<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TELOCITY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 7370 77-0467929
(PRIOR TO REINCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
DELAWARE CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
(AFTER REINCORPORATION)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
</TABLE>
10355 NORTH DE ANZA BOULEVARD
CUPERTINO, CALIFORNIA 95014
(408) 863-6600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PATTI HART
PRESIDENT AND CHIEF EXECUTIVE OFFICER
10355 NORTH DE ANZA BOULEVARD
CUPERTINO, CALIFORNIA 95014
(408) 863-6600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
MARGARET H. KAVALARIS, ESQ. MATTHEW J. STEPOVICH, ESQ. MALCOLM I. ROSS, ESQ.
JOHN M. FOGG, ESQ. SENIOR VICE PRESIDENT, LEGAL AFFAIRS BAKER & MCKENZIE
MATTHEW E. HORSLEY, ESQ. DAVID I. FRAZEE, ESQ. 805 THIRD AVENUE
GRAY CARY WARE & FREIDENRICH LLP CORPORATE GENERAL COUNSEL NEW YORK, NEW YORK 10022
400 HAMILTON AVENUE 10355 NORTH DE ANZA BOULEVARD (212) 751-5700
PALO ALTO, CALIFORNIA 94301 CUPERTINO, CALIFORNIA 95014
(650) 833-2000 (408) 863-6600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value.............................. $150,000,000 $39,600
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(o) of the Securities Act of 1933 solely for
the purpose of computing the amount of the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED [ ], 2000
PROSPECTUS
[ ] SHARES
[TELOCITY LOGO]
COMMON STOCK
----------------------
This is Telocity, Inc.'s initial public offering of common stock.
We expect the public offering price to be between $ and $ per
share. Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will be quoted on the Nasdaq National Market
under the symbol "TLCT."
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Telocity...................... $ $
</TABLE>
The underwriters may also purchase up to an additional [ ] shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 2000.
----------------------
MERRILL LYNCH & CO. CREDIT SUISSE FIRST BOSTON
----------------------
DONALDSON, LUFKIN & JENRETTE
----------------------
THE DATE OF THIS PROSPECTUS IS [ ], 2000.
<PAGE> 3
Page 1
[Telocity logo]
OUR BUSINESS
We intend to be the leading nationwide provider of residential broadband
services and applications to and throughout the home.
OUR CUSTOMER APPEAL
[Image depicting the smiling face of a man]
Telocity customers experience the true wonder of the Internet and more. They
surf and download up to 50 times faster than dial-up users. They are
"always-on," bypassing log-on and password delays -- virtually eliminating the
"World Wide Wait." At Telocity, we bring wonderment into people's lives.
[Image depicting the smiling face of a woman]
OUR CONTENT PARTNERS
MEDIA / ENTERTAINMENT / E-COMMERCE
Streaming Audio/Video, Online Gaming, Interactive Shopping,
Personalized Web Pages...
[Telocity logo]
[NBCi logo]
[NBC logo]
[Snap logo]
[Xoom logo]
COMMUNICATIONS
Internet Access, E-Mail, Remote Access, VPNs, Voice Enabled Features,
Chat Facilities...
[Telocity logo]
[NBCi logo]
UTILITY
Firewall Security, Secure Banking, Data Security, Home Networking, Home
Monitoring, Home Automation, Backup Services...
[Telocity logo]
[GE logo]
<PAGE> 4
PAGES 2 & 3
BROADBAND TO AND THROUGHOUT THE HOME
Three images of NBCi-related Web sites
[Image of house]
Telocity's current and future broadband services provide customers benefits such
as always-on, high-speed Internet access, personalized web pages, streaming
audio and video, online gaming, interactive shopping, firewall protection and
data security services, backup services, VPN capabilities, home networking, home
monitoring and automation and other Telocity / NBCi services and applications.
OUR RESIDENTIAL GATEWAY
[Images of Telocity gateway from two different angles - front and back]
[Identification of different ports on back of Telocity modem: DSL/Home PNA/Phone
Connection; USB Host/USB Slave; Power Connection; Ethernet and Parallel Port]
Our plug-and-play gateway is hassle-free and can be easily self-installed by the
customer. Our installation software configures a personal computer
automatically, providing immediate high-speed access to the Internet and all of
our services. Many services and applications can be added to conform to an
individual user's preferences without requiring new equipment or an on-site
visit by a technician.
OUR MANAGED NETWORK
[Artist rendering of map of United Sates]
Our nationwide managed network is designed to be responsive, reliable and
redundant. Data delivery is enhanced through our satellite-fed caching system.
Through our Network Operations Center and Operational Support System, we are
able to monitor our services throughout the network and ensure the highest level
of support.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 5
Other Relevant Information.................................. 20
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Dilution.................................................... 23
Selected Consolidated Financial Information................. 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 32
Management.................................................. 50
Related Party Transactions.................................. 64
Principal Stockholders...................................... 70
Description of Capital Stock................................ 73
Shares Eligible for Future Sale............................. 77
Underwriting................................................ 79
Legal Matters............................................... 82
Experts..................................................... 82
Additional Information...................................... 82
Index to Consolidated Financial Statements.................. F-1
</TABLE>
----------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
i
<PAGE> 6
INFORMATION IN PROSPECTUS
You should be aware that, except where otherwise stated, numbers in this
prospectus are based upon the capitalization of our company as of September 30,
1999. Unless specifically stated, the information in this prospectus:
- reflects the two for one forward stock split effected on October 13,
1999;
- reflects 18,083,230 shares of common stock outstanding on September 30,
1999 and the automatic conversion of all outstanding shares of our
Series A and B convertible redeemable preferred stock as of September
30, 1999 into 26,331,818 shares of common stock upon the closing of this
offering;
- assumes the reincorporation of our company in Delaware prior to the
closing of this offering;
- does not include any rights to purchase stock issued by us or
repurchases of stock executed by us after September 30, 1999, including
the issuance of the Series C convertible redeemable preferred stock in
connection with a financing, which closed on December 13, 1999.
All references to "we," "us," "our" or "Telocity" in this prospectus mean
Telocity, Inc.
ii
<PAGE> 7
SUMMARY
This summary highlights information contained elsewhere in this
prospectus. It is not complete and may not contain all the information you
should consider before investing in our common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and the consolidated
financial statements and the notes to the statements.
OUR COMPANY
We intend to be the leading nationwide provider of subscriber-based
broadband services and applications designed for the residential market. We
develop, market, integrate and operate branded, interactive online services
independently, and we will do so in the near future with strategic partners such
as NBCi. Our fully integrated service platform, which includes our
self-installable residential gateway device, seamlessly delivers these broadband
online services and applications directly to our customers. Our platform enables
us to utilize the most reliable, flexible and cost-effective broadband access
technology available in each market as we expand our services nationwide. Our
goal is to leverage our advantage as an early mover in the residential broadband
services area and our proprietary technological advantage in our gateway device
to become the provider of choice for lifestyle and productivity enhancing
services, content and applications both to and throughout the home.
We currently deliver services such as high-speed, always-on Internet
access, e-mail, personalized Web pages and remote Internet access. In the near
future, we expect to offer our customers media, entertainment and electronic
commerce services such as online gaming, streaming audio and video and
interactive shopping; communication services such as chat facilities, virtual
private networks, or VPNs, and voice-enabled features; and utility services such
as secure online banking, home networking, home monitoring, home automation and
data security.
Our broadband platform allows us to offer a large and growing suite of
services that we can remotely configure to each customer's needs. This
standards-based platform consists of our proprietary residential gateway, our
managed network, our user interface software, our customer care and support
services and our automated billing and provisioning systems. We designed our
platform to allow for the rapid addition of customers while enabling us to
minimize our associated costs and overhead. Furthermore, our platform's open
standards-based architecture gives us the ability to deliver our services
effectively through a variety of last mile broadband access technologies. In our
initial markets we have deployed our services using digital subscriber line, or
DSL technology. This technology allows us to provide our customers with
dedicated, or always-on, Internet access at speeds up to 50 times faster than
typical dial-up access.
In December 1999, we formed a strategic relationship with NBCi and its
subsidiaries, XOOM.com and Snap.com. Our agreements provide for, among other
things, joint development and design of co-branded services that include content
and applications such as entertainment, electronic commerce, games, search
applications and other features designed for broadband users. Our customers will
be able to utilize these online services through our jointly developed and
branded portal interface. As part of these agreements, NBCi and its affiliates,
GE Capital, NBC and ValueVision, have invested $70.5 million, which consists of
$37.5 million in cash and $33.0 million in promotional services at preferred
rates. In addition, we have agreed to share a portion of the revenues that are
generated from our respective services, advertising and electronic commerce
activities.
In July 1999, we began offering services commercially in Chicago. On
December 31, 1999, we were also serving customers in Detroit and 29 of the 40
most populous metropolitan statistical areas in the Southeast, including Atlanta
and Miami. We currently have approximately customers of which
are receiving our services and have placed orders for our
services. By the end of 2000, we expect that our targeted national rollout will
cover more than of the nation's most populous metropolitan statistical
areas and % of the nation's households. As part of providing our services, we
have entered into network agreements with BellSouth, Bell Atlantic, SBC and
Rhythms NetConnections and anticipate signing additional agreements with other
regional and national DSL providers over the next several months.
1
<PAGE> 8
Our senior management team has extensive experience in consumer,
telecommunications and technology businesses. Our President and Chief Executive
Officer, Patti Hart, was previously the President and Chief Operating Officer of
Sprint Corporation's Long Distance Division. Peter Olson, our Executive Vice
President and Chief Technical Officer, co-founded and was Chief Technical
Officer of Octel Communications. Edward Hayes, our Executive Vice President and
Chief Financial Officer, was previously the Chief Financial Officer of Lucent
Technologies, Inc.'s Global Service Provider Business. Jim Morrissey, our
Executive Vice President and Chief Marketing Officer, was an Executive Creative
Director and Executive Vice President for Grey Advertising.
As of December 31, 1999, our sponsors had invested approximately $149
million in connection with issuances of our capital stock, which includes $33
million in promotional services at preferred rates. Our sponsors include NBCi;
NBC; GE Capital Equity Investments; ValueVision International; August Capital;
Bessemer Venture Partners; Mohr, Davidow Ventures; RRE Investors, LLC; Bessemer
Holdings, L.P.; Comdisco, Inc.; Quantum Industrial Partners LDC; and Soros Fund
Management LLC.
MARKET OPPORTUNITY
We believe that a substantial business opportunity exists as a result of
the following factors:
- large, growing and underserved market;
- large and unmet demand for residential high-speed connectivity;
- growing demand for broadband content and lifestyle enhancing
applications;
- emergence of DSL and other last mile broadband access technologies; and
- regulatory change that is contributing to the increase in cost-effective
last mile broadband access.
THE TELOCITY SOLUTION
We believe our services and applications address many of the residential
market's unmet data communication needs. Our solution offers:
- lifestyle and productivity enhancing services, content and applications;
- simple plug and play deployment;
- flexible, always-on broadband connectivity;
- scalable nationwide network with enhanced content delivery; and
- service flexibility and ease-of-use.
BUSINESS STRATEGY
Our goal is to leverage our advantage as an early mover in the residential
broadband services market and our proprietary technological advantage in our
gateway device to become a provider of choice for lifestyle and productivity
enhancing services, content and applications, both to and throughout the home.
We intend to implement the following strategies to achieve our goal:
- capture early mover and proprietary technology advantage;
- deliver quality broadband services both to and throughout the home;
- leverage strategic partnerships;
- expand our direct marketing and branding efforts; and
- deliver high quality customer service and support.
Our principal executive offices are located at 10355 North De Anza
Boulevard, Cupertino, California 95014, and our telephone number is (408)
863-6600. We maintain Web sites at www.telocity.com and www.telocity.net.
Information contained in our Web sites does not constitute a part of this
prospectus.
2
<PAGE> 9
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common stock offered by Telocity:............ shares
Shares outstanding after the offering........ shares
Use of proceeds.............................. We estimate that our net proceeds from this
offering without exercise of the
over-allotment options will be approximately
$ million. We intend to use these
proceeds for general corporate purposes,
including:
- fund working capital needs, and
- expand our network, operations, and sales
and marketing efforts.
Risk factors................................. See "Risk Factors" and other information
included in this prospectus for a discussion
of factors you should carefully consider
before deciding to invest in shares of the
common stock.
Proposed Nasdaq National Market symbol....... TLCT
</TABLE>
The number of shares that will be outstanding after the offering is based
on 44,415,048 shares outstanding as of September 30, 1999 and excludes:
- 1,520,286 shares of common stock issuable upon exercise of options
outstanding at September 30, 1999 under our 1998 Stock Plan, with a
weighted average exercise price of $0.89 per share;
- 2,297,056 shares reserved for issuance under our 1998 stock option plan
as of September 30, 1999;
- 2,900,000 shares of common stock reserved for issuance under 2000
Employee Stock Purchase Plan and 2000 Outside Directors Stock Plan
immediately following the offering; and
- 2,284,215 shares of common stock issuable through the exercise of common
stock and convertible preferred stock warrants outstanding on September
30, 1999 at a weighted average exercise price per share of $0.57.
This number assumes that the underwriters' over-allotment options are not
exercised. If the over-allotment options are exercised in full, we will issue
and sell an additional shares.
3
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 18, 1997 YEAR ENDED NINE MONTHS
(INCORPORATION) TO DECEMBER 31, ENDED
DECEMBER 31, 1997 1998 SEPTEMBER 30, 1999
------------------ ------------ ------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $ -- $ -- $ 57
Loss from operations........................ (678) (7,438) (18,374)
Net loss.................................... (678) (7,590) (18,978)
Basic and diluted net loss per share........ $ (0.56) $ (1.39) $ (2.57)
Shares used in computing basic and diluted
net loss per share....................... 1,220 5,472 7,380
Pro forma basic and diluted net loss per
share (unaudited)........................ (0.65) (0.62)
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)... 11,628 30,510
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 179 $ 179 $
Working capital deficit................................. (5,896) (5,896)
Total assets............................................ 8,899 8,899
Long-term obligations, less current portion............. 5,819 5,819
Mandatorily redeemable convertible preferred stock...... 22,258 --
Total stockholders' equity deficit...................... (26,029) (3,771)
</TABLE>
For an explanation of the determination of the number of shares used in
computing per share data refer to Note 2 of Notes to Consolidated Financial
Statements. The pro forma basis gives effect to the conversion of all
outstanding mandatorily redeemable convertible preferred stock which will be
converted automatically into common stock upon the closing of this offering. The
as adjusted amounts above give effect to the sale of the shares of
common stock offered hereby at an assumed public offering price of $ per
share (less underwriting discounts and commissions and estimated offering
expenses). Further information can also be found in "Use of Proceeds" and
"Capitalization."
4
<PAGE> 11
RISK FACTORS
Investing in our common stock involves a substantial risk. You should
consider carefully the risks and uncertainties described below and elsewhere in
this prospectus before deciding to buy our common stock. If any of the following
risks or uncertainties occurs, our business could be adversely affected. In this
event, the trading price of our common stock could decline, and you could lose
all or part of your investment.
RISKS RELATED TO OUR OPERATIONS AND FINANCIAL RESULTS
WE HAVE A LIMITED OPERATING HISTORY IN A NEW AND RAPIDLY EVOLVING INDUSTRY AND
WE MAY NOT SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN.
We were incorporated in August 1997 and first began offering residential
broadband services commercially in Chicago in July 1999. We have been offering
our services on a wider basis since November 1999, when we started our rollout
in the Southeast. As a result of the expansion of our services and the
accompanying buildout of our network, we grew from 36 employees at December 31,
1998 to approximately 190 employees at December 31, 1999. Of our entire current
management team of 12, only four members were with us at December 31, 1998. As a
result of these factors, our business model is still in development and our
limited historical financial and operating data are not a good indication of how
our business is doing or how it is evolving. In addition, you should not expect
future growth in operations, revenue, employees or other benchmarks to be
comparable to our recent developments in those areas. All these factors make
evaluating our business difficult.
You must consider our business and prospects in light of the risks and
difficulties typically encountered by companies in new and rapidly evolving
industries such as ours. We may not be successful in addressing these risks, and
if we are not successful, we may not be able to implement our business plan
successfully. Some of the risks that we face include:
- the uncertain demand for our services and applications;
- the need to develop and expand our network infrastructure, our systems
and our sales, operations and customer support organizations;
- our ability to market successfully to our target customers;
- increased competition in the broadband access and Internet content
industry;
- the deployment and availability of DSL and other last mile technology in
the markets in which we operate;
- competition from established rivals; and
- our ability to attract and retain qualified management and other key
personnel.
WE HAVE INCURRED NET LOSSES SINCE OUR INCEPTION AND EXPECT FUTURE LOSSES.
ACCORDINGLY, WE MAY NOT BE ABLE TO ACHIEVE PROFITABILITY, AND EVEN IF WE DO
BECOME PROFITABLE, WE MAY NOT BE ABLE TO SUSTAIN PROFITABILITY.
We have incurred net losses in every quarter and annual period since our
incorporation in August 1997 and expect to continue to operate at a loss for the
foreseeable future, primarily as a result of the expansion of our network and
operations. Although we intend to increase our expenditures and operating
expenses rapidly and substantially as we expand our network and operations, we
do not expect our revenues to increase as rapidly and as substantially. We
cannot forecast with any degree of accuracy when, or if, we will become
profitable. This is true because of the following:
- we expect to incur substantial operating and net losses and negative
operating cash flow for the foreseeable future;
5
<PAGE> 12
- we had negative cash flow from operating activities of $5.4 million in
1998 and $15.9 million for the first three quarters of 1999;
- we had an annual interest and amortization expense relating to the
expansion of our network and operations of approximately $ million in
1999 and expect this expense to increase significantly in the future;
- we had an annual charge to earnings relating to employee stock-based
compensation and non-employee option and warrant grants of approximately
$ in 1999 and expect this expense to increase significantly in
the future; and
- as of September 30, 1999, we had an accumulated deficit of approximately
$27.2 million.
OUR FAILURE TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT THE RETENTION AND GROWTH
OF OUR CUSTOMER BASE AND OUR SERVICE OFFERINGS AND MAKE IT DIFFICULT TO
IMPLEMENT OUR STRATEGY OF SUPERIOR CUSTOMER SERVICE.
We may not be able to install 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. Failure to manage our future growth effectively could adversely
affect the retention and growth of our customer base and of our service
offerings and could materially and adversely affect our business, prospects,
operating results and financials condition. Our expansion to date has strained
our management, financial controls, operations systems, personnel and other
resources. From time to time, we have had difficulty effectively deploying our
network operations and expanding our network on extremely short deadlines while
providing adequate customer service and efficient provisioning of new customers.
Any future rapid expansion will likely increase these strains. If our
marketing strategy is successful, we may experience difficulties responding to
customer demand for services and technical support in a timely manner and in
accordance with customer expectations. Furthermore, we may make mistakes in
operating our business. We may make inaccurate sales forecasts, overtax our most
talented and capable personnel, inadequately test our network deployments or
devote insufficient resources for new markets, material planning and financial
reporting. As a result, rapid growth of our business could make it difficult to
implement successfully our strategy to provide superior customer service. To
manage any growth of our operations, we must:
- improve existing and implement new operational, financial and management
information controls, reporting systems and procedures;
- hire, train and manage additional qualified personnel and take steps to
ensure that we do not overtax our most talented and capable personnel;
- expand and upgrade the core technologies for our broadband platform and
for our services and applications; and
- effectively manage multiple relationships with our customers, suppliers,
vendors and other third parties.
OUR ABILITY TO SUSTAIN OR GROW OUR BUSINESS, ESPECIALLY THE DEVELOPMENT OF OUR
CONTENT OFFERINGS, MAY BE HARMED IF WE ARE UNABLE TO MAINTAIN OUR STRATEGIC
RELATIONSHIP WITH NBCI AND ITS AFFILIATES.
Our business, especially the development of our content offerings, is
substantially dependent upon our strategic partnership with NBCi and its
affiliates. If NBCi breaches its agreements or fails to perform its obligations
under its agreements, we may not be able to sustain or grow our business. NBCi
may also terminate its agreements with us should certain events occur. For
example, NBCi may terminate its Operating Agreement with us if one of a number
of named NBC or NBCi competitors acquires more than 33% of us. NBCi may
terminate the promotional exclusivity provisions of the Operating Agreement if
certain performance milestones are not met, including our failure to raise
sufficient capital to launch our service in at least 16 markets by the end of
2000 and 26 markets by the end of 2001, if Ms. Hart leaves
6
<PAGE> 13
Telocity within three years. NBCi or NBC may terminate their Advertising
Agreements with us in the event of a change in control, an uncured material
breach of the agreements or bankruptcy related events of our company.
In the event that relationships with NBCi or its affiliates are
terminated, we may not be able to develop other strategic relationships. In
addition, any strategic agreements we enter into in the future may not be
successful. The amount and timing of resources that our strategic partners
devote to our business is not within our control. Our strategic partners may not
perform their obligations as expected. Agreements with our strategic partners
are new, and we cannot be certain that any revenue will be derived from these
agreements. For a further discussion of our strategic relationship with NBCi
please refer to "Business -- Strategic Partnership with NBCi and Affiliates" and
"Related Transactions -- Strategic Relationship with NBCi and Affiliates."
OUR MANAGEMENT TEAM IS NEW AND, IF THEY ARE UNABLE TO WORK TOGETHER EFFECTIVELY,
OUR BUSINESS COULD BE SERIOUSLY HARMED.
Our business is highly dependent on the ability of our management team to
work together effectively to meet the demands of our growth. Our productivity
and the quality of our services and applications may be adversely affected if
our team does not learn to work together quickly and effectively. We employed
only four members of our current management team at the beginning of 1999. In
particular, Patti Hart, our President and CEO, joined us in June 1999, Jim
Morrissey, our Executive Vice President and Chief Marketing Officer, joined us
in September 1999, Scott Martin, our Executive Vice President and Chief
Administrative Officer, joined us in December 1999 and Edward Hayes, our
Executive Vice President of Finance and Chief Financial Officer, joined us in
January 2000. These individuals have not previously worked together as a
management team and have had only limited experience managing a rapidly growing
company.
OUR GROWTH DEPENDS ON OUR ABILITY TO HIRE AND RETAIN HIGHLY QUALIFIED EMPLOYEES
AND SENIOR EXECUTIVES.
Our future success and ability to sustain our growth depends upon the
continued service of our executive officers and other key engineering, sales,
operations, marketing and support personnel. The loss of the services of any of
our senior management team, all but one of whom are at-will employees, or the
failure to attract and retain additional key employees could harm our business.
Competition for qualified personnel in our industry and in the San Francisco Bay
Area, as well as the other geographic markets in which we recruit, is extremely
intense and characterized by rapidly increasing salaries and equity positions,
which may increase our operating expenses or hinder our ability to recruit
qualified candidates. Furthermore, we must compete with companies in earlier
stages of their development, that can offer substantially greater equity
positions to current and potential employees. For these reasons, we may be
unable to retain or recruit qualified candidates, much less the most highly
qualified.
WE MAY EXPERIENCE DIFFICULTIES IN THE EXPANSION OF OUR NETWORK AND THE
INTRODUCTION OF OUR NEXT GENERATION GATEWAY THAT COULD DELAY THE LAUNCH OF NEW
SERVICES THEREBY INCREASING EXPENSES AND DECREASING REVENUE.
The development of new or enhanced equipment, systems, services and
applications is a complex and uncertain process requiring the accurate
anticipation of technological and market trends, as well as precise
technological execution. We have experienced in the past and may experience in
the future design, development, implementation or other difficulties that could
delay or prevent our introduction of new or enhanced services or applications.
These delays could cause our revenues to decline.
The introduction of new or enhanced services or applications also may
require us to manage a transition from older equipment and technology, minimize
disruption in customer ordering patterns, and ensure that adequate supplies of
new equipment can be delivered to meet anticipated customer demand. We
anticipate that we will replace our existing residential gateway when our
next-generation residential
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gateway is commercially released. Furthermore, despite testing, our
next-generation residential gateway may contain undetected or unresolved errors
when it is first released. These errors could result in:
- delays in or loss of market acceptance and sales;
- diversion of development resources;
- injury to our reputation; and
- increased service, warranty and other operating expenses.
IF WE ARE UNABLE TO DEVELOP AN EFFECTIVE MARKETING CAMPAIGN TO ATTRACT
CUSTOMERS, OUR BUSINESS WILL SUFFER.
We plan to increase our spending on advertising and promotions and to
implement new marketing campaigns. These strategies may not be successful. If we
are unable to design and implement effective marketing campaigns or otherwise
fail to promote and maintain our brand, our sales could decline and even if our
sales do increase, we could still fail to achieve levels necessary to result in
profitability.
FAILURE TO PROVIDE HIGH QUALITY CUSTOMER CARE AND TECHNICAL SUPPORT SERVICES MAY
REDUCE OUR SALES AND HARM OUR REPUTATION.
If our customer care and technical support services fail to satisfy our
customers' needs, we face an increased risk that customers will purchase
services from our competitors. In addition to losing customers directly because
of a failure of our customer care and technical support services, if our support
strategy fails, our brand could be diluted or tarnished, which would harm our
ability to market our services in the future.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY FROM PERIOD TO
PERIOD WHICH MAY CAUSE OUR STOCK PRICE TO BE EXTREMELY VOLATILE. WE MAY ALSO
FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS,
CAUSING OUR STOCK PRICE TO DECLINE.
Our operating results are likely to fluctuate significantly in the future
on a quarterly and an annual basis due to a number of factors, many of which are
outside our control. If we experience such fluctuation, we may fail to meet or
exceed the expectations of securities analysts or investors, causing our stock
price to decline or be extremely volatile. These factors include the following:
- the rate at which we sign up new customers, turnover of customers and
fluctuations in demand for our services, all of which are uncertain
because our services are new;
- the prices our customers are willing to pay, as well as price
competition from competitors;
- the amount and timing of expenditures relating to the expansion of our
services and network;
- our ability to ship our residential gateway device on a timely basis and
at a reasonable cost;
- the effectiveness of our marketing and sales campaigns;
- unexpected delays in introducing new or enhanced gateways, including
manufacturing delays;
- our ability to attain and maintain quality levels for our residential
gateway and the other components of our broadband platform;
- our ability to obtain sufficient supplies of sole or limited source
components for our gateway device and network infrastructure;
- the success of our relationships with our partners, including NBC
Internet, Inc., or NBCi;
- our ability to deploy our network on a timely basis and to ensure that
it has all the technical attributes necessary to support our services
and applications while avoiding technical difficulties and network
downtime;
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- our ability to sign up new customers in volumes necessary to receive
discount pricing for last mile circuits;
- the introduction of new services or technologies by our competitors, or
announcements that new services or technologies will be offered by our
competitors in the future;
- the entry of new competitors into our market, including by merger,
acquisition, or strategic alliances;
- regulatory developments at the local, state or federal level, including
interpretations of the 1996 Telecommunications Act; and
- the condition of the telecommunication and network service industries
and general economic conditions.
In addition, most of our operating costs are fixed and based on our
revenue expectations. Therefore, if we have lower revenues than we were
expecting, we may be unable to reduce our expenses in the same period in which
the operating costs were incurred, resulting in lower quarterly operating
results for that period. For example, during 1999 we hired approximately 150
employees, moved into significantly larger facilities and greatly increased our
operating expenses. We do not know whether our business will grow rapidly enough
to absorb these costs.
IF SALES FORECASTED FOR A PARTICULAR PERIOD ARE NOT REALIZED IN THAT PERIOD DUE
TO THE LENGTHY DEVELOPMENT AND TESTING CYCLES OF OUR TECHNOLOGIES AND SERVICES,
OUR OPERATING RESULTS FOR THAT PERIOD WOULD BE ADVERSELY AFFECTED.
We cannot forecast with any degree of accuracy our revenues in future
periods or how quickly customers will select our services, if at all. In view of
these factors, we may not be able to achieve or sustain profitability. Our
ability to achieve profitable operations on a continuing basis will depend on a
number of factors, many of which are beyond our control. These factors include:
- the rate of market and consumer acceptance of broadband technology,
especially DSL in the short-term, as well as of our brand and our
services;
- changes in industry standards governing broadband technology, especially
DSL;
- changes in our development schedules and those of competitors that
provide competing broadband products and services, or changes in levels
of expenditure on research and development by us or our competitors;
- personnel changes, particularly those involving management, engineering
or operations personnel;
- the costs associated with protecting our intellectual property and with
defending against unforeseen litigation;
- regulatory developments; and
- general economic trends.
WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR GROWTH
AND EVEN IF WE ARE ABLE TO RAISE ADDITIONAL CAPITAL, IT MAY BE ON UNACCEPTABLE
TERMS, MAY DILUTE YOUR OWNERSHIP OR MAY RESTRICT OUR FLEXIBILITY IN RUNNING OUR
BUSINESS.
We expect that our existing capital resources coupled with the proceeds of
this initial public offering will be sufficient to meet our cash requirements
through at least the next months. We will not have completed our nationwide
service rollout by this time and will need additional capital, whether or not
our estimate on how long current capital resources will last is accurate. If
additional capital becomes necessary and we are unable to raise additional
capital on acceptable terms, we may not be able to complete our network, develop
or enhance our gateway and services, take advantage of future opportunities
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or respond to competitive pressures or unanticipated requirements, any or all of
which could have a material adverse effect on our business.
We intend to seek substantial additional financing in the future to fund
the growth of our operations, including funding the significant capital
expenditures and working capital requirements necessary for us to complete our
nationwide rollout and provide service in our targeted markets. Furthermore, our
actual funding requirements may differ materially if our assumptions underlying
this estimate turn out to be incorrect. Therefore, you should consider our
estimate in light of the following facts:
- we have no meaningful history of operations or revenues;
- our estimated funding requirements do not reflect any contingency
amounts and may increase, perhaps substantially, if we are unable to
generate revenues in the amount and within the time frame we expect or
if we have unexpected cost increases; and
- we face many challenges and risks, including those discussed elsewhere
in this section.
This additional capital may not be available on acceptable terms, if at
all. In the recent past the financial markets have experienced extreme price
fluctuations. A market downturn or general market uncertainty may adversely
affect our ability to secure additional financing.
If additional capital is raised through the issuance of equity securities
or by incurring convertible debt, the percent ownership of our existing
stockholders will be reduced and those stockholders may experience dilution in
net book value per share. Any debt financing, if available, may involve
covenants limiting or restricting our operations or future opportunities or
pledging our assets as security for borrowings.
RISKS RELATED TO OUR INDUSTRY, TECHNOLOGY AND NETWORK
OUR SERVICES ARE NEW AND MAY NOT GAIN BROAD MARKET ACCEPTANCE.
Residential broadband Internet access and the related services we support
through our platform is a new and emerging business, and we cannot guarantee
that our services will attract widespread demand or market acceptance. If this
market fails to develop or develops more slowly than anticipated, our business
would be harmed and our revenues would be adversely affected. Customers may fail
to accept our services because of:
- the inconsistent quality of our services or our failure to deliver what
we promise;
- the length of time between ordering and delivery of our services;
- the expense of the services;
- the failure of the market for home appliances and other applications
that could be supported through our broadband platform to develop
adequately;
- the creation of alternative technologies that gain acceptance;
- a lack of content, inadequate facilities to transmit content, failure to
enter or maintain partnerships for content, or the failure of our
partners to deliver content;
- congestion in our network;
- inadequate security; or
- our inability to meet growing demands for increasing bandwidth.
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THE SCALABILITY, RELIABILITY AND SPEED OF OUR NETWORK REMAIN LARGELY UNPROVEN
AND MAY NOT SATISFY CUSTOMER DEMAND.
To date, we have deployed our network only in Chicago, Detroit and 29 of
the 40 most populous metropolitan statistical areas in the Southeast, including
Atlanta and Miami. Most of this deployment has taken place in the last few
months. By the end of 2000, we expect that our targeted national rollout will
cover more than of the nation's most populous metropolitan statistical
areas and % of the nation's households. The ability of our network and
Operational Support System to connect and manage a substantial number of online
customers at high speeds on a national scale is still unknown. Consequently,
there is a risk that we may not be able to scale our network and Operational
Support System to meet our projected customer numbers while achieving and
maintaining superior performance. This risk will continue to exist as long as we
expand our services geographically to increasing numbers of customers. Our
failure to achieve or maintain high-speed digital transmissions would
significantly reduce customer demand for our services.
Peak digital data transmission speeds currently offered across our
networks when utilizing DSL are 1.5 megabits per second. However, the actual
data transmission speeds over our networks can be significantly slower depending
on a variety of factors, many of which are out of our control, including:
- the distance an end-user is located from a central office;
- the configuration of the telecommunications line being used;
- the quality of the telephone lines provisioned by traditional telephone
companies;
- the inside wiring of our customers' homes; and
- the limitations of the customer's computer.
WE FACE INTENSE COMPETITION FROM, AMONG OTHERS, PROVIDERS OF ONLINE SERVICES,
INTERNET SERVICE PROVIDERS, CABLE MODEM SERVICE PROVIDERS AND TELECOMMUNICATIONS
SERVICE PROVIDERS.
We experience strong competition in all of our target service areas,
including from providers of online services, Internet service providers, cable
modem service providers, interactive television providers, Internet portal or
content sites, telecommunications service providers, wireless and satellite
service providers, and consumer electronics and appliance manufacturers. We
expect this competition to intensify and we may be unsuccessful in generating a
significant number of new customers or retaining existing customers. Many of
these competitors have longer operating histories, greater name recognition,
better strategic relationships and significantly greater financial, technical or
marketing resources than we do. As a result, these competitors:
- may be able to develop and adopt new or emerging technologies and
respond to changes in customer requirements or devote greater resources
to the development, promotion and sale of their products and services;
- may form new alliances to rapidly acquire significant market share; and
- may be able to undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and devote substantially more resources to
developing high-speed broadband services.
For example, telecommunications service providers, including incumbent and
competitive carriers, have an established brand name and reputation for high
quality in their service areas, possess sufficient capital to deploy DSL
equipment rapidly, have their own telephone lines and can bundle digital data
services with their existing analog voice services to achieve economies of scale
in serving customers. Cable modem service providers such as Excite@Home, and
Time Warner Cable through its RoadRunner service, may have the ability to
leverage their existing monopolies. For a further discussion of the competition
we face, please refer to "Business -- Competition."
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OUR FAILURE TO ENHANCE OUR EXISTING GATEWAY OR TO DEVELOP AND INTRODUCE NEW
SERVICES AND APPLICATIONS THAT MEET CHANGING CUSTOMER REQUIREMENTS AND EMERGING
INDUSTRY STANDARDS WOULD HARM OUR ABILITY TO SELL OUR SERVICES.
The market for high-speed broadband access is characterized by rapidly
changing customer demands and short life cycles for services and applications.
If enhancements to our existing services or development of new services and
applications takes longer than planned, the delay would adversely affect our
ability to sell our services and our results of operations and financial
condition would be adversely affected. Our future success will depend in large
part upon our ability to:
- identify and respond to emerging technological trends in the market;
- develop and maintain competitive services and applications that meet
changing customer demands;
- enhance our broadband platform by adding innovative features that
differentiate our services and applications from those of our
competitors;
- bring services and applications to market on a timely basis;
- ensure compatibility with any new technologies that become industry
standards;
- introduce services and applications that have competitive prices; and
- respond effectively to new technological changes or new service
announcements by others.
The technical innovations required to remain competitive in the broadband
industry are inherently complex, require long development cycles and sometimes
necessitate that we depend on sole-source suppliers. We must continue to invest
in research and development in order to maintain and enhance our existing
technologies and our broadband platform, but we may not have sufficient funds
available to do so. Even if we have sufficient funds, these investments may not
serve the needs of customers or be interoperable with changing technological
requirements or standards. We will have to incur most research and development
expenses before the technical feasibility or commercial viability of enhanced or
new services can be ascertained. Our revenues from future or enhanced services
may not be sufficient to recover our associated development costs.
IF OUR SINGLE SOURCE GATEWAY SUPPLIER IS UNABLE TO MEET OUR NEEDS, OUR RESULTS
OF OPERATIONS WILL BE HARMED.
We rely on Wellex Corporation to produce our proprietary residential
gateway device and we will not have another supplier for at least five months.
Presently, Wellex produces all of our gateways at its site in Northern
California and, in the event of a natural disaster, our business could be
harmed. If Wellex experiences delays, disruptions, capacity constraints or
quality control problems in its manufacturing operations, then gateway shipments
to our customers could be delayed, which would negatively affect our net
revenues, competitive position and reputation. Should Wellex cease to be our
contract supplier for any reason, we would then need to qualify a new gateway
supplier and may be unable to find a gateway supplier that meets our needs or
that can source components as cost-effectively as Wellex. Qualifying a new
gateway supplier and commencing volume production is expensive and time
consuming. Transferring production operations can significantly disrupt gateway
supply. If we are required or choose to change gateway suppliers, we may lose
sales and may experience increased production or component costs, and our
customer relationships may suffer.
There are a number of other risks associated with our dependence on a
single third party supplier, including the following:
- reduced control over delivery schedules and quality assurance;
- manufacturing yields and costs;
- the potential lack of adequate capacity during periods of excess demand;
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- limited warranties on products supplied to us;
- increases in prices; and
- the potential misappropriation of our intellectual property.
WE DEPEND ON SINGLE AND LIMITED SOURCE SUPPLIERS FOR KEY COMPONENTS OF OUR
BROADBAND PLATFORM, INCLUDING THE GATEWAY AS WELL AS OUR NETWORK, WHICH MAKES US
SUSCEPTIBLE TO SUPPLY SHORTAGES OR PRICE FLUCTUATIONS THAT COULD ADVERSELY
AFFECT OUR OPERATING RESULTS.
If any of our sole-source manufacturers delays or halts production of any
of the components or equipment that we use in our residential gateway or our
network, our business would be harmed, and our results of operations and
financial condition would be adversely affected. Furthermore, we expect to
incorporate additional sole-source components into our next-generation gateway
planned for release during the first six months of 2000, thereby increasing our
sole-source supplier risks. We currently depend on single source suppliers for a
number of key components, such as chipsets, processors, unique tooled plastics,
flash memory, random access memory, and other chips. If supply of these key
components should cease, we may be required to redesign elements of our
platform. In some cases, we might need six months or more to remedy a complete
cessation of delivery of components from a supplier. Alternate vendors may not
meet our quality standards. We have no supply commitments from our vendors and
we and our contract supplier generally purchase components on a purchase order
basis, as opposed to entering into long-term procurement agreements. Delays or
failure to identify an alternate vendor, if required, a reduction or
interruption in supply or a significant increase in the price of components
would materially harm our operating results. In addition, if we are required to
pay higher prices for these single or limited source components and we cannot
charge higher prices for our services, our gross margin would be harmed.
Furthermore, overall market conditions affecting supply and pricing for key
commodity components are known to fluctuate significantly at times. In addition,
any of our sole-source suppliers may:
- enter into exclusive arrangements with our competitors;
- stop selling their equipment or components to us at commercially
reasonable prices; or
- refuse to sell their equipment or components to us at any price or stop
selling them entirely, such as by discontinuing the products or
components or by going out of business.
IF WE FAIL TO PREDICT ACCURATELY OUR SUPPLY REQUIREMENTS, WE COULD INCUR
ADDITIONAL COSTS OR EXPERIENCE DELAYS.
We provide Wellex with rolling forecasts of our gateway requirements based
on anticipated orders. Wellex uses these forecasts to purchase components for
our gateway. Our component requirement forecasts may not be accurate. If we
overestimate our component requirements, Wellex may have excess inventory, which
would increase our costs. Also, because lead times for materials and components
that we require vary significantly and depend on a variety of factors, if we
underestimate our requirements, Wellex may have inadequate inventory, which
could interrupt their manufacturing of our gateway and result in delays in
system shipments. Any of these events could harm our business and results of
operations.
WE CANNOT PROVIDE SERVICES AND APPLICATIONS UNLESS DSL CONNECTIVITY PROVIDERS
SUPPLY US WITH DSL CONNECTIONS AND COOPERATE WITH US FOR THE TIMELY PROVISION OF
DSL CONNECTIONS FOR OUR CUSTOMERS.
We must obtain DSL connections from incumbent and competitive carriers and
have their continuing cooperation for the timely provision of DSL connections
for our customers in order for us to provide broadband services and
applications. In addition, we depend on incumbent and competitive carriers to
test and maintain the quality of the DSL connections that we use. An inability
to obtain adequate and timely access to DSL connections on acceptable terms and
conditions from incumbent and competitive carriers and to gain their cooperation
in the timely provision of DSL connections for our customers could harm our
business, as could their failure to properly maintain the DSL connection we use.
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Because in some instances our incumbent and competitive carriers will also
provide broadband Internet access and other services, we will compete with our
suppliers. Although our suppliers are required to provide DSL connections based
on applicable tariffs and other regulations, they may nevertheless be reluctant
to cooperate with us. Compelling these suppliers to meet the regulatory
requirements may be expensive and time consuming and could result in delays and
increased expenses associated with providing our services and applications on a
wider scale, which in turn could harm our business.
OUR SERVICES MAY NOT BE DELIVERED EFFECTIVELY, OR AT ALL, BECAUSE OF THE
PHYSICAL LIMITATIONS OF OUR CUSTOMERS' TELEPHONE LINES, INCLUDING INSIDE WIRING,
OR BECAUSE THE TELEPHONE LINES WE RELY UPON MAY BE UNAVAILABLE OR IN POOR
CONDITION.
Our ability to provide services and applications to potential customers
through DSL connections through the telephone network depends on the length of
our customers' local telephone lines, over which DSL must operate. It also
depends on the quality, physical condition, availability and maintenance of
those telephone lines, which is within the control of incumbent carriers. DSL
technology is distance sensitive and, in many cases, the homes of our customers
may be located outside the maximum distance from the telephone company central
switching office for the proper function of the DSL technologies we currently
use. If the homes of a significant number of customers that desire our service
are located beyond this maximum distance, it could materially inhibit our
ability to deploy our broadband services to those homes, which would harm our
business.
Likewise, the current condition of local telephone lines may be inadequate
to permit us to provide our services to all of our customers utilizing our
current DSL technologies. The copper telephone lines that we rely upon to
provide service to our customers' homes may not be of sufficient quality or they
may not be adequately maintained by the incumbent carrier for proper DSL
functionality, which could significantly inhibit our ability to deploy our
broadband services to those homes, which would harm our business.
Further, some telephone companies use technologies other than copper lines
to provide telephone services between the incumbent carrier central switching
office and the customer's residence (also known as the "last mile"), and
DSL-based services might not be available to those customers. If a significant
number of the homes of customers that desire our service are connected to the
telephone network with non-copper last mile connection, it could materially
inhibit our ability to deploy our broadband services to those homes and would
harm our business.
A SYSTEM FAILURE OR BREACH OF NETWORK SECURITY COULD CAUSE DELAYS OR
INTERRUPTIONS OF SERVICE TO OUR CUSTOMERS.
Our operations depend on our ability to avoid damages from fires,
earthquakes, floods, power losses, excessive sustained or peak user demand,
telecommunications failures, network software flaws, transmission cable cuts and
similar events. The occurrence of a natural disaster or other unanticipated
problem at our Network Operations Center, our backbone or any of our
metropolitan hubs or collocation facilities could cause interruptions in the
services provided by us and these interruptions could result in the loss of
customers and the attendant reduction of revenue. Additionally, if an incumbent
carrier, competitive carrier or other service provider fails to provide the
communications capacity we require, as a result of a natural disaster,
operational disruption or any other reason, then this failure could interrupt
our services.
Our network may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Providers of Internet services, including us, have in
the past experienced, and may in the future experience, interruptions in service
as a result of accidental or intentional actions of Internet users, current and
former employees and others. Unauthorized access could also potentially
jeopardize the security of confidential information stored in the computer
systems of our customers, which might cause us to be liable to our customers,
and also might deter potential customers. Eliminating computer viruses and
alleviating other security problems, including problems created by our or a
vendor's employee, may require interruptions, delays or cessation of service to
our customers.
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OTHER RISKS RELATED TO OUR BUSINESS
A GENERAL ECONOMIC DOWNTURN COULD RESULT IN CUSTOMERS CANCELING THEIR
SUBSCRIPTION TO PURCHASE OUR SERVICES AND APPLICATIONS OR THE DECISION BY
PROSPECTIVE CUSTOMERS NOT TO ENTER INTO SUBSCRIPTIONS.
To the extent the general economic health of the United States or of
certain regions in which many of our customers reside declines from recent
historically high levels, or to the extent customers fear a decline is imminent,
these customers may reduce expenditures for services such as ours. Any decline
or concern about an imminent decline could also delay decisions among certain of
our customers to renew their subscription to purchase our services or to add new
services to their existing subscriptions, or could delay decisions by
prospective customers to make initial evaluations of our services. Since many
consumers may perceive our services as unnecessary or as a "luxury" item, we
could be particularly hard hit by an economic downturn. Any reduction of or
delays in expenditures would harm our business.
OUR BUSINESS IS SIGNIFICANTLY AFFECTED BY THE LEGISLATIVE, REGULATORY AND
JUDICIAL RULES APPLICABLE TO TELECOMMUNICATIONS SERVICES AND THE BROADBAND
MARKETPLACE.
Since 1996, telecommunications laws have been in a state of particularly
rapid change. We rely on our ability to purchase DSL connectivity from both
incumbent and competitive carriers, vendor channels that may not remain open to
use, or for which prices may rise, if the regulatory status of these service
providers changes in the future. In order to protect our market options and
business flexibility, we may also be required to participate in legislative,
regulatory and judicial proceedings, or proceedings may be instituted against us
by competitors seeking to harm our business, all of which could entail the
diversion of substantial funds and management attention.
Additional government risks we face include:
- our services might be determined to be subject to price regulation at
the federal or state level;
- the competition among our DSL connectivity providers that we rely on to
maintain efficiently priced and high quality DSL connectivity, and
thereby reduce the cost of our services, could be adversely affected if
the regulatory mandates that have opened the existing telephone network
to competition are stayed, reversed or modified by appellate courts, if
the laws and decisions requiring incumbent and competitive carriers to
sell DSL connectivity to companies like ours are changed or vacated, or
if new regulatory mandates degrade competition; and
- the prices we pay to telecommunications carriers for network capacity,
data transport, collocation and other portions of our network
infrastructure may be affected by changes in the laws and regulations
governing tariffs, pricing and taxation of telecommunications services.
In addition to the above, federal, state, local or foreign governments may
impose taxation or other content related regulations on the Internet and the
services we offer, which would decrease our revenues and harm our operating
results. We may also face potential legal exposure associated with the provision
of content-based Internet services in such areas as obscenity and indecency,
advertising, gaming, privacy, child Internet privacy, the use of personal
information gathered online and trademark or copyright infringement. Many of the
rules in these areas are ambiguous and rapidly evolving, making definitive
assessment of legal risks difficult. For a discussion of the regulatory
environment in which we operate, please see the section entitled
"Business -- Government Regulation."
OUR INTELLECTUAL PROPERTY PROTECTION MAY BE INADEQUATE TO PROTECT OUR
PROPRIETARY RIGHTS.
The steps we have taken may be inadequate to protect our technology or
other intellectual property. We may be unable to use intellectual property to
prevent other companies from competing with us. While we have developed some
proprietary techniques and expertise, we believe that many of our activities and
systems are not protectable as proprietary intellectual property. Accordingly,
we may be unable to prevent third parties from developing techniques that are
similar or superior to our technology. Likewise we may
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be unable to prevent third parties from designing around our copyrights, patents
and trade secrets, or from utilizing our intellectual property without detection
or without adequate remedy.
We claim common law trademark protection for a limited number of marks and
have applied for federal registrations for only two. Our trademark strategy has
shifted in the past and may again in the future as we choose to abandon old
marks and utilize new ones, which might have the effect of diluting our branding
strategy or confusing our customers. Because we have had no systematic process
in the past for the identification of patentable inventions, we may have
overlooked important technologies that could have been, but have not yet been
patented by us. Some of these inventions may no longer be patentable. Moreover,
we have not undertaken any systematic searches to determine whether key patents
exist that might prevent us from manufacturing, selling or using our gateway
devices or other services. We therefore might infringe patents of third parties.
We also rely on unpatented trade secrets and know-how to maintain our
competitive positions, which we seek to protect, in part, by confidentiality
agreements, strategic alliances and contracts with employees, consultants and
others. The steps we have taken may not have been adequate to protect these
trade secrets.
WE ARE VULNERABLE TO CLAIMS THAT OUR PLATFORM INFRINGES THIRD PARTY INTELLECTUAL
PROPERTY RIGHTS, AND ANY RESULTING CLAIMS AGAINST US COULD BE COSTLY TO DEFEND
OR SUBJECT US TO SIGNIFICANT DAMAGES.
Infringement claims could materially harm our business. From time to time,
we may receive notice of claims of infringement of third parties' proprietary
rights. The fields of telecommunications and Internet communications are filled
with patents, both pending and issued. We may unknowingly infringe such a
patent. We may be exposed to future litigation based on claims that our platform
infringes the intellectual property rights of others, especially patent rights.
Someone, including a competitor, might file a suit with little merit, in order
to harm us commercially, to force us to re-allocate resources to defending such
a claim, or extract a large settlement. In addition, our employees might utilize
proprietary and trade secret information from their former employers without our
knowledge, even though we prohibit these practices.
Any litigation, with or without merit, could be time consuming to defend,
result in high litigation costs, divert our management's attention and resources
or cause us to delay deployment of related technology. A jury or judge may
decide against us even if we had not in fact infringed. If we lose or are forced
to settle, we could be required to remove or replace allegedly infringing
technology, to develop non-infringing technology or to enter into royalty or
licensing arrangements. Such royalty or licensing arrangements, if required, may
not be available on terms acceptable to us, or at all.
WE MAY BE SUBJECT TO CLAIMS AS A RESULT OF INFORMATION PUBLISHED ON, POSTED ON
OR ACCESSIBLE FROM OUR INTERNET SITES.
We may be subject to claims for defamation, negligence, copyright or
trademark infringement (including contributory infringement) or other claims
relating to the information contained on our Internet sites, whether written by
us or third parties. These types of claims have been brought against providers
of online services in the past and can be costly to defend regardless of the
merit of the lawsuit. Although recent federal legislation protects online
services from some claims when the material is written by third parties, this
protection is limited. Furthermore, the law in this area remains in flux and
varies from state to state, and from country to country.
Several private lawsuits seeking to impose such liability upon providers
of Internet services are currently pending; some others have been decided
against providers of Internet services. Further imposition of liability upon a
provider of Internet services for information carried on or disseminated through
its system could require us to implement measures to reduce our exposure to such
liability, which may require the expenditure of substantial resources, or to
discontinue certain services. The increased attention focused upon liability
issues as a result of these lawsuits could slow the growth of Internet use.
Furthermore, certain foreign governments have enforced laws and regulations
related to content distributed over the Internet that are more strict than those
currently in place in the United States. A foreign government might decide that
we are subject to jurisdiction in the foreign government's judicial system
because
16
<PAGE> 23
content from our Websites is available throughout the world, which could force
us to defend ourselves in a costly and time-consuming foreign judicial
proceeding, where the law could be unfavorable to us.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION.
We may make investments in complementary companies, products or
technologies. Should we do so, our failure to successfully manage future
acquisitions could seriously harm our operating results. In the event of any
future purchases, we will face additional financial and operational risks,
including:
- difficulty in assimilating the operations, technology and personnel of
acquired companies;
- disruption in our business because of the allocation of resources to
consummate these transactions and the diversion of management's
attention from our core business;
- difficulty in retaining key technical and managerial personnel from
acquired companies;
- dilution of our stockholders, if we issue equity to fund these
transactions;
- assumption of operating losses, increased expenses and liabilities; and
- our relationships with existing employees, customers and business
partners may be weakened or terminated as a result of these
transactions.
OUR HEADQUARTERS AND SUPPLIERS ARE ALL LOCATED IN NORTHERN CALIFORNIA WHERE
NATURAL DISASTERS MAY OCCUR.
Currently, our corporate headquarters, Network Operations Center and the
only supplier of our residential gateway are all located in Northern California.
Northern California historically has been vulnerable to certain natural
disasters and other risks, such as earthquakes, fires and floods, which at times
have disrupted the local economy and posed physical risks to our property and
the property of the manufacturer of our residential gateway. In the event of
such disaster, our business would suffer. We presently do not have redundant,
multiple site capacity in the event of a natural disaster.
RISKS RELATED TO THIS OFFERING
WE MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE OUR
PROFITS OR MARKET VALUE.
We have broad discretion in the use of the net proceeds of this offering
and could spend the net proceeds in ways that do not yield a favorable return or
to which stockholders object. Until we need to use the proceeds of this
offering, we may place them in investments that do not produce income or that
lose value. You can read more about our planned use of the net proceeds from
this offering in the section entitled "Use of Proceeds."
INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER US AFTER THIS OFFERING
AND COULD DELAY OR PREVENT A CHANGE IN OUR CONTROL.
After this offering, we anticipate that our officers, directors and five
percent or greater stockholders will beneficially own or control, directly or
indirectly, approximately 60,737,832 shares of common stock, which in the
aggregate will represent approximately % of the outstanding shares of
common stock. These stockholders, if acting together, will have the ability to
control all matters submitted to our stockholders for approval, including the
election and removal of directors and the approval of any business combinations.
You can read more about the ownership of common stock by our executive officers,
directors and principal stockholders in the section entitled "Principal
Stockholders."
OUR RELATIONSHIP WITH NBCI COULD DELAY OR PREVENT A CHANGE IN OUR CONTROL.
Certain provisions in our agreements with NBCi and its affiliates could
delay or prevent a change in our control, including a change that shareholders
might find beneficial. As part of our relationship with NBCi, we entered into an
Investor Rights Agreement that provides, among other things, that if we receive
17
<PAGE> 24
an offer to buy 20% or more of our outstanding shares or we receive a third
party offer to buy all or substantially all of our assets, so long as either NBC
or NBCi own at least 2,500,000 shares of our common stock, we will negotiate
exclusively with either NBC or NBCi with respect to the offer for a period of 30
days. Furthermore, NBCi may terminate its Operating Agreement with us if one of
a number of named NBCi competitors acquires more than 33% of us, and NBCi or NBC
may terminate their Advertising Agreements with us in the event of a change in
control of our company. These provisions may deter someone from acquiring or
merging with us, including a transaction that results in stockholders receiving
a premium over the market price for the shares of common stock held by them.
PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD
PREVENT A CHANGE IN OUR CONTROL.
Provisions of our amended and restated Certificate of Incorporation and
bylaws in effect after completion of this offering, and Delaware law, could make
it more difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders. These provisions include:
- authorizing the issuance of blank check preferred stock;
- providing for a classified Board of Directors with staggered, three-year
terms;
- eliminating the ability of stockholders to call a special meeting of
stockholders;
- limiting the removal of directors by the stockholders to removal for
cause; and
- requiring a super-majority stockholder vote to effect certain
amendments.
In addition, certain provisions of the Delaware General Corporation Law
may deter someone from acquiring or merging with us, including a transaction
that results in stockholders receiving a premium over the market price for the
shares of common stock held by them. Section 203 of the Delaware General
Corporation Law also imposes certain restrictions on mergers and other business
combinations between us and any holder of more than 15% and less than 85% of our
common stock. For more details about these provisions, please see the section
entitled "Description of Capital Stock -- Delaware Anti-Takeover Law and Certain
Charter and Bylaw Provisions."
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
SHARES.
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately $ in the book value per share of our
common stock from the price you pay for our common stock. For additional
information on this calculation, see "Dilution."
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT
OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
Prior to this offering there was no public market for our common stock.
The initial public offering price for our common stock will be determined
through negotiations between the underwriters and us. This initial public
offering price may vary from the market price of our common stock after the
offering. If you purchase shares of common stock, you may not be able to resell
those shares at or above the initial public offering price.
If an active public market for our common stock does not develop, the
liquidity of your investment may be limited, and our stock price may fluctuate
or decline below our initial public offering price. The market price of our
common stock may fluctuate significantly in response to factors, some of which
are beyond our control, include the following:
- actual or anticipated fluctuations in our operating results;
- changes in market valuations of other Internet and technology companies;
18
<PAGE> 25
- announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
- additions or departures of key personnel;
- future sales of common stock;
- any deviations in net revenues or in losses from levels expected by
securities analysts; and
- trading volume fluctuations, which are particularly common among highly
volatile securities of Internet-related companies.
You should read the "Underwriting" section for a more complete discussion
of the factors which were considered in determining the initial public offering
price of our common stock.
THE PRICE OF OUR COMMON STOCK MAY DECLINE DUE TO SHARES ELIGIBLE FOR FUTURE
SALE.
Sales of substantial amounts of common stock in the public market
following this offering, or the appearance that a large number of shares is or
will be available for sale, could adversely affect the market price for our
common stock. The number of shares of common stock available for sale in the
public market is limited by lock-up agreements that were entered into in
connection with our initial public offering and this offering. Under such
lock-up agreements, the holders of approximately % of our outstanding
shares of common stock agreed not to sell or otherwise dispose of any of their
shares until , 2000. However, Merrill Lynch may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to such lock-up agreements. In addition to the adverse effect
a price decline could have on holders of common stock, that decline would likely
impede our ability to raise capital through the issuance of additional shares of
common stock or other equity securities. Please see "Description of Capital
Stock -- Registration Rights" and "Shares Eligible for Future Sale."
WE HAVE NOT PAID AND DO NOT INTEND TO PAY DIVIDENDS.
We have not paid any dividends, and we do not intend to pay cash dividends
in the foreseeable future.
IF WE ARE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY, WE WOULD BECOME SUBJECT
TO SUBSTANTIAL REGULATION WHICH WOULD INTERFERE WITH OUR ABILITY TO CONDUCT OUR
BUSINESS ACCORDING TO OUR BUSINESS PLAN.
As a result of this offering and our previous financings, we have
substantial cash, cash equivalents and short-term investments. We plan to
continue investing the excess proceeds of these financings in short-term
instruments consistent with prudent cash management and not primarily for the
purpose of achieving investment returns.
Investment in securities primarily for the purpose of achieving investment
returns could result in our being treated as an investment company under the
Investment Company Act of 1940. The Investment Company Act requires the
registration of companies that are primarily in the business of investing,
reinvesting or trading securities or that fail to meet certain statistical tests
regarding their composition of assets and sources of income even though they
consider themselves not to be primarily engaged in investing, reinvesting or
trading securities.
We believe that we are primarily engaged in a business other than
investing in or trading securities and, therefore, are not an investment company
within the meaning of the Investment Company Act. If the Investment Company Act
required us to register as an investment company, we would become subject to
substantial regulation with respect to our capital structure, management,
operations, transactions with affiliated persons and other matters. Application
of the provisions of the Investment Company Act to us would harm our business.
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<PAGE> 26
OTHER RELEVANT INFORMATION
We use market data and industry forecasts throughout this prospectus,
which we have obtained from internal surveys, market research, publicly
available information and industry publications. Industry publications generally
state that the information they provide has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is
not guaranteed. Similarly, we believe that the surveys and market research we or
others have performed are reliable, but we have not independently verified this
information. Neither we nor any of the underwriters represents that any such
information is accurate.
We claim common law trademark protection for TELOCITY, TELOCITY TIME,
TELOCITY HIGH VELOCITY INTERNET, YOU HAVEN'T SEEN THE NET UNTIL YOU'VE SEEN IT
IN TELOCITY TIME and our logo. We have applied for federal trademark
registrations for TELOCITY and our logo.
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of
shares in this offering of approximately $ million (approximately
$ million if the underwriters' over-allotment option is exercised in
full), at an assumed initial public offering price of $ per share,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses.
We intend to use the net proceeds from this offering primarily for working
capital and general corporate purposes, including to expand our sales and
marketing efforts, to expand our network, and for capital expenditures. We will
retain broad discretion in the allocation of the net proceeds of this offering.
In addition, we may use a portion of the net proceeds to acquire complementary
products, technologies or businesses. Pending use of the net proceeds of this
offering, we intend to invest the net proceeds in interest bearing,
investment-grade securities to the extent permitted by the Investment Company
Act of 1940.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We
currently intend to retain any future earnings, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Future dividends, if any, will depend on, among other
things, our results of operations, capital requirements, restrictions in
then-existing loan agreements and on such other factors as our Board of
Directors may, in its discretion, consider relevant.
