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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended DECEMBER 31, 1999
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to
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COMMISSION FILE NUMBER: 000-1084561
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ZAPME! CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 91-1836242
(State or other jurisdiction of (I.R.S. Employer
of Incorporation or Organization) Identification No.)
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3000 EXECUTIVE PARKWAY, SUITE 150
SAN RAMON, CALIFORNIA 94583
(925) 543-0300
(Address of principal executive office, including ZIP Code, and telephone
number)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 10, 2000, there were 44,017,139 shares of the Registrant's
common stock outstanding and the aggregate market value of such shares held by
non-affiliates of the Registrant (based upon the closing sale price of such
shares on the Nasdaq National Market on March 10, 2000) was approximately
$153,755,479. Shares of common stock held by each executive officer and director
and by each entity that owns 5% or more of the outstanding common stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement to be mailed to
stockholders in connection with its 2000 annual meeting of stockholders
scheduled to be held on May 25, 2000, are incorporated by reference in Part III
of this Form 10-K to the extent stated herein.
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PART I
ITEM 1. BUSINESS
OVERVIEW
ZapMe! has built and is expanding the country's largest broadband Internet
Media Network specializing in education. ZapMe!'s solution utilizes "always on"
satellite technology which delivers the latest technology tools and educational
resources at no cost to schools. We believe that by providing PCs, software,
installation, support and broadband connectivity to the Internet, we will help
bridge the digital divide and provide students of all social and economic
backgrounds access to the technology and information that are critical in
today's knowledge-based economy.
Our turnkey technology solution provides several benefits to each school
that participates in the ZapMe! network. Each school typically receives from 5
to 15 high-end, multimedia PCs with 17-inch monitors, a satellite-ready computer
server, a laser printer, and broadband access to the Internet. In addition, we
offer a proprietary, easy-to-use interface (the ZapMe! Netspace) that provides
access to over 13,000 pre-selected and indexed third-party educational Internet
sites and other aggregated content and services as well as applications such as
Microsoft Word, Excel and Powerpoint. Features of the ZapMe! Netspace include
various educational and communication tools such as discussion boards and
e-mail.
The ZapMe! network makes education more engaging by providing a rich,
interactive media computer experience and facilitates greater parental
involvement in schools by enabling electronic communication among parents and
teachers. In addition, the ZapMe! network provides students, parents, teachers
and administrators access to Internet-based educational content, cost-effective
school e-commerce solutions and school fundraising opportunities. In connection
with many of these core activities, the ZapMe! network has established strategic
alliances with a wide range of companies, including Ask Jeeves, Classroom
Connect, Dell, Gilat Satellite Networks (and its subsidiary, Spacenet), Inacom,
Microsoft, New Sub Services, School Specialty, Sylvan Learning Systems, Toshiba,
Xerox, and Yahoo! to further enhance the educational experience. In addition, we
plan to enter into new alliances to enhance our technology, gain access to
compelling educational content, add new features and functionality, and generate
sponsorship and e-commerce revenues.
Funding for the development, installation and maintenance of the ZapMe!
network is provided by a variety of corporate sponsorships and e-commerce
relationships. We expect to derive additional revenue from partners and other
sources from after-school use of ZapMe! labs and participation in fundraising
activities. In particular, we will receive additional revenues from Sylvan,
which has committed to sharing a percentage of its profits resulting from joint
activities on the ZapMe! network. Sponsors have the opportunity to underwrite
content, public service messages, and messages appropriate for ZapMe! network
users, including students aged 13-19, teachers, parents and administrators.
As of December 31, 1999, we had deployed ZapMe! labs to approximately 1,250
schools in 45 states. Total student enrollment in schools with deployed ZapMe!
labs was over 1 million, each of whom has access to a ZapMe! user account.
Additionally, over 600 districts had approved and signed our three-year
agreement that permits us to install ZapMe! labs in over 3,200 additional
schools.
RECENT DEVELOPMENTS
ZapMe! recently began operations of r)Star Networks, Inc., a wholly-owned
subsidiary of ZapMe! Corporation. r)Star will develop and provide new
specialized, broadband Internet Media Networks for enterprise organizations,
healthcare, higher education, entertainment and hospitality markets. The
subsidiary will sell ZapMe!'s excess bandwidth, not currently used after school
hours, to industries seeking affordable nationwide broadband access. Lance
Mortensen, founder and former CEO of
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ZapMe!, has been appointed President of r)Star. He will remain as Chairman of
the Board of Directors of ZapMe!
THE ZAPME! NETWORK
ZapMe!'s broadband Internet Media Network offers significant benefits to our
users--students, parents, teachers, administrators-- and our sponsors.
WHAT ZAPME! OFFERS TO SCHOOLS. We offer a turnkey technology solution for
schools by providing each school with a complete broadband interactive network
with the following components:
- Hardware. A school typically receives from 5 to 15 high-end, multimedia
PCs with 17-inch monitors, satellite communications hardware, and a laser
printer, as well as access to broadband Internet connectivity through the
ZapMe! Netspace, our proprietary, easy-to-use interface that provides
access to over 13,000 Internet sites of third-party independent content
providers that we identify, review and index for easy reference, and other
aggregated content and services.
- Broadband Connectivity. Our network incorporates broadband Internet
connectivity over a satellite delivery system. This design permits us to
simultaneously multicast data, including audio and full motion video to
schools. The speed afforded by broadband satellite-delivery allows ZapMe!
to provide our users fast access to graphic-oriented Internet content and
new bandwidth-intensive multimedia applications.
- Software. The ZapMe! school network incorporates two categories of
software: the ZapMe! Netspace and third-party software that is accessed
directly through the ZapMe! Netspace. The ZapMe! Netspace is a
proprietary, easy-to-use interface that uses standard Web browser commands
and currently runs on top of Internet Explorer 4.0 and Windows NT.
Microsoft Office applications such as Word, Excel and PowerPoint are also
available directly through the ZapMe! Netspace.
- Installation. To enable rapid and reliable deployment, we have agreements
with third-parties to provide complete network installation services.
These agreements provide for site inspection, installation and testing of
both the satellite dish, which is typically installed on the roof of the
school, and the balance of the computer lab, which is typically installed
in a library or dedicated computer room. We believe that these
relationships with third parties enable us to provide high-quality,
nationwide service, and to reach and sustain a much higher deployment
scale than if we were to undertake all installation services ourselves. We
currently rely on Spacenet, Xerox and Inacom for the majority of our
installation needs.
- Customer Service and Technical Support. We have developed a comprehensive
approach for managing all customer service and technical support issues,
intended to ensure that every interaction a user has with ZapMe! is a
positive experience. Participating schools, therefore, are not required to
have a dedicated network administrator. Specifically, we have established
a four-level escalation process, which is balanced between a national call
center partner and internal ZapMe! technical support representatives.
Level 1 and level 2 are handled through our national call center partner,
while more complex problems are routed to our own technical personnel. We
believe that we have developed customer support metrics which are directly
correlated to the customer satisfaction experience. We manage both our
national call center partner and ourselves to achieve high standards for
customer support.
- Teacher Training. We provide on-site training designed for both teachers
and administrators, including systems administration, Internet
fundamentals, and applications. This training will be delivered through a
variety of media, including broadcast, computer-based, online and
face-to-face channels.
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WHAT ZAPME! RECEIVES FROM SCHOOLS. In order to have a ZapMe! lab installed
at a school, the school board must approve and sign a standard three-year
agreement with us. This agreement commits each school that receives a ZapMe! lab
to use each PC an average of four hours per school day. Each school must also
provide related items such as power, a dedicated phone line, lab space and
insurance for the equipment. The standard agreement allows ZapMe! or its
partners to access the lab during non-school hours. As part of its agreement
with participating schools, ZapMe! may send home with students software that
includes a home version of the ZapMe! Netspace.
WHAT ZAPME! OFFERS TO USERS. The ZapMe! network provides our users with a
rich, interactive media experience that is easy to use, makes education more
engaging and connects the school to the home. We believe that we have designed
the ZapMe! Netspace with attractive features, content and functionality, that
students, parents, teachers and administrators will use in school home. The
following features are currently available in our Netspace:
- ZapMail-TM-. With this standard feature, ZapMe! users can send electronic
mail to students, friends, teachers, and others. Because ZapMail-TM- is
accessible through the Internet, students can use ZapMail-TM- to take
their schoolwork home. Students can create and save documents at school
then access them at home, on vacation or wherever they can connect to the
Internet.
- Message Boards. These message centers, which can be customized by class or
topic, allow students to collaborate with peers and teachers, regardless
of geographic location. Message boards are valuable tools for asynchronous
discussions and collaboration between students and teachers. Message
boards also enable teachers to build a stronger community, and are
vehicles for students to become more involved in extracurricular
activities.
- ZapSearch-TM-. This feature allows users to find what they want on the
ZapMe! network or the Internet.
- My Tools. The ZapMe! network allows students to launch software
applications, including Microsoft Office programs, directly through the
browser.
WHAT ZAPME! OFFERS TO SPONSORS. We believe that ZapMe! offers an appealing
opportunity for sponsors because it provides the following:
- an audience of students aged 13-19 who may not otherwise have access to
the Internet, especially at school;
- our community window, which displays sponsorship, public interest and
other messages. This feature, which is integrated into our browser, is
superior to typical banner windows. Its larger size and our network's
broadband capabilities allow the broadcast of a rich-media interactive
experience, including audio and full-motion video;
- ability to interact with users, conduct product trials, recruit online,
provide product feedback and support product launches;
- access to a quarterly take-home CD-ROM that sponsors can use to explain
their programs or services; and
- opportunity to underwrite public service messages that serve the local and
national community.
STRATEGIC ALLIANCES
We have entered into and will continue to enter into strategic alliances to
capitalize on our infrastructure, improve our technology, gain access to
compelling content, add new features and functionality, and generate sponsorship
and e-commerce revenues. We may also expand our revenue opportunities through
alliances with technology providers, providers of educational goods and
services,
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online service and content providers, commerce providers and advertisers.
ZapMe!'s current strategic alliances include:
ASK JEEVES. ZapMe! has a co-branding agreement with Ask Jeeves, Inc. The
co-branded site gives students and teachers a useful tool for finding and mining
the information they need directly from the ZapMe! Netspace.
CLASSROOM CONNECT. Classroom Connect and ZapMe! have created a co-branded
version of Classroom Connect's QUEST education Internet adventures, optimized
for the ZapMe! network. We have been a sponsor of AsiaQuest and also feature
selected Classroom Connect products and services such as Internet training and
professional development courses for teachers to purchase through the ZapMe!
Netspace.
DELL COMPUTER CORPORATION. Dell is a sponsor of the ZapMe! network and a
principal supplier of hardware for our labs. ZapMe! is installing Dell
equipment, including PCs, and high-end servers in schools across the country.
Dell is a stockholder of ZapMe!.
GILAT SATELLITE NETWORKS. Gilat supplies our satellite uplink equipment and
satellite receiver cards for each school installation. Gilat's wholly-owned
subsidiary, Spacenet, provides us with our satellite space segment. Spacenet is
also our primary contractor for the network installation process. Gilat is a
stockholder of ZapMe!.
INACOM. Inacom serves as a principal installation agent for ZapMe!. Inacom
and ZapMe! have also jointly developed e-commerce products and product bundles
tailored for school audiences.
MICROSOFT. Through an agreement with Microsoft, ZapMe! provides Microsoft's
Word, Excel and PowerPoint programs to the in-school users of our network.
Microsoft's operating system products are the backbone of our network.
NEW SUB SERVICES. We are currently planning to launch a network-based,
Internet-delivered program for safe, effective deployment of school fundraising
activities with New Sub Services, the world's largest provider of magazine
subscriptions.
SCHOOL SPECIALTY. ZapMe! and School Specialty, the largest supplier of
non-textbook education products to educators in the U.S., have teamed up to
offer e-commerce opportunities to schools, teachers and administrators. School
Specialty intends to offer a range of school supplies over the ZapMe! Netspace
for convenient ordering through the network.
SYLVAN LEARNING SYSTEMS. We have entered into an agreement with Sylvan that
permits Sylvan to offer educational programs and services in ZapMe! labs when
not in use. In exchange, Sylvan pays us a percentage of the net profit it
generates from those programs and services. Sylvan has also made an equity
investment in ZapMe!. Mr. Douglas Becker, Co-CEO of Sylvan, is a member of
ZapMe!'s Board of Directors. Rick Inatome, our President and CEO, is a member of
Sylvan's Board of Directors.
TOSHIBA. Toshiba is a sponsor of the ZapMe! network and a principal
supplier of hardware for our labs. ZapMe! is installing Toshiba equipment,
including PCs and high end servers in schools across the country.
XEROX. Xerox is a sponsor of our network and a principal supplier of laser
printers for our labs.
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YAHOO!, INC. ZapMe! and Yahoo! have developed co-branded pages that
showcase content and navigational features from both companies. The co-branded
"ZapMe! My Yahoo!" is a customizable home page displayed when students and
teachers log-in to the ZapMe! Netspace.
SPONSORSHIP
We intend to fund the continued deployment of the ZapMe! network through a
variety of corporate sponsorships, e-commerce relationships, and network
services. Participating sponsors have the opportunity to participate in content
sponsorships appropriate for ZapMe! network users, including students aged
13-19, parents, teachers and administrators. Corporate and product sponsors
scheduled for the 1999-2000 school year include: Arizona Jeans, Dell, General
Electric, Kodak, Sylvan, Toshiba, Universal Studios, the U.S. Army, the U.S.
Navy, Xerox, and the Youth Anti Smoking Initiative. This list of scheduled
sponsors reflects the variety of different industries which might sponsor the
ZapMe! network. As of December 31, 1999, we received proceeds of at least
$30,000 from each of the listed sponsors for the 1999-2000 school year; however,
we cannot determine in advance the exact amount of the sponsorship revenue, and
furthermore our contracts with these sponsors may allow them to quickly
terminate their sponsorship on our network. Please see "Risk Factors/Our
dependence on short-term sponsorship contracts exposes us to greater pressure on
our sponsorship prices and allows sponsors to quickly cease their sponsorships,"
on page 22 for more information on risks posed by our dependence on short-term
sponsorship contracts.
Our sponsorship arrangements often differ from traditional banner
advertising in that they are designed to achieve broad marketing objectives such
as brand promotion. We believe the dynamic nature of our network will allow us
to design sponsorship programs that serve the specific goals of sponsors,
including the delivery of a rich, interactive media experience. In addition, we
have developed educationally appropriate content to support the marketing and
e-commerce initiatives of sponsors. As a result of our sponsorship strategy, we
believe that ZapMe! will be able to command effective sponsorship rates
significantly higher than the industry average.
SALES AND MARKETING
As of December 31, 1999, ZapMe! had a direct sales organization consisting
of six sales professionals with an average of 11 years of experience, all of
whom were hired in 1999. We intend to hire additional qualified sales
professionals in the future. Our sales organization consults regularly with
sponsors on design and placement of advertising, provides customers with
advertising management analysis and focuses on providing a high level of
customer satisfaction. We generally seek to hire individuals who possess
experience in obtaining sponsorships and preexisting relationships with
potential sponsors in a variety of media. In addition to our sponsorship sales
organization, we have six internal and four dedicated external sales
professionals focused on introducing ZapMe! to school districts who are
candidates to join the ZapMe! network.
We intend to employ a variety of methods to promote the ZapMe! brand and to
increase network usage by users. These include in-school promotions such as
technology incentive programs co-branded with partners, home CD-ROM co-marketing
campaigns and school fundraising. In the 1999-2000 school year, ZapMe! has
expanded and will continue to expand current programs and incentives to
encourage network usage. In addition, ZapMe! engages in an ongoing public
relations campaign which includes speaking engagements, conference participation
and press tour activities. Our marketing department, which consists of seven
professionals, works in conjunction with our creative services department.
COMPETITION
The market for the ZapMe! network is new and rapidly evolving, and we expect
competition in and around our market to intensify in the future. We are not
aware of any competitor that currently
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offers or is planning to offer a broadband interactive network for schools at
minimal or no cost. However, we face competition from a number of companies
which provide services and functionality similar to portions of the ZapMe!
network, market products and services to a similar base of users, or both. For
example:
- America Online provides both Internet access as well as its own content.
It also markets to a user base similar to ours with its AOL@School section
that derives its revenue from advertising. America Online has substantial
content and a popular user interface. In addition, America Online can
leverage its log-in based network to identify the demographics of its user
base.
- Channel One owns and operates an advertising-supported educational
television service for secondary school students in the U.S. It airs 12
minutes of news and current events each school day via satellite,
generating revenues from 2 minutes of advertising included in the program.
We may compete with Channel One for sponsors seeking to reach the same
audience.
- Helius Inc. offers schools a Helius E-Rate Bundle which includes the
Helius Satellite Router, a mini satellite dish and the recurring access
service, as well as the Virtual Technican(SM) remote support, all Helius
Bundle set-up and recurring costs. Schools who purchase the Helius Bundle
qualify for the FCC-funded "E-rate" (see below). Helius does not provide
content.
- Family Education Network, bigchalk.com, and Lightspan offer a wide variety
of Internet content and tools that market to a user base similar to ours.
They own or have access to content and have experience in marketing to a
user base similar to ours.
- E-rate. The Education-rate initiative, commonly referred to as "E-rate,"
is a government sponsored program under which schools can qualify for
discounts on a wide variety of networking products, telecommunications
services and Internet access. The discount ranges from 20%-90% depending
upon whether the school is in an urban or rural area and the economic
status of the students. Passed as part of the 1996 Telecommunications Act,
the E-rate is an extension of the Universal Service Fund, originally
designed to make telephone service ubiquitous in the United States. The
FCC moved to fund the E-rate program at $2.25 billion for the period from
July 1, 1999 to June 30, 2000, the maximum level under its regulations.
Schools may choose to utilize the E-rate and purchase their computer and
network equipment and Internet access themselves, rather than using the
ZapMe! network.
We believe that our greatest potential competitive threat is posed not by a
single company, but a combination of one or more companies which each addresses
different parts of our business model. Many of our competitors have
significantly greater financial, technical, marketing and distribution resources
than we do. Our competitors may engage in more extensive research and
development, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, partners, sponsors and e-commerce
merchants. Our competitors may develop services that are equal or superior to
ours or that achieve greater market acceptance. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to better address the needs
of sponsors and businesses engaged in e-commerce. As a result, it is possible
that new competitors may emerge and rapidly acquire significant market share.
Competition could reduce our revenues and otherwise harm our business. We
therefore believe that we must rapidly deploy our network in order to achieve a
leadership position relative to potential competitors or imitators. In addition,
we believe that our success in competing with other potential competitors or
imitators will depend on various factors, many of which are outside of our
control. These factors include:
- The quality of our network content;
- The speed and reliability of our network;
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- The ease of use of our user interface;
- The timing and market acceptance of new and enhanced services and
features; and
- The sales and marketing efforts by us and our competitors.
We believe that with respect to each of these factors, we compare favorably
to other companies addressing the educational market.
INTELLECTUAL PROPERTY
We seek to protect our intellectual property through a combination of U.S.
and international law regarding copyright, patents, trademarks and trade secrets
as well as confidentiality agreements with employees, consultants, contractors
and business partners. We currently have ten patent applications on file with
the United States Patent and Trademark Office and are in the process of
preparing one additional continuation of an existing application. The
proprietary technologies for which ZapMe! is pursuing patents include those
allowing ZapMe! to:
- correlate user's preferences and access privileges with a user name so
that the user's experience is consistent regardless of what computer he or
she uses;
- allow a user to keep track of and move between the windows he or she has
open more effectively by providing a window management system designed
specifically for Internet use;
- dynamically assign and change the affinity points applicable to particular
actions on the ZapMe! Netspace in order to encourage use of particular
features at different times;
- transmit sponsor messages and other content via satellite to local school
computers for distribution to the appropriate ZapMe! users;
- simultaneously monitor system usage across multiple ZapMe! computers for
diagnostic purposes;
- manage e-mail and other communications remotely; and
- multicast information efficiently over ZapMe!'s satellite network.
In addition, we have registered "ZapMe!" in Japan, Mexico and Taiwan and
have applied to register ZapMe! and other trademarks in the United States and in
a number of foreign countries. We have given copyright and trademark notices on
our Netspace and many other copyrightable or trademarked materials by affixing a
standard copyright and/or trademark notice in the appropriate places. We have
taken further steps to protect our trademarks by developing trademark brand
guidelines which we have included in agreements with business partners who we
have licensed to display the ZapMe! brands in a co-branded environment. ZapMe!
controls access to our trade secrets and proprietary information by entering
into confidentiality agreements with its employees, consultants, contractors and
actual and potential business partners. We currently own several Internet domain
names based upon the ZapMe! brands and services, including "www.zapme.com," from
which we run our corporate web site.
EMPLOYEES
As of December 31, 1999, we had 146 employees. None of our employees is
represented by a labor union or is the subject of a collective bargaining
agreement. We have never experienced a work stoppage and believe that employee
relations are good.
ZapMe! believes that its future success will depend in part on its continued
ability to attract, hire and retain qualified personnel. Competition for such
personnel is intense, and we cannot guarantee that we will be able to identify,
attract and retain such personnel in the future.
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Our executive officers and their ages are as follows:
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NAME AGE POSITION
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Lance Mortensen........................... 47 Chairman of the Board
Rick Inatome.............................. 46 Chief Executive Officer, President and
Director
Robert Kimberly Gaynor.................... 55 Executive Vice President, Chief Management
Officer
Bruce Bower............................... 38 Senior Vice President, Business and
Corporate Development, Secretary
William S. Burwell........................ 52 Chief Information Officer
Robert J. Edwards......................... 48 Vice President, Chief Financial Officer
John Flynn................................ 34 General Counsel, Vice President of
Government Affairs, and Assistant
Secretary
Donald Kingsborough....................... 53 Senior Vice President, Sales and Marketing
David Lundberg............................ 41 Chief Technical Officer
Philip Wise............................... 46 Senior Vice President, Strategic Alliances
and Deployment
</TABLE>
MR. MORTENSEN is a founder of ZapMe! Corporation and has been our Chairman
since our inception. Mr. Mortensen began the planning and preliminary
organization of ZapMe! in 1996, and incorporated us in June 1997. Prior to
founding ZapMe!, Mr. Mortensen was Chief Executive Officer of Monterey Pasta
Company, a food service company, from January 1993 to October 1995. From 1981 to
1992, he was President of Morweg Construction Company, a California residential
construction company.
MR. INATOME, our Chief Executive Officer, President and one of our
directors, joined us in September 1999. From July 1993 to September 1999,
Mr. Inatome was Chairman of the Board of Inacom, a technology services firm.
Mr. Inatome currently serves on the Board of Directors of Sylvan Learning
Systems, Inc., RL Polk, Saturn Electronics, AAA, and Atlantic Premium Brands.
MR. GAYNOR joined us in December 1999 as Executive Vice President and Chief
Management Officer. Mr. Gaynor comes to us from FCB Worldwide, the largest
advertising agency in the United States, created by a merger between Foote,
Cone & Belding and key offices of Bozell Worldwide where he served as Executive
Vice President and head of the DaimlerChrysler account team in the United States
and Mexico from January 1987 to March 2000. Prior to FCB Worldwide, Mr. Gaynor
was a principal and served as Executive Vice President of GSD&M, an Austin,
Texas-based advertising firm. He also served as Senior Vice President of Client
Services at McCann-Erickson in Houston and Vice President of Foote, Cone &
Belding Los Angeles.
MR. BOWER joined us in November 1998 as General Counsel, Vice President of
Business Development and Secretary. From December 1999 to present, Mr. Bower
served as Senior Vice President of Corporate and Business Development, and
Secretary of the Company. Prior to joining us, Mr. Bower was a founder and
principal of i-80 Ventures, an investment and consulting firm, from
November 1997 to November 1998. Mr. Bower was the principal of Bower Consulting
Group from April 1997 to November 1998. From March 1995 to March 1997, he served
as Executive Vice President, Business Development and General Counsel of YES!
Entertainment Corporation, a children's product and entertainment company. From
November 1989 to March 1995, Mr. Bower was an associate with Wilson Sonsini
Goodrich & Rosati, a law firm.
MR. BURWELL has been our Chief Information Officer since September 1999.
Prior to joining us, Mr. Burwell worked for EDS, a computer services firm, from
1974 to September 1999 in numerous capacities, most recently as President of
Consumer Technology Services.
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MR. EDWARDS joined us in March 2000 as Vice President and Chief Financial
Officer. Mr. Edwards comes to us from A Sport, Inc., a diversified sporting
goods manufacturer serving the school age market, where he was Chairman and
Chief Executive Officer from 1994 to 1999. Prior to A Sport, Inc., Mr. Edwards
served as Senior Vice President, Corporate Development and Planning at K2 Inc.,
a leading branded consumer products manufacturer, from 1986 to 1994. He also
served as Vice President, Finance & Administration for Thorn EMI Screen
Entertainment from 1985 to 1986.
MR. FLYNN joined us in May 1999 as Associate General Counsel, Director of
Government Affairs. From February 2000 to present, Mr. Flynn served as General
Counsel, Vice President of Government Affairs and Assistant Secretary of the
Company. Mr. Flynn came to us from Munger, Tolles & Olson, a law firm where he
represented and counseled primarily high-tech and university clients on
Internet, intellectual property, complex litigation and employment matters. His
experience includes serving as a law clerk to Judge Edward R. Becker on U.S.
Court of Appeals for the Third Circuit and Justice Byron R. White and Justice
John Paul Stevens on the U.S. Supreme Court.
MR. KINGSBOROUGH joined us in April 1999 as Senior Vice President, Sales and
Marketing. From July 1998 to April 1999, Mr. Kingsborough provided consulting
services. Mr. Kingsborough served as the Chief Executive Officer of YES!
Entertainment Corporation, a children's product and entertainment company, from
December 1992 to July 1998. YES! Entertainment Corporation filed a petition
pursuant to Chapter 11 of the Bankruptcy Code in February 1999.
Mr. Kingsborough serves on the Board of Directors of Game Trader, Inc., a
wholesaler of new and used video games and a publicly traded company.
MR. LUNDBERG, our Chief Technical Officer, joined us in January 1999. Before
that, he was with Computer Curriculum Corporation, an educational software
development company, from June 1995 to January 1999, initially as Vice President
of Engineering, and then as Vice President of Internet Technology. From
December 1992 to June 1995, Mr. Lundberg was Vice President of Engineering for
Kalieda Labs, a software development company.
MR. WISE, has been our Senior Vice President of Strategic Alliances and
Deployment since November 1999. Before that, he was with CompuCom Systems, Inc.
("CompuCom"), a leading provider of distributed desktop computer products and
network integration services. Mr. Wise worked for CompuCom in numerous
capacities, most recently as President and CEO of CompuCom's Internet-based
consumer sales division, PCSave, and Executive Vice President of Operations.
Mr. Wise spent 10 years overseeing product management, distribution and
information systems, as well as implementing supplier-marketing programs.
Mr. Wise also founded Cyclix Engineering, a depot repair organization focusing
on same day repair of PC and related peripheral equipment for OEM customers,
including Gateway Inc., Dell Computer and Apple Computer Inc.
ITEM 2. PROPERTIES
Our primary offices are located in approximately 19,359 square feet of
office space in San Ramon, California, under a lease expiring in August 2002. In
November and December 1999, we executed two subleases for an additional 21,611
square feet of office space at the same location. These subleases expire in
October 2001 and October 2002. We expect to occupy the newly subleased space
within six months. Although we will have adequate space for the 2000 fiscal
year, we believe additional space will be required to accommodate anticipated
increase in headcount beyond 2000.
Our wholly-owned subsidiary, r)Star Networks, Inc. leases approximately
5,355 square feet of office space in San Jose, California. This lease was
executed in October 1999 and expires September 2002.
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ITEM 3. LEGAL PROCEEDINGS
On July 7, 1999, we filed a demand with the American Arbitration Association
for arbitration with our former President and Director, Frank J. Vigil, related
to his employment at and departure from ZapMe!. We assert that ZapMe! was
induced by Mr. Vigil's fraudulent representations to enter into an employment
agreement with him. We seek the rescission of the employment agreement, as well
as the return of all benefits received by Mr. Vigil under the agreement, and
costs and fees associated with the arbitration.
On July 26, 1999, Mr. Vigil filed a response to our demand and a
counterclaim against ZapMe!. Mr. Vigil denied the allegations contained in our
demand. Mr. Vigil's counterclaim alleges breach of contract, breach of implied
covenant of good faith and fair dealing, fraud in the inducement of contract,
intentional misrepresentation, defamation, and violations of the California
Labor Code, all related to the circumstances of his employment at and departure
from ZapMe!. Mr. Vigil seeks various damages that are set forth in "Risk
Factors/We are currently in arbitration with one of our former officers...,"
beginning on page 29.
ZapMe! and Mr. Vigil each asserted various defenses to the respective claims
and counterclaims. We cannot assure you that we will prevail in this
arbitration, and any decision against us could result in an obligation to pay
some or all of the substantial monetary damages Mr. Vigil has sought in his
counterclaim. Moreover, under the terms of his employment agreement and related
agreements, Mr. Vigil was permitted to purchase 1.35 million shares of ZapMe!'s
common stock. Some of those shares were subject to a right of repurchase by
ZapMe! at the time of Mr. Vigil's separation from ZapMe!. Mr. Vigil may claim
that, under the terms of his employment agreement, the closing of our initial
public offering could result in the cancellation of the right of repurchase and
the full vesting of his stock. A decision against us with regard to the validity
of the employment contract and related agreements could therefore result in the
complete vesting of Mr. Vigil's stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's common stock has traded publicly on the Nasdaq National Market
since October 20, 1999 under the symbol "IZAP." The Company's initial public
offering price was $11.00 per share. Prior to the Company's initial public
offering, there was no established public trading market for the common stock.
The following table sets forth the range of high and low closing prices on the
National Market of the common stock for the periods indicated, as reported by
Nasdaq. Such quotations represent inter-dealer prices without retail markup,
markdown or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
October 20, 1999 through December 31, 1999.................. $12.94 $6.13
</TABLE>
On December 31, 1999 the closing price of the common stock on the Nasdaq
National Market was 8 5/8. As of December 31, 1999, there were approximately
5,600 shareholders of record of the common stock.
The Company has never paid cash dividends on its capital stock. The Company
currently expects to retain its future earnings, if any, for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future. The Company's debt facilities contain
restrictive covenants that limit its ability to pay cash dividends or make stock
repurchase without the prior written consent of the lender.
INITIAL PUBLIC OFFERING
Pursuant to a Registration Statement of Form S-1 (File No. 333-84557) filed
with and declared effective by the Commission on October 19, 1999, the Company
offered an aggregated of 9,000,000 shares of its Common Stock for an aggregate
offering price of $99,000,000 and a concurrent offering of 488,753 shares of its
Common Stock for an aggregate offering price of $4,999,943. The offering
pursuant to the Form S-1 (the "IPO") commenced on or about August 5, 1999,
terminated in November 1999 and all offered shares have been sold. The managing
underwriters of the IPO were Merrill Lynch & Co., Deutsche Banc Alex. Brown,
Thomas Weisel Partners LLC, and Wit Capital. Net of underwriters' discounts and
commissions of 7% of the offering price, the Company received proceeds of
$97.1 million from the IPO. Through December 31, 1999, the Company had not
utilized any of the proceeds from the IPO and has invested the proceeds in short
term, interest-bearing, investment-grade securities.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
JUNE 25, 1997 YEAR
(INCEPTION) ENDED
THROUGH YEAR ENDED DECEMBER
DECEMBER 31, DECEMBER 31, 31,
1997 1998 1999
------------- ------------ --------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Total Revenue........................... $ -- $ -- $ 2,542
Loss from operations.................... (570) (4,995) (28,103)
Net loss................................ (581) (5,031) (27,127)
Net loss applicable to common
stockholders.......................... (581) (5,637) (45,092)
Net loss per share, basic and diluted... $ (0.05) $ (0.48) $ (2.30)
Shares used in calculation of net loss
per share, basic and diluted.......... 11,183 11,685 19,607
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............. $ 275 $ 815 $112,714
Restricted Cash....................... -- -- 565
Total Current Assets.................. 288 1,092 118,493
Total Current Liabilities............. 399 2,105 23,587
Total Liabilities..................... 861 2,374 36,879
Total Stockholder equity (deficit).... (512) (2,123) 114,313
Current Ratio......................... 0.72 0.52 5.02
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ZapMe! has built and is expanding the country's largest broadband Internet
Media Network specializing in education. ZapMe!'s solution utilizes "always on"
satellite technology which brings the latest technology tools and educational
resources to schools at no cost to the schools. We believe that by providing
PCs, software, installation, support and broadband connectivity to the Internet,
we will help bridge the digital divide and provide students of all social and
economic backgrounds access to the technology and information that are critical
in today's knowledge-based economy.
We commenced operations in June 1997 and began offering sponsorships through
our proprietary network in December 1998. From inception through December 31,
1999, our activities primarily consisted of:
- marketing the ZapMe! network to school districts;
- entering into agreements with school districts for the placement of the
ZapMe! network in schools;
- developing our proprietary user interface and satellite multicasting
capabilities;
- raising capital;
- recruiting personnel;
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- conducting research and development activities; and
- acquiring assets to support our operations.
Since December 1998, we have been:
- deploying our network in schools;
- developing our operations, technology and support capabilities;
- forming strategic alliance relationships; and
- continuing to invest in research and development.
In order to achieve our strategic plan, we intend to continue to invest
heavily in deploying our network, marketing and promotion, technology and
operations. We purchase and lease the computer equipment we install in
schools--including PCs, monitors, servers and printers--on customary terms for
sales made for educational purposes from our partners, some of which are also
sponsors.
As of December 31, 1999, we had deployed ZapMe! labs to approximately 1,250
schools in 45 states. Total student enrollment in schools with deployed ZapMe!
labs was over 1 million, each of whom has access to a ZapMe! user account.
Additionally, over 600 districts had approved and signed our three-year
agreement that permits us to install ZapMe! labs in over 3,200 additional
schools.
We have incurred net losses of approximately $32.7 million for the period of
inception through December 31, 1999. We expect to incur additional losses for
the foreseeable future due to the increased cost of sales and marketing,
advertising and promotion, expanded network features and research and
development. We expect that the size of these losses will fluctuate from quarter
to quarter and that these fluctuations may be substantial. In view of the
rapidly evolving nature of our business and our limited operating history, we
believe that period-to-period comparisons of our operating results are not
necessarily meaningful and should not be relied upon as an indication of future
performance.
REVENUE. To date, ZapMe! has generated revenue primarily from content
sponsorship fees paid by strategic partners. Three sponsors,--Sylvan, Gilat, and
Dell--accounted for approximately 64% of our revenue in the twelve months ended
December 31, 1999. Revenue from affiliated companies was 54% of total revenue in
this period.
We derive revenue from sponsorship, e-commerce, and network services.
Sponsorship revenue consists of fees charged for messages delivered over our
network. Revenue related to sponsorship of content on our network is generally
recognized over the time periods that the sponsorship is provided unless such
sponsorship is based on delivery of a minimum number of impressions, in which
case revenue is recognized as the impressions are delivered. Advertising revenue
is recognized in the period in which the advertisement message is displayed on
the network, provided that no material obligations remain and collection of the
related account receivable is reasonably certain. E-commerce revenue currently
consists of referral fees and commissions on transactions facilitated through
our network as well as referred transactions. Revenue from e-commerce is
recognized upon notification from the contracting partner of the fact of the
referral or sale upon which referral fees or commissions is due. Network
services and other revenue consist of revenue from the distribution of content
and products which are delivered through our network, and from educational
services delivered in the ZapMe! labs such as teacher training, tutoring and
other educational programs offered through a strategic alliance with Sylvan
Learning Systems. Network services and other revenue is recognized in the time
period in which the underlying service is delivered. Network services and other
revenue also include revenue from our five-year agreement with Sylvan which
provides for a sharing of revenue derived from the delivery of Sylvan programs
in ZapMe! computer labs. This agreement allows Sylvan to offer student tutoring,
teacher training, and other programs in the ZapMe! computer labs. Fees payable
under this agreement are based on a rate for installed schools available for use
by Sylvan. To date, no programs
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have been offered under this arrangement, and additionally no material
e-commerce or network services have been delivered and no significant revenue
has been recognized by ZapMe!.
COSTS OF REVENUE. Costs of revenue consist primarily of depreciation on
network equipment and computers placed in schools, allowances for the cost of
equipment replacement not covered by manufacturers' warranties, and the cost of
operating our satellite communications network. The costs associated with this
form of telecommunication include (1) the cost of land-based equipment, or
"earth segment," such as the satellite dish, hubs, send and receive cards
located inside the network servers and land-based phone service and (2) the cost
of the link to and from the satellite, or "space segment." ZapMe! provides much
of its earth segment to schools by purchasing satellite dishes, hubs and send/
receive cards for its network servers. ZapMe! purchases space segment from GE
Americom, a unit of General Electric Corporation, and from Spacenet, a
wholly-owned subsidiary of Gilat Satellite Networks, pursuant to fixed price
agreements. Commencing July 1999, Spacenet began to install and lease satellite
dishes, receive and transmit cards as well as provide the space segment under a
long-term fixed-price per school contract. Costs of revenue varies directly with
the number of schools.
OPERATING EXPENSES. Our operating expenses consist primarily of sales and
marketing, research and development and general and administrative expenses.
Research and development expenses consist primarily of compensation and
consulting expenses associated with the development and refinement of the ZapMe!
user interface, the satellite network, content and quality assurance. To date,
we have not capitalized any software development costs under Statement of
Financial Accounting Standards ("SFAS") No. 86 because we believe that our
process for developing software is essentially completed concurrently with the
establishment of technological feasibility. As a result, all development costs
have been expensed as incurred. Sales and marketing expenses consist primarily
of salaries, commissions, travel expenses, advertising expenses, costs of
promotional programs, trade show expenses, seminars and costs of marketing
materials. General and administrative expenses consist primarily of salaries and
related costs for our executive, administrative, finance, legal and information
technology personnel, support services, facilities costs and professional
services fees.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. We recorded deferred stock
compensation of approximately $6.0 million during the year ended December 31,
1998, and approximately $12.8 million during the twelve months ended
December 31, 1999 as a result of stock options granted during 1998 and 1999 and
shares of common stock sold to officers of ZapMe! at prices below the deemed
fair market value at the date of grant. Amortization of deferred stock
compensation of approximately $1.1 million was recognized in 1998 and
approximately $6.0 million was recognized for the twelve months ended
December 31, 1999. Deferred stock compensation is amortized over the vesting
period of the options, generally three to four years, or the performance period
for various warrants we granted using a graded vesting method. As a result,
amortization of deferred stock compensation will adversely impact our operating
results for the next four years.
Future amortization expense is estimated to be approximately $7.2 million,
$3.2 million, $1.1 million and $107,000 for 2000, 2001, 2002 and 2003,
respectively.
INCOME TAXES. There was no provision for federal or state income taxes for
any period since inception due to our operating losses. At December 31, 1999, we
had net operating loss carryforwards for federal income tax purposes of
approximately $21.9 million which will expire beginning in fiscal year 2012 if
not utilized. Utilization of our net operating loss carryforwards may be subject
to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code and similar state provisions. Such an
annual limitation could result in the expiration of the net operating loss
carryforwards before utilization. A valuation allowance has been established
and, accordingly, no benefit has been recognized for our net operating losses
and other deferred tax assets. The net valuation allowance increased by
approximately $8.1 million during the year ended December 31, 1999. We believe
that, based on a number of factors, the available objective evidence creates
sufficient
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<PAGE>
uncertainty regarding the realizability of the deferred tax assets such that a
full valuation allowance has been recorded. These factors include our history of
net losses since inception and expected near-term future losses. We will
continue to assess the realizability of the deferred tax assets based on actual
and forecasted operating results.
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. We recorded accretion and a
dividend on our redeemable convertible preferred stock of approximately $606,000
for the year ended December 31, 1998 and approximately $1.6 million for the
twelve months ended December 31, 1999. For the twelve months ended December 31,
1999, we have also recorded approximately $2.5 million for accretion of a
liquidation preference for our convertible preferred stock, approximately
$1.8 million for accretion of a guaranteed initial public offering price for our
redeemable convertible preferred and $12.2 million for the difference between
the $5.00 per share purchase price of our Series E convertible preferred stock
and the deemed fair value based upon an initial public offering of $11.00 per
share.
We believe that period-to-period comparisons of its operating results are
not meaningful and should not be relied upon as a predictor of future
performance. Our prospects must be considered in light of the risk, expenses and
difficulties frequently encountered by companies in the early stage of
development, particularly companies in new and rapidly evolving markets. We may
not be successful in addressing such risks and difficulties. In addition,
although ZapMe! has experienced significant revenue growth recently, we may not
increase or even sustain our current level of revenues or achieve profitability
in the future.
RESULTS OF OPERATIONS
REVENUES
Total revenues for the twelve months ended December 31, 1999 were
$2.5 million. Because we were in the development stage in 1998, no revenues were
reported in the fiscal year ended December 31, 1998. Approximately 64% of our
revenue in 1999 was attributable to three content sponsors--Sylvan, Gilat, and
Dell.
COSTS OF REVENUE
Costs of revenue were $7.7 million for the twelve months ended December 31,
1999. Given the minimal network deployment level in 1998, costs of revenue in
1998 were minimal. The increase in 1999 was due primarily to depreciation of
related to network equipment installed in significantly more schools, space
segment costs related to the increased number of installed schools and call
center costs to support the network. We expect costs of revenue to continue to
increase due to higher depreciation on network equipment and additional costs
for space segment associated with the ongoing deployment of the ZapMe! network
in additional schools.
RESEARCH AND DEVELOPMENT
Research and development expenses increased to approximately $2.7 million
for the twelve months ended December 31, 1999 from approximately $1.1 million
for the twelve months ended December 31, 1998. The increase was due primarily to
increased payroll and consulting fees as we continue to develop our
bi-directional satellite capabilities. We believe that continued investment in
research and development will contribute to attaining our strategic objectives
and, as a result, expect research and development expenses to increase in future
periods.
SALES AND MARKETING
Sales and marketing expenses increased to approximately $7.4 million for the
twelve months ended December 31, 1999 from $1.2 million for the twelve months
ended December 31, 1998. The increase in
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<PAGE>
the level of expense was due primarily to compensation associated with the
increased number of sales and marketing personnel and related overhead, and
increased travel costs associated with our direct selling efforts. We expect
selling and marketing expenses to increase in absolute dollars in future periods
as we hire additional personnel, promote our home client, and develop incentive
programs to increase in-school and at-home usage of the ZapMe! network.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased to approximately $6.8 million
for the twelve months ended December 31, 1999 from approximately $1.5 million
for the twelve months ended December 31, 1998. The increase in the level of
expenses is due primarily to increased personnel and related overhead necessary
to support our increased scale of operations, particularly the addition of key
executive staff. We expect general and administrative expenses to increase as we
expand our management and staff, incur additional costs related to expansion of
our operations, and incur the additional costs associated with being a publicly
traded company.
AMORTIZATION OF DEFERRED STOCK COMPENSATION
Amortization of deferred stock compensation increased to approximately
$6.1 million for the twelve months ended December 31, 1999 from approximately
$1.1 million for the twelve months ended December 31, 1998. The deferred stock
compensation is being amortized over the vesting period of the related options
using a graded vesting method.
OTHER AND INTEREST INCOME (EXPENSE), NET
Other income and interest income (expense), net increased to approximately
$976,000 for the twelve months ended December 31, 1999 from approximately a net
expense of $(36,000) for the twelve months ended December 31, 1998. The increase
is due to substantially higher interest income on cash balances derived
primarily from net proceeds from the Company's initial public offering in
October 1999.
Our revenue, operating expenses and operating results may vary significantly
from quarter to quarter. The fluctuations may be due to a number of factors,
many of which are beyond our control. These factors include:
- the rate of expansion of our network through deployment into additional
schools;
- the rate of usage of our network in schools and at home;
- our ability to generate and sustain significant levels of sponsorship
revenue;
- fluctuations in the use of our network and in demand for our products and
services related to the school calendar, including vacations and holidays;
- the burden of lease payment obligations;
- government action to regulate or otherwise restrict our ability to serve
schools;
- our ability to manage costs, including personnel costs; and
- costs relating to possible acquisitions and integration of technologies or
businesses.
Due to all of the foregoing factors, our quarterly revenue and operating
results are difficult to forecast, and we believe that period-to-period
comparisons of our operating results will not necessarily be meaningful and
should not be relied upon as an indication of future performance.
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LIQUIDITY AND CAPITAL RESOURCES
In August 1999, we issued 2,030,000 shares of our Series E preferred stock
at $5.00 per share, with gross proceeds of approximately $10.2 million.
On October 25, 1999, we closed our underwritten initial public offering and
a concurrent offering of our Common Stock, which resulted in the net proceeds of
approximately $95.5 million.
Net cash used in operating activities increased to approximately
$12.0 million for the twelve months ended December 31, 1999 from approximately
$2.3 million for the twelve months ended December 31, 1998. In each period, cash
used by operating activities was primarily a result of the net losses for such
period offset by amortization deferred stock compensation and higher accounts
payable and depreciation expense.
Net cash used in investing activities increased to approximately
$5.0 million for the twelve months ended December 31, 1999 from approximately
$2.4 million for the twelve months ended December 31, 1998. The uses in each
period resulted from the acquisition of capital assets, primarily leased
computer equipment installed in schools and our corporate office and network
operations centers.
Cash provided by financing activities increased to approximately
$128.9 million for the twelve months ended December 31, 1999 from $5.2 million
for the twelve months ended December 31, 1998. In each period, the cash provided
by financing activities resulted primarily from the issuance of capital stock.
In June 1999, we entered into an agreement whereby a minimum number of
school sites would be established and maintained for a fixed monthly fee for a
minimum of three years. In the event the Company fails to establish the minimum
number of sites by June 30, 2000, an unordered minimum site fee would be
assessed per site until the site was installed. In September 1999, the agreement
was amended and the fixed monthly fee on the minimum number of sites was
increased, which increased the minimum obligation on installed sites to
approximately $60.6 million. This obligation represents the estimated minimum
acquisition cost of equipment to be installed under this agreement.
Our deferred revenue is attributable to billings in advance of earnings on
content sponsorship activities. We record an account receivable and deferred
revenue upon billing for sponsorships. We recognize revenue ratably over the
period the sponsorship is delivered over our network.
We believe that our available cash resources and amounts available under
financing facilities will be sufficient to meet our expected working capital and
capital expenditure requirements for the next twelve months.
We may need to raise additional funds in order to support more rapid
expansion, develop new vertical markets, respond to competitive pressures,
acquire complementary businesses or technologies, or respond to unanticipated
developments. We may seek to raise additional funds through private or public
sales of securities, strategic financial and business relationships, bank debt,
lease financing, or otherwise. If additional funds are raised through the
issuance of equity securities, the percentage of ZapMe! owned by existing
stockholders will be reduced, stockholders may experience additional dilution,
and these equity securities may have rights, preferences, or privileges senior
to those of the holders of ZapMe!'s common stock. Additional financing may not
be available on acceptable terms, if at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to deploy or enhance
our network and Netspace, take advantage of future opportunities, or respond to
competitive pressures or unanticipated developments, which could severely harm
our business.
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NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements. All registrants are expected to
apply the accounting and disclosures described in SAB 101. The Company is
currently evaluating SAB 101 and has not completed its assessment of the impact
of adoption. A change in its revenue recognition policy, if any proves
necessary, resulting from SAB 101 will be reported as a change in accounting
principle in the quarter ended June 30, 2000.
FACTORS AFFECTING OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
INVESTORS ARE CAUTIONED THAT CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON
FORM 10-K AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE ARE FORWARD-LOOKING
STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE
BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT OUR INDUSTRY,
MANAGEMENT'S BELIEFS, AND ASSUMPTIONS MADE BY MANAGEMENT. WORDS SUCH AS
"ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES,"
VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT
ARE DIFFICULT TO PREDICT. OUR ACTUAL RESULTS AND OUTCOMES MAY DIFFER MATERIALLY
FROM WHAT IS EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS DUE
TO FACTORS SUCH AS OUR UNPROVEN BUSINESS MODEL, LIMITED OPERATING HISTORY,
ACCESS TO REQUIRED CAPITAL, AND OTHER RISK FACTORS IDENTIFIED IN OUR FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION. UNLESS REQUIRED BY LAW, ZAPME!
CORPORATION UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
ZapMe! operates in a rapidly changing environment that involves a number of
risks, some of which are beyond its control. The following discussion highlights
some of these risks and the possible impact of these factors on future results
of operations.
WE HAVE AN UNPROVEN BUSINESS MODEL AND A LIMITED OPERATING HISTORY.
Because we were incorporated in June 1997 and only launched our network in
June 1998, we have a limited operating history on which investors can base an
evaluation of our business and prospects. Our revenue and income potential are
unproven and our business model is unique, constantly evolves and will continue
to evolve. We only recently began generating revenue from sponsorships and to
date we have not generated any material revenue from e-commerce or network
services. We have limited insight into trends that may emerge and affect our
business.
An investor in our common stock must carefully consider the risks and
difficulties frequently encountered by companies in an early stage of
development, as well as the risks we face due to our participation in a new and
rapidly evolving market. Our business strategy may not be successful and we may
not successfully overcome these risks.
WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE CONTINUED LOSSES.
We incurred net losses of approximately $32.7 million for the period of
inception through December 31, 1999. These losses resulted primarily from costs
related to developing the ZapMe! network, deploying the ZapMe! network to
schools and developing content and features for the ZapMe! network. We have not
achieved profitability. We expect to have increasing net losses and negative
cash flows for the foreseeable future. The size of these net losses will depend,
in part, on the
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rate of growth in our revenues from our sponsors, e-commerce offerings and
network services and on the level of our expenses. We intend to increase our
operating expenses substantially as we:
- increase the number of users of our network through the deployment of our
network to additional schools;
- increase our network usage through marketing activities and the addition
of new features; and
- increase our general and administrative functions to support our growing
operations.
As a result, we expect that our operating expenses will increase
significantly for the foreseeable future. With increased expenses, we will need
to generate significant additional revenues to achieve profitability.
Consequently, it is possible that we will never achieve profitability, and even
if we do achieve profitability, we may not sustain or increase profitability on
a quarterly or annual basis in the future. If we do not achieve or sustain
profitability in the future, then we may be unable to continue our operations.
WE EXPECT OUR QUARTERLY FINANCIAL RESULTS TO FLUCTUATE AND OUR EARLY STAGE OF
DEVELOPMENT LIMITS OUR ABILITY TO PREDICT REVENUES AND EXPENSES PRECISELY.
Our quarterly and annual operating results have varied in the past and are
likely to fluctuate significantly in the future due to a variety of factors,
many of which are outside of our control. Factors that might cause quarterly
fluctuations in our operating results include the factors described in the
subheadings below. To respond to these and other factors, we may need to make
business decisions that could impact our quarterly operating results. Most of
our expenses, such as lease payment obligations, employee compensation and rent,
are relatively fixed in the short term. Moreover, our expense levels are based,
in part, on our expectations regarding future revenue levels. As a result, if
total revenues for a particular quarter are below our expectations we could not
proportionately reduce our operating expenses for that quarter. Therefore, this
revenue shortfall would have a disproportionate effect on our expected operating
results for that quarter. Consequently, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful, and should
not be viewed as indicators of our future performance. In addition, during
future periods our quarterly or annual operating results may fail to meet the
expectations of securities analysts or investors. In this case the trading price
of our common stock would likely decrease.
OUR METHODS OF GENERATING REVENUES ARE NEW AND LARGELY UNTESTED.
The success of our business will depend on our ability to generate revenue.
We have only recently begun to generate revenue, and because our methods of
generating revenue are new and largely untested we may generate lower revenues
than we expect. Further, if we are unable to generate multiple new sources of
revenue, our future revenue growth will suffer. We initially expect to receive
the majority of our revenue from:
- sponsorships;
- e-commerce; and
- network services, including marketing and profit sharing fees.
From inception through December 31, 1999, we generated approximately 93% of
our revenue from sponsorships. Although we expect to generate a portion of our
future revenue through e-commerce, we have not generated any material e-commerce
revenue through December 31, 1999. As a result, our expected primary methods of
generating revenue are relatively new to us and largely untested.
We expect that revenue from sponsorships will make up a significant amount
of our revenue for the foreseeable future, although we may never achieve
significant sponsorship revenue. If Internet and online advertising do not
continue to grow, or if sponsorship on the ZapMe! network does not achieve
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market acceptance, our revenues generated from sponsorships will be lower than
expected, and may be insufficient to support our business model.
The success of our e-commerce initiative depends on our users being willing
to engage in commerce over our network and more generally upon the adoption of
the Internet as a medium for commerce by a broad base of customers and our
users. If this market fails to develop or develops more slowly than expected, or
if our e-commerce services do not achieve market acceptance, our revenue
generated from e-commerce will be lower than expected.
In the future, we expect to generate revenue through network services. For
example, we have entered into an agreement with a strategic partner who will use
the ZapMe! labs after school hours and, in return, will pay us a portion of its
revenue or profits. We anticipate entering into other arrangements like this
one; however, if we are unable to structure such arrangements, if they develop
more slowly then expected, or if our partners are unable or unwilling to make
full and effective use of our ZapMe! labs and network, our revenue generated
from network services will be lower then expected.
OUR BUSINESS AND FUTURE REVENUE GROWTH WILL SUFFER IF WE FAIL TO RETAIN AND GROW
OUR USER BASE, GENERATE FREQUENT AND RECURRING USAGE BY OUR USERS, OR
DEMONSTRATE THAT OUR USERS ARE ACTUALLY USING OUR SERVICE.
The success of our business will depend on our ability to add users and
demonstrate to sponsors that our users are using the ZapMe! network on a regular
basis. Our ability to grow our user base depends largely on our ability to
deploy our network to additional schools and extend our network to home users.
If we are unable to rapidly deploy our network to a large number of additional
schools, we will not be able to grow our core school user base, and our ability
to generate revenue and implement our strategy will be severely limited. Our
ability to grow our user base also depends on our success with the development
and implementation of programs designed to help schools encourage their students
to register.
We must also encourage our users to use our service regularly and for long
periods of time. We have developed programs and features to encourage this type
of use of our network; however, these programs could fail, in whole or in part.
There are also a variety of reasons why our users might not continue to
regularly use our service. Some users may dislike our community window, which is
always present. Users may find that our features and content are not
sufficiently compelling to continue regular use, or may turn to other Internet
providers for such services, such as email. A number of our users may not
actively use our service for periods of time. If we are not able to demonstrate
to our sponsors that we have an active and growing user base, sponsors may
choose not to enter into sponsorship agreements with us and our revenue
generated from sponsorships would suffer.
WE RELY HEAVILY ON OUR KEY PARTNERS AND IF THEY TERMINATE THEIR STRATEGIC
ALLIANCES WITH US OR IF THE ARRANGEMENT FAILS TO MEET OUR OBJECTIVES, WE MAY
EXPERIENCE DIFFICULTY OR DELAYS IN INSTALLING AND MAINTAINING OUR NETWORK AND
OUR REVENUE GROWTH MAY SUFFER.
Our current strategic alliance relationships include: Ask Jeeves, Classroom
Connect, Inacom, Dell, Gilat and Spacenet, Microsoft, New Sub Services, School
Specialty, Sylvan, Toshiba, Xerox and Yahoo!. We rely heavily on our strategic
alliance relationships. These agreements involve many aspects of our business
and in some cases include the sale of equity securities to these companies.
These types of arrangements are complex and will require a great deal of effort
to operate successfully. As a result, there are many risks related to these
arrangements, including some that we may not have foreseen. It is difficult to
assess the likelihood of occurrence of these risks, including the lack of
success of the overall arrangement to meet the parties' objectives. If we fail
to maintain these relationships, or if our partners do not perform to our
expectations, our ability to deploy our network to additional schools, the
performance of our network, and our ability to generate revenues may all be
harmed. Specific examples
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of these strategic alliance relationships include: (1) our agreements with
Sylvan relating to the use of our network and labs outside of school hours,
(2) our agreement with Dell relating to the acquisition and integration of our
computer lab equipment, and (3) our agreements with Spacenet relating to the
installation of our network and labs as well as the operation of our network.
WE ARE DEPENDENT ON THIRD PARTIES TO DEPLOY OUR NETWORK AND SUPPORT IT ONCE
INSTALLED.
We plan to rapidly deploy our network to additional schools across the
country. We have used, and plan to continue to use, third parties such as Gilat
and Spacenet, and Inacom to install and support the ZapMe! network in each
school. In the past we have experienced difficulties resulting from the failure
of former third-party integrators to successfully manage a wide-scale deployment
into a school environment. Such failures resulted in delays in the scheduled
deployment of our network to additional schools. We have entered into
relationships with nationally recognized parties to install software on the
computers, to install the ZapMe! lab in each school site and to serve as the
general contractor to oversee the installation process. However, these parties
may not be able to install schools on a wide scale according to our schedule.
While we do not currently anticipate additional changes of our third party
installers, any further changes would cause delays in the deployment of the
ZapMe! network and any inability to install schools according to our plan could
limit or eliminate revenue generated from sponsorships, e-commerce and network
services. Further, if we do need to hire substitute or additional third-party
installers of our network we cannot assure you that we will be able to do so on
terms as favorable as our current arrangements, or at all, which could result in
higher installation costs to us as well as potential delays in our deployment.
We also rely on third parties to provide the majority of support necessary
to maintain the ZapMe! network and labs once installed. Any inability to
maintain or delays to the maintenance of this equipment would lead to lower
revenue generated from sponsorship and network services.
OUR DEPENDENCE ON SHORT-TERM SPONSORSHIP CONTRACTS EXPOSES US TO GREATER
PRESSURE ON OUR SPONSORSHIP PRICES AND ALLOWS SPONSORS TO QUICKLY CEASE THEIR
SPONSORSHIPS.
A substantial portion of our sponsorship revenue is and will continue to be
derived from short-term contracts. Consequently, we may not be able to command
higher prices typically associated with more comprehensive arrangements.
Further, many of our sponsors will be able to cease advertising on our network
quickly and without penalty, thereby increasing our exposure to competitive
pressures. Our current sponsors may not continue to purchase advertisements and
we may not be able to secure new contracts from existing or future sponsors at
attractive rates or at all.
WE DERIVE A SIGNIFICANT PORTION OF OUR REVENUE FROM A SMALL NUMBER OF SPONSORS
AND OUR REVENUE MAY DECLINE SIGNIFICANTLY IF ANY MAJOR SPONSOR CANCELS OR DELAYS
A PURCHASE.
A small number of sponsors account for a significant portion of our revenue,
and we anticipate that this trend will continue. For example, in the near-term
we expect to derive a substantial portion of our revenue from an agreement with
Sylvan, and anticipate that this agreement will continue to account for a
significant percentage of our revenue through December 31, 2003, when it
expires. Three sponsors--Sylvan, Gilat and Dell--accounted for approximately 64%
of our revenue during the twelve months ended December 31, 1999. Our revenue
from sponsorships will not increase if we are unable to renew our material
agreements, replace such agreements with similar agreements with new sponsors,
or sufficiently diversify our sponsor base so that we do not rely on a small
number of sponsors for a significant portion of our revenue.
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OUR VARIED SALES CYCLES COULD HARM OUR RESULTS OF OPERATIONS IF FORECASTED SALES
ARE DELAYED OR DO NOT OCCUR.
The length of time between the date of initial contact with a potential
sponsor and the execution of a contract with the potential sponsor varies
significantly and depends on the nature of the arrangement. Furthermore,
contracting with potential sponsors is subject to delays over which we have
little or no control, including:
- potential sponsors' adoption of the ZapMe! network as an acceptable use of
advertising budgets;
- potential sponsors' budgetary constraints;
- potential sponsors' internal acceptance reviews; and
- the possibility of cancellation or delay of projects by sponsors.
During any given sales cycle, we may expend substantial funds and management
resources and yet not obtain sponsorship revenue. Our results of operations for
a particular period may suffer if sales to sponsors forecasted in a particular
period are delayed or do not otherwise occur.
OPPOSITION TO OUR NETWORK, ADVERTISING IN SCHOOLS AND UNRESTRICTED INTERNET
ACCESS MAY LEAD TO NEGATIVE PUBLICITY, REGULATORY CONTROL, LEGAL ACTION,
BOYCOTTS OR OTHER ACTIONS THAT COULD HARM OUR BUSINESS.
We expect to generate a significant portion of our revenue from sponsorships
purchased by marketers interested in addressing our student population across
the ZapMe! network in schools. This business model may prove controversial and
lead to negative publicity as well as action by the government or private
interests to restrict or stop our network. To date, some third parties that
oppose corporate advertising in schools, as well as sponsorships on the ZapMe!
network, have engaged in publicity campaigns to deter sponsors from dealing with
the companies engaging in advertising or sponsorship activities and have sought
legislation to curb this practice. In particular, California recently enacted a
law that imposes additional procedural requirements before local public school
boards can enter into contracts involving advertising in schools. In particular,
starting in the year 2000, California public school boards must (a) notice a
public hearing and make certain findings regarding the importance and
affordability of a covered product or service, such as the ZapMe! network,
before entering into new contracts and (b) give parents the right to opt in
writing that their children not participate. This law could delay deployment of
the ZapMe! network and reduce student participation in California. Similar or
more restrictive legislation is possible in other states including Minnesota,
and at the local and federal levels. For example, Congress is currently
considering legislation that would require prior, written parental consent
before any entity could collect any information for any commercial purpose from
any student under 18. Anti-school-advertising groups have had some successes in
the past seeking regulation and boycotts of companies that advertise in schools,
such as Channel One, a wholly-owned subsidiary of Primedia, Inc. Moreover, any
new restriction, law or regulation pertaining to online media, sponsorships or
e-commerce in schools, or the application or interpretation of existing laws,
could decrease the demand for our service, increase our cost of doing business
or otherwise have a negative impact on our business.
The Internet is the subject of an increasing number of laws and regulations.
These laws or regulations may relate to liability for information retrieved from
or transmitted over the Internet, online content regulation, user privacy,
taxation and the quality of products and services. In addition, these new laws
have not yet been interpreted by the courts, and consequently their
applicability and reach are not defined. Moreover, the applicability to the
Internet of existing laws governing issues such as intellectual property
ownership, copyright, defamation, obscenity and personal privacy is uncertain
and developing. We may be subject to claims that our services violate such laws.
Any new legislation or regulation in the United States or abroad or the
application of existing laws and regulations to the Internet could impose
significant restrictions, requirements or additional costs on our business,
require
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us to change our operating methods, or subject us to additional liabilities and
cause the price of our common stock to decline.
WE ARE DEPENDENT ON OUR NETWORK INFRASTRUCTURE, AND IN PARTICULAR ON SATELLITES
AND SATELLITE TRANSMISSION TECHNOLOGY, AND ANY FAILURE OF OUR NETWORK WOULD HARM
OUR OPERATIONS.
Our business plan calls for rapidly deploying our network to many additional
schools. Our network infrastructure may not be able to support the demands this
growth places on it and its performance and reliability may decline. We have
experienced and may in the future experience interruptions in service as a
result of outages and other delays occurring throughout our network
infrastructure. If these outages or delays occur frequently in the future, use
of our network could grow more slowly or decline.
Our network operations center and our communications and other computer
hardware are also subject to disruptions which are beyond our control and for
which we may not have adequate insurance. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage our
communications hardware and other network operations.
Each school installed with the ZapMe! network is connected to our network
through a satellite link. The complete or partial loss of the satellites used to
transmit data to schools could affect the performance of our network. Orbiting
satellites are subject to the risk of failing prematurely due to mechanical
failure, a collision with objects in space or an inability to maintain proper
orbit. Any such loss of the use of a satellite could prevent us from delivering
our services. This interruption in services would continue until either a new
substitute satellite is placed into orbit, or until our services were moved to a
different satellite. Moving to an alternate satellite would require us to
redirect all of the satellite dishes in our network--a very time consuming and
expensive process. The loss of a satellite could also result in increased costs
of using satellites. We are dependent on transmissions from the satellite to our
customer sites, and these transmissions may be interrupted or experience other
difficulty, which could result in service interruptions and delays in our
network. In addition, the use of the satellite to provide transmissions to our
customers requires a direct line of sight between the satellite and the receiver
at the school and is subject to distance and rain attenuation. In markets which
experience heavy rainfall we may need to use greater power to maintain
transmission quality. Such changes may require Federal Communications
Commission, or FCC, approval which may not be granted.
WE MAY BE SUBJECT TO THIRD PARTY ABUSES OF OUR NETWORK, SUCH AS "SPAM" OR
"HACKING," WHICH COULD LEAD TO INTERRUPTIONS IN OUR SERVICE AND OTHER ADVERSE
CONSEQUENCES WHICH COULD BE EXPENSIVE TO FIX, SUBJECT US TO LIABILITY OR RESULT
IN LOWER USE OF OUR NETWORK.
The future success of our business depends on the security of our network.
Computer viruses or problems caused by our users or other third parties, such as
the sending of excessive volumes of unsolicited bulk email or "spam," could lead
to interruptions, delays, or cessation in service to our users. In addition, the
sending of "spam" through our network could result in third parties asserting
claims against us. We may not prevail in such claims and our failure to do so
could result in large judgments which would harm our business. Users or other
third parties could also potentially jeopardize the security of confidential
information stored in our computer systems by their inappropriate use of the
Internet, including "hacking," which could cause losses to us or our users or
deter persons from using our services. Users or third parties may also
potentially expose us to liability by "identity theft," or posing as another
ZapMe! user. Unauthorized access by current and former employees or others could
also potentially jeopardize the security of confidential information stored in
our computer systems and those of our users.
We expect that our users will increasingly use the Internet for commercial
transactions in the future. Any network malfunction or security breach could
cause these transactions to be delayed, not completed at all, or completed with
compromised security. Users or others may assert claims of liability
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against us as a result of any failure by us to prevent these network
malfunctions and security breaches, and may deter others from using our
services, which could cause our business prospects to suffer. Although we intend
to continue using industry-standard security measures, such measures have been
circumvented in the past, and we cannot assure you that these measures will not
be circumvented in the future. In addition, to alleviate problems caused by
computer viruses or other inappropriate uses or security breaches, we may have
to interrupt, delay, or cease service to our users, which could severely harm
our business.
WE ARE DEPENDENT ON OUR LEASED SATELLITE BANDWIDTH AND IF SUCH LEASES WERE
TERMINATED OR OTHERWISE UNAVAILABLE TO US WE COULD BE SUBJECTED TO SIGNIFICANT
ADDITIONAL COSTS OR RESTRICTIONS ON OUR BUSINESS.
We currently lease satellite bandwidth from GE Americom and Spacenet. If,
for any reason, the leases were to be terminated, we might not be able to
renegotiate new leases with GE Americom or Spacenet or another satellite
provider on favorable terms, if at all.
The satellite industry is a highly regulated industry. In the United States,
operation and use of satellites requires licenses from the FCC. As a lessee of
satellite space, we could in the future be indirectly subject to new laws,
policies or regulations or changes in the interpretation or application of
existing laws, policies or regulations, any of which may modify the present
regulatory environment in the United States. While we believe that our satellite
access providers will be able to obtain all U.S. licenses and authorizations
necessary to operate effectively, they may not continue to be successful in
doing so. Our failure to indirectly obtain some or all necessary licenses or
approvals could impose significant additional costs and restrictions on our
business, require us to change our operating methods, or result in our no longer
being able to provide our service to affected users.
