be provided either
through PACIFIC's access tandem or by dedicated trunking
from End Office and routed to the appropriate DA center
Where CLEC uses trunking from an CLEC End Office to
PACIFIC's access tandem, using local interconnection
trunks at PACIFIC's tandem, CLEC must convert all "411"
dialed calls to NPA 555-1212 prior to delivery to the
tandem as shown in the LERG.
9.2.3. Transport If CLEC has purchased PACIFIC's unbundled DA
Services element, directory transport may, at the option
of CLEC, be provided from where the home NPA access tandem
is, or from an access tandem mutually negotiated with
CLEC. PACIFIC will not provide transport across LATA
boundaries.
9.3. General Terms and Conditions
9.3.1. Branding Whenever PACIFIC provides DA services on behalf
of CLEC, at CLEC's option, PACIFIC will brand the call as
an CLEC call, where technically feasible. Where not
technically feasible, such calls will be unbranded.
<PAGE> 94
Attachment 6
29
9.3.2. Unlisted Information If CLEC has purchased PACIFIC's
unbundled DA Services element, PACIFIC emergency operators
will provide emergency assistance regarding unlisted
customers on an equal basis as PACIFIC does to its
customers
9.3.3. CLEC shall not have access to PACIFIC's customers'
unlisted telephone numbers.
9.3.4. Confidentiality of CLEC's DA and Non-Published Listings
PACIFIC will accord CLEC's DA and Non-Published listing
information the same level of confidentiality that PACIFIC
accords its own DA and Non-Published listing information.
9.3.5. DA Call Completion Service In conjunction with the
provision of unbundled DA service to CLEC, PACIFIC will
provide DA Call Completion Service (which is comparable in
every way to the DA Call Completion Service PACIFIC makes
available to its own end users) in those areas where DA
Call Completion Service is generally available and where
facilities permit.
9.3.6 If CLEC purchases PACIFIC's unbundled DA Services element,
PACIFIC's contact with CLEC's end user customers shall be
limited to that effort required to process CLEC's end user
customers' requests for DA services. PACIFIC will not
transfer, forward, or redial an CLEC's end user customer's
call to any other location for any purpose other than the
provision of DA to the customer.
9.3.7. CLEC DA service quality will be equal to that which
PACIFIC provides to its own DA customers.
9.3.8. Billing
9.3.8.1 Billing will be handled by CABS.
9.3.8.2 PACIFIC will bulk-bill CLEC, with no detailed
records. CLEC shall be responsible for billing
its end users for this service. All bills for
CLEC DA will reflect a per-call charge and the
applicable transport charges.
9.3.8.3 PACIFIC will not credit CLEC for customer
requests that are not found in the DA database.
9.3.8.4 All DA calls will be billable to CLEC, except
as specifically mentioned herein.
<PAGE> 95
Attachment 6
30
9.4 Implementation Schedule Unbundled DA services will be available
as of April 30,1997. Unbundled directory listings specified in
Section 9.1.2 are available on the Effective Date of this
Agreement.
9.5 Rates CLEC agrees to pay for DA services per Attachment 8.
10. OPERATING SUPPORT SYSTEMS
10.1 General Terms and Conditions
10.1.1 PACIFIC will provide unbundled access to its Operating
Support Systems (OSS) consistent with the requirements of
the Act, and implementing regulations, this Agreement and
its applicable Attachments.
10.1.2 The specific requirements for OSS are found in Attachments
5, 11, 12, 13 and 14.
10.2 Implementation Schedule PACIFIC will make 055 available pursuant
to the schedule set forth in Attachments 5, 11, 12, 13 and 14.
10.3 Rates CLEC agrees to pay OSS rates as specified in Attachment 8.
11. STANDARDS FOR NETWORK ELEMENTS
11.1 If one or more of the requirements set forth in this Agreement
are in conflict, CLEC shall elect which requirement shall apply.
11.2 Each Network Element and the interconnections between Network
Elements provided by PACIFIC to CLEC shall be at least equal in
the quality of design, performance, features, functions and other
characteristics, including but not limited to levels and types of
redundant equipment and facilities for power, diversity and
security, that PACIFIC provides in PACIFIC network to itself,
PACIFIC's own customers, to a PACIFIC affiliate or to any other
entity.
11.3 In the event that CLEC reasonably believes that the requirements
of this Attachment 6 are not being met, the Parties will meet and
confer concerning such engineering, design, performance and other
network data, which may be necessary to cure any engineering,
design performance of implementation deficiency. In the event
that such data indicates that the requirements of this Attachment
6 are not being met, PACIFIC shall cure any such deficiency as
soon as possible.
11.4. Subject to this Agreement and its Attachments, PACIFIC agrees to
work cooperatively with CLEC to provide Network Elements that
will meet CLEC's needs in providing services to its customers.
11.5. If PACIFIC makes available to itself or any of its end user
customers an expedited or priority provisioning capability for
Network Elements and interconnections
<PAGE> 96
Attachment 6
31
between Network Elements, then Pacific will make such capability
available to CLEC on a non-discriminatory basis.
<PAGE> 97
ATTACHMENT 7
NETWORK ELEMENT COMBINATIONS
<PAGE> 98
ATTACHMENT 7: NETWORK ELEMENT COMBINATIONS (NOTE 9)
<TABLE>
<CAPTION>
FIRST
COM NOTE 4 NOTE 1 NOTE 8 TANDEM SIGNALING DA/ ORDER
BO NID LOOP EISCC SWITCH TRANSPORT DCS SWITCHING LINKS STP SCP OS DATE COMMENTS
- --- --- ----- ----- ------ --------- --- --------- --------- --- --- -- ------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. X X X 3/31/97
2. X X X 4/30/97
3. X X X X 3/31/97 If MUXing, USSC or D4 req'd
4. X X X 3/31/97 If MUXing, USSC or D4 req'd
5. X X 4/30/97 Opt. B & C. Note 2
6. X X 4/30/97 Opt. B & C. Note 2
7. X X 3/31/97
8. X X X X 4/30/97
9. X X X 4/30/97 Opt. B & C, FG-D
10. X X 4/30/97 Note 2 & 5, Opt. B & C
11. X X X X X 4/30/97 Note 2 & 5, Opt. B & C
12. X X 4/30/97 Note 6
13. X X X X 4/30/97
14. X X X X X 4/30/97 Note 3
15. X X Note 2 Opt. C
16. X X Note 2
17. X X X X X Note 2
18. X X X X X X Note 2
19. X X X X X 4/30/97
20. X X 4/30/97 Note 6
21. X X X X 4/30/97 Opt. A only, Opt. B & C
require transport, note 3
22. X X X 5/31/97
23. X X X 5/31/97 Note 6
24. X X X X 5/31/97
25. X X X X 5/31/97 Note 3
26. X X X Note 2
27. X X 4/30/97 Note 6
28. X X X X X 4/30/97 Opt. A only, Opt. B & C
require transport, note 3
29. X X X X Note 2
30. X X X X X 5/31/97 Note 6
31. X X X X X X Note 2
</TABLE>
- ----------
Note 1: Switching column: Refers to Option A unless combined with EISCC,
Transport, DCS or DA/OS.
Note 2: Available coincident with unbundled switching Option C which is
presently not technically feasible.
Note 3: Query access to LIDB, 800 & AIN.
Note 4: Loop column: for 2-wire analog (basic & assured), 2-wire digital (ISDN),
4-wire digital (1.544 mbps), 4-wire analog (basic & assured) & 2-wire
copper (two types).
Note 5: OS must use MOSS signaling prior to ILP (2-PIC) deployment. With ILP, OS
can then go to FG-D (MF or SS7) if the subscriber's line is
pre-subscribed to CLEC for intra-LATA traffic. DA requires MOSS if it
goes to OS trunking, but FG-D cannot support 411 (3-digit).
Note 6: STP port access must be ordered on a separate order.
Note 7: Applies to CLEC Operator Service & DA with unbundled switching Options B
& C.
Note 8: Transport column: Dedicated, Common, shared, entrance facilities, all
transmission rates.
Note 9: All dates are contingent on CLEC's commitment to pay the development
costs of each requested combination. Such commitment must be made for
each requested combination before 1/31/97.
<PAGE> 99
<TABLE>
<CAPTION>
FIRST
COM NOTE NOTE 1 NOTE 8 TANDEM SIGNALING DA/ ORDER
BO NID LOOP EISCC SWITCH TRANSPORT DCS SWITCHING LINKS STP SCP OS DATE COMMENTS
- --- --- ---- ----- ------ --------- --- --------- --------- --- --- --- ------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
32. X X X X X X X Note 2
33. X X X 4/30/97 Opt. B & C. Note 2
34. X X X X 4/30/97 Note 5
35. X X X X X 4/30/97 Note 5
36. X X X X X X 4/30/97 Note 5
37. X X X X Note 2
38. X X X X X 4/30/97 Note 5
39. X X X X X X 4/30/97 Note 5
40. X X X X X X X 4/30/97 Note 5
41. X X X X 4/30/97 Note 5
42. X X X 4/30/97 Notes 5 & 6
43. X X X X X 5/31/97 Notes 3 & 5
44. X X X X 5/31/97 Note 7
45. X X X X X 5/31/97 Notes 5 & 6
46. X X X X X X 5/31/97 Notes 5 & 6
47. X X X X X X X 5/31/97 Notes 3 & 5
48. X X X X X 5/31/97 Note 5
49. X X X X 5/31/97 Notes 5 & 6
50. X X X X X X 5/31/97 Note 5
51. X X X X X 5/31/97 Note 7
52. X X X X X 5/31/97 Notes 5 & 6
53. X X X X X X 5/31/97 Note 5
54. X X X X X X X 5/31/97 Note 5
</TABLE>
Note 1: Switching column: Refers to Option A unless combined with EISCC,
Transport, DCS or DA/OS.
Note 2: Available coincident with unbundled switching Option C which is
presently not technically feasible.
Note 3: Query access to LIDB, 800 & AIN.
Note 4: Loop column: for 2-wire analog (basic & assured), 2-wire digital (ISDN),
4-wire digital (1.544 mbps), 4-wire analog (basic & assured) & 2-wire
copper (two types).
Note 5: OS must use MOSS signaling prior to ILP (2-PIC) deployment. With ILP, OS
can then go to FG-D (MF or SS7) if the subscriber's line is
pre-subscribed to CLEC for intra-LATA traffic. DA requires MOSS if it
goes to OS trunking, but FG-D cannot support 411 (3-digit).
Note 6: STP port access must be ordered on a separate order.
Note 7: Applies to CLEC Operator Service & DA with unbundled switching Options B
& C.
Note 8: Transport column: Dedicated, Common, shared, entrance facilities, all
transmission rates.
Note 9: All dates are contingent on CLEC's commitment to pay the development
costs of each requested combination. Such commitment must be made for
each requested combination before 1/31/97.
<PAGE> 100
ATTACHMENT 8
PRICING
<PAGE> 101
ATTACHMENT 8
Page 2
ATTACHMENT 8
PRICING
1. LOCAL SERVICES RESALE
The prices charged to CLEC for resold Local Service shall be calculated
using the avoided cost discount set forth herein. The interim wholesale
discount shall be [**] off the applicable retail rate for all PACIFIC
services subject to resale. The interim discount shall remain in effect
until the Commission determines a different wholesale discount in any
proceeding subsequent to the Effective Date of this Agreement. Once so
determined by the Commission, said different wholesale discount shall
apply instead of the interim discount for the remaining Term of this
Agreement.
The prices shall be based on PACIFIC's retail rates applicable on the
Effective Date, less the applicable discount. If PACIFIC changes its
retail rates after CLEC executes this Agreement, the applicable
discount shall be applied to the changed retail rates from the time
such changes become effective.
1.1. Non-recurring Charges for Total Services Resale
1.1.1 Non-recurring charge(s) shall be based on PACIFIC's
retail rates less the applicable discount.
1.1.2 Notwithstanding Section 1.1.1, unless changed by the
Commission, PACIFIC shall NOT charge any
non-recurring charges to switch a customer from
PACIFIC's retail service to CLEC resold service.
PACIFIC may track its one-time, non-recurring service
order costs and seek recovery of these costs in an
appropriate Commission proceeding, which CLEC shall
have the right to contest. In addition, the Parties
disagree whether the "no change-over charge" for
resold services specified in this section should
apply in the following circumstances: (1) when CLEC
moves an existing Link customer (be it an existing
CLEC Link customer or that of another CLC) to resold
Local Service; (2) when CLEC moves an existing resold
customer of another CLC to CLEC's service. For the
customer movement identified in the previous
sentence, PACIFIC may track its non-recurring
provisioning costs and its one-time non-recurring
service order costs and seek recovery of these costs
in an appropriate Commission proceeding, which CLEC
shall have the right to contest
2. UNBUNDLED NETWORK ELEMENTS
The prices charged to CLEC for Network Elements are as specified in
Appendix A to this Attachment. The prices listed in the Appendix are
interim prices only and are subject to change to conform with the rate
for unbundled Network Elements and non-recurring charges adopted by the
Commission subsequent to the Effective Date of this Agreement.
- --------------
[**] Pursuant to a request for confidential treatment, price information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
<PAGE> 102
ATTACHMENT 8
Page 3
Once the Commission-determined prices are adopted, said prices will be
substituted for the interim prices and shall apply for the remainder of
the Term of this Agreement.
3. COLLOCATION
On an interim basis, the rates contained in PACIFIC's Schedule Cal.
P.U.C. Tariff No. 175-T, Section 16, and FCC Tariff No. 128, Section
16, shall apply. Any collocation rates determined by the Commission
subsequent to the Effective Date of this Agreement shall replace such
interim rates.
4. INTERCONNECTION SERVICES
PACIFIC will make interconnection arrangements available at all
collocated locations. CLEC may choose to deliver both local and
intraLATA toll traffic over the same trunk group(s). With respect to
the previous sentence, CLEC will provide PACIFIC with the Percent Local
Usage (PLU) factor to facilitate billing of the local interconnection
rate. CLEC's PLU determination shall be subject to reasonable audit by
PACIFIC pursuant to Section 11 of this Agreement.
Prices and terms for interconnection services are specified in
Attachment 18 and Appendix 1 to this Attachment 8, including, without
limitation, the calculation of applicable charges for the completion of
toll and local traffic when PACIFIC's LSNE is used, the manner for
determining when reciprocal compensation applies for the exchange of
local traffic, and the reciprocal compensation rates for local and toll
traffic.
5. RIGHTS OF WAY, CONDUITS AND POLE ATTACHMENTS
CLEC shall pay PACIFIC a fee consistent with 47 U.S.C. Section 224 and
FCC and Commission regulations thereunder for placement of CLEC's
facilities in or on PACIFIC's poles, conduits, or rights of way. The
Parties shall mutually agree on such fee and in the event of any
dispute, will use the Alternative Dispute Resolution process set forth
in Attachment 3. Such fee is subject to change, pursuant to Section 9.3
of this Agreement, in the event the FCC issues new rules or the
Commission adopts rules setting forth a new methodology.
6. OTHER
The following prices also shall apply:
- E911 (when CLEC orders this service as a facilities-based
carrier): PACIFIC's tariff rates shall apply as set forth in
Exhibit 1 to this Attachment 8.
- PACIFIC shall provide RCF to CLEC pursuant to the terms of the
DNCF tariff (including any modification subsequently adopted
by the Commission) filed by PACIFIC, except that the Parties
(a) shall establish accounts to track
3
<PAGE> 103
ATTACHMENT 8
Page 4
their own costs of providing INP pursuant to this Agreement
and (b) agree to recover such costs consistent with FCC and
Commission requirements at such time as such requirements are
established. Until any FCC or Commission order establishes a
different cost recovery mechanism, a "bill and keep"
arrangement will apply to the ported segment of any ported
call between the Porting Party's switch and the Ported-to
Party's switch.
- References to PACIFIC's Switched and Special Access tariffs or
service shall mean the rates in PACIFIC's intrastate (Cal.
Schedule PUC 175-T) or interstate (FCC No. 128) access
tariffs, as applicable, shall apply.
- Warm line transfer: Where the Parties have agreed that CLEC
will pay PACIFIC for warm line transfer, PACIFIC's tariffed
rate for this service shall apply.
- Centrex Assumed Dial 9: PACIFIC's tariffed rate for this
service shall apply.
These rates shall remain in effect until the Commission determines
different rates in any proceeding subsequent to the Effective Date of
this Agreement. Once so determined by the Commission, said different
rates shall apply instead of the rates set forth herein for the
remaining Term of this Agreement.
7. IMPLEMENTATION COST RECOVERY
The Parties disagree whether or in what amount PACIFIC should charge
CLEC for implementation costs and service quality in excess of parity
incurred as a result of requests to establish and provide
interconnection services, Local Services, Network Elements or
Combinations. PACIFIC shall track all such costs and propose recovery
of same to the Commission. To the extent granted by the Commission,
CLEC shall pay such costs as ordered by the Commission. CLEC is free to
contest PACIFIC's right to recover any such costs and/or what its share
of such costs should be.
8. TO BE DETERMINED
In this Agreement, rates for certain services, Network Elements and
Combinations are specified as "To Be Determined" (TBD). In addition,
numerous provisions of this Agreement refer to prices set forth in
Attachment 8. In the event of such a reference in this Agreement where
there is no corresponding price in this Attachment 8, it shall be
deemed to be TBD. With respect to all TBD prices, prior to CLEC
ordering any such TBD items, the Parties shall meet and confer to
establish a price. If no agreement is reached, the Parties shall refer
any disputes to the Alternative Dispute Resolution process set forth in
Attachment 3. Any rates set in arbitration shall be subject to
modification by any subsequent decision of the Commission. CLEC shall
be responsible for payments of any such rates so established as ordered
in arbitration or by the Commission.
4
<PAGE> 104
ATTACHMENT 8
Page 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Monthly Service Order Connect Disconnect Change Order
NETWORK ELEMENTS Recurring Initial Additional Initial Additional Initial Additional Initial Additional
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOOP
Weighted 2 - Wire Basic Link
Weighted 4 - Wire Basic Link
Assured
ISDN Option
Digital Link - 1.544 Mbps
PBX
Cain
NETWORK INTERFACE DEVICE
LOCAL SWITCHING CAPABILITY
Ports
2-Wire Port
Cain Port
Centrex Port
Centrex System
Establishment [**] [**] [**] [**] [**]
ISDN Port
DID Port
DID Number Block
Hunting - Business
DS-1 Line Port
Ports Combined with Loop
Ports (All)
Vertical Features
(Weighted Avg.)
Call Forwarding Variable
Busy Call Forwarding
Delayed Call Forwarding
Call Waiting
Three Way Calling
Call Screen
Message Waiting Indicator
Repeat Dialing
Call Return
Call Forwarding Busy/Delay
Remote Call Forwarding
(Weighted Avg.)
Other Vertical Features
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
[**] Pursuant to a request for confidential treatment, price information in
this document has been omitted and separately filed with the Securities
and Exchange Commission.
1
<PAGE> 105
ATTACHMENT 8
Page 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Monthly Service Order Connect Disconnect Change Order
NETWORK ELEMENTS Recurring Initial Additional Initial Additional Initial Additional Initial Additional
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Switching Functions
Interoffice - Originating
Setup per Attempt
MOU
Interoffice - Terminating
Setup per Call
MOU
Interoffice
Setup per Call
MOU
Tandem Switching
Setup per Call
MOU
INTEROFFICE TRANSMISSION
Trunk Port Termination
End Office Dedicated DS 1 Port
Tandem Dedicated DS 1 Port
CLC Switched Service Establishment
1AESS [**] [**] [**] [**] [**]
5ESS
DMS100
Common Transport
Zone 1
Fixed Mileage
Variable Mileage
Zone 2
Fixed Mileage
Variable Mileage
Zone 3
Fixed Mileage
Variable Mileage
Zone 4
Fixed Mileage
Variable Mileage
Dedicated Transport
Voice Grade Dedicated Transport
Zone 1
Fixed Mileage
Variable Mileage
Zone 2
Fixed Mileage
Variable Mileage
Zone 3
Fixed Mileage
Variable Mileage
Zone 4
Fixed Mileage
Variable Mileage
DS1 Dedicated Transport
Zone 1
Fixed Mileage
Variable Mileage
Zone 2
Fixed Mileage
Variable Mileage
Zone 3
Fixed Mileage
Variable Mileage
Zone 4
Fixed Mileage
Variable Mileage
DS3 Dedicated Transport
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
[**] Pursuant to a request for confidential treatment, price information in
this document has been omitted and separately filed with the Securities
and Exchange Commission.
2
<PAGE> 106
ATTACHMENT 8
Page 3
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Zone 1
Fixed Mileage
Variable Mileage
Zone 2
Fixed Mileage
Variable Mileage
Zone 3
Fixed Mileage
Variable Mileage
Zone 4
Fixed Mileage
Variable Mileage
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 107
ATTACHMENT 8
Page 4
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Monthly Service Order Connect Disconnect Change Order
NETWORK ELEMENTS Recurring Initial Additional Initial Additional Initial Additional Initial Additional
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shared Transport
Zone 1
Fixed Mileage
Variable Mileage
Zone 2
Fixed Mileage
Variable Mileage
Zone 3
Fixed Mileage
Variable Mileage
Zone 4
Fixed Mileage
Variable Mileage
MULTIPLEXING
DS0/DS1 MUX
DS1/DS3 MUX
DCS [**] [**] [**] [**] [**]
USCC
SIGNALING SYSTEM (SS7)
STP Port
SS7 Link
Link Mileage
800 Database
LIDB Query
OPERATOR SERVICES & DA
Directory Assistance Per Call
Operator Services Per Work Sec
COLLOCATION
EISCC Combined with Loop
Basic
DS0
DS1
DS3
EISCC
Basic
DS0
DS1
DS3
Entrance Facilities
2-Wire Voice
4-Wire Voice
DS-1
DS-3 w/equip
DS-3 w/o equip
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
[**] Pursuant to a request for confidential treatment, price information in
this document has been omitted and separately filed with the Securities
and Exchange Commission.
4
<PAGE> 108
ATTACHMENT 9
Page 1
ATTACHMENT 9
ACCESS TO VERIGATE, LEX AND OPERATIONS
SUPPORT SYSTEMS
<PAGE> 109
ATTACHMENT 9
Page 2
ATTACHMENT 9
ACCESS TO VERIGATE AND LEX OPERATIONS SUPPORT SYSTEMS
1. GENERAL CONDITIONS
1.1 This Attachment sets forth the terms and conditions under
which PACIFIC provides access to three of PACIFIC'S operations support systems
(OSS) "functions" to CLEC for pre-ordering, ordering and order statusing,
VeriGate and LEX respectively.
1.2 CLEC agrees to utilize VeriGate and LEX as described herein,
only for the purposes of establishing and maintaining Resale services or UNEs
through PACIFIC. CLEC agrees that the ordering interface will only support those
Resale and UNE services for which industry standard ordering conventions have
been adopted by the OBF. and implemented by PACIFIC. In addition, CLEC agrees
that such use will comply with the summary of SBC's Operating Practice 113, as
attached to this Attachment and the User ID request form. The Alternative
Dispute Resolution (ADR) process set forth in Attachment 3 shall apply to any
issues which arise under this Attachment 9, including any alleged non-compliance
with these security guidelines.
1.3 CLEC's access to pre-order functions described in 2.2.2 and
2.3.2 will be governed by Sections 5.5 of Attachment 5 to this Agreement for
Resale services. and by Section 5.2 of Attachment 11 to this Agreement for UNE
services.
1.4 By utilizing the electronic interfaces described herein to
access OSS functions, where CLEC has direct ordering capability, CLEC agrees not
to knowingly alter any applicable Resale rates and charges where they are
subject to the terms of this Agreement and applicable PACIFIC tariffs or PACIFIC
UNE rates and charges per the terms of this Agreement. CLEC agrees to use
reasonable business efforts to submit orders that are correct and complete.
Pacific will use reasonable business efforts to reject for processing CLEC
orders which are not correct and complete. The Parties agree to conduct internal
and independent reviews for accuracy. The audit rights in Section 11 of the
Agreement shall apply.
1.5 The Information Services (I.S.) Call Center provides a
technical support function for the OSS interfaces described in this Attachment.
CLEC will also provide a single point of contact for technical issues related to
the electronic interfaces.
1.6 PACIFIC and CLEC will establish interface contingency plans
and disaster recovery plans for the OSS interfaces described in this Attachment.
1.7 The Parties agree that the Change Management Process agreed to
and documented under the auspices of the CPUC OSS 011 will be used to manage
changes to LEX and Verigate.
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ATTACHMENT 9
Page 3
2. PRE-ORDER
2.1 Where available to Pacific, PACIFIC will provide real time
access to pre-order functions to support CLEC ordering of Resale services and
UNE via the electronic interfaces described herein. The Parties acknowledge that
ordering requirements necessitate the use of current, real time pre-order
information to accurately build service orders. The following lists represent
pre-order functions that are available to CLEC.
2.2 Pre-ordering functions for Resale include:
2.2.1 features and services available at a valid service
address (as applicable):
2.2.2 access to customer proprietary network information
(CPNI) for PACIFIC retail or resold services for
pre-ordering will include: billing name service
address. billing address. service and feature
subscription, directory listing information, long
distance carrier identity, and pending service order
activity. CLEC agrees to comply with the conditions
as described in Section 5.5 of Attachment 5 to this
Agreement;
2.2.3 a telephone number (if the end user does not have one
assigned) with the end user on-line;
2.2.4 service availability dates to the end user;
2.2.5 information regarding whether dispatch is required:
2.2.6 Primary Interexchange Carrier (PIC) options for
intraLATA toll (when available) and interLATA toll:
2.2.7 service address verification.
2.3 Pre-ordering functions for UNE include:
2.3.1 features and services available at a valid service
address (as applicable);
2.3.2 access to customer proprietary network information
(CPNI) for PACIFIC retail or resold services for
pre-ordering will include: billing name, service
address, billing address, service and feature
subscription, directory listing information, long
distance carrier identity, and pending service order
activity. CLEC agrees to comply with the conditions
as described in Section 5.2 of Attachment 11 to this
Agreement for UNE services;
2.3.3 a telephone number (if the end user does not have one
assigned) with the end user on-line;
3
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ATTACHMENT 9
Page 4
2.3.4 service availability dates to the end user where CLEC
requests PACIFIC to provision combinations of UNEs
and where such combined elements have analogous
PACIFIC retail services with flexible service
availability date functions:
2.3.5 information regarding whether dispatch is required
where CLEC requests PACIFIC to provision combinations
of UNEs and where such combined elements have
analogous PACIFIC retail services with flexible
service availability date functions;
2.3.6 Primary Interexchange Carrier (PIC) options for
intraLATA toll (when available) and interLATA toll;
2.3.7 service address verification.
2.4. Electronic Access to Pre-Order Functions: PACIFIC will provide
CLEC access to the following system:
2.4.1 VeriGate is an end-user interface developed by
PACIFIC that provides access to the pre-ordering
functions for Resale Services and UNE. VeriGate may
be used in connection with electronic or manual
ordering.
3. ORDERING/PROVISIONING
3.1 PACIFIC will provide access to ordering and statusing
functions to support CLEC provisioning of Resale services and UNEs via the OSS
interfaces described below. To order Resale services and UNEs, CLEC will format
the service request to identify what features services, or elements it wishes
PACIFIC to provision in accordance with PACIFIC LSOR and other ordering
requirements which have been reviewed and discussed by both parties. PACIFIC
will provide CLEC access to the following interfaces:
3.1.1 LSR Exchange (LEX) is a graphical user interface
provided by PACIFIC that provides access to the
ordering functions for UNEs and Resale Services.
4. REMOTE ACCESS
4.1 CLEC must access the PACIFIC OSS interfaces, described herein.
via the Pacific Remote Access Facility (PRAF). Connection to the PRAF will be
established via a "port" either through dial-up or direct connection. CLEC may
utilize a single port to access these interfaces to perform the supported
functions in PACIFIC where CLEC has executed this Attachment and purchases
System Access.
4
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ATTACHMENT 9
Page 5
5. OPERATIONAL READINESS TEST (ORT) FOR ORDERING/PROVISIONING
5.1 Prior to initial live access to interface functionality, the
Parties shall conduct Operational Readiness Testing (ORT)-which will allow for
the testing of the systems, interfaces. and processes for the OSS functions.
5.2 Prior to live system usage, CLEC must complete user education
classes for PACIFIC-provided interfaces that affect the PACIFIC network. Classes
are train-the-trainer format to enable CLEC to devise its own course work for
its own employees. Charges will apply for each class. Classes will be available
for and required for LEX. Optional classes will be available for VeriGate.
Schedules will be made available upon request and are subject to change. The
length of classes varies; the following table presents the applicable rates.
Ongoing class schedules may be requested from CLEC's account manager.
[**]
5.3 A separate agreement will be required as a commitment to pay
for a specific number of CLEC students in each class. CLEC agrees that charges
will be billed by PACIFIC and CLEC payment is due 30 days later. CLEC agrees
that personnel from other competitive Local Service Providers may be scheduled
into any class to fill any seats for which CLEC has not contracted. Class
availability is first-come, first served with priority given to CLECs who have
not yet attended the specific class.
5.4 Class dates will based upon CLEC requests and PACIFIC
availability.
5.5 CLEC agrees to pay a cancellation fee of the full price noted
in the separate agreement if CLEC cancels scheduled classes less than two weeks
prior to the scheduled start date. Should PACIFIC cancel a class for which CLEC
is registered less than two weeks prior to the schedule start date of that
class, Pacific will waive the charges for the reschedule class for the
registered students. CLEC agrees to provide to PACIFIC completed registration
forms for each student no later than one week prior to the scheduled training
class.
5.6 CLEC agrees that CLEC personnel attending classes are to
utilize only training databases and training presented to them in class.
Attempts to access any other PACIFIC or SBC system are strictly prohibited.
- -----------------------
[**] Pursuant to a request for confidential treatment, price information in
this document has been omitted and separately filed with the Securities
and Exchange Commission.
5
<PAGE> 113
ATTACHMENT 9
Page 6
5.7 CLEC further agrees that training material. manuals and
instructor guides are Confidential Information as that term is defined in the
Interconnection Agreement.
6. RATES
6.1 CLEC will pay PACIFIC the OSS rate(s) set forth in California
Public Utilities Commission's first rulemaking in the Open Access and Network
Architecture Development (OANAD) proceeding or as otherwise determined by the
California Public Utilities Commission.
6.2 In the case of rates for interfaces not covered by the OANAD
proceeding. PACIFIC will charge proposed rates filed with the California Public
Utilities Commission in the interim, subject to true-up.
6.3 Should OSS rates not be established in OANAD by September 30,
1998 for LEX and VeriGate. CLEC will, under protest, pay Pacific the OSS rate of
[**] per month for LEX and [**] per month for Verigate.
6.4 CLEC will pay PACIFIC a connectivity rate of [**] per month
per T-I connection for direct access to the PRAF and/or [**] per month per port
for dial-up access to the PRAF.
6.5 All of PACIFIC's proposed rates are subject to true-up should
the final Commission determined rate be higher or lower.
6.6 The rate waiver described in 6.3 is solely for 055 functions
and not applicable to any other product, unless expressly documented in this
Agreement. Neither party waives its rights pursuant to OSS or any other product
in the OANAD proceeding, nor rights in any other product cost proceeding.
- -----------------------
[**] Pursuant to a request for confidential treatment, price information in
this document has been omitted and separately filed with the Securities
and Exchange Commission.
6
<PAGE> 114
Attachment 10
Page 1
ANCILLARY FUNCTIONS
1. INTRODUCTION
This Attachment 10 sets forth the Ancillary Functions that PACIFIC
agrees to offer to CLEC so that CLEC may obtain and use unbundled
Network Elements or PACIFIC services to provide services to its
customers.
2. PACIFIC PROVISION OF ANCILLARY FUNCTIONS
2.1 The Ancillary Functions that CLEC and PACIFIC have identified as
of the Effective Date of this Agreement are Collocation, which is
addressed in Section 3, and Right of Way, which is addressed in
Section 4 of this Attachment. CLEC may use Collocation and Right
of Way to provide any feature, function, or service option that
such Ancillary Function is capable of providing or any feature,
function, or service option that is described in the relevant
technical references, or as may otherwise be designated by CLEC
consistent with the Act, the regulations thereunder and relevant
Commission decisions.
2.2 CLEC and PACIFIC agree that the Ancillary Functions identified in
this Attachment 10 are not exclusive. Either Party may identify
additional or revised Ancillary Functions as necessary to improve
services to customers, to improve network or service efficiencies
or to accommodate changing technologies, customer demand, or
regulatory requirements. Upon the identification of a new or
revised Ancillary Function, the Parties shall cooperate in an
effort to negotiate mutually agreeable rates, terms and conditions
for the provision of that Ancillary Function. If the Parties are
unable to agree on the terms and conditions for a new or revised
Ancillary Function that PACIFIC is required to offer under the
terms of the Act, either Party may invoke the Alternative Dispute
Resolution procedures established by Attachment 3. Security
procedures agreed to by PACIFIC and CLEC for the protection of
both Parties' service and property, including collocation spaces,
and procedures for law enforcement interface are described in
Attachment 16.
3. COLLOCATION
3.1 DEFINITIONS:
3.1.1 Collocation is the right of CLEC to place equipment in PACIFIC's
Local Serving Office (LSO) or other PACIFIC locations to
interconnect with PACIFIC's network. Collocation also includes
PACIFIC providing resources necessary for the operation and
economical use of collocated equipment.
<PAGE> 115
Attachment 10
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3.1.2 Physical collocation is defined in 47 C.F.R. Sec. 51.5.
3.1.3 Virtual collocation is defined in 47 C.F.R. Sec. 51.5.
3.2 TECHNICAL REQUIREMENTS
3.2.1 PACIFIC will provide for Physical Collocation and Virtual
Collocation of CLEC's transport facilities and termination
equipment necessary for interconnection of CLEC's network
facilities to PACIFIC's network or access to unbundled network
elements. Such collocation shall be provided at the rates
specified in Attachment 8 and on a nondiscriminatory basis in
accordance with the requirements of the Act and the FCC's rules
thereunder.
3.2.2 PACIFIC shall permit collocation of any type of equipment used or
useful for interconnection or access to unbundled network
elements, in accordance with the Act and sections 579 through 582
of the FCC's First Interconnection Order. Such equipment includes
but is not limited to transmission equipment, such as optical
terminating equipment and multiplexers, equipment for the
termination of basic transmission facilities and such additional
types of equipment that may be agreed to by the Parties or
designated in future FCC or Commission rulings. If a request by
CLEC to collocate is denied on the basis of the equipment to be
installed by CLEC, PACIFIC shall prove to the Commission that such
equipment is not "necessary" as defined by the FCC for
interconnection or access to unbundled network elements.
3.2.3 When providing Virtual Collocation, PACIFIC will, at a minimum,
install, maintain, and repair collocated equipment for CLEC within
the same time periods and with failure rates that are no greater
than those that apply to the performance of similar functions for
comparable equipment of PACIFIC, provided, if CLEC utilizes
nonstandard equipment or equipment not used by PACIFIC at the same
location, CLEC shall pay for (a) any special equipment PACIFIC
must purchase and (b) any training of PACIFIC personnel required
for PACIFIC to install or maintain such non-standard or special
equipment.
3.2.4 PACIFIC will make space available within or on its premises to
CLEC and other requesting telecommunications carriers on a
first-come, first-served basis, provided, however, that PACIFIC
will not be required to lease or construct additional space to
provide for Physical Collocation when existing space has been
exhausted. To the extent possible, PACIFIC will make contiguous
space available to CLEC if CLEC seeks to expand an existing
collocation space. When planning renovations of existing
facilities or constructing or leasing new facilities, PACIFIC
shall take into account projected demand for collocation space.
PACIFIC may retain a limited amount of floor space for PACIFIC's
own specific future uses for a time period up to one year on terms
no more favorable to PACIFIC than those that apply to other
telecommunications carriers seeking to
8
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Attachment 10
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reserve collocation space for their own future use. PACIFIC shall
relinquish any space held for future use before denying a request
for Virtual Collocation on grounds of space limitations, unless
PACIFIC proves to the Commission that Virtual Collocation at that
point is not technically feasible. PACIFIC may impose reasonable
restrictions on its provision of additional unused collocation
space ("warehousing") as described in Section 586 of the First
Interconnection Order to collocating telecommunications carriers,
provided, however, that PACIFIC shall not set a maximum space
limitation on CLEC unless PACIFIC proves to the Commission that
space constraints make such restrictions necessary.
3.2.5 PACIFIC will permit CLEC to collocate equipment and use such
equipment to access unbundled Network Elements obtained from
PACIFIC and will not require CLEC to bring its own transmission
facilities to PACIFIC's premises in which CLEC seeks to collocate
equipment for purposes of access to unbundled Network Elements.
3.2.6 PACIFIC will permit CLEC to interconnect its network with that of
another collocating telecommunications carrier at PACIFIC's
premises and to connect its collocated equipment to the collocated
equipment of another telecommunications carrier within the same
premises provided that the collocated equipment is also used for
interconnection with PACIFIC or for access to PACIFIC's unbundled
Network Elements. PACIFIC will provide the connection between the
equipment in the collocated spaces of two or more
telecommunications carriers via EISCCs and any necessary DCS or
other equipment at the requesting competitive local carrier's
expense, unless PACIFIC permits one or more of the collocating
parties to provide this connection for themselves. PACIFIC need
not permit collocating telecommunications carriers to place their
own connecting transmission facilities within PACIFIC's premises
outside of the actual Physical Collocation space.
3.2.7 Transferring CLEC interconnection from PACIFIC's current access
service transport or entrance facilities to EISCCs will be
accomplished within a mutually agreed-upon time frame; however, to
ensure a smooth transition from such access services to EISCCs,
CLEC must provide forecasts of its future needs for EISCC capacity
by location at least 90 days in advance of its desired transition
date.
3.2.8 PACIFIC will permit CLEC to subcontract the construction of
Physical Collocation arrangements with contractors approved by
PACIFIC, provided that PACIFIC will not unreasonably withhold
approval of contractors. Approval by PACIFIC will be based on the
same criteria PACIFIC uses in approving contractors for its own
purposes.
3.2.9 PACIFIC shall provide an EISCC for intraoffice cross-connect
(e.g., DSO, DS1, D53, 0C3, 0C12, 0C48, and STS-1 terminations) as
requested by CLEC, to meet CLEC's need for placement of equipment,
interconnection, or provision of service at rates specified in
Attachment 8.
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Attachment 10
Page 4
3.2.10 Other than reasonable security restrictions described in
Attachment 16, PACIFIC shall place no restriction on access to the
CLEC collocated space by CLEC's employees and designated agents.
Such space shall be available to CLEC designated agents 24 hours
per day each day of week. PACIFIC will not impose unreasonable
security restrictions at the premises. CLEC personnel may, with an
escort provided by PACIFIC, inspect equipment in a Virtual
Collocation location upon and after installation.
3.2.11 CLEC shall have the right, at the point of termination for the
EISCC, to assign which tie pair facilities and which channels on
multiplexers, concentrators or other equipment under CLEC's
control are used for service in the collocated space.
3.2.12 PACIFIC shall allow CLEC to select its own vendors for all
required engineering and installation services associated with its
collocated equipment (e.g., PACIFIC shall not require CLEC to
utilize PACIFIC's internal engineering or installation work forces
for the engineering and installation of CLEC's collocated
equipment). Installation of equipment in the collocated space
must comply with PACIFIC's Installation and Job Acceptance
Handbook, which has been provided to CLEC.
3.2.13 CLEC may install monitoring equipment in the collocated space to
carry data back to CLEC's work center for analysis.
3.2.14 At CLEC's request, PACIFIC shall provide POTS with a connection
jack for the collocated space. Upon CLEC's request, this service
shall be available at the CLEC collocated space on the day that
the space is turned over to CLEC by PACIFIC.
3.2.15 PACIFIC shall provide adequate lighting, ventilation, power, heat,
air conditioning, and other environmental conditions for CLEC's
space or equipment. These environmental conditions shall adhere to
Bell Communication Research (Bellcore) Network Equipment-Building
System (NEBS) standards.
3.2.16 PACIFIC shall provide access to existing eyewash stations, shower
stations, and bathrooms within the collocated facility on a 24
hours per day and 7 days per week basis for CLEC personnel and its
designated agents.
3.2.17 PACIFIC agrees to negotiate requests by CLEC for diversity of
fiber or power cabling on an individual case basis.
3.2.18 PACIFIC shall protect as proprietary to CLEC all information
provided by CLEC in requesting or maintaining a collocation
arrangement. PACIFIC shall not provide such information to any
third parties and shall limit access to the information to PACIFIC
employees having a need to know.
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3.2.19 PACIFIC shall participate in and adhere to negotiated service
guarantees, performance standards, and ISO reviews.
3.2.20 PACIFIC will complete a Environmental Health & Safety
Questionnaire for each building that collocated space is provided
in. CLEC may provide this questionnaire with its collocation
request and PACIFIC shall return it to CLEC no later than the
first meeting between representatives of CLEC and PACIFIC
scheduled to discuss implementation of a collocation application,
which generally shall be scheduled within thirty (30) days after
CLEC's collocation request ("First Customer Implementation
Meeting").
3.2.21 PACIFIC shall provide CLEC with written notice five (5) business
days prior to those instances where PACIFIC or its subcontractors
may be undertaking a major construction project in the general
area of the collocated space occupied by CLEC or in the general
area of the AC and DC power plants which support CLEC equipment.
PACIFIC will inform CLEC by telephone of any emergency related
activity that PACIFIC or its subcontractors may be performing in
the general area of the collocated space occupied by CLEC or in
the general area of the AC and DC power plants which support CLEC
equipment. Notification of any emergency related activity shall be
made immediately prior to the start of the activity so that CLEC
can take any action required to monitor or protect its service.
3.2.22 PACIFIC shall construct the collocated space in compliance with
CLEC's collocation request for cable holes, ground bars, doors,
and convenience outlets.
3.2.23 CLEC and PACIFIC will complete an acceptance walk through of all
collocated space requested from PACIFIC. Exceptions that are
noted during this acceptance walk through shall be corrected by
PACIFIC within five (5) days after the walk through. The
correction of these exceptions from the original collocation
request shall be at PACIFIC's expense.
3.2.24 PACIFIC shall provide the following to CLEC:
3.2.24.1 Once the collocation space design has stabilized, PACIFIC shall
provide non-architectural drawings depicting the exact location
and dimensions of the collocated space and any physical
obstructions.
3.2.24.2 Prior to the second meeting of CLEC and PACIFIC representatives
scheduled to plan implementation of an CLEC collocation request
("Second Customer Implementation Meeting"), PACIFIC shall provide
Telephone Equipment drawings depicting the exact location, type,
and cable termination requirements (i.e. connector type/number and
type of pairs, naming convention, etc.) for PACIFIC Point of
Termination Bay(s)
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3.2.24.3 Prior to the Second Customer Implementation Meeting, PACIFIC shall
provide drawings depicting the exact path, with dimensions, for
CLEC's fiber ingress/egress into the collocated space.
3.2.24.4 Prior to the Second Customer Implementation Meeting, PACIFIC shall
provide power cabling connectivity information, including
drawings, identifying the sizes and number of power feeders.
3.2.25 PACIFIC will provide access to CLEC to the PACIFIC Point of
Termination bays where cabling from CLEC's collocated space is
terminated for connection to PACIFIC tie pairs.
3.2.26 PACIFIC shall provide positive confirmation to CLEC when
construction of CLEC Collocated space is underway. No later than
the Second Customer Implementation Meeting, PACIFIC shall notify
CLEC of the scheduled completion and turnover dates.
3.2.27 CLEC shall be compensated by PACIFIC for any delays in the
negotiated completion and turnover dates which create expenditures
or delays to CLEC.
3.2.28 PACIFIC shall provide the following information to CLEC no later
than the First Customer Implementation Meeting:
3.2.28.1 Work restriction guidelines.
3.2.28.2 PACIFIC or Industry technical publication guidelines that impact
the design of PACIFIC collocated equipment.
3.2.28.3 PACIFIC contacts (name and telephone number) for the following
areas:
3.2.28.3.1 Engineering
3.2.28.3.2 Provisioning
3.2.28.3.3 Billing
3.2.28.3.4 Operations
3.2.28.3.5 Site and/or Building Managers
3.2.28.4 Escalation process for the PACIFIC representatives (names,
telephone numbers, escalation order) for any disputes or problems
that might arise pursuant to CLEC's collocation.
3.2.29 Power as referenced in this document refers to any electrical
power source supplied by PACIFIC for CLEC equipment or Network
Elements. Power supplied by PACIFIC will support Network Elements
or CLEC equipment at
<PAGE> 120
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equipment specific DC and AC voltages. At a minimum, the power
supplied to CLEC, should be at parity with PACIFIC. Where PACIFIC
performance, availability, restoration, etc. falls below industry
standards, PACIFIC shall bring itself into compliance with such
industry standards as soon as technologically feasible.
3.2.29.1 Central office power supplied by PACIFIC into the CLEC equipment
area, should be supplied in the form of power feeders (cables) on
cable racking into the designated CLEC equipment area. The power
feeders (cables) should efficiently and economically support the
requested quantity and capacity of CLEC equipment. The termination
location should be as requested by CLEC. The number of feeder
cables requested by CLEC, in order to provide maximum reliability
to customers, is directly dependent upon the power requirements of
the equipment and facilities collocated by CLEC. The number of
feeder cables shall be determined by the manufacturer's
recommendation as provided in equipment specifications.
3.2.29.2 PACIFIC and CLEC will negotiate resolution of CLEC requests for
specific size and amperage of power feed based on standard
engineering practices.
3.2.29.3 PACIFIC power equipment supporting CLEC's equipment shall:
3.2.29.3.1 Comply with applicable industry standards (Bellcore, NEBS, IEEE,
etc.) for equipment installation, cabling practices, and physical
equipment layout;
3.2.29.3.2 Have redundant power feeds with physical diversity and battery
back-up at minimum at parity with that provided for similar
PACIFIC equipment;
3.2.29.3.3 Provide central office ground, connected to a ground electrode
located within the CLEC collocated space, at a level above the top
of CLEC equipment +/- 2 feet to the left or right of CLEC's final
request;
3.2.29.3.4 Provide feeder capacity and quantity to support the ultimate
equipment layout for CLEC equipment in accordance with CLEC's
collocation request;
3.2.29.3.5 Provide documentation submitted to and received from contractors
for any contractor bids for any work being done on behalf of CLEC
(this includes but is not limited to power supplies, and cage
construction);
3.2.29.3.6 Provide an installation sequence and access that will allow
installation efforts in parallel without jeopardizing personnel
safety or existing CLEC services;
3.2.29.3.7 Provide power plant alarms that adhere to Bell Communication
Research (Bellcore) Network Equipment-Building System (NEBS)
standards TR-EOP-000063; and
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3.2.29.3.8 Provide cabling that adheres to Bell Communication Research
(Bellcore) Network Equipment-Building System (NEBS) standards
TR-EOP-000063.
3.2.29.4 PACIFIC will provide CLEC with written notification within ten
(10) business days of any scheduled AC or DC power work or related
activity in the collocated facility that will cause an outage or
any type of power disruption to CLEC equipment located in PACIFIC
facility. PACIFIC shall provide CLEC immediate notification by
telephone of any emergency power activity that would impact CLEC
equipment.
3.2.29.5 PACIFIC employees with keys to the collocation area will be
permitted to enter the CLEC collocated space only during an
emergency, or for annual compliance reviews of the work areas.
3.2.29.6 PACIFIC shall ensure that the collocation equipment areas comply
with all applicable fire and safety codes.
3.3 TECHNICAL REFERENCES.
PACIFIC shall provide Collocation in accordance with applicable
published technical references.
4. RIGHTS OF WAY (ROW), CONDUITS, POLE ATTACHMENTS
4.1 DEFINITIONS:
4.1.1 A Right of Way (ROW) is the right to use the land or other
property of another Party to place poles, conduits, cables, other
structures and equipment, or to provide passage to access such
structures and equipment. A ROW may run under, on, or above public
or private property (including air space above public or private
property) and may include the right to use discrete space in
buildings, building complexes or other locations.
4.1.2 A conduit is a tube or similar enclosure that may be used to house
communication or communication-related power cables. Conduit may
be underground or above ground (for example, inside buildings) and
may contain one or more inner ducts. An innerduct is a separate
tube or enclosure within a conduit.
4.1.3 A pole attachment is the connection of a facility to a utility
pole. Some examples of facilities are mechanical hardware,
grounding and transmission cable, and equipment boxes.
4.2 GENERAL REQUIREMENTS
4.2.1 PACIFIC shall make ROW, conduit and pole attachments available to
CLEC through agreements consistent with applicable regulations of
the FCC and the
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Commission and this Attachment 10, Section 3, or through tariffs,
in the event PACIFIC files tariffs covering such facilities.
4.2.2 PACIFIC shall provide CLEC with non-discriminatory and
competitively neutral access, on a first-come, first-served basis,
to ROW, conduit, ducts, pole attachments and entrance facilities
that PACIFIC owns or controls.
4.2.3 Upon request, PACIFIC shall provide CLEC reasonable access on a
non-discriminatory and competitively neutral basis to building
entrance facilities (including but not limited to cable vault,
conduit, equipment rooms and telephone closets that are owned or
controlled by PACIFIC, provided the security of PACIFIC's
facilities is maintained at all times. For some locations, CLEC
personnel must be escorted, and the parties will negotiate a
reasonable arrangement, including administrative costs, if any,
for such escorted access.
4.2.4 PACIFIC may not favor itself in granting access to a ROW, conduit
or pole attachment. PACIFIC shall not deny a request from CLEC for
access to a ROW, conduit or pole attachment on the basis that such
space is reserved for PACIFIC's future business needs, except as
provided in Sections 4.2.5, 4.2.5.1 and 4.2.6.
4.2.5 PACIFIC may reserve capacity for projects for which it has
undertaken engineering studies meeting the requirements of Section
4.2.5.1, with a view toward initiation of physical construction
activities within six (6) months after the date of CLEC's request
or within eighteen (18) months after the date of CLEC's request if
PACIFIC can demonstrate a definitive schedule for completion of
the project with eighteen (18) months and that it is not possible
to commence construction within six (6) months due to action
required by others.
4.2.5.1 At CLEC's request in the event PACIFIC denies an CLEC request for
access pursuant to Section 4.2.5, the parties shall supply to each
other within thirty (30) days of the denial, subject to Section 18
of this Agreement, copies of their respective engineering studies
relating to the disputed space. PACIFIC shall prevail in its
denial of space to CLEC only if PACIFIC's engineering studies have
the same or greater level of detail and completeness as CLEC's
studies. The parties shall meet and confer in an effort to reach
an agreement that PACIFIC's engineering studies meet this
standard. If the parties fail to agree, either Party may invoke
the alternative dispute resolution process set forth in Attachment
3.
4.2.6 The duties of PACIFIC described in Sections 4.2.5 and 4.2.5.1
shall be subject to expansion or contraction in accordance with
rules adopted by the Commission that constitute regulation of
rates, terms and conditions for pole attachments within the
meaning of Section 224(c)(3) of the Act.
<PAGE> 123
Attachment 10
Page 10
4.2.7 PACIFIC may designate a duct in a mixed cable use environment or
innerduct in an all fiber environment for maintenance purposes,
for the benefit of all users, subject to Sections 4.2.7.1.4.2.7.2
and 4.2.7.3:
4.2.7.1 PACIFIC may designate for maintenance purposes one duct in a
multi-duct trough.
4.2.7.2 PACIFIC may designate for maintenance purposes one innerduct in a
multi-innerduct trough.
4.2.7.3 Where a trough contains both ducts and innerducts, PACIFIC may
designate one duct for maintenance purposes.
4.2.7.4 No Party shall use a duct or innerduct designated by PACIFIC for
maintenance under Sections 4.2.7.1, 4.2.7.2 or 4.2.7.3, except for
maintenance purposes.
4.2.8 In cases where PACIFIC reasonably believes that there is
insufficient capacity to grant a request from CLEC for access to a
ROW, conduit or pole attachment, PACIFIC must take all reasonable
steps to accommodate CLEC's request and explore potential
accommodations in good faith with CLEC.
4.2.9 In the event of an emergency affecting ROW, conduit or pole
attachments made available by PACIFIC to CLEC, PACIFIC shall
follow the mutually agreed upon Emergency Restoration Procedures
attached to the Attachment 10 as Exhibit A.
4.2.10 PACIFIC shall provide to CLEC the names, numbers of the regional
Single Points of Contact (SPOC) for administering all structure
lease and ROW agreements within each defined geographical area.
4.3 APPLICATIONS FOR SPACE
4.3.1 PACIFIC will accept or reject in writing as soon as possible, but
in any event within forty-five (45) days, CLEC's written request
for access to PACIFIC's conduit or poles. PACIFIC's failure to
respond within that time period shall be deemed a rejection of
CLEC's request.
4.3.2 If PACIFIC denies an application by CLEC for conduit or pole
space, its denial must be specific, and include all relevant
evidence or information supporting the denial.
4.4 REQUESTS FOR DRAWINGS
4.4.1 At CLEC's request, PACIFIC shall provide CLEC with detailed
engineering records and drawings of conduit, poles and other ROW
paths in selected areas as specified by CLEC within a reasonable
time frame.
<PAGE> 124
Attachment 10
Page 11
4.4.2 PACIFIC shall allow personnel designated by CLEC to examine
conduit system or pole line diagrams at PACIFIC's offices,
provided that, for security reasons, a separate room is available
for such examination. PACIFIC will make copies of such prints for
CLEC at CLEC's expense, or a mutually agreed upon third party will
be permitted to examine the diagrams.
4.5 PRE-ORDER REQUESTS FOR INFORMATION
4.5.1 CLEC may submit a written request for information to PACIFIC
before submitting an application for conduit or pole space in a
specified location.
4.5.2 PACIFIC shall provide information regarding the availability and
condition of conduit or pole attachments within ten (10) business
days of CLEC's written request for a records based answer and
twenty (20) business days of CLEC's request for a field based
answer. In the event CLEC's written request seeks information
about the availability of more than five (5) miles of conduit or
more than five hundred (500) poles, PACIFIC shall (1) provide an
initial response within ten (10) business days; (2) use reasonable
best efforts to complete its response within thirty (30) business
days; and (3) if PACIFIC is unable to complete its response within
thirty (30) business days or if the parties are unable to agree
upon a mutually satisfactory long time period for PACIFIC's
response, PACIFIC will hire outside contractors at CLEC's expense,
not to exceed PACIFIC's customary charge for the same work,
provided that before proceeding with such outside hiring, PACIFIC
shall provide to CLEC the contractor's work order and hourly rate.
4.5.3 CLEC shall have the option to be present at the field based survey
and PACIFIC shall provide CLEC at least twenty-four (24) hours
notice prior to start of such field survey. By prior arrangement,
PACIFIC shall allow CLEC personnel, accompanied by a PACIFIC
escort, to enter manholes and view pole structures.
4.6 MAKE READY WORK
4.6.1 PACIFIC shall complete the "make ready work" required on poles or
within conduit to enable CLEC to install its facilities. This work
shall be accomplished by PACIFIC at a reasonable cost within
thirty (30) business days, except that if PACIFIC requires longer
than thirty (30) business days or if the parties are unable to
agree upon a mutually satisfactory longer time period for
completion of the make ready work, outside contractors may be
hired at CLEC's expense to do the work. In that event, PACIFIC and
CLEC shall confer and agree which Party shall hire the
contractors. If CLEC hires the contractors, they must meet
PACIFIC's reasonable standards. If PACIFIC hires the contractors,
before proceeding with the work, PACIFIC shall provide to CLEC the
contractor's work order and hourly rate, which shall not exceed
PACIFIC's customary charge for the same work.
<PAGE> 125
Attachment 10
Page 12
4.7 POLE ATTACHMENTS
4.7.1 Pole Attachments will be placed in the space on the pole
designated for communications use. This space is generally located
below electric supply circuits and excludes the neutral space
between the electrical and communication space.
4.7.2 PACIFIC shall not attach, or permit other entities to attach,
facilities on existing CLEC facilities without CLEC's prior
written consent, except that such consent shall not be required
for attachments to facilities such as arms and brackets that are
designed for more than one cable.
4.7.3 CLEC may, at its option, make pole attachments using CLEC or
CLEC-designated personnel. CLEC shall follow the methods and
procedures for making pole attachments set forth in Commission
General Order No. 95 and any additional standards provided to CLEC
by PACIFIC.
4.8 CONDUITS:
4.8.1 To the extent that space is available as reasonably determined by
PACIFIC, PACIFIC shall provide CLEC space in manholes for racking
and storage of cable and other materials as requested by CLEC on a
nondiscriminatory, first-come; first-served basis.
4.8.2 PACIFIC shall remove any retired cable from its conduit at CLEC's
expense within a reasonable period of time if necessary to make
conduit space available for CLEC.
4.8.3 Upon prior notice to PACIFIC, CLEC may conduct maintenance
procedures in conduit space leased from PACIFIC. PACIFIC may
dispatch a PACIFIC technician at CLEC's expense to oversee CLEC's
work.
4.8.4 PACIFIC shall not restrict, withhold or unreasonably delay any
modifications to conduit systems necessary to allow access to
and/or egress from such systems, provided that CLEC must obtain
certification of a professional structural engineer for
modifications to post-1960 structures ensuring that the
modifications will not adversely impact the structural integrity
of the manhole.
4.8.5 Subject to accepted industry safety and engineering standards,
PACIFIC will permit manhole interconnections, breaking out of
PACIFIC manholes and breaking out of PACIFIC conduit by CLEC.
PACIFIC may not limit new duct entrances to pre-cast knockouts,
provided that CLEC must obtain certification of a professional
structural engineer for modifications to post 1960 structures
ensuring that the modifications will not adversely impact the
structural integrity of the manhole.
<PAGE> 126
Attachment 10
Page 13
4.9 INNERDUCTS
4.9.1 PACIFIC will permit CLEC, on a first-come, first-served basis, to
license the use of innerducts in ducts in which PACIFIC already
occupies an innerduct as long as one spare innerduct for
maintenance purposes remains available. If an innerduct licensed
by CLEC becomes defective, CLEC may use the spare maintenance
innerduct as long as CLEC repairs the defective innerduct for use
as a new maintenance spare as soon as possible.
4.9.2 Where spare innerduct does not exist, PACIFIC shall allow CLEC to
install innerduct in a spare PACIFIC conduit, provided that CLEC
complies with applicable law and PACIFIC's construction standards.
4.10 Access to Private Easements
4.10.1 PACIFIC shall not block any third party assignment of ROW to CLEC.
4.10.2 To the extent space is available, PACIFIC shall provide access to
ROWs it has obtained from a third party to CLEC on a
nondiscriminatory, first-come, first-served basis, provided that
any underlying agreement with such third party permits PACIFIC to
provide such access, and provided that CLEC agrees to indemnify
PACIFIC for any liability arising out of such access or use.
4.10.3 PACIFIC will, upon request by CLEC, grant CLEC access to any
private easement held by PACIFIC, in a mutually agreeable form of
sub-easement, assignment or other appropriate access. PACIFIC's
charge for such access shall be a pro rata portion of (a) the
charge paid by PACIFIC to the grantor of the easement and (b) any
other documented administrative and engineering costs incurred by
PACIFIC in obtaining the original easement, both of which shall be
determined on a case-by-case basis and calculated by taking into
account (i) the size of the area to be used by CLEC and (ii) the
number of users of PACIFIC's easement. CLEC shall also pay the
reasonable documented administrative cost incurred by PACIFIC in
processing such requests for access.
4.11 DISPUTE RESOLUTION
4.11.1 If the parties are unable to agree on a matter involving access by
CLEC to a ROW, conduit, innerducts, pole, entrance facility or
private easement owned or controlled by PACIFIC, either Party may
submit the matter to the dispute resolution process set forth in
Attachment 3 to this Agreement or may invoke applicable dispute
resolution procedures described in the Act and the FCC's First
Interconnection Order, sections 1217 through 1231.
<PAGE> 127
Attachment 10
Appendix A
page 1
EMERGENCY RESTORAL PROCEDURES
GENERAL In the event of an emergency, restoration procedures may be
affected by the presence of CLEC facilities in or on PACIFIC
structures. While PACIFIC maintains no responsibility for the
repair of damaged CLEC facilities (except under a special
maintenance contract), it must nonetheless control access to
CLEC structures if restoral of affected facilities is to be
achieved in an orderly fashion.
PRIORITIZING Where PACIFIC and CLEC are involved in emergency restorals,
access to PACIFIC's structures will be controlled by
PACIFIC's Maintenance District Manager or his/her on-site
representative according to the following guidelines:
SERVICE DISRUPTIONS/OUTAGES
- While exercising its right to first access, PACIFIC should
grant nondiscriminatory access to all occupants in or on its
facilities and every effort should be made to accommodate as
many occupants as is reasonably safe. Therefore, reasonable,
simultaneous access will not be denied unless public or other
safety considerations would prohibit such access.
- Where simultaneous access is not possible, access will next
be granted according to longevity in/on the structure (i.e.,
first in time, first in right). Where longevity in the
structure cannot be ascertained, access will be prioritized
on a first come, first served basis.
SERVICE AFFECTING
- While exercising its right to first access, PACIFIC should
grant nondiscriminatory access to all occupants in or on its
facilities and effort should be made to accommodate as many
occupants as is reasonably safe. Therefore, reasonable,
simultaneous access will not be denied unless public or other
safety considerations would prohibit such access.
- Where simultaneous access is not possible, access will next
be granted to occupants according to the level of damage to
its facilities and the likelihood that damage will result in
service disruption. Where likelihood that damage will result
is not clearly discernible, access will be granted according
to longevity in/on the structure (i.e., first in time, first
in right).
<PAGE> 128
Attachment 10
Appendix A
page 2
- Where longevity in the structure cannot be ascertained,
access will be prioritized a first come, first served basis.
POINT OF CONTACT When an emergency situation arises which necessitates CLEC
access to a manhole after PACIFIC's normal business hours,
CLEC should call PACIFIC's Emergency Control Center (ECC).
All calls during normal business hours must be directed to
the appropriate PACIFIC Single Point of Contact (SPOC). For
after-hours calls, PACIFIC's ECC will contact the Maintenance
Center responsible for after-hours coverage of the affected
area. The maintenance supervisor contacted by the ECC will
return CLEC's call and will arrange for access with on-call
maintenance field personnel during the emergency condition.
<PAGE> 129
Attachment 10
Appendix B
page 1
1. As used in this Agreement, Remote Switching Module or "RSM" means
telecommunications equipment that provides switching network, line and
trunk interfaces, and the capability to perform call processing when
isolated from a required host switch. The "host switch," which must be
provided by CLEC but not in Pacific's premises, is linked to and
controls the RSM, and provides customer feature control, interoffice
trunking, NPA-NXX routing and coordination of one or more RSMs.
2. RSMs shall be placed exclusively for the purpose of access to Pacific
unbundled network elements purchased by CLEC. No RSM shall be used to
perform switching other than between lines served directly by the RSM,
and between the RSM and its host switch located on CLEC premises. No
direct trunks may be established between the RSM and another carrier's
switch(es). Further, RSMs shall not be used to provide "information
services" or "enhanced services," as those terms have been defined by
applicable federal statutes and decisions, including those of the FCC.
3. CLEC shall not be permitted to install its own power plant for use in
connection with collocated RSM equipment. CLEC shall obtain all
necessary AC or DC power feeds from Pacific according to the terms set
forth in Schedule Cal P.U.C No. 175-T, Section 16.4. Any power
requirements beyond those provided for in the above tariff shall be
provided by Pacific to CLEC on an individual case basis.
4. Pacific shall not be obligated to monitor any alarms installed by CLEC,
other than environmental alarms (i e.: those that monitor conditions of
the equipment room, rather than the RSM itself).
5. CLEC's RSM equipment shall be grounded in such a manner as to insure
that such equipment shall cause no harm nor interference with Pacific
network facilities and equipment.
6. CLEC shall list all RSMs it intends to place in its physical
collocation space pursuant to this Agreement on each Application for
Physical Collocation. Because of space limitations RSM collocation is
not permitted in Shared Space collocation arrangements.
7. The placement of RSMs in physical collocation space shall comply fully
with all applicable physical co!location technical publication(s)
referenced in the Interconnection Agreement.
8. In no event shall Pacific be obligated to provide access for the RSM
and equipment described herein or substantially similar facilities in a
virtual collocation arrangement, whether under contract, tariff or
otherwise. The Parties agree that this RSM Agreement does not
constitute, and shall not be asserted to constitute, an admission or
waiver or precedent with any state commission, the FCC, any other
regulatory body or any court, or in
<PAGE> 130
ATTACHMENT 10
APPENDIX B
page 2
any other forum that Pacific has agreed or acquiesced that the RSM
equipment addressed in this Agreement is "equipment necessary for
interconnection or access to unbundled network elements" under 47
U.S.C. Section 251(c) (6). Pacific understands and agrees that CLEC
remains free to argue that RSM equipment, in general, is "equipment
necessary for interconnection or access to unbundled network elements"
under 47 U.S.C. Section 251(c) (6).
9 Pacific shall have the right, upon 5 business days notice to CLEC, to
inspect CLEC' physical and software configuration of CLEC's RSM for
purposes of confirming CLEC's compliance with the terms of this RSM
agreement. CLEC shall cooperate and provide information as requested by
Pacific to assist with the purposes of this inspection. Any dispute
concerning such inspections, or Pacific's right to any particular
inspection, shall be referred to the Alternative Dispute Resolution
procedures set forth in Attachment 3 to the Interconnection Agreement.
10. This Agreement shall expire or be terminated in the same time frames
and in the same manner as provided for in the Interconnection
Agreement.
<PAGE> 131
ATTACHMENT 11
PROVISIONING AND ORDERING
<PAGE> 132
ATTACHMENT 11
TABLE OF CONTENTS
PROVISIONING AND ORDERING
<TABLE>
<S> <C> <C>
1. Network Deployment................................................. 1
2. General Provisioning Requirements.................................. 1
3. Specific Provisioning Process Requirements......................... 2
4. General Ordering Requirements...................................... 4
5. Ordering Interfaces................................................ 5
6. PACIFIC Provision of Information................................... 6
7. Order Format and Data Elements for Individual Network
Elements and Combinations.......................................... 6
8. Performance Requirements........................................... 11
9. Account Maintenance................................................ 13
Appendix A:
Local Service Request Form
Appendix B:
Unbundled Network Element Provisioning Format
Appendix C:
Principles for Implementing Electronic Interfaces for Operational
Support Systems
Exhibit 1 to Appendix C:
Operation Support Systems Implementation Dates
</TABLE>
<PAGE> 133
Attachment 11
Page 1
PROVISIONING AND ORDERING
1. NETWORK DEPLOYMENT
Throughout the term of this Agreement, the quality of the technology,
equipment, facilities, processes and techniques (including, without
limitation, such new architecture, equipment, facilities, and interfaces
as PACIFIC may deploy) that PACIFIC provides to CLEC under this
Agreement must be at least equal in quality to that provided by PACIFIC to
itself.
2. GENERAL PROVISIONING REQUIREMENTS
2.1 Subject to the requirements of Attachment 6, CLEC may order Network
Elements either individually or in any combination. Combinations
("Combinations") consist of multiple Network Elements to enable CLEC to
provide service in a geographic area or to a specific customer and that
are placed on the same order by CLEC. To the extent that Combinations or
unbundled Network Elements are related and logically associated with one
another, Combinations may be ordered with a single order.
2.2 Combinations shall be identified and described by CLEC in this Agreement,
so that they can be ordered and provisioned together and shall not require
the enumeration of each Network Element within that Combination on each
provisioning order.
2.3 PACIFIC shall provide all provisioning services to CLEC during the same
business hours that PACIFIC provisions similar services for its end user
customers. Currently, those hours are Monday through Friday from 8:00 a.m.
to 5:30 p.m. PST. CLEC may request PACIFIC to provide Sunday, holiday,
and/or off-hour provisioning services. If CLEC requests that PACIFIC
perform provisioning services at times or on days other than as
required in the preceding sentence, PACIFIC shall provide CLEC a quote for
such services, consistent with PACIFIC's rates and terms for similar
services to PACIFIC's end user customers, at the rates set forth in
Attachment 8. If CLEC requests any service for which a quote is not set
forth in Attachment 8, PACIFIC will provide CLEC a quote based on state
wide average rates for the services performed. If CLEC accepts PACIFIC's
quote, PACIFIC shall perform such provisioning services.
2.4 PACIFIC's LISC is the Single Point of Contact (SPOC) for all ordering
contacts and order flow involved in the purchase of Network Elements or
Combinations. The SPOC shall provide an electronic interface twenty-four
(24) hours a day, seven (7) days a week for all ordering order flows at
parity with that PACIFIC provides to itself or affiliates. Currently,
several systems
10/16/98
<PAGE> 134
Attachment 11
Page 2
are less than twenty-four (24) hours per day, seven (7) days per week.
These systems, without limitation, and their current hours, are as follows:
1. CESAR/CLEO, Monday through Friday, 7:00 a.m. to 11:00 p.m.,
Saturday 7:00 a.m. through 5:00 p.m.;
2. PREMIS, Monday through Saturday, 6:00 a.m. through 11:00 p.m.;
3. BOSS, Monday through Saturday, 6:00 a.m. through 11:00 p.m.;
4. SORD, Monday through Friday, 6:00 a.m. through 11:00 p.m.,
Saturday 6:00 a.m. through 7:00 p.m.;
5. Scheduled Maintenance, one Sunday per month;
6. Scheduled changes to all systems, e.g., CESAR, 7:00 p.m. every
third Wednesday, etc.
2.5 The SPOC shall also provide to CLEC a toll-free nation-wide telephone
number (operational during the same hours as PACIFIC provides to its own
end user customers, currently from 8:00 a.m. to 5:30 p.m., Monday through
Friday) which will be answered by capable staff trained to answer
questions and resolve problems in connection with the provisioning of
Local Service, Network Elements or Combinations.
2.6 PACIFIC and CLEC shall mutually agree upon interface contingency and
disaster recovery plans for the ordering and provisioning of Local
Service, Network Elements or Combinations.
2.7 PACIFIC will recognize CLEC as the customer of record of all Network
Elements or Combinations ordered by CLEC and will send all notices,
invoices and pertinent information directly to CLEC.
3. SPECIFIC PROVISIONING PROCESS REQUIREMENTS
3.1 Subject to Attachment 6, when CLEC orders the LSNE (either individually or
as part of a Combination), CLEC may also obtain all currently deployed
features and functions from the specified PACIFIC switch. If CLEC requests
a feature or function that is technically available but not deployed in a
particular switch, PACIFIC shall provide CLEC a quote pursuant to Section
1.6 of Attachment 6. If CLEC accepts the quote, Pacific shall deploy the
feature pursuant to the time frames and charges set forth in the quote. In
the event that the Parties cannot agree on the deployment of, or price for
such features, CLEC may seek Alternative Dispute Resolution pursuant to
Attachment 3 of the Agreement.
3.2 When requested by CLEC and at CLEC's option, Pacific will schedule
installation appointments (PACIFIC employee dispatch) with PACIFIC's
representative on the line with CLEC's representative or provide CLEC
access
<PAGE> 135
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Page 3
to Pacific's scheduling system through a mutually agreed upon
Electronic Interface. PACIFIC will provide appropriate training to all
PACIFIC employees who may communicate, either by telephone or
face-to-face, with CLEC Customers. Such training shall instruct the
PACIFIC employees not to disparage or discriminate against CLEC, its
products or services and shall comply with the branding requirements of
this Agreement.
3.3 Upon request from CLEC, PACIFIC will provide an intercept referral
message for LSNE that includes any new CLEC telephone number, for
residential customers for three (3) months, and business customers for
twelve (12) months, and PACIFIC will provide directory updates at the
next publication. This intercept referral message shall be approved by
CLEC and shall be similar in format to the intercept referral messages
currently provided by PACIFIC for its own end-users. Custom messages or
extension in duration of the referral shall be subject to the charges
set forth in Attachment 8.
3.4 PACIFIC will provide CLEC with a Firm Order Confirmation (FOC) for each
order, within four (4) Business hours of PACIFIC's receipt of each
accurate and complete electronically submitted order. In the absence of
an electronically submitted order, the time frame for a FOC for
manually received orders will be as mutually agreed. In the case of a
Network Elements or Combinations, the FOC must contain an enumeration
of CLEC's ordered Network Elements or Combinations (and the specific
PACIFIC naming convention applied to that Network Element or
Combination), features, options, physical interconnection, quantity,
and PACIFIC commitment date for order completion (Committed Due Date).
3.5 Upon completion of the order, PACIFIC will provide CLEC electronically
(unless otherwise notified by CLEC) with an Order Completion per order
that states when that order was completed. PACIFIC shall respond with
specific order detail as enumerated on the FOC and shall state any
additional charges (e.g. Time and Cost charges) up to a previously
agreed upon limit associated with that order.
3.6 For new Network Elements developed based on Section 1.6 of Attachment
6, the Parties will mutually agree on the testing to be used.
3.7 When CLEC electronically orders a Local Service, Network Element or
Combination, PACIFIC shall provide notification electronically of any
instances when (1) PACIFIC's Committed Due Dates are in jeopardy of not
being met by PACIFIC on any Network Element or feature contained in any
order for Local Service, Network Elements or Combinations or (2) an
order contains Rejections/Errors in any of the data element(s) fields.
Such notice will be made as soon as the jeopardy or reject is
identified. When NDM or EBI is available and CLEC elects to place a
manual order, PACIFIC may notify
<PAGE> 136
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Page 4
CLEC of a jeopardy or reject condition via facsimile or telephone call to
the CLEC contact identified on the order. In all cases, PACIFIC shall
concurrently indicate its new committed due date.
3.8 At CLEC's request, PACIFIC will perform co-operative testing with CLEC
(including trouble shooting to isolate any problems) to test Local
Service. Network Elements or Combinations purchased by CLEC in order to
identify any performance problems identified at turn-up of the service.
3.9 PACIFIC shall inform CLEC if a customer action results in a reassignment
of an AIN trigger from an CLEC AIN application to some other service
provider's application. Such notification shall be completed within
twenty-four (24) hours of the action via electronic interface as
described in the Account Maintenance requirements specified in this
Attachment.
3.10 Testing of AIN based services in PACIFIC's AIN test laboratory will
identify feature interactions with existing switch-based or other types
of services. PACIFIC will provide CLEC with a list of feature
interactions uncovered during testing of any services. Disclosure of
feature interactions to CLEC's end user will be CLEC's sole
responsibility.
3.11 PACIFIC shall provision correct AIN triggers based on services ordered
by CLEC on its provisioning order.
4. GENERAL ORDERING REQUIREMENTS
4.1 Upon CLEC's request through a Suspend/Restore Order for LSNE or a
Combination containing LSNE, PACIFIC shall suspend or restore the
functionality of any Network Element or Combination to the extent
technically feasible. PACIFIC shall implement any restoration priority
on a per Network Element or Combination basis in a manner that conforms
with CLEC requested priorities and any applicable regulatory policy or
procedures. The charges for a Suspend/Restore are set forth in
Attachment 8.
4.2 PACIFIC shall provide to CLEC the functionality of blocking calls (e.g.,
900, 976 or international calls) by line.
4.3 Subject to Section 271(e)(2)(B), when intraLATA presubscription is
permissible in California, when ordering a local Switching Element, CLEC
may order from PACIFIC separate interLATA and intraLATA routing (i.e., 2
PICs where available) on a line.
4.4 As directed by CLEC, when CLEC orders a Network Element or Combination,
all pre-assigned trunk or telephone numbers currently associated with
that Network Element or Combination shall be retained, if directed by
CLEC, without loss of feature capability and without loss of associated
ancillary
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Page 5
functions including, but not limited to, Directory Assistance and 911/E911
capability, unless technically infeasible.
4.5 When CLEC orders Network Elements or Combinations that are currently
interconnected and functional, such Network Elements and Combinations will
remain interconnected and functional without any disconnection or
disruption of functionality. This shall be known as Contiguous Network
Interconnection of Network Elements. There shall be no additional charge
for such interconnection.
5. ORDERING INTERFACES
5.1 PACIFIC shall provide to CLEC an Electronic Interface (EI) for
transferring and receiving orders, FOCs Service Completions, and other
provisioning data and materials as set forth in Appendix C and at the
rates set forth in Attachment 8.
5.2 When ordering LSNE, subject to the implementation schedule in this
Agreement, CLEC's representatives will have real-time access to PACIFIC
customer information systems which will allow the CLEC representatives to
perform the following tasks:
1. Obtain customer profile, including customer name, billing and
residence address, billing telephone number(s), and
identification of features and services subscribed to by
customer. Such access shall be governed by Sections 5.5.1.1 and
5.5.1.2 of Attachment 5 to this Agreement, depending on whether
the information accessed is for a residence or business customer.
2. Obtain information on all features and services available, in
end-office where customer is provisioned;
3. Enter the order for the desired features and services;
4. Provide an assigned telephone number (if the customer does not
have one assigned). Reservation and aging of these numbers
remain PACIFIC's responsibility;
5. Establish the appropriate directory listing;
6. Provide service availability dates to the customer;
<PAGE> 138
Attachment 11
Page 6
7. Provide information regarding dispatch/installation schedule, if
applicable;
8. Order intraLATA toll and access to long distance service in a
single, unified order;
9. Suspension, termination, or restoral of service where
technically feasible."
6. PACIFIC PROVISION OF INFORMATION
6.1 PACIFIC shall provide to CLEC upon request:
1. A list of all services and features technically available from each
switch that PACIFIC may use to provide a Local Switching Element, by
switch CLLI;
2. A listing by street address detail, of the service coverage area of
each wire center;
3. All engineering design and layout information for each Network
Element or Combination, in response to an order for the Network
Element or Combination;
4. A listing of all technically available functionalities for each
Network Element or Combination, in response to an order for the
Network Element or Combination;
5. As long as PACIFIC remains the code administrator for California,
notice of any NPA relief planning meetings so that CLEC may
participate in those meetings to reach industry consensus on NPA code
relief.
7. ORDER FORMAT AND DATA ELEMENTS FOR INDIVIDUAL NETWORK ELEMENTS AND
COMBINATIONS
7.1 In ordering Network Elements or Combinations, CLEC and PACIFIC will
utilize standard industry order formats and data elements developed by the
Alliance for Telecommunications Industry Solutions (ATIS), including
without limitation the Order and Billing Forum (OBF). Industry standards
do not currently exist for the ordering of all Network Elements or
Combinations. Therefore, until such standard industry order formats and
data elements are developed by the ATIS for a particular Network Element
or Combination, CLEC and PACIFIC will mutually agree to a format to be
used to address the specific data requirements necessary for the ordering
of those Network Elements or Combinations. There currently exist OBF
formats for INP and the following Network Elements: Links, Ports, and
Transport. When an ATIS standard or
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Page 7
format is subsequently adopted, the Parties will use such standard or
format in lieu of any standard or format set forth in this Attachment,
unless the Parties mutually agree to continue to use the standard or
format set forth herein.
7.2 CLEC and PACIFIC shall agree upon the appropriate ordering and
provisioning codes to be used for each Network Element or Combination.
These codes shall be known as data elements.
7.3 Each order for a Network Element or a Combination will contain the
following order-level sections, as defined by the OBF or as mutually
agreed to by the Parties: Administration, Bill, Contact, and End User
Information, e.g., Local Service Request (LSR) form, Access Service
Request (ASR) form, End User Information (EU) form.
7.4 CLEC will provide provisioning data in the format defined below when
ordering Network Elements or Combinations. First, CLEC will state
whether it is ordering a Network Element (one or more of the Network
Elements described in this Agreement) or a Combination (multiple
Network Elements in the same order). CLEC will then provide data in the
following provisioning categories, such data to be provided on the OBF
ordering form as completed data fields:
1. Activity. The activity field will comply with OBF standards,
which currently include Add, Change, Disconnect and Record Only.
Order Activity Description. For each activity, a further
description of the Order Activity may be required. Consistent
with OBF standards, Modify, Cancel, Expedite, Coordinated,
Suspend and Restore. The preceding Order Activity Descriptions
may be applied to any Add, Change, Disconnect or Record Only
order. In some cases, more than one of these may apply to a
particular order. In addition, Sequence, as defined below, may
be added:
Sequence: The Parties will jointly develop the sequence that
will apply when components of the order must be worked in the
proper sequence, or when components of the order are
sequentially related to components or another order.
2. Purpose of Order. The Purpose of Order will contain a brief
statement describing the overall purpose of the order (e.g.,
Add new ISDN loop or build dedicated trunking/transport from
local end office to CLEC OSPS 5E).
3. Type of Network Element or Combination. The Type of Network
Element or Combination category consists of two parts. First,
an E (Network Element) or C (Combination) followed by a dash
and then the two character code for the Network Element(s)
(e.g., E-LS (Local Switching) and C-DT/LS (Combination of
Dedicated
<PAGE> 140
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Transport and Local Switching)). Below are the Network Elements and their
two character codes:
LL Local Loop
ND Network Interface Device
DC Digital Crossconnect System (DCS)
LS Local Switching
OS Operator Systems (trunking and transport for LSNE)
CT Common Transport
DT Dedicated Transport
SS Signal Transfer Points
SL Signaling Link Transport
DB SCPs/Databases (LNP, LIDB, Toll Free)
TS Tandem Switching
The parties will mutually agree on the proper Type of Network Element or
Combination designators for other Network Elements or Combinations, e.g.,
Operator Services, Directory Services, etc.
4. Interconnection Locations. This category describes the beginning and
end-point of the Network Element or Combination. For example, the point of
termination (POT) may be listed as a switch CLLI, a frame tie down
location, a channel on a T3, or a customer address. Various types of POT
are described in the tables shown in Appendix A.
5. Interconnection Specific. The Interconnection Specific category describes
the nature of the interconnection and the appropriate relationships within
the Network Element/Combination. The appropriate type of Interconnection
Specific is described for each Network Element/Combination in the tables
shown in Appendix A. The following definitions apply:
Contiguous: All cross-connects, muxing, cross-office ties, etc. will be
included between the two interconnection points listed under
Interconnection Locations so that the Network Element or Combination is
delivered fully functional.
Routing: Indicates that routing is party of the necessary interconnection.
Functionally Inclusive: All functionality as it is defined within
Attachment 6 of this Agreement as it relates to interconnection
<PAGE> 141
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when the Network Element or Combination is provisioned by
PACIFIC.
6. Element Identification. This field includes the precise
identifier of the Network Element. For example, the identifier
can be a circuit ID, facility name, switch CLLI, or Working
Telephone Number.
7. Object. The Object identifies the basic unit of the Network
Element or Combination. Examples include Network Trunk (for the
Network Element LS) and DS1 (for the Network Element DT). The
Objects related specifically to each Network Element or
Combination are provided in the tables shown in Appendix A.
8. Quantity/Capacity. This field lists the Quantity/Capacity of
Objects. For example, for the Local Loop the number "1" in this
field would indicate that one Local Loop was being ordered. On
the other hand, for the Object "DT" the number "4" would
indicate that a capacity of 4 DS1 are being ordered.
9. Options. For each Object, there may be numerous Options. This
category identifies the specific Option of the selected Object.
In most case, only one Option applies for each Object. The
specific Options for each Object are contained as shown in
Appendix A. Examples include 2-wire (for the Object Analog
Loop), DID (for the Object Customer Trunk) and ESF (for the
Object DS1).
10. Characteristics. For each Option, there may be multiple
Characteristics that require additional details. This category
identifies those Characteristics, along with the necessary
details. The appropriate type of Characteristics are described
for each Network Element or Combination within the tables shown
in Appendix A. Examples include ISDN conditioned (for the Option
2-wire) and TSG (for the option DID).
11. Features. This field identifies the Features specific to the
Network Element/Combination. For example, when the Network
Element is Local Switching, the CLASS/LASS features would be
included in this category. CLEC will direct PACIFIC which of
these features to activate for a specific customer.
12. Desired Due Date. This field identifies the date the entire
order is expected to be completed.
13. Due Date Detail. If required, this field identifies interim
dates (for Combinations where the network Element Due Dates
differ), and the relationship between the provisioning
activities internal to the order, and those provisioning
activities outside the order that may be related. Coordination
and sequencing requirements will be reflected in this field.
<PAGE> 142
Attachment 11
Page 10
14. Remarks. This field will include any remarks that are related to
the provisioning order that are not reflected elsewhere.
7.5 When ordering a Network Element (individually or as part of a
Combination), the interconnection and functionality internal to that
Network Element will not be specifically ordered by CLEC and will
automatically be provided by PACIFIC. For example, when ordering the
element DT (Dedicated Transport), the use of Digital Cross Connects
that might be necessary to provide the connectivity between two
interconnection locations will not be described on CLEC's order.
7.6 Examples of the provisioning or OBF format to be used by CLEC when
ordering certain provisioning activities for individual Network
Elements are shown in Appendix B.
7.7 CLEC may purchase Network Elements either individually or in
combinations. Combinations of Contiguous Network Elements can be
ordered (i) on a case-by-case basis for those Network Elements that
are customer-specific; or (ii) on a common-use basis for those Network
Elements that are shared by multiple customers.
7.8 When ordering either customer-specific or common-usage Combinations,
CLEC may specify the functionality of that Combination without the
need to specify the configuration of the individual Network Elements
needed to perform that functionality. For example: CLEC may also
choose to purchase from PACIFIC a Local Loop and Switching Combination
which would be comprised of the Loop and Network Element LS (Local
Switching). This Combination would allow CLEC to purchase switching
features/such as Class features) and functionalities on a per-customer
basis.
7.9 Prior to providing local service using unbundled Network Elements or
Combinations in a specific geographic area or when CLEC requires a
change of network configuration, CLEC may place an order with PACIFIC
requiring PACIFIC to prepare certain common-usage elements and
functionalities for CLEC. CLEC has identified one possible set of
these elements and functionalities as the Local Switching Conditioning
Combination. This Combination may be comprised of all or some of the
following individual Network Elements: LS (Local Switching), CT
(Common Transport), SS (Signal Transfer Points), DB (SCPs/Databases)
and TS (Tandem Switching). In order to provide these Network Elements
and their respective functionalities to CLEC, Pacific shall prepare
its network for CLEC's use of these common elements by readying each
necessary switch.
7.10 CLEC may also use unbundled Network Elements to originate and
terminate toll traffic. CLEC has identified the following two
Combinations which will allow such functionality: Toll Traffic
Combination 1, which is comprised of the
<PAGE> 143
Attachment 11
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Network Elements DT (Dedicated Transport) and LS (Local Switching); and
Toll Traffic Combination 2, which is comprised of DT (Dedicated
Transport), TS (Tandem Switching), CT (Common Transport) and LS (Local
Switching).
7.11 There are many additional Combinations which CLEC may choose to order from
PACIFIC.
8. PERFORMANCE REQUIREMENTS
8.1 CLEC will specify on each order its Desired Due Date (DDD) for completion
of that particular order. Standard intervals do not apply to orders under
this Agreement. PACIFIC will not complete the order prior to the DDD or
later than the DDD unless authorized by CLEC. If the DDD is less than the
following Network Element intervals, the order will be considered an
expedited order.
<TABLE>
-----------------------------------------------------
INTERVALS FOR ORDER COMPLETION
-----------------------------------------------------
Network Element Number of Days
-----------------------------------------------------
<S> <C>
LL 2
LS 2
OS 2
DT
DS0, DS-1, T1.5 3
STS-1, DS3/T3 5
OC-3, + 15
SS 3
SL 2
DB 2
TS 2
C-Local Switch Conditioning 20
Combination
</TABLE>
8.2 Within two (2) business hours after a request from CLEC for an expedited
order, PACIFIC shall notify CLEC of PACIFIC's confirmation to complete, or
not complete, the order within the expedited interval. A Business Hour is
any hour occurring on a business day between 8:00 a.m. and 5:00 p.m. PST.
<PAGE> 144
Attachment 11
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8.3 Once an order has been issued by CLEC and CLEC subsequently requires a new
DDD that is less than the minimum interval defined, CLEC will issue an
expedited modify order. PACIFIC will notify CLEC within two (2) Business
Hours of its confirmation to complete, or not complete, the order
requesting the new DDD.
8.4 CLEC and PACIFIC will agree to escalation procedures and contacts.
PACIFIC shall notify CLEC of any modifications to these contacts within
one (1) week of such modifications.
8.5 PACIFIC shall satisfy the following performance standards: (i) at least
90% of all orders must be completed by DDD; (ii) at least 98% of all
orders must be completed by Committed Due Date; and (iii) at least 99%
of all orders will be completed without error.
8.6 CLEC will pay for all additional cost for performance in excess of
PACIFIC's intervals for comparable services.
9. ACCOUNT MAINTENANCE
PACIFIC AND CLEC agree to the following account maintenance procedures:
9.1 OUTPLOC Transaction Feed
OUTPLOC means when an CLEC Local Service or LSNE changes from CLEC local
exchange service to another local exchange carrier. Until approved
industry standards are available, PACIFIC will notify CLEC using a 9270
CARE-like electronic record when a customer changes from CLEC Local to a
new Local Service Provider. PACIFIC will provide 9270 CARE-like records
six (6) days a week, Monday through Friday (Saturday (when change activity
occurs)), via the CONNECT: Direct interface. Electronic records will be
sent within twenty-four (24) hours of the switch being provisioned for
the customer change. CLEC understands that PACIFIC may send other
9000 series CARE-like electronic records on CLEC Local customers.
9.2 Change Request Implementation
PACIFIC will cease billing CLEC effective as of the date of the
customer's change request. If there is a delay in PACIFIC's
implementation of the customer's change request, PACIFIC will issue a
credit to CLEC for any amounts billed to CLEC with respect to that
customer following the date of the customer's change request.
9.3 Use of Service Order for PIC-Only Change
<PAGE> 145
Attachment 11
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When an CLEC Local Customer contacts CLEC Local only to request a change
of Primary Interexchange Carrier (PIC) from one IEC to another IEC,
PACIFIC will accept the PIC-only change request from CLEC Local on the
current service order feed. PACIFIC will change its current tariffed rate
applicable to PIC-only changes.
9.4 IEC PIC Change Request
PACIFIC will not accept a PIC change request from a Long Distance carrier
for CLEC Local customers. Beginning December 1996, PACIFIC will return
such requests to the IEC indicating CLEC's Operating Company Number (OCN)
on the industry standard 3148 record.
<PAGE> 146
Attachment 11
Appendix A
Page 1
Appendix A
Local Service Request Form
The Unbundled Network Elements Service Request Form will be sent with every UNE
and TSR order and is divided into three sections: the Administrative Section,
the Bill Section, and the Contact Section.
The Administrative section is always required and contains such information as
the purchase order number, desired due date, activity, expedite, and related
order numbers.
The Billing section designates the CLEC Billing Account number to be used by the
ILEC and the CLEC billing name and address. This field is to be filled out on
all orders.
The Contact section contains contact information for the Initiator of the order,
the Implementation contact, the design contact, and maintenance contact. For
Loop and Switch orders only the initiator contact person is to be designated,
for Infrastructure provisioning, or customer orders for such things as dedicated
transport, the implementation and design contacts are to be specified.
<PAGE> 147
Attachment 11
Appendix A
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Administrative Section:
CCNA____PON__________________VER__SPA__LSR NO________________SC________PG__of__
D/T SENT________DDD___-___-___DFDT_____PROJECT___________________CHC__REQTYP___
ACT__SUP_EXP__EXP REASON________________________AFO____________RTR__CC_________
ENG__ALBR__AGAUTH_DATED______AUTHNM______________________
RPON____________RORD_________SAN______________CLS-SVCS______
LISTING__E911__QTY_____CUSTOMER______________________
_______________________________________________________________________________
BILL SECTION
BI__BAN_______________ACNA______BILLNM_______________________SBILLNM___________
_________
STREET__________________FLOOR____ROOM_____CITY_______________________STATE_____
ZIP CODE_________________BILLCON________________TEL NO_____________________
FAX__________________EMAIL___________VTA___________
_______________________________________________________________________________
Contact Section
INIT__________________TELNO__________FAX_______________EMAIL___________________
STREET__________________FLOOR_____________________ROOM_________________________
CITY__________________STATE____________________ZIP____________________
IMPCON___________________TEL NO_____________________PAGER______________________
ALT IMPCON_________________TEL NO_____________________PAGER____________________
DSGCON___________________DRC_______________________TEL NO___________FAX NO_____
___________________
EMAIL____________________STREET____________________FLOOR____ROOM_____CITY______
____________
REMARKS________________________________________________________________________
_________________________
<PAGE> 148
Attachment 11
Appendix A
Page 3
END USER INFORMATION FORM
The End User Information form is sent with every UNE and TSR customer order is
used for ordering specific network elements or TSR to provide service for a
specific customer. It is divided into 5 parts: the Administrative Section, the
Location and Access Section, the Inside Wiring Section, the Bill Section and
the Per Customer Element Section.
The Administrative section is used to link subsequent forms to the Unbundled
Network Element Form. The information in this section is on all of the forms
that are used for ordering Unbundled Network Elements, either on a footprint
basis or on an individual customer basis. The Administrative Section contains
five fields which are required on all forms, these field are: Customer Carrier
Purchase Order Number (PON), version (VER), Local Service Request Number (LSR
NO), quantity (QTY), and the page number of (PG_of_). The Administrative
section will not be discussed on further forms.
The Location and Access form contains the customer name and Address and any
specific instruction need to access the customer equipment. This section is
required on all customer orders. The information on this section would be used
for data base entries such as E911 or DA as well designating the location of
any customer premises work.
Inside wiring is not an Unbundled Network Elements but is included here for
completeness. This section needs to be filled out only if the ILEC is the inside
wiring vendor. This section is also included to be consistent with the existing
OBF forms. The Bill Section contains the local billing account number and
information for the billing contact.
The Per Customer Network Element Section contains a listing of the specific
Network Elements which are being ordered to serve a specific customer and an
indication of any attached forms which are need for additional information
concerning the ordered Network Elements. Possible customer specific elements
are, the NID, Loop, and Local Switching. The need to provision customer specific
data base information would also be indicated here.
<PAGE> 149
Attachment 11
Appendix A
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END USER INFORMATION
Administrative Section:
CCNA____PON__________________VER__UNSR NO____REC TPY_____ACT__SPA____QTY_______
____PG_OF_
_______________________________________________________________________________
Location and Access
NAME_________________STREET NO________DIR_____STREET___________________LOCATION
_______________FLOOR___________ROOM____________CITY___________STATE__ZIP_______
______ALT HOUSE#_______________
LCON________________TEL NO_____________________EUMI__ACC_______________________
_______________________________________________________________________________
___________________________________________
OTHER SERVICES___________________OTHER TN__________________
OMIT LISTINGS WHITE PAGES and DA__STREET DIRECTORY___
_______________________________________________________________________________
Inside Wire
WO__WBAN______________________WCON___________________TEL NO____________________
_______________________________________________________________________________
Bill Section
LOCBAN______________________FBI__________________BILL NM_______________________
SBILL NM____________________STREET#________DIR___STREET NAME___________________
FLOOR_____________________LOCATION______________________ROOM_____________CITY__
___________________STATE___ZIP______________________
BILL CONTACT___________________TELENO___________________
_______________________________________________________________________________
Per Customer Element Section:
RESALE Y/N_ATTACHED FORM_ NID Y/N_ATTACHED FORM_
LOOP Y/N_ATTACHED FORM_
LOOP SWITCH Y/N_ATTACHED FORM_
DATA BASE ENTRY Y/N_ATTACHED FORM_
<PAGE> 150
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UNBUNDLED NETWORK ELEMENT PROVISIONING CATEGORIES
4) LOCAL SWITCHING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Activity Type Inter- Inter- Element ID Object Option Characteristics
(one of) connection connection (one of)
Location Specific
- --------------------------------------------------------------------------------------------------------
A,C,D,R LS WTN FUNCTIONALLY WTN Line (may be POTS Signaling
Location INCLUSIVE TSG Concentrated ISDN Line Class Code
CLLI ROUTING Designaton if so Centrex WTN
Switch CLLI Switch designated) E911
CLLI Concentration
Ratio
Interface rate
(DS1,DS3)
Interface
protocol
(TR08, TR303)
- --------------------------------------------------------------------------------------------------------
Non- POTS Signaling
concentrated ISDN Line Class Code
Line Centrex WTN
E911
Interface rate
(DS0, DS1, DS3)
- --------------------------------------------------------------------------------------------------------
Network SS7 One-way
Trunk MF Two-way
Routing
Screening
TSG
- --------------------------------------------------------------------------------------------------------
</TABLE>
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UNBUNDLED NETWORK ELEMENT PROVISIONING CATEGORIES
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Activity Type Inter- Inter- Element ID Object Option Characteristics
(one of) connection connection (one of) (one of)
Location Specific
- ---------------------------------------------------------------------------------------------------------------
Customer DID Signaling
Trunk DOD Routing
Two-way Screening
TSG
- ---------------------------------------------------------------------------------------------------------------
Routing Operator
Services
Directory
Assistance
Messaging
- ---------------------------------------------------------------------------------------------------------------
LNP RCF Ported
DNRI number(s)
RIPH Shadow
LERG number(s)
Number of call
paths
- ---------------------------------------------------------------------------------------------------------------
AIN trigger Triggers Subscribed
(e.g. Off- Office-based
hook Dialing plan
immediate, Translation type
off-hook Digital sequence
delay)
- ---------------------------------------------------------------------------------------------------------------
Data Switch Switch Policing
UNI Port type (e.g. Congestion
ATM) control
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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UNBUNDLED NETWORK ELEMENT PROVISIONING CATEGORIES
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Activity Type Inter- Inter- Element ID Object Option Characteristics
(one of) connection connection (one of) (one of)
Location Specific
- ---------------------------------------------------------------------------------------------------------------
Frame
Relay)
- ---------------------------------------------------------------------------------------------------------------
Data Switch Switch Policing
NNI Port type (e.g. Congestion
ATM, control
Frame
Relay)
- ---------------------------------------------------------------------------------------------------------------
5) OPERATOR SYSTEMS
- ---------------------------------------------------------------------------------------------------------------
Activity Type Inter- Inter- Element ID Object Option Characteristics
(one of) connection connection (one of) (one of)
Location Specific
- ---------------------------------------------------------------------------------------------------------------
A,C,D,R OS Serving FUNCTIONALLY Operator O+
area (NPA- INCLUSIVE Services O-
NXX, LATA, Busy Line
State, Rate Verification
center) (BLV)
Emergency Line
Interrupt
(ELI)
911 overflow
- ---------------------------------------------------------------------------------------------------------------
Directory Service 411
Assistance Area 555-1212
Customer
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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UNBUNDLED NETWORK ELEMENT PROVISIONING CATEGORIES
6) COMMON TRANSPORT
<TABLE>
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Activity Type Inter- Inter- Element ID Object Option Characteristics
(one of) connection connection (one of) (one of)
Location Specific
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A,C,D,R CT Serving CONTIGUOUS
area (NPA-
NXX, LATA,
State, Rate FUNCTIONALLY
center) INCLUSIVE
</TABLE>
7) DEDICATED TRANSPORT
<TABLE>
<CAPTION>
Activity Type Inter- Inter- Element ID Object Option Characteristics
(one of) connection connection (one of) (one of)
Location Specific
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A,C,D,R DT Location CONTIGUOUS Facility DS0 No DCS Routing
CLLI name Avoidance
CLFI D4 Channel
CLLI/POT Bank A/D Conversion
DCS 1/0 Multiplexing/
De-multiplexing
Format
conversion
Signal conversion
Performance
monitoring
SONET to
Asynch.
- --------------------------------------------------------------------------------------------------------
</TABLE>
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UNBUNDLED NETWORK ELEMENT PROVISIONING CATEGORIES
<TABLE>
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Activity Type Inter- Inter- Element ID Object Option Characteristics
(one of) connection connection (one of) (one of)
Location Specific
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
gateway
Broadcasting
Mapping
- --------------------------------------------------------------------------------------------------------
DS1 No DCS Signal format
(e.g. B8ZS,
AMI)
Framing format
(e.g. ESF, D4,
unframed)
DSX Multiplexing/
DCS 1/0 Demultiplexing
DCS 3/1 Format
conversion
Signal
conversion
Performance
monitoring
SONET to
Asynch.
gateway
Broadcasting
Mapping
- --------------------------------------------------------------------------------------------------------
DS3 No DCS Secure Interface
Framing format
(e.g. C-bit
- --------------------------------------------------------------------------------------------------------
</TABLE>
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UNBUNDLED NETWORK ELEMENT PROVISIONING CATEGORIES
<TABLE>
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Activity Type Inter- Inter- Element ID Object Option Characteristics
(one of) connection connection (one of) (one of)
Location Specific
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
parity,
M13,
unframed)
DSX
DCS 3/1 Multiplexing/
DCS 3/3 Demultiplexing
Format
conversion
Signal
conversion
Performance
monitoring
SONET to
Asynch.
gateway
Broadcasting
Mapping
- --------------------------------------------------------------------------------------------------------
VT1.5
- --------------------------------------------------------------------------------------------------------
STSn LGX
- --------------------------------------------------------------------------------------------------------
</TABLE>
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UNBUNDLED NETWORK ELEMENT PROVISIONING CATEGORIES
8) SIGNAL TRANSFER POINTS
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Activity Type Inter- Inter- Element ID Object Option Characteristics
(One of) connection connection (one of) (one of)
Location Specific
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A,C,D,R SS Serving CONTIGUOUS STP CLLI A-link DS0
area (NPA- (pair) interface DS1
NXX, LATA, (pair)
State, Rate FUNCTIONALLY
center) INCLUSIVE
CLLI/POT ROUTING
- --------------------------------------------------------------------------------------------------------------------------
D-link DS0
interface DS1
(quad)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
9) SIGNALING LINK TRANSPORT
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Activity Type Inter- Inter- Element ID Object Option Characteristics
(One of) connection connection (one of) (one of)
Location Specific
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A,C,D,R SL Location CONTIGUOUS Facility Pair DS0
CLLI name DS1
Circuit ID
CLLI/POT
- --------------------------------------------------------------------------------------------------------------------------
Quad DS0
DS1
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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UNBUNDLED NETWORK ELEMENT PROVISIONING CATEGORIES
10) SCPs/DATABASES
<TABLE>
<CAPTION>
Activity Interconnection Interconnection Object Option
(one of) Type Location Specific Element ID (one of) (one of) Characteristics
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A, C, D, R, DB Serving area FUNCTIONALLY LNP Serving NPA-NXX
(NPA-NXX, LATA, INCLUSIVE Area LATA
State, Rate Region
Center, region),
Customer
- ----------------------------------------------------------------------------------------------------------------------
WTN LIDB Serving NPA-NXX
Area VNS
Customer Calling Card
- ----------------------------------------------------------------------------------------------------------------------
Toll Free Serving NPA-NXX
(800) Area
- ----------------------------------------------------------------------------------------------------------------------
WTN E911 Serving NPA-NXX
(ALI/DMS) Area Rate Center
Customer Region
Customer
Address, etc.
- ----------------------------------------------------------------------------------------------------------------------
WTN AIN Customer WTN
Dialing
sequence
- ----------------------------------------------------------------------------------------------------------------------
SCE/SMS/SCP AIN Subscribed
Access Triggers Office-based
(e.g. Off-hook)
</TABLE>
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Page 13
UNBUNDLED NETWORK ELEMENT PROVISIONING CATEGORIES
1) TANDEM SWITCHING
<TABLE>
<CAPTION>
Activity Interconnection Interconnection Object Option
(one of) Type Location Specific Element ID (one of) (one of) Characteristics
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A, C, D, R, TS Serving area FUNCTIONALLY Switch Network SS7 One-way
(NPA-NXX, LATA, INCLUSIVE CLLI Trunk MF Two-way
State, Rate ROUTING Routing
center) Screening
TSG
Location
CLLI
- ----------------------------------------------------------------------------------------------------------------------
Routing Operator
Services
Directory
Assistance
Messaging
- ----------------------------------------------------------------------------------------------------------------------
LNP RIPH Overflow
Primary
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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Attachment 11
Appendix B
Page 1
UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
Example 1
PURPOSE OF ORDER: Modify Dedicated transport order, Customer PBX to CLEC 4ESS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ORDER A ORDER ACTIVITY MODIFY __X__ CANCEL ____ EXPEDITE___ SUSPEND___
ACTIVITY: DESCRIPTION: RESTORE_____
SEQUENCE ____ COORDINATED ____ ASSOCIATED ORDER(S):
- ------------------------------------------------------------------------------------------------
TYPE E - DT
ELEMENT/COMB:
----------------------------------------------------------------------------
INTERCONNECTION FROM: [CUSTOMER prem CLLI] TO: [CLEC CFA T3 slot]
LOCATION:
----------------------------------------------------------------------------
INTERCONNECTION CONTIGUOUS
SPECIFIC:
- ------------------------------------------------------------------------------------------------
DESIRED DUE 11/03/96 DUE DATE DETAILS:
DATE:
- ------------------------------------------------------------------------------------------------
REMARKS: Order modified to reflect different CFA assignment
- ------------------------------------------------------------------------------------------------
</TABLE>
ELEMENT/COMBINATION: DT - Dedicated
Transport
- --------------------------------------
ELEMENT ID: [LEO will return facility
name, CFL]
OBJECT: DS1
- --------------------------------------
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
QTY/CAPACITY: 1
- --------------------------------------
OPTION: Framing D4
- --------------------------------------
CHARACTERIStICS: Signal: B8ZS
- --------------------------------------
FEATURES:
- --------------------------------------
Example 2
PURPOSE OF ORDER: Route PBX customer's traffic from end-office to PBX trunk
group to end-office to 4ESS trunk group in support of LNP
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ORDER C ORDER ACTIVITY MODIFY _____ CANCEL ____ EXPEDITE___ SUSPEND___
ACTIVITY: DESCRIPTION: RESTORE_____
SEQUENCE ____ COORDINATED _X___ ASSOCIATED ORDER(S):
- ------------------------------------------------------------------------------------------------
TYPE E - LS
ELEMENT/COMB:
----------------------------------------------------------------------------
INTERCONNECTION FROM: [LEC Switch CLLI] TO: [LEC-Switch-to-CLEC-4ESS TSG
LOCATION: designation]
----------------------------------------------------------------------------
INTERCONNECTION ROUTING
SPECIFIC:
- ------------------------------------------------------------------------------------------------
DESIRED DUE 11/03/99 DUE DATE DETAILS: Activate routing in coordination with CLEC contact
DATE:
- ------------------------------------------------------------------------------------------------
REMARKS:
- ------------------------------------------------------------------------------------------------
</TABLE>
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
- --------------------------------------------------------------------------------
ELEMENT/COMBINATION: LS-Local
Switching
- ------------------------------------
ELEMENT ID: [LEC Switch CLLI]
- ------------------------------------
OBJECT: LNP
- ------------------------------------
QTY/CAPACITY: N/A
- ------------------------------------
OPTION: RIPH (Route Index
Portability Hub)
- ------------------------------------
CHARACTERISTICS: [Ported Numbers]
Number of call
paths: max
- ------------------------------------
FEATURES:
- ------------------------------------
Example 3
PURPOSE OF ORDER: Suspend Local Switching functionality
- --------------------------------------------------------------------------------
ORDER C ORDER ACTIVITY MODIFY___ CANCEL___ EXPEDITE___ SUSPEND___X___
ACTIVITY: DESCRIPTION: RESTORE___
SEQUENCE___ COORDINATED___ ASSOCIATED ORDER(S):
- --------------------------------------------------------------------------------
TYPE E-LS
ELEMENT/COMB:
-------------------------------------------------------------------
INTERCONNECTION INCLUSIVE: [LEC Switch CLLI]
LOCATION:
-------------------------------------------------------------------
<PAGE> 162
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
----------------------------------------------------------
----------------------------------------------------------
INTERCONNECTION FUNCTIONALLY INCLUSIVE
SPECIFIC:
- --------------------------------------------------------------------------------
DESIRED DUE NOW DUE DATE DETAILS:
DATE:
- --------------------------------------------------------------------------------
REMARKS: Suspend all functionality except
access to E911
- --------------------------------------------------------------------------------
ELEMENT/COMBINATION: LS-Local
Switching
- ------------------------------------
ELEMENT ID: WTN
- ------------------------------------
OBJECT: Line
- ------------------------------------
QTY/CAPACITY: 1
- ------------------------------------
OPTION: POTS
- ------------------------------------
CHARACTERISTICS:
- ------------------------------------
FEATURES:
- ------------------------------------
<PAGE> 163
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
---------------------------------------------
Example 4
PURPOSE OF ORDER: Add LEC signaling access/capability to CLEC Switch
- --------------------------------------------------------------------------------
ORDER A ORDER ACTIVITY MODIFY___ CANCEL___ EXPEDITE___ SUSPEND _____
ACTIVITY: DESCRIPTION: RESTORE___
SEQUENCE___ COORDINATED X ASSOCIATED ORDER(S):
- --------------------------------------------------------------------------------
TYPE E-SS
ELEMENT/COMB:
-------------------------------------------------------------------
INTERCONNECTION INCLUSIVE: [Rate Center] FROM: [STP CLLI Pair]
LOCATION: TO: [CLEC POP CLLI
and DSX tie down]
TO: [CLEC POP CLLI
and DSX tie down]
-------------------------------------------------------------------
INTERCONNECTION CONTIGUOUS, FUNCTIONALLY INCLUSIVE,
SPECIFIC: ROUTING
- --------------------------------------------------------------------------------
DESIRED DUE 11/3/96 DUE DATE DETAILS: Turn up signaling network in
DATE: coordination with CLEC contact
- --------------------------------------------------------------------------------
REMARKS:
- --------------------------------------------------------------------------------
ELEMENT/COMBINATION: SS-Signal
Transfer Points
- ------------------------------------
ELEMENT ID: [STP CLLI pair]
- ------------------------------------
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
----------------------------------------------------------
- -------------------------------------------
[Circuit ID's for links]
- -------------------------------------------
OBJECT: A-link
- -------------------------------------------
QTY/CAPACITY: 2 (pair)
- -------------------------------------------
OPTION: DS0
- -------------------------------------------
CHARACTERISTICS:
- -------------------------------------------
FEATURES:
- -------------------------------------------
<PAGE> 165
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
Example 5
PURPOSE OF ORDER: Update ALI/DMS (E911) database with new customer information
- --------------------------------------------------------------------------------
ORDER C ORDER ACTIVITY MODIFY CANCEL EXPEDITE
ACTIVITY: DESCRIPTION: ----- ----- ------
SUSPEND RESTORE
----- -----
SEQUENCE COORDINATED X
----- -----
ASSOCIATED ORDER(S):
- --------------------------------------------------------------------------------
TYPE E-DB
ELEMENT/COMB:
----------------------------------------------------------------
INTERCONNECTION Inclusive: (Rate Center served by
LOCATION: ALI/DMS database)
----------------------------------------------------------------
INTERCONNECTION FUNCTIONALLY INCLUSIVE
SPECIFIC:
- --------------------------------------------------------------------------------
DESIRED DUE 11/03/96 DUE DATE DETAILS Activate new database entry in
DATE: coordination with CLEC contact
- --------------------------------------------------------------------------------
REMARKS:
- --------------------------------------------------------------------------------
ELEMENT/COMBINATION: DB -
SCPs/Database
- -----------------------------
ELEMENT ID: WTN
- -----------------------------
OBJECT: E911 (ALI/DMS)
- -----------------------------
<PAGE> 166
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
---------------------------------------------
<TABLE>
<S> <C>
- -----------------------------------------
QTY/CAPACITY: 1
- -----------------------------------------
OPTION: Customer
- -----------------------------------------
CHARACTERISTICS: [New customer-specific
information]
- -----------------------------------------
FEATURES:
- -----------------------------------------
</TABLE>
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
---------------------------------------------
EXAMPLE 6
PURPOSE OF ORDER: Disconnect Local Switching
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
ORDER D ORDER ACTIVITY MODIFY CANCEL EXPEDITE SUSPEND
ACTIVITY: DESCRIPTION ----- ----- ----- -----
RESTORE
-----
SEQUENCE COORDINATED X ASSOCIATED ORDER(S):
----- -------
- -----------------------------------------------------------------------------------------------------------
TYPE E-DB
ELEMENT/COMB:
-----------------------------------------------------------------------------
INTERCONNECTION INCLUSIVE [LEC Switch CLLI]
LOCATION:
-----------------------------------------------------------------------------
INTERCONNECTION FUNCTIONALLY INCLUSIVE
SPECIFIC
- ----------------------------------------------------------------------------------------------------------
DESIRED DUE 11/03/96 DUE DATE DETAILS: Disconnect in coordination with CLEC contact
DATE:
- -----------------------------------------------------------------------------------------------------------
REMARKS:
- -----------------------------------------------------------------------------------------------------------
ELEMENT/COMBINATION: LS-Local
SWITCHING
- -------------------------------
ELEMENT ID: WTN
- -------------------------------
</TABLE>
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
---------------------------------------------
<TABLE>
<S> <C>
- -----------------------------------------
OBJECT: Line
- -----------------------------------------
QTY/CAPACITY: 1
- -----------------------------------------
OPTION: POTS
- -----------------------------------------
CHARACTERISTICS:
- -----------------------------------------
FEATURES:
- -----------------------------------------
</TABLE>
<PAGE> 169
Attachment 11
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Page 11
UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
I.
Example 2
PURPOSE OF ORDER: LOOP and Switching Combination
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ORDER A ORDER ACTIVITY MODIFY ____ CANCEL ____ EXPEDITE ____ SUSPEND ____
ACTIVITY: DESCRIPTION: RESTORE ____
SEQUENCE ____ COORDINATED __X__ ASSOCIATED ORDER(S):
- -------------------------------------------------------------------------------------------------------
TYPE C - LOOP/LS
ELEMENT/COMB:
-----------------------------------------------------------------------------------
INTERCONNECTION FROM: [Customer prem] TO: [LSO CLLI, CLEC IDF frame tie down]
LOCATION:
-----------------------------------------------------------------------------------
INTERCONNECTION CONTIGUOUS, ROUTING
SPECIFIC:
- -------------------------------------------------------------------------------------------------------
DESIRED DUE 11/03/9 DUE DATE Swing loop and activate remote call forward simultaneously
DATE: 6 DETAILS:
- -------------------------------------------------------------------------------------------------------
REMARKS:
- -------------------------------------------------------------------------------------------------------
ELEMENT/COMBINATION: LOOP - Loop ELEMENT/COMBINATION: LS - Local
Switching
- ----------------------------------------------------------------------------
</TABLE>
<PAGE> 170
<TABLE>
<CAPTION>
Attachment 11
Appendix B
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELEMENT ID: [LEC will return loop ID] ELEMENT ID: [LEC Switch CLLI]
- -----------------------------------------------------------------------------------------------------
OBJECT: Analog OBJECT: LNP
- -----------------------------------------------------------------------------------------------------
QTY/CAPACITY: 1 QTY/CAPACITY: N/A
- -----------------------------------------------------------------------------------------------------
OPTION: 2-wire OPTION: RCF
- -----------------------------------------------------------------------------------------------------
CHARACTERISTICS: Interface: Analog CHARACTERISTICS: [Shadow number]
number of call paths: 2
- -----------------------------------------------------------------------------------------------------
FEATURES: FEATURES:
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 171
<TABLE>
<S><C>
Attachment 11
Appendix B
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
Example 3
PURPOSE OF ORDER: Local Switching Condition Combination
- ------------------------------------------------------------------------------------------------------------------------------------
ORDER A ORDER ACTIVITY MODIFY _______ CANCEL _______ EXPEDITE _______ SUSPEND _______
ACTIVITY: DESCRIPTION: RESTORE _______
SEQUENCE ________ COORDINATED ________ ASSOCIATED ORDER(S):
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE C - LS/CT/SS/DB/TS
ELEMENT/COMB:
- ------------------------------------------------------------------------------------------------------------------------------------
INTERCONNECTION INCLUSIVE: [NPA]
LOCATION:
- ------------------------------------------------------------------------------------------------------------------------------------
INTERCONNECTION FUNCTIONALLY INCLUSIVE
SPECIFIC:
- ------------------------------------------------------------------------------------------------------------------------------------
DESIRED DUE 11/03/96 DUE DATE DETAILS:
DATE:
- ------------------------------------------------------------------------------------------------------------------------------------
REMARKS: Prepare NPA for CLEC use of all Local Switching, Common Transport,
Signaling, Database and Tandem Switching elements.
Return CLEC Line Class Codes for all switches
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 172
<TABLE>
<S><C>
Attachment 11
Appendix B
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
Example 4
PURPOSE OF ORDER: Toll Traffic Combination 1 - Add toll trunking and transport between LEC end office and CLEC Switch
- ------------------------------------------------------------------------------------------------------------------------------------
ORDER A ORDER ACTIVITY MODIFY _______ CANCEL _______ EXPEDITE _______ SUSPEND _______
ACTIVITY: DESCRIPTION: RESTORE _______
SEQUENCE ________ COORDINATED ___X____ ASSOCIATED ORDER(S):
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE C - DT/LS
ELEMENT/COMB:
- ------------------------------------------------------------------------------------------------------------------------------------
INTERCONNECTION FROM: [LEC Switch CLLI] TO: [CFA T3 slot]
LOCATION:
- ------------------------------------------------------------------------------------------------------------------------------------
INTERCONNECTION CONTIGUOUS, FUNCTIONALLY INCLUSIVE, ROUTING
SPECIFIC:
- ------------------------------------------------------------------------------------------------------------------------------------
DESIRED DUE 11/03/96 DUE DATE DETAILS: Do not activate routing until notified by CLEC contact
DATE:
- ------------------------------------------------------------------------------------------------------------------------------------
REMARKS:
- ------------------------------------------------------------------------------------------------------------------------------------
ELEMENT/COMBINATION: DT - Dedicated ELEMENT/COMBINATION: LS - Local
Transport Switching
- --------------------------------------------------------------------------------------
ELEMENT ID: [LEC will return facility ELEMENT ID: [LEC will return TSG
name, CLFI] designation]
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE> 173
<TABLE>
<CAPTION>
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OBJECT: DS1 OBJECT: Network Trunk
- -----------------------------------------------------------------------------------------------------
QTY/CAPACITY: 1 QTY/CAPACITY: 24
- -----------------------------------------------------------------------------------------------------
OPTION: Framing: ESF OPTION: SS7
- -----------------------------------------------------------------------------------------------------
CHARACTERISTICS: Signal: B8ZS CHARACTERISTICS: Two-way
[Screening]
[TSG characteristics]
[Routing]
- -----------------------------------------------------------------------------------------------------
FEATURES: FEATURES:
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 174
<TABLE>
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UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
Example 5
PURPOSE OF ORDER: Cancel order to Add trunking and transport between LEC end-office and CLEC OSPS Switch
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
ORDER A ORDER ACTIVITY MODIFY _______ CANCEL ___X___ EXPEDITE _______ SUSPEND _______
ACTIVITY: DESCRIPTION: RESTORE _______
SEQUENCE ________ COORDINATED ________ ASSOCIATED ORDER(S):
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE C - DT/LS
ELEMENT/COMB:
- ------------------------------------------------------------------------------------------------------------------------------------
INTERCONNECTION FROM: [LEC Switch CLLI] TO: [CLEC POP CLLI and DSX tie down]
LOCATION:
- ------------------------------------------------------------------------------------------------------------------------------------
INTERCONNECTION CONTIGUOUS, FUNCTIONALLY INCLUSIVE
SPECIFIC:
- ------------------------------------------------------------------------------------------------------------------------------------
DESIRED DUE 11/03/96 DUE DATE DETAILS:
DATE:
- ------------------------------------------------------------------------------------------------------------------------------------
REMARKS:
- ------------------------------------------------------------------------------------------------------------------------------------
ELEMENT/COMBINATION: DT - Dedicated ELEMENT/COMBINATION: LS - Local
Transport Switching
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE> 175
<TABLE>
<CAPTION>
Attachment 11
Appendix B
Page 17
UNBUNDLED NETWORK ELEMENT PROVISIONING FORMAT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELEMENT ID: [LEC will return facility ELEMENT ID: [LEC will return TSG
name, CLFI] designation]
- -----------------------------------------------------------------------------------------------------
OBJECT: DS1 OBJECT: Network Trunk
- -----------------------------------------------------------------------------------------------------
QTY/CAPACITY: 2 QTY/CAPACITY: 48
- -----------------------------------------------------------------------------------------------------
OPTION: Framing: D4 OPTION: SS7
- -----------------------------------------------------------------------------------------------------
CHARACTERISTICS: Signal: B8ZS CHARACTERISTICS: One-way (out from LEC switch)
[Screening]
[TSG characteristics]
- -----------------------------------------------------------------------------------------------------
FEATURES: FEATURES:
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 176
Attachment 11
Appendix C
Page 1
PRINCIPALS FOR IMPLEMENTING ELECTRONIC INTERFACES
FOR OPERATIONAL SUPPORT SYSTEMS
1. PREORDERING
1.1 Transaction-Based Information Exchange
The Parties agree that preordering information exchange will be transmitted over
the same interface according to the same content definition both for resold
PACIFIC services provided using UNE.
1.2 Initial Systems
CLEC will utilize various manual methods of preordering information exchange.
1.3 Long Term Systems
As soon as possible after the effective date and no later than the "Detailed
Specifications Agreed To Date" as set forth in Exhibit 1, CLEC and PACIFIC will
use their best efforts to agree to detailed specifications for upgrading the
transaction based preordering information exchange mechanism according to the
CLEC proposed data model for preordering which is based on Telecommunications
Industry Forum (TCIF) for Electronic Data Interchange (EDI), Version 6. Unless
PACIFIC and CLEC agree to an alternative exchange mechanism by February 10,
1997, the specifications will require that EC-Lite/EDI formatted content be
transmitted over a mutually agreeable X.25 or TCP/IP based network to perform
inquiries, including inquiries for Switch/Feature Availability, Address
Verification, Telephone Number Assignment, Appointment Scheduling, and Customer
Service Record requests. When the "Detailed Specifications Agreed To Date" is
met, and no additional specifications or changes are required by law, PACIFIC
will implement this upgrade by the applicable "Start Date" specified in Exhibit
1.
CLEC and PACIFIC will translate preordering data elements used in their internal
processes into the agreed upon forms, and EDI.
1.4 Batch Data Exchange
Unless another mutually agreed to alternative exists between PACIFIC and CLEC,
CLEC will use two types of orders, the Infrastructure Provisioning order and
Customer Specific Provisioning order, to establish local service capabilities
based on a UNE architecture. The Infrastructure Footprint Form and associated
<PAGE> 177
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ASR forms (Local Switching, Interoffice Transport, Signaling and Database,
Operator Services and DA, and Operations Systems). CLEC will provide these
Infrastructure Provisioning and ASR forms via the ASR process, including passing
the information over a file transfer network, (e.g. Network Data Mover Network)
using the CONNECT: Direct file transfer product.
Customer Specific provisioning will be based on OBF LSR forms and applicable
SOSC interpretations of transactions in accordance with OBF forms. PACIFIC and
CLEC agree to adapt interfaces based on evolving ATIS/OBF and SOSC standards.
2. ORDERING AND PROVISIONING
2.1 CLEC Resells PACIFIC Telecommunications Service(s)
The exchange of information relating to the ordering and provisioning of local
service, when CLEC is the customer of record for the resold service(s), will be
based on the most current industry order formats and data elements developed in
the Ordering and Billing Forum (OBF).
2.1.1 Initial Systems
Except as provided in Exhibit 1. PACIFIC will provide CLEC, on or before the
Effective Date, with an electronic interface known as Resale Mechanized
Interface (RMI) for transmitting and receiving Service Requests and related
information such as Firm Order Confirmations (FOC, Jeopardies, Rejects, and
Completions). CLEC and PACIFIC will translate necessary data elements used in
their internal processes into mutually agreeable file formats and record
layouts. CLEC and PACIFIC will develop a mutually agreeable schedule for
transmissions throughout the day suing the CONNECT: Direct protocol.
For the ordering of products not supported by RMI, PACIFIC will provide CLEC
with other technologies mutually agreed to by the Parties.
2.1.2 Long Term Systems
As soon as possible after the Effective Date and no later than the "Details
Specifications Agreed to Date" as set forth in Exhibit 1, CLEC and PACIFIC will
use their best efforts to agree to detailed specifications for upgrading the
ordering information exchange mechanism according to the Telecommunications
Industry Forum (TCIF) for Electronic Data Interchange (EDI) CLEC and PACIFIC
mutually agree that the information exchange will be forms based, including the
use of the Local Services Request (LSR) Form, the End User Information Form and
the Resale Information Form developed by the OBF. CLEC and PACIFIC
<PAGE> 178
Attachment 11
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will use a mutually agreeable X.25 or TCP/IP based transport network for
exchange of transactions. CLEC and PACIFIC will translate ordering and
provisioning requests originating in their internal processes into agreed upon
forms and EDI transactions. Provided that the "Detailed Specifications Agreed To
Date" is met and no additional specifications or changes in specifications are
required by law, PACIFIC will use its best efforts to implement this upgrade by
the applicable "Start Date" specified in Exhibit 1.
2.2 CLEC Provides Service Using PACIFIC Unbundled Network Elements
2.2.1 Ordering Process and Forms
CLEC and PACIFIC will use two types of orders, an Infrastructure Provisioning
order and a Customer Specific Provisioning order to order and provision Network
Elements and Combinations.
The Infrastructure Provisioning Footprint order notifies PACIFIC of the common
use (across CLEC Retail Customers) Network Elements and Combinations that CLEC
will require, and identifies the geographic area CLEC expects to serve through
the Network Elements and Combinations ordered. PACIFIC and CLEC will mutually
agree on necessary modifications to the existing ordering process and forms used
for Exchange Access products until the OBF has adopted an acceptable alternative
method. In addition PACIFIC will accept a modified version of the Translation
Questionnaire (TQ) Form adopted by the OBF. The modified TQ will be sent to
PACIFIC, and PACIFIC will modify the routing tables for its end offices to
accommodate the treatment of customer calling associated with the combination of
Network Elements and Combinations that CLEC is employing to deliver service.
CLEC will provide the Infrastructure Footprint Order and all associated ASR
forms. PACIFIC will accept delivery of the Infrastructure Provisioning Forms
through the ASR process.
The customer specific provisioning order will be based upon OBF LSR Forms.
PACIFIC agrees that the information exchange will be forms based using the Local
Service Request Form, End User Information Form, Loop Element Form (formerly
Loop Service form), and Switch Element Form (formerly Port Form) developed by
the OBF. Such customer specific elements include, but are no limited to, the
customer loop, the network interface device, the customer dedicated portion of
the local switch, and any combination thereof.
2.2.2. Initial Systems
PACIFIC will provide CLEC, on the schedule specified in Exhibit 1 attached
hereto, with an Electronic Interface known as the Network Data Mover (NDM) for
transmitting and receiving Service Requests and related information such as
<PAGE> 179
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Page 4
Firm Order Completions (FOC), Jeopardies, Rejects, and Completions. CLEC and
PACIFIC will translate necessary data elements used in their internal processes
into mutually agreeable file formats and record layouts. CLEC and PACIFIC will
develop a mutually agreeable schedule for transmissions throughout the day using
the CONNECT: Direct protocol.
2.2.3 Long Term Systems
As soon as possible after the Effective Date and in no event after the "Detailed
Specifications Agreed To Date" as set forth in Exhibit 1 attached hereto. CLEC
and PACIFIC will use their best efforts to agree to detailed specifications for
upgrading the ordering information exchange mechanism according to the
Telecommunications Industry Forum (TCIF) for Electronic Data Interchange (EDI)
for the Customer Specific Provisioning orders. The information exchange will be
forms based. CLEC and PACIFIC will use a mutually agreeable X.25 or TCP/IP based
transport network for exchange of transactions. CLEC and PACIFIC will translate
ordering and provisioning requests originating in their internal processes into
the agreed upon forms and EDI transactions. Provided that the "Detailed
Specification Agreed To Date" is met and no additional specifications or changes
in specifications are required by law, PACIFIC will use its best efforts to
implement this upgrade by the applicable "Start Date" specified on Exhibit 1
attached hereto.
3. TESTING AND ACCEPTANCE
CLEC and PACIFIC agree that no interface will be represented as either generally
available or as operational until end-to-end functionality testing, as agreed to
in a Joint Implementation Agreement or other mutually acceptable document are
completed to the satisfaction of both Parties. The intent of the end-to-end
functionality testing is to establish, through the submission and processing of
test scenarios, that transactions agreed to by CLEC and PACIFIC will
successfully process, in a timely and accurate manner, through both Parties'
support of OSS as well as the interfaces. CLEC will provide load forecasts by
transaction type. PACIFIC will provide documentation to assure ability to handle
forecasted load, such as system simulation models. The testing will include the
use of mutually agreeable test transactions, designed to represent no less than
95 percent of the transaction types that CLEC expects to send and receive
through the Interface undergoing end-to-end testing. In addition, CLEC and
PACIFIC will establish either a mutually agreeable testing environment or an
audit process sufficient to demonstrate that the interfaces established between
CLEC and PACIFIC have the capability and capacity to exchange busy period
transaction volumes reasonably projected to occur during the forward-looking
twelve month period following implementation of the interface. The test
environment or audit process, whichever is utilized, must validate that PACIFIC
<PAGE> 180
Attachment 11
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can accept and process the anticipated busy period loan without degradation of
overall end-to-end performance of the information exchange delivered to CLEC
even when other CLEC transactions are simultaneously processed by PACIFIC.
Before testing begins, the Parties will mutually agree upon testing entrance
and exit criteria.
4. JOINT IMPLEMENTATION AGREEMENT DEVELOPMENT
CLEC and PACIFIC recognize that this Attachment is not sufficient to fully
resolve all technical and operational details related to the interfaces
described. Therefore, CLEC and PACIFIC agree to document the additional
technical and operational details in the form of a Joint Implementation
Agreement (JIA). The JIAs for each interface will become a legally binding
addendum to this Attachment. These JIAs may be modified over the course of this
Agreement without subjecting the balance of the Agreement to renegotiation or
modification. Both Parties further agree that any technical, operational or
implementation issues, once identified at the working team level, may be
escalated by the initiative of either Party thirty (30) days after an issue is
identified if no plan for resolution has been agreed. The escalation will
process first to the senior management of each company who will seek to resolve
the issue. If an issue is not resolved within thirty (30) days following
receipt of the issue by senior management, either Party may submit the issue to
the dispute resolution procedures of Attachment 3 for binding resolution. In
addition, CLEC and PACIFIC will document both a topical outline for the JIAs as
well as establish a schedule for identifying, discussing, resolving and
documenting resolution of issues related to each aspect of the JIA topical
outline for each interface discussed in this document. In no case, will either
end-to-end integrity testing or loan testing begin without both Parties
mutually agreeing that each interface JIA documents the intended operation of
the interface scheduled for testing. Any issues identified and subsequently
resolved through either the end-to-end integrity or load testing processes will
be incorporated into the impacted interface JIA within thirty (30) days of
issue resolution.
<PAGE> 181
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Appendix C, Exhibit 1
Page 1
OPERATION SUPPORT SYSTEMS IMPLEMENTATION DATES
<TABLE>
<CAPTION>
PROCESS INITIAL SYSTEMS START DATE
- ------- --------------- ----------
ORDERING:
<S> <C> <C>
Total Service Resale:
Residence Basic RMI/NDM currently available
"As is" RMI/NDM (flowthru)* 5/31/97
"As Specified" RMI/NDM (flowthru)* 5/31/97
Changes, Disconnects, RMI/NDM (flowthru)* 8/15/97
New, Move RMI/NDM (flowthru)* 8/15/97
Business - S/M Line, PBX trunk RMI/NDM* current available
Centrex and ISDN RMI/NDM* 7/10/97++
Directory - stand alone order RMI/NDM* current available
Directory - with Resale order** RMI/NDM 3/31/97
E911 - stand alone order NENA current available
E911 - with Resale order RMI/NDM 3/31/97
NOTE: Product implementation dates include Directory and E911
*NOTE: NDM (CONNECT: Direct) based on locally agreed upon specifications
**NOTE: CLEC will make appropriate parsing changes
++based upon agreement to detailed specifications by 4/10/97
Network Elements
-customer Specific:
local loop NDM 90 days after agreed to
unbundled local switching, standard for each
combined unbundled local unbundled network
switching and local loop. element
-"Footprint" ASR/NDM 90 days after agreed
upon standard
</TABLE>
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Attachment 11
Appendix C, Exhibit 1
Page 2
OPERATION SUPPORT SYSTEMS IMPLEMENTATION DATES
<TABLE>
<CAPTION>
DETAILED
SPECIFICATION
LONG TERM AGREED
PROCESS SYSTEM TO DATE START DATE
- ------- --------- ------------- ----------
<S> <C> <C> <C>
ORDERING:
Total Service Resale:
Residence Basic: "As Is: EDI 2/10/97 6/10/97
"As Specified", Changes EDI 2/10/97 6/10/97
Disconnects, New, Move EDI 2/10/97 6/10/97
Business: S/M Line, PBX trunk EDI 2/10/97 6/10/97
Business: Centrex and ISDN EDI 6/10/97 12/10/97
Directory - stand alone order EDI 2/10/97 6/10/97
E911 - stand alone order NENA currently available currently available
NOTE: Product implementation dates include Directory and E911
NETWORK ELEMENTS
-Customer Specific: local loop EDI 2/10/97 10/10/97
unbundled local switching,
combined unbundled local
switching and local loop
-"Footprint" ASR/NDM 2/10/97 6/10/97
</TABLE>
<PAGE> 183
Attachment 11
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Page 3
OPERATION SUPPORT SYSTEMS IMPLEMENTATION DATES
<TABLE>
<CAPTION>
DETAILED
SPECIFICATION
LONG TERM AGREED
PROCESS SYSTEM TO DATE START DATE
- ------- --------- ------------- ----------
<S> <C> <C> <C>
PRE-ORDERING (ALL RESALE AND NETWORK ELEMENTS)
Feature Availability EDI 2/10/97 8/10/97
RACF Nbr. EDI 2/10/97 8/10/97
CICs EDI 2/10/97 8/10/97
Address Verify EDI 2/10/97 8/10/97
Telephone Number Assign
1-5 Basic Exchange EDI 4/10/97 10/10/97
Single Line ISDN EDI 4/10/97 10/10/97
1-5 COPT Lines EDI 4/10/97 10/10/97
All Other Products EDI 10/10/97 4/10/98
CSRs EDI 4/10/97 2/10/98
Appointments Scheduling EDI 6/10/97 12/10/97
(New connects, basic exchange,
connects basic local loop)
Centrex Facility Availability EDI 6/10/97 12/10/97
Connected Facility Availability EDI 2/10/97 8/10/97
(for basic resale or basic loop)
DID Service Inquiry EDI 2/10/97 8/10/97
</TABLE>
<PAGE> 184
Attachment 11 - Appendix D
Page 1 of 12
JOINT IMPLEMENTATION AGREEMENT (JIA)
EDI ORDERING - NUMBER PORTABILITY
TABLE OF CONTENTS
<TABLE>
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1. INTRODUCTION
1.1 Executive Summary ................................................ 3
1.2 Introduction ..................................................... 3
2. PURPOSE
2.1 Purpose .......................................................... 3
2.2 Scope ............................................................ 4
2.3 Term of the JIA .................................................. 4
3. TERMS AND CONDITIONS
3.1 General Terms .................................................... 4
3.2 CLEC Notifications ............................................... 5
3.3 Intercompany Contacts ........................................... 5
3.4 Interface Control Document ....................................... 5
3.5 Interface Testing ............................................... 6
3.6 Change Control Type Process ...................................... 6
3.7 Change Types ..................................................... 6
3.8 Implementation Scheduling ....................................... 7
4. OSS DISPUTE RESOLUTION .................................................. 9
5. SCHEDULE ................................................................ 10
6. AUTHORIZED SIGNATURES ................................................... 11
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1. INTRODUCTION
1.1 EXECUTIVE SUMMARY
SECTION TOPIC CONTENTS
1 Introduction Identifies the document content.
2 Purpose Documents the purpose and objectives of the JIA as addendum to
the Interconnection Agreement. Identifies scope of this JIA
relative to ordering and/or pre-ordering application-to-applic-
ation interfaces identified in Section 2.2. Identifies the
technical and operational Interface Control Documents that
the parties use to implement and maintain these interfaces.
3 Terms Outlines the terms and conditions of the JIA.
4 OSS Dispute Resolution Defines how disputes will be resolved.
5 Implementation Schedule Outlines a schedule for developing interface functionality.
6 Authorized Signatures Signatures of parties who agree to terms and conditions of
this document.
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1.2 INTRODUCTION
1.2.1 This document establishes fundamental principles and actions for OSS
interface implementation and maintenance between Pacific Bell (hereafter
known as "Pacific") and CRL Network Services ("CLEC").
1.2.2 Pacific and CLEC agree to jointly test and implement the interfaces
that are outlined in Section 2.2. Scope, pursuant to the terms and
conditions of the Interconnection Agreement between CLEC and Pacific dated
December 19, 1996. Pacific will present project plans to CLEC specifying the
technical, operational and other details regarding each such OSS interface
and the timelines for testing and implementation thereof. CLEC shall have
the opportunity to comment and make recommendations related to each such OSS
interface and Pacific shall fully consider such comments and recommendations
and respond to CLEC in a timely manner. If the parties cannot reach
agreement regarding such OSS interface, the OSS Dispute Resolution process
set forth in Section 4 hereof shall apply. In the event of any disagreement
between the provisions of the Interconnection Agreement regarding OSS and
this JIA, the terms of this Interconnection Agreement shall control.
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2. PURPOSE
2.1 PURPOSE AND OBJECTIVE
2.1.1 The purpose of this JIA is to document the principles guiding the
technical and operational work efforts between Pacific and CLEC relative
to the implementation of OSS interfaces referenced in the Interconnection
Agreement and identified in Section 2.2, Scope.
2.1.2 An objective of this JIA is to document the guidelines for
implementation and usage of the electronic interfaces under the terms of
the Interconnection Agreement. To achieve this objective, the parties will
use the documentation and processes referenced in this JIA and focus work
efforts on issues that increase the effectiveness of mechanized interfaces.
2.1.3 This JIA is entered in accordance with Attachment 11 of the
Pacific/CRL Network Services Interconnection Agreement.
2.1.4 To achieve the purpose and objective, the JIA establishes a basis
for work efforts and outlines the responsibilities of the parties. An
important part of this is the Change Control Process. This process is
established for the parties to manage modifications to the interfaces
subject to applicable guidelines developed within the Ordering and Billing
Forum (OBF) and the Telecommunications Industry Forum (TCIF). This Change
Control Process also provides for an escalation process. Supporting
documentation for each interface is maintained separately, outside of this
JIA. Issues and corresponding resolutions will be documented in
correspondence.
2.2 SCOPE
This JIA pertains to the EDI ordering electronic application interface,
specific to Number Portability orders and the latest versions of the
associated interface control documents. A separate JIA will be executed
for the Directory Listings and 911 updates associated with these Orders;
CLEC will use the LI Office Gateways until EDI functionality is available,
tested and implemented.
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INTERFACE INTERFACE CONTROL DESCRIPTION
DOCUMENT
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EDI - Ordering 1. LSOR 2.0 1. Local Service Order Request
version 1.3 contains business rules for
(5/11/98) ordering specific products based
on standards established by the
OBF.
2. EDI Technical 2. Contains administrative
Specification requirements and data specific
TCIF 3040 information showing which
(1/21/98) segments and elements will be
used. Included are mapping
matrices that identify fields
specific to Pacific. These fields
indicate how information will be
mapped in EDI. This
documentation is based on
standards developed by the OBF
and TCIF.
- --------------------------------------------------------------------------------
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2.3 TERM OF THE JIA
2.3.1 The JIA shall terminate and be of no further force or effect upon the
termination of Interconnection Agreement. Transition of the process
contained in this JIA to terms of a new interconnection agreement shall be
pursuant to Section 3 of the Main Agreement.
3.0 TERMS AND CONDITIONS
3.1 GENERAL TERMS
3.1.1 This JIA is adopted pursuant to the Interconnection Agreement and
serves as an addendum to the Interconnection Agreement. The following terms
serve as the basis for this document.
a) This document applies to the ordering and/or pre-ordering electronic
application to application interfaces identified in Section 2.2 above.
a) The document is based upon the Interconnection Agreement's terms
for ordering functions that support Number Portability.
b) Pacific and CLEC will work together in good faith to implement
interface functionality in the most effective manner possible.
Changes to be managed by the Change Control Process are those
with direct impact to the interface functionality. These changes
are:
1) releases finalized by OBF and TCIF, to the extent required by
the Interconnection Agreement.
2) Pacific Bell initiated system changes that directly affect
CLEC system requirements.
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3.2 CLEC NOTIFICATIONS
3.2.1 CLEC will receive written notification of a change as soon as
reasonably possible after Pacific decides to make the change. Pacific will
develop a timeline for development and distribution of documentation and
resulting implementation efforts. Should the timeline and/or the content
not be acceptable to CLEC, CLEC may escalate the issue for resolution. Any
disputes will be resolved pursuant to Section 4 hereof.
3.2.2 CLEC requests for changes within the scope of implementation will be
communicated in writing from CLEC to its appropriate single point of
contact. The Account Manager will provide CLEC a written assessment of the
request. After CLEC receives Pacific's assessment, the parties will
negotiate in good faith to reach an agreement. If no agreement is reached
within 30 days of receipt of the specifications, the dispute will be
resolved pursuant to Section 4 hereof.
3.3 INTERCOMPANY CONTACTS
The Pacific Account Management Team will serve as the Single Point of
Contact (SPOC) and coordinate all activities under the scope of this JIA
with CLEC's SPOC, as noted below. These individuals will manage the
exchange of information between the two companies.
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PACIFIC SPOC: CLEC SPOC:
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Dianna Scott, Account Manager Jim Couch
370 Third Street, Room 716 President
San Francisco, CA 94107 One Kearny Street, Suite 1450
Tel: 415 542-7281 San Francisco, CA 94108
Tel: 415 837-5300
Fax: 415 392-9000
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3.4 INTERFACE CONTROL DOCUMENT
3.4.1 The construction and execution of the interface implementation will
be fully documented by Pacific in an Interface Control Document. The
Interface Control Documents for the interfaces are listed in Section 2.2,
Scope.
3.4.2 Interface Control Documents (ICD) identified in Section 2.2, Scope,
serve to formalize the technical requirements and applicable business rules
of functionality that the interface provides.
3.4.3 Draft ICDs will be jointly reviewed and discussed. Once Pacific
issues the final ICD, Pacific will respond to written questions regarding
the ICDs. Any disputes regarding ICDs will be resolved pursuant to Section
4 hereof. Request for changes to the final ICD content will be handled via
the Change Control Process.
3.4.4 Once an ICD has been established and Pacific plans a modification or
new functionality for an Interface, the ICD will be revised and CLEC will
be notified as described above in Section 3.2. Any disputes regarding ICDs
will be resolved pursuant to Section 4 hereof. The modified ICD will be
accompanied by a summary of the changes and identified by the date of
issue.
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3.5 INTERFACE TESTING
3.5.1 Pacific and CLEC will perform interface testing as mutually agreed
in the Test Plan. The parties will conduct testing on a set of interface
functions for no longer than the interval specified in the Joint Testing
Plan, unless a longer interval is mutually agreed to by both parties.
Should the parties not agree whether a successful test was obtained
within the specified interval, any disputes will be resolved pursuant to
Section 4 hereof.
3.6 CHANGE CONTROL PROCESS
3.6.1 Changes to the interface that are subject to the OBF and TCIF
guidelines will be handled through the OBF and TCIF processes. Finalized
OBF and TCIF guidelines that require or provide opportunity to change
the interface will be managed as described in this JIA and the Change
Control Process flow detail in Section 3.6.6 below.
3.6.2 For all other changes, Pacific and CLEC SPOCs will serve as the
liaison to receive the request. These requests will be reviewed and
responded to by all parties based upon the guidelines established in
this JIA and the Change Control Process flow detail in Section 3.6.6
below. Any disputes will be resolved pursuant to Section 4 hereof.
3.6.3 At such time that a written change is determined to be
incorporated into the interface implementation, the appropriate ICDs
will be updated to reflect such change or the agreement will be
documented in correspondence. No verbal agreements or discussions will
be construed to be final until this step has been executed. Any disputes
will be resolved pursuant to Section 4 hereof.
3.6.4 Change documentation (e.g. revised system specifications, etc.)
will not be incorporated into the JIA but will be governed by it.
3.6.5 Section 3.7 identifies the types of changes that will be
identified by Pacific and CLEC within this JIA and those changes will
adhere to the Change Control Process flow detail described in Section
3.6.6 below. This process will pertain to changes initiated by Pacific
and changes requested by CLEC within the scope of the implementation of
the interface. Work on the affected interface may proceed, but in no
case will implementation occur before disputes are resolved pursuant to
Section 4 hereof.
3.6.6 in all instances CLEC will receive written notice in order to
evaluate the issue and have the opportunity to discuss it with Pacific.
Any disputes will be resolved pursuant to Section 4 hereof.
Specifically, these actions will follow the Change Control Process flow
detail described in Sections 3.6.6.1 and 3.6.6.2 below.
3.6.6.1 Flow detail for changes required to be made by CLEC to
meet conversion date:
1. As the EDI/LSR issue requirements are being determined at
OBF, they are reviewed by Pacific to determine Pacific's LSR
Usage requirements.
2. A preliminary package of the charges is completed.
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4. The Initial Notification of changes will be via an Accessible Letter and
will be supplemented with Account Team correspondence where appropriate.
The letter will be distributed to CLEC, including the CLEC SPOC identified
in Section 3.3 above, and will contain the Pacific plans for issue content
and a proposed date of implementation.
5. CLEC may send a written response through their Pacific Account Manager
within 14 calendar days of the letter date if issues exist or clarification
is requested.
6. The response will specify elements of contention and detail CLEC's
alternative recommendations for implementation where issues exist. These
should be handled through the Pacific Account Manager who will forward them
to the appropriate organization within Pacific.
7. These responses will be reviewed and considered by Pacific and appropriate
action will be taken, including attempting to resolve CLEC's issues.
8. A written response will be forwarded to CLEC through the Account Manager
within 14 calendar days after the cutoff date for all responses (28
calendar days after date of Initial Notification). Any changes that may
occur as a result of the responses will be distributed to CLEC via another
Accessible Letter.
9. Once the LSOG Version and/or EDI Release Package is finalized it will be
reviewed again by Pacific for any alterations that may be necessary.
10. The Final Notification will be sent to CLEC via an Accessible Letter. The
letter will contain the requirements for the new release and the planned
implementation date.
11. Again, CLEC may send a written response within 14 calendar days through
their Account Manager. The response will specify elements of contention and
detail CLEC's alternative recommendations for implementation where issues
exist, including issues with the planned implementation date.
12. A written response will be forwarded to CLEC through the Account Manager
within 14 days after the cutoff date for all CLEC responses (28 calendar
days after date of Final Notification). Any changes that may occur as a
result of the responses will be distributed to CLEC via another Accessible
Letter.
13. Should CLEC elect to dispute any portion of Pacific's response detailed in
11 above, CLEC must initiate such dispute within 10 calendar days of
Pacific's response. This period will allow reasonable time for a Majority
Vote process to be conducted.
14. Testing will be conducted, to the satisfaction of CLEC and Pacific, until
the mutually agreed upon interface testing criteria has been satisfied.
15. If the Parties don't agree that testing has been successfully completed
within the planned time frame, they may utilize the provisions of Section
4, hereof to resolve the issue.
16. The new release or updates are implemented. If a dispute resolution
procedure has been initiated pursuant to item 12 above and Section 4,
implementation will proceed following the provisions of Section 4.
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3.6.6.2 Flow detail for changes which may be made at CLEC's option (i.e. does
not impact current order production) on or after Pacific's conversion date:
1. As the EDI/LSR issue requirements are being determined at OBF, they are
reviewed by Pacific to determine Pacific's LSR Usage requirements.
2. A preliminary package of the changes is compiled.
3. Notification will be sent to CLEC, including the CLEC SPOC identified in
Section 3.3 above, via an Accessible Letter and will be supplemented with
Account Team correspondence where appropriate. The letter will contain the
requirements for the new release and the planned implementation date.
4. CLEC may send a written response within 14 calendar days through their
Account Manager. The response should specify elements of contention, detail
why there is programming impact to CLEC and, if appropriate, detail CLEC's
alternative recommendations for implementation, including issues with the
planned implementation date.
5. These responses will be reviewed and considered by Pacific and appropriate
action will be taken, including attempting to resolve CLEC's issues.
6. A written response will be forwarded to CLEC through the Account Manager
within 14 calendar days after the cutoff date for responses (28 calendar
days after date of Notification). Any changes that may occur as a result of
the responses will be distributed to CLEC via another Accessible Letter.
7. Should CLEC elect to dispute any portion of Pacific's response detailed in
6 above, CLEC must initiate such dispute within 10 calendar days of
Pacific's response. This period will allow reasonable time for a Majority
Vote process to be conducted.
8. If CLEC will utilize the optional capability upon the release date, testing
will be conducted, to the satisfaction of CLEC and Pacific, until the
mutually agreed upon interface testing criteria has been satisfied.
9. If the Parties don't agree that testing has been successfully completed
within the planned time frame, they may utilize the provisions of Section
4, hereof to resolve the issue.
10. The new release or updates are implemented. If a dispute resolution
procedure has been initiated pursuant to item 7 above and Section 4,
implementation will proceed after resolution of the dispute.
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3.7 CHANGE TYPES
3.7.1 Major Change - Substantial technical process, Business Rule
modification(s) or change(s) to the interfaces that are required
and which will significantly impact the data transactions and system
coding. Major changes including new categories of functionality not
included within the original scope and functionality covered by
this JIA will be incorporated into a new release that will be
subjected to a new JIA.
3.7.2 Minor Change - Minor technical process, Business Rule
modification(s) or change(s) to the interfaces that are required,
but are easily incorporated into data transactions and system
coding. Minor changes may trigger a revision to an existing JIA but
will not require a new release and its corresponding new JIA.
3.8 IMPLEMENTATION SCHEDULING
3.8.1 Section 5, Implementation Schedule, will be included in the initial
JIA for the defined interface. If a subsequent JIA needs to be issued in
connection with making major changes as described above, Pacific will
coordinate with interface users and publish a new Implementation Schedule
as outlined in Section 5 of the new JIA. Any disputes will be resolved
pursuant to Section 4 hereof.
3.8.2 When a minor change is to be implemented but does not necessitate a
revision to this JIA, notification of implementation timelines for the
particular change(s) will be provided in writing to CLEC. Any disputes
will be resolved pursuant to Section 4 hereof.
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4. OSS DISPUTE RESOLUTION
4.1 NEGOTIATIONS AND ESCALATION
When the parties are not in agreement on Pacific's proposed business
rules, test plan, implementation, timeline or other aspects of an OSS
interface covered by this JIA, the parties shall promptly commence the
escalation process provided for in Section 4 of Appendix C of Attachment
11 of the Interconnection Agreement. The parties shall act and negotiate
in good faith using their best efforts to reach an agreement on the
disputed interface that is consistent with the needs of the industry (while
recognizing reasonable cost and technical constraints) and that recognizes
that the interface must be made available by Pacific on a
nondiscriminatory basis and at parity to all CLECs and cannot be designed
to advantage or disadvantage any particular CLEC.
4.2 MAJORITY VOTE
If the process described in Section 4.1 above does not resolve a dispute,
CLEC may, in its sole discretion, either accept Pacific's position on the
dispute or elect to seek the vote of other Affected CLECs (as defined in
Section 4.3.1) that Pacific's position on the dispute is not acceptable to
such Affected CLECs. Unless the Majority Vote (as defined in Section 4.3.2)
is in favor of the proposed disputed change, Pacific shall not proceed with
the proposed disputed change. If Pacific fails to garner a Majority Vote in
favor of its position, at Pacific's election, Pacific will commence
negotiations with the Affected CLECs to develop a position that is
supported by a Majority Vote. The ability to appeal to the CPUC Staff for
resolution has not been agreed to by the parties and will be resolved via
Alternate Dispute Resolution.
4.3 DEFINITIONS FOR SECTION 4
4.3.1. "Affected CLECs" shall mean all CLECs which are using a
particular Pacific OSS interface as to which a dispute exists where
resolution of the dispute will impact such Affected CLECs usage of such
interface, all CLECs which are testing or are in the process of
implementing such OSS interface and all CLECs which have indicated a
definite intent to test, implement or use such OSS interface within the
next three months. Pacific shall not be treated as an "Affected CLEC" for
this purpose and shall have no vote. CLECs that are affiliates of each
other shall be considered the same CLEC.
4.3.2. "Majority Vote" shall mean 50% or more of all written statements
submitted by at least a Quorum of Affected CLECs to Pacific and CLEC
indicating that the signing Affected CLECs either (1) object to or (2)
support Pacific's position. Where a number of Affected CLECs join together
in one written statement, the votes of each Affected CLEC joining in the
statement shall be counted as if each had filed an individual statement.
For purposes of this definition, "Quorum" shall constitute two-thirds of
the Affected CLECs. In the event of a tie, the change proposed shall be
implemented by Pacific. In the event that less than two-thirds of Affected
CLECs vote, the proposed change will not have garnered a Majority Vote, the
proposed change will not be implemented, and the dispute will be submitted
to the CPUC staff for resolution.
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5. IMPLEMENTATION SCHEDULE
Phase 1: Documentation Released: 12/1/97 Number Portability orders
Phase 2: Joint Test Plan Developed: 5/27/98 Number Portability orders
Phase 3: Joint Testing: 6/1/98 - 6/19/98 Number Portability orders
Phase 4: Implementation: 6/22/98* Number Portability orders
* CLEC implementation date only -- Pacific Bell in production as of
3/1/198
* Based on successful completion of joint testing
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6. AUTHORIZED SIGNATURES
Pacific and CLEC have indicated their approval of the terms contained
within this Joint Implementation Agreement by the signatures of their
authorized representatives below.
PACIFIC CLEC
By:___________________ By:___________________________
Title:________________ Title:________________________
Date:_________________ Date:_________________________
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ATTACHMENT 12
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MAINTENANCE
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Attachment 12
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ATTACHMENT 12
MAINTENANCE
1. PACIFIC shall provide repair, maintenance, testing and surveillance for
all Local Services and unbundled Network Elements and Combinations in
accordance with the terms and conditions of the Attachment.
2. PACIFIC and CLEC shall mutually agree on appropriate maintenance
standards for all Local Services and unbundled Network Elements and
Combinations ordered under this Agreement. Such maintenance standards
shall include, without limitation, standards for testing, network
management, call gapping, and notification of upgrades as they become
available. Such maintenance standards shall be set forth in Attachment
17 to this Agreement.
3. Maintenance and Repair Functions
3.1 Initial Electronic Bonding Interface Functions
PACIFIC will have in place by April 10, 1997 a real time electronic
system-to-system interface ("EBI") consistent with ATIS industry
standards, to enable CLEC to perform any necessary maintenance and
repair functions, including the ability to enter a new trouble ticket
into the PACIFIC maintenance system for an CLEC Customer; the ability to
retrieve and track current status on all CLEC Customer repair tickets;
the ability to schedule maintenance appointments by day and time on a
real-time basis and the ability to verify that the trouble has been
resolved by work completed on the Customer's premises to the Minimum
Point of Entry (MPOE) (collectively "EBI Functions"). Prior to
implementation of EBI, PACIFIC will offer CLEC the use, at CLEC's
option, of two interim interfaces for the performance of EBI Functions:
(i) an 800 number and (ii) access to the PBSM system. PACIFIC will
structure these interim interfaces so that CLEC will be able to perform
all EBI Functions on an interim basis using the 800 number and the
majority of the EBI using PBSM.
3.2 Additional Maintenance Functions
Prior to the development of ATIS standards for adding to EBI (a) the
ability to retrieve MLT results, (b) the ability to retrieve "Dispatch
In-Dispatch Out" codes, and (c) the ability to retrieve all applicable
time and material charges at the time of ticket closure (itemized by
customer for each repair incident to
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Attachment 12
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show time spent, nature of trouble, how trouble was resolved, charges for
individual items such as materials, if any, and total charges)
(collectively "Maintenance Functions"), PACIFIC and CLEC will mutually
agree on a process to accomplish CLEC's request for the Maintenance
Functions on an interim, pre-EBI basis, and the cost, if any, to provide
the Maintenance Functions.
4. EBI Implementation
4.1 Maintenance and repair information exchange relating to all Local
Services, Network Elements and Combinations provided under this Agreement
will be transmitted over the same interface according to the same content
definition. CLEC and PACIFIC will, for the purpose of exchanging fault
management information, establish an EBI, based upon ANSI standards
T1.227-1995 and T1.228-1995, and Electronic Communication Implementation
Committee (ECIC) Trouble Report Format Definition (TRFD) Number 1 as
defined in ECIC document ECIC TRA/95-003, and all standards referenced
within those documents. The parties agree to adopt for EBI the functions
currently implemented for reporting access circuit troubles. These
functions include Enter Trouble, Request Trouble Report Status, Add
Trouble Information, Modify Trouble Report Attributes, Trouble Report
Attribute Value Change Notification and Cancel Trouble Report, all of
which are fully explained in clauses 6 and 9 of ANSI T1.228-1995.
4.2 CLEC and PACIFIC will exchange requests over a mutually agreeable X.25
based network or, if both CLEC's and PACIFIC's platforms are capable, a
mutually agreeable TCP/IP based network may be employed. CLEC and PACIFIC
will translate maintenance requests or responses originating in their
internal processes into the agreed upon attributes and elements. Both
parties, agree to complete mutually consistent translations within two (2)
months after the Effective Date of this Agreement and to proceed to
systems readiness testing that will result in a fully operational
interface for local service delivery within four (4) months after the
Effective Date of this Agreement. Changes to Network Operations Forum
(NOF), ECIC or T1M1 standards, to the extent local service maintenance and
repair are affected, will be implemented based upon a mutually agreeable
schedule, but in no case will the time for adoption, including testing of
the changes introduced, extend more than one (1) year beyond the date of
initial closure by the relevant ATIS committee or subcommittee.
5. In the event a PACIFIC employee misses a scheduled repair appointment on
behalf of CLEC, PACIFIC will notify CLEC within one (1) hour of the missed
appointment, either by EBI or by telephone.
6. PACIFIC technicians shall provide repair service to CLEC Customers that is
equal in quality to that provided to PACIFIC customers. Trouble calls from
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Attachment 12
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CLEC shall receive response time priority that is at least equal to that of
PACIFIC customers and shall be handled on a "first come first served" basis
regardless of whether the customer is an CLEC Customer or a PACIFIC
customer. Prior to EBI, CLEC may ask PACIFIC to reprioritize an CLEC
customer trouble report among CLEC's other customer trouble reports and
PACIFIC will reprioritize CLEC's various customer reports as requested by
CLEC, if possible.
7. PACIFIC shall provide CLEC with the same scheduled and non-scheduled
maintenance, including, without limitation, required and recommended
maintenance intervals and procedures, for all Local Services, Network
Elements and Combinations provided to CLEC under this Agreement that it
currently provides for the maintenance of its own network. PACIFIC shall
provide CLEC at least ten (10) business days advance notice of any
scheduled maintenance activity which may impact CLEC Customers. Scheduled
maintenance shall include, without limitation, such activities as switch
software retrofits, power tests, major equipment replacements and cable
rolls. Plans for scheduled maintenance shall include, at a minimum, the
following information: location and type of facilities, specific work to be
performed, date and time work is scheduled to commence, work schedule to be
followed, date and time work is scheduled to be completed and estimated
number of work-hours for completion.
8. PACIFIC shall advise CLEC of non-scheduled maintenance, testing,
monitoring, and surveillance activity to be performed by PACIFIC on any
Network Element, including, without limitation, any hardware, equipment,
software, or system providing service functionality which may potentially
impact CLEC Customers. PACIFIC shall provide the maximum advance notice of
such non-scheduled maintenance and testing activity possible, under the
circumstances; provided, however, that PACIFIC shall provide emergency
maintenance as promptly as possible to maintain or restore service and
shall advise CLEC promptly of any such actions it takes.
9. PACIFIC shall provide CLEC with a detailed description of any and all
emergency restoration plans and disaster recovery plans, however
denominated, which are in place during the term of this Agreement. Such
plans shall include, at a minimum, the following: (i) procedures for prompt
notification to CLEC of the existence, location, and source of any
emergency network outage potentially affecting an CLEC Customer, via the
EBI to be established pursuant to Sections 3 and 4; (ii) establishment of a
single point of contact responsible for initiating and coordinating the
restoration of all Local Services and Network Elements or Combinations;
(iii) methods and procedures to provide CLEC with real-time access to
information relating to the status of restoration efforts and problem
resolution during the restoration process; (iv) methods and procedures for
reprovisioning of all Local Services
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and Network Elements or Combinations after initial restoration; (v)
equal priority, as between CLEC Customers and PACIFIC customers, for
restoration efforts, consistent with FCC Service Restoration
guidelines, including, without limitation, deployment of repair
personnel, and access to spare parts and components; and (vi) a
mutually agreeable process for escalation of maintenance problems,
including a complete, up-to-date list of responsible contacts, each
available twenty-four (24) hours per day, seven (7) days per week.
Said plans shall be modified and up-dated as needed. PACIFIC shall
notify CLEC, within one hour, of all Category I Equipment and/or
facility failures affecting CLEC customer service as itemized in
PACIFIC reference S.I. 131, as amended by PACIFIC from time to time.
A copy of the relevant portion of S.I. 131 in effect on the effective
date of this Agreement is attached to this Attachment as Appendix A.
10. PACIFIC and CLEC shall establish mutually acceptable methods and
procedures for referring callers to the 800/800 number supplied by
the other Party for purposes of receiving misdirected calls from
customers requesting repair.
11. PACIFIC's Interconnection Service Center (ISC) shall conform to the
performance and service quality standards set forth in Attachment 17
when providing repair and maintenance to CLEC and CLEC Customers
under this Agreement.
11.1. If service is provided to CLEC Customers before EBI is established
between CLEC and the PACIFIC, CLEC will transmit its repair calls to
the PACIFIC ISC by telephone.
11.2. ISC, and Electronic Bonding, once deployed, shall be on-line and
operational and the interim interfaces described in Section 3
preceding shall be operational twenty-four (24) hours per day, seven
(7) days per week.
11.3. Progress reports and status of repair efforts shall be available to
CLEC through EBI. On an interim basis before implementation of EBI,
PACIFIC shall provide progress reports and status of repair efforts
to CLEC via an 800 number supplied by PACIFIC or via PBSM, at CLEC's
option.
11.4. Within thirty (30) days after the execution of this Agreement,
PACIFIC shall provide CLEC with written escalation procedures to be
followed if, in CLEC's reasonable judgment, any individual trouble
ticket or tickets are not resolved in a timely manner. Resolution
shall be deemed untimely if delayed beyond PACIFIC's best practices
for resolution of troubles reported by PACIFIC's own customers. The
escalation procedures to be provided hereunder shall include names
and telephone numbers of PACIFIC management personnel who are
responsible for maintenance issues.
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Attachment 12
Page 5
11.5. In the event PACIFIC shall fail to conform to the performance
standards in Attachment 17, CLEC may request, and PACIFIC shall
perform an analysis of the reason behind PACIFIC's failure to
conform, and PACIFIC shall correct said cause as soon as reasonably
practical, at its own expense.
11.6. Maintenance charges for premises visits by PACIFIC technicians shall
be billed by CLEC to its Customer, and not by PACIFIC. All forms,
business cards or other materials furnished by PACIFIC technicians to
CLEC Customers will contain no brand. If the CLEC Customer is not at
home when the PACIFIC technician arrives, the PACIFIC technician
shall leave on the premises "not-at-home" cards that are unbranded
but include a contact number for CLEC. The PACIFIC technician will
not leave on the premises a PACIFIC-branded "not-at-home" card".
11.7. Dispatching of PACIFIC technicians to CLEC Customer premises shall be
accomplished by PACIFIC pursuant to a request received from CLEC.
<PAGE> 202
Attachment 12 - Appendix A
Page 1
CATEGORY I EQUIPMENT AND/OR FACILITY FAILURES AFFECTING
CUSTOMER SERVICE.
CATEGORY I BROADBAND
Types of Customer o Frame Relay - A failure of one or more channelized
Service Quality Failure T1 carrier systems or two or more non-channelized T1
Reports and Criteria carrier systems.
o ATM - A failure of one OC3 or two DS3s.
o SMDS - A failure of one DS3 or four T1s.
o Packet Switching - Any failure of an access module
(AM) or resource module (RM).
CATEGORY I NARROWBAND
o 5 T1 carrier systems (120 or more voice grade
channels) failure.
o 500 or more voice grade radio channels failure.
o A community isolation.
o E911
o A transport equipment failure that isolates a
central office from the E911 network. (Local
switch to the tandem e.g. DACS, OC12, DEXCS
failure, etc.)
o A transport equipment failure that isolates a
Public Safety Answering Point (PSAP) from the
E911 tandem.
o A transport equipment failure that results in
the loss of 25% or more of the trunks/circuits
(aggregate) from an E911 tandem to the PSAPs
served by that tandem.
CATEGORY I CABLE
o Local - 200 or more working pairs are affected.
o Toll - 120 or more interoffice trunks are affected.
o Fiber - Any working fiber providing customer
service that fails without protection.
o E911
o A transport cable failure that isolates a
central office from the E911 network. (Local
switch to the E911 tandem)
o A transport cable failure that isolates a PSAP
from the E911 tandem)
o A transport cable failure that results in the
loss of 25% or more of the trunks/circuits
(aggregate from an E911 tandem to the PSAPs
served by that
<PAGE> 203
Attachment 12 - Appendix A
Page 2
tandem.
CATEGORY I SWITCHING MACHINES
* Any switch congestion that results in 40% or more dial tone
delay lasting 15 minutes or longer.
* Complete loss of inward and/or outward call processing
capability from a central office lasting 5 minutes or longer.
* Any service interruption resulting in 50 or more customer
reports.
* A duplex connectivity failure to the SS7 network, e.g.
MSB7/LPP frame, link set, CNI, etc.
* Loss of interoffice calling from more than 10 minutes.
* An FYI report should be filed anytime a central office has
been on battery power (greater than)30 minutes, when it is
not part of a routine test.
* E911
* A central office isolated from the E911 network for 15
minutes or longer.
* Loss of 25% or more of the trunking capability from an
E911 tandem to the PSAPs it serves for 15 minutes or
longer (e.g. translations, trunk frame failure, etc.).
* A PSAP isolation from the E911 network for 15 minutes
or longer (e.g. translations, trunking problem, etc.)
CATEGORY I COMMUNITY ISOLATION
A community isolation occurs when no incoming or outgoing toll
service is available and the community is cut off from the
outside world by rural geography. A central office failure
within a metropolitan area is not considered a community
isolation since the community can more easily reach phone
service in the adjacent central office serving area.
CATEGORY I MEDIA INTEREST
Any interruption or outage that may cause public or news media
attention.
CATEGORY I TANDEM/TOPS
* Failures or potential loss of call completions/processing.
* Failures affecting Operator Service capabilities.
(See page 24 for detailed reporting criteria.)
CATEGORY I SS7
Loss of mated pair of STP or SCP. Any SS7 failure causing
<PAGE> 204
Attachment 12 - Appendix A
Page 3
50 customer reports from a single central office or 100 customer
reports from several central offices within a maintenance
center.
CATEGORY I PUBLIC SAFETY/SERVICE AGENCIES
* Federal Government, equipment or facility affecting 5 or more
military special communications, isolations of FAA location or
air ground facilities.
* State and local agencies interruptions seriously affecting
service to police, fire departments, hospitals, press,
military, and PBSs.
<PAGE> 205
ATTACHMENT 13
CONNECTIVITY BILLING AND RECORDING
<PAGE> 206
Attachment 13
TABLE OF CONTENTS
CONNECTIVITY BILLING AND RECORDING
1. General............................................................. 1
2. Transition to CABS.................................................. 1
3. Billable Information And Charges.................................... 1
4. Meet Point Billing.................................................. 4
5. Collocation......................................................... 6
6. Mutual Compensation................................................. 6
7. Issuance of Connectivity Bills - General............................ 9
8. Electronic Transmissions............................................ 8
9. Tape or Paper Transmissions......................................... 8
10. Testing Requirements................................................ 11
11. Bill Accuracy Certification......................................... 11
12. Additional Requirements............................................. 11
13. Payment Of Charges.................................................. 12
14. Billing Disputes.................................................... 13
15. Late Payment Charges................................................ 14
16. Adjustments......................................................... 14
17. Recording Of Call Information....................................... 14
Appendix A:
Pre-Bill Certification Operating Agreement
Appendix B:
Schedule for Transition to CABS
Schedule For Agreement On Specifications For Electronic Transmission And
Start Date For Implementation Of Transmission Method
<PAGE> 207
Attachment 13
Page 1
CONNECTIVITY BILLING AND RECORDING
1. GENERAL
This Attachment describes the requirements for PACIFIC to bill and record
all charges CLEC incurs for purchasing Local Services for resale and for
Network Elements and combinations, and describes the requirements for
PACIFIC and CLEC to bill and record all charges incurred to provide Meet
Point Billing and Mutual Compensation. In addition to the terms and
conditions set forth in this Attachment 13, CLEC and PACIFIC will use
their best efforts to complete and sign by November 30, 1996 a Pre-Bill
Certification Operating Agreement, which, when executed by both parties,
will become Appendix A to this Attachment 13. The performance measurements
applicable to Connectivity Billing and Recording are set forth in
Attachment 17.
2. TRANSITION TO CABS
PACIFIC shall use a phased approach to introduce billing through CABS for
Local Services. Network Elements and Combinations provided to CLEC under
this Agreement. PACIFIC agrees to complete the conversion of CABS billing
for Local Services, Network Elements and Combinations provided under this
Agreement in accordance with the schedule set forth in Appendix B to this
Attachment 13.
2.1 Each Party agrees to deliver billing information in the CABS format
mutually agreed to and implemented by the Parties. Each reference to CABS
in this Attachment 13 shall be understood prior to the date of CABS
conversion to refer to the applicable pre-CABS billing system. Each
reference to CABS in this Attachment 13 shall be understood as of the date
of CABS conversion to refer to CABS.
2.2 Notwithstanding any other provisions or language to the contrary in this
Agreement, the Parties agree to cease delivering billing information in
CABS format, and to instead utilize the CRIS format, for resold Local
Services effective May 11, 1998. Until such time as CLEC has developed and
tested a conversion of its resale billing platform for CABS to CRIS, CLEC
agrees to accept a paper CRIS bill beginning May 11 for resold Local
Services. The Parties agree that CLEC's acceptance of a paper CRIS bill
shall constitute conversion from CABS to CRIS."
3. BILLABLE INFORMATION AND CHARGES
3.1 PACIFIC currently uses FABS, CRIS and CABS to bill the Network Elements.
Local Services and Combinations that CLEC plans to purchase. PACIFIC will
<PAGE> 208
Attachment 13
Page 2
convert billing for all Network Elements, Local Services and Combinations
to a CABS billing format in accordance with the schedule set forth in
Appendix B. References to CABS billing in this Attachment apply to billing
for the specified service following conversion to CABS.
3.2 PACIFIC will bill and record in accordance with this Attachment those
charges CLEC incurs as a result of CLEC purchasing from PACIFIC Network
Elements, Combinations and Local Services, as set forth in this Agreement
(hereinafter "Connectivity Charges"). The Parties agree that, except as
expressly provided in this Attachment, CABS or predecessor billing systems
will comply with OBF standards.
3.3 Each bill for Connectivity Charges (hereinafter "Connectivity Bill") shall
be formatted in accordance with CABS, CRIS or FABS, as appropriate,
pursuant to the CABS Conversion schedule set forth in Appendix B. Each
Element, Combination, or Local Service, purchased by CLEC shall be assigned
a separate and unique billing code in the form agreed to by the Parties and
such code shall be provided to CLEC on each Connectivity Bill in which
charges for such Elements, Combinations, or Local Services appear. Each
such billing code shall enable CLEC to identify the Element(s), or
Combinations and Options as described in Attachment 11 to this Agreement
ordered by CLEC, or Local Services ordered or utilized by CLEC in which
Connectivity Charges apply pursuant to this Agreement. Each Connectivity
Bill shall set forth the quantity and description of each such Element,
Combination, or Local Service provided and billed to CLEC. All Connectivity
Charges billed to CLEC must indicate the state from which such charges were
incurred.
3.4 PACIFIC shall provide CLEC monthly Connectivity Bills that include all
Connectivity Charges incurred by and credits and/or adjustments due to CLEC
for those Elements, Combination thereof, or Local Services ordered,
established, utilized, discontinued or performed pursuant to this
Agreement. Each Connectivity Bill provided by PACIFIC to CLEC shall
include: (1) all non-usage sensitive charges incurred for the period
beginning with the day after the current bill date and extending to, and
including, the next bill date, (2) any known unbilled non-usage sensitive
charges for prior periods, (3) unbilled usage sensitive charges for the
period beginning with the last bill date and extending up to, but not
including, the current bill date, (4) any known unbilled usage sensitive
charges for prior periods, and (5) any known unbilled adjustments.
3.5 The Bill Date, as defined herein, must be present on each bill transmitted
by PACIFIC to CLEC.
<PAGE> 209
Attachment 13
Page 3
3.6 Subject to Sections 3.6.4 and 3.6.5, PACIFIC shall not provide any
Connectivity Bills to CLEC having a Bill Date any later than the
following dates:
3.6.1. Sixty (60) days following the recording date for all resale usage and
LSNE usage, except for calls requiring data exchange with third party
carriers. e.g. intraLATA 0+ calls made within another state, which
calls are subject to Section 3.6.2.
3.6.2 One hundred twenty (120) days following the recording date for calls
requiring data exchange with third party carriers.
3.6.3 Sixty (60) days following the date the charges are incurred for all
other Network Elements, Combinations, and all non-usage resale or LSNE
charges.
3.6.4 The time limits set forth in Sections 3.6.1 and 3.6.2 are effective
immediately. The time limit set forth in Section 3.6.3 will be
effective six (6) months following the effective date of this
Agreement.
3.6.5 If any billing error is identified, quantified and communicated in
writing by PACIFIC to CLEC within the time periods set forth in Section
3.6.3 above after Connectivity Charges are incurred, Pacific will have
a maximum of one hundred twenty (120) days after the Connectivity
Charges are incurred to render correct Connectivity Bills therefor.
3.6.6 Provided that CLEC continues to participate in the Pre-Bill
Certification Procedures described in Appendix A to this Attachment, no
payment shall be due from CLEC for any Connectivity bill received by
CLEC from PACIFIC that fails to meet the timeliness requirements of
Section 3.6.1 through 3.6.5 of this Attachment.
3.6.7 On each bill where "Jurisdiction" is identified, local and local toll
charges shall be identified as "Local" and not as interstate,
interstate/interLATA, intrastate, or intrastate/intraLATA.
3.7 PACIFIC shall bill CLEC for each Element, Combination thereof, or Local
Service, supplied by PACIFIC to CLEC pursuant to this Agreement at the
rates set forth in Attachment 8. PACIFIC will bill CLEC based on the
actual Connectivity Charges incurred, provided, however, for those
usage-based Connectivity Charges where actual charge information is not
determinable by PACIFIC because the jurisdiction (i.e., interstate,
interstate/interLATA, intrastate, intrastate/intraLATA, local) of the
traffic is unidentifiable, the parties will jointly develop a process
to determine the appropriate charges.
3.8 Each party shall be responsible for (1) all costs and expenses it
incurs in complying with its obligations under this Attachment 13 and
(2) the
<PAGE> 210
Attachment 13
Page 4
development, modification, technical installation and maintenance of any
systems or other infrastructure which it requires to comply with and to
continue complying with its responsibilities and obligations under this
Attachment 13, except that Pacific may recover the cost to implement the
billing system changes required by this Attachment in a competitively
neutral manner on an industry wide basis.
3.9 Each Party shall provide the other Party at no additional charge a
contact person for the handling of any Connectivity Billing questions or
problems that may arise during the implementation and performance of the
terms and conditions of this Attachment.
4. MEET POINT BILLING
4.1 CLEC and PACIFIC will establish meet-point billing ("MPB") arrangements
for jointly provided switched access to an IEC, in accordance with the
Meet Point Billing guidelines adopted by and contained in the OBF's
MECAB and MECOD documents, except as modified herein. Both parties will
use their best reasonable efforts, individually and collectively, to
maintain provisions in their respective federal and state access
tariffs, and provisions within the National Exchange Carrier Association
("NECA") Tariff No. 4, or any successor tariff to reflect the MPB
arrangements identified in this Agreement, in MECAB and in MECOD.
4.2 CLEC and PACIFIC will implement the "Multiple Bill/Single Tariff" option
in order to bill any interchange carrier ("IXC") for that portion of
the network elements provided by CLEC or PACIFIC. For all traffic
carried over the MPB arrangement, CLEC and PACIFIC shall each bill the
IEC for its own portion of the applicable elements.
4.3 Each Party shall provide the billing name, billing address, and carrier
identification code ("CIC") of the IXCs that may utilize any portion of
CLEC's network in an CLEC/PACIFIC MPB arrangement in order to comply
with the MPB Notification process as outlined in the MECAB document.
Each party will be entitled to reject a record that does not contain a
CIC code. Such information shall be provided by each Party to the other
Party in the format and via the medium that the parties agree.
4.4 The Parties agree to comply with the currently effective MECAB
guidelines as mutually adopted by the Parties from time to time.
4.5 The Parties further agree that in those MPB situations where one Party
subtends the other Party's access tandem, the Party providing the access
tandem is only entitled to bill the access tandem fee and any associated
local transport charges. The Parties also agree that the Party who
provides the
<PAGE> 211
Attachment 13
Page 5
end office switching is entitled to bill end office switching fees,
local transport charges, RIC and CCL charges, as appropriate, and such
other applicable charges.
4.6 PACIFIC and CLEC will record and transmit MPB information in accordance
with the standards and in the format set forth in this Attachment.
PACIFIC and CLEC will coordinate and exchange the billing account
reference ("BAR") and billing account cross reference ("BACR") numbers
for the MPB arrangements described in this Agreement. Each Party will
notify the other if the level of billing or other BAR/BACR elements
change, resulting in a new BAR/BACR number.
4.7 The secondary billing company will provide to the initial billing
company any necessary AMA records (in standard EMR format) within
fourteen (14) days of the recording date. The Initial billing company
will provide the secondary billing company the necessary summary records
with fourteen (14) days of the initial company's bill date.
4.8 If MPB data is not submitted by either Party within the period set forth
in 4.7, or is not in the proper format as set forth in this Agreement,
and if as a result the other Party is delayed in billing the IXC for the
appropriate charges it incurs, the delaying Party shall pay the other
Party a late MPB data delivery charge which will be the total amount of
the delayed charges times the highest interest rate (in decimal value)
which may be levied by law for commercial transactions, compounded daily
for the number of days from the date the MPB charge information is
actually received.
4.9 Failure of secondary billing company to provide the necessary AMA
records (in standard EMR format) within sixty (60) days of the recording
date or of the initial billing company to provide the necessary summary
records within sixty (60) days of the initial billing company's bill
date, will result in the Party failing to deliver the data to be liable
to the other Party for any charges the other Party is unable to bill the
IEC.
4.10 Errors in MPB data exchanged by the Parties may be discovered by CLEC,
PACIFIC or the billable IXC. Both CLEC and PACIFIC agree to provide the
other Party with notification of any discovered errors within ten (10)
business days of the discovery. The other Party shall correct the error
within twenty (20) business days of notification and resubmit the data.
In the event the errors cannot be corrected within the time period
specified above, the erroneous data shall be considered lost. If either
Party fails to provide MPB data due to loss, uncorrectable errors or
otherwise, the Parties shall follow the procedures set forth in
Attachment 14, Section 6, for compensation of lost,
<PAGE> 212
Attachment 13
Page 6
damaged or destroyed Recorded Usage data and compensate the other for
the lost MPB billing data.
4.11 Both Parties will provide the other a single point of contact to
handle any MPB questions.
5. COLLOCATION
When CLEC collocates with PACIFIC in LEC's facility as described in
this Agreement, capital expenditures (e.g., costs associated with
building the "cage"), shall not be included in the Connectivity Bill
provided to CLEC pursuant to this Attachment. All such capital
expenses shall be billed through FABS, identified as capital expense
charges and given a unique and consistent Billing Account Number. All
invoices for capital expenses shall be sent to the location specified
by CLEC for payment. All other non-capital recurring collocation
expenses shall be billed to CLEC in accordance with this Agreement.
The CABS Billing Output Specifications ("BOS") documents provide the
guidelines on how to bill the Connectivity Charges associated with
collocation. The bill label for those collocation charges shall be
entitled "Expanded Interconnection Service."
6. MUTUAL COMPENSATION
6.1 The Parties shall bill each other call termination charges for local
exchange traffic, using a CABS like format, in accordance with the
standards set forth in this Agreement for traffic terminated to the
other Party's customer, where both such customers bear NPA-NXX
designations associated with the same LATA or other authorized area
(e.g., extended area service zones in adjacent local calling areas).
Where required, such traffic shall be recorded and transmitted to CLEC
in accordance with this Attachment. Further, the traffic exchanged
pursuant to this Attachment shall be measured in billing minutes of
use and shall be in actual conversation seconds. The total
conversation seconds per chargeable traffic type will be totalled for
the entire monthly billing cycle and then rounded to the next whole
conversation minute. Reciprocal compensation for the termination of
this traffic shall be charged at rates specified in Attachment 18 to
this Agreement.
7. ISSUANCE OF CONNECTIVITY BILLS - GENERAL
7.1 PACIFIC and CLEC will issue all CABS Connectivity Bills in accordance
with the terms and conditions set forth in this Section.
7.2 PACIFIC and CLEC will establish monthly billing dates ("Bill Date")
for each Billing Account Number ("BAN") or Billed Telephone Number
("BTN") (collectively referred to as "Account Number"), as further
defined in the
<PAGE> 213
Attachment 13
Page 7
CABS documents, which Bill Date shall be the same day month to month.
Each Account Number shall remain constant from month to month, unless
changed as agreed to by the Parties. Each Party shall provide the
other Party at least thirty (30) calendar days written notice prior
to changing, adding or deleting an Account Number. The Parties will
provide one Connectivity Billing invoice associated with each Account
Number.
7.3 All Connectivity Bills must be received by the other Party no later
than ten (10) calendar days from Bill Date and at least twenty (20)
calendar days prior to the payment due date (as described in this
Attachment), whichever is earlier. Any Connectivity Bill received on
a Saturday, Sunday or a day designated as a holiday by the Chase
Manhattan Bank of New York (or such other bank as CLEC shall specify)
will be deemed received the next business day. If either Party fails
to receive Connectivity Billing data and information within the time
period specified above, the payment due date will be extended by the
number of days the Connectivity Bill is late.
7.4 PACIFIC and CLEC shall issue all CABS Connectivity Bills containing
such billing data and information in accordance with CABS Version
26.0, or such later versions of CABS as are published by Bellcore, or
its successor and implemented by PACIFIC or CLEC, except that if the
parties enter into a meet-point billing arrangement, such
Connectivity Billing data and information shall also conform to the
standards set forth in the MECAB document, or such later versions as
are adopted by OBF, or its successor. To the extent that there are no
CABS or MECAB standards governing the formatting of certain data,
such data shall be issued in the format mutually agreed by the
Parties.
7.5 Each Party will provide the other Party written notice of which
Connectivity Bills are to be deemed the official bills to assist the
Parties in resolving any conflicts that may arise between the
official bills and other bills received via a different media which
purportedly contain the same charges as are on the official bill. If
either Party requests an additional copy(ies) of a bill, such Party
shall pay the other Party a reasonable fee per additional bill copy
as set forth in applicable tariffs or as mutually agreed, unless such
copy was requested due to errors, omissions, or corrections or the
failure of the transmission to comply with the specifications set
forth in this Agreement.
7.6 To avoid transmission failures or the receipt of Connectivity Billing
information that cannot be processed, the Parties shall provide each
other with their respective process specifications and edit
requirements. CLEC shall comply with PACIFIC's processing
specifications when CLEC transmits Connectivity Billing data to
PACIFIC. PACIFIC shall comply with CLEC's processing specifications
when PACIFIC transmits Connectivity Billing data to CLEC. CLEC and
PACIFIC shall provide each other reasonable notice if a Connectivity
Billing transmission is received that does not meet such Party's
<PAGE> 214
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specifications or that such Party cannot process. Such transmission
shall be corrected and resubmitted to the other Party, at the
resubmitting Party's sole expense, in a form that can be processed. The
payment due date for such resubmitted transmissions will be twenty (20)
days from the date that the transmission is received in a form that can
be processed and that meets the specifications set forth in this
Attachment.
8. ELECTRONIC TRANSMISSIONS
8.1 PACIFIC and CLEC agree that each party will transmit CABS Connectivity
Billing information and data in the CABS format electronically via
Connect: Direct (formerly known as Network Data Mover) to the other
Party at the location specified by such Party. The Parties agree that a
T1.5 or 56kb circuit to Gateway for Connect: Direct is required. CLEC
data centers will be responsible for originating the calls for data
transmission via switched 56kb or T1.5 lines. If PACIFIC has an
established Connect: Direct link with CLEC, that link can be used for
data transmission if the location and applications are the same for the
existing link. Otherwise, a new link for data transmission must be
established. PACIFIC must provide CLEC/Alpharetta its Connect: Direct
Node ID and corresponding VTAM APPL ID before the first transmission of
data via Connect: Direct. CLEC's Connect: Direct Node ID is "NDMATTA4"
and VTAM APPL ID is "NDMATTA4" and must be included in PACIFIC's
Connect: Direct software. CLEC will supply to PACIFIC its RACF ID and
password before the first transmission of data via Connect: Direct. Any
changes to either party's Connect: Direct Node ID must be sent to the
other party no later than twenty-one (21) calendar days before the
changes take effect.
8.2 The CABS Connectivity Billing information and data will be sent using
the current OBF format implemented by mutual agreement of both Parties.
9. TAPE OR PAPER TRANSMISSIONS
9.1 In the event either Party does not have Connect: Direct capabilities
upon the effective date of this Agreement, such Party agrees to
establish Connect: Direct transmission capabilities with the other Party
within the time period mutually agreed and at the establishing Party's
expense. Until such time, the Parties will transmit billing information
to each other via magnetic tape or paper (as agreed to by CLEC and
PACIFIC). Connectivity billing information and data contained on
magnetic tapes or paper for payment shall be sent to the Parties at the
following locations. The Parties acknowledge that all tapes transmitted
to the other Party via U.S. Mail or Overnight Delivery and which contain
Connectivity Billing data will not be returned to the sending Party.