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<PAGE> 27
CAPITALIZATION
The following table sets forth our capitalization at September 30, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the conversion of all shares of
our preferred stock into 26,331,818 shares of common stock and the
conversion of our preferred stock warrants to common stock warrants
automatically upon completion of this offering; and
- on an as adjusted basis to give effect to the sale of shares
of common stock at an assumed initial offering price of $ per
share (less estimated underwriting discounts and commissions and
estimated offering expenses).
You should read this table in conjunction with our Consolidated Financial
Statements and the accompanying Notes, Selected Financial Information, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current portion................ $ 5,819 $ 5,819
-------- --------
Mandatorily redeemable preferred stock, no par value:
30,253,124 authorized shares; 26,331,818 shares issued
and outstanding, (actual); no shares issued and
outstanding (pro forma and pro forma as adjusted)........ 21,053 --
Series A and B Preferred Stock warrants.................... 1,205 --
-------- --------
22,258 --
-------- --------
Stockholders' deficit:
Preferred stock, $0.001 par value: 10,000,000 authorized;
no shares outstanding (actual, pro forma and pro forma
as adjusted).......................................... -- --
Common stock, $0.001 par value: 250,000,000 shares
authorized (actual, pro forma and pro forma as
adjusted); 18,098,230 issued and outstanding (actual);
44,415,048 issued and outstanding (pro forma);
issued and outstanding (pro forma as
adjusted)............................................. 14 40
Additional paid-in capital................................. 9,810 32,042
Receivable from stockholders............................... (2,326) (2,326)
Unearned stock-based compensation.......................... (6,281) (6,281)
Accumulated deficit........................................ (27,246) 27,246
-------- --------
Total stockholders' deficit........................... (26,029) (3,771)
--------
Total capitalization.................................. $ 2,048 $ 2,048
======== ========
</TABLE>
The data in the table above excludes:
- 1,520,286 shares of common stock issuable upon exercise of options
outstanding as of September 30, 1999, at a weighted average exercise
price of $0.89 per share;
- 2,297,056 shares of common stock available for issuance as of September
30, 1999, under our 1998 Stock Plan;
- 2,900,000 additional shares of common stock available for issuance under
our 2000 Employee Stock Purchase Plan and 2000 Outside Directors Stock
Plan immediately following the offering; and
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<PAGE> 28
- 2,284,215 shares of common stock issuable through the exercise of common
stock and convertible preferred stock warrants outstanding on September
30, 1999 at a weighted average price per share of $0.57.
For additional information regarding these shares, see
"Management -- Stock Plans," "Related Party Transactions," "Description of
Capital Stock" and Notes 2, 7 and 8 of Notes to Consolidated Financial
Statements.
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<PAGE> 29
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
common stock after this offering. Our pro forma net tangible book value as of
September 30, 1999 was $(4,286) or $(0.10) per share of common stock. Net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by the pro forma number of shares of common
stock outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common stock
immediately after the completion of this offering. After giving effect to the
sale of the shares of common stock in this offering at an assumed public
offering price of $ per share (less underwriting discounts and commissions
and estimated offering expenses), our pro forma as adjusted net tangible book
value as of September 30, 1999 would have been $ or approximately $
per share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to new investors, or approximately
[ ]% of the initial public offering price of $ per share. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at September 30,
1999........................................................ $(0.10)
Increase per share attributable to this offering.......... $
------
Pro forma as adjusted net tangible book value per share
after this offering....................................... $
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table shows, on a pro forma basis as of September 30, 1999
and after giving effect to this offering, the differences between the existing
holders of common stock and the new investors with respect to the number of
shares of common stock purchased from us, the total consideration paid to us and
the average price per share paid (based on an assumed initial public offering
price of $ per share, before deducting the estimated underwriting
discounts and commissions and estimated offering expenses) (dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
-------------------- ----------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.........................
New investors.................................
---------- ----- ------- -----
Total....................................
========== ===== ======= =====
</TABLE>
The foregoing discussion and table are based on actual shares outstanding
on September 30, 1999, giving effect to the issuance of shares after September
30, 1999 and our receipt of the net proceeds. The foregoing discussion assumes
no exercise of any stock options and warrants outstanding as of September 30,
1999. As of September 30, 1999, there were options and warrants outstanding to
purchase 4,084,501 shares of common and convertible preferred stock at a
weighted average exercise price of $0.65 per share. To the extent any of these
options are exercised, there will be further dilution to investors. See
"Capitalization," "Management -- Stock Plans," "Description of Capital Stock"
and Notes 7 and 8 of Notes to Consolidated Financial Statements.
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<PAGE> 30
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the period from August 18, 1997 (incorporation) to December 31, 1997
and the year ended December 31, 1998 and the balance sheet data at December 31,
1997 and 1998, are derived from our consolidated financial statements included
elsewhere in this prospectus, that have been audited by PricewaterhouseCoopers,
LLP, independent accountants. The statement of operations data for the nine
months ended September 30, 1998 and 1999, and the balance sheet data at
September 30, 1999 are derived from our unaudited consolidated financial
statements included elsewhere in this prospectus. In management's opinion, the
unaudited financial statements have been prepared on substantially the same
basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the results of operations for such periods.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 18, 1997
(INCORPORATION) YEAR ENDED NINE MONTHS ENDED
TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------ -------------------
1997 1998 1999 1998 1999
--------------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ -- $ -- $ -- $ 57
Cost and expenses:
Cost of revenues............................... -- -- -- 200
Sales and marketing............................ 5 240 53 2,911
General and administrative..................... 335 1,906 1,148 2,975
Research and development....................... 327 4,723 2,307 10,073
Amortization of stock-based
compensation................................. -- 145 95 1,015
Depreciation and amortization.................. 11 424 253 1,257
------ ------- ------- --------
Total operating expenses................... 678 7,438 3,856 18,431
------ ------- ------- --------
Loss from operations............................. (678) (7,438) (3,856) (18,374)
Interest expense................................. -- (187) (110) (525)
Other income/(expense), net...................... -- 35 30 (79)
------ ------- ------- --------
Net loss......................................... $ (678) $(7,590) $(3,936) $(18,978)
====== ======= ======= ========
Basic and diluted net loss per share............. (0.56) (1.39) (0.81) (2.57)
Shares used in computing basic and diluted net
loss per share................................. 1,220 5,472 4,873 7,380
Pro forma net loss per share -- basic and
diluted........................................ (0.65) (0.62)
Shares used in computing pro forma net loss per
share -- basic and diluted..................... 11,628 30,510
OTHER CONSOLIDATED FINANCIAL DATA:
Net cash flows provided by (used in):
Operating activities......................... $ (677) $(5,356) $(3,523) $(15,882)
Investing activities......................... (303) (1,026) (357) (2,712)
Financing activities......................... 1,001 7,763 5,358 17,371
EBITDA (1)......................................... (667) (6,869) (3,508) (16,102)
Capital expenditures............................... 303 1,026 306 2,985
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, AS OF
------------------------- SEPTEMBER 30,
1997 1998 1999
--------------- ------- -------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 21 $ 1,402 $ 179
Working capital (deficit)..................... 31 (1,204) (5,896)
Total assets.................................. 423 4,697 8,899
Long-term obligations, less current
portion..................................... 1,000 3,490 5,819
Mandatorily redeemable convertible preferred
stock....................................... -- 6,671 22,258
Total stockholders' deficit................... (677) (8,107) (26,029)
</TABLE>
- ------------------------
(1) EBITDA consists of the net loss excluding net interest, depreciation and
amortization of capital assets and deferred compensation expense. EBITDA is
presented to enhance an understanding of our operating results and is not
intended to represent cash flow or results of operations in accordance with
generally accepted accounting principles for the period indicated and may be
calculated differently than EBITDA for other companies.
For an explanation of the determination of the weighted average common and
common equivalent shares used to compute net loss per share refer to Note 2 of
Notes to Consolidated Financial Statements.
24
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Selected Financial Information and our consolidated financial statements and the
related notes included elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements as a result of certain factors including the risks discussed in "Risk
Factors" and elsewhere in this prospectus.
OVERVIEW
We intend to be the leading nationwide provider of subscriber-based
broadband services and applications designed for the residential market. We
develop, market, integrate and operate branded, interactive online services
independently, and we will do so in the near future with strategic partners such
as NBCi. In July 1999, we began offering services commercially in Chicago. On
December 31, 1999, we were also serving customers in Detroit and 29 of the 40
most populous metropolitan statistical areas in the Southeast, including Atlanta
and Miami. We currently have approximately customers of which
are receiving our services and have placed orders for our services. By the
end of 2000, we expect that our targeted national rollout will cover more than
of the nation's most populous metropolitan statistical areas and
% of the nation's households.
Since our incorporation in August 1997, our primary activities have
consisted of:
- developing our residential broadband gateway technology;
- obtaining space and locations for our network equipment;
- deploying and installing our network;
- developing and integrating our Operational Support System and other back
office systems;
- negotiating and executing network agreements with incumbent and
competitive carriers;
- launching service in target markets;
- developing a marketing and branding strategy;
- building our customer service organization;
- negotiating agreements for broadband content;
- hiring management and other personnel; and
- raising capital.
We have incurred operating losses, net losses and negative earnings before
interest, taxes, amortization of stock-based compensation, depreciation and
amortization, or EBITDA, for each month since our formation. As of September 30,
1999, we had an accumulated deficit of $27.2 million. We intend to increase
substantially our capital expenditures and will incur higher operating expenses
in an effort to build our customer base and our brand rapidly, as well as expand
our infrastructure and network services. We expect to incur substantial
operating losses, net losses and negative EBITDA as we expand our operations.
We incur network and operations expenses, sales and marketing expenses and
capital expenditures when we enter a new market. Once we have developed our
network in a market, we incur incremental expenditures as we connect new
customers. These incremental expenditures primarily include last mile costs and
gateway device costs. In addition to the capital expenditures, we will be
required to fund our operating and cash flow and working capital deficits as we
build our customer base.
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<PAGE> 32
RESULTS OF OPERATIONS
Revenues. Initially, we expect to derive a majority of our revenues from
broadband connectivity and communications services. We bill our customers a
monthly rate for our services. In the future we expect to bill our customers for
monthly recurring charges based on the type of access speed and services and
applications selected by the customer. We offer our services directly to our
customers. In addition to monthly service fees, our customers are billed for
nonrecurring service activation, gateway and installation charges. To encourage
potential customers to adopt our services, we may in some instances offer
reduced monthly prices for an initial period of time or reduced service
activation, gateway, or installation charges.
As our business develops and we begin to offer additional value-added
services and applications, we expect to become less dependent on broadband
connectivity revenues. By providing broadband enabled services and applications,
we expect to enhance our overall gross margins by adding additional revenues
with minimal incremental fixed costs. We also believe that these additional
services will enable us to build customer loyalty and minimize customer
turnover.
We seek to price our services competitively in each market. We typically
enter into a customer service agreement and offer service for $ per month
with no additional per-minute usage charges, a $ activation fee which may be
waived or modified in selected circumstances and a $ deposit for the gateway
device that is refunded after six months of use. We also charge a $
cancellation fee to customers who cancel their subscription before they have
paid for a full year of service. The customer agreement also provides
information on commencement of the service, billing payments, pricing, system
requirements and service termination. During the past several years, market
prices for many telecommunications services have been declining. We expect that,
as a result of competition, prices for connectivity will decline over time.
However, we intend to provide additional value-added services and applications
to our customers so as to maintain and potentially increase our price levels.
Our future financial performance and our ability to achieve positive
operating cash flow will depend on a number of factors, some of which we cannot
control. We believe that improvements in our financial performance depend
largely on our ability to:
- deploy our network rapidly and cost-effectively;
- provide high quality services at competitive prices;
- offer additional value-added services and applications;
- acquire customers in a cost-effective manner;
- attract qualified personnel;
- minimize customer turnover;
- manage increased sales and marketing and general and administrative
expenses; and
- identify and integrate the necessary administrative and operations
support systems to manage our growth effectively.
Cost of Revenues. Our network expenses consist of nonrecurring and monthly
recurring charges for the transport elements we choose to lease rather than own.
As we expand our network and our revenue base, we expect that these costs will
increase significantly in the future. Nonrecurring network expenses include
installation fees related to transport and local loop circuits. We expect these
costs will be largely related to the activation of new customers. Monthly
recurring network expenses include transport and backbone fees, facility rent,
power and other fees charged by incumbent carriers, competitive carriers and
other providers. As our customer base grows, we expect the largest element of
network expenses to be carrier charges for last mile connectivity, which are
approximately $ per customer per month, depending on the provider, location
and type of last mile connectivity.
Sales and marketing expenses. Our sales and marketing expenses consist
primarily of expenses related to the acquisition of customers and the
development of promotional materials, advertising and
26
<PAGE> 33
branding. We expect that our marketing expenses will grow significantly as we
enter new markets and offer our services on a nationwide basis.
General and administrative expenses. Our general and administrative
expenses consist primarily of costs related to personnel, customer service,
finance, administrative services, recruiting and legal services. We expect that
our general and administrative costs will grow significantly as we expand our
operations. However, we expect these expenses to decline as a percentage of our
revenue as we build our customer base and the number of customers connected to
our network increases.
Research and development expenses. Research and development expenses
consist primarily of costs related to engineering personnel engaged in research
and development activities, and, to a lesser extent, costs of materials relating
to these activities. We expense research and development costs as we incur them.
Amortization of stock-based compensation expenses. Stock-based
compensation arose as a result of granting stock awards to employees with
purchase or exercise prices per share subsequently determined to be below the
fair values at the purchase or grant dates. In addition, stock-based
compensation arose as a result of stock option and warrant grants to
non-employees in return for services. The employee stock-based compensation is
being amortized over the applicable option vesting period (generally 4 years).
The fair value of non-employee options and warrant grants are amortized over the
service period. In connection with employee stock option grants during the year
ended December 31, 1998 and the nine months ended September 30, 1999, we
recorded unearned stock-based compensation totaling $328,000 and $6.5 million,
respectively. Amortization of stock based compensation awarded to employees and
non-employees was $145,000 and $1.0 million for the periods ended December 31,
1998 and September 30, 1999, respectively.
Depreciation and amortization expenses. Depreciation and amortization
expenses include: depreciation of network and computer equipment, depreciation
of furniture and fixtures, and the amortization of completed technology and
leasehold improvements. We expect depreciation and amortization expense to
increase significantly as more of our network becomes operational and as we
increase capital expenditures to expand our operations. Depreciation and
amortization is computed on a straight-line basis over estimated useful lives
ranging from one to seven years.
Interest expense. Interest expense arose as a result of our capital lease
lines, notes payable and bridge loan financing.
Taxation. We have not generated any taxable income to date and therefore
have not paid any federal income taxes since inception. We expect to generate
significant operating loss carryforwards. Use of our net operating loss
carryforwards may be subject to limitations under Section 382 of the Internal
Revenue Code of 1986, as amended. We have recorded a full valuation allowance on
our deferred tax asset, consisting primarily of net operating loss
carryforwards, because of uncertainty regarding its recoverability.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenues. During the nine months ended September 30, 1999, we continued
the development of our business operations, commencing commercial service in the
Chicago market in July. We recorded revenues of $57,000 during this period,
which was primarily from service and installation charges net of discounts given
to customers. We did not offer commercial services in 1998 and, as a result, did
not record any revenues in 1998.
Cost of revenues. For the nine months ended September 30, 1999, we
recorded cost of revenues of $200,000. Since we did not offer commercial
services in 1998, we did not record any cost of revenues in 1998. We expect cost
of revenues to increase significantly in future periods as we expand our network
into additional markets.
Sales and marketing expenses. Sales and marketing expenses increased from
$53,000 for the nine months ended September 30, 1998 to $2.9 million for the
nine months ended September 30, 1999. This increase was primarily due to an
increase in advertising and promotion costs related to the launch of our
broadband service platform in July 1999. We expect sales and marketing expenses
to increase significantly
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as we incur additional expenses to develop our marketing program and increase
brand awareness and add personnel.
General and administrative expenses. General and administrative expenses
increased from $1.1 million for the nine months ended September 30, 1998 to $3.0
million for the nine months ended September 30, 1999. This increase was
primarily due to the addition of personnel performing general corporate
activities. We expect general and administrative expenses to increase as we add
personnel and incur additional expenses related to the anticipated growth of our
business and our operation as a public company.
Research and development expenses. Research and development expenses
increased from $2.3 million for the nine months ended September 30, 1998 to
$10.1 million for the nine months ended September 30, 1999. This increase was
primarily due to the hiring of additional engineers for increased research and
development activities associated with the development of our broadband platform
and associated services. We expect to continue to make substantial investments
in research and development and anticipate that these expenses will continue to
increase.
Amortization of stock-based compensation expenses. Amortization of
stock-based compensation expenses increased from $95,000 for the nine months
ended September 30, 1998 to $1.0 million for the nine months ended September 30,
1999.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased from $253,000 for the nine months ended September 30, 1998 to
$1.3 million for the nine months ended September 30, 1999. This increase was
primarily due to additional capital expenditures.
Interest expense. Interest expense increased from $110,000 for the nine
months ended September 30, 1998 to $525,000 for the nine months ended September
30, 1999. This increase was primarily due to increased borrowings.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO PERIOD FROM AUGUST 18, 1997
(INCORPORATION) TO DECEMBER 31, 1997
Revenues and costs of revenues. There were no revenues or cost of
revenues recognized for the periods ended December 31, 1997 and 1998.
Sales and marketing expenses. Sales and marketing expenses increased from
$5,000 in the period ended December 31, 1997 to $240,000 for the year ended
December 31, 1998. This increase was primarily due to an increase in personnel
and costs associated with sales and marketing.
General and administrative expenses. General and administrative expenses
increased from $335,000 in the period ended December 31, 1997 to $1.9 million
for the year ended December 31, 1998. These increases were primarily due to the
addition of personnel performing general corporate activities.
Research and development expenses. Research and development expenses
increased from $327,000 in the period ended December 31, 1997 to $4.7 million
for the year ended December 31, 1998. This increase in research and development
expenses was primarily due to the hiring of additional engineers for increased
research and development activities associated with the development of our
broadband platform and associated services.
Amortization of stock-based compensation expenses. We had no amortization
of stock-based compensation expenses in 1997. Amortization of stock-based
compensation expenses were $145,000 for the year ended December 31, 1998.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased from $11,000 in the period ended December 31, 1997 to
$424,000 for the year ended December 31, 1998. This increase was primarily due
to additional capital expenditures.
Interest expense. We had no interest expense in 1997. Interest expense
for the year ended December 31, 1998 was $187,000 was due to borrowings to
finance our operations.
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LIQUIDITY AND CAPITAL RESOURCES
From incorporation through September 30, 1999, we financed our operations
primarily through private placements of equity totaling $18.6 million, the use
of operating equipment leases totaling $4.7 million and borrowings under notes
payable of $7.8 million. As of September 30, 1999, we had an accumulated deficit
of $27.2 million and cash and cash equivalents of $179,000. In December 1999, we
received gross cash proceeds of approximately $94.5 million from the sale of our
Series C preferred stock.
During the first nine months of 1999, the year ended December 31, 1998 and
for the period from August 18, 1997 (date of incorporation) to December 31, 1997
the net cash used in our operating activities was $15.9 million, $5.4 million
and $677,000, respectively. This cash was used for a variety of operating
purposes, including salaries, consulting and legal expenses, network operations
and overhead expense. Our net cash used for investing activities for the first
nine months of 1999, the year ended December 31, 1998 and for the period from
August 18, 1997 (date of incorporation) to December 31, 1997 was $2.7 million,
$1.0 million and $303,000, respectively, and was used primarily for purchases of
property and equipment. Net cash provided by financing activities for the nine
months ended September 30, 1999, the year ended December 31, 1998 and for the
period from August 18, 1997 (date of incorporation) to December 31, 1997 was
$17.4 million, $7.8 million and $1.0 million, respectively, and primarily came
from the issuance of preferred stock and notes payable.
At September 30, 1999 we had mandatorily redeemable preferred stock with a
liquidation value of approximately $21.1 million that is redeemable at the
option of the preferred stockholders at any time on or after December 1, 2004.
Preferred stock will be converted to common stock upon the closing of this
offering.
We believe that the net proceeds from this offering, together with our
existing cash balances, will be sufficient to fund our operating losses, capital
expenditures, lease payments and working capital requirements until .
We expect our operating losses and capital expenditures to increase
substantially as we expand our network. We expect that additional financing will
be required in the future. We may attempt to finance our future capital needs
through some combination of commercial bank borrowings, leasing, vendor
financing and the sale of additional equity or debt securities.
Our capital requirements will vary based upon the timing and success of
implementation of our business plan and as a result of competitive,
technological and regulatory developments, or if:
- demand for our services or our cash flow from operations varies from
projections;
- our development plans or projections change or prove to be inaccurate;
- we make any acquisitions; or
- we accelerate deployment of our network or otherwise alter the schedule
or targets of our business plan implementation.
We will be required to raise additional capital to complete our network
deployment. There can be no assurance that additional capital will be available
on terms acceptable to us, or at all. While we would be able to sustain some
level of operations throughout absent additional capital, including
the proceeds from this offering, we would be required to scale back
significantly our operations and delay the expansion of our network. This would
have a material adverse effect on our business, financial condition and results
of operations.
YEAR 2000 DISCLOSURE
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. In order to distinguish
21st century dates from 20th century dates, the date code field needed to be
expanded to 4 digits. As a result, many companies' software and computer systems
were upgraded or replaced in order to comply with these Year 2000 requirements.
The use of software and computer systems that are not Year 2000 compliant could
have resulted in system failures or
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miscalculations resulting in disruptions of operations, including among other
things, a temporary inability to process transactions, send invoices, or engage
in normal business activities.
We have been able to build our internal business systems with Year 2000
compliance in mind and, as a result, to date we have not suffered any
disruptions in our systems when the expanded date code field was first used on
January 1, 2000. In addition, to date, we have not been made aware that any of
our DSL connectivity providers, manufacturer of our gateway or any of our other
suppliers have suffered disruptions in their systems.
RECENT ACCOUNTING PRONOUNCEMENT
In March 1998, the Accounting Standards Executive Committee, or AcSEC
issued Statement of Position, or SOP, No. 98-1, Software for Internal Use, which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. We adopted SOP 98-1 on
January 1, 1999. The adoption of the SOP did not have a material impact on our
consolidated financial statements.
In April 1998, AcSEC issued SOP 98-5, Reporting on the Costs of Start-Up
Activities. This SOP provides guidance on the financial reporting of start-up
costs and organization costs. It requires the costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. We
adopted SOP 98-5 on January 1, 1999. We have not capitalized such costs, the
adoption of the SOP did not have an impact on our consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133, as amended,
will be effective for fiscal years beginning after June 15, 2000. We do not
currently hold derivative instruments or engage in hedging activities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET INTEREST RATE SENSITIVITY
The primary objective of our investment activities is to preserve
principal while at the same time maximizing the income we receive from our
investments without significantly increasing risk. Some of the securities that
we may invest in may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. To minimize
this risk in the future, we intend to maintain our portfolio of cash equivalents
and short-term investments in a variety of securities, including commercial
paper, money market funds, government and non-government debt securities. In
general, money market funds are not subject to market risk because the interest
paid on such funds fluctuates with the prevailing interest rate. As of September
30, 1999, all of our cash and cash equivalents were in money market and checking
funds.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. These forward-looking
statements address, among other things:
- our platform rollout plans and strategies;
- development and management of our business;
- our ability to attract, retain and motivate qualified personnel;
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- success of our strategic partnerships;
- our ability to attract and retain customers;
- the extent of acceptance of our services;
- the market opportunity and trends in the markets for our services;
- our ability to upgrade our technologies;
- prices of telecommunication services;
- the nature of regulatory requirements that apply to us, our
telecommunications vendors and competitors;
- our ability to obtain any required governmental authorizations;
- our future capital expenditures and needs;
- our ability to obtain financing on commercially reasonable terms;
- our ability to compete; and
- the extent and nature of competition.
These statements may be found in this section, in the front inside cover
of this prospectus, in the sections of this prospectus entitled "Summary," "Risk
Factors," "Use of Proceeds" and "Business" and in this prospectus generally.
We have based these forward-looking statements on our current expectations
and projections about future events. However, our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of risks facing us, including risks stated in "Risk Factors," or faulty
assumptions on our part. For example, assumptions that could cause actual
results to vary materially from future results include, but are not limited to:
- our ability to market our services successfully to current and new
customers;
- our ability to generate customer demand for our services in our target
markets;
- the development of our target market and market opportunities;
- market pricing for our services and for competing services;
- the extent of increasing competition;
- our ability to acquire funds to expand and enhance our platform;
- the ability of our equipment and service supplies to meet our needs;
- trends in regulatory, legislative and judicial developments;
- our ability to manage growth of our operations; and
- our ability to access regions and enter into suitable interconnection
agreements with incumbent carriers.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
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BUSINESS
BUSINESS OVERVIEW
We intend to be the leading nationwide provider of subscriber-based
broadband services and applications designed for the residential market. We
develop, market, integrate and operate branded, interactive online services
independently, and we will do so in the near future with strategic partners such
as NBCi. Our fully integrated service platform, which includes our
self-installable residential gateway device, seamlessly delivers these broadband
online services and applications directly to our customers. Our platform enables
us to utilize the most reliable, flexible and cost-effective broadband access
technology available in each market as we expand our services nationwide. Our
goal is to leverage our advantage as an early mover in the residential broadband
services area and our proprietary technological advantage in our gateway device
to become the provider of choice for lifestyle and productivity enhancing
services, content and applications both to and throughout the home.
We currently deliver services such as high-speed, always-on Internet
access, e-mail, personalized Web pages and remote Internet access. In the near
future, we expect to offer our customers media, entertainment and electronic
commerce services such as online gaming, streaming audio and video and
interactive shopping; communication services such as chat facilities, virtual
private networks, or VPNs, and voice-enabled features; and utility services such
as secure online banking, home networking, home monitoring, home automation and
data security.
Our broadband platform allows us to offer a large and growing suite of
services that we can remotely configure to each customer's needs. This
standards-based platform consists of our proprietary residential gateway, our
managed network, our user interface software, our customer care and support
services and our automated billing and provisioning systems. We designed our
platform to allow for the rapid addition of customers while enabling us to
minimize our associated costs and overhead. Furthermore, our platform's open
standards-based architecture gives us the ability to deliver our services
effectively through a variety of last mile broadband access technologies. In our
initial markets we have deployed our services using digital subscriber line, or
DSL technology. This technology allows us to provide our customers with
dedicated, or always-on, Internet access at speeds up to 50 times faster than
typical dial-up access.
In December 1999, we formed a strategic relationship with NBCi and its
subsidiaries, XOOM.com and Snap.com. Our agreements provide for, among other
things, joint development and design of co-branded services that include content
and applications such as entertainment, electronic commerce, games, search
applications and other features designed for broadband users. Our customers will
be able to utilize these online services through our jointly developed and
branded portal interface. As part of these agreements, NBCi and its affiliates,
GE Capital, NBC and ValueVision, have invested $70.5 million, which consists of
$37.5 million in cash and $33.0 million in promotional services at preferred
rates. In addition, we have agreed to share a portion of the revenues that are
generated from our respective services, advertising and electronic commerce
activities.
In July 1999, we began offering services commercially in Chicago. On
December 31, 1999, we were also serving customers in Detroit and 29 of the 40
most populous metropolitan statistical areas in the Southeast, including Atlanta
and Miami. We currently have approximately customers of which
are receiving our services and have placed orders for our
services. By the end of 2000, we expect that our targeted national rollout will
cover more than of the nation's most populous metropolitan statistical
areas and % of the nation's households. As part of providing our services, we
have entered into network agreements with BellSouth, Bell Atlantic, SBC and
Rhythms NetConnections and anticipate signing additional agreements with other
regional and national DSL providers over the next several months.
Our senior management team has extensive experience in consumer,
telecommunications and technology businesses. Our President and Chief Executive
Officer, Patti Hart, was previously the President and Chief Operating Officer of
Sprint Corporation's Long Distance Division. Peter Olson, our Executive
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Vice President and Chief Technical Officer, co-founded and was Chief Technical
Officer of Octel Communications. Edward Hayes, our Executive Vice President and
Chief Financial Officer, was previously the Chief Financial Officer of Lucent
Technologies, Inc.'s Global Service Provider Business. Jim Morrissey, our
Executive Vice President and Chief Marketing Officer, was an Executive Creative
Director and an Executive Vice President for Grey Advertising.
As of December 31 1999, our sponsors have invested approximately $149
million in connection with the issuances of our capital stock, which includes
$33 million in promotional services. Our sponsors include NBCi; NBC; GE Capital
Equity Investments; ValueVision International; August Capital; Bessemer Venture
Partners; Mohr, Davidow Ventures; RRE Investors, LLC; Bessemer Holdings, L.P.;
Comdisco, Inc.; Quantum Industrial Partners LDC; and Soros Fund Management LLC.
MARKET OPPORTUNITY
We believe that a substantial business opportunity exists as a result of
the following factors:
- large, growing and underserved market;
- large and unmet demand for residential high-speed connectivity;
- growing demand for broadband content and lifestyle enhancing
applications;
- emergence of DSL and other last mile broadband access technologies; and
- regulatory change that is contributing to the increase in cost-effective
last mile broadband access.
A Large, Growing and Underserved Market
The Internet is experiencing significant growth and is emerging as a
global medium for communications, entertainment and commerce. According to
International Data Corporation, or IDC, from 1999 through 2002, the annual
growth of U.S. households with Internet access is projected to be 20%, with over
67 million users by the end of 2002. To date, most of this growing market has
been served by Internet service providers, many of which simply provide
narrowband Internet access with limited features and customer service. We
believe that residential users will increasingly demand advanced
telecommunications services and applications from a provider that can offer
broadband access, integrate these services seamlessly for the customer and
provide high quality customer care and support.
Large and Unmet Demand for Residential High-Speed Connectivity
Demand for high-speed connectivity is fueled by the demand for data and
Internet services and applications. However, unlike business users, residential
users are generally limited to relatively slow dial-up modems or integrated
services digital network, or ISDN, lines to access the Internet and remote local
area networks. For example, according to Jupiter Communications, 97.2% of
consumer online subscriptions currently utilize dial-up connections. Traditional
dial-up modems create a bottleneck for the end-user because the data transfer
capacity of the fastest commercially available dial-up modem is only 56 kilobits
per second, while the maximum capacity of an ISDN line is 128 kilobits per
second. In addition, although ISDN technology provides improved capacity
relative to dial-up modems, the cost and complexity of ISDN connectivity is
often prohibitive. As a result, most consumers spend significant time
inefficiently waiting for data transfer during the dial-up process and once they
are online. These access limitations have created a significant opportunity to
provide cost-effective, broadband value-added communications services to home
users, whom we believe increasingly demand the type of high-speed Internet
performance to which many have become accustomed in the workplace.
Growing Demand for Broadband Content and Lifestyle Enhancing Applications
Much of the growth of the Internet is expected to result from increased
consumer demand for bandwidth intensive e-mail, electronic commerce and
streaming audio and video services, as well as entertainment and productivity
enhancing applications. The Gartner Group estimates that data traffic is
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growing five times faster than voice traffic. IDC predicts that consumer
purchases of goods and services over the Internet will increase from $4.3
billion in 1997 to approximately $54.3 billion in 2002. Additionally, according
to Forrester Research, consumer devices with enhanced feature sets including
Internet access, or ePliances, are expected to reach more than 25 million
households in five years. As consumers continue to expand their usage of
advanced services and applications provided by the Internet, broadband access
and associated applications will become increasingly important to serve their
needs.
Emergence of DSL and Other Last Mile Broadband Access Technologies
DSL technology has emerged as a cost-effective means of providing
high-speed, digital communication capabilities. According to IDC, the total DSL
capable access lines in the U.S. will grow from an estimated 20.8 million in
1999 to 67.2 million in 2003. Because DSL technology uses existing telephone
lines, a broad network deployment can be implemented rapidly. In addition to
DSL, alternative last mile broadband technologies such as wireless, fixed
wireless, cable modem, fiber and satellite are being deployed nationwide. These
technologies are available to bring broadband Internet content and associated
applications to the home.
Regulatory Change that is Contributing to the Increase in Cost-Effective Last
Mile Broadband Access
The Telecommunications Act of 1996 has fostered competition among the
suppliers of last mile broadband connectivity, such as DSL, provided by
incumbent and competitive carriers. The Telecommunications Act requires these
carriers to sell last mile connections to broadband companies on a non-
discriminatory basis. The Federal Communications Commission's recent decisions
implementing various portions of the Telecommunications Act, for instance its
decision implementing line sharing, suggest that competition among last mile
connectivity providers will continue to accelerate, making the pricing,
functionality and availability of last mile broadband connectivity more
favorable. The FCC's policy of encouraging the rapid availability of residential
broadband and other advanced consumer telecommunications services may also
increase pressure for open competition among the broadband technologies not yet
addressed under the Telecommunications Act, such as wireless and cable, although
there can be no assurance that either wireless or cable access will become
subject to the Telecommunications Act or similar legislation.
THE TELOCITY SOLUTION
We believe our services and applications address many of the residential
market's unmet data communication needs. Through our broadband service platform,
we will offer our customers an appealing combination of lifestyle enhancing
media, entertainment and electronic commerce services, communication services
and utility services. Our solution offers:
Lifestyle and Productivity Enhancing Services, Content and Applications
We have designed our platform to offer our customers a large and growing
suite of broadband enabled services and applications. Our platform has been
designed to deploy these lifestyle and productivity enhancing services
effectively and at a low cost. Our current service offerings include high-speed
always-on Internet access, e-mail, personalized Web pages and remote Internet
access. As part of our future service offerings, we intend to address and
integrate the following broadband service areas: media, entertainment and
electronic commerce services, communications services and utility services.
Specifically, in the near term we intend to offer customers online gaming,
streaming audio and video, interactive shopping, chat facilities, VPNs,
voice-enabled features, secure online banking, home networking, home monitoring,
home automation and data security. We intend to develop, augment and refine our
broadband enabled services and applications continually to allow our customers
to improve their productivity and enhance their broadband experience at home. In
the future, these services will be available through information appliances and
other devices located throughout the home.
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Simple Plug and Play Deployment
We developed our service platform to be scalable, cost-effective and
convenient. Our broadband platform allows our customers to sign up through
either our Web page or our toll-free number. Via this automated signup, we
obtain a customer profile, verify service qualification, authenticate credit
information, schedule and track the provisioning of the network elements and
arrange for the shipment of our residential gateway and associated installation
software. At the installation stage, we typically avoid additional cost and
complexity because the gateway can be easily self-installed by the customer.
Additionally, the installation software configures a customer's personal
computer automatically, providing immediate access to the Internet and all of
our services. Furthermore, because we can configure a gateway in a customer's
home through our Operational Support System, new services and features can be
added to conform to an individual user's preferences, typically without
requiring new equipment or an on-site visit by a technician. The combination of
these deployment features allows us to add customers rapidly with minimal human
intervention.
Flexible, Always-On Broadband Connectivity
Our broadband platform is designed to support a variety of high-speed last
mile access technologies such as wireless, fixed wireless, cable modem, fiber
and satellite. In each of our markets we will utilize the most reliable,
flexible and cost effective broadband access technology available to deliver our
services to our customers. In our current markets, we provide our services using
DSL technology over existing standard telephone lines to deliver high-speed
always-on local access to the home. Our platform currently supports three DSL
technologies: ADSL, SDSL and G.Lite. In the majority of our markets, we intend
to use multiple providers of broadband local access in our network
infrastructure.
Scalable Nationwide Network with Enhanced Content Delivery
We have deployed, and will continue to expand, our managed nationwide
IP-based network. We currently offer services in Chicago, Detroit, Atlanta,
Miami and in 27 additional metropolitan statistical areas in the Southeast. We
intend to utilize our nationwide network to offer our services in more than
metropolitan statistical areas by the end of 2000. Our network is designed
to be reliable, responsive and redundant to ensure effective deployment and to
provide superior service. Through our Operational Support System and Network
Operations Center, we are able to monitor our service throughout the network.
Our network will implement a differentiated-services protocol which will allow
either us or our customers to prioritize the use of available bandwidth among
the services we provide. For example, a customer will be able to prioritize the
viewing of video streams over the downloading of less time-sensitive data.
Additionally, we enhance our delivery of data through our satellite-fed caching
system, which utilizes media servers connected to our network hubs. This system
distributes content rapidly and cost-effectively throughout our nationwide
network.
Service Flexibility and Ease-of-Use
We designed our platform to be adaptable and responsive to the needs of
our customers. For example, the deployment, configuration and management of each
customer feature and application is fully automated, allowing for ease of
installation and use. This ease-of-use, along with our remote configuration
capabilities, enhances our ability to provide flexible service and high quality
customer care. Additionally, because the residential gateway remains connected
to our network at all times, we can directly monitor and address service needs
in a timely fashion. Finally, we have implemented comprehensive customer care
and support systems to address customers' needs that cannot be resolved
remotely.
BUSINESS STRATEGY
Our goal is to leverage our advantage as an early mover in the residential
broadband services market and our proprietary technological advantage in our
gateway device to become the provider of
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choice for lifestyle and productivity enhancing services, content and
applications both to and throughout the home. We intend to implement the
following strategies to achieve our goal:
Capture Early Mover and Proprietary Technology Advantage
Currently, most consumers who have Internet connections experience slow
dial-up connectivity, non-customized narrowband content and limited customer
service. The deployment of broadband access technology and content address those
limitations. However, most broadband providers must invest significant time and
capital to extend or upgrade their network in order to provide this access
technology and content to consumers. We believe that we have a significant
time-to-market advantage over those broadband providers because our platform is
designed to use any available broadband access technology. We designed our
proprietary gateway device to be fully configurable, self-installable,
interoperable with multiple technologies and easily upgradable. In addition,
because our customers can easily install our residential gateway and because our
broadband network platform is flexible, we can add new customers rapidly on a
nationwide basis.
Deliver Quality Broadband Services Both to and throughout the Home
Our platform delivers high-speed, always-on Internet access along with a
variety of associated broadband services and applications. These online services
will include online gaming, streaming audio and video, interactive shopping,
chat facilities, VPNs, voice-enabled features and secure online banking. In
addition, we intend to extend our services and applications to devices
throughout the home. For example, we designed our next-generation residential
gateway to provide home networking capabilities by allowing a customer's
personal computer and other home appliances to connect with the gateway through
wireless technology or through the existing home phone wiring. This
functionality will allow us to provide our customers with various services,
including home monitoring, home automation and data security features, and will
allow our customers to access services from multiple computers and other devices
within the home.
Leverage Strategic Partnerships
We intend to utilize our strategic partnership with NBCi, as well as other
potential strategic partnerships, to accelerate the development and enhance the
breadth and availability of our content offerings and to promote marketing and
branding of our services. Our partnership with NBCi provides for, among other
things: access to multimedia broadband content, development of new online
services and applications, co-development of the NBCi/Telocity branded portal,
promotion of brand awareness and revenue sharing. In addition, we expect to
enter into other strategic relationships both to augment our product portfolio
and to expand our distribution channels.
Expand our Direct Marketing and Branding Efforts
We intend to expand our targeted direct marketing and branding efforts to
attract additional customers. We expect to use a mix of print, direct mail,
radio, television and online advertising media specifically tailored for each
local market. We have designed this marketing program to increase the number of
customers we serve and to build an identifiable nationwide brand. In addition,
we intend to increase our revenue per customer by promoting premium value-added
services and by cross-promoting services.
Deliver High Quality Customer Service and Support
We have established a Network Operations Center and a Customer Support
System in order to provide our customers with high quality service, support and
care. From our Network Operations Center, we are able to install or upgrade
remotely a customer's desired service and to address any performance inquiries.
Our Customer Support System provides technical support through an automated
interactive voice response system, a live telephone support line, direct chat
system, online instructions for our product
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features and e-mail. These systems enable 24-hour-a-day, 7-day-a-week proactive
monitoring and management of our entire network as well as customer service and
technical support. All of these systems have been designed with significant
flexibility and scalability. We believe that by providing high quality customer
service and support we will enhance the overall customer experience and foster
customer loyalty.
STRATEGIC PARTNERSHIP WITH NBCI AND AFFILIATES
In December 1999, we formed a strategic relationship with NBC, NBCi and
their affiliates, XOOM.com and Snap.com. Our operational agreements with NBC and
NBCi provide for, among other things:
- access to multimedia broadband content;
- development of new online services and applications;
- co-development of the NBCi/Telocity branded portal;
- promotion of brand awareness; and
- revenue sharing.
Our strategic partner, NBCi, will be our preferred provider of media and
entertainment content as well as communications and utilities services. By
virtue of this relationship, we will be able to provide a rich multimedia
experience to our customers. Specifically, we will provide features such as
streaming audio and video, utilizing a full suite of NBCi entertainment
offerings. In addition, we intend to develop with NBCi new online services and
applications for electronic commerce, gaming, search applications and other
utility features designed for broadband users. This relationship will allow for
significant time-to-market advantages for our content, services and
applications.
Under our agreements, we will jointly develop and design a co-branded
portal that provides our customers access to rich multimedia content. We will
work with NBCi to develop a consistent user experience, whether the customer is
using the co-branded portal or other Telocity services. We expect to extend
NBCi's state-of-the-art technologies so that our interfaces feature common
elements across different devices within and throughout the home.
The agreements provide that NBC and NBCi will make available to us online
co-branded advertising as well as promotional time on the NBC television network
for both co-branded and Telocity-only advertising spots. In addition, when
advertising broadband services on-air, NBCi will promote our broadband services
exclusively. In the aggregate, these promotional services are valued at $33
million, calculated at preferred rates. These promotional services and our
association with the NBC brand will allow us to penetrate the residential
marketplace faster and more efficiently.
We have agreed with NBCi to share a portion of the revenues that are
generated from our respective services, advertising and electronic commerce
activities provided through the co-branded portal.
In addition to the operational agreements, NBCi and its affiliates GE
Capital, NBC and ValueVision have invested $70.5 million in us, which consists
of cash and the promotional services described above.
SERVICES AND APPLICATIONS
Our platform is capable of delivering a comprehensive suite of broadband
services and applications, including high-speed Internet connectivity, lifestyle
and productivity enhancement and other value-added services to residential
customers through a variety of last mile technologies.
We seek to price our services and applications competitively in each of
our markets. We typically enter into a customer service agreement and charge a
monthly fee for high-speed Internet access with no additional per minute
charges. The customer service agreement also provides information on
commencement of the service, billing, payments, pricing, system requirements and
service termination. Our service
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currently provides data transfer speeds ranging from 144 kilobits per second to
1.5 megabits per second; however, we are capable of providing service at data
transfer speeds up to 7.5 megabits per second. The speeds we offer in any given
market are based upon the speed of connectivity we purchase from our local
access provider. Additionally, our platform allows our ADSL customers to use a
single phone line for multiple purposes at once, so that a customer may have a
voice conversation, browse the Internet and download information simultaneously,
thereby eliminating the need for a second phone line.
A customer who subscribes to our service receives our residential gateway
device that, in addition to providing high-speed Internet access, allows us to
provide services and applications, including:
- Always-On Internet Access. Always-on connectivity eliminates many
disadvantages of dial-up connections, including busy signals and the
slow dial-up process. Always-on connections to the home significantly
enhance various customer-configured information services, such as
instant messaging, e-mail and content related applications featuring
information such as stock quotes, real time news, sports and weather.
- Unlimited Access. We provide our customers unlimited access to the
Internet and our services with no per-minute usage charges.
- E-Mail Accounts. We provide our customers three e-mail accounts as part
of our service. If our customers require additional e-mail accounts, we
can provide them for a minimal additional charge.
- Personalized Web Pages. Our service provides up to 10 megabytes of
storage space for each customer to store e-mails or design and host
individual Web pages.
- Remote Access. Our service allows our customers to access the Internet,
their e-mail accounts and other services remotely by using a toll-free
dial-up connection. We provide this service to our customers at no
additional charge for the first 60 minutes of use each month and charge
an incremental fee for each additional minute. This remote access
feature ensures that our customers will be able to connect to the
Internet away from home.
The flexible architecture of our platform enables us to add new functions
and features. Some of these new functions and features will be offered through
upgrades or the addition of new technology to our networks while others will
require the utilization of our next-generation residential gateway, which we
expect to release during the first half of 2000. The following are several
value-added services and functions that are currently under development:
- Data Security Systems. We intend to have embedded data access intrusion
detection and prevention technology that will enable us to configure and
monitor a customer's firewall through our Operational Support System.
This process will be accomplished without any intervention required on
the part of a customer. As a result, a customer without technical
expertise will be able to request protection through our advanced
security and firewall services.
- Backup Services. Through our platform we intend to offer secure backup
of the data located on a customer's personal computer. This feature
allows our customers to backup data automatically to a secure remote
site. We believe this feature is more cost-effective than substitutes
such as tape and disk drives, and has the additional protection of being
stored offsite.
- Virtual Private Networks. Through our platform we intend to automate
and manage VPNs for customers who wish to telecommute to their workplace
from home utilizing high-speed access. VPNs provide a convenient and
secure remote access capability allowing customers secure access to
third party networks for services such as telecommuting, electronic
commerce and online banking. Our next software release for our
residential gateway includes standards-based functionality and
encryption technology that will automate delivery of VPN service.
- Home Networking. Our next-generation broadband gateway will be
compatible with, and able to communicate with, peripheral devices and
products through in-house wiring and wireless
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technology. These devices will include flat panel displays, additional
personal computers, cellular phones and personal digital assistants.
This feature will allow our customers to have Internet access from, and
distribute information to, multiple locations within their homes.
Different members of the same family will be able to browse the Internet
simultaneously at different personal computers in their home while
digitally displaying other information elsewhere in their home.
- Home Monitoring and Automation. Because the connection to our service
is always-on, the gateway provides a simple home monitoring and
automation solution. This functionality can give the customer, among
other things, a secure password protected Web page where the customer
can access images from a gateway-connected video camera anytime and from
remote locations. The gateway can also be utilized to manage other
devices throughout the home, including lights, thermostats and other
electronic devices.
- Voice Enabled Features. Through our network, our customers will be able
to access a portion of our services via standard circuit-switched voice
service or via gateway enabled voice over IP functionalities. This
feature will include access to services via voice, such as e-mail or
home automation controls. Likewise, the gateway can automatically report
problems to our customer care and support system through the standard
circuit-switched voice line.
- NBCi/Telocity Services and Applications. We intend to provide rich
multimedia broadband content and to facilitate secure online
transactions and services for our customers. We expect that the
NBCi/Telocity portal will initially emphasize media, entertainment and
electronic commerce services such as online gaming and interactive
shopping; communication services such as chat facilities; and utility
services such as secure online banking. We will provide features such as
streaming audio and video, utilizing a full suite of NBCi's
entertainment offerings, as well as financial information, news and
weather.
We intend to leverage our broadband platform and strategic partnerships to
deliver additional value-added services and applications. Our goal is to
capitalize on our early mover advantage in the residential broadband services
market and our proprietary technological advantage in our gateway device to
become the provider of choice for lifestyle and productivity enhancing services,
content and applications both to and throughout the home.
THE TELOCITY BROADBAND PLATFORM
We designed our broadband platform to provide reliable, high-performance
Internet access and to alleviate Internet bottlenecks through an easily deployed
scalable architecture with end-to-end network management capabilities. Through
our platform we offer a large and growing suite of services and applications
that we can remotely configure to each customer's needs. Our broadband platform
consists of the proprietary residential gateway device, our managed network, our
user interface software, our customer care and support services and our
automated billing and provisioning systems.
Our Residential Gateway
We believe that customers find our broadband service easy to use primarily
because of the proprietary device we refer to as our residential gateway. The
gateway combines a DSL modem, a microprocessor unit and a standard operating
system in a device that simplifies installation, customer support and service
upgrades. The residential gateway is a standalone unit that operates
independently of the computer's operating system and that does not require a
network interface card to be installed in the computer.
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We believe the current version of our residential gateway is the first
integrated device that provides all of the following features:
- high-speed always-on access;
- flexible personal computer connectivity with parallel, Ethernet and USB
ports;
- Web-based service management and configuration by the customer;
- Web-based access to account and service information by the customer;
- automated gateway software downloading, which facilitates delivery of
advanced application and service offerings;
- a self-installable, fully configurable modem that is interoperable with
industry standard DSL technologies for ADSL, SDSL and G.Lite; and
- speeds from 144 kilobits per second to 1.5 megabits per second for SDSL,
and up to 7.5 megabits per second for ADSL.
We are currently developing our next-generation gateway which we expect to
release during the first half of 2000. This device will support two individual
phone lines and incorporate several new hardware components that will enable us
to offer additional advanced features and functions. For example, we are adding
technology that will enable home networking through existing telephone wiring,
wireless home networking, home monitoring and automation and will facilitate
voice-enabled services.
Our Managed Network
We have based our network architecture on the operational goals of
responsiveness, reliability and redundancy. Our network begins with the
connection of a customer's personal computer, or home network of computers, to
our residential gateway. In our current markets the connection to the customer
is routed to DSL equipment owned either by the local telephone company or by a
competitive local exchange carrier and located in the local central office. In
the future, we expect our last mile connectivity to utilize a variety of last
mile access technologies in addition to DSL, including wireless and cable
solutions. We aggregate our customer traffic through dedicated circuits into our
local metropolitan hubs currently located in: Atlanta, Miami, Orlando, Los
Angeles, Dallas, McLean (Virginia), New York City, Chicago, Denver,
Philadelphia, Boston and San Diego. These dedicated circuits are located in
secure data-centers where we lease facilities from our carrier partners. Between
our metropolitan hubs, our customer traffic travels on our managed high-speed
backbone. Our backbone is interconnected to the Internet and to other network
providers at Internet exchange points via private and public peering
arrangements. Network peering is the process of connecting to other networks at
the closest point, thereby ensuring the least number of connection points in the
delivery of data.
Our network has been designed to be secure and reliable. We provide
network monitoring and management 24-hours-a-day, 7-days-a-week from our Network
Operations Center in Cupertino, California. We have engineered our network to
minimize the likelihood of service interruptions via our redundant OC-3
backbone. This secure fiber backbone link has the capacity to transmit 145
megabits of data per second in two directions throughout the network. We intend
to upgrade the transmission capacity of this backbone as dictated by our
customers' requirements to ensure that we continue to provide best-in-class
service. If a failure occurs in either of these fiber links, the other link will
transmit the data with no service loss to our customers. In addition, we have
configured our network to have two domain name system servers and two e-mail
servers in each metropolitan hub. If any of these servers are down, our network
will automatically deliver data to the closest server that is functioning.
Furthermore, we place the IP addresses for domain name system servers and e-mail
servers on switches that redirect traffic to the nearest available server.
In order to improve network performance and minimize both delays and
bandwidth availability problems, we move data closer to our customers. We have
implemented this strategy by developing a
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network architecture that uses Inktomi technology and Cacheflow caching servers
customized for use with our network. These caching servers are connected not
only via the Internet but also via our satellite content feeds. Additionally,
our network directs each customer's data request to the closest available server
containing the requested content, service or application. This close proximity
enhances the delivery of data to our customers.
Our network design anticipates that not all data is equally important to a
customer or requires the same urgency for delivery. In most cases, data is
transmitted across the Internet on a first in, first out basis. However, to
prioritize time-sensitive or other high priority data traffic our network will
implement a differentiated services protocol from the customer's gateway across
our nationwide network. This differentiated services protocol will allow either
us or our customers to prioritize the use of available bandwidth among the
services we provide. For example, our network will identify less time-sensitive
traffic, such as file transfer protocol, and then prioritize this data delivery
based upon a customer's, or content provider's, preference.
Our User Interface Software
We believe that customers will use our services more frequently and more
effectively if we create an easy-to-use interface that is common to all of our
services. We therefore agreed with our strategic partner NBCi to co-develop a
consistent user experience across all of our combined services. Initially, this
will result in a common user interface whether the customer is using the
co-branded portal or other Telocity services. In the future along with NBCi we
intend to expand this interface capability to other devices beyond the personal
computer, such as televisions, flat panel displays and other information
appliances.
Our Customer Care and Support Services
A high level of continuing service and support is critical to our
objective of developing long-term customer relationships. We emphasize customer
service and technical support to provide our customers with the knowledge and
resources to utilize our online services and applications successfully.
We offer customer support 24-hours-a-day, 7-days-a-week. We believe it is
critical to our success to have available the resources necessary to support our
customers through the entire enrollment and fulfillment process, a vital
formative period in each customer's relationship with us. We focus on pre-sales,
loop qualification, technical assistance, phone company provisioning, gateway
shipment and billing to address our customers' needs. Our objective in serving
our customers is to have enough customer service consultants to ensure that our
customers are not placed on hold when they need assistance.
We employ Telamon-IMS Corporation, a subsidiary of Telamon Corporation, an
experienced company in telecommunications provisioning, as our pre-sales and
enrollment group. Telamon has the ability to scale as our needs for consultants
change. We also employ Sutherland, a technical support help center company, to
respond to and assist our customers with technical issues. Sutherland's call
center processes, technical expertise and scalability help us to provide our
customers with real-time assistance. Telamon and Sutherland ensure that there is
ample coverage during peak hours regardless of where our customers live.
In addition to supporting our customers, Telamon and Sutherland also
assist us in actively monitoring and reviewing customer calls. We combine this
feedback with comments we receive directly, including through our Website, to
address and prevent the recurrence of problems experienced by our customers. We
have our own in-house customer care staff that helps to service the more complex
needs of our customers. We also have a customer recovery unit to address
critical complaints that cannot be solved by Telamon or Sutherland. We have also
implemented an internal technical support unit that responds to technical
difficulties that cannot be resolved by Sutherland. We believe these initiatives
will reduce customer turnover and will increase customer satisfaction. We
actively monitor comments by customers and respond by incorporating their
suggestions into our customer care policies.
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Our Automated Billing and Provisioning Systems
We have built our platform to perform metering and billing tasks in the
gateway. This functionality allows us to automate, monitor and conveniently bill
for each customer's services and products with minimal human intervention. This
functionality and minimal human intervention also provides us with scalability
for a number of services. We intend to expand the metering and billing
functionality as a part of our strategic relationship with NBCi.
We developed our billing and provisioning system as a customer focused,
Web-enabled process that ties together all of our customer related processes,
including sales, customer service, marketing, billing, accounting, loop
qualification and order fulfillment. Using our automated back office process,
customers can subscribe to a service without the intervention of a service
representative. Once an order has been placed, the customer information is
disseminated in real-time to all of our key information technology systems. This
reduces costs and helps eliminate service errors. In addition, this real-time
information system provides us with a significant competitive advantage because
it helps us offer new services quickly and respond to changes in our market.
SALES AND MARKETING
Our key sales and marketing objective is to be the leading provider of
broadband services and applications to residential customers.
We intend to leverage our platform to capitalize on multiple methods to
attract customers. We are currently undertaking a targeted direct marketing
effort and are formulating private label programs with distribution partners.
Our targeted direct marketing and branding effort uses a mix of print, direct
mail, radio, television and online advertising media specifically tailored for
each local market. We do not employ a salesforce in this marketing effort. We
also attract customers by offering our services and applications to partners
under private label programs. Through these programs we will provide all aspects
of the service including use of the network, ordering, installation, billing,
customer care and the delivery of the gateway. A small salesforce is supporting
this distribution method.
SUPPLIERS AND VENDORS
Our engineers are responsible for prototype development of our residential
gateway. However, we outsource the manufacturing of the gateway. Our
manufacturing partner provides materials planning and procurement, final
assembly, testing and quality control under our supervision. Our manufacturing
process enables us to configure our products to meet a wide variety of customer
requirements and respond to future technological and industry developments. We
currently employ Wellex Corporation as the sole contract manufacturer of our
gateway, but we are in negotiations so that we can increase the number of
manufacturers in the near term.
COMPETITION
The business of broadband and Internet services is highly competitive with
frequent new market entrants, many of whom may be rivals. To date, however, we
know of no significant competitor who is currently pursuing a business strategy
that is analogous in all major respects to ours. The principal bases of
competition in our markets include:
- price;
- performance, including breadth of service availability, reliability of
service;
- ease of access and use;
- network security;
- availability and desirability of content;
- customer support;
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- brand recognition and market penetration; and
- capital resources.
We anticipate that over the next few years the high-speed broadband market
will become increasingly commoditized, thereby standardizing the price of
broadband access. We believe that those providers who will differentiate
themselves will do so on the basis of value-added services.
We believe America Online and Excite@Home represent our most direct source
of competition and that we will face direct and indirect competition from:
- providers of online services;
- Internet service providers;
- cable modem service providers;
- interactive television providers;
- Internet portal or content sites;
- telecommunications service providers;
- wireless and satellite service providers; and
- consumer electronics and appliance manufacturers.
Online Service Providers
Online service providers include companies such as AOL, Excite@Home, MSN
(a subsidiary of Microsoft) and WebTV (a subsidiary of Microsoft). These
companies provide content and applications over the Internet and on proprietary
online services ranging from news and sports to video conferencing. In addition,
these companies provide Internet connectivity, ease-of-use and consistency of
environment, especially through the development of their own access networks.
Internet Service Providers
Internet service providers include both national and regional providers,
independent Internet service providers and Internet service providers affiliated
with a telecommunications carrier or a data-centric competitive carrier.
Internet service providers such as Earthlink Networks, Mindspring, Concentric
Network, Netcom Online Communication Services, Verio, Flashcom and PSINet
provide Internet access to residential customers, generally using the existing
telephone network. Many Internet service providers have begun offering DSL-based
services.
These competitors have traditionally distinguished themselves from the
online service companies because they provide only Internet access rather than a
collection of proprietary content and services. This distinction has diminished
recently because major online services companies also offer access while many
portal sites actively compete for the chance to provide proprietary content
services to the subscribers of major Internet service providers. Of the
thousands of Internet service providers in the United States, the majority are
relatively small, localized providers.
Cable Modem Service Providers
Providers such as Excite@Home, High Speed Access, SoftNet and RoadRunner
and their respective cable partners are deploying high-speed Internet access
services over hybrid fiber coaxial cable networks. Where deployed, these
networks provide similar and in some cases higher-speed Internet access than we
provide through DSL. Cable modem service providers often have existing local and
regional monopolies in their service markets. In addition, cable modem service
providers and their partners have more direct ties to desirable traditional
media and entertainment content, as well as the size and financial resources to
execute exclusive deals for this content.
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Interactive Television Providers
Several companies are developing technologies relevant to interactive
television. For example, Wink and Liberate are software developers that are
working to create interactive television solutions. Microsoft has been active in
many areas of interactive television. Microsoft's wholly-owned subsidiary,
WebTV, offers set-top boxes with Internet access, interactive program listings
and simultaneous television and Internet usage. EchoStar offers WebTV to its
subscribers. Microsoft has also acquired equity interests in several network
operators. These investments give Microsoft influence in the network operator's
choice of interactive software. With its financial, technical and marketing
resources, Microsoft will be a strong competitor in the market for interactive
television operating systems. In addition, many of these companies are working
on standards for interactive television, and we do not know whether our products
will be compatible with the standards developed in the future.
Internet Portal Sites
Internet portal sites such as Yahoo! and Lycos are specialized Websites
that offer an aggregation of content and services either directly or through
hyperlinks to other sites. Internet portal sites typically offer search engines,
navigational aids, directories, chat facilities, classified ads, message boards,
e-mail and other customized content and services. Many sites derive a majority
of their revenues from the display of advertising on the site, but may also
generate revenue from product promotions or redirection of Internet traffic from
the portal to specific sites.
Wireline Telecommunications Service Providers
Telecommunications service providers, including competitive
telecommunications companies, traditional telephone companies, and traditional
and new long distance carriers all pose competition to us because many currently
offer DSL services.
- Traditional Telephone Companies. All of the largest traditional
telephone companies in our target markets have begun offering DSL
services or have announced their intention to provide DSL services in
the near term. The traditional telephone companies have an established
brand name in their service areas, possess sufficient capital to deploy
DSL equipment rapidly, own the local lines themselves and can bundle
digital data services with their existing voice services to achieve
economies of scale in serving their customers. Certain of the
traditional telephone companies have aggressively priced their consumer
DSL services as low as $30-$40 per month, placing pricing pressure on
our service.
- Competitive Telecommunications Companies. Many competitive carriers
such as Covad, Rhythms NetConnections and NorthPoint Communications
offer high-speed DSL based services. Companies such as RCN, McLeodUSA
and some subsidiaries of utility companies currently offer or are
beginning to offer voice and data service to the residential market.
- National Long Distance Carriers. Interexchange carriers, such as AT&T,
Sprint, MCI WorldCom, GTE and Qwest, have deployed large-scale Internet
access and ATM networks, sell connectivity to businesses and residential
customers, and have brand recognition. They also have interconnection
agreements with many of the traditional telephone companies and a number
of spaces in central offices from which they are currently offering or
could begin to offer competitive DSL services.