IF WE ARE UNABLE TO COMPETE EFFECTIVELY AGAINST OUR CURRENT AND POTENTIAL
COMPETITORS THEN WE MAY LOSE USERS TO OTHER SERVICES WHICH COULD RESULT IN LOWER
USAGE OF OUR NETWORK AS WELL AS LOWER THAN EXPECTED REVENUES.
The market for the ZapMe! network is new and rapidly evolving, and we expect
competition in and around this market to intensify in the future. While we do
not believe any of our competitors currently offer the functionality offered by
the ZapMe! network, we face competition from a number of companies who provide
services and functionality similar to portions of our network, who market
products and services to a similar base of users, or both, and who could in the
future seek to compete more directly with us. In this light, we believe our
current and potential competitors include America Online, Channel One, Family
Education Network, Helius, Inc., bigchalk.com and Lightspan.
Many of our existing competitors, as well as potential new competitors, have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their products and services. Many of these competitors offer a
wider range of products and services than we do. These products and services may
attract users to our competitors' sites and, consequently, result in lower usage
of our network.
SCHOOLS MAY USE ALTERNATIVE MEANS TO ACQUIRE COMPUTERS AND INTERNET ACCESS,
WHICH COULD REDUCE OUR POTENTIAL USER BASE AND MAY LEAD TO LOWER THAN EXPECTED
REVENUES.
An immediate attraction of our network is free access to computers and the
Internet. However, for a variety of reasons, schools may decide to use other
methods to acquire computers and Internet access. If schools decide to use means
other than deployment of our network, it will limit our user base, and
consequently we will have lower than expected revenues from sponsorships,
e-commerce and network services. Aside from purchasing the computers and
Internet access from already existing budgets or from donations from parents or
other members of the community, some other methods of
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acquiring computer equipment and Internet access that schools may turn to
include the government subsidized E-Rate and various free computer equipment and
Internet access companies and offerings.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED.
We expect to use existing cash for general corporate purposes, including
expanding our sales and marketing activities, continuing investments in
technology and product development and other capital expenditures, as well as
working capital and other corporate expenses, including the funding of net
losses from operations. We believe that our existing capital resources will be
sufficient to meet our cash requirements for the next twelve months. However,
our cash requirements are large and depend on several factors, including cash
outflows due to lease obligations, the rate of expansion of our installed school
base, the availability of equipment leases on competitive terms, our success in
generating revenues, the growth of sales and marketing, and other factors. If
capital requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated.
If additional funds are raised through the issuance of equity securities,
the percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution, or these equity securities may have rights,
preferences or privileges senior to those of the holders of our common stock. If
additional funds are raised through the issuance of debt securities, such
securities would have rights, preferences and privileges senior to holders of
common stock and the term of such debt could impose restrictions on our
operations. Additional financing may not be available when needed on terms
favorable to us or at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to deploy our network, develop
or enhance our services, take advantage of future opportunities or respond to
competitive pressures.
WE ARE DEPENDENT ON THE CONTINUED GROWTH IN USE AND POPULARITY OF OUR NETWORK
AND THE INTERNET BY OUR USERS AND OUR ABILITY TO SUCCESSFULLY ANTICIPATE THE
FREQUENTLY CHANGING TASTES OF OUR USERS.
Our business is unlikely to be successful if the popularity of the Internet
and related media in school as an educational tool and among students in general
does not continue to increase. Even if the popularity of the Internet and
related media does increase, the success of our network in particular depends on
our ability to anticipate and keep current with the frequently changing
preferences of our users, primarily students ranging in age from 13 to 19. Any
failure on our part to successfully anticipate, identify or react to changes in
styles, trends or preferences of our users would lead to reduced interest in and
use of the ZapMe! network and therefore limit opportunities for sponsorship
sales as well as e-commerce. Moreover, the ZapMe! brand could be eroded by
misjudgments in service offerings or a failure to keep our content current with
the evolving preferences of our audience.
SEASONAL AND CYCLICAL PATTERNS MAY AFFECT OUR REVENUE AND RESULTS OF OPERATIONS.
We believe that in-school advertising and e-commerce sales will be lower
during the summer, in late December and early January and during other school
holiday periods when most users of the ZapMe! network will be on vacation and
away from school. In addition, advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters of each year. If our market makes the transition from an emerging to a
more developed market, these traditional seasonal and cyclical patterns may
develop in the future. These patterns would exacerbate seasonality to which we
are subject by further reducing advertising revenues in the first and third
calendar quarter of each year. Seasonal and cyclical patterns in online
advertising and e-commerce in general may also affect our revenue. Because our
operating history is so limited, it is difficult for us to accurately predict
these trends and plan accordingly. Since our operating expenses are based on
future revenue performance, it is possible that seasonal fluctuations could
materially and adversely affect our revenue and results of operations.
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OUR NETWORK IS NEW AND WE MAY NEED TO DEVELOP TOOLS TO ATTRACT SPONSORS AND
PARTNERS.
It is important to our sponsors that we accurately measure the user base
demographics and sponsorship delivery on our network. We are currently
implementing systems designed to leverage non-personally identifying demographic
data about our users, including age, gender, and school location by zip code, in
such a way as to permit sponsors to address their intended market segment. This
effort may be complicated by the remote nature of the ZapMe! labs in which this
information is generated and recorded before being transmitted back to our
network operations center. If we fail to implement these systems successfully,
we may not be able to accurately evaluate the demographic characteristics of our
users. Companies may choose not to sponsor our network or may pay less for
sponsorships if they perceive our measurements to be unreliable.
No standard measurement currently exists to determine the effectiveness or
market reach of the advertising that is available on our network. We may need to
develop standard measurements in order to support and promote our network as a
significant advertising medium. If such standards do not develop, it could be
difficult to attract sponsors and sponsorship revenue.
OUR EFFORTS TO DEVELOP WIDESPREAD BRAND RECOGNITION ARE LIKELY TO BE EXPENSIVE
AND MAY FAIL.
The development of our brand is important to our future success. If we fail
to develop sufficient brand recognition, our ability to attract sponsorship
revenue may be impaired, and our revenue will suffer. In order to build our
brand awareness we must succeed in our brand marketing efforts, deliver features
and services that are engaging to our users, provide high-quality content and
increase user traffic to the ZapMe! network. These efforts have required, and
will continue to require, significant expenses. We cannot assure you that we
will be successful in developing our brand.
WE MAY BE LIABLE OR INCUR ADDITIONAL COSTS FOR OUR USE OR DISTRIBUTION OF OUR
USERS' INFORMATION.
We could be subject to liability claims for misuses of information collected
from our users, such as for unauthorized marketing purposes, and will face
additional expenses to analyze and comply with increasing regulation in this
area. In addition, the Federal Trade Commission, or FTC, has issued final
regulations governing collection of personal information from children under 13,
has submitted proposals to the Internet industry regarding the rights and safety
of children using the Internet, and is expected to issue additional regulations
in this area. We are sensitive to the impetus for these regulations, and
accordingly, we currently collect only non-personally identifying information
during user registration, including age, gender, and school location by zip
code. We use this non-personally identifying information internally to determine
how to improve our service, applications and features and to tailor our
advertisements and communications. We also use this information externally on an
aggregated, non-individually identifiable basis to provide our sponsors with the
demographics of our user base and response rate to their media. We could incur
additional expenses, or be required to alter, or eliminate, various current
practices if new regulations regarding the use or distribution of personal and
other information collected online are introduced or if our privacy practices
are investigated.
WE MAY BE SUBJECT TO LIABILITY FOR PRODUCTS SOLD THROUGH OUR NETWORK.
To date, we have had very limited experience in the sale of products online
and the development of relationships with manufacturers or suppliers of such
products. However, we plan to develop a range of e-commerce opportunities.
Consumers may sue us if any of the products that we sell online are defective,
fail to perform properly or injure the user. Liability claims resulting from our
sale of products could require us to spend significant time and money in
litigation or to pay significant damages.
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WE MAY BE SUBJECT TO LIABILITY FOR PUBLISHING OR DISTRIBUTING CONTENT OVER OUR
NETWORK.
We may be subject to claims relating to content that is published on or
downloaded from the ZapMe! network. We also could be subject to liability for
content that is accessible from our network through links to other web sites or
that is posted by members in chat rooms or bulletin boards. Although we carry
general liability insurance, our insurance may not cover potential claims of
this type, such as defamation or trademark infringement, or may not be adequate
to cover all costs incurred in defense of potential claims or to indemnify us
for all liability that may be imposed. In addition, any claims like this, with
or without merit, could require us to change our network in a manner that could
be less attractive to our customers and would result in the diversion of our
financial resources and management personnel.
WE MAY NOT BE ABLE TO DELIVER VARIOUS SERVICES IF THIRD PARTIES FAIL TO PROVIDE
RELIABLE SOFTWARE, SYSTEMS AND RELATED SERVICES TO US.
All of our sponsorships are served using software licensed from NetGravity.
While there is other software available, it would substantially disrupt our
business in the near term to switch to another provider. As such, we are reliant
on NetGravity and its software. If NetGravity's software fails to perform as
expected, or if we are not able to renew such agreement or license or internally
develop similar software in the future, we may not be able to effectively
display advertisements to our users. In such event, our revenue from
sponsorships would likely suffer. On October 26, 1999, DoubleClick, an Internet
advertising provider, acquired NetGravity in a stock-for-stock transaction.
Although we have experienced no change in our relationship, we can not predict
how the acquisition will affect our relationship with DoubleClick in the future.
In addition, we are dependent on various third parties for other software,
systems and related services. Several of the third parties that provide software
and services to us have a limited operating history, have relatively immature
technology and are themselves dependent on reliable delivery of services from
others. As a result, our ability to deliver various services to our users may
suffer due to the failure of these third parties to provide reliable software,
systems and related services to us.
THE INABILITY TO OBTAIN KEY SOFTWARE FROM THIRD PARTIES MAY HARM OUR BUSINESS.
We rely on software licensed from third parties, including applications that
are integrated with internally developed software and used in our products. Most
notably, we license remote management software and Windows NT. These third-party
technology licenses may not continue to be available to us on commercially
reasonable terms, or at all, and we may not be able to obtain licenses for other
existing or future technologies that we desire to integrate into our products.
Our business could be seriously harmed if we cannot maintain existing
third-party technology licenses or enter into licenses for other existing or
future technologies needed for our products.
OUR SUCCESS DEPENDS UPON THE SUCCESSFUL DEVELOPMENT OF NEW SERVICES AND FEATURES
IN THE FACE OF RAPIDLY EVOLVING TECHNOLOGY.
Our market is characterized by rapidly changing technologies, frequent new
service introductions and evolving industry standards. The recent growth of the
Internet and intense competition in our industry exacerbate these market
characteristics. Our future success will depend on our ability to adapt to
rapidly changing technologies by continually improving the performance, features
and reliability of our network. We may experience difficulties that could delay
or prevent the successful development, introduction or marketing of new
features, content or network services. In addition, our new enhancements must
meet the requirements of our current and prospective users and must achieve
significant market acceptance. We could also incur substantial costs if we need
to modify our service or infrastructure to adapt to these changes.
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FAILURE TO MANAGE THE GROWTH OF OUR OPERATIONS COULD HARM OUR BUSINESS AND
STRAIN OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES.
We have rapidly and significantly expanded our operations. We anticipate
that further significant expansion will be required to grow our user base if we
are to be successful in implementing our business strategy. We may not be able
to implement management information and control systems in an efficient and
timely manner, and our current or planned personnel, systems, procedures and
controls may not be adequate to support our future operations. If we are unable
to manage growth effectively, our business would suffer. During 1999, we
increased the number of employees from 45 to 146. In order to accommodate this
expansion, we have added management resources. Most of our existing senior
management personnel, including Rick Inatome, our President and Chief Executive
Officer, Kim Gaynor, our Executive Vice President and Chief Management Officer,
William S. Burwell, our Chief Information Officer, Philip Wise, our Senior Vice
President of Strategic Alliances, and David Robinson, our Vice President of
Installations joined us within the last nine months. Some other key managerial,
technical and operations personnel have not yet been fully integrated. To manage
the expected growth of our operations and personnel, we will be required to:
- improve existing and implement new operational, financial and management
controls, reporting systems and procedures;
- install new management information systems; and
- train, motivate and manage our sales and marketing, engineering, technical
and customer support employees.
THE LOSS OF KEY PERSONNEL MAY HURT OUR ABILITY TO OPERATE OUR BUSINESS
EFFECTIVELY.
Our success depends to a significant degree upon the continued contributions
of the principal members of our sales, engineering and management departments,
many of whom perform important management functions and would be difficult to
replace. Specifically, we believe that our future success is highly dependent on
our senior management, and in particular on Lance Mortensen, our Chairman, and
Rick Inatome, our President and Chief Executive Officer. The loss of the
services of any key personnel, particularly senior management, could seriously
harm our business.
IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL AS NECESSARY,
WE MAY NOT BE ABLE TO SUCCESSFULLY ACHIEVE OUR OBJECTIVES.
We have recently hired and anticipate continuing to hire additional
engineering, sales, marketing, e-commerce, customer support and accounting
personnel. We may not be able to attract and retain the necessary personnel to
accomplish our business objectives, and we may experience constraints that will
adversely affect our ability to deploy the ZapMe! network in a timely fashion or
to support our users and operations. We have at times experienced, and continue
to experience, difficulty in recruiting qualified personnel. Recruiting
qualified personnel is an intensely competitive and time-consuming process.
WE ARE CURRENTLY IN ARBITRATION WITH ONE OF OUR FORMER OFFICERS, WHICH IF
RESOLVED AGAINST US COULD RESULT IN OUR OBLIGATION TO PAY LARGE DAMAGES OR
ACCELERATED VESTING OF THE OFFICER'S ZAPME! STOCK.
We filed a demand for arbitration with our former President and Director,
Frank J. Vigil, related to his employment at and departure from ZapMe!.
Mr. Vigil filed a response to our demand and a counterclaim. We cannot assure
you that we will prevail in this arbitration, and any decision against us could
result in an obligation to pay some or all of the damages Mr. Vigil has sought
in his counterclaim. These damages could be substantial. Notably, under the
terms of his employment agreement and related agreements, Mr. Vigil was
permitted to purchase 1.35 million shares of common
29
<PAGE>
stock of ZapMe!. Some of those shares were subject to a right of repurchase by
ZapMe! at the time of Mr. Vigil's separation from ZapMe!. Mr. Vigil may claim
that, under the terms of his employment agreement, the closing of this offering
could result in the cancellation of the right of repurchase and the full vesting
of his stock. A decision against us with regard to the validity of the
employment contract and related agreements could therefore result in the
complete vesting of Mr. Vigil's stock.
WE COULD BE REQUIRED TO RECORD A SIGNIFICANT ACCOUNTING EXPENSE UPON THE VESTING
OF A WARRANT.
As part of our agreement with Sylvan, we issued a warrant to purchase
150,000 shares of our common stock at $5.00 per share. This warrant becomes
exercisable if Sylvan meets a specified milestone by December 31, 2003. ZapMe!
recorded deferred stock compensation of approximately $904,000 during the twelve
months ended December 31, 1999. The amount was computed using the Black-Scholes
option valuation model, and will be remeasured at each measurement date. ZapMe!
could be required to record additional significant non-cash accounting expense
based on the value of the warrant during the life of the warrant. The value of
the warrant at each measurement date will depend on the value of our common
stock at that time and other volatility factors.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS AND RESULT IN
INCREASED DEBT AND ASSUMPTION OF CONTINGENT LIABILITIES.
As part of our business strategy, we expect to review acquisition prospects
that would complement our current product offerings, augment our market
coverage, enhance our technical capabilities, or otherwise offer growth
opportunities. While we have no current agreements or negotiations underway with
respect to any such acquisitions, we may acquire businesses, products or
technologies in the future. In the event of such future acquisitions, we could:
- issue equity securities which would dilute current stockholders'
percentage ownership;
- incur substantial debt; or
- assume contingent liabilities.
Such actions by us could have a detrimental effect on our results of
operations and/or the price of our common stock. Acquisitions also entail
numerous risks, including:
- difficulties in assimilating acquired operations, technologies, products
or personnel;
- unanticipated costs associated with the acquisition that could materially
adversely affect our results of operations;
- negative effects on our reported results of operations from acquisition
related charges and of amortization of acquired technology and other
intangibles;
- diversion of management's attention from other business concerns;
- adverse effects on existing business relationships with suppliers and
customers;
- risks of entering markets in which we have no or limited prior experience;
and
- potential loss of key employees of acquired organizations.
- Possible infringement of intellectual property rights could harm our
business
We seek to protect our intellectual property and to respect the intellectual
property rights of others. To protect our own intellectual property, we rely on
U.S. and international law regarding copyright, patents, trademarks and trade
secrets as well as confidentiality agreements with employees, consultants,
contractors and business partners. We cannot guarantee that we will succeed in
obtaining,
30
<PAGE>
registering, policing or defeating challenges to our intellectual property
rights, or that we will avoid claims that we are infringing the rights of
others.
Despite our efforts to protect our intellectual property, we may be
unsuccessful in doing so. We may be unable to obtain patents or register
trademarks for a variety of reasons, including a mistaken belief that these
items are eligible for intellectual property protection or that we are the
entity entitled to this protection, if any. Our copyrights and trade secrets may
similarly turn out to be ineligible for legal protection. In addition, parties
may attempt to disclose, obtain or use its proprietary information despite, or
in the absence of, a confidentiality agreement. Some foreign countries do not
protect intellectual property rights to the same extent as the United States,
and intellectual property law in the United States is still uncertain and
evolving as applied to Internet-related industries. The status of domain names
and the regulatory bodies in charge of them is also unsettled. Any inability to
register or otherwise protect our intellectual property rights could seriously
harm our business since it could enable competitors to copy important features
on our network.
Furthermore, third parties may assert intellectual property infringement
claims against ZapMe!. These claims, possibly including those from companies
from which we license key technology for its operations, could result in
significant liability, the inability to use key rights and technologies, and the
invalidation of our own proprietary rights. In addition, regardless of the
outcome, any litigation could be time-consuming, expensive, and distracting of
management's time and attention.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of interest
expense we must pay with respect to our various outstanding debt instruments.
The risk associated with fluctuating interest expense is limited, however, to
the expense related to those debt instruments and credit facilities which are
tied to market rates. We do not use derivative financial instruments in our
investment portfolio. We ensure the safety and preservation of our invested
principal funds by limiting default risks, market risk and reinvestment risk. We
mitigate default risk by investing in safe and high-credit quality securities. A
hypothetical increase or decrease in market interest rates by 10% from the
market interest rates at December 31, 1999 would not cause the fair value of our
cash and cash equivalents or the interest expense paid with respect to our
outstanding debt instruments to change by a material amount. Declines in
interest rates over time will, however, reduce our interest income while
increases in interest rates over time will increase our interest expense. We
have not engaged in any foreign currency activity and have no operations outside
of the United States.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is in Item 14 of Part IV of this
Report and is incorporated into this item by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
31
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this Item regarding directors and nominees is
incorporated herein by reference to the information in our proxy statement for
the 2000 Annual Meeting of Stockholders to be filed with the Commission within
120 days after the end of our fiscal year ended December 31, 1999 under the
caption "Proposal No. 1 Election of Directors."
BOARD MEETINGS AND COMMITTEES
The information required by this item regarding meetings and committees of
the Board is incorporated by reference to the information set forth in the
section entitled "Board Meetings and Committees" in our Proxy Statement for the
2000 Annual Meeting of Stockholders to be filed with the Commission within
120 days after the end of our fiscal year ended December 31, 1999.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires ZapMe's
executive officers, directors, and persons who own more than 10% of a registered
class of ZapMe's equity securities ("10% Stockholders") to file reports of
ownership on a Form 3 and changes in ownership on a Form 4 or a Form 5 with the
Commission and the NASDAQ Stock Market, Inc. Such executive officers, directors
and 10% Stockholders are also required by Commission rules to furnish ZapMe!
with copies of all Section 16(a) forms that they file.
The information required by this item regarding compliance with
Section 16(a) is incorporated by reference to the information set forth in the
section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in
our Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with
the Commission within 120 days after the end of our fiscal year ended
December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in the section entitled
"Executive Officer Compensation" in our Proxy Statement for the 2000 Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the end of our fiscal year ended December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Beneficial Share Ownership by
Principal Stockholders and Management" in our Proxy Statement for the 2000
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of our fiscal year ended December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Certain Transactions" in our Proxy Statement for the
2000 Annual Meeting of Stockholders to be filed with the Commission within 120
days after the end of our fiscal year ended December 31, 1999.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report on Form 10-K:
1. Financial Statements. Our following consolidated financial statements,
and related notes thereto, and the Report of Independent Auditors are
included in Part IV of this Report on the pages indicated by the Index to
Financial Statements as presented on page 25 of this Report.
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets--
Consolidated Statements of Operations--
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows--
Notes to Consolidated Financial Statements
2. Financial Statement Schedule.
Schedules have been omitted since they are either not required, not
applicable or the information is otherwise included in the
Consolidated Financial Statements or notes thereto.
3. Exhibits: See Item 14(c) below.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by us during the
fiscal quarter ended December 31, 1999.
(c) Exhibits. The exhibits listed on the accompanying index to exhibits
immediately following the financial statement schedules are filed as part
of, or incorporated by reference into, this Form 10-K.
(d) Financial Statement Schedules. See Item 14(a) above.
33
<PAGE>
ZAPME! CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 35
Consolidated Balance Sheets................................. 36
Consolidated Statements of Operations....................... 37
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit).................. 38
Consolidated Statements of Cash Flows....................... 39
Notes to Consolidated Financial Statements.................. 40
</TABLE>
34
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
ZapMe! Corporation
We have audited the accompanying consolidated balance sheets of ZapMe!
Corporation and subsidiary as of December 31, 1999 and 1998 and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' equity (deficit) and cash flows for each of the two years
ended December 31, 1999 and 1998, and for the period from June 25, 1997
(inception) through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ZapMe!
Corporation and subsidiary at December 31, 1999 and 1998 and the results of
their operations and their cash flows for each of the two years ended December
31, 1998 and 1999, and for the period from June 25, 1997 (inception) through
December 31, 1997 in conformity with accounting principles generally accepted in
the United States.
Walnut Creek, California
January 28, 2000,
35
<PAGE>
ZAPME! CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $112,714 $ $815
Accounts receivable....................................... 1,500 --
Other receivables......................................... 3,344 105
Notes receivable from stockholder......................... 134 127
Prepaid expenses and other current assets................. 801 45
-------- ------
Total current assets........................................ 118,493 1,092
Equipment, net.............................................. 30,393 2,471
Restricted cash............................................. 565 --
Other assets................................................ 1,741 40
-------- ------
Total assets................................................ $151,192 $3,603
======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 1,929 $1,199
Accounts payable to affiliates............................ 3,595 163
Accrued liabilities....................................... 2,883 179
Accrued equipment purchases............................... 1,710 --
Accrued compensation and related expenses................. 1,723 446
Deferred revenue.......................................... 677 --
Current portion of capital lease obligations.............. 11,070 118
-------- ------
Total current liabilities................................... 23,587 2,105
Capital lease obligations................................... 13,292 269
-------- ------
Total liabilities........................................... 36,879 2,374
Redeemable convertible preferred stock, $0.01 par value
issuable in series:
Authorized shares--none at December 31, 1999, 600,000 at
December 31, 1998
Issued and outstanding shares--600,000 in 1998............ -- 3,352
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par value:
Authorized shares--5,000,000 in 1999 and 12,857,671 in
1998 (including 600,000 shares designated as
redeemable convertible preferred stock.)
Issued and outstanding shares--9,557,671 in 1998 and 0
in 1999............................................... -- 2,783
Common stock, $0.01 par value:
Authorized shares--200,000,000 in 1999 and 50,000,000 in
1998
Issued and outstanding shares--43,803,781 in 1999 and
14,208,730 in 1998.................................... 183,765 6,212
Deferred stock compensation............................... (11,642) (4,900)
Notes receivable from stockholders........................ (6,500) --
Accumulated deficit....................................... (51,310) (6,218)
-------- ------
Total stockholders' equity (deficit)........................ 114,313 (2,123)
-------- ------
Total liabilities, redeemable convertible preferred stock
and stockholders' equity (deficit)........................ $151,192 $3,603
======== ======
</TABLE>
See accompanying notes.
36
<PAGE>
ZAPME! CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 25, 1997
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
Revenue................................................. $ 1,179 $ -- $ --
Revenue from affiliates................................. 1,363 -- --
-------- ------- -------
Total revenue........................................... 2,542 -- --
Costs and expenses:
Costs of revenue...................................... 7,653 135 --
Research and development.............................. 2,704 1,140 231
Sales and marketing................................... 7,401 1,197 40
General and administrative............................ 6,831 1,458 299
Amortization of deferred stock compensation........... 6,056 1,065 --
-------- ------- -------
Total costs and expenses................................ 30,645 4,995 570
-------- ------- -------
Loss from operations.................................... (28,103) (4,995) (570)
Interest income (expense), net.......................... 629 (36) (11)
Other income............................................ 347 -- --
-------- ------- -------
Net loss................................................ (27,127) (5,031) (581)
Deemed dividend on preferred stock...................... (5,785) (606) --
Beneficial conversion of series E preferred stock....... (12,180) -- --
-------- ------- -------
Net loss applicable to common stockholders.............. $(45,092) $(5,637) $ (581)
======== ======= =======
Net loss per share:
Basic and diluted..................................... $ (2.30) $ (0.48) $ (0.05)
======== ======= =======
Pro forma basic and diluted (unaudited)............... $ (1.42) $ (0.32)
======== =======
Shares used in calculation of net loss per share:.......
Basic and diluted..................................... 19,607 11,685 11,183
======== ======= =======
Pro forma basic and diluted (unaudited)............... 30,775 15,993
======== =======
</TABLE>
See accompanying notes.
37
<PAGE>
ZAPME! CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
REDEEMABLE STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE CONVERTIBLE COMMON
PREFERRED STOCK PREFERRED STOCK STOCK
------------------- ----------------------- -----------
SHARES AMOUNT SHARES AMOUNT SHARES
-------- -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to founders at $0.005 per share
in June 1997............................................ -- $ -- -- $ -- 10,000,000
Issuance of common stock for services at $0.10 per share
in September 1997....................................... -- -- -- -- 1,858,730
Net loss and comprehensive loss........................... -- -- -- -- --
-------- ------ ------------ -------- -----------
Balances at December 31, 1997............................... -- -- -- -- 11,858,730
Issuance of Series A preferred stock for conversion of
note payable, net of issuance costs of $11.............. -- -- 9,097,671 899 --
Issuance of Series B preferred stock for conversion of
notes payable, net of issuance costs of $4.............. -- -- 160,000 396 --
Issuance of Series C redeemable convertible preferred
stock, net of issuance costs of $254.................... 600,000 $2,746 -- -- --
Issuance of Series D preferred stock, net of issuance
costs of $12............................................ -- -- 300,000 1,488 --
Issuance of common stock upon exercise of stock options... -- -- -- -- 1,000,000
Issuance of common stock for services for note
receivable.............................................. -- -- -- -- 1,350,000
Deferred stock compensation............................... -- -- -- -- --
Amortization of deferred stock compensation............... -- -- -- -- --
Accretion of redeemable convertible preferred stock....... -- 531 -- -- --
Accrued Series C dividends................................ -- 75 -- -- --
Net loss and comprehensive loss........................... -- -- -- -- --
-------- ------ ------------ -------- -----------
Balances at December 31, 1998............................... 600,000 3,352 9,557,671 2,783 14,208,730
Issuance of common stock upon exercise of stock options... -- -- -- -- 222,558
Issuance of Series D preferred stock, net of issuance
costs of $1,834......................................... -- -- 5,554,110 25,937 --
Issuance of Series D preferred stock for conversion of
note payable............................................ -- -- 40,000 200 --
Issuance of Series E preferred stock, net of issuance cost
of $26.................................................. -- -- 2,030,000 10,124 --
Issuance of common stock options to non-employees in
consideration for services rendered..................... -- -- -- -- --
Warrants issued in connection with lease financing and
services agreements..................................... -- -- -- -- --
Deferred stock compensation............................... -- -- -- -- --
Amortization of deferred stock compensation............... -- -- -- -- --
Accretion of redeemable convertible preferred stock....... -- 1,276 -- -- --
Accretion of guaranteed return............................ -- 1,792 -- -- --
Accrued Series C dividends................................ -- 258 -- -- --
Accrued dividends on Series D and E....................... -- -- -- 2,459 --
Deemed dividend on preferred stock........................ -- -- -- 12,180 --
Issuance of common stock upon initial public offering..... -- -- -- -- 9,488,753
Issuance of shares to stockholders for note receivable.... -- -- -- -- 1,300,000
Conversion of preferred stock to common stock upon initial
public offering......................................... (600,000) (6,678) (17,181,781) (53,683) 18,583,740
Net loss and comprehensive loss........................... -- -- -- -- --
-------- ------ ------------ -------- -----------
Balances at December 31, 1999............................... -- $ -- -- $ -- 43,803,781
======== ====== ============ ======== ===========
<S> <C> <C> <C> <C> <C>
NOTES TOTAL
STOCKHOLDERS' EQUITY (DEFICIT) DEFERRED RECEIVABLE STOCKHOLDERS'
-------- STOCK FROM ACCUMULATED EQUITY
AMOUNT COMPENSATION STOCKHOLDERS DEFICIT (DEFICIT)
-------- ------------- ------------ ------------ ------------
Issuance of common stock to founders at $0.005 per share
in June 1997............................................ $ 50 $ -- $ -- $ -- $ 50
Issuance of common stock for services at $0.10 per share
in September 1997....................................... 19 -- -- -- 19
Net loss and comprehensive loss........................... -- -- -- (581) (581)
-------- -------- ------- -------- --------
Balances at December 31, 1997............................... 69 -- -- (581) (512)
Issuance of Series A preferred stock for conversion of
note payable, net of issuance costs of $11.............. -- -- -- -- 899
Issuance of Series B preferred stock for conversion of
notes payable, net of issuance costs of $4.............. -- -- -- -- 396
Issuance of Series C redeemable convertible preferred
stock, net of issuance costs of $254.................... -- -- -- -- --
Issuance of Series D preferred stock, net of issuance
costs of $12............................................ -- -- -- -- 1,488
Issuance of common stock upon exercise of stock options... 16 -- -- -- 16
Issuance of common stock for services for note
receivable.............................................. 3,537 (3,375) -- -- 162
Deferred stock compensation............................... 2,590 (2,590) -- -- --
Amortization of deferred stock compensation............... -- 1,065 -- -- 1,065
Accretion of redeemable convertible preferred stock....... -- -- -- (531) (531)
Accrued Series C dividends................................ -- -- -- (75) (75)
Net loss and comprehensive loss........................... -- -- -- (5,031) (5,031)
-------- -------- ------- -------- --------
Balances at December 31, 1998............................... 6,212 (4,900) -- (6,218) (2,123)
Issuance of common stock upon exercise of stock options... 75 -- -- -- 75
Issuance of Series D preferred stock, net of issuance
costs of $1,834......................................... -- -- -- -- 25,937
Issuance of Series D preferred stock for conversion of
note payable............................................ -- -- -- -- 200
Issuance of Series E preferred stock, net of issuance cost
of $26.................................................. -- -- -- -- 10,124
Issuance of common stock options to non-employees in
consideration for services rendered..................... 388 -- -- -- 388
Warrants issued in connection with lease financing and
services agreements..................................... 2,701 (782) -- -- 1,919
Deferred stock compensation............................... 12,016 (12,016) -- -- --
Amortization of deferred stock compensation............... -- 6,056 -- -- 6,056
Accretion of redeemable convertible preferred stock....... -- -- -- (1,276) (1,276)
Accretion of guaranteed return............................ -- -- -- (1,792) (1,792)
Accrued Series C dividends................................ -- -- -- (258) (258)
Accrued dividends on Series D and E....................... -- -- -- (2,459) --
Deemed dividend on preferred stock........................ -- -- -- (12,180) --
Issuance of common stock upon initial public offering..... 95,512 -- -- -- 95,512
Issuance of shares to stockholders for note receivable.... 6,500 -- (6,500) -- --
Conversion of preferred stock to common stock upon initial
public offering......................................... 60,361 -- -- -- 6,678
Net loss and comprehensive loss........................... -- -- -- (27,127) (27,127)
-------- -------- ------- -------- --------
Balances at December 31, 1999............................... $183,765 $(11,642) $(6,500) $(51,310) $114,313
======== ======== ======= ======== ========
</TABLE>
See accompanying notes
38
<PAGE>
ZAPME! CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 25, 1997
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(27,127) $(5,031) $(581)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred compensation..................... 6,056 1,065 --
Depreciation and amortization............................. 4,052 205 10
Common stock issued for services.......................... 388 -- 19
Warrants issued for services.............................. 122 -- --
Changes in operating assets and liabilities:
Accounts receivable..................................... (1,500) -- --
Other receivables....................................... (3,239) (105) --
Prepaid expenses and other current assets............... (756) (32) (13)
Other assets............................................ (530) (22) (18)
Accounts payable and accrued expenses................... 8,576 1,384 157
Accrued compensation and related expenses............... 1,277 204 242
Deferred revenue........................................ 677 -- --
-------- ------- -----
Net cash used in operating activities....................... (12,004) (2,332) (184)
INVESTING ACTIVITIES
Purchase of equipment, net.................................. (4,965) (2,243) (53)
Notes receivable from stockholders.......................... (7) (127) --
-------- ------- -----
Net cash used in investing activities....................... (4,972) (2,370) (53)
FINANCING ACTIVITIES
Restricted cash............................................. (565) -- --
Proceeds from issuance of preferred stock, net.............. 36,261 4,229 --
Proceeds from issuance of common stock, net................. 95,512 178 50
Proceeds from borrowings on notes payable................... 700 1,000 462
Payments on notes payable................................... (500) (162) --
Payments on lease obligations............................... (2,533) (3) --
-------- ------- -----
Net cash provided by financing activities................... 128,875 5,242 512
-------- ------- -----
Increase in cash and cash equivalents....................... 111,899 540 275
Cash and cash equivalents at beginning of period............ 815 275 --
-------- ------- -----
Cash and cash equivalents at end of period.................. $112,714 $ 815 $ 275
======== ======= =====
SUPPLEMENTAL DISCLOSURES:
Conversion of notes payable to stockholders to preferred
stock..................................................... $ 200 $ 1,300 $ --
======== ======= =====
Issuance of common stock for notes receivable............... $ 6,500 $ 162 $ --
======== ======= =====
Conversion of preferred stock to common stock, net of
issuance costs............................................ $ 60,361 $ -- $ --
Accretion and dividends on convertible preferred stock...... $ 5,785 $ 606 $ --
Deemed dividend on preferred stock.......................... $ 12,180 $ -- $ --
======== ======= =====
Equipment purchased through capital lease agreements........ $ 26,508 $ 390 $ --
======== ======= =====
Warrants issued in connection with lease financing and
services agreements....................................... $ 2,701 $ -- $ --
======== ======= =====
Stock options issued in connection with consulting
agreement................................................. $ 388 $ -- $ --
======== ======= =====
Cash paid for interest...................................... $ 975 $ 26 $ --
======== ======= =====
</TABLE>
See accompanying notes.
39
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
ZapMe! Corporation (the "Company") was incorporated, under the name
Satellite Online Solutions Corporation, on June 25, 1997 in California for the
purpose of building a broadband, interactive network that brings technology
tools and resources to schools at no cost. The Company changed its name to
ZapMe! Corporation in October 1998 and reincorporated in the State of Delaware
in October 1999. Through June 1999, the Company was in the development stage,
devoting its efforts to developing products and raising capital. The Company
commenced selling corporate sponsorship and advertising on its network in the
second half of 1999 and therefore emerged from the development stage.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, r)Star Networks, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of demand deposits and money market
accounts held with two financial institutions with insignificant interest rate
risk and original maturities of three months or less from the date of purchase.
Restricted cash consists of security against letters of credit issued in
connection with lease agreements.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the company to concentrations
of credit risk consist primarily of cash and cash equivalents and trade
receivables. The Company performs ongoing credit evaluations of its customers
and generally does not require collateral.
For the year ended December 31, 1999, three significant customers accounted
for approximately 24%, 21% and 20% of the Company's revenues and 40%, 24% and 0%
of accounts receivable at December 31, 1999, respectively.
EQUIPMENT
Equipment is stated at cost and depreciated using the straight-line method
over estimated useful lives of three to seven years.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standard No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of," the Company reviews long-lived assets for impairment whenever
events or circumstances indicate the carrying value of an
40
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
asset may not be recoverable. Through December 31, 1999, no impairment
indicators have been identified and no write-downs have been made.
DEPENDENCE ON THIRD PARTIES
The Company has relationships with two parties, one which installs the
Company's software on the computers and installs the Company's lab in each
school site and one which serves as the central contractor to oversee the
installation process. In addition, the Company relies on third parties to
provide the majority of the support necessary to maintain the network and labs
once installed and are also dependent on transmissions from the satellite to
customer sites. The inability of any of these parties to fulfill their
obligations with the Company could negatively impact the Company's future
results.
RESEARCH AND DEVELOPMENT
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards Bond ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,"
under which certain software development costs incurred subsequent to the
establishment of technological feasibility are capitalized and amortized over
the estimated lives of the related products. Technological feasibility is
established upon completion of a working model. To date, costs incurred
subsequent to the establishment of technological feasibility have not been
significant, and all software development costs have been charged to research
and development expense in the accompanying statements of operations.
The Company adopted SOP 98-1 "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use" during 1999, which requires that all
costs related to the development of internal use software be expensed as
incurred, other than those incurred during the application development stage.
Costs incurred during the application development stage were insignificant for
all periods presented.
REVENUE RECOGNITION
The Company earns revenue from sponsorship agreements, which include content
and public service announcement sponsorships, banner advertising and full screen
interactive ads, upon delivery of messages over the Company's network. Provided
that collectibility is probable, revenue is recognized ratably over the time
periods that the advertisement is delivered or sponsorship is acknowledged
unless such sponsorship is based on delivery of a minimum number of impressions,
in which case revenue is recognized as the impressions are delivered.
E-commerce revenue consists of referral fees and commissions on transactions
facilitated through the Company's network as well as referred transactions.
Revenue from e-commerce is recognized upon notification from the contracting
partner of the fact of the referral or sale upon which referral fees or
commissions is due. Network services and other revenue consist of revenue from
the distribution of content and products delivered through the Company's
network, and from educational services delivered in the ZapMe! Labs such as
teacher training, tutoring and other educational programs offered through a
strategic alliance. Network services and other revenue is recognized in the time
period in which the underlying service is delivered. Network services and other
revenue also include revenue from the Company's five-year agreement with a
strategic partner which provides for a sharing of revenue derived from the
delivery of programs in ZapMe! Computer labs. The agreement allows the
41
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
strategic partner to offer student tutoring, teacher training, and other
programs in the ZapMe! Computer labs. For 1999, the strategic partner committed
to pay ZapMe! minimum fees of $250,000. In subsequent periods, fees will be
based on a rate for installed schools available for use by the strategic
partner.
The Company regularly assesses the need for an allowance for doubtful
accounts. The Company determined that no allowance was required at December 31,
1999 and no bad debt expense was recorded for the year ended December 31, 1999.
Our deferred revenue balance includes deferred revenue attributable to
billings in advance of earnings on content sponsorship activities. We record an
account receivable and deferred revenue upon billing for sponsorships. We
recognize revenue ratably over the period the sponsorship is acknowledged over
the network.
AFFINITY PROGRAM
The Company has an affinity program designed to encourage ZapMe! users to
log onto the network and utilize various features of the Netspace and rewards
users with points which may be redeemed by connecting to participating
companies' websites through links inserted on the ZapMe! Netspace and selecting
items to purchase. The user will tender points and other consideration if
necessary to the e-commerce partner. For each purchase transacted by a user with
an e-commerce partner, the Company will earn a fee equal to a percentage of the
purchase. When the fee is earned from a transaction where points are tendered,
the Company will record the fee as a reduction to marketing expense. To the
extent the fee is earned on a transaction in which points are not tendered, the
fee will be recognized as revenue earned. The effect of fees earned through the
affinity program will be recorded in the statement of operations in the month in
which the purchase transaction occurs between the user and the e-commerce
partner.
At December 31, 1999, the dollar equivalent of a ZapPoint was $0.001;
however management may change this amount in the future and would change the
expense amount as necessary. The Company determines the value of ZapPoints and
records a marketing expense equal to the full value of ZapPoints awarded to
users each month. The Company records no adjustment to this expense for
estimated forfeiture or breakage of ZapPoints. The timing of redemption of
ZapPoints is solely at the discretion of the user and is beyond the control of
the Company. ZapPoints expire if a user remains inactive for a period of nine
months. ZapPoints may not be redeemed for cash. ZapPoints are currently
transferable to immediate family members also logged in to the ZapMe! Netspace.
STOCK-BASED COMPENSATION
The Company accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 and has
adopted the disclosure-only alternative of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123").
The value of warrants, options or stock exchanges for services is expensed
over the period benefited. The warrants and options are valued using the
Black-Scholes option pricing model. To calculate the expense, the Company uses
either the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
42
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability method in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are measured using enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is
presented under the requirement of SFAS No. 128, "Earnings per Share" ("SFAS
128"). Basic loss per share has been computed using net loss applicable to
common stockholders divided by the weighted-average number of common shares
outstanding during the period, less shares subject to repurchase, and excludes
stock options, warrants, and convertible securities.
The calculation of historical and pro forma basic and diluted net loss per
share is as follows (in thousands, expect for per share amounts):
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 25, 1997
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
Historical:
Net loss.............................................. $(27,127) $(5,031) $ (581)
Accretion and dividends on redeemable convertible
preferred stock..................................... (5,785) (606) --
Beneficial conversion of series E preferred stock..... (12,180) -- --
-------- ------- -------
Loss applicable to common stockholders................ $(45,092) $(5,637) $ (581)
======== ======= =======
Weighted average shares of common stock outstanding... 20,354 12,739 11,183
Less: weighted average shares subject to repurchase... 747 1,054 --
-------- ------- -------
Weighted average shares of common stock outstanding
used in computing basic and diluted net loss per
share............................................... 19,607 11,685 11,183
======== ======= =======
Basic and diluted net loss per share.................. $ (2.30) $ (0.48) $ (0.05)
======== ======= =======
Pro forma:
Net loss applicable to common stockholders (from
above).............................................. $(45,092) $(5,637)
Accretion on redeemable convertible preferred stock... 1,276 531
-------- -------
Net loss.............................................. $(43,816) $(5,106)
======== =======
Weighted average shares used in computing basic and
diluted net loss per share (from above)............. 19,607 11,685
======== =======
Adjustment to reflect the effect of the assumed
conversion of preferred stock from the date of
issuance............................................ 11,168 4,308
-------- -------
Weighted average shares used in computing pro forma
basic and diluted net loss per share (unaudited).... 30,775 15,993
======== =======
Pro forma basic and diluted net loss per share
(unaudited)......................................... $ (1.42) $ (0.32)
======== =======
</TABLE>
43
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
If the Company had reported net income, the calculation of historical and
pro forma diluted earnings per share would have included an additional
4,029,665, 938,000 and 86,000 common equivalent shares related to the
outstanding stock options and warrants not included above (determined using the
treasury stock method at the estimated fair value) for the two years ended
December 31, 1999 and 1998, and for the period from June 25, 1997 (inception)
through December 31, 1997, respectively.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. There is no difference in the Company's
historical net losses as reported and the comprehensive net losses under the
provisions of SFAS 130 for all periods presented.
SEGMENT REPORTING
The FASB issued Statement No. 131 ("SFAS 131"), "Disclosure about Segments
of an Enterprise and Related Information," which establishes standards for the
way public business enterprises report information in annual statements and
interim financial reports regarding operating segments, products and services,
geographic areas, and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997. The Company adopted
SFAS 131 in the year ended December 31, 1998, and operates in one business
segment which is building a broadband interactive network that brings technology
tools and educational resources to schools at no cost.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amount recorded in the balance sheet
for cash and cash equivalents approximates its fair value.
Capital Lease Obligations: The fair value of the Company's short- and
long-term obligations are estimated using discounted cash flow analyses
based on the Company's current incremental borrowing rates for similar types
of borrowing arrangements. Due to the recent issuance of the lease
obligations, the estimated fair value approximates the carrying amount.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS 133, as recently amended, is effective for fiscal years beginning after
June 15, 2000. Management believes the adoption of SFAS 133 will not have a
material effect on the Company's financial position or results of operations.
44
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarized certain of the SEC Staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is currently evaluating the impact of SAB 101. Should the Company
determine that a change in its accounting policy is necessary, such a change
will be made effective January 1, 2000 and would result in a charge to results
of operations for the cumulative effect of the change. This amount, if
recognized, would be recorded as deferred revenue and recognized as revenue in
future periods. Prior financial statements would not be restated.
2. EQUIPMENT
Equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Computer and office equipment............................... $28,564 $2,510
Furniture and fixtures...................................... 812 176
------- ------
29,376 2,686
Less accumulated depreciation and amortization.............. (4,081) (215)
------- ------
25,295 2,471
Construction in process..................................... 5,098 --
------- ------
$30,393 $2,471
======= ======
</TABLE>
Equipment includes $26,898,000 of financed equipment at December 31, 1999.
Accumulated depreciation for such equipment as of December 31, 1999 was
$3,060,000.
3. STOCKHOLDERS' EQUITY
PREFERRED STOCK
Preferred stock consists of the following by Series:
<TABLE>
<CAPTION>
SHARES ISSUED
AUTHORIZED AND
SHARES OUTSTANDING
------------- -------------
DECEMBER 31, DECEMBER 31,
SERIES 1998 1998
- - ------ ------------- -------------
<S> <C> <C>
A convertible............................................... 9,097,671 9,097,671
B convertible............................................... 660,000 160,000
C redeemable convertible.................................... 600,000 600,000
D convertible............................................... 2,500,000 300,000
---------- ----------
12,857,671 10,157,671
========== ==========
</TABLE>
In October 1999, the Company completed its Initial Public Offering and all
shares of preferred stock were converted into common stock. Subsequent to the
Initial Public Offering, the Company authorized 5 million shares of an
additional series of preferred stock. As of December 31, 1999, no shares were
issued and outstanding. The holders of Series C preferred stock were accreted
dividends in
45
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
1999. Additionally, redemption value privileges were accreted and charged to
accumulated deficit in 1999. Holders of the Series C, D, and E preferred stock
received liquidation preferences in the form of common stock in connection with
the Initial Public Offering, in the amount of 309,299, 456,902, and 35,758
shares, respectively, in the aggregate amount of $6,393,552.
Because of the proximity of the issuance of the Series E preferred stock to
the commencement of the Company's Initial Public Offering, the Company concluded
that a beneficial conversion feature was present in the preferred stock on the
date of issuance. For purposes of evaluating this beneficial conversion feature,
the Company considered that the value implied in the public offering price
($11.00) represented the fair value of the common stock on the date the Series E
was issued. In accordance with Emerging Issues Task Force Abstract No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios," the Company recorded a deemed
dividend charge of $12,180,000 with a corresponding increase to Convertible
Preferred Stock.
BRIDGE FINANCINGS
In February 1999, the Company issued a $200,000 note payable with an
interest rate of 10% per annum. The principal amount was converted into 40,000
shares of Series D preferred stock in March 1999.
In May 1998, the Company issued a note payable with principal totaling
$400,000 and an interest rate of 8.5% per annum together with a warrant to
purchase 500,000 shares of Series B convertible preferred stock at exercise
prices ranging from $3.00 to $3.50 per share. The warrant expires in May 2003.
The principal amount of the note was converted into 160,000 shares of Series B
convertible preferred stock in August 1998.
Between August 1997 and June 1998, the Company issued notes payable with
aggregate principal totaling $900,000 and interest rates of 5.87% to 6.50% per
annum. The principal amount of these notes was converted into 9,097,671 shares
of Series A convertible preferred stock in August 1998.
STOCK PLANS
The Company has two stock plans which provide for the granting of stock
options or shares of common stock to employees, directors and consultants. Stock
options are exercisable immediately upon issuance (subject to vesting
requirements) and generally have a term of 10 years. Unvested options are
canceled upon termination of employment. The vesting schedule is determined by
the Board of Directors at the time of issuance. Stock options generally vest
over a period of between three and four years. As amended, the Company has
reserved 6,900,000 shares of common stock for issuance under the plans. The plan
allows for an annual increase commencing January 1, 2000 equal to the lowest of
2,000,000, 5% of the outstanding shares of the Company's common stock on the
first day of the fiscal year, or such other amount as determined by the Board of
Directors.
46
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
1999 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1999 Employee Stock Purchase Plan was adopted by the Board of
Directors in August 1999 and approved by the stockholders in October 1999. The
Company has reserved a total of 500,000 shares of common stock for issuance
under this plan. Eligible employees may purchase common stock at 15% of the
lesser of the fair market value of the Company's common stock on the first day
or last day of the applicable six-month offering period at the date of purchase.
In addition, the plan provides for automatic annual increases in the number of
shares available for issuance on the first day of each fiscal year equal to the
lowest of 1,000,000, 2% of the outstanding shares of the Company's common stock
on the first day of the fiscal year, or such other amount as determined by the
Board of Directors.
A summary of activity under the Company's stock option plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1997............................ 1,120,000 $0.02
Options granted........................................... 1,720,230 0.84
Options exercised......................................... (1,000,000) 0.02
Options canceled.......................................... (91,000) 0.59
---------- -----
Outstanding at December 31, 1998............................ 1,749,230 0.80
Options granted........................................... 3,042,566 6.51
Options exercised......................................... (222,558) 0.34
Options canceled.......................................... (406,104) 1.07
---------- -----
Outstanding at December 31, 1999............................ 4,163,134 $5.39
========== =====
Vested and exercisable at December 31, 1998................. 152,742 $0.42
========== =====
Vested and exercisable at December 31, 1999................. 455,126 $1.60
========== =====
Outstanding shares of common stock that may be repurchased
at December 31, 1998...................................... 977,684
==========
Outstanding shares of common stock that may be repurchased
at December 31, 1999...................................... 1,655,000
==========
</TABLE>
47
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
----------------------------------------------- AND EXERCISABLE
WEIGHTED-AVERAGE ----------------------------
WEIGHTED-AVERAGE REMAINING WEIGHTED-AVERAGE
NUMBER EXERCISE PRICE CONTRACTUAL LIFE NUMBER EXERCISE PRICE
EXERCISE PRICES OF SHARES PER SHARE (YEARS) OF SHARES PER SHARE
- - --------------------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.02-$ 0.25 303,836 $ 0.17 8.26 99,164 $0.14
$ 1.00-$ 1.50 941,166 $ 1.25 8.83 249,162 $1.15
$ 2.00-$ 4.00 1,153,412 $ 3.03 9.35 106,800 $4.00
$ 5.00-$ 8.88 1,155,060 $ 8.50 9.95 -- --
$10.00-$11.25 409,660 $10.69 9.81 -- --
$15.00-$20.00 200,000 $17.50 9.98 -- --
--------- -------
4,163,134 455,126
========= =======
</TABLE>
DEFERRED COMPENSATION
During the year ended December 31, 1998, the Company also granted 1,350,000
shares of common stock to an officer of the Company (Note 6) under the 1998
Stock Plan at a price of approximately $0.125 per share which was below the
deemed fair market value at the date of grant of $2.75 per share. As a result,
the Company recorded deferred compensation of $3,375,000 during the year ended
December 31, 1998 representing the difference between the price paid per share
and the deemed fair value of the Company's common stock. These amounts are being
amortized by charges to operations over the vesting period of the stock of
approximately four years resulting in amortization of approximately $1,422,000
and $730,000 for the years ended December 31, 1999 and 1998.
The Company recorded deferred stock compensation of approximately
$12,016,000 and $2,590,000 during the years ended December 31, 1999 and 1998,
representing the difference between the exercise price and the deemed fair value
of the Company's common stock on the grant date for certain of the Company's
stock options granted to employees. In the absence of a public market for the
Company's common stock, the deemed fair value was based on the price per share
of the preferred stock financings, less a discount to give effect to the
superior rights of the preferred stock. These amounts are being amortized by
charges to operations over the vesting periods of the individual stock options
using a graded vesting method. Such amortization amounted to approximately
$4,820,000 and $335,000 for the years ended December 31, 1999 and 1998.
Assuming no terminations of option holders, amortization of the remaining
balance in deferred stock compensation of $11,642,000 will be as follows:
$7,198,000, $3,169,000, $1,169,000 and $106,000 for the fiscal year 2000, 2001,
2002, and 2003, respectively.
In 1998 and 1997, the Company issued 1,350,000 and 1,858,730 shares,
respectively, of common stock to employees in exchange for services. The common
stock issued was recorded at the estimated fair value of the common stock at the
time the services were performed and the expense was recorded. The Company's
management believes that the value of the common stock issued approximates the
value of the services received.
48
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION
Pro forma information regarding results of operations and net loss per share
is required by SFAS 123, which also requires that the information be determined
as if the Company had accounted for its employee stock options under the fair
value method of SFAS 123. The fair value for these options was estimated at the
date of grant using the minimum value method with the following weighted average
assumptions: a risk-free interest rate of 5.5% for the period from June 25, 1997
(inception) through December 31, 1997, and the years ended December 31, 1998 and
1999, no dividend yield, volatility factor of the expected market price of the
Company's common stock of 70%, and a weight-average expected life of the option
of three and one half years.
The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the Black Scholes model of SFAS 123, the Company's net loss (in
thousands) and pro forma basic and diluted net loss per share would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 25, 1997
YEAR ENDED YEAR ENDED (INCEPTION)
DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31,
1999 1998 1999
------------ ------------ --------------------
<S> <C> <C> <C>
Net loss--pro forma....................... $(45,703) $(5,046) $ (584)
======== ======= ======
Net loss per share--pro forma............. $ (2.33) $ (0.43) $(0.05)
======== ======= ======
</TABLE>
The weighted-average fair value of options granted for the two years ended
December 31, 1999 and 1998, and for the period from inception to December 31,
1997 was $2.47, $0.16 and $0.01, respectively.
The effect on pro forma net loss is not necessarily indicative of the effect
on pro forma net loss in future years, as future years will include the effects
of additional years of stock option grants.
49
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1999, the Company had reserved shares of capital stock for
future issuance as follows:
<TABLE>
<CAPTION>
COMMON
STOCK
---------
<S> <C>
Warrants to purchase stock.................................. 842,500
Stock options outstanding................................... 4,163,134
Stock options and shares available for grant................ 164,308
---------
5,169,942
=========
</TABLE>
WARRANTS
The Company had the following warrants outstanding at December 31, 1999 to
purchase shares of stock:
<TABLE>
<CAPTION>
EXERCISE PRICE
NUMBER OF SHARES PREFERRED STOCK PER SHARE EXPIRATION OF WARRANTS
- - ---------------- --------------- -------------- ----------------------
<S> <C> <C> <C>
250,000 Series B $3.00 May 2003
250,000 Series B 3.50 May 2003
100,000 Series D 5.00 June 2004
150,000 Common 5.00 December 2003
50,000 Common 5.00 June 2004
30,000 Common 5.00 October 2000
12,500 Common 8.00 October 2000
-------
842,500
=======
</TABLE>
50
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
There has been no provision for U.S. Federal, U.S. State, or foreign income
taxes for any period as the Company has incurred operating losses in all periods
and for all jurisdictions
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts used for income tax purposes. Significant
components of the Company's deferred tax assets (in thousands) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Net operating loss carryforwards............................ $ 8,671 $ 1,633
Accrued compensation........................................ 673 101
Other....................................................... 632 118
------- -------
Total deferred tax assets................................. 9,976 1,852
Valuation allowance......................................... (9,976) (1,852)
------- -------
Net deferred tax assets..................................... $ -- $ --
======= =======
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by approximately $8,124,000 and $1,632,000 during 1999 and
1998, respectively.
At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $21,850,000 which expire in the
years 2012 through 2019. The Company also had net operating loss carryforward
for state income tax purposes of approximately $20,650,000 expiring in the year
2005. Utilization of the Company's net operating loss may be subject to
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating loss before
utilization.
5. COMMITMENTS
The Company leases its office facility and certain office equipment under
non-cancelable lease agreements, which require the Company to pay a portion of
operating costs, including property taxes, insurance, and normal maintenance.
Rent expense amounted to approximately $244,000 and $206,000 for the years ended
December 31, 1999 and 1998, respectively.
Capital lease obligations represent the present value of future rental
payments under capital lease agreements for equipment. The original cost of the
equipment under capital leases is $26,898,000 and $390,000 at December 31, 1999
and 1998, respectively. The related amortization is included with depreciation
expense.
51
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS (CONTINUED)
Future minimum payments under capital and operating leases are as follows
(in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31: LEASES LEASES
- - ------------------------ -------- ---------
<S> <C> <C>
2000...................................................... $ 11,019 $244,398
2001...................................................... 10,896 240,395
2002...................................................... 6,691 161,950
-------- --------
Total minimum lease payments................................ 28,606 $646,743
========
Less amount representing interest........................... (4,244)
--------
Present value of minimum lease payments..................... 24,362
Less current portion of capital lease obligations........... (11,070)
--------
$ 13,292
========
</TABLE>
In 1999, the Company entered into credit lines with a number of lease
finance companies for the purpose of acquiring computer and network equipment in
schools. These lease arrangements bear interest rates from 10.5% to 18% and with
terms from 24 to 36 months. In addition, the Company has issued a letter of
credit to two companies as security against the leases. The underlying equipment
secures the leases.
Interest expense on capital leases was $960,000 and $0 for the two years
ending December 31, 1999 and 1998, respectively.
6. LEGAL CONTINGENCY
The Company is a party to an arbitration and related counterclaim with a
former officer of the Company relating to this officer's employment with the
company. Depending on the amount and timing, an unfavorable resolution of these
matters could materially affect the Company's future cash flows or results of
operations.
The former officer seeks significant monetary damages. Additionally, under
the terms of his employment agreement and related agreements, the former officer
was permitted to purchase 1.35 million shares of the Company's common stock.
Some of those shares were subject to a right of repurchase by the Company at the
time of the officer's separation from the Company. A decision against the
Company with regard to the validity of the employment contract and related
agreements could result in the complete vesting of the former officer's stock
and the recognition of related compensation expense for the value of the
unvested shares.
7. NOTES RECEIVABLE FROM STOCKHOLDER
During the year ended December 31, 1998, the Company loaned a stockholder
$125,000 in exchange for a promissory note. The unsecured note bears interest at
5.35% per annum. As of December 31, 1999, the note was still outstanding.
Prior to the completion of the initial public offering, the Company sold
1,300,000 shares of common stock to two executives at $5.00 each for total of
$6,500,000 in exchange for two full recourse promissory notes of the same value.
The notes are secured by the underlying common stock, bear interest at 5.98% per
annum, with interest due at maturity unless otherwise determined by the Board of
Directors. The principal payments are due on September 13, 2003.
52
<PAGE>
ZAPME! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS
An officer of the Company owns other businesses which engage in financing
transactions with the Company. Amounts paid to these related entities were
approximately $2,700,000 and $163,000 for the years ended December 31, 1999 and
1998, respectively.
In March 1999, the Company entered into an agreement with a stockholder in
which the Company has granted the stockholder an exclusive right to deliver
certain products and services on the Company's system in schools. The Company
will earn fees based upon the number of eligible schools and the length of time
eligible schools have been operational. The initial term of the agreement will
expire on December 31, 2003 with a five-year renewal option subject to the
Company earning certain minimum fees from the agreement. As consideration for
the agreement, the Company issued the stockholder a warrant to purchase 150,000
shares of the Company's common stock at $5.00 per share. The warrant is
exercisable in whole only if the Company earns a minimum fee per eligible school
during the year ended December 31, 2003. The Company recorded deferred stock
compensation of approximately $904,000 during the year ended December 31, 1999.
This amount was computed using the Black-Scholes option valuation model; it will
be remeasured at each measurement date, and the related amortization will be
charged to operations over the term of the related agreement. The assumptions
used to compute the value of the warrant at December 31, 1999 under
Black-Scholes are as follows: expected volatility, 0.7; expected life,
4.5 years; exercise price, $5.00; stock price at measurement date, $9.00;
expected dividend yield, 0%; and risk-free interest rate, 6.0%.
The Company purchases certain data communications equipment from one of its
stockholders. Through December 31, 1999, the Company has accrued approximately
$3,600,000 to the stockholder for equipment, consulting services, and software
license fees.
In January 1999, the Company issued a promissory note in the amount of
$500,000 to a member of the Company's board of directors, bearing an interest
rate of 12.0% per annum. The note and approximately $12,000 of interest was paid
in April 1999.
In August 1999, a majority of the Company's Directors approved the issuance
of immediately exercisable non-statutory options to purchase 1,300,000 shares of
the Company's common stock to two Officers of the Company at an exercise price
of $5.00 per share. The shares are subject to a right of repurchase in favor of
the Company, which will expire at a rate of one-third on each anniversary of the
date of grant. The Company has agreed to loan the Officers, at their request,
the amount necessary to pay for the aggregate exercise price of the options,
wherein the loan will be secured by the shares purchased on exercise of the
option.
The Company recorded revenue totaling $1,363,000 in 1999 from affiliates
with which the Company has strategic business alliances for sponsoring and
advertising, representing 53% of total revenue. The Company shares common board
members with these affiliates and/or the affiliates own more than 5% each of the
Company's outstanding common stock.
53
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- - --------------------- -------------------
<C> <S>
2.1(*) Agreement and Plan of Merger dated as of October 19, 1999 of
ZapMe! Delaware Corporation, and ZapMe! Corporation, a
California corporation (WHICH IS INCORPORATED HEREIN BY
REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM
S-1/A, FILED SEPTEMBER 13, 1999).
3.1(*) Amended and Restated Articles of Incorporation effective
prior to reincorporation of the Company in Delaware (WHICH
IS INCORPORATED HEREIN BY REFERENCE TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM S-1, FILED AUGUST 5, 1999).
3.2(*) Bylaws effective prior to reincorporation of the Company in
Delaware (WHICH IS INCORPORATED HEREIN BY REFERENCE TO THE
REGISTRANT'S REGISTRATION STATEMENT ON FORM S-1/A FILED
SEPTEMBER 13, 1999).
3.3(*) Form of Amended and Restated Certificate of Incorporation
filed October 19, 1999 (WHICH IS INCORPORATED HEREIN BY
REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM
S-1/A FILED SEPTEMBER 13, 1999).
3.4(*) Form of Bylaws (WHICH IS INCORPORATED HEREIN BY REFERENCE TO
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-1/A FILED
SEPTEMBER 13, 1999).
3.5(*) Form of Second Amended and Restated Certificate of
Incorporation October 21, 1999 (WHICH IS INCORPORATED HEREIN
BY REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM S-1/A FILED SEPTEMBER 13, 1999).
4.1(*) Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2(*) Specimen Stock Certificate of Registrant (WHICH IS
INCORPORATED HEREIN BY REFERENCE TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM, S-1/A FILED OCTOBER 19,
1999).
10.1(*) Fourth Amended and Restated Investors' Rights Agreement
(WHICH IS INCORPORATED HEREIN BY REFERENCE TO THE
REGISTRANT'S REGISTRATION STATEMENT ON FORM, S-1/A FILED
OCTOBER 19, 1999).
10.2(*) ZapMe! Corporation f.k.a. Satellite Online Solutions
Corporation, 1997 Employee Stock Option Plan and form of
Agreement (WHICH IS INCORPORATED HEREIN BY REFERENCE TO THE
REGISTRANT'S REGISTRATION STATEMENT ON FORM, S-1/A FILED
AUGUST 5, 1999).
10.3(*) ZapMe! Corporation 1998 Stock Plan, as amended and restated
August 2, 1999 and form of Agreement (WHICH IS INCORPORATED
HEREIN BY REFERENCE TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM, S-1/A FILED OCTOBER 19, 1999).
10.4(*) ZapMe! Corporation 1999 Employee Stock Purchase Plan and
form of Agreement (WHICH IS INCORPORATED HEREIN BY REFERENCE
TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM, S-1/A
FILED AUGUST 5, 1999).
10.5(*) Common Stock Purchase Agreement dated September 1, 1997 by
and between the Company and John Evleth (WHICH IS
INCORPORATED HEREIN BY REFERENCE TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM, S-1/A FILED AUGUST 5, 1999).
10.6(*) Common Stock Purchase Agreement dated September 1, 1997 by
and between the Company and Darryl Deaton (WHICH IS
INCORPORATED HEREIN BY REFERENCE TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM, S-1/A FILED AUGUST 5, 1999).
10.7(*) Employment Agreement dated June 1, 1997 by and between the
Company and Darryl N. Deaton (WHICH IS INCORPORATED HEREIN
BY REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM, S-1/A FILED AUGUST 5, 1999).
10.8(*) Employment Offer Letter dated March 24, 1999 between the
Company and Robert J. Rudy (WHICH IS INCORPORATED HEREIN BY
REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM, S-1/A FILED AUGUST 5, 1999).
10.9(*) Employment Offer Letter dated April 7, 1999 between the
Company and Donald D. Kingsborough (WHICH IS INCORPORATED
HEREIN BY REFERENCE TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM, S-1/A FILED AUGUST 5, 1999).
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- - --------------------- -------------------
<C> <S>
10.10(*) Settlement Agreement and Mutual Release dated January 29,
1999 between the Company and Joshua K. Marks (WHICH IS
INCORPORATED HEREIN BY REFERENCE TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM, S-1/A FILED AUGUST 5, 1999).
10.11(*) Warrant Agreement between the Company and FirstCorp, dated
as of November 30, 1998 (WHICH IS INCORPORATED HEREIN BY
REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM, S-1/A FILED AUGUST 5, 1999).
10.12(*) Warrant Agreement between the Company and Sylvan Learning
Systems dated as of March 3, 1999 (WHICH IS INCORPORATED
HEREIN BY REFERENCE TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM, S-1/A FILED AUGUST 5, 1999).
10.13(*) Warrant Agreement between the Company and FirstCorp, dated
as of February 23, 1999 (WHICH IS INCORPORATED HEREIN BY
REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM, S-1/A FILED AUGUST 5, 1999).
10.14(*) Warrant Agreement between the Company and Barry R. Minsky,
dated as of May 7, 1998 (WHICH IS INCORPORATED HEREIN BY
REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM, S-1/A FILED AUGUST 5, 1999).
10.15(*) Office Lease between the Company and Alexander Properties
Company, dated August 6, 1997, and Addendums dated August 7,
1998, September 15, 1998, October 14, 1998, October 22, 1998
and April 16, 1999 (WHICH IS INCORPORATED HEREIN BY
REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM, S-1/A FILED AUGUST 5, 1999).
10.16(*) Form of School Subscription Agreement (WHICH IS INCORPORATED
HEREIN BY REFERENCE TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM, S-1/A FILED AUGUST 5, 1999).
10.17(*) Form of Indemnification Agreement entered into between the
Registrant and its directors and officers (WHICH IS
INCORPORATED HEREIN BY REFERENCE TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM, S-1/A FILED AUGUST 5, 1999).
+10.18(*) Letter Services Agreement between the Company and Spacenet,
Inc., dated February 10, 1999, Service Agreement dated June
11, 1999 and Amendment No. 1 to Services Agreement dated
July 19, 1999 (WHICH IS INCORPORATED HEREIN BY REFERENCE TO
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM, S-1/A FILED
AUGUST 5, 1999).
+10.19(*) Products and Services Agreement between the Company and
Sylvan Learning Systems, Inc., dated March 3, 1999 (WHICH IS
INCORPORATED HEREIN BY REFERENCE TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM, S-1/A FILED AUGUST 5, 1999).