<PAGE> 215
TO CLEC:
---------------------------------------------------------------------
Test Tapes, CRL Network Services
Cassettes and Jim Couch, President
Diskettes One Kearny Street, Suite 1450
San Francisco, CA 94108
---------------------------------------------------------------------
Production Tapes CRL Network Services
and Cassettes via Jim Couch, President
Overnight Delivery One Kearny Street, Suite 1450
and U.S. Mail San Francisco, CA 94108
---------------------------------------------------------------------
---------------------------------------------------------------------
Production CRL Network Services
Diskettes & Paper Jim Couch, President
Bills and Paper One Kearny Street, Suite 1450
EAS/AS Bills via San Francisco, CA 94108
U.S. Mail
---------------------------------------------------------------------
Production CRL Network Services
Diskettes & Paper Jim Couch, President
Bills and Paper One Kearny Street, Suite 1450
EAS/AS Bills via San Francisco, CA 94108
Overnight Delivery
Service
---------------------------------------------------------------------
TO PACIFIC:
---------------------------------------------------------------------
Tape To be specified by Pacific Bell
Transmissions when it elects tape transmission
Attn:
---------------------------------------------------------------------
Paper Pacific Bell
Transmissions: CLC Compensation Manager
370 3rd St., Rm. 311
San Francisco, CA 94104
Attn:
---------------------------------------------------------------------
9.2 Each Party will adhere to the tape packaging requirements set forth in
this subsection. Where magnetic tape shipping containers are
transported in freight compartments, adequate magnetic field protection
shall be provided by keeping a typical 6-inch distance from any
magnetic field generating device
<PAGE> 216
Attachment 13
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(except a magnetron-tape device). The Parties agree that they will only
use those shipping containers that contain internal insulation to
prevent damage. Each Party will clearly mark on the outside of each
shipping container its name, contact and return address. Each Party
further agrees that it will not ship any Connectivity Billing tapes in
tape canisters.
9.3 All billing data transmitted via tape must be provided on a cartridge
(cassette) tape and must be of high quality, conform to the parties'
record and label standards, 9-track, odd parity, 6250 BPI, group coded
recording mode and extended binary-coded decimal interchange code
("EBCDIC"). Each reel of tape must be 100% tested at 20% or better
"clipping" level with full width certification and permanent error free
at final inspection. CLEC reserves the right to destroy a tape that has
been determined to have unrecoverable errors. CLEC also reserves the
right to replace a tape with one of equal or better quality.
9.4 Billing data tapes shall have the following record and label standards.
The dataset serial number on the first header record of an IBM standard
tape label also shall have the following format.
CABS BOS
Record Length 225 bytes (fixed length)
Blocking Factor 84 records per block
Block size 18,900 bytes per block
Labels Standard IBM
Operating System
9.5 A single 6-digit serial number must appear on the external (flat)
surface of the tape for visual identification. This number shall also
appear in the "dataset serial number field" of the first header record
of the IBM standard tape label. This serial number shall consist of the
character "V" followed by the reporting location's four digit
Originating Company Code and a numeric character chosen by the sending
company. The external and internal label shall be the same. The dataset
name shall appear on the flat side of the reel and also in the "data set
name field" on the first header record of the IBM standard tape label.
PACIFIC's name, address, and contact shall appear on the flat side of
the cartridge or reel.
9.6 All labeling of tapes shall comply with OBF standards.
<PAGE> 217
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10. TESTING REQUIREMENTS
10.1 At least thirty (30) days prior to any billing system change there will
be a thirty day test period to ensure that bills can be processed by the
Parties.
10.2 For CLEC, PACIFIC will send CLEC a mechanized CABS Connectivity Bill
for the first time via electronic transmission, or tape, or at least
thirty (30) days prior to changing mechanized formats (i.e., from CRIS
to CABS), PACIFIC shall send to CLEC Connectivity Bill data in the
appropriate mechanized format for testing to ensure that the bills can
be processed and that the bills comply with the requirements of this
Attachment. PACIFIC shall also provide to CLEC's Company Manager,
located at 500 North Point Parkway, FLOC B1104B, Alpharetta, Georgia
30302, the PACIFIC's originating or state level company code so that it
may be added to CLEC's internal tables at least thirty (30) calendar
days prior to testing or a change in the PACIFIC's originating or state
level company code. CLEC will notify PACIFIC within the time period
agreed to by the parties if Connectivity Billing transmission fails to
meet CLEC's testing specifications. PACIFIC shall make the necessary
corrections within the time period agreed to with CLEC to ensure that
billing transmissions meet CLEC's testing specifications. PACIFIC shall
not send CLEC a mechanized Connectivity Bill (except for testing) until
such bills meet CLEC's testing specifications. If PACIFIC meets CLEC's
testing specifications, PACIFIC may begin sending CLEC mechanized
Connectivity Bills on the next Bill Date, or within ten (10) days,
whichever is later.
10.3 During the testing period, PACIFIC shall transmit to CLEC Connectivity
Billing data and information via paper transmission. Test tapes shall be
sent to CLEC at the following location:
------------------------------------------------
Test Tapes: CRL Network Services
Jim Couch, President
One Kearny Street, Suite 1450
San Francisco, CA 94108
------------------------------------------------
11. BILL ACCURACY CERTIFICATION
The Parties agree that in order to ensure the proper performance and
integrity of the entire Connectivity Billing process, the sending Party
is responsible and accountable for transmitting to the receiving Party
an accurate and current bill. PACIFIC agrees to implement control
mechanisms and procedures to render a bill that accurately reflects the
Network Elements, Combination and Local Services ordered and used by
CLEC. These processes and methodology will be set forth in a Pre-Bill
Certification Operating Agreement and will be attached to this
Attachment 13 as Appendix B.
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12. ADDITIONAL REQUIREMENTS
PACIFIC agrees that if it transmits data to CLEC in a mechanized format,
PACIFIC will also comply with the following specifications which are not
contained in CABS guidelines but which are necessary for CLEC to process
Connectivity Billing information and data:
o The BAN shall not contain embedded spaces or low values.
o The Bill Date shall not contain spaces or non-numeric values.
o Each Connectivity Bill must contain at least one detail record.
o Any "From" Date should be less than the associated "Thru" Date and
neither date can contain spaces.
o The Invoice Number must not have embedded spaces or low values.
13. PAYMENT OF CHARGES
13.1 Subject to the terms of this Agreement and except for bills rendered by
PACIFIC in the CRIS format, CLEC and PACIFIC will pay each other within
thirty (30) calendar days from the Bill Date, or twenty (20) calendar days
from the receipt of the bill, whichever is later. For bills rendered by
PACIFIC in the CRIS format, CLEC will pay PACIFIC within sixty (60)
calendar days from the Bill Date, or fifty (50) calendar days from the
receipt of the bill, whichever is later. If the payment due date is a
Sunday or is a Monday that has been designated a bank holiday by the Chase
Manhattan Bank of New York (or such other bank as CLEC specifies), payment
will be made the next business day. If the payment due date is a Saturday
or is on a Tuesday, Wednesday, Thursday or Friday that has been designated
a bank holiday by the bank as CLEC specifies), payment will be made on the
preceding business day.
13.2 Payments shall be made is U.S. Dollars via electronic funds transfer
("EFT") to the other Party's bank account. At least thirty (30) days prior
to the first transmission of Connectivity Billing data and information for
payment, PACIFIC and CLEC shall provide each other the name and address of
its bank, its account and routing number and to who Connectivity Billing
payments should be made payable. If such banking information changes,
each Party shall provide the other Party at least sixty (60) days written
notice of the change and such notice shall include the new banking
information. The Parties will render payment via EFT. CLEC will provide
PACIFIC with one address to which such payments shall be rendered and
PACIFIC will provide to CLEC with only one address to which such payments
shall be rendered. In the event CLEC receives multiple Connectivity Bills
from PACIFIC which are payable on the same date, CLEC may remit one
payment for the sum of all Connectivity Bills payable to PACIFIC's bank
account specified in this subsection. Each Party shall provide the other
Party with a contact person for the handling of Connectivity Billing
payment questions or problems.
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14. BILLING DISPUTES
14.1 Each Party agrees to notify the other Party upon the discovery of a
billing dispute. In the event of a billing dispute, the Parties will
endeavor to resolve the dispute within sixty (60) calendar days of
the Bill Date on which such disputed charges appear. Resolution of
the dispute is expected to occur at the first level of management
resulting in a recommendation for settlement of the dispute and
closure of a specific billing period. Bill closure procedures agreed
to by the Parties will be set forth in the Pre-bill Certification
Operating Agreement, to be attached to this Attachment as Exhibit A.
Closure of a specific billing period will occur by joint agreement of
the Parties whereby the Parties agree that such billing period is
closed to any further analysis and financial transactions, except
those resulting from an Audit as described in Section 10 of the
General Section of this Agreement. Closure will take place within
three (3) months of the close of the applicable billing period. The
month being closed represents those Connectivity Charges that were
billed or should have been billed by the respective Bill Date. If the
issues are not resolved within the allotted time frame, the following
resolution procedure will begin:
14.1.1 If the dispute is not resolved within sixty (60) days of the Bill
Date, the dispute will be escalated to the second level of management
for each of the respective Parties for resolution.
14.1.2 If the dispute is not resolved within ninety (90) days of the Bill
Date, the dispute will be escalated to the third level of management
for each of the respective Parties for resolution.
14.1.3 If the dispute is not resolved within one hundred and twenty (120)
days of the Bill Date, the dispute will be escalated to the fourth
level of management for each of the respective Parties for resolution.
14.1.4 If the dispute is not resolved within one hundred and twenty (150)
days of the Bill Date, the dispute will be resolved in accordance
with the alternative dispute resolution procedures set forth in
Attachment 3.
14.1.5 If a Party disputes a Connectivity Charge and does not pay such
charge by the payment due date, such charges shall be subject to late
payment charges as set forth in the Late Payment Charges provision of
this Attachment. If a Party disputes Connectivity Charges and the
dispute is resolved in favor of such Party, the other Party shall
credit the Connectivity Bill of the disputing Party for the amount of
the disputed charges along with any late payment charges assessed no
later than the second Bill Date after the resolution of the dispute.
Accordingly, if a Party disputes Connectivity Charges and the dispute
is resolved in favor of the other Party, the disputing Party shall
pay the other Party the amount of the disputed charges and any
associated late payment charges assessed no later than the second
bill payment due date after the
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Page 14
resolution of the dispute. In no event, however, shall any late payment
charges be assessed on any previously assessed late payment charges.
15. LATE PAYMENT CHARGES
If either Party fails to remit payment for any Connectivity Charges
described in this Attachment by the payment due date, or if a payment or
any portion of a payment is received by either Party after the payment
due date, or if a payment or any portion of a payment is received in
funds which are not immediately available to the other Party, then a
late payment penalty shall be assessed. The late payment charge shall be
calculated based on the applicable tariffs of the billing Party, and the
portion of the payment not received by the payment date times the
highest interest rate (in decimal value) which may be levied by law for
commercial transactions, compounded daily for the number of days from
the payment date to and including the date that payment is actually
made. In no event, however, shall interest be assessed on any previously
assessed late payment charges.
16. ADJUSTMENTS
16.1 Subject to the terms of this Attachment and Attachment 17, PACIFIC will
debit or credit CLEC for incorrect Connectivity Billing charges;
overcharges: Local Services Elements, or any Combination thereof,
ordered or requested but not delivered; interrupted Local Services
associated with any Element, or combination thereof; ordered or
requested Local Services, Elements, or Combination thereof, of poor
quality; and installation problems if caused by PACIFIC, adjustments
will be administered per the applicable tariff or by mutual agreement.
Such reimbursements shall be identified as an adjustment on the
Connectivity Bill.
16.2 Subject to the terms of this Attachment, CLEC will debit or credit
PACIFIC for incorrect charges; overcharges; under charges for mutual
compensation as required or permitted by the applicable tariff or by
mutual agreement. Such reimbursements shall be identified as such on the
Bill.
17. RECORDING OF CALL INFORMATION
17.1 The Parties agree to record call information in accordance with this
subsection. These records shall be provided at a Party's request and
shall be formatted pursuant to Bellcore standards if such standards
exist, and otherwise as agreed by the Parties. These records shall be
transmitted to the other Party daily in EMR format via Connect: Direct,
provided however that if CLEC and PACIFIC do not have Connect: Direct
capabilities, such records shall be transmitted as the Parties agree.
PACIFIC and CLEC agree that they
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will retain, at each Party's sole expense, copies of all AMA records
transmitted to the other party for at least seven (7) calendar days after
transmission to the other Party.
17.2 Pacific shall provide to CLEC the Switched Access Detail Usage Data
(Category 11-00-xx records) via Connect:Direct on a daily basis within
fourteen (14) days of the last day of the billing period. The data will
be in a separate dataset from the usage records associated with the CLEC
Resale access lines. File name and attributes will be specified by CLEC.
17.3 CLEC shall provide to Pacific the Summary Usage Data (Category 11-50-xx
records) via Connect:Direct on a daily basis within fourteen (14) days of
the last day of the billing period. The data will be in a separate
dataset from the usage records associated with the CLEC Resale access
lines. File name and attributes to be specified by Pacific.
<PAGE> 222
Attachment 13
Appendix A
APPENDIX A
PHYSICAL CHARACTERISTICS OF DATA TAPES/CARTRIDGES
Data transported to CLEC by PACIFIC, or to PACIFIC by CLEC, on tape or
cartridge via a courier will have the following physical characteristics:
<TABLE>
<S> <C>
Tape: 9-track, 6250 (or 1600) BPI (Bytes per inch)
Cartridge: 38,000 BPI (Bytes per inch)
LRECL: 2,472 bytes
Parity: Odd
Character Set: Extended Binary Coded Decimal
Interchange Code (EBCDIC)
External labels: Exchange Carrier name, Dataset Name
(DSN) and volume serial number
Internal labels: IBM Industry OS labels will be used. They
consist of a single volume label and two sets
of header and trailer labels.
One file per sending 104 bytes EMR compacted format plus
location with variable modules as applicable.
length records
</TABLE>
<PAGE> 223
ATTACHMENT 14
PROVISION OF CUSTOMER USAGE DATA
<PAGE> 224
Attachment 14
Page 1
PROVISION OF CUSTOMER USAGE DATA
1. INTRODUCTION
1.1 This Attachment sets forth the terms and conditions for PACIFIC's
provision of recorded usage data to CLEC. PACIFIC will record and
provide to CLEC unrated usage data when CLEC purchases Unbundled
Switching Elements or Local Service from PACIFIC ("Recorded Usage
Data").
2. GENERAL REQUIREMENTS FOR RECORDED USAGE DATA
2.1 PACIFIC shall provide CLEC with Recorded Usage Data. PACIFIC will
conform to the format, generic contents, and transmission medium for
providing Recorded Usage Data as specified in the Bellcore EMR
standard (Bellcore Practice BR010-200-010), as modified in Appendix I
to this Attachment 14, which shall be updated periodically by mutual
agreement.
2.2 PACIFIC's provision of Recorded Usage Data to CLEC shall be in
accordance with the performance standards set forth in Attachment 17.
Remedies for failure to meet such performance standards are also set
forth in Attachment 17.
2.3 PACIFIC shall retain Recorded Usage Data in accordance with
applicable law and regulation.
3. USAGE DATA SPECIFICATIONS
3.1 Subject to Section 3.4, when CLEC purchases from PACIFIC Local
Service or LSNE, PACIFIC will provide to CLEC all Recorded Usage Data
relating to local and IntraLATA toll calls originating from CLEC
Customers (business and residence), including, but not limited to,
the categories of information listed below. In addition, subject to
Section 3.4, when CLEC purchases from PACIFIC LSNE, PACIFIC will
provide to CLEC all Recorded Usage Data relating to switched access
calls terminating to CLEC Customers (business and residence),
including, but not limited to, the categories of information listed
below.
3.1.1 Data to be supplied both for calls originating from CLEC customers
(business and residence) and for switched access calls terminating to
CLEC customers (business and residence)
3.1.1.1 All available call attempt data
3.1.1.2 Completed Calls
3.1.2 Data to be supplied for calls originating from CLEC Customers
(Business and Residence)
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Attachment 14
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3.1.2.1 Use Of Class/Lass/Custom Features which are sold on a pay per use
basis
3.1.2.2 MTS portion of IntraLATA 976 Calls To Information Providers Reached
Via PACIFIC Facilities And Contracted By PACIFIC
3.1.2.3 Calls To Directory Assistance Where PACIFIC Provides Such Service To
CLEC's Local Service Customer
3.1.2.4 Calls Completed Via PACIFIC-Provided Operator Services Where PACIFIC
Provides Such Service To CLEC's Local Service Customer
3.1.2.5 For PACIFIC-Provided Centrex Service, Station Level Detail
3.1.3 Data to be supplied for switched access calls terminating to CLEC
Customers
3.1.3.1 Data identifying the CIC of the originating IEC; and
3.1.3.2 Where available, data identifying the calling party number.
3.2 Records Shall Include Complete Call Detail And Complete Timing
Information.
3.3 PACIFIC shall provide to CLEC Recorded Usage Data for CLEC's
customers only. PACIFIC will not submit other carriers' local usage
data as part of the CLEC Recorded Usage Data. Error procedures set
forth in Appendix I to this Attachment, Section IV, paragraph 1.1.4.
shall apply to any data of other carriers sent in error to CLEC.
3.4 Additional Provisions Regarding Call Detail
3.4.1 Local Service
3.4.1.1 PACIFIC represents and warrants that as of the effective date of this
Agreement it does not record local usage for its own flat rate
customers in the ordinary course of business. There are certain
exceptions where special study or call detail analysis is performed,
e.g., in cases where an incident of telephone harassment is under
investigation. If PACIFIC begins recording local usage for its own
flat rate customers in the ordinary course of business at a future
date, PACIFIC will simultaneously begin such recording for CLEC
resold flat rate customers, at no additional charge. If at a future
date PACIFIC begins recording local usage for its own flat rate
customers served by a particular switch, PACIFIC will simultaneously
begin such recording for CLEC resold flat rate customers served by
that switch, at no additional charge.
3.4.1.2 If CLEC asks PACIFIC to develop the capability to provide CLEC local
usage data on resold flat local service, and PACIFIC does not record
local usage for its own flat rate customers in the ordinary course of
business, PACIFIC shall develop such
2
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Attachment 14
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capability consistent with Sec. 1.6 of Attachment 6. In such event,
PACIFIC shall be entitled to track and recover applicable development
costs as set forth in Attachment 8.
3.4.1.3 As of the effective date of this Agreement, in some PACIFIC switches,
the terminating number for measured local calls may not be recorded
during periods of high volume usage. For all such calls, PACIFIC will
inform CLEC of the minutes of use. If and when the limitation
described in this Section is removed, PACIFIC will provide to CLEC at
no additional cost, the terminating number for all measured local
calls, including calls made during periods of high volume usage.
3.4.2 LSNE
3.4.2.1 When CLEC purchases a LSNE from PACIFIC, that LSNE as provided by
PACIFIC will include all the functions and capabilities of the switch
and the software deployed at that time within the switch relating to
recording of usage data, including the capability to record all local
usage and the terminating number. The charge, if any, for the
recording of usage data shall be included in the charge for the LSNE
set forth in Attachment 8.
4. RECORDED USAGE DATA FORMAT
4.1 PACIFIC will provide Recorded Usage Data in the EMR format and by
category, group and record type, as specified in the CLEC Customer
Usage Data Transfer Requirements, November 1996 ("Data
Requirements"), which is attached hereto and incorporated herein as
Appendix I.
4.2 PACIFIC shall include the Working Telephone Number (WTN) of the call
originator on each EMR call record.
4.3 End user customer usage records and station level detail records
shall be in packs in accordance with EMR standards.
4.4 PACIFIC shall append the recording point identification to each EMR
call record the recording point identification or other mutually
agreed upon code that specifically designates the recording switch.
5. RECORDED USAGE DATA REPORTING REQUIREMENTS
5.1 PACIFIC shall segregate and organize the Recorded Usage Data in a
format mutually agreed by the Parties.
5.2 PACIFIC shall provide segregated Recorded Usage Data to multiple CLEC
biller locations as mutually agreed by the Parties.
3
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5.3 PACIFIC, at no cost to CLEC, shall transmit to CLEC Recorded Usage
Data in Bellcore EMR format, as modified by Appendix I to this
Attachment, via CONNECT: Direct. If CLEC requests Recorded Usage Data
in a format customized for CLEC, PACIFIC may charge CLEC pursuant to
Attachment 8.
5.4 CLEC will test and certify the CONNECT: Direct interface to ensure
the accurate receipt of Recorded Usage Data. PACIFIC shall make any
changes necessary in the CONNECT: Direct interface to meet the
requirements of this Attachment.
5.5 PACIFIC shall provide Recorded Usage Data to CLEC once a day Monday
through Friday, excluding mutually designated holidays. PACIFIC shall
provide to CLEC the Recorded Usage Data for a Local Service within
the time period specified in Attachment 17 to this Agreement.
5.6 Each Party will establish a single point of contact to respond to
CLEC call usage, data error, and record transmission inquiries from
the other Party.
5.7 The Recorded Usage Data EMR format, content, and transmission process
will be tested by CLEC for compliance with industry standards.
6. RECORDING FAILURES
6.1 CLEC Recorded Usage Data determined to have been lost, damaged or
destroyed as a result of an error or omission by PACIFIC in its
performance of the recording function or due to an aberrant switch
overload of limited duration and frequency, shall, upon CLEC's
request, be recovered by PACIFIC at no charge to CLEC. In the event
the data cannot be recovered by PACIFIC, PACIFIC shall estimate the
messages and associated revenue, with assistance from CLEC, based
upon the method described below. This method will be applied on a
consistent basis, subject to modifications agreed to by PACIFIC and
CLEC. This estimate will be used by the Parties to determine any
amounts owed to CLEC. PACIFIC will provide this amount to CLEC via a
check accompanied by a statement that clearly identifies the purpose
of the check.
6.1.1 PARTIAL LOSS PACIFIC shall review its daily controls to determine if
data has been lost. When there has been a partial loss, actual
message and minute volumes shall be reported, if possible. Where
actual data are not available, a full day shall be estimated for the
recording entity, as outlined in Section 6.1.3 following. The amount
of the partial loss is then determined by subtracting the data
actually recorded for such day from the estimated total for such day.
6.1.2 COMPLETE LOSS Estimated message and minute volumes for each loss
consisting of an entire AMA tape or entire data volume due to its
loss prior to or during processing, loss after receipt, degaussed
before processing, receipt of a blank or unreadable tape, or lost for
other causes, shall be reported.
4
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Attachment 14
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6.1.3 ESTIMATED VOLUMES From message and minute volume reports for the
entity experiencing the loss, PACIFIC shall secure message/minute
counts for the four (4) corresponding days of the weeks preceding
that in which the loss occurred and compute an average of these
volumes.
6.1.4 NET LOSS CALCULATION The amount due to CLEC will be calculated based
on the Average Revenue Per Minute (ARPM) minus the average charge per
minute (ACPM) that CLEC would have paid to PACIFIC, times the
estimated lost minutes. The parties shall agree upon the appropriate
ARPM and ACPM to apply.
EXCEPTIONS:
6.1.4.1 If the day of loss is not a holiday but one (1) (or more) of the
preceding corresponding days is a holiday, use additional preceding
weeks in order to procure volumes for two (2) non-holidays in the
previous two (2) weeks that correspond to the day of the week that is
the day of the loss.
6.1.4.2 If the loss occurs on a weekday that is a holiday (except Christmas),
PACIFIC shall use volumes from the two (2) preceding Sundays.
6.1.4.3 If the loss occurs on Mother's Day, Christmas or the Monday after
Thanksgiving, PACIFIC shall use volumes from that day in the
preceding year.
6.2 CLEC may also request data be provided that has previously been
successfully provided by PACIFIC to CLEC, provided the request is
received within forty-five (45) days of original processing. PACIFIC
reserves the right to bill CLEC for its direct costs of providing
such data if CLEC makes such a request more than 45 days after
original processing.
7. CLEARINGHOUSE PROCEDURES
7.1 The Parties acknowledge that calls will be placed using the local
service of one Party that will be billable to the customer for local
service of another Party. In order to ensure that these calls are
properly accounted for and billed to the appropriate customer, the
parties have established clearinghouse procedures to accomplish these
objectives in a separate agreement entitled Data Exchange Agreement
for the Settlement of CATS messages and non CATS Messages. The
Parties intend to use best efforts to sign that Agreement by November
30, 1996.
7.1.1 CLEC shall identify a CMDS host for transmitting and receiving
in-collect and out-collect local and intralata messages.
7.1.2 In the event CLEC fails to designate a CMDS host, PACIFIC agrees on
an interim basis, if requested by CLEC, to serve as CLEC's CMDS host
for out-collect billing subject to the rates, terms and conditions as
mutually agreed by the Parties.
5
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Attachment 14
Appendix I
Page 1
APPENDIX I
TO
ATTACHMENT 14
CUSTOMER USAGE DATA
TRANSFER REQUIREMENTS
NOVEMBER 1996
<PAGE> 230
Attachment 14
Appendix I
Page 2
TABLE OF CONTENTS
SECTION I - SCOPE
1. General
1.1 Usage Summary
1.2 Attachment Content
SECTION II - PACIFIC USAGE TO BE PROVISIONED TO CLEC
1. General
1.1 Usage to be Transferred to CLEC.
1.1.1 CLEC Usage to be Transferred
1.2 CLEC Usage
SECTION III - PACIFIC TO CLEC USAGE FEED
1. General
1.1 Detailed EMR Record Edits
1.2 Duplicate Record Checks
1.3 PACIFIC to CLEC Usage Feed
1.3.1 Usage Data Transport Requirements
1.3.2 Physical Characteristics
1.3.3. Data Delivery Schedules
1.3.4 Resending Data
1.3.5 Pack Rejection
1.3.6 Held Packs and Messages
1.3.7 Data Content Requirements
1.3.8 Packing Requirements
1.3.9 Dataset Naming Convention
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1.3.10 Control Reports
1.4 Message Validation Reports
1.4.1 Message Validation Pack Reject Report (A7287)
1.4.2 Message Validation Pack Accepted Report (A7288)
1.4.3 Message Validation Detail Error Report (A7289)
1.4.4 Control Reports - Distribution
SECTION IV - CLEC PROCESSING REQUIREMENTS
1. General
1.1 CLEC Rating Process
1.1.1. Message Rating
1.1.2. Application of Taxes/Fees/Surcharges
1.1.3. Duplicate Messages
1.1.4. Record Edits
1.1.4.1 CLEC Record Edits
1.1.4.2 PACIFIC Record Edits
1.1.5. CLEC to PACIFIC Message Returns
SECTION V - TEST PLANS AND ACTIVITIES
1. General
1.1 Interface Testing
1.2 Operational Test
1.3 Test File Transport
SECTION VI - POST DEPLOYMENT ACTIVITIES
1. General
1.1 Control Maintenance and Review
3
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1.1.1 Periodic Review
1.1.2 Retention of Records
1.2 PACIFIC Software Changes
1.3 Requested Changes
1.4 CLEC Software Changes
1.5 Post Conversion Test Plan
1.5.1 PACIFIC System Change Description
1.5.2 Change Negotiations
1.5.3 Control Change Analysis
1.5.4 Verification of Changes
1.5.5 Introduction of Changes
SECTION VII - APPENDICES
Summary of Appendices
APPENDIX A
PHYSICAL CHARACTERISTICS OF DATA TAPES/CARTRIDGES
APPENDIX B
MESSAGE VALIDATION PACK REJECT REPORT (A7287)
APPENDIX C
MESSAGE VALIDATION PACK ACCEPTED REPORT (A7288)
APPENDIX D
SPECIAL FEATURES STAR SERVICES
4
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Attachment 14
Appendix I
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SECTION I
SCOPE
1. GENERAL
This Attachment addresses the transmission by PACIFIC of CLEC usage to CLEC.
1.1 USAGE SUMMARY
Messages will be transmitted, via a direct feed, to CLEC in standard
EMR format.
The following is a list of EMR records that CLEC can expect to
receive from PACIFIC:
Header Record 20-21-01
Trailer Record 20-21-02
Detail Records* 01-01-01, 16, 18, 80, 81,
10-01-01, 16 (when available), 18, 31, 32,
35, 37, 80, 81,
Credit Records 03-01 -XX
Rated Credits 41-01-XX
*Category 01 is usually utilized for Rated Messages; Category 10 is
utilized for Unrated Messages
PACIFIC will provide the above list of detail records as part of its
resale offering. PACIFIC shall make available to CLEC additional
detail records as additional products are added to PACIFIC's resale
offer.
Using the above list as a model, the Parties shall identify by mutual
agreement what detail records shall be provided by PACIFIC to CLEC in
connection with the provision of unbundled elements.
Additional detail records provided by PACIFIC to CLEC in the future,
whether as part of PACIFIC's resale offering or in connection with
the provision of unbundled elements, may have identification numbers
different from those listed above.
In addition, PACIFIC shall provide a 10-01-18 Specialized Service
record to support the Special Features Star Services (see Appendix D
for specific details) if these features are part of PACIFIC's
offering.
5
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Attachment 14
Appendix I
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For detailed information regarding EMR, refer to the current version
of the BellCore Practice BRO 10-200-010 Appendix.
1.2 ATTACHMENT CONTENT
This Attachment describes baseline requirements for the transfer of
PACIFIC recorded, unrated usage to CLEC. Testing requirements and the
reports needed to ensure data integrity are also included. Additional
requirements and implementation details may be identified for
conditions unique to PACIFIC. Modifications and/or exceptions to this
Attachment must be negotiated and mutually agreed upon by PACIFIC and
CLEC.
6
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SECTION II
RECORDED USAGE TO BE TRANSMITTED TO CLEC
1. GENERAL
This section addresses the types of usage to be transmitted by PACIFIC to CLEC.
1.1 USAGE TO BE TRANSFERRED TO CLEC
1.1.1 CLEC USAGE TO BE TRANSFERRED
The following messages recorded by PACIFIC are to be transmitted to
CLEC. PACIFIC recorded usage is defined as:
- intraLATA - Local
- intraLATA-Toll
NOTE: Rated incollect messages should be transmitted via the direct
feed and can be intermingled with the unrated messages. No special
packing is needed.
PACIFIC is developing a direct return feed. CLEC may return via
direct return feed, once developed, any of the above mentioned
messages that cannot be rated and/or billed by CLEC, for reasons
specified in the returns process. Returned messages will be sent to
PACIFIC in EMR format. Standard EMR return codes will be utilized.
File transfer specifications are included within Section III.
1.2 CLEC USAGE
The Recorded Usage Data in a local resale environment includes all
intraLATA toll and local usage. PACIFIC will provide CLEC with
unrated EMR records associated with all intraLATA toll and local
usage which PACIFIC records on CLEC's behalf.
Any Category, Group and/or Record types approved in the future for
PACIFIC will be included if they fall within the definition of this
local resale phase. PACIFIC will give CLEC one hundred twenty (120)
days advance notification of PACIFIC's intended implementation of
additional Category, Group and/or Record types.
NOTE: PACIFIC messages will be packed using the packing criteria
outlined in Section VI. PACIFIC shall pack records for rated messages
and non-rated messages in separate packages. Any request by CLEC for
packing in a different arrangement (for example, using CLEC's RAO)
shall be separately negotiated by the parties and shall be at a
reasonable additional charge to CLEC.
7
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SECTION III
PACIFIC TO CLEC USAGE FEED GENERAL
1. GENERAL
This section contains the information required for PACIFIC to
transmit the usage defined in Section II to CLEC. This section
specifically addresses the dataset requirements and processing.
1.1 DETAILED EMR RECORD EDITS
CLEC will perform detailed record edits on the unrated and rated
messages upon receipt from PACIFIC. Messages that fail these edits
may be returned to PACIFIC with mutually agreed upon return codes
designated.
1.2 DUPLICATE RECORD CHECKS
CLEC will perform record checks on the unrated and rated messages to
validate that duplicate messages are not sent by PACIFIC to CLEC,
except where valid duplicate messages are applicable, e.g., ISDN
bonded . PACIFIC shall perform record checks to validate that
duplicate messages are not sent to CLEC in accordance with CMDS
standards.
1.3 PACIFIC TO CLEC USAGE FEED
1.3.1 USAGE DATA TRANSPORT REQUIREMENTS
PACIFIC will provide the transport facility between the PACIFIC
location and the CLEC location. It is CLEC's intent that usage data
be transmitted via CONNECT:Direct whenever possible. In the event
usage transfer cannot be accommodated by CONNECT:Direct because of
extended (one business day or longer) facility outages, or if
facilities do not exist, PACIFIC will contract for a courier service
to transport the data via tape.
PACIFIC will provide CLEC with contacts, Remote Identifiers (IDs),
and expected usage data volumes for each sending location.
CLEC will provide contacts responsible for:
Receiving usage transmitted by PACIFIC.
Receiving usage tapes from a courier service in the event of a
facility outage.
1.3.2 PHYSICAL CHARACTERISTICS
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In the event the electronic system for data transmission
malfunctions, by mutual agreement PACIFIC shall provide the data to
CLEC on tape or cartridge by courier. Such data will have the
physical characteristics indicated in Appendix A. CLEC's intent is
for variable block format (2,476 bytes) with a LRECL of 2472.
1.3.3 DATA DELIVERY SCHEDULES
Data will be delivered to CLEC by PACIFIC daily (Monday through
Friday) or as negotiated. CLEC and/or PACIFIC Data Center holidays
are excluded. PACIFIC and CLEC will exchange schedules of designated
Data Center holidays.
1.3.4 RESENDING DATA
CLEC will notify PACIFIC as promptly as possible upon discovery of
resend requirements if a pack or entire dataset must be replaced due
to pack rejection, damage in transit, dataset name failure, etc.
1.3.5 PACK REJECTION
Critical edit failure on the Pack Header or Pack Trailer records will
result in pack rejection (e.g., detail record count not equal to
grand total included in the pack trailer). Notification of pack
rejection will be made by CLEC within one business day of processing.
Rejected packs will be retransmitted to CLEC by PACIFIC.
1.3.6 HELD PACKS AND MESSAGES
CLEC and PACIFIC will track pack number to control input based upon
invoice sequencing criteria. PACIFIC will be notified of sequence
failures identified by CLEC and resend procedures are to be invoked.
1.3.7 DATA CONTENT REQUIREMENTS
EMR is the format to be used for usage data provided to CLEC.
1.3.8 PACKING REQUIREMENTS
A pack shall contain a minimum of one message record or a maximum of
9,999 message records plus a pack header record and a pack trailer
record. A file transmission contains a maximum of 99 packs. A dataset
shall contain a minimum of one pack. PACIFIC will provide CLEC one
dataset per sending location with the agreed upon OCN populated in
the Header and Trailer records.
Within the Header and Trailer records, the FROM RAO identifies the
location that will be sending usage to CLEC. PACIFIC will populate
the FROM RAO field with the
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unique numeric value identifying the location that is sending the
data to CLEC. Also, Pack Header and Trailer will have the OCN
appropriately populated.
The FROM RAO, OCN, and Remote Identifiers will be used by CLEC to
control invoice sequencing and each will have its own invoice
controls. The FROM RAO will also be used to determine where the
message returns file, containing any misdirected and unguidable
usage, will be sent.
The file's Record Format (RECFM) will be Variable Block (VB) Size
2,476 and the Logical Record Length (LRECL) will be 2,472 bytes.
CLEC has no special sort requirements for the packs sent by PACIFIC.
1.3.9 DATASET NAMING CONVENTION
PACIFIC will transmit the usage to CLEC using the following dataset
naming conventions. The dataset name (DSN) will be partitioned into
five nodes, separated by periods as follows:
NODE 1BB03PXNN*
NODE 2.IBMUP
NODE 3 (To be determined during negotiations)
NODE 4.USAGE
NODE 5.GNNNNVNN* (Generational Dataset to be incremented by sender).
*The italicized "N" represents numeric fields determined during
negotiations.
1.3.10 CONTROL REPORTS
CLEC accepts input data provided by PACIFIC in EMR format in
accordance with the requirements and specifications detailed in this
section of the Attachment. In order to ensure the overall integrity
of the usage being transmitted from PACIFIC to CLEC, data transfer
control reports will be required. These reports shall be provided by
CLEC to PACIFIC on a daily or otherwise negotiated basis and reflect
the results of the processing for each pack transmitted by PACIFIC.
1.4 MESSAGE VALIDATION REPORTS
CLEC will provide the following three daily (or otherwise negotiated)
Message Validation reports to the designated PACIFIC System Control
Coordinator. These reports will be provided for all data received
within PACIFIC Local Resale Feed and will
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be transmitted Monday through Friday whether or not there have been
any files transmitted.
1.4.1 MESSAGE VALIDATION PACK REJECT REPORT (A7287)
This report provides information on packs rejected by CLEC. It lists
the header and trailer record of each rejected pack and indicates the
error codes and the associated error message which explains why the
pack was rejected.
An example of the report and a list of Valid Error Codes and
associated error messages are provided in Appendix B.
1.4.2 MESSAGE VALIDATION PACK ACCEPTED REPORT (A7288)
This report provides vital statistics and control totals by Record
ID, Type of Service, Message Counts and Record Counts, for all valid,
rejected and dropped messages. The information is provided in the
following report formats and control levels:
1. PACIFIC Total Messages
2. PACIFIC Total Records
3. RAO Total Messages
4. RAO Total Records
5. Pack Total (Record Counts and Message Counts)
The first four report formats include percentages that indicate the
relationship of the daily input volume by Record ID and Type of
Record to the total input volume provided by an RAO and PACIFIC.
An example of the report is provided in Appendix C.
1.4.3 MESSAGE VALIDATION DETAIL ERROR REPORT (A7289)
An EMR detailed error report is generated for each pack/ invoice that
is received and processed by CLEC. The report lists, in vertical
format, the complete 175 byte EMR record that has failed to pass the
initial edit criteria. It prints this detailed information only for
the first five EMR records that share a common error condition. The
error condition is flagged on the report by one of two possible error
codes preceding the field value. The error codes are:
(C) DENOTES CRITICAL ERRORS
(I) DENOTES INFORMATION ERRORS
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The last two pages of the report for a given pack/invoice provide the
following control totals:
Total Errors for each Field
Total Records Received
Total Records Dropped
Total Records rejected to MIU
Pack Reject Rate
Total Default Count (represents the number of Files on all of the
input records that had to be programmatically altered to meet the EMR
standards and specifications.)
If the entire pack/invoice has been rejected because of a Critical
Error Rate greater than 0.5%, the last page of the report will
display such a statement enclosed in asterisks.
CLEC has provided PACIFIC a sample of this report.
1.4.4 CONTROL REPORTS - DISTRIBUTION
Since PACIFIC is not receiving control reports, dataset names will be
established during detailed negotiations.
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SECTION IV
CLEC PROCESSING REQUIREMENTS GENERAL
1. GENERAL
This section contains requirements for CLEC processing of Recorded
Usage Data that has been transmitted to CLEC for billing.
1.1 CLEC RATING PROCESS
1.1.1 MESSAGE RATING
CLEC will rate any individual messages (as defined in Section II),
that have not already been rated by PACIFIC (information provider
messages will be rated by PACIFIC), prior to transmitting the usage
to a billing environment within CLEC.
1.1.2 APPLICATION OF TAXES/FEES/SURCHARGES
CLEC will apply taxes, fees and surcharges as appropriate for the
individual messages and/or customer accounts. The application of all
taxes, fees and surcharges will be applied on all intralata local and
toll usage received from PACIFIC.
1.1.3 DUPLICATE MESSAGES
CLEC has existing duplicate checks as part of their message
processing or billing functions. CLEC will perform these checks on
the rated/unrated messages sent by PACIFIC duplicate message
disposition procedures and reports will be identified by CLEC during
negotiations.
1.1.4 RECORD EDITS
1.1.4.1 CLEC RECORD EDITS
CLEC will perform detailed record edits on the rated and unrated
messages prior to transmitting them to the billing environment. Rated
& unrated records that do not pass CLEC edits will be returned to
PACIFIC with thirty (30) days of the file date.
1.1.4.2 PACIFIC RECORD EDITS
If PACIFIC has existing detailed record edits for rated and unrated
messages, PACIFIC is to perform these edits.
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Rated and unrated records that do not pass CLEC edits will be
returned to PACIFIC. PACIFIC will attempt to perform error correction
on all records requiring such action as agreed upon through the
detailed negotiations process.
1.1.5 CLEC TO PACIFIC MESSAGE RETURNS
At the discretion of CLEC, messages that have been sent to CLEC by
PACIFIC that cannot be guided to an CLEC billed account or error in
processing due to an error by PACIFIC will be returned to PACIFIC
with the appropriate negotiated return codes.
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SECTION V
TEST PLANS AND ACTIVITIES GENERAL
1. GENERAL
This section defines the PACIFIC and CLEC activities which are
required prior to implementation. The tests and activities described
are necessary to ensure a smooth, accurate and well-programmed
conversion. Specific test dates will be identified through the
negotiations process.
1.1 INTERFACE TESTING
The purpose of this test is to ensure that the usage described in
Section II can be sent by PACIFIC to CLEC and can be accepted and
processed by CLEC. PACIFIC will provide a test file to CLEC's
designated Regional Processing Center (RPC) in the format that will
be used for live day-to-day processing. The file will contain one
full day's production usage. The format of the file will conform to
the requirements shown in Section III. CLEC will review the file and
verify that it conforms to its data center requirements. CLEC will
notify PACIFIC in writing whether the format is acceptable. CLEC will
also provide PACIFIC with the agreed-upon control reports as part of
this test.
1.2 OPERATIONAL TEST
The purpose of this test is to ensure that volumes of usage in
consecutive sequence can be extracted, distributed, and processed by
PACIFIC and CLEC.
PACIFIC is required to provide CLEC with PACIFIC recorded, unrated
intraLATA local and toll usage (as defined in Section II) for a
minimum of five (5) consecutive days. CLEC will provide PACIFIC with
the message validation reports associated with test usage.
CLEC will rate and process the unrated intraLATA toll and local
usage. CLEC will process this data to test bills. CLEC may request
that the test usage contain specific usage volumes and
characteristics to ensure a complete test. Specific usage volumes and
characteristics will be discussed during detailed negotiations.
1.3 TEST FILE TRANSPORT
Test data should be transported via CONNECT:Direct whenever possible.
In the event that courier service must be used to transport test
media the physical tape characteristics to be used are described in
Appendix A.
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SECTION VI
POST DEPLOYMENT ACTIVITIES
1. GENERAL
Requirements for ongoing maintenance of the usage feeds between CLEC
and PACIFIC are described in this section. Included am minimal
requirements for day to day control of the regularly scheduled
transfer of PACIFIC unrated and rated usage data and procedures for
introducing and verifying CLEC/PACIFIC System Changes.
1.1 CONTROL MAINTENANCE AND REVIEW
1.1.1 PERIODIC REVIEW
Control procedures for all usage transferred between PACIFIC and CLEC
will require periodic review. This review may be included as part of
an annual audit of PACIFIC by CLEC or as part of the normal
production interface management function. Breakdowns which impact the
flow of usage between PACIFIC and CLEC must be identified and jointly
resolved as they occur. The resolution may include changes to control
procedures, as similar problems would be avoided in the future. Any
changes to control procedures would need to be mutually agreed upon
by CLEC and PACIFIC.
1.1.2 RETENTION OF RECORDS
PACIFIC shall maintain a machine readable back-up copy of the message
detail provided to CLEC for a minimum of forty-five (45) calendar
days. CLEC will maintain the message detail received from PACIFIC for
a minimum period of forty-five (45) calendar days. Designated CLEC
personnel will provide these records to PACIFIC or its authorized
agents upon written request. PACIFIC will also provide any data back
to CLEC upon their written request.
1.2 PACIFIC SOFTWARE CHANGES
When PACIFIC plans to introduce any software changes which impact the
format or content structure of the usage data feed to CLEC,
designated PACIFIC personnel shall notify CLEC of such changes within
any time period specified by the FCC or CPUC for that purpose, and in
any event will use reasonable best efforts to notify CLEC no less
than one hundred twenty (120) calendar days before such changes are
Implemented.
PACIFIC will communicate the projected changes to the appropriate
groups in CLEC so that potential impacts on CLEC processing can be
determined.
CLEC personnel will review the impact of the change or the entire
control structure as described in Section 1.5, Post Conversion Test
Plan. CLEC will negotiate any perceived
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problems with PACIFIC and will arrange to have the data tested
utilizing the modified software.
If it is necessary for PACIFIC to request changes in the schedule,
content or format of usage data transmitted to CLEC, PACIFIC will
notify CLEC.
1.3 REQUESTED CHANGES
If it is necessary for either Party to request changes in the
schedule, content, or format of the usage data transmitted from
PACIFIC, the requesting Party will notify the other Party and the
terms and conditions of the change shall be mutually agreed upon
pursuant to the process set forth in Section 1.5.2. When the
negotiated changes are to be implemented, CLEC and/or PACIFIC will
arrange for testing of the modified data as described in Section 1.5,
Post Conversion Test Plan.
1.4 CLEC SOFTWARE CHANGES
When CLEC plans to introduce any software changes which may impact
the format or content structure of the usage data transmitted from
PACIFIC, CLEC will use reasonable best efforts to notify the
designated PACIFIC personnel, no less than one hundred twenty (120)
calendar days before such changes are implemented.
The CLEC contact will communicate the projected changes to the
appropriate groups in PACIFIC so that potential impacts on PACIFIC
processing can be determined.
CLEC will negotiate any perceived problems with PACIFIC and will
arrange to have the data tested utilizing the modified software.
Altering the one hundred twenty (120) day window for introducing
software changes can be negotiated by both companies, dependent upon
the scope and impact of the change.
1.5 POST-CONVERSION TEST PLAN
The test plan described below is designed to encompass all types of
changes to the usage data transferred by PACIFIC to CLEC and the
methods of transmission for that data.
1.5.1 PACIFIC SYSTEM CHANGE DESCRIPTION
For a PACIFIC system change that would be reasonably likely to impact
CLEC, PACIFIC shall provide CLEC with an overall description of the
change, stating the objective and a brief explanation of the reasons
for the change.
During the initial negotiations regarding the change, PACIFIC shall
provide a list of the specific records and/or systems impacted by the
change to designated CLEC personnel.
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Finally, PACIFIC shall also provide CLEC a detailed description of
the changes to be implemented. It shall include sufficient detail for
designated CLEC personnel to analyze and estimate the effects of the
changes and to design tests to verify the accuracy of the
implementation.
1.5.2 CHANGE NEGOTIATIONS
PACIFIC will notify CLEC in writing of all proposed change
negotiations initiated by PACIFIC. In turn, CLEC will notify PACIFIC
in writing of proposed change negotiations initiated by CLEC.
After formal notification of planned changes, whether originated by
PACIFIC or CLEC, negotiation meetings shall be scheduled between
designated CLEC and PACIFIC personnel. The first meeting should
produce the overall change description (if not previously furnished)
and the list of records and/or systems affected.
In subsequent meetings, the Parties shall jointly develop a detailed
description of changes to be implemented and a detailed test
procedure.
1.5.3 CONTROL CHANGE ANALYSIS
Based on the detailed description of the changes and review thereof
by the parties in negotiation meetings, designated CLEC personnel
will:
1.5.3.1 Determine the impact of the changes on the overall structure.
1.5.3.2 Determine whether any single change has a potential control impact
(i.e., High error rate on individual records that might result in
pack rejection).
1.5.3.3 Determine whether any controls might be adversely affected.
1.5.3.4 Arrange for appropriate control structure changes to meet any of the
above conditions.
1.5.4 VERIFICATION OF CHANGES
Based on the detailed description of changes and review thereof in
negotiation meetings, designated CLEC personnel will:
1.5.4.1 Determine the type of change(s) to be implemented.
1.5.4.2 Develop a comprehensive test plan.
1.5.4.3 Negotiate scheduling and transfer of modified data with PACIFIC.
1.5.4.4 Negotiate testing of modified data with the appropriate CLEC Regional
Processing Center ("RPC").
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1.5.4.5 Negotiate processing of verified data through the CLEC billing system
with the RPC.
1.5.4.6 Arrange for review and verification of testing with appropriate CLEC
groups.
1.5.4.7 Arrange for review of modified controls, if applicable.
1.5.5 INTRODUCTION OF CHANGES
When all the testing requirements have been met and the results
reviewed and accepted, designated CLEC personnel will:
1.5.5.1 Negotiate an implementation schedule.
1.5.5.2 Verify the existence of a contingency plan with the appropriate CLEC
RPC.
1.5.5.3 Arrange for the follow-up review of changes with appropriate CLEC
personnel.
1.5.5.4 Arrange for appropriate changes in control program, if applicable.
1.5.4.5 Arrange for long-term functional review of impact of changes on the
CLEC billing system, i.e., accuracy, timeliness, and completeness.
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SECTION VII
APPENDICES
SUMMARY OF APPENDICES
APPENDIX A
PHYSICAL CHARACTERISTICS OF DATA TAPES/CARTRIDGES
APPENDIX B
MESSAGE VALIDATION PACK REJECT REPORT (A7287)
APPENDIX C
MESSAGE VALIDATION PACK ACCEPTED REPORT (A7288)
APPENDIX D
SPECIAL FEATURES STAR SERVICES
<PAGE> 249
APPENDIX B
MESSAGE VALIDATION PACK REJECT REPORT (A7287) MM/DD/YY
HH:MM:SS
RETEN CODE: 01R-00300
- --------------------------------------------------------------------------------
COMPANY XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX REMOTE ID 9999X FROM BSID 999
<TABLE>
HEADER RECORD ID DATE CREATED INVOICE NUMBER BELL CO ID BELL RAO IX CARRIER IND CO ID
- ------ --------- ------------ -------------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
999999 99-99-99 99 99 999 999 9999
</TABLE>
TOTAL REC.
12/12/96
<PAGE> 250
<TABLE>
RECORD ID
TRAILER COUNT DATE CREATED INVOICE NUMBER BELL CO ID BELL RAO IX CARRIER IND CO ID
- ------- --------- ------------ -------------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
999999 99-99-99 99 99 999 999 9999
99,999
</TABLE>
<TABLE>
ERRORS ERROR CODE ERROR MESSAGE
- ------ ---------- -------------
<S> <C> <C>
EC99.9
</TABLE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
<PAGE> 251
APPENDIX B (CONT'D)
MESSAGE VALIDATION PACK REJECT REPORT (A7287)
<TABLE>
ERROR CODE ERROR MESSAGES
<S> <C>
EC01.2 First record after trailer is not a Pack Header.
EC03.2 From RAO is not numeric.
EC04.3 Invoice number on header invalid.
EC04.5 Company ID not numeric.
EC04.6 Independent company ID is not numeric.
EC04.7 Header Record ID is invalid.
EC04.8 Trailer Record ID is invalid.
EC04.9 Trailer Record ID is invalid.
EC05.0 Duplicate pack.
</TABLE>
<PAGE> 252
<TABLE>
<S> <C>
EC05.1 Old Pack.
EC05.2 RAO not found on table.
EC07.3 Error rate greater than invoice file threshold for RAO
invoice number.
EC012.0 Remote ID in Dataset is not valid.
EC020.0 No detail records in pack.
EC013.0 Invalid status on Pack Header.
EC027.0 Pack exceeds limit of 9,999 detail records.
EC040.9 Pack Header record is missing.
EC041.0 Trailer record is missing.
EC042.0 Trailer message volume is not equal to
accumulated message volume.
EC044.0 Header/Trailer date is invalid.
</TABLE>
<PAGE> 253
<TABLE>
<S> <C>
EC45.0 From RAO on Trailer Record is not equal to the from RAO
on Header Record.
EC48.0 Invoice number on Trailer Record is not equal to the
invoice number on the Header Record.
</TABLE>
<PAGE> 254
APPENDIX C
MESSAGE VALIDATION PACK ACCEPTED REPORT (A7288)
MM/DD/YY-----HH:MM:SS
RETEN CODE: 01R-00300
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMPANY XXXXXXXXXXXXXXXXXXXXXXXXXX FROM RAO INVOICE NO. DATE CREATED
TOTAL RECORDS RECEIVED
- ------------------------------------------999-----------99----------MM/DD/YY----
--------ZZ.ZZ9
----------RECORD
COUNTS-----------------------MESSAGE COUNTS--------------------------------
---
</TABLE>
12/12/96
<PAGE> 255
<TABLE>
<CAPTION>
<S> <C>
RECORD ID TYPE OF RECORDVALID-----REJECTED-----DROPPED-----TOTAL-----VALID-----
REJECTED-----DROPPED-----TOTAL
010102 OUTWATS (NON-SMDR)ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010103 OUTWATS(SMDR)ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010104 800 SERVICEZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
TOTAL WATS/800
010101 MTS ZZ.ZZ9 ZZ.ZZ9
ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010106 NON-DIAL CONFER BRIDGEZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010107 NON-DIAL CONFER LEG RECORDZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
</TABLE>
<PAGE> 256
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
010108 DIAL CONFERENCE BRIDGE ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010111 ALLIANCE (AGTC) ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010116 DIAL-IT SERVICE ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010132 DIRECTORY ASSISTANCE ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010180 MARINE/AIRCRAFT ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010181 RADIO LINK ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010182 MARINE NON-DIAL CONFER BRIDGE ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010183 MARINE NON-DIAL CONFER LEG REC. ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
0101XX OTHER MTS RECORDS ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
12/12/96
</TABLE>
<PAGE> 257
TOTAL NORTH AMERICAN MTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
010201 IOTC/IODD MTS ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
0102XX IOTC/IDDD OTHERS ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010301 IOTC BFC MTS ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
0103XX IOTC BFC OTHERS ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010401 IOC MTS ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZ9 ZZ.ZZ9
ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
0104XX IOC OTHERS ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
010501 IOC MTS ZZ.ZZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
12/12/96
</TABLE>
<PAGE> 258
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0105XX IOC OTHERSZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
TOTAL OVERSEAS MTS
015002 OUTWATS LINE SUMMARYZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
015004 800 LINE SUMMARYZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
015004 DIR. ASSISTANCE LINE SUMMARYZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
03XXXX CREDIT REQUESTSZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
51/52 CANCEL REQUESTSZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
12/12/96
</TABLE>
<PAGE> 259
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
71/72 CORRECTION REQUESTSZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
INVALID RECORD IDENTIFICATION ZZ.ZZ9 ZZ.ZZZ9
ZZ.ZZZ9 ZZ.ZZZ9
PACK TOTALS ZZ.ZZ9 ZZ.ZZ9ZZ.ZZ9 ZZ.ZZ9 ZZ.ZZZ9 ZZ.ZZZ9 ZZ.ZZZ9
12/12/96
</TABLE>
<PAGE> 260
Appendix D
Page 2
APPENDIX D
SPECIAL FEATURES STAR SERVICES
The following are CLASS subscription or "pay per use" (STAR) Services supported
by these Local Resale requirements to date. When identified, additional services
can be negotiated to be included in this Resale offer.
1) Auto Recall/....................This feature allows a customer to redial a
Call Return number when a Busy signal is encountered.
2) Auto Callback/Repeat Dialing....This feature allows a customer to
automatically return the most recent incoming
call, even if it is not answered.
The following CLASS subscription service is available for Local Resale. CLEC
requires a usage record in order to provide call trace information to law
enforcement authorities.
1) Call Trace......................This feature allows the tracing of
nuisance calls.
The following are CLASS services are only available thru monthly subscription
and are available for Local Resale only on a monthly subscription basis.
1) 3-Way Calling...................This feature allows for three (3) Parties to
communicate on one line.
2) Automatic Redial................This feature allows a customer to
automatically redial the last number dialed.
<PAGE> 261
9/4/98
To provide for the transfer and billing of these features the following
requirements apply:
For the following CLASS subscription and "per use" (STAR) Features the
'Miscellaneous Charge Line Summary Non-Detail Charge' 10-01-18 record should be
used and be populated as follows:
<TABLE>
<CAPTION>
CONNECT TIME POSITIONS 55-60 MUST BE POPULATED
- ------------ --------------- -----------------
<S> <C> <C>
TO PLACE/ST. POSITIONS 135-146 1) AUTO REDIAL/CALL RETURN
FEATURE CODE 32, 62, 60
TO PLACE/ST. POSITIONS 135-146 2) AUTO CALL BACK/REPEAT DIALING
POPULATE WITH FEATURE CODE 33, 61, 63
TO PLACE/ST. POSITIONS 135-146 3) CALL TRACE
POPULATE WITH FEATURE CODE 70
TO PLACE/ST. POSITIONS 135-146 4) 3-WAY CALLING
NOT APPLICABLE
TO PLACE/ST. POSITIONS 135-146 5) AUTOMATIC REDIAL
NOT APPLICABLE
</TABLE>
NOTE: For fields not specifically defined, the standard EMR format for a
10-01-08 record should be used.
<PAGE> 262
Attachment
ATTACHMENT 15
LOCAL NUMBER PORTABILITY AND NUMBER ASSIGNMENT
<PAGE> 263
Attachment 15
Page 1
LOCAL NUMBER PORTABILITY
AND NUMBER ASSIGNMENT
1. PROVISION OF LOCAL NUMBER PORTABILITY
1.1 Each Party shall provide, to the extent technically feasible, service
provider local Number Portability, subject to the Act, regulations
thereunder and relevant FCC and Commission decisions. Until permanent
Number Portability ("PNP") is available, each party shall provide
Interim Number Portability ("INP"), through RCF and LERG reassignment,
as described herein, immediately upon notification that CLEC is
commencing facilities-based local exchange service on CLEC-provided
facilities. Each Party shall provide INP through Flex DID and/or Route
Indexing, as described below, no later than one hundred eighty (180)
days after the effective date of this agreement or immediately upon
CLEC's notification that it is commencing facilities-based local
exchange service on CLEC-provided facilities, which ever occurs later.
Each Party will provide INP with minimum impairment of functionality,
quality, reliability and convenience to the other Party's subscriber.
Each Party will provide PNP as soon as it is technically feasible, in
conformance with FCC rules and the Act.
2. INTERIM NUMBER PORTABILITY (INP)
2.1 INP shall be provided by Remote Call Forwarding ("RCF"), Flexible
Direct Inward Dialing ("Flex DID"), Route Indexing ("RI") or Local
Exchange Routing Guide ("LERG") Reassignment as provided herein. The
Party that operates the switch to which the number is ported
("Ported-to Party") shall specify on a per telephone number or customer
type basis which method is to be employed, and the Party that operates
the switch from which the number is ported ("Porting Party") shall
provide such method to the extent technically feasible. Both Parties
agree to release ported telephone line numbers which were ported using
INP methods other than LERG Reassignment, back to the Porting Party
assigned an NXX in the LERG when the ported telephone line number
"becomes vacant" (i.e., when the ported number is no longer in service
for the customer originally assigned the ported number), and any
applicable referral/intercept period has expired.
2.2 REMOTE CALL FORWARDING (RCF)
2.2.1 When RCF, which PACIFIC refers to as DNCF, is used to provide INP,
calls to the ported number will first route to the Porting Party's
switch. The Porting Party's switch will then forward the call to a
second "shadow" number with an NXX associated with the Ported-to
Party's switch. If necessary to handle multiple simultaneous calls to
the same ported telephone number, the Ported-to Party may order up to
ninety-nine (99) paths for the provisioning of RCF.
<PAGE> 264
Attachment 15
Page 2
2.2.2 PACIFIC shall provide RCF INP to CLEC pursuant to the terms of
PACIFIC's DNCF tariff (including any modification subsequently adopted
by the Commission) filed by PACIFIC.
2.2.3 DNCF and CLEC's equivalent RCF INP service calls will be delivered over
Local Interconnection Trunk Groups. Each Party's customers will have
the ability to receive collect calls and bill to third party numbers.
Call quality will be equivalent to that which other RCF customers
receive.
2.3 FLEX DID
2.3.1 When Flex DID is used to provide INP, calls to the ported number will
first route to the Porting Party's switch. The Porting Party's switch
will then direct calls to the ported number over direct trunks to the
Ported-to Party's switch. At the option of the Ported-to Party, and
where technically feasible, Flex DID may be used to port either a block
of telephone numbers or an individual telephone number, and Flex DID
may be provisioned to allow a full ten (10) digit telephone number to
be sent to the Ported-to Party's switch.
2.3.2 Flex DID will be delivered over dedicated truck groups using either MF
or SS7 signaling, where technically feasible, at the option of the
Ported-to Party.
2.4 ROUTE INDEXING
2.4.1 Route Indexing (RI) may take two forms: Route Indexing Portability Hub
(RIPH) or Directory Number Route Index (DN-RI).
2.4.2 DN-RI is a form of RI that requires direct trunking between the Porting
Party's switch to which the ported number was originally assigned and
the Ported-to Party's switch to which the number has been ported. The
Porting Party's switch shall send the originally dialed number to the
Ported-to Party's switch without the use of steering digits.
2.4.3 RI-PH will be delivered over Local Interconnection Trunk Groups. DN-RI
will be delivered over dedicated trunks using SS7 signaling
2.4.4 If the tandem switch is not operated by the Porting Party, the Porting
Party will make whatever process and compensation arrangements with the
tandem provider that are necessary to implement the steering digits for
RI-PH.
2.5 LERG REASSIGNMENT
If a customer has an entire NXX code and transfers from the Porting
Party to the Ported-to Party, portability for that customer shall be
provided by utilizing reassignment of the NXX code to the Ported-to
Party through the Local Exchange Routing Guide (LERG). Updates to
translations in the Porting Party's switching office to which the
ported numbers were originally assigned will be made by the Porting
Party prior to the date on
<PAGE> 265
Attachment 15
Page 3
which LERG changes become effective, in order to redirect calls to the
Ported-to Party's switch via route indexing.
3. OTHER INTERIM PORTABILITY PROVISIONS
3.1 With regard to the division of terminating Switched Access revenues
associated with RCF, Flex DID and RI, the Porting Party shall pay the
Ported-to Party $1.75 per month for each business line and $1.25 per
month for each residence line associated with the INP arrangement.
Determination of the number of lines to which the above payment shall
apply will be made at the time the INP arrangement is established. The
payment shall be made based on the total number of lines included in
the same hunting arrangement as the INP number. Partial months will be
paid on a prorated basis and such payment shall continue until the INP
arrangement is disconnected or PNP is made available for the INP
number, whichever occurs first. Such amount is in consideration of the
Switched Access compensation and reciprocal compensation that would
have been received by each Party if PNP had been in effect.
3.2 With RCF, Flex DID with SS7, DN-RI, or RI-PH, each Party shall exchange
with the other Party, SS7 TCAP messages as required for the
implementation of Custom Local Area Signaling Services (CLASS) or other
features available in each Party's network.
3.3 Each Party shall disclose to the other Party any technical or capacity
limitations that would prevent use of a requested INP implementation in
a particular switching office. Both Parties shall cooperate in the
process of porting numbers to minimize customer out-of-service time,
including updating switch translations where necessary.
3.4 With respect to 911 service associated with ported numbers under INP,
the Porting Party agrees that all ported directory numbers (DN) will
remain in the Public Service Answering Points (PSAP) routing databases.
When RCF INP or other INP methods that use a shadow number are used, it
is the responsibility of the Ported-to Party to provide both the ported
numbers and shadow numbers to the Porting Party to be stored in the
Porting Party's appropriate databases. CLEC will input the ported
number and the shadow number with CLEC's data via the E 911 Management
System (MS) Gateway for storage in the MS. The Ported-to Party shall
have the right to verify the accuracy of the information in the
appropriate databases. CLEC may verify the accuracy of the information
in the E 911 MS via the MS Gateway.
4. PERMANENT NUMBER PORTABILITY (PNP)
4.1 The Parties agree to implement PNP, in compliance with FCC or CPUC
orders, within and between their networks as soon as technically
feasible, but no later than the schedule established by the FCC or
CPUC.
4.2 Each Party shall recover its costs for PNP in accordance with FCC or
CPUC orders.
<PAGE> 266
Attachment 15
Page 3
4.3 The Parties agree to comply with such industry guidelines as may be
established for the treatment of vacant telephone numbers, including
provisions for number pooling, where available.
4.4 To the extent that a query is performed or required to be performed,
each Party will make arrangements to perform its own queries for PNP
calls.
5. REQUIREMENTS FOR INP AND PNP
5.1 CUT-OVER PROCESS
The Parties shall cooperate in the process of porting numbers from one
carrier to another so as to limit service outage for the ported
subscriber. This may include, but not be limited to, the Porting Party
promptly updating its network element translations following
notification by the industry SMS, or ported-to local service provider,
and deploying such temporary translations as may be required to
minimize service outage, e.g., unconditional triggers. The Parties
agree to comply with such industry guidelines as may be established in
the appropriate subcommittees of the California Local Number
Portability Task Force for the cut-over process.
5.2 TESTING
Both Parties shall cooperate in conducting testing to ensure
interconnectivity between systems. Each Party shall inform the other
Party of any system updates that may affect the other Party's network
and each Party shall, at the other Party's request, perform tests to
validate the operation of the network. Additional testing requirements
may apply as specified by this Agreement.
5.3 NON-GEOGRAPHICAL NUMBERS
Neither Party shall be required to provide Number Portability for
nongeographic services (i.e., 500, 700 and 900 Service Access Codes
(SACs), and 976 NXX and similar services) under this Agreement.
5.4 ENGINEERING AND MAINTENANCE
Both Parties will cooperate to ensure that performance of trunking and
signaling capacity is engineered and managed at levels which are at
least at parity with that provided by the other Party to its
subscribers and to ensure effective maintenance testing through
activities such as routine testing practices, network trouble isolation
processes and review of operational elements for translations, routing
and network fault isolation. Additional specific engineering and
maintenance requirements shall apply as specified in this Agreement.
For subscribers ported by INP using RCF, Flex DID, or RI, the Ported-to
Party shall perform appropriate testing to isolate trouble prior to
referring repair requests to the Porting Party. For subscribers ported
by PNP, trouble shooting by the Porting Party shall generally involve
verification that a proper location routing number has been
<PAGE> 267
Attachment 15
Page 5
entered into the system, and other trouble shooting as may be
established in industry guidelines.
5.5 RECORDING AND BILLING
5.5.1 The Porting Party shall provide the Ported-to Party with accurate
billing and Customer Account Record Exchange data for the Ported-to
Party's subscribers whose numbers have been ported.
5.5.2 Calls originated from RCF ported numbers in the Porting Party
end-offices and sent to the Ported-to Party interLATA toll network must
signal the shadow number in the Calling Party Number (CgPN) parameter
and ported number in the Charge Number (CN) parameter in the SS7
Initial Address Message.
5.6 Treatment of Telephone Line Number Based Calling Cards
5.6.1 PACIFIC shall remove from its Line Information Data Base (LIDB) all
existing PACIFIC- issued Telephone Line Number (TLN)-based card numbers
issued to a customer, when that customer ports the associated telephone
numbers to CLEC
5.6.2 PACIFIC shall continue to allow CLEC access to its LIDB. Other LIDB
provisions are specified in this Agreement.
6. ASSIGNMENT OF NXX CODES AND TELEPHONE NUMBERS
6.1 The Parties agree, in principle, that the administration and assignment
of Central Office Codes ("NXXs") should be moved from PACIFIC to a
neutral third party. In the interim, where PACIFIC functions as
California Code Administrator, the following provisions apply:
6.1.1 Each Party will comply with Industry Carriers Compatibility Forum
("ICCF") Central Office Code (NXX) Assignment Guidelines, INC
95-0407-008 ("ICCF Guidelines").
6.1.2 Unless the FCC adopts rules that differ from the ICCF Central Office
Code Assignment Guidelines, PACIFIC will assign NXX codes to CLEC
according to those Guidelines in a competitively neutral manner and on
a basis no less favorable than that on which PACIFIC assigns codes to
itself. These Number Administrator functions will be provided without
charge. Number Administrator functions do not include opening NXX
Codes.
6.1.3 It shall be the responsibility of each Party to program and update its
own switches and network systems to recognize and route traffic to the
other Party's assigned NXX codes at all times. Neither PACIFIC nor CLEC
shall charge each other for changes to switch routing software
necessitated by the creation, assignment or reassignment or activation
of NPA or NXX codes, so long as the requirement set forth at page 84 of
Commission Decision 96-03-020 remains in place.
<PAGE> 268
Attachment 15
Page 6
6.1.4 The Parties will each be responsible for the electronic input of their
respective number assignment information into the Routing Database
System.
6.1.5 The Parties will provide to each other test-line numbers and access to
test lines, including a test-line number that returns answer
supervision in each NPA-NXX opened by a Party.
6.1.6 PACIFIC, in its role as the California Code Administrator, will provide
routine reporting on NXX availability, consistent with the orders of
the Commission.
6.1.7 The Parties agree that any forecasts required to be submitted prior to
establishment of an independent third party administrator will be
considered confidential and proprietary, and will only be made
available to the California Code Administrator for the purposes of code
assignment and administration.
6.2 In those circumstances where CLEC assigns its customers telephone
numbers from an NXX assigned in the LERG to PACIFIC, CLEC shall be able
to obtain and assign telephone numbers from PACIFIC in the same manner
that PACIFIC performs these functions for its own customers.
6.2.1 CLEC can request, review, reserve, exchange and return telephone
numbers for up to five basic exchange or COPT lines or single-line
ISDN, on an electronic, real-time basis to allow assignment during
service negotiation with the CLEC's customer. Such access shall be
provided as described with respect to the Operational Support Services
("OSS") functions set forth in Attachment 11.
6.2.2 Number assignments other than those described in Section 6.2.1. above,
including specialty numbers and complex product assignments, will be
obtained through a telephone call to the unbranded Number Assignment
Center (NAC) in the LISC. This NAC is unbranded to allow CLEC to
include its customer in the call without indication that they are
interacting with PACIFIC.
6.3 CLEC will be provided with electronic access for additional number
products as soon as such access is made available by PACIFIC. Such
access shall be provided as described with respect to other OSS
functions set forth in Attachment 11.
<PAGE> 269
ATTACHMENT 16
SECURITY
<PAGE> 270
Attachment 16
Page 1
1. PROTECTION OF SERVICE AND PROPERTY
1.1. For the purpose of notice permitted or required by this Attachment,
each Party shall provide the other Party a SPOC available twenty-four
(24) hours a day, seven (7) days a week.
1.2. PACIFIC and CLEC shall each exercise the highest degree of care to
prevent harm or damage to the other Party, its employees, agents or
customers, or their property. Each Party, its employees, agents, or
representatives agree to take reasonable and prudent steps to ensure
the adequate protection of property and services of the other Party.
1.3. Each Party having on its premises any equipment, support equipment,
systems, tools and data of the other Party, or spaces which contain or
house the other Party's equipment or equipment enclosures, shall
restrict access thereto to employees and authorized agents of that
other Party.
1.4. PACIFIC shall use electronic controls to protect all spaces which house
or contain CLEC equipment or equipment enclosures, but if electronic
controls are not available, PACIFIC shall either furnish security
guards at those PACIFIC locations already protected by security guards
on a seven (7) day per week, twenty-four (24) hour a day basis; and if
none, PACIFIC shall permit CLEC to install silent intrusion alarms back
to manned sites. CLEC agrees that PACIFIC shall be the SPOC with all
law enforcement authorities or public agencies with respect to problems
or alarms related to CLEC's equipment or equipment enclosures located
on PACIFIC's premises. In no event will CLEC contact law enforcement
authorities or public agencies as a result of a silent alarm.
1.5. PACIFIC shall furnish to CLEC a current written list of PACIFIC's
employees who PACIFIC authorizes to enter spaces which house or contain
CLEC equipment or equipment enclosures, with samples of the identifying
credentials to be carried by such persons.
1.6. CLEC shall furnish to PACIFIC a current written list of CLEC's
employees or agents who CLEC authorizes to enter PACIFIC's Central
Offices, with samples of identifying credentials to be carried by such
persons.
1.7. With respect to any equipment, support equipment, systems, tools and
data of one Party on the premises of the other Party, or spaces which
contain or house the other Party's equipment or equipment enclosures,
each Party shall comply with the security and safety procedures and
requirements of the Party that owns or controls the premises, including
but not limited to sign-in, identification and escort requirements.
1.8. PACIFIC shall allow CLEC to inspect or observe spaces which house or
contain CLEC equipment or equipment enclosures at any time within
normal business hours and shall furnish CLEC with all keys, entry
codes, lock combinations, or other materials or information which may
be needed to gain entry into any secured CLEC space. In the
<PAGE> 271
Attachment 16
Page 2
event of an emergency, CLEC shall contact a SPOC provided by PACIFIC
for access to spaces which house or contain CLEC equipment or equipment
enclosures. Such PACIFIC SPOC shall available to receive calls from
CLEC twenty-four (24) hours a day, seven (7) days a week and make
access available to CLEC within three (3) hours after receiving a call
from CLEC.
1.9. PACIFIC agrees not to use card access readers and devices that use
cards which are encoded identically, or that use mechanical coded locks
on external doors or on internal doors to spaces which house mission
critical equipment or equipment which supports the mission critical
equipment.
1.10. Keys used in PACIFIC's keying systems for spaces which contain or house
CLEC equipment or equipment enclosures shall be limited to PACIFIC
employees and representatives for emergency access only. CLEC shall
have the right to require PACIFIC to change locks at PACIFIC's expense
where there is evidence of inadequate security. In all other cases,
CLEC may require PACIFIC to change locks at CLEC's expense.
1.11. PACIFIC shall install security studs in the hinge plates of doors
having exposed hinges if such doors lead to spaces which contain or
house CLEC equipment or equipment enclosures.
1.12. PACIFIC shall use reasonable measures to control' unauthorized access
from passenger and freight elevators to spaces which contain or house
CLEC equipment or equipment enclosures.
1.13. PACIFIC shall provide notification within two (2) hours to designated
CLEC personnel to indicate an actual or attempted security breach.
2. ADDITIONAL PROVISIONS APPLICABLE TO COLLOCATION SPACES
2.1. PACIFIC shall be responsible for the security of CLEC's collocation
spaces. Security measures shall meet or exceed CLEC '5 requirements. If
a security issue arises or if CLEC believes that PACIFIC's security
measures fail to meet CLEC's requirements, CLEC shall notify PACIFIC
and the Parties shall work together to address the problem. PACIFIC
shall, at a minimum, do the following:
2.2. PACIFIC shall design collocation cages to prevent unauthorized access.
2.3. PACIFIC shall establish procedures for controlling access to the
collocation areas by employees, security guards and others. Those
procedures shall limit access to the collocation equipment areas to
PACIFIC's employees, agents or invitees having a business need to be in
these areas. PACIFIC shall require all persons entering the collocation
equipment areas to wear identification badges.
<PAGE> 272
Attachment 16
Page 3
2.4. PACIFIC shall provide card key access to all collocation equipment
areas, along with a positive key control system for each collocator's
cage area.
2.5. CLEC security personal may audit the collocation area at a PACIFIC
location for compliance with security procedures.
3. DISASTER RECOVERY
3.1. PACIFIC shall maintain for CLEC the same level of disaster recovery
capability to be used in the event of a system failure or emergency as
PACIFIC provides for itself. PACIFIC will provide CLEC with a written
summary of such capability within 30 days after the effective date of
this Agreement, subject to the non-disclosure provisions of this
Agreement.
4. DATA PROTECTION
4.1. Each Party shall install controls in any of its data bases to which the
other Party has access:
4.1.1. to deny access to data base users after a pre-determined period of
inactivity; and
4.1.2. to protect the other Party's proprietary information and the other
Party's customer proprietary information.
4.2. PACIFIC shall maintain controls over databases used by CLEC to protect
both ongoing operational and update integrity, at parity with control
features that PACIFIC provides to itself.
4.3. Each party shall assure that all approved system and modem access is
secured through security servers. Access to or connection with a
network element shall be established through a secure network or
security gateway.
4.4. With respect to access to the network or gateway of the other Party,
each party will comply with the other Party's corporate security
instructions for computer and network security.
5. NETWORK FRAUD CONTROL
5.1. PACIFIC shall make available to CLEC for use with any services provided
by PACIFIC to CLEC under this Agreement all present and future fraud
control features, including prevention, detection, or control
functionality utilized in PACIFIC's network. At present these features
include (1) disallowance of call forwarding to international locations,
(ii) coin originating ANI II digits, and (iii) dial tone reorigination
patches, (iv) terminating blocking of 800 and (v) 900/976 blocking.
<PAGE> 273
Attachment 16
Page 4
5.2. In addition, subject to section 5.3.3 below and Section 1.6 of
Attachment 6, PACIFIC shall provide partitioned access within pertinent
Operations Support Systems ("OSS") for fraud control.
<PAGE> 274
Attachment 16
Page 5
5.3. Rates:
5.3.1. Terminating blocking of 800 and 900/976 blocking are available as Local
Services, at the rates specified in Attachment 8.
5.3.2. Disallowance of call forwarding to international locations, coin
originating ANI II digits, and dial tone reorigination patches, are
available with Local Services, basic exchange service or LSNE, at no
additional charge.
5.3.3. Future fraud control features and functionalities will be available at
rates, if any, subject to the Act, regulations thereunder and relevant
FCC and Commission decisions.
6. LAW ENFORCEMENT INTERFACE
6.1. Each Party shall provide the other Party with a single point of contact
to interface on a twenty-four (24) hour, seven (7) day a week basis on
law enforcement and service annoyance issues, including, without
limitation, call traces, wiretaps and traps.
6.2. PACIFIC will provide necessary assistance to law enforcement personnel
to facilitate the execution of court orders addressed to PACIFIC that
authorize wiretaps and dialed number recorders relating to services and
facilities of CLEC customers. PACIFIC will notify law enforcement
personnel that the court order applies to an CLEC circuit, not a
PACIFIC circuit. PACIFIC will bill the appropriate law enforcement
agency for these services under its customary practices.
6.3. When requested by CLEC for security purposes, PACIFIC shall use
reasonable best efforts to provide CLEC with Recorded Usage Data within
two hours of the call completion but in any event shall provide such
data not later than twenty-four hours of call completion. The Data may
be provided in AMA format.
6.4. To the extent required by law, PACIFIC shall provide soft dial tone to
allow only the completion of calls to final termination points required
by law.
<PAGE> 275
ATTACHMENT 17
SERVICE PERFORMANCE MEASURES AND
LIQUIDATED DAMAGES
<PAGE> 276
SERVICE PERFORMANCE MEASURES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
A. Performance Index and Measurements:
A.1. Provisioning 2
A.2. Maintenance 8
A.3. Wholesale Billing 10
A.4. Customer Usage Data 11
B. Performance Remedies (Liquidated Damages) 16
</TABLE>
<PAGE> 277
ATTACHMENT 17
Page 1
INTRODUCTION
I. Pursuant to Section 12 of this Agreement, Section A of this Attachment
17 sets forth the service standards, measurements, and performance
applicable to Local Services, Network Elements or Combinations provided
under this Agreement.
Section B of this Attachment 17 sets forth liquidated damages to be paid
in the event that specified failures of performance occur.
As experience is acquired under this Agreement with the new business
processes established, the Parties expect to learn which measurements
set forth in Section A are more or less useful than others. The Parties
also expect that experience will show whether new measurements are
needed or whether certain existing measurements are not needed.
Accordingly, while this Agreement is in effect, either Party may, from
time to time, request the addition, deletion or modification of the
measures set forth in Section A. In the event the Parties cannot agree
on such addition, deletion or modification they will submit such dispute
for resolution to an Inter-Company Review Board, as identified in
Section 3.1 of Attachment 3 to this Agreement provided, however, that
other provisions of Attachment 3 shall not apply.
Unless otherwise stated, PACIFIC shall make monthly reports to CLEC for
all performance measures. Should a dispute arise concerning the accuracy
of any of PACIFIC's measurements, CLEC may audit them under procedures
set out in Section 11.9 of the Umbrella Agreement.
II. "Parity" Defined: PACIFIC shall provide services to CLEC that, for any
relevant period of measurement, have substantially the same
characteristics of timeliness and performance as PACIFIC provides at
retail and, for such purpose, those services shall be deemed to have
substantially the same characteristics for any population of thirty (30)
or more observations if it has the same statistical distribution at the
90% confidence interval. Service Parity is achieved when PACIFIC's
service performance, as defined by the designated comparable measures,
is within 1.65 standard deviations (90% confidence level) of the average
retail performance for the equivalent retail product or service, subject
to the definitions contained within this Attachment 17. The calculation
of 1.65 standard deviations will be based on the most recent two full
calendar quarters of actual performance and revised quarterly. As used
in the preceding sentence, PACIFIC's "average retail performance for the
equivalent retail product or service" shall be calculated using all
available observations of PACIFIC performance, rather than any form of
sampling. "PACIFIC's service performance" for CLEC shall, similarly, be
calculated using all available observations. Average performance will be
measured and reported monthly for each comparable measure. Liquidated
damages will apply when performance is not al parity.
Service Parity applies to the comparable measures only. Other agreed to
performance measures will be based on specified service standards and
liquidated damages will apply as defined in this Attachment 17.
<PAGE> 278
ATTACHMENT 17
Page 2
SECTION A
A.1. PROVISIONING SERVICE PERFORMANCE MEASURES
1. % INSTALLATION APPOINTMENTS COMMITMENT MET
Definition:
This measures the percent of service orders where the completion date
matches the committed due date. (e.g., The due date is 4/01/96 am,
service is installed and the order is completed 4/01/96 am).
Method of Calculation:
As a Measurement of Comparable Service, this metric will be in parity
with PACIFIC's comparable services. This measure excludes disconnect
orders. This measure will be calculated separately for each PACIFIC
region. These regions are Los Angeles, Bay, North and South.
Measurements will be calculated by Business (Single and Multi-line,
Centrex, PBX Trunks), Residence, LINK, and ISDN.
TOTAL NUMBER OF ORDERS COMPLETED ON TIME
----------------------------------------
TOTAL NUMBER OF ORDERS COMPLETED X 100
Reporting Period:
Monthly, and sorted by Business (Single and Multi-line, Centrex, PBX
Trunks), Residence, LINK, and ISDN.
2. % INSTALLATION REPORTS
Definition:
This measures the number of trouble reports that occur within the first
thirty (30) days of service installation (e.g., Service is installed on
4/01/96, a trouble is reported on 4/05/96).
Method of Calculation:
As a Measurement of Comparable Service, this metric will be in parity
with PACIFIC's comparable services. This measure will be calculated
separately for each PACIFIC region. These regions are Los Angeles, Bay,
North and South. This measure only includes PACIFIC Network Troubles.
Measurements will be calculated by Business (Single and Multi-line,
Centrex, PBX Trunks), Residence, LINK, and ISDN.
TOTAL NUMBER OF INSTALLATIONS WITH TROUBLE
REPORTED WITHIN 30 DAYS FROM COMPLETION.
------------------------------------------
TOTAL NUMBER OF SERVICE ORDERS COMPLETED X 100
<PAGE> 279
ATTACHMENT 17
Page 3
Reporting Period:
Monthly, and sorted by Business (Single and Multi-line, Centrex, PBX
Trunks) Residence LINK, and ISDN.
3. FIRM ORDER CONFIRMATION (FOC) RECEIVED IN <4 HOURS
Definition:
Measures percent of Firm Order Confirmations sent to the CLEC within 4
hours of receipt of the Basic Exchange order, Centrex line or PBX trunk.
This measurement applies to less than 20 Basic Exchange lines or Links
on one order and less than 6 Centrex lines, 6 PBX trunks, or 6 ISDN
lines on one order.
Method of Calculation:
As a measurement of Performance Standards, this metric will comply with
the specific performance level shown below. Measurements will be
calculated by Business (Single and Multi-line, Centrex, PBX Trunks),
Residence, LINK, and ISDN.
TOTAL NUMBER OF FOC'S RETURNED IN <4 HOURS
------------------------------------------
TOTAL NUMBER OF FOC'S TO BE RETURNED X 100 = 95%
Report Period:
Monthly, and sorted by Business (Single and Multi-line, Centrex, PBX
Trunks) ISDN, Residence, LINK
4. FIRM ORDER CONFIRMATION QUALITY - % ACCURATE AND COMPLETE
Definition:
Measures percent of Firm Order Confirmations that are accurate and
complete.
Method of Calculation:
As a measurement of Performance Standards, this metric will comply with
the specific performance level shown below. Measurements will be
calculated by Business (Single and Multi-line, Centrex, PBX Trunks),
Residence, LINK, and ISDN.
TOTAL NUMBER OF FOC'S RETURNED ACCURATE AND COMPLETE
----------------------------------------------------
TOTAL NUMBER OF FOC'S TO BE RETURNED FOR THE MONTH X 100 = 95%
Reporting Period:
Monthly, and sorted by Business (Single and Multi-line, Centrex, PBX
Trunks) ISDN. Residence, LINK.
<PAGE> 280
ATTACHMENT 17
Page 4
5. CLEC TO CLEC MIGRATION NOTIFICATION - % ON TIME
Definition:
Measures the percent of migration notifications sent to the outgoing
CLEC within 48 hours of receipt of the migration order.
Method of Calculation:
As a measurement of Performance Standards, this metric will comply with
the specific performance level shown below. Measurements will be
calculated by Business (Single and Multi-line, Centrex, PBX Trunks),
Residence, LINK, and ISDN.
TOTAL NUMBER OF MIGRATION NOTIFICATIONS RETURNED < 48 HOURS
-----------------------------------------------------------
TOTAL NUMBER OF MIGRATION NOTIFICATIONS
RETURNED FOR THE MONTH X 100 = 95%
Reporting Period:
Monthly, and sorted by Business (Single and Multi-line, Centrex, PBX
Trunks), ISDN, Residence.
6. REQUESTS FOR CUSTOMER SERVICE RECORDS (CSR)
Definition:
Measures the percent of Customer Service Records sent to CLEC within 4
hours of receiving the request and appropriate LOA. This measurement
applies to less than twenty (20) Basic Exchange lines billed under one
number and less than six (6) Centrex lines or six (6) PBX trunks, or six
(6) ISDN lines, billed under one number. Measurements will be calculated
by Business (Single and Multi-line, Centrex, PBX Trunks), Residence,
LINK, and ISDN.
Method of Calculation:
As a measurement of Performance Standards, this metric will comply with
the specific performance level shown below.
NUMBER OF CSRS RECEIVED <4 HOURS
--------------------------------
TOTAL NUMBER OF REQUEST FOR CSR X 100 = 95%
Reporting Period:
Monthly, and sorted by Business (Single and Multi-line, Centrex, PBX
Trunks) ISDN.
Residence
7. LOCAL PIC CHANGE - % ON TIME
Definition:
<PAGE> 281
ATTACHMENT 17
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Measures the percent of local PIC changes initiated by the CLEC that are
processed within twenty-four (24) hours of receipt of the order. This
interval will stay in parity with interLATA PICs.
Method of Calculation:
As a measurement of Performance Standards, this metric will comply with
the specific performance level shown below. Measurements will be
calculated by Business (Single and Multi-line Centrex, PBX Trunks),
Residence, LINK, and ISDN.
TOTAL NUMBER OF PIC CHANGES COMPLETED WITHIN 24 HOURS
-----------------------------------------------------
TOTAL NUMBER OF PIC CHANGE REQUESTS X 100 = 95%
Reporting Period:
- Monthly, and sorted by Business (Single and Multi-line, Centrex,
PBX Trunks) ISDN, Residence.
8. SERVICE ORDER DISCREPANCY
Definition:
Measures percent of Orders initiated by CLEC that result in a
discrepancy. The discrepancy is a result of CLEC issuance. An order will
be considered to be discrepant if at any time after receipt of the order
PACIFIC has to either reject the order or request a supplement of the
order from the CLEC as a result of incomplete or inaccurate information,
as defined in PACIFIC's Resale Access Line Request Forms Instruction
Guide (GUIDE), Version 4, dated April 8, 1996. If CLEC service orders
conform to the Guide, rejects or requests to supplement such service
orders will be excluded from this measurement and will not incur
Liquidated Damages, as defined in Section B of this Attachment. CLEC and
PACIFIC will mutually agree on revisions to the Guide that effect
service order form or content. If they are unable to agree, they will
take the dispute to the Inter-company review Board as set forth in the
Section I of the Introduction to this Attachment.
Method of Calculation:
As a measurement of Performance Standards, this metric will comply with
the specific performance level shown below. Measurements will be
calculated by Business (Single and Multi-line, Centrex, PBX Trunks),
Residence, LINK, and ISDN.
TOTAL NUMBER OF ORDERS ISSUED WITHOUT DISCREPANCY
-------------------------------------------------
TOTAL NUMBER OF ORDERS ISSUED X 100 = 90%
<PAGE> 282
ATTACHMENT 17
Page 6
Reporting Period:
Monthly, and sorted by Business (Single and Multi-line, Centrex, PBX
Trunks) ISDN, Residence, LINK.
9. TRUNK ORDERS INSTALLED ON TIME
Definition:
Measures the percent of local interconnection trunks that are completed
on or before the due date. The comparative performance measure is Future
Group B & D Switched Access.
Method of Calculation:
As a Measurement of Comparable Service, this metric will be in parity
with PACIFIC's comparable services. The comparative measure is Feature
Group B & D switched access.
TOTAL NUMBER OF ORDERS COMPLETED ON TIME
----------------------------------------
TOTAL NUMBER OF ORDERS COMPLETED X 100
Reporting Period:
Monthly
10. TRUNK FIRM ORDER CONFIRMATION TIMELINESS
Definition:
Measures percent FOC sent to CLEC within the specified time (equivalent
to Feature Group B & D Switched Access.)
Method of Calculation:
As a Measurement of Comparable Service, this metric will be in parity
with PACIFIC's comparable services. The comparative measure is Feature
Group B & D Switched Access.
Reporting Period:
Monthly
11. TRUNK SERVICE ORDER DISCREPANCY
Definition:
Measures percent of Interconnection Service Request (ISR) initiated by
CLEC that result in a discrepancy. The discrepancy is a result of CLEC
issuance. An order will be considered to be discrepant if at any time
after receipt of the order PACIFIC has to either reject the order or
request a supplement of the order from CLEC as a result of incomplete or
inaccurate information, as defined in PACIFIC's Resale Access Line
Request Forms Instruction Guide (GUIDE),
<PAGE> 283
ATTACHMENT 17
Page 7
Version 4, dated April 8, 1996. If CLEC service orders conform to the
Guide, rejects or requests to supplement such service orders will be
excluded from this measurement and will not incur Liquidated Damages, as
defined in Section B of this Attachment. CLEC and PACIFIC will mutually
agree on revisions to the Guide that effect service order form or
content. If they are unable to agree, they will take the dispute to the
Inter-company review Board as set forth in the Section 1 of the
Introduction to this Attachment
Method of Calculation:
As a measurement of Performance Standards, this metric will comply with
the specific performance level shown below
TOTAL NUMBER OF ORDERS ISSUED WITHOUT DISCREPANCY
-------------------------------------------------
TOTAL NUMBER OF ORDERS ISSUED X 100 = 90%
Reporting Period:
Monthly
12. FORECASTING
Definition:
Measures the accuracy of forecasted volumes of LINK or Residence,
Business (Single and Multi-line, Centrex, PBX Trunks), ISDN resale
service orders.
Method of Calculation:
Forecasts are accurate within 20% +/- in any calendar month of the
forecast period (measurement excludes Interconnection Trunks)
Reporting Period:
Monthly
13. AVERAGE DELAY DAYS
Definition:
Measures the average number of days a service order is delayed due to an
appointment being missed.
Method of Calculation:
As a measurement of Comparable Service, this metric will be in parity
with PACIFIC's comparable services. Measurements will be calculated by
Business (Single and Multi-line. Centrex, PBX Trunks), Residence, LINK,
and ISDN.
Total delayed days
Total orders missed
<PAGE> 284
ATTACHMENT 17
Page 8
A.2 MAINTENANCE SERVICE PERFORMANCE MEASURES
1. % MAINTENANCE APPOINTMENTS MET
Definition:
This measures the number of troubles that are cleared on or before the
committed date and time.
Method of Calculation:
As a Measurement of Comparable Service, this method will be in parity
with PACIFIC's comparable services. This measure includes PACIFIC
network Troubles only. This measure will be calculated separately for
each PACIFIC region. These regions are Los Angeles, Bay, North and
South. Measurements will be calculated by Business (Single and
Multi-line, Centrex, PBX Trunks), Residence, LINK, and ISDN.
NUMBER OF TROUBLE REPORTS WITH APPOINTMENTS MET
-----------------------------------------------
NUMBER OF TROUBLE REPORTS COMPLETED X 100
Reporting Period:
Monthly, and sorted by Business (Single and Multi-line, Centrex, PBX
Trunks), Residence, LINK, and ISDN.
2. % REPEAT TROUBLES WITHIN 30 DAYS
Definition:
This Measures the percent of trouble report on the same telephone line
where there was a previous trouble within the last thirty days.
Method of Calculation:
As a Measurement of Comparable Service, this metric will be in parity
with PACIFIC's comparable services. This measure includes PACIFIC
Network troubles only. This measure will be calculated separately for
each PACIFIC region. These regions are Los Angeles, Bay, North and
South. Measurements will be calculated by Business (Single and
Multi-line, Centrex, PBX Trunks), Residence, LINK, and ISDN.
NUMBER OF REPEAT TROUBLE REPORTS
--------------------------------
NUMBER OF TROUBLE REPORTS COMPLETED
Reporting Period:
Monthly, and sorted by Business (Single and Multi-line, Centrex, PBX
Trunks) Residence LINK, and ISDN.
<PAGE> 285
ATTACHMENT 17
Page 9
3. REPORT RATE
Definition:
The metric measures the number of troubles per one hundred (100) lines
in service per month.
Method of Calculation:
As a Measurement of Comparable Service, this metric will be in parity
with PACIFIC's comparable services. This measure includes PACIFIC
Network troubles only. This measure will be calculated separately for
each PACIFIC region. These regions are Los Angeles, Bay, North and
South. Measurements will be calculated by Business (Single and
Multi-line, Centrex, PBX Trunks), Residence, LINK, and ISDN.
NUMBER OF TROUBLE REPORTS PER MONTH
-----------------------------------
NUMBER OF LINES
Reporting Period:
Monthly, and sorted by Business (Single and Multi-line, Centrex, PBX
Trunks), Residence, LINK, and ISDN.
4. RECEIPT TO CLEAR DURATION
Definition:
Measures the average duration in hours and minutes of all trouble
reports from receipt to clear.
Method of Calculation:
As a Measurement of Comparable Service, this metric will be in parity
with PACIFIC's comparable services. This measure includes PACIFIC
Network troubles only. This measure will be calculated separately for
each PACIFIC region. These regions are Los Angeles, Bay, North and
South. Measurements will be calculated by Business (Single and
Multi-line, Centrex, PBX Trunks), Residence, LINK, and ISDN.
TOTAL NUMBER OF TROUBLE HOURS AND MINUTES
-----------------------------------------
TOTAL NUMBER OF TROUBLE REPORTS
Reporting Period:
Monthly, and sorted by Business (Single and Multi-line, Centrex, PBX
Trunks) Residence, LINK, and ISDN.
<PAGE> 286
ATTACHMENT 17
Page 10
A.3 LOCAL WHOLESALE BILLING
1. TIMELINESS OF MECHANIZED LOCAL BILL DELIVERY
Definition:
Measures the number of days from bill date to delivery.
Method of Calculation:
NUMBER OF MECHANIZED CABS BILLS ON TIME
---------------------------------------
TOTAL NUMBER OF BILLS RECEIVED X 100
2. TIMELINESS OF LOCAL SERVICE ORDER BILLING
Definition:
Measures the number of Local Service Orders billed within the current
bill cycle.
Calculation:
Will be based on a statistically valid sample of billed orders.
NUMBER OF LOCAL ORDERS BILLED IN THE CORRECT BILL PERIOD
--------------------------------------------------------
TOTAL SERVICE ORDERS X 100
3. ACCURACY OF MECHANIZED CABS BILL FORMAT
Definition:
Measures the number of bills that pass agreed upon validation edits
(format) the first time.
Calculation:
NUMBER OF ACCURATELY FORMATTED CABS MECHANIZED BILLS
----------------------------------------------------
TOTAL NUMBER OF CABS MECHANIZED BILLS X 100
4. FINANCIAL ACCURACY OF LOCAL OTHER CHARGES AND CREDITS
Definition:
Measures the accuracy of the OC&C Local Charges
Calculation:
Will be based on a statistically valid sample of OC&C Charges
<PAGE> 287
ATTACHMENT 17
Page 11
100 - (TOTAL ESTIMATED NET CONSEQUENCES OF $ REC &
--------------------------------------------------
NRC OC&C TOTAL NET OC&C BILLED $ X 100
5. TIMELINESS OF CORRECTION/ADJUSTMENT DOLLARS
Definition:
Measures the number of adjustments corrected within the agreed upon time
frames
Calculation:
NUMBER OF ERRORS CORRECTED IN AGREED TIME FRAME
-----------------------------------------------
TOTAL NUMBER OF ERRORS X 100
6. BILL PERIOD CLOSURE
Definition:
Measures the review of each bill within agreed upon time frames.
No Calculation Required
A.4 USAGE DATA TRANSFER PERFORMANCE MEASURES
GENERAL DESCRIPTION:
PACIFIC will provide Local Usage Information detail in an accurate
timely manner. The format and content is described in the Bellcore
EXCHANGE MESSAGE RECORD (EMR) document in effect as of the Effective
Date of this Agreement and the CLEC Local Resale Data Transfer
Requirements.
Because these processes are new, CLEC and PACIFIC agree to jointly
review and revise these performance standards as Local Resale is fully
implemented to ensure that:
- the processes are stabilized and that agreed upon in-service
volumes are met.
- comparative measures of parity with PACIFIC's retail processes are
established, where appropriate
- the standards reflect elements required by CLEC to bill end users,
- an accurate baseline using some historical data for resale is in
place.
1. FILE TRANSFER
Definition:
PACIFIC will initiate and transmit files that are error free and without
loss of signal.
<PAGE> 288
ATTACHMENT 17
Page 12
Method of Calculation:
NUMBER OF FILES RECEIVED
------------------------
NUMBER OF FILES SENT X 100 = > 95%
-
Note: All measurements will be on a calendar month. Joint review of
performance and value for this standard will be done after six months
from Effective Date. No comparative measure applies
Reporting Period:
Monthly
2. % TIMELINESS
Definition:
PACIFIC will mechanically transmit, via CONNECT: Direct, all available
usage records to CLEC's Message Processing Center once a day, Monday
through Friday, or as negotiated. CLEC and/or PACIFIC's Data Center
Holidays are excluded. CLEC and PACIFIC will exchange schedules of
designated holidays.
By January 1, 1997, PACIFIC and CLEC will jointly audit, review, and
agree on comparative measures of timeliness; i.e. a measure of parity
between the methods used to provide usage data to PACIFIC's retail
billing and the methods used to process CLEC's usage data to CLEC.
In-service thresholds will be determined using accepted statistical
algorithms.
In the interim, a joint analysis of the timeliness based on cooperative
test accounts will be conducted to ensure common definitions and scope
and to create a baseline for comparison. The following are interim
benchmarks for timeliness:
Sept. - Nov. 1996: 90% of all messages delivered within 5 days from when
message recorded.
Dec. - Jan. 1997: 95% of all messages delivered within 5 days from when
message recorded.
Jan. - June 1997: 99% of all messages delivered within 10 days from when
message recorded;
100% of all messages delivered within 30 days from when
message recorded; or demonstrate parity of performance
with PACIFIC Retail Business standard, as defined by
benchmark audit and analysis.
Note: The audit and analysis of performance during the above time frames is
intended to validate the parity of performance standards. Therefore, the above
time frames and measurements are exempt from Performance Credits / Liquidated
Damages as specified in Section B of this Attachment.
June 1997: Specified Performance Standard:
End of Agreement 95% of all messages delivered within 5 days from when
message recorded.
Jan. - June 1997: 99% of all messages delivered within 10 days from when
message recorded;
100% of all messages delivered within 30 days from when
message recorded;
<PAGE> 289
ATTACHMENT 17
Page 13
or;
Parity of Performance:
The above Specified Performance Standard is subject to
change upon PACIFIC's ability to demonstrate Parity of
Performance with its Retail Business standard, as defined
by benchmark audit and analysis.
Note: The above time frame and measurement is not exempt from
Performance Credits / Liquidated Damages as specified in Section B of
this Attachment.
Reporting Period:
Monthly
3. % RECORDED USAGE DATA COMPLETE (A SELF-REPORTING MEASUREMENT)
Definition:
PACIFIC will provide all required Recorded Usage Data and ensure that it
is processed and transmitted within time periods established in
Attachment 13.
By January, 1997, in-service volume thresholds will be determined using
accepted statistical algorithms to provide a basis for comparison with
PACIFIC's retail performance. Because messages that are held in
PACIFIC's error file are usually not uniquely identified, CLEC and
PACIFIC agree to invoke auditing procedures, as defined in Section 11.1
of the Agreement, to ensure that the rate of unbillable messages is in
parity with the rate of unbillable messages experienced in PACIFIC's
retail business.
Method of Calculation:
TOTAL NUMBER OF RECORDED USAGE DATA RECORDS DELIVERED
DURING CURRENT MONTH MINUS NUMBER OF USAGE CALL RECORDS HELD
IN ERROR FILE AT END OF MONTH
------------------------------------------------------------
TOTAL NUMBER OF RECORDED USAGE DATA RECORDS DELIVERED X 100 = 99.98%
4. % ACCURACY
Definition:
PACIFIC will provide Recorded Usage Data in the format and with the
content as defined in the Bellcore document. These measures relate only
to Unbillable unrated local and local toll messages due to critical edit
failures (format errors).
Method of Calculation:
TOTAL NUMBER OF UNRATED LOCAL MESSAGES TRANSMITTED CORRECTLY
------------------------------------------------------------
TOTAL NUMBER OF UNRATED LOCAL MESSAGES TRANSMITTED 100=> 98%
Note: No comparative measure applies.
<PAGE> 290
ATTACHMENT 17
Page 14
Reporting Period:
Monthly
5. % ERROR FREE DATA PACKS
Definition:
PACIFIC will initiate and transmit all packs that are error free in the
format agreed, as defined in the CLEC Local Resale Requirements.
Method of Calculation:
NUMBER OF FILE RECEIVED
-----------------------
NUMBER OF FILES SENT X 100 = 95%
Note: Joint review of performance and value for this standard will be
done after six months from the Effective Date.
Reporting Period:
Monthly
6. % RECORDED USAGE DATA ERROR RESOLVED
Definition:
PACIFIC will ensure that the Recorded Usage Data is transmitted to CLEC
error free, the level of detail includes but not limited to: detail
required to Rating the call, Duration, Correct Originating/Terminating
information, etc. The error is reported to PACIFIC as a Modification
Request (MR). Performance is measure at two levels--Severity 1 or
Severity 2.
Method of Calculation:
SEVERITY 1: INCLUDES MESSAGES THAT ARE BILL AFFECTING AND REPRESENTS 1%
OF THE CURRENT CUSTOMER BASE. CONTACT TO BE MADE BY TELEPHONE.
NUMBER OF SEVERITY 1 MR'S FIXED > 24 HOURS
------------------------------------------
NUMBER OF SEVERITY 1 MR'S X 100 = > 90%
-
100% OF ALL SEVERITY 1 MR TO BE FIXED WITHIN FIVE (5) DAYS
SEVERITY 2: NON-BILL AFFECTING ERRORS. CONTACT MAY BE BY PHONE, FAX,
E-MAIL, ETC.
NUMBER OF SEVERITY 2 MR'S FIXED > 3 DAYS
----------------------------------------
NUMBER OF SEVERITY 2 MR'S X 100 = < 90%
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ATTACHMENT 17
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100% OF ALL SEVERITY 2 MR TO BE FIXED WITHIN TEN (10) DAYS
7. % INQUIRIES RESPONSIVENESS
Definition:
PACIFIC will respond to all usage inquires within twenty-four (24) hours
of CLEC request for information, Monday through Friday. Severity 1 MR
will be responded to on a seven (7) day a week basis. CLEC will receive
continuous status reports until the request for information is
satisfied.
Method of Calculation:
NUMBER OF BILLING INQUIRIES RESPONDED TO 24 HOURS
-------------------------------------------------
NUMBER OF BILLING INQUIRIES X 100 = 98%
<PAGE> 292
ATTACHMENT 17
Page 16
SECTION B LIQUIDATED DAMAGES
For certain delays or failures of either Party under this Agreement effective
July 1 1997 and there are at least thirty (30) occurrences per month per
Functional Activity, and on a Region Basis, as appropriate, the non-performing
Party shall pay the other Party the amounts calculated as provided below.
Average Non-Recurring Charges -
The Average Non-Recurring Charge is the sum of all non-recurring charges applied
to service orders issued by CLEC and for which there were performance defects (
e.g., Installation Appointment Missed, Late CSR, Service Order Discrepancy,
etc.) divided by the total number of defects within the measurement period.
These calculations will be made by Functional Activity and product
(Business-Single/Multi-line, Centrex, PBX Trunks), Residence, LINK, and ISDN.
Average Recurring Charges -
The Average Recurring Charge is the sum of all recurring charges applied to
service orders issued by CLEC and for which there were performance defects (
e.g. Maintenance Appointment Missed, Repeat Trouble, etc.) divided by the total
number of defects within the measurement period. These calculations will be made
by Functional Activity and product (Business-Single/Multi-line, Centrex, PBX
Trunks), Residence, LINK, and ISDN.
Below are listed selected functional activities which are critical to customer
satisfaction and the remedy payable by the non-performing Party for specific
lack of performance as described in the following table:
<TABLE>
<CAPTION>
FUNCTIONAL ACTIVITY THRESHOLD LIQUIDATED DAMAGE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1) % Installation Appointment When results fall below parity Waiver of an average nonrecurring installation
Met. (A.1.1) charge for the number of lines ordered and not
installed on time OR orders found to have
2) % Installation Reports. a PACIFIC trouble within 30 days after
(A. 1.2) installation. The waiver would be for
the amount of orders below the comparable
measurement in retail.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 293
ATTACHMENT 17
Page 17
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
1) % Maintenance Appointments When results fall below parity One month's average recurring charges per line
Met. out of service that falls below parity. The
2) % Repeat Troubles within 30 waiver would be for the amount of lines out of
days. service below the comparable measurements in
3) Report Rate. retail within the described (4) PACIFIC
4) Receipt To Clear Duration. Regions.
Note: If our maintenance performance for a
given month fails to meet two or more
assurance measures as described in Section A,
PACIFIC will be liable for the category
liquidated damages that results in the highest
amount.
- ---------------------------------------------------------------------------------------------------------------------
FOC Complete and Accurate Less than 85% of FOCs 20% of an Average Non-Recurring charge.
returned are complete/accurate
- ---------------------------------------------------------------------------------------------------------------------
FOC Timeliness Less than 85% of FOCs 10% of an Average Non-Recurring charge.
returned within 4 hours
- ---------------------------------------------------------------------------------------------------------------------
Migration Notification Less than 85% of Migration Credit PlC Change Charge.
Notifications sent in 48 hours.
- ---------------------------------------------------------------------------------------------------------------------
CLEC PIC Change Less than 85% of CLEC PIC Credit PlC Change Charge.
changes completed within 24
hours.
- ---------------------------------------------------------------------------------------------------------------------
Service Order Discrepancy Less than 80% of orders 20% of a Average Non-Recurring charge
submitted without material (Paid by CLEC).
errors.
- ---------------------------------------------------------------------------------------------------------------------
Customer Service Record Less than 85% of CSRs are 5% of a Average Non-Recurring charge for each
sent within 4 hours. CSR for which there is a subsequent service
order issued.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 294
ATTACHMENT 17
Page 18
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Trunk Orders Completed on When results fall below 100% of the total non-recurring charges for
Time parity. equivalent products (FG B or D trunks), as
specified in CPUC 175-T, Section 6.
- ---------------------------------------------------------------------------------------------------------------------
Trunk Firm Order Confirmation When results fall below 20% of the total non-recurring charges for
Delivered on Time parity. equivalent products (FG B or D trunks), as
specified in CPUC 175-T, Section 6.
- ---------------------------------------------------------------------------------------------------------------------
Trunk Service Order Discrepancy Less than 80% of orders are 20% of the total non-recurring charges for
submitted without material equivalent products (FG B or D trunks), as
errors. specified in CPUC 175-T, Section 6.
- ---------------------------------------------------------------------------------------------------------------------
Forecasting (Excludes When product volumes exceeds $10.00 per line or trunk for the amount
Interconnection Trunks) or falls below the +/- 20% of ordered between 20% and 30% under the
the forecast amount. forecast. $20.00 per line or trunk for the
amount ordered between 31% and 40% under the
forecast. $35.00 per line or trunk for the
amount ordered between 41% or more under the
forecast. When volumes for products exceed the
forecast by 20%, all remedies associated with
preordering, ordering, provisioning and
maintenance will not apply.
- ---------------------------------------------------------------------------------------------------------------------
Recorded Usage Data (AKA Usage Each instance delivery of Annual interest rate of 8% compounded daily
Data Transfer as described Recorded Usage Data exceeds: will be applied on net revenues for 50% of all
in Section A.5) messages delayed to CLEC beyond the then
a) A specified performance prevailing performance standard and until
standard of: Recorded Usage Data is delivered, or sixty
95% within 5 days; days from when message(s) was recorded,
99% within 10 days; whichever comes first. Said
100% within 30 days.
OR,
b) Parity of performance
standard as defined in the
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 295
ATTACHMENT 17
Page 19
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
benchmark audit and analysis interest shall be applied on net revenues
which, once defined, shall for 100% of all messages for which CLEC
prevail over a) above. demonstrates actual delayed billing occurred as
a result of late receipt of Recorded Usage
Data.
- ---------------------------------------------------------------------------------------------------------------------
PACIFIC will absorb all costs and not charge
CLEC for any Recorded Usage Data not delivered
to CLEC within sixty days from when the data
was recorded by PACIFIC.
Conditions that will be exempt from the above
Credit application will be identified during
the benchmark audit and analysis.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 296
Attachment 18
ATTACHMENT 18
INTERCONNECTION
<PAGE> 297
Attachment 18
I. LOCAL INTERCONNECTION TRUNK ARRANGEMENTS
GENERAL
The Parties will establish Local Interconnection Trunks to exchange
local and intraLATA toll traffic. Neither Party shall terminate Switched
Access traffic over Local Interconnection Trunks. Separate two-way Meet
Point Trunks will be established for the joint provisioning of Switched
Access traffic. Local Interconnection will be provided via two-way
trunks unless both Parties agree to implement one-way trunks on a
case-by-case basis.
A. Interconnection Within Each LATA.
1. Each Party will establish a Local Interconnection Trunk
Group with each Access Tandem in the LATA(s) in which it
originates or terminates local and/or toll traffic with
the other Party, unless CLEC orders LATA-Wide
Terminating Access from PACIFIC. The Parties may not
route Local Interconnection traffic to an Access Tandem
destined for an NXX that subtends another Tandem, except
as specified in Sections l.A.2 and II below. The Parties
agree that direct trunking to an end office from either
Party's end office or Access Tandem is permitted under
the terms of this section.
2. LATA-Wide Terminating Access
The Parties agree that CLEC may select a LATA-Wide
terminating arrangement. When CLEC selects such an
arrangement, interconnection is established at a single
tandem designated by PACIFIC for termination of all
Local Interconnection Traffic destined for any office in
that LATA.
3. Tandem-Level Terminating Access
Interconnection at PACIFIC tandems within each LATA:
CLEC will interconnect with all PACIFIC Access Tandems
in each of the LATA(s) in which it originates traffic
and interconnects with PACIFIC, unless CLEC selects the
LATA-Wide Terminating Option.
4. In addition to the tandem interconnection described
above, either Party may establish end office-to-end
office or end office-to-tandem or tandem-to-tandem trunk
groups. In the case of host-remote end offices, such
interconnection shall occur at the location of the host
or remote, at the option of the Party deploying the
host-remote end office.
5. CLEC and PACIFIC agree to interconnect their networks
through existing and/or new facilities between CLEC End
Offices and/or Access Tandem
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Switches and the corresponding PACIFIC End Office and/or
Access Tandems set forth in Appendix A. The Parties will
establish logical trunk groups referencing the
appropriate CLEC Routing Point and PACIFIC Central
Office. In addition, where necessary, and as mutually
agreed to, the Parties will define facilities between
their networks to permit trunk group(s) to be
established between the points listed in Appendix A.
While Appendix A is unpopulated at the time of execution
of this Agreement, CLEC shall initially populate
Appendix A; PACIFIC may populate Appendix A further,
under paragraph 6 below.
6. Nothing in the foregoing restricts either Party from
ordering and establishing CLEC and/or PACIFIC Local
Interconnection trunk groups in addition to the initial
combinations described above. Amendments to Appendix A
may be made by either Party, upon 30 days written notice
and acceptance by the other Party. Acceptance will not
be unreasonably withheld. Such amendments may be made
without the need to renegotiate the terms of the rest of
this Attachment.
B. Single P01 Model.
1. For each interconnection between the Parties for the
exchange of local, intraLATA toll, and meet-point
Switched Access traffic, the Parties agree that CLEC
will designate a single Point Of Interconnection between
any two switching entities.
C. Sizing and Structure of Interconnection Facilities.
1. The Parties will mutually agree on the appropriate
sizing for facilities based interconnection, based on
the standards set forth below. The capacity of
interconnection facilities provided by each Party will
be based on mutual forecasts and sound engineering
practice, as mutually agreed to by the Parties during
planning and forecasting meetings. The interconnection
facilities provided by each Party shall be formatted
using either Alternate Mark Inversion Line Code or
Superframe Format Framing. D53 facilities will be
optioned for C-bit Parity.
2. When interconnecting at PACIFIC's tandems, the Parties
agree to establish Bipolar 8 Zero Substitution Extended
Super Frame ("B8ZS ESF") two-way trunks where
technically feasible for the sole purpose of
transmitting 64k CCC data calls. In no case will these
trunks be used for calls for which the User Service
Information parameter (also referred to as "Bearer
Capability") is set for "speech" unless all available
non 64K CCC circuits are busy. If all such circuits are
busy, CLEC and PACIFIC agree to use Network Management
Controls (including inter alia, re-routing to 64K CCC
trunk groups) pursuant to Section XII of this Attachment
to relieve
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Attachment 18
network congestion temporarily. Where additional
equipment is required, such equipment would be obtained,
engineered, and installed on the same basis and with the
same intervals as any similar growth job for IXC, CLC,
or PACIFIC internal customer demand for 64K CCC trunks.
3. When interconnecting at PACIFIC's digital End Offices,
the Parties have a preference for use of BBZS ESF
two-way trunks for all traffic between their networks.
Where available, such trunk equipment will be used for
these Local Interconnection Trunk Groups and Meet Point
Trunk Groups. Where AMI trunks are used, either Party
may request upgrade to B8ZS ESF when such equipment is
available.
D. Combination Interconnection Trunks.
1. The Parties agree to work cooperatively to combine all
functionalities of Local Interconnection Trunk Groups
and Meet Point Trunk Groups on a single Combination
Interconnection Trunk Group at any feasible Point Of
Interconnection where either Party desires, except in
connection with the LATA-Wide terminating option.
2. The Parties agree to make the initial decision as to
whether the use of Combination Interconnection Trunk
Groups is feasible, including a determination of
switched software compatibility, ordering procedures and
billing procedures, no later than six months from the
effective date of this Agreement.
3. If the Parties find the use of Combination
Interconnection Trunk Groups not to be feasible at that
time, the Parties will undertake a review of such
feasibility and a further decision on the use of
Combination Interconnection Trunk Groups at six month
intervals, at either Party's option, through the term of
the Agreement.
4. Until the Parties find Combination Interconnection Trunk
Groups to be feasible, Local Interconnection will be
provided via one-way and/or two-way trunks.
5. Whenever the use of Combination Interconnection Trunk
Groups is determined to be feasible, and ordering and
billing procedures have been established:
a) Any new trunk groups may be ordered using the
Combination Interconnection Trunk Group option;
and
b) The Parties will work together in good faith to
complete the conversion from the use of separate
Local Interconnection Trunk
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Attachment 18
Groups and Meet Point Trunk Groups to the use of
Combination Interconnection Trunk Groups within
six months from that time.
E. Signaling Protocol. The Parties will interconnect their networks
using SS7 signaling as defined in GR-317 and GR-394, including
ISDN User Part ("IS UP") for trunk signaling and Transaction
Capabilities Application Part ("TCAP") for CCS-based features in
the interconnection of their networks. Either Party may
establish CCS interconnections either directly and/or through a
third party. CCS interconnection, whether direct or by third
party shall be pursuant to PUB L-780023-PB/NB and in accordance
with the rates, terms and conditions of the Parties' respective
tariffs. The Parties will cooperate in the exchange of TCAP
messages to facilitate full interoperability of CCS-based
features between their respective networks, including all CLASS
features and functions, to the extent each carrier offers such
features and functions to its own end users. The Parties will
provide all CCS signaling parameters, including CPN, and will
honor all privacy indicators.
F. Transit Signaling: CLEC may choose to route SS7 signaling
information (~, ISUP, TCAP) from CLEC's signaling network to
another CLC's signaling network via PACIFIC's signaling network
for the purpose of signaling call processing and network
information between CLEC and the other CLC's network, whether or
not PACIFIC has a direct-traffic trunk to the terminating
address, provided that CLEC furnishes PACIFIC with:
1. the destination point codes of all the CLC switches to
which it wishes to send transit signaling;
2. the identity of the STPs in PACIFIC's network in which
each DPC will be translated;
3. the identity of the STPs in the other signaling network
to which such transit signaling will be sent; and
4. a letter from the other party authorizing PACIFIC to
send such signaling messages.
CLEC agrees to pay the rates for Transit Signaling as specified in
Attachment 8.
G. Either Party may opt at any time to terminate (i.e., overflow)
to the other Party some or all local exchange traffic and
intraLATA toll traffic originating on its network, together with
Switched Access traffic, via Feature Group D or Feature Group B
Switched Access Service. Either Party may otherwise purchase
these Switched Access Services from the other Party subject to
the rates, terms and conditions specified in its standard
intrastate access tariffs.
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Attachment 18
H. When the Tandem-Level Terminating option is chosen, each Party
shall deliver to the other Party over the Local Interconnection
Trunk Group(s) only such traffic which is destined for those
publicly dialable NPA NXX codes served by end offices that
directly subtend the Access Tandem or to those LECs, CLCs and
Wireless Service Providers that directly subtend the Access
Tandem. When a LATA-Wide Terminating Access option is chosen,
CLEC may route Local Interconnection traffic to a PACIFIC Access
Tandem destined for any NXX in the LATA.
I. Unless otherwise agreed to, each Party shall deliver all traffic
destined to terminate at either Party's end office or tandem in
accordance with the serving arrangements defined in the Local
Exchange Routing Guide ("LERG").
J. Where the Parties deliver over the Local Interconnection Trunk
Group miscellaneous calls (i.e., time, weather, NPA-555,
California 900, Mass Calling Codes) destined for each other,
the'! shall deliver such traffic in accordance with the serving
arrangements defined in the LERG.
K. Nil codes (e.g., 411, 611 and 911) shall not be sent between
CLEC's and PACIFIC's network over the Local Interconnection
Trunk Groups.
L. Maintenance of Service.
1. A Maintenance of Service charge, as specified below
(N.3], applies whenever either Party requests the
dispatch of the other Party's personnel for the purpose
of performing maintenance activity on the
interconnection trunks, and any of the following
conditions exist:
a) No trouble is found :n the interconnection
trunks; or
b) The trouble condition results from equipment,
facilities or systems not provided by the Party
whose personnel were dispatched; or
c) Trouble clearance did not otherwise require a
dispatch and, upon dispatch requested for repair
verification, the interconnection trunk does not
exceed Maintenance Limits.
2. If a Maintenance of Service initial charge has been
applied and trouble is subsequently found in the
facilities of the Party whose personnel were dispatched,
the charge will be canceled.
3. Billing for Maintenance of Service is based on each
half-hour or fraction thereof expended to perform the
work requested. The time worked is categorized and
billed at one of the following three rates:
a) basic time;
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Attachment 18
b) overtime; or
c) premium time
As defined for billing by PACIFIC in PACIFIC's revised
Schedule Cal. P.U.C. Tariff No. 175-T, Section 13 and in
CLEC's Exchange tariff.
II. THIRD-PARTY TRAFFIC
A. PACIFIC shall terminate traffic from third-party LECs, CLCs, or
wireless service providers ("WSPs") delivered to PACIFIC's
network through an CLEC tandem. Prior to the routing of such
traffic, the Parties agree to negotiate the issues of network
capacity and forecasting caused by such terminations. The
Parties shall conduct such negotiations in good faith and shall
not unreasonably withhold consent to the routing of such
traffic.
B. PACIFIC shall complete traffic delivered from CLEC destined to
third-party LECs, CLCs or WSPs in the LATA. PACIFIC shall have
no responsibility to ensure that any third-party LEC, CLC or WSP
will accept such traffic.
C. PACIFIC shall accept, from any third-party LEC, CLC, or WSP in
the LATA, traffic destined for an CLEC end office subtending the
relevant PACIFIC tandem, or a LEC, CLC or WSP subtending CLEC's
central office if PACIFIC has a provision in ~n interconnection
agreement with such LEC, CLC or WSP permitting such an
arrangement.
III. COMPENSATION FOR CALL TERMINATION
A. In all cases, resale lines (whether purchased by CLEC or a third
party) in PACIFIC's switches will be treated in the same manner
as PACIFIC's end user customers for the purposes of call
termination charges.
B. For calls that originate from or terminate to an CLEC LSNE,
bound for or terminated from a third party LEC, the Parties
agree that PACIFIC shall make arrangements directly with that
third party for any compensation owed in connection with such
calls on CLEC's behalf.
C. PACIFIC agrees to bill any facilities-based third party referred
to in B, above, unless, after thirty (30) days' notice in
writing to PACIFIC, CLEC requests otherwise. To compensate
PACIFIC for this service, CLEC agrees to pay $.005 (one-half
cent) per message.
D. For calls that originate from a facilities-based third party and
terminate to an CLEC LSNE, PACIFIC will compensate CLEC on
behalf of that third party. For calls that terminate to a
facilities-based third party from an CLEC LSNE,
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<PAGE> 303
Attachment 18
PACIFIC has agreed to charge CLEC as if the call terminated in
PACIFIC's network, using PACIFIC's rates as described below. In
the event CLEC elects not to use PACIFIC's billing service
described in C, above, CLEC shall deal directly with third
parties regarding compensation for call termination.
E. The following compensation terms shall apply in all cases where
CLEC purchases PACIFIC's LSNE:
1) For Local intra-switch calls where CLEC has purchased
PACIFIC's LSNE, the Parties agree to impose no call
termination charges on each other. Where the call is:
(a) Originated by CLEC's end user customer and
completed to a PACIFIC customer:
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
(b) Originated by CLEC's end user customer and
completed to the customer of a third party
carrier (not affiliated with CLEC) using
PACIFIC's LSNE:
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
(c) Originated by CLEC's end user customer and
completed to another of CLEC's end user
customers using PACIFIC's LSNE.
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
(d) Originated by a PACIFIC customer and terminated
to CLEC's LSNE.
- No Local Switching Capacity charge will
apply.
(e) Originated by the customer of a third party
carrier (not affiliated with CLEC) using
PACIFIC's LSNE and terminated to CLEC's LSNE.
- No Local Switching Capacity charge will
apply to CLEC. The Local Switching
Capacity charge on the originating end
will be imposed on the third-party
carrier.
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Attachment 18
2. For Local inter-switch calls where CLEC has purchased
PACIFIC's LSNE, the Parties agree to impose no call
termination charges on each other.
Unless otherwise specified, PACIFIC's charges will apply
to CLEC as described below where the call is:
(a) Originated from CLEC's LSNE and completed to a
PACIFIC end user.
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
- A mileage-based transport charge will
apply when CLEC uses PACIFIC's
transport.
(b) Originated from CLEC's LSNE and completed to the
LSNE of a third party carrier (not affiliated
with CLEC).
- For use of the local switch:) Local
Switching Capacity charge at the
originating office.
- A mileage-based transport charge will
apply when CLEC uses PACIFIC's
transport.
(c) Originated from CLEC's LSNE and completed to the
interconnected network of a third party carrier
(not affiliated with CLEC).
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
- A mileage-based transport charge will
apply when CLEC uses PACIFIC's
transport, and mileage shall be measured
between the originating office and the
P01 with the third party's network.
For call termination:
- Tandem Transit Switching rate
- Local Switching Capacity charge at the
terminating office.
(d) Originated from CLEC's LSNE and completed to
CLEC's LSNE.
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
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Attachment 18
- A mileage-based transport charge will
apply when CLEC uses PACIFIC's
transport.
- (For use of the local switch:) Local
Switching Capacity charge at the
terminating office.
(e) Originated by a PACIFIC end user customer and
terminated to CLEC's LSNE.
- (For use of the local switch:) Local
Switching Capacity Charge at the
terminating office.
(f) Originated by a customer of a third-party
carrier (not affiliated with CLEC) using
PACIFIC's LSNE and terminated to CLEC's LSNE.
- (For use of the local switch:) Local
Switching Capacity charge at the
terminating office.
(g) Originated by an end-user customer on the
interconnected network of a third-party carrier
(not affiliated with CLEC) and terminated to
CLEC's LSNE.
- (For use of the local switch:) Local
Switching Capacity charge at the
terminating office.
- (For call termination:) CLEC charges to
Pacific, PACIFIC's Local Switching
Capacity charge at the terminating
office.
3. For intraLATA toll calls where CLEC has purchased
PACIFIC's LSNE, charges per Attachment 8 shall apply as
follows:
(a) Originated by CLEC's end-user customer and
completed to a PACIFIC end user customer.
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
- A mileage-based transport charge between
the two offices will apply when CLEC
uses PACIFIC's transport.
Switched access charges, per PACIFIC'S Schedule
Cal. P.U.C. Tariff No. 175-T ("Switched Access
Charges"), shall apply as follows:
- NIC
For call termination: at the terminating office
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Attachment 18
- Local Switching
- NIC
(b) Originated by CLEC's end-user customer and
completed to the customer of a third-party
carrier (not affiliated with CLEC) using
PACIFIC's LSNE in a distant end office.
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
- A mileage-based transport charge between
the two offices will apply when CLEC
uses PACIFIC's transport.
- NIC at the originating office
- (For call termination:) Local Switching
Capacity charge at the terminating
office per Attachment 8.
(c) Originated by CLEC's end-user customer and
completed to the network of third-party carrier
(not affiliated with CLEC) interconnected with
PACIFIC's network.
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
- A mileage-based transport charge will
apply when CLEC uses PACIFIC's
transport, and mileage shall be measured
between the originating office and the
P01 with the third party's network.
- Tandem Transit Rate
Switched Access charges apply as follows:
- NIC at the originating office
- (For call termination: Switched Access
Charges:
- Local Switching
- NIC at the terminating office
- Tandem Switching (if charged by the
third party)]
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Attachment 18
(d) Originated by CLEC's end-user customer and
completed to another of CLEC's customers being
served through PACIFIC's LSNE in a distant
office.
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
- A mileage-based transport charge between
the two offices will apply when CLEC
uses PACIFIC's transport.
- NIC at the originating office
- NIC at the terminating office
- Local Switching Capacity charge at the
terminating office.
(e) Originated by a PACIFIC customer and terminated
to CLEC's end-user customer.
- (For use of the local switch:) Local
Switching Capacity charge at the
terminating office.
- NIC at the terminating office
- (For call termination: ) CLEC charges to
PACIFIC, PACIFIC's Switched Access
Charges at the terminating office.
- Local switching
- NIC
(f) Originated by the customer of a third-party
carrier (not affiliated with CLEC) using
PACIFIC's LSNE in a distant end office and
terminated to CLEC's LSNE.
- (For use of the local switch:) Local
Switching Capacity charge at the
terminating office.
- NIC at the terminating office
- (For call termination:) CLEC will charge
PACIFIC Local Switching Capacity per
Attachment 8 at the terminating office.
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Attachment 18
(g) Originated by a customer on the network of a
third-party carrier (not affiliated with CLEC)
interconnected with PACIFIC's network and
terminated to CLEC's LSNE.
- (For use of the local switch:) Local
Switching Capacity charge at the
terminating office.
- NIC at the terminating office
- (For call termination): CLEC will charge
to Pacific, PACIFIC's Switched Access
Charges:
- Local Switching
- NIC at the terminating office
4. For intrastate Switched Access calls where CLEC is using
PACIFIC's LSNE for calls originated from or terminated
to an IXC for completion:
(a) For calls originated from CLEC's end-user
customer to CLEC's own IXC switch (or that of an
affiliate) for completion.
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
- PACIFIC and CLEC will charge CLEC's IXC
affiliate appropriate Switched Access
elements on a meet point basis per
Attachment 13.
(b) For calls originated from CLEC's end-user
customer to an IXC's switch not affiliated with
CLEC.
For use of the local switch: Local Switching
Capacity charge at the originating office.
- PACIFIC and CLEC shall charge the I?(C
for originating Switched Access on a
meet-point basis per Attachment 13 of
this Agreement.
- NIC at the originating office
(c) For calls terminating to CLEC's end-user
customer from CLEC's own IXC switch (or that of
an affiliate) for completion.
- (For use of the local switch:) Local
Switching Capacity charge at the
terminating office.
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Attachment 18
- PACIFIC and CLEC shall charge CLEC's IXC
(affiliate) appropriate Switched Access
elements on a meet point basis per
Attachment 13 of this Agreement.
- NIC at the terminating office
(d) For calls terminating to CLEC's end-user
customer from an IXC switch not affiliated with
CLEC.
- (For use of the local switch:) Local
Switching Capacity charge at the
terminating office.
- PACIFIC and CLEC shall charge the IXC
terminating Switched Access elements on
a meet point basis per Attachment 13 of
this Agreement.
- NIC at the terminating office
5. For interstate Switched Access calls where CLEC is using
PACIFIC's LSNE for calls originated from or terminated
to an IXC for completion:
(a) For calls originated from CLEC's end-user
customer to CLEC's own IXC switch (or that of an
affiliate) for completion.
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
- PACIFIC and CLEC shall charge CLEC's IXC
(affiliate) appropriate Switched Access
elements on a meet-point basis per
Attachment 13 of this Agreement.
- Carrier Common Line Charge ("CCLC") at
the originating office
- RIC at the originating office
(b) For calls originated from CLEC's end-user
customer to an IXC's switch not affiliated with
CLEC.
- (For use of the local switch:) Local
Switching Capacity charge at the
originating office.
- PACIFIC and CLEC shall charge the IXC
for originating Switched Access on a
meet-point basis per Attachment 13 of
this Agreement.
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<PAGE> 310
Attachment 18
- Carrier Common Line Charge ("CCLC") at
the originating office
- RIC at the originating office
(c) For calls terminating to CLEC's end-user
customer from CLEC's own IXC switch (or that of
an affiliate) for completion.
- (For use of the local switch:) Local
Switching Capacity charge at the
terminating office.
- PACIFIC and CLEC shall charge the CLEC's
IXC (affiliate) appropriate Switched
Access elements on a meet point basis
per Attachment 13.
- Carrier Common Line Charge ("CCLC") at
the terminating office
- RIC at the terminating office
(d) For calls terminating to CLEC's end-user
customer from an IXC switch not affiliated with
CLEC.
- For use of the local switch:) Local
Switching Capacity charge at the
terminating office.
- PACIFIC and CLEC shall charge the IXC
for terminating Switched Access on a
meet-point basis per Attachment 13 of
this Agreement.
- Carrier Common Line Charge ("CCLC") at
the terminating office
- RIC at the terminating office
F. The following terms apply where CLEC and PACIFIC interconnect
using their own networks, pursuant to Section I of this
Attachment.
1. The following call termination rates shall apply for
intraLATA traffic terminated from CLEC to PACIFIC or
from PACIFIC to CLEC. CLEC and PACIFIC agree to the
mutual exchange of Local Calls without explicit
compensation ("bill and keep") where traffic flows
between CLEC and PACIFIC are in balance, as defined in
(a), below. Where such traffic is not in balance, CLEC
and PACIFIC agree to call termination at the rates set
out in (c), below, for that portion of the traffic that
is out of balance.
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Attachment 18
(a) The Parties will measure Local Call traffic
between them and will use such measures to
determine the balance of traffic between them
and the compensation due, if any. The Parties
will make measurements and report the results to
each other on a calendar-quarter basis (i.e.,
January-March, April-June, July-September,
October-December). Each Party will be
responsible for the measurement of its
originating traffic transmitted to the other.
The Parties will undertake traffic measurements
on a LATA-Wide basis in each LATA where the
Parties interconnect. The Parties will report
measurements to each other no later than the end
of the month following the completion of the
quarter. The provisions of this Section and of
(b) and (c), below, will not apply until the
first full calendar quarter after the effective
date of this Agreement. The reported
measurements will determine the requirement for
payments, if any, for the subsequent full
calendar quarter. In determining whether any
amount for call terminations owing under this
section, neither Party shall be obliged to pay
the other unless, on a LATA-Wide basis, the net
usage differential (i.e., the difference between
the respective Parties' usage levels, calculated
by subtracting the lower total number of minutes
of use in a quarter from the higher total
number) exceeds the following percentages of the
total volume of local traffic exchanged between
the Parties in the LATA:
(i) The applicable percentage for 0 to
2,000,000 minutes of use will be 10%;
(ii) The applicable percentage for 2,000,001
through 5,000,000 minutes of use will be
5%;
(iii) The applicable percentage for greater
than 5,000,000 minutes of use will be
2%.
(b) The Parties agree that any calculation of net
usage differential for local traffic volumes
less than the percentages set out immediately
above shall demonstrate the Parties' traffic to
be in balance for purposes of this Section, The
Parties will base calculation under this Section
on AMA recordings, which shall be made, where
possible, in both the originating and
terminating Parties' network. The Parties agree
to report to each other on a monthly and
quarterly basis the total monthly local minutes
of use each terminates to the other Party.
(c) Where the Parties' traffic is not in balance, as
determined in the immediately preceding Section,
the Party terminating the greater
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<PAGE> 312
Attachment 18
amount of ~ traffic to the other (the
"out-of-balance Party") will pay the other
Party, for all minutes of use in excess of the
number of minutes terminated to it by the other
Party, call termination rates based on the
following rate elements, per minute of use. The
out-of-balance Party will continue to make such
payments through the end of the quarter in which
it is determined that its traffic is no longer
out of balance. Upon such a determination, the
payments shall cease until the Parties' traffic
is again determined to be out of balance. When
traffic exchanged is out of balance, the
out-of-balance Party shall pay
(i) Local Switching Capacity,
(ii) Tandem Switching (where used), and
(iii) Common Transport (where used).
(d) Once the Commission has established rates for
Local Call transport and termination in its Open
Access and Network Architecture Development
("OANAD") proceeding, those rates shall apply in
lieu of the above-specified rate elements.
2. For Local and intraLATA Toll traffic originated by CLEC
(or CLCs subtending its network) to PACIFIC, CLEC agrees
to pay PACIFIC the following:
(a) Local calls: Bill and Keep (applicable to all
local Zone Usage Measurement ("ZUM") Zone 1,
Zone 2 and Zone 3, and Extended Area Service
traffic) shall apply unless the Parties' traffic
is out of balance per subsection 1(a) of this
Section, above. In the latter event, the
provisions of Subsection 1(c) of this Section
shall apply.
(b) Toll calls: The following rate elements are
applicable to intraLATA toll calls, based on the
rates in Attachment 8.
(1) The following rate elements from
PACIFIC's Tariff Cal. PUC 1 75-T will
apply when a Toll Call routes over Local
Interconnection Trunk Groups:
(a) For common switched transport: where
PACIFIC's tandem is used:
(i) Fixed - per minute of use.
(ii) Variable - per mile per minute of
use. Mileage shall be calculated
based on the
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<PAGE> 313
Attachment 18
airline miles between the
Vertical and Horizontal ("V&H")
coordinates of the P01, and the
PACIFIC end office or CLC routing
point.
(iii) Tandem Switching.
(b) Local switching
(c) NIC
(2) CLEC will pay two times the Tandem
Switching rate as specified in
Attachment 8 if whenever CLEC elects the
LATA-Wide Terminating Option.
3. For Local and intraLATA Toll traffic originated from
PACIFIC to CLEC, PACIFIC agrees to pay CLEC the following:
(a) Local calls: Bill and Keep: (applicable to all
local Zone Usage Measurement ("ZUM") Zone 1, Zone 2
and Zone 3, and Extended Area Service traffic)
shall apply unless the Parties' traffic is out of
balance per Section Fl(a), above. In the latter
event, the provisions of Section F1(c) shall apply.
(b) Toll calls: The following rate elements from
PACIFIC's Tariff Cal. PUC 175-T will apply when a
toll call routes over Local Interconnection Trunk
Groups:
(1) For common switched transport:
where CLEC's tandem is used:
(i) Fixed - per minute of use.
(ii) Variable - per mile per minute of
use. Mileage shall be calculated
based on the airline miles between
the Vertical and Horizontal ("V&H")
coordinates of the P01, and the CLEC
end office or CLC/CLEC routing
point.
(2) Tandem Switching
(3) Local switching
(4) NIC
18
<PAGE> 314
Attachment 18
G. Tandem Transit Switching rate: Tandem Transit Switching rate
shall be equal to the Tandem Switching rate plus two times the
Common Transport Fixed rate element as specified in Attachment
8.
1. The transit rate provides for Access Tandem switching
when either Party uses the other Party's Access Tandem
to originate a CLC call to a third party such as another
LEC, CLC, or Wireless Service Provider.
2. If either Party receives a call through the other
Party's Access Tandem that originates from another LEC,
CLC or wireless service Provider, the Party receiving
the transited call will not charge the other Party any
rate element for this call regardless of whether the
call is local or toll. The Parties will establish
appropriate billing relationships directly with the
Wireless Service Provider, other CLC or LEC.
H. For intraLATA Toll Free Service calls where such service is
provided by one of the Parties, the compensation set forth in
Section III. above, shall be charged by the Party originating
the call, rather than the Party terminating the call. This
includes originating charges listed in Section III as well as a
database query charge as specified in PACIFIC's intrastate
access tariff or CLEC's local exchange tariff.
I. Each Party will calculate terminating interconnection minutes of
use based on standard Automatic Message Accounting ("AMA")
recordings made within each Party's network. These recordings
are the basis for each Party to generate bills to the other
Party. Either Party may request the exchange of originating EMR
records in order to bill the other Party terminating minutes of
use. The Parties agree to cooperate in the exchange of the
records if so requested.
J. Measurement of minutes of use over Local Interconnection Trunk
Groups shall be in actual conversation seconds. The total
conversation seconds over each individual Local Interconnection
Trunk Group will be totaled for the entire monthly bill and then
rounded to the next whole minute.
K. Each Party will provide the other, within fifteen (15) calendar
days after the end of each calendar quarter, a usage report with
the following information regarding traffic it sent to (i.e.,
terminated over) the Local Interconnection Trunk arrangements:
1. Total traffic volume described in terms of minutes and
messages and by call type (local, toll and other)
terminated to each other over the Local Interconnection
Trunk Groups; and
2. Percent Local Usage (PLU)
19
<PAGE> 315
Attachment 18
L. CLEC will pay the rates for SS7 CCS interconnection as specified
in Attachment 8. The Parties will exchange TCAP messages to
facilitate full interoperability of CCS-based features and
functions, to the extent each carrier offers such features and
functions to its own end users. All CCS signaling parameters
will be provided, including CPN. All privacy indicators will be
honored.
M. For 976 or California 900 calls (those 900 NXXs shown in the
LERG as PACIFIC's 900 NXXs), CLEC shall deliver calls originated
over CLEC-provided exchange services to the Local
Interconnection Trunk Groups. The Parties have separately
reached agreement on the rating and billing of such calls.
IV. COMPENSATION FOR USE OF LOCAL INTERCONNECTION FACILITIES
A. Interconnection facilities include the facilities that connect
the Parties' respective switching networks.
B. The Parties agree that each has an equal obligation to
interconnect its network infrastructure to the other's network.
The Parties may decide to own the interconnection facility
jointly or to provide facilities to deliver traffic to the
other. If the Parties agree to build the interconnection
facilities, they will agree on desired capacity and performance
characteristics and then may bid to install the facilities. The
Party with the lowest bid will construct the facilities and bill
the other Party 50% of the construction costs. The constructing
Party will charge a monthly maintenance charge for maintaining
the facilities. This charge will be based upon the TELRIC of
maintaining the facility. (Solely for the purpose of this
paragraph, TELRIC shall be defined as did the FCC in the First
Interconnection Order.) !f the Parties decide not to build and
operate the interconnecting facility jointly, they may choose
from options 1 or 2 below.
C. The Parties agree to the following terms based on consideration
of the generally balanced use of the Parties' respective
facilities for interconnection. Such consideration is based on
relative facility length the capacity provided to each other,
determined by the comparison of facility deployment behind the
POIs associated with CLEC collocation arrangements and PACIFIC's
network. This compensation is contingent on a balanced facility
interconnection being defined in Appendix A.
1. Where the P01 for the Local Interconnection Trunk Group
is located other than in the same PACIFIC Wire Center as
the PACIFIC switch where the Local Interconnection Trunk
Group terminates, CLEC will pay a monthly charge for the
PACIFIC-provided facility according to PACIFIC's
intrastate access tariff, in addition to any usage rate
elements in Section III above. CLEC may, at its option,
choose to pay PACIFIC either the applicable PACIFIC
tariffed unbundled transport or unbundled interoffice
20
<PAGE> 316
Attachment 18
facility rates for DS-1 rates for those DS-1(s) used for
Local Interconnection Trunks in a DS-3 facility, or pay
the applicable tariffed or unbundled interoffice
facility rates for DS-3 for each DS-3 facility, used for
Local Interconnection Trunks between the Parties.
2. Where the P01 for the Local Interconnection Trunk Group
is at a collocation arrangement in the same PACIFIC Wire
Center as the PACIFIC switch where the Local
Interconnection Trunk Group terminates, PACIFIC will pay
CLEC a monthly charge for the facility and cross connect
equal to one Point Of Termination at DS-1 rates (per
DS-1(s) used for Local Interconnection Trunks) or DS-3
rates (per DS-3 used for Local Interconnection Trunks)
according to Pacific's intrastate access tariff, in
addition to any usage rate elements, if any, above.
PACIFIC may, at its option, choose to pay either the
applicable tariffed DS-1 rates for those DS-1(s) used
for Local Interconnection Trunks in a DS-3 facility, or
pay the applicable tariffed DS-3 rates for each DS-3
facility used for Local Interconnection Trunks between
the Parties.
3. Where the P01 for the Local Interconnection Trunk Group
is at a Mid Span Meet, there shall be no compensation
between the Parties for the Local Interconnection
facilities used.
V. MEET-POINT TRUNKING ARRANGEMENTS
A. Two-way trunks will be established to enable CLEC and PACIFIC
jointly to provide Feature Group B and D ("FGB and FGD")
Switched Access Services via PACIFIC's Access Tandem switch.
B. CLEC may use Meet-Point Trunks to send and receive FGB and FGD
calls from Switched Access customers connected to PACIFIC's
Access Tandem.
C. The Parties will use separate facilities and separate two-way
trunk groups to each and every PACIFIC Access Tandem under which
CLEC's NXXs home using DS-1 or DS-3 facilities other than the
facilities used for Local Interconnection Trunk Groups. Neither
Party will charge the other any amount for any meet-point
facilities.
D. In the case of Switched Access Services provided through
PACIFIC's Access Tandem, PACIFIC will not offer blocking
capability for Switched Access customer traffic delivered to
PACIFIC's tandem for completion on CLEC's network. The Parties
understand and agree that Meet-Point Trunking arrangements are
available and functional only to or from Switched Access
customers who directly connect with PACIFIC's tandems that CLEC
subtends in each LATA. In no event will PACIFIC be required to
route such traffic through more than one tandem for connection
to or from Switched Access customers.
21
<PAGE> 317
Attachment 18
PACIFIC shall have no responsibility to ensure that any Switched
Access customer will accept traffic that CLEC directs to the
Switched Access customer. PACIFIC also agrees to furnish CLEC a
list of those IXCs which also interconnect with PACIFIC's
tandems.
E. The Parties will provide CCS to one another, where and as
available, in conjunction with meet-point two-way trunk groups.
CLEC may establish CCS interconnections (either directly or
through a third party), provided such third-party is
interconnected with PACIFIC pursuant to inter- and intra-state
access tariffs. The Parties will exchange TCAP messages to
facilitate full inter-operability of CCS-based features between
their respective networks, including all CLASS features and
functions, to the extent each carrier offers such features and
functions to its own end users. CLEC will provide all CCS
signaling including, without limitation, Charge Number and
originating line information ("OLI"). For terminating FGD,
PACIFIC will pass all CCS signaling including, without
limitation, CPN if it receives CPN from FGD carriers. All
privacy indicators will be honored. Where available, network
signaling information such as Transit Network Selection ("TNS")
parameter, Carrier Identification Codes ("CIC"), (CCS platform)
and CICIOZZ information (non-CCS environment) will be provided
by CLEC wherever such information is needed for call routing or
billing. The Parties will follow all OBF adopted standards
pertaining to TNS and CIC/OZZ codes.
F. The Parties shall use CCS in conjunction with Meet-Point Trunks,
provided that they must use multifrequency ("MF") signaling on a
separate Meet Point Trunk group for originating FGD access to
Switched Access customers that use MF FGD signaling protocols
and may use such signaling due to equipment constraints. The
Parties shall not provide MF and CCS trunk within a DS-1
facility. They must use a separate DS-1 facility for each
signaling type.
G. CLEC shall deliver all originating Toll Free Service calls for
which it requests that PACIFIC perform the Service Switching
Point ("SSP") function (e.g., performs the database query) using
GR-394 format over the Meet-Point Trunk group. CLEC shall use
Carrier Code "0110" and Circuit Code of "08" for all such calls.
H. When CLEC performs the SSP function for Toll Free service calls,
and if such calls are destined for an IEC, if CLEC delivers such
calls to PACIFIC it shall do so over Meet Point Trunk Groups
using GR-394 format. When CLEC performs the SSP function for
Toll Free service calls, and if such calls are destined for NXXs
within the LATA, if CLEC delivers such calls to PACIFIC, it
shall do so over the Local Interconnection Trunk Group using
GR-317 format.
22
<PAGE> 318
Attachment 18
I. Originating Feature Group B calls delivered to PACIFIC's tandem
shall use GR-317 signaling format unless the associated FGB
carrier employs GR-394 signaling for its FGB traffic at the
serving Access Tandem.
VI. RESPONSIBILITIES OF THE PARTIES
A. CLEC and PACIFIC agree to exchange such reports and/or data as
provided in this Attachment to facilitate the proper billing of
traffic. Either Party may request an audit of such usage reports
on no fewer than ten (10) business days written notice and any
audit shall be accomplished during normal business hours at the
office of the Party being audited (which shall be San Francisco
for CLEC and San Francisco for PACIFIC). Such audit must be
performed by a mutually agreed-to auditor paid for by the Party
requesting the audit. Such audits shall be requested within six
months of having received the PLU factor and usage reports from
the other Party and may not be requested more than twice per
year.
B. CLEC and PACIFIC will review engineering requirements on a
semi-annual basis and establish guidelines for forecasts of
trunk and facilities utilization provided under this Attachment.
C. CLEC and PACIFIC shall share responsibility for all Control
Office functions for Local Interconnection Trunks and Trunk
Groups, and both Parties shall share the overall coordination,
installation, and maintenance responsibilities for these trunks
and trunk groups.
D. CLEC is responsible for all Control Office functions for Meet
Point Trunks and Trunk Groups, and shall be responsible for the
overall coordination, installation, and maintenance
responsibilities for these trunks and trunk groups.
E. CLEC and PACIFIC shall:
1. Provide trained personnel with adequate and compatible
test equipment to work with each others' technicians.
2. Notify each other when there is any change affecting the
service requested, including the due date.
3. Coordinate and schedule testing activities of their own
personnel, and others as applicable, to ensure its
interconnection trunks/trunk groups are installed per
the interconnection order, meet agreed upon acceptance
test requirements, and are placed in service by the due
date.
4. Perform sectionalization to determine if a trouble is
located in its facility or its portion of the
interconnection trunks prior to referring the trouble to
each other.
23
<PAGE> 319
Attachment 18
5. Advise each other's Control Office if there is an
equipment failure that may affect the interconnection
trunks.
6. Provide each other with a trouble reporting number that
is readily accessible and available 24 hours/7 days a
week.
7. Provide to each other test-line numbers and access to
test lines, including a test-line number that returns
answer supervision in each NPA-NXX opened by a Party.
F. CLEC and PACIFIC will provide their respective billing contact
numbers to one another on a reciprocal basis
G. The Parties will conduct cooperative testing for the proper
recording of AMA records in each carrier switch(es) before
establishing service.
H. Prior to the time of interconnection, CLEC will provide to
PACIFIC CLEC's references or internal standards governing each
topic in the Bilateral Agreement Template/Worksheet attached as
Appendix B, for which there is a corresponding PACIFIC
reference.
VII. INSTALLATION OF TRUNKS
Due dates for the installation of Local Interconnection Trunk Groups and
Meet Point Trunks covered by this Agreement shall be equal to PACIFIC's
Switched Access intervals.
VIII. TRUNK FORECASTING
A. The Parties shall work towards the development of joint
forecasting responsibilities for traffic utilization over trunk
groups. Orders for trunks that exceed forecasted quantities for
forecasted locations will be accommodated as facilities and/or
equipment becomes available. The Parties must provide forecast
information to each other twice a year. The forecasting Service
Performance Measures and Liquidated Damages (Attachment 17 to
this Agreement) shall not apply to the following forecasts. The
semi-annual forecasts shall include:
1. Yearly forecasted trunk quantities (which include
measurements that reflect actual tandem Local
Interconnection and Meet Point Trunk Groups and end office
equivalent trunking requirements, whether or not tandem
subtending) for a minimum of three (current and plus-i and
plus-2) years;
2. The use of Common Language Location Identifier, described
in Bellcore documents BR 795-100-100 and BR 795400-100
and;
24
<PAGE> 320
Attachment 18
3. A description of major network projects anticipated for
the following six months. Major network projects include
trunking or network rearrangements, shifts in anticipated
traffic patterns, or other activities that are reflected
by a significant increase or decrease in trunking demand
for the following forecasting period.
B. If differences in semi-annual forecasts of the Parties vary by
more than 48 additional DSO two-way trunks for each Local
Interconnection Trunk Group, the Parties shall meet to reconcile
the forecast to within 48 DSO trunks.
C. If a trunk group is under 75 percent (75%) of centum call seconds
capacity on a monthly average basis for each month of any
six-month period, either Party may request the issuance of an
order to resize the trunk group, which shall be left with not
less than 25% excess capacity. In all cases, grade-of-service
objectives identified in Section IX, following, shall be
maintained.
D. Each Party shall provide a specified point of contact for
planning, forecasting and trunk servicing purposes.
IX. GRADE OF SERVICE
A blocking standard of one half of one percent (.005) during the average
busy hour, for final trunk groups between the Parties' networks carrying
Meet-Point traffic shall be maintained. All other final trunk groups
shall be engineered with a blocking standard of one percent (.01)
X. LOCAL INTERCONNECTION TRUNK SERVICING
A. Orders between the Parties to establish, add, change or
disconnect trunks shall be processed by use of an
Interconnection Service Request ("ISR") for CLEC orders to
PACIFIC or an Access Service Request "ASR" for PACIFIC orders to
CLEC.
B. The Parties will jointly manage the capacity of Local
Interconnection Trunk Groups. PACIFIC's Circuit Provisioning
Assignment Center ("CPAC") and CLEC's equivalent center will
send a Trunk Group Service Request ("TGSR") to the other Party
to trigger changes to the Local Interconnection Trunk Groups
based on capacity assessment. Either Party upon receipt of the
TGSR will issue an ISRIASR to the other Party:
1. Within 10 business days after receipt of the TGSR; or
2. At any time as a result of either Party's own capacity
management assessment, in order to begin the
provisioning process.
C. Orders that comprise a major project shall be submitted at the
same time, and their implementation shall be jointly planned and
coordinated. Major projects are those
25
<PAGE> 321
Attachment 18
that require the coordination and execution of multiple orders or
related activities between and among PACIFIC and CLEC work groups
including, but not limited to, the initial establishment of Local
Interconnection or Meet Point Trunk Groups and service in an area, NXX
code moves, re-homes, facility grooming, or network rearrangements.
D. The Parties will cooperate to establish separate high-volume
trunk groups for the completion of calls to high volume
customers, such as radio contest lines.
E. CLEC will be responsible for engineering its network on its side
of the P01. PACIFIC will be responsible for engineering its
network on its side of the P01.
XI. TROUBLE REPORTS
CLEC and PACIFIC will cooperatively plan and implement coordinated
repair procedures for the Meet Point and Local Interconnection Trunks
and facilities to ensure that trouble reports are resolved in a timely
and appropriate manner consistent with procedures referenced in Section
VI of this Attachment.
XII. NETWORK MANAGEMENT
A. Protective Controls Either Party may use protective network
traffic management controls, such as 7-digit and 10-digit code
gaps, on traffic toward each other's network, when required to
protect the public switched network from congestion due to
facility failures, switch congestion or failure, or focused
overload. CLEC and PACIFIC will immediately notify each other of
any protective control action planned or executed.
B. Expansive Controls Where the capability exists, either Party may
implement originating or terminating traffic reroutes to relieve
network congestion temporarily due to failures or abnormal
calling patterns. Reroutes will not be used to circumvent normal
trunk servicing. Expansive controls will only be used when the
Parties mutually agree.
C. Mass Calling CLEC and PACIFIC shall cooperate and share
pre-planning information regarding cross-network call-ins
expected to generate large or focused temporary increases in
call volumes.
26
<PAGE> 322
ATTACHMENT 18/APPENDIX A: POI CHART
CRL NETWORK SERVICES, INC.
<TABLE>
<CAPTION>
CLEC Access Tandem/ End CLEC Routing Point POI Pacific Access Tandem
Office End Office
<S> <C> <C> <C>
SNFCCA86DS0 SNFCCA86W05 SNFCCA2143T
</TABLE>
<PAGE> 323
ATTACHMENT 18
APPENDIX B
BILATERAL AGREEMENT TEMPLATE/WORKSHEET
<PAGE> 324
ATTACHMENT 18 - APPENDIX B
Page 2
Worksheet Current As Of:
<TABLE>
<CAPTION>
Topic Pacific Bell Reference(s) CLEC Reference(s) Notes / Status
- --------- ---------------------------------- -------------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
1 Internetwork provisioning CLC Handbook ("HB"), Section
information and guidelines. 16.5, Provisions of LISA.
CLC Handbook, Appendix F1, CLC
ISR Users' Guide.
Interconnection Agreement
between ____________ and
Pacific,
_______ 1996
2 SS7 & other critical CLC Operations Handbook-SS7,
internetwork compatibility Section 16.7.3.2 & .3,
testing. Pre-service & Protocol Testing.
CCS Network Interface, Section
6.3, Protocol Compatibility
Testing.
NOF Handbook, Section III, 3G, SS7
Compatibility Testing.
3 Special Protocol CCS Network Interface, Section
implementation 2.3, Interface Protocol
agreements. Messages.
TR-246, T1.114 (SCCP) & T1.116
(SCCP); GR-317 and GR-394.
CCS Questionnaire, Section IV, D- 2
Switch Parameters.
</TABLE>
<PAGE> 325
ATTACHMENT 18 - APPENDIX B
Page 3
BILATERAL AGREEMENT TEMPLATE/WORKSHEET
<TABLE>
<CAPTION>
Topic Pacific Bell Reference(s) CLEC Reference(s) Notes / Status
- --------- ---------------------------------- -------------------------------- ----------------------------- ----------------------
<S> <C> <C> <C> <C>
4 Diversity Requirements CCS Network Interface, Section
4.1, Diversity Definition.
NOF Handbook, Section III, 2D,
Link Responsibilities -
Diversity.
5 Installation, maintenance CLC Operations Handbook-LISA,
guidelines and Section 16.6.2,
responsibilities. Responsibilities.
CLC Operations Handbook-SS7,
Section 16.7.2,
Responsibilities
6 Network security CLC Operations Handbook-LISA,
requirements. Section 16.6.11 & .12; i
(Emergency & Fraud).
7 Performance standards LISA Interface Specification,
and service level Section 4, Performance.
agreements.
8 Specific versions/issues of CCS Network Interface, Section
protocol or interface 1.4, Related Documents.
specification.
9 Maintenance procedures, CLC Operations Handbook-LISA,
including trouble reporting, Section 16.6.4, Maintenance
status, etc.
CLC Operations Handbook-SS7,
Section 16.7.4, Maintenance
</TABLE>
<PAGE> 326
ATTACHMENT 18 - APPENDIX B
Page 4
BILATERAL AGREEMENT TEMPLATE/WORKSHEET
<TABLE>
<CAPTION>
Topic Pacific Bell Reference(s) CLEC Reference(s) Notes / Status
- --------- ---------------------------------- -------------------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
10 Internetwork trouble CLC Operations HB-LISA, Section
resolution and escalation 16.6.4 & .6, Sectionalization;
procedures. Escalations.
CLC Operations HB-557, Section
16.7.4 & .6, Sectionalization;
Escalations.
Interconnection Agreement between
____________ and Pacific, _______
1996.
11 In-depth root cause SI. 131 - Customer Service Quality
analysis of significant Failure Report (Analysis).
failures.
12 Explicit forecasting CLC HB, Appendix C,
information re: direct and Interconnection Forecasts.
subtending traffic.
13 Explicit expectations CLC Operations Handbook-557,
regarding interoperability Section 16.7.3.3 & .4,
testing. Protocol/Acceptance Tests.
CCS Network Interface, Section
6.3, Protocol Compatibility
Testing.
CLC Operations Handbook-LISA,
Section 16.6.3.3 Acceptance
Tests.
</TABLE>
<PAGE> 327
ATTACHMENT 18 - APPENDIX B
Page 5
BILATERAL AGREEMENT TEMPLATE/WORKSHEET
<TABLE>
<CAPTION>
Topic Pacific Bell Reference(s) CLEC Reference(s) Notes / Status
- --------- ---------------------------------- -------------------------------- ------------------- --------------
<S> <C> <C> <C> <C>
14 Network management CLC Operations HB-LISA, Section
16.6.2.5, Network Management
Guidelines.
NOF Handbook, Section VI,
Network Management Guidelines.
Interconnection Agreement
between _________ and Pacific,
_________ 1996
15 CLC Operations Handbook - LISA
(all sections).
CLC Operations Handbook - SS7 (all
sections).
16 Routing and screening LISA Interface Specification,
administration. Section 2.2, Routing &
Screening.
CCS Network Interface, Section
2.2, Routing & Screening
(MTP/SCCP).
Interconnection Agreement between
____________ and Pacific, ______
1996.
17 Synchronization design CLC Operations Handbook-SS7,
and company-wide Section 16.7.3.5, Synchronization.
coordinator(s).
</TABLE>
<PAGE> 328
ATTACHMENT 18 - APPENDIX B
Page 6
BILATERAL AGREEMENT TEMPLATE/WORKSHEET
<TABLE>
<CAPTION>
Topic Pacific Bell Reference(s) CLEC Reference(s) Notes / Status
- --------- ---------------------------------- -------------------------------- ------------------------- --------------
<S> <C> <C> <C> <C>
18 Performance LISA Interface Specification,
requirements. Section 4, Performance.
CCS Network Interface,
Section 5, Performance.
19 Responsibility assignment CLC Operations Handbook - LISA
(testing, control, etc.). (throughout)
CLC Operations Handbook - SS7
(throughout)
Interconnection Agreement between
____________ and Pacific, _______
1996.
20 Information sharing for CLC Oprs HB-LISA, Section
analysis and problem 16.6.4.3 & 16.6.5 Sectionalization
identification. & Intercarrier Testing.
NOF Handbook, Section VII,
Information Sharing.
</TABLE>
<PAGE> 329
ATTACHMENT 18 - APPENDIX B
Page 7
BILATERAL AGREEMENT TEMPLATE/WORKSHEET
<TABLE>
<CAPTION>
Topic Pacific Bell Reference(s) CLEC Reference(s) Notes / Status
- --------- ---------------------------------- -------------------------------- --------------------- ------------------
<S> <C> <C> <C> <C>
21 Network transition and CLC Operations Handbook-LISA,
service rearrangement Section 16.6.3.7, Rearrangements.
management.
CLC Operations HB-SS7, Section
16.7.3.9, Signaling Link
Rearrangements.
CCS Questionnaire, Section
III, 2
Trunk Conversion
Considerations.
22 Calling Party Number CLC HB-LISA, Section 16.5.6,
privacy management. Prerequisites, Limitations &
Restrictions.
Interconnection Agreement between
____________ and Pacific, _______
1996.
23 Traffic engineering design Interconnection Agreement between
criteria and capacity ____________ and Pacific, _______
management 1996.
</TABLE>
<PAGE> 330
ATTACHMENT 18 - APPENDIX B
Page 8
BILATERAL AGREEMENT TEMPLATE/WORKSHEET
<TABLE>
<CAPTION>
Topic Pacific Bell Reference(s) CLEC Reference(s) Notes / Status
- --------- ---------------------------------- -------------------------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
24 Tones and CLC Operations HB-LISA, Section
announcements for 16.6.9.4, Tones and
unsuccessful call Announcements.
attempts.
CCS Network Interface, Section
3.4, Tones and Announcements.
NOF Handbook, Section III,
Pg 17, Tones and Announcements
25 Mutual aid agreements(s). CLC Handbook, Section 48,
Emergency Preparedness.
Agreement between BCCs for
Nat'I Security Emergency
Preparedness.
Mutual Aid Agreement Among IEC
and LEC Carriers in California.
26 Emergency Emergency preparedness &
communications plan. Response Program, Tab 4,
Communications
NOF Handbook, Section III, Pg 16,
Emergency Communications.
27 Billing records data
exchange
</TABLE>
<PAGE> 331
ATTACHMENT 18 - APPENDIX B
Page 9
BILATERAL AGREEMENT TEMPLATE/WORKSHEET
<TABLE>
<CAPTION>
Topic Pacific Bell Reference(s) CLEC Reference(s) Notes / Status
- --------- ---------------------------------- -------------------------------- ----------------------- ---------------
<S> <C> <C> <C> <C>
28 Pre-cutover internetwork CCS Network Interface, Section
trunk testing. 6.3, Protocol Compatibility
Testing.
CLC Operations HB-LISA, Section
16.6.3.2 & .3,
Pre-Service/Acceptance Tests.
CLC Operations HB-SS7, Section
16.7.3.4 & .5,
Protocol/Acceptance Tests
</TABLE>
<PAGE> 1
EXHIBIT 10.15
REIMBURSABLE SPACE ACT AGREEMENT
BETWEEN
THE NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
AMES RESEARCH CENTER
AND CRL NETWORK SERVICES, INC.
FOR THE PURPOSE OF CONNECTING TO THE AMES INTERNET EXCHANGE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1.0 AUTHORITY.....................................................................1
2.0 PURPOSE.......................................................................1
3.0 RESPONSIBILITIES..............................................................2
3.1 PARTICIPANT RESPONSIBILITIES...........................................2
3.2 NASA RESPONSIBILITIES..................................................3
4.0 SCHEDULE AND MILESTONES.......................................................5
5.0 KEY PERSONNEL.................................................................6
6.0 DATA RIGHTS...................................................................6
6.1 Definitions............................................................6
6.2 General................................................................7
6.3 Participant Produced Data..............................................7
6.4 Data First Produced by NASA............................................7
6.5 Data Disclosing an Invention...........................................8
6.6 Copyright..............................................................8
6.7 Oral and Visual Information............................................8
6.8 Disclaimer of Liability................................................9
6.9 Computer Software......................................................9
6.10 Publications...........................................................9
7.0 PATENT AND INVENTION RIGHTS..................................................10
7.1 Definition............................................................10
7.2 General...............................................................10
7.3 NASA Inventions.......................................................10
7.4 NASA Contractor Inventions............................................10
7.5 Joint Inventions with Participant.....................................10
7.6 Licenses to be Reserved in Participant's License
(March-in-Rights).....................................................11
7.7 Protection of Reported Inventions.....................................11
7.8 Patent Filing Responsibilities and Costs..............................11
8.0 ADDITIONAL PROVISIONS........................................................12
8.1 FINANCIAL OBLIGATIONS.................................................12
8.2 NO PARTNERSHIP........................................................13
8.3 GOVERNING LAW.........................................................13
8.4 LIABILITY AND RISK OF LOSS............................................13
8.5 INDEPENDENCE OF CONTRACTS.............................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
8.6 ASSIGNMENT/AMENDMENT..................................................14
8.7 USE OF NASA NAME AND INITIALS.........................................14
8.8 METRICS...............................................................14
8.9 RELOCATION............................................................15
8.10 TERM OF AGREEMENT AND RIGHT TO TERMINATION............................15
9.0 REFERENCES...................................................................16
10.0 SIGNATURES...................................................................16
</TABLE>
ii
<PAGE> 4
REIMBURSABLE SPACE ACT AGREEMENT
BETWEEN
THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
AMES RESEARCH CENTER
AND CRL NETWORK SERVICES, INC.
FOR THE PURPOSE OF CONNECTING TO THE AMES INTERNET EXCHANGE
1.0 AUTHORITY
This Reimbursable Space Act Agreement (RSAA) is entered into by CRL
Network Services, Inc. (hereinafter referred t6 as the Participant) with a place
of business at San Francisco, CA, and the NATIONAL AERONAUTICS AND SPACE
ADMINISTRATION, Ames Research Center located at Moffett Field, California
94035-1000 ("NASA"). The legal authority for NASA to enter into this agreement
is found in sections 203(c)(5) and (6) of the Space Act of 1958, 42 USC
Section 2473(c).
2.0 PURPOSE
This RSAA shall be effected for the purpose of:
(a) adding Participant to a unique collocated network
interconnect in vivo testbed in which Participants
exchange data among their client networks as well as with
NASA networks and other cooperating commercial and Federal
networks that are similarly attached at this testbed which
is known as MAE-West (Metropolitan Area Exchange - West
Coast) which is part of the Ames Internet Exchange;
(b) facilitating (1) the metering and analysis of internet
traffic flows, (2) the study of new algorithms for caching
internetwork flows, and (3) the development of new
approaches to traffic moderation by aggregating
Participants on a common testbed to share in the resulting
costs and benefits;
(c) providing new technology transmission facilities, either
terrestrial or satellite, that stimulate competition and
cost moderation as new network capabilities are introduced
by Participants; use of such new technology is essential
to efficient operation of NASA and other Federal networks;
The foregoing statements of purpose (a) to (c) support NASA-Ames
Research Centers role as NASA lead center for Information Systems Technology.
This interconnect testbed shall be located at NASA Ames Research Center
along with associated collocated equipment required to establish network
connectivity. This RSAA will benefit NASA by enhancing the ability of the
NASA-Ames Research Center to meet its
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responsibility to provide for a logical extension to the existing Federal
Interconnect Exchange - West Coast facility (FD( - West) that is managed by NASA
Ames Research Center Information Services Division and is also part of
the Ames Internet Exchange. In attaining this objective, it will ensure that all
costs to the government are offset by fees paid by those Participants connecting
to MAE-West.
This agreement is for both the network connecting the Participants to
the Internet at MAE-West, a unique collocated interconnect facility located at
NASA-Ames, and for operating a satellite terminal collocated near MAE-West. No
agreement expressed or implied, is hereby made to order or provide communication
services to NASA or the U.S. Government. Both parties will use reasonable
efforts to meet performance provisions under this RSAA.
3.0 RESPONSIBILITIES
3.1 PARTICIPANT RESPONSIBILITIES
The Participant will provide the following materials, effort and
information to NASA:
1. The Participant shall provide all equipment required to properly
attach its network facilities to the facilities at MAE-West, such as routers,
CSU/DSU's, etc. including all required cabling, and shall provide up to date
configuration drawings to NASA to insure that adequate information is available
for trouble shooting requirements. The Participant shall provide for reasonable
maintenance and support agreements for any of its equipment located at NASA Ames
Research Center and shall ensure that any third party personnel requiring access
to their equipment are cognizant of all terms and conditions in this Agreement,
including the requirement of U.S. citizenship.
2. The Participant shall provide required telecommunications
transmission services such as DS-3 leased lines, ATM facilities, etc. and shall
provide NASA with copies of any related orders for such services when they
occur, to assure coordinated delivery and installation of such services by
NASA's Resident Staff.
3. The Participant shall provide out-of-band (OOB) network
management for all active devices such as routers, CSU/DSU's, etc. to minimize
the support required from NASA for emergency trouble shooting of equipment. The
Participant shall provide all required telecommunications links (such as
switched analog voice lines for dialup modems, etc.) to support this OOB
management.
4. The Participant shall provide a detailed implementation plan
including configuration, installation, and operation of equipment that is to be
attached to MAE-West, within 30 days of the signature of this Agreement, and the
RSAA must be approved by NASA before any work commences unless waived in writing
by NASA. If the Participant enters separate agreements between itself and
Network Service Providers (peering agreements), Participant shall designate the
names of such Network Service Providers (NSPs) to NASA as part of the
implementation plan.
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5. The Participant shall provide for the decaling (all Participant
property must be decaled) and initial installation of equipment at least one
business week ahead of the scheduled work period. Any subsequent modification by
the Participant at MAE-West shall be requested in writing and scheduled with
NASA at least one business week ahead of the scheduled work period.
6. The Participant agrees to comply with all NASA safety and
security requirements, including network alerts and other written advisories,
all required environmental regulations, and the provisions of NASA-Ames Standard
Operating Procedures' as defined in Reference A (see Section 9).
7. This agreement may be amended and updated periodically consistent
with the authority listed in Section 8.6 of this document.
3.2 NASA RESPONSIBILITIES
NASA will provide the following effort and information to the
Participant:
1. NASA will provide the following supplies and services:
(a) seismic-braced equipment racks in which to collocate up to
M.5 inches (18 rack units) of Participant owned and
provided telecommunication equipment, such as a router,
CSU/DSU, cabling, modem, etc.; additional rack space must
be requested in writing and a new cost recovery agreement
must be established and approved; NASA is not committed to
providing additional space if it not currently available
in building N254;
(b) controlled and monitored access to the equipment racks;
(c) reliable filtered 110 VAC electric power, dedicated to
each rack, with generator backup Uninterruptible Power
Supply (UPS); UPS may be taken off the line for short
periods for maintenance in which case only commercial
power or generator power is available;
(d) reliable air conditioning system to insure that collocated
equipment operates in a hospitable environment;
(e) loan of tools, monitors, and test equipment incidental to
trouble shooting;
(f) remote monitoring of critical facility systems, e.g.,
power, HWAC, security, fire;
(g) limited technical support for new installations and
configuration changes;
(h) arrangement of services by certified electrical contractor
to perform necessary power, conduit and seismic brace
installation when required of Participant;
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(i) maintenance of an inventory of Participant's decaled
equipment and support of their property management system.
2. NASA will provide access to related telecommunications carrier
facilities (e.g. Pacific Bell, Metropolitan Fiber Systems, etc.) that are
collocated in the same facility as MAE-West for termination of Participant
provided telecommunications services (e.g., DS-3 leased line facilities, FDDI
fiberoptics, etc.). However, NASA is not responsible for providing said services
themselves nor is it responsible for setting costs for such services except such
costs as accrue to the government.
3. NASA will provide access to the MAE-West facilities, currently an
FDDI Ring, and future access to one port on new technology switch when it is
acquired and installed. This switched facility (e.g., a DEC GIGAswitch) will be
operated and managed by NASA 24 hours per day, seven (7) days per week, 52 weeks
per year (24x7x52), and provide reliable, high performance transport of network
traffic between the Participant's equipment and other NSPs that are attached
directly to MAE-West NASA will maintain this configuration and ensure that
changes are adequately coordinated with Participants.
4. NASA will provide access to designated staff of the Participant
or their designees for maintenance and trouble shooting of Participant's
equipment Emergency access to equipment located at MAE-West will be provided by
NASA within a two (2) hour period after a request has been made, including
off-hours. NASA will also provide Resident Technician emergency support for
trouble shooting problems with Participant equipment, such as power cycling or
physical resetting of equipment within two (2) hours of a request being made, in
case normal OOB management capabilities cannot provide equivalent functionality.
Note the existence of access restrictions: all Participant staff,
including third party staff with whom Participant may contract for services,
e.g., maintenance, that are allowed on-site access must be U.S. citizens and
they must obtain prior written consent by NASA to visit the site, either
on-shift or off-shift; no foreign nationals are allowed on-site access. NASA
will escort approved Participant staff or their designees while work is being
performed on-site at NASA Ames Research Center, and will insure proper
identification, documentation and authentication as well as in/out logging.
Off-shift access to Moffett Field will require escort by NASA Resident Staff
through the Main Gate. On-shift access is Monday through Friday, 0700 to 1615
hours.
5. NASA will provide monthly traffic statistics of data exchanged
among MAE-West participants only with written consent from NSPs. NASA may
monitor network layer traffic for purposes of Research and Development
consistent with its mission. NASA reserves the right to monitor end user data of
Government agency networks attached to MAE-West to insure appropriate use of
Government network facilities involved with MAE-West.
6. NASA will perform the installation and cabling of all of the
Participant's equipment as per the layout that is included in the Participant's
implementation plan. Installation will be performed in accordance with current
standards as set forth in paragraph 9.0 Reference A of this agreement
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7. NASA will provide one business week's notice for normal
maintenance of facility systems.
8. NASA will, at its discretion, provide information other than
traffic statistics on NSPs that are connected to FIX-West or MAE-West NASA shall
not accept requests for non-disclosure for any data that are not traffic
statistics or designated as Participant Produced Data in paragraph 6.3 of this
agreement NASA is not responsible for peering agreements among Participants but
will facilitate such agreements whenever it can do so.
4.0 SCHEDULE AND MILESTONES
The scheduled major milestones are as follows:
A. Formal request by Participant
B. Reimbursable Space Act Agreement (RSAA) template issued to Participant
for markup
C. Negotiated RSAA completed for approvals
D. RSAA approved by NASA
F RSAA approved by Participant
F. Initial funding (i.e. initial charge plus installment for the first six
months) as indicated in Section 8.1 of this Agreement transferred to
NASA
(30 days after the agreement has been signed by the Participant)
G. Equipment deployed to Ames for installation
(5 days after initial funding is transferred to NASA by Participant)
H Connection to MAE-West established, cost recovery begins
(5 days after initial funding is transferred to NASA by Participant)
I. Final semiannual installment for second six months due and payable to
NASA (6 calendar months after initial funding is transferred to NASA by
Participant)
J. Semiannual installment for first six months of second year due and
payable to NASA
(12 calendar months after initial funding is transferred to NASA by
Participant)
K. Annual report and fee adjustment up or down
(12 calendar months after initial funding is transferred to NASA by
Participant)
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The schedule and milestones for the performance of this Agreement will
be subsequently determined by the parties.
The above schedule and milestones are estimated based upon the parties'
current understanding of the projected use of facilities and equipment by
Participant, NASA, and other Participants and Federal Agencies. In the event of
changes in NASA's projected usage, the Participant shall be given reasonable
notice of that change, so that the schedule and milestones may be adjusted
accordingly. The parties agree that NASA usage of the exchange facilities and
equipment shall have priority over the usage planned in this Agreement. Should
conflict arise, NASA in its sole discretion shall determine whether to exercise
that priority'.
5.0 KEY PERSONNEL
The following personnel are designated as the key officials for their
respective party. These key officials are the principal points of contact
between parties in the performance of this Agreement.
<TABLE>
<CAPTION>
NASA Ames CRL Network Services, Inc.
<S> <C> <C> <C>
Name: William P. Jones Name: James Couch
Title: External Interface Manager Title: President
Address: M/S 233-17 Address: CRL Network Services, Inc.
NASA Ames Research Center One Kearny Street
Moffett Field, CA 94035-1000 San Francisco, CA 94108
Tel. No.: (650) 604-6482 Tel. No.: (415) 837-5300
Fax No.: (650) 604-6999 Fax No.: (415) 392-9000
</TABLE>
6.0 DATA RIGHTS
6.1 DEFINITIONS
The term "Participant," as used herein, means any non-Government entity
that is a party to this Agreement The rights in data set forth herein are
applicable to any employees, contractors or subcontractors, or other entities
having a fiduciary or contractual relationship with Participant that are
assigned, tasked, or contracted with to perform specified Participant activities
under this Agreement.
The term "NASA," as used herein, means NASA civil servant employees as
well as contractors, subcontractors, or other entities having a fiduciary or
contractual relationship with NASA that are assigned, tasked, or contracted with
to perform specified NASA activities under this Agreement.
The term "data," as used herein, means recorded information, regardless
of form, the media on which it may be recorded, or the method of recording. The
term includes, but is not limited to, data of a scientific or technical nature,
computer software and data comprising commercial and financial information.
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6.2 GENERAL
Data exchanged between Government and Participant under this Agreement
shall be exchanged without restriction as to its disclosure, use, or duplication
except as otherwise provided below in this provision.
6.3 PARTICIPANT PRODUCED DATA
In the event it is necessary for the Participant to furnish NASA with
data which either existed prior to, was produced outside of, or is first
produced by Participant in carrying out Participant's responsibilities under
this Agreement, and such provided data embodies trade secrets or comprises
commercial or financial information which is privileged or confidential and such
data are so identified with a suitable notice or legend, the data will be
maintained in confidence and disclosed and used by NASA and its contractors
(under suitable protective conditions) only for the purpose of carrying out
NASA's responsibilities under this Agreement. Upon completion of activities
under this Agreement, such data will be disposed of as requested by the
Participant.
The parties agree that the following are Participant Produced data:
(a) list of NSPs at Participant's location, including
technical point of contact, telephone numbers and email
addresses;
(b) list of physical and logical addresses for their portion
on MAE-West;
(c) customer privacy-protected information such as customers'
traffic, lists of customers, or personal information about
client employees;
(d) implementation plan, and
(e) configuration change requirements.
6.4 DATA FIRST PRODUCED BY NASA
As to data first produced by NASA (or NASA contractors) in carrying out
NASA's responsibilities under this Agreement and data which would embody trade
secrets or would comprise commercial or financial information that is privileged
or confidential if obtained from the Participant, such data will, to the extent
permitted by law, be maintained in confidence and be disclosed and used by NASA,
its contractors and the Participant (under suitable protective conditions) only
for the purpose of carrying out NASA's responsibilities under this Agreement.
Upon completion of activities under this Agreement, Participant shall dispose of
such data as requested by NASA.
The parties agree that the following are data first produced by NASA:
(a) list of NSPs at NASA location, including technical point
of contact, telephone numbers and email addresses;
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(b) list of physical and logical addresses on their portion of
MAE-West;
(c) copies of any reports, charts, graphs, or diagrams which
were produced as a result of this Agreement and that
reference NASA's name or logo, or EMAIL to NSPs attaching
to MAE-West at NASA's location but not customer
privacy-protected information such as customer's traffic,
lists of customers, or personal information about client
employees;
6.5 DATA DISCLOSING AN INVENTION
In the event data exchanged between NASA and the Participant disclose an
invention for which patent protection is being considered and the furnishing
party specifically identifies such data, the receiving party agrees to withhold
such data from public disclosure for a reasonable time (presumed to be one year
unless mutually agreed otherwise) in order for patent protection to be obtained.
6.6 COPYRIGHT
In the event data are exchanged with a notice indicating that the data
are protected under copyright as published, copyrighted work, the following
paid-up license rights shall inure to the receiving party:
(a) If it is indicated on the data that the data existed prior
to, or was produced outside of, this Agreement, the
receiving party and others acting on its behalf, may
reproduce, distribute, and prepare derivative works for
the purpose of carrying out the receiving party's
responsibilities under this Agreement; and
(b) If the furnished data does not contain the indication of
(a) above, it will be assumed that the data were produced
under this Agreement, and the receiving party and others
acting on its behalf, may reproduce, distribute, and
prepare derivative works for any of its purposes
whatsoever.
6.7 ORAL AND VISUAL INFORMATION
If information which the Participant considers to embody trade secrets
or to comprise commercial or financial information which is privileged or
confidential is disclosed orally or visually to NASA, such information must be
reduced to tangible, recorded form (i.e., converted into data as defined
herein), identified and marked with a suitable notice or legend as required by
paragraphs 6.3 and 6.4 above and furnished to NASA within 10 days after such
oral or visual disclosure, or NASA shall have no duty to limit or restrict, and
shall not incur any liability for, any disclosure and use of such information.
If information which NASA considers to embody trade secrets or to
comprise commercial or financial information which is privileged or confidential
is disclosed orally or visually to the Participant, such information must be
reduced to tangible, recorded form (i.e., converted into
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data as defined herein), identified and marked with a suitable notice or legend
as required by paragraphs 6.3 and 6.4 above and furnished to the Participant
within 10 days after such oral or visual disclosure, or the Participant shall
have no duty to limit or restrict, and shall not incur any liability for, any
disclosure and use of such information.
Not withstanding the above, CRL Network Services, Inc. or the
Government's liability in the event of breach of paragraphs 6.3 through 6.5 will
be limited to the lesser of proven damages or $5,000,000.
6.8 DISCLAIMER OF LIABILITY
Notwithstanding the above, neither NASA nor CRL Network Services, Inc.
shall be restricted in, or incur any liability for, the disclosure and use of:
(a) data not identified with a suitable notice or legend as
set forth in paragraph 6.3 above; nor
(b) information contained in any data for which disclosure
and use is restricted under paragraphs 6.3 and 6.4
above, if such information is or becomes generally known
without breach of the above, is known to or is generated
by CRL Network Services, Inc. or NASA independently of
carrying out CRL Network Services Inc's or NASA's
responsibilities under this Agreement, is rightfully
received from a third party without restriction, or is
included in data which the Participant has, or is
required to furnish to the U.S. Government without
restriction on disclosure and use.
6.9 COMPUTER SOFTWARE
If the Government provides the Participant any Government computer
software pursuant to this Agreement, the Participant agrees not to disclose the
computer software to any third party, to use the computer software for no other
purpose than carrying out the responsibilities of this Agreement, and to return
the computer software and all copies thereof to the Government when the
Agreement is terminated or completed, whichever comes first
6.10 PUBLICATIONS
The parties agree to provide each other with an advance information copy
of any manuscript to be released in a journal article, symposium presentation,
or under the NASA scientific and technical report series (described in NMI NHB
2200.2, NASA Scientific and Technical Information Handbook) when the manuscript
utilizes data derived from this Agreement. The information copy shall be sent
sufficiently in advance to afford the recipient(s) time to review the manuscript
and comment thereon before the manuscript is published or presented at a
symposium.
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7.0 PATENT AND INVENTION RIGHTS
7.1 DEFINITION
The term "Participant," as used herein, means any non-Government entity
that is a party to this Agreement. The patent and invention rights set forth
herein are applicable to any employees, contractors or subcontractors, or other
entities having a fiduciary or contractual relationship with Participant that
are assigned, tasked, or contracted with to perform specified Participant
activities under this Agreement.
7.2 GENERAL
Title to inventions made (or conceived or first actually reduced to
practice) as a consequence of, or in direct relation to, the performance of
activities under this Agreement will remain with the respective inventing
parties (Participant or NASA), and no patent or invention rights are exchanged
between or granted by such parties under this Agreement except as provided
herein.
7.3 NASA INVENTIONS
NASA will use reasonable efforts to report inventions made by NASA
employees as a consequence of, or which bear a direct relation to, the
performance of specified NASA activities under this Agreement and, upon timely
request, will grant the Participant first option to acquire either an exclusive
or partially exclusive, revocable, royalty-bearing license, on terms to be
subsequently negotiated, for any patent application and patents covering such
inventions, and subject to the license reserved in paragraph 7.6 (a) below.
7.4 NASA CONTRACTOR INVENTIONS
In the event NASA contractors are tasked to perform work in support of
specified NASA activities under this Agreement and inventions are made by
contractor employees or jointly between NASA employees and contractor employees,
and NASA has the right to acquire or has acquired title to such inventions, NASA
will use reasonable efforts to report such inventions and, upon timely request,
will grant the Participant first option to acquire either an exclusive or
partially exclusive, revocable, royalty-bearing license, on terms to be
subsequently negotiated, for any patent application and patents covering such
inventions, and subject to the license reserved in paragraph 7.6 (b) below.
7.5 JOINT INVENTIONS WITH PARTICIPANT
NASA and the Participant will use reasonable efforts to identify and
report to each other inventions made jointly between NASA employees (opound
sterling employees of NASA contractors) and employees of the Participant and,
upon timely request, NASA will grant the Participant first option to acquire
either an exclusive or partially exclusive, revocable, royalty-bearing license
in any undivided interest NASA has the right to acquire or has acquired in such
invention, upon terms to be subsequently negotiated, for any patent application
and patents covering such
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inventions; or NASA may agree to refrain from exercising its undivided interest
in a manner inconsistent with the Participant's commercial interests and to
cooperate with the Participant in obtaining patent protection on its undivided
interest. Either alternative will be subject to the applicable license or
licenses reserved in paragraph 7.6 below.
7.6 LICENSES TO BE RESERVED IN PARTICIPANT'S LICENSE
(MARCH-IN-RIGHTS)
Any license granted to the Participant pursuant to paragraphs 7.3, 7.4
or 7.5 above will be subject to the reservation of the following licenses:
(a) as to inventions made solely by, or jointly with, NASA
employees, the irrevocable, royalty-free right of the
Government of the United States to practice and have
practiced the invention on behalf of the United States and
on behalf of any foreign Government or international
organization pursuant to any existing or future treaty or
agreement with the United States; and
(b) as to inventions made solely by, or jointly with, NASA
contractors, rights in the Government of the United States
as set forth in (a) above, as well as the revocable,
non-exclusive, royalty-free license in the contractor as
set forth in 14 CFR 1245.108.
7.7 PROTECTION OF REPORTED INVENTIONS
When an invention is reported and disclosed between the parties in
accordance with the provisions of this clause, the receiving party agrees to
withhold such report or disclosure from public access for a reasonable time
(presumed to be one year unless mutually agreed otherwise) in order for a patent
application to be filed.
7.8 PATENT FILING RESPONSIBILITIES AND COSTS
The invention and patent rights set forth herein shall apply to any
patent applications filed and patents obtained in any country, and each party is
responsible for its own costs of preparing, prosecuting, issuing and maintaining
patents covering sole inventions in any country; except that NASA and the
Participant may, upon the reporting of any invention (sole or joint) or in any
license option granted, mutually agree otherwise for any country as to patent
application costs, and maintenance responsibilities and costs. As to any
invention made jointly between NASA employees (or employees of a NASA
contractor) and employees of the Participant and for which the Participant files
a patent application, the Participant agrees to include the following statement
therein:
The invention described herein may be manufactured and used by or for
the United States Government for United States Government purposes without the
payment of royalties thereon or therefor.
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8.0 ADDITIONAL PROVISIONS
8.1 FINANCIAL OBLIGATIONS
There will be a transfer of funds or other financial obligation from the
Participant, CRL Network Services, Inc. to NASA in connection with this
Agreement. The terms, conditions, and schedule of payment are as follows:
CRL Network Services, Inc. shall reimburse NASA promptly for use of its
facilities and staff in support of Participant's access to MAE-West:
one connection to the FDDI Ring with a reserved port on the
switch at the recurring rate of [**] per month, with an initial
charge of [**], to cover initial equipment and installation
support, and to cover initial procurement and deployment of the
transmission facility in FY 98;
CRL Network Services, Inc. shall submit to:
NASA Ames Research Center
Collection Agent
MS 203-18 (CRL Network Services, Inc.)
Moffett Field, CA 94035
payment in the form of a check to be written payable to the National Aeronautics
and Space Administration. The initial charge of [**] and the installment for
the first six months (total of [**]) shall be submitted within 30 days of the
date of this Agreement The remaining installments of [**] each are due and
payable at the beginning of each six month period. A schedule of payments will
be determined upon execution of this Agreement. Participant acknowledges its
obligation and ability to satisfy the foregoing schedule of payments.
A fee adjustment to cost recovery related to 8.1 shall be made annually
by NASA in writing to each Participant, near the close of each year's operation.
This adjustment may be up or down, reflecting actual costs, and is to apply to
the subsequent year 5 cost recovery requirement for each Participant attached to
MAE-West The adjustment, if an increase, shall not exceed 10% of the prior month
charge.
Special activities in support of access to MAE-West that may be required
as a result of future amendments to this Agreement or of the CRL Network
Services, Inc. implementation plan shall not exceed an annual cost of [**] and a
total cost under this Agreement of [**].