Wireless and Satellite Telecommunications Service Providers
Wireless and satellite telecommunications service providers utilize
wireless and satellite-based networks to provide Internet connectivity. We may
face increasing competition from terrestrial wireless services, including 2
Gigahertz (Ghz) and 28 Ghz wireless cable systems (Multi-channel Multipoint
Distribution System (MMDS) and Local Multipoint Distribution System (LMDS)), and
24 Ghz and 38 Ghz point-to-point microwave systems. For example, the FCC is
currently considering new rules to
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permit MMDS licensees to use their systems to offer two-way services, including
high-speed data, rather than solely to provide one-way video services. The FCC
also recently auctioned spectrum for LMDS services in all markets. This spectrum
is expected to be used for wireless cable and telephony services, including
high-speed digital services. In addition, companies such as Teligent Inc.,
Advanced Radio Telecom Corp. and WinStar Communications, Inc., which are
targeted to the business market hold point-to-point microwave licenses to
provide fixed wireless services such as voice, data and videoconferencing. We
also may face increasing competition from satellite-based systems. Motorola
Satellite Systems, Inc., Hughes Communications (a subsidiary of General Motors
Corporation), Teledesic and others have filed applications with the FCC for
global satellite networks which can be used to provide broadband voice and data
services, and the FCC has authorized several of these applicants to operate
their proposed networks.
Consumer Electronics and Appliance Manufacturers
Our broadband platform will support a number of consumer electronic
devices and appliances, including cellular phones, flat panel displays and
personal digital assistants. Consumer electronics companies and manufacturers of
appliances may, in the future, decide to compete with us by bundling their own
software with their hardware products, or by entering into exclusive alliances
with a competitor. In both instances, they might create products that are
incompatible with our systems.
NETWORK AGREEMENTS
The gateway used by our customers is connected to a telephone line and
from there to DSL equipment. This equipment is owned by the incumbent or the
competitive carrier and is located in the local central office. We currently
have agreements for DSL connectivity with ACI Corp., a subsidiary of Rhythms
NetConnections, Inc., BellSouth, Bell Atlantic Network Services and Southwestern
Bell, Pacific Bell and Nevada Bell.
In June 1999, we entered into a one-year provisioning agreement with ACI
Corp. for DSL lines and connections between our points of presence and ACI Corp.
in the metropolitan Chicago area. This agreement is non-exclusive and gives us
the right to purchase services or products from other providers for the Chicago
area, although we must offer to purchase certain products and services from
Rhythms first on the same terms. The agreement provides that we may purchase up
to 3,000 lines at costs fixed in the agreement.
In September and October 1999, we entered into a number of non-exclusive
agreements with BellSouth. We entered into a Market Development Agreement with
BellSouth Business Systems, Inc. in which we agreed to market ADSL service in
areas in which BellSouth has ADSL service available. We also entered into a
series of agreements with BellSouth Telecommunications, Inc. in which we agreed
to purchase ADSL and related telecommunications services from BellSouth pursuant
to its FCC tariffs. The commitments and terms of our agreements for
telecommunications services are for 36 months.
In September 1999, we entered into a five-year agreement with Bell
Atlantic Network Services, Inc. to purchase ADSL services pursuant to Bell
Atlantic's FCC tariffs. In October 1999, we entered into a 54-month agreement to
purchase ADSL services from Southwestern Bell, Pacific Bell and Nevada Bell
pursuant to applicable FCC tariffs.
In each of the metropolitan hubs of our networks we aggregate our customer
traffic through dedicated circuits. We have agreements for dedicated circuits,
collocation, backbone and peering agreements with Level 3 Communications, LLC
and MCI WorldCom. In October 1999, we entered into agreements with Level 3
terminating in September 2002 that provide us with OC-3, DS1, DS3 and other
circuits, collocation throughout the country at Level 3's facilities, roof
rights for the location of our caching satellite dishes, remote hands services
and peering arrangements. In October 1999, we entered into agreements with MCI
WorldCom terminating in September 2002 that provide us with OC-3, DS1, DS3 and
other circuits as well as collocation space and peering arrangements.
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GOVERNMENT REGULATION
Many of the services and applications that we offer are subject to varying
degrees of federal, state and local regulation. Future regulations and
legislation may be less favorable to us than current regulation and legislation.
In addition, we may expend significant financial and managerial resources to
participate in proceedings setting rules at either the federal or state level,
without achieving a favorable result.
Communications Regulation
The Telecommunications Act of 1996 substantially departs from prior
legislation in the telecommunications industry by establishing local
telecommunications competition as a national policy. The Telecommunications Act
removes state regulatory barriers to competition and overrules state and local
laws restricting competition for telecommunications services. In general, by
accelerating competitive entry into the telecommunications market, including new
DSL services offered by competitive carriers, the Telecommunications Act
establishes a market structure in which the network infrastructure and services
we purchase are now available from a variety of providers in addition to
incumbent telephone companies. As a result, our business options and choice of
vendors, along with the quality and price of facilities and services we buy from
telecommunications carriers, are becoming more favorable and yet are
substantially dependent on successful implementation of the Telecommunications
Act by the FCC and other regulatory agencies.
Although some of the Telecommunications Act is self-executing, the FCC has
issued a variety of regulations upon which we and other broadband competitors
rely. We believe that the FCC's regulations and decisions have generally favored
competition and the wide availability of DSL connectivity which we purchase in
order to provide broadband services to our customers. However, these regulations
and decision may be appealed by one or more incumbent carriers, which may lead
to uncertainty and delays in implementation of regulations favorable to us, or
which may adversely affect our business and financial prospects.
In November 1998, the FCC ruled that DSL services provided as dedicated
access services in connection with Internet access are interstate services
subject to the FCC's jurisdiction. Since early 1998, the FCC has been
considering broad issues related to competition in the advanced services market.
Several former Bell companies petitioned the FCC to be relieved of certain
regulatory requirements applicable to their own DSL services, including
obligations to unbundle DSL facilities and services, and to resell DSL
connectivity to companies like ours. In October 1998, the FCC denied the former
Bells' petitions, ruling that DSL services are telecommunications services
subject to the unbundling and resale requirements of the Telecommunications Act.
These decisions favored competition among our last-mile suppliers. However, they
are subject to appeal. The final outcome of such appeals, along with subsequent
FCC proceedings interpreting the requirements of the Telecommunications Act
could significantly affect our business.
Most recently, on December 9, 1999, the FCC mandated line sharing, which
allows a competitive carrier to simultaneously provide DSL-based services over
the same telephone line being used by the incumbent carriers for basic telephone
service. Prior to the line sharing decision, only the incumbent carrier could
provide broadband service on the existing line. Line sharing removes a
significant barrier to competition among our suppliers. The line sharing
decision also addressed the control of technical standards for the DSL solutions
that we purchase from our last mile suppliers. The line sharing decision removed
the discretion that many incumbent carriers had exercised to prevent the
operation of some DSL technologies on their local telephone loops. Under the
FCC's ruling, a DSL provider may now select the DSL technology it wishes so long
as the technology (i) complies with existing industry standards, (ii) is
approved by an industry standards body, the FCC, or any state commission, or
(iii) has been successfully deployed by any carrier without significantly
degrading the performance of other services. However, the order specifically
determines that SDSL, a symmetrical digital subscriber line technology used by
some of our vendors, while available to deliver broadband connectivity, is not
eligible for line-sharing because it uses the frequencies devoted to voice
transmissions. Moreover, this decision remains to be implemented and is subject
to reconsideration and appeal.
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<PAGE> 53
DSL and broadband services have also been addressed in two recent
proceedings in which the FCC required SBC, Ameritech and Bell Atlantic to
establish separate affiliates for the provision of DSL and other advanced
telecommunications services. The FCC established specific criteria for the
nondiscriminatory availability to competitive carriers of information and
ordering processes necessary for the purchase of unbundled DSL-capable loops. We
believe that the establishment of separate subsidiaries through which DSL
connectivity will be sold to companies like ours will increase the FCC's
ability, as well as that of the state public utilities commissions, to monitor
compliance with the requirements of Telecommunications Act upon which companies
like ours rely. Broadband issues are also the subject of a number of proposed
bills introduced in the U.S. Congress. To varying degrees, proposed legislation
would either reduce or increase open access to the incumbent Bell carrier
networks as well as to the cable networks which have yet to be opened to the
type of competition that exists in the telephone network. Many of the largest
providers of broadband and Internet services, including America Online, AT&T and
the Bell companies, have been significantly involved in lobbying for and against
this proposed legislation. Although none of the proposed bills has as yet been
voted out of committee, if enacted, such legislation may affect our business and
financial prospects.
For several years, traditional telecommunications carriers have argued
that the FCC should repeal rules treating Internet service providers as
unregulated providers of enhanced information services. Under this regulatory
paradigm, Internet service providers have been subject to a lesser degree of
regulation and taxation than traditional telephone service providers which is
favorable to us. The FCC has to date resisted all efforts to modify the
unregulated treatment of Internet service providers. However, there may be
increased legal and political pressure on the FCC to modify these policies.
While there is no indication that a major change in the FCC's policies is
imminent, the imposition on Internet service providers of access charges,
universal service fees and other elements of traditional telecommunications
regulation would require us to review and possibly change our financial and
business models.
Internet Content Regulation
Government regulation of communications and commerce on the Internet
varies greatly from country to country. The United States has not adopted many
laws and regulations applicable to online communications and commerce. However,
it is possible that a number of laws and regulations may be adopted covering
issues such as user privacy, freedom of expression, pricing, content and quality
of products and services, taxation, advertising, gaming, intellectual property
rights, enforceability of contracts and information security.
Recently, sections of the Communications Decency Act of 1996, or the CDA,
that proposed criminal penalties for distributing indecent material to minors
over the Internet were held to be unconstitutional. Other provisions of the CDA
remain in effect, however, and Congress has since passed the Child Online
Protection Act, or COPA, in an effort to remedy the deficiencies the Supreme
Court identified in the CDA. It is unclear whether COPA will survive
constitutional challenges that have been raised. However, indecency legislation
and other government efforts to regulate Internet content could subject us or
our customers to potential liability, which in turn could affect our business.
The adoption of any such laws or regulations might also decrease the rate of
growth of Internet use, which in turn could decrease the demand for our services
or increase the cost of doing business or in some other manner have a material
adverse effect on our business, results of operations, and financial condition.
Likewise, the applicability to the Internet of traditional property ownership,
copyright, taxation, libel and obscenity law is uncertain.
Likewise, the impact of ongoing discussions of privacy issues and the
Internet remains uncertain. Several U.S. states have proposed, and the European
Union has adopted, limitations on the use of personal information gathered
online. Pursuant to negotiations with the European Union and the United States,
the United States may decide to adopt restrictive laws on the subject of
privacy. The Federal Trade Commission, or FTC, has initiated action and obtained
a consent decree against at least one online service provider regarding the
manner in which personal information is collected from users and provided to
third parties. In 1998, Congress enacted the Child Online Privacy Protection Act
(COPPA) protecting the
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<PAGE> 54
privacy of children on the Internet and limiting the information that can be
collected from and disseminated to children over the Internet without parental
consent. The FTC promulgated broad new rules implementing COPPA in late 1999.
Changes to existing laws or the passage of new laws intended to address online
privacy and related issues may create uncertainty in the marketplace or could
affect the manner in which we do business.
We may also be subject to claims for defamation, negligence, copyright or
trademark infringement (including contributory infringement) based upon
information available through our Internet sites, including content created by
third parties. Although recent federal legislation protects online services from
some claims, the law in this area remains in flux and varies by jurisdiction. It
is not possible to develop a business plan that can definitively protect us
against liability for our Internet content, including content on our sites that
we have not written or created. This uncertainty is likely to prevail for some
time, as the laws continue to develop.
EMPLOYEES
As of December 31, 1999 we had approximately 190 full-time employees, all
of whom are based in the United States. We also from time to time employ
part-time employees and have hired a number of independent contractors. Our
employees are not represented by any collective bargaining agreement, and we
have never experienced a work stoppage.
PROPERTIES
Our corporate headquarters facility of approximately 60,000 square feet is
located in Cupertino, California. We occupy our corporate headquarters facility
pursuant to a lease that expires in June 2005. In early 2000, we will expand
into a second facility of approximately 66,000 square feet located in San Jose,
California. The lease for this additional facility will expire in November 2004.
In addition, we continue to lease our prior facility in San Jose, California
under a lease that expires in October 2002. We intend to continue subleasing
this 13,200 square foot facility through the expiration of the lease term.
We have entered into agreements with both Level 3 and MCI WorldCom for
collocation space throughout the United States. Through Level 3, we currently
have collocation space in Atlanta, Miami, Orlando, Los Angeles, Dallas, McLean
(Virginia), New York City, Chicago, Denver, Philadelphia, Boston and San Diego.
In 2000, we expect to add collocation space through both Level 3 and MCI
WorldCom.
INTELLECTUAL PROPERTY RIGHTS
We claim common law trademark protection for TELOCITY, TELOCITY TIME,
TELOCITY HIGH VELOCITY INTERNET, YOU HAVEN'T SEEN THE NET UNTIL YOU'VE SEEN IT
IN TELOCITY TIME and our logo. We have applied for federal trademark
registrations for TELOCITY and our logo. We currently have no patents but we
have three patent applications pending. We also rely on unpatented trade secrets
and know-how to maintain our competitive position, which we seek to protect, in
part, by confidentiality agreements, strategic alliances and contracts with
employees, consultants and others. The steps we have taken may not be sufficient
to protect our technology or other intellectual property.
Our products and services consist primarily of commodity hardware and
software components in combination. While we have developed some proprietary
techniques and expertise, most of our activities and systems are not protectable
as proprietary intellectual property. In general, therefore, we have taken only
limited steps to protect our intellectual property. Accordingly, we may be
unable to use our intellectual property rights to prevent other companies from
competing with us. In addition, we may be unable to prevent third parties from
developing techniques that are similar or superior to our technology, or from
designing around our copyrights, patents and trade secrets, or from
misappropriating our intellectual property without detection or without adequate
remedy. Failure to protect our intellectual property could materially harm our
business.
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<PAGE> 55
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, or to determine the validity and
scope of the proprietary rights of others. Litigation could result in
substantial costs and diversion of our resources and could materially harm our
business. From time to time, we may receive notice of claims of infringement of
third parties' proprietary rights. Infringement or other claims could be
asserted against us in the future, and it is possible that such assertions or
prosecutions could harm our business. Any such claims, with or without merit,
could be time-consuming, result in costly litigation and diversion of technical
and management personnel, cause delays in the development and release of our
products, or require us to develop non-infringing technology or enter into
royalty or licensing arrangements. Such royalty or licensing arrangements, if
required, may not be available on terms acceptable to us, or at all. For these
reasons, infringement claims could materially harm our business.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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<PAGE> 56
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors as of January 3, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Patti Hart................................ 43 President, Chief Executive Officer and
Director
Peter Olson............................... 57 Executive Vice President, Chief Technical
Officer and Director
Edward Hayes.............................. 44 Executive Vice President and Chief
Financial Officer
Jim Morrissey............................. 50 Executive Vice President and Chief
Marketing Officer
James Rohrer.............................. 58 Executive Vice President and Customer Care
Officer
Scott Martin.............................. 43 Executive Vice President, Chief
Administrative Officer and Corporate
Secretary
Kevin Grundy.............................. 42 Senior Vice President, Engineering
Thomas Obenhuber.......................... 44 Senior Vice President, Business and
Product Planning
Matthew Stepovich......................... 36 Senior Vice President, Legal and
Regulatory Affairs
Regina Wiedemann.......................... 38 Senior Vice President, Business
Development
Jef Raskin................................ 56 Vice President, Human Interaction
Andrew Robinson........................... 32 Vice President, Operations
David Cowan............................... 33 Director
Andrew Rappaport.......................... 42 Director
Edmond Sanctis............................ 37 Director
Michael Solomon........................... 47 Director
Randall Strahan........................... 47 Director
</TABLE>
Patti Hart has served as our President, Chief Executive Officer and as a
member of our Board of Directors since June 1999. From February 1994 through
April 1999 Ms. Hart was at Sprint Corporation, where she most recently served as
President and Chief Operating Officer of Sprint Corporation's Long Distance
Division. At Sprint, Ms. Hart also served as President of Sprint Business,
President of Sales and Marketing, and President of the Business Services Group.
Ms. Hart is a member of the board of directors of Vantive Corp. and Premisys
Corp.
Peter Olson, one of our founders, has served as our Executive Vice
President and Chief Technical Officer since July 1998. Previously, Mr. Olson
served as our President and Chief Executive Officer from our incorporation in
August 1997 until July 1998. From June 1982 through December 1994 Mr. Olson
served as Chief Technical Officer of Octel Communications Corporation, a company
he co-founded. Mr. Olson is a member of the board of directors of Flycast
Communications Corp., IMP, Inc. and Netpulse Communications, Inc.
Edward Hayes has served as our Executive Vice President and Chief
Financial Officer since January 2000. From July 1996 through December 1999, Mr.
Hayes worked at Lucent Technologies Inc., where from July 1997 he served as
Financial Vice President and Chief Financial Officer of Lucent's Global Service
Provider Business. From July 1995 through July 1996, Mr. Hayes worked at Unisys
Corporation, where from November 1995 he served as Vice President, Chief
Financial Officer and Chief Information Officer of Unisys' Global Professional
Services Division. From April 1990 through July 1995 Mr. Hayes worked at ASEA
Brown Boveri (ABB), Inc. the U.S. subsidiary of the joint venture between ASEA
and BBC Brown Boveri, where from September 1993 he served at Vice President,
Chief Financial Officer and Chief Information Officer of ABB Nuclear Operations.
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<PAGE> 57
Jim Morrissey has served as our Executive Vice President and Chief
Marketing Officer since September 1999. From January 1980 through September 1999
Mr. Morrissey held various positions at Grey Advertising, including Executive
Creative Director and Executive Vice President from December 1995.
James Rohrer has served as our Executive Vice President and Customer Care
Officer since August 1999. From January 1996 through August 1998 Mr. Rohrer
served as Chief Operating Officer of Innovative Services of America, a customer
service outsourcing firm specializing in customer care for large companies. From
November 1967 through December 1995 Mr. Rohrer worked at Sears Roebuck & Co.,
where he most recently served as Vice President of Customer Satisfaction and
Vice President, Automotive Division. Mr. Rohrer is a member of the board of
directors of Alpine Access, L.L.C., a customer care outsourcing company.
Scott Martin has served as our Chief Administrative Officer, Executive
Vice President and Corporate Secretary since December 1999. From October 1982
through August 1999 Mr. Martin held various positions at Van Kampen Investments
Inc., including Senior Vice President and Deputy General Counsel from January
1995.
Kevin Grundy, one of our founders, has served as our Senior Vice
President, Engineering since December 1997. From February 1997 through November
1997 Mr. Grundy served as President and CEO of Aspen Internet Systems, Inc., a
DSL modem company. From June 1995 through August 1997 Mr. Grundy served as Vice
President of Engineering and Operations at Minerva Systems, an MPEG encoder
company. From June 1994 through June 1995 Mr. Grundy was Director of Engineering
at Auspex Systems, Inc., a high reliability network data storage company.
Previously, Mr. Grundy worked at NeXT, Incorporated as Executive Director,
Manufacturing Engineering and Production, where he was responsible for all
hardware engineering, manufacturing and support.
Thomas Obenhuber, one of our founders, has served as our Senior Vice
President, Business and Product Planning since August 1997. From January 1995
through July 1997 Mr. Obenhuber served as Vice President, Operations and
Engineering at Genuity, a national backbone Internet service provider that he
co-started. From July 1990 through January 1995 Mr. Obenhuber worked at Sun
Microsystems where he most recently served as Director, System Architecture.
Matthew Stepovich, one of our founders, has served as our Senior Vice
President, Legal and Regulatory Affairs since our incorporation in August 1997.
From October 1996 through April 1997 Mr. Stepovich served as Co-Founder and
Executive Vice President at Media Lane Development Group, an Internet commerce
design and implementation firm. From December 1995 through September 1996 Mr.
Stepovich was a corporate lawyer with Weissburg and Aronson, Inc. From August
1991 through November 1995 Mr. Stepovich was a corporate and regulatory lawyer
with Gray Cary Ware & Freidenrich LLP.
Regina Wiedemann has served as our Senior Vice President, Business
Development since October 1999. From June 1999 through September 1999 Ms.
Wiedemann served as Vice President of Business Development for Notify Technology
Corp., a consumer telephony and Internet notification device company. From
August 1997 through October 1998 Ms. Wiedemann was Vice President of Commercial
Services for Infonet, a global data communications company. From January 1996
through July 1997 Ms. Wiedemann served as Vice President of Sales and Channel
Management at Pacific Bell Internet. From February 1988 through December 1995
Ms. Wiedemann worked at Sprint, where her most recent position was Executive
Assistant to the President of Multimedia.
Jef Raskin has served as our Vice President, Human Interaction since
November 1999. From January 1994 through November 1999 Mr. Raskin worked as a
consultant, primarily in the field of user interfaces. Previously, Mr. Raskin
served as Manager of Advanced Systems at Apple Computer where he created the
Macintosh project, including the Macintosh user interface.
Andrew Robinson joined us in March 1999 as Director of ISP Services and
Business Development and was promoted to Vice President of Operations in
September 1999. From April 1998 to March 1999 Mr. Robinson was the Chief
Operating Officer for Creative Net Internet Services, an Internet service
provider. From December 1996 through March 1998, Mr. Robinson served as
President and Chief
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<PAGE> 58
Operating Officer of Grin Net, an Internet service provider he founded. Mr.
Robinson is a charter member of the Internet Service Provider Consortium.
David Cowan has served on the board of directors since July 1998. Mr.
Cowan is the Managing General Partner of Bessemer Venture Partners, which he
joined in August 1992. From August 1996 through May 1997 he served as Chief
Executive Officer of Visto Corporation, an Internet-based personal information
company. From March 1995 through December 1996 he served as Chairman and Chief
Financial Officer of VeriSign, Inc. Mr. Cowan is a member of the boards of
directors of Flycast Communications Corp., Keynote Systems, Inc., VeriSign,
Inc., Worldtalk Communications Corp., and several private companies.
Andrew Rappaport has served on our Board of Directors since October 1997.
Mr. Rappaport has been a general partner at August Capital since August 1996.
From August 1984 through July 1996 Mr. Rappaport was President of The Technology
Research, Inc. Mr. Rappaport is a member of the board of directors of Silicon
Image, Inc. and MMC Networks, Inc., as well as several private corporations.
Edmond Sanctis has served on our Board of Directors since December 1999.
Mr. Sanctis has served as President and Chief Operating Officer of NBC Internet,
Inc. since October 1999. From July 1998 to October 1999 Mr. Sanctis served as
the Chief Operating Officer of Snap.com. Prior to that, Mr. Sanctis held several
positions at NBC, including Senior Vice President and General Manager of Digital
Productions from September 1996 to July 1998, Senior Vice President and
Executive Producer of Digital Productions from November 1995 through September
1996, and Director of Business Development from May 1994 through November 1995.
Michael Solomon, one of our founders, has served on our Board of Directors
since we were incorporated in August 1997 and served as our Interim CEO from
June 1998 through July 1999. Mr. Solomon has been at Mohr, Davidow Ventures
since March 1996. From July 1994 through September 1999 Mr. Solomon also worked
as an advisor and consultant. Mr. Solomon is a member of the board of directors
of Flycast Communications Corp. and several private corporations.
Randall Strahan has served on our Board of Directors since December 1998.
From January 1999 through December 1999 Mr. Strahan served as President and
Chief Executive Officer of Telmax Communications Corporation, a DSL equipment
company, and is currently chairman of its board of directors. Since November
1999 Mr. Strahan has served as a Venture Partner at Mohr, Davidow Ventures. From
November 1978 through January 1998, Mr. Strahan was at Pacific Bell, where he
most recently held the position of President, Service Operations.
BOARD OF DIRECTORS
Our Board of Directors currently consists of seven members. Each director
holds office until his or her term expires or until his or her successor is duly
elected and qualified. Upon completion of this offering, our amended and
restated certificate of incorporation and bylaws provide that our Board of
Directors will be divided into three classes. The terms of each class will
expire at different times. The three classes will be comprised of the following
directors:
- Class I consists of , who will serve until the annual
meeting of stockholders to be held in 2000;
- Class II consists of , who will serve until the annual
meeting of stockholders to be held in 2001; and
- Class III consists of , who will serve until the annual
meeting of stockholders to be held in 2002.
At each annual meeting of stockholders beginning with the 2000 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of an equal number of directors.
Our non-
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<PAGE> 59
employee directors devote such time to our affairs as is necessary to discharge
their duties. There are no family relationships among any of our directors,
officers or key employees.
Board Committees
Our Board of Directors has an audit committee and a compensation
committee. The audit committee consists of Messrs. Rappaport and Strahan. The
audit committee reviews our internal accounting procedures, consults with and
reviews the services provided by our independent accountants and makes
recommendations to the Board of Directors regarding the selection of independent
accountants. The compensation committee consists of Messrs. Cowan and Solomon.
The compensation committee reviews and recommends to the Board of Directors the
salaries, incentive compensation and benefits of our officers and employees and
administers our stock plans and employee benefit plans.
Compensation of Directors
In December 1999, our Board of Directors approved compensation guidelines
for directors who are not our officers or employees. The compensation guidelines
provide that these directors will be reimbursed for expenses incurred in
attending any Board of Directors or committee meeting. Directors who are also
our officers or employees will not receive reimbursement for expenses incurred
in attending Board of Directors or committee meetings. Effective upon the
closing of this offering, our non-employee directors also will be eligible to
participate in our 2000 Outside Directors Stock Plan. Employee directors,
including Ms. Hart and Mr. Olson, are eligible to participate in our 2000
Employee Stock Purchase Plan and to receive discretionary grants under our 1998
Stock Plan.
EXECUTIVE OFFICERS
Our executive officers are appointed by our Board of Directors and serve
until their successors are elected or appointed.
SUMMARY COMPENSATION INFORMATION
The following table sets forth all compensation paid or accrued during the
year ended December 31, 1999 to all individuals serving as our President and
Chief Executive Officer, and each of our four other most highly compensated
officers whose compensation exceeded $100,000 for the period. The compensation
described in this table does not include perquisites and other personal benefits
received by the executive officers named in the table below which do not exceed
the lesser of $50,000 or 10% of the total salary and bonus reported for these
officers. For the individuals identified, the table also includes the same
information for 1998 and 1997, the year in which we were founded.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY COMPENSATION(1) OPTIONS COMPENSATION
- ---------------------------- ---- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Patti Hart.................................... 1999 $140,000 $ 3,097 3,226,274 $150,000(2)
President and CEO (began June 1999) 1998 -- -- 0 --
1997 -- -- 0 --
Michael Solomon............................... 1999 -- 70,665(3) 0 --
Interim President and CEO (ended 1998 -- 80,000(3) 0 --
June 1999) 1997 -- -- 0 --
Jim Morrissey................................. 1999 77,211 80,939(4) 800,000 357,992(5)
Executive Vice President and 1998 -- -- 0 --
Chief Marketing Officer 1997 -- -- 0 --
Peter Olson................................... 1999 223,333 9,961 7,714 --
Executive Vice President and 1998 135,000 7,485 82,286 --
Chief Technology Officer 1997 75,000 -- 0 --
</TABLE>
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<PAGE> 60
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY COMPENSATION(1) OPTIONS COMPENSATION
- ---------------------------- ---- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Kevin Grundy.................................. 1999 161,667 7,854 0 --
Senior Vice President, Engineering 1998 170,000 7,493 0 --
1997 10,000 613 0 --
Thomas Obenhuber.............................. 1999 161,667 2,284 5,142 --
Senior Vice President, Product and 1998 90,000 2,129 54,858 --
Business Planning 1997 50,000 428 0 --
</TABLE>
- ---------------
(1) Includes only health insurance premiums paid by us unless otherwise noted.
(2) We paid Ms. Hart a $150,000 signing bonus pursuant to her employment
agreement.
(3) We paid these amounts to Mr. Solomon as our Interim President and CEO
pursuant to a consulting arrangement.
(4) Includes $1,422 in health insurance premiums paid by us. Also includes
$79,517 in debt forgiveness which we forgave pursuant to Mr. Morrissey's
employment agreement.
(5) We paid Mr. Morrissey a $150,000 signing bonus pursuant to his employment
agreement. Also includes $147,992 payment for closing costs related to the
sale of Mr. Morrissey's house, which includes a $66,918 gross up component
to cover Mr. Morrissey's additional taxes and $60,000 in contingent
compensation for an allowance that Mr. Morrissey will repay to us if our
stock trades at $20 or more per share on October 1, 2001, all of which we
paid pursuant to Mr. Morrissey's employment agreement.
OPTION GRANTS IN 1999
The following table sets forth information concerning grants of stock
options to the executive officers named in the summary compensation table above
who received stock options during 1999. All options granted to executive
officers in the last fiscal year were granted under the 1998 Stock Plan. The
percent of the total options set forth below is based on an aggregate of
10,615,660 options granted to employees during the period ended December 31,
1999. All options were granted at the fair market value as determined by our
Board of Directors on the date of grant.
Potential realizable value represents hypothetical gains that could be
achieved for the options if exercised at the end of the option term assuming
that the fair market value of our common stock appreciates at 5% and 10% over
the option term of five years and that the option is exercised and sold on the
last day of its option term for the appreciated stock price. The assumed 5% and
10% rates of stock price appreciation are provided in accordance with rules of
the SEC and do not represent our estimate or projection of our future common
stock price. Actual gains, if any, on stock option exercises will depend on the
future performance of our common stock.
<TABLE>
<CAPTION>
INDIVIDUAL GRANT POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED DURING PERIOD PER SHARE DATE 5% 10%
- ---- ---------- ------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Patti Hart........... 3,226,274 30.4% $0.350 4/30/09 $710,145 $1,799,648
Jim Morrissey........ 800,000 7.5 0.750 9/10/09 377,336 956,245
Peter Olson.......... 7,714 -- 0.575 6/25/09 2,789 7,069
Thomas Obenhuber..... 5,142 -- 0.575 6/25/09 1,859 4,712
</TABLE>
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<PAGE> 61
OPTION EXERCISES IN 1999 AND VALUES AT DECEMBER 31, 1999
The following table sets forth information concerning option exercises in
1999 by the executive officers named in the summary compensation table above.
The options for Ms. Hart and Mr. Morrissey vest over four years, while the
options to Messrs. Olson and Obenhuber are all fully vested. All options
otherwise generally conform to the terms of our 1998 Stock Plan.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
SHARES ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Patti Hart.................. 3,226,274 -- -- -- -- --
Jim Morrissey............... 800,000 -- -- -- -- --
Peter Olson................. 7,714 -- -- -- -- --
Thomas Obenhuber............ 5,142 -- -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with all of our current
executive officers. All of our executive officers have executed Employee
Inventions and Proprietary Rights Assignment Agreements that provide, among
other things, that for two years following the officer's employment, the officer
will not solicit any of our employees.
On May 5, 1999, we entered into an at will employment agreement with Ms.
Hart, under which Ms. Hart is compensated at a rate of $300,000 per year. Ms.
Hart also received a signing bonus of $150,000 and is guaranteed a bonus of
$100,000 at the conclusion of her first year of service as our Chief Executive
Officer. After two years of service as our Chief Executive Officer and each year
of employment with us thereafter, Ms. Hart will be entitled under her agreement
to earn a performance bonus in accordance with a performance bonus plan. The
agreement also provides for a stock grant pursuant to our 1998 Stock Plan for
the purchase of up to 3,226,274 shares of our common stock. Ms. Hart exercised
her option in full on June 22, 1999 at a price of $0.35 per share. Ms. Hart's
exercise of her option is subject to our right to repurchase her shares at the
exercise price, which right lapses as the shares vest at a rate of 1/48 per
month. Upon Ms. Hart's resignation for good cause upon a change of control, Ms.
Hart shall vest one half of any unvested shares. If we terminate Ms. Hart's
employment without cause, she will receive a severance package, as set forth in
her employment agreement.
Effective January 1, 1998, we entered into at will employment agreements
with Messrs. Olson, Obenhuber and Stepovich, under which they were to be
compensated at rates of $180,000, $120,000 and $96,000 per year, respectively;
their current salaries are $280,000, $200,000 and $150,000 per year. In
addition, under their agreements, Messrs. Olson, Obenhuber, and Stepovich are
each eligible for a performance bonus for each year based upon achievement of
performance objectives, the amount which is to be negotiated annually. If we
terminate Messrs. Olson, Obenhuber or Stepovich without cause or any resigns for
good reason, the individual shall receive his compensation, including pro-rated
bonuses, and benefits for three months following termination, plus continued
vesting of shares for six months. Effective February 25, 1998, we entered into
an employment agreement with Mr. Grundy with the same major conditions, except
that Mr. Grundy was to be compensated at a rate of $120,000 per year. Mr.
Grundy's current salary is $200,000. We also entered into Founder Stock Purchase
Agreements with each of these employees, which contain certain change of control
provisions, as described below.
On December 10, 1999, we entered into an at will employment agreement with
Mr. Hayes, under which Mr. Hayes is compensated at a rate of $250,000 per year.
Within 30 days of the signing of the agreement, we will pay Mr. Hayes a signing
bonus of $325,000. The agreement also provides for a stock option grant pursuant
to our 1998 Stock Plan for the purchase of up to 370,000 shares of our common
stock. Mr. Hayes exercised all his options on January 5, 2000 at a price of
$3.00 per share. Mr. Hayes' exercise of his option is subject to our right to
repurchase his shares at the exercise price, which right
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lapses as the shares vest. Mr. Hayes' shares vest 1/4 after 12 months, then
subsequently at a rate of 1/48 of the original grant per month. If we terminate
Mr. Hayes without cause or he resigns for good reason, as both terms are defined
in his agreement, we will pay Mr. Hayes a lump sum severance payment equal to 12
months of salary and target incentive bonus, remove any vesting cliff and
immediately vest the greater of one half of his unvested stock options or an
amount equivalent to an additional six months vesting or accelerate his vesting
six months.
On September 14, 1999, we entered into an at will employment agreement
with Mr. Morrissey, under which Mr. Morrissey is compensated at a rate of
$275,000 per year. Mr. Morrissey received a signing bonus of $150,000. On
January 1, 2000, provided that certain objectives have been met, Mr. Morrissey
shall receive an additional bonus of $150,000. Upon our initial public offering
or our acquisition, Mr. Morrissey shall receive a bonus of $150,000, provided
that certain objectives have been met. In the event of certain payments under
his agreement, Mr. Morrissey is entitled to receive gross up payments. The
agreement also provides for a stock option grant pursuant to our 1998 Stock Plan
for the purchase of up to 800,000 shares of our common stock. Mr. Morrissey
exercised all of his options on September 14, 1999 at a price of $0.75 per
share. Mr. Morrissey's exercise of his option is subject to our right to
repurchase his shares at the exercise price, which right lapses as the shares
vest. Mr. Morrissey's shares vest 1/4 after one year, then subsequently at a
rate of 1/48 of the original grant per month. In order to leave his previous
employment, Mr. Morrissey was required to make certain payments. To facilitate
his departure, we loaned Mr. Morrissey $2 million: on December 6, 1999 we
provided him with a $900,000 loan and on January 5, 2000 we provided him with a
$1,100,000 loan, the principal and interest of both we will forgive at a rate of
1/36 per month over three years beginning on September 20, 1999 and January 1,
2000, respectively. Under Mr. Morrissey's agreement we provide to him a monthly
housing allowance of $20,000 for 24 months beginning on October 1, 1999. If our
stock trades at $20 or more on October 1, 2001, then Mr. Morrissey shall repay
the allowance; otherwise, we will forgive his allowance. Upon Mr. Morrissey's
termination for cause or his voluntary resignation other than for good reason,
the loans become due within 90 days. If we terminate Mr. Morrissey without cause
or he resigns with good reason, he shall receive his base salary for one year,
continued payment of his housing allowance for one year, discharge of any of his
obligations to repay loans or his housing allowance to us, and removal of any
vesting cliff plus six months acceleration of his option vesting. Upon a change
of control (which includes Ms. Hart's termination as our CEO), within one year,
Mr. Morrissey will also receive certain additional accelerated vesting.
On August 24, 1999, we entered into a one year employment agreement with
Mr. Rohrer, under which Mr. Rohrer is compensated at a rate of $160,000 per
year. The agreement also provides for a stock grant pursuant to our 1998 Stock
Plan for the purchase of up to 100,000 shares of our common stock. Mr. Rohrer
exercised all of his options on September 20, 1999 at a price of $0.75 per
share. We subsequently granted to Mr. Rohrer an option for an additional 100,000
shares, which he exercised on December 2, 1999 at a price of $1.50 per share.
Mr. Rohrer's exercise of his options is subject to our right to repurchase his
shares at the exercise price, which right lapses as the shares vest. Mr.
Rohrer's 200,000 shares vest 1/8 six months after commencement of his
employment, then subsequently at a rate of 1/48 of the total grant per month.
Mr. Rohrer's initial option grant will fully vest upon the completion of certain
milestones. Mr. Rohrer's employment agreement is for one year, during which time
we can only terminate Mr. Rohrer for cause. If we terminate Mr. Rohrer without
cause during this time, the options he would have received through the first
year fully vest. Either party may terminate the agreement at the end of one
year.
On December 8, 1999, we entered into an at will employment agreement with
Mr. Martin, under which Mr. Martin is compensated at a rate of $190,000 per
year. Within 30 days of the signing of the agreement, we will pay Mr. Martin a
signing bonus of $150,000, which he will repay if he resigns within one year for
other than good reason. The agreement also provides for a stock option grant
pursuant to our 1998 Stock Plan for the purchase of 245,000 shares of our common
stock. Mr. Martin exercised all his options on December 16, 1999 at a price of
$3.00 per share. Mr. Martin's exercise of his option is subject to our right to
repurchase his shares at the exercise price, which right lapses as the shares
vest. Mr.
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Martin's shares vest 1/8 after six months, then subsequently at a rate of 1/48
of the original grant per month. Upon a change in control, if we terminate Mr.
Martin without cause, or he resigns for good reason, we will continue to pay Mr.
Martin his base salary for six months, remove any vesting cliff and immediately
vest one half of his unvested stock options. If we terminate Mr. Martin without
cause or he resigns for good reason without a change in control, we will remove
any vesting cliff, pay Mr. Martin a lump sum of $150,000 and make continued
medical and dental benefits to Mr. Martin for six months.
On September 13, 1999, we entered into an at will employment agreement
with Ms. Wiedemann, under which Ms. Wiedemann is compensated at a rate of
$140,000 per year. The agreement also provides for a stock grant pursuant to our
1998 Stock Plan for the purchase of up to 240,000 shares of our common stock.
Ms. Wiedemann exercised all of her options on October 26, 1999 at a price of
$1.50 per share. Ms. Wiedemann's exercise of her option is subject to our right
to repurchase her shares at the exercise price, which right lapses as the shares
vest. Ms. Wiedemann's shares vest 1/8 after six months, then subsequently at a
rate of 1/48 of the original grant per month. If, following a change of control,
we terminate Ms. Wiedemann or she resigns for good cause, Ms. Wiedemann shall
receive an additional six months of salary, benefits and vesting, including
removal of the one year vesting cliff, if applicable.
On November 11, 1999, we entered into an at will employment agreement with
Mr. Raskin, under which Mr. Raskin is compensated at a rate of $160,000 per
year. The agreement also provides for a stock grant pursuant to our 1998 Stock
Plan for the purchase of up to 120,000 shares of our common stock. Mr. Raskin's
exercise of his option is subject to our right to repurchase his shares at the
exercise price, which right lapses as the shares vest. Mr. Raskin's shares vest
1/4 after one year, then subsequently at a rate of 1/48 of the original grant
per month.
On April 1, 1999, we entered into an at will employment agreement with Mr.
Robinson, under which Mr. Robinson was to be compensated at a rate of $130,000
per year. Mr. Robinson also will receive a one-time stock bonus of 10,000 shares
and a $20,000 bonus at the conclusion of his first year of service provided that
certain milestones have been met. Mr. Robinson's current salary is $150,000. The
agreement also provides for a stock grant pursuant to our 1998 Stock Plan for
the purchase of up to 100,000 shares of our common stock. We subsequently
granted to Mr. Robinson an option to purchase an additional 100,000 shares of
our common stock. Mr. Robinson's exercise of his options is subject to our right
to repurchase his shares at the exercise price, which right lapses as the shares
vest. Mr. Robinson's shares vest 1/4 after one year of the date of grant, then
subsequently at a rate of 1/48 of the original grant per month. Mr. Robinson
exercised his options for all 200,000 shares on June 18, October 22 and December
9, 1999 at an average price per share of $0.925. We had previously granted to
Mr. Robinson an option to purchase 20,000 shares of our common stock for his
performance of consulting work before he was our employee. Mr. Robinson
exercised his option to purchase these shares on June 23, 1999 at a price of
$0.175 per share. All 20,000 of these shares were fully vested on the grant
date. We also paid Mr. Robinson $40,000 for moving expenses.
INCENTIVE BONUS PROGRAM
We have established an Incentive Bonus Program to begin in 2000 in order
to reward our employees for their contributions. We will distribute bonuses
quarterly, in January, April, July and October. Executive Officers, including
Ms. Hart, all executive vice presidents, senior vice presidents, vice presidents
and all director-level managers are eligible for a yearly accumulated bonus of
up to 50% of annual salary. For these employees, we will award incentive bonuses
based 70% upon our performance as a company and 30% upon the accomplishment of
predetermined, specific individual objectives.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
Our amended and restated certificate of incorporation to be filed prior to
completion of this offering limits the liability of our directors to the maximum
extent permitted by Delaware law. Delaware law
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provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability associated with any of the following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemption; or
- any transaction from which the director derived an improper personal
benefit.
The limitation of our director's liability does not apply to liabilities
arising under the federal securities laws and does not affect the availability
of equitable remedies such as injunctive relief or rescission.
Our amended and restated certificate of incorporation and bylaws also
provide that we shall indemnify our directors and executive officers and may
indemnify our other officers and employees and other agents to the fullest
extent permitted by law. We believe that indemnification under our bylaws covers
at least negligence and gross negligence on the part of indemnified parties. Our
bylaws also permit us to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether our bylaws would permit indemnification.
We have entered into indemnification agreements with each of our officers
and directors containing provisions that require us to, among other things,
indemnify such officers and directors against liabilities that may arise by
reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to cover our directors and officers under any of
our liability insurance policies applicable to our directors and officers. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
STOCK PLANS
2000 Equity Incentive Plan
Our 2000 Equity Incentive Plan was adopted by our Board of Directors in
January 2000 as an amendment and restatement of our 1998 Stock Option Plan,
originally approved by the Board in January 1998 and our stockholders in
February 1998. We anticipate stockholder approval of the 2000 Equity Incentive
Plan in January 2000. A total of 24,000,000 shares of our common stock are
authorized and reserved for issuance under the 2000 Equity Incentive Plan,
including 13,950,000 shares that were authorized and reserved under our 1998
Stock Option Plan prior to its restatement. As of December 31, 1999, options to
purchase 1,960,942 shares of common stock were outstanding under the 1998 Stock
Option Plan, 10,514,198 shares had been issued upon exercise of options, net of
repurchases, and 1,352,360 shares were available for future grant. The
cumulative number of shares authorized for issuance under the 2000 Equity
Incentive Plan will be increased automatically on January 1, 2001 and each
January 1 thereafter during the term of the plan by an amount equal to the
lesser of (a) 5% of the outstanding shares of our common stock on the
immediately preceding December 31 or (b) a lesser amount determined by our Board
of Directors. However, the portion of each such annual increase that may be
issued upon the exercise of incentive stock options may not exceed 5,000,000
shares. Appropriate adjustments will be made to the foregoing limits and to
awards outstanding under the plan in the event of any change in our capital
structure. If any award granted under the 2000 Equity Incentive Plan expires or
terminates or if we repurchase any shares issued pursuant to an award, the
shares subject to the terminated portion and any repurchased shares will again
become available for issuance under the plan.
The 2000 Equity Incentive Plan is administered by our Board of Directors
or by a committee of the Board, who determine, consistent with the provisions of
the plan, the persons to whom awards are granted and all of the terms and
conditions of awards. The administrator has the authority to construe and
interpret the terms of the plan and awards granted under it and to amend or
terminate the plan, subject to
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stockholder approval of any amendment increasing the maximum number of shares
issuable under the plan or as otherwise required by law. Generally, no amendment
or termination may adversely affect any outstanding award without the consent of
the affected participant. Unless terminated sooner by the Board of Directors,
the 2000 Equity Incentive Plan will terminate automatically in 2010 on the tenth
anniversary of its adoption by the Board.
The 2000 Equity Incentive Plan authorizes the administrator to grant
awards in the form of incentive stock options, within the meaning of Section 422
of the United States tax code, nonstatutory stock options, restricted stock
purchase rights and bonuses, performance shares and performance units. While
incentive stock options may be granted only to employees, including officers and
employee directors, all other awards may be granted to employees, consultants
and non-employee directors.
The exercise price per share of incentive stock options granted under the
2000 Equity Incentive Plan must be at least equal to the fair market value of a
share of our common stock on the date of grant, while the exercise price per
share of nonstatutory stock options must be at least 85% of such fair market
value. However, the exercise price per share of an incentive stock option
granted to any participant who owns stock possessing more than 10% of the voting
power of all classes of our outstanding capital stock or that of any subsidiary
corporation must equal at least 110% of the fair market value of a share of our
common stock on the grant date, and the term of such incentive stock option must
not exceed five years. The terms of all other options granted under the 2000
Equity Incentive Plan may not exceed ten years. The aggregate fair market value
(determined as of the date of grant) of our common stock for which incentive
stock options may become exercisable for the first time by any optionee may not
exceed $100,000 in any calendar year. The administrator has the discretion to
determine the vesting provisions and exercise requirements, if any, of all
options granted under the plan. Unless longer periods are authorized by the
administrator, options granted under the 2000 Equity Incentive Plan generally
must be exercised, if at all, within six months after an optionee's termination
of service due to death or disability and otherwise within 30 days after an
optionee's termination of service, but in no event later than the expiration of
the option's term. Options granted under the plan generally are not transferable
by an optionee other than by will or the laws of descent and distribution,
except that, with the consent of the administrator, an optionee may transfer a
nonstatutory stock option to certain family members or entities established for
their benefit.
Awards of restricted stock may be made under the 2000 Equity Incentive
Plan either in the form of a restricted stock purchase right or a restricted
stock bonus. Restricted stock purchase rights are exercisable at prices
determined by the administrator, while restricted stock bonuses are granted in
consideration of services rendered to us. Awards of restricted stock may be made
subject to vesting restrictions and other conditions as established by the
administrator and are not transferable by the participant until vested. Vesting
may be based on the participant's continued service with us or the attainment of
one or more performance goals established by the administrator, similar to those
described below in connection with performance shares and units. While the
participant will have voting rights and the right to receive dividends or other
distributions paid with respect to the restricted stock, any dividends or
distributions paid in stock are subject to the same vesting restrictions as the
original award. Unless otherwise provided by the administrator, if a
participant's service with us terminates for any reason, the participant will
forfeit any then unvested shares acquired as a restricted stock bonus, and we
will have the option to repurchase for the amount of the participant's original
purchase price any then unvested shares acquired by exercise of a restricted
stock purchase right.
The administrator may grant performance shares and performance units under
the 2000 Equity Incentive Plan that are subject to the attainment of such
performance goals measured over such periods as the administrator determines. A
performance share is an unfunded bookkeeping entry generally having an initial
value equal to the fair market value of one share of our common stock, while a
performance unit is an unfunded bookkeeping entry generally having an initial
value of $100. The final value of an award of performance shares or units is
determined by the administrator at the end of the specified performance period
on the basis of the extent to which one or more predetermined performance goals
have been attained. In granting a performance share or unit award, the
administrator establishes the performance goals applicable to the award based on
certain measures of business performance specified in the 2000
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Equity Incentive Plan, such as revenue, operating income, gross margin, cash
flow or numbers of customers. To the extent earned, performance share and unit
awards may be settled in cash, shares of our common stock (including restricted
stock) or any combination of these. Payments may be made in lump sum or on a
deferred basis. If payments are to be made on a deferred basis, the
administrator may provide for the payment of dividend equivalents or interest
during the deferral period. Unless otherwise determined by the administrator, if
a participant's service terminates due to death or disability prior to
completion of the applicable performance period, the final award value is
determined at the end of the period on the basis of the performance goals
attained during the entire period, but payment is prorated for the portion of
the period during which the participant remained in service. Except as otherwise
provided by the plan, if a participant's service terminates for any other
reason, the participant's performance shares or units are forfeited. Prior to
their payment, performance share and unit awards are not transferable by a
participant other than by will or the laws of descent and distribution.
In the event of our merger with another corporation or another change in
control event, the surviving corporation may assume outstanding awards or
substitute new awards of equivalent value. The 2000 Equity Incentive Plan
authorizes the administrator to grant stock options providing for the
acceleration of vesting and exercisability to such extent and upon such terms as
the administrator determines if the surviving corporation refuses to assume or
substitute for the options or if, within a specified period of time following
the change in control, the optionee is terminated without cause or resigns for
good reason, as defined in the award. Any stock options not assumed by the
surviving corporation or exercised prior to a change in control will terminate
upon the change in control. The plan further authorizes the administrator to
provide in any restricted stock award for acceleration of vesting in connection
with a change in control to such extent and upon as terms as the administrator
determines. In addition, the administrator may provide in any performance share
or unit award that in the event of a change in control, the award will become
payable in full.
2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan was adopted by our Board of
Directors in January 2000, and we anticipate stockholder approval in January
2000. A total of 2,500,000 shares of our common stock are authorized and
reserved for issuance under the plan, cumulatively increased on January 1, 2001
and each January 1 thereafter through January 1, 2010 by an amount equal to the
lesser of (a) 1% of the outstanding shares of our common stock on the
immediately preceding December 31, (b) 1,000,000 shares, or (c) a lesser amount
determined by our Board of Directors. Appropriate adjustments will be made to
these limits and to purchase rights outstanding under the plan in the event of
any change in our capital structure. If any purchase right granted under the
2000 Employee Stock Purchase Plan expires or terminates, the shares subject to
the unexercised portion will again become available for issuance under the plan.
The 2000 Employee Stock Purchase Plan is intended to qualify under Section
423 of the United States tax code. It will be administered by our Board of
Directors or by a committee of the Board, who have the authority to interpret
and apply its provisions. The plan will generally be implemented through
consecutive six-month offering periods, although offering periods of up to 27
months are permitted. Offering periods generally start on the first trading day
on or after May 1 and December 1 of each year, except that the first offering
period will commence on the effective date of this offering and end on or about
November 30, 2000.
Employees, including officers and employee directors, are eligible to
participate in the 2000 Employee Stock Purchase Plan if they are customarily
employed by us or any participating subsidiary for more than 20 hours per week
and more than five months in any calendar year. However, any employee who
immediately after receiving the grant of a purchase right would own or hold
options to purchase stock possessing 5% or more of the total combined voting
power or value of all classes of our capital stock may not be granted a purchase
right under the plan. Furthermore, no employee may accrue rights to purchase
shares under the plan at a rate that exceeds $25,000 worth of stock, measured at
the beginning of the offering period, for each calendar year in which the
purchase right is outstanding at any time. Purchase
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rights granted under the 2000 Employee Stock Purchase Plan are not transferable
by a participant other than by will or the laws of descent and distribution.
The plan permits participants to purchase common stock through payroll
deductions of up to 20% of the participant's base salary and commissions. Such
amounts are applied to the purchase from us of shares of our common stock at the
end of each offering period at a price which is generally 85% of the lower of
the fair market value of the common stock on either the first or last day of the
offering period. The maximum number of shares a participant may purchase in any
six-month offering period is the lesser of 1,000 shares or a number of shares
determined by dividing $12,500 by the fair market value of a share of our common
stock at the beginning of the offering period. Participants may voluntarily end
their participation at any time during an offering period, and participation
ends automatically upon termination of employment with us.
The plan provides that, in the event of our merger with another
corporation or another change in control event, each outstanding purchase right
may be assumed by the surviving corporation. If the surviving corporation
refuses to assume the outstanding purchase rights, the offering period then in
progress will be shortened and a new purchase date will be set prior to the
change in control. The 2000 Employee Stock Purchase Plan will terminate when all
of the authorized shares have been issued, unless terminated earlier by our
Board of Directors. The Board of Directors has the authority to amend or
terminate the plan, subject to stockholder approval of any amendment increasing
the maximum number of shares issuable under the plan or as otherwise required by
law. Generally, no amendment or termination of the plan may adversely affect any
outstanding purchase right without the consent of the affected participant.
2000 Outside Directors Stock Plan
Our 2000 Outside Directors Stock Plan was adopted by our Board of
Directors in January 2000, and we anticipate stockholder approval in January
2000. The purpose of the plan is to attract and retain the best available
non-employee directors, to provide them additional incentives and, therefore, to
promote the success of our business. A total of 400,000 shares of our common
stock are authorized and reserved for issuance under the plan, cumulatively
increased on January 1, 2001 and each January 1 thereafter by an amount equal to
the lesser of (a) 0.20% of the outstanding shares of our common stock on the
immediately preceding December 31, (b) 150,000 shares, or (c) a lesser amount
determined by our Board of Directors. Appropriate adjustments will be made to
these limits, to the award formulas described below and to awards outstanding
under the plan in the event of any change in our capital structure. If any award
granted under the 2000 Outside Directors Stock Plan expires or terminates, or if
we repurchase any shares issued pursuant to an award, the shares subject to the
terminated portion and any repurchased shares will again become available for
issuance under the plan. No awards will be made under the 2000 Outside Directors
Stock Plan prior to the effective date of this offering.
The 2000 Outside Directors Stock Plan establishes an initial, automatic
grant of an option to purchase 40,000 shares of our common stock to each
non-employee director who is first elected to our Board of Directors after the
effective date of this offering. The plan also provides that upon the date of
each annual stockholders' meeting, each non-employee director who has been a
member of our Board of Directors for at least six months (including our current
non-employee directors) will receive an automatic grant of an option to purchase
10,000 shares of our common stock. Each initial and annual option will have an
exercise price per share equal to the fair market value of a share of our common
stock on the date of grant and will have a term of ten years. Initial options
granted to newly elected non-employee directors will vest and become exercisable
in four equal annual installments, while annual options granted to continuing
non-employee directors will vest and become exercisable in full on the day
immediately preceding the date of the first annual stockholders' meeting
following the date of grant. All options granted under the 2000 Outside
Directors Stock Plan will be nonstatutory stock options. They must be exercised,
if at all, within 12 months after a non-employee director's termination service
with us by reason of death or disability and otherwise within six months after
termination of service, but in no event later than the expiration of the
option's term.
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In addition to the foregoing automatic stock option grants, the 2000
Outside Directors Stock Plan permits each non-employee director to elect to
receive additional equity awards in lieu of from 25% to 100% of the cash
compensation otherwise payable to the director for service on our Board of
Directors, beginning with the first full calendar quarter commencing after the
effective date of this offering. Non-employee directors' elections generally
must be made prior to the beginning of each calendar year, with exceptions for
initial elections by newly-elected non-employee directors and the commencement
of the plan. These additional equity awards may take the form of either a stock
option or a grant of stock units, as determined by the non-employee director's
prior election. The awards are granted automatically on the last day of each
calendar quarter in lieu of payment of that portion of a non-employee director's
cash compensation earned during the quarter and previously designated by the
director's election.
Stock options granted in lieu of a non-employee director's quarterly cash
compensation will be for a number of shares determined by dividing the amount of
such compensation by 50% of the fair market value of a share of our common stock
on the date of grant and will have an exercise price equal to 50% of such fair
market value. These options will have a term of ten years and will be
immediately vested and exercisable in full.
Each stock unit granted in lieu of a non-employee director's quarterly
cash compensation will represent the right to receive, without further payment,
one share of our common stock within 30 days following the earlier of a date
specified in the director's advance election or the director's termination of
service with us. The number of stock units subject to an award will be
determined by dividing the amount of the non-employee director's quarterly cash
compensation in lieu of which the stock units are awarded by the fair market
value of a share of our common stock on the date of grant. These stock units
will be fully vested upon grant. If we pay a cash dividend on our common stock,
a director who has previously received stock units will receive dividend
equivalents in the form of additional whole and fractional stock units. The
number of such additional stock units will be determined by dividing the amount
of the cash dividend that would be paid on the number of shares of common stock
represented by the director's stock units by the fair market value of a share of
our common stock on the dividend payment date. Upon settlement, the fair market
value of any fractional stock unit will be paid in cash.
Stock options and stock units granted under the 2000 Outside Directors
Stock Plan generally are not transferable by a director other than by will or
the laws of descent and distribution, except that, with the consent of our Board
of Directors, a director may transfer stock options to certain family members or
entities established for their benefit. In the event of our merger with another
corporation or another change in control event, each outstanding initial and
annual option will become fully vested and exercisable. The plan provides that
the surviving corporation may assume outstanding awards or substitute new awards
of equivalent value. However, if the acquiring corporation refuses to assume or
substitute for outstanding awards, then outstanding stock units will be settled
in shares of our common stock immediately prior to the change in control and
outstanding options will terminate upon the change in control to the extent not
previously exercised.
The 2000 Outside Directors Stock Plan will be administered by our Board of
Directors or by a committee of the Board in a manner intended to permit
non-employee director awards to be exempt from Section 16(b) of the Securities
Exchange Act of 1934 in accordance with Rule 16b-3 thereunder. The administrator
will approve forms of award agreements for use under the plan, determine the
terms and conditions of awards consistent with the requirements of the plan, and
construe and interpret the terms of the plan and awards granted under it.
Unless terminated sooner by our Board of Directors, the 2000 Outside
Directors Stock Plan terminates automatically when all shares available for
issuance under the plan have been issued. Our Board of Directors has the
authority to amend or terminate the plan, subject to stockholder approval of any
amendment increasing the maximum number of shares issuable under the plan or as
otherwise required by law. Generally, no amendment or termination may adversely
affect any outstanding award without the consent of the affected director.
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Consultants Stock Option Plan
Our Consultants Stock Option Plan was adopted by our Board of Directors in
January 1998 and approved by stockholders in February 1998. A total of 220,000
shares of our common stock are authorized and reserved for issuance under the
plan. Appropriate adjustments will be made to the share reserve and to options
outstanding under the plan in the event of any change in our capital structure.
If any option granted under the Consultants Stock Option Plan expires or
terminates, or if we repurchase any shares issued upon exercise of an option,
the shares subject to the terminated portion and any repurchased shares will
again become available for issuance under the plan. As of December 31, 1999,
options to purchase 100,972 shares of common stock were outstanding under the
Consultants Stock Option Plan, 20,000 shares had been issued upon exercise of
options, net of repurchases, and 119,028 shares were available for future grant.
The Consultants Stock Option Plan is administered by our Board of
Directors or by a committee of the Board, who determine, consistent with the
provisions of the plan, the persons to whom awards are granted and all of the
terms and conditions of such awards. The administrator has the authority to
construe and interpret the terms of the plan and awards granted under it and to
amend or terminate the plan, subject to stockholder approval of any amendment
for which such approval is required by law. Generally, no amendment or
termination may adversely affect any outstanding option without the consent of
the optionee. Unless terminated sooner by the Board of Directors, the
Consultants Stock Option Plan will terminate automatically in 2008 on the tenth
anniversary of its adoption by the Board.
The Consultants Stock Option Plan authorizes the grant of nonstatutory
stock options to persons engaged by us as independent contractors and not as
employees. The exercise price of any option and its vesting and exercise terms
are established in the sole discretion of the administrator. Unless otherwise
determined by the administrator, an option granted under the plan will have a
term of ten years. Subject to earlier termination as provided by the plan or as
otherwise provided by the administrator, options granted under the Consultants
Stock Option Plan generally must be exercised, if at all, within one month
following an optionee's termination of service with us. Options granted under
the plan are not assignable or transferable by the optionee.
In the event of our merger with another corporation or another change in
control event, the surviving corporation may assume options outstanding under
the Consultants Stock Option Plan or substitute new options of equivalent value.
However, if the acquiring corporation refuses to assume or substitute for the
outstanding options, then the outstanding options will terminate upon the change
in control to the extent not previously exercised.