+10.20(*) Letter of Understanding between the Company and Microsoft
Corporation, dated November 13, 1998 (WHICH IS INCORPORATED
HEREIN BY REFERENCE TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM, S-1/A FILED AUGUST 5, 1999).
+10.21(*) Marketing Agreement between the Company and New Sub
Services, dated August 3, 1999(WHICH IS INCORPORATED HEREIN
BY REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM, S-1/A FILED AUGUST 5, 1999).
+10.22(*) Memorandum of Understanding between the Company and School
Specialty, Inc. (WHICH IS INCORPORATED HEREIN BY REFERENCE
TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM, S-1/A
FILED AUGUST 5, 1999).
10.23(*) Advertising Pilot Agreement between the Company and Xerox
Channels Group, dated June 30, 1999 (WHICH IS INCORPORATED
HEREIN BY REFERENCE TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM, S-1/A FILED AUGUST 5, 1999).
10.24(*) Voting Agreement among the Company, Lance Mortensen and
QuestMark Partners, L.P., dated May 28, 1999 (WHICH IS
INCORPORATED HEREIN BY REFERENCE TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM, S-1/A FILED SEPTEMBER 13,
1999).
10.25(*) Restricted Stock Purchase Agreement dated September 13, 1999
by and between the Company and Rick Inatome (WHICH IS
INCORPORATED BY REFERENCE TO THE REGISTRANT'S 10-Q FILING
FILED ON DECEMBER 3, 1999).
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- - --------------------- -------------------
<C> <S>
10.26(*) Restricted Stock Purchase Agreement dated September 13, 1999
by and between the Company and Lance Mortensen (WHICH IS
INCORPORATED BY REFERENCE TO THE REGISTRANT'S 10-Q FILING
FILED ON DECEMBER 3, 1999).
10.27 Restricted Stock Purchase Agreement dated December 21, 1999
by and between the Company and Rick Inatome.
10.28 Employment Offer Letter dated September 20, 1999 by and
between the Company and W. Scott Burwell.
10.29 Employment Offer Letter dated November8, 1999 by and between
the Company and Philip Wise.
10.30 Employment Offer Letter dated December 21, 1999 by and
between the Company and R. Kimberly Gaynor.
+10.31 Amended and Restated Services Agreement by and between the
Company and Spacenet, Inc., dated September 30, 1999.
10.32 Office Sublease by and between the Company and Silicon
Graphics, Inc. dated November 8, 1999.
10.33 Office Sublease by and between the Company and Lanier
Worldwide, Inc., dated December 9, 1999.
10.34 Office lease by and between the Company and Spieker
Properties LP dated September 14, 1999.
21.1(*) Subsidiaries of the Registrant (WHICH IS INCORPORATED HEREIN
BY REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM, S-1/A FILED SEPTEMBER 28, 1999).
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (WHICH IS INCLUDED AS PART OF THE
SIGNATURE PAGE OF THIS 10-K)
27.1 Financial Data Schedule.
</TABLE>
- - ------------------------
+ Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(*) Previously filed.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized on this 30(th) day
of March 2000.
<TABLE>
<S> <C> <C>
ZAPME! CORPORATION
By: /s/ RICK INATOME
-----------------------------------------
Rick Inatome
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John L. Flynn, as such person's attorney-in-fact,
with the power of substitution, for him or her in any and all capacities, to
sign any amendments to this Transition Report on Form 10-K and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorney-in-fact, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on March 30, 2000 on
behalf of the Registrant and in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ RICK INATOME President, Chief Executive Officer
---------------------------- (PRINCIPAL EXECUTIVE OFFICER) and
Rick Inatome Director
/s/ KEN TINSLEY
---------------------------- Treasurer (PRINCIPAL FINANCIAL OFFICER)
Ken Tinsley
/s/ R. KIMBERLY GAYNOR Executive Vice President and Chief
---------------------------- Management Officer (PRINCIPAL EXECUTIVE
R. Kimberly Gaynor OFFICER)
/s/ LANCE MORTENSEN
---------------------------- Chairman of the Board of Directors
Lance Mortensen
/s/ MICHAEL ARNOUSE
---------------------------- Director
Michael Arnouse
/s/ DOUGLAS BECKER
---------------------------- Director
Douglas Becker
/s/ THOMAS HITCHNER
---------------------------- Director
Thomas Hitchner
/s/ JACK KEMP
---------------------------- Director
Jack Kemp
</TABLE>
57
<PAGE>
ZAPME! CORPORATION
1998 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
Rick Inatome
You have been granted the right to purchase Common Stock of the
Company, subject to the Company's Repurchase Option and your ongoing status as a
Service Provider (as described in the Plan and the attached Restricted Stock
Purchase Agreement), as follows:
<TABLE>
<S> <C>
Grant Number 1
Date of Grant December 21, 1999
Price Per Share $8.875
Total Number of Shares Subject 500,000
to This Stock Purchase Right
Expiration Date: December 21, 2009
</TABLE>
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
governed by the terms and conditions of the 1998 Stock Plan and the Restricted
Stock Purchase Agreement, attached hereto as EXHIBIT A, both of which are made a
part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: ZAPME! CORPORATION
- - -------------------------------- ----------------------------------
Signature By
Rick Inatome Lance Mortensen, Chairman
- - -------------------------------- -----------------------------------
<PAGE>
EXHIBIT A
ZAPME! CORPORATION
1998 STOCK OPTION PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser")
is a Service Provider, and the Purchaser's continued participation is considered
by the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Administrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. SALE OF STOCK. The Company hereby agrees to sell to the Purchaser
and the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per share purchase price and as otherwise described in
the Notice of Grant.
2. PAYMENT OF PURCHASE PRICE. The purchase price for the Shares shall
be paid by a full-recourse promissory note (the "Note") in the form attached
hereto as EXHIBIT B, in the amount of $4,437,500. Purchaser shall be required to
execute and deliver a Security Agreement in the form attached hereto as EXHIBIT
C. The Note shall bear interest at a rate no less than the "applicable federal
rate" prescribed under the Code and its regulations at time of purchase, and
shall be secured by a pledge of the Shares purchased by the Note pursuant to the
Security Agreement.
3. REPURCHASE OPTION.
(a) In the event the Purchaser ceases to be a Service Provider
for any or no reason (including death or disability) before all of the Shares
are released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering
<PAGE>
written notice to the Purchaser or the Purchaser's executor (with a
copy to the Escrow Holder) AND, at the Company's option, (i) by delivering to
the Purchaser or the Purchaser's executor a check in the amount of the
aggregate Repurchase Price, or (ii) by canceling an amount of the Purchaser's
indebtedness to the Company equal to the aggregate Repurchase Price, or (iii)
by a combination of (i) and (ii) so that the combined payment and
cancellation of indebtedness equals the aggregate Repurchase Price. Upon
delivery of such notice and the payment of the aggregate Repurchase Price,
the Company shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interests therein or relating thereto, and the
Company shall have the right to retain and transfer to its own name the
number of Shares being repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or shareholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Agreement and purchase all or a part of such Shares. If the Fair Market
Value of the Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such
Shares, then each such designee or assignee shall pay the Company cash equal to
the difference between the Repurchase FMV and the aggregate Repurchase Price of
such Shares.
4. RELEASE OF SHARES FROM REPURCHASE OPTION.
(a) Twenty Five percent (25%) of the Shares shall be released
from the Company's Repurchase Option one year after the Date of Grant and one
forty eighth (1/48) of the Shares at the end of each month thereafter, provided
that the Purchaser does not cease to be a Service Provider prior to the date of
any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase
Option shall be delivered to the Purchaser at the Purchaser's request (see
Section 6).
5. RESTRICTION ON TRANSFER. Except for the escrow described in Section
6 or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. ESCROW OF SHARES.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as EXHIBIT D. The
Unreleased Shares and
-2-
<PAGE>
stock assignment shall be held by the Escrow Holder, pursuant to the Joint
Escrow Instructions of the Company and Purchaser attached hereto as EXHIBIT
E, until such time as the Company's Repurchase Option expires. As a further
condition to the Company's obligations under this Agreement, the Company may
require the spouse of Purchaser, if any, to execute and deliver to the
Company the Consent of Spouse attached hereto as EXHIBIT F.
(b) The Escrow Holder shall not be liable for any act it may
do or omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all
the rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. LEGENDS. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER,
-3-
<PAGE>
A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(c) Any legend required by any applicable state
securities laws.
8. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares that may be made by the Company after the date of this Agreement.
9. TAX CONSEQUENCES. The Purchaser has reviewed with the Purchaser's
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the Purchaser
(and not the Company) shall be responsible for the Purchaser's own tax liability
that may arise as a result of the transactions contemplated by this Agreement.
The Purchaser understands that Section 83 of the Internal Revenue Code of 1986,
as amended (the "Code"), taxes as ordinary income the difference between the
purchase price for the Shares and the Fair Market Value of the Shares as of the
date any restrictions on the Shares lapse. In this context, "restriction"
includes the right of the Company to buy back the Shares pursuant to the
Repurchase Option. The Purchaser understands that the Purchaser may elect to be
taxed at the time the Shares are purchased rather than when and as the
Repurchase Option expires by filing an election under Section 83(b) of the Code
with the IRS within 30 days from the date of purchase. The form for making this
election is attached as EXHIBIT G hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. GENERAL PROVISIONS.
(a) This Agreement shall be governed by the internal
substantive laws, but not the choice of law rules of Delaware. This Agreement,
subject to the terms and conditions of the Plan and the Notice of Grant,
represents the entire agreement between the parties with respect to the purchase
of the Shares by the Purchaser. In the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Agreement, the terms
and conditions of the Plan shall prevail. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this
Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
-4-
<PAGE>
Any notice to the Escrow Holder shall be sent to the
Company's address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF
SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES
THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING
SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF
CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY
PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first set forth above.
PURCHASER: ZAPME! CORPORATION
- - ----------------------------------- ----------------------------------
Signature By
- - ----------------------------------- ----------------------------------
Print Name Title
-6-
<PAGE>
EXHIBIT B
PROMISSORY NOTE
December 21, 1999
$4,437,500.00
For value received, the undersigned promises to pay to ZapMe! Corporation a
Delaware corporation (the "Company"), or order, at its principal office the
principal sum of $4,437,500.00 with interest thereof at the rate of 6.47% per
annum, compounded annually, on the unpaid balance of the principal sum. Said
principal shall be due on the earlier to occur of the tenth anniversary of the
date of this Note, thirty (30) days after termination other than for death or
disability, or one year after termination for death or disability. Said interest
shall be paid as it accrues by means of regular payroll deductions in the case
of an employee and by such other means as the Board may approve in the case of a
member of the Board.
Should the undersigned fail to make full payment of principal or interest for a
period of ten (10) days or more after the due date thereof, the whole unpaid
balance on this Note of principal and interest shall become immediately due at
the option of the holder of this Note.
This Note is subject to the terms of a Restricted Stock Purchase Agreement,
dated as of December 21, 1999. This Note is secured by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned
personally for failure to pay the Note as and when due.
The principal is payable in lawful money of the United States of America. The
privilege is reserved to prepay any portion of the Note at any time.
If the undersigned shall default in the payment of amounts hereunder when due,
the holder of this Note shall be entitled to payment by the undersigned of all
costs of collection, including, without limitation, reasonable attorneys' fees
and costs incurred in connection with such collection efforts, whether or not
suit on this Note is filed. The maker waives presentment for payment, protest,
notice of protest and notice of non-payment of this Note. This Note shall be
governed by the laws of the State of California as they apply to contracts
entered into and wholly to be performed within such state.
---------------------------------
Rick Inatome
<PAGE>
EXHIBIT C
SECURITY AGREEMENT
This Security Agreement is made as of December 21, 1999 between ZapMe!
Corporation, a Delaware corporation ("Pledgee"), Rick Inatome ("Pledgor"), and
Bruce D. Bower, Secretary of Pledgee, as the agent of Pledgee and holder of the
Securities pledged hereunder ("Pledgeholder").
RECITALS
Pursuant to the Restricted Stock Purchase Agreement dated December 21, 1999
(the "Agreement"), between Pledgor and Pledgee and Pledgor's election under the
terms of the Agreement to pay for such shares with Pledgor's promissory note
(the "Note"), Pledgor has purchased 500,000 shares of Pledgee's Common Stock
(the "Shares") at a price of eight dollars and eighty-seven and one-half cents
($8.875) per share, for a total purchase price of $4,437,500.00. The Note and
the obligations thereunder are as set forth in EXHIBIT A to the Agreement.
NOW, THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of the
transfer of the Shares to Pledgor under the Agreement, Pledgor, pursuant to the
California Uniform Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by certificate number __,
and herewith delivers said certificate to Pledgeholder, who shall hold said
certificate on behalf of Pledgee subject to the terms and conditions of this
Security Agreement.
The Shares (together with an executed blank stock assignment or assignments)
shall be held by Pledgeholder on behalf of Pledgee as security for the repayment
of the Note, and any extensions or renewals thereof, to be executed by Pledgor
pursuant to the terms of the Agreement, and Pledgeholder shall not encumber or
dispose of such Shares except in accordance with the provisions of this Security
Agreement.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter into this
Security Agreement, Pledgor represents and covenants to Pledgee, its successors
and assigns, as follows:
(a) PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of the
Note secured hereby, and interest thereon, at the time and in the manner
provided in the Note.
<PAGE>
(b) ENCUMBRANCES. The Shares are free of all other adverse claims,
encumbrances, defenses and liens (other than restrictions on transfer imposed by
applicable securities laws), except for (i) Pledgee's rights to repurchase
Shares pursuant to Section 3 of the Agreement and (ii) the pledge of the Shares
hereunder as security for payment of the Note, and Pledgor will not further
encumber the Shares without the prior written consent of Pledgee.
(c) MARGIN REGULATIONS. In the event that Pledgee's Common Stock is now
or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. VOTING RIGHTS. During the term of this pledge and so long as all payments of
principal and interest are made as they become due under the terms of the Note,
Pledgor shall have the right to vote all of the Shares pledged hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the pledge any stock
dividend, reclassification, readjustment or other changes are declared or made
in the capital structure of Pledgee, all new, substituted and additional shares
or other securities issued by reason of any such change shall be delivered to
and held by the Pledgee under the terms of this Security Agreement in the same
manner as the Shares originally pledged hereunder. In the event of substitution
of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and
execute such documents as are reasonable so as to provide for the substitution
of such Collateral and, upon such substitution, references to "Shares" in this
Security Agreement shall include the substituted shares of capital stock of
Pledgor as a result thereof.
5. OPTIONS AND RIGHTS. In the event that, during the term of this pledge,
subscription Options or other rights or options shall be issued in connection
with the pledged Shares, such rights, Options and options shall be the property
of Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of this
Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of ten (10) days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Agreement or contained in this Security Agreement for a period of ten (10) days
after written notice thereof from Pledgee; or
(c) A bankruptcy or insolvency proceeding is instituted by or against
Pledgor, or if a receiver is appointed for the property of Pledgor; or
<PAGE>
(d) Pledgor makes an assignment for the benefit of creditors.
In the case of a default, as set forth above, Pledgee shall have the right to
accelerate payment of the entire amount on the Note, and Pledgee shall
thereafter be entitled to pursue its remedies under the California Uniform
Commercial Code.
7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules under
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note. Notwithstanding the foregoing, upon any release of
pledged Shares hereunder any such Shares which shall continue to constitute
Unreleased Shares as defined in the Agreement shall continue to be held in
escrow pursuant to Sections 3 and 6 of the Agreement.
8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell, withdraw,
pledge, substitute or otherwise dispose of all or any part of the Collateral
without the prior written consent of Pledgee.
9. TERM. The within pledge of Shares shall continue until the payment of all
indebtedness secured hereby, subject to the provisions for prior release of a
portion of the Collateral as provided in paragraph 7 above.
10. PLEDGEHOLDER LIABILITY.
(a) Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder unless Pledgeholder is proved to have acted
in bad faith. Any act done or omitted pursuant to the advice of legal counsel,
other than an act or omission involving gross or willful negligence, shall be
deemed to be done or omitted in good faith.
(b) Pledgeholder shall be entitled to employ such legal counsel and
other experts as Pledgeholder may deem necessary properly to advise Pledgeholder
in connection with its obligations hereunder, and Pledgeholder may rely upon the
advice of such counsel. Such counsel's reasonable fees and costs shall be borne
50% by Pledgor and 50% by Pledgee.
(c) It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by Pledgeholder hereunder, Pledgeholder is authorized and
directed to retain in Pledgeholder's possession as agent of Pledgee without
liability to anyone all or any part of said securities until such disputes shall
have been settled either by mutual written agreement of the parties concerned or
by a final order, decree or judgment of the arbitrator provided for in Section
10 of the Agreement or of a court of competent jurisdiction after the time for
appeal has expired and no appeal has been perfected, but Pledgeholder shall be
under no duty whatsoever to institute or defend any such proceedings
2
<PAGE>
In addition, upon any dispute Pledgeholder should be entitled to
engage legal counsel, one-half of whose fees and expenses shall be borne by
Pledgor and one-half by Pledgee.
11. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree that the
enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
12. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the terms of
this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
13. GOVERNING LAW. This Security Agreement shall be interpreted and governed
under the laws of the State of California.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
"PLEDGOR" By: Rick Inatome
--------------------------
(Signature)
----------------------------
----------------------------
(Address)
"PLEDGEE" ZapMe! Corporation
a Delaware corporation
By:________________________
Lance Mortensen, Chairman
"PLEDGEHOLDER" By: Bruce D. Bower
-----------------------------
Secretary of Pledgee
4
<PAGE>
EXHIBIT D
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, Rick Inatome, hereby sell, assign and transfer
unto ____________________________ (__________) shares of the Common Stock of
ZapMe! Corporation, standing in my name of the books of said corporation
represented by Certificate No. _____ herewith and do hereby irrevocably
constitute and appoint to transfer the said stock on the books of the within
named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the
Restricted Stock Purchase Agreement (the "Agreement")
between________________________ and the undersigned dated ______________,
_____.
Dated:
----------------,------
Signature:
-----------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
5
<PAGE>
EXHIBIT E
JOINT ESCROW INSTRUCTIONS
December 21, 1999
Corporate Secretary
ZAPME! CORPORATION
3000 Executive Parkway
Suite 150
San Ramon, CA 94583
Dear Corporate Secretary:
As Escrow Agent for both ZapMe! Corporation, a Delaware corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's Repurchase
Option set forth in the Agreement, the Company shall give to Purchaser and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price, and the time for a closing hereunder at the principal office of
the Company. Purchaser and the Company hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state
<PAGE>
blue sky authority of any required applications for consent to, or notice of
transfer of, the securities. Subject to the provisions of this paragraph 3,
Purchaser shall exercise all rights and privileges of a shareholder of the
Company while the stock is held by you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
-2-
<PAGE>
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
<TABLE>
<S> <C>
COMPANY: ZAPME! CORPORATION
3000 Executive Parkway, Suite 150
San Ramon, CA 94583
PURCHASER: Rick Inatome
ESCROW AGENT: Corporate Secretary
ZAPME! CORPORATION
3000 Executive Parkway, Suite 150
San Ramon, CA 94583
</TABLE>
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of the State of California.
Very truly yours,
ZAPME! CORPORATION
------------------------------------
By
LANCE MORTENSEN, CHAIRMAN
-------------------------------------
Title
PURCHASER:
------------------------------------
Signature
RICK INATOME
-------------------------------------
Print Name
ESCROW AGENT:
- - -------------------------------------
Bruce Bower, Corporate Secretary
-4-
<PAGE>
EXHIBIT F
CONSENT OF SPOUSE
I, Joyce Inatome, spouse of Rick Inatome, have read and approve the
foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of ZapMe! Corporation, as set forth in the Agreement, I hereby appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I
may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: ____________________, _____
------------------------------------------
Signature of Spouse
<PAGE>
EXHIBIT G
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
<TABLE>
<S> <C> <C>
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
</TABLE>
2. The property with respect to which the election is made is described as
follows:______ shares (the "Shares") of the Common Stock of ZapMe!
Corporation (the "Company").
3. The date on which the property was transferred is:____________,______.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the
Shares based on the continued performance of services by the taxpayer
over time.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms
will never lapse, of such property is: $__________.
6. The amount (if any) paid for such property is: $___________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED
EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated: _________________, ____ __________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________, ____ __________________________
Spouse of Taxpayer
<PAGE>
September 20, 1999
William S. Burwell
Dear Scott:
I am pleased to offer you a position with ZapMe! Corporation (the
"Company") as Chief Information Officer, commencing September 27, 1999. You will
report to me in my capacity as Chief Executive Officer
As Chief Information Officer, an exempt position, you will receive a
salary of $14,583.33 per month, which will be paid semi-monthly in accordance
with the Company's normal payroll procedures.
As a Company employee, you are also eligible to receive certain
employee benefits, including medical and dental insurance benefits, which will
be available to you on the first day of the month following your first 30 days
of employment. The Company is currently reviewing its executive benefits
package. You will be receiving a benefits package in line with other Company
executives.
You will also be entitled to vacation time in accordance with the
Company's policy, which is that you will receive three weeks vacation per year
for your first ten years of employment and four weeks per year thereafter. The
Company believes that vacations are a vital factor in pursuing a balanced
lifestyle. Accordingly, the Company expects that you will use vacation days in
the year earned. In no event will you accrue more than one and one-half times
your annual vacation time.
In addition, and subject to the approval of the Company's Board of
Directors, you will receive an option to purchase 175,000 shares of the
Company's Common Stock. The per share exercise price of such stock option will
be determined by the Board of Directors, based on the fair market value of a
share of the Company's Common Stock on the date the option is granted to you by
the Board of Directors. The option will vest as to one-third of the shares
subject thereto on each of your first, second and third anniversary of
employment.
The Company will also reimburse for temporary housing expenses and
other expenses you incur in your permanent move to the Bay Area, subject to a
cap to be agreed. Reimbursement will be made in accordance with the Company's
standard reimbursement policies, and upon your providing receipts substantiating
these expenses.
[LETTERHEAD]
<PAGE>
Page 2
As a Company employee, you will be expected to abide by the Company's
rules and regulations, including the Company's Employee Handbook, and to sign
and comply with the Confidential Information, Invention Assignment and Terms of
Employment Agreement (a copy of which is enclosed herewith) that prohibits
unauthorized use or disclosure of the Company's proprietary information. You
must execute and return the Confidential Information, Invention Assignment and
Terms of Employment Agreement prior to your commencing employment with the
Company.
For purposes of federal immigration law, you will be required to
provide the Company with documentary evidence of your identity and eligibility
for employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
You should be aware that your employment with ZapMe! constitutes at
will employment. As a result, you are free to resign at any time, for any reason
or for no reason. Similarly, the Company is free to conclude its employment
relationship with you at any time, with or without cause or advance notice. This
at will employment relationship may not be changed except in a writing signed by
an executive officer of the Company. Your continued employment is further
conditioned on your agreement to devote your work efforts exclusively to the
Company.
Of course, the terms of this offer may not be modified or amended
except by a written agreement executed by you and an executive officer of the
Company, and shall, together with such other written agreements you and the
Company may enter in connection with your employment, constitute the entire
agreement between you and the Company relating to the terms of your employment,
and supersedes and any other employment agreements or promises made to you by
anyone whether oral or written.
To indicate your acceptance of the Company's offer, please sign and
date this letter and return it to me. A duplicate is enclosed for your records.
Best regards,
Rick Inatome
Chief Executive Officer
cc:
Enclosures
ACCEPTED AND AGREED:
- - --------------------------
William S. Burwell
<PAGE>
November 8, 1999
Philip Wise
Dear Phil:
I am pleased to offer you a position with ZapMe! Corporation (the
"Company") as Vice President, Strategic Alliances, commencing November 8, 1999.
You will report to me in my capacity as Chief Executive Officer.
As Vice President, Strategic Alliances, an exempt position, you will
receive a salary of $14,583.33 per month, which will be paid semi-monthly in
accordance with the Company's normal payroll procedures. The Company may adopt
an incentive program and in which case, you would be eligible to participate.
As a Company employee, you are also eligible to receive certain
employee benefits, including medical and dental insurance benefits, which will
be available to you on the first day of the month following your first 30 days
of employment. Both a PPO and an HMO are available through a variety of plans,
and the Company pays from 80% to 90% of your premium and from 60% to 70% of the
premium for your dependent(s), depending on the plan you choose. The Company
will also make available to you a company paid life insurance benefit in the
amount of one times your annual salary, as well as a long-term disability
benefit.
You will also be entitled to vacation time in accordance with the
Company's policy, which is that you will receive three weeks vacation per year
for your first ten years of employment and four weeks per year thereafter. The
Company believes that vacations are a vital factor in pursuing a balanced
lifestyle. Accordingly, the Company expects that you will use vacation days in
the year earned. In no event will you accrue more than one and one-half times
your annual vacation time.
The Company will also reimburse for temporary housing expenses and
other expenses you incur in your permanent move to the Bay Area, subject to a
cap to be agreed upon. Reimbursement will be made in accordance with the
Company's standard reimbursement policies, and upon your providing receipts
substantiating these expenses.
In addition, and subject to the approval of the Company's Board of
Directors, you will receive an option to purchase 185,000 shares of the
Company's Common Stock. The per share exercise price of such stock option will
be based on the fair market value of a share as of close of market on November,
9, 1999, the date the option will be granted to you by the Board of Directors.
The option will vest as to one-fourth of the shares subject thereto on your
first anniversary of employment, and one forty-eighth of the shares subject
thereto each month thereafter until fully vested.
[LETTERHEAD]
<PAGE>
Page 2
As a Company employee, you will be expected to abide by the Company's
rules and regulations, including the Company's Employee Handbook, and to sign
and comply with the Confidential Information, Invention Assignment and Terms of
Employment Agreement (a copy of which is enclosed herewith) that prohibits
unauthorized use or disclosure of the Company's proprietary information. You
must execute and return the Confidential Information, Invention Assignment and
Terms of Employment Agreement prior to your commencing employment with the
Company.
For purposes of federal immigration law, you will be required to
provide the Company with documentary evidence of your identity and eligibility
for employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
You should be aware that your employment with ZapMe! constitutes at
will employment. As a result, you are free to resign at any time, for any reason
or for no reason. Similarly, the Company is free to conclude its employment
relationship with you at any time, with or without cause or advance notice. This
at will employment relationship may not be changed except in a writing signed by
an executive officer of the Company. Your continued employment is further
conditioned on your agreement to devote your work efforts exclusively to the
Company, except that you may continue your efforts on your collecting web sites
so long as it does not affect your work at ZapMe!.
Of course, the terms of this offer may not be modified or amended
except by a written agreement executed by you and an executive officer of the
Company, and shall, together with such other written agreements you and the
Company may enter in connection with your employment, constitute the entire
agreement between you and the Company relating to the terms of your employment,
and supersedes and any other employment agreements or promises made to you by
anyone whether oral or written.
To indicate your acceptance of the Company's offer, please sign and
date this letter and return it to me. A duplicate is enclosed for your records.
Best regards,
Rick Inatome
Chief Executive Officer
Enclosures
ACCEPTED AND AGREED:
- - ---------------------
Phil Wise
<PAGE>
December 21, 1999
R. Kimberly Gaynor
Dear Kim:
It is with great pleasure that the Board of Directors of ZapMe!
Corporation extends an offer to you to join us as Executive Vice-President/Chief
Management Officer of the Company commencing December 21, 1999. This letter will
confirm the details of your employment offer.
As Executive Vice-President/ Chief Management Officer, you will receive
a monthly salary of $18,750.00 which will be paid semi-monthly in accordance
with the Company's normal payroll procedures. You also will be entitled to
participate in an Employee Bonus Program. The Employee Bonus Program is designed
to reward you based on the Company achieving certain annual operating and
financial goals. These goals will be determined by the Board of Directors and
communicated to you within sixty (60) days of your employment start date. You
will be eligible to receive a target Employee Bonus provided that you are a
full-time employee of the Company on your first anniversary. The actual bonus
you may earn will depend upon the attainment of the performance objectives
outlined in the bonus agreement. The Employee Bonus is paid on or about thirty
(30) days from the first year anniversary of your start date.
As a Company employee, you are also eligible to receive certain
employee benefits, including medical and dental insurance benefits, which will
be available to you on the first day of the month following your first sixty
(60) days of employment. In addition, the Company shall have in place, within
sixty (60) days after the date of this letter, a long-term disability insurance
policy for executive level employees. In addition, you will also be entitled to
participate in any executive benefits program the Company adopts.
Given your relocation to the Bay Area from Michigan, the company will
provide a comprehensive executive relocation plan for you. This plan will
reimburse you for all reasonably incurred direct relocation expenses, such as
fees for moving your and your family's personal effects, travel for you and your
family, temporary housing, and the like (but excluding adjustments for
differences is housing values between the Bay Area and Michigan, and will be
adjusted and grossed up in a manner that you will be tax neutral. Realtor fees
for selling your home in Michigan are limited to the lesser of 6% of the home
sales price or $100,000 (plus gross-up).
<PAGE>
The Company will reimburse you for all reasonable expenses paid by you
that are incurred in the ordinary course of conducting Company business. The
Company will also reimburse you for reasonable travel and lodging expenses you
incur prior to relocating to the Bay Area during your first year of employment.
You will be entitled to vacation time in accordance with the Company's
policy, which is that you will receive three weeks vacation per year for your
first ten years of employment and four weeks per year thereafter. The Company
expects that you will use vacation days in the year earned.
In addition, and subject to the approval of the Company's Board of
Directors, you will receive an option to purchase 380,000 shares of the
Company's Common Stock. The per share exercise price of such stock option will
be determined by the Board of Directors, based on the fair market value of a
share of the Company's Common Stock on the date the option is granted to you by
the Board of Directors. The option will vest as to one-fourth of the shares
subject thereto on your first anniversary of employment, and one forty-eighth of
the shares subject thereto each month thereafter until fully vested; provided
that the option shall lapse as to 40,000 shares in the event you are not
appointed Chief Operating Officer of the Company by April 30, 2001.
Also, if the Company terminates your employment without your consent
and for a reason other than "cause", death or "disability" (as defined above),
then the Company will continue to pay you your then current base salary for a
period of one year, provided that for the entire one year period you do not
directly or indirectly, (1) engage, participate or invest in any business
activity anywhere in the world which develops, manufactures or markets products
or performs services which are competitive with the products or services of the
Company at the time of the your termination, or products or services which the
Company has under development or which are the subject of active planning at the
time of your termination, (2) hire or attempt to employ, recruit or otherwise
influence any person to leave employment with the Company, and (3) solicit
business from any of the Company's customers and users, resellers or
distributors on behalf of any business which competes with the Company. However,
you may own as a passive investor, publicly-traded securities of any corporation
which competes with the business of the Company so long as such securities do
not, in the aggregate, constitute more than 1% of any class of outstanding
securities of such corporations. For purposes of this paragraph, "cause" means
(1) any act of personal dishonesty taken by you in connection with your
responsibilities as an employee and intended to result in your personal
enrichment (or that of your associates) at the expense of the Company or its
stockholders, (2) any conviction (or plea of no contest) of a felony or an act
of fraud, (3) continued violations of your employment-related obligations which
are willful and deliberate after there has been delivered to you a written
demand from the Board regarding such activities and you have had a reasonable
opportunity to correct the violations, or (4) willful refusal to carry out
legally permissible instructions from the Board after you have been given
written notice of a failure to carry out such instructions and a reasonable
opportunity to correct the situation.
<PAGE>
As a Company employee, you will be expected to abide by the Company's
rules and regulations, including the Company's Employee Handbook, and to sign
and comply with the Confidential Information, Invention Assignment and Terms of
Employment Agreement (a copy of which is enclosed herewith) that prohibits
unauthorized use or disclosure of the Company's proprietary information. You
must execute and return the Confidential Information, Invention Assignment and
Terms of Employment Agreement prior to your commencing employment with the
Company.
For purposes of federal immigration law, you will be required to
provide the Company with documentary evidence of your identity and eligibility
for employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
You should be aware that your employment with ZapMe! constitutes at
will employment. As a result, you are free to resign at any time, for any reason
or for no reason. Similarly, the Company is free to conclude its employment
relationship with you at any time, with or without cause or advance notice. This
at will employment relationship may not be changed except in a writing signed by
an authorized member of the Board. This at-will employment relationship will not
affect your right to potential severance pay or other benefits under this
Agreement or any other plan or agreement of the Company.
Of course, the terms of this offer may not be modified or amended
except by a written agreement executed by you and an authorized member of the
Board, and shall, together with such other written agreements you and the
Company may enter in connection with your employment, constitute the entire
agreement between you and the Company relating to the terms of your employment,
and supersedes and any other employment agreements or promises made to you by
anyone whether oral or written.
Kim, we hope that you will view our offer in a most positive light. We
have tried to work very closely with you to structure an opportunity and a
financial arrangement that meets your needs and gives you an incentive for
exceptional performance. As you know, this offer needs ratification by the
Board, which will meet within the next two weeks. If you agree with the terms
contained in this letter, please notify me by the end of the day of December 22,
1999.
<PAGE>
We look forward to your positive response and would appreciate your
signing a copy of our offer letter as acknowledgement of your acceptance of the
terms of this offer. Once you have returned this signed acceptance, we will
proceed to effect a smooth transition and to make appropriate announcements
within our company and to external audiences. We sincerely hope you will join us
in the very near future.
Very truly yours,
Rick Inatome
Chief Executive Officer
Accepted:
By:__________________________ Date: December __, 1999
Kim Gaynor
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
AMENDED AND RESTATED SERVICE AGREEMENT
Between
ZAPME! CORPORATION
and
SPACENET INC.
Agreement No. 1666
SEPTEMBER 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section A -- Services and
Prices ............................................................. 2
Overview ........................................................... 2
Network
Information ........................................................ 3
Prices ............................................................. 4
Notices and Points of
Contact ............................................................ 6
Section B -- General Terms and
Conditions ......................................................... 7
1. Term ............................................................ 7
2. Charges and Payments ............................................ 7
3. Taxes and Fees .................................................. 8
4. Assignment ...................................................... 8
5. Title and Risk of Loss .......................................... 8
6. Use; Location; Inspection ....................................... 8
7. Disposition of Equipment after Termination ...................... 8
8. Governing Law ................................................... 9
9. Responsibilities of the Parties ................................. 9
10. Extended Warranty ............................................... 9
11. Liability of Spacenet and Customer .............................. 9
12. Termination and Suspension of Service ........................... 10
13. Force Majeure ................................................... 10
14. Confidentiality ................................................. 10
15. Severability .................................................... 10
16. Non-Waiver ...................................................... 10
17. Relationship of the Parties ..................................... 10
18. Notices and Points of Contact ................................... 10
19. Counterparts .................................................... 11
20. Entire Agreement ................................................ 11
Section C -- Network
Implementation ..................................................... 12
Ordering
Procedures ......................................................... 12
Site
Installations ...................................................... 12
Change Control
Process ............................................................ 15
Section D -- Operation and
Maintenance ........................................................ 16
Network
Operation .......................................................... 16
Out-of-Scope
Services ........................................................... 16
Network Availability
Commitment ......................................................... 16
Site
Maintenance ........................................................ 17
Software License and
Support ............................................................ 18
Section E -- Description of SkyBlaster and PC
Deliverables ....................................................... 20
</TABLE>
<PAGE>
AMENDED AND RESTATED SERVICE AGREEMENT
This Amended and Restated Service Agreement between SPACENET INC., with its
headquarters at 1750 Old Meadow Road, McLean, Virginia 22102 ("SPACENET") and
ZAPME! CORPORATION, having its principal place of business at 3000 Executive
Parkway, Suite 150, San Ramon, CA 94583 ("CUSTOMER" OR "ZAPME!") dated
September 30, 1999 ("Agreement") amends and restates in its entirety and
supersedes the Service Agreement between Spacenet and ZapMe! dated June 11,
1999 and its Amendment No. 1 dated July 19, 1999 ("Prior Agreement").
Spacenet hereby agrees to provide its satellite-based telecommunications
services ("Service") to ZapMe pursuant to this Agreement. Customer hereby
agrees to take and pay for said Service pursuant to this Agreement.
The following sections are an integral part of this Agreement:
Section A -- Services and Prices
Section B -- General Terms and Conditions
Section C -- Network Implementation
Section D -- Operation and Maintenance
Section E -- Description of SkyBlaster and PC Deliverables
Under the terms of this Agreement, as set forth in further detail under
Sections A - E herein. Spacenet will provide, install, and maintain certain
telecommunications equipment ("Equipment") and licensed software ("Software")
and will provide access to a geostationary orbit communications satellite
("Space Segment"), all of which will enable two-way data transmissions
between Customer's headquarters in San Ramon, California and its remote
locations with access to Customer's proprietary network ("Sites"). All
obligations under this Agreement shall be performed by and between (i)
Spacenet and (ii) Customer or its designated customers, agents or users. This
Agreement does not create any rights in end-users or in any other third party
not a signatory hereto. This Agreement will become effective on the date of
the last party to sign below.
<TABLE>
<S> <C>
AGREED TO BY CUSTOMER: ACCEPTED BY SPACENET:
ZAPME! CORPORATION SPACENET INC.
SIGNATURE: ___________________________________________ ___________________________________________
PRINTED NAME: ____________________________________________ ___________________________________________
TITLE: ____________________________________________ ___________________________________________
DATE: ___________________________________________ ___________________________________________
</TABLE>
<PAGE>
SECTION A -- SERVICES AND PRICES
This Section contains Customer-specific information on the equipment and
services to be provided by Spacenet. In the event of any conflict between
this Services and Prices Section and the other Sections hereto, this Services
and Prices Section shall prevail.
OVERVIEW
Under this Agreement Spacenet will provide Customer with certain
SkyBlaster(TM)* and certain PC equipment and services (as further defined
herein, including Section E). SkyBlaster is a service comprised of equipment
and software which enables geographically dispersed locations to exchange
data transmissions via a satellite network. The SkyBlaster service operates
on a point-to-multipoint network architecture. This document establishes the
responsibilities of Spacenet and ZapMe!, and the prices, terms, and
conditions under which SkyBlaster and PC equipment and services will be
installed, operated, and maintained at Spacenet's shared hub and at remote
locations designated by ZapMe! across the continental USA.
* SkyBlaster is a trademark of Gilat Satellite Networks, Ltd.
<PAGE>
NETWORK INFORMATION
Location of Spacenet's Shared Hub Uplinking facilities: Atlanta, Georgia,*
* The parties recognize that, as of the
Effective Date, Spacenet's Shared Hub
Unplinking facilities are in Atlanta,
Georgia, but that Spacenet may need to
temporarily utilize the Chicago, Illinois
hub to meet Customer's space segment needs.
In the event Spacenet elects to utilize the
shared hub in Chicago, Spacenet will be
responsible for supplying the additional
baseband hub equipment at such hub and
Customer shall be responsible for all other
terrestrial, router and server equipment and
services associated with the additional hub.
The parties also recognize that it is
Spacenet's intent to ultimately move
Customer to a single hub in McLean, Virginia
commencing in January 2000. In the event
Spacenet elects to move Customer from its
shared hub in Atlanta and/or Chicago,
Spacenet shall reimburse ZapMe! for the
following costs actually incurred by ZapMe!
in connection with the relocation: (i) one
time termination fee for the terrestrial
interconnect (ii) one time connection fee
for the terrestrial interconnect and (iii)
reasonable expedite fee for the terrestrial
interconnect.
Location of Customer's SkyBlaster Hub equipment: at Spacenet's Shared Hub
Uplinking facilities
Minimum Site Order Quantity: 2,000 Sites (which includes retrofits of 304
Legacy Site systems as defined in Section C
and SkyBlaster Sites installed as of the
Effective Date)*
* During the Agreement Term, Customer may
order additional Sites at the price set
forth under "Standard Service" below.
Minimum Site Order Installation Period: Completed by June 30, 2000
Minimum Site Service Term: 36 months from Site installation
Minimum Network Service Term: 36 months from installation of the Minimum
Site Order Quantity
Protocols to be supported: TCP/IP and UDP at Spacenet's shared hub
and at each remote Site
Customer's Bandwidth Allocation: Per each 500 Sites (with bandwidth to be
increased proportionately based on the
number of installed Sites): Outbound
channels (toward the remote sites) -
bandwidth to support a [**] carrier;
Inbound channels (from the remote sites) -
[**]. Bandwidth is subject to periodic
review based on system performance and
Customer will purchase additional bandwidth
as necessary at the prices set forth below.
Service Demarcation Points: At the Hub: output ports at the Customer
provided Ethernet hub
At the VSAT: output ports of the Spacenet
provided client PCs
VSAT Maintenance Option selected: Next Business Day On-Site Maintenance
Hub Maintenance: 7x24
Performance Specifications: Network Availability Commitment (defined in
Section D): [**]
** Portions omitted pursuant to a request for confidential treatment
<PAGE>
PRICES
STANDARD SERVICE -- INCLUDES THE FOLLOWING AS FURTHER DESCRIBED HEREIN,
INCLUDING SECTION E.
<TABLE>
<CAPTION>
PC TYPE FREQUENCY PRICE1
<S> <C> <C> <C>
Dell Monthly, Per Site [**]
Toshiba 2 Monthly, Per Site [**]
1.2 Meter Antenna (or larger antenna as required due to use of GSTAR4
satellite), One Standard Mount3, Up to 400 Feet of IFL Cable, Non-Plenum
(dual 200' cable run), Outdoor Unit - 1 watt ODU and LNB, Two PCI cards
- - - DVB Receiver
- - - Satellite Transmitter,
One permanent server PC (including peripherals and associated accessory
kits), Five client PCs, Support for Two (2) Spacenet -Supported Software
Protocols, Software License and Maintenance, 48-state Ku-Band satellite
capacity, non-preemptible and intra-satellite protected, Use of Spacenet's
Shared Hub Facilities, Standard Installation, 24-hour 2nd Level Help Desk
Support, Next Business Day On-Site Maintenance Support,
Satellite Network capacity to support Customer's Bandwidth Allocation
specified under "Network Information"4
Non-Customer Provided Additional Dell client PC Monthly, Per PC [**]
(installation included if additional PC to be installed at time of
initial Site installation; minimum 36 month commitment)
Non-Customer Provided Additional Toshiba client PC (see footnote 2) Monthly, Per PC [**]
(installation included if additional PC to be installed at time of
initial Site installation; minimum 36 month commitment)
In the event Customer provides the following Equipment and/or Services at a
Site, Spacenet shall provide Customer with the applicable credit to be applied
toward the Standard Service fee for such Site:
SKYBLASTER EQUIPMENT5
Outdoor Unit (500mw ODU and LNB) and Satellite Transmitter PCI Card Monthly, Per Site [**]
DVB Receiver PCI Card Monthly, Per Site [**]
Toshiba SERVER AND CLIENT PC EQUIPMENT AND INSTALLATION SERVICES6
One Permanent Server PC and Five Client PCs Monthly, Per Site [**]
Inacom Provided Peripherals and associated accessory kits Monthly, Per Site [**]
Inacom installation of Server PC and Client PC Equipment Monthly, Per Site [**]
</TABLE>
- - --------
1 The price for Standard Service shall constitute the sole amount due to
Spacenet from ZapMe! under this or any prior agreement for such Standard
Service, subject to additional charges for all non-standard requirements and
subject to the terms and conditions of this Agreement. Notwithstanding the
above, Customer shall pay all shipping expenses incurred in connection with the
PC Deliverables in an amount equal to Spacenet's actual costs.
2 Customer may only order Toshiba Server and Client PCs for up to 120 Sites or
such greater amount as mutually agreed to by the parties pursuant to the change
control process set forth herein.
3 "Standard" mounts are: Non-penetrating, Close-in Wall, Medium Reach Wall, and
I-Beam.
4 The space segment purchased from Spacenet as part of the Standard Service
shall be dedicated to ZapMe! and ZapMe! may use the space segment in connection
with the SkyBlaster service for multiple vertical markets.
5 The parties understand that credits for such Equipment will only apply to such
Equipment procured by Customer from Gilat Satellite Networks Ltd. as of the
Effective Date.
6 The parties understand that credits for such Equipment and Services will only
apply to such Equipment and Services procured by Customer as of the Effective
Date and will in no event apply to more than 300 Sites.
** Portions omitted pursuant to a request for confidential treatment
<PAGE>
ADDITIONAL (OPTIONAL) ACCESSORIES/EQUIPMENT/SERVICES
<TABLE>
<S> <C> <C>
Upgrade to 1.8 Meter Antenna w/Non Penetrating Roof One-Time Charge [**]
Mount, if required
Additional Required IFL Cable, Non-Plenum One-Time Charge [**]
HP ProCurve 10/100 12-Port Hub Each [**]
14' RJ11 cable Each [**]
50' RJ11 cable Each [**]
10' parallel printer cable Each [**]
14' ethernet patch cable grey cat 5 Each [**]
25' ethernet patch cable grey cat 5 Each [**]
50' ethernet patch cable grey cat 5 Each [**]
100' ethernet patch cable grey cat 5 Each [**]
25' RJ11 cable Each [**]
15' parallel printer cable Each [**]
8" Velcro Wire Straps - 6 -pack Each [**]
Surgemaster Power Strip Each [**]
Remote Network Management System (NMS) Console Each [**]
Additional one m/bps outbound channel (if available) Monthly [**]
Additional one MHz inbound channel (if available) Monthly [**]
Non-Standard Installation / Optional Antenna Mounts Each Quotation
Maintenance Call for Damaged Equipment or other
"non-covered" calls T&M, with
[**]
Non-Covered Maintenance Call (T&M Rates):
Business hours [**]
After business hours and Saturdays [**]
Holidays and Sundays [**]
Site Survey, if required Each [**]
Canceled VSAT Site Installation* (Cancellation or Postponement Each [**]
with Four (4) Business Days Advance Notice or Less)
Terminated VSAT Site Visit* Each [**]
Expedite Fee for Installations (less than 45 days as described
in Section C)
For VSAT Deliverables Each [**]
For PC Deliverables Each Quoted upon
request
Site Charge for Unordered Minimum Site Quantity Monthly, per Site [**]
(after Minimum Site Order Installation Period)
Relocation of VSAT Deliverables* (de-install/re-install)
(Same day, within 40 miles of de-installed Site) Each [**]
* Any additional costs assessed by Spacenet's PC
Deliverables installation subcontractor, including
but not limited to costs for canceled PC Site
Installation, Terminated PC Site Visit and
Relocation of PC Deliverables, shall be passed
through to customer.
Additional Requirements not detailed above shall be
quoted on an individual basis.
</TABLE>
** Portions omitted pursuant to a request for confidential treatment
<PAGE>
NOTICES AND POINTS OF CONTACT
SPACENET:
TECHNICAL CONTACT:
- - -----------------
Beni Barak
SPACENET INC.
1750 Old Meadow Road
McLean, Virginia 22102
Telephone: (703) 848-1730
FAX: (703) 848-1100
CUSTOMER:
TECHNICAL CONTACT:
Terry Gibson
ZAPME! CORPORATION
3000 Executive Parkway
San Ramon, CA 94583
(925) 543-0300 Phone
(925) 543-0301 Fax
FOR PAYMENTS:
- - ------------
Accounts Receivable (703) 848-1330
SPACENET INC.
P.O. Box 60420
Charlotte, North Carolina 28260
BILLING ADDRESS:
Accounts Payable
ZAPME! CORPORATION
3000 Executive Parkway
San Ramon, CA 94583
(925) 277-9356 Fax
NOTICES:
- - -------
Customer Contracts Dept.
SPACENET INC.
1750 Old Meadow Road
McLean, Virginia 22102
Telephone: (703) 848-1511
FAX: (703) 848-1184
NOTICES:
Lance Mortensen, Chairman - CEO
ZAPME! CORPORATION
3000 Executive Parkway
San Ramon, CA 94583
(925) 543-0300 Phone
(925) 543-0301 Fax
copy to:
Bruce Bower
General Counsel
ZAPME! CORPORATION
3000 Executive Parkway
San Ramon, CA 94583
(925) 543-0300 Phone
(925) 277-9356 Fax
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SECTION B -- GENERAL TERMS AND CONDITIONS
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1. TERM
The Term of this Agreement ("Agreement Term") shall commence on the date of the
last party to sign on the signature page of this document ("Effective Date").
Each installed Site hereunder shall have the Minimum Site Service Term ("Minimum
Site Service Term") set forth under "Network Information" of Section A. Service
at each Site shall automatically continue after the Minimum Site Service Term to
the End Date of the Agreement ("Agreement End Date"), which shall be the last
day of service provided at the last Site, or the last day of the Minimum Network
Service Term, whichever occurs last. To the extent that the Minimum Site Service
Term has not expired at the Site, ceasing to do business at such Site by
Customer shall not relieve Customer of its obligation pertaining to the Minimum
Site Service Term. Except as provided in Article 2(D), any Site having completed
its Minimum Site Service Term may be terminated by either party by providing at
least sixty (60) days advance notification of termination. Notwithstanding the
above, Spacenet shall only be obligated to accept new orders for Services,
Equipment and Software under this Agreement for up to a total of 2,500 Sites
(including the Minimum Site Order Quantity) and for three (3) years commencing
on the Effective Date, provided that the parties may mutually agree to extend
this date and/or increase the number of Sites.
2. CHARGES AND PAYMENTS
A. PAYMENTS - All payments made under this Agreement shall be in U.S. Dollars.
The fees or prices for Services are as set forth in Section A. Spacenet will
bill Customer for monthly charges one (1) month in advance of the month's
service due and payable the last day of the billing calendar month (e.g.
September 1 billing for October's service is due and payable September 30.)
Monthly charges for partial months of Services will be prorated on a thirty (30)
day month basis. Invoicing for each Site shall commence once the Site is
available for transmission service (i.e. Site is pinged). All other recurring
and all non-recurring charges will be accrued monthly and billed in arrears.
B. LATE PAYMENTS - In the event that any fees or charges are not paid in full by
Customer when due, then Spacenet shall provide Customer with written notice of
such non-payment. If Customer fails to cure such non-payment within ten (10)
days after the date of such notice, then Spacenet, in addition to and not in
lieu of its rights under Article 12 ("Termination and Suspension of Service")
below, reserves the right to charge Customer a late payment charge calculated on
the past due balance at the rate of one and one-half percent (1.5%) interest per
month for each month or part thereof from the date the payment was due. This
late payment charge will not be imposed on the portion of an invoice which may
reasonably be under dispute by Customer, provided that Customer has paid the
undisputed portion in full and has notified Spacenet of the disputed amount
within 15 days of receipt of Spacenet's invoice along with a written explanation
of the dispute based on the terms of this Agreement.
C. PRICE VALIDITY - With prior notice of 60 days, the hourly rates in Section A
may be increased by Spacenet once per calendar year beginning in 2000 in an
amount not to exceed the lesser of (a) [**], or (b) the percentage
change from the previous year to the then-current year in the Consumer Price
Index (the "Consumer Price Index for all Urban Consumers, All City Average"), as
set forth by the US Department of Labor, Bureau of Labor Statistics, or any
successor to such Index by such Bureau. Time and Materials Charges shall be
applied at Spacenet's then-effective Time and Materials rate. All other prices
contained herein shall remain fixed for service through the end of the initial
Term of this Agreement subject to paragraph D below.
D. PRICE ADJUSTMENTS - If either party reasonably believes that, due to changes
in the market, the total underlying costs to Spacenet for the monthly Standard
Service Fees under this Agreement have increased or decreased by [**]
or more, Spacenet and Customer shall negotiate in good faith an
amendment to such monthly price and the adjusted price shall apply to all Site
orders placed after the date of such amendment. Spacenet will not be obligated
to disclose its underlying costs to Customer but shall provide relevant
information in good faith.
E. MINIMUM COMMITMENT - In the event Customer does not order the Minimum Site
Order Quantity for installation within the Minimum Site Order Installation
Period or causes a delay in installation past the Minimum Site Order
Installation Period (due to Customer's failure to meet its responsibilities set
forth in Section C), Spacenet shall commence billing for the unordered /
uninstalled Sites up to and including the Minimum Site Order Quantity at the
rate set forth for the pricing item entitled "Site Charge for Unordered Minimum
Site Quantity." This charge shall apply on a monthly basis for each such
unordered / uninstalled Site until such time as the Site has been installed, at
which time the Minimum Site Service Term shall commence. Partial months of the
Site Charge for Unordered Minimum Site Quantity shall be prorated based on a
thirty (30) day month. In addition, after the Minimum Site Order Installation
Period and until the Agreement End Date, Customer must pay each month, at a
minimum, the Standard Service fee for 500 Sites.
F. SKYBLASTER DELIVERABLES PURCHASE OPTION - With respect to each Site
comprising the Minimum Site Order Quantity, on the last day of the Minimum Site
Service Term, Customer has the option to purchase from Spacenet for [**] (plus
any amounts outstanding for Standard Service with respect to such Site) all
of the Spacenet provided SkyBlaster Deliverables described in Section E at
such Site (excluding any software) used to provide Spacenet's Standard
Service hereunder to such Site. In the event Customer exercises its purchase
option with respect to a Site, title to the equipment described above shall
transfer to Customer upon payment of [**] (plus any amounts outstanding for
Standard Service with respect to such Site).
G. PC DELIVERABLE PURCHASE OPTION -- With respect to each Site comprising the
Minimum Site Order Quantity and with written notice to Spacenet 90 days prior
to the the last day of the Minimum Site Service Term, Customer has the option
to purchase from Spacenet for the fair market value (plus any amounts
outstanding for Standard Service with respect to such Site) all of the
Spacenet provided PC Deliverables described in Section E at such Site
(excluding any software). In the event Customer exercises its purchase option
with respect to a Site, payment of the fair market value (plus any
** Portions omitted pursuant to a request for confidential treatment
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amounts outstanding for Standard Service with respect to such Site) shall be
due on the last day of the Minimum Site Service Term and title to the
equipment described above shall transfer to Customer upon such payment.
3. TAXES AND FEES
The Service Fee and other charges under this Agreement are as set forth in
Section A. These charges exclude all present and future taxes, duties, or fees
of any nature, including, but not limited to federal, state, or local sales or
use taxes, fees, excises, property or gross receipts taxes or fees,
telecommunication taxes, license, access, or universal service fees, or other
taxes or duties which may now or hereafter be levied on the services provided or
on payments made under this Agreement. Any such taxes, fees, or duties, however
denominated, which may now or hereafter be levied on the services provided, the
Equipment installed, or payments made under this Agreement, excluding taxes
based on Spacenet's net income, shall be paid by Customer. If Spacenet is
required to pay or pays any of these, Customer shall promptly reimburse Spacenet
for such payments including applicable penalties and interest, if any. Taxes,
late payment charges, and other charges (other than those imposed due to
Spacenet's negligence) will be invoiced following their accrual. Spacenet agrees
to provide reasonable documentation supporting any such charges.
4. ASSIGNMENT
Either party may, on written notice to the other, assign its rights and
obligations hereunder to: (i) its parent corporation or an affiliated
corporation owned by a common parent in connection with any corporate
restructuring, and (ii) a third party entity in connection with the transfer of
all or substantially all of the assigning party's assets to such entity or (iii)
a successor entity in connection with a merger or acquisition resulting in a
change of control of the assigning party. Except as provided above in this
Section, either party may assign its rights and obligations under this Agreement
to a third party only upon receiving the prior written consent of the other
party, which consent may be reasonably conditioned but will not be unreasonably
withheld. The parties agree that no assignments will be made unless the assignee
agrees to accept in full the responsibilities and obligations of the assigning
party.
5. TITLE AND RISK OF LOSS
A. TITLE - Title to the Equipment installed or provided by Spacenet under this
Agreement shall remain with Spacenet or its subcontractors or lessors, as
applicable. Customer shall not move the Equipment, nor permit the Equipment to
be moved, modify the Equipment nor permit the Equipment to be modified
(including removal of any plates, labels or other markings), and Customer shall
not permit any liens or encumbrances to be placed upon the Equipment. Spacenet
or its subcontractors or lessors, as applicable, shall have the right and
authority acting in their own names or the name of Customer to complete and file
such documents as they deem necessary to protect their security interest in or
ownership of the Equipment or other equipment and Customer shall fully cooperate
with and support all such filings.
B. RISK OF LOSS - Risk of loss or damage for Equipment shall pass to Customer
upon shipment of the Equipment to a Customer designated Site. Customer agrees to
maintain the Equipment in good operating condition and appearance (ordinary wear
and tear excepted) and agrees to promptly repair any repairable damage. Customer
shall obtain and maintain at its own expense, from the date risk of loss passes
to Customer hereunder until all of Customer's obligations under this Agreement
have been performed in full, (a) insurance against loss, theft, destruction of,
or damage to the Equipment and Software in an amount not less than the full
replacement value thereof, with Spacenet and its designated subcontractors or
lessors, as applicable, named as loss payees thereunder, and (b) such public
liability and property damage insurance as is customarily maintained by prudent
operators of similar businesses, with Spacenet and its designated subcontractors
or lessors, as applicable, additional insureds thereunder. Customer shall, at
Spacenet's request, deliver certificate(s) of such insurance to Spacenet, and
shall require that the carrier(s) of all such insurance give Spacenet not less
than ten (10) days prior written notice of any change to or cancellation of the
related policies. Notwithstanding anything to the contrary contained herein.
Customer may, upon Spacenet's prior written approval, self-insure in accordance
with the standards set forth above.
6. USE; LOCATION; INSPECTION
Customer agrees to comply with all terms and conditions of any Software Licenses
and shall possess and operate the Equipment only (i) in accordance with the
Spacenet provided documentation and all applicable laws (including intellectual
property laws;) and (ii) for the internal business purposes of Customer and not
for any other use or disposition. Customer agrees not to move the Equipment from
the original installation locations without Spacenet's prior written approval,
and then only to a location within the United States. Customer shall be
responsible for all costs and expenses in connection with such relocation,
including those incurred by Spacenet or its subcontractors or lessors, as
applicable, in the protection of their interests in the Equipment. Provided
Spacenet or its subcontractors or lessors, as applicable, complies with
Customer's reasonable security requirements, Customer shall allow Spacenet or
its subcontractors or lessors, as applicable, to inspect the premises where the
Equipment is located from time to time during reasonable hours after reasonable
notice in order to confirm Customer's compliance with its obligations under this
Agreement and shall correct any deficiencies promptly upon notice from Spacenet.
7. DISPOSITION OF EQUIPMENT AFTER TERMINATION
Upon expiration or termination of this Agreement or termination of Service at
any Site, Spacenet may elect to remove all or portions of the Equipment owned by
Spacenet or its subcontractors or lessors, as applicable, that was used to
provide services hereunder (excluding the Equipment purchased by ZapMe! pursuant
to Article 2(F) above), and, Customer shall use reasonable efforts to facilitate
entry into all applicable premises to permit Spacenet or its subcontractors or
lessors, as applicable, to remove any such Equipment. With respect to the PC
Deliverables as described in Section E and unless Customer has exercised its
purchase option as described in paragraph 2(F) above, (i) Customer shall
reimburse Spacenet for all packaging and shipping costs incurred by Spacenet for
return of such Equipment to a Spacenet designated location in the contiguous
United States, (ii) Customer shall reimburse Spacenet for all costs and expenses
of refurbishing such Equipment if such Equipment is not provided to Spacenet in
good operating condition and appearance (ordinary wear and tear excepted) and
(iii) Customer shall pay the estimated fair market value for such Equipment as
determined by Spacenet if Customer fails to provide the Equipment to Spacenet.
Before exercising its right of removal, Spacenet shall provide ZapMe! with sixty
(60) days
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advance written notice of its intention to exercise such right. Spacenet
shall have the right to abandon any Equipment owned by Spacenet or its
subcontractors or lessors, as applicable, in place if it so elects, after
written notice has been provided to Customer. If Customer wants Spacenet to
remove any Equipment (antennas, mounts, etc.) that Spacenet has elected to
abandon in place, Spacenet will do so on a time and materials basis. With
regard to any Spacenet-licensed software that is contained in equipment that
is abandoned in place, Customer agrees to follow Spacenet's instructions
regarding the removal or disabling of any such software.
8. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with and shall be
governed by, the laws of the United States and of the State of New York. The
parties agree to submit to the jurisdiction of the state and federal courts
sitting in Denver, Colorado. Venue for any claims hereunder shall be a court of
competent jurisdiction in or near Denver, Colorado.
9. RESPONSIBILITIES OF THE PARTIES
A. COMPLIANCE AND APPROVALS - Each party shall comply with all applicable
governmental laws, rules and regulations. Each party is responsible to obtain
local permits, landlord consents or other waivers or consents as set forth in
Section C under "Site Installations" as may be necessary for Spacenet to install
the Equipment and for Customer to make use of the communications services. The
Customer is advised to obtain any such required permits or approvals well in
advance of installation. If on-Site installation is prevented due to any of the
above areas that are Customer's responsibility, the Terminated Site Visit charge
shall apply. The obligations of Customer under this Agreement are not
conditioned upon Customer's receipt of such authorizations or approvals.
B. BACKHAUL - Customer shall be responsible for all charges, non-recurring and
recurring, and communications hardware, associated with all terrestrial
communications links required for this service. Spacenet shall have no warranty
obligations in connection with any terrestrial communications link, and the
failure or disruption of such link shall not be included in Spacenet's network
availability commitment.
C. INSURANCE - Each party, at its own expense, will obtain and/or maintain
insurance to cover risks associated with their respective business activities
detailed herein.
D. ALTERATIONS - Customer may make alterations, additions or improvements to the
Equipment provided they do not violate any Software License or decrease the
value or utility of the Equipment and are readily removable. Customer may, at
its own expense, remove any such alteration, addition or improvement at the
expiration of the Service term provided Customer shall restore the Equipment to
its original configuration and repair any resulting damage to the Equipment. Any
alteration, addition or improvement that is not removed by Customer as provided
above (excluding software) shall become the property of Spacenet or its
subcontractors or lessors, as applicable, upon the Equipment's return, free and
clear of all liens and encumbrances.
E. MINIMUM ORDER QUANTITY - Within the Minimum Site Order Installation Period
stated in Section A of this Agreement, the Minimum Site Order shall have been
installed.
F. ACCELERATED SCHEDULE - Notwithstanding paragraph E above, the Parties may
mutually agree to accelerate delivery and installation of the Minimum Site Order
Quantity.
G. MAINTENANCE OBLIGATIONS - Spacenet shall maintain the Equipment as provided
in Section D of this Agreement.
10. EXTENDED WARRANTY
So long as Customer is current on all payment obligations with respect to a
Site, Spacenet shall provide Customer with the maintenance services specified in
Section D at such Site.
11. LIABILITY OF SPACENET AND CUSTOMER
A. Customer shall defend, indemnify and save Spacenet harmless from and against
injuries, loss or damage to Spacenet's employees or property or to the person or
property of third parties to the extent they are caused by the willful or
negligent acts or omissions of Customer (and all risk of loss and damage to the
property caused by anyone other than Spacenet and its subcontractors while the
property is in Customer's control or custody), and from and against all claims,
expenses, or losses (including reasonable attorneys' fees and expenses) arising
out of or in connection with the application or content of Customer's
transmissions through the provided transmission services.
B. Spacenet shall defend, indemnify and save Customer harmless from and against
injuries, loss or damage to Customer's employees or property or to the person or
property of third parties to the extent they are caused by the willful or
negligent acts or omissions of Spacenet (and all risk of loss and damage to the
property caused by anyone other than Customer and its subcontractors while the
property is in Spacenet's control or custody).
C. Each party shall defend, indemnify and save the other harmless from and
against injuries, loss or damage to the other's employees or property or to the
person or property of third parties to the extent they are caused by the willful
or negligent acts or omissions of the perpetrating party or that of its
subcontractors, agents, or representatives while performing their duties at
Customer's or End-User's Sites.
D. Except for (a) the obligation to defend, indemnify and hold harmless provided
in B and C above, and (b) any credits provided to Customer pursuant to Section
D, Spacenet's total liability under this Agreement shall in no case exceed the
recurring charges paid to it by Customer during the six months immediately
preceding the cause of action. Customer has accepted this limitation of
liability for Services provided hereunder and understands that the price of the
Services would be higher if Spacenet were requested to bear additional liability
for damages.
E. Except for (i) its obligation to defend, indemnify and hold harmless provided
in A and C above, (ii) any payment obligations hereunder and (iii) any liability
arising out of or in connection with the application or content of its
transmissions through the provided transmission services, Customer's total
liability under this Agreement shall in no case exceed the recurring charging
due to Spacenet during the six months immediately preceding the cause of action.
F. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR TO
ANY THIRD PARTIES FOR INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OF
ANY KIND, INCLUDING
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LOST PROFITS, LOSS OF USE OF EQUIPMENT OR SERVICES, OR DAMAGES TO BUSINESS OR
REPUTATION ARISING FROM THE PERFORMANCE OR NON-PERFORMANCE OF ANY ASPECT OF
THIS AGREEMENT WHETHER IN CONTRACT OR TORT OR OTHERWISE, AND WHETHER ADVISORY
HAS BEEN MADE OF THE POSSIBILITY OF SUCH DAMAGES.
G. EXCEPT AS STATED HEREIN, SPACENET PROVIDES NO WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE RESPECTING SERVICES
PERFORMED, LICENSED SOFTWARE, OR EQUIPMENT FURNISHED UNDER THIS AGREEMENT.
12. TERMINATION AND SUSPENSION OF SERVICE
A. Either party may terminate this Agreement only for default in the event of
material breach by the other party if such breach continues for a period of
sixty (60) days after written notice of intention to terminate describing the
default is given by the non-breaching party and such event of breach is not
remedied within the stated period. Notwithstanding the foregoing, Spacenet may,
on thirty (30) days' written notice, suspend or terminate the Service to be
provided under this Agreement due to Customer's non-payment of charges due. Upon
termination for material default by either party, Customer shall cease utilizing
the Service and shall remit to Spacenet upon receipt of a final invoice all
amounts accrued or due to Spacenet up to and including the termination date.
Customer hereby consents to the jurisdiction of any court or administrative
agency having subject matter jurisdiction in which Spacenet may elect to bring
an injunctive action to require Customer to cease using service at any or all
Sites, as applicable, if Customer fails or refuses to do so after receipt of
notice pursuant to this Article.
B. If default is due to the Customer, then Customer shall pay Spacenet (i) all
applicable amounts due for Equipment and Services provided to date; (ii) all
applicable amounts due for the remaining term less any amounts Spacenet is able
to mitigate through commercially reasonable efforts; and (iii) deinstallation,
all in accordance with this Agreement. Either party may pursue any other
remedies existing at law or in equity to the extent consistent with this
Agreement and its governing law. Spacenet and Customer agree that damages to
Spacenet resulting from a termination hereunder are not readily determinable
either at the time of signing of this Agreement or at the time of its
termination and that the amount of the liquidated damages is both necessary and
reasonable. Either party may bring legal action for the violation or breach of
this Agreement, and shall be entitled to recover reasonable attorneys' fees
incurred in enforcing obligations as stated herein.
C. Except as provide in Article 2(D), Sites which have completed their Minimum
Site Service Term may be terminated without penalty, though Customer shall be
liable to Spacenet for all obligations then accrued to Spacenet as of the
effective date of termination. With sixty (60) days notice and if a) at least
one year of service has been rendered, and b) if more than six months remains
under the term of the Agreement, Customer may terminate this Agreement by paying
90% of the total outstanding monthly Standard Service charges for all Sites not
having completed the Minimum Site Service Term.