All activities under or pursuant to this Agreement are subject to the
availability of appropriated funds. Nothing in this Agreement commits the United
States Congress to appropriate funds for this effort, and no provision herein
shall be interpreted to require obligation
- ----------------
[**] Pursuant to a request for confidential treatment, price information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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or payment of funds in violation of the Anti-Deficiency Act, 31 USC 1341. If
funds are not available, this Agreement may be terminated by NASA, as provided
in paragraph 8.10(b) below.
8.2 NO PARTNERSHIP
This Agreement is not intended to constitute, create, give effect to or
otherwise recognize a joint venture, partnership, formal business organization,
or agency agreement of any kind, and the rights and obligations of the parties
shall be only those expressly set forth herein. Both parties will remain
independent contractors, each responsible for its own employees, costs, risks,
liabilities, and expenses incurred in the performance of this Agreement Each
party bears the cost of discharging its own responsibilities except as expressly
set forth in this agreement
8.3 GOVERNING LAW
NASA will perform this Agreement consistent with obligations, laws,
published policy, and regulations of the United States. This Agreement shall be
governed by the federal laws of the United States.
8.4 LIABILITY AND RISK OF LOSS
Neither NASA nor the Participant will make any claim against the other:
(a) with respect to injury or death of its own, its
contractors' or its subcontractors employees,
(b) with respect to damage to its own, its contractors' or
its subcontractors' property
arising out of or connected with the performance of this Agreement, whether such
injury, death or damage arises through negligence or otherwise.
Limitation of Liability to Direct Damages
To the extent that a risk of damages or loss is not dealt with expressly
in this Agreement, such party's liability to the other party, whether or not
arising as the result of alleged breach of this Agreement, shall be limited to
direct damages only, and shall not include any loss of revenue or profits or
other indirect or consequential damages.
As operator of MAE-West and FIX-West which form the interconnecting
testbed for the various Participants, NASA reserves the right to notify
Participant by electronic means, by FAX or by telephone of any action to be
taken to disconnect the Participant's equipment Such action will be taken if
said equipment is known to be causing interference of data flows between other
connected Participants. The equipment will be reconnected only after appropriate
repairs are made or after mutually agreeable alternative routing of traffic is
effected. This action by NASA will be carried out without liability for direct
damages, or for any loss of revenue or profits or other consequential damages
which result NASA will make a good faith effort to assist the Participant in
restoring its services in an expeditious manner.
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8.5 INDEPENDENCE OF CONTRACTS
The parties agree that this Agreement is independent of any other
contract between the United States Government and the Participant By
participating in this Agreement, NASA makes no assurances to the Participant or
others as to the performance of the objects tested in NASA facilities or other
test objects, and relieves the Participant of none of its obligations under any
other contract with the Government This Agreement does not constitute NASA's
endorsement of any test results, resulting designs, hardware, or other matters.
8.6 ASSIGNMENT/AMENDMENT
(a) This Agreement may be modified at any time by a written
document signed by the officials authorized to bind the
parties.
(b) Neither this Agreement nor any interest arising under it
will be assigned by either party without the express
written consent of the officials authorized to bind the
parties.
8.7 USE OF NASA NAME AND INITIALS
The Participant agrees to submit all promotional and advertising
material which uses the NASA name or initials to NASA for its approval prior to
publication including any reference that is contained in internet work
information servers currently known as world wide web servers or the like.
Approval by NASA shall be based on applicable law (e.g., 42 USC Sections
2459(b), 2472(a) and 2473(c)(1); and 14 CFR Section 1221.100 et seq.) and policy
governing the use of the words "National Aeronautics and Space Administration"
and the letters "NASA."
NASA agrees to submit to CRL Network Services, Inc. for its approval all
promotional and advertising material which uses the CRL Network Services, Inc.
name or initials prior to publication, including any reference that is contained
in internet work information servers currently known as world wide web servers
or similar.
8.8 METRICS
The Participant will supply quarterly data to the Ames Commercial
Technology Office on: jobs created, jobs retained, net sales increases, new
products or services, productivity gains, patents, royalties, and licenses
arising from the activities under this Agreement NASA Ames Research Center
recognizes the sensitive nature of these data and will protect them consistent
with the provisions found in this document. Proprietary data will remain
proprietary to the Participant and are exempt from release to the extent
permissible under the Freedom of Information Act (FOIA).
Point of Contact for Commercial Metrics Reporting is:
Commercial Metrics Program Leader
NASA-Ames Research Center
14
<PAGE> 18
Commercial Technology Office, Code DK
Mailstop 202A-3
Moffett Field, CA 93035-1000
(650) 604-1919
(650) 604-1592 FAX
8.9 RELOCATION
NASA reserves the right to relocate the functions associated within
building N254 to another area of Moffett Field (i.e. rehoming); only relocation
costs of NASA equipment and facilities will be born by NASA. All costs
associated with rehoming of the Participant's circuits and relocation of
Participant's equipment and facilities will be born by the Participant
Abandonment of lands by Participant must include removal of all equipment and
facilities including buried or below-surface structures and conduits, as well as
removal of any toxic waste or hazardous materials. Notice of the requirement to
relocate functions within building N254 will be given at least one year prior to
such action by NASA.
8.10 TERM OF AGREEMENT AND RIGHT TO TERMINATION
(a) This Agreement becomes effective on the date of the
latest signature of the parties. The term of this RSAA
will be two (2) years beginning on the date of the last
signature appearing below, or as provided for in
paragraph 8.10(b) below. This Agreement may be extended
for an additional one year period by modification, as
provided for in paragraph 8.6 (a) above.
(b) Either party may terminate this Agreement at any time
before the date provided in paragraph 8.10(a) above by
written notice to the other party sixty (60) days before
the desired date of termination. The terminating party
will not incur any liability to the other party for
terminating this Agreement under any provision of
paragraph 8.10. NASA shall refund any money paid by CRL
Network Services, Inc. for months beyond the termination
date of this Agreement.
(c) All parties will use reasonable efforts to participate
in the efforts stated in this Agreement NASA's ability
to participate in this Agreement is subject to the
availability of appropriated funds. If appropriated
funds are not available, NASA may terminate this RSAA as
provided in paragraph 8.10 (b).
9.0 REFERENCES
A ARC External Interface Standard operating Procedures as modified June
1998. A copy of this document may be obtained from the External
Interface Manager.
B Ames Safety Manual, chapters 1, 2, 4, 5, 6, 11, 18, 19, 20, 24, 25, 27;
homepage address - http:/dq.arc.nasa.gov/.
15
<PAGE> 19
C Ames Environmental Handbook, AHB 8800.3, chapter 1; homepage address
-http:/dq.arc.nasa.gov/.
Ames Management Instruction 8800.4; homepage address
- -http:/dq.arc.nasa.gov/.
NASA Environmental Management, NPD 8800.16; homepage address
- -http:/dq.arc.nasa.gov
10.0 SIGNATURES
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
in duplicate originals by its duly authorized representative on the dates
indicated below.
NATIONAL AERONAUTICS AND CRL NETWORK SERVICES, INC. SPACE ADMINISTRATION
BY: BY: /S/ Phillip Burkhart
---------------------------------------- ---------------------------
Henry McDonald, Director Phillip Burkhart
Ames Research Center Vice President
MOFFETT FIELD, CA 94035-1000 One Kearny Street
Tel. No. (650) 604-5411 San Francisco, CA 94108
Tel. No. (415) 837-5300
DATE: DATE: July 16, 1998
--------------------------------------
16
<PAGE> 1
EXHIBIT 10.18
[SPRINT LOGO]
SPRINT NETWORK ACCESS POINT (NAP)
TERMS AND CONDITIONS
The following terms and conditions govern Sprint's provision of network
connectivity Products and Services ("Products and Services") to CRL NETWORK
SERVICES ("Customer"). Products and Services include equipment, facilities,
programming or software provided by Sprint, but do not include certain third
party access lines which may be utilized with the Products and Services. If
Products and Services are or become subject to a tariff filed with the Federal
Communications Commission or any other regulatory institution ("Tariff"), the
terms and conditions of such Tariff, including rates, shall govern Customer's
use of the Products and Services.
Sprint will provide a Type 1 connection to Sprint's Network Access Point
("NAP") in conjunction with NSF Cooperative Agreement No. NCR-9321072. See
Attachment A for definitions of Sprint NAP Access Types.
To be eligible for connection to the Sprint NAP, the Customer must have the
following:
- at least one bilateral peering (routing) agreement with another ISP/NSP
currently peering at the NAP
- 24 x 7 network operations center
- the capability to dispatch a customer provided technician to install or
replace failed components
- a WAN connection into the NAP with an aggregate bandwidth no less than 45
Mbps (DS3)
1. TERM
The initial one year term ("Initial Term") for Products and Services shall
begin on the first day of the month following the date of Sprint's notice of
service availability. Upon expiration, the Initial Term shall be automatically
extended for successive one (1) year periods ("Term"), unless thirty (30) days
prior to the end of the Initial Term or each such extension, either (a)
Customer or Sprint provides written notice to the other that it does not want
such extension, or (b) Customer executes a new Agreement for Products and
Services with a term longer than one (1) year.
2. RATES
Rates for Products and Services provided hereunder are set forth in Attachment
B. Rates are fixed for 90 days after the first day of the Initial Term.
Thereafter Sprint will provide sixty (60) days advance written notice of
increased rates. In the event of such changes to rates, Customer may terminate
the Agreement without termination liability by providing written notice to
Sprint no later than thirty (30) days prior to the effective date of such
change. Otherwise, Customer will be billed according to the new rates beginning
on the effective date of such new rates.
3. PAYMENT
Customer agrees to pay all charges incurred beginning on the date of service
availability. Recurring charges shall be invoiced monthly in advance and payment
in U.S. currency shall be due upon receipt. Interest charges of 1-3/4 percent
per month or the highest rate permitted by law, whichever is less, will accrue
daily on all amounts not paid within thirty (30) days of the date of the
invoice. Customer will pay all sales and use taxes, as well as duties or levies,
on Products and Services. The Agreement is subject to Sprint's policies and
procedures.
- --------------------------------------------------------------------------------
SPRINT COMMUNICATIONS COMPANY 1
<PAGE> 2
Version Dated 5/16/97 [SPRINT LOGO]
4. TERMINATION
To terminate Products and Services, Customer must provide Sprint with thirty
(30) days prior written notice. In the event of early termination of any
Agreement, Customer will pay a lump sum Termination Charge equal to: (a) one
hundred percent (100%) of the monthly price for each Product and Service
terminated multiplied by the number of months remaining in the Term. In
addition to this Termination Charge, Customer shall pay a pro-rata amount of any
waived installation charges based on the number of months remaining in the
Initial Term. Customer will not be liable for the Termination Charge if another
Sprint product and service of the same or greater monthly price with a term no
less than the remaining months in the Term is ordered at the same time as the
notice of termination is received.
5. RIGHTS AND OBLIGATIONS OF CUSTOMER
A. Customer shall: (i) at its own expense provide all necessary preparations
required to comply with Sprint's installation and maintenance specifications,
(ii) be responsible for the costs of relocation of Products and Services once
installed, and (iii) provide to Sprint and to suppliers of communications lines
reasonable access to Customer's premises to perform any acts required by the
Agreement. The Customer shall conform to the Sprint's requirements set forth in
Attachment C (Collocated Equipment).
B. Customer shall properly use equipment provided by Sprint and shall
surrender such equipment to Sprint upon expiration or termination of the
Agreement. Customer shall be liable for any and all damages to Products and
Services located on Customer's premises excluding reasonable wear and tear, and
damages caused by Sprint.
C. Customer shall not nor shall it permit or assist others to: (i) use
Products and Services for any purpose other than that for which they are
intended, (ii) fail to maintain a suitable environment as specified by Sprint,
or (iii) alter, tamper with, adjust or repair the Products and Services. Upon
the occurrence of any of the above, Sprint shall be completely released from any
liability or obligation (including any warranty or indemnity obligation) to
Customer relative to the Products and Services; and Customer shall be liable to
Sprint for costs or damages incurred by Sprint resulting therefrom.
D. Customer shall not nor shall it permit or assist others to abuse or
fraudulently use Products and Services, including but not limited to the
following:
1. Obtaining or attempting to obtain service by any means or device
with intent to avoid payment; or
2. Unauthorized access, alteration, destruction, or any attempt
thereof, of any information of another Sprint customer by any
means or device; or
3. Using Products and Services in violation of the law or in aid of
any unlawful act; or
4. Using Products and Services so as to interfere with the use of
the Sprint network by other customers or authorized users or in
a manner which, in the sole opinion of Sprint, is not in
accordance with generally accepted standards of Internet access
and use; or
5. Resell or redistribute any portion of the IP address space
associated with the NAP.
Upon the occurrence of any of the above, Sprint may suspend its performance
and/or terminate the Agreement with no further obligation to Customer.
- --------------------------------------------------------------------------------
Sprint Communications Company 2
<PAGE> 3
Version Dated 5/16/97 [SPRINT LOGO]
6. EQUIPMENT OR SOFTWARE NOT PROVIDED BY SPRINT
A. Sprint shall not be responsible for the installation, operation, or
maintenance of equipment or software not provided by Sprint; nor shall Sprint
be responsible for the transmission or reception of information by such
equipment or software.
B. Customer shall be responsible for the selection, use and compatibility of
equipment or software not provided by Sprint. In the event that such equipment
or software impairs Customer's use of the Products and Services, Customer shall
nonetheless be liable for payment for Products and Services. Upon notice from
Sprint that the equipment or software not provided by Sprint is causing or is
likely to cause hazard, interference, or service obstruction Customer shall
eliminate such hazard, interference, or service obstruction. Sprint reserves
the right to disconnect the Products and Services until such hazard,
interference, or service obstruction is corrected. If requested by Customer,
Sprint may, at its then-current rates, troubleshoot difficulties caused by
equipment or software not provided by Sprint.
C. Sprint shall not be responsible if any changes in Products and Services
cause equipment or software not provided by Sprint to become obsolete, require
modification or alteration, or otherwise affect performance of such equipment
or software.
D. If Customer provides its own router to interface with the Products and
Services, then (i) Customer is fully responsible for the installation,
maintenance, and configuration of such Customer-provided router; (ii) Sprint
must approve in advance the make, model and/or software revision of a Customer
provided router and any supporting equipment; and (iii) Sprint shall have the
right, in cooperation with Customer, to set the initial software configuration
for the router's interface into the Products and Services.
7. RIGHTS AND OBLIGATIONS OF SPRINT
A. Sprint shall install, operate and maintain the Products and Services as
required herein.
B. Sprint warrants that Products and Services will be in good working order
and will conform to the Sprint's Specifications set forth in Attachment C
(Collocated Equipment). Customer's sole remedy for performance or
non-performance of Products and Services shall be repair or replacement of the
Products and Services.
THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
C. In no event shall Sprint be liable, either in contract or in tort, for
protection from unauthorized access of Customer's transmission facilities or
Customer premise equipment; or for unauthorized access to or alteration, theft,
or destruction of Customer's data files, programs, procedure, or information
through accident, fraudulent means or devices, or any other method, even if
Sprint has assisted Customer with access management functionality including,
but not limited to, access lists and firewalls.
D. Except to the extent caused by the negligence of Sprint, Sprint shall not
be liable for claims or damages resulting from or caused by: (i) Customer's
fault, negligence or failure to perform Customer's responsibilities; (ii)
claims against Customer by any other party (except for claims of copyright or
patent infringement as specified herein); (iii) any act or omission of any
other party; or (iv) equipment or services furnished by a third party.
E. For any claim arising under or related to this Agreement, Customer's
damages, if any, shall be limited to those actually proven as directly
attributable to Sprint, subject to the following limitation: Sprint will not be
liable under any circumstances for any lost profits or other consequential
damages.
________________________________________________________________________________
Sprint Communications Company 3
<PAGE> 4
[Sprint Logo]
even if Sprint has been advised of the possibility of such damages. Sprint's
liability for damages to Customer for any cause whatsoever, regardless of the
form of action, and whether in contract or in tort, including negligence, shall
be limited to the lesser of $100,000 or the monthly charges paid for the
affected Products and Services during the preceding twelve (12) months.
F. Upon default by Customer, Sprint may terminate and retake possession of
Products and Services (before, during, or after other actions to recover sums
hereunder), in which case Customer shall provide Sprint full and free access to
Products and Services for this purpose. Sprint's actions above shall not waive
Customer's obligation to pay for all charges due Sprint hereunder as well as
any other damages Sprint may have sustained because of Customer's default.
"Default" shall mean where Customer becomes subject of a voluntary or
involuntary bankruptcy, insolvency, reorganization or liquidation proceeding;
makes an assignment for the benefit of creditors, admits in writing its
inability to pay debts when due; or fails within fourteen (14) days after
written notice to remedy any breach of these terms and conditions.
8. PROPRIETY RIGHTS AND INFORMATION PROTECTION
A. Sprint grants to Customer a non-exclusive and non-transferable license to
use programming or software which may be provided with or included in the
Products and Services for the sole purpose of enabling Customer to use such
Products and Services.
B. Title and property rights to Products and Services are and shall remain
with Sprint, whether or not embedded in or attached to realty.
C. Customer recognizes that Products and Services provided hereunder
constitute valuable trade secrets of Sprint or its suppliers. Customer shall
protect and keep confidential any programming and software used by Customer
which is provided with or included in the Products and Services, and shall make
no attempt to examine, copy, alter, reverse engineer, tamper with, or otherwise
misuse such programming and software.
D. Information that is identified as proprietary to either party which is
delivered or disclosed to the other party shall, for a period ending one (1)
year from the expiration or termination date of the Agreement, (i) be held in
confidence by the receiving party; (ii) be disclosed only to those employees or
authorized representatives on a need-to-know basis, and (iii) be used only in
fulfillment of the receiving party's obligations under the Agreement. Neither
party shall be liable for the disclosure or use of such data or proprietary
information which: (a) is, or becomes, publicly known, other than by breach of
this Agreement; (b) is obtained by the receiving party from a third party
without restriction; (c) is previously known by the receiving party; (d) is, at
any time, developed by the receiving party completely independent of any
disclosures hereunder; or (e) is required to be released by law.
9. INDEMNITIES
A. If promptly notified of any action brought against Customer based on a
claim that Sprint provided Products and Services used by Customer infringe a
United States patent or copyright, Sprint will defend such action at its
expense and will pay any and all fees, costs, or damages that may be finally
awarded in such action or resulting settlement. In the event that a final
injunction is obtained against Customer prohibiting use of Products and
Services by reason of infringement of a United States patent or copyright,
Sprint will at its option either:
1. At its expense, procure the right for Customer to continue using the
Products and Services; or
2. Procure the alternative Products and Services which furnish equivalent
functionality; or
- --------------------------------------------------------------------------------
Sprint Communications Company 4
<PAGE> 5
VERSION DATED 5/16/97 [SPRINT LOGO]
3. Direct Customer to return such Products and Services to Sprint.
The agreement relating to such returned Products and Services shall
terminate.
B. Sprint will be indemnified and saved harmless by customer from and against
all loss, liability, damage and expense, including reasonable counsel fees,
caused by:
1. Negligent acts or omissions of officers, employees, agents, or
contractors of Customer which arise out of or are caused by the
construction, installation, maintenance, presence, use or removal of
equipment or software not provided by Sprint which are connected or are
to be connected to the Products and Services; and which result in
claims and demands for damages to property or for injury or death to
persons, including payments made under any Worker's Compensation Law or
under any plan for employee's disability or death benefits;
2. Any claims arising from information, data, or messages transmitted over
the network by Customer including, but not limited to, claims for
libel, slander, invasion of privacy, infringement of copyright, and
invasion and/or alteration of private records or data; and
3. Claims for infringement of patents arising from the use of equipment
and software nor provided by Sprint in connection with Products and
Services.
10 GENERAL
A. Customer shall not assign or transfer the Agreement without the prior
written consent of sprint. Sprint may, however, assign the Agreement to its
parent company or an affiliate with thirty (30) days notice.
B. Sprint will not be responsible for performance of its obligations
hereunder where delayed or hindered by war, riots, embargoes, strikes (whether
of Sprint or others), casualties, accidents, or other concurrences beyond
Sprint's control. Sprint shall notify Customer in the event of any of the
foregoing occurrences. Should such occurrence continue for more than sixty (60)
days, Sprint or Customer may cancel the affected Products and Services with no
further liability.
C. The provision of Products and Services hereunder is subject to Sprint's
continuing approval of Customer's credit-worthiness. Customer shall furnish
financial information as Sprint may from time to time reasonably request to
determine Customer's credit-worthiness.
D. Any disputes or claims arising out of or related to the Agreement shall be
brought within one (1) year of the occurrence.
E. These terms and conditions may not be modified except by written amendment
by the parties. No agent, employee, or representative of Sprint or Customer has
authority to bind the parties to any representation or warranty unless such is
specifically included in these terms and conditions, the Agreement, or written
amendments thereto.
F. Notice to the parties of disputes arising under the Agreement shall be sent
by registered mail to the parties to the address shown on the most recent
Agreement. All other notices may be sent by regular mail.
- -------------------------------------------------------------------------------
Sprint Communications Company 5
<PAGE> 6
[SPRINT LOGO]
Notice to Sprint shall be to:
Sprint
13221 Woodland Park Road
Hendon, VA 20171
Attn: Elaine Sario, VAHRN A0602
G. The parties shall attempt to resolve all disputes arising out of or related
to this Agreement through good faith negotiations. In the event that the parties
cannot reach an agreement, any dispute arising out of or relating to this
Agreement will be finally settled by arbitration in accordance with the rules of
the American Arbitration Association. The arbitration will be governed by the
United States Arbitration Act. 9 U.S.C. Sec. 1, et seq., and judgment upon the
award rendered by the arbitrator(s) may be entered by any court with
jurisdiction. The arbitration will be held in the Kansas City, MO metropolitan
area.
H. The Agreement including these terms and conditions, shall be executed and
enforced in accordance with and the validity and performance hereof shall be
governed by, the laws of the state of Kansas.
- --------------------------------------------------------------------------------
Before signing the agreement, please provide the following information:
1. Type of connection you are requesting (i.e. Type 1, Type 2, or Cisco 7507):
Type 1
2. Service Type you are requesting (ATM or Non ATM) Non ATM
3. Quantity: 1
4. Check one: Circuit to be provided by Sprint __
Circuit to be provided by other carrier [X]
5. Tax Exempt: Yes ___ No [X] (If yes, please provide evidence such as
state tax exemption certificate or you will be charged the appropriate
state tax.)
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer, have
caused this Agreement to be executed as of the last date written below.
<TABLE>
<CAPTION>
CUSTOMER: SPRINT COMMUNICATIONS COMPANY
LIMITED PARTNERSHIP:
<S> <C>
/s/ PHILIP BURKHART /s/ FLORENCE GAIL MOORE
- ---------------------------- ---------------------------------
Customer Signature Sprint Signature
/s/ PHILIP BURKHART /s/ FLORENCE GAIL MOORE
- ---------------------------- ---------------------------------
Customer Printed Name Sprint Printed Name
CRL NETWORK SERVICES SENIOR CONTRACT ADMINISTRATOR
- ---------------------------- ---------------------------------
Company Name Sprint Title
11/11/97 1/6/98
- ---------------------------- ---------------------------------
Date Date
</TABLE>
This agreement may be mailed to the address above or faxed to Elaine Sario at
703-904-2588
- --------------------------------------------------------------------------------
Sprint Communications Company 6
<PAGE> 7
[Sprint LOGO]
ATTACHMENT A
SPRINT NAP ACCESS TYPES
To promote a variety of access methods Sprint has established two options for
customer connectivity to the NAP. These are outlined below.
Type I
The NSP terminates a DS3 or OC-3 circuit to an NSP-provided router collocated
at the Sprint NAP. This connection type allows the placement of a
customer-owned router at the NAP with direct attachment to FDDI ports on the
NAP. The IXC service provider is of the NSP's selection. The minimum
transmission rate is DS3.
Customer must provide the DS3 CSU/DSU and router HSSI cable. Sprint will
provide the FDDI multimode fiber cabling to connect the customer's router to
the NAP.
[Collocated Equipment Diagram]
Figure 1. Type I NAP Access Method
Note: For reasons of space planning and configuration control, each collocated
router is permitted to terminate a maximum of three (3) DS3s or one (1)
OC-3 circuit from the NSP's backbone.
- --------------------------------------------------------------------------------
7
<PAGE> 8
Version Dated 5/16/97 [SPRINT LOGO]
TYPE II
- -------
The NSP-provided router terminates an ATM network DS3 or OC-3 circuit using
Sprint's ATM User-to-Network Interface (UNI) at the Sprint NAP. This connection
type allows the placement of a customer-owned router at the NAP with direct
attachment to FDDI ports on the NAP. The minimum transmission rate is DS3.
Sprint will provide the FDDI multimode fiber cabling to connect the customer's
router to the NAP.
[GRAPHIC]
FIGURE 2. TYPE II NAP ACCESS METHOD
Note: For reasons of space planning and configuration control, each collocated
router is permitted to terminate a maximum of three (3) DS3s or one (1)
OC-3 circuit from the NSP's backbone.
- --------------------------------------------------------------------------------
Sprint Communications Company 8
<PAGE> 9
[SPRINT LOGO]
ATTACHMENT B
PRODUCTS, SERVICES AND PRICES
Except where designated, all charges below are monthly fees. The physical
connection can be provided by Sprint or another carrier.
SPRINT NAP COLLOCATION AND CONNECTION PRICING SCHEDULE
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
(1)DS-3 (2)DS-3s (3)DS-3s (1)DC-3c
- ------------------------------------------------------------------------------------------------------------
Connection Service Type Sprint Other Sprint Other Sprint Other Sprint Other
Type Access Access Access Access Access Access Access Access
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type-I Non-ATM
- ------------------------------------------------------------------------------------------------------------
Type-II ATM [**]
- ------------------------------------------------------------------------------------------------------------
Cisco 7507 --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
1. Customers will be limited to a Cisco 7505, 7507, or other router with
similar I/O slot capacity.
2. Customers will be limited to a maximum of three (3) DS-3s or one (1) OC-3c
circuit per router.
3. Monthly recurring cost includes Central Office Connection (COC) fee and
applies to all carrier provided access.
4. Customers will incur a non-recurring installation charge of $5,000 per
router.
5. Customers may collocate as many routers as needed, but will be charged a
monthly NAP collocation and connection fee for each based on the router
model and the quantity of circuits it terminates.
6. Customers who wish to add circuits to an existing router must agree to
these new NAP Terms and Conditions.
- --------------------------------------------------------------------------------
Sprint Communications Company
9
- -----------
[**] Pursuant to a request for confidential information, price in this document
has been omitted and separately filed with the Securities and Exchange
Commission.
<PAGE> 10
[SPRINT LOGO]
ATTACHMENT C
NAP COLLOCATED EQUIPMENT
1. INSTALLATION SPECIFICATIONS
The Customer is responsible for installing and maintaining their equipment at
the Sprint NAP in accordance with the following specifications:
- Equipment must be UL approved
- Equipment must support 120Vac power (see note)
- Rackmount shelves must have rack-mount ears for flush mounting to
rack standoffs
- Rackmount shelves must have manufacturer-supplied cable management
brackets
- Rackmount shelf width must be no more than 17.72 inches
- No open shelf slots are permitted (e.g., vacant slots must be
covered)
Note: Redundant 48Vdc power is available for Cisco 7507 or similar sized
router. Consult with Spring NAP Engineering for details.
In addition, the Customer is responsible for ensuring that the standards by
which the equipment is installed are consistent with industry standards and
practices.
2. FACILITY ACCESS
The Customer will be granted access into the Sprint NAP facility during normal
business hours. Access for emergency repairs only on a 24 x 7 basis is also
available. In both cases, prior arrangements must be made by contacting NAP
Engineering. NAP Engineering will coordinate customer technician access into
the Sprint facility. Sprint will endeavor to accommodate requests for after
hours or weekend upgrades to existing equipment. No installation, maintenance
or non-emergency repair of equipment after hours or on weekends/holidays will be
allowed without prior arrangements having been made. Installation of new
equipment requires a minimum of two (2) business days confirmed advance notice.
3. SPECIFICATIONS OF CUSTOMER COLLOCATED EQUIPMENT
The customer is required to submit his desired equipment configuration to the
NAP Engineering and receive approval before collocation can proceed. Equipment
specifications such as rackmount shelf dimensions, power requirements, heat
dissipation and other pertinent information are required by NAP Engineering so
as to determine customer equipment rack mounting configuration and bay mounting
assignments. NAP Engineering will provide customer with an installation
specification document prior to the scheduled installation date at the NAP.
4. RACK MOUNTING
Sprint will provide standard open 19-inch relay racks. EIA-drilled, with 5-inch
rack standoffs. Shelf dimensions must not exceed 17.72" in width. Sprint will
provide UPS-protected 120Vac power for the customer's equipment.
===============================================================================
Sprint Communications Company 10
<PAGE> 11
[SPRINT LOGO]
5. MANAGEMENT PORT ACCESS
If the Customer requires out-of-band dialup access to their equipment, they
will need to supply the necessary equipment and order the necessary business
lines from the Bell Atlantic Business Office. The Customer will be
responsible for all expenses associated with the use of the business lines.
The customer must obtain a bay assignment from NAP Engineering before the
order can be placed with Bell Atlantic.
For other remote management requirements, such as private network links,
Spring will cooperate with the Customer. All costs will be born by the
Customer. The installed equipment will need to meet the same requirements as
those set out here for similar equipment.
6. IP ADDRESS ASSIGNMENT
The customer shall receive his IP address assignment(s) from Sprint. Any
address(es) provided by Sprint shall remain the property of Sprint and must
be relinquished upon customer disconnect of NAP services. Sprint shall also
assign with each customer's NAP IP address a DNS name from the
SPRINTNAP.NET domain.
7. SECURITY
While Sprint makes no requirements in the area of security management for
NAP clients, it recommends that the Customer develop a policy that addresses
the traditional information system security issues of acceptable use,
accountability, and incident handling and recovery for their equipment.
===============================================================================
Sprint Communications Company 11
<PAGE> 1
CRL NETWORK SERVICES, INC. RSAA
-------------------------------
EXHIBIT 10.20
REIMBURSABLE SPACE ACT AGREEMENT
BETWEEN
THE NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
AMES RESEARCH CENTER
AND CRL NETWORK SERVICES, INC.
FOR IMPROVEMENT OF FEDERAL NETWORK CAPABILITIES
<PAGE> 2
CRL NETWORK SERVICES, INC. RSAA
-------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1.0 AUTHORITY.....................................................................1
2.0 PURPOSE.......................................................................1
3.0 RESPONSIBILITIES..............................................................2
3.1 PARTICIPANT RESPONSIBILITIES...........................................2
3.2 NASA RESPONSIBILITIES..................................................3
4.0 SCHEDULE AND MILESTONES.......................................................5
5.0 KEY PERSONNEL.................................................................6
6.0 DATA RIGHTS...................................................................6
6.1 Definitions............................................................6
6.2 General................................................................7
6.3 Participant Produced Data..............................................7
6.4 Data First Produced by NASA............................................7
6.5 Data Disclosing an Invention...........................................8
6.6 Copyright..............................................................8
6.7 Oral and Visual Information............................................9
6.8 Disclaimer of Liability................................................9
6.9 Computer Software......................................................9
6.10 Publications...........................................................9
7.0 PATENT AND INVENTION RIGHTS..................................................10
7.1 Definition............................................................10
7.2 General...............................................................10
7.3 NASA Inventions.......................................................10
7.4 NASA Contractor Inventions............................................10
7.5 Joint Inventions with Participant.....................................10
7.6 Licenses to be Reserved in Participant's License
(March-in-Rights).....................................................11
7.7 Protection of Reported Inventions.....................................11
7.8 Patent Filing Responsibilities and Costs..............................11
8.0 ADDITIONAL PROVISIONS........................................................12
8.1 FINANCIAL OBLIGATIONS.................................................12
8.2 NO PARTNERSHIP........................................................13
8.3 GOVERNING LAW.........................................................13
</TABLE>
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<TABLE>
CRL NETWORK SERVICES, INC. RSAA
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<S> <C> <C>
8.4 LIABILITY AND RISK OF LOSS............................................13
8.5 INDEPENDENCE OF CONTRACTS.............................................14
8.6 ASSIGNMENT/AMENDMENT..................................................14
8.7 USE OF NASA NAME AND INITIALS.........................................14
8.8 METRICS...............................................................14
8.9 RELOCATION............................................................15
8.10 TERM OF AGREEMENT AND RIGHT TO TERMINATION............................15
9.0 REFERENCES...................................................................15
10.0 SIGNATURES...................................................................16
</TABLE>
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REIMBURSABLE SPACE ACT AGREEMENT
BETWEEN
THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
AMES RESEARCH CENTER
AND CRL NETWORK SERVICES, INC.
FOR IMPROVEMENT OF FEDERAL NETWORK CAPABILITIES
1.0 AUTHORITY
This Reimbursable Space Act Agreement (RSAA) is entered into by CRL
Network Services, Inc. (hereinafter referred to as the Participant) with a place
of business at San Francisco, California, and the NATIONAL AERONAUTICS AND SPACE
ADMINISTRATION, Ames Research Center located at Moffett Field, California
94035-1000 ("NASA"). The legal authority for NASA to enter into this agreement
is found in sections 2203(c)(5) and (6) of the Space Act of 1958, 42 USC
Section 2473(c).
2.0 PURPOSE
This RSAA shall be effected for the purpose of:
(a) adding Participant to a unique collocated network
interconnect in vivo testbed in which Participants
exchange data among their client networks as well as with
NASA networks and other cooperating commercial and Federal
networks that are similarly attached at this testbed which
is known as MAE-West (Metropolitan Area Exchange - West
Coast) which is part of the Ames Internet Exchange;
(b) facilitating (1) the metering and analysis of internet
traffic flows, (2) the study of new algorithms for caching
internetwork flows, and (3) the development of new
approaches to traffic moderation by aggregating
Participants on a common testbed to share in the resulting
costs and benefits;
(c) providing new technology transmission facilities, either
terrestrial or satellite, that stimulate competition and
cost moderation as new network capabilities are introduced
by Participants; use of such new technology is essential
to efficient operation of NASA and other Federal networks;
The foregoing statements of purpose (a) to (c) support NASA-Ames
Research Center's role as NASA lead center for Information Systems Technology.
This interconnect testbed shall be located at NASA Ames Research Center
along with associated collocated equipment required to establish network
connectivity. This RSAA will
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CRL NETWORK SERVICES, INC. RSAA
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benefit NASA by enhancing the ability of the NASA-Ames Research Center to meet
its responsibility to provide for a logical extension to the existing Federal
Interconnect Exchange -- West Coast facility (FIX - West) that is managed by
NASA Ames Research Center Information Services Division and is also part of the
Ames Internet Exchange. In attaining this objective, it will ensure that all
costs to the government are offset by fees paid by those Participants connecting
to MAE-West.
This agreement is for both the network connecting the Participants to
the Internet at MAE-West, a unique collocated interconnect facility located at
NASA-Ames, and for operating a satellite terminal owned by the Participants and
collocated near MAE-West. No agreement expressed or implied, is hereby made to
order or provide communication services to NASA or the U.S. Government. Both
parties will use reasonable efforts to meet performance provisions under this
RSAA.
3.0 RESPONSIBILITIES
3.1 PARTICIPANT RESPONSIBILITIES
The Participant will provide the following materials, effort and
information to NASA:
1. The Participant shall provide all equipment required to
properly attach its network facilities to the facilities at
MAE-West, such as routers, CSU/DSU's, etc. including all
required cabling, and shall provide up to date configuration
drawings to NASA to insure that adequate information is
available for trouble shooting requirements. The Participant
shall provide for reasonable maintenance and support
agreements for any of its equipment located at NASA Ames
Research Center and shall ensure that any third party
personnel requiring access to their equipment are cognizant of
all terms and conditions in this Agreement, including
requirement of U.S. citizenship.
2. The Participant shall provide required telecommunications
transmission services such as DS-3 leased lines, ATM
facilities, etc. and shall provide NASA with copies of any
related orders for such services when they occur, to assure
coordinated delivery and installation of such services by
NASA's Resident Staff.
3. The Participant shall provide out-of-band (OOB) network
management for all active devices such as routers, CSU/DSU's,
etc. to minimize the support required from NASA for emergency
trouble shooting of equipment. The Participant shall provide
all required telecommunications links (such as switched analog
voice lines for dialup modems, etc.) to support this OOB
management.
4. The Participant shall provide a detailed implementation plan
including configuration, installation, and operations of
equipment that is to be attached to MAE-West, within 30 days
of the signature of this Agreement, and the
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RSAA must be approved by NASA before any work commences
unless waived in writing by NASA. If the Participant
enters separate agreements between itself and Network
Service Providers (peering agreements), Participant
shall designate the names of such Network Service
Providers (NSPs) to NASA as part of the implementation
plan.
5. The Participant shall provide for the decaling (all
Participant property' must be decaled) and initial
installation of equipment at least one business week ahead of
the scheduled work period. Any subsequent modification by the
Participant at MAE-West shall be requested in writing and
scheduled with NASA at least one business week ahead of the
scheduled work period.
6. The Participant agrees to comply with all NASA safety and
security requirements, all required environmental regulations,
and the provisions of NASA-Ames Standard Operating Procedures'
as defined in Reference A (see Section 9).
7. This plan may be amended and updated periodically consistent
with the authority listed in Section 8.6 of this document.
3.2 NASA RESPONSIBILITIES
NASA will provide the following effort and information to the
Participant:
1. NASA will provide the following supplies and services:
(a) seismic-braced equipment racks in which to collocate up to
31.5 inches (18 rack units) of Participant owned and
provided telecommunication equipment, such as a router,
CSU/DSU, cabling, modem, etc.; additional rack space must
be requested in writing and a new cost recovery agreement
must be established and approved; NASA is not committed to
providing additional space if it not currently available
in building N254;
(b) controlled and monitored access to the equipment racks;
(c) reliable filtered 110 VAC electric power, dedicated to
each rack, with generator backup Uninterruptible Power
Supply (UPS); UPS may be taken off the line for short
periods for maintenance in which case only commercial
power or generator power is available;
(d) reliable air conditioning system to insure that collocated
equipment operates in a hospitable environment;
(e) loan of tools, monitors, and test equipment incidental to
trouble shooting;
(f) remote monitoring of critical facility systems, e.g.,
power, HVAC, security, fire;
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(g) limited technical support for new installations and
configuration changes;
(h) arrangement of services by certified electrical contractor
to perform necessary power, conduit and seismic brace
installation when required of Participant;
(i) maintenance of an inventory of Participant's decaled
equipment and support of their property management system.
2. NASA will provide access to related telecommunications carrier
facilities (e.g. Pacific Bell, Metropolitan Fiber Systems,
etc.) that are collocated in the same facility as MAE-West for
termination of Participant provided telecommunications
services (e.g., DS-3 leased line facilities, FDDI fiberoptics,
etc.). However, NASA is not responsible for providing said
services themselves nor is it responsible for setting costs
for such services except such costs as accrue to the
government.
3. NASA will provide access to the MAE-West facilities, currently
an FDDI Ring, and future access to one port on new technology
switch when it is acquired and installed. This switched
facility (e.g., a DEC GIGAswitch) will be operated and managed
by NASA 24 hours per day, seven (7) days per week, 52 weeks
per year (24x7x52), and provide reliable, high performance
transport of network traffic between the Participant's
equipment and other NSP's that are attached directly to
MAE-West. NASA will maintain this configuration and ensure
that changes are adequately coordinated with Participants.
4. NASA will provide access to designated staff of the
Participant or their designees for maintenance and trouble
shooting of Participant's equipment. Emergency access to
equipment located at MAE-West will be provided by NASA within
a two (2) hour period after a request has been made, including
off-hours. NASA will also provide Resident Technician
emergency support for trouble shooting problems with
Participant equipment, such as power cycling or physical
resetting of equipment within two (2) hours of a request being
made, in case normal OOB management capabilities cannot
provide equivalent functionality.
Note the existence of access restrictions: all Participant staff,
including third party staff with whom Participant may contract for services,
e.g., maintenance, that are allowed on-site access must be U.S. citizens and
they must obtain prior written consent by NASA to visit the site, either
on-shift or off-shift no foreign nationals are allowed on-site access. NASA will
escort approved Participant staff or their designees while work is being
performed on-site at NASA Ames Research Center, and will insure proper
identification, documentation and authentication as well as in/out logging.
Off-shift access to Moffett Field will require escort by NASA Resident Staff
through the Main Gate. On-shift access is Monday through Friday, 0700 to 1615
hours.
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CRL NETWORK SERVICES, INC. RSAA
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5. NASA will provide monthly traffic statistics of data exchanged
among MAE-West participants only with written consent from
NSP's. NASA may monitor network layer traffic for purposes of
Research and Development consistent with its mission. NASA
reserves the right to monitor end user data of Government
agency networks attached to MAE-West to insure appropriate use
of Government network facilities involved with MAE-West.
6. NASA will perform the installation and cabling of all of the
Participant's equipment as per the layout that is included in
the Participant's implementation plan. Installation will be
performed in accordance with current standards as set forth in
paragraph 9.0 Reference A of this agreement.
7. NASA will provide one business week's notice for normal
maintenance of facility systems.
8. NASA will provide information on other than traffic statistics
on NSP's that are connected to FIX-West or MAE-West at its
discretion. NASA shall not accept requests for non-disclosure
for any data that are not traffic statistics or designated as
Participant Produced Data in paragraph 6.3 of this agreement.
NASA is not responsible for peering agreements among
Participants but will facilitate such agreements whenever it
can do so.
4.0 SCHEDULE AND MILESTONES
The scheduled major milestones are as follows:
Activity Date
A. Formal request by Participant
-----------
B. Reimbursable Space Act Agreement (RSAA) issued to
Participant for Markup
-----------
C. Negotiated RSAA completed for approvals
-----------
D. RSAA approved by NASA
-----------
E. RSAA approved by Participant
-----------
F. Initial funding "as indicated in Section 8.1 of this
Agreement" transferred to NASA
-----------
G. Equipment deployed to Ames for installation
-----------
H. Connection to MAE-West established, cost recovery begins
-----------
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CRL NETWORK SERVICES, INC. RSAA
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I. Semiannual installment due and payable to NASA
-----------
J. Final annual installment due and payable to NASA
-----------
K. Annual report and fee adjustment up or down
-----------
The schedule and milestones for the performance of this Agreement will
be subsequently determined by the parties.
The above schedule and milestones are estimated based upon the parties'
current understanding of the projected use of facilities and equipment by
Participant, NASA, and other Participants and Federal Agencies. In the event of
changes in NASA's projected usage, the Participant shall be given reasonable
notice of that change, so that the schedule and milestones may be adjusted
accordingly. The parties agree that NASA usage of the exchange facilities and
equipment shall have priority over the usage planned in this Agreement. Should
conflict arise, NASA in its sole discretion shall determine whether to exercise
that priority.
5.0 KEY PERSONNEL
The following personnel are designated as the key officials for their
respective party. These key officials are the principal points of contact
between parties in the performance of this Agreement.
<TABLE>
<CAPTION>
NASA Ames The Participant
<S> <C> <C> <C> <C> <C> <C>
Name: William P. Jones Name: James Couch
Title: External Interface Manager Title: Network Operations Manager
Address: M/S 233-17 Address: CRL Network Services, Inc.
NASA Ames Research Center One Kearny Street
Moffett Field, CA 94035-1000 San Francisco, CA 94108
Tel. No.: (415) 604-6482 Tel. No.: (415) 837-5300
Fax No.: (415) 604-6999 Fax No.: (415) 392-9000
</TABLE>
6.0 DATA RIGHTS
6.1 DEFINITIONS
The term "Participant," as used herein, means any non-Government entity
that is a party to this Agreement. The rights in data set forth herein are
applicable to any employees, contractors or subcontractors, or other entities
having a fiduciary or contractual relationship with Participant that are
assigned, tasked, or contracted with to perform specified Participant activities
under this Agreement.
The term "NASA," as used herein, means NASA civil servant employees as
well as contractors, subcontractors, or other entities having a fiduciary or
contractual relationship with
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CRL NETWORK SERVICES, INC. RSAA
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NASA that are assigned, tasked, or contracted with to perform specified NASA
activities under this Agreement.
The term "data," as used herein, means recorded information, regardless
of form, the media on which it may be recorded, or the method of recording. The
term includes, but is not limited to, data of a scientific or technical nature,
computer software and data comprising commercial and financial information.
6.2 GENERAL
Data exchanged between Government and Participant under this Agreement
shall be exchanged without restriction as to its disclosure, use, or duplication
except as otherwise provided below in this provision.
6.3 PARTICIPANT PRODUCED DATA
In the event it is necessary for the Participant to furnish NASA with
data which either existed prior to, was produced outside of, or is first
produced by Participant in carrying out Participant's responsibilities under
this Agreement, and such provided data embodies trade secrets or comprises
commercial or financial information which is privileged or confidential and such
data is so identified with a suitable notice or legend, the data will be
maintained in confidence and disclosed and used by NASA and its contractors
(under suitable protective conditions) only for the purpose of carrying out
NASA's responsibilities under this Agreement. Upon completion of activities
under this Agreement, such data will be disposed of as requested by the
Participant.
The parties agree that the following is Participant Produced data:
(a) list of NSP's at Participant's location, including
technical point of contact, telephone numbers and email
addresses;
(b) list of physical and logical addresses for their portion
on MAE-West;
(c) customer privacy-protected information such as customer's
traffic, lists of customers, or personal information about
client employees;
(d) implementation plan, and
(e) configuration change requirements.
6.4 DATA FIRST PRODUCED BY NASA
As to data first produced by NASA (or NASA contractors) in carrying out
NASA's responsibilities under this Agreement and data which would embody trade
secrets or would comprise commercial or financial information that is privileged
or confidential if obtained from the Participant, such data will, to the extent
permitted by law, be maintained in confidence and be disclosed and used by NASA,
its contractors and the Participant (under suitable protective
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CRL NETWORK SERVICES, INC. RSAA
-------------------------------
conditions) only for the purpose of carrying out NASA's responsibilities under
this Agreement. Upon completion of activities under this Agreement, such data
will be disposed of as requested by NASA.
The parties agree that the following is data first produced by NASA:
(a) list of NSP's at NASA location, including technical point
of contact, telephone numbers and email addresses;
(b) list of physical and logical addresses on their portion of
MAE-West;
(c) copies of any reports, charts, graphs, or diagrams that
reference NASA's name or logo, or EMAIL to NSP's attaching
to MAE-West at NASA's location but not customer
privacy-protected information such as customer's traffic,
lists of customers, or personal information about client
employees;
(d) implementation plan, and
(e) configuration change requirements.
6.5 DATA DISCLOSING AN INVENTION
In the event data exchanged between NASA and the Participant discloses
an invention for which patent protection is being considered and the furnishing
party specifically identifies such data, the receiving party agrees to withhold
such data from public disclosure for a reasonable time (presumed to be one year
unless mutually agreed otherwise) in order for patent protection to be obtained.
6.6 COPYRIGHT
In the event data is exchanged with a notice indicating that the data is
protected under copyright as a published, copyrighted work, the following
paid-up license rights shall inure to the receiving party:
(a) If it is indicated on the data that the data existed prior
to, or was produced outside of, this Agreement, the
receiving party and others acting on its behalf, may
reproduce, distribute, and prepare derivative works for
the purpose of carrying out the receiving party's
responsibilities under this Agreement; and
(b) If the furnished data does not contain the indication of
(a) above, it will be assumed that the data first produced
under this Agreement, and the receiving party and others
acting on its behalf, may reproduce, distribute, and
prepare derivative works for any of its purposes
whatsoever.
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6.7 ORAL AND VISUAL INFORMATION
If information which the Participant considers to embody trade secrets
or to comprise commercial or financial information which is privileged or
confidential is disclosed orally or visually to NASA, such information must be
reduced to tangible, recorded form (i.e., converted into data as defined
herein), identified and marked with a suitable notice or legend as required by
paragraph 6.3 above and furnished to NASA within 10 days after such oral or
visual disclosure, or NASA shall have no duty to limit or restrict, and shall
not incur any liability for, any disclosure and use of such information.
Not withstanding the above, the Government's liability in the event of
breach of paragraphs 6.3 through 6.5 will be limited to the lesser of proven
damages or $5,000,000.
6.8 DISCLAIMER OF LIABILITY
Not withstanding the above, NASA shall not be restricted in, or incur
any liability for, the disclosure and use of:
(a) data not identified with a suitable notice or legend as
set forth in paragraph 6.3 above; nor
(b) information contained in any data for which disclosure and
use is restricted under paragraphs 6.3 and 6.4 above, if
such information is or becomes generally known without
breach of the above, is known to or is generated by NASA
independently of carrying out NASA's responsibilities
under this Agreement, is rightfully received from a third
party without restriction, or is included in data which
the Participant has, or is required to furnish to the U.S.
Government without restriction on disclosure and use.
6.9 COMPUTER SOFTWARE
If the Government provides the Participant any Government computer
software pursuant to this Agreement, the Participant agrees not to disclose the
computer software to any third party, to use the computer software for no other
purpose than carrying out the responsibilities of this Agreement, and to return
the computer software and all copies thereof to the Government when the
Agreement is terminated or completed, whichever comes first.
6.10 PUBLICATIONS
The parties agree to provide each other with an advance information copy
of any manuscript to be released in a journal article, symposium presentation or
under the NASA scientific and technical report series ( described in NMI NHB
2200.2, NASA Scientific and Technical Information Handbook) when the manuscript
utilizes data derived from this Agreement. The information copy shall be sent
sufficiently in advance to afford the recipients(s)
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CRL NETWORK SERVICES, INC. RSAA
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time to review the manuscript and comment thereon before the manuscript is
published or presented at a symposium.
7.0 PATENT AND INVENTION RIGHTS
7.1 DEFINITION
The term "Participant," as used herein, means any non-Government entity
that is a party to this Agreement. The patent and invention rights set forth
herein are applicable to any employees, contractors or subcontractors, or other
entities having a fiduciary or contractual relationship with Participant that
are assigned, tasked, or contracted with to perform specified Participant
activities under this Agreement.
7.2 GENERAL
Title to inventions made (or conceived or first actually reduced to
practice) as a consequence of, or in direct relation to, the performance of
activities under this Agreement will remain with the respective inventing
parties (Participant or NASA), and no patent or invention rights are exchanged
between or granted by such parties under this Agreement except as provided
herein.
7.3 NASA INVENTIONS
NASA will use reasonable efforts to report inventions made by NASA
employees as a consequence of, or which bear a direct relation to, the
performance of specified NASA activities under this Agreement and, upon timely
request, will grant the Participant first option to acquire either an exclusive
or partially exclusive, revocable, royalty-bearing license, on terms to be
subsequently negotiated, for any patent application and patents covering such
inventions, and subject to the license reserved in paragraph 7.6 (1) below.
7.4 NASA CONTRACTOR INVENTIONS
In the event NASA contractors are tasked to perform work in support of
specified NASA activities under this Agreement and inventions are made by
contractor employees or jointly between NASA employees and contractor employees,
and NASA has the right to acquire or has acquired title to such inventions, NASA
will use reasonable efforts to report such inventions and, upon timely request,
will grant the Participant first option to acquire either an exclusive or
partially exclusive, revocable, royalty-bearing license, on terms to be
subsequently negotiated, for any patent application and patents covering such
inventions, and subject to the license reserved in paragraph 7.6 (2) below.
7.5 JOINT INVENTIONS WITH PARTICIPANT
NASA and the Participant will use reasonable efforts to identify and
report to each other inventions made jointly between NASA employees (or
employees of NASA contractors) and employees of the Participant and, upon timely
request, NASA will grant the Participant first
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option to acquire either an exclusive or partially exclusive, revocable,
royalty-bearing license in any undivided interest NASA has the right to acquire
or has acquired in such invention, upon terms to be subsequently negotiated, for
any patent application and patents covering such inventions; or NASA may agree
to refrain from exercising its undivided interest in a manner inconsistent with
the Participant's commercial interests and to cooperate with the Participant in
obtaining patent protection on its undivided interest. Either alternative will
be subject to the applicable license or licenses reserved in paragraph 7.6
below.
7.6 LICENSES TO BE RESERVED IN PARTICIPANT'S LICENSE (MARCH-IN-RIGHTS)
Any license granted to the Participant pursuant to paragraphs 7.3, 7.4
or 7.5 above will be subject to the reservation of the following licenses:
(a) as to inventions made solely by, or jointly with, NASA
employees, the irrevocable, royalty-free right of the
Government of the United States to practice and have
practiced the invention on behalf of the United States and
on behalf of any foreign Government or international
organization pursuant to any existing or future treaty or
agreement with the United States; and
(b) as to inventions made solely by, or jointly with, NASA
contractors, rights in the Government of the United States
as set forth in (a) above, as well as the revocable,
non-exclusive, royalty-free license in the contractor as
set forth in 14 CFR 1245.108.
7.7 PROTECTION OF REPORTED INVENTIONS
When an invention is reported and disclosed between the parties in
accordance with the provisions of this clause, the receiving party agrees to
withhold such report or disclosure from public access for a reasonable time
(presumed to be one year unless mutually agreed) in order for a patent
application to be filed.
7.8 PATENT FILING RESPONSIBILITIES AND COSTS
The invention and patent rights set forth herein shall apply to any
patent applications filed and patents obtained in any country, and each party is
responsible for its own costs of preparing, prosecuting, issuing and maintaining
patents covering sole inventions in any country; except that NASA and the
Participant may, upon the reporting of any invention (sole or joint) or in any
license option granted, mutually agree otherwise for any country as to patent
application costs, and maintenance responsibilities and costs. As to any
invention made jointly between NASA employees (or employees of a NASA
contractor) and employees of the Participant and for which the Participant files
a patent application, the Participant agrees to include the following statement
therein:
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The invention described herein may be manufactured and used by or
for the United States Government for United States Government
purposes without the payment of royalties thereon or therefor.
8.0 ADDITIONAL PROVISIONS
8.1 FINANCIAL OBLIGATIONS
There will be a transfer of funds or other financial obligation from the
Participant, CRL Network Services, Inc. to NASA in connection with this
Agreement. The terms, conditions, and schedule of payment are as follows:
CRL Network Services, Inc. shall provide payment in advance to NASA
promptly for use of its facilities and staff in support of Participant's access
to MAE-West:
one connection to the FDDI Ring with a reserved port on the
switch at the recurring rate of $2,000 per month, with an initial
charge of $46,000 to cover initial equipment and installation
support, and to cover initial procurement and deployment of the
transmission facility in FY 97;
CRL Network Services, Inc. shall submit to:
NASA Ames Research Center
Collection Agent (Code CFS)
MS 203-13 (CRL Network Services, Inc.)
Moffett Field, CA 94035
payment in the form of a check to be written payable to the National Aeronautics
and Space Administration. The initial charge of $46,000 and the installment for
the first six months (total of $58,000) shall be submitted within 30 days of the
date of this Agreement. CRL agrees to a fee of $25.00 per month for each 1 3/4"
of additional rack space not to exceed one complete rack without special
consideration and authorization from the External Interface Manager. CRL Network
Services, Inc. acknowledges its obligation and ability to satisfy the following
schedule of payments in advance of each six (6) month period:
$12,000 due April 1, 1997; $12,000 due October 1, 1997; $12,000
due April 1, 1998.
A fee adjustment to cost recovery related to 8.1(a) shall be made
annually by NASA in writing to each Participant, near the close of each year's
operation. This adjustment may be up or down, reflecting actual costs, and is to
apply to the subsequent year 5 cost recovery requirement for each Participant
attached to MAE-West.
Special activities in support of access to MAE-West that may be required
as a result of future amendments to this Agreement or of the CRL Network
Services, Inc. implementation plan
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shall not exceed an annual cost of $100,000 and a total cost under this
Agreement of $10,000,000.
All activities under or pursuant to this Agreement are subject to the
availability of appropriated funds. Nothing in this Agreement commits the United
States Congress to appropriate funds for this effort, and no provision herein
shall be interpreted to require obligation or payment of funds in violation of
the Anti-Deficiency Act, 31 USC 1341.
8.2 NO PARTNERSHIP
This Agreement is not intended to constitute, create ,give effect to or
otherwise recognize a joint venture, partnership, formal business organization,
or agency agreement of any kind, and the rights and obligations of the parties
shall be only those expressly set forth herein. Both parties will remain
independent contractors, each responsible for its own employees, costs, risks,
liabilities, and expenses incurred in the performance of this Agreement.
8.3 GOVERNING LAW
NASA will perform this Agreement consistent with obligations, laws,
published policy, and regulations of the United States. This Agreement shall be
governed by the federal laws of the United States.
8.4 LIABILITY AND RISK OF LOSS
Neither NASA nor the other party will make any claim against the other:
(a) with respect to injury or death of its own, its
contractors' or its subcontractors' employees,
(b) with respect to damage to its own, its contractors' or
its subcontractors property
arising out of or connected with the performance of this Agreement, whether such
injury, death or damage arises through negligence or otherwise.
LIMITATION OF LIABILITY TO DIRECT DAMAGES
To the extent that a risk of damages or loss is not dealt with expressly
in this Agreement, such party's liability to the other party, whether or not
arising as the result of alleged breach of this Agreement, shall be limited to
direct damages only, and shall not include any loss of revenue or profits or
other indirect or consequential damages.
As operator of MAE-West and FIX-West which form the interconnecting
testbed for the various Participants, NASA reserves the right to notify by
electronic means or by telephone of any action to be taken to disconnect the
Participant's equipment. Such action will be taken if said equipment is known to
be causing interference of data flows between other connected Participants. The
equipment will be reconnected only after appropriate repairs are made or after
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mutually agreeable alternative routing of traffic is effected. This action by
NASA will be carried out without liability for direct damages, or for any loss
of revenue or profits or other consequential damages which result. NASA will
make a good faith effort to assist the Participant in restoring its services in
an expeditious manner.
8.5 INDEPENDENCE OF CONTRACTS
The parties agree that this Agreement is independent of any other
contract between the United States Government and the Participant. By
participating in this Agreement, NASA makes no assurances to the Participant or
others as to the performance of the objects tested in NASA facilities or other
test objects, and relieves the Participant of none of its obligations under any
other contract with the Government. This Agreement does not constitute NASA's
endorsement of any test results, resulting designs, hardware, or other matters.
8.6 ASSIGNMENT/AMENDMENT
(a) This Agreement may be modified at any time by a written
document signed by the officials authorized to bind the
parties.
(b) Neither this Agreement nor any interest arising under it
will be assigned by either party without the express
written consent of the officials authorized to bind the
parties.
8.7 USE OF NASA NAME AND INITIALS
The Participant agrees to submit to NASA for its approval all
promotional and advertising material which uses the NASA name or initials prior
to publication including any reference, that is contained in internet work
information servers currently known as world wide web servers or similar.
Approval by NASA shall be based on applicable law (e.g., 42 USC Sections
2459(b), 2472(a) and 2473(c)(1); and 14 CFR Section 1221.100 et seq.) and policy
governing the use of the words "National Aeronautics and Space Administration"
and the letters "NASA."
8.8 METRICS
The Participant will supply quarterly data to the Ames Commercial
Technology Office on: jobs created, jobs retained, net sales increases, new
products or services, productivity gains, patents, royalties, and licenses. NASA
Ames Research Center recognizes the sensitive nature of these data and will
protect them consistent with the provisions found in this document. Proprietary
data will remain proprietary to the Participant and are exempt from release to
the extent permissible under the Freedom of Information Act (FOIA).
Point of Contact for Commercial Metrics Reporting is:
Commercial Metrics Program Leader
NASA-Ames Research Center
Commercial Technology Office, Code DK
14
<PAGE> 18
CRL NETWORK SERVICES, INC. RSAA
-------------------------------
Mailstop 202A-3
Moffett Field, CA 93035-1000
(415) 604-1919
(415) 604-1592 FAX
8.9 RELOCATION
NASA reserves the right to relocate the functions associated within
building N254 to another area of Moffett Field; only relocation costs of NASA
equipments and facilities will be born by NASA. All costs associated with
rehoming of non-NASA circuits and relocation of non-NASA equipments and
facilities will be born by the Participant. Abandonment of lands by Participant
must include removal of all equipments and facilities including buried or
below-surface structures and conduits, as well as removal of any toxic waste or
hazardous materials. Notice of the requirement to relocate functions within
building N254 will be given at least one year prior to such action by NASA.
8.10 TERM OF AGREEMENT AND RIGHT TO TERMINATION
(a) This Agreement becomes effective on the date of the
signatures of both parties. The term of this RSAA will be
two (2) years beginning on the date of the last signature
appearing below, or as provided for in paragraph 8.10(b)
below. This Agreement may be extended for an additional
one-year period by modification, as provided for in
paragraph 8.6 (a) above.
(b) Either party may terminate this Agreement at any time
before the date provided in paragraph 8.10(a) above by
written notice to the other party sixty (60) days before
the desired date of termination. The terminating party
will not incur any liability to the other party for
terminating this Agreement under any provision of
paragraph 8.10.
(c) All parties will use reasonable efforts to participate in
the efforts stated in this Agreement. NASA's ability to
participate in this Agreement is subject to the
availability of appropriated funds. If appropriated funds
are not available, NASA may terminate this RSAA as
provided in paragraph 8.10 (b).
9.0 REFERENCES
A ARC External Interface Standard Operating Procedures as modified
June 1996. A copy of this document may be obtained from the
External Interface Manager.
B Ames Safety Manual, chapters 1, 2, 4, 5, 6, 11, 18, 19, 20, 24,
25, 27; homepage address - http:/dqh.arc.nasa.gov/.
C Ames Environmental Handbook, AHB 8800.3, chapter 1; homepage
address - http:/dqh.arc.nasa.gov/.
15
<PAGE> 19
CRL NETWORK SERVICES, INC. RSAA
-------------------------------
Ames Management Instruction 8800.4; homepage address -
http:/dqh.arc.nasa.gov/.
NASA Environmental Management, NPD 8800.16; homepage address -
http:/dqh.arc.nasa.gov/.
10.0 SIGNATURES
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
in duplicate originals by its duly authorized representative on the date
indicated below.
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION CRL NETWORK SERVICES, INC.
BY:/S/ Henry McDonald BY:/S/ James Couch
--------------------------- --------------------------
Henry McDonald, Director James Couch
Ames Research Center CRL Network Services
MOFFETT FIELD, CA 94035-1000 One Kearny Street
Tel. No. (415) 604-5111 San Francisco, CA 94108
Tel. No. (415) 837-5300
DATE: 3/7/97 DATE: 3/7/97
16
<PAGE> 1
EXHIBIT 10.21
ONE KEARNY STREET
SAN FRANCISCO, CALIFORNIA
OFFICE LEASE AGREEMENT
Landlord: Maria Chen
Tenant: CRL Network Services, Inc., a California corporation
<PAGE> 2
BASIC LEASE INFORMATION
<TABLE>
<S> <C>
Lease Date: The date of execution of this Lease by the latter of
Landlord or Tenant, as set out on the signature page to
the Lease.
Commencement Date: Sixty (60) calendar days after the Lease Date.
Landlord's Name: Maria Chen
Landlord's Address: c/o Antonio Valla, Esq.
Gilliss & Valla
685 Market Street, Suite 590
San Francisco, CA 94105
Tenant's Name: CRL Network Services, Inc., a California corporation
Tenant's Address: One Kearny St., 5th Floor, San Francisco, CA 94108
Address of Premises: One Kearny St., 10th Floor, San Francisco, CA
94108
Description of Premises: Approximately 4,650 rentable square feet
consisting of
the tenth (10th) floor of the Building
Initial Term: Three (3) years
Expiration Date: The date three (3) years after the Commencement
Date
Options to Extend: One (1) option to extend the Term for a period of
three (3) years
Annual Base Rent: $63,600.00
Monthly Base Rent: $5,300.00
Escalations: None, except for operating expense and tax increases
above the Base Year
Rent During Option Period: Fair market value rent, to be determined pursuant to
Section 3 of the Lease.
Security Deposit $5,300.00
Permitted Use: General office use, as defined in Section 9 of
the Lease.
Right of First Refusal Tenant shall have a right of first refusal with
respect to the eleventh (11th) floor of the Building,
subject to the terms and conditions of this Lease.
</TABLE>
<PAGE> 3
Exhibits: A. Description of Premises
B. Tenant's Improvements
C. Estoppel Certificate
D. Rules and Regulations
The foregoing Basic Lease Information is hereby incorporated into and
made a part of this Lease. Each reference in this Lease to any of the above
terms shall mean the respective information set forth opposite said term and
shall be construed to incorporate by reference all of the terms provided under
the particular Section of this Lease pertaining to said information. In the
event of any conflict between the Basic Lease Information and the Lease, the
latter shall control.
LANDLORD:
/s/ Maria Chen
---------------------------------------
Maria Chen
Dated: December 5, 1995
TENANT:
CRL NETWORK SERVICES, INC.,
a California corporation
By: /s/ James Couch
---------------------------------------
James Crouch, President
Dated: December 5, 1995
<PAGE> 4
OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease") is made and entered into as of
the date the last party signed hereon, between Maria Chen, an individual
("Landlord"), and CRL Network Services Inc., a California corporation
("Tenant").
RECITALS
A. Landlord owns that certain space consisting of approximately 4,650
rentable square feet, together with the fixtures, personal property and
appurtenances thereto (the "Premises") on the tenth (10th) floor of the building
located at and known as One Kearny Street, San Francisco, California (the
"Building"), all as more particularly described on Exhibit A hereto.
B. Landlord desires to lease the Premises to Tenant, and Tenant desires
to lease the Premises from Landlord, all on the terms and conditions set forth
herein.
C. Tenant currently leases premises (the "Current Premises") on the
fifth (5th) floor of the Building pursuant to that certain Office Lease
Agreement dated as of July 15, 1994, between Landlord and Tenant (the "Current
Lease")
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto agree as follows:
1. Agreement to Lease Premises: Delivery of Possession.
a. Lease Covenant. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, the Premises, all on the terms and conditions set
forth herein. Tenant acknowledges that the Premises are being leased "as is,"
and that Landlord or Landlord's agents or employees have not made any
representation or warranty, whether oral or written, to Tenant with respect to
the condition of the Premises. Tenant's taking possession of the Premises on the
Commencement Date shall constitute Tenant's express acknowledgment that the
Premises were delivered by Landlord in good condition and, in any event, in a
condition acceptable to Tenant. Tenant further acknowledges that it has
conducted its own due diligence investigation on both the Building and the
Premises, and has satisfied itself as to each and every item and matter relevant
to its decision to enter into this Lease, and that the Building and the Premises
are suitable in all respects for the use intended. Tenant acknowledges that it
is accepting the Premises "AS IS" and with all faults, except that Landlord
represents to Tenant that the Premises are in compliance with current,
applicable laws, rules and regulations, including, without limitation, the
Americans with Disabilities Act. Tenant specifically agrees that Landlord has no
duty to make any disclosures concerning the condition of the Building and the
Premises and/or the fitness of the Building and the Premises for Tenant's
intended use, and Tenant expressly waives any duty which Landlord may have to
make any of said disclosures; provided, however, that Landlord represents that
the Premises are serviced by a functioning heating and air conditioning system
(including the two in-ceiling air conditioners) , that electrical plugs and
1
<PAGE> 5
lights in the Premises are functioning, and that window coverings in the
Premises, if any, are in working order
b. Delivery of Possession. In the event that Landlord is unable
to deliver possession of the Premises to Tenant by the Commencement Date, Tenant
agrees that Landlord shall not be liable for any damage to Tenant and that this
Lease shall not be void or voidable, but Tenant shall not be liable for any
Rent, as defined below, until such time as Landlord tenders delivery of
possession of the Premises to Tenant; provided, however, that if Landlord does
not deliver possession of the Premises to Tenant on or before a date forty-five
(45) days after the Commencement Date, this Lease shall then become voidable at
the option of either party upon ten (10) days' written notice to the other
party.
c. Antenna and Conduit License Subject to delivery of possession
of the Premises as contemplated herein, and in view of Tenant's existing rights
with respect to the Current Lease, Landlord hereby grants Tenant a license (the
"License") to (i) install and use an antenna on the roof of the Building and to
connect the same to the Premises, and (ii) connect the Premises to Tenant's
offices at 49 Geary Street, Suite 211, San Francisco, California, by means of a
conduit on the outside of the Building. The term of the License shall be
concurrent with the Term of the Lease. Installation of the antenna and
connection of the same to the Premises and installation of the conduit shall be
made at Tenant's sole cost and expense. Said installation and the effectiveness
of the License shall be subject to (i) Tenant first obtaining all necessary
permits and licenses for installation and operation of the antenna and conduit,
and (ii) Landlord's approval, not to be unreasonably withheld, of the location
and placement of the antenna and the connection of the same to the Premises and
the location, placement and appearance of the conduit. In determining whether to
approve the location and placement of the antenna and conduit, Landlord may
consider a variety of factors related to the size and appearance of the antenna
and conduit and their proposed locations, including, without limitation, the
aesthetic aspects of said antenna and conduit and, in the case of the antenna,
its potential interference with Landlord's enjoyment of the private deck located
on the 12th floor of the Building or the view from the same. As to the conduit,
Tenant covenants to install the same in a professional manner and so as not to
degrade the appearance of the Building. If approved and installed, for purposes
of Tenant's insurance requirements hereunder, the antenna and its adjoining
area, and the conduit, shall be considered part of the Premises.
d. Construction Noise. Tenant acknowledges that for a period of
time following the Commencement Date, the Landlord may conduct construction of
improvements and remodeling of areas of the Building, and that noise, dust and
other factors related to said construction may interfere with Tenant's full
enjoyment of the Premises, and Tenant hereby consents to said interference,
provide that Tenant is able to conduct its business in a reasonable manner.
e. Termination of Current Lease. Effective on the Commencement
Date, and subject to Tenant taking possession of the Premises and otherwise
performing under this Lease, the Current Lease shall terminate and Tenant shall
immediately return possession of the Current
2
<PAGE> 6
Premises to Landlord, along with the furniture rented by Tenant pursuant to the
Current Lease, all in accordance with the terms and conditions of the Current
Lease.
f. Signing Bonus. Upon execution of this Lease, and subject to
Tenant making the payments described in Section 7 hereof, Landlord shall pay
Tenant a Lease signing bonus in the amount of Thirty Thousand Dollars ($30,000).
2. Initial Term. The Initial Term of this Lease shall begin on the
Commencement Date and shall end on the Expiration Date, unless earlier
terminated pursuant to the provisions hereof or extended pursuant to Section 3,
below. The Initial Term and any extensions thereof shall be referred to
collectively as the "Term."
3. Option to Extend Term.
a. Option to Extend. Subject to the provisions of this Section,
Tenant, at Tenant's sole option, may extend the Term for one (1) additional
period(s) of three (3) years (the "Option Period") by giving written notice to
Landlord of its intention to do so no later than ninety (90) days prior to the
Expiration Date. Annual Base Rent for the Option Period shall be determined in
accordance with subsection b., below, and such determination shall be binding
upon all parties
b. Base Rent During Option Period. The Annual Base Rent for the
first year of the Option Period shall be equal to the fair market value rent for
the Premises as determined by independent appraisal (the "Extension Rent") in
accordance with this subsection. Upon receipt by Landlord of written notice from
Tenant of the exercise of its option to extend, Landlord shall appoint an
independent appraiser for the purpose of determining the Extension Rent. The
appraiser shall complete the appraisal forthwith and shall notify Landlord and
Tenant in writing of the determination of the fair market value rent within
fifteen (15) days after the date of the appointment. If said determination is
disputed, Tenant, at Tenant's sole cost and expense, shall (i) notify Landlord
in writing of such dispute, and (ii) within ten (10) days after the date of said
notice, appoint a second independent appraiser who shall, in turn, conduct an
appraisal and notify Landlord and Tenant in writing of the determination of the
fair market value rent within fifteen (15) days after the date of the
appointment. If the first two appraisers cannot agree on the fair market value
Rent, they shall jointly appoint a third independent appraiser within ten (10)
days after the determination by the second appraiser. The third appraiser shall
then conduct an appraisal and shall notify Landlord and Tenant in writing of the
determination of the fair market value rent within fifteen (15) days after the
date of the appointment. The fair market value rent shall then be the average of
the two closest appraisals. Landlord and Tenant shall share the cost of the
third appraiser.
c. Qualifications of Appraiser. Any appraiser appointed pursuant
to this Section 3 shall be an MAI-designated appraiser with at least five (5)
years' experience in appraising commercial real property rental values in the
City and County of San Francisco.
d. Single Appraiser. Nothing contained herein shall prevent
Landlord and Tenant from jointly selecting a single appraiser to determine the
fair market value rent, in which
3
<PAGE> 7
event the determination of the appraiser shall be conclusively deemed the fair
market value rent. Landlord and Tenant shall share equally the fees and expenses
of said joint appraiser.
e. Extension Rent. Extension Rent, as used in this Section 3,
shall mean only the Annual Base Rent for the Option Period, exclusive of any
Additional Rent, as defined in Section 5, below. In no event shall the Extension
Rent be less than the amount of Annual Base Rent charged during the last year of
the Initial Term.
f. No Commissions. In no event shall Landlord pay, or become
liable to pay, any commissions or other compensation to Tenant's real estate
brokers involved in Tenant's exercise of its option to extend the term pursuant
to this Section.
4. Base Rent.
a. Annual Base Rent. Tenant agrees to pay to Landlord as Annual
Base Rent for the Premises the amount set forth in the Basic Lease Information.
Payment of the Annual Base Rent shall be made in monthly installments, each in
the amount of the Monthly Base Rent (as defined in the Basic Lease Information),
payable in advance on the first day of each calendar month during the Term. If
the Commencement Date is a day other than the first day of a calendar month,
then the rental due hereunder for the first month of the Term shall be prorated
in the proportion that the number of days this Lease is in effect during said
month bears to the number of days in said month. All rental shall be paid to
Landlord without deduction or offset, in lawful money of the United States of
America, at Landlord's Address, or to such other person or persons or at such
other places as Landlord may from time to time designate by written notice to
Tenant.
b. Late Payment. Tenant hereby acknowledges that late payment of
Annual Base Rent or Additional Rent, as defined in Section 5, below, after the
expiration of seven (7) calendar days after the due date thereof (the "Grace
Period") shall cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which is difficult to ascertain. Said costs include, without
limitation, processing and accounting charges and late charges that may be
imposed on Landlord by any holder of a deed of trust on the Building.
Accordingly, if any installment of Annual Base Rent or Additional Rent due from
Tenant shall not be received by Landlord prior to the expiration of the Grace
Period, Tenant shall pay to Landlord a late charge equal to ten percent (10%) of
such overdue amount. Landlord and Tenant agree that said late charge represents
a fair and reasonable estimate of the costs Landlord will incur by reason of
late payment by Tenant. Acceptance of said 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 available at law and/or under this Lease.
c. Interest. Rent not paid when due shall bear interest from the
date due until paid at the rate of ten percent (10%) per annum.
d. Rent Abatement. Base Rent shall be abated for the last three
(3) months of the Initial Term.
4
<PAGE> 8
5. Additional Rent.
a. Direct Expenses. For purposes of this Lease, the following
terms shall have the meanings described below:
(1) "Base Year" shall mean the calendar year 1994;
(2) "Excess Taxes" with respect to any tax year shall mean
the amount, if any, by which Real Estate Taxes for such Tax year exceed the Real
Estate Taxes for the Base Year;
(3) "Excess Expenses" with respect to any Expense Year
shall mean the amount, if any, by which the Expenses for such Expense Year
exceed the Expenses for the Base Year;
(4) "Tax Year" or "Expense Year" shall mean each twelve
(12) consecutive month period during the Term, commencing on the Commencement
Date. Landlord, upon notice to Tenant, may change the Tax Year or Expense Year
from time to time to any other twelve (12) consecutive month period;
(5) "Tenant's Share" shall mean seven and one hundreth
percent (7.01%). Tenant's Share has been computed by dividing Landlord's
estimate of the rentable area of the Premises by Landlord's estimate of the
total rentable area within the Building and, in the event that either Landlord's
estimate of the rentable area of the Premises or Landlord's estimate of the
total rentable area within the Building is changed at any time, Tenant's Share
will be appropriately adjusted, and, as to the Tax Year or Expense Year in which
such change occurs, for purposes of this Section 5, Tenant's Share shall be
determined on the basis of the number of days during such Tax Year and Expense
Year at each such percentage;
(6) "Real Estate Taxes" shall mean all taxes, assessments
and charges levied on or with respect to the Building, land and common areas or
any personal property of Landlord used in the operation of the Building, 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, service payments in lieu of taxes, and any tax, fee, or other
governmental services or purported benefits to the Building, service payments in
lieu of 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 of the Building, 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 Landlord by the United States of
America, the State of California, or any political subdivision, 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
also include reasonable legal fees, costs, and disbursements incurred in
5
<PAGE> 9
connection with proceedings to contest, determine or reduce Real Estate Taxes.
Real Estate Taxes shall not include 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 in part, any other tax that would otherwise constitute a Real Estate
Tax; and
(7) "Expenses" shall mean the total costs and expenses
paid or incurred by Landlord in connection with the management, operation,
maintenance and repair of the Building, based on a ninety-five percent (95%)
occupied Building, including, without limitation, all sums expended in
connection with the common areas of the Building ("Common Area") for all general
maintenance, repairs, painting, cleaning, sweeping and janitorial services;
purchase, replacement and maintenance of trash receptacles located within the
Common Area; maintenance and repair of sidewalks, lavatories, washrooms, curbs
and Building signs, sprinkler systems, planting and landscaping; exterior window
washing, including windows on the Premises; lighting and other utilities;
directional signs and other markers or bumpers; maintenance and repair of any
fire protection systems, lighting systems, storm drainage systems, and any other
utility system; personnel to implement such services, including, if Landlord
deems necessary, the cost of security guards; garbage, trash, rubbish and waste
removal; the cost to Landlord of any additional improvements made to the Common
Area after commencement of the Term or made as a labor saving device or to
effect other economies in the operation or maintenance of the Building; such
costs to be amortized over such period as Landlord may reasonably determine; all
costs with respect to repairs and maintenance of utility facilities (including
pipes and conduits) serving more than one tenant's premises, unless caused by
the intentional act of Landlord or the tenant within the premises wherein such
repairs are required; and public liability, property damage insurance, fire and
extended coverage insurance and earthquake insurance, if any, on the Premises
and the Building.
b. Exclusions. Notwithstanding anything stated herein, the actual
costs for which Tenant is obligated to pay its pro rata share under this Section
5 shall specifically exclude the following expenses: (i) depreciation on the
Building, (ii) costs of tenants' improvements, (iii) real estate brokers'
commissions, (iv) specific costs that are incurred for the benefit of, or are
separately billed to and paid by, specific tenants, (v) repairs or maintenance
costs paid by proceeds of insurance or by third parties, and (vi) net income,
franchise, capital stock, estate or inheritance taxes.
c. Additional Rent.
(1) Tenant agrees to pay to Landlord as rent in addition
to the Annual Base Rent ("Additional Rent") Tenant's Share of Excess Taxes and
Excess Expenses for each Tax Year or Expense Year either (i) within thirty (30)
days after Landlord delivers Tenant a statement setting forth Tenant's Share of
Excess Taxes due for the previous Tax Year and Excess Expenses due for the
previous Year ("Landlord's Tax and Expense Statement") or (ii) if Landlord
elects, 1/12th of Tenant's Share of Excess Taxes and Expenses for each Tax Year
and Expense Year on or before the first day of each month during the Tax Year or
Expense Year, in advance, in an amount estimated by Landlord and billed by
Landlord to Tenant. Landlord shall have the
6
<PAGE> 10
right initially to determine monthly estimates and to revise such estimates from
time to time. If the actual Excess Taxes or Excess Expenses exceed the estimated
Excess Taxes or Excess Expenses paid by the Tenant for such Tax Year or Expense
Year, Tenant shall pay to Landlord the difference between the amount paid by
Tenant and the actual Excess Taxes and Excess Expenses within thirty (30) days
after the receipt of Landlord's Tax and Expense Statement, and if the total
amount paid by Tenant for any such Tax Year or Expense Year exceeds the actual
Excess Taxes or Excess Expenses for such Tax Year or Expense Year, such Excess
shall be credited against the next installment of Excess Taxes and Excess
Expenses due from Tenant to Landlord.
(2) If Tenant wishes to dispute the determination of the
Excess Expenses, Tenant shall give Landlord written notice of dispute within
thirty (30) days after receipt from Landlord of Landlord's Tax and Expense
Statement. If Tenant does not give Landlord a notice of dispute within such
time, Tenant shall have waived its right to dispute such determination or
calculation. Promptly after the giving of such written notice, Landlord shall
meet with Tenant in an attempt to reconcile any outstanding disputes. If such
efforts do not succeed, Landlord shall cause to be made a complete audit of
Landlord's records relating to the matter in dispute by a firm of independent
certified accountants to be selected by Landlord, the costs of such audit to be
borne by Tenant. If such audit reveals that the amount previously determined by
Landlord was incorrect, a correction shall be made and either Landlord shall
promptly return to Tenant any overpayment or Tenant shall promptly pay any
underpayment to Landlord. Notwithstanding the pendency of any dispute hereunder,
Tenant shall make payments based upon Landlord's determination or calculation
until such determination or calculation has been established hereunder to be
incorrect.
d. Personal Property Taxes. Tenant hereby agrees to pay all taxes
which may be levied with respect to Tenant's personal property located in the
Premises including, without limitation, the portion of the improvements to the
Premises, if any, the cost which was borne by Tenant, and any furniture, office
equipment and other furnishings. Tenant agrees to use its best efforts to cause
such personal property to be taxed or assessed separately from the Premises and
not as a lien thereon.
6. Right of First Refusal.
a. Landlord shall notify Tenant in writing upon receipt of any
serious, good faith offer from a third party for rental of all or portion of the
eleventh (11th) floor of the Building (the "Expansion Premises"). Said notice
shall contain the third party's proposed rental rate and all other proposed
terms, as well as Landlord's asking rental rate and all other asking terms.
Tenant shall then have seven (7) calendar days after receipt of said notice to
notify Landlord in writing of Tenant's intention to lease the Expansion Premises
on Landlord's asking terms. If Tenant notifies Landlord that it does not
exercise its right of first refusal hereunder, or fails to notify Landlord
within said seven (7) day period, Landlord shall be free to lease the Expansion
Premises to the third party on terms no less favorable to Landlord than those
asked by Landlord and set forth in Landlord's notice to Tenant.
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<PAGE> 11
b. In the event that Tenant exercises its right of first refusal
with respect to the Expansion Premises, Tenant and Landlord shall, as a
condition to the effectiveness of said exercise, execute a new lease agreement
with respect to the Expansion Premises, in form and substance similar to this
Lease, except for the terms and conditions required by this Section. Upon
execution and delivery of said new lease agreement, Landlord and Tenant shall
fully discharge and release each other from their respective obligations under
this Lease.
7. Security Deposit. Upon execution of this Lease, Tenant shall
(i) pay Landlord an amount equal to Monthly Base Rent for the first (1st) month
of the Term, and (ii) deposit with Landlord the sum specified in the Basic Lease
Information (the "Security Deposit") . The Security Deposit shall be held by
Landlord as security for the faithful performance by Tenant of all of Tenant's
obligations under this Lease. If Tenant fails to pay Rent, or a portion thereof,
or otherwise defaults with respect to any provision of this Lease, Landlord may
use, apply or retain all or any portion of the Security Deposit for the payment
of any Rent in default, for the payment of any other sum to which Landlord may
become obligated by reason of Tenant's default, or to compensate Landlord for
any loss or damage which Landlord may suffer thereby. If Landlord so uses,
applies or retains all or any portion of the Security Deposit, Tenant shall,
within ten (10) days after demand therefor, deliver to Landlord an amount
sufficient to restore the Security Deposit to the full amount set forth in the
Basic Lease Information, and Tenant's failure to do so shall be a material
breach of this Lease. Landlord shall be free to commingle the Security Deposit
with funds held in Landlord's own accounts, including accounts in which Landlord
keeps other security deposits. If Tenant performs all of its obligations under
this Lease, the Security Deposit, or so much thereof as has not been used,
applied or retained by Landlord in accordance with this Section, shall be
returned to Tenant, within thirty (30) days after the expiration of the Term,
and subject to Tenant relinquishing possession of the Premises, without payment
of interest or other increment for its use. No trust relationship is created
herein between Landlord and Tenant with respect to the Security Deposit. In the
event the Building is sold or otherwise transferred, credit for the Security
Deposit shall be transferred by Landlord to the new owner.
8. Tenant's Improvements. Prior to the Commencement Date, Landlord shall
install for Tenant's use the improvements to the premises described in Exhibit B
to this Lease (the "Tenant's Improvements"). All of the Tenant's Improvements
shall be the property of Landlord upon installation and shall not be removed or
altered by Tenant, except with the prior written consent of Landlord, and
Landlord shall have the right to depreciate and claim deductions against income
with respect to the Tenant's Improvements. Upon expiration or earlier
termination of this Lease, Landlord shall be free to elect whether to retain the
Tenant's Improvement or demolish and remove the same, in whole or in part, at
Tenant's sole cost and expense.
9. Use and Compliance with Laws. Use of the Premises shall be on the
following terms:
a. Use. Tenant shall use or permit the Premises to be used only
for general office purposes consistent with any covenants, conditions and
restrictions affecting the Building or the land on which the Building is
located, and shall not use or permit the use of the Premises
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<PAGE> 12
for any other purposes without obtaining the prior written consent of Landlord,
which consent may be given or withheld in Landlord's sole and absolute
discretion. Tenant shall not use or permit the Premises to be used in any manner
that may result in waste or subject the Premises to any use which would damage
the Premises or raise the cost of or violate any insurance coverage maintained
at the Building or create a nuisance. Tenant shall maintain the Premises free of
any objectionable noise, odors or disturbances. Without limiting the generality
of the foregoing, Tenant shall dispose of waste as follows:
(1) Tenant shall not keep any trash, garbage, waste or
other refuse on the Premises except in sanitary containers and shall regularly
and frequently remove the same from the Premises. Tenant shall keep all
containers or other equipment used for the storage or disposal of such matter in
a clean and sanitary condition.
(2) Tenant shall properly dispose of all sanitary sewage
and shall not use the sewage disposal system for the disposal of anything except
sanitary sewage. Tenant shall keep the sewage disposal system free of all
obstructions and in good operating condition.
(3) Tenant shall properly dispose of all other waste or
other matter stored1 used or located on the Premises in accordance with the
terms set forth in subsection b., below.
b. Compliance with Laws. Notwithstanding any other provision in
this Lease to the contrary, Tenant, at its sole cost and expense, shall comply
with all laws, statutes, ordinances, regulations, rules, court orders and other
governmental requirements, including all environmental laws and regulations,
whether in effect at the Commencement Date or thereafter, in performing or
observing its obligations under this Lease. Tenant shall not use or permit the
use of the Premises for any purpose or in any manner that may constitute a
violation of the laws of the United States or the laws, ordinances, regulations
or requirements of any governmental entity having authority in the jurisdiction
where the Premises are located. For purposes of this Lease, the phrase
"environmental laws and regulations," or any such similar phrase or term shall
be interpreted in the broadest possible sense, to include any and all laws,
regulations, ordinances and orders enacted, adopted or issued for the protection
of the environment or the public, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Porter-Cologne Water Quality Act, the Clean Air Act, the Clean Water Act,
the Hazardous Substance Account Act, the Underground Storage Tank Act, the
Underground Storage Tank Cleanup Act, the Toxic Pits Cleanup Act, the Safe
Drinking Water and Toxic Enforcement Act (also known as Proposition 65), and the
Resource, Conservation and Recovery Act (each as amended or as may be amended in
the future). In particular, Tenant shall comply with all laws relating to
storage, use and disposal of toxic materials and hazardous or toxic matter,
including toxic matter described in Title 22 of the California Code of
Regulations ("Toxic Materials"). The provisions of this subsection shall not
supersede, but shall be in addition to, any other provisions of this Lease which
impose a higher standard of care or duty on Tenant.
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c. Indemnity. Tenant shall defend, indemnify and hold Landlord
and its agents harmless from any loss, claim, liability, response cost or
expense, including attorneys' fees and costs (including fees and costs on
appeal), arising out of or in connection with Tenant's failure to observe or
comply with the provisions of this Section 10. Tenant shall further be solely
responsible for, and shall defend, indemnify and hold Landlord and its agents
harmless from and against all claims, costs and liabilities, including
attorneys' fees and costs (including fees and costs on appeal) , arising out of
or in connection with the removal, clean-up and restoration work and materials
necessary to return the Premises and any other property of whatever nature and
wherever located to their condition prior to the placing or arrival of any Toxic
Materials on the Premises or use thereof by Tenant. Tenant's obligations
hereunder shall survive the expiration or earlier termination of this Lease.
d. Toxic Materials. If Tenant does, or intends to, use or
transport any Toxic Materials in any area in or around the Premises or the
Building, Tenant shall give immediate written notice thereof to Landlord, and
Landlord shall have the right to purchase, or require Tenant to purchase,
insurance with coverage of no less than Two Million Dollars ($2,000,000.00) to
insure that any contaminated, polluted or radioactive matter be removed from the
Premises or the Building and that the Premises and the Building are restored to
a clean, neat, attractive, healthy and sanitary condition. If Landlord elects to
purchase said insurance, the cost of the premium therefor shall be paid in full,
as Additional Rent, by Tenant within five (5) days after presentation of an
invoice from Landlord. If Landlord elects to require Tenant to purchase said
insurance, Tenant shall provide satisfactory evidence of such coverage to
Landlord and shall name Landlord as an additional insured on said policy. In the
event that said insurance is unavailable, Tenant shall refrain from using or
transporting any Toxic Material in any area in or around the Premises or the
Building.
e. Material Default. Any default by Tenant under this Section 10
shall be a material default enabling Landlord to exercise any of the remedies
set forth in this Lease or available at law.
f. Signs. Other than Tenant's name in the Building's lobby
directory, Tenant shall not install any sign in the Building without the prior
written approval of Landlord, which approval may be withheld in Landlord's
absolute discretion.
g. Overloading. Tenant shall not place a load upon the floor of
the Premises which exceeds the lesser of (i) the load per square foot which such
floor is designed to carry, or (ii) the load per square foot which is then
allowed by law. No machinery, apparatus, or other appliance shall be used or
operated in or on the Premises if such use or operation will in any manner
injure, vibrate, or shake the Premises.
10. Maintenance and Repair.
a. Tenant's Obligations. Tenant shall, at Tenant's sole cost and
expense, keep the Premises and every part thereof in good condition and repair,
reasonable wear and tear excepted. Tenant shall, upon expiration or sooner
termination of this Lease, surrender the Premises to Landlord in the same
condition as when received, except for ordinary wear and tear
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<PAGE> 14
and the addition of Tenant's Improvements. Landlord shall have no obligation to
alter, remodel, improve, repair, maintain, decorate, or paint the Premises, or
any part thereof, and Tenant acknowledges that Landlord has made no
representations to Tenant respecting the condition of the Premises, except as
specifically set forth in this Lease.
b. Landlord's Obligations. Notwithstanding anything in subsection
a. to the contrary, Landlord shall repair and maintain in good condition the
structural portions of the Building, including the basic plumbing, the heating,
air conditioning and ventilation system, and the electrical system, unless the
need for maintenance or repair of such systems is rendered necessary by the act,
neglect, fault or omission of Tenant, its agents, employees or invitees, in
which case Tenant shall pay to Landlord, as Additional Rent, the cost of such
maintenance or repair. There shall be no abatement of Rent and no liability of
Landlord by reason of any injury or interference with Tenant's business arising
from the making of any repairs, alterations or improvements in or to any portion
of the Building or the Premises or in or to fixtures, appurtenances and
equipment therein. Tenant waives the right to make repairs at Landlord's expense
under Section 1942 of the California Civil Code or under any law, statute or
ordinance now or hereafter in effect.
11. Alterations.
a. Landlord's Consent. Tenant shall make no alterations,
decorations, additions or improvements, including changes to the electrical
system or wiring in the Premises (collectively, "Alterations") , in or to the
Premises without Landlord's prior written consent (which consent shall not be
unreasonably withheld); provided, however, that Tenant shall be allowed to
install a lock on the interior stairwell door linking the Premises to the ninth
and eleventh floors of the Building (and shall deliver a key to said door to
Landlord) . Tenant agrees that there shall be no construction, partitions or
other obstructions that might interfere with Landlord's free and safe access to
mechanical installations or service facilities of the Building, or interfere
with the moving of Landlord's equipment to or from the enclosures containing
said installations or facilities. Tenant covenants and agrees that all work done
by Tenant shall be performed in compliance with all laws, rules, orders,
ordinances, directions, regulations and requirements of all governmental
agencies, offices, departments, bureaus and boards having jurisdiction thereof.
b. Notice. Before commencing any Alterations work, Tenant shall
give Landlord ten (10) days' written notice of the proposed Alterations and
shall secure, at its sole cost and expense, a completion and lien indemnity bond
satisfactory to Landlord for such work. Landlord shall have ten (10) days after
receipt of said notice to approve or disapprove the proposed Alterations. Any
and all Alterations shall, unless Landlord elects otherwise, become the property
of Landlord and shall remain upon, and be surrendered with, the Premises upon
expiration or earlier termination of this Lease. Landlord may, by written notice
to Tenant given at least sixty (60) days prior to the end of the Initial Term,
require Tenant to remove at Tenant's sole cost and expense all Alterations and
repair any damage resulting from such removal, provided that Landlord has so
stipulated at the time it approved said Alterations. Notwithstanding anything in
the foregoing to the contrary, Tenant may remove its fixtures,
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<PAGE> 15
provided that Tenant repairs any damage caused by such removal and that such
removal and repair is completed prior to the expiration or earlier termination
of the Term.
12. Utilities and Services. Landlord agrees to furnish or cause to be
furnished to the Premises during reasonable hours of generally recognized
business days the following utilities services: (i) non-attended automatic
elevator facilities, (ii) heating, ventilation and air conditioning at such
times and in such amount as Landlord may decide in its sole discretion, (iii)
electric current as required for normal office usage, (iv) water for drinking
and lavatory purposes, (v) janitorial services for the Premises, and (vi) lobby
attendant services during the Building's recognized business hours, as set out
in the Building's Rules and Regulations and as modified by Landlord from time to
time in its sole discretion. Tenant shall pay directly to the billing entity for
any utilities separately metered to the Premises, and shall pay Landlord as
Additional Rent for any utilities billed to Landlord and used by Tenant in
excess of normal usage. Tenant further agrees to conduct its business in the
Building in such manner as not to overload the Building's electrical system or
cause any interruption in service. Landlord shall not be liable for, and Tenant
shall not be entitled to any reduction or abatement of Rent by reason of,
Landlord's failure to furnish any of the foregoing utilities when such failure
is due to the utility entity's failure to provide said services, or when such
failure is caused by accident, breakage, repairs, strikes, lockouts or other
labor disturbances or labor disputes of any character, governmental regulation,
moratorium, other governmental action or inaction, or any act of God.
13. Insurance and Indemnity.
a. Casualty Insurance. During the Term of this Lease, Tenant
shall, at Tenant's sole cost and expense, obtain and keep in full force and
effect "all risk" property, fire, and extended coverage insurance, with such
coverage as Landlord may request, including, without limitation, coverage
against earthquake, sprinkler leakage, vandalism, malicious mischief and flood.
Said insurance shall be upon all property owned by Tenant and located or
installed on the Premises, including furniture, fittings, installations,
fixtures installed by Tenant (including Tenant's Improvements), and any other
personal property, in an amount no less than one hundred percent (100%) of the
full replacement value, without deduction for depreciation.
b. Liability Insurance. During the Term of this Lease, Tenant
shall, at Tenant's sole cost and expense, obtain and keep in full force and
effect comprehensive general liability insurance insuring Tenant against any and
all liability arising out of the lease, use, occupancy or maintenance of the
Premises and Common Areas. Said insurance shall be in the amount of Two Million
Dollars ($2,000,000) in the event of personal injury to any number of persons or
of damage to property arising out of any one occurrence. All of such insurance ~
be primary and noncontributing with any insurance which may be carried by
Landlord, shall name Landlord as an additional insured and shall contain a
provision that Landlord, although named as an insured, shall nevertheless be
entitled to recover under the policy for any loss, injury or damage to Landlord,
its agents or employees, or the property of such persons by reason of the
negligence of Tenant. All such insurance shall specifically insure Tenant's
performance of the indemnity obligations contained in subsection e. of this
Section.
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c. Standards. All policies of insurance to be obtained by Tenant
shall be written in a form reasonably satisfactory to Landlord and in compliance
with California law and shall be taken out with insurance companies holding a
General Policyholders Rating of "A" and Financial Rating of "X" or better, as
set forth in the most current issue of Best's Insurance Guide. Prior to the
Commencement Date, and thereafter within thirty (30) days prior to the
expiration of each policy, Tenant shall furnish to Landlord a certificate of
insurance issued by the insurance carrier of each policy of insurance carried by
Tenant pursuant to this Lease providing that such policies shall not be
cancelable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Landlord.
d. Subrogation. Any policy or policies of fire, extended
coverage, or similar casualty insurance shall, to the extent the same may be
obtained without undue expense, include a clause or endorsement denying the
insurer any rights of subrogation against the other party to the extent rights
have been waived by the insured prior to the occurrence of injury or loss.
Landlord and Tenant waive any rights of recovery against the other for injury or
loss due to hazards covered by insurance containing such a waiver of subrogation
clause or endorsement to the extent of the injury or loss covered thereby.
e. Indemnification. Tenant shall indemnify, defend and hold
Landlord, the Premises and the Building harmless from and against (i) any and
all liability, penalties, losses, damages, costs and expenses, demands, causes
of action, claims or judgments arising from or growing out of any injury to any
person or persons or damage to any property as a result of any accident or other
occurrence during the Term, occasioned in any way as a result of Tenant's or
Tenant's officers, employees, agents, servants, subtenants, concessionaires,
licensees, contractors or invitees use, maintenance, occupation, or operation of
the Premises during the Term, and (ii) any and all legal costs and charges,
including attorneys' fees, incurred in and about any such matters and the
defense of any action arising out of the same or in discharging the Building or
any part thereof from any and all liens, charges or judgments which may accrue
or be placed thereon by reason of any act or omission of Tenant. Tenant's
obligations pursuant to the foregoing indemnity shall survive the expiration or
earlier termination of this Lease.
14. Damage and Destruction.
a. Obligation to Repair or Rebuild. Except as otherwise provided
in this Section, if the Premises are damaged or destroyed during the Term,
Landlord shall diligently repair or rebuild them to substantially the condition
in which they existed immediately prior to the damage or destruction; provided,
however, that Landlord shall be obligated to repair or rebuild the Premises only
if (i) insurance proceeds are available therefor and such proceeds are not
applied by any lender against payment of an existing loan on the Building or the
land on which the Building is located, and (ii) such repairs or rebuilding can
be accomplished within ninety (90) days, as determined in Landlord's reasonable
judgment.
b. Abatement of Rent. Rent shall be abated in proportion to the
amount of the Premises that are damaged or destroyed, during any period in
which, by reason of any damage or destruction, Tenant reasonably determines that
there is substantial interference with
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the operation of Tenant's business in the Premises. Such abatement shall
continue for the period commencing with such damage or destruction and ending
with the earlier of (i) substantial completion by Landlord of the work of repair
or reconstruction which Landlord is obligated or undertakes to do, or (ii)
expiration or earlier termination of this Lease.
c. Impracticable to Repair or Rebuild; Termination. If the
Premises or the Building are damaged or destroyed to the extent that Landlord
determines that the Premises or Building cannot, with reasonable diligence, be
fully repaired and restored by Landlord within one hundred and eighty (180) days
after the date of the damage or destruction, Landlord and Tenant shall employ
their reasonable good faith efforts to agree, within fifteen (15) days after the
date of the damage o~ destruction, on whether to (i) terminate this Lease, or
(ii) maintain this Lease in full force and effect for a period of time equal to
the time necessary to repair or restore the Premises or the Building plus thirty
(30) days. In the event that no agreement is reached within said fifteen (15)
day period, this Lease shall automatically terminate without further notice.
d. End of Term. Notwithstanding anything to the contrary
contained in this Lease, if the Premises or the Building are partially destroyed
or damaged during the last twelve (12) months of the Term, Landlord may elect to
terminate this Lease as of the date such destruction or damage occurred, with no
liability to Tenant, by serving on Tenant within thirty (30) days from the date
such destruction or damage occurred, written notice of Landlord's election to
terminate this Lease.
e. Insurance Coverage. Notwithstanding anything contained herein
to the contrary, in the event of damage to or destruction of all or any portion
of the Premises or the Building which is not fully covered by insurance for the
benefit of Landlord, Landlord may terminate this Lease by written notice to
Tenant, given within forty-five (45) days after the date of notice to Landlord
that said damage or destruction is not so covered.
f. Waiver. With respect to any damage or destruction which
Landlord is obligated to repair or may elect to repair under the terms of this
Section, Tenant hereby waives all rights to terminate this Lease pursuant to
rights otherwise presently or hereafter accorded by law to tenants.
15. Condemnation.
a. Complete Condemnation. If the whole of the Premises is
acquired or condemned by eminent domain, inversely condemned or sold in lieu of
condemnation, for any public or quasi-public use or purpose ("Condemned"), then
this Lease shall terminate as of the date of such condemnation. Each party shall
notify the other promptly of any such occurrence.
b. Partial Condemnation. If any part of the Premises is partially
Condemned, and such partial condemnation renders the Premises unusable for the
business of Tenant, as reasonably determined by Landlord, or in the event that a
substantial portion of the Building is Condemned, as reasonably determined by
Landlord, then this Lease shall terminate as of the date of title vesting in
such proceeding. If such condemnation is not sufficiently extensive to render
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<PAGE> 18
the Premises unusable for the business of Tenant, as reasonably determined by
Landlord, or, if less than a substantial portion of the Building is Condemned,
then Landlord shall (to the extent the proceeds of the award are available
therefrom and are not applied by any lender against payment of an existing loan
on the Building or on the land on which the Building is located) promptly
restore the Premises to a condition comparable to their condition immediately
prior to said condemnation, less the portion thereof lost in said condemnation,
and this Lease shall continue in full force and effect, except that the Annual
Base Rent shall be appropriately reduced as reasonably determined by Landlord.
c. Landlord's Award. If the Premises are wholly or partially
condemned, then, subject to the provisions of subsection d., below, Landlord
shall be entitled to the entire award paid for such condemnation, and Tenant
waives any right or claim to any part thereof from Landlord or the condemning
authority.
d. Tenant's Award. Tenant shall have the right to claim and
recover from the condemning authority, but not from Landlord, only such
compensation as may be separately awarded or recoverable by Tenant in Tenant's
own right on account of (i) any and all costs or loss to which Tenant might be
put in removing Tenant's merchandise, fixtures, furniture and equipment to a new
location and (ii) any loss of goodwill occasioned to Tenant's business.
e. Temporary Condemnation. If the whole or any part of the
Premises shall be Condemned for any temporary public or quasi-public use or
purpose, this Lease shall remain in effect and Tenant shall be entitled to
receive for itself such portion or portions of any award made for such use with
respect to the period of the taking that is within the Term. if a temporary
condemnation remains in force at the expiration or earlier termination of this
Lease, Tenant shall pay to Landlord a sum equal to the reasonable cost of
performing any obligations required of Tenant by this Lease with respect to the
surrender of the Premises, including, without limitation, repairs and
maintenance, and upon such payment Tenant shall be excused from any such
obligations. If a temporary condemnation is for an established period which
extends beyond the Term, this Lease shall terminate as of the date of occupancy
by the condemning authority.
f. Sale under Threat of Condemnation. A sale by Landlord to any
authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for purposes of this Section 16.
16. Assignment and Subletting.
a. Landlord's Consent. Tenant, including any subsequent assignee
or subtenant, shall not assign, mortgage, pledge or otherwise transfer this
Lease, in whole or in part, nor sublet or permit occupancy by any party other
than Tenant of all or any part of the Premises, without the prior written
consent of Landlord in each instance, which consent shall not be unreasonably
withheld. No permitted assignment or subletting shall relieve Tenant of any
obligation under this Lease, including Tenant's obligation to pay Rent and other
monies due hereunder. Any purported assignment or subletting contrary to the
provisions hereof without Landlord's prior written consent shall be void. The
consent by Landlord to any assignment or
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<PAGE> 19
subletting shall not constitute a waiver of the necessity for such consent to
any subsequent assignment or subletting.
b. Instrument in Writing. Any assignment or subletting to which
Landlord has consented shall be by an instrument in writing, in form and
substance satisfactory to Landlord, and any assignee, sublessee, transferee,
licensee, concessionaire or mortgagee shall agree for the benefit of Landlord to
be bound by, assume and perform all the terms, covenants and conditions of this
Lease.
c. Assignment of Rent If Tenant assigns its interest in this
Lease or sublets the Premises or any portion thereof, Tenant immediately,
unconditionally and irrevocably assigns to Landlord, as security for Tenant's
obligations under this Lease, all rent due Tenant from such assignment or
subletting as permitted under this Lease, and Landlord, as assignee and
attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord's
application, may collect such rent and apply it toward Tenant's obligations
under this Lease; except that, until the occurrence of an act of default by
Tenant, Tenant shall have the right to collect such rent.
d. Bonus Rental. If for any assignment or subletting Tenant
receives rent or other consideration, either initially or over the term of the
assignment or sublease, in excess of the Rent called for hereunder, or, in the
case of a sublease of a portion of the Premises, in excess of such Rent fairly
allocable to such portion, Tenant shall pay to Landlord, as Additional Rent
hereunder, one hundred percent (100%) of the excess of each such payment of rent
or other consideration received by Tenant within three (3) days after receipt.
e. Costs and Expenses. As Additional Rent hereunder, Tenant shall
pay all of Landlord's costs and expenses, including attorneys' fees, appraisal
fees, and other consultants' fees incurred in connection with the review and
consideration by Landlord of any proposed assignment or subletting, whether or
not Landlord's consent to the assignment or subletting is ultimately given.
17. Events of Default; Landlord's Remedies.
a. Events of Default. The occurrence of any of the following
shall constitute a material default by Tenant under this Lease:
(1) Failure to pay Rent when due, if the failure continues
for a period of seven (7) calendar days.
(2) Vacation or abandonment of the Premises.
(3) Default in the performance of any of Tenant's
covenants, agreements or obligations hereunder (other than default in the
payment of Rent) , if the default continues for a period of thirty (30) calendar
days after written notice thereof from Landlord.
(4) A general assignment by Tenant for the benefit of
creditors.
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<PAGE> 20
(5) The filing of a voluntary petition by Tenant, or the
filing of an involuntary petition by any of Tenant's creditors, seeking the
rehabilitation, liquidation or reorganization of Tenant under any law relating
to bankruptcy, insolvency or other relief of debtors
(6) The appointment of a receiver or other custodian to
take possession of substantially all of Tenant's assets or of this leasehold.
(7) Tenant becoming insolvent or unable to pay its debts,
or failing generally to pay its debts as they become due; or any court entering
a decree or order directing the winding up or dissolution of Tenant or the
liquidation of substantially all of its assets; or Tenant taking any action
toward the dissolution or winding up of its affairs or the cessation or
suspension of its use of the Premises.
(8) Attachment, execution or other judicial seizure of
substantially all of Tenant's assets or this leasehold.
(9) Failure to comply with the provisions of Section 9 of
this Lease.
b. Landlord's Remedies. In the event of Tenant's default under this
Lease, Landlord shall have the remedies set forth below with respect to said
default. Landlord's remedies shall be cumulative and in addition to any other
remedy permitted by law, and the failure by Landlord to insist upon the strict
performance of any term hereof or to exercise any right or remedy hereunder
shall not constitute a waiver of such right or remedy.
(1) If Tenant vacates or abandons the Premises, this Lease
shall continue in effect unless terminated by Landlord and Landlord shall have
all the rights and remedies of a landlord provided by Section 1951.4 of the
California Civil Code.
(2) Following the occurrence of any default, Landlord
shall have the right, so long as the default continues, to terminate this Lease
by written notice to Tenant.
(3) Following termination under clause (2), above, without
prejudice to any other remedies Landlord may have by reason of Tenant's default,
Landlord may (a) re-enter the Premises upon surrender by Tenant or remove Tenant
and any person occupying the Premises, (b) repossess and enjoy the Premises or
relet the same on such terms and conditions as Landlord, in its sole discretion,
may determine, and (c) remove all personal property from the Premises.
(4) Following termination under clause (2), above,
Landlord shall have all the rights and remedies of a landlord under Section
1951.2 of the California Civil Code.
c. Additional Remedies. In addition to the foregoing remedies, Landlord
shall have the right to remedy any default of Tenant, to maintain or improve the
Premises without terminating this Lease, and to incur expenses on behalf of
Tenant in seeking a subtenant or assignee, including, without limitation,
broker's commissions and attorneys' fees.
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18. Landlord's Right of Entry. Landlord, its agents and employees, shall
have the right to enter the Premises at all times in case of emergency, and at
reasonable times upon 24 hours notice for any other purpose, including, without
limitation, the following: (i) to determine whether Tenant is in compliance with
its obligations under this Lease, (ii) to do any necessary maintenance and to
repair or restore the Premises or other portions of the Building, (iii) to post
or serve any notices required or permitted by this Lease, (iv) to post "for
sale" signs at any time during the Term, and to post "for lease" signs at any
time during the last year of the Term, and (v) to show the Premises to
prospective buyers, tenants, brokers, or persons interested in an exchange, at
any time during the Term. Landlord agrees to exercise its right of entry in such
manner as to minimize any inconvenience to Tenant or interference with Tenant's
business. Notwithstanding the foregoing, Landlord shall not be liable in any
manner for any inconvenience, disturbance, loss of business, nuisance or other
damage arising out of Landlord's entry on the Premises in accordance with this
Section.
19. Subordination: Estoppel.
a. Subordination. This Lease is and shall be subordinate to any
encumbrance now of record or recorded after the date of this Lease affecting the
Building, other improvements, and the land on which the Building is located.
Such subordination is effective without any further act of Tenant. Tenant shall,
from time to time upon Landlord's request, execute and deliver within ten (10)
days after Landlord's request any documents or instruments that may be required
by a lender to effect such subordination. If Tenant fails to execute and deliver
any such documents or instruments, Tenant hereby irrevocably constitutes and
appoints Landlord as Tenant's special attorney-in-fact to execute and deliver
any such documents or instruments.
b. Estoppel Certificate. Within ten (10) days after request by
Landlord, or if on any sale, assignment or hypothecation by Landlord of
Landlord's interest in the Building, the land on which the Building is located,
or any portion thereof, an estoppel certificate shall be required, Tenant shall
deliver, substantially in the form attached hereto as Exhibit C, or in such
other form as may be reasonably requested by prospective lenders or purchasers,
an estoppel certificate to any proposed mortgagee, purchaser, sublessee or
assignee and to the Landlord. Failure to deliver said certificate in time shall
constitute a material default under this Lease giving Landlord the option to
terminate this Lease in accordance with Section 18b(2) hereof. Further, failure
to deliver the certificate in time shall be conclusive upon the non-requesting
party that (i) this Lease is in full force and effect, without modification
except as may be represented by the requesting party, (ii) there are no uncured
defaults in the requesting party's performance and the non-requesting party has
no right of offset, counterclaim or deduction against Rent hereunder, and (iii)
no more than one period's Monthly Base Rent has been paid in advance.
20. Sale of Landlord's Interest. In the event of any sale or transfer by
Landlord of the Premises or the Building, and assignment of this Lease by
Landlord, Landlord shall be and is hereby relieved of any and all liability and
obligations contained in or derived from this Lease arising out of any act,
occurrence or omission relating to the Premises or this Lease occurring after
the consummation of such sale or transfer, provided the purchaser or transferee
shall assume expressly all of the covenants and obligations of Landlord under
this Lease. If any security
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<PAGE> 22
deposit or prepaid rent has been paid by Tenant, Landlord may transfer the same
to Landlord's successor and, upon such transfer, Landlord shall be relieved of
any and all further liability with respect thereto.
a. The prevailing party in any dispute with respect to the
meaning or enforceability of this Lease, or the enforcement of any provisions
hereof, whether or not said dispute results in litigation or arbitration, shall
recover from the other party all reasonable costs and expenses, including,
without limitation, reasonable attorneys' fees.
b. Without limiting the generality of the foregoing, any
reasonable costs and expenses, including, without limitation, reasonable
attorneys' fees, incurred in enforcing any judgment or arbitration award shall
be recoverable by the prevailing party as a separate item of recovery. This
subsection b. is intended to be severable from the other provisions of this
Lease and shall survive any judgment or arbitration award and shall not be
deemed to be merged into the judgment or award.
26. Notices. Any notice required or contemplated by this Lease shall be
delivered either by (i) personal delivery, (ii) postage prepaid receipt
requested certified mail, or (iii) telecopy or other facsimile transmission,
addressed at the address set forth below, or at such other address as the
intended recipient previously shall have designated by written notice to the
other party:
If to Landlord, to:
Maria Chen
c/o Antonio Valla, Esq.
Gilliss & Valla
685 Market Street, Suite 590
San Francisco, California 94105
Telecopier No.: (415) 995-9730
If to Tenant, to:
CRL Network Services, Inc.
Attn.: James Couch
One Kearny Street, Fifth Floor
San Francisco, California 94108
Telecopier No.: (415) 392-9000
Notice by certified mail shall be effective on the date it is officially
recorded as delivered to the intended recipient by return receipt or equivalent,
and, in the absence of such record of delivery, the effective date shall be
presumed to have been the fifth (5th) day after notice was deposited in the
mail. All notices personally delivered or sent by telecopier shall be deemed to
have been received by the addressee on the date of personal delivery or on the
date sent, respectively. Notices not given in writing shall be effective only if
acknowledged in writing by a duly authorized representative of the party to
which it was given.
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<PAGE> 23
27. Successors Bound. This Lease and each of its covenants and
conditions shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, successors and legal representatives and
their respective assigns, subject to the provisions hereof. Nothing herein
contained shall be deemed in any manner to give a right of assignment to Tenant
without the prior written consent of Landlord.
28. Recording. This Lease shall not be recorded by either Landlord or
Tenant, provided, however, that upon obtaining the prior written consent of the
other party, either party may record a memorandum of lease.
29. Authority. If Tenant is a corporation or partnership, each
individual executing this Lease on behalf of Tenant hereby warrants and
represents that he or she is duly authorized to execute this Lease on behalf of
said corporation or partnership and, upon execution of this Lease, will deliver
to Landlord a certified copy of the resolution of the Board of Directors of said
corporation or certified copy of the partnership agreement of said partnership
authorizing execution of this Lease and identifying the officers or partners who
are authorized to execute this Lease on behalf of Tenant.
30. Rules and Regulations. Tenant shall obey all rules and regulations
set forth in Exhibit D hereto and incorporated herein by reference and all other
rules and regulations governing the use of the Premises as such may from time to
time be issued or amended by Landlord. Landlord shall not be liable for any
violation by other tenants of any such rules or regulations.
31. Acts of Other Tenants. Landlord shall not be liable to Tenant, or
any person claiming under Tenant, for any injury or damage arising out of any
act or omission of any other tenant of the Building.
32. Time of Essence. Time is of the essence of every provision of this
Lease.
33. Severability. If any term, covenant, condition or provision of this
Lease, or the application thereof to any person or circumstance, shall to any
extent be held to be invalid, void or unenforceable, the remainder of the terms,
covenants, conditions or provisions of this Lease shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
34. Entire Agreement. This Lease sets forth all covenants, promises,
agreements, conditions and understandings between Landlord and Tenant concerning
the Premises, Building and the land on which the Building is located, and there
are no covenants, promises, agreements, conditions or understandings, either
oral or written, between Landlord and Tenant, other than as set forth herein. No
subsequent alteration, amendment, change, or addition to this Lease shall be
binding upon Landlord or Tenant unless in writing and signed by both Landlord
and Tenant.
35. Broker Participation. Landlord and Tenant warrant that each has had
no dealing with any real estate broker or agent in connection with the
negotiation of this Lease and Landlord and Tenant know of no real estate broker
or agent who is entitled to any commission in connection with this Lease.
Landlord and Tenant ("Indemnitor") each agrees to indemnify and
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<PAGE> 24
old the other harmless from and against all liability, claims, demands,
damages, or costs of any kind arising from or connected with any broker's fee,
commission or charge claimed to be due through Indemnitor's actions.
36. Governing Law. This Lease shall be governed by and construed
in accordance with the laws of the State of California.
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto duly executed this Lease as of
the date first written above.
LANDLORD:
/s/ Maria Chen
- -----------------------------------
Maria Chen
Date: December 5, 1995
TENANT:
CRL NETWORK SERVICES, INC.
a California corporation
By: /s/ James Couch
- -----------------------------------
James Couch, President
Date: December 5, 1995
22
<PAGE> 26
EXHIBIT A
Description of the Premises
[graphic]
1
<PAGE> 27
EXHIBIT B
Description of Tenant's Improvements
1. Landlord shall install a lock or other locking mechanism securing the
front door of the Premises. A temporary lock will be installed by
December 11, 1995.
2. Landlord shall repair and deliver in operational condition the
refrigerator presently in the Premises.
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<PAGE> 28
EXHIBIT C
Form of Estoppel Certificate by Tenant
The undersigned, CRL Network Services, Inc., a California corporation is
the Tenant of all of those certain premises (the "Premises") described in
Exhibit A attached hereto and made a part hereof, and hereby certifies to
_______________, or its assignee or nominee ("Requesting Party"), the following:
1. That there is presently in full force and effect a lease dated as of
______________, with Maria Chen ("Landlord") an executed copy of which is
attached hereto as Exhibit B (the "Lease") covering the Premises.
2. That the undersigned entered into occupancy of the Premises on or
about ______________.
3. That the Commencement Date under the Lease was _________________ the
Termination Date of the Lease is ________________________ and the undersigned
commenced paying rent on ______________________.
4. That the undersigned has no option to acquire a fee interest in the
Premises or to renew or extend the term of the Lease except:
5. That the Lease has not been modified, assigned, supplemented or
amended except by: ___________________________
6. That no advance rent or other advance payment under said Lease has
been made by the undersigned, except: ______________________.
7. That the present minimum monthly rent that the undersigned is paying
under the Lease is $____________________
8. That the undersigned is the sole tenant of the Premises and is
responsible for __% of all operating expenses, taxes, maintenance costs and
insurance costs for the building in which the Premises are located.
9. That the address for notice to Tenant under the terms of the Lease is
_____________________.
10. That the security deposit held by Landlord under the terms of the
Lease is $___________ and Landlord holds no other deposit from Tenant for
security or otherwise.
11. That the Lease, modified as set forth in Section 5, above,
represents the entire agreement between Landlord and the undersigned with
respect to the Premises.
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<PAGE> 29
12. That the undersigned has accepted possession of the Premises and
that any improvements required to be made by Landlord to the Premises by the
terms of the Lease and all other conditions of the Lease to be satisfied by
Landlord have been completed or satisfied to the satisfaction of the
undersigned.
13. That the undersigned has no right or claim of deduction, charge,
lien or offset against Landlord under the Lease or otherwise against the rents
or other charges due or to become due pursuant to the terms of the Lease.
14. That Landlord is not in default or breach of the Lease, nor has
Landlord committed an act or tailed to act in such a manner which, with the
passage of time or notice or both, would result in a default or breach of the
Lease by Landlord.
15. That the undersigned is not in default or breach of the Lease, nor
has the undersigned committed an act or failed to act in such a manner which,
with the passage of time or notice or both, would result in a default or breach
of the Lease by the undersigned.
16. The undersigned hereby acknowledges that Requesting Party intends to
purchase [provide financing for] the Building, that [Landlord will assign its
interest in the Lease to Requesting Party], and that Requesting Party is relying
upon the representations made herein in making such purchase [extending
financing secured by the Building]
17. This certificate shall be binding upon and inure to the benefit of
the undersigned and Requesting Party, and their respective successors and
assigns.
Dated:
--------------
-----------------------------------
-----------------------------------
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<PAGE> 30
EXHIBIT D
RULES AND REGULATIONS
FOR
ONE KEARNY STREET
SAN FRANCISCO, CALIFORNIA
ATTACHED TO AND MADE A PART OF THIS LEASE
1. Except as provided or required by Landlord in accordance with
building standards, and except as otherwise provided in the Lease, no sign,
placard, picture, advertisement, name or notice shall be inscribed, displayed,
printed, painted or affixed by any Tenant on or to any part of the Building or
exterior of the premises leased to such Tenant or to the door or doors thereof
without the prior written consent of Landlord, and Landlord shall have the right
to remove any such sign, placard, picture, advertisement, name or notice without
notice to and at the expense of Tenant. 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 shall not be unreasonably
withheld.
2. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with, any window or the Building without the prior written
consent of Landlord. In any event, with the prior written consent of Landlord,
such items shall be installed on the office side of Landlord's standard window
covering, if any, and shall in no way be visible from the exterior of the
Building.
3. Each Tenant shall maintain the portions of its premises which are
visible from the outside of the Building or from hallways or other public areas
of the Building, in a neat. clean and orderly condition.
4. The bulletin board or directory of the Building shall be used
primarily for display of the name and location of Tenants and Landlord reserves
the right to exclude any other names therefrom, to limit the number of names
associated with Tenants to be placed thereon and to charge for names associated
with Tenants to be placed thereof at reasonable rates applicable to all Tenants.
5. The sidewalks, halls, passages, exits, entrances, elevators and
stairways of the Building shall not be obstructed by Tenants or used by them for
any purpose other than for ingress to and egress from their respective premises.
The halls, passages, exits, entrances, elevators, stairways, balconies and roof
of the Building are not for the use of the general public and Landlord in all
cases reserves the right to control the same and prevent access thereto by all
persons whose presence, in the judgment of Landlord, is or may be prejudicial to
the safety, character, reputation or interests of the Building and/or its
Tenants; provided however, that Landlord shall not prevent such access to
persons with whom Tenants deal in the ordinary course of business unless such
persons are engaged in illegal activities. No person shall go upon the roof of
the Building unless expressly so authorized by Landlord.
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<PAGE> 31
6. Upon receipt of a refundable deposit from each Tenant, Landlord will
furnish each Tenant with a key to an entry door to the Building and a key to
each door lock in the premises leased to the Tenant. Landlord may make a
reasonable charge for any additional keys requested by Tenant. 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 written consent of Landlord. 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 have been furnished to Tenant, at which time Landlord shall
return the refundable deposit to the Tenant.
7. The doors, windows, light fixtures and any lights or skylights that
reflect or admit light into the halls or other places of the Building shall not
be covered or obstructed. The toilet rooms, toilets, urinals, wash bowls and
other apparatus shall not be used for any purpose other than that for which they
were constructed and no foreign substance of any kind whatsoever shall be thrown
or placed therein. The expense of any breakage, stoppage or damage resulting
from the violation of this rule shall be borne by the Tenant who, or whose
employees or invitees, caused such expense.
8. Tenants shall not mark, drive nails, screw or drill into the walls,
woodwork or plaster of or in any way deface the Building or any premises leased
to Tenants, except that within their respective premises Tenants may affix to
non-supporting partitions pictures, paintings and other similar solely
decorative items.
9. Furniture, freight or equipment of every kind shall be moved into or
out of the Building only at such times and in such manner as Landlord shall
designate and upon prior written consent of Landlord. The persons employed to
move such equipment in or out of the Building must be reasonably acceptable to
Landlord. Landlord may prescribe and limit the weight, size and position of all
equipment to be used by Tenants, other than standard office desks, chairs and
tables and portable office machines. Safes and other heavy equipment shall, if
considered necessary by Landlord, stand on wood strips of such thickness as
Landlord deems necessary to distribute properly the weight thereof. All damage
to the Building or premises occupied by Tenants caused by moving or maintaining
any property of a Tenant shall be repaired a; the expense of such Tenant.
10. No Tenant shall place any items whatsoever on the roof or balcony
areas, or in any other common areas, of the Building without the prior written
consent of Landlord.
11. No Tenant shall employ any person or persons, other than the janitor
provided by Landlord, for the purpose of cleaning the premises occupied by such
Tenant unless otherwise agreed to by Landlord. Except with the written consent
of Landlord, no person or persons shall be permitted to enter the Building for
the purpose of cleaning the same. Tenants shall not cause any unnecessary labor
by carelessness or indifference in the preservation of good order and
cleanliness of the premises leased to Tenant or the Building. Landlord shall not
be responsible to any Tenant for loss of property on the premises or in the
Building, however occurring, or for any damage to the property of any Tenant
caused by the employees or independent contractors of Landlord or by any other
person. Janitor service shall include ordinary dusting and cleaning and
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<PAGE> 32
shall not include beating of carpets or rugs, moving of furniture or other
special services. Janitor service will not be furnished when rooms are occupied
during the regular hours when janitor service is provided. Window cleaning shall
be done only at the regular and customary times determined by Landlord for such
services.
12. No Tenant shall (i) sweep or throw or permit to be swept or thrown
any dirt or other substance into any of the corridors, halls or elevators or out
of the doors or stairways of the Building, (ii) use or keep or permit to be used
or kept any foul or noxious gas or substance, (iii) permit or suffer the
premises occupied by such Tenant to be occupied or used in a manner offensive or
objectionable to Landlord or other Tenants by reason of noise, odors or
vibrations, (iv) interfere in any way with other Tenants or persons having
business in the Building, or (v) bring or keep or permit to be brought or kept
in the Building any animal life form, other than human, except seeing-eye dogs
when in the company of their masters. If its premises become infested with
vermin as a result of the use or any misuse or neglect of the premises by
Tenant, its agents, contractors, employees, subtenants, licensees, invitees or
visitors, Tenant shall at its sole cost and expense promptly cause the same to
be exterminated from time to time to Landlord's satisfaction, and Tenant shall
employ such licensed exterminator as shall be approved in writing by Landlord.
13. No Tenant shall tamper with or attempt to adjust the temperature
control thermostats, other than in its premises. Landlord shall adjust such
thermostats as required to maintain heat and air-conditioning at the Building
standard temperature, to be determined by Landlord.
14. Heating, ventilation and air-conditioning service for the Building
will be provided by Landlord during the hours of 8:00 a.m. to 5:00 p.m., of
Monday through Friday, however, no such service shall be provided on generally
recognized holidays. All requests for air-conditioning or heating during hours
when such services are not normally furnished by Landlord must be submitted in
writing to the Building Management office by 2:00 p.m. on the preceding day for
weekday service, by 2:00 p.m. on the preceding Thursday for weekend service, and
by 9:00 a.m. on the preceding business day for holiday service.
15. No cooking shall be done or permitted by Tenants in their respective
premises, without the prior written consent of Landlord, nor shall premises
occupied by Tenants be used for the storage of merchandise, washing clothes,
lodging, or any improper, objectionable or immoral purposes.
16. No Tenant shall use or keep in the Building any kerosene, gasoline
or inflammable or combustible fluid or material or use any method of heating or
air-conditioning other than such as be supplied by Landlord.
17. No boring or cutting for telephone, telegraph or electric wires
shall be allowed without the consent of Landlord and any such wires permitted
shall be introduced at the place and in the manner described by Landlord. The
location of telephones, speakers, fire extinguishers and all other office
equipment affixed to premises occupied by Tenants shall be subject to the
approval of Landlord. Each Tenant shall pay all expenses incurred in connection
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<PAGE> 33
with the installation of its equipment, including any telephone, telegraph and
electricity distribution equipment.
18. No Tenant shall affix any floor covering in any manner except as
approved by Landlord. The expense of repairing any damage caused by removal of
any such floor covering shall be borne by the Tenant by whom, or by whose
contractors, employees or invitees, the damage shall have been caused.
19. No mail, furniture, packages, supplies, equipment, merchandise or
deliveries of any kind will be received in the Building or carried up or down in
the elevators except between such hours and in such elevators as shall be
designated by Landlord.
20. In case of invasion, mob, riot, public excitement or other commotion
and at such other times as Landlord reasonably deems necessary for the safety
and protection of the Building, its Tenants and all property located therein,
Landlord may prohibit and prevent access to the Building by all persons by any
means Landlord deems appropriate.
21. Each Tenant shall see that the exterior doors of its premises are
closed and securely locked on Sundays and legal holidays, and closed and
securely locked not later than 7:00 p.m. of each other day. On multiple tenancy
floors, if any, all Tenants shall keep the doors to the Building corridors
closed at all times except for ingress and egress. Each Tenant shall exercise
extraordinary care and caution that all water faucets or water apparatus are
entirely shut off each day before its premises are left unoccupied and that all
electricity or gas shall likewise be carefully shut off so as to prevent waste
or damage to Landlord or to other Tenants of the Building.
22. Landlord may exclude or expel from the Building any person who in
the judgment of Landlord, is intoxicated or under the influence of liquor or
drugs, or who shall in any manner do any act in violation of any of the Rules
and Regulations of the Building.
23. The requirements of Tenants will be attended to only upon
application by telephone or in person to Landlord. Employees of Landlord shall
not perform any work outside of their regular duties unless under special
instructions from Landlord, and no employee of Landlord shall be required to
admit any person (Tenant or otherwise) to any premises in the Building.
24. No vending or food or beverage dispensing machine or machines of any
description shall be installed, maintained or operated upon any premise in the
Building without the written permission of the Landlord. No Tenant shall obtain
for use in the premises ice, drinking water, food, beverage, towel or other
similar services, except at such reasonable hours and under such reasonable
regulations as may be fixed by Landlord.
25. Landlord, without notice and without liability to any Tenant, at any
time may change the name and/or the street address of the Building.
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<PAGE> 34
26. Except with the prior written consent of Landlord, no Tenant shall
sell, or permit the sale at retail, of newspapers, magazines, periodicals,
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 in or from the premises for the service or accommodation of occupants
of any other portion of the Building, nor shall the premises 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.
27. No Tenant shall install any radio or television antenna, loudspeaker
or other device on the roof or exterior walls of the Building.
28. There shall not be used in any space, or in the public halls of the
Building, either by any Tenant or others, any hand trucks except those equipped
with rubber tires and side guards or such other material handling equipment as
Landlord may approve. No other vehicles of any other kind shall be brought by
any Tenant into the Building or kept in or about its premises.
29. Each Tenant shall store all its trash and garbage within its
premises. No material shall be placed in the trash 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 trash and garbage in the City of
San Francisco without being in violation of any law or ordinance governing such
disposal. All garbage and refuse disposal shall be made only through entryways
and elevators provided for such purpose and at such times as Landlord shall
designate.
30. Canvassing, peddling, soliciting, and distribution of handbills or
any other written materials in or about the Building are prohibited, and each
Tenant shall cooperate to prevent the same.
31. While in the Building, Tenant's contractors shall be subject to and
under the control and direction of the manager of the Building or the Building
Engineer (but not as an agent or employee of Landlord or said manager or said
engineer). Tenant and Tenant's contractors shall employ labor that is harmonious
and compatible with other labor working in the Building.
32. 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
such Rules and Regulations against any or all Tenants of the Building.
33. 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.
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<PAGE> 35
34. 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.
35. The word "Building" as used in these rules and regulations means the
Building containing the premises leased pursuant to the Lease to which these
Rules and Regulations are attached.
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<PAGE> 36
[graphic of check]
To: CRL
FR: Maria Fang
RE: March Rent Adjustment
As per our agreement for adjustments of February's rental period. I have
calculated that the difference for the first five days rent amounts to $530.70
(see below for calculations). Since rent for February has already been paid,
therefore, your adjusted rent for March will be $4,769.30.
(based on 29 days in February)
<TABLE>
<S> <C>
5TH FLOOR BASE RENT $ 2,221.88
divided by 29 = $76.62 per day
X 5 days = $ 383.10
10TH FLOOR BASE RENT $ 5,300.00
divided by 29 = $182.76 per day
X 5 days = $ 913.80
DIFFERENCE -- $913.80 - $383.10 = $ 530.70
MARCH RENT -- $ 5,300 - $530.70 = $4,769.30
</TABLE>
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<PAGE> 37
STORAGE RENTAL AGREEMENT
This Storage Agreement (the "Agreement") is made and entered into as of
______________, between MARIA CHEN, an individual ("Lessor"), whose address is
One Kearny Street, 11th Floor, San Francisco, California 94108, and
______________, ("Lessee") , whose address is
_____________________________________________________________
Lessor leases to Lessee the following:
________ Storage Room Number(s) _____________________
and/or
________ File Cabinet Number(s) _____________________
located on the
________ Basement Floor
and/or the
________ Sub-Basement Floor
of the building at One Kearny Street, San Francisco, California 94108, to be
used as a storage room for storing personal property (perishable, toxic,
explosive and highly flammable material and goods excepted) for a period of
__________ months, beginning ____________ and ending ________________.
As rental, Lessee will pay to Lessor the amount of $________ per month
payable on the first day of each month in advance, and Lessor acknowledges
receipt of $______________ which represents rental to _________________ and a
security deposit in the amount of $_________
Lessee expressly agrees and covenants with Lessor that:
1. Lessee will not use said space for unlawful purposes;
2. Lessee will pay the rent as it becomes due. In the event that rent is
not paid when due, Lessee shall be responsible for a 10% late charge, and
interest at the rate of 15% per annum.
3. Lessee will keep said space in good condition (usual wear and
depreciation excepted);
4. Lessee will not store perishable, toxic, explosive or highly
flammable material or goods in said space without the written consent of Lessor;
5. Lessee will at its expense obtain its own insurance, if any, on the
property stored in the space, and Lessor shall not be responsible for damage, if
any, to said property caused by fire, water or otherwise; and
6. In additional to such liens and remedies provided by law to secure
and collect rent, and cumulative therewith, Lessor is hereby given a lien upon
all of Lessee's property, now
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<PAGE> 38
or at any time hereafter stored in said space. In the event of default in the
payment of rent by Lessee, Lessor is authorized to seize and take possession of
said property and place Lessor's lock on the space. After due notice to Lessee
as provided herein, the rent is not paid within the time specified in said
notice, Lessor may sell said property at public or private sale for the payment
of rent, and from the proceeds of such sale Lessor will satisfy her lien,
including the reasonable cost of such sale. The balance, if any, of such
proceeds shall be paid to Lessee.
Written notice or demand for the payment of rent by Lessor to Lessee
will be delivered in person or by certified letter addressed to the above-stated
address. Said notice will include a statement that unless the rent is paid
within the time specified, the property will be sold.
A breach of any of the foregoing covenants and conditions by Lessee
shall, at the option of Lessor, terminate this Agreement and the Agreement will
become null and void.
Executed in San Francisco, California on the 16th day of Oct. 1995.
LESSOR: LESSEE:
/s/ Maria Chen /s/ J. Couch
- ----------------------------- ---------------------------------------
Maria Chen By: J. Couch
Its: CRL Network Services
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<PAGE> 1
EXHIBIT 10.22
AMENDMENT TO LEASE BY AND BETWEEN Maria Chen ("Lessor") and CRL Network
Services Inc. ("Lessee") dated December 5, 1995.
The referenced agreement is modified as follows:
1. The expiration of the Lease shall be extended to May 4, 1999.
2. The monthly rental payments shall be as follows:
February 5, 1999 to May 4, 1999 $14,725/month
3. Tenant agrees to allow Lessor, her agent(s) and/or prospective tenants,
to inspect the premises so long as Tenant receives notice at least the
day before. A representative of Lessee shall be present at all times
during such inspection.
4. After May 4, 1999, Lessor shall have the right to terminate this lease
by giving Tenant notice in writing not less than 30 days prior to
termination.
/S/ CRL Network Services, Inc. 12/1/98
- ---------------------------------- ------------------------
LESSEE: CRL NETWORK SERVICES, INC. DATE
Maria Chen Fang November 30, 1998
- ----------------------------------- ------------------------
LESSOR: MARIA CHEN FANG DATE
<PAGE> 1
EXHIBIT 10.23
120 Montgomery Street
OFFICE LEASE
February 4 , 1994
LANDLORD: TENANT:
The Equitable Montgomery Company Orrell & Co., Inc.
<PAGE> 2
Office Lease
BASIC LEASE INFORMATION
Article:
A. Date: February 4, 1994
B. Landlord: The Equitable Montgomery Company
C. Tenant: Orrell & Company, Inc.
D. Building (Paragraph 1(a)): 120 Montgomery Street, San Francisco,
California
E. Premises (Paragraph 1(b)): A portion of the 12th floor consisting of
approximately 3,524 rentable square feet,
presently known as Suite 1230 as outlined on
Exhibit "A" attached to this Lease.
F. Term Commencement (Paragraph 2): March 15, 1994 or upon substantial
completion of the Work as defined
in Addendum to this Lease.
G. Term Expiration (Paragraph 2): September 14, 1999
H. Base Rent (Paragraph 3(a)):
Months 1 - 24: $4,845.50 per month; $58,146.00 per annum
Months 25 - 36: $5,065.75 per month; $60,789.00 per annum
Months 37 - 48: $5,168.53 per month; $62,022.40 per annum
Months 49 - 66: $5,432.83 per month; $65,194.00 per annum
I. Base Year (Paragraph 1(c)): 1994
J. Tenant's Percentage Share (Paragraph 1(h)): .91%
K. Security Deposit (Paragraph 32): $5,432.83
L. Tenant's Address 120 Montgomery Street, Suite 1230
for Notices (Paragraph 14): San Francisco, CA 94104
M. Landlord's Address
for Notices (Paragraph 14):
with a copy to:
120 Montgomery Street, Office of the Building Equitable Real Estate
San Francisco, California 94104 Investment Management, Inc.
Attention: Property Manager One Bush Street, Suite 1200
San Francisco, CA 94104
Attn: Vice President
Asset Management
<PAGE> 3
N. Brokers (Paragraph 39): Cushman & Wakefield of California, Inc.
555 California Street, Suite 2700
San Francisco, CA 94104
O. Exhibit(s) and Addendum (Paragraph 41):
Exhibit "A" - Demised Premises
Exhibit "B" - Rules & Regulations
Exhibit "C" - Improvement Of The Premises
Addendum
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
Orrell & Company, Inc. The Equitable Montgomery Company
- -------------------------------- -----------------------------------------
By: The Equitable Life Assurance Society
/s/ Gregory M. Orrell of the United States-Managing Venturer
- --------------------------------
By Gregory M. Orrell By /s/ Christopher C. Curtis
------------------------------ --------------------------------------
Christopher C. Curtis
Its President Its Attorney-in-Fact
-------------------------- -------------------------------------
Date 2/9/94 Date 2/26/94
---------------------------- ------------------------------------
By____________________________ By____________________________
Its__________________________ Its__________________________
Date__________________________ Date__________________________
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Definitions.............................................................................1
2. Term; Condition Of Premises.............................................................2
3. Rental..................................................................................3
4. Escalation Rent Payments................................................................4
5. Use.....................................................................................5
6. Services................................................................................5
7. Impositions Payable By Lessee...........................................................6
8. Alterations.............................................................................7
9. Liens...................................................................................8
10. Repairs.................................................................................8
11. Destruction Or Damage...................................................................8
12. Insurance...............................................................................9
13. Subrogation............................................................................10
14. Indemnification........................................................................10
15. Compliance With Legal Requirements.....................................................11
16. Assignment And Subletting..............................................................11
17. Rules; No Discrimination...............................................................13
18. Entry By Landlord......................................................................14
</TABLE>
i
<PAGE> 5
<TABLE>
<S> <C> <C>
19. Events Of Default......................................................................14
20. Termination Upon Default...............................................................15
21. Continuation After Default.............................................................16
22. Other Relief...........................................................................16
23. Landlord's Right To Cure Defaults......................................................16
24. Attorneys' Fees........................................................................16
25. Eminent Domain.........................................................................17
26. Subordination..........................................................................17
27. No Merger..............................................................................18
28. Sale...................................................................................18
29. Estoppel Certificate...................................................................18
30. No Light, Air, Or View Easement........................................................18
31. Holding Over...........................................................................18
32. Security Deposit.......................................................................19
33. Waiver.................................................................................19
34. Notices And Consents...................................................................19
35. Complete Agreement.....................................................................19
36. Corporate Authority....................................................................20
37. Partnership Authority..................................................................20
38. Limitation Of Liability To Building....................................................20
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
39. Brokers................................................................................20
40. Miscellaneous..........................................................................20
41. Exhibits...............................................................................21
41. Additional Provisions..................................................................21
Exhibit A - Demised Premises
Exhibit B - Rules and Regulations
Exhibit C - Improvement of the Premises
Addendum
</TABLE>
<PAGE> 7
OFFICE LEASE
THIS LEASE, dated February 4, 1994, for purposes of reference only, is
made and entered into by and between The Equitable Montgomery Company
("Landlord") and Orrell & Company, 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 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 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 Year" shall mean the calendar year specified
in the Basic Lease Information as the Base Year.
(d) The term "Operating Expenses" shall mean (1) all costs of
management, operation and maintenance of the Building, including, without
limitation: wages, salaries and payroll of employees; property management fees;
janitorial, maintenance, guard and other services; Building office rent or
rental value; power, water, waste disposal and other utilities; materials and
supplies; maintenance, replacements and repairs; insurance premiums and the
deductible portion of any insured loss; and depreciation on personal property;
and (2) the cost of any capital improvements made to the Building by Landlord
after the Base Year that are reasonably anticipated to reduce other Operating
Expenses or are required for the health and safety of tenants, or made to the
Building by Landlord after the date of this Lease that are required under any
governmental law or regulation that was not in effect as of the date of this
Lease, such cost or allocable portion thereof to be amortized over such
reasonable period as Landlord shall determine together with interest on the
unamortized balance at the rate of 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. Operating Expenses shall not include: Property
1
<PAGE> 8
Taxes; depreciation on the Building other than depreciation on exterior window
covering provided by Landlord and carpeting in public corridors and common
areas; costs of tenants' improvements; real estate brokers' commissions;
interest (except as stated in clause (2) above); and capital items other than
those referred to in clause (2) above. If less than 95% of the total rentable
area of the Building is occupied during the Base Year or any calendar year
during the term of this Lease, then actual Operating Expenses for such year
shall be adjusted to equal Landlord's reasonable estimate of Operating Expenses
had 95% of the total rentable area of the Building been occupied. Landlord and
Tenant acknowledge that certain of the costs of management, operation and
maintenance of the Building and certain of the costs of the capital improvements
referred to in clause (2) above may be allocated exclusively to a single
component of the Building (e.g., 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 shall be in accordance with
generally accepted accounting principles applied on a consistent basis. All
operating expense calculations shall be determined in accordance with generally
accepted accounting principles applied on a consistent basis. All operating
expense calculations shall be determined in accordance with GAAP.
(e) The term "Base Operating Expenses" shall mean the Operating
Expenses paid or incurred by Landlord in the Base Year.
(f) The term "Property Taxes" shall mean all real property taxes
and assessments (and any tax levied against the Building or the rents earned in
connection with the Building wholly or partly in lieu thereof) levied against
the Building, and all real estate tax consultant expenses and attorneys' fees
incurred for the purpose of maintaining an equitable assessed valuation of the
Building.(1)
(g) The term "Base Property Taxes" shall mean the amount of
Property Taxes paid by Landlord allocable to the Base Year.
(h) The term "Tenant's percentage share" shall mean the
percentage figure specified in the Basic Lease Information.
2. TERM; CONDITION OF PREMISES. The term of this Lease shall commence
and, unless sooner terminated 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 March 15, 1994 or upon substantial completion. If Landlord has
undertaken in this Lease to make any alterations to the Premises prior to
commencement of the term and the alterations are completed prior to the date set
forth in the Basic Lease Information for commencement of the term, if Tenant
desires to take occupancy in
- --------
(1) Property taxes shall not include interest on taxes or penalties resulting
from Landlord's failure to pay taxes.
2
<PAGE> 9
advance of such date and Landlord consents to such prior occupancy, Landlord
shall deliver the Premises to Tenant on such advance date as shall be mutually
approved by Landlord and Tenant and, notwithstanding anything to the contrary
contained herein, the term of the Lease shall commence upon such delivery. 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, provided that the rental payable during each
calendar year subsequent to the Base Year shall be the Base Rent, increased by
Tenant's percentage share of the total dollar increase, if any, in Operating
Expenses paid or incurred by Landlord in such year over the Base Operating
Expenses, and also increased by Tenant's percentage share of the total dollar
increase, if any, in Property Taxes paid by Landlord in such year over the Base
Property Taxes. Tenant acknowledges that the Basic Lease Information may set
forth different percentage shares of Operating Expenses and Property Taxes or a
single percentage share applicable to both. The increased rental due pursuant to
this paragraph (a) is hereinafter referred to as "Escalation Rent."
(b) 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. 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.
(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 amount 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 2% of such overdue amount. The parties hereby agree that such
3
<PAGE> 10
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
(e) Any amount due from Tenant, if not paid when first due
following the expiration of any grace period provided for, if any, hereunder
shall bear interest from the date 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 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. ESCALATION RENT PAYMENTS.
(a) With respect to each calendar year during the term of this
Lease subsequent to the Base Year, Tenant shall pay to Landlord as additional
rent, at the times hereinafter set forth, an amount equal to the Escalation
Rent. Prior to or anytime after the commencement of any calendar year subsequent
to the Base Year Landlord may, but shall not be required to, notify Tenant of
Landlord's estimate of the amount, if any, of the Escalation Rent for such
current year. Tenant shall pay to Landlord on the first day of each calendar
month during such current calendar year one-twelfth (1/12) of the amount of any
such estimated Escalation Rent for such current calendar year payable by Tenant
hereunder. If at any time or times Landlord determines that the amount of any
Escalation Rent payable by Tenant for the current year will vary from its
estimate by more than 5%, Landlord may, by notice to Tenant, revise Landlord's
estimate for such year, and subsequent payments by Tenant for such year shall be
based on such revised estimate. Following the close of each calendar year,
Landlord shall deliver to Tenant a statement of the actual amount of Escalation
Rent for the immediately preceding year, accompanied by a statement made by an
accounting or auditing officer designated by Landlord showing the Operating
Expenses and Property Taxes on the basis of which Escalation Rent was
determined. The statement of said accounting or auditing officer shall be final
and binding upon Landlord and Tenant. All amounts payable by Tenant as shown on
said statement, less any amounts theretofore paid by Tenant on account of
Landlord's earlier estimate of Escalation Rent for such calendar year made
pursuant to this paragraph 4, shall be paid by or, if Tenant theretofore shall
have paid more than such amounts, reimbursed to Tenant within ten (10) days
after delivery of said statement to Tenant.
(b) If this Lease shall terminate on a day other than the last
day of a calendar year, the amount of any Escalation Rent payable by Tenant for
the calendar year in which the Lease
4
<PAGE> 11
terminates shall be prorated on the basis by which the number of days from the
commencement of said calendar year to and including said date on which this
Lease terminates bears to 365 and shall be due and payable when rendered
notwithstanding termination of this Lease. Escalation Rent allocable to the
calendar year in which this Lease terminates shall be deemed to have been
incurred evenly over the entire twelve-month period of that calendar year.
5. USE. The Premises shall be used for general office purposes and no
other. 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.
6. SERVICES.
(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 act
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 8 a.m. to 6 p.m. on
weekdays (except holidays), or such shorter periods 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) security guards and services and daily 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 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 when such failure or delay is caused by accident or any condition
beyond the reasonable control of Landlord or by the making of 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
5
<PAGE> 12
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.
7. IMPOSITIONS PAYABLE BY LESSEE. 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 thereinafter 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 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 or measured by the monthly rental or other charges payable hereunder,
including, without limitation, any gross receipts tax levied by the City and
County of San Francisco, the State of California, the Federal Government or any
other governmental body with respect to the receipt of such rental; (c) 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 (d) 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
6
<PAGE> 13
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. In no
event, however, may the Tenant make any alterations, additions or improvements
or install fixtures which in Landlord's reasonable judgment might adversely
affect the structural components of the Building or Building mechanical, utility
or life safety 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 $10,000, 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 five (5) 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 or
other person selected by Tenant to make the same shall be subject to Landlord's
prior approval, which approval shall not be unreasonably withheld 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 Landlord at the time of consenting to the making of
such alterations, additions and improvements reserved the right to have Tenant
remove such alterations, additions and improvements, Tenant shall, prior to the
end of the term, at its sole cost and expense, remove the alterations, additions
and improvements and repair and restore the Premises to their condition at the
commencement of the term. Notwithstanding the foregoing, Tenant shall not be
required to remove any improvements installed by other parties prior to the
commencement of the term.
7
<PAGE> 14
(c) Tenant acknowledges that there may be asbestos-containing
fireproofing material in the Building and on the Premises. Upon request by
Tenant, Landlord shall provide Tenant with all material information then in
Landlord's possession regarding such fireproofing material. No work affecting
such fireproofing material shall be made without compliance with all applicable
procedures, including procedures promulgated by Landlord, relating to work
involving material containing asbestos.
9. LIENS. Tenants shall keep the Premises and the Building free from any
liens arising out of any work performed, materials furnished or obligations
incurred by 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 proper for the protection of Landlord, the Premises and the Building from
such liens.
10. REPAIRS. By entry hereunder, Tenant accepts the Premises as being in
the condition in which Landlord is obligated to deliver the Premises, provided
that such acceptance shall not extend to latent defects which are not
discoverable through a diligent inspection of 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. 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 had 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 to
Tenant, except as specifically herein set forth. Landlord agrees to repair and
maintain the structural components of the Building, including but not limited to
the foundation, bearing and exterior walls, sub-flooring and roof, as well as
the elevators, the electrical, mechanical, plumbing, sewage, heating,
ventilating and air conditioning systems, the Common Areas. Tenant shall be
responsible for the repair and maintenance of any supplemental air conditioning
equipment installed by Tenant or Tenant's contractor within the Premises. Tenant
shall provide Landlord a copy of the maintenance agreement for such equipment
within thirty (30) days of such installation.
Landlord shall use reasonable efforts to enforce construction
warranties' obtained from the initial tenant improvements to the Premises.
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, 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 120 days
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
8
<PAGE> 15
Premises with respect to repairing any damage to the Premises or five 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
that so long as the damage or destruction is not caused by the fault or
negligence of Tenant, its contractors, agents, employees or invitees, 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 120 days as set forth in paragraph (a)(i) above. Landlord or
Tenant may elect by written notice to the other within 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 paragraphs (a)(ii)
or (a)(iii) above. Landlord shall have the right to terminate this Lease, by
written notice to Tenant within 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(2) and
1933(4) providing for termination of hiring upon destruction of the thing hired.
(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.
(a) Tenant agrees to procure and maintain in force during the
term hereof, at Tenant's sole cost and expense, (i) personal injury liability
insurance with limits of not less than $1,000,000 per person and $1,000,000 per
occurrence for injuries to or death of persons occurring in, on or about the
Premises or the Building, and (ii) property damage liability insurance with a
limit of not less than $1,000,000 per accident. All such insurance policies
shall name Landlord, Landlord's managing agent and any other party designated by
Landlord as
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additional insureds; shall insure the performance by Tenant of its indemnity
obligations set forth in paragraph 14 of this Lease; shall insure Landlord's and
Landlord's managing agent's contingent liability as respects acts or omissions
of Tenant; shall be issued by insurance companies licensed to do business in the
State of California and otherwise reasonably acceptable to Landlord; and shall
provide that such insurance may not be cancelled 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.
(b) A copy of each policy 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.
(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 Landlord or any officer, agent or employee of Landlord (including
Landlord's managing agent).
(d) Throughout the term of the Lease and any extension thereof,
Landlord shall maintain all risk and liability insurance in amounts and with
such deductibles as other comparable buildings in the San Francisco Financial
District.
13. SUBROGATION. Landlord and Tenant shall each obtain from its
respective insurers under all policies of fire, theft, public liability,
workers' compensation and other insurance maintained by either of them at any
time during the term hereof insuring or covering the Building or any portion
thereof or operations therein, a waiver of all rights of subrogation which the
insurer of one party might have against the other party, and Landlord and Tenant
shall each indemnify the other against and reimburse the other for any and all
loss or expense, including reasonable attorneys' fees, resulting from the
failure to obtain such waiver.
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 will act of Landlord, its employees or
contractors, and Tenant shall hold Landlord harmless from and reimburse Landlord
for any and all damage to any property or injury to or death of any person
arising from the 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 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 made 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.
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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 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.
16. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not, without the prior consent of Landlord,
which consent shall not be unreasonably withheld by Landlord, transfer, assign
or hypothecate 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 the option of Landlord, terminate 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.
(b) If the Tenant is a privately held corporation, or is an
unincorporated association or partnership, the transfer, assignment, or
hypothecation of any stock or interest in such corporation, association, or
partnership in excess of fifty percent (50%) in the aggregate 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) if at the time consent is requested or at any time
prior to the granting of consent, Tenant is in default under this Lease or would
be in default 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
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leasehold improvements in the Premises, would result in more than a reasonable
number of occupants per floor, would require increased services by Landlord or
would conflict with any so-called "exclusive" or percentage leases 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) if the subletting would result in the division of the
Premises into three or more units; 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 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 thirty (30) days after Tenant's
Notice is given (Landlord's Option Period"), either (1) to consent to the
assignment in which event the provisions of paragraph (g) shall be applicable,
or to consent to the subletting in which event the provisions of paragraph (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; or (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, such space, 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. If Landlord
does not exercise one of such options, Tenant shall be free for a period of 120
days after Landlord's Option Period, to assign its entire interest in this Lease
or to sublet such space to the entity specified in Tenant's Notice upon the
terms set forth therein or to any third party upon the same terms set forth in
Tenant's Notice, subject to obtaining Landlord's prior consent as hereinabove
provided.
(e) Notwithstanding the provisions of paragraphs (a) and (b)
above, Tenant may assign this Lease or sublet the Premises or any portion
thereof, with prior notice to Landlord but without the necessity of Landlord's
consent and without extending any option to Landlord pursuant to paragraph (d)
above, to any corporation which controls, is controlled by or is under common
control with Tenant, to any corporation resulting from the merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant as a going concern of the business that is being conducted on
the Premises.
(f) No sublessee (other than Landlord if it exercises its option
pursuant to paragraph (d) above) shall have a right further to sublet without
Landlord's prior consent, which Tenant acknowledges may be withheld in
Landlord's absolute discretion, and any assignment by
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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.
(g) In the case of an assignment to an entity other than
Landlord, 50% of any sums 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 leasehold improvements paid for by Tenant, and the cost of
any real estate commissions or legal fees not to exceed $1,500 incurred by
Tenant in connection with such assignment.
(h) In the case of a subletting to an entity other than Landlord,
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 or legal fees not to exceed $1,500 incurred by Tenant in
connection with such subletting, amortized over the term of the sublease.
(i) Regardless of Landlord's consent, 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 an 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, then
Tenant shall pay Landlord's then reasonable and standard processing fee and
Landlord's reasonable attorneys' fees incurred in connection therewith.
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
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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 90 days of Tenant's occupancy
of the Premises; (c) determine whether Tenant is complying with all its
obligations hereunder; (d) supply janitor service and any other service to be
provided by Landlord to Tenant hereunder; (e) post notices of nonresponsibility;
and (f) make repairs 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; provided, however, that all
such work shall be done as promptly as reasonably possible and so as to cause as
little interference to Tenant as reasonably possible. 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. 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.
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
10 days after the same is due, provided that if Tenant has failed three or more
times in any twelve-month period to pay any rent or other sum within 10 days
after the due date, no grace period shall thereafter be applicable hereunder.
(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 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 20 days to remedy, provided that if
Tenant has defaulted in the performance of the same obligation three or more
times in any twelve-month period and notice of such default has been given by
Landlord in each instance, no cure period shall thereafter be applicable
hereunder.
(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 60 days thereafter;
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(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 20 days thereafter.
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 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, and (4) all costs (including,
without limitation, any brokerage commissions) incurred by Landlord in reletting
the Premises.
(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 losses, costs and damages, including without
limitation all costs of court and attorneys' fees of Landlord occasioned
thereby.
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(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 (c), "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.
21. CONTINUATION AFTER DEFAULT. 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 rights and remedies under this Lease, including the right to
recover the rental 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 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 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. 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 as a result of any breach or default in the
performance of any of the provisions of this Lease, Landlord uses the services
of an attorney in order to secure compliance with such provisions or recover
damages therefor, or to terminate this Lease or evict Tenant, Tenant shall
reimburse Landlord upon demand for any and all reasonable attorneys' fees
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and expenses so incurred by Landlord, provided that if Tenant shall be the
prevailing party in any legal action brought by Landlord against Tenant, Tenant
shall be entitled to recover reasonable attorneys' fees and expenses incurred by
Tenant.
25. EMINENT DOMAIN. If all or any part of the Premises shall be taken as
a result of the exercise of the power 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 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 therein, and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding the foregoing, if any mortgagee, trustee or ground lessor shall
elect to have this Lease prior to the lien of its mortgage or deed of trust or
prior to its ground lease, and shall give notice thereof to Tenant, this Lease
shall be deemed prior to the mortgage, deed of trust, or ground lease, whether
this Lease is dated prior or subsequent to the date of the mortgage, deed of
trust or ground lease or the date of recording thereof. 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 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 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, or to evidence such attornment.
(b) 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, 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 Tenant shall not then be in default in the payment of rental and
other sums due hereunder or otherwise be in default under the terms of this
Lease, and if Tenant shall attorn to the purchaser, grantee, or ground lessor as
provided in paragraph (a) above or, if requested, enter into a new lease for the
balance of the term hereof upon the same terms and provisions as are contained
in this Lease. Tenant's covenant under paragraph (a) above to subordinate this
Lease to any ground lease, mortgage, deed of trust or other hypothecation
hereafter executed is
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conditioned upon each such senior instrument containing the commitments
specified in this paragraph (b).
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 an 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 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, and (d) such other matters as may be
reasonably 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. Any diminution or shutting off of
light, air or view by any structure which may be erected on lands adjacent to
the Building shall in no way affect this Lease or impose any liability on
Landlord.
31. HOLDING OVER.
(a) If, without objection by Landlord, 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 paid by Tenant
at the expiration of the term of this Lease, payable in advance on or before the
first day of each month. Each party shall give the other notice at least one
month prior to the date of termination of such monthly tenancy of its intention
to terminate such tenancy.
(b) If, over Landlord's objection, Tenant holds possession of the
Premises after expiration of the term of this Lease or expiration of its
holdover tenancy, without limiting the liability of Tenant for its unauthorized
occupancy of the Premises, Tenant shall pay rent at a monthly rental equivalent
to 200% of the then prevailing monthly rental paid by Tenant at the expiration
of the term of this Lease 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.
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32. SECURITY DEPOSIT. Tenant has deposited 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 (after the expiration of any applicable
grace period) or otherwise defaults with respect to any provisions of this Lease
(after the expiration of any applicable grace period), 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 Landlord may become
obligated by reason of Tenant's default, or to compensate Landlord for any loss
or damage which Landlord may suffer thereby. If Landlord so uses or applies all
or any portion of the deposit, Tenant shall within 10 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. If Tenant performs all of Tenant's obligations hereunder, the
deposit, or so much thereof as has not theretofore been applied by Landlord,
shall be returned, without interest, to Tenant (or, at Landlord's option, to the
last assignee, if any, of Tenant's interest hereunder) at the expiration of the
term hereof, and after Tenant has vacated the Premises. No trust relationship is
created herein between Landlord and Tenant with respect to 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 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 the preceding breach at the time of acceptance of the rental.
34. NOTICES AND CONSENTS. All notices, consents, demands and other
communications 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. Tenant hereby appoints as its agent to receive the
service of all dispossessory or distraint proceedings and notices thereunder the
person in charge of or occupying the Premises at the time, and, if no person
shall be in charge of or occupying the same, then such service may be made by
attaching the same on the main entrance of 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, and
understandings if any, between Landlord and Tenant
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or displayed by Landlord to Tenant with respect to the subject matter of this
Lease, the Building or related facilities. There are no representations between
Landlord and Tenant other than those contained in this Lease and all reliance
with respect to any representation is solely upon such representations. All
implied warranties, including implied warranties of merchantability and fitness,
are excluded.
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 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. BROKERS. Tenant and Landlord each confirms and represents to the
other party that each party has contacted and dealt with solely the broker
identified in the Basic Lease Information and that no other broker has
participated in the negotiation of this Lease or is entitled to any commission
in connection with this Lease.
40. 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
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than as the address of the business to be conducted by Tenant in the Premises.
If any provision 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.
41. 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.
41. ADDITIONAL PROVISIONS.
IN WITNESS WHEREOF, the parties have executed this Lease on the
respective dates indicated below:
TENANT
Orrell & Company, Inc.
- ----------------------------------
/s/ Gregory M. Orrell
- ----------------------------------
By Gregory M. Orrell
--------------------------------
Its President
----------------------------
By____________________________
Its__________________________
Date of Execution
by Tenant: 2/9/94
LANDLORD
The Equitable Montgomery Company
By: The Equitable Life Assurance Society
of the United States-Managing Venturer
By /s/ Christopher C. Curtis
-----------------------------------
Christopher C. Curtis
Its Attorney-in-Fact
-------------------------------
By_________________________________
Its_______________________________
Date of Execution
by Landlord: 2/26/94
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DIAGRAM
Exhibit "A"
Diagram Demised Property
Suite _______
Orrell & Company, Inc.
Lease dated February 4, 1994
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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 furnish 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. The 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 an 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, rules 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
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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
properly to 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 air conditioning other than that supplied by Landlord. 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 to the Building signed by
Landlord. 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.
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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 rule
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 at 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 in or from the Premises for the service or accommodation of
occupants of any other portion of the Building, nor shall the Premises 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.
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
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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.
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EXHIBIT C
IMPROVEMENT OF THE PREMISES
1. The Work. Landlord, through Landlord's contractor, shall construct
and install in the Premises, substantially in accordance with plans, working
drawings and specifications ("Tenant's Plans") prepared by Landlord's architects
and engineers and approved by Tenant, the improvements ("The Work") described in
Tenant's Plans (except work described in paragraph 6 hereof). Tenant's Plans
shall be based upon and derived from the preliminary architectural plans
prepared by Thomas Lew, dated December 9, 1993 and revised December 20, 1993
(P1), including the modification or deletion of notes No. 1 and No. 4 based on
the final costs of performing The Work. The costs of preparing Tenant's Plans
and performing The Work shall be paid by Landlord, as set forth in this Exhibit
C. The Work shall be performed in a good and workmanlike manner and in
accordance with applicable laws and regulations. The quantities, character and
manner of construction and installation of The Work shall be subject to all
limitations and restrictions imposed by laws, regulations and guidelines
relating to health, safety, the environment, handicapped persons and
conservations of energy adopted by any public or government authority.
2. Tenant's Plans and Construction.
(a) As soon as reasonably possible Landlord shall submit Tenant's Plans
to Tenant for Tenant's written approval. Tenant shall have two (2) working days
to review Tenant's Plans and submit to Landlord any changes, comments, and
revisions to the same. Tenant's Plans and any revisions thereto requested by
Tenant, shall be prepared by Landlord's architect and shall comply with all
applicable codes, laws, ordinances, rules and regulations and shall be in a form
sufficient to secure the approval of all government authorities with
jurisdiction over the approval thereof. If Tenant approves Tenant's Plan,
Landlord shall deliver to Tenant an estimate ("Cost Estimate") of the cost of
completing The Work in the Premises (which Cost Estimate shall include the cost
of preparing Tenant's Plans). Tenant shall either (i) approve the Cost Estimate
by written notice to Landlord, (ii) request additional changes to Tenant's
Plans, whereby Landlord shall revise Tenant's Plans in accordance with Tenant's
request and resubmit to Tenant for its approval both the revised Tenant's Plans
and revised Cost Estimate. Any changes to Tenant's Plans prior to Tenant's
approval of the Cost Estimate shall be not considered a change pursuant to
Paragraph 4 of this Exhibit C. Tenant's approval or Tenant's Plans shall
constitute authorization for Landlord to perform The Work substantially in
accordance with Tenant's Plans. In the absence of such authorization, Landlord
shall not be obligated to commence The Work. Landlord's contractor shall
complete The Work in the Premises substantially in accordance with Tenant's
Plans.
(b) All interior decorating services, such as the selection of colors of
wall paint, wall coverings, carpeting and all other decorator selection work,
required by Tenant shall be provided by Tenant at Tenant's expense.
3. Landlord's Contribution. As Landlord's Contribution for the costs of
preparing Tenant's Plans and performing The Work, Landlord shall provide Tenant
an allowance
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"Landlord's Contribution" in an amount not to exceed $60,789.00. Landlord shall
pay Landlord's Contribution directly to Landlord's architects, engineers,
consultants or suppliers or to Landlord's contractor for the account of Tenant,
in installments, or as professional services are rendered, or The Work is
performed. Landlord's Contributions shall include all architectural fees for
Tenant's Plans. If costs incurred in preparing Tenant's Plans and performing The
Work exceed Landlord's Contribution, and provided that The Work is constructed
in accordance with Tenant's Plans, Tenant shall pay to Landlord, as Additional
Rent ("Additional Rent") an amount up to and not exceeding Ten Thousand Dollars
and 00/100 cents ($10,000.00) ("Additional Contribution"). Tenant shall pay the
Additional Rent to Landlord (payable at the same time and place as monthly
installments of Base Rent), in equal monthly installments, amortized over a five
(5) year period, with interest at 9% per annum, commencing on the first day of
the sixth (6th) full calendar month of the Term, with any residual due upon
expiration of the Term. If any cost associated with preparing Tenant's Plans and
performing The Work exceeds Landlord's Contribution and Additional Contribution,
then Tenant shall be liable for, and pay the costs after completion of The Work
within thirty (30) days of Landlord's written notice that such cost are due and
payable.
4. Changes. If Tenant requests any change in The Work subsequent to
Tenant's approval of Tenant's Plans, Tenant shall request such change in a
written notice to Landlord. Each such request shall be accompanied, if
necessary, by plans, drawings and specifications prepared by Landlord's
architects or engineers, at Tenant's expense, necessary to show and explain such
change from the previously approved Tenant's Plans. Landlord shall have
Landlord's contractor give Tenant an estimate of the construction cost, if any,
for such change. Landlord shall have Landlord's contractor also give Tenant an
estimate of the delay in substantial completion of The Work, if any, which will
be incurred for such change and which Tenant shall be liable for in accordance
with Paragraph 5 below. Tenant shall, within five (5) business days after
receipt of such estimate, notify Landlord in writing to proceed or not to
proceed with such change. If Tenant approves the estimate and requests the
change be constructed then Tenant shall be liable for, and pay to Landlord as
Additional Rent (at such times and in such manner as provided in Paragraph 3)
the actual cost of The Work. In the absence of such written notice to proceed,
Landlord shall not be obligated to make the change requested by Tenant and
Landlord shall proceed with The Work in accordance with the previously approved
Tenant's Plans.
5. Delay. Tenant shall be liable for, and shall pay all costs and
expenses incurred by Landlord in connection with any delay ("Tenant Delay") in
the commencement or completion of The Work caused by (i) Tenant's failure
promptly to approve Tenant's Plans, (ii) Tenant's requirement of additional or
different work, (iii) interruption of The Work in question to accommodate
performance of other Tenant requested work outside the scope of The Work in
question , (iv) any changes, additions, or alterations to The Work which are
requested by Tenant as to which Landlord has notified Tenant that such change
will cause a delay, (v) Tenant's failure to take any action required of Tenant
under the Lease or this Addendum, (vi) any interruption or interference in the
construction caused by Tenant or its architects, planners, engineers,
contractors, subcontractors, laborers or suppliers, or (vii) any other delay
requested or caused by Tenant.
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6. Other Work by Tenant. All work not within the scope of the normal
construction trades employed on the Building, such as the furnishing and
installing of furniture, telephone and computer equipment and wiring, and office
equipment, shall be furnished and installed by Tenant at Tenant's expense.
Tenant shall adopt a schedule in conformance with the schedule of Landlord's
contractors and conduct Tenant's work in such a manner as to maintain harmonious
labor relations and as not to interfere with or delay the work of Landlord's
contractors. Tenant's contractors, subcontractors and labor shall be acceptable
to and approved in writing by Landlord (which shall not be unreasonably
withheld) and shall be subject to the administrative supervision of Landlord's
general contractor. Landlord shall provide reasonable access and entry to the
Premises to Tenant and Tenant's contractors and subcontractors and reasonable
opportunity and time and reasonable use of facilities to enable Tenant to adapt
the Premises for Tenant's use.
7. Requirements. Any work performed at the Building or on the Premises
by Tenant or Tenant's contractor in connection with improvements shall be
subject to the following additional requirements:
(a) Such work shall not proceed until Landlord has approved
(which shall not be unreasonably withheld or delayed) in writing: (i) Tenant's
contractor, (ii) the amount and coverage of public liability and property damage
insurance, with Landlord named as an additional insured, carried by Tenant's
contractor, (iii) complete and detailed plans and specifications for such work,
and (iv) a schedule for The Work.
(b) All work shall be done in conformity with a valid permit when
required, a copy of which shall be furnished to Landlord before such work is
commenced. In any case, all such work shall be performed in accordance with all
applicable laws. Notwithstanding any failure by Landlord to object to any such
work, Landlord shall have no responsibility for Tenant's failure to comply with
applicable laws.
(c) All work by Tenant or Tenant's contractor shall be done with
union labor in accordance with all union labor agreements applicable to the
trades being employed.
(d) All work by Tenant or Tenant's contractor shall be scheduled,
on a reasonable basis, through Landlord.
(e) Tenant or Tenant's contractor shall arrange for necessary
utility, hoisting and elevator service, on a nonexclusive basis, with Landlord's
contractor and shall pay such reasonable costs for such services as may be
charged by Landlord's contractor. Landlord shall have the right to require any
necessary movement of materials by the elevator to be done after regular working
hours at the expense of Tenant.
(f) Tenant's entry on the Premises for any purpose, including,
without limitation, inspection or performance of improvement work by Tenant,
prior to the Commencement of the term shall be subject to all of the covenants
of this Lease except the payment of rent. Entry by Tenant shall include entry by
Tenant's officers, employees, contractors, licensees, agents, servants, guests,
invitees or visitors.
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ADDENDUM TO OFFICE LEASE
This Addendum to Office Lease shall constitute a part of that certain
120 Montgomery Street Office Lease dated February 4, 1994 (the "Lease") between
The Equitable Montgomery Company ("Landlord") and Orrell & Company, Inc.
("Tenant"). Landlord and Tenant desire to amend the Lease as hereinafter
provided.
NOW, THEREFORE, notwithstanding anything to the contrary contained in
the Lease, Landlord and Tenant agree as follows:
1. Definitions. The definitions in the Lease shall also apply to this
Addendum unless herein otherwise indicated.
2. Rent Credit. Notwithstanding anything to the contrary in the Lease,
Base Rent shall be abated during the first five (5) months of the Lease Term.
Accordingly, no Base Rental or operating expenses shall be payable for the first
five (5) months of the term of the Lease. Thereafter, throughout the term of the
Lease, base annual rental shall be as provided in Article H of the Basic Lease
Information and Paragraph 3(a) of the Lease and shall be due and payable in
accordance with the terms of the Lease.
3. Term Commencement and Substantial Completion. Notwithstanding any
provision of the Lease to the contrary, the commencement date for the term of
the Lease shall be the date of Substantial Completion of the Work constituting
the improvements to the Premises as defined in Exhibit C to this Lease. Landlord
and Tenant shall use reasonable efforts to effect
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Substantial Completion of the Work constituting the improvements to the Premises
by March 15, 1994. "Substantial Completion" shall be defined as the condition of
the improvements when (i) the Work has been performed substantially in
accordance with Tenant's Plans as defined in Exhibit C to this Lease (except for
finishing details of construction, decoration, mechanical and other adjustments
or items commonly found on an architectural punch list, all of which do not
materially interfere with Tenant's permitted use of the demised Premises) and
Substantial Completion shall be deemed to have occurred notwithstanding a
requirement on the part of the contractor to complete "punch list" or similar
corrective work, and (ii) a certificate of occupancy with respect to the demised
Premises has been issued by the City and County of San Francisco, if required.
If Landlord is delayed in substantially completing any Work as a result of any
Tenant Delay, (as defined in Exhibit C to this Lease) then the date of
Substantial Completion of such Work shall be deemed to have been the date upon
which such Work would have been substantially completed in the absence of such
Tenant Delay. Landlord will diligently pursue completion of all punch list
items. As and when requested by Tenant, Landlord will give Tenant the
contractor's then best estimate of the date of Substantial Completion of any
Work then in progress. The date of Substantial Completion of any Work shall be
fixed by Landlord in a notice to Tenant, which notice shall state that the
demised Premises are, or prior to the date stated in such notice will be,
substantially complete. Tenant agrees to acknowledge in writing all dates of
Substantial Completion of Work with respect to the demised Premises as well as
the date upon which the term of the Lease commenced, as and when requested to do
so by Landlord. By occupying the demised Premises, Tenant accepts the demised
Premises as being in the condition
2
<PAGE> 38
in which Landlord is obligated to deliver the demised Premises, subject only to
the completion or correction of "Punch list" items.
4. Option to Extend Term. Subject to the provisions of this Paragraph,
Tenant shall have the option to extend the term of this Lease (the "Extension
Option") for a period of five (5) years (the "Renewal Term") provided that:
(a) Tenant gives Landlord written notice of Tenant's intention to
exercise the Extension Option no later than nine (9) months prior to the
expiration of the term of the Lease, and;
(b) At the time of the aforesaid notice, at the time the
Extension Option is exercised and at the commencement of the Renewal Term, the
Lease must be in full force and effect, Tenant must not be then in default under
the Lease, Tenant shall not have been in monetary default (for more than ten
(10) days after written notice of such default from Landlord) or in material
nonmonetary default from Landlord, or if the cure of such default reasonably
requires more than thirty (30) days, Tenant shall not have commenced to cure the
same within thirty (30) days after written notice of such default from Landlord
and shall not have diligently proceeded to complete such cure) more than three
times during the last five years of the initial term of the Lease or at any time
during the last five years of the initial term for more than thirty days,
Tenant's interest under the Lease must not have been assigned by operation of
law or otherwise, Tenant must be in occupancy of the entire demised Premises,
and Tenant must not have sublet any portion thereof; and
3
<PAGE> 39
(c) All of the terms, covenants and conditions of the Lease shall
remain in effect during the Renewal Term, except that (i) no rent concessions or
renewal or expansion option shall be included and (ii) the base annual rental
shall be at fair market rental value of the demised Premises for the Renewal
Term, meaning the monthly rental rate per square foot prevailing at the
commencement of the Renewal Term for five (5) year leases then being entered
into for comparable space in first class buildings in the San Francisco
Financial District and used for comparable purposes.
Within thirty (30) days after Landlord's receipt of the Tenant's notice
specified in subparagraph (a) above, Landlord and Tenant shall meet, negotiate
and attempt to agree upon the fair market rental value for the demised Premises
for the Renewal Term. If Landlord and Tenant have not agreed in writing on such
fair market value within sixty (60) days of Landlord's receipt of Tenant's
notice specified in subparagraph (as) above, then, upon written notice of either
party to the other requesting a determination of such fair market rental value
by real estate brokers such fair market rental value shall be determined by real
estate brokers in accordance with the terms of Paragraph 5 of this Addendum.
5. Determination of Fair Market Rental Value. Whenever, pursuant to this
Addendum, fair market rental is to be determined by real estate brokers, the
procedures of this Paragraph 5 shall apply.
Each party shall select (and pay the fees of) a disinterested real
estate broker with at least five (5) years of commercial real estate office
leasing experience in the City and County of San Francisco. Each party shall,
within ten (10) days after the notice of request for the determination
4
<PAGE> 40
of fair market rental value by brokers, notify the other party of the name and
address of the real estate broker selected by such party. The two brokers
selected shall attempt to determine the fair market rental value of the demised
Premises for the Renewal Term. If either Landlord or Tenant shall fail timely to
so appoint a broker, the appointed broker shall select the second broker
(subject to the above selection criteria) within ten (10) days after the failure
of Landlord or Tenant, as the case may be, to so appoint. Such brokers shall,
within thirty (30) days after the appointment of the last of them to be
appointed, complete their determinations of fair market value and submit their
reports to Landlord and Tenant. If the valuations vary by 5% or less of the
higher value, the fair market rental value shall be the average of the values.
If the values vary by more than 5% of the higher value, the two brokers shall,
within ten (10) days after submission of the last of the reports, appoint a
third broker who shall be similarly qualified. If the two brokers shall be
unable to agree timely on the selection of a third broker, then the third broker
shall be appointed by the presiding Judge of the Superior Court for the City and
County of San Francisco. The third broker shall, within thirty (30) days after
his or her appointment, choose as the fair market rental value of the demised
Premises for the Renewal Term one of the values calculated by the other two
brokers and notify Landlord and Tenant of his or her choice. The third broker
shall have no right to propose a middle ground. Landlord and Tenant shall each
pay the respective fees of its selected broker, or of the broker selected on its
behalf by the other's selected broker if Landlord or Tenant shall fail to timely
appoint, as provided above. The fees of a third broker, if there be one, shall
be paid one-half by Landlord and one-half by Tenant.
5
<PAGE> 41
6. Relocation Expense Allowance. Within thirty (30) days of the date of
Tenant's occupancy in Premises, Landlord shall reimburse Tenant, upon Tenant
forwarding copies of paid invoices to Landlord, up to Four Thousand Four Hundred
and Five Dollars and 00/100 cents ($4,405.00) for costs associated with Tenant's
move to the new Premises. Relocation expenses shall be defined as Tenant moving
costs strictly limited to relocating Tenant's furniture and personal property to
the Premises. Such moving costs shall not include telephone systems, telephone
cabling or data cabling costs.
7. Irrevocable Standby Letter of Credit.
(a) In addition to the security deposit in the amount of
$5,432.83 to be provided pursuant to Paragraph 32 of the Lease, Tenant shall
provide Landlord on March 1, 1994, and maintain in effect throughout the term of
the Lease (subject to Paragraph B below), an Irrevocable Standby Letter of
Credit in the amount of $30,000.00 (the "Letter of Credit"), issued in favor of
the Equitable Montgomery Company as beneficiary ("EMC") by a banking institution
acceptable to EMC. EMC shall be entitled to draw down upon the Letter of Credit
in whole or in part as and to the extent that Landlord would be entitled to use
or apply all or any portion of the security deposit under Paragraph 32 of the
Lease; provided, however, EMC may not draw down upon any portion of the Letter
of Credit until after the expiration of any applicable grace period provided to
Tenant hereunder. If EMC draws down upon any portion of the Letter of Credit as
provided herein, Tenant shall restore the Letter of Credit to the full amount
then required by the terms of this Paragraph 7. The terms of the Letter of
Credit shall entitle Landlord to draw upon the Letter of Credit in whole or in
part upon certification from any individual purportedly acting for Landlord that
it is entitled under the Lease to make such draw, and shall further entitle
6
<PAGE> 42
Landlord to draw down the entire amount of the Letter of Credit in the event
Tenant fails to deliver to Landlord thirty (30) days prior to the expiration
date of the current Letter of Credit a renewal Letter of Credit effective as of
the expiration of the current term of the Letter of Credit. The initial term of
the Letter of Credit shall be one (1) year, and Tenant shall renew it for
successive one-year periods thereafter, subject to subparagraph (b) below. The
issuer of the Letter of Credit shall provide Landlord with not less than
forty-five (45) days' notice prior to cancellation. If Landlord is entitled to
draw down the entire Letter of Credit based on a failure to renew, until such
time as the Letter of Credit has been renewed, Landlord shall deposit the
proceeds in an interest bearing money market account at Wells Fargo Bank or
another Federally Insured Bank or Savings and Loan. Interest shall be retained
in such account. Landlord may thereafter withdraw funds directly from such
account as and to the extent Landlord would have been entitled to draw upon the
Letter of Credit. Landlord shall bear no liability whatsoever for any loss of
principal, interest or measure of interest in such account. Any funds remaining
in such account on the date that the Letter of Credit would otherwise expire
shall be returned to Tenant.
(b) In the event that no event of default has occurred under the
Lease and is continuing, no monetary event of the default has occurred under the
Lease (whether or not such event of default shall be continuing), and no facts
or circumstances then exist that would, with the passage of time, the giving of
notice, or both, constitute an event of default, the amount of the Letter of
Credit shall be reduced to zero effective as of the close of the twenty fifth
(25th) calendar month of the Lease Term.
7
<PAGE> 43
8. Time is of the Essence. Time is of the essence of the obligations of
the Tenant under the Lease and under this Addendum.
9. Conflicts. If there are any conflicts between the provisions of the
Lease and this Addendum, the provisions of this Addendum shall prevail.
10. Ratification of Lease. Landlord and Tenant hereby ratify and confirm
all of the provisions of the Lease as amended by this Addendum.
TENANT
Orell & Company, Inc.
BY: /s/ Gregory M. Orrell
----------------------------------
ITS: President
----------------------------------
DATE: 2/9/94
----------------------------------
BY: Gregory M. Orrell
----------------------------------
ITS: President
----------------------------------
DATE: 2/9/94
----------------------------------
LANDLORD
The Equitable Montgomery Company
- -------------------------------------
BY: The Equitable Life Assurance
Society of the United States
--------------------------------
(Managing Venturer)
BY: /s/ Christopher C. Curtis
---------------------------------
ITS: Attorney-in-Fact
--------------------------------
DATE: 2/26/94
-------------------------------
BY:_________________________
ITS:_________________________
DATE:_______________________
8
<PAGE> 1
EXHIBIT 10.24
STANDARD SUBLEASE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Sublease, dated for reference purposes only, February 20, 1998,
is made by and between Orrel & Company, Inc. and CRL Network Services (herein
called "Sublessor") and
_____________________ (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term at the rental and upon all of the
conditions set forth herein that certain real property situated in the County of
San Francisco, State of California, commonly known as San Francisco and
described as 120 Montgomery Street, Suite 1230, San Francisco, CA 94104
consisting of approximately 3,524 rentable square feet on the 12th floor.
Said real property, including the land and all improvements thereon is
hereinafter called the "Premises."
3. TERM.
3.1 TERM. The term of the Sublease shall be for Eighteen (18) months and
seventeen (17) days commencing on March 8, 1998 and ending on September 24, 1999
unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if
for any reason Sublessor cannot deliver possession of the Premises to Sublessee
on said date, Sublessor shall not be subject to any liability therefore nor
shall such failure affect the validity of this Lease or the obligations of
Sublessee hereunder or extend the term hereof but in such case Sublessee shall
not be obligated to pay rent until possession of the Premises is tendered to
Sublessee; provided, however, that if Sublessor shall not have delivered
possession of the Premises within sixty (60) days from said commencement date.
Sublessee may, at Sublessee's option, by notice in writing to Sublessor within
ten (10) days thereafter, cancel this Sublease, in which event the parties shall
be discharged from all obligations thereunder. If Sublessee occupies the
Premises prior to said commencement date, such occupancy shall be subject to all
provisions hereof, such occupancy shall not advance the termination date and
Sublessee shall pay rent for such period at the initial monthly rates set forth
below.
4. RENT. Sublessee shall pay to Sublessor s rent for the Premises equal monthly
payments of $7,341.67 in advance on the last day of each month of the term
hereof. Sublessee shall pay Sublessor upon the execution hereof $5,628.61 as
rent for March 8, 1998 through March 31, 1998.
Rent for any period during the term hereof which is for less than one month
shall be a prorata portion of the monthly installment. Rent shall be payable in
lawful money of the United States
<PAGE> 2
to Sublessor at the address stated herein or to such other persons or at such
other places as Sublessor may designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $7,341.67 as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder or otherwise defaults with respect to any provision of this Sublease.
Sublessor may use, apply or retain all or any potion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Sublessor may become obligated by reason of Sublessee's default, or
to compensate Sublessor for any loss or damage which Sublessor may suffer
thereby. If Sublessor so uses or applies all or any portion of said deposit,
Sublessee shall within ten (10) days after written demand therefore deposit cash
with Sublessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Sublessee's failure to do so shall be a material
breach of this Sublease. Sublessor shall not be required to keep said deposit
separate from its general accounts. If Sublessee performs all of Sublessee's
obligations hereunder, said deposit or so much thereof as has not theretofore
been applied by Sublessor, shall be returned without payment or interest or
other increment for its use to Sublessee for the Sublessor's option o the last
assignee, if any, of Sublessee's interest hereunder) at the expiration of the
term hereof, and after Sublessee has vacated the Premises. No trust relationship
is created herein between Sublessor and Sublessee with respect to said Security
Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for general office
use.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee will use the
Premises does not violate any applicable building code regulation or ordinance
at the time that this Sublease is executed in the evening that it is determined
that this warranty has been violated, then it shall be the obligation of the
Sublessor and written notice from Sublessee, to promptly at Sublessor's sole
cost and expense, rectify any such violation in the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall at
Sublessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term of any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant of the building containing the Premises, which shall tend
to disturb such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the date
of the execution hereof subject to
2
<PAGE> 3
all applicable zoning, municipal, county and state laws, ordinances, and
regulations governing and regulating the use of the Premises, and accepts this
Sublease subject thereto and to all matters disclosed thereby and by and
exhibits attached hereto. Sublessee acknowledges that neither Sublessor nor
Sublessor's agents have made any representation or warranty as to the
suitability of the Premises for the conduct of Sublessee's business.
7. MASTER LEASE.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1 dated February 4, 1994 wherein The Equitable Montgomery
Company which transferred title to William Wilson & Associates is the lessor
hereinafter referred to as the Master Lessor.
7.2 This Sublease is and shall be at all times subject and
subordinate to the Master Lease.
7.3 The terms and conditions and respective obligations of
Sublessor and Sublessee to each other under this Sublease shall be the terms and
conditions of the Master Lease except for those provisions of the Master Lease
which are directly contradicted by this Sublease in which event the terms of the
Sublease document shall control over the Master Lease. Therefore for the
purposes of this Sublease wherever in the Master Lease the word "Lessor" is used
it shall be deemed to mean the Sublessor herein and wherever in the Master Lease
the word "Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods
subsequent for obligations which have arisen prior to the termination of this
Sublease. Sublessee does hereby expressly assume and agree to perform and comply
with, for the benefit of Sublessor and Master Lease each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom. None.
12. ADDITIONAL PROVISIONS. [If there are no additional provisions draw a
line from this point to the next printed word after the space left here. If
there are additional provisions place the same here.]
BASE YEAR
Sublessee to pay it pro-rata share of any increase in taxes and operating
expenses over and above a 1998 Base Year.
TENANT IMPROVEMENTS
As-is. Space shall be delivered broom clean and in good working condition.
3
<PAGE> 4
If this Sublease has been filled in it has been prepared for submission
to your attorney for the approval. No representation or recommendation as made
by the real estate broker or the agents or employees as to the legal
sufficiency, legal effect, or has consequences of this Sublessee or the
transaction relating thereto.
Executed at _________________________ ___________________________________
on __________________________________ By: _______________________________
address _____________________________ By: _______________________________
_____________________________________ "Sublessor" (Corporate Seal)
Executed at San Francisco, CA /S/ Philip Burkhart
on 3/4/98 ___________________________________
address _____________________________ By: Philip Burkhart
_____________________________________ ________________________________
Executed at San Francisco, CA By: _______________________________
on 3/6/98 "Sublessee" (Corporate Seal)
address _____________________________ /S/ Gregory Orrell
_____________________________________ By: Gregory Orrell
Executed at _________________________ _______________________________
on __________________________________ By: _______________________________
address _____________________________ "Master Lease" (Corporate Seal)
_____________________________________ __________________________________
By: _______________________________
By: _______________________________
"Guarantors" (Corporate Seal)
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure we are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 700 So. ________ St., Ste 800, Los Angeles, CA 90017. (213)
687-8777.