401(k) Plan
We have established an employee savings and retirement plan commonly known
as a 401(k) plan. The 401(k) plan provides that each participant may contribute
between 1% and 20% of her or his pre-tax gross compensation (up to a statutorily
prescribed annual limit of $10,500 in 2000). The 401(k) plan is intended to
qualify under Section 401(k) of the United States tax code, so that
contributions to the 401(k) plan by employees or by us and the investment
earnings on those contributions are not taxable to the employees until
withdrawn. Employees are eligible to participate on the first day of the first
month following commencement as an employee. All amounts contributed by employee
participants and earnings on these contributions are fully vested at all times.
Employee participants may elect to invest their contributions in various
established funds. While we have the option of matching our employee's
contributions with a discretionary employer contribution, we currently do not do
so. If our 401(k) plan qualifies under Section 401(k) of the United States tax
code, any contributions we make will be deductible by us.
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<PAGE> 70
RELATED PARTY TRANSACTIONS
Other than compensation agreements and other arrangements, which are
described in the section entitled "Employment Agreements" under the heading
"Management," and the transactions described below, since we were formed, there
has not been nor is there currently proposed, any transaction or series of
similar transactions to which we were or will be a party:
- in which the amount involved exceeded or will exceed $60,000; and
- in which any director, executive officer, holder of more than 5% or our
common stock on an as-converted basis or any member of their immediate
family had or will have a direct or indirect material interest.
We believe that each of the transactions described below were on terms no
less favorable than could have been obtained from unaffiliated third parties.
All future transactions between us and any director or executive officer will be
subject to approval by a majority of the disinterested members of our Board of
Directors.
PREFERRED STOCK SALES TO DIRECTORS, OFFICERS AND 5% STOCKHOLDERS
On July 8, 1998, we sold an aggregate of 13,150,000 shares of our series A
preferred stock at a purchase price of $0.50 per share. On February 16 and March
26, 1999, we sold an aggregate of 13,181,818 shares of our series B preferred
stock at a purchase price of $1.10 per share. On December 13, 1999 we sold an
aggregate of 24,332,061 shares of our series C preferred stock at a purchase
price of $5.24 per share. The following officers, directors and 5% stockholders
purchased shares in these financings:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
PURCHASER SERIES A STOCK SERIES B STOCK SERIES C STOCK
- --------- -------------- -------------- --------------
<S> <C> <C> <C>
NBC and General Electric Entities:
National Broadcasting Company, Inc................. -- -- 6,679,389
NBC Internet, Inc................................ -- -- 5,343,511
GE Capital Equity Investments, Inc............... -- -- 1,049,618
ValueVision International, Inc................... -- -- 381,679
August Capital, L.P. Entities:
August Capital, L.P.............................. 6,539,100 3,229,838 618,321
August Capital Strategic Partners, L.P........... 227,200 112,220 --
August Capital Associates, L.P................... 333,700 164,824 --
August Capital II, L.P........................... -- -- 1,908,397
Bessemer Venture Partners Entities:
Bessemer Venture Partners IV L.P................. 2,633,900 1,172,716 870,229
Bessec Ventures IV L.P........................... 1,686,100 746,272 580,153
Bessemer Venture Investors L.P................... 480,000 213,220 --
Mohr, Davidow Ventures Entities:
Mohr, Davidow Ventures V, L.P.................... -- 4,227,274 354,961
Mohr, Davidow Ventures V, L.P. (1)............... -- 318,182 26,718
Mohr, Davidow Ventures V-L, L.P.................. -- -- 1,717,558
Michael Solomon.................................. 410,000 139,662 --
Patti Hart......................................... -- -- 381,679
Peter Olson........................................ 320,000 -- 588,022
Kevin Grundy....................................... 70,000 -- 1,908
</TABLE>
- ---------------
(1) Includes those shares held by Mohr, Davidow Ventures V, L.P. as nominee for
MDV Entrepreneurs' Network Fund II (A), L.P. and MDV Entrepreneurs' Network
Fund II (B), L.P.
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<PAGE> 71
National Broadcasting Company, Inc., NBC Internet, Inc., GE Capital Equity
Investments, Inc. and ValueVision International, Inc. are affiliated entities
and are together considered a 5% stockholder. Mr. Sanctis, one of our directors,
is President and Chief Operating Officer of NBC Internet, Inc.
August Capital, L.P., August Capital Strategic Partners, L.P. and August
Capital Associates, L.P. are affiliated entities and are together considered a
5% stockholder. Mr. Rappaport, one of our directors, is a member of August
Capital Management and has shared voting and investment power over these
entities.
Bessemer Venture Partners IV L.P., Bessec Ventures IV L.P., Bessemer
Venture Investors L.P., Besstel LLC and Bessemer Capital are all affiliated
entities and are together considered a 5% stockholder. Mr. Cowan, one of our
directors, is the Managing General Partner of Bessemer Venture Partners.
Mohr, Davidow Ventures V, L.P., MDV Entrepreneurs' Network Fund II (A),
L.P., MDV Entrepreneurs' Network Fund II (B), L.P., and Mr. Solomon are
affiliated entities and are together considered a 5% stockholder. Mr. Solomon,
one of our directors and our former CEO and President, is a member of Fifth MDV
Partners, the General Partner of Mohr, Davidow Ventures V, L.P. Mr. Strahan, one
of our directors, is a Venture Partner at Mohr, Davidow.
STRATEGIC RELATIONSHIP WITH NBCI
In December 1999, we entered into a number of strategic agreements with
NBCi and its affiliates. These agreements include:
- an Operating Agreement;
- two Advertising Agreements;
- a Series C Preferred Stock Purchase Agreement; and
- an Investor Rights Agreement.
The Operating Agreement with NBCi, provides for the co-development of
co-branded services and applications, portal interface design, portal content
offerings and associated software and utilities, as well as the co-development
of other interfaces to deliver services and applications to other devices
throughout the home. The Operating Agreement further provides that during the
term of the agreement NBCi will be our exclusive provider of Internet content in
the areas of utility, communications, media and entertainment. If NBCi does not
provide content within these categories that we desire to offer and does not
provide the desired content after we request it, we may obtain this content from
a third party unless that party is a competitor of NBCi or that party is the
sole provider of the desired content. The Operating Agreement also provides that
we must negotiate with GE Americom for a period of 30 days before we negotiate
with any other satellite connectivity provider. The term of the Operating
Agreement is 15 years; however, either party may terminate the agreement for an
uncured material breach and NBCi may terminate the Operating Agreement if we
become insolvent, if we fail to obtain sufficient financing to support our
expansion plans by June 2001 or if an NBCi competitor listed in the agreement
acquires more than a 33% interest in us.
At the general commercial launch of the co-developed Telocity/NBCi
interface, NBCi will receive 10% of the gross revenues generated from
subscription fees, less costs of goods sold, to subscribers from value-added
services and applications for which NBCi does not offer a similar service or
application. In addition, we have agreed to pay NBCi 40% of the revenues
generated from value-added services and applications for which the other party
offers a similar service or application. Finally, the Operating Agreement
provides that we will pay NBCi 40% of the revenues generated from the placement
of content provided by third parties and NBCi will pay us 40% of net revenues
received by any NBCi entity from advertising to our customers, as well as from
e-commerce, subscription and pay-per-view media, including revenues derived from
direct marketing e-mail solicitations to our customers and advertising placed on
the co-branded version of the Snap.com portal.
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<PAGE> 72
The Operating Agreement also provides that between December 1999 and
December 2002 NBCi will provide us with online advertising of our services
valued at $5 million. The Advertising Agreements provide that between January
2000 and January 2003 NBC and NBCi will provide us with promotional time on the
NBC television network valued at $28 million of which $13 million must be used
to air co-branded advertising spots. Additionally, NBCi has agreed that until
December 2002, when advertising broadband services, it will not use television
within its control to promote broadband services provided by any of the
competitors we identified to NBCi. NBCi has the right to terminate this
promotional exclusivity if we fail to launch our service in at least 16 markets
by the end of 2000 and 26 markets by the end of 2001, if Patti Hart leaves
Telocity or if we fail to obtain sufficient financing to support our expansion
plans by June 2001. In addition, if either the promotional exclusivity or the
Operating Agreement is terminated, NBCi may terminate its Advertising Agreement
with us and provide us with cash for the unused portion of advertising or
provide us with advertising credit for spots that do not have to be co-branded.
In connection with the Operating Agreement, we issued NBCi a warrant to
purchase 1,039,122 shares of our common stock and NBC a warrant to purchase
850,191 shares of our Series C Preferred Stock. These warrants terminate in
December 2004 and have an exercise price of $5.24 per share. In addition, in
connection with this transaction we entered into a Stock Purchase Agreement
pursuant to which we issued to GE Capital, NBC, NBCi and ValueVision, an
affiliate of NBCi, a total of 13,454,198 shares of our Series C Preferred Stock
in exchange for a cash payment of $37.5 million and $33 million in advertising
credit provided through the Operating Agreement and the Advertising Agreements.
In connection with the sale of our stock we entered into an Amended and
Restated Investor Rights Agreement that provides for registration rights for all
of our preferred stockholders, including NBCi and its affiliates. The Investor
Rights Agreement also provides that for a period of two years following the
closing of this offering our founders and preferred stockholders agree to vote
their shares to elect a designee of NBC to the Board of Directors, so long as
NBC holds at least two-thirds of the shares which it initially purchased, and a
designee of NBCi to the Board of Directors. In addition, so long as NBC or NBCi
and their affiliates collectively own at least 2,500,000 shares of our Common
Stock and neither party has terminated the Operating Agreement, we have agreed
to negotiate exclusively with such party for a period of 30 days for the
purchase of Telocity if we decide to sell our company or we receive a third
party offer to buy a 20% or greater interest in our company.
LOANS TO OFFICERS AND DIRECTORS
The following officers and directors have executed Recourse Promissory
Note and Pledge Agreements in order to finance the exercise of their stock
options. As collateral, the holder of the shares of stock purchased through each
Note pledges the stock to us. Each Note represents a debt to us that the holder
must repay, with interest, and the interest accrues and shall be payable to us
on the anniversary date of the Note. Except for Ms. Hart and Mr. Morrissey, each
holder must repay us by the earliest of (a) the maturity date of the Note, (b)
the termination of the holder's employment with us, (c) a default in the payment
of any installment of principal or interest when due, (d) a sale of the stock
pledged as collateral or (e) any other such acceleration reasonably necessary
for us to comply with any regulations promulgated by the Board of Governors of
the Federal Reserve System affecting the extension of credit in connection with
our securities.
The terms of the Notes with Ms. Hart and Mr. Morrissey provide that they
must repay us by the earliest of (a) the maturity date of the Note, (b) the date
of termination of their employment with us for any reason or (c) the date
occurring 12 months after they are first eligible to sell shares of our stock
following an initial public offering, provided, however, that should they be
terminated without cause, as
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<PAGE> 73
that term is defined in their Notes, they would not be required to repay upon
their termination, but instead upon the earlier occurrence of conditions (a) or
(c).
<TABLE>
<CAPTION>
PLEDGED STOCK MATURITY DATE
NOTE HOLDER DATE OF NOTE AMOUNT INTEREST RATE AS COLLATERAL OF NOTE
- ----------- ------------------ ------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Patti Hart............. June 22, 1999 $1,029,196.00 5.22% 2,940,560 May 5, 2004
June 22, 1999 99,999.90 5.22 285,714 May 5, 2004
Edward Hayes........... January 5, 2000 1,010,001.00 5.82 336,667 January 5, 2005
January 5, 2000 99,999.00 5.82 33,333 January 5, 2005
Jim Morrissey.......... September 21, 1999 500,001.00 5.82 666,668 October 1, 2004
September 21, 1999 99,999.00 5.82 133,332 October 1, 2004
Scott Martin........... December 16, 1999 635,001.00 5.82 211,667 December 16, 2004
December 16, 1999 99,999.00 5.82 33,333 December 16, 2004
Regina Wiedemann....... October 26, 1999 360,000.00 5.82 240,000 October 26, 2004
James Rohrer........... September 20, 1999 75,000.00 5.82 100,000 September 20, 2004
December 2, 1999 150,000.00 5.82 100,000 December 2, 2004
Andrew Robinson........ June 18, 1999 35,000.00 4.51 100,000 June 18, 2004
June 23, 1999 3,500.00 4.51 20,000 June 23, 2004
October 22, 1999 30,000.00 5.82 20,000 October 22, 2004
December 9, 1999 120,000.00 5.82 80,000 December 9, 2004
</TABLE>
In addition, pursuant to our employment agreement with Mr. Morrissey, we
make a monthly home allowance of $20,000 to him for a period of 24 months
beginning October 1, 1999. Also pursuant to his employment agreement, on
December 6, 1999 and January 5, 2000, we loaned him $900,000 and $1,100,000,
respectively, at the AFR, the applicable federal interest rate determined by the
United States Internal Revenue Service. The terms of these loans, including
forgiveness and repayment, are described above in "Management -- Change of
Control and Employment Agreements."
INVESTOR RIGHTS AGREEMENT
We have entered into an agreement with the preferred stockholders
described above pursuant to which these and other preferred stockholders will
have registration rights with respect to their shares of common stock following
this offering. For a description of these registration rights, see "Description
of Capital Stock." Upon the completion of this offering, all shares of our
outstanding preferred stock will be automatically converted into an equal number
of shares of common stock.
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<PAGE> 74
STOCK OPTION GRANTS TO CERTAIN OFFICERS AND DIRECTORS
During 1999, we granted the following options to purchase our common stock
to our officers, directors and stockholders who beneficially own 5% or more of
our common stock. These options were granted under the 1998 Stock Plan, which is
more fully described in the section entitled "Management -- Stock Plans."
<TABLE>
<CAPTION>
EXERCISE PRICE
NAME DATE OF GRANT OPTIONS PER SHARE
- ---- ------------------ ---------- --------------
<S> <C> <C> <C>
Patti Hart................................ April 30, 1999 3,226,274 $0.350
Peter Olson............................... June 25, 1999 7,714 0.575
Edward Hayes.............................. December 15, 1999 370,000 3.000
Jim Morrissey............................. September 10, 1999 800,000 0.750
James Rohrer.............................. August 26, 1999 100,000 0.750
November 15, 1999 100,000 1.500
Scott Martin.............................. December 15, 1999 245,000 3.000
Thomas Obenhuber.......................... June 25, 1999 5,142 0.575
Regina Wiedemann.......................... September 28, 1999 240,000 1.500
Jef Raskin................................ November 15, 1999 120,000 1.500
Andrew Robinson........................... March 12, 1999 20,000 0.175
April 30, 1999 100,000 0.350
September 28, 1999 20,000 1.500
November 15, 1999 80,000 1.500
Randall Strahan........................... January 20, 1999 200,000 0.050
</TABLE>
FOUNDER STOCK PURCHASE AND REPURCHASE AGREEMENTS
On December 23, 1997, we entered into Founder Stock Purchase Agreements
with Messrs. Olson, Solomon, Obenhuber and Stepovich. In these agreements, the
founders agreed to purchase shares of our common stock at a price of $0.0005 per
share, as set forth in the table below. Each founder's purchase of his shares is
subject to our right to repurchase his shares at the exercise price, which right
lapses as the shares vest. 11/32 of each of the founder's shares vested
immediately and the remaining vest subsequently at a rate of 1/42 per month of
the remaining total so long as the founder is continuously employed by us. Our
option to repurchase the unvested options may terminate upon a transfer of
control, as defined and set forth in the agreements. The agreements give us a
right of first refusal before a founder may transfer or sell any of his shares.
The agreements also provide each founder piggyback registration rights as set
forth in the agreements.
In order to reallocate our founders' stock, we entered into agreements to
repurchase, then redistribute certain founders' shares. On June 1, 1998, we
entered into Founder Stock Repurchase Agreements with Mr. Olson and Mr. Solomon
to repurchase 2,662,000 shares of our common stock from Mr. Olson at a price of
$0.0005 per share and 154,000 shares of our common stock from Mr. Solomon at a
price of $0.0005 per share. The table below sets forth the adjusted grants to
Mr. Olson and Mr. Solomon, which gives effect to our repurchase of some of their
shares. On June 10, 1998, we entered into supplemental Founder Stock Purchase
Agreements with Messrs. Obenhuber, Grundy and Stepovich, whereby each was
granted shares of our common stock. In these agreements, Messrs. Obenhuber,
Grundy and Stepovich agreed to purchase shares of our common stock at a price of
$0.005 per share, as also set forth in the table below. Each founder's purchase
of his shares is subject to our right to repurchase his shares at the exercise
price, which right lapses as the shares vest. 7/48 of each of the supplemental
founders' shares vested immediately and the remaining subsequently at a rate of
1/42 per month of the remaining total so long as the founder is continuously
employed by us. Our option to repurchase the unvested options may terminate upon
a transfer of control, as defined and set forth in the supplemental agreements.
The supplemental agreements give us a right of first refusal before a founder
may transfer or
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<PAGE> 75
sell any of his shares. The supplemental agreements also provide each founder
piggyback registration rights as set forth in the agreements.
<TABLE>
<CAPTION>
REMAINING
MONTHLY
TOTAL SHARES AND PRICE INITIAL SHARE VESTING SHARE VESTING
------------------------ --------------------------------- -----------------
INITIAL PORTION NUMBER PORTION NUMBER
TOTAL NUMBER PRICE PER VESTING VESTED VESTED VESTING VESTING
OF SHARES SHARE DATE INITIALLY INITIALLY MONTHLY MONTHLY
------------ --------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Solomon.......... 1,400,000 $0.0005 10/3/97 11/32 481,250 1/42 21,876
Peter Olson.............. 2,000,000 0.0005 10/3/97 11/32 687,500 1/42 31,250
Kevin Grundy............. 1,600,000 0.0050 12/3/97 7/48 233,328 1/42 33,328
Thomas Obenhuber......... 480,000 0.0005 12/3/97 1/8 60,000 1/42 10,000
1,120,000 0.0050 12/3/97 7/48 163,332 1/42 23,334
Matthew Stepovich........ 144,000 0.0005 12/3/97 1/8 18,000 1/42 3,000
356,000 0.0050 12/3/97 7/48 51,916 1/42 7,416
</TABLE>
ACQUISITION OF TECHNOLOGY AND INTELLECTUAL PROPERTY OF ASPEN INTERNET SYSTEMS,
INC.
On October 3, 1997, we entered into a Common Stock Purchase Agreement with
Aspen Internet Systems, Inc. in which we granted to Aspen the option to purchase
504,000 shares of our common stock at a price of $0.0005 per share in exchange
for the execution of a patent license agreement. In the first quarter of 1998 we
acquired assets constituting certain completed technology that has been
incorporated in our residential gateway in exchange for the following
consideration:
- promissory notes with an aggregate principal amount of $405,000 bearing
a 6.0% annual interest rate;
- an aggregate of 40,572 shares of our common stock;
- cash in the amount of $80,000; and
- options to purchase 280,000 shares of our common stock.
Mr. Grundy was a founder of Aspen and had served as its President and
Chief Executive Officer until our acquisition of Aspen. Mr. Grundy currently
holds the positions of President, Secretary and Chief Financial Officer of
Aspen. Mr. Olson and Mr. Solomon both had served on the board of directors of
Aspen until April 2, 1998, when Mr. Stepovich became its sole director.
BRIDGE LOANS
On November 15, 1999, in advance of the close of our Series C preferred
stock financing, we entered into convertible bridge loan transactions with Ms.
Hart and Mr. Olson. Each bridge loan was made at an annual interest rate of
12.0%, due within 60 days, required 5.0% warrant coverage and was to be
converted upon the close of our Series C preferred stock financing. Ms. Hart's
loan was for $2,000,000 and Mr. Olson's loan was for $3,000,000. When we closed
our Series C preferred stock financing on December 13, 1999, Ms. Hart's loan was
converted into 381,679 shares of Series C preferred stock and Mr. Olson's loan
was converted into 572,519 shares of Series C preferred stock. In connection
with the loans we paid $21,041 and $31,562 in interest to Ms. Hart and Mr.
Olson, respectively. In addition to the 5.0% warrant coverage, Ms. Hart and Mr.
Olson own warrants for 19,084 shares and 28,626 shares, respectively, for the
purchase of our preferred stock at an exercise price of $5.24 per share.
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<PAGE> 76
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of December 31, 1999 and as adjusted
to reflect the sale of common stock offered hereby by the following:
- each stockholder known by us to own beneficially more than 5% of our
common stock;
- each of our executive officers named in the compensation table in the
section entitled "Management;"
- each of our directors; and
- all directors and executive officers as a group.
The address for those individuals for which an address is not otherwise
indicated is 10355 North De Anza Boulevard, Cupertino, California 95014.
<TABLE>
<CAPTION>
PERCENT OF SHARES
SHARES OUTSTANDING(1)
BENEFICIALLY --------------------
OWNED PRIOR PRIOR TO AFTER
NAME OR GROUP OF BENEFICIAL OWNERS TO OFFERING(1) OFFERING OFFERING
- ---------------------------------- -------------- -------- --------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
David Cowan(2).............................................. 9,050,088 12.8% %
Bessemer Ventures Partners
535 Middlefield Road, Suite 245
Menlo Park, California 94025
Patti Hart(3)............................................... 3,613,037 5.1
Peter Olson(4).............................................. 2,426,648 3.4
Andrew Rappaport(5)......................................... 15,026,102 21.2
August Capital
2480 Sand Hill Road, Suite 101
Menlo Park, California 94025
Edmond Sanctis(6)........................................... 15,343,510 21.1
NBC Internet, Inc.
225 Bush Street
San Francisco, California 94104
Michael Solomon(7).......................................... 8,538,355 12.1
Mohr, Davidow Ventures
2775 Sand Hill Road
Menlo Park, California 94025
Randall Strahan(8).......................................... 6,914,693 9.8
Mohr, Davidow Ventures
2775 Sand Hill Road
Menlo Park, California 94025
Kevin Grundy(9)............................................. 1,618,908 2.3
Jim Morrissey(10)........................................... 800,000 1.1
Thomas Obenhuber(11)........................................ 1,600,000 2.3
All directors and officers as a group (17 persons)(12)...... 60,737,832 82.8
</TABLE>
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<PAGE> 77
<TABLE>
<CAPTION>
PERCENT OF SHARES
SHARES OUTSTANDING(1)
BENEFICIALLY --------------------
OWNED PRIOR PRIOR TO AFTER
NAME OR GROUP OF BENEFICIAL OWNERS TO OFFERING(1) OFFERING OFFERING
- ---------------------------------- -------------- -------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS:
Entities affiliated with August Capital, L.P.(5)............ 15,026,102 21.2
2480 Sand Hill Road, Suite 101
Menlo Park, California 94025
Entities affiliated with NBC Internet, Inc.(6).............. 15,343,510 21.1
225 Bush Street
San Francisco, California 94104
Entities affiliated with Bessemer Venture Partners(2)....... 9,050,088 12.8
1400 Old Country Road, Suite 407
Westbury, New York 11590
Entities affiliated with Mohr, Davidow Ventures(13)......... 8,808,355 12.4
2775 Sand Hill Road
Menlo Park, California 94025
</TABLE>
- ---------------
(1) The number of shares beneficially owned and the percent of shares
outstanding are based on (a) 70,826,149 shares outstanding as of December
31, 1999 and (b) shares outstanding after completion of this offering,
assuming no exercise of the underwriters' over-allotment option. Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to securities.
All shares of common stock subject to options exercisable within 60 days
following December 31, 1999 are deemed to be outstanding and beneficially
owned by the person holding those options for the purpose of computing the
number of shares beneficially owned and the percent of ownership of that
person. They are not, however, deemed to be outstanding and beneficially
owned for the purpose of computing the percent ownership of any other
person. Except as indicated in the other footnotes to the table and subject
to applicable community property laws, based on information provided by the
persons named in the table, these persons have sole voting and investment
power with respect to all shares of the common stock shown as beneficially
owned by them.
(2) Includes 5,043,123 shares held by Bessemer Venture Partners IV L.P.,
3,246,997 shares held by Bessec Ventures IV L.P., and 759,968 shares held
by Bessemer Venture Investors L.P. Mr. Cowan disclaims beneficial ownership
of shares held by these entities except to the extent of his pecuniary
interest in these entities.
(3) Includes 2,822,990 shares subject to our right of repurchase as of December
31, 1999, which lapses over time.
(4) Includes 500,000 shares subject to our right of repurchase as of December
31, 1999, which lapses over time.
(5) Includes 12,130,253 shares held by August Capital, L.P., 399,980 shares
held by August Capital Strategic Partners, L.P., 587,472 shares held by
August Capital Associates, L.P. and 1,908,397 shares held by August Capital
II, L.P. Mr. Rappaport disclaims beneficial ownership of shares held by
these entities except to the extent of his pecuniary interest in these
entities.
(6) Includes 6,679,389 shares held by National Broadcasting Company, Inc.,
5,343,510 shares held by NBC Internet, Inc., 1,049,618 shares held by GE
Capital Equity Investments, Inc. and 381,679 shares held by ValueVision
International, Inc. Also includes warrants to purchase 850,191 shares held
by National Broadcasting Company, Inc. and warrants for 1,039,122 shares
held by NBC Internet, Inc., all of which are exercisable at $5.24 a share.
Mr. Sanctis disclaims beneficial ownership of shares held by these entities
except to the extent of his pecuniary interest in these entities.
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<PAGE> 78
(7) Includes 4,582,235 shares held by Mohr, Davidow Ventures V, L.P., 344,900
shares held by Mohr, Davidow Ventures V, L.P. as nominee for MDV
Entrepreneurs' Network Fund II (A), L.P. and MDV Entrepreneurs' Network
Fund II (B), L.P. and 1,717,558 shares held by Mohr, Davidow Ventures V-L,
L.P. Mr. Solomon is a member of Fifth MDV Partners, the General Partner of
Mohr, Davidow Ventures V, L.P. Mr. Solomon disclaims beneficial ownership
of shares held by these entities except to the extent of his pecuniary
interest therein. In addition to the 6,644,693 shares held by the entities
affiliated with Mohr, Davidow Ventures, Mr. Solomon personally also holds
1,893,662 shares, which includes 349,974 shares subject to our right of
repurchase as of December 31, 1999, which lapses over time so long as Mr.
Solomon continues to serve on our Board of Directors.
(8) Includes 4,582,235 shares held by Mohr, Davidow Ventures V, L.P., 344,900
shares held by Mohr, Davidow Ventures V, L.P. as nominee for MDV
Entrepreneurs' Network Fund II (A), L.P. and MDV Entrepreneurs' Network
Fund II (B), L.P. and 1,717,558 shares held by Mohr, Davidow Ventures V-L,
L.P. Mr. Strahan is a Venture Partner with Mohr, Davidow Ventures. Mr.
Strahan disclaims beneficial ownership of shares held by these entities
except to the extent of his pecuniary interest therein. In addition to the
6,644,693 shares held by the entities affiliated with Mohr, Davidow
Ventures, Mr. Strahan personally also holds 270,000 shares.
(9) Includes 566,800 shares subject to our right of repurchase as of December
31, 1999, which lapses over time.
(10) Includes 800,000 shares subject to our right of repurchase as of December
31, 1999, which lapses over time.
(11) Includes 576,652 shares subject to our right of repurchase as of December
31, 1999, which lapses over time.
(12) Includes the shares beneficially owned by the persons and entities
described in footnotes (2), (5), (6), (7) and (8). Also includes 600,000
shares over which Mr. Stepovich holds voting and investment power solely as
Trustee of the Olson 1999 Childrens Trust; Mr. Stepovich disclaims
beneficial ownership of these shares. Although Mr. Hayes did not begin his
employment with us until January 3, 2000, these numbers include Mr. Hayes
as an officer and those shares he subsequently exercised on January 5, 2000
as shares exercisable within 60 days of December 31, 1999.
(13) Includes 4,582,235 shares held by Mohr, Davidow Ventures V, L.P., 344,900
shares held by Mohr, Davidow Ventures V, L.P. as nominee for MDV
Entrepreneurs' Network Fund II (A), L.P. and MDV Entrepreneurs' Network
Fund II (B), L.P. and 1,717,558 shares held by Mohr, Davidow Ventures V-L,
L.P. Also includes 1,893,662 shares held by Mr. Solomon personally and
270,000 shares held by Mr. Strahan personally.
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<PAGE> 79
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
260,000,000 shares, $0.001 par value per share, to be divided into two classes
to be designated common stock and preferred stock. Of the shares authorized,
250,000,000 shares shall be designated as common stock and 10,000,000 shares
shall be designated as preferred stock. The following description of our capital
stock is only a summary. You should refer to our certificate of incorporation
and bylaws as in effect upon the closing of this offering, which are included as
exhibits to the registration statement of which this prospectus forms a part,
and by the provisions of applicable Delaware law.
COMMON STOCK
As of December 31, 1999, there were 70,826,149 shares of common stock
outstanding which were held of record by approximately stockholders. There
will be shares of common stock outstanding (assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options after
September 30, 1999) after giving effect to the sale of our common stock in this
offering. There are outstanding unexercised options to purchase a total of
2,240,242 shares of our common stock.
The holders of our common stock are entitled to one vote per share held of
record on all matters submitted to a vote of the stockholders. Our amended and
restated certificate of incorporation to be filed concurrently with completion
of this offering does not provide for cumulative voting in the election of
directors. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by our Board of
Directors out of funds legally available for that purpose. In the event of our
liquidation, dissolution or winding up, holders of our common stock are entitled
to share ratably in all assets remaining after payment of liabilities, subject
to prior distribution rights of preferred stock, if any, then outstanding.
Holders of our common stock have no preemptive or other subscription or
conversion rights. There are no redemption or sinking fund provisions applicable
to our common stock.
PREFERRED STOCK
Upon the completion of this offering and filing of our amended and
restated certificate of incorporation, our Board of Directors will be
authorized, without action by the stockholders, to issue 10,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions of these shares. These rights, preferences and
privileges may include dividend rights, conversion rights, voting rights, terms
of redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of any series, all or any of
which may be greater than the rights of the common stock. It is not possible to
state the actual effect of the issuance of all shares of preferred stock upon
the right of holders of our common stock until our Board of Directors determines
the specific rights of the holders of any preferred stock that may be issued.
However, the effect might include, among other things: (a) restricting dividends
on the common stock, (b) diluting the voting power of the common stock, (c)
impairing the liquidation rights of the common stock and (d) delaying or
preventing a change in our control without further action by the stockholders.
Upon the closing of this offering, no shares of preferred stock will be
outstanding and we have no present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
The holders of approximately 50,663,879 shares of preferred stock have the
right to require us to register their shares with the Securities and Exchange
Commission so that those shares may be publicly resold or to include their
shares in any registration statement we file.
Demand registration rights
- At any time after the earlier of February 16, 2002 and six months after
the closing of this offering the holders of at least 10% of the shares
having registration rights have the right to
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<PAGE> 80
demand on four separate occasions that we file a registration statement
on a form other than Form S-3 so that they can publicly sell their
shares, as long as the aggregate market value of the shares to be sold
under the registration statement exceeds $5 million. The underwriters of
any underwritten offering will have the right to limit the number of
shares to be included in the registration.
- If we are eligible to file a registration statement on Form S-3, holders
of at least 10% of the shares having registration rights have the right
to demand at any time more than six months following the closing of a
registration that we file a registration statement on Form S-3, as long
as the aggregate market value of the shares to be sold under the
registration statement exceeds $1 million. The underwriters of any
underwritten offering will have the right to limit the number of shares
to be included in the registration.
Piggyback registration rights
If we register any shares for public sale, stockholders with registration
rights will have the right to include their shares in the registration. The
underwriters of any underwritten offering will have the right to limit the
number of shares to be included in the registration; provided that the number of
shares to be included by holders with registration rights in the registration
shall not be reduced below 50% of the total number of shares to be included in
the registration. In addition, the underwriters of this offering have the right
to exclude all shares held by holders with registration rights.
Expenses of registration
We will pay all expenses relating to any demand or piggyback registration.
However, we will not pay for the expenses of any demand registration if the
request is subsequently withdrawn by the holders of a majority of the shares
having registration rights, subject to very limited exceptions.
Expiration of registration rights
The registration rights described above will expire seven years after this
offering is completed. The registration rights will terminate earlier for a
particular stockholder if that holder can resell all of its shares pursuant to
Rule 144 of the Securities Act.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and our certificate of incorporation
and bylaws could make our acquisition more difficult by means of a tender offer,
a proxy contest or otherwise and could also make the removal of incumbent
officers and directors more difficult. These provisions, summarized below, are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
us to first negotiate with us. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweighs the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms. The
amendment of any of the following provisions would require approval by holders
of at least 66 2/3% of our outstanding common stock.
BOARD OF DIRECTORS
Effective with the first annual meeting of stockholders following
completion of this offering, our amended and restated bylaws provide for the
division of our Board of Directors into three classes, as nearly equal in number
as possible, with the directors in each class serving for a three-term, and one
class being elected each year by our stockholders. This system of electing and
removing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us and may maintain the
incumbency of the Board of Directors, as it generally makes it more difficult
for stockholders to replace a majority of the directors. Further, our amended
and restated certificate of
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<PAGE> 81
incorporation filed in connection with this offering and restated bylaws do not
provide for cumulative voting in the election of directors.
STOCKHOLDER MEETINGS
Under our amended and restated certificate of incorporation and amended
and restated bylaws, only our Board of Directors, Chairman of the Board or Chief
Executive Officer may call special meetings of stockholders. Our restated bylaws
establish advance notice procedures with respect to stockholder proposals and
the nomination of candidates for election as directors, other than nominations
made by or at the direction of the Board of Directors or a committee of the
Board of Directors.
UNDESIGNATED PREFERRED STOCK
The authorization of undesignated preferred stock makes it possible for
the Board of Directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to effect a change of
control of us. These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in control or management.
SECTION 203
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
following the date that the stockholder became an interested stockholder unless:
- prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to the date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by
the interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
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TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
NASDAQ STOCK MARKET NATIONAL MARKET LISTING
We have applied to have our common stock quoted on The Nasdaq Stock
Market's National Market under the symbol "TLCT."
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of our common stock in the
public market could adversely affect the market price of our common stock.
Upon completion of this offering, based on shares outstanding as of
December 31, 1999, we will have outstanding shares of common stock, assuming
(1) the issuance of shares of common stock in this offering, (2) no exercise
of the underwriters' over-allotment option, and (3) no exercise of options after
December 31, 1999.
All of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act. However, the sale
of any of these share if purchased by "affiliates" as that term is defined in
Rule 144 are subject to certain limitations and restrictions that are described
below.
The remaining 70,826,149 shares of common stock and mandatorily redeemable
convertible preferred stock held by existing stockholders were issued and sold
by us in reliance on exemptions from the registration requirements of the
Securities Act. These shares are "restricted shares" as that term is defined in
Rule 144 and therefore may not be sold publicly unless they are registered under
the Securities Act or are sold pursuant to Rule 144 or another exemption from
registration. In addition, our directors and officers as well as other
stockholders and optionholders have entered into "lock-up agreements" with the
underwriters. These lock-up agreements provide that, except under limited
exceptions, the stockholder may not offer, sell, contract to sell, pledge or
otherwise dispose of any of our common stock or securities that are convertible
into or exchangeable for, or that represent the right to receive, our common
stock for a period of 180 days after the date of this prospectus. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, however, may in its sole discretion, at any
time without notice, release all or any portion of the shares subject to lock-up
agreements. Accordingly, of the remaining 70,826,149 shares, shares will
become eligible for sale 180 days after the effective date subject to Rules 144
and 701.
As of December 31, 1999, there were a total of 2,240,242 shares of common
stock subject to outstanding options, 185,159 of which were vested, and nearly
all of which are subject to lock-up agreements. Immediately after the completion
of the offering, we intend to file registration statements on Form S-8 under the
Securities Act to register all of the shares of common stock issued or reserved
for future issuance under our 1998 Stock Plan, our 2000 Employee Stock Purchase
Plan and our 2000 Outside Directors Stock Plan. On the date 180 days after the
effective date of the offering, the date that the lock-up agreements expire, a
total of shares of our common stock subject to outstanding options will be
vested. After the effective dates of the registration statements on Form S-8,
shares purchased upon exercise of options granted pursuant to our 1998 Stock
Plan, our 2000 Employee Stock Purchase Plan and our 2000 Outside Directors Stock
Plan generally would be available for resale in the public market.
RULE 144
In general, under Rule 144 beginning 90 days after the date of this
prospectus, a person who has beneficially owned shares of our common stock for
at least one year would be entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
Stock Market's National Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice filing and the availability of current
public information about us.
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RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally including the holding period of any prior owner other than an
"affiliate," is entitled to sell such shares without complying with the manner
of sale, notice filing, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with certain restrictions, including the holding period, contained in
Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual lock-up restrictions described above, beginning
90 days after the date of this prospectus, may be sold by persons other than
"affiliates," as defined in Rule 144, subject only to the manner of sale
provisions of Rule 144. Securities issued in reliance on Rule 701 may be sold by
"affiliates" under Rule 144 without compliance with its one-year minimum holding
period requirement.
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<PAGE> 85
UNDERWRITING
GENERAL
We intend to offer our common stock in the United States through a number
of underwriters. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit
Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities
Corporation are acting as representatives of each of the underwriters named
below. Subject to the terms and conditions set forth in a purchase agreement
among our company and the underwriters, we have agreed to sell to the
underwriters, and each of the underwriters severally and not jointly has agreed
to purchase from us, the number of shares of common stock set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ------------------------------------------------------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Credit Suisse First Boston Corporation......................
Donaldson, Lufkin & Jenrette Securities Corporation.........
--------
Total..........................................
--------
</TABLE>
In the purchase agreement, the underwriters have agreed to purchase all of
the shares being sold if any of the shares being sold are purchased. In the
event of a default by an underwriter, the purchase agreement provides that, in
certain circumstances, the purchase commitments by the nondefaulting
underwriters may be increased or the purchase agreement may be terminated.
We have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose
initially to offer the shares of common stock to the public at the public
offering price set forth on the cover page of this prospectus, and to certain
dealers at such price less a concession not in excess of $ per share of
common stock. The underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share of common stock to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The following table shows the per share and the total public offering
price, the underwriting discount to be paid by us to the underwriters and the
proceeds before expenses to us. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price...................... $ $ $
Underwriting discount...................... $ $ $
Proceeds, before expenses, to Telocity..... $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $[ ] million and are payable by us.
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<PAGE> 86
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of
additional shares of our common stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of our common
stock proportionate to such underwriter's initial amount reflected in the
foregoing table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to % of the shares offered by this prospectus to
be sold to some of our employees, officers, directors and their immediate family
members. The number of shares of our common stock available for sale to the
general public will be reduced to the extent that those persons purchase the
reserved shares. Any reserved shares which are not orally confirmed for purchase
within one day of the pricing of the offering will be offered by the
underwriters to the general public on the same terms as the other shares offered
by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and all of our existing
stockholders have agreed, with certain exceptions, without the prior written
consent of Merrill Lynch on behalf of the underwriters for a period of 180 days
after the date of this prospectus, not to directly or indirectly
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into
or exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the
agreement or with respect to which the person executing the agreement
later acquires the power of disposition, or file a registration
statement under the Securities Act relating to any shares of our common
stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of
our common stock whether any such swap or transaction is to be settled
by delivery of our common stock or other securities, in cash or
otherwise.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect the shares to be approved for quotation on the Nasdaq National
Market under the symbol "TLCT."
Before this offering, there has been no public market for our common
stock. The initial public offering price will be determined through negotiations
between us and the representatives. Among the factors considered in determining
the initial public offering price, in addition to prevailing market conditions,
were the valuation multiples of publicly traded companies that the
representatives believed to be comparable to us, certain of our financial
information, the history of, and the prospects for, our company and the industry
in which we compete, and an assessment of our management, our past and present
operations, the prospects for, and timing of, future revenue of our company, the
present state of our development, and the above factors in relation to market
values and various valuation measures of other companies engaged in activities
similar to ours. There can be no assurance that an active trading market will
develop for our common stock or that our common stock will trade in the public
market subsequent to the offering at or above the initial public offering price.
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The underwriters have advised us that they do not expect sales of the
common stock to any accounts over which they exercise discretionary authority to
exceed 5% of the number of shares being offered in this offering.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing our common stock in the open market.
The representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
our common stock in the open market to reduce the underwriters' short position
or to stabilize the price of our common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither our company nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of our common stock. In
addition, neither our company nor any of the underwriters makes any
representation that the representatives will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Some of the underwriters and their affiliates may engage in other
transactions with, and perform services for, our company in the ordinary course
of business and have engaged, and may in the future engage, in commercial
banking and investment banking transactions with our company, for which they may
receive customary compensation.
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<PAGE> 88
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. Legal matters will
be passed upon for the underwriters by Baker & McKenzie, New York, New York. As
of the date of this prospectus, Gray Cary Ware & Freidenrich LLP, GCWF
Investment Partners, an investment partnership composed of some current and
former members of and persons associated with Gray Cary Ware & Freidenrich LLP,
and some individual members of Gray Cary Ware & Freidenrich LLP, beneficially
own an aggregate of 98,168 shares of our common stock. Regulatory matters will
be passed upon for us by Patton Boggs LLP, Washington, D.C. As of the date of
this prospectus, one member of Patton Boggs LLP owns an aggregate of 1,051
shares of our common stock.
EXPERTS
The financial statements as of December 31, 1997 and 1998, and for the
period August 18, 1997 (date of inception) to December 31, 1997, year ended
December 31, 1998 and the period August 18, 1997 (date of inception) to December
31, 1998 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C., a registration statement on Form S-1 under the Securities Act with respect
to the shares of common stock offered hereby. This prospectus does not contain
all the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and our common
stock, reference is made to the registration statement and to the exhibits and
schedules filed therewith. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of the contract or
other document filed as an exhibit to the registration statement, each statement
being qualified in all respects by this reference. A copy of the registration
statement may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of all or any portion of the registration
statement may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees.
The Commission maintains a Website at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
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TELOCITY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Deficit............ F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 90
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Telocity, Inc.
(a company in the development stage)
The reincorporation described in Note 13 to the consolidated financial
statements has not been consummated at January 6, 2000. When it has been
consummated, we will be in a position to furnish the following report:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' deficit and
of cash flows present fairly, in all material respects, the financial
position of Telocity, Inc. (a company in the development stage) at December
31, 1997 and 1998, and the results of their operations and their cash flows
for the period from August 18, 1997 (date of incorporation) to December 31,
1997, the year ended December 31, 1998 and the period from August 18, 1997
(date of incorporation) to December 31, 1998, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
August 6, 1999, except for Note 13, which
is as of December 13, 1999
San Jose, California
F-2
<PAGE> 91
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, SEPTEMBER 30,
---------------- SEPTEMBER 30, 1999
1997 1998 1999 (SEE NOTE 12)
------ ------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 21 $ 1,402 $ 179 $ 179
Accounts receivable................................. -- -- 57 57
Prepaid expenses and other current assets........... 110 37 719 719
------ ------- -------- --------
Total current assets........................... 131 1,439 955 955
Property and equipment, net............................. 292 2,740 6,900 6,900
Intangibles, net........................................ -- 467 406 406
Deposits................................................ -- 51 638 638
------ ------- -------- --------
Total assets................................... $ 423 $ 4,697 $ 8,899 $ 8,899
====== ======= ======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................... $ 100 $ 1,588 $ 2,728 $ 2,728
Accrued liabilities................................. -- 130 621 621
Notes payable, current.............................. -- 562 2,114 2,114
Capital lease obligations, current.................. -- 363 1,388 1,388
------ ------- -------- --------
Total current liabilities...................... 100 2,643 6,851 6,851
------ ------- -------- --------
Notes payable, net of current portion................... 1,000 2,139 3,235 3,235
Capital lease obligations, net of current portion....... -- 1,351 2,584 2,584
------ ------- -------- --------
Total liabilities.............................. 1,100 6,133 12,670 12,670
------ ------- -------- --------
Mandatorily redeemable convertible preferred stock:
Series A; no par value, 13,553 authorized shares
Issued and outstanding: zero in 1997, 13,150 in 1998
and 1999 and zero pro forma
(Liquidation value: $6,575)......................... -- 6,565 6,565 --
Series A warrants..................................... -- 106 106 --
Series B; no par value, 14,700 authorized shares
Issued and outstanding: zero in 1997 and 1998,
13,182 in 1999 and zero pro forma
(Liquidation value: $14,500)........................ -- -- 14,488 --
Series B warrants..................................... -- -- 1,099 --
------ ------- -------- --------
Total mandatorily redeemable convertible
preferred stock.............................. -- 6,671 22,258 --
------ ------- -------- --------
Commitments (Note 6)
Stockholders' deficit:
Common Stock:
$0.001 par value, 40,000 shares authorized in 1997
and 1998; 90,000 shares authorized in 1999
Issued and outstanding: 9,904 in 1997, 11,878 in
1998 and 18,083 in 1999, 44,415 pro forma
(unaudited)...................................... 4 8 14 40
Additional paid-in capital............................ -- 586 9,810 32,042
Receivable from stockholders.......................... (3) (118) (2,326) (2,326)
Unearned stock-based compensation..................... -- (315) (6,281) (6,281)
Deficit accumulated during the development stage...... (678) (8,268) (27,246) (27,246)
------ ------- -------- --------
Total stockholders' deficit.................... (677) (8,107) (26,029) (3,771)
------ ------- -------- --------
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
deficit...................................... $ 423 $ 4,697 $ 8,899 $ 8,899
====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 92
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
PERIOD FROM PERIOD FROM PERIOD FROM
AUGUST 18, AUGUST 18, AUGUST 18,
1997 (DATE OF 1997 (DATE OF 1997 (DATE OF
INCORPORATION) INCORPORATION) NINE MONTHS ENDED INCORPORATION)
TO YEAR ENDED TO SEPTEMBER 30, TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------ SEPTEMBER 30,
1997 1998 1998 1998 1999 1999
-------------- ------------ -------------- ------- -------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $ -- $ -- $ -- $ -- $ 57 $ 57
Costs and expenses:
Cost of revenues............. -- -- -- -- 200 200
Sales and marketing.......... 5 240 245 53 2,911 3,156
General and administrative... 335 1,906 2,241 1,148 2,975 5,216
Research and development..... 327 4,723 5,050 2,307 10,073 15,123
Amortization of stock-based
compensation............... -- 145 145 95 1,015 1,160
Depreciation and
amortization............... 11 424 435 253 1,257 1,692
------ ------- ------- ------- -------- --------
Total operating
expenses.............. 678 7,438 8,116 3,856 18,431 26,547
------ ------- ------- ------- -------- --------
Loss from operations........... (678) (7,438) (8,116) (3,856) (18,374) (26,490)
Interest expense............... -- (187) (187) (110) (525) (712)
Other income/(expense), net.... -- 35 35 30 (79) (44)
------ ------- ------- ------- -------- --------
Net loss....................... $ (678) $(7,590) $(8,268) $(3,936) $(18,978) $(27,246)
====== ======= ======= ======= ======== ========
Net loss per share-basic and
diluted...................... $(0.56) $ (1.39) $ (2.47) $ (0.81) $ (2.57) $ (5.08)
Shares used in computing basic
and diluted net loss per
share........................ 1,220 5,472 3,346 4,873 7,380 5,363
Pro forma net loss per share --
basic and diluted
(unaudited).................. $ (0.65) $ (1.29) $ (0.62) $ (1.48)
Shares used in computing basic
and diluted pro forma net
loss per share (unaudited)... 11,628 6,424 30,510 18,467
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 93
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE UNEARNED DURING THE TOTAL
--------------- PAID-IN FROM STOCK-BASED DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION STAGE DEFICIT
------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at
$0.0005 per share in October
1997............................ 2,560 $ 1 $ -- $ -- $ -- $ -- $ 1
Issuance of common stock at
$0.0005 for completed technology
in October 1997................... 504 -- -- -- -- -- --
Issuance of common stock at
$0.0005 per share in December
1997............................ 6,840 3 -- (3) -- -- --
Net loss.......................... -- -- -- -- -- (678) (678)
------ --- ------ ------- ------- -------- --------
Balances, December 31, 1997....... 9,904 4 -- (3) -- (678) (677)
Warrants issued for services in
September 1998.................. -- -- 92 -- -- -- 92
Issuance of common stock for
purchase acquisition at $0.0005
per share in March 1998......... 41 -- -- -- -- -- --
Issuance of common stock options
for purchase acquisition in
March 1998...................... -- -- 7 -- -- -- 7
Repurchase of common stock for
completed technology in March
1998............................ (504) -- -- -- -- -- --
Issuance of common stock at $0.005
per share in June 1998.......... 3,076 3 12 (15) -- -- --
Repurchase of common stock at
$0.0005 per share in June
1998............................ (2,816) (1) -- 1 -- -- --
Issuance of common stock upon
exercise of stock options....... 2,177 2 107 (101) -- -- 8
Common stock options issued for
services in July to December
1998............................ -- -- 40 -- -- -- 40
Unearned stock-based
compensation.................... -- -- 328 -- (328) -- --
Amortization of stock-based
compensation.................... -- -- -- -- 13 -- 13
Net loss.......................... -- -- -- -- -- (7,590) (7,590)
------ --- ------ ------- ------- -------- --------
Balances, December 31, 1998....... 11,878 8 586 (118) (315) (8,268) (8,107)
Common stock options issued for
services in January to September
1999............................ -- -- 230 -- -- -- 230
Warrants issued in connection with
property lease in March 1999.... -- -- 24 -- -- -- 24
Warrants issued for services in
June 1999....................... -- -- 247 -- -- -- 247
Issuance of common stock upon
exercise of stock options....... 7,336 7 2,246 (2,208) -- -- (45)
Repurchase of common stock........ (1,131) (1) (24) -- -- -- (25)
Unearned stock-based
compensation.................... -- -- 6,501 -- (6,501) -- --
Amortization of stock-based
compensation.................... -- -- -- -- 535 -- 535
Net loss.......................... -- -- -- -- -- (18,978) (18,978)
------ --- ------ ------- ------- -------- --------
Balances, September 30, 1999
(unaudited)..................... 18,083 $14 $9,810 $(2,326) $(6,281) $(27,246) $(26,029)
====== === ====== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 94
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
PERIOD FROM PERIOD FROM PERIOD FROM
AUGUST 18, AUGUST 18, AUGUST 18,
1997 (DATE OF 1997 (DATE OF 1997 (DATE OF
INCORPORATION) INCORPORATION) NINE MONTHS ENDED INCORPORATION)
TO YEAR ENDED TO SEPTEMBER 30, TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------ SEPTEMBER 30,
1997 1998 1998 1998 1999 1999
-------------- ------------ -------------- ------- -------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................... $(678) $(7,590) $(8,268) $(3,936) $(18,978) $(27,246)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 11 424 435 253 1,257 1,692
Amortization of stock-based
compensation......................... -- 145 145 95 1,015 1,160
Non-cash interest expense.............. -- 71 71 61 151 222
Loss on sale of fixed assets........... -- -- -- -- 225 225
Change in operating assets and
liabilities:
Accounts receivable.................. -- -- -- -- (57) (57)
Prepaid expenses and other assets.... (110) 73 (37) 18 (639) (676)
Deposits............................. -- (51) (51) (51) (500) (551)
Accounts payable..................... 100 1,487 1,587 (33) 1,153 2,740
Accrued liabilities.................. -- 85 85 70 491 576
----- ------- ------- ------- -------- --------
Net cash used in operating
activities....................... (677) (5,356) (6,033) (3,523) (15,882) (21,915)
----- ------- ------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets............ -- -- -- -- 288 288
Acquisition of intangibles............... -- -- -- -- (15) (15)
Acquisition of subsidiary, net of cash
acquired............................... -- (51) (51) (51) -- (51)
Purchase of property and equipment....... (303) (975) (1,278) (306) (2,985) (4,263)
----- ------- ------- ------- -------- --------
Net cash used in investing
activities....................... (303) (1,026) (1,329) (357) (2,712) (4,041)
----- ------- ------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of mandatorily
redeemable convertible preferred stock,
net of issuance costs.................. -- 4,050 4,050 4,050 14,477 18,527
Proceeds from exercise of common stock
options................................ -- 8 8 -- 45 53
Proceeds from issuance of common stock... 1 -- 1 -- -- 1
Repurchase of common stock............... -- -- -- -- (25) (25)
Proceeds from issuance of warrants for
preferred stock........................ -- 67 67 67 650 717
Proceeds from the issuance of notes
payable................................ 1,000 3,924 4,924 1,374 2,850 7,774
Repayment of notes payable............... -- (178) (178) (95) (323) (501)
Principal payments on capital lease
obligations............................ -- (108) (108) (38) (303) (411)
----- ------- ------- ------- -------- --------
Net cash provided by financing
activities....................... 1,001 7,763 8,764 5,358 17,371 26,135
----- ------- ------- ------- -------- --------
Net increase (decrease) in cash and cash
equivalents.............................. 21 1,381 1,402 1,478 (1,223) 179
Cash and cash equivalents, beginning of
period................................... -- 21 -- 21 1,402 --
----- ------- ------- ------- -------- --------
Cash and cash equivalents, end of period... $ 21 $ 1,402 $ 1,402 $ 1,499 $ 179 $ 179
===== ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 95
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- FORMATION AND BUSINESS OF THE COMPANY
Telocity, Inc. (the "Company") is a provider of subscriber-based broadband
services and applications designed for the residential market.
The Company is a development stage Company and has been engaged primarily
in research and development, market development and raising capital. In July
1999, the Company began offering services commercially in Chicago.
The Company has a single operating segment, the provision of subscriber
based broadband services and applications designed for the residential market.
The Company has no organizational structure dictated by product lines, geography
or customer type. All revenues earned to date have been generated from U.S.
based customers.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
These consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany balances
and transactions have been eliminated.
Unaudited interim results
The accompanying interim financial statements as of September 30, 1999 and
for the nine months ended September 30, 1998 and 1999 and the period from August
18, 1997 (date of incorporation) to September 30, 1999 are unaudited. The
unaudited interim financial statements have been prepared on the same basis as
the annual financial statements and, in the opinion of management, reflect all
adjustments, which include normal recurring adjustments, necessary to present
fairly in all material respects the Company's consolidated financial position,
results of operations and their cash flows as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 and the period from August 18,
1997 (date of incorporation) to September 30, 1999. The financial data and other
information disclosed in these notes to consolidated financial statements
related to these periods are unaudited. The results for the nine months ended
September 30, 1999 are not necessarily indicative of the results expected for
the year ending December 31, 1999.
Use of estimates
Preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with original or
remaining maturities of three months or less at the date of purchase to be cash
equivalents.
Certain risks and concentrations
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and accounts
receivable.
F-7
<PAGE> 96
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's cash and cash equivalents are deposited with major financial
institutions in the United States. At times, such deposits may be in excess of
the amount of insurance provided on such deposits. The Company has not
experienced any losses on its deposits of cash and cash equivalents.
The Company performs ongoing credit evaluations but does not require
collateral. At September 30, 1999 (unaudited), three customers accounted for
44%, 20% and 11% of total receivables and total revenues.
The success of the Company's business is substantially dependent upon its
ability to develop strategic partnerships for content, develop a recognizable
brand and secure distribution channels for its subscriber-based broadband
services and the continued supply of gateways from its sole contract
manufacturer.
Fair value of financial instruments
The fair value of the Company's cash and cash equivalents, accounts
receivable, accounts payable and notes payable approximate their carrying value
due to the short maturity or market rate structure of those instruments.
Property and equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
generally one to seven years. Leasehold improvements are amortized over the
related lease term or the useful life of the improvement.
Depreciation and amortization expense for the periods ended December 31,
1997 and 1998 and from August 18, 1997 (date of incorporation) to December 31,
1998 was $11, $383 and $394, respectively.
Intangibles
Intangible assets consist of completed technology. These assets are being
amortized using the straight-line method over their estimated useful life of
five years.
Accounting for long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" ("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
Revenue recognition
The Company generates revenue from the provision of broadband services and
applications. This revenue is recognized ratably over the term of the service.
Research and development
Research and development costs are expensed to operations as incurred.
Advertising costs
The Company expenses all advertising costs as they are incurred.
F-8
<PAGE> 97
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-based compensation
The Company has elected to continue accounting for stock-based
compensation issued to employees using the intrinsic value method of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and, accordingly, presents disclosure of pro forma information required under
Financial Accounting Standards Board Statement No. 123 or SFAS 123, "Accounting
for Stock-Based Compensation." Stock and other equity instruments issued to
non-employees have been accounted for in accordance with SFAS No. 123 and
Emerging Issues Task Force Issue No. 96-18 and valued using the Black-Scholes
model.
Comprehensive income (loss)
The Company has adopted the provisions of SFAS No. 130, or SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
comprehensive income (loss) and its components in financial statements.
Comprehensive income (loss), as defined, includes all changes in equity during a
period from non-owner sources. There has been no difference between the
Company's net loss and its total comprehensive loss through December 31, 1998
and September 30, 1999 (unaudited).
Income taxes
The Company accounts for its income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on temporary differences between the financial reporting and tax basis of
assets and liabilities, measured at tax rates that will be in effect for the
year in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Net loss per common share
Basic net loss per common share is computed by dividing the net loss
available to common stockholders for the period by the weighted average number
of common shares outstanding for the period net of common shares subject to
repurchase. Diluted net loss per common share is computed by dividing the net
loss for the period by the weighted average number of common and common
equivalent shares outstanding during the period net of common shares subject to
repurchase. Common equivalent shares, composed of common shares issuable upon
exercise of stock options and warrants and upon conversion of Series A and
Series B mandatorily redeemable convertible preferred shares are included in the
diluted net loss per share computation to the extent such shares are dilutive. A
reconciliation of the numerator and
F-9
<PAGE> 98
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
denominator used in the calculation of basic and diluted net loss per common
share follows (in thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
AUGUST 18, AUGUST 18, AUGUST 18,
1997 (DATE OF 1997 (DATE OF 1997 (DATE OF
INCORPORATION) INCORPORATION) NINE MONTHS ENDED INCORPORATION)
TO YEAR ENDED TO SEPTEMBER 30, TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------ SEPTEMBER 30,
1997 1998 1998 1998 1999 1999
-------------- ------------ -------------- ------- -------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Numerator:
Net loss....................... $ (678) $(7,590) $(8,268) $(3,936) $(18,978) $(27,246)
====== ======= ======= ======= ======== ========
Denominator:
Weighted average common
shares -- basic and
diluted................... 1,924 10,112 6,018 7,269 14,578 10,298
Weighted average shares
subject to repurchase..... (704) (4,640) (2,672) (2,396) (7,198) (4,935)
------ ------- ------- ------- -------- --------
Denominator for basic and
diluted calculation....... 1,220 5,472 3,346 4,873 7,380 5,363
====== ======= ======= ======= ======== ========
Net loss per common share --
basic and diluted......... $(0.56) $ (1.39) $ (2.47) $ (0.81) $ (2.57) $ (5.08)
------ ------- ------- ------- -------- --------
</TABLE>
Diluted net loss per share does not include the effect of the following
antidilutive common equivalent shares (in thousands).
<TABLE>
<CAPTION>
FOR THE CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
AUGUST 18, AUGUST 18, AUGUST 18,
1997 (DATE OF 1997 (DATE OF 1997 (DATE OF
INCORPORATION) INCORPORATION) NINE MONTHS ENDED INCORPORATION)
TO YEAR ENDED TO SEPTEMBER 30, TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------ SEPTEMBER 30,
1997 1998 1998 1998 1999 1999
-------------- ------------ -------------- ------- -------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Common stock options and
warrants.................. -- 1,858 1,858 2,989 2,624 2,624
Convertible preferred
stock....................... -- 13,150 13,150 13,150 26,332 26,332
Convertible preferred stock
warrants.................. -- 403 403 403 1,200 1,200
------ ------- ------- ------- -------- --------
-- 15,411 15,411 16,542 30,156 30,156
====== ======= ======= ======= ======== ========
</TABLE>
Recent accounting pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company
adopted SOP 98-1 on January 1, 1999. The adoption of the SOP did not have a
material impact on its consolidated financial statements.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of start-up
costs and organization costs. It requires the
F-10
<PAGE> 99
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs of start-up activities and organization costs to be expensed as incurred.
The SOP is effective for financial statements for fiscal years beginning after
December 15, 1998. The Company adopted SOP 98-5 on January 1, 1999. As the
Company has not capitalized such costs, the adoption of the SOP did not have an
impact on its consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133, as amended,
will be effective for fiscal years beginning after June 15, 2000. The Company
does not currently hold derivative instruments or engage in hedging activities.