13. FORCE MAJEURE
Neither party shall be liable for failure to perform its obligations under this
Agreement to the extent such failure is due to causes beyond its commercially
reasonable control, including but not limited to externally caused transmission
interference and irreparable facility failure. In the event of a force majeure,
the party invoking this Section shall notify the other party in writing of the
events creating the force majeure and the performance obligations of the parties
will be extended by a period of time equal to the length of the delay caused by
the force majeure; provided, that if any such delay exceeds forty-five (45)
days, then following such forty-five day period either party hereto may
terminate the unperformed portions of this Agreement on ten (10) days' prior
written notice to the other party.
14. CONFIDENTIALITY
The content of this Agreement shall be treated as confidential and shall not be
disclosed by Customer or Spacenet to third parties without the prior written
consent of the other party. The existence of this Agreement may be disclosed in
advertising or publicity by either party, provided that such disclosure is
approved in writing by the non-disclosing party prior to release for
publication; provided, however, that either party may include the name of the
other party in a serial list of customers or vendors (as applicable) of each
others' products and services. Neither party may use the trademarks, trade
names, or logos of the other party without prior written permission of the other
party. Neither party shall disclose to third parties any proprietary information
furnished or disclosed by the other party.
15. SEVERABILITY
In the event any one or more of the provisions of this Agreement shall for any
reason be held to be invalid or unenforceable, the remaining provisions of this
Agreement shall be unimpaired, and upon mutual agreement of the parties the
invalid or unenforceable provision shall be replaced by a provision which, being
valid and enforceable, comes as close as lawfully possible to the intention of
the parties underlying the invalid or unenforceable provisions.
16. NON-WAIVER
The failure of either party to insist upon strict adherence to any material term
or condition of this Agreement on any occasion shall not be considered a waiver
of any right thereafter to insist upon strict adherence to that term or
condition or any other material term or condition of this Agreement.
17. RELATIONSHIP OF THE PARTIES
This Agreement is not intended by the parties to constitute or create a joint
venture, pooling arrangement, partnership, agency or formal business
organization of any kind. Spacenet and Customer shall be independent contractors
with each other for all purposes at all times and neither party shall act as or
hold itself out as agent for the other unless so designated in a separate
writing signed by the principal, nor shall either party create or attempt to
create liabilities for the other party.
18. NOTICES AND POINTS OF CONTACT
Except as otherwise provided, all important notices or other communications
required or desired to be given or sent in connection with this Agreement shall
be in writing and transmitted to the applicable party by hand delivery or U.S.
certified mail, return receipt requested, postage prepaid. Invoices and other
non-emergency communications may be transmitted via regular US mail or
facsimile.
19. COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
20. ENTIRE AGREEMENT
This Agreement, including all Sections listed herein, comprises the entire and
exclusive agreement of the parties with respect to the subject matter hereof and
supersedes any and all prior and contemporaneous agreements, understandings,
arrangements, proposals or representations, including the Prior Agreement,
whether written or oral, heretofore made between the parties hereto and relating
to this subject matter. It does not, however, revoke or rescind any prior
agreements for other services which may have been executed by the parties. This
Agreement may be modified, changed or amended (including prices) only by an
express written agreement signed by duly authorized representatives of both
parties stating that it is an amendment. Waivers, or purported waivers, of any
provision of this Agreement shall be in writing and signed by an authorized
officer of both parties.
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SECTION C -- NETWORK IMPLEMENTATION
ORDERING PROCEDURES
A. CONTENT OF ORDERS - ZapMe! will provide in writing a rolling 90-day forecast
of anticipated installation Sites by the end of each month. Customer will notify
Spacenet's designated Program Manager (via purchase orders or other mutually
agreed-upon means of communication) by facsimile (or other mutually agreed upon
means of communication) no later than 45 days before the requested installation
commencement date of specific Sites that it wishes Spacenet to install. In such
notices, Customer must provide the following information:
- - - The street, city, and state where the Equipment will be delivered and
installed.
- - - The requested installation date (as outlined within the time frames and
procedures identified in this Agreement).
- - - The name or title and phone number of the person at each VSAT Site
authorized to work with Spacenet on all installation activities.
- - - The number of client PCs to be installed.
- - - Any special instructions for the installation, including deviations to
the standard equipment configuration specified in Section A.
- - - The Customer Unit number for the Site.
In the event Customer requests a Site installation date that is less than 45
days from the date Spacenet receives Customer purchase order, Customer will be
required to pay the Expedite Fee specified in Section A for such installation.
Additional ordering procedures applicable to "roll-out" installations are set
forth in section D under "Site Installations" below.
B. SCHEDULING - Customer agrees to use its best efforts to work with Spacenet to
schedule the initial Site roll-out in a geographically efficient manner.
C. PURCHASE ORDERS - Site Equipment and optional equipment and services may be
ordered via Customer's own purchase orders, within the lead times provided by
Spacenet. However, Customer understands and agrees that any such purchase orders
are to be used only for purposes of facilitating the ordering of Equipment and
Services under this Agreement, and for providing a purchase order number for
Customer's accounting purposes. Customer agrees that, notwithstanding any
statements to the contrary on Customer's purchase order or other documents, the
provision of Equipment and Services as contemplated in this Agreement shall be
governed solely by the terms and conditions of this Agreement, and that any
terms and conditions of Customer's purchase order or other documents shall be
null and void.
SITE INSTALLATIONS
A. STANDARD INSTALLATION - A Standard Installation includes the delivery and
installation of the equipment set forth under "Standard Service" in Section A,
and includes one (1) wall penetration for the cable run. The installation
process consists of VSAT assembly, installing and pointing the VSAT antenna,
installing the IFL cable, integrating the SkyBlaster PCI cards into the server
PCs, installing the PC Deliverables as described in Section E, and installing
and connecting the outdoor electronics. Other required efforts, such as the
installation of cable conduits, trenching, or non-standard antenna mounts, are
outside the scope of a Standard Installation and subject to quotation.
Spacenet recognizes that ZapMe! is currently utilizing SkySurfer 1 PCI cards in
connection with 304 ZapMe! VSAT sites as of the Effective Date provided by
another service provider ("Legacy Sites"). As part of its Standard Service,
Spacenet will migrate and upgrade ("retrofit") these Legacy Sites to the
Spacenet provided service.
Spacenet and ZapMe! will work together to perform the following items related to
the upgrade of ZapMe!'s Legacy Sites:
1. ZapMe! will provide a current list of Legacy Site locations.
2. ZapMe! will provide the site configurations of the Legacy Sites and a
description of the equipment at the Legacy Sites.
3. Spacenet will evaluate the Legacy Sites and determine the extent to which
ZapMe!'s existing equipment can be used with the Spacenet provided service,
including PCI cards and antennas. Spacenet may use the existing equipment
to meet its service obligations hereunder if it determines that such
equipment is compatible with its service.
4. ZapMe! and Spacenet will agree on a transition roll out schedule and
Spacenet will perform the upgrades according to such schedule, provided
that the total number of installations per month (including the upgrades of
the Legacy Sites) does not exceed the limitations set forth in paragraph E
below.
5. There shall be no additional costs to ZapMe! for the upgrade of the Legacy
Sites provided that once a transitioned Site becomes available for
transmission on the Spacenet provided service, Spacenet will commence
invoicing ZapMe! for Standard Service at such Site.
B. NON-STANDARD INSTALLATIONS - For any non-standard installation services or
equipment, if the cost of the service or equipment necessary to complete
installation is estimated to be equal to or less than [**], no prior approval
is needed from ZapMe! and Spacenet may complete the installation and bill
accordingly. However, if the non-standard installation service or equipment is
estimated to be greater than [**], Spacenet shall not complete the
installation unless they receive written approval from ZapMe!.
C. SPACENET RESPONSIBILITIES - As part of Spacenet's Standard installation
(above), Spacenet or its agents will:
- - - Obtain all licenses, permits, approvals, authorizations and clearances
required by the FCC for the operation of the VSAT Equipment;
- - - Render reasonable assistance by telephone to support Customer's efforts
to secure landlord approvals at each Site.
- - - Handle equipment orders
- - - Provide installation services as described herein
- - - Follow all applicable school safety procedures provided to Spacenet by
Customer in writing
D. CUSTOMER RESPONSIBILITIES - At each Customer Site, Customer or its agents
will:
- - - Designate one individual that is authorized to make decisions relating
to the installation of Spacenet-provided Equipment at the particular
Site and to interface with Spacenet during installation.
- - - Obtain any landlord approvals, building or zoning permits or zoning
variances required for each Site.
- - - Provide to Spacenet any structural analyses or structural drawings as
may be needed by Spacenet
- - - Pay Spacenet, on a Time and Materials basis, if Spacenet is required to
attend zoning hearings or other public meetings in order to assist
ZapMe! in obtaining a building or zoning permit or zoning variance.
- - - Perform structural analyses, as required. The structure on which the
antenna shall be located must provide adequate support for the antenna,
and must provide an unobstructed line-of-sight view of the satellite
year-round.
- - - Provide building layout drawings as available for each Site type to the
Spacenet installation manager at least thirty days prior to scheduled
commencement of installation.
- - - Provide a suitable secure area for installation of the antenna and all
outdoor and indoor electronics associated with the Equipment. This
shall include a suitable secure area for installation of the VSAT and
PC Deliverables described in Section E meeting specifications provided
by Customer and approved by Spacenet.
** Portions omitted pursuant to a request for confidential treatment
<PAGE>
- - - Provide or cause to be provided standard electrical requirements (a 120
volt electrical power receptacle within five (5) feet of the VSAT
server location, preferably with a separate 15 amp. circuit breaker)
and environmental conditioning requirements as may be required in order
to meet Spacenet-provided specifications and/or local Building
Department codes. The server portion of the VSAT system shall be
located in an area suitable for a personal computer, in a clear space,
18"D x 20"W x 10"H, adequately ventilated to provide air circulation
about the server and to be free of excessive dust or dirt, preferably
air conditioned.
- - - Provide or cause to be provided standard electrical requirements (two
120 volt electrical power circuits with receptacles within five (5)
feet of the client PC locations, with separate 15 amp. circuit
breakers. The client PCs shall be located in an area suitable for a
personal computer, in a clear space, 18"D x 20"W x 10"H, adequately
ventilated to provide air circulation about the client PCs and to be
free of excessive dust or dirt, preferably air conditioned.
- - - Provide or cause to be provided a phone line within five (5) feet of
the PC server location, terminated with a standard telephone jack. This
line must be direct dial accessible (DID). The server PC shall be
located in an area suitable for a personal computer work station
(keyboard and monitor), in a clear space adequately ventilated to
provide air circulation about the server PC and to be free of excessive
dust or dirt, preferably air conditioned.
- - - Subject to Customer's or schools' security policies and procedures,
provide Spacenet or its agents with access and egress to the VSAT site
and indoor communications equipment location at all reasonable times
for installation and maintenance of the Equipment.
- - - Subject to the Non-Standard Installation paragraph above, pay for any
special conveyances (e.g. crane), services, or facilities for
transporting Equipment (e.g., the VSAT antenna) and any materials that
cannot be manually conveyed to the point of installation.
- - - Arrange and pay for union labor if the local jurisdiction requires
labor union members to perform or supervise the VSAT installation.
E. SCHEDULING ROLL-OUT INSTALLATIONS AND INDIVIDUAL INSTALLATIONS - For Roll-out
Installations (Minimum Site Order Quantity installed within Minimum Site Order
Installation Period", as set forth under the "Network Information" paragraph of
Section A) and for Individual Installations (installations outside the Roll-out
Installation described above), Spacenet and Customer shall agree to a mutually
acceptable overall roll-out schedule for the installation of Equipment at
Customer's Sites. Spacenet will install up to 500 Sites per month and will use
commercially reasonable efforts to install up to 1,000 Sites per month, provided
that Customer delivers its purchase order for such installations at least
forty-five (45) days prior to the requested installation commencement date.
There will be no Site Survey charge applicable if Spacenet is able to perform an
installation on its first visit using one of the standard antenna mounts carried
by the installer. Upon arrival of the Spacenet installers at a Site, if it is
determined that one of the standard antenna mounts cannot be used, or if the
Site is determined to be non-Standard for other reasons, a Site Survey will be
performed at that time instead of the installation activity, and the
installation will be rescheduled to include the non-standard equipment and
installation activities, subject to Customer's approval of Spacenet's quotation
for any non-standard items or services not already priced in this Agreement.
Late cancellation or postponement of an installation, which is defined as
cancellation or postponement less than four (4) business days in advance of the
scheduled installation, will result in a Canceled Site Installation charge. A
Terminated Site Visit charge will be paid if Spacenet is not granted access to a
site on the scheduled installation date, or if the site is not ready for
installation on the scheduled install date (e.g., site under construction, no
A/C power, local approvals not obtained, Customer responsibilities not met etc.)
In addition, in the event the PC Deliverables as described in Section E have
been shipped to a Site for installation and installation cannot be completed for
any reason, Customer shall be obligated to commence its monthly payments for
Standard Service at such Site beginning 60 days after such PC Deliverables are
shipped to the Site and Spacenet shall provide [**] per month per
Site (or such prorated amount) until such Site is successfully installed. The
Minimum Site Service Term shall commence on the date of successful installation.
** Portions omitted pursuant to a request for confidential treatment
<PAGE>
CHANGE CONTROL PROCESS
Any change to the specifications or vendor for the PC Deliverables must be
requested through the Change Control Board (CCB) process. The CCB reviews each
submitted request by Spacenet or ZapMe! for any change to the specifications or
vendor for the PC Deliverables at meetings to be held periodically on a mutually
agreed upon schedule. The Board will consist of four members, two of which will
be appointed by ZapMe! and two of which will be appointed by Spacenet. The CCB's
functions are (i) to analyze each change request in terms of its affect on
functionality, cost, reliability, and delivery schedule and (ii) to make a
determination to accept or reject such change request based on product
priorities, costs, budget, available resources, and many other factors
considered during the CCB analysis. Each change can be accepted (with or without
modifications) or denied. A change request will not be accepted unless a
majority of the CCB votes in favor of such change.
Any changes to the specifications or vendor for the PC Deliverables approved by
the CCB should be in the form of an express written agreement signed by duly
authorized representatives of both parties stating that it is an amendment to
the Agreement."
<PAGE>
SECTION D -- OPERATION AND MAINTENANCE
NETWORK OPERATION
Spacenet is responsible for the overall operation of Customer's network. This
consists of activating new sites and deleting and re-locating existing sites
under Customer's direction. Spacenet is responsible for the operation of the
network to meet the Performance Specifications identified under "Network
Information" of Section A.
OUT-OF-SCOPE SERVICES
If Customer desires Spacenet's assistance for such tasks as adding new
applications to the network, network analyses, system optimization, etc.,
Customer may make such request by providing details of the request in writing to
the Spacenet program manager. Spacenet will then respond with a fixed-price
quotation for performing the requested tasks along with an estimate of the time
it will take to perform the tasks. If Customer accepts Spacenet's estimate and
price, Spacenet will proceed with the tasks.
NETWORK AVAILABILITY COMMITMENT
The transmission services provided by Spacenet to Customer under this Agreement
have an overall Network Availability Commitment as set forth under Network
Information in Section A (calculated by dividing the number of on-line service
minutes by the number of total possible service minutes), averaged over an
annual basis. The annual measurement period shall commence when the minimum site
commitment has been installed. [**]
The Network Availability Commitment is measured over a 12-month period and
includes the following elements:
VSAT equipment (excluding, for example, the PC Deliverables as described in
Section E) Hub earth station equipment Satellite transponder Hub sun
transit
Spacenet will be relieved of its Network Availability Commitment to the extent
that any service interruptions are due to:
- - - failure or interruption of service due to the failure or
non-performance of any terrestrial equipment, connections, or services
not provided to Customer by Spacenet's affiliates,
- - - action or inaction by Customer, its employees, invitees, third parties,
including, but not limited to, changes in applications, protocols, or
transmission parameters from those tested and approved by Spacenet,
- - - Customer-scheduled/approved down-time (maintenance, upgrades, etc.),
- - - breach of this Agreement by Customer,
- - - any other cause beyond Spacenet's reasonable control, to include but
not be limited to those actions set forth under the Force Majeure
provision of this Agreement,
- - - failure or unavailability of the Customer's Data Center.
** Portions omitted pursuant to a request for confidential treatment
<PAGE>
SITE MAINTENANCE
A. MAINTENANCE DEFINITIONS - Subject to the terms and conditions hereof,
Spacenet shall provide maintenance support for all Equipment provided as part of
this Agreement as well as the PCI cards and SkyBlaster hub purchased from Gilat
Satellite Networks, Ltd. as of the Effective Date. Such maintenance shall
consist of:
- - - Equipment maintenance which includes travel to and from the Site and
technical trouble-shooting to isolate any problems;
- - - labor for on-Site repair and replacement, as required, of
malfunctioning Equipment;
- - - diagnostic support and repair of malfunctioning Equipment;
- - - software maintenance as needed for the protocols specified in
Section A;
- - - coverage during Spacenet's normal Business Hours
"Business Hours" means Monday through Friday, 8:00 a.m. to 5:00 p.m., excluding
holidays, local time of the serving field service center Business Day.
"Business Day" is defined as a day on which the serving field service center is
open for business. This excludes Saturdays, Sundays and Federal, state and local
holidays as applicable in the US, and Saturdays, Sundays, and local holidays as
applicable in each foreign country. US Federal holidays observed by Spacenet
maintenance and service personnel are:
New Year's Day * Labor Day
President's Day Thanksgiving Day
Memorial Day The day after Thanksgiving Day
Independence Day * Christmas Day *
* If the holiday falls on a Saturday or Sunday, it will be observed on the
nearest Friday or Monday, as observed by Federal employees.
B. MAINTENANCE RESPONSE TIME - Spacenet will respond to Maintenance Calls or
other indications of malfunction by dispatching a service technician to the Site
to repair or replace the defective component unless the trouble can be otherwise
corrected through remote repair. No less than [**] of the time, Spacenet shall
respond to Maintenance Calls no later than the next Business Day. In all other
instances, Spacenet shall respond to maintenance calls on a commercially
reasonable effort basis but no later than two Business Days. The average
response time will be based on results experienced during the prior 12-month
period of operation.
C. CUSTOMER MAINTENANCE RESPONSIBILITIES - Customer shall perform first-line
troubleshooting to attempt to assess whether a problem reported at a Site is due
to (i) VSAT Deliverables as described in Section E that need repair, (ii) PC
Deliverables as described in Section E that need repair or (iii) some other
cause. Calls and requests for maintenance support shall be made only from
Customer's "Central Trouble Reporting Point." Response to maintenance calls from
the Central Trouble Reporting Point is predicated upon advisory by the Customer
at the time of notification of the service interruption (i) of Customer's
assessment of the cause of the problem and (ii) that an authorized
representative shall be available at the Site to receive the Spacenet
maintenance technician(s), including security escort, if required. In the event
the Customer cannot verify that a representative and/or security escort will be
present, Spacenet shall not dispatch or have dispatched a maintenance technician
until such time as the Customer can verify that a representative shall be
available at the Site to receive the maintenance technician(s) and contacts
Spacenet with such information. Upon dispatch of a maintenance technician, if an
authorized representative is not available at the site to receive the
maintenance technician(s), including security escort, if required, the
Terminated Site Visit Charge shall apply and the period for Spacenet's
calculation of the service interruption period shall cease until such time as a
maintenance technician is granted access to the site. Additionally, if a second
visit is required from a maintenance technician because Customer did not
properly assess the cause of the
** Portions omitted pursuant to a request for confidential treatment
<PAGE>
problem, Spacenet shall bill Customer on a time and materials basis at
Spacenet's then-effective prices for the initial site visit and the period
for Spacenet's calculation of the service interruption period shall cease
until such time as the second maintenance technician visits the Site.
ZapMe! may install and maintain a dedicated 56 Kbps line and equipment
connecting ZapMe!'s help desk in San Ramon, California to Spacenet's shared hub
network management system in order to perform remote diagnostics. Spacenet shall
provide Customer with remote access to Spacenet's shared hub network management
system in order for Customer to perform such remote diagnostics.
D. MAINTENANCE EXCLUSIONS - Spacenet's maintenance obligations under this
Agreement do not include provision of consumable supplies, repair or replacement
of Equipment failures or malfunctions caused by improper installation,
operations, or maintenance by other than Spacenet authorized representatives,
relocation or modification by Customer or others not under Spacenet's control,
failure or interruption of Customer-provided terrestrial communications or
electrical power, accident, fire, lightning, snow, snow removal, or other
hazards beyond normal range of use, vandalism, trouble calls where no problem is
found and the reported problem does not repeat within five calendar days, or
failures or malfunctions resulting from exposure of the Equipment to conditions
beyond its reasonable operating conditions. Any such failures and malfunctions
will be repaired as authorized by Customer on a commercially reasonable effort
basis and billed to Customer on a time and materials basis at Spacenet's
then-effective prices. Customer shall use reasonable efforts to facilitate
access as required for maintenance of the Equipment during maintenance hours,
including appropriate security escort when required. Failure to grant or have
granted access during a maintenance call will result in a Terminated Site Visit
charge.
SOFTWARE LICENSE AND SUPPORT
A. "Licensed Software" means any computer program, including any modifications,
updates, or additions which may be included by Spacenet in any or with provided
Equipment as object code or in executable form in any medium, and related
materials such as diagrams, manuals and other documentation which are for use in
the Equipment provided to Customer under this Agreement.
B. By their signature of this Agreement, Spacenet grants to Customer and
Customer accepts a non-exclusive license to use or have used the Licensed
Software as it resides in Spacenet's Equipment, but only for the purpose of
causing such Equipment to operate for the provision of transmission services and
not otherwise, subject to the terms of any license agreements which may be
contained within the packaging associated with the Equipment and Licensed
Software. Customer shall not permit any third party to gain access to the
Licensed Software or transfer the Licensed Software to any third party, copy or
permit to have copied the Licensed Software, reverse engineer, disassemble,
de-compile, or transmit the Licensed Software in any form or by any means.
Violation of these restrictions shall entitle Spacenet to terminate this License
of Software without liability, take possession of the Equipment, software, and
terminate this Agreement for default. Licensed Software is and shall remain the
exclusive property of Spacenet or Spacenet's vendors. No license other than the
specifically stated herein is granted to Customer, and Customer shall have no
right under patent, trademark, copyright, trade secret or other intellectual
property of Spacenet or Spacenet's vendors other than that granted herein.
C. Spacenet's monthly charges include Software License and software support for
the term of the Agreement. During this term, Spacenet will provide remedial
software support services so that Spacenet's software operates on the
Spacenet-provided equipment in accordance with the Performance Specifications of
this Agreement. For clarity, the parties understand that this software support
consists of software maintenance, fixes, work-arounds, etc. which implement the
features and functionality already committed to by Spacenet in this Agreement.
Software releases or upgrades which provide NEW product functionality or
features beyond the functionality or features already committed to under this
Agreement may be offered and quoted to Customer as they become available,
including new features and functionality specifically requested by Customer.
Otherwise, for so long as Customer remains current in its payment of monthly
charges hereunder, there is no additional charge for Software releases or
upgrades that Spacenet may incorporate into its shared hub services to Customer.
<PAGE>
D. Spacenet warrants to Customer through the initial term of this Agreement that
the software that operates in the Spacenet-provided Equipment under this
Agreement is "Year 2000 Capable," meaning that (1) its functionality will not be
materially adversely affected as a result of the date change from 1999 to 2000,
including leap year calculations, provided that all Customer-provided or other
non Spacenet-provided products and equipment used with the Equipment function
properly including, without limitation, properly exchanging date data with the
Equipment; and (2) to the extent applicable to the Equipment's normal operating
specifications and subject to any upper and lower limits in the Equipment's
systems design, the Equipment will accept, store, retrieve, compare and
otherwise process dates of January 1, 2000 and later. This warranty is subject
to the limitations set forth in Article 11 of this Agreement.
<PAGE>
SECTION E -- DESCRIPTION OF SKYBLASTER AND PC DELIVERABLES
SKYBLASTER DELIVERABLES
1.2 Meter Antenna (or larger antenna as required due to use of GSTAR4 satellite)
One Standard Mount (Non-penetrating, Close-in Wall, Medium Reach Wall, or I-Beam
Mount) Up to 400 Feet of IFL Cable, Non-Plenum (dual 200' cable run) Outdoor
Unit - 1 watt ODU and LNB Two PCI cards
- DVB Receiver
- Satellite Transmitter
PC DELIVERABLES
TOSHIBA SERVER PC
Pentium PII 350 mhz Base
Intel 10/100 Network Card
128Mb RAM Memory
512 Cache
6 MB Video Memory
18gb SCSI HDD
Modem
2 Button Mouse
Full Size Keyboard
1.44MB Floppy
32 X SCSI CD-ROM Drive
MS Win NT Server Academic OLP
MS Proxy Server 2.0 MOLP
Resource 450 VA Battery Backup
Ethernet 24-Port Hub
Compaq Modem
Xerox N17B Printer
15-Client Accessory Kit (UPS, Surge, Patch, Parallel, RJ-11 Cables)
TOSHIBA CLIENT PC
Equium Pentium II 400MHZ Model 7100S
64Mb SDRAM
6.0 GB HDD
6 MB Video Memory
10/100 WuOL Net Card
1.44 MB 3.5 FDD
17" NEC A700 Monitor
MS Office 97 Academic
MS Win NT Client Server Academic OLP
OR
DELL SERVER PC
Pentium PIII 450mhz Base, 512 Cache, Logitec Mouse,
Key Bd., 40xCD ROM, 1.44 mb Floppy
3 Com 3C980 10/100 E/N Card
128 Mb RAM Memory
18gb SCSI 7200 RPM HDD
2x2 passive backplane
MS
Win NT Server Academic OLP
MS proxy Server 2.0 MOLP
Ethernet 24-Port Hub
Compaq Modem
Xerox N17B Printer
15-Client Accessory Kit (UPS, Surge, Patch, Parallel, RJ-11 Cables)
DELL CLIENT PC
Pentium PIII 450 mhz Base, 512 Cache, 1.44
mb floppy, Logitec Mouse, Int Audio Card,
6.4gb HDD
10/100 WuOL Net Card
64mb SDRAM
MS Office 97 Academic
MS Windows NT Client Server Academic
OLP
<PAGE>
SUBLEASE AGREEMENT
This Sublease Agreement, made as of the 8th day of November, 1999 by
and between SILICON GRAPHICS, INC. (hereinafter referred to as "Sublessor"),
and ZAPME! CORPORATION, a Delaware Corporation (hereinafter referred to as
"Sublessee").
WITNESSETH:
WHEREAS, by Lease Agreement dated March 13, 1991, First Lease Addendum dated
January 15, 1993, Second Lease Addendum dated July 15, 1993, Third Lease
Addendum dated March 12, 1996, Fourth Lease Addendum dated September 4, 1996,
Fifth Lease Addendum dated June 2, 1998 (hereinafter referred to as the
("Prime Lease"), wherein Alexander Properties Company (hereinafter referred
to as the "Lessor") leased to SILICON GRAPHICS, INC., (hereinafter
"Sublessor") approximately 15,789 square feet of rentable space in that
certain building known as 3000 Executive Parkway, Suite 410, located at San
Ramon, California 94583 (hereinafter referred to as the "Building"), at the
rent and upon and subject to the terms and conditions set forth in the Prime
Lease; and
WHEREAS, ZapMe! Corporation (hereinafter "Sublessee") desires to sublet from
Sublessor, all of said floor space under the Prime Lease to Sublessor;
NOW, THEREFORE, the parties hereto, for themselves, their successors and
assigns, mutually covenant and agree as follows:
1. DEMISED PREMISES. Sublessor does hereby sublease to Sublessee, and
Sublessee does hereby sublease from Sublessor, for the term and upon the
conditions hereinafter provided, approximately 15,789 square feet of
rentable floor area on the first floor of the Building (such area
hereinafter referred to as the "Demised Premises").
2. SPECIFICATIONS. Sublessee agrees to sublease the Demised Premises, upon
and subject to the terms and conditions herein set forth in its "AS IS"
condition existing on the date possession is delivered to Sublessee,
without requiring any alterations, improvements, repairs or decorations
to be made by Sublessor, either at the time possession is given to
Sublessee or during the term of this Sublease Agreement. Sublessee
represents that it has thoroughly examined the Building and the Demised
Premises and accepts same in its present "AS IS" condition.
3. TERM. The term of this Sublease Agreement shall commence on January 17,
2000 ("Commencement Date"), and shall end on October 31, 2001, which said
term may expire or be terminated pursuant to any of the conditions or
limitations or other provisions of this Sublease Agreement, or Prime
Lease, or pursuant to law. In the event Lessor's consent has not been
obtained within seven (7) days of execution of this agreement, or such
later date as Sublessor or Sublessee may agree to in writing, this
Sublease Agreement shall be and become null and void and of no further
force or effect.
<PAGE>
4. BASE RENT. Sublessee accepts the basic rent in the schedule below and
agrees to pay upon execution of this Sublease Agreement the first months
rent and thereafter pay in advance the monthly rent commencing at the
beginning of the term and continuing thereafter on the first day of each
and every calendar month during the term of this Sublease Agreement. If
the obligation of Sublessee to pay rent thereunder begins on a day other
than on the first day of a calendar month, rent from such date until the
first day of the following calendar month shall be prorated at the rate
of one-thirtieth (1/30th) of the monthly installment for each day payable
in advance. The monthly base rent, additional rent and any other charges
herein reserved or payable shall be paid to Sublessor at:
Business Integration Group
1131 West Warner Road, Suite 102
SGI ref 1003-06
Tempe, AZ 85284
or at such other place as Sublessor may designate in writing, in lawful
money of United States of America without demand therefore and without
any deduction, setoff or abatement whatsoever, except as expressly
provided for in this Sublease Agreement.
Base rent shall be as follows:
TIME PERIOD ANNUAL MONTHLY PER SQ.FT./PER MONTH
1/17/00-10/31/01 $378,936 $31,578.00 $2.00
5. ADDITIONAL RENT. Sublessee agrees to pay to Sublessor, as additional
rent under this Sublease Agreement, all utilities, operating expenses and
real estate tax pass throughs charged to Sublessor by Lessor in
accordance with the Prime Lease. Sublessee shall pay its proportionate
share of increases in real estate taxes and operating expenses above a
2000 base year. (Sublessee's base index).
Any additional rent which may be payable to Sublessor shall be
apportioned during the year in which the term of this Sublease Agreement
commences and during the year in which such term shall end, such that
Sublessee shall be obligated to pay a proportionate share of such
additional rental which is attributable to the number of days of the term
hereof which are included in the period for which such additional rental
is payable by Sublessor under the Prime Lease. Sublessor shall give
Sublessee copies of all relevant statements and bills received by
Sublessor pursuant to the applicable provisions of the Prime Lease,
together with a statement of the amount of additional rent, if any, which
Sublessee is required to pay under this paragraph. Sublessee shall pay
additional rent immediately upon receipt of said statement. Sublessee
shall also pay to Sublessor, as additional rent, all charges for
additional services provided to Sublessee, including, without limitation,
charges and fees for alterations and after-hours heating and air
conditioning services. Sublessee's obligation to pay additional rent
shall survive the termination of this Sublease Agreement.
-2-
<PAGE>
6. DEPOSIT. Simultaneous with the execution of this Sublease Agreement,
Sublessee shall deposit with Sublessor or the Sublessor's agent, the sum
of $63,156. Said Deposit shall be held by Sublessor as a security
deposit until the expiration of the sublease term. The deposit provided
herein shall be considered as security for the payment and performance by
Sublessee of all of Sublessee's obligations, convenants, conditions and
agreements under this Sublease Agreement. In the event of any default by
Sublessee hereunder, Sublessor shall have the right, but not the
obligation, to apply all or any portion of the deposit to cure such
default, in which event Sublessee shall be obligated to promptly deposit
with Sublessor that portion of the deposit used to cure such default. In
the event Sublessee fails to perform its obligations and to take
possession of the Demised Premises on the appropriate commencement date
provided herein, said deposit shall not be deemed liquidated damages, and
application of the deposit to reduce Sublessor's damages shall not
preclude Sublessor from recovering additional damages incurred by
Sublessor.
7. USE. Sublessee will use and occupy the Demised Premises solely for
general office purposes and in accordance with the use permitted under
the Prime Lease. Without the prior written consent of Lessor and
Sublessor, the Demised Premises will not be used for any other purposes.
8. ALTERATIONS. Sublessee shall not make any alterations, improvements,
decorations, or installations (hereinafter called "Alterations") in or to
the Demised Premises, without in each instance obtaining the prior
written consent of Lessor (when required) Sublessor (in all instances)
which consent by Sublessor shall not be unreasonably withheld. If any
Alterations are made without consent, Lessor or Sublessor may remove
same, and may correct, repair and restore the Demised Premises and any
damage arising from such removal, and Sublessee shall be liable for any
and all costs and expenses incurred by Lessor or Sublessor in the
performance of this work. All alterations performed shall be in
accordance with the Prime Lease. Further, Sublessee hereby agrees to
indemnify and hold harmless Sublessor from all claims, liens, expenses or
damages, including reasonable attorney's fees, to person or property
which might arise by reason of any alterations or improvements made to
the Premises by Sublessee.
9. SUBLESSEE IMPROVEMENT ALLOWANCE. Sublessee shall take the space in its'
current "AS-IS" condition, without any Sublessee improvement allowance.
10. SUBLESSEE'S PERSONAL PROPERTY. Upon the expiration or earlier
termination of this Sublease Agreement, Sublessee shall remove all of its
furniture, furnishings, equipment, or trade fixtures and shall repair all
damage resulting from such removal or its use of the Demised Premises,
and shall surrender the Demised Premises, as so required, in good
condition, subject only to reasonable wear and tear, and in accordance
with the provisions of the Prime Lease. The obligations of Sublessee as
herein provided shall survive the termination of this Sublease Agreement.
11. TERMS OF PRIME LEASE. All of the terms, provisions, covenants and
conditions of the Prime Lease, a copy of which is attached hereto as
Exhibit "A", and is incorporated herein by reference, are superior to
this Sublease Agreement, except as herein otherwise expressly
-3-
<PAGE>
provided. Sublessee in executing this Sublease Agreement agrees to be
bound by each and every term, condition and covenant contained in the
Prime Lease.
As between Sublessor and Sublessee, Sublessee hereby assumes all of the
obligations of the Sublessor, as the Lessee, under the Prime Lease, but
only to the extent they are applicable to the Demised Premises after the
Commencement Date EXCLUDING THE PAYMENT OF RENT. Sublessee shall obtain
and maintain all insurance types and coverages as specified in the Prime
Lease to be obtained and maintained by Sublessor, as lessee, in amounts
not less than those specified in the Prime Lease. Any such policy(s)
shall name Sublessor as an additional named insured under said policy(s).
Sublessee's insurance shall be primary over Lessor's and Sublessor's
insurance. Sublessee will deliver to Sublessor concurrently with the
execution of this Sublease Agreement, and annually, certificates
reflecting that Sublessee has obtained and is maintaining the required
insurance coverage's in the appropriate amounts.
Notwithstanding anything in this Sublease Agreement to the contrary,
Sublessee agrees that Sublessor shall not be obligated to furnish to
Sublessee any services of any nature whatsoever, including, without
limitation, the furnishing of heat, electrical energy, air conditioning,
elevator service, cleaning, window washing, or rubbish removal services.
Sublessor, however, shall be obligated to take commercially reasonable
actions necessary to obtain the performance of and furnishing of such
services for the Demised Premises by Lessor pursuant to the terms of the
Prime Lease. Additionally, under no circumstances shall Sublessee be
entitled to any rental abatement or self help reimbursement due to a loss
of services for Lessors failure to provide same, unless expressly
provided for in the Prime Lease. In the event Sublessor obtains said
rental abatement or reimbursements, any amount (less any cost and
expenses) shall be passed through to Sublessee.
Sublessor shall have all of the rights of Lessor under the Prime Lease as
against Sublessee and, as between the parties hereto, Sublessor agrees to
observe and perform the terms, covenants and conditions on its part to be
observed and performed thereunder as well as those applicable terms,
covenants and conditions to be observed and performed by Lessor under the
Prime Lease with respect to the Demised Premises. Sublessee shall have
all of the rights of Lessee under the Prime Lease unless excepted herein.
Sublessee acknowledges that is has received a true copy of the Prime
Lease, that it has reviewed same, and that it is familiar with the
contents thereof.
12. SUBLESSEE'S COVENANTS. Sublessee covenants and agrees that Sublessee
will not do anything which would constitute a default under the Prime
Lease or omit to do anything which Sublessee is obligated to do under the
terms of this Sublease Agreement and which would constitute a default
under the Prime Lease. Sublessor represents and warrants that as of the
execution of this Sublease Agreement, Sublessor is not in default of the
Prime Lease and, if after the execution of this Sublease Agreement,
Sublessor is in default of the Prime Lease, Sublessor shall pay those
reasonable costs and expenses actually incurred by Sublessee as a result
of any such breach or default. Sublessor represents and warrants that
the attached copy of the Prime Lease is true, correct and complete.
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<PAGE>
13. INDEMNIFICATION. Sublessee shall and hereby does indemnify and hold
Lessor and Sublessor harmless from and against any and all actions,
claims, demands, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees) asserted against, imposed upon or
incurred by Lessor or Sublessor by reason of (a) any violation caused,
suffered or permitted by Sublessee, its agents, servants, employees or
invitees. Further, Sublessee shall indemnify, defend and hold Sublessor
and Lessor harmless from and against any all loss, cost, liability,
damage or expense including reasonable attorney's fees, which either may
incur or sustain or which may be asserted against either by reason of any
liability Sublessor or Lessor may incur for clean up, restoration costs,
fines, or penalties resulting from the violation of any environmental law
or regulation caused by Sublessee, its employees, agents and contractors,
arising out of Sublessee's use of the Premises. Sublessee shall operate
is business in the Premises in compliance with all environmental laws or
regulations including, but not limited to obtaining all required permits
or licenses, if any, when required.
14. LIMITATIONS. Notwithstanding anything contained to the contrary herein,
Sublessee shall not have the right to any renewal or, expansion options,
to sublease or assign all or any portion of the Demised Premises.
Additionally, Sublessee shall not take any action(s) which will subject
Sublessor to any additional costs without first obtaining Sublessor's
written consent (i.e., additional services).
15. BROKERS. Sublessor and Sublessee represent to each other that neither
has dealt with any broker or consultant in connection with this Sublease
Agreement other than Cornish & Carey, acting in a dual agency capacity
representing both Sublessor and Sublessee, or Cushman & Wakefield, acting
on behalf of Sublessor, and that no other fees or real estate commissions
have been earned by any party other than Cornish & Carey and Cushman &
Wakefield. Sublessee hereby agrees to indemnify and hold Sublessor
harmless for any and all claims or liabilities for commissions or fees
arising from a breach of this representation by Sublessee. Any
commission or fees owed shall be paid by Sublessor pursuant to a separate
agreement.
16. ENTIRE AGREEMENT. This Sublease Agreement contains all of the covenants,
agreements, terms, provisions, conditions, warranties and understandings
relating to the leasing of the Demised Premises and Sublessor's
obligations in connection therewith. Sublessee in executing and
delivering this Sublease Agreement is not relying upon any warranties,
representations, promises or statements whatsoever or of any kind, except
to the extent expressly set forth in this Sublease Agreement. All
understandings and agreements, if any, between the parties are merged in
this Sublease Agreement, which alone fully and completely expresses the
agreement of the parties. The failure of Sublessor to insist in any
instance upon the strict keeping, observance or performance of any
covenant agreement, term, provision or condition of this Sublease
Agreement or Prime Lease, or to exercise any election contained therein,
shall not be construed as a waiver or relinquishment for the future
enforcement of such covenant, agreement, term provision, condition or
election, but the same shall continue and remain in full force and
effect. No waiver or modification of any covenant, agreement, term,
provision or condition of this Sublease Agreement, or the Prime Lease,
shall be deemed to have been made unless expressed in writing and signed
by Lessor and Sublessor. No surrender of possession of the Demised
Premises or of any part thereof or
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<PAGE>
of any remainder of the term of this Sublease Agreement shall release
Sublessee from any of its obligations thereunder unless accepted by
Sublessor in writing except as provided in the Prime Lease for
condemnation, fire and casualty, or service interruption. The receipt
and retention by Sublessor of monthly base rent or additional rent
from anyone other than Sublessee shall not be deemed a waiver of the
breach by Sublessee of any covenant, agreement, term, or provision of
this Sublease Agreement, or as the acceptance of such other person as
a Sublessee, or as a release of Sublessee from the further keeping,
observance or perfomance by Sublessee of the covenants, agreements,
terms, provisions and conditions herein contained. The receipt and
retention by Sublessor of monthly base rent or additional rent with
knowledge of the breach of any covenant, agreement, term, provision or
condition herein contained shall not be deemed a waiver of such breach.
17. SUCCESSOR AND ASSIGNS. The respective rights and obligations provided in
this Sublease Agreement shall bind and shall inure to the benefit of the
parties hereto, their legal representatives, heirs, successor and
assigns.
18. NOTICES. Any and all communications delivered hereunder shall be sent in
writing, hand delivered, by registered or certified mail, return receipt
requested, first class postage paid, or sent postage prepaid by a
reputable air courier service that provides written notice of delivery
addressed as follows: If to Lessor, Alexander Properties Company, P.O.
Box 640 One Annabel Lane, San Ramon, CA 94583, and if to Sublessor, SGI
c/o C&W/Business Integration Group, 1131 W. Warner Road, suite 111,
Tempe, AZ 85284, if to Sublessee at the leased premises.
19. DELIVERY OF THE DEMISED PREMISES. Sublessor shall deliver the Demised
Premises to Sublessee by the Commencement Date free of Sublessor's
personal property, except as specifically provided for herein, and in a
"broom clean" condition. Sublessee shall have access to the Demised
Premises upon mutual execution of the Sublease Agreement and Lessors
consent of the Sublease Agreement to begin moving small items into the
Demised Premises provided Sublessee does not interfere with Sublessor's
move-out. All provisions of this Sublease Agreement (including, but not
limited to all insurance and indemnification provisions) shall be in full
force and effect as of the date of Lessor's consent. Should term
commence later than January 31, 2000 for reasons within Sublessors sole
control, Sublessor agrees to credit Sublessee's rent by 150% per day of
delay to be applied upon commencement of term.
20. NO SMOKING. Sublessee understands and agrees that there shall be no
smoking in the Demised Premises and the Building.
21. REPRESENTATION BY SUBLESSEE. Sublessor and Sublessee warrant that the
signatories to this Sublease Agreement are authorized to sign this
Sublease Agreement on behalf of each party, and legally bind them
hereunder.
22. NO HOLDOVER. Sublessee shall not have the right to holdover in the
Demised Premises at the expiration of the Sublease term. In the event
Sublessor suffers any damages or costs
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<PAGE>
whatsoever as a result of any holdover by Sublessee, Sublessee shall
bear such costs and shall indemnify Sublessor for all costs and
damages resulting from such holdover.
23. ATTORNEYS FEES. Should either party bring an action against the other to
enforce the terms, conditions or covenants of this Sublease Agreement, or
for a breach thereof, then the prevailing party shall be entitled to
recover its reasonable attorney fees and court costs in such action.
24. PARKING. Sublessee shall be entitled to all parking rights, if any,
granted under the Prime Lease (including parking ratio and type, parking
charges and parking abatement).
25. LESSOR'S CONSENT. This Sublease Agreement shall be contingent upon
obtaining the written consent of Lessor.
IN WITNESS WHEREOF, Sublessor and Sublessee have duly executed this Sublease
Agreement as of the day and year first above written.
SUBLESSOR: SILICON GRAPHICS, INC.
By: /s/ James L. Morgensen
------------------------------------------
James L. Morgensen
Title: Director of Facilities and Services
------------------------------------------
Date: 11/9/99
-------------------------------------------
SUBLESSOR: ZapMe! Corporation
By: /s/ Robert Stroffregen
------------------------------------------
Robert Stroffregen
Title: Chief Financial Officer and Secretary
------------------------------------------
Date: 11/3/99
------------------------------------------
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<PAGE>
FIFTH LEASE ADDENDUM
THIS FIFTH LEASE ADDENDUM IS MADE AND ENTERED INTO THIS 2ND DAY OF JUNE,
1998, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY, A CALIFORNIA PARTNERSHIP
(HEREINAFTER REFERRED TO AS "LANDLORD") AND SILICON GRAPHICS, INC., A DELAWARE
CORPORATION (HEREINAFTER REFERRED TO AS "TENANT").
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED
MARCH 13, 1991, FIRST LEASE ADDENDUM DATED JANUARY 15, 1993, SECOND LEASE
ADDENDUM DATED JULY 15, 1993, THIRD LEASE ADDENDUM DATED MARCH 12, 1996, FOURTH
LEASE ADDENDUM DATED SEPTEMBER 4, 1996 (HEREINAFTER COLLECTIVELY REFERRED TO AS
"LEASE") IN THE FOLLOWING MANNER:
Section 20. MISCELLANEOUS
THE FOLLOWING SUBSECTION 20.28 IS HEREBY ADDED TO THE LEASE:
Subsection 20.28 SATELLITE ANTENNA. Subject to compliance with the
provisions of this Lease and applicable Laws, Tenant may install on the roof of
the Building at a location designated or approved by Landlord an electronic
satellite dish or antenna (not to exceed eight (8) feet in diameter) and
associated cabling and equipment (collectively the "System") for data
communications used in the conduct of Tenant's business in the Premises.
Tenant's right to install and maintain any such System is non-exclusive;
Landlord may grant similar or additional rights to others. Prior to any such
installation Tenant shall furnish detailed plans and specifications for the
installation to Landlord for approval, which approval shall not be unreasonably
withheld or delayed. The size, location and installation of the antenna shall
conform to all existing and future Laws. Upon approval, the System shall be
installed, at Tenant's expense, and the installation shall be attractively
screened if so required by Landlord or applicable Laws. Landlord may require
use of a non-penetrating roof mount. If reasonably requested by Landlord, a
roofing company acceptable to Landlord shall at Tenant's expense install an
appropriate base upon which Tenant's installation shall be mounted. All aspects
and phases of Tenant's installation, including the antenna, any associated
electronic or other equipment, wiring, roof mount and base, shall at all times
be subject to supervision and approval by Landlord (solely to protect Landlord's
interests; Landlord shall have no obligation to Tenant to exercise any such
power of supervision or approval). Tenant shall be responsible for procuring
whatever consents, approvals, licenses or permits may be required for the use or
operation of Tenant's System. Landlord makes no warranties or representations
as to the permissibility of any such installation by Tenant. All costs and
expenses incurred in connection with any such installation or proposed
installation by Tenant, including any cost or expenses incurred by Landlord in
connection with review or supervision, shall be borne by Tenant. Tenant shall
reimburse Landlord for all charges for electricity or other utilities used in
connection with Tenant's operation of the System. Tenant shall be permitted
access to the area on the roof where any such installation may be made as
necessary for the installation and maintenance thereof. Tenant shall at all
times and at Tenant's sole expense be responsible for proper maintenance of any
such installation and all
<PAGE>
governmental permits and approvals required in connection therewith
(including compliance with any and all conditions attached thereto). Any
such installation and the roof area on which it is located shall be deemed to
be part of the Premises for purposes of Tenant's insurance and
indemnification obligations under Sections 11 and 12. If any such
installation or use thereof by Tenant interferes in any manner with the
ability of other tenants or occupants of the Building to communicate in any
manner (whether by telephone, radio, telex, telecommunication, television,
microwave, computer or otherwise), then Tenant shall do whatever is necessary
to stop such interference (including, if necessary, removing the System from
the Building). Tenant may at any time, and shall at expiration or earlier
termination of the Term, remove the System, restore the Building to the
condition existing prior to Tenant's installation, and repair any damage
caused by Tenant's installation or removal. Tenant shall pay to Landlord as
additional Rent for the use of the rooftop area, TWO HUNDRED AND NO/100
($200.00) per month. Rent shall not commence until after the first month
following the actual installation of the Satellite Dish.
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<PAGE>
With the exception of the modifications set out above, all other terms,
covenants and agreements of the Lease shall remain in full force and effect.
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, SILICON GRAPHICS, INC.,
A CALIFORNIA PARTNERSHIP A DELAWARE CORPORATION
By: By:
------------------------------ ----------------------------
Title: Title:
---------------------------- ---------------------------
Date: Date:
------------------------------ -----------------------------
Regarding:
Bishop Ranch 8, Building Q
3000 Executive Parkway
Suites 410, 408 & 430
San Ramon, CA 94583
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<PAGE>
FOURTH LEASE ADDENDUM
THIS FOURTH LEASE ADDENDUM IS MADE AND ENTERED INTO THIS 4TH DAY OF
SEPTEMBER, 1996, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY, A CALIFORNIA
PARTNERSHIP (HEREINAFTER REFERRED TO AS "LANDLORD") AND SILICON GRAPHICS, INC.,
A DELAWARE CORPORATION (HEREINAFTER REFERRED TO AS "TENANT").
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED
MARCH 13, 1991, FIRST LEASE ADDENDUM DATED JANUARY 15, 1993, SECOND LEASE
ADDENDUM DATED JULY 15, 1993, AND THIRD LEASE ADDENDUM DATED MARCH 12, 1996
(HEREINAFTER REFERRED TO AS "LEASE") IN THE FOLLOWING MANNER:
Section 1. PREMISES
Subsection 1.1 DESCRIPTION. The size of the Premises is hereby
increased by 5,847 rentable square feet, located on the fourth floor of 3000
EXECUTIVE PARKWAY, consisting of SUITES 408 AND 430 (hereinafter referred to as
"EXPANSION SPACE B") for a new total of 15,789 rentable square feet as shown on
the attached Exhibit A, effective on the date (the "COMMENCEMENT DATE") that
Landlord delivers EXPANSION SPACE B to Tenant or is deemed to have delivered
EXPANSION SPACE B to Tenant under the terms of the Work Letter attached to this
Fourth Lease Addendum. The COMMENCEMENT DATE is scheduled to occur on NOVEMBER
10, 1996 (hereinafter referred to as the "SCHEDULED COMMENCEMENT DATE").
(a) ACKNOWLEDGMENT OF COMMENCEMENT DATE. Upon
determination of the COMMENCEMENT DATE, Landlord and Tenant shall execute a
written acknowledgment of the COMMENCEMENT DATE in the form attached hereto as
Exhibit G.
Subsection 1.2 WORK OF IMPROVEMENT. Landlord shall perform the
work and pay for the cost of the "Suite Improvements" (as such term is defined
in the Work Letter attached hereto as Exhibit B) for improving the Premises up
to a maximum amount of TWO HUNDRED EIGHTY-FOUR THOUSAND FOUR HUNDRED EIGHTY AND
NO/100 DOLLARS ($284,480.00 OR $20.00 PER USABLE SQUARE FOOT). Any cost in
excess of this amount is to be paid for by Tenant to Landlord within thirty (30)
days from Tenant's receipt of Landlord's invoice for said work.
Section 2. TERM
Subsection 2.1 TERM. The expiration date of the term of this Lease
is hereby extended from OCTOBER 30, 1996 to OCTOBER 31, 2001.
<PAGE>
Section 3. RENT
Subsection 3.1 RENT. The Base Rent shall hereby increase from
FIFTEEN THOUSAND ONE HUNDRED SIXTY-EIGHT AND 50/100 DOLLARS ($15,168.50) per
month to THIRTY-ONE THOUSAND FIVE HUNDRED SEVENTY-EIGHT AND NO/100 DOLLARS
($31,578.00) per month effective on the Effective Date.
Subsection 3.3 RENT CREDIT. Landlord hereby grants Tenant with a
Rent Credit in an amount equal to THIRTY THOUSAND AND NO/100 DOLLARS
($30,000.00) which, at Tenant's option, may be used to offset Rent when due or
taken in cash and utilized by Tenant to pay its real estate broker or
consultant. In the event Tenant elects to take said Rent Credit as a cash
contribution from Landlord, said Rent Credit shall be due and payable to Tenant
upon execution of this Addendum.
Section 5. TAX AND BUILDING OPERATING COST INCREASES
Subsection 5.2 TENANT'S SHARE. Tenant's Share of Building
Operating Costs shall be increased from 4.72% to 7.50%. The Expense stop shall
be adjusted to $7.65 per square foot per annum. The change in Tenant's Share
and the Expense Stop will become effective on the COMMENCEMENT DATE.
Section 20. MISCELLANEOUS
Subsection 20.24 RIGHT OF FIRST REFUSAL. Landlord hereby grants
Tenant with a Right of First Refusal to lease the premises as shown on Exhibit A
shown as the "Right of First Refusal Space." In order for Tenant to exercise
this Right of First Refusal, Tenant must, within seven (7) business days from
Landlord's written notice to Tenant of Landlord's intent to lease said Right of
First Refusal Space, notify Landlord in writing whether it will exercise said
Right. In the event Tenant exercises its Right, the Base Rental Rate, Expense
Stop and Tenant Improvement Allowance shall be the same as offered to another
party who has expressed their intent to lease said space, and the Term shall be
the same as that offered to the other party. In the event Tenant, upon
notification from Landlord, does not exercise its Right of First Refusal, Tenant
shall be deemed to have waived its Right and have no further rights to lease
said space.
Subsection 20.25 OPTION TO RENEW. Subject to the provisions of this
Subsection 20.25, Landlord hereby grants Tenant with one (1) , five (5) year
Option to Extend the Term of this Lease. Tenant's notice of its election to
exercise the Option to Extend must be given to Landlord in writing at least ten
(10) months prior to the expiration date of the then current Term. Tenant must
exercise its Option to Extend for the entire Premises.
(a) RENT. Base Rent for the Option period shall be set
at Fair Market Value at the time Tenant exercises its Option to Extend, but in
no event less than $24.00 per rentable square foot per year. Fair Market Value
is described in (b) below.
(b) FAIR MARKET VALUE. The Term "Fair Market Value"
used in this Lease shall mean the annual rental rate being charged in the
general area of the buildings in San Ramon and Walnut Creek for space comparable
to the space for which Fair Market Value is to be
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<PAGE>
determined, taking into consideration use, location and floor level within the
applicable building, the location, size of tenancy, quality and age of the
building, the definition of rentable area or net rentable area, as the case may
be, with respect to which such rental rates are computed for renewal tenants,
leasehold improvements provided for renewal tenants, rental concessions for
renewal tenants, the date the particular rate under consideration became
effective, the term of the lease under consideration, the extent of services
provided thereunder, applicable distinctions between "gross" leases and "net"
leases, expense stop figures for escalation purposes, and other adjustments to
base rental, and any other relevant term or condition in making such evaluation,
including bona fide written offers made to Landlord by third parties at arms
length to lease the same or comparable space for which the Fair Market Value is
being determined.
(c) Within thirty (30) days following Tenant's notice to
Landlord to extend the term of this Lease, Landlord shall notify Tenant of the
proposed Fair Market Value. Tenant shall have thirty (30) days following
receipt of Landlord's notice in which to:
(1) accept such determination; or
(2) elect to have such determination made by
arbitration as described below; or
(3) withdraw its notice of exercise of Option to
Extend.
If Tenant fails to notify Landlord of its election
within said thirty (30) day period, Tenant shall be deemed conclusively to have
withdrawn its notice of exercise of Option to Extend the Lease and the Lease
shall terminate on the Term Expiration Date as if such notice was never given.
If Tenant elects to have such determination made by arbitration, then:
(i) Within ten (10) days after Landlord
receives Tenant's notice of its election to have such determination made by
arbitration, Landlord and Tenant shall each appoint and employ, at its cost, a
real estate appraiser (who shall be licensed in the state where the Demised
Premises are located and be a member of the American Institute of Real Estate
Appraisers (MAI) with at least ten (10) years of full time commercial appraisal
and real estate marketing experience in the immediate area where the Demised
Premises are located) to appraise and establish the Fair Market Value.
(ii) The two appraisers, thus appointed,
shall meet promptly and attempt to agree upon and designate a third appraiser
meeting the qualifications set forth above within ten (10) days after the date
of appointment of the last of the two appraisers.
(iii) If the two appraisers are unable to
agree on the third appraiser, either of the parties, after giving five (5) days'
notice to the other, shall request the American Arbitration Association in the
county in which the Premises are located to appoint such independent third
appraiser who shall be of similar affiliation or background of the appraisers
aforementioned. Each of the parties shall bear one-half of the cost of the
appointment of the third appraiser and of the third appraiser's fee.
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<PAGE>
(iv) Within thirty (30) days after the
selection of the third appraiser, a majority of the appraisers shall agree upon
the Fair Market Value. If a majority of the appraisers are unable to agree
within the stipulated time, then each appraiser shall render his/her separate
appraisal within such time, and the three appraisals shall be averaged in order
to establish such rate; provided, however, if the low appraisal and/or the high
appraisal are more than ten (10%) percent lower and/or higher than the middle
appraisal, the low appraisal and/or high appraisal shall be disregarded. If
only one appraisal is disregarded, the remaining two appraisals shall be
averaged in order to establish such Fair Market Value. If both the low
appraisal and the high appraisal are disregarded, the middle appraisal shall
establish the Fair Market Value. After the Fair Market Value has been
established, the appraisers shall immediately notify the parties in writing.
(d) NOTICE. In the event Tenant does not provide
Landlord with written notice of its intent to exercise this Option to Extend
within the aforementioned time frame, Tenant shall be deemed to have waived its
Option to Extend.
(e) OPTIONS ARE PERSONAL. Except as permitted in
Section 15 of this Lease, the Option to Extend is Personal to the Tenant
executing this Lease and are otherwise not assignable or transferrable.
Subsection 20.26 RIGHT TO RELOCATE. Tenant is hereby granted the
right, at Tenant's expense, to have Landlord relocate the tenant occupying the
Right of First Refusal Space (Q-440). In order for Tenant to exercise this
Right, Tenant must provide Landlord with at least seven (7) months' prior
written notice that it wishes Landlord to relocate such tenant. In the event
Tenant provides Landlord with such written notice, the Premises will be leased
in their as-is, broom clean condition. The rental rate will be set at Fair
Market Value, but in no event less than $24.00 per rentable square foot, and the
Lease term shall be conterminous with the expiration date set forth herein.
Subsection 20.27 SIGNAGE RIGHTS. Landlord hereby grants Tenant with
the right, at Tenant's sole expense, to "Building Standard" monument signage.
Upon written request from Tenant and approval by Tenant of the cost of such
monument signage, Landlord will, within 45 days from receipt of such request,
install the monument signage.
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<PAGE>
With the exception of the modifications set out above, all other terms,
covenants and agreements of the Lease shall remain in full force and effect.
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, SILICON GRAPHICS, INC.,
A CALIFORNIA PARTNERSHIP A DELAWARE CORPORATION
By: By:
------------------------- ---------------------------
Title: Title:
---------------------- ------------------------
Date: Date:
----------------------- -------------------------
Regarding:
Bishop Ranch 8, Building Q
3000 Executive Parkway, Suite 410
Expansion Space B (Suites 408 & 430)
San Ramon, CA 94583
-5-
<PAGE>
EXHIBIT B TO FOURTH LEASE ADDENDUM
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF SEPTEMBER 4, 1996
BETWEEN
ALEXANDER PROPERTIES COMPANY, AS LANDLORD,
AND
SILICON GRAPHICS, INC., A DELAWARE CORPORATION,
AS TENANT ("LEASE")
WORK LETTER
1. SUITE IMPROVEMENTS. Landlord shall with reasonable diligence
construct and install in EXPANSION SPACE B the improvements and fixtures
provided for in this Construction Rider ("Suite Improvements").
1.1. PLANS.
Tenant will submit to Landlord the following plans:
(a) On or before AUGUST 31, 1996, Tenant will submit to
Landlord a Space Plan showing details and specifications sufficient to permit
Landlord's contractor and subcontractors to price the Suite Improvements. Such
plans shall hereinafter be referred to as the "Pricing Plans." Within seven (7)
days from Landlord's receipt of Tenant's approved Pricing Plans, Landlord will
provide Tenant with a price to complete the scope of work as shown on said
Pricing Plans.
(b) The Pricing Plans will become the Construction
Documents, hereinafter referred to as the "Construction Documents" and shall be
used by Landlord to complete the construction of Tenant's Suite Improvements.
In all events said Construction Documents must be approved by Tenant no later
than SEPTEMBER 15, 1996. In the event Landlord has not received Tenant's
approved Construction Documents by SEPTEMBER 15, 1996, such delay will be
considered a Tenant Delay unless such delay was caused by Landlord.
1.2. CONSTRUCTION. Upon Landlord's receipt of the Final
Construction Documents, approved by Tenant, Landlord shall proceed with
reasonable diligence to cause the Suite Improvements to be Substantially
Completed on or prior to the Scheduled Commencement Date. The Suite
Improvements shall be deemed to be "Substantially Completed" when they have been
completed in accordance with the Final Construction Documents except for
finishing details, minor omissions, decorations and mechanical adjustments of
the type normally found on an architectural "punch list". (The definition of
Substantially Completed shall also define the terms "Substantial Completion" and
"Substantially Complete.")
1.3. COST OF SUITE IMPROVEMENTS. See Section 1.2 of this Second
Lease Addendum.
<PAGE>
1.4. TENANT DELAYS.
Tenant shall be responsible for, and shall pay to Landlord,
any and all direct costs and expenses incurred by Landlord in connection with
any delay in the commencement or completion of any Suite Improvements and any
increase in the cost of Suite Improvements (whether or not Above-Standard)
caused by (i) Tenant's failure to cause the Space Planner to deliver the items
described above within the time periods required above, (ii) the failure of
Landlord to receive Final Construction Documents before SEPTEMBER 15, 1996,
(iii) Above-Standard Suite Improvements requested by Tenant, (iv) any changes or
modifications in the work requested by Tenant following approval of the Final
Construction Documents, (v) Tenant's early entry onto EXPANSION SPACE B as
described in Paragraph 3 hereof, or (vi) any other delay requested or caused by
Tenant (collectively, "Tenant Delays"). Notwithstanding the foregoing, no
Tenant Delay shall be deemed to have occurred unless it actually causes a Delay
and until Landlord gives written notice to Tenant specifying the action,
inaction or occurrence constituting the Tenant Delay and the number of days of
such Tenant Delay ("Tenant Delay Notice"). Notwithstanding anything to the
contrary, in the event of a Tenant Delay, Rent shall commence on the Scheduled
Commencement Date; however, in the event the delay in Substantial Completion is
caused by Landlord, the Scheduled Commencement Date shall be adjusted by one (1)
day for every day of Landlord caused delay.
2. COMMENCEMENT OF TERM. Upon Substantial Completion of the Suite
improvements, Landlord shall deliver possession of EXPANSION SPACE B to Tenant.
The Commencement Date will be the earlier of Substantial Completion of the Suite
Improvements or the date Landlord would have completed EXPANSION SPACE B and
tendered EXPANSION SPACE B to Tenant if Substantial Completion had not been
delayed by the number of days specified in any and all Tenant Delay Notices
given by Landlord as described in Paragraph 1.4.
3. ACCESS TO EXPANSION SPACE B. Landlord, at its reasonable
discretion, shall allow Tenant or Tenant's Representatives to enter EXPANSION
SPACE B prior to the Substantial Completion to permit Tenant to make EXPANSION
SPACE B ready for its use and occupancy; provided, however, that prior to such
entry of EXPANSION SPACE B, Tenant shall provide evidence reasonably
satisfactory to Landlord that Tenant's insurance, as described in Paragraph 12
of the Lease, shall be in effect as of the time of such entry. Such permission
may be revoked at any time upon twenty-four (24) hours' written notice, and
Tenant or its Representatives shall not interfere with Landlord or Landlord's
contractor in completing the Building or the Suite Improvements. Tenant agrees
that Landlord shall not be liable in any way for any injury, loss or damage
which may occur to any of Tenant's property placed upon or installed in
EXPANSION SPACE B prior to the Commencement Date, the same being at Tenant's
sole risk, and Tenant shall be liable for all injury, loss or damage to persons
or property arising as a result of such entry of EXPANSION SPACE B by Tenant or
its Representatives, unless such injury, loss, or damage is the result of
Landlord's or its representatives' negligence, omissions, or willful misconduct.
4. OWNERSHIP OF SUITE IMPROVEMENTS. All Suite Improvements
permanently affixed to the real property, whether or not Above-Standard, and
whether installed by Landlord or Tenant, shall become a part of EXPANSION
SPACE B, shall be the Property of Landlord and, unless Landlord elects otherwise
as provided in the Lease, shall be surrendered by Tenant with EXPANSION SPACE B,
without any compensation to Tenant, at the expiration or termination of the
Lease.
-2-
<PAGE>
EXHIBIT C - SPACE PLAN
TO BE PROVIDED
<PAGE>
ALEXANDER
PROPERTIES COMPANY
One Annabel Lane Post Office Box 640 San Ramon, California 94583 Fax
510/866-1330 Tel 510/866-0100
EXHIBIT G
COMMENCEMENT OF FOURTH LEASE ADDENDUM
It is hereby agreed to that as of __________, 199__, Expansion Space B (Suites
408 and 430) located at 3000 Executive Parkway, described in the Fourth Lease
Addendum dated __________, 199__, by and between ALEXANDER PROPERTIES COMPANY as
Landlord and SILICON GRAPHICS, INC. as Tenant, were occupied by Tenant and that
said Fourth Lease Addendum is in full force and effect.
ACKNOWLEDGED AND ACCEPTED:
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, SILICON GRAPHICS, INC.,
a California partnership a Delaware corporation
By: By:
---------------------------------- --------------------------------
Title: Title:
------------------------------- -----------------------------
Date: Date:
-------------------------------- ------------------------------
<PAGE>
THIRD LEASE ADDENDUM
THIS THIRD LEASE ADDENDUM IS MADE AND ENTERED INTO THIS 12TH DAY OF
MARCH, 1996, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY, A CALIFORNIA
PARTNERSHIP (HEREINAFTER REFERRED TO AS "LANDLORD") AND SILICON GRAPHICS, INC.,
A DELAWARE CORPORATION (HEREINAFTER REFERRED TO AS "TENANT").
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED
MARCH 13, 1991, FIRST LEASE ADDENDUM DATED JANUARY 15, 1993, AND SECOND LEASE
ADDENDUM DATED JULY 15, 1993, (HEREINAFTER REFERRED TO AS "LEASE") IN THE
FOLLOWING MANNER:
Section 2. TERM
Subsection 2.1 TERM. The expiration date of the term of this Lease
is hereby extended from APRIL 30, 1996 to OCTOBER 30, 1996.
With the exception of the modifications set out above, all other terms,
covenants and agreements of the Lease shall remain in full force and effect.
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, SILICON GRAPHICS, INC.,
A CALIFORNIA PARTNERSHIP A DELAWARE CORPORATION
By: By:
---------------------------------- --------------------------------
Title: Title:
------------------------------- -----------------------------
Date: Date:
-------------------------------- ------------------------------
Regarding:
Bishop Ranch 8, Building Q
3000 Executive Parkway, Suite 410
San Ramon, CA 94583
<PAGE>
SECOND LEASE ADDENDUM
THIS SECOND LEASE ADDENDUM IS MADE AND ENTERED INTO THIS ______ DAY OF
________, 1993, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY, A CALIFORNIA
PARTNERSHIP (HEREINAFTER REFERRED TO AS "LANDLORD") AND SILICON GRAPHICS, INC.,
A DELAWARE CORPORATION (HEREINAFTER REFERRED TO AS "TENANT").