4
<PAGE> 1
Exhibit 10.25
OFFICE LEASE
100 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA
WHLNF REAL ESTATE LIMITED PARTNERSHIP
a Delaware limited Partnership,
as Landlord,
and
CRL NETWORKS, a California corporation,
as Tenant.
<PAGE> 2
100 CALIFORNIA STREET
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 REAL PROPERTY, BUILDING AND PREMISES............................................1
ARTICLE 2 LEASE TERM......................................................................2
ARTICLE 3 BASE RENT.......................................................................2
ARTICLE 4 ADDITIONAL RENT.................................................................2
ARTICLE 5 USE OF PREMISES.................................................................8
ARTICLE 6 SERVICES AND UTILITIES..........................................................9
ARTICLE 7 REPAIRS........................................................................11
ARTICLE 8 ADDITIONS AND ALTERATIONS......................................................11
ARTICLE 9 COVENANT AGAINST LIENS.........................................................13
ARTICLE 10 INDEMNIFICATION AND INSURANCE................................................14
ARTICLE 11 DAMAGE AND DESTRUCTION.......................................................16
ARTICLE 12 CONDEMNATION.................................................................17
ARTICLE 13 COVENANT OF QUIET ENJOYMENT..................................................18
ARTICLE 14 ASSIGNMENT AND SUBLETTING....................................................18
ARTICLE 15 SURRENDER; OWNERSHIP AND REMOVAL OF TRADE
FIXTURES.....................................................................22
ARTICLE 16 HOLDING OVER.................................................................22
ARTICLE 17 ESTOPPEL CERTIFICATES........................................................23
ARTICLE 18 SUBORDINATION................................................................23
ARTICLE 19 TENANT'S DEFAULTS; LANDLORD'S REMEDIES.......................................24
ARTICLE 20 SECURITY DEPOSIT.............................................................27
ARTICLE 21 COMPLIANCE WITH LAW..........................................................28
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 22 ENTRY BY LANDLORD............................................................28
ARTICLE 23 MISCELLANEOUS PROVISIONS.....................................................29
EXHIBITS
EXHIBIT A OUTLINE OF PREMISES.............................................................1
EXHIBIT B TENANT WORK LETTER..............................................................1
EXHIBIT C AMENDMENT TO LEASE..............................................................1
EXHIBIT D RULES AND REGULATIONS...........................................................1
EXHIBIT E FORM OF TENANT'S ESTOPPEL CERTIFICATE...........................................1
EXHIBIT F ASBESTOS NOTIFICATION...........................................................1
EXHIBIT G TENANT CERTIFICATE AND SUBORDINATION, NON
DISTURBANCE AND ATTORNEY ATTORNMENT AGREEMENT...................................1
</TABLE>
ii
<PAGE> 4
100 CALIFORNIA STREET
SUMMARY OF BASIC LEASE INFORMATION
This Summary of Basic Lease Information ("Summary") is hereby
incorporated into and made a part of the attached Office Lease. Each reference
in the Office Lease to any term of this Summary shall have the meaning as set
forth in this Summary for such term. In the event of a conflict between the
terms of this Summary and the Office Lease, the terms of the Office Lease shall
prevail. Any capitalized terms used herein and not otherwise defined herein
shall have the meaning as set forth in the Office Lease.
<TABLE>
<CAPTION>
TERMS OF LEASE DESCRIPTION
<S> <C>
(References are to
the Office Lease)
1. Date: August 29, 1998.
2. Landlord: WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
3. Address of Landlord's Agent LPC MS, Inc.
(Section 23.19): 455 Market Street, Suite 1520
San Francisco, CA 94105
Attn: D. Allen Palmer
with a copy to:
LPC MS, Inc.
100 California Street, Suite 770
San Francisco, CA 94111
Attn: Property Manager
4. Tenant: CRL NETWORKS, a California corporation
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
5. Address of Tenant One Kearny Street, Suite 1450
(Section 23.19): San Francisco, CA 94108
Attention: Jim Couch
(Prior to Lease Commencement Date)
and
CRL NETWORKS, a California corporation
100 California Street, Suite B6
San Francisco, CA 94111
Attention: Jim Couch
(After Lease Commencement Date)
6. Premises (Article 1): Approximately 4,051 rentable
square feet of space located
on the basement floor of the
Building, as set forth in
Exhibit A attached hereto.
7. Term (Article 2):
7.1 Lease Term: Seven (7) years.
7.2 Lease Commencement Date: The earlier to occur of (i) the date upon
which Tenant first commences to conduct
business in the premises, or (ii) that date
which is sixty (60) days after the full
execution of this Lease.
7.3 Lease Expiration Date: The last day of the month in which the
seventh anniversary of the Lease Commencement
Date occurs.
7.4 Lease Amendment: Landlord and Tenant shall confirm the Lease
Commencement Date and the Lease Expiration
Date in an Amendment to Lease (Exhibit C) to
be executed pursuant to Article 2 of the
Office Lease.
8. Base Rent (Article 3):
</TABLE>
<TABLE>
<CAPTION>
Annual
Monthly Rental Rate
Annual Installment per Rentable
Lease Year Base Rent of Base Rent Square Foot
---------- --------- ------------ -----------
<S> <C> <C> <C>
1-4 $101,275.00 $8,439.58 $25.00
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
5-7 $109,377.00 $9,114.75 $27.00
</TABLE>
<TABLE>
<S> <C>
9. Additional Rent
(Article 4):
9.1 Base Year Calendar year: 1998.
9.2 Tenant's Share of Direct Expenses: Approximately 1.48%.
10. Security Deposit $9,114.75
(Article 20):
11. Brokers (Section 23.25): LPC MS, Inc.
The CAC Group
Grubb & Ellis
</TABLE>
v
<PAGE> 7
100 CALIFORNIA STREET
OFFICE LEASE
This Office Lease, which includes the preceding Summary attached hereto
and incorporated herein by this reference (the Office Lease and Summary to be
known sometimes collectively hereafter as the "LEASE"), dated as of the date set
forth in Section 1 of the Summary, is made by and between WHLNF REAL ESTATE
LIMITED PARTNERSHIP, a Delaware limited partnership ("LANDLORD"), and CRL
NETWORKS, a California corporation ("TENANT").
ARTICLE 1
REAL PROPERTY, BUILDING AND PREMISES
1.1 Real Property, Building and Premises. Upon and subject to the terms,
covenants and conditions hereinafter set forth in this Lease, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the premises set forth
in Section 6 of the Summary (the "PREMISES"), which Premises are part of the
building (the "BUILDING") located at 100 California Street, San Francisco,
California. The outline of the floor plan of the Premises is set forth in
Exhibit A attached hereto. The Building. any outside plaza areas, land and other
improvements surrounding the Building which are designated from time to time by
Landlord as common areas appurtenant to or servicing the Building, and the land
upon which any of the foregoing are situated, are herein sometimes collectively
referred to as the "REAL PROPERTY." Tenant is hereby granted the right to the
nonexclusive use of the common corridors and hallways, stairwells, elevators,
restrooms and other public or common areas located on the Real Property;
provided, however, that (i) the manner in which such public and common areas are
maintained and operated shall be at the sole discretion of Landlord and the use
thereof shall be subject to such rules, regulations and restrictions as Landlord
may make from time to time, and (ii) Tenant shall have no right to use any
portion of the Building or of the Real Property for parking for Tenant or
Tenant's employees, visitors and/or invitees. Landlord reserves the right to
make alterations or additions to or to change the location of elements of the
Real Property and the common areas thereof.
1.2 Condition of Premises. Except as expressly set forth in this Lease
and in the Tenant Work Letter attached hereto as Exhibit B, Landlord shall not
be obligated to provide or pay for any improvement, remodeling or refurbishment
work or services related to the improvement, remodeling or refurbishment of the
Premises, and Tenant shall accept the Premises in its "AS IS" condition on the
Lease Commencement Date.
1.3 Rentable Square Feet. The parties hereby stipulate that the Premises
contain the rentable square feet set forth in Section 6 of the Summary, and such
square footage amount is not subject to adjustment or remeasurement by Landlord
or Tenant. Accordingly, there shall be no adjustment in the Base Rent or other
amounts set forth in this Lease which are determined based upon rentable square
feet of the Premises.
<PAGE> 8
ARTICLE 2
LEASE TERM
The terms and provisions of this Lease shall be effective as of the date
of this Lease except for the provisions of this Lease relating to the payment of
Rent. The term of this Lease (the "LEASE TERM") shall be as set forth in Section
7.1 of the Summary and shall commence on the date (the "LEASE COMMENCEMENT
DATE") set forth in Section 7.2 of the Summary (subject, however, to the terms
of the Tenant Work Letter), and shall terminate on the date (the "LEASE
EXPIRATION DATE") set forth in Section 7.3 of the Summary, unless this Lease is
sooner terminated as hereinafter provided. For purposes of this Lease, the term
"LEASE Year" shall mean each consecutive twelve (12) month period during the
Lease Term, provided that the last Lease Year shall end on the Lease Expiration
Date. At any time during the Lease Term, Landlord may deliver to Tenant an
Amendment to Lease in the form as set forth in Exhibit C, attached hereto, which
notice Tenant shall execute and return to Landlord within five (5) days of
receipt thereof.
ARTICLE 3
BASE RENT
Tenant shall pay, without notice or demand, to Landlord or Landlord's
agent at the management office of the Building, or at such other place as
Landlord may from time to time designate in writing, in currency or a check for
currency which, at the time of payment, is legal tender for private or public
debts in the United States of America, base rent ("BASE RENT") as set forth in
Section 8 of the Summary, payable in equal monthly installments as set forth in
Section 8 of the Summary in advance on or before the first day of each and every
month during the Lease Term, without any setoff or deduction whatsoever. The
Base Rent for the first full month of the Lease Term shall be paid at the time
of Tenant's execution of this Lease. If any rental payment date (including the
Lease Commencement Date) falls on a day of the month other than the first day of
such month or if any rental payment is for a period which is shorter than one
month, then the rental for any such fractional month shall be a proportionate
amount of a full calendar month's rental based on the proportion that the number
of days in such fractional month bears to the number of days in the calendar
month during which such fractional month occurs. All other payments or
adjustments required to be made under the terms of this Lease that require
proration on a time basis shall be prorated on the same basis.
ARTICLE 4
ADDITIONAL RENT
4.1 Additional Rent. Except as provided in Section 4.3.1 below, in addition to
paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay as
additional rent "TENANT'S SHARE" of the annual "DIRECT EXPENSES," as those terms
are defined in Sections 4.2.8 and 4.2.3 of this Lease, respectively, which are
in excess of the amount of Direct Expenses applicable to the "BASE YEAR," as
that term is defined in Section 4.2.1 of this Lease. Such additional rent,
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together with any and all other amounts payable by Tenant to Landlord pursuant
to the terms of this Lease (including, without limitation, pursuant to Article
6), shall be hereinafter collectively referred to as the "ADDITIONAL RENT." The
Base Rent and Additional Rent are herein collectively referred to as the "RENT."
All amounts due under this Article 4 as Additional Rent shall be payable for the
same periods and in the same manner, time and place as the Base Rent. Without
limitation on other obligations of Tenant which shall survive the expiration of
the Lease Term, the obligations of Tenant to pay the Additional Rent provided
for in this Article 4 shall survive the expiration of the Lease Term.
4.2 Definitions. As used in this Article 4, the following terms shall
have the meanings hereinafter set forth:
4.2.1 "BASE YEAR" shall mean the year set forth in Section 9.1 of
the Summary.
4.2.2 "CALENDAR YEAR" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.
4.2.3 "DIRECT EXPENSES" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.4 "EXPENSE YEAR" shall mean each Calendar Year, 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 Share of Direct Expenses shall be equitably adjusted for any
Expense Year involved in any such change.
4.2.5 "OPERATING EXPENSES" shall mean all expenses, costs and amounts of
every kind and nature which Landlord shall pay during any Expense Year because
of or in connection with the ownership, management, maintenance, repair,
replacement, restoration or operation of the Building and Real Property,
including, without limitation, any amounts paid for: (i) the cost of supplying
all utilities (excluding the cost of electricity consumed in the Premises and
the premises of other tenants in the Building since Tenant is separately paying
for the cost of electricity consumed in the Premises pursuant to Section 6.1.2
below), the cost of operating, maintaining. repairing, renovating and managing
the utility systems, mechanical systems, sanitary and storm drainage systems,
any elevator systems and all other "Systems and Equipment" (as defined in
Section 4.2.6 of this Lease), and the cost of supplies and equipment and
maintenance and service contracts in connection therewith; (ii) the cost of
licenses, certificates, permits and inspections, and the cost of contesting the
validity or applicability of any governmental enactments which may affect
Operating Expenses; (iii) the cost of insurance carried by Landlord, in such
amounts as Landlord may reasonably determine or as may be required by any
mortgagees or the lessor of any underlying or ground lease affecting the Real
Property and/or the Building; (iv) the cost of landscaping, relamping, supplies,
tools, equipment and materials, and all fees, charges and other costs (including
consulting fees, legal fees and accounting fees) incurred in connection with the
management, operation, repair and maintenance of the Building and Real Property;
(v) any equipment rental agreements or management agreements (including the cost
of any management fee and the fair rental value of any office space provided
thereunder); (vi) wages, salaries and other compensation and benefits of all
persons engaged in the operation, management, maintenance or security of the
Building and Real
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Property, and employer's Social Security taxes, unemployment taxes or insurance,
and any other taxes which may be levied on such wages, salaries, compensation
and benefits; (vii) payments under any easement, license, operating agreement,
declaration, restrictive covenant, underlying or ground lease (excluding rent),
or instrument pertaining to the sharing of costs by the Building or Real
Property; (viii) the cost of janitorial service (excluding the cost to provide
janitorial services to the Premises and the premises of other tenants in the
Building since Tenant is separately paying for the cost of janitorial services
provided to the Premises pursuant to Section 6.1.4 below), alarm and security
service, window cleaning, trash removal, replacement of wall and floor
coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other
common or public areas or facilities, maintenance and replacement of curbs and
walkways, repair to roofs and re-roofing; (ix) amortization (including interest
on the unamortized cost) of the cost of acquiring or the rental expense of
personal property used in the maintenance, operation and repair of the Building
and Real Property; and (x) the cost of any capital improvements or other costs
(I) which are intended as a labor-saving device or to elect other economies in
the operation or maintenance of the Building and Real Property, (II) made to the
Building or Real Property after the Lease Commencement Date that are required
under any governmental law or regulation, or (III) which are reasonably
determined by Landlord to be in the best interests of the Building and/or the
Real Property; provided, however, that if any such cost described in (I), (II)
or (III) above, is a capital expenditure, such costs shall be amortized
(including interest on the unamortized cost) over its useful life as Landlord
shall reasonably determine. If Landlord is not furnishing any particular work or
service (the cost of which, if performed by Landlord, would be included in
Operating Expenses) to a tenant who has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, Operating Expenses shall
be deemed to be increased by an amount equal to the additional Operating
Expenses which would reasonably have been incurred during such period by
Landlord if it had at its own expense furnished such work or service to such
tenant. If the Building is then ninety-five percent occupied during all or a
portion of any Expense Year (including the Base Year), Landlord shall make an
appropriate adjustment to the variable components of Operating Expenses for such
year or applicable portion thereof, employing sound accounting and management
principles, to determine the amount of Operating Expenses that would have been
paid had ninety-five percent of the Building been occupied; and the amount so
determined shall be deemed to have been the amount of Operating Expenses for
such year, or applicable portion thereof Landlord shall have the right, from
time to time, to equitably allocate some or all of the Operating Expenses among
different tenants of the Building (the "COST POOLS"). Such Cost Pools may
include, without limitation, the office space tenants and retail space tenants
of the Building. Notwithstanding anything to the contrary set forth in this
Article 4, when calculating Direct Expenses for the Base Year, Operating
Expenses shall exclude market-wide labor-rate increases due to extraordinary
circumstances, including, but not limited to, boycotts and strikes, and utility
rate increases due to extraordinary circumstances including, but not limited to,
conservation surcharges, boycotts, embargoes or other shortages, and costs
relating to capital improvements.
Notwithstanding the foregoing, Operating Expenses shall not, however,
include: (A) costs of 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; (B) costs (including
permit, license and inspection costs) incurred in renovating
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or otherwise improving, decorating or redecorating rentable space for other
tenants or vacant rentable space; (C) costs incurred due to the violation by
Landlord of the terms and conditions of any lease of space in the Building; (D)
costs of overhead or profit increment paid to Landlord or to subsidiaries or
affiliates of Landlord for services in or in connection with the Building to the
extent the same exceeds the costs of overhead and profit increment included in
the costs of such services which could be obtained from third parties on a
competitive basis; (E) except as otherwise specifically provided in this Section
4.2.5, costs of interest on debt or amortization on any mortgages, and rent
payable under any ground lease of the Real Property; and (F) costs incurred in
connection with correcting existing violations of the Building and Real Property
of applicable laws in effect as of the date of this Lease, including, without
limitation, any costs to remediate or mitigate any Hazardous Materials (as such
term is defined in Article 5 below) existing in the Building or Real Property in
violation of Hazardous Materials laws as of such date.
4.2.6 "SYSTEMS AND EQUIPMENT" shall mean any plant, machinery,
transformers, duct work, cable, wires, and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity or
any other services or utilities, or comprising or serving as any component or
portion of the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life safety systems or equipment, or any other
mechanical, electrical, electronic, computer or other systems or equipment which
serve the Building in whole or in part.
4.2.7 "TAX EXPENSES" shall mean all federal, state, county, or
local governmental or municipal taxes, fees, assessments, charges or other
impositions of every kind and nature, whether general, special, ordinary or
extraordinary, (including, without limitation, real estate taxes, general and
special assessments, transit assessments, fees and taxes, child care subsidies,
fees and/or assessments, job training subsidies, fees and/or assessments, open
space fees and/or assessments, housing subsidies and/or housing fund fees or
assessments, public art fees and/or assessments, leasehold taxes or taxes based
upon the receipt of rent, including gross receipts or sales taxes applicable to
the receipt of rent, personal property taxes imposed upon the fixtures,
machinery, equipment, apparatus, systems and equipment, appurtenances, furniture
and other personal property used in connection with the Real Property), which
Landlord shall pay during any Expense Year because of or in connection with the
ownership, leasing and operation of the Real Property or Landlord's interest
therein. For purposes of this Lease, Tax Expenses shall be calculated as if the
tenant improvements in the Building were fully constructed and the Real
Property, the Building, and all tenant improvements in the Building were fully
assessed for real estate tax purposes.
4.2.7.1 Tax Expenses shall include, without limitation:
(i) Any tax on Landlord's rent, right to rent or
other income from the Real Property or as against Landlord's business of leasing
any of the Real Property;
(ii) Any assessment, tax, fee, levy or charge in
addition to, or in substitution, partially or totally, of any assessment, tax,
fee, levy or charge previously included
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within the definition of real property tax, it being acknowledged by Tenant and
Landlord that Proposition 13 was adopted by the voters of the State of
California in the June 1978 election ("PROPOSITION 13") and that assessments,
taxes, fees, levies and charges may be imposed by governmental agencies for such
services as fire protection, street, sidewalk and road maintenance, refuse
removal and for other governmental services formerly provided without charge to
property owners or occupants. It is the intention of Tenant and Landlord that
all such new and increased assessments, taxes, fees, levies, and charges and all
similar assessments, taxes, fees, levies and charges be included within the
definition of Tax Expenses for purposes of this Lease;
(iii) Any assessment, tax, fee, levy, or charge
allocable to or measured by the area of the Premises or the rent payable
hereunder, including, without limitation, any gross income tax upon or with
respect to the possession, leasing, operating, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises, or any portion
thereof;
(iv) Any assessment, tax, fee, levy or charge,
upon this transaction or any document to which Tenant is a party. creating or
transferring an interest or an estate in the Premises; and
(v) Any reasonable expenses incurred by Landlord
in attempting to protest, reduce or minimize Tax Expenses.
4.2.7.2 In no event shall Tax Expenses for any Expense
Year be less than the component of Tax Expenses comprising a portion of the Base
Year.
4.2.7.3 Notwithstanding anything to the contrary contained
in this Section 4.2.7, there shall be excluded from Tax Expenses (i) all excess
profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and
succession taxes, estate taxes, federal and state net income taxes, and other
taxes to the extent applicable to Landlord's net income (as opposed to rents,
receipts or income attributable to operations at the Building or Real Property),
(ii) any items included as Operating Expenses, and (iii) any items paid by
Tenant under Section 4.4 of this Lease.
4.2.8 "TENANT'S SHARE" shall mean the percentage set forth in
Section 9.2 of the Summary. Tenant's Share was calculated by multiplying the
number of rentable square feet of the Premises by 100 and dividing the product
by the total rentable square feet in the Building. In the event either the
rentable square feet of the Premises and/or the total rentable square feet of
the Building is changed, Tenant's Share shall be appropriately adjusted, and, as
to the Expense Year in which such change occurs, Tenant's Share for such year
shall be determined on the basis of the number of days during such Expense Year
that each such Tenant's Share was in effect.
4.3 Calculation and Payment of Additional Rent.
4.3.1 Calculation of Excess. If for any Expense Year ending or
commencing within the Lease Term, Tenant's Share of Direct Expenses for such
Expense Year exceeds
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Tenant's Share of Direct Expenses for the Base Year, then Tenant shall pay to
Landlord, in the manner set forth in Section 4.3.2, below, and as Additional
Rent, an amount equal to the excess (the "EXCESS"); provided, however, that for
the first twelve months of the Lease Term, Tenant shall not be obligated to pay
any Excess.
4.3.2 Statement of Actual Direct Expenses and Payment by Tenant.
Landlord shall endeavor to give to Tenant on or before the first day of April
following the end of each Expense Year, a statement (the "STATEMENT") which
shall state the Direct Expenses incurred or accrued for such preceding Expense
Year, and which shall indicate the amount, if any, of any Excess. Upon receipt
of the Statement for each Expense Year ending during the Lease Term, if an
Excess is present, Tenant shall pay, with its next installment of Base Rent due,
the full amount of the Excess for such Expense Year, less the amounts, if any,
paid during such Expense Year as "ESTIMATED EXCESS," as that term is defined in
Section 4.3.3 of this Lease. The failure of Landlord to timely furnish the
Statement for any Expense Year shall not prejudice Landlord from enforcing its
rights under this Article 4. Even though the Lease Term has expired and Tenant
has vacated the Premises, when the final determination is made of Tenant's Share
of the Direct Expenses for the Expense Year in which this Lease terminates, if
an Excess is present, Tenant shall immediately pay to Landlord an amount as
calculated pursuant to the provisions of Section 4.3.1 of this Lease. The
provisions of this Section 4.3.2 shall survive the expiration or earlier
termination of the Lease Term.
4.3.3 Statement of Estimated Direct Expenses. In addition,
Landlord shall endeavor to give Tenant a yearly expense estimate statement (the
"ESTIMATE STATEMENT") which shall set forth Landlord's reasonable estimate (the
"ESTIMATE") of what the total amount of Direct Expenses for the then-current
Expense Year shall be and the estimated Excess (the "ESTIMATED EXCESS") as
calculated by comparing Tenant's Share of Direct Expenses, which shall be based
upon the Estimate, to Tenant's Share of Direct Expenses for the Base Year. The
failure of Landlord to timely furnish the Estimate Statement for any Expense
Year shall not preclude Landlord from enforcing its rights to collect any
Estimated Excess under this Article 4. If pursuant to the Estimate Statement an
Estimated Excess is calculated for the then-current Expense Year, Tenant shall
pay, with its next installment of Base Rent due, a fraction of the Estimated
Excess for the then-current Expense Year (reduced by any amounts paid pursuant
to the last sentence of this Section 4.3.3). Such fraction shall have as its
numerator the number of months which have elapsed in such current Expense Year
to the month of such payment, both months inclusive, and shall have twelve (12)
as its denominator. Until a new Estimate Statement is furnished, Tenant shall
pay monthly, with the monthly Base Rent installments, an amount equal to
one-twelfth (1/12) of the total Estimated Excess set forth in the previous
Estimate Statement delivered by Landlord to Tenant.
4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible.
Tenant shall reimburse Landlord upon demand for any and all taxes or assessments
required to be paid by Landlord (except to the extent included in Tax Expenses
by Landlord), excluding state, local and federal personal or corporate income
taxes measured by the net income of Landlord from all sources and estate and
inheritance taxes, whether or not now customary or within the contemplation of
the parties hereto, when:
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4.4.1 Said taxes are 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 by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the cost
or value of such leasehold improvements exceeds the cost or value of a building
standard build-out as determined by Landlord regardless of whether title to such
improvements shall be vested in Tenant or Landlord;
4.4.2 Said taxes are assessed upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises or any portion of the Real Property; or
4.4.3 Said taxes are assessed upon this transaction or any
document to which Tenant is a party creating or transferring an interest or an
estate in the Premises.
4.5 Late Charges. If any installment of Rent or any other sum due from
Tenant shall not be received by Landlord or Landlord's designee by the due date
therefor, then Tenant shall pay to Landlord a late charge equal to five percent
(5%) of the amount due plus any attorneys' fees incurred by Landlord by reason
of Tenant's failure to pay Rent and/or other charges when due hereunder. The
late charge shall be deemed Additional Rent and the right to require it shall be
in addition to all of Landlord's other rights and remedies hereunder, at law
and/or in equity and shall not be construed as liquidated damages or as limiting
Landlord's remedies in any manner. In addition to the late charge described
above, any Rent or other amounts owing hereunder which are not paid by the date
they are due shall thereafter bear interest until paid at a rate (the "INTEREST
RATE") equal to the lesser of (i) the "PRIME RATE" or "REFERENCE RATE" announced
from time to time by the Bank of America (or such reasonable comparable national
banking institution as selected by Landlord in the event Bank of America ceases
to exist or publish a Prime Rate or Reference Rate), plus four percent (4%), or
(ii) the highest rate permitted by applicable law.
ARTICLE 5
USE OF PREMISES
Tenant shall use the Premises solely for the operation of its
telecommunications business, administrative and general office purposes
consistent with the character of the Building as a first-class office building,
and Tenant shall not use or permit the Premises to be used for any other purpose
or purposes whatsoever. Tenant further covenants and agrees that it shall not
use, or suffer or permit any person or persons to use, the Premises or any part
thereof for any use or purpose contrary to the provisions of Exhibit D, attached
hereto, or in violation of the laws of the United States of America, the state
in which the Building is located, or the ordinances, regulations or requirements
of the local municipal or county governing body or other lawful authorities
having jurisdiction over the Building. Tenant shall comply with all recorded
covenants, conditions, and restrictions, and the provisions of all ground or
underlying leases, now or hereafter affecting the Real Property. Tenant shall
not use or allow another person or entity to use any part of the Premises for
the storage, use, treatment, manufacture or sale of "HAZARDOUS MATERIAL," as
that term is defined below. As used herein, the term "HAZARDOUS
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MATERIAL" means any hazardous or toxic substance, material or waste which is or
becomes regulated by any local governmental authority, the state in which the
Building is located or the United States Government.
ARTICLE 6
SERVICES AND UTILITIES
6.1 Standard Tenant Services. Landlord shall provide the following
services on all days during the Lease Term, unless otherwise stated below.
6.1.1 Heating and air conditioning shall be provided to the
Premises from a separate air conditioning unit which is in the Premises as of
the date of the execution of this Lease. Tenant shall pay for the cost of
electricity for such heating and air conditioning unit as provided in Section
6.1.2 below.
6.1.2 Electricity for the Premises shall be provided through the
electrical wiring and facilities existing in the Premises as of the date of this
Lease (as such wiring and facilities may be modified as part of the Tenant
Improvements to be constructed pursuant to the Work Letter attached to this
Lease as Exhibit B); provided, however, that in no event shall the amount of the
electricity provided to and/or consumed in the Premises exceed the capacity of
such wiring and facilities. Tenant shall pay directly to Landlord, within ten
(10) days after demand and as additional rent under this Lease (and not as part
of Operating Expenses), the cost of electricity provided to and/or consumed in
the Premises (including the electricity for the heating and air conditioning
unit and normal and excess consumption), which electricity shall be separately
metered, at Tenant's cost. Such electricity shall be provided by a provider of
electricity which Landlord shall select in its sole discretion. At Landlord's
option, the cost of such electricity usage shall be billed directly by the
electricity provider to Tenant, and Tenant shall pay such costs to such provider
as and when due. Landlord shall bear the cost of replacement of Building
Standard lamps, starters and ballasts for lighting fixtures within the Premises
(and such cost shall be an Operating Expense), unless such replacement is
necessary as a result of, in whole or in part, of Tenant's negligence, in which
event Tenant shall bear the cost. Tenant shall bear the cost of replacement of
non-Building Standard lamps, starters and ballasts for lighting fixtures within
the Premises.
6.1.3 Landlord shall provide city water from the regular Building
outlets for drinking, lavatory and toilet purposes.
6.1.4 Landlord shall not be responsible for providing janitorial
services in the Premises. Tenant shall be solely responsible for arranging for
the provision of janitorial services within the Premises, at Tenant's sole cost.
6.1.5 Landlord shall provide nonexclusive automatic passenger
elevator service at all times.
6.2 INTENTIONALLY OMITTED.
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6.3 Interruption of Use. Except as otherwise provided in Section 6.5
below, Tenant agrees that Landlord shall not be liable for damages, by abatement
of Rent or otherwise, for failure to furnish or delay in furnishing any service
(including telephone and telecommunication services), or for any diminution in
the quality or quantity thereof, when such failure or delay or diminution is
occasioned, in whole or in part, by repairs, replacements, or improvements, by
any strike, lockout or other labor trouble, by inability to secure electricity,
gas, water, or other fuel at the Building after reasonable effort to do so, by
any accident or casualty whatsoever, by act or default of Tenant or other
parties, or by any other cause beyond Landlord's reasonable control; and such
failures or delays or diminution shall never be deemed to constitute an eviction
or disturbance of Tenant's use and possession of the Premises or relieve Tenant
from paying Rent or performing any of its obligations under this Lease.
Furthermore, Landlord shall not be liable under any circumstances for a loss of,
or injury to, property or for injury to, or interference with, Tenant's
business, including, without limitation, loss of profits, however occurring,
through or in connection with or incidental to a failure to furnish any of the
services or utilities as set forth in this Article 6.
6.4 Additional Services. Landlord shall also have the exclusive right,
but not the obligation, to provide any additional services which may be required
by Tenant, including, without limitation, locksmithing, lamp replacement,
additional janitorial service, and additional repairs and maintenance, provided
that Tenant shall pay to Landlord upon billing, the sum of all costs to Landlord
of such additional services plus an administration fee. Charges for any
utilities or service for which Tenant is required to pay from time to time
hereunder, shall be deemed Additional Rent hereunder and shall be billed on a
monthly basis.
6.5 Abatement of Rent. Notwithstanding the provisions of Section 6.3
above to the contrary, in the event that during this Lease Term Tenant is
prevented from using, and does not use, the Premises or any portion thereof as a
result of the failure by Landlord to provide the electricity to the Premises
required to be provided by Landlord pursuant to Section 6.1.2 above, and such
failure is not the result of (i) the negligence or willful misconduct of Tenant
or any of Tenant's employees, agents, contractors, licensees or invitees, or
(ii) any strike, lockout or other labor trouble, any inability to secure
utilities at the Building after reasonable effort to do so, any accident or
casualty whatsoever, or any other cause beyond Landlord's reasonable control
(such event shall be known as an "ABATEMENT EVENT"), then Tenant shall give
Landlord written notice of such Abatement Event. If such Abatement Event
continues for ten (10) consecutive days after Landlord's receipt of any such
written notice from Tenant ("ELIGIBILITY PERIOD"), then the Rent shall be abated
or reduced, as the case may be, during such time after the Eligibility Period
that Tenant continues to be so prevented from using, and does not use, the
Premises or a portion thereof, in the proportion that the rentable square feet
of the portion of the Premises that Tenant is prevented from using, and does not
use, bears to the total rentable square feet of the Premises. The foregoing
provisions of this Section 6.5 shall not apply to any abatement of Rent that may
be available to Tenant following a damage or destruction or eminent domain
taking as provided in Articles 11 and 12 of this Lease, and accordingly, to the
extent Tenant is entitled to abatement without regard to the Eligibility Period
because of a damage, destruction or eminent domain taking pursuant to Articles
11 and 12 of this Lease, then the Eligibility Period shall not be applicable to
such event.
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ARTICLE 7
REPAIRS
7.1 Tenant's Repairs. Subject to Landlord's repair obligations in
Sections 7.2 and 11.1 below, Tenant shall, at Tenant's own expense, keep the
Premises, including all improvements, fixtures and furnishings therein, in good
order, repair and condition at all times during the Lease Term, which repair
obligations shall include, without limitation, the obligation to promptly and
adequately repair all damage to the Premises and replace or repair all damaged
or broken fixtures and appurtenances; provided however, that, at Landlord's
option, or if Tenant fails to make such repairs, Landlord may, but need not,
make such repairs and replacements, and Tenant shall pay Landlord the cost
thereof, including a percentage of the cost thereof (to be uniformly established
for the Building) sufficient to reimburse Landlord for all overhead, general
conditions, fees and other costs or expenses arising from Landlord's involvement
with such repairs and replacements forthwith upon being billed for same.
7.2 Landlord's Repairs. Anything contained in Section 7.1 above to the
contrary notwithstanding, and subject to Articles 11 and 12 of this Lease,
Landlord shall repair and maintain the structural portions of the Building,
including the basic plumbing, heating, ventilating, air conditioning and
electrical systems installed or furnished by Landlord (but not including any
non-base building facilities installed by or on behalf of Tenant); provided,
however, if such maintenance and repairs are caused in part or in whole by the
act. neglect. fault of or omission of any duty by Tenant, its agents, servants,
employees or invitees, Tenant shall pay to Landlord as additional rent. the
reasonable cost of such maintenance and repairs. Landlord shall not be liable
for any failure to make ally such repairs, or to perform any maintenance unless
such failure shall persist for an unreasonable time after written notice of the
need of such repairs or maintenance is given to Landlord by Tenant. There shall
be no abatement of rent and no liability of Landlord by reason of any injury to
or interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances and equipment therein. Tenant hereby waives
and releases its right to make repairs at Landlord's expense under Sections 1941
and 1942 of the California Civil Code; or under any similar law, statute, or
ordinance now or hereafter in effect.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 Landlord's Consent to Alterations. Tenant may not make any
improvements, alterations, additions or changes to the Premises (collectively,
the "ALTERATIONS") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
thirty (30) days prior to the commencement thereof, and which consent shall not
be unreasonably withheld by Landlord; provided, however, Landlord may withhold
its consent in its sole and absolute discretion with respect to any Alterations
which may affect the structural components of the Building or the Systems and
Equipment. Tenant shall pay for all overhead, general conditions, fees and other
costs and expenses of the Alterations, and
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<PAGE> 18
shall pay to Landlord a Landlord supervision fee of five percent (5%) of the
cost of the Alterations. The construction of the initial improvements to the
Premises shall be governed by the terms of the Tenant Work Letter and not the
terms of this Article 8. Notwithstanding anything to the contrary set forth in
this Article 8, Landlord's approval shall not be required for the movement of
telecommunications racks within the Premises and the installation of
telecommunications wiring provided that such movement and installation do not
affect the structural components of the Building or the Systems and Equipment.
In connection with Tenant's normal business operations, Tenant anticipates that
it will need to install wiring between the Premises and the streets surrounding
the Building in order for Tenant to connect Tenant's telecommunications
equipment to other telecommunications systems. Provided that Tenant shall comply
with all applicable laws, Landlord's Rules and Regulations and such activities
do not interfere with the structural components of the Building or the Systems
and Equipment, Tenant shall have the right to install such wiring.
8.2 Manner of Construction. Landlord may impose, as a condition of its
consent to all Alterations or repairs of the Premises or about the Premises,
such requirements as Landlord in its reasonable discretion may deem desirable,
including, but not limited to, the requirement that Tenant utilize for such
purposes only contractors, materials, mechanics and materialmen approved by
Landlord; provided, however, Landlord may impose such requirements as Landlord
may determine, in its sole and absolute discretion, with respect to any work
affecting the structural components of the Building or Systems and Equipment
(including designating specific contractors to perform such work). Tenant shall
construct such Alterations and perform such repairs in conformance with any and
all applicable rules and regulations of any federal, state, county or municipal
code or ordinance and pursuant to a valid building permit, issued by the city in
which the Building is located, and in conformance with Landlord's construction
rules and regulations. Landlord's approval of the plans, specifications and
working drawings for Tenant's Alterations shall create no responsibility or
liability on the part of Landlord for their completeness, design sufficiency, or
compliance with all laws, rules and regulations of governmental agencies or
authorities. All work with respect to any Alterations must be done in a good and
workmanlike manner and diligently prosecuted to completion to the end that the
Premises shall at all times be a complete unit except during the period of work.
In performing the work of any such Alterations, Tenant shall have the work
performed in such manner as not to obstruct access to the Building or the common
areas for any other tenant of the Building, and as not to obstruct the business
of Landlord or other tenants in the Building, or interfere with the labor force
working in the Building. If Tenant makes any Alterations, Tenant agrees to carry
"BUILDER'S ALL RISK" insurance in an amount approved by Landlord covering the
construction of such Alterations, and such other insurance as Landlord may
require, it being understood and agreed that all of such Alterations shall be
insured by Tenant pursuant to Article 10 of this Lease immediately upon
completion thereof In addition, Landlord may, in its discretion, require Tenant
to obtain a lien and completion bond or some alternate form of security
satisfactory to Landlord in an amount sufficient to ensure the lien-free
completion of such Alterations and naming Landlord as a co-obligee. Upon
completion of any Alterations, Tenant shall (i) cause a Notice of Completion to
be recorded in the office of the Recorder of the county in which the Building is
located in accordance with Section 3093 of the Civil Code of the State of
California or any successor statute, (ii) deliver to the Building management
office a reproducible copy of
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<PAGE> 19
the "as built" drawings of the Alterations, and (iii) deliver to Landlord
evidence of payment, contractors' affidavits and full and final waivers of all
liens for labor, services or materials.
8.3 Landlord's Property. All Alterations, improvements, fixtures and/or
equipment which may be installed or placed in or about the Premises, and all
signs installed in, on or about the Premises, from time to time, shall be at the
sole cost of Tenant and shall be and become the property of Landlord; provided,
however, that any communications and communications-related equipment installed
by Tenant in the Premises shall remain the property of Tenant and Tenant shall,
at its expense, remove such equipment at the expiration or earlier termination
of the Lease Term, and repair any damage to the Premises and Building caused by
such removal. In addition, Tenant shall, at its expense, remove the raised floor
which is in the Premises as of tile date of the execution of this Lease at the
expiration or earlier termination of the Lease Term, and repair any damage to
the Building caused by such removal. Furthermore, Landlord may require that
Tenant, at its expense, remove any other improvement or Alteration upon the
expiration or early termination of the Lease Term, and repair any damage to the
Premises and Building caused by such removal. If Tenant fails to complete any
such removal and/or to repair any damage caused by the removal of any
Alterations. Landlord may do so and may charge the cost thereof to Tenant.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant has no authority or power to cause or permit any lien or
encumbrance of any kind whatsoever, whether created by act of Tenant, operation
of law or otherwise, to attach to or be placed upon the Real Property, Building
or Premises, and any and all liens and encumbrances created by Tenant shall
attach to Tenant's interest only. Landlord shall have the right at all times to
post and keep posted on the Premises any notice which it deems necessary for
protection from such liens. Tenant covenants and agrees not to suffer or permit
any lien of mechanics or materialmen or others to be placed against the Real
Property, the Building or the Premises with respect to work or services claimed
to have been performed for or materials claimed to have been furnished to Tenant
or the Premises, and, in case of any such lien attaching or notice of any lien,
Tenant covenants and agrees to cause it to be immediately released and removed
of record. Notwithstanding anything to the contrary set forth in this Lease, if
any such lien is not released and removed on or before the date notice of such
lien is delivered by Landlord to Tenant, Landlord, at its sole option, may
immediately take all action necessary to release and remove such lien, without
any duty to investigate the validity thereof, and all sums, costs and expenses,
including reasonable attorneys' fees and costs, incurred by Landlord in
connection with such lien shall be deemed Additional Rent under this Lease and
shall immediately be due and payable by Tenant.
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<PAGE> 20
ARTICLE 10
INDEMNIFICATION AND INSURANCE
10.1 Indemnification and Waiver. Tenant hereby assumes all risk of
damage to property and injury to persons, in, on, or about the Premises from any
cause whatsoever and agrees that Landlord, and its partners and subpartners, and
their respective officers, agents, property managers, servants, employees, and
independent contractors (collectively, "Landlord Parties") shall not be liable
for, and are hereby released from any responsibility for, any damage to property
or injury to persons or resulting from the loss of use thereof, which damage or
injury is sustained by Tenant or by other persons claiming through Tenant.
Tenant shall indemnify, defend, protect. and hold harmless the Landlord Parties
from any and all loss, cost, damage, expense and liability (including without
limitation court costs and reasonable attorneys' fees) incurred in connection
with or arising from any cause in, on or about the Premises (including, without
limitation, Tenant's installation, placement and removal of Alterations,
improvements, fixtures and/or equipment in, on or about the Premises), and any
acts, omissions or negligence of Tenant or of any person claiming by, through or
under Tenant, or of the contractors, agents, servants, employees, licensees or
invitees of Tenant or any such person, in, on or about the Premises, Building
and Real Property; provided, however, that the terms of the foregoing indemnity
shall not apply to the gross negligence or willful misconduct of Landlord. The
provisions of this Section 10.1 shall survive the expiration or sooner
termination of this Lease.
10.2 Tenant's Compliance with Landlord's Fire and Casualty Insurance.
Tenant shall, at Tenant's expense, comply as to the Premises with all insurance
company requirements pertaining to the use of the Premises. If Tenant's conduct
or use of the Premises causes any increase in the premium for such insurance
policies, then Tenant shall reimburse Landlord for any such increase. Tenant, at
Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and with any similar body.
10.3. Tenant's Insurance. Tenant shall maintain the following coverages
in the following amounts
10.3.1 Commercial General Liability Insurance covering the
insured against claims of bodily injury, personal injury and property damage
arising out of Tenant's operations, assumed liabilities or use of the Premises,
including a Broad Form Commercial General Liability endorsement covering the
insuring provisions of this Lease and the performance by Tenant of the indemnity
agreements set forth in Section 10.1 of this Lease, for limits of liability not
less than:
<TABLE>
<S> <C>
Bodily Injury and $3,000,000 each occurrence
Property Damage Liability $3,000,000 annual aggregate
Personal Injury Liability $3,000,000 each occurrence
$3,000,000 annual aggregate
0% Insured's participation
</TABLE>
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<PAGE> 21
10.3.2 Physical Damage Insurance covering (i) all office
furniture, trade fixtures, office equipment, merchandise and all other items of
Tenant's property on the Premises installed by, for, or at the expense of
Tenant, (ii) the Tenant Improvements. including any Tenant Improvements which
Landlord permits to be installed above the ceiling of the Premises or below the
floor of the Premises, and (iii) all other improvements, alterations and
additions to the Premises, including any improvements, alterations or additions
installed at Tenant's request above the ceiling of the Premises or below the
floor of the Premises. Such insurance shall be written on an "all risks" of
physical loss or damage basis, for the full replacement cost value new without
deduction for depreciation of the covered items and in amounts that meet any
co-insurance clauses of the policies of insurance and shall include a vandalism
and malicious mischief endorsement, sprinkler leakage coverage and earthquake
sprinkler leakage coverage.
10.3.3 Form of Policies. The minimum limits of policies of
insurance required of Tenant under this Lease shall in no event limit the
liability of Tenant under this Lease. Such insurance shall (i) name Landlord.
and any other party it so specifies, as an additional insured; (ii) specifically
cover the liability assumed by Tenant under this Lease, including, but not
limited to. Tenant's obligations under Section 10.1 of this Lease; (iii) be
issued by an insurance company having a rating of not less than A-X in Best's
Insurance Guide or which is otherwise acceptable to Landlord and licensed to do
business in the state in which the Building is located; (iv) be primary
insurance as to all claims thereunder and provide that any insurance carried by
Landlord is excess and is non-contributing with any insurance requirement of
Tenant; (v) provide that said insurance shall not be canceled or coverage
changed unless thirty (30) days' prior written notice shall have been given to
Landlord and any mortgagee or ground or underlying lessor of Landlord; and (vi)
contain a cross-liability endorsement or severability of interest clause
acceptable to Landlord. Tenant shall deliver said policy or policies or
certificates thereof to Landlord on or before the Lease Commencement Date and at
least thirty (30) days before the expiration dates thereof If Tenant shall fail
to procure such insurance, or to deliver such policies or certificate, within
such time periods, Landlord may, at its option, in addition to all of its other
rights and remedies under this Lease, and without regard to any notice and cure
periods set forth in Section 19.1, procure such policies for the account of
Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within
ten (10) days after delivery of bills therefor.
10.4 Subrogation. Landlord and Tenant agree to have their respective
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. As long as such waivers of subrogation are contained
in their respective insurance policies, Landlord and Tenant hereby waive any
right that either may have against the other on account of any loss or damage to
their respective property to the extent such loss or damage is insurable under
policies of insurance for fire and all risk coverage, theft, public liability,
or other similar insurance.
10.5 Additional Insurance Obligations. Tenant shall carry and maintain
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to this
Article 10, and such other reasonable types of
15
<PAGE> 22
insurance coverage and in such reasonable amounts covering the Premises and
Tenant's operations therein, as may be reasonably requested by Landlord.
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any common areas of the Building serving or
providing access to the Premises shall be damaged by fire or other casualty,
Landlord shall promptly and diligently, subject to reasonable delays for
insurance adjustment or other matters beyond Landlord's reasonable control, and
subject to all other terms of this Article 11, restore the Base, Shell, and Core
of the Premises and such common areas. Such restoration shall be to
substantially the same condition of the Base, Shell, and Core of the Premises
and common areas prior to the casualty, except for modifications required by
zoning and building codes and other laws or by the holder of a mortgage on the
Building, or the lessor of a ground or underlying lease with respect to the Real
Property and/or the Building, or any other modifications to the common areas
deemed desirable by Landlord, provided access to the Premises and any common
restrooms serving the Premises shall not be materially impaired. Notwithstanding
any other provision of this Lease, upon the occurrence of any damage to the
Premises, Tenant shall assign to Landlord (or to any party designated by
Landlord) all insurance proceeds payable to Tenant under Tenant's insurance
required under Section 10.3 of this Lease, and Landlord shall repair any injury
or damage to the tenant improvements and alterations installed in the Premises
and shall return such tenant improvements and alterations to their original
condition; provided that if the cost of such repair by Landlord exceeds the
amount of insurance proceeds received by Landlord from Tenant's insurance
carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant
to Landlord prior to Landlord's repair of the damage. In connection with such
repairs and replacements, Tenant shall, prior to the commencement of
construction, submit to Landlord, for Landlord's review and approval, all plans,
specifications and working drawings relating thereto, and Landlord shall select
the contractors to perform such improvement work. Landlord shall not be liable
for any inconvenience or annoyance to Tenant or its visitors, or injury to
Tenant's business resulting in any way from such damage or the repair thereof,
provided however, that if such fire or other casualty shall have damaged the
Premises or common areas necessary to Tenant's occupancy, and if such damage is
not the result of the negligence or willful misconduct of Tenant or Tenant's
employees, contractors, licensees, or invitees, Landlord shall allow Tenant a
proportionate abatement of Base Rent and Tenant's Share of Direct Expenses to
the extent Landlord is reimbursed from the proceeds of rental interruption
insurance purchased by Landlord as part of Operating Expenses, during the time
and to the extent the Premises are unfit for occupancy for the purposes
permitted under this Lease, and not occupied by Tenant as a result thereof.
11.2 Landlord's Option to Repair. Notwithstanding the terms of Section
11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises and/or Building and instead terminate this Lease by notifying Tenant in
writing of such termination within sixty (60) days
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<PAGE> 23
after the date of damage, such notice to include a termination date giving
Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only
if the Building shall be damaged by fire or other casualty or cause, whether or
not the Premises are affected, and one or more of the following conditions is
present: (i) repairs cannot reasonably be completed within one hundred twenty
(120) days of the date of damage (when such repairs are made without the payment
of overtime or other premiums); (ii) the holder of any mortgage on the Building
or ground or underlying lessor with respect to the Real Property and/or the
Building shall require that the insurance proceeds or any portion thereof be
used to retire the mortgage debt, or shall terminate the ground or underlying
lease, as the case may be; or (iii) the damage is not fully covered, except for
deductible amounts, by Landlord's insurance policies. In addition, if the
Premises or the Building is destroyed or damaged to an' substantial extent
during the last twelve (12) months of the Lease Term, then notwithstanding
anything contained in this Article 11, Landlord shall have the option to
terminate this Lease by giving written notice to Tenant of the exercise of such
option within thirty (30) days after such damage or destruction, in which event
this Lease shall cease and terminate as of the date of such notice. Upon any
such termination of this Lease pursuant to this Section 11.2, Tenant shall pay
the Base Rent and Additional Rent, properly apportioned up to such date of
termination, and both parties hereto shall thereafter be freed and discharged of
all further obligations hereunder, except as provided for in provisions of this
Lease which by their terms survive the expiration or earlier termination of the
Lease Term.
11.3 Waiver of Statutory Provisions. The provisions of this Lease,
including this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or any other portion of the Real Property, and any
statute or regulation of the state in which the Building is located. including,
without limitation, Sections 1932(2) and 1933(4) of the California Civil Code,
with respect to any rights or obligations concerning damage or destruction in
the absence of an express agreement between the parties, and any other statute
or regulation, now or hereafter in effect, shall have no application to this
Lease or any damage or destruction to all or any part of the Premises, the
Building or any other portion of the Real Property.
ARTICLE 12
CONDEMNATION
12.1 Permanent Taking. If the whole or any part of the Premises or
Building shall be taken by power of eminent domain or condemned by any competent
authority for any public or quasi-public use or purpose, or if any adjacent
property or street shall be so taken or condemned, or reconfigured or vacated by
such authority in such manner as to require the use, reconstruction or
remodeling of any part of the Premises or Building, or if Landlord shall grant a
deed or other instrument in lieu of such taking by eminent domain or
condemnation, Landlord shall have the option to terminate this Lease upon ninety
(90) days' notice, provided such notice is given no later than one hundred
eighty (180) days after the date of such taking, condemnation, reconfiguration,
vacation, deed or other instrument. If more than twenty-five percent (25%) of
the rentable square feet of the Premises is taken, or if access to the Premises
is substantially impaired, Tenant shall have the option to terminate this Lease
upon ninety (90) days' notice,
17
<PAGE> 24
provided such notice is given no later than one hundred eighty (180) days after
the date of such taking. Landlord shall be entitled to receive the entire award
or payment in connection therewith, except that Tenant shall have the right to
file any separate claim available to Tenant for any taking of Tenant's personal
property and fixtures belonging to Tenant and removable by Tenant upon
expiration of the Lease Term pursuant to the terms of this Lease, and for moving
expenses, so long as such claim does not diminish the award available to
Landlord, its ground lessor with respect to the Real Property or its mortgagee,
and such claim is payable separately to Tenant. All Rent shall be apportioned as
of the date of such termination, or the date of such taking, whichever shall
first occur. If any part of the Premises shall be taken, and this Lease shall
not be so terminated, the Rent shall be proportionately abated. Tenant hereby
waives any and all rights it might otherwise have pursuant to Section 1265.130
of The California Code of Civil Procedure.
12.2 Temporary Taking. Notwithstanding anything to the contrary
contained in this Article 12, in the event of a temporary taking of all or any
portion of the Premises for a period of one hundred and eighty (180) days or
less, then this Lease shall not terminate but the Base Rent and the Additional
Rent shall be abated for the period of such taking in proportion to the ratio
that the amount of rentable square feet of the Premises taken bears to the total
rentable square feet of the Premises. Landlord shall be entitled to receive the
entire award made in connection with any such temporary taking.
ARTICLE 13
COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for services
and other payments herein reserved and on keeping, observing and performing all
the other terms, covenants, conditions, provisions and agreements herein
contained on the part of Tenant to be kept, observed and performed, shall,
during the Lease Term, peaceably and quietly have, hold and enjoy the Premises
subject to the terms, covenants, conditions, provisions and agreements hereof
without interference by any persons lawfully claiming by or through Landlord.
The foregoing covenant is in lieu of any other covenant express or implied.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 Transfers. Subject to Tenant's rights set forth in Section 14.7
below, Tenant shall not, without the prior written consent of Landlord, assign,
mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or
otherwise transfer, this Lease or any interest hereunder, permit any assignment
or other such foregoing transfer of this Lease or any interest hereunder by
operation of law, sublet the Premises or any part thereof, or permit the use of
the Premises by any persons other than Tenant and its employees (all of the
foregoing are hereinafter sometimes referred to collectively as "TRANSFERS" and
any person to whom any Transfer is made or sought to be made is hereinafter
sometimes referred to as a "TRANSFEREE"). If Tenant shall desire Landlord's
consent to any Transfer, Tenant shall notify Landlord in writing, which notice
18
<PAGE> 25
(the "TRANSFER NOTICE") shall include (i) the proposed effective date of the
Transfer, which shall not be less than thirty (30) days nor more than one
hundred eighty (180) days after the date of delivery of the Transfer Notice,
(ii) a description of the portion of the Premises to be transferred (the
"SUBJECT SPACE"), (iii) all of the terms of the proposed Transfer, the name and
address of the proposed Transferee, and a copy of all existing and/or proposed
documentation pertaining to the proposed Transfer, including all existing
operative documents to be executed to evidence such Transfer or the agreements
incidental or related to such Transfer, (iv) current financial statements of the
proposed Transferee certified by an officer, partner or owner thereof,, and (v)
such other information as Landlord ma', reasonably require. Any Transfer made
without Landlord's prior written consent shall, at Landlord's option, be null,
void and of no effect, and shall, at Landlord's option, constitute a default by
Tenant under this Lease. Whether or not Landlord shall grant consent, Tenant
shall pay Landlord's reasonable legal fees incurred by Landlord, within thirty
(30) days after written request ~ Landlord. Notwithstanding anything to the
contrary set forth in this Article 14, Tenant shall have the right to rent rack
space to Tenant's customers, provided that such rental of rack space is made in
the ordinary course of the conduct of Tenant's business, and such rental shall
be deemed not to be a Transfer, and the terms and conditions of this Article 14
shall not apply to such rental.
14.2 Landlord's Consent. Landlord shall not unreasonably withhold its
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice. The parties hereby agree that it shall
be reasonable under this Lease and under any applicable law for Landlord to
withhold consent to any proposed Transfer where one or more of the following
apply, without limitation as to other reasonable grounds for withholding
consent:
14.2.1 The Transferee is of a character or reputation or engaged
in a business which is not consistent with the quality of the Building;
14.2.2 The Transferee intends to use the Subject Space for
purposes which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or
instrumentality thereof,
14.2.4 The Transfer will result in more than a reasonable and
safe number of occupants per floor within the Subject Space;
14.2.5 The Transferee is not a party of reasonable financial
worth and/or financial stability in light of the responsibilities involved under
the Lease on the date consent is requested;
14.2.6 The proposed Transfer would cause Landlord to be in
violation of another lease or agreement to which Landlord is a party, or would
give an occupant of the Building a right to cancel its lease;
14.2.7 The terms of the proposed Transfer will allow the
Transferee to exercise a right of renewal, right of expansion, right of first
offer, or other similar right held by Tenant (or will allow the Transferee to
occupy space leased by Tenant pursuant to any such right); or
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<PAGE> 26
14.2.8 Either the proposed Transferee, or any person or entity
which directly or indirectly, controls, is controlled by, or is under common
control with, the proposed Transferee, (i) occupies space in the Building at the
time of the request for consent, (ii) is negotiating with Landlord to lease
space in the Building at such time, or (iii) has negotiated with Landlord during
the twelve (12)-month period immediately preceding the Transfer Notice.
If Landlord consents to any Transfer pursuant to the terms of this
Section 14.2 (and does not exercise any recapture rights Landlord may have under
Section 14.4 of this Lease), Tenant may within six (6) months after Landlord's
consent, but not later than the expiration of said six-month period, enter into
such Transfer of the Premises or portion thereof. upon substantially the same
terms and conditions as are set forth in the Transfer Notice furnished by Tenant
to Landlord pursuant to Section 14.1 of this Lease, provided that if there are
any changes in the terms and conditions from those specified in the Transfer
Notice (i) such that Landlord would initially have been entitled to refuse its
consent to such Transfer under this Section 14.2, or (ii) which would cause the
proposed Transfer to be more favorable to the Transferee than the terms set
forth in Tenant's original Transfer Notice, Tenant shall again submit the
Transfer to Landlord for its approval and other action under this Article 14
(including Landlord's right of recapture, if any, under Section 14.4 of this
Lease).
14.3 Transfer Premium. If Landlord consents to a Transfer, as a
condition thereto which the parties hereby agree is reasonable, Tenant shall pay
to Landlord seventy-five percent (75%) of any "TRANSFER PREMIUM," as that term
is defined in this Section 14.3, received by Tenant from such Transferee.
"TRANSFER PREMIUM" shall mean all rent, additional rent or other consideration
payable by such Transferee in excess of the Rent and Additional Rent payable by
Tenant under this Lease on a per rentable square foot basis if less than all of
the Premises is transferred, after deducting the reasonable expenses incurred by
Tenant for (i) any changes, alterations and improvements to the Premises in
connection with the Transfer, and (ii) any brokerage commissions in connection
with the Transfer (collectively, the "SUBLEASING COSTS"). "TRANSFER PREMIUM"
shall also include, but not be limited to, key money and bonus money paid by
Transferee to Tenant in connection with such Transfer, and any payment in excess
of fair market value for services rendered by Tenant to Transferee or for
assets, fixtures, inventory, equipment, or furniture transferred by Tenant to
Transferee in connection with such Transfer.
14.4 Landlord's Option as to Subject Space. Subject to the terms of
Section 14.7 below, notwithstanding anything to the contrary contained in this
Article 14, Landlord shall have the option, by giving written notice to Tenant
within thirty (30) days after receipt of any Transfer Notice, to recapture the
Subject Space. Such recapture notice shall cancel and terminate this Lease with
respect to the Subject Space as of the date stated in the Transfer Notice as the
effective date of the proposed Transfer until the last day of the term of the
Transfer as set forth in the Transfer Notice. If this Lease shall be canceled
with respect to less than the entire Premises, the Rent reserved herein shall be
prorated on the basis of the number of rentable square feet retained by Tenant
in proportion to the number of rentable square feet contained in the Premises,
and this Lease as so amended shall continue thereafter in full force and effect,
and upon request of either party, the parties shall execute written confirmation
of the same. If Landlord declines, or fails to elect in a timely manner to
recapture the Subject Space under this Section 14.4, then,
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<PAGE> 27
provided Landlord has consented to the proposed Transfer, Tenant shall be
entitled to proceed to transfer the Subject Space to the proposed Transferee.
subject to provisions of the last paragraph of Section 14.2 of this Lease.
Notwithstanding anything to the contrary set forth in this Section 14.4,
Landlord shall not have the rights provided to Landlord under this Section 14.4
for the first three (3) years of the Lease Term only.
14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the
terms and conditions of this Lease shall in no way be deemed to have been waived
or modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, and (iv) no Transfer relating to this Lease or agreement entered into
with respect thereto, whether with or without Landlord's consent, shall relieve
Tenant or any guarantor of the Lease from liability under this Lease. Landlord
or its authorized representatives shall have the right at all reasonable times
to audit the books, records and papers of Tenant relating to any Transfer, and
shall have the right to make copies thereof. If the Transfer Premium respecting
any Transfer shall be found understated, Tenant shall, within thirty (30) days
after demand, pay the deficiency and Landlord's costs of such audit.
14.6 Additional Transfers. Subject to Section 14.7 below, for purposes
of this Lease, the term "TRANSFER" shall also include (i) if Tenant is a
partnership, the withdrawal or change, voluntary, involuntary or by operation of
law, of fifty percent (50%) or more of the partners, or transfer of twenty-five
percent or more of partnership interests, within a twelve (12)-month period, or
the dissolution of the partnership without immediate reconstitution thereof, and
(ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly
held and not traded through an exchange or over the counter), (A) the
dissolution, merger, consolidation or other reorganization of Tenant, (B) the
sale or other transfer of more than an aggregate of fifty percent (50%) of the
voting shares of Tenant (other than to immediate family members by reason of
gift or death), within a twelve (12)-month period, or (C) the sale, mortgage,
hypothecation or pledge of more than an aggregate of fifty percent (50%) of the
value of the unencumbered assets of Tenant within a twelve (12) month period.
14.7 Non-Transfers. Notwithstanding the foregoing provisions of this
Article 14 to the contrary, neither (i) an assignment to a transferee of all or
substantially all of the assets of Tenant, (ii) an assignment of this Lease to a
transferee which is the resulting entity of a merger or consolidation of Tenant
with another entity, nor (iii) an assignment of this Lease or subletting of all
or a portion of the Premises to an affiliate of Tenant (an entity which is
controlled by, controls, or is under common control with, Tenant) shall be
deemed a Transfer under Section 14.1 above, provided that (A) Tenant notifies
Landlord of any such assignment or sublease and promptly supplies Landlord with
any documents or information reasonably requested by Landlord regarding such
transfer or transferee as set forth in items (i) through (v) of Section 14.1
above, (B) such assignment or sublease is not a subterfuge by Tenant to avoid
its obligations under this Lease, and (C) such transferee or affiliate (referred
to in hits Lease as the "PERMITTED AFFILIATE") shall have a net worth (not
including goodwill as an asset) computed in accordance with generally accepted
accounting principles (the "NET WORTH") at lease equal to the
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greater of (y) the Net Worth of Tenant immediately prior to such assignment or
sublease, or (z) the Net Worth on the date of execution of this Lease by the
original named Tenant. "Control," as used in this Section 14.7, shall mean the
ownership, directly or indirectly, of at least fifty-one percent (51%) of the
voting securities of, or possession of the right to vote, in the ordinary
direction of its affairs, of at least fifty-one percent (51%) of the voting
interest in, any person or entity.
ARTICLE 15
SURRENDER; OWNERSHIP
AND REMOVAL OF TRADE FIXTURES
15.1 Surrender of Premises. No act or thing done by Landlord or any
agent or employee of Landlord during the Lease Term shall be deemed to
constitute an acceptance by Landlord of a surrender of the Premises unless such
intent is specifically acknowledged in a writing signed by Landlord. The
delivery of keys to the Premises to Landlord or any agent or employee of
Landlord shall not constitute a surrender of the Premises or effect a
termination of this Lease, whether or not the keys are thereafter retained by
Landlord, and notwithstanding such delivery Tenant shall be entitled to the
return of such keys at any reasonable time upon request until this Lease shall
have been properly terminated. The voluntary or other surrender of this Lease by
Tenant, whether accepted by Landlord or not, or a mutual termination hereof,
shall not work a merger, and at the option of Landlord shall operate as an
assignment to Landlord of all subleases or subtenancies affecting the Premises.
15.2 Removal of Tenant Property by Tenant. Upon the expiration of the
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear and repairs which are specifically made the responsibility of Landlord
hereunder excepted. Upon such expiration or termination, Tenant shall, without
expense to Landlord, remove or cause to be removed from the Premises all debris
and rubbish, and such items of furniture, equipment, free-standing cabinet work,
and other articles of personal property owned by Tenant or installed or placed
by Tenant at its expense in the Premises, and such similar articles of any other
persons claiming under Tenant, as Landlord may, in its sole discretion, require
to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term hereof, with
or without the express or implied consent of Landlord, such tenancy shall be
from month-to-month only, and shall not constitute a renewal hereof or an
extension for any further term, and in such case Base Rent shall be payable at a
monthly rate equal to two hundred percent (200%) of the greater of (i) the Base
Rent applicable during the last rental period of the Lease Term under this Lease
or (ii)
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the fair market rental rate for the Premises as of the commencement of such
holdover period. Such month-to-month tenancy shall be subject to every other
term, covenant and agreement contained herein. Landlord hereby expressly
reserves the right to require Tenant to surrender possession of the Premises to
Landlord as provided in this Lease upon the expiration or other termination of
this Lease. The provisions of this Article 16 shall not be deemed to limit or
constitute a waiver of any other rights or remedies of Landlord provided herein
or at law. If Tenant fails to surrender the Premises upon the termination or
expiration of this Lease, in addition to any other liabilities to Landlord
accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord
harmless from all loss, costs (including reasonable attorneys' fees) and
liability resulting from such failure, including, without limiting the
generality of the foregoing, any claims made by any succeeding tenant founded
upon such failure to surrender, and any lost profits to Landlord resulting
therefrom.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within ten (10) days following a request in writing by Landlord, Tenant
shall execute and deliver to Landlord an estoppel certificate, which, as
submitted by Landlord, shall be substantially in the form of Exhibit E, attached
hereto, (or such other form as may be required by any prospective mortgagee or
purchaser of the Project, or any portion thereof,, indicating therein any
exceptions thereto that may exist at that time, and shall also contain any other
information reasonably requested by Landlord or Landlord's mortgagee or
prospective mortgagee. Tenant shall execute and deliver whatever other
instruments may be reasonably required for such purposes. Failure of Tenant to
timely execute and deliver such estoppel certificate or other instruments shall
constitute an acceptance of the Premises and an acknowledgment by Tenant that
statements included in the estoppel certificate are true and correct, without
exception.
ARTICLE 18
SUBORDINATION
18.1 Subordination. This Lease is subject and subordinate to all present
and future ground or underlying leases of the Real Property and to the lien of
any mortgages or trust deeds, now or hereafter in force against the Real
Property and the Building, if any, and to all renewals, extensions,
modifications, consolidations and replacements thereof, and to all advances made
or hereafter to be made upon the security of such mortgages or trust deeds,
unless the holders of such mortgages or trust deeds, or the lessors under such
ground lease or underlying leases, require in writing that this Lease be
superior thereto. Tenant covenants and agrees in the event any proceedings are
brought for the foreclosure of any such mortgage, or if any ground or underlying
lease is terminated, to attorn, without any deductions or set-offs whatsoever,
to the purchaser upon any such foreclosure sale, or to the lessor of such ground
or underlying lease, as the case may be, if so requested to do so by such
purchaser or lessor and/or if required to do so pursuant to any subordination,
nondisturbance and attornment agreement executed pursuant to Section 8.2 below,
and to recognize such purchaser or lessor as the lessor under this Lease. Tenant
shall, within five (5) days of request by Landlord, execute such further
instruments or
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assurances as Landlord may reasonably deem necessary to evidence or confirm the
subordination or superiority of this Lease to any such mortgages, trust deeds,
ground leases or underlying leases. Tenant hereby irrevocably authorizes
Landlord to execute and deliver in the name of Tenant any such instrument or
instruments if Tenant fails to do so, provided that such authorization shall in
no way relieve Tenant from the obligation of executing such instruments of
subordination or superiority. Tenant waives the provisions of any current or
future statute, rule or law which may give or purport to give Tenant any right
or election to terminate or otherwise adversely affect this Lease and the
obligations of the Tenant hereunder in the event of any foreclosure proceeding
or sale.
18.2 Existing Agreement. Tenant hereby acknowledges that as of the date
on which Landlord and Tenant execute this Lease there is a deed of trust
encumbering, and in force against, the Real Property in favor of General
Electric Capital Corporation, a New York corporation (the "CURRENT LENDER").
Simultaneously with Tenant's execution of this Lease, Tenant shall sign,
notarize and deliver a subordination, non-disturbance and attornment agreement
substantially in the form of Exhibit G attached hereto. If Landlord at any time
during the Lease Term causes the Real Property to be encumbered by a new deed of
trust or mortgage pursuant to which the beneficiary of such deed of trust or
mortgage is a party or entity other than the Current Lender, and/or if any party
which acquires, or otherwise succeeds to, Landlord's interest in the Real
Property (including without limitation, any ground lessee) encumbers or places a
lien against the Real Property with a mortgage, deed of trust or similar
security instrument and the beneficiary thereof requires this Lease to be
subordinated to such encumbrance or lien, Landlord or the successor of Landlord
will use commercially reasonable efforts to provide to Tenant a subordination,
nondisturbance and attornment agreement in form reasonably acceptable to
Landlord or such successor of Landlord, the subject beneficiary and Tenant. If
said subordination, non-disturbance and attornment agreement is required and
agreed upon by the aforesaid parties, Landlord or the successor of Landlord, the
subject beneficiary and Tenant shall cause any such subordination,
non-disturbance and attornment agreement to be executed, acknowledged and
recorded concurrently with, or as soon as practicable after, the execution and
recordation of any such lien, deed of trust or mortgage. In addition to the
foregoing, if Landlord enters into a ground lease with regard to the Real
Property and such ground lessee requires this Lease to be subordinated to such
ground lease, the ground lessee and ground lessor will use commercially
reasonable efforts to provide to Tenant a subordination, non-disturbance and
attornment agreement in form reasonably acceptable to such ground lessee, ground
lessor, any beneficiary of ground lessee, and to Tenant.
ARTICLE 19
TENANT'S DEFAULTS; LANDLORD'S REMEDIES
19.1 Events of Default by Tenant. All covenants and agreements to be
kept or performed by Tenant under this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any reduction of Rent. The occurrence
of any of the following shall constitute a default of this Lease by Tenant:
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19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, when due; or
19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for fifteen (15) days after written notice
thereof from Landlord to Tenant; provided however, that any such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161 or any similar or successor law; and provided
further that if the nature of such default is such that the same cannot
reasonably be cured within a fifteen (1 5)-day period, Tenant shall not be
deemed to be in default if it diligently commences such cure within such period
and thereafter diligently proceeds to rectify' and cure said default as soon as
possible; or
19.1.3 Abandonment or vacation of the Premises by Tenant.
Abandonment is herein defined to include, but is not limited to, any absence by
Tenant from the Premises for three (3) business days or longer while in default
of any provision of this Lease.
19.2 Landlord's Remedies Upon Default. Upon the occurrence of any such
default by Tenant, Landlord shall have, in addition to any other remedies
available to Landlord at law or in equity, the option to pursue any one or more
of the following remedies, each and all of which shall be cumulative and
nonexclusive, without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, without being liable for prosecution or any claim
or damages therefor; and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid rent
which has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) The worth at the time of award of the amount by
which the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, specifically including but not limited to, brokerage
commissions and advertising expenses incurred, expenses of remodeling the
Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and
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(v) At Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable law
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant pursuant to the terms of
this Lease, whether to Landlord or to others. As used in Paragraphs 19.2.1(i)
and (ii), above, the "worth at the time of award" shall be computed by allowing
interest at the Interest Rate set forth in Section 4.5 of this Lease. As used in
Paragraph 19.2. 1(iii) above, the "worth at the time of award" shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California
Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's
breach and abandonment and recover rent as it becomes due, if lessee has the
right to sublet or assign, subject only to reasonable limitations). Accordingly,
if Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.2.3 Landlord may, but shall not be obligated to, make any such
payment or perform or otherwise cure any such obligation, provision, covenant or
condition on Tenant's part to be observed or performed (and may enter the
Premises for such purposes). In the event of Tenant's failure to perform any of
its obligations or covenants under this Lease, and such failure to perform poses
a material risk of injury or harm to persons or damage to or loss of property,
then Landlord shall have the right to cure or otherwise perform such covenant or
obligation at any time after such failure to perform by Tenant, whether or not
any such notice or cure period set forth in Section 19.1 above has expired. Any
such actions undertaken by Landlord pursuant to the foregoing provisions of this
Section 19.2.3 shall not be deemed a waiver of Landlord's rights and remedies as
a result of Tenant's failure to perform and shall not release Tenant from any of
its obligations under this Lease.
19.3 Payment by Tenant. Tenant shall pay to Landlord, within fifteen
(15) days after delivery by Landlord to Tenant of statements therefor: (i) sums
equal to expenditures reasonably made and obligations incurred by Landlord in
connection with Landlord's performance or cure of any of Tenant's obligations
pursuant to the provisions of Section 19.2.3 above; and (ii) sums equal to all
expenditures made and obligations incurred by Landlord in collecting or
attempting to collect the Rent or in enforcing or attempting to enforce any
rights of Landlord under this Lease or pursuant to law, including, without
limitation, all legal fees and other amounts so expended. Tenant's obligations
under this Section 19.3 shall survive the expiration or sooner termination of
the Lease Term.
19.4 Sublessees of Tenant. Whether or not Landlord elects to terminate
this Lease on account of any default by Tenant, as set forth in this Article 19,
Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole
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discretion, succeed to Tenant's interest in such subleases, licenses,
concessions or arrangements. In the event of Landlord's election to succeed to
Tenant's interest in any such subleases, licenses, concessions or arrangements,
Tenant shall, as of the date of notice by Landlord of such election. have no
further right to or interest in the rent or other consideration receivable
thereunder.
19.5 Waiver of Default. No waiver by Landlord of any violation or breach
by Tenant of any of the terms, provisions and covenants herein contained shall
be deemed or construed to constitute a waiver of any other or later violation or
breach by Tenant of the same or any other of the terms, provisions, and
covenants herein contained. Forbearance by Landlord in enforcement of one or
more of the remedies herein provided upon a default by Tenant shall not be
deemed or construed to constitute a waiver of such default. The acceptance of
any Rent hereunder by Landlord following the occurrence of any default, whether
or not known to Landlord, shall not be deemed a waiver of any such default,
except only a default in the payment of the Rent so accepted.
19.6 Efforts to Relet. For the purposes of this Article 19, Tenant's
right to possession shall not be deemed to have been terminated by efforts of
Landlord to relet the Premises, by its acts of maintenance or preservation with
respect to the Premises, or by appointment of a receiver to protect Landlord's
interests hereunder. The foregoing enumeration is not exhaustive, but merely
illustrative of acts which may be performed by Landlord without terminating
Tenant's right to possession.
ARTICLE 20
SECURITY DEPOSIT
Concurrent with Tenant's execution of this Lease, Tenant shall deposit
with Landlord a security deposit (the "SECURITY DEPOSIT") in the amount set
forth in Section 10 of the Summary. The Security Deposit shall be held by
Landlord as security for the faithful performance by Tenant of all the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the Lease Term. If Tenant defaults with respect to any provisions of this
Lease, including, but not limited to, the provisions relating to the payment of
Rent, Landlord may, but shall not be required to, use, apply or retain all or
any part of the Security Deposit for the payment of any Rent or any other sum in
default, or for the payment of any amount that Landlord may spend or become
obligated to spend by reason of Tenant's default, or to compensate Landlord for
any other loss or damage that Landlord may suffer by reason of Tenant's default.
If any portion of the Security Deposit is so used or applied, Tenant shall,
within five (5) days after written demand therefor, deposit cash with Landlord
in an amount sufficient to restore the Security Deposit to its original amount,
and Tenant's failure to do so shall be a default under this Lease. If Tenant
shall fully and faithfully perform every provision of this Lease to be performed
by it, the Security Deposit, or any balance thereof, shall be returned to
Tenant, or, at Landlord's option, to the last assignee of Tenant's interest
hereunder, within sixty (60) days following the expiration of the Lease Term.
Tenant shall not be entitled to any interest on the Security Deposit.
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ARTICLE 21
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about
the Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall
promptly comply with all such governmental measures, other than the making of
structural changes or changes to the Building's life safety system (collectively
the "EXCLUDED CHANGES") except to the extent such Excluded Changes are required
due to Tenant's alterations to or manner of use of the Premises. In addition,
Tenant shall fully comply with all present or future programs intended to manage
parking, transportation or traffic in and around the Building, and in connection
therewith, Tenant shall take responsible action for the transportation planning
and management of all employees located at the Premises by working directly with
Landlord, any governmental transportation management organization or any other
transportation-related committees or entities. The judgment of any court of
competent jurisdiction or the admission of Tenant in any judicial action,
regardless of whether Landlord is a party thereto, that Tenant has violated any
of said governmental measures, shall be conclusive of that fact as between
Landlord and Tenant.
ARTICLE 22
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon at least
twenty-four hours' notice (except in the event of an emergency) to Tenant to
enter the Premises to (i) inspect them; (ii) show the Premises to prospective
purchasers, mortgagees or tenants; or to the ground or underlying lessors; (iii)
post notices of nonresponsibility; or (iv) alter, improve or repair the Premises
or the Building if necessary to comply with current building codes or other
applicable laws, or for structural alterations, repairs or improvements to the
Building, or as Landlord may otherwise reasonably desire or deem necessary.
Notwithstanding anything to the contrary contained in this Article 22, Landlord
may enter the Premises at any time, without notice to Tenant, to perform
janitorial or other services required of Landlord pursuant to this Lease. Any
such entries shall be without the abatement of Rent and shall include the right
to take such reasonable steps as required to accomplish the stated purposes.
Tenant hereby waives any claims for damages or for any injuries or inconvenience
to or interference with Tenant's business, lost profits, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned thereby. For
each of the above purposes, Landlord shall at all times have a key with which to
unlock all the doors in the Premises, excluding Tenant's vaults, safes and
special security areas designated in advance by Tenant. In an emergency,
Landlord shall have the right to use any means that Landlord may deem proper to
open the doors in and to the Premises. Any entry into the Premises in the manner
hereinbefore described shall not be deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an actual or constructive eviction of
Tenant from any portion of the Premises.
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ARTICLE 23
MISCELLANEOUS PROVISIONS
23.1 Terms; Captions. The necessary grammatical changes required to make
the provisions hereof apply either to corporations or partnerships or
individuals, men or women, as the case may require, shall in all cases be
assumed as though in each case fully expressed. The captions of Articles and
Sections are for convenience only and shall not be deemed to limit, construe,
affect or alter the meaning of such Articles and Sections.
23.2 Binding Effect. Each of the provisions of this Lease shall extend
to and shall, as the case may, require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of Article 14 of this Lease.
23.3 No Waiver. No waiver of any provision of this Lease shall be
implied by any failure of a party to enforce any remedy on account of the
violation of such provision, even if such violation shall continue or be
repeated subsequently, any waiver by a party of any provision of this Lease may
only be in writing, and no express waiver shall affect any provision other than
the one specified in such waiver and that one only for the time and in the
manner specifically stated. No receipt of monies by Landlord from Tenant after
the termination of this Lease shall in any way alter the length of the Lease
Term or of Tenant's right of possession hereunder or after the giving of any
notice shall reinstate, continue or extend the Lease Term or affect any notice
given Tenant prior to the receipt of such monies, it being agreed that after the
service of notice or the commencement of a suit or after final judgment for
possession of the Premises, Landlord may receive and collect any Rent due, and
the payment of said Rent shall not waive or affect said notice, suit or
judgment.
23.4 Modification of Lease. Should any current or prospective mortgagee
or ground lessor for the Building require a modification or modifications of
this Lease, which modification or modifications will not cause an increased cost
or expense to Tenant or in any other way materially and adversely change the
rights and obligations of Tenant hereunder, then and in such event, Tenant
agrees that this Lease may be so modified and agrees to execute whatever
documents are required therefor and deliver the same to Landlord within ten (10)
days following the request therefor. Should Landlord or any such current or
prospective mortgagee or ground lessor require execution of a short form of
Lease for recording, containing, among other customary provisions, the names of
the parties, a description of the Premises and the Lease Term, Tenant agrees to
execute such short form of Lease and to deliver the same to Landlord within ten
(10) days following the request therefor.
23.5 Transfer of Landlord's Interest. Tenant acknowledges that Landlord
has the right to transfer all or any portion of its interest in the Real
Property and Building and in this Lease, and Tenant agrees that in the event of
any such transfer, Landlord shall automatically be released from all liability
under this Lease and Tenant agrees to look solely to such transferee for the
performance of Landlord's obligations hereunder after the date of transfer. The
liability of any transferee of Landlord shall be limited to the interest of such
transferee in the Real Property and
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Building and such transferee shall be without personal liability under this
Lease, and Tenant hereby expressly waives and releases such personal liability
on behalf of itself and all persons claiming by, through or under Tenant. Tenant
further acknowledges that Landlord may assign its interest in this Lease to a
mortgage lender as additional security and agrees that such an assignment shall
not release Landlord from its obligations hereunder and that Tenant shall
continue to look to Landlord for the performance of its obligations hereunder.
23.6 Prohibition Against Recording. Except as provided in Section 23.4
of this Lease, neither this Lease, nor any memorandum, affidavit or other
writing with respect thereto, shall be recorded by Tenant or by anyone acting
through, under or on behalf of Tenant, and the recording thereof in violation of
this provision shall make this Lease null and void at Landlord's election.
23.7 Landlord's Title; Air Rights. Landlord's title is and always shall
be paramount to the title of Tenant. Nothing herein contained shall empower
Tenant to do any act which can, shall or may encumber the title of Landlord. No
rights to any view or to light or air over any property, whether belonging to
Landlord or any other person, are granted to Tenant by this Lease.
23.8 Tenant's Signs. Tenant shall be entitled, at its sole cost and
expense, to one (1) identification sign outside of the Premises on the floor on
which the Premises are located. The location, quality, design, style, lighting
and size of such sign shall be consistent with the Landlord's Building standard
signage program and shall be subject to Landlord's prior written approval, in
its reasonable discretion. Upon the expiration or earlier termination of this
Lease, Tenant shall be responsible, at its sole cost and expense, for the
removal of such signage and the repair of all damage to the Building caused by
such removal. Except for such identification sign, Tenant may not install any
signs on the exterior or roof of the Building or the common areas of the
Building or the Real Property. Any signs, window coverings, or blinds (even if
the same are located behind the Landlord approved window coverings for the
Building), or other items visible from the exterior of the Premises or Building
are subject to the prior approval of Landlord, in its sole and absolute
discretion.
23.9 Relationship of Parties. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
23.10 Application of Payments. Landlord shall have the right to apply
payments received from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of Tenant hereunder, in
such order and amounts as Landlord, in its sole discretion, may elect.
23.11 Time of Essence. Time is of the essence of this Lease and each of
its provisions.
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23.12 Partial Invalidity. If any term, provision or condition contained
in this Lease shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term, provision or condition to
persons or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
23.13 No Warranty. In executing and delivering this Lease, Tenant has
not relied on any representation, including, but not limited to, any
representation whatsoever as to the amount of any item comprising Additional
Rent or the amount of the Additional Rent in the aggregate or that Landlord is
furnishing the same services to other tenants, at all, on the same level or on
the same basis, or any warranty or any statement of Landlord which is not set
forth herein or in one or more of the Exhibits attached hereto.
23.14 Landlord Exculpation. It is expressly understood and agreed that
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord and the Landlord
Parties hereunder (including any successor landlord) and any recourse by Tenant
against Landlord or the Landlord Parties shall be limited solely and exclusively
to an amount which is equal to the interest of Landlord in the Building, and
neither Landlord, nor any of the Landlord Parties shall have any personal
liability therefor, and Tenant hereby expressly waives and releases such
personal liability on behalf of itself and all persons claiming by, through or
under Tenant.
23.15 Entire Agreement. It is understood and acknowledged that there are
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease and
any side letter or separate agreement executed by Landlord and Tenant in
connection with this Lease and dated of even date herewith contain all of the
terms, covenants, conditions, warranties and agreements of the parties relating
in any manner to the rental, use and occupancy of the Premises, shall be
considered to be the only agreement between the parties hereto and their
representatives and agents, and none of the terms, covenants, conditions or
provisions of this Lease can be modified, deleted or added to except in writing
signed by the parties hereto. All negotiations and oral agreements acceptable to
both parties have been merged into and are included herein. There are no other
representations or warranties between the parties, and all reliance with respect
to representations is based totally upon the representations and agreements
contained in this Lease.
23.16 Right to Lease. Landlord reserves the absolute right to effect
such other tenancies in the Building as Landlord in the exercise of its sole
business judgment shall determine to best promote the interests of the Building.
Tenant does not rely on the fact, nor does Landlord represent, that any specific
tenant or type or number of tenants shall, during the Lease Term, occupy any
space in the Building.
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23.17 Force Majeure. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease (collectively, the "FORCE MAJEURE"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.
23.18 Waiver of Redemption by Tenant. Tenant hereby waives for Tenant
and for all those claiming under Tenant all right now or hereafter existing to
redeem by order or judgment of any court or by any legal process or writ,
Tenant's right of occupancy of the Premises after any termination of this Lease.
23.19 Notices. All notices, demands, statements or communications
(collectively, "NOTICES") given or required to be given by either party to the
other hereunder shall be in writing, shall be sent by United States certified or
registered mail, postage prepaid, return receipt requested, or delivered
personally (i) to Tenant at the appropriate address set forth in Section 5 of
the Summary, or to such other place as Tenant may from time to time designate in
a Notice to Landlord; or (ii) to Landlord at the addresses of Landlord's agent
set forth in Section 3 6f the Summary, or to such other firm or to such other
place as Landlord may from time to time designate in a Notice to Tenant. Any
Notice will be deemed given on the date it is mailed as provided in this Section
23.19 or upon the date personal delivery is made. If Tenant is notified of the
identity and address of Landlord's mortgagee or ground or underlying lessor,
Tenant shall give to such mortgagee or ground or underlying lessor written
notice of any default by Landlord under the terms of this Lease by registered or
certified mail, and such mortgagee or ground or underlying lessor shall be given
a reasonable opportunity to cure such default prior to Tenant's exercising any
remedy available to Tenant.
23.20 Joint and Several. If there is more than one Tenant, the
obligations imposed upon Tenant under this Lease shall be joint and several.
23.21 Authority. If Tenant is a corporation or partnership, each
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in the state in which the Building is located and that Tenant has full
right and authority to execute and deliver this Lease and that each person
signing on behalf of Tenant is authorized to do so.
23.22 Jury Trial; Attorneys' Fees. IF EITHER PARTY COMMENCES LITIGATION
AGAINST THE OTHER FOR THE SPECIFIC PERFORMANCE OF THIS LEASE, FOR DAMAGES FOR
THE BREACH HEREOF OR OTHERWISE FOR ENFORCEMENT OF ANY REMEDY HEREUNDER, THE
PARTIES HERETO AGREE TO AND HEREBY DO WAIVE ANY RIGHT TO A TRIAL BY JURY. In the
event of any such commencement of
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litigation, the prevailing party shall be entitled to recover from the other
party such costs and reasonable attorneys' fees as may have been incurred,
including any and all costs incurred in enforcing, perfecting and executing such
judgment.
23.23 Governing Law. This Lease shall be construed and enforced in
accordance with the laws of the state in which the Building is located.
23.24 Submission of Lease. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
23.25 Brokers. Landlord and Tenant hereby warrant to each other that
they have had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, excepting only the real estate brokers or
agents specified in Section 11 of the Summary (the "BROKERS"), and that they
know of no other real estate broker or agent who is entitled to a commission in
connection with this Lease. Each party agrees to indemnify and defend the other
party against and hold the other party harmless from any and all claims,
demands, losses, liabilities, lawsuits, judgments, and costs and expenses
(including without limitation reasonable attorneys' fees) with respect to any
leasing commission or equivalent compensation alleged to be owing on account of
the indemnifying party's dealings with any real estate broker or agent other
than the Brokers.
23.26 Independent Covenants. This Lease shall be construed as though the
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any acts hereunder
at Landlord's expense or to any setoff of the Rent or other amounts owing
hereunder against Landlord; provided, however, that the foregoing shall in no
way impair the right of Tenant to commence a separate action against Landlord
for any violation by Landlord of the provisions hereof so long as notice is
first given to Landlord and any holder of a mortgage or deed of trust covering
the Building, Real Property or any portion thereof, of whose address Tenant has
theretofore been notified. and an opportunity is granted to Landlord and such
holder to correct such violations as provided above.
23.27 Building, Name and Signage. Landlord shall have the right at any
time to change the name of the Building and to install, affix and maintain any
and all signs on the exterior and on the interior of the Building as Landlord
may, in Landlord's sole discretion, desire. Tenant shall not use the name of the
Building or use pictures or illustrations of the Building in advertising or
other publicity, without the prior written consent of Landlord.
23.28 Building Directory. Tenant shall be entitled to one (1) line on
the Building directory to display Tenant's name and location in the Building.
23.29 Confidentiality. Tenant acknowledges that the content of this
Lease and any related documents are confidential information. Tenant shall keep
such confidential information
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strictly confidential and shall not disclose such confidential information to
any person or entity other than Tenant's financial, legal, and space planning
consultants.
23.30 Landlord Renovations. It is specifically understood and agreed
that Landlord has no obligation and has made no promises to alter, remodel,
improve, renovate, repair or decorate the Premises, Building, Real Property, or
any part thereof and that no representations or warranties respecting the
condition of the Premises, the Building or the Real Property have been made by
Landlord to Tenant, except as specifically set forth in this Lease. However,
Tenant acknowledges that Landlord may from time to time, at Landlord's sole
option, renovate, improve, alter, or modify (collectively, the "RENOVATIONS")
the Building, Premises, and/or Real Property, common areas, systems and
equipment, roof, and structural portions of the same, which Renovations may
include, without limitation, (i) modifying the common areas and tenant spaces to
comply with applicable laws and regulations, including regulations relating to
the physically disabled, seismic conditions, and building safety and security,
and (ii) installing new carpeting, lighting, and wall coverings in the Building
common areas, and in connection with such Renovations, Landlord may, among other
things, erect scaffolding or other necessary structures in the Building, limit
or eliminate access to portions of the Real Property, including portions of the
common areas, or perform work in the Building, which work may create. noise,
dust or leave debris in the Building. Tenant hereby agrees that such Renovations
and Landlord's actions in connection with such Renovations shall in no way
constitute a constructive eviction of Tenant nor entitle Tenant to any abatement
of Rent. Landlord shall have no responsibility or for any reason be liable to
Tenant for any direct or indirect injury to or interference with Tenant's
business arising from the Renovations, nor shall Tenant be entitled to any
compensation or damages from Landlord for loss of the use of the whole or any
part of the Premises or of Tenant's personal property or improvements resulting
from the Renovations or Landlord's actions in connection with such Renovations,
or for any inconvenience or annoyance occasioned by such Renovations or
Landlord's actions in connection with such Renovations.
23.31 INTENTIONALLY OMITTED.
23.32 Asbestos Disclosure. Landlord has advised Tenant that there is
asbestos-containing material ("ACM") in the Building. Attached hereto as Exhibit
F is a disclosure statement regarding ACM in the Building. Tenant acknowledges
that such notice complies with the requirements of Section 25915 of the
California Health and Safety Code.
23.33 Generator.
23.33.1 Landlord hereby agrees that Tenant shall have the
nonexclusive right at Tenant's sole cost and expense and subject to the
provisions of this Section 23.33, to install one (1) back-up emergency generator
on the roof of the second (2nd) floor of the Building in a location designated
by Landlord (which area on the second floor roof on which such generator shall
be located shall be referred to herein as the "GENERATOR SITE"), which generator
shall be of such size and specifications, and include such platforms, fencing,
sheds and other related materials and equipment, as shall be approved by
Landlord prior to installation (collectively, the "EMERGENCY GENERATOR"). In
addition, Tenant shall have the right, subject to
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<PAGE> 41
available capacity of the Building, to install such connection equipment, such
as conduits, cables, risers, feeders and materials (collectively, the
"CONNECTING Equipment") in the shafts, ducts, conduits, chases, utility closets
and other facilities of the Building as is reasonably necessary to connect the
Emergency Generator to the Premises and Tenant's other machinery and equipment
therein, subject, however, to the provisions of Section 23.33.2, below, and
subject to the availability of vertical riser and feeder excess capacity. Tenant
shall also have the right of access, consistent with Section 23.33.4, below, to
the areas where the Emergency Generator and any such Connecting Equipment are
located for the purposes of maintaining, repairing, testing and replacing the
same. In connection with and as additional consideration to Landlord for the
rights granted to Tenant pursuant to the terms of this Section 23.33, Tenant
shall pay to Landlord, as Additional Rent, a monthly amount equal to $2.083 per
square foot of the area of the Generator Site for the first four (4) years of
the Lease Term, and $2.25 per square foot of the area of the Generator Site for
years five (5) through seven (7) of the Lease Term, for Tenant's rights to use
the Generator Site provided herein. Such rental amounts shall be due at the same
time and in the same manner as Base Rent.
23.33.2 The installation of the Emergency Generator and related
Connecting Equipment (hereby referred to together and/or separately as the
"SPECIAL EQUIPMENT") shall be performed in accordance with and subject to the
provisions of Article 8 of this Lease, and the Special Equipment shall be
treated for all purposes of this Lease as if the same were Tenant's property.
For the purposes of determining Tenant's obligations with respect to its use of
the Generator Site herein provided, the Generator Site shall be deemed to be a
portion of Tenant's Premises; consequently, all of the provisions of this Lease
with respect to Tenant's obligations hereunder shall apply to the installation,
use and maintenance of the Special Equipment, including without limitation,
provisions relating to compliance with requirements as to insurance, indemnity,
repairs and maintenance, and compliance with laws. Landlord shall have no
obligation with regard to the Generator Site or the Special Equipment except as
provided in this Section 23.33.
23.33.3 It is expressly understood that Landlord retains the
right to grant third parties the right to utilize any portion of the roof at the
top and second (2nd) floor of the Building not utilized by Tenant and to use the
portion of the Building on which the Special Equipment is located for any
purpose whatsoever, provided in each event that Tenant shall have reasonable
access to, and Landlord shall not unduly interfere with the use of, the Special
Equipment.
23.33.4 Tenant shall install, use, maintain and repair the
Special Equipment so as not to damage or interfere with the operation of the
Building or the Systems and Equipment or any other communication equipment,
generators or power sources or similar equipment located in or on the Building;
and Tenant hereby agrees to indemnify, defend and hold Landlord harmless from
and against any and all claims, costs, damages, expenses and liabilities
(including attorney's fees) arising out of Tenant's failure to comply with the
provisions of this Section 23.33.4.
23.33.5 Landlord shall not have any obligations with respect to
the Special
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Equipment or compliance with any requirements relating thereto, nor shall
Landlord be responsible for any damage that may be caused to the Special
Equipment except to the extent caused by the gross negligence or willful
misconduct of Landlord and not insured or required to be insured by Tenant under
this Lease. Landlord makes no representation that the Emergency Generator will
be able to supply sufficient power to the Premises, and Tenant agrees that
Landlord shall not be liable to Tenant therefor.
23.33.6 Tenant shall accept the Generator Site in its "AS-IS"
condition, without any representations or warranties made by Landlord concerning
same, including, but not limited to, the purposes for which such areas are to be
used by Tenant. Landlord shall have no obligation to contract or pay for any
improvements or other work in or for the Generator Site, and Tenant shall be
solely responsible, at its sole cost and expense, for preparing the Generator
Site for the installation of the Special Equipment and for constructing any
improvements or performing any other work in such areas pursuant to and in
accordance with the provisions of this Section 23.33. Tenant, at Tenant's sole
cost and expense, shall maintain the Special Equipment and install such fencing
and other protective equipment on or about the Special Equipment as Landlord may
reasonably determine.
23.33.7 Tenant shall (i) be solely responsible for any damage
caused as a result of the Special Equipment, (ii) promptly pay any tax, license
or permit fees charged pursuant to any requirements in connection with the
installation, maintenance or use of the Special Equipment and comply with all
precautions and safeguards recommended by all governmental authorities, and
(iii) make necessary repairs, replacements to or maintenance of the Special
Equipment and Generator Site. Tenant shall have the work which is Tenant's
obligation to perform under this Section 23.33 (including, without limitation,
all installation, modification and maintenance of the Special Equipment)
performed promptly and diligently in a first-class, workmanlike manner, by
contractors and subcontractors approved by Landlord.
23.33.8 Tenant shall install and operate the Special Equipment
during the Lease Term in compliance with all present and future rules and
regulations imposed by any local, state or federal authority having jurisdiction
with respect thereto. Prior to the installation of the Special Equipment, or the
performance of any modifications or changes thereto, Tenant shall comply with
the following:
(i) Tenant shall submit to Landlord in writing all plans
for such installations, modifications or changes for Landlord's approval;
(ii) Prior to commencement of any work, Tenant shall
obtain Landlord's prior written approval and the required approvals of all
federal, state and local agencies. Tenant shall promptly deliver to Landlord
written proof of compliance with all applicable federal, state and local laws,
rules and regulations in connection with any work related to the Special
Equipment, including, but not limited to, a signed-off permit from the City of
San Francisco;
(iii) All of such work shall conform to Landlord's design
specifications for the Building and the Generator Site and Landlord's
requirements, including, but not limited
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<PAGE> 43
to, weight and loading requirements, and shall not interfere with any systems or
equipment located in, upon or serving the Building or the Generator Site, and
shall be in compliance with all applicable local, state and federal government
requirements; and
(iv) The Special Equipment shall be clearly marked to show
Tenant's name, address, telephone number and the name of the person to contact
in case of emergency.
23.33.9 Tenant shall not use any Hazardous Materials in
connection with the Special Equipment, except that Tenant may use diesel fuel
stored in a 120 gallon double walled steel tank (the "FUEL TANK") which shall
not weigh more than 1,024 pounds (when filled to capacity with diesel fuel) and
shall be located next to the Emergency Generator in the Generator Site (the
exact location of which shall be approved by Landlord) , as long as such fuel
and Fuel Tank are kept, maintained and used in accordance with all applicable
laws and the highest safety standards for such use, and so long as such fuel is
always stored within the Fuel Tank and is not used or stored in any area outside
of the Emergency Generator. Tenant shall promptly, at Tenant's expense, take all
investigatory and all remedial action required by applicable laws and reasonably
recommended by Landlord, whether or not formally ordered or required by
applicable laws, for the cleanup of any spill, release or other contamination of
the Generator Site and/or the Real Property caused or contributed to by Tenant's
use of the Special Equipment (including, without limitation, the fuel for the
Emergency Generator), or pertaining to or involving any such fuel or other
Hazardous Materials brought onto the Generator Site during the Lease Term by
Tenant or any of Tenant's agents, employees, contractors, licensees or invitees.
Tenant shall indemnify, defend and hold Landlord and the Landlord Parties
harmless from and against any and all loss of rents, damages, losses,
liabilities, judgments, claims, expenses, penalties and attorneys' and
consultants' fees arising out of or involving any Hazardous Materials brought
onto the Generator Site by or for Tenant. Tenant's obligations shall include,
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Tenant or any of Tenant's
agents, employees, licensees or invitees, and the cost of investigation,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease.
23.33.10 Physical security of the Generator Site and the Special
Equipment is the sole responsibility of Tenant, who shall bear the sole cost,
expense and liability of any security services, emergency alarm monitoring and
other similar services in connection therewith. Landlord shall not be liable to
Tenant for any direct, indirect, consequential or other damages arising out of
or in connection with the physical security, or lack thereof, of the Generator
Site and/or Special Equipment.
23.33.11 Tenant's Emergency Generator shall be routinely tested
and inspected by a qualified contractor selected by Tenant and approved by
Landlord, at Tenant's expense, in accordance with testing and inspection service
contracts approved by Landlord. Tenant will provide Landlord with copies of
certificates and other documentation related to the testing of the Emergency
Generator. Testing hours are restricted, however, to those specific hours set
and determined by Landlord from time to time.
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23.33.12 If Tenant fails to perform any of its obligations under
this Section 23.33, and does not correct such noncompliance within five (5) days
after receipt of notice thereof from Landlord, then Tenant shall be deemed in
default under this Lease, notwithstanding any other notice or cure provided in
Section 19 or otherwise in this Lease, and in addition to all other remedies
Landlord may have under this Lease, Tenant shall, upon notice from Landlord,
immediately discontinue its use of that portion of the Special Equipment to
which such noncompliance relates, and make such repairs and restoration as
required under Section 23.33.13 below with respect thereto.
23.33.13 Upon the expiration of the Lease Term or upon any
earlier termination of this Lease, Tenant shall, subject to the control of and
direction from Landlord, remove the Special Equipment, repair any damage caused
thereby, and restore the Generator Site and other facilities of the Building to
their condition existing prior to the installation of the Special Equipment. Any
and all removal of the Special Equipment shall be performed by certified and
licensed contractors previously approved in writing by Landlord and in
accordance with a previously approved removal plan, in a workmanlike manner,
without any interference, damage or destruction to any other equipment,
structures or operations at the Generator Site or the Building and/or any
equipment of other licensees or tenants. If Tenant fails to timely make such
removal and/or restoration, then Landlord may perform such work at Tenant's
cost, which cost shall be immediately due and payable to Landlord upon Tenant's
receipt of invoice therefor from Landlord.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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23.33.14 Tenant's rights under this Section 23.33 shall be
personal to the original Tenant executing this Lease. and may only be utilized
by the original Tenant or an assignee of Tenant's entire interest in this Lease
(and may not be exercised or utilized by any sublessee or other transferee of
the original Tenant's interest in this Lease or the Premises).
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partners
By: LPC MS, Inc.,
as agent and manager for Landlord
By: /s/ D. Allen Palmer
-------------------------------------
D. Allen Palmer
Its: Senior Vice President
"Tenant":
CRL NETWORKS,
a California corporation
By: /s/ James G. Couch
----------------------------------------
James G. Couch
(Type or print name)
Its: President
By: /s/ James G. Couch
----------------------------------------
James G. Couch
Its: Secretary
39
<PAGE> 46
EXHIBIT A
OUTLINE OF FLOOR PLAN OF PREMISES
[MAP OF FLOOR PLAN
100 CALIFORNIA BASEMENT FLOOR AS BUILT
TENANT PLAN
SUITE 6]
<PAGE> 47
[TENANT BUILD]
EXHIBIT B
WORK LETTER TO STANDARD OFFICE LEASE
This Work Letter to Standard Office Lease ("Work Letter") shall set
forth the terms and conditions relating to the construction of the Premises. All
references in this Work Letter to "the Lease" shall mean the relevant portions
of the Lease to which this Work Letter is attached as Exhibit B.
SECTION 1
GENERAL CONSTRUCTION OF THE PREMISES
Landlord shall deliver, and Tenant shall accept, the base, shell, and
core (i) of the Premises and (ii) of the floor of the Building on which the
Premises is located (collectively, the "Base, Shell, and Core") in its current
as-is condition existing as of the date of the Lease; provided, however, that
Landlord shall remove the halon fire life safety unit (except not the plumbing
for such unit) from the Premises prior to Landlord's delivery to Tenant of the
Base, Shell and Core. Except for the Tenant Improvement Allowance described in
this Work Letter, Landlord shall not be obligated to make or pay for any
alterations or improvements to the Premises or the Building. Notwithstanding
anything to the contrary set forth in this Work Letter, in connection with
Tenant's construction of and as part of the Tenant Improvements (as such term is
defined below in Section 2.1), Tenant shall install a FMS-200 fire life safety
system in the Premises.
SECTION 2
TENANT IMPROVEMENTS
2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time
tenant improvement allowance (the "Tenant Improvement Allowance") in the amount
of up to, but not exceeding Seven Dollars ($7.00) per square foot of Rentable
Area of the Premises for the costs relating to the initial design and
construction of Tenant's improvements which are permanently affixed to the
Premises (the "Tenant Improvements"). In no event shall Landlord be obligated to
make disbursements pursuant to this Work Letter in a total amount which exceeds
the Tenant Improvement Allowance. Tenant shall be entitled to no credit for any
unused portion of the Tenant Improvement Allowance.
2.2 Disbursement of the Tenant Improvement Allowance.
2.2.1 Tenant Improvement Allowance Items. Except as otherwise set
forth in this Work Letter, the Tenant Improvement Allowance shall be disbursed
by Landlord only for the following items and costs (collectively the "Tenant
Improvement Allowance Items"):
EXHIBIT B
<PAGE> 48
2.2.1.1 Payment of the fees of the "Architect" and the
"Engineers," as those terms are defined in Section 3.1 of this Work Letter, and
payment of the fees incurred by, and the cost of documents and materials
supplied by, Landlord and Landlord's consultants in connection with the
preparation and review of the "Construction Drawings," as that term is defined
in Section 3.1 of this Work Letter;
2.2.1.2 The payment of plan check, permit and license fees
relating to construction of the Tenant Improvements;
2.2.1.3 The cost of construction of the Tenant
Improvements, including, without limitation, testing and inspection costs,
freight elevator usage, hoisting and trash removal costs, and contractors' fees
and general conditions;
2.2.1.4 The cost of any changes in the Base, Shell and
Core work when such changes are required by the Construction Drawings (including
if such changes are due to the fact that such work is prepared on an unoccupied
basis), such cost to include all direct architectural and/or engineering fees
and expenses incurred in connection therewith;
2.2.1.5 The cost of any changes to the Construction
Drawings or Tenant Improvements required by applicable laws and building codes
(collectively, "Code");
2.2.1.6 Sales and use taxes;
2.2.1.7 The "Coordination Fee," as that term is defined in
Section 4.2.2.2 of this Work Letter; and
2.2.1.8 All other costs to be expended by Landlord in
connection with the construction of the Tenant Improvements.
2.2.2 Disbursement of Tenant Improvement Allowance. During the
construction of the Tenant Improvements, Landlord shall make monthly
disbursements of the Tenant Improvement Allowance for Tenant Improvement
Allowance Items for the benefit of Tenant and shall authorize the release of
monies for the benefit of Tenant as follows:
2.2.2.1 Monthly Disbursements. On or before the fifteenth
(15th) day of each calendar month during the construction of the Tenant
Improvements (or such other date as Landlord may designate), Tenant shall
deliver to Landlord: (i) a request for payment of the "Contractor," as that term
is defined in Section 4~ 1 of this Work Letter, approved by Tenant, in a form to
be provided by Landlord, showing the schedule, by trade, of percentage of
completion of the Tenant Improvements in the Premises, detailing the portion of
the work completed and the portion not completed, and demonstrating that the
relationship between the cost of the work completed and the cost of the work to
be completed complies with the terms of the "Construction Budget," as that term
is defined in Section 4.2.1 of this Work Letter; (ii) invoices from all of
"Tenant's Agents," as that term is defined in Section 4.1.2 below, for labor
rendered and materials delivered to the Premises; (iii) executed mechanic's lien
releases from all of Tenant's Agents which shall comply with the appropriate
provisions, as reasonably determined by
EXHIBIT B - Page 2
<PAGE> 49
Landlord, of applicable California law; and (iv) all other information
reasonably requested by Landlord. Tenant's request for payment shall be deemed
Tenant's acceptance and approval of the work furnished and/or the materials
supplied as set forth in Tenant's payment request. On or before the fifteenth
(15th) [day of the following calendar month, Landlord shall deliver a check to
Tenant made jointly payable to Contractor and Tenant in payment of the lesser
of: (A) the amounts so requested by Tenant, as set forth in this Section
2.2.2.1, above, less a ten percent (10%) retention (the aggregate amount of such
retentions to be known as the "Final Retention"), and (B) the balance of any
remaining available portion of the Tenant Improvement Allowance (not including
the Final Retention), provided that Landlord does not dispute any request for
payment based on non-compliance of any work with the "Approved Working
Drawings", as that term is defined in Section 3.4 below, or due to any
substandard work, or for any other reason. Landlord's payment of such amounts
shall not be deemed Landlord's approval or acceptance of the work furnished or
materials supplied as set forth in Tenant's payment request.
2.2.2.2 Final Retention. Subject to the provisions of this
Work Letter, a check for the Final Retention payable jointly to Tenant and
Contractor shall be delivered by Landlord to Tenant following the completion of
construction of the Premises, provided that (i) Tenant delivers to Landlord
properly executed mechanics lien releases in compliance with applicable
California law and (ii) Landlord has determined that no substandard work exists
which adversely affects the mechanical, electrical, plumbing, heating,
ventilating and air conditioning, life-safety or other systems of the Building,
the curtain wall of the Building, the structure or exterior appearance of the
Building, or any other tenant's use of such other tenant's leased premises in
the Building.
2.2.2.3 Other Terms. Landlord shall only be obligated to
make disbursements from the Tenant Improvement Allowance to the extent costs are
incurred by Tenant for Tenant Improvement Allowance Items.
2.3 Standard Tenant Improvement Package. Landlord has established
specifications (the "Specifications") for the Building standard components to be
used in the construction of the Tenant Improvements in the Premises
(collectively, the "Standard Improvement Package"), which Specifications shall
be supplied by Landlord to Tenant. The Tenant Improvements shall comply with the
Specifications for all Tenant Improvement components which have been pre-stocked
by Landlord. With respect to all other Tenant Improvement components, Tenant
shall utilize materials and finishes which are not of lesser quality than the
Specifications. Landlord may make changes to the Specifications for the Standard
Improvement Package from time to time.
SECTION 3
CONSTRUCTION DRAWINGS
3.1 Selection of Architect/Construction Drawings. Tenant shall retain an
architect/space planner designated by Landlord (the "Architect") to prepare the
"Construction Drawings," as that term is defined in this Section 3.1, except
that Tenant may select an architect/space planner of its choice (subject to
Landlord's reasonable approval) to be the
EXHIBIT B - Page 3
<PAGE> 50
"Architect" who shall prepare the Final Space Plan described in Section 3.2
below. Tenant shall retain the engineering consultants designated by Landlord
(the "Engineers") to prepare all plans and engineering working drawings relating
to the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and
sprinkler work in the Premises, which work is not part of the Base, Shell and
Core work. The plans and drawings to be prepared by Architect and the Engineers
hereunder shall be known collectively as the "Construction Drawings." All
Construction Drawings shall comply with the drawing format and specifications
reasonably determined by Landlord, and shall be subject to Landlord's approval.
Tenant and Architect shall verify, in the field, the dimensions and conditions
as shown on the relevant portions of the base building plans, and Tenant and
Architect shall be solely responsible for the same, and Landlord shall have no
responsibility in connection therewith. Landlord's review of the Construction
Drawings as set forth in this Section 3, shall be for its sole purpose and shall
not imply Landlord's review of the same, or obligate Landlord to review the
same, for quality, design, Code compliance or other like matters. Accordingly,
notwithstanding that any Construction Drawings are reviewed by Landlord or its
space planner, architect, engineers and consultants, and notwithstanding any
advice or assistance which may be rendered to Tenant by Landlord or Landlord's
space planner, architect, engineers, and consultants, Landlord shall have no
liability whatsoever in connection therewith and shall not be responsible for
any omissions or errors contained in the Construction Drawings, and Tenant's
waiver and indemnity set forth in Article II of the Lease shall specifically
apply to the Construction Drawings.
3.2 Final Space Plan. Tenant shall supply Landlord with four (4) copies
signed by Tenant of its final space plan for the Premises before any
architectural working drawings or engineering drawings have been commenced. The
final space plan (the "Final Space Plan") shall include a layout and designation
of all offices, rooms and other partitioning, their intended use, and equipment
to be contained therein. Landlord may request clarification or more specific
drawings for special use items not included in the Final Space Plan. Landlord
shall advise Tenant within five (5) business days after Landlord's receipt of
the Final Space Plan for the Premises if the same is unsatisfactory or
incomplete in any respect. If Tenant is so advised, Tenant shall promptly cause
the Final Space Plan to be revised to correct any deficiencies or other matters
Landlord may reasonably require.
3.3 Final Working Drawings. After the Final Space Plan has been approved
by Landlord, Tenant shall supply the Engineers with a complete listing of
standard and non-standard equipment and specifications, including, without
limitation, Btu calculations, electrical requirements and special electrical
receptacle requirements for the Premises, to enable the Engineers and the
Architect to complete the "Final Working Drawings" (as that term is defined
below) in the manner as set forth below. Upon the approval of the Final Space
Plan by Landlord and Tenant, Tenant shall promptly cause the Architect and the
Engineers to complete the architectural and engineering drawings for the
Premises, and Architect shall compile a fully coordinated set of architectural,
structural, mechanical, electrical and plumbing working drawings in a form which
is complete to allow subcontractors to bid on the work and to obtain all
applicable permits (collectively, the "Final Working Drawings") and shall submit
the same to Landlord for Landlord's approval. Tenant shall supply Landlord with
four (4) copies signed by Tenant of such Final Working Drawings. Landlord shall
advise Tenant within five (5) business
EXHIBIT B - Page 4
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days after Landlord's receipt of the Final Working Drawings for the Premises if
the same is unsatisfactory or incomplete in any respect. If Tenant is so
advised, Tenant shall immediately revise the Final Working Drawings in
accordance with such review and any disapproval of Landlord in connection
therewith.
3.4 Approved Working Drawings. The Final Working Drawings shall be
approved by Landlord (the "Approved Working Drawings") prior to the commencement
of construction of the Premises by Tenant. After approval by Landlord of the
Final Working Drawings, Tenant may submit the same to the appropriate
governmental authorities for all applicable building permits. Tenant hereby
agrees that neither Landlord nor Landlord's consultants shall be responsible for
obtaining any building permit or certificate of occupancy for the Premises and
that obtaining the same shall be Tenantts responsibility; provided, however,
that Landlord shall cooperate with Tenant in executing permit applications and
performing other ministerial acts reasonably necessary to enable Tenant to
obtain any such permit or certificate of occupancy. No changes, modifications or
alterations in the Approved Working Drawings may be made without the prior
written consent of Landlord, which consent may not be unreasonably withheld.
SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 Tenant's Selection of Contractors.
4.1.1 The Contractor. A general contractor shall be retained by
Tenant to construct the Tenant Improvements. Such general contractor
("Contractor") shall be selected by Tenant from a list of general contractors
supplied by Landlord, and Tenant shall deliver to Landlord notice of its
selection of the Contractor upon such selection.
4.1.2 Tenant's Agents. All subcontractors, laborers, materialmen,
and suppliers used by Tenant (such subcontractors. laborers, materialmen, and
suppliers, and the Contractor to be known collectively as "Tenant Agents") must
be approved in writing by Landlord, which approval shall not be unreasonably
withheld or delayed; provided that, in any event, Tenant must contract with
Landlord's base building subcontractors for any mechanical, electrical,
plumbing, life safety, structural, heating, ventilation, and air-conditioning
work in the Premises. If requested by Landlord, Tenant's Agents shall all be
union labor in compliance with the master labor agreements existing between
trade unions and the local chapter of the Associated General Contractors of
America.
4.2 Construction of Tenant Improvements by Tenant's Agents.
4.2.1 Construction Contract; Cost Budget. Prior to Tenant's
execution of the construction contract and general conditions with Contractor
(the "Contract"), Tenant shall submit the Contract to Landlord for its approval,
which approval shall not be unreasonably withheld or delayed. Prior to the
commencement of the construction of the Tenant Improvements, and after Tenant
has accepted all bids for the Tenant Improvements, Tenant shall provide Landlord
with a detailed breakdown, by trade, of the final costs to be incurred or which
EXHIBIT B - Page 5
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have been incurred in connection with the design and construction of the Tenant
Improvements to be performed by or at the direction of Tenant or the Contractor
(which costs form a basis for the amount of the Contract, if any (the "Final
Costs"). Within five (5) business days of the receipt of the Final Costs by
Landlord, Landlord shall deliver to Tenant a construction budget (the
"Construction Budget"), the amount of which Construction Budget shall be equal
to (i) the Final Costs plus (ii) the other costs of design and construction of
the Premises as determined by Landlord (to the extent not already included in
the Final Costs), which costs shall include, but not be limited to, the cost of
any Standard Improvement Package items to be used by Tenant, the costs of the
Architect and Engineers fees, and the Coordination Fee. Prior to the
commencement of construction of the Tenant Improvements, Tenant shall supply
Landlord with cash in an amount (the "Over-Allowance Amount") equal to the
difference between the amount of the Construction Budget and the amount of the
Tenant Improvement Allowance (less any portion thereof already disbursed by
Landlord, or in the process of being disbursed by Landlord, on or before the
commencement of construction of the Tenant Improvements). The Over-Allowance
Amount shall be disbursed by Landlord prior to the disbursement of any of the
then remaining portion of the Tenant Improvement Allowance, and such
disbursement shall be pursuant to the same procedure as the Tenant Improvement
Allowance. In the event that, after the Construction Budget has been delivered
by Landlord to Tenant, the costs relating to the design and construction of the
Tenant Improvements shall change, any additional costs necessary to such design
and construction in excess of the Construction Budget, shall be paid by Tenant
to Landlord immediately as an addition to the Over-Allowance Amount or at
Landlord's option, Tenant shall make payments for such additional costs out of
its own funds, but Tenant shall continue to provide Landlord with the documents
described in Sections 2.2.2.1 (i), (ii), (iii) and (iv) of this Work Letter,
above, for Landlord's approval, prior to Tenant paying such costs.
4.2.2 Tenant's Agents.
4.2.2.1 Landlord's General Conditions for Tenant's Agents
and Tenant Improvement Work. Tenant's and Tenant's Agent's construction of the
Tenant Improvements shall comply with the following: (i) the Tenant Improvements
shall be constructed in strict accordance with the Approved Working Drawings;
(ii) Tenant and Tenant's Agents shall not, in any way, interfere with, obstruct,
or delay, the work of Landlord's base building contractor and subcontractors
with respect to the Base, Shell and Core or any other work in the Building;
(iii) Tenant's Agents shall submit schedules of all work relating to the
Tenant's Improvements to Contractor and Contractor shall, within five (5)
business days of receipt thereof, inform Tenant's Agents of any changes which
are necessary thereto, and Tenant's Agents shall adhere to such corrected
schedule; and (iv) Tenant shall abide by all rules made by Landlord's Building
contractor or Landlord's Building manager with respect to the use of freight,
loading dock and service elevators, storage of materials, coordination of work
with the contractors of other tenants, and any other matter in connection with
this Work Letter, including, without limitation, the construction of the Tenant
Improvements.
4.2.2.2 Coordination Fee. Tenant shall pay a logistical
coordination fee (the "Coordination Fee") to Landlord in an amount equal to the
product of (i) five percent (5%) and (ii) the sum of the Tenant Improvement
Allowance, the Over-Allowance Amount, as such
EXHIBIT B - Page 6
<PAGE> 53
amount may be increased hereunder, and any other amounts expended by Tenant in
connection with the design and construction of the Tenant Improvements, which
Coordination Fee shall be for services relating to the coordination of the
construction of the Tenant Improvements.
4.2.2.3 Indemnity. Tenant's indemnity of Landlord as set
forth in Article 11 of the Lease shall also apply with respect to any and all
costs, losses, damages, injuries and liabilities related in any way to any act
or omission of Tenant or Tenant's Agents, or anyone directly or indirectly
employed by any of them, or in connection with Tenant's non-payment of any
amount arising out of the Tenant Improvements and/or Tenant's disapproval of all
or any portion of any request for payment. Such indemnity by Tenant, as set
forth in Article 11 of the Lease, shall also apply with respect to any and all
costs, losses, damages, injuries and liabilities related in any way to
Landlord's performance of any ministerial acts reasonably necessary (i) to
permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to
obtain any building permit or certificate of occupancy for the Premises.
4.2.2.4 Insurance Requirements.
4.2.2.4.1 General Coverages. All of Tenant's Agents
shall carry worker's compensation insurance covering all of their respective
employees, and shall also carry public liability insurance, including property
damage, all with limits, in form and with companies as are required to be
carried by Tenant as set forth in Article 10 of the Lease.
4.2.2.4.2 Special Coverages. Tenant shall carry
"Builder's All Risk" insurance in an amount approved by Landlord covering the
construction of the Tenant Improvements, and such other insurance as Landlord
may require, it being understood and agreed that the Tenant Improvements shall
be insured by Tenant pursuant to Article 10 of the Lease immediately upon
completion thereof Such insurance shall be in amounts and shall include such
extended coverage endorsements as may be reasonably required by Landlord, and in
form and with companies as are required to be carried by Tenant as set forth in
Article 10 of the Lease.
4.2.2.4.3 General Terms. Certificates for all
insurance carried pursuant to this Section 4.2.2.4 shall be delivered to
Landlord before the commencement of construction of the Tenant Improvements and
before the Contractor's equipment is moved onto the site. All such policies of
insurance must contain a provision that the company writing said policy will
give Landlord thirty (30) days prior written notice of any cancellation or lapse
of the effective date or any reduction in the amounts of such insurance. In the
event that the Tenant Improvements are damaged by any cause during the course of
the construction thereof, Tenant shall immediately repair the same at Tenant's
sole cost and expense. All policies carried under this Section 4.2.2.4 shall
insure Landlord and Tenant, as their interests may appear, as well as Contractor
and Tenant's Agents, and shall name as additional insureds Landlord's property
manager, and all mortgagees and ground lessors of the Building. All insurance,
except Workers' Compensation, maintained by Tenant's Agents shall preclude
subrogation claims by the insurer against anyone insured thereunder. Such
insurance shall provide that it is primary insurance as respects the owner and
that any other insurance maintained by owner is excess and noncontributing with
the insurance required hereunder. The requirements for the foregoing
EXHIBIT B - Page 7
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insurance shall not derogate from the provisions for indemnification of Landlord
by Tenant under Section 4.2.2.3 of this Work Letter.
4.2.3 Governmental Compliance. The Tenant Improvements shall
comply in all respects with the following: (i) the Code and other state,
federal, city or quasi-governmental laws, codes, ordinances and regulations, as
each may apply according to the rulings of the controlling public official,
agent or other person; (ii) applicable standards of the American Insurance
Association (formerly, the National Board of Fire Underwriters) and the National
Electrical Code; and (iii) building material manufacturer's specifications.
4.2.4 Inspection by Landlord. Landlord shall have the right to
inspect the Tenant Improvements at all times, provided however, that Landlord's
failure to inspect the Tenant Improvements shall in no event constitute a waiver
of any of Landlord's rights hereunder nor shall Landlord's inspection of the
Tenant Improvements constitute Landlord's approval of the same. Should Landlord
disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant
in writing of such disapproval and shall specify the items disapproved. Any
defects or deviations in, and/or disapproval by Landlord of, the Tenant
Improvements shall be rectified by Tenant at no expense to Landlord, provided
however, that in the event Landlord determines that a defect or deviation exists
or disapproves of any matter in connection with any portion of the Tenant
Improvements and such defect, deviation or matter might adversely affect the
mechanical, electrical, plumbing, heating, ventilating and air conditioning or
life-safety systems of the Building, the structure or exterior appearance of the
Building or any other tenant's use of such other tenant's leased premises,
Landlord may, take such action as Landlord deems necessary, at Tenant's expense
and without incurring any liability on Landlord's part, to correct any such
defect, deviation and/or matter, including, without limitation, causing the
cessation of performance of the construction of the Tenant Improvements until
such time as the defect, deviation and/or matter is corrected to Landlord's
satisfaction.
4.2.5 Meetings. Commencing upon the execution of the Lease,
Tenant shall hold weekly meetings at a reasonable time, with the Architect and
the Contractor regarding the progress of the preparation of Construction
Drawings and the construction of the Tenant Improvements, which meetings shall
be held at a location designated by Landlord, and Landlord and/or its agents
shall receive prior notice of, and shall have the right to attend, all such
meetings, and, upon Landlord's request, certain of Tenant's Agents shall attend
such meetings. In addition, minutes shall be taken at all such meetings, a copy
of which minutes shall be promptly delivered to Landlord. One such meeting each
month shall include the review of Contractor's current request for payment.
4.3 Notice of Completion; Copy of "As Built" Plans. Within ten (10) days
after completion of construction of the Tenant Improvements, Tenant shall cause
a Notice of Completion to be recorded in the office of the Recorder of the
County in which the Building is located and shall furnish a copy thereof to
Landlord upon such recordation. If Tenant fails to do so, Landlord may execute
and file the same on behalf of Tenant as Tenant's agent for such purpose, at
Tenant's sole cost and expense. At the conclusion of construction, (i) Tenant
shall cause the Architect and Contractor (A) to update the Approved Working
Drawings as necessary
EXHIBIT B - Page 8
<PAGE> 55
to reflect all changes made to the Approved Working Drawings during the course
of construction, (B) to certify to the best of their knowledge that the
"record-set" of as-built drawings are true and correct, which certification
shall survive the expiration or termination of the Lease, and (C) to deliver to
Landlord two (2) sets of sepias of such as-built drawings within ninety (90)
days following issuance of a certificate of occupancy for the Premises, and (ii)
Tenant shall deliver to Landlord a copy of all warranties, guaranties, and
operating manuals and information relating to the improvements, equipment, and
systems in the Premises.
4.4 Coordination by Tenant's Agents with Landlord. Upon Tenant's
delivery of the Contract to Landlord under Section 4.2.1 of this Work Letter,
Tenant shall furnish Landlord with a schedule setting forth the projected date
of the completion of the Tenant Improvements and showing the critical time
deadlines for each phase, item or trade relating to the construction of the
Tenant Improvements.
SECTION 5
MISCELLANEOUS
5.1 Tenant's Representative. Tenant has designated James Couch as its
sole representative with respect to the matters set forth in this Work Letter,
who shall have full authority and responsibility to act on behalf of the Tenant
as required in this Work Letter.
5.2 Landlord's Representative. Landlord has designated P.K. Green as its
sole representative with respect to the matters set forth in this Work Letter,
who, until further notice to Tenant, shall have full authority and
responsibility to act on behalf of the Landlord as required in this Work Letter.
5.3 Time of the Essence in This Work Letter. Unless otherwise indicated,
all references herein to a "number of days" shall mean and refer to calendar
days. If any item requiring approval is timely disapproved by Landlord, the
procedure for preparation of the document and approval thereof shall be repeated
until the document is approved by Landlord.
5.4 Tenant's Lease Default. Notwithstanding any provision to the
contrary contained in the Lease, if an event of default by Tenant of this Work
Letter or Section 16.1 of the Lease has occurred at any time on or before the
Substantial Completion of the Premises, then (i) in addition to all other rights
and remedies granted to Landlord pursuant to the Lease, Landlord shall have the
right to withhold payment of all or any portion of the Tenant Improvement
Allowance and/or Landlord may cause Contractor to cease the construction of the
Premises (in which case, Tenant shall be responsible for any delay in the
Substantial Completion of the Premises caused by such work stoppage), and (ii)
all other obligations of Landlord under the terms of this Work Letter shall be
forgiven until such time as such default is cured pursuant to the terms of the
Lease (in which case, Tenant shall be responsible for any delay in the
Substantial Completion of the Premises caused by such inaction by Landlord).
EXHIBIT B - Page 9
<PAGE> 56
EXHIBIT C
AMENDMENT TO LEASE
This AMENDMENT TO LEASE ("Amendment") is made and entered into effective
as of August __, 1998, by and between WHLNF REAL ESTATE LIMITED PARTNERSHIP, a
Delaware limited partnership ("Landlord"), and CRL NETWORKS, a California
corporation ("Tenant")
R E C I T A L S
A. Landlord and Tenant entered into that certain Office Lease dated as
of August 28, 1998 (the "Lease") pursuant to which Landlord leased to Tenant and
Tenant leased from Landlord certain "Premises", as described in the Lease, known
as Suite B6 of the Building located at 100 California Street, San Francisco,
California 94111.
B. Except as otherwise set forth herein. all capitalized terms used in
this Amendment shall have the same meaning five such terms in the Lease.
C. Landlord and Tenant desire to amend the Lease to confirm the
commencement and expiration dates of the term, as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Confirmation of Dates. The parties hereby confirm that (a) the
Premises are Ready for Occupancy, (b) the Lease Term for the Lease commenced as
of ______________________ (the "Lease Commencement Date") for a term of five (5)
years ending on ________________________ (unless sooner terminated or extended
as provided in the Lease) and (c) in accordance with the Lease, Rent commenced
to accrue on _________________________.
2. No Further Modification. Except as set forth in this Amendment, all
of the terms and provisions of the Lease shall remain unmodified and in full
force and effect.
EXHIBIT C
<PAGE> 57
IN WITNESS WHEREOF, this Amendment to Lease has been executed as of the
day and year first above written.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partners
By: LPC MS, Inc.,
as agent and manager for Landlord
By:
------------------------------------
D. Allen Palmer
Its: Senior Vice President
"Tenant":
CRL NETWORKS,
a California corporation
By:
------------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
EXHIBIT C - Page 2
<PAGE> 58
EXHIBIT D
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Building.
1. Tenant shall not alter any lock or install any new or additional
locks or bolts on any doors or windows of the Premises without obtaining
Landlord's prior written consent. Tenant shall bear the cost of any lock changes
or repairs required by Tenant. Two keys will be furnished by Landlord for the
Premises, and any additional keys required by Tenant must be obtained from
Landlord at a reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at all
times except for normal ingress and egress to the Premises, unless electrical
hold backs have been installed.
3. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building during such hours as are customary for comparable
buildings in the vicinity of the Building. Tenant, its employees and agents must
be sure that the doors to the Building are securely closed and locked when
leaving the Premises if it is after the normal hours of business for the
Building. Any tenant, its employees, agents or any other persons entering or
leaving the Building at any time when it is so locked, or any time when it is
considered to be after normal business hours for the Building, may be required
to sign the Building register when so doing. Access to the Building may be
refused unless the person seeking access has proper identification or has a
previously arranged pass for access to the Building. The Landlord and his agents
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 case of invasion,
mob, riot, public excitement, or other commotion, Landlord reserves the right to
prevent access to the Building during the continuance of same by any means it
deems appropriate for the safety and protection of life and property.
4. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy property brought into the Building. Safes
and other heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such safe or
property in any case. All damage done to any part of the Building, its contents,
occupants or visitors by moving or maintaining any such safe or other property
shall be the sole responsibility of Tenant and any expense of said damage or
injury shall be borne by Tenant.
5. No furniture, freight, packages, supplies, equipment or merchandise
will be brought into or removed from the Building or carried up or down in the
elevators, except upon prior notice to Landlord, and in such manner, in such
specific elevator, and between such hours as shall be designated by Landlord.
Tenant shall provide Landlord with not less than 24 hours prior notice of the
need to utilize an elevator for any such purpose, so as to provide Landlord
EXHIBIT D
<PAGE> 59
with a reasonable period to schedule such use and to install such padding or
take such other actions or prescribe such procedures as are appropriate to
protect against damage to the elevators or other parts of the Building.
6. Landlord shall have the right to control and operate the public
portions of the Building, the public facilities, the heating and air
conditioning, and any other facilities furnished for the common use of tenants,
in such manner as is customary for comparable buildings in the vicinity of the
Building.
7 The requirements of Tenant will be attended to only upon application
at the management office of the Building or at such office location designated
by Landlord. Employees of Landlord shall not perform any work or do anything
outside their regular duties unless under special instructions from Landlord.
8. Tenant shall not disturb, solicit. or canvass any occupant of the
Building and shall cooperate with Landlord or Landlord's agents to prevent same.
9. The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from the violation of this rule shall
be borne by the tenant who, or whose employees or agents, shall have caused it.
10. Tenant shall not overload the floor of the Premises, nor mark, drive
nails or screws, or drill into the partitions, woodwork or plaster or in any way
deface the Premises or any part thereof without Landlord's consent first had and
obtained.
11. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machine or machines of any description other
than fractional horsepower office machines shall be installed, maintained or
operated upon the Premises without the written consent of Landlord.
12. Tenant shall not use any method of heating or air conditioning other
than that which may be supplied by Landlord, without the prior written consent
of Landlord.
13. Tenant shall not use or keep in or on the Premises or the Building
any kerosene, gasoline or other inflammable or combustible fluid or material.
Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas
or substance in or on the Premises, or permit or allow 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.
14. Tenant shall not bring into or keep within the Building or the
Premises any animals, birds, bicycles or other vehicles.
EXHIBIT D - Page 2
<PAGE> 60
15. No cooking shall be done or permitted by any tenant on the Premises,
nor shall the Premises be used for the storage of merchandise, for lodging or
for any improper, objectionable or immoral purposes. Notwithstanding the
foregoing, Underwriters' laboratory-approved equipment and microwave ovens may
be used in the Premises for heating food and brewing coffee, tea, hot chocolate
and similar beverages, provided that such use is in accordance with all
applicable federal, state and bylaws, codes, ordinances, rules and regulations,
and does not cause odors which are objectionable to Landlord and other Tenants.
16. Landlord will approve where and how telephone and telegraph wires
are to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Landlord. The location of telephone, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
17. Landlord reserves the right to exclude or expel from the Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of these Rules and Regulations.
18. Tenant, its employees and agents shall not loiter in the entrances
or corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or
elevators, and shall use the same only as a means of ingress and egress for the
Premises.
19. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to ensure the most effective operation
of the Building's heating and air conditioning system, and shall refrain from
attempting to adjust any controls.
20. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash 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 trash and garbage in the city
in which the Building is located without violation of any law or ordinance
governing such disposal. All trash, garbage and refuse disposal shall be made
only through entry-ways and elevators provided for such purposes at such times
as Landlord shall designate.
21. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
22. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed, when the Premises are not
occupied.
23. No awnings or other projection shall be attached to the outside
walls of the Building without the prior written consent of Landlord. No
curtains, blinds, shades 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. The sashes, sash doors, skylights, windows, and doors that
reflect or admit light and air into the halls, passageways or other public
places in the Building shall not be covered or obstructed by Tenant, nor shall
any bottles, parcels or other articles be placed on the windowsills. All
electrical ceiling fixtures hung in offices or spaces
EXHIBIT D - Page 3
<PAGE> 61
along the perimeter of the Building must be fluorescent and/or of a quality,
type, design and bulb color approved by Landlord.
24. The washing and/or detailing of or, the installation of windshields,
radios, telephones in or general work on, automobiles shall not be allowed on
the Real Property.
25. Food vendors shall be allowed in the Building upon receipt of a
written request from the Tenant. The food vendor shall service only the tenants
that have a written request on file in the Building's management office. Under
no circumstance shall the food vendor display their products in a public or
common area including corridors and elevator lobbies. Any failure to comply with
this rule shall result in immediate permanent withdrawal of the vendor from the
Building.
26. Tenant must comply with requests by the Landlord concerning the
informing of their employees of items of importance to the Landlord
27. Tenant shall comply with any non-smoking ordinance adopted by any
applicable governmental authority.
28. 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 or Regulations against any or all tenants of the Building.
Landlord reserves the right at any time to change or rescind any one or more of
these Rules and Regulations, or to make such other and further reasonable Rules
and Regulations as in Landlord's judgment may from time to time be necessary for
the management, safety, care and cleanliness of the Premises and Building, and
for the preservation of good order therein, as well as for the convenience of
other occupants and tenants therein. Landlord shall not be responsible to Tenant
or to any other person for the nonobservance of the Rules and Regulations by
another tenant or other person. Tenant shall be deemed to have read these Rules
and Regulations and to have agreed to abide by them as a condition of its
occupancy of the Premises.
EXHIBIT D - Page 4
<PAGE> 62
EXHIBIT E
FORM OF TENANT'S ESTOPPEL CERTIFICATE
The undersigned, as Tenant under that certain Office Lease (the "Lease")
made and entered into as of August __ 1998 and between CRL NETWORKS, a
California corporation as Landlord, and the undersigned as Tenant, for Premises
on the basement floor of the Building located at 100 California Street, San
Francisco, California hereby certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
and all amendments and modifications thereto. The documents contained in Exhibit
A represent the entire agreement between the parties as to the Premises.
2. The undersigned has commenced occupancy of the Premises described in
the Lease. currently occupies the Premises, and the Lease Term commenced on
_________
3. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
4. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
5. Tenant shall not modify the documents contained in Exhibit A or
prepay any amounts owing under the Lease to Landlord in excess of thirty (30)
days without the prior written consent of Landlord's mortgagee.
6. Base Rent became payable on _______________
7. The Lease Term expires on
8. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and Landlord is not in
default thereunder
9. No rental has been paid in advance and no security has been deposited
with Landlord except as provided in the Lease.
10. As of the date hereof, there are no existing defenses or offsets
that the undersigned has, which preclude enforcement of the Lease by Landlord.
11. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through __________________. The current monthly installment of Base Rent is $
12. The undersigned acknowledges that this Estoppel certificate may be
delivered to Landlord's prospective mortgagee, or a prospective purchaser, and
acknowledges that it recognizes that if same is done, said mortgagee,
prospective mortgagee, or prospective purchaser
EXHIBIT E
<PAGE> 63
will be relying upon the statements contained herein in making the loan or
acquiring the property of which the Premises are a part, and in accepting an
assignment of the Lease as collateral security, and that receipt by it of this
certificate is a condition of making of the loan or acquisition of such
property.
13. If Tenant is a corporation or partnership, each individual executing
this Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do business in the
state in which the Building is located and that Tenant has full right and
authority to execute and deliver this Estoppel Certificate and that each person
signing on behalf of Tenant is authorized to do so.
Executed at __________ on the ____ day of ________,19__
"Tenant":
CRL NETWORKS,
a California corporation
By:
----------------------------------------
Name:
----------------------------------
Title:
----------------------------------
By:
----------------------------------------
Name:
----------------------------------
Title:
----------------------------------
EXHIBIT E - Page 2
<PAGE> 64
EXHIBIT F
ASBESTOS NOTIFICATION
100 CALIFORNIA STREET BUILDING
The California legislature adopted Assembly Bill 3713 (effective January
1, 1989) which requires, among other things, that a building owner inform
tenants, employees and contractors if the building owner has knowledge of the
presence of asbestos containing materials (ACMs) in the building. In the
California statutes an ACM is defined as a construction material containing
"more than one-tenth of one percent asbestos by weight."
Annually the building sends a letter to the building's tenants,
employees and contractors disclosing the presence of ACMs known to the owner.
All of the buildings consultant's reports are available for review in the
Building Office, 100 California Street, Suite 770, San Francisco, California.
During the month of April, 1994 a survey of the building was conducted
by Boelter Environmental Consultants. The survey concludes that during the
original building construction, two layers of materials were applied to the
underside of the floor decks above the ceiling of floors 3 through 12. The
outermost material is a hard layer of fireproofing which does not contain ACM.
The innermost material (which is completely covered by the hard fireproofing) is
acoustical plaster which does contain ACM. This innermost layer is not in
contact with the ventilation systems and is not able to be contacted through
routine ceiling access, nor is it likely to produce levels of asbestos fibers in
the air.
Asbestos is a naturally-occurring mineral used in many types of
construction. High concentrations of asbestos fibers have been found to be
associated with asbestosis and lung cancer in humans. Most of the evidence for
this has come from individuals who have been associated with mining of the
mineral or have worked with it in shipyards or other settings where
concentrations of asbestos in the air have been high.
Based upon the April 1994 survey finding, the building's consultant has
revised the Operations and Maintenance Program in order to accurately reflect
the condition and location of ACM in the building. All contractors, including
those hired directly by tenants who work in any Section of the building will be
required to follow the revised procedures. Employees who are not trained in
handling ACM should not remove, drill or otherwise disturb it. Copies of the
procedures are available in the Building Office, 100 California Street, Suite
770, San Francisco California.
If you should require any additional information regarding this subject,
please do not hesitate to call.
Page 1
<PAGE> 65
EXHIBIT G
TENANT CERTIFICATE
Please complete all of the blanks with the appropriate information.
<TABLE>
<S> <C>
LEASED PREMISES: Suite B6, 100 California Street, San
Francisco, California (the "Leased Premises")
LANDLORD/BORROWER: WHLNF REAL ESTATE LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Landlord")
TENANT: CRL NETWORKS, a California corporation (the
"Tenant")
LEASE DATED: August 28, 1998 (the "Lease")
TENANT'S NOTICE ADDRESS: Suite B6, 100 California Street
San Francisco, California 94111
DATE: August 28, 1998
</TABLE>
GENERAL ELECTRIC CAPITAL CORPORATION ("GECC") has made or is about to make a
loan (the "Loan") to the Landlord which will be secured by a mortgage or deed of
trust and security agreement (the "Deed of Trust"), covering the real property
described on EXHIBIT A and the buildings and improvements located thereon
(collectively, the "Real Property"). In connection with the making of the Loan,
GECC has requested that the Tenant complete this Tenant Certificate with the
appropriate information as it pertains to the Tenant's lease and to agree to the
requirements set forth herein.
The undersigned, Tenant, hereby certifies to and agrees with GECC, as to
the following:
ACKNOWLEDGMENT OF LEASE
1. The Leased Premises contain approximately 4,051 rentable square feet.
The term of the Lease is for five (5) years, and shall commence on the
Commencement Date as determined pursuant to the Lease.
2. The minimum monthly Base Rent initially payable under the Lease is
$8,439.58, and is subject to adjustment as provided in the Lease.
3 Concurrently with Tenant's execution of the Lease, Tenant is required to
deliver to Landlord a security deposit of $9,114.75.
Page 1
<PAGE> 66
4. No rent or other sum which is payable under the Lease has been paid by
or on behalf of Tenant more than one (1) month in advance.
5. The Lease, upon execution by the Landlord, is valid and in full force
and effect, and, to the best of Tenant's knowledge, neither Landlord nor
Tenant is in default thereunder.
6. Any improvements required by the Lease to be made by Landlord have been
completed to the full satisfaction of Tenant, except as required
pursuant to Exhibit B attached to the Lease.
7. The Lease has not been assigned, modified, supplemented or amended in
any way. Tenant shall not enter into any assignment, modification,
supplement or amendment to the Lease without the prior written consent
of GECC. The Lease constitutes the entire agreement between the parties
and there are no other agreements (including any letter agreements)
between Landlord and Tenant concerning the Leased Premises. Tenant shall
not, without obtaining the prior written consent of GECC, (a) prepay any
of the rents, additional rents or other sums due under the Lease for
more than one (1) month in advance of the due dates thereof, ~)
voluntarily surrender the Leased Premises or terminate the Lease without
cause, or (c) assign the Lease or sublet the Leased Premises other than
pursuant to the provisions of the Lease.
SUBORDINATION
8. The Lease (including, without limitation, all rights to insurance
proceeds and condemnation awards, any rights of first refusal, options
to purchase, and any other rights granted to Tenant pursuant to the
Lease) is, and shall at all times continue to be, subject and
subordinate in each and every respect, to (a) the Deed of Trust and to
any and all liens, security interests, rights and any other interest
created thereby and to any and all increases, renewals, modifications,
extensions, substitutions, replacements and/or consolidations of the
Deed of Trust and the Loan, and ~) any additional financing of the Real
Property or portions thereof provided by GECC and the liens and security
interests under the documents evidencing and securing such additional
financing, and to any increases therein or supplements thereto.
NON-DISTURBANCE
9. So long as the Lease is in full force and effect and Tenant is not in
default in the payment of rent, additional rent, taxes, utility charges
or other sums payable by Tenant under the terms of the Lease, or under
any of the other terms, covenants or conditions of the Lease on Tenant's
part to be performed beyond the period, if any, specified in the Lease
within which Tenant may cure such default) (a) Tenant's possession of
the Leased Premises under the Lease shall not be disturbed or interfered
with by GECC in the exercise of any of its rights under the Deed of
Trust, including any foreclosure, and (1)) GECC will not join Tenant as
a party defendant for the purpose of terminating Tenant's interest and
estate under the Lease in any proceeding for foreclosure of the Deed of
Trust.
EXHIBIT G - Page 2
<PAGE> 67
ATTORNMENT
10. If, at any time GECC (or any person, or such person's successors or
assigns, who acquire the interest of the Landlord under the Lease
through foreclosure action of the Deed of Trust, or upon a transfer of
the Real Property by conveyance in lieu of foreclosure, or otherwise)
shall succeed to the rights of the Landlord under the Lease as a result
of a default or event of default under the Mortgage, and if the Tenant
is not then in default under the Lease beyond the time permitted
therein, if any, to cure such default), then (a) the Lease shall not
terminate, (0) upon receipt by Tenant of written notice of such
succession, Tenant shall attorn to and recognize such person as
succeeding to the rights of the Landlord under the Lease (herein
sometimes called "Successor Landlord"), upon the terms and conditions of
the Lease, and (c) Successor Landlord shall accept such attornment and
recognize Tenant as the Successor Landlord's tenant under the Lease.
Upon such attornment and recognition, the Lease shall continue in full
force and effect as, or as if it were, a direct lease between the
Successor Landlord and Tenant upon all of the terms, conditions and
covenants (including any right under the Lease on the part of the Tenant
to extend the term of the Lease) as are set forth in the Lease and which
shall be applicable after such attornment and recognition.
Notwithstanding anything to the contrary set forth herein, GECC or such
Successor Landlord shall not be (i) liable for any act or omission of
any previous landlord, including the Landlord, (ii) subject to any
offset, defense or counterclaim which Tenant might be entitled to assert
against any previous landlord, including the Landlord, (iii) bound by
any payment of rent or additional rent made by the Tenant to any
previous landlord (including the Landlord) for more than one (1) month
in advance, unless the same was paid to and received by the Successor
Landlord, (iv) bound by any amendment or modification of the Lease
hereafter made without the written consent of GECC, or (v) liable for
any deposit that Tenant may have given to any previous landlord
(including the Landlord) which has not been transferred to the Successor
Landlord. Further, notwithstanding anything to the contrary set forth
herein, the liability of GECC for any obligations under the Lease shall
be limited to GECC's interest in the Real Property. GECC shall not have
any liability or responsibility under or pursuant to the terms of the
Lease after it ceases to own an interest in or to the Real Property.
11. The provisions of this Tenant Certificate regarding attornment by Tenant
shall be self-operative and effective without the necessity of execution
of any new lease or other document on the part of any party hereto or
the respective heirs, legal representatives, successors or assigns of
any such party. Tenant agrees, however, to execute and deliver at any
time and from time to time, upon the request of GECC or of any Successor
Landlord, any instrument or certificate which, in the reasonable
judgment of GECC or such Successor Landlord may be necessary or
appropriate in any such foreclosure proceeding or otherwise to evidence
such attornment, including, if requested, a new lease of the Leased
Premises on the same terms and conditions as the Lease.
HAZARDOUS MATERIALS
EXHIBIT G - Page 3
<PAGE> 68
12. Tenant shall neither suffer nor itself manufacture, store, handle,
transport, dispose of, spill, leak or dump any toxic or hazardous waste,
waste product or substance (as they may be defined in any federal or
state statute, rule or regulation pertaining to or governing such
wastes, waste products or substances) on the Leased Premises or on any
property in the vicinity of the Leased Premises at any time during the
term (including any renewal term) of the Lease and during Tenant's
occupancy of the Leased Premises.
NOTICE
13. Tenant hereby acknowledges and agrees that: (a) from and after the date
hereof, in the event of any act or omission of Landlord which would give
Tenant the right, either immediately or after the lapse of time, to
terminate the Lease or to claim a partial or total eviction, Tenant will
not exercise any such right (i) until it has given written notice of
such act or omission to GECC and (ii) until the expiration of thirty
(30) days following such giving of notice to GECC in which time period
GECC shall be entitled to cure any such act or omissions of Landlord;
(b) Tenant shall send to Landlord all copies of any such default, notice
or statement under the Lease at the same time such notice is sent to
Landlord; and (c) if GECC notifies Tenant of a default under the Deed of
Trust and demands that Tenant pay its rent and all other sums due under
the Lease to GE CC, Tenant shall honor such demand and pay its rent and
all of the sums due under the Lease directly to GECC or as otherwise
required pursuant to such notice.
All notices and other communications from Tenant to GECC shall be in
writing and shall be delivered or mailed by registered mail, postage
paid, return receipt requested, or delivered by an overnight courier,
addressed to GECC at:
General Electric Capital Corporation
16479 Dallas Parkway, Suite 400
Two Bent Tree Tower
Dallas, TX 75248
Attention: Julie Krommenhock
Re: Loan No.: ____________________
or at such other address as GECC, any successor, purchaser or transferee
shall furnish to the Tenant in writing.
This Tenant Certificate is being executed and delivered by Tenant to induce GECC
to make the Loan which is to be secured in part by an assignment to GECC of
Landlord's interest in the Lease and with the intent and understanding that the
above statements will be relied upon by GECC. This Tenant Certificate shall
inure to the benefit of and be binding upon the parties hereto, their successors
and permitted assigns, and any purchaser or purchasers at foreclosure of the
Real Property, and their respective heirs, personal representatives, successors
and assigns.
EXHIBIT G - Page 4
<PAGE> 69
TENANT:
CRL NETWORKS,
a California corporation
By: (Please sign name)
------------------------
Name: (Please print name)
------------------------
Title: (Please print title within Company)
------------------------
Date: (Please print date of execution)
------------------------
By: (Please sign name)
------------------------
Name: (Please print name)
------------------------
Title: (Please print title within Company)
------------------------
Date: (Please print date of execution)
------------------------
GECC
GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation
By:
----------------------------
Name: Michael Hudspeth
Title: Its Attorney-In-Fact
Date:
----------------------------
SIGNATURES MUST BE ACKNOWLEDGED, PLEASE ATTACH NOTARY FORMS.
EXHIBIT G - Page 5
<PAGE> 70
STATE OF )
) ss.
COUNTY OF )
On ________________________________, before me, ____________________, a
Notary Public in and for said state, personally appeared
________________________ and _____________________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the persons
whose names are subscribed to the within instrument and acknowledged to me that
they executed the same in their authorized capacities, and that by their
signatures on the instrument, the persons, or the entity upon behalf of which
the persons acted, executed the instrument.
WITNESS my hand and official seal.
- -------------------------------------
Notary Public in and for said State
STATE OF )
) ss.
COUNTY OF )
On _________________________________, before me, _____________________,
a Notary Public in and for said state, personally appeared
________________________ and ______________________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the persons
whose names are subscribed to the within instrument and acknowledged to me that
they executed the same in their authorized capacities, and that by their
signatures on the instrument, the persons, or the entity upon behalf of which
the persons acted, executed the instrument.
WITNESS my hand and official seal.
- -------------------------------------
Notary Public in and for said State
Page 6
<PAGE> 71
EXHIBIT A TO EXHIBIT G
LEGAL DESCRIPTION OF THE REAL PROPERTY
[LANDLORD TO PROVIDE]
EXHIBIT A TO EXHIBIT G
<PAGE> 72
EXTENSION OPTION RIDER
This Extension Option Rider ("Extension Rider") is made and entered into
by and between WHLNF REAL ESTATE LIMITED PARTNERSHIP. a Delaware limited
partnership ("Landlord"), and CRL NETWORKS, a California corporation ("Tenant"),
and is dated as of the date of the Office Lease ("Lease") by and between
Landlord and Tenant to which this Extension Rider is attached. The agreements
set forth in this Extension Rider shall have the same force and effect as if set
forth in the Lease. To the extent the terms of this Extension Rider are
inconsistent with the terms of the Lease, the terms of this Extension Rider
shall control.
1. Option Right. Landlord hereby grants Tenant one (I) option to extend
the Lease Term for a period of five (5) years (the "Option Term"), which option
shall be exercisable only by written Exercise Notice (as defined below)
delivered by Tenant to Landlord as provided below, provided that, as of the date
of delivery of such Exercise Notice, Tenant is not in default under the Lease
and Tenant has not previously been in default under the Lease more than once.
Upon the proper exercise of such option to extend, and provided that, as of the
end of the initial Lease Term Tenant is not in default under the Lease and
Tenant has not previously been in default under the Lease more than once, the
Lease Term shall be extended for the Option Term. The rights contained in this
Extension Rider shall be personal to the original Tenant executing the Lease and
may only be exercised by the original Tenant (and not any assignee, sublessee or
other transferee of Tenant's interest in the Lease) if the original Tenant
occupies the entire Premises as of the date of the Exercise Notice.
2. Option Rent. The Annual Base Rent payable by Tenant during the Option
Term (the "Option Rent") shall be equal to the "Fair Market Rental Rate" for the
Premises, which for the purposes hereof shall mean the Annual Base Rent at which
tenants. as of the commencement of the Option Term, are leasing non-sublease
space comparable in size, location and quality to the Premises for a comparable
term, which comparable space is located in the Building and first-class office
buildings comparable to the Building in the Financial District of San Francisco,
California, taking into consideration all concessions and inducements
(including, without limitation, tenant improvement allowances) generally being
granted at such time. All other terms and conditions of the Lease shall apply
throughout the Option Term; however, any obligation of Landlord to construct
Tenant Improvements or provide an allowance (if applicable) shall not apply
during the Option Term and Tenant shall, in no event, have the option to extend
the Lease Term beyond the Option Term described in Section 1 above.
3. Exercise of Option. The option contained in this Extension Rider shall be
exercised by Tenant, if at all, only in the following manner: (i) Tenant shall
deliver written notice to Landlord not more than thirteen (13) months nor less
than twelve (12) months prior to the expiration of the initial Lease Term
stating that Tenant may be interested in exercising its option; (ii) Landlord,
after receipt of Tenant's notice, shall deliver notice (the "Option Rent
Notice") to Tenant not less than ten (10) months prior to the expiration of the
initial Lease Term setting forth the Option Rent; and (iii) if Tenant wishes to
exercise such option, Tenant shall, on or before the date (the "Exercise Date")
which is the earlier of (A) the date occurring nine (9) months prior to
EXHIBIT A TO EXHIBIT G - Page 1
<PAGE> 73
the expiration of the initial Lease Term, and (B) the date occurring thirty (30)
days after Tenant's receipt of the Option Rent Notice, exercise the option by
delivering written notice ("Exercise Notice") thereof to Landlord, and upon, and
concurrent with such exercise, Tenant may, at its option, object to Landlord's
determination of the Fair Market Rental Rate contained in the Option Rent
Notice, in which case the parties shall follow the procedure and the Fair Market
Rental Rate shall be determined as set forth in Section 4 below. Tenant's
failure to deliver the Exercise Notice on or before the Exercise Date, shall be
deemed to constitute Tenant's waiver of its extension right hereunder.
4. Determination of Fair Market Rental Rate. In the event Tenant timely
objects in writing to the Fair Market Rental Rate initially determined by
Landlord, Landlord and Tenant shall attempt to agree upon the Fair Market Rental
Rate, using their best good-faith efforts. If Landlord and Tenant fail to reach
agreement within ten (10) business days following Tenant's objection to the Fair
Market Rental Rate (the "Outside Agreement Date"), then each party shall submit
to the other party a separate written determination of the Fair Market Rental
Rate within ten (10) business days after the Outside Agreement Date, and such
determinations shall be submitted to arbitration in accordance with Sections 4.1
through 4.7 below. Failure of Tenant or Landlord to submit a written
determination of the Fair Market Rental Rate within such ten (10) business day
period shall conclusively be deemed to be the non-determining party's approval
of the Fair Market Rental Rate submitted within such ten (10) business day
period by the other party.
4.1 Landlord and Tenant shall each appoint one arbitrator who
shall by profession be an independent real estate appraiser who has no financial
interest in Landlord or Tenant and who shall have been active over the five (5)
year period ending on the date of such appointment in the appraisal for rental
purposes of rentals of space in first-class office buildings in the Financial
District of San Francisco, California. The determination of the arbitrators
shall be limited solely to the issue of whether Landlord's or Tenant's submitted
Fair Market Rental Rate is the closest to the actual Fair Market Rental Rate as
determined by the arbitrators, taking into account the requirements of Section 2
of this Extension Rider. Each such arbitrator shall be appointed within thirty
(30) days after the Outside Agreement Date.
4.2 The two (2) arbitrators so appointed shall within ten (10)
business days of the date of the appointment of the last appointed arbitrator
agree upon and appoint a third arbitrator who shall be qualified under the same
criteria as set forth hereinabove for qualification of the initial two (2)
arbitrators.
4.3 The three (3) arbitrators shall within twenty (20) days after
the appointment of the third arbitrator reach a decision as to which of the
Landlord's or Tenant's submitted Fair Market Rental Rate is closest to the
actual Fair Market Rental Rate, and the arbitrators shall use whichever
submitted Fair Market Rental Rate is closest to the Fair Market Rental Rate as
the Option Rent to be paid during the Option Term, and shall notify Landlord and
Tenant thereof.
EXHIBIT A TO EXHIBIT G - Page 2
<PAGE> 74
4.4 The decision of the majority of the three (3) arbitrators
shall be binding upon Landlord and Tenant.
4.5 If either Landlord or Tenant fails to appoint an arbitrator
within thirty (30) days after the Outside Agreement Date, and if such failure
shall continue for an additional fifteen (15) days after written notice thereof
is received by the non-appointing party, the arbitrator appointed by one of them
shall reach a decision, notify Landlord and Tenant thereof, and such
arbitrator's decision shall be binding upon Landlord and Tenant.
4.6 If the two (2) arbitrators fail to agree upon and appoint a
third arbitrator within the time period provided in Section 1.4.2 above, then
the parties shall mutually select the third arbitrator. If Landlord and Tenant
are unable to agree upon the third arbitrator within ten (10) days, then either
party may, upon at least five (5) days' prior written notice to the other party,
request the Presiding Judge of the San Francisco County Superior Court, acting
in his private and nonjudicial capacity, to appoint the third arbitrator.
Following the appointment of the third arbitrator, the panel of arbitrators
shall within thirty (30) days thereafter reach a decision as to whether
Landlord's or Tenant's submitted Option Rent shall be used and shall notify
Landlord and Tenant thereof.
4.7 The cost of the arbitrators and the arbitration proceeding
shall be paid by Landlord and Tenant equally, except that each party shall pay
for the cost of its own witnesses and attorneys.
"Landlord":
WHLNF REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partners
By: LPC MS, Inc.,
as agent and manager for Landlord
By:
-------------------------------------
D. Allen Palmer
Its: Senior Vice President
"Tenant":
CRL NETWORKS,
a California corporation
By:
----------------------------------------
Name:
---------------------------------
Title:
---------------------------------
By:
----------------------------------------
Name:
---------------------------------
Title:
---------------------------------
EXHIBIT A TO EXHIBIT G - Page 3
<PAGE> 1
EXHIBIT 10.26
PARAMOUNT
GROUP, INC.
LEASE
(CALIFORNIA)
TENANT: CRL NETWORK SERVICES, INC.
DATE: MARCH 8, 1996
<PAGE> 2
PARAMOUNT GROUP, INC.
OFFICE LEASE
(California)
<TABLE>
TABLE OF CONTENTS
<S> <C> <C>
SUMMARY OF LEASE TERMS................................................................1
AGREEMENT.............................................................................4
1. PREMISES...............................................................4
2. TERM...................................................................4
3. RENT...................................................................4
4. RENT ESCALATION........................................................5
5. TAX ON TENANT'S PROPERTY; OTHER TAXES.................................10
6. SECURITY DEPOSIT AND OTHER SECURITY...................................11
7. LATE PAYMENTS.........................................................12
8. USE OF PREMISES.......................................................13
9. BUILDING SERVICES.....................................................14
10. CONDITION OF PREMISES.................................................16
11. DAMAGE TO PREMISES OR BUILDING........................................17
12. EMINENT DOMAIN........................................................18
13. DEFAULT...............................................................19
14. REMEDIES UPON DEFAULT.................................................20
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY............................23
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL..................24
17. ASSIGNMENT AND SUBLETTING.............................................25
18. TRANSFER OF LANDLORD'S INTEREST.......................................30
19. HOLDING OVER..........................................................31
20. NOTICES...............................................................31
21. QUIET ENJOYMENT.......................................................31
22. TENANT'S FURTHER OBLIGATIONS..........................................31
23. ESTOPPEL CERTIFICATE BY LESSEE........................................32
24. SUBORDINATION AND ATTORNMENT..........................................32
25. RIGHTS RESERVED TO LANDLORD...........................................33
26. FORCE MAJEURE.........................................................34
27. WAIVER OF CLAIMS; INDEMNITY...........................................34
28. INSURANCE.............................................................35
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERATIONS.........................37
30. MECHANIC'S LIENS......................................................39
31. ALTERNATE SPACE.......................................................39
32. HAZARDOUS MATERIALS...................................................39
33. MISCELLANEOUS.........................................................41
34. "AS IS" CONDITION.....................................................44
35. TENANT'S SUPPLEMENTAL AIR-CONDITIONING................................45
36. VACATION BY EXISTING TENANT...........................................45
37. RULES AND REGULATIONS.................................................45
i
</TABLE>
<PAGE> 3
EXHIBITS AND RIDERS
ii
<PAGE> 4
PARAMOUNT GROUP, INC.
OFFICE LEASE
(California)
THIS LEASE Is made as of the 8th day of March, 1998, between One
Wilshire Arcade Imperial, Ltd., a California limited partnership, by Paramount
Group, Inc., a Delaware corporation, its agent (hereinafter called "Landlord"),
and CRL Network Services, Inc., a California corporation (hereinafter called
"Tenant").
SUMMARY OF LEASE TERMS
A. Addresses:
<TABLE>
<S> <C>
1. Tenant's Premises and Notice Address: 624 South Grand Avenue, Suite 1710, Los Angeles, CA 90017
With copy of notices to: One Kearny Street, 10th Floor, San Francisco, CA 94108,
Attn: Mr. James Couch
2. Landlord's Notice Address: 624 South Grand Avenue, Suite 1207, Los Angeles, CA 90017
With copy to: Paramount Group, Inc., 1633 Broadway, Suite 1801,
New York, NY 10019
3. Landlord's Address for Rent Payments: One Wilshire Arcade Imperial, Ltd., File #53077,
Los Angeles, CA 90074-3077
</TABLE>
B. Approximate Rentable Area of the Premises:
1,488 rentable square feet. The parties agree that such figure is only a
reasonable estimate of tie area of the Premises. The figures in Items E,
G, H and J below and the other provisions of this Lease shall not be
adjusted due to any difference between the actual area of the Premises
and the estimated area shown above.
C. Lease Term: 5 years and 2 months.
D. 1. Estimated Commencement Date: May 15,1996.
2. Commencement Date: The later of the following 2 dates:
(a) May 15, 1996; or
(b) The date upon which Landlord tenders possession of the
Premises to Tenant after completion of Landlord's
demolition work and removal of asbestos-containing
construction materials from the Premises pursuant to
Section 34.
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<PAGE> 5
E. Schedule of Monthly Base Rents:
The following schedule of monthly Base Rents shall apply during the term
of the Lease, subject to adjustments pursuant to the Rent Escalation
Rider to the Lease regarding increases in the Consumer Price Index:
<TABLE>
<CAPTION>
Monthly Monthly
Period Base Rent Rent Credit
------ --------- -----------
<S> <C> <C>
From May 15.1996 to July 14, 1996 $2,914.00 $2,914.00
From July 15,1996 to July 14, 2001 $2,914.00 None
</TABLE>
The Base Rent for the period from July 15, 1996 to July 14, 1997, shall
be prepaid by Tenant upon execution of this Lease. In light of the
prepayment, the Base Rent for that 12-month period shall be discounted
to a total of $33,551.28, provided that Tenant timely makes such payment
as required, upon Lease execution. If the actual Commencement Date is
before or after the Estimated Commencement Date, then all dates set
forth above in this Section E shall be correspondingly accelerated or
delayed, as the case may be.
F. Base Years for Expenses: Real Estate Taxes-1995-1996; Operating and
Utility Costs -- 1996.
G. Tenant's "Percentage Share" of Real Estate Taxes, Operating and Utility
Costs: 0.2613%.
H. Security Deposit: $2,914.00.
I. Permitted Use: Telecommunications business. Tenant
shall be entitled to use and occupy the Premises
for the operation, installation and maintenance of
telecommunications equipment and its related
facilities and for general office use, all subject
to compliance with applicable laws and the other
provisions of this Lease.
J. Maximum Tenant Improvement Allowance: None. Subject to Landlord's
demolition work and removal of asbestos-containing construction
materials from the Premises pursuant to Section 34. Tenant shall take
the space in its "'as is" shell condition, and shall make all necessary
improvements at Tenant's expense in compliance with this Lease.
K. Tenant's Parking Allotment: One parking space.
L. Landlord's Brokers: J.T. Faulkner, Co., Inc., acting through
salesperson William Peckovich
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<PAGE> 6
M. Riders:
The following exhibits, riders and addenda are attached to and are part
of this Lease:
Exhibit A - Floor Plan of Premises
Exhibit B - Rules and Regulations
Parking Space Rider
Rent Escalation Rider
Telecommunications Conduit Rider
Extension Option Rider
N. Guaranty: Not Applicable.
3
<PAGE> 7
AGREEMENT
1. PREMISES. Landlord hereby leases the Premises to Tenant and Tenant
hereby hires and takes the Premises from Landlord. The Premises are located at
the address set forth in Section A(l) on page 1 and are more particularly shown
on Exhibit "A" attached hereto and incorporated herein by this reference. The
office building in which the Premises are located is referred to herein as the
"Building."
2. TERM.
2.1 The term of this Lease shall commence on the "Commencement Date"
indicated in Section D on Page 1 and shall extend for the period set forth in
Section C on Page 1. In the event that Landlord, for any reason, cannot tender
possession of the Premises to Tenant on or before the "'Estimated Commencement
Date"' indicated in Section D on Page 1, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant in any way as a result of such
failure to tender possession. In the event that Landlord cannot tender
possession of the Premises to Tenant for any reason other than the acts or
omissions of Tenant. Tenant's obligation to pay rent hereunder shall be deferred
by a period of time equal to the delay in Landlord's delivery of possession not
caused by Tenant. If such inability to tender possession of the Premises for
reasons other than the acts or omissions of Tenant continues for a period in
excess of 90 days after the Estimated Commencement Date. Tenant shall have the
right, exercisable by notice to Landlord, to terminate this Lease, but the
suspension of rent obligations and the right of termination pursuant to this
Section 2.1 shall be Tenant's sole remedies in the circumstances herein
described.
2.2 In the event that Tenant is allowed to enter into possession of the
Premises prior to the Commencement Date, such possession shall be deemed to be
pursuant to, and shall be governed by, the terms, covenants and conditions of
this Lease, including without limitation the covenant to pay rent, as though the
Commencement Date occurred upon the date of taking of possession by Tenant.
2.3 In the event that the Commencement Date falls on other than the
first day of a month, rent for any initial partial month of the term hereof
shall be appropriately prorated: and if the date of commencement of Tenant's
rent obligations is delayed, pursuant to Section 2.1, the end of the term hereof
shall be correspondingly delayed. At the request of either party hereto, both
parties shall execute a memorandum confirming the date of commencement of
Tenant's rent obligations.
3. RENT. Beginning on the Commencement Date (subject to adjustment
pursuant to Section 2.1 above), the base rent ("Base Rent") for the Premises
shall be in accordance with the Schedule of Monthly Base Rents set forth in
Section E on Page 2. Each installment of Base Rent shall be payable in advance
on the first day of each and every month throughout the term of this Lease.
Tenant agrees to pay all rent, without offset, demand or deduction of any kind,
to Landlord by mail to the address set forth in Section A(3) on page I or in
such manner, to such other person or at such other place as Landlord may from
time to time designate. Tenant agrees that no payment made to Landlord by check
or other instrument shall contain a restrictive
4
<PAGE> 8
endorsement of any kind: and if any such instrument should contain a restrictive
endorsement in violation of the foregoing, that endorsement shall have no legal
effect whatever, notwithstanding that such item is processed for payment.
4. RENT ESCALATION.
4.1 Tenant shall pay, as monthly rent hereunder, in addition to the Base
Rent, the sums provided in this Section 4. Tenant shall be advised of any
change, from time to time, in rent escalation payments required hereunder by
written notice from Landlord, which shall include information in such detail as
Landlord may reasonably determine to be necessary in support of such change.
Tenant shall have, 30 days after the receipt of any such notice to protest the
change indicated therein, and Tenant's failure to make such protest in a written
notice to Landlord within such 30-day period shall be conclusively deemed to be
Tenant's agreement to such charges. Notwithstanding any such protest all rent
escalation payments falling due after service of such notice shall be made in
accordance with such notice until the protest has been resolved. whereupon any
necessary adjustment shall be made between Landlord and Tenant. Any audit
arising out of such a protest by Tenant shall be done, at Tenant's expense, in
accordance with generally accepted auditing and management standards by a major
public accounting firm selected by Tenant and approved by Landlord in its
reasonable discretion. Such audit shall be performed at the offices of Paramount
Group, Inc., in New York City or at such other location in the United States as
Landlord may select from time to time for the maintenance of its accounting
records for the Building. Any audit shall be limited to the calendar year
covered by the notice from Landlord as to which Tenant served a timely protest
on Landlord. For example, if in early 1998, Landlord gives Tenant a notice of
sums due for calendar year 1997, and if Tenant protests such charges in a
written notice served on Landlord within 30 days thereafter, then any audit
arising out of such protest shall relate to calendar year 1997.
4.2 Following the first December 31 during the term of the Lease, Tenant
shall pay Landlord in a single lump sum upon billing therefor, Tenant's
Percentage Share (as defined in Section G on Page 2 of the Lease) of each of the
following amounts: (1) the amount (if any) by which Real Estate Taxes for the
then current tax fiscal year exceed the Real Estate Taxes for the Base Year for
Real Estate Taxes set forth in Section F on Page 2; (2) the amount (if any) by
which Operating Costs for the just completed calendar year exceed the Operating
Costs for the Base Year for Operating Costs set forth in Section F on Page 2;
and (3) the amount (if any) by which Utility Costs for such calendar year exceed
the Utility Costs for the Base Year for Utility Costs set forth in Section F on
Page 2. At the same time Tenant shall also pay to Landlord one-twelfth of
Tenant's Percentage Share of such amounts for each month that has commenced
since December 31, as estimated payments towards Tenant's share of the Real
Estate Taxes, Operating Costs, and Utility Costs for the following year.
Following each succeeding December 31, Landlord again shall determine in the
same fashion the increase or decrease (if any) in annual Real Estate Taxes,
Operating Costs, and Utility Costs over or under those for the previous year,
and if there is an increase Tenant shall pay to Landlord in a single lump sum
upon billing Tenant's Percentage Share of the increase plus one-twelfth of
Tenant's Percentage Share of such increase for each month that has then
commenced in the new calendar year, or if there is a decrease Landlord shall
refund to Tenant or, at Landlord's option, credit against the next rent
5
<PAGE> 9
falling due under the Lease the amount of the overpayment made by Tenant during
the preceding calendar year, provided that the amount of such refund or credit
shall in no event exceed the total payments made by Tenant during the calendar
year toward Tenant's Percentage Share of excess Real Estate Taxes, Operating
Costs and Utility Costs. Thereafter, with each month's Base Rent until the next
adjustment hereunder, Tenant shall pay one-twelfth of Tenant's Percentage Share
of the cumulative excess (if any) of Real Estate Taxes, Operating Costs and
Utility Costs over the Base Year Real Estate Taxes, Operating Costs and Utility
Costs. The Real Estate Taxes for any partial fiscal year at the end of the Lease
term and the Operating Costs and Utility Costs for any partial calendar year at
the end of the Lease term shall be appropriately prorated.
For purposes hereof, "Real Estate Taxes" shall include any form of
assessment, license fee, license tax, business license fee, commercial rental
tax, levy, penalty, charge, tax or similar imposition (other than net income,
inheritance or estate taxes), imposed by any authority having the direct or
indirect power to tax, including any city, county, state or federal government,
or any school, agricultural, lighting, drainage, flood control or other special
district thereof, as against any legal or equitable interest of Landlord in the
Premises or in the real property of which the Premises and the Building are a
part, including, but not limited to, the following:
(i) Any tax on Landlord's "right" to rent or "right" to
other income from the Premises or as against Landlord's business of leasing the
Premises;
(ii) Any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy or charge previously
included within the definition of Real Estate Taxes, it being acknowledged by
Tenant and Landlord that Proposition 13 was adopted by the voters of the State
of California in the June, 1978 Election and that assessments, taxes, fees,
levies and charges may be imposed by governmental agencies for such services as
fire protection, street, sidewalk and road maintenance, refuse removal and for
other governmental services formerly provided without charge to property owners
or occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of "Real Property Taxes" for the purpose of this Lease;
(iii) Any assessment, tax, fee, levy or charge allocable to or
measured by the area of the Premises or the rent payable hereunder, including,
without limitation, any gross income tax or excise tax levied by the State, City
or Federal government, or any political subdivision thereof, with respect to the
receipt of such rent, or upon or with respect to the possession, leasing,
operating, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof:
(iv) Any assessment, tax, fee, levy or charge upon this
transaction or any document to which Tenant is a party, creating or transferring
an interest or an estate in the Premises;
(v) Any assessment, tax, fee, levy or charge by any
governmental agency related to any transportation plan, fund or system
instituted within the geographic area of which the Building is a part; or
6
<PAGE> 10
(vi) Reasonable legal and other professional fees, costs and
disbursement incurred in connection with proceedings to contest, determine or
reduce real property taxes.
The definition of "Real Estate Taxes," including any additional tax the nature
of which was previously included within the definition of "Real Estate Taxes,"
shall include any increases in such taxes, levies, charges or assessments
occasioned by increases in tax rates or increases in assessed valuations,
whether occurring by sale or otherwise.
As used in this Lease, the term "Operating Costs" shall mean all costs
and expenses of management, operation, maintenance, overhaul, improvement or
repair of the Building, the common areas and the Site, as determined by standard
accounting practices, including the following costs by way of illustration but
not limitation:
(a) Any and all assessments imposed with respect to the
Building, common areas, and/or the site on which the Building is located,
pursuant to any covenants, conditions and restrictions affecting the site,
common areas or Building;
(b) Any costs, levies or assessments resulting from statutes
or regulations promulgated by any governmental authority in connection with the
use or occupancy of the Building or the Premises;
(c) Costs of all insurance obtained by Landlord;
(d) Wages, salaries and other labor costs (including but not
limited to social security taxes, unemployment taxes, other payroll taxes and
governmental charges and the costs, if any, of providing disability,
hospitalization, medical welfare, pension, retirement or other employee
benefits, whether or not imposed by law) of employees, independent contractors
and other persons engaged in the management, operation, maintenance, overhaul,
improvement or repair of the Building;
(e) Building management office and storage rental;
(f) Management and administrative fees (which Tenant
acknowledges are presently 6% of accrued gross revenues of the Building and
which may be adjusted from time to time);
(g) Supplies, materials, equipment and tools;
(h) Costs of, and appropriate reserves for, repair, painting,
resurfacing, and maintenance of the Building, the common areas, the site and the
parking facilities, and their respective fixtures and equipment systems,
including but not limited to the elevators, the structural portions of the
Building, and the plumbing, heating, ventilation, air-conditioning, telephone
cable riser, and electrical systems installed or furnished by Landlord;
(i) Depreciation on a straight-line basis and rental of
personal property used in maintenance;
7
<PAGE> 11
(j) Amortization on a straight-line basis over the useful life
(together with interest at the interest rate defined in Subsection 33.9 of this
Lease on the unamortized balance) of all costs of a capital nature (including,
without limitation, capital improvements, capital replacements, capital repairs,
capital equipment and capital tools):
(1) reasonably intended to produce a reduction in
Operating Costs, Utility Costs or energy consumption; or
(2) required under any governmental or quasi-
governmental law, rule, order, ordinance or regulation that was not applicable
to the Building at the time it was originally constructed (but excluding any
such costs to remediate conditions relating to Hazardous Materials, as defined
in Section 32, which existed prior to the execution of this Lease and which were
required to be remediated prior to the execution of this Lease pursuant to
then-applicable laws); or
(3) for repair or replacement of any Building
equipment needed to operate the Building at the same quality levels as prior to
the replacement;
(k) Costs and expenses of gardening and landscaping;
(l) Maintenance of signs (other than signs of tenants of the
Building);
(m) Personal property taxes levied on or attributable to
personal property used in connection with the Building, the common areas, or the
site;
(n) Costs of all service contracts pertaining to the Premises,
the Building or the site;
(o) Reasonable accounting, audit, verification, legal and
other consulting fees;
(p) Costs and expenses of lighting, janitorial service,
cleaning, refuse removal, security and similar items, including appropriate
reserves;
(q) Any costs incurred with respect to a transportation
systems manager, rider share coordinator or any private transportation system
established for the benefit of tenants in the Building, whether or not imposed
by any governmental authority;
(r) If the Building has a helipad, its costs to the extent not
covered by user fees; and
(s) Fees imposed by any federal, state or local government for
fire and police protection, trash removal or other similar services which do not
constitute Real Estate Taxes.
Notwithstanding anything in the above definition of Operating Costs in
this Paragraph 4.2, Operating Costs shall not include any of the following:
8
<PAGE> 12
(aa) depreciation of the Building or any personal
property of Landlord (except that amortization or depreciation of the items in
subparagraphs (i) and (j) of this Section 4.2 shall not be considered
depreciation for purposes of this exclusion);
(bb) excess profit taxes payable by Landlord or any
other federal and state income taxes imposed on Landlord's net income;
(cc) repairs or other work occasioned by fire or any
other casualty to the extent that the cost of such repairs are reimbursed to
Landlord by insurers, by government authorities in eminent domain or any other
source;
(dd) any and all costs or expenses to procure tenants
for the Building including, but not limited to, brokerage commissions,
attorneys' fees and costs, advertising and commercial expenses incurred to
publicize the Building;
(ee) consulting fees and costs and other similar
expenses incurred in connection with negotiations for leases with tenants,
prospective tenants, or other occupants of the Building;
(ff) attorneys' fees and other costs incurred due to
the violation by Landlord of the terms and conditions of this Lease and
applicable federal, state and governmental laws, ordinances, orders, rules and
regulations that would not have been incurred but for any such violation by
Landlord;
(gg) costs incurred in renovating or otherwise improving
or decorating or redecorating space for tenants or other occupants in the
Building or vacant leaseable space in the Building;
(hh) costs of a capital nature in accordance with
generally accepted accounting principles, consistently applied, including
without limitation, additions, alterations, improvements, replacements and
repairs, to the extent that such are of a capital nature (excepting as provided
in subparagraphs (i) and (j) in this Section 4.2);
(ii) costs of any structural repairs (except as provided
in subparagraph (j) in this Section 4.2);
(jj) interest on debt or other debt instruments or
amortization payments on any mortgage or mortgages or other debt instruments
(except for any increases in the annual variable or contingent interest on trust
deed loans encumbering the Building as of the Commencement Date, over the annual
variable or contingent interest on such loans in the calendar year in which the
Commencement Date occurs);
(kk) cost of Landlord's general corporate overhead and
general administrative expenses not directly allocable to the administration of
the Building, which would not be chargeable to operating expenses of the
Building in accordance with generally accepted accounting principles,
consistently applied;
9
<PAGE> 13
(ll) all items and services for which Tenant or other
tenants of the Building specifically reimburse Landlord, and all items and
services for which Tenant or other tenants in the Building pay third persons;
and
(mm) any ground lease rental.
For purposes hereof, "Utility Costs" shall include all charges,
surcharges and other costs of all utilities paid for by Landlord in connection
with the Premises and/or Building, including without limitation costs of
heating, ventilation and air conditioning for the Premises and/or Building,
costs of furnishing gas, electricity and other fuels or power sources to the
Premises and/or Building, and costs of furnishing water and sewer services to
the Premises and/or Building.
The term "Building" as used in this Section 4,2 shall be deemed to
include not only the Building but also any parking facility owned, leased or
operated by Landlord in order to meet the parking requirements of the Building.
If the average occupancy of the rentable area of the Building during the
Tenant's Base Year for Operating and Utility Costs as set forth in Section F on
page 2 or during any other calendar year of the Lease term is less than 90% of
the total rentable area of the Building, the Operating Costs and Utility Costs
shall be adjusted by Landlord for such calendar year, prior to the pass-through
of Operating Costs and Utility Costs to Tenant pursuant to this Section 4.2, to
reflect what they would have been had 90% of the rentable area been occupied
during that year. In making such calculation, the Landlord's reasonable opinion
of what portion, if any, of each cost was affected by changes in occupancy shall
be binding upon the parties.
5. TAX ON TENANT'S PROPERTY; OTHER TAXES.
5.1 Tenant shall be liable for, and shall pay at least 10 days before
delinquency, and Tenant hereby indemnifies and holds Landlord harmless from and
against any liability in connection with, all taxes levied directly or
indirectly against any personal property, fixtures, machinery, equipment,
apparatus, systems and appurtenances placed by Tenant in or about, or utilized
by Tenant in, upon or in connection with, the Premises ("Equipment Taxes"). If
any Equipment Taxes are levied against Landlord or Landlord's property or if the
assessed value of Landlord's property is increased by the inclusion therein of a
value placed upon such personal property, fixtures, machinery, equipment,
apparatus, systems or appurtenances of Tenant, and if Landlord, after written
notice to Tenant, pays the Equipment Taxes or taxes based upon such an increased
assessment (which Landlord shall have the right to do regardless of the validity
of such levy, but only under proper protest if requested by Tenant prior to such
payment and if payment under protest is permissible), Tenant shall pay to
Landlord upon demand, as additional rent hereunder, the taxes so levied against
Landlord or the proportion of such taxes resulting from such increase in the
assessment; provided, however, that in any such event Tenant shall have the
right, in the name of Landlord and with Landlord's full cooperation, but at no
cost to Landlord, to bring suit in any court of competent jurisdiction to
recover the amount of any such tax so paid under protest, and any amount so
recovered shall belong to Tenant.
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<PAGE> 14
5.2 If the tenant improvements in the Premises, whether installed and/or
paid for by. Landlord or Tenant and whether or not affixed to the real property
so as to become a part thereof, are assessed for real property tax purposes at a
valuation higher than the valuation at which tenant improvements conforming to
Landlord's building standards in other space in the Building are assessed, then
the real property taxes and assessments levied against Landlord or Landlord's
property by reason of such excess assessed valuation shall be deemed to be
Equipment Taxes and shall be governed by the provisions of Section 5.1. Any such
amounts, and any similar amounts attributable to excess improvements by other
tenants of the Building and recovered by Landlord from such other tenants under
comparable lease provisions, shall not be included in Real Estate Taxes for
purposes of rent escalation under Section 4 of this Lease.
5.3 Tenant shall pay, as additional rent hereunder, upon demand and in
such manner and at such times as Landlord shall direct from time to time by
written notice to Tenant, any excise, sales, privilege or other tax, assessment
or other charge (other than income or franchise taxes) imposed, assessed or
levied by any governmental or quasi-governmental authority or agency upon
Landlord on account of this Lease, the rent or other payments made by Tenant
hereunder, any other benefit received by Landlord hereunder, Landlord's business
as a lessor hereunder, or otherwise in respect of or as a result of the
agreement or relationship of Landlord and Tenant hereunder.
6. SECURITY DEPOSIT AND OTHER SECURITY.
6.1 A deposit (the "Security Deposit") in the amount set forth in
Section H on page 2 shall be paid by Tenant upon execution of this Lease and
shall be held by Landlord without liability for interest and as security for the
performance by Tenant of Tenant's covenants and obligations under this Lease, it
being expressly understood that the Security Deposit shall not be considered an
advance payment of rent or a measure of Landlord's damages in case of default by
Tenant. Upon the occurrence of any breach or default under this Lease by Tenant,
Landlord may, from time to time, without prejudice to any other remedy, use the
Security Deposit or any portion thereof to the extent necessary to make good any
arrearages of rent or any other damage, injury, expense, or liability caused to
Landlord by such breach or default, Following any application of the Security
Deposit, Tenant shall pay to Landlord on demand an amount to restore the
Security Deposit to its original amount. In the event of bankruptcy or other
debtor relief proceedings by or against Tenant, the Security Deposit shall be
deemed to be applied first to the payment of rent and other charges due
Landlord, in the order that such rent or charges became due and owing, for all
periods prior to filing of such proceedings, Landlord shall not be required to
keep the Security Deposit separate from its general funds. Upon termination of
this Lease any remaining balance of the Security Deposit shall be returned by
Landlord to Tenant within 14 days after termination of Tenant's tenancy.
6.2 As additional partial security for the faithful performance of its
obligations under this Lease, Tenant hereby grants Landlord a security interest
in all furniture, fixtures, equipment, and all other personal property now owned
or hereafter acquired by Tenant and located on the Premises for use in Tenant's
business operated in the Premises (the "Collateral"), and all accessions to,
and the proceeds, increases, or products of, the whole or any part of the
Collateral.
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<PAGE> 15
Tenant represents and warrants to Landlord that such security interest shall at
all times be senior to any other liens or encumbrances against the Collateral,
This Section 6.2 shall constitute a security agreement for such Collateral
between Landlord and Tenant, which shall terminate upon the later of (a) the
expiration or termination of this Lease or (b) the full performance of all
Tenant's obligations under the Lease, Upon execution of this Lease, Tenant
agrees to execute and cooperate in filing a UCC-1 financing statement and/or
fixture filing with the California Secretary of State and/or the Los Angeles
County Recorder, as appropriate, in order to perfect Landlord's security
interest in the Collateral, Such financing statement and/or fixture filing shall
be renewed by the parties from time to time before its expiration, and shall be
supplemented by the parties from time to time, as Landlord may request, by the
preparation and filing with the Secretary of State and/or County Recorder, as
appropriate, of an inventory of all items included within the Collateral at the
time of the inventory.
Tenant shall initiate and maintain, or defend, at its sole expense, any
proceeding which may affect or protect its title to, or Landlord's interest in,
all, or any part of, the Collateral, Such obligation shall not apply to any
claims on title arising through Landlord or Landlord's successors-in-interest
after Landlord takes title to the Collateral, if ever. Tenant shall take all
steps necessary to protect the Collateral from damage or destruction, and shall
not, without the prior written consent of Landlord, transfer all or any part of
the Collateral, Except in the ordinary course of business, Tenant shall not,
without obtaining the prior written consent of Landlord, sell, lease, encumber
or otherwise dispose of any part of the Collateral, provided however that Tenant
shall have the right to sell any part of the Collateral after having given
Landlord written notice at least five business days prior to such sale on
condition that such Collateral shall be replaced immediately thereafter by
another piece which is either of equal or greater value, and which shall
thereafter become a part of the Collateral.
Tenant shall maintain the Collateral, and each part thereof, in good
order and repair at Tenant's own cost and expense, and shall not use the
Collateral, or any part thereof, in a manner that would subject the Collateral
to waste or undue deterioration. Tenant assumes all risk of loss to the
Collateral, and Tenant shall not be released from any obligations under this
Lease arising out of any loss, damage or disrepair suffered by the Collateral,
and all parts thereof, Landlord may, upon giving Tenant at least twenty-four
hours written notice, enter the Premises at any reasonable business hour, to
inspect the Collateral.
Should Tenant be in default under the terms of the Lease, Landlord shall
have, in addition to Landlord's rights as a landlord at law, equity, or under
the terms of the Lease, the rights and remedies of a secured party under the
California Commercial Code, as well as the rights and remedies provided for at
law, in equity or in the Lease. Nothing in this Section 6.2 shall be deemed to
limit in any way Landlord's remedies in the event of Tenant's default, Landlord
shall not be required to exhaust all or any of the Collateral before preceding
with Landlord's other remedies. Landlord may pursue its remedies in any order
that Landlord sees fit. To the extent allowed by law, Tenant waives notice of
foreclosure, notice of sale and advertisement of sale.
7. LATE PAYMENTS. All covenants and agreements to be performed by Tenant
under any of the terms of this Lease shall be performed by Tenant at Tenant's
sole cost and
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expense and without any abatement of rent. Tenant acknowledges that the late
payment by Tenant to Landlord of any sums due under this Lease will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of such
cost being extremely difficult and impractical to fix. Such costs include,
without limitation, processing and accounting charges, and late charges that may
be imposed on Landlord by the terms of any note or other obligation secured by
any encumbrance covering the Premises or the Building of which the Premises are
a part. Therefore, if any monthly installment of rent is not received by
Landlord by the date when due, or if Tenant fails to pay any other sum of money
due hereunder, Tenant shall pay to Landlord, as additional rent, the sum of ten
percent (10%) of the overdue amount as a late charge. Landlord's acceptance of
any late charge, or interest pursuant to Section 33.9, shall not be deemed to be
liquidated damages, nor constitute a waiver of Tenant's default with respect to
the overdue amount, nor prevent Landlord from exercising any of the other rights
and remedies available to Landlord under this Lease or any law now or hereafter
in effect, Further, in the event such late charge is imposed by Landlord for 2
consecutive months for whatever reason, Landlord shall have the option to
require that, beginning with the first payment of rent due following the
imposition of the second consecutive late charge, rent shall no longer be paid
in monthly installments but shall be payable 3 months in advance.