NOTE 3 -- ACQUISITIONS AND RELATED PARTY TRANSACTIONS
On March 27, 1998 the Company acquired Aspen Internet Systems, Inc., in
which two of the Company's founders held a minority interest, for an aggregate
purchase price of $463,339. This constituted an asset acquisition of completed
technology that has been incorporated into the Company's residential gateway.
NOTE 4 -- BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31,
------------ SEPTEMBER 30,
1997 1998 1999
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
PREPAID EXPENSES AND OTHER CURRENT ASSETS (IN THOUSANDS):
Prepaid expenses......................................... $ -- $31 $384
Other receivables...................................... -- 6 133
Deposits............................................... 110 -- 202
---- --- ----
$110 $37 $719
==== === ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1997 1998 1999
---- ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT, NET (IN THOUSANDS):
Network and computer equipment........................ $192 $2,727 $7,073
Furniture and fixtures.............................. 14 130 248
Leasehold improvements.............................. 97 276 378
Subscriber based broadband gateways................. -- -- 744
---- ------ ------
303 3,133 8,443
Less: accumulated depreciation and amortization..... (11) (393) (1,543)
---- ------ ------
$292 $2,740 $6,900
==== ====== ======
</TABLE>
Property and equipment includes $1,855,203 under capital leases at
December 31, 1998. Accumulated amortization of assets under capital leases
totaled $245,476 at December 31, 1998.
F-11
<PAGE> 100
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1997 1998 1999
---- ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
INTANGIBLES, NET (IN THOUSANDS):
Completed technology.................................. $-- $ 508 $523
Less: accumulated amortization...................... -- (41) (117)
--- ------ ----
$-- $ 467 $406
=== ====== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1997 1998 1999
---- ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ACCRUED LIABILITIES (IN THOUSANDS):
Accrued salaries and benefits......................... $ -- $ 71 $238
Accrued interest.................................... -- 9 75
Other accrued liabilities........................... -- 50 308
---- ------ ----
$ -- $ 130 $621
==== ====== ====
</TABLE>
NOTE 5 -- NOTES PAYABLE
During the period ended December 31, 1997, the Company issued a $1,000,000
convertible note payable for cash to August Capital, L.P. This unsecured note
bore interest at an annual rate of 6% and there were no fixed terms of payment.
In August 1998, the note payable was converted into Series A mandatorily
redeemable convertible preferred stock.
During the year ended December 31, 1998 the Company issued notes payable
to Comdisco, Inc., with detachable warrants to acquire Series A mandatorily
redeemable convertible preferred stock. The fair value of the warrants using the
Black-Scholes pricing model is $67,423. The notes are collateralized by all
tangible assets owned by the Company, bear interest at a weighted average rate
of 8.65% and are repayable in installments between May 1998 and January 2002.
Aggregate principal payments due under these notes subsequent to December
31, 1998 are as follows: (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1999........................................................ $ 562
2000........................................................ 1,090
2001........................................................ 1,110
2002........................................................ 46
------
Total principal payments.................................... 2,808
Less: Amount representing finance costs..................... 107
------
Total notes payable......................................... 2,701
Less: Current portion....................................... 562
------
Long term portion of notes payable.......................... $2,139
======
</TABLE>
F-12
<PAGE> 101
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- COMMITMENTS
Leases
The Company leases office space and equipment under noncancelable
operating and capital leases with various expiration dates through November
2002. Rent expense for the periods ended December 31, 1997 and 1998 was $50,471
and $258,142, respectively.
Future minimum lease payments under noncancelable operating and capital
leases as of December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
- ----------------------- ------- ---------
<S> <C> <C>
1999..................................................... $ 513 $263
2000..................................................... 724 91
2001..................................................... 607 279
2002..................................................... 167 238
------ ----
Total minimum lease payments............................. 2,011 $871
====
Less: Amount representing finance costs.................. (297)
------
Present value of capital lease obligations............... 1,714
Less: Current portion.................................... (363)
------
Long-term portion of capital lease obligations......... $1,351
======
</TABLE>
NOTE 7 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Under the Company's Articles of Incorporation, the Company's preferred
stock is issuable in series and the Company's Board of Directors is authorized
to determine the rights, preferences and terms of each share. At December 31,
1998, the amounts and liquidation values of Series A preferred stock are as
follows (in thousands):
<TABLE>
<CAPTION>
SHARES
SHARES ISSUED AND LIQUIDATION
AUTHORIZED OUTSTANDING VALUE
---------- ----------- -----------
<S> <C> <C> <C>
Series A.......................................... 13,553 13,150 $6,575
====== ====== ======
</TABLE>
In 1999, the Company authorized 14,699,998 shares of Series B preferred
stock, of which 13,181,818 shares have been issued with a liquidation value of
approximately $14,500,000 and 27,000,000 shares of Series C preferred stock, of
which 24,332,061 shares have been issued with a liquidation value of
approximately $127,500,000 (see Note 13).
The rights, preferences and privileges of the preferred shareholders are
as follows:
Dividends
The holders of Series A, Series B and Series C preferred stock are
entitled to receive noncumulative dividends at an annual rate of $0.025 per
share, $0.055 per share and $0.262 per share, respectively, when, and if
declared by the Board of Directors. After payment of the above dividends,
additional dividends declared are to be paid pro-rata to both the holders of
common stock and preferred stock (treated as if converted). No dividends have
been declared through December 31, 1998.
F-13
<PAGE> 102
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Liquidation
The holders of the Series A, Series B and Series C preferred stock are
entitled to a distribution in preference to common shareholders of $0.50, $1.10
and $5.24 per share, respectively, plus any declared but unpaid dividends. After
the payment has been made to the holders of preferred stock for the full amount
to which they are entitled, the holders of the common stock and Series C
preferred stock shall be entitled to share ratably in all remaining assets,
until the holders of Series C preferred stock have received a cumulative amount
of $7.86 per share, if the liquidation event closes on or before June 30, 2000
or $10.48 per share, if the liquidation event closes after June 30, 2000.
Thereafter, holders of common stock will receive any remaining assets.
Conversion
The Series A, Series B and Series C preferred stock is convertible, at the
option of the holder, into common stock on a one-for-one basis, subject to
adjustment for dilution. Conversion is automatic upon the closing of a firm
commitment underwritten public offering of the Company's common stock at an
aggregate offering price of not less that $30,000,000 and at a price per share
of not less than $7.86 if such offering closes on or before June 30, 2000 or
$10.48 if such offering closes after June 30, 2000. In addition, preferred
stockholders have certain registration rights and the right to participate in
future issuances of the Company's stock. A total of 54,701,478 shares of common
stock have been reserved for issuance upon the conversion of mandatorily
redeemable preferred stock.
Voting
Each share of Series A, Series B and Series C preferred stock has voting
rights equal to an equivalent number of shares of Common Stock into which it is
convertible and votes together as one class with the Common Stock.
Redemption
At anytime on or after December 1, 2004, each holder of mandatorily
redeemable convertible preferred stock has the right to cause the Company to
redeem all of the shares held by such stockholder. The redemption price of the
Series A, Series B and Series C preferred stock is $0.50, $1.10 and $5.24 per
share, respectively, plus any declared but unpaid dividends and shall be paid in
three equal annual installments.
Warrants for convertible preferred stock
In connection with notes payable and capital leases, the Company issued
warrants to purchase 403,125 shares of Series A mandatorily redeemable
convertible preferred stock for $0.50 and $0.80 per share in March 1998 and
September 1998, respectively. Such warrants are outstanding at December 31, 1998
and expire in September 2008. Using the Black-Scholes pricing model, the Company
determined that the fair value of the warrants issued in connection with notes
payable and capital leases was $67,423 and $38,896, respectively, at the date of
grant. The fair value of the warrants is being amortized over the term of the
notes and capital leases. The Company recognized $11,881 as interest expense
associated with these warrants for the year ended December 31, 1998.
NOTE 8 -- COMMON STOCK
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 40,000,000 shares of common stock. A portion of the shares sold are
subject to a right of repurchase by the Company
F-14
<PAGE> 103
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subject to vesting, which is generally over a four year period from the earlier
of grant date or employee hire date, as applicable, until vesting is complete.
At December 31, 1997 and 1998, there were 5,169,730 and 5,284,148 shares subject
to repurchase, respectively.
Warrant for common stock
The Company issued a warrant to purchase 765,018 shares of common stock
for $0.05 per share in September 1998 which expires in November 2003 to a
company with which they were considering developing a strategic relationship.
Using the Black-Scholes pricing model, the Company determined that the fair
value of the warrants was $91,067 at the date of the grant. Accordingly, the
Company recorded $91,067 in stock-based compensation for the expense associated
with these warrants.
Stock option plans
In January 1998, the Company adopted the 1998 Stock Option Plan and
Consultants Stock Option Plan (the "Plans"). The Plans provide for the granting
of stock options to employees and consultants of the Company. Options granted
under the Plans may be either incentive stock options or nonqualified stock
options. Incentive stock options ("ISO") may be granted only to Company
employees (including officers and directors who are also employees).
Nonqualified stock options ("NSO") may be granted to Company employees and
consultants. At December 31, 1998 and September 30, 1999 (unaudited), the
Company has reserved 3,530,000 and 12,200,000 shares of Common Stock for
issuance under the Plans, respectively.
Options under the Plans may be granted for period of up to ten years and
at prices no less than 85% of the estimated fair value of shares on the date of
grant as determined by the Board of Directors, provided, however, that (i) the
exercise price of an ISO and NSO shall not be less that 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (ii)
the exercise price of an ISO and NSO granted to a 10% stockholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively. Options are exercisable immediately, subject to repurchase options
held by the Company which lapse over a maximum period of ten years at such times
and under such conditions as determined by the Board of Directors. To date,
options granted generally vest over four years. The following table summarizes
activity under the Plans (in thousands, except per share data):
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
AVAILABLE OPTIONS EXERCISE
FOR GRANT OUTSTANDING PRICE
--------- ----------- --------
<S> <C> <C> <C>
Shares reserved at plans' inception.................. 1,624
Additional shares authorized......................... 1,906
Options granted...................................... (3,270) 3,270 $0.05
Options exercised.................................... (2,177) 0.05
------ ------
Outstanding and exercisable at December 31, 1998..... 260 1,093 0.05
Options authorized................................... 8,670
Options granted...................................... (7,833) 7,833 0.47
Options exercised.................................... (7,336) 0.31
Options cancelled.................................... 70 (70) 0.69
Exercised options forfeited and returned to plans.... 1,130 0.08
------ ------
Balances, September 30, 1999 (unaudited)............. 2,297 1,520 $0.89
====== ======
</TABLE>
Options granted include options to acquire 240,538 and 230,674 shares of
common stock issued to consultants and other service providers of the Company
during the year ended December 31, 1998 and the
F-15
<PAGE> 104
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
period ended September 30, 1999 (unaudited), respectively. The fair value of the
common stock options was determined to be $40,062 and $229,581 for 1998 and
1999, respectively, using the Black-Scholes pricing model, and the expense
associated with the options has been recognized as stock-based compensation
expense.
The options outstanding and currently exercisable by exercise price at
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER NUMBER CONTRACTUAL EXERCISE
PRICE OUTSTANDING VESTED LIFE PRICE
-------- ----------- ------ ----------- --------
<S> <C> <C> <C> <C>
0$.05.. 1,093 292 9.86 $0.05
</TABLE>
Pro forma stock-based compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock based
Compensation," ("SFAS No. 123") for option grants to employees. Had compensation
cost been determined based on the fair value at the grant date for the awards in
1998 consistent with the provisions of SFAS No. 123, the Company's net loss for
1998 would have been as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Net loss -- as reported................................. $(7,590)
Net loss -- pro forma................................... $(7,613)
Net loss per common share-basic and diluted as
reported.............................................. $ (1.39)
Net loss per common share-basic and diluted pro forma... $ (0.63)
</TABLE>
Such pro forma disclosures may not be representative of future
compensation cost because options vest over several years and additional grants
are made each year.
The weighted average fair value of options issued during 1998 was $0.11.
The fair value of each option grant is estimated on the date of grant using the
minimum value method with the following assumptions used for grants:
<TABLE>
<S> <C>
Risk-free interest rate.............................. 4.221 - 6.020%
Expected life of option.............................. 5 years
Expected dividends................................... 0%
</TABLE>
Unearned stock-based compensation
In connection with certain stock option grants to employees during the
year ended December 31, 1998 and the nine months ended September 30, 1999
(unaudited), the Company recorded unearned stock-based compensation totaling
$328,374 and $6,501,372, respectively, which is being amortized over the vesting
periods of the related options which is generally four years. Amortization of
this stock-based compensation recognized during the year ended December 31, 1998
and the nine months ended September 30, 1999 (unaudited) totaled approximately
$13,000 and $535,000, respectively.
F-16
<PAGE> 105
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the stock-based compensation were allocated across the relevant
functional expense categories within operating expenses it would be allocated as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------ SEPTEMBER 30,
1997 1998 1999
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
Sales and marketing..................................... $-- $ 12 $ 51
General and administrative.............................. -- 112 704
Research and development................................ -- 21 260
--- ---- ------
$-- $145 $1,015
=== ==== ======
</TABLE>
NOTE 9 -- 401(K)
The Company sponsors an employee savings and retirement plan intended to
qualify under section 401(k) of the Internal Revenue Code. All eligible
employees may contribute up to 20% of compensation, subject to annual
limitations, which are fully vested at all times. The Company retains the
options of matching employees' contributions with a discretionary employer
contribution. To date, no employer contributions have been made.
NOTE 10 -- INCOME TAXES
No provisions for income taxes have been recorded as the Company has
incurred net losses since inception.
At December 31, 1998, the Company had approximately $3,300,000 of federal
and state net operating loss carryforwards available to offset future taxable
income which expire in varying amounts beginning in 2012 and 2005, respectively.
Under the Tax Reform Act of 1986, the amounts of and benefits from net operating
loss carryforwards may be impaired or limited in certain circumstances. Events
which cause limitations in the amount of net operating losses that the Company
may utilize in any one year include, but are not limited to, a cumulative
ownership change of more than 50%, as defined, over a three year period.
The Company had deferred tax assets, net of deferred tax liabilities, at
December 31, 1997 and 1998, of approximately $325,000 and $3,200,000,
respectively, related primarily to net operating loss carryforwards and certain
reserves that are not currently deductible for tax purposes. Management believes
that, based on a number of factors, the available objective evidence creates
sufficient uncertainty regarding the realizability of the deferred tax assets
such that a full valuation allowance has been recorded. For the periods ended
December 31, 1997 and 1998, the valuation allowance increased by approximately
$325,000 and $2,900,000, respectively.
F-17
<PAGE> 106
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE PERIOD FROM
FROM AUGUST 18, AUGUST 18,
(DATE OF (DATE OF
INCORPORATION) FOR THE INCORPORATION)
TO YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1998
--------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................. $-- $ 109 $ 109
SUPPLEMENTAL NONCASH INVESTING AND
FINANCING ACTIVITY:
Acquisition of subsidiary............... $-- $ 508 $ 508
Less notes payable issued for
acquisition.......................... -- (405) (405)
Less common stock options granted for
acquisition.......................... -- (7) (7)
Net cash payment........................ -- (51) (51)
--- ------ ------
Liabilities assumed on acquisition of
subsidiary........................... $-- $ 45 $ 45
=== ====== ======
Property and equipment acquired under
capital leases....................... $-- $1,855 $1,855
Conversion of convertible promissory
notes into Series A mandatorily
redeemable preferred stock........... -- 2,455 2,455
--- ------ ------
Conversion of accrued interest on
convertible promissory notes into
Series A mandatorily redeemable
preferred stock...................... -- 57 57
Issuance of warrants in connection with
capital leases....................... -- 39 39
</TABLE>
NOTE 12 -- UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA
CONSOLIDATED BALANCE SHEET
Upon the closing of the Company's initial public offering, all outstanding
mandatorily redeemable convertible preferred stock will be converted
automatically into common stock and warrants to acquire mandatorily redeemable
convertible preferred stock will be converted automatically into warrants to
acquire common stock. The pro forma effect of this conversion has been presented
as a separate column in the Company's consolidated balance sheet, assuming the
conversion had occurred as of September 30, 1999. Pro forma basic and diluted
net loss per common share have been computed as described in Note 2 and also
give effect to common equivalent shares from preferred stock that will
automatically convert upon the closing of the Company's initial public offering
(using the "as-if-converted method") for the year ended December 31, 1998, the
period August 18, 1997 (date of incorporation) to December 31, 1998, nine months
ended September 30, 1999 and the period August 18, 1997 (date of incorporation)
to September 30, 1999.
F-18
<PAGE> 107
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the numerator and denominator used in the calculation
of pro forma basic and fully diluted net loss per common share follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM AUGUST 18, FROM AUGUST 18,
1997 (DATE OF 1997 (DATE OF
INCORPORATION) NINE MONTHS INCORPORATION)
YEAR ENDED TO ENDED TO
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999 1999
------------ --------------- ------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net loss............................ $(7,590) $(8,268) $(18,978) $ (27,246)
======= ======= ======== ===============
Shares used in computing basic and
diluted net loss per share.......... 5,472 3,346 7,380 5,363
Adjusted to reflect the effect of
the assumed conversion of all
convertible preferred stock from
date of issuance.................. 6,156 3,078 23,130 13,104
------- ------- -------- ---------------
Weighted average shares used in
computing pro forma basic and
diluted net loss per share........ 11,628 6,424 30,510 18,467
======= ======= ======== ===============
Pro forma basic and diluted net loss
per share......................... $ (0.65) $ (1.29) $ (0.62) $ (1.48)
</TABLE>
NOTE 13 -- SUBSEQUENT EVENTS
Series B and C mandatorily redeemable convertible preferred stock
On February 16, 1999 and March 26, 1999, the Company issued 10,727,274
shares and 2,454,544 shares, respectively, of Series B mandatorily redeemable
convertible preferred stock at a purchase price of $1.10 per share for an
aggregate amount of approximately $14,500,000. On December 13, 1999, the Company
issued 24,332,061 shares of its Series C preferred stock at a purchase price of
$5.24 per share for a gross amount of approximately $127,500,000. Gross proceeds
are inclusive of advertising and promotional commitments provided by two of the
Company's strategic investors, National Broadcasting Corporation (NBC) and NBCi,
with a fair value of $15,000,000 and $18,000,000, respectively. The rights,
preferences and privileges of the preferred stockholders are discussed in Note
7.
Operating agreement
On December 10, 1999, the Company entered into a fifteen year operating
agreement with NBC and NBCi. The agreement provides for the joint development
and design of a co-branded service which includes content applications such as
entertainment, e-commerce, games, search applications and other utility features
designed for broad band users. Consumers will be able to fully utilize these
online services through a jointly branded portal interface. Revenues, generated
from internet subscriptions, sponsorship, advertising and e-commerce will be
shared with NBCi. Any amounts payable resulting from revenue sharing will be
included in cost of revenues.
Lines of credit
In May 1999, the Company signed the following line of credit agreements
which are collateralized by substantially all of the Company's assets:
i) Working capital financing for $3,000,000 which bears interest at 12.5%
and is repayable in 36 equal monthly installments.
F-19
<PAGE> 108
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ii) Working capital financing for $1,000,000 which bears interest at a
premium of 7.3% over the U.S. dollar risk free interest rate.
In August 1999, the Company entered into a $279,585 letter of credit
facility with a financing company which bears interest at 1.5% and has a term of
six years.
In October 1999, the Company entered into a bridge loan transaction with a
financing company for $4,000,000 which bears interest at 12% with a term of 60
days.
In November 1999, the Company entered into convertible bridge loan
transactions with two of its directors for a combined total of $5,000,000. Each
loan was made at an annual interest rate of 12%. The loans were converted into a
combined total of 954,198 shares of Series C mandatorily redeemable preferred
stock in December 1999.
Issuance of Warrants
i) In March and November 1999, in connection with capital lease
financing, the Company issued warrants to purchase 65,000 shares of
common stock for between $0.11 and $1.50 per share. Such warrants
expire within five years of the grant date. Using the Black-Scholes
pricing model the Company determined that the fair value of the
warrants was $75,520. The fair value of the warrants will be amortized
to interest expense over the term of the capital leases.
ii) In June and November 1999, in connection with services received, the
Company issued warrants to purchase 288,856 shares of common stock for
between $0.35 and $1.50 per share. Such warrants expire within five to
seven years of the grant date. Using the Black-Scholes pricing model,
the Company determined that the fair value of the warrants was
$317,343 at the grant date. The fair value of the warrants will be
recognized as stock-based compensation expense.
iii) In May, August, October, November and December 1999, in connection
with notes payable and capital leases, the Company issued warrants to
purchase 833,498 shares of Series B mandatorily redeemable
convertible preferred stock for between $1.10 and $5.13 per share.
Such warrants expire within three to ten years of the grant date.
Using the Black-Scholes pricing model, the Company determined that
the fair value of the warrants was $1,143,297 at the grant date. The
fair value of the warrants will be amortized to interest expense over
the term of the notes and capital leases.
iv) In August 1999, in connection with a line of credit, the Company
issued warrants to purchase 38,126 shares of Series B mandatorily
redeemable convertible preferred stock for $1.10 per share. Such
warrants expire within ten years of the grant date. Using the
Black-Scholes pricing model, the Company determined that the fair
value of the warrants was $108,454 at the grant date. The fair value
of the warrants will be amortized to interest expense over the term of
the letter of credit.
v) In October 1999, in connection with a bridge loan the Company issued
warrants to purchase 44,628 shares of Series B mandatorily redeemable
convertible preferred stock for $4.48 per share. Such warrants expire
within three years of the grant date. Using the Black-Scholes pricing
model, the Company determined that the fair value of the warrants was
$86,824 at the grant date. The fair value of the warrants will be
amortized to interest expense over the term of the bridge financing.
vi) In December 1999, in connection with bridge loans received from two of
its directors, the Company issued warrants to purchase 47,710 shares
of Series C mandatorily redeemable
F-20
<PAGE> 109
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preferred stock for $5.24 per share. Such warrants expire within five
years of the grant date. Using the Black-Scholes pricing model, the
Company determined that the fair value of the warrants was $140,913 at
the grant date. The fair value of the warrants will be amortized to
interest expense over the term of the bridge loan.
vii) In December 1999, in connection with an operating agreement the
Company issued warrants to acquire 1,039,122 and 850,191 shares of
Series C preferred stock to NBCi and NBC, respectively, at an
exercise price of $5.24 which expire in five years. Using the
Black-Scholes pricing model the Company determined that the fair
value of the warrants was $5,580,159 at the grant date. The fair
value of the warrants will be amortized to stock-based compensation
expense over the term of the agreement.
Commitments
Subsequent to January 1, 1999, the Company leased additional office space
and equipment under noncancelable operating and capital leases and entered into
certain non-cancelable service agreements. These agreement have various
expiration dates through June 2005. The Company also sublet certain property for
the period from August 1999 to October 2002.
Stock Plans
In December 1999, the Company's Board of Directors approved, subject to
shareholder approval, the 2000 Equity Incentive Plan, the 2000 Employee Stock
Purchase Plan and the 2000 Outside Directors Stock Plan. Each plan will be
administered by the Board or by a committee of the Board.
A total of 24,000,000 shares of common stock are authorized and reserved
for issuance under the 2000 Equity Incentive Plan ("Equity Incentive Plan"), and
the cumulative number of shares authorized for issuance will be increased
automatically on January 1, 2001 and each January 1 thereafter. The Equity
Incentive Plan allows awards to be granted in the form of incentive stock
options, nonstatutory stock options, restricted stock purchase rights and
bonuses, performance shares and performance units. Unless terminated sooner by
the Board, the Equity Incentive Plan will terminate automatically in 2009 on the
tenth anniversary of its adoption by the Board.
A total of 2,500,000 shares of common stock are reserved for issuance
under the 2000 Employee Stock Purchase Plan ("ESPP"), cumulatively increased on
January 1, 2001 and each January 1, thereafter. The ESPP permits employees,
including officers and employee directors, to purchase common stock through
payroll deductions of up to 20% of the participant's base salary and
commissions, but not to exceed the established maximum. Such amounts are applied
to the purchase from the Company of shares of common stock at the end of each
offering period at a price which is generally 85% of the lower of the fair
market value of the common stock on either the first or last of the offering
period.
A total of 400,000 shares of common stock are authorized and reserved for
issuance under the 2000 Outside Directors Stock Plan ("Outside Directors Stock
Plan"), cumulatively increased on January 1, 2001 and each January 1 thereafter.
The Outside Directors Stock Plan establishes an initial, automatic grant of an
option to purchase 20,000 shares of our common stock to each non-employee
director who is first elected to our Board of Directors after the effective date
of this offering. The Outside Directors Stock Plan also permits each
non-employee director to elect to receive additional equity awards in lieu of
from 25% to 100% of the cash compensation otherwise payable to the director for
service on the Board.
F-21
<PAGE> 110
TELOCITY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancelable operating and capital
leases and service agreements including future minimum sublease rental receipts
under noncancelable operating lease, entered into during 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
YEAR ENDED CAPITAL AND SERVICE SUBLEASE
DECEMBER 31, LEASES AGREEMENTS INCOME
- ------------ ------- ----------- --------
<S> <C> <C> <C>
1999................................................. $ 1,003 $ 547 $ 123
2000................................................. 3,724 1,111 332
2001................................................. 3,633 1,143 339
2002................................................. 2,554 1,459 287
2003................................................. 656 1,774 --
2004................................................. -- 1,808 --
2005................................................. -- 913 --
------- ------ ------
Total minimum lease and service payments and sublease
income............................................. $11,570 $8,755 $1,081
======= ====== ======
</TABLE>
Initial public offering
In December 1999, the Company approved the issuance and sale of shares of
common stock in an initial public offering.
Stock split and reincorporation
On October 13, 1999, the Company effected a 2:1 common and preferred stock
split.
In December 1999, the Company approved the reincorporation of the Company
from California to Delaware. The reincorporation to Delaware will result in a
change in par value and an increase in authorized shares. All share data and
stock option plan information in the consolidated financial statements and notes
herein have been restated to reflect the stock split and reincorporation.
F-22
<PAGE> 111
BACK COVER (DETAIL OF OUR MANAGED NETWORK):
[Image of greyed-out US network map]
[Image of people at computer]
[Image of gateway]
[Image of satellite]
Personal Computer-
Our network begins with the connection of our customer's personal computer, or
home network of computers, to our residential gateway.
Last Mile Solution -
Our broadband platform is designed to support a variety of high-speed last mile
access technologies, such as xDSL, wireless, fixed wireless, cable modem, fiber,
and satellite.
Metropolitan Hubs -
We aggregate customer traffic in our metropolitan hubs. Our network directs each
customer's data request to the closest available server containing the requested
content, service or application.
Dedicated Circuits -
Customer traffic is aggregated through dedicated, secure circuits into our local
metropolitan hubs.
Our Backbone -
Between our metropolitan hubs, customer traffic travels on our managed
high-speed backbone. The backbone is interconnected to the Internet and to other
network providers at Internet exchange points via private and public peering
arrangements.
Network Operations Center -
Customer activity is managed and monitored 24-hours-a-day, 7-days-a-week
providing secure and reliable service.
Satellite Connection -
Satellite caching feeds enhance the delivery of data to our customers.
<PAGE> 112
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[ ] SHARES
[TELOCITY LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 113
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Telocity, Inc. in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $39,600
NASD filing fee.............................................
Nasdaq National Market listing fee..........................
Printing and engraving costs................................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue Sky fees and expenses..................................
Transfer Agent and Registrar fees...........................
Miscellaneous expenses......................................
-------
Total............................................. $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
The Eighth Article of the Registrant's Restated Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Delaware law.
Article VIII of the Registrant's Amended and Restated Bylaws provides for
the indemnification of officers, directors and third parties acting on behalf of
the Registrant if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interest of the Registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Amended and Restated Bylaws, and intends to enter into
indemnification agreements with any new directors and executive officers in the
future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, we have issued unregistered securities to a limited
number of persons as described below: (all share numbers and exercise prices in
this Item 15 are adjusted for the 2 for 1 forward stock split effected on
October 13, 1999.)
(1) An aggregate of 2,560,000 shares of common stock was issued in a
private placement in October 1997 to August Capital Associates L.P.
and August Capital Strategic Partners, L.P. in connection with the
Registrant's initial funding. The consideration received for such
shares was $1,280.
(2) An aggregate of 504,000 shares of our common stock in October 1997 to
Aspen Internet Systems, Inc. in exchange for the execution of a
patent license agreement. The consideration received for such shares
was $252.
II-1
<PAGE> 114
(3) An aggregate of 7,100,000 shares of our common stock in December 1997
and June 1998 to Messrs. Olson, Solomon, Obenhuber, Grundy and
Stepovich in connection with Founder Stock Purchase Agreements. The
consideration received for such shares was $17,392.
(4) An aggregate of 13,150,000 shares of Series A preferred stock in a
private placement in July 1999 to entities affiliated with August
Capital L.P. and Bessemer Venture Partners, as well as certain other
purchasers pursuant to a Series A preferred stock Purchase Agreement.
The consideration received for such shares was $6,575,000.
(5) An aggregate of 13,181,818 shares of Series B preferred stock in a
private placement in February and March 1999 to entities affiliated
with August Capital L.P., Bessemer Venture Partners, Mohr, Davidow
Ventures and RRE Investors, LLC, as well as certain other purchasers
pursuant to Series B preferred stock Purchase Agreement. The
consideration received for such shares was $14,500,000.
(6) An aggregate of 24,332,061 shares of Series C preferred stock in a
private placement in December 1999 to entities affiliated with NBC
Internet, Inc., August Capital L.P., Bessemer Venture Partners, Mohr,
Davidow Ventures and RRE Investors, LLC, as well as certain other
purchasers pursuant to a Series C preferred stock Purchase Agreement.
The consideration for such shares was $127,500,000.
(7) From July 1998 through December 31, 1999, the Registrant granted
stock options to purchase an aggregate of 10,615,660 shares of common
stock to employees and consultants with aggregate exercise prices
ranging from $0.05 to $3.00 per share pursuant to the Registrant's
stock option plan. As of December 31, 1999, 9,629,134 shares of
common stock have been issued upon exercise of options.
(8) From March 1998 through December 1999 the Registrant issued to
Comdisco, Inc. warrants to purchase an aggregate of 1,054,506 shares
of preferred stock with an average exercise price of $1.23 per share
in connection with an equipment lease financing.
(9) In September 1998, the Registrant issued to Citizen's Telecom
Services Company LLC a warrant to purchase 765,018 shares of common
stock at an exercise price of $0.05 per share in connection with a
letter of intent to engage in a joint development effort.
(10) In March 1999, the Registrant issued to Vidovich-Cupertino Limited
Partnership a warrant to purchase 50,000 shares of common stock at an
exercise price of $0.11 per share in connection with a real property
lease.
(11) In May 1999 the Registrant issued to Meier Mitchell & Company a
warrant to purchase 252,272 shares of preferred stock at an exercise
price of $1.10 per share in connection with an equipment lease
financing.
(12) In June 1999, the Registrant issued to Heidrick & Struggles, Inc. a
warrant to purchase 268,856 shares of common stock at an exercise
price of $0.35 per share in connection with an executive search.
(13) In November 1999, the Registrant issued to Ranbach Music, Ltd. a
warrant to purchase 20,000 shares of common stock at a price of $1.50
per share in connection with a license for the Registrant to use
certain music in connection with its marketing and other efforts.
(14) In November 1999, the Registrant issued to The Sobrato Group a
warrant to purchase 15,000 shares of common stock at an exercise
price of $1.50 per share in connection with a real property lease.
(15) In November 1999, in connection with bridge loans in advance of the
close of the Registrant's Series C preferred stock financing, the
Registrant issued to Ms. Hart and Mr. Olson warrants for 19,084
shares and 28,626 shares of preferred stock, respectively, with an
exercise price of $5.24 per share.
II-2
<PAGE> 115
(16) In November 1999 the Registrant issued to Point Financial, Inc. a
warrant to purchase 32,599 shares of preferred stock at an exercise
price of $4.91 per share in connection with an equipment lease
financing.
(17) In December 1999 the Registrant issued to the National Broadcasting
Company, Inc. and NBC Internet, Inc. warrants for 850,191 shares and
1,039,122 shares of preferred stock, respectively, with an exercise
price of $5.24 per share.
For additional information concerning these equity investment
transactions, reference is made to the information contained under the caption
"Related Party Transactions" in the form of prospectus included herein. The
sales of the above securities were deemed to be exempt from registration in
reliance on Rule 701 promulgated under Section 3(b) under the Securities Act as
transactions pursuant to a compensatory benefit plan or a written contract
relating to compensation, or in reliance on Section 4(2) of the Securities Act
or Regulation D promulgated thereunder as transactions by an issuer not
involving any public offering. The recipients of securities in each such
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the share certificates and other
instruments issued in such transactions. All recipients either received adequate
information about Telocity or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Restated Certificate of Incorporation of Registrant
3.2* Bylaws of Registrant
4.1* Specimen of stock certificates
5.1* Opinion of Gray Cary Ware & Freidenrich LLP
5.2* Opinion of Patton Boggs, LLP
10.1 Form of Indemnification Agreement between Registrant and
each of its directors and officers
10.2* 2000 Equity Incentive Plan and form of agreements thereunder
10.3* 2000 Employee Stock Purchase Plan
10.4* 2000 Outside Directors Stock Plan and form of agreements
thereunder
10.5+ Lease between Registrant and Vidovich-Cupertino Limited
Partnership
10.6+ Lease between Registrant and Lee Li Chun Koo
10.7+ Lease between Registrant and The Sobrato Group
10.8 Second Amended and Restated Investors' Rights Agreement
10.9+ Product Manufacturing Agreement between Registrant and
Wellex Corporation
10.10+ Agreement for Services between Registrant and Telamon-IMS,
Inc.
10.11+ Agreement for Services between Registrant and the Sutherland
Group, Ltd.
10.12 Employment Agreement between Registrant and Patti Hart
10.13 Employment Agreement between Registrant and Peter Olson
10.14 Employment Agreement between Registrant and Jim Morrissey
10.15 Employment Agreement between Registrant and Thomas Obenhuber
10.16 Employment Agreement between Registrant and James Rohrer
10.17 Employment Agreement between Registrant and Matthew
Stepovich
</TABLE>
II-3
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
10.18 Employment Agreement between Registrant and Regina Wiedemann
10.19 Employment Agreement between Registrant and Kevin Grundy
10.20 Employment Agreement between Registrant and Jef Raskin
10.21 Employment Agreement between Registrant and Andrew Robinson
10.22 Employment Agreement between Registrant and Edward Hayes
10.23 Employment Agreement between Registrant and Scott Martin
10.24 Consultants Stock Option Plan and form of agreements
thereunder
10.25+ Market Development Agreement between Registrant and
BellSouth Business Systems, Inc.
10.26+ Private Line Service Level Agreement between Registrant and
Level 3 Communications, LLC
10.27+ Private Line Service Agreement between Registrant and MCI
WorldCom Communications, Inc.
10.28+ Operating Agreement between Registrant and NBC Internet,
Inc.
10.29+ Advertising Agreement between Registrant and the National
Broadcasting Company, Inc.
10.30+ Advertising Agreement between Registrant and NBC Internet,
Inc.
10.31 Founder Stock Purchase Agreement between Registrant and
Peter Olson dated December 23, 1997
10.32 Founder Stock Purchase Agreement between Registrant and
Michael Solomon dated December 23, 1997
10.33 Founder Stock Purchase Agreement between Registrant and
Thomas Obenhuber dated December 23, 1997
10.34 Founder Stock Purchase Agreement between Registrant and
Matthew Stepovich dated December 23, 1997
10.35 Founder Stock Repurchase Agreement between Registrant and
Peter Olson dated June 1, 1998
10.36 Founder Stock Repurchase Agreement between Registrant and
Michael Solomon dated June 1, 1998
10.37 Founder Stock Purchase Agreement between Registrant and
Kevin Grundy dated June 10, 1998
10.38 Founder Stock Purchase Agreement between Registrant and
Thomas Obenhuber dated June 10, 1998
10.39 Founder Stock Purchase Agreement between Registrant and
Matthew Stepovich dated June 10, 1998
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2* Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (see page II- )
27.1 Financial Information Schedules
</TABLE>
- ---------------
+ Confidential treatment has been requested for certain portions of this
exhibit. The omitted portions have been separately filed with the Commission.
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
None.Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
consolidated financial statements or notes thereto.
II-4
<PAGE> 117
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cupertino,
State of California, on the 7th day of January 2000.
Telocity, Inc.
By: /s/ PATTI HART
------------------------------------
Patti Hart, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Patti Hart and Edward Hayes and each of
them, his attorneys-in-fact, each with the power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PATTI HART President, Chief Executive January 7, 2000
- --------------------------------------------- Officer and Director (Principal
Patti Hart Executive Officer)
/s/ EDWARD HAYES Executive Vice President and January 7, 2000
- --------------------------------------------- Chief Financial Officer
Edward Hayes (Principal Financial and
Accounting Officer)
/s/ DAVID COWAN Director January 7, 2000
- ---------------------------------------------
David Cowan
/s/ PETER OLSON Executive Vice President, Chief January 7, 2000
- --------------------------------------------- Technical Officer and Director
Peter Olson
/s/ ANDREW RAPPAPORT Director January 7, 2000
- ---------------------------------------------
Andrew Rappaport
/s/ EDMOND SANCTIS Director January 7, 2000
- ---------------------------------------------
Edmond Sanctis
/s/ MICHAEL SOLOMON Director January 7, 2000
- ---------------------------------------------
Michael Solomon
/s/ RANDALL STRAHAN Director January 7, 2000
- ---------------------------------------------
Randall Strahan
</TABLE>
II-6
<PAGE> 119
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Restated Certificate of Incorporation of Registrant
3.2* Bylaws of Registrant
4.1* Specimen of stock certificates
5.1* Opinion of Gray Cary Ware & Freidenrich LLP
5.2* Opinion of Patton Boggs, LLP
10.1 Form of Indemnification Agreement between Registrant and
each of its directors and officers
10.2* 2000 Equity Incentive Plan and form of agreements thereunder
10.3* 2000 Employee Stock Purchase Plan
10.4* 2000 Outside Directors Stock Plan and form of agreements
thereunder
10.5+ Lease between Registrant and Vidovich-Cupertino Limited
Partnership
10.6+ Lease between Registrant and Lee Li Chun Koo
10.7+ Lease between Registrant and The Sobrato Group
10.8 Second Amended and Restated Investors' Rights Agreement
10.9+ Product Manufacturing Agreement between Registrant and
Wellex Corporation
10.10+ Agreement for Services between Registrant and Telamon-IMS,
Inc.
10.11+ Agreement for Services between Registrant and the Sutherland
Group, Ltd.
10.12 Employment Agreement between Registrant and Patti Hart
10.13 Employment Agreement between Registrant and Peter Olson
10.14 Employment Agreement between Registrant and Jim Morrissey
10.15 Employment Agreement between Registrant and Thomas Obenhuber
10.16 Employment Agreement between Registrant and James Rohrer
10.17 Employment Agreement between Registrant and Matthew
Stepovich
10.18 Employment Agreement between Registrant and Regina Wiedemann
10.19 Employment Agreement between Registrant and Kevin Grundy
10.20 Employment Agreement between Registrant and Jef Raskin
10.21 Employment Agreement between Registrant and Andrew Robinson
10.22 Employment Agreement between Registrant and Edward Hayes
10.23 Employment Agreement between Registrant and Scott Martin
10.24 Consultants Stock Option Plan and form of agreements
thereunder
10.25+ Market Development Agreement between Registrant and
BellSouth Business Systems, Inc.
10.26+ Private Line Service Level Agreement between Registrant and
Level 3 Communications, LLC
10.27+ Private Line Service Agreement between Registrant and MCI
WorldCom Communications, Inc.
10.28+ Operating Agreement between Registrant and NBC Internet,
Inc.
10.29+ Advertising Agreement between Registrant and the National
Broadcasting Company, Inc.
10.30+ Advertising Agreement between Registrant and NBC Internet,
Inc.
10.31 Founder Stock Purchase Agreement between Registrant and
Peter Olson dated December 23, 1997
10.32 Founder Stock Purchase Agreement between Registrant and
Michael Solomon dated December 23, 1997
</TABLE>
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
10.33 Founder Stock Purchase Agreement between Registrant and
Thomas Obenhuber dated December 23, 1997
10.34 Founder Stock Purchase Agreement between Registrant and
Matthew Stepovich dated December 23, 1997
10.35 Founder Stock Repurchase Agreement between Registrant and
Peter Olson dated June 1, 1998
10.36 Founder Stock Repurchase Agreement between Registrant and
Michael Solomon dated June 1, 1998
10.37 Founder Stock Purchase Agreement between Registrant and
Kevin Grundy dated June 10, 1998
10.38 Founder Stock Purchase Agreement between Registrant and
Thomas Obenhuber dated June 10, 1998
10.39 Founder Stock Purchase Agreement between Registrant and
Matthew Stepovich dated June 10, 1998
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2* Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (see page II- )
27.1 Financial Information Schedules
</TABLE>
- ---------------
+ Confidential treatment has been requested for certain portions of this
exhibit. The omitted portions have been separately filed with the Commission.
* To be filed by amendment.
<PAGE> 1
EXHIBIT 10.01
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of __________, 1999, is made by and
between Telocity, Inc., a Delaware corporation (the "COMPANY"), and ____________
(the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers
and agents and the directors, officers and agents of its subsidiaries to assume
the risk of huge judgments and other expenses which may occur in cases in which
the director, officer or agent received no personal profit and in cases where
the director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to encourage such individuals to take
the business risks necessary for the success of the Company and its
subsidiaries, it is necessary for the Company to contractually indemnify its
directors,
1
<PAGE> 2
officers and agents and the directors, officers and agents of its subsidiaries,
and to assume for itself maximum liability for expenses and damages in
connection with claims against such directors, officers and agents in connection
with their service to the Company and its subsidiaries, and has further
concluded that the failure to provide such contractual indemnification could
result in great harm to the Company and its subsidiaries and the Company's
stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses"
include all out of pocket expenses costs of any type or nature whatsoever
(including, without limitation, all attorneys' fees and related disbursements),
actually and reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement or Section 145 or otherwise;
provided,
2
<PAGE> 3
however, that "expenses" shall not include any judgments, fines, ERISA excise
taxes or penalties, or amounts paid in settlement of a proceeding.
(c) Proceeding. For the purposes of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or
continue to serve as agent of the Company, at its will (or under separate
agreement, if such agreement exists), in the capacity Indemnitee currently
serves as an agent of the Company, so long as he is duly appointed or elected
and qualified in accordance with the applicable provisions of the Bylaws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing; provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment by Indemnitee.
3. Liability Insurance.
(a) Maintenance of D&O Insurance. The Company hereby covenants
and agrees that, so long as the Indemnitee shall continue to serve as an agent
of the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
(b) Rights and Benefits. In all policies of D&O Insurance, the
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
(c) Limitation on Required Maintenance of D&O Insurance.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. Mandatory Indemnification. Subject to Section 9 below, the
Company shall indemnify the Indemnitee as follows:
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(a) Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) Derivative Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding by or in the
right of the Company by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such capacity,
the Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is
a person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement)
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for which payment is actually made to Indemnitee under a valid and collectible
insurance policy of D&O Insurance, or under a valid and enforceable indemnity
clause, by-law or agreement.
5. Partial Indemnification. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a)
below, the Company shall advance all expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an agent of the
Company. Indemnitee hereby undertakes to repay such amounts advanced only if,
and to the extent that, it shall be determined ultimately that the Indemnitee is
not entitled to be indemnified by the Company as authorized hereby. The advances
to be made hereunder shall be paid by the Company to the Indemnitee within
twenty (20) days following delivery of a written request therefor by the
Indemnitee to the Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) In the event the Company shall be obligated to pay the
expenses of any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any fees
of counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of
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interest between the Company and the Indemnitee in the conduct of any such
defense; or (C) the Company shall not, in fact, have employed counsel to assume
the defense of such proceeding, the fees and expenses of Indemnitee's counsel
shall be at the expense of the Company.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
(b) Lack of Good Faith. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of a proceeding unless
the Company consents to such settlement, which consent shall not be unreasonably
withheld.
9. Non-exclusivity. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, the vote of the
Company's stockholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
10. Enforcement. Any right to indemnification or advances granted
by this Agreement to Indemnitee shall be enforceable by or on behalf of
Indemnitee in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
Indemnitee, in such enforcement action, if successful in whole or in part, shall
be entitled to be paid also the expense of prosecuting his claim. It shall be a
defense to any action for which a claim for indemnification is made under this
Agreement (other than an action brought to enforce a claim for expenses pursuant
to Section 6 hereof, provided that the required undertaking has been tendered to
the Company) that Indemnitee is not entitled to indemnification because of the
limitations set forth in Sections 4 and 8 hereof. Neither the failure of the
Corporation (including its Board of Directors or its stockholders) to have made
a determination prior to the
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commencement of such enforcement action that indemnification of Indemnitee is
proper in the circumstances, nor an actual determination by the Company
(including its Board of Directors or its stockholders) that such indemnification
is improper, shall be a defense to the action or create a presumption that
Indemnitee is not entitled to indemnification under this Agreement or otherwise.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. Survival of Rights.
(a) All agreements and obligations of the Company contained
herein shall continue during the period Indemnitee is an agent of the Company
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
(b) The Company shall require any successor to the Company
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
13. Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
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<PAGE> 8
16. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party addressee or (ii)
if mailed by certified or registered mail with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party are as
shown on the signature page of this Agreement, or as subsequently modified by
written notice.
17. Governing Law. This Agreement shall be governed exclusively by
and construed according to the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
18. Consent to Jurisdiction. The Company and the Indemnitee each
hereby consent to the jurisdiction of the courts of the State of Delaware with
respect to any action or proceeding which arises out of or relates to this
Agreement.
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The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
THE COMPANY:
TELOCITY, INC.
BY
----------------------------------
ITS
----------------------------------
Address: 10355 N. De Anza Blvd.
Cupertino, California 94014
INDEMNITEE:
-------------------------------------
[NAME]
Address:
-------------------------------------
-------------------------------------
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<PAGE> 1
EXHIBIT 10.5
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes
only, February 27, 1999, is made by and between Vidovich-Cupertino Limited
Partnership, a California Limited Partnership ("LESSOR") and MachOne
Communications, a California Corporation ("LESSEE"), (collectively the
"PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 10355 North De Anza Boulevard, Cupertino located in the County of
Santa Clara, State of California, and generally described as (describe briefly
the nature of the property and, if applicable, the "PROJECT", if the property
is located within a Project) a three-story office building with parking lot
(See also paragraph 59) ("PREMISES"). (See also Paragraph 2)
1.3 TERM: Six (6) years and no months ("ORIGINAL TERM") commencing
July 1, 1999 ("COMMENCEMENT DATE") and ending June 30, 2005 ("EXPIRATION DATE").
(See also Paragraph 3)
1.4 EARLY POSSESSION: ______________________________________________
("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: [*] per month ("BASE RENT"), payable on the first day
of each month commencing July 1, 1999 (See also Paragraph 4)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: [*] as Base Rent for the period
July 1999.
1.7 SECURITY DEPOSIT: [*] (See also paragraph 52) ("SECURITY
DEPOSIT"). (See also Paragraph 5)
1.8 AGREED USE: Office and Research and Development. (See also
Paragraph 6)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction (check applicable boxes):
[X] Cornish & Carey represents Lessor exclusively ("LESSOR'S BROKER");
[X] CPS represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _________________________ represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of ______%
of the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by N/A ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 61 and Exhibits ____________________________
_________________________________, all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom
clean and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("START DATE"), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee within
thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation
with respect to such matter, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If, after the Start Date, Lessee does not give Lessor written
notice of any non-compliance with this warranty within: (i) one year as to the
surface of the roof and the (ii) six (6) months as to the HVAC systems, (iii)
thirty (30) days as to the remaining systems and other elements of the Building,
correction of such non-compliance shall be the obligation of Lessee at Lessee's
sole cost and expense.
- ----------
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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termination, Lessee shall immediately cease the use of the Premises which
requires such Capital Expenditure and deliver to Lessor written notice
specifying a termination date at least ninety (90) days thereafter. Such
termination date shall, however, in no event be earlier than the last day that
Lessee could legally utilize the Premises without commencing such Capital
Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation to
pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided,
however, that if such Capital Expenditure is required during the last two years
of this Lease or if Lessor reasonably determines that it is not economically
feasible to pay its share thereof, Lessor shall have the option to terminate
this Lease upon ninety (90) days prior written notice to Lessee unless Lessee
notifies Lessor, in writing, within ten (10) days after receipt of Lessor's
termination notice that Lessee will pay for such Capital Expenditure. If Lessor
does not elect to terminate, and fails to tender its share of any such Capital
Expenditure, Lessee may advance such funds and deduct same, with Interest, from
Rent until Lessor's share of such costs have been fully paid. If Lessee is
unable to finance Lessor's share, or if the balance of the Rent due and payable
for the remainder of this Lease is not sufficient to fully reimburse Lessee on
an offset basis, Lessee shall have the right to terminate this Lease upon thirty
(30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical, HVAC and fire
sprinkler systems, security, environmental aspects, and compliance with
Applicable Requirements), and their suitability for Lessee's intended use; (b)
(c) neither Lessor, Lessor's agents, nor any
Broker has made any oral or written representations or warranties with respect
to said matters other than as set forth in this Lease. In addition, Lessor
acknowledges that: (a) Broker has made no representations, promises or
warranties concerning Lessee's ability to honor the Lease or suitability to
occupy the Premises; and (b) it is Lessor's sole responsibility to investigate
the financial capability and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this Lease
(including, but not limited to, the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall, however, be in effect
during such period. Any such early possession shall not affect the Expiration
Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee when required and Lessee does
not terminate this Lease, as aforesaid, any period of rent abatement that Lessee
would otherwise have enjoyed shall run from the date of delivery of possession
and continue for a period equal to what Lessee would otherwise have enjoyed
under the terms hereof, but minus any days of delay caused by the acts or
omissions of Lessee. If possession of the Premises is not delivered within four
(4) months after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due. Rent for any period during the term hereof
which is for less than one (1) full calendar month shall be prorated based upon
the actual number of days of said month. Payment of Rent shall be made to Lessor
at its address stated herein or to such other persons or place as Lessor may
from time to time designate in writing. Acceptance of a payment which is less
than the amount then due shall not be a waiver of Lessor's rights to the balance
of such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Should the Agreed Use be
amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or termination
of this Lease, if Lessor elects to apply the Security Deposit only to unpaid
Rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to neighboring properties. Lessor
shall not unreasonably withhold
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<PAGE> 3
or delay its consent to any written request for a modification of the Agreed
Use, so long as the same will not impair the structural integrity of the
improvements on the Premises or the mechanical or electrical systems therein, is
not significantly more burdensome to the Premises. If Lessor elects to withhold
consent, Lessor shall within five (5) business days after such request give
written notification of same, which notice shall include an explanation of
Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and provide
Lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises by
or for Lessee, or any third party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from adjacent properties). Lessee's
obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY
LESSOR AND LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE
WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN
WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages which existed as a
result of Hazardous Substances on the Premises prior to the Start Date or which
are caused by the gross negligence, or intentional acts of Lessor, its agents or
employees. Lessor's obligations, as and when required by the Applicable
Requirements, shall include, but not be limited to, the cost of investigation,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date. Lessee shall
cooperate fully in any such activities at the request of Lessor, including
allowing Lessor and Lessor's agents to have reasonable access to the Premises at
reasonable times in order to carry out Lessor's investigative and remedial
responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee, within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender and
consultants shall have the right to enter into Premises at any time, in the case
of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease. The cost of any such inspections shall be paid by Lessor,
unless a violation of Applicable Requirements, or a contamination is found to
exist or be imminent, or the inspection is requested or ordered by a
governmental authority. In such case, Lessee shall upon request reimburse Lessor
for the cost of such inspections, so long as such inspection is reasonably
related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep
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the Premises, Utility Installations, and Alterations in good order, condition
and repair (whether or not the portion of the Premises requiring repairs, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
but not limited to, all equipment or facilities, such as plumbing, heating,
ventilating, air-conditioning, electrical, lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior and
exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass,
skylights, landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices, specifically including the procurement and
maintenance of the service contracts required by Paragraph 7.1(b) below.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. Lessee shall, during the term of this
Lease, keep the exterior appearance of the Building in a first-class condition
consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity, including, when necessary, the exterior
repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements ("BASIC ELEMENTS"), if
any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and
pressure vessels, (iii) fire protection systems, (iv) landscaping and irrigation
systems, (v) roof covering and drains, and (vi) asphalt and parking lots, (vii)
clarifiers and (viii) any other equipment, if reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation thereof (including interest on
the unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay its obligation
at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14
(Condemnation), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, or
the equipment therein, all of which obligations are intended to be that of the
Lessee. It is the intention of the Parties that the terms of this Lease govern
the respective obligations of the Parties as to maintenance and repair of the
Premises, and they expressly waive the benefit of any statute now or hereafter
in effect to the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing
in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery
and equipment that can be removed without doing material damage to the Premises.
The term "ALTERATIONS" shall mean any modification of the improvements, other
than Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility. If Lessee shall contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof. If Lessor shall require, Lessee shall furnish a
surety bond in an amount equal to one and one-half times the amount of such
contested lien, claim or demand, indemnifying Lessor against liability for the
same. If Lessor elects to participate in any such action, Lessee shall pay
Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor
not later than ninety (90) days prior to the end of the term of this Lease,
Lessor may require that any or all Lessee Owned Alterations or Utility
Installations be removed by the expiration or termination of this Lease. Lessor
may require the removal at any time of all or any part of any Lessee Owned
Alterations or Utility Installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice. Lessee shall repair
any damage occasioned by the installation, maintenance or removal of Trade
Fixtures, furnishings, and equipment as well as the removal of any storage tank
installed by or for Lessee, and the removal, replacement, or remediation of any
soil, material or groundwater contaminated by Lessee. Trade Fixtures shall
remain the property of Lessee and shall be removed by Lessee. The failure by
Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without
the express written consent of Lessor shall constitute a holdover under the
provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor under Paragraph 8.2(b) in excess of
$2,000,000 per occurrence. Premiums for policy periods commencing prior to or
extending beyond the Lease term shall be prorated to correspond to the Lease
term. Payment shall be made by Lessee to Lessor within ten (10) days following
receipt of an invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee
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and Lessor against claims for bodily injury, personal injury and property damage
based upon or arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$2,000,000 per occurrence with an "ADDITIONAL INSURED -- MANAGERS OR LESSORS OF
PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION
ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile fire. The
Policy shall not contain any intra-insured exclusions as between insured persons
or organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance shall not, however,
limit the liability of Lessee nor relieve Lessee of any obligation hereunder.
All insurance carried by Lessee shall be primary to and not contributory with
any similar insurance carried by Lessor, whose insurance shall be considered
excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance
as described in Paragraph 8.2(a), in addition to, and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor and to any Lender insuring loss or damage to the Premises. The amount
of such insurance shall be equal to the full replacement cost of the Premises,
as the same shall exist from time to time, or the amount required by any
Lenders, but in no event more than the commercially reasonable and available
insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations, Trade Fixtures, and Lessee's personal
property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor.
If the coverage is available and commercially appropriate, such policy or
policies shall insure against all risks of direct physical loss or damage
(except the perils of flood and/or earthquake unless required by a Lender),
including coverage for debris removal and the enforcement of any Applicable
Requirements requiring the upgrading, demolition, reconstruction or replacement
of any portion of the Premises as the result of a covered loss. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor with loss payable to Lessor and
any Lender, insuring the loss of the full Rent for one (1) year. Said insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee
shall be liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to the
Premises, the Lessee shall pay for any increase in the premiums for the property
insurance of such building or buildings if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. If reasonably available, and if
Lessor requests Lessee to do so in writing, Lessee shall obtain and maintain
loss of income and extra expense insurance in amounts as will reimburse Lessee
for direct or indirect loss of earnings attributable to all perils commonly
insured against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current issue
of "Best's Insurance Guide", or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Start Date, deliver to
Lessor certified copies of policies of such insurance or certificates evidencing
the existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's sole negligence, Lessee shall
indemnify, protect, defend and hold harmless the Premises, Lessor and its
agents, Lessor's master or ground lessor, partners and Lenders, from and against
any and all claims, loss of rents and/or damages, liens, judgments, penalties,
attorneys' and consultants' fees, expenses and/or liabilities arising out of,
involving, or in connection with, the use and/or occupancy of the Premises by
Lessee. If any action or proceeding is brought against Lessor by reason of any
of the foregoing matters, Lessee shall upon notice defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate
with Lessee in such defense. Lessor need not have first paid any such claim in
order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage 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 or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, which can reasonably be repaired in six (6) months or
less from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in six (6)
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
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(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE -- INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total cost
to repair of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Lessee's responsibility) as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (i) make
such restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall
not be entitled to reimbursement of any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be
some insurance coverage, but the net proceeds of any such insurance shall be
made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, but not to exceed the proceeds received from the Rental Value
insurance. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore
the Premises and does not commence, in a substantial and meaningful way, such
repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not commenced within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice. If the repair or restoration is commenced within said thirty (30) days,
this Lease shall continue in full force and effect. "COMMENCE" shall mean either
the unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or
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termination of this Lease, Lessee's share of such taxes shall be prorated to
cover only that portion of the tax bill applicable to the period that this Lease
is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee
shall fail to pay any required Real Property Taxes, Lessor shall have the right
to pay the same, and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on
any Rent payment, Lessor may, at Lessor's option, estimate the current Real
Property Taxes, and require that such taxes be paid in advance to Lessor by
Lessee, either: (i) in a lump sum amount equal to the installment due, at least
twenty (20) days prior to the applicable delinquency date, or (ii) monthly in
advance with the payment of the Base Rent. If Lessor elects to require payment
monthly in advance, the monthly payment shall be an amount equal to the amount
of the estimated installment of taxes divided by the number of months remaining
before the month in which said installment becomes delinquent. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payments shall be adjusted as required to provide the funds needed to
pay the applicable taxes. If the amount collected by Lessor is insufficient to
pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand,
such additional sums as are necessary to pay such obligations. All monies paid
to Lessor under this Paragraph may be intermingled with other monies of Lessor
and shall not bear interest. In the event of a Breach by Lessee in the
performance of its obligations under this Lease, then any balance of funds paid
to Lessor under the provisions of this Paragraph may at the option of Lessor, be
treated as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent which consent shall not be unreasonably withheld
or delayed.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without consent shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a noncurable
Breach, Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30)
days written notice, increase the monthly Base Rent to one hundred ten percent
(110%) of the Base Rent then in effect. Further, in the event of such Breach and
rental adjustment, (i) the purchase price of any option to purchase the Premises
held by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease; (ii)
release Lessee of any obligations hereunder; or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) [*]
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed to
have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lessee
during the term of said assignment or sublease, other than such obligations as
are contrary to or inconsistent with provisions of an assignment or sublease to
which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent payable on any sublease, and Lessor may collect
such Rent and apply same toward Lessee's obligations under this Lease; provided,
however, that until a Breach shall occur in the performance of Lessee's
obligations, Lessee may collect said Rent. Lessor shall not, by reason of the
foregoing or any assignment of such sublease, nor by reason of the collection of
Rent, be deemed liable to the sublessee for any failure of Lessee to perform and
comply with any of Lessee's obligations to such sublessee. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor all Rent due and to become due
under the sublease. Sublessee shall rely upon any such notice from Lessor and
shall pay all Rents to Lessor without any obligation or right to inquire as to
whether such Breach exists, notwithstanding any claim from Lessee to the
contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its
option, require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or Breaches
of such sublessor.