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED
MARCH 13, 1991, AND FIRST LEASE ADDENDUM DATED JANUARY 15, 1993, (HEREINAFTER
REFERRED TO AS "LEASE") IN THE FOLLOWING MANNER:
Section 1. PREMISES
Subsection 1.1 DESCRIPTION. The size of the Premises is hereby
increased by 3,670 rentable square feet (hereinafter referred to as the
"Expansion Space") for a new total of 9,942 rentable square feet as shown on the
attached Exhibit A, effective August 1, 1993 (hereinafter referred to as the
"Effective Date").
Subsection 1.2 WORK OF IMPROVEMENT. Landlord shall perform the
work and pay for the cost of improving the Expansion Space as shown on the
attached Exhibit C (space plan) up to an amount equal to ELEVEN AND 42/100
DOLLARS ($11.42) per usable square foot in the Expansion Space, but in no event
to exceed THIRTY-SEVEN THOUSAND SEVEN HUNDRED FIFTY-NINE AND NO/100 DOLLARS
($37,759.00). In the event Landlord is required by code to install additional
smoke detectors or a new fire panel in the Expansion Space, said work shall be
completed by Landlord at Landlord's sole cost and expense.
Section 3. RENT
Subsection 3.1 RENT. The Base Rent shall hereby increase from
EIGHT THOUSAND TWO HUNDRED NINETY-FIVE AND NO/100 DOLLARS ($8,295.00) per month
to THIRTEEN THOUSAND NINE HUNDRED EIGHTY-THREE AND 50/100 DOLLARS ($13,983.50)
per month effective on the Effective Date.
Subsection 3.2 ADJUSTMENTS TO BASE RENT. The Base Rent shall be
adjusted to FIFTEEN THOUSAND ONE HUNDRED SIXTY-EIGHT AND 50/100 DOLLARS
($15,168.50) per month effective at the commencement of the 37th month of the
Lease term.
Section 5. TAX AND BUILDING OPERATING COST INCREASES
Subsection 5.2 TENANT'S SHARE. Tenant's percentage share of
Building Operating Costs shall be increased by 1.74% (Tenant's percentage share
on the Expansion Space) to 4.72%. The expense stop for the Expansion Space
shall be $6.60 per square foot per annum. The change in Tenant's percentage
share will become effective on the Effective Date.
<PAGE>
Section 20. MISCELLANEOUS
Subsection 20.20 RIGHT TO TERMINATE. Tenant hereby waives its rights
to Subsection 20.20.
Subsection 20.23 RENTAL CREDIT. Landlord hereby grants Tenant a
rental credit in the amount of EIGHT THOUSAND SEVEN HUNDRED SIXTY-NINE AND
96/100 DOLLARS ($8,769.96). Said rental credit may be used by Tenant at anytime
after Tenant takes occupancy of the Expansion Space.
With the exception of the modifications set out above, all other terms,
covenants and agreements of the Lease shall remain in full force and effect.
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, SILICON GRAPHICS, INC.,
A CALIFORNIA PARTNERSHIP A DELAWARE CORPORATION
By:__________________________ By:______________________________
Title:_______________________ Title:___________________________
Date:________________________ Date:____________________________
Regarding:
Bishop Ranch 8, Building Q
3000 Executive Parkway, Suite 410
San Ramon, CA 94583
-2-
<PAGE>
FIRST LEASE ADDENDUM
THIS FIRST LEASE ADDENDUM IS MADE AND ENTERED INTO THIS 15TH DAY OF
JANUARY, 1993, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY, A CALIFORNIA
PARTNERSHIP (HEREINAFTER REFERRED TO AS "LANDLORD") AND SILICON GRAPHICS, INC.,
A DELAWARE CORPORATION (HEREINAFTER REFERRED TO AS "TENANT").
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED MARCH
13, 1991, (HEREINAFTER REFERRED TO AS "LEASE"). THE MODIFICATIONS UNDER THIS
ADDENDUM, EFFECTIVE JANUARY 1, 1993, ARE AS FOLLOWS:
Section 1. PREMISES
Subsection 1.1 DESCRIPTION. The square footage is hereby amended
from 5,650 usable square feet to 6,272 rentable square feet.
Section 5. TAX AND BUILDING OPERATING COST INCREASES
Subsection 5.2 TENANT'S SHARE. Tenant's Share is hereby restated
and amended as follows: In the event the Building Operating Costs incurred by
Landlord during any calendar year following the Base Year shall exceed the
Building Operating Costs "expense stop" of $5.41 per rentable square foot of the
Premises, Tenant shall pay to Landlord the amount of such excess. Tenant's
share of Building Operating Costs shall be computed based upon a rentable area
of the Building of 210,526 square feet and a rentable area of the Premises of
6,272 square feet for a percentage of 2.98%.
With the exception of the modifications set out above, all other terms,
covenants and agreements of the Lease shall remain in full force and effect.
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, SILICON GRAPHICS, INC.,
A CALIFORNIA PARTNERSHIP A DELAWARE CORPORATION
By:__________________________ By:______________________________
Title:_______________________ Title:___________________________
Date:________________________ Date:____________________________
Regarding:
Bishop Ranch 8, Building Q
3000 Executive Parkway, Suite 410
San Ramon, CA 94583
<PAGE>
ALEXANDER
PROPERTIES COMPANY
Post Office Box 640 One Annabel Lane San Ramon, California 94583 415/866-0100
EXHIBIT G
COMMENCEMENT OF LEASE
It is hereby agreed to that as of MAY 1, 1991, the Premises located at
3000 EXECUTIVE PARKWAY, Suite 410, described in the Lease Agreement dated
MARCH 13, 1991, by and between ALEXANDER PROPERTIES COMPANY as Landlord and
SILICON GRAPHICS, INC. as Tenant, were occupied by Tenant and that said Lease is
in full force and effect.
ACKNOWLEDGED AND ACCEPTED:
LANDLORD TENANT
By:__________________________ By:______________________________
Title:_______________________ Title:___________________________
<PAGE>
SILICON GRAPHICS, INC.
BUILDING LEASE - TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C> <C>
1. PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
4. SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
5. TAX AND BUILDING OPERATING COST INCREASES . . . . . . . . . . . . . . . . . .3
6. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
7. SERVICE AND UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS. . . . . . . . . . . . . .7
9. ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
10. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
11. INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
13. DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
14. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
15. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . . 13
16. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
17. DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
18. PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
19. RELOCATION OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
20. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SIGNATURE PAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
EXHIBITS
</TABLE>
<PAGE>
BISHOP RANCH BUSINESS PARK
BUILDING LEASE
This Lease is made and entered into this 13th day of March, 1991, by and
between ALEXANDER PROPERTIES COMPANY, a California partnership, (hereinafter
"Landlord") and SILICON GRAPHICS, INC., a Delaware corporation (hereinafter
"Tenant"). For and in consideration of the rental to be paid and of the
covenants and agreements hereinafter set forth to be kept and performed by
Tenant, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the Premises herein described for the term, at the rental and subject to and
upon all of the terms, covenants and agreements hereinafter set forth.
1. PREMISES
1.1 DESCRIPTION. Landlord hereby leases to Tenant and Tenant
hereby rents from Landlord the Premises (hereinafter "Premises") crosshatched on
Exhibit A containing 5,650 square feet known as Suite 410, located on the Fourth
floor of 3000 Executive Parkway, Building Q (hereinafter "Building"), located at
San Ramon, California 94583.
1.2 WORK OF IMPROVEMENT. The obligation of Landlord and Tenant
to perform the work and supply the necessary materials and labor to prepare the
Premises for occupancy are set forth in detail in Exhibit B and Exhibit C.
Landlord and Tenant shall expend all funds and do all acts required of them, if
any, in Exhibit B and Exhibit C and shall have the work performed promptly and
diligently in a first class workmanlike manner. Any changes initiated by Tenant
to the plan (Exhibit C) dated March 4, 1991, which affect the cost of the work
shall be paid by Tenant to Landlord promptly after incurred.
2. TERM
2.1 TERM. Subject to Paragraph 2.2 below, the term of this
Lease shall be for Five (5) years, commencing May 1, 1991, and ending April 30,
1996, unless sooner terminated pursuant to this Lease.
2.2 DELAY IN COMMENCEMENT. Tenant agrees that in the event of
the inability of Landlord for any reason to deliver possession of the Premises
to Tenant on the commencement date set forth in Paragraph 2.1, Landlord shall
not be liable for any damage thereby nor shall such inability affect the
validity of this Lease or the obligations of Tenant hereunder, but in such case
Tenant shall not be obligated to pay rent or other monetary sums until
(i) Landlord has substantially completed the "Tenant Improvements" (as defined
in Exhibit C) in accordance with the approved plans therefor and there remain no
uncompleted items that would adversely affect Tenant's use of the Premises, and
(ii) Landlord is legally able to and has delivered possession of the Premises to
Tenant. In the event Landlord shall not have delivered possession of the
Premises within sixty (60) days from the scheduled commencement date, then
Tenant at its option, to be exercised within thirty (30) days after the end of
said sixty (60) day period, may terminate this Lease and, upon Landlord's return
of any monies previously deposited by Tenant, the parties shall have no further
rights or liabilities toward each other. If Tenant elects to terminate the
Lease pursuant to this paragraph,
<PAGE>
Landlord shall refund to Tenant all prepaid rent, and other monies paid by
Tenant under the Lease, and neither party shall bear any further rights or
obligations under the Lease. Tenant shall be under no obligation to make any
rental payments hereunder until Landlord has complied with items (i) and (ii)
above. Notwithstanding anything to the contrary in the Lease, acceptance of
the Premises shall not be deemed a waiver of Tenant's right to have defects
in materials, design, construction, and equipment repaired at Landlord's
expense. Tenant shall give notice to Landlord whenever any such defects
become reasonably apparent, and Landlord shall repair such defects as soon as
practicable. Effective upon completion of the Premises, Landlord hereby
warrants that the construction of the Tenant Improvements and Building was
performed in accordance with the plans therefor, in a good and workmanlike
manner, and that all materials and equipment furnished conform to said plans
and are otherwise of good quality.
2.3 ACKNOWLEDGMENT OF COMMENCEMENT DATE. In the event the
commencement date of the term of the Lease is other than as provided in
Paragraph 2.1, then Landlord and Tenant shall execute a written
acknowledgment of the date of commencement which date shall acknowledge
commencement of this Lease and shall attach it to the Lease as Exhibit G.
3. RENT.
3.1 BASE RENT. Tenant shall pay to Landlord as base rent for
the Premises in advance on the first day of each calendar month of the term of
this Lease without deduction, offset, prior notice or demand, in lawful money of
the United States of America, the sum of EIGHT THOUSAND TWO HUNDRED NINETY-FIVE
AND NO/100 DOLLARS ($8,295.00). If the commencement date is not the first day
of a month, or if the Lease termination day is not the last day of a month, a
prorated monthly installment shall be paid at the then current rate for the
fractional month during which the Lease commenced and/or terminates.
Concurrently with Tenant's execution of this Lease, Tenant shall
pay to Landlord the sum of EIGHT THOUSAND TWO HUNDRED NINETY-FIVE AND NO/100
DOLLARS ($8,295.00) as rent for the eighth (8th) month of the Lease term. The
rental for the first seven (7) full months of occupancy shall be abated.
3.2 ADJUSTMENTS TO BASE RENT.
(a) Effective at the commencement of the (37th) month of
the Lease term the Base rental shall be increased to NINE THOUSAND FOUR HUNDRED
EIGHTY AND NO/100 DOLLARS ($9,480.00) per month.
4. SECURITY DEPOSIT
(Delete)
-2-
<PAGE>
5. TAX AND BUILDING OPERATING COST INCREASES
5.1 DEFINITIONS. For purposes of this paragraph, the following
terms are herein defined:
(a) BASE YEAR: The calendar year in which this Lease
commences.
(b) BUILDING OPERATING COSTS: Building Operating Costs
shall include all costs and expenses of ownership, operation and maintenance of
Building (excluding depreciation on the Building, all amounts paid on loans of
Landlord, expenses capitalized for federal income tax purposes, and Landlord's
personal property and income taxes) computed in accordance with generally
accepted accounting principles adopted by Landlord consistently applied,
including by way of illustration but not limited to: real property taxes and
assessments and any tax in addition to or in lieu thereof, other than taxes
covered by Paragraph 5.4, whether assessed against Landlord or Tenant or
collected by Landlord or both; utilities; parts; equipment; supplies; insurance;
license, permit and inspection fees; cost of services and materials of
independent contractors (including property management fees not in excess of
those customarily charged for similar properties); cost of compensation
(including employment taxes and reasonable fringe benefits) of all persons who
perform regular and recurring duties connected with day-to-day operation,
maintenance and repair of Building, its equipment and the adjacent walks,
parking and landscaped areas, including janitorial, scavenger, gardening,
security, parking, operating engineer, elevator, painting, plumbing, electrical,
carpentry, heating, ventilation, air conditioning, window washing, signing and
advertising (but excluding sources and materials of persons performing services
not uniformly available to or performed for substantially all Building tenants);
and rental expense or a reasonable allowance for depreciation of personal
property used in the maintenance, operation and repair of the Building.
(c) COMPUTATION ADJUSTMENT. In the event the Building
is not fully occupied for any calendar year of the Term, the Building Operating
Costs shall be adjusted to the amount which would have been incurred if the
Building had been fully occupied for the year.
5.2 TENANT'S SHARE. In the event the Building Operating Costs
incurred by Landlord during any calendar year following the Base Year shall
exceed the Building Operating Costs "expense stop" of $6.00 per square foot of
rentable space in the Premises, Tenant shall pay to Landlord the amount of such
excess in proportion to Tenant's allocable share. Tenant's share of Building
Operating Costs shall be computed based upon a rentable area of the Building of
189,663 square feet and a rentable area of the Premises of 5,650 square feet for
a percentage of 2.98%.
5.3 PAYMENT. Within ninety (90) days after the end of each
calendar year following the Base Year, Landlord shall furnish Tenant with a
written statement showing in reasonable detail Landlord's Building Operating
Costs for the preceding calendar year, and the amount, if any, of any increase
or decrease in the sums due from Tenant taking into account prior increases paid
by Tenant (if any).
Coincidentally with the rent payment next due following Tenant's
receipt of such statement, Tenant shall pay to Landlord (in the case of an
increase), an amount equal to the sum of (i) the difference between Building
Operating Costs for the preceding calendar year and the expense
-3-
<PAGE>
stop less increases paid by Tenant (if any); and (ii) one-twelfth (1/12) of
said increases for the current calendar year multiplied by the number of rent
payments (including the current one) then elapsed in such calendar year.
Thereafter, one-twelfth (1/12) of the amount of the increase shall be paid
monthly with the rent until the adjustment the following year pursuant
hereto. In the event of a decrease, Landlord shall credit the entire amount
overpaid by Tenant during the preceding year against the next rent due from
Tenant. In no event shall the adjustment entitle Tenant to receive the
benefit of a reduction in Building Operating Costs below the level of the
expense stop.
5.4 NEW TAXES. In addition to rent and other charges to be
paid by Tenant hereunder, Tenant shall reimburse to Landlord, within thirty (30)
days of receipt of a demand therefor, Tenant's pro rata share, specified in
Paragraph 5.2, of any and all taxes payable by Landlord (other than net income
taxes and advalorem personal and real property taxes and other taxes excluded in
Paragraph 5.2 above) whether or not now customary or within the contemplation of
the parties hereto (i) upon, allocable to or measured by the area of the
Premises or on the rent payable hereunder, including without limitation any
gross receipts tax or excise tax levied by the State, any political subdivision
thereof, city or federal government with respect to the receipt of such rent; or
(ii) upon or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (iii) upon or measured by the value of Tenant's personal
property, equipment or fixtures located in the Premises; or (iv) upon this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises. Landlord agrees that during the term
of the Lease should an assessment district be levied or formed for Bishop Ranch
that said assessments or any portions thereof will not be passed on to Tenant.
5.5 TENANT'S PERSONAL PROPERTY TAXES. Tenant shall pay before
delinquency, any and all taxes levied or assessed and which become payable
during the term hereof upon Tenant's equipment, furniture, fixtures and other
personal property located in the Premises and the taxes payable (whether levied
on Landlord or Tenant) for the cost of the portion of improvements located on
the Premises paid for by Tenant. Should Tenant desire to contest the County
Assessor's determination of personal property taxes, Tenant agrees to confer in
writing with Landlord prior to any such contest. In the event Tenant is not in
agreement with said determination, Tenant may then contest such taxes by
appropriate legal proceedings, provided Tenant protects Landlord and the
Premises by appropriate means reasonably satisfactory to Landlord. For the
purpose of determining said amount, figures supplied by the County Assessor as
to the amount so assessed shall be conclusive. Tenant shall comply with the
provisions of any law, ordinance or rate of the taxing authorities which require
Tenant to file a report of Tenant's property leased in the Premises.
6. USE
6.1 USE. The Premises shall be used and occupied by Tenant for
general office purposes and for no other purpose without the prior written
consent of Landlord.
6.2 SUITABILITY. Tenant acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty with respect to
the Premises or the Building or with respect to the suitability of either for
the conduct of Tenant's business, nor has Landlord agreed to undertake any
modification, alteration or improvement to the Premises except as provided in
this
-4-
<PAGE>
Lease. Except for latent or unknown defects and subject to Paragraph 2.2,
the taking of possession of the Premises by Tenant shall conclusively establish
that the Premises and the Building were at such time in satisfactory condition
unless within fifteen (15) days after such date Tenant shall give Landlord
written notice specifying in reasonable detail the respects in which the
Premises or the Building were not in satisfactory condition.
6.3 USES PROHIBITED
(a) Tenant shall not do nor permit anything to be done
in or about the Premises nor bring or keep anything therein which will in any
way increase the existing rate or affect any fire or other insurance upon the
Building or any of its contents (unless Tenant shall pay any increased premium
as a result of such use or acts), or cause a cancellation of any insurance
policy covering said Building or any part thereof or any of its contents, nor
shall Tenant sell or permit to be kept, used or sold in or about said Premises
any articles which may be prohibited by a standard form policy of fire
insurance.
(b) 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 or occupants of the Building, or injure or annoy them,
or use or allow the Premises to be used for any unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the
Premises. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises.
(c) Tenant shall not use the Premises or permit anything
to be done in or about the Premises which will violate any law, statute,
ordinance or governmental rule or regulation or requirement of duly constituted
public authorities now in force or which may hereafter be enacted or
promulgated. Tenant shall at its sole cost and expense promptly comply with all
laws, statutes, ordinances and governmental rules, regulations or 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 condition, use or occupancy of the Premises,
excluding structural changes not relating to or affecting the condition, use or
occupancy of the Premises, or not related to or affected by Tenant's
improvements or acts. The judgment of any court of competent jurisdiction
whether Landlord be a party thereto or not, that Tenant has violated any law,
statute, ordinance or governmental rule, regulation or requirement, shall be
conclusive of the fact as between Landlord and Tenant. Tenant's obligation
under this Paragraph shall be limited to those situations in which a violation,
order or duty is imposed resulting from the particular use made of the demised
Premises or any portion thereof by Tenant, it being understood that Tenant shall
not be responsible for complying with any violations, orders, codes or duties
which are imposed on the Building generally and which would have to be complied
with whether Tenant or any other tenants were then in possession of the demised
Premises.
7. SERVICE AND UTILITIES
7.1 LANDLORD'S OBLIGATIONS. Provided Tenant is not in default
hereunder, Landlord shall furnish to the Premises during reasonable hours of all
business days except Federal holidays, and subject to the rules and regulations
of the Building, water, gas and electricity suitable for the intended use of the
Premises, heat and air conditioning required in Landlord's reasonable judgment
-5-
<PAGE>
for the comfortable use and occupancy of the Premises, scavenger, janitorial,
window washing service and elevator service customary in similar first class
office buildings in the competing geographical areas. Landlord shall also
maintain and keep lighted the common lobbies, hallways, stairs and toilet rooms
in the Building.
7.2 TENANT'S OBLIGATION. Tenant shall pay for, prior to
delinquency, all telephone and all other materials and services, not expressly
required to be paid by Landlord, which may be furnished to or used in, on or
about the Premises by Tenant during the term of this Lease.
7.3 TENANT'S ADDITIONAL REQUIREMENTS.
(a) Tenant will not, without the written consent of
Landlord, use any apparatus or device in the Premises, including but without
limitation thereto, electronic data processing machines, punch card machines and
machines using electric current in excess of 220 volts, which will in any way
increase the amount of electricity or water usually furnished or supplied for
use of the Premises as general office space; nor connect with electric current,
except through existing electrical outlets in the Premises, or water pipes, any
apparatus or device, for the purposes of using electric current or water.
(b) If Tenant shall require water or electric current in
excess of that usually furnished or supplied for use of the Premises as general
office space, Tenant shall first procure the consent of Landlord for the use
thereof, which consent Landlord may refuse, and Landlord may cause a water meter
or electric current meter to be installed in the Premises, so as to measure the
amount of water and electric current consumed for any such other use. The cost
of such meters and of installation, maintenance and repair thereof shall be paid
by Tenant and Tenant agrees to pay Landlord promptly upon demand by Landlord for
all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the city in which the Building is located or
the local public utility, as the case may be, furnishing the same, plus any
additional expense incurred in keeping account of the water and electric current
so consumed. If a separate meter is not installed to measure such excess use,
then Landlord shall have the right to estimate the amount of such use through
qualified personnel.
(c) Wherever heat generating machines or equipment are
used in the Premises which affect the temperature otherwise maintained by the
air conditioning system, Landlord reserves the right to install supplementary
air conditioning units in the Premises and the cost thereof, including the cost
of installation, operation and maintenance thereof, shall be paid by Tenant to
Landlord upon demand by Landlord.
Landlord shall make all reasonable efforts to cure any
interruption or suspension of services and pursue same until completion. If the
cessation or stoppage of such services which Landlord is obligated to provide
for Tenant causes any portion of the demised Premises to become unusable by
Tenant in its reasonable discretion for more than thirty (30) consecutive days,
then Tenant shall be entitled to a pro rata abatement of rent as to such
unusable portion of the Premises commencing on the thirty-first (31st) day on
which the Premises or portion thereof are unusable. Tenant shall not be
entitled to any abatement of rent due to usability (i) caused by any act or
omission of Tenant; (ii) resulting from a request to Landlord from Tenant to
alter,
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improve or add to the Premises and Tenant has been apprised that such
alteration, improvement or addition will cause the cessation to such
services; or (iii) where the repairs are those which Tenant is required to
furnish hereunder.
7.4 NONLIABILITY. Except as set forth herein, Landlord shall
not be liable for and Tenant shall not be entitled to, any abatement or
reduction of rent by reason of Landlord's failure to furnish any of the
foregoing when such failure is caused by an act of God, acts of the public
enemy, fire, floods, epidemics, quarantine restrictions, strikes, labor
disputes, freight embargoes, inability to obtain materials or supplies, or
unusually severe weather conditions.
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS
8.1 MAINTENANCE AND REPAIRS
(a) LANDLORD'S OBLIGATIONS. Landlord shall maintain in
good order, condition and repair the Building, the basic heating, ventilating,
air conditioning and electrical systems, the plumbing mains and all other
portions of the Premises not the obligation of Tenant in the Building. Any
maintenance and repair caused by wrongful acts or omissions of Tenant or
Tenant's employees, invitees and customers shall be paid for by Tenant.
Landlord shall diligently proceed with and complete all repairs for which it is
obligated hereunder and conduct such repairs in a manner which causes the least
interference and disruption of Tenant's business and occupation of the Premises.
(b) TENANT'S OBLIGATIONS
(1) Tenant, at Tenant's sole cost and expense,
except for services furnished by Landlord pursuant to Section 7 hereof, shall
maintain the Premises in good order, condition and repair including the interior
surfaces of the ceilings, walls and floors, all doors, interior windows, and all
plumbing pipes, electrical wiring, switches, fixtures and equipment installed
for the use of the Premises by Tenant.
(2) Upon the expiration or earlier termination of
this Lease, Tenant shall surrender the Premises in the same condition as
received, except for ordinary wear and tear and damage by fire, earthquake, act
of God or the elements, not caused by the wrongful act or omission of Tenant or
Tenants' agents and shall promptly remove or cause to be removed, at Tenant's
expense, from the Premises and the Building any signs, notices and displays
placed by Tenant.
(3) Upon the expiration or earlier termination of
this Lease, Tenant shall repair any damage to the Premises or the Building
caused by Tenant in the removal of any articles of personal property, business
or trade fixtures, machinery, equipment, cabinetwork, furniture, movable
partitions or permanent improvements or additions, including without limitation
thereto, repairing the floor and patching and painting the walls where required
by Landlord to Landlord's reasonable satisfaction, all at Tenant's sole cost and
expense. Tenant shall indemnify Landlord against any loss or liability
resulting from delay by Tenant in so surrendering the Premises, including
without limitation, any claims made by any succeeding tenant founded on such
delay.
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(4) In the event Tenant fails to maintain the
Premises in good order, condition and repair, Landlord shall give Tenant notice
to do such acts as are reasonably required to so maintain the Premises. In the
event Tenant fails to promptly commence such work and diligently prosecute it to
completion, then Landlord shall have the right to do such acts and expend such
funds at the expense of Tenant as are reasonably required to perform such work.
Any amount so expended by Landlord shall be paid by Tenant promptly after demand
with interest at the maximum rate permitted by law from the date of payment by
Landlord such work. Except for Landlord's gross negligence or willful
misconduct, Landlord shall have no liability to Tenant for any damage,
inconvenience or interference with the use of the Premises by Tenant as a result
of performing any such work.
(c) COMPLIANCE WITH LAW. Landlord and Tenant shall each
do all acts required to comply with all applicable laws, ordinances, regulations
and rules of any public authority relating to their respective maintenance
obligations as set forth herein.
(5) Notwithstanding the foregoing, Tenant shall
not be responsible for the performance or cost of repair and maintenance:
(i) necessitated by the acts or omissions of Landlord or its agents, employees
or contractors or the acts of other tenants of the Building or Office Park or
their agents, employees or contractors or any other party not an agent of
Tenant; (ii) of construction defects in the Building or Tenant improvements;
(iii) arising from a failure to construct the Building, common areas, or Tenant
improvements in accordance with all laws, CC&R's and plans approved by Tenant;
(iv) for which Landlord has a right of reimbursement from others; or (v) which
would constitute a capital expense, improvement or replacement.
8.2 ALTERATIONS AND ADDITIONS
(a) Tenant shall make no alterations, additions or
improvements to the Premises or any part thereof without obtaining the prior
written consent of Landlord.
(b) Landlord may impose as a condition to the aforesaid
consent such requirements as Landlord may deem necessary in its sole discretion,
including without limitation thereto, performing the work itself, specifying the
manner in which the work is done, selecting the contractor by whom the work is
to be performed, (provided, however, that such contractor charges reasonable
fees), the times during which it is to be accomplished and the requirement that
upon written request of Landlord prior to the expiration or earlier termination
of the Lease, Tenant will remove any and all permanent improvements or additions
to the Premises installed at Tenant's expense and all movable partitions,
counters, and fixtures.
(c) All alterations, additions or improvements shall, at
the expiration or earlier termination of the Lease, become the property of
Landlord and shall remain upon and be surrendered with the Premises, unless
installed at Tenant's expense.
(d) All articles of personal property and all business
and trade fixtures, machinery and equipment, cabinetwork, furniture and movable
partitions owned by Tenant or installed by Tenant at its expense in the Premises
shall be and remain the property of Tenant and
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may be removed by Tenant at any time during the lease term when Tenant is not
in default hereunder.
9. ENTRY BY LANDLORD
Landlord and Landlord's agents shall at any and all times have
the right to enter the Premises to inspect the same, to supply janitorial
service and any other service to be provided by Landlord to Tenant hereunder,
to submit said Premises to prospective purchasers or tenants, to post notices
of non-responsibility and "for lease" signs, and to alter, improve or repair
the Premises and any portion of the Building without abatement of rent, and
may for that purpose erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed, always
providing the entrance to the Premises shall not be blocked thereby, and
further providing that the business of Tenant shall not be interfered with
unreasonably. For each of the aforesaid purposes, Landlord shall at all
times have and retain a key with which to unlock all of the doors in, upon
and about the Premises, excluding Tenant's vaults and safes, and Landlord and
Landlords' agents shall have the right to use any and all means which
Landlord may deem proper to open said doors in an emergency, in order to
obtain entry to the Premises, and any entry to the Premises obtained by
Landlord or Landlords' agents by any of said means, or otherwise, 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.
Notwithstanding anything to the contrary contained in the Lease,
Landlord: (i) shall not enter the Premises without first giving reasonable prior
notice to Tenant, except in the case of emergency, (ii) shall be accompanied by
an employee of Tenant at all times while in the Premises, (iii) shall comply
with Tenant's security procedures, and (iv) shall not unreasonably interfere
with Tenant's use of the Premises.
10. LIENS
Tenant shall keep the Premises and any building of which the
Premises are a part free from any liens arising out of work performed, materials
furnished, or obligations incurred by Tenant and shall indemnify, hold harmless
and defend Landlord from any liens and encumbrances arising out of any work
performed or materials furnished by or at the direction of Tenant. In the event
that Tenant shall not, within twenty (20) days following the imposition of any
such lien, cause such lien to be released of record by payment or posting of a
proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but no obligation, to cause the same to be
released by such means as it shall deem proper, including payment of the claim
giving rise to such lien. All such sums paid by Landlord and all expenses
incurred by it in connection therewith, including attorneys' fees and costs,
shall be payable to Landlord by Tenant on demand with interest at the rate of
ten percent (10%) per annum. Landlord shall have the right at all times to post
and keep posted on the Premises any notices permitted or required by law, or
which Landlord shall reasonably request for the protection of Landlord and the
Premises, and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give to Landlord at least ten (10)
business days prior written notice of the expected date of commencement of any
work relating to alterations or additions to the Premises.
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11. INDEMNITY
11.1 TENANT'S INDEMNITY. Tenant shall indemnify and hold
Landlord harmless from and defend Landlord against any and all claims of
liability for any injury or damage to any person or property whatsoever
(i) occurring in, on or about the Premises or any part thereof; and
(ii) occurring in, on or about any facilities (including, without prejudice to
the generality of the term "facilities," elevators, stairways, passageways,
hallways and parking areas), the use of which Tenant may have in conjunction
with other tenants of the Building, when such injury or damage is caused in part
or in whole by the act, negligence, fault or omission of any duty with respect
to the same by Tenant, its agents, contractors, employees or invitees. Tenant
shall further indemnify and hold Landlord 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 act or negligence of Tenant, or any of its agents, contractors, employees
and from and against all costs, reasonable attorneys' fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon. In case any action or proceeding be brought against
Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall
defend the same at Tenant's expense by counsel reasonably satisfactory to
Landlord; provided, however, that Tenant shall not be liable for damage or
injury occasioned by the negligence or intentional acts of Landlord and its
designated agents or employees unless covered by insurance Tenant is required to
provide.
11.2 EXEMPTION OF LANDLORD FROM LIABILITY. Except for
Landlord's gross negligence or willful misconduct, Landlord shall not be liable
for injury or damage which may be sustained by the person, goods, wares,
merchandise or property of Tenant, its employees, invitees or customers, or any
other person in or about the Premises caused by or resulting from fire, steam,
electricity, gas, water or rain, which may leak or flow from or into any part of
the Premises, or from the breakage, leakage, obstruction or other defects of the
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures of the same, whether the damage or injury results from conditions
arising upon the Premises or upon other portions of the Building of which the
Premises are a part, or from other sources. Landlord shall not be liable for
any damages arising from any act or neglect of any other tenant of the Building.
11.3 Tenant shall neither release nor indemnify Landlord from:
(i) the willful misconduct or gross negligence of Landlord or its agents,
employees or contractors; or (ii) a breach of Landlord's obligations or
representations under the Lease.
11.4 Landlord shall indemnify Tenant for damages or claims
resulting from the willful misconduct or gross negligence of Landlord or its
employees, agents or subcontractors, or a breach of Landlord's obligations or
representations under the Lease.
12. INSURANCE
12.1 COVERAGE. Tenant shall, at all times during the term of
this Lease, and at its own cost and expense, procure and continue in force
Bodily Injury and Property Damage Liability Insurance with a combined single
limit for bodily injury and property damage of not less than $3,000,000.
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12.2 INSURANCE POLICIES. The aforementioned minimum limit of
policies shall in no event limit the liability of Tenant hereunder. The
aforesaid insurance shall name Landlord as an additional insured. Said
insurance shall be with companies having a rating of not less than A+X in
"Best's Insurance Guide". Tenant shall furnish from the insurance companies or
cause the insurance companies to furnish certificates of coverage. No such
policy shall be cancelable or subject to reduction of coverage or other
modification or cancellation except after thirty (30) days prior written notice
to Landlord by the insurer. All such policies shall be written as primary
policies, not contributing with and not in excess of the coverage which Landlord
may carry. Tenant shall, at least twenty (20) days prior to the expiration of
such policies, furnish Landlord with renewals or binders. Tenant agrees that if
Tenant does not take out and maintain such insurance, Landlord may (but shall
not be required to) procure said insurance on Tenant's behalf and charge Tenant
the premiums together with a reasonable handling charge, payable upon demand.
Tenant shall have the right to provide such insurance coverage pursuant to
blanket policies obtained by Tenant, provided such blanket policies expressly
afford coverage to the Premises and to Tenant as required by this Lease.
12.3 LANDLORD'S OBLIGATION TO INSURE. Landlord shall obtain and
keep in force during the term of this Lease a policy or policies of insurance
(i) of Broad Form General Liability in an amount not less than $1,000,000 per
occurrence of bodily injury and property damage, (ii) covering loss or damage to
the Building and project improvements, but not Tenant's personal property,
fixtures, or equipment, in the amount of the full replacement cost 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, plate glass, HVAC, and such other perils as Landlord deems
reasonably necessary to insure adequately the Building and project of this
nature. All such policies shall be with insurance companies having a rating of
not less than A+X in "Best's Insurance Guide."
13. DAMAGE OR DESTRUCTION
13.1 PARTIAL DAMAGE - INSURED. In the event the Premises or the
Building are damaged by any casualty which is covered under fire and extended
coverage insurance carried by Landlord, then Landlord shall restore such damage,
provided insurance proceeds are available to pay eighty percent (80%) or more of
the cost of restoration and provided such restoration can be completed within
sixty (60) days after the commencement of the work in the opinion of a
registered architect or engineer appointed by Landlord. In such event this
Lease shall continue in full force and effect, except that Tenant shall be
entitled to proportionate reduction of rent while such restoration takes place,
such proportionate reduction to be based upon the extent to which the
restoration efforts interfere with Tenant's business and occupation of the
Premises. In the event such repairs cannot be completed within such sixty (60)
day period, Tenant shall have the right to terminate the Lease by giving
Landlord sixty (60) days' notice from date or damage.
13.2 PARTIAL DAMAGE - UNINSURED. In the event the Premises or
the Building are damaged by a risk not covered by Landlord's insurance or the
proceeds of available insurance are less than eighty percent (80%) of the cost
of restoration, or if the restoration cannot be completed within sixty (60) days
after the commencement of work in the opinion of the registered architect or
engineer appointed by Landlord, then Landlord shall have the option either to:
(i) repair or restore such damage, this Lease continuing in full force and
effect, but the rent to be proportionately abated
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as hereinabove provided; or (ii) give notice to Tenant at any time within
thirty (30) days after such damage terminating this Lease as of a date to be
specified in such notice, which date shall be not less than thirty (30) nor
more than sixty (60) days after giving such notice. Notwithstanding the
foregoing, Tenant shall have the right to terminate the Lease by giving
Landlord sixty (60) days' written notice from the date of damage. In the
event of the giving of any notice hereunder to terminate, this Lease shall
expire and all interest of Tenant in the Premises shall terminate on such
date so specified in such notice and the rent, reduced by any proportionate
reduction based upon the extent, if any, to which said damage interfered with
the use and occupancy of Tenant, shall be paid to the date of such
termination.
13.3 TOTAL DESTRUCTION. In the event the Premises are
totally destroyed or the Premises cannot be restored as required herein under
applicable laws and regulations, or more than 50 percent of the rentable area
of the Building has been damaged, regardless of any damage to the Premises,
notwithstanding the availability of insurance proceeds, this Lease shall be
terminated effective the date of the destruction.
13.4 DAMAGE NEAR END OF THE TERM. Notwithstanding anything to
the contrary contained in this Section 13, Landlord shall not have any
obligation whatsoever to repair, reconstruct or restore the Premises when the
damage resulting from any casualty covered under this Section 13 occurs during
the last twelve (12) months of the term of this Lease or any extension thereof.
13.5 LANDLORD'S OBLIGATIONS. Subject to other provisions of
this Lease, except for Landlord's negligence or willful misconduct, Landlord
shall not be required to repair any injury or damage by fire or other cause, or
to make any restoration or replacement of any panelings, decorations,
partitions, railings, floor coverings, office fixtures or any other improvements
or property installed in the Premises by Tenant or at the direct or indirect
expense of Tenant. Tenant shall be required to restore or replace same in the
event of damage. Except for abatement of rent, if any, Tenant shall have no
claim against Landlord for any damage suffered by reason of any such damage,
destruction, repair or restoration.
14. CONDEMNATION
If all or any part of the Premises shall be taken or
appropriated for public or quasi-public use by right of eminent domain with
or without litigation or transferred by agreement in connection with such
public or quasi-public use, either party hereto shall have the right at its
option, exercisable within thirty (30) days of receipt of notice of such
taking, to terminate this Lease as of the date possession is taken by the
condemning authority, provided, however, that before Tenant may terminate
this Lease by reason of taking or appropriation as provided hereinabove, such
taking or appropriation shall be of such an extent and nature as to
substantially handicap, impede or impair Tenant's use of or business at the
Premises. For the purposes of this Lease, any total taking of the Premises
for a period in excess of forty-five (45) days or any taking of the Building
which affects the Building's public areas (including, without limitation,
lobbies, elevators, or restrooms) for a period of twenty (20) days shall be
deemed to substantially handicap, impede, and impair Tenant's use of and
business at the Premises. Subject to the foregoing, if any part of the
Building other than the Premises shall be so taken or appropriated, Landlord
shall have the right at its option to terminate this Lease. No award for any
partial or entire taking shall be apportioned, and Tenant hereby assigns
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to Landlord any award which may be made in such taking or condemnation,
together with any and all rights of Tenant now or hereafter arising in or to
the same or any part thereof; provided, however, that nothing contained
herein shall be deemed to give Landlord any interest in or to require Tenant
to assign to Landlord any award made to Tenant for the taking of personal
property and fixtures belonging to Tenant and/or for the interruption of or
damage to Tenant's business and/or for Tenant's unamortized cost of leasehold
improvements or other award for the inability of Tenant to retain occupancy
of the Premises. In the event of a partial or temporary taking which does
not result in a termination of this Lease, rent shall be abated in the
proportion which the part of Premises so made unusable bears to the rented
area of the Premises immediately prior to the taking, and Landlord, at
Landlord's cost, shall restore the Premises remaining to an architectural
whole with the base rent reduced in proportion to what the area taken bears
to the Premises prior to the taking. No temporary taking of the Premises
and/or of Tenant's rights therein or under this Lease shall terminate this
Lease or give Tenant any right to any abatement of rent thereunder; any award
made to Tenant by reason of any such temporary taking shall belong entirely
to Tenant and Landlord shall not be entitled to share herein. In the event
Landlord or Tenant shall receive notice of any proposed o pending
condemnation proceeding affecting the Premises or Building, the party
receiving such notice shall promptly notify the other party.
15. ASSIGNMENT AND SUBLETTING
15.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not assign,
transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest
therein, and shall not sublet the Premises or any part thereof, without the
prior written consent of Landlord and any attempt to do so without such consent
being first had and obtained shall be wholly void and shall constitute a breach
of this Lease.
15.2 REASONABLE CONSENT. If Tenant complies with the following
conditions, Landlord shall not unreasonably withhold its consent to the
subletting of the Premises or any portion thereof or the assignment of this
Lease. Tenant shall submit in writing to Landlord (i) the name and legal
composition of the proposed subtenant or assignee; (ii) the nature of the
business proposed to be carried on in the Premises; (iii) the terms and
provisions of the proposed sublease; (iv) such reasonable financial information
as Landlord may request concerning the proposed subtenant or assignee; and
(v) if the rent under the sublease is greater than the rent hereunder that
Tenant agrees that the rent payable pursuant to Paragraph 3 shall be increased
to equal the rent payable under the sublease.
15.3 NO RELEASE OF TENANT. No consent by Landlord to any
assignment or subletting by Tenant shall relieve Tenant of any obligation to be
performed by Tenant under this Lease, whether occurring before or after such
consent, assignment or subletting. The consent by Landlord to any assignment or
subletting shall not relieve Tenant from the obligation to obtain Landlord's
express written consent to any other assignment or subletting. The acceptance
of rent by Landlord from any other person shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any assignment,
subletting or other transfer. Consent to one assignment, subletting or other
transfer shall not be deemed to constitute consent to any subsequent assignment,
subletting or other transfer.
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15.4 ATTORNEYS' FEES. In the event Landlord shall consent to a
sublease or assignment under this Section 15, Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with giving such consent. In
no event shall such fees exceed FIVE HUNDRED AND NO/100 DOLLARS ($500.00).
15.5 TRANSFER OF OWNERSHIP INTEREST. If Tenant is a business
entity, any transfer of 50 percent or more of the ownership interest of the
entity shall be deemed a transfer under Paragraph 15.1.
15.6 Notwithstanding anything contained in Section 15 entitled
"Assignment and Subletting," Tenant may, without Landlord's prior written
consent, sublet the Premises or assign the Lease to: (i) a subsidiary,
affiliate, division or corporation controlled by Tenant; (ii) a successor
corporation related to Tenant by merger, consolidation, non-bankruptcy
reorganization, or government action; or (iii) a purchaser of substantially all
of Tenant's assets so long as such entity in (i), (ii), or (iii) above is of
like or greater credit rating as Tenant.
16. SUBORDINATION
16.1 Landlord represents and warrants, as of the date hereof,
and as of the Commencement Date of the Lease, that it has the right to lease the
Premises and that Landlord's title to the Premises is free and clear of all
third party interests which are or would be in conflict or which would
materially affect the rights granted to Tenant herein.
16.2 SUBORDINATION. Notwithstanding anything to the contrary
contained in the Lease, Tenant's leasehold interest shall not be subordinate to
any future mortgage, deed of trust, or other instrument of security, nor shall
Tenant be required to execute any documents subordinating the Lease, unless the
lender agrees to enter into a recognition agreement which: (i) provides that the
Lease will not be terminated following a foreclosure if Tenant is not in
default, and (ii) recognizes all of Tenant's rights under the Lease. Moreover,
if Landlord sells or otherwise conveys its interest in the Premises, Landlord
shall not be relieved of its obligations under the Lease unless Landlord's
successor-in-interest assumes in writing Landlord's obligations under the Lease.
16.3 SUBORDINATION AGREEMENTS. Subject to Paragraph 16.2 above,
Tenant covenants and agrees to execute and deliver upon demand without charge
therefor, such further instruments evidencing such subordination of this Lease
to such ground or underlying leases and to the lien of any such mortgages or
deeds of trust, as may be reasonably required by Landlord.
16.4 QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
that upon Tenant paying rent and other monetary sums due under the Lease,
performing its covenants and conditions under the Lease, Tenant shall and may
peaceably and quietly have, hold and enjoy the Premises for the term, subject,
however, to the terms of the Lease and of any of the aforesaid ground leases,
mortgages or deeds of trust described above.
16.5 ATTORNMENT. In the event any proceedings are brought for
default under a ground or any underlying lease or in the event of foreclosure or
the exercise of the power of sale under any mortgage or deed of trust made by
the Landlord covering the Premises, Tenant shall attorn
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to the purchaser upon any such foreclosure or sale and recognize such
purchaser as the landlord under this Lease, provided said purchaser expressly
agrees in writing to be bound by the terms of the Lease.
17. DEFAULT; REMEDIES
17.1 DEFAULT. The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant:
(a) Any failure by Tenant to pay the rent or any other
monetary sums required to be paid hereunder (where such failure continues for
five (5) days after written notice by Landlord to Tenant);
(b) The abandonment or vacation of the Premises by
Tenant;
(c) A failure by Tenant to observe and perform any other
provision of this Lease to be observed or performed by Tenant, where such
failure continues for thirty (30) days after written notice thereof by Landlord
to Tenant; provided, however, that if the nature of the default is such that the
same cannot reasonably be cured within said thirty (30) day period, Tenant shall
not be deemed to be in default if Tenant shall within such period commence such
cure and thereafter diligently prosecute the same to completion;
(d) The making by Tenant of any general assignment or
general arrangement for the benefit of creditors; the filing by or against
Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Tenant, the same is dismissed within sixty
(60) days; the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days.
17.2 REMEDIES. In the event of any such material default or
breach by Tenant, Landlord may, at any time thereafter without limiting Landlord
in the exercise of any right or remedy at law or in equity which Landlord may
have by reason of such default or breach:
(a) Maintain this Lease in full force and effect and
recover the rent and other monetary charges as they become due, without
terminating Tenant's right to possession irrespective of whether Tenant shall
have abandoned the Premises. In the event Landlord elects not to terminate the
Lease, Landlord shall have the right to attempt to re-let the Premises at such
rent and upon such conditions and for such a term, and to do all acts necessary
to maintain or preserve the Premises as Landlord deems reasonable and necessary
without being deemed to have elected to terminate the Lease, including removal
of all persons and property from the Premises; such property may be removed and
stored in a public warehouse or elsewhere at the cost of and for the account of
Tenant. In the event any such re-letting occurs, this Lease shall terminate
automatically upon the new tenant taking possession of the Premises.
Notwithstanding that Landlord fails to elect to
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terminate the Lease initially, and provided that Tenant has not cured such
default, Landlord at any time during the term of this Lease may elect to
terminate this Lease by virtue of such previous default of Tenant.
(b) Terminate Tenant's right to possession by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including without limitation thereto,
the following:
(1) The worth at the time of award of any
unpaid rent which had been earned at the time of such termination; plus
(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 is proved
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 is proved could be
reasonably avoided; plus
(4) The portion of any leasing commission paid
by Landlord applicable to the unexpired portion of the term.
(5) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform his obligations under this Lease or which in the ordinary course of
events would be likely to result therefrom; plus
(6) 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 state law. Upon any such re-entry Landlord shall
have the right to make any reasonable repairs, alterations or modifications to
the Premises, which Landlord in its sole discretion deems reasonable and
necessary. As used in (1) and (2) above, the "worth at the time of award" is
computed by allowing interest at the rate of ten percent (10%) per annum from
the date of default. As used in (3) the "worth of at the time of award" is
computed by discounting such amount at the discount rate of the U.S. Federal
Reserve Bank at the time of award plus one percent (1%). The term "rent" as
used in this Paragraph 17, shall be deemed to be and to mean the rent to be
paid pursuant to Paragraph 3 and all other monetary sums required to be paid
by Tenant pursuant to the terms of this Lease.
17.3 LATE CHARGES. Tenant hereby acknowledges that late
payment by Tenant to Landlord of rent and other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are
not limited to, processing and accounting charges, and late charges which may
be imposed on Landlord by the terms of any mortgage or deed of trust covering
the Premises. Accordingly, if any installment of rent or any other sum due
from Tenant shall not be received by Landlord or Landlord's designee within
ten (10) days after such amount shall be due, Tenant shall pay to Landlord a
late charge equal to ten percent (10%) of such overdue amount. The parties
hereby agree that such late
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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.
17.4 DEFAULT BY LANDLORD. Landlord shall not be in default
unless Landlord fails to perform obligations required of Landlord and has not
cured such default within thirty (30) days after written notice by Tenant to
Landlord 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
Tenant in writing, specifying wherein Landlord has failed to perform such
obligations; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance, then
Landlord shall not be in default if Landlord commences performance within such
thirty (30) day period and thereafter diligently prosecutes the same to
completion.
18. PARKING
Tenant and Tenant's employees, invitees and customers shall have
the right to use the parking areas of the Building free of charge during the
initial term of this Lease subject to such regulations as Landlord shall
reasonably adopt from time to time, and subject to the right of Landlord to
restrict the use by Tenant and Tenant's employees, invitees and customers when
in the reasonable judgment of Landlord such use is excessive for the parking
area in relationship to the reasonable use required by other Tenants.
19. RELOCATION OF PREMISES
19.1 CONDITIONS. For the purpose of maintaining an economical
and proper distribution of Tenants throughout Bishop Ranch acceptable to
Landlord, Landlord shall have the right no more than one time during the term
of this Lease to relocate the Premises within Bishop Ranch on the following
terms and conditions:
(a) The rented and usable areas of the new location
are of equal and contiguous size to the existing location and is in Bishop
Ranch 8 or 15 (subject to a variation of up to ten percent (10%) provided the
amount of rent payable under this Lease is not increased and such variation
applies only to a larger size);
(b) If the then prevailing rental rate for the new
location is less than the amount being paid for the Premises the rent on such
new premises shall be reduced to equal the then prevailing rent for the new
location;
(c) Landlord shall pay the cost of providing tenant
improvements including all electrical improvements in the new location
comparable in quality and quantity to the tenant improvements in the Premises
and the new premises shall be substantially complete (the standard for such
shall be as set forth in Paragraph 2.2 above) and ready for Tenant's occupancy
prior to Tenant's move.
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(d) Landlord shall pay the expenses reasonably
incurred by Tenant in connection with such substitution of Premises, including
but not limited to costs of moving, door lettering, telephone relocation and
reasonable quantities of new stationery;
19.2 NOTICE. Landlord shall deliver to Tenant written notice
of Landlord's election to relocate the Premises, specifying the new location
and the amount of rent payable therefore at least sixty (60) days prior to the
date the relocation is to be effective. If the relocation of the Premises is
not acceptable to Tenant, Tenant for a period of ten (10) days after receipt
of Landlord's notice to relocate shall have the right (by delivering written
notice to Landlord) to terminate this Lease effective thirty (30) days after
delivery of written notice to Landlord.
20. MISCELLANEOUS
20.1 ESTOPPEL CERTIFICATE
(a) Either party without any charge therefor shall at
any time within ten (10) days after prior written notice from the other
execute, acknowledge and deliver to the requesting party a statement in
writing:
(1) 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
(2) Acknowledging that there are not, to the
best of such party's knowledge, any uncured defaults on the part of the
requesting party hereunder, 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.
(b) A party's failure to deliver such statement within
such time shall be conclusive upon such party:
(1) That this Lease is in full force and
effect, without modification except as may be represented by the requesting
party;
(2) That there are no uncured defaults in the
requesting party's performance; and
(3) That not more than one month's rent has
been paid in advance.
(c) If Landlord desires to finance or refinance the
Building, or any part thereof, Tenant hereby agrees to deliver to any lender
designated by Landlord Tenant's most recent 10K and Annual Report.
20.2 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale
or conveyance by Landlord of Landlord's interest in the Premises or the
Building other than a transfer for security purposes only, Landlord shall be
relieved of, after the date specified in any such notice of transfer,
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all obligations and liabilities accruing thereafter on the part of Landlord,
provided that any funds in the hands of Landlord at the time of transfer in
which Tenant has an interest, shall be delivered to the successor of Landlord.
This Lease shall not be affected by any such sale and Tenant agrees to attorn
to the purchaser or assignee provided all Landlord's obligations hereunder are
assumed in writing by the transferee.
20.3 CAPTIONS; ATTACHMENTS; DEFINED TERMS
(a) The captions of the paragraphs of this Lease are
for convenience only and shall not be deemed to be relevant in resolving any
question of interpretation or construction of any paragraph of this Lease.
(b) Exhibits attached hereto, and addenda and
schedules initialed by the parties, are deemed by attachment to constitute
part of this Lease and are incorporated herein.
(c) The words "Landlord" and "Tenant" as used herein,
shall include the plural as well as the singular. Words used in neuter gender
include the masculine and feminine and words in the masculine or feminine
gender include the neuter. If there be more than one Landlord or Tenant, the
obligations hereunder imposed upon Landlord or Tenant shall be joint and
several; as to a Tenant which consists of husband and wife, the obligations
shall extend individually to their sole and separate property as well as
community property. The term "Landlord" shall mean only the owner or owners
at the time in question of the fee title or a Tenant's interest in a ground
lease of the land underlying the Building. The obligations contained in this
Lease to be performed by Landlord shall be binding on Landlord's successors
and assigns only during their respective periods of ownership.
20.4 ENTIRE AGREEMENT. This Lease along with any exhibits and
attachments hereto constitutes the entire agreement between Landlord and
Tenant relative to the Premises and this Lease and the exhibits and
attachments may be altered, amended or revoked only by instrument in writing
signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all
prior or contemporaneous oral agreements between and among themselves and
their agents or representatives relative to the leasing of the Premises are
merged in or revoked by this Lease.
20.5 SEVERABILITY. If any term or provision of this Lease
shall, to any extent, be determined by a court of competent jurisdiction to be
invalid or unenforceable, the remainder of this Lease shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforceable to the fullest extent permitted by law.
20.6 COSTS OF SUIT
(a) If Tenant or Landlord shall bring any action for
any relief against the other, declaratory or otherwise, arising out of 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 a reasonable
sum for attorneys' fees which shall be deemed to have accrued on the
commencement of such action and shall be paid within thirty (30) days after
the conclusion of such action (the finality of which is not legally contested).
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(b) Should either party, without fault be made a party
to any litigation instituted by the other or by any third party, 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 or any such
other person or otherwise arising out of or resulting from any act or
transaction of the other party or of any such other person, the other
covenants to save and hold harmless the indemnified party from any judgment
rendered against such party or the Premises or Building as the case may be, or
any part thereof, and all costs and expenses, including reasonable attorneys'
fees, incurred by the indemnified party in or in connection with such
litigation.
20.7 TIME; JOINT AND SEVERAL LIABILITY. Time is of the
essence of this Lease and each and every provision hereof. All the terms,
covenants and conditions contained in this Lease to be performed by either
party, if such party shall consist of more than one person or organization,
shall be deemed to be joint and several, and all rights and remedies of the
parties shall be cumulative and nonexclusive of any other remedy at law or in
equity.
20.8 BINDING EFFECT; CHOICE OF LAW. The parties hereto agree
that all provisions hereof are to be construed as both covenants and
conditions as though the words imparting such covenants and conditions in each
separate paragraph hereof. Subject to any provisions hereof restricting
assignment or subletting by Tenant and subject to Paragraph 19.2, all of the
provisions hereof shall bind and inure to the benefit of the parties hereto
and their respective heirs, legal representatives, successors and assigns.
This Lease shall be governed by the laws of the State of California.
20.9 WAIVER. No covenant, term or condition or the breach
thereof shall be deemed waived, except by written consent of the party against
whom the waiver is claimed, and any waiver or breach of any covenant, term or
condition shall not be deemed to be a waiver of any preceding or succeeding
breach of the same or any other covenant, term or condition. Acceptance by
Landlord of any performance by Tenant after the time the same shall have
become due shall not constitute a waiver by Landlord of any preceding breach
or default of any other covenant, term or condition unless otherwise expressly
agreed to by Landlord in writing.
20.10 SURRENDER OF PREMISES. 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 may, at the option of Landlord, operate as an
assignment to Landlord of any or all such subleases or subtenancies.
20.11 HOLDING OVER. If Tenant remains in possession of all or
any part of the Premises after the expiration of the term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only and not a renewal hereof or any extension for any further
term, and in such case, rent and other monetary sums due hereunder shall be
payable in the amount and at the time applicable at the time of expiration and
at the time specified in this Lease and such month-to-month tenancy shall
arise at one hundred twenty-five percent (125%) of the then annual rent and be
subject to every other term, covenant and agreement contained herein.
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20.12 SIGNS
(a) Tenant will comply with Landlord's regulations and
Tenant shall not place or permit to be placed in or upon the Premises where
visible from outside the Premises or any part of the Building, any signs,
notices, drapes, shutters, blinds or displays of any type without the prior
consent of Landlord. Landlord shall include Tenant in the Building
directories located in the Building.
(b) Landlord reserves the right in Landlord's sole
discretion to place and locate on the roof, exterior of the Building, and in
any area of the Building not leased to Tenant such signs, notices, displays
and similar items as Landlord deems appropriate in the proper operation of the
Building.
20.13 REASONABLE CONSENT. Except as limited elsewhere in this
Lease, wherever this Lease Landlord or Tenant is required to give its consent
or approval to any action on the part of the other, such consent or approval
shall not be unreasonably withheld or delayed. In the event of failure to
give any such consent, the other party shall be entitled to specific
performance at law and shall have such other remedies as are reserved to it
under this Lease, but in no event shall Landlord or Tenant be responsible in
monetary damages for failure to give consent unless said consent is withheld
maliciously or in bad faith.
20.14 INTEREST ON PAST DUE OBLIGATIONS. Except as expressly
provided, any amount due to a party hereunder not paid when due shall bear
interest at ten percent (10%) per annum from the due date. Payment of such
interest shall not alone excuse or cure any default by Tenant under this Lease.
20.15 RULES AND REGULATIONS. Tenant and Tenant's agents,
servants, employees, visitors and licensees shall observe and comply fully and
faithfully with all reasonable and nondiscriminatory rules and regulations
adopted by Landlord for the care, protection, cleanliness and operation of the
Building and its tenants including those annexed to this Lease as Exhibit D
and any modification or addition thereto adopted by Landlord, provided
Landlord shall give written notice thereof to Tenant. 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. Notwithstanding
anything to the contrary contained in the Lease, (i) Tenant shall not be
required to comply with any new rules or regulations unless the rule applies
to all other tenants in the Building or project, and does not unreasonably
interfere with Tenant's use of the Premises and (ii) Tenant shall be permitted
to keep food at the Premises and, to prepare such food, may move into and use
at the Premises, a microwave oven and refrigerator.
20.16 NOTICES. All rent and any other amounts payable by
Tenant to Landlord shall be paid at the address of Landlord as established
pursuant to this paragraph. All notices or demands of any kind required or
desired to be given by Landlord or Tenant hereunder shall be in writing and
shall be personally delivered or sent in the United States mail, certified or
registered, postage prepaid, addressed to the Landlord or Tenant respectively
at the addresses set forth below,
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Landlord: Tenant:
ALEXANDER PROPERTIES COMPANY SILICON GRAPHICS, INC.
One Annabel Lane, Suite 201 Attention: Legal Services
P.O. Box 640 2011 N. Shoreline Blvd.
San Ramon, CA 94583 Mountain View, CA 94039-7311
or such other address as shall be established by notice to the other pursuant
to this paragraph. In the case of any notice sent by mail, it shall be deemed
delivered on the earlier of the third business day following deposit thereof
with the United States Postal Service or the delivery date shown on the return
receipt prepared in connection therewith. Refusal to accept delivery shall be
deemed acceptance of such notice.
20.17 CORPORATE AUTHORITY. If Tenant is a corporation, each
individual executing this Lease on behalf of said corporation represents and
warrants that he is duly authorized to execute and deliver this Lease on
behalf of said corporation.
20.18 VACATION OF PREMISES. Tenant shall be responsible for
removal of all telephone cables and wires, CRT, data and telephone equipment,
and any other form of cabling that exists in Tenant's space ten (10) days
after Tenant has vacated Premises. Should Tenant not remove the above
mentioned wires, Landlord shall do so and charge Tenant for those costs, or
deduct those costs from any deposits held by Landlord.
20.19 WAIVER OF SUBROGATION. Landlord and Tenant hereby
release each other from, and waive their right of recovery against the other
with respect to, loss or damage arising out of or incident to any peril of the
type to be covered by the insurance required to be carried by the Lease, or
Tenant or their agents, employees, contractors, or invitees, or any other
cause. Landlord and Tenant shall obtain insurance policies which waive the
insurance carriers' right of subrogation for such perils.
20.20 RIGHT TO TERMINATE. Tenant shall be granted a one time
right to terminate this Lease. Said right to terminate may be exercised by
Tenant at the commencement of the 37th month of this Lease term by providing
Landlord with at least nine (9) months' prior written notice and a cash
payment of ONE HUNDRED TEN THOUSAND AND NO/100 DOLLARS ($110,000.00).
20.21 RELOCATION ALLOWANCE. Upon occupancy of the Premises as
evidenced by the execution of Exhibit G, Landlord shall pay Tenant the cash
sum of TWENTY THOUSAND AND NO/100 DOLLARS ($20,000.00) as a relocation
allowance.
20.22 HAZARDOUS MATERIALS. Tenant shall not, without
Landlord's prior written consent, which consent may be granted, denied, or
conditioned upon Tenant's compliance with all requirements imposed by Landlord
(including the posting of a surety bond in the amount of the estimated closure
costs) in Landlord's sole discretion, install in, handle, generate, store,
treat, use or dispose of in, on or about the Project ("Handle," "Handled" or
"Handling") any (i) asbestos containing materials, (ii) electrical
transformers, fluorescent light fixtures with ballasts or other equipment
containing PCB's, or (iii) toxic or hazardous materials or any other substance
which
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constitutes or is regulated as a hazardous, extremely hazardous, toxic,
extremely toxic or similarly dangerous material (collectively "Hazardous
Materials") under the Comprehensive Environmental Response Compensation and
Liability Act, the Clean Water Act, the Resource Conservation and Recovery
Act, the California Hazardous Waste Control Act, the Carpenter-Presley-Tanner
Hazardous Substance Account Act, or any other law, rule, ordinance or
regulation, as amended from time to time (collectively "Hazardous Substance
Law". Notwithstanding the foregoing, normal quantities of those Hazardous
Materials, if any, customarily used in the conduct of general office
activities ("Common Office Chemicals") (for example, copier fluids and
cleaning supplies) may be Handled without Landlord's prior written consent.
All Hazardous Materials, including, without limitation, Common Office
Chemicals, which are Handled by Tenant or Tenant's Agents shall be Handled in
compliance with the provisions of this Lease, in accordance with all
applicable laws, rules, ordinances and regulations and in a manner which will
prevent any personal injury, property damage, environmental impairment or
other damage, loss or statutory or common law liability resulting therefrom,
whether or not such Handling is in violation of any law, rule, ordinance or
regulation. Tenant's obligations under the immediately preceding sentence
shall include the obligation to remove all Hazardous Materials Handled by
Tenant from the Project at the expiration or earlier termination of the Lease,
to clean up the Project and all equipment, fixtures, or other property not
removed by Tenant pursuant to this Lease from those Hazardous Materials
Handled by Tenant, including performing all removal and remediation work
necessary to return the Project to the condition existing prior to any such
Handling of Hazardous Materials by Tenant ("Clean-up"), to comply with all
laws in connection with such Clean-up, including any closure requirements,
filing any reports or plans required by any law or governmental authority, and
performing or causing to be performed all post-closure monitoring, inspection,
testing and other acts necessary to ensure all laws, rules, ordinances and
regulations have been complied with and Clean-up has been completed with
respect to those Hazardous Materials Handled by Tenant. Tenant shall deliver
to Landlord prior to delivery to any governmental agency, or promptly after
receipt from any such agency, copies of all permits, manifests, closure plans,
proposed closure plans, remedial action plans, and other notices,
communications, plans, documents or instruments relating to the presence of
Handling of Hazardous Materials on the Project. If any Holder or governmental
agency shall ever require testing to ascertain whether or not there has been
any release by Tenant of Hazardous Materials, then the reasonable costs
thereof shall be reimbursed by Tenant to Landlord upon demand as additional
Rent if such requirement applies to the Premises and such tests prove that
Tenant has caused such release. In addition, Tenant shall execute affidavits,
representations and the like from time to time at Landlord's request
concerning Tenant's best knowledge and belief regarding Tenant's release of
Hazardous Materials on the Premises. In all events, Tenant shall indemnify
Landlord and protect, defend and hold Landlord harmless from and against all
claims, demands, liabilities, actions, fines, governmental orders, damages,
losses, including but not limited to consultants' fees and attorneys' fees, in
any way related to the Handling of Hazardous Materials by Tenant on the
Premises. LANDLORD'S REPRESENTATION AND WARRANTY. Landlord represents and
warrants that as of the date hereof, and as of the Commencement Date of the
Lease, (i) the Premises, Building and land upon and the project in which the
Premises and Building are located (the "Land") are not in violation of any
Hazardous Substance Law; (ii) with the exception of Common Office Chemicals,
there are no Hazardous Materials on, under, or about the Premises, Building,
or Land; (iii) there is no litigation or governmental action pending,
proposed, threatened or anticipated with respect to Hazardous Materials in
connection with the Premises,
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Building, or Land; and (iv) Landlord's other tenants and Landlord are not in
violation of any Hazardous Substance Law and none of the above have been
served with a notice from any governmental body or other entity claiming any
violation of or requiring or calling attention to the need for, any work,
repairs, construction or alterations in order to comply with any Hazardous
Substance Law. Landlord shall indemnify Tenant and protect, defend and hold
Tenant harmless from and against all claims, demands, liabilities, actions,
fines, governmental orders, damages, losses, including but not limited to
consultants' fees and attorneys' fees, asserted against Tenant arising from
any past, present, or future presence of any Hazardous Materials, on, in,
under or affecting all or any portion of the Premises, Building or Land which
has not been released by Tenant and any breach by Landlord or Landlord's
representations and warranty herein with respect to Hazardous Materials.
Landlord and Tenant have executed this Lease on the date and year set
forth at the beginning of this Lease.
Landlord: Tenant:
ALEXANDER PROPERTIES COMPANY, SILICON GRAPHICS, INC.
a California partnership a Delaware corporation
By: By:
--------------------------- ------------------------------------
Agent
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EXHIBIT B FOR BISHOP RANCH 8
Listed below are the Standard Material Specifications for tenant improvements
at Bishop Ranch 8 along with the definition of the building shell. It is
hereby agreed that Landlord shall provide, obtain and install all materials
and permits required to build out SILICON GRAPHICS, INC.'S space as drawn on
the attached space plan dated 3/4/91 and approved by Tenant under the
Standard Material Specifications in this Exhibit B. Should the attached
space plan be modified in any manner, Tenant agrees to pay for in advance any
modifications as they affect the cost of Tenant's build out.
DEFINITION OF BUILDING SHELL
* All core areas, elevator lobbies and restrooms
complete.
* Main HVAC loop in place ready to receive mixing boxes
for zoning.
* Main fire sprinkler risers and grid in place ready for
drop down.
* All perimeter walls sheetrocked and ready for paint.
* Upper floors covered with 3 1/2 inch concrete.
* Electrical service to closets on floor.
* Telephone service/conduit to closets on floor.
STANDARD TENANT IMPROVEMENTS - MATERIAL SPECIFICATIONS
ELECTRICAL * Day Bright 244 light fixtures with energy conserving
ballasts and lamps; per Title 24 requirements.
* Double switching in individual offices.
* One duplex 110 receptacle at each work station.
* One telephone duct at each work station.
HVAC * One zone per 800 square feet.
* Individual pneumatic thermostats per 800 sq. ft.
FIRE * One 160 degree rated, Star SSP-1 concealed sprinkler
SPRINKLERS head per 144 square feet.
<PAGE>
PARTITIONS * Sheetrock walls (5/8 inch) on 21/2 inch steel stands
AND DOORS with smooth finish.
* Solid core Heritage Oak doors (36" x 96").
* Aluminum door jambs.
* Schlage door latches or equal.
PAINT * Kelly Moore: Bone White.
FIRE RATED * Conwed: Aurora Reveal Tile, 3/4 inch on steel grid
CEILING GRID
AND BOARD
CARPET, TILE * Carpet: Design Weave - Westbridge II.
AND BASE
* Armstrong Imperial Modern Excelon Tile.