8. USE OF PREMISES. Tenant, and any permitted subtenant or assignee,
shall use the Premises only for the use described in Section I on page 2. Any
other use of the Premises is absolutely prohibited. Tenant shall not use or
occupy the Premises in violation of any recorded covenants, conditions and
restrictions affecting the land on which the Building is located nor of any law,
ordinance, rule and regulation. Tenant shall not do or permit to be done
anything which will invalidate or increase the cost of any fire, extended
coverage or any other insurance policy covering the Building or property located
therein and shall comply with all rules, orders, regulations and requirements of
any applicable fire rating bureau or other organization performing a similar
function. Tenant shall promptly upon demand reimburse Landlord as additional
rent for any additional premium charged for any insurance policy by reason of
Tenant's failure to comply with the provisions of this Section 8. Tenant shall
not do or permit anything to be done in or about the Premises which will in any
way obstruct or interfere with the rights of other tenants of occupants of the
Building, or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon the Premises and
shall keep the Premises in first class repair and appearance. Tenant shall not
place a load upon the Premises exceeding the average pounds of live load per
square foot of floor area specified for the Building by Landlord's architect,
with any partitions to be considered a part of the live load. Landlord reserves
the right to prescribe the weight and position of all safes, files and heavy
equipment which Tenant desires to place in the Premises so as to distribute
properly the weight thereof. Tenant's business machines and mechanical equipment
which cause vibration or noise that may be transmitted to the Building structure
or to any other space in the Building shall be so installed, maintained and used
by Tenant as to eliminate such vibration or noise. Tenant shall be responsible
for the cost of all structural engineering required to determine structural
load. In any event, unless specifically authorized herein, Tenant shall not
prepare or serve, or authorize the preparation or service of, food or beverages
in the Premises, except only the occasional
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preparation of coffee, tea, hot chocolate and other such common refreshments for
Tenants and its employees. Tenant shall not conduct any auction in or about the
Premises or the Building without Landlord's prior written consent.
9. BUILDING SERVICES.
9.1 Throughout the term of this Lease, subject to shortage and accidents
beyond Landlord's reasonable control, and subject to reimbursement pursuant to
Section 4.2, Landlord shall repair and maintain all structural elements of the
Building and common areas (including, without limitation, the structural walls,
doors, floors, ceilings, roof, elevators, stairwells, lobby, heating system, air
conditioning system, telephone cable riser for Building-standard service from
the Building's main terminal to the terminal box on the same floor as the
Premises [but excluding Tenant's telephone equipment and the cable and wiring
from such equipment to the terminal box], plumbing and electrical wiring) and
maintain the exterior of the Premises, including grounds, walks, drives and
loading area, if any, Tenant shall reimburse Landlord upon demand, as additional
rent hereunder, for the cost of any repairs or extraordinary maintenance
necessitated by acts of Tenant or Tenant's employees, contractors, agents,
licensees or invitees. Landlord agrees to operate and maintain the Building
(including Tenant's means of access to the Premises) in a safe, first class,
commercially reasonable manner consistent with the standards of landlords of
other office buildings of comparable size, age and quality in the central
business district of Los Angeles. Such standards shall include standards for
compliance of the Building's structural elements, systems, common areas and
other areas under Landlord's control with all applicable laws, subject to (a)
acts of Tenant or third parties, (b) shortages and accidents beyond Landlord's
reasonable control, (c) commercially reasonable time periods for programs
implementing compliance with laws requiring substantial expenditures, and (d)
reimbursement of Landlord to the extent permitted pursuant to Section 4.2.
9.2 Provided that Tenant is not in default hereunder, subject to
shortages and accidents beyond Landlord's reasonable control, Landlord shall
furnish building standard heating and air conditioning service Monday through
Friday from 8:00 A.M. to 6:00 P.M., and Saturday from 8:00 A.M. to 1:00 P.M.,
except for holidays. No heating or air conditioning will be furnished by
Landlord on Sundays, holidays or during hours other than as set forth above,
except upon prior arrangement with Tenant and at an extra charge as may be
agreed to between Landlord and Tenant. For purposes of this Section 9.2,
"holidays" shall mean and refer to the holidays of Christmas, New Year's Day,
President's Day, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and
the day after Thanksgiving, as those holidays are defined, recognized or
established by governmental authorities or agencies from time to time and such
other days the New York Stock Exchange is closed. Tenant shall install, at its
expense, such additional air conditioning equipment as may be reasonably
determined by Landlord to be necessary in order to maintain building air
conditioning standards resulting from Tenant's installation and operation of
computer equipment or other special equipment or facilities placing a greater
burden on the air conditioning system than would general office use. Landlord
shall furnish electric current to the Premises in amounts reasonably sufficient
for normal business use, including operation of building standard lighting and
operation of typewriters and standard fractional horsepower office machinery.
Tenant agrees that, at all times during the term of this
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Lease, Tenant's use of electric current shall never exceed the capacity of the
feeders to the Building or the risers or wiring installation in the Building.
Tenant shall not install or use or permit the installation or use upon or about
the Premises of any computer or electronic data processing or other equipment
using current in excess of 110 volts or requiring power in excess of 500 watts,
without the express prior written consent of Landlord. Tenant shall pay monthly
upon billing as additional rent under this Lease such sums as Landlord's
building engineer may reasonably determine to be necessary in order to reimburse
Landlord for the additional cost of utilities (including, without limitation,
electricity, gas and other fuels or power sources, and water, and Landlord's
reasonable costs of administration) attributable to the operation of additional
air conditioning equipment and any other requirements in excess of those for
normal office use by reason of the operation of computer equipment or other
special equipment or facilities. At Landlord's election, Landlord may separately
meter at Tenant's expense the electrical usage of some or all of Tenant's
equipment, facilities or Premises. In such event Tenant shall pay the charges
for all such separately metered electrical usage within 10 days after receipt of
a billing therefor. If Landlord meters Tenant's entire Premises, Tenant shall
not be charged for the first 0.66 kilowatt hours per rentable square foot in the
Premises per month (i.e., 982 kilowatt hours per month for Tenant's initial
Premises), which shall be deemed to be building standard electrical usage. Any
amounts billed directly to Tenant shall not be included in the Building's
"Operating Costs" for purposes of Section 4 above. Any extra maintenance
charges or service calls attributable to the actions of Tenant (e.g., continual
adjustments of the thermostats or the failure to keep window coverings closed as
necessary) shall be payable by Tenant to Landlord upon demand, as additional
rent hereunder.
9.3 Landlord shall furnish unheated water from mains for drinking,
lavatory and toilet purposes drawn through fixtures installed by Landlord, or by
Tenant with Landlord's express prior written consent, and heated water for
lavatory purposes from regular building supply in such quantities as required in
Landlord's judgment for the comfortable and normal use of the Premises. Tenant
shall pay Landlord for additional water which is furnished for any other
purpose. The amount that Tenant shall pay Landlord for such additional water
shall be the average price per gallon charged to the Landlord for the Building
by the entity providing water. increased by 25% to cover Landlord's
administrative expense.
9.4 Landlord shall furnish janitor service (including washing of windows
with reasonable frequency as determined by Landlord) in and about the Premises,
to the extent necessitated by normal office use of the Premises, Monday through
Friday, holidays excepted. Landlord shall have no obligation to furnish janitor
service for any portion of the Premises which is occupied after 7:00 p.m., is
locked or may be used (to the extent permitted under this Lease) for the
preparation, dispensing or consumption of food or beverages or for any purpose
other than general office use, and Tenant shall keep all such portions of the
Premises in a clean and orderly condition at Tenant's sole cost and expense. In
the event that Tenant shall fail to keep such portions of the Premises in a
clean and orderly condition, Landlord may do so and any costs incurred by
Landlord in connection therewith shall be payable by Tenant to Landlord upon
demand, as additional rent hereunder. Tenant shall also pay to Landlord, as
additional rent hereunder, amounts equal to any increase in cost of janitor
service in and about the Premises if such increase in costs is due to (a) use of
the Premises by Tenant during hours other than normal
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business hours, or (b) location in or about the Premises of any fixtures,
improvements, materials or finish items (including without limitation wall
coverings and floor coverings) other than those which are of the standard type
adopted by Landlord for the Building. Only those persons who have been approved
by Landlord may perform janitorial services.
9.5 Landlord shall furnish passenger and freight elevator service in
common with Landlord and other tenants Monday through Friday from 8:00 A.M. to
6:00 P.M. and Saturday from 8:00 A.M. to 1:00 P.M. Landlord shall provide
limited passenger elevator service daily at all times such normal passenger
service is not furnished.
9.6 Landlord does not warrant that any service will be free from
interruptions caused by repairs, renewals, improvements, changes of service,
alterations, strikes, lockouts, labor controversies, accidents, inability to
obtain fuel, steam, water or supplies or other cause, provided the cause is
beyond the reasonable control of Landlord. Landlord agrees to give Tenant notice
of any extended interruptions of which Landlord has prior knowledge. No
interruption of service shall be deemed an eviction or disturbance of Tenant's
use and possession of the Premises or any part thereof, nor relieve Tenant from
performance of Tenant's obligations under this Lease. Landlord shall not be
liable for any failure to make such repairs or furnish such services unless the
failure shall be reasonably curable by Landlord and nonetheless shall persist
for an unreasonable time after written notice from Tenant of the need for such
repairs or the failure to furnish such service. There shall be no abatement of
rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business arising from the making of any repairs, alterations or
improvements, or provision of any service in or to any portion of the Building,
including the Premises, or in or to the fixtures, appurtenances and equipment
therein: provided that in making such repairs, alterations or improvements or
providing such service Landlord shall interfere as little as reasonably
practicable with the conduct of Tenant's business in the Premises, without,
however, being obligated to incur liability for overtime or other premium
payment to its agents, employees or contractors in connection therewith. If
Tenant's beneficial use of all or a substantial portion of the Premises is
prevented for a period in excess of 3 consecutive business days (excluding
Saturdays, Sundays, and holidays), the Base Rent shall be equitably abated
commencing with the fourth business day and continuing until such use is no
longer prevented. Such abatement, to the extent provided above, shall be
Tenant's sole remedy. Except as provided above, Tenant shall not be entitled to
any abatement or reduction of rent or other remedy by reason of Landlord's
failure to furnish any of the services or Building systems called for by this
Lease when such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances or labor disputes of any character, or any
other cause. As a material inducement to Landlord's entry into this Lease,
Tenant waives and releases any rights it may have to make repairs at Landlord's
expense under Sections 1941 and 1942 of the California Civil Code.
10. CONDITION OF PREMISES. By occupying the Premises, Tenant shall be
deemed to accept the same and acknowledge that they comply fully with Landlord's
covenants and obligations hereunder, subject to completion of any items which it
is Landlord's responsibility hereunder to furnish and which are listed by
Landlord and Tenant upon inspection of the Premises. Tenant acknowledges that
neither Landlord nor any agent, employee or representative of Landlord has made
any representation or warranty with respect to any matter,
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including but not limited to any matter regarding the Building or Premises, the
applicable zoning or the effect of other applicable laws, or the suitability or
fitness of the Building or Premises for the conduct of Tenant's business or any
other purpose. Tenant is relying solely on its own investigations with respect
to all such matters. During the term of this Lease, Tenant shall maintain the
Premises in as good condition as when Tenant took possession, ordinary wear and
tear and repairs which are specifically made the responsibility of Landlord
hereunder excepted, and shall repair all damage or injury to the Building or to
fixtures, appurtenances and equipment of the Building caused by Tenant's
installation or removal of its property or resulting from the negligence or
tortious conduct of Tenant, its employees, contractors, agents, licensees and
invitees. In the event of failure by Tenant to perform its covenants of
maintenance and repair hereunder, Landlord may perform such maintenance and
repair, and any amounts expended by Landlord in connection therewith shall be
payable by Tenant to Landlord upon demand, as additional rent hereunder.
11. DAMAGE TO PREMISES OR BUILDING.
11.1 In the event that the Building should be totally destroyed by fire
or other casualty, this Lease shall terminate. In the event the Premises or a
substantial portion of the Building should be so damaged or destroyed that
rebuilding or repairs cannot, in Landlord's opinion, be completed within 180
days after the date of such damage or Landlord will not receive insurance
proceeds sufficient to cover the costs of such repairs, reconstruction and
restoration, Landlord may at its option terminate this Lease upon notice to
Tenant, or Landlord may proceed to restore the Building. In the event that such
rebuilding or repairs can, in Landlord's opinion, be completed within 180 days
after the date of such damage and Landlord will receive insurance proceeds
sufficient to cover the costs of such repairs, reconstruction and restoration,
Landlord shall restore the Building. In the event that Landlord is obligated or
elects to restore the Building, Landlord shall commence to rebuild or repair the
Building reasonably promptly after such damage or destruction and shall proceed
with reasonable diligence to restore it to substantially the condition in which
it was immediately prior to the casualty, except that Landlord shall not be
required to rebuild, repair or replace any part of the partitions, fixtures,
alterations, decorations or other improvements which may have been constructed
by or specifically for Tenant, or by or for other tenants within the Building.
In such event this Lease shall remain in full force and effect, provided that if
Tenant is dispossessed by reason of such casualty from all or a substantial
portion of the Premises for more than 3 consecutive business days, Tenant shall
be entitled to a ratable abatement of the Base Rent during the time and to the
extent the Premises are unfit for occupancy, commencing with the fourth business
day. After Landlord completes Landlord's restoration work on the Premises (i.e.,
any necessary repair work on the Building shell and the Building systems in the
core of the Building), Tenant shall diligently complete Tenant's repairs to its
tenant improvements. If Tenant is unable to conduct its business in all or a
substantial portion of the Premises during Tenant's repairs, then Tenant's
ratable rent abatement shall continue during such repairs, but in no event for
more than 90 days after Landlord completes Landlord's restoration work. The
parties shall cooperate in performing their respective repairs simultaneously
if, in Landlord's reasonable opinion, that is feasible and appropriate. Tenant
shall have the right to terminate this Lease upon notice served upon Landlord
prior to actual completion of Landlord's restoration work on the Premises if
such
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restoration work is not substantially completed within 360 days after the
casualty. Rental abatement or lease termination, to the extent provided above,
shall be Tenant's sole remedy. Notwithstanding the foregoing to the contrary, if
the damage is due to the negligence or willful misconduct of Tenant or any of
Tenant's agents, employees or invitees, there shall be no abatement of rent.
Except for abatement of rent as provided hereinabove, Tenant shall not be
entitled to any compensation or damages for loss of, or interference with,
Tenant's business or use or access of all or any part of the Premises resulting
from any such damage, repair, reconstruction or restoration.
11.2 In the event of any damage or destruction of all or any part of the
Premises, Tenant shall immediately notify Landlord thereof.
11.3 In the event any holder of a mortgage or deed of trust on the
Building should require that the insurance proceeds payable upon damage or
destruction to the Building by fire or other casualty be used to retire the debt
secured by such mortgage or deed of trust, or in the event any lessor under any
underlying or ground lease should require that such proceeds be paid to such
lessor, Landlord shall in no event have any obligation to rebuild, and at
Landlord's election this Lease shall terminate.
11.4 With the exception of insurance required to be carried by Tenant
under Section 28 of this Lease, and except as provided in Section 11.2, any
insurance which may be carried by Landlord or Tenant against loss or damage to
the Building or to the Premises shall be for the sole benefit of the party
carrying such insurance and under its sole control. Landlord shall not be
required to carry insurance of any kind on Tenant's property and, except by
reason of the breach by Landlord of any of its obligations hereunder, shall not
be obligated to repair any damage thereto or to replace the same.
11.5 In addition to its termination rights in Subsection 11.1 above,
Landlord shall have the right to terminate this Lease if any damage to the
Building or Premises occurs during the last 1 2 months of the Term of this Lease
and Landlord estimates that the repair, reconstruction or restoration of such
damage cannot be completed within the earlier of (a) the scheduled expiration
date of the Lease Term, or (b) 60 days after the date of such casualty.
11.6 Tenant, as a material inducement to Landlord's entering into this
Lease, irrevocably waives and releases its rights under the provisions of
Sections 1932(2) and 1933(4) of the California Civil Code (and any successor
statutes permitting Tenant to terminate this Lease as a result of any damage or
destruction), it being the intention of the parties hereto that the express
terms of this Lease shall control under any circumstances in which those
provisions might otherwise apply.
12. EMINENT DOMAIN.
12.1 In the event that the whole of the Premises, or so much thereof as
to render the balance unusable to Tenant for the purposes leased hereunder, as
reasonably determined by Landlord, shall be lawfully condemned or taken in any
manner for any public or quasi-public use, or conveyed by Landlord in lieu
thereof (a "Taking"), this Lease and the term hereby
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granted shall forthwith cease and terminate on the date of the taking of
possession by the condemning authority (the "Date of Taking").
12.2 In the event of a Taking of a portion of the Premises which does
not result in the termination of this Lease pursuant to Section 12.1, above, the
Base Rent shall be abated in proportion to the part of the Premises so taken.
12.3 In the event that there is a Taking of a portion of the Building
other than the Premises, and if, in the opinion of Landlord, the Taking is so
substantial as to render the remainder of the Building uneconomic to maintain
despite reasonable reconstruction or remodeling, or if it would be necessary to
alter the Building or Premises materially, Landlord may terminate this Lease by
notifying Tenant of such termination within 60 days following the Date of
taking, and this Lease shall end on the date specified in the notice of
termination, which shall not be less than 60 days after the giving of such
notice.
12.4 No temporary Taking of the Building or Premises and/or of Tenant's
rights therein or under this Lease shall terminate this Lease or give Tenant any
right to abatement of rent hereunder. Tenant shall be entitled to receive such
portion or portions of any award made for the temporary use with respect to the
period of the taking which is within the term of this Lease, provided that, if
such taking shall remain in force at the expiration or earlier termination of
this Lease, then Tenant shall pay to Landlord a sum equal to the reasonable
costs of performing Tenant's obligations under Section 15 with respect to
Tenant's surrender of the Premises and, upon such payment, shall be excused from
such obligations. For purposes of this Section 12.4, a temporary taking shall be
defined as a taking for a period of 270 days or less.
12.5 Except for the award in the event of a temporary Taking as
contemplated in Section 12.4, above, Tenant hereby releases and shall have no
interest in, or right to participate with respect to the determination of, any
compensation for any Taking, except only that Tenant shall be entitled to the
portion of any award specifically designated by the condemning authority to be
for any personal property of Tenant included in any such Taking or for any
relocation expenses or business interruption loss incurred by Tenant.
13. DEFAULT.
13.1 The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) If Tenant shall fail to pay any installment of rent or any
other sum required to be paid by Tenant under this Lease as due.
(b) If Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than provisions pertaining to the payment of
money.
(c) If Tenant shall make an assignment for the benefit of
creditors.
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(d) If Tenant shall file a petition under any section or
chapter of the federal Bankruptcy Code, as amended from time to time, or under
any similar law or statute of the United States or any State thereof pertaining
to bankruptcy, insolvency or debtor relief, or Tenant shall have a petition or
other proceedings filed against Tenant under any such law or chapter thereof and
such petition or proceeding shall not be vacated or set aside within 60 days
after such filing.
(e) If a receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant and such receivership shall not be
terminated and possession of such assets restored to Tenant within 30 days after
such appointment.
(f) If Tenant shall desert or vacate any substantial portion
of the Premises and the same shall remain unoccupied for more than 14 days
thereafter.
(g) If Tenant shall assign this Lease or sublet the Premises
in violation of the terms hereof.
13.2 Any shorter period for cure provided by law notwithstanding, and in
lieu thereof, including without limitation California Code of Civil Procedure
Section 1161, Tenant may cure any monetary default under Subsection 13.1 (a),
above, at any time within 5 days after written notice of default is received by
Tenant from Landlord; and (except as specifically provided otherwise in Section
24) Tenant may cure any non-monetary default within 15 days after written notice
of default is received by Tenant from Landlord, provided that if such
non-monetary default is curable but is of such a nature that the cure cannot be
completed within 15 days, Tenant shall be allowed to cure the default if Tenant
promptly commences the cure upon receipt of the notice and diligently prosecutes
the same to completion, which completion shall occur not later than 60 days from
the date of such notice from Landlord.
14. REMEDIES UPON DEFAULT.
14.1 Upon the occurrence of any event of default by Tenant, Landlord
shall have, in addition to any other remedies available to Landlord at law or in
equity, the option to pursue any one or more of the following remedies (each and
all of which shall be cumulative and non-exclusive) without any notice or demand
whatsoever:
(a) Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so.
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, without being liable for prosecution or any claim
or damages therefor, and Landlord may recover from Tenant the following:
(1) The worth at the time of award of any unpaid rent
hich has been earned at the time of such termination; plus
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(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 rental loss that Tenant proves could
have been reasonably avoided; plus
(3) The worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(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, specifically including but not limited to attorneys'
fees, removal and storage (or disposal) of Tenant's personal property,
unreimbursed leasehold improvement costs (e.g., the amounts Landlord has
expended for leasehold improvements which have not been recovered as of the
termination of the Lease when amortized on a straight-line basis over the
originally scheduled lease term), brokerage commissions and advertising expenses
incurred, expenses of remodeling the Premises or any portion thereof for a new
tenant, whether for the same or a different use, and any special concessions
made to obtain a new tenant; and
(5) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Subsection 14.1(a) shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others. Any such sums which are
based on percentages of income, increased costs or other historical data shall
be reasonable estimates or projections computed by Landlord on the basis of the
amounts thereof accruing during the 24-month period immediately prior to
default, except that if it becomes necessary to compute such sums before a
24-month period has expired, then the computation shall be made on the basis of
the amounts accruing during such shorter period, As used in Subsections 14.1
(a)(1)(1) and (2), above, the "worth at the time of award" shall be computed by
allowing interest from the date the sums became due at the lesser of (i) the
Bank of America prime rate on the due date plus 6%, or (ii) the maximum rate
permitted by law, As used in Subsection 14.1(a)(3), above, the "worth at the
time of award" shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus 1%.
(b) In the event of any such default by Tenant, in addition to
any other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall also have the right, with or without terminating this Lease, to
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed, stored and/or disposed of pursuant to any
procedures permitted by applicable law, including but not limited to those
described in Section 15.3. No re-entry or taking possession of the Premises by
Landlord pursuant to this Subsection 14.1(b), and no acceptance of surrender of
the Premises or other action on Landlord's part, shall be construed as an
election to terminate this Lease unless a written notice of such
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intention be given to Tenant or unless the termination thereof be decreed by a
court of competent jurisdiction.
(c) In the event of any such default by Tenant, in addition to
any other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall have the right to continue this Lease in full force and effect,
whether or not Tenant shall have abandoned the Premises. The foregoing remedy
shall also be available to Landlord pursuant to California Civil Code Section
1951.4 and any successor statute in the event Tenant has abandoned the Premises.
In the event Landlord elects to continue this Lease in full force and effect
pursuant to this Subsection 14.1(c), then Landlord shall be entitled to enforce
all of its rights and remedies under this Lease, including the right to recover
rent as it becomes due. Landlord's election not to terminate this Lease pursuant
to this Subsection 14.1(c) or pursuant to any other provision of this Lease, at
law or in equity, shall not preclude Landlord from subsequently electing to
terminate this Lease or pursuing any of its other remedies.
(d) Whether or not Landlord elects to terminate this Lease on
account of any default by Tenant, Landlord shall have the right to terminate any
and all subleases, licenses, concessions or other consensual arrangements for
possession entered into by Tenant and affecting the Premises or may, in
Landlord's sole discretion, succeed to Tenant's interest in such subleases,
licenses, concessions or arrangements. If Landlord so elects to succeed to
Tenant's interest, Tenant shall, as of the date of notice by Landlord of such
election, have no further right to or interest in the rent or other
consideration receivable thereunder.
14.2 Following the occurrence of an event of default by Tenant, Landlord
shall have the 'right to require that any or all subsequent amounts paid by
Tenant to Landlord hereunder, whether in cure of the default in question or
otherwise, be paid in the form of cash, money order, cashier's or certified
check drawn on an institution acceptable to Landlord, or by other means approved
by Landlord, notwithstanding any prior practice of accepting payments in any
different form.
14.3 All rights, options and remedies of Landlord contained in this
Section 14 and elsewhere in this Lease shall be construed and held to be
cumulative, and no one of them shall be exclusive of the other, and Landlord
shall have the right to pursue any one or more of such remedies or any other
remedy or relief which may be provided by law or in equity, whether or not
stated in this Lease. Nothing in this Section 14 shall be deemed to limit or
otherwise affect Tenant's indemnification of Landlord pursuant to any provision
of this Lease.
14.4 Landlord shall not be deemed in default in the performance of any
obligation required to be performed by Landlord under this Lease unless Landlord
has failed to perform such obligation within 30 days after the receipt of
written notice from Tenant specifying in detail Landlord's failure to perform;
provided however, that if the nature of Landlord's obligation is such that more
than 30 days are required for its performance, then Landlord shall not be deemed
in default if it commences such performance within such 30-day period and
thereafter diligently pursues the same to completion. Upon any such uncured
default by Landlord. Tenant shall be entitled, as Tenant's sole and exclusive
remedy, to recover from Landlord Tenant's actual
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damages (but not lost profits or other incidental or consequential damages)
shown by Tenant to have been directly caused thereby; provided, however (a)
Tenant shall have no right to offset or abate rent in the event of any default
by Landlord under this Lease, except to the extent offset rights are
specifically provided to Tenant in this Lease; (b) Tenant shall in no event be
entitled to terminate this Lease by reason of Landlord's default; and (c)
Tenant's rights and remedies hereunder shall be limited to the extent Tenant has
expressly waived in this Lease any of such rights or remedies, including the
limitation on Landlord's liability contained in Section 33.17 hereof.
14.5 No waiver by Landlord or Tenant of any violation or breach of any
of the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other or later violation or breach of
the same or any other of the terms, provisions, and covenants herein contained.
Forbearance by Landlord in enforcement of one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to constitute
a waiver of such default. The acceptance of any rent hereunder by Landlord
following the occurrence of any default, whether or not known to Landlord, shall
not be deemed a waiver of any such default, except only a default in the payment
of the rent so accepted, subject to the provisions of Section 33.1.
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY.
15.1 No act or thing done by Landlord or any agent or employee of
Landlord during the term hereof shall be deemed to constitute an acceptance by
Landlord of a surrender of the Premises unless such intent is specifically
acknowledged in a writing signed by Landlord. The delivery of keys to the
Premises to Landlord or any agent or employee of Landlord shall not constitute a
surrender of the Premises or effect a termination of this Lease, whether or not
the keys are thereafter retained by Landlord, and notwithstanding such delivery
Tenant shall be entitled to the return of such keys at any reasonable time upon
request until this Lease shall have been properly terminated. The voluntary or
other surrender of this Lease by Tenant, whether accepted by Landlord or not, or
a mutual termination hereof, shall not work a merger, and at the option of
Landlord shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises.
15.2 Upon the expiration of the term of this Lease, or upon any earlier
termination of this Lease, Tenant shall, subject to the provisions of this
Section 15, quit and surrender possession of the Premises to Landlord in as good
order and condition as when Tenant took possession and as thereafter improved by
Landlord and/or Tenant, reasonable wear and tear and repairs which are
specifically made the responsibility of Landlord hereunder excepted. Upon such
expiration or termination, Tenant shall, without expense to Landlord, remove or
cause to be removed from the Premises all debris and rubbish, and such items of
furniture, equipment, free-standing cabinet work, movable partitions and other
articles of personal property owned by Tenant or installed or placed by Tenant
at its expense in the Premises, and such similar articles of any other persons
claiming under Tenant, as Landlord may, in its sole discretion, require to be
removed, and Tenant shall repair at its own expense all damage to the Premises
and Building resulting from such removal.
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15.3 Whenever Landlord shall re-enter the Premises as provided in this
Lease, any personal property of Tenant not removed by Tenant upon the expiration
of the term of this Lease, or within 48 hours after a termination by reason of
Tenant's default as provided in this Lease, shall be deemed abandoned by Tenant
and may be disposed of by Landlord without liability to Tenant) in accordance
with Sections 1980 through 1991 of the California Civil Code and Section 1174 of
the California Code of Civil Procedure, or in accordance with any laws or
judicial decisions which may supplement or supplant those provisions from time
to time, or in accordance with any other legally permissible procedure, whether
by public or private sale or otherwise. Landlord shall be entitled to apply any
proceeds of the sale of such items to any sums due to Landlord by Tenant and to
Landlord's costs of removal, storage and sale of such items. Alternatively,
Landlord shall be entitled to treat Tenant's failure to remove such items from
the Premises as either a permitted or unpermitted holdover pursuant to Section
19 of this Lease.
15.4 All fixtures, alterations, additions, repairs, improvements and/or
appurtenances attached to or built into or on or about the Premises prior to or
during the term hereof, whether by Landlord at its expense or at the expense of
Tenant, or by Tenant at its expense, or by previous occupants of the Premises,
shall be and remain part of the Premises and shall not be removed by Tenant at
the end of the term of this Lease. Such fixtures, alterations, additions,
repairs, improvements and/or appurtenances shall include, without limitation,
floor coverings, drapes, paneling, molding, doors, kitchen and dishwashing
fixtures and equipment, plumbing systems, electrical systems, lighting systems,
silencing equipment, communication systems, all fixtures and outlets for the
systems mentioned above and for all telephone, radio, telegraph and television
purposes, and any special flooring or ceiling installations. Notwithstanding the
foregoing, Landlord may, in its sole discretion, require Tenant, at Tenant's
sole cost and expense, to remove any fixtures, alterations, additions, repairs,
improvements and/or appurtenances attached or built into or on or about the
Premises, and to repair any damage to the Building and Premises occasioned by
the installation, construction, operation and/or removal of such fixtures,
equipment, alterations, additions, repairs, improvements and/or appurtenances.
If Tenant shall fail to complete such removal and repair such damage, Landlord
may do so and may charge the reasonable cost thereof to Tenant.
15.5 Tenant hereby waives all claims for damages or other liability in
connection with Landlord's re-entering and taking possession of the Premises or
removing, retaining, storing or selling the property of Tenant as herein
provided, and Tenant hereby indemnifies and holds Landlord harmless from any
such damages or other liability, and no such re-entry shall be considered or
construed to be a forcible entry.
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL.
16.1. If Tenant or Landlord shall bring any action for any relief,
declaratory or otherwise, against the other arising out of or under this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party its costs of suit,
including, without limitation, a reasonable sum for attorneys' and other
professional fees relating to such suit, and such fees shall be deemed to have
accrued on the
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commencement of such action and shall be paid whether or not such action is
contested or prosecuted to judgment.
16.2 In the event that Landlord shall, without fault of Landlord's part,
be made party to any litigation instituted by Tenant or by any third party
against Tenant, or by or against any person holding under or using the Premises
by license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or of any such other person, Tenant hereby
indemnifies and holds Landlord harmless from and against all costs and expenses,
including reasonable attorneys' fees, incurred by Landlord in or in connection
with such litigation.
16.3 In order to limit the cost of resolving any disputes between the
parties, and as a material inducement to each party to enter into this Lease,
each party hereby waives the right to a jury trial with respect to any
litigation between the parties arising out of this Lease, Tenant's occupancy of
the Premises, or Landlord's ownership, operation or management of the Building,
irrespective of any rights to a jury trial which either party otherwise then
would have under applicable statutes, constitutions, judicial decisions or other
laws.
17. ASSIGNMENT AND SUBLETTING.
17.1 Except as hereinafter provided, Tenant shall not sublet all or any
part of the Premises, nor assign this Lease, nor enter any license,
"'co-location agreement" or other agreement permitting a third party (other than
Tenant's employees and occasional guests) to use or occupy any portion of the
Premises, without Landlord's express prior written consent, which consent shall
not unreasonably be withheld, conditioned or delayed. (For purposes of the
balance of this Section 17.1 and Sections 17.2 through 17.4, the term
"'sublease" shall be deemed to include licenses, co-location agreements, and
other agreements for use or occupancy of the Premises as described in the
preceding sentence. The terms "subtenant" and "sublet"' shall be construed
accordingly.)
In order to assist Landlord in evaluating any proposed assignment or
sublease, Tenant agrees to provide Landlord with the proposed subtenant or
assignee's current financial statement and financial statements for the
preceding 2 years and such other information concerning the business background
and financial condition of the proposed subtenant or assignee and of Tenant as
Landlord may reasonably request.
Landlord and Tenant hereby agree that Landlord's disapproval of any
proposed sublease or assignment hereunder shall be deemed reasonable if based
upon any reasonable factor, including, without limitation, any or all of the
following factors:
(a) The rent payable by the proposed transferee would be less
than 85% of the fair market rental value for the space as determined pursuant to
the last paragraph of this Section 17.1 (except as otherwise provided in Section
17.2);
(b) The proposed transferee is an existing tenant or occupant
of the Building (except Customers described in Section 17.2 or existing tenants
who lease space on the same floor of the Building as the Premises) or has
negotiated with Landlord within the last twelve
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months for space in the Building or is another transferee prohibited by the next
to last paragraph of this Section 17.1;
(c) The proposed transferee is a governmental entity;
(d) The transaction calls for new demising walls to be built,
and the portion of the Premises proposed to be sublet or assigned is irregular
in shape and/or has inadequate means of ingress and egress;
(e) The use of the Premises by the proposed transferee (i) is
not permitted by the use provisions of this Lease, or (ii) might, in Landlord's
reasonable opinion, violate any right for an exclusive use granted by Landlord
to another Tenant in the Building;
(f) The transfer would likely result, in Landlord's reasonable
opinion, in a significant increase in the use of the parking areas or common
areas of the Building due to the transferee's employees or visitors, and/or
significant increase in the demand for utilities and services to be provided by
Landlord to the Premises;
(g) The assignee or subtenant does not, in Landlord's
reasonable opinion, have the financial capability to fulfill the obligations
imposed by the transfer, or in the case of an assignment, the assignee does not,
in Landlord's reasonable opinion, have income and net worth at least equal to
that of Tenant;
(h) The transferee is not, in the Landlord's reasonable
opinion, of reputable or good character or consistent with Landlord's desired
tenant mix;
(f) The transferee is a real estate developer or landlord or
is acting directly or indirectly on behalf of a real estate developer or
landlord;
(j) The proposed transferee may, in Landlord's reasonable
opinion, increase the chances of significant hazardous waste contamination
within the Premises or the Building; or
(k) In the reasonable judgment of the Landlord, the purpose
for which the transferee intends to use the Premises is not in keeping with the
standards of the Landlord for the Building or is in violation of the terms of
any other lease in the Building.
Notwithstanding the foregoing, Tenant may, subject to the rest of the
terms hereof, sublet all of the Premises or assign this Lease to any entity
controlling, controlled by or under common control with Tenant, (including
assignment or subletting to any corporation resulting from a merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant's business as a going concern) provided that, with regard to
each such assignment or subletting: (A) Landlord receives the financial
statements prescribed above and such other financial and background information
as Landlord may request regarding the assignee or subtenant at least 20 days
prior to such proposed assignment or sublease; (B) the Landlord determines, in
its reasonable discretion, that the income and net worth of the assignee or
subtenant comply with the standards prescribed in item (h) above; (C) the use of
the Premises is
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not altered; (D) the Landlord determines, in its reasonable discretion, that the
transaction is not being entered into as a subterfuge to avoid the restrictions
on assignment and subletting in the Lease; and (E) the subtenant or assignee
expressly assumes the obligations of Tenant hereunder as prescribed below in
this Section 17.1.
Neither this Lease nor the term hereby demised shall be mortgaged by
Tenant, nor shall Tenant mortgage, assign, pledge or otherwise transfer the
interest of Tenant in and to any sublease or the rentals payable thereunder or
in the Security Deposit.
Any sublease, assignment, mortgage, pledge, encumbrance, or transfer
made in violation of this Section 17.1 shall be void and at Landlord's election
shall terminate this Lease.
Each subtenant, assignee or transferee of Tenant, other than Landlord,
shall assume all obligations of Tenant under this Lease and shall be and remain
liable jointly and severally with Tenant for the payment of the rent, and for
the due performance of all the terms, covenants, conditions and agreements
herein contained on Tenant's part to be performed for the term of this Lease
(provided that in the case of a sublease, the subtenant's obligations shall be
limited to those obligations relating to the subleased space and the common
areas during the sublease term). No sublease or assignment shall be deemed
approved by Landlord unless such subtenant or assignee and Tenant shall deliver
to Landlord a counterpart of such sublease or assignment and an instrument in a
form acceptable to Landlord, which contains a covenant of assumption by the
subtenant or assignee satisfactory in substance and form to Landlord, consistent
with the requirements of this Section 17.1, but the failure or refusal of the
subtenant or assignee to execute such instrument of assumption shall not release
or discharge the subtenant or assignee from its liability as set forth above.
No subtenant or assignee not complying with the foregoing requirements
shall have any interest in the Security Deposit. Any assignee that does comply
with the foregoing requirements shall automatically succeed to Tenant's position
with respect to the Security Deposit, and Landlord shall have the right to
refund all or any portion of the Security Deposit to the assignee at any time or
under any circumstances with no liability to the assignor.
Landlord may require that the assignee or subtenant remit directly to
Landlord on a monthly basis, all monies due to Tenant by said assignee or
subtenant. In such event Landlord shall apply the sums received to the
obligations of Tenant and its successors under this Lease.
In the event of default by any assignee or subtenant 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, subtenant or successor.
Landlord may consent to subsequent assignments of the Lease or
sublettings or amendments or modifications to the Lease with the assignee or
other successor of Tenant, and without obtaining Tenant's consent thereto, and
any such actions shall not relieve Tenant of liability under this Lease;
provided, however, that Tenant shall not be liable for any additional
obligations undertaken by the assignee or successor in such an amendment or
modification, such as new obligations for additional premises or an extended
term.
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Consent by Landlord to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting.
If Tenant is a corporation which, under California law, is not deemed a
publicly-held corporation, or is an unincorporated association or partnership,
the transfer, assignment or hypothecation of any stock or interest controlling
such corporation, association or partnership shall be deemed an assignment
within the meaning and provisions of this Section 17. For purposes hereof,
"control" shall be deemed to refer to any amount, in the aggregate, exceeding
25% of the voting power of such corporation, association or partnership.
Notwithstanding the foregoing, the immediately preceding sentence shall not
apply to any transfer of stock of Tenant if Tenant is a publicly-held
corporation and such stock is transferred publicly over a recognized security
exchange or over-the-counter market.
Subject to Section 17.2, Tenant agrees that all advertising by Tenant to
market the space in the Premises to be sublet or assigned shall require
Landlord's prior written approval, which shall not be unreasonably withheld,
Subject to Section 17.2, Tenant further agrees that it shall not, without
Landlord's prior written consent, which may be granted or withheld in Landlord's
sole discretion, market any space in the Premises, assign the lease or sublet
any space in the Premises to existing tenants or occupants of the Building, or
to any entity controlling, controlled by, or under common control with any
existing tenant or occupant of the Building, except for any entity controlling,
controlled by or under common control with Tenant, or existing tenants who lease
space on the same floor of the Building as the Premises.
Subject to Section 17.2, Tenant agrees that it shall not sublet, nor
assign, nor advertise as available for subletting or assignment, nor list with
brokers for subletting or assignment, all or any portion of the Premises for a
consideration which is equal to less than 85% of the fair market rental value,
as determined by Landlord in its reasonable discretion, comparable space in the
Building for a comparable term commencing concurrently with the assignment or
sublease term, with comparable rent credits and tenant improvement allowances.
Within 10 days after Landlord receives any written request from Tenant for
Landlord's estimate of the fair market rental value for specified space (which
request shall identify the space in question, the proposed term and the proposed
rent credits and improvement allowances), Landlord shall notify Tenant in
writing of the fair market rental value for such space for a comparable term
with comparable rent credits and tenant improvement allowances.
17.2 Landlord acknowledges that Tenant's business to be conducted on the
Premises requires the installation on the Premises of certain communications
equipment by telecommunications customers of Tenant ("'Customers") in order for
such Customers to interconnect with Tenant's terminal facilities.
Notwithstanding anything contained elsewhere in this Section 17, Landlord agrees
not to withhold its consent to any license agreement, sublease or "'co-location
agreement between Tenant and such a Customer for the purposes of permitting such
a telecommunications connection, so long as (a) such Customer agrees in writing
(in a form approved by Landlord in advance in writing) to comply with all
obligations imposed on Tenant under this Lease to the extent relating to the
portion of the Premises in question (including but not limited to insurance,
waiver and indemnity requirements); (b) such licenses, subleases or co-
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location agreements do not collectively cover more than 50% of the Premises at
any one time; and (c) each such license, sublease or co-location agreement is on
a form for this purpose approved by Landlord in writing in advance. Landlord
agrees that any such form may provide that (i) Tenant's Customer may remove its
equipment from the Premises at any time, subject to the Building's reasonable
rules and insurance requirements, provided that Tenant's Customer repairs any
damage to the Premises or Building caused by such removal; and (ii) title to the
Customer's equipment will remain with such Customer, and such equipment shall
not be deemed part of the Premises. Provided that Tenant's transactions with
Customers comply with items (a), (b) and (c) above, they need not comply with
those requirements of Section 17.1 above regarding financial statements,
advertising, and minimum rental rates. Tenant shall be liable to Landlord for
any violation by its Customers of any provisions of this Lease.
Landlord agrees to use commercially reasonable, good faith efforts not
to intentionally disclose the identity of Tenant's Customers to other
telecommunications companies, including other tenants in the Building. However,
Landlord can make no guaranties in that regard, and Landlord shall have no
liability to Tenant of any kind for such disclosure, regardless of whether such
disclosure is actually, or alleged to be, negligent or intentional.
17.3 In the event that Tenant desires to assign this Lease, or to enter
into a sublease, as to all or any portion of the Premises, except (a) where the
subtenant or assignee is en entity controlling, controlled by or under common
control with Tenant, or (b) as permitted under Section 17.2 herein, Tenant
shall, prior to solicitation of offers therefor, give Landlord notice of
Tenant's desire to assign or sublet and of the portion of the Premises to be
affected by the proposed assignment or sublease, Landlord shall have the right,
exercisable by notice to Tenant within 60 days after Landlord's receipt of
Tenant's notice of desire to assign or sublet, to terminate this Lease as to the
portion of the Premises affected by the proposed assignment or sublease, such
termination to be effective as of the date 60 days after notice by Landlord to
Tenant of such termination.
In the event of a termination of this Lease as to any portion of the
Premises pursuant to this Section 17.3, effective as of such termination, the
Premises shall be deemed to no longer include the portion of the Premises
subject to such termination, Tenant shall surrender possession of that portion
of the Premises in accordance with the provisions of this Lease, and the rent
payable hereunder and Tenant's Percentage Share shall be appropriately adjusted
based upon the rentable area remaining within the Premises.
If Landlord does not elect to terminate pursuant to this Section 17.3,
and if Tenant does not enter into an assignment or sublease as specified in
Tenant's notice of desire to assign or sublet within 6 months after the
expiration of Landlord's 60-day period for election to terminate, then Tenant
shall again comply with the provisions of this Section 17.3 before assigning
this Lease, or entering into a sublease, as to all or any portion of the
Premises.
17.4 In the event that Tenant has sought and received Landlord's consent
to assign this Lease, or to enter into a sublease as to all or any portion of
the Premises, the monthly rent payable by Tenant to Landlord, pursuant to
Section 3, shall be increased by 50% of the excess of
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(a) the amount to be received by Tenant during each month pursuant to the terms
of the assignment or sublease, over (b) Tenant's monthly rental payable to
Landlord for the space subject to the assignment or sublease. The amounts
referred to in the previous sentence include rent, additional rent, or any other
payment in respect of use or occupancy, or in reimbursement of costs of
leasehold improvements installed by Tenant, and whether paid in a lump sum or
periodic payments; provided however, such amounts shall not include any fees
charged by Tenant to its Customers to the extent such fees are based on Tenant's
services (not square footage of space used by the Customers) as provided under
Section 17.2 herein. In no event shall the total sums payable to the Landlord be
less than the monthly rental Landlord would have received but for such
assignment or sublease.
The additional rent shall be due and payable to Landlord in accordance
with the schedule specified in the sublease or assignment instrument, and the
failure of any subtenant or assignee to make any payments in accordance with
that schedule shall not affect the obligation of Tenant to pay the additional
rent to Landlord.
The calculation of the amount of rentable space being sublet shall be
made by Landlord in accordance with the standards of the Building Owners and
Managers Association (provided, however, that if the entire original Premises
are sublet, the rentable area shall be deemed to be as shown in Section B on
page 1). Landlord may require acknowledgment by Tenant of Tenant's concurrence
on the Landlord's calculation of the amount of rentable space being sublet as a
condition to Landlord's consent to any sublease.
Tenant's obligations for additional rent under this Section 17.4 shall
not commence until Tenant has fully recovered (or would have recovered but for
the subtenant or assignee's default) the following sums out of the portion of
the subtenant or assignee's monthly rent or other payments which exceeds
Tenant's monthly rent for the same space: (a) all expenses incurred and actually
paid by the Tenant for lease commissions in connection with obtaining the
subtenant or assignee; and (b) the amount of the rent paid by Tenant to Landlord
for the space subject to assignment or sublease (not to exceed three months rent
for such space) during the time that Tenant fully vacates (with prior written
notice to Landlord) and does not use such space prior to the subtenant or
assignee occupying such space.
The provisions of a sublease or assignment instrument consented to by
Landlord cannot be modified, nor the sublease or assignment terminated, other
than in accordance with its terms, without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld. The terms of this
Section 17.4 shall apply to any subleasing or assignment by any subtenant or
assignee.
17.5 Tenant shall pay to Landlord, promptly upon receipt of a billing
from Landlord, the amount of Landlord's reasonable attorney fees and costs
incurred in connection with Landlord's review or approval of any sublease or
assignment transaction requiring Landlord's consent hereunder, which fees and
costs shall be deemed to be $750 per transaction.
18. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
Landlord's interest in the Building or Premises, other than a transfer for
security purposes only,
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the transferor shall be automatically relieved of any and all obligations and
liabilities on the part of Landlord accruing from and after the date of such
transfer, including, without limitation, the obligation of Landlord to return
the Security Deposit as provided in this Lease; provided that the transferor
shall, within a reasonable time, transfer any Security Deposit then held by
Landlord, or any portion thereof remaining after proper deductions therefrom, to
the transferee and shall thereafter notify Tenant of such transfer, of any
claims made against the Security Deposit, and of the transferee's name and
address, by written notice delivered personally (in which case Tenant shall
acknowledge receipt of such notice by signing Landlord's copy of such notice) or
by registered or certified mail.
19. HOLDING OVER. If Tenant holds over after the term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case, Base Rent shall be payable at a monthly
rate equal to one hundred fifty percent (150%) of the Base Rent applicable to
the Premises immediately prior to the date of such expiration or earlier
termination. Such month-to-month tenancy shall be subject to every other term,
covenant and agreement contained herein. Nothing contained in this Section 19
shall be construed as consent by Landlord to any holding over by Tenant, and
Landlord expressly reserves the right to require Tenant to surrender possession
of the Premises to Landlord as provided in this Lease upon the expiration or
other termination of this Lease.
20. NOTICES. In every case when, under the provisions of this Lease, it
shall be necessary or desirable for one party hereto to serve any notice,
request or demand on the other, such notice or demand shall be in writing and
shall be served personally or by deposit in the United States mail, postage and
fees fully prepaid, registered or certified mail, with return receipt requested,
addressed to the applicable address for notice set forth in Section A on page 1.
Landlord or Tenant may, from time to time, by notice in writing served upon the
other as aforesaid, designate a different mailing address or a different person
to whom all such notices or demands are thereafter to be addressed. Service of
any such notice or demand if given personally shall be deemed complete upon
delivery, and if made by mail shall be deemed complete on the day of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of 2 business days after the date of mailing, whichever is earlier.
Notwithstanding the provisions of this Section 20, any notice of default
as described in Section 13.2 and any pleadings or notices given by either party
to the other with respect to any judicial proceeding between the parties shall
be served in the manner prescribed by applicable California law without
reference to this paragraph, and shall be deemed served at such time as is
provided by such applicable law without reference to this paragraph.
21. QUIET ENJOYMENT. Landlord covenants that Tenant, upon paying the
rent and performing the covenants of this Lease on Tenant's part to be
performed, shall and may peaceably and quietly have, hold and enjoy the Premises
for the term of this Lease.
22. TENANT'S FURTHER OBLIGATIONS.
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22.1 Except for ordinary wear and as otherwise provided in this Lease,
Tenant shall, at Tenant's expense, keep in good order, condition and repair the
interior of the Premises and shall promptly and adequately repair all damage to
the interior of the Premises and replace or repair all glass, fixtures,
equipment and appurtenances therein damaged or broken, under the supervision and
with the approval of Landlord and, if Tenant does not do so, Landlord may, but
need not, make such repairs and replacements. If Landlord does so, Tenant shall
pay Landlord the cost thereof promptly upon demand, as additional rent
hereunder.
22.2 Tenant shall comply with all laws, ordinances, rules, regulations,
orders and directives of governmental and quasi-governmental bodies and
authorities having jurisdiction over Tenant or the Premises from time to time
and shall obtain and keep in effect all licenses, permits (including but not
limited to conditional use permits) and other authorizations required with
respect to the business or businesses conducted by Tenant within or from the
Premises or with respect to any special equipment or facilities of Tenant
permitted under the other provisions of this Lease. Tenant and its employees,
agents, licensees and invitees shall also comply with all reasonable rules and
regulations which Landlord may adopt from time to time for the protection and
welfare of the Building and its tenants and occupants; provided that Tenant
shall not be responsible for compliance with any rule or regulation adopted by
Landlord unless or until Tenant is furnished with a copy thereof. The present
rules and regulations for the Building are attached hereto as Exhibit "'B".
Landlord shall have no liability to Tenant for the failure of any other tenant
in the Building to observe the rules and regulations.
23. ESTOPPEL CERTIFICATE BY TENANT. At any time and from time to time,
within 15 days after written request by Landlord. Tenant shall execute,
acknowledge and deliver to Landlord a statement in writing certifying 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 modifications), that Tenant knows of no default hereunder by
Landlord and has no right of offset or deduction against the rent or any other
charge payable to Landlord (or specifying any claimed), the amount of any
security posted by Tenant, the dates to which the rent and other charges have
been paid in advance, any increases or decreases of rent that are anticipated,
the commencement date of the Lease and such other matters as may be reasonably
requested by Landlord. It is intended that any statement delivered pursuant to
this Section 23 may be relied upon by any purchaser of the fee or mortgagee or
beneficiary or assignee of any mortgage or trust deed upon the fee of the
Building or Premises. Tenant's failure to deliver the statement within the
period specified above shall be conclusive and binding upon Tenant that the
Lease is in full force and effect without modification except as may be
represented by Landlord, that there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counterclaim or deduction
against rental, and that no more than one month's rental has been paid in
advance.
24. SUBORDINATION AND ATTORNMENT. This Lease is and at all times shall
be subject and subordinate to any ground or underlying leases, mortgages, trust
deeds or like encumbrances, which may now or hereafter affect the Building or
Premises, and to all renewals, modifications, consolidations, replacements and
extensions of any such lease, mortgage, trust deed or like encumbrance. As a
condition precedent to the effectiveness of any such
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subordination of this Lease to any future ground or underlying leases or the
lien of any future mortgages, deeds of trust, or like encumbrances, Landlord
shall provide to Tenant a commercially reasonable non-disturbance and attornment
agreement in favor of Tenant executed by such future ground lessor, master
lessor, mortgagee or deed of trust beneficiary, as the case may be, which shall
provide that Tenant's quiet possession of the Premises shall not be disturbed on
account of such subordination to such future lease or lien so long as Tenant is
not in default under any provisions of this Lease. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any or all ground or underlying leases or the lien of any or all
mortgages, deeds of trust or like encumbrances to the Lease. In the event that
any ground or underlying lease terminates for any reason or any mortgage, deed
of trust or like encumbrance is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, then at the election of Landlord's
successor-in-interest. Tenant shall attorn to and become the tenant of such
successor. Tenant hereby waives its rights under any current or future law which
gives or purports to give Tenant any right to terminate or otherwise adversely
affect this Lease and the obligations of Tenant hereunder in the event of any
such foreclosure proceeding or sale, Tenant covenants and agrees to execute and
deliver to Landlord in the form reasonably required by Landlord, within 10 days
after receipt of written demand by Landlord, any additional documents evidencing
the priority or subordination of this Lease with respect to any ground or
underlying lease or the lien of any mortgage, deed of trust or like encumbrance.
Should Tenant fail to sign and return any such documents within said 10-day
period. Tenant shall be in default hereunder without the benefit of any
additional notice or cure periods, except as may be required by statute.
25. RIGHTS RESERVED TO LANDLORD.
25.1 All portions of the Building are reserved to Landlord, including
exterior building walls, core corridor walls and doors and any core corridor
entrance, but excluding the Premises and the inside surfaces of all walls,
windows and doors bounding the Premises. Landlord also reserves any space in or
adjacent to the Premises used for shafts, stacks, pipes, conduits, fan rooms,
ducts, electric or other utilities, sinks or other building facilities, and the
use thereof, as well as the right to access thereto through the Premises for the
purposes of operation, maintenance, decoration and repair.
25.2 Landlord shall have the following rights exercisable without notice
(except as specified below) and without liability to Tenant for damage or injury
to property, person or business (all claims for damage being hereby released),
and without effecting an eviction or disturbance of Tenant's use or possession
or giving rise to any claim for setoffs or abatement of rent:
(a) .To enter the Premises at all reasonable times during the
term of this Lease upon at least 72 hours prior notice (except in case of
emergencies, when no notice shall be required, or to provide routine janitor
service, when no notice shall be required) for the purpose of inspecting the
same, supplying janitorial service, posting notices of non-responsibility,
exhibiting the Premises to prospective tenants, purchasers or others, or making
such repairs or replacements therein as may be required by this Lease or as
Landlord may deem appropriate; provided that Landlord shall use reasonable care
and precaution in order to minimize the
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disruptions to Tenant's business. For each of the foregoing purposes, Tenant
shall provide to Landlord a key with which to unlock at any time all of the
doors in, upon and about the Premises, excluding Tenant's vaults and safes.
Landlord may use any other means which Landlord may deem proper to open such
doors in an emergency in order to obtain entry to the Premises, Any entry to the
Premises obtained by Landlord by any means shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a detainer of,
the Premises, or an eviction of Tenant from the Premises or any portion thereof,
or grounds for any abatement or reduction of rent, Any damages or losses on
account of any such entry by Landlord shall be Tenant's sole responsibility
except as otherwise expressly provided herein, Nothing in this Section 25 shall
be construed as obligating Landlord to perform any repairs, alterations or
decorations, except as otherwise expressly required in this Lease.
(b) To change the name or street address of the Premises or
Building.
(c) To install and maintain signs on the exterior and interior
of the Building, except within the Premises.
(d) To have pass keys to the Premises.
(e) To decorate, remodel, repair, alter or otherwise prepare
the Premises for reoccupancy during the last 6 months of the term hereof if,
during or prior to such time, Tenant has vacated the Premises, or at any time
after Tenant abandons the Premises.
(f) To have access to all mail chutes according to the rules
of the United States Postal Service.
(g) To do or permit to be done any work in or about the
exterior of the Building or any adjacent or nearby building, land, street or
alley.
(h) To grant to anyone the exclusive right to conduct any
business or render any service in the Building, provided such exclusive right
shall not operate to exclude Tenant from the use expressly permitted by this
Lease.
26. FORCE MAJEURE. Whenever there is provided in this Lease a time
limitation for performance by Landlord or Tenant of any construction, repair,
maintenance or service, the time provided for shall be extended for as long as
and to the extent that delay in compliance with such limitation is due to an act
of God, governmental control or other factors beyond the reasonable control of
Landlord or Tenant, respectively.
27. WAIVER OF CLAIMS; INDEMNITY.
27.1 Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of, and waives all claims it may have against Landlord, its
agents, employees, affiliates and successors in interest for damage to or loss
of property or personal injury or loss of life resulting from the Building or
Premises or any part thereof becoming out of repair, by reason of any repair or
alteration thereof, or resulting from any accident within the Building or
Premises or on or
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about any space adjoining the Building or Premises, or resulting directly or
indirectly from any act or omission of any person, or due to any condition,
design or defect of the Building or Premises, or any space adjoining the
Building or Premises, or the mechanical systems of the Building or Premises,
which may exist or occur, whether such damage, loss or injury results from
conditions arising upon the Premises or upon other portions of the Building, or
from other sources or places, and regardless of whether the cause of such
damage, loss or injury or the means of repairing the same is accessible to
Tenant; provided such assumption and waiver shall not apply to claims caused by
the gross negligence or willful misconduct of Landlord or its agents.
27.2 Tenant hereby indemnifies and holds Landlord and Landlord's agents,
employees, affiliates and successors in interest harmless from and against any
and all claims, demands, suits, fines, losses and other liabilities for or
relating to injury or loss of life to persons or damage to or loss of property
arising from Tenant's use of the Building or the Premises or from the conduct of
Tenant's business or from any work done, permitted or suffered by Tenant in or
about the Premises or elsewhere, and further indemnifies and holds Landlord and
Landlord's agents, employees, affiliates and successors in interest harmless
from and against any and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease, or arising from any negligence or intentional conduct of Tenant
or Tenant's agents, employees, contractors, licensees, invitees, representatives
or successors in interest, and from and against all costs, attorneys' and other
professional fees, expenses and liabilities incurred by Landlord or Landlord's
agents, employees, affiliates and successors in interest in or in connection
with any such claim, demand, suit, fine or proceeding. In the event that any
action or proceeding be brought against Landlord or Landlord's agents,
employees, affiliates or successors in interest by reason of any such claim,
Tenant upon notice from Landlord shall defend such action or proceeding at
Tenant's cost and expense by counsel approved by Landlord, such approval not to
be unreasonably withheld.
28. INSURANCE.
28.1 Tenant shall procure and shall maintain in effect, at Tenant's sole
cost and expense throughout the term of this Lease, including any extensions and
renewals thereof, public liability and property damage insurance against claims
for bodily injury, death or property damage occurring upon or about the Premises
or Building, in each case naming Landlord as additional insured and, upon
request by Landlord, naming the holder of any mortgage, deed of trust or like
encumbrance or the lessor under any underlying lease covering the Building as
additional insured, with a limit of liability of not less than $2,000,000.00
single limit. If from time to time, the limits of liability set forth above are,
in the reasonable opinion of Landlord, inadequate, Tenant shall increase such
insurance coverage to an amount as shall be designated by Landlord's notice to
Tenant.
Tenant shall also procure and maintain, at Tenant's sole cost and
expense throughout the term of this Lease, casualty insurance on Tenant's
personal property in the Premises and any leasehold improvements which the
Tenant installed at its own cost in an amount at least equal to the full
replacement cost of such property, providing coverage against all perils insured
against
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by a "fire and extended coverage" policy, as well as sprinkler damage,
vandalism and malicious mischief.
Tenant shall also obtain the following insurance:
(a) Worker's compensation and employer's liability insurance
in form and amount satisfactory to Landlord.
(b) Loss of income and extra expense insurance in such amounts
as will reimburse Tenant for direct or indirect loss of earnings attributable to
all perils commonly insured against by prudent tenants or attributable to
prevention of access to or use of the Premises or the Building as a result of
such perils.
(c) Liquor liability insurance coverage in limits of not less
than Five Hundred Thousand Dollars ($500,000) if at any time during the term
hereof any alcoholic beverages of any nature are served on the Premises.
(d) Any other form or forms of insurance as Landlord or
Landlord's lender or ground or primary lessors may reasonably require from time
to time in form, in amounts, and for insurance risks against which a prudent
tenant of a comparable size and in a comparable business would protect itself.
Such policies of insurance shall be with insurance companies acceptable
to Landlord, shall not have a deductible amount exceeding $5,000.00 in the
aggregate, and shall specifically provide that the insurance afforded by such
policies for the benefit of Landlord and Landlord's mortgagees and ground
lessors shall be primary, and that any insurance carried by Landlord or
Landlord's mortgagees and ground lessors shall be excess and non-contributing.
Such policies shall be evidenced by certificates of insurance delivered to
Landlord from time to time showing such insurance to be at all times prepaid and
in full force and effect and providing that such insurance cannot be canceled or
modified upon less than 30 days' prior written notice to Landlord. If at any
time Tenant has not provided Landlord with a then currently effective
certificate of insurance acceptable to Landlord as to any insurance required to
be maintained by Tenant, Landlord may, without further inquiry as to whether
such insurance is actually in force, obtain such a policy and Tenant shall
reimburse Landlord, upon demand as additional rent hereunder, for the cost
thereof, together with Landlord's administrative fee equal to 25% of the
premium.
28.2 Tenant hereby waives its rights against Landlord and its managing
agent and their respective partners, officers, directors, shareholders,
employees, agents, representatives, contractors, affiliates, successors,
licensees, and invitees with respect to any claims or damages or losses
(including any claims for bodily injury to persons and/or damage to property)
which are caused by or result from (a) risks insured against under any insurance
policy carried by Tenant at the time of such claim, damage, loss or injury, or
(b) risks which would have been covered under any insurance required to be
obtained and maintained by Tenant under this Lease had such insurance been
obtained and maintained as required. The foregoing waivers shall be in addition
to, and not a limitation of, any other waivers or releases contained in this
Lease.
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28.3 Tenant shall cause each insurance policy required to be obtained by
it pursuant to this Section 28 to provide that the insurer waives all rights of
recovery by way of subrogation against Landlord and its managing agent and their
respective partners, officers, directors, shareholders, employees, agents,
representatives, contractors, affiliates, successors, licensees, and invitees in
connection with any claims, losses and damages covered by such policy. If Tenant
fails to maintain insurance required hereunder, Tenant shall be deemed to be
self self-insured with a deemed full waiver of subrogation as set forth in the
immediately preceding sentence.
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERATIONS.
29.1 Except as otherwise provided in any rider to this Lease, all
improvements, fixtures and/or equipment which Tenant may install or place in or
about the Premises, and all alterations, repairs or changes to the Premises, and
all signs installed in, on or about the Premises, from time to time, shall be at
the sole cost of Tenant. Landlord shall be without any obligation in connection
therewith. Tenant hereby indemnifies and holds Landlord harmless from any
liability, cost, obligation, expense or claim of lien in any manner relating to
the installation, placement, removal or financing of any such alterations,
repairs, changes, improvements, fixtures, and/or equipment in, and/or about the
Premises.
29.2 Notwithstanding any provision in this Section 29 to the contrary,
Tenant is absolutely prohibited from making any alterations, additions,
improvements or decorations which: (i) affect any area outside the Premises;
(ii) affect the Building's structure, equipment, services or systems, or the
proper functioning thereof, or Landlord's access thereto; (iii) affect the
outside appearance, character or use of the Building or the common areas: (iv)
weaken or impair the structural strength of the Building; (v) in the opinion of
Landlord, lessen the value of the Building; (vi) will violate or require a
change in any occupancy certificate applicable to the Premises; or (vii) in the
opinion of Landlord, will increase the Building's Operating Costs or Utility
Costs.
29.3 Before proceeding with any alteration, repair or change which is
not otherwise prohibited in Subsection 29.2 above, Tenant must first obtain
Landlord's written approval of (i) the plans and specifications for all such
work; (ii) with respect to any connecting lines that will be outside the
Premises (if such lines are permitted by Landlord in its sole discretion), a
description of the areas of the Building to which Tenant will require access
both for the initial work and for ongoing maintenance of the improvements or
installations: (iii) the names of all contractors and subcontractors who will
perform such work, all of whom shall be selected from Landlord's then-current
list of approved contractors, which Landlord may compile in Landlord's sole
discretion and will provide to Tenant within ten days following Landlord's
receipt of Tenant's written request; (iv) copies of all liability, casualty and
worker's compensation insurance applicable to the construction, maintenance and
ongoing operation of the improvements and installations: and (v) copies of all
governmental permits required for the work. Landlord's consent to such matters
shall not unreasonably be withheld: provided, however, that with regard to any
such matters which may affect the structural members, the heating, ventilation,
air conditioning or other building systems, exterior walls, windows and doors of
the Building, and
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with regard to the installation of any signs outside the Premises, Landlord may
grant or withhold its consent in its unlimited discretion. Landlord may impose,
as a condition of its consent to any alterations, repairs or changes of the
Premises, such requirements as Landlord in its sole discretion may deem
desirable, including, but not limited to, the requirement that Tenant utilize
for such purposes only contractors, materials, mechanics and materialmen
previously used and currently approved by Landlord for work in the Building.
29.4 After Landlord has approved the change, repair or alteration and
the other items listed in Section 29.3, Tenant shall enter into an agreement for
the performance of such change, repair or alteration with the contractors and
subcontractors approved by Landlord, as provided in Section 29.3. Before
proceeding with any change, repair or alteration Tenant shall (i) provide
Landlord with 10 days' prior written notice thereof: and (ii) pay to Landlord,
within 10 days after written demand, the costs of any increased insurance
premiums incurred by Landlord as a result of such changes, repairs or
alterations. In addition, before proceeding with any change, repair or
alteration, Tenant's contractors shall obtain, on behalf of Tenant and at
Tenant's sole cost and expense: (A) all necessary governmental permits and
approvals for the commencement and completion of such change, repair or
alteration: and (B) a completion and lien indemnity bond, or other surety,
satisfactory to Landlord for such change, repair or alteration. Landlord's
approval of permits pursuant to Section 29.3 shall not relieve Tenant of the
obligation to obtain any other or supplemental permits required by the preceding
sentence.
29.5 Tenant shall pay to Landlord, as additional rent, the reasonable
costs of Landlord's engineers and other consultants (but not Landlord's on-site
management personnel) for review of all plans, specifications and working
drawings for the change, repair or alteration within 10 business days after
Tenant's receipt of invoices either from Landlord or such consultants. In
addition to such costs, Tenant shall pay to Landlord, within 10 business days
after completion of any change, repair or alteration, the actual, reasonable
costs incurred by Landlord for services rendered by Landlord's management
personnel and engineers to coordinate and/or supervise any of the change, repair
or alteration to the extent such services are provided in excess of or after the
normal on-site hours of such engineers and management personnel.
29.6 All changes, repairs and alterations shall be performed: (i) in
accordance with the approved plans, specifications and working drawings: (ii)
lien-free and in a first-class and workmanlike manner: (iii) in compliance with
all laws, rules, and regulations of all governmental agencies and authorities:
(iv) in such a manner so as to not to interfere with the occupancy of any other
tenant in the Building, nor impose any additional expense or delay upon Landlord
in the maintenance and operation of the Building: and (v) at such times, in such
manner and subject to rules and regulations as Landlord may from time to time
reasonably designate.
29.7 Throughout the performance of any such change, repair or alteration
Tenant shall obtain, or cause its contractors to obtain, worker's compensation
insurance and general liability insurance covering the work in compliance with
provisions of Section 28 of this Lease, and builder's risk insurance for the
work reasonably acceptable to Landlord.
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29.8 In the event Tenant orders any construction, alteration, decorating
or repair work directly from Landlord, or from the contractor selected by
Landlord, the charges for such work, together with Landlord's administration fee
equal to 15% of the contract price, shall be deemed additional rent under this
Lease, payable upon billing therefor, either in advance of the start of work, or
periodically during construction, or upon the substantial completion of such
work, at Landlord's option.
30. MECHANIC'S LIENS. Tenant agrees to give Landlord written notice of
the commencement date of any alterations, improvements or repairs to be made in,
to or upon the Premises not later than 15 days prior to the commencement of any
such work, in order to give Landlord time to post notices of nonresponsibility.
Tenant will not permit any mechanic's, materialman's or other lien to be placed
upon the Premises or Building or improvements therein during the term hereof;
and in the event that any mechanic's, materialman's or other lien is filed
against the Premises or Building or improvements therein in connection with any
alteration, repair, improvement or change of, or installation of fixtures or
equipment in, the Premises, Tenant shall cause such lien to be released within
10 days after such filing, either by satisfaction of such claim or by posting of
a bond. Notwithstanding the foregoing, Landlord shall have the right and
privilege at Landlord's option of paying the amount of any such lien or claim,
or any portion thereof, without inquiry as to the validity thereof, and any
amounts so paid, including expenses and interest, shall be deemed additional
rent hereunder due from Tenant to Landlord upon demand.
31. ALTERNATE SPACE. If the Premises comprise less than a full floor in
the Building, Landlord shall have the privilege of moving Tenant to other space
in the Building reasonably comparable to the Premises. If Tenant is still in the
telecommunications business and maintains telecommunications switching equipment
in the Premises, such space shall be equipped with a switch, ancillary
equipment, and intra-building conduit, complete with associated wiring,
reasonably comparable to Tenant's (and that of Tenant's Customers who maintain
such items in the Premises in accordance with Section 17.2), all at Landlord's
sole cost and expense. Such space shall be completed prior to the relocation of
Tenant, and Landlord shall permit Tenant to operate the equipment in both the
original Premises and the new space for a brief, commercially reasonable period
of time to prevent interruption of service to Tenant's telecommunications
customers, All terms hereof shall apply to the new space with equal force. In
the event of such relocation, Landlord shall give Tenant at least 90 days' prior
notice in writing and shall move Tenant's effects to new space at Landlord's
sole cost and expense at such time and in such manner as to inconvenience Tenant
as little as practicable.
32 HAZARDOUS MATERIALS.
32.1 In addition to its other obligations under this Lease, Tenant
covenants to comply with all laws relating to Hazardous Materials, as defined
below, with respect to the Premises and the Building. Except for general office
supplies typically used in an office area in the ordinary course of business
(such as copier toner, liquid paper, glue, ink and cleaning solvents), for use
in the manner for which they were designed and only in accordance with all
Hazardous Materials laws and the highest standards prevailing in the industry
for such use, and then only in such
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amounts as may be normal for the office business operations conducted by Tenant
on the Premises, neither Tenant nor any of Tenant's agents, employees,
contractors, subtenants, assignees, licensees or invitees ("'Tenant's Parties"')
shall use, handle store or dispose of any Hazardous Materials in, on, under or
about the Premises, the Building or the site on which the Building is located.
Tenant shall promptly take all actions, at its sole cost and expense, as are
necessary to return the Premises, Building and site to the condition existing
prior to the introduction of any such Hazardous Materials by Tenant or any
Tenant Parties, provided Landlord's approval of such actions shall first be
obtained, Furthermore, Tenant shall immediately notify Landlord of any inquiry,
test, investigation or enforcement proceeding by or against Tenant or the
Premises concerning the presence of any Hazardous Material.
32.2 Tenant shall be solely responsible for and shall indemnify, defend
(with counsel reasonably approved by Landlord) and hold Landlord harmless from
and against any and all claims, demands, judgments, suits, causes of action,
damages, penalties, fines, liabilities, losses and expenses (including, without
limitation, investigation and clean-up costs, attorneys' fees, consultant fees
and court costs) which arise during or after the term of this Lease as a result
of the breach of any of the obligations and covenants set forth in this Section
33, and/or any contamination of the Premises, Building or site directly or
indirectly arising from the activities of Tenant or any Tenant Parties.
32.3 For purposes of this Lease, the term "'Hazardous Materials"' shall
mean, collectively, asbestos, any petroleum fuel, and any hazardous or toxic
substance, material or waste which is or becomes regulated or defined as
hazardous or toxic by any local governmental authority, the State of California
or the United States Government, including, but not limited to, any material or
substance defined as hazardous or toxic under the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq.; the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq.; the
Toxic Substances Control Act, 15 U.S.C. Sections 2601, et seq.; the Clean Water
Act, 33 U.S.C. Sections 466, et seq.; the Safe Drinking Water Act, 14 U.S.C.
Sections 1401, et seq.; the California Hazardous Substance Account Act,
California Health and Safety Code Sections 25330, et seq.; the California
Hazardous Waste Control Act, California Health and Safety Code Sections 25100,
et seq.; the California Safe Drinking Water and Toxic Health Enforcement Act,
California Health and Safety Code Sections 25249.5, et seq.; California Health
and Safety Code Sections 25280, et seq. (Underground Storage of Hazardous
Substances); the California Hazardous Waste Management Act, California Health
and Safety Code Sections 25179.1, et seq.; California Health and Safety Code
Sections 25501, et seq. (Hazardous Materials Release Response Plans and
Inventory); Petroleum Underground Storage Tank Cleanup, Health and Safety Code
Sections 25299.10, et seq.; and the Porter-Cologne Water Quality Control Act,
California Water Code Sections 13000, et seq., as such laws may be amended from
time to time.
32.4 The foregoing covenants and indemnities of Tenant in this Section
32 shall survive the expiration or earlier termination of the Lease.
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32.5 Landlord agrees to operate and maintain the Building's structural
elements, systems, common areas, and other areas under Landlord's control in
accordance with all applicable laws regarding Hazardous Materials, subject to
(a) acts of Tenant or third parties, (b) shortages and accidents beyond
Landlord's reasonable control, (c) commercially reasonable time periods for
programs implementing compliance with laws requiring substantial expenditures,
and (dl reimbursement of Landlord to the extent permitted pursuant to Section
4.2.
33. MISCELLANEOUS.
33.1 No receipt of money by Landlord from Tenant after the termination
of this Lease, the service of any notice, the commencement of any suit or final
judgment for possession shall reinstate, continue or extend the term of this
Lease or affect any such notice, demand, suit or judgment. No payment by Tenant
or receipt by Landlord of a lesser amount than the rent payment herein
stipulated shall be deemed to be other than on account of the rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy provided in this Lease. Tenant
agrees that each of the foregoing covenants and agreements shall be applicable
to all obligations of Tenant to Landlord, whether expressly contained in this
Lease or imposed by any statute or at common law.
33.2 If any provision of this Lease or its application to any party or
circumstances shall be determined by any court of competent jurisdiction to be
invalid or unenforceable to any extent, the remainder of this Lease or the
application of such provision to such person or circumstances, other than those
as to which it is so determined invalid or unenforceable to any extent, shall
not be affected thereby, and each provision hereof shall be valid and shall be
enforced to the fullest extent permitted by law; and it is the intention of the
parties to this Lease that in lieu of each clause or provision of this Lease
that is illegal, invalid or unenforceable, there be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
33.3 The covenants and obligations of Tenant pursuant to this Lease
shall be independent of performance by Landlord of the covenants and obligations
of Landlord pursuant to this Lease, and performance by Tenant of each covenant
and obligation of Tenant pursuant to this Lease shall be a condition precedent
to the duty of Landlord to perform the covenants and obligations of Landlord
pursuant to this Lease.
33.4 The headings of Sections of this Lease are for convenience only and
do not define, limit or construe the contents thereof. References made in this
Lease to numbered Sections, Paragraphs and Subparagraphs shall refer to numbered
Sections, Paragraphs or Subparagraphs of this Lease unless otherwise indicated.
33.5 Where appropriate, words in the singular, including without
limitation the words "'Landlord" and "Tenant", include the plural, and vice
versa. Words in the neuter gender include the masculine and feminine genders,
and vice versa, and words in the masculine gender include the feminine gender,
and vice versa.
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33.6 If more than one person or entity executes this Lease as Tenant:
(a) each of them is and shall be jointly and severally liable for the covenants,
conditions, provisions and agreements of this Lease to be kept, observed and
performed by Tenant; and (b) the act or signature of, or notice from or to, any
one or more of them with respect to this Lease shall be binding upon each and
all of the persons and entities executing this Lease as Tenant with the same
force and effect as if each and all of them had so acted or signed, or given or
received such notice.
33.7 Time is of the essence of this Lease. Failure of either party to
perform any act strictly within the applicable period specified herein shall
entitle the other to exercise all remedies herein contemplated, All references
in this Lease to "'days" shall mean calendar days unless specifically stated
herein to be "business" days.
33.8 This Lease shall be governed by and interpreted in accordance with
the laws of the State of California.
33.9 All monetary obligations of either party hereunder to the other
remaining past due 10 days or more after the date specified herein for payment
shall bear interest until paid at the lesser of (i) the Bank of America prime
rate as of the due date plus 6%, or (ii) the maximum rate permitted by law.
33.10 This instrument, along with any riders, exhibits and attachments
or other documents referred to in Section M on page 2 (all of which riders,
exhibits, attachments and other documents are hereby incorporated into this
instrument by this reference), constitutes the entire and exclusive agreement
between Landlord and Tenant relating to the Premises, and this agreement and
said riders, exhibits and attachments and other documents may be altered,
amended or revoked only by an instrument in writing signed by the party to be
charged thereby. All prior or contemporaneous oral agreements, understandings
and/or practices relative to the leasing of the Premises are merged herein or
revoked hereby. References in this instrument to this "'Lease" shall mean, refer
to and include this instrument as well as any riders, exhibits, attachments or
other documents referred to in Section M, and references to any covenant,
condition, obligation and/or undertaking "herein", "hereunder" or "pursuant
hereto" (or language of like import) shall mean, refer to and include the
covenants, conditions, obligations and undertakings existing pursuant to this
instrument and such riders, exhibits, attachments or other documents. All terms
defined in this instrument shall be deemed to have the same meanings in all
riders, exhibits, attachments or other documents referred to in Section M unless
the context thereof clearly requires the contrary.
33.11 Tenant hereby consents to amendment of this Lease as and to the
extent required by any lender which makes a loan to Landlord secured in whole or
in part by the Building, provided that no such change shall increase the rent
payable hereunder or impair Tenant's use of the Premises.
33.12 Unless otherwise agreed in writing, if Tenant has dealt with any
real estate broker or other person or firm with respect to leasing or renting
space in the Building. Tenant shall be solely responsible for the payment of any
fee due said broker, person or firm and Tenant hereby
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indemnifies and holds Landlord harmless from and against any liability with
respect thereto. Notwithstanding the foregoing, Landlord agrees to pay, and to
hold Tenant harmless from, the commission owing to the brokers identified in
Section L on page 2, as provided in a separate agreement between Landlord and
such brokers.
33.13 Tenant agrees to pay to Landlord as additional rent hereunder any
taxes required by law to be paid by Tenant and collected from Tenant by
Landlord.
33.14 Submission of this Lease for examination, even though executed by
Tenant, shall not bind Landlord in any manner, and no lease or other obligation
on the part of Landlord shall arise until this Lease is executed and delivered
by Landlord to Tenant. This Lease shall not be binding and in effect until a
counterpart hereof has been executed and delivered by the parties, each to the
other.
33.15 Tenant shall not cause the recordation of this Lease, a short form
memorandum of this Lease or any reference to this Lease.
33.16 Upon 10 days' prior written request from Landlord (which Landlord
may make at any time during the term but no more often than two times in any
calendar year), Tenant shall deliver to Landlord (a) a current financial
statement of Tenant and any guarantor of this Lease, and (b) financial
statements of Tenant and such guarantor for the two years prior to the current
financial statement year. Such statements shall be prepared in accordance with
generally acceptable accounting principles, and certified as true in all
material respects by Tenant (if Tenant is an individual) or by an authorized
officer or general partner of Tenant (if Tenant is a corporation or partnership,
respectively).
33.17 Notwithstanding anything contained in this Lease to the contrary,
the obligations of Landlord under this Lease (including any actual or alleged
breach or default of Landlord) do not constitute personal obligations of the
individual partners, directors, officers, shareholders, agents or employees of
Landlord or of Landlord's partners or agents, and Tenant shall not seek recourse
against any such persons or entities or any of their personal assets for
satisfaction of any liability with respect to this Lease. In addition, in
consideration of the benefits accruing hereunder to Tenant and notwithstanding
anything contained in this Lease to the contrary, Tenant hereby covenants and
agrees for itself and all of its successors and assigns that the liability of
Landlord for its obligations under this Lease (including any liability as a
result of any actual or alleged failure, breach or default hereunder by
Landlord) shall be limited solely to, and Tenant's and its successors' and
assigns' sole and exclusive remedy shall be against, Landlord's interest in the
Building and proceeds therefrom, and no other assets of Landlord.
33.18 If Tenant is identified herein as a corporation, then the persons
executing this Lease on behalf of Tenant hereby represent that they are duly
authorized to execute and deliver this Lease on behalf of Tenant pursuant to
Tenant's by-laws or a resolution of its board of directors.
If Tenant is identified herein as a partnership, the undersigned
represent that they are all of the general partners of Tenant, that Tenant has
been formed under the laws of the State of
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California, and is duly qualified to do business in the State of California, and
that this Lease is being executed on behalf of Tenant. Each of the partners of
Tenant executing this Lease agrees that he or she and Tenant are irrevocably
bound by execution of any amendment to or modification of this Lease by one or
more of the partners of Tenant. Tenant agrees that each new partner in Tenant
shall be obligated under this Lease, in the same fashion as the existing
partners, and that each new partner shall execute a copy of this Lease and
deliver it to Landlord within 60 days after that partner's admission to the
partnership. In the event that such newly admitted partner is a corporation, the
principal or principals for whose benefit the corporation has been organized
shall execute and deliver to Landlord a lease guaranty in form acceptable to
Landlord. Each newly admitted partner in Tenant shall be jointly and severally
liable with the remaining partners for the performance and satisfaction of all
obligations of the Tenant under this Lease accruing from and after the effective
date of the admission of the new partner to the Partnership. If the provisions
of this paragraph are satisfied, the admission of a new partner shall not be
considered an assignment of the lease for the purposes of Section 17 hereof.
33.19 Subject to the provisions of Section 17 above, and except as
otherwise provided in this Lease, all of the covenants, conditions and
provisions of this Lease shall be binding upon, and shall inure to the benefit
of the parties hereto and their respective heirs, personal representatives and
permitted successors and assigns; provided, however, that no rights shall inure
to the benefit of any transferee of Tenant unless the transfer to such
transferee is made in compliance with the provisions of Section 17, and no
options or other rights which are expressly made personal to the original Tenant
hereunder or in any rider attached hereto shall be assignable to or exercisable
by anyone other than the original Tenant under this Lease.
33.20 The voluntary or other surrender of this Lease by Tenant or a
mutual termination thereof shall not work as a merger and shall, at the option
of Landlord, either (a) terminate all and any existing subleases, or (b) operate
as an assignment to Landlord of Tenant's interest under any or all such
subleases.
33.21 Except for Tenant's identity sign on the entry doors of the
Premises and Tenant's elevator lobby identity sign on any full floor of the
Building leased by Tenant (which signs shall be consistent with the Building's
signage program and otherwise subject to Landlord's prior written approval),
Tenant shall have no right to place any sign upon the Premises, the Building or
the site on which the Building is located or which can be seen from outside the
Premises.
33.22 The effectiveness of this Lease and Landlord's obligations
hereunder are subject to and conditional upon Tenant's delivery to Landlord of a
lease guaranty in the form prescribed by Landlord in its sole discretion, fully
executed by the guarantor or guarantors specified in Section N on page 2 of this
Lease.
34. "AS IS" CONDITION. Tenant is taking the Premises in its "'as is"'
condition existing as of the execution date of this Lease, subject however to
Landlord's demolition of existing tenant improvements in the Premises and
Landlord's removal and replacement of all asbestos-containing construction
materials in the Premises, the scope of both of which shall be determined by
Landlord in its reasonable discretion. Landlord shall have no obligation for the
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<PAGE> 48
construction or modification of tenant improvements for Tenant. In constructing
its own tenant improvements to the Premises, Tenant shall comply with the other
applicable provisions of this Lease (including but not limited to Section 29)
and shall utilize only contractors, materials, mechanics, materialmen,
architects and engineers used and currently approved in writing by Landlord for
work in the Building.
35. TENANT'S SUPPLEMENTAL AIR-CONDITIONING. Tenant shall have the right
to install in the Premises its own self-contained 24-hour heating, ventilating
and air-conditioning unit, subject to compliance with the other provisions of
this Lease, including but not limited to obtaining Landlord's prior written
consent to the plans and specifications for the work and electrical requirements
of the unit. At Landlord's election, any above-standard electrical requirements
for such unit shall be separately metered to Tenant at Tenant's expense, and
Tenant shall pay within ten days after receipt of a bill all charges for
electrical usage that is so metered.
36. VACATION BY EXISTING TENANT. Tenant acknowledges that the Premises
are presently occupied by another tenant whose lease is terminable by Landlord
on 30 days' prior written notice. Landlord agrees to give such notice promptly
following the full execution and delivery of this Lease by both Landlord and
Tenant. Landlord anticipate that the existing tenant will vacate the Premises in
a timely manner, but Landlord is making, and will make, no representation or
warranty in this regard. Tenant's sole remedies for the failure of Landlord to
timely deliver possession of the Premises to Tenant for any reason, including,
but not limited to, the failure of the existing tenant to vacate, shall be those
remedies prescribed in Section 2.1 of this Lease.
37. RULES AND REGULATIONS. Nothing in the Rules and Regulations attached
as Exhibit B (including but not limited to Rules 8,9, 10 and 11), nor in any
rule or regulation adopted by Landlord hereafter pursuant to Section 22.2, shall
be deemed to prohibit Tenant from installing in the Premises any equipment
specifically permitted in the other provisions of this Lease, which does not
pose a safety hazard or create a nuisance or illegal condition; provided,
however, that Tenant shall comply with the provisions of this Lease (including
the Rules in question) regarding the moving, installation, operation, use,
maintenance and removal of such equipment, and shall obtain any approvals from
Landlord required under this Lease as to such matters, which approvals Landlord
shall not unreasonably withhold, condition or delay.
IN WITNESS WHEREOF, this instrument has been duly executed by the
parties hereto, as of the date first above written.
TENANT:
CRL NETWORK SERVICES, INC.
a California corporation
By: /S/ J. Couch
------------------------------------
Its: President
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By:______________________________________
Its:__________________________________
LANDLORD:
ONE WILSHIRE ARCADE IMPERIAL, LTD.,
a California limited partnership By
Paramount Group, Inc., Agent
By: /S/ illegible
---------------------------------------
Its:___________________________________
By: Senior Vice President
------------------------------------
Its Property Management Office Buildings
------------------------------------
46
<PAGE> 50
EXHIBIT A
[FLOOR PLAN OF THE 17TH FLOOR
ONE WILSHIRE BUILDING]
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PARAMOUNT
GROUP, INC.
EXHIBIT B
RULES AND REGULATIONS
1. Tenant shall not obstruct or interfere with the right: of other
tenant of the Building, or of persons having business in the Building, or in any
way injure or annoy such tenant or persons. Tenant shall not obstruct any
sidewalks, halls, passages, corridors, exits, entrances, courts, lobby areas,
vestibules, garages, parking areas, elevators, escalators, or stairways in and
about the Building (collectively, the "Common Areas"). Such Common Are: 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.
2. Tenant shall not commit any act or permit any thing in or about
the Building which shall or might subject Landlord to any liability or
responsibility for injury to any person or property by reason of any business or
operation being carried on in or about the Building or for any other reason.
3. Tenant shall not use the Building for lodging, sleeping, cooking,
or for any immoral or legal purpose or for any purpose that will damage the
Building, or the reputation thereof, or for any purposes other than those
specified in the Lease.
4. Canvassing, soliciting and peddling in the Building are
prohibited, and Tenant shall cooperate to prevent such activities.
5. Tenant shall not bring or keep within the Building any bicycle
or motorcycle.
6. Tenant shall not conduct mechanical or manufacturing operations,
cook or prepare food, or place or use any inflammable, combustible, explosive or
hazardous fluid, chemical, device, substance or material in or about the
Building without the prior written consent of Landlord, Tenant shall comply with
all statutes, ordinances, rules, orders, regulation, and requirements imposed by
governmental or quasi-governmental authorities or by Landlord from time to time
in connection with security, fire and panic safety and fire prevention and shall
not commit any act, or permit any object to be brought or kept in the Building,
which shall result in a change of the rating of the Building by the Insurance
Services Office or any similar person or entity. Tenant shall not commit any act
or permit any object to be brought or kept in the Building which shall increase
the rate of fire insurance on the Building or on property located therein.
Tenant shall provide Landlord with a name of a designated responsible employee
to
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represent Tenant on all matters pertaining to fire or security regulations,
Tenant shall cooperate fully in all matters concerning fire and other emergency
procedures.
7. Tenant shall not use the Building for manufacturing or for the
storage of goods, wares or merchandise, except as such storage may be incidental
to the use of the Premises for general office purpose and except in such
portions of the Premises as may be specifically designated by Landlord for such
storage. Tenant shall not occupy the Building or permit any portion of the
Building to be occupied for the manufacture or direct sale of liquor, narcotics,
or tobacco in any form, or as a medical office, barber shop, manicure shop,
music or dance studio or employment agency. Tenant shall not conduct in or about
the Building any auction, public or private, without the prior written approval
of Landlord.
8. Tenant shall not install or use in the Building any air
conditioning unit, engine, boiler, generator, machinery, heating unit, stove,
water cooler, ventilator, radiator or any other similar apparatus without the
express prior written consent of Landlord and than only as Landlord may direct.
9. Tenant shall not use in the Building any machines, other than
standard office machines such as typewriters, calculator, copying machines and
similar machines, without the express prior written consent of Landlord. If
Tenant requires telegraphic, telephonic, burglar alarm or similar services, it
shall first obtain, and comply with, Landlord's instructions in their
installation. Tenant shall not install, maintain or operate upon the Premises
any vending machine without the consent of Landlord.
10. Tenant shall move all freight, supplies, furniture, fixtures and
other personal property into, within and out of the Building only at such times
and through such entrances as may be designated by Landlord, end such movement
of such items shall be under the supervision of Landlord. Landlord reserves the
right to inspect all such freight, supplies, furniture, fixtures and other
personal property to be brought into the Building and to exclude from the
Building all such objects which violate any of these rules and regulations or
the provisions of the Lease. Tenant shall not move or install such objects in or
about the Building in such a fashion as to unreasonably obstruct the activities
of other tenants, and all such moving shall be at the sole expense, risk and
responsibility of Tenant, Prior to permitting access into the Building of the
moving company or other persons performing such moving activities, Landlord may
require from such moving company or other persons evidence of insurance
reasonably accept able to Landlord, from an insurer and with coverage and
amounts reasonably acceptable to Landlord, covering the moving activities and
naming Landlord and its managing agent as additional insureds. Tenant shall not
use in the delivery, receipt or other movement of freight, supplies, furniture,
fixtures and other personal property to, from or within the Building, any hand
trucks other than those equipped with rubber tires and side guards. Any freight
elevator shall be available for use by Tenant in common with other tenants in
the Building, subject to such reasonable scheduling as Landlord in its
discretion shall deem appropriate. No equipment, materials, furniture, packages,
supplies, merchandise or other property will be received in the Building or
carried in the elevators except between such hours and in such elevators as may
be designated by Landlord.
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<PAGE> 53
11. Tenant shall not place a load upon any floor of the Premises
which exceeds the load per square foot which such floor was designed to carry
and which is allowed by law, 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, if such objects are
considered necessary by Tenant, and are permitted by Landlord, shall stand on
such platforms as determined by Landlord to be necessary to properly distribute
the weight. Business machines and mechanical equipment belonging to Tenant,
which cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenants in the Building, shall be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Building must be acceptable to Landlord. Landlord
will not be responsible for loss of, or damage to, any such equipment or other
property from any cause, and all damage done to the Building by maintaining or
moving such equipment or other property shall be repaired at the expense of
Tenant.
12. Tenant shall not deposit any trash, refuse, cigarettes, or other
substances of any kind within or out of the Building, except in the refuse
containers provided therefor. Tenant shall not introduce into the Building any
substance which might add an undue burden to the cleaning or maintenance of the
Premises or the Building, and Tenant shall not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
shall be made in accordance with directions reasonably issued from time to time
by Landlord. Tenant shall exercise its best efforts to keep the Common Areas
dean and free from rubbish.
13. Tenant shall use the Common Areas only as a means of ingress and
egress, and Tenant shall permit no loitering by any persons upon Common Areas or
elsewhere within the Building. The Common Areas and roof of the Building are not
for the use of the general public, and Landlord shall in all cases retain the
right to control or prevent access thereto by all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, character, reputation
or interests of the Building and its tenants. Neither Tenant nor any employee or
invitee of Tenant shall enter the mechanical rooms, air conditioning rooms,
electrical closets, janitorial closets, or similar areas or go upon the roof of
the Building without the express prior written consent of Landlord.
14. Landlord reserves the right to exclude or expel from the Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs or who shall in any manner act in violation of the
rules and regulations of the Building
15. Landlord shall have the right to designate the area or areas, if
any, in which Tenant and Tenant's servants, employees, contractors, jobbers,
agents, licensees, invitees, guests and visitors may park vehicles, and Tenant
and its servants, employees, contractors, jobbers, agents, licensees, invitees,
guest, and visitors shall observe and comply with all driving and parking signs
and markers within and about the Building. All parking ramps and areas and any
pedestrian walkways, plazas or other public areas forming a part of the Building
or the land upon
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<PAGE> 54
which the Building is situated shall be under the sole and absolute control of
Landlord, who shall have the exclusive right to regulate and control those
areas.
16. Tenant shall not use the washrooms, restrooms and plumbing
fixtures of the Building, and appurtenances thereto, for any other purpose than
the purpose for which they were constructed, and Tenant shall not deposit any
sweepings, rubbish, rags or other improper substances therein. Tenant shall not
waste water by interfering or tampering with the faucets or otherwise. If Tenant
or Tenant's servants, employees, contractors, jobbers, agents, licensees,
invitees, guests or visitors cause any damage to such washrooms, restrooms,
plumbing fixtures or appurtenances, such damage shall be repaired at Tenant's
expense, and Landlord shall not be responsible therefor.
17. Tenant shall not mark, paint, drill into, cut, string wires
within, or in any way deface any part of the Building, without the express prior
written consent of Landlord, and as Landlord may direct, upon removal of any
wall decorations or installations or floor coverings by Tenant, any damage to
the walls or floors shall be repaired by Tenant at Tenant's sole cost and
expense. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord, and except with the written
consent of Landlord, no person or persons other than those approved by Landlord
shall be employed by Tenant or permitted to enter the Building for the purpose
of cleaning the same. Tenant shall not cause any unnecessary labor by
carelessness or indifference to the good order and cleanliness of the Premises.
Landlord shall not in any way be responsible to Tenant for any loss of property
on the Premises, however occurring, or for any damage to any Tenant's property
by the janitor or any other employee or any other person. Without limitation
upon any of the provisions of the Lease, Tenant shall refer all contractors'
representatives, installation technicians, janitorial workers and other
mechanics, artisans and laborers rendering any service in connection with the
repair, maintenance or improvement of the Premises to Landlord for Landlord's
supervision, approval and control before performance of any such service. This
Paragraph 17 shall apply to all work performed in the Building, including
without limitation installation of telephones, telegraph equipment, electrical
devices and attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings, equipment or any other portion of the
Building. Plans and specifications for such work prepared at Tenant's sole
expense, shall be submitted to Landlord and shall be subject to Landlord's
express prior written approval in each instance before the commencement of work.
All installations, alterations and additions shall be constructed by Tenant in a
good and workmanlike manner end only good grades of material shall be used in
connection therewith, The means by which telephone, telegraph and similar wires
are to be introduced to the Premises and the location of telephones, cell boxes
and other office equipment affixed to the Premises shall be subject to the
express prior written approval of Landlord. Tenant shall not lay linoleum or
similar floor coverings so that the same shall come into direct contact with the
floor of the Premises and, if linoleum or other similar floor covering is to be
used, such use shall be subject to the prior written approval of Landlord, and
may require, among other things, that an interlining of builder's deadening felt
shall be first affixed to the floor, by a paste or other material soluble in
water. The use of cement or other similar adhesive material is expressly
prohibited.
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<PAGE> 55
18. No signs, awnings, showcases, advertising devices or other
projections or obstructions shall be attached to the outside walls of the
Building or attached or placed upon any Common Areas, No window shades, blinds,
drapes or other window coverings shall be installed in the Building without the
express prior written consent of Landlord. No sign, picture, advertisement,
window display or other public display or notice shall be inscribed, exhibited,
painted or affixed by Tenant upon or within any part of the Premises in such a
fashion as to be seen from the outside of the Premises or the Building without
the express prior written consent of Landlord. In the event of the violation of
any of the foregoing by Tenant, Landlord may remove the articles constituting
the violation without any liability and Tenant shall reimburse Landlord for the
expense incurred in such removal upon demand as additional rent under the Lease.
Interior signs on doors and upon the Building directory shall be Subject to the
express prior written approval of Landlord and shall be inscribed, painted, or
affixed by Landlord at the expense of Tenant. Tenant shall not install any radio
or television antenna, loudspeaker, or other device on the roof or exterior
walls of the Building, unless explicitly permitted elsewhere in this Lease, and
Tenant shall not interfere with radio or television broadcasting or reception
from or in the Building or elsewhere.
19. Tenant shall not use the word "Paramount" or the name of the
Building or of the Landlord in its business name, trademarks, signs,
advertisements, descriptive material, letterhead, insignia or any other similar
item without Landlord's express prior written consent, except for the purpose of
identifying Tenant's address.
20. Tenant shall be entitled to have Its name entered upon the
directory of the Building. In the event that Tenant wishes to have additional
entries made upon the Building directory for the names of employees of Tenant
who occupy office space within the Premises, such entries may be allowed by
Landlord in its reasonable discretion, and Landlord may require that Tenant pay
a reasonable fee for each such additional entry. However, the directory of the
Building is provided primarily for the display of the name and location of
tenants only, and Landlord reserves the right to exclude any other names
therefrom at any time. All entries upon the Building directory shall be in
uniform print of a size, style and format selected by Landlord.
21. The sashes, sash doors, skylights, windows and doors that reflect
or admit light or air into the Common Areas shall not be covered or obstructed
by Tenant, through placement of objects upon window sill or otherwise. Tenant
shall cooperate with Landlord in obtaining maximum effectiveness of the cooling
end heating system of the Building by keeping corridor doors closed and by
closing drapes and other window coverings when the sun's rays fall upon windows
of the Premises and at the end of the business day. Tenant shall not obstruct,
alter or in any way impair the efficient operation of Landlord's heating,
ventilating, air conditioning, electrical, fire, safety or lighting systems, nor
shall Tenant temper with or change the setting of any thermostat or temperature
control valve: in the Building. Tenant shall not waste electricity, water or air
conditioning and agrees to cooperate fully with Landlord to assure the most
effective Operation of the Building's heating and air conditioning and to comply
with any governmental energy-saving rules, laws or regulations of which Tenant
has actual notice.
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<PAGE> 56
22. Subject to applicable fire or other safety regulations, all doors
opening onto Common Areas and all doors upon the perimeter of the Premises shall
be kept closed and, during non-business hours, locked, except when in use for
ingress or egress. If Tenant uses the Premises after regular business hours or
on non-business days Tenant shall lock any entrance doors to the Building or to
the Premises used by Tenant immediately after using such doors.
23. The requirements of Tenant will be attended to only upon
appropriate application to the office of the Building by an authorized
individual. Tenant shall not request employees of Landlord to perform any work
or do anything outside of their regular duties unless under special instruction
from Landlord or the project manager for the Building. Tenant shall not request
any employee of Landlord to admit any person (Tenant or otherwise) to any office
without specific instructions from Landlord or the project manager for the
Building, Employees of Landlord shall not receive or carry messages for or to
Tenant or any other person, nor contract with nor render free or paid services
to Tenant or Tenant's servants, employees, contractors, jobbers, agents,
invitees, licensees, guests or visitors. In the event that any of Landlord's
employees perform any such services, such employees shall be deemed to be the
agents of Tenant regardless of whether or how payment is arranged for such
services, and Tenant hereby indemnifies and holds Landlord harmless from any and
all liability in connection with any such services and any associated injury or
damage to property or injury or death to persons resulting therefrom.
24. All keys to the exterior doors of the Premises shall be obtained
by Tenant from Landlord, and Tenant shall pay to Landlord a reasonable deposit
determined by Landlord from time to time for such keys. Landlord will furnish
Tenant, free of charge except for the deposit, with two keys to each door lock
in the Premises, Landlord may make a reasonable charge for any additional keys.
Tenant shall not make or have made duplicate copies of such keys. Tenant shall
not install additional locks or bolts of any kind upon any of the doors or
windows of, or within, the Building, nor shall Tenant make any changes in
existing locks or the mechanisms thereof. Tenant shall, upon the termination of
its tenancy, provide Landlord with the combination locks on safes, safe cabinets
and vaults and deliver to Landlord all keys to the Building, the Premises and
all interior doors, cabinets, and other key-controlled mechanisms therein,
whether or not such keys were furnished to Tenant by Landlord. In the event of
the loss of any key furnished to Tenant by Landlord, Tenant shall pay to
Landlord the cost of replacing the same or of changing the lock or locks opened
by such lost key if Landlord shall deem it necessary to make such a change.
25. Access may be had by Tenant to the Common Areas and to the
Premises at any time between the hours of 8:00 A.M. and 6:00 P.M., Monday
through Friday, legal holidays excepted, At other times access to the Building
may be refused unless the person seeking admission is known to the watchman in
charge, if any, and/or has a pass or is properly identified. Tenant shall be
responsible for all persons for whom Tenant requests passes, and shall be liable
to Landlord for all acts of such persons. In the event Building has, or there is
subsequently, a card access system for using the elevators at other than normal
operating hours for the Building. Landlord may deny access to any area served by
the elevators by anyone not having the necessary elevator access card. Landlord
shall in no case be liable for damages for the admission or exclusion of any
person from the Building. In case of invasion, mob, riot, public excitement,
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or other commotion, Landlord reserves the right to prevent access to the
Building for the safety of tenants and protection of property in the Building.
26. Landlord shall not be responsible for, and Tenant hereby
indemnifies and holds Landlord harmless from any liability in connection with,
the loss, theft, misappropriation or other disappearance of furniture,
furnishings, fixtures, machinery, equipment, money, jewelry or other items of
personal property from the Premises or other parts of the Building, regardless
of whether the Premises or Building are locked at the time of such loss.
27. Tenant shall not use or permit to be used in the Premises any
foul or noxious gas or substance, or permit or allow 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, nor shall Tenant bring
into or keep in or about the Premises any birds or animals, except for
seeing-eye dogs when accompanied by their masters.
28. Tenant shall provide to Landlord upon the execution of the Lease
such identifying information as the Landlord shall request, Including but not
limited to residence addresses, residence telephone numbers, social security
numbers and driver's license or comparable identification numbers, regarding
Tenant (if Tenant is an individual or individuals), all general partners of
Tenant (if Tenant is a partnership), and all officers of Tenant (if Tenant is a
corporation). Tenant shall promptly advise Landlord of any change or addition to
the information provided and shall confirm the accuracy of the information
previously provided as may be requested by Landlord from time to time. Tenant
shall designate in writing to Landlord one or more of such persons as Tenant's
representatives for Landlord to contact if Landlord wishes to reach Tenant
outside normal business hours due to an emergency at the Premises or any other
reason. However, the decisions as to whether and when to contact such persons
shall remain in Landlord's sole discretion, and Landlord shall have no liability
for any failure or delay in contacting such persons or Tenant in case of an
emergency.
29. Tenant shall close and lock the doors of its Premises and
entirely shut off all water faucets or other water apparatus, and, except with
regard to Tenant's computers and other equipment which require utilities on a
twenty-four hours basis, all electricity, gas or air outlets before Tenant and
its employees leave the Premises. Tenant shall be responsible for any damage or
injuries sustained by other tenants or occupants of the Building or by Landlord
for noncompliance with this rule.
30. Tenant shall not obtain for use on the Premises, ice, food,
beverage, towel or other similar services, or barbering or bootblacking
services, except at such hours and under such regulations as may be reasonably
fixed by Landlord.
31. Tenant agrees that Landlord shall have the right to provide to
TRW and to any other credit-checking or credit-evaluation service, and to any
other landlord, any information regarding Tenant's history of payments on
Tenant's monetary obligations under this Lease and such other information as
such services or Landlords shall collect or request from time to time. Landlord,
its agents and the employees of Landlord and its agents shall have no liability
for the
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completeness or accuracy of such information, nor for the uses to which such
information is put by any persons or entities receiving such information.
32. Landlord may waive any one or more of these Rules and Regulations
for the benefit of Tenant or any other tenant, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of anyone
other than the tenant for whose benefit such waiver was expressly intended, nor
prevent Landlord from thereafter enforcing any such Rules and Regulations
against any or all of the tenants of the Building, including Tenant.
33. These Rules and Regulations (including the Parking Rules and
Regulations in any Parking Space Rider to this Lease) are in addition to the
terms, covenants, agreements and conditions of any lease of premises in the
Building In the event these Rules and Regulations conflict with any provision of
the Lease, the Lease shall control.
34. Landlord reserves the right to make such other and reasonable
Rules and Regulations (including Parking Rules and Regulations) as, in its
judgment, may from time to time be needed for safety and security, for care and
cleanliness of the Building and for the preservation of good order therein.
Tenant agrees to abide by all such Rules and Regulations hereinabove stated and
any additional rules and regulations which are adopted.
35. For purposes hereof, the terms "Landlord," "Tenant," "Building"
and "Premises" are defined as those terms are defined In the Lease to which
these Rules and Regulations are attached. Whenever Tenant is obligated under
these Rules and Regulations to do or refrain from doing an act or thing, such
obligation shall include the exercise by Tenant of its best efforts to secure
compliance with such obligation by the servants, employees, contractors,
jobbers, agents, invitees, licensees, guests and visitors of Tenant. The term
"Building" shall include the Premises, and any obligations of Tenant hereunder
with regard to the Building shall apply with equal force to the Premises and to
other parts of the Building.
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Paramount
Group, Inc.
PARKING SPACE RIDER
Provided Tenant is not in default under this Lease and pays the
applicable prevailing monthly parking rate in effect from time to time, and
subject to such rules and regulations as may be adopted from time to time by
Landlord or the operator of the parking facility serving the Building. Tenant
and Tenant's authorized employees designated by Tenant ("Authorized Users")
shall have the right to use in such parking facility up to the full Tenant's
Parking Allotment described in Paragraph K on page 2 of this Lease, on an
unreserved monthly basis until the expiration or termination of this Lease.
However, if at any time during the term of this Lease, Tenant does not choose to
pay for the full number of such parking spaces, Tenant shall not thereafter have
the right to recommence the use of the spaces not paid for if other commitments
have been made for those spaces in the interim.
Landlord reserves the right at any time to relocate any parking spaces
and to substitute an equivalent number of parking spaces in another parking
structure or subterranean parking facility or in a surface parking area within a
reasonable distance of the Premises.
Tenant agrees that it will use its best efforts to cooperate in programs
which' may be undertaken by Landlord independently, or in cooperation with local
municipalities or governmental agencies or other property owners in the vicinity
of the Building, to reduce peak levels of commuter traffic. Such programs may
include, but shall not be limited to, car pools, van pools and other ride
sharing programs, public and private transit, and flexible work hours.
Tenant and Tenant's Authorized Users shall comply with the Parking Rules
and Regulations set forth in this Rider. Landlord reserves the right to modify,
add, or delete from time to time such Parking Rules and Regulations as it deems
reasonably necessary for the operation of such parking. Landlord may refuse to
permit any person who violates the Parking Rules and Regulations to park in the
Building parking facility, and any violation of the rules shall subject to the
car to removal, at the vehicle owner's expense. Tenant agrees to use its best
efforts to acquaint Tenant's Authorized Users and visitors with the Parking
Rules and Regulations set forth in this Rider.
PARKING RULES AND REGULATIONS
1. Neither Tenant nor Tenant's Authorized Users shall park vehicles in any
parking areas designated by Landlord, the parking operator or
governmental entities with jurisdiction for other uses including use by
visitors or other tenants. Tenant and such Authorized Users shall not
leave vehicles in the Building parking areas overnight nor park any
vehicles in the Building parking areas other than automobiles,
motorcycles, motor driven
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or non-motor driven bicycles or four-wheeled trucks. Landlord may, in
its sole discretion, designate separate areas for bicycles and
motorcycles.
2. Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees or Authorized Users,
suppliers, shippers, customers, or invitees to be loaded, unloaded, or
parked in areas other than those designated by Landlord for such
activities. If Tenant permits or allows any of the prohibited activities
described in this Parking Rider, then Landlord shall have the right,
without notice, in addition to such other rights and remedies that it
may have, to remove or tow away the vehicle involved and charge the cost
to Tenant, which cost shall be immediately payable upon demand by
Landlord.
3. Tenant shall submit a written notice in a form reasonably specified by
Landlord or the parking operator, containing the names, home and office
addresses and telephone numbers of those persons who are designated as
Authorized Users by Tenant to use the parking privileges on a monthly
basis and shall use its best efforts to identify each vehicle by make,
model and license number. Such notice, as amended from time to time, is
hereafter referred to as the "Parking Notice." No person whose name and
address is not contained in the Parking Notice shall have any right to
park a vehicle in the area of the Building parking facilities designated
for monthly parking, and no person whether or not his name is included
in the Parking Notice shall have any right to park in such facilities a
vehicle not identified in the Parking Notice without paying the parking
charge then applicable for daily parking and parking in the area
designated for daily parking.
4. Cars must be parked entirely within the stall lines painted on the
floor.
5. All directional signs and arrows must be observed.
6. The speed limit within all parking areas shall be 5 miles per hour.
7. Parking is prohibited, unless a floor parking attendant approved by
Landlord directs otherwise:
a. In areas not striped for parking;
b. In aisles;
c. Where "No Parking" or "Handicap" signs are posted (except
that handicapped persons displaying on their vehicles the
legally prescribed identification may park in such
"Handicap" areas);
d. On ramps;
e. In crosshatched areas; or
f. In reserved spaces end in such other areas as may be
designated by Landlord or the parking operator.
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8. Parking stickers or any other device or form of identification supplied
by Landlord or the parking operator shall remain the property of
Landlord or the parking operator, as the case may be. Such parking
identification device must be displayed as requested end may not be
mutilated In any manner. The serial number of the parking identification
may not be obliterated. Devices are not transferable, end any device not
in the possession of an Authorized User will be void. There Will be a
replacement charge to the Tenant or Authorized User for loss of any
magnetic parking card or other parking identification device.
9. Every Authorized User is requested to park and lock his own car. All
responsibility for damage to or loss of cars is assumed by Authorized
Users, and Landlord shall not be responsible for any such damage or loss
by water, fire, defective brakes, the act or omission by others, theft,
or by any other cause. Tenant shall repair or cause to be repaired at
its sole cost end expense any end all damage to the Building parking
facility or any part thereof caused by Tenant or its Authorized Users or
vehicles of Tenant or such Authorized Users.
10. Loss or theft of parking identification devices from automobile must be
reported to the garage manager immediately, end a lost or stolen report
must be filed by the Tenant or user of such parking identification
device at that time. Any parking identification devices found on any
unauthorized vehicle will be confiscated and the illegal holder will be
subject to prosecution. Lost or stolen devices previously reported and
then found must be reported found to the office of the garage
immediately. Landlord has the right to exclude any vehicle from the
parking facilities that does not leave a parking identification device.
11. Spaces are for the express purpose of one automobile per space
unless a floor parking attendant approved by Landlord directs otherwise.
Washing, waxing, cleaning or servicing of any vehicle in the parking facility by
Tenant or by the Authorized User and/or his agents is prohibited.
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PARAMOUNT
GROUP, INC.
RENT ESCALATION RIDER
In order to adjust the rent payable under the Lease in accordance with
changes in the cost of living from time to time, Tenant agrees to pay to
Landlord, with the installments of Base Rent, and as additional monthly rent
under the Lease, an amount representing rent escalation. For purposes of
calculating the rent escalation payable hereunder, the Consumer Price Index for
All Urban Consumers, U.S. City Average, All Items (1967 = 100), unadjusted
(herein the "Index") published by the Bureau of Labor Statistics of the United
States Department of Labor for the month of January, 1996 shall be the base
Index figure (the "Base Index"). The Base Index shall be compared to the Index
figure for December of each yen during the term of the Lease, including the
initial partial calendar year if the Lease term commences other then during
December. In the event that the Index figure for December of any year during the
term of the Lease shall be greater than the Base Index, in addition to the Base
Rent Tenant shall pay rent escalation to Landlord in an amount equal to one half
of the same percentage increase in the Base Rent as the percentage increase in
the Index for such December over the Base Index. Such amount shall be payable
monthly commencing with the payment of Base Rent for the month following such
December. By way of example, if the Index for the December in question is 8%
greater than the Base Index, then the Tenant shall pay thereafter as rent
escalation under this rider, until the next annual adjustment, a monthly amount
equal to 4% of the Base Rent, as well as paying the Base Rent itself.
In the event that the Index for any December during the term of the
Lease is not yet available upon the date that any installment(s) of Base Rent is
due, Tenant shall continue paying the monthly installments of Base Rent and rent
escalation in the amount applicable for such December until the Index for that
month is published, whereupon Tenant shall immediately pay Landlord the rent
escalation which would have been due in the months following such December had
the Index for such December been available. In the event that publication of the
Index is discontinued, Landlord and Tenant agree that the index of consumer
prices which is most closely analogous to the Index shall be used in place of
the Index for calculation of the rent escalation payable hereunder. In the event
that the referents or techniques employed in the calculation of the Index shall
be modified and such modification would have resulted in a different figure for
the Base Index. Landlord and Tenant agree that the Base Index shall be
appropriately adjusted and that the Index, as modified, shall be used as
provided hereunder.
The term "Base Rent" as used in this Rider shall be deemed to include
the additional monthly rent for conduit space pursuant to Section 2 of the
Telecommunications Conduit Rider (excluding the initial one-time payment of
$9,400 and the cost of installing the interducts from floor P-1 to floor 3) as
well as the Base Rent described in Section E on page 2 and Section 3 on page 3
of the body of this Lease. Thus, the additional rent for the conduit space shall
be adjusted from time to time in the same fashion as the Base Rent.
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PARAMOUNT
GROUP, INC.
TELECOMMUNICATIONS CONDUIT RIDER
1. LEASE AND USE OF CONDUIT. Landlord hereby leases to Tenant, as
part of the Premises for the Lease Term, the conduit space described below (the
"Conduit Space"). Tenant shall use the Conduit Space solely for
telecommunications cable to connect the Premises to the premises of other
telecommunications companies that lease space on the floors of the Building
through which the Conduit Space passes. Any such connection shall require the
mutual written agreement of Tenant and the other affected telecommunications
companies.
The Conduit Space is contained within two 1-inch interducts running from
floor P-1 through floor 17.
The interducts from floor 3 through floor 17 run through conduit closets
in the northwest corner of the corridor on each floor. Access to the conduit
closet on each floor shall, at Landlord's election, be restricted so that no
entry to the closet will be permitted unless Landlord's designated contractor or
other representative is present. Landlord may require any installation of cable
in the Conduit Space or any connection of Tenant's cable to the Premises or
cable of other tenants in the Building to be performed by Landlord's approved
contractor. Upon Tenant's written request. Landlord will cause such contractor
to provide Tenant with an advance written breakdown of the costs of the work,
including applicable labor rates. All costs of such installations and
connections (including but not limited to Landlord's administrative fee equal to
10% of the other costs) and the ongoing use and maintenance of such items shall
be at Tenant's sole expense. Tenant shall pay Landlord any costs incurred by
Landlord, together with Landlord's administrative fee, within ten days after
Tenant's receipt of a bill for such items. Tenant's use of the Conduit Space and
such cable and connecting lines shall comply with all applicable laws, the other
provisions of the Lease, and such Building Rules as are adopted by Landlord from
time to time, and shall not interfere in any way with the operation of the
Building or with the use by any other tenant of the Building of such tenant's
premises or the common areas of the Building. All required cabling and
connecting lines shall be installed out of sight.
Prior to any installation of cable in the Conduit Space or connecting
lines to the Premises or the premises of other tenants. Tenant shall obtain
Landlord's written approval as set forth in Section 29.3 of the Lease, and in
the case of connecting lines to the Premises or cable systems of another tenant,
obtain the written consent of such other tenants to the work.
2. CONDUIT RENT. Tenant agrees to pay Landlord additional rent for
the Conduit Space, which initially shall be a one-time payment of $9,400, plus
Landlord's actual costs of installing the interducts from floor P-1 to floor 3,
which have not previously been installed as of the execution of this Lease. The
$9,400 shall be due and payable upon execution of this Lease, and the
installation costs for the interducts from floor P-1 to floor 3 shall be due and
payable within 10 days after billing by Landlord to Tenant. (No portion of such
payments shall be
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refundable if the Lease is terminated for any reason.) Thereafter, the
additional rent for the Conduit Space shall be $40 per month, subject to
adjustment as provided below. Such additional rent shall be due and payable to
Landlord on the first day of each month or portion of a calendar month
throughout the balance of the Lease Term, together with Tenant's Base Rent and
other monthly charges, with the first such installment of additional rent due on
the Commencement Date. The amount of such monthly conduit rent shall be adjusted
from time to time in accordance with the Rent Escalation Rider to this Lease to
reflect increases in the Consumer Price Index as described in that Rider.
3. INDEMNITY AND WAIVER. Tenant hereby agrees to indemnify and hold
harmless Landlord and its partners, its agent Paramount Group, Inc. and their
respective officers, directors, shareholders, agents and employees
(collectively, the "Landlord Group") from and against any and all claims
(including but not limited to claims for bodily injury or property damage),
actions, mechanic's liens, losses, liabilities, and expenses (including
reasonable attorney fees and costs of defense by Landlord's legal counsel)
(collectively, "Claims"), which may arise from the installation, operation, use,
maintenance or removal of the cable and connecting lines pursuant to this Rider
and the Lease. Similarly, Tenant shall pay upon demand by Landlord the costs to
repair any damage to the Building caused by such installation, operation, use,
maintenance or removal. Tenant hereby waives and releases the Landlord Group
from any Claims Tenant may have at any time (including but not limited to Claims
relating to interruptions in services) arising out of or relating in any way to
the installation, operation, use, maintenance, or removal of the cable and
connecting lines described in this Rider and the Lease, whether or not caused by
the negligence of any member of the Landlord Group or Landlord's contractors.
4. REMOVAL OF CABLE AND CONNECTING LINES. Tenant agrees that, upon
the expiration or termination of the Lease, Tenant (or, at Landlord's election,
the contractor designated by Landlord) shall promptly remove, at Tenant's sole
cost and expense, all cable, connecting lines, and other installations installed
under this Rider and the Lease (excepting the conduits themselves, which shall
remain the property of Landlord), and restore those portions of the Building
damaged by such removal to their condition immediately prior to the installation
of such items. If Tenant fails to promptly remove all such items pursuant to
this Section 4, or if Landlord elects to have such work performed by Landlord's
contractor, Landlord may remove such items installed hereunder, and restore
those portions of the Building damaged by such removal to their condition
immediately prior to the installation, in which case Tenant agrees promptly to
pay Landlord's reasonable costs of removal and restoration, including Landlord's
administrative fee.
5. APPLICABILITY OF OTHER PROVISIONS. Except as explicitly provided
otherwise herein, Tenant's obligations under the Lease for the protection of the
Building, Landlord, the Landlord Group, and third parties, including but not
limited to Tenant's obligations regarding maintenance, repairs, mechanic's
liens, insurance, attorneys' fees and costs of suit, shall apply in the same
fashion with respect to Tenant's use of the Conduit Space and the cable and
connecting lines described in this Rider as they do with respect to Tenant's use
of the rest of the Premises.
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<PAGE> 65
6. MISCELLANEOUS. This Rider supersedes all prior or contemporaneous
understandings, negotiations, or agreements between the parties, whether written
or oral, with respect to its subject matter.
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<PAGE> 66
PARAMOUNT
GROUP, INC.
EXTENSION OPTION RIDER
Provided that Tenant is not in default under this Lease, Tenant shall
have options to extend the term of this Lease for up to two additional two-year
periods following the expiration of the initial term. Tenant shall have the
right to exercise the option for the second two-year period only if Tenant has
previously duly exercised the option for the first two-year period. Tenant may
exercise each such option only by giving Landlord a written notice at least nine
(9) months, but not more than twelve (12) months, prior to the commencement of
the two-year period in question, and only if tenant is not in default at the
time Tenant gives such notice. If Tenant has exercised such option, but is In
default on the date the additional two-year extended term is to commence, then
at Landlord's election, the extended term shall not commence until and unless
the Tenant timely cures such default.
With respect to each additional two-year term, the Lease shall be
adjusted to reflect the following: (a) a new Base Rent for the Premises equal to
95% of the average Base Rents per rentable square foot charged by Landlord for
telecommunications space in the Building of comparable size and quality in
comparable renewal leases for a comparable term entered into by Landlord within
six months prior to the date Tenant exercises this option (provided, however,
that if no such comparable renewal leases were entered into within such six
month period, then the valuation shall be based on the Base Rent Landlord would
have been willing to accept at that time as reasonably calculated by Landlord in
good faith); and (b) a new rental rate for the Conduit Space based on the
then-prevailing rate being charged by Landlord for similar interducts in the
Building.*
Landlord shall advise Tenant of such rental adjustments within one month
after Landlord's receipt of Tenant's notice. Tenant shall have ten days
following Tenant's receipt of notice of the rental adjustment within which to
accept such terms by executing any appropriate documentation submitted by
Landlord to Tenant. If Tenant fails to so accept such terms, Tenant's rights to
extend the term pursuant to this Rider shall be cancelled.
In no event shall the terms offered by Landlord under this Rider bind
Landlord to offer such terms to Tenant or to any other person or entity at any
time except as explicitly set forth in this Rider, nor shall such terms prevent
Landlord from leasing the Premises to any person or entity on different terms if
Tenant does not timely accept the terms determined in accordance with this
Rider.
*BUT IN NO EVENT SHALL THE NEW RENTAL RATE FOR THE CONDUIT SPACE EXCEED $200.
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<PAGE> 1
EXHIBIT 10.27
DEED OF LEASE
8100 BOONE BOULEVARD
VIENNA, VIRGINIA 22182
THIS DEED OF LEASE made and entered into on this the 20th day of
September, 1996, by and between GOSNELL PROPERTIES, INC. whose address for
purposes hereof is 8130 Boone Boulevard, Vienna, Virginia 22182 (hereinafter
called "Lessor"), and CRL NETWORK SERVICES, INC. (hereinafter called "Lessee")
WITNESSETH, that for and in consideration of the rents, mutual covenants
and agreements hereinafter set forth, the parties hereto do hereby mutually
agree as follows:
1. DEMISED PREMISES
The Lessor does hereby lease to Lessee, and Lessee does hereby lease
from Lessor, for the term and upon the conditions hereinafter provided
approximately one thousand one hundred thirty-one (1,131) square feet of
rentable area (including an allowance for core factor) on the third (3rd) floor
of the office building (the "Building") situated on that certain parcel of real
estate (the "Land") at 8100 Boone Boulevard, Vienna, Virginia 22182 (such space
being hereinafter referred to as the "Demised Premises"), the Land and Building
being herein referred to as the "Property." The Demised Premises have been
assigned Suite #320, and are outlined in red on the plan attached hereto and
made a part hereof as Exhibit A.
2. TERM
(a) Subject to and upon the terms and conditions set forth
herein, or in any exhibit or addendum hereto, this Lease shall continue in force
for a term of four (4) years, two (2) months and eleven (11) days, beginning on
the first (1st) day of October, 1996, (the "Commencement Date") and ending on
the tenth (10th) day of December, 2000 (hereinafter sometimes referred to as the
"Initial Term", the Initial Term together with the Renewal Term if properly
exercised being herein referred to as the "Lease Term")
(b) In the event the Demised Premises are not completed in
accordance with the provisions of this lease and ready for occupancy by the
aforesaid Commencement Date, for any reason or cause, (i) the Commencement Date
shall be that date on which Lessor shall tender possession of the Demised
Premises to Lessee with the Initial Improvements substantially completed (or any
earlier date on which the Initial Improvements would have been substantially
completed, but for Lessee Delays), (ii) neither Lessor or its agents or
employees shall be liable or responsible for any claims, damages, or liabilities
in connection therewith or by reason thereof, and (iii) Lessee shall remain
bound by the obligations of the Lessee provided herein; provided that, except to
the extent such failure is attributable to one or more Lessee Delays (as herein
defined), the payment of Rent shall be abated until the extended Commencement
Date, and the date of commencement of the obligation of the Lessee to pay Rent
shall be extended to the earlier of (i) the date the Demised Premises are
occupied by the Lessee or (ii) the day which is ten (10) days after the Lessor
has certified in writing to the Lessee that all work to be performed by Lessor
pursuant to this Lease has been substantially completed. In no event shall the
aforesaid expiration date of the Term be adjusted. When the Demised Premises are
occupied by Lessee, Lessor and Lessee will execute a declaration specifying the
commencement and termination date of the lease Term determined as provided above
(Exhibit D)
3. USE
Lessee will use and occupy the Demised Premises solely for general
office purposes only and for no other purpose whatsoever. Lessor acknowledges
that Lessee intends to utilize the Demised Premises for general office use in
connection with the operation of a general business and data communications
company, including the installation of computers, modems and other data
transmission equipment in the Demised Premises, and Lessor consents thereto,
subject to the terms hereof, and subject further to the terms and conditions set
forth on Exhibit "E". Lessee
<PAGE> 2
will not use the Demised Premises in any manner which will annoy or interfere
with other tenants in the Building and will comply with the Rules and
Regulations listed under Exhibit C. Lessee will not use or occupy the Demised
Premises for any unlawful purpose, and will comply with all present and future
laws, ordinances, regulations, and orders of the United States of America, the
State of Virginia, the Fire Marshall and any other public authority having
jurisdiction over the Demised Premises that may affect the Demised Premises or
Lessee's use and/or occupancy thereof. In no event shall Lessee generate,
manufacture, prepare, use, store, treat or dispose of any polychlorinated
biphenyls ("PCB's"), petroleum products or asbestos, or any hazardous,
radioactive, carcinogenic, or toxic chemicals, substances pollutants,
contaminants, materials or waste, including storage tanks and/or containers
thereof, as such terms are defined under applicable Federal, state and local
laws, ordinances or regulations, in or on the Demised Premises or the Building
on the Property upon which the Demised Premises is located or any portion
thereof, nor shall Lessee use, or suffer the Demised Premises to be used, for
industrial or manufacturing purposes. In the event of any breach of this Section
3, Lessee agrees to defend, indemnify and hold Lessor harmless from and against
any and all claims, damages, expense and liability incurred as a result,
including, but not limited to, costs and attorneys' fees incurred by or on
behalf of Lessor to (I) cure Lessee's breach of this Section 3, (ii) remediate
the effects of Lessee's breach, or (iii) to bring Lessee into compliance with
any and all federal, state and municipal orders, ordinances, laws, and
regulations. The foregoing indemnity shall be deemed to survive the expiration
of this Lease.
4. RENTAL
The monthly Rent to be paid for the Demised Premises during the Lease
Term, which Lessee hereby agrees to pay to Lessor in advance, and Lessor hereby
agrees to accept, shall be the sum of Two Thousand One Hundred Sixty-Seven and
seventy-five/one hundredths Dollars ($2,167.75), payable on the first (1st) day
of each calendar month during the Lease Term commencing with the Commencement
Date. Monthly rent payable under this Section 4 shall be hereinafter referred to
as "Monthly Base Rent." Such Monthly Base Rent shall be subject to escalation as
hereinafter provided. If the obligation of the Lessee to pay Rent hereunder
begins on a day other than on the first day of a month, Rent from such date
until the first day of the following month shall be prorated at the rate of
one-thirtieth (1/30) of the Monthly Base Rent for each day payable in advance.
The Lessee will pay Rent without demand, by check to the Lessor or to such other
party or to such other address as Lessor may designate from time to time by
written notice to Lessee, without demand and without deduction, set-off or
counterclaim. If Lessor shall at any time or times accept said Rent after it
shall become due and payable, such acceptance shall not excuse delay upon
subsequent occasions, or constitute, or be construed as, a waiver of any or all
of the Lessor's rights hereunder. The term "Rent" as used herein shall mean each
installment of Monthly Base Rent payable hereunder, all additional Rent plus all
other sums payable by Lessee to Lessor hereunder (including, but not limited to,
late charges and interest).
5. BASE MONTHLY RENTAL RATE ESCALATION, BASED UPON INCREASES IN REAL ESTATE
TAXES, OPERATING COST AND ANNUAL ESCALATION.
A. DEFINITIONS
1. Real Estate Taxes shall mean the aggregate amount of real
estate taxes and assessments, general and special, ordinary and extraordinary,
foreseeable or unforeseen, including assessments for public improvements and
betterments, real estate taxes upon any "air rights", front foot benefit
assessments, vault rents, sewer assessments, and special area taxes assessed,
levied or imposed with respect to the Land and the improvements located on the
Land in the manner in which such taxes and assessments are imposed, as of the
Commencement Date provided, that if because of any change in the taxation of
real estate or other tax assessment (including, without limitation, any
occupancy, gross receipts or rental tax) is imposed upon Lessor or the owner of
the Land and/or Building, or upon or with respect to the Land and/or Building,
or the occupancy, rents or income therefrom, in substitution for, or in addition
to, any of the foregoing Taxes, such other tax or assessment shall be deemed
part of the Taxes. Real Estate Taxes shall not include any sales tax or excise
tax imposed by any governmental authority upon the Rent payable by Lessee
hereunder, and in the event that any sales tax or excise tax is
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imposed by any governmental authority on the Rent payable by Lessee hereunder,
such sales tax or excise tax shall be paid by Lessee.
2. Monthly Base Rent shall mean the rate of Monthly Base Rent
originally fixed in Section 4 of this Lease on the date of execution thereof, as
such rate may be subsequently modified or supplemental in any way other than
under the provisions of Sections 5B and 5C hereof.
3. Lease Term shall be deemed to mean the period beginning with
the Commencement Date in accordance with Exhibit D and ending with the date of
the expiration in accordance with Exhibit D or sooner termination of this Lease
subject to the terms of this Lease.
4. Operating Costs of the Building shall mean the costs of all
heat, cooling, utilities, insurance, janitorial and cleaning service, security
services, rental, monitoring and maintenance expenses associated with security
equipment, salaries, wages and other personnel costs of engineering,
superintendents, watchmen and other Building employees, charges by an
independent CPA firm to prepare the Expense Statement, charges under maintenance
and service contracts for chillers, boilers, controls and/or elevators, exterior
and interior window cleaning, alarm systems and Building and grounds
maintenance, management fees (including management fees by Gosnell Properties),
leasing expenses for the lease of equipment designed to decrease operating
expenses, all maintenance and repair expenses and supplies which are deducted
for such calendar year (and not capitalized) for federal income tax purposes,
and all other costs and expenses of operating the office area, common area and
garage associated with the Building; provided, however, that Operating Costs of
the Building shall not include (i) leasing commissions and (ii) payments of
principal and interest on any mortgages, deeds of trust or other encumbrances
upon the Building. Operating Costs of the Building shall include, in addition to
the above, the cost of any capital improvements designed to decrease operating
expenses, and any improvements required by law after the initial occupancy. The
cost of such capital improvements shall be amortized over the life of the
particular asset and to this extent, shall be included in Operating Costs of the
Building.
5. Base Year shall be the period January 1, 1996 to December 31,
1996.
6. Comparison Year shall mean any twelve month period after the
Base Year which begins with the same first month as the Base Year.
7. Real Estate Tax Fiscal Year shall mean the period January 1 to
December 31 (or such other period as hereafter may be duly adopted by the State
of Virginia and/or Fairfax County, Virginia, as the fiscal year for real estate
tax purposes; and wherever reference is hereinafter made to January 1, it shall
mean, in the case of such other fiscal year, the first day thereof)
8. Base Tax Year shall mean the Real Estate Tax Fiscal Year
within which Lessee occupies the Demised Premises or its obligation to pay Rent
occurs, whichever comes earlier.
9. Base Real Estate Taxes shall mean the taxes payable for the
Base Tax Year.
10. Lessee's Proportionate Percentage shall mean eighty-eight/one
hundredths percent (0.88%) and shall represent the agreed percentage of the
Building for purposes of computing Lessee's allocable share of any change in
Real Estate Taxes or Operating Costs provided hereunder.
B. INCREASES IN REAL ESTATE TAXES
During the Lease Term, Lessee shall pay to Lessor, as additional Rent,
Lessee's Proportionate Percentage of any increase during the Lease Term in Real
Estate Taxes levied on the Building and the Land on which the Building is
situated over the Base Real Estate Taxes. Lessor shall submit to Lessee a
Statement of such tax increase and Lessee shall pay to Lessor its aforesaid
percentage share of such tax increase for the Real Estate Tax Fiscal Year of
Fairfax
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County, Virginia (currently January 1 to December 31) for which such tax
increase is effective and shall, commencing with the first monthly installment
of Rent which is due during such Real Estate Tax Fiscal Year, pay to Lessor as
additional monthly Rent, together with such monthly installment of Rent an
amount equal to one-twelfth (1/12) of Lessee' 5 aforesaid percentage share of
such annual increase in Real Estate Taxes to be applied to Lessee's obligation
thereafter accruing under this Section. If the expiration date of this Lease
does not coincide with the last day of the Real Estate Tax Fiscal Year, the
portion of the increase in Real Estate Taxes payable by Lessee hereunder for the
Real Estate Tax Fiscal Year in which the expiration date occurs, shall be
appropriately adjusted and pro-rated between the Lessor and Lessee, based upon
the respective number of days in such Real Estate Fiscal Year prior to and after
the expiration date.
C. INCREASE IN OPERATING COSTS
(i) For each Comparison Year after the Base Year, as herein
defined, Lessee shall pay to Lessor as additional Rent Lessee's Proportionate
Percentage of the increase (if any) in the Operating Costs of the Building as
herein defined, for such Comparison Year over the Operating Costs of the
Building for the Base Year as herein defined; provided that, Lessee's obligation
to pay Lessee's Proportionate Percentage of any increase in Operating Costs
shall not commence to accrue until the first (1st) anniversary of the
Commencement Date. Within ninety (90) days after the expiration of each
Comparison Year during the Lease Term, or as soon thereafter as is reasonably
possible, a certified public accountant selected by Lessor shall audit the books
and records of Lessor and shall make a determination of the increase in the
Operating Costs of the Building for such Comparison Year over the Operating
Costs of the Building for the Base Year. Lessor shall submit to Lessee a
statement (the "Expense Statement") of the aforesaid determination, including
Lessee's Proportionate Percentage of such increase ("Lessee's Expense Increase
Share"). Within thirty (30) days after the delivery of the Expense Statement,
Lessee shall pay to Lessor Lessee's Expense Increase Share. In the event Lessee
fails to dispute any such Expense Statement within forty-five (45) days
following delivery of such Expense Statement, such Expense Statement shall be
deemed final and conclusive against Lessee.
(ii) In order to provide for payment by Lessee of Lessee's
Anticipated Expense Increase Share for each Comparison Year on an estimated
monthly installment basis during each Comparison Year, said installments due
with the Monthly Base Rent, Lessee agrees that, commencing with the first
anniversary of the Commencement Date of the Lease, Lessee shall pay to Lessor an
amount equal to one-twelfth (1/12) of Lessee's Anticipated Expense Increase
Share, which amount shall be 3% of the previous year's Monthly Base Rent, plus
Lessee's Proportionate Percentage of any actual increase, if any, in the
Operating Costs of the Building for the prior Comparison Year over the Operating
Costs of the Building for the Base Year, which additional monthly payment shall
be applied as a credit against Lessee's Expense Increase Share for such
Comparison Year. In the event that after the operating expenses for such
Comparison Year have been determined and such additional monthly payments for
Lessee's Anticipated Expense Increase Share are in excess of Lessee's Expense
Increase Share for such Comparison Year, Lessor shall promptly refund such
excess to Lessee. In the event that the amount of such monthly payment is
insufficient to pay the full amount of Lessee's Expense Increase Share for such
Comparison Year, Lessee shall pay to Lessor, within thirty (30) days after the
delivery of the Expense Statement, the entire amount of such deficiency. If this
Lease expires on other than the last day of the Comparison Year, Lessee's
Expense Increase Share shall be equitably adjusted to exclude the portion of
such Comparison Year during which this Lease is not in effect.
(iii) In the event that the Building is less than ninety-five
percent (95%) occupied for a period exceeding ninety (90) days during the Base
Year or any Comparison Year of this Lease, then those components of Operating
Costs during the Comparison Year which vary according to the level of occupancy
of the Building (e.g., as the case may be, electricity, gas, trash, etc.) will
be adjusted as reasonably estimated by Lessor to reflect the Building as
ninety-five percent (95%) occupied for purposes of determining Lessee's Expense
Increase Share and Lessee's Anticipated Expense Increase Share. It is
recognized, however, that the level of said variable expenses does not
necessarily vary on a linear basis relative to the occupancy level. Expenses
which do not normally vary according to the level of occupancy of the Building,
such as Building Engineer expenses, shall not be adjusted.
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D. BASE RENTAL ADJUSTMENT
Commencing with the first (1st) anniversary of the Commencement Date and
on each anniversary thereof throughout the term, Lessee's Monthly Base Rent
shall be increased by three percent (3%) of the Monthly Base Rent in effect
immediately preceding such adjustment. Lessee shall pay such increased Rent in
monthly installments commencing with the Monthly Base Rent payment then due.
E. PERSONAL PROPERTY TAXES
Lessee shall pay before delinquency all taxes, assessments, license
fees, and other charges that are levied and assessed against Lessee's personal
property installed or located in or on the Demised Premises, and that become
payable during the term. On demand by Lessor, Lessee shall furnish Lessor with
satisfactory evidence of these payments.
If any taxes on Lessee's personal property are levied against Lessor or
Lessor's property, or if the assessed value of the Building and other
improvements in which the Demised Premises are located is increased by the
inclusion of a value placed on Lessee's personal property, and if Lessor pays
the taxes on any of these items or the taxes based on the increased assessment
of these items, Lessee, on demand, shall immediately reimburse Lessor for the
sum of the taxes levied against Lessor, or the proportion of the taxes resulting
from the increase in Lessor's assessment. Lessor shall have the right to pay
these taxes regardless of the validity of the levy.
In the event that any sales tax or excise tax is imposed by any
governmental authority on either the Rent payable by Lessee hereunder or on the
services provided under the Lease hereunder, such sales tax or excise tax shall
be paid by Lessee.
6. DEPOSIT
Simultaneously with the execution of this Lease, Lessee shall deposit
with Lessor the sum of Four Thousand Three Hundred Thirty-Five and fifty/one
hundredths Dollars ($4,335.50), as a security deposit for the performance by
Lessee of the provisions of this Lease. Such deposit shall be considered as
security for the payment and performance by Lessee of all Lessee's obligations,
covenants, conditions and agreements under this Lease. In the event of any
default by Lessee hereunder, Lessor shall have the right, but shall not be
obligated, to apply all or any portion of the deposit to cure such default, in
which event Lessee shall be obligated to promptly deposit with Lessor the amount
necessary to restore the deposit to its original amount provided, however, such
defaults and Lessee's liability under this Lease shall thereby be discharged
only pro tanto and Lessee shall remain liable for any amounts that said Security
Deposit shall be insufficient to pay. Lessor shall return the security deposit
to Lessee within thirty (30) days after (i) the Lease has expired, (ii) the
Lessee has surrendered possession of the Demised Premises in accordance with the
terms hereof, and (iii) the Lessee has performed all obligations imposed on the
Lessee hereunder. Lessor shall not be required to pay Lessee interest en the
security deposit. Notwithstanding the foregoing, in the event of the sale or
transfer of Lessor's interest in the Demised Premises or this Lease, Lessor
shall have the right to transfer the Security Deposit to the purchaser or
transferee, in which event Lessee shall look only to the new landlord for the
return of the Security Deposit and Lessor shall thereupon be released from all
liability to Lessee for the return of such Security Deposit.
7. ASSIGNMENT AND SUBLETTING
(a) Lessee shall not mortgage or encumber this Lease. Lessee
shall not assign or transfer this Lease, or grant any license or concession
hereunder, or sublet or permit the occupancy or use of the Demised Premises, or
any part thereof (each of the foregoing herein referred to as a "Transfer", and
any person or entity to whom a Transfer is made or proposed to be made being
herein referred to as a "Transferee"), by any person or entity other than Lessee
and its employees, or cause, permit or suffer any Transfer to occur by operation
of law or otherwise, without obtaining the prior written consent of Lessor. In
no event shall Lessee grant any partial assignment of Lessee's interest in this
Lease. Lessee shall deliver not less than thirty (30) days prior written notice
of any proposed Transfer, said notice to further specify the identity of the
proposed Transferee, the terms of the proposed Transfer and such other
information as
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Lessor may reasonably request. Lessee agrees to reimburse Lessor for such
reasonable costs as may be incurred by Lessor in the review of the proposed
Transferee's credentials, financial information and other information required
by Lessor.
(b) Subject to the other provisions of this Section 7, and
provided that (I) Lessee is not and has not been in default hereunder and (ii)
Lessee will remain in possession of in excess of fifty percent (50%) of the
Demised Premises, Lessor agrees that it will not unreasonably withhold or delay
its consent to a proposed Transfer; provided that, notwithstanding the
foregoing, it shall be deemed reasonable for Lessor to withhold its consent to a
proposed Transfer if Lessor determines that: (A) the proposed Transferee or its
business is not of a type and quality suitable for a first-class office
building, (B) the proposed Transferee is a governmental or quasi-governmental
authority, a foreign government or international agency or other organization
entitled to sovereign or other immunity, (C) the proposed assignment or
sub-tenancy or the proposed assignee or subtenant would adversely affect the
other tenants of the Building or would impose an additional, material burden
upon Lessor in its operation of the Building, (D) the proposed Transfer would
impair the reputation of the Building as a first-class office building, (E) the
proposed Transferee has not been demonstrated to Lessor's satisfaction to have
sufficient financial capability and stability to perform its obligations under
this Lease and under such proposed assignment or sublease (as the case may be),
(F) the proposed Transfer would result in more than one (1) sublease being in
effect, (G) the Lease has previously been Transferred, (H) the proposed
Transferee is proposing to engage in a use which (I) is not permitted pursuant
to Section 3 hereof, (ii) is not permitted pursuant to applicable law to be
conducted by the proposed Transferee or within the Demised Premises (or such
lesser portion as is being sublet) or both, (iii) will violate any covenant,
condition, restriction or other matter of record affecting title to the
Building, or any other agreement, judgment or law by which Lessor or the
Building is bound, or (iv) will violate any "exclusive use" or other restrictive
covenant of any other lease of any portion of the Building, (I) the proposed
Transferee is proposing to manufacture, use, store or dispose of Hazardous
Materials in, on or upon the Demised Premises (or such lesser portion as is
being sublet), (J) the rent to be paid in connection with such Transfer is less
than the comparable rents then being charged for similar space in the Building,
or (K) Lessor's lender shall refuse to grant its consent to such Transfer (if
required). Notwithstanding anything herein contained, Lessee shall have no right
to make any Transfer to any person or entity with whom Lessor is negotiating to
lease space in the Building, or to any existing tenant or other occupant of the
Building.
(c) The consent by Lessor to any Transfer shall not be construed
as a waiver or release of Lessee from the terms of any covenant or obligation
under this Lease, nor shall the collection or acceptance of Rent from any
Transferee constitute a waiver or release of Lessee of any covenant or
obligation contained in this Lease, nor shall any such Transfer be construed to
relieve Lessee from giving Lessor said thirty (30) days notice or from obtaining
the consent in writing of Lessor to any further Transfer. Lessee hereby assigns
to Lessor the rent due from any Transferee and hereby authorizes each such
Transferee to pay said rent directly to Lessor; provided that, so long as Lessee
is not in default hereunder, Lessee shall be authorized to collect the rent from
each such Transferee. Any costs and expenses, including, but not limited to,
reasonable attorney's fees (which shall include the cost of any time expended by
Lessor' 5 attorneys including in-house counsel) incurred by Lessor in connection
with any proposed or purported Transfer shall be borne by Lessee and shall be
payable to Lessor as additional Rent.
(d) Without conferring any rights upon Lessee not otherwise
provided in this Section 7, in the event of a Transfer fifty percent (50%) of
the excess of any monthly base rent or other payment or consideration accruing
to the Lessee as a result of such Transfer (including, but not limited to, any
lump sum or periodic payment in any manner relating to such Transfer) above the
Monthly Base Rent payable by Lessee with respect to that portion of the Demised
Premises, shall, after deduction of Lessee's reasonable out-of-pocket costs for
brokerage commissions and tenant improvements paid by Lessee in connection with
such Transfer (such costs to be amortized on a straight-line basis over the term
of any sublease), be paid by Lessee to Lessor within ten (10) days following
receipt thereof by Lessee, as additional Rent.
(e) If Lessee is a corporation, then the sale, issuance or
transfer of any voting capital stock of Lessee or of any corporate entity which
directly or indirectly controls Lessee
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(unless Lessee is a corporation whose stock is traded on the New York Stock
Exchange or the American Stock Exchange or a recognized national
"over-the-counter" exchange) which shall result in a change in the voting
control of Lessee or the corporate entity which controls Lessee shall be deemed
to be an assignment of this Lease within the meaning of this Section 7. If
Lessee is a partnership or an unincorporated association, then the sale,
issuance or transfer of a majority interest therein, or the transfer of a
majority interest in or a change in the voting control of any partnership or
unincorporated association or corporation which directly or indirectly controls
Lessee, or the transfer of any portion or all of any general partnership or
managing partnership interest, shall be deemed to be an assignment of this Lease
within the meaning of this Section 7. Any attempted or purported Transfer in
violation of the foregoing, whether voluntary or involuntary or by operation of
law or otherwise, shall be null and void and shall not confer any rights upon
any purported Transferee, and shall, at Lessor's option, terminate this Lease
without relieving Lessee of any of its obligations hereunder for the balance of
the stated Term.
(f) Notwithstanding anything herein contained to the contrary,
the co-location of customer equipment in the Demised Premises in the ordinary
course of Lessee's business shall not be deemed to be an assignment or
subletting. However, Lessee shall be solely responsible for all risk of loss or
damage to any such equipment, and shall be solely responsible for any and all
loss or damage occasioned by the installation, operation, repair, maintenance
and/or removal of such equipment.
8. MAINTENANCE BY LESSEE
Lessee, subject to Sections 9, 10, and 20, at its cost shall keep the
Demised Premises and the fixtures and equipment therein in clean, safe and
sanitary condition, will take good care thereof, will suffer no waste or injury
thereto, and will, at the expiration or other termination of the term of this
Lease, surrender the same, broom clean, in the same order and condition in which
they are on the Commencement Date, ordinary wear and tear and damage by the
elements, fire and other casualty not due to the intentional or negligent acts
or omissions of Lessee or Lessee's agents, employees, contractors, licensees or
invitees, excepted; and upon such termination of this Lease, Lessor shall have
the right to re-enter and resume possession of the Demised Premises. It is
hereby understood and acknowledged by the parties hereto that, except as
expressly set forth in the Lease, Lessor is leasing the Demised Premises to
Lessee in "as is" condition with all faults, and that Lessor has made no
representations respecting the conditions of the Demised Premises or the
Property not expressly contained herein. Except as expressly set forth herein,
Lessor shall have no liability to Lessee or any of Lessee's directors, officers,
employees, agents, contractors, licensees or invitees arising from the condition
of the Property or the Demised Premises, and Lessee shall defend, indemnify and
hold Lessor harmless from and against any claims, causes of action, damages and
liability arising therefrom. The foregoing indemnity shall be deemed to survive
the expiration of this Lease.
9. ALTERATIONS
(a) Lessee will not make or permit any alterations, decorations,
additions or improvements, structural or otherwise, in or to the Demised
Premises or the Building, without the prior written consent of Lessor, which
consent may be conditioned upon Lessee's agreement to remove the same and
restore the Demised Premises to its condition prior to the making of such
alterations, at Lessee's sole cost and expense, upon the expiration or sooner
termination of this Lease. Lessor hereby grants Lessee the right to install (i)
a Kastle card reader at the suite entry door to the Demised Premises, (ii) a
supplemental heating, ventilation and air conditioning system package, and (iii)
a supplemental fire suppression system in the Demised Premises, subject to the
following terms and conditions:
(A) Lessee shall submit to Lessor in advance of each such installation,
for Lessor's approval, complete plans and specifications for such installation;
(B) All such installations shall be performed in accordance with all
applicable laws, regulations and codes, and otherwise in compliance with all
applicable terms and conditions of this Lease (including, but not limited to,
this Section 9) and with such other reasonable restrictions and conditions as
Lessor may impose with regard thereto, all at Lessee's sole cost and expense.
Without limiting the foregoing, Lessee shall be solely responsible for causing
any
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HVAC equipment installed by Lessee to be separately metered for electricity and
water, and Lessee shall pay to Lessor the metered cost of consumption of such
utilities;
(C) Lessee shall, prior to commencing such installation work, procure
all approvals, licenses, permits and other required authorizations from the
applicable governmental authorities as required to perform such installations;
(D) Lessee shall further obtain and maintain in full force and effect
throughout the Lease Term all approvals, licenses, permits and other required
authorizations (including, but not limited to, any periodic inspections of the
same) from the applicable governmental authorities as are required to maintain
and operate such installations;
(E) Upon the expiration of the Lease Term, or any earlier day on which
removal may be required in order to comply with any applicable law, regulation,
code or order, Lessee shall remove such installations and shall restore the
Demised Premises to its condition prior to the performance of such
installations, all at Lessee's sole cost and expense; provided that, Lessor
shall have the right, to be exercised by written notice to Lessee prior to the
expiration of the Lease Term and without payment of compensation or other
consideration, to require that such installations remain upon the Demised
Premises at the expiration of the Lease Term;
(F) Lessee shall obtain and maintain throughout the Lease Term all
necessary policy endorsements required to insure against any and all costs,
claims, expenses, fees, liabilities, loss, suits or damages which may be
occasioned by the installation, operation, maintenance, repair and/or removal of
such installations; and
(G) Lessor shall have no liability, and Lessee hereby relieves and
releases Lessor from any and all liability, with respect to the proper
functioning of, or any loss or damage to, such installations. Lessee shall and
does hereby undertake to defend, indemnify and hold Lessor and the Property
harmless from and against any and all claims, costs, damages, expenses, fees,
liabilities, losses and suits which may arise, directly or indirectly, from or
out of, or in connection with, the installation, operation, maintenance, repair
and/or removal of such installations, including, but not limited to, any bodily
injury, damage, loss or loss of use of property, and any third party liability
which Lessor may suffer or incur, whether due to an accidental release or
otherwise.
(b) If any mechanic's lien is filed against the Demised Premises,
or the real property of which the Demised Premises are a part, for work claimed
to have been done for, or materials claimed to have been furnished to, Lessee,
such mechanic's lien shall be discharged by Lessee within ten (10) days
thereafter, at Lessee's sole cost and expense, by the payment thereof or by
filing any bond required by law. Lessee shall promptly inform Lessor upon
receipt, by Lessee, of any notice of the filing of any such mechanics lien(s).
If Lessee shall fail to discharge any such mechanic's lien, Lessor may, at its
option and without inquiring into the validity thereof discharge the same and
treat the cost thereof as additional Rent payable with the monthly installment
of Rent next becoming due; it being hereby expressly covenanted and agreed that
such discharge by Lessor shall not be deemed to waive, or release, the default
of Lessee in not discharging the same. Lessee hereby covenants and agrees to
defend, indemnify /and hold Lessor, the Demised Premises and the property upon
which the Demised Premises is constructed, harmless from and against any and all
claims, damages, cost, expense, liability, liens and other detriment which they
may suffer or which may arise by reason of the making of any such alterations,
decorations, additions or improvements. If any such alteration, decoration,
addition or improvement is made without the prior written consent of Lessor,
Lessor may correct or remove the same, and Lessee shall be liable for any and
all expenses incurred by Lessor in the performance of this work. All
alterations, decorations, additions or improvements in or to the Demised
Premises made by either party shall immediately become the property of Lessor
and shall remain upon and be surrendered with the Demised Premises as a part
thereof at the end of the Lease Term without disturbance, molestation or injury;
provided, however, that if Lessee is not in default in the performance of any of
its obligations under this Lease, Lessee shall have the right to remove, prior
to the expiration or termination of the Lease Term, all movable furniture,
furnishings or equipment installed in the Demised Premises at the expense of
Lessee, and if such property of Lessee is not removed by Lessee prior to the
expiration or termination of this Lease the same shall become the property of
Lessor and shall be surrendered with the Demised
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Premises as a part thereof. Should the Lessor elect that alterations,
decorations, additions or improvements upon the Demised Premises be removed,
upon termination of this Lease or upon termination of any renewal period hereof,
Lessee hereby agrees to cause same to be removed at Lessee's sole cost and
expense and should Lessee fail to remove the same, then and in such event, the
Lessor shall cause same to be removed at the Lessee's expense and the Lessee
hereby agrees to reimburse the Lessor for the cost of such removal together with
any and all damages which the Lessor may suffer and sustain by reason of the
failure of Lessee to remove the same.
10. TENANT WORK
(a) Promptly following the execution hereof, Lessor shall cause
Lessor 5 architect to prepare construction drawings and specifications for the
improvements to the Demised Premises which are consistent with the Tenant
Workletter attached as Exhibit B, and preliminary space plan attached as Exhibit
B-l. Following preparation of such construction drawings and specifications,
Lessor shall cause Lessor's general contractor to perform in the Demised
Premises the leasehold improvements shown on such final construction drawings
and specifications (the "Initial Improvements") . In no event shall the Initial
Improvements include any work to the Demised Premises not set forth in the final
construction drawings and specifications as approved by Lessor, nor shall Lessor
have any obligation to do any work to the Demised Premises not included in the
Initial Improvements.
(b) The Initial Improvements shall be performed by Lessor at
Lessor's sole cost; provided that, Lessee shall reimburse Lessor for any costs
incurred in connection with the design or performance of the Initial
Improvements to the extent attributable to, or occasioned by, a Lessee Delay or
work which is beyond the scope of the Initial Improvements set forth on Exhibit
B-l.
(c) Lessee may undertake to have extra tenant work performed at
its own expense, provided, that (i) the design of all such work and
installations shall be subject to the prior written approval of Lessor and
Lessor's architect or supervising engineer, (ii) no work may be commenced until
the written approval of Lessor is obtained, (iii) all work must be performed in
accordance with tenant work procedures promulgated by Lessor, (iv) Lessee will
not make any structural modifications (the term "structural" as used herein
being given the widest possible application and to include, but not be limited
to, the roof, all load bearing walls, all exterior walls, membranes and glass
lines, all concrete floor and roof slabs, and all electrical, plumbing, heating,
ventilation, air conditioning and other mechanical systems), (v) Lessee will
obtain a building permit for said work and will deliver one set of approved
plans as well as final inspection stickers and occupancy certificate to Lessor,
and (v) all work must be performed by a contractor approved by Lessor. In
addition, Lessee's contractor, if other than Lessor or Lessor's Contractor, is
to be bonded if the total cost of the proposed improvements exceeds $10,000.00;
(ii) Lessee shall comply with all such other reasonable restrictions and
conditions as Lessor may impose; (iii) Lessee shall discharge all mechanics'
liens in accordance with Section 9(b); and (iv) Lessee will defend, indemnify
and hold Lessor and Lessor's Property harmless from and against all damage and
liability arising from the making of any such leasehold improvements.
(d) As used in this Lease, "Lessee Delays" shall mean delays in
Lessee's providing Lessor with information or approvals relevant to planning or
constructing the Initial Improvements following written notice requesting such
information or approvals, and delays in the performance of the Initial
Improvements caused by change orders requested by Lessee (including any changes
in the construction plans and specifications) or other acts or omissions of
Lessee or Lessee's agents, contractors, employees or others for whose actions
Lessee is responsible.
11. SIGNS, SAFES & FURNISHINGS
No signs, advertisement or notice shall be inscribed, painted, affixed
or displayed on any part of the outside or the inside of the Building except on
the directories and the doors of offices, and then only in such place, number,
size, material color and style as is approved by Lessor, and if any such sign,
advertisement or notice is exhibited, Lessor shall have the right to remove the
same and Lessee shall be liable for any and all expenses incurred by Lessor by
said removal, Lessee hereby agreeing to reimburse Lessor upon demand for all
such expenses incurred by
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Lessor. Any such permitted use, including directories and name plates, shall be
at the sole expense and cost of the Lessee. Lessor shall have the right to
prohibit any advertisement of Lessee which in its opinion tends to impair the
reputation of the Building or its desirability as a high-quality office
Building, and, upon written notice from Lessor, Lessee shall immediately refrain
from and discontinue any such advertisement. Lessor shall have the right to
prescribe the weight and position of safes and other heavy equipment or
fixtures. Any and all damages or injury to the Demised Premises or the Building
caused by moving the property of Lessee into, or out of the Demised Premises, or
due to the same being on the Demised Premises, shall be repaired by, and at the
sole cost of, Lessee. No furniture, equipment or other bulky matter of any
description will be received into the Building or carried in the elevators
except as approved by Lessor. All moving of furniture, equipment and other
material within the public areas shall be subject to such conditions and
restrictions as may be imposed by Lessor, who shall, however, not be responsible
for any damage to or charges for moving the same. Lessee agrees promptly to
remove from the sidewalks adjacent to the Building any of the Lessee's
furniture, equipment or other material there delivered or deposited.
12. ENTRY FOR REPAIRS AND INSPECTIONS
Lessor hereby reserves the right, for itself and its agents, officers,
employees and contractors, to have access to the Demised Premises at all
reasonable times upon not less than twenty-four (24) hours verbal notice (except
in the event of an emergency, in which event no notice shall be required) to
examine, inspect, and protect the same and to prevent damage or injury to the
same; to make such alterations and repairs to the Demised Premises, the Building
or other premises as the Lessor may deem necessary; to exhibit the same to
potential or actual mortgagees or purchasers of said Building; and during the
last six (6) months of the Lease Term, to exhibit the same to prospective
tenants. No such access by Lessor or those claiming by or through Lessor shall
constitute a constructive eviction or a basis for an abatement of Rent, nor
shall Lessee be entitled to any compensation on account thereof. Lessor shall
exercise reasonable efforts to give Lessee prior notice of such access, and,
when making such access, to minimize the interference with Lessee's business
operations; provided, however, the foregoing shall not be construed to require
Lessor to limit such access to non-business hours or to limit the number of
persons permitted access to the Demised Premises hereunder.
13. INSURANCE RATING
Lessee will not conduct or permit to be conducted any activity, or place
any equipment in or about the Demised Premises, which will, in any way, increase
the rate of fire insurance or other insurance on the Building; and if any
increase in the rate of fire insurance or other insurance is stated by any
insurance company or by the applicable Insurance Rating Bureau to be due to
activity or equipment in or about the Demised Premises, such statement shall be
conclusive evidence that the increase in such rate is due to such activity or
equipment and, as a result thereof, Lessee shall be liable for such increase as
additional Rent and upon notification thereof by Lessor shall reimburse Lessor
therefore.
14. LESSEE'S EQUIPMENT
Lessee will not install or operate in the Demised Premises any
electrically operated equipment or other machinery, other than electric
typewriters, adding machines, radios, televisions, tape recorders, dictaphones,
bookkeeping machines, telefax machines, personal computers and associated
peripheral equipment, copy machines, coffee machines, microwave ovens and
clocks, without first obtaining the prior written consent of Lessor who may
condition such consent upon the payment by Lessee of additional Rent in
compensation for such excess consumption of the utilities, for additional wear,
tear or depreciation to base Building equipment occasioned from such usage, and
for the cost of additional wiring as may be occasioned by the operation of said
equipment of a kind or nature whatsoever which will or may necessitate any
changes, replacements or additions to, or in the use, the water system, heating
system, plumbing system, air-conditioning system, or electrical system of the
Demised Premises or the Building. Business machines and mechanical equipment
belonging to Lessee which cause noise or vibration that may be transmitted to
the structure of the Building or to any space therein to such a degree as to be
objectionable to Lessor or to any tenant in the Building shall be Installed and
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maintained by Lessee, at Lessee's expense, on vibration eliminators or other
devices sufficient to eliminate such noise and vibration.
15. INDEMNITY
Lessee will defend, indemnify and hold harmless Lessor from and against
any loss, damage or liability (including attorneys fees) occasioned by or
resulting from any default hereunder or any willful or negligent act or omission
on the part of Lessee, its agents, employees, invitees, licensees, contractors
or persons permitted in the Building or on the Demised Premises by Lessee.
16. SERVICES AND UTILITIES
Lessor shall furnish reasonably adequate electricity, water, lavatory
supplies, and automatically operated elevator service and normal and customary
cleaning and char service for comparable Tysons Corner buildings (on a five (5)
day week basis exclusive of legal holidays) after business hours. Lessor shall
furnish hot and cold water at those points of supply provided for general use of
other tenants in the Building, central heat and air-conditioning in season, at
such times as Lessor normally furnishes these services to other tenants in the
Building, and at such temperatures and in such amounts as are considered by
Lessor to be standard, Monday through Friday, from 8 a.m. to 6 p.m. and on
Saturday from 8 a.m. to 1 p.m. exclusive of Sundays and holidays during such
seasons of the year when such services are normally and usually furnished in the
modern office buildings in the Washington, D.C. metropolitan area; routine
maintenance, painting and electric lighting service for all public areas, garage
and special service areas of the Building in the manner and to the extent deemed
by Lessor to be standard; proper electrical facilities to furnish sufficient
power to machines of low electrical consumption provided, however, that, except
for reasonable quantities of low electrical consumption equipment which Lessee
is permitted to install in the Demised Premises pursuant to Section 14 without
Lessor's consent, Lessee shall bear the utility costs occasioned by electro-data
processing machines, including air-conditioning costs therefor, mini computers,
mainframe computers and similar machines of high electrical consumption; all
subject to Federal, State and County governmental controls and regulations; but
failure by Lessor to any extent to furnish these defined services, or any
cessation thereof, resulting from causes beyond the control of Lessor, shall not
render Lessor liable in any respect for damages to either person or property,
nor be construed as an eviction of Lessee, nor work an abatement of Rent, nor
relieve Lessee from fulfillment of any covenant or agreement hereof. Should any
of the Building equipment or machinery break down, or for any cause cease to
function properly, Lessor shall, upon receipt of notice from Lessee of the need
therefore, use reasonable diligence to repair the same promptly, but Lessee
shall have no claim for rebate of Rent or damages on account of any
interruptions in service occasioned thereby or resulting therefrom. Subject to
the terms hereof, regular maintenance and repairs, and circumstances and events
beyond the reasonable control of Lessor, Lessee and Lessee's employees shall
have access to the Building and the Demised Premises twenty-four (24) hours per
day, three hundred sixty-five (365) days per year.
Subject to the terms hereof, regular maintenance and repairs, and
circumstances and events beyond the reasonable control of Lessor, Lessor shall
provide heat and air conditioning at times in addition to those specified above,
at Lessee's expense upon not less than twenty-four (24) hours written notice
from Lessee, but in no event shall notice be provided later than 11:00 a.m. on a
Friday for weekend or holiday overtime operation. Lessee shall pay Lessor for
said after-hours service based upon Lessor's building standard service charge
then-in effect and subject to change from time to time (currently Nineteen
Dollars ($19.00) per hour per floor), plus Lessor's additional charge as then-in
effect and subject to change from time to time (currently Thirty Dollars
($30.00) per hour (regardless of the number of floors)) when an engineer's
presence is required or requested by Lessee. The foregoing charges shall be
subject to annual revision by Lessor.
Notwithstanding anything herein contained to the contrary, Lessee shall
reimburse Lessor upon demand for all electrical consumption and demand charges
attributable to electricity provided through the sub-panel installed by Lessor
in the Demised Premises, or otherwise provided for or consumed by any
supplemental heating, ventilation and air conditioning equipment or other
equipment installed by or on behalf of Lessee. Without limiting the
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foregoing, Lessee shall reimburse Lessor for all such electrical usage,
including demand and consumption charges attributable to such usage (Lessee
hereby acknowledging and agreeing that Lessee shall bear demand charges
attributable to electricity consumption during summer peak months, even though a
portion of such demand changes may be imposed during the nine (9) months after
such summer peak months) based on a sub-metered calculation of such usage.
17. RESPONSIBILITY FOR CERTAIN DAMAGE AND BREAKAGE
All injury to the Demised Premises or the Building of which they are a
part, and all breakage and damage done by Lessee or the agents, servants,
licensees, contractors, employees and visitors of Lessee, shall be repaired
promptly by the Lessee, at the expense of the Lessee. In the event that the
Lessee shall fail so to do, then the Lessor shall have the right to make
necessary repairs, alterations and replacements, structural, non-structural, or
otherwise, and any charge or cost so incurred by the Lessor shall be paid by the
Lessee with the right on the part of the Lessor to elect in its discretion to
regard the same as additional Rent, in which event such cost or charge shall
become additional Rent payable with the installment of Monthly Base Rent next
becoming due or thereafter falling due under the terms of this Lease. This
provision shall be construed as an additional remedy granted to the Lessor and
not in limitation of any other rights and remedies which the Lessor has or may
have in said circumstances. The exercising of Lessor's right to cure will not
excuse the failure of Lessee to perform its obligations hereunder.
18. BANKRUPTCY
(a) If at any time during the Lease Term, a petition shall be
filed, either by or against the Lessee, in any Court or pursuant to any Federal,
State, or Municipal statute whether in bankruptcy, insolvency, for the
appointment of a receiver of the Lessee's property or because of any general
assignment made by the Lessee of the Lessee's property for the benefit of the
Lessee's creditors, then immediately upon the happening of any such event, and
without any entry or other act by the Lessor, this Lease, at Lessor's option,
shall cease and come to an end with the same force and effect as if the date of
the happening of any such event were the date herein fixed for the expiration of
the Lease Term. It is further stipulated and agreed that, in the event of the
termination of the Lease Term by the happening of any such event, the Lessor
shall forthwith, upon such termination, and any other provisions of this Lease
to the contrary notwithstanding, become entitled to recover as and for
liquidated damages caused by such breach of the provisions of this Lease, an
amount equal to the difference between the then cash value of the Rent reserved
hereunder for the unexpired portion of the term and the then cash rental value
of the Demised Premises for such unexpired portion of the Lease Term hereby
demised, unless the statute which governs or shall govern the proceeding in
which such damages are to be proved limits or shall limit the amount of such
claim capable of being so proved, in which case the Lessor shall be entitled to
prove as and for liquidated damages an amount equal to that allowed by or under
any such statute. The provisions of this Section of this Lease shall be without
prejudice to the Lessor's right to prove in full damages for Rent accrued prior
to the termination of this Lease, but not paid. This provision of this Lease
shall be without prejudice to any rights given to the Lessor by any pertinent
statute to prove any amounts allowed thereby.
(b) In making any such computation, the then cash rental value of
the Demised Premises shall be deemed prima-fade to be the present cash value
(utilizing a 6% discount rate) of rental realized upon any re-letting, if such
re-letting can be accomplished by the Lessor within a reasonable time after such
termination of this Lease, and the then present cash value of the future Rents
hereunder reserved to the Lessor for the unexpired portion of the term hereby
demised shall be deemed to be such sum, if invested at six per cent (6%) simple
interest, as will produce the future Rent over the period of time in question.
19. LIABILITY FOR DAMAGE TO PERSONAL PROPERTY AND PERSON
All personal property of the Lessee, its employees, agents, business
invitees, licensees, customers, clients, family members, guests or trespassers
in and on said Demised Premises, shall be and remain at their sole risk, and
Lessor shall not be liable to them for any damage to, or loss of such personal
property arising from any act of negligence of any other persons nor from the
leaking of the roof, or from the bursting, leaking or overflowing of water,
sewer or steam pipes, or from heating or plumbing fixtures, or from electrical
wires or fixtures, or from air-
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conditioning failure, or from any other cause whatsoever, nor shall the Lessor
be liable for the interruption or loss to Lessee's business arising from any of
the above described acts or causes, nor shall the Lessor be liable for any
personal or bodily injury to the Lessee, its employee, agents, business
invitees, licensees, contractors, customers, clients, family members, guests or
trespassers arising from the use, occupancy and condition of the Demised
Premises or Building; the Lessee especially agreeing to defend, indemnify and
save the Lessor harmless in all such cases from and against any loss, damage, or
liability (including attorney's fees) arising therefrom.
20. DAMAGE TO THE DEMISED PREMISES
If the Demised Premises shall be damaged by fire or other cause without
the fault or neglect of Lessee, Lessor shall diligently and as soon as
practicable after such damage occurs (taking into account the time necessary to
effectuate a satisfactory settlement with any insurance company) repair such
damage (but excluding Lessee's furniture, fixtures, furnishings, equipment,
improvements and/or alterations) at the expense of the Lessor, and the Monthly
Base Rent shall be reduced in proportion to the extent the Demised Premises are
rendered untenantable, until such repairs are completed, provided, however, that
if the Building is damaged by fire or other cause to such extent that the damage
cannot be fully repaired within sixty (60) days from the date of such damage,
Lessor shall have the option of terminating this Lease by giving written-notice
to Lessee of such decision and the Lease Term shall terminate on the day such
notice is given. Notwithstanding the foregoing, in the event the Building shall
be damaged or destroyed by fire or other casualty during the last twelve (12)
months of the Lease Term, Lessor shall have no obligation to rebuild the Demised
Premises, and upon giving Lessee notice of Lessor's election not to rebuild the
Demised Premises, this Lease shall cease and determine as fully as if the date
of such notice were the scheduled termination date of this Lease. No
compensation or claim or reduction of Rent will be allowed or paid Lessor by
reason of inconvenience, annoyance, or injury to business arising from the
necessity of repairing the Demised Premises or any portion of the Building
however the necessity may occur.
21. DEFAULT OF LESSEE
If (I) Lessee shall fail to pay any monthly installment of Monthly Base
Rent or any other Rent as reserved hereunder when and as the same are due
(although no legal or formal demand shall have been made therefor), or (ii)
Lessee shall violate or fail to perform any of the other conditions, covenants
or agreements herein made or imposed upon Lessee, and such violation or failure
shall continue for a period of ten (10) days after written notice thereof to
Lessee from Lessor (provided that, for any default which cannot reasonably be
cured within said ten (10) day period, the cure period therefor shall be
extended for such time as is reasonably necessary to effect a cure of such
default (but in no event beyond forty-five (45) days after delivery of notice of
such default), on the conditions that Lessee immediately commences to cure such
default and diligently pursues such cure to completion, and that, promptly upon
determining that the aforesaid ten (10) day cure period is inadequate, Lessee
shall deliver notice to Landlord of the steps being taken to cure such default
and the amount of time reasonably estimated by Lessee to effect such cure; but
provided further that, no notice or cure period shall be required to be provided
with regard to any intentional or willful default by Lessee hereunder, or with
regard to any default which (A) by its nature cannot be cured (or cannot be
cured within the aforesaid forty-five (45) day period), (B) constitutes a hazard
to the health and/or safety of any occupant of the Property, (C) has caused the
insurer of any policy of insurance on the Property to issue a notice of
cancellation of such policy, (D) involves the failure by the Lessee to maintain
any insurance required to be maintained by Lessee hereunder, or (E) subjects
Landlord to the risk of civil or criminal liability, fine, penalty or
prosecution), or (iii) if (a) Lessee becomes "insolvent," as defined in Title 11
of the United States Code, entitled "Bankruptcy," 11 U.S.C. Section 101, et seq.
(the "Bankruptcy Code"), or under the insolvency laws of any State, District,
Commonwealth or Territory of the United States of America ("Insolvency Laws"),
(b) a receiver or custodian is appointed for any or all of Lessee's property or
assets, or if there is instituted a foreclosure action on any of Lessee's
property, (c) Lessee files a voluntary petition under the Bankruptcy Code or any
Insolvency Laws, (d) there is filed an involuntary petition against Lessee as
the subject debtor under Bankruptcy Code or any Insolvency Laws, which such
petition is not dismissed within thirty (30) days of filing or results in
issuance of an order for relief against the Lessee as debtor, or (e) Lessee
makes or consents to an assignment of its assets,
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in whole or in part, for the benefit of creditors, or a common law composition
of creditors, or (iv) the Demised Premises being abandoned, vacant or deserted
and remaining so for five (5) days (provided that, vacating the Demised Premises
shall not constitute a default hereunder, so long as (A) Lessee shall notify
Lessor not less than ten (10) days in advance of vacating the Demised Premises
that Lessee intends to vacate the Demised Premises, (B) Lessee shall obtain and
maintain in full force and effect such insurance endorsements as shall be
required in order to assure that all insurance required to be maintained by
Lessee hereunder shall remain in force notwithstanding that Lessee has vacated
the Demised Premises, and (C) Lessee shall take all commercially reasonable
steps necessary to ensure that the Demised Premises are secure against
unauthorized entry during such period(s) as the Demised Premises shall remain
vacant), then and in any of said events this Lease shall, at the option of
Lessor, cease and terminate and shall operate as a notice to quit, ANY NOTICE TO
QUIT OR OF LESSOR'S INTENTION TO RE-ENTER BEING HEREBY EXPRESSLY WAIVED, and
Lessor may proceed to recover possession under and by virtue of the provisions
of the laws of the State of Virginia, or by such other proceedings, including
re-entry and possession, as may be applicable. If Lessor elects to terminate
this Lease, everything herein contained on the part of Lessor to be done and
performed shall cease without prejudice, however, to the right of Lessor to
recover from Lessee all Rent accrued up to the time of termination or recovery
of possession by Lessor, whichever is later. Upon the occurrence of an event of
default as aforesaid, at Lessor's option (either with or without terminating
this Lease), the Demised Premises may be relet by Lessor for such Rent and upon
such terms as Lessor, in Lessor's sole discretion, shall deem appropriate under
the circumstances, and, if the full Rent hereinabove provided shall not be
realized by Lessor, Lessee shall be liable for all damages sustained by Lessor,
including, without limitation, deficiency in Rent, reasonable attorneys' fees,
brokerage fees, and expenses of placing the Demised Premises in first class
rentable condition. Any damage or loss of Rent sustained by Lessor may be
recovered by Lessor at Lessor's option, at the time of the re-letting, or in
separate actions, from time to time, as said damage shall have been made more
easily ascertainable by successive re-lettings, or, at Lessor's option, may be
deferred until the expiration of the Lease Term, in which event the cause of
action shall not be deemed to have accrued until the date of expiration of said
Lease Term. If Lessor should commence any summary proceeding for non-payment of
Rent by Lessee or to recover possession of the Demised Premises, Lessee shall
not interpose any counterclaim of any nature or description in any such
proceeding. Upon the occurrence of an event of default hereunder, provided this
Lease shall not be terminated, Lessor shall, in addition, have the option to
either (I) declare the Rent reserved for the next succeeding six (6) months (or
such lesser period as Lessor deems appropriate) immediately due and payable, or
(ii) require Lessee to deposit with Lessor an additional Security Deposit in an
amount not to exceed six (6) months' Monthly Base Rent. The provisions contained
in this Section shall be in addition to and shall not prevent the enforcement of
any claim Lessor may have against Lessee for anticipatory breach of the
unexpired Lease Term. In the event that Lessee continues to occupy the Demised
Premises after the expiration of the Lease Term, with the express or implied
consent of Lessor, such tenancy shall be from month to month and shall not be a
renewal of the term of this Lease or a tenancy from year to year. All rights and
remedies of Lessor under this Lease shall be cumulative and shall not be
exclusive of any other rights and remedies provided to Lessor under applicable
law.
22. WAIVER
If under the provisions hereof Lessor shall institute proceedings and a
compromise or settlement thereof shall be made, the same shall not constitute a
waiver of any covenant herein contained nor of any of Lessor's rights hereunder.
No waiver by Lessor of any breach of any covenant, condition or agreement herein
contained shall operate as a waiver of such covenant, condition, or agreement
itself, or of any subsequent breach thereof. No payment by Lessee or receipt by
Lessor of a lesser amount than the Rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated Rent nor shall any endorsement
or statement on any check or letter accompanying a check for payment of Rent be
deemed an accord and satisfaction and Lessor may accept such check or payment
without prejudice to Lessor's right to recover the balance of such Rent or to
pursue any other remedy provided in this Lease. No re-entry by Lessor, and
acceptance by Lessor of keys from Lessee, shall be considered an acceptance of a
surrender of the Lease.
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23. SUBORDINATION
This Lease is and shall automatically be subject and subordinate to the
lien of any and all mortgages (which term "mortgage" shall include both
construction and permanent financing and shall include deeds of trust and
similar security instruments) which may now or hereafter encumber or otherwise
affect the real estate (including the Building) of which the Demised Premises
form a part, or Lessor's interest therein, and to all and any renewals,
extensions, modifications, recastings or refinancings thereof. In confirmation
of such subordination, Lessee shall, at Lessor's request, promptly execute any
requisite or appropriate certificate or other document. Lessee hereby
constitutes and appoints Lessor as Lessee's attorney-in-fact to execute any such
certificate or certificates for or on behalf of Lessee, in the event Lessee
fails to execute and return the same within ten (10) days after delivery of
Lessor's request. Notwithstanding anything to the contrary set forth above, any
beneficiary under any mortgage shall have the right, at its election (which
election may be exercised unilaterally by said beneficiary executing and filing
a notice thereof for record with the Clerk of the Circuit Court of Fairfax
County, Virginia, at any time prior to said beneficiary commencing foreclosure
Proceedings pursuant to such mortgage) to subordinate the lien of such mortgage
to the Lease to the extent set forth in such document and thereupon the Lease
shall be deemed prior to such mortgage to the extent set forth in such document
without regard to their respective dates of execution, delivery and/or
recording. In that event, to the extent set forth in such document, such
mortgage shall have the same rights with respect to this Lease as would have
existed if this Lease had been executed, and a memorandum thereof recorded prior
to the execution, delivery and recording of the mortgage. Lessee agrees that in
the event that any Proceedings are brought for the foreclosure of any such
mortgage, Lessee shall attorn to the purchaser at such foreclosure sale, if
requested to do so by such purchaser and to recognize such purchaser as the
Lessor under this Lease, and Lessee waives the provisions of any statute or rule
of law, now or hereafter in effect, which may give or purport to give Lessee any
right to terminate or otherwise adversely affect this Lease and the obligations
of Lessee hereunder in the event that any such foreclosure proceeding is
prosecuted or completed. Any mortgagee, purchaser at foreclosure, or assignee of
Lessor who requests such attornment shall not (a) be bound by any prepayment of
Rent for more than one (1) month in advance (Lessee hereby acknowledging and
agreeing that Lessee shall have no right to, and shall not, prepay Rent more
than one month in advance of its due date, and that Rent shall be payable after
any such foreclosure, purchase, or assignment, in case of a requested attornment
as aforesaid, in accordance with the provisions of this Lease as if such
prepayment of Rent for more than one (1) month in advance had not been made),
nor (b) to be bound by any amendment to this Lease which was not approved by
such mortgagee prior to the foreclosure or assignment, nor (c) be subject to any
defense which Lessee might assert against Lessor, nor (d) be liable for any
defaults (including defaults of a continuing nature) by any prior landlord,
including the Lessor, or for the return of any security deposit except to the
extent the mortgagee or such purchaser actually received the same, in cash or in
kind, and such security deposit has been segregated and identified as such by
Lessor in the ordinary course of business.
24. CONDEMNATION
If the whole or a substantial part of the Demised Premises shall be
taken or condemned (the terms "taken" and "condemned" as used herein being
deemed to include any deed given in lieu of or under threat of taking or
condemnation) by any governmental or quasi-governmental authority for any public
or quasi-public use or purpose, then the Lease Term shall cease and terminate as
of the date when title vests in such condemning authority, and Lessee shall have
no claim against Lessor or the condemning authority for any portion of the
amount that may be awarded as damages as a result of such taking or condemnation
or for the value of any unexpired portion of the Lease Term. The Monthly Base
Rent, however, shall be abated on the date when such title vests in such
condemning authority. If less than a substantial part of the Demised Premises is
taken or condemned by any governmental or quasi-governmental authority for any
public or quasi-public use or purpose, the Monthly Base Rent shall be equitably
adjusted on the date when title vests in such condemning authority and the Lease
shall otherwise continue in full force and effect. For purpose of the Article, a
substantial part of the Demised Premises shall be considered to have been taken
if more than fifty percent (50%) of the Demised Premises are untenantable by
Lessee.
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25. RULES AND REGULATIONS
Lessee shall, and shall cause Lessee's employees, agents, officers,
contractors, licensees and invitees to, abide by and observe the rules and
regulations attached hereto as Exhibit C. Lessee, its agents and employees,
contractors, licensees and invitees shall abide by and observe such other rules
or regulations as may be promulgated from time to time by Lessor for the
operation and maintenance of the Building provided that the same are in
conformity with common practice and usage in similar buildings and are not
inconsistent with the provisions of this Lease and a copy thereof is sent to
Lessee. Nothing contained in this Lease shall be construed to impose upon Lessor
any duty or obligation to enforce such rules and regulations, or the terms,
conditions or covenants contained in any other Lease as against any other
tenant, and Lessor shall not be liable to Lessee for violation of the same by
any other tenant, its employees, agents, business invitees, licensees,
customers, clients, family members or guests.
26. RIGHT OF LESSOR TO CURE LESSEE'S DEFAULT
If Lessee defaults in the making of any payment or in the doing of any
act herein required to be made or done by Lessee, then Lessor may, but shall not
be required to, make such payment or do such act, and the amount of the expense
thereof, if made or done by Lessor, with interest thereon at the rate of twelve
percent (12%) per annum from the date paid by Lessor, shall be paid by Lessee to
Lessor and shall constitute additional Rent hereunder due and payable with the
next monthly installment of Monthly Base Rent; but the making of such payment or
the doing of such act by Lessor shall not operate to cure such default or to
estop Lessor from the pursuit of any remedy to which Lessor would otherwise be
entitled. Any installment of Rent which is not paid by Lessee within ten (10)
days after the same becomes due and payable shall bear interest at the rate of
twelve percent (12%) per annum from the date such installment became due and
payable to the date of payment thereof by Lessee, plus a late charge of 10% of
the Rent payments not received by Lessor by the 10th of the month due, and such
interest and late charge shall constitute additional Rent hereunder due and
payable with the next monthly installment of Rent. The imposition of late
charges or interest will not be deemed to excuse the untimely payment of Rent.
27. NO PARTNERSHIP
Nothing contained in this Lease shall be deemed or construed to create a
partnership or joint venture of or between Lessor and Lessee, or to create any
other relationship between the parties hereto other than that of Lessor and
Lessee.
28. NO REPRESENTATIONS BY LESSOR
Neither Lessor nor any agent or employee of Lessor has made any
representations or promises with respect to the Demised Premises or the Building
except as herein expressly set forth, and no rights, privileges, easements or
licenses are granted to Lessee except as herein set forth. The Lessee, by taking
possession of the Demised Premises, shall accept the same "as is", and such
taking of possession shall be conclusive evidence that the Demised Premises and
the Building are in good and satisfactory condition at the time of such taking
of possession, as provided for in Exhibit D, subject to completion of mutually
agreed punch list items identified prior to Lessee's occupancy of the Demised
Premises.
29. BROKERS
Lessor and Lessee each represent and warrant one to another that except
as hereinafter set forth neither of them has employed any broker in carrying on
the negotiations relating to this Lease. Lessor shall indemnify and hold Lessee
harmless, and Lessee shall indemnify and hold Lessor harmless, from and against
any claim or claims for brokerage or other commission arising from or out of any
breach of their respective representation and warranty. Lessor recognizes
Barnes, Morris, Pardoe & Foster, Inc. as cooperating broker for this Lease and
Lessor agrees to pay said broker a leasing commission pursuant to a separate
cooperating brokerage agreement.
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30. WAIVER OF JURY TRIAL
Lessor and Lessee hereby waive trial by jury in any action, proceeding
or counterclaim brought by either of the parties hereto against the other on or
in respect of any matter whatsoever arising out of or in any way connected with
this Lease, the relationship of Lessor and Lessee hereunder, Lessee's use or
occupancy of the Demised Premises' and/or claim of injury or damage.
31. NOTICES
All notices or other communications hereunder shall be in writing and
shall be deemed duly given when (a) if delivered in person (or attempted
delivery of the same if refused) or (b) deposited in the U.S. mails by certified
or registered mail, return receipt requested, addressed first-class, postage
prepaid, (i) if to Lessor, attention: Barry R. Gosnell, Gosnell Properties,
Inc., 8130 Boone Boulevard, Vienna, Virginia 22182, and (ii) if to Lessee, CRL
Network Services, Attention: Stacey Wright, One Kearny Street, Suite 1450, San
Francisco, California 94108, unless notice of a change of address is given
pursuant to the provisions of this article.
32. ESTOPPEL CERTIFICATES
Lessee agrees, at any time and from time to time, upon not less than ten
(10) days prior written notice by Lessor, to execute, acknowledge and deliver to
Lessor a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or if there have been modifications, that the Lease is
in full force and effect as modified and stating the modifications), (ii)
stating the dates to which the Rent and other charges hereunder have been paid
by Lessee, (iii) stating whether or not to the best knowledge of Lessee, Lessor
is in default in the performance of any covenant, agreement or condition
contained in this Lease, and, if so, specifying each such default of which
Lessee may have knowledge, and (iv) stating the address to which notices to
Lessee should be sent and (v) such other information as Lessor may reasonably
request. Any such statement delivered pursuant hereto may be relied upon by any
owner of the Building, any prospective purchaser of the Building, any mortgagee
or prospective mortgagee of the Building or of Lessor's interest, or any
prospective assignee of any such mortgagee. Lessee hereby appoints Lessor as
Lessee's attorney-in-fact to execute and deliver any estoppel certificate which
Lessee fails to deliver to Lessor within ten (10) days of receipt of Lessor's
written request.
33. HOLDING OVER
In the event that Lessee shall not immediately surrender the Demised
Premises on the date of expiration of the term hereof, or any renewal term,
Lessee shall, by virtue of the provisions hereof, become a Lessee by the month
at the Monthly Base Rent in effect during the last month of the term of this
Lease plus twenty five percent (25%), which said monthly tenancy shall commence
with the first day next after the expiration of the Lease Term. The Lessee as a
monthly Lessee shall be subject to all of the conditions and covenants of this
Lease, except those provisions relating to Lessor funded tenant work, Rent
abatement or other Lessor funded allowances, as though the same had originally
been monthly tenancy. Lessee shall give to Lessor at least thirty (30) days'
written notice of any intention to quit the Demised Premises, and Lessee shall
be entitled to thirty (30) days' written notice to quit the Demised Premises,
EXCEPT IN THE EVENT OF NONPAYMENT OF RENT IN ADVANCE OR OF THE BREACH OF ANY
COVENANT BY THE LESSEE, IN WHICH EVENT LESSEE SHALL NOT BE ENTITLED TO ANY
NOTICE TO QUIT, THE USUAL THIRTY (30) DAYS' NOTICE TO QUIT BEING HEREBY
EXPRESSLY WAIVED. Notwithstanding the foregoing provisions of this Section, in
the event that Lessee shall hold over the expiration of the Lease Term hereby
created, and if Lessor shall desire to regain possession of the Demised Premises
promptly at the expiration of the Lease Term, then at any time prior to Lessor's
acceptance of Rent from Lessee as a monthly tenant hereunder, Lessor, at its
option, may forthwith re-enter and take possession of the Demised Premises
without process, or by any legal process in force in the State of Virginia, and
Lessee shall remain liable for any and all claims, cost, damage, expense and
liability which Lessor may suffer, to the extent that the same shall be
proximately caused by Lessee's failure to surrender the Demised Premises as
required hereunder.
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34. INTENTIONALLY OMITTED
35. LIEN FOR RENT
In consideration of the mutual benefits arising under this Lease, Lessee
hereby grants to Lessor a lien on all property of Lessee now or hereafter placed
in or on the Demised Premises (except such part of any property as may be
exchanged, replaced, or sold from time to time in the ordinary course of
business operation or trade) and such property shall be and remain subject to
such lien of Lessor for payment of all Rent and other sums agreed to be paid by
Lessee herein; provided that, Lessor hereby agrees to subordinate the lien
granted pursuant to this Section 35 to the lien of any properly perfected
purchase money security interest in equipment owned by Lessee which is placed in
the Demised Premises, and, with respect to leased equipment utilized by Lessee
in the Demised Premises, to the rights of the lessor in and to such equipment.