- ----------
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "BREACH" is defined as the occurrence of one or more
of the following Defaults, and the failure of Lessee to cure such Default within
any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or where
the coverage of the property insurance described in Paragraph 8.3 is jeopardized
as a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
other monetary payment required to be made by Lessee hereunder, whether to
Lessor or to a third party, when due, to provide reasonable evidence of
insurance or surety bond, or to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph 13.1 (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or of
any Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor; (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty; (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing; (iv) a Guarantor's refusal to honor the
guaranty; or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide written alternative assurance or
security, which, when coupled with the then existing resources of Lessee, equals
or exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative
duties or obligations, within ten (10) days after written notice (or in case of
an emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (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 the Lessee proves
could have been reasonably avoided; (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 the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or
other charges, or for the giving or paying by Lessor to or for Lessee of any
cash or other bonus, inducement or consideration for Lessee's entering into this
Lease, all of which concessions are hereinafter referred to as "INDUCEMENT
PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful
performance of all of the terms, covenants and conditions of this Lease. Upon
Breach of this Lease by Lessee, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor, notwithstanding any
subsequent cure of said Breach by Lessee. The acceptance by Lessor of Rent or
the cure of the Breach which initiated the operation of this paragraph shall not
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be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to ten percent (10%) of each such overdue
amount. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor within thirty (30) days following the date
on which it was due, shall bear interest from the thirty-first (31st) day after
it was due. The interest ("INTEREST") charged shall be equal to the prime rate
charged by the largest state chartered bank in the state in which the Premises
are located plus four percent (4%), but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "CONDEMNATION"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent (10%) of any building, or more than
twenty-five percent (25%) of the land area not occupied by any building, is
taken by Condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor shall have given Lessee written notice
of such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of the
date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Base Rent shall be reduced in proportion to the reduction in utility of
the Premises caused by such Condemnation. Condemnation awards and/or payments
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold, the value of the part
taken, or for severance damages; provided, however, that Lessee shall be
entitled to any compensation for Lessee's relocation expenses, loss of business
goodwill and/or Trade Fixtures, without regard to whether or not this Lease is
terminated pursuant to the provisions of this Paragraph. All Alterations and
Utility Installations made to the Premises by Lessee, for purposes of
Condemnation only, shall be considered the property of the Lessee and Lessee
shall be entitled to any and all compensation which is payable therefor. In the
event that this Lease is not terminated by reason of the Condemnation, Lessor
shall repair any damage to the Premises caused by such Condemnation.
15. BROKERS' FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant
to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee
acquires any rights to the Premises or other premises owned by Lessor and
located within the same Project, if any, within which the Premises is located,
(c) if Lessee remains in possession of the Premises, with the consent of Lessor,
after the expiration of this Lease, or (d) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then, Lessor shall pay
Brokers a fee in accordance with the schedule of said Brokers in effect at the
time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue Interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee
and Lessor each represent and warrant to the other that it has had no dealings
with any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. TENANCY STATEMENT/ESTOPPEL CERTIFICATE.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party an estoppel certificate in
writing, in form similar to the then most current "TENANCY STATEMENT" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises,
or any part thereof, Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, the original Lessor under this Lease, and
all subsequent holders of the Lessor's interest in this Lease shall remain
liable and responsible with regard to the potential duties and liabilities of
Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
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19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted
by this Lease shall be in writing and may be delivered in person (by hand or by
courier) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notices. Either Party
may by written notice to the other specify a different address for notice,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or
certified mail, return receipt requested, shall be deemed given on the date of
delivery shown on the receipt card, or if no delivery date is shown, the
postmark thereon. If sent by regular mail the notice shall be deemed given
forty-eight (48) hours after the same is addressed as required herein and mailed
with postage prepaid. Notices delivered by United States Express Mail or
overnight courier that guarantee next day delivery shall be deemed given
twenty-four (24) hours after delivery of the same to the Postal Service or
courier. Notices transmitted by facsimile transmission or similar means shall be
deemed delivered upon telephone confirmation of receipt, provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday or
legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of monies or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices shall have no liability or
obligation to perform any of the obligations of Lessor under this Lease. Any
Lender may elect to have this Lease and/or any Option granted hereby superior to
the lien of its Security Device by giving written notice thereof to Lessee, this
Lease and such Options shall be deemed prior to such Security Device,
notwithstanding the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership; (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor; or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or to declare rights hereunder, the Prevailing Party
(as hereafter defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or
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judgment. The term, "PREVAILING PARTY" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorneys' fees award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. In addition,
Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or
about the Premises any ordinary "For Sublease" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including, but not limited to, architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including, but not limited to, consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent shall
not preclude the imposition by Lessor at the time of consent of such further or
other conditions as are then reasonable with reference to the particular matter
for which consent is being given. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within ten (10) business days following such
request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty
in the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee, and cannot be assigned
or exercised by anyone other than said original Lessee and only while the
original Lessee is in full possession of the Premises and, if requested by
Lessor, with Lessee certifying that Lessee has no intention of thereafter
assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including
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the care and cleanliness of the grounds and including the parking, loading and
unloading of vehicles, and that Lessee will pay its fair share of common
expenses incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each Party
shall, within thirty (30) days after request, deliver to the other Party
satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [ ] IS [X] IS NOT attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
________________________________________________________________________________
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
________________________________________________________________________________
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Executed at:
------------------------- ---------------------------
on: 1 March '99 on:
---------------------------------- ------------------------------------
By LESSOR: By LESSEE:
/s/ JOHN VIDOVICH
- ------------------------------------- ---------------------------------------
- ------------------------------------- ---------------------------------------
By: By: /s/ ROBERT H. SEBELLMAN JR.
---------------------------------- ------------------------------------
Name Printed: John Vidovich Name Printed: Robert H. Sebellman Jr.
------------------------ --------------------------
Title: General Partner Title: VP Operations
------------------------------- ---------------------------------
By: De Anza Properties By:
----------------------------------- ------------------------------------
Name Printed: Name Printed:
------------------------ --------------------------
Title: Title:
------------------------------- ---------------------------------
Address: 920 Fremont Address: 992 So. De Anza Blvd.
----------------------------- -------------------------------
Sunnyvale, Calif. 94087 San Jose, CA 95129
----------------------------- -------------------------------
Telephone: (408) 738-4444 Sunnyvale Telephone: (408) 863-6600
--------------------- -----------------------
Facsimile: (408) 738-0231 Facsimile: (408) 777-1451
---------------------- -----------------------
Federal ID No. Federal ID No.
----------------------- -------------------------
BROKER: BROKER:
_____________________________________ _______________________________________
Executed at:_________________________ Executed at:___________________________
on:__________________________________ on:____________________________________
By:__________________________________ By:____________________________________
Name Printed:________________________ Name Printed:__________________________
Title:_______________________________ Title:_________________________________
Address:_____________________________ Address:_______________________________
_____________________________ _______________________________
Telephone: ( )_____________________ Telephone: ( )_______________________
Facsimile: ( )_____________________ Facsimile: ( )_______________________
Federal ID No._______________________ Federal ID No._________________________
NOTE: These forms are often modified to meet the changing requirements of law
and industry needs. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
So. Flower Street, Suite 600, Los Angeles, California 90017. (213)
687-8777. Fax No. (213) 687-8616
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EXHIBIT 10.6
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, SEPTEMBER 18, 1997, is made by and between LEE LI CHUN KOO ("LESSOR") and
MACHONE COMMUNICATIONS, INC., a California Corporation ("LESSEE"), (collectively
the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 922 South De Anza Boulevard, San Jose, located in the County of Santa
Clara, State of California, and generally described as (describe briefly the
nature of the property and, if applicable, the "PROJECT", if the property is
located within a Project) a free standing office building measuring
approximately 13,223 square feet and all associated parking as set forth on
Exhibit "B" ("PREMISES"). (See also Paragraph 2)
1.3 TERM: Five (5) years and 0 months ("ORIGINAL TERM") commencing
November 1, 1997 ("COMMENCEMENT DATE") and ending October 30, 2002 ("EXPIRATION
DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: Upon lease execution ("EARLY POSSESSION
DATE"). (See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: [*] per month ("BASE RENT"), payable on the first
(1st) day of each month commencing November 1997 (See also Paragraph 4)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted. See Addendum - Paragraph 50
1.6 BASE RENT PAID UPON EXECUTION: [*] as Base Rent for the period
November 1997.
1.7 SECURITY DEPOSIT: [*] ("SECURITY DEPOSIT"). (See also Paragraph
5)
1.8 AGREED USE: R&D, sales, marketing, clerical, administrative and
other legal related uses. (See also Paragraph 6)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction (check applicable boxes):
[X] BT Commercial - Guterman/Turkus represents Lessor exclusively ("LESSOR'S
BROKER");
[X] CPS - Kristen Felder represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _________________________ represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of ______%
of the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by Peter Olson ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 58 and Exhibits "A" Floor Plan, "B"
Parking, "C" Initial Alterations and Utility Installations, all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom
clean and free of debris on the Commencement Date ("START DATE"), and, so long
as the required service contracts described in Paragraph 7.1(b) below are
obtained by Lessee within thirty (30) days following the Start Date, warrants
that the existing electrical, plumbing, landscape irrigation, fire sprinkler,
lighting, heating, ventilating and air conditioning systems ("HVAC"), in the
Premises, other than those constructed by Lessee, shall be in good operating
condition on said date and that the structural elements of the roof, bearing
walls and foundation of any buildings on the Premises (the "BUILDING") shall be
free of material defects. If a non-compliance with said warranty exists as of
the Start Date, Lessor shall, as Lessor's sole obligation with respect to such
matter, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If, after the Start
Date, Lessee does not give Lessor written notice of any non-compliance with this
warranty within: (i) one year as to the surface of the roof and the structural
portions of the roof, foundations and bearing walls, (ii) six (6) months as to
the HVAC systems, (iii) thirty (30) days as to the remaining systems and other
elements of the Building, correction of such non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the
Premises comply with all applicable laws, covenants or restrictions of record,
building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect
on the Start Date. Said warranty does not apply to the use to which Lessee will
put the Premises or to any Alterations or Utility Installations (as defined in
Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify the same
at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within six (6) months following the Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. If the Applicable Requirements are hereafter
changed (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the remediation
of any Hazardous Substance, or the reinforcement or other physical modification
of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the
cost of such work as follows:
- ----------
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
PAGE 1
<PAGE> 2
(a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be
fully responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation to
pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided,
however, that if such Capital Expenditure is required during the last two years
of this Lease or if Lessor reasonably determines that it is not economically
feasible to pay its share thereof, Lessor shall have the option to terminate
this Lease upon ninety (90) days prior written notice to Lessee unless Lessee
notifies Lessor, in writing, within ten (10) days after receipt of Lessor's
termination notice that Lessee will pay for such Capital Expenditure. If Lessor
does not elect to terminate, and fails to tender its share of any such Capital
Expenditure, Lessee may advance such funds and deduct same, with Interest, from
Rent until Lessor's share of such costs have been fully paid. If Lessee is
unable to finance Lessor's share, or if the balance of the Rent due and payable
for the remainder of this Lease is not sufficient to fully reimburse Lessee on
an offset basis, Lessee shall have the right to terminate this Lease upon thirty
(30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGEMENTS OTHER THAN AS PROVIDED IN PARAGRAPH 2.2. Lessee
acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy
itself with respect to the condition of the Premises (including but not limited
to the electrical, HVAC and fire sprinkler systems, security, environmental
aspects, and compliance with Applicable Requirements), and their suitability for
Lessee's intended use, (b) Lessee has made such investigation as it deems
necessary with reference to such matters and assumes all responsibility therefor
as the same relate to its occupancy of the Premises, and (c) neither Lessor,
Lessor's agents, nor any Broker has made any oral or written representations or
warranties with respect to said matters other than as set forth in this Lease.
In addition, Lessor acknowledges that: (a) Broker has made no representations,
promises or warranties concerning Lessee's ability to honor the Lease or
suitability to occupy the Premises, and (b) it is Lessor's sole responsibility
to investigate the financial capability and/or suitability of all proposed
tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this Lease
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall, however, be in effect
during such period. Any such early possession shall not affect the Expiration
Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and Lessee
does not terminate this Lease, as aforesaid, any period of rent abatement that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by the acts
or omissions of Lessee. If possession of the Premises is not delivered within
four (4) months after the Commencement Date, this Lease shall terminate unless
other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction (except
as specifically permitted in this Lease), on or before the day on which it is
due. Rent for any period during the term hereof which is for less than one (1)
full calendar month shall be prorated based upon the actual number of days of
said month. Payment of Rent shall be made to Lessor at its address stated herein
or to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. If the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional monies with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Should the Agreed
Use be amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or termination
of this Lease, if Lessor elects to apply the Security Deposit only to unpaid
Rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.
PAGE 2
<PAGE> 3
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to neighboring properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which notice
shall include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "Reportable Use" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and provide
Lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises by
or for Lessee, or any third party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from adjacent properties). Lessee's
obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY
LESSOR AND LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE
WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN
WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in Paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate fully
in any such activities at the request of Lessor, including allowing Lessor and
Lessor's agents to have reasonable access to the Premises at reasonable times in
order to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee, within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined
in Paragraph 30 below) and consultants shall have the right to enter into
Premises at any time, in the case of an emergency, and otherwise at reasonable
times, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease. The cost of any such inspections
shall be paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.
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7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including, but
not limited to, all equipment or facilities, such as plumbing, heating,
ventilating, air-conditioning, electrical, lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior and
exterior), ceilings, roof membrane, floors, windows, doors, plate glass,
skylights, landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices, specifically including the procurement and
maintenance of the service contracts required by Paragraph 7.1(b) below.
Lessee's obligations shall include commercially reasonable restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair. Lessee shall, during the term of this Lease, keep the exterior
appearance of the Building in the condition as delivered consistent with the
exterior appearance of other similar facilities of comparable age and size in
the vicinity, including, when necessary, the exterior repainting of the
Building. This paragraph is subject to the modifications in Paragraph 51 of the
Addendum.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure
vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) driveways and parking lots, (vii) clarifiers (viii) basic utility
feed to the perimeter of the Building, and (ix) any other equipment, if
reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation thereof (including interest on
the unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay its obligation
at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14
(Condemnation), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, or
the equipment therein, all of which obligations are intended to be that of the
Lessee. It is the intention of the Parties that the terms of this Lease govern
the respective obligations of the Parties as to maintenance and repair of the
Premises, and they expressly waive the benefit of any statute now or hereafter
in effect to the extent it is inconsistent with the terms of this Lease. This
paragraph is subject to the modifications in Paragraph 51 of the Addendum.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing
in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery
and equipment that can be removed without doing material damage to the Premises.
The term "ALTERATIONS" shall mean any modification of the improvements, other
than Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility. If Lessee shall contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof. If Lessor shall require, Lessee shall furnish a
surety bond in an amount equal to one and one-half times the amount of such
contested lien, claim or demand, indemnifying Lessor against liability for the
same. If Lessor elects to participate in any such action, Lessee shall pay
Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor
not earlier than ninety (90) and not later than thirty (30) days prior to the
end of the term of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of this Lease. Lessor may require the removal at any time of all or any part of
any Lessee Owned Alterations or Utility Installations made without the required
consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice. Lessee shall repair
any damage occasioned by the installation, maintenance or removal of Trade
Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings,
and equipment as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
groundwater contaminated by Lessee. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate
the Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of Paragraph
26 below.
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8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor under Paragraph 8.2(b) in excess of
$2,000,000 per occurrence. Premiums for policy periods commencing prior to or
extending beyond the Lease term shall be prorated to correspond to the Lease
term. Payment shall be made by Lessee to Lessor within ten (10) days following
receipt of an invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $2,000,000 per
occurrence with an "ADDITIONAL INSURED -- MANAGERS OR LESSORS OF PREMISES
ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance
as described in Paragraph 8.2(a), in addition to, and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by any Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's
personal property shall be insured by Lessee under Paragraph 8.4 rather than by
Lessor. If the coverage is available and commercially appropriate, such policy
or policies shall insure against all risks of direct physical loss or damage
(except the perils of flood and/or earthquake unless required by a Lender),
including coverage for debris removal and the enforcement of any Applicable
Requirements requiring the upgrading, demolition, reconstruction or replacement
of any portion of the Premises as the result of a covered loss. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor with loss payable to Lessor and
any Lender, insuring the loss of the full Rent for one (1) year. Said insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee
shall be liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to the
Premises, the Lessee shall pay for any increase in the premiums for the property
insurance of such building or buildings if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss
of income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current issue
of "Best's Insurance Guide", or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Start Date, deliver to
Lessor certified copies of policies of such insurance or certificates evidencing
the existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage 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 or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, which can reasonably be repaired in six (6) months or
less from the date of the damage or destruction.
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Lessor shall notify Lessee in writing within thirty (30) days from the date of
the damage or destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in six (6)
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE -- INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total cost
to repair of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Lessee's responsibility) as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (i) make
such restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall
not be entitled to reimbursement of any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be
some insurance coverage, but the net proceeds of any such insurance shall be
made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, but not to exceed the proceeds received from the Rental Value
insurance. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore
the Premises and does not commence, in a substantial and meaningful way, such
repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not commenced within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice. If the repair or restoration is commenced within said thirty (30) days,
this Lease shall continue in full force and effect. "COMMENCE" shall mean either
the unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated
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with reference to the Building address and where the proceeds so generated are
to be applied by the city, county or other local taxing authority of a
jurisdiction within which the Premises are located. The term "REAL PROPERTY
TAXES" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring during the term of this
Lease, including but not limited to, a change in the ownership of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such taxes shall be prorated to cover only that portion of the
tax bill applicable to the period that this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment. If Lessee shall fail to pay any required
Real Property Taxes, Lessor shall have the right to pay the same, and Lessee
shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on
any Rent payment, Lessor may, at Lessor's option, estimate the current Real
Property Taxes, and require that such taxes be paid in advance to Lessor by
Lessee, either: (i) in a lump sum amount equal to the installment due, at least
twenty (20) days prior to the applicable delinquency date, or (ii) monthly in
advance with the payment of the Base Rent. If Lessor elects to require payment
monthly in advance, the monthly payment shall be an amount equal to the amount
of the estimated installment of taxes divided by the number of months remaining
before the month in which said installment becomes delinquent. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payments shall be adjusted as required to provide the funds needed to
pay the applicable taxes. If the amount collected by Lessor is insufficient to
pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand,
such additional sums as are necessary to pay such obligations. All monies paid
to Lessor under this Paragraph may be intermingled with other monies of Lessor
and shall not bear interest. In the event of a Breach by Lessee in the
performance of its obligations under this Lease, then any balance of funds paid
to Lessor under the provisions of this Paragraph may, at the option of Lessor,
be treated as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without consent shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a noncurable
Breach, Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30)
days written notice, increase the monthly Base Rent to one hundred ten percent
(110%) of the Base Rent then in effect. Further, in the event of such Breach and
rental adjustment, (i) the purchase price of any option to purchase the Premises
held by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease; (ii)
release Lessee of any obligations hereunder; or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) [*]
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed to
have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lessee
during the term of said assignment or sublease, other than such obligations as
are contrary to or inconsistent with provisions of an assignment or sublease to
which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Subject to Paragraph 58 of the Addendum, regarding "Bonus
Rent" Lessee hereby assigns and transfers to Lessor all of Lessee's interest in
all Rent payable on any sublease, and Lessor may collect such Rent and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a Breach shall occur in the performance of Lessee's obligations, Lessee may
collect said Rent. Lessor shall not, by reason of the foregoing or any
assignment of such sublease, nor by reason of the collection of Rent, be deemed
liable to the sublessee for any failure of Lessee to perform and comply with any
of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes
and directs any such sublessee, upon receipt of a written notice
- ----------
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor all Rent due and to become due
under the sublease. Sublessee shall rely upon any such notice from Lessor and
shall pay all Rents to Lessor without any obligation or right to inquire as to
whether such Breach exists, notwithstanding any claim from Lessee to the
contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its
option, require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or Breaches
of such sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in this Lease. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "BREACH" is defined as the occurrence of one or more
of the following Defaults, and the failure of Lessee to cure such Default within
any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or where
the coverage of the property insurance described in Paragraph 8.3 is jeopardized
as a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or of
any Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing; (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis, unless within sixty (60) days following written notice of
any such event, Lessee provide written alternative assurance or security, which,
when coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative
duties or obligations, or cure any default within the time provided in the
Lease, then within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (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 the Lessee proves
could have been reasonably avoided; (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 the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability
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under any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or
other charges, or for the giving or paying by Lessor to or for Lessee of any
cash or other bonus, inducement or consideration for Lessee's entering into this
Lease, all of which concessions are hereinafter referred to as "INDUCEMENT
PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful
performance of all of the terms, covenants and conditions of this Lease. Upon
Breach of this Lease by Lessee, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor, notwithstanding any
subsequent cure of said Breach by Lessee. The acceptance by Lessor of Rent or
the cure of the Breach which initiated the operation of this paragraph shall not
be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within ten (10) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to ten percent (10%) of each such overdue
amount. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("INTEREST") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due plus four percent (4%), but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "CONDEMNATION"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent (10%) of any building portion of the
premises, or more than twenty-five percent (25%) of the land area portion of the
premises not occupied by any building, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKERS' FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant
to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee
acquires any rights to the Premises or other premises owned by Lessor and
located within the same Project, if any, within which the Premises is located,
(c) if Lessee remains in possession of the Premises, with the consent of Lessor,
after the expiration of this Lease, or (d) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then, Lessor shall pay
Brokers a fee in accordance with the schedule of said Brokers in effect at the
time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue Interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee
and Lessor each represent and warrant to the other that it has had no dealings
with any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10)
days after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's performance,
and (iii) if Lessor is the Requesting Party, not more than one month's Rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
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(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including, but not limited to,
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted
by this Lease shall be in writing and may be delivered in person (by hand or by
courier) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notices. Either Party
may by written notice to the other specify a different address for notice,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or
certified mail, return receipt requested, shall be deemed given on the date of
delivery shown on the receipt card, or if no delivery date is shown, the
postmark thereon. If sent by regular mail the notice shall be deemed given
forty-eight (48) hours after the same is addressed as required herein and mailed
with postage prepaid. Notices delivered by United States Express Mail or
overnight courier that guarantee next day delivery shall be deemed given
twenty-four (24) hours after delivery of the same to the Postal Service or
courier. Notices transmitted by facsimile transmission or similar means shall be
deemed delivered upon telephone confirmation of receipt, provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday or
legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by either party of the Default or Breach of any term,
covenant or condition hereof, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach of the same
or of any other term, covenant or condition hereof. Lessor's consent to, or
approval of, any act shall not be deemed to render unnecessary the obtaining of
Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or
be construed as the basis of an estoppel to enforce the provision or provisions
of this Lease requiring such consent. The acceptance of Rent by Lessor shall not
be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be
accepted by Lessor on account of monies or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new
PAGE 10
<PAGE> 11
owner shall not: (i) be liable for any act or omission of any prior lessor or
with respect to events occurring prior to acquisition of ownership; (ii) be
subject to any offsets or defenses which Lessee might have against any prior
lessor; or (iii) be bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such
fees may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. In addition, the parties
shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or
about the Premises any ordinary "For Sublease" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including, but not limited to, architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including, but not limited to, consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent shall
not preclude the imposition by Lessor at the time of consent of such further or
other conditions as are then reasonable with reference to the particular matter
for which consent is being given. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within ten (10) business days following such
request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty
in the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee, and cannot be assigned
or exercised by anyone other than said original Lessee and only while the
original Lessee is in full possession of the Premises and, if requested by
Lessor, with Lessee certifying that Lessee has no intention of thereafter
assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including
PAGE 11
<PAGE> 12
the care and cleanliness of the grounds and including the parking, loading and
unloading of vehicles, and that Lessee will pay its fair share of common
expenses incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each Party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [X] is [ ] is not attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
________________________________________________________________________________
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
________________________________________________________________________________
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at:_________________________ Executed at:___________________________
on:__________________________________ on:____________________________________
By LESSOR: LEE LI CHUN KOO By LESSEE: MACHONE COMMUNICATIONS, INC.
a California Corporation
_____________________________________ _______________________________________
_____________________________________ _______________________________________
By: /s/ LEE LI CHUN KOO By: /s/ PETER D. OLSON
----------------------------------- ------------------------------------
Name Printed:________________________ Name Printed:__________________________
Title:_______________________________ Title:_________________________________
By:__________________________________ By:____________________________________
Name Printed:________________________ Name Printed:__________________________
Title:_______________________________ Title:_________________________________
Address:_____________________________ Address:_______________________________
_____________________________ _______________________________
Telephone: ( )_____________________ Telephone: ( )_______________________
Facsimile: ( )_____________________ Facsimile: ( )_______________________
Federal ID No._______________________ Federal ID No._________________________
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, California 90017. (213) 687-8777.
Fax No. (213) 687-8616
PAGE 12
<PAGE> 13
THIS LEASE ADDENDUM IS MADE PURSUANT TO AND IN CONNECTION WITH THAT CERTAIN
LEASE AGREEMENT ("LEASE") DATED SEPTEMBER 18, 1997 BY AND BETWEEN LEE LI CHUN
KOO ("LESSOR") AND MACHONE COMMUNICATIONS ("LESSEE") FOR THE PREMISES COMMONLY
KNOWN AS 992 SOUTH ANZA BOULEVARD, SAN JOSE, CALIFORNIA.
PAGE 1 OF 1
If there are inconsistencies between the body of the Lease and this
Addendum, this Addendum will prevail.
50) MONTHLY BASE RENT:
The monthly base rent shall be as follows:
<TABLE>
<CAPTION>
Term Rent/SF Rent/Month
---- ------- ----------
<S> <C> <C>
November 1, 1997 -- October 30, 1998 [*] NNN [*]
November 1, 1998 -- October 30, 1999 [*] NNN [*]
November 1, 1999 -- October 30, 2000 [*] NNN [*]
November 1, 2000 -- October 30, 2001 [*] NNN [*]
November 1, 2001 -- October 30, 2002 [*] NNN [*]
</TABLE>
51) PAYMENT OBLIGATIONS OF TENANT AND LANDLORD:
Notwithstanding anything in the Lease to the contrary, maintenance of the
building foundations, roof structure and exterior walls, except for
damage caused by Tenant, shall be the responsibility of Landlord. All
other costs associated with Landlord's ownership of the property,
including but not limited to, taxes, insurance repairs, maintenance
(including roof repairs and HVAC maintenance), property management,
janitorial and utilities, shall be the responsibility of Tenant. Tenant
will be responsible for exterior painting only after Landlord has
repainted the building.
52) TENANT IMPROVEMENTS, CONDITION AT COMMENCEMENT, and ENVIRONMENTAL
LIABILITY:
Lessee agrees to take possession of the Premises in its present "AS IS"
condition, (including ceiling tiles and lighting systems) except as
provided in Paragraph 2.2. Lessor shall not be required to make any
improvements to the existing space. Lessee acknowledges that Except as
provided in paragraph 2.2 Lessor, including Lessor's Agent, has made no
representations or warranty regarding the condition of the Premises or the
Building, and that in entering into this lease Lessee is not relying on any
statements by Lessor or by Agent. Except as provided in paragraph 2.2
Lessor does represent that, to the best of its current actual knowledge, it
is not aware of any current environmental hazards or deficiencies in the
building operating systems. In consideration of Lessee paying for all
Tenant Improvements and accepting the Premises as indicated above, Lessee
shall receive a rent credit of up to [*]. However the amount of the rent
credit shall be limited to the amount of money spent by Lessee for Tenant
Improvements, and Lessee shall provide an accounting of the Tenant
Improvement expenses to Lessor in order to receive the credit. The credit
shall be applied to offset the rental obligations due as follows:
November 1997 [*] Credit
December 1997 [*] Credit
January 1998 [*] Credit
----------
[*] Total Credit
53) SIGNAGE:
Building signage will be allowed subject to approval of Landlord, which
shall not be unreasonably withheld, and approval of the City of San Jose.
54) CAPITAL IMPROVEMENT:
Any capital improvements required during the term of the lease or any
extensions thereof that are considered common area maintenance expenses
shall be paid for by Landlord. The cost shall be amortized into the common
area maintenance expense in accordance with GAAP standards or the useful
life, whichever is greater.
- ----------
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 14
THIS LEASE ADDENDUM IS MADE PURSUANT TO AND IN CONNECTION WITH THAT CERTAIN
LEASE AGREEMENT ("LEASE") DATED SEPTEMBER 18, 1997 BY AND BETWEEN LEE LI CHUN
KOO ("LESSOR") AND MACHONE COMMUNICATIONS ("LESSEE") FOR THE PREMISES COMMONLY
KNOWN AS 992 SOUTH DE ANZA BOULEVARD, SAN JOSE, CALIFORNIA.
Page 2 of 2
55) OPTION TO EXTEND:
Lessor grants Lessee an Option to Extend the term of this Lease for an
additional period of five (5) years, provided that Lessee is not then in
default in any of the terms, conditions and covenants herein contained at
the time of the exercise of said option. Such extension shall be upon all
the terms, conditions, and covenants as contained in said Lease except
rent which shall be set at the then current market rent. To exercise the
option, Lessee must deliver written notice to Lessor at least six (6)
months prior to the expiration of the initial term. Said notice shall be by
physical delivery or U.S. Mail.
Lessor and Lessee shall in good faith make all possible efforts to reach
an agreement as to the current market rent for the first year of the
option term and yearly increased thereto. If Lessor and Lessee are unable
to agree upon the Option Rent within sixty (60) days from the written
exercise of the option, then each party shall select a commercial real
estate broker to determine the fair market rent based on similar property
in the immediate area.
Within thirty (30) days of his or her appointment, each broker shall
simultaneously deliver his or her opinion to Lessor and Lessee. If the
higher recommendation is no more than ten percent (10%) in excess of the
lower appraisal, the mean of the two shall be the fair rental value. If
the higher recommendation is more than ten percent (10%) in excess of the
lower recommendation the two brokers together shall appoint a third broker
within fifteen (15) days thereafter who shall determine which fair market
rental value between the two most nearly approximates his or her opinion of
the fair rental value. The recommendation shall be binding on the Lessor
and Lessee and shall set the base rent for the first twelve (12) months of
the option period.
In no event shall the rental paid for the first twelve (12) months of the
option period be less than the rental paid for the last twelve (12) months
of the initial term ([*] per square foot).
56) TENANT'S COVENANTS:
Tenant represents that it shall, in an timely manner, use due diligence to
obtain Corporate and any other necessary approvals so that a lease may be
executed by Tenant no later than September 30, 1997.
57) INITIAL OCCUPANCY:
MachOne and H3D Entertainment, Inc. (another Peter Olson backed company)
will initially jointly occupy the Premises. However, MachOne shall be the
responsible party under this Lease.
58) BONUS RENT:
Regarding Paragraph 12.3, in the event that the rent payable per square
foot per month for any portion of the property subleased is in excess of
the rent per square foot indicated in Paragraph 50 above, the excess rent
("Bonus Rent") shall be split 50/50 between Lessor and Lessee. Lessee
shall pay all expenses associated with any proposed Sublease, including
but not limited to, Tenant Improvements and Commissions. Lessee shall not
receive any credit for said expenses, nor will said expenses have any
effect on the "Bonus Rent" sharing indicated above.
READ AND APPROVED:
LANDLORD: TENANT:
LEE LI CHUN KOO MACHONE COMMUNICATIONS, INC.
A California Corporation
By: /s/ LEE LI CHUN KOO By: /s/ PETER D. OLSON
------------------------ -------------------------
Title: Title:
--------------------- ----------------------
Date: Date:
---------------------- -----------------------
- ----------
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 15
ARBITRATION OF DISPUTES: Any dispute or claim, either in law or in equity,
arising out of this contract or any resulting transaction shall be decided by
neutral binding arbitration in accordance with the rules of the American
Arbitration Association, and not by court action except as provided by
California law for judicial review of arbitration proceedings. Judgement upon
the award rendered in such arbitration proceedings may be entered in any court
having jurisdiction thereof. In the arbitration proceeding, the parties shall
have the right to discovery in accordance with California Code of Civil
Procedure Section 1283.05. Notwithstanding the foregoing, the following matters
are excluded from arbitration hereunder: (i) a judicial or non-judicial
foreclosure other action or proceeding to enforce a deed of trust, mortgage or
real property sales contract as defined in California Civil Code Section 2985;
(ii) an unlawful detainer action; (iii) the filing or enforcement of a
mechanics lien; (iv) any matter which is within the jurisdiction of a probate
court; or (v) an action for bodily injury or wrongful death, or for latent or
patent defects to which California Code of Civil Procedure Section 337.1 or
Section 337.15 applies. The filing of a judicial action to enable the recording
of a notice of pending action, or to request an order of attachment,
receivership, preliminary injunction or other provisional remedy, shall not
constitute a waiver of the right to arbitrate under this provision.
Any dispute or claim by or against any broker or associate licensee
participating in this transaction shall be submitted to arbitration pursuant to
the above only if the broker and/or associate licensee making the claim or
against whom the claim is made, shall have agreed so to submit such matter to
arbitration.
NOTICE: BY INITIALING IN THE SPACE BELOW, YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED IN CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR
JURY TRIAL. BY INITIALING IN THE SPACE BELOW, YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL, THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATE AFTER
AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OR CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISIONS IS VOLUNTARY.
BY INITIALING BELOW, WE ACKNOWLEDGE THAT WE HAVE READ AND UNDERSTAND THE
FOREGOING, AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN
THE "ARBITRATION OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION.
- ----------------- -----------------
LESSOR'S INITIALS LESSEE'S INITIALS
<PAGE> 16
EXHIBIT A
FLOOR PLAN
<PAGE> 17
OFFICE OF COUNTY ASSESSOR SA
EXHIBIT B1
SITE LOCATION
<PAGE> 18
EXHIBIT B2
[SITE MAP]
<PAGE> 1
EXHIBIT 10.7
[SOBRATO DEVELOPMENT COMPANIES LOGO]
LEASE BETWEEN
THE SOBRATO GROUP AND TELOCITY, INC.
<TABLE>
<S> <C>
SECTION ............................................................... PAGE #
Parties ............................................................... 1
Premises .............................................................. 1
Use ................................................................... 1
Permitted Uses ..................................................... 1
Uses Prohibited .................................................... 1
Advertisements and Signs ........................................... 1
Covenants, Conditions and Restrictions ............................. 2
Term and Rental ....................................................... 2
Base Monthly Rent .................................................. 2
Late Charges ....................................................... 2
Security Deposit ................................................... 2
This section intentionally left blank ................................. 3
Acceptance of Possession and Covenants to Surrender ................... 3
Delivery and Acceptance ............................................ 3
Condition Upon Surrender ........................................... 3
Failure to Surrender ............................................... 4
Alterations and Additions ............................................. 4
Tenant's Alterations ............................................... 4
Free From Liens .................................................... 5
Compliance With Governmental Regulations ........................... 5
Maintenance of Premises ............................................... 5
Landlord's Obligations ............................................. 5
Tenant's Obligations ............................................... 5
Landlord and Tenant's Obligations Regarding Reimbursable
Operating Costs .................................................. 5
Reimbursable Operating Costs ....................................... 6
Tenant's Allocable Share ........................................... 6
Waiver of Liability ................................................ 6
Hazard Insurance ...................................................... 7
Tenant's Use ....................................................... 7
Landlord's Insurance ............................................... 7
Tenant's Insurance ................................................. 7
Waiver ............................................................. 7
Taxes ................................................................. 8
Utilities ............................................................. 8
Toxic Waste and Environmental Damage .................................. 8
Tenant's Responsibility ............................................ 8
Tenant's Indemnity Regarding Hazardous Materials ................... 9
</TABLE>
page i
<PAGE> 2
<TABLE>
<S> <C>
Actual Release by Tenant ........................................... 9
Environmental Monitoring ........................................... 10
Tenant's Default ...................................................... 10
Remedies ........................................................... 10
Right to Re-enter .................................................. 11
Abandonment ........................................................ 11
No Termination ..................................................... 11
Non-Waiver ......................................................... 11
Performance by Landlord ............................................ 12
Habitual Default ................................................... 12
Landlord's Liability .................................................. 12
Limitation on Landlord's Liability ................................. 12
Limitation on Tenant's Recourse .................................... 12
Indemnification of Landlord ........................................ 12
Destruction of Premises ............................................... 13
Landlord's Obligation to Restore ................................... 13
Limitations on Landlord's Restoration Obligation ................... 13
Condemnation .......................................................... 13
Assignment or Sublease ................................................ 14
Consent by Landlord ................................................ 14
Assignment or Subletting Consideration ............................. 14
No Release ......................................................... 14
Reorganization of Tenant ........................................... 15
Permitted Transfers ................................................ 15
Effect of Default .................................................. 15
Effects of Conveyance .............................................. 15
Successors and Assigns ............................................. 16
This Section intentionally left blank ................................. 16
General Provisions .................................................... 16
Attorney's Fees .................................................... 16
Authority of Parties ............................................... 16
Brokers ............................................................ 16
Choice of Law ...................................................... 16
Dispute Resolution ................................................. 16
Entire Agreement ................................................... 17
Entry by Landlord .................................................. 17
Estoppel Certificates .............................................. 18
Exhibits ........................................................... 18
Interest ........................................................... 18
Modifications Required by Lender ................................... 18
No Presumption Against Drafter ..................................... 18
Notices ............................................................ 18
Property Management ................................................ 19
Rent ............................................................... 19
Representations .................................................... 19
Rights and Remedies ................................................ 19
Severability ....................................................... 19
Submission of Lease ................................................ 19
Subordination ...................................................... 19
</TABLE>
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<TABLE>
<S> <C>
Survival of Indemnities ............................................ 19
Time ............................................................... 19
Transportation Demand Management Programs .......................... 20
Waiver of Right to Jury Trial ...................................... 20
EXHIBIT A -- Building & Project ....................................... 22
</TABLE>
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1. PARTIES: THIS LEASE, is entered into on this 17th day of December, 1999
("Effective Date") between The Sobrato Group, a California Limited Partnership,
whose address is 10600 North De Anza Boulevard, Suite 200, Cupertino,
California, 95014, and Telocity, Inc., a California Corporation, whose address
is 10355 North De Anza Boulevard, Cupertino, California, 95014, hereinafter
called respectively Landlord and Tenant.
2. PREMISES: Landlord hereby leases to Tenant, and Tenant hires from Landlord
those certain Premises with the appurtenances, situated in the City of San
Jose, County of Santa Clara, State of California, commonly known and designated
as 490 Race Street consisting of 66,250 rentable square feet ("Building") as
outlined in red on Exhibit "A" and all improvements located therein including
but not limited to buildings, parking areas and structures, landscaping,
loading docks, sidewalks, service areas and other facilities. The Building is
situated within a project site shared with five (5) additional buildings owned
by Landlord as outlined in Exhibit "A" attached hereto ("Project"). Tenant
shall have the exclusive use of 225 parking spaces on the parcel on which the
Building is located. Unless expressly provided otherwise, the term Premises as
used herein shall include the Tenant Improvements (defined in Section 5.B)
constructed by Tenant pursuant to Section 5.B.
3. USE:
A. PERMITTED USES: Tenant shall use the Premises only for the following
purposes and shall not change the use of the Premises without the prior written
consent of Landlord: Office, research and development, marketing, light
manufacturing, ancillary storage and other incidental uses. Tenant shall use
only the number of parking spaces allocated to Tenant under this Lease. All
commercial trucks and delivery vehicles shall (i) be parked at the rear of the
Building, (ii) loaded and unloaded in a manner which does not interfere with
the businesses of other occupants of the Project, and (iii) permitted to remain
within the Project only so long as is reasonably necessary to complete the
loading and unloading. Landlord makes no representation or warranty that any
specific use of the Premises desired by Tenant is permitted pursuant to any
Laws.
B. USES PROHIBITED: Tenant shall not commit or suffer to be committed on
the Premises any waste, nuisance, or other act or thing which may disturb the
quiet enjoyment of any other tenant in or around the Premises, nor allow any
sale by auction or any other use of the Premises for an unlawful purpose.
Tenant shall not (i) damage or overload the electrical, mechanical or plumbing
systems of the Premises, (ii) attach, hang or suspend anything from the
ceiling, walls or columns of the building or set any load on the floor in
excess of the load limits for which such items are designed, or (iii) generate
dust, fumes or waste products which create a fire or health hazard or damage
the Premises or any portion of the Project, including without limitation the
soils or ground water in or around the Project. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature, or any waste materials, refuse, scrap or debris, shall
be stored upon or permitted to remain on any portion of the Premises outside of
the Building without Landlord's prior approval, which approval may be withheld
in its sole discretion.
C. ADVERTISEMENTS AND SIGNS: Tenant will not place or permit to be
placed, in, upon or about the Premises any signs not approved by the city and
other governing authority having jurisdiction. Tenant will not place or permit
to be placed upon the Premises any signs, advertisements or notices without the
written consent of Landlord as to type, size, design, lettering, coloring and
location, which consent will not be unreasonably withheld. Any sign placed on
the Premises shall be removed by Tenant, at its sole cost, prior to the
Expiration Date or promptly following the earlier
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termination of the Lease, and Tenant shall repair, at its sole cost, any damage
or injury to the Premises caused thereby, and if not so removed, then Landlord
may have same so removed at Tenant's expense.
D. Covenants, Conditions and Restrictions: This Lease is subject to the
effect of (i) any covenants, conditions, restrictions, easements, mortgages or
deeds of trust, ground leases, rights of way of record and any other matters or
documents of record; and (ii) any zoning laws of the city, county and state
where the Building is situated (collectively referred to herein as
"Restrictions") and Tenant will conform to and will not violate the terms of
any such Restrictions.
4. TERM AND RENTAL:
A. Base Monthly Rent: The term ("Lease Term") shall be for approximately
sixty (60) months, commencing on December 6, 1999 (the "Commencement Date") and
ending on November 30, 2004 ("Expiration Date"). Notwithstanding the Parties
agreement that the Lease Term begins on the Commencement Date, this Lease and
all of the obligations of Landlord and Tenant shall be binding and in full
force and effect from and after the Effective Date. In addition to all other
sums payable by Tenant under this Lease, Tenant shall pay base monthly rent
("Base Monthly Rent") for the Premises in accordance with the following
schedule:
12/06/99 - 12/31/99 [*]
01/01/00 - 11/30/00: [*]
12/01/00 - 11/30/01: [*]
12/01/01 - 11/30/02: [*]
12/01/02 - 11/30/03: [*]
12/01/03 - 11/30/04: [*]
Base Monthly Rent shall be due in advance on or before the first day of each
calendar month during the Lease Term. All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of
America, without offset or deduction and without prior notice or demand, at the
address specified in Section 1 of this Lease or at such place or places as may
be designated in writing by Landlord during the Lease Term. Base Monthly Rent
for any period less than a calendar month shall be a pro rata portion of the
monthly installment. Concurrently with Tenant's execution of this Lease, Tenant
shall pay to Landlord the sum of [*] as prepaid rent for the period from
December 6, 1999 through December 31, 1999.
B. LATE CHARGES: Tenant hereby acknowledges that late payment by Tenant to
Landlord of Base Monthly Rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which is
extremely difficult to ascertain. Such costs include but are not limited to:
administrative, processing, accounting, and late charges which may be imposed
on Landlord by the terms of any contract, revolving credit, mortgage, or trust
deed covering the Premises. Accordingly, if any installment of Base Monthly
Rent or other sum due from Tenant shall not be received by Landlord or its
designee within five (5) days after the rent is due, Tenant shall pay to
Landlord a late charge equal to five (5%) percent of such overdue amount, which
late charge shall be due and payable on the same date that the overdue amount
was due. The parties agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant, excluding interest and attorneys fees and costs. If any rent or
other sum due from Tenant remains delinquent for a period in excess of thirty
(30) days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
specified in Section 19.J following the date such amount became due until paid.
Acceptance by Landlord of such late charge shall not 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. In the event
that a late charge is payable hereunder, whether or not collected, for three
(3) consecutive installments of Base Monthly Rent, then the Base Monthly Rent
shall automatically become due and payable quarterly in advance, rather than
monthly, notwithstanding any provision of this Lease to the contrary.
D. SECURITY DEPOSIT: Concurrently with Tenant's execution of this Lease
Tenant has deposited with Landlord the sum of [*] ("Security "Deposit").
Landlord shall not be deemed a trustee of the Security Deposit, may use the
Security Deposit in business, and shall not be required to segregate it from its
general accounts. Tenant shall not be entitled to interest
[*] The Registrant has required confidential treatment for certain
portions of this exhibit. The omitted portions have been separately filed
with the Commission.
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on the Security Deposit. If Tenant defaults with respect to any provisions of
the Lease, including but not limited to the provisions relating to payment of
Base Monthly Rent or other charges, Landlord may, to the extent reasonably
necessary to remedy Tenant's default, use any or all of the Security Deposit
towards payment of the following: (i) Base Monthly Rent or other charges in
default; (ii) any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default including, but not limited to Tenant's
failure to restore or clean the Premises following vacation thereof. If any
portion of the Security Deposit is so used or applied, Tenant shall, within ten
(10) days after written demand from Landlord, deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its full original amount,
and shall pay to Landlord such other sums as necessary to reimburse Landlord for
any sums paid by Landlord. Tenant waives the provisions of California Civil Code
Section 1950.7, and all other provisions of Law now in force or that become in
force after the date of execution of this Lease, that provide that Landlord may
claim from a security deposit only those sums reasonably necessary to remedy
defaults in the payment of Rent, to repair damage caused by Tenant, or to clean
the Premises. Tenant may not assign or encumber the Security Deposit without the
consent of Landlord. Any attempt to do so shall be void and shall not be binding
on Landlord. The Security Deposit shall be returned to Tenant within thirty (30)
days after the Expiration Date and surrender of the Premises to Landlord, less
any amount deducted in accordance with this Section, together with Landlord's
written notice itemizing the amounts and purposes for such deduction. In the
event of termination of Landlord's interest in this Lease, Landlord may deliver
or credit the Security Deposit to Landlord's successor in interest in the
Premises and thereupon be relieved of further responsibility with respect to the
Security Deposit. Notwithstanding the foregoing, the Security Deposit shall be
reduced by: (i) $100,000.00 at the commencement of the 13th, 25th, 37th, and
48th month of the Lease Term, provided Tenant has not been in default under the
Lease beyond any applicable cure periods during the previous year; and (ii)
$100,000.00 after Tenant completes a successful public offering, provided Tenant
has not been in default under the Lease beyond any applicable cure periods prior
to such public offering.
Landlord agrees that in lieu of a cash Security Deposit, Tenant may deposit a
letter of credit ("LC") in a form acceptable to Landlord. Landlord shall be
entitled to draw against the LC at any time provided only that Landlord
certifies to the issuer of the LC that Tenant is in default under the Lease.
Tenant shall keep the LC in effect during the entire Lease Term, as the same
may be extended, plus a period of four (4) weeks after expiration of the Lease
Term. At least thirty (30) days prior to expiration of any LC, the term thereof
shall be renewed or extended for a period of at least one (1) year. Tenant's
failure to so renew or extend the LC shall be a material default of this Lease
by Tenant. In the event Landlord draws against the LC, Tenant shall replenish
the existing LC or cause a new LC to be issued such that the aggregate amount
of LCs available to Landlord at all times during the Lease Term is the amount
of the Security Deposit then required.
5. This section intentionally left blank:
6. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER:
A. DELIVERY AND ACCEPTANCE: On the Commencement Date, Landlord shall
deliver and Tenant shall accept possession of the Premises and enter into
occupancy of the Premises on the Commencement Date. Tenant acknowledges that it
has had an opportunity to conduct, and has conducted, such inspections of the
Premises as it deems necessary to evaluate its conduction. Tenant agrees to
accept possession of the Premises in its then existing condition, subject to
all Restrictions and without representation or warranty by Landlord.
B. CONDITION UPON SURRENDER: Tenant further agrees on the Expiration Date
or on the sooner termination of this Lease, to surrender the Premises to
Landlord in good condition and repair, normal wear and tear excepted. In this
regard, "normal wear and tear" shall be construed to mean wear and tear caused
to the Premises by the natural aging process which occurs in spite of prudent
application of the best commercially reasonable standards for
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maintenance, repair replacement, and janitorial practices, and does not include
items of neglected or deferred maintenance. In any event, Tenant shall cause
the following to be done prior to the Expiration Date or sooner termination of
this Lease: (i) all interior walls shall be cleaned, patched, and otherwise
made paint-ready, (ii) all tiled floors shall be cleaned and waxed, (iii) all
carpets shall be cleaned and shampooed, (iv) all broker, marred, stained or
nonconforming acoustical ceiling tiles shall be replaced, (v) all cabling
placed above the ceiling by Tenant or Tenant's contractors shall be removed,
(vi) all windows shall be washed; (vii) the HVAC system shall be serviced by a
reputable and licensed service firm and left in "good operating condition and
repair" as so certified by such firm, (viii) the plumbing and electrical
systems and lighting shall be placed in good order and repair (including
replacement of any burned out, discolored or broken light bulbs, ballasts, or
lenses. On or before the Expiration Date or sooner termination of this Lease,
Tenant shall remove all its personal property and trade fixtures from the
Premises. All property and fixtures not so removed shall be deemed as abandoned
by Tenant. Tenant shall ascertain from Landlord within ninety (90) days before
the Expiration Date whether Landlord desires to have the Premises or any parts
thereof restored to their condition as of the Commencement Date, or to cause
Tenant to surrender all Alterations (as defined in Section 7) in place to
Landlord. If Landlord shall so desire, Tenant shall, at Tenant's sole cost and
expense, remove such Alterations as Landlord requires and shall repair and
restore said Premises or such parts thereof before the Expiration Date. Such
repair and restoration shall include causing the Premises to be brought into
compliance with all applicable building codes and laws in effect at the time of
the removal to the extent such compliance is necessitated by the repair and
restoration work.
C. FAILURE TO SURRENDER: If the Premises are not surrendered at the
Expiration Date (or sooner, upon rightful termination of the Lease) in the
condition required by this Section 6, Tenant shall be deemed in a holdover
tenancy pursuant to this Section 6.C and Tenant shall indemnify, defend, and
hold Landlord harmless against 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 and costs incurred by Landlord
in returning the Premises to the required condition, plus interest at the
Agreed Interest Rate. Any holding over after the termination or Expiration Date
with Landlord's express written consent, shall be construed as month-to-month
tenancy, terminable on thirty (30) days written notice from either party, and
Tenant shall pay as Base Monthly Rent to Landlord a rate equal to one hundred
twenty five percent (125%) of the Base Monthly Rent due in the month preceding
the termination or Expiration Date, plus all other amounts payable by Tenant
under this Lease. Any holding over shall otherwise be on the terms and
conditions herein specified, except those provisions relating to the Lease Term
and any options to extend or renew, which provisions shall be of no further
force and effect following the expiration of the applicable exercise period. If
Tenant remains in possession of the Premises after the Expiration Date or
sooner termination of this Lease without Landlord's consent, Tenant's continued
possession shall be on the basis of a tenancy at sufferance and Tenant shall
pay as rent during the holdover period an amount equal to one hundred fifty
percent (150%) of the Base Monthly Rent due in the month preceding the
termination or Expiration Date, plus all other amounts payable by Tenant under
this Lease. This provision shall survive the termination or expiration of the
Lease.
7. ALTERATIONS AND ADDITIONS:
A. TENANT'S ALTERATIONS: Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises ("Alterations"), or any part thereof,
without obtaining Landlord's prior written consent and delivering to Landlord
the proposed architectural and structural plans for all such Alterations at
least fifteen (15) days prior to the start of construction. If such Alterations
affect the structure of the Building, Tenant additionally agrees to reimburse
Landlord its reasonable out-of-pocket costs incurred in reviewing Tenant's
plans. After obtaining Landlord's consent, Tenant shall not proceed to make such
Alterations until Tenant has obtained all required governmental approvals and
permits, and provides Landlord reasonable security, in form reasonably approved
by Landlord, to protect Landlord against mechanics' lien claims. Tenant agrees
to provide Landlord (i) written notice of the anticipated and actual start-date
of the work, (ii) a complete set of half-size (15" X 21") vellum as-built
drawings, and (iii) a certificate of
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occupancy for the work upon completion of the Alterations. All Alterations
shall be constructed in compliance with all applicable building codes and laws
including, without limitation, the Americans and Disabilities Act of 1990
("ADA") as amended from time to time. The parties acknowledge that all ADA work
required to the Premises for Tenant's occupancy shall be performed by Tenant as
part of its Alterations. Upon the Expiration Date, all Alterations, except
movable furniture and trade fixtures, shall become a part of the realty and
belong to Landlord but shall nevertheless be subject to removal by Tenant as
provided in Section 6 above. Alterations which are not deemed as trade fixtures
include heating, lighting, electrical systems, air conditioning, walls,
carpeting, or any other installation which has become an integral part of the
Premises. All Alterations shall be maintained, replaced or repaired by Tenant
at its sole cost and expense.
B. FREE FROM LIENS: Tenant shall keep the Premises free from all liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant or claimed to have been performed for Tenant. In the event Tenant fails
to discharge any such lien within ten (10) days after receiving notice of the
filing, Landlord shall be entitled to discharge the lien at Tenant's expense
and all resulting costs incurred by Landlord, including attorney's fees shall
be due from Tenant as additional rent.
C. COMPLIANCE WITH GOVERNMENTAL REGULATIONS: The term Laws or Governmental
Regulations shall include all federal, state, county, city or governmental
agency laws, statutes, ordinances, standards, rules, requirements, or orders
now in force or hereafter enacted, promulgated, or issued. The term also
includes government measures regulating or enforcing public access, traffic
mitigation, occupational, health, or safety standards for employers, employees,
landlords, or tenants. Tenant, at Tenant's sole expense shall make all repairs,
replacements, alterations, or improvements needed to comply with all
Governmental Regulations. The judgment of any court of competent jurisdiction or
the admission of Tenant in any action or proceeding against Tenant (whether
Landlord be a party thereto or not) that Tenant has violated any such law,
regulation or other requirement in its use of the Premises shall be conclusive
of that fact as between Landlord and Tenant.
8. MAINTENANCE OF PREMISES:
A. LANDLORD'S OBLIGATIONS: Landlord at its sole cost and expense, shall
maintain in good condition, order, and repair, and replace as and when
necessary, the foundation, exterior load bearing walls and roof structure of
the Building Shell.
B. TENANT'S OBLIGATIONS: Tenant shall clean, maintain, repair and replace
when necessary the Premises and every part thereof through regular inspections
and servicing, including but not limited to: (i) all plumbing and sewage
facilities, (ii) all heating ventilating and air conditioning facilities and
equipment, (iii) all fixtures, interior walls floors, carpets and ceilings,
(iv) all windows, door entrances, plate glass and glazing systems including
caulking, and skylights, (v) all electrical facilities and equipment, (vi) all
automatic fire extinguisher equipment, (vii) the parking lot and all
underground utility facilities servicing the Premises, (viii) all elevator
equipment, (ix) the roof membrane system, and (x) all waterscape, landscaping
and shrubbery. All wall surfaces and floor tile are to be maintained in an as
good a condition as when Tenant took possession free of holes, gouges, or
defacements. With respect to items (ii), (viii) and (ix) above, Tenant shall
provide Landlord a copy of a service contract between Tenant and a licensed
service contractor providing for periodic maintenance of all such systems or
equipment in conformance with the manufacturer's recommendations. Tenant shall
provide Landlord a copy of such preventive maintenance contracts and paid
invoices for the recommended work if requested by Landlord.
If as a part of Tenant's fulfilment of its maintenance obligations under this
Section 8.B., a roof replacement to the Premises is paid for by Tenant during
the last three (3) years of the Lease Term, Landlord shall reimburse Tenant for
the cost of the replacement less the sum of (i) Twenty Thousand Dollars
($20,000.00) plus (ii) that portion of the cost over $20,000.00 equal to the
product of such cost multiplied by a fraction, the numerator of which is the
number of years remaining in the Lease Term, the denominator of which is the
useful life (in years) of the roof replacement.
C. LANDLORD AND TENANT'S OBLIGATIONS REGARDING REIMBURSABLE OPERATING
COSTS: In addition to the direct payment by Tenant of
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expenses as provided in Sections 8.B, 9, 10 and 11 of this Lease, Tenant agrees
to reimburse Landlord for Tenant's Allocable Share (as defined in Section 8.E
below) of Reimbursable Operating Costs (as defined in Section 8.D below)
resulting from Landlord payment of reasonable expenses related to the Building
or Project which are not otherwise paid by Tenant directly. Tenant agrees to
pay its Allocable Share of the Reimbursable Operating Costs as additional
rental within ten (10) days of written invoice from Landlord.
D. REIMBURSABLE OPERATING COSTS: For purposes of calculating Tenant's
Allocable Share of Building and Project Costs, the term "Reimbursable Operating
Costs" is defined as all costs and expenses of the nature hereinafter
described which are incurred by Landlord in connection with ownership and
operation of the Building or the Project in which the Premises are located,
together with such additional facilities as may be determined by Landlord to be
reasonably desirable or necessary to the ownership and operation of the
Building and/or Project. All costs and expenses shall be determined in
accordance with generally accepted accounting principles which shall be
consistently applied (with accruals appropriate to Landlord's business),
including but not limited to the following: (i) common area utilities,
including water, power, telephone, heating, lighting, air conditioning,
ventilating, and Building utilities to the extent not separately metered; (ii)
common area maintenance and service agreements for the Building and/or Project
and the equipment therein, including without limitation, common area janitorial
services, alarm and security services, exterior window cleaning, and maintenance
of the sidewalks, landscaping, waterscape, roof membrane, parking areas,
driveways, service areas, mechanical rooms, elevators, and the building
exterior; (iii) insurance premiums and costs, including without limitation, the
premiums and cost of fire, casualty and liability coverage and rental abatement
and earthquake (if commercially available) insurance applicable to the Building
or Project; (iv) repairs, replacements and general maintenance (excluding
repairs and general maintenance paid by proceeds of insurance or by Tenant or
other third parties, and repairs or alterations attributable solely to tenants
of the Building or Project other than Tenant); and (v) all real estate taxes
and assessment installments or other impositions or charges which may be levied
on the Building or Project, upon the occupancy of the Building or Project and
including any substitute or additional charges which may be imposed during, or
applicable to the Lease Term including real estate tax increases due to a sale,
transfer or other change of ownership of the Building or Project, as such taxes
are levied or appear on the City and County tax bills and assessment rolls.
Landlord shall have no obligation to provide guard services or other security
measures for the benefit of the Project. Tenant assumes all responsibility for
the protection of Tenant and Tenant's Agents from acts of third parties;
provided, however, that nothing contained herein shall prevent Landlord, at its
sole option, from providing security measures for the Project. This is a "Net"
Lease, meaning that Base Monthly Rent is paid to Landlord absolutely net of all
costs and expenses. The provision for payment of Reimbursable Operating Costs
by means of periodic payment of Tenant's Allocable Share of Building and/or
Project Costs is intended to pass on to Tenant and reimburse Landlord for all
costs of operating and managing the Building and/or Project.
E. TENANT'S ALLOCABLE SHARE: For purposes of prorating Reimbursable
Operating Costs which Tenant shall pay, Tenant's Allocable Share of
Reimbursable Operating Costs shall be computed by multiplying the Reimbursable
Operating Costs by a fraction, the numerator of which is the rentable square
footage of the Premises and the denominator of which is either the total
rentable square footage of the Building if the service or cost is allocable
only to the Building, or the total square footage of the Project if the service
or cost is allocable to the entire Project. Tenant's obligation to share in
Reimbursable Operating Costs shall be adjusted to reflect the Lease
Commencement and Expiration dates and is subject to recalculation in the event
of expansion of the Building or Project.
F. WAIVER OF LIABILITY: Failure by Landlord to perform any defined
services, or any cessation thereof, when such failure is caused by accident,
breakage, repairs, strikes, lockout or other labor disturbances or labor
disputes of any character or by any other cause, similar or dissimilar, unless
due to the gross negligence or willful misconduct of Landlord, shall not render
Landlord liable to Tenant in any respect, including damages to either person or
property, nor be construed as an eviction of
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Tenant, nor cause an abatement of rent, nor relieve Tenant from fulfillment of
any covenant or agreement hereof. Should any equipment or machinery utilized in
supplying the services listed herein break down or for any cause cease to
function properly, upon receipt of written notice from Tenant of any
deficiency or failure of any services, Landlord shall use reasonable diligence
to repair the same promptly, but Tenant shall have no right to terminate this
Lease and shall have no claim for rebate of rent or damages on account of any
interruptions in service occasioned thereby or resulting therefrom. Tenant
waives the provisions of California Civil Code Sections 1941 and 1942
concerning the Landlord's obligation of tenantability and Tenant's right to
make repairs and deduct the cost of such repairs from the rent. Landlord shall
not be liable for a loss of or injury to person or property, however occurring,
through or in connection with or incidental to furnishing, or its failure to
furnish, any of the foregoing, unless due to the gross negligence or willful
misconduct of Landlord.