* 32 oz. nylon composition pad.
* 4 inch rubber top set base or equal.
WINDOW * Mini Blinds: Color - Alabaster.
COVERING
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EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall
be inscribed, displayed or printed or affixed on or to any part of the outside
or inside of the Building or the Premises without the written consent of
Landlord first had and obtained 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 Tenant by a person approved by
Landlord.
Tenant shall not place anything or allow anything to be placed
near the glass of any window, door, partition or wall which may appear
unsightly from outside the Premises; provided, however that Tenant may request
Landlord to furnish and install a building standard window covering at all
exterior windows at Tenant's cost.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the Tenants or used by them for
any purpose other than for ingress to an egress from their respective
Premises. The halls, passages, exits, entrances, elevators, stairways,
balconies and roof are not for the use of the general public and the Landlord
shall in all cases retain the right to control and prevent access thereto by
all persons whose presence in the judgment of the Landlord shall 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 the Tenants normally deals in the
ordinary course of Tenant's business unless such persons are engaged in
illegal activities. No Tenant and no employees or invitees of any Tenant
shall go upon the roof of the Building.
3. Tenant shall not alter any lock or install any new or additional
locks or any bolts on any door of the Premises without the written consent of
Landlord.
4. 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 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.
5. Tenant shall not overload the floor of the Premises or mark,
drive nails, screw or drill into the partitions, woodwork or plaster or in any
way deface the Premises or any part thereof. No boring, cutting or stringing
of wires or laying of linoleum or other similar floor coverings shall be
permitted except with the prior written consent of the Landlord and as the
Landlord may direct.
6. No furniture, freight or equipment of any kind shall be brought
into the Building without the consent of Landlord and all moving of the same
into or out of the Building shall be done
<PAGE>
at such time and in such manner as Landlord shall designate. Landlord shall
have the right to prescribe the weight, size and position of all safes and
other heavy equipment brought into the Building and also the times and manner
of moving the same in and out of the Building. Safes or other heavy objects
shall, if considered necessary by Landlord, stand on wood strips of such
thickness as is necessary to properly distribute the weight. Landlord will
not be responsible for loss of or damage to any such safe or property from any
cause and all damage done to the Building by moving or maintaining any such
safe or other property shall be repaired at the expense of Tenant. 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.
7. Tenant shall not employ any person or persons other than the
janitor of Landlord for the purpose of cleaning the Premises unless otherwise
agreed to by Landlord. Except with the written consent of Landlord, no person
or persons other than those approved by Landlord shall be permitted to enter
the Building for the purpose of cleaning the same. Tenant shall not cause any
unnecessary labor by reason of Tenant's carelessness or indifference in the
preservation of good order and cleanliness. Landlord shall in no way be
responsible to any Tenant for any loss of property on the Premises, however
occurring, or for any damage done to the effects of any Tenant by the janitor
or any other employee or any other person. Janitor service shall include
ordinary dusting and cleaning by the janitor assigned to such work and shall
not include cleaning of carpets or rugs, except normal vacuuming, or moving of
furniture and other special services. Janitor service will not be furnished
on nights when rooms are occupied after 9:30 p.m. Window cleaning shall be
done only by Landlord, and only between 6:00 a.m. and 5:00 p.m.
8. Tenant shall not use, keep or permit to be used or kept any food
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 the Landlord
or other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants of those having
business therein, nor shall any animals or birds be brought in or kept in or
about the Premises or the Building. No Tenant 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 or those having business with them
whether by the use of any musical instrument, radio, phonograph, unusual
noise, or in any other way.
9. The Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the use of
the Premises for general office purposes. No Tenant shall occupy or permit
any portion of his Premises to be occupied for the manufacture or sale of
liquor, narcotics, or tobacco in any form. The Premises shall not be used for
lodging or sleeping or for any illegal purposes.
10. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Landlord.
11. Landlord will direct electricians as to where and how telephone
and telegraph wires are to be introduced. No boring or cutting for wires will
be allowed without the consent of Landlord.
-2-
<PAGE>
The location of telephones, call boxes and other office equipment affixed to
the Premises shall be subject to the approval of Landlord.
12. No Tenant shall lay linoleum, tile, carpet or other similar
floor covering so that the same shall be affixed to the floor of the Premises
in any manner except as approved by the Landlord. The expense of repairing
any damage resulting from a violation of this rule or removal of any floor
covering shall be borne by the Tenant by whom, or by whose contractors
employees or invitees, the damage shall have been caused.
13. No furniture, packages, supplies, equipment or merchandise 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.
14. On Sundays, legal holidays and on Saturday commencing at 12:00
noon and on other days between the hours of 7:00 p.m. and 7:00 a.m. the
following day, access to the Building or to the halls, corridors, elevators,
or stairways in the Building, or to the Premises may be refused unless the
person seeking access is known to the person or employee of the Building in
charge and has a pass or is properly identified. The 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 case of invasion, mob, riot,
public excitement, or other commotion, the Landlord reserves the right to
prevent access to the Building during the continuance of the same by closing
the doors or otherwise, for the safety of the Tenants and protection of
property in the Building and the Building. Landlord reserves the right to
close and keep locked all entrance and exit doors of the Building on Sundays,
legal holidays, and on Saturdays commencing at 12:00 noon and on other days
between the hours of 7:00 p.m. and 7:00 a.m. and during such further hours as
Landlord may deem advisable for the adequate protection of said Building and
the property of its Tenants.
15. Tenant shall see that the doors of the Premises are closed and
securely locked before leaving the Building and must observe strict care and
caution that all water faucets or water apparatus are entirely shut off before
Tenant or Tenant's employees leave the Building, and that all electricity
shall likewise be carefully shut off, so as to prevent waste or damage and for
any default or carelessness Tenant shall make good all injuries sustained by
other tenants or occupants of the Building or Tenant.
16. 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 the rules and regulations of the Building.
17. The requirements of Tenant will be attended to only upon
application 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 the Landlord, and no employee will admit any person
(Tenant or otherwise) to any office without specific instructions from the
Landlord.
18. No vending machine or machines of any description shall be
installed, maintained or operated upon the Premises without the written
consent of the Landlord.
-3-
<PAGE>
19. Tenant agrees that it shall comply with all fire and security
regulations that may be issued from time-to-time by Landlord and Tenant also
shall provide Landlord with the name of a designated responsible employee to
represent Tenant in all matters pertaining to such fire or security
regulations.
20. Landlord reserves the right by written notice to Tenant, to
rescind, alter or waive any rule or regulation at any time prescribed for the
Building when, in Landlord's judgment, it is necessary, desirable or proper
for the best interest of the Building and its Tenants.
21. Tenants shall not disturb, solicit, or canvass any occupant of
the Building and shall cooperate to prevent same.
22. Without the written consent of Landlord, Tenant shall not use
the name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
23. Landlord shall furnish heating and air conditioning during the
hours of 7:00 a.m. and 7:00 p.m. Monday through Friday, except for holidays.
In the event Tenant requires heating and air conditioning during off hours,
Saturdays, Sundays or holidays, Landlord shall on notice provide such services
at the rate established by Landlord from time-to-time. Landlord shall have
the right to control and operate the public portions of the Building and the
public facilities, and heating and air conditioning, as well as facilities
furnished for the common use of the Tenants, in such manner as it deems best
for the benefit of the Tenants generally.
24. Notwithstanding anything to the contrary contained in the Lease,
Tenant shall not be required to comply with any new rules or regulations
unless the rule applies to all other tenants in the Building or project, and
does not unreasonably interfere with Tenant's use of the Premises.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant
By:___________________________________ By:________________________________
Date:_________________________________ Date:______________________________
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<PAGE>
EXHIBIT E
JANITORIAL SPECIFICATIONS
The following specific janitorial services will be provided in accordance with
provisions of Paragraph 7.1, Landlord's obligations:
OFFICE AREAS (DAILY)
- - ------------
1. Empty all waste baskets and disposal cans, if liners used, replace as
necessary.
2. Spot dust desks, chairs, file cabinets, counters and furniture.
3. Spot vacuum all carpets and walk-off mats; spot as necessary.
4. Sweep all hard surface floors with treated dust mop.
OFFICE AREAS (WEEKLY)
- - ------------
1. Vacuum carpets completely, including around base boards, etc.
2. Perform low dusting of furniture.
3. Dust window sills and ledges.
OFFICE AREAS (QUARTERLY)
- - ------------
1. Perform all high dusting of doors, sashes, moldings, etc.
2. Dust venetian blinds as needed.
OFFICE AREA CORRIDORS AND LOBBIES (DAILY SERVICE)
- - ---------------------------------
1. Vacuum carpets and dust mop any hard floors.
2. Spot clean carpets of all spillage.
3. Clean all thresholds.
OFFICE AREA CORRIDORS AND LOBBIES (WEEKLY)
- - ---------------------------------
1. Perform all high dusting of doors, sashes, moldings, etc.
2. Vacuum and clean all ceiling vents.
3. Polish any metal railings, placards, etc.
STAIRWAYS (DAILY)
- - ---------
1. Sweep all hard surface steps.
2. Dust banisters.
STAIRWAYS (WEEKLY)
- - ---------
1. Sweep all hard surfaces.
2. Spot mop all spills as needed.
<PAGE>
RESTROOMS COMMON AREA (DAILY SERVICE)
- - ---------------------
1. Empty all waste containers and replace liners as needed.
2. Clean all metal, mirrors, and fixtures.
3. Sinks, toilet bowls and urinals are to be kept free of scale.
4. Clean all lavatory fixtures using disinfectant cleaners.
5. Wash and disinfect underside and tops of toilet seats.
6. Wipe down walls around urinals.
7. Refill soap, towel, and tissue dispensers.
8. Wet mop tile floors with disinfectant solution.
9. Refill sanitary napkin machines as necessary.
RESTROOMS COMMON AREA (WEEKLY)
- - ---------------------
1. Perform high dusting and vacuum vents.
2. Use germicidal solution in urinal traps, lavatory traps, and floor
drains.
RESTROOMS COMMON AREA (MONTHLY)
- - ---------------------
1. Scrub floors with power machine.
2. Wash down all ceramic tile and toilet compartments.
ELEVATORS (DAILY)
- - ---------
1. Vacuum floors.
2. Clean thresholds.
3. Spot walls and polish surfaces.
GENERAL
- - -------
All glass entry doors to offices, corridors, or lunch rooms are to be cleaned
as necessary.
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<PAGE>
EXHIBIT F
DOOR SIGN, DIRECTORY STRIP AND MAIL BOX REQUEST
1. I, the undersigned, hereby authorize Landlord to order one door sign.
The business name on it shall be:
Wood ( ) or glass ( ) door
_______________________________________________________________________________
2. The directory strip shall read:
_______________________________________________________________________________
3. The mail box strip shall read:
_______________________________________________________________________________
_______________________________________ ______________________________________
Signature Date
Street Address: 3000 Executive Parkway
---------------------------
Suite Number: 410
---------------------------
Complex: Bishop Ranch 8, Building Q
---------------------------
<PAGE>
[LETTERHEAD]
EXHIBIT G
COMMENCEMENT OF LEASE
It is hereby agreed to that as of ________________, the Premises located at
3000 Executive Parkway, Suite 410, described in the Lease Agreement dated
_______________ by and between ALEXANDER PROPERTIES COMPANY as Landlord and
Silicon Graphics, Inc. as Tenant, were occupied by Tenant and that said Lease
is in full force and effect.
ACKNOWLEDGED AND ACCEPTED:
LANDLORD: TENANT:
By:____________________________________ By:________________________________
Date:__________________________________ Date:______________________________
<PAGE>
EXHIBIT B FOR BISHOP RANCH 8
Listed below are the Standard Material Specifications for tenant improvements
at Bishop Ranch 8 along with the definition of the building shell. It is
hereby agreed that Landlord shall provide, obtain and install all materials
and permits required to build out SILICON GRAPHICS, INC.'S space as drawn on
the attached space plan dated 3/4/91 and approved by Tenant under the Standard
Material Specifications in this Exhibit B. Should the attached space plan be
modified in any manner, Tenant agrees to pay for in advance any modifications
as they affect the cost of Tenant's build out.
DEFINITION OF BUILDING SHELL
* All core areas, elevator lobbies and restrooms
complete.
* Main HVAC loop in place ready to receive
mixing boxes for zoning.
* Main fire sprinkler risers and grid in place
ready for drop down.
* All perimeter walls sheetrocked and ready for
paint.
* Upper floors covered with 3 1/2 inch concrete.
* Electrical service to closets on floor.
* Telephone service/conduit to closets on floor.
STANDARD TENANT IMPROVEMENTS - MATERIAL SPECIFICATIONS
ELECTRICAL * Day Bright 244 light fixtures with energy conserving
ballasts and lamps; per Title 24 requirements.
* Double switching in individual offices.
* One duplex 110 receptacle at each work
station.
* One telephone duct at each work station.
HVAC * One zone per 800 square feet.
* Individual pneumatic thermostats per 800 sq.
ft.
FIRE * One 160 degree rated, Star SSP-1 concealed
SPRINKLERS sprinkler head per 144 square feet.
<PAGE>
PARTITIONS * Sheetrock walls (5/8 inch) on 21/2 inch steel
stands with smooth finish.
AND DOORS
* Solid core Heritage Oak doors (36" x 96").
* Aluminum door jambs.
* Schlage door latches or equal.
PAINT * Kelly Moore: Bone White.
FIRE RATED * Conwed: Aurora Reveal Tile, 3/4 inch on steel grid
CEILING GRID
AND BOARD
CARPET, TILE AND BASE * Carpet: Design Weave - Westbridge II.
* Armstrong Imperial Modern Excelon Tile.
* 32 oz. nylon composition pad.
* 4 inch rubber top set base or equal.
WINDOW COVERING * Mini Blinds: Color - Alabaster.
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<PAGE>
SUBLEASE
THIS AGREEMENT OF SUBLEASE made as of the 9TH day of December ,
1999 by and between LANIER WORLDWIDE, INC. (hereinafter referred to as day of
or Sublessor) and ZAP ME! CORPORATION (hereinafter referred to as Sublessee)
WITNESSETH
WHEREAS, Sublessor is the Lessee of the Premises as hereinafter
described under that certain agreement of Lease dated AUGUST 31, 1992, as
amended by and between ALEXANDER PROPERTIES COMPANY as Landlord (hereinafter
referred to as the "Master Lessor") LANIER WORLDWIDE, INC. as Tenant (which
Lease as amended is hereinafter referred to as the "Master Lease") which
Lease concerns 5,822 rentable square feet of space in a Building known as
BISHOP RANCH 8, 3000 EXECUTIVE PARKWAY, SUITE 240, San Ramon, California
94583 ("Premises"); and,
WHEREAS, Sublessee desires to sublease the Premises from Sublessor,
and Sublessor desires to sublease the Premises to Sublessee.
NOW THEREFORE, in consideration of the rents and covenants hereinafter
set forth to be paid and performed by Sublessee, Sublessor does hereby lease and
let unto Sublessee, and the Sublessee does hereby lease and take from Sublessor
upon the terms and conditions hereinafter set forth the following:
5,822 CONTIGUOUS RENTABLE square feet located on the SECOND (2ND)
floor of the Premises as shown on the sketch attached hereto as Exhibit A
hereinafter described as the "Subleased Premises."
1. RELATIONSHIP TO MASTER LEASE. The Sublease and all its terms,
covenants and provisions are and each of them is subordinate to (i) the Master
Lease (a copy of which is attached hereto as Exhibit B and made a part hereof by
reference) under which Sublessor is granted a leasehold interest in the
Subleased Premises; (ii) the rights as contained in the Master Lease of the
owner or owners of the Premises and/or the land and Building of which the
Subleased Premises are a part; (iii) the rights of Master Lessor as contained in
the Master Lease; and (iv) to any and all mortgages or encumbrances now or
hereafter affecting the Subleased Premises to which the Master Lease would be
subordinated. Sublessee expressly agrees that if Sublessor's tenancy or right
to possession of the Premises (including the Subleased Premises) shall terminate
by expiration of the Master Lease or any other cause not due to the fault of
Sublessor, this Sublease shall thereupon immediately cease and terminate and
Sublessee shall give immediate possession to Sublessor.
2. PERFORMANCE OF MASTER LEASE TERMS. With respect to the Subleased
Premises, Sublessee shall receive all benefits which accrue to Sublessor under
the Master Lease. Sublessee hereby covenants and agrees to assume during the
term of this Sublease the obligation for performance of the responsibilities,
covenants, conditions and stipulations of Sublessor contained in the Master
Lease, except for those contained in Section 3 and 5, of the Master Lease, which
are modified in this Sublease. Sublessee hereby agrees to indemnify and hold
harmless Sublessor from and against any loss, claim, damage, expense or injury
including reasonable attorneys' fees) which Sublessor may incur as a result of
Sublessee's failure to perform such obligations on behalf of Sublessor.
Sublessor covenants and agrees that (i) if and so long as the
<PAGE>
Sublessee pays the base rent and additional rent specified in this Sublease
and fully, faithfully and punctually observes the covenants and conditions
hereof, Sublessee shall during the term of this Sublease (and any extensions)
quietly enjoy the Subleased Premises, subject, however, to the earlier
termination of the Master Lease; and (ii) Sublessor shall not do anything
which would cause the Master Lease to be canceled, terminated or forfeited.
3. TERM. The term of this Sublease shall commence on February 1,
2000 ("Commencement Date") and expire on OCTOBER 31, 2002. The Commencement
Date shall be a firm date.
4. RENT AND SECURITY DEPOSIT. During the term of this Sublease,
Sublessee covenants to pay monthly base rent ("Base Rent") for the Subleased
Premises at the rate of $1.95 per rentable square foot, payable in monthly
payments of ELEVEN THOUSAND THREE HUNDRED FIFTY-TWO AND 90/100 DOLLARS
($11,352.90). In addition, Sublessee shall deposit with Sublessor a security
deposit of ELEVEN THOUSAND THREE HUNDRED FIFTY-TWO AND 90/100 DOLLARS
($11,352,90), which shall be refunded at the end of the Sublease term less any
sums owed to Sublessor.
4.(A) OPERATING EXPENSE STOP. Sublessor shall be solely
responsible to pay Master Lessor all Building Operating Costs as defined by and
provided in the Master Lease incurred by Master Lessor for the calendar year
2000 ("Sublessee's Base Year"). In the event the Building Operating Costs
incurred by Master Lessor during any calendar year following Sublessee's Base
Year shall exceed those incurred during Sublessee's Base Year, Sublessee shall
pay as additional rent the amount of such excess, as provided by Section 5 of
the Master Lease."
Concurrently with Sublessee's execution of this Sublease, Sublessee
shall pay to Sublessor the sum of ELEVEN THOUSAND THREE HUNDRED FIFTY-TWO AND
90/100 DOLLARS ($11,352.90) as rent for the 1ST month of this Sublease and the
additional sum of $Eleven Thousand Three Hundred Fifty-Two and 90/100 Dollars
($11,352.90) as the non interest bearing security deposit for performance under
this Lease.
Base Rent is due and payable on the first day of each month in advance
to Sublessor at LANIER WORLDWIDE, INC., 2300 PARKLANE DRIVE, N.E., ATLANTA,
GEORGIA 30345, ATTN: REAL ESTATE DEPARTMENT. If the Commencement Date is a date
other than the first of the month, Base Rent shall be prorated.
5. USE. Sublessee shall use the Subleased Premises for general
office purposes.
6. WORK OF IMPROVEMENT. The Subleased Premises shall be turned over
in "as is" "broom swept" condition. Sublessor shall assign to Sublessee
Sublessor's unused Tenant Improvement Allowance of THIRTY-SIX THOUSAND SEVEN
HUNDRED FIFTEEN AND NO/100 DOLLARS ($36,715.00). Sublessee shall work with
Sunset Development and Interform to plan and construct tenant improvements.
7. INSURANCE AND INDEMNIFICATION. At all times during the term of
this Sublease, Sublessee shall keep in effect (i) a policy of Comprehensive
General Liability insurance with a reputable company in amounts not less than
$1,000,000 combined single limit and $500,000 property damage or in such greater
amounts deemed reasonably appropriate by Sublessor or Master Lessor with due
regard given to Sublessee's use of the Subleased Premises, which policy shall
name Sublessor and Master Lessor as additional insureds; (ii) a policy of
Worker's Compensation insurance in at least the statutory amounts covering
Sublessee's employees using the Subleased Premises; and (iii) insurance covering
loss to Sublessee's personal property located on the Subleased Premises by fire
or other casualty. All policies of insurance shall be issued by a company
licensed to do business in the State of California and reasonably approved by
Sublessor. Within five (5) days after full execution hereof, Sublessee shall
provide Sublessor and Master Lessor with a certificate evidencing such insurance
coverage.
-2-
<PAGE>
8. SURRENDER. At the expiration or earlier termination of this
Sublease, Sublessee shall surrender the Subleased Premises to Sublessor in broom
clean condition in the same condition as on the Commencement Date, except for
ordinary wear and tear, damage by fire, earthquake, act of God, or the elements,
and not caused by the wrongful act or omission of Sublessee or Sublessee's
agents.
9. ASSIGNMENT AND SUBLETTING. Sublessee may not sublet all or any
portion of the Subleased Premises without the prior written consent of
Sublessor, which consent shall not be unreasonably withheld. No subletting by
the Sublessee shall relieve Sublessee of its liability hereunder.
Notwithstanding anything herein to the contrary the Sublessor may, without
requiring Sublessee's consent, but with notice to the Sublessee, assign this
Sublease to any business entity that controls, is controlled by or is under
common control with or which acquires all or substantially all of the voting
stock or assets of Sublessor.
10. DEFAULT. If Sublessee shall default in the payment of Base Rent
or additional rent hereunder and such default shall continue for fifteen (15)
days after written notice from Sublessor, Sublessor may (i) exercise any of the
rights reserved to the Master Lessor pursuant to the Master Lease.
11. ACCESS. Sublessor shall be permitted access to the Subleased
Premises at all reasonable times upon reasonable advance notice, or at any time
in case of emergency, to inspect the Subleased Premises, subject to Sublessee's
reasonable security requirements. Master Lessor shall be permitted access to
the Subleased Premises.
12. NOTICE. Any notice required or permitted to be sent pursuant to
this Agreement shall be in writing sent certified mail, return receipt
requested, effective upon receipt, postage prepaid to the parties at the
following addresses or to such other addresses as they shall from time to time
indicate by written notice pursuant to this Section:
SUBLESSOR: SUBLESSEE:
Lanier Worldwide, Inc. Zap Me! Corporation
- - ------------------------------- --------------------------------------
2300 Parklane Drive, NE 3000 Executive Parkway, Suite 150
- - ------------------------------- --------------------------------------
Atlanta, GA 30345 San Ramon, CA 94503
- - ------------------------------- --------------------------------------
ATTN: Real Estate Department
- - -------------------------------
13. SUBLESSOR RELEASED FROM LIABILITY IN CERTAIN EVENTS. Except to
the extent caused by the negligent or otherwise wrongful acts or omissions of
Sublessor or Master Lessor, its agents or employees, Sublessor shall not be
responsible, at any time or in any event, for any latent defects, deterioration
or change in the condition of the Subleased Premises except for circumstances
existing prior to the date hereof caused by or attributable to the use of the
Subleased Premises by Sublessor and/or any other party using the Subleased
Premises of which the Sublessor had knowledge prior to the date hereof. Except
to the extent caused by the negligent or otherwise wrongful acts or omissions of
Sublessor, its agents or employees, Sublessor shall also not be responsible for
any damage to Sublessee's property or for injury to persons, whether caused by
riot or civil commotion, fire or earthquake damage, or overflow or leakage upon
or into the Subleased Premises, of water, steam, gas or electricity, or by any
breakage in pipes or plumbing, or breakage, leakage or obstruction of sewer
pipes or other damage occasioned by water being upon or coming through the roof,
skylight, trapdoors, walls, basement or otherwise, nor for failure of the
heating (Steam) plant, nor for loss of property by theft or otherwise, nor for
any damage arising from any act or neglect of any co-tenant or other occupant of
the Premises, or for that of any owner or occupants of adjoining or contiguous
property. Notwithstanding the above, at Sublessee's written request, Sublessor
shall, at Sublessor's expense, take whatever action as is reasonable and
necessary to enforce the rights and benefits accruing to the Sublessee by virtue
of the Master Lease and this Sublease.
-3-
<PAGE>
14. CONSENT OF MASTER LESSOR. This Sublease and any extension of the
term hereof is expressly conditioned on and subject to the prior consent of the
Master Lessor, which consent has been obtained by Sublessor. This Sublease is
presented for examination only and is valid only if signed by both parties.
Unsigned it represents neither a reservation of a sublease or an agreement to
sublease by either party.
15. ALTERATIONS. Sublessee may make no alterations, additions or
improvements to the Subleased Premises without the prior written approval of
Master Lessor, which approval shall not be unreasonably withheld or delayed.
Such alterations or improvements as are approved shall be made at Sublessee's
sole expense, except for the $36,715.00 of unused Tenant Improvement Allowance
assigned to Sublessee by this Sublease, and shall be made by contractractors
approved by the Master Lessor, whose consent shall not be unreasonably withheld
or delayed.
16. CONSENT OF SUBLESSOR. In all provisions requiring the approval
or consent of Sublessor in accordance with the Master Lease, Sublessor shall
promptly forward to Master Lessor such requests as Sublessee may submit for
approval and/or consent from Master Lessor. If Master Lessor shall grant its
approval or consent, Sublessor shall be deemed to have also granted such
approval or consent without any further action on the part of the Sublessor or
Sublessee as long as the matter in question does not expand any liability of the
Sublessor under the Master Lease or provided that Sublessee shall separately
agree in writing to indemnify Sublessor from and against any such additional
liability.
17. ENTIRE AGREEMENT. This Sublease (including the provision of the
Master Lease incorporated herein by reference) contains the entire agreement
between the parties concerning the Subleased Premises and any agreement
hereafter made shall be ineffective to change, modify or discharge this Sublease
in whole or in part unless such agreement is in writing and signed by the
parties hereto.
18. SUBLESSOR'S REPRESENTATIONS AND WARRANTIES. Sublessor represents
and warrants that (i) the Master Lease is in full force and effect and not
modified or amended except as set forth in the copies attached hereto; and (ii)
Sublessor is not in default of any of its obligations under the Master Lease and
has received no notice asserting that it is in default of any of its obligations
under the Master Lease.
19. MISCELLANEOUS -
a. If any term, covenant or condition of this Sublease or the
application thereof to any circumstance or to any person, corporation or other
entity shall be invalid or unenforceable to any extent, the remaining terms,
covenants and conditions of this Sublease shall not be affected thereby and
shall be valid and enforceable to the fullest extent permitted by law.
b. The paragraph headings contained in the Sublease have been
included for convenience only and shall not be used in the construction or
interpretation of the Sublease.
c. This Sublease shall be governed by and construed in
accordance with the laws of the State of California.
20. SUCCESSORS AND ASSIGNS. This Sublease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
21. HAZARDOUS MATERIALS. Sublessee shall not (either with or without
negligence) cause or permit the escape, disposal or release of any biologically
or chemically active or other
-4-
<PAGE>
hazardous substances or materials. Sublessee shall not allow the storage or
use of such substances or materials in any manner not sanctioned by law or by
the highest standards prevailing in the industry for the storage and use of
such substances or materials, nor allow to be brought into the Project any
such materials or substances except to use in the ordinary course of
Sublessee's business, and then only after written notice is given to Landlord
of the identity of such substances or materials. Without limitation,
hazardous substances and materials shall include those described in the
Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601 et seq., any applicable state or local
laws and the regulations adopted under these acts. If any lender or
governmental agency shall ever require testing to ascertain whether or not
there has been any release of hazardous materials, then the reasonable costs
thereof shall be reimbursed by Sublessee to Landlord upon demand as
additional charges if such requirement applies to the Sublessee's use of the
Premises. In addition, Sublessee shall execute affidavits, representations
and the like from time to time at Landlord's request concerning Sublessee's
best knowledge and belief regarding the presence of hazardous substances or
materials on the Premises. In all events, Sublessee shall indemnify Landlord
in the manner elsewhere provided in this Lease from any release of hazardous
materials on the Premises occurring while Sublessee is in possession, or
elsewhere if caused by Sublessee or persons acting under Sublessee. The
within covenants shall survive the expiration or earlier termination of the
lease term.
22. FORCE MAJEURE. Neither party shall be responsible or liable for
delays or failures of performance under this Sublease caused by events or
circumstances beyond a party's control which may not be overcome by due
diligence.
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<PAGE>
IN WITNESS WHEREOF, Sublessor and Sublessee have duly executed this Agreement of
Sublease on the day and year first-above written.
DATED:
SUBLESSOR: LANIER WORLDWIDE INC. SUBLESSEE: ZAP ME! CORPORATION
BY:______________________________ BY:_____________________________
ADDRESS: Lanier Worldwide Inc. ADDRESS: Zap Me! Corporation
2300 Parklane Drive, N.E. 3000 Executive Parkway, Ste. 150
Atlanta, GA 30345 San Ramon, CA 94583
ATTN: Real Estate Department
This Sublease has been prepared for submission to your attorney who will review
the document and assist you to determine whether your legal rights are
adequately protected. TRITON COMMERCIAL REAL ESTATE, INC. AND COLLIERS
INTERNATIONAL or its agents is not authorized to give legal or tax advice; no
representation or recommendation is made by TRITON COMMERCIAL REAL ESTATE, INC.,
and COLLIERS INTERNATIONAL or its agents or employees as to the legal
sufficiency, legal effect or tax consequences of this document or any
transaction relating thereto. These are questions for your attorney, with whom
you should consult before signing this document.
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<PAGE>
EXHIBIT "A"
<PAGE>
[LETTERHEAD]
January 4, 2000
Mr. Richard W. Stowe
Manager, Corporate Real Estate
Lanier Worldwide, Inc.
2300 Parklake Drive, N.E.
Atlanta, Georgia 30345-2979
Re: Landlord's Consent to Sublease
Sublease by and between
Lanier Worldwide, Inc. (Sublessor)
ZapMe! Corporation (Sublessee)
For the Premises located in:
3000 Executive Parkway, Suite 240
San Ramon, CA 94583
Dear Richard:
Pursuant to Section 15 ASSIGNMENT AND SUBLETTING, of that certain Lease dated
August 31, 1992 by and between Alexander Properties Company, a California
partnership, as Landlord, and Lanier Worldwide, Inc., as Tenant, and as amended
by its First Lease Addendum dated July 26, 1993, and Second Lease Addendum dated
August 12, 1997, Landlord hereby consents to the above referenced Sublease with
the express understanding that Subsection 15.3 NO RELEASE OF TENANT, shall
remain in full force and effect, and that the Master Lease is the governing
document.
It is also expressly understood and agreed that the Subtenant, ZapMe!
Corporation, shall have no rights to undertake any alterations, additions, or
work in the subleased premises without the prior written consent of Sublessor
and Landlord, and that all of the stipulations pertaining to services an
utilities, maintenance and repairs, and alterations and additions as defined in
the Master Lease apply to the Subtenant.
Should you have any questions, please feel free to call.
Sincerely,
[signature]
Edward Hagopian
Senior Vice President
EH: dv/b/f
Enclosures
cc: Mike Copeland, Colliers Parrish International
Rolf Jourgensen, Sunset Development Company
Andrea Kirkpatrick, Sunset Development Company
<PAGE>
EXHIBIT "B"
LANIER WORLDWIDE, INC.
BUILDING LEASE - TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
1. Premises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Security Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Tax and Building Operating Cost Increases . . . . . . . . . . . . . . . . 3
6. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7. Service and Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8. Maintenance and Repairs; Alterations and Additions. . . . . . . . . . . . 9
9. Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13. Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14. Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
15. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . 16
16. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
17. Default; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
19. Relocation of Premises. . . . . . . . . . . . . . . . . . . . . . . . . . 22
20. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE>
BISHOP RANCH BUSINESS PARK
BUILDING LEASE
This Lease is made and entered into this 31st day of August, 1992, by
and between ALEXANDER PROPERTIES COMPANY, a California partnership, (hereinafter
"Landlord") and LANIER WORLDWIDE, INC. (hereinafter "Tenant"). For and in
consideration of the rental and of the covenants and agreements hereinafter set
forth to be kept and performed by Tenant, Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord the Premises herein described for the term,
at the rental and subject to and upon all of the terms, covenants and agreements
hereinafter set forth.
1. PREMISES
1.1 DESCRIPTION. Landlord hereby leases to Tenant and Tenant
hereby rents from Landlord the Premises (hereinafter "Premises") crosshatched on
Exhibit A containing 4,913 square feet known as Suite 240, located on the Second
floor of 3000 Executive Parkway, Building Q (hereinafter "Building"), located at
San Ramon, California 94583.
1.2 WORK OF IMPROVEMENT. The obligation of Landlord and Tenant
to perform the work and supply the necessary materials and labor to prepare the
Premises for occupancy are set forth in detail in Exhibit B and Exhibit C.
Landlord and Tenant shall expend all funds and do all acts required of them in
Exhibit B and Exhibit C and shall have the work performed promptly and
diligently in a first class workmanlike manner. Landlord shall pay the cost of
the work as shown on the attached plan (Exhibit C) dated June 26, 1992 and as
revised July 13, 1992. Any changes to the plan which affect the cost shall be
paid for by Tenant promptly after billing is rendered.
2. TERM
2.1 TERM. The term of this Lease shall be for Five (5) years,
commencing November 1, 1992, and ending October 31, 1997, unless sooner
terminated pursuant to this Lease.
2.2 DELAY IN COMMENCEMENT. Tenant agrees that in the event of
the inability of Landlord for any reason to deliver possession of the Premises
to Tenant on the commencement date set forth in Paragraph 2.1, Landlord shall
not be liable for any damage thereby nor shall such inability affect the
validity of this Lease or the obligations of Tenant hereunder, but in such case
Tenant shall not be obligated to pay rent or other monetary sums until
possession of the Premises is tendered to Tenant; provided that if the delay in
delivery of possession exceeds seven (7) days, then the expiration date of the
term of the Lease shall be extended by the period of time computed from the
scheduled commencement date to the date possession is tendered. In the event
Landlord shall not have delivered possession of the Premises within three (3)
months from the scheduled commencement date, then Tenant at its option, to be
exercised within thirty (30) days after the end of said three (3) month period,
may terminate this Lease and, upon Landlord's return of any monies previously
deposited by Tenant, the parties shall have no further rights or liabilities
toward each other.
<PAGE>
2.3 ACKNOWLEDGMENT OF COMMENCEMENT DATE. In the event the
commencement date of the term of the Lease is other than as provided in
Paragraph 2.1, then Landlord and Tenant shall execute a written acknowledgment
of the date of commencement and shall attach it to the Lease as Exhibit G.
3. RENT
3.1 BASE RENT. Tenant shall pay to Landlord as base rent for
the Premises in advance on the first day of each calendar month of the term of
this Lease without deduction, offset, prior notice or demand, in lawful money of
the United States of America, the sum of EIGHT THOUSAND ONE HUNDRED EIGHTY-EIGHT
AND 33/100 DOLLARS ($8,188.33). If the commencement date is not the first day
of a month, or if the Lease termination day is not the last day of a month, a
prorated monthly installment shall be paid at the then current rate for the
fractional month during which the Lease commenced and/or terminates.
Rent for the first four (4) full calendar months of the Lease term
shall be abated. Concurrently with Tenant's execution of this Lease, Tenant
shall pay to Landlord one month's base rent in the amount of EIGHT THOUSAND ONE
HUNDRED EIGHTY-EIGHT AND 33/100 DOLLARS ($8,188.33) to be applied against base
rent when it becomes due.
3.2 ADJUSTMENTS TO BASE RENT. The base rent shall be adjusted
from Twenty and 00/100 Dollars ($20.00) per square foot per year to Twenty-one
and 50/100 Dollars ($21.50) per square foot per year effective at the beginning
of the 13th month of the Lease term, and from Twenty-one and 50/100 Dollars
($21.50) per square foot per year to Twenty-two and 50/100 Dollars ($22.50) per
square foot per year at the beginning of the 25th month of the Lease term, and
from Twenty-two and 50/100 Dollars ($22.50) per square feet per year to Twenty-
three and 00/100 Dollars ($23.00) per square foot per year at the beginning of
the 37th month of the Lease term.
4. SECURITY DEPOSIT
(Deleted)
5. TAX AND BUILDING OPERATING COST INCREASES
5.1 DEFINITIONS. For purposes of this paragraph, the following
terms are herein defined:
(a) BASE YEAR: The calendar year in which this Lease
commences.
(b) BUILDING OPERATING COSTS: Building Operating Costs
shall include all costs and expenses of ownership, operation and maintenance of
Building (excluding depreciation on the Building, all amounts paid on loans of
Landlord and expenses capitalized for federal income tax purposes) computed in
accordance with accounting principles adopted by Landlord consistently applied,
including by way of illustration but not limited to: real and personal property
taxes and assessments and any tax in addition to or in lieu thereof, other than
taxes covered by Paragraph 5.4,
-2-
<PAGE>
whether assessed against Landlord or Tenant or collected by Landlord or both;
utilities; parts; equipment; supplies; insurance; license, permit and inspection
fees; cost of services and materials of independent contractors (including
property management fees); cost of compensation (including employment taxes and
fringe benefits) of all persons who perform regular and recurring duties
connected with day-to-day operation, maintenance and repair of Building, its
equipment and the adjacent walks, parking and landscaped areas, including
janitorial, scavenger, gardening, security, parking, operating engineer,
elevator, painting, plumbing, electrical, carpentry, heating, ventilation, air
conditioning, window washing, signing and advertising (but excluding sources and
materials of persons performing services not uniformly available to or performed
for substantially all Building tenants); and rental expense or a reasonable
allowance for depreciation of personal property used in the maintenance,
operation and repair of the Building.
(c) COMPUTATION ADJUSTMENT. In the event the Building
is not fully occupied for any calendar year of the Term, the Building Operating
Costs shall be adjusted to the amount which would have been incurred if the
Building had been fully occupied for the year.
5.2 TENANT'S SHARE. In the event the Building Operating Costs
incurred by Landlord during any calendar year following the Base Year shall
exceed the Building Operating Costs "expense stop" of $7.25 per square foot of
rentable space in the Premises, Tenant shall pay to Landlord the amount of such
excess. Tenant's share of Building Operating Costs shall be computed based upon
a rentable area of the Building of 189,663 square feet and a rentable area of
the Premises of 4,913 square feet for a percentage of 2.59%. Landlord agrees
that the controllable Operating Expense portion of Building Operating Costs
(i.e. expenses other than expenses for water, gas, electricity, telephone,
scavenger, real and personal property taxes and assessments, license and permit
fees and insurance) for any year after the Base Year shall be limited to the
controllable Operating Expenses used in determining the "expense stop" plus a
cumulative seven percent (7%) annually compounded increase. There shall be no
limit on the increases in noncontrollable Operating Costs.
5.3 PAYMENT. Within ninety (90) days or as soon as reasonably
practical after the end of each calendar year following the Base Year, Landlord
shall furnish Tenant a written statement showing in reasonable detail Landlord's
Building Operating Costs for the preceding calendar year, and the amount, if
any, of any increase or decrease in the sums due from Tenant taking into account
prior increases paid by Tenant (if any). Tenant shall have one hundred eighty
(180) days after receipt of Landlord's statement to notify Landlord of any
objections they have to such statement, or of their intention to review
supporting documentation for such statement. If Tenant does not so notify
Landlord, such statement shall conclusively be deemed correct and Tenant shall
have no right thereafter to dispute or review support for such statement, any
item therein, or the computation of Operating Costs. If Tenant does so notify
the Landlord within the one hundred eighty (180) day period, Tenant shall have
one (1) year from the date of receipt of Landlord's statement to complete their
review of the supporting documentation and notify Landlord of all objections, if
any, to such statement. After this one (1) year period, it will be assumed that
Landlord has been notified of all objections by Tenant to Landlord's statement
and that no further review of supporting documentation is necessary. If there
are no objections, Tenant shall have no further rights thereafter to dispute
such
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<PAGE>
statement, any item therein, or the computation of Operating Costs. Any
notifications to Landlord will be done in accordance with Paragraph 20.16.
Coincidentally with the rent payment next due following Tenant's
receipt of such statement, Tenant shall pay to Landlord (in the case of an
increase), or Landlord shall credit against the next rent due from Tenant (in
the case of decrease), an amount equal to the sum of (i) the difference between
Building Operating Costs for the preceding calendar year and the expense stop
less increases paid by Tenant (if any); and (ii) one-twelfth (1/12) of said
increases for the current calendar year multiplied by the number of rent
payments (including the current one) then elapsed in such calendar year.
Thereafter, one-twelfth (1/12) of the amount of the increase shall be paid
monthly with the rent until the adjustment the following year pursuant hereto.
In no event shall the adjustment entitle Tenant to receive the benefit of a
reduction in Building Operating Costs below the level of the expense stop.
5.4 NEW TAXES. In addition to rent and other charges to be
paid by Tenant hereunder, Tenant shall reimburse to Landlord, within thirty (30)
days of receipt of a demand therefor, Tenant's pro rata share, specified in
Paragraph 5.2, of any and all taxes payable by Landlord (other than net income
taxes and advalorem personal and real property taxes) whether or not now
customary or within the contemplation of the parties hereto (i) upon, allocable
to or measured by the area of the Premises or on the rent payable hereunder,
including without limitation any gross receipts tax or excise tax levied by the
State, any political subdivision thereof, city or federal government with
respect to the receipt of such rent; or (ii) upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises or any portion thereof; or (iii) upon or
measured by the value of Tenant's personal property, equipment or fixtures
located in the Premises; or (iv) upon this transaction or any document to which
Tenant is a party creating or transferring an interest or an estate in the
Premises.
5.5 TENANT'S PERSONAL PROPERTY TAXES. Tenant shall pay before
delinquency, any and all taxes levied or assessed and which become payable
during the term hereof upon Tenant's equipment, furniture, fixtures and other
personal property located in the Premises and the taxes payable (whether levied
on Landlord or Tenant) for the cost of the portion of improvements located on
the Premises paid for by Tenant. For the purpose of determining said amount,
figures supplied by the County Assessor as to the amount so assessed shall be
conclusive. Tenant shall comply with the provisions of any law, ordinance or
rate of the taxing authorities which require Tenant to file a report of Tenant's
property leased in the Premises.
6. USE
6.1 USE. The Premises shall be used and occupied by Tenant for
general office purposes (including sales, incidental storage, and minor repair
of office products) and for no other purpose without the prior written consent
of Landlord.
6.2 SUITABILITY. Tenant acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty with respect to
the Premises or the Building or with respect to the suitability of either for
the conduct of Tenant's business, nor has Landlord agreed
-4-
<PAGE>
to undertake any modification, alteration or improvement to the Premises except
as provided in this Lease. The taking of possession of the Premises by Tenant
shall conclusively establish that the Premises and the Building were at such
time in satisfactory condition unless within fifteen (15) days after such date
Tenant shall give Landlord written notice specifying in reasonable detail the
respects in which the Premises or the Building were not in satisfactory
condition.
6.3 USES PROHIBITED
(a) Tenant shall not do nor permit anything to be done
in or about the Premises nor bring or keep anything therein which will in any
way increase the existing rate or affect any fire or other insurance upon the
Building or any of its contents (unless Tenant shall pay any increased premium
as a result of such use or acts), or cause a cancellation of any insurance
policy covering said Building or any part thereof or any of its contents, nor
shall Tenant sell or permit to be kept, used or sold in or about said Premises
any articles which may be prohibited by a standard form policy of fire
insurance.
(b) 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 or occupants of the Building, or injure or annoy them,
or use or allow the Premises to be used for any unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the
Premises. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises.
(c) Tenant shall not use the Premises or permit anything
to be done in or about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation or requirement of duly
constituted public authorities now in force or which may hereafter be enacted or
promulgated. Tenant shall at its sole cost and expense promptly comply with all
laws, statutes, ordinances and governmental rules, regulations or 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 condition, use or occupancy of the Premises,
excluding structural changes not relating to or affecting the condition, use or
occupancy of the Premises, or not related to or affected by Tenant's
improvements or acts. The judgment of any court of competent jurisdiction or
the admission of Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any law, statute, ordinance or
governmental rule, regulation or requirement, shall be conclusive of the fact as
between Landlord and Tenant.
7. SERVICE AND UTILITIES
7.1 LANDLORD'S OBLIGATIONS. Provided Tenant is not in default
hereunder, Landlord shall furnish to the Premises during reasonable hours of
generally recognized business days, to be determined by Landlord, and subject to
the rules and regulations of the Building, water, gas and electricity suitable
for the intended use of the Premises, heat and air conditioning required in
Landlord's judgment for the comfortable use and occupancy of the Premises,
scavenger, janitorial, window washing service and elevator service customary in
similar buildings in the competing
-5-
<PAGE>
geographical areas. Landlord shall also maintain and keep lighted the common
lobbies, hallways, stairs and toilet rooms in the Building.
7.2 TENANT'S OBLIGATION. Tenant shall pay for, prior to
delinquency, all telephone and all other materials and services, not expressly
required to be paid by Landlord, which may be furnished to or used in, on or
about the Premises during the term of this Lease.
7.3 TENANT'S ADDITIONAL REQUIREMENTS
(a) Tenant will not, without the written consent of
Landlord, use any apparatus or device in the Premises, including but without
limitation thereto, electronic data processing machines, punch card machines and
machines using electric current in excess of 110 volts, which will in any way
increase the amount of electricity or water usually furnished or supplied for
use of the Premises as general office space; nor connect with electric current,
except through existing electrical outlets in the Premises, or water pipes, any
apparatus or device, for the purposes of using electric current or water.
(b) If Tenant shall require water or electric current in
excess of that usually furnished or supplied for use of the Premises as general
office space, Tenant shall first procure the consent of Landlord for the use
thereof, which consent Landlord may refuse, and Landlord may cause a water meter
or electric current meter to be installed in the Premises, so as to measure the
amount of water and electric current consumed for any such other use. The cost
of such meters and of installation, maintenance and repair thereof shall be paid
by Tenant and Tenant agrees to pay Landlord promptly upon demand by Landlord for
all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the city in which the Building is located or
the local public utility, as the case may be, furnishing the same, plus any
additional expense incurred in keeping account of the water and electric current
so consumed. If a separate meter is not installed to measure such excess use,
then Landlord shall have the right to estimate the amount of such use through
qualified personnel.
(c) Wherever heat generating machines or equipment are
used in the Premises which affect the temperature otherwise maintained by the
air conditioning system, Landlord reserves the right to install supplementary
air conditioning units in the Premises and the cost thereof, including the cost
of installation, operation and maintenance thereof, shall be paid by Tenant to
Landlord upon demand by Landlord. Notwithstanding the foregoing, Landlord
agrees to provide Tenant with notice of its intent to install such supplementary
air conditioning units and Tenant shall, upon receipt of such notice, have 30
days to remove or alter the equipment affecting the temperature.
7.4 NONLIABILITY. Landlord shall not be liable for, and Tenant
shall not be entitled to, any abatement or reduction of rent by reason of
Landlord's failure to furnish any of the foregoing when such failure is caused
by accidents, breakage, repairs, strikes, lockouts or other labor disturbances
or labor disputes of any character, or by any other cause similar or dissimilar,
beyond the reasonable control of Landlord. Landlord shall not be liable under
any circumstances for loss of
-6-
<PAGE>
or injury to property, however occurring, through or in connection with or
incidental to failure to furnish any of the foregoing.
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS
8.1 MAINTENANCE AND REPAIRS
(a) LANDLORD'S OBLIGATIONS. Landlord shall maintain in
good order, condition and repair the Building, the basic heating, ventilating,
air conditioning and electrical systems, the plumbing mains and all other
portions of the Premises not the obligation of Tenant or any other tenant in the
Building. Any maintenance and repair caused by wrongful acts or omissions of
Tenant or Tenant's employees, invitees and customers shall be paid for by
Tenant.
(b) TENANT'S OBLIGATIONS
(1) Tenant, at Tenant's sole cost and expense,
except for services furnished by Landlord pursuant to Section 7 hereof, shall
maintain the Premises in good order, condition and repair including the interior
surfaces of the ceilings, walls and floors, all doors, interior windows, and all
plumbing pipes, electrical wiring, switches, fixtures and equipment installed
for the use of the Premises by Tenant.
(2) Upon the expiration or earlier termination of
this Lease, Tenant shall surrender the Premises in the same condition as
received, except for ordinary wear and tear and damage by fire, earthquake, act
of God or the elements, not caused by the wrongful act or omission of Tenant or
Tenants' agents and shall promptly remove or cause to be removed, at Tenant's
expense, from the Premises and the Building any signs, notices and displays
placed by Tenant.
(3) Tenant shall repair any damage to the
Premises or the Building caused by or in connection with the removal of any
articles of personal property, business or trade fixtures, machinery, equipment,
cabinetwork, furniture, movable partitions or permanent improvements or
additions, including without limitation thereto, repairing the floor and
patching and painting the walls where required by Landlord to Landlord's
reasonable satisfaction, all at Tenant's sole cost and expense. Tenant shall
indemnify Landlord against any loss or liability resulting from delay by Tenant
in so surrendering the Premises, including without limitation, any claims made
by any succeeding tenant founded on such delay.
(4) In the event Tenant fails to maintain the
Premises in good order, condition and repair, Landlord shall give Tenant notice
to do such acts as are reasonably required to so maintain the Premises. In the
event Tenant fails to promptly commence such work and diligently prosecute it to
completion, then Landlord shall have the right to do such acts and expend such
funds at the expense of Tenant as are reasonably required to perform such work.
Any amount so expended by Landlord shall be paid by Tenant promptly after demand
with interest at the maximum rate permitted by law from the date of such work.
Landlord shall have no liability to Tenant for any damage, inconvenience or
interference with the use of the Premises by Tenant as a result of performing
any such work.
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<PAGE>
(c) COMPLIANCE WITH LAW. Landlord and Tenant shall each
do all acts required to comply with all applicable laws, ordinances, regulations
and rules of any public authority relating to their respective maintenance
obligations as set forth herein.
8.2 ALTERATIONS AND ADDITIONS
(a) Tenant shall make no alterations, additions or
improvements to the Premises or any part thereof without obtaining the prior
written consent of Landlord.
(b) Landlord may impose as a condition to the aforesaid
consent such requirements as Landlord may deem necessary in its sole discretion,
including without limitation thereto, performing the work itself, specifying the
manner in which the work is done, selecting the contractor by whom the work is
to be performed, the times during which it is to be accomplished, and the
requirement that upon written request of Landlord prior to the expiration or
earlier termination of the Lease, Tenant will remove any and all permanent
improvements or additions to the Premises installed at Tenant's expense and all
movable partitions, counters, personal property, equipment, fixtures and
furniture.
(c) All such alterations, additions or improvements
shall, at the expiration or earlier termination of the Lease, become the
property of Landlord and shall remain upon and be surrendered with the Premises,
unless specified pursuant to Subparagraph 8.2(b) above.
(d) All articles of personal property and all business
and trade fixtures, machinery and equipment, cabinetwork, furniture and movable
partitions owned by Tenant or installed by Tenant at its expense in the Premises
shall be and remain the property of Tenant and may be removed by Tenant at any
time during the lease term when Tenant is not in default hereunder.
9. ENTRY BY LANDLORD
Landlord and Landlord's agents shall at any and all times have the
right to enter the Premises to inspect the same, to supply janitorial service
and any other service to be provided by Landlord to Tenant hereunder, to submit
said Premises to prospective purchasers or tenants, to post notices of non-
responsibility and "for lease" signs, and to alter, improve or repair the
Premises and any portion of the Building without abatement of rent, and may for
that purpose erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, always providing the
entrance to the Premises shall not be blocked thereby, and further providing
that the business of Tenant shall not be interfered with unreasonably. Tenant
hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises, and any other loss occasioned thereby. For each of the aforesaid
purposes, Landlord shall at all times have and retain a key with which to unlock
all of the doors in, upon and about the Premises, excluding Tenant's vaults and
safes, and Landlord and Landlords' agents shall have the right to use any and
all means which Landlord may deem proper to open said doors in an emergency, in
order to obtain entry to the Premises, and any entry to the Premises obtained by
Landlord or Landlords' agents by any of said
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means, or otherwise, 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.
10. LIENS
Tenant shall keep the Premises and any building of which the
Premises are a part free from any liens arising out of work performed, materials
furnished, or obligations incurred by Tenant and shall indemnify, hold harmless
and defend Landlord from any liens and encumbrances arising out of any work
performed or materials furnished by or at the direction of Tenant. In the event
that Tenant shall not, within twenty (20) days following the imposition of any
such lien, cause such lien to be released of record by payment or posting of a
proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but no obligation, to cause the same to be
released by such means as it shall deem proper, including payment of the claim
giving rise to such lien. All such sums paid by Landlord and all expenses
incurred by it in connection therewith, including attorneys' fees and costs,
shall be payable to Landlord by Tenant on demand with interest at the rate of
ten percent (10%) per annum. Landlord shall have the right at all times to post
and keep posted on the Premises any notices permitted or required by law, or
which Landlord shall deem proper, for the protection of Landlord and the
Premises, and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give to Landlord at least ten (10)
business days prior written notice of the expected date of commencement of any
work relating to alterations or additions to the Premises.
11. INDEMNITY
11.1 INDEMNITY. Tenant shall indemnify and hold Landlord
harmless from and defend Landlord against any and all claims of liability for
any injury or damage to any person or property whatsoever (i) occurring in, on
or about the Premises or any part thereof; and (ii) occurring in, on or about
any facilities (including, without prejudice to the generality of the term
"facilities," elevators, stairways, passageways, hallways and parking areas),
the use of which Tenant may have in conjunction with other tenants of the
Building, when such injury or damage is caused in part or in whole by the act,
negligence, fault or omission of any duty with respect to the same by Tenant,
its agents, contractors, employees or invitees. Tenant shall further indemnify
and hold Landlord 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 act or negligence
of Tenant, or any of its agents, contractors, employees and from and against all
costs, attorneys' fees, expenses and liabilities incurred in the defense of any
such claim or any action or proceeding brought thereon. In case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord; provided, however, that Tenant shall not be
liable for damage or injury occasioned by the negligence or intentional acts of
Landlord and its designated agents or employees unless covered by insurance
Tenant is required to provide. Tenant, as a material part of the consideration
to Landlord, hereby assumes all risk of damage to property or
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injury to persons in, upon or about the Premises from any cause and Tenant
hereby waives all claims in respect thereof against Landlord.
11.2 EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not
be liable for injury or damage which may be sustained by the person, goods,
wares, merchandise or property of Tenant, its employees, invitees or customers,
or any other person in or about the Premises caused by or resulting from fire,
steam, electricity, gas, water or rain, which may leak or flow from or into any
part of the Premises, or from the breakage, leakage, obstruction or other
defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning
or lighting fixtures of the same, whether the damage or injury results from
conditions arising upon the Premises or upon other portions of the Building of
which the Premises are a part, or from other sources. Landlord shall not be
liable for any damages arising from any act or neglect of any other tenant of
the Building. Notwithstanding the foregoing, Landlord shall indemnify and hold
harmless Tenant from all damages or losses suffered and claims advanced by third
persons and arising out of Landlord's, its employees', or agents' negligence,
which is directly connected with the use, ownership, or occupancy of the
property herein or arising out of or connected with any breach of any term or
condition of this Lease agreement by Landlord.
12. INSURANCE
12.1 COVERAGE. Tenant shall, at all times during the term of
this Lease, and at its own cost and expense, procure and continue in force the
following insurance coverage:
(a) Bodily Injury and Property Damage Liability
Insurance with a combined single limit for bodily injury and property damage of
not less than $3,000,000.
(b) Fire and Extended Coverage Insurance, including
vandalism and malicious mischief coverage, in an amount equal to the full
replacement value of all fixtures, furniture and improvements installed by or at
the expense of Tenant.
12.2 INSURANCE POLICIES. The aforementioned minimum limits of
policies shall in no event limit the liability of Tenant hereunder. The
aforesaid insurance shall name Landlord as an additional insured. Said
insurance shall be with companies having a rating of not less than A+, XI in
"Best's Insurance Guide". Tenant shall furnish from the insurance companies or
cause the insurance companies to furnish certificates of coverage. No such
policy shall be cancellable or subject to reduction of coverage or other
modification or cancellation except after thirty (30) days' prior written notice
to Landlord by the insurer. All such policies shall be written as primary
policies, not contributing with and not in excess of the coverage which Landlord
may carry. Tenant shall, at least twenty (20) days prior to the expiration of
such policies, furnish Landlord with renewals or binders. Tenant agrees that if
Tenant does not take out and maintain such insurance, Landlord may (but shall
not be required to) procure said insurance on Tenant's behalf and charge Tenant
the premiums together with a reasonable handling charge, payable upon demand.
Tenant shall have the right to provide such insurance coverage pursuant to
blanket policies obtained by Tenant, provided such blanket policies expressly
afford coverage to the Premises and to Tenant as required by this Lease.
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12.3 Landlord and Tenant do hereby release and relieve the
other, and waive their claims and any subrogation claims for recovery for loss,
damage, injury and all liability of every kind and nature which may arise out
of, or be incident to, causes occurring in, on or about the Premises herein
described which are caused by or result from risks covered by the policy
commonly referred to as "fire and extended coverage perils policies" whether due
to negligence of either of said parties, their agents or employees or otherwise.
13. DAMAGE OR DESTRUCTION
13.1 PARTIAL DAMAGE - INSURED. In the event the Premises or the
Building are damaged by any casualty which is covered under fire and extended
coverage insurance carried by Landlord, then Landlord shall restore such damage,
provided insurance proceeds are available to pay eighty percent (80%) or more of
the cost of restoration and provided such restoration can be completed within
sixty (60) days after the commencement of the work in the opinion of a
registered architect or engineer appointed by Landlord. In such event this
Lease shall continue in full force and effect, except that Tenant shall be
entitled to proportionate reduction of rent while such restoration takes place,
such proportionate reduction to be based upon the extent to which the
restoration efforts interfere with Tenant's business in the Premises.
13.2 PARTIAL DAMAGE - UNINSURED. In the event the Premises or
the Building are damaged by a risk not covered by Landlord's insurance or the
proceeds of available insurance are less than eighty percent (80%) of the cost
of restoration, or if the restoration cannot be completed within sixty (60) days
after the commencement of work in the opinion of the registered architect or
engineer appointed by Landlord, then Landlord shall have the option either to:
(i) repair or restore such damage, this Lease continuing in full force and
effect, but the rent to be proportionately abated as hereinabove provided; or
(ii) give notice to Tenant at any time within thirty (30) days after such damage
terminating this Lease as of a date to be specified in such notice, which date
shall be not less than thirty (30) nor more than sixty (60) days after giving
such notice. In the event of the giving of such notice, this Lease shall expire
and all interest of Tenant in the Premises shall terminate on such date so
specified in such notice and the rent, reduced by any proportionate reduction
based upon the extent, if any, to which said damage interfered with the use and
occupancy of Tenant, shall be paid to the date of such termination. Landlord
agrees to refund to Tenant any rent theretofore paid in advance for any period
of time subsequent to such date.
13.3 TOTAL DESTRUCTION. In the event the Premises are totally
destroyed or the Premises cannot be restored as required herein under applicable
laws and regulations, or more than 50 percent of the rentable area of the
Building has been damaged, regardless of any damage to the Premises,
notwithstanding the availability of insurance proceeds, this Lease shall be
terminated effective the date of the damage.
13.4 DAMAGE NEAR END OF THE TERM. Notwithstanding anything to
the contrary contained in this Section 13, Landlord shall not have any
obligation whatsoever to repair, reconstruct or restore the Premises when the
damage resulting from any casualty covered under this Section 13 occurs during
the last twelve (12) months of the term of this Lease or any extension thereof.
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13.5 LANDLORD'S OBLIGATIONS. Landlord shall not be required to
repair any injury or damage by fire or other cause, or to make any restoration
or replacement of any paneling, decorations, partitions, railings, floor
coverings, office fixtures or any other improvements or property installed in
the Premises by Tenant or at the direct or indirect expense of Tenant. Tenant
shall be required to restore or replace same in the event of damage. Except for
abatement of rent, if any, Tenant shall have no claim against Landlord for any
damage suffered by reason of any such damage, destruction, repair or
restoration; nor shall Tenant have the right to terminate this Lease as the
result of any statutory provision now or hereafter in effect pertaining to the
damage and destruction of the Premises or the Building, except as expressly
provided herein.
14. CONDEMNATION
If all or any part of the Premises shall be taken or appropriated
for public or quasi-public use by right of eminent domain with or without
litigation or transferred by agreement in connection with such public or quasi-
public use, either party hereto shall have the right at its option, exercisable
within thirty (30) days of receipt of notice of such taking, to terminate this
Lease as of the date possession is taken by the condemning authority, provided,
however, that before Tenant may terminate this Lease by reason of taking or
appropriation as provided hereinabove, such taking or appropriation shall be of
such an extent and nature as to substantially handicap, impede or impair
Tenant's use of the Premises. If any part of the Building other than the
Premises shall be so taken or appropriated, Landlord shall have the right at its
option to terminate this Lease. No award for any partial or entire taking shall
be apportioned, and Tenant hereby assigns to Landlord any award which may be
made in such taking or condemnation, together with any and all rights of Tenant
now or hereafter arising in or to the same or any part thereof; provided,
however, that nothing contained herein shall be deemed to give Landlord any
interest in or to require Tenant to assign to Landlord any award made to Tenant
for the taking of personal property and fixtures belonging to Tenant and/or for
the interruption of or damage to Tenant's business and/or for Tenant's
unamortized cost of leasehold improvements. In the event of a partial taking
which does not result in a termination of this Lease, rent shall be abated in
the proportion which the part of Premises so made unusable bears to the rented
area of the Premises immediately prior to the taking, and Landlord, at
Landlord's cost, shall restore the Premises remaining to an architectural whole
with the base rent reduced in proportion to what the area taken bears to the
Premises prior to the taking. No temporary taking of the Premises and/or of
Tenant's rights therein or under this Lease shall terminate this Lease or give
Tenant any right to any abatement of rent thereunder; any award made to Tenant
by reason of any such temporary taking shall belong entirely to Tenant and
Landlord shall not be entitled to share herein.
15. ASSIGNMENT AND SUBLETTING
15.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not assign,
transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest
therein, and shall not sublet the Premises or any part thereof, without the
prior written consent of Landlord and any attempt to do so without such consent
being first had and obtained shall be wholly void and shall constitute a breach
of this Lease.
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15.2 REASONABLE CONSENT. If Tenant complies with the following
conditions, Landlord shall not unreasonably withhold its consent to the
subletting of the Premises or any portion thereof or the assignment of this
Lease. Tenant shall submit in writing to Landlord (i) the name and legal
composition of the proposed subtenant or assignee; (ii) the nature of the
business proposed to be carried on in the Premises; (iii) the terms and
provisions of the proposed sublease; (iv) such reasonable financial information
as Landlord may request concerning the proposed subtenant or assignee; and (v)
if the rent under the sublease is greater than the rent hereunder that Tenant
agrees that the rent payable pursuant to Paragraph 3 shall be increased to equal
the rent payable under the sublease.
15.3 NO RELEASE OF TENANT. No consent by Landlord to any
assignment or subletting by Tenant shall relieve Tenant of any obligation to be
performed by Tenant under this Lease, whether occurring before or after such
consent, assignment or subletting. The consent by Landlord to any assignment or
subletting shall not relieve Tenant from the obligation to obtain Landlord's
express written consent to any other assignment or subletting. The acceptance
of rent by Landlord from any other person shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any assignment,
subletting or other transfer. Consent to one assignment, subletting or other
transfer shall not be deemed to constitute consent to any subsequent assignment,
subletting or other transfer.
15.4 ATTORNEYS' FEES. In the event Landlord shall consent to a
sublease or assignment under this Section 15, Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with giving such consent.
15.5 LANDLORD'S CONSENT NOT REQUIRED. Notwithstanding anything
to the contrary contained in this Lease, Tenant shall have the right, without
Landlord's prior written consent, but upon at least sixty (60) days' written
notice to Landlord, to assign this Lease or sublet all or part of the demised
Premises to a subsidiary or parent of Tenant by merger, consolidation,
acquisition of stock or otherwise. In the event of any assignment or
subletting, Tenant shall remain fully responsible for the fulfillment of the
terms of this Lease.
16. SUBORDINATION
16.1 SUBORDINATION. This Lease, at Landlord's option, shall be
subject and subordinate to all ground or underlying leases which now exist or
may hereafter be executed affecting the Premises or the land upon which the
Premises are situated or both, and to the lien of any mortgages or deeds of
trust in any amount or amounts whatsoever now or hereafter placed on or against
the land or improvements or either thereof, of which the Premises are a part, or
on or against Landlord's interest or estate therein, or on or against any ground
or underlying lease without the necessity of the execution and delivery of any
further instruments on the part of Tenant to effectuate such subordination. If
any mortgagee, trustee or ground lessor shall elect to have this Lease prior to
the lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Tenant, this Lease shall be deemed prior to such mortgage,
deed of trust or ground lease, whether this Lease is dated prior to or
subsequent to the date of said mortgage, deed of trust or ground lease or the
date of the recording thereof.
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16.2 SUBORDINATION AGREEMENTS. Tenant covenants and agrees to
execute and deliver upon demand without charge therefor, such further
instruments evidencing such subordination of this Lease to such ground or
underlying leases and to the lien of any such mortgages or deeds of trust as may
be required by Landlord.
16.3 QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
that upon Tenant paying rent and other monetary sums due under the Lease,
performing its covenants and conditions under the Lease, Tenant shall and may
peaceably and quietly have, hold and enjoy the Premises for the term, subject,
however, to the terms of the Lease and of any of the aforesaid ground leases,
mortgages or deeds of trust described above.
16.4 ATTORNMENT. In the event any proceedings are brought for
default under ground or any underlying lease or in the event of foreclosure or
the exercise of the power of sale under any mortgage or deed of trust made by
the Landlord covering the Premises, Tenant shall attorn to the purchaser upon
any such foreclosure or sale and recognize such purchaser as the landlord under
this Lease, provided said purchaser expressly agrees in writing to be bound by
the terms of the Lease.
17. DEFAULT; REMEDIES
17.1 DEFAULT. The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant:
(a) Any failure by Tenant to pay the rent or any other
monetary sums required to be paid hereunder (where such failure continues for
five (5) days after written notice by Landlord to Tenant);
(b) (Deleted)
(c) A failure by Tenant to observe and perform any other
provision of this Lease to be observed or performed by Tenant, where such
failure continues for twenty (20) days after written notice thereof by Landlord
to Tenant; provided, however, that if the nature of the default is such that the
same cannot reasonably be cured within said twenty (20) day period, Tenant shall
not be deemed to be in default if Tenant shall within such period commence such
cure and thereafter diligently prosecute the same to completion;
(d) The making by Tenant of any general assignment or
general arrangement for the benefit of creditors; the filing by or against
Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Tenant, the same is dismissed within sixty
(60) days); the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days.
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17.2 REMEDIES. In the event of any such material default or
breach by Tenant, Landlord may, at any time thereafter without limiting Landlord
in the exercise of any right or remedy at law or in equity which Landlord may
have by reason of such default or breach:
(a) Maintain this Lease in full force and effect and
recover the rent and other monetary charges as they become due, without
terminating Tenant's right to possession irrespective of whether Tenant shall
have abandoned the Premises. In the event Landlord elects not to terminate the
Lease, Landlord shall have the right to attempt to re-let the Premises at such
rent and upon such conditions and for such a term, and to do all acts necessary
to maintain or preserve the Premises as Landlord deems reasonable and necessary
without being deemed to have elected to terminate the Lease, including removal
of all persons and property from the Premises; such property may be removed and
stored in a public warehouse or elsewhere at the cost of and for the account of
Tenant. In the event any such re-letting occurs, this Lease shall terminate
automatically upon the new tenant taking possession of the Premises.