Lessee hereby covenants and agrees to execute and deliver to Lessor, upon
Lessor's request, a financing statement in form sufficient to perfect the
Lessor's security interest, as granted pursuant to this Section 35, in the
aforementioned property and proceeds pursuant to the provisions of the Uniform
Commercial Code as enacted in the Commonwealth of Virginia. Said lien shall be
in addition to and cumulative upon the Lessor's liens provided by law.
36. PUBLIC LIABILITY INSURANCE
Lessee shall obtain and maintain in effect at all times during the Lease
Term, a policy of comprehensive public liability insurance, naming Lessor, any
property management agent for the Building and any mortgagee of the Building as
additional insureds, protecting Lessor, Lessee, management agent and any such
mortgagee against any liability for bodily injury, death or property damage
occurring upon, in or about any part of the Building or the Demised Premises
arising from any of the items set forth herein against which Lessee is required
to indemnify Lessor, with such policies to afford protection to the limit of not
less than Five Hundred Thousand Dollars ($500,000) with respect to bodily injury
or death to any one person, to the limit of not less than One Million Dollars
($1,000,000), per occurrence and Two Hundred Fifty Thousand Dollars ($250,000)
with respect to damage to the property of any one owner. Lessor shall have the
right to require Lessee to increase the minimum limits of coverage set forth
above, from time to time, to the standard limits of coverage required in
comparable first class office Buildings in the Washington, D.C. area. Lessee, at
Lessee's sole cost and expense, shall obtain and maintain in effect commencing
with the Commencement Date and continuing through the Lease Term, insurance
policies providing for the following coverage: all risk and property insurance,
including (without limitation) coverage against fire, theft, vandalism,
malicious mischief, sprinkler leakage and such additional perils as now are or
hereafter may be included in a standard extended coverage endorsement from time
to time in general use in the Commonwealth of Virginia, insuring Lessee's
merchandise, trade fixtures, furnishings, equipment and all items of personal
property of Lessee located on or in the Demised Premises, in an amount equal to
not less than the full replacement value thereof. All proceeds of such
insurance, so long as the Lease shall remain in effect, shall be used only to
repair or replace the items so insured. Such insurance policies shall be issued
by responsible insurance companies licensed to do business in the State of
Virginia. Neither the issuance of any insurance policy required under this
Lease, nor the minimum limits specified herein with respect to Lessee's
insurance coverage, shall be deemed to limit or restrict in any way Lessee's
liability arising under or out of this Lease.
37.
Feminine or neuter pronouns shall be substituted for those of the
masculine form, and the plural shall be substituted for the singular number, in
any place or places herein in which the context may require such substitution or
substitutions.
38. BENEFIT AND BURDEN
The provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and each of their respective representatives,
successors and assigns (however, the foregoing shall not be deemed to permit any
assignment, sublet, encumbrance or other transfer in violation of Section 7
hereof) Lessor may freely and fully assign its interest hereunder.
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39. PARKING
Lessee shall have the right, subject to Lessor's regulations and
restrictions with respect thereof, to park four (4) automobiles (3.65
automobiles for each initial 1000 square feet of space leased, rounded to the
closest whole number) in the on-site garage and surface parking lot adjacent to
the Building on an unreserved, non-exclusive basis. Lessor will issue Lessee
four (4) plastic parking passes to be placed, facing out, on the rear view
mirror of Lessee's vehicles. Vehicles (other than vehicles in bona fide visitor
parking) without Lessor-provided parking passes may be subject to towing,
booting or parking charge without prior notice at the sole risk and expense of
the vehicle owner, in Lessor's sole discretion. During the Initial Term, the
foregoing parking rights shall be free of charge and without cost to Lessee.
During the Renewal Term (if any), Lessee shall pay the Building standard charge
for such parking. Additional parking will be offered, as available, at the
Building standard charge in effect from time to time (currently $60.00 per
permit per month).
40. MISCELLANEOUS
(a) Recording. Neither this Lease nor any memorandum nor short
form hereof shall be recorded in the land or other records of the Commonwealth
of Virginia or Fairfax County, Virginia.
(b) Survival of Obligations. If Lessee has failed to fulfill its
obligations under this Lease such obligations and Lessor's rights in respect
thereof shall remain in full force and effect notwithstanding the expiration of
the Term.
(c) Headings. The captions, section numbers and index appearing
in this Lease are inserted only as a matter of convenience and reference, and in
no way shall be held to explain, modify, amplify, define, limit, construe, or
describe the scope of intent of such sections of this Lease nor in any way add
to the interpretation, construction or meaning of any provision or otherwise
affect this Lease.
(d) Severability. If any covenant or agreement of this Lease or
the application thereof to any person or circumstance shall be held to be
invalid or unenforceable, then and in each such event the remainder of this
Lease, or the application of such covenant or agreement to any other person or
any other circumstance, as the case may be, shall not be thereby effected, and
each covenant and agreement of this Lease shall remain valid and enforceable to
the fullest extent permitted by law.
(e) Corporate or Partnership Authority:
(i) If Lessee executes this Lease as a corporation,
each of the persons executing this Lease on behalf of Lessee hereby covenants
and warrants: (1) that Lessee is a duly authorized and existing corporation,
qualified to do business in the Commonwealth of Virginia, with full right and
authority to enter into this Lease; (2) each of the persons executing this Lease
on behalf of Lessee possesses actual authority to do so; and (3) this Lease
constitutes a valid and legally binding obligation on Lessee, enforceable
according to the terms hereof.
(ii) If Lessee executes this Lease as a partnership, each
of the persons executing this Lease on behalf of Lessee hereby covenants and
warrants: (1) that Lessee is a duly authorized and existing partnership,
qualified to do business in the Commonwealth of Virginia, with full right and
authority to enter into this Lease; (2) each of the persons executing this Lease
on behalf of Lessee possesses actual authority to do so; and (3) this Lease
constitutes a valid and legally binding obligation on Lessee, enforceable
according to the terms hereof.
(f) Lessor's Liability. Notwithstanding any provision hereof to
the contrary, Lessee shall look solely to the estate and property of Lessor in
and to the Building (or the proceeds received by Lessor on a sale of such estate
and property but not the proceeds of any financing or refinancing thereof) in
the event of any claim or judgment against Lessor arising out of or in
connection with this Lease, the relationship of landlord and tenant or Lessee's
use of the Demised Premises, and Lessee agrees that the liability of Lessor
arising out of or in connection with this Lease, the relationship of landlord
and tenant or Lessee's use of the Demised Premises,
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<PAGE> 20
shall be limited to such estate and property of Lessor (or sale proceeds). No
other properties or assets of Lessor shall be subject to levy, execution or
other enforcement procedures for the satisfaction of any judgment (or other
judicial process) or for the satisfaction of any other remedy of Lessee arising
out of or in connection with this Lease, the relationship of landlord and tenant
or Lessee's use of the Demised Premises, and if Lessee shall acquire a lien on
or interest in any other properties or assets by judgment or otherwise, Lessee
shall promptly release such lien on or interest in such other properties and
assets by executing, acknowledging and delivering to Lessor an instrument to
that effect prepared by Lessor's attorneys. It is agreed that neither Lessor nor
any of its officers, directors or employees shall ever be personally liable for
any judgment against Lessor or any duty or liability of Lessor under this Lease.
Lessor shall have no liability to Lessee for failure to perform Lessor's
obligations hereunder where such failure(s) is due to causes beyond Lessor's
control, including without limitation acts of God, war, civil commotion,
strikes, and embargoes; nor shall any such failure entitle Lessee to any
abatement or reduction in Rent, except as may be expressly provided herein, or
any claim of actual or constructive eviction. Lessee shall not be entitled to
any compensation or reduction in Rent by reason of inconvenience or loss arising
from Lessor's entry onto the Demised Premises as authorized hereunder, nor by
reason of any repairs to the Demised Premises or the Building.
(g) Governing Law. This Lease shall be governed by the laws of
the Commonwealth of Virginia, without regard to the conflict of laws principles
thereof.
(h) Effective Date. For all purposes hereof, the "Effective Date"
of this Lease shall be the date upon which this Lease shall have been executed
by both parties and physically delivered by Lessor to Lessee or its attorney.
Prior to the Effective Date, neither this Lease nor anything hereunder contained
shall be legally binding on either Lessor or Lessee, and the submission of this
Lease by Lessor to Lessee prior to such Effective Date for examination or
consideration by Lessee or discussion between Lessor and Lessee shall not
constitute a reservation of or option for the Demised Premises or create any
legal obligation or liability whatsoever on Lessor.
41. WAIVER OF SUBROGATION
Notwithstanding any language to the contrary in this Lease, Lessee shall
not be responsible for damage to the Lessor's property caused by Lessee to the
extent the damage is covered by the Lessor's all risk property insurance policy.
Lessor agrees to maintain such a policy during the Lease Term and Lessor shall
obtain a waiver of subrogation under the policy in favor of the Lessee. Lessee
shall require its insurer(s) to include in all of Lessee's insurance policies
which could give rise to a claim against Lessor an endorsement whereby the
insurer(s) shall waive any rights of subrogation against Lessor. Lessee hereby
releases Lessor and its partners, officers, directors, agents and employees from
any and all liability and responsibility to Lessee or any person claiming by,
through or under Lessee, by way of subrogation or otherwise, for any injury,
loss or damage to Lessee's property covered by a valid and collectible fire
insurance policy with extended coverage endorsement. Lessee agrees to look to
its own fire and hazard insurance policies in the event of damage to Lessee's
personal property. The waivers of subrogation shall be made in writing and
delivered to the respective parties.
42. CONTINGENCY
This Lease shall be of no force or effect unless and until Lessor and
Solutions by Design, Inc. ("Existing Tenant") shall execute and deliver
documentation acceptable to Lessor (in Lessor's sole discretion) pursuant to
which Existing Tenant shall release all right of possession to the Demised
Premises effective on or before the Commencement Date.
43. RENEWAL
(a) Provided Lessee is not in default, Lessee shall have the
subordinate option, upon the terms and conditions set forth herein, to extend
the Lease Term for one (1) additional five (5) year period (herein referred to
as the "Renewal Term") Lessee may exercise the renewal option only upon binding
written notice delivered to Lessor not later than nine (9) months prior to the
expiration of the Initial Term. In the event Lessee does not timely exercise its
option for the Renewal Term, Lessee's rights under this Section 43 shall lapse.
Lessee's notice to renew
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<PAGE> 21
shall, at Lessor's option, be deemed ineffective if Lessee is in default on the
date the notice is given or is in default on the date the Renewal Term is to
commence. The Renewal Term, if properly exercised, shall extend the Lease Term
accordingly, and shall be on all of the same terms and conditions as the Initial
Term, except that the Monthly Base Rent shall be as determined pursuant to
sub-paragraph (b), and there shall be no further Renewal Terms after the first
(1st) Renewal Term.
(b) The Monthly Base Rent payable by Lessee during the Renewal
Term shall be one hundred percent (100%) of the prevailing market rental rate
for comparable first-class office space in first-class buildings in the Tysons
Corner area, but in no event less than the then-escalated Monthly Base Rent in
effect immediately prior to the commencement of the Renewal Term. The Monthly
Base Rent payable during the Renewal Term shall be increased annually, on each
anniversary date of the commencement of the Renewal Term, in accordance with
Section SD. Promptly following delivery of Lessee's notice of the exercise of
the renewal option, Lessor and Lessee shall meet and negotiate in good faith
toward agreement on the prevailing market rental rate for Demised Premises. In
the event that Lessor and Lessee are unable to agree in good faith on the
then-prevailing market rental rate as above described within thirty (30) days
after the Lessee gives a valid notice of the exercise of its option for the
Renewal Term, Lessee's option for the Renewal Term and any purported exercise
thereof shall be null and void and this Section 43 shall be of no further force
or effect.
(c) Notwithstanding the foregoing provisions of this Section 43,
Lessee hereby acknowledges that Lessee's option to extend this Lease for the
Renewal Term is expressly subordinate and subject to all expansion options for
space on the third (3rd) floor of the Building which are in existence as of the
Commencement Date. In the event any tenant shall exercise its expansion option
with respect to space including the Demised Premises, this Section 43, and any
notice purporting to exercise the option to extend this Lease for the Renewal
Term, shall be deemed null and void and of no force or effect.
This Lease, together with Exhibits A, B, B-l, C, D and E attached hereto
and made a part hereof, contains and embodies the entire agreement of the
parties hereto, and no representations, inducements, or agreements, oral or
otherwise between the parties not contained and embodied in said Lease and
Exhibits, shall be of any force or effect, and that same may not be modified,
changed or terminated in whole or in part in any manner other than by an
agreement in writing duly signed by all parties hereto.
IN WITNESS WHEREOF, each of the parties hereto, respectively, has caused
these presents to be executed and attested by their duly authorized officers and
their seals affixed.
LESSOR:
GOSNELL PROPERTIES, INC.
ATTEST:
/S/ illegible By: /S/ Barry R. Gosnell
- -------------------------------- -----------------------------------
LESSEE:
ATTEST: CRL NETWORK SERVICES, INC.
/S/ illegible By: /S/ Doug Finlay
- -------------------------------- -----------------------------------
Doug Finlay
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STATE OF VIRGINIA )
) ss:
COUNTY OF Fairfax )
The undersigned, a notary public in and for the State and County
aforesaid, does certify that Barry R. Gosnell whose name as Treasurer of Gosnell
Properties, Inc., is signed to the writing above, bearing date on the 24th day
of September, 1996, has acknowledged the same before me in the County of
Fairfax.
Given under my hand and official seal this 24th day of September, 1996.
My term of office expires on the 28th day of February 1998.
/S/ illegible
-----------------------------------
Notary Public
STATE OF CALIFORNIA )
) ss:
COUNTY OF SANTA CLARA )
The undersigned, a notary public in and for the State and County
aforesaid, does certify that DOUG FINLAY whose name as CFO of CRL NETWORK
SERVICES, INC. is signed to the writing above, bearing date on the 19th day of
September, 1996 has acknowledged the same before me in the County of Santa
Clara.
Given under my hand and official seal this 19th day of September, 1996.
My term of office expires on the 19th day of August, 1997.
/S/ illegible
-----------------------------------
Notary Public
[SEAL]
22
<PAGE> 23
EXHIBIT "A"
[EXISTING TENANT FLOOR PLAN]
23
<PAGE> 24
EXHIBIT "B"
TENANT WORKLETTER
(A) Lessor shall, at its sole cost and expense, perform the following work:
1. Install interior partition and Building standard door to create
new office in location shown on Exhibit B-I. Lessor shall also
repaint the existing partitions in said new office, install
Building standard cove base and duplex outlets on two walls, and
provide a ring pull for voice and data communications cables.
2. Install new VCT tile (Armstrong or equivalent) in open area as
shown on Exhibit B-i.
3. Install new electrical subpanel (30 breaker cabinet size, 100 amp
service) with 18 circuits and 18 NEMA plugs installed in ceiling
of open area.
4. Install Building standard door in location identified on
Exhibit B-i;
5. Repaint entire suite with one coat of Building standard paint, in
a color selected by Lessee from the Building standard paint
selections.
6. Install Building standard locksets or deadbolt locks on all
interior doors not currently furnished with same.
(B) All of the Initial Improvements shall be performed utilizing Building
standard materials; provided that, Lessor shall have the right to make
reasonable substitutions. No allowance or credit shall be granted in
connection with any unused materials or any portion of the Initial
Improvements which is waived by Tenant. Lessor agrees to cause the
Initial Improvements to be performed prior to the Commencement Date set
forth in Section 2(a) or as soon as reasonably possible thereafter.
(C) In the event that any delay occasioned by the acts or omissions of
Lessee or Lessee's employees, agents or contractors shall result in any
increase in the cost of the performance of any portion of the Initial
Improvements, Lessee shall reimburse Lessor upon demand for such
increased cost(s). Lessee shall bear all costs of design and
construction of all improvements and alterations in excess of the
Initial Improvements.
(D) Lessee shall examine the Demised Premises before taking occupancy, and
occupancy by Lessee shall be conclusive evidence against Lessee that at
that time the Demised Premises were in good order and satisfactory
condition, and that, subject to correction of mutually agreed
"punch-list" items identified at or prior to Lessee taking occupancy,
all of the Initial Improvements have been completed to Lessee's
satisfaction.
(E) Lessor and Lessee hereby acknowledge that the floor plan attached as
Exhibit A to the Lease represents the parties' understanding of the
existing improvements in the Demised Premises. Lessor and Lessee further
acknowledge and agree that nothing contained on Exhibit A shall be
deemed to impose any obligation on Lessor to perform any work in the
Demised Premises, and Lessor shall have no obligation to perform any
work in the Demised Premises except for the Initial Improvements. Lessee
further acknowledges and agrees that Lessor shall have no obligation to
perform or cause to be performed any modification, improvement or
alteration to the heating, ventilation and air conditioning system
serving the Demised Premises.
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EXHIBIT "C"
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors or halls or other parts of the Building not
occupied by any Lessee shall not be obstructed or encumbered by any Lessee or
used for any purpose other than ingress and egress to and from the Demised
Premises. Lessor shall have the right to control and operate the public portions
of the Building, and the facilities furnished for the common use of the Lessees,
in such manner as Lessor deems best for the benefit of the Lessees generally. No
Lessee shall permit the visit to the Demised Premises of persons in such numbers
or under such conditions as to interfere with the use and enjoyment by other
Lessees of the entrances, corridors, elevators and other public portions or
facilities of the Building.
2. No awnings or other projections shall be attached to the outside
walls of the Building without the prior written consent of the Lessor. No
drapes, blinds, shades, or screens shall be attached to or hung in, or used in
connection with any window or door of the Demised Premises, without the prior
written consent of the Lessor. Such awnings, projections, curtains, blinds,
shades, screens or other fixtures must be of a quality, type, design and color,
and attached in the manner approved by Lessor.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any Lessee on any part of the
outside or inside of the Demised Premises or Building without the prior written
consent of the Lessor. In the event of the violation of the foregoing by any
Lessee, Lessor may remove same without any liability, and may charge the expense
incurred by such removal to the Lessee or Lessees violating this rule. Interior
signs on doors and directory tablet shall be inscribed, painted or affixed for
each Lessee by the Lessor at the expense of such Lessee, and shall be of a size,
color and style acceptable to the Lessor.
4. No show cases or other articles shall be put in front of or
affixed to any part of the exterior of the Building, nor placed in the halls,
corridors or vestibules without the prior written consent of the Lessor.
5. 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, coffee grounds, rubbish, rags, or other substances shall be thrown
therein. All damages resulting from any misuse of the fixtures shall be borne by
the Lessee who, or whose servants, employees, agents, visitors or licensees,
shall have caused the same.
6. There shall be no marking, painting, drilling into or in any way
defacing any part of the Demised Premises or the Building. No boring, cutting or
stringing of wires shall be permitted. Lessee shall not construct, maintain,
use or operate within the Demised Premises or elsewhere within or on the outside
of the Building, any electric device, wiring or apparatus in connection with a
loud speaker system or other sound system.
7. No bicycles, vehicles or animals, birds or pets of any kind shall
be brought into or kept in or about the Demised Premises, and no cooking shall
be done or permitted by any Lessee on said Demised Premises. No Lessee shall
cause or permit any unusual or objectionable odors to be produced upon or
permeate from the Demised Premises.
8. No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction.
9. No Lessee shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or neighboring
buildings or premises of those having business with them, whether by the use of
any musical instrument, radio, talking machines, unmusical noise, whistling,
singing, or in any other way. No Lessee shall throw anything out of the doors or
windows or down the corridors or stairs.
10. No inflammable, combustible or explosive fluid, chemical or
substance shall be brought or kept upon the Demised Premises.
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<PAGE> 26
11. No additional locks or bolts of any kind shall be placed upon any
of the doors, or windows by any Lessee, nor shall any changes be made in
existing locks or the mechanism thereof without the prior written consent of
Lessor; provided that, Lessee shall have the right to install a key card access
system for the Demised Premises, on the condition that Lessee shall provide
Lessor at all times with not less than six (6) key cards to access the same. All
locks must be keyed to the Building's master key in the possession of Lessor. In
the case of rekeying, Lessee will provide Lessor, at no cost to Lessor, four
copies of keys to said rekeyed locks. The doors leading to the corridors or main
halls shall be kept closed during business hours except as they may be used for
ingress or egress. Each Lessee shall, upon the termination of his tenancy,
restore to Lessor all keys of stores, offices, storage, and toilet rooms either
furnished to, or otherwise procured by, such Lessee, and in the event of the
loss of any keys, so furnished, such Lessee shall pay to the Lessor the cost
thereof and, if necessary, the cost of rekeying the locks if Lessor does not
have a copy of the lost key.
12. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which the Lessor or its Agent may determine from time to time. The Lessor
reserves the right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of these Rules and
Regulations or the Lease of which these Rules and Regulations are a part.
13. Any person employed by any Lessee to do janitor work within the
Demised Premises must obtain Lessor's consent and such person shall, while in
the Building and outside of said Demised Premises, comply with all instructions
issued by the Superintendent of the Building. No Lessee shall engage or pay any
employees on the Demised Premises, except those actually working for such Lessee
on said Demised Premises.
14. Deleted.
15. Lessor shall have the right to prohibit any advertising by any
Lessee which, in Lessor's opinion, tends to impair the reputation of the
Building or its desirability as a building for offices, and upon written notice
from Lessor, Lessee shall refrain from or discontinue such advertising.
16. The Lessor reserves the right to exclude from the Building at all
times any person who is not known or does not properly identify himself to the
Building management or watchman on duty. Lessor may at his option require all
persons admitted to or leaving the Building between the hours of 6 P.M. and 8
A.M., Monday through Saturday, Sundays and legal holidays to register. Each
Lessee shall be responsible for all persons for whom he authorizes entry into or
exit out of the Building, and shall be liable to the Lessor for all acts of such
persons. The Building main entrances will remain locked from 6 p.m. Friday
through 8 a.m. Monday. Any Lessee requiring entrance to the Building during the
above hours or after normal weekly business hours must use a key provided by
Lessor.
17. The Demised Premises shall not be used for lodging or sleeping or
for any immoral or illegal purpose.
18. Each Lessee, before closing and leaving the Demised Premises at
any time, shall see that all lights are turned off.
19. The requirements of Lessees will be attended to only upon
application at the office of the Building. Employees shall not perform any work
or do anything outside of the regular duties, unless under special instruction
from the management of the Building.
20. Canvassing, soliciting and peddling in the Building is prohibited
and each Lessee shall cooperate to prevent the same.
21. No water cooler, plumbing or electrical fixtures shall be
installed by any Lessee.
22. There shall not be used in any space, or in the public halls of
the Building, either by any Lessee or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, or similar devices except those
equipped with rubber tires and rubber sideguards.
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23. Access plates to underfloor conduits shall be left exposed. Where
carpet is installed, carpet shall be cut around access plates.
24. Mats, trash or other objects shall not be placed in the public
corridors.
25. The Lessor does not maintain suite finishes which are
nonstandard, such as kitchens, bathrooms, wallpaper, special lights, etc.
However, should the need for repairs arise, the Lessor will arrange for the work
to be done at the Lessee's expense.
26. Drapes installed by the Lessor for the use of the Lessee or
drapes installed by the Lessee, which are visible from the exterior of the
Building must be cleaned by the Lessee at least once a year, without notice, at
said Lessee's own expense.
27. The Lessor will furnish and install the light bulbs for the
Building standard fixtures only. For special fixtures the Lessee will stock his
own bulbs, which will be installed by the 'lessor when so requested by the
Lessee.
28. Violation of these rules and regulations, or any amendments
thereto, shall be sufficient cause for termination of this Lease at the option
of the Lessor.
29. The Lessor may, upon request by any Lessee, waive the compliance
by such Lessee of any of the foregoing rules and regulations, provided that (i)
no waiver shall be effective unless signed by Lessor or Lessor's authorized
agent, (ii) any such waiver shall not relieve such Lessee from the obligation to
comply with such rule or regulation in the future unless expressly consented to
by Lessor, and (iii) no waiver granted to any Lessee shall relieve any other
Lessee from the obligation of complying with the foregoing rules and regulations
unless such other Lessee has received a similar waiver in writing from Lessor.
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<PAGE> 28
EXHIBIT "D"
DECLARATION BY LESSOR AND LESSEE AS TO
DATE OF DELIVERY AND ACCEPTANCE OF
POSSESSION OF DEMISED PREMISES
--------------------------------------------
Attached to and made a part of the Lease Agreement, dated the __ day of
September, 1996, entered into by and between GOSNELL PROPERTIES, INC., as
Lessor, and CRL NETWORK SERVICES, INC., as Lessee.
GOSNELL PROPERTIES, INC., as Lessor in the foregoing Lease Agreement and
CRL NETWORK SERVICES, INC., as Lessee therein, do hereby declare and evidence
that possession of the Demised Premises was accepted by Lessee on the ___ day of
___________________ 1996. The Building and other improvements required to be
constructed and finished by Lessor in accordance with provisions of this lease
have been satisfactorily completed by Lessor and accepted by Lessee and that the
Lease Agreement is now in full force and effect and for the purpose of this
Agreement the Lease commencement date is established as beginning on the ___ day
of ______________, 1996, and the Lease expiration date being on the tenth (10th)
day of December, 2000, and, as of the date of the acceptance as herein set
forth, there is no right of set off against Rents claimed by Lessee against
Lessor.
LESSEE: LESSOR:
CRL NETWORK SERVICES, INC. GOSNELL PROPERTIES, INC.
BY ---------------------------------- BY --------------------------
DOUG FINLAY
ATTEST: ATTEST:
- ------------------------------------- -----------------------------
Secretary Secretary
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EXHIBIT "E"
SPECIAL COMMUNICATIONS EQUIPMENT PROVISIONS
1. LESSEE'S EQUIPMENT. Lessor hereby consents to the use of the
Demised Premises for general office use in connection with the operation of a
general business and data communications company, including the installation of
computers, modems and other data transmission equipment in the Demised Premises
(collectively, the "Equipment"), subject to the terms of the Lease (including,
but not limited to, this Exhibit "E") Lessor's consent to such installations and
operations by Lessee pursuant to this Exhibit "E" Agreement shall be
non-exclusive and in common with any similar rights that Lessor may reserve for
itself, or grant to other tenants of the Building or any third party.
2. LICENSES. Lessor's consent to the installation and operation of
the Equipment is subject, inter alia, to Lessee's receipt of all requirement
governmental and quasi-governmental approvals, consents, licenses and permits
(the same to be obtained by Lessee and a copy thereof provided to Lessor, all at
the Lessee's sole expense). Prior to installation of the Equipment, Lessee shall
provide Lessor with evidence that all such necessary permits and approvals have
been obtained.
3. LIMITATION. Lessor's consent to the installation and operation of
the Equipment is granted solely for the convenience of Lessee in the normal
conduct of Lessee's business. In no event shall the Equipment be used for a
commercial purpose separate from Lessee's normal business as an independent
means of producing income separate from the Lessee's normal business.
4. NO INTERFERENCE. Lessee agrees not to install, modify or operate
any of the Equipment in any manner which will or may interfere with the
operation of any equipment installed in the Building from time to time by or on
behalf of Lessor or any other tenant or other occupant of the Building. Lessee
shall take all steps necessary to ensure that the installation and operation of
the Equipment does not adversely affect the operation of the Building or its
basic systems or the systems or equipment used by any tenants or other occupants
of the Building. If the installation or operation of any portion of the
Equipment causes any such adverse effect, Lessee, at its sole expense, shall
immediately take all steps necessary to eliminate such adverse effect(s). If
such adverse effect(s) cannot be eliminated by Lessee immediately following
Lessor's verbal or written notice, Lessee shall, upon Lessor's request and at
Lessee's sole expense, remove the Equipment in accordance with the terms hereof.
Lessor shall have no obligation to install or maintain any barriers between the
Equipment and any Building systems or the systems or equipment of Lessor or any
other tenant or occupant of the Building.
5. ASSIGNMENT. Lessee's rights pursuant to this Exhibit "E" shall be
non-transferable, and, without limitation, may not be assigned or otherwise
transferred to any person or entity.
6. CONDITION AND SUITABILITY OF THE PROPERTY: Lessor makes no
representations or warranties regarding the suitability or condition of the
Demised Premises for installation or operation of the Equipment, and Lessor
shall have no liability to Lessee on account thereof. The installation and
operation of the Equipment by Lessee shall be at the Lessee's sole risk.
7. REPAIRS AND MAINTENANCE: Lessee shall repair and maintain the
Equipment throughout the Term in compliance with all applicable codes, laws and
regulations (including, but not limited to, all Federal Communications
Commissions orders and regulations pertaining to shielding of such Equipment).
Lessee and/or its contractor shall bear all expenses in connection with the
installation, operation, maintenance and repair of the Equipment and the removal
thereof. Lessee acknowledges and agrees that all risk of loss or damage to the
Equipment, from any cause whatsoever, shall be borne solely by Lessee, and
Lessee undertakes to indemnify and hold Lessor harmless therefrom.
8. COMPLIANCE WITH LAWS.
(a) Lessee shall, at the Lessee's sole expense, comply with all
governmental laws, regulations and requirements and obtain and maintain in full
force and effect throughout
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<PAGE> 30
the Term all approvals, permits and other governmental approvals as may be
required in connection with the Equipment. In addition, Lessee agrees that
Lessee shall, at Lessee's sole expense, comply with all other laws, statutes,
ordinances, and governmental rules, regulations and requirements now in force or
which may hereafter be in force, and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted, relating to or
affecting the Lessee's Equipment.
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<PAGE> 31
EXHIBIT "F"
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("License Agreement") is made as of the __ day of
September, 1996, by and between GOSNELL PROPERTIES, INC. ("Licensor") and CRL
NETWORK SERVICES, INC. ("Licensee").
WITNESSETH:
WHEREAS, Licensor is the owner of that certain mixed use building
located at 8100 Boone Boulevard, Vienna, Virginia (the "Building");
WHEREAS, Licensor and Licensee have entered into that certain Deed of
Lease of even date herewith (the "Lease") between Licensor and Licensee, as
landlord and tenant;
WHEREAS, Licensor has consented in the Lease to the installation and
operation of certain computer, modem and other data transmission equipment
within the Demised Premises (as defined in the Lease), subject to the terms of
the Lease;
WHEREAS, Licensee desires in install vertical and horizontal
communication interconnections in the Building outside of the Demised Premises;
and
WHEREAS, Licensor is willing to permit Licensee to install such vertical
and horizontal communication interconnections in the Building outside of the
Demised Premises subject to the terms of the Lease and the terms hereof.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) cash
in hand paid and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Licensor and Licensee do hereby
covenant and agree as follows:
1. LICENSE. As an accommodation to Licensee, Licensor hereby grants
to Licensee a non-exclusive revocable license (the "License") to install
vertical and horizontal communication interconnections in the Building (all such
vertical and horizontal communication interconnections being herein referred to
as the "Lines"). Licensor, in Licensor's sole discretion, shall designate
telephone closet space, unused or partially used conduit, ductwork, vertical
risers, cable vault space or other openings passing through the Building core or
horizontally above the ceilings and hallways where space is available for use by
Licensee, for the installation of the Lines; provided that, in no event shall
Lessee be entitled to utilize or penetrate any shaftways or any other portion of
the Building not so designated by Licensor. All such areas designated by
Licensor are herein collectively referred to as the "License Area". Licensee
shall have the right to utilize the License Area solely for the use permitted
pursuant to paragraph 3 hereof. Licensee's rights pursuant to this License
Agreement shall be non-exclusive and in common with any similar rights that
Licensor may reserve to itself or grant to other tenants or occupants of the
Building or any third party.
2. TERM. The License granted hereby shall commence upon the
Commencement Date of the Lease, and shall expire upon the expiration or earlier
termination of the Lease, unless sooner terminated pursuant to the terms hereof.
Notwithstanding anything herein contained to the contrary, Licensor may revoke
this License at any time upon the occurrence of any default or breach of the
terms of this License or the Lease (as the same may be amended or replaced from
time to time). Upon the expiration or sooner termination of the License,
Licensee shall have no right, title or interest with respect to the License
Area. There shall be no renewal of this License by operation of law or
otherwise.
3. PERMITTED USE. Subject to (i) Licensee's receipt of all required
governmental and quasi-governmental approvals, consents, licenses and permits
(the same to be obtained by the Licensee and a copy thereof provided to
Licensor, all at the Licensee's sole expense), (ii) Licensee's compliance with
Licensor's requirements for the installation and operation of the Lines, and
(iii) the provisions of paragraph 4 hereof, Licensor agrees to permit Licensee
to utilize the License Area for the installation and operation of the Lines,
subject to all of the terms of this License and all terms of the Lease which are
applicable thereto. Use of the Lines shall be solely
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<PAGE> 32
for the convenience of Licensee in the normal conduct of Licensee's business. In
no event shall the Lines be used for a commercial purpose separate from
Licensee's normal business as an independent means of producing income separate
from the Licensee's normal business.
4. LICENSOR'S PRIOR APPROVAL.
(a) The nature, type, quantity and location of the Lines and
plans and specifications for the installation thereof shall be subject to the
Licensor's prior written approval. In the event Licensor permits Licensee to
penetrate the floor slab in order to create one or more new openings for
installation of the Lines, Licensor shall have the right to require that
Licensee x-ray the floor slab and utilize engineers approved by Licensor in
order to avoid cutting any post-tension cables. Licensor shall have no
obligation to install or maintain any barriers between the Lines and any
Building equipment or systems, or the equipment or systems of Lessor or any
other tenant or occupant of the Building.
(b) Licensee agrees not to install, modify or operate the Lines
in any manner which will or may interfere with the operation of any equipment
installed in the Building from time to time by or on behalf of Licensor or any
other tenant or other occupant of the Building. Licensee shall take all steps
necessary to ensure that the installation and operation of the Lines does not
adversely affect the operation of the Building or its basic systems or the
systems or equipment used by Licensor or any tenants or other occupants of the
Building. If the installation or operation of the Lines causes any such adverse
effect, Licensee, at its sole expense, shall immediately take all steps
necessary to eliminate such adverse effect(s). If such adverse effect(s) cannot
be eliminated by Licensee immediately following Licensor's verbal or written
notice, Licensee shall, upon Licensor's request and at Licensee's sole expense,
remove the Lines in accordance with the terms hereof.
(c) After initial installation of the Lines, Licensor may require
Licensee to relocate the Lines upon reasonable notice to Licensee; provided,
however, that no relocation shall be required to a location which will not
permit the Lines to function properly or which would not allow for necessary
transmission paths.
5. INSTALLATION OF EQUIPMENT.
(a) The Lines shall be installed by a properly licensed and
insured contractor approved by Licensor, at Licensee's sole expense, in
compliance with all applicable codes, law and regulations.
(b) No penetration of the roof or any exterior surface of the
Building shall be allowed. All Lines shall be concealed from public view in a
manner acceptable to the Licensor.
6. ASSIGNMENT. The Licensee shall not assign or otherwise transfer
this License Agreement, or any of Licensee's rights hereunder, nor permit the
use or occupancy of the License Area by any person or entity other than
Licensee.
7. CONDITION AND SUITABILITY OF THE PROPERTY. Licensor makes no
representations or warranties regarding the suitability or condition of the
License Area for installation or operation of the Lines, and Licensor shall have
no liability to Licensee on account thereof. The installation and operation of
the Lines in the License Area by Licensee shall be at the Licensee's sole risk.
8. REPAIRS AND MAINTENANCE. Licensee shall repair and maintain the
Lines throughout the Term in compliance with all applicable codes, laws and
regulations. Licensee and/or its contractor shall bear all expenses in
connection with the installation, operation, maintenance and repair of the Lines
and the removal thereof. Licensee acknowledges and agrees that all risk of loss
or damage to the Lines, from any cause whatsoever, shall be borne solely by
Licensee, and Licensee undertakes to indemnify and hold Licensor harmless
therefrom.
9. COMPLIANCE WITH LAWS. Licensee shall, at the Licensee's expense,
comply with all governmental laws, regulations or requirements and obtain and
maintain in full force and effect throughout the Term all permits and other
governmental approvals as may be required in
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<PAGE> 33
connection with the Lines. Prior to installation of the Lines, Licensee shall
provide Licensor with evidence that all such necessary permits and approvals
have been obtained. In addition, Licensee agrees that Licensee shall, at
Licensee's sole expense, comply with all other laws, statutes, ordinances, and
governmental rules, regulations and requirements now in force or which may
hereafter be in force, and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted, relating to or
affecting the Lines, access to the License Area, and/or the activities of
Licensee or Licensee's agents, employees, officers, contractors, licensees,
invitees and/or others for whose actions Licensee is responsible at law in, on
or upon the License Area.
10. ACCESS TO THE LICENSE AREA. Upon reasonable prior notice,
Licensor agrees to permit Licensee and its contractors reasonable access during
normal working hours (unless otherwise consented to by the Licensor) to the
License Area to facilitate the installation, operation and maintenance of the
Lines and the removal thereof. If required after normal operating hours, or if
such access becomes excessive, the Licensee shall reimburse the Licensor for its
reasonable costs of providing such access. Access to and activities in, on or
upon the License Area by Licensee and/or Licensee's agents, employees, officers,
contractors, licensees, invitees and/or others for whose actions Licensee is
responsible, shall be subject to such rules and regulations as Licensor may
promulgate in connection with such access and/or activities.
11. TERMINATION OF LICENSE. In the event (i) Licensee fails to comply
with, fulfill or observe any of the covenants, conditions, or obligations made
by or imposed on the Licensee pursuant to the terms of this License or, with
respect to the Lines or the Licensed Area (each of the foregoing being herein
referred to as an "Connection Breach"), or (ii) removal of the Lines shall be
required by any governmental authority, this License may, without demand or
notice, be terminated by Licensor without payment of penalty or compensation to
Licensee, and Licensee shall promptly (immediately, if so required by a
governmental authority) remove the Lines from the Building at the Licensee's
expense. In all events, Licensee shall at its sole cost and expense remove the
Lines from the Building upon the expiration or sooner termination of this
License and restore the area affected by the installation, operation and/or
removal of the Lines to its original condition.
12. INDEMNITY. To the fullest extent permitted by applicable law,
Licensee hereby agrees to indemnify and hold Licensor and Licensor's agents,
contractors and employees (collectively, the "Indemnitees") harmless from and
against any and all costs, damages, claims, expenses, fees, suits, awards and
liabilities incurred or suffered by or claimed against any Indemnitee
(including, but not limited to, court costs and reasonable attorneys fees),
directly or indirectly, based on, arising out of or resulting from (i)
Licensee's use of the License Area, (ii) any act or omission by Licensee or its
employees, agents or invitees within the License Area, or (iii) any breach or
default by Licensee in the performance or observance of its covenants or
obligations under this License Agreement. Without limiting the foregoing,
Licensee shall be responsible for, and shall defend, indemnify and hold Licensor
harmless from and against, any damage caused to the Building by the
installation, operation, maintenance, repair and/or removal of the Lines, and
any injury or death, or loss or damage to any of the Lines or any equipment of
Licensor or any other tenant or occupant of the Building.
13. INSURANCE. In furtherance of Licensee's indemnity of Licensor as
contained in the preceding Section 12, Licensee hereby agrees to maintain, in
full force and effect throughout the term of this License, policies of liability
and property damage insurance as described in the Lease (or endorsements to all
policies maintained in accordance with said Lease, extending coverage to the
License Area and including the Lines as additional personal property to be
insured) with respect to personal injury, death or property damage arising out
of or in connection with the Lines, Licensee's right of access to the License
Area pursuant to this License Agreement, and any activities conducted in, on or
upon the License Area by the Licensee or the Licensee's agents, employees,
officers, directors, contractors, licensees, invitees and/or others for whose
actions Licensee is responsible. In addition, Licensee shall require the
contractor engaged for installation of the Lines to provide to Licensor a
certificate of insurance 'evidencing (i) a minimum combined single limit general
liability coverage of Three Million Dollars ($3,000,000.00), with Licensor named
as an additional insured, and (ii) the statutorily required workmen's
compensation insurance coverage.
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<PAGE> 34
14. NO LEASE: The parties hereto acknowledge and agree that this
License Agreement is an arms-length transaction between disinterested parties,
creates only a License terminable as set forth herein and not a lease or other
estate in the License Area, and shall not be deemed or construed in any way to
create a relationship of landlord/tenant between the parties hereto. Licensee
expressly acknowledges that Licensee is not a tenant of the License Area.
Licensee further acknowledges that this License Agreement shall in no way amend
or modify the Lease.
15. SEVERABILITY: Each covenant, agreement, term or condition of this
License Agreement shall be valid and enforceable to the fullest extent permitted
by law. If any part of this License Agreement or the application thereof in any
circumstance shall to any extent be held invalid or unenforceable by a court of
competent jurisdiction the remainder of this License Agreement or the
application of such part to circumstances other than those to which it has been
held invalid shall be and remain in full force and effect.
16. LIMITATION OF LICENSOR'S LIABILITY: It is expressly agreed by the
parties hereto that Licensee's sole recourse for satisfaction of any judgment
against Licensor shall be against Licensor's estate, interest and title in and
to the Building.
17. BINDING EFFECT: This License Agreement and the terms and
conditions contained herein are binding on and may be legally enforced by the
parties hereto and their successors and assigns; provided, however, this Section
17 shall not be deemed to permit any transfer or assignment of this License
Agreement not otherwise permitted hereunder.
18. GOVERNING LAW: This License Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia, without
regard to the conflict of laws Principles thereof.
IN WITNESS WHEREOF, the said parties have hereunto set their hands and
affixed their seals, all done as of the day and year first hereinbefore written.
LESSOR:
GOSNELL PROPERTIES, INC.
ATTEST:
/s/ By: /s/ Barry R. Gosnell
- ------------------------- --------------------------------
LICENSEE:
ATTEST: CRL NETWORK SERVICES, INC.
/s/ Doug Finlay By: /s/ Doug Finlay
- ------------------------- --------------------------------
Doug Finlay
34
<PAGE> 1
EXHIBIT 10.28
STANDARD INDUSTRIAL LEASE -- MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, March 30, 1998,
is made by and between Robert A. Bell, Individual (herein called "Lessor") and
Bob Ross DBA Integral Networking Corporation (herein called "Lessee").
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, all the rental, and upon all of the conditions set forth
herein, real property situated in the County of Sacramento, State of California
commonly known as 2706 and 2708 Mercantile Drive, Rancho Cordova, CA 95742 and
described as approximately 1476 sf office space and 2,604 sf warehouse space
herein referred to as the "Premises", as may be outlined on an Exhibit attached
hereto, including rights to the Common Areas as hereinafter specified but not
including any rights to the roof of the Premises or to any Building in the
Industrial Center. The Premises are a portion of a building herein referred to
as the "Building." The Premises, the Building, the Common Areas, the land upon
which the same are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "Industrial Center."
2.2 VEHICLE PARKING. Lessee shall be entitled to 4 front/4 rear vehicle
parking spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces than
said number. Said parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pick-up trucks, herein called
"Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are
herein referred to as "Oversized Vehicles."
2.2.1 Lessee shall not permit or allow any vehicles that belong
to or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited
activities described in paragraph 2.2 of this Lease, then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.3 COMMON AREAS -- DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Premises within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee and of other
lessees of the Industrial Center and their respective employees, suppliers,
shippers, customers, and invitees, including parking areas, loading and
unloading areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas.
<PAGE> 2
2.4 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers, and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time in the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.5 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have ht right, from time to time, to establish,
modify, amend and enforce reasonable rules and regulations with respect thereto.
Lessee agrees to abide by and conform to all such rules and regulations, and to
cause its employees, suppliers, shippers, customers, and invitees to so abide
and conform. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees of the Industrial Center.
2.6 COMMON AREAS -- CHANGES. Lessor shall have the right, in Lessor's
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways; (b) To close
temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available; (c) To designate other land
outside the boundaries of the Industrial Center to be a part of the Common
Areas; (d) To add additional buildings and improvements to the Common Areas; (e)
To use the Common Areas wile engaged in making additional improvements, repairs
or alterations to the Industrial Center, or any portion thereof; (f) To do and
perform such other acts and make such other changes, to or with respect to the
Common Areas and Industrial Center as Lessor may, in the exercise of sound
business judgment, deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number o parking areas that
Lessee is entitled to under paragraph 2.2 be reduced.
3. TERM.
3.1 TERM. The term of this Lease shall be for Three Years commencing on
May 1, 1998 and ending on May 31, 2001 unless sooner terminated pursuant to any
provision hereof.
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<PAGE> 3
3.2 DELAY IN POSSESSION. Notwithstanding and commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent or perform any other obligation of Lessee under the terms of this Lease
except s may be otherwise provided in this Lease, until possession of the
Premises is tendered to Lessee, provided, however, that if Lessor shall not have
delivered possession of the Premises within sixty (60) days from said
commencement date, Lessee may, at Lessee option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the parties
shall be discharged from all obligations hereunder, provided further, however,
that if such written notice of Lessee is not received by Lessor within said ten
(10) day period, Lessee's right to cancel this Lease hereunder shall terminate
and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provision of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. RENT.
4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the
Premises, without any offset or deduction, except as may be otherwise expressly
provided in this Lease, on the 1st day of each month of the term hereof, monthly
payments in advance of $1,818.70 (1476 x .65 = 959.40; 2604 x .33 = 859.30).
Lessee shall pay Lessor upon execution hereof $1,818.70 as Base Rent for May 1,
1998 Rent for any period during the term hereof which is for less than one month
shall be a pro rata of the Base Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
of such other places as Lessor may designate in writing.
4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee Share" is defined, for purposes of this Lease, as 40.0
percent.
(b) "Operating Expenses" is defined, for purposes of this Lease, as
all costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
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(dd) Fire detection systems including sprinkler
system maintenance and repair.
(ee) Security services; and
(ff) Any other services to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense."
(ii) Any deductible portion of an insured loss concerning any
of the items or matters described in this paragraph 4.2;
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under
paragraph 8 hereof;
(iv) The amount of the real property tax to be paid by Lessor
under paragraph 10.1 hereof;
(v) The cost of water, gas and electricity to service the
Common Areas.
(c) The inclusion of the improvements, facilities and services set
forth in paragraph 4.2(b)(i) of the definition of Operating
Expenses shall not be deemed to impose an obligation upon Lessor
to either have said improvements or facilities to provide those
services unless the Industrial Center already has the same.
Lessor already provides the services, or Lessor has agreed
elsewhere in the Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's
opinion, however, an amount may be estimated by Lessor from time
to time of Lessee's Share of annual Operating Expenses and the
same shall be payable monthly or quarterly, as Lessor shall
designate during each twelve-month period of the Lease term, on
the same day as the Base Rent is due hereunder. In the event
that Lessee pays Lessor's estimate of Lessee's Share of
Operating Expenses as aforesaid. Lessor shall deliver to Lessee
within sixty (60) days after the expiration of each calendar
year a reasonably detailed statement showing Lessee's Share of
Operating Expenses next falling due. If Lessee's payments under
this paragraph 4.2(d) during said preceding year exceed Lessee's
Share as indicated on said and statement. Lessee shall be
entitled to credit the amount of such overpayment against
Lessee's Share of Operating Expenses next falling due. If
Lessee's payments under this paragraph during said preceding
year were less than Lessee Share as indicated, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$1,818.70 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges hereunder, or otherwise
defaults with respect to any provision of his Lease. Lessor may use, apply or
retain all or any portion of said deposit for the payment of any
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rent or other charge in default or for the payment of any other sum to which
Lessor may become obligated by reason or Lessee's default, or to compensate
Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses
or applies all or any portion of said deposit. Lessee shall within ten (10) days
after written demand therefor deposit cash with Lessor in an amount sufficient
to restore and deposit to the full amount then required of Lessee. If the
monthly rent shall, from time to time, increase during the term of this Lease.
Lessee shall, at the time of such increase, deposit with Lessor additional money
as a security deposit so that in the total amount of the security deposit held
by Lessor shall be at all times bear the same proportion to the then current
Base Rent as the initial security deposit bears to the initial Base Rent set
forth in paragraph 4. Lessor shall not be required to keep said security deposit
separate from its general accounts if Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only to computer
industry services and storage of non-toxic and non-hazardous materials and
equipment or any other use which is reasonably comparable and for no other
purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lessee term commences, but without regard to the
use for which Lessee will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation in the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior tot he date of this Lease,
Lessee was an owner or occupant of the Premises and, in such event, Lessee shall
correct any such violation oat Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not hey reflect a change in
policy from that now existing, during the term or any part of the term hereof,
relating in any manner to the Premises and the occupation and use by Lessee of
the Premises and of the Common Areas. Lessee shall not use nor permit the use of
the Premises or the Common Areas
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in any manner that will tend to create waste or a nuisance or shall tend to
disturb other occupants of the Industrial Center.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in possession)
and Lessor warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date in the event that is it determined that this
warranty has been violated, then it shall be the obligation of the Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 5.3(a) shall be of no force or effect if prior to
the date of this Lease. Lessee was an owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREAS SERVICES.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraph 4.2
(Operating Expenses). 6 (Use). 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers or
invitees, in which event Lessee shall repair the damage. Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2 shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the Premises, as well as providing the
services for which there is an Operating Expenses pursuant to paragraph 4.2.
Lessor shall not, however, be obligated to paint the exterior or interior
surface of exterior walls, nor shall Lessor be required to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessor shall have no
obligation to make repairs under this paragraph 7.1 until a reasonable time
after receipt of written notice from Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessors failure to keep
the Premises in good order, condition and repair. Lessor shall not be liable for
damages or loss of any kind or nature by reason of Lessor's failure to furnish
any Common Area Services when such failure is caused by accident, breakage,
repairs, strikes, lockout, or other labor disturbances or disputes of any
character, or by any other cause beyond the reasonable control of Lessor.
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7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provision of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee at Lessee's expense shall
keep in good order condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the means of repairing
the same are reasonably or readily accessible to Lessee) including, without
limiting the generality of the foregoing, all plumbing, heating, ventilating and
air conditioning systems (Lessee shall procure and maintain, at Lessee's
expense, a ventilating and air conditioning system maintenance contract),
entrance doors and storefront complete, electrical and lighting facilities and
equipment within the Premises, fixtures interior walls and interior surfaces of
exterior walls, ceilings, windows, doors, plate glass, and skylights located
within the Premises. Lessor reserves the right to procure and maintain the
ventilating and air conditioning systems maintenance contract and if Lessor so
elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof,
including clean-up or debris removal of common area, A/C, paving, concrete and
landscaping.
(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon
the Premises after ten (10) days prior written notice to Lessee (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next Base Rent installment.
(c) On the last day of the term hereof or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received ordinary wear and tear excepted clean and free of debris. Any damage
or deterioration of the Premises shall not be deemed ordinary wear and tear if
the same could have been prevented by good maintenance practices. Lessee shall
repair any damage to the Premises occasioned by the installation or removal of
Lessee's trade fixtures, alterations, furnishings and equipment. Notwithstanding
anything to the contrary, otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, or Utility Installations, on or about
the Premises, or the Industrial Center, except for nonstructural alterations to
the Premises not exceeding $2,500 in cumulative costs, during the term of the
Lease in any event whether or not in excess of $2,500 in cumulative costs Lessee
shall make no change or alteration to the exterior of the Premises nor the
exterior of the Building nor the Industrial Center without Lessor's prior
written consent. As used in this paragraph 7.3 the term "Utility Installation"
shall mean carpeting, window coverings, air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing, and fencing. Lessor may require that Lessee remove any or all of said
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alterations, improvements, additions or Utility Installations at the expiration
of the term, and restore the Premises and the Industrial Center to their prior
condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost
and expense, a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such improvements, to insure Lessor against any
liability for mechanic's and materialmen's liens and to insure completion of the
work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may, at any time
during the term of this Lease, require that Lessee remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Industrial Center that Lessee
shall desire to make and which requires the consent of the Lessor shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishings of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or any
interest therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, in its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises or the Industrial Center, upon the
condition that if Lessor shall require. Lessee shall furnish to Lessor a surely
bond satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises and the Industrial Center free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs
in participating in such action if Lessor shall decide it is Lessor's best
interest to do so.
(d) All alterations, improvements, additions and Utility
Installations (whether or not such Utility installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall be the property of
Lessor and shall remain upon and be surrendered with the Premises at the
expiration of the Lease term, unless Lessor requires their removal pursuant to
paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed tot he
Premises so that it cannot be removed without material damage to the Premises,
and other than Utility installations, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of paragraph 7.2.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electricity
systems, security systems, communication systems, and fire protection and
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detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE -- LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lessee a policy of Combined
Single Limit Bodily Injury and Property Damage insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and the Industrial Center. Such Insurance shall be in an amount not
less than $500,000.00 per occurrence. The policy shall insure performance by
Lessee of the indemnity provisions of this paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE -- LESSOR. Lessor shall obtain and keep in force
during the term of this Lessee a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $500,000.00 per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Industrial Center improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements. In an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises) special extended perils
("all risks", as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said period.
In the event that the Premises shall suffer an insured loss as defined in
paragraph 9.1(g) hereof, the deductible amounts under the casualty insurance
policies relating to the Premises shall be paid by Lessee.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) After the term of this Lease has commenced, Lessee shall not
be responsible for paying Lessee's Share of any increase in the property
insurance premium for the Industrial Center specified by Lessor's insurance
carrier as being caused by the use, acts or omissions of any other lessee of the
Industrial Center, or by the nature of such other lessee's occupancy which
create an extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in
the property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy of any act or omission of Lessee.
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8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies carried by Lessor. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
commencement date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals or "binders"
thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
loss or damage arising out of or incident to the perils insured against which
perils occur in, on or about the Premises, whether due to the negligence of
Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee
and Lessor shall, upon obtaining the policies of insurance required give notice
to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Industrial Center,
or from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease, or arising from
any act or omission of Lessee, or any of Lessee agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim. Lessee, upon notice from Lessor,
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense, Lessee, as a
material part of the consideration to Lessor, hereby assumes all risk of damage
to property of Lessee or injury to persons, in, upon or about the Industrial
Center arising from any cause and Lessee hereby waives all claims in respect
thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises or the Industrial Center, nor shall Lessor be liable for injury to
the person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Industrial
Center, or from other sources or places and regardless of whether the cause of
such damage or
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injury or the means of repairing the same is inaccessible to Lessee. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee, occupant or user of the Industrial Center, nor from the failure of
Lessor to enforce the provisions of any other lease of the Industrial Center.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is less than fifty
percent of the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repairs is fifty percent or
more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent of the then replacement cost of the
Building.
(d) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent or more of the then replacement cost of
the Industrial Center Buildings.
(e) "Industrial Center Buildings" shall mean all of the buildings
on the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean if
the Industrial Center Buildings are damaged or destroyed to the extent that the
cost of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary
to be spend in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring excluding all improvements
made by lessees.
9.2 PREMISES PARTIAL DAMAGE: PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Partial
Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's
expense, repair such damage to the Premises, but not Lessee's fixtures,
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equipment or tenant improvements, as soon as reasonably possible and this Lease
shall continue in full force and effect.
(b) Uninsured Loss. Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises
Partial Damage or Premises Building Partial Damage, unless caused by a negligent
or willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from using the Premises. Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessee's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage in the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease. Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this lease shall be canceled and
terminated as of the date of the occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDING TOTAL DESTRUCTION.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classification of either (i) Premises
Total Destruction, or (ii) Premises Building Total Destruction, or (iii)
Industrial Center Buildings Total Destruction, then Lessor may at Lessor's
option either (i) repair such damage or destruction, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible at Lessor's
expense, and this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee with thirty (30) days after the date of occurrence of
such damage of Lessor's intention to cancel and terminate this Lease, in which
case this Lease shall be canceled and terminated as of the date of the
occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last
six months of the term of this Lease there is substantial damage, whether or not
an Insured Loss, which falls within the classification of Premises Partial
Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Partial Damage during the last six months of the term of this Lease if Lessee
duly exercises such option
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during said twenty (20) day period, Lessor shall, at lessor's expense, repair
such damage, but not Lessee's fixtures, equipment or tenant improvements, as
soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Premises pursuant
to the provisions of this paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this paragraph 9 and shall not commence such
repair or restoration within ninety (90) days after such obligation shall
accrue. Lessee may at Lessee's option cancel and terminate this Lease by giving
Lessor written notice of Lessee's election to do so at any time prior to the
commencement of such repair or restoration in such event this Lease shall
terminate as of the date of such notice.
9.6 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9 an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Industrial Center subject to
reimbursement by Lessee of Lessee's share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by assessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any
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increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment , general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total, of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay to Lessor the taxes attributable
to Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light,
power, telephone and other utilities and services supplied to the Premises,
together with any taxes thereon if any such services are not separately metered
to the Premises. Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
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12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not reasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer mortgage encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion hereof, without
Lessor's consent to any corporation which controls, is controlled by or is under
common control with Lessee, or to any corporation resulting from the merger or
consolidation with Lessee, or to any person or entity which acquires all the
assets of Lessee as a going concern of the business that is being conducted on
the Premises, all of which are referred to as "Lessee Affiliate," provided that
before such assignment shall be effective said assignee shall assume, in full,
the obligations of Lessee under this Lease. Any such assignment shall not in any
way, affect or limit the liability of Lessee under the terms of this lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent,
no assignment shall release Lessee of Lessee's obligations hereunder or after
the primary liability of Lessee to pay the Base Rent and Lessee's Share of
Operating Expenses, and to perform all other obligations to be performed by
lessee hereunder. Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies for
the breach of any of the terms or conditions of this paragraph 12 or this Lease.
Consent to one assignment shall not be deemed consent to any subsequent
assignment. In the event of default by any assignee of Lessee or any successor
of Lessee, in the performance of any of the terms hereof. Lessor may proceed
directly against Lessee without the necessity of exhausting remedies against
said assignee. Lessor may consent to subsequent assignments of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, and without obtaining its or their consent thereto and such
action shall not relieve Lessee of liability under this Lease.
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be included in
subleases:
(a) Lessee hereby assigns and transfers to lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease, provided, however, that until
a default shall occur in the performance of Lessee's obligations
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under this Lease, Lessee may receive, collect and enjoy the rents accruing under
such sublease. Lessor shall not, by reason of this or any other assignment of
such sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
lessor, and that such sublessee shall pay such rents to lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from lessee to the contrary, Lessee
shall have no right or claim against such sublessee or Lessor for any such rents
so paid by said sublessee to lessor.
(b) No sublease entered into by Lessee shall be effective unless
and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublessee shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed
by third parties, then a sublease, and Lessor's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease and
the terms thereof.
(d) The consent by Lessor to any subletting shall not release
Lessee from its obligations or alter the primary liability of Lessee to pay the
rent and perform and comply with all of the obligations of Lessee to be
performed under this Lease.
(e) The consent by lessor to any subletting shall not constitute
to any subsequent subletting by Lessee or to any assignment or subletting by the
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable on the Lease or sublease and without obtaining
their consent and such action shall not relieve such persons from liability.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible for
the performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such
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sublease; provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to Lessee or for any other prior
defaults of Lessee under such sublease.
(h) Each and every consent required of Lessee under a sublease
shall also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgment that no default then exists under
this Lease of the obligations to be performed by Lessee nor shall such consent
be deemed a waiver of any then existing default, except as may be otherwise
stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by
Lessee to observe or perform any of the convenants, conditions or provision of
this Lease to be observed or performed by Lessee, other than described in
paragraph (b) above, where such failure shall continue for a period of thirty
(30) days after written notice thereof from Lessor to Lessee; provided, however,
that if the nature of Lessee's noncompliance is such that more than thirty (30)
days are reasonably required for its cure, then Lessee shall not be deemed to be
in default if
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Lessee commenced such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion. To the extent permitted by law,
such thirty (30) day notice shall constitute the sole and exclusive notice
required to be given to Lessee under applicable Unlawful Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becomes a "debtor"
as defined in 11 U.S.C. Section 101 or any successor stature thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days, (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the premises or of Lessee's
interest in this lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, was
materially false.
13.2 REMEDIES. In the event of any such material default by Lessee,
Lessor may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(a) Terminate Lessee' right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. IN such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
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13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to lessee in
writing, specifying wherein Lessor has failed to perform such obligation,
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default, if Lessor commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Property. Accordingly, if any installment of Base Rent,
Operating Expenses, or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of any of the aforesaid monetary obligations of Lessee, then Base
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding paragraph (4) or any other provision of this Lease
to the contrary.
14. CONDEMNATION. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises, or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Industrial Center
is taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this Lease
as of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the premises remaining
except that the rent shall be reduced in the proportion that the floor area of
the Premises taken bears to the total floor area of the Premises. No reduction
of rent shall occur if the only area taken is that which does not have the
premises located thereon. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages, provided, however, that Lessee
shall be entitled to
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any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
None Licensed real estate broker(s) a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of $0.00, for brokerage
services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the terms of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interests in this Lease, whether such
transfer is by agreement or by operation of law shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this paragraph 15.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Premises or of the business
of the requesting party.
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(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who to respond without any further notice to such party, or it shall be
conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Property, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years' financial statements of lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest. Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined b a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to lessor not paid when due shall bear interest at the maximum
rate then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. time is of the essence with respect to the obligations
to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and Insurance and tax expenses payable shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
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listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Property and Lessee acknowledges that Lessee
assumes all responsibility regarding the Occupational Safety Health Act, the
legal use and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the terms of this Lease except
as otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
24. WAIVERS. NO WAIVER BY LESSOR OR ANY PROVISION HEREOF SHALL BE DEEMED A
WAIVER OF ANY OTHER PROVISION HEREOF OR OF ANY SUBSEQUENT BREACH BY LESSEE OF
THE SAME OR ANY OTHER PROVISION. LESSOR'S CONSENT TO, OR APPROVAL OF, ANY ACT
SHALL NOT BE DEEMED TO RENDER UNNECESSARY THE OBTAINING OF LESSOR'S CONSENT TO
OR APPROVAL OF ANY SUBSEQUENT ACT BY LESSEE. THE ACCEPTANCE OF RENT HEREUNDER BY
LESSOR SHALL NOT BE A WAIVER OF ANY PRECEDING BREACH BY LESSEE OF ANY PROVISION
HEREOF OTHER THAN THE FAILURE OF LESSEE TO PAY THE PARTICULAR RENT SO ACCEPTED,
REGARDLESS OF LESSOR'S KNOWLEDGE OF SUCH PRECEDING BREACH AT THE TIME OF
ACCEPTANCE OF SUCH RENT.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provision of this
Lease pertaining to the obligations of Lessee, but all Options if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT: CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by
22
<PAGE> 23
the laws of the State where the Industrial Center is located and any litigation
concerning this Lease between the parties hereto shall be initiated in the
county in which the Industrial Center is located.
30. SUBORDINATION.
(a) This Lease, and any Option granted hereby, at Lessor's
option, shall be subordinate to any ground lease, mortgage, deed of trust, or
any other hypothecation or security now or hereafter placed upon the Industrial
Center and to any and all advances made on the security thereof and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate
an attornment, a subordination or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as the
case may be. Lessee's failure to execute such documents within ten (10) days
after written demand shall constitute a material default by Lessee hereunder
without further notice to Lessee or, at Lessor's option, Lessor shall execute
such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does
hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall insure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises or the Building any
ordinary "For Sale" signs and Lessor may at any time during the last 120 days of
the term hereof place on or about the Premises any ordinary "For Lease" signs.
All activities of Lessor pursuant to the paragraph shall be without abatement of
rent, nor shall Lessor have any liability to Lessee for the same.
23
<PAGE> 24
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any action upon the premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. SIGNS. Lessee shall not place any sign upon the Premises or the
Industrial Center without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Industrial Center.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Property.
39. OPTIONS.
39.1. DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor; (3) the right or option to purchase the Premises or the Industrial
Center, or the right of first refusal to purchase the Premises or the Industrial
Center, or the right of first offer to purchase the Premises or the Industrial
Center, or the right or option to purchase other property of Lessor, or the
right of first refusal to purchase other property of Lessor or the right of
first offer to purchase other property of Lessor.
39.2. OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or
24
<PAGE> 25
any portion thereof, and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, that an Option may be exercised by or assigned to any Lessee Affiliate
as defined in paragraph 12.2 of this Lease. the Options, of any, herein granted
to Lessee are not assignable separate and apart from this Lease, nor may any
Option be separated from this Lease in any manner, either by reservation or
otherwise.
39.3. MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4. EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the date after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid, or (iii) at any time after an event of default
described in paragraphs 13.1(a), 13.1(d), or 13.1(e) without any necessity of
Lessor to give notice of such default to Lessee) or (iv) in the event that
Lessor has given to Lessee three or more notices of default under paragraph
13.1(b), or paragraph 13.1(c), whether or not the defaults are cured, during the
12 month period of time immediately prior to the time that Lessee attempts to
exercise the Subject Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (I) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee) or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or
13.1(e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Lessee three or more notices of default under
paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured.
40. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall
have no obligation whatsoever to provide guard service or other security
measures for the benefit of the Premises or the Industrial Center. Lessee
assumes all responsibility for the protection of Lessee, its agents, and
invitees and the property of Lessee and of Lessee's agents and invitees from
acts of third parties. Nothing herein contained shall prevent Lessor, at
Lessor's sole option, from providing
25
<PAGE> 26
security protection for the Industrial Center or any part thereof, in which
event the cost thereof shall be included within the definition of Operating
Expenses, as set forth in paragraph 4.2(b).
41. EASEMENTS. Lessor reserves to itself the right, from time to
time, to grant such easements, rights and dedications that Lessor deems
necessary or desirable, and to cause the recordation of Parcel Maps and
restrictions, so long as such easements, rights, dedications, Maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee, Lessee shall sign any of the aforementioned documents upon request of
Lessor and failure to do so shall constitute a material default of this Lease by
Lessee without the need for further notice to Lessee.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise
as to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to m made payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum if it shall
be adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. AUTHORITY. If Lessee is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If Lessee is a corporation, trust
or partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions of this
Lease and the typewritten or handwritten provisions, if any, shall be controlled
by the typewritten or handwritten provisions.
45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission o same to Lessee shall not be deemed an offer to lease. This Lease
shall become binding upon Lessor and Lessee only when fully executed by Lessor
and Lessee.
46. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs 1 through 7 which constitute a part of this Lease.
Landlord and Tenant Further agree that:
1. Rent will increase on May 01, 2000 by 3% for the remaining term of
lease.
2. Landlord will connect all exterior lighting and electrical to meter
previously use for 2708. After 3 months the average house electrical
costs will be credited to tenant for entire prior lease term.
3. Landlord will apply previous lease deposit toward new deposit.
26
<PAGE> 27
4. Previous lease dated November 10, 1995 will remain in effect until May
01, 1998 at which time this lease will supersede previous lease.
5. Landlord agrees to provide 60 days free rent of added space (1320 sq.
ft.) valued at 435.00/mo. This starts May 4, 1998.
6. Landlord agrees to provide necessary equipment and labor needed to
provide appropriate and reasonable power requirements for tenants use.
Any panel or meter, wiring or equipment needs to be upgraded to provide
appropriate and reasonable power will be cone at landlord's expense.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR
APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO. THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS
TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
<TABLE>
<CAPTION>
LESSOR LESSEE
<S> <C>
Robert A. Bell Bob Ross - Integral Networking Corp.
- -------------------------------------------- -------------------------------------------
By: /s/ Robert A. Bell By: /s/ Bob Ross
----------------------------------------- ----------------------------------------
By: By:
----------------------------------------- ----------------------------------------
Executed on: Executed on:
-------------------------------- -------------------------------
(Corporate Seal) (Corporate Seal)
ADDRESS FOR NOTICES AND RENT ADDRESS
2718 Mercantile Drive 2706 Mercantile Drive
- -------------------------------------------- -------------------------------------------
Rancho Cordova, CA 95742 Rancho Cordova, CA 95742
- -------------------------------------------- -------------------------------------------
</TABLE>
27
<PAGE> 1
EXHIBIT 10.29
QUALIFIED RETIREMENT PLAN AND TRUST
DEFINED CONTRIBUTION BASIC PLAN DOCUMENT 01
<PAGE> 2
QUALIFIED RETIREMENT PLAN AND TRUST
================================================================================
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION ONE DEFINITIONS..............................................................1
1.01 Adoption Agreement.......................................................1
1.02 Basic Plan Document......................................................1
1.03 Break In Eligibility Service.............................................1
1.04 Break In Vesting Service.................................................1
1.05 Code.....................................................................1
1.06 Compensation.............................................................1
1.07 Custodian................................................................3
1.08 Disability...............................................................3
1.09 Earned Income............................................................3
1.10 Effective Date...........................................................4
1.11 Eligibility Computation Period...........................................4
1.12 Employee.................................................................4
1.13 Employer.................................................................4
1.14 Employer Contribution....................................................4
1.15 Entry Dates..............................................................4
1.16 ERISA....................................................................5
1.17 Forfeiture...............................................................5
1.18 Fund.....................................................................5
1.19 Highly Compensated Employee..............................................5
1.20 Hours Of Service.........................................................6
1.21 Individual Account.......................................................7
1.22 Investment Fund..........................................................7
1.23 Key Employee.............................................................8
1.24 Leased Employee..........................................................8
1.25 Normal Retirement Age....................................................8
1.26 Owner-Employee...........................................................8
1.27 Participant..............................................................8
1.28 Plan.....................................................................9
1.29 Plan Administrator.......................................................9
1.30 Plan Year................................................................9
1.31 Prior Plan...............................................................9
1.32 Regional Prototype Sponsor...............................................9
1.33 Self-Employed Individual.................................................9
1.34 Separate Fund............................................................9
1.35 Taxable Wage Base........................................................9
1.36 Termination Of Employment...............................................10
1.37 Top-Heavy Plan..........................................................10
1.38 Trustee.................................................................10
1.39 Valuation Date..........................................................10
1.40 Vested..................................................................10
1.41 Year Of Eligibility Service.............................................10
1.42 Year Of Vesting Service.................................................10
SECTION TWO ELIGIBILITY AND PARTICIPATION...........................................11
2.01 Eligibility To Participate..............................................11
2.02 Plan Entry..............................................................11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
2.03 Transfer To Or From Ineligible Class....................................12
2.04 Return As A Participant After Break In Eligibility Service..............12
2.05 Determinations Under This Section.......................................13
2.06 Terms Of Employment.....................................................13
SECTION THREE CONTRIBUTIONS...........................................................13
3.01 Employer Contributions..................................................13
3.02 Employee Contributions..................................................17
3.03 Rollover Contributions..................................................17
3.04 Transfer Contributions..................................................18
3.05 Limitation On Allocations...............................................18
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION.......................25
4.01 Individual Accounts.....................................................25
4.02 Valuation Of Fund.......................................................25
4.03 Valuation Of Individual Accounts........................................25
4.04 Segregation Of Assets...................................................26
4.05 Statement Of Individual Accounts........................................26
4.06 Modification Of Method For Valuing Individual Accounts..................27
SECTION FIVE TRUSTEE OR CUSTODIAN....................................................27
5.01 Creation Of Fund........................................................27
5.02 Investment Authority....................................................27
5.03 Financial Organization Custodian Or Trustee Without Full Trust Powers...27
5.04 Financial Organization Trustee With Full Trust Powers And Individual
Trustee.................................................................29
5.05 Division Of Fund Into Investment Funds..................................31
5.06 Compensation And Expenses...............................................31
5.07 Not Obligated To Question Data..........................................32
5.08 Liability For Withholding On Distributions..............................32
5.09 Resignation Or Removal Of Trustee (Or Custodian)........................32
5.10 Degree Of Care..........................................................33
5.11 Indemnification Of Regional Prototype Sponsor And Trustee (Or Custodian)33
5.12 Investment Managers.....................................................34
5.13 Matters Relating To Insurance...........................................35
5.14 Direction Of Investments By Participant.................................36
SECTION SIX VESTING AND DISTRIBUTION................................................36
6.01 Distribution To Participant.............................................36
6.02 Form Of Distribution To A Participant...................................41
6.03 Distributions Upon The Death Of A Participant...........................42
6.04 Form Of Distribution To Beneficiary.....................................43
6.05 Joint And Survivor Annuity Requirements.................................44
6.06 Distribution Requirements...............................................50
6.07 Annuity Contracts.......................................................56
6.08 Loans To Participants...................................................56
6.09 Distribution In Kind....................................................57
6.10 Direct Rollovers Of Eligible Rollover Distributions.....................57
SECTION SEVEN CLAIMS PROCEDURE........................................................59
7.01 Filing A Claim For Plan Distributions...................................59
7.02 Denial Of Claim.........................................................59
7.03 Remedies Available......................................................59
SECTION EIGHT PLAN ADMINISTRATOR......................................................59
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
8.01 Employer Is Plan Administrator..........................................59
8.02 Powers And Duties Of The Plan Administrator.............................60
8.03 Expenses And Compensation...............................................61
8.04 Information From Employer...............................................61
SECTION NINE AMENDMENT AND TERMINATION...............................................62
9.01 Right Of Regional Prototype Sponsor To Amend The Plan...................62
9.02 Right Of Employer To Amend The Plan.....................................62
9.03 Limitation On Power To Amend............................................63
9.04 Amendment Of Vesting Schedule...........................................63
9.05 Permanency..............................................................63
9.06 Method And Procedure For Termination....................................64
9.07 Continuance Of Plan By Successor Employer...............................64
9.08 Failure Of Plan Qualification...........................................64
SECTION TEN MISCELLANEOUS...........................................................64
10.01 State Community Property Laws...........................................64
10.02 Headings................................................................64
10.03 Gender And Number.......................................................65
10.04 Plan Merger Or Consolidation............................................65
10.05 Standard Of Fiduciary Conduct...........................................65
10.06 General Undertaking Of All Parties......................................65
10.07 Agreement Binds Heirs, Etc..............................................65
10.08 Determination Of Top-Heavy Status.......................................65
10.09 Special Limitations For Owner-Employees.................................68
10.10 Inalienability Of Benefits..............................................69
SECTION ELEVEN 401(K) PROVISIONS.......................................................69
11.100 Definitions.............................................................69
11.101 Actual Deferral Percentage (ADP)........................................69
11.102 Aggregate Limit.........................................................70
11.103 Average Contribution Percentage (ACP)...................................70
11.104 Contributing Participant................................................70
11.105 Contribution Percentage.................................................70
11.106 Contribution Percentage Amounts.........................................70
11.107 Elective Deferrals......................................................71
11.108 Eligible Participant....................................................71
11.109 Employee Contribution...................................................71
11.110 Excess Aggregate Contributions..........................................71
11.111 Excess Contributions....................................................72
11.112 Excess Elective Deferrals...............................................72
11.113 Matching Contribution...................................................72
11.114 Qualified Nonelective Contributions.....................................72
11.115 Qualified Matching Contributions........................................73
11.200 Contributing Participant................................................73
11.201 Requirements To Enroll As A Contributing Participant....................73
11.202 Modification Of Salary Reduction Agreement By a Contributing
Participant............................................................73
11.203 Withdrawal As A Contributing Participant................................73
11.204 Return As A Contributing Participant after Withdrawal...................74
11.300 Contributions...........................................................74
11.301 Contribution By Employer................................................74
11.302 Qualified Nonelective Contributions.....................................74
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
11.303 Qualified Matching Contributions........................................74
11.304 Employee Contributions..................................................74
11.400 Nondiscrimination Testing...............................................75
11.401 Actual Deferral Percentage (ADP) Test...................................75
11.402 Limits On Employee Contributions And Matching Contributions.............77
11.500 Distribution Provisions.................................................79
11.501 General Rule............................................................79
11.502 Distribution Requirements...............................................79
11.503 Hardship Distribution...................................................79
11.504 Distribution Of Excess Elective Deferrals...............................80
11.505 Distribution Of Excess Contributions....................................81
11.506 Distribution Of Excess Aggregate Contributions..........................82
11.507 Recharacterization......................................................83
11.508 Distribution Of Elective Deferrals if Excess Annual Additions...........84
11.600 Vesting.................................................................84
11.601 100% Vesting On Certain Contributions...................................84
11.602 Forfeitures And Vesting Of Matching Contributions.......................84
</TABLE>
iv
<PAGE> 6
QUALIFIED RETIREMENT PLAN AND TRUST
DEFINED CONTRIBUTION BASIC PLAN DOCUMENT 01
================================================================================
SECTION ONE
DEFINITIONS
The following words and phrases when used in the Plan with initial
capital letters shall, for the purpose of this Plan, have the meanings
set forth below unless the context indicates that other meanings are
intended:
1.01 ADOPTION AGREEMENT
Means the document executed by the Employer through which it adopts the
Plan and Trust and thereby agrees to be bound by all terms and
conditions of the Plan and Trust.
1.02 BASIC PLAN DOCUMENT
Means this regional prototype Plan and Trust document.
1.03 BREAK IN ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with an Eligibility
Computation Period during which an Employee fails to complete more than
500 Hours of Service (or such lesser number of Hours of Service
specified in the Adoption Agreement for this purpose).
1.04 BREAK IN VESTING SERVICE
Means a Plan Year during which an Employee fails to complete more than
500 Hours of Service (or such lesser number of Hours of Service
specified in the Adoption Agreement for this purpose).
1.05 CODE
Means the Internal Revenue Code of 1986 as amended from time-to-time.
1.06 COMPENSATION
For Plan Years beginning on or after January 1, 1989, the following
definition of Compensation shall apply:
Unless another definition of Compensation is selected in the Adoption
Agreement, Compensation will mean all of each Participant's W-2
earnings. For any Self-Employed Individual covered under the Plan,
Compensation will mean Earned Income.
<PAGE> 7
Compensation shall include only that Compensation which is actually paid
to the Participant during the applicable period. Except as provided
elsewhere in this Plan, the applicable period shall be the Plan Year
unless the Employer has selected another period in the Adoption
Agreement.
Unless otherwise indicated in the Adoption Agreement, Compensation shall
include any amount which is contributed by the Employer pursuant to a
salary reduction agreement and which is not includible in the gross
income of the Employee under Sections 125, 402(a)(8), 402(h) or 403(b))
of the Code.
The annual Compensation of each Participant taken into account under the
Plan for any year shall not exceed $200,000, as adjusted by the
Secretary at the same time and in the same manner as under Section
415(d) of the Code. In determining the Compensation of a Participant for
purposes of this limitation, the rules of Section 414(q)(6) of the Code
shall apply, except in applying such rules, the term "family" shall
include only the spouse of the Participant and any lineal descendants of
the Participant who have not attained age 19 before the dose of the
year.
If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then (except for purposes of determining the
portion of Compensation up to the integration level if this Plan
provides for permitted disparity), the limitation shall be prorated
among the affected individuals in proportion to each such individual's
Compensation as determined under this Section prior to the application
of this limitation.
Unless otherwise indicated in the Adoption Agreement, where an Employee
enters the Plan (and thus becomes a Participant) on an Entry Date other
than the first Entry Date in a Plan Year, his Compensation will not
include any earnings paid to him before the Employee enters the Plan.
However, if this Plan is a 401(k) plan as indicated in the Adoption
Agreement, a Participant's Compensation for purposes of the Actual
Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests
described in Sections 11.401 and 11.402, respectively, shall be his
earnings for the entire Plan Year. (Pursuant to Section 5.03 of Revenue
Procedure 89~5, the preceding sentence shall not apply for Plan Years
beginning before the later of January 1, 1992 or the date that is 60
days after the publication by the Secretary of final regulations under
Sections 401(k) and 401(m) of the Code.)
Where this Plan is being adopted as an amendment and restatement to
bring a Prior Plan into compliance with the Tax Reform Act of 1986, such
Prior Plan's definition of Compensation shall apply for Plan Years
beginning before January 1, 1989.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for
Plan Years beginning on or after January 1, 1994, the annual
Compensation of each Employee taken into account under the Plan shall
not exceed the OBRA '93 annual
2
<PAGE> 8
Compensation limit. The OBRA '93 annual Compensation limit is $150,000,
as adjusted by the Commissioner for increases in the cost of living in
accordance with Section 401(a)(17)(B) of the Internal Revenue Code. The
cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93
annual Compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period,
and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Section 401(a)(17) of the Code shall
mean the OBRA '93 annual Compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account
in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the
OBRA '93 annual Compensation limit in effect for that prior
determination period. For this purpose, for determination periods
beginning before the first day of the first Plan Year beginning on or
after January 1, 1994, the OBRA '93 annual Compensation limit is
$150,000.
1.07 CUSTODIAN
Means an entity specified in the Adoption Agreement as Custodian or any
duly appointed successor as provided in Section 5.09.
1.08 DISABILITY
Means the inability to engage in any substantial, gainful activity by
reason of any medically determinable physical or mental impairment that
can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12 months. The
permanence and degree of such impairment shall be supported by medical
evidence.
1.09 EARNED INCOME
Means the net earnings from self-employment in the trade or business
with respect to which the Plan is established, for which personal
services of the individual are a material income-producing factor. Net
earnings will be determined without regard to items not included in
gross income and the deductions allocable to such items. Net earnings
are reduced by contributions by the Employer to a qualified plan to the
extent deductible under Section 404 of the Code.
Net earnings shall be determined with regard to the deduction allowed to
the Employer by Section 164(f) of the Code for taxable years beginning
after December 31, 1989.
3
<PAGE> 9
1.10 EFFECTIVE DATE
Means the date the Plan becomes effective as indicated in the Adoption
Agreement. However, where a separate date is stated in the Plan as of
which a particular Plan provision becomes effective, such date will
control with respect to that provision.
1.11 ELIGIBILITY COMPUTATION PERIOD
An Employee's initial Eligibility Computation Period shall be the 12
consecutive month period commencing with the date such Employee first
performs an Hour of Service (employment commencement date). His
subsequent Eligibility Computation Periods shall be the 12 consecutive
month periods commencing on the anniversaries of his employment
commencement date; provided, however, if pursuant to the Adoption
Agreement, an Employee is required to complete one or less Years of
Eligibility Service to become a Participant, then his subsequent
Eligibility Computation Periods shall be the Plan Years commencing with
the Plan Year beginning during his initial Eligibility Computation
Period.
1.12 EMPLOYEE
Means any person employed by the Employer maintaining the Plan or of any
other employer required to be aggregated with such Employer under
Sections 414(b), (c), (m) or (o) of the Code.
The term Employee shall also include any Leased Employee deemed to be an
Employee of any Employer described in the previous paragraph as provided
in Sections 414(n) or (o) of the Code.
1.13 EMPLOYER
Means any corporation, partnership, sole-proprietorship or other entity
named in the Adoption Agreement and any successor who by merger,
consolidation, purchase or otherwise assumes the obligations of the
Plan. A partnership is considered to be the Employer of each of the
partners and a sole-proprietorship is considered to be the Employer of a
sole proprietor.
1.14 EMPLOYER CONTRIBUTION
Means the amount contributed by the Employer each year as determined
under this Plan.
1.15 ENTRY DATES
Means the first day of the Plan Year and the first day of the seventh
month of the Plan Year, unless the Employer has specified more frequent
dates in the Adoption Agreement.
4
<PAGE> 10
1.16 ERISA
Means the Employee Retirement Income Security Act of 1974 as amended
from time-to-time.
1.17 FORFEITURE
Means that portion of a Participant's Individual Account as derived from
Employer Contributions which he or she is not entitled to receive (i.e.,
the nonvested portion).
1.18 FUND
Means the Plan assets held by the Trustee or Custodian for the
Participants' exclusive benefit.
1.19 HIGHLY COMPENSATED EMPLOYEE
The term Highly Compensated Employee includes highly compensated active
employees and highly compensated former employees.
A highly compensated active employee includes any Employee who performs
service for the Employer during the determination year and who, during
the look-back year (a) received Compensation from the Employer in excess
of $75,000 (as adjusted pursuant to Section 415(d) of the Code); (0)
received Compensation from the Employer in excess of $50,000 (as
adjusted pursuant to Section 415(d) of the Code) and was a member of the
top-paid group for such year; or (c) was an officer of the Employer and
received Compensation during such year that is greater than 50% of the
dollar limitation in effect under Section 415(0)~)(A) of the Code. The
term Highly Compensated Employee also includes: (a) Employees who are
both described in the preceding sentence if the term "determination
year" is substituted for the term "look-back year" and the Employee is
one of the 100 Employees who received the most Compensation from the
Employer during the determination year; and (b) Employees who are 5%
owners at any time during the look-back year or determination year.
If no officer has satisfied the Compensation requirement of (c) above
during either a determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the 12 month period immediately preceding the
determination year.
A highly compensated former employee includes any Employee who separated
from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active employee for
either the separation year or any determination year ending on or after
the Employee's 55th birthday.
5
<PAGE> 11
If an Employee is, during a determination year or look-back year, a
family member of either a 5% owner who is an active or former Employee
or a Highly Compensated Employee who is one of the 10 most Highly
Compensated Employees ranked on the basis of Compensation paid by the
Employer during such year, then the family member and the 5% owner or
top 10 Highly Compensated Employee shall be aggregated. In such case,
the family member and 5% owner or top 10 Highly Compensated Employee
shall be treated as a single Employee receiving Compensation and Plan
contributions or benefits equal to the sum of such Compensation and
contributions or benefits of the family member and 5% owner or top 10
Highly Compensated Employee. For purposes of this Section, family member
includes the spouse, lineal ascend ants and descendants of the Employee
or former Employee and the spouses of such lineal ascendants and
descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid
group, the top 100 Employees, the number of Employees treated as
officers and the Compensation that is considered, will be made in
accordance with Section 414(q) of the Code and the regulations
thereunder.
1.20 HOURS OF SERVICE - MEANS
A. Each hour for which an Employee is paid, or entitled to payment, for
the performance of duties for the Employer. These hours will be
credited to the Employee for the computation period in which the
duties are performed; and
B. Each hour for which an Employee is paid, or entitled to payment, by
the Employer on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty or leave of
absence. No more than 501 Hours of Service will be credited under
this paragraph for any single continuous period (whether or not such
period occurs in a single computation period). Hours under this
paragraph shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which is
incorporated herein by this reference; and
C. Each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Employer. The same Hours of
Service will not be credited both under paragraph (A) or paragraph
(B), as the case may be, and under this paragraph (C). These hours
will be credited to the Employee for the computation period or
periods to which the award or agreement pertains rather than the
computation period in which the award, agreement, or payment is made.
D. Solely for purposes of determining whether a Break in Eligibility
Service or a Break in Vesting Service has occurred in a computation
period (the computation period for purposes of determining whether a
Break in Vesting Service has occurred is the Plan Year), an
individual who is absent from work for maternity or paternity reasons
shall
6
<PAGE> 12
receive credit for the Hours of Service which would otherwise have
been credited to such individual but for such absence, or in any
case in which such hours cannot be determined, 8 Hours of Service
per day of such absence. For purposes of this paragraph, an absence
from work for maternity or paternity reasons means an absence (1) by
reason of the pregnancy of the individual, (2) by reason of a birth
of a child of the individual, (3) by reason of the placement of a
child with the individual in connection with the adoption of such
child by such individual, or (4) for purposes of caring for such
child for a period beginning immediately following such birth or
placement. The Hours of Service credited under this paragraph shall
be credited (1) in the Eligibility Computation Period or Plan Year
in which the absence begins if the crediting is necessary to prevent
a Break in Eligibility Service or a Break in Vesting Service in the
applicable period, or (2) in all other cases, in the following
Eligibility Computation Period or Plan Year.
E. Hours of Service will be credited for employment with other
members of an affiliated service group (under Section 414(m) of the
Code), a controlled group of corporations (under Section ~4(0) of
the Code), or a group of trades or businesses under common control
(under Section ~4(c) of the Code) of which the adopting Employer is
a member, and any other entity required to be aggregated with the
Employer pursuant to Section 414(0) of the Code and the regulations
thereunder.
Hours of Service will also be credited for any individual considered
an Employee for purposes of this Plan under Code Sections 414(n) or
414(0) and the regulations thereunder.
F. Where the Employer maintains the plan of a predecessor employer,
service for such predecessor employer shall be treated as service
for the Employer. Where the Employer does not maintain the plan of a
predecessor employer and has indicated in the Adoption Agreement
that Employees shall be given credit for Hours of Service with a
specified predecessor employer(s), then service with such specified
predecessor employer(s) shall be treated as service with the
Employer.
G. The above method for determining Hours of Service may be altered as
specified in the Adoption Agreement.
1.21 INDIVIDUAL ACCOUNT
Means the account established and maintained under this Plan for each
Participant in accordance with Section 4.01.
1.22 INVESTMENT FUND
Means a subdivision of the Fund established pursuant to Section 5.05.
7
<PAGE> 13
1.23 KEY EMPLOYEE
Means any person who is determined to be a Key Employee under Section
1.24 LEASED EMPLOYEE
Means any person (other than an Employee of the recipient) who pursuant
to an agreement between the recipient and any other person ("leasing
organization") has performed services for the recipient (or for the
recipient and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full time basis for a period
of at least one year, and such services are of a type historically
performed by Employees in the business field of the recipient Employer.
Contributions or benefits provided a Leased Employee by the leasing
organization which are attributable to services performed for the
recipient Employer shall be treated as provided by the recipient
Employer.
A Leased Employee shall not be considered an Employee of the recipient
if: (1) such employee is covered by a money purchase pension plan
providing: (a) a nonintegrated employer contribution rate of at least
10% of compensation, as defined in Section ~5(c)(3) of the Code, but
including amounts contributed pursuant to a salary reduction agreement
which are excludible from the employee's gross income under Section 125,
Section 402(a)(8), Section 402(h) or Section 403(0) of the Code, (0)
immediate participation, and (c) full and immediate vesting; and (2)
Leased Employees do not constitute more 200/,, of the recipient's
nonhighly compensated work force.
1.25 NORMAL RETIREMENT AGE
Means the age specified in the Adoption Agreement. However, if the
Employer enforces a mandatory retirement age which is less than the
Normal Retirement Age, such mandatory age is deemed to be the Normal
Retirement Age. If no age is specified in the Adoption Agreement, the
Normal Retirement Age shall be age 59 1/2.
1.26 OWNER-EMPLOYEE
Means an individual who is a sole proprietor, or who is a partner owning
more than 10% of either the capital or profits interest of the
partnership.
1.27 PARTICIPANT
Means any Employee or former Employee of the Employer who has met the
Plan's eligibility requirements, has entered the Plan and who is or may
become eligible to receive a benefit of any type from this Plan or whose
Beneficiary may be eligible to receive any such benefit.
8
<PAGE> 14
1.28 PLAN
Means the regional prototype defined contribution plan adopted by the
Employer. The Plan consists of this Basic Plan Document plus the
corresponding Adoption Agreement as completed and signed by the
Employer.
1.29 PLAN ADMINISTRATOR
Means the person or persons determined to be the Plan Administrator in
accordance with Section 8.01.
1.30 PLAN YEAR
Means the 12 consecutive month period which coincides with the
Employer's tax year or such other 12 consecutive month period as is
designated in the Adoption Agreement.
1.31 PRIOR PLAN
Means a plan which was amended or replaced by adoption of this Plan
document, as indicated in the Adoption Agreement.
1.32 REGIONAL PROTOTYPE SPONSOR
Means the entity specified in the Adoption Agreement. Such entity must
meet the definition of sponsor firm set forth in Section 4.03 of Revenue
Procedure 89-13.
1.33 SELF-EMPLOYED INDIVIDUAL
Means an individual who has Earned Income for the taxable year from the
trade or business for which the Plan is established also, an individual
who would have had Earned Income but for the fact that the trade or
business had no net profits for the taxable year.
1.34 SEPARATE FUND
Means a subdivision of the Fund held in the name of a particular
Participant representing certain assets held for that Participant. The
assets which comprise a Participant's Separate Fund are those assets
earmarked for him and those assets subject to the Participant's
individual direction pursuant to Section 5J4.
1.35 TAXABLE WAGE BASE
Means, with respect to any taxable year, the maximum amount of earnings
which may be considered wages for such year under Section 3121(a) of
the Code.
9
<PAGE> 15
1.36 TERMINATION OF EMPLOYMENT
A Termination of Employment of an Employee of an Employer shall occur
whenever his status as an Employee of such Employer ceases for any
reason other than his death. An Employee who does not return to work for
the Employer on or before the expiration of an authorized leave of
absence from such Employer shall be deemed to have incurred a
Termination of Employment when such leave ends.
1.37 TOP-HEAVY PLAN
This Plan is a Top-Heavy Plan for any Plan Year if it is determined to
be such pursuant to Section 10.08.
1.38 TRUSTEE
Means an individual, individuals or corporation specified in the
Adoption Agreement as Trustee or any duly appointed successor as
provided in Section 5.09. Trustee shall mean Custodian in the event the
financial organization named as Trustee does not have full trust powers.
1.39 VALUATION DATE
Means the last day of the Plan Year and each other date designated by
the Plan Administrator which is selected in a uniform and
nondiscriminatory manner when the assets of the Fund are valued at their
then fair market value.
1.40 VESTED
Means nonforfeitable, that is, a claim which is unconditional and
legally enforceable against the Plan obtained by a Participant or his
Beneficiary to that part of an immediate or deferred benefit under the
Plan which arises from a Participant's Years of Vesting Service.
1.41 YEAR OF ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with an Eligibility
Computation period during which an Employee completes at least 1,000
Hours of Service (or such lesser number of Hours of Service specified in
the Adoption Agreement for this purpose).
1.42 YEAR OF VESTING SERVICE
Means a Plan Year during which an Employee completes at least 1,000
Hours of Service (or such lesser number of Hours of Service specified in
the Adoption Agreement for this purpose).
In the case of a Participant who has 5 or more consecutive Breaks in
Vesting Service, all Years of Vesting Service after such Breaks in
Vesting Service will be disregarded for the
10
<PAGE> 16
purpose of determining the Vested portion of his Individual Account
derived from Employer Contributions that accrued before such breaks.
Such Participant's prebreak service will count in vesting the postbreak
Individual Account derived from Employer Contributions only if either:
(A) such Participant had any Vested right to any portion of his
Individual Account derived from Employer Contributions at the
time of his Termination of Employment; or
(B) upon returning to service, the number of consecutive Breaks in
Vesting Service is less than his number of Years of Vesting Service
before such breaks.
Separate subaccounts will be maintained for the Participant's prebreak
and postbreak portions of his Individual Account derived from Employer
Contributions. Both subaccounts will share in the gains and losses of
the Fund.
Years of Vesting Service shall not include any period of time excluded
from Years of Vesting Service in the Adoption Agreement.
In the event the Plan Year is changed to a new 12-month period,
Employees shall receive credit for Years of Vesting Service, in
accordance with the preceding provisions of this definition, for each of
the Plan Years (the old and new Plan Years) which overlap as a result of
such change.
SECTION TWO
ELIGIBILITY AND PARTICIPATION
2.01 ELIGIBILITY TO PARTICIPATE
Each Employee of the Employer, except those Employees who belong to a
class of Employees which is excluded from participation as indicated in
the Adoption Agreement, shall be eligible to participate in this Plan
upon the satisfaction of the age and Years of Eligibility Service
requirements specified in the Adoption Agreement.
2.02 PLAN ENTRY
A. If this Plan is a replacement of a Prior Plan by amendment or
restatement, each Employee of the Employer who was a Participant in
said Prior Plan before the Effective Date shall continue to be a
Participant in this Plan.
B. An Employee will become a Participant in the Plan as of the Effective
Date if he has met the eligibility requirements of Section 2.01 as of
such date. After the Effective Date, each Employee shall become a
Participant on the first Entry Date following the date the Employee
satisfies the eligibility requirements of Section 2.01.
C. The Plan Administrator shall notify each Employee who becomes
eligible to be a Participant under this Plan and shall furnish him
with the application form,
11
<PAGE> 17
enrollment forms or other documents which are required of
Participants. The eligible Employee shall execute such forms or
documents and make available such information as may be required in
the administration of the Plan.
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS
If an Employee who had been a Participant becomes ineligible to
participate because he is no longer a member of an eligible class of
Employees, but has not incurred a Break in Eligibility Service, such
Employee shall participate immediately upon his return to an eligible
class of Employees. If such Employee incurs a Break in Eligibility
Service, his eligibility to participate shall be determined by Section
2.04.
An Employee who is not a member of the eligible class of Employees will
become a Participant immediately upon becoming a member of the eligible
class provided such Employee has satisfied the age and Years of
Eligibility Service requirements. If such Employee has not satisfied the
age and Years of Eligibility Service requirements as of the date he
becomes a member of the eligible class, he shall become a Participant on
the first Entry Date following the date he satisfies said requirements.
2.04 RETURN AS A PARTICIPANT AFTER BREAK IN ELIGIBILITY SERVICE
A. EMPLOYEE NOT PARTICIPANT BEFORE BREAK - If an Employee incurs a Break
in Eligibility Service before satisfying the Plan's eligibility
requirements, such Employee's Years of Eligibility Service before
such Break in Eligibility Service will not be taken into account.
B. NONVESTED PARTICIPANTS - In the case of a Participant who does not
have a Vested interest in his Individual Account derived from
Employer Contributions, Years of Eligibility Service before a period
of consecutive Breaks in Eligibility Service will not be taken into
account for eligibility purposes if the number of consecutive Breaks
in Eligibility Service in such period equals or exceeds the greater
of 5 or the aggregate number of Years of Eligibility Service before
such break. Such aggregate number of Years of Eligibility Service
will not include any Years of Eligibility Service disregarded under
the preceding sentence by reason of prior breaks.
If a Participant's Years of Eligibility Service are disregarded
pursuant to the preceding paragraph, such Participant will be treated
as a new Employee for eligibility purposes. If a Participant's Years
of Eligibility Service may not be disregarded pursuant to the
preceding paragraph, such Participant shall continue to participate
in the Plan, or, if terminated, shall participate immediately upon
reemployment.
C. VESTED PARTICIPANTS - A Participant who has sustained a Break in
Eligibility Service and who had a Vested interest in all or a portion
of his Individual Account derived from Employer Contributions shall
continue to participate in the Plan, or, if terminated, shall
participate immediately upon reemployment.
12
<PAGE> 18
2.05 DETERMINATIONS UNDER THIS SECTION
The Plan Administrator shall determine the eligibility of each Employee
to be a Participant. This determination shall be conclusive and binding
upon all persons except as otherwise provided herein or by law.
2.06 TERMS OF EMPLOYMENT
Neither the fact of the establishment of the Plan nor the fact that a
common law Employee has become a Participant shall give to that common
law Employee any right to continued employment; nor shall either fact
limit the right of the Employer to discharge or to deal otherwise with a
common law Employee without regard to the effect such treatment may have
upon the Employee's rights under the Plan.
SECTION THREE
CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS
A. OBLIGATION TO CONTRIBUTE - The Employer shall make contributions to
the Plan in accordance with the contribution formula specified in the
Adoption Agreement. If this Plan is a profit sharing plan, the
Employer shall, in its sole discretion, make contributions without
regard to current or accumulated earnings or profits.
B. ALLOCATION FORMULA AND THE RIGHT TO SHARE IN THE EMPLOYER
CONTRIBUTION -
1. General - The Employer Contribution for a Plan Year will he
allocated or contributed to the Individual Accounts of qualifying
Participants in accordance with the allocation or contribution
formula specified in the Adoption Agreement. The Employer
Contribution for any Plan Year will be allocated to each
Participant's Individual Account as of the last day of that Plan
Year.
2. Qualifying Participants - A Participant is a qualifying
Participant and is entitled to share in the Employer Contribution
for any Plan Year if ~) he was a Participant on at least one day
during the Plan Year, (2) if this Plan is a nonstandardized plan,
he completes a Year of Vesting Service during the Plan Year and
(3) where the Employer has selected the "last day requirement" in
the Adoption Agreement, he is an Employee of the Employer on the
last day of the Plan Year (except that this last requirement (3)
shall not apply if the Participant has died during the Plan Year
or incurred a Termination of Employment during the Plan year
after having reached his Normal Retirement Age or having incurred
a Disability). Notwithstanding anything in this paragraph to the
contrary, a Participant will not be a qualifying Participant for
a Plan Year if he incurs a Termination of Employment during such
Plan Year with not more than 500 Hours of Service if he is not an
Employee on the last day of the Plan Year. The determination of
13
<PAGE> 19
whether a Participant is entitled to share in the Employer
Contribution shall be made as of the last day of each Plan Year.
3. Special Rules for Integrated Plans - If the Employer has selected
the integrated contribution or allocation formula in the Adoption
Agreement, then the maximum disparity rate shall be determined in
accordance with the following table.
MAXIMUM DISPARITY RATE
<TABLE>
<CAPTION>
Top-Heavy Nonstandardized and
Integration Level Money Purchase Profit Nontop-Heavy Profit
Sharing Sharing
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable Wage Base (TWB) 5.7% 2.7% 5.7%
More than $0 but not more than X* 5.7% 2.7% 5.7%
More than X* of TWB but not more
than 80% of TWB 4.3% 1.3% 4.3%
More than 80% of TWB but not more
than TWB 5.4% 2.4% 5.4%
*X means the greater of $10,000 or 20% of TWB.
</TABLE>
C. ALLOCATION OF FORFEITURES - Forfeitures for a Plan Year which arise
as a result of the application of Section 6.01(D) shall be allocated
as follows:
1. Profit Sharing Plan - If this is a profit sharing plan,
Forfeitures shall be allocated in the manner provided in Section
3.01(B) (for Employer Contributions) to the Individual Accounts
of Participants who are entitled to share in the Employer
Contribution for such Plan Year.
2. Money Purchase Pension and Target Benefit Plan - If this Plan is
a money purchase pension plan or a target benefit plan,
Forfeitures shall be applied towards the reduction of Employer
Contributions to the Plan. However, if the Employer has indicated
in the Adoption Agreement that Forfeitures shall be allocated to
the Individual Accounts of Participants, then Forfeitures shall
be allocated in the manner provided in Section 3.01 (B) (for
Employer Contributions) to the Individual Accounts of
Participants who are entitled to share in the Employer
Contributions for such Plan' Year.
D. TIMING OF EMPLOYER CONTRIBUTION - The Employer Contribution for each
Plan Year shall be delivered to the Trustee (or Custodian, if
applicable) not later than the due date for filing the Employer's
income tax return for its fiscal year in which' the Plan Year ends,
including extensions thereof.
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<PAGE> 20
E. MINIMUM ALLOCATION FOR TOP-HEAVY PLANS - The contribution and
allocation provisions of this Section 3.01(E) shall apply for any
Plan Year with respect to which this Plan is a Top-Heavy Plan.
1. Except as otherwise provided in (3) and (4) below, the Employer
Contributions and Forfeitures allocated on behalf of any
Participant who is not a Key Employee shall not be less than the
lesser of 3% of such Participant's Compensation or (in the case
where the Employer has no defined benefit plan which designates
this Plan to satisfy Section 401 )I it' Code) the largest
percentage of Employer Contributions and Forfeitures, as a
percentage of the first $200,000 (iii-creased by any cost of
living adjustment made by the Secretary of Treasury or his
delegate) of the Key Employee's Compensation, allocated on behalf
of any Key Employee for that year. The minimum allocation is
determined will,, regard to any Social Security contribution.
This minimum allocation shall be made even though under other
Plan provisions, the Participant would not otherwise be entitled
to receive an allocation, or would have received a lesser
allocation for the year because of (a) the Participant's failure
to complete 1,000 Hours of Service (or any equivalent provided in
the Plan), or (b) the Participant's failure to make mandatory
Employee Contributions to the Plan, or (c) Compensation less than
a stated amount.
2. For purposes of computing the minimum allocation, Compensation
shall mean Compensation as defined in Section 1.06 of the Plan.
3. The provision in (1) above shall not apply to any Participant who
was not employed by the Employer on the last day of the Plan
Year.
4. The provision in (1) above shall not apply to any Participant to
the extent the Participant is covered under any other plan or
plans of the Employer and the Employer has provided in the
Adoption Agreement that the minimum allocation or benefit
requirement applicable to Top-Heavy Plans will be met in the
other plan or plans.
5. The minimum allocation required under this Section 3.01(E) and
Section 3.01(F)(1) (to the extent required to be nonforfeitable
under Code Section 416(b)) may not be forfeited under Code
Section 411(a)(3)(B) or 411(a)(3)(D).
F. SPECIAL REQUIREMENTS FOR PAIRED PLANS - The Employer maintains paired
plans if the Employer has adopted both a standardized profit sharing
plan and a standardized money purchase pension plan using this Basic
Plan Document.
1. Minimum Allocation - The mandatory minimum allocation provision
of Section 3.01(E) shall not apply to any Participant if the
Employer maintains paired plans. Rather, the following rules will
apply when the plans are Top-Heavy. For each Plan Year, the
Employer will provide the minimum contribution described in
Section 3.01(E) for each non-Key Employee who is entitled to a
15
<PAGE> 21
minimum contribution. Such minimum contribution will only be made
to one of the Plans. If an Employee is a Participant in only one
of the Plans, the minimum contribution shall be made to that
Plan. If the Employee is a Participant in both Plans, the minimum
contribution shall be made to the money purchase plan.
2. Only One Plan Can Be Integrated - If the Employer maintains
paired plans, only one of the Plans may provide for the disparity
in contributions which is permitted under Section 401(1) of the
Code. In the event that both Adoption Agreements provide for such
integration, only the money purchase pension plan shall be deemed
to be integrated.
G. RETURN OF THE EMPLOYER CONTRIBUTION TO THE EMPLOYER UNDER SPECIAL
CIRCUMSTANCES Any contribution made by the Employer because of a
mistake of fact must be returned to the Employer within one year of
the contribution.
In the event that the Commissioner of Internal Revenue determines
that the Plan is not initially qualified under the Code, any
contributions made incident to that initial qualification by the
Employer must be returned to the Employer within one year after the
date the initial qualification is denied, but only if the application
for qualification is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the Plan is
adopted, or such later date as the Secretary of the Treasury may
prescribe.
In the event that a contribution made by the Employer under this Plan
is conditioned on deductibility and is not deductible under Code
Section 404, the contribution, to the extent of the amount
disallowed, must be returned to the Employer within one year after
the deduction is disallowed.
H. OMISSION OF PARTICIPANT
1. If the Plan is a money purchase plan or a target benefit plan
and, if in any Plan Year, any Employee who should be included as
a Participant is erroneously omitted and discovery of such
omission is not made until after a contribution by the Employer
for the year has been made and allocated, the Employer shall make
a subsequent contribution with respect to the omitted Employee in
the amount which the Employer would have contributed with respect
to that Employee had he not been omitted.
2. If the Plan is a profit sharing plan, and if in any Plan Year,
any Employee who should be included as a Participant is
erroneously omitted and discovery of such omission is not made
until after the Employer Contribution has been made and
allocated, then the Plan Administrator must re-do the allocation
(if a correction can be made) and inform the Employee.
Alternatively, the Employer may choose to contribute for the
omitted Employee the amount which the Employer would have
contributed for him.
16
<PAGE> 22
3.02 EMPLOYEE CONTRIBUTIONS
This Plan will not accept nondeductible employee contributions and
matching contributions for Plan Years beginning after the Plan Year in
which this Plan is adopted by the Employer. Employee contributions for
Plan Years beginning after December 31, 1986, together with any matching
contributions as defined in Section 4~(m) of the Code, will be limited
so as to meet the nondiscrimination test of Section 401(m) of the Code.
A separate account will be maintained by the Plan Administrator for the
nondeductible employee contributions of each Participant.
A Participant may, upon a written request submitted to the Plan
Administrator, withdraw the lesser of the portion of his Individual
Account attributable to his nondeductible employee contributions or the
amount he contributed as nondeductible employee contributions.
Employee contributions and earnings thereon will be nonforfeitable at
all times. No Forfeiture will occur solely as a result of an Employee's
withdrawal of employee contributions.
The Plan Administrator will not accept deductible employee contributions
which are made for a taxable year beginning after December 31, 1986.
Contributions made prior to that date will be maintained in a separate
account which will be non-forfeitable at all times. The account will
share in the gains and losses of the Fund in the same manner as
described in Section 4.03 of the Plan. No part of the deductible
employee contribution account will be used to purchase life insurance.
Subject to Section 6.05, joint and survivor annuity requirements (if
applicable), the Participant may withdraw any part of the deductible
employee contribution account by making a written application to the
Plan Administrator.
3.03 ROLLOVER CONTRIBUTIONS
If the Plan Administrator so permits in a uniform and nondiscriminatory
manner, a Participant may contribute a rollover contribution to the
Plan; provided that such Employee submits a written certification,
satisfactory to the Trustee (or Custodian), that the contribution
qualifies as a rollover contribution.
A separate account shall be maintained by the Plan Administrator for
each Participant's rollover contributions which will be nonforfeitable
at all times. Such account will share in the income and gains and losses
of the Fund in the manner described in Section 4.03 and shall be subject
to the Plan's provisions governing distributions.
For purposes of this Section 3.03, "rollover contribution" means a
contribution described in Sections 402(a)(5), 403(a)(4) or 408(d)(3) of
the Code or in any other provision which may be added to the Code which
may authorize rollovers to the Plan
17
<PAGE> 23
3.04 TRANSFER CONTRIBUTIONS
If the Plan Administrator so permits in a uniform and nondiscriminatory
manner, the Trustee (or Custodian, if applicable) may receive any
amounts transferred to it from the trustee or custodian of another plan
qualified under Code Section 401(a).
A separate account shall be maintained by the Plan Administrator for
each Participant's transfer contributions which will be nonforfeitable
at all times. Such account will share in the income and gains and losses
of the Fund in the manner described ii Section 4.03 and shall be subject
to the Plan's provisions governing distributions.
3.05 LIMITATION ON ALLOCATIONS
A. If the Participant does not participate in, and has never
participated in another qualified plan maintained by the Employer or
a welfare benefit fund, as defined in Section 419(e) of the Code
maintained by the Employer, or an individual medical account, as
defined in Section 5(l)(2) of the Code, maintained by the Employer,
which provides an annual addition as defined in Section 3.05(E)(1),
the following rules shall apply.
1. The amount of annual additions which may be credited to the
Participant's Individual Account for any limitation year will not
exceed the lesser of the maximum permissible amount or any other
limitation contained in this Plan. If the Employer Contribution
that would otherwise be contributed or allocated to the
Participant's Individual Account would cause the annual additions
for the limitation year to exceed the maximum permissible amount,
the amount contributed or allocated will be reduced so that the
annual additions for the limitation year will equal the maximum
permissible amount.
2. Prior to determining the Participant's actual compensation for
the limitation year, the Employer may determine the maximum
permissible amount for a Participant on the basis of a reasonable
estimation of the Participant's Compensation for the limitation
year, uniformly determined for all participants similarly
situated.
3. As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the
limitation year will be determined on the basis of the
Participant's actual compensation for the limitation year.
4. If pursuant to Section 3.05(A)(3) or as a result of the
allocation of Forfeitures there is an excess amount, the excess
will be disposed of as follows:
a. Any nondeductible voluntary employee contributions, to the
extent they would reduce the excess amount, will be returned
to the Participant;
b. If after the application of paragraph (a) an excess amount
still exists, and the Participant is covered by the Plan
the end of the limitation year, the
18
<PAGE> 24
excess amount in the Participant's Individual Account will
be used to reduce Employer Contributions (including any
allocation of Forfeitures) for such Participant in the
next limitation year and each succeeding limitation
year if necessary.
c. If after the application of paragraph (a) an excess amount
still exists, and the Participant is not covered by the Plan
at the end of a limitation year, the excess amount will be
held unallocated in a suspense account. The suspense account
will be applied to reduce future Employer Contributions
(including allocation of any Forfeitures) for all remaining
Participants in the next limitation year, and each
succeeding limitation year if necessary;
d. If a suspense account is in existence at any time during a
limitation year pursuant to this Section, it will not
participate in the allocation of the Fund's investment gains
and losses. If a suspense account is in existence at any
time during a particular limitation year, all amounts in the
suspense account must be allocated and reallocated to
Participants' Individual Accounts before any Employer
Contributions or any Employee contributions may be made to
the Plan for that limitation year. Excess amounts may not be
distributed to Participants or former Participants.
B. If, in addition to this Plan, the Participant is covered under
another qualified regional prototype defined contribution plan
maintained by the Employer, a welfare benefit fund, as defined in
Section 419(e) of the Code maintained by the Employer, or an
individual medical account, as defined in Section 415(l)(2) of the
Code, maintained by the Employer, which provides an annual addition
as defined in Section 3.05(E)(1), during any limitation year, the
following rules apply:
1. The annual additions which maybe credited to a Participant's
Individual Account under this Plan for any such limitation year
will not exceed the maximum permissible amount reduced by the
annual additions credited to a Participant's Individual Account
under the other plans and welfare benefit funds for the same
limitation year. If the annual additions with respect to the
Participant under other defined contribution plans and welfare
benefit funds maintained by the employer are less than the
maximum permissible amount and the Employer Contribution that
would otherwise be contributed or allocated to the Participant's
Individual Account under this Plan would cause the annual
additions for the limitation year to exceed this limitation, the
amount contributed or allocated will be reduced so that the
annual additions under all such plans and funds for the
limitation year will equal the maximum permissible amount. If the
annual additions with respect to the Participant under such other
defined contribution plans and welfare benefit funds in the
aggregate are equal to or greater than the maximum permissible
amount, no amount will be contributed or allocated to the
Participant's Individual Account under this Plan for the
limitation year.
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<PAGE> 25
2. Prior to determining the Participant's actual compensation for
the limitation year, the Employer may determine the maximum
permissible amount for a Participant in the manner described in
Section 3.05(A)(2).
3. As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the
limitation year will be determined on the basis of the
Participant's actual compensation for the limitation year.
4. If, pursuant to Section 3.05(B)(3) or as a result of the
allocation of Forfeitures, a Participant's annual additions under
this Plan and such other plans would result in an excess amount
for a limitation year, the excess amount will be deemed to
consist of the annual additions last allocated, except that
annual additions attributable to a welfare benefit fund or
individual medical account will be deemed to have been allocated
first regardless of the actual allocation date
5. If an excess amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation
date of another plan, the excess amount attributed to this Plan
will be the product of,
a. the total excess amount allocated as of such date, times
b. the ratio of (i) the annual additions allocated to the
Participant for the limitation year as of such date under
this Plan to (ii) the total annual additions allocated to
the Participant for the limitation year as of such date
under this and all the other qualified regional prototype
defined contribution plans.
6. Any excess amount attributed to this Plan will be disposed in the
manner described in Section 3.05(A)(4).
C. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a regional
prototype plan, annual additions which may be credited to the
Participant's Individual Account under this Plan for any limitation
year will be limited in accordance with Sections 3.05(B)(1) through
3.05(B)(6) as though the other plan were a regional prototype plan
unless the Employer provides other limitations in the Section of the
Adoption Agreement titled "Limitation on Allocation More Than One
Plan."
D. If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan, the sum
of the Participant's defined benefit plan fraction and defined
contribution plan fraction will not exceed 1.0 in any limitation
year. The annual additions which may be credited to the Participant's
Individual Account under this Plan for any limitation year will be
limited in accordance with the Section of the Adoption Agreement
titled "Limitation on Allocation - More Than One Plan."
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<PAGE> 26
E. The following terms shall have the following meanings when used in
this Section 3.05:
1. Annual additions: The sum of the following amounts credited to a
Participant's Individual Account for the limitation year:
a. Employer Contributions,
b. Employee contributions,
c. Forfeitures, and
d. amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Section 415(l)(2) of the
Code, which is part of a pension or annuity plan maintained
by the Employer are treated as annual additions to a defined
contribution plan. Also amounts derived from contributions
paid or accrued after December 31, 1985, in taxable years
ending after such date, which are attributable to
post-retirement medical benefits, allocated to the separate
account of a key employee, as defined in Section 419A(d)(3)
of the Code, under a welfare benefit fund, as defined in
Section 419(e) of the Code, maintained by the Employer are
treated as annual additions to a defined contribution plan.
For this purpose, any excess amount applied under Section
3.05(A)(4) or 3.05(B)(6) in the limitation year to reduce
Employer Contributions will be considered annual additions
for such limitation year.
2. Compensation: A Participant's earned income, wages, salaries, and
fees for professional services and other amounts received for
personal services actually rendered in the course of employment
with the Employer maintaining the Plan (including, but not
limited to, commissions paid salesmen, compensation for services
on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses), and excluding the following:
a. Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for
the taxable year in which contributed, or employer
contributions under a simplified employee pension plan to
the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred
compensation;
b. Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
c. Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
21
<PAGE> 27
d. Other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an
annuity described in Section 403(b) of the Code (whether or
not the amounts are actually excludible from the gross
income of the Employee).
For purposes of applying the limitations of this Section
3.05, compensation for a limitation year is the compensation
actually paid or includible in gross income during such
limitation year.
Notwithstanding the preceding sentence, compensation for a
Participant in a defined contribution plan who is
permanently and totally disabled (as defined in Section
22(e)(3) of the Code) is the compensation such Participant
would have received for the limitation year if the
Participant had been paid at the rate of compensation paid
immediately before becoming permanently and totally
disabled; such imputed compensation for the disabled
participant may be taken into account only if the
Participant is not a Highly Compensated Employee (as defined
in Section 414(q) of the Code) and contributions made on
behalf of such Participant are nonforfeitable when made.
3. Defined benefit fraction: A fraction, the numerator of which is
the sum of the Participant's projected annual benefits under all
the defined benefit plans (whether or not terminated) maintained
by the Employer, and the denominator of which is the lesser of
125% of the dollar limitation determined for the limitation year
under Section 415(b) and (d) of the Code or 140% of the highest
average compensation, including any adjustments under Section
415(0) of the Code.
Notwithstanding the above, if the Participant was a Participant
as of the first day of the first limitation year beginning after
December 31, 1986, in one or more defined benefit plans
maintained by the employer which were in existence on May 6,
1986, the denominator of this fraction will not be less than 125%
of the sum of the annual benefits under such plans which the
participant had accrued as of the close of the last limitation
year beginning before January 1, 1987, disregarding any changes
in the terms and conditions of the plan after May 5, 1986. The
preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of
Section 415 of the Code for all limitation years beginning before
January 1, 1987.
4. Defined contribution dollar limitation: $30,000 or if greater,
one-fourth of the defined benefit dollar limitation set forth in
Section 415(b)(1) of the Code as in effect for the limitation
year.
5. Defined contribution fraction: A fraction, the numerator of which
is the sum of the annual additions to the Participant's account
under all the defined contribution plans (whether or not
terminated) maintained by the Employer for the current and
22
<PAGE> 28
all prior limitation years (including the annual additions
attributable to the Participant's nondeductible employee
contributions to all defined benefit plans, whether or not
terminated, maintained by the Employer, and the annual additions
attributable to all welfare benefit funds, as defined in Section
419(e) of the Code, and individual medical accounts, as defined
in Section 415(l)(2) of the Code, maintained by the Employer),
and the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior limitation years of service
with the Employer (regardless of whether a defined contribution
plan was maintained by the Employer). The maximum aggregate
amount in any limitation year is the lesser of 125% of the dollar
limitation determined under Section 415(b) and (d) of the Code in
effect under Section 415(c)(1)(A) of the Code or 35% of the
Participant's compensation for such year.
If the Employee was a participant as of the end of the first day
of the first limitation year beginning after December 31, 1986,
in one or more defined contribution plans maintained by the
Employer which were in existence on May 6, 1986, the numerator of
this fraction will be adjusted if the sum of this fraction and
the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the
product of (1) the excess of the sum of the fractions over 1.0
times (2) the denominator of this fraction, will be permanently
subtracted from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as of
the end of the last limitation year beginning before January 1,
1987, and disregarding any changes in the terms and conditions of
the Plan made after May 5, 1986, but using the Section 415
limitation applicable to the first limitation year beginning on
or after January 1, 1987. The annual addition for any limitation
year beginning before January 1, 1987, shall not be recomputed to
treat all employee contributions as annual additions.
6. Employer: For purposes of this Section 3.05, Employer shall mean
the Employer that adopts this Plan, and all members of a
controlled group of corporations (as defined in Section 414~) of
the Code as modified by Section 415(h)), all commonly controlled
trades or businesses (as defined in Section 414(c) as modified by
Section 415(h)) or affiliated service groups (as defined in
Section 414(m)) of which the adopting Employer is a part, and any
other entity required to be aggregated with the Employer pursuant
to regulations under Section 414(0) of the Code.
7. Excess amount: The excess of the Participant's annual additions
for the limitation year over the maximum permissible amount.
8. Highest average compensation: The average compensation for the
three consecutive years of service with the Employer that
produces the highest average.
23
<PAGE> 29
9. Limitation year: A calendar year, or the 12-consecutive month
period elected by the Employer in the Section of the Adoption
Agreement titled "Limitation on Allocation - More Than One Plan."
All qualified plans maintained by the-Employer must use the same
limitation year. If the limitation year is amended to a different
12-consecutive month period, the new limitation year must begin
on a date within the limitation year in which the amendment is
made
10. Regional prototype plan: A plan the form of which is the subject
of a favorable notification letter from the Internal Revenue
Service.
11. Maximum permissible amount: The maximum annual addition that may
be contributed or allocated to a Participant's Individual Account
under the Plan for any limitation year shall not exceed the
lesser of:
a. the defined contribution dollar limitation, or
b. 25% of the Participant's compensation for the
limitation year.
The compensation limitation referred to in (b)) shall
not apply to any contribution for medical benefits
(within the meaning of Section 401(h) or Section
419A(f)(2) of the Code) which is otherwise treated as
an annual addition under Section 415(l)(1) or 419A(d)
(2) of the Code.
If a short limitation year is created because of an
amendment changing the limitation year to a different
12-consecutive month period, the maximum permissible
amount will not exceed the defined contribution dollar
limitation multiplied by the following fraction:
Number of months in the short limitation year
12
12. Projected annual benefit: The annual retirement benefit (adjusted
to an actuarially equivalent straight life annuity if such
benefit is expressed in a form other than a straight life annuity
or qualified joint and survivor annuity) to which the Participant
would be entitled under the terms of the Plan assuming:
a. the Participant will continue employment until normal
retirement age under the Plan (or current age, if
later), and
b. the Participant's compensation for the current
limitation year and all other relevant factors used to
determine benefits under the Plan will remain constant
for all future limitation years.
F. If the Employer maintains a defined benefit plan which is paired with
this Plan, the following rule shall apply. In any Plan Year in which
the paired plans are Top-Heavy, (i.e., the Top-Heavy ratio, as
defined in Section 10.08(C) of the Plan, exceeds
24
<PAGE> 30
60%) the denominators of the defined benefit plan fraction (as defined
in Section 3.05(E)(3) of the Plan) and the defined contribution plan
fraction (as defined in Section 3.05(E)(5) of the Plan) shall be
computed using 100% of the dollar limitation instead of 125%.
SECTION FOUR
INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 INDIVIDUAL ACCOUNTS
A. The Plan Administrator shall establish and maintain an Individual
Account in the name of each Participant to reflect the total value of
his interest in the Fund. Each Individual Account established
hereunder shall consist of such subaccounts as may be needed for each
Participant including:
1. a subaccount to reflect Employer Contributions and Forfeitures
allocated on behalf of a Participant;
2. a subaccount to reflect a Participant's rollover contributions;
3. a subaccount to reflect a Participant's transfer contributions;
4. a subaccount to reflect a Participant's nondeductible employee
contributions; and
5. a subaccount to reflect a Participant's deductible employee
contributions.
Such subaccounts are primarily for accounting purposes, and do not
necessarily require a segregation of the Fund.
B. The Plan Administrator may establish additional accounts as it may
deem necessary for the proper administration of the Plan, including,
but not limited to, a suspense account for Forfeitures as required
pursuant to Section 6.01(D).
4.02 VALUE ON OF FUND
The Fund will be valued each Valuation Date at fair market value.
4.03 VALUATION OF INDIVIDUAL ACCOUNTS
A. Where all or a portion of the assets of a Participant's Individual
Account are invested in a Separate Fund for the Participant, then the
value of that portion of such Participant's Individual Account at any
relevant time equals the sum of the fair market values of the assets
in such Separate Fund, less any applicable charges or penalties.
B. The fair market value of the remainder of each Individual Account is
determined in the following manner:
25
<PAGE> 31
1. First, the portion of the Individual Account invested in each
Investment Fund as of the previous Valuation Date is determined.
Each such portion is reduced by any withdrawal made from the
applicable Investment Fund to or for the benefit of a Participant
or his Beneficiary, further reduced by any amounts forfeited by
the Participant pursuant to Section 6.01(D) and further reduced
by any transfer to another Investment Fund since the previous
Valuation Date and is increased by any amount transferred from
another Investment Fund since the previous Valuation Date. The
resulting amounts are the net Individual Account portions
invested in the Investment Funds.
2. Secondly, the net Individual Account portions invested in each
Investment Fund are adjusted upwards or down-wards, pro rata
(i.e., ratio of each net Individual Account portion to the sum of
all net Individual Account portions) so that the sum of all the
net Individual Account portions invested in an Investment Fund
will equal the then fair market value of the Investment Fund.
Notwithstanding the previous sentence, for the first Plan Year
only, the net Individual Account portions shall be the sum of all
contributions made to each Participant's Individual Account
during the first Plan Year.
3. Thirdly, any contributions to the Plan and Forfeitures are
allocated in accordance with the appropriate allocation
provisions of Section 3. For purposes of Section 4, contributions
made by the Employer for any Plan Year but after that Plan Year
will be considered to have been made on the last day of that Plan
Year regardless of when paid to the Trustee (or Custodian, if
applicable).
Amounts contributed between Valuation Dates will not be credited
with investment gains or losses until the next following
Valuation Date.
4. Finally, the portions of the Individual Account invested in each
Investment Fund (determined in accordance with (1), (2) and (3)
above) are added together.
4.04 SEGREGATION OF ASSETS
If a Participant elects a mode of distribution other than a lump sum,
the Plan Administrator may place that Participant's account balance into
a segregated Investment Fund for the purpose of maintaining the
necessary liquidity to provide benefit installments on a periodic basis.
4.05 STATEMENT OF INDIVIDUAL ACCOUNTS
No later than 270 days after the close of each Plan Year, the Plan
Administrator shall furnish a statement to each Participant indicating
the Individual Account balances of such Participant as of the last
Valuation Date in such Plan Year.
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<PAGE> 32
4.06 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS
If necessary or appropriate, the Plan Administrator may establish
different or additional procedures (which shall be uniform and
nondiscriminatory) for determining the fair market value of the
Individual Accounts.
SECTION FIVE
TRUSTEE OR CUSTODIAN
5.01 CREATION OF FUND
By adopting this Plan, the Employer establishes the Fund which shall
consist of the assets of the Plan held by the Trustee (or Custodian, if
applicable) pursuant to this Section 5. Assets within the Fund maybe
pooled on behalf of all Participants, earmarked on behalf of each
Participant or be a combination of pooled and earmarked. To the extent
that assets are earmarked for a particular Participant, they will be
held in a Separate Fund for that Participant.
No part of the corpus or income of the Fund may be used for, or diverted
to, purposes other than for the exclusive benefit of Participants or
their Beneficiaries.
5.02 INVESTMENT AUTHORITY
Except as provided in Section 5.14 (relating to individual direction of
investments by Participants), the Employer not the Trustee (or
Custodian, if applicable), shall have exclusive management and control
over the investment of the Fund into permitted investment.
Notwithstanding the preceding sentence, a Trustee with full trust powers
(under applicable law) make an agreement with the Employer whereby the
Trustee will manage the investment of all or a portion of the Fund An'
such agreement shall be in writing and set forth such matters as the
Trustee deems necessary or desirable.
5.03 FINANCIAL ORGANIZATION CUSTODIAN OR TRUSTEE WITHOUT FULL TRUST POWERS
This Section 5.03 applies where a financial organization has indicated
in the Adoption Agreement that it will serve, with respect to this Plan,
as Custodian or as Trustee without full trust powers (under applicable
law). Hereinafter, a financial organization Trustee without full trust
powers (under applicable law) shall be referred to as a Custodian.
A. PERMISSIBLE INVESTMENTS - The assets of the Plan shall be invested
only in those investments which are available through the Custodian
in the ordinary course of business which the Custodian may legally
hold in a qualified plan and which the Custodian chooses to make
available to Employers for qualified plan investments.
27
<PAGE> 33
B. RESPONSIBILITIES OF THE CUSTODIAN - The responsibilities of the
Custodian shall be limited to the following:
1. To receive Plan contributions and to hold, invest and reinvest
the Fund without distinction between principal and interest;
provided, however, that nothing in this Plan shall require the
Custodian to maintain physical custody of stock certificates (or
other indicia of ownership of any type of asset) representing
assets within the Fund;
2. To maintain accurate records of contributions, earnings,
withdrawals and other information the Custodian deems relevant
with respect to the Plan;
3. To make disbursements from the Fund to Participants or
Beneficiaries upon the proper authorization of the Plan
Administrator; and
4. To furnish to the Plan Administrator a statement which reflects
the value of the investments in the hands of the Custodian as of
the end of each Plan Year.
C. POWERS OF THE CUSTODIAN - Except as otherwise provided in this Plan,
the Custodian shall have the power to take any action with respect to
the Fund which it deems necessary or advisable to discharge its
responsibilities under this Plan including, but not limited to, the
following powers:
1. To invest all or a portion of the Fund (including idle cash
balances) in time deposits, savings accounts, money market
accounts or similar investments bearing a reasonable rate of
interest in the Custodian's own savings department or the savings
department of another financial organization;
2. To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or without
power of substitution; to exercise any conversion privileges or
subscription rights and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in,
corporate reorganizations or other changes affecting corporate
securities, and to pay any assessments or charges in connection
therewith; and generally to exercise any of the powers of an
owner with respect to stocks, bonds, securities or other property
3. To hold securities or other property of the Fund in its own name,
in the name of its nominee or in bearer form; and
4. To make, execute, acknowledge, and deliver any and all documents
of transfer and conveyance and any and all other instruments that
may be necessary or appropriate to carry out the powers herein
granted.
28
<PAGE> 34
5.04 FINANCIAL ORGANIZATION TRUSTEE WITH FULL TRUST POWERS AND INDIVIDUAL
TRUSTEE
This Section 5.04 applies where a financial organization has indicated
in the Adoption Agreement that it will serve as Trustee with full trust
powers. This Section also applies where one or more individuals are
named in the Adoption Agreement to serve as Trustee(s).
A. PERMISSIBLE INVESTMENTS - The Trustee may invest the assets of the
Plan in property of any character, real or personal, including, but
not limited to the following: stocks, including shares of open-end
investment companies (mutual funds); bonds; notes; debentures;
options; limited partners hip interests; mortgages; real estate or
any interests therein; unit investment trusts; Treasury Bills, and
other U.S. Government obligations; common trust funds, combined
investment trusts, collective trust funds or commingled funds
maintained by a bank or similar financial organization (whether or
not the Trustee hereunder); savings accounts, time deposits or money
market accounts of a bank or similar financial organization (whether
or not the Trustee hereunder); annuity contracts; life insurance
policies; or in such other investments as i~ deemed proper without
regard to investments authorized by statute or rule of law governing
the investment of trust funds but with regard to ERISA and this Plan.
Notwithstanding the preceding sentence, the Regional Prototype
Sponsor may, as a condition of making the Plan available to the
Employer for adoption, limit the types of property in which the
Trustee (other than a financial organization Trustee with full trust
powers), is permitted to invest.
B. RESPONSIBILITIES OF THE TRUSTEE - The responsibilities of the Trustee
shall be limited to the following:
1. To receive Plan contributions and to hold, invest and reinvest
the Fund without distinction between principal and interest;
provided, however, that nothing in this Plan shall require the
Trustee to maintain physical custody of stock certificates (or
other indicia of ownership) representing assets within the Fund;
2. To maintain accurate records of contributions, earnings,
withdrawals and other information the Trustee deems relevant with
respect to the Plan;
3. To make disbursements from the Fund to Participants or
Beneficiaries upon the proper authorization of the Plan
Administrator; and
4. To furnish to the Plan Administrator a statement which reflects
the value of the investments in the hands of the Trustee as of
the end of each Plan Year.
C. POWERS OF THE TRUSTEE - Except as otherwise provided in this Plan,
the Trustee shall have the power to take any action with respect to
the Fund which it deems necessary
29
<PAGE> 35
or advisable to discharge its responsibilities under this Plan
including, but not limited to, the following powers:
1. To hold any securities or other property of the Fund in its own
name, in the name of its nominee or in bearer form;
2. To purchase or subscribe for securities issued, or real property
owned, by the Employer or any trade or business under common
control with the Employer but only if the prudent investment and
diversification requirements of ERISA are satisfied;
3. To sell, exchange, convey, transfer or otherwise dispose of any
securities or other property held by the Trustee, by private
contract or at public auction. No person dealing with the Trustee
shall be bound to see to the application of the purchase money or
to inquire into the validity, expediency, or propriety of any
such sale or other disposition, with or without advertisement;
4. To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or without
power of substitution; to exercise any conversion privileges or
subscription rights and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in,
corporate reorganizations or other changes affecting corporate
securities, and to delegate discretionary powers, and to pay any
assessments or charges in connection therewith; and generally to
exercise any of the powers of an owner with respect to stocks,
bonds, securities or other property;
5. To invest any part or all of the Fund (including idle cash
balances) in certificates of deposit, demand or time deposits,
savings accounts, money market accounts or similar investments of
the Trustee (if the Trustee is a bank or similar financial
organization), or any affiliate of such Trustee which bear a
reasonable rate of interest;
6. To provide sweep services without the receipt by the Trustee of
additional compensation or other consideration (other than
reimbursement of direct expenses properly and actually incurred
in the performance of such services);
7. To hold in the form of cash for distribution or investment such
portion of the Fund as, at any time and from time-to-time, the
Trustee shall deem prudent and deposit such cash in interest
bearing or noninterest bearing accounts;
8. To make, execute, acknowledge, and deliver any and all documents
of transfer and conveyance and any and all other instruments that
may be necessary or appropriate to carry out the powers herein
granted;
9. To settle, compromise, or submit to arbitration any claims,
debts, or damages due or owing to or from the Plan, to commence
or defend suits or legal or
30
<PAGE> 36
administrative proceedings, and to represent the Plan in all
suits and legal and administrative proceedings;
10. To employ suitable agents and counsel, to contract with agents to
perform administrative and recordkeeping duties and to pay their
reasonable expenses, fees and compensation, and such agent or
counsel may or may not be agent or counsel for the Employer;
11. To cause any part or all of the Fund, without limitation as to
amount, to be commingled with the funds of other trusts
(including trusts for qualified employee benefit plans) by
causing such money to be invested as a part of any pooled,
common, collective or commingled trust fund heretofore or
hereafter created by any trustee (if the Trustee is a bank),by
any affiliate bank of such a Trustee or by such a Trustee or such
an affiliate in participation with others; the instrument or
instruments establishing such trust fund or funds, as amended,
being made part of this Plan and trust so long as any portion of
the Fund shall be invested through the medium thereof.
12. Generally to do all such acts, execute all such instruments,
initiate all such proceedings, and exercise all such rights and
privileges with relation to property constituting the Fund as if
the Trustee were the absolute owner thereof.
5.05 DIVISION OF FUND INTO INVESTMENT FUNDS
The Employer may direct the Trustee (or Custodian, if applicable) from
time-to-time to divide and redivide the Fund into one or more Investment
Funds. Such Investment Funds may include, but not be limited to,
Investment Funds representing the assets under the control of an
investment manager pursuant to Section 5.12 and Investment Funds
representing investment options available for individual direction by
Participants pursuant to Section 514. Upon each division or redivision,
the Employer may specify the part of the Fund to be allocated to each
such Investment Fund and the terms and conditions, if any, under which
the assets in such Investment Fund shall be invested.
5.06 COMPENSATION AND EXPENSES
The Trustee (or Custodian, if applicable) shall receive such reasonable
compensation as may be agreed upon by the Trustee (or Custodian) and the
Employer. The Trustee (or Custodian) shall be entitled to reimbursement
by the Employer for all proper expenses incurred in carrying out his
duties under this Plan, including reasonable legal, accounting and
actuarial expenses. If not paid by the Employer, such compensation and
expenses may be charged against the Fund.
All taxes of any kind that may be levied or assessed under existing or
future laws upon, or in respect of, the Fund or the income thereof shall
be paid from the Fund.
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<PAGE> 37
5.07 NOT OBLIGATED TO QUESTION DATA
The Employer shall furnish the Trustee (or Custodian, if applicable) and
Plan Administrator the information which each party deems necessary for
the administration of the Plan including, but not limited to, changes in
a Participant's status, eligibility, mailing addresses and other such
data as may be required. The Trustee (or Custodian) and Plan
Administrator shall be entitled to act on such information as is
supplied them and shall have no duty or responsibility to further verify
or question such information.
5.08 LIABILITY FOR WITHHOLDING ON DISTRIBUTIONS
The Plan Administrator shall be responsible for withholding federal
income taxes from distributions from the Plan, unless the Participant
(or Beneficiary, where applicable) elects not to have such taxes
withheld. However, the Trustee (or Custodian, if applicable) shall act
as agent for the Plan Administrator to withhold such taxes and to make
the appropriate distribution reports, subject to the Plan
Administrator's obligation to furnish all the necessary information to
so withhold to the Trustee (or Custodian).
5.09 RESIGNATION OR REMOVAL OF TRUSTEE (OR CUSTODIAN)
The Trustee (or Custodian, if applicable) may resign at any time by
giving 30 days advance written notice to the Employer The resignation
shall become effective 30 days after receipt of such notice unless a
shorter period is agreed upon.
The Employer may remove any Trustee (or Custodian) at any time by giving
written notice to such Trustee (Or Custodian) and such removal shall be
effective 30 days after receipt of such notice unless a shorter period
is agreed upon. The Employer shall have the power to appoint a successor
Trustee (or Custodian).
Upon such resignation or removal, if the resigning or removed Trustee
(or Custodian) is the sole Trustee (or Custodian), he shall transfer all
of the assets of the Fund then held by him as expeditiously as possible
to the successor Trustee (or Custodian) after paying or reserving such
reasonable amount as he shall deem necessary to provide for the expense
in the settlement of the accounts and the amount of any compensation due
him and any sums chargeable against the Fund for which he may be liable.
If the Funds as reserved are not sufficient for such purpose, then he
shall be entitled to reimbursement from the successor Trustee (or
Custodian) out of the assets in the successor Trustee's (or Custodian's)
hands under this Plan. If the amount reserved shall be in excess of the
amount actually needed, the former Trustee (or Custodian) shall return
such excess to the successor Trustee (or Custodian).
Upon receipt of such assets, the successor Trustee (or Custodian) shall
thereupon succeed to all of the powers and responsibilities given to the
Trustee (or Custodian) by this Plan.
The resigning or removed Trustee (or Custodian) shall render an
accounting to the Employer and unless objected to by the Employer within
30 days of its receipt, the
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<PAGE> 38
accounting shall be deemed to have been approved and the resigning or
removed Trustee (or Custodian) shall be released and discharged as to
all matters set forth in the accounting.
Where a financial organization is serving as Trustee (or Custodian) and
it is merged with or bought by another organization (or comes under the
control of any federal or state agency), that organization shall serve
as the successor Trustee (or Custodian) of this Plan, but only if it is
the type of organization that can so serve under applicable law.
Where the Trustee or Custodian is serving as a nonbank trustee or
custodian pursuant to Section l.4~42(n) of the Income Tax Regulations,
the Employer will appoint a successor Trustee (or Custodian) upon
notification by the Commissioner of Internal Revenue that such
substitution is required because the Trustee (or Custodian) has failed
to comply with the requirements of Section 1.401-12(n) or is not keeping
such records or making such returns or rendering such statements as are
required by forms or regulations.
5.10 DEGREE OF CARE
Limitations of Liability - The Trustee (or Custodian, if applicable)
shall not be liable for any losses incurred by the Fund by any lawful
direction to invest communicated by the Employer, Plan Administrator or
any Participant or Beneficiary The Trustee (or Custodian) shall be under
no liability for distributions made or other action taken or not taken
at the written direction of the Plan Administrator. It is specifically
understood that the Trustee (or Custodian) shall have no duty or
responsibility with respect to the determination of matters pertaining
to the eligibility of any Employee to become a Participant or remain a
Participant hereunder, the amount of benefit to which a Participant or
Beneficiary shall be entitled to receive hereunder, whether a
distribution to Participant or Beneficiary is appropriate under the
terms of the Plan or the size and type of any policy to be purchased
from any insurer for any Participant hereunder or similar matters; it
being under stood that all such responsibilities under the Plan are
vested in the Plan Administrator.
5.11 INDEMNIFICATION OF REGIONAL PROTOTYPE SPONSOR AND TRUSTEE (OR CUSTODIAN)
Notwithstanding any other provision herein, and except as may be
otherwise provided by ERISA, the Employer shall indemnify and hold
harmless the Trustee (or Custodian, if applicable) and the Regional
Prototype Sponsor, their officers, directors, employees, agents, their
heirs, executors, successors and assigns, from and against any and all
liabilities, damages, judgments, settlements, losses, costs, charges, or
expenses (including legal expenses) at any time arising out of or
incurred in connection with any action taken by such parties in the
performance of their duties with respect to this Plan, unless there has
been a final adjudication of gross negligence or willful misconduct in
the performance of such duties.
33
<PAGE> 39
Further, except as may be otherwise provided by ERISA, the Employer will
indemnify the Trustee (or Custodian) and Regional Prototype Sponsor from
any liability, claim or expense (including legal expense) which the
Trustee (Or Custodian) and Regional Prototype Sponsor shall incur by
reason of or which results, in whole or in part, from the Trustee's (or
Custodian's) or Regional Prototype Sponsor's reliance on the facts and
other directions and elections the Employer communicates or fails to
communicate.
5.12 INVESTMENT MANAGERS
A. DEFINITION OF INVESTMENT MANAGER - The Employer may appoint one or
more investment managers to make investment decisions with respect to
all or a portion of the Fund. The investment manager shall be any
firm or individual registered as an investment adviser under the
Investment Advisers Act of 1940, a bank as defined in said Act or an
insurance company qualified under the laws of more than one state to
perform services consisting of the management, acquisition or
disposition of any assets of the Plan.
B. INVESTMENT MANAGER'S AUTHORITY - A separate Investment Fund shall be
established representing the assets of the Fund invested at the
direction of the investment manager. The investment manager so
appointed shall direct the Trustee (or Custodian, if applicable) with
respect to the investment of such Investment Fund. The investments
which may be acquired at the direction of the investment manager are
limited to those described in Section 5.03(A) (for Custodians) or
Section 5.04(A) (for Trustees).
C. WRITTEN AGREEMENT - The appointment of any investment manager shall
be by written agreement between the Employer and the investment
manager and a copy of such agreement (and any modification or
termination thereof) must be given to the Trustee (or Custodian).
The agreement shall set forth, among other matters, the effective
date of the investment manager's appointment and an acknowledgment by
the investment manager that it is a fiduciary of the Plan under
ERISA.
D. CONCERNING THE TRUSTEE (OR CUSTODIAN) - Written notice of each
appointment of an investment manager shall be given to the Trustee
(or Custodian) in advance of the effective date of such appointment.
Such notice shall specify which portion of the Fund will constitute
the Investment Fund subject to the investment manager's direction.
The Trustee (or Custodian) shall comply with the investment direction
given to it by the investment manager and will not be liable for any
loan which may result by reason of any action (or inaction) it takes
at the direction of the investment manager.
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<PAGE> 40
5.13 MATTERS RELATING TO INSURANCE
A. If a life insurance policy is to be purchased for a Participant, the
aggregate premium for certain life insurance for each Participant
must be less than a certain percentage of the aggregate Employer
Contributions and Forfeitures allocated to a Participant's Individual
Account at any particular time as follows:
1. Ordinary Life Insurance - For purposes of these incidental
insurance provisions, ordinary life insurance contracts are
contracts with both nondecreasing death benefits and
nonincreasing premiums. If such contracts are purchased, less
than 50% of the aggregate Employer Contributions and Forfeitures
allocated to any Participant's Individual Account will be used to
pay the premiums attributable to them.
2. Term and Universal Life Insurance - No more than 250/0 of the
aggregate Employer Contributions and Forfeitures allocated to any
Participant's Individual Account will be used to pay the premiums
on term life insurance contracts, universal life insurance
contracts, and all other life insurance contracts which are not
ordinary life.
3. Combination - The sum of 50% of the ordinary life insurance
premiums and all other life insurance premiums will not exceed
25% of the aggregate Employer Contributions and Forfeitures
allocated to any Participant's Individual Account.
B. Any dividends or credits earned on insurance contracts for a
Participant shall be allocated to such Participant's Individual
Account.
C. Subject to Section 6.05, the contracts on a Participant's life will
be converted to cash or an annuity or distributed to the Participant
upon commencement of benefits.
D. The Trustee (or Custodian, if applicable) shall apply for and will be
the owner of any insurance contract(s) purchased under the terms of
this Plan. The insurance contract(s) must provide that proceeds will
be payable to the Trustee (or Custodian), however, the Trustee (or
Custodian) shall be required to pay over all proceeds of the
contract(s) to the Participant's designated Beneficiary in accordance
with the distribution provisions of this Plan. A Participant's spouse
will be the designated Beneficiary of the proceeds in all
circumstances unless a qualified election has been made in accordance
with Section 6.05, Joint and Survivor Annuity Requirements, if
applicable. Under no circumstances shall the Fund retain any part of
the proceeds. In the event of any conflict between the terms of this
Plan and the terms of any insurance contract purchased hereunder, the
Plan provisions shall control.
E. The Employer may direct the Trustee (or Custodian) to sell and
distribute insurance or annuity contracts to a Participant (or other
party as may be permitted) in accordance with applicable law or
regulations.
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<PAGE> 41
5.14 DIRECTION OF INVESTMENTS BY PARTICIPANT
If so indicated in the Adoption Agreement, each Participant may
individually direct the Trustee (or Custodian, if applicable) regarding
the investment of part or all of his Individual Account. To the extent
so directed, the Employer, Plan Administrator, Trustee (or Custodian)
and all other fiduciaries are relieved of their fiduciary responsibility
under Section 404 of ERISA.
The Plan Administrator shall direct that a Separate Fund be established
in the name of each Participant who directs the investment of part or
all of his Individual Account. Each Separate Fund shall be charged or
credited (as appropriate) with the earnings, gains, losses or expenses
attributable to such Separate Fund. No fiduciary shall be liable for any
loss which results from a Participant's individual direction. The assets
subject to individual direction shall not be invested in collectibles as
that term is defined in Section 408(m) of the Code.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules relating to individual direction as it deems
necessary or advisable including, but not limited to, rules describing
(1) which portions of Participant's Individual Account can be
individually directed; (2) the frequency of investment changes; (3) the
forms and procedures for making investment changes; and (4) the effect
of a Participant's failure to make a valid direction.
The Plan Administrator may, in a uniform and nondiscriminatory manner,
limit the available investments for Participants' individual direction
to certain specified investment options (including, but not limited to,
certain mutual funds, investment contracts, deposit accounts and group
trusts). The Plan Administrator may permit, in a uniform and
nondiscriminatory manner, a Beneficiary of a deceased Participant to
individually direct in accordance with this Section.
SECTION SIX
VESTING AND DISTRIBUTION
6.01 DISTRIBUTION TO PARTICIPANT
A. WHEN DISTRIBUTABLE
1. Entitlement to Distribution - The Vested portion of a
Participant's Individual Account shall be distributable to the
Participant upon the occurrence of any of the following events:
a. the Participant's Termination of Employment;
b. the Participant's attainment of Normal Retirement Age;
c. the Participant's Disability; or
36
<PAGE> 42
d. the termination of the Plan.
2. Written Request: When Distributed - A Participant entitled to
distribution who wishes to receive a distribution must submit a
written request to the Plan Administrator. Such request shall be
made upon a form provided by the Plan Administrator. Upon a valid
request, the Plan Administrator shall direct the Trustee (or
Custodian, if applicable) to commence distribution no later than
90 days following the later of:
a. the close of the Plan Year within which the event occurs
which entitles the Participant to distribution; or
b. the close of the Plan Year in which the request is
received.
3. Special Rules For Withdrawals During Service - If this is a
profit sharing plan and the Adoption Agreement so provides, a
Participant who is not otherwise entitled to a distribution under
Section 6.01(A)(1) may elect to receive a distribution of all or
a part of the Vested portion of his Individual Account, subject
to the requirements of Section 6 05 and further subject to the
following limits:
a. Participant for 5 or more years. An Employee who has been
a Participant in the Plan for 5 or more years may withdraw
up to his entire Vested portion of his Individual Account.
b. Participant for less than 5 years. An Employee who has
been a Participant in the Plan for less than 5 years may
withdraw only the amount which has been in his Vested
Individual Account attributable to Employer Contributions
for at least 2 full Plan Years.
However, if the distribution is on account of hardship,
the Participant may withdraw up to his entire Vested
portion of his Individual Account. For purposes of the
preceding sentence, hardship is defined as an immediate
and heavy financial need of the Participant where such
Participant lacks other available resources. The following
are the only financial needs considered immediate and
heavy: expenses incurred or necessary for medical care,
described in Section 213(d) of the Code, of the Employee,
the Employee's spouse or dependents; the purchase
(excluding mortgage payments) of a principal residence for
the Employee; payment of tuition and related educational
fees for the next 12 months of post-secondary education
for the Employee, the Employee's spouse, children or
dependents; or the need to prevent the eviction of the
Employee from, or a foreclosure on the mortgage of, the
Employee's principal residence.
A distribution will be considered as necessary to satisfy
an immediate and heavy financial need of the Employee only
if:
37
<PAGE> 43
1) The employee has obtained all distributions, other than
hardship distributions, and all nontaxable loans under all
plans maintained by the Employer;
2) The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts
necessary to pay any federal, state or local income taxes
or penalties reasonably anticipated to result from the
distribution)
4. Commencement of Benefits - Notwithstanding any other provision,
unless the Participant elects otherwise, distribution of benefits
will begin no later than the 60th day after the latest of the
close of the Plan Year in which:
a. the Participant attains Normal Retirement Age;
b. occurs the 10th anniversary of the year in which the
Participant commenced participation in the Plan; or
c. the Participant incurs a Termination of Employment.
Notwithstanding the foregoing, the failure of a
Participant and spouse to consent to a distribution while
a benefit is immediately distributable, within the meaning
of Section 6.02(B), shall be deemed to be an election to
defer commencement of payment of any benefit sufficient to
satisfy this Section 6.01(A)(4).
B. DETERMINING THE VESTED PORTION - In determining the Vested portion of
a Participant's Individual Account, the following rules apply:
1. Employer Contributions and Forfeitures - The Vested portion of a
Participant's Individual Account derived from Employer
Contributions and Forfeitures is determined by applying the
vesting schedule selected in the Adoption Agreement (or the
vesting schedule described in Section 6.01(C) if the Plan is a
Top-Heavy Plan).
2. Rollover and Transfer Contributions - A Participant is fully
Vested in his rollover contributions and transfer contributions.
3. Fully Vested Under Certain Circumstances - A Participant is fully
Vested in his Individual Account if any of the following occurs:
a. the Participant reaches Normal Retirement Age;
b. the Participant incurs a Disability;
c. the Participant dies;
38
<PAGE> 44
d. the Plan is terminated or partially terminated; or
e. there exists a complete discontinuance of contributions
under the Plan (if this Plan is a profit sharing plan).
4. Participants in a Prior Plan - If a Participant was a participant
in a Prior Plan on the Effective Date, his Vested percentage
shall not be less than it would have been under such Prior Plan
as computed on the Effective Date.
C. MINIMUM VESTING SCHEDULE FOR TOP-HEAVY PLANS - The following vesting
provisions apply for any Plan Year in which this Plan is a Top-Heavy
Plan.
Notwithstanding the other provisions of this Section 6.01 or the
vesting schedule selected in the Adoption Agreement (unless those
provisions or that schedule provide for more rapid vesting), a
Participant's Vested portion of his Individual Account attributable
to Employer Contributions and Forfeitures shall be determined in
accordance with the following minimum vesting schedule:
<TABLE>
<CAPTION>
YEAR OF VESTING SERVICE VESTED PERCENTAGE
<S> <C>
1 0
2 20
3 40
4 60
5 80
6 100
</TABLE>
This minimum vesting schedule applies to all benefits within the meaning
of Section 411(a)(7) of the Code, except those attributable to employee
contributions including benefits accrued before the effective date of
Section ~6 of the Code and benefits accrued before the Plan became a
Top-Heavy Plan. Further, no decrease in a Participant's Vested
percentage may occur in the event the Plan's status as a Top-Heavy Plan
changes for any Plan Year. However, this Section 6.01(C) does not apply
to the Individual Account of any Employee who does not have an Hour of
Service after the Plan has initially become a Top-Heavy Plan and such
Employee's Individual Account attributable to Employer Contributions and
Forfeitures will be determined without regard to this Section.
If this Plan ceases to be a Top-Heavy Plan, then in accordance with
the above restrictions, the vesting schedule as selected in the
Adoption Agreement will govern. If the vesting schedule under the
Plan shifts in or out of Top-Heavy status, such shift is an amendment
to the vesting schedule and the election in Section 9.04 applies.
D. BREAK IN VESTING SERVICE AND FORFEITURES - If a Participant incurs a
Termination of Employment, any portion of his Individual Account
which is not Vested shall be held in a suspense account. Such
suspense account shall share in any increase or decrease
39
<PAGE> 45
in the fair market value of the assets of the Fund in accordance with
Section 4 of the Plan. The disposition of such suspense account shall
be as follows:
1. No Breaks in Vesting Service - If a Participant neither receives
nor is deemed to receive a distribution pursuant to Section
6.01(D)(2) or (3) and the Participant returns to the service of
the Employer before incurring 5 consecutive Breaks in Vesting
Service, there shall be no Forfeiture and the amount in such
suspense account shall be recredited to such Participant's
Individual Account.
2. Cash-out of Certain Participants - If the value of the Vested
portion of such Participant's Individual Account derived from
Employee and Employer Contributions does not exceed $3,500, the
Participant shall receive a distribution of the entire Vested
portion of such Individual Account and the portion which is not
Vested shall be treated as a Forfeiture. For purposes of this
Section, if the value of the Vested portion of a Participant's
Individual Account is zero, the Participant shall be deemed to
have received a distribution of such Vested Individual Account. A
Participant's Vested Individual Account balance shall not include
accumulated deductible employee contributions within the meaning
of Section 72(o)(5)(B) of the Code for Plan Years beginning prior
to January 1, 1989.
3. Participants Who Elect to Receive Distributions - If such
Participant elects to receive a distribution, in accordance with
Section 6.02(B), of the value of the Vested portion of his
Individual Account derived from Employee and Employer
Contributions, the portion which is not Vested shall be treated
as a Forfeiture.
4. Re-employed Participants - If a Participant receives or is deemed
to receive a distribution pursuant to Section 6.01(D)(2) or (3)
above and the Participant resumes employment covered under this
Plan, the Participant's Employer-derived Individual Account
balance will be restored to the amount on the date of
distribution if the Participant repays to the Plan the full
amount of the distribution attributable to Employer Contributions
before the earlier of 5 years after the first date on which the
Participant is subsequently re-employed by the Employer, or the
date the Participant incurs 5 consecutive Breaks in Vesting
Service following the date of the distribution.
Amounts forfeited under Section 6.01(D) shall be allocated in
accordance with Section 3.01(C) as of the last day of the Plan
Year during which the Forfeiture arises. Any restoration of a
Participant's Individual Account pursuant to Section 6.01(D)(4)
shall be made from other Forfeitures, income or gain to the Fund
or contributions made by the Employer.
E. DISTRIBUTION PRIOR TO FULL VESTING - If a distribution is made to a
Participant who was not then fully Vested in his Individual Account
derived from Employer Contributions and the Participant may increase
his Vested percentage in his Individual Account, then the following
rules shall apply:
40
<PAGE> 46
1. a separate account will be established for the Participant's
interest in the Plan as of the time of the distribution, and
2. at any relevant time the Participant's Vested portion of the
separate account will be equal to an amount ("X") determined by
the formula: X=P (AB + (R x D)) - (R x D) where "P" is the Vested
percentage at the relevant time, "AB" is the separate account
balance at the relevant time; "D" is the amount of the
distribution; and "R" is the ratio of the separate account
balance at the relevant time to the separate account balance
after distribution.
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT
A. VALUE OF INDIVIDUAL ACCOUNT DOES NOT EXCEED $3,500 - If the value of
the Vested portion of a Participant's Individual Account derived from
Employee and Employer Contributions does not exceed $3,500,
distribution from the Plan shall be made to the Participant in a
single lump sum in lieu of all other forms of distribution from the
Plan.
B. VALUE OF INDIVIDUAL ACCOUNT EXCEEDS $3,500
1. If the value of the Vested portion of a Participant's Individual
Account derived from Employee and Employer Contributions exceeds
(or at the time of any prior distribution exceeded) $3,500, and
the Individual Account is immediately distributable, the
Participant and the Participant's spouse (or where either the
Participant or the spouse died, the survivor) must consent to any
distribution of such Individual Account. The consent of the
Participant and the Participant's spouse shall be obtained in
writing within the 90-day period ending on the annuity starting
date. The annuity starting date is the first day of the first
period for which an amount is paid as an annuity or any other
form. The Plan Administrator shall notify the Participant and the
Participant's spouse of the right to defer any distribution until
the Participant's Individual Account is no longer immediately
distributable. Such notification shall include a general
description of the material features, and an explanation of the
relative values of, the optional forms of benefit available under
the Plan in a manner that would satisfy the notice requirements
of Section 417(a)(3) of the Code and shall be provided no less
than 30 days and no more than 90 days prior to the annuity
starting date. If a distribution is one to which Sections
401(a)(11) and 417 of the Internal Revenue Code do not apply,
such distribution may commence less than 30 days after the notice
required under Section 1.411(a)41(c) of the Income Tax
Regulations is given provided that:
a. the Plan Administrator clearly informs the Participant
that the Participant has a right to a period of at least
30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and
41
<PAGE> 47
b. the Participant, after receiving the notice, affirmatively
elects a distribution.
Notwithstanding the foregoing, only the Participant need
consent to the commencement of a distribution in the form
of a qualified joint and survivor annuity while the
Individual Account is immediately distributable. Neither
the consent of the Participant nor the Participant's
spouse shall be required to the extent that a distribution
is required to satisfy Section 4~(a)(9) or Section 415 of
the Code. In addition, upon termination of this Plan if
the Plan does not offer an annuity option (purchased from
a commercial provider), the Participant's Individual
Account may, without the Participant's consent, be
distributed to the Participant or transferred to another
defined contribution plan (other than an employee stock
ownership plan as defined in Section 4975(e)(7) of the
Code) within the same controlled group.
An Individual Account is immediately distributable if any
part of the Individual Account could be distributed to the
Participant (or surviving spouse) before the Participant
attains or would have attained (if not deceased) the later
of Normal Retirement Age or age 62.
2. For purposes of determining the applicability of the foregoing
consent requirements to distributions made before the first day
of the first Plan year beginning after December ~, 1988, the
Vested portion of a Participant's Individual Account shall not
include amounts attributable to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the
Code.
C. OTHER FORMS OF DISTRIBUTION TO PARTICIPANT - If the value of the
Vested portion of a Participant's Individual Account exceeds $3,500
and the Participant has properly waived the joint and survivor
annuity, as described in Section 6.05, the Participant may request in
writing that the Vested portion of his Individual Account be paid to
him in one or more of the following forms of payment: (1) in a lump
sum; (2) in installment payments over a period not to exceed the life
expectancy of the Participant or the joint and last survivor life
expectancy of the Participant and his designated Beneficiary; or (3)
applied to the purchase of an annuity contract.
Notwithstanding anything in this Section 6.02 to the contrary, a
Participant cannot elect payments in the form of an annuity if the
safe harbor rules of Section 6.05(F) apply.
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT
A. DESIGNATION OF BENEFICIARY - SPOUSAL CONSENT - Each Participant may
designate, upon a form provided by and delivered to the Plan
Administrator, one or more primary and contingent Beneficiaries to
receive all or a specified portion of his Individual Account in the
event of his death. A Participant may change or revoke
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<PAGE> 48
such Beneficiary designation from time to time by completing and
delivering the proper form to the Plan Administrator.
In the event that a Participant wishes to designate a primary
Beneficiary who is not his spouse, his spouse must consent in writing
to such designation, and the spouse's consent must acknowledge the
effect of such designation and be witnessed by a notary public.
Notwithstanding this consent requirement, if the Participant
establishes to the satisfaction of the Plan Administrator that such
written consent may not be obtained because there is no spouse or the
spouse cannot be located, no consent shall be required. Any change of
Beneficiary will require a new spousal consent.
B. PAYMENT TO BENEFICIARY - If a Participant dies before his entire
Individual Account has been paid to him, such deceased Participant's
Individual Account shall be payable to any surviving Beneficiary
designated by the Participant, or, if no Beneficiary survives the
Participant, to the Participant's estate.
C. WRITTEN REQUEST: WHEN DISTRIBUTED - A Beneficiary of a deceased
Participant entitled to a distribution who wishes to receive a
distribution must submit a written request to the Plan Administrator.
Such request shall be made upon a form provided by the Plan
Administrator. Upon a valid request, the Plan Administrator shall
direct the Trustee (or Custodian) to commence distribution no later
than 90 days following the later of:
1. the close of the Plan Year within which the Participant dies; or
2. the close of the Plan Year in which the request is received.
D. LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN - In the event that
all, or any portion, of the distribution payable to a Participant or
his Beneficiary hereunder shall, at the expiration of 5 years after
it becomes payable, remain unpaid solely by reason of the inability
of the Plan Administrator, after sending a registered letter, return
receipt requested, to the last known address, and after further
diligent effort, to ascertain the whereabouts of such Participant or
his Beneficiary, the amount so distributable shall be forfeited and
allocated in accordance with the terms of the Plan. In the event a
Participant or Beneficiary is located subsequent to his benefit being
forfeited, such benefit shall be restored; provided, however, if all
or a portion of such amount has been lost by reason of escheat under
state law, the Participant or Beneficiary shall cease to be entitled
to the portion so lost.
6.04 FORM OF DISTRIBUTION TO BENEFICIARY
A. VALUE OF INDIVIDUAL ACCOUNT DOES NOT EXCEED $3,500- If the value of
the Participant's Individual Account derived from Employee and
Employer Contributions does not exceed $3,500, the Plan Administrator
shall direct the Trustee (or Custodian, if applicable) to make a
distribution to the Beneficiary in a single lump sum in lieu of all
other forms of distribution from the Plan.
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<PAGE> 49
B. VALUE OF INDIVIDUAL ACCOUNT EXCEEDS $3,500 - If the value of a
Participant's Individual Account derived from Employee' and Employer
Contributions exceeds $3,500 the preretirement survivor annuity
requirements of Section 6.05 shall apply unless waived in accordance
with that Section or unless the safe harbor rules of Section 6.05(F)
apply.
C. OTHER FORMS OF DISTRIBUTION TO BENEFICIARY - If the value of a
Participant's Individual Account exceeds $3,500 and the Participant
has properly waived the preretirement survivor annuity, as described
in Section 6.05 (if applicable), the Beneficiary may, subject to the
requirements of Section 6.06, request in writing that the
Participant's Individual Account be paid to him as follows: (1) in a
lump sum; or (2) in installment payments over a period not to exceed
the life expectancy of such Beneficiary.
6.05 JOINT AND SURVIVOR ANNUITY REQUIREMENTS
A. The provisions of this Section shall apply to any Participant who is
credited with at least one Hour of Eligibility Service with the
Employer on or after August 23, 1984, and such other participants as
provided in Section 6.05(G).
B. QUALIFIED JOINT AND SURVIVOR ANNUITY - Unless an optional form of
benefit is selected pursuant to a qualified election within the
90-day period ending on the annuity starting date, a married
Participant's Vested account balance will be paid in the form of a
qualified joint and survivor annuity and an unmarried Participant's
Vested account balance will be paid in the form of a life annuity.
The Participant may elect to have such annuity distributed upon
attainment of the earliest retirement age under the Plan.
C. QUALIFIED PRERETIREMENT SURVIVOR ANNUITY - Unless an optional form of
benefit has been selected within the election period pursuant to a
qualified election, if a Participant dies before the annuity starting
date then the Participant's Vested account balance shall be applied
toward the purchase of an annuity for the life of the surviving
spouse. The surviving spouse may elect to have such annuity
distributed within a reasonable period after the Participant's death.
D. DEFINITIONS
1. Election Period - The period which begins on the first day of the
Plan Year in which the Participant attains age 35 and ends on the
date of the Participant's death. If a Participant separates from
service prior to the first day of the Plan year in which age 35
is attained, with respect to the account balance as of the date
of separation, the election period shall begin on the date of
separation.
Pre-age 35 waiver - A Participant who will not yet attain age 35
as of the end of any current Plan Year may make a special
qualified election to waive the qualified preretirement survivor
annuity for the period beginning on the date of such
44
<PAGE> 50
election and ending on the first day of the Plan Year in which
the Participant will attain age 35. Such election shall not be
valid unless the Participant receives a written explanation of
the qualified preretirement survivor annuity in such terms as are
comparable to the explanation required under Section 6.05(E)(1).
Qualified preretirement survivor annuity coverage will be
automatically reinstated as of the first day of the Plan Year in
which the Participant attains age 35. Any new waiver on or after
such date shall be subject to the full requirements of this
Section 6.05.
2. Earliest Retirement Age - The earliest date on which, under the
Plan, the Participant could elect to receive retirement benefits.
3. Qualified Election - A waiver of a qualified joint and survivor
annuity or a qualified preretirement survivor annuity. Any waiver
of a qualified joint and survivor annuity or a qualified
preretirement survivor annuity shall not be effective unless: (a)
the Participant's spouse consents in writing to the election, ~)
the election designates a specific Beneficiary, including any
class of beneficiaries or any contingent beneficiaries, which may
not be changed without spousal consent (or the spouse expressly
permits designations by the Participant without any further
spousal consent); (c) the spouse's consent acknowledges the
effect of the election; and (d) the spouse's consent is witnessed
by a plan representative or notary public. Additionally, a
Participant's waiver of the qualified joint and survivor annuity
shall not be effective unless the election designates a form of
benefit payment which may not be changed without spousal consent
(or the spouse expressly permits designations by the Participant
without any further spousal consent). If it is established to the
satisfaction of a plan representative that there is no spouse or
that the spouse cannot be located, a waiver will be deemed a
qualified election.
Any consent by a spouse obtained under this provision (or
establishment that the consent of a spouse may not be obtained)
shall be effective only with respect to such spouse. A consent
that permits designations by the Participant without any
requirement of further consent by such spouse must acknowledge
that the spouse has the right to limit consent to a specific
Beneficiary, and a specific form of benefit where applicable, and
that the spouse voluntarily elects to relinquish either or both
of such rights. A revocation of a prior waiver may be made by a
Participant without the consent of the spouse at any time before
the commencement of benefits. The number of revocations shall not
be limited. No consent obtained under this provision shall be
valid unless the Participant has received notice as provided in
Section 6.05(E) below.
4. Qualified Joint and Survivor Annuity - An immediate annuity for
the life of the Participant with a survivor annuity for the life
of the spouse which is not less than 50010 and not more than 100%
of the amount of the annuity which is payable during the joint
lives of the Participant and the spouse and which is the amount
of benefit which can be purchased with the Participant's vested
account balance. The
45
<PAGE> 51
percentage of the survivor annuity under the Plan shall be 500/0
(unless a different percentage is elected by the Employer in the
Adoption Agreement).
5. Spouse (surviving spouse) - The spouse or surviving spouse of the
Participant, provided that a former spouse will be treated as the
spouse or surviving spouse and a current spouse will not be
treated as the spouse or surviving spouse to the extent provided
under a qualified domestic relations order as described in
Section 414(p) of the Code.
6. Annuity Starting Date - The first day of the first period for
which an amount is paid as an annuity or any other form.
7. Vested Account Balance - The aggregate value of the Participant's
Vested account balances derived from Employer and Employee
contributions (including rollovers), whether Vested before or
upon death, including the proceeds of insurance contracts, if
any, on the Participant's life. The provisions of this Section
6.05 shall apply to a Participant who is Vested in amounts
attributable to Employer Contributions, Employee contributions
(or both) at the time of death or distribution.
E. NOTICE REQUIREMENTS
1. In the case of a qualified joint and survivor annuity, the Plan
Administrator shall no less than 30 days and not more than 90
days prior to the annuity starting date provide each Participant
a written explanation of: (a) the terms and conditions of a
qualified joint and survivor annuity; in) the Participant's right
to make and the effect of an election to waive the qualified
joint and survivor annuity form of benefit; (c) the rights of a
Participant's spouse; and (d) the right to make, and the effect
of, a revocation of a previous election to waive the qualified
joint and survivor annuity.
2. In the case of a qualified preretirement survivor annuity as
described in Section 6.05(C), the Plan Administrator shall
provide each Participant within the applicable period for such
Participant a written explanation of the qualified preretirement
survivor annuity in such terms and in such manner as would be
comparable to the explanation provided for meeting the
requirements of Section 6.05(E)(l) applicable to a qualified
joint and survivor annuity.
The applicable period for a Participant is whichever of the
following periods ends last: (a) the period beginning with the
first day of the Plan Year in which the Participant attains age
32 and ending with the close of the Plan Year preceding the Plan
Year in which the Participant attains age 35; (0) a reasonable
period ending after the individual becomes a Participant; (c) a
reasonable period ending after Section 6.05(E)(3) ceases to
apply to the Participant; (d) a reasonable period ending after
this Section 6.05 first applies to the Participant.
Notwithstanding the foregoing, notice must be provided within
a reasonable period ending after
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<PAGE> 52
separation from service in the case of a Participant who
separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable
period ending after the enumerated events described in (b), (c)
and (d) is the end of the two-year period beginning one year
prior to the date the applicable event occurs, and ending one
year after that date. In the case of a Participant who separates
from service before the Plan Year in which age 35 is attained,
notice shall be provided within the two-year period beginning one
year prior to separation and ending one year after separation. If
such a Participant thereafter returns to employment with the
Employer, the applicable period for such Participant shall be
redetermined.
3. Notwithstanding the other requirements of this Section 6.05(E),
the respective notices prescribed by this Section 6.05(E), need
not be given to a Participant if (a) the Plan "fully subsidizes"
the costs of a qualified joint and survivor annuity or qualified
preretirement survivor annuity, and in) the Plan does not allow
the Participant to waive the qualified joint and survivor annuity
or qualified preretirement survivor annuity and does not allow a
married Participant to designate a nonspouse beneficiary. For
purposes of this Section 6.05(E)(3), a plan fully subsidizes the
costs of a benefit if no increase in cost, or decrease in
benefits to the Participant may result from the Participant's
failure to elect another benefit.
F. SAFE HARBOR RULES
1. If the Employer so indicates in the Adoption Agreement, this
Section 6.05(F) shall apply to a Participant in a profit sharing
plan, and shall always apply to any distribution, made on or
after the first day of the first Plan Year beginning after
December 31, 1988, from or under a separate account attributable
solely to accumulated deductible employee contributions, as
defined in Section 72(o)(5)(B) of the Code, and maintained on
behalf of a Participant in a money purchase pension plan,
(including a target benefit plan) if the following conditions are
satisfied:
a. the Participant does not or cannot elect payments in
the form of a life annuity; and
b. on the death of a participant, the Participant's Vested
account balance will be paid to the Participant's
surviving spouse, but if there is no surviving spouse,
or if the surviving spouse has consented in a manner
conforming to a qualified election, then to the
Participant's designated beneficiary. The surviving
spouse may elect to have distribution of the Vested
account balance commence within the 90-day period
following the date of the Participant's death. The
account balance shall be adjusted for gains or losses
occurring after the Participant's death in accordance
with the provisions of the Plan governing the
adjustment of account balances for other types of
distributions. This Section 6.05(F) shall not be
operative
47
<PAGE> 53
with respect to a Participant in a profit
sharing plan if the plan is a direct or indirect
transferee of a defined benefit plan, money purchase
plan, a target benefit plan, stock bonus, or profit
sharing plan which is subject to the survivor annuity
requirements of Section 401(a)(11) and Section 417 of
the Code. If this Section 6.05(F) is operative, then
the provisions of this Section 6.05 other than Section
6.05(G) shall be inoperative.
2. The Participant may waive the spousal death benefit described in
this Section 6.05(F) at any time provided that no such waiver
shall be effective unless it satisfies the conditions of Section
6.05(D)(3) (other than the notification requirement referred to
therein) that would apply to the Participant's waiver of the
qualified preretirement survivor annuity.
3. For purposes of this Section 6.05(F), Vested account balance
shall mean, in the case of a money purchase pension plan or a
target benefit plan, the Participant's separate account balance
attributable solely to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the
Code. In the case of a profit sharing plan, Vested account
balance shall have the same meaning as provided in Section
6.05(D)(7).
G. TRANSITIONAL RULES
1. Any living Participant not receiving benefits on August 23, 1984,
who would otherwise not receive the benefits prescribed by the
previous subsections of this Section 6.05 must be given the
opportunity to elect to have the prior subsections of this
Section apply if such Participant is credited with at least one
Hour of Service under this Plan or a predecessor plan in a Plan
Year beginning on or after January 1, 1976, and such Participant
had at least 10 Years of Vesting Service when he or she separated
from service.
2. Any living Participant not receiving benefits on August 23, 1984,
who was credited with at least one Hour of Service under this
Plan or a predecessor plan on or after September 2, 1974, and who
is not otherwise credited with any service in a Plan Year
beginning on or after January 1, 1976, must be given the
opportunity to have his or her benefits paid in accordance with
Section 6.05(G)(4).
3. The respective opportunities to elect (as described in Section
6.05(G)(1) and (2) above) must be afforded to the appropriate
Participants during the period commencing on August 23, 1984, and
ending on the date benefits would otherwise commence to said
Participants.
4. Any Participant who has elected pursuant to Section 6.05(G)(2)
and any Participant who does not elect under Section 6.05(G)(1)
or who meets the requirements of Section 6.05(G)~) except that
such Participant does not have at least 10 Years of Vesting
Service when he or she separates from service, shall
48
<PAGE> 54
have his or her benefits distributed in accordance with all
of the following requirements if benefits would have been payable
in the form of a life annuity:
a. Automatic Joint and Survivor Annuity - If benefits in the
form of a life annuity become payable to a married
Participant who:
1. begins to receive payments under the Plan on or after
Normal Retirement Age; or
2. dies on or after Normal Retirement Age while still
working for the Employer; or
3. begins to receive payments on or after the qualified
early retirement age; or
4. separates from service on or after attaining Normal
Retirement Age (or the qualified early retirement
age) and after satisfying the eligibility
requirements for the payment of benefits under the
Plan and thereafter dies before beginning to receive
such benefits;
then such benefits will be received under this Plan in the
form of a qualified joint and survivor annuity, unless the
Participant has elected otherwise during the election
period. The election period must begin at least 6 months
before the Participant attains qualified early retirement
age and ends not more than 90 days before the commencement
of benefits. Any election hereunder will be in writing and
may be changed by the Participant at any time.
b. Election of Early Survivor Annuity - A Participant who is
employed after attaining the qualified early retirement
age will be given the opportunity to elect, during the
election period, to have a survivor annuity payable on
death. If the Participant elects the survivor annuity,
payments under such annuity must not be less than the
payments which would have been made to the spouse under
the qualified joint and survivor annuity if the
Participant had retired on the day before his or her
death. Any election under this provision will be in
writing and may be changed by the Participant at any time.
The election period begins on the later of (1) the 90th
day before the Participant attains the qualified early
retirement age, or (2) the date on which participation
begins, and ends on the date the Participant terminates
employment.
c. For purposes of Section 6.05(G)(4):
1. Qualified early retirement age is the latest of:
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<PAGE> 55
a. the earliest date, under the Plan, on which the
Participant may elect to receive retirement
benefits,
b. the first day of the 120th month beginning
before the Participant reaches Normal Retirement
Age, or
c. the date the Participant begins participation.
2. Qualified joint and survivor annuity is an annuity
for the life of the Participant with a survivor
annuity for the life of the spouse as described in
Section 6.05 (D)(4) of this Plan.
6.06 DISTRIBUTION REQUIREMENTS
A. GENERAL RULES
1. Subject to Section 6.05, Joint and Survivor Annuity Requirements, the
requirements of this Section shall apply to any distribution of a
Participant's interest and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified, the provisions of
this Section 6.06 apply to calendar years beginning after December 31,
1984.
2. All distributions required under this Section 6.06 shall be
determined and made in accordance with the Income Tax Regulations under
Sect ion 401(a)(9), including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the regulations.
B. REQUIRED BEGINNING DATE - The entire interest of a Participant must
be distributed or begin to be distributed no later than the
Participant's required beginning date.
C. LIMITS ON DISTRIBUTION PERIODS - As of the first distribution
calendar year, distributions, if not made in a single sum, may only
be made over one of the following periods (or a combination thereof):
1. the life of the Participant,
2. the life of the Participant and a designated Beneficiary,
3. a period certain not extending beyond the life expectancy of the
Participant, or
4. a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated Beneficiary.
D. DETERMINATION OF AMOUNT TO BE DISTRIBUTED EACH YEAR - If the
Participant's interest is to be distributed in other than a single
sum, the following minimum distribution rules shall apply on or after
the required beginning date:
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<PAGE> 56
1. Individual Account
a. If a Participant's benefit is to be distributed over (1) a period not
extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the
Participant's designated Beneficiary or (2) a period not extending
beyond the life expectancy of the designated Beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the first distribution calendar year, must at least
equal the quotient obtained by dividing the Participant's benefit by
the applicable life expectancy.
b. For calendar years beginning before January 1, 1989, if the
Participant's spouse is not the designated Beneficiary, the method of
distribution selected must assure that at least 50% of the present
value of the amount available for distribution is paid within the
life expectancy of the Participant.
c. For calendar years beginning after December 31, 1988, the amount to
be distributed each year, beginning with distributions for the first
distribution calendar year shall not be less than the quotient
obtained by dividing the Participant's benefit by the lesser of (1)
the applicable life expectancy or (2) if the Participant's spouse is
not the designated Beneficiary, the applicable divisor determined
from the table set forth in Q&A-4 of Section 1.401(a)(9)-2 of the
Income Tax Regulations. Distributions after the death of the
Participant shall be distributed using the applicable life expectancy
in Section 6.06(D)(1)(a) above as the relevant divisor without regard
to regulations 1.401(a)(9)-2.
d. The minimum distribution required for the Participant's first
distribution calendar year must be made on or before the
Participant's required beginning date. The minimum distribution for
other calendar years, including the minimum distribution for the
distribution calendar year in which the Employee's required beginning
date occurs, must be made on or before December 31 of that
distribution calendar year.
2. Other Forms - If the Participant's benefit is distributed in the form
of an annuity purchased from an insurance company, distributions
thereunder shall be made in accordance with the requirements of
Section 401(a)(9) of the Code and the regulations thereunder.
E. DEATH DISTRIBUTION PROVISIONS
1. Distribution Beginning Before Death - If the Participant dies after
distribution of his or her interest has begun, the remaining portion
of such interest will continue to be distributed at least as rapidly
as under the method of distribution being used prior to the
Participant's death.
2. Distribution Beginning After Death - II the Participant dies before
distribution of his or her interest begins, distribution of the
Participant's entire interest shall be completed by December 31 of
the calendar year containing the fifth anniversary of the
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<PAGE> 57
Participant's death except to the extent that an election is made to
receive distributions in accordance with (a) or (b) below:
a. if any portion of the Participant's interest is payable to a
designated Beneficiary, distributions may be made over the life
or over a period certain not greater than the life expectancy of
the designated Beneficiary commencing on or before December 31 of
the calendar year immediately following the calendar year in
which the Participant died;
b. if the designated Beneficiary is the Participant's surviving
spouse, the date distributions are required to begin in
accordance with (a) above shall not be earlier than the later of
(1) December 31 of the calendar year immediately following the
calendar year in which the Participant dies or (2) December 31 of
the calendar year in which the Participant would have attained
age 70 1/2.
If the Participant has not made an election pursuant to this
Section 6.06(E)(2) by the time of his or her death, the
Participant's designated Beneficiary must elect the method of
distribution no later than the earlier of (1) December 31 of the
calendar year in which distributions would be required to begin
under this Section 6.06(E)(2), or (2) December 31 of the calendar
year which contains the fifth anniversary of the date of death of
the Participant. If the Participant has no designated
Beneficiary, or if the designated Beneficiary does not elect a
method of distribution, distribution of the Participant's entire
interest must be completed by December ~ of the calendar year
containing the fifth anniversary of the Participant's death.
3. For purposes of Section 6.06(E)(2) above, if the surviving spouse
dies after the Participant, but before payments to such spouse begin,
the provisions of Section 6.06(E)(2), with the exception of paragraph
(0) therein, shall be applied as if the surviving spouse were the
Participant.
4. For purposes of this Section 6.06(E), any amount paid to a child of
the Participant will be treated as if it had been paid to the
surviving spouse if the amount becomes payable to the surviving
spouse when the child reaches the age of majority.
5. For purposes of this Section 6.06(E), distribution of a Participant's
interest is considered to begin on the Participant's required
beginning date (or, if Section 6.06(E)(3) above is applicable, the
date distribution is required to begin to the surviving spouse
pursuant to Section 6.06(E)(2) above). If distribution in the form of
an annuity irrevocably commences to the Participant before the
required beginning date, the date distribution is considered to begin
is the date distribution actually commences.
F. DEFINITIONS
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<PAGE> 58
1. Applicable Life Expectancy - The life expectancy (or joint and last
survivor expectancy) calculated using the attained age of the
Participant (or designated Beneficiary) as of the Participant's (or
designated Beneficiary's) birthday in the applicable calendar year
reduced by one for each calendar year which has elapsed since the
date life expectancy was first calculated. If life expectancy is
being recalculated, the applicable life expectancy shall be the life
expectancy as so recalculated. The applicable calendar year shall be
the first distribution calendar year, and if life expectancy is being
recalculated such succeeding calendar year.
2. Designated Beneficiary - The individual who is designated as the
Beneficiary under the Plan in accordance with Section 401(a)(9) of
the Code and the regulations thereunder.
3. Distribution Calendar Year - A calendar year for which a minimum
distribution is required. For distributions beginning before the
Participant's death, the first distribution calendar year is the
calendar year immediately preceding the calendar year which contains
the Participant's required beginning date. For distributions
beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are
required to begin pursuant to Section 6.06(E) above.
4. Life Expectancy - Life expectancy and joint and last survivor
expectancy are computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or spouse, in the case
of distributions described in Section 6.06(E)(2)(b) above) by the
time distributions are required to begin, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Participant (or spouse) and shall apply to all subsequent years. The
life expectancy of a nonspouse Beneficiary may not be recalculated.
5. Participant's Benefit
a. The account balance as of the last valuation date in the
valuation calendar year (the calendar year immediately preceding
the distribution calendar year) increased by the amount of any
Contributions or Forfeitures allocated to the account balance as
of dates in the valuation calendar year after the valuation date
and decreased by distributions made in the valuation calendar
year after the valuation date.
b. Exception for second distribution calendar year. For purposes of
paragraph (a) above, if any portion of the minimum distribution
for the first distribution calendar year is made in the second
distribution calendar year on or before the required beginning
date, the amount of the minimum distribution made in the second
distribution calendar year shall be treated as if it had been
made in the immediately preceding distribution calendar year.
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<PAGE> 59
6. Required Beginning Date
a. General Rule - The required beginning date of a Participant is
the first day of April of the calendar year following the
calendar year in which the Participant attains age 70 1/2.
b. Transitional Rules - The required beginning date of a Participant
who attains age 70 1/2 before January 1, 1988, shall be
determined in accordance with (1) or (2) below:
1. Non 5% Owners - The required beginning date of a
Participant who is not a 5% owner is the first day of
April of the calendar year following the calendar year in
which the later of retirement or attainment of age 70 1/2
occurs.
2. 5% Owners - The required beginning date of a Participant
who is a 5% owner during any year beginning after December
31, 1979, is the first day of April following the later
of:
a. the calendar year in which the Participant attains
age 70 1/2, or
b. the earlier of the calendar year with or within
which ends the Plan Year in which the Participant
becomes a 5% owner, or the calendar year in which
the Participant retires.
The required beginning date of a Participant who is
not a 5% owner who attains age 70 1/2 during 1988
and who has not retired as of January 1, 1989, is
April 1, 1990.
c. 5% Owner - A Participant is treated as a 5% owner for purposes of
this Section 6.06(F)(6) if such Participant is a 5% owner as
defined in Section 416(i) of the Code (determined in accordance
with Section ~6 but without regard to whether the Plan is
top-heavy) at any time during the Plan Year ending with or within
the calendar year in which such owner attains age 66 1/2 or any
subsequent Plan Year.
d. Once distributions have begun to a 5% owner under this Section
6.06(F)(6) they must continue to be distributed, even if the
Participant ceases to be a 5% owner in a subsequent year.
G. TRANSITIONAL RULE
1. Notwithstanding the other requirements of this Section 6.06 and
subject to the requirements of Section 6.05, Joint and Survivor
Annuity Requirements, distribution on behalf of any Employee,
including a 5% owner, may be made in accordance with all of the
following requirements (regardless of when such distribution
commences):
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a. The distribution by the Fund is one which would not have
disqualified such Fund under Section 401(a)(9) of the Code as in
effect prior to amendment by the Deficit Reduction Act of 1984.
b. The distribution is in accordance with a method of distribution
designated by the Employee whose interest in the Fund is being
distributed or, if the Employee is deceased, by a Beneficiary of
such Employee.
c. Such designation was in writing, was signed by the Employee or
the Beneficiary, and was made before January 1, 1984.
d. The Employee had accrued a benefit under the Plan as of December
31, 1983.
e. The method of distribution designated by the Employee or the
Beneficiary specifies the time at which distribution will
commence, the period over which distributions will be made, and
in the case of any distribution upon the Employee's death, the
Beneficiaries of the Employee listed in order of priority.
2. A distribution upon death will not be covered by this transitional
rule unless the information in the designation contains the required
information described above with respect to the distributions to be
made upon the death of the Employee.
3. For any distribution which commences before January 1, 1984, but
continues after December 31, 1983, the Employee, or the Beneficiary,
to whom such distribution is being made, will be presumed to have
designated the method of distribution under which the distribution is
being made if the method of distribution was specified in writing and
the distribution satisfies the requirements in Sections 6.06(G)(1)(a)
and (e).
4. If a designation is revoked, any subsequent distribution must satisfy
the requirements of Section 401(a)(9) of the Cede and the regulations
thereunder. If a designation is revoked subsequent to the date
distributions are required to begin, the Plan must distribute by the
end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which would
have been required to have been distributed to satisfy Section
401(a)(9) of the Code and the regulations thereunder, but for the
Section 242(1,)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the minimum
distribution incidental benefit requirements in Section 1.401(a)(9)-2
of the Income Tax Regulations. Any changes in the designation will be
considered to be a revocation o~ the designation. However, the mere
substitution or addition of another Beneficiary (one not named in the
designation) under the designation will not be considered to be a
revocation of the designation, so long as such substitution of
addition does not alter the period over which distributions are to be
made under the designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in which an amount
is transferred or rolled over from one plan to another plan, the
rules in Q&A J-2 and Q&A J-3 shall apply.
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6.07 ANNUITY CONTRACTS
Any annuity contract distributed under the Plan (if permitted or
required by this Section 6) must be nontransferable. The terms of any
annuity contract purchased and distributed by the Plan to a Participant
or spouse shall comply with the requirements of the Plan.