9. HAZARD INSURANCE:
A. TENANT'S USE: Tenant shall not use or permit the Premises, or any
part thereof, to be used for any purpose other than that for which the Premises
are hereby leased; and no use of the Premises shall be made or permitted, nor
acts done, which will cause an increase in premiums or a cancellation of any
insurance policy covering the Premises or any part thereof, nor shall Tenant
sell or permit to be sold, kept, or used in or about the Premises, any article
prohibited by the standard form of fire insurance policies. Tenant shall, at
its sole cost, comply with all requirements of any insurance company or
organization necessary for the maintenance of reasonable fire and public
liability insurance covering the Premises and appurtenances.
B. LANDLORD'S INSURANCE: Landlord agrees to purchase and keep in force
fire, extended coverage insurance in an amount equal to the replacement cost of
the Building (not including any Tenant Improvements or Alterations paid for by
Tenant from sources other than the Work Allowance) as determined by Landlord's
insurance company's appraisers. If available at commercially reasonable rates
and carried by other owners of commercial properties in the area, such fire and
property damage insurance may be endorsed to cover loss caused by such
additional perils against which Landlord may elect to insure, including
earthquake and/or flood, and shall contain reasonable deductibles which, in the
case of earthquake and flood insurance may be up to fifteen percent (15%) of
the replacement value of the property. Additionally Landlord may maintain a
policy of (i) commercial general liability insurance insuring Landlord (and
such others designated by Landlord) against liability for personal injury,
bodily injury, death and damage to property occurring or resulting from an
occurrence in, on or about the Premises or Project in an amount as Landlord
determines is reasonably necessary for its protection, and (ii) rental lost
insurance covering a twelve (12) month period. Tenant agrees to pay Landlord as
additional rent, on demand, the full cost of said insurance as evidenced by
insurance billings to Landlord, and in the event of damage covered by said
insurance, the amount of any deductible under such policy. Payment shall be due
to Landlord within ten (10) days after written invoice to Tenant. It is
understood and agreed that Tenant's obligation under this Section will be
prorated to reflect the Lease Commencement and Expiration Dates.
C. TENANT'S INSURANCE: Tenant agrees, at its sole cost, to insure its
personal property, Tenant Improvements (for which it has paid from sources other
than the Work Allowance), and Alterations for their full replacement value
(without depreciation) and to obtain worker's compensation and public liability
and property damage insurance for occurrences within the Premises with a
combined single limit of not less than [*]. Tenant's liability insurance shall
be primary insurance containing a cross-liability endorsement, and shall provide
coverage on an "occurrence" rather than a "claims made" basis. Tenant shall name
Landlord and Landlord's lender as an additional insured and shall deliver a copy
of the policies and renewal certificates to Landlord. All such policies shall
provide for thirty (30) days' prior written notice to Landlord of any
cancellation, termination, or reduction in coverage. Notwithstanding the above,
Landlord retains the right to have Tenant provide other forms of insurance which
may be reasonably required to cover future risks.
D. WAIVER: Landlord and Tenant hereby waive all rights each may have
against the other on account of any loss or damage sustained by Landlord or
Tenant, as the case may be, or to the
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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Premises or its contents, which may arise from any risk covered by their
respective insurance policies (or which would have been covered had such
insurance policies been maintained in accordance with this Lease) as set forth
above. The Parties shall use their reasonable efforts to obtain from their
respective insurance companies a waiver of any right of subrogation which said
insurance company may have against Landlord or Tenant, as the case may be.
10. TAXES: Tenant shall be liable for and shall pay as additional rental, prior
to delinquency, the following: (i) all taxes and assessments levied against
Tenant's personal property and trade or business fixtures; (ii) all real estate
taxes and assessment installments or other impositions or charges which may be
levied on the Premises or upon the occupancy of the Premises, including any
substitute or additional charges which may be imposed applicable to the Lease
Term; and (iii) real estate tax increase due to an increase in assessed value
resulting from a sale, transfer or other change of ownership of the Premises as
it appears on the City and County tax bills during the Lease Term. Tenant's
obligation under this Section shall be prorated to reflect the Lease
Commencement and Expiration Dates. If, at any time during the Lease Term a tax,
excise on rents, business license tax or any other tax, however described, is
levied or assessed against Landlord as a substitute or addition, in whole or in
part, for taxes assessed or imposed on land or Buildings, Tenant shall pay and
discharges its pro rata share of such tax or excise on rents or other tax before
it becomes delinquent; except that this provision is not intended to cover net
income taxes, inheritance, gift or estate tax imposed upon Landlord. In the
event that a tax is placed, levied, or assessed against Landlord and the taxing
authority takes the position that Tenant cannot pay and discharge its pro rata
share of such tax on behalf of Landlord, then at Landlord's sole election,
Landlord may increase the Base Monthly Rent by the exact amount of such tax and
Tenant shall pay such increase. If by virtue of any application or proceeding
brought by Landlord, there results a reduction in the assessed value of the
Premises during the Lease Term, Tenant agrees to pay Landlord a fee consistent
with the fees charged by a third party appeal firm for such services.
11. UTILITIES: Tenant shall pay directly to the providing utility all water,
gas, electric, telephone, and other utilities supplied to the Premises.
Landlord shall not be liable for loss of or injury to person or property,
however occurring, through or in connection with or incidental to furnishing
or the utility company's failure to furnish utilities to the Premises, and in
such event Tenant shall not be entitled to abatement or reduction of any
portion of Base Monthly Rent or any other amount payable under this Lease.
12. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:
A. TENANT'S RESPONSIBILITY: Without the prior written consent of
Landlord, Tenant or Tenant's agents, employees, contractors and invitees
("Tenant's Agents") shall not bring, use, or permit upon the Premises, or
generate, create, release, emit, or dispose (nor permit any of the same) from
the Premises any chemicals, toxic or hazardous gaseous, liquid or solid
materials or waste, including without limitation, material or substance having
characteristics of ignitability, corrosivity, reactivity, or toxicity or
substances or materials which are listed on any of the Environmental Protection
Agency's lists of hazardous wastes or which are identified in Division 22 Title
26 of the California Code of Regulations as the same may be amended from time
to time or any wastes, materials or substances which are or may become
regulated by or under the authority of any applicable local, state or federal
laws, judgments, ordinances, orders, rules, regulations, codes or other
governmental restrictions, guidelines or requirements. ("Hazardous Materials")
except for those substances customary in typical office uses for which no
consent shall be required. In order to obtain consent, Tenant shall deliver to
Landlord its written proposal describing the toxic material to be brought onto
the Premises, measures to be taken for storage and disposal thereof, safety
measures to be employed to prevent pollution of the air, ground, surface and
ground water. Landlord's approval may be withheld in its reasonable judgment.
In the event Landlord consents to Tenant's use of Hazardous Materials on the
Premises or such consent is not required, Tenant represents and warrants that
it shall comply with all Governmental Regulations applicable to Hazardous
Materials including doing the following: (i) adhere to all reporting and
inspection requirements imposed by Federal, State, County or Municipal laws,
ordinances or regulations and will provide Landlord a copy of any such reports
or agency inspections; (ii)
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obtain and provide Landlord copies of all necessary permits required for the
use and handling of Hazardous Materials on the Premises; (iii) enforce
Hazardous Materials handling and disposal practices consistent with industry
standards; (iv) surrender the Premises free from any Hazardous Materials
arising from Tenant's bringing, using, permitting, generating, creating,
releasing, emitting or disposing of Hazardous Materials; and (v) properly close
the facility with regard to Hazardous Materials including the removal or
decontamination of any process piping, mechanical ducting, storage tanks
containers, or trenches which have come into contact with Hazardous Materials
and obtain a closure certificate from the local administering agency prior to
the Expiration Date.
B. TENANT'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Tenant shall, at
its sole cost and expense, comply with all laws pertaining to, and shall with
counsel reasonably acceptable to Landlord, indemnify, defend and hold harmless
Landlord and Landlord's trustees, shareholders, directors, officers, employees,
partners, affiliates, and agents from, any claims, liabilities, costs or
expenses incurred or suffered arising from the following conduct during the
Lease Term: the bringing, using, permitting, generating, emitting or disposing
of Hazardous Materials by Tenant, Tenant's Agents or a third party through the
surface soils of the Premises during the Lease Term or the violation of any
Governmental Regulation or environmental law, by Tenant or Tenant's Agents.
Tenant's indemnification, defense, and hold harmless obligations include,
without limitation, the following: (i) claims, liability, costs or expenses
resulting from or based upon administrative, judicial (civil or criminal) or
other action, legal or equitable, brought by any private or public person under
common law or under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended ("CERCLA"), the Resource Conservation and
Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal
law, ordinance or regulation now or hereafter in effect; (ii) claims,
liabilities, costs or expenses pertaining to the identification, monitoring,
cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or
aquifers including the provision of an alternative public drinking water source;
(iii) all costs of defending such claims; (iv) losses attributable to diminution
in the value of the Premises or the Building; (v) loss or restriction of use of
rentable space in the Building; (vi) Adverse effect on the marketing of any
space in the Building; and (vi) all other liabilities, obligations, penalties,
fines, claims, actions (including remedial or enforcement actions of any kind
and administrative or judicial proceedings, orders or judgments), damages
(including consequential and punitive damages), and costs (including attorney,
consultant, and expert fees and expenses) resulting from the release or
violation. This Section 12.B shall survive the expiration or termination of this
Lease.
C. ACTUAL RELEASE BY TENANT: Tenant agrees to notify Landlord of any
lawsuits or orders which relate to the remedying of or actual release of
Hazardous Materials on or into the soils or ground water at or under the
Premises. Tenant shall also provide Landlord all notices required by Section
25359.7(b) of the Health and Safety Code and all other notices required by law
to be given to Landlord in connection with Hazardous Materials. Without
limiting the foregoing, Tenant shall also deliver to Landlord, within twenty
(20) days after receipt thereof, any written notices from any governmental
agency alleging a material violation of, or material failure to comply with,
any federal, state or local laws, regulations, ordinances or orders, the
violation of which or failure to comply with poses a foreseeable and material
risk of contamination of the ground water or injury to humans (other than
injury solely to Tenant or Tenant's Agents.
In the event of any release on or into the Premises or into the soil or
ground water under the Premises, the Building or the Project of any Hazardous
Materials used, treated, stored or disposed of by Tenant or Tenant's Agents,
Tenant agrees to comply, at its sole cost, with all laws, regulations,
ordinances and orders of any federal, state or local agency relating to the
monitoring or remediation of such Hazardous Materials. In the event of any such
release of Hazardous Materials Tenant shall immediately give verbal and
follow-up written notice of the release to Landlord and its Lender to attempt
to eliminate and mitigate any financial exposure to such Lender and resultant
exposure to Landlord under California Code of Civil Procedure Section 736(b) as
a result of such release, and promptly to take reasonable monitoring, cleanup
and remedial steps given,
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inter alia, the historical uses to which the Property has and continues to be
used, the risks to public health posed by the release, the then available
technology and the costs of remediation, cleanup and monitoring, consistent with
acceptable customary practices for the type and severity of such contamination
and all applicable laws. Nothing in the preceding sentences shall eliminate,
modify or reduce the obligation of Tenant under 12.B of this Lease to indemnify,
defend and hold Landlord harmless from any claims liabilities, costs or expenses
incurred or suffered by Landlord. Tenant shall provide Landlord prompt written
notice of Tenant's monitoring, cleanup and remedial steps.
In the absence of an order of any federal, state or local governmental or
quasi-governmental agency relating to the cleanup, remediation or other response
action required by applicable law, any dispute arising between Landlord and
Tenant concerning Tenant's obligation to Landlord under this Section 12.C
concerning the level, method, and manner of cleanup, remediation or response
action required in connection with such a release of Hazardous Materials shall
be resolved by remediation and/or arbitration pursuant to this Lease.
D. ENVIRONMENTAL MONITORING: Landlord and its agents shall have the right
to reasonably inspect, investigate, sample and monitor the Premises including
any air, soil, water, ground water or other sampling or any other testing,
digging, drilling or analysis to determine whether Tenant is complying with the
terms of this Section 12. If Landlord discovers that Tenant is not in compliance
with the terms of this Section 12, any costs incurred by Landlord related to
such non-compliance, including attorneys' and consultants' fees, and costs
incurred by Landlord pursuant to this Section 12.D., shall be due and payable by
Tenant to Landlord within five (5) days following Landlord's written demand
therefore.
13. TENANT'S DEFAULT: The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant: (i) Tenant's failure to pay
the Base Monthly Rent including additional rent or any other payment due under
this Lease by the date such amount is due, where such failure continues for five
(5) days after written notice from Landlord, (ii) the abandonment of the
Premises by Tenant; (iii) Tenant's failure to observe and perform any other
required provision of this Lease, where such failure continues for thirty (30)
days after written notice from Landlord; provided, however that if the nature of
the default is such that it cannot reasonably be cured within the 30-day period,
Tenant shall not be deemed in default if it commences within such period to
cure, and thereafter diligently prosecutes the same to completion; (iv) Tenant's
making of any general assignment for the benefit of creditors; (v) the filing by
or against Tenant of a petition to have Tenant adjudged 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
after the filing); (vi) 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 (vii) 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.
A. REMEDIES: In the event of any such default by Tenant, then in addition
to other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder
by giving written notice of such intention to terminate. In the event Landlord
elects to so terminate this Lease, Landlord may recover from Tenant all the
following: (i) the worth at time of award of any unpaid rent which had been
earned at the time of such termination; (ii) the worth at 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 for the same
period that Tenant proves could have been reasonably avoided; (iii) the worth at
time of award of the amount by which the unpaid rent for the balance of the
Lease Term after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; (iv) any other amount necessary to
compensate Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease, or which in the ordinary course of
things would be likely to result therefrom; including the following: (x)
expenses for repairing, altering or remodeling the
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Premises for purposes of reletting, (y) broker's fees, advertising costs or
other expenses of reletting the Premises, and (z) costs of carrying the
Premises such as taxes, insurance premiums, utilities and security precautions;
and (v) at Landlord's election, such other amounts in addition to or in lieu of
the foregoing as may be permitted by applicable California law. The term
"rent", as used herein, is defined as the minimum monthly installments of Base
Monthly Rent and all other sums required to be paid by Tenant pursuant to this
Lease, all such other sums being deemed as additional rent due hereunder. As
used in (i) and (ii) above, "worth at the time of award" shall be computed by
allowing interest at a rate equal to the discount rate of the Federal Reserve
Bank of San Francisco plus five (5%) percent per annum. As used in (iii) above,
"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 (1%) percent.
B. RIGHT TO RE-ENTER: In the event of any such default by Tenant, Landlord
shall have the right, after terminating this Lease, to re-enter the Premises
and remove all persons and property. Such property may be removed and stored in
a public warehouse or elsewhere at the cost of and for the account of Tenant,
and disposed of by Landlord in any manner permitted by law.
C. ABANDONMENT: If Landlord does not elect to terminate this Lease as
provided in Section 13.A or 13.B above, then the provisions of California Civil
Code Section 1951.4, (Landlord may continue the lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due if Tenant has a right
to sublet and assign, subject only to reasonable limitations) as amended from
time to time, shall apply and Landlord may from time to time, without
terminating this Lease, either recover all rental as it becomes due or relet
the Premises or any part thereof for such term or terms and at such rental or
rentals and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs
to the Premises. In the event that Landlord elects to so relet, rentals
received by Landlord from such reletting shall be applied in the following
order to: (i) the payment of any indebtedness other than Base Monthly Rent due
hereunder from Tenant to Landlord; (ii) the payment of any cost of such
reletting; (iii) the payment of the cost of any alterations and repairs to the
Premises; and (iv) the payment of Base Monthly Rent due and unpaid hereunder.
The residual rentals, if any, shall be held by Landlord and applied in payment
of future Base Monthly Rent as the same may become due and payable hereunder.
Landlord shall have the obligation to market the space but shall have no
obligation to relet the Premises following a default if Landlord has other
comparable available space within the Project. In the event the portion of
rentals received from such reletting which is applied to the payment of rent
hereunder during any month be less than the rent payable during that month by
Tenant hereunder, then Tenant shall pay such deficiency to Landlord immediately
upon demand. Such deficiency shall be calculated and paid monthly. Tenant shall
also pay to Landlord, as soon as ascertained, any reasonable costs and expenses
incurred by Landlord in such reletting or in making such alterations and
repairs not covered by the rentals received from such reletting.
D. NO TERMINATION: Landlord's re-entry or taking possession of the Premises
pursuant to 13.B or 13.C shall not be construed as an election to terminate
this Lease unless written notice of such intention is given to Tenant or unless
the termination is decreed by a court of competent jurisdiction.
Notwithstanding any reletting without termination by Landlord because of any
default by Tenant, Landlord may at any time after such reletting elect to
terminate this Lease for any such default.
3. NON-WAIVER: Landlord may accept Tenant's payments without waiving any
rights under this Lease, including rights under a previously served notice of
default. No payment by Tenant or receipt by Landlord of a lesser amount than
any installment of rent due shall be deemed as other than payment on account of
the amount due. If Landlord accepts payments after serving a notice of default,
Landlord may nevertheless commence and pursue an action to enforce rights and
remedies under the previously served notice of default without giving Tenant
any further notice or demand. Furthermore, the Landlord's acceptance of rent
from the Tenant when the Tenant is holding over without express written consent
does not convert Tenant's Tenancy from a tenancy at sufferance to a month to
month tenancy. No waiver of any provision of this Lease shall be implied by any
failure of the waiving party to enforce any remedy for the violation of that
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provision, even if that violation continues or is repeated. Any waiver by either
party of any provision of this Lease must be in writing. Such waiver shall
affect only the provision specified and only for the time and in the manner
stated in the writing. No delay or omission in the exercise of any right or
remedy by either party shall impair such right or remedy or be construed as a
waiver thereof by the waiving party. No act or conduct of Landlord, including,
without limitation, the acceptance of keys to the Premises, shall constitute
acceptance of the surrender of the Premises by Tenant before the Expiration
Date. Only written notice from Landlord to Tenant of acceptance shall constitute
such acceptance of surrender of the Premises. Landlord's consent to or approval
of any act by Tenant which requires Landlord's consent or approvals shall not be
deemed to waive or render unnecessary Landlord's consent to or approval of any
subsequent act by Tenant.
F. PERFORMANCE BY LANDLORD: If Tenant fails to perform any obligation
required under this Lease or by law or governmental regulation, Landlord in its
sole discretion may, without notice, without waiving any rights or remedies and
without releasing Tenant from its obligations hereunder, perform such
obligation, in which event Tenant shall pay Landlord as additional rent all
sums paid by Landlord in connection with such substitute performance, including
interest at the Agreed Interest Rate (as defined in Section 19.J) within ten
(10) days of Landlord's written notice for such payment.
G. HABITUAL DEFAULT: The provisions of Section 13 notwithstanding, the
Parties agree that if Tenant shall have defaulted in the performance of any
(but not necessarily the same) term or condition of this Lease for four or more
times during any twelve (12) month period during the Lease Term, then such
conduct shall, at the election of the Landlord, represent a separate event of
default which cannot be cured by Tenant. Tenant acknowledges that the purpose
of this provision is to prevent repetitive defaults by Tenant, which work a
hardship upon Landlord and deprive Landlord of Tenant's timely performance
under this Lease.
14. LANDLORD'S LIABILITY:
A. LIMITATION ON LANDLORD'S LIABILITY: In the event of Landlord's
failure to perform any of its covenants or agreements under this Lease, Tenant
shall give Landlord written notice of such failure and shall give Landlord
thirty (30) days to cure or commence to cure such failure prior to any claim
for breach or resultant damages, provided, however, that if the nature of the
default is such that it cannot reasonably be cured within the 30-day period,
Landlord shall not be deemed in default if it commences within such period to
cure, and thereafter diligently prosecutes the same to completion. In addition,
upon any such failure by Landlord, Tenant shall give notice by registered or
certified mail to any person or entity with a security interest in the Premises
("Mortgagee") that has provided Tenant with notice of its interest in the
Premises, and shall provide Mortgagee a reasonable opportunity to cure such
failure, including such time to obtain possession of the Premises by power of
sale or judicial foreclosure, if such should prove necessary to effectuate a
cure. Tenant agrees that each of the Mortgagees to whom this Lease has been
assigned is an expressed third-party beneficiary hereof. Tenant waives any
right under California Civil Code Section 1950.7 or any other present or future
law to the collection of any payment or deposit from Mortgagee or any purchaser
at a foreclosure sale of Mortgagee's interest unless Mortgagee or such
purchaser shall have actually received and not refunded the applicable payment
or deposit. Tenant further waives any right to terminate this Lease and to
vacate the Premises on Landlord's default under this Lease. Tenant's sole
remedy on Landlord's default is an action for damages or injunctive or
declaratory relief.
B. LIMITATION ON TENANT'S RECOURSE: If Landlord is a corporation, trust,
partnership, joint venture, unincorporated association or other form of business
entity, then (i) the obligations of Landlord shall not constitute personal
obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals or representatives except to
the extent of their interest in the Premises. Tenant shall have recourse only to
the interest of Landlord in the Premises or for the satisfaction of the
obligations of Landlord and shall not have recourse to any other assets of
Landlord for the satisfaction of such obligations.
C. INDEMNIFICATION OF LANDLORD: As a material part of the consideration
rendered to Landlord, Tenant hereby waives all claims against Landlord (unless
due to Landlord's
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gross negligence or willful misconduct) for damages to goods, wares and
merchandise, and all other personal property in, upon or about said Premises and
for injuries to persons in or about said Premises, from any cause arising at any
time to the fullest extent permitted by law, and Tenant shall indemnify, defend
with counsel reasonably acceptable to Landlord and hold Landlord, and their
shareholders, directors, officers, trustees, employees, partners, affiliates and
agents from any claims, liabilities, costs or expenses incurred or suffered
arising from the use of occupancy of the Premises or any part of the Project by
Tenant or Tenant's Agents, the acts or omissions of Tenant or Tenant's Agents,
Tenant's breach of this Lease, or any damage or injury to person or property
from any cause, except to the extent caused by the willful misconduct or active
negligence of Landlord or from the failure of Tenant to keep the Premises in
good condition and repair as herein provided, except to the extent due to the
gross negligence or willful misconduct of Landlord. Further, in the event
Landlord is made party to any litigation due to the acts or omission of Tenant
and Tenant's Agents, Tenant will indemnify, defend (with counsel reasonably
acceptable to Landlord) and hold Landlord harmless from any such claim or
liability including Landlord's costs and expenses and reasonable attorney's fees
incurred in defending such claims.
15. DESTRUCTION OF PREMISES:
A. LANDLORD'S OBLIGATION TO RESTORE: In the event of a destruction of the
Premises during the Lease Term Landlord shall repair the same to a similar
condition to that which existed prior to such destruction. Such destruction
shall not annul or void this Lease; however, Tenant shall be entitled to a
proportionate reduction of Base Monthly Rent while repairs are being made, such
proportionate reduction to be based upon the extent to which the repairs
interfere with Tenant's business in the Premises, as reasonably determined by
Landlord. In no event shall Landlord be required to replace or restore
Alterations, Tenant Improvements paid for by Tenant from sources other than the
Work Allowance or Tenant's fixtures or personal property. With respect to a
destruction which Landlord is obligated to repair or may elect to repair under
the terms of this Section, Tenant waives the provisions of Section 1932, and
Section 1933, Subdivision 4, of the Civil Code of the State of California, and
any other similarly enacted statute, and the provisions of this Section 15
shall govern in the case of such destruction.
B. LIMITATIONS ON LANDLORD'S RESTORATION OBLIGATION: Notwithstanding
the provisions of Section 15.A, Landlord shall have no obligation to repair, or
restore the Premises if any of the following occur: (i) if the repairs cannot
be made in one hundred eighty (180) days from the date of receipt of all
governmental approvals necessary under the laws and regulations of State,
Federal, County or Municipal authorities, as reasonably determined by Landlord,
(ii) if the holder of the first deed of trust or mortgage encumbering the
Building elects not to permit the insurance proceeds payable upon damage or
destruction to be used for such repair or restoration, (iii) the damage or
destruction is not fully covered by the insurance maintained by Landlord,
(iv) the damage or destruction occurs in the last twenty-four (24) months of
the Lease Term, (v) Tenant is in default pursuant to the provisions of Section
13, or (vi) Tenant has vacated the Premises for more than ninety (90) days. In
any such event Landlord may elect either to (i) complete the repair or
restoration, or (ii) terminate this Lease by providing Tenant written notice of
its election within sixty (60) days following the damage or destruction.
16. CONDEMNATION: If any part of the Premises shall be taken for any public
or quasi-public use, under any statute or by right of eminent domain or
private purchase in lieu thereof, and only a part thereof remains which is
susceptible of occupation hereunder, this Lease shall, as to the part so taken,
terminate as of the day before title vests in the condemnor or purchaser
("Vesting Date") and Base Monthly Rent payable hereunder shall be adjusted so
that Tenant is required to pay for the remainder of the Lease Term only such
portion of Base Monthly Rent as the value of the part remaining after such
taking bears to the value of the entire Premises prior to such taking. Further,
in the event of such partial taking, Landlord shall have the option to
terminate this Lease as of the Vesting Date. If all of the Premises or such
part thereof be taken so that there does not remain a portion susceptible for
occupation hereunder, this Lease shall terminate on the Vesting Date. If part
or all of the Premises be taken, all compensation awarded upon such taking
shall go to Landlord, and Tenant shall have no claim thereto; except Landlord
shall cooperate with Tenant, without cost to Landlord, to recover compensation
for damage to or taking of any
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Alterations, Tenant Improvements paid for by Tenant from sources other than the
Work Allowance, or for Tenant's moving costs. Tenant hereby waives the
provisions of California Code of Civil Procedures Section 1265.130 and any
other similarly enacted statute, and the provisions of this Section 16 shall
govern in the case of a taking.
17. ASSIGNMENT OR SUBLEASE:
A. CONSENT BY LANDLORD: Except as specifically provided in this Section
17.E, Tenant may not assign, sublet, hypothecate, or allow a third party to use
the Premises without the express written consent of Landlord. In the event
Tenant desires to assign this Lease or any interest herein or sublet the
Premises or any part thereof, Tenant shall deliver to Landlord (i) executed
counterparts of any agreement and of all ancillary agreements with the proposed
assignee/subtenant, (ii) current financial statements of the transferee
covering the preceding three years, (iii) the nature of the proposed
transferee's business to be carried on in the Premises, (iv) a statement
outlining all consideration to be given on account of the Transfer, and (v) a
current financial statement of Tenant. Landlord may condition its approval of
any Transfer on receipt of a certification from both Tenant and the proposed
transferee of all consideration to be paid to Tenant in connection with such
Transfer. At Landlord's request, Tenant shall also provide additional
information reasonably required by Landlord to determine whether it will
consent to the proposed assignment or sublease. Landlord shall have a ten (10)
day period following receipt of all the foregoing within which to notify Tenant
in writing that Landlord elects to: (i) terminate this Lease in the event the
proposed sublease or assignment is for substantially all of space in the
Premises; (ii) permit Tenant to assign or sublet such space to the named
assignee/subtenant on the terms and conditions set forth in the notice; or
(iii) reasonably refuse consent. If Landlord should fail to notify Tenant in
writing of such election within the 10-day period, Landlord shall be deemed to
have elected option (iii) above. In the event Landlord elects option (i) above,
this Lease shall expire with respect to such part of the Premises on the date
upon which the proposed sublease or transfer was to commence, and from such
date forward, Base Monthly Rent and Tenant's Allocable Share of all other costs
and charges shall be adjusted based upon the proportion that the rentable area
of the Premises remaining bears to the total rentable area of the Building. In
the event Landlord elects option (ii) above, Landlord's written consent to the
proposed assignment or sublease shall not be unreasonably withheld, provided
and upon the condition that: (i) the proposed assignee or subtenant is engaged
in a business that is limited to the use expressly permitted under this Lease;
(ii) the proposed assignee or subtenant is a company with sufficient financial
worth and management ability to undertake the financial obligation of this
Lease and Landlord has been furnished with reasonable proof thereof; (iii) the
proposed assignment or sublease is in form reasonably satisfactory to Landlord;
(iv) Tenant reimburses Landlord on demand for any costs that may be incurred by
Landlord in connection with said assignment or sublease, including the
reasonable costs of making investigations as to the acceptability of the
proposed assignee or subtenant and legal costs incurred in connection with the
granting of any requested consent; and (v) Tenant shall not have advertised or
publicized in any way the availability of the Premises without prior notice to
Landlord. In the event all or any one of the foregoing conditions are not
satisfied, Landlord shall be considered to have acted reasonably if it
withholds its consent.
B. ASSIGNMENT OR SUBLETTING CONSIDERATION: Any rent or other economic
consideration realized by Tenant under any sublease and assignment, in excess
of the Base Monthly Rent payable hereunder and reasonable subletting and
assignment costs, shall be divided and paid fifty percent (50%) to Landlord and
fifty percent (50%) to Tenant. Tenant's obligation to pay over Landlord's
portion of the consideration constitutes an obligation for additional rent
hereunder. The above provisions relating to Landlord's right to terminate the
Lease and relating to the allocation of excess rent are independently
negotiated terms of the Lease which constitute a material inducement for the
Landlord to enter into the Lease, and are agreed by the Parties to be
commercially reasonable. No assignment or subletting by Tenant shall relieve it
of any obligation under this Lease. Any assignment or subletting which
conflicts with the provisions hereof shall be void.
C. NO RELEASE: Any assignment or sublease shall be made only if and
shall not be effective until the assignee or subtenant shall
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<PAGE> 18
execute, acknowledge, and deliver to Landlord an agreement, in form and
substance satisfactory to Landlord, whereby the assignee or subtenant shall
assume all the obligations of this Lease on the part of Tenant to be performed
or observed and shall be subject to all the covenants, agreements, terms,
provisions and conditions in this Lease. Notwithstanding any such sublease or
assignment and the acceptance of rent by Landlord from any subtenant or
assignee, Tenant and any guarantor shall remain fully liable for the payment of
Base Monthly Rent and additional rent due, and to become due hereunder, for the
performance of all the covenants, agreements, terms, provisions and conditions
contained in this Lease on the part of Tenant to be performed and for all acts
and omissions of any licensee, subtenant, assignee or any other person claiming
under or through any subtenant or assignee that shall be in violation of any of
the terms and conditions of this Lease, and any such violation shall be deemed
a violation by Tenant. Tenant shall indemnify, defend and hold Landlord
harmless from and against all losses, liabilities, damages, costs and expenses
(including reasonable attorney fees) resulting from any claims that may be made
against Landlord by the proposed assignee or subtenant or by any real estate
brokers or other persons claiming compensation in connection with the proposed
assignment or sublease.
D. REORGANIZATION OF TENANT: The provisions of this Section 17.D shall
apply if Tenant is a corporation and: (i) there is a dissolution, merger,
consolidation, or other reorganization of or affecting Tenant, where Tenant is
not the surviving corporation, or (ii) there is a sale or transfer to one
person or entity (or to any group of related persons or entities) of stock
possessing more than 50% of the total combined voting power of all classes of
Tenant's capital stock issued, outstanding and entitled to vote for the
election of directors, and after such sale or transfer of stock Tenant's stock
is no longer publicly traded. In a transaction under clause (i) the surviving
corporation shall promptly execute and deliver to Landlord an agreement in form
reasonably satisfactory to Landlord under which such surviving corporation
assumes the obligations of Tenant hereunder, and in a transaction under clause
(ii) the transferee or buyer shall promptly execute and deliver to Landlord an
agreement in form reasonably satisfactory to Landlord under which such
transferee or buyer assumes the obligations of Tenant under the Lease.
E. PERMITTED TRANSFERS: Notwithstanding anything contained in this
Section 17, so long as Tenant otherwise complies with the provisions of this
Article, Tenant may enter into any of the following transfers (a "Permitted
Transfer") without Landlord's prior consent, and Landlord shall not be
entitled to terminate the Lease or to receive any part of any subrent resulting
therefrom that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant
may sublease all or part of the Premises or assign its interest in this Lease
to (i) any corporation which controls, is controlled by, or is under common
control with the original Tenant to this Lease by means of an ownership
interest of more than 50% of the total combined voting power of all classes of
Tenant's capital stock issued, outstanding and entitled to vote; (ii) a
corporation which results from a merger, consolidation or other reorganization
in which Tenant is not the surviving corporation, so long as the surviving
corporation has a net worth at the time of such assignment that is equal to or
greater than the net worth of Tenant immediately prior to such transaction; and
(iii) a corporation which purchases or otherwise acquires all or substantially
all of the assets of Tenant so long as such acquiring corporation has a net
worth at the time of such assignment that is equal to or greater than the net
worth of Tenant immediately prior to such transaction.
F. EFFECT OF DEFAULT: In the event of Tenant's default, Tenant hereby
assigns all rents due from any assignment or subletting to Landlord as security
for performance of its obligations under this Lease, and Landlord may collect
such rents as Tenant's Attorney-in-Fact, except that Tenant may collect such
rents unless a default occurs as described in Section 13 above. A termination
if the Lease due to Tenant's default shall not automatically terminate an
assignment or sublease then in existence; rather at Landlord's election, such
assignment or sublease shall survive the Lease termination, the assignee or
subtenant shall attorn to Landlord, and Landlord shall undertake the
obligations of Tenant under the sublease or assignment; except that Landlord
shall not be liable for prepaid rent, security deposits or other defaults of
Tenant to the subtenant or assignee, or for any acts or omissions of Tenant and
Tenant's Agents.
G. CONVEYANCE BY LANDLORD: As used in this Lease, the term "Landlord" is
defined only
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as the owner for the time being of the Premises, so that in the event of any
sale or other conveyance of the Premises or in the event of a master lease of
the Premises, Landlord shall be entirely free and relieved of all its covenants
and obligations hereunder, and it shall be deemed and construed, without
further agreement between the Parties and the purchaser at any such sale or the
master tenant of the Premises, that the purchaser or master tenant of the
Premises has assumed and agreed to carry out any and all covenants and
obligations of Landlord hereunder. Such transferor shall transfer and deliver
Tenant's security deposit to the purchaser at any such sale or the master
tenant of the Premises, and thereupon the transferor shall be discharged from
any further liability in reference thereto.
F. SUCCESSORS AND ASSIGNS: Subject to the provisions of this Section 17,
the covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all Parties hereto; and all
Parties hereto comprising Tenant shall be jointly and severally liable
hereunder.
18. This Section intentionally left blank.:
19. GENERAL PROVISIONS:
A. ATTORNEY'S FEES: In the event a suit or alternative form of dispute
resolution is brought for the possession of the Premises, for the recovery of
any sum due hereunder, to interpret the Lease, or because of the breach of any
other covenant hereon; then the losing party shall pay to the prevailing party
reasonable attorney's fees including the expense of expert witnesses,
depositions and court testimony as part of its costs which shall be deemed to
have accrued on the commencement of such action. The prevailing party shall
also be entitled to recover all costs and expenses including reasonable
attorney's fees incurred in enforcing any judgment or award against the other
party. The foregoing provision relating to post-judgment costs is severable
from all other provisions of this Lease.
B. AUTHORITY OF PARTIES: Tenant represents and warrants that it is duly
formed and in good standing, and 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
the by-laws of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms. At Landlord's request, Tenant shall
provide Landlord with corporate resolutions or other proof in a form acceptable
to Landlord, authorizing the execution of the Lease.
C. BROKERS: Tenant acknowledges that no real estate commission is due from,
or payable by Landlord with respect to this transaction, and Tenant agrees to
indemnify, defend and hold Landlord harmless against any claim, cost, liability
or cause of action asserted by any broker or finder claiming through Tenant.
D. CHOICE OF LAW: This Lease shall be governed by and construed in
accordance with California law. Except as provided in Section 19.E, venue shall
be Santa Clara County.
E. DISPUTE RESOLUTION: Landlord and Tenant and any other party that may
become a part to this Lease or be deemed a party to this Lease including any
subtenants agree that, except for any claim by Landlord for unlawful detainer
or any claim within the jurisdiction of the small claims court (which small
claims court shall be the sole court of competent jurisdiction), any
controversy, dispute, or claim of whatever nature arising out of, in connection
with or in relation to the interpretation, performance or breach of this Lease,
including any claim based on contract, tort, or statute, shall be resolved at
the request of any party to this agreement through a two-step dispute
resolution process administered by J.A.M.S. or another judicial mediation
service mutually acceptable to the parties located in Santa Clara County,
California. The dispute resolution process shall involve first, mediation,
followed, if necessary, by final and binding arbitration administered by and in
accordance with the then existing rules and practices of J.A.M.S. or other
judicial mediation service selected. In the event of any dispute subject to
this provision, either party may initiate a request for mediation and the
parties shall use reasonable efforts to promptly select a J.A.M.S. mediator and
commence the mediation. In the event the parties are not able to agree on a
mediator within thirty (30) days, J.A.M.S. or another judicial mediation
service mutually acceptable to the parties shall appoint a mediator. The
mediation shall be confidential and in accordance with California Evidence Code
Section 1119 et. seq. The mediation shall be held in Santa Clara County,
California and in accordance with the existing rules and practice
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of J. A. M. S. (or other judicial and mediation service selected). The parties
shall use reasonable efforts to conclude the mediation within sixty (60) days
of the date of either party's request for mediation. The mediation shall be
held prior to any arbitration or court action (other than a claim by Landlord
for unlawful detainer or any claim within the jurisdiction of the small claims
court which are not subject to this mediation/arbitration provision and may be
filed directly with a court of competent jurisdiction). Should the prevailing
party in any dispute subject to this Section 19.E attempt an arbitration or a
court action before attempting to mediate, the prevailing party shall not be
entitled to attorney's fees that might otherwise be available to them in a court
action or arbitration and in addition thereto, the party who is determined by
the arbitrator to have resisted mediation, shall be sanctioned by the
arbitrator or judge.
IF A MEDIATION IS CONDUCTED BUT IS UNSUCCESSFUL, IT SHALL BE FOLLOWED BY FINAL
AND BINDING ARBITRATION ADMINISTERED BY AND IN ACCORDANCE WITH THE THEN
EXISTING RULES AND PRACTICES OF J.A.M.S. OR THE OTHER JUDICIAL AND MEDIATION
SERVICE SELECTED, AND JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR(S) MAY
BE ENTERED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF AS PROVIDED
BY CALIFORNIA CODE OF CIVIL PROCEDURES SECTION 1280 ET. SEQ, AS SAID STATUTES
THEN APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR SUCCESSORS TO SAID
STATUTES OR AMENDED STATUTES, EXCEPT THAT IN NO EVENT SHALL THE PARTIES BE
ENTITLED TO PROPOUND INTERROGATORIES OR REQUEST FOR ADMISSIONS DURING THE
ARBITRATION PROCESS. THE ARBITRATOR SHALL BE A RETIRED JUDGE OR A LICENSED
CALIFORNIA ATTORNEY. THE VENUE FOR ANY SUCH ARBITRATION OR MEDIATION SHALL BE
IN SANTA CLARA COUNTY, CALIFORNIA.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF
DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA
LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE
LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE
GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE
SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION.
IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU
MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF
CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION TO NEUTRAL ARBITRATION.
LANDLORD: /s/ [Signature Illegible] TENANT:
-------------------------- ------------------
F. ENTIRE AGREEMENT: This Lease and the exhibits attached hereto contains
all of the agreements and conditions made between the Parties hereto and may
not be modified orally or in any other manner other than by written agreement
signed by all parties hereto or their respective successors in interest. This
Lease supersedes and revokes all previous negotiations, letters of intent,
lease proposals, brochures, warranties, and understandings, whether oral or in
writing, between the parties or their respective representatives or any other
person purporting to represent Landlord or Tenant.
G. ENTRY BY LANDLORD: Upon prior notice to Tenant and subject to Tenant's
reasonable security regulations, Tenant shall permit Landlord and his agents to
enter into and upon the Premises at all reasonable times, and without any rent
abatement or reduction or any liability to Tenant for any loss of occupation or
quiet enjoyment of the Premises thereby occasioned, for the following purposes:
(i) inspecting and maintaining the Premises; (ii) making repairs, alterations
or additions to the Premises; (iii) erecting additional building(s) and
improvements on the land where the Premises are situated or on adjacent land
owned by Landlord; (iv) performing any obligations of
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<PAGE> 21
Landlord under the Lease including remediation of Hazardous Materials if
determined to be the responsibility of Landlord, (v) posting and keeping posted
thereon notices of non-responsibility for any construction, alteration or repair
thereof, as required or permitted by any law, and (vi) showing the Premises to
Landlord's or the Master Landlord's existing or potential successors, purchaser,
tenants and lenders. Tenant shall permit Landlord and his agents, at any time
within one hundred eighty (180) days prior to the Expiration Date (or at any
time during the Lease if Tenant is in default hereunder), to place upon the
Premises "For Lease" signs and exhibit the Premises to real estate brokers and
prospective tenants at reasonable hours, with reasonable notice.
H. ESTOPPEL CERTIFICATES: At any time during the Lease Term, Tenant shall,
within ten (10) business days following written notice from Landlord, execute
and deliver to Landlord a written statement certifying, if true, the following:
(i) that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification); (ii) the date to which rent and other
charges are paid in advance, if any; (iii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on Landlord's part hereunder (or
specifying such defaults if they are claimed); and (iv) such other information
as Landlord may reasonably request. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of Landlord's interest
in the Premises. Tenant's failure to deliver such statement within such time
shall be conclusive upon the Tenant that this Lease is in full force and effect
without modification, except as may be represented by Landlord, and that there
are no uncured defaults in Landlord's performance. Tenant agrees to provide,
within five (5) days of Landlord's request, Tenant's most recent three (3) years
of unaudited financial statements for Landlord's use in financing or sale of the
Premises or Landlord's interest therein.
I. EXHIBITS: All exhibits referred to are attached to this Lease and
incorporated by reference.
J. INTEREST: All rent due hereunder, if not paid when due, shall bear
interest at the rate of the Reference Rate published by Bank of America, San
Francisco Branch, plus two percent (2%) per annum from that date until paid in
full ("Agreed Interest Rate"). This provision shall survive the expiration or
sooner termination of the Lease. Despite any other provision of this Lease, the
total liability for interest payments shall not exceed the limits, if any,
imposed by the usury laws of the State of California. Any interest paid in
excess of those limits shall be refunded to Tenant by application of the amount
of excess interest paid against any sums outstanding in any order that Landlord
requires. If the amount of excess interest paid exceeds the sums outstanding,
the portion exceeding those sums shall be refunded in cash to Tenant by
Landlord. To ascertain whether any interest payable exceeds the limits imposed,
any non-principal payment (including late charges) shall be considered to the
extent permitted by law to be an expense or a fee, premium, or penalty rather
than interest.
K. MODIFICATIONS REQUIRED BY LENDER: If any lender of Landlord or ground
lessor of the Premises requires a modification of this Lease that will not
increase Tenant's cost or expense or materially or adversely change Tenant's
rights and obligations, this Lease shall be so modified and Tenant shall execute
whatever documents are required and deliver them to Landlord within ten (10)
days after the request.
L. NO PRESUMPTION AGAINST DRAFTER: Landlord and Tenant understand, agree
and acknowledge that this Lease has been freely negotiated by both Parties; and
that in any controversy, dispute, or contest over the meaning, interpretation,
validity, or enforceability of this Lease or any of its terms or conditions,
there shall be no inference, presumption, or conclusion drawn whatsoever against
either party by virtue of that party having drafted this Lease or any portion
thereof.
M. NOTICES: All notices, demands, requests, or consents required to be
given under this Lease shall be sent in writing by U.S. certified mail, return
receipt requested, or by personal delivery addressed to the party to be notified
at the address for such party specified in Section 1 of this Lease, or to such
other place as the party to be notified may from time to time designate by at
least fifteen (15) days prior notice to the notifying party. When this Lease
requires service of a notice, that notice shall replace rather than supplement
any equivalent or similar statutory notice, including any notices required by
Code of Civil Procedure Section
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1161 or any similar or successor statute. When a statute requires service of a
notice in a particular manner, service of that notice (or a similar notice
required by this Lease) shall replace and satisfy the statutory
service-of-notice procedures, including those required by Code of Civil
Procedure Section 1162 or any similar or successor statute.
N. PROPERTY MANAGEMENT: In addition, Tenant agrees to pay Landlord along
with the expenses to be reimbursed by Tenant a monthly fee for management
services rendered by either Landlord or a third party manager engaged by
Landlord (which may be a party affiliated with Landlord), in the amount of three
percent (3%) of the Base Monthly Rent.
O. RENT: All monetary sums due from Tenant to Landlord under this Lease,
including, without limitation those referred to as "additional rent", shall be
deemed as rent.
P. REPRESENTATIONS: Tenant acknowledges that neither Landlord nor any of
its employees or agents have made any agreements, representations, warranties
or promises with respect to the Premises or with respect to present or future
rents, expenses, operations, tenancies or any other matter. Except as herein
expressly set forth herein, Tenant relied on no statement of Landlord or its
employees or agents for that purpose.
Q. RIGHTS AND REMEDIES: Subject to Section 14 above, all rights and
remedies hereunder are cumulative and not alternative to the extent permitted
by law, and are in addition to all other rights and remedies in law and in
equity.
R. SEVERABILITY: If any term or provision of this Lease is held
unenforceable or invalid by a court of competent jurisdiction, the remainder of
the Lease shall not be invalidated thereby but shall be enforceable in
accordance with its terms, omitting the invalid or unenforceable term.
S. SUBMISSION OF LEASE: Submission of this document for examination or
signature by the parties does not constitute an option or offer to lease the
Premises on the terms in this document or a reservation of the Premises in
favor of Tenant. This document is not effective as a lease or otherwise until
executed and delivered by both Landlord and Tenant.
T. SUBORDINATION: This Lease is subject and subordinate to ground and
underlying leases, mortgages and deeds of trust (collectively "encumbrances")
which may now affect the Premises, to any covenants, conditions or restrictions
of record, and to all renewals, modifications, consolidations, replacements and
extensions thereof; provided, however, if the holder or holders of any such
Encumbrance ("Holder") require that this Lease be prior and superior thereto,
within seven (7) days after written request of Landlord to Tenant, Tenant shall
execute, have acknowledged and deliver all documents or instruments, in the
form presented to Tenant, which Landlord or Holder deems necessary or
desirable for such purposes. Landlord shall have the right to cause this Lease
to be and become and remain subject and subordinate to any and all Encumbrances
which are now or may hereafter be executed covering the Premises or any
renewals, modifications, consolidations, replacements or extensions thereof,
for the full amount of all advances made or to be made thereunder and without
regard to the time or character of such advances, together with interest
thereon and subject to all the terms and provisions thereof; provided only,
that in the event of termination of any such lease or upon the foreclosure of
any such mortgage or deed of trust, Holder agrees to recognize Tenant's rights
under this Lease as long as Tenant is not then in default and continues to pay
Base Monthly Rent and additional rent and observes and performs all required
provisions of this Lease. Within ten (10) days after Landlord's written
request, Tenant shall execute any documents required by Landlord or the Holder
to make this Lease subordinate to any lien of the Encumbrance. If Tenant fails
to do so, then in addition to such failure constituting a default by Tenant, it
shall be deemed that this Lease is so subordinated to such Encumbrance.
Notwithstanding anything to the contrary in this Section, Tenant hereby attorns
and agrees to attorn to any entity purchasing or otherwise acquiring the
Premises at any sale or other proceeding or pursuant to the exercise of any
other rights, powers or remedies under such encumbrance.
U. SURVIVAL OF INDEMNITIES: All indemnification, defense, and hold
harmless obligations of Landlord and Tenant under this Lease shall survive the
expiration or sooner termination of the Lease.
V. TIME: Time is of the essence
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hereunder.
W. TRANSPORTATION DEMAND MANAGEMENT PROGRAMS: Should a government
agency or municipality require Landlord to institute TDM (Transportation Demand
Management) facilities and/or programs, Tenant agrees that the cost of TDM
imposed facilities and programs required on the Premises, including but not
limited to employee showers, lockers, cafeteria, or lunchroom facilities, shall
be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM
program which are required for the Premises and not provided by Tenant, such as
an on-site TDM coordinator, shall be provided by Landlord with such costs being
included as additional rent and reimbursed to Landlord by Tenant within thirty
(30) days after demand. If TDM facilities and programs are instituted on a
Project wide basis, Tenant shall pay its proportionate share of such costs in
accordance with Section 8 above.
X. WAIVER OF RIGHT TO JURY TRIAL: Landlord and Tenant waive their
respective rights to trial by jury of any contract or tort claim, counterclaim,
cross-complaint, or cause of action in any action, proceeding, or hearing
brought by either party against the other on any matter arising out of or in
any way connected with this Lease, the relationship of Landlord and Tenant, or
Tenant's use or occupancy of the Premises, including any claim or injury or
damage or the enforcement of any remedy under any current or future law,
statute, regulation, code, or ordinance.
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<PAGE> 24
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and
year first above written.
LANDLORD: The Sobrato Group, TENANT: Telocity, Inc.
a California Limited Partnership a California Corporation
By: [ILLEGIBLE] *By: [ILLEGIBLE]
----------------------------- -----------------------------
Its: 12/17/99 Its: Executive Vice President
---------------------------- -----------------------------
*By: Matt Stepovich
-----------------------------
Its: Secretary, VP Legal Affairs
-----------------------------
*NOTE: This lease must be signed by two (2) officers of such corporation: one
being the chairman of the board, the president, or a vice president, and the
other being the secretary, an assistant secretary, the chief financial officer
or an assistant treasurer. If one (1) individual is signing in two (2) of the
foregoing capacities, that individual must sign twice; once as one officer and
again as the other officer and in such event, Tenant must deliver to Landlord a
certified copy of a corporate resolution authorizing the signatory to execute
this Lease.
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<PAGE> 25
EXHIBIT "A"
[MAP]
<PAGE> 26
[CISCO SYSTEMS LETTERHEAD]
December 7, 1999
Mr. Peter Olson
CTO
Telocity, Inc.
10355 N. De Anza Blvd.
Cupertino, CA 95014
RE: Repair of Heating, Ventilation and Air
Conditioning System ("HVAC System")
Servicing 490 Race Street, San Jose, California
Dear Mr. Olson:
In connection with Telocity Inc.'s agreement to lease the premises from
Sobrato Group, Cisco Systems, Inc. shall, at its sole cost and expense and
within sixty (60) days of the Effective Date of the Lease Termination Agreement
dated December __, 1999 between Cisco Systems, Inc. and Sobrato Group, make all
repairs required to put the HVAC System in good working order and repair, as
reasonably determined by Cisco.
Sincerely,
/s/ ELLEN JAMASON
- ---------------------------------
Ellen Jamason
Director of Real Estate Worldwide
Cisco Systems, Inc.
<PAGE> 27
[TELOCITY LETTERHEAD]
December 16, 1999
Mr. Phil Taylor
Sobrato Development
10600 N. De Anza Blvd.
Suite 200
Cupertino, CA 95014
RE: Security Deposit
Dear Phil:
To expedite the execution of the lease, we are going to provide a cash Security
Deposit of [*]. Please be advised that we will trade out the cash deposit for a
letter of credit ("LC") in the next 60 days, as provided in the Lease.
Please sign below, acknowledging that this arrangement is acceptable and that
upon presentation of the LC you will return the above deposit immediately,
without interest. Once this letter is signed, we will provide you with the cash
deposit.
Sincerely,
/s/ MICHAEL BUERGER
- ------------------------
Michael Buerger
Controller
Telocity, Inc
cc: Sonia Colgan
Matt Stepovich
Jeff Houston
Acknowledged:
/s/ PHIL TAYLOR
- -----------------------
Phil Taylor
Sobrato Development
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 1
EXHIBIT 10.8
TELOCITY, INC.
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
DECEMBER 13, 1999
<PAGE> 2
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is entered into as of December 13, 1999, by and among Telocity,
Inc., a California corporation (the "Company"), the undersigned purchasers of
Series C Preferred Stock of the Company (individually, an "Investor" and
collectively, the "Investors")), the existing holders of Investor Rights of the
Company by virtue of their purchase of Series A Preferred Stock and Series B
Preferred Stock of the Company and parties to that, certain Amended and Restated
Investors' Rights Agreement (the "Rights Agreement"), dated as of February 16,
1999 ("Existing Holders") and, with respect to Section 5 below, the undersigned
holders of Common Stock of the Company, Peter D. Olson, Thomas Obenhuber,
Michael Solomon, Matthew J. Stepovich and Kevin Grundy (collectively, the
"Founders"). This Agreement is being entered into pursuant to Section 5.1(h) of
that certain Series C Preferred Stock Purchase Agreement of even date herewith
between the Company and the Investors (the "Purchase Agreement"). By this
Agreement, the Company, the Existing Holders and the Founders desire to, and by
signing below do, amend and restate the Rights Agreement, and with the
Investors, desire to set forth certain registration and other rights of the
parties as set forth below.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties mutually agree as follows:
1. Registration; Restrictions on Transfers.
1.1 Definitions. As used in this Agreement the following
terms shall have the following respective meanings:
"Holder" means any person owning or having the right to acquire
Registrable Securities, including Existing Holders and Investors , or any
assignee of record thereof in accordance with Section 1.11 hereof.
"Initial Offering" shall mean the Company's initial public offering
registered under the Securities Act, which shall be a Qualifying Offering (as
such term is defined in the Company's Articles of Incorporation).
"Initiating Holders" means any Holder or Holders holding 10% or greater
of the aggregate number of the Registrable Securities then outstanding.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"Registrable Securities" means (i) Common Stock of the Company issued
or issuable upon conversion of the Shares; and (ii) any Common Stock of the
Company issued as (or
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issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Shares. Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person to the
public either pursuant to a registration statement or Rule 144 or sold in a
private transaction in which the transferor's rights under Section 2 of this
Agreement are not assigned or, as to any Holder, if the Registrable Securities
held by such Holder may be sold immediately pursuant to Rule 144 without
restriction.
"Registrable Securities then outstanding" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities or may be received upon conversion of
other Registrable Securities and either (1) are then issued and outstanding or
(2) are issuable pursuant to then exercisable or convertible securities.
"Registration Expenses" shall mean all expenses incurred by the Company
in complying with Sections 1.3 and 1.6 hereof, including, without limitation,
all registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel of the Company and one special counsel to the
Investors, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"Shares" shall mean the Company's Series C Preferred Stock, Series B
Preferred Stock and Series A Preferred Stock.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission.
1.2 Restrictions on Transfer.
1.2.1 Each of the Holders agrees not to make any
disposition of all or any portion of the Shares (or the Common Stock of the
Company issuable upon the conversion thereof) unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by the terms of
this Agreement and:
(a) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
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(b) (i) Such Holder shall have notified the
Company of the proposed disposition and the name and address of the transferee,
and (ii) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Securities Act. It is agreed that the Company will not unreasonably
require opinions of counsel for transactions made pursuant to Rule 144.
(c) Notwithstanding the provisions of
paragraphs (a) and (b) above, no such registration statement or opinion of
counsel shall be necessary for a transfer by a Holder (i) which is a
partnership, to its partners, funds administered by any such partner, or retired
partners in accordance with partnership interests, (ii) to its members and any
affiliates of such members, (iii) which is a corporation, to its affiliates,
(iv) to any charitable donee or (v) to such Holder's family member or trust for
the benefit of an individual Holder, provided the transferee agrees in writing
to be subject to the terms of this Agreement to the same extent as if he were an
original Holder hereunder. For purposes of this Agreement, "affiliate," with
respect to any person, means any other person that controls, is controlled by,
is under common control or investment discretion with such person.
1.2.2 Each certificate representing Shares or
Registrable Securities shall (unless otherwise permitted by the provisions of
the Agreement) be stamped or otherwise imprinted with a legend as follows (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in the Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
1.2.3 The Company shall be obligated to reissue
promptly unlegended certificates at the request of any holder thereof if the
holder shall have obtained an opinion of counsel (which counsel may be counsel
to the Company) reasonably satisfactory to the Company to the effect that the
securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.
1.2.4 Any legend endorsed on an instrument
pursuant to applicable state securities laws and the stop-transfer instructions
with respect to such securities shall be removed upon receipt by the Company of
an order of the appropriate blue sky authority authorizing such removal or an
opinion of counsel (which counsel may be counsel to the Company) reasonably
satisfactory to the Company to the effect that the securities may be distributed
lawfully without such legend.
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1.3 Demand Registration.
1.3.1 Request for Registration. In case the
Company shall receive from Initiating Holders a written request that the Company
effect any registration, qualification or compliance with respect to at least
10% of the aggregate number of Registrable Securities then outstanding, provided
that the anticipated aggregate offering price of such registration,
qualification or compliance, net of standard underwriting discounts, would
exceed $5,000,000, the Company will:
(i) promptly give written notice of
the proposed registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its
best efforts to effect all such registrations, qualifications and compliances
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under the applicable blue
sky or other state securities laws and appropriate compliance with exemptive
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Initiating
Holder's or Initiating Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
Holder or Holders joining in such request as are specified in a written request
given within 30 days after receipt of such written notice from the Company;
provided that the Company shall not be obligated to take any action to effect
such registration, qualification or compliance pursuant to this Section 1.3:
(a) at any time prior to the earlier of
February 16, 2002 or six (6) months after the Company's Initial Offering;
(b) in any particular jurisdiction in which
the Company would be required to execute a general qualification or compliance
unless the Company is already subject to service in such jurisdiction and except
as required by the Securities Act; or
(c) after the Company has effected four (4)
such registrations pursuant to this Section 1.3.1 and such registrations have
been declared or ordered effective.
Subject to the foregoing clauses (a) through (c), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practical, but in any event within 90
days, after receipt of the request or requests of the Initiating Holders;
provided, however, that if the Company shall furnish to such holders within ten
(10) days of its receipt of the request for registration a certificate signed by
the President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company and its
shareholders for such registration to be filed at the date filing would be
required and it is therefore essential to defer the filing of such registration
statement, the Company shall have the right to defer the offering for a period
of not more than ninety (90) days after receipt of the request for registration;
provided, however, that this right cannot be exercised more than once in any
twelve month period.
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1.4 Piggyback Registrations. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
the filing of any registration statement under the Securities Act for purposes
of a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans and corporate reorganizations) and will afford each such Holder an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder, provided, that such notice shall not
obligate the Company to file such registration statement. Each Holder desiring
to include in any such registration statement all or any part of the Registrable
Securities held by it shall, within twenty (20) days after receipt of the
above-described notice from the Company, so notify the Company in writing. Such
notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
1.5 Underwriting. If the registration statement under
which the Company gives notice under Section 1.4 is for an underwritten offering
of the Common Stock of the Company, the Company shall so advise the Holders of
Registrable Securities. In such event, the right of any such Holder to be
included in a registration pursuant to this Section shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected by the Company for such
underwriting. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten, the number of shares that may be
included in the underwriting shall be allocated, in the case of a registration
statement filed pursuant to a request under Section 1.4, first to the Company
and next to the Holders participating in such registration on a pro rata basis
based on the total number of Registrable Securities held by such Holders, or, in
the case of a registration statement filed pursuant to a request under Section
1.3, to all of the Holders participating in such registration on a pro rata
basis based on the total number of Registrable Securities held by such Holders;
provided, however, in no event shall any shares which are not Registrable
Securities be included in any registration in which the number of Registrable
Securities to be sold in such registration have been limited pursuant to this
Section 1.5, unless the inclusion of such shares has been approved by the
holders of three quarters (3/4) of the Registrable Securities and provided,
further that in no event shall the limitation on the number of shares included
in such registration by the Holders exercising rights under Section 1.4 be
reduced below fifty percent (50%) of the total number of securities included in
such registration, unless such registration is the Company's Initial Offering,
in which case the selling Holders may be excluded if the underwriter makes the
determination described above and no other shareholder's securities are included
in the registration. No such reduction shall reduce the securities being offered
by the Company for its own account to be included in the registration and
underwriting in the Initial Offering.