Notwithstanding that Landlord fails to elect to terminate the Lease initially,
Landlord at any time during the term of this Lease may elect to terminate this
Lease by virtue of such previous default of Tenant.
(b) Terminate Tenant's right to possession by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including without limitation thereto, the following:
(1) The worth at the time of award of any unpaid
rent which had been earned at the time of such termination; plus
(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 is proved 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 is proved could be reasonably
avoided; plus
(4) The portion of any leasing commission paid by
Landlord applicable to the unexpired portion of the term.
(5) (deleted)
(6) 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 state law. Upon any such re-entry Landlord shall have the right to
make any reasonable repairs, alterations or modifications to the Premises, which
Landlord in its sole discretion deems reasonable and necessary. As used in (1)
above, the "worth at the time of award" is computed by allowing interest at the
rate of ten percent (10%) per annum from the date of default. As used in (2)
and (3) the "worth of at the time of award" is computed by discounting such
amount at the discount rate of the U.S. Federal Reserve Bank at the
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time of award plus one percent (1%). The term "rent" as used in this
Paragraph 17, shall be deemed to be and to mean the rent to be paid pursuant
to Paragraph 3 and all other monetary sums required to be paid by Tenant
pursuant to the terms of this Lease.
17.3 LATE CHARGES. Tenant hereby acknowledges that late payment
by Tenant to Landlord of rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within ten (10) days after
such amount shall be due, Tenant shall pay to Landlord a late charge equal to
ten percent (10%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
17.4 DEFAULT BY LANDLORD. Landlord shall not be in default
unless Landlord fails to perform obligations required of Landlord within a
reasonable time, but in no event later than thirty (30) days after written
notice by Tenant to Landlord 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 Tenant in writing, specifying wherein Landlord has failed to
perform such obligations; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for performance,
then Landlord shall not be in default if Landlord commences performance within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion.
18. PARKING
Tenant and Tenant's employees, invitees and customers shall have
the right to use the parking areas of the Building subject to such regulations
and charges as Landlord shall adopt from time to time, and subject to the right
of Landlord to restrict the use by Tenant and Tenant's employees, invitees and
customers when in the sole judgment of Landlord such use is excessive for the
parking area in relationship to the reasonable use required by other Tenants.
19. RELOCATION OF PREMISES
19.1 CONDITIONS. For the purpose of maintaining an economical
and proper distribution of Tenants throughout Bishop Ranch acceptable to
Landlord, Landlord shall have the right from time to time during the term of
this Lease to relocate the Premises within Bishop Ranch on the following terms
and conditions:
(a) The rented and usable areas of the new location are
of equal size to the existing location (subject to a variation of up to ten
percent (10%) provided the amount of rent payable under this Lease is not
increased) and located in Bishop Ranch 8;
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(b) If the then prevailing rental rate for the new
location is less than the amount being paid for the existing location, the rent
shall be reduced to equal the then prevailing rent for the new location;
(c) Landlord shall pay the cost of providing tenant
improvements in the new location comparable to the tenant improvements in the
existing location;
(d) Landlord shall pay the expenses reasonably incurred
by Tenant in connection with such substitution of Premises, including but not
limited to costs of moving, door lettering, telephone relocation and reasonable
quantities of new stationery;
19.2 NOTICE. Landlord shall deliver to Tenant written notice of
Landlord's election to relocate the Premises, specifying the new location and
the amount of rent payable therefore at least ninety (90) days prior to the date
the relocation is to be effective. If the relocation of the Premises is not
acceptable to Tenant, Tenant for a period of ten (10) days after receipt of
Landlord's notice to relocate shall have the right (by delivering written notice
to Landlord) to terminate this Lease effective sixty (60) days after delivery of
written notice to Landlord.
20. MISCELLANEOUS
20.1 ESTOPPEL CERTIFICATE
(a) Tenant without any charge therefor shall at any time
within ten (10) days after prior written notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing:
(1) 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
(2) Acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults if any are claimed. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrancer of the Premises.
(b) Tenant's failure to deliver such statement within
such time shall be conclusive upon Tenant:
(1) That this Lease is in full force and effect,
without modification except as may be represented by Landlord;
(2) That there are no uncured defaults in
Landlord's performance; and
(3) That not more than one month's rent has been
paid in advance.
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(c) If Landlord desires to finance or refinance the
Building, or any part thereof, Tenant hereby agrees to deliver to any lender
designated by Landlord such financial statements of Tenant as may be reasonably
required by such lender. Such statements shall include the past three years
financial statements of Tenant. All such financial statements shall be received
by Landlord in confidence and shall be used only for the purposes herein set
forth.
20.2 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale or
conveyance by Landlord of Landlord's interest in the Premises or the Building
other than a transfer for security purposes only, Landlord shall be relieved of,
after the date specified in any such notice of transfer, all obligations and
liabilities accruing thereafter on the part of Landlord, provided that any funds
in the hands of Landlord at the time of transfer in which Tenant has an
interest, shall be delivered to the successor of Landlord. This Lease shall not
be affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee provided all Landlord's obligations hereunder are assumed in writing by
the transferee.
20.3 CAPTIONS; ATTACHMENTS; DEFINED TERMS
(a) The captions of the paragraphs of this Lease are for
convenience only and shall not be deemed to be relevant in resolving any
question of interpretation or construction of any paragraph of this Lease.
(b) Exhibits attached hereto, and addenda and schedules
initialed by the parties, are deemed by attachment to constitute part of this
Lease and are incorporated herein.
(c) The words "Landlord" and "Tenant" as used herein,
shall include the plural as well as the singular. Words used in neuter gender
include the masculine and feminine and words in the masculine or feminine gender
include the neuter. If there be more than one Landlord or Tenant, the
obligations hereunder imposed upon Landlord or Tenant shall be joint and
several; as to a Tenant which consists of husband and wife, the obligations
shall extend individually to their sole and separate property as well as
community property. The term "Landlord" shall mean only the owner or owners at
the time in question of the fee title or a Tenant's interest in a ground lease
of the land underlying the Building. The obligations contained in this Lease to
be performed by Landlord shall be binding on Landlord's successors and assigns
only during their respective periods of ownership.
20.4 ENTIRE AGREEMENT. This Lease along with any exhibits and
attachments hereto constitutes the entire agreement between Landlord and Tenant
relative to the Premises and this Lease and the exhibits and attachments may be
altered, amended or revoked only by instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves and their agents or
representatives relative to the leasing of the Premises are merged in or revoked
by this Lease.
20.5 SEVERABILITY. If any term or provision of this Lease
shall, to any extent, be determined by a court of competent jurisdiction to be
invalid or unenforceable, the remainder of this
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Lease shall not be affected thereby, and each term and provision of this
Lease shall be valid and be enforceable to the fullest extent permitted by
law.
20.6 COSTS OF SUIT
(a) If Tenant or Landlord shall bring any action for any
relief against the other, declaratory or otherwise, arising out of 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 a reasonable sum for
attorneys' fees which shall be deemed to have accrued on the commencement of
such action and shall be paid whether or not such action is prosecuted to
judgment.
(b) Should Landlord, without fault on Landlord's part,
be made a 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 any such other person or otherwise arising out of
or resulting from any act or transaction of Tenant or of any such other person,
Tenant covenants to save and hold Landlord harmless from any judgment rendered
against Landlord or the Premises or any part thereof, and all costs and
expenses, including reasonable attorneys' fees, incurred by Landlord in or in
connection with such litigation.
20.7 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence
of this Lease and each and every provision hereof, except as to the conditions
relating to the delivery of possession of the Premises to Tenant. All the
terms, covenants and conditions contained in this Lease to be performed by
either party, if such party shall consist of more than one person or
organization, shall be deemed to be joint and several, and all rights and
remedies of the parties shall be cumulative and nonexclusive of any other remedy
at law or in equity.
20.8 BINDING EFFECT; CHOICE OF LAW. The parties hereto agree
that all provisions hereof are to be construed as both covenants and conditions
as though the words imparting such covenants and conditions were used in each
separate paragraph hereof. Subject to any provisions hereof restricting
assignment or subletting by Tenant and subject to Paragraph 19.2, all of the
provisions hereof shall bind and inure to the benefit of the parties hereto and
their respective heirs, legal representatives, successors and assigns. This
Lease shall be governed by the laws of the State of California.
20.9 WAIVER. No covenant, term or condition or the breach
thereof shall be deemed waived, except by written consent of the party against
whom the waiver is claimed, and any waiver or breach of any covenant, term or
condition shall not be deemed to be a waiver of any preceding or succeeding
breach of the same or any other covenant, term or condition. Acceptance by
Landlord of any performance by Tenant after the time the same shall have become
due shall not constitute a waiver by Landlord of the breach or default of any
covenant, term or condition unless otherwise expressly agreed to by Landlord in
writing.
20.10 SURRENDER OF PREMISES. Upon the expiration or termination
of this Lease, Tenant shall surrender the Premises to Landlord in its original
condition, except for reasonable wear
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<PAGE>
and tear and damage from casualty or condemnation; provided, however, that
prior to the expiration or termination of this Lease Tenant shall remove from
the Premises all Tenant's personal property, trade fixtures, alterations and
other Above-Standard Improvements that Tenant has the right or is required by
Landlord to remove under the provisions of this Lease. Tenant shall also be
responsible for removal of all telephone cables and wires, CRT, data and
telephone equipment, and any other form of cabling that exists in Tenant's
space. If any of such removal is not completed at the expiration or
termination of this Lease, Landlord may remove the same at Tenant's expense.
Any damage to the Premises or the Building caused by such removal shall be
repaired promptly by Tenant or, if Tenant fails to do so, Landlord may do so
at Tenant's expense, in which event Tenant shall immediately reimburse
Landlord for such expenses together with interest at the Default rate until
so paid. Tenant's obligations under this Paragraph shall survive the
expiration or termination of this Lease. Upon expiration or termination of
this Lease or of Tenant's possession, Tenant shall surrender all keys to the
Premises or any other part of the Building and shall make known to Landlord
the combination of locks on all safes, cabinets and vaults that may be
located in the Premises.
20.11 HOLDING OVER. If Tenant remains in possession of the
Premises after the expiration or termination of this Lease, Tenant's continued
possession shall be on the basis of a tenancy at the sufferance of Landlord, and
Tenant shall continue to comply with or perform all the terms and obligations of
the Tenant under this Lease, except that the Base Rent during Tenant's holding
over shall be one hundred twenty-five percent (125%) of the monthly Base Rent
payable in the last month prior to the termination or expiration hereof. Tenant
shall indemnify and hold Landlord harmless from and against all claims,
liability, damages, costs or expenses, including reasonable attorneys' fees and
costs of defending the same, incurred by Landlord and arising directly or
indirectly from Tenant's failure to timely surrender the Premises, including (i)
any loss, cost, penalties, or damages, including lost profits, claimed by any
prospective tenant of the Premises, and (ii) Landlord's damages as a result of
such prospective tenant rescinding or refusing to enter into the prospective
lease of the Premises by reason of such failure to timely surrender the
Premises.
20.12 SIGNS
(a) Tenant shall not place or permit to be placed in or
upon the Premises where visible from outside the Premises or any part of the
Building, any signs, notices, drapes, shutters, blinds or displays of any type
without the prior consent of Landlord. Landlord shall include Tenant in the
Building directories located in the Building.
(b) Landlord reserves the right in Landlord's sole
discretion to place and locate on the roof, exterior of the Building, and in any
area of the Building not leased to Tenant such signs, notices, displays and
similar items as Landlord deems appropriate in the proper operation of the
Building.
20.13 REASONABLE CONSENT. Except as limited elsewhere in this
Lease, wherever this Lease Landlord or Tenant is required to give its consent or
approval to any action on the part of the other, such consent or approval shall
not be unreasonably withheld. In the event of failure to give any such consent,
the other party shall be entitled to specific performance at law and shall have
such
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<PAGE>
other remedies as are reserved to it under this Lease, but in no event
shall Landlord or Tenant be responsible in monetary damages for failure to give
consent unless said consent is withheld maliciously or in bad faith.
20.14 INTEREST ON PAST DUE OBLIGATIONS. Except as expressly
provided, any amount due to Landlord not paid when due shall bear interest at
seven percent (7%) per annum from the due date. Payment of such interest shall
not excuse or cure any default by Tenant under this Lease.
20.15 RULES AND REGULATIONS. Tenant and Tenant's agents,
servants, employees, visitors and licensees shall observe and comply fully and
faithfully with all reasonable and nondiscriminatory rules and regulations
adopted by Landlord for the care, protection, cleanliness and operation of the
Building and its tenants including those annexed to this Lease as Exhibit D and
any modification or addition thereto adopted by Landlord, provided Landlord
shall give written notice thereof to Tenant. 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.
20.16 NOTICES. All rent and any other amounts payable by Tenant
to Landlord shall be paid at the address of Landlord as established pursuant to
this paragraph. All notices or demands of any kind required or desired to be
given by Landlord or Tenant hereunder shall be in writing and shall be
personally delivered or sent in the United States mail, certified or registered,
postage prepaid, addressed to the Landlord or Tenant respectively at the
addresses set forth below,
Landlord: Tenant:
ALEXANDER PROPERTIES COMPANY LANIER WORLDWIDE, INC.
One Annabel Lane, Suite 201 2300 Parklake Drive, N.E.
P. O. Box 640 Atlanta, GA 30345
San Ramon, CA 94583
or such other address as shall be established by notice to the other pursuant to
this paragraph. In the case of any notice sent by mail, it shall be deemed
delivered on the earlier of the third business day following deposit thereof
with the United States Postal Service or the delivery date shown on the return
receipt prepared in connection therewith.
20.17 CORPORATE AUTHORITY. If Tenant is a corporation, each
individual executing this Lease on behalf of said corporation represents and
warrants that he is duly authorized to execute and deliver this Lease on behalf
of said corporation in accordance with a duly adopted resolution of the board of
directors of said corporation or in accordance with bylaws of said corporation
and that this Lease is binding upon said corporation in accordance with its
terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after
execution of this Lease, deliver to Landlord a certified copy of a resolution of
the board of directors of said corporation authorizing or ratifying the
execution of this Lease.
20.18 VACATION OF PREMISES. Tenant shall be responsible for
removal of all CRT, data and telephone equipment that exists in Tenant's space
ten (10) days after Tenant has vacated
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Premises. Should Tenant not remove the above mentioned equipment, Landlord
shall do so and charge Tenant for those costs, or deduct those costs from any
deposits held by Landlord.
20.19 HAZARDOUS MATERIALS. Tenant shall not (either with or
without negligence) cause or permit the escape, disposal or release of any
biologically or chemically active or other hazardous substances or materials.
Tenant shall not allow the storage or use of such substances or materials in any
manner not sanctioned by law or by the standards prevailing in the industry for
the storage and use of such substances or materials, nor allow to be brought
into the Project any such materials or substances except to use in the ordinary
course of Tenant's business, and then only after written notice is given to
Landlord of the identity of such substances or materials. Without limitation,
hazardous substances and materials shall include those described in the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601 et seq., any applicable state or local laws and
the regulations adopted under these acts. If any lender or governmental agency
shall ever require testing to ascertain whether or not there has been any
release of hazardous materials, then the reasonable costs thereof shall be
reimbursed by Tenant to Landlord upon demand as additional charges if such
requirement applies to the Premises. In addition, Tenant shall execute
affidavits, representations and the like from time to time at Landlord's request
concerning Tenant's best knowledge and belief regarding the presence of
hazardous substances or materials on the Premises. In all events, Tenant shall
indemnify Landlord in the manner elsewhere provided in this Lease from any
release of hazardous materials on the Premises occurring while Tenant is in
possession, or elsewhere if caused by Tenant or persons acting under Tenant.
The within covenants shall survive the expiration or earlier termination of the
lease term.
20.20 OPTION TO CONTRACT. Tenant shall have a one (1) time
option to reduce the size of the Premises by approximately 693 square feet as
shown on the attached Exhibit A effective November 1, 1994, by providing both a
written notice of its intention to contract and a payment in the sum of EIGHTEEN
THOUSAND AND NO 100 DOLLARS ($18,000.00) to Landlord on or before May 1, 1994.
In addition, Tenant shall be responsible for the cost of the improvements
associated with partitioning off the contraction space from the remaining
Premises.
20.21 OPTION TO EXTEND. Tenant shall have one (1) Option to
Extend this Lease for a period of five (5) years at 97% of the then Fair Market
Value for space in Bishop Ranch 8, but in no event less than what Tenant is
paying at the end of the initial Lease term. Tenant shall provide Landlord with
at least nine (9) months' prior written notice of its intention to exercise this
option to Extend.
Landlord and Tenant have executed this Lease on the date and year set
forth at the beginning of this Lease.
Landlord: Tenant:
ALEXANDER PROPERTIES COMPANY, LANIER WORLDWIDE, INC.
a California partnership
By: _______________________ By: ________________________
Agent
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Exhibit A, Page 1, Diagram
Site Plan for
Bishop Ranch 8, Building Q
3000 Executive Parkway
San Ramon, CA 94583
<PAGE>
Exhibit A, Page 2, Diagram
Typical Second Floor Plan for
Bishop Ranch 8
Second Floor, Building Q
3000 Executive Parkway
Suite 240, sq. ft. 4,913
<PAGE>
EXHIBIT B FOR BISHOP RANCH 8
Listed below are the Standard Material Specifications for tenant improvements at
Bishop Ranch 8 along with the definition of the building shell. It is hereby
agreed that Landlord shall provide, obtain and install all materials and permits
required to build out LANIER WORLDWIDE, INC.'S space as drawn on the attached
space plan dated 6/26/92, Page 3 Revised 7/13/92 and approved by Tenant under
the Standard Material Specifications in this Exhibit B. Should the attached
space plan be modified in any manner, Tenant agrees to pay for in advance any
modifications as they affect the cost of Tenant's build out.
DEFINITION OF BUILDING SHELL
* All core areas, elevator lobbies and restrooms
complete.
* Main HVAC loop in place ready to receive mixing boxes
for zoning.
* Main fire sprinkler risers and grid in place ready for
drop down.
* All perimeter walls sheetrocked and ready for paint.
* Upper floors covered with 3 1/2 inch concrete.
* Electrical service to closets on floor.
* Telephone service/conduit to closets on floor.
STANDARD TENANT IMPROVEMENTS - MATERIAL SPECIFICATIONS
ELECTRICAL * Day Bright 244 light fixtures with energy conserving
ballasts and lamps; per Title 24 requirements.
* Double switching in individual offices.
* One duplex 110 receptacle at each work station.
* One telephone duct at each work station.
HVAC * One zone per 800 square feet.
* Individual pneumatic thermostats per 800 sq. ft.
FIRE * One 160 degree rated, Star SSP-1 concealed sprinkle
SPRINKLERS head per 144 square feet.
<PAGE>
PARTITIONS * Sheetrock walls (5/8 inch) on 2 1/2 inch steel stands
AND DOORS with smooth finish.
* Solid care Heritage Oak doors (36" x 96").
* Aluminum door jambs.
* Schlage door latches or equal.
PAINT * Kelly Moore: Bone White.
FIRE RATED * Conwed: Aurora Reveal Tile, 3/4 inch on steel grid.
CEILING GRID
AND BOARD
CARPET, TILE * Carpet: Design Weave - Westbridge II.
AND BASE
* Armstrong Imperial Modern Excelon Tile.
* 32 oz. nylon composition pad.
* 4 inch rubber top set base or equal.
WINDOW COVERING * Mini Blinds: Color - Alabaster.
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EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the Building or the Premises without the written consent of Landlord
first had and obtained 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 Tenant by a person approved by
Landlord.
Tenant shall not place anything or allow anything to be placed
near the glass of any window, door, partition or wall which may appear unsightly
from outside the Premises; provided, however that Tenant may request Landlord to
furnish and install a building standard window covering at all exterior windows
at Tenant's cost.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the Tenants or used by them for any
purpose other than for ingress to an egress from their respective Premises. The
halls, passages, exits, entrances, elevators, stairways, balconies and roof are
not for the use of the general public and the Landlord shall in all cases retain
the right to control and prevent access thereto by all persons whose presence in
the judgment of the Landlord shall 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
the Tenants normally deals in the ordinary course of Tenant's business unless
such persons are engaged in illegal activities. No Tenant and no employees or
invitees of any Tenant shall go upon the roof of the Building.
3. Tenant shall not alter any lock or install any new or additional
locks or any bolts on any door of the Premises without the written consent of
Landlord.
4. 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 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.
5. Tenant shall not overload the floor of the Premises or mark, drive
nails, screw or drill into the partitions, woodwork or plaster or in any way
deface the Premises or any part thereof. No boring, cutting or stringing of
wires or laying of linoleum or other similar floor coverings shall be permitted
except with the prior written consent of the Landlord and as the Landlord may
direct.
<PAGE>
6. No furniture, freight or equipment of any kind shall be brought
into the Building without the consent of Landlord and all moving of the same
into or out of the Building shall be done at such time and in such manner as
Landlord shall designate. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment brought into
the Building and also the times and manner of moving the same in and out of the
Building. Safes or other heavy objects shall, if considered necessary by
Landlord, stand on wood strips of such thickness as is necessary to properly
distribute the weight. Landlord will not be responsible for loss of or damage
to any such safe or property from any cause and all damage done to the Building
by moving or maintaining any such safe or other property shall be repaired at
the expense of Tenant. 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.
7. Tenant shall not employ any person or persons other than the
janitor of Landlord for the purpose of cleaning the Premises unless otherwise
agreed to by Landlord. Except with the written consent of Landlord, no person
or persons other than those approved by Landlord shall be permitted to enter the
Building for the purpose of cleaning the same. Tenant shall not cause any
unnecessary labor by reason of Tenant's carelessness or indifference in the
preservation of good order and cleanliness. Landlord shall in no way be
responsible to any Tenant for any loss of property on the Premises, however
occurring, or for any damage done to the effects of any Tenant by the janitor or
any other employee or any other person. Janitor service shall include ordinary
dusting and cleaning by the janitor assigned to such work and shall not include
cleaning of carpets or rugs, except normal vacuuming, or moving of furniture and
other special services. Janitor service will not be furnished on nights when
rooms are occupied after 9:30 p.m. Window cleaning shall be done only by
Landlord, and only between 6:00 a.m. and 5:00 p.m.
8. Tenant shall not use, keep or permit to be used or kept any food
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 the Landlord or
other occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants of those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building. No Tenant 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 or those having business with them whether by the use of any musical
instrument, radio, phonograph, unusual noise, or in any other way.
9. The Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the use of
the Premises for general office purposes. No Tenant shall occupy or permit any
portion of his Premises to be occupied for the manufacture or sale of liquor,
narcotics, or tobacco in any form. The Premises shall not be used for lodging
or sleeping or for any illegal purposes.
10. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Landlord.
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<PAGE>
11. Landlord will direct electricians as to where and how telephone
and telegraph wires are to be introduced. No boring or cutting for wires will
be allowed without the consent of Landlord. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
12. No Tenant shall lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by the Landlord. The expense of repairing any damage
resulting from a violation of this rule or removal of any floor covering shall
be borne by the Tenant by whom, or by whose contractors employees or invitees,
the damage shall have been caused.
13. No furniture, packages, supplies, equipment or merchandise 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.
14. On Sundays, legal holidays and on Saturday commencing at 12:00
noon and on other days between the hours of 7:00 p.m. and 7:00 a.m. the
following day, access to the Building or to the halls, corridors, elevators, or
stairways in the Building, or to the Premises may be refused unless the person
seeking access is known to the person or employee of the Building in charge and
has a pass or is properly identified. The 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 case of invasion, mob, riot, public excitement, or
other commotion, the Landlord reserves the right to prevent access to the
Building during the continuance of the same by closing the doors or otherwise,
for the safety of the Tenants and protection of property in the Building and the
Building. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building on Sundays, legal holidays, and on Saturdays
commencing at 12:00 noon and on other days between the hours of 7:00 p.m. and
7:00 a.m. and during such further hours as Landlord may deem advisable for the
adequate protection of said Building and the property of its Tenants.
15. Tenant shall see that the doors of the Premises are closed and
securely locked before leaving the Building and must observe strict care and
caution that all water faucets or water apparatus are entirely shut off before
Tenant or Tenant's employees leave the Building, and that all electricity shall
likewise be carefully shut off, so as to prevent waste or damage and for any
default or carelessness Tenant shall make good all injuries sustained by other
tenants or occupants of the Building or Tenant.
16. 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 the rules and regulations of the Building.
17. The requirements of Tenant will be attended to only upon
application 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 the Landlord, and no employee will admit any person
(Tenant or otherwise) to any office without specific instructions from the
Landlord.
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<PAGE>
18. No vending machine or machines of any description shall be
installed, maintained or operated upon the Premises without the written consent
of the Landlord.
19. Tenant agrees that it shall comply with all fire and security
regulations that may be issued from time-to-time by Landlord and Tenant also
shall provide Landlord with the name of a designated responsible employee to
represent Tenant in all matters pertaining to such fire or security regulations.
20. Landlord reserves the right by written notice to Tenant, to
rescind, alter or waive any rule or regulation at any time prescribed for the
Building when, in Landlord's judgment, it is necessary, desirable or proper for
the best interest of the Building and its Tenants.
21. Tenants shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent same.
22. Without the written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
23. Landlord shall furnish heating and air conditioning during the
hours of 7:00 a.m. and 7:00 p.m. Monday through Friday, except for holidays. In
the event Tenant requires heating and air conditioning during off hours,
Saturdays, Sundays or holidays, Landlord shall on notice provide such services
at the rate established by Landlord from time-to-time. Landlord shall have the
right to control and operate the public portions of the Building and the public
facilities, and heating and air conditioning, as well as facilities furnished
for the common use of the Tenants, in such manner as it deems best for the
benefit of the Tenants generally.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: By:
--------------------------- ---------------------------
Date: Date:
--------------------------- ---------------------------
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EXHIBIT E
JANITORIAL SPECIFICATIONS
The following specific janitorial services will be provided in accordance with
provisions of Paragraph 7.1, Landlord's Obligations:
OFFICE AREAS (DAILY)
1. Empty all wastebaskets and disposal cans, if liners used, replace as
necessary.
2. Spot dust desks, chairs, file cabinets, counters and furniture.
3. Spot vacuum all carpets and walk-off mats; spot as necessary.
4. Sweep all hard surface floors with treated dust mop.
OFFICE AREAS (WEEKLY)
1. Vacuum carpets completely, including around base boards, etc.
2. Perform low dusting of furniture.
3. Dust window sills and ledges.
OFFICE AREAS (QUARTERLY)
1. Perform all high dusting of doors, sashes, moldings, etc.
2. Dust venetian blinds as needed.
OFFICE AREA CORRIDORS AND LOBBIES (DAILY SERVICE)
1. Vacuum carpets and dust mop any hard floors.
2. Spot clean carpets of all spillage.
3. Clean all thresholds.
OFFICE AREA CORRIDORS AND LOBBIES (WEEKLY)
1. Perform all high dusting of doors, sashes, moldings, etc.
2. Vacuum and clean all ceiling vents.
3. Polish any metal railings, placards, etc.
STAIRWAYS (DAILY)
1. Sweep all hard surface steps.
2. Dust banisters.
<PAGE>
STAIRWAYS (WEEKLY)
1. Sweep all hard surfaces.
2. Spot mop all spills as needed.
RESTROOMS COMMON AREA (DAILY SERVICE)
1. Empty all waste containers and replace liners as needed.
2. Clean all metal, mirrors, and fixtures.
3. Sinks, toilet bowls and urinals are to be kept free of scale.
4. Clean all lavatory fixtures using disinfectant cleaners.
5. Wash and disinfect underside and tops of toilet seats.
6. Wipe down walls around urinals.
7. Refill soap, towel, and tissue dispensers.
8. Wet mop tile floors with disinfectant solution.
9. Refill sanitary napkin machines as necessary.
RESTROOMS COMMON AREA (WEEKLY)
1. Perform high dusting and vacuum vents.
2. Use germicidal solution in urinal traps, lavatory traps, and floor
drains.
RESTROOMS COMMON AREA (MONTHLY)
1. Scrub floors with power machine.
2. Wash down all ceramic tile and toilet compartments.
ELEVATORS (DAILY)
1. Vacuum floors.
2. Clean thresholds.
3. Spot walls and polish surfaces.
GENERAL
All glass entry doors to offices, corridors, or lunch rooms are to be cleaned as
necessary.
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<PAGE>
EXHIBIT "B"
SECOND LEASE ADDENDUM
THIS SECOND LEASE ADDENDUM IS MADE AND ENTERED INTO THIS 12th DAY OF
August, 1997, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY, A CALIFORNIA
PARTNERSHIP (HEREINAFTER REFERRED TO AS "LANDLORD") AND LANIER WORLDWIDE,
INC. (HEREINAFTER REFERRED TO AS "TENANT").
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED AUGUST
31, 1992, AND FIRST LEASE ADDENDUM DATED JULY 26, 1993 (HEREINAFTER REFERRED TO
AS "LEASE") IN THE FOLLOWING MANNER:
Section 1. PREMISES
The following Subsection 1.2 WORK OF IMPROVEMENT is hereby amended as follows:
Subsection 1.2 REFURBISHMENT ALLOWANCE. Landlord shall provide
Tenant with a Refurbishment Allowance (credit) equal to $7.00 PER USABLE SQUARE
FOOT OR $36,715.00, to be applied towards suite refurbishment costs (i.e.
carpet, paint). Such allowance (credit) shall be available to Tenant through
the 36th month of the Extended Lease Term. After the 36th month of the Extended
Lease Term any remaining credit shall be waived by Tenant.
Section 2. TERM
Subsection 2.1 TERM. The expiration date of the term of this Lease
is hereby extended from OCTOBER 31, 1997 to OCTOBER 31, 2002 ("EXTENDED LEASE
TERM").
Section 3. RENT
Subsection 3.1 RENT. The Base Rent shall hereby increase from TEN
THOUSAND FIFTY-TWO AND 90/100 DOLLARS ($10,052.90) per month to TWELVE THOUSAND
ONE HUNDRED TWENTY-NINE AND 17/100 DOLLARS ($12,129.17) per month effective
NOVEMBER 1, 1997 (hereinafter the "EFFECTIVE DATE").
Section 5. TAX AND BUILDING OPERATING COST INCREASES
Subsection 5.2 TENANT'S SHARE. On the EFFECTIVE DATE the Expense
Stop shall be increased from $6.53 per rentable square foot per annum to $7.75
per rentable square foot per annum.
<PAGE>
Section 20. MISCELLANEOUS
Subsection 20.20 OPTION TO CONTRACT. This Subsection is hereby
amended as follows: Tenant shall have a one (1) time Option to Contract the
size of the Premises by approximately 769 RENTABLE SQUARE FEET as shown on the
attached EXHIBIT A-3 effective JUNE 1, 1998, by providing Landlord with six (6)
months' prior written notice of Tenant's intention to exercise such Option to
Contract.
The following Subsection 20.21 is hereby added:
Subsection 20.21 OPTION TO TERMINATE EARLY. Landlord hereby grants
to Tenant a one (1) time Option to Terminate the Lease effective the first day
of the 37th month of the Extended Lease Term. In order to exercise said Option
to Terminate, Tenant shall provide Landlord with not less than nine (9) months'
prior written notice of its intention to exercise said Option to Terminate and
pay Landlord a Termination Fee equal to SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS
($75,000.00). Said Termination Fee of $75,000.00 shall be due and payable to
Landlord on the date Tenant provides Landlord with its written notice to
Terminate.
-2-
<PAGE>
With the exception of the modifications set out above, all other terms,
covenants and agreements of the Lease shall remain in full force and effect.
LANDLORD: TENANT:
ALEXANDER PROPERTIES COMPANY, LANIER WORLDWIDE, INC.
A CALIFORNIA PARTNERSHIP
By: [signature] By: [A.P. Hermann]
------------------------------ ----------------------------
Title: CFO Title: Vice President, Finance
------------------------------ ----------------------------
Date: 8/19/97 Date: August 12, 1997
------------------------------ ----------------------------
Regarding:
Bishop Ranch 8, Building Q
3000 Executive Parkway
Suite 240
San Ramon, CA 94583
-3-
<PAGE>
Exhibit A-3, Diagram
Typical Second Floor Plan
Bishop Ranch 8, Bldg Q
3000 Executive Parkway, Suite 240
Option to Contract
Approx. 769 rsf
<PAGE>
FIRST LEASE ADDENDUM
THIS FIRST LEASE ADDENDUM IS MADE AND ENTERED INTO THIS 26th DAY OF
July, 1993, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY, A CALIFORNIA
PARTNERSHIP (HEREINAFTER REFERRED TO AS "LANDLORD") AND LANIER WORLDWIDE,
INC. (HEREINAFTER REFERRED TO AS "TENANT").
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED AUGUST
31, 1992, (HEREINAFTER REFERRED TO AS "LEASE"). THE MODIFICATIONS UNDER THIS
ADDENDUM, EFFECTIVE JANUARY 1, 1993, ARE AS FOLLOWS:
Section 1. PREMISES
Subsection 1.1 DESCRIPTION. The square footage of the Existing
Premises is hereby amended from 4,913 usable square feet to 5,453 rentable
square feet. In addition, the size of the Premises is hereby increased by 369
rentable square feet (hereinafter referred to as the "Expansion Space") for a
new total of 5,822 rentable square feet as shown on the attached Exhibit A,
effective upon the occupancy of the Expansion Space as evidenced by the
execution of Exhibit G attached (hereinafter referred to as the "Effective
Date").
Subsection 1.2 WORK OF IMPROVEMENT. Landlord agrees to provide the
improvements to the Expansion Space as shown on the attached Exhibit C dated
JUNE 23, 1993. Any changes to the plan which affect the cost of the work shall
be paid by Tenant to Landlord promptly after incurred.
Section 3. RENT
Subsection 3.1 BASE RENT. The base rent shall be increased from
EIGHT THOUSAND ONE HUNDRED EIGHTY-EIGHT AND 33/100 DOLLARS ($8,188.33) to EIGHT
THOUSAND SEVEN HUNDRED FORTY-TWO AND 43/100 DOLLARS ($8,742.43) effective on the
Effective Date.
Subsection 3.2 ADJUSTMENTS TO BASE RENT. The base rent adjustments
are hereby amended as follows: The base rent shall be adjusted from $18.02 per
rentable square foot per year to $19.3692 per rentable square foot per year
effective at the beginning of the 13th month of the Lease term, and from
$19.3692 per rentable square foot per year to $20.2701 per rentable square foot
per year at the beginning of the 25th month of the Lease term, and from $20.2701
per rentable square foot per year to $20.7205 per rentable square foot per year
at the beginning of the 37th month of the Lease term.
<PAGE>
Section 5. TAX AND BUILDING OPERATING COST INCREASES
Subsection 5.2 TENANT'S SHARE. Tenant's Share is hereby restated
and amended as follows: In the event the Building Operating Costs incurred by
Landlord during any calendar year following the Base Year shall exceed the
Building Operating Costs "expense stop" of $6.53 per rentable square foot of the
Premises, Tenant shall pay to Landlord the amount of such excess. Tenant's
share of Building Operating Costs shall be computed based upon a rentable area
of the Building of 210,526 square feet and a rentable area of the Premises of
5,822 square feet for a percentage of 2.77% effective on the Effective Date.
Section 20. MISCELLANEOUS
Subsection 20.20 OPTION TO CONTRACT. The square footage is hereby
amended from 693 square feet to 769 rentable square feet.
With the exception of the modifications set out above, all other terms,
covenants and agreements of the Lease shall remain in full force and effect.
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, LANIER WORLDWIDE, INC.
A CALIFORNIA PARTNERSHIP
By: [signature] By: [signature]
-------------------------- -------------------------
Albert P. Hermann
Title: Gen. Mgr. Title: Vice President, Finance
-------------------------- -------------------------
Date: July 26, 1993 Date: July 19, 1993
-------------------------- -------------------------
Regarding:
Bishop Ranch 8, Building Q
3000 Executive Parkway, Suite 240
San Ramon, CA 94583
-2-
<PAGE>
EXHIBIT G
COMMENCEMENT OF FIRST LEASE ADDENDUM
It is hereby agreed to that as of August 18, 1993, the EXPANSION SPACE
located at 3000 EXECUTIVE PARKWAY, SUITE 240, described in the FIRST Lease
Addendum dated July 26, 1993, by and between ALEXANDER PROPERTIES COMPANY as
Landlord and LANIER WORLDWIDE, INC. as Tenant, were occupied by Tenant and
that said FIRST Lease Addendum is in full force and effect.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: [signature] By: [signature]
----------------------- -----------------------
Date: 8/18/93 Date: 8-18-93
----------------------- -----------------------
<PAGE>
SAN JOSE GATEWAY
OFFICE PROJECT
- - --------------------------------------------------------------------------------
ZAPME! CORPORATION
("TENANT")
LEASE DATED: SEPTEMBER 13, 1999
2099 GATEWAY PLACE, SUIT 340
SAN JOSE CA 95110
<PAGE>
OFFICE LEASE
THIS OFFICE LEASE ("Lease") is made between SPIEKER PROPERTIES, L.P., a
California limited partnership ("Landlord"), and ZAPME: CORPORATION, a
California corporation ("TENANT"), as of September 14, 1999 (the "DATE OF THIS
LEASE").
BASIC LEASE INFORMATION
PROJECT: SAN JOSE GATEWAY, SAN JOSE, CALIFORNIA
BUILDING: BUILDING KNOWN AS 2099 GATEWAY PLACE
DESCRIPTION OF PREMISES: Suite: 340 (the Premises is as outlined in
red or as shown in cross-hatching on
EXHIBIT B)
RENTABLE AREA OF PREMISES: approximately 5,355 square feet
PERMITTED USE: ASSOCIATED GENERAL OFFICE AND
ADMINISTRATIVE USE AND FOR NO OTHER
PURPOSES.
SCHEDULED TERM
COMMENCEMENT DATE: OCTOBER 1, 1999
SCHEDULED INITIAL TERM: 36 months
SCHEDULED EXPIRATION DATE: September 30, 2002
BASE RENT:
(a) Initial Annual Base Rent $156,156.00
(b) Initial Monthly Installment of Base
Rent: $13,013.00 MONTHS 1 THROUGH 12
$13,013.00 per month
(c) Subject to increase pursuant to
Paragraph 3.l (b) as follows:
MONTHS 13 THROUGH 24 $13,533.00 per
month
MONTHS 25 THROUGH 36 $14,074.00 per
month
PLUS:
ESTIMATED 1999
OPERATING EXPENSES: $3,052.00 per month
SECURITY DEPOSIT: $69,504.00 (equal to last four months base
rent and Estimated Operating Expenses) See
Paragraph 5.
TENANT'S PROPORTIONATE
SHARE OF BUILDING: 4.64 %
PARKING DENSITY: 4 spaces per 1,000 rentable square feet of
the Premises or 21 spaces
OCCUPANCY DENSITY: 4 persons per 1,000 rentable square feet of
the Premises or 21 people.
TENANT'S NAICS CODE: 48-13
TENANT CONTACT: Name: ROYCE JOHNSON
Telephone Number: 925-543-0300
FAX: 925-543-0301
ADDRESSES FOR NOTICES: To: Tenant To: Landlord
3000 EXECUTIVE PARKWAY 2077 GATEWAY
SUITE 150 PLACE, SUITE 100
SAN RAMON, CA 94538 SAN JOSE, CA 95110
Attn: ROYCE JOHNSON Attn: PROJECT
FAX: 925/543-0301 DIRECTOR
FAX: 408/291-6882
TENANT'S BILLING ADDRESS: 2099 GATEWAY PLACE, SUITE 320, SAN JOSE.
CA 95110
LANDLORD'S REMITTANCE ADDRESS: SPIEKER PROPERTIES, L.P., P.O. BOX 45587,
DEPT. #10083, SAN FRANCISCO, CA 94145-0587
IN WITNESS WHEREOF, the parties hereto have executed this Lease,
consisting of the foregoing Basic Lease Information, the following Standard
Lease Provisions consisting of PARAGRAPHS 1 THROUGH 22 (the "STANDARD LEASE
PROVISIONS") and EXHIBITS A, B, C, D and E, all of which are incorporated herein
by this reference (collectively, this "LEASE"). In the event of any conflict
between the provisions of the Basic Lease Information and the provisions of the
Standard Lease Provisions, the Standard Lease Provisions shall control.
"LANDLORD" "TENANT"
SPIEKER PROPERTIES, L.P., ZAPME! CORPORATION
a California limited partnership, a CALIFORNIA CORPORATION
Spieker Properties, Inc.,
a Maryland corporation, its general partner
By: /s/ XXX By: /s/ XXX
--------------------------------- ---------------------------
John W. Petersen
Its: Its: VP
-------------------------------- --------------------------
Vice President
Date: 21-Sept-99 Date: 9/17/99
------------------------------- -------------------------
<PAGE>
STANDARD LEASE PROVISIONS
1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, subject to all of the terms and conditions set forth herein,
those certain premises (the "PREMISES") described in the Basic Lease Information
and as outlined in red or as shown in the. cross-hatched markings on the floor
plan attached hereto as EXHIBIT B. The parties agree that for all purposes
hereunder the Premises shall be stipulated to contain the number of square feet
of rentable area described in the Basic Lease Information. The Premises are
located in that certain office building (the "BUILDING") whose street address is
as shown in the Basic Lease Information. The Building is located on that certain
land which is also improved with landscaping, parking facilities and other
improvements and appurtenances. Such land, together with all such improvements
and appurtenances and the Building, are all or part of a project which may
consist of more than one building and additional facilities, as described in the
Basic Lease Information (collectively referred to herein as the "PROJECT").
However, Landlord reserves the right to make such changes, additions and/or
deletions to such land, the Building and the Project and/or the common areas and
parking or other facilities thereof as it shall determine from time to time.
2. TERM.
(a) Unless earlier terminated in accordance with the
provisions hereof, the term of this Lease (the "TERM") shall be as set forth
in the Basic Lease Information; provided, however, in the event the Term
Commencement Date (defined below) occurs on a date other than the first day
of a calendar month, there shall be added to the Term the partial month
("PARTIAL LEASE MONTH") from the Term Commencement Date to (but not
including) the first day of the calendar month following the Term
Commencement Date.
(b) Subject to the provisions of this Paragraph 2, the Term
shall commence on the date (the "TERM COMMENCEMENT DATE") which is the
earlier of the date Landlord delivers the Premises to Tenant or the date
Tenant takes possession or commences use of any portion of the Premises for
any business purpose (including moving in). If this Lease contemplates the
construction of tenant improvements in the Premises by Landlord, Landlord
shall be deemed to have delivered the Premises to Tenant on the date
determined by Landlord's space planner to be the date of substantial
completion of the work to be performed by Landlord (as described in the
Improvement Agreement, if any, attached hereto as EXHIBIT C) (the
"IMPROVEMENT AGREEMENT"). Notwithstanding the foregoing, in the event that
Landlord is delayed in delivering the Premises by reason of any act or
omission of Tenant, the Term Commencement Date shall be (unless Tenant takes
possession or commences use of the Premises prior thereto) the date the
Premises would have been delivered by Landlord had such Tenant caused
delay(s) not occurred. This Lease shall be a binding contractual obligation
effective upon execution hereof by Landlord and Tenant, notwithstanding the
later commencement of the Term. Tenant acknowledges that Tenant has inspected
and accepts the Premises in their present condition, "as is", except for
tenant improvements (if any) to be constructed by Landlord in the Premises
pursuant to the Improvement Agreement, if any.
(c) In the event the Term Commencement Date is delayed or
otherwise does not occur on the Scheduled Term Commencement Date specified in
the Basic Lease Information, this Lease shall not be void or voidable, the
Term shall not be extended (except as provided in Paragraph 2(a)), and
Landlord shall not be liable to Tenant for any loss or damage resulting
therefrom; provided that Tenant shall not be liable for any Rent (defined
below) for any period prior to the Term Commencement Date except as may
otherwise be provided in this Lease. Landlord may deliver to Tenant
Landlord's standard form "START-UP LETTER" for Tenant's acknowledgment and
confirmation of the Term Commencement Date. Tenant shall execute and deliver
such Start-Up Letter to Landlord within five (5) days after receipt thereof,
but Tenant's failure or refusal to do so shall not negate Tenant's acceptance
of the Premises or affect determination of the Term Commencement Date.
3. RENT AND OPERATING EXPENSES.
3.1 BASE RENT
(a) Subject to the provisions of this Paragraph 3. l, Tenant
agrees to pay during the Term as Base Rent for the Premises the sums
specified in the Basic Lease Information (as increased from time to time as
provided in the Basic Lease Information or as may otherwise be provided in
this Lease) ("BASE RENT").
(b) Base Rent shall increase as set forth in the Basic Lease
Information or as may otherwise be provided in this Lease.
(c) Except as expressly provided to the contrary herein, Base
Rent shall be payable in equal consecutive monthly installments, in advance,
without deduction or offset, commencing on the Term Commencement Date and
continuing on the first day of each calendar month thereafter. However, the
first full monthly installment of Base Rent shall be payable upon Tenant's
execution of this Lease. If the Term Commencement Date is a day other than
the first day of a calendar month, then the Rent for the Partial Lease Month
(the "PARTIAL LEASE MONTH RENT") shall be prorated based on a month of 30
days. The Partial Lease Month Rent shall be payable by Tenant on the first
day of the calendar month next succeeding the Term Commencement Date. Base
Rent, all forms of additional rent payable hereunder by Tenant and all other
amounts, fees, payments or charges payable hereunder by Tenant (collectively,
"ADDITIONAL RENT") shall (i) each constitute rent payable hereunder (and
shall sometimes collectively be referred to herein as "RENT"), (ii) be
payable to Landlord in lawful money of the United States when due without any
prior demand therefor, except as may be expressly provided to the contrary
herein, and (iii) be payable to Landlord at Landlord's Remittance Address set
forth in the Basic Lease Information or to such other person or to such other
place as Landlord may from time to time designate in writing to Tenant. Any
Rent or other amounts payable to Landlord by Tenant hereunder for any
fractional month shall be prorated based on a month of 30 days.
3.2 OPERATING EXPENSES.
(a) Subject to the provisions of this Lease, Tenant shall pay
to Landlord pursuant to this Paragraph 3.2 as Additional Rent an amount equal
to Tenant's Proportionate Share (defined below) of Operating Expenses
(defined below) allocable to each Expense Year (defined below). "TENANT'S
PROPORTIONATE SHARE" is, subject to the provisions of this Paragraph 3.2, the
percentage number (representing the Premises share of the Building and the
Project) set forth in the Basic Lease information. An "EXPENSE YEAR" is any
calendar year any portion of which falls within the Term.
(b) "OPERATING EXPENSES" means all costs, expenses and
obligations incurred or payable by Landlord because of or in connection with
the operation, ownership, repair, replacement, restoration, management or
maintenance of the Project during or allocable to an Expense Year during the
Term (other than costs, expenses or obligations specifically attributable to
Tenant or other tenants of the Building or Project), all as determined by
sound accounting principles reasonably selected by Landlord and consistently
applied, including without limitation the following:
-1-
<PAGE>
(i) All property taxes, assessments, charges or
impositions and other similar governmental ad valorem or other charges levied
on or attributable to the Project (including personal and real property
contained therein) Or its ownership, operation or transfer, and all taxes,
charges, assessments or similar impositions imposed in lieu or substitution
(partially or totally) of the same (collectively, "TAXES"). "TAXES" shall
also include (A) all taxes, assessments, levies, charges or impositions on
any interest of Landlord in the Project, the Premises or in this Lease, or on
the occupancy or use of space in the Project or the Premises; or on the gross
or net rentals or income from the Project, including, without limitation, any
gross income tax, excise tax, sales tax or gross receipts tax levied by any
federal, state or local governmental entity with respect to the receipt of
Rent; or (B) any possessory taxes charged or levied in lieu of real estate
taxes; and
(ii) The cost of all utilities, supplies, equipment,
tools; materials, service contracts, janitorial services, waste and refuse
disposal, landscaping, and insurance (with the nature and extent of such
insurance to be carried by Landlord to be determined by Landlord in its sole
and absolute discretion); insurance deductibles; compensation and benefits of
all persons who perform services connected with the operation, management,
maintenance or repair of the Project; personal property taxes on and
maintenance and repair of equipment and other personal property; costs and
fees for administration and management of the Project (not to exceed five
percent (5%) of Project revenues in any Expense Year), whether by Landlord or
by an independent contractor, and other management office operational
expenses; rental expenses for or a reasonable allowance for depreciation of,
personal property used in the operation, management, maintenance or repair of
the Project, license, permit and inspection fees; and all inspections,
activities, alterations, improvements or other matters required by any
governmental or quasi-governmental authority or by Regulations (defined
below), for any reason, including, without limitation, capital improvements,
whether capitalized or not; all capital additions, repairs, replacements and
improvements made to the Project or any portion thereof by Landlord (A) of a
personal property nature and related to the operation, repair, maintenance or
replacement of systems, facilities, equipment or components of (or which
service) the Project or portions thereof, (B) required or provided in
connection with any existing or future applicable municipal, state, federal
or other governmental statutes, roles, requirements, regulations, laws,
standards, orders or ordinances including, without limitation, zoning
ordinances and regulations, and covenants, casements and restrictions of
record (collectively, "REGULATIONS"), (C) which are designed to improve the
operating efficiency of the Project, or (D) determined by Landlord to be
required to keep pace or be consistent with safety or health advances or
improvements (with such capital costs to be amortized over such periods as
Landlord shall determine with a return on capital at such rate as would have
been paid by Landlord on funds borrowed for the purpose of constructing such
capital items); common area repair, resurfacing, replacement, operation and
maintenance; security systems or services, if any, deemed appropriate by
Landlord (but without obligation to provide the same); and any other cost or
expense incurred or payable by Landlord in connection with the operation,
ownership, repair, replacement, restoration, management or maintenance of the
Project.
(c) Variable items of Operating Expenses (E.G., expenses that
are affected by variations in occupancy levels) for each Expense Year during
which actual occupancy of the Project is less than ninety-five percent (95%)
of the rentable area of the Project shall be appropriately adjusted, in
accordance with sound accounting principles, to reflect ninety-five percent
(95%) occupancy of the existing rentable area of the Project during such
period.
(d) Prior to or shortly following the commencement of(and from
time to time during) each calendar year of the Term following the Term
Commencement Date, Landlord shall have the right to give to Tenant a written
estimate of Tenant's Proportionate Share of the projected Operating Expenses
for the Project for such year. Commencing with the first day of the calendar
month following the month in which such estimate was delivered to Tenant,
Tenant shall pay such estimated amount (less amounts, if any, previously paid
toward such year) to Landlord in equal monthly installments over the
remainder of such calendar year, in advance on the first day of each month
during such year (or remaining months, if less than all of the year remains).
Subject to the provisions of this Lease, Landlord shall endeavor to furnish
to Tenant within a reasonable period after the end of each Expense Year, a
statement (a "RECONCILIATION STATEMENT") indicating in reasonable detail
Tenant's Proportionate Share of the Operating Expenses allocable to such
Expense Year and the parties shall, within thirty (30) days thereafter, make
any payment or allowance necessary to adjust Tenant's estimated payments to
Tenant's actual share of Operating Expenses as indicated by such annual
Reconciliation Statement.
(e) Tenant shall pay ten (10) days before delinquency all
taxes and assessments levied against any personal property or trade fixtures
of Tenant in or about the Premises. If any such taxes or assessments are
levied against Landlord or Landlord's property or if the assessed value of
the Project is increased by the inclusion therein of a value placed upon such
personal property or trade fixtures, Tenant shall, within ten (10) days of
demand, reimburse Landlord for the taxes and assessments so levied against
Landlord, or any such taxes, levies and assessments resulting from such
increase in assessed value.
(f) Any delay or failure of Landlord in (i) delivering any
estimate or statement described in this Paragraph 3.2, or (ii) computing or
billing Tenant's Proportionate Share of Operating Expenses shall not (A)
constitute a waiver of its right to subsequently deliver such estimate or
statement or require any increase in Rent contemplated by this paragraph 3.2,
or (B) in any way waive or impair the continuing obligations of Tenant under
this Paragraph 3.2. Provided that Tenant is not then in default under this
Lease, subject to compliance with Landlord's standard procedures for the
same, Tenant shall have the right, upon the condition that Tenant shall first
pay to Landlord the amount in dispute, to have independent certified public
accountants of national standing (who are not compensated on a contingency
basis) of Tenant's selection (and subject to Landlord's reasonable approval)
review Landlord's Operating Expense books and records relating to the Expense
Year subject to a particular Reconciliation Statement during the sixty-day
period following delivery to Tenant of the Reconciliation Statement for such
Expense Year. If such review discloses a liability for a refund in excess
often percent (10%) of Tenant's Proportionate Share of Operating Expenses
previously reported, the cost of such review shall be borne by Landlord;
otherwise such cost shall be borne by Tenant. Tenant waives the right to
dispute or contest, and shall have no right to dispute or contest, any matter
relating to the calculation of Operating Expenses or other forms of Rent
under this Paragraph 3.2 with respect to each Expense Year for which a
Reconciliation Statement is given to Tenant if no claim or dispute with
respect thereto is asserted by Tenant in writing to Landlord within sixty
(60) days of delivery to Tenant of the original or most recent Reconciliation
Statement with respect thereto.
(g) This shall be a triple net Lease and Base Rent shall be
paid to Landlord absolutely net of all costs and expenses, except as
specifically provided to the contrary in this Lease. The provisions for
payment of Operating Expenses and the Operating Expense adjustment are
intended to pass on to Tenant and reimburse Landlord for all costs and
expenses of the nature described in Paragraph 3.20o) incurred in connection
with the operation, ownership, repair, replacement, restoration, management
or maintenance of the Building and/or Project.
4. DELINQUENT PAYMENT: HANDLING CHARGES. In the event Tenant is more
than three (3) days late in paying any amount of Rent or any other payment
due under this Lease, Tenant shall pay Landlord, within ten (10) days of
Landlord's written demand therefor, a late charge equal to five percent (5%)
of the delinquent amount, or $150.00, whichever amount is greater. In
addition, any amount due from Tenant to Landlord hereunder which is not paid
within ten (10) days of the date due shall bear interest at an annual rate
(the "DEFAULT RATE") equal to twelve percent (12%).
5. SECURITY DEPOSIT. Contemporaneously with the execution of this
Lease, Tenant shall pay to Landlord the amount of Security Deposit (the
"SECURITY DEPOSIT") specified in the Basic Lease Information, which shall be
held by Landlord to secure Tenant's performance of its obligations under
-2-
<PAGE>
this Lease. The Security Deposit is not an advance payment of Rent or a measure
or limit of Landlord's damages upon a default by Tenant or an Event of Default
(defined below). If Tenant defaults with respect to any provision of this Lease,
Landlord may, but shall not be required to, use, apply or retain all or any part
of the Security Deposit (a) for the payment of any Rent or any other sum in
default, (b) for the payment of any other amount which Landlord may spend or
become obligated to spend by reason of such default by Tenant, and (e) to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of such default by Tenant. If any portion of the Security Deposit is so
used or applied, Tenant shall, within ten (10) days after demand therefor by
Landlord, deposit with Landlord cash in an amount sufficient to restore the
Security Deposit to the amount required to be maintained by Tenant hereunder.
Within a reasonable period following expiration or the sooner termination of
this Lease, provided that Tenant has performed all of its obligations hereunder,
Landlord shall return to Tenant the remaining portion of the Security Deposit.
The Security Deposit may be commingled by Landlord with Landlord's other funds,
and no interest shall be paid thereon. If Landlord transfers its interest in the
Premises, then Landlord may assign the Security Deposit to the transferee and
thereafter Landlord shall have no further liability or obligation for the return
of the Security Deposit. Tenant hereby waives the provisions of Section 1950.7
of the California Civil Code, and all other provisions of any Regulations, now
or hereinafter in force, which restricts the amount or types of claim that a
landlord may make upon a security deposit or imposes upon a landlord (or its
successors) any obligation with respect to the handling or return of security
deposits. LANDLORD SHALL, AT TENANT'S WRITTEN REQUEST, RETURN $34,752.00 OF THE
SECURITY DEPOSIT, WHEN TENANT'S NET ASSETS ARE IN EXCESS OF ONE HUNDRED MILLION
DOLLARS ($100,000,000).
6. LANDLORD'S OBLIGATIONS.
6.1 SERVICES. Subject to the provisions of this Lease,
Landlord shall furnish to Tenant during the Term (a) city or utility company
water at those points of supply provided for general use of the tenants of
the Building; (b) subject to mandatory and voluntary Regulations, heating and
air conditioning during ordinary business hours of generally recognized
business days designated by Landlord (which in any event shall not include
Saturdays, Sundays or legal holidays) ("BUSINESS HOURS") for the Building at
such temperatures and in such amounts as Landlord reasonably determines is
appropriate for normal comfort for normal office use in the Premises; (c)
janitorial services to the Premises on weekdays, other than on legal
holidays, for Building-standard installations; (d) nonexclusive passenger
elevator service; and (e) adequate electrical current during such Business
Hours for equipment that does not require more than 110 volts and whose
electrical energy consumption does not exceed normal office usage in a
premises of the size of the Premises, as determined by Landlord. If Tenant
desires any of the services specified in this Paragraph 6. l at any time
other than during Business Hours, then subject to such nondiscriminatory
conditions and standards as Landlord shall apply to the same, upon the
written request of Tenant, such services shall be supplied to Tenant in
accordance with Landlord's customary procedures for the Building, including
such advance request deadlines as Landlord shall require from time to time,
and Tenant shall pay to Landlord Landlord's then customary charge for such
services within ten (10) days after Landlord has delivered to Tenant an
invoice therefor. Landlord reserves the right to change the supplier or
provider of any such service from time to time. Tenant shall not have the
right to obtain any such service for the Premises directly from a supplier or
provider of such service except as provided in Paragraph 6.4 below.
6.2 EXCESS UTILITY USE. Landlord shall not be required to
furnish electrical current for, and Tenant shall not install or use, without
Landlord's prior written consent, any equipment (a) that requires more than
110 volts, (b) whose operation is in excess of, or inconsistent with, the
capacity of the Building (or existing feeders and risers to, or wiring in,
the Premises) or (c) whose electrical energy consumption exceeds normal
office usage of up to three (3) watts of connected load per usable square
foot ("STANDARD USAGE"). Subject to the provisions of this Paragraph 6.2, if
Tenant's consumption of electricity exceeds the electricity to be provided by
Landlord above or Standard Usage (which shall be determined by separate
metering to be installed at Tenant's expense or by such other method as
Landlord shall reasonably select), Tenant shall pay to Landlord Landlord's
then customary charge for such excess consumption within ten (10) days after
Landlord has delivered to Tenant an invoice therefor.
6.3 RESTORATION OF SERVICES. Following receipt of Tenant's
request to do so, Landlord shall use good faith efforts to restore any
service specifically to be provided under Paragraph 6.1 that becomes
unavailable and which is in Landlord's reasonable control to restore;
provided, however, that in no case shall the unavailability of such services
or any other service (or any diminution in the quality or quantity thereof)
or any interference in Tenant's business operations within the Premises
render Landlord liable to Tenant or any person using or occupying the
Premises under or through Tenant (including, without limitation, any
contractor, employee, agent, invitee or visitor of Tenant) (each, a "TENANT
PARTY") for any damages of any nature whatsoever caused thereby, constitute a
constructive eviction of Tenant, constitute a breach of any implied warranty
by Landlord, or entitle Tenant to any abatement of Tenant's rental
obligations hereunder.
6.4 TELECOMMUNICATIONS SERVICES. Tenant may contract
separately with providers of telecommunications or cellular products, systems
or services for the Premises. Even though such products, systems or services
may be installed or provided by such providers in the Building, in
consideration for Landlord's permitting such providers to provide such
services to Tenant, Tenant agrees that Landlord and the Landlord Indemnitees
(defined below) shall in no event be liable to Tenant or any Tenant Party for
any damages of any nature whatsoever arising out of or relating to the
products, systems or services provided by such providers (or any failure,
interruption, defect in or loss of the same) or any acts or omissions of such
providers in connection with the same or any interference in Tenant's
business caused thereby. Tenant waives and releases all rights and remedies
against Landlord and the Landlord Indemnitees that are inconsistent with the
foregoing.
7. IMPROVEMENTS, ALTERATIONS, REPAIRS AND MAINTENANCE.
7.1 IMPROVEMENTS; ALTERATIONS. Any alterations, additions,
deletions, modifications or utility installations in, of or to the
improvements contained within the Premises (collectively, "ALTERATIONS")
shall be installed at Tenant's expense and only in accordance with detailed
plans and specifications, construction methods, and all appropriate permits
and licenses, all of which have been previously submitted to and approved in
writing by Landlord, and by a professionally qualified and licensed
contractor and subcontractors approved by Landlord. No Alterations in or to
the Premises may be made without (a) Landlord's prior written consent and (b)
compliance with such nondiscriminatory requirements and construction
regulations concerning such Alterations as Landlord may impose from time to
time. Landlord will not be deemed to unreasonably withhold its consent to any
Alteration that violates Regulations, may affect or be incompatible with the
Building's structure or its HVAC, plumbing, telecommunications, elevator,
life-safety, electrical, mechanical or other basic systems, or the appearance
of the interior common areas or exterior of the Project, or which may
interfere with the use or occupancy of any other portion of the Project. All
Alterations made in or upon the Premises shall, (i) at Landlord's option,
either be removed by Tenant prior to the end of the Term (and Tenant shall
restore the portion of the Premises affected to its condition existing
immediately prior to such Alteration), or shall remain on the Premises at the
end of the Term, (ii) be constructed, maintained, insured and used by Tenant,
at its risk and expense, in a first-class, good and workmanlike manner, and
in accordance with all Regulations, and (iii) shall be subject to payment of
Landlord's standard alterations supervision fee. If any Alteration made or
initiated by Tenant or the removal thereof shall cause, trigger or result in
any portion of the Project outside of the Premises, any portion of the
Building's shell and core improvements (including restrooms, if any) within
the Premises, or any Building system inside or outside of the Premises being
required by any governmental authority to be altered, improved or removed, or
may otherwise potentially affect such portions of the Project or any other
tenants of the Project, Landlord shall have
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the option (but not the obligation) of performing the same at Tenant's expense,
in which case Tenant shall pay to Landlord (within ten (10) days of Landlord's
written demand) in advance Landlord's reasonable estimate of the cost of such
work, and any actual costs of such work in excess of Landlord's estimate, plus
an administrative charge of fifteen percent (15%) thereof. At least ten (10)
days before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to permit
Landlord to post and record a notice of non-responsibility. Upon substantial
completion of construction, if the law so provides, Tenant shall cause a timely
notice of completion to be recorded in the office of the recorder of the county
in which the Building is located.
7.2 REPAIRS AND MAINTENANCE. Tenant shall maintain at all
times during the Term the Premises and all portions and components of the
improvements and systems contained therein in a first-class, good, clean,
safe, and operable condition, and shall not permit or allow to remain any
waste or damage to any portion of the Premises. Tenant shall repair or
replace, as needed, subject to Landlord's direction and supervision, any
damage to the Building or the Project caused by Tenant or any Tenant Party.
If any such damage occurs outside of the Premises or relates to any Building
system, or if Tenant fails to perform Tenant's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease within ten (10) days
after written notice from Landlord (except in the case of an emergency, in
which case no notice shall be required), then Landlord may elect to perform
such obligations and repair such damage itself at Tenant's expense. The cost
of all repair or replacement work performed by Landlord under this Paragraph
7.2, plus an administrative charge of fifteen percent (15%) of such cost,
shall be paid by Tenant to Landlord within ten (10) days of receipt of
Landlord's invoice therefor as Additional Rent. Tenant hereby waives all
common law and statutory rights or provisions inconsistent herewith, whether
now or hereinafter in effect (including, without limitation, Sections 1941,
1941.1, and 1941.2 of the California Civil Code, as amended from time to
time). Landlord shall use reasonable efforts to maintain the common areas of
the Project at all times during the Term with the cost thereof constituting
an Operating Expense under Paragraph 3.2.
7.3 MECHANIC'S LIENS. Tenant shall not cause, suffer or permit
any mechanic's or materialman's lien, claim, or stop notice to be filed or
asserted against the Premises, the Building or any funds of Landlord for any
work performed, materials furnished, or obligation incurred by or at the
request of Tenant or any Tenant Party. If any such lien, claim or notice is
flied or asserted, then Tenant shall, within ten (10) days after Landlord has
delivered notice of the same to Tenant, either (a) pay and satisfy in full
the amount of (and eliminate of record) the lien, claim or notice or (b)
diligently contest the same and deliver to Landlord a bond or other security
therefor in substance and amount (and issued by an issuer) satisfactory to
Landlord.
8. USE. Tenant shall continuously occupy and use the Premises only for
general office use or uses incidental thereto, all of which shall be
consistent with the standards of a first class office project (the "PERMITTED
USE") and shall comply, at Tenant's expense, with all Regulations relating to
the use, condition, alteration, improvement, access to, and occupancy of the
Premises, including without limitation, Regulations relating to Hazardous
Materials (defined below). Should any Regulation now or hereafter be imposed
on Tenant or Landlord by any governmental body relating to the use or
occupancy of the Premises or the Project common areas by Tenant or any Tenant
Party or concerning occupational, health or safety standards for employers,
employees, or tenants, then Tenant agrees, at its sole cost and expense, to
comply promptly with such Regulations if such Regulations relate to anything
within the Premises or if compliance with such Regulations is within the
control of Tenant and applies to an area outside of the Premises. Tenant
shall conduct its business and shall cause each Tenant Party to act in such a
manner as to (a) not release or permit the release of any Hazardous Material
in, under, on or about the Project in violation of any Regulations, (b) use
or store any Hazardous Materials (other than incidental amounts of cleaning
and office supplies) in or about the Premises or (c) not create or permit any
nuisance or unreasonable interference with or disturbance of other tenants of
the Project or Landlord in its management of the Project or (d) not create
any occupancy density in the Premises or parking density with respect to
Tenant and any Tenant Party at the Project greater than those specified in
the Basic Lease Information. "HAZARDOUS MATERIAL" means any hazardous,
explosive, radioactive or toxic substance, material or waste which is or
becomes regulated by any local, state or federal governmental authority or
agency, including, without limitation, any material or substance which is (i)
defined or listed as a "hazardous waste," "extremely hazardous waste,"
"restricted hazardous waste," "hazardous substance," "hazardous material,"
"pollutant" or "contaminant" under any Regulation, (ii) a flammable
explosive, (iii) a radioactive material, (iv) a polychlorinated biphenyl, (v)
asbestos or asbestos containing material, or (vi) a carcinogen.