6.08 LOANS TO PARTICIPANTS
If the Adoption Agreement so indicates, a Participant may receive a loan
from the Fund, subject to the following rules:
A. Loans shall be made available to all Participants on a reasonably
equivalent basis.
B. Loans shall not be made available to Highly Compensated Employees (as
defined in Section 414(q) of the Code) in an amount greater than the
amount made available to other Employees.
C. Loans must be adequately secured and bear a reasonable interest rate.
D. No Participant loan shall exceed the present value of the Vested
portion of a Participant's Individual Account.
E. A Participant must obtain the consent of his or her spouse, if any,
to the use of the Individual Account as security for the loan.
Spousal consent shall be obtained no earlier than the beginning of
the 90 day period that ends on the date on which the loan is to be so
secured. The consent must be in writing, must acknowledge the effect
of the loan, and must be witnessed by a plan representative or notary
public. Such consent shall thereafter be binding with respect to the
consenting spouse or any subsequent spouse with respect to that loan.
A new consent shall be required if the account balance is used for
renegotiation, extension, renewal, or other revision of the loan.
F. In the event of default, foreclosure on the note and attachment of
security will not occur until a distributable event occurs in the
Plan.
G. No loans will be made to any shareholder-employee or Owner-Employee.
For purposes of this requirement, a shareholder-employee means an
employee or officer of an electing small business (Subchapter S)
corporation who owns (or is considered as owning within the meaning
of Section 318(a)(1) of the Code), on any day during the taxable year
of such corporation, more than 5% of the outstanding stock of the
corporation.
If a valid spousal consent has been obtained in accordance with 6.08(E),
then, notwithstanding any other provisions of this Plan, the portion of
the Participant's Vested Individual Account used as a security interest
held by the Plan by reason of a loan outstanding to the Participant
shall be taken into account for purposes of determining the
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<PAGE> 62
amount of the account balance payable at the time of death or
distribution, but only if the reduction is used as repayment of the
loan. If less than 1000/" of the Participant's Vested Individual
Account (determined without regard to the preceding sentence) is
payable to the surviving spouse, then the account balance shall be
adjusted by first reducing the Vested Individual Account by the amount
of the security used as repayment of the loan, and then determining
the benefit payable to the surviving spouse.
No loan to any Participant can be made to the extent that such loan when
added to the outstanding balance of all other loans to the Participant
would exceed the lesser of (a) $50,000 reduced by the excess (if any) of
the highest outstanding balance of loans during the one year period
ending on the day before the loan is made, over the outstanding balance
of loans from the Plan on the date the loan is made, or (b) 50% of the
present value of the nonforfeitable Individual Account of the
Participant or, if greater, the total Individual Account up to $10,000.
For the purpose of the above limitation, all loans from all plans of the
Employer and other members of a group of employers described in Sections
414(b), 414(c), and 414(m) of the Code are aggregated. Furthermore, any
loan shall by its terms require that repayment (principal and interest)
be amortized in level payments, not less frequently than quarterly, over
a period not extending beyond 5 years from the date of the loan, unless
such loan is used to acquire a dwelling unit which within a reasonable
time (determined at the time the loan is made) will be used as the
principal residence of the Participant. An assignment or pledge of any
portion of the Participant's interest in the Plan and a loan, pledge, or
assignment with respect to any insurance contract purchased under the
Plan, will be treated as a loan under this paragraph.
The Plan Administrator shall administer the loan program in accordance
with a written document. Such written document shall include, at a
minimum, the following: (i) the identity of the person or positions
authorized to administer the Participant loan program; (ii) the
procedure for applying for loans; (iii) the basis on which loans will be
approved or denied; (iv) limitations (if any) on the types and amounts
of loans offered; (v) the procedure under the program for determining a
reasonable rate of interest; (vi) the types of collateral which may
secure a Participant loan; and (vii) the events constituting default and
the steps that will be taken to preserve Plan assets in the event of
such default.
6.09 DISTRIBUTION IN KIND
The Plan Administrator may cause any distribution under this Plan to be
made either in a form actually held in the Fund, or in cash by
converting assets other than cash into cash, or in any combination of
the two foregoing ways.
6.10 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS
A. DIRECT ROLLOVER OPTION - This Section applies to distributions made
on or after January 1, 1993. Notwithstanding any provision of the
Plan to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the time and
in the manner prescribed by the Plan Administrator, to have any
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portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct
rollover.
B. DEFINITIONS
1. Eligible rollover distribution - An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include:
a. any distribution that is one of a series of substantially
equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten
years or more;
b. any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and
c. the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer
securities).
2. Eligible retirement plan - An eligible retirement plan is an
individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in Section 408~)
of the Code, an annuity plan described in Section 403(a) of the
Code, or a qualified trust described in Section 401 (a) of the
Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan
is an individual retirement account or individual retirement
annuity.
3. Distributee - A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's spouse
or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of the spouse
or former spouse.
4. Direct rollover - A direct rollover is a payment by the Plan to
the eligible retirement plan specified by the distributee.
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SECTION SEVEN
CLAIMS PROCEDURE
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS
A Participant or Beneficiary who desires to make a claim for the Vested
Portion of the Participant's Individual Account shall file a written
request with the Plan Administrator on a form to be furnished to him by
the Plan Administrator for such purpose. The request shall set forth the
basis of the claim. The Plan Administrator is authorized to conduct such
examinations as may be necessary to facilitate the payment of any
benefits to which the Participant or Beneficiary may be entitled under
the terms of the Plan.
7.02 DENIAL OF CLAIM
Whenever a claim for a Plan distribution by any Participant or
Beneficiary has been wholly or partially denied, the Plan Administrator
must furnish such Participant or Beneficiary written notice of the
denial within 60 days of the date the original claim was filed. This
notice shall set forth the specific reasons for the denial, specific
reference to pertinent Plan provisions on which the denial is based, a
description of any additional information or material needed to perfect
the claim, an explanation of why such additional information or material
is necessary and an explanation of the procedures for appeal.
7.03 REMEDIES AVAILABLE
The Participant or Beneficiary shall have 60 days from receipt of the
denial notice in which to make written application for review by the
Plan Administrator. The Participant or Beneficiary may request that the
review be in the nature of a hearing. The Participant or Beneficiary
shall have the right to representation, to review pertinent documents
and to submit comments in writing. The Plan Administrator shall issue a
decision on such review within 60 days after receipt of an application
for review as provided for in Section 7.02. Upon a decision unfavorable
to the Participant or Beneficiary, such Participant or Beneficiary shall
be entitled to bring such actions in law or equity as may be necessary
or appropriate to protect or clarify his right to benefits under this
Plan.
SECTION EIGHT
PLAN ADMINISTRATOR
8.01 EMPLOYER IS PLAN ADMINISTRATOR
A. The Employer shall be the Plan Administrator unless the managing body
of the Employer designates a person or persons other than the
Employer as the Plan Administrator and so notifies the Regional
Prototype Sponsor and the Trustee (or Custodian, if applicable). The
Employer shall also be the Plan Administrator if the person or
persons so designated cease to be the Plan Administrator.
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B. if the managing body of the Employer designates a person or persons
other than the Employer as Plan Administrator, such person or persons
shall serve at the pleasure of the Employer and shall serve pursuant
to such procedures as such managing body may provide. Each such
person shall be bonded as may be required by law.
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR
A. The Plan Administrator may, by appointment, allocate the duties of
the Plan Administrator among several individuals or entities. Such
appointments shall not be effective until the party designated
accepts such appointment in writing.
B. The Plan Administrator shall have the authority to control and manage
the operation and administration of the Plan. The Plan Administrator
shall administer the Plan for the exclusive benefit of the
Participants and their Beneficiaries in accordance with the specific
terms of the Plan.
C. The Plan Administrator shall be charged with the duties of the
general administration of the Plan, including, but not limited to,
the following:
1. To determine all questions of interpretation or policy in a
manner consistent with the Plan's documents and the Plan
Administrator's construction or determination in good faith shall
be conclusive and binding on all persons except as otherwise
provided herein or by law. Any interpretation or construction
shall be done in a nondiscriminatory manner and shall be
consistent with the intent that the Plan shall continue to be
deemed a qualified plan under the terms of Section 401(a) of the
Code, as amended from time-to-time, and shall comply with the
terms of ERISA, as amended from time-to-time;
2. To determine all questions relating to the eligibility of
Employees to become or remain Participants hereunder;
3. To compute the amounts necessary or desirable to be contributed
to the Plan;
4. To compute the amount and kind of benefits to which a Participant
or Beneficiary shall be entitled under the Plan and to direct the
Trustee (or Custodian, if applicable) with respect to all
disbursements under the Plan and when requested by the Trustee
(or Custodian), to furnish the Trustee (or Custodian) with
instructions, in writing on matters pertaining to the Plan and
the Trustee (or Custodian) may rely and act thereon;
5. To maintain all records necessary for the administration of the
Plan;
6. To be responsible for preparing and filing such disclosure and
tax forms as may be required from time-to-time by the Secretary
of Labor or the Secretary of the Treasury; and
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7. To furnish each Employee, Participant or Beneficiary such
notices, information and reports under such circumstances as may
be required by law.
D. The Plan Administrator shall have all of the powers necessary or
appropriate to accomplish his duties under the Plan, including, but
not limited to, the following:
1. To appoint and retain such persons as may be necessary to carry
out the functions of the Plan Administrator;
2. To appoint and retain counsel, specialists or other persons as
the Plan Administrator deems necessary or advisable in the
administration of the Plan;
3. To resolve all questions of administration of the Plan;
4. To establish such uniform and nondiscriminatory rules which it
deems necessary to carry out the terms of the Plan;
5. To make any adjustments in a uniform and nondiscriminatory manner
which it deems necessary to correct any arithmetical or
accounting errors which may have been made for any Plan Year; and
6. To correct any defect, supply any omission or reconcile any
inconsistency in such manner and to such extent as shall be
deemed necessary or advisable to carry out the purpose of the
Plan.
8.03 EXPENSES AND COMPENSATION
All reasonable expenses of administration including, but not limited to,
those involved in retaining necessary professional assistance may be
paid from the assets of the Fund. Alternatively, the Employer may, in
its discretion, pay such expenses. The Employer shall furnish the Plan
Administrator with such clerical and other assistance as the Plan
Administrator may need in the performance of his duties.
8.04 INFORMATION FROM EMPLOYER
To enable the Plan Administrator to perform his duties, the Employer
shall supply full and timely information to the Plan Administrator (or
his designated agents) on all matters relating to the Compensation of
all Participants, their regular employment, retirement, death,
Disability or Termination of Employment, and such other pertinent facts
as the Plan Administrator (or his agents) may require. The Plan
Administrator shall advise the Trustee (or Custodian, if applicable) of
such of the foregoing facts as may be pertinent to the Trustee's (or
Custodian's) duties under the Plan. The Plan Administrator (or his
agents) is entitled to rely on such information as is supplied by the
Employer and shall have no duty or responsibility to verify such
information.
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SECTION NINE
AMENDMENT AND TERMINATION
9.01 RIGHT OF REGIONAL PROTOTYPE SPONSOR TO AMEND THE PLAN
A. The Regional Prototype Sponsor may amend any part of the Plan.
However, it shall be understood that the Regional Prototype Sponsor
shall be under no obligation to amend the Plan documents and the
Employer expressly waives any rights or claims against the Regional
Prototype Sponsor for not exercising this power to amend.
B. An amendment by the Regional Prototype Sponsor shall be accomplished
by giving written notice to the Employer of the amendment to be made.
The notice shall set forth the text of such amendment and the date
such amendment is to be effective. Such amendment shall take effect
unless within the 30 day period after such notice is provided, or
within such shorter period as the notice may specify, the Employer
gives the Regional Prototype Sponsor written notice of refusal to
consent to the amendment. Such written notice of refusal shall have
the effect of withdrawing the Plan as a regional prototype plan and
shall cause the Plan to be considered an individually designed plan.
The right of the Regional Prototype Sponsor to cause the Plan to be
amended shall terminate should the Plan cease to conform as a
regional prototype plan as provided in this or any other section.
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN
The Employer may ~) change the choice of options in the Adoption
Agreement, (2) add overriding language in the Adoption Agreement when
such language is necessary to satisfy Section ~5 or Section ~6 of the
Code because of the required aggregation of multiple plans, and (3) add
certain model amendments published by the Internal Revenue Service which
specifically provide that their adoption will not cause the Plan to be
treated as individually designed. An Employer that amends the Plan for
any other reason, including a waiver of the minimum funding requirement
under Section 412(d) of the Code, will no longer participate in this
regional prototype plan and will be considered to have an individually
designed plan.
An Employer who wishes to amend the Plan to change the options it has
chosen in the Adoption Agreement must complete and deliver a new
Adoption Agreement to the Regional Prototype Sponsor and Trustee (or
Custodian, if applicable). Such amendment shall become effective upon
execution by the Employer and Trustee (or Custodian).
The Employer further reserves the right to replace the Plan in its
entirety by adopting another retirement plan which the Employer
designates as a replacement plan.
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9.03 LIMITATION ON POWER TO AMEND
No amendment to the Plan shall be effective to the extent that it has
the effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's Individual
Account may be reduced to the extent permitted under Section 412(c)(8)
of the Code. For purposes of this paragraph, a plan amendment which has
the effect of decreasing a Participant's Individual Account or
eliminating an optional form of benefit with respect to benefits
attributable to service before the amendment shall be treated as
reducing an accrued benefit. Furthermore, if the vesting schedule of a
Plan is amended, in the case of an Employee who is a Participant as of
the later of the date such amendment is adopted or the date it becomes
effective, the Vested percentage (determined as of such date) of such
Employee's individual Account derived from Employer Contributions will
not be less than the percentage computed under the Plan without regard
to such amendment.
9.04 AMENDMENT OF VESTING SCHEDULE
If the Plan's vesting schedule is amended, or the Plan is amended in any
way that directly or indirectly affects the computation of the
Participant's Vested percentage, or if the Plan is deemed amended by an
automatic change to or from a top-heavy vesting schedule, each
Participant with at least 3 Years of Vesting Service with the Employer
may elect, within the time set forth below, to have the Vested
percentage computed under the Plan without regard to such amendment.
For Participants who do not have at least 1 Hour of Service in any Plan
Year beginning after December 31, 1988, the preceding sentence shall be
applied by substituting "5 Years of Vesting Service" for "3 Years of
Vesting Service" where such language appears.
The Period during which the election may be made shall commence with the
date the amendment is adopted or deemed to be made and shall end the
later of:
A. 60 days after the amendment is adopted;
B. 60 days after the amendment becomes effective; or
C. 60 days after the Participant is issued written notice of the
amendment by the Employer or Plan Administrator.
9.05 PERMANENCY
The Employer expects to continue this Plan and make the necessary
contributions thereto indefinitely, but such continuance and payment is
not assumed as a contractual obligation. Neither the Adoption Agreement
nor the Plan nor any amendment or modification thereof nor the making of
contributions hereunder shall be construed as giving any Participant or
any person whomsoever any legal or equitable right against the
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<PAGE> 69
Employer, the Trustee (or Custodian, if applicable), the Plan
Administrator or the Regional Prototype Sponsor except as specifically
provided herein, or as provided by law.
9.06 METHOD AND PROCEDURE FOR TERMINATION
The Plan may be terminated by the Employer at any time by appropriate
action of its managing body. Such termination shall be effective on the
date specified by the Employer. The Plan shall terminate if the Employer
shall be dissolved, terminated, or declared bankrupt. Written notice of
the termination and effective date thereof shall be given to the Trustee
(or Custodian, if applicable), Plan Administrator, Regional Prototype
Sponsor, Participants and Beneficiaries of deceased Participants, and
the required filings (such as the Form 5500 series and others) must be
made with the Internal Revenue Service and any other regulatory body as
required by current laws and regulations. Until all of the assets have
been distributed from the Fund, the Employer must keep the Plan in
compliance with current laws and regulations by (a) making appropriate
amendments to the Plan and (b) taking such other measures as may be
required.
9.07 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER
Notwithstanding the preceding Section 9.06, a successor of the Employer
may continue the Plan and be substituted in the place of the present
Employer. The successor and the present Employer (or, if deceased, the
executor of the estate of a deceased Self-Employed Individual who was
the Employer) must execute a written instrument authorizing such
substitution and the successor must complete and sign a new Adoption
Agreement.
9.08 FAILURE OF PLAN QUALIFICATION
If the Plan fails to attain or retain its qualified status, the Plan
will no longer be considered to be part of a regional prototype plan,
and such Employer can no longer participate under this regional
prototype. In such event, the Plan will be considered an individually
designed plan.
SECTION TEN
MISCELLANEOUS
10.01 STATE COMMUNITY PROPERTY LAWS
The terms and conditions of this Plan shall be applicable without regard
to the community property laws of any state.
10.02 HEADINGS
The headings of the Plan have been inserted for convenience of reference
only and are to be ignored in any construction of the provisions hereof.
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10.03 GENDER AND NUMBER
Whenever any words are used herein in the masculine gender they shall be
construed as though they were also used in the feminine gender in all
cases where they would so apply, and whenever any words are used herein
in the singular form they shall be construed as though they were also
used in the plural form in all cases where they would so apply.
10.04 PLAN MERGER OR CONSOLIDATION
In the case of any merger or consolidation of the Plan with, or transfer
of assets or liabilities of such Plan to, any other plan, each
Participant shall be entitled to receive benefits immediately after the
merger, consolidation, or transfer (if the Plan had then terminated)
which are equal to or greater than the benefits he would have been
entitled to receive immediately before the merger, consolidation, or
transfer (if the Plan had then terminated). The Trustee (or Custodian,
if applicable) has the authority to enter into merger agreements or
agreements to directly transfer the assets of this Plan but only if such
agreements are made with trustees or custodians of other retirement
plans described in Section 401(a) of the Code.
10.05 STANDARD OF FIDUCIARY CONDUCT
The Employer, Plan Administrator, Trustee and any other fiduciary under
this Plan shall discharge their duties with respect to this Plan solely
in the interests of Participants and their Beneficiaries and with the
care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man acting in like capacity and familiar with
such matters would use in the conduct of an enterprise of a like
character and with like aims. No fiduciary shall cause the Plan to
engage in any transaction known as a "prohibited transaction" under
ERISA.
10.06 GENERAL UNDERTAKING OF ALL PARTIES
All parties to this Plan and all persons claiming any interest
whatsoever hereunder agree to perform any and all acts and execute any
and all documents and papers which may be necessary or desirable for the
carrying out of this Plan and any of the provisions.
10.07 AGREEMENT BINDS HEIRS, ETC.
This Plan shall be binding upon the heirs, executors, administrators,
successors and assigns, as those terms shall apply to any and all
parties hereto, present and future.
10.08 DETERMINATION OF TOP-HEAVY STATUS
A. For any Plan Year beginning after December 31, 1983, this Plan is a
Top-Heavy Plan if any of the following conditions exist:
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<PAGE> 71
1. If the top-heavy ratio for this Plan exceeds 60% and this Plan is
not part of any required aggregation group or permissive
aggregation group of plans.
2. If this Plan is part of a required aggregation group of plans but
not part of a permissive aggregation group and the top-heavy
ratio for the group of plans exceeds 60%.
3. If this Plan is a part of a required aggregation group and part
of a permissive aggregation group of plans and the top-heavy
ratio for the permissive aggregation group exceeds 60%.
For purposes of this Section 10.08, the following terms shall
have the meanings indicated below:
B. KEY EMPLOYEE - Any Employee or former Employee (and the beneficiaries
of such Employee) who at any time during the determination period was
an officer of the Employer if such individual's annual compensation
exceeds 50% of the dollar limitation under Section 415(b)(1)(A) of
the Code, an owner (or considered an owner under Section 318 of the
Code) of one of the 10 largest interests in the Employer if such
individual's compensation exceeds 100% of the dollar limitation under
Section 415(c)(1)(A) of the Code, a 5% owner of the Employer, or a 1%
owner of the Employer who has an annual compensation of more than
$150,000. Annual compensation means compensation as defined in
Section 415(c)(3) of the Code, but including amounts contributed by
the Employer pursuant to a salary reduction agreement which are
excludible from the Employee's gross income under Section 125,
Section 402(a)(8), Section 402(h) or Section 403(b) of the Code. The
determination period is the Plan Year containing the determination
date and the 4 preceding Plan Years.
The determination of who is a Key Employee will be made in accordance
with Section 416(i)(1) of the Code and the regulations thereunder.
C. TOP-HEAVY RATIO
1. If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan and the Employer has
not maintained any defined benefit plan which during the 5-year
period ending on the determination date(s) has or has had accrued
benefits, the top-heavy ratio for this Plan alone or for the required
or permissive aggregation group as appropriate is a fraction, the
numerator of which is the sum of the account balances of all Key
Employees as of the determination date(s) (including any part of any
account balance distributed in the 5-year period ending on the
determination date(s)), and the denominator of which is the sum of
all account balances (including any part of any account balance
distributed in the 5-year period ending on the determination
date(s)), both computed in accordance with Section 416 of the Code
and the regulations thereunder. Both the numerator and the
denominator of the top-heavy ratio are increased to reflect any
contribution not actually made as of
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the determination date, but which is required to be taken into
account on that date under Section 416 of the Code and the
regulations thereunder.
2. If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Employer
maintains or has maintained one or more defined benefit plans which
during the 5-year period ending on the determination date(s) has or
has had any accrued benefits, the top-heavy ratio for any required or
permissive aggregation group as appropriate is a fraction, the
numerator of which is the sum of account balances under the
aggregated defined contribution plan or plans for all Key Employees,
determined in accordance with (1) above, and the present value of
accrued benefits under the aggregated defined benefit plan or plans
for all Key Employees as of the determination date(s), and the
denominator of which is the sum of the account balances under the
aggregated defined contribution plan or plans for all Participants,
determined in accordance with (1) above, and the present value of
accrued benefits under the defined benefit plan or plans for all
Participants as of the determination date(s), all determined in
accordance with Section 416 of the Code and the regulations
thereunder. The accrued benefits under a defined benefit plan in both
the numerator and denominator of the top-heavy ratio are increased
for any distribution of an accrued benefit made in the 5-year period
ending on the determination date.
3. For purposes of (1) and (2) above, the value of account balances and
the present value of accrued benefits will be determined as of the
most recent valuation date that falls within or ends with the
12-month period ending on the determination date, except as provided
in Section ~6 of the Code and the regulations thereunder for the
first and second plan years of a defined benefit plan. The account
balances and accrued benefits of a Participant (a) who is not a Key
Employee but who was a Key Employee in a Prior Year, or (b) who has
not been credited with at least one Hour of Service with any employer
maintaining the plan at any time during the 5-year period ending on
the determination date will be disregarded. The calculation of the
top-heavy ratio, and the extent to which distributions, rollovers,
and transfers are taken into account will be made in accordance with
Section 416 of the Code and the regulations thereunder. Deductible
employee contributions will not be taken into account for purposes of
computing the top-heavy rat i(' When aggregating plans the value of
account balances and accrued benefits will be calculated with
reference to the determination dates that fall within the same
calendar year.
The accrued benefit of a Participant other than a Key Employee shall
be determined under (a) the method if anything uniformly applies for
accrual purposes under all defined benefit plans maintained by the
Employer or (b) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted
under the fractional rule of Section 411(b)(1)(C) of the Code.
4. Permissive aggregation group: The required aggregation group of plans
plus any other plan or plans of the Employer which, when considered
as a group with the required
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aggregation group, would continue to satisfy the requirements of
Sections 401(a)(4) and ~0 of the Code.
5. Required aggregation group: (a) Each qualified plan of the Employer
in which at least one Key Employee participates or participated at
any time during the determination period (regardless of whether the
Plan has terminated), and (b) any other qualified plan of the
Employer which enables a plan described in (a) to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
6. Determination date: For any Plan Year subsequent to the first Plan
Year, the last day of the preceding Plan Year. For the first Plan
Year of the Plan, the last day of that year.
7. Valuation date: For purposes of calculating the top-heavy ratio, the
valuation date shall be the last day of each Plan Year.
8. Present value: For purposes of establishing the "present value" of
benefits under a defined benefit plan to compute the top-heavy ratio,
any benefit shall be discounted only for mortality and interest based
on the interest rate and mortality table specified for this purpose
in the defined benefit plan.
10.09 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES
If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and
the plan established for other trades or businesses must, when looked at
as a single plan, satisfy Sections 401(a) and (d) of the Code for the
employees of those trades or businesses.
If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan
which satisfies Sections 4~(a) and (d) of the Code and which provides
contributions and benefits not less favorable than provided for
Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two
or more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
employees under the plan of the trade or business which is controlled
must be as favorable as those provided for him under the most favorable
plan of the trade or business which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or
more Owner-Employees, will be considered to control a trade or business
if the Owner-Employee, or two or more Owner-Employees, together:
A. own the entire interest in a unincorporated trade or business, or
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B. in the case of a partnership, own more than 50% of either the capital
interest or the profit interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or
more Owner-Employees, shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership
which such Owner-Employee, or such two or more Owner-Employees, are
considered to control within the meaning of the preceding sentence.
10.10 INALIENABILITY OF BENEFITS
No benefit or interest available hereunder will be subject to assignment
or alienation, either voluntarily or involuntarily. The preceding
sentence shall also apply to the creation, assignment, or recognition of
a right to any benefit payable with respect to a Participant pursuant to
a domestic relations order, unless such order is determined to be a
qualified domestic relations order, as defined in Section 414(p) of the
Code.
Generally, a domestic relations order cannot be a qualified domestic
relations order until January 1, 1985. However, in the case of a
domestic relations order entered before such date, the Plan
Administrator:
(1) shall treat such order as a qualified domestic relations order if
such Plan Administrator is paying benefits pursuant to such order
on such date, and
(2) may treat any other such order entered before such date as a
qualified domestic relations order even if such order does not
meet the requirements of Section ~4(p) of the Code.
SECTION ELEVEN
401(K) PROVISIONS
In addition to Sections 1 through 10, the provisions of this Section 11
shall apply if the Employer has established a 401(k) cash or deferred
arrangement (CODA) by completing and signing the appropriate Adoption
Agreement.
11.100 DEFINITIONS
The following words and phrases when used in the Plan with initial
capital letters shall, for the purposes of this Plan, have the meanings
set forth below unless the context indicates that other meanings are
intended.
11.101 ACTUAL DEFERRAL PERCENTAGE (ADP)
Means, for a specified group of Participants for a Plan Year, the
average of the ratios (calculated separately for each Participant in
such group) of ~) the amount of Employer Contributions actually paid
over to the Fund on behalf of such Participant for the Plan Year to (2)
the Participant's Compensation for such Plan Year (taking into account
only
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that Compensation paid to the Employee during the portion of the Plan
Year he was an eligible Participant). For purposes of calculating the
ADP, Employer Contributions on behalf of any Participant shall include:
(1) any Elective Deferrals made pursuant to the Participant's deferral
election, including Excess Elective Deferrals but excluding Elective
Deferrals that are taken into account in the Average Contribution
Percentage test (provided the ADP test is satisfied both with and
without exclusion of these Elective Deferrals); (2) any Qualified
Nonelective Contributions but excluding Qualified Nonelective
Contributions that are taken into account in the Average Contribution
Percentage test; and (3) at the election of the Employer, Qualified
Matching Contributions. For purposes of computing Actual Deferral
Percentages, an Employee who would be a Participant but for the failure
to make Elective Deferrals shall be treated as a Participant on whose
behalf no Elective Deferrals are made.
11.102 AGGREGATE LIMIT
Means the sum of (1) 125% of the greater of the ADP of the Participants
who are not Highly Compensated Employees for the Plan Year or the ACP of
the Participants who are not Highly Compensated Employees under the Plan
subject to the Code Section 401(m) for the Plan Year beginning with or
within the Plan Year of the CODA and (2) the lesser of 200% or two plus
the lesser of such ADP or ACP.
11.103 AVERAGE CONTRIBUTION PERCENTAGE (ACP)
Means the average of the Contribution Percentages of the Eligible
Participants in a group.
11.104 CONTRIBUTING PARTICIPANT
Means a Participant who has enrolled as a Contributing Participant
pursuant to Section 11.201 and on whose behalf the Employer is
contributing Elective Deferrals to the Plan.
11.105 CONTRIBUTION PERCENTAGE
Means the ratio (expressed as a percentage) of the Participant's
Contribution Percentage Amounts to the Participant's Compensation for
the Plan Year (whether or not the Employee was a Participant for the
entire Plan Year).
11.106 CONTRIBUTION PERCENTAGE AMOUNTS
Means the sum of the Employee Contributions, Matching Contributions, and
Qualified Matching Contributions (to the extent not taken into account
for purposes of the ADP test) made under the Plan on behalf of the
Participant for the Plan Year. Such Contribution Percentage Amounts
shall not include Matching Contributions that are forfeited either to
correct Excess Aggregate Contributions or because the contributions to
which they relate are Excess Deferrals, Excess Contributions, or Excess
Aggregate Contributions. If so elected in the Adoption Agreement, the
Employer may include Qualified Nonelective Contributions in the
Contribution Percentage Amounts. The
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Employer also may elect to use Elective Deferrals in the Contribution
Percentage Amounts so long as the ADP test is met before the Elective
Deferrals are used in the ACP test and continues to be met following the
exclusion of those Elective Deferrals that are used to meet the ACP
test.
11.107 ELECTIVE DEFERRALS
Means any Employer Contributions made to the Plan at the election of the
Participant, in lieu of cash compensation, and shall include
contributions made pursuant to a salary reduction agreement or other
deferral mechanism. With respect to any taxable year, a Participant's
Elective Deferral is the sum of all Employer contributions made on
behalf of such Participant pursuant to an election to defer under any
qualified CODA as described in Section 401(k) of the Code, any
simplified employee pension cash or deferred arrangement as described in
Section 402(h)(1)(B), any eligible deferred compensation plan under
Section 457, any plan as described under Section 501(c)(18), and any
Employer contributions made on the behalf of a Participant for the
purchase of an annuity contract under Section 403(b) pursuant to a
salary reduction agreement. Elective Deferrals shall not include any
deferrals properly distributed as excess annual additions.
No Participant shall be permitted to have Elective Deferrals made under
this Plan, or any other qualified plan maintained by the Employer,
during any taxable year, in excess of the dollar limitation contained in
Section 402(g) of the Code in effect at the beginning of such taxable
year.
Elective Deferrals may not be taken into account for purposes of
satisfying the minimum allocation requirement applicable to Top-Heavy
Plans described in Section 3.01(E).
11.108 ELIGIBLE PARTICIPANT
Means any Employee who is eligible to make an Employee Contribution, or
an Elective Deferral (if the Employer takes such contributions into
account in the calculation of the Contribution Percentage), or to
receive a Matching Contribution (including Forfeitures thereof) or a
Qualified Matching Contribution. If an Employee Contribution is required
as a condition of participation in the Plan, any Employee who would be a
Participant in the Plan if such Employee made such a contribution shall
be treated as an Eligible Participant on behalf of whom no Employee
Contributions are made.
11.109 EMPLOYEE CONTRIBUTION
Means any contribution made to the Plan by or on behalf of a Participant
that is included in the Participant's gross income in the year in which
made and that is maintained under a separate account to which earnings
and losses are allocated.
11.110 EXCESS AGGREGATE CONTRIBUTIONS
Means, with respect to any Plan Year, the excess of:
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A. The aggregate Contribution Percentage Amounts taken into account in
computing the numerator of the Contribution Percentage actually made
on behalf of Highly Compensated Employees for such Plan Year, over
B. The maximum Contribution Percentage Amounts permitted by the ACP test
(determined by reducing contributions made on behalf of Highly
Compensated Employees in order of their Contribution Percentages
beginning with the highest of such percentages).
Such determination shall be made after first determining Excess Elective
Deferrals pursuant to Section 11A12 and then determining Excess
Contributions pursuant to Section 11.111.
11.111 EXCESS CONTRIBUTIONS
Means, with respect to any Plan Year, the excess of:
A. The aggregate amount of Employer Contributions actually taken into
account in computing the ADP of Highly Compensated Employees for such
Plan Year, over
B. The maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly
Compensated Employees in order of the ADPs, beginning with the
highest of such percentages).
11.112 EXCESS ELECTIVE DEFERRALS
Means those Elective Deferrals that are includible in a Participant's
gross income under Section 402(g) of the Code to the extent such
Participant's Elective Deferrals for a taxable year exceed the dollar
limitation under such Code section Excess Elective Deferrals shall be
treated as annual additions under the Plan, unless such amounts are
distributed no later than the first April 15 following the close of the
Participant's taxable year.
11.113 MATCHING CONTRIBUTION
Means an Employer contribution made to this or any other defined
contribution plan on behalf of a Participant on account of an Employee
Contribution made by such Participant, or on account of a Participant's
Elective Deferrals, under a plan maintained by the Employer.
Matching Contributions may not be taken into account for purposes of
satisfying the minimum allocation requirement applicable to Top-Heavy
Plans described in Section ~
11.114 QUALIFIED NONELECTIVE CONTRIBUTIONS
Means contributions (other than Matching Contributions or Qualified
Matching Contributions) made by the Employer and allocated to
Participants' Individual Accounts that the Participants may not elect to
receive in cash until distributed from the Plan; that
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are nonforfeitable when made; and that are distributable only in
accordance with the distribution provisions that are applicable to
Elective Deferrals and Qualified Matching Contributions.
11.115 QUALIFIED MATCHING CONTRIBUTIONS
Means Matching Contributions which are subject to the distribution and
nonforfeitability requirements under Section 401(k) of the Code when
made.
11.200 CONTRIBUTING PARTICIPANT
11.201 REQUIREMENTS TO ENROLL AS A CONTRIBUTING PARTICIPANT
A. Each Employee who becomes a Participant may enroll as a Contributing
Participant. A Participant shall be eligible to enroll as a
Contributing Participant on the Entry Date as of which he enters the
Plan. If a Participant does not enroll at that time, he may enroll on
the first day of any subsequent Plan Year, or, if the Plan
Administrator shall permit in a uniform and nondiscriminatory manner,
on any subsequent Entry Date. A Participant who wishes to enroll as a
Contributing Participant must complete, sign and file a salary
reduction agreement with the Plan Administrator.
B. Notwithstanding the times set forth in Section 11.201(A) as of which
a Participant may enroll as a Contributing Participant, the Plan
Administrator shall have the authority to designate, in a
nondiscriminatory manner, additional enrollment times during the 12
month period beginning on the Effective Date in order that an orderly
first enrollment might be completed. In addition, if the Employer has
indicated in the Adoption Agreement that Elective Deferrals may be
based on cash bonuses, then Participants shall be afforded a
reasonable period of time prior to the issuance of such cash bonuses
to elect to defer them into the Plan.
11.202 MODIFICATION OF SALARY REDUCTION AGREEMENT BY A CONTRIBUTING PARTICIPANT
A Contributing Participant may modify his salary reduction agreement to
increase or decrease (within the limits placed on Elective Deferrals in
the Adoption Agreement) the amount of his Compensation deferred into the
Plan. Such modification may only be made as of the first day of a Plan
Year, or as of any other more frequent date(s) if the Plan Administrator
permits in a uniform and nondiscriminatory manner. A Contributing
Participant who desires to make such a modification shall complete, sign
and file a new salary reduction agreement with the Plan Administrator at
least thirty days before the modification is to become effective.
11.203 WITHDRAWAL AS A CONTRIBUTING PARTICIPANT
A Participant may withdraw as a Contributing Participant as of the last
day preceding any Entry Date (or as of any other date if the Plan
Administrator so permits in a uniform and
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nondiscriminatory manner) by revoking his authorization to the Employer
to make Elective Deferrals on his behalf. A Participant who desires to
withdraw as a Contributing Participant shall give written notice of
withdrawal to the Plan Administrator at least thirty days (or such
lesser period of days as the Plan Administrator shall permit in a
uniform and nondiscriminatory manner) before the effective date of
withdrawal. A Participant shall cease to be a Contributing Participant
upon his Termination of Employment, or on account of termination of the
Plan.
11.204 RETURN AS A CONTRIBUTING PARTICIPANT AFTER WITHDRAWAL
A Participant who has withdrawn as a Contributing Participant under
Section 11.203 may not again become a Contributing Participant until the
first day of the first Plan Year following the effective date of his
withdrawal as a Contributing Participant.
11.300 CONTRIBUTIONS
11.301 CONTRIBUTIONS BY EMPLOYER
The Employer shall make contributions to the Plan in accordance with the
contribution formulas specified in the Adoption Agreement.
11.302 QUALIFIED NONELECTIVE CONTRIBUTIONS
The Employer may elect to make Qualified Nonelective Contributions under
the Plan on behalf of Participants as provided in the Adoption
Agreement.
In addition, in lieu of distributing Excess Contributions as provided in
Section 11.505 of the Plan, or Excess Aggregate Contributions as
provided in Section 11.506 of the Plan, and to the extent elected by the
Employer in the Adoption Agreement, the Employer may make Qualified
Nonelective Contributions on behalf of Participants who are not Highly
Compensated Employees that are sufficient to satisfy either the Actual
Deferral Percentage test or the Average Contribution Percentage test, or
both, pursuant to regulations under the Code.
11.303 QUALIFIED MATCHING CONTRIBUTIONS
The Employer may elect to make Qualified Matching Contributions under
the Plan on behalf of Participants as provided in the Adoption
Agreement.
11.304 EMPLOYEE CONTRIBUTIONS
Notwithstanding Section 3.02, if the Employer so allows in the Adoption
Agreement, a Participant may contribute an Employee Contribution to the
Plan.
A separate account will be maintained by the Plan Administrator for the
Employee Contributions for each Participant.
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A Participant may, upon a written request submitted to the Plan
Administrator, withdraw the lesser of the portion of his Individual
Account attributable to his Employee Contributions or the amount he
contributed as Employee Contributions.
Employee Contributions and earnings thereon will be nonforfeitable at
all times. No Forfeiture will occur solely as a result an Employee's
withdrawal of Employee Contributions.
11.400 NONDISCRIMINATION TESTING
11.401 ACTUAL DEFERRAL PERCENTAGE (ADP) TEST
A. LIMITS ON HIGHLY COMPENSATED EMPLOYEES - The Actual Deferral
Percentage (hereinafter "ADP") for Participants who are Highly
Compensated Employees for each Plan Year and the ADP for Participants
who are not Highly Compensated Employees for the same Plan Year must
satisfy one of the following tests:
1. The ADP for Participants who are Highly Compensated Employees
for the Plan Year shall not exceed the ADP for Participants who
are not Highly Compensated Employees for the same Plan Year
multiplied by 1.25; or
2. The ADP for Participants who are Highly Compensated Employees
for the Plan Year shall not exceed the ADP for Participants who
are not Highly Compensated Employees for the same Plan Year
multiplied by 2.0 provided that the ADP for Participants who are
Highly Compensated Employees does not exceed the ADP for
Participants who are not Highly Compensated Employees by more
than 2 percentage points.
B. SPECIAL RULES
1. The ADP for any Participant who is a Highly Compensated Employee
for the Plan Year and who is eligible to have Elective Deferrals
(and Qualified Nonelective Contributions or Qualified Matching
Contributions, or both, if treated as Elective Deferrals for
purposes of the ADP test) allocated to his or her Individual
Accounts under two or more arrangements described in Section
401(k) of the Code, that are maintained by the Employer, shall
be determined as if such Elective Deferrals (and, if applicable,
such Qualified Nonelective Contributions or Qualified Matching
Contributions, or both) were made under a single arrangement. If
a Highly Compensated Employee participates in two or more cash
or deferred arrangements that have different Plan Years, all
cash or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement.
2. In the event that this Plan satisfies the requirements of
Sections 401(k), 401(a)(4), or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more other
plans satisfy the requirements of such sections of the Code only
if
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aggregated with this Plan, then this Section 11.401 shall be
applied by determining the ADP of Employees as if all such plans
were a single plan. For Plan Years beginning after December 31,
1989, plans may be aggregated in order to satisfy Section 401(k)
of the Code only if they have the same Plan Year.
3. For purposes of determining the ADP of a Participant who is a 5%
owner or one of the 10 most highly paid Highly Compensated
Employees, the Elective Deferrals (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if
treated as Elective Deferrals for purposes of the ADP test) and
compensation of such Participant shall include the Elective
Deferrals (and, if applicable, Qualified Nonelective
Contributions and Qualified Matching Contributions, or both) and
Compensation for the Plan Year of family members (as defined in
Section 414(q)(6) of the Code). Family members, with respect to
such Highly Compensated Employees, shall be disregarded as
separate Employees in determining the ADP both for Participants
who are not Highly Compensated Employees and for Participants
who are Highly Compensated Employees.
4. For purposes of determining the ADP test, Elective Deferrals,
Qualified Nonelective Contributions and Qualified Matching
Contributions must be made before the last day of the 12 month
period immediately following the Plan Year to which
contributions relate.
5. The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified
Nonelective Contributions or Qualified Matching Contributions,
or both, used in such test.
6. The determination and treatment of the ADP amounts of any
Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
7. If the Employer has elected in the Adoption Agreement to take
Qualified Matching Contributions into account as Elective
Deferrals for purposes of the ADP test, then (subject to such
other requirements as may be prescribed by the Secretary of the
Treasury) only the amount of such Qualified Matching
Contributions that are needed to meet the ADP test shall be
taken into account.
8. In the event that the Plan Administrator determines that it is
not likely that the ADP test will be satisfied for a particular
Plan Year unless certain steps are taken prior to the end of
such Plan Year, the Plan Administrator may require Contributing
Participants who are Highly Compensated Employees to reduce
their Elective Deferrals for such Plan Year in order to satisfy
that requirement. Said reduction shall also be required by the
Plan Administrator in the event that the Plan Administrator
anticipates that the Employer will not be able to deduct all
Employer Contributions from its income for Federal income tax
purposes.
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11.402 LIMITS ON EMPLOYEE CONTRIBUTIONS AND MATCHING CONTRIBUTIONS
A. LIMITS ON HIGHLY COMPENSATED EMPLOYEES - The Average Contribution
Percentage (hereinafter "ACP") for Participants who are Highly
Compensated Employees for each Plan Year and the ACP for Participants
who are not Highly Compensated Employees for the same Plan Year must
satisfy one of the following tests:
1. The ACP for Participants who are Highly Compensated Employees
for the Plan Year shall not exceed the ACP for Participants who
are not Highly Compensated Employees for the same Plan Year
multiplied by 1.25; or
2. The ACP for Participants who are Highly Compensated Employees
for the Plan Year shall not exceed the ACP for Participants who
are not Highly Compensated Employees for the same Plan Year
multiplied by 2 provided that the ACP for the Participants who
are Highly Compensated Employees does not exceed the ACP for
Participants who are not Highly Compensated Employees by more
than 2 percentage points.
B. SPECIAL RULES
1. Multiple Use If one or more Highly Compensated Employees
participate in both a CODA and a plan subject to the ACP test
maintained by the Employer and the sum of the ADP and ACP of
those Highly Compensated Employees subject to either or both
tests exceeds the Aggregate Limit, then the ACP of those Highly
Compensated Employees who also participate in a CODA will be
reduced (beginning with such Highly Compensated Employee whose
ACP is the highest) so that the limit is not exceeded. The
amount by which each Highly Compensated Employee's Contribution
Percentage Amounts is reduced shall be treated as an Excess
Aggregate Contribution. The ADP and ACP of the Highly
Compensated Employees are determined after any corrections
required to meet the ADP and ACP tests. Multiple use does not
occur if the ADP and ACP of the Highly Compensated Employees
does not exceed 1.25 multiplied by the ADP and ACP of the
Participants who are not Highly Compensated Employees.
2. For purposes of this Section 11A02, the Contribution Percentage
for any Participant who is a Highly Compensated Employee and who
is eligible to have Contribution Percentage Amounts allocated to
his or her Individual Account under two or more plans described
in Section 401(a) of the Code, or arrangements described in
Section 401(k) of the Code that are maintained by the Employer,
shall be determined as if the total of such Contribution
Percentage Amounts was made under each plan. If a Highly
Compensated Employee participates in two or more cash or
deferred arrangements that have different plan years, all cash
or deferred arrangements ending with or within the same calendar
year shall be treated as a single arrangement.
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3. In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410~) of the Code only if
aggregated with one or more other plans, or if one or more other
plans satisfy the requirements of such Sections of the Code only
if aggregated with this Plan, then this Section shall be applied
by determining the Contribution Percentage of Employees as if
all such plans were a single plan. For Plan Years beginning
after December 31, 1989, plans may be aggregated in order to
satisfy Section 401(m) of the Code only if they have the same
Plan Year.
4. For purposes of determining the Contribution Percentage of a
Participant who is a 5% owner or one of the 10 most highly pa id
Highly Compensated Employees, the Contribution Percentage
Amounts and Compensation of such Participant shall include the
Contribution Percentage Amounts and Compensation for the Plan
Year of family members, (as defined in Section 414(q)(6) of the
Code). Family members, with respect to Highly Compensated
Employees, shall be disregarded as separate Employees in
determining the Contribution Percentage both for Participants
who are not Highly Compensated Employees and for Participants
who are Highly Compensated Employees.
5. For purposes of determining the Contribution Percentage test,
Employee Contributions are considered to have been made in the
Plan Year in which contributed to the Fund. Matching
Contributions and Qualified Nonelective Contributions will be
considered made for a Plan Year if made no later than the end of
the 12 month period beginning on the day after the close of the
Plan Year.
6. The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified
Nonelective Contributions or Qualified Matching Contributions,
or both, used in such test.
7. The determination and treatment of the Contribution Percentage
of any Participant shall satisfy such other requirements as may
be prescribed by the Secretary of the Treasury.
8. If the Employer has elected in the Adoption Agreement to take
Qualified Nonelective Contributions into account as Contribution
Percentage Amounts for purposes of the ACP test, then (subject
to such other requirements as may be prescribed by the Secretary
of the Treasury) only the amount of such Qualified Nonelective
Contributions that are needed to meet the ACP test shall be
taken into account.
9. If the Employer has elected in the Adoption Agreement to take
Elective Deferrals into account as Contribution Percentage
Amounts for purposes of the ACP test, then (subject to such
other requirements as may be prescribed by the Secretary of the
Treasury) only the amount of such Elective Deferrals that are
needed to meet the ACP test shall be taken into account.
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11.500 DISTRIBUTION PROVISIONS
11.501 GENERAL RULE
Distributions from the Plan are subject to the provisions of Section 6
and the provisions of this Section 11. In the event of a conflict
between the provisions of Section 6 and Section 11, the provisions of
Section 11 shall control.
11.502 DISTRIBUTION REQUIREMENTS
Elective Deferrals, Qualified Nonelective Contributions, and Qualified
Matching Contributions, and income allocable to each are not
distributable to a Participant or his or her Beneficiary or
Beneficiaries, in accordance with such Participant's or Beneficiary or
Beneficiaries' election, earlier than upon separation from service,
death, or disability.
Such amounts may also be distributed upon:
A. Termination of the Plan without the establishment of another
defined contribution plan.
B. The disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of Section
409(d)(2) of the Code) used in a trade or business of such
corporation if such corporation continues to maintain this Plan after
the disposition, but only with respect to Employees who continue
employment with the corporation acquiring such assets.
C. The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of Section
409(d)(3) of the Code) if such corporation continues to maintain this
Plan, but only with respect to Employees who continue employment with
such subsidiary.
D. The attainment of age 59 1/2 in the case of a profit sharing plan.
E. If the Employer has so elected in the Adoption Agreement, the
hardship of the Participant as described in Section 11.503.
All distributions that may be made pursuant to one or more of the
foregoing distributable events are subject to the spousal and
Participant consent requirements (if applicable) contained in
Sections 401(a)(11) and 417 of the Code.
11.503 HARDSHIP DISTRIBUTION
A. GENERAL - If the Employer has so elected in the Adoption Agreement,
distribution of Elective Deferrals (and any earnings credited to a
Participant's account as of the end of the last Plan Year ending
before July 1, 1989) may be made to a Participant in the event of
hardship. For the purposes of this Section, hardship is defined as
an immediate and heavy financial need of the Employee where such
Employee lacks
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other available resources. Hardship distributions are subject to
the spousal consent requirements contained in Sections
401(a)(11) and 417 of the Code.
B. SPECIAL RULES
1. The following are the only financial needs considered immediate
and heavy: expenses incurred or necessary for medical care,
described in Section 213(d) of the Code, of the Employee, the
Employee's spouse or dependents; the purchase (excluding
mortgage payments) of a principal residence for the Employee;
payment of tuition and related educational fees for the next 12
months of post-secondary education for the Employee, the
Employee's spouse, children or dependents; or the need to
prevent the eviction of the Employee from, or a foreclosure on
the mortgage of, the Employee's principal residence.
2. A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
a. The Employee has obtained all distributions, other than
hardship distributions, and all nontaxable loans under all
plans maintained by the Employer;
b. All plans maintained by the Employer provide that the
Employee's Elective Deferrals (and Employee Contributions)
will be suspended for 12 months after the receipt of the
hardship distribution;
c. The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts
necessary to pay any federal, state or local income taxes
or penalties reasonably anticipated to result from the
distribution); and
d. All plans maintained by the Employer provide that the
Employee may not make Elective Deferrals for the
Employee's taxable year immediately following the taxable
year of the hardship distribution in excess of the
applicable limit under Section 402(g) of the Code for such
taxable year less the amount of such Employee's Elective
Deferrals for the taxable year of the hardship
distribution.
11.504 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
A. GENERAL RULE - A Participant may assign to this Plan any Excess
Elective Deferrals made during a taxable year of the Participant by
notifying the Plan Administrator on or before the date specified in
the Adoption Agreement of the amount of the Excess Elective Deferrals
to be assigned to the Plan. A Participant is deemed to notify the
Plan Administrator of any Excess Elective Deferrals that arise by
taking into account only those Elective Deferrals made to this Plan
and any other plans of the Employer.
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<PAGE> 86
Notwithstanding any other provision of the Plan, Excess Elective
Deferrals, plus any income and minus any loss allocable thereto,
shall be distributed no later than April 15 to any Participant to
whose Individual Account Excess Elective Deferrals were assigned for
the preceding year and who claims Excess Elective Deferrals for such
taxable year
B. DETERMINATION OF INCOME OR LOSS - Excess Elective Deferrals shall be
adjusted for any income or loss up to the date of distribution. The
income or loss allocable to Excess Elective Deferrals is the sum of:
(1) income or loss allocable to the Participant's Elective Deferral
account for the taxable year multiplied by a fraction, the numerator
of which is such Participant's Excess Elective Deferrals for the year
and the denominator is the Participant's Individual Account balance
attributable to Elective Deferrals without regard to any income or
loss occurring during such taxable year; and (2) 10% of the amount
determined under (1) multiplied by the number of whole calendar
months between the end of the Participant's taxable year and the date
of distribution, counting the month of distribution if distribution
occurs after the 15th of such month. Notwithstanding the preceding
sentence, the Plan Administrator may compute the income or loss
allocable to Excess Elective Deferrals in the manner described in
Section 4 (i.e., the usual manner used by the Plan for allocating
income or loss to Participants' Individual Accounts), provided such
method is used consistently for all Participants and for all
corrective distributions under the Plan for the Plan Year.
11.505 DISTRIBUTION OF EXCESS CONTRIBUTIONS
A. GENERAL RULE - Notwithstanding any other provision of this Plan,
Excess Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of each Plan
Year to Participants to whose Individual Accounts such Excess
Contributions were allocated for the preceding Plan Year. If such
excess amounts are distributed more than 2 1/2 months after the last
day of the Plan Year in which such excess amounts arose, a 10% excise
tax will be imposed on the Employer maintaining the Plan with respect
to such amounts. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective portions of the
Excess Contributions attributable to each of such Employees. Excess
Contributions of' Participants who are subject to the family member
aggregation rules shall be allocated among the family members in
proportion to the Elective Deferrals (and amounts treated as Elective
Deferrals) of each family member that is combined to determine the
combined ADP.
Excess Contributions (including the amounts recharacterized) shall be
treated as annual additions under the Plan.
B. DETERMINATION OF INCOME OR LOSS - Excess Contributions shall be
adjusted for any income or loss up to the date of distribution. The
income or loss allocable to Excess Contributions is the sum of: (I)
income or loss allocable to Participant's Elective
81
<PAGE> 87
Deferral account (and, if applicable, the Qualified Nonelective
Contribution account or the Qualified Matching Contributions account
or both) for the Plan Year multiplied by a fraction, the numerator of
which is such Participant's Excess Contributions for the year and the
denominator is the Participant's Individual Account balance
attributable to Elective Deferrals (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or if any of such
contributions are included in the ADP test) without regard to any
income or loss occurring during such Plan Year; and (2) 10% of the
amount determined under (1) multiplied by the number of whole
calendar months between the end of the Plan Year and the date of
distribution, counting the month of distribution if distribution
occurs after the 15th of such month. Notwithstanding the preceding
sentence, the Plan Administrator may compute the income or loss
allocable to Excess Contributions in the manner described in
Section 4 (i.e., the usual manner used by the Plan for allocating
income or loss to Participants' Individual Accounts), provided such
method is used consistently for all Participants and for all
corrective distributions under the Plan for the Plan Year.
C. ACCOUNTING FOR EXCESS CONTRIBUTIONS - Excess Contributions shall be
distributed from the Participant's Elective Deferral account and
Qualified Matching Contribution account (if applicable) in proportion
to the Participant's Elective Deferrals and Qualified Matching
Contributions (to the extent used in the ADP test) for the Plan Year.
Excess Contributions shall be distributed from the Participant's
Qualified Nonelective Contribution account only to the extent that
such Excess Contributions exceed the balance in the Participant's
Elective Deferral account and Qualified Matching Contribution
account.
11.506 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
A. GENERAL RULE - Notwithstanding any other provision of this Plan,
Excess Aggregate Contributions, plus any income and minus any loss
allocable thereto, shall be forfeited, if forfeitable, or if not
forfeitable, distributed no later than the last day of each Plan Year
to Participants to whose accounts such Excess Aggregate Contributions
were allocated for the preceding Plan Year. Excess Aggregate
Contributions of Participants who are subject to the family member
aggregation rules shall be allocated among the family members in
proportion to the Employee and Matching Contributions (or amounts
treated as Matching Contributions) of each family member that is
combined to determine the combined ACP. If such Excess Aggregate
Contributions are distributed more than 2 1/2 months after the last
day of the Plan Year in which such excess amounts arose, a 10% excise
tax will be imposed on the Employer maintaining the Plan with respect
to those amounts.
Excess Aggregate Contributions shall be treated as annual additions
under the Plan.
B. DETERMINATION OF INCOME OR LOSS - Excess Aggregate Contributions
shall be adjusted for any income or loss up to the date of
distribution. The income or loss allocable to Excess Aggregate
Contributions is the sum of: (1) income or loss
82
<PAGE> 88
allocable to the Participant's Employee Contribution account, Matching
Contribution account (if any, and if all amounts therein are not used
in the ADP test) and, if applicable, Qualified Nonelective
Contribution account and Elective Deferral account for the Plan Year
multiplied by a fraction, the numerator of which is such Participant's
Excess Aggregate Contributions for the year and the denominator is the
Participant's Individual Account balance(s) attributable to
Contribution Percentage Amounts without regard to any income or loss
occurring during such Plan Year; and (2) 10% of the amount determined
under (1) multiplied by the number of whole calendar months between
the end of the Plan Year and the date of distribution, counting the
month of distribution if distribution occurs after the 15th of such
month. Notwithstanding the preceding sentence, the Plan Administrator
may compute the income or loss allocable to Excess Aggregate
Contributions in the manner described in Section 4 (i.e., the usual
manner used by the Plan for allocating income or loss to Participants'
Individual Accounts), provided such method is used consistently for
all Participants and for all corrective distributions under the Plan
for the Plan Year.
C. FORFEITURES OF EXCESS AGGREGATE CONTRIBUTIONS - Forfeitures of Excess
Aggregate Contributions may either be reallocated to the accounts of
Contributing Participants who are not Highly Compensated Employees or
applied to reduce Employer Contributions, as elected by the Employer
in Section 5 of the Adoption Agreement.
D. ACCOUNTING FOR EXCESS AGGREGATE CONTRIBUTIONS - Excess Aggregate
Contributions shall be forfeited, if forfeitable or distributed on a
pro rata basis from the Participant's Employee Contribution account,
Matching Contribution account, and Qualified Matching Contribution
account (and, if applicable, the Participant's Qualified Nonelective
Contribution account or Elective Deferral account, or both).
11.507 RECHARACTERIZATION
A Participant may treat his or her Excess Contributions as an amount
distributed to the Participant and then contributed by the Participant
to the Plan. Recharacterized amounts will remain nonforfeitable and
subject to the same distribution requirements as Elective Deferrals.
Amounts may not be recharacterized by a Highly Compensated Employee to
the extent that such amount in combination with other Employee
Contributions made by that Employee would exceed any stated limit under
the Plan on Employee Contributions.
Recharacterization must occur no later than 2 1/2 months after the last
day of the Plan Year in which such Excess Contributions arose and is
deemed to occur no earlier than the date the last Highly Compensated
Employee is informed in writing of the amount recharacterized and the
consequences thereof. Recharacterized amounts will be taxable to the
Participant for the Participant's tax year in which the Participant
would have received them in cash.
83
<PAGE> 89
11.508 DISTRIBUTION OF ELECTIVE DEFERRALS IF EXCESS ANNUAL ADDITIONS
Notwithstanding any other provision of the Plan, a Participant's
Elective Deferrals shall be distributed to him to the extent that the
distribution will reduce an excess annual addition (as that term is
described in Section 3.05 of the Plan).
11.600 VESTING
11.601 100% VESTING ON CERTAIN CONTRIBUTIONS
The Participant's accrued benefit derived from Elective Deferrals,
Qualified Nonelective Contributions, Employee Contributions, and
Qualified Matching Contributions is nonforfeitable. Separate accounts
for Elective Deferrals, Qualified Nonelective Contributions, Employee
Contributions, Matching Contributions, and Qualified Matching
Contributions will be maintained for each Participant. Each account will
be credited with the applicable contributions and earnings thereon.
11.602 FORFEITURES AND VESTING OF MATCHING CONTRIBUTIONS
Matching Contributions shall be Vested in accordance with the vesting
schedule selected for Matching Contributions in the Adoption Agreement.
In any event, Matching Contributions shall be fully Vested at Normal
Retirement Age, upon the complete or partial termination of the profit
sharing plan, or upon the complete discontinuance of Employer
Contributions. Notwithstanding any other provision of the Plan, Matching
Contributions or Qualified Matching Contributions may be forfeited if
the contributions to which they relate are Excess Elective Deferrals,
Excess Contributions or Excess Aggregate Contributions.
Any forfeitures of Matching Contributions which (as indicated in the
Adoption Agreement) are allocated to Participants' Accounts shall be
made in accordance with Section 6.01(D).
84
<PAGE> 1
EXHIBIT 10.30
PROFIT SHARING PLAN AND TRUST
AS SPONSORED BY PACIFIC CONSULTING GROUP
<PAGE> 2
DEFINED CONTRIBUTION PLAN
Table of Contents
<TABLE>
<S> <C>
Article I ...................................Adoption Agreement
Article II...................................Definitions
Article III..................................Participation and Vesting
Article IV...................................Employer Contributions and Voluntary
Non-deductible Employee Contributions
Article V....................................Elective Deferrals
Article VI...................................Allocation of Employer Contributions and
Limitations on Contributions and Benefits
Article VII..................................Top-Heavy Rules
Article VIII.................................Payment of Benefits
Article IX...................................Life Insurance Policies and Contracts
Article X....................................Miscellaneous
Article XI...................................Loans to Participants
Article XII..................................Trust and Administration
Article XIII.................................Limitation on Employee Contributions and
Matching Employer Contributions
Article XIV..................................Distribution of Excess Deferrals
Article XV...................................Distribution of Excess Contributions
Article XVI..................................Distribution of Excess Aggregate Contributions
Article XVII.................................Integration with Social Security
Article XVIII................................Eligible Rollovers
</TABLE>
<PAGE> 3
ARTICLE I
DEFINED CONTRIBUTION
PLAN & TRUST
ADOPTION AGREEMENT
Company Name: CRL Network Services, Inc.
Address: One Kearny Street, Suite 1450
San Francisco, CA 94108
Telephone #: (415) 837-5300
EIN #: 68-0312353
Plan #: 001
<PAGE> 4
The undersigned (X) incorporated ( ) unincorporated Employer hereby adopts the
Pacific Consulting Group Prototype Plan and Trust Agreement, and elects the
following and said elections shall override the language of the Basic Plan
Document if there is a conflict:
(1) Type of Plan shall mean a:
(A)( ) Profit Sharing Plan.
(B)(X) Profit Sharing/401(k) Plan (if elected CODA Adoption
Agreement must be completed).
(2) Effective Date and Plan Year means the Employer:
(A)(X) Establishes a new Plan and Trust on this Effective
Date of the Plan which is January 1, 1997. The first
Plan Year shall begin on the Effective Date and end on
December 31, 1997. Subsequent Plan Years shall be the 12
consecutive month period beginning January 1, and each
anniversary thereafter.
(B)( ) Amends and restates in its entirety a previously
established qualified Plan and Trust of the Employer
which has an Effective Date of ____________________,
199 . Except as specifically provided in the Plan, the
Effective Date of this amendment and restatement is
_____________________________. The Plan Year shall be
the 12 consecutive month period beginning on
___________________ and each anniversary thereafter.
(3) Any Life Insurance Purchased by the Plan shall start on
_______n/a___________, 199 and for any subsequent Contracts shall be
__n/a________, 199 and the 12 consecutive month period beginning on ___ n/a
______________ and each anniversary thereafter.
(4) Compensation
(A) Compensation shall be determined on the basis of:
(choose one)
(1)(X) Plan Year
(2)( ) Calendar Year
(B) Compensation shall exclude Employer contributions made
pursuant to a Salary Savings Agreement under:
(1)( ) A Cash or Deferred Arrangement under Code
Section 401(k) or Simplified Employee Pension
under Code Section 402(h) (1) (B)
<PAGE> 5
(2)( ) A flexible benefit plan under Code Section
125.
(3)( ) A tax deferred annuity under Code Section 4C3
(b)
(C) If the Employer chooses a non-integrated formula,
Compensation will exclude:
(1)( ) overtime.
(2)( ) bonuses.
(3)( ) commissions.
NOTE: These exclusions will not be considered for
purposes if IRC Section 415.
(D) Maximum Compensation
For the purposes of the Plan, Compensation shall be
limited to $160,000.00, the maximum amount which will be
considered for Plan purposes. This maximum amount shall
not exceed $160,000.00 as adjusted.
NOTE: Any exclusion of Compensation must satisfy the
requirements of Section 1.401(a) (4) of the Income Tax
Regulations and Code Section 414(5) and the regulations
thereunder.
(5) Normal Retirement Age
Normal Retirement Age of a Participant shall be: (choose one)
(A)( ) His 65th birthday (not to exceed 65th).
(B)( ) The earlier of his _______ birthday and the first
day of the Plan Year within ________ months of his 65th
birthday.
(C)(X) The later of his 65th birthday (not to exceed 65th)
and the 5th anniversary of his participation (not to
exceed five)
(6) Eligibility for Participation
Each Employee shall be eligible for participation in the Plan upon
meeting the following eligibility requirements:
(A) Age and Service Requirements
(1)( ) No age or service required
2
<PAGE> 6
(2)(X) Service Requirements
A. ( )None
B. ( )1/2 year of Service
C. ( )1 year of Service
D. (X)Other: 1/4 year of service (not to exceed 12
months)
(3)(X) Age Requirements
A. (X)None
B. ( )18
C. ( )20.5
D. ( )21
(B) Effective Date of Participation or Entry Date:
An Employee who satisfies the conditions of eligibility shall
participate in the plan not later than:
(1)( ) the first day of the Plan Year in which the eligible
employee satisfies the conditions for eligibility
(2)( ) the first day of the Plan Year next following
the day on which the Eligible Employee satisfies the
conditions for eligibility. (Requires Minimum Service of
6 months and Age 20.5 Years in 6(A) above)
(3)( ) the earlier of the first day of the Plan Year,
or the first day of the 7th month of the Plan Year, next
following the date on which the Eligible Employee
satisfies the conditions for eligibility
(4)(X) the earlier of the first day of the Plan Year, or
the first day of the 4th, 7th, or 10th month, next
following the date on which the Eligible Employee
satisfies the conditions for eligibility.
(5)( ) the earlier of the first day of the month next following
the date on which the Eligible Employee satisfies the
conditions of eligibility.
(C) Hours of Service Computation
Hours of Service shall be determined on the basis of the method
selected below. Only one method may be selected. The method
selected shall be applied to all Employees covered under the
Plan. (choose one)
3
<PAGE> 7
(1)(X) On the basis of actual hours for which an Employee
is paid or entitled to payment.
(2)( ) On the basis of days worked.
An Employee shall be credited with ten (10) Hours of
Service if such Employee would be credited with at least
one (1) Hour of Service during the day.
(3)( ) On the basis of weeks worked.
An Employee shall be credited with forty-five (45) Hours
of Service if such Employee would be credited with at
least one Hour of Service during the week.
(4)( ) On the basis of semi-monthly payroll periods.
An Employee shall be credited with ninety-five (95)
Hours of Service if such Employee would be credited with
at least one (1) Hour of Service during the semi-monthly
payroll period.
(5)( ) On the basis of months worked-
An Employee shall be credited with one hundred ninety
(190) Hours of Service if such Employee would be
credited with at least one (1) Hour of Service during
the month.
(D) The classification of Employee(s) eligible for participation
will be: (choose one)
(1)( ) All.
(2)(X) All except
( ) Salaried.
(X) Hourly
( ) Employees covered by a collective bargaining
agreement between the Employer and Employee
Representatives under which retirement benefits
were the subject of good faith bargaining. For
this purpose, the term "Employee
Representatives" does not include any
organization more than half of whose members are
employees who are owners, officers, or
executives of the employer.
Other (specify)______________________
4
<PAGE> 8
NOTE: Any election to exclude salaried, hourly, or other shall be made
in a manner to assure compliance with IRC 410(b) and 401(a) (26).
(E) Service with a predecessor Employer, including a sole proprietor
or partnership, which did not maintain this Plan shall be
considered to be service with the Employer for purposes of
determining:
(1)( ) Eligible Service
(2)( ) Vested Service
(3)(X) None of the above.
(7) Employer Contribution and Allocation Formula Amount
(A) The amount of the Employer's annual contribution to the Trust
will equal:
(1)(X) The amount (or additional amount) the Employer may
from time to time deem advisable.
(2)( ) ___________% of the Compensation of all Participants
under the Plan, determined for the Employer's taxable
year for which it makes the contribution. (may not
exceed 15%)
(3) % of Net Profits but no more than $ ____________.
(4)( ) This is a frozen Plan effective ______________. The
Employer will not contribute to the Plan with respect to
any period following the stated date.
(B) Contribution Allocation. Employer Contributions will be
allocated in accordance with the method selected below.
(1)( ) Nonintegrated Contribution and Allocation Formula.
(see Minimum Contributions under Top-Heavy Plans at
Section 6.01(a).)
The Employer shall allocate Employer Contributions (and
Participant forfeitures) in the same ratio that each
Participant's Compensation for the Plan Year bears to
the total Compensation of all Participants for that Plan
Year.
(2)(X) Integrated Allocation Formula-Maximum Disparity. The
Employer will allocate the annual Employer Contributions
and participant forfeitures, if any, in the same ratio
that each Participant's Excess Compensation for the Plan
Year bears to the total Excess Compensation of all
Participants for the Plan Year. The allocation under
this paragraph, as a percentage of each Participant's
Excess Compensation, must not exceed the
5
<PAGE> 9
applicable percentage listed under the Maximum Disparity
Table contained in Article XVII. If the Plan is
top-heavy, then step one and two of Article XVII must be
allocated before this allocation is made
The Employer will then allocate any remaining Employer
Contributions and Participant forfeitures, if any, in
the same ratio that each Participant's Compensation for
the Plan Year bears to the total Compensation of all
Participants for the Plan Year.
For purposes of this section, "Excess Compensation"
means Compensation in excess of the following
Integration Level:
The Integration Level is equal to:
(X) The taxable wage base.
( ) $_____ (a dollar amount less than the wage
base)
( ) ________% of the tax wage base (not to exceed
100).
(8) Employee Contributions
(A) Employee Voluntary Contributions ( ) shall (X) shall not
be permitted.
(B) Employee Roll-Over Contributions (X) shall ( ) shall not
be permitted.
(9) In the event of the termination of employment or participation of a
Participant prior to his normal Retirement Age, his vested interest in that
portion of his Participant's Account derived from Employer Contributions shall
be:
(A) Vesting Schedule (choose one)
(1)( ) If such termination should occur prior to the
completion of three (3) Years of Service, the
Participant shall be entitled to no vested interest. If
such termination occurs after the completion of three
(3) Years of Service the Participant shall have a vested
interests determined under the following table:
% after 3 Years of Service
(not less than 20%)
% after 4 Years of Service
(not less than 40%)
6
<PAGE> 10
% after 5 Years of Service
(not less than 60%)
% after 6 Years of Service
(not less than 80%)
% after 7 Years of Service
(not less than 100%)
(2)( ) If such termination should occur prior to the
completion of five (5) Years of Service, the Participant
shall be entitled to no vested interest. If such
termination occurs after the completion of five (5)
Years of Service, the Participant shall have a vested
interest determined under the following table:
100% after 5 Years of Service
(3)(X) 5 % after 1 Year of Service
10 % after 2 Years of Service
20 % after 3 Years of Service
(not less than 20%)
40 % after 4 Years of Service
(not less than 40%)
60 % after 5 Years of Service
(not less than 60%)
80 % after 6 Years of Service
(not less than 80%)
100 % after 7 Years of Service
(not less than 100%)
(4)( ) 100%
If the Vesting Schedule contained under (A)l or (A)2 is
not selected, than any other Vesting Schedule selected
must vest as quickly as the later of either (A)l or (A)2
at every point in time.
(B) TOP HEAVY VESTING SCHEDULE
In the event the Plan shall be determined to be a Top-Heavy, the
following vesting schedule shall apply not withstanding the vesting
schedule elected above:
(1)( ) 100% vesting after Years of Service (no more than 2)
7
<PAGE> 11
(2)(X) A Participant's right to a nonforfeitable percentage
of his Participant's Account derived from Employer
Contributions shall be determined under the following
table:
10 % after 1 Years of Service
20 % after 2 Years of Service
(not less than 20%)
40 % after 3 Years of Service
(not less than 40%)
60 % after 4 Years of Service
(not less than 60%)
80 % after 5 Years of Service
(not less than 80%)
100 % after 6 Years of Service
(not less than 100%)
(10) For purposes of Section 9 of the Adoption Agreement, Years of Service
shall include all Years of Service with the Employer or Employers which
have maintained the Plan, Provided, however, that Years of Service shall
not include:
(A)( ) Years of Service before Age 18.
(B)( ) Years of Service with an Employer during any period
for which the Employer did not maintain the Plan or a
predecessor plan.
(C)( ) Years of Service with an Employer during any period
for which the Employer was not a Plan Participant.
(11) Retirement prior to Normal Retirement Age (choose one)
(A)(X) Will be permitted upon the attainment of Age 55 and the
completion of 10 Years of Service.
(B)( ) Will not be permitted.
(12) A Participant whose employment is terminated before the end of a Plan
Year but after he has completed 1000 Hours of Service for such Plan
Year:
(A)( ) shall share in Employer Contributions for such Plan
Year.
(B)(X) shall not share in Employer contributions for such Plan
Year.
8
<PAGE> 12
(13) The Employer designates James Couch as said trustee(s)
(14) The Employer designates CRL Network Services as Plan Administrator.
(15) The Employer is because of Code Section 415 and 416 required to
aggregate the following Plans NONE _________________________. The
employer is required to request a letter of determination for this and
the other Plan(s) that are aggregated
(16) The following rates and mortality table shall be used to compute accrued
benefits for top-heavy purposes of aggregated plans:
( ) _______________ % interest, or
(X) the P.B.C.G. rate in effect at the time of distribution; 1984
Unisex Mortality Table.
9
<PAGE> 13
NATURE OF THE PLAN
A. The Employer hereby adopts this Defined Contribution Plan & Trust
Agreement, hereinafter the "Plan". This Plan is create for the purpose of
providing the Employee(s) with retirement benefits in accordance with Code
Sections 401 through 417 of the Internal Revenue Code, as amended.
B. Following the execution of this Defined Contribution Plan and Trust
Agreement, the Employer shall apply as a qualified nondiscriminatory retirement
plan for the exclusive benefit of the Plan Participants. The sponsoring
organization shall inform the adopting employer of any and all amendments or
discontinuance of this Plan. Failure to properly fill out this Adoption
Agreement may result in disqualification of this Plan. An adopting Employer may
not rely on the notification letter with respect to the qualification of this
Plan and must apply to the key district director for a letter of determination
in order to obtain reliance. This adoption agreement can only be used with the
Basic Plan Document of this Plan. If the employer fails to attain or retain
qualification, this Plan will no longer be considered a prototype plan and will
be considered an individually designed plan. The Regional Prototype Sponsor may
amend any part of this Plan.
IN WITNESS WHEREOF, the Employer and the trustee(s) have caused this
instrument to be executed.
Dated: 9/19/97 By: /s/
---------------------------- ---------------------------------
Employer
By: /s/
---------------------------------
Trustee
By:
---------------------------------
Trustee
Approved as to form by counsel:
- ---------------------------------
Attorney at Law
10
<PAGE> 14
CODA ADOPTION AGREEMENT
[X] Check here and complete the provisions below if Elective Deferrals are
permitted under this plan.
SECTION I: EMPLOYER CONTRIBUTIONS UNDER THE CODA ADOPTION AGREEMENT
1.1. The employer may make contributions to the CODA without regard to current
or accumulated earnings and profits for the taxable year or years ending with or
within the Plan year.
[X] check here if applicable.
SECTION II: ELECTIVE DEFERRALS
2.1. A participant may elect to have his or her Compensation reduced by the
following percentage or amount per pay period, or for a specified pay period or
periods, as designated in writing to the Plan Administrator.
[X] a. An amount not in excess of [15%] of a Participant's Compensation.
[ ] b. An amount not in excess of $_________ of a Participant's Compensation.
No Participant shall be permitted to have Elective Deferrals made under this
plan during any calendar year in excess of $7,000.00 multiplied by the
Adjustment Factor, as set out in IRC Section 402 (g)
2.1. (a) A Participant may elect to commence Elective Deferrals on January 1,
April 1, July 1, and October 1. Such election shall become effective as of the
first pay period following the pay period during which the Participant's
election to commence Elective Deferrals was made, or as soon as administratively
feasible thereafter.
2.1. (b) A Participant's election to have Elective Deferrals made pursuant to a
salary reduction agreement shall remain in effect until modified or terminated.
A participant may modify the amount of Elective Deferrals as of January 1, April
1, July 1, and October 1. Such election shall become effective as of the first
pay period following the pay period during which the Participant's election to
modify Elective Deferrals was made, or as soon as administratively feasible
thereafter.
2.2. A Participant may base Elective Deferrals on cash bonuses that, at the
Participant's election, may be contributed to the CODA or received by the
Participant in cash.
2.2. (a) A Participant shall be afforded a reasonable period to elect to defer
amounts described in Section 2.2 above. Such election shall become effective as
of the next pay period following the pay period during which the Participant's
election to make such Elective Deferrals was made, or as soon as
administratively feasible thereafter.
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2.3. A Participant shall designate the amount and frequency of his or her
Elective Deferrals in the form and manner specified by the Plan Administrator.
SECTION III: QUALIFIED NON-ELECTIVE CONTRIBUTIONS
3.1. The Employer [ X ] will [ ] will not make Qualified Non-elective
Contributions to the plan. If the Employer does make Qualified Non-elective
Contributions to the Plan, then the amount or such Contributions to the plan for
each Plan Year shall be [elect one]
[ ] a. [_____] percent (not to exceed 15 percent) of the Compensation for all
Participant's eligible to share in the allocation.
[X] b. An amount as determined by the Employer.
Allocation of Qualified Non-elective Contributions shall be made in accordance
with Section IV below.
SECTION IV: ALLOCATION OF QUALIFIED NON-ELECTIVE CONTRIBUTIONS
4.1. Allocations of Qualified Non-elective Contributions to each Participant's
account shall be made in the ratio in which each Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants for such Plan
Year.
SECTION V: LIMITATIONS ON CONTRIBUTIONS
5.1. Amounts that are contributed or allocated to the accounts of each
Participant under the Plan must not, when aggregated with amounts that are
contributed or allocated to the accounts of each Participant under any other
Plan or Plans in accordance with the provisions of the underlying Plan document,
exceed the limits as otherwise required under Section 415 of the Code and the
regulations thereunder.
SECTION VI: MATCHING CONTRIBUTIONS (Required)
6.1. The employer [ X ] will [ ] will not make Matching Contributions to the
plan on behalf of Participants who make elective Deferrals. Complete Sections
6.2, 6.3, 6.4, and 9.1, of this Adoption Agreement if Matching Contributions
will be made to the Plan.
6.2. The Employer will make Matching Contributions to the Plan on behalf of:
[X] a. All Participants who make elective Deferrals.
[ ] b. All Participants who are Non-highly Compensated Employees and who make
Elective Deferrals.
6.3. Matching Contributions will be:
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<PAGE> 16
[ ] a. Non-forfeitable when made.
[X] b. Subject to the vesting schedule applicable to Employer Contributions,
other than Elective Deferrals and Qualified Non-elective Contributions, under
the Plan.
6.4. The amount of such Matching Contributions made on behalf of each
Participant as specified in Section 6.2 of this Adoption Agreement shall be:
[ ] a. [ ] percent of the Elective Deferral made for each Plan Year.
[X] b. Equal to a discretionary percentage, to be determined each year
by resolution of the Employer, of the Elective Deferral of the Participant.
[ ] c. [ ] percent of the Elective Deferral which does not exceed [ ] percent
of a Participant's Compensation or [$__________].
For the purposes of this section, those contributions shall not discriminate in
favor of highly compensated employees (within the meaning of IRC Section 414
(q)).
SECTION VII: QUALIFIED MATCHING AND QUALIFIED NON-ELECTIVE CONTRIBUTIONS
7.1. Qualified Matching Contributions and Qualified Non-elective Contributions
may be taken into account as Elective Deferrals for Purposes of Calculating the
Actual Deferral Percentages. In determining Elective Deferrals for the purpose
of the ADP Test, the employer shall include [ELECT AS APPROPRIATE]:
[ ] a. Qualified Matching Contributions
[X] b. Qualified Non-elective Contributions
under this plan or any other plan of the employer, as provided by regulations
under the Code.
7.2. The amount of Qualified Matching Contribution made under Article 5.05 of
this CODA and taken into account ad Elective Deferrals for purposes of
calculating the Actual Deferral Percentage, subject to such other requirements
as may be prescribed by the Secretary of the Treasury, shall be:
[ ] a. All such Qualified Matching Contributions.
[ ] b. Such Qualified Matching Contributions that are needed to meet the Actual
Deferral Percentage test stated in Article 5.05 of the Plan.
7.3. The amount of Qualified Non-Elective Contributions made under Article 5.05
of this Plan and taken into account as Elective Deferrals for purposes of
calculating the Actual Deferral Percentages, subject to such other requirements
as may be prescribed by the Secretary of the Treasury, shall be:
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[X] a. All such Qualified Non-elective Contributions.
[ ] b. Such Qualified Non-elective Contributions that are needed to meet the
Actual Deferral Percentage test stated in Section 5.6 of the Plan.
SECTION VIII: CLAIMS FOR EXCESS ELECTIVE DEFERRALS
8.1. Participants who claim Excess Elective Deferrals for the preceding calendar
year must submit their claims in writing to the Plan Administrator by March 1.
SECTION IX: FORFEITURES
9.1. Forfeitures of Excess Aggregate Contributions shall be:
[ ] a. Applied to reduce Employer Contributions.
[X] b. Allocated, after all other forfeitures under the Plan, to each
Participant's Matching Contribution account in the ratio which each
Participant's Compensation for the Plan Year bears to the total Compensation of
all Participants for such Plan Year.
SECTION X: EFFECTIVE DATE (REQUIRED)
10.1. The provisions of this CODA Adoption Agreement Amendment will be effective
as of January 1, 1997
Dated: 9/19/97 By: /s/
---------------------------- ---------------------------------
Employer
By: /s/
---------------------------------
Trustee
By:
---------------------------------
Trustee
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ARTICLE II -- DEFINITIONS
2.01
"Account or Accounts" shall mean the Profit-Sharing Plan Contribution
Account, Tax Sheltered Savings Account, Employer Contribution Account, Employee
contribution, or any other Account the Trustee(s) establish to accept Employer
Contributions or Employee contributions, and income or loss, if any, to the Plan
or Plans established under the Adoption Agreement(s) completed in connection
with the Basic Plan Document under Section 4.03(a), or (b) the Voluntary
Contribution Account to be established by the Trustees under Section 4.06 for
each Participant who makes voluntary contributions under Section 4.04, or (c)
both Accounts.
2.02
"Adjustment Factor" shall mean the cost of living adjustment factor
prescribed by the Secretary of the Treasury under Section 415(d) of the Code for
years beginning after December 31, 1987, as applied to such items and in such
manner as the Secretary shall provide.
2.03
"Adoption Agreement" means Article I of the Plan and the CODA Adoption
Agreement, if applicable.
2.04
"Affiliated Employer" shall mean the Employer and any corporation which
is a member of a controlled group of corporations (as defined in Section 414(b)
of the Code) which includes the Employer; any trade or business (whether or not
incorporated) which is under common control (as defined in Section 414(c) of the
Code) with the Employer; and organization whether or not incorporated) which is
a member of an affiliated service group (as defined in Section 414(m) of the
Code) which includes the Employer; and any other entity required to be
aggregated with the Employer pursuant to regulations under Section 414(o) of the
Code.
2.05
"Allocation Date" means the last day of the Plan year.
2.06
"Anniversary Date" means the first day of the plan year, and the same
day and month of each following year.
2.07
Average Compensation shall be determined as if the Participant's
Compensation during the most current Limitation Year remained the same until his
Normal Retirement Date.
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2.08
"Basic Plan Document" means Article II through XVII of this Plan. This
Plan is the Basic Plan Document, the Adoption Agreement, and the CODA Adoption
Agreement, if applicable.
2.09
"Beneficiary" means a person or persons designed by or otherwise
entitled upon a Participant's death, to receive any benefits or payments under
the terms of this Plan.
2.10
"Break In Service" means:
(a) for purposes of vesting, any Plan Year during which not more
than five hundred (500) Hours of Service are completed by an Employee, and
(b) For purposes of eligibility, any twelve consecutive month
period beginning on an Employee's Date of Hire and anniversaries thereof during
which not more than five hundred (500) Hours of Service are completed by an
Employee.
2.11
"Code" means the Internal Revenue Code of 1986 and amendments thereto.
2.12
"Compensation" shall mean a participant's earned income, wages,
salaries, and fees for professional services and other amounts received without
regard to whether or not an amount is paid in cash for personal services
actually rendered in the course of employment with the employer maintaining the
plan to the extent that the amounts are includable in gross income (including,
but not limited to, commissions paid salesman, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums, tips and
bonuses, fringe benefits, and reimbursements or other expense allowances under a
nonaccountable plan (as described in Treasury Regulation 1.62-2(c)), and
excluding the following:
(a) Employer contributions to a plan or deferred compensation
which are not includable in the employee's gross income for the taxable year in
which contributed, or employer contributions under a simplified employee pension
plan to the extent such contributions are deductible by the employee, or any
distributions from a plan of deferred compensation;
(b) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the employee either
becomes freely transferable or is no longer subject to a substantial risk or
forfeiture;
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(c) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(d) other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract described in section
403(b) of the Internal Revenue Code (whether or not the contributions are
actually excludable from the gross income of the Employee).
For purposes of applying the limitations of this article, compensation
for a limitation year is the compensation actually paid or made available during
such limitation year.
Notwithstanding the preceding sentence, compensation for a participant
in a defined contribution plan who is permanently and totally disabled (as
defined in section 22(e) (3) of the Internal Revenue Code) is the compensation
such participant would have received for the limitation year if the participant
had been paid at the rate of compensation paid immediately before becoming
permanently and totally disabled; such imputed compensation for the disabled
participant may be taken into account only if the participant is not a highly
compensated employee (as defined in section 414(q) of the Code) and
contributions made on behalf of such participant are nonforfeitable when made.
For years beginning after December 31, 1988, the annual compensation of
each participant taken into account for determining all benefits provided under
the plan for any determination period shall not exceed $200,00.00. This
limitation shall be adjusted by the Secretary at the same time and in the same
manner as under section 415(d) of the Code, except that the dollar increase in
effect on January 1 of any calendar year is effective for years beginning in
such calendar year and the first adjustment to the $200,000.00 limitation is
effected on January 1, 1990. If the period for determining compensation used in
calculating an employee's allocation for a determination period is a short plan
year (i.e. shorter that 12 months), the annual compensation limit is an amount
equal to the otherwise applicable annual compensation limit multiplied by the
fraction, the numerator of which is the number of months in the short plan year,
and the denominator of which is 12.
In determining the compensation of a participant for purposes of this
limitation, the rules of section 414(q) (6) of the Code shall apply, except in
applying such rules, the term "family" shall include only the spouse of the
participant and any lineal descendants of the participant who have not attained
age 19 before the close of the year. If, as a result of the application of such
rules the adjusted $200,000 limitation is exceeded, then (except for purposes of
determining the portion of compensation up to the integration level if this plan
provides for permitted disparity), the limitation shall be prorated among the
affected individuals in proportion to each individual's compensation as
determined under this section prior to the application of this limitation.
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2.13
"Covered Employee" means any Employee who is not an Excluded Employee.
2.14
"Date of Hire" means:
(a) the date on which Employees first perform an Hour of
Service, or
(b) in the case of Employees who have incurred a Break in
Service following a Termination of Employment, the date on which they first
complete an Hour of Service after such Termination of Employment.
2.15
"Disability" means the Participant, because of a physical or mental
disability, will be unable to perform the duties of his customary position of
employment (or is unable to engage in any substantial gainful activity) for an
indefinite period which the Plan Administrator considers will be of long
continued duration.
A Participant also is disabled if he incurs the permanent loss or loss
of use of a member or function of the body, or is permanently disfigured, and
incurs a Separation from Service. The Plan considers a Participant disabled on
the date the Plan Administrator determines the Participant satisfied the
definition of disability. A Participant must submit to a physical examination in
order to confirm disability. The Plan Administrator will apply the provisions of
this Section in a nondiscriminatory, consistent, and uniform manner.
2.16
"Earned Income" means a Self-Employed Individual's net earnings from
self-employment in the trade or business with respect to which the Plan is
established, for which personal services of the individual are a material
income-producing factor. Net earnings will be determined without regard to items
not included in gross income and the deductions allocable to such items. Net
earnings are reduced by contributions by the Employer to a qualified plan to the
extent deductible under Section 404 of the Code. Net earnings shall be
determined with regard to the deduction allowed to the employer by section
164(f) of the Code for taxable years beginning after December 31, 1989.
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<PAGE> 22
2.17
"Elective Deferrals or Employee Contributions" shall mean contributions
made to the plan during the Plan Year by the Employer, at the election of the
Participant, in lieu of cash compensation and shall include contributions made
pursuant to a salary reduction agreement.
2.18
"Employee" means any employee of the Employer maintaining the Plan or of
any other employer required to be aggregated with such Employer under sections
414(b), (c), (m) or (o) of the Code. The term employee shall also include any
leased employee deemed to be an employee of the Employer described in the
previous paragraph as provided in Sections 414(n) or (o) of the Code.
2.19
"Employer" means the Employer chosen in the Adoption Agreement and any
Affiliated Employer and any successor to such Employer.
2.20
"ERISA" means Public law No. 93-406, the Employee Retirement Income
Security Act of 1974, as amended from time to time.
2.21(a)
"Excluded Employee" means an individual in the employ of an Employer or
an Affiliated Employer as described in this Article of the Plan who:
(1) is included in a unit of employees covered by a collective
bargaining agreement between Employee Representatives and one of more Affiliated
Employers, if retirement benefits were the subject of good faith bargaining
between employee representatives and the Employers or Affiliated Employers,
unless the collective bargaining agreement provides for coverage of a unit of
employees under this Plan. For purposes of this Paragraph (1), the term
"Employee Representatives" does not include any organization more than half of
whose members are Employees who are owners, officers or executives of the
Employer; or
(2) (A) is neither a resident nor a citizen of the United States
of America, and
(B) receives no earned income, within the meaning of
Section 911(b) of the Code or from Employers or Affiliated Employers that
constitutes income from sources within the United States, within the meaning of
Section 861(a) (3) of the Code.
(b) Excluded Employees shall be credited with Years of Service
for all purposes under this Plan, but:
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<PAGE> 23
(1) may not become Participants while they remain
Excluded Employees, and
(2) shall receive no allocation to their account while
they are Excluded Employees except for allocations of gains or loss to their
account balances as a result of income or loss sustained on investments.
2.22
"Family Member" shall mean a spouse and the lineal ascendants and
descendants (and spouses of each ascendants and descendants) of any employee or
former employee.
2.23(a)
"Highly Compensated Employee" shall mean:
(1) An employee who is a 5% owner, as defined in Code section
416(i)(l)(iii), at any time during the determination year or the look-back year.
(2) An employee who receives compensation in excess of $75,000
(indexed in accordance with section 415(d)) during the look-back year.
(3) An employee who receives compensation in excess of $50,000
(indexed in accordance with section 415(d)) during the look-back year and is a
member of the top-paid group for the look-back year.
(4) An employee who is an officer, within the meaning of section
416(i), during the look-back year and who receives compensation in the look-back
year greater than 50% of the dollar limitation if effect under section 415(b)
(1) (A) for the calendar year in which the look-back year begins.
(5) An employee who is both described in paragraph 2, 3, or 4
above when these paragraphs are modified to substitute the determination year
for the look-back year and one of the 100 employees who receive the most
compensation from the employer during the determination year
(b) The determination year is the plan year for which the
determination of who is highly compensated is being made.
(c) The determination year is the 12 month period immediately
preceding the determination year, or if the employer elects, the calendar year
ending with or within the lookback year. The lookback year shall be the
twelve-month period immediately proceeding the determination year.
(d) The top-paid group consists of the top 20% of employees
ranked on the basis of compensation received during the year. For purposes of
determining the number of
20
<PAGE> 24
employees in the top-paid group, employees described in section 414(q) (8) and Q
& A 9(b) of section 1.414 (q)-1T of the regulations are excluded.
(e) The number of officers is limited to 50 (or, if lesser, the
greater of 3 employees or 10% of employees) excluding those employees who may be
excluded in determining the top-paid group.
(f) When no officer has compensation in excess of 50% of the
section 415(b) (1) (A) limit, the highest paid officer is treated as highly
compensated.
(g) Compensation is compensation within the meaning of section
415(c)(3), including elective or salary reduction contributions to a cafeteria
plan, cash or deferred arrangement or tax-sheltered annuity.
(h) Employers aggregated under sections 414(b), (c), (m), or (o)
are treated as a single employer.
(i) A highly compensated employee who is either a 5% owner or
one of the ten most highly compensated employees is subject to the family
aggregation rules of IRC Section 414(q) (6).
(j) A former employee who had a separation year prior to the
determination year and who was a highly compensated active employee for either
(1) such employee's separation year or (2) any determination year ending on or
after the employee's 55th birthday. Generally, a separation year is the
determination year the employee separates from service. With respect to an
employee who separated from service before January 1, 1987, the plan may provide
that such an employee will be included as a highly compensated employee only if
the employee was a 5% owner or received compensation in excess of $50,000 during
(1) the employee's separation year (or the year preceding such separation year)
or (2) any year ending on or after such individual's 55th birthday (or the last
year ending before such employee's 55th birthday).
2.24(a)
"Hour of Service" means:
(1) each hour for which an Employee is directly or indirectly
paid, or entitled to payment, by an Employer or Affiliated Employer for the
performance of duties. These hours shall be credited to the Employee for the
computation period and periods in which the duties are performed; and
(2) each hour which an Employee is directly or indirectly paid,
or entitled to payment, by an Employer or Affiliated Employer on account of a
period of time during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military duty or leave of
absence. No more than 501 Hours of Service shall be credited under this
paragraph for any single continuous period (whether or not such period occurs in
a single computation period).
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(3) each hour for which back pay, irrespective of mitigation of
damages, has been either awarded or agreed to by an Employer or Affiliated
Employer if the Employee is not entitled to credit for such hour under any other
paragraph of this Subsection (a).
(b) The number of an Employee's Hours of Service and the Plan
Year or other computation period to which they are to be credited shall be
determined in accordance with DOL Regulations Sections 2530.200b-2 and
2530.200b-3 which is hereby incorporated by reference into this Plan.
(c) Solely for purposes of determining whether an Employee
incurs a Break in Service, an Employee who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such Employee but for such absence, or in any
case in which such hours cannot be determined, eight (8) Hours of service per
day of such absence. For purposes of this Subsection (c), an absence from work
for maternity or paternity reasons means an absence (1) by reason of the
pregnancy of the Employee, (2) by reason of a birth of a child of the Employee,
(3) by reason of the placement of a child with the Employee in connection with
the adoption of such child by such Employee, or (4) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
The Hours of Service credited under this Subsection
(c) shall be credited (1) in the Plan Year in which the absence
begins if the crediting is necessary to prevent a Break in Service in that
period, or (2) in all other cases, in the following Plan Year.
2.25
"Inactive Participant" shall mean any Employee or former Employee who
has ceased to be a Participant and on whose behalf an account is maintained
under the plan.
2.26
"Insurer" means the life insurance company chosen by the Trustee(s) to
issue policies to the Plan.
2.27
"Key Employee" means any Employee or former Employee (and the
Beneficiaries of such Employee) who at any time during the "Determination
Period" was an officer of the Employer if such individual's Compensation exceeds
50 percent of the dollar limitation under Section 415(b) (1) (A) of the Code, an
owner (or considered an owner under Section 318 of the Code) of one of the ten
largest interests in the Employer if such individual's compensation exceeds 100
percent of the dollar limitation under Section 415(c)(l)(A) of the Code, a
5-percent owner of the Employer, or a one percent owner of the Employer who has
an annual compensation of more than $150,000. Annual compensation means
compensation as defined in section 415(c) (3) of the Code, but including amounts
contributed by the employer pursuant to a salary reduction agreement which are
excludable from the employee's gross income under
22
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section 125, section 402(a)(8), section 402(h) or section 403(b) of the Code.
For purposes of determining a 5-percent owner or a one percent owner, neither
the aggregation rules nor the rules of subsection (b), (c), and (m) of IRC
Section 414 apply. Beneficiaries of an employee acquire the character of the
employee who performed service for the employer. Also, inherited benefits will
retain the character of the benefits of the employee who performed services for
the employer. For purposes of this Section, the "Determination Period" is the
Plan Year containing the Determination Date and the 4 preceding Plan Years. The
determination of who is a Key Employee will be made in accordance with Section
416(i) (1) of the Code and the regulations thereunder
2.28
"Leased Employees" The plan treats a Leased Employee as an employee of
the Employer. A Leased Employee is an individual (who otherwise is not an
Employee of the Employer) who, pursuant to a leasing agreement between the
Employer and any other person, has performed services for the Employer (or for
the Employer and any persons related to the Employer within the meaning of Code
Section 414(n)(6)) on a substantially full time basis for at least one year and
who performs services historically performed by employees in the Employer's
business field. If a Leased Employee is treated as an Employee, "Compensation"
includes compensation from the leasing organization which is attributable to
services performed for the Employer. The Plan does not treat a Leased Employee
as an Employee if the leasing organization covers the employee in a safe harbor
plan and, prior to application of this safe harbor plan exception, 20% or less
of the Employer's Employees (other than Highly Compensated Employees) are Leased
Employees. A safe harbor plan is a money purchase pension plan providing
immediate participation, full and immediate vesting, and a nonintegrated
contribution formula equal to at least 10% of the employee's compensation
without regard to employment by the leasing organization on a specified date.
The safe harbor plan must determine the 10% contribution on the basis of
compensation as defined in Code Section 415(c) (3) plus any employer
contribution under a qualified cash or deferred arrangement to the extent not
included in gross income under Section 402(a)(8) or 402(h)(l)(B), any amount
which the Employee would have received in cash but for an election under a
cafeteria plan (within the meaning of Section 125 of the Code), and any amount
contributed to an annuity contract described in Section 403(b) pursuant to a
salary reduction agreement (within the meaning of section 3121(a) (5) (D) of the
Code). Contributions or benefits provided a leased employee by the leasing
organization which are attributable to services performed for the recipient
employer shall be treated as provided by the recipient Employer.
2.29
"Matching Contribution" shall mean any contribution to the Plan made by
the Employer for the Plan Year and allocated to a Participant's account by
reason of the Participant's Employee Contributions or Elective Deferrals.
Matching contributions are not available for hardship withdrawals.
2.30
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"Non-Highly Compensated Employee" shall mean an Employee of the Employer
who is neither a Highly Compensated Employee nor a Family Member.
2.31
"Non-Key Employee" means any Employee of an Employer who is not a Key
Employee.
2.32
"Normal Retirement Age" means the age selected in the Adoption Agreement
of this Plan.
2.33
"Owner Employee" means an individual who is a sole proprietor or who is
a partner owning more than ten percent (10%) of either the capital or profits
interest of the partnership.
2.34
"Participant" means an Employee who has become a Participant in the Plan
under Section 3.01(a) or (b) and has not made the election described in Section
3.02, and whose participation in the Plan has not ceased under Section 3.01(c).
2.35
"Plan Year" is defined in the Adoption Agreement.
2.36
"Qualified Nonelective Contributions" shall mean contributions (other
than Matching Contributions) made by the Employer and allocated to separate
Participants' accounts that the Participant may not elect to receive in cash
until distributed from the plan; that are 100% vested and nonforfeitable when
made; and that are not distributable under the terms of the plan to Participants
or their beneficiaries earlier than the earlier of:
(a) separation from service, death, or disability of the
Participant;
(b) attainment of the age 59 1/2 by the Participant;
(c) termination of the plan without establishment of another
defined contribution plan, other than an employee stock ownership plan (as
defined in section 4975(e) or section 409 of the Code) or a simplified employee
pension plan as defined in section 408(k); or
(d) the disposition by a corporation to an unrelated corporation
of substantially all of the assets (within the meaning of section 409(d) (2) of
the Code) used in a trade or business of such corporation if such corporation
continues to maintain this plan after the
24
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disposition, but only with respect to employees who continue employment with the
corporation acquiring such assets.
2.37
"Retirement" means (a) any Termination of Employment on or after a
Participant's Normal Retirement Date, or (b) Termination of Employment due to
disability.
2.38
"Self Employed Individual" means an individual or partner who has earned
income for the taxable year from the trade or business for which the Plan is
established. A self employed individual also includes an individual who would
have had earned income but for the fact that the trade or business had no net
profits for the taxable year.
2.39
"Tax Sheltered Savings Account" shall mean an account established by the
Trustees under Section 5.03 for each Participant electing to make an " Elective
Deferral" to the Plan.
2.40
"Termination of Employment" means termination of employment with an
Employer or an Affiliated Employer for any reason; but no Termination of
Employment shall occur when an Employee transfers from the employ of one
Employer or Affiliated Employer to another Employer or Affiliated Employer.
2.41
"Trust" or "Trust Fund" means the trust forming part of this Plan and
all of its assets which are held by the Trustees under it.
2.42
"Trustee" or "Trustees" means the individuals specified in Article I of
the Plan and any additional or successor trustees of the Trust Fund.
2.43
"Unallocated Suspense Account" means an account to be established by the
Trustees for the purpose of holding excess contributions and forfeitures.
2.44
"Voluntary Contribution Account" means the Account to be established by
the Trustees under Section 4.06 for each Participant who makes a voluntary
contribution to the Plan. Voluntary contributions are not elective deferrals.
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2.45(a)
"Years of Service" means the total of (1) for purposes of vesting, all
Plan Years not excluded by Subsection (b) or (c) during which an Employee
completes at least one thousand (1,000) Hours of Service, (2) for purposes of
eligibility to participate the twelve consecutive month period beginning on an
Employee's Date of Hire and anniversaries thereof during which an Employee
completes at least one thousand (1,000) Hours of Service beginning on the date
the employee first performs an hour of service for the employer, and (3) any
period of employment taken into account on the basis of the rules contained in
any plan of a predecessor employer maintained by the Employer or if such a Plan
is not maintained under uniform and non-discriminatory rules which are
applicable to all Employees.
(b) If this Plan is a new Plan and does not substitute for an
existing Plan, Years of Service for purposes of vesting completed before (1) the
Effective Date of the Plan or (2) the Employee's attainment of age eighteen (18)
shall be disregarded.
(c) Notwithstanding anything to the contrary contained in this
Section, if elected in Article 1 of the Plan, all of an Employee's Years of
Service shall be taken into account.
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ARTICLE III -- PARTICIPATION AND VESTING
3.01
Participation
(a) Covered Employees who, as of the first day of the Plan Year
in which this Plan is adopted, have completed the minimum age requirement and
have completed the minimum service requirement specified in Article I Section
6(A)2 and 6(A)3 shall become participants as of such date.
(b) Covered Employees who do not become Participants under
Article III 3.01(a) shall become Participants on the Effective Date of
Participation specified in the Adoption Agreement following the date they
satisfy the age and service requirement specified in Article I Section 6(A)2 and
6(A)3.
(c) Participants shall cease to be Participants as of the date
of termination of employment.
3.02
Election not to Participate
If elected in writing by the Participant and his spouse, any Key
Employee may, by informing the Trustees, elect not to participate in the Plan.
3.03
Vesting
(a) Notwithstanding the selection made in the Adoption Agreement
a Participant shall be fully (100%) vested in the balance of his Employer
Contribution Account upon his Normal Retirement Age, as defined in IRC Section
4"(a) (8), or if he has a Termination of Employment on account of his death.
(b) (1) If a former Participant becomes a Participant after
having five (5) consecutive one-year Breaks in Service, Years of Service
completed by the Participant after such Breaks in Service shall be disregarded
for determining the vested interest in that portion of the Employer Contribution
Account balance which accrued before the Break in Service. However, all Years of
Service including those completed prior to such Breaks in Service will count for
determining the vested interest in that portion of the Employer Contribution
Account which accrued after such Breaks in Service.
(2) If a Participant does not incur five (5) consecutive
one-year Breaks in Service, all Years of Service shall be counted for
determining the vested interest in the Employer Contribution Account which
accrued before and after the Break in Service. A participant who is re-employed
after a break-in-service will be allowed to participate in the plan immediately
on his or her re-employment commencement date. In any event, a Participant's
Employer Contribution Account will continue to share in earnings and losses of
the Trust Fund.
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(3) In the case of a participants who does not have any
nonforfeitable right to the account balance derived from employer contributions,
years of service before a period of consecutive 1-year breaks in service will
not be taken into account in computing eligibility service if the number of
consecutive 1-year breaks in service in such period equals or exceeds the
greater of 5 or the aggregate number of years of service. Such aggregate number
of years of service will not include any years of service disregarded under the
preceding sentence by reason of prior breaks in service.
If a participant's years of service are disregarded pursuant to the
preceding paragraph, such participant will be treated as a new employee for
eligibility purposes. If a participant's years of service may not be disregarded
pursuant to the preceding paragraph, such participant shall continue to
participate immediately upon reemployment.
(4) In the case of any participant who has a 1-year break in
service, years of eligibility service before such break will not be taken into
account until the employee has completed a year of service after returning to
employment. Such year of service will be measured by the 12-consecutive month
period beginning on an employee's reemployment commencement date and, if
necessary, subsequent 12-consecutive month periods beginning on anniversaries of
reemployment commencement date. The reemployment commencement date is the first
day on which the employee is credited with an hour of service for the
performance of duties after the first eligibility computation period in which
the employee incurs a one year break in service.
(5) In the event a participant is no longer a member of an
eligible class of employees and becomes ineligible to participate but has not
incurred a break in service, such employee will participate immediately upon
returning to an eligible class of employees. If such participant incurs a break
in service, eligibility will be determined under the break in service rules of
the plan. In the event an employee who is not a member of an eligible class of
employees becomes a member of an eligible class, such employee will participate
immediately if such employee has satisfied the minimum age and service
requirements and would have otherwise previously become a participant.
(6) If an employee terminates service, and elects, in accordance
with the requirements of Article VIII, to receive the value of the employee's
vested account balance, the nonvested portion will be treated as a forfeiture.
If the employee elects to have distributed less than the entire vested portion
of the account balance derived from employer contributions, the part of the
nonvested portion that will be treated as a forfeiture is the total nonvested
portion multiplied by a fraction, the numerator of which is the amount of the
distribution attributable to employer contributions and the dominator of which
is the total value of the vested employer derived account balance. If an
employee receives a distribution pursuant to this section and the employee
resumes employment covered under this plan, the employee's employer-derived
account balance will be restored to the amount on the date of distribution if
the employee repays to the plan the full amount of the distribution attributable
to employer contributions before the earlier of 5 years after the first date on
which the participant is subsequently re-employed by the employer, or the date
the participant incurs 5 consecutive 1-year breaks in service following the
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date of the distribution. If an employee is deemed to receive a distribution
pursuant to this section, and the employee resumes employment covered under this
plan before the date the participant incurs 5 consecutive 1-year breaks in
service, upon the reemployment of such employee, the employer-derived account
balance of the employee will be restored to the amount on the date of such
deemed distribution. If a distribution is made at a time when a participant has
a nonforfeitable right to less than 100 percent of the account balance derived
from employer contributions and the participant may increase the nonforfeitable
percentage in the account;
(i) A separate account will be established for the
participant's interest in the plan as of the
time of the distribution, and
(ii) At any relevant time the participant's
nonforfeitable portion of the separate account
will be equal to an amount ("X") determined by
the formula:
X=P(AB + (R x D)) - (R x D)
For the purposes of applying the formula: P is
the nonforfeitable percentage at the relevant
time, AB is the account balance at the relevant
time, D is the amount of the distribution, and R
is the ratio of the account balance at the
relevant time to the account balance after
distribution.
(7) In the case of a participant who has 5 or more consecutive
1-year breaks in service, the participant's pre-break service will count in
vesting of the employer-derived accrued benefit only if either:
(i) such participant has any nonforfeitable interest
in the account balance attributable to employer
contributions at the time of separation from
service; or
(ii) upon returning to service the number of
consecutive 1-year breaks in service is less
than the number of years of service.
(8) In the case of a participant who has 5 or more consecutive
1-year breaks in service all service after such breaks in service will be
disregarded for the purpose of vesting the employer-derived account balance that
accrued before such breaks in service. Such participant's pre-break service will
count in vesting the post-break employer-derived account balance only if either:
(i) such participant has any nonforfeitable interest
in the account balance attributable to employer
contributions at the time of separation from
service; or
(ii) upon returning to service the number of
consecutive 1-year breaks in service is less
than the number of years of service.
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Separate accounts will be maintained for the
participant's pre-break and post-break
employer-derived account balance. Both accounts
will share in the earnings and losses of the
fund.
(c) If the Plan's vesting schedule is amended, or the Plan is
amended in any way that directly or indirectly affects the computation of the
Participant's vested percentage or if the Plan is deemed amended by an automatic
change to or from a top-heavy vesting schedule, each Participant with at least
three (3) years of Service with the Employer may elect, within a reasonable
period after the adoption of the amendment or change, to have the vested
percentage computed under the Plan without regard to such amendment or change.
Any participant whose non forfeitable percentage is determined under the new
vesting schedule may elect to have his non forfeitable percentage determined
under the old vesting schedule. The period during which the election may be made
shall commence with the date the amendment is adopted or deemed to be made and
shall end on the latest of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective, or;
(3) 60 days after the Participant is issued written
notice of the amendment by the Employer or plan administrator.
(d) No amendment to the Plan shall be effective to the extent
that it has the effect of decreasing a Participant's Account balance.
Notwithstanding the preceding sentence, a Participant's Account balance may be
reduced to the extent permitted under Section 412(c) (8)of the Code. For
purposes of this paragraph, a plan amendment which has the effect of decreasing
a participant's account balance or eliminating an optional form of benefit, with
respect to benefits attributable to service before the amendment shall be
treated as reducing an account balance. Furthermore, no amendment to the Plan
shall have the effect of decreasing a Participant's vested interest or accrued
benefit determined without regard to such amendment, as of the later of (1) the
date such amendment is adopted, or (2) the date it becomes effective.
Furthermore, if the vesting schedule of a plan is amended, in the case of an
employee who is a participant as of the later of the date such amendment is
adopted or the date it becomes effective, the nonforfeitable percentage
(determined as of such date) of such employee's right to his employer derived
accrued benefit will not be less than his percentage computed under the plan
without regard to such amendment.
3.04
Controlled Trades or Businesses
(a) If this Plan provides contributions or benefits for one or
more Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and the plan
established for other trades or businesses must, when looked at as a single
plan, satisfy Section 401(a) and (d) of the Code for the Employees of this and
all such other trades or businesses.
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<PAGE> 34
(b) (1)If this Plan provides contributions or benefits for one
or more Owner-Employees who control one of more other trades or businesses, the
employees of such other trades or businesses must be included in a plan which
satisfies Section 401(a) and (d) of the Code and which provides contributions
and benefits not less favorable than those provided for Owner-Employees under
this Plan.
(2) If an individual is covered as an Owner-Employee under the
plans of two or more trades or businesses which are not controlled and the
individual controls another trade or business, then the contributions or
benefits of the employees under the plan of the trades or businesses which are
controlled must be as favorable as those provided for him under the most
favorable plan of the trade or business which is not controlled.
(c) For purposes of this Section 3.04, an Owner-Employee, or two
or more Owner-Employees, will be considered to control a trade or business if
the Owner-Employee, or two or more Owner-Employees together:
(1) Own the entire interest in a unincorporated trade or
business, or
(2) in the case of a partnership, own more than 50
percent of either the capital interest or the profits interest in the
partnership.
An Owner-Employee, or two or more Owner-Employees shall also be treated as
owning any interest in a partnership which is owned, directly or indirectly, by
a partnership which such Owner-Employee, or such two or more Owner-Employees,
are considered to control within the meaning of the preceding sentence.
3.05
Ineligible Class
An employee who would otherwise be eligible to participate in this Plan
who is in an ineligible class of employees, will immediately participate in this
plan on becoming a member of an eligible class.
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ARTICLE IV -- EMPLOYER CONTRIBUTIONS AND
VOLUNTARY NON-DEDUCTIBLE EMPLOYEE CONTRIBUTIONS
4.01
Employer Contributions to the Profit Sharing Plan
If the Profit-Sharing Plan Adoption Agreement is completed in
conjunction with this Basic Plan Document, the Employer's contribution for each
Plan Year shall be the amount specified in the Adoption Agreement or such other
amount as may be specified in an appropriate resolution or other written
directive. No contribution shall be made for any Participant which would cause
the "Annual Addition" to any Participant's Account to exceed the "Maximum
Permissible Amount" specified in Article VI.
4.02
Timing of Employer Contributions
(a) Employer contributions may be made in one or more installments at
such time or times during the Plan Year or during any additional period provided
by law for making contributions for the Plan year as the Employer may decide.
(b) For purposes of making allocations to Employer contribution
Accounts, all contributions for any Plan Year shall be considered made on the
Allocation Date, regardless of the actual date of contribution.
(c) All contributions shall be payable to the Trustees, except that with
the consent of the Trustees, the portion of the Employer's contribution which
represents premiums or considerations on insurance policies or annuity contracts
may be paid directly by the Employer to the Insurer under such terms as may be
mutually agreed upon by the Employer and Insurer.
(d) A matching contribution shall be allocated to an employee's account
under the terms of the Plan as of any date within the plan year when it is
actually paid to the trust no later than the end of the twelve month period
beginning on the day after the close of such plan year, and is made on behalf of
an employee on account of such employee's elective contribution or employee
contributions for the plan year.
4.03
Establishing Employer Contribution Accounts
(a) The Trustees shall establish a separate Employer Contribution
Account for each Participant for each Adoption Agreement completed in connection
with this Basic Plan Document. A Participant's share of Employer contributions,
forfeitures and mandatory Employee contributions determined in accordance with
Sections 6.01 and 6.02 shall be allocated to each such Account. Except as
provided in Subsection (b), all Participants' Employer Contribution Accounts
shall be held as a single, commingled fund except for life insurance and
individual annuity contracts.
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<PAGE> 36
These shall be held exclusively for the benefit of the Participant upon
whose life such contract is issued.
(b) The Trustees may, by mutual agreement with a Participant, segregate
such Participant's Account(s) and hold, invest and value such Account(s)
separately from all other Plan assets. After a Participant has a Termination of
Employment, the Trustees do not need the Participant's consent to establish a
segregated Account from which a distribution will be made to the Participant or
his Beneficiary, but all distributions must comply with Article VIII.
4.04
Voluntary Contributions
(a) Each Participant may, if the Plan Administrator so allows, make
voluntary non-deductible contributions to the Plan at such times and under such
conditions as the Trustees may prescribe. However, Employer contributions and
voluntary contributions may not be commingled in the same individual annuity
contract.
(b) The aggregate voluntary contributions during any Plan Year may not
exceed ten percent (10%) of a Participants aggregate Compensation during any
Plan Year.
(c) Voluntary Contributions and Matching Contributions shall be
aggregated to determine if this Plan meets the nondiscrimination tests of Code
Section 401(m) and Proposed Treasury Regulations l.401(m)-l. Voluntary
Contributions shall, notwithstanding any other provision of this Plan, be
distributed first and then Matching Contributions to any highly compensated
participant if this Plan or any other Plan required to be aggregated with this
Plan for purposes of the nondiscrimination tests, if this Plan or the aggregated
plans fail the nondiscrimination tests. Under this test, the actual contribution
percentage (ACP) for the group of eligible highly compensated employees may not
exceed the greater of (a) 125% of the ACP for all other eligible employees or
(b) the lesser of twice the ACP for all other eligible employees, or such ACP
for all other eligible employees plus 2%. The ACP for a group of eligible
employees is the average of the ratios (calculated separately for each employee)
of the amount of voluntary and matching contributions (and any other
contributions required to be aggregated for purposes of the ACP test) made on
behalf of each employee for the plan year, divided by the employee's
compensation.
4.05
Payment of Voluntary Contributions
(a) All voluntary contributions must be made in cash.
(b) All voluntary contributions made under Section 4.04 shall be part of
the Trust Fund.
(c) Voluntary contributions may not be used to purchase life insurance
contracts, but may be used, to the extent necessary, to keep any life insurance
contract which was initially
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<PAGE> 37
purchased with Employer contributions in force when Employer contributions are
insufficient for this purpose.
(d) In the event voluntary contributions are used in the manner
described in Subsection (c) , the value of the life insurance contract which is
attributable to voluntary contributions shall be determined in the same ratio to
the total value of the contract as the premiums paid by voluntary contributions
bear to the total premiums paid.
4.06
Voluntary Contribution Account
(a) The Trustees shall establish and maintain a Voluntary Contribution
Account for each Participant who makes voluntary contributions.
(b) The balance in each Participant's Voluntary Contribution Account
shall at all times be fully (100%) vested. At no time shall the balance in a
Participant's Voluntary Contribution Account be forfeited for any reason.
4.07
Withdrawal of Voluntary Contributions
(a) A Participant may, at any time, with spousal consent if married,
elect to withdraw all or any portion of the balance in his Voluntary
Contribution Account.
(b) Upon a Termination of Employment, the balance in a Participant's
Voluntary Contribution Account shall be distributed to him at the time and in
the manner specified in Article VIII. However, a Participant may, with the
consent of the Trustees and his spouse choose a different method of distribution
for the Voluntary Contribution Account than is chosen for the Employer
Contribution Account.
4.08
Roll-overs
A Participant may, with the consent of the Trustees, roll over to this
Plan all or any part of a qualified total distribution as defined in Section 402
(a) (5) (E) of the Code. An amount may also be transferred to this Plan on a
Participant's behalf directly from another plan which qualifies under Section
401(a) of the Code. In the event that a Participant makes a roll-over or if an
amount is transferred to this Plan on his behalf, the proceeds shall be held in
a segregated roll-over contribution account to be established by the Trustees
which shall be invested and valued separately from all other Plan assets. A
Participant shall at all times be fully (100%) vested in the value, if any, of
his roll-over contribution account.
4.09
Valuation of Trust Fund
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(a) The value of the Trust Fund and each Participant's Account shall be
determined as of the last day of the Plan Year or more frequently as determined
by the Administrative Committee. All assets of the Trust Fund shall be valued at
their fair market value, determined in accordance with regulations adopted by
the Trustees. On such date, the earnings and losses of the Trust Fund will be
allocated to each Participant's Account in the ratio that such Account balance
bears to all Account balances or based upon earning and losses in that Account.
(b) The value of any life insurance or annuity contract held in a
Participant's Account as of the last day of the Plan Year shall be equal to the
sum of the net cash values of the life insurance contracts and the value
available to provide annuity benefits of allocated annuity contracts held in
such Account as of such date.
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ARTICLE V -- ELECTIVE DEFERRALS
5.01
Maximum Amount of Elective Deferrals
Effective as of January 1, 1987, no Employee shall be permitted to have
Elective Deferrals made under this plan during any calendar year in excess of
$7000.00 multiplied by the Adjustment Factor as provided by the Secretary of the
Treasury. The foregoing limit shall not apply to Elective Deferrals of amounts
attributable to service performed in 1986 and described in Section 1105(c) (5)
of the Tax Reform Act of 1986.
5.02
Employee Elections
Each Participant shall file a written election form with the Plan
Administrator no later than the date he becomes eligible to participate,
specifying the portion of his Compensation to be contributed to the Plan as an
Elective Deferral. The portion contributed shall be deposited to the
Participants "Tax Sheltered Savings Account". Such election of the Participants
shall remain in effect until a new election is filed with the Plan Administrator
in accordance with Section 5.04.
5.03
Tax Sheltered Savings Account
(a) The Trustees shall establish and maintain a Tax Sheltered Savings
Account for each Participant who makes an Elective Deferral.
(b) The balance in each Participant's Tax Sheltered Savings Account
shall at all times be fully (100%) vested. At no time shall the balance in a
Participant's Tax Sheltered Savings Account be forfeited for any reason.
5.04
Adjustments to Elective Deferrals
A Participant may increase or decrease the rate of Elective Deferrals
effective as of any pay period or at times as determined by the Plan
Administrator by submitting a new election to the Plan Administrator. A
Participant may suspend his Elective Deferrals at any time by submitting a
written 30 day notice to the Plan Administrator. Suspensions during the Plan
Year shall be effective as soon as practicable after the election is filed with
the Plan Administrator. Amounts attributable to elective deferrals may not be
distributed earlier than: 1. The employee's retirement, death, disability or
separation from service; 2. The termination of the plan without establishment of
another defined contribution plan, other than an employee stock ownership plan
(as defined in section 4975(e) or section 409 of the Code) or a simplified
employee pension plan as defined in section 408(k); 3. In the case of a profit
sharing or stock bonus plan, the employee's attainment of age 59 1/2 or the
employee's hardship; 4. The disposition by a corporation to an unrelated
corporation of substantially all of the assets (within the meaning of section
409(d) (2) of the Code) used in a trade or business of such corporation
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if such corporation continues to maintain this plan after the disposition, but
only with respect to employees who continue employment with the corporation
acquiring such assets; or 5. The disposition by a corporation to an unrelated
entity of such corporation's interest in a subsidiary (within the meaning of
section 409(d) (3) of the Code) if such corporation continues to maintain this
plan, but only with respect to employees who continue employment with the
subsidiary.
5.05
Actual Deferral Percentage
(a) The Actual Deferral Percentage for Eligible Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Actual
Deferral Percentage for Eligible Participants who are Nonhighly Compensated
Employees for the Plan Year multiplied by 1.25; or
(b) The Actual Deferral Percentage for Eligible Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Actual
Deferral Percentage for Eligible Participants who are Nonhighly Compensated
Employees for the Plan year multiplied by 2, provided that the Actual Deferral
Percentage for Eligible Participants who are Highly Compensated Employees does
not exceed the Deferral Percentage for Eligible Participants who are Nonhighly
Compensated Employees by more than two (2) percentage points or such lesser
amount as the Secretary of the Treasury shall prescribe to prevent the multiple
use of this alternative limitation with respect to any Highly Compensated
Employee.
5.06
Definitions. For purposes of this Article V and for purposes of Articles
XIV and XV of this Plan, the following definitions shall be used:
(a) Actual Deferral Percentage shall mean for a specified group of
participants for a Plan Year, the average of the ratios (calculated separately
for each participant in such group) of (1) the amount of employer contributions
actually paid over the trust on behalf of such participant for the Plan Year to
(2) the participant's Compensation for such Plan Year. Employer contributions on
behalf of any participant shall include: (1) any Elective Deferrals made
pursuant to the participant's deferral election (including Excess Elective
Deferrals of Highly Compensated Employees) , but excluding (a) Excess Elective
Deferrals of Non-highly compensated Employees that arise solely from Elective
Deferrals made under the plan or plans of this employer and (b) Elective
Deferrals that are taken into account in the Contribution Percentage test
(provided the ADP test is satisfied both with and without exclusion of these
Elective Deferrals); and (2) at the election of the employer, Qualified
Non-elective Contributions and Qualified Matching Contributions. For purposes of
computing Actual Deferral percentages, an employee who would be a participant
but for the failure to make Elective Deferrals shall be treated as a participant
on whose behalf no Elective Deferrals are made.
(b) Average Actual Deferral Percentage shall mean the average (expressed
as a percentage) of the Actual Deferral Percentage of the Eligible Participants
in a group.
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(c) Qualified Employer Deferral Contributions shall mean Qualified
Nonelective Contributions taken into account under the terms of the plan without
regard to this Article in determining the Actual Deferral Percentage.
(d) Eligible Participant shall mean any employee who is directly or
indirectly eligible to make a cash or deferred election under the plan for all
or a portion of a plan year and includes: an employee who would be a plan
participant but for the failure to make required contributions; an employee
whose eligibility to make elective contributions has been suspended because of:
an election (other than certain one-time elections) not to participate, a
distribution, or a loan; an employee who cannot defer because of Code section
415 limits on annual additions; and, an employee who is unable to make an
elective contribution because his or her compensation is less than a stated
dollar amount. In the case of an eligible employee who makes no elective
contributions the deferral ratio that is to be included in determining the ADP
is zero. Employee for the Plan Year who is eligible to have Elective Deferrals
or Qualified Nonelective Employer Contributions and Qualified Matching
Contributions allocated to his account under two or more plans or arrangements
described in Section 401(k) of the Code that are maintained by the Employer or
an Affiliated Employer shall be determined as if all such Elective Deferrals and
Qualified Employer Deferral Contribution were made under a single arrangement.
Additionally, all elective contributions that are made under two or more plans
that are aggregated for purposes of Code Section 401(a) (4) or 410(b) (other
than section 410(b) (2) (A) (ii)) are to be treated as made under a single plan
and that if two or more plans are permissively aggregated for purposes of Code
Section 401(k), the aggregated plans must also satisfy Code Sections 401 (a) (4)
and 410(b) as though they were a single plan. Plans may not be permissively
aggregated after January 1, 1989 unless the plans have the same plan year.
5.07
Special Rules
(a) For purposes of this Article V, the Actual Deferral Percentage for
any Eligible Participant who is a Highly Compensated Employee for the Plan Year
and who is eligible to have Elective Deferrals or Qualified Non-elective
Contributions or Qualified Matching Contributions or both if treated as Elective
Deferrals for purposes of the ADP test, allocated to his account under two or
more plans or arrangements described in Section 401(k) of the Code and all Plans
that have a plan year that end in the same calendar year shall be treated as a
single arrangement and all Plans that are maintained by the Employer or an
Affiliated Employer shall be determined as if all such Elective Deferrals and
Qualified Non-elective Contributions or Qualified Matching Contributions, or
both, were made under a single arrangement. Notwithstanding the foregoing,
certain plans shall be treated as separate if mandatorily desegregated under
regulations under section 401(k) of the Code.
(b) For purposes of determining the Actual Deferral Percentage in the
case of a highly compensated employee who is either a 5% owner or one of the ten
most highly compensated employees and is thereby subject to the family
aggregation rules of section 414(q) (6), the actual deferral ratio (ADR) for the
family group (which is treated as one highly compensated employee) is the ADR
determined by combining the elective contributions, compensation, and amounts
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treated as elective contributions of all eligible family members. Except to the
extent taken into account in the preceding sentence, the elective contributions,
compensation, and amounts treated as elective contributions of all family
members shall be disregarded as separate employees in determining the actual
deferral percentages for the groups of highly compensated employees and
nonhighly compensated employees.
(c) The determination and treatment of the Elective Deferrals, Qualified
Nonelective Contributions, Qualified Matching Contributions, or both, and Actual
Deferral Percentage of any Participant shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury. The Employer shall maintain
records sufficient to demonstrate satisfaction of the ADP test and the amount of
Qualified Non-elective Contributions or Qualified Matching Contributions, or
both, used in such test.
(d) For purposes of determining whether a plan satisfied the actual
deferral percentage test of Code section 401(k), all elective contributions that
are made under two or more plans that are aggregated for purposes of Code
section 401(a) (4) or 410(b) (other than section 410(b)(2)(A)(ii)) and that have
the same Plan Year are to be treated as made under a single plan and that is two
or more plans are permissively aggregated for purposes of Code section 401(k),
the aggregated plans must also satisfy sections 401(a)(4) and 410(b) of the Code
as though they were a single plan.
(e) For purposes of determining the ADP test, Elective Deferrals,
Qualified Non-elective Contributions, and Qualified Matching Contributions must
be made before the last day of the 12th month period immediately following the
plan year to which the contributions relate.
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ARTICLE VI -- ALLOCATION OF EMPLOYER CONTRIBUTIONS AND LIMITATIONS ON
CONTRIBUTIONS AND BENEFITS
6.01
Allocation of Employer Contributions
Employer Contributions shall be allocated in accordance with the
Adoption Agreement Section (7) (B) and Article XVII if the plan provides for
permitted disparity or social security integration.
6.02
Allocation of Forfeitures
Except as otherwise provided in Section 8.05, any forfeiture arising
under Section 6.03 shall be allocated as if it were an Employer contribution.
6.03
Timing of Forfeitures
No forfeiture shall be made unless, a Participant has a Termination of
Employment and five consecutive one year breaks in service or a distribution as
described in Section 8.01(a) is made, the non-vested portion of the
Participant's Account shall be forfeited on the earlier of (1) the last day of
the first Plan Year in which the Participant receives a distribution in
accordance with Section 8.04(a)(l), or (2) the last day of the first Plan Year
in which a Break in Service occurs in all other cases.
6.04
Limitations on Contribution and Benefits
(a) For purposes of this section 6.04, the following terms shall be
defined as follows:
(1) Annual Additions--The sum of the following amounts allocated on
behalf of a Participant for a Limitation Year:
(A) all Employer contributions,
(B) all forfeitures,
(C) all employee contributions, and annual additions include
excess contributions described in Code Section 401(k), excess aggregate
contributions described in Code Section 401(m) and excess deferrals described in
Code 402 (g), irrespective of whether the plan distributes or forfeits such
excess amounts. Annual additions also include excess amounts re-applied to
reduce employer contributions under section 6.02 of the plan. Annual additions
include all contributions after March 31, 1984 to an individual medical account,
as defined in section 415(1) (2) of the Code, which is part of a defined benefit
plan maintained by the Employer, and amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such date, which
are attributable to post-retirement medical benefits, as
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defined in Code Section 419A(d) (3), allocated to the separate account of a Key
Employee, under a welfare benefit fund, as defined in Code Section 419(e),
maintained by the Employer.
For purposes of this section 6.04, amounts re-applied to reduce Employer
contributions under paragraph 6.04(b) (4) shall also be included as Annual
Additions.
(2) (A) "Compensation" means for any Limitation Year, the definition as
set out in Article II, Section 12.
(3) "Defined Benefit Plan" means any Retirement Plan that is not a
Defined Contribution Plan.
(4) "Defined Benefit Plan Fraction" means a fraction, the numerator of
which is the sum of the Participant's Projected Annual Benefits under all the
Defined Benefit Plans (whether or not terminated) maintained by the Employer,
and the denominator of which is the lesser of (1) 125 percent of the dollar
limitation in effect for the Limitation Year under Section 415(b) & (d) of the
Code, or (2) 140 percent of the Participant's Highest Average Compensation taken
over three (3) consecutive Years of Service.
Notwithstanding the above if the Participant was a Participant as of the
first day of the first limitation year beginning after December 31, 1986, in one
or more defined benefit plans maintained by the employer which were in existence
on May 6, 1986, the denominator of this fraction will be not less than 125
percent of the sum of the annual benefits under such plans which the participant
had accrued as of the close of the last limitation year beginning before January
1, 1987, disregarding any changes in the terms and conditions of the plan after
May 5, 1986. The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of section 415 of
the Code for all limitation years beginning before January 1, 1987.
(5) "Defined Contribution Plan" means a Retirement Plan which provides
for an individual account for each participant and for benefits based solely on
the amount contributed to such account and any income, expense, gains and
losses, and forfeitures of accounts of other participants which may be allocated
to such account.
(6) "Defined Contribution Plan Fraction" means a fraction, the numerator
of which is the sum of the Annual Additions to the Participant's account under
all the Defined Contribution Plans (whether or not terminated) and all
contributions to individual medical accounts as defined in Section 415(1) (2) of
the Code maintained by the Employer for the current and all prior Limitation
Years described in Section 415(b) & (d) of the Code (including the Annual
Additions attributable to the Participant's non-deductible employee
contributions to all Defined Benefit Plans, whether or not terminated,
maintained by the Employer and the Annual Additions attributable to all welfare
benefit funds as described in Section 6.04(a)(l)(D) of the Plan), and the
denominator of which is the sum of the maximum aggregate amounts for the current
and all prior Limitation Years of service with the Employer (regardless of
whether a Defined Contribution Plan was maintained by the Employer). The maximum
aggregate amount in any Limitation Year
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is the lesser of (1) 125 percent of the dollar limitation in effect under
Section 415(c) (1) (A) of the Code, or (2) 35 percent of the Participant's
Compensation for the Limitation Year.
If the Employee was a participant as of the end of first day of the
first limitation year beginning after December 31, 1986, in one or more defined
contribution plans maintained by the employer which were in existence on May 6,
1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this plan. Under the adjustment, an amount equal to the product of (1)
the excess of the sum of the fractions over 1.0 times (2) the denominator of
this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the end of the last limitation year beginning before January 1,
1987, and disregarding any changes in terms and conditions of the plan made
after May 5, 1986, but using the section 415 limitation applicable to the first
limitation year beginning on or after January 1, 1987. The annual addition for
any limitation year beginning before January 1, 1987, shall not be recomputed to
treat all employee contributions as annual additions.
(7) "Employer" means the Employer that adopts this Plan. In the case of
a group of employers which constitutes a controlled group of corporations (as
defined in section 414(b) of the Code, as modified by section 415(h)) which
constitutes trades or businesses (whether or not incorporated) which are under
common control (as defined in Code Section 414(c), as modified by section
415(h)), or which forms part of an Affiliated Service Group (as defined in Code
Section 414(m)) or a separate organization, employee leasing or other
arrangement described in Code Section 414(0) or the regulations prescribed under
the Code Section all such employers or groups shall be considered a single
Employer for purposes of applying the limitations of this Section 6.04.
(8) "Excess Amount" means the value of the excess of Annual Additions to
a Participant's Account for the Limitation Year over the Maximum Permissible
Amount.
(9) "Highest Average Compensation". The Average Compensation for the
three consecutive Years of Service with the Employer that produces the highest
average. A Year of Service with the Employer is the 12-consecutive month period
defined in Section 2.45 of the Plan.
(10) "Limitation Year" means the calendar year unless a different
limitation year is chosen in the Adoption Agreement. All plans of the Employer
or the Affiliated Service Group shall have the same Limitation Year. If the
limitation year is amended to a different 12 consecutive month period, the new
limitation year must begin on a date within the limitation year in which the
amendment is made.
(11) "Regional Prototype Plan" means this basic plan and any amendments
the form of which is the subject of a favorable opinion letter from the Internal
Revenue Service.
(12) "Maximum Permissible Amount" means the lesser of (1) $30,000, or
such larger amount equal to 1/4 of the defined benefit dollar limitations as
adjusted for cost-of-living increases pursuant to IRC sections 415(d)(l) and
415(d)(3), or (2) 25 percent of the Participant's
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Compensation for the Limitation Year. If a short Limitation Year is created
because of an amendment changing the Limitation Year to a different 12
consecutive months period, the Maximum Permissible Amount will not exceed
$30,000 multiplied by the following fraction:
Number of months in the short Limitation Year
-------------------------------------------------------------------------
12
(13) "Projected Annual Benefit" means the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if such benefit is
expressed in a form other than a straight life annuity or qualified joint and
survivor annuity) to which the Participant would be entitled under the terms of
the Plan assuming:
(A) the Participant will continue employment until normal
retirement age under the Plan (or current age, if later), and
(B) the Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine benefits under the Plan
will remain constant for all future Limitation Years.
(14) "Retirement Plan" means any plan maintained by an Employer which is
(1) a pension, profit-sharing, stock bonus or cash or deferred arrangement plan
described in Sections 401(a) and 501(a) of the Code, (2) an annuity plan or
annuity contract described in Section 403(a) or 403(b) of the Code or (3) a
qualified bond purchase plan described in Section 405(a) of the Code.
(b) (1)If the Participant does not participate in, and has never
participated in another qualified plan or welfare benefit fund as defined in
Section 419(e) of the Code or an individual medical account which is part of any
pension or annuity plan described in Code Section 415(1) (2) maintained by the
Employer, the amount of Annual Additions which may be credited to the
Participant's Account for any Limitation Year will not exceed the lesser of (A)
the Maximum permissible Amount, or (B) any other limitation contained in this
Plan. If the Employer contribution that would otherwise be contributed or
allocated to the participant's Account would cause the Annual Additions for the
Limitation Year to exceed the Maximum Permissible Amount, the amount contributed
or. allocated will be reduced so that the Annual Additions for the Limitation
Year will equal the Maximum Permissible Amount.
(2) Prior to determining the Participant's actual compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount for a
Participant on the basis of a reasonable estimation of the Participant's
Compensation for the Limitation Year, uniformly determined for all Participants
similarly situated.
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation Year will be
determined on the basis of the Participant's actual Compensation for the
Limitation Year.
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(4) If there is an Excess Amount, the excess will be disposed of as
follows:
(A) Any non-deductible voluntary employee contributions, to the
extent they would reduce the Excess Amount, will be returned to the Participant;
(B) If after the application of Paragraph (A) an Excess Amount
still exists, and the Participant is covered by the Plan at the end of the
Limitation Year, the Excess Amount in the Participant's Account will be used to
reduce Employer contributions (including any allocation of forfeitures) for such
Participant in the next Limitation Year, and each succeeding Limitation Year, if
necessary.
(C) If after the application of Paragraph (A) an Excess Amount
still exists, and the Participant is not covered by the Plan at the end of the
Limitation Year, the Excess Amount will be held in the Unallocated Suspense
Account. The amount in the Unallocated Suspense Account will be applied to
reduce future Employer contributions (including allocation of any forfeitures)
for all remaining Participants in the Next Limitation Year, and each succeeding
Limitation Year, if necessary.
(D) If the Unallocated Suspense Account is in existence at any
time during the Limitation Year pursuant to this section, it will not
participate in the allocation of the Trust's investment gains and losses. If a
suspense account is in existence at any time during a particular limitation
year, all amounts in the suspense account must be allocated and reallocated to
participants' accounts before any employer or employee contributions may be made
to the plan for that limitation year. Excess amounts may not be distributed to
participants or former participants.
(c) This Subsection (c) (1) applies to Employers who, in addition to
this Plan, maintain one or more other qualified Regional Prototype Defined
Contribution Plan(s) or welfare benefit funds.
(1) If, in addition to this Plan, the Participant is covered under
another qualified Regional Prototype Defined Contribution Plan(s), welfare
benefit fund as defined in Section 419(e) of the Code or Individual Medical
Account(s) as defined under section 415(1) (2) of the Code maintained by the
Employer during any Limitation Year, the Annual Additions which may be credited
to a Participant's Account under this Plan for any such Limitation Year will not
exceed the Maximum Permissible Amount reduced by the Annual Additions credited
to a Participant's Account under the other plans and welfare benefit funds for
the same Limitation Year. If the Annual Additions with respect to the
Participant under other Defined Contribution Plans and welfare benefit funds
maintained by the Employer are less than the Maximum Permissible Amount and the
Employer contribution that would otherwise be contributed or allocated to the
Participant's Account under this Plan would cause the Annual Additions for the
Limitation Year to exceed this limitation, the amount contributed or allocated
will be reduced so that the Annual Additions under all such Plans and funds for
the Limitation Year will equal the Maximum Permissible Amount. If the Annual
Additions with respect to the Participant under such other Defined Contribution
Plans and welfare benefit funds in the aggregate are equal to or
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<PAGE> 48
greater than the Maximum Permissible Amount, no amount will be contributed or
allocated to the Participant's Account under this Plan for the Limitation Year.
(2) Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount for a
Participant in the manner described in Section 6.04(b)(2).
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation Year will be
determined on the basis of the Participant's actual Compensation for the
Limitation Year.
(4) If, pursuant to Section 6.04(c) (3), a Participant's Annual
Additions under this Plan and such other plans would result in an Excess Amount
for a Limitation Year, the Excess Amount will be deemed to consist of the Annual
Additions last allocated, except that Annual Additions attributable to a welfare
benefit fund or individual medical account, as defined in Section 415(1) (2) of
the Code, maintained by the Employer, will be deemed to have been allocated
first regardless of the actual allocation date.
(5) If an Excess Amount was allocated to a Participant on an allocation
date of this Plan which coincides with an allocation date of another plan, the
Excess Amount attributed to this Plan will be the product of:
(A) the total Excess Amount allocated as of such date, times.
(B) the ratio of (i) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under this Plan to (ii) the
total Annual Additions allocated to the Participant for the Limitation Year as
of such date under this and all the other qualified Defined Contribution Plans.
(6) Any Excess Amount attributed to this Plan will be disposed in the
manner described in Section 6.04(b) (4).
(d) This Subsection applies to Employers who maintain another qualified
Defined Contribution Plan which is not a Regional Prototype Plan. If the
Participant is covered under another qualified Defined Contribution Plan
maintained by the Employer which is not a Regional Prototype Plan, Annual
Additions which may be credited to the Participant's Account under this Plan for
any Limitation Year will be limited in accordance with Sections 6.04(c)(l)
through 6.04(c)(6) as though the other plan were a Regional Prototype Plan.
(e) This Subsection applies to an Employer who maintains, or at any time
maintained, a qualified Defined Benefit Plan. If the Employer maintains, or at
any time maintained, a qualified Defined Benefit Plan covering any Participant
in this Plan, the sum of the Participant's Defined Benefit Plan Fraction and
Defined Contribution Plan Fraction will not exceed 1.0 in any Limitation Year.
The Annual Additions which may be credited to the Participant's Account under
this Plan for any Limitation Year will be limited in accordance with the
Adoption Agreement.
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6.05
Super Top-Heavy Adjustments
In any Plan Year which the Top-Heavy Ratio exceeds 90% (i.e., becomes
Super Top-Heavy) the denominators of the Defined Benefit Plan Fraction and
Defined Contribution Plan Fraction (as described in IRC Section 415(e)) shall be
computed substituting a factor of 1.0 for 1.25.
6.06
Integration of Paired Plans
If the Employer adopts this Plan and another plan that qualifies under
Code Section 401 only one Plan may be integrated.
6.07
Compensation Limit
Compensation taken into account under the plan shall not exceed
$200,000, adjusted for changes in the cost of living as provided in section
415(d) of the Internal Revenue Code, for the purpose of calculating a plan
participant's account balance (including the right to any optional benefit
provided under the plan) for any plan year commencing after December 31, 1988.
6.08
Coordination of Top-Heavy Minimum
If the top-heavy ratio does not exceed 90% and the employer uses a
factor of 1.25 in the denominator of the Code Section 415 fraction, one of the
following conditions must be met:
(a) A defined benefit minimum of 3% per year of service (up to 30%) is
provided, or
(b) For participants covered only by a defined contribution plan, a
defined contributions minimum of 4% is provided, or
(c) For participants covered by both types of plans, benefits from the
defined contribution minimum are comparable to the 3% defined benefit minimum,
or
(d) The plan provides a floor offset where the floor is 3% defined
benefit minimum, or
(e) A defined contribution minimum of 7 1/2% of compensation is provided
for any non-key employee who is covered under both a defined benefit plan and a
defined contribution plan (each of which is top-heavy) of an employer.
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ARTICLE VII -- TOP-HEAVY RULES
7.01
Definitions--For purposes of this Article VII the following terms shall
be defined as follows:
(a) "Determination Date" means for any Plan Year after the first Plan
Year, the last day of the preceding Plan Year. For the first Plan Year, the last
day of that year.
(b) "Permissive Aggregation Group" means the Required Aggregation Group
of plans plus any other plan or plans of the Employer which, when considered as
a group with the Required Aggregation Group, would continue to satisfy the
requirements of Section 401(a)(4) and 410 of the Code.
(c) "Present Value" means a benefit of equivalent value and shall be
based only on the interest and mortality rates specified in the defined benefit
plan. In the absence of such specifications in the defined benefit plan, Present
Value shall be determined by applying the then current purchase rates for
qualified, single payment non-participating immediate annuities issued by the
Insurance Company and discounting the resulting value by 6 percent per annum.
(d) "Required Aggregation Group" means (1) each qualified plan of the
Employer in which at least one Key Employee participates in the plan year
containing the determination date or any of the four preceding plan years, and
(2) any other qualified plan of the Employer which enables a plan described in
this Subsection (d) to meet the requirements of Sections 401(a) (4) or 410 of
the Code, are required to be aggregated for top-heavy testing purposes and are
considered the required aggregation group. All employers aggregated under
sections 414(b), (c) or (m) are considered a single employer.
(e) "Top-Heavy Plan" means for any Plan Year beginning after December
31, 1983, this plan, if any of the following conditions exists:
(1) If the Top-Heavy Ratio for this Plan exceeds 60 percent and
this Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group of plans
(2) If this Plan is a part of a Required Aggregation Group of
plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for
the Required Aggregation Group of plans exceeds 60 percent.
(3) If this Plan is a part of a Required Aggregation Group and
part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the
Permissive Aggregation Group exceeds 60 percent.
This Plan is "Super Top-Heavy" if any of the above described
conditions exists when "90 percent" is substituted for "60 percent" each place
that it appears.
(f) "Top-Heavy Ratio" means
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(1) If the Employer maintains one or more defined contribution plans
(including any Simplified Employee Pension Plan) and the Employer has not
maintained any defined benefit plan which during the 5-year period ending on the
Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio for
this Plan alone or for the Required or Permissive Aggregation Group, as
appropriate, is a fraction, the numerator of which is the sum of the Account
balances of all Key Employees as of the Determination Date(s) (including any
part of any account balance distributed in the 5-year period ending on the
Determination Date(s)), and the denominator of which is the sum of all account
balances (including any part of any account balance distributed in the 5-year
period ending on the Determination Date(s)), both computed in accordance with
Section 416 of the Code and the regulations thereunder. Both the numerator and
denominator of the Top-Heavy Ratio are increased to reflect any contribution not
actually made as of the Determination Date, but which is required to be taken
into account on that date under Section 416 of the Code and the regulations
thereunder.
(2) If the Employer maintains one or more defined contribution plans
(including any Simplified Employee Pension Plans) and the Employer maintains or
has maintained one or more defined benefit plans which during the 5-year period
ending on the Determination Date(s) has or has had any accrued benefits, the
Top-Heavy Ratio for any Required or Permissive Aggregation Group, as
appropriate, is a fraction, the numerator of which is the sum of account
balances under the aggregated defined contribution plan or plans for all Key
Employees, determined in accordance with Paragraph (1), and the Present Value of
accrued benefits under the aggregated defined benefit plan or plans for all Key
Employees as of the Determination Date(s) , and the denominator of which is the
sum of the account balances under the aggregated defined contribution plan or
plans for all Participants, determined in accordance with Paragraph (1), and the
Present Value of accrued benefits under the defined benefit plan or plans for
all Participants as of the Determination Date(s), all determined in accordance
with Section 416 of the Code and the regulations thereunder. The accrued
benefits under a defined benefit plan in both the numerator and denominator of
the Top-Heavy Ratio are increased for any distribution of an accrued benefit
made in the 5-year period ending on the Determination Date.
(3) For purposes of Paragraphs (1) and (2) , the value of Account
balances and the Present Value of Accrued Benefits will be determined as of the
most recent Valuation Date that falls within or ends with the 12-month period
ending on the Determination Date, except as provided in Section 416 of the Code
and the regulations thereunder for the first and second plan years of a defined
benefit plan. The Account balances and accrued benefits of a Participant (1) who
is not a Key Employee but who was a Key Employee in a prior year, or (2) who has
not been credited with at least one hour of service for any Employer maintaining
the Plan at any time during the 5-year period ending on the Determination Date
will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to
which distributions, roll-overs, and transfers are taken into account will be
made in accordance with Section 416 of the Code and the regulations thereunder.
Deductible Employee contributions will not be taken into account for purposes of
computing the Top-Heavy Ratio. When aggregating plans, the value of Account
balances and accrued benefits will be calculated with reference to the
Determination Dates that fall within the same calendar year. The accrued benefit
of a participant other than a key employee shall be determined under (a) the
method, if any, that uniformly applies for accrual purposes under all
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<PAGE> 52
defined benefit plans maintained by the employer, or (b) if there is no such
method, as if such benefit accrued not more rapidly than the slowest accrual
rate permitted under the fractional rule of section 4"(b) (1) (C) of the Code.
(g) "Allocation Date" means the date specified in Article 2.05 as of
which Account balances or accrued benefits are valued for purposes of
calculating the Top-Heavy Ratio.
7.02
Minimum Contributions
(a) Except as otherwise provided in Subsections (c) and (d) for any Plan
Year in which the Plan is a Top-Heavy Plan, the Employer contributions and
forfeitures allocated on behalf of any Participant who is not a Key Employee
shall not be less than the lesser of (1) three percent (3%) of such
Participant's Compensation, or (2) in the case where the Employer has no defined
benefit plan which designates this Plan to satisfy Section 401 of the Code, the
largest percentage of Employer contributions and forfeitures expressly allocated
on behalf of any Key Employee for that year as a percentage of the first
$200,000 of the Key Employee's compensation, and shall include amounts
contributed as a result of a salary reduction agreement. The minimum
contribution is determined without regard to any Social Security contribution.
This minimum contribution shall be made even though, under other Plan
provisions, the Participant would not otherwise be entitled to receive such
contribution, or would have received a lesser allocation for (i) the year
because of the Participant's failure to complete 1,000 Hours of Service (or any
equivalent provided in the Plan) , or (ii) the Participant's failure to make
mandatory employee contributions to the Plan, or (iii) compensation less than a
stated amount.
(b) For purposes of computing the minimum contribution, "Compensation"
will means Compensation as defined in this Plan.
(c) The requirements of Subsection (a) shall not apply to any
Participant who was not employed by the Employer on the last day of the Plan
Year.
(d) The requirements of Subsection (a) shall not apply to any
Participant to the extent the Participant is covered under any other plan or
plans of the Employer and the minimum contribution or benefit requirement
applicable to Top-Heavy Plans will be met in such other plan or plans.
(e) After January 1, 1989, this plan may not include elective deferrals
or matching contributions as Employer contributions for the purpose of
satisfying the minimum contributions requirement.
7.03
Nonforfeitability of Minimum Contribution
The minimum contribution required (to the extent required to be
nonforfeitable under Code Section 416(b)) may not be forfeited under Code
Section 4"(a)(3)(B) or Code Section 4"(a)(3)(D).
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7.04
Compensation Limit
For any Plan Year, only the first $200,000 (or such larger amount as may
be prescribed by the Secretary of the Treasury or his delegate) of a
Participant's annual Compensation shall be taken into account for purposes of
determining Employer contributions under the Plan.
7.05
Minimum Vesting for Non-Standardized Plans
For any Plan Year in which this Plan is a Top-Heavy Plan, one of the
minimum vesting schedules as elected by the Employer in the Adoption Agreement
will automatically apply to the Plan. The minimum vesting schedule applies to
all benefits within the meaning of Section 411(a)(7) of the Code except those
attributable to Employee contributions, including benefits accrued before the
effective date of Code Section 416 and benefits accrued before the Plan became
Top-Heavy. Further, no decrease in a Participant's nonforfeitable percentage may
occur in the event the Plan's status as Top-Heavy changes for any Plan Year.
However, this section does not apply to the Account balances of any Employee who
does not have an Hour of Service after the Plan has initially become Top-Heavy
and such Employee's Account balance attributable to Employer contributions and
forfeitures will be determined without regard to this Section 7.05. If the Plan
is top-heavy then the vesting schedule selected in the Adoption Agreement
Section 9(B) shall apply. If the vesting schedule under the Plan shifts in or
out of the above schedule for any Plan Year because of the Plan's top-heavy
status, such shift is an amendment to the vesting schedule and the election in
this Section of the Plan.
7.06
Coordination of Top-Heavy Plan Minimum Contribution
If an Employer and Affiliated Employer maintain both defined
contribution and defined benefit plans, the top-heavy minimums shall be
coordinated by providing that contributions and forfeitures under the defined
contribution plan equal 5% of compensation for each year the plan is top-heavy.
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ARTICLE VIII -- PAYMENT OF BENEFITS
8.01
Form of Distributions
(a) Following a Termination of Employment but in no event later than
April 1st of the calendar year following the year in which a 5% owner (as
defined in Section 416(i) of the Code) attains age 70-1/2, the vested portion of
a Participant's Account balance shall be distributed, subject to the provision
of section 8.02, to him, or in the event of the Participant's death, to his
Beneficiary in one lump sum. A Participant may elect to receive any benefit in
cash, installments, or subject to Subsection (b), apply all or a portion of the
cash to the purchase of an immediate or deferred non-transferable annuity
contract. A Participant may also elect, subject to the provisions of Subsection
(d), to receive the life insurance contracts, if any, held on his life. However,
a deferred annuity may not be purchased on behalf of a terminated Participant
who has attained age 70-1/2. Optional forms of benefits shall be made available
to Participants in a manner that does not discriminate in favor of highly
compensated participants. Distributions to each participant shall commence no
later than the participant's required beginning date. Required Beginning Date
means April 1st of the calendar year following the calendar year in which the
employee attains age 70-1/2. If a Participant dies his interest shall be
distributed at least as rapidly as his benefit was being distributed and in no
event may the distribution take longer than five years from the date of death.
Any distribution required under the incidental death benefit requirement of Code
Section 401(a)(9)(G) shall be treated as a distribution for the purposes of
this plan section. The provisions reflecting Code Section 401(a)(9) and
Proposed Treasury Regulations 1.401(a)(9)-2 shall override any distribution
options in this plan which are inconsistent with Code Section 401(a)(9) and
Proposed Treasury Regulation 1-401(a)(9)-2.
(b)(1) For purposes of this Article VIII, "Designated Beneficiary" means
any individual designated as a Beneficiary by the Participants as defined in
Section 401(a)(9) of the Code and the proposed regulations thereunder.
(2) Any annuity purchased shall comply with all requirements of the Plan
and pursuant to Subsection (a) or (c) must be payable over the Participant's
life (or over the joint lives of the Participant and Designated Beneficiary) .
Such annuity will be non-transferable and will provide for non-increasing
payments and may provide for an annuity certain feature. If an annuity certain
feature applies such period may not exceed the joint and last survivor
expectancy of the Participant and his Designated Beneficiary, as the case may
be. An annuity certain feature shall have a payment period which shall be
greater than 50% of the annuity which is payable during the joint lives of the
participant and the spouse. A participant who elects to defer receipt of
benefits shah not do so to the extent that the participant is creating a death
benefit that is more than incidental. Life expectancy will be determined not
later than the date distribution must commence under Subsection (a) or (c) of
this Article.
(3) Individual Account
(A) If a participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the
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participant or the joint life and last survivor expectancy of the participant
and the participant's designated beneficiary or (2) a period not extending
beyond the life expectancy of the designated beneficiary, the amount required to
be distributed for each calendar year, beginning with distributions for the
first distribution calendar year, must at least equal the quotient obtained by
dividing the participant's benefit by the applicable life expectancy.
(B) For calendar years beginning before January 1, 1989, if the
participant's spouse is not the designated beneficiary, the method of
distribution selected must assure that at least 50% of the present value of the
amount available for distribution is paid within the life expectancy of the
participant.
(C) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with distributions for the first
distribution calendar year shall not be less than the quotient obtained by
dividing the participant's benefit by the lessor of (l) the applicable life
expectancy or (2) if the participant's spouse is not the designated beneficiary,
the applicable divisor determined from the table set forth in Q&A-4 of section
1.401(a)(9)-2 of the proposed regulations. Distributions after the death of the
participant shall be distributed using the applicable life expectancy in section
4.1(a) above as the relevant divisor without regard to Proposed Regulations
section 1.401(a)(9)-2.
(D) The minimum distribution required for the participant's
first distribution calendar year must be made on or before the participant's
required beginning date. The minimum distribution for other calendar years,
including the minimum distribution for the distribution calendar year in which
the employee's required beginning date occurs, must be made on or before
December 31 of that distribution calendar year. For distributions beginning
before the participant's death, the first distribution calendar year is the
calendar year immediately preceding the calendar year which contains the
participant's required beginning date. For distributions beginning after the
participant's death, the first distributions calendar year is the calendar year
in which distributions are required to begin according to this section
hereinabove.
(E) Participant's benefit shall mean the account balance as of
the last valuation date in the calendar year immediately preceding the
distribution calendar year (valuation calendar year) increased by the amount of
any contribution or forfeitures allocated to the account balance as of dates in
the valuation calendar year after the valuation date and decreased by
distributions made in the valuation calendar year after the valuation date. For
purposes of this paragraph, if any portion of the minimum distribution for the
first distribution calendar year is made in the second distribution calendar
year on or before the required beginning date, the amount of the minimum
distribution made in the second distribution calendar year shall be treated as
if it had been made in the immediately preceding distribution calendar year.
(c) If a Participant who has attained age 70-1/2 remains employed by the
Employer then contributions will continue to be made for the Participant to the
extent required under Section 4.01. However, in the case of a 5% owner, in
addition to any benefit otherwise receivable by such Participant from
contributions made previously, an additional distribution will be made. The
amount of the distribution will be, subject to the provisions of Section 7.02,
the lump sum value of the Participant's Account or, at the election of the
Participant, the value of the
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Account will be applied to purchase an immediate annuity. Distributions to each
participant shall commence no later than the participants required beginning
date. Any distribution required under the incidental death benefit requirement
of Code Section 401(a)(9)(G) shall be treated as a distribution for the purposes
of this plan section. The provisions reflecting Code Section 401(a)(9) and
Proposed Treasury Regulation 1.401(a) (9)-2 shall override any distribution
options in this Plan which is inconsistent with the Code Section 401(a)(9) and
Proposed Treasury Regulation l.401(a)(9)-2.
(d)(1) A Participant who is entitled to a distribution under this
Section of the Plan and who is fully (100%) vested in the balance of his
contribution Account may elect to receive a distribution of any life insurance
contracts issued on his life. If the Participant is not fully (100%) vested at
the time distribution commences and if such life insurance contracts would
otherwise be surrendered by the Plan, the Participant may purchase the
contracts. The Participant will pay the Plan the amount necessary to put the
Plan in the same cash position as it would have been in if the Trustees had
surrendered the contract and distributed the Participant's vested interest in
the Plan. Any amount paid to a child of the participant will be treated as if it
had been paid to the surviving spouse if the amount becomes payable when the
child reaches the age of majority.
(2) Upon the request of a Participant described in Paragraph (1) , the
Trustees may borrow all or any portion of the cash surrender value of any life
insurance policy issued on such Participant's life and then sell the contract to
the Participant subject to the loan. Loans from insurance contracts for any
other purpose, except as specified in Section 9.04, shall be prohibited under
this Plan.
(3) If a Participant who has a Termination of Employment does not
purchase the policy or policies issued on his life under this Section 8.01(d),
the policy or policies on his life shall be surrendered by the Trustees(1) the
cash surrender proceeds shall be added to his Account and distributed under the
provisions of this Article VIII.
(4) A Participant shall elect the manner in which his vested Account
balance is to be distributed by signing a written statement and, if necessary,
making a Qualified Election on a form satisfactory to the Trustees and the
Insurer, if required, within a reasonable time before or after his Termination
of Employment. If a Participant fails to make a valid election of a manner of
distribution within the time specified by the Trustees, the distribution shall
be made in one sum, or installments, except to the extent otherwise provided in
Section 8.02(b).
(5) A Participant with vested benefits attributable to Employee or
Employer contributions, who survives until the Annuity Starting Date, (which is
the earlier of the first day of the first period for which an amount payable as
an annuity or in the case of a benefit not payable in the form of an annuity,
the first day on which all events have occurred which entitle the participant or
beneficiary to such benefit) shall receive benefits in the form of a qualified
joint and survivor annuity. For an unmarried participant a qualified joint and
survivor annuity shall mean a single life annuity.
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(6) If the value of a participant's vested account balance derived from
employer and employee contributions exceeds (or at the time of any prior
distribution exceeded) $3,500.00, and the account balance is immediately
distributable, the participant and the participant's spouse (or where either the
participant or the spouse has died, the survivor) must consent to any
distribution of such account balance. The consent of the participant and the
participant's spouse shall be obtained in writing within the 90-day period
ending on the annuity starting date. The annuity starting date is the first day
of the first period for which an amount is paid as an annuity or any other form.
The plan administrator shall notify the participant and the participant's spouse
of the right to defer any distribution until the participant's account balance
is no longer immediately distributable. Such notification shall include a
general description of the material features, and an explanation of the relative
values of, the optional forms of benefit available under the plan in a manner
that would satisfy the notice requirements of section 417(a)(3), and shall be
provided no less than 30 days and no more than 90 days prior to the annuity
starting date.
Notwithstanding the foregoing, only the participant need consent to the
commencement of a distribution in the form of a qualified joint and survivor
annuity while the account balance is immediately distributable. (Furthermore, if
payment in the form of a qualified joint and survivor annuity is not required
with respect to the participant pursuant to section 8.2 of the plan, only the
participant need consent to the distribution of an account balance that is
immediately distributable.) Neither the consent of the participant nor the
participant's spouse shall be life under this Section 8.01(d), the policy or
policies on his life shall be surrendered by the Trustees, the cash surrender
proceeds shall be added to his Account and distributed under the provisions of
this Article VIII.
(4) A Participant shall elect the manner in which his vested Account
balance is to be distributed by signing a written statement and, if necessary,
making a Qualified Election on a form satisfactory to the Trustees and the
Insurer, if required, within a reasonable time before or after his Termination
of Employment. If a Participant fails to make a valid election of a manner of
distribution within the time specified by the Trustees, the distribution shall
be made in one sum, or installments, except to the extent otherwise provided in
Section 8.02(b).
(5) A Participant with vested benefits attributable to Employee or
Employer contributions, who survives until the Annuity Starting Date, (which is
the earlier of the first day of the first period for which an amount payable as
an annuity or in the case of a benefit not payable in the form of an annuity,
the first day on which all events have occurred which entitle the participant or
beneficiary to such benefit) shall receive benefits in the form of a qualified
joint and survivor annuity. For an unmarried participant a qualified joint and
survivor annuity shall mean a single life annuity.
(6) If the value of a participant's vested account balance derived from
employer and employee contributions exceeds (or at the time of any prior
distribution exceeded) $3,500.00, and the account balance is immediately
distributable, the participant and the participant's spouse (or where either the
participant or the spouse has died, the survivor) must consent to any
distribution of such account balance. The consent of the participant and the
participant's spouse shall be obtained in writing within the 90-day period
ending on the annuity
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starting date. The annuity starting date is the first day of the first period
for which an amount is paid as an annuity or any other form. The plan
administrator shall notify the participant and the participant's spouse of the
right to defer any distribution until the participant's account balance is no
longer immediately distributable. Such notification shall include a general
description of the material features, and an explanation of the relative values
of, the optional forms of benefit available under the plan in a manner that
would satisfy the notice requirements of section 417(a)(3), and shall be
provided no less than 30 days and no more than 90 days prior to the annuity
starting date.
Notwithstanding the foregoing, only the participant need consent to the
commencement of a distribution in the form of a qualified joint and survivor
annuity while the account balance is immediately distributable. (Furthermore, if
payment in the form of a qualified joint and survivor annuity is not required
with respect to the participant pursuant to section 8.2 of the plan, only the
participant need consent to the distribution of an account balance that is
immediately distributable.) Neither the consent of the participant nor the
participant's spouse shall be required to the extent that a distribution is
required to satisfy section 401(a) (9) or section 415 of the Code. In addition,
upon termination of this plan if the plan does not offer an annuity option
(purchased from a commercial provider) the participant's account balance may,
without the participant's consent, be distributed to the participant or
transferred to another defined contribution plan (other than an employee stock
ownership plan as defined in section 4975(e) (7) of the Code) within the same
controlled group. An account balance is immediately distributable if any part of
the account balance could be distributable to the participant (or surviving
spouse) before the participant attains or would have attained if not deceased)
the later of normal retirement age or age 62. For purposes of determining the
applicability of the foregoing consent requirements to distributions made before
the first day of the first plan year beginning after December 31, 1988, the
participant's vested account balance shall not include amounts attributable to
accumulated deductible employee contributions within the meaning of section
72(0)(5)(B) of the Code.
8.02
Qualified Joint and Survivor Annuity and pre-retirement Survivor Annuity
(a) For purposes of this Article VIII:
(1) "Qualified Election" means a waiver of a Qualified Joint and
Survivor Annuity or a pre-Retirement Survivor Annuity, as defined under article
8.02(a)(3) and (5) of the Plan. The waiver must be in writing and must be
consented to by the participant's Spouse. The Spouse's consent to a waiver must
be witnessed by a Plan representative or notary public and must be limited to a
benefit for a specific alternate Beneficiary. Notwithstanding this consent
requirement, if the participant established to the satisfaction of a Plan
representative that such written consent may not be obtained because there is no
Spouse or the Spouse cannot be located, a waiver by the participant only will be
deemed a Qualified Election. Any consent necessary under this provision will be
valid only with respect to the Spouse who signs the consent, or in the event of
a deemed Qualified Election, the designated Spouse. Additionally, a revocation
of a prior waiver may be made by a participant without the consent of the Spouse
at any time before the commencement of benefits. However, once made, the consent
of a Participant's Spouse shall
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be irrevocable. A participant may make any number of revocations during the
election period. Any new waiver or change of Beneficiary will require new
spousal consent.
(2) During the 90 day period ending on the annuity starting
date, a participant may waive the Qualified Joint and Survivor Annuity form of
benefit provided the following conditions are satisfied:
(A) the participant's spouse consents in writing to the election
are the spouse's consent is witnessed by a plan representative or notary public;
(B) the participant's waiver and the spouse's consent state that
the specific nonspouse beneficiary (including any class of beneficiaries or
contingent beneficiaries) and the particular optional form of benefit, may not
be further modified (except back to a Qualified Joint and Survivor Annuity)
without subsequent spousal consent (unless expressly permitted by the spouse);
and
(C) The spouses consent acknowledges the effect of the election.
Unless an optional form of benefit is selected pursuant to a qualified election
within a 90-day period ending on the annuity starting date, a married
participant's vested accrued benefit will be paid in the form of a qualified
joint and survivor annuity and an unmarried participant's vested accrued benefit
will be paid in the normal form of an immediate life annuity. The participant
may elect to have such annuity distributed upon attainment of the earliest
retirement age under the Plan.
(3) "Qualified Joint and Survivor Annuity" means an annuity for
the life of the Participant with a survivor annuity for the life of the Spouse
which is not less than 50 percent and not more than 100 percent of the amount of
the annuity which is payable during the joint lives of the Participant and the
Spouse and which is the amount of benefit which can be purchased with the vested
balance in the Participant's Account. The Joint and 50% Survivor Annuity is
designated as the automatic form of benefit payment.
(4) "Spouse" means the spouse or surviving spouse of the
Participant, including a former spouse or surviving spouse to the extent
provided under a qualified domestic relations order as described in Section
414(p) of the Code.
(5) "Pre-retirement survivor annuity" shall mean an annuity
which is purchased for the life of the surviving spouse the actuarial equivalent
of which is not less than 50 percent of the nonforfeitable account balance,
including the proceeds of life insurance on the participant's life, of the
Participant, as of the date of death. No more than a proportional percent of the
account balance attributable to contributions that may not be forfeited at
death, (e.g. employee deferrals) may be used to satisfy this requirement. The
amount of life insurance shall not exceed the Incidental Death Benefits
contained in 9.03 of the plan.
(b) Notwithstanding any other provision of this Plan to the contrary,
except as provided in Subsection (d) -
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(1) If a Participant who completes at least one (1) Hour of
Service on or after August 23, 1984 does not make a Qualified Election and dies
before benefits have commenced as a Qualified Joint and Survivor Annuity, the
Participant's vested Account balance, including life insurance, less any loans
will be distributed in the form of a life annuity; and if a married participant
with vested benefits attributable to employer or employee contributions dies
before the Annuity Starting Date, the participant's spouse will be provided with
a pre-retirement survivor annuity unless there has been a proper election to
waive the pre-retirement survivor annuity and the notice requirements have been
met.
(2) If a married Participant who completes at least one (1) Hour
of Service on or after August 23, 1984 does not make a Qualified Election and
dies before benefits have begun under the Plan, his Account balance including
life insurance less any loans shall be applied to purchase an annuity for the
surviving Spouse the actuarial equivalent of which is not less than 50% of the
account balance of the participant as of the date of death.
(3) the surviving spouse may direct the commencement of payments
under the Pre-Retirement Survivor Annuity within a reasonable time after the
participant's death.
(c)(1)The Trustees shall provide to each Participant within no less
than 30 days and no more than 90 days prior to the annuity starting a written
explanation of (1) the terms and conditions of the Qualified Joint and Survivor
Annuity; (2) the Participant's right to make and the effect of an election to
waive the Qualified Joint and Survivor Annuity; (3) the rights of a
Participant's Spouse; and (4) the right to make and the effect of a revocation
of a previous election to waive the Qualified Joint and Survivor Annuity.
Notwithstanding the other requirements of this section, the respective notices
prescribed by this section need not be given to a participant if (1) the plan
"fully subsides" the costs of a qualified joint and survivor annuity or
qualified preretirement survivor annuity, and (2) the plan does not allow the
participant to waive the qualified joint and survivor annuity or qualified
preretirement survivor annuity and does not allow a married participant to
designate a nonspouse beneficiary. A plan fully subsidizes the costs of a
benefit if no increase in cost, or decrease in benefits to the participant may
result from the participant's failure to elect another benefit.
(2) The Trustees shall also provide each Participant within the period
beginning on the first day of the Plan Year in which the Participant attains age
32 and ending with the close of the Plan Year preceding the Plan Year in which
the Participant attains age 35, a written explanation of the Pre-Retirement
Survivor Annuity as described in Section 8.02(b) (2) in such terms and in such
manner as would be comparable to the explanation provided for meeting the
requirements of Paragraph (1).
(3) If a Participant enters the Plan after the first day of the Plan
Year in which age 32 is attained, the Trustees shall provide the required notice
no later than the close of the third Plan Year following the Participant's entry
into the Plan.
(4) The Trustees shall provide a participant and his spouse, if any,
with a written explanation of a pre-retirement survivor annuity within one year
after the Participant separates from service before age 35 if he has already
received the explanation.
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(5) Election Period: The period which begins on the first day of the
plan year in which the participant attains age 35 and ends on the date of the
participant's death. If a participant separates from service prior to the first
day of the plan year in which age 35 is attained, with respect to the account
balance as of the date of separation, the election period shall begin on the
date of separation. Pre-age 35 waiver: A participant who will not yet attain age
35 as of the end of any current plan year may make a special qualified election
to waive the qualified preretirement survivor annuity for the period beginning
on the date of such election and ending on the first day of the plan year in
which the participant will attain age 35. Such election shall not be valid
unless the participant receives a written explanation of the qualified
preretirement survivor annuity. Qualified preretirement survivor annuity
coverage will be automatically reinstated as of the first day of the plan year
in which the participant attains age 35. Any new waiver on or after such date
shall be subject to the full requirement of this Section. Earliest retirement
age shall mean the earliest date under the Plan the Participant could elect to
receive retirement benefits.
(d) This section shall apply to a participant in a profit sharing plan,
and to any distribution, made on or after the first day of the first plan year
beginning after December 31, 1988, from or under a separate account attributable
solely to accumulated deductible employee contributions, as defined in section
72(o)(5)(B) of the Code, and maintained on behalf of a participant in a money
purchase pension plan, (including a target benefit plan) if the following
conditions are satisfied: (1) the participant does not or cannot elect payments
in the form of a life annuity; and (2) on the death of a participant, the
participant's vested account balance will be paid to the participant's surviving
spouse, but if there is no surviving spouse, or if the surviving spouse has
consented in a manner conforming to a qualified election, then to the
participant's designated beneficiary. The surviving spouse may elect to have
distribution of the vested account balance commence within the 90-day period
following the date of the participant's death. The account balance shall be
adjusted for gains or losses occurring after the participant's death in
accordance with the provisions of the plan governing the adjustment of account
balances for other types of distributions. This section shall not be operative
with respect to a participant in a profit sharing plan if the plan is a direct
or indirect transferee of a defined benefit plan, money purchase plan, a target
benefit plan, stock bonus, or profit sharing plan which is subject to the
survivor annuity requirements of section 401(a)(11) and section 417 of the Code.
The participant may waive the spousal death benefit described in this section at
any time provided that no such waiver shall be effective unless it satisfied the
conditions that would apply to the participant's waiver of the qualified
preretirement survivor annuity. For purposes of this section, vested account
balance shall mean, in the case of a money purchase pension plan or a target
benefit plan, the participant's separate account balance attributable solely to
accumulated deductible employee contributions within the meaning of section
72(o)(5)(B) of the Code. In the case of a profit sharing plan, vested account
balance shall have the same meaning as provided in hereinabove.
8.03
Transitional Rules
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(a) Any living Participant who is not receiving benefits on August 23,
1984, and would otherwise not receive the benefits prescribed in Section 8.02
must be given the opportunity to elect to have the provisions of Section 8.02
apply if (1) such Participant is credited with at least one (1) Hour of Service
under this Plan or a predecessor plan in a Plan Year beginning on or after
January 1, 1976 and (2) had at least ten (10) Years of Service when he or she
incurred a Termination of Employment.
(b) Any living Participant who is not receiving benefits on August 23,
1984, and who was credited with at least one Hour of Service under this Plan or
a predecessor plan on or after September 2, 1974, and who is not otherwise
credited with any service in a Plan Year beginning on or after January 1, 1976,
must be given the opportunity to have his or her benefits paid in accordance
with Subsection (d).
(c) The respective opportunities to elect (as described in Subsections
(a) and (b)) must be given to the appropriate Participants during the period
beginning on August 23, 1984, and ending on the date benefits would otherwise
begin.
(d) Any Participant who has elected pursuant to Subsection (b) and any
Participant who does not elect under Subsection (a) or who meets the
requirements of Subsection (a) except that such Participant does not have at
least ten (10) Years of Service when he or she had a Termination of Employment,
shall have his or her benefits distributed in accordance with all of the
following requirements if benefits would have been payable in the form of a life
annuity:
(1) Automatic Joint and Survivor Annuity - If benefits in the
form of a life annuity become payable to a married Participant who:
(A) begins to receive payments under the Plan on or
after his Normal Retirement Age, or
(B) dies on or after Normal Retirement Age while still
working for the Employer; or
(C) begins to receive payments on or after the Qualified
Early Retirement Age; or
(D) has a Termination of Employment on or after
attaining Normal Retirement Age (or the Qualified Early Retirement Age) and
after satisfying the eligibility requirements for the payment of benefits under
the Plan and thereafter dies before beginning to receive such benefits; then
such benefits will be received under this Plan in the form of a Qualified Joint
and Survivor Annuity, unless the Participant has elected otherwise during the
election period. The election period must begin at least six (6) months before
the Participant attains Qualified Early Retirement Age and end not more than 90
days before the commencement of benefits. Any election will be in writing and
may be changed by the Participant at any time.
(E) A Participant who is employed after attaining the
Qualified Early Retirement Age will be given the opportunity to elect, during
the election period, to have a
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survivor annuity payable on death. If the Participant elects the survivor
annuity, payments under such annuity must not be less than the payments which
would have been made to the Spouse under the Qualified Joint and Survivor
Annuity if the Participant had retired on the date before his or her death. Any
election under this provision will be in writing and may be changed by the
Participant at any time. The election period begins on the later of (1) the 90th
day before the Participant attains the Qualified Early Retirement Age, or (2)
the date on which participation begins, and ends on the date the Participant has
a Termination of Employment.
(e) For purposes of this Section 8.03 Qualified Early Retirement Age is
the latest of:
(1)(A) the earliest date, under the Plan, on which the
Participant may elect to receive retirement benefits,
(B) the first day of the 120th month beginning before
the Participant reaches Normal Retirement Age, or
(C) the date the Participant begins participation.
(2) Qualified Joint and Survivor Annuity is an annuity for the life of
the Participant with a survivor annuity for the life of the Spouse as described
in Section 8.02(a) (6).
8.04
Timing of Distributions
(a) The distribution of a Participant's Account balance (other than
elective contributions see 8.04(g)) under Section 8.01 shall begin at the
Participant's or Beneficiary's election:
(1) On the earliest practicable date following a Termination of
Employment, if
(A) the Participant 5 fully (100%) vested in his or her
Employer contribution Account balance on his Termination of Employment, or
(B) the distribution is made in a lump sum and does not
exceed $3,500, or
(C) the distribution is made in a lump sum and the
Participant has elected (with his spouse's consent) to receive such
distribution; and
(D) distributions shall be made not later than the
required beginning date for distributions.
(2) On the earliest practicable date after the Allocation Date of the
first Plan Year in which a Participant has a Break in Service, in any case not
specified in Paragraph (1), provided that such Participant consents (and where
applicable obtains his spouse's consent) to receive such distribution on such
date.
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(b) In no event, unless a Participant consents to postponement under
Subsection (d), may the distribution of his Account balance commence later than
the sixtieth (60th) day after the last day of the Plan Year in which occurs the
later of (1) a Participant's Normal Retirement Age, or (2) ; the date of his
Termination of Employment.
(c) The Participant or Beneficiary may elect to defer distributions
under the Plan to the date specified in Section 8.04(a)(2) or to the latest date
specified in Section 8.04(b). Any such deferral of distributions shall be
administered in a uniform and non-discriminatory manner. The employer may not
through the exercise of any discretion, deny a participant a Code Section 4"(d)
(6) protected benefit for which the participant is otherwise eligible.
(d) A former Participant may consent to postpone the distribution of his
Account balance beyond the latest date permitted by Subsection (b), but in no
event later than April 1st of the calendar year following the year in which age
70-1/2 is attained, by filing a written statement with the Trustees describing
the distribution to which he is entitled and stating the date upon which he
desires such distribution to commence. Any such postponement shall require the
approval of the Trustees.
(e) For distributions beginning before the participant's death, the
first distribution calendar year is the calendar year immediately preceding the
calendar year which contains the participant's required beginning date. For
distributions beginning after the participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin.
(f) If the Plan has early retirement provision and contains either a
minimum age or service for eligibility, a participant who meets the service
requirement, but separates from service before early retirement will begin to
receive benefits, unless otherwise elected upon meeting the early retirement age
(g) Elective Deferrals may not be distributed earlier than upon one of
the following events:
(1) The employee's retirement, death, disability or separation
from service;
(2) The termination of the plan without establishment of a
successor defined contribution plan other than an employee stock ownership plan
(as defined in section 4975(e) or section 409 of the Code) or a simplified
employee pension plan as defined in section 408(k).
(3) In case of a profit sharing or stock bonus plan, the
employee's attainment of age 59-1/2 or, for plan year beginning before 1989, the
employee's hardship;
(4) the sale or other disposition by a corporation to an
unrelated corporation of substantially all of the assets used in a trade or
business, but only with respect to employees who continue employment with the
acquiring corporation; and
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(5) The sale or other disposition by a corporation of its
interest in a subsidiary to an unrelated entity but only with respect to
employees who continue employment with the subsidiary.
(6) All distributions that may be made pursuant to one or more
of the foregoing distributable events are subject to the spousal and participant
consent requirements (if applicable) contained in section 4c(a) (11) and 417 of
the Code. In addition, distributions after March 31, 1988, that are triggered by
event (2), (4), or (5) enumerated above must be made in a lump sum.
(h) The required beginning date of a participant who attains age 70 1/2
before January 1, 1988, shall be determined in accordance with (1) or (2) below:
(1) Non-5-percent owners. The required beginning date of a
participant who is not a 5-percent owner is the first day of April of the
calendar year following the calendar year in which the later of retirement or
attainment of age 70 1/2 occurs.
(2) 5-percent owners. The required beginning date of a
participant who is a 5-percent owner during the year beginning after December
31, 1979, is the first day of April following the later of:
(i) the calendar year in which the participant attains
age 70 1/2, or
(ii) the earlier of the calendar year with or within
which ends the plan year in which the participant becomes a 5-percent owner, or
the calendar year in which the participant retires.
The required beginning date of a participant who is not a 5-percent owner who
attains age 70 1/2 during 1988 and who has not retired as of January 1, 1989, is
April 1, 1990.
(i) 5-percent owner. A participant is treated as a 5-percent owner for
purposes of this section if such participant is a 5-percent owner as defined in
section 416(i) of the Code (determined in accordance with section 416 but
without regard to whether the plan is top-heavy) at any time during the plan
year ending with or within the calendar year in which such owner attains age 66
1/2 or any subsequent plan year. Once distributions have begun to a 5-percent
owner under this section, they must continue to be distributed, even if the
participant ceases to be a 5-percent owner in a subsequent year.
8.05
Repayment of Forfeitures
(a) A former Participant who again becomes an Employee and satisfies all
of the conditions set forth in this Subsection (a), may repay to the Trust Fund
the amount of any distribution which was received upon the Participant's
previous Termination of Employment. Upon such repayment, the Employer shall
restore the portion of the Participant's Account balance which was forfeited
upon such Termination of Employment, unadjusted for any gains or losses
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incurred by the Trust Fund since the Allocation Date as of which the forfeiture
occurred. The right of repayment described in this Subsection (a) shall exist
only if --
(1) the Participant, following a previous Termination of
Employment, received a distribution in one lump sum;
(2) upon such Termination of Employment, such Participant was
not fully (100%) vested in his Employer contribution Account balance; and
(3) such repayment is made before the Participant has incurred
five (5) consecutive one-year Breaks in Service.
(b) Any restoration of forfeitures under Subsection (a) shall be made
from Employer contributions.
(c) If a benefit is forfeited because the Participant or beneficiary
cannot be found, such benefit will be reinstated if a claim is made by the
Participant or beneficiary.
8.06
Distributions After Death
(a)(1)In the event a Participant dies before benefits commence and the
Participant has not made a Qualified Election to waive the Pre-Retirement
Annuity, such benefit shall be paid in the form of an immediate or deferred
annuity for the surviving Spouse's lifetime or with the consent of the surviving
Spouse in one lump sum. In the event a surviving Spouse elects to purchase a
deferred annuity, distribution must commence not later than the date on which
the Participant would have attained age 70-1/2. In the event the surviving
Spouse is the Beneficiary and dies before distribution to such Spouse begins,
the surviving Spouse shall be treated as if he or she were the Participant. If a
Participant dies before benefits commence and his surviving Spouse is not the
designated Beneficiary, the entire interest must be distributed within 5 years
after the participant's death to the Participant's Beneficiary or Beneficiaries
unless a designated Beneficiary elects not later than one year following the
Participant's death to receive the distribution over the designated
Beneficiary's lifetime. If distributions have commenced to the Participant
before the Participant's death, the remaining portion of the Participant's
benefit will be paid to the Participant's surviving Spouse or other Beneficiary
as rapidly as under the method selected by the Participant. Any amount paid to a
child of the Participant will be treated as if it had been paid to the surviving
spouse if the amount becomes payable to the surviving spouse when the child
reaches the age of majority. If distribution in the form of an annuity
irrevocably commences to the participant before the required beginning date, the
date distribution is considered to begin is the date distribution actually
commences.
(2) For purposes of Paragraph (1), payments will be calculated by use of
the return multiples specified in section 1.72-9 of the Income Tax Regulations.
Life expectancy of a surviving spouse may be recalculated annually. In the case
of any other designated Beneficiary, life expectancy will be calculated at the
time payment first commences and payments for any
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12-consecutive month period will be based on such life expectancy minus the
number of whole years passed since distribution first commenced.
(b) Notwithstanding the provisions contained in Subsection (a) and
subject to the requirements contained in Section 8.02(a), a distribution on
behalf of any Employee, including a 5% owner, may be made in accordance with the
following requirements (regardless of when such distribution commences):
(1) The distribution by the trust is one which would not have
disqualified such trust under Section 401(a)(9) of the Code, as in effect prior
to amendment by the Deficit Reduction Act of 1984.
(2) The distribution is in accordance with a method of
distribution designated by the Employee whose interest in the trust is being
distributed or, if the Employee is deceased, by a Beneficiary of such Employee.
(3) Such designation was in writing was signed by the Employee
of the Beneficiary, and was made before January 1, 1984 and was made pursuant to
Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982
("TEFRA").
(4) The Employee had accrued a benefit under the Plan as of
December 31, 1983.
(5) (A) The method of distribution designated by the Employee of
the Beneficiary specifies the time at which distribution will commence, the
period over which distributions will be made, and in the case of any
distribution upon the Employee's death, the Beneficiaries of the Employee listed
in order of priority.
(B) A distribution upon death will not be covered by
this transitional rule unless the information in the designation contains the
required information described above with respect to the distributions to be
made upon the death of the Employee.
(C) For any distribution which commences before January
1, 1984, but continues after December 31, 1983, the Employee, or the
Beneficiary, to whom such distribution is being made, will be presumed to have
designated the method of distribution under which the distribution is being made
if the method of distribution was specified in writing and the distribution
satisfies all the applicable requirements described in Paragraphs 1 through 5
above.
(D) If a designation is revoked, and subsequent
distribution must satisfy the. requirements of Section 401(a)(9) of the Code
and the proposed regulations thereunder. If a designation is revoked subsequent
to the date distributions are required to begin, the trust must distribute by
the end of the calendar year following the calendar year in which the revocation
occurs the total amount not yet distributed which would have been required to
have been distributed to satisfy section 401(a)(9) of the Code and the proposed
regulations thereunder, but for the section 242(b)(2) election. For calendar
years beginning after December 31, 1988, such distributions must meet the
minimum distribution incidental benefit
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requirements in section 1.401(a) (9)-2 of the proposed regulations. Any changes
in the designation will be considered to be a revocation of the designation.
However, the mere substitution or addition of another Beneficiary (one not named
in the designation) under the designation will not be considered to be a
revocation of the designation, so long as such substitution or addition does not
alter the period over which distributions are to be made under the designation,
directly or indirectly (for example, by altering the relevant measuring life) .
In the case in which an amount is transferred or rolled over from one plan to
another plan, the rules in Q & A J-2 and Q & A J-3 shall apply.
8.07
Beneficiaries
(a) Upon receipt of a notification from the Trustees that an individual
has qualified for participation in the Plan, a participant shall designate, on
forms provided for that purpose by the Trustees and the Insurer, if applicable,
a Beneficiary and successor Beneficiary. Such designation shall be subject to
the following rules:
(1) If the Participant is married, and has not made a Qualified
Election, the Beneficiary shall be his Spouse.
(2) If the Participant is married, and he revokes a Qualified
Election, the Beneficiary shall be his Spouse.
(3) If the Participant is not married or is married and has made
a Qualified Election, the Beneficiary of any death benefit under the Plan shall
be his designated Beneficiary.
(4) If the Participant is married or unmarried and any life
insurance or annuity contract is issued on his life under this Plan, the
Beneficiary of such contract shall be the Trustee(s).
The designation of a Beneficiary shall be effective upon its receipt in
proper form by the Trustees, or, if applicable, the Insurer.
(b) The Trustees of the Insurer may prescribe rules and regulations for
changing the Beneficiary. If any Participant fails to designate a Beneficiary or
is predeceased by the designated Beneficiary, the Beneficiary shall be:
(1) the Participant's Spouse, if married, otherwise
(2) the Participant's living children (including adoptive
children) in equal shares, otherwise
(3) The Participant's parents, if living, in equal shares.
8.08
Incompetency
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A Participant or Beneficiary may be, in the judgment of the Trustees,
legally, physically or mentally incapable of personally receiving and receipting
for any payment due under this Plan. If so, payment may, in the discretion of
the Trustees, be made to the guardian or legal representative of such
Participant or Beneficiary. If no guardian or representative exists, payment may
be made to any other person or institution which, in the judgment of the
Trustees, then maintains or has custody of, such Participant or Beneficiary.
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ARTICLE IX -- LIFE INSURANCE POLICIES AND ANNUITY CONTRACTS
9.01
Purchase of Life Insurance
The trustees shall apply for and will be owner of any insurance contract
purchased under the terms of this plan. The insurance contract(s) must provide
that proceeds will be payable to the trustee, however the trustee shall be
required to pay over all proceeds of the contract(s) to the participant's
designated beneficiary in accordance with the distribution provisions of this
plan. A participant's spouse will be the designated beneficiary of the proceeds
in all circumstances unless a qualified election has been made with spousal
consent in accordance with Section 8, Joint and Survivor Annuity Requirements,
if applicable. Under no circumstances shall the trust retain any part of the
proceeds. In the event of any conflict between the terms of this plan and the
terms of any insurance contract purchased hereunder, the plan provisions shall
control.
9.02
Ownership of Policies and Contracts
(a) The Trustees shall own all life insurance and annuity contracts
acquired under the Plan and shall be designated as sole owner in each contract
and shall abide by the terms of this plan including the joint and survivor
annuity requirements
(b) In the event that this Plan substitutes for a previous Plan which
was non-trusteed, any life insurance or annuity contract which was purchased
under such previously existing plan may be kept in force under this Plan even
though it is owned by the Participant and not by the Trustees. Each such
contract shall be non-transferable and must be endorsed to prohibit the owner
from exercising the loan and assignment privileges without the consent of the
Employer.
(c) In the event that any life insurance contract was purchased under a
pre-existing plan on the life of a Participant, such contract may be maintained
under this Plan (even if not issued by the Insurer) . The only annuity contracts
which may be maintained under this Plan are those which are issued by the
Insurer.
9.03
Incidental Death Benefits
(a) The limitations on the amount of insurance which may be purchased
under the Plan are the portion of Employer contributions and forfeitures
allocated to the Participant's Account for the current and first two (2)
preceding Plan Years used to purchase term or universal life insurance policies,
plus 50% of the portion used to purchase ordinary life insurance and endowment
policies other than retirement income policies, shall at no time exceed 25% of
the portion of such sum not used to purchase retirement income policies. All
amounts allocated prior to the last two Plan Years may be applied to the
purchase of whole life or term insurance. For purposes of these incidental
insurance provisions, ordinary life insurance contracts are contracts with both
nondecreasing death benefits and nonincreasing premiums. If such contracts
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are purchased, less than 1/2 of the aggregate employer contributions allocated
to any participant will be used to pay the premiums attributable to them. The
sum of 1/2 of the ordinary life insurance premiums and all other life insurance
premiums will not exceed 1/4 of the aggregate employer contributions and
employee deferrals allocated to any participant.
(b) As soon as practicable after each Allocation Date, the Trustees
shall recompute the maximum death benefit purchasable in accordance with the
provisions of Section 9.03(a). If upon such recomputation it is determined that
the face amount of the contract(s) on the Participant's life exceeds the maximum
death benefit as so recomputed, or if such Participant shall have modified or
terminated his election, the Trustees shall take such action as may be specified
by the Insurer to adjust the face amount of the contract(s) held for the
Participant so as not to exceed the limitation contained in Section 9.03(a).
9.04
Increases and Reductions in Face Amount
(a) Each policy acquired under this Article IX shall be purchased from
assets of the Account of the Participant on whose life such contract is issued
and shall be an asset of the Trust earmarked for such Participant's Account.
(b) A Participant who desires to maintain less life insurance under the
Plan than the amount in force may elect to purchase the contract(s) issued on
his life for an amount equal to the net cash value. Alternatively, the Trustees
may borrow out the loan value(s) and sell the contract(s) subject to the loan(s)
to the Participant for the then remaining value. If the Participant does not
elect to make the purchase, the contract(s) will be surrendered.
9.05
Application of Dividends
All dividends or credits earned on insurance contracts will be allocated
to the Account of the Participant on whose life such contract was issued.
9.06
Refund of Premiums
If a premium or the cost of insurance on a life insurance contract Is
waived on account of a Participant's disability, the premium or the cost of
insurance which is returned by the Insurer shall be added to the disabled
Participant's Account.
9.07
Distribution of Life Insurance policies
Life Insurance policies shall be either converted to cash, an annuity
contract, or distributed to the Participant at or before retirement. If the
participant's benefit is distributed in the form of an annuity purchased from an
insurance company, distributions thereunder shall be
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made in accordance with the
requirement of section 401(a) (9) of the Code and the proposed regulations
thereunder.
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ARTICLE X -- MISCELLANEOUS
10.01
Non-Alienation and Non-Assignment of Benefits
(a) No benefit under this Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, charge,
encumbrance, garnishment, levy or attachment. Any attempt to anticipate,
alienate, sell, transfer, assign, pledge, charge, encumber, garnish, levy upon
or attach any benefit under this Plan shall be void. No benefit under this Plan
shall be in any manner liable for or subject to the debts, contracts,
liabilities engagements or torts of the person entitled to it.
(b) The prohibition against assignment and alienation of benefits
contained in Subsection (a) shall not apply to any benefit payable with respect
to a Participant pursuant to a qualified domestic relations order as defined in
Section 414(p) of the Code or pursuant to any domestic relations order if such
order was entered before January 1, 1985.
10.02
Amendment to Plan
(a) The Employer may amend any selection it has made in Article I or
replace this Plan with another program, at any time. Also, no amendment or
replacement of the Plan may change, without the Trustees' written consent, the
duties, responsibilities, rights or privileges of the Trustees under the Plan.
(b) No amendment or replacement of the Plan may deprive any Participant
of any benefit accrued under the Plan, decrease a Participant's Account balance
or eliminate an optional form of distribution, except for the removal of an
option which does not involve a Participant's "protected benefits" as determined
in accordance with regulations to be prescribed by the Secretary of the
Treasury, except to the extent such amendment is necessary for the Plan to
obtain or retain its qualified status or to conform the Plan to any other law or
regulation which pertains to qualified retirement plans.
(c) The Employer may amend this Plan if the amendment relates to
administrative provisions of the trust or custodial account document (such as
provisions relating to investments and the duties of trustees), so long as the
amended provisions are not in conflict with any other provisions of the plan and
do not conflict with any other provision of the plan and do not cause the plan
to fail to qualify under section 401(a) of the Code.
(d) The sponsoring organization may amend any part of the plan. For
purposes of sponsoring organization amendments, the mass submitter shall be
recognized as the agent of the sponsoring organization. If the sponsoring
organization does not adopt the amendments made by the mass submitter, it will
no longer be identical to or a minor modifier of the mass submitter plan. The
employer may (1) change the choice of options in the adoption agreement, (2) add
overriding language in the adoption agreement when such language is necessary to
satisfy section 415 or section 416 of the Code because of the required
aggregation of multiple plans, and
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(3) add certain model amendments published by the Internal Revenue Service which
specifically provide that their adoption will not cause the plan to be treated
as individually designed. An employer that amends the plan for any other reason,
including a waiver of the minimum funding requirement under section 412(d) of
the Code, will no longer participate in this regional prototype plan and will be
considered to have an individually designed plan.
10.03
Merger or Consolidation
If this Plan merges or consolidates with, or transfers assets or
liabilities to, any other plan, each Participant in this Plan shall be entitled
to receive a benefit immediately after the merger, consolidation or transfer
(assuming that the Plan had then terminated) which is equal to or greater than
the benefit such Participant would have been entitled to receive immediately
before the merger, consolidation or transfer (assuming that the Plan had then
terminated).
10.04
Termination of Plan
The Employer may terminate the Plan at any time. No benefit shall accrue
to any Participant after such termination. Upon the termination or partial
termination of the Plan, each affected Participant shall be 100% vested in his
Accounts. If this Plan is a Profit Sharing Plan, in the event of a complete
discontinuance of contributions under the Plan, each affected Participant shall
be 100% vested in his Account under such Plan.
10.05
Gender and Form
Wherever any words are used in this Plan in the masculine gender, they
should be considered as if they are also used in the feminine gender, in all
cases where they so apply and vice-versa; and wherever any words are used in
this Plan in a singular form, they should be considered as if they are also used
in a plural form, in all cases where they so apply and vice-versa.
10.06
Conditions on Employer Contributions
(a) The Employer's contribution is conditioned upon the initial
qualification of the Plan under Section 401(a) of the Code. If the Plan fails to
qualify, the Trustees shall within one year after the date initial qualification
is denied, dispose of each contract and liquidate each Account as if the
Participant on whose life such contract was issued or for whom such Account was
established had resigned with a non-forfeitable percentage of zero, and each
Participant's voluntary contributions, if any, plus any gains and less any
losses and expenses attributable thereto, shall be returned to the Participant
who made it. However, if this Plan is being substituted for a previous program,
the Trustees shall dispose of each contract in accordance with non-forfeitable
provisions of this plan. In the event that the Commissioner of the Internal
Revenue determines that the plan is not initially qualified under the Internal
Revenue Code, any
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contribution made incident to that initial qualification by the employer must be
returned to the Employer within one year after the date the initial
qualification is denied, but only if the application for the qualification is
made by the time prescribed by law for filing the employer's return for the
taxable year in which the Plan is adopted, or such later year as the Secretary
of the Treasury may prescribe.
(b) All contributions made by the Employer to the Plan are conditioned
upon their deductibility under Section 404 of the Code. If the deduction for any
contribution is denied, the value of the contribution shall to the extent it is
disallowed be returned to the Employer within one year following the date of
disallowance.
(c) If any Employer contribution to this Plan is made by a good faith
mistake of fact, the value of the contribution may be returned to the Employer
within one year following the date it is made.
10.07
Conflict Between Plan and Contracts
In the event of a conflict between the provisions of the Plan and any
insurance contract issued under or to the Plan, the provisions of the Plan shall
govern.
10.08
Furnishing Information to Participants, Etc.
(a) The Trustees shall notify all persons who are eligible to
participate in this Plan, informing them of the basic provisions of the Plan and
their rights and obligations under it.
(b) The Employer shall require each Participant to take whatever action
may be necessary by such Participant to permit the Administrator, the Trustee,
the Participant and the Insurer to comply, with the laws and regulations
applying to the Plan. The Trustees shall take all necessary steps to carry out
the provisions of the Plan.
10.09
Annual Accounting
The Trustee shall give to the Employer an annual accounting on the basis
of the Plan Year showing receipts and the charges and credits made under the
Plan. Such accounting shall be based upon the current fair market value of the
Trust assets. The value of any insurance or annuity contract shall be determined
in the same way as in Section 4.09(b). The Employer's approval of the Trustee's
accounting will be assumed at the end of 90 days after receipt by the Employer
unless the Trustee is notified otherwise. The Trustee shall also, on request,
provide the Employer with whatever information the Employer deems necessary to
enable it to comply with the reporting and disclosure requirements established
by federal law.
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10.10
Exclusive Benefit
This Plan has been established for the exclusive benefit of the
Participants and their Beneficiaries. No trust funds shall revert to or be used
by or enjoyed by the Employer, except to the extent provided by Section 10.06.
10.11
Hardship Withdrawals
A Participant may apply in writing to the Plan Administrator for a
hardship withdrawal at any time. The withdrawal must be for an immediate and
heavy financial need of the Participant for which funds are not reasonably
available from other resources of the Participant. Hardship withdrawals are
subject to the spousal consent requirements contained in Sections 401(a)(11) and
417 of the Code. If approved by the Plan Administrator, such withdrawal shall
equal the lesser of (i) the amount required to be distributed to meet the need
created by the hardship, or (ii) the Participant's total accumulated
contributions exclusive of earnings after 1988. The only circumstances which may
warrant approval of a Participant's application for a hardship withdrawal are:
(a) Medical expenses described in section 213(d) of the Code incurred by
the employee, the employee's spouse, or and dependents of the employee (as
defined in section 152);
(b) Purchase (excluding mortgage payments) of a principal residence for
the employee;
(c) Payment of tuition and related educational fees for the next 12
months of post-secondary education for the employee, his or her spouse,
children, or dependents; or
(d) The need to prevent the eviction of the employee from his principal
residence or foreclosure on the mortgage of the employee's principal residence.
10.12
Hardship Withdrawals Limitations
The following conditions apply to withdrawals made under Section 10.11:
(a) A Participant may make only one withdrawal from his Tax Sheltered
Savings Account in any 12-month period.
(b) Withdrawals pursuant to Section 10." hereof shall be based on the
value of the Participant's Tax Sheltered Savings Account as of the Valuation
Date coincident with or next following the Participant's request.
(c) Withdrawals shall be made from the investment fund(s) designated by
the Participant in writing on a form supplied by the Plan Administrator.
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(d) If a hardship withdrawal is allowed by the Plan Administrator the
withdrawal will be made without forfeiting vested benefits based upon employer
contributions.
(e) Distribution of Elective Deferrals (and any earnings credited to a
participant's account as of the end of the last Plan Year ending before July 1,
1989) may be made to a participant in the event of hardship.
10.13
Hardship Withdrawals Immediate Financial Need
A distribution will be deemed to be necessary to satisfy an immediate and heavy
financial need of an employee if all of the following requirements are
satisfied:
(a) The distribution is not in excess of the amount of the immediate and
heavy financial need of the employee (including amounts necessary to pay any
federal, state or local income taxes or penalties reasonably anticipated to
result from the distribution),
(b) The employee has obtained all distributions, other than hardship
distributions, and all nontaxable loans currently available under all plans
maintained by the employer,
(c) The plan, and all other plans maintained by the employer, provide
that the employee's elective contributions and employee contributions will be
suspended for at least 12 months after receipt of the hardship distribution, and
(d) The plan, and all other plans maintained by the employer, provide
that the employee may not make elective contributions for the employee's taxable
year immediately following the taxable year of the hardship distribution in
excess of the applicable limit under section 402(g) for such next taxable year
less the amount of such employee's elective contributions for the taxable year
of the hardship distribution.
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ARTICLE XI -- LOANS TO PARTICIPANTS
11.01
Loans from the Plan
Any Participant or beneficiary may apply to the Plan Administrator for a
loan from the Plan. All such loans are available to Participants and
beneficiaries on the same basis with no special treatment of favoritism shown to
officers, stockholders, or highly compensated employees. The Plan Administrator
can establish the policy of denying loans to all Participants and/or
beneficiaries. No loans will be made to any share-holder employee or
owner-employee. For purposes of this requirement, a share-holder employee means
an employee or officer of an electing small business (Subchapter S) corporation
who owns (or is consider as owning within the meaning of section 318 (a) (1) of
the Code, on any day during the taxable year of such corporation, more than 5%
of the outstanding stock of the corporation.
11.02
Amount of Loan
Participant loans, including all Plans of the Employer, are limited to
an amount not to exceed the lesser of:
a) 50% of the Participant's accrued vested benefit; or
b) $50,000.
The $50,000 limitation is reduced by the highest outstanding loan
balance during the previous twelve (12) months.
11.03
Term of Loan
The maximum term for a Participant loan is five (5) years unless the
purpose of the loan is for the purchase of a dwelling to be used as principal
residence of the Participant ("home loan").
11.04
Spousal Consent
A participant must obtain the consent of his or her spouse, if any, to
use of the account balance as security for the loan. Spousal consent shall be
obtained no earlier than the beginning of the 90-day period that ends on the
date on which the loan is to be so secured. The consent must be in writing, must
acknowledge the effect of the loan, and must be witnessed by a plan
representative or notary public. Such consent shall thereafter be binding with
respect to the consenting spouse or any subsequent spouse with respect to that
loan. A new consent shall be required if the account balance is used for
renegotiation, extension, renewal, or other revision of the loan. If a valid
spousal consent has been obtained, then, notwithstanding any other provision of
this plan, the portion of the participant's vested account balance used as a
security interest held
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by the plan by reason of a loan outstanding to the participant shall be taken
into account for purposes of determining the amount of the account balance
payable at the time of death or distribution, but only if the reduction is used
as repayment of the loan. If less than 100% of the participant's vested account
balance (determined without regard to the preceding sentence) is payable to the
surviving spouse, then the account balance shall be adjusted by first reducing
the vested account balance by the amount of the security used as repayment of
the loan, and then determining the benefit payable to the surviving spouse.
11.05
Security
All Participant loans must be secured, in writing, by no more than one
half of the non-forfeitable amount of the Participant's accrued vested benefit.
When the Participant terminates employment with the Employer, dies, or becomes
disabled, any unpaid portion of the loan will be subtracted from the amount of
any distribution due the Participant from the Plan.
11.06
Rate of Interest
All Participant loans will bear a rate of interest equal to 1% above the
current Bank of America's Prime Lending Rate in force at the time such loan is
transacted.
11.07
Repayment of Loan
Generally, all loans must be repaid within five (5) years from the date
the loan is approved with the outstanding balance due at maturity. The only
exception to this general rule is "home loans" which may be written for a
reasonable term, exceeding five years. Participants will be required to make
fully amortized payments at least on a quarterly basis.
11.08
Default on Payments
Participant loans will be subject to demand in the event of default or
foreclosure, but attachment of security will not occur until a distributable
event occurs in the Plan.
"Default" is defined as follows:
a) Failure to make a payment when due (or within ten (10) days
thereafter).
b) Another note of Borrower to Lender becomes or is declared to be due
and payable prior to its maturity.
c) Property pledged as security has become subject to attachment or
garnishment, or has been disposed of without provision of satisfactory
substitute.
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d) Borrower seeks relief from claims of creditors by invoking the
provisions of the federal Bankruptcy Code or state law.
e) Borrower is subject to bankruptcy, insolvency or other similar
proceeding started by another, consents to, or approves of any such proceeding,
or a receiver is appointed with respect to the Borrower.
11.09
Late Payments
Should an installment payment not be received within ten (10) days of
the due date, the Participant will be charged a late fee of $10.00. If the late
fees have not been paid by the maturity date of the note (or such earlier time
as demand for the balance is made), the outstanding charges will be withdrawn
from the Participant's account balance.
11.10
Interest Credited
Participant loans are deemed to be investments made solely for the
benefit of the account of the Participant under the Plan. Thus, all interest
paid with respect to any Participant loan is credited to the account of the
Borrower, and any loss or other expense associated with any such loan is borne
by the account of the Borrower.
11.11
Death of Participant
In the event of the Participant's death prior to the complete repayment
of this loan, including principal and accrued interest, the Administrator is
directed to distribute the Note evidencing this loan to the Beneficiary(ies)
designated by the Participant under the terms of the Plan and Trust Agreement(s)
covering the Participant's account, and, in the absence of such designation,
then pursuant to the laws of intestacy of the State of California. Under no
circumstances will the Administrator be required to make a creditor's claim
against the Participant's estate for the payment of this loan. Should the
Participant's death necessitate such a claim, it shall be prosecuted, if at all,
by the Participant's Beneficiary(ies) either directly or on behalf of the
Administrator as permitted by the applicable probate procedure. All reasonable
costs and expenses relating to such claim will be borne by the account of the
Participant.
11.12
Loan Request
A Participant or beneficiary must complete and return Participant Loan
Application to the Plan Administrator, so that a determination can be made as to
the requested Participant loan.
11.13
Existing Balances
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No loan to any participant or beneficiary can be made to the extent that
such loan when added to the outstanding balance of all other loans to the
participant or beneficiary would exceed the lesser of (a) $50,000 reduced by the
excess (if any) of the highest outstanding balance of loans during the one year
period ending on the day before the loan is made, over the outstanding balance
of loans from the plan on the date the loan is made, or (b) one-half the present
value of the nonforfeitable accrued benefit of the participant or, if greater,
the total accrued benefit up to $10,000. For the purpose of the above
limitation, all loans from all plans of the employer and other members of a
group of employers described in section 414(b), 414(c), and 414(m) and (o) of
the Code are aggregated. Furthermore, any loan shall by its terms require that
repayment (principal and interest) be amortized in level payments, not less
frequently than quarterly, over a period not extending beyond five years from
the date of the loan, unless such loan is used to acquire a dwelling unit which
within a reasonable time (determined at the time the loan is made) will be used
as the principal residence of the participant. An assignment or pledge of any
portion of the participant's interest in the plan and a loan, pledge, or
assignment with respect to any insurance contract purchased under the plan, will
be treated as a loan under this paragraph.
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ARTICLE XII -- TRUST AND ADMINISTRATION
12.01
Appointment of Trustees
The assets of the Trust Fund shall be held by the Trustee or Trustees
appointed by the Employer provided, however, that in the case of a
sole-proprietorship there shall not be fewer than two (2) Trustees. The Trustees
shall hold office until their successors have been duly appointed or until
death, resignation or removal.
12.02
Authority to Act
The Trustees shall act unanimously, except that if at any time there are
more than two (2) Trustees, they shall act by majority vote and may act either
by vote at a meeting or in writing without a meeting. However, if there is more
than one Trustee, each Trustee shall be empowered to sign any document or
otherwise enter into any transaction on behalf of all Trustees.
12.03
Appointment of Consultants
The Trustees may appoint such independent accountants, enrolled
actuaries, legal counsel, investment advisors, and other agents or specialists
as they deem necessary or desirable in connection with the performance of their
duties hereunder. The Trustees shall be entitled to rely conclusively upon, and
shall be fully protected in any action taken by them in good faith in relying
upon any opinions or reports which shall be furnished to them by any such
independent accountants, enrolled actuary, legal counsel, investment advisor or
other specialist.
12.04
Expenses of the Trust
The Trustees shall serve without compensation for services as such. All
expenses of the Trust shall be paid by the Employer. Such expenses shall include
any expenses incidental to the operation of the Trust, including, but not
limited to, fees of independent accountants, enrolled actuaries, legal counsel,
investment advisors and other agents or specialists and similar costs.
12.05
Fiduciary Duties
The Trustees shall discharge their duties with respect to the Plan
solely in the interests of the Participants and their Beneficiaries and
(a) for the exclusive purpose of providing benefits to Participants and
their beneficiaries and defraying reasonable expenses of administering the Plan;
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(b) with the care, skill, prudence and diligence under the circumstances
then prevailing that a prudent man, acting in like capacity and familiar with
such matters, would use in the conduct of an enterprise of a like character and
with like aims;
(c) by diversifying the investments of the Trust Fund so as to minimize
the risk of large losses, unless under the circumstances it is clearly prudent
not to do so; and
(d) in accordance with the documents and instruments governing the Plan
insofar as such documents and instruments are consistent with the provisions of
ERISA.
12.06
Indemnification by Employer
The Employer shall indemnify and hold harmless each of the Trustees
against any and all claims, loss, damages, expense (including legal fees and
other expenses of litigation) and liability arising from any action or failure
to act, except when the same is judicially determined to be due to the gross
negligence or willful misconduct of such Trustee.
12.07
Plan Administration
The Employer is hereby designated as the "administrator" of the Plan
within the meaning of Section 3(16)(A) of ERISA, unless another Plan
Administrator is chosen in the Adoption Agreement. The Trustees are hereby
designated as "named fiduciaries" within the meaning of Section 402(a)(2) of
ERISA, and shall, unless otherwise provided pursuant to Subsection (b), jointly
administer the Plan as agents of the Employer in accordance with its terms and
shall have all powers necessary to carry out the provisions of the Plan. In
carrying out their duties with respect to the general administration of the
Plan, the Trustees shall have, in addition to any other lawful powers and not by
way of limitation, the following powers:
(a) to determine all questions relating to eligibility to participate in
the Plan;
(b) to compute the amount and kind of benefits payable to the
Participants and their Beneficiaries;
(c) to make disbursements from the Trust in accordance with the
provisions of the Plan;
(d) to maintain all records necessary for the administration of the
Plan;
(e) to interpret the provisions of the Plan and to make and publish such
rules and regulations as are consistent with the terms of the Plan
(f) to modify the method of accounting for the Plan; and
(g) the determination of the Plan Administrator and Trustees shall be
final and binding and shall be overturned only if it is determined that the
decision was arbitrary and
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capricious. All matters must go to mandatory arbitration before the American
Arbitration Association if there is a dispute.
12.08
Establishing the Trust Fund
The Trustees shall receive all cash contributions paid to them and shall
establish the Trust Fund. The Trust Fund shall beheld, managed and administered
in accordance with the terms of this Plan and Trust.
12.09
Investing Trust Fund Assets
(a) The Trustees shall invest and reinvest the Trust Fund and keep the
Trust Fund invested, without distinction between principal and income, in such
securities of other property, real or personal, foreign or domestic, whoever
situated, as the Trustees shall deem advisable. The Trust Fund may be invested
in, but is not limited to, the general account of an insurance company licensed
to do business in the state in which the Employer's principal place of business
is located, shares in a regulated investment company or plans for accumulation
of such shares, common or preferred stocks, bonds and mortgages, and other
evidence of ownership or indebtedness. In making such investments, the Trustees
shall not be restricted to securities or other property of the character
authorized or required by applicable law for trust investments. Each Participant
will direct the Trustees as to the type of investment(s) to be purchased with
the participant's account.
(b) The Trustee can establish a policy allowing Participant Directed
Accounts. Participant Directed Accounts shall relieve the Trustees from any
fiduciary responsibility or liability with respect to the self-directed
investments. Each Participant will direct the Trustee as to the type of
investment(s) to be purchased with the Participant's account
12.10
Permissible Investments
The Trustees shall have the following powers and authority in the
investment of the assets of the Trust Fund:
(a) to apply for an purchase individual and group life insurance and
annuity contracts;
(b) to purchase, or subscribe for, any securities (including shares in a
regulated investment company or plans for the accumulation of such shares) or
other property, including call and put options and futures contracts, and to
retain the same in trust (The Trustees are specifically authorized to limit
investment, in their own discretion, to shares or regulated investment companies
or to plans for the accumulation of such shares);
(c) to sell, exchange, convey, transfer or otherwise dispose of, by
private contract or at public auction, any securities or other property held by
them; and no person dealing with the
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Trustees shall be bound to see to the application of the purchase money or to
inquire into the validity, expediency or propriety of any such sale or other
disposition;
(d) to vote any stocks, bonds or other securities, to give general or
special proxies or powers of attorney with or without power of substitution; to
exercise any conversion privileges, subscription rights or other options and to
make any payments incidental thereto; to oppose, or to consent to, or otherwise
participate in, corporate reorganizations or other changes affecting corporate
securities; to pay any assessments or charges in connection with any security;
to delegate any discretionary powers; and generally to exercise any of the
powers of an owner with respect to stocks, bonds, securities or other property
held as part of the Trust Fund;
(e) to cause any securities or other property held as part of the Trust
Fund to be registered in their own names or in the name of one or more nominees,
and to hold any investments in bearer form, but the books and records of the
Trustees shall at all times show that all such investments are part of the trust
Fund;
(f) to borrow or raise money for the purposes of the Plan in such amount
and upon such terms and conditions as the Trustees shall deem advisable; and for
any sum so borrowed, to issue their promissory note as Trustees and to secure
the repayment thereof pledging all, or any part, of the Trust Fund; and no
person lending money to the Trustees shall be bound to see to the application of
the money lent or to inquire into the validity, expediency or propriety of any
such borrowing;
(g) to keep such portion of the Trust Fund in cash or cash balances as
the Trustees may, from time to time, deem to be in the best interests of the
Plan, without liability for interest thereon;
(h) to accept and retain for such time as may seem advisable any
securities or other property received or acquired by them as Trustees hereunder,
whether or not such securities or other property would normally be purchased as
investments hereunder;
(i) to sell call options on any national securities exchange with
respect to securities held in the Trust Fund, and to purchase call options for
the purpose of closing out previous sales of call options; and
(j) to appoint any bank or trust company as corporate trustee and to
sign agreement with any corporate trustee to provide for the investment of any
Trust Fund assets.
12.11
Funding Policy
The Trustees shall establish a funding policy and method consistent with
the objectives of the Plan and the requirements of Title I of ERISA. The
Trustees should meet at least annually to review such funding policy and method.
In establishing and reviewing such funding policy and method, the Trustees shall
endeavor to determine the Plan's short-term and long-term financial
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needs, taking into account the need for liquidity to pay benefits and the need
for investment growth.
12.12
Payments From Trust Fund
The Trustees shall from time to time make payments out of the Trust Fund
in accordance with the provisions of the Plan in such manner, in such amounts
and for such purposes as they may determine, and when any such payment has been
made, the amount thereof shall no longer constitute a part of the Trust Fund.
12.13
Resignation or Removal of Trustees
Any Trustee may be removed by the Employer at any time upon thirty (30)
days' notice in writing to the Trustees, which notice may be waived by the
Trustees. A Trustee may resign at any time upon thirty (30) days notice in
writing to the Employer, which notice may be waived by the Employer. Upon such
removal or resignation of a Trustee, or upon the death or disability of a
Trustee, the Employer may, or in the event there is no then acting Trustee, who
shall have the same powers and duties as those conferred upon the other
trustees, who shall have the same powers and duties as those conferred upon the
other Trustee.
12.14
Transfer From Other Plans
The Trustees are authorized to receive any assets which may be
transferred to this Plan from another plan which is qualified under Section
401(a) of the Code or which is replaced by this Plan. Amounts so transferred or
rolled over, if permitted, shall be accounted for separately and shall be their
own sub-trust.
12.15
Claims Review Procedure
Benefits shall be payable in accordance with Plan provisions. A
Participant or Beneficiary who fails to receive or has a dispute regarding
benefits under the Plan, and who believes he or she is entitled to such
benefits, may file a claim for such benefits. If such a claim is denied in while
or in part, the Trustees shall give the claimant in writing:
(a) the reason for such denial;
(b) the provisions of the Plan upon which the claim denial is based;
(c) a description of additional information which may tend to establish
the claim, including an explanation of why the additional material will be
helpful; and
(d) an explanation of the Plan's claim review procedure.
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(e) The claimant may obtain a review by the Employer of the denial of
the claim by submitting a written request to the Employer within 60 days of
receiving the information described above. The Employer shall, upon receipt of
such a request from the claimant, advise the claimant of the time, date and
place of the review, which shall be during normal business hours not more than
30 days after the date of the claimant's request. The claimant may, upon written
request to the Employer, review pertinent documents at reasonable times at the
office of the Employer. The claimant may submit issues and comments in writing.
The claimant may authorize a representative to appear for the claimant by
designating such representative to the Employer in writing. The claimant may
withdraw such authorization or authorize a different representative in the same
manner. The Employer shall be the "named fiduciary" within the meaning of
Section 402(a) of ERISA for the purpose of deciding appeals of denied claims.
After a denial of a claim, the matter must be submitted to the American
Arbitration Association for a determination prior to submission of the matter to
Federal Court. If the claimant does not submit the matter to arbitration then
the Plan and Fiduciaries of this Plan shall not be liable for attorney's fees in
the event that the claimant prevails in Federal Court.
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ARTICLE XIII-LIMITATIONS ON EMPLOYEE CONTRIBUTIONS AND MATCHING EMPLOYER
CONTRIBUTIONS
13.01
Contribution Percentage
(a) The Average Contribution Percentage for Eligible Participants who
are Highly Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Eligible Participants who are Non-highly Compensated
Employees for the Plan Year multiplied by 1.25; or
(b) The Average Contribution Percentage for Eligible Participants who
are Highly Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Eligible Participants who are Non-Highly Compensated
Employees for the Plan Year multiplied by 2, provided that the Average
Contribution Percentage for Eligible Participants who are Highly Compensated
Employees does not exceed the Average Contribution Percentage for Eligible
Participants who are Non-Highly Compensated Employees by more than two (2)
percentage points or such lesser amount as the Secretary of the Treasury shall
prescribe to prevent the multiple use of this alternative limitation with
respect to any Highly Compensated Employee.
13.02
Definitions
For purposes of this Article XIII, and for purposes of Article XVI of this Plan,
the following definitions shall apply.
(a) "Average Contribution Percentage", "ACP" shall mean the average
(expressed as a percentage) of the Contribution Percentages of the Eligible
Participants in a group. The plan shall take into account the actual
contribution ratios of all eligible employees for the purpose of determining the
actual contribution percentage
(b) "Contribution Percentage" shall mean the ratio (expressed as a
percentage) of the sum of the Employee Contributions and Matching Contributions
under the plan on behalf of the Eligible Participant for the Plan Year to the
Eligible Participant's Compensation for the Plan Year. An Eligible Employee who
makes no employee contributions and who receives no matching contributions shall
have a contribution ratio that is to be included in determining the ACP of zero.
Such Contribution Percentage Amounts shall not include Matching Contributions
that are forfeited either to correct Excess Aggregate Contributions or because
the contributions to which they relate are Excess Deferrals, Excess
Contributions, or Excess Aggregate Contributions
(c) "Eligible Participant" shall mean any employee who is eligible to
make an Employee Contribution, or an Elective Deferral (if the employer takes
such contributions into account in the calculation of the Contribution
Percentage), or to receive a Matching Contribution (including forfeitures) or a
Qualified Matching Contribution. If an Employee Contribution is required as a
condition of participation in the plan, any employee who would be a participant
in
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the plan if such employee made such a contribution shall be treated as an
eligible participant on behalf of whom no Employee Contributions are made.
13.03
Special Rules
(a) For purposes of this Article XIII, the Contribution Percentage for
any Eligible Participant who is a Highly Compensated Employee for the Plan Year
and who is eligible to make Employee Contributions, or to receive Matching
Contributions or Elective Deferrals allocated to his account under two or more
plans described in Section 401(a) of the Code or arrangements described in
Section 401(k) of the Code that are maintained by the Employer or an Affiliated
Employer shall be determined as if all such contributions and Elective Deferrals
were made under a single plan and if those plans have different plan years then
all such Plans whose limitation year ends with or within the same calendar year
shall be treated as a single arrangement. Notwithstanding the foregoing, certain
plans shall be treated as separate if mandatorily desegregated under regulations
under section 401(m) of the Code. Family members, with respect to Highly
Compensated Employees, shall be disregarded as separate employees in determining
the Contribution Percentage both for participants who are Non-highly Compensated
Employee and for participants who are Highly Compensated Employees.
(b) All employee deferrals and matching contributions that are made
under two or more plans that are aggregated for purposes of section 401(a) (4)
and 410(b) (other than section 410(b)(2)(A)(ii)) are to be treated as made under
a single plan for the purposes of determining whether the plan satisfies the
actual contribution percentage test of IRC section 401(m). If two or more plans
are permissively aggregated for purposes of section 401(m), the aggregated plans
must also satisfy section 401(a) (4) and 410(b) as though they were a single
plan, but for plan years beginning after December 31, 1989, plans may be
aggregated only if the plans have the same Plan Year.
(c) A Highly compensated Employee who is either a 5% owner or one of the
ten most highly compensated employees and is therefore subject to the family
aggregation rules of IRC section 414(q)(6), the actual contribution ratio (ACR)
for the family group (which is treated as one highly compensated employee) shall
be the greater of (1) the ACR determined by combining the contributions and
compensation of all eligible family members who are highly compensated without
regards to family aggregation, and (2) the ACR (actual contribution ratio)
determined by combining the contributions and compensation of all eligible
family members. Except to the extent taken into account in the preceding
sentence, the contributions and compensation of all family members are to be
disregarded in determining the actual contribution percentages for the groups of
highly compensated employees and nonhighly compensated employees.
(d) The determination and treatment of the Contribution Percentage of
any Participant shall satisfy such other requirements as may be prescribed by
the Secretary of the Treasury.
(e) In calculating the actual contribution percentage (ACP) test of
section 401(m) for a plan year, contributions will be taken into account as
follows: An employee deferral is to be taken into account if it is paid to the
trust during the plan year or paid to an agent of the plan and
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transmitted to the trust within a reasonable period after the end of the plan
year. An excess contribution to a cash or deferred arrangement that is
recharacterized is to be taken into account in the plan year in which the
contribution would be have been received in cash by the employee had the
employee not elected to defer the amounts. A matching contribution shall be
taken into account for a plan year only if it is (1) made on account of the
employee's elective or employee contributions for the plan year, (2) allocated
to the employee's account as of a date within that year, and (3) paid to the
trust by the end of the twelfth month following the close of that year.
Qualified matching contributions which are used to meet the requirements of Code
Section 401(k) (3) (A) are not to be taken into account for purposes of the ACP
test of Code Section 401(m).
(f) For purposes of determining the Contribution Percentage of an
Eligible Participant who is a Highly Compensated Employee, the Employee
Contributions, matching Employer Contributions, qualified nonelective
contributions, and Compensation of such Participant shall include the Employee
Contributions, Matching Contributions, qualified nonelective contributions, and
Compensation of Family Members, and such Family Members shall be disregarded in
determining the Contribution Percentage for Eligible Participants who are
Nonhighly Compensated Employees. For purposes of determining in Contribution
Percentage test, Employee Contributions are considered to have been made in the
Plan Year in which contributed to the trust. Matching Contributions and
Qualified Non-elective Contributions will be considered made for a Plan Year if
made no later than the end of the twelve-month period beginning on the day after
the close of the Plan Year.
(g) A separate account must be maintained for each participant's
matching contributions as described in Code Section 401(m) (4) (A), that are
not used to satisfy the test provided in Code Section 401(k) (3).
(h) The employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified Non-elective
Contributions or Qualified Matching Contributions, or both, used in such test.
(i) If one or more Highly Compensated Employees participate in both a
CODA and a plan subject to the ACP test maintained by the employer and the sum
of the ADP and ACP of those Highly Compensated Employees subject to either or
both test exceeds the Aggregate limit, then the ACP of those Highly Compensated
Employees who also participate in a CODA will be reduced (beginning with such
Highly compensated Employee whose ACP is the highest) so that the limit is not
exceeded. The amount by which each highly Compensated Employee's Contribution
Percentage Amounts is reduced shall be treated as an Excess Aggregate
Contribution. The ADP and ACP of the Highly Compensated Employees are determined
after any corrections required to meet the ADP and ACP tests. Multiple use does
not occur if either the ADP or ACP of the Highly Compensated Employees does not
exceed 1.25 multiplied by the ADP and ACP of the Non-highly Compensated
Employees. "Aggregate Limit" shall mean the sum of (i) 125 percent of the
greater of the ADP of the Non-highly Compensated Employees for the Plan Year or
the ACP of Non-highly Compensated Employees under the plan subject to Code
section 401(m) for the Plan Year beginning with or within the Plan Year of the
CODA and
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(ii) the lesser of 200% or two plus the lesser of such ADP or ACP.
"Lesser" is substituted for "greater" in "(i)", above, and "greater" is
substituted for "lesser" after "two plus the" in "(ii)" if it would result in a
larger Aggregate Limit.
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ARTICLE XIV-DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
14.01
In General
Notwithstanding any other provision of the plan, Excess Deferral Amounts
and income allocable thereto shall be distributed no later than April 15, 1988
and each April 15 thereafter to Participants who claim such Allocable Excess
Deferral Amounts for the preceding calendar year. "Elective Deferrals" shall
mean any employer contributions made to the plan at the election of the
participant, in lieu of cash compensation, and shall include contributions made
pursuant to a salary reduction agreement or other deferral mechanism. With
respect to any taxable year, a participant's Elective Deferral is the sum of all
Employer contributions made on behalf of such participant pursuant to an
election to defer under any qualified CODA as described in section 401(k) of the
Code, any simplified employee pension cash or deferred arrangement as described
in section 402(h)(l)(B), any eligible deferred compensation plan under section
457, any plan as described under section 501(c)(18), and any employer
contributions made on the behalf of a participant for the purchase of any
annuity contract under section 403(b) pursuant to a salary reduction agreement.
Elective Deferrals shall not include any deferrals properly distributed as
excess annual additions.
14.02
Definitions
For purposes of this Plan, the "Excess Elective Deferrals" shall mean
Elective Deferrals that are includable in a participant's gross income under
section 402(g) of the Code to the extent such participant's Elective Deferrals
for a taxable year exceed the dollar limitation under such Code Section. Excess
Elective Deferrals shall be treated as annual additions under the plan, unless
such amounts are distributed no later than the first April 15 following the
close of the participant's taxable year. Excess Elective Deferrals shall be
adjusted for any income or loss up to the date of distribution. The income or
loss allocable to Excess Elective Deferrals is the sum of: (1) income or loss
allocable to the participant's Elective Deferral account for the taxable year
multiplies by a fraction, the numerator of which is such participant's Excess
Elective Deferrals for the year and the denominator is the participant's account
balance attributable to Elective Deferrals with regard to any income or loss
occurring during such taxable year; and (2) ten percent of the amount determined
under (1) multiplied by the number of whole calendar months between the end of
the participant's taxable year and the date of distribution, counting the month
of distribution if distribution occurs after the 15th of such month.
14.03
Claims
A mechanism must be provided by which a participant may notify or be
deemed to notify the Plan Administrator of Excess Elective Deferrals, and if in
writing it shall be submitted to the plan administrator no later than March 1;
shall specify the Participant's Excess Deferral Amount for the Preceding
calendar year; and shall be accompanied by the Participant's written statement
that if such amounts are not distributed, such Excess Deferral Amount, when
added to amounts
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deferred under other plans or arrangements described in Sections 401(k), 408(k)
or 403(b) of the Code, exceeds the limit imposed on the Participant by Section
402(g) of the Code for the year in which the deferral occurred.
Deemed notification occurs if Excess Elective Deferrals arise solely
from Elective Deferrals made under the plan or plans of this employer. A
participant is deemed to notify the Plan Administrator of any Excess Elective
Deferrals that arise by taking into account only those Elective Deferrals made
to this plan and any other plans of this employer.
14.04
Maximum Distribution Amount
Excess Deferral Amount distributed to a Participant with respect to a
calendar year shall be adjusted for income and , if there is a loss allocable to
the Excess Deferral, shall in no event be less than the lesser of the
Participant's account under or the Participant's Elective Deferrals for the Plan
Year.
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ARTICLE XV -- DISTRIBUTION OF EXCESS CONTRIBUTIONS
15.01
In General
Notwithstanding any other provision of the plan, Excess Contributions
and income allocable thereto shall be distributed no later than the last day of
each plan year beginning after December 31, 1987, to Participants on whose
behalf such Excess Contributions were made for the preceding Plan Year.
15.02
Excess Contributions
"Excess Contributions" shall mean the amount of deferred contributions
described in Code Section 401(k) (3) (B) made by Highly Compensated Employees
which cause the plan to fail the annual contribution percentages test of Article
13.01 of this plan. Excess Contributions of participants who are subject to the
family member aggregation rules shall be allocated among the family members in
proportion to the Elective Deferrals (and amounts treated as Elective Deferrals)
of each family member that is combined to determine the combined ADP.
15.03
Allocable Income for the Plan Year
Excess Contributions shall be adjusted for any income or loss up to the
date of distribution. The income or loss allocable to Excess Contributions is
the sum of: (1) income or loss allocable to the participant's Elective Deferral
account (and, if applicable, the Qualified Non-elective Contribution account or
the Qualified Matching Contributions account or both) for the Plan Year
multiplied by a fraction, the numerator of which is such participant's Excess
Contributions for the year and the denominator is the Participant's account
balance attributable to Elective Deferrals (and Qualified Non-Elective
Contributions or Qualified Matching Contributions, or both, if any of such
contributions are included in the ADP test) without regard to any income or loss
occurring during such Plan Year; and (2) ten percent of the amount determined
under (1) multiplied by the number of whole calendar months between the end of
the Plan Year and the date of distribution, counting the month of distribution
if distribution occurs after the 15th of such month.
15.04
Maximum Distribution Amount
The Excess Contributions which would otherwise be distributed to the
Participant shall be adjusted for income and reduced (in accordance with IRS
regulations) by the amount of Excess Deferrals distributed to the Participant.
If there is a loss allocable to the Excess Contributions, it shall in no event
be less than the lesser of the Participant's account under the plan or the
Participant's Elective Deferrals and Qualified Employer Deferral Contributions
for the Plan Year.
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15.05
Accounting for Excess Contributions
Excess Contributions shall be distributed from the participant's
Elective Deferral account and Qualified Matching Contribution account (if
applicable) in proportion to the participant's Elective Deferrals and Qualified
Matching Contributions (to the extent used in the ADP test) for the Plan Year.
Excess Contributions shall be distributed from the participant's Qualified
Non-elective Contribution account only to the extent that such Excess
Contributions exceed the balance in the participant's Elective Deferral account
and Qualified Matching Contribution account.
"Excess Contributions" shall mean with respect to any Plan Year, the
excess of the aggregate amount of employer contributions actually taken into
account in computing the ADP of Highly Compensated Employees for such Plan Year,
over, the maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly Compensated
Employees in order of the ADPs, beginning with the highest of such percentages).
15.06
Family Aggregation Rules
In the case of a highly compensated employee whose actual deferral ratio
(ADR) is determined under the family aggregation rules, the determination of the
amount of excess contributions shall be made as follows:
(a) If the highly compensated employee's ADR is determined by combining
the contributions and compensation of only those family members who are highly
compensated without regard to family aggregations, then the ADR is reduced in
accordance with the "leveling" method described in section l.401(k)-l(f) (2) of
the regulations and the excess contributions for the family unit are allocated
among the family members in proportion to the contributions and compensation of
each family member that have been combined.
(b) If the highly compensated employee's ADR is determined by combining
the contributions and compensation of all family members, then the ADR is
reduced in accordance with the leveling method but not below the ADR of eligible
non-highly compensated family members. Excess contributions are determined by
taking into account the contributions of the eligible family members who are
highly compensated without regard to family aggregation and are then allocated
among such family members in proportion to their contributions. If further
reductions of the ADR are required, excess aggregate contributions resulting
from this reduction are determined by taking into account the contributions of
all eligible family members and are allocated in the amount to each family
member in proportion to their contribution.
(c) In the case of a highly compensated employee whose actual deferral
ratio (ADR) is determined under the family aggregation rules, the determination
of the amount of excess contributions shall be made as follows: The ADR is
reduced in accordance with the "leveling" method described in section
l.401(k)-l(f) (2) of the regulations and the excess contributions are
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allocated among the family members in proportion to the contributions of each
family member that have been combined.
(d) The amount of excess contributions for a highly compensated employee
will be determined in the following manner. First, the actual deferral ratio
(ADR) of the highly compensated employee with the highest ADR is reduced to the
extent necessary to satisfy the actual deferral percentage (ADP) test or cause
such ratio to equal the ADR of the highly compensated employee with the next
highest ratio. Second, this process is repeated until the ADP test is satisfied.
The amount of excess contributions for a highly compensated employee is then
equal to the total of elective and other contributions taken into account for
the ADP test minus the product of the employee's contribution ratio as
determined above and the employee's compensation.
(e) The amount of excess contributions to be distributed shall be
reduced by excess deferrals previously distributed for the taxable year ending
in the same plan year and excess deferrals to be distributed for a taxable year
will be reduced by excess contributions previously distributed for the plan
beginning in such taxable year.
15.07
Correction of Excess Deferrals
(a) The amount of excess deferrals for a highly compensated employee for
a plan year is the amount (if any) by which the employee's elective contribution
must be reduced for the employee's actual deferral ratio to equal the highest
permitted ratio under the plan. To calculate the highest permitted actual
deferral ratio (ADR) under the plan, the (ADR) of the highly compensated
employee with the highest (ADR) is reduced by the amount required to cause the
employee's (ADR) to equal the ratio of the highly compensated employee with the
next highest (ADR). If a lesser reduction would enable the arrangement to
satisfy the actual deferral percentage (ADP) test, only this lesser reduction
may be made. This process must be repeated until the cash or deferred
arrangement satisfies the (ADP) test. The highest (ADR) remaining under the plan
after leveling shall be the highest permitted (ADR). In no case may the amount
of excess deferrals be distributed for the plan year with respect to any highly
compensated employee, exceed the amount of elective contributions made on behalf
of the highly compensated employee for the plan year.
(b) The amount of excess contributions to be distributed shall be
reduced by excess deferrals previously distributed for the taxable year ending
in the same plan year, and excess deferrals to be distributed for a taxable year
will be reduced by excess contributions previously distributed for the plan
beginning in such taxable year.
15.08
Failure to Correct Excess Contribution
Failure to correct excess contributions by the close of the plan year
following the plan year for which they were made will cause the cash or deferred
arrangement to fail to satisfy the requirements of Code section 401(k) (3) for
the plan year for which the excess contributions were
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<PAGE> 97
made and for all subsequent years they remain in the trust. Also, the employer
will be liable for a 10% excise tax on the amount of excess contributions and
any excess aggregate contributions unless they are corrected within 2 1/2 months
after the close of the plan year for which they were made.
15.09
Record Keeping
The Trustee shall correct excess contributions by distributions to
highly compensated employee(s). Records shall be kept by the Employer that
demonstrate compliance with the nondiscrimination requirements of Code Section
401(k) including the extent to which qualified nonelective contributions and
qualified matching contributions are taken into account.
15.10
Non-Elective and Matching Contributions
(a) Non-elective contributions and/or matching contributions may be
treated as elective contributions only if each of the following applicable
conditions are satisfied:
(1) The amount of nonelective contributions, including those
qualified nonelective contributions treated as elective contributions for the
purposes of the actual deferral percentage test, satisfies the requirements of
section 401(a) (4).
(2) The amount of nonelective contributions, excluding those
qualified nonelective contributions treated as elective contributions for
purposes of the actual deferral percentage test and those qualified nonelective
contributions treated as matching contributions under Section l.401(m)-l(b) (5)
for purposes of the actual contribution percentage test, satisfies the
requirements of section 401(a)(4).
(3) For plan years beginning before January 1, 1987, or such
later date provided in Treasury Regulation l.401(k)-l(h), the matching
contributions, including those qualified matching contributions treated as
elective contributions for purposes of the actual deferral percentage test,
satisfy the requirements of section 401 (a) (4).
(4) For plan years beginning before January 1, 1987, or such
later date provided in Treasury Regulation 4.101(k)-l(h), the matching
contributions excluding those matching contributions treated as elective
contributions for purposes of the actual deferral percentage test, satisfy the
requirements of section 401 (a) (4).
(5) The qualified nonelective contributions and qualified
matching contributions satisfy the requirements of this section for the plan
year as if the contributions were elective contributions.
(6) For plan years beginning after December 31, 1988, or such
later date provided in Treasury Regulation l.401(k)-l(h), the plan that includes
the cash or deferred arrangement and the plan or plans to which the
nonelective contributions and qualified
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<PAGE> 98
matching contributions are made, could be aggregated for purposes of section
410(b) (other than the average benefit percentage test). If the plan year of the
plan that includes the cash or deferred arrangement is changes to satisfy the
requirement under section 410(b) that aggregated plans have the same plan year,
the qualified nonelective contributions and qualified matching contributions may
be taken into account in the resulting short plan year only if the contributions
satisfy the requirements of paragraph (b) (4) (i) of this section with respect
to the short year as if the contributions were elective contributions and the
aggregated plans could otherwise be aggregated for purposes of section 410(b) of
the Code.
(b) Non-elective contributions and matching contributions may be treated
as elective contributions for purposes of the actual deferral percentage test of
section 401(k) only if such contributions are nonforfeitable when made and
subject to the same distributions restrictions that apply to elective
contributions. Non-elective contributions and matching contributions which may
be treated as elective contributions must satisfy these requirements without
regard to whether they are actually taken into account as elective
contributions.
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ARTICLE XVI -- DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
16.01
In General
Excess Aggregate Contributions, Matching Contributions, and income
allocable thereto, are corrected by distributing such excess aggregate and
matching contributions and allocable income as designated by the employer as a
distribution of excess aggregate contributions, matching, (and income) and
distributing the funds to the appropriate highly compensated employees after the
close of the plan year in which the excess aggregate contributions arose and
within twelve months after the close of the following plan year. In the event of
the complete termination of the plan during the plan year in which an excess
aggregate contributions arose, such distributions are to be made after
termination of the plan and before the close of the twelve-month period
immediately following such termination.
16.02
Excess Aggregate Contributions
For purposes of this Plan "Excess Aggregate Contributions" shall mean
with respect to any plan year, the excess of:
(a) the aggregate amount of the matching contributions and employee
elective contributions (and any qualified nonelective contribution or elective
contribution taken into account in computing the contribution percentage)
actually made on behalf of highly compensated employees for such plan year, over
(b) the maximum amount of such contributions permitted under the
limitations of (determined by reducing contributions made on behalf of highly
compensated employees in order of their contribution percentages beginning with
the highest of such percentages).
(c) The determination of the amount of excess aggregate contributions
shall be made after first determining the excess deferrals within the meaning of
Code Section 402(g) and then determining the excess contributions under Code
Section 401(k).
16.03
Income Allocable to Excess Contributions
Excess Aggregate Contributions shall be adjusted for any income or loss
up to the date of distribution. The income or loss allocable to Excess Aggregate
Contributions is the sum of: (1) income or loss allocable to the participant's
Employee Contribution account, Matching Contribution account, Qualified Matching
Contribution account (if any, and if all amounts therein are not used in the ADP
test) and, if applicable, Qualified Non-elective Contribution account and
Elective Deferral account for the Plan Year multiplied by a fraction, the
numerator of which is such participant's Excess Aggregate Contributions for the
year and the denominator is the participant's account balance(s) attributable to
Contribution Percentage Amounts without
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regard to any income or loss occurring during such Plan Year; and (2) ten
percent of the amount determined under (1) multiplied by the number of whole
calendar months between the end of the Plan Year and the date of distribution,
counting the month of distribution if distribution occurs after the 15th of such
month.
16.04
Distribution Amount
The Excess Aggregate Contributions to be distributed to a Participant
shall be adjusted for income, and, if there is a loss allocable to the Excess
Aggregate Contribution, shall in no event be less than the lesser of the
Participant's account under the plan or the Participant's Employee Contributions
and Matching Contributions for the Plan Year. The Excess Aggregate Contribution
to be distributed shall start at the last dollar contributed and any matching
related to that last dollar. Employee contributions that exceed the matching
limit of the employer shall be distributed first for any highly compensated
employee who's contribution percentage is the highest and then pro-rata for all
highly compensated employees unless one highly compensated employee voluntarily
agrees to take an additional excess aggregate contribution. Any distributions or
forfeitures of excess aggregate contributions for any plan year shall be made on
the basis of the respective portions of such amounts attributable to each highly
compensated employee.
16.05
Allocation of Excess Aggregate Contributions
Notwithstanding any other provision of this plan, Excess Aggregate
Contributions plus any income and minus any loss allocable thereto, shall be
forfeited, if forfeitable, or if not forfeitable, distributed no later than the
last day of each Plan Year to participants to whose accounts such Excess
Aggregate Contributions were allocated for the preceding Plan Year.
16.06
Allocation of Forfeitures
Amounts forfeited by Highly Compensated Employees under this Article XVI
shall be:
(a) Treated as Annual Additions;
(b) Applied to reduce employer contributions; and
(c) Notwithstanding the foregoing, no forfeitures arising under this
Article shall be allocated to the account of any Highly Compensated Employee.
16.07
Correction of Excess Contribution
If there are excess contributions by the highly compensated employees
and the nonhighly compensated employees contributions are not increased to bring
up their ratios then the amount
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of excess aggregate contributions which shall include income allocable thereto
from the time of the excess contribution to the time of the distribution of the
excess aggregate contribution for a highly compensated employee under the
requirements of Code Section 401(m) will be corrected in the following manner.
First, the actual contribution ratio (ACR) of the highly compensated employee
with the highest ACR is reduced to the extent necessary to satisfy the Actual
Contribution Percentage (ACP) test or cause such ratio to equal the ACR of the
highly compensated employee with the next highest ratio. Second, this process is
repeated until the ACP test is satisfied. The amount of excess aggregate
contributions for a highly compensated employee is then equal to the total of
employee matching and other contributions taken into account for the ACP test
minus the product of the employee's contribution ratio as determined above and
the employee's compensation. This correction is set out in regulations of the
Department of the Treasury section 401(m)-l(e).
16.08
Family Aggregation Rules
(a) The amount of excess aggregate contributions in the case of a highly
compensated employee's ACP or a highly compensated employee's ACR which has been
determined under the family aggregation rules shall be determined as follows:
(1) If the highly compensated employee's ACR is determined by
combining the contributions and compensation of only those family members who
are highly compensated without regard to family aggregation, then the ACR is
reduced by reducing the actual contribution ratio and allocating the excess
aggregate contributions for the family group among the family members in
proportion to the employee and matching contributions of each family member that
are combined to determine the actual contribution ratio and the excess aggregate
contributions for the family unit are allocated among family members in
proportion to the contributions of each family member that have been combined.
(2) If the highly compensated employee's ACR is determined by
combining the contributions and compensation of only those family members who
are highly compensated without regard to family aggregation, then the ACR is
reduced in accordance with the leveling method but not below the ACR of eligible
nonhighly compensated family members. Excess aggregate contributions are
determined by taking into account the contributions of the eligible family
members who are highly compensated without regard to family aggregation and are
allocated among such family members in proportion to their contributions.
(3) In the case of a highly compensated employee who is either a
5% owner or one of the ten most highly compensated employees and is thereby
subject to the family aggregation rules of section 414(q)(6), the actual
contribution ratio (ACR) for the family group (which is treated as one highly
compensated employee) is the greater of (1) the ACR determined by combining the
contributions and compensation of all eligible family members who are highly
compensated without regard to family aggregation, and (2) the ACR determined by
combining the contributions and compensation of all eligible family members.
Except to the extent taken into account in the preceding sentence, the
contributions and compensation of all family
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members are disregarded in determining the actual contribution percentages for
the groups of highly compensated employees and nonhighly compensated employees.
(4) In the case of a highly compensated employee whose actual
contribution ratio (ACR) is determined under the family aggregation rules, the
determination of the amount of excess contributions shall be made as follows:
the ADR is reduced by the amount required to cause the employee's actual
deferral ratio to equal the ratio of the highly compensated employee with the
next highest actual deferral ratio. If a lesser reduction would enable the
arrangement to satisfy the actual deferral percentage test, only this lesser
reduction may be made. This process must be repeated until the excess
contributions are allocated among the family members in proportion to the
contributions of each family member that have been combined.
(b) The amount of excess contributions for a highly compensated employee
will be determined in the following manner: first, the actual contribution ratio
(ACR) of the highly compensated employee with the highest ACR is reduced to the
extent necessary to satisfy the actual contribution percentage (ACP) test or
cause such ratio to equal the ACR of the highly compensated employee with the
next highest ratio; and second, this process is repeated until the ACP test is
satisfied. The amount of excess contributions for a highly compensated employee
is then equal to the total of elective and other contributions taken into
account for the ACP test minus the product of the employee's contribution ratio
as determined above.
(c) The amount of excess contributions to be distributed shall be
reduced by excess deferrals previously distributed for the taxable year ending
in the same plan year and excess deferrals to be distributed for a taxable year
will be reduced by excess contributions previously distributed for the plan
beginning in such taxable year.
(d) Excess Aggregate Contributions of participants who are subject to
the family member aggregation rules shall be allocated among the family members
in proportion to the Employee and Matching Contributions (or amounts treated as
Matching Contributions) of each family member that is combined to determine the
combined ACP.
16.09
Failure to Correct Excess Contribution
Failure to correct excess contributions by the close of the plan year
following the plan year for which they were made will cause the Plan to fail to
satisfy the requirements for the plan year for which the excess contributions
were made and for all subsequent years they remain in the trust. Also, the
employer will be liable for a 10% excise tax on the amount of excess
contributions unless they are corrected within 2 1/2 months after the close of
the plan year for which they are made. Excess Aggregate Contributions shall be
treated as annual additions under the Plan.
16.10
Recordkeeping By Employer
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The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified Non-elective
Contributions or Qualified Matching Contributions, or both, used in such test.
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<PAGE> 104
ARTICLE XVII-INTEGRATION WITH SOCIAL SECURITY
17.01
Profit Sharing Plan Integration
(a) Employer contributions for the plan year plus any forfeitures will
be allocated to participants' accounts as follows:
(1) Contributions and forfeitures will be allocated to each
participant's account in the ratio that each participant's total compensation
bears to all participants' total compensation, but not in excess of 3% of each
participant's compensation
(2) Any contributions and forfeitures remaining after the
allocation in Step One will be allocated to each participant's account in the
ratio that each participant's compensation for the plan year in excess of the
integration level bears to the excess compensation of all participants, but not
in excess of 3%. Steps one and two shall apply only in years in which the plan
is top heavy. Steps one and two, if the Plan is top heavy, shall not require an
employer contribution, but shall be the allocation method if employer
contributions are made or forfeitures are allocated in the Plan Year.
(3) Any contributions and forfeitures remaining after the
allocation in Step Two will be allocated to each participant's account in the
ratio that the sum of each participant's total compensation and compensation in
excess of the integration level bears to the sum of all participants total
compensation and compensation in excess of the integration level, but not in
excess of the profit-sharing maximum disparity rate.
(4) Any remaining employer contributions or forfeitures will be
allocated to each participant's account in the ratio that each participant's
total compensation for the plan year bears to all participants' total
compensation for that year.
17.02
Integration Level
(a) The integration level shall be equal to the taxable wage base or
such lesser amount elected by the employer in the adoption agreement. The
taxable wage base is the contribution and benefit base in effect under section
230 of the social Security Act at the beginning of the plan year.
The maximum profit sharing disparity rate is equal to the lesser of:
(1) 2.7%
(2) the applicable percentage determined in accordance with the table
below.
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(b) If the Integration Level is more than but not more than the
applicable percentage is:
<TABLE>
<S> <C> <C>
$0 X* 2.7%
X* 80% of TWB 1.3%
80% of TWB Y** 2.4%
</TABLE>
*X = the greater of $10,000 or 20 percent of the TWB
**Y = any amount more than 80% of the TWB but less than 100% of the
TWB.
(c) If the integration level used is equal to the taxable wage base, the
applicable percentage is 2.7%.
(d) Integration can only be based upon the compensation of all eligible
employees and not on employee elective deferrals.
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ARTICLE XVIII-ELIGIBLE ROLLOVERS
18.01
Distributions
This Article applies to distributions made on or after January 1, 1993.
Notwithstanding any provision of the plan to the contrary that would otherwise
limit a distributee's election under this Article, a distributee may elect, at
the time and in the manner prescribed by the plan administrator, to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
18.02
Definitions
(a) Eligible rollover distribution means any distribution of all or any
portion of the balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is one of a series
of substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the distributee or the joint lives (or
joint life expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten year or more; any distribution to
the extent such distribution is required under section 401(a) (9) of the Code;
and the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
(b) Eligible retirement plan means an individual retirement account
described in section 408(a) of the Code, an individual retirement annuity
described in section 408(b) of the Code, an annuity plan described in section
403(a) of the Code, or a qualified trust described in section 401(a) of the
Code, that accepts the distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or individual
retirement annuity.
(c) A Distributee includes an employee or former employee. In addition,
the employee's or former employee's surviving spouse and the employee's or
former employee's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in section 414(p) of the Code,
are distributees with regard to the interest of the spouse or former spouse.
(d) Direct rollover means payment by the Plan to the eligible retirement
plan specified by the distributee.
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<PAGE> 1
EXHIBIT 10.31
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
CRL NETWORK SERVICES, INC.
INTEGRAL NETWORKING CORPORATION,
RMS SUB INC.
AND
SHAREHOLDERS OF INTEGRAL NETWORKING CORPORATION
DECEMBER 21, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PLAN OF REORGANIZATION............................................................. 1
1.1. The Merger................................................................... 1
1.2. Fractional Shares............................................................ 2
1.3. Escrow Agreement............................................................. 2
1.4. Effects of the Merger........................................................ 2
1.5. Further Assurances........................................................... 3
1.6. Securities Law Issues........................................................ 3
1.7. Tax-Free Reorganization...................................................... 3
1.8. Pooling of Interests......................................................... 3
2. REPRESENTATIONS AND WARRANTIES OF INTEGRAL NETWORKING AND THE INTEGRAL
NETWORKING SHAREHOLDERS............................................................ 3
2.1. Organization and Good Standing............................................... 3
2.2. Power, Authorization and Validity............................................ 3
2.3. Capitalization............................................................... 4
2.4. Subsidiaries................................................................. 4
2.5. No Violation of Articles or Existing Agreements.............................. 4
2.6. Litigation................................................................... 5
2.7. INTEGRAL NETWORKING Financial Statements..................................... 5
2.8. Taxes........................................................................ 5
2.9. Title to Properties.......................................................... 6
2.10. Absence of Certain Changes................................................... 6
2.11. Agreements and Commitments................................................... 7
2.12. Intellectual Property........................................................ 8
2.13. Compliance with Laws......................................................... 9
2.14. Certain Transactions and Agreements.......................................... 9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
2.15. Employees.................................................................... 9
2.16. Corporate Documents.......................................................... 11
2.17. No Brokers................................................................... 11
2.18. Disclosure................................................................... 11
2.19. Books and Records............................................................ 11
2.20. Insurance.................................................................... 11
2.21. Environmental Matters........................................................ 11
2.22. Government Contracts......................................................... 12
2.23. INTEGRAL NETWORKING Shareholders' Representations............................ 13
3. REPRESENTATIONS AND WARRANTIES OF CRL NETWORK...................................... 15
3.1. Organization and Good Standing............................................... 15
3.2. Power, Authorization and Validity............................................ 15
3.3. No Violation of Certificate.................................................. 15
3.4. Litigation................................................................... 15
3.5. Absence of Certain Changes................................................... 15
3.6. Disclosure................................................................... 16
4. INTEGRAL NETWORKING PRECLOSING COVENANTS........................................... 16
4.1. Advice of Changes............................................................ 16
4.2. Maintenance of Business...................................................... 16
4.3. Conduct of Business.......................................................... 16
4.4. Certain Agreements........................................................... 18
4.5. Regulatory Approvals......................................................... 18
4.6. Necessary Consents........................................................... 18
4.7. Litigation................................................................... 18
4.8. No Other Negotiations........................................................ 18
4.9. Access to Information........................................................ 18
4.10. Satisfaction of Conditions Precedent......................................... 18
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
4.11. Blue Sky Laws................................................................ 19
4.12. Notification of Employee Problems............................................ 19
4.13. INTEGRAL NETWORKING Affiliates Agreements.................................... 19
5. CRL NETWORK PRECLOSING COVENANTS................................................... 19
5.1. Regulatory Approvals......................................................... 19
5.2. Satisfaction of Conditions Precedent......................................... 19
5.3. Blue Sky Laws................................................................ 19
5.4. Advice of Changes............................................................ 19
5.5. Litigation................................................................... 19
5.6. CRL Network Affiliates Agreements............................................ 20
6. CLOSING MATTERS.................................................................... 20
6.1. The Closing.................................................................. 20
6.2. Exchange of Certificates..................................................... 20
7. CONDITIONS TO OBLIGATIONS OF INTEGRAL NETWORKING................................... 21
7.1. Accuracy of Representations and Warranties................................... 21
7.2. Covenants.................................................................... 21
7.3. Compliance with Law.......................................................... 21
7.4. Government Consents.......................................................... 21
7.5. Documents.................................................................... 21
7.6. No Litigation................................................................ 21
7.7. Satisfactory Form of Legal and Accounting Matters............................ 21
8. CONDITIONS TO OBLIGATIONS OF CRL NETWORK........................................... 21
8.1. Accuracy of Representations and Warranties................................... 21
8.2. Covenants.................................................................... 22
8.3. Absence of Material Adverse Change........................................... 22
8.4. Compliance with Law.......................................................... 22
8.5. Government Consents.......................................................... 22
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.6. Documents.................................................................... 22
8.7. No Litigation................................................................ 22
8.8. Intentionally deleted........................................................ 22
8.9. Requisite Approvals.......................................................... 22
8.10. Escrow....................................................................... 22
8.11. Employment and Noncompetition Agreements..................................... 22
8.12. Termination of Rights........................................................ 22
8.13. Resignation of Directors..................................................... 22
8.14. Satisfactory Form of Legal and Accounting Matters............................ 23
9. TERMINATION OF AGREEMENT........................................................... 23
9.1. Termination.................................................................. 23
9.2. Certain Continuing Obligations............................................... 23
10. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS.......................................................................... 23
10.1. Survival of Representations.................................................. 23
10.2. INTEGRAL NETWORKING Agreement to Indemnify................................... 24
11. MISCELLANEOUS...................................................................... 26
11.1. Governing Law................................................................ 26
11.2. Assignment; Binding Upon Successors and Assigns.............................. 26
11.3. Severability................................................................. 26
11.4. Counterparts................................................................. 26
11.5. Other Remedies............................................................... 27
11.6. Amendment and Waivers........................................................ 27
11.7. No Waiver.................................................................... 27
11.8. Expenses..................................................................... 27
11.9. Notices...................................................................... 27
11.10.Construction of Agreement.................................................... 28
11.11.No Joint Venture............................................................. 28
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.12.Further Assurances........................................................... 28
11.13.Absence of Third Party Beneficiary Rights.................................... 28
11.14.Public Announcement.......................................................... 28
11.15.Confidentiality.............................................................. 28
11.16.Time is of the Essence....................................................... 29
11.17.Entire Agreement............................................................. 29
</TABLE>
Exhibits:
<TABLE>
<S> <C>
Exhibit A-1 Form of Certificate of Merger
Exhibit A-2 Form of Agreement of Merger
Exhibit B-1 Form of Employment Agreement
Exhibit B-2 Form of Noncompetition Agreement
Exhibit C Form of INTEGRAL NETWORKING Escrow Agreement
Exhibit 1.4A and B. Form of Articles and Bylaws
Exhibit 1.7A and B Form of Officer Certificates
Exhibit 4.4 Form of INTEGRAL NETWORKING Intellectual Property Agreement
Exhibit 4.13 Form of INTEGRAL NETWORKING Affiliates Agreement
Exhibit 5.6 Form of CRL Network Affiliates Agreement
</TABLE>
v
<PAGE> 7
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered
into as of December 21, 1998, by and among CRL Network Services, Inc., a
California corporation ("CRL Network"), RMS Sub Inc., a Delaware corporation and
the wholly-owned subsidiary of CRL Network ("RMS Sub Inc."), Integral Networking
Corporation, a California corporation ("INTEGRAL NETWORKING"), and, with respect
to the provisions of Articles 2, 10 and 11 only, the shareholders of INTEGRAL
NETWORKING (collectively "INTEGRAL NETWORKING Shareholders").
RECITALS
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, RMS Sub Inc. will merge with and into INTEGRAL NETWORKING
in a reverse triangular merger (the "Merger"), with INTEGRAL NETWORKING to be
the surviving corporation of the Merger, all pursuant to the terms and
conditions of this Agreement. a Certificate of Merger substantially in the form
of Exhibit A-1 (the "Certificate of Merger"), an Agreement of Merger
substantially in the form of Exhibit A-2 (the "Agreement of Merger") and the
applicable provisions of the laws of the states of Delaware and California. Upon
the effectiveness of the Merger, all the outstanding Common Stock of INTEGRAL
NETWORKING will be converted into Common Stock of CRL Network in the manner and
on the basis determined herein and as provided in the Certificate of Merger and
the Agreement of Merger.
B. It is intended by the parties hereto that the Merger shall constitute
a reorganization within the meaning of Section 3 68(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"), by virtue of the provisions of
Section 368(a)(2)(E) of the Code.
C. At the Closing of this Agreement:
1. Robert L. Ross is entering into with CRL Network an Employment
Agreement and Noncompetition Agreement substantially in the form of Exhibit B-1
and B-2.
2. Each of the INTEGRAL NETWORKING Shareholders is entering into
an Escrow Agreement in substantially the form of Exhibit C hereto (the "Escrow
Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
1. PLAN OF REORGANIZATION
1.1. The Merger. The Certificate of Merger and the Agreement of
Merger will be filed with the Secretaries of State of the States of Delaware and
California, respectively, as soon as practicable after the Closing (as defined
in Section 6.1 below). The effective time of the Merger as specified in the
Certificate of Merger and the Agreement of Merger (the "Effective Time") will
occur on or before December 21, 1998, or on such other date as the parties
hereto may mutually agree upon. Subject to the terms and conditions of this
Agreement, the Certificate of Merger and the Agreement of Merger, RMS Sub Inc.
will be merged with and into INTEGRAL NETWORKING in a statutory merger pursuant
to the Certificate of Merger and the Agreement of Merger and in accordance with
applicable provisions of Delaware and California laws as follows:
1.1.1. Conversion of INTEGRAL NETWORKING Shares. Each
share of INTEGRAL NETWORKING Common Stock, no par value (the "INTEGRAL
NETWORKING Common Stock"), that is issued and outstanding immediately prior to
the Effective Time will, by virtue of the Merger and at the Effective Time, and
without further action on the part of any holder thereof, be converted into the
Applicable Number (determined in
<PAGE> 8
accordance with Section 1.1.2 hereof) of fully paid and nonassessable shares of
CRL Network Common Stock, $0.001 par value ("CRL Network Common Stock").
1.1.2. Definitions. Unless there is an adjustment to the
shares to be issued in the Merger pursuant to Section 1.1.3 below, The
Applicable Number for the conversion of the Integral Common Stock will be
determined by dividing 1,304,498 by the sum of the total number of issued and
outstanding shares of INTEGRAL NETWORKING Common Stock at the Effective Time.
1.1.3. Adjustments for Capital Changes. If prior to the
Merger, CRL Network recapitalizes either through a split-up of its outstanding
shares into a greater number, or through a combination of its outstanding shares
into a lesser number, or reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number of shares of other
classes (other than through a split-up or combination of shares provided for in
the previous clause), or declares a dividend on its outstanding shares payable
in shares or securities convertible into shares, the calculation of the
Applicable Number governing the conversion of INTEGRAL NETWORKING Common Stock
will be adjusted appropriately.
1.1.4. Conversion of RMS Sub Inc. Shares. Each share of
RMS Sub Inc. Common Stock, $0.01 par value ("RMS Sub Inc. Common Stock"), that
is issued and outstanding immediately prior to the Effective Time will, by
virtue of the Merger and without further action on the part of the sole
stockholder of RMS Sub Inc., be converted into and become one (1) share of
INTEGRAL NETWORKING Common Stock that is issued and outstanding immediately
after the Effective Time, and the shares of INTEGRAL NETWORKING Common Stock
into which the shares of RMS Sub Inc. Common Stock are so converted shall be the
only shares of INTEGRAL NETWORKING Stock that are issued and outstanding
immediately after the Effective Time.
1.2. Fractional Shares. No fractional shares of CRL Network
Common Stock will be issued in connection with the Merger, but in lieu thereof,
the holder of any shares of INTEGRAL NETWORKING Common Stock who would otherwise
be entitled to receive a fraction of a share of CRL Network Common Stock will
receive from CRL Network, promptly after the Effective Time, an amount of cash
equal to $1.15, multiplied by the fraction of a share of CRL Network Common
Stock to which such holder would otherwise be entitled.
1.3. Escrow Agreement. Pursuant to the Escrow Agreement, on the
Closing Date, CRL Network will (i) withhold, pro rata, from the shares of CRL
Network Common Stock that would otherwise be delivered to the INTEGRAL
NETWORKING Shareholders, 10% of the total number of shares of CRL Network Common
Stock issued to them in the Merger and (ii) deposit or cause to be deposited in
escrow certificates representing the shares thus withheld. The shares of CRL
Network Common Stock withheld pursuant to this Section 1.3 at the Closing (the
"Escrow Shares") will be held as collateral for the indemnification obligations
of the INTEGRAL NETWORKING Shareholders under Section 10.2 below and pursuant to
the Escrow Agreement, pending their release from escrow pursuant to the Escrow
Agreement.
1.4. Effects of the Merger. At the Effective Time: (a) the
separate existence of RMS Sub Inc. will cease and RMS Sub Inc. will be merged
with and into INTEGRAL NETWORKING and INTEGRAL NETWORKING will be the surviving
corporation pursuant to the terms of the Certificate of Merger and the Agreement
of Merger; (b) the Articles of Incorporation and Bylaws of INTEGRAL NETWORKING
will be amended to read as set forth in Exhibit 1.4A and B as the Articles of
Incorporation and Bylaws of the surviving corporation; (c) each share of
INTEGRAL NETWORKING Common Stock outstanding immediately prior to the Effective
Time will be converted as provided in this Section 1; (d) each share of RMS Sub
Inc. Common Stock outstanding immediately prior to the Effective Time will be
converted into one (1) outstanding share-of INTEGRAL NETWORKING Common Stock and
each share of INTEGRAL NETWORKING Common Stock will be converted as provided in
Sections 1.1 and 1.2; (e) the sole Director and executive officer of CRL Network
remaining unchanged and the sole director of RMS Sub Inc. immediately prior to
the Effective Time will become the sole director of the surviving corporation
and the officers of RMS Sub Inc. will become the officers of the surviving
corporation; and (f) the Merger will, at and after the Effective Time, have all
of the effects provided by applicable law.
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1.5. Further Assurances. INTEGRAL NETWORKING agrees that if, at
any time after the Effective Time, CRL Network considers or is advised that any
further deeds, assignments or assurances are reasonably necessary or desirable
to vest, perfect or confirm in CRL Network title to any property or rights of
INTEGRAL NETWORKING as provided herein, CRL Network and any of its officers are
hereby authorized by INTEGRAL NETWORKING to execute and deliver all such proper
deeds, assignments and assurances and do all other things reasonably necessary
or desirable to vest, perfect or confirm title to such property or rights in CRL
Network and otherwise to carry out the purposes of this Agreement, in the name
of INTEGRAL NETWORKING or otherwise.
1.6. Securities Law Issues. Based in part on the representations
of the INTEGRAL NETWORKING Shareholders made in Section 2.23 below, the CRL
Network Common Stock to be issued in the Merger will be issued pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act") and/or Regulation D promulgated under the
Securities Act and applicable state securities laws.
1.7. Tax-Free Reorganization. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), by virtue of the provisions of Section 368(a)(2)(E) of the Code. At the
Closing (as defined in Section 6.1 hereof), officers of CRL Network and officers
of INTEGRAL NETWORKING will execute and deliver officers' certificates in the
forms of Exhibits 1.7A-B, and the representations and other statements set forth
therein are incorporated in this Agreement by this reference to the same extent
as if CRL Network or INTEGRAL NETWORKING. respectively. had made such statements
herein.
1.8. Pooling of Interests. The parties intend that the Merger be
treated as a "pooling of interests" for accounting purposes.
2. REPRESENTATIONS AND WARRANTIES OF INTEGRAL NETWORKING AND THE
INTEGRAL NETWORKING SHAREHOLDERS
INTEGRAL NETWORKING and the INTEGRAL NETWORKING Shareholders, severally,
hereby represent and warrant that, except as set forth in the INTEGRAL
NETWORKING disclosure letter (the "INTEGRAL NETWORKING Disclosure Letter")
delivered by INTEGRAL NETWORKING to CRL Network herewith, including Items in the
INTEGRAL NETWORKING Disclosure Letter referred to as "Items" below.
2.1. Organization and Good Standing. INTEGRAL NETWORKING is a
corporation duly organized, validly existing and in good standing under the laws
of the state of California, has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now conducted
and is qualified as a foreign corporation in each jurisdiction listed on Item
21. Except as listed on Item 2.1, INTEGRAL NETWORKING does not own or lease any
real property, has no employees and does not maintain a place of business in any
foreign country or in any state of the United States other than California.
(Integral to provide list)
2.2. Power, Authorization and Validity.
2.2.1. INTEGRAL NETWORKING has the corporate right, power,
legal capacity and authority to enter into and perform its obligations under
this Agreement and all agreements to which INTEGRAL NETWORKING is or will be a
party that are required to be executed pursuant to this Agreement (the "INTEGRAL
NETWORKING Ancillary Agreements"). This Agreement and the INTEGRAL NETWORKING
Ancillary Agreements have been duly and validly approved by the INTEGRAL
NETWORKING Board of Directors and shareholders, as required by applicable law.
2.2.2. No filing, authorization or approval, governmental
or otherwise, is necessary to enable INTEGRAL NETWORKING to enter into, and to
perform its obligations under, this Agreement and the INTEGRAL NETWORKING
Ancillary Agreements, except for (a) the filing of the Certificate of Merger and
the Agreement of Merger with the Secretaries of State of the States of Delaware
and California, respectively, the filing
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<PAGE> 10
of such officers' certificates and other documents as are required to effectuate
the Merger under Delaware and California law and the filing of appropriate
documents with the relevant authorities of the states other than California in
which INTEGRAL NETWORKING is qualified to do business, if any, (b) such filings
as may be required to comply with federal and state securities laws, (c)
consents required under contracts disclosed in Item 2.5 as exceptions to the
representation made in the last sentence of Section 2.5 below and (d) the
approval of the INTEGRAL NETWORKING Shareholders and Board of Directors.
2.2.3. This Agreement and the INTEGRAL NETWORKING
Ancillary Agreements are, or when executed and delivered by INTEGRAL NETWORKING
and the other parties thereto will be. valid and binding obligations of INTEGRAL
NETWORKING enforceable against INTEGRAL NETWORKING and the INTEGRAL NETWORKING
Shareholders (as applicable) in accordance with their respective terms, except
as to the effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally and (b) rules of law governing
specific performance, injunctive relief and other equitable remedies, provided,
however, that the INTEGRAL NETWORKING Ancillary Agreements will not be effective
until the earlier of the Effective Time or the date provided for therein.
2.3. Capitalization.
(a) Authorized/Outstanding Capital Stock. The authorized
capital stock of INTEGRAL NETWORKING consists of 100,000 shares of INTEGRAL
NETWORKING Common Stock, no par value, 75,000 shares of INTEGRAL NETWORKING
Common Stock are issued and outstanding as of this date and as of the Closing
Date, of which Mr. Robert L. Ross, and Jim & Judy Linstruth hold of record and
beneficially 71,250 and 3,750 shares, respectively. Each of the INTEGRAL
NETWORKING Shareholders holds good and marketable title to such INTEGRAL
NETWORKING shares, free and clear of all liens, agreements, voting trusts,
proxies and other arrangements or restrictions of any kind whatsoever. No shares
of Preferred Stock are authorized, issued or outstanding. All issued and
outstanding shares of INTEGRAL NETWORKING Common Stock have been duly authorized
and validly issued, are fully paid and nonassessable, are not subject to any
right of rescission and have been offered, issued, sold and delivered by
INTEGRAL NETWORKING in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws.
(b) Options/Rights. There are no stock appreciation
rights, options, warrants, calls, rights, commitments, conversion privileges or
preemptive or other rights or agreements outstanding to purchase or otherwise
acquire any of INTEGRAL NETWORKING's authorized but unissued capital stock or
any securities or debt convertible into or exchangeable for shares of INTEGRAL
NETWORKING Common Stock or obligating INTEGRAL NETWORKING to grant, extend or
enter into such option, warrant, call, commitment, conversion privileges or
preemptive or other right or agreement. There is no liability for dividends
accrued but unpaid. There are no voting agreements, registration rights, rights
of first refusal or other restrictions (other than normal restrictions on
transfer under applicable federal and state securities laws) applicable to any
of INTEGRAL NETWORKING's outstanding securities.
2.4. Subsidiaries. INTEGRAL NETWORKING does not have any
subsidiaries or any equity interest, direct or indirect, in any corporation,
partnership, joint venture or other business entity.
2.5. No Violation of Articles or Existing Agreements. Neither the
execution and delivery of this Agreement or any INTEGRAL NETWORKING Ancillary
Agreement, nor the consummation of the transactions provided for herein or
therein, will conflict with, or (with or without notice or lapse of time, or
both) result in a termination, breach, impairment or violation of (a) any
provision of the Articles of Incorporation or Bylaws of INTEGRAL NETWORKING, as
currently in effect, (b) any material instrument or contract to which INTEGRAL
NETWORKING is a party or by which INTEGRAL NETWORKING or its assets is bound or
(c) to the best of its knowledge any federal, state, local or foreign judgment,
writ, decree, order, statute, rule or regulation applicable to INTEGRAL
NETWORKING or its assets or properties.
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<PAGE> 11
Except as disclosed in Item 2.5, the consummation of the Merger and succession
by CRL Network to all rights, licenses, franchises, leases and agreements of
INTEGRAL NETWORKING will not require the consent of any third party and will not
have any material adverse effect upon any such rights. licenses, franchises.
leases or agreements pursuant to the terms of those agreements.
2.6. Litigation. There is no action, proceeding or investigation
pending or, to INTEGRAL NETWORKING's actual knowledge, threatened against
INTEGRAL NETWORKING before any court or administrative agency that, if
determined adversely to INTEGRAL NETWORKING, may reasonably be expected to have
a material adverse effect on the present or future operations or financial
condition of INTEGRAL NETWORKING or in which the adverse party or parties seek
to recover against INTEGRAL NETWORKING. There is no basis for any person, firm,
corporation or entity to assert a claim against INTEGRAL NETWORKING or CRL
Network as successor in interest to INTEGRAL NETWORKING based upon: (a)
ownership or rights to ownership of any shares of INTEGRAL NETWORKING Common
Stock, (b) any rights as a INTEGRAL NETWORKING securities holder, including,
without limitation, any option or other right to acquire any INTEGRAL NETWORKING
securities, any preemptive rights or any rights to notice or to vote, or (c) any
rights under any agreement between INTEGRAL NETWORKING and any INTEGRAL
NETWORKING securities holder or former INTEGRAL NETWORKING securities holder in
such holder's capacity as such.
2.7. INTEGRAL NETWORKING Financial Statements. INTEGRAL
NETWORKING has delivered to CRL Network as Item 2.7 unaudited balance sheet as
of November 30, 1998 (the "Balance Sheet Date") and INTEGRAL NETWORKING's
unaudited income statement and cash flows for the year-to-date period then
ended, and INTEGRAL NETWORKING's unaudited balance sheet as of December 31, 1997
and INTEGRAL NETWORKING's unaudited income statement and cash flows for the year
then ended and INTEGRAL NETWORKING's unaudited balance sheet as of December 31,
1996 and INTEGRAL NETWORKING's unaudited income statement and cash flows for the
year then ended (collectively, the "INTEGRAL NETWORKING Financial Statements").
The INTEGRAL NETWORKING Financial Statements (a) are in accordance with the
books and records of INTEGRAL NETWORKING and (b) fairly and accurately represent
the financial condition of INTEGRAL NETWORKING in all material respects at the
respective dates specified therein and the results of operations for the
respective periods specified therein in conformity with generally accepted
accounting principles applied on a consistent basis (subject to normal year end
adjustments). Since the Balance Sheet Date, INTEGRAL NETWORKING has not incurred
any debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, except for those
incurred in the ordinary course of INTEGRAL NETWORKING's business, consistent
with past practice that are not material in amount either individually or
collectively.
2.8. Taxes. To INTEGRAL NETWORKING's knowledge, INTEGRAL
NETWORKING has filed all federal, state, local and foreign tax and material
information returns required to be filed prior to the date hereof, has paid all
taxes required to be paid in respect of all periods prior to the date hereof for
which returns have been filed, has made all necessary estimated tax payments,
and has no liability for taxes in excess of the amount so paid, except to the
extent adequate reserves have been established in the INTEGRAL NETWORKING
Financial Statements. True, correct and complete copies of all such tax and
information returns have been provided or made available by INTEGRAL NETWORKING
to CRL Network. To INTEGRAL NETWORKING's knowledge, INTEGRAL NETWORKING is not
delinquent in the payment of any tax or in the filing of any tax returns, and no
deficiencies for any tax have been threatened, claimed, proposed or assessed
which have not been settled or paid. No tax return of INTEGRAL NETWORKING has
ever been audited by the Internal Revenue Service or any state taxing agency or
authority. For the purposes of this Section 2.8, the terms "tax" and "taxes"
include all federal, state, local and foreign income, gains, franchise, excise,
property, sales, use, employment, license, payroll, occupation, recording, value
added or transfer taxes, governmental charges, fees, levies or assessments
(whether payable directly or by withholding), and, with respect to such taxes,
any estimated tax, interest and penalties or additions to tax and interest on
such penalties and additions to tax. Since its inception, INTEGRAL NETWORKING
has been a C Corporation. Such status will remain valid through the Closing
Date. All taxes arising by reason of such status (including, but not limited to,
the corporate level built in gain and capital gain taxes described in Section
1374 of the Code or a predecessor section of the Code) have been or will be paid
by INTEGRAL NETWORKING Shareholders no matter when assessed. INTEGRAL NETWORKING
has no current
5
<PAGE> 12
or deferred federal income tax liabilities and will not as a result of the
merger become liable for any income tax not adequately reserved against on the
Financial Statements. INTEGRAL NETWORKING has not filed a consent pursuant to
Section 341(f) of the Code. If INTEGRAL NETWORKING were to become subject to an
audit by the Internal Revenue Service or any state taxing agency or authority
for tax years or periods prior to the Effective Time (including, but not limited
to, any short tax year resulting from the Merger), the INTEGRAL NETWORKING
Shareholders will use all reasonable efforts to resolve all such audits in a
manner consistent with the intentions of INTEGRAL NETWORKING and CRL Network as
expressed in this Agreement.
2.9. Title to Properties. INTEGRAL NETWORKING has good title to
all of its material assets as shown on the balance sheet as of the Balance Sheet
Date included in the INTEGRAL NETWORKING Financial Statements, free and clear of
all liens, charges, encumbrances or restrictions (other than for taxes not yet
due and payable and Permitted Liens as defined below), other than such assets,
set forth on Item 2.9, as were sold by INTEGRAL NETWORKING in the ordinary
course of business since the Balance Sheet Date or which are subject to
capitalized leases. "Permitted Liens" means any lien, mortgage, encumbrance or
restriction which is not in excess of $1,000 and which does not materially
detract from the value or materially interfere with the use, as currently
utilized, of the properties subject thereto or affected thereby or otherwise
materially impair the business operations being conducted thereon. Except as set
forth in Item 2.9, there are no UCC financing statements of record with the
state of California naming INTEGRAL NETWORKING as debtor and INTEGRAL NETWORKING
owns no property in any other state. All machinery and equipment included in
such assets are in all material respects in good condition and repair, normal
wear and tear excepted, and all leases of real or personal property to which
INTEGRAL NETWORKING is a party are fully effective and afford INTEGRAL
NETWORKING peaceful and undisturbed possession of the subject matter of the
lease. INTEGRAL NETWORKING is not in violation of any material zoning, building,
safety or environmental ordinance, regulation or requirement or other law or
regulation applicable to the operation of owned or leased properties, and
INTEGRAL NETWORKING has not received any notice of such violation with which it
has not complied.
2.10. Absence of Certain Changes. Since the Balance Sheet Date,
INTEGRAL NETWORKING has carried on its business in the ordinary course
substantially in accordance with the procedures and practices in effect on the
Balance Sheet Date, and except as set forth in Item 2.10, since the Balance
Sheet Date there has not been with respect to INTEGRAL NETWORKING:
(a) any adverse change in the financial condition,
properties, assets, liabilities, business or results of operations of INTEGRAL
NETWORKING, which change by itself or in conjunction with all other such
changes, whether or not arising in the ordinary course of business, has had or
can reasonably be expected to have a material adverse effect on INTEGRAL
NETWORKING or its ability to conduct it's current Systems integration business
and its current remote monitoring service business.
(b) any contingent liability incurred by INTEGRAL
NETWORKING as guarantor or surety with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the
properties of INTEGRAL NETWORKING;
(d) any material obligation or liability incurred by
INTEGRAL NETWORKING other than in the ordinary course of business;
(e) any purchase or sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other disposition, of
any of the properties or assets of INTEGRAL NETWORKING other than in the
ordinary course of business;
(f) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties, assets
or business of INTEGRAL NETWORKING;
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(g) any declaration, setting aside or payment of any
dividend on, or the making of any other distribution in respect of, the capital
stock of INTEGRAL NETWORKING, any split, stock dividend, combination or
recapitalization of the capital stock of INTEGRAL NETWORKING or any direct or
indirect redemption, purchase or other acquisition by INTEGRAL NETWORKING of the
capital stock of INTEGRAL NETWORKING;
(h) any labor dispute or claim of material unfair labor
practices, any change in the compensation payable or to become payable to any of
INTEGRAL NETWORKING's officers, employees or agents earning compensation at an
anticipated annual rate in excess of $10,000, or any bonus payment or
arrangement made to or with any of such officers, employees or agents;
(i) any change with respect to the management,
supervisory, development or other employees of INTEGRAL NETWORKING (the
management, supervisory, development and other employees of INTEGRAL NETWORKING
are listed on Item 2.10(i) hereof); Key employees are: Mr. Robert Ross,
President, Michele Ross, James Rutherford, Ellen Fisher, Brian Hill, Russel
Pywtorak, Kristi Woehi, Ken Caldeira, Kevin Perrin, Kristen Burlin, Patrick
Merchant, Barry Quiel;
(j) any payment or discharge of a material lien or
liability thereof, which lien or liability was not either (i) shown on the
balance sheet as of the Balance Sheet Date included in the INTEGRAL NETWORKING
Financial Statements or (ii) incurred in the ordinary course of business after
the Balance Sheet Date; or
(k) any obligation or liability incurred by INTEGRAL
NETWORKING to any of its officers, directors or shareholders, or any loans or
advances made to any of its officers, directors, shareholders or affiliates,
except normal compensation and expense allowances payable to officers. (Integral
to provide information on Item 2.10)
2.11. Agreements and Commitments. Except as set forth in Item
2.11 delivered by INTEGRAL NETWORKING to CRL Network herewith, INTEGRAL
NETWORKING is not a party or subject to any oral or written executory agreement,
contract, obligation or commitment that is material to INTEGRAL NETWORKING, its
financial condition, business or prospects or which is described below and is
not terminable within 60 days without cost or penalty to INTEGRAL NETWORKING.
including but not limited to the following:
(a) Any contract, commitment, letter agreement, quotation
or purchase order providing for payments by or to INTEGRAL NETWORKING in an
aggregate amount of (i) $25,000 or more in the ordinary course of business or
(ii) $1,000 or more not in the ordinary course of business;
(b) Any license agreement under which INTEGRAL NETWORKING
is licensor (except for any nonexclusive software license granted by INTEGRAL
NETWORKING to end-user customers where the form of the license, excluding
standard immaterial deviations, has been provided to CRL Network's counsel); or
under which INTEGRAL NETWORKING is licensee (except for standard "shrink wrap"
licenses for off-the-shelf software products);
(c) Any agreement by INTEGRAL NETWORKING to encumber,
transfer or sell rights in or with respect to any INTEGRAL NETWORKING
Intellectual Property (as defined in Section 2.12 hereof);
(d) Any agreement for the sale or lease of real or
personal property involving more than $10,000 per year;
(e) Any dealer, distributor, sales representative,
original equipment manufacturer, value added reseller or other agreement for the
distribution of INTEGRAL NETWORKING's products;
(f) Any franchise agreement or financing statement.
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(g) Any stock redemption or purchase agreement;
(h) Any joint venture contract or arrangement or any other
agreement that involves a sharing of profits with other persons or the payment
of royalties to any other person;
(i) Any instrument evidencing indebtedness for borrowed
money by way of direct loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee or otherwise, except for trade indebtedness or any
advance to any employee of INTEGRAL NETWORKING incurred or made in the ordinary
course of business, and except as disclosed in the INTEGRAL NETWORKING Financial
Statements; or
(j) Any contract containing covenants purporting to limit
INTEGRAL NETWORKING's freedom to compete in any line of business in any
geographic area.
All agreements, contracts, obligations and commitments
listed in Item 2.11, Item 2.12, Item 2.15.3 or Item 2.15.6 as required by
Section 2.11, Section 2.12, Section 2.15.3 or Section 2.15.6, as the case may
be, are valid and in full force and effect, except as to the effect, if any, of
(a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies; and except as expressly noted, a
true and complete copy of each has been delivered to CRL Network or CRL
Network's counsel. Neither INTEGRAL NETWORKING nor, to the knowledge of INTEGRAL
NETWORKING, any other party is in breach of or default under any material term
of any such agreement, obligation or commitment. (Integral to provide
information)
2.12. Intellectual Property. To the best its knowledge INTEGRAL
NETWORKING owns all right, title and interest in, or has the right to use, sell
or license all patent applications, patents, trademark applications, trademarks,
service marks, trade names, copyright applications, copyrights, trade secrets,
know-how, technology, franchises, licenses, inventories, customer lists,
proprietary processes and formulae, all source and object code, algorithms,
architecture, structure, display screens, layouts, inventions, development tools
and all documentation and media constituting, describing or relating to the
above, including, without limitation, manuals, memoranda and records and other
intellectual property and proprietary rights used in or reasonably necessary or
required for the conduct of its business as presently conducted and the business
of the development, production, marketing, licensing and sale of commercial
products, , using such intellectual property and proprietary rights ("INTEGRAL
NETWORKING Intellectual Property"). INTEGRAL NETWORKING has taken all reasonable
measures to protect all INTEGRAL NETWORKING Intellectual Property, and INTEGRAL
NETWORKING is not aware of any infringement of any INTEGRAL NETWORKING
Intellectual Property by any third party. Set forth on Item 2.12 delivered to
CRL Network herewith is a true and complete list of all copyright, mask work and
trademark registrations and applications and all patents and patent applications
for INTEGRAL NETWORKING Intellectual Property owned by INTEGRAL NETWORKING.
INTEGRAL NETWORKING is not aware of any material loss, cancellation, termination
or expiration of any such registration or patent. To the best of its knowledge
the business of INTEGRAL NETWORKING as conducted as of the date hereof does not,
and the business of the development, production, marketing, licensing and sale
of commercial products using such intellectual property and proprietary rights
after the Effective Time will not cause INTEGRAL NETWORKING to, infringe or
violate any of the patents, trademarks, service marks, trade names, mask works,
copyrights, trade secrets, proprietary rights or other intellectual property of
any other person, and INTEGRAL NETWORKING has not received any written or oral
claim or notice of infringement or potential infringement of the intellectual
property of any other person. INTEGRAL NETWORKING has the unrestricted,
worldwide right to reproduce, manufacture, sell, license and distribute all of
its products (such products being set forth in Item 2.12) and the right to use
all of its registered user lists, and, to its knowledge, is not using any
confidential information or trade secrets of any former employer of any past or
present employees. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not constitute a
material breach of any instrument or agreement governing any INTEGRAL NETWORKING
Intellectual Property (the "INTEGRAL NETWORKING IP Rights Agreements"), will not
cause the forfeiture or termination or give rise to a right of forfeiture or
termination of any INTEGRAL NETWORKING Intellectual Property or materially
impair the right of INTEGRAL NETWORKING to use, sell or license any INTEGRAL
NETWORKING Intellectual Property or portion thereof There are no royalties,
honoraria, fees or other payments payable by INTEGRAL NETWORKING to any person
by reason of the ownership, use,
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license, sale or disposition of the INTEGRAL NETWORKING Intellectual Property
(other than as set forth in the INTEGRAL NETWORKING IP Rights Agreements listed
in Exhibit 2.12). Neither the manufacture, marketing, license, sale or intended
use of any product currently licensed or sold by INTEGRAL NETWORKING or
currently under development by INTEGRAL NETWORKING violates any license or
agreement between INTEGRAL NETWORKING and any third party. INTEGRAL NETWORKING
has taken reasonable and practicable steps designed to safeguard and maintain
the secrecy and confidentiality of, and its proprietary rights in, all material
INTEGRAL NETWORKING Intellectual Property. All officers, employees and
consultants of INTEGRAL NETWORKING have or will have executed and delivered to
INTEGRAL NETWORKING an agreement regarding the protection of proprietary
information and the assignment to INTEGRAL NETWORKING of all intellectual
property rights arising from the services performed for INTEGRAL NETWORKING by
such persons.
2.13. Compliance with Laws. To its knowledge, INTEGRAL NETWORKING
has complied, or prior to the Closing Date (as defined in Section 6.1 hereof)
will have complied, and is or will be at the Closing Date (as defined in Section
6.1 hereof) in full compliance, in all respects material to INTEGRAL NETWORKING,
with all applicable laws, ordinances, regulations and rules, and all orders,
writs, injunctions, awards, judgments and decrees of which it is aware,
applicable to INTEGRAL NETWORKING or to the assets, properties and business of
INTEGRAL NETWORKING, including, without limitation: (a) all applicable federal
and state securities laws and regulations, (b) all applicable federal, state and
local laws, ordinances and regulations, and all orders, writs, injunctions,
awards, judgments and decrees, pertaining to (i) the sale, licensing, leasing,
ownership or management of INTEGRAL NETWORKING's owned, leased or licensed real
or personal property, products or technical data, (ii) employment or employment
practices, terms and conditions of employment, or wages and hours and (iii)
safety, health, fire prevention, environmental protection (including toxic waste
disposal and related matters described in Section 2.21 hereof), building
standards, zoning or other similar matters, (c) the Export Administration Act
and regulations promulgated thereunder or other laws, regulations, rules,
orders, writs, injunctions, judgments or decrees applicable to the export or
re-export of controlled commodities or technical data and (d) the Immigration
Reform and Control Act. To its knowledge, INTEGRAL NETWORKING has received all
material permits and approvals from, and has made all filings with, third
parties, including government agencies and authorities, that are necessary to
the conduct of its business as presently conducted.
2.14. Certain Transactions and Agreements. No person who is an
officer, director or shareholder of INTEGRAL NETWORKING, or a member of any
officer's, director's or shareholder's immediate family, has any direct or
indirect ownership interest in or any employment or consulting agreement with
any firm or corporation that competes with INTEGRAL NETWORKING or CRL Network
(except with respect to any interest in less than 1% of the outstanding voting
shares of any corporation whose stock is publicly traded). No person who is an
officer, director or shareholder of INTEGRAL NETWORKING, or any member of any
officer's, director's or shareholder's immediate family, is directly or
indirectly interested in any material contract or informal arrangement with
INTEGRAL NETWORKING, including, but not limited to, any loan arrangements,
except for compensation for services as an officer, director or employee of
INTEGRAL NETWORKING as listed in Item 2.15.3. None of such officers, directors,
shareholders or family members has any interest in any property, real or
personal, tangible or intangible, including, without limitation, inventions,
patents, copyrights, trademarks, trade names or trade secrets, used in the
business of INTEGRAL NETWORKING, except for the normal rights of a shareholder.
2.15. Employees.
2.15.1.Except as set forth in Item 2.15.1, (i) INTEGRAL
NETWORKING has no employment contract or consulting agreement currently in
effect that is not terminable at will without penalty or payment of compensation
by INTEGRAL NETWORKING (other than agreements with the sole purpose of providing
for the confidentiality of proprietary information or assignment of inventions)
and (ii) all employees and consultants of INTEGRAL NETWORKING have or will have
executed INTEGRAL NETWORKING's standard form of assignments of copyright and
other intellectual property rights to INTEGRAL NETWORKING, copies of which have
been delivered to CRL Network and CRL Network's counsel. (Integral to provide
information)
2.15.2. INTEGRAL NETWORKING (a) has never been and is not
now subject to a union organizing effort, (b) is not subject to any collective
bargaining agreement with respect to any of its
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employees, (c) is not subject to any other contract, written or oral, with any
trade or labor union, employees' association or similar organization, and (d)
has no current labor dispute. INTEGRAL NETWORKING has good labor relations, and
INTEGRAL NETWORKING has no knowledge of any facts indicating that the
consummation of the transactions provided for herein will have a material
adverse effect on its labor relations, and has no knowledge that any of its key
employees (each of whom is listed on Item 2.10(i)) intends to leave its employ.
2.15.3.Item 2.15.3 delivered by INTEGRAL NETWORKING to CRL
Network herewith contains a list of all employment and consulting agreements,
pension, retirement, disability, medical, dental or other health plans, life
insurance or other death benefit plans, profit sharing, deferred compensation
agreements, stock, option, bonus or other incentive plans, vacation, sick,
holiday or other paid leave plans, severance plans or other similar employee
benefit plans maintained by INTEGRAL NETWORKING (the "Employee Plans"),
including without limitation all "employee benefit plans" as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). INTEGRAL NETWORKING has delivered true and complete copies or
descriptions of all the Employee Plans to CRL Network and CRL Network's counsel.
Each of the Employee Plans, and its operation and administration, is, in all
material respects, in compliance with all applicable, federal, state, local and
other governmental laws and ordinances, orders, rules and regulations, including
the requirements of ERISA and the Code. All such Employee Plans that are
"employee pension benefit plans" (as defined in Section 3(2) of ERISA) which are
intended to qualify under Section 401(a)(8) of the Code have received favorable
determination letters that such plans satisfy the qualification requirements of
the Tax Equity and Fiscal Responsibility Act of 1982, the Deficit Reduction Act
of 1984 and the Retirement Equity Act of 1984. In addition, INTEGRAL NETWORKING
has never been a participant in any "prohibited transaction," within the meaning
of Section 406 of ERISA with respect to any employee pension benefit plan (as
defined in Section 3(2) of ERISA) which INTEGRAL NETWORKING sponsors as employer
or in which INTEGRAL NETWORKING participates as an employer, which was not
otherwise exempt pursuant to Section 408 of ERISA (including any individual
exemption granted under Section 408(a) of ERISA), or which could result in an
excise tax under the Code. The group health plans, as defined in Section
4980B(g) of the Code, that benefit employees of INTEGRAL NETWORKING are in
material compliance with the continuation coverage requirements of subsection
4980B of the Code. There are no outstanding violations of Section 49 SOB of the
Code with respect to any Employee Plan, covered employees or qualified
beneficiaries. No employee of INTEGRAL NETWORKING and no person subject to any
INTEGRAL NETWORKING health plan has made medical claims through such health plan
during the twelve months preceding the date hereof for more than $10,000 in the
aggregate, or has any catastrophic illness.
2.15.4.To the knowledge of INTEGRAL NETWORKING, no
employee of INTEGRAL NETWORKING is in material violation of any term of any
employment contract, patent disclosure agreement or noncompetition agreement or
any other contract or agreement, or any restrictive covenant, relating to the
right of any such employee to be employed by INTEGRAL NETWORKING or to use trade
secrets or proprietary information of others, and the employment of any employee
of INTEGRAL NETWORKING does not subject INTEGRAL NETWORKING to any liability to
any third party.
2.15.5. Except as set forth in the INTEGRAL NETWORKING
Disclosure Letter, INTEGRAL NETWORKING is not a party to any (a) agreement with
any executive officer or other key employee of INTEGRAL NETWORKING (i) the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving INTEGRAL NETWORKING in the nature
of any of the transactions contemplated by this Agreement. the Certificate of
Merger and the Agreement of Merger, (ii) providing any term of employment or
compensation guarantee or (iii) providing severance benefits or other benefits
after the termination of employment of such employee regardless of the reason
for such termination of employment, or (b) agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be materially increased, or the
vesting of benefits of which will be materially accelerated, by the occurrence
of any of the transactions contemplated by this Agreement, the Certificate of
Merger and the Agreement of Merger or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by this
Agreement, the Certificate of Merger and the Agreement of Merger. INTEGRAL
NETWORKING is not obligated to make any excess parachute payment, as defined in
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Section 280G(b)(1) of the Code, nor will any excess parachute payment be deemed
to have occurred as a result of or arising out of the Merger to the extent
Section 280G of the Code is applicable to INTEGRAL NETWORKING.
2.15.6. A list of all employees, officers and development
consultants of INTEGRAL NETWORKING and their current compensation and benefits
as of the date of this Agreement is set forth on Item 2.15.6, which INTEGRAL
NETWORKING has delivered to CRL Network. See Item 2.10 section (i) for a list of
key employees.
2.15.7. All contributions due from INTEGRAL NETWORKING
with respect to any of the Employee Plans have been made or accrued on INTEGRAL
NETWORKING's financial statements, and no further contributions will be due or
will have accrued thereunder as of the Closing Date.
2.16. Corporate Documents. INTEGRAL NETWORKING has made available
to CRL Network for examination all documents and information listed in Items 2.1
through 2.22 or other exhibits called for by this Agreement which have been
requested by CRL Network's legal counsel, including, without limitation, the
following: (a) copies of INTEGRAL NETWORKING's Articles of Incorporation and
Bylaws as currently in effect; (b) INTEGRAL NETWORKING's minute book containing
all records of all proceedings, consents, actions and meetings of INTEGRAL
NETWORKING's directors, committees of the board of directors and shareholders;
(c) INTEGRAL NETWORKING's stock ledger, journal and other records reflecting all
stock issuances and transfers; and (d) all permits, orders and consents issued
by any regulatory agency with respect to INTEGRAL NETWORKING, or any securities
of INTEGRAL NETWORKING, and all applications for such permits, orders and
consents.
2.17. No Brokers. INTEGRAL NETWORKING is not obligated for the
payment of fees or expenses of any investment banker, broker or finder in
connection with the origin, negotiation or execution of this Agreement, the
Certificate of Merger or the Agreement of Merger or in connection with any
transaction provided for herein or therein.
2.18. Disclosure. This Agreement, its exhibits and schedules, and
any of the certificates or documents to be delivered by INTEGRAL NETWORKING to
CRL Network under this Agreement, taken together, do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained herein and therein, in light of the
circumstances under which such statements were made, not misleading.
2.19. Books and Records. The books, records and accounts of
INTEGRAL NETWORKING (a) are in all material respects true and complete, (b) have
been maintained in accordance with reasonable business practices on a basis
consistent with prior years, (c) are stated in reasonable detail and accurately
and fairly reflect the transactions and dispositions of the assets of INTEGRAL
NETWORKING and (d) accurately and fairly reflect the basis for the INTEGRAL
NETWORKING Financial Statements. INTEGRAL NETWORKING has devised and maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (a) transactions are executed in accordance with management's
general or specific authorization; (b) transactions are recorded as necessary
(i) to permit preparation of financial statements in conformity with generally
accepted accounting principles or any other criteria applicable to such
statements, and (ii) to maintain accountability for assets, and (c) the amount
recorded for assets on the books and records of INTEGRAL NETWORKING is compared
with the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
2.20. Insurance. INTEGRAL NETWORKING maintains fire and casualty,
workers compensation and general liability insurance as listed on Item 2.20
which it believes to be reasonably prudent for similarly sized and similarly
situated businesses.
2.21. Environmental Matters.
2.21.1. During the period that INTEGRAL NETWORKING has
leased the premises currently occupied by it and those premises occupied by it
since the date of its incorporation, INTEGRAL
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NETWORKING has not made and to its knowledge, there have been no disposals,
releases or threatened releases of Hazardous Materials (as defined below) on,
from or under any such premises that would have a material adverse effect upon
the business or financial statements of INTEGRAL NETWORKING. INTEGRAL NETWORKING
has no knowledge of any presence, disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such premises, which may have
occurred prior to INTEGRAL NETWORKING having taken possession of any of such
premises that would have a material adverse effect upon the business or
financial statements of INTEGRAL NETWORKING. For purposes of this Agreement, the
terms "disposal,." "release," and "threatened release" have the definitions
assigned thereto by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA").
For the purposes of this Agreement, "Hazardous Materials" mean any hazardous or
toxic substance, material or waste which is or becomes prior to the Closing Date
(as defined in Section 6.1 hereof) regulated under, or defined as a "hazardous
substance," "pollutant," "contaminant ""toxic chemical," "hazardous material,"
"toxic substance" or "hazardous chemical" under (i) CERCLA; (ii) the Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; (iii)
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.;
(iv) the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; (v) the
Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq.; (vi)
regulations promulgated under any of the above statutes; or (vii) any applicable
state or local. statute, ordinance, rule or regulation that has a scope or
purpose similar to those identified above.
2.21.2. During the time that INTEGRAL NETWORKING has
leased the premises, to its knowledge, none of the premises currently leased by
INTEGRAL NETWORKING or any premises previously occupied by INTEGRAL NETWORKING
is in violation of any federal, state or local law, ordinance, regulation or
order relating to industrial hygiene or to the environmental conditions in such
premises.
2.21.3. During the time that INTEGRAL NETWORKING has
leased the premises currently occupied by it or any premises previously occupied
by INTEGRAL NETWORKING, neither INTEGRAL NETWORKING nor, to INTEGRAL
NETWORKING's knowledge, any third party, has used, generated, manufactured or
stored in such premises or transported to or from such premises any Hazardous
Materials that would have a material adverse effect upon the business or
financial statements of INTEGRAL NETWORKING.
2.21.4. During the time that INTEGRAL NETWORKING has
leased the premises currently occupied by it or any premises previously occupied
by INTEGRAL NETWORKING, there has been no litigation, proceeding or
administrative action brought or threatened in writing against INTEGRAL
NETWORKING, or any settlement reached by INTEGRAL NETWORKING with, any party or
parties alleging the presence, disposal, release or threatened release of any
Hazardous Materials on, from or under any of such premises.
2.21.5. During the period that INTEGRAL NETWORKING has
leased the premises currently occupied by it or any premises previously occupied
by INTEGRAL NETWORKING, to its knowledge, no Hazardous Materials have been
transported from such premises to any site or facility now listed or proposed
for listing on the National Priorities List, at 40 C.F.R. Part 300, or any list
with a similar scope or purpose published by any state authority.
2.22. Government Contracts. All representations, certifications
and disclosures made by INTEGRAL NETWORKING to any Government Contract Party (as
defined below) have been in all material respects current, complete and accurate
at the times they were made There have been no acts, omissions or noncompliance
with regard to any applicable public contracting statute, regulation or contract
requirement (whether express or incorporated by reference) relating to any of
INTEGRAL NETWORKING's contracts with any Government Contract Party (as defined
below) in either case that have led to or could lead to, either before or after
the Closing Date (as defined in Section 6.1 hereof), (a) any claim or dispute
involving INTEGRAL NETWORKING and/or CRL Network as successor in interest to
INTEGRAL NETWORKING and any Government Contract Party or (b) any suspension,
debarrment or contract termination, or proceeding related thereto. There has
been no act or omission that relates to the marketing, licensing or selling to
any Government Contract Party (as defined below) of any of INTEGRAL NETWORKING
technical data and computer software and that has led to or could lead to,
either before or after the Closing Date (as defined in Section 6.1 hereof), any
material cloud on any of INTEGRAL NETWORKING's rights in and to its technical
data and computer software. All of INTEGRAL NETWORKING's
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business was developed exclusively at private expense. For purposes of this
Section 2.22, the term "Government Contract Party" means any independent or
executive agency, division, subdivision, audit group or procuring office of the
federal government, including any prime contractor of the federal government and
any higher level subcontractor of a prime contractor of the federal government,
and including any employees or agents thereof, in each case acting in such
capacity.
2.23. INTEGRAL NETWORKING Shareholders' Representations.
2.23.1. Information. Each of the INTEGRAL NETWORKING
Shareholders acknowledges that he or she has received, read and understands the
CRL Network Disclosure Package (as defined in Section 3.6 of this Agreement).
2.23.2. Access to Other Information. Each of the INTEGRAL
NETWORKING Shareholders recognizes that CRL Network has made available to such
INTEGRAL NETWORKING Shareholder the opportunity to examine such additional
documents from CRL Network and to ask questions of, and receive full answers
from, CRL Network concerning, among other things, CRL Network, its financial
condition, its management, its prior activities and any other information which
the INTEGRAL NETWORKING Shareholders consider relevant or appropriate in
connection with entering into this Agreement. Each of the INTEGRAL NETWORKING
Shareholders further represent that the oral information provided by CRL
Network's management, if any, has been consistent with the information set forth
in the CRL Network Disclosure Package.
2.23.3. Risks of Investment. Each of the INTEGRAL
NETWORKING Shareholders acknowledges that the shares of CRL Network Common Stock
issued in connection with the Merger (the "Restricted Securities") are
unregistered and may not be resold publicly for a period of one year under Rule
144 unless the shares are registered with the SEC. Each of the INTEGRAL
NETWORKING Shareholders accepts the risks of holding such shares indefinitely
and the other risks set forth in the CRL Network Disclosure Package. Each of the
INTEGRAL NETWORKING Shareholders, together with his or her advisors, is capable
of assessing the risks of an investment in CRL Network Common Stock and is fully
aware of the economic risks thereof Each of the INTEGRAL NETWORKING Shareholders
acknowledges that CRL Network's operating results have in the past and may in
the current period and in future periods not meet the expectations of securities
analysts and that failure to meets such expectations would be likely to have a
material adverse effect on the trading price of CRL Network Common Stock.
2.23.4. Investment Intent. Each of the INTEGRAL NETWORKING
Shareholders is receiving the Restricted Securities in the Merger for investment
for such INTEGRAL NETWORKING Shareholder's own account only and not with a view
to, or for resale in connection with, any "distribution" thereof within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
2.23.5. Restricted Securities. Each of the INTEGRAL
NETWORKING Shareholders acknowledges and understands that the terms of the
Merger have not been reviewed by the SEC or by any state securities authorities,
that the CRL Network Common Stock received by the INTEGRAL NETWORKING
Shareholder pursuant to the Merger has not been registered under the Securities
Act and constitutes "restricted securities" under Rule 144(d) of the Securities
Act, and has been issued in reliance on the exemptions for non-public offerings
provided by Rule 506 and Section 4(2) of the Securities Act, which exemptions
depend upon, among other things, the representations made and information
furnished by the INTEGRAL NETWORKING Shareholder, including the bona fide nature
of the INTEGRAL NETWORKING Shareholder's investment intent as expressed above.
2.23.6. Rule 144. Each of the INTEGRAL NETWORKING
Shareholders acknowledges that, the INTEGRAL NETWORKING Shareholder will not be
able to publicly sell the Restricted Securities until one or perhaps 2 years
after the Effective Date of the Merger. After that date, the INTEGRAL NETWORKING
Shareholder may sell the Restricted Securities under Rule 144 if there is a
market for such securities. Each of the INTEGRAL NETWORKING Shareholders is
familiar with the provisions of Rule 144 promulgated under the Securities Act
which permit limited public resale of "restricted securities," subject to the
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satisfaction of certain conditions. Each of the INTEGRAL NETWORKING Shareholders
understands that in the event all of the applicable requirements of Rule 144 are
not satisfied, registration under the Securities Act or some other exemption
from the registration requirements of the Securities Act will be required in
order to dispose of the Restricted Securities, and that such stockholder may be
required to hold his or her shares for a significant period of time prior to
reselling them.
2.23.7. Legends. Each of the INTEGRAL NETWORKING
Shareholders also understands and agrees that there will be placed on the
certificates evidencing the ownership of the Restricted Securities, the
following legends, in addition to any legends required by applicable state
laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
DISTRIBUTION THEREOF THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR
TRANSFERRED UNLESS THERE IS AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER
THAT (1) A REGISTRATION STATEMENT UNDER THE ACT (AND CURRENT PROSPECTUS) IS IN
EFFECT AS TO THE SECURITIES, (2) AN EXEMPTION THEREFROM IS AVAILABLE, OR (3) THE
SECURITIES ARE SOLD PURSUANT TO RULE 144 OF THE ACT.
2.23.8. Stop Transfer Instructions No Requirement to
Transfer. Each of the INTEGRAL NETWORKING Shareholders agrees that, in order to
ensure compliance with the restrictions referred to herein, CRL Network may
issue appropriate "stop transfer" instructions to its transfer agent. CRL
Network shall not be required (i) to transfer or have transferred on its books
any CRL Network Common Stock that has been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such CRL Network Common Stock or to accord the right to vote or pay dividends
to any purchaser or other transferee to whom such CRL Network Common Stock shall
have been so transferred in violation of any provision of this Agreement. CRL
Network agrees that such stop transfer instructions and legends will be promptly
removed if the provisions of the Securities Act are complied with.
2.23.9. No Intention to Transfer. Each of the INTEGRAL
NETWORKING Shareholders has no current plan or intention to engage in a sale,
exchange, transfer, distribution, redemption or reduction in any way of the
INTEGRAL NETWORKING Shareholder's risk of ownership by short sale or otherwise,
or other disposition, directly or indirectly, of more than fifty percent of any
of the CRL Network Common Stock to be received by such INTEGRAL NETWORKING
Shareholder in the Merger.
2.23.10. Accuracy of Information. All information that
each of the INTEGRAL NETWORKING Shareholders provides to CRL Network hereunder
concerning such INTEGRAL NETWORKING Shareholder's financial position and
knowledge of financial and business matters is correct and complete as of the
date set forth above.
2.23.11. Ability to Bear Economic Risk. Whether or not
each of the INTEGRAL NETWORKING Shareholders is an "accredited" investor, each
of the INTEGRAL NETWORKING Shareholders represents that he or she (i) is able to
bear the economic risk of the INTEGRAL NETWORKING Shareholder's investment, (ii)
is able to hold the Restricted Securities for an indefinite period of time,
(iii) can afford a complete loss of the INTEGRAL NETWORKING Shareholder's
investment in the Restricted Securities and (iv) has adequate means of providing
for the INTEGRAL NETWORKING Shareholder's current needs and possible personal
contingencies and has no need for liquidity in this investment.
2.23.12. No Public Solicitation. Each of the INTEGRAL
NETWORKING Shareholders represents that at no time was such INTEGRAL NETWORKING
Shareholder presented with or solicited by any general mailing, leaflet, public
promotional meeting, newspaper or magazine article, radio or television
advertisement, or any other form of general advertising or general solicitation
in connection with the Merger.
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3. REPRESENTATIONS AND WARRANTIES OF CRL NETWORK
CRL Network hereby represents and warrants, that, except as set forth on
the CRL Network disclosure letter delivered to INTEGRAL NETWORKING herewith:
3.1. Organization and Good Standing. CRL Network is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has the corporate power and authority to own, operate
and lease its properties and to carry on its business as now conducted and as
proposed to be conducted.
3.2. Power, Authorization and Validity.
3.2.1. CRL Network has the corporate right, power, legal
capacity and authority to enter into and perform its obligations under this
Agreement, and all agreements to which CRL Network is or will be a party that
are required to be executed pursuant to this Agreement (the "CRL Network
Ancillary Agreements"). The execution, delivery and performance of this
Agreement and the CRL Network Ancillary Agreements have been duly and validly
approved and authorized by CRL Network's sole Director.
3.2.2. No filing, authorization or approval, governmental
or otherwise, is necessary to enable CRL Network to enter into, and to perform
its obligations under, this Agreement and the CRL Network Ancillary Agreements,
except for (a) the filing of the Certificate of Merger and the Agreement of
Merger with the Delaware and California Secretaries of State, respectively, the
filing of such officers' certificates and other documents as are required to
effectuate the Merger under Delaware and California law and the filing of
appropriate documents with the relevant authorities of other states in which CRL
Network is qualified to do business, if any, and (b) such post-closing filings
as may be required to comply with federal and state securities laws.
3.2.3. This Agreement and the CRL Network Ancillary
Agreements are, or when executed by CRL Network will be, valid and binding
obligations of CRL Network, enforceable against CRL Network in accordance with
their respective terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
and (b) rules of law governing specific performance, injunctive relief and other
equitable remedies; provided, however, that the Certificate of Merger, the
Agreement of Merger and the CRL Network Ancillary Agreements will not be
effective until the earlier of the Effective Time or the date provided for
therein.
3.3. No Violation of Certificate. Existing Agreements or Laws.
Neither the execution nor delivery of this Agreement or any CRL Network
Ancillary Agreement, nor the consummation of the transactions contemplated
hereby or thereby, will conflict with, or (with or without notice or lapse of
time, or both) result in a termination, breach, impairment or violation of (a)
any provision of the Certificate of Incorporation or Bylaws of CRL Network, as
currently in effect, or (b) in any material respect, any contract that is
material to CRL Network's business or (c) any federal, state, local or foreign
judgment, writ, decree, order, statute or regulation applicable to and that
would have a material adverse effect on CRL Network or its assets or properties.
3.4. Litigation. Except as set forth in the CRL Network
Disclosure Package, there is no action, proceeding or investigation pending or,
to CRL Network's actual knowledge, threatened against CRL Network before any
court or administrative agency that, if determined adversely to CRL Network, may
reasonably be expected to have a material adverse effect on the present or
future operations or financial condition of CRL Network.
3.5. Absence of Certain Changes. Since September 30, 1998, except
as set forth in Item 3.5 of the CRL Network Disclosure Letter, there has not
been any change in the financial condition, properties, assets, liabilities,
business or results of operations of CRL Network, which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had or can reasonably be expected to have a material
adverse effect on CRL Network or its ability to develop or market its network
and internet services.
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3.6. Disclosure. CRL Network has furnished INTEGRAL NETWORKING
with its annual report for the fiscal year 1997, which was approved by its
auditors, and unaudited financial reports for the year to-date period October
31, 1998 and other information as requested by INTEGRAL NETWORKING as follows:
General Business Description, Stock Split verification, list of CRL Facilities
(Leased/Collocation) with rentable square footage, 1996 Deloitte & Touche Audit
Report, 1997 Deloitte & Touche Audit Report, Current year income statement and
balance sheet (unaudited), Example of employee contract, Example of current
commission program, Fax Cover Letter stating N/A on Legal Section (the "CRL
Network Disclosure Package"). The CRL Network Disclosure Package, this
Agreement, the exhibits and schedules hereto, and any certificates or documents
to be delivered to INTEGRAL NETWORKING pursuant to this Agreement, when taken
together, do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which such statements
were made, not misleading.
3.7. The authorized number of CRL common shares is 200,000,000
and the number outstanding prior to the Closing is 55,632,000.
3.8. No Brokers. CRL is not obligated for the payment of fees or
expenses of any investment banker, broker or finder in connection with the
origin, negotiation or execution of this Agreement, the Certificate of Merger or
the Agreement of Merger or in connection with any transaction provided for
herein or therein.
4. INTEGRAL NETWORKING PRECLOSING COVENANTS
During the period from the date of this Agreement until the Effective
Time, INTEGRAL NETWORKING covenants to and agrees with CRL Network as follows:
4.1. Advice of Changes. INTEGRAL NETWORKING will promptly advise
CRL Network in writing, to the extent of the knowledge of INTEGRAL NETWORKING's
President, , (a) of any event occurring subsequent to the date of this Agreement
that would render any representation or warranty of INTEGRAL NETWORKING
contained in this Agreement, if made on or as of the date of such event or the
Closing Date (as defined in Section 6.1 hereof), untrue or inaccurate in any
material respect and ~) of any material adverse change in INTEGRAL NETWORKING's
financial condition, properties, assets, liabilities, business, results of
operations or prospects.
4.2. Maintenance of Business. The parties hereto understand and
acknowledge that it is their intent to work closely together during the period
from the date hereof until the Closing Date (as defined in Section 6.1 hereof).
if INTEGRAL NETWORKING becomes aware of a material deterioration in the
relationship with any material customer, supplier or key employee, it will
promptly bring such information to the attention of CRL Network in writing and
if requested by CRL Network, will exert all reasonable efforts to restore the
relationship.
4.3. Conduct of Business. INTEGRAL NETWORKING will not, without
the prior written consent of the President of CRL Network, not to be
unreasonably withheld:
(a) borrow any money;
(b) enter into any transaction not in the ordinary course
of business or enter into any transaction or make any commitment involving an
expense of INTEGRAL NETWORKING or capital expenditure by INTEGRAL NETWORKING in
excess of $10,000;
(c) encumber or permit to be encumbered any of its assets
except in the ordinary course of its business consistent with past practice and
to an extent which is not material;
(d) dispose of any of its material assets except in the
ordinary course of business consistent with past practice;
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(e) enter into any material lease or contract for the
purchase or sale of any property, real or personal, tangible or intangible,
except in the ordinary course of business consistent with past practice or enter
into any agreement of the types described in Section 2.11;
(f) fail to maintain its equipment and other assets in
good working condition and repair according to the standards it has maintained
to the date of this Agreement, subject only to ordinary wear and tear;
(g) pay any bonus, royalty, increased salary or special
remuneration to any officer, employee or consultant (except pursuant to existing
arrangements heretofore disclosed in writing to CRL Network) or enter into any
new employment or consulting agreement with any such person, or enter into any
new agreement or plan of the type described in Section 2.15.3;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend
or other distribution in respect of capital stock, or redeem or otherwise
acquire any of its capital stock, except as set forth on Item 4.3(i);
(j) amend or terminate any contract, agreement or license
to which it is a party except those amended or terminated in the ordinary course
of business, consistent with past practice, and which are not material in amount
or effect;
(k) lend any amount to any person or entity, other than
advances for travel and expenses which are incurred in the ordinary course of
business consistent with past practice, not material in amount, which travel and
expenses shall be documented by receipts for the claimed amounts;
(1) guarantee or act as a surety for any obligation except
for the endorsement of checks and other negotiable instruments in the ordinary
course of business, consistent with past practice which are not material in
amount;
(m) waive or release any material right or claim except in
the ordinary course of business consistent with past practice;
(n) issue or sell any shares of its capital stock of any
class or any other of its securities, or issue or create any warrants,
obligations, subscriptions, options, convertible securities, stock appreciation
rights or other commitments to issue shares of capital stock, or accelerate the
vesting of any outstanding option or other security;
(o) split or combine the outstanding shares of its capital
stock of any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other of
its securities;
(p) except for the Merger, merge, consolidate or
reorganize with, or acquire any entity;
(q) amend its Articles of Incorporation or Bylaws;
(r) agree to any audit assessment by any tax authority or
file any federal or state income or franchise tax return unless copies of such
returns have been delivered to CRL Network for its review prior to filing;
(s) license any of INTEGRAL NETWORKING's technology or any
of the INTEGRAL NETWORKING Intellectual Property, except in the ordinary course
of business consistent with past practice;
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(t) change any insurance coverage or issue any
certificates of insurance;
(u) terminate the employment of any employee listed in
Item 2.10(i); or
(v) agree to do any of the things described in the
preceding clauses 4.3(a) through 4.3(u).
4.4. Certain Agreements. INTEGRAL NETWORKING will cause all
present employees and consultants of INTEGRAL NETWORKING who have not previously
executed INTEGRAL NETWORKING's forms of assignments of copyright and other
intellectual property rights to INTEGRAL NETWORKING to execute such forms,
copies of which are attached hereto as Exhibit 4.4.
4.5. Regulatory Approvals. INTEGRAL NETWORKING will execute and
file, or join in the execution and filing, of any application or other document
that may be reasonably necessary in order to obtain the authorization, approval
or consent of any governmental body, federal, state, local or foreign, which may
be reasonably required, or which CRL Network may reasonably request, in
connection with the consummation of the transactions provided for in this
Agreement. INTEGRAL NETWORKING will use all reasonable efforts to obtain or
assist CRL Network in obtaining all such authorizations, approvals and consents.
4.6. Necessary Consents. INTEGRAL NETWORKING will use its best
efforts to obtain such written consents and take such other actions as may be
necessary or appropriate for INTEGRAL NETWORKING, in addition to those set forth
in Section 4.5, to facilitate and allow the consummation of the transactions
provided for herein and to facilitate and allow CRL Network to carry on INTEGRAL
NETWORKING's business after the Closing Date (as defined in Section 6.1 hereof).
4.7. Litigation. INTEGRAL NETWORKING will notify CRL Network in
writing promptly after learning of any action, suit, proceeding or investigation
by or before any court, board or governmental agency, initiated by or against
INTEGRAL NETWORKING or threatened against it.
4.8. No Other Negotiations. From the date hereof until the
termination of this Agreement (provided such termination is not in breach of
this Agreement) or the consummation of the Merger, INTEGRAL NETWORKING will not,
and will not authorize any officer, director, employee or affiliate of INTEGRAL
NETWORKING, or any other person, on its behalf, directly or indirectly, to (a)
solicit, facilitate, discuss or encourage any offer, inquiry or proposal
received from any party other than CRL Network, concerning the possible
disposition of all or any substantial portion of INTEGRAL NETWORKING's business,
assets or capital stock by merger, sale or any other means or to otherwise
solicit, facilitate, discuss or encourage any such disposition (other than the
Merger), or (b) provide any confidential information to or negotiate with any
third party other than CRL Network in connection with any offer, inquiry or
proposal concerning any such disposition. INTEGRAL NETWORKING will immediately
notify CRL Network of any such offer, inquiry or proposal
4.9. Access to Information. Until the Closing Date (as defined in
Section 6.1 hereof) and subject to the terms and conditions hereof relating to
the confidentiality and use of confidential and proprietary information,
INTEGRAL NETWORKING will provide CRL Network and its agents with reasonable
access to the files, books, records and offices of INTEGRAL NETWORKING,
including, without limitation, any and all information relating to INTEGRAL
NETWORKING taxes, commitments, contracts, leases, licenses, real, personal and
intangible property, and financial condition, and specifically including,
without limitation, access to INTEGRAL NETWORKING records reasonably necessary
for CRL Network to complete its diligence review of the INTEGRAL NETWORKING
products and technology. INTEGRAL NETWORKING will cause its accountants to
cooperate with CRL Network and its agents in making available all financial
information reasonably requested, including without limitation the right to
examine all working papers pertaining to all financial statements prepared or
audited by such accountants.
4.10. Satisfaction of Conditions Precedent. INTEGRAL NETWORKING
will use all reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Section 8, and
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<PAGE> 25
INTEGRAL NETWORKING will use all reasonable efforts to cause the transactions
provided for in this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to, third parties
that may be necessary or reasonably required on its part in order to effect the
transactions provided for herein.
4.11. Blue Sky Laws. INTEGRAL NETWORKING shall use its best
efforts to assist CRL Network to the extent necessary to comply with the
securities and Blue Sky laws of all jurisdictions applicable in connection with
the Merger.
4.12. Notification of Employee Problems. INTEGRAL NETWORKING will
promptly notify CRL Network if any of INTEGRAL NETWORKING's officers becomes
aware that any of the employees listed in Item 2.10(i) intends to leave its
employ.
4.13. INTEGRAL NETWORKING Affiliates Agreements. To ensure that
the Merger will be accounted for as a "pooling of interests, " INTEGRAL
NETWORKING will cause its affiliates to sign and deliver to CRL Network a
written agreement (the "INTEGRAL NETWORKING Affiliates Agreement"),
substantially in the form of Exhibit 4.13 providing that such person will make
no disposition (a) of INTEGRAL NETWORKING Common Stock in the 10-day period
prior to the Effective Time or (b) of CRL Network Common Stock after the
Effective Time until CRL Network shall have publicly released a report including
the combined financial results of CRL Network, Sub and INTEGRAL NETWORKING for a
period of at least 30 days of combined operations.
5. CRL NETWORK PRECLOSING COVENANTS
During the period from the date of this Agreement until the Effective
Time, CRL Network covenants to and agrees with INTEGRAL NETWORKING as follows:
5.1. Regulatory Approvals. CRL Network will execute and file, or
join in the execution and filing, of any application or other document that may
be necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which INTEGRAL NETWORKING may reasonably request, in connection
with the consummation of the transactions provided for in this Agreement. CRL
Network will use all reasonable efforts to obtain all such authorizations,
approvals and consents.
5.2. Satisfaction of Conditions Precedent. CRL Network will use
all reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 7, and CRL Network will use all
reasonable efforts to cause the transactions provided for in this Agreement to
be consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions provided for herein.
5.3. Blue Sky Laws. CRL Network shall use its best efforts to
assist INTEGRAL NETWORKING to the extent necessary to comply with the securities
and Blue Sky laws of all jurisdictions applicable in connection with the Merger.
5.4. Advice of Changes. CRL Network will promptly advise INTEGRAL
NETWORKING in writing, to the extent of the knowledge of CRL Network's
President, (a) of any event occurring subsequent to the date of this Agreement
that would render any representation or warranty of CRL Network contained in
this Agreement, if made on or as of the date of such event or the Closing Date
(as defined in Section 6.1 hereof), untrue or inaccurate in any material respect
and (b) of any material adverse change in CRL Network's financial condition,
properties, assets, liabilities, business, results of operations or prospects.
5.5. Litigation. CRL Network will notify' INTEGRAL NETWORKING in
writing promptly after learning of any action, suit, proceeding or investigation
by or before any court, board or governmental agency, initiated by or against
CRL Network or threatened against it.
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<PAGE> 26
5.6. CRL Network Affiliates Agreements. To ensure that the Merger
will be accounted for as a "pooling of interests," CRL Network will cause its
affiliates to sign and deliver to CRL Network a written agreement (the "CRL
Network Affiliates Agreement"), substantially in the form of Exhibit 5.5
providing that such person will make no disposition of CRL Network Common Stock
(a) in the 30 day period prior to the Effective Time or (b) after the Effective
Time until CRL Network shall have released a report including the combined
financial results of CRL Network, Sub and INTEGRAL NETWORKING for a period of at
least 30 days of combined operations.
6. CLOSING MATTERS
6.1. The Closing. Subject to termination of this Agreement as
provided in Section 9 below, the closing of the transactions provided for herein
(the "Closing") will take place at the offices of INTEGRAL NETWORKING, at 1 ;00
PM., Pacific Time on or before December 21 , 1998, or, if all conditions to
Closing have not been satisfied or waived by such date, such other place, time
and date as INTEGRAL NETWORKING and CRL Network may mutually select (the
"Closing Date"). Prior to or concurrently with the Closing, the Certificate of
Merger, the Agreement of Merger and such officers' certificates or other
documents as may be required to effectuate the Merger will be filed in the
offices of the California and Delaware Secretaries of State, as appropriate.
Accordingly, the Merger will become effective at the Effective Time.
6.2. Exchange of Certificates.
6.2.1. As of the Effective Time, all shares of INTEGRAL
NETWORKING Common Stock that are outstanding immediately prior thereto will; by
virtue of the Merger and without further action, cease to exist, and all such
shares will be converted into the right to receive from CRL Network the number
of shares of CRL Network Common Stock and cash determined as set forth in
Section 1.1, subject to Section 1.2 hereof
6.2.2. At and after the Effective Time, each certificate
representing outstanding shares of INTEGRAL NETWORKING Common Stock will
represent the number of shares of CRL Network Common Stock into which such
shares of INTEGRAL NETWORKING Common Stock have been converted, and such shares
of CRL Network Common Stock will be deemed registered in the name of the holder
of such certificate. As soon as practicable after the Effective Time, each
holder of shares of INTEGRAL NETWORKING Common Stock will surrender (a) the
certificates for such shares (the "INTEGRAL NETWORKING Certificates") to CRL
Network for cancellation or (b) an affidavit of lost certificate (or nonissued)
and a bond in form reasonably satisfactory to CRL Network (a "Bond"). Promptly
following the Effective Time and receipt of the INTEGRAL NETWORKING Certificates
and/or the Bonds, CRL Network will cause its transfer agent to issue to such
surrendering holder certificate(s) for the number of shares of CRL Network
Common Stock to which such holder is entitled pursuant to Section 1.1, subject
to Section 1.2 hereof, less the Escrow Shares deposited into escrow pursuant to
Section 1.3 hereto, and CRL Network will distribute any cash payable under
Section 1.2.
6.2.3. All shares of CRL Network Common Stock (and, if
applicable, cash in lieu of fractional shares) delivered upon the surrender of
INTEGRAL NETWORKING Certificates in accordance with the terms hereof will be
delivered to the registered holder or placed in escrow with the Escrow Agent, as
applicable. After the Effective Time, there will be no further registration of
transfers of the shares of INTEGRAL NETWORKING Common Stock on the stock
transfer books of INTEGRAL NETWORKING. If, after the Effective Time, INTEGRAL
NETWORKING Certificates are presented for transfer or for any other reason, they
will be canceled and exchanged and certificates therefor will be delivered or
placed in escrow as provided in this Section 6.2. Notwithstanding anything
herein to the contrary, except to the extent waived by CRL Network, any INTEGRAL
NETWORKING Certificate that is not properly submitted to CRL Network for
exchange and cancellation within three years after the Effective Time shall no
longer evidence ownership of or any right to receive shares of CRL Network
Common Stock and all rights of the holder of such INTEGRAL NETWORKING
Certificate, with respect to the shares previously evidenced by such INTEGRAL
NETWORKING Certificate, shall cease.
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6.2.4. Until INTEGRAL NETWORKING Certificates representing
INTEGRAL NETWORKING Common Stock outstanding prior to the Merger are surrendered
pursuant to Section 6.2.2 above, such certificates will be deemed, for all
purposes, to evidence ownership of (a) the number of shares of CRL Network
Common Stock into which the shares of INTEGRAL NETWORKING Common Stock will have
been converted, subject to the obligation to place a portion thereof in escrow
as required hereby, and (b) if applicable, cash in lieu of fractional shares.
7. CONDITIONS TO OBLIGATIONS OF INTEGRAL NETWORKING
INTEGRAL NETWORKING's obligations hereunder are subject to the
fulfillment or satisfaction, on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by INTEGRAL NETWORKING, but
only in a writing signed on behalf of INTEGRAL NETWORKING by its President):
7.1. Accuracy of Representations and Warranties. The
representations and warranties of CRL Network set forth in Section 3 shall be
true and accurate in every material respect on and as of the Closing Date with
the same force and effect as if they had been made at the Closing, and INTEGRAL
NETWORKING shall have received a certificate to such effect executed on behalf
of CRL Network by its President.
7.2. Covenants. CRL Network shall have performed and complied in
all material respects with all of its covenants contained in Section 5 on or
before the Closing Date, and INTEGRAL NETWORKING shall have received a
certificate to such effect executed on behalf of CRL Network by its President.
7.3. Compliance with Law. There shall be no order, decree, or
ruling by any court or governmental agency or threat thereof, or any other fact
or circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
7.4. Government Consents. There shall have been obtained at or
prior to the Closing Date such permits or authorizations, and there hsall have
been taken such other actions, as may be required to consummate the Merger by
any regulatory authority having jurisdiction over the parties and the actions
herein proposed to be taken, including but not limited to satisfaction of all
requirements under applicable federal and state securities laws.
7.5. Documents. INTEGRAL NETWORKING shall have received all
written consents, assignments, waivers, authorizations or other certificates
reasonably deemed necessary by INTEGRAL NETWORKING's legal counsel to consummate
the transactions provided for herein.
7.6. No Litigation. No litigation or proceeding shall be pending
which will have the probable effect of enjoining or preventing the consummation
of any of the transactions provided for in this Agreement. No litigation or
proceeding shall be pending which could reasonably be expected to have a
material adverse effect on the financial condition or results of operations of
CRL Network that has not been previously disclosed to INTEGRAL NETWORKING
herein.
7.7. Satisfactory Form of Legal and Accounting Matters. The form,
scope and substance of all legal and accounting matters contemplated hereby and
all closing documents and other papers delivered hereunder shall be reasonably
acceptable to INTEGRAL NETWORKING's counsel.
8. CONDITIONS TO OBLIGATIONS OF CRL NETWORK
The obligations of CRL Network hereunder are subject to the fulfillment
or satisfaction on, and as of the Closing, of each of the following conditions
(any one or more of which may be waived by CRL Network, but only in a writing
signed on behalf of CRL Network by its President or Chief Financial Officer):
8.1. Accuracy of Representations and Warranties. The
representations and warranties of INTEGRAL NETWORKING set forth in Section 2
shall be true and complete in all material respects as of the
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<PAGE> 28
Closing with the same force and effect as if they had been made at the Closing,
and CRL Network shall have received a certificate to such effect executed on
behalf of INTEGRAL NETWORKING by its President.
8.2. Covenants. INTEGRAL NETWORKING shall have performed and
complied in all material respects with all of its covenants contained in Section
4 on or before the Closing and CRL Network shall have received a certificate to
such effect signed on behalf of INTEGRAL NETWORKING by its President.
8.3. Absence of Material Adverse Change. There shall not have
been, in the reasonable judgment of the Director of CRL Network, any material
adverse change in the business or financial condition of INTEGRAL NETWORKING.
8.4. Compliance with Law. There shall be no order, decree, or
ruling by any court or governmental agency or threat thereof, or any other fact
or circumstance, which would prohibit or render illegal the transactions
provided for in this Agreement.
8.5. Government Consents. There shall have been obtained at or
prior to the Closing Date such permits or authorizations, and there shall have
been taken such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to satisfaction of all
requirements under applicable federal and state securities laws.
8.6. Documents. CRL Network shall have received all written
consents, assignments, waivers, authorizations or other certificates reasonably
deemed necessary by CRL Network's legal counsel to provide for the continuation
in full force and effect of any and all material contracts and leases of
INTEGRAL NETWORKING, except as disclosed in the INTEGRAL NETWORKING Disclosure
Letter, and for CRL Network to consummate the transactions contemplated hereby.
8.7. No Litigation. No litigation or proceeding shall be pending
which will have the probable effect of enjoining or preventing the consummation
of any of the transactions provided for in this Agreement. No litigation or
proceeding shall be pending which could reasonably be expected to have a
material adverse effect on the financial condition or results of operations of
INTEGRAL NETWORKING that has not been previously disclosed to CRL Network
herein.
8.8. Intentionally deleted.
8.9. Requisite Approvals. The principal terms of this Agreement,
the Certificate of Merger and the Agreement of Merger shall have been
unanimously approved and adopted by the written consent or vote of all the
INTEGRAL NETWORKING Shareholders.
8.10. Escrow. CRL Network shall have received the Escrow
Agreement, substantially in the form attached hereto as Exhibit C, executed by
the INTEGRAL NETWORKING Shareholders, which agreement provides for the escrow of
the Escrow Shares on the terms and conditions of the Escrow Agreement.
8.11. Employment and Noncompetition Agreements. Mr. Robert Ross
will have executed and delivered to CRL Network an Employment Agreement
substantially in the form attached as Exhibit B 1, and Mr. Robert Ross will have
executed and delivered to CRL Network a Noncompetition Agreement substantially
in the form attached as Exhibit B2, which agreements will become effective upon
the Effective Time of the Merger.
8.12. Termination of Rights. Any registration rights, rights of
refusal, rights to any liquidation preference, or redemption rights of any
INTEGRAL NETWORKING Shareholder shall have been terminated or waived as of the
Closing.
8.13. Resignation of Directors. The directors of INTEGRAL
NETWORKING in office immediately prior to the Effective Time of the Merger shall
have resigned as directors of INTEGRAL NETWORKING effective as of the Effective
Time of the Merger.
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8.14. Satisfactory Form of Legal and Accounting Matters. The
form, scope and substance of all legal and accounting matters contemplated
hereby and all closing documents and other papers delivered hereunder shall be
reasonably acceptable to CRL Network's counsel.
9. TERMINATION OF AGREEMENT
9.1. Termination. This Agreement may be terminated at any time
prior to the Closing, whether before or after approval of the Merger by the
shareholders of INTEGRAL NETWORKING:
(a) by the mutual written consent of CRL Network and
INTEGRAL NETWORKING;
(b) Unless otherwise specifically provided herein or
agreed in writing by CRL Network and INTEGRAL NETWORKING, upon notice by either
party, this Agreement will be terminated if all the conditions to Closing have
not been satisfied or waived on or before December 31 , 1998 (the "Final Date")
other than as a result of a breach of this Agreement by the terminating party,
or a breach by any of the affiliates of the terminating party of the Affiliate
Agreements.
(c) by INTEGRAL NETWORKING, if there has been a breach by
CRL Network of any representation, warranty, covenant or agreement set forth in
this Agreement on the part of CRL Network, or if any representation of CRL
Network will have become untrue, in either case which has or can reasonably be
expected to have a material adverse effect on CRL Network and which CRL Network
fails to cure within a reasonable time, not to exceed fifteen (15) days, after
written notice thereof (except that no cure period will be provided for a breach
by CRL Network which by its nature cannot be cured);
(d) by CRL Network, if there has been a breach by INTEGRAL
NETWORKING of any representation, warranty, covenant or agreement set forth in
this Agreement on the part of INTEGRAL NETWORKING, or if any representation of
INTEGRAL NETWORKING will have become untrue, in either case which has or can
reasonably be expected to have a material adverse effect on INTEGRAL NETWORKING
and which INTEGRAL NETWORKING fails to cure within a reasonable time not to
exceed fifteen (15) days after written notice thereof (except that no cure
period will be provided for a breach by INTEGRAL NETWORKING which by its nature
cannot be cured); or
(e) by either party, if a permanent injunction or other
order by any Federal or state court which would make illegal or otherwise
restrain or prohibit the consummation of the Merger will have been issued and
will have become final and nonappealable.
Any termination of this Agreement under this Section 9.1 will be
effective by the delivery of written notice of the terminating party to the
other party hereto.
9.2. Certain Continuing Obligations. Following any termination of
this Agreement pursuant to this Section 9, the parties hereto will continue to
perform their respective obligations under Section 11 but will not be required
to continue to perform their other covenants under this Agreement.
10. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES,
CONTINUING COVENANTS
10.1. Survival of Representations.
10.1.1. Representations of INTEGRAL NETWORKING and the
INTEGRAL NETWORKING Shareholders. All representations, warranties and covenants
of INTEGRAL NETWORKING and the INTEGRAL NETWORKING Shareholders contained in
this Agreement will remain operative and in full force and effect (but only as
of the date they were made and as of the date of Closing) after the Closing,
regardless of any investigation made by or on behalf of the parties to this
Agreement; provided, however, that no claim for violations
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of (i) representations and warranties and covenants contained in Sections 2.3
and 2.12 shall be made unless CRL Network gives written notice to INTEGRAL
NETWORKING on or prior to twelve months after the Closing and (ii)
representations and warranties other than those in Sections 2.3 and 2.12 shall
be made unless CRL Network gives written notice to INTEGRAL NETWORKING on or
prior to the 365-day after the Close Date. The applicable date after which
claims are barred under this Section 10.1.1 shall be referred to as the
"Applicable Expiration Date." Except for the obligations of INTEGRAL NETWORKING
and the INTEGRAL NETWORKING Shareholders under Section 11 below, the
representations, warranties and covenants of INTEGRAL NETWORKING and the
INTEGRAL NETWORKING Shareholders contained in this Agreement will terminate as
of the termination of this Agreement in accordance with its terms.
10.1.2.Representations of CRL Network. Except for CRL
Network's obligations pursuant to Section 11 below, CRL Network's
representations, warranties and covenants contained in this Agreement will
terminate as of the termination of this Agreement in accordance with its terms
or twelve 12 months after the Closing.
10.2. INTEGRAL NETWORKING Agreement to Indemnify.
10.2.1.Indemnification by INTEGRAL NETWORKING
Shareholders. Subject to the limitations set forth in this Section 10.2, the
INTEGRAL NETWORKING Shareholders will indemnify' and hold harmless CRL Network
and its respective officers, directors, agents and employees, and each person,
if any, who controls or may control CRL Network within the meaning of the
Securities Act (hereinafter in this Section 10.2 referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons") from and against
any and all claims, demands, actions, causes of action, losses, costs, damages,
liabilities and expenses including, without limitation, reasonable legal fees
(collectively, "Damages"):
(a) Arising Out of any misrepresentation or breach of
or default in connection with any of the representations, warranties or
covenants to be performed pre or post-closing given or made by INTEGRAL
NETWORKING or the INTEGRAL NETWORKING Shareholders in this Agreement or any
document delivered by INTEGRAL NETWORKING or by one of the INTEGRAL NETWORKING
Shareholders pursuant hereto; or
(b) Resulting from any failure of any INTEGRAL
NETWORKING Shareholder to have good, valid and marketable title to the issued
and outstanding INTEGRAL NETWORKING capital stock held by such shareholders,
free and clear of all liens, claims, pledges, options, adverse claims,
assessments or charges of any nature whatsoever, or to have all right, capacity
and authority to vote such INTEGRAL NETWORKING capital stock in favor of the
Merger and the other transactions contemplated by the Certificate of Merger and
the Agreement of Merger.
In seeking indemnification for Damages under this Section,
the Indemnified Persons shall make no claim for Damages unless and until such
Damages aggregate at least S-1,000, in which event such Indemnified Person may
make claims for all Damages, at their option, and in their sole discretion, and
exercise their remedies first with respect to the Escrow Shares and any other
assets deposited in escrow pursuant to the Escrow Agreement. Each INTEGRAL
NETWORKING Shareholder shall be liable only for that portion of Damages as
corresponds to his pro-rata share of the consideration received in the Merger,
with each share of CRL Network Common Stock being received in the Merger being
valued at $_1.15_____.
10.2.2.Survival of Claims. Notwithstanding anything to the
contrary, if, prior to the expiration of a particular representation or
warranty, an Indemnified Person makes a claim for indemnification under either
this Agreement or the Escrow Agreement with respect to a misrepresentation or
breach of such representation or warranty, then the Indemnified Person's rights
to indemnification under this Section 10.2 for such claim shall survive any
expiration of such representation or warranty.
10.2.3 Indemnification Procedures. Mr. Robert L. Ross
shall act as representative of the INTEGRAL NETWORKING Shareholders (the
"Representative") for purposes of the Escrow Agreement and
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<PAGE> 31
the indemnification provisions of this Section 10.2, is duly authorized to be
such Representative and may bind the INTEGRAL NETWORKING Shareholders. Promptly
after the receipt by CRL Network of notice or discovery of any claim, damage or
legal action or proceeding giving rise to indemnification rights under this
Agreement, CRL Network will give the Representative and the Escrow Agent written
notice of such claim, damage, legal action or proceeding (a "Claim") in
accordance with Section 3 of the Escrow Agreement. CRL Network may assert a
claim at any time prior to the Applicable Expiration Date. Within ten days of
delivery of such written notice, the Representative may, at the expense of the
INTEGRAL NETWORKING Shareholders, elect to take all necessary steps properly to
contest any Claim involving third parties or to prosecute such Claim to
conclusion or settlement satisfactory to the Representative. If the
Representative makes the foregoing election, CRL Network will have the right to
participate at its own expense in all proceedings. If the Representative does
not make such election, CRL Network shall be free to handle the prosecution or
defense of any such Claim, will take all necessary steps to contest the Claim
involving third parties or to prosecute such Claim to conclusion or settlement
satisfactory to CRL Network, and will notify the Representative of the progress
of any such Claim, will permit the Representative, at the sole cost of the
Representative, to participate in such prosecution or defense and will provide
the Representative with reasonable access to all relevant information and
documentation relating to the Claim and CRL Network's prosecution or defense
thereof. In any case, the party not in control of the Claim will cooperate with
the other party in the conduct of the prosecution or defense of such Claim.
Neither party will compromise or settle any such Claim without the written
consent of either CRL Network (if the Representative defends the Claim) or the
Representative (if CRL Network defends the Claim), such consent not to be
unreasonably withheld.
(a) The Representative shall have the power to act
with respect to all transactions contemplated by this Agreement, and to act for
the INTEGRAL NETWORKING Shareholders in connection with any dispute, litigation
or arbitration involving this Agreement, and to do or refrain from doing all
such further acts and things, and execute all such documents as the
Representative shall deem necessary or appropriate in connection with
transactions contemplated by this Agreement, including without limitation, the
power (i) to act for the INTEGRAL NETWORKING Shareholders with regard to matters
pertaining to the indemnification referred to in this Agreement, including the
power to compromise any claim on behalf of the INTEGRAL NETWORKING Shareholders
and to transact matters of litigation; (ii) to consummate any transactions
contemplated by the Escrow Agreement; (iii) to do or refrain from doing any
further act or deed on behalf of the INTEGRAL NETWORKING Shareholders which the
Representative deems necessary or appropriate in his sole discretion relating to
the subject matter of this Agreement, as fully and completely as each INTEGRAL
NETWORKING Shareholder could do if personally present; and (iv) to receive all
notices and service of process on behalf of the INTEGRAL NETWORKING Shareholders
in connection with any claims or matters under this Agreement;
(b) The Representative or any successor
Representative shall have the power to substitute any other INTEGRAL NETWORKING
Shareholder as a successor Representative hereunder. In the event that the
Representative is unable to perform his duties hereunder and unable to
substitute a successor Representative by reason of the death or incapacity of
the Representative and no substitute Representative has previously been
appointed, a substitute Representative shall be appointed by INTEGRAL NETWORKING
Shareholders holding a majority of the voting power of the shares of INTEGRAL
NETWORKING as of the date of this Agreement.
(c) The Representative shall act for the INTEGRAL
NETWORKING Shareholders on all matters set forth in this Agreement in a manner
the Representative believes to be in the best interests of the INTEGRAL
NETWORKING Shareholders and consistent with his obligations under this
Agreement, but the Representative shall not be responsible to the INTEGRAL
NETWORKING Shareholders for any loss or damages the INTEGRAL NETWORKING
Shareholders may suffer by reason of the performance by the Representative of
his duties under the Agreement, other than loss or damage arising from willful
violation of the law or gross negligence in the performance of his duties under
this Agreement. The INTEGRAL NETWORKING Shareholders agree, jointly and
severally, to indemnify' and hold harmless the Representative for any loss or
damage arising from the performance of his duties as Representative hereunder,
including, without limitation, the cost of any accounting firm or legal counsel
retained by the Representative on behalf of the INTEGRAL
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<PAGE> 32
NETWORKING Shareholders, but excluding any loss or damage arising from willful
violation of the law or gross negligence in the performance of his duties under
this Agreement.
(d) All actions, decisions and instructions of the
Representative taken, made or given pursuant to the authority granted to the
Representative hereunder shall be conclusive and binding upon all of the
INTEGRAL NETWORKING Shareholders and no INTEGRAL NETWORKING Shareholder shall
have the right to object, dissent, protest or otherwise contest the same. CRL
Network hereby acknowledges that the Representative may with respect to any
particular action, decision or instruction. solicit the consent of the INTEGRAL
NETWORKING Shareholders before acting.
(e) The provisions of this Section are independent
and severable, shall constitute an irrevocable power of attorney coupled with an
interest and shall be binding upon the executors, heirs, legal representatives,
successors and assigns of each INTEGRAL NETWORKING Shareholder.
10.2.4.Subrogation. In the event that the INTEGRAL
NETWORKING Shareholders shall be obligated to indemnify any Indemnified Person
pursuant to this Agreement, the INTEGRAL NETWORKING Shareholders shall, upon
payment of such indemnity in full, be surrogated to all rights of such
Indemnified Person with respect to the claim to which such indemnification
relates.
10.2.5.CRL will execute an agreement to indemnify Integral
Networking and the Shareholders from damages caused by a breach of CRL Network's
representations and warranties herein, which agreement shall not in any way be
in excess of 10%, of the Consideration, or of a term greater than one year, or
adversely affect the pooling in any way.
11. MISCELLANEOUS
11.1. Governing Law. Dispute Resolution. The internal laws of the
State of California (irrespective of its choice of law principles) will govern
the validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
The parties agree that the rights duties and obligations hereunder shall be
governed and construed in accordance with the laws of the State of California
without giving effect to the principles of conflicts of laws thereof Each of the
parties hereto irrevocably and unconditionally submit for itself and its
property, to the normal jurisdiction of the California Supreme Court, San
Francisco County, or the United States District Court for the Northern District
of California, and any appellate court thereof.
11.2. Assignment; Binding Upon Successors and Assigns. Neither
party hereto may assign any of its rights or obligations hereunder without the
prior written consent of the other party hereto. This Agreement will be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.3. Severability. If any provision of this Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
11.4. Counterparts. This Agreement may be executed in
counterparts, each of which will be an original as regards any party whose name
appears thereon and all of which together will constitute one and the same
instrument. This Agreement will become binding when one or more counterparts
hereof, individually or taken together, bear the signatures of all parties
reflected hereon as signatories.
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<PAGE> 33
11.5. Other Remedies. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy will not preclude the exercise
of any other.
11.6. Amendment and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only by a writing signed by the party to be bound thereby.
The waiver by a party of any breach hereof or default in the performance hereof
will not be deemed to constitute a waiver of any other default or any succeeding
breach or default. This Agreement may be amended by the parties hereto at any
time before or after approval of the INTEGRAL NETWORKING Shareholders.
11.7. No Waiver. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. The waiver by any party of the
right to enforce any of the provisions hereof on any occasion will not be
construed to be a waiver of the right of such party to enforce such provision on
any other occasion.
11.8. Expenses. Each parry will bear its respective expenses and
fees of its own accountants, attorneys, investment bankers and other
professionals incurred with respect to this Agreement and the transactions
contemplated hereby. If the Merger is consummated, the INTEGRAL NETWORKING
Shareholders will pay at or immediately before the Closing the accounting and
attorneys fees and expenses and other fees and expenses incurred by INTEGRAL
NETWORKING and the INTEGRAL NETWORKING Shareholders in connection with the
Merger, and neither CRL Network nor INTEGRAL NETWORKING will be responsible for
such fees and expenses.
11.9. Notices. Any notice or other communication required or
permitted to be given under this Agreement will be in writing, will be delivered
personally or by mail or express delivery, postage prepaid, and will be deemed
given upon actual delivery or, if mailed by registered or certified mail, on the
third business day following deposit in the mails, addressed as follows:
(i) If to CRL Network
CRL Network Services, Inc.
One Kearney Street
San Francisco, CA 94107
Attention:. Jim Couch, Chief Executive Officer
with a copy to:
Fenwick & West LLP Two Palo Alto Square
Palo Alto, CA 94306
Attention:. Jacqueline A. Daunt
Phone:.(415) 858-7232
Fax:. (415)494-1417
(ii) If to INTEGRAL NETWORKING
Integral Networking Corporation
2706 Mercantile Drive
Rancho Cordova, CA 95742
Attn:. Mr. Robert L. Ross, President
with a copy to:
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<PAGE> 34
Gary L Bradus
Weintraub, Genshlea & Sproul
400 Capitol Mall
11th Floor
Sacramento, CA 95814
Phone: (916) 558-6000
Fax: (916) 446-1611
or to such other address as the party in question may have furnished to the
other party by written notice given in accordance with this Section 11.9.
11.10. Construction of Agreement. The language hereof will not be
construed for or against either party. A reference to an article, section or
exhibit will mean an article or section in, or an exhibit to, this Agreement,
unless otherwise explicitly set forth. The titles and headings in this Agreement
are for reference purposes only and will not in any manner limit the
construction of this Agreement. For the purposes of such construction, this
Agreement will be considered as a whole.
11.11. No Joint Venture. Nothing contained in this Agreement will
be deemed or construed as creating a joint venture or partnership between the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other, and the parties'
status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party will have any power or
authority to bind or commit any other. No party will hold itself out as having
any authority or relationship in contravention of this Section.
11.12. Further Assurances. Each party agrees to cooperate fully
with the other parry and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by the other party to evidence and reflect the transactions provided
for herein and to carry into effect the intent of this Agreement.
11.13. Absence of Third Party Beneficiary Rights. No provisions
of this Agreement are intended, nor will be interpreted, to provide or create
any third parry beneficiary rights or any other rights of any kind in any
client, customer, affiliate, partner or employee of any party hereto or any
other person or entity, unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely between the
parties to this Agreement.
11.14. Public Announcement. CRL Network and INTEGRAL NETWORKING
will issue a press release approved by both parties announcing the Merger as
soon as practicable following the execution of this Agreement. Thereafter, CRL
Network may issue such press releases, and make such other disclosures regarding
the Merger, as it determines to be required or appropriate under applicable
securities laws or NASD for Nasdaq Stock Market rules. INTEGRAL NETWORKING will
not make any other public announcement or disclosure of the transactions
contemplated by this Agreement. INTEGRAL NETWORKING will take all reasonable
precautions to prevent any trading in the securities of CRL Network by officers,
directors, employees and agents of INTEGRAL NETWORKING having knowledge of any
material information regarding CRL Network provided hereunder until the
information in question has been publicly disclosed.
11.15. Confidentiality. Except as expressly authorized by CRL
Network in writing, INTEGRAL NETWORKING will not directly or indirectly divulge
to any person or entity or use any CRL Network Confidential Information, except
as required for the performance of its duties under this Agreement. Except as
expressly authorized by INTEGRAL NETWORKING in writing, CRL Network will not
directly or indirectly divulge to any person or entity or use any INTEGRAL
NETWORKING Confidential Information, except as required for the performance of
its duties under this Agreement. As used herein, "CRL Network Confidential
Information" consists of (a) any information designated by CRL Network as
confidential whether developed by CRL Network or disclosed to CRL Network by a
third party, (b) the source code to any CRL Network software and any trade
secrets relating to any of the foregoing, and (c) any information relating to
CRL Network's product plans,
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<PAGE> 35
product designs, product costs, product prices, product names, finances,
marketing plans, business opportunities, personnel, research development or
know-how. As used herein, "INTEGRAL NETWORKING Confidential Information"
consists of (x) any information designated by INTEGRAL NETWORKING as
confidential whether developed by INTEGRAL NETWORKING or disclosed to INTEGRAL
NETWORKING by a third party, (y) the source code to any INTEGRAL NETWORKING
software, and any trade secrets related to any of the foregoing, and (z) any
information relating to INTEGRAL NETWORKING product plans, product designs,
product costs, product prices, product names, finances, marketing plan, business
opportunities, personnel, research, development or know-how. "CRL Network
Confidential Information" and "INTEGRAL NETWORKING Confidential Information"
also include the terms and conditions of this Agreement, except as disclosed in
accordance with Section 11.14 above. The foregoing restriction will apply to
information about a party whether or not it was obtained from such party's
employees, acquired or developed by the other party during such other party's
performance under this Agreement, or otherwise learned. The foregoing
restrictions will not apply to information that (i) has become publicly known
through no wrongful act of the receiving party, (ii) has been rightfully
received from a third party authorized by the party which is the owner, creator
or compiler to make such disclosure without restriction, (iii) has been approved
or released by written authorization of the party which is the owner, creator or
compiler, or (iv) is being or has theretofore been disclosed pursuant to a valid
court order after a reasonable attempt has been made to notify the party which
is the owner, creator or compiler.
11.16. Time is of the Essence. The parties hereto acknowledge and
agree that time is of the essence in connection with the execution, delivery and
performance of this Agreement, and that they will each utilize their best
efforts to satisfy all the conditions to Closing on or before December 31 ,
1998.
11.17. Entire Agreement. This Agreement, the exhibits hereto and
the accompanying letter from CRL Network regarding INTEGRAL NETWORKING employees
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect to the subject matter hereof
The express terms hereof control and supersede any course of performance or
usage of trade inconsistent with any of the terms hereof.
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<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
<TABLE>
<S> <C>
CRL NETWORK SERVICES, INC. INTEGRAL NETWORKING CORPORATION
By:/S/ James Couch By:/S/ Robert L. Ross
-------------------------------------- --------------------------------------
James Couch, Chief Executive Officer Robert L. Ross, President and
Chief Executive Officer
RMS SUB INC. SHAREHOLDERS OF INTEGRAL NETWORKING
(with respect to Articles 2, 10 and 11 only)
By:/S/ James Couch /S/ Robert L. Ross
-------------------------------------- -----------------------------------------
James Couch, Chief Executive Officer
Jim Linstruth By:
-----------------------------------------
/S/ Robert L. Ross
-----------------------------------------
Judy Linstruth By:
-----------------------------------------
/S/ Robert L. Ross
-----------------------------------------
</TABLE>
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
30
<PAGE> 1
EXHIBIT 10.32
U.S. SIMPLY BUSINESS PREMIUM LINE AGREEMENT
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$50,000 09-02-1997 USBP 4343557621 81508
- -------------- ------------ ---------- -------- --------- ------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item
- --------------------------------------------------------------------------------
BORROWER: INTEGRAL NETWORK CORPORATION LENDER: U.S. BANK
2706 MERCANTILE DR. BUSINESS BANKING FINANCE CENTER
RANCHO CORDOVA, CA 95742 980 9TH STREET, SUITE 1100
SACRAMENTO, CA 95814
================================================================================
The general terms and conditions applicable to Borrower's U.S. Simply Business
Premium Line are described in the U.S. Simply Business Premium Line Terms and
Conditions (Terms and Conditions") which have been provided to Borrower. This
Agreement includes additional terms which are applicable to Borrower's Loans
with Lender. Except as otherwise defined herein, capitalized terms shall have
the meanings assigned to such terms in the Terms and Conditions.
1. CREDIT LIMIT. The maximum principal amount outstanding at any one time
under the U.S. Simply Business Premium Line, including the Variable Rate
Amount and all Fixed Rate Loans, shall not exceed an aggregate amount
equal to $50,000.00 (as such amount may be changed from time to time,
the "Credit Limit").
2. PROMISE TO PAY. Borrower promises to pay to the order of Lender, in
accordance with the terms of this Agreement and the Terms and
Conditions, a principal amount equal to the Credit Limit or so much
thereof as may be outstanding, together with interest as set forth in
this Agreement. If Borrower is granted an increase in the Credit Limit
at any time, Borrower also promises to pay that amount to the order of
Lender.
3. VARIABLE RATE LOANS.
a. VARIABLE INTEREST RATE. Interest shall accrue on the Variable
Rate Amount at a variable per annum interest rate (the "Variable
Interest Rate") equal to (i) the Prime Rate plus 2.5000% if
payments on the Variable Rate Amount are being paid by automatic
debit from Borrower's business account with Lender or another
U.S. Bank affiliated with Lender; or (ii) the Prime Rate plus
3.0000% if payments On the Variable Rate Amount are not being
paid by automatic debit from Borrower's business account with
Lender or another U.S. Bank affiliated with Lender.
b. PAYMENT SCHEDULE.
(i) Subject to Section 3(b)(iii), interest on the Variable
Rate Amount shall be paid on the 5th day of October and on
the same day of each month thereafter and on any day when
payment of the entire outstanding balance of the Variable
Rate Amount becomes due.
(ii) Subject 10 Section 3(b)(iii), the Variable Rate Principal
Payment shall be paid on the 5th day of October and on the
same day of each month thereafter. The Variable Rate
Principal Payment is an amount equal to the sum of the
Current Principal Payment plus any past due principal
amount. The Current Principal Payment Amount is the
greater of (A) 1.25% of the outstanding principal balance
of the Variable Rate Amount minus any past due principal
amount, or (B) $250.00.
<PAGE> 2
(iii) If the U.S. Simply Business Premium Line is cancelled, unless an
Event of Default has occurred, the principal balance of the
Variable Rate Amount outstanding on the date of cancellation
shall be automatically converted to a Fixed Rate Loan bearing
interest at the Fixed Interest Rate in effect on such date. On
the day of each month specified in Section 3(b)(i), beginning on
the first such date to occur following the cancellation date and
on the same day of each month thereafter, Borrower shall repay
such Fixed Rate Loan in 59 approximately equal installments of
principal and interest, each in an amount sufficient to amortize
the balance of principal and interest over a 5-year term and in
one final payment of all then outstanding principal and
interest.
4. FIXED RATE LOANS.
a. FIXED INTEREST RATE. Interest shall accrue on each Fixed Rate
Loan at a rate equal to the applicable Fixed Interest Rate. The
Fixed Interest Rate for any Fixed Rate Loan is a per annum
interest rate equal to the Prime Rate, as in effect on the date
such Fixed Rate Loan is made, plus (i) 3.0000% if payments on
the Fixed Rate Loans are being paid by automatic debit from
Borrower's business account with Lender or another U.S. Bank
affiliated with Lender and (ii) 3.5000% if payments on the Fixed
Rate Loan are not being paid by automatic debit from Borrower's
business account with Lender or another U.S. Bank affiliated
with Lender. Although different Fixed Rate Loans may bear
different interest rates, unless the Default Rate is applicable,
the interest rate for any individual Fixed Rate Loan will not
change during the term of such Fixed Rate Loan.
b. PAYMENT SCHEDULE. Each month, on the payment due date
established by Borrower, beginning with the month following the
month in which any Fixed Rate Loan is made, Borrower shall repay
each Fixed Rate Loan in approximately equal installments of
principal and interest, each in an amount sufficient to fully
amortize the balance of principal and interest of the Fixed Rate
Loan over the amortization period selected by Borrower;
provided, however, that the then outstanding balance of
principal and interest of each Fixed Rate Loan shall be due and
payable in full at the end of the amortization period for such
Fixed Rate Loan.
c. ADDITIONAL INTEREST PAYMENTS. In addition to the payments set
forth in Section 4b, upon the date of conversion of any Fixed
Rate Loan to another Fixed Rate Loan, Borrower shall pay to
Lender all interest accrued to the date of conversion.
d. AMORTIZATION. Borrower may select an amortization period of from
12 to 60 months for each Fixed Rate Loan.
5. LOAN FEES. Borrower shall pay such fees as Lender establishes from time
to time, including without limitation the following:
a. SET-UP FEE. A onetime non-refundable set-up fee in an amount
equal to $375.00. The set-up fee is payable on the date this
Agreement is signed. Unless otherwise requested by Borrower, the
set-up fee will be deemed to be a Variable Rate Loan made on such
date.
b. ANNUAL FEE. In advance, a non-refundable annual Loan Fee in an
amount equal to $150.00, payable on each anniversary of the date
of this Agreement.
c. CREDIT LIMIT INCREASE FEE. In connection with any increase in
the Credit Limit, a fee in an amount equal to 1% of the
increase, subject to a minimum fee of $350.00.
2
<PAGE> 3
6. DEFAULT RATE. Upon the occurrence of an Event of Default, Lender may, at
its option, increase the interest rate applicable to the Variable Rate
Amount and each Fixed Rate Loan, by 5% per annum ("Default Rate").
However, the interest rate will not exceed the maximum rate permitted by
applicable law.
7. LATE CHARGE. If any payment is 15 days or mere past due, Borrower will
be charged a late charge of 5% of the delinquent payment.
8. CREDIT REVIEW. Lender may, from time to time and at any time, review
Borrower's and each Guarantor's creditworthiness and the basis for
Lender's credit accommodations to Borrower. In connection with any such
review, Borrower will furnish and will cause any Guarantor to furnish
Lender with any information regarding Borrower's or any Guarantor's
financial condition and business operations which Lender requests. This
may include, but is not limited to, financial statements, tax returns,
lists of assets and liabilities, agings of accounts receivable and
payable, inventory schedules, equipment lists, budgets and forecasts.
Without prejudice to Lender's rights at any time to decline to make any
requested Loan, to cancel the U.S. Simply Business Premium Line, and to
reduce the Credit Limit, if Lender determines that there has been a
material adverse change in the financial condition of Borrower or any
Guarantor or if any other Event of Default has occurred, Lender may, at
its option, exercise any of the default remedies available to Lender.
9. AUTHORIZATIONS. Borrower may change the following information by
executing and delivering a Change of Authorization to Lender.
a. AUTHORIZED PERSONS. Any one of the following persons is
authorized to request Loans: Robert L. Ross and Michelle L.
Lincoln.
b. DEPOSIT OF NEW ADVANCES. Lender is authorized to deposit new
advances to Account No. N/A at U.S. Bank.
c. AUTOMATIC DEBIT. Lender is authorized to automatically deduct
from Account No. 895-0007-677 at U.S. Bank, Transit Routing No.
121122676, all required principal and interest payments on the
Variable Rate Amount and each Fixed Rate Loan and all fees.
d. AUTOMATIC CASH TRANSFERS. Lender is authorized to make automatic
cash transfers from Borrower's U.S. Simply Business Premium Line
to Account No. N/A at U.S. Bank.
10. TERMS AND CONDITIONS. Borrower acknowledges receipt of a copy of the
Terms and Conditions and agrees to be bound by all provisions thereof.
Lender may change this Agreement or the Terms and Conditions by giving
notice to Borrower as set forth in the Terms and Conditions and Borrower
shall be bound by all such changes. All provisions of the Terms and
Conditions and any amendments and replacements are incorporated herein.
11. GOVERNING LAW. Except to the extent Lender has greater rights or
remedies under federal law, this Agreement and other Loan Documents
shall be governed by and construed and enforced in accordance with the
laws of the State of California without regard to conflicts of law
principles.
12. ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in
nature, arising from this Agreement, the other Loan Documents, or
otherwise, including without limitation contract and tort disputes,
shall be arbitrated pursuant to the Rules of the American Arbitration
Association, upon request of either party. No act to take or dispose of
3
<PAGE> 4
any collateral securing the U.S. Simply Business Premium Line shall
constitute a waiver of this arbitration agreement or be prohibited by
this arbitration agreement. This includes, without limitation, obtaining
injunctive relief or a temporary restraining order; foreclosing by
notice and sale under any deed of trust or mortgage; obtaining a writ of
attachment or imposition of a receiver, or exercising any rights
relating to personal property, including taking or disposing of such
property with or without judicial process pursuant to Article 9 of the
Uniform Commercial Code. Any disputes, claims or controversies
concerning the lawfulness or reasonableness of any act, or exercise of
any right, concerning any collateral securing the U.S. Simply Business
Premium Line, including any claim to rescind, reform, or otherwise
modify any agreement relating to such collateral, shall also be
arbitrated, provided, however, that no arbitrator shall have the right
or the power to enjoin or restrain any act of any party. Judgment upon
any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Agreement shall preclude any party from
seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party
shall be applicable in any arbitration proceeding, and the commencement
of an arbitration proceeding shall be deemed commencement of an action
for these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.
13. SECURITY. All present and future amounts owing to Lender, including
without limitation amounts owing under this Agreement and the other Loan
Documents shall be secured by a security interest in all of Borrower's
now owned and hereafter acquired inventory, equipment, accounts, chattel
paper, documents, instruments and general intangibles and all products
and proceeds thereof ("Collateral"). The Collateral shall at all times
have a fair market value in an amount acceptable to Lender. Borrower
shall from time to time take such actions and execute and deliver to
Lender such security agreements, financing statements and other
documents as Lender may require to grant, preserve, perfect, protect and
continue the validity and priority of Lender's security interests in the
Collateral (collectively, "Security Documents"). Lender's security
interest shall be of a priority acceptable to Lender.
BORROWER ACKNOWLEDGES RECEIPT OF A COPY OF THIS AGREEMENT.
THIS AGREEMENT IS DATED AS OF SEPTEMBER 2, 1997.
BORROWER:
INTEGRAL NETWORKING CORPORATION
BY: /S/ ROBERT L. ROSS BY: /S/ MICHELLE L. LINCOLN
------------------------- -----------------------
ROBERT L. ROSS, PRESIDENT MICHELLE L. LINCOLN,
CORPORATE SECRETARY
LENDER:
U.S. BANK
BY: /S/ ILLEGIBLE
---------------------
AUTHORIZED OFFICER
4
<PAGE> 1
EXHIBIT 10.33
AIRPLANE LEASING AGREEMENT
This Airplane Leasing Agreement (the "Agreement") is entered into on
February 15th, 1999, by and between CRL Network Services, Inc., a California
corporation ("Customer"), and FBN Holding Corp., a Delaware corporation (the
"Company").
RECITALS
Whereas, the Company has, from time to time, leased a Cessna Citation I
aircraft, serial # 500-107, U.S. Registration N79RS (the "Airplane") owned by
the Company to Customer for various transportation needs of Customer, and in
return therefor, Customer has paid the Company's hourly lease rate as in effect
from time-to-time;
Whereas, the Company and Customer desire to set forth the terms and
conditions of such arrangement in this Agreement;
Now, therefore, in consideration of the foregoing recitals, the terms
and conditions set forth herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. LEASE OF AIRPLANE. For so long as the Company shall own and operate
the Airplane, and during such periods of time as the Airplane may be available
for use as determined by the Company, the Company agrees to the non-exclusive
lease of the Airplane to Customer on the terms and conditions set forth in this
Agreement. If Customer desires to lease the Airplane, Customer shall contact the
Company and inquire about its availability. If the Airplane is available during
the period requested, the Company shall make the Airplane available to Customer.
For such use, Customer shall pay to the Company the hourly rate that shall then
be in effect for each hour that the Airplane in flight; provided, however, that
such hourly rate shall be the lowest hourly rate offered by the Company to any
third party (other than Customer) during the preceding three months. Subject to
the proviso of the immediately preceding sentence, the Company may change the
hourly rate upon thirty (30) days prior written notice to the Company. Any
amounts due by Customer shall be paid within thirty (30) days following the
completion of each use of the Airplane by Customer. The Company's lease of the
Airplane shall be on an all inclusive "wet" basis, meaning that the hourly rate
constitutes the entire payment to be made by Customer for its use of the
Airplane and all gasoline used by Customer shall be supplied by the Company.
2. TERMINATION. This Agreement may be terminated at any time by either
party upon fifteen (15) days prior written notice to the other party.
3. NO OBLIGATION ON CUSTOMER TO LEASE AIRPLANE. Nothing set forth herein
shall create any obligation on the part of the Company to lease the Airplane.
Without limiting the generality of the foregoing, the Company shall be free at
any time to lease any other airplanes or arrange any other form of
transportation it may elect in any and all circumstances. If
<PAGE> 2
Customer shall elect to lease the Airplane, Customer shall have no obligation to
lease the Airplane for any minimum period of time.
4. REPRESENTATIONS. Each party represents and warrants that this
Agreement has been duly and validly executed and delivered by such party, and
that this Agreement constitutes the valid and binding obligation of such party,
enforceable in accordance with its terms.
5. INSURANCE. The Company shall maintain at all times both hull and
liability insurance coverage with respect to the Airplane in amounts customary
for similar craft.
6. INDEMNIFICATION. Customer shall indemnify the Company against any
loss of or damage to the Airplane and any liability arising out of or in
connection with Customer's negligence or misconduct in connection with the
operation or use of the Airplane, reasonable wear and tear accepted.
7. USE. Customer shall use the Airplane in conformance with all
requirements of state and federal statutes and regulations, and in conformance
with the limitations set forth in the insurance coverage described in Section 5
of this Agreement. Customer agrees to land the Airplane only at established
airports except as a precautionary or emergency measure, and to allow only
licensed and qualified pilots to fly the Airplane. Customer shall not pledge,
loan, mortgage, sublet or part with the possession of the Airplane or permit any
liens to be incurred upon the Airplane during the periods of time Customer that
leases the Airplane pursuant to this Agreement.
8. MAINTENANCE. During the periods of time that Customer leases the
Airplane pursuant to this Agreement, Customer shall keep the Airplane in good
condition. At the end of each lease period, Customer shall return the Airplane
to the Company in as good a condition as when received, reasonable wear and tear
excepted.
9. DEFAULT. Upon material default of any of the conditions of this
Agreement, the Company shall have the right to terminate this Agreement and to
take possession of the Airplane without legal process wherever the Airplane may
be found.
10. DISPUTE RESOLUTION AND BINDING ARBITRATION. Customer and the Company
agree that in the event a dispute arises concerning or relating to this
Agreement, such dispute shall be submitted to binding arbitration in accordance
with the rules of the American Arbitration Association then in effect. The
arbitration shall take place in Reno, Nevada, and both Customer and the Company
agree to submit to the jurisdiction of the arbitrator selected in accordance
with American Arbitration Association rules and procedures. Customer and the
Company agree that the arbitration procedure provided for in this section will
be the exclusive avenue of redress for any disputes relating to or arising from
this Agreement, and that the award of the arbitrator shall be final and binding
on both parties, and nonappealable. The arbitrator shall have discretion to
award monetary and other damages, or no damages, and to fashion such other
relief as the arbitrator deems appropriate. The arbitrator shall also have
2
<PAGE> 3
discretion to award the prevailing party reasonable costs and attorneys' fees
incurred in bringing or defending an action under this provision.
11. MISCELLANEOUS.
(a) Notices. Any notice or communication required or permitted by
this Agreement shall be deemed sufficiently given if in writing and, if
delivered personally, when it is delivered or, if delivered in another manner,
the earlier of when it is actually received by the party to whom it is directed
or when the period set forth below expires (whether or not it is actually
received): (i) if deposited with the U.S. Postal Service, postage prepaid, and
addressed to the party to receive it as set forth below, forty-eight (48) hours
after such deposit as registered or certified mail; (ii) if accepted by Federal
Express or other nationally recognized courier in circumstances under which such
service guarantees next business day delivery, to the address of the party to
receive it as set forth below, on the next business day following being so sent;
or (iii) if by telecopy, to the telecopier number set forth below, as of the
date sent if confirmation of receipt is received and such notice is also
promptly mailed by registered or certified mail (return receipt requested) in
the manner set forth above.
To the Company:
FBN HOLDING CO.
BOX 8343INCLINE VILLAGE, NEVADA 89452
Fax: 702-831-0510
Attention: President
To Customer:
CRL Network Services, Inc.
One Kearny Street
San Francisco, California 94108
Fax: (415) 392-9000
Attention: Chief Financial Officer
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(b) Severability. If any term or provision (or any portion
thereof) of this Agreement is determined by a court to be invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other terms
and provisions (or other portions thereof) of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or
provision (or any portion thereof) is invalid, illegal or incapable of being
enforced, this Agreement shall be deemed to be modified so as to effect the
original intent of the parties as closely as possible to the end that the
transactions contemplated hereby and the terms and provisions hereof are
fulfilled to the greatest extent possible.
3
<PAGE> 4
(c) Entire Agreement. This document constitutes the final,
complete, and exclusive embodiment of the entire agreement and understanding
between the parties related to the subject matter hereof and supersedes and
preempts any prior or contemporaneous understandings, agreements, or
representations by or between the parties, written or oral.
(d) Counterparts. This Agreement may be executed on separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
agreement.
(e) Successors and Assigns. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Customer and the Company, and
their respective successors and assigns.
(f) Attorneys Fees. If any legal proceeding is necessary to
enforce or interpret the terms of this Agreement, or to recover damages for
breach therefore, the prevailing party shall be entitled to reasonable
attorney's fees, as well as costs and disbursements, in addition to any other
relief to which he or it may be entitled.
(g) Amendments. No amendments or other modifications to this
Agreement may be made except by a writing signed by both parties. Nothing in
this Agreement, express or implied, is intended to confer upon any third person
any rights or remedies under or by reason of this Agreement.
(h) Choice of Law. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the internal
law, and not the law of conflicts, of the State of Nevada.
(i) Further Assurances. Each of the parties hereto agrees to use
all reasonable efforts to take or cause to be taken, all appropriate actions,
and to cause to take or to be taken, all things necessary, proper or advisable
under applicable laws to effect the transactions contemplated by this Agreement.
(j) Fees and Expenses. Each of the parties hereto shall bear its
own fees and expenses incurred in connection with the preparation of this
Agreement and the transactions contemplated hereby.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date set forth above.
CUSTOMER:
CRL Network Services, Inc.
By: /s/ James G. Couch
---------------------------
Name: James G. Couch
Title: President & CEO
COMPANY:
FBN HOLDING CORP.
By: /s/ James G. Couch
---------------------------
Name: James G. Couch
Title: President
5
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
Integral Networking Corporation, a California corporation.
<PAGE> 1
EXHIBIT 23.3
CRL NETWORK SERVICES, INC.
CONSENT TO BE NAMED AND TO SERVE
In connection with the preparation of the Registration Statement on Form
S-1 for CRL Network Services, Inc. (the "Company"), it is necessary that we
obtain from you written verification of certain information and consent to serve
and be named as a director as required to be disclosed by the Securities Act of
1933, as amended, and the rules, regulations and schedules promulgated
thereunder.
It is requested that you fill in the answers to the following questions,
sign and date the Consent, and return one signed copy by facsimile to Gibson,
Dunn & Crutcher, Attn: Patrick Wong, facsimile number 415-986-5309 as soon as
possible. You should also keep a copy for your files.
I consent to be a nominee to serve as a director of the Company, and if
elected, to serve in the capacity of director of the Company.
Yes X No
----- -----
I consent to be named as a nominee for director of the Company, and if
elected, a director of the Company, as appropriate, in the Company's
Registration Statement on Form S-1.
Yes X No
----- -----
DATED: MARCH 1, 1999
/s/ JACK FIELDS
-----------------------------
(SIGNATURE)
<PAGE> 1
EXHIBIT 23.4
CRL NETWORK SERVICES, INC.
CONSENT TO BE NAMED AND TO SERVE
In connection with the preparation of the Registration Statement on Form
S-1 for CRL Network Services, Inc. (the "Company"), it is necessary that we
obtain from you written verification of certain information and consent to serve
and be named as a director as required to be disclosed by the Securities Act of
1933, as amended, and the rules, regulations and schedules promulgated
thereunder.
It is requested that you fill in the answers to the following questions,
sign and date the Consent, and return one signed copy by facsimile to Gibson,
Dunn & Crutcher, Attn: Patrick Wong, facsimile number 415-986-5309 as soon as
possible. You should also keep a copy for your files.
I consent to be a nominee to serve as a director of the Company, and if
elected, to serve in the capacity of director of the Company.
Yes X No
----- -----
I consent to be named as a nominee for director of the Company, and if
elected, a director of the Company, as appropriate, in the Company's
Registration Statement on Form S-1.
Yes X No
----- -----
DATED: 3/8/99
/s/ STEVEN STENBERG
-----------------------------
(SIGNATURE)
<PAGE> 1
EXHIBIT 23.5
CRL NETWORK SERVICES, INC.
CONSENT TO BE NAMED AND TO SERVE
In connection with the preparation of the Registration Statement on Form
S-1 for CRL Network Services, Inc. (the "Company"), it is necessary that we
obtain from you written verification of certain information and consent to serve
and be named as a director as required to be disclosed by the Securities Act of
1933, as amended, and the rules, regulations and schedules promulgated
thereunder.
It is requested that you fill in the answers to the following questions,
sign and date the Consent, and return one signed copy by facsimile to Gibson,
Dunn & Crutcher, Attn: Patrick Wong, facsimile number 415-986-5309 as soon as
possible. You should also keep a copy for your files.
I consent to be a nominee to serve as a director of the Company, and if
elected, to serve in the capacity of director of the Company.
Yes X No
----- -----
I consent to be named as a nominee for director of the Company, and if
elected, a director of the Company, as appropriate, in the Company's
Registration Statement on Form S-1.
Yes X No
----- -----
DATED: 3/2/99
/s/ JOHN A. BLAIR
-----------------------------
(SIGNATURE)
<PAGE> 1
EXHIBIT 23.6
CRL NETWORK SERVICES, INC.
CONSENT TO BE NAMED AND TO SERVE
In connection with the preparation of the Registration Statement on Form
S-1 for CRL Network Services, Inc. (the "Company"), it is necessary that we
obtain from you written verification of certain information and consent to
serve and be named as a director as required to be disclosed by the Securities
Act of 1933, as amended, and the rules, regulations, and schedules promulgated
thereunder.
It is requested that you fill in the answers to the following questions,
sign and date the Consent, and return one signed copy by facsimile to Gibson,
Dunn, and Crutcher, Attn: Patrick Wong, facsimile number 415-986-5309 as soon
as possible, with a copy to 415-362-2424.
I have reviewed the registration statement including the disclosure
regarding director's compensation. I consent to be a nominee to serve as a
director of the Company, and if elected, to serve in the capacity of director
of the Company.
Yes X No
-------- ---------
I consent to be named as a nominee for director of the Company, and if
elected, a director of the Company, as appropriate, in the Company's
Registration Statement on Form S-1.
Yes X No
-------- ---------
I agree and acknowledge that any conditions to such consent expressed
prior to the date of this consent are removed and no longer effective.
DATED: 3/17/99 /s/ Thor Geir Ramleth
------------- -------------------------
(Signature)
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