9. ASSIGNMENT AND SUBLETTING.
9.l TRANSFERS; CONSENT. Tenant shall not, without the prior
written consent of Landlord, (a) assign, transfer, mortgage, hypothecate, or
encumber this Lease or any estate or interest herein, whether directly,
indirectly or by operation of law, (b) permit any other entity to become a
Tenant hereunder by merger, consolidation, or other reorganization, (c) if
Tenant is a corporation, partnership, limited liability company, limited
liability partnership, trust, association or other business entity (other
than a corporation whose stock is publicly traded), permit, directly or
indirectly, the transfer of any ownership interest in Tenant so as to result
in (i) a change in the current control of Tenant, (ii) a transfer of
twenty-five percent (25%) or more in the aggregate in any twelve (12) month
period in the beneficial ownership of such entity or (iii) a transfer of all
or substantially all of the assets of Tenant, (d) sublet any portion of the
Premises, or (e) grant any license, concession, or other right of occupancy
of or with respect to any portion of the Premises, or (f) permit the use of
the Premises by any party other than Tenant or a Tenant Party (each of the
events listed in this Paragraph 9.1 being referred to herein as a
"TRANSFER"). If Tenant requests Landlord's consent to any Transfer, then at
least twenty (20) business days prior to the effective date of the proposed
Transfer, Tenant shall provide Landlord with a written description of all
terms and conditions of the proposed Transfer and all consideration therefor
(including a calculation of the Transfer Profits described below), copies of
the proposed documentation, and the following information relating to the
proposed transferee: name and address; information reasonably satisfactory to
Landlord concerning the proposed transferee's business and business history;
its proposed use Of the Premises; banking, financial, and other credit
information; and general references sufficient to enable Landlord to
determine the proposed transferee's creditworthiness and character. Landlord
shall not unreasonably withhold its consent to any assignment or subletting
of the Premises, provided that the parties agree that it shall be reasonable
for Landlord to withhold any such consent if, without limitation, Landlord
determines in good faith that (A) the proposed transferee is not of a
reasonable financial standing or is not creditworthy, (B) the proposed
transferee is a governmental agency, (C) the proposed transferee, or any
affiliate thereof, is then an occupant in the Project or has engaged in
discussions with Landlord concerning a lease of direct space in the Project,
(D) the proposed Transfer would result in a breach of any obligation of
Landlord or permit any other tenant in the Project to terminate or modify its
lease, (E) there is then in effect an uncured Event of Default, (F) the
Transfer would increase the occupancy density or parking density of the
Project or any portion thereof, (G) the Transfer would result in an
undesirable tenant mix for the Project, as determined in good faith by
Landlord, (H) the proposed transferee does not enjoy a good reputation, as a
business or as a tenant; or (I) any guarantor of the Lease does not consent
to such Transfer in a form satisfactory to Landlord. Any Transfer made
without Landlord's consent shall be void and, at Landlord's election, shall
constitute an Event of Default by Tenant. Tenant shall also, within ten (10)
days of written demand therefor, pay to Landlord $500 as a review fee for
each Transfer request, and reimburse Landlord for its reasonable attorneys'
fees and all other costs incurred in connection with considering any request
for consent to a proposed Transfer. If Landlord consents to a proposed
Transfer, then the proposed transferee shall deliver to Landlord Landlord's
standard form transfer consent and agreement whereby the proposed transferee
expressly assumes the Tenant's obligations hereunder. Landlord's consent to a
Transfer shall not release Tenant from its obligations under this Lease (or
any guarantor of this Lease of its obligations with respect thereto), but
rather Tenant and
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its transferee shall be jointly and severally liable for all obligations under
this Lease allocable to the space subject to such Transfer. Landlord's consent
to any Transfer shall not waive Landlord's rights as to any subsequent
Transfers. In the event of any claim by Tenant that Landlord has breached its
obligations under this Paragraph 9.1, Tenant's remedies shall be limited to
recovery of its out-of-pocket damages and injunctive relief.
9.2 CANCELLATION AND RECAPTURE. Notwithstanding Paragraph 9.1,
Landlord may (but shall not be obligated to), within ten (10) business days
after submission of Tenant's written request for Landlord's consent to an
assignment or subletting, cancel this Lease as to the portion of the Premises
proposed to be sublet or subject to an assignment of this Lease ("TRANSFER
SPACE") as of the date such proposed Transfer is proposed to be effective
and, thereafter, Landlord may lease such portion of the Premises to the
prospective transferee (or to any other person or entity or not at all)
without liability to Tenant. If Landlord shall not cancel this Lease within
such ten (10) business day period and notwithstanding any Landlord consent to
the proposed Transfer, Tenant shall pay to Landlord, immediately upon receipt
thereof, the entire excess ("TRANSFER PROFITS") of all compensation and other
consideration paid to or for the benefit of Tenant (or any affiliate thereof)
for the Transfer in excess of Base Rent and Additional Rent payable by Tenant
hereunder (with respect to the Transfer Space) during the remainder of the
Term (after straight-line amortization of any reasonable brokerage
commissions and tenant improvement costs paid by Tenant in connection with
the Transfer over the term of the Transfer). In any assignment or subletting
undertaken by Tenant, Tenant shall diligently seek to obtain the maximum
rental amount available in the marketplace for comparable space available for
primary leasing.
10. INSURANCE, WAIVERS, SUBROGATION AND INDEMNITY.
10.1 INSURANCE. Tenant shall maintain throughout the Term each
of the insurance policies described on EXHIBIT D attached hereto and shall
otherwise comply with the obligations and requirements provided on EXHIBIT D.
10.2 WAIVER OF SUBROGATION. Landlord and Tenant each waives any
claim, loss or cost it might have against the other for any injury to or
death of any person or persons, or damage to or theft, destruction, loss, or
loss of use of any property (a "LOSS"), to the extent the same is insured
against (or is required to be insured against under the terms hereof) under
any "all risk" property damage insurance policy covering the Building, the
Premises, Landlord's or Tenant's fixtures, personal property, leasehold
improvements, or business, regardless of whether the negligence of the other
party caused such Loss.
10.3 INDEMNITY. Subject to Paragraph 10.2, Tenant shall
indemnify, defend and hold Landlord, Spieker Properties, Inc., and each of
their respective directors, shareholders, partners, lenders, members,
managers, contractors, affiliates and employees (collectively, "Landlord
INDEMNITEES") from and against all claims, demands, proceedings, losses,
obligations, liabilities, causes of action, suits, judgments, damages,
penalties, costs and expenses (including, without limitation, reasonable
attorneys' fees and court costs) arising from or asserted in connection with
the use or occupancy of the Premises by Tenant or any Tenant Party,
including, without limitation, by reason of any release of any Hazardous
Materials by Tenant or any Tenant Party in, under, on, or about the Project,
or any negligence or misconduct of Tenant or of any Tenant Party in or about
the Premises, or Tenant's breach of any of its covenants under this Lease,
except in each case to the extent arising from the gross negligence or
willful misconduct of Landlord or any Landlord Indemnitee. Except to the
extent expressly provided in this Lease, Tenant hereby waives all claims
against and releases Landlord and each Landlord Indemnitee for any injury to
or death of persons, damage to property or business loss in any manner
related to (i) Tenant's use and occupancy of the Premises, (ii) acts of God,
(iii) acts of third parties, or (iv) any matter outside of the reasonable
control of Landlord. This Paragraph 10.3 shall survive termination or
expiration of this Lease.
11. SUBORDINATION; ATTORNMENT.
11.1 SUBORDINATION. This Lease is subject and subordinate to
all present and future ground or master leases of the Project and to the lien
of all mortgages or deeds of trust (collectively, "SECURITY INSTRUMENTS") now
or hereafter encumbering the Project, 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 any such
Security Instruments, unless the holders of any such mortgages or deeds of
trust, or the lessors under such ground or master leases (such holders and
lessors are sometimes collectively referred to herein as "HOLDERS") require
in writing that this Lease be superior thereto. Notwithstanding any provision
of this Paragraph 11 to the contrary, any Holder of any Security Instrument
may at any time subordinate the lien of its Security Instrument to this.
Lease without obtaining Tenant's consent by giving Tenant written notice of
such subordination, in which event this Lease shall be deemed to be senior to
the Security Instrument in question. Tenant shall, within fifteen (15) days
of request to do so by Landlord, execute, acknowledge and deliver to Landlord
such further instruments or assurances as Landlord may deem necessary or
appropriate to evidence or confirm the subordination or superiority of this
Lease to any such Security Instrument; provided, however, that at the request
of Tenant made within five (5) days of any such Landlord request, Landlord
shall use commercially reasonable efforts to obtain for the benefit of Tenant
such Holder's standard nondisturbance agreement. 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 within said fifteen (15)
day period.
11.2 ATTORNMENT. Tenant covenants and agrees that in the event
that any proceedings are brought for the foreclosure of any mortgage or deed
of trust, or if any ground or master lease is terminated, it shall attorn,
without any deductions or set-offs whatsoever, to the purchaser upon any such
foreclosure sale, or to the lessor of such ground or master lease, as the
case may be, if so requested to do so by such purchaser or lessor, and to
recognize such purchaser or lessor as "Landlord" under this Lease. If
requested, Tenant shall enter into a new lease with that successor on the
same terms and conditions as are contained in this Lease (for the unexpired
portion of the Term then remaining).
12. RULES AND REGULATIONS. Tenant shall comply, and shall cause each
Tenant Party to comply, with the Rules and Regulations of the Building which
are attached hereto as EXHIBIT A, and all such nondiscriminatory
modifications, additions, deletions and amendments thereto as Landlord shall
adopt in good faith from time to time.
13. CONDEMNATION. If the entire Project or Premises are taken by right
of eminent domain or conveyed by Landlord in lieu thereof (a "TAKING"), this
Lease shall terminate as of the date of the Taking. If any part of the
Project becomes subject to a Taking and such Taking will prevent Tenant from
conducting its business in the Premises in a manner reasonably comparable to
that conducted immediately before such Taking for a period of more than one
hundred eighty (180) days, then Tenant may terminate this Lease as of the
date of such Taking by giving written notice to Landlord within thirty (30)
days after the Taking, and al Rent paid or payable hereunder shall be
apportioned between Landlord and Tenant as of the date of such Taking. If any
material portion, but less than all, of the Project, Building or the Premises
becomes subject to a Taking, or if Landlord is required to pay any of the
proceeds received for a Taking to any Holder of any Security Instrument, then
Landlord may terminate this Lease by delivering written notice thereof to
Tenant within thirty (30) days after such Taking, and all Rent paid or
payable hereunder shall be apportioned between Landlord and Tenant as of the
date of such Taking. If this Lease is not so terminated, then Base Rent
thereafter payable hereunder shall be abated for the duration of the Taking
in proportion to that portion of the Premises rendered untenantable by such
Taking. If any Taking occurs, then
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Landlord shall receive the entire award or other compensation for the land on
which the Project is situated, the Project, and other improvements taken, and
Tenant may separately pursue a claim (to the extent it will not reduce
Landlord's award) against the condemnor for the value of Tenant's personal
property which Tenant is entitled to remove under this Lease and moving and
relocation costs. Landlord and Tenant agree that the provisions of this
Paragraph 13 and the remaining provisions of this Lease shall exclusively govern
the rights and obligations of the parties with respect to any Taking of any
portion of the Premises, the Building, the Project or the land on which the
Building is located, and Landlord and Tenant hereby waive and release each and
all of their respective common law and statutory rights inconsistent herewith,
whether now or hereinafter in effect (including, without limitation, Section
1265.130 of the California Code of Civil Procedure, as amended from time to
time).
14. FIRE OR OTHER CASUALTY.
14.1 REPAIR ESTIMATE; RIGHT TO TERMINATE. If all or any portion
of the Premises, the Building or the Project is damaged by fire or other
casualty (a "CASUALTY"), Landlord shall, within ninety (90) days after
Landlord's discovery of such damage, deliver to Tenant its good faith
estimate (the "DAMAGE NOTICE") of the time period following such notice
needed to repair the damage caused by such Casualty. Landlord may elect to
terminate this Lease in any case where (a) any portion of the Premises or any
material portion of the Project are damaged and (b) either (i) Landlord
estimates in good faith that the repair and restoration of such damage under
Paragraph 14.2 ("RESTORATION") cannot reasonably be completed (without the
payment of overtime) within two hundred (200) days of Landlord's actual
discovery of such damage, (ii) the Holder of any Security Instrument requires
the application of any insurance proceeds with respect to such Casualty to be
applied to the outstanding balance of the obligation secured by such Security
Instrument, (iii) the cost of such Restoration is not fully covered by
insurance proceeds available to Landlord and/or payments received by Landlord
from tenants, or (iv) Tenant shall be entitled to an abatement of rent under
this Paragraph 14 for any period of time in excess of thirty-three percent
(33%) of the remainder of the Term. Such right of termination shall be
exercisable by Landlord by delivery of written notice to Tenant at any time
following the Casualty until forty-five (45) days following the later of(A)
delivery of the Damage Notice or (B) Landlord's discovery or determination of
any of the events described in clauses (i) through (iv) of the preceding
sentence, and shall be effective upon delivery of such notice of termination
(or if Tenant has not vacated the Premises, upon the expiration of thirty
(30) days thereafter).
14.2 REPAIR OBLIGATION; ABATEMENT OF RENT. Subject to the
provisions of Paragraph 14.1, Landlord shall, within a reasonable time after
the discovery by Landlord of any damage resulting from a Casualty, begin to
repair the damage to the Building and the Premises resulting from such
Casualty and shall proceed with reasonable diligence to restore the Building
and Premises to substantially the same condition as existed immediately
before such Casualty, except for modifications required by Regulations, and
modifications to the Building or the Project reasonably deemed desirable by
Landlord; provided, however, that Landlord shall not be required as part of
the Restoration to repair or replace any of the Alterations, furniture,
equipment, fixtures, and other improvements which may have been placed by, or
at the request of, Tenant or other occupants in the Building or the Premises.
Landlord shall have no liability for any inconvenience or annoyance to Tenant
or injury to Tenant's business as a result of any Casualty, regardless of the
cause therefor. Base Rent, and Additional Rent payable under Paragraph 3.2,
shall abate if and to the extent a Casualty damages the Premises or common
areas in the Project required and essential for access thereto and as a
result thereof all or a material portion of the Premises are rendered unfit
for occupancy, and are not occupied by Tenant, for the period of time
commencing on the date Tenant vacates the portion of the Premises affected on
account thereof and continuing until the date the Restoration to be performed
by Landlord with respect to the Premises (and/or required common areas) is
substantially complete, as determined by Landlord's architect. Landlord and
Tenant agree that the provisions of this Paragraph 14 and the remaining
provisions of this Lease shall exclusively govern the rights and obligations
of the parties with respect to any and all damage to, or destruction of, all
or any portion of the Premises or the Project by Casualty, and Landlord and
Tenant hereby waive and release each and all of their respective common law
and statutory rights inconsistent herewith, whether now or hereinafter in
effect (including, without limitation, Sections 1932(2) and 1933(4) of the
California Civil Code, as amended from time to time).
15. PARKING. Tenant shall have the right to the nonexclusive use of such
portion of the parking facilities of the Project as are designated by Landlord
from time to time for such purpose for the parking of passenger-size motor
vehicles used by Tenant and Tenant Parties only and are not transferable without
Landlord's approval. The use of such parking facilities shall be subject to the
parking rules and regulations attached hereto as EXHIBIT ___, as such rules and
regulations may be modified by Landlord from time to time, for the use of such
facilities.
16. EVENTS OF DEFAULT. Each of the following occurrences shall be an "EVENT
OF DEFAULT" and shall constitute a material default and breach of this Lease by
Tenant: (a) any failure by Tenant to pay any installment of Base Rent,
Additional Rent or to make any other payment required to be made by Tenant
hereunder when due; (b) the abandonment or vacation of the Premises by Tenant,
provided, however, that unless Tenant is using the Premises for a retail use,
abandonment or vacation of the Premises shall not be an Event of Default so long
as no other Event of Default has occurred hereunder and provided Tenant has
given Landlord five (5) days' prior written notice of its intent to vacate the
Premises; (c) any failure by Tenant to execute and deliver any estoppel
certificate or other document or instrument described in Paragraphs 10
(insurance), 11 (subordination) or 21.2 (estoppel certificates) requested by
Landlord, where such failure continues for five (5) days after delivery of
written notice of such failure by Landlord to Tenant; (d) any failure, by Tenant
to fully perform any other obligation of Tenant under this Lease, where such
failure continues for thirty 00) days (except where a shorter period of time is
specified in this Lease, in which case such shorter time period shall apply)
after delivery of written notice of such failure by Landlord to Tenant; (e) the
voluntary or involuntary filing of a petition by or against Tenant or any
general partner of Tenant (i) in any bankruptcy or other insolvency proceeding,
(ii) seeking any relief under any state or federal debtor relief law, (iii) for
the appointment of a liquidator or receiver for all or substantially all of
Tenant's property or for Tenant's interest in this Lease, or (iv) for the
reorganization or modification of Tenant's capital structure (provided, however,
that if such a petition is filed against Tenant, then such filing shall not be
an Event of Default unless Tenant fails to have the proceedings initiated by
such petition dismissed within sixty (60) days after the filing thereof); (f)
the default of any guarantor of Tenant's obligations hereunder under any
guaranty of this Lease, the attempted repudiation or revocation of any such
guaranty, or the participation by any such guarantor in any other event
described in this Paragraph 16 (as if this Paragraph 16 referred to such
guarantor in place of Tenant); or (g) any other event, act or omission which any
other provision of this Lease identifies as an Event of Default. Any notice of
any failure of Tenant required under this Paragraph 16 shall be in lieu of, and
not in addition to, any notice required under Section 1161 ET SEQ. of the
California Code of Civil Procedure.
17. REMEDIES. 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 (all of which remedies shall be distinct, separate, and
cumulative), the option to pursue any one (1) or more of the following remedies,
each and all of which shall be cumulative and nonexclusive, without any notice
or demand whatsoever:
(a) Terminate this Lease, and Landlord may recover from Tenant
the following: (i) the worth at the time 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 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
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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, without limitation, 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 (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 Paragraph 17(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. As used in Paragraphs 17(a)(i) and
(ii), above, the "WORTH AT THE TIME OF award" shall be computed by allowing
interest at the Default Rate, but in no case greater than the maximum amount of
such interest permitted by law. As used in Paragraph 17(a)(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%).
(b) 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 Event of 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.
(c) Landlord shall at all times have the rights and remedies
(which shall be cumulative with each other and cumulative and in addition to
those rights and remedies available under Paragraphs 17(a) and 17(b) above,
or any law or other provision of this Lease), without prior demand or notice
except as required by applicable law, to seek any declaratory, injunctive, or
other equitable relief, and specifically enforce this Lease, or restrain or
enjoin a violation or breach of any provision hereof.
(d) Following the occurrence of three instances of payment of
Rent more than ten (10) days late in any twelve (12) month period, the late
charge set forth in Paragraph 4 shall apply from the date payment was due and
Landlord may, without prejudice to any other rights or remedies available to
it, upon written notice to Tenant, require that all remaining monthly
installments of Rent payable under this Lease shall be payable by cashier's
check or electronic funds transfer three (3) months in advance, and may
require that Tenant increase the Security Deposit to an amount equal to three
times the current month's Rent at the time of the most recent default. In
addition, (i) upon the occurrence of an Event of Default by Tenant, if the
Premises or any portion thereof are sublet, Landlord may, at its option and
in addition and without prejudice to any other remedies herein provided or
provided by law, collect directly from the sublessee(s) all rentals becoming
due to the Tenant and apply such rentals against other sums due hereunder to
Landlord; (ii) without prejudice to any other right or remedy of Landlord, if
Tenant shall be in default under this Lease, Landlord may cure the same at
the expense of Tenant (A) immediately and without notice in the case (1) of
emergency, (2) where such default unreasonably interferes with any other
tenant in the Building, or (3) where such default will result in the
violation of any Regulation or the cancellation of any insurance policy
maintained by Landlord, and (B) in any other case if such default Continues
for ten (10) days following the receipt by Tenant of notice of such default
from Landlord and all costs incurred by Landlord in curing such default(s),
including, without limitation, attorneys' fees, shall be reimbursable by
Tenant as Rent hereunder upon demand, together with interest thereon, from
the date such costs were incurred by Landlord, at the Default Rate; and (iii)
Tenant hereby waives for Tenant and for all those claiming under Tenant all
rights now and 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.
18. SURRENDER OF PREMISES. No act by Landlord shall be deemed an acceptance
of a surrender of the Premises, and no agreement to accept a surrender of the
Premises shall be valid unless it is in writing and signed by Landlord. At the
expiration or earlier termination of this Lease, Tenant shall deliver to
Landlord all keys (including any electronic access devices and the like) to the
Premises, and Tenant shall deliver to Landlord the Premises in the same
condition as existed on the date Tenant originally took possession thereof,
ordinary wear and tear excepted, provided that ordinary wear and tear shall not
include repair and clean up items. By way of example, but without limitation,
repair and clean up items shall include cleaning of all interior walls, carpets
and floors, replacement of damaged or missing ceiling or floor tiles, window
coverings or cover plates, removal of any Tenant-introduced markings, and repair
of all holes and gaps and repainting required thereby, as well as the removal
requirements below. In addition, prior to the expiration of the Term or any
sooner termination thereof, (a) Tenant shall remove such Alterations as Landlord
shall request and shall restore the portion of the Premises affected by such
Alterations and such removal to its condition existing immediately prior to the
making of such Alterations, (b) Tenant shall remove from the Premises all
unattached trade fixtures, furniture, equipment and personal property located in
the Premises, including, without limitation, phone equipment, wiring, cabling
and all garbage, waste and debris, and (c) Tenant shall repair all damage to the
Premises or the Project caused by any such removal including, without
limitation, full restoration of all holes and gaps resulting from any such
removal and repainting required thereby. All personal property and fixtures of
Tenant not so removed shall, to the extent permitted under applicable
Regulations, be deemed to have been abandoned by Tenant and may be appropriated,
sold, stored, destroyed, or otherwise disposed of by Landlord without notice to
Tenant and without any obligation to account for such items.
19. HOLDING OVER. If Tenant holds over after the expiration or earlier
termination of the Term hereof, with or without the express or implied consent
of Landlord, Tenant shall become and be only a tenant at sufferance at a daily
rent equal to one-thirtieth of the greater of (a) the then prevailing monthly
fair market rental rate as determined by Landlord in its sole and absolute
discretion, or (b) ONE HUNDRED FIFTY PERCENT (150%) FOR FIRST MONTH AND two
hundred percent (200%) THEREAFTER of the monthly installment of Base Rent (and
estimated Additional Rent payable under Paragraph 3.2) payable by Tenant
immediately prior to such expiration or termination, and otherwise upon the
terms, covenants and conditions herein specified, so far as applicable, as
reasonably determined by Landlord. Neither any provision hereof nor any
acceptance by Landlord of any Rent after any such expiration or earlier
termination (including, without limitation, through any "lockbox") shall be
deemed a consent to any holdover hereunder or result in a renewal of this Lease
or an extension of the Term, or any waiver of any of Landlord's rights or
remedies with respect to such holdover. Notwithstanding any provision to the
contrary contained herein, (i) Landlord expressly reserves the right to require
Tenant to surrender possession of the Premises upon the expiration of the Term
or upon the earlier termination hereof or at any time during any holdover, and
the right to assert any remedy at law or in equity to evict Tenant and collect
damages in connection with any such holdover, and (ii) Tenant shall indemnify,
defend and hold Landlord harmless from and against any and all claims, demands,
actions, proceedings, losses, damages, liabilities, obligations, penalties,
costs and expenses, including, without limitation, all lost profits and other
consequential damages, attorneys' fees, consultants' fees and court costs
incurred or suffered by or asserted against Landlord by reason of Tenant's
failure to surrender the Premises on the expiration or earlier termination of
this Lease in accordance with the provisions of this Lease.
20. SUBSTITUTION SPACE. Upon at least sixty (60) days' prior written
notice, Landlord may relocate Tenant within the Project (or to any other
facility owned by Landlord within the vicinity of the Project) to space which is
comparable in size, utility and condition to the Premises. If Landlord relocates
Tenant, Landlord shall (a) reimburse Tenant for Tenant's reasonable
out-of-pocket expenses for moving Tenant's furniture, equipment and supplies
from the Premises to the relocation space and for reprinting Tenant's stationery
of the same quality and quantity as Tenant's stationery supply on hand
immediately before Landlord's notice to Tenant of the exercise of this
relocation right, and (b) improve the relocation space with improvements
substantially similar to those Landlord is committed to provide or has provided
in the Premises under this Lease. Upon such relocation, the relocation space
shall be deemed to be the Premises and the terms of this Lease shall remain in
full force and shall apply to the relocation space;
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provided, however, that (i) if the rentable area of the relocation space is
smaller than rentable area of the Premises, then Tenant shall be entitled (from
and after the relocation date) to a reduction in Base Rent in proportion to the
reduction in the rentable area of the Premises, with a corresponding reduction
in Tenant's Proportionate Share and (ii) if the rentable area of the relocation
space is larger than the rentable area of the Premises, then the Base Rent and
Tenant's Proportionate Share shall not be modified in any way.
21. MISCELLANEOUS.
21.1 LANDLORD TRANSFERS AND LIABILITY. Landlord may, without
restriction, sell, assign or transfer in any manner all or any portion of the
Project, any interest therein or any of Landlord's rights under this Lease.
If Landlord assigns its rights under this Lease, then Landlord shall
automatically be released from any further obligations hereunder, provided
that the assignee thereof assumes in writing all of Landlord's obligations
hereunder accruing after such assignment. The liability of Landlord to Tenant
for any default by Landlord under the terms of this Lease or with respect to
any obligation or liability related to the Premises or the Project shall be
recoverable only from the interest of Landlord in the Project, and neither
Landlord nor any affiliate thereof shall have any personal liability with
respect thereto and in no case shall Landlord be liable to Tenant for any
lost profits, damage to business, or any form of special, indirect or
consequential damage on account of any breach of this Lease.
21.2 ESTOPPEL CERTIFICATES FINANCIAL STATEMENTS. At any time
and from time to time during the Term, Tenant shall, without charge, execute,
acknowledge and deliver to Landlord within ten (10) days after Landlord's
request therefor, an estoppel certificate in recordable form containing such
factual certifications and other provisions as are found in the estoppel
certificate forms requested by institutional lenders and purchasers. Tenant
agrees in any case that (a) the foregoing certificate may be relied on by
anyone holding or proposing to acquire any interest in the Project from or
through Landlord or by any mortgagee or lessor or prospective mortgagee or
lessor of the Project or of any interest therein and (b) the form of estoppel
certificate shall be in the form of, at Landlord's election, the standard
form of such present or prospective lender, lessor or purchaser (or any form
substantially similar thereto), or any other form that Landlord shall
reasonably select. At the request of Landlord from time to time, Tenant shall
provide to Landlord within ten (10) days of Landlord's request therefor
Tenant's and any guarantor's current financial statements.
21.3 NOTICES. Notices, requests, consents or other
communications desired or required to be given by or on behalf of Landlord or
Tenant under this Lease shall be effective only if given in writing and sent
by (a). registered or certified United States mail, postage prepaid, (b)
nationally recognized express mail courier that provides written evidence of
delivery, fees prepaid, or (c) facsimile and United States mail, postage
prepaid, and addressed as set forth in the Basic Lease Information, or at
such other address in the State of California as may be specified from time
to time, in writing, or, if to Tenant, at the Premises. Any such notice,
request, consent, or other communication shall only be deemed given (i) if
sent by registered or certified United States mail, on the day it is
officially delivered to or refused by the intended recipient, (ii) if sent by
nationally recognized express mail courier, on the date it is officially
recorded by such courier, (iii) if delivered by facsimile, on the date the
sender obtains written telephonic confirmation that the electronic
transmission was received, or (iv) if delivered personally, upon delivery or,
if refused by the intended recipient, upon attempted delivery.
21.4 PAYMENT BY TENANT: NON-WAIVER. Landlord's acceptance of
Rent (including, without limitation, through any "lockbox") following an
Event of Default shall not waive Landlord's rights regarding such Event of
Default. No waiver by Landlord of any violation or breach of any of the terms
contained herein shall waive Landlord's rights regarding any future violation
of such terms. Landlord's acceptance of any partial payment of Rent shall not
waive Landlord's rights with regard to the remaining portion of the Rent that
is due, regardless of any endorsement or other statement on any instrument
delivered in payment of Rent or any writing delivered in connection
therewith; accordingly, Landlord's acceptance of a partial payment of Rent
shall not constitute an accord and satisfaction of the full amount of the
Rent that is due.
21.5 CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord hereby
reserves and shall have the following rights with respect to the Premises and
the Project: (a) to decorate and to make inspections, repairs, alterations,
additions, changes, or improvements, whether structural or otherwise, in and
about the Project, the Building, the Premises or any part thereof; to enter
upon the Premises and, during the continuance of any such work, to
temporarily close doors, entryways, public space, and corridors in the
Project or the Building; to interrupt or suspend temporarily Building
services and facilities; to change the name of the Building or the Project;
and to change the arrangement and location of entrances or passageways,
doors, and doorways, corridors, elevators, stairs, restrooms, common areas,
or other public parts of the Building or the Project; (b) to take such
measures as Landlord deems advisable in good faith for the security of the
Building and its occupants; to temporarily deny access to the Building to any
person; and to close the Building after ordinary business hours and on
Sundays and Holidays, subject, however, to Tenant's right to enter when the
Building is closed after ordinary business hours under such rules and
regulations as Landlord may reasonably prescribe from time to time during the
Term; and (c) to enter the Premises at reasonable hours (or at any time in an
emergency) to perform repairs, to take any action authorized hereunder, or to
show the Premises to prospective purchasers or lenders, or, during the last
six (6) months of the Term, prospective tenants.
21.6 MISCELLANEOUS. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under present or future laws, then the
remainder of this Lease shall not be affected thereby. This Lease may not be
amended except by instrument in writing signed by Landlord and Tenant. No
provision of this Lease shall be deemed to have been waived by Landlord
unless such waiver is in writing signed by Landlord. The terms and conditions
contained in this Lease shall inure to the benefit of and be binding upon the
parties hereto, and upon their respective successors in interest and legal
representatives, except as otherwise herein expressly provided. This Lease
constitutes the entire agreement between Landlord and Tenant regarding the
subject matter hereof and supersedes all oral statements and prior writings
relating thereto. Tenant and the person or persons signing on behalf of
Tenant represent and warrant that Tenant has full right and authority to
enter into this Lease, and that all persons signing this Lease on its behalf
are authorized to do so. If Tenant is comprised of more than one party, each
such party shall be jointly and severally liable for Tenant's obligations
under this Lease. All exhibits and attachments attached hereto are
incorporated herein by this reference. This Lease shall be governed by and
construed in accordance with the laws of the State of California. In any
action which Landlord or Tenant brings to enforce its respective rights
hereunder, the unsuccessful party shall pay all costs incurred by the
prevailing party, including without limitation, reasonable attorneys' fees
and court costs. Tenant shall not record this Lease or any memorandum hereof.
TO THE MAXIMUM EXTENT PERMITTED BY LAW, LANDLORD AND TENANT EACH WAIVE RIGHT
TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR WITH RESPECT TO THIS
LEASE. Submission of this Lease to Tenant does not constitute an option or
offer to lease and this Lease is not effective otherwise until execution and
delivery by both Landlord and Tenant. This Lease may be executed in any
number of counterparts, each of which shall be deemed an original. Time is of
the essence as to the performance of each covenant hereunder in which time of
performance is a factor.
22. ADDENDA/ADDITIONAL PROVISIONS.
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22.1. SATELLITE(S). TENANT SHALL HAVE THE RIGHT TO INSTALL, AND
SHALL MAINTAIN, ON THE ROOF OF 2099 GATEWAY PLACE. TWO (2)
SATELLITE ANTENNA DISHES, WHICH MAY BE UP TO 1.2 METERS IN
DIAMETER EACH, AT A CHARGE OF $150.00 PER MONTH EACH, TERMS
AND CONDITIONS FOR SUCH SATELLITE DISH SHALL BE COVERED UNDER
A SEPARATE AGREEMENT.
22.2. OPTION TO RENEW. TENANT SHALL, PROVIDED THIS LEASE IS IN FULL
FORCE AND EFFECT AND TENANT IS NOT AND HAS NOT BEEN IN DEFAULT
UNDER ANY OF THE TERMS AND CONDITIONS OF THIS LEASE, HAVE ONE
SUCCESSIVE OPTION TO RENEW THIS LEASE FOR A TERM OF THREE
YEAR(S), FOR THE PREMISES IN "AS IN" CONDITION AND ON THE SAME
TERMS AND CONDITIONS SET FORTH IN THIS LEASE, EXCEPT AS
MODIFIED BY THE TERMS, COVENANTS AND CONDITIONS SET FORTH
BELOW:
(1) IF TENANT ELECTS TO EXERCISE SUCH OPTION, THEN TENANT SHALL
PROVIDE LANDLORD WITH WRITTEN NOTICE NO EARLIER THAN THE DATE
WHICH IS 270 DAYS PRIOR TO THE EXPIRATION OF THE THEN CURRENT
TERM OF THIS LEASE. BUT NO LATER THAN 5:00 P.M. (PACIFIC
STANDARD TIME) ON THE DATE WHICH IS 180 DAYS PRIOR TO THE
EXPIRATION OF THE THEN CURRENT TERM OF THIS LEASE. IF TENANT
FAILS TO PROVIDE SUCH NOTICE. TENANT SHALL HAVE NO FURTHER OR
ADDITIONAL RIGHT TO EXTEND OR RENEW THE TERM OF THIS LEASE.
(2) THE BASE RENT IN EFFECT AT THE EXPIRATION OF THE THEN CURRENT
TERM OF THIS LEASE SHALL BE INCREASED TO REFLECT THE THEN
CURRENT FAIR MARKET RENTAL FOR COMPARABLE SPACE IN THE
BUILDING OR PROJECT AND IN OTHER SIMILAR BUILDINGS IN THE SAN
JOSE AIRPORT AREA SAME RENTAL MARKET AS OF THE DATE THE
RENEWAL TERM IS TO COMMENCE, TAKING INTO ACCOUNT THE SPECIFIC
PROVISIONS OF THIS LEASE WHICH WILL REMAIN CONSTANT, AND THE
BUILDING AMENITIES, LOCATION, IDENTITY, QUALITY, AGE,
CONDITIONS, TERM OF LEASE, TENANT IMPROVEMENTS, SERVICES
PROVIDED, AND OTHER PERTINENT ITEMS.
(3) LANDLORD SHALL ADVISE TENANT OF THE NEW BASE RENT FOR THE
PREMISES FOR THE APPLICABLE RENEWAL TERM WHICH WILL BE BASED
ON LANDLORD'S DETERMINATION OF FAIR MARKET RENTAL VALUE AS
WELL AS ADDITIONAL TERMS AND CONDITIONS FOR THE RENEWAL TERM,
NO LATER THAN FIFTEEN (15) DAYS AFTER RECEIPT OF NOTICE OF
TENANT'S EXERCISE OF ITS OPTION TO RENEW. TENANT SHALL HAVE
THIRTY (30) DAYS AFTER RECEIPT OF SUCH NOTIFICATION FROM
LANDLORD TO ACCEPT THE NEW BASE RENT, TERMS AND CONDITIONS. IF
TENANT DOES NOT ACCEPT LANDLORD'S DETERMINATION OF THE NEW
BASE RENT, TERMS AND CONDITIONS WITHIN SUCH THIRTY (30) DAY
PERIOD, THIS OPTION SHALL BE NULL AND VOID, AND LANDLORD SHALL
HAVE NO FURTHER OBLIGATION TO TENANT AND MAY ENTER INTO A
LEASE FOR THE PREMISES WITH A THIRD PARTY ON SUCH TERMS AND
CONDITIONS AS LANDLORD MAY DETERMINE IN ITS SOLE DISCRETION.
(4) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
PARAGRAPH, IN NO EVENT SHALL THE BASE RENT FOR ANY RENEWAL
TERM BE LESS THAN THE BASE RENT IN EFFECT AT THE EXPIRATION OF
THE PREVIOUS TERM. IN ADDITION, LANDLORD SHALL HAVE NO
OBLIGATION TO PROVIDE OR PAY FOR ANY TENANT IMPROVEMENTS OR
BROKERAGE COMMISSIONS DURING ANY RENEWAL TERM.
(5) TENANT'S RIGHT TO EXERCISE ANY OPTION(S) TO RENEW UNDER THIS
PARAGRAPH SHALL BE CONDITIONED UPON TENANT OCCUPYING THE
ENTIRE PREMISES AND THE SAME NOT BEING OCCUPIED BY ANY
ASSIGNEE, SUBTENANT OR LICENSEE OTHER THAN TENANT OR ITS
AFFILIATE AT THE TIME OF EXERCISE OF ANY OPTION AND
COMMENCEMENT OF THE RENEWAL TERM. TENANT'S EXERCISE OF ANY
OPTION TO RENEW SHALL CONSTITUTE A REPRESENTATION BY TENANT TO
LANDLORD THAT AS OF THE DATE OF EXERCISE OF THE OPTION AND THE
COMMENCEMENT OF THE APPLICABLE RENEWAL TERM, TENANT DOES NOT
INTEND TO SEEK TO ASSIGN THIS LEASE IN WHOLE OR IN PART, OR
SUBLET ALL OR ANY PORTION OF THE PREMISES.
(6) ANY EXERCISE BY TENANT OF ANY OPTION TO RENEW UNDER THIS
PARAGRAPH SHALL BE IRREVOCABLE. IF REQUESTED BY LANDLORD,
TENANT AGREES TO EXECUTE A LEASE AMENDMENT OR, AT LANDLORD'S
OPTION, A NEW LEASE AGREEMENT ON LANDLORD'S THEN STANDARD
LEASE FORM FOR THE BUILDING, REFLECTING THE FOREGOING TERMS
AND CONDITIONS, PRIOR TO THE COMMENCEMENT OF THE RENEWAL TERM,
THE OPTION(S) TO RENEW GRANTED UNDER THIS PARAGRAPH IS/ARE NOT
TRANSFERABLE; THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT
THEY INTEND THAT EACH OPTION TO RENEW THIS LEASE UNDER THIS
PARAGRAPH SHALL BE "PERSONAL" TO THE SPECIFIC TENANT NAMED IN
THIS LEASE AND THAT IN NO EVENT WILL ANY ASSIGNEE OR SUBLESSEE
HAVE ANY RIGHTS TO EXERCISE SUCH OPTION(S) TO RENEW.
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EXHIBIT A
Rules and Regulations
ZAPME! Corporation
1. Driveways, sidewalks, halls, passages, exits, entrances, elevators,
escalators and stairways shall not be obstructed by tenants or used by
tenants for any purpose other than for ingress to and egress from their
respective premises. The driveways, sidewalks, halls, passages, exits,
entrances, elevators and stairways are not for the use of the general
public and Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence, in the judgment of
Landlord, shall be prejudicial to the safety, character, reputation and
interests of the Building, the Project 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 such
tenant's business unless such persons are engaged in illegal activities. No
tenant, and no employees or invitees of any tenant, shall go upon the roof
of any Building, except as authorized by Landlord. No tenant, and no
employees or invitees of any tenant shall move any common area furniture
without Landlord's consent.
2. No sign, placard, banner, picture, name, advertisement or notice, visible
from the exterior of the Premises or the Building or the common areas of
the Building shall be inscribed, painted, affixed, installed or otherwise
displayed by Tenant either on its Premises or any part of the Building or
Project without the prior written consent of Landlord in Landlord's sole
and absolute discretion. Landlord shall have the right to remove any such
sign, placard, banner, picture, name, advertisement, or notice without
notice to and at the expense of Tenant, which were installed or displayed
in violation of this rule. If Landlord shall have given such consent to
Tenant at any time, whether before or after the execution of Tenant's
Lease, such consent shall in no way operate as a waiver or release of any
of the provisions hereof of the Lease, and shall be deemed to relate only
to the particular sign, placard, banner, picture, name, advertisement or
notice so consented to by Landlord and shall not be construed as dispensing
with the necessity of obtaining the specific written consent of Landlord
with respect to any other such sign, placard, banner, picture, name,
advertisement or notice.
All approved signs or lettering on doors and walls shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person or vendor
approved by Landlord and shall be removed by Tenant at the time of vacancy
at Tenant's expense.
3. The directory of the Building or Project will be provided exclusively for
the display of the name and location of tenants only and Landlord reserves
the right to charge for the use thereof and to exclude any other names
therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, awnings, hangings or decorations shall be attached to, hung or
placed in, or used in connection with, any window or door on the Premises
without the prior written consent of Landlord. In any event with the prior
written consent of Landlord, all such items shall be installed inboard of
Landlord's standard window covering and shall in no way be visible from the
exterior of the Building. All electrical ceiling fixtures hung in offices
or spaces along the perimeter of the Building must be fluorescent or of a
quality, type, design, and bulb color approved by Landlord. No articles
shall be placed or kept on the window sills so as to be visible from the
exterior of the Building. No articles shall be placed against glass
partitions or doors which Landlord considers unsightly from outside
Tenant's Premises.
5. Landlord reserves the right to exclude from the Building and the Project,
between the hours of 6 p.m. and 8 a.m. and at all hours on Saturdays,
Sundays and legal holidays, all persons who are not tenants or their
accompanied guests in the Building. Each tenant shall be responsible for
all persons for whom it allows to enter the Building or the Project and
shall be liable to Landlord for all acts of such persons.
Landlord and its agents shall not be liable for damages for any error concerning
the admission to, or exclusion from, the Building or the Project of any
person.
During the continuance of any invasion, mob, riot, public excitement or other
circumstance rendering such action advisable in Landlord's opinion,
Landlord reserves the right (but shall not be obligated) to prevent access
to the Building and the Project during the continuance of that event by any
means it considers appropriate for the safety of tenants and protection of
the Building, property in the Building and the Project.
6. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord. Except with the written
consent of Landlord, no person or persons other than those approved by
Landlord shall be permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by reason
of Tenant's carelessness or indifference in the preservation of good order
and cleanliness of its Premises. Landlord shall in no way be responsible to
Tenant for any loss of property on the Premises, however occurring, or for
any damage done to Tenant's property by the janitor or any other employee
or any other person.
7. Tenant shall see that all doors of its Premises are closed and securely
locked and must observe strict care and caution that all water faucets or
water apparatus, coffee pots or other heat-generating devices are entirely
shut off before Tenant or its employees leave the Premises, and that all
utilities shall likewise be carefully shut off, so as to prevent waste or
damage. Tenant shall be responsible for any damage or injuries sustained by
other tenants or occupants of the Building or Project or by Landlord for
noncompliance with this rule. On multiple-tenancy floors, all tenants shall
keep the door or doors to the Building corridors dosed at all times except
for ingress and egress.
8. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord. As more specifically provided in Tenant's lease
of the Premises, 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 shall refrain from attempting to adjust any controls other than room
thermostats installed for Tenant's use.
9. Landlord will furnish Tenant free of charge with two keys to each door in
the Premises. Landlord may make a reasonable charge for any additional
keys, and Tenant shall not make or have made additional keys. Tenant shall
not alter any lock or access device or install a new or additional lock or
access device or bolt on any door of its Premises, without the prior
written consent of Landlord. If Landlord shall give its consent, Tenant
shall in each case furnish Landlord with a key for any such lock. Tenant,
upon the termination of its tenancy, shall deliver to Landlord the keys for
all doors which have been furnished to Tenant, and in the event of loss of
any keys so furnished, shall pay Landlord therefor.
Exhibit A - Page 1
<PAGE>
10. The restrooms, 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 into them. The
expense of any breakage, stoppage, or damage resulting from violation of
this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused the breakage, stoppage, or damage.
11. Tenant shall not use or keep in or on the Premises, the Building or the
Project any kerosene, gasoline, or inflammable or combustible fluid or
material.
12. Tenant shall not use, keep or permit to be used or kept in its Premises any
foul or noxious gas or substance. Tenant shall not 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 and/or vibrations
or interfere in any way with other tenants or those having business
therein, nor shall any animals or birds be brought or kept in or about the
Premises, the Building, or the Project.
13. No cooking shall be done or permitted by any tenant on the Premises, except
that use by the tenant of Underwriters' Laboratory (UL) approved equipment,
refrigerators and microwave ovens may be used in the Premises for the
preparation of coffee, tea, hot chocolate and similar beverages, storing
and heating food for tenants and their employees shall be permitted. All
uses must be in accordance with all applicable federal, state and city
laws, codes, ordinances, rules and regulations and the Lease.
14. Except with the prior written consent of Landlord, Tenant shall not sell,
or permit the sale, at retail, of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises,
nor shall Tenant carry on, or permit or allow any employee or other person
to carry on, the business of stenography, typewriting or any similar
business in or from the Premises for the service or accommodation of
occupants of any other portion of the Building, nor shall the Premises be
used for the storage of merchandise or for manufacturing of any kind, or
the business of a public barber shop, beauty parlor, nor shall the Premises
be used for any illegal, improper, immoral or objectionable purpose, or any
business or activity other than that specifically provided for in such
Tenant's Lease. Tenant shall not accept hairstyling, barbering, shoeshine,
nail, massage or similar services in the Premises or common areas except as
authorized by Landlord.
15. If Tenant requires telegraphic, telephonic, telecommunications, data
processing, burglar alarm or similar services, it shall first obtain, and
comply with, Landlord's instructions in their installation. The cost of
purchasing, installation and maintenance of such services shall be borne
solely by Tenant.
16. Landlord will direct electricians as to where and how telephone, telegraph
and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of
Landlord. The location of burglar alarms, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the prior
written approval of Landlord.
17. Tenant shall not install any radio or television antenna, satellite dish,
loudspeaker or any other device on the exterior walls or the roof of the
Building, without Landlord's consent. Tenant shall not interfere with radio
or television broadcasting or reception from or in the Building, the
Project or elsewhere.
18. Tenant shall not mark, or drive nails, screws or drill into the partitions,
woodwork or drywall or in any way deface the Premises or any part thereof
without Landlord's consent. Tenant may install nails and screws in areas of
the Premises that have been identified for those purposes to Landlord by
Tenant at the time those walls or partitions were installed in the
Premises. Tenant shall not lay linoleum, the, carpet or any other floor
covering so that the same shall be affixed to the floor of its Premises in
any manner except as approved in writing by Landlord. The expense of
repairing any damage resulting from a violation of this rule or the removal
of any 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 furniture, freight, equipment, materials, supplies, packages,
merchandise or other property will be received in the Building or carried
up or down the elevators except between such hours and in such elevators as
shall be designated by Landlord.
Tenant shall not place a load upon any floor of its Premises which exceeds the
load per square foot which such floor was designed to carry or which is
allowed by law. Landlord shall have the right to prescribe the weight, size
and position of all safes, furniture or other heavy equipment brought into
the Building. Safes or other heavy objects shall, if considered necessary
by Landlord, stand on wood strips of such thickness as determined by
Landlord to be necessary to properly distribute the weight thereof.
Landlord will not be responsible for loss of or damage to any such safe,
equipment or property from any cause, and all damage done to the Building
by moving or maintaining any such safe, equipment or other property shall
be repaired at the expense of Tenant.
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.
20. Tenant shall not install, maintain or operate upon its Premises any vending
machine without the written consent of Landlord.
21. There shall not be used in any space, or in the public areas of the Project
either by 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. Tenants using hand trucks shall be required to use
the freight elevator, or such elevator as Landlord shall designate. No
other vehicles of any kind shall be brought by Tenant into or kept in or
about its Premises.
22. Each tenant shall store all its trash and garbage within the interior of
the Premises. Tenant shall not place in the trash boxes or receptacles any
personal trash or any material that may not or cannot be disposed of in the
ordinary and customary manner of removing and disposing of trash and
garbage in the city, 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 and at such
times as Landlord shall designate. If the Building has implemented a
building-wide recycling program for tenants, Tenant shall use good faith
efforts to participate in said program.
Exhibit A - Page 2
<PAGE>
23. Canvassing, soliciting, distribution of handbills or any other written
material and peddling in the Building and the Project are prohibited and
each tenant shall cooperate to prevent the same. No tenant shall make
room-to-room solicitation of business from other tenants in the Building or
the Project, without the written consent of Landlord.
24. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name and address of the Building and
the Project.
25. Landlord reserves the right to exclude or expel from the Project any person
who, in Landlord's judgment, is under the influence of alcohol or drugs or
who commits any act in violation of any of these Rules and Regulations.
26. Without the prior written consent of Landlord, Tenant shall not use the
name of the Building or the Project or any photograph or other likeness of
the Building or the Project in connection with, or in promoting or
advertising, Tenant's business except that Tenant may include the
Building's or Project's name in Tenant's address.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. The requirements of Tenant will be attended to only upon appropriate
application at the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instructions from Landlord, and
no employees of Landlord will admit any person (tenant or otherwise) to any
office without specific instructions from Landlord.
30. Landlord reserves the right to designate the use of the parking spaces on
the Project. Tenant or Tenant's guests shall park between designated
parking lines only, and shall not occupy two parking spaces with one car.
Parking spaces shall be for passenger vehicles only; no boats, trucks,
trailers, recreational vehicles or other types of vehicles may be parked in
the parking areas (except that trucks may be loaded and unloaded in
designated loading areas). Vehicles in violation of the above shall be
subject to tow-away, at vehicle owner's expense. Vehicles parked on the
Project overnight without prior written consent of the Landlord shall be
deemed abandoned and shall be subject to tow-away at vehicle owner's
expense. No tenant of the Building shall park in visitor or reserved
parking areas. Any tenant found parking in such designated visitor or
reserved parking areas or unauthorized areas shall be subject to tow-away
at vehicle owner's expense. The parking areas shall not be used to provide
car wash, oil changes, detailing, automotive repair or other services
unless otherwise approved or furnished by Landlord. Tenant will from time
to time, upon the request of Landlord, supply Landlord with a list of
license plate numbers of vehicles owned or operated by its employees or
agents.
31. No smoking of any kind shall be permitted anywhere within the Building,
including, without limitation, the Premises and those areas immediately
adjacent to the entrances and exits to the Building, or any other area as
Landlord elects. Smoking in the Project is only permitted in smoking areas
identified by Landlord, which may be relocated from time to time.
32. If the Building furnishes common area conferences rooms for tenant usage,
Landlord shall have the right to control each tenant's usage of the
conference rooms, including limiting tenant usage so that the rooms are
equally available to all tenants in the Building. Any common area amenities
or facilities shall be provided from time to time at Landlord's discretion.
33. Tenant shall not swap or exchange building keys or cardkeys with other
employees or tenants in the Building or the Project.
34. Tenant shall be responsible for the observance of all of the foregoing
Rules and Regulations by Tenant's employees, agents, clients, customers,
invitees and guests.
35. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify, alter or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of any premises in the
Project.
36. 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 tenants of the Building.
37. 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 safety
and security, for care and cleanliness of the Building and the Project and
for the preservation of good order therein. Tenant agrees to abide by all
such Rules and Regulations herein stated and any additional rules and
regulations which are adopted.
Exhibit A - Page 3
<PAGE>
EXHIBIT B
PROPERTY DESCRIPTION
That certain property situated in the City of San Jose, County of Santa Clara,
State of California, described as follows:
ALL OF PARCELS A AND B, as shown upon that certain Parcel Map, entitled
"BEING ALL OF PARCEL 3 AS SHOWN ON THE PARCEL MAP RECORDED IN BOOK 451 OF MAPS
AT PAGES 17-18 AND LYING WITHIN THE CITY OF SAN JOSE, CALIFORNIA," which Map was
filed for record in the Office of the Recorder of the County of Santa Clara,
State of California on December 2, 1982 in Map Book 506 at pages 45-46, Santa
Clara County Records.
(IMAGE)
<PAGE>
EXHIBIT B
CONTINUED
Floor Plan
(IMAGE)
<PAGE>
EXHIBIT C
Tenant Improvements
ZAPME! Corporation
1. In consideration of the mutual covenants Contained in the Lease
of which this Exhibit C is a part, Landlord agrees to perform the following
initial tenant improvement work in the Premises ("Tenant Improvements")
NONE
2. All the Tenant Improvements described above shall be performed by
Landlord at its cost and expense using Building Standard materials and in the
Building Standard manner. As used herein, "Building Standard" shall mean the
standards for a particular item selected from time to time by Landlord for the
Building or such other standards as may be mutually agreed upon between Landlord
and Tenant in writing.
3. Without limiting the "as-is" provisions of the Lease, Tenant
accepts the Premises in its "as-is" condition and acknowledges that Landlord has
no obligation to make any changes or improvements to the Premises or to pay any
costs expended or to be expended in connection with any such changes or
improvements, other than the Tenant Improvements specified in Paragraph 1 of
this Exhibit C.
4. Tenant shall not perform any work in the Premises (including,
without limitation, cabling, wiring, fixturization, painting, carpeting,
replacements or repairs) except in accordance with Paragraphs 7.1 and 7.3 of the
Lease.
(IMAGE)
<PAGE>
EXHIBIT D
TENANT'S INSURANCE
ZAPME! Corporation
Tenant shall, at Tenant's sole cost and expense, procure and keep in effect from
the date of this Lease and at all times until the end of the Term, the following
insurance coverage:
1. Property Insurance. Insurance on all personal property and fixtures of
Tenant and all improvements made by or for Tenant to the Premises on an
"All Risk" or "Special Form" basis, for the full replacement value of
such property. Such insurance shall be endorsed to name Landlord, any
Holder of a Security Instrument and any other party specified by
Landlord as a loss payee.
2. Liability Insurance. Commercial General Liability insurance written on
an ISO CG 00 01 10 93 or equivalent form, on an occurrence basis, with
a per occurrence limit of at least $2,000,000, and a minimum general
aggregate limit of at least $3,000,000, covering bodily injury and
property damage liability occurring in or about the Premises or arising
out of the use and occupancy of the Premises or the Project by Tenant
or any Tenant Party. Such insurance shall include contractual liability
coverage insuring Tenant's indemnity obligations under this Lease, and
shall be endorsed to name Landlord, any Holder of a Security Instrument
and any other party specified by Landlord as an additional insured with
regard to liability arising out of the ownership, maintenance or use of
the Premises.
3. Worker's Compensation and Employer's Liability Insurance. (a) Worker's
Compensation Insurance as required by any Regulation, and (b)
Employer's Liability Insurance in amounts not less than $1,000,000 each
accident for bodily injury by accident and for bodily injury by
disease, and for each employee for bodily injury by disease.
4. Commercial Auto Liability Insurance. Commercial auto liability
insurance with a combined limit of not less than One Million Dollars
($1,000,000) for bodily injury and property damage for each accident.
Such insurance shall cover liability relating to any auto (including
owned, hired and non-owned autos).
5. Alterations Requirements. In the event Tenant shall desire to perform
any Alterations, Tenant shall deliver to Landlord, prior to commencing
such Alterations (i) evidence satisfactory to Landlord that Tenant
carries "Builder's Risk" insurance covering construction of such
Alterations in an amount and form approved by Landlord, (it) such other
insurance as Landlord shall nondiscriminatorily require, and (iii) a
lien and completion bond or other security in form and amount
satisfactory to Landlord.
6. General Insurance Requirements. All coverages described in this Exhibit
D shall be endorsed to (i) provide Landlord with thirty (30) days'
notice of cancellation or change in terms; (it) waive all rights of
subrogation by the insurance carrier against Landlord; and (iii) be
primary and non-contributing with Landlord's insurance. If at any time
during the Term the amount or coverage of insurance which Tenant is
required to carry under this Exhibit D is, in Landlord's reasonable
judgment, materially less than the amount or type of insurance coverage
typically carried by owners or tenants of properties located in the
general area in which the Premises are located which are similar to and
operated for similar purposes as the Premises or if Tenant's use of the
Premises should change with or without Landlord's consent, Landlord
shall have the fight to require Tenant to increase the amount or change
the types of insurance coverage required under this Exhibit D. All
insurance policies required to be carried by Tenant under this Lease
shall be written by companies rated AVII or better in "Best's Insurance
Guide" and authorized to do business in the State of California.
Deductible amounts under all insurance policies required to be carried
by Tenant under this Lease shall not exceed $10,000 per occurrence.
Tenant shall deliver to Landlord on or before the Term Commencement
Date, and thereafter at least thirty (30) days before the expiration
dates of the expired policies, certified copies of Tenant's insurance
policies, or a certificate evidencing the same issued by the insurer
thereunder, and, if Tenant shall fail to procure such insurance, or to
deliver such policies or certificates, Landlord may, at Landlord's
option and in addition to Landlord's other remedies in the event of a
default by Tenant under the Lease, procure the same for the account of
Tenant, and the cost thereof(with interest thereon at the Default Rate)
shall be paid to Landlord as Additional Rent.
-10-
<PAGE>
EXHIBIT E
Parking Rules and Regulations
ZAPME! Corporation
1. Cars must be parked entirely within painted stall lines.
2. All directional signs and arrows must be observed.
3. All posted speed limits for the parking areas shall be observed. If no
speed limit is posted for an area, the speed limit shall be five (5) miles
per hour.
4. Parking is prohibited:
(a) in areas not striped for parking;
(b) in aisles;
(c) where "no parking" signs are posted;
(d) on ramps;
(e) in cross hatched areas; and
(f) in such other areas as may be designated by Landlord.
5. Handicap and visitor stalls shall be used only by handicapped persons or
visitors, as applicable.
6. Parking stickers or any other device or form of identification supplied by
Landlord from time to time (if any) shall remain the property of Landlord.
Such parking identification device must be displayed as requested and may
not be mutilated in any manner. The serial number of the parking
identification device may not be obliterated. Devices are not transferable
and any device may not be obliterated. Devices are not transferable and
any device in possession of any unauthorized holder will be void. There
will be a replacement charge payable by the parker and such parker's
appropriate tenant equal to the amount posted from time to time by
Landlord for loss of any magnetic parking card or any parking sticker.
7. Every parker is required to park and lock his or her own car. All
responsibility for damage to cars or persons is assumed by the parker.
8. Loss or theft of parking identification devices must be reported to
Landlord, and a report of such loss or theft must be filed by the parker
at that time. Any parking identification devices reported lost or stolen
found on any unauthorized car will be confiscated and the illegal holder
will be subject to prosecution. Lost or stolen devices found by the parker
must be reported to Landlord immediately to avoid confusion.
9. Parking spaces are for the express purpose of parking one automobile per
space. Washing, waxing, cleaning, or servicing of any vehicle by the
parker and/or such person's agents is prohibited. The parking areas shall
not be used for overnight or other storage for vehicles of any type.
10. Landlord reserves the right to refuse the issuance of parking
identification or access devices to any tenant and/or such tenant's
employees, agents, visitors or representatives who willfully refuse to
comply with the Parking Rules and Regulations and/or all applicable
governmental ordinances, laws, or agreements.
11. Tenant shall acquaint its employees, agents, visitors or representatives
with the Parking Rules and Regulations, as they may be in effect from time
to time.
12. Any monthly rental for parking shall be paid one month in advance prior to
the first day of such month. Failure to do so will automatically cancel
parking privileges, and a charge of the prevailing daily rate will be due.
No deductions or allowances from the monthly rental for parking will be
made for days a parker does not use the parking facilities.
13. Each parker shall pay a reasonable deposit for any parking card issued to
such a person. Such deposit shall be paid at the time the parking card is
issued and shall be forfeited if the parking card is lost. Such deposit
shall be returned without interest, at the time such person ceases to
utilize the parking facilities, upon surrender of the parking card. A
reasonable replacement charge shall be paid to replace a lost card and an
amount in excess of the initial deposit may be charged as the replacement
fee.
<PAGE>
ADDENDUM NUMBER 1 TO LEASE AGREEMENT
SATELLITE DISH AGREEMENT ZAPME! CORPORATION
THIS ADDENDUM TO LEASE AGREEMENT (this "ADDENDUM") IS ATTACHED TO AND
MADE A PART OF THAT CERTAIN LEASE AGREEMENT (the "LEASE") DATED August 16, 1999
BY AND BETWEEN SPIEKER PROPERTIES, L.P., A CALIFORNIA LIMITED PARTNERSHIP, AS
LANDLORD, AND ZAPME! CORPORATION, A CALIFORNIA CORPORATION, AS TENANT, COVERING
APPROXIMATELY 5,355 RENTABLE SQUARE FEET LOCATED AT 2099 GATEWAY PLACE, SUITE
320, SAN JOSE, CALIFORNIA (the "PREMISES").
NOTWITHSTANDING anything to the contrary contained in the Lease, the following
provisions of this Addendum shall be incorporated into and be a part of the
Lease and shall supersede any inconsistent provisions of the Lease.
ROOF RIGHTS
1. During the Term, Tenant shall have the nonexclusive right to install on
the roof of the Building 2099 Gateway Place, San Jose, California two
(2) satellite dishes, each of which is no more than 1.2 meters in
diameter and does not exceed four hundred twenty pounds installed
including ballast (approx. 11 psf), which shall be enclosed by a screen
and the nonexclusive right to run connecting lines or cables thereto
from the Premises (such satellite dish/antennae and such connecting
lines and related equipment herein referred to collectively as the
"Equipment"). Tenant shall not penetrate the roof in connection with
any installation or reinstallation of the Equipment without Landlord's
prior written consent, which may be withheld in Landlord's sole
discretion. The plans and specifications for all the Equipment shall be
delivered by Tenant to Landlord for Landlord's review and approval.
Such plans and specifications, including, without limitation, the
location of the Equipment, shall be approved by Landlord in writing
prior to any installation. In no event shall the Equipment or any
portion thereof be visible from street level. Prior to the commencement
of any installation or other work performed on or about the Building,
Landlord shall approve all contractors and subcontractors which shall
perform such work. Tenant shall be responsible for any damage to the
roof, conduit systems or other portions of the Building or Building
systems as a result of Tenant's installation, maintenance and/or
removal of the Equipment.
2. Tenant shall pay to Landlord, as "additional rent", One Hundred Fifty
Dollars ($150.00) per month for each satellite dish, for the use of the
roof and roof space to accommodate Tenant's Equipment, which shall be
due and payable on the first day of each month with each installment of
Base Rent per the Lease.
3. Tenant, at Tenant's sole cost and expense, shall comply with all
Regulations regarding the installation, construction, operation,
maintenance and removal of the Equipment and shall be solely
responsible for obtaining and maintaining in force all permits,
licenses and approvals necessary for such operations.
4. Tenant shall be responsible for and promptly shall pay all taxes,
assessments, charges, fees and other governmental impositions levied or
assessed on the Equipment or based on the operation thereof.
5. Landlord may require Tenant, at Tenant's sole cost and expense, to
relocate the Equipment during the Term to a location approved by
Tenant, which approval shall not be unreasonably withheld, conditioned
or delayed. Tenant shall not change the location of, or alter or
install additional Equipment or paint any of the other Equipment
without Landlord's prior written consent.
6. Operation of the Equipment shall not interfere in any manner with
equipment systems or utility systems of other tenants of the Project,
including without limitation, telephones, dictation equipment,
lighting, heat and air conditioning, computers, electrical systems and
elevators. If operation of the Equipment causes such interference, as
determined by Landlord in Landlord's reasonable discretion, Tenant
immediately shall suspend operation of the Equipment until Tenant
eliminates such interference.
7. Tenant shall maintain the Equipment in good condition and repair, at
Tenant's sole cost and expense. Landlord may from time to time require
that Tenant repaint the satellite dishes at Tenant's expense to keep
the same in an attractive condition. In the event that Tenant fails to
repair and maintain the Equipment in accordance with this Lease,
Landlord may, but shall not be obligated to, make any such repairs or
perform any maintenance to the Equipment and Tenant shall reimburse
Landlord upon demand for all costs and expenses incurred by Landlord in
connection therewith, plus a reasonable administrative fee.
8. Tenant may access the roof for repair and maintenance of the Equipment,
only during normal business hours, on not less than 24 hours prior
written notice to Landlord. Tenant shall designate in writing to
Landlord all persons whom Tenant authorizes to have access to the roof
for such purposes. Upon such designation and prior identification to
Landlords' building security personnel, such. authorized persons shall
be granted access to the roof by Landlord's building engineer. Tenant
shall be responsible for all costs and expenses incurred by Landlord in
connection with Tenant's access to the roof pursuant to this Paragraph.
Landlord or Landlord's agent may accompany Tenant during such access.
<PAGE>
ZAPME! CORPORATION
ADDENDUM TO LEASE
SATELLITE DISH AGREEMENT
SEPTEMBER 1, 1999
PAGE 2
9. Tenant shall indemnify, defend, protect and hold harmless Landlord from
and against any and all claims related to the Equipment or operation of
the same as if the Equipment were located wholly within the Premises.
Tenant shall provide evidence satisfactory to Landlord that Tenant's
property and liability insurance policies required under this Lease
include coverage for the Equipment and any claim, loss, damage, or
liability relating to the Equipment.
10. Landlord shall have no responsibility or liability whatsoever relating
to (i) maintenance or repair of the Equipment, (ii) damage to the
Equipment; (iii) damage to persons or property relating to the
Equipment or the operation thereof; or (iv) interference with use of
the Equipment arising out of utility interruption or any other cause,
except for injury to persons or damage to property caused solely by the
active negligence or intentional misconduct of Landlord, its agents or
any other parties related to Landlord. In no event shall Landlord be
responsible for consequential damages. Upon installation of the
Equipment, Tenant shall accept the area where the Equipment is located
in its "as is" condition. Tenant acknowledges that the roof location of
the Equipment is suitable for Tenant's needs, and acknowledges that
Landlord shall have no obligation whatsoever to improve, maintain or
repair the area in which the Equipment will be installed.
11. Tenant shall use the Equipment solely for Tenant's operations
associated with the Permitted Use and within Tenant's Premises and
shall not use or allow use of the Equipment, for consideration or
otherwise, for the benefit of other tenants in the Building or any
other person or entity.
12. Tenant shall, at Tenant's sole cost and expense, remove such portions
of the Equipment as Landlord may designate upon the expiration or
earlier termination of this Lease, and restore the affected areas to
their condition prior to installation of the Equipment. If Tenant fails
to so remove the Equipment, Landlord reserves the right to do so, and
the expense of the same shall be immediately due and payable from
Tenant to Landlord as additional rent, together with interest and late
charges as provided in this Lease, plus a reasonable administrative
fee.
AGREED AND ACCEPTED:
"Landlord" "Tenant"
SPIEKER PROPERTIES, L.P., ZAPME! CORPORATION
a California limited partnership, A CALIFORNIA CORPORATION
By: Spieker Properties, Inc.,
a Maryland corporation, its
general partner
By: /s/ John W. Petersen By: /s/ XXX
---------------------------- --------------------------
John W. Petersen
Its: Its: VP
--------------------------- -------------------------
Vice President
Date: 21-SEPT-99 Date: 9/19/99
-------------------------- ------------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the 1997 Employee Stock Option Plan and the 1998 Stock
Plan and the 1999 Employee Stock Purchase Plan of ZapMe! Corporation of our
report dated January 28, 2000, with respect to the consolidated financial
statements of ZapMe! Corporation included in this annual report (Form 10-K) for
the year ended December 31, 1999.
/s/ Ernst & Young LLP
Walnut Creek, California
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET, STATEMENT OF OPERATIONS AND STATEMENT OF CASH FLOWS INCLUDED
IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 112,714
<SECURITIES> 0
<RECEIVABLES> 1,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 118,493
<PP&E> 34,474
<DEPRECIATION> 4,081
<TOTAL-ASSETS> 151,192
<CURRENT-LIABILITIES> 23,587
<BONDS> 24,362
0
0
<COMMON> 183,765
<OTHER-SE> (69,452)
<TOTAL-LIABILITY-AND-EQUITY> 151,192
<SALES> 0
<TOTAL-REVENUES> 2,542
<CGS> 0
<TOTAL-COSTS> 7,653
<OTHER-EXPENSES> 22,992
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,183
<INCOME-PRETAX> (27,127)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,127)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,127)
<EPS-BASIC> (2.30)
<EPS-DILUTED> (2.23)
</TABLE>