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1.6 Form S-3. In case the Company shall receive a written
request or requests from Holders of 10% of Registrable Securities then
outstanding that the Company effect a registration on Form S-3 or any successor
form to S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder, the Company will,
provided that it is able to utilize a Form S-3:
1.6.1 promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
1.6.2 at any time after 180 days following the
effective date of the Initial Offering and after 90 days following the effective
date of any subsequent registered underwritten offering of the Company's Common
Stock to the general public, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
twenty (20) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 1.6: (i) if
the Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public of less than $1,000,000, (ii) if the Company shall furnish to the Holders
a certificate signed by the President or Chairman of the Board of Directors of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such registration to be effected at such time, in which event
the Company shall have the right to defer the filing of the registration
statement for a period of not more than sixty (60) days after receipt of the
request of the Holder or Holders under this Section 1.6.2, provided that such
right shall not be exercised more than once in any twelve month period, (iii) if
the Company has, within the six (6) month period preceding the date of such
request, already effected one (1) registration for the Holders pursuant to this
Section 1.6, or (iv) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of process in effecting such registration, qualification or compliance. In
addition, the Company shall not be required to effect a registration pursuant to
this Section if within thirty (30) days receipt of a written request from
Holders pursuant to this Section, the Company gives notice to the Holders of the
Company's good faith intention to make a public offering of the Company's Common
Stock within sixty (60) days of such request and the Holders shall be provided
with piggyback registration rights for such registration pursuant to Section 1.4
hereof (and may actually sell Shares thereunder) and provided that such Company
notice shall not be given more than once in a twelve month period.
1.6.3 Subject to the foregoing, the Company shall
file such registration statement as is then available to the Company covering
the Registrable Securities and other securities so requested to be registered as
soon as practicable, but in any event not later than thirty (30) days after
receipt of the request or requests of the Holders.
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1.7 Expenses of Registration. All Registration Expenses
incurred in connection with any registration under this Section 1 shall be borne
by the Company. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares of such Holders so
registered. The Company shall not, however, be required to pay for the
Registration Expenses of any registration proceeding begun pursuant to Section
1.3 or Section 1.6, the request of which has been subsequently withdrawn by the
Initiating Holders unless (a) the withdrawal is based upon material adverse
information concerning the Company or a public offering of the Company of which
the Initiating Holders were not aware at the time of such request or that arose
or developed after the date of such request or (b) the Holders of a majority of
Registrable Securities agree to forfeit their right to one requested
registration pursuant to Section 1.3 or Section 1.6 in which event such right
shall be forfeited by all Holders). If the Holders are required to pay the
Registration Expenses, such expenses shall be borne solely by those holders of
securities (including Registrable Securities) who withdraw such request for
registration in proportion to the number of shares for which registration was
requested.
1.8 Obligations of the Company. Whenever required to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
1.8.1 Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, unless otherwise
requested by the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to ninety (90)
days.
1.8.2 Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement.
1.8.3 Furnish to the Holders such number of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
1.8.4 Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
1.8.5 In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter(s) of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
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1.8.6 Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
1.8.7 Furnish, at the request of a majority of the
Holders participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
1.9 Delay of Registration; Furnishing Information.
1.9.2 It shall be a condition precedent to the
obligations of the Company to register the Registrable Securities of any selling
Holder that such selling Holder shall have furnished to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of such securities as shall be reasonably
required to effect the registration of their Registrable Securities within a
reasonable period after having received a written request from the Company for
such information.
1.10 Indemnification. In the event any Registrable
Securities are included in a registration statement under Sections 1.3, 1.4 or
1.6:
1.10.1 To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, the partners, affiliates,
officers, directors, representatives, agents and legal counsel of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended, (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein
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or any amendments or supplements thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law in connection with the offering covered
by such registration statement; and the Company will reimburse each such Holder,
partner, affiliate, officer, director, representative, agent, legal counsel,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred; provided
however, that the indemnity agreement contained in this Section 1.10.1 shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability or action to
the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, affiliate,
officer, director, underwriter or controlling person of such Holder.
1.10.2 To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers, each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information expressly furnished by
such Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 1.10.2 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 1.10
exceed the net proceeds from the offering received by such Holder.
1.10.3 Promptly after receipt by an indemnified
party under this Section 1.10 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
1.10, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to
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the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to material actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if materially prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 1.10 to the extent
materially prejudicial, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.10.
1.10.4 If the indemnification provided for in this
Section 1.10 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the Violation relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided that in no event shall any contribution by a
Holder under this Section 1.10.4 exceed the net proceeds received from the
offering by such Holder.
1.10.5 The foregoing indemnity agreements of the
Company and Holders are subject to the condition that, insofar as they relate to
any Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the Final Prospectus
was furnished in a timely manner to the indemnified party and was not furnished
to the person asserting the loss, liability, claim or damage at or prior to the
time such action is required by the Securities Act.
1.10.6 The obligations of the Company and Holders
under this Section 1.10 shall survive the completion of any offering of
Registrable Securities in a registration statement and the termination of this
Agreement.
1.11 Assignment of Registration Rights. The rights to
cause the Company to register Registrable Securities pursuant to this Section 1
may be assigned by a Holder to a transferee or assignee of Registrable
Securities; provided, however, that no such transferee or assignee shall be
entitled to registration rights under Sections 1.3 or 1.6 hereof unless it
acquires
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at least two hundred fifty thousand (250,000) shares of Registrable Securities
(as adjusted for stock splits and combinations) and the Company shall, within a
reasonable time, be furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned. Notwithstanding the foregoing, rights to
cause the Company to register securities may be assigned to any subsidiary,
parent, affiliate, partner or retired partner of a Holder, any family member or
trust for the benefit of any individual Holder or any entity affiliated with the
Holder by common ownership.
1.12 Amendment of Registration Rights. Any provision of
this Section 1 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
at least two-thirds (2/3) of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 1.12 shall be binding upon each Holder
and the Company. By acceptance of any benefits under this Section 1, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
1.13 "Market Stand-Off" Agreement. If requested by the
Company and an underwriter of Common Stock (or other securities) of the Company,
a Holder shall not sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by such Holder (other than those included
in the registration) for a period specified by the underwriters not to exceed
one hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act relating to the Initial
Offering, provided that all officers and directors of the Company and
shareholders and optionholders of 1% or more of the Company's outstanding shares
enter into similar agreements, provided, further, that such market stand-off
shall be memorialized in a letter agreement containing customary terms and
conditions. The obligations described in this Section 1.13 shall apply solely to
a registration relating to the Initial Offering. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of said one hundred eighty (180) day
period; provided that the underwriter of the Initial Offering has not released
such Holder from such market stand-off.
1.14 Termination of Registration Rights. All registration
rights granted under this Section 1 shall terminate and be of no further force
and effect seven (7) years after the date following the closing of the Company's
Initial Offering or, as to any Holder, if the Registrable Securities held by
such Holder may be sold immediately pursuant to Rule 144 without restriction.
1.15 Reports Under the 1934 Act. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to:
(i) make and keep public information available,
as those terms are understood and defined in SEC Rule 144, at all times after
the effective date of the first registration statement filed by the Company for
the offering of its securities to the general public;
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(ii) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act and the
1934 Act; and
(iii) furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC Rule
144, the Securities Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), and (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company.
2. Covenants of the Company.
2.1 Financial Information and Reporting.
2.1.1 The Company will maintain true books and
records of account in which full and correct entries will be made of all its
business transactions pursuant to a system of accounting established and
administered in accordance with generally accepted accounting principles
consistently applied, and will set aside on its books all such proper accruals
and reserves as shall be required under generally accepted accounting principles
consistently applied.
2.1.2 The Company will furnish to each Holder as
soon as practicable after the end of each fiscal year of the Company, and in any
event within 90 days thereafter, a consolidated balance sheet of the Company, as
at the end of such fiscal year, and a consolidated statement of income and a
consolidated statement of cash flows of the Company, for such year, all prepared
in accordance with generally accepted accounting principles and setting forth in
each case in comparative form the figures for the previous fiscal year, all in
reasonable detail. Such financial statements shall be audited and accompanied by
a report and opinion thereon by independent public accountants of national
standing selected by the Company's Board of Directors.
2.1.3 The Company will furnish to each Holder
within thirty (30) days after the end of each month, an unaudited balance sheet
and statements of income and cash flows, prepared in accordance with generally
accepted accounting principles, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.
2.1.4 The Company will furnish to each Holder
forty-five (45) days prior to the beginning of each fiscal year, the Company's
annual operating plan for the succeeding fiscal year.
2.1.5 Notwithstanding anything to the contrary
stated in this Section 2.1, the Company shall not be obligated to provide
financial information to any Holder (i) if such Holder and its affiliates do not
continue to hold at least an aggregate of 500,000 Shares or at least 500,000
shares of Common Stock of the Company issued or issuable upon conversion of the
Shares, or (ii) upon the closing of the Initial Offering. For purposes of
calculating the number of shares held by a Holder for purposes of this Section
2.1.5, all shares held by Holders who are
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affiliates (as such term is defined in Rule 405 promulgated under the Securities
Act) shall be aggregated.
2.1.6. Upon the reasonable request of any Holder,
who owns together with its affiliates at least an aggregate of 500,000 Shares or
at least 500,000 shares of Common Stock of the Company issued or issuable upon
conversion of the Shares, the Company shall provide to such Holder (i)
reasonable access during regular business hours to the management of the Company
for the purpose of discussing matters related to the Company and (ii)
information regarding the Company and its operations.
2.2 Reservation of Common Stock. The Company will at all
times reserve and keep available, solely for issuance and delivery upon the
conversion of the Shares, all Common Stock of the Company issuable from time to
time upon such conversion.
2.3 Right to Observe. The Company will furnish to holders
of Series B Preferred Stock, who, with their affiliates, hold at least 750,000
Shares, notice of, and permit the attendance at, all meetings of the Board of
Directors of the Company, or any committee thereof. Such holders of Series B
Preferred Stock shall be entitled to attend such meetings as non-voting
observers. The Company will furnish to GE Capital Equity Investments, Inc. ("GE
Capital"), for so long as it or any of its affiliates continues to hold at least
250,000 Shares, notice of, and permit its attendance at, all meetings of the
Board of Directors of the Company, or any committee thereof. GE Capital shall be
entitled to attend such meetings as non-voting observers. Notwithstanding the
foregoing, GE Capital agrees not to disclose confidential matters discussed at
the Board meeting and the Company shall have the right to exclude such
representative if the Company and the Company's counsel reasonably believe it is
necessary to protect the attorney-client privilege or the Company's interests.
This Section 2.3, other than the first sentence hereof, may not be amended
without the written consent of GE Capital.
2.4 Termination of Covenants. All covenants of the
Company contained in Sections 2.1 and 2.2 of this Agreement shall expire and
terminate as to each Holder immediately after the Company's Initial Offering.
3. Rights of First Refusal.
3.1 Subsequent Offerings. Each Holder shall have a right
of first refusal to purchase up to its pro rata share of all Equity Securities,
as defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement. Each Holder's pro rata share, for
purposes of this right of first refusal, is equal to the ratio of (a) the number
of Shares (including all shares of Common Stock of the Company issued or
issuable upon conversion of the Shares or options or warrants for Shares) of
which such Holder is deemed to be a holder immediately prior to the issuance of
such Equity Securities to (b) the total number of shares of stock then
outstanding (including all shares of Common Stock of the Company issued or
issuable upon conversion of the Shares and other convertible securities and upon
the exercise of outstanding and options and warrants). The Company shall
promptly, in writing, inform each Holder that elects to purchase all the shares
available to it (a "Fully-Exercising Holder") of any other Holder's failure to
do likewise. During the ten (10) day period commencing after such
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information is given, each Fully-Exercising Holder may elect to purchase that
portion of the Shares for which Holders were entitled to subscribe but which
were not subscribed for by the Holders that is equal to a fraction of the
unsubscribed shares. The numerator of such fraction shall be the number of
equity securities of the Company (assuming conversion of all such securities to
Common Stock of the Company) owned by a Fully-Exercising Holder and the
denominator of which shall be the total number of equity securities (assuming
the conversion of all such securities to Common Stock of the Company) owned by
all Fully-Exercising Holders who wish to purchase some of the unsubscribed
shares. The term "Equity Securities" shall mean any stock or similar security of
the Company or any security convertible, with or without consideration, into any
stock or similar security, except that the term "Equity Securities" shall not
refer to securities specified in Section 3.5 below. For purposes of determining
each Holder's pro rata share, all entities that are affiliates (as such term is
defined in Rule 405 promulgated under the Securities Act) shall be aggregated
and any such affiliated entities may purchase some or all of the shares
available to such affiliated entities pursuant to this Section 3.1.
3.2 Exercise of Rights. If the Company proposes to issue
any Equity Securities, it shall give each Holder written notice of its
intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Holder shall
have thirty (30) days from the giving of such notice to agree to purchase up to
its pro rata share of the Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer or
sell such Equity Securities to such Holders if such issuance would cause the
Company to be in violation of applicable federal securities laws by virtue of
such offer or sale. In the event that the price, terms or conditions of such
proposed issuance becomes less favorable to the Company, the Company shall
re-offer such Equity Securities to each Holder in accordance with this Section
3.
3.3 Termination of Rights of First Refusal. The rights of
first refusal established by this Section 3 shall terminate (i) immediately
prior to the closing of the Initial Offering or (ii) upon conversion of all of
the Shares into Common Stock of the Company.
3.4 Transfer of Rights of First Refusal. The rights of
first refusal of the Holders under this Section 3 may be transferred to any
constituent partner or affiliate of the Holders, to any successor in interest to
all or substantially all the assets of such Holder, or to any transferee or
assignee who holds at least two hundred fifty thousand (250,000) shares (as
adjusted for stock splits, combinations and the like) of Registrable Securities,
provided that such transferee or assignee agrees in writing to be bound by the
provisions of this Agreement. Notwithstanding the foregoing, rights to cause the
Company to register securities may be assigned to any subsidiary, parent,
partner, member or retired partner of a Holder, any family member or trust for
the benefit of any individual Holder or any affiliate (as such term is defined
in Rule 405 promulgated under the Securities Act) of any such Holder.
3.5 Excluded Securities. The rights of first refusal
established by this Section shall have no application to any of the following:
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3.5.1 Up to 13,950,000 shares of Common Stock of
the Company (and/or options, warrants or other Common Stock of the Company
purchase rights issued pursuant to such options, warrants or other rights)
issued or to be issued to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors,
including the director elected by the holders of shares of Series C Preferred
Stock;
3.5.2 stock issued pursuant to any rights,
agreements, options or warrants outstanding as of the date of this Agreement and
stock issued pursuant to any such rights, agreements, options or warrants
granted after the date of this Agreement, provided that the rights of first
refusal established by this Section 3 applied with respect to the initial sale
or grant by the Company of such rights, agreements, options or warrants;
3.5.3 any Equity Securities issued pursuant to a
merger, consolidation, acquisition (including technology acquisitions) or
similar business combination;
3.5.4 any Equity Securities that are issued by the
Company as part of an underwritten public offering, except as set forth in
Section 4 below;
3.5.5 shares of Common Stock of the Company issued
in connection with any stock split, stock dividend or recapitalization by the
Company approved by the Company's Board of Directors, including the director
elected by the holders of shares of Series C Preferred Stock;
3.5.6 shares of Common Stock of the Company issued
upon conversion of the Preferred Stock of the Company;
3.5.7 any Equity Securities issued pursuant to any
equipment leases, commercial loans, or debt financings approved by the Company's
Board of Directors, including the director elected by the holders of shares of
Series C Preferred Stock; and
3.5.8 any Equity Securities issued in connection
with strategic transactions involving the Company and other entities, including
joint ventures, manufacturing, marketing or distribution arrangement or
technology transfer or development arrangement, approved by the Company's Board
of Directors, including the director elected by the holders of shares of Series
C Preferred Stock.
4. Company's Initial Offering. In the event of the Company's
Initial Offering and subject to all applicable rules, requirements and
restrictions of the SEC and the National Association of Securities Dealers, Inc.
(the "NASD"), the Company will use reasonable efforts to allow the Investors
(including any fund with the same or an affiliated general partner of an
Investor or any affiliate of an Investor or any designee of an Investor ) to
purchase in any directed share program associated with the Initial Offering;
provided, however the Company will have the right to allocate the remaining
shares offered in the Initial Offering as the Company determines, in its sole
discretion, is in the best interest of the Company and, provided further that,
if the underwriter advises the Company that allowing the Investors to
participate in the
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Initial Offering may reduce the marketability of the offering or otherwise
adversely affect the Company then the Company shall not be required to take any
action in connection with this Section 4. In connection with any potential
purchase under this Section 4, the Investors agree to take all action that the
Company or its counsel reasonably deems necessary, appropriate or desirable in
connection with such potential purchase, including without limitation prompt
notice of whether each Investor desires to participate in the Initial Offering
if offered the opportunity by the Company. This Section 4 does not constitute an
offer to sell, or a solicitation of an offer to buy any securities of the
Company nor shall this Section 4 be construed as granting a right to purchase
such securities to the Investors or any other person.
5. Agreements Between Holders and Founders.
5.1 Right of First Refusal and Co-Sale.
5.1.1 The Right of First Refusal. If at any time
one or more of the Founders propose to sell or otherwise transfer any Common
Shares (as defined in Section 5.1.5 below) to parties other than the Holders (on
a pro rata basis) in a transaction (a "Transaction") not registered under the
Securities Act, then such Founder (a "Selling Founder") shall first promptly
notify the Holders of its intention to do so pursuant to Section 5.1.3. Each
Holder shall have a right of first refusal to purchase its pro rata share of all
Common Shares proposed to be sold by any Selling Founder after such Selling
Founder first offers such Common Shares to the Company pursuant to existing
agreements containing such right. The Selling Founder shall promptly, in
writing, inform each Fully-Exercising Holder of any other Holder's failure to
exercise its right of first refusal. During the ten (10) day period commencing
after such information is given, each Fully-Exercising Holder may elect to
purchase that portion of the Common Shares for which the Holders were entitled
to subscribe but which were not subscribed for by the Holders that is equal to a
fraction of the unsubscribed shares. The numerator of such fraction shall be the
number of equity securities of the Company (assuming conversion of all such
securities to Common Stock) owned by a Fully-Exercising Holder and the
denominator of which shall be the total number of equity securities (assuming
the conversion of all such securities to Common Stock) owned by all
Fully-Exercising Holders who wish to purchase some of the unsubscribed shares.
For purposes of determining each Holder's pro rata share, all affiliates shall
be aggregated and any of such affiliates may sell some or all of the shares
available to such affiliates pursuant to this Section 5.1.1.
5.1.2 The Right of Co-Sale. If the Company and any
Holders have waived or failed to timely exercise their Rights of First Refusal
as to all or any part of the Common Shares proposed to be sold by a Selling
Founder, then each Holder that has not exercised its Right of First Refusal
shall have a Right of Co-Sale as set forth in this Section 5.1.2. Any Holder
which notifies such Founder in writing within thirty (30) days after receipt of
the notification from such Founder referred to in Section 5.1.3 shall have the
opportunity to sell up to a pro rata portion of the Common Shares which the
Founder proposes to sell to such third party in the Transaction. In such
instance, the Selling Founder shall assign so much of his interest in the
proposed agreement of sale as the Selling Founder shall be entitled to and shall
request hereunder, and the Holder shall assume such part of the obligations of
the Selling
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Founder under such agreement as shall relate to the sale of the securities by
the Selling Founder. For the purposes of this Section 5.1.2, the "pro rata
portion" which the Holder shall be entitled to sell shall be an amount of Common
Shares equal to a fraction of the total amount of Common Shares proposed to be
sold to such third party. The numerator of such fraction shall be the number of
equity securities of the Company (assuming the conversion of all such securities
to Common Stock) owned by Holder and the denominator shall be the total number
of equity securities (assuming the conversion of all such securities to Common
Stock) owned by all participating Selling Founders and the other Holders
proposing to sell shares in the Transaction (individually a "Selling Holder" and
collectively the "Selling Holders"). Each Holder shall notify the Selling
Founder whether it elects to sell an amount equal to or less than its pro rata
share of the Common Shares so offered. The Selling Founder shall promptly, in
writing, inform each Selling Holder of any other Selling Holder's failure to
exercise its right of co-sale in full. During the ten (10) day period commencing
after such information is given, each Selling Holder may elect to sell that
portion of the Common Shares for which the Selling Holders were entitled to sell
but which were not sold by the Selling Holders that is equal to their pro rata
portion of the unsold shares. Each Holder shall be entitled to apportion Common
Shares to be sold among its partners, members, or affiliates, provided that such
Holder notifies the Selling Founder and the Company of such allocation, and
provided that such allocation does not preclude the Company's reliance on any
exemption from the registration provisions of the Securities Act or the
applicable qualifications provisions. For purposes of this Section 5.1., the
stock of the Company shall be arithmetically adjusted for stock dividends, stock
splits, recapitalizations and the like.
5.1.3 Notice. Prior to any sale by a Founder of
any Common Shares, the Founder shall notify each Holder, in writing, of his
intention to sell such securities (the "Offered Securities"), setting forth in
reasonable detail the general terms under which he proposed to make such sale
including the number of Common Shares to be sold or transferred, the nature of
the sale or transfer, the consideration to be paid and the identity of the
Holder. Within thirty (30) days after receipt of such notice, any Holder which
desires to exercise its rights under this Section 5.1 shall notify the Founder
of its desire to do so. Each Holder shall be entitled to apportion Offered
Securities to be sold or purchased among its partners and affiliates, provided
that such Holder notifies the Founder of such intention to do so.
5.1.4 Failure to Notify. If within thirty (30)
days after the Founder gives his aforesaid notice to the Holders, the Holders do
not notify the Founder that they desire to sell or purchase all of their pro
rata portions of the Common Shares described in such notice for the price and on
the terms and conditions set forth therein, then the Founder may sell during the
90-day period thereafter such Common Shares as to which the Holders do not elect
to sell or purchase. Any such sale or purchase shall be made only to persons
identified in the Founder's notice and at the same price and upon the same terms
and conditions as those set forth in the notice. In the event the Founder has
not sold the Common Shares or entered into an agreement to sell the Common
Shares within such 90-day period set forth in Section 5.1.3, the Founder shall
not thereafter sell any Common Shares without first notifying the Holders in the
manner provided above.
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5.1.5 Definition. The term "Common Shares" shall
mean all shares of Common Stock of the Company owned or subsequently acquired by
a Founder and all shares of Common Stock of the Company issuable upon exercise
or conversion of any exercisable or convertible securities held or subsequently
acquired by Founder.
5.1.6 Limitations to Rights of Co-Sale and First
Refusal. Notwithstanding the provisions of this Section 5.1:
(a) a Founder may sell or otherwise
assign, without consideration, Common Shares to any or all of his ancestors,
descendants, spouse, or members of his immediate family, or to a custodian,
trustee (including a trustee of a voting trust), executor, or other fiduciary
for the account of his ancestors, descendants, spouse, or members of his
immediate family without compliance with this Section 5.1, provided that each
such transferee or assignee, prior to the completion of the sale, transfer, or
assignment, shall have executed documents assuming the obligations of such
Founder under this Agreement with respect to the transferred securities;
(b) the Company may exercise in full its
rights to repurchase unvested Common Stock of the Company issued pursuant to
stock purchase or option agreements entered into between the Company and the
Founders without compliance with this Section 5.1;
(c) a Founder may sell, transfer or pledge
up to ten percent (10%), in the aggregate, of the Common Stock of the Company
held by such Founder as of the date hereof without compliance with this Section
5.1, except that such Founder shall give the Company detailed notice of such
sale at least ten (10) days prior to the consummation of such sale and such
transferee shall agree to assume the obligations of transferor as provided
herein;
(d) a Founder may sell the Common Stock of
the Company held by such Founder in connection with the Initial Offering without
compliance with this Section 5.1, so long as the Holders are also permitted to
sell in the Initial Offering the same proportion of their Registrable Securities
as the maximum proportion of the Common Stock of any Founder that such Founder
is permitted to sell.
5.2 Board of Directors. So long as at least 1,000,000
Shares are issued and outstanding, the Founders and the Holders agree to vote
all shares held by them by written consent or a duly held meeting of
shareholders in favor of each of (i) any two (2) representatives of the holders
of Series A Preferred Stock (the "Series A Designees") to serve as nominees to
the Company's Board of Directors, who, as of the date hereof, are Andrew S.
Rappaport and David Cowan, and (ii) any two (2) representatives of the holders
of Series C Preferred Stock (the "Series C Designees") to serve as nominees to
the Company's Board of Directors, of which one (1) member shall be appointed by
NBCi, who initially shall be Edmond Sanctis, and one (1) member shall be
appointed by NBC upon the earlier of (A) the closing of the Initial Offering or
(B) one year after the date hereof; provided that at such time NBC owns,
directly or indirectly, all of the shares of Series C Preferred Stock (or Common
Stock into which such Series C Preferred Stock is converted) that it acquires
pursuant to this Agreement. Until such time that
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NBC is allowed to appoint one member of the Board of Directors, there shall
remain one vacancy on the Board of Directors. NBC shall continue to have the
right to elect a director until such time as it no longer holds at least 66% of
the shares of Series C Preferred Stock that it acquires pursuant to the Purchase
Agreement. The Founders and Holders agree to vote all shares held by them by
written consent or a duly held meeting of shareholders in favor of each of any
two (2) representatives of the holders of the Company's Common Stock to serve as
nominees to the Company's Board of Directors, who, as of the date hereof, are
Peter Olson and Michael Solomon. The seventh member of the Board of Directors,
who, as of the date hereof, is Randy Strahan, shall be agreeable to two-thirds
of the members of the Board of Directors.
5.3 Legends.
5.3.1. Founders. All instruments evidencing Common
Shares held by the Founders shall bear the following legends:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT CONTAINED IN
THE SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT DATED
DECEMBER 13, 1999. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT
CONTAINED IN THE SECOND AMENDED AND RESTATED INVESTORS' RIGHTS
AGREEMENT DATED DECEMBER 13, 1999 (A COPY OF WHICH MAY BE OBTAINED FROM
THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON
ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME
BOUND BY ALL THE PROVISIONS OF SAID VOTING AGREEMENT."
5.3.1. Holders. All instruments evidencing Shares
held by the Holders shall bear the following legend:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT
CONTAINED IN THE SECOND AMENDED AND RESTATED INVESTORS' RIGHTS
AGREEMENT DATED DECEMBER 13, 1999 (A COPY OF WHICH MAY BE OBTAINED FROM
THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON
ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME
BOUND BY ALL THE PROVISIONS OF SAID VOTING AGREEMENT."
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5.4 Termination. The obligations of the Founders under
Sections 5.1 and 5.2 shall terminate and be of no further force and effect after
two (2) years following the effective date of the Company's Initial Offering.
5.5 Assignment. Upon written notice to the Founders, the
rights granted pursuant to this Section 5.1 may be assigned by a Holder or its
transferees upon a sale or transfer (other than a sale thereof to the public) of
Shares or the Common Stock of the Company issued or issuable upon conversion of
the Shares held by such Holder; so long as (i) such transferee holds at least
500,000 Shares or 500,000 shares of the Common Stock of the Company issued or
issuable upon conversion of the Shares or (ii) such transferee is a charitable
donee and holds 50,000 Shares or 50,000 shares of Common Stock of the Company
issued or issuable upon conversion of the Shares, and provided that any
transferee of a Holder shall agree to become subject to the obligations of the
Holders hereunder. Notwithstanding the foregoing, rights to cause the Company to
register securities may be assigned to any subsidiary, parent, partner or
retired partner of a Holder, any family member or trust for the benefit of any
individual Holder or any affiliate of any such Holder.
5.6 Amendment. The rights and obligations of the Founders
and the Holders under this Section 5 may only be amended (either generally or in
a particular instance) by a statement in writing signed by (i) a majority of the
shares held by the Founders whose rights and obligations are to be amended and
(ii) two-thirds (2/3) of the shares held by the Holders.
5.7 No Waiver. The exercise or non-exercise of the rights
of a Holder hereunder to participate in one or more sales of Common Shares made
by a Founder shall not adversely affect their rights to participate in
subsequent sales of Common Shares subject to Section 5.1.
6. Covenants.
6.1 Consent of NBC and NBCi for Certain Matters. The
prior written consent of NBC and NBCi will be required for any action which
results in: (a) the issuance of any equity or debt securities to any NBCi
Competitor or NBC Competitor (each as defined below), (b) any merger of the
Company with, or sale of assets of the Company with a fair market value of at
least $100,000 to, any NBCi Competitor or NBC Competitor, or (c) the issuance of
equity or equity-linked securities senior to the Series C Preferred Stock;
provided that after June 30, 2000, in the event that the Company receives a bona
fide offer from an NBC Competitor or NBCi Competitor to purchase any equity or
debt securities of the Company or all or substantially all of its assets, the
Company may accept such offer without the prior written consent of consent of
NBC or NBCi if neither NBC nor NBCi offers to purchase such securities or assets
on the same terms within ten (10) days of receipt of a notice, which notice
shall include the identity of the offeror and a complete description of the
terms and conditions of such offer; including the number and type of securities
or assets to be purchased, the purchase price and the terms upon which
securities are to be purchased and which shall be delivered to NBC and NBCi
within ten (10) days of receipt of such offer, it being understood that if the
terms and conditions of such offer become more favorable to the offeror, then
the Company shall provide NBC and NBCi with an
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additional ten (10) business day period in which to match such revised offer.
NBC and/or NBCi may match any offer made by an NBC Competitor or NBCi Competitor
with cash or stock (or a combination thereof) of equal value to the purchase
price proposed by the offeror. "NBC Competitor" means Disney/ABC, CBS/Viacom,
News Corporation/Fox, Time Warner, Liberty Media, USA Network or their
affiliates. "NBCi Competitor" means Yahoo!, MSN, AOL/Netcenter, Excite AtHome,
Lycos, Go Network, Go2Net.com, AltaVista, CMGI (so long as CMGI continues to own
a controlling interest in an Internet e-commerce/content company which could
provide services/content which may compete with those provided by NBCi), Amazon
or their respective affiliates. As used above, "affiliates" shall include
entities that directly, or indirectly through one or more intermediaries,
control, or are controlled by, or are under common control with one or more of
the entities listed above. The rights and obligations under this Section 6.1
shall terminate immediately upon the closing of the Initial Offering.
6.2 Right of First Negotiation. So long as the Operating
Agreement is in effect and NBC and NBCi together own at least 2,500,000 shares
of Series C Preferred Stock (or any Common Stock issued upon conversion
thereof), NBC and NBCi shall have the rights as set forth in this Section 6.2.
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6.2.1. In the event that the Company receives a
bona fide offer from an NBC Competitor or NBCi Competitor to purchase a twenty
per cent (20%) or greater interest in the Company or all or substantially all of
the Company's assets, the Company will provide written notice to NBC and NBCi
that an offer has been received within ten (10) business days of receiving such
offer, including the identity of such bona fide offeror and a complete
description of the terms and conditions of such offer. In the event that the
Company intends to accept such offer, the Company first will negotiate
exclusively and in good faith with NBC and NBCi for thirty (30) days to allow
NBC and/or NBCi to make an offer to purchase such interest or such assets. If
the Company shall have negotiated exclusively and in good faith and shall have
failed to reach an agreement with NBC and/or NBCi, as a group or individually,
regarding such purchase within thirty (30) days after NBC and NBCi shall have
received such written notice from the Company, then the Company may sell such
interest or assets to such Competitor on terms which are no less favorable to
the Company than those last offered to NBC and NBCi.
6.2.2 In the event that the Company receives a
bona fide offer from any entity other than an NBC Competitor or NBCi Competitor
to purchase a twenty per cent (20%) or greater interest in the Company or all or
substantially all of the Company's assets, the Company will provide written
notice to NBC and NBCi that an offer has been received within ten (10) business
days of receiving such offer, including the identity of the bona fide offeror
and a complete description of the terms and conditions of such offer. If either
NBC or NBCi desire to make a competitive offer, then the Company shall negotiate
exclusively and in good faith with NBC or NBCi, as the case may be, the terms of
such competitive offer. If the Company shall have negotiated exclusively and in
good faith and shall have failed to reach an agreement with NBC and/or NBCi, as
a group or individually, regarding such competitive offer within thirty (30)
days after NBC and NBCi shall have received such written notice, then the
Company may sell such interest or assets to such entity on terms which are no
less favorable to the Company than those last offered to NBC and NBCi.
6.3 Amendment. Sections 6.1 and 6.2 and this Section 6.3
may not be amended without the written consent of NBC and NBCi.
6.4 Remedies. Upon the breach of any covenant,
representation or warranty which would have a material adverse effect on the
business of the Company and which cannot be cured within a reasonable period of
time, or upon bankruptcy, liquidation or insolvency of the Company, or upon the
failure to make mandatory redemptions of Preferred Stock as set forth in the
Company's Articles of Incorporation within a reasonable period of time,
Purchasers shall have the right to elect up to one (1) additional member to the
Board of Directors of the Company and the Holders and Founders hereby agree to
vote their shares of capital stock in the Company to increase the size of the
Board of Directors in order to accommodate such additional member.
6.5 Amendment of Articles of Incorporation. The Company
and all parties to this Agreement hereby agree to amend and restate the
Company's Third Amended and Restated Articles of Incorporation as set forth in
Exhibit A attached hereto as soon as reasonably practicable after the date of
this Agreement and each of the Investors, the Existing Holders and
22
<PAGE> 24
the Founders agrees to execute on the date hereof the shareholder consent to
such effect attached hereto as Exhibit B.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California. Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
or otherwise commenced in any state or federal court located in the County of
Santa Clara, California. Each party to this Agreement: (a) expressly and
irrevocably consents and submits to the jurisdiction of each state and federal
court located in the County of Santa Clara, California (and each appellate court
located in the State of California) in connection with any such legal
proceeding; (b) agrees that each state and federal court located in the County
of Santa Clara, California shall be deemed to be a convenient forum; and (c)
agrees not to assert (by way of motion, as a defense or otherwise), in any such
legal proceeding commenced in any state or federal court located in the County
of Santa Clara, any claim that such party is not subject personally to the
jurisdiction of such court, that such legal proceeding has been brought in an
inconvenient forum, that the venue of such proceeding is improper or that this
Agreement or the subject matter of this Agreement may not be enforced in or by
such court.
7.2 Waiver of Jury Trial. Each party hereto hereby
waives, to the fullest extent permitted by applicable state law, any right that
it may have to a trial by jury in respect of any claim, action, lawsuit or
proceeding (collectively, "Litigation") directly or indirectly arising out of,
under, or in connection with this Agreement, whether grounded in tort, contract
or otherwise. Each party hereto (i) certifies that no representative, agent,
attorney of the other party has represented, expressly or otherwise, that the
other party would not, in the event of Litigation, seek to enforce the foregoing
waiver and (ii) acknowledges that it and the other parties hereto have been
induced to enter into this Agreement by, among other things, the mutual waivers
and certifications in this subsection.
7.3 Survival. The representations, warranties, covenants,
and agreements made herein shall survive any investigation made by any Holder
and the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.4 Successors and Assigns. Except as otherwise expressly
provided herein, this Agreement, and the rights and obligations hereunder, may
not be assigned by any party hereto to a third party (excluding any subsidiary,
parent, affiliate, general partner, limited partner or acquiror of such party
hereto) without the prior written consent of the Company and the holders of at
least a majority in interest of the Shares. The provisions hereof shall inure to
the benefit of, and be binding upon, the successors, permitted assigns, heirs,
executors, and administrators of the parties hereto; provided, however, that
prior to the receipt by the Company
23
<PAGE> 25
of written notice of the transfer of any Registrable Securities specifying the
full name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute owner
and holder of such shares for all purposes, including the payment of dividends
or any redemption price.
7.5 Separability. In case any provision of the Agreement
shall be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.6 Amendment and Waiver.
7.6.1 Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of at least two-thirds (2/3) of the Shares (including
any Common Stock of the Company issued upon the conversion of the Shares).
7.6.2 Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of the Company and the holders of at
least two-thirds (2/3) of the Shares (including any Common Stock of the Company
issued upon the conversion of the Shares).
7.7 Delays or Omissions. It is agreed that no delay or
omission to exercise any right, power, or remedy accruing to any party hereto,
upon any breach, default or noncompliance of any other party hereto under this
Agreement shall impair any such right, power, or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent, or
approval of any kind or character on any party's part of any breach, default or
noncompliance under the Agreement or any waiver on such party's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to the
parties hereto, shall be cumulative and not alternative.
7.8 Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) upon confirmed receipt of telex or
facsimile by the intended recipient, (iii) five (5) days after having been sent
by registered or certified mail, return receipt requested, postage prepaid, or
(iv) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
communications shall be sent to the party to be notified at the address as set
forth on the signature pages hereof or at such other address as such party may
designate by ten (10) days advance written notice to the other parties hereto.
7.9 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
24
<PAGE> 26
7.10 Pronouns. All pronouns contained herein and any
variations thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural, as the identity of the parties hereto may require.
7.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
7.12 Entire Agreement. This Agreement constitutes the full
and entire understanding and agreement between the parties regarding the matters
set forth herein, and supersedes and cancels any prior agreements.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
25
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
COMPANY:
TELOCITY, INC.
By:________________________________
Patti Hart, President and CEO
10355 North De Anza Boulevard
San Jose, CA 95014
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
EXISTING HOLDERS: AUGUST CAPITAL, L.P., FOR ITSELF AND AS
NOMINEE FOR AUGUST CAPITAL STRATEGIC
PARTNERS, L.P. AND AUGUST CAPITAL
______________________________ ASSOCIATES, L. P.
Peter Olson By: August Capital Management, L.L.C.,
its general partner
c/o Telocity, Inc.
10355 North De Anza Boulevard
San Jose, CA 95014 By:_______________________________
Mark G. Wilson, Member
______________________________ 2480 Sand Hill Road, Suite 101
Michael Solomon Menlo Park, CA 94025
c/o Telocity, Inc. BESSEMER VENTURE PARTNERS IV L.P.
10355 North De Anza Boulevard By: Deer IV & Co. L.P.
San Jose, CA 95014
By:_______________________________
______________________________ Robert H. Buescher
Kevin Grundy
c/o Telocity, Inc.
10355 North De Anza Boulevard
San Jose, CA 95014
______________________________
John Seamons
0103 Stackyard Lane
Basalt, CO 81621
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
EXISTING HOLDERS (cont'd):
COMDISCO, INC. BESSEC VENTURES IV L.P.
By: Deer IV & Co. L.P.
By:___________________________
By: _____________________________________
Name:_________________________ Robert H. Buescher, Manage
Its:__________________________ Address: 1400 Old County Rd., Ste. 407
Westbury, NY 11590
6111 N. River Road
Rosemont, IL 60018
Attn: Jill Hanses MOHR, DAVIDOW VENTURES V, L.P.
By: Fifth MDV Partners, L.L.C.,
STANFORD UNIVERSITY Its: General Partner
By:___________________________ By: _______________________________
Jonathan D. Feiber, Member
Name:_________________________
Address: 2775 Sand Hill Road, Suite 240
Its:__________________________ Menlo Park, CA 94025
2770 Sand Hill Road MOHR, DAVIDOW VENTURES V, L.P.
Menlo Park, CA 94025 AS NOMINEE FOR MDV ENTREPRENEURS' NETWORK
Attn: Carol Gilmer FUND II (A), L.P. AND MDV ENTREPRENEURS'
NETWORK FUND II (B), L.P.
By: Fifth MDV Partners, L.L.C.,
Blumenfeld & Cohen Its: General Partner
By:______________________________________
By:___________________________ Jonathan D. Feiber, Member
Its:__________________________
Address: 2775 Sand Hill Road, Suite 240
Address:______________________ Menlo Park, CA 94025
______________________
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
EXISTING HOLDERS (cont'd)
GRAY CARY WARE & FREIDENRICH LLP
By:____________________________
Margaret H. Kavalaris, Partner
400 Hamilton Avenue
Palo Alto, CA 94301-1825
H. JOSEPH AND JOELE L. HOROWITZ RRE INVESTORS, L.P.
AS TRUSTEES OF THE HOROWITZ FAMILY
TRUST DATED 11/6/89 By:___________________________
By:_______________________________ Andrew L. Zalasin
Name:_____________________________ Its: Member, General Partner
Its: Trustee Address: RRE Investors
126 East 56th Street
Address: 52 Isabella Avenue New York, NY 10022
Atherton, CA 94027
RRE INVESTORS FUND, L.P.
By:______________________________
Manuel A. Henriquez By:___________________________
Andrew L. Zalasin
Address: 170 Hanna Way
Menlo Park, CA 94025 Its: Member, General Partner
Address: P.O. Box 31106 SMB
LABE REVOCABLE TRUST, DATED West Bay Road
OCTOBER 15, 1998 Grand Cayman, Cayman Islands
By:______________________________ B.W.I.
Its:_____________________________
Address:_________________________
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
FOUNDERS:
________________________________
Thomas Obenhuber
________________________________
Matthew J. Stepovich
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
FOUNDER:
__________________________
Peter D. Olson
CONSENT OF SPOUSE
I, ____________________, spouse of Peter D. Olson, acknowledge that I
have read the Agreement and that I know its contents. I am aware that by its
provisions there are certain restrictions imposed upon the sale or other
disposition during my spouse's lifetime of the Common Shares of the Company
which my spouse owns. I hereby agree that my interest, if any, in the Common
Shares subject to the Agreement shall be irrevocably bound by the Agreement and
further understand and agree that any community property interest I may have in
the Common Shares shall be similarly bound by the Agreement.
_________________________________________
[Signature]
__________________________________________
[Print Name]
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
FOUNDER:
___________________________
Michael Solomon
CONSENT OF SPOUSE
I, ____________________, spouse of Michael Solomon, acknowledge that I
have read the Agreement and that I know its contents. I am aware that by its
provisions there are certain restrictions imposed upon the sale or other
disposition during my spouse's lifetime of the Common Shares of the Company
which my spouse owns. I hereby agree that my interest, if any, in the Common
Shares subject to the Agreement shall be irrevocably bound by the Agreement and
further understand and agree that any community property interest I may have in
the Common Shares shall be similarly bound by the Agreement.
___________________________________________
[Signature]
___________________________________________
[Print Name]
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
FOUNDER:
___________________________
Kevin Grundy
CONSENT OF SPOUSE
I, ____________________, spouse of Kevin Grundy, acknowledge that I have
read the Agreement and that I know its contents. I am aware that by its
provisions there are certain restrictions imposed upon the sale or other
disposition during my spouse's lifetime of the Common Shares of the Company
which my spouse owns. I hereby agree that my interest, if any, in the Common
Shares subject to the Agreement shall be irrevocably bound by the Agreement and
further understand and agree that any community property interest I may have in
the Common Shares shall be similarly bound by the Agreement.
___________________________________________
[Signature]
___________________________________________
[Print Name]
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
INVESTORS:
NBC INTERNET, INC. VALUEVISION INTERNATIONAL, INC.
By:________________________________
By:____________________________
Name:______________________________
Name:__________________________
Its:_______________________________
Its:___________________________
Address:
Address: 300 Montgomery Street,
Suite 300
San Francisco, CA 94104
Attention: President
NATIONAL BROADCASTING COMPANY, INC. GE CAPITAL EQUITY INVESTMENTS, INC.
By:____________________________ By:________________________________
Name:__________________________ Name:______________________________
Its:___________________________ Its:_______________________________
Address: 30 Rockefeller Plaza Address:
New York, NY 10112
Attention: President,
NBC Interactive Media
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
INVESTORS:
MOHR, DAVIDOW VENTURES V, L.P. BESSEMER VENTURE PARTNERS IV LP
By: Fifth MDV Partners, L.L.C.,
Its: General Partner
By:__________________________________
By:_______________________________
Jonathan D. Feiber, Member Name:________________________________
Address: 2775 Sand Hill Road, Suite 240 Its:_________________________________
Menlo Park, CA 94025
Address: 1400 Old County Rd.,
MOHR, DAVIDOW VENTURES V, L.P. Ste. 407
AS NOMINEE FOR MDV ENTREPRENEURS' Westbury, NY 11590
NETWORK FUND II (A), L.P. AND MDV
ENTREPRENEURS' NETWORK FUND II (B), L.P. BESSEC VENTURES IV L.P.
By: Fifth MDV Partners, L.L.C.,
Its: General Partner By:__________________________________
By:_______________________________ Name:________________________________
Jonathan D. Feiber, Member
Its:_________________________________
Address: 2775 Sand Hill Road, Suite 240
Menlo Park, CA 94025 Address: 1400 Old County Rd.,
Ste. 407
Westbury, NY 11590
AUGUST CAPITAL, L.P., FOR ITSELF AND MOHR, DAVIDOW VENTURES V-L, L.P.
AS NOMINEE FOR AUGUST CAPITAL STRATEGIC By: Fifth MDV Partners, L.L.C.,
PARTNERS, L.P. AND AUGUST CAPITAL Its: General Partner
ASSOCIATES, L. P.
By: August Capital Management, L.L.C.,
its general partner By: _______________________________
Jonathan D. Feiber, Member
By:_______________________________ Address: 2775 Sand Hill Road,
Mark G. Wilson, Member Suite 240
Menlo Park, CA 94025
2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
INVESTORS:
STANFORD UNIVERSITY COMDISCO, INC.
By:________________________________ By:_________________________________
Name:______________________________ Name:_______________________________
Its:_______________________________ Its:________________________________
2770 Sand Hill Road 1116 N. River Road
Menlo Park, CA 94025 Rosemont, IL 60018
Attn: Jill Hanses
By:________________________________ By: ________________________________
Patti Hart John Seamons
c/o Telocity, Inc. 0103 Stackyard Lane
10355 North De Anza Boulevard Basalt, CO 81621
San Jose, CA 95014
By:________________________________
Peter Olson
c/o Telocity, Inc.
10355 North De Anza Boulevard
San Jose, CA 95014
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
INVESTORS:
RRE INVESTORS FUND, L.P.
By:__________________________________
Andrew L. Zalasin
Its: Member, General Partner
Address: P.O. Box 31106 SMB
West Bay Road
Grand Cayman, Cayman Islands
B.W.I.
RRE INVESTORS, L.P. LABE REVOCABLE TRUST, DATED
OCTOBER 15, 1998
By:________________________________
Andrew L. Zalasin By:__________________________________
Its: Member, General Partner Name:________________________________
Address: RRE Investors Its:_________________________________
126 East 56th Street
New York, NY 10022 Address:
By:________________________________ By:__________________________________
Manuel A. Henriquez Kevin Grundy
Address: 170 Hanna Way c/o Telocity, Inc.
Menlo Park, CA 94025 10355 North De Anza Boulevard
San Jose, CA 95014
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
INVESTORS:
GRAY CARY WARE & FREIDENRICH LLP BESSTEL LLC
By:_________________________________ By:______________________________
Margaret H. Kavalaris, Partner
Name:____________________________
400 Hamilton Avenue
Palo Alto, CA 94301-1825 Its:_____________________________
c/o Bessemer Partners & Co.
630 Fifth Avenue, 39th Floor
New York, NY 10111
Attn: Robert Roriston
Fax: (212) 307-6314
Phone: (212) 708-9237
QUANTUM INDUSTRIAL PARTNERS LDC SFM DOMESTIC INVESTMENTS LLC
By:_________________________________ By:______________________________
Name:_______________________________ Name:____________________________
Its:________________________________ Its:_____________________________
Curacao Corporation Company N.V. c/o Soros Fund Management LLC
Kaya Flambonyan 9 888 Seventh Avenue, Suite 3300
Willemstad, Curacao New York, NY 10106
Netherlands Antilles Attn: Michael C. Neus
Fax: (011) 599-97-322-420 Phone: (212) 397-5540
Phone: (011) 599-97-322-422 Fax: (212) 664-0544
Copy to: Soros Fund Management LLC
888 Seventh Avenue,
Suite 3300
New York, NY 10106
Attn: Michael C. Neus
Phone: (212) 397-5540
Fax: (212) 664-0544
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
INVESTORS:
By:____________________________ By:_____________________________
Donald B. Marron Frank Drazka
Address: Address:
By:____________________________ By:_____________________________
Joeseph J. Grano Jr. J. Scott Coburn
Address: Address:
By:____________________________ By:_____________________________
Steven P. Baum Thomas H. Mahoney, IV
Address: Address:
By:____________________________ By:_____________________________
Brian M. Barefoot Joseph L. Morea
Address: Address:
By:____________________________ By:_____________________________
Leonard Brooks, III Suzanne E. Maccagnan
Address: Address:
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
INVESTORS:
By:______________________________ By:_______________________________
Donald C. Cacciapaglia Stephen P. Bowen
Address: Address: Blumenfeld & Cohen
4 Embarcadero Center,
Suite 1170
San Francisco, CA 94111
(415) 394-7500
By:______________________________ By:________________________________
Elise P.W. Kiely Dave M. Naseman
Address: Blumenfeld & Cohen Address: Blumenfeld & Cohen
1625 Massachusetts Avenue NW 56 Desert Highlands
Suite 300 10040 East Happy Valley Road
Washington, DC 20036 Scottsdale, AZ 85255
(202) 955-6300 (480) 473-7068
By:______________________________ By:________________________________
Jeffrey Blumenfeld Gary M. Cohen
Address: Blumenfeld & Cohen Address: Blumenfeld & Cohen
1625 Massachusetts Avenue NW 1625 Massachusetts Avenue NW
Suite 300 Suite 300
Washington, DC 20036 Washington, DC 20036
(202) 955-6300 (202) 955-6300
By:______________________________ By:________________________________
Christy C. Kunin Glenn B. Manishin
Address: Blumenfeld & Cohen Address: Blumenfeld & Cohen
1625 Massachusetts Avenue NW 1625 Massachusetts Avenue NW
Suite 300 Suite 300
Washington, DC 20036 Washington, DC 20036
(202) 955-6300 (202) 955-6300
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
INVESTORS:
GCWF INVESTMENT PARTNERS
By:____________________________
Margaret H. Kavalaris
By:______________________________
Gregory Gallo, President and c/o Gray Cary Ware & Freidenrich LLP
Chief Financial Officer 400 Hamilton Avenue
Palo Alto, CA 94301-1825
400 Hamilton Avenue
Palo Alto, CA 94301-1825
SIGNATURES TO INVESTORS' RIGHTS AGREEMENT
<PAGE> 43
EXHIBIT A
Fourth Amended and Restated Articles of Incorporation of the Company
<PAGE> 1
EXHIBIT 10.9
Wellex Confidential
WELLEX/TELOCITY
Product Manufacturing Agreement
November 1999
<PAGE> 2
MANUFACTURING AGREEMENT
THIS MANUFACTURING AGREEMENT is entered into as of this 8th day of November 1999
by And between Wellex Corporation, a California corporation, whose principal
place of business is located at 44141 South Grimmer Blvd., Fremont, CA 94538
(hereinafter referred to as "MANUFACTURER") and Telocity, Inc., a California
corporation, whose principal place of business is located at 10355 North De Anza
Blvd., Cupertino, CA. 95014 (hereinafter referred to as "PURCHASER")
1. TERM
This AGREEMENT shall become effective on the date hereof and the body of
the AGREEMENT shall nominally be in effect for two years. The terms of
this Agreement may be extended by an amendment to the agreement, signed
by both parties. Prior to anniversary dates, MANUFACTURER will provide
revised volume pricing for the next year.
2. SPECIFICATION COMMENTS
All items covered under this Agreement shall be in accordance with
PURCHASERS Specifications, drawings, files, documents provided by
PURCHASER.
3. SHIPPING
All shipments shall be made by Wellex F.O.B. MANUFACTURER'S
manufacturing facility in California.
4. PAYMENT TERMS
Net [*] from receipt of invoice.
5. COMMODITY LIST
Items listed on PURCHASER'S purchase orders may be added to or deleted
from, providing such additions or deletions meet all of the terms and
conditions of this contract.
6. REQUIREMENT FOR PURCHASING
All purchase orders issued shall contain the following information:
a) PURCHASER'S part number, description and revision level of
product to be shipped.
b) The delivery schedule AND unit price.
- ----------
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
PAGE 2 OF 9
<PAGE> 3
7. PURCHASE ORDERS/FORECASTS
A) PURCHASER will provide to MANUFACTURER firm purchase orders for a
minimum of [*] in advance of delivery. Further, PURCHASER will provide
to MANUFACTURER an additional [*] forecast to be updated monthly.
MANUFACTURER will purchase materials per purchase order and forecast
based on leadtime and inventory class buy policy as agreed to by
PURCHASER.
b) PURCHASER reserves the right to reschedule deliveries on orders that are
due [*] days or more from the date such change notice is given to
MANUFACTURER. If such reschedule represents a delay in shipment, the
reschedule cannot be for more than [*] days from the original delivery
date and PURCHASER will be responsible for a [*] per month carrying
charge on material acquired pursuant to the original delivery date that
MANUFACTURER cannot mitigate.
If such reschedule represents an acceleration or increase, MANUFACTURER
will make best effort to meet the request, subject to material and
capacity availability. Any extra costs incurred to meet the request will
be the liability of PURCHASER. MANUFACTURER will notify PURCHASER of any
extra cost prior to commitment of new cost incurred.
c) PURCHASER may cancel any order scheduled for delivery more than [*] days
from the date such cancellation notice is given to MANUFACTURER. [*] All
other materials which are classified as off the shelf material stock
items pursuant to Paragraph (7a) shall be the responsibility of the
MANUFACTURE.
Notwithstanding PURCHASER'S liability, MANUFACTURER will attempt to
mitigate any such liability. Any costs incurred to make such mitigation
are the liability of the PURCHASER and will be reviewed with the
PURCHASER prior to their incurrence.
8. WARRANTY
(a) MANUFACTURER warrants that the PRODUCT sold hereunder will be free from
latent and patent defects in material and workmanship according to
IPC-610 Workmanship Standards. Wellex Corporation will warrant product
for a period of [*] from the date of shipment to PURCHASER, provided
that: (i) MANUFACTURER is notified in writing by PURCHASER within thirty
(10) days after PURCHASER'S discovery of such failure or (ii) the
defective PRODUCT is returned to MANUFACTURER no longer than ten (10)
days following the last day of the warranty period. MANUFACTURER shall
include serial numbers and/or date stamps, as designated by PURCHASER,
on each PRODUCT to facilitate warranty tracking. PURCHASER shall forward
defective PRODUCT to MANUFACTURER freight prepaid, and MANUFACTURER Will
make return the repaired or replaced PRODUCT freight prepaid by
MANUFACTURER to PURCHASER no later than thirty (30) days from the date
MANUFACTURER receives the defective PRODUCT.
(b) The foregoing warranty shall not be valid if the PRODUCT or component
parts have been subjected to abuse, misuse, accident, alteration,
neglect, unauthorized repair or installation. MANUFACTURER shall make
the final determination as to the existence or cause of any alleged
defect.
- ----------
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
PAGE 3 OF 9
<PAGE> 4
(c) The foregoing warranty provisions set forth the MANUFACTURER'S sole
liability and the PURCHASER'S exclusive remedies for claims (except as
to title) based on defects in, or failure of, any PRODUCT sold hereunder
when the claim is based in warranty. Upon the expiration of the
applicable warranty for any PRODUCT sold hereunder, all such liability
shall terminate.
(d) The above warranty periods shall not be extended by the repair or
replacement of PRODUCT pursuant to any of the above warranties. The
above warranties shall apply to PURCHASER, its successors, assigns and
those who purchase or use said PRODUCT. PURCHASER shall deal directly
with MANUFACTURER for returns and repairs.
(e) EXCEPT AS HEREINABOVE PROVIDED, THE FOREGOING WARRANTIES ARE EXCLUSIVE
AND IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, OR STATUTORY,
INCLUDING THE IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
9. DELIVERY
a) Product shall be delivered to PURCHASER in accordance with required
delivery dates as specified on PURCHASER'S purchase orders as agreed to
by MANUFACTURER. Engineering changes (EC's) and purchase order volume
increases may affect the original purchase order delivery dates and new
dates will be established with agreement from the PURCHASER.
a) Upon learning of any potential delays, MANUFACTURER will immediately
notify PURCHASER in writing as to the cause and extent of such delay.
b) Should such delay extend longer than one (1) month (not caused by 9a)
EC's or significant volume increases), MANUFACTURER will be
responsible for reasonable costs accrued by the PURCHASER due to this
delay and new delivery dates will be established.
10. TERMINATION
a) FOR CAUSE - This Agreement may be terminated by either party at any time
upon the occurrence of any one or more of the following Events of
Default:
(1) failure of the other party: a) to perform pursuant to the terms
and conditions of this agreement; and b) to cure such
performance deficiency within sixty (60) days after receiving
written notice thereof given by the aggrieved party;
(2) the entering into or filing by the other party of a petition,
arrangement or proceeding seeking an order for relief under the
bankruptcy laws of the United States, a receivership for any of
the assets of the other party; a composition with or assignment
for the benefit of its creditors; a readjustment of debt or the
dissolution or liquidation of the other party;
(3) or the insolvency of the other party.
PAGE 4 OF 9
<PAGE> 5
(4) Upon termination, PURCHASER shall be liable for any material
acquired plus handling charges pursuant to purchase orders, long
lead items and NCNR materials. Any such material shall be
shipped promptly to PURCHASER upon termination and shall be
subject to the then-current pricing and payment terms.
MANUFACTURER and PURCHASER shall jointly agree on final
disposition of materials.
11. INSPECTION
a) SOURCE INSPECTION
Upon request from PURCHASER, MANUFACTURER agrees to allow PURCHASER'S
source inspector to inspect and review the work being performed under
this Agreement, including materials and supplies being used. However,
shipments will not be delayed if PURCHASER fails to effect such source
inspection. Source inspection does not constitute acceptance. Final
acceptance shall be at PURCHASER'S facility.
PURCHASER shall have ten (10) days, after actual receipt of the goods,
within which to inspect prior to PURCHASER'S acceptance thereof.
PURCHASER'S acceptance of each type of Goods shall be based on
PURCHASER'S standard test procedures for such Goods, including the Goods
satisfying the AQL established by PURCHASER.
b) APPROVED MANUFACTURERS
In the course of purchasing component parts on behalf of PURCHASER,
MANUFACTURER must follow PURCHASER'S Approved Vendors List for all
component parts. If MANUFACTURER offers alternative to PURCHASER'S AVL,
the alternative must be approved in writing by PURCHASER prior to any
production at MANUFACTURER'S facility.
12. LOT INSPECTION APPROVAL
PURCHASER will inspect unit lots per [*], Acceptance level will be [*]
for both cosmetic and electrical performance. Disposition of failed lot
is at the PURCHASER'S discretions.
13. ENGINEERING CHANGE ORDERS
It is recognized that from time to time MANUFACTURER will be asked to
implement ECOs. The following delineates the proper procedures:
a) PURCHASER to notify MANUFACTURER in writing of proposed ECO.
This notification should include the documentation of the change
to effectively support MANUFACTURER'S investigation of the
impact of this proposal.
b) Upon notice of a change, MANUFACTURER will make best effort to
review all costs impacted within one (1) week. All cost impacts
and material availability issues will be mutually reviewed and
agreed to with PURCHASER prior to implementation.
c) Emergency ECOs will be immediately implemented at PURCHASER'S
written request.
d) PURCHASER will be liable for all costs associated with emergency
ECO implementation.
- ----------
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
PAGE 5 OF 9
<PAGE> 6
14. CONFIDENTIALITY
Both parties acknowledge that, by reason of their relationship, they may
have access to certain information and materials concerning the other's
business, plans, and products (including, but not limited to,
information and materials contained in technical data provided to the
other party) which is confidential and of substantial value to the other
party, which value would be impaired if such information were disclosed
to third parties. Both parties agree that they shall not use in any way,
for their own account or the account of any third party, nor disclose to
any third party, any such confidential information which is revealed to
it by the other party hereto, without written authorization from the
other party. Each party will take every reasonable precaution to protect
the confidentiality of such information consistent with the efforts
exercised by it with respect to its own confidential information. Each
party shall advise the other if it considers any particular information
or materials to be confidential. This provision shall survive
termination of this AGREEMENT. Nothing in this provision shall prevent
either Party from disclosing the terms and conditions of this agreement
in the event of, in anticipation of, or as necessary in advance of a
merger, acquisition, financing or public offering.
15. INDEMNIFICATION
Each party shall indemnify and defend the other party against all
claims, suits, losses, expenses and liabilities for bodily injury,
personal injury, death and property damage directly or indirectly caused
by any Products or through the intentional acts or negligence of a party
or of any person for whose actions said party is legally liable. Both
parties shall carry and maintain liability insurance coverage to
satisfactorily cover its obligations under this Agreement.
16. COMPLIANCE WITH APPLICABLE LAWS
MANUFACTURER has been, and shall continue to be, in material compliance
with the provisions of all applicable federal, state and local laws,
regulations, rules and ordinances applicable to the transactions
governed by this Agreement.
17. FORCE MAJEURE
In the event that performance by either party of its obligations under
this Agreement is prevented due to any Act of God, fire, casualty,
flood, earthquake, war, strike, lockout, epidemic, destruction of
production facilities, riot, insurrection, material unavailability, or
any other cause beyond the reasonable control of the party invoking this
section - and if such party shall give prompt written notice to the
other party - its performance shall be excused, and the time or the
performance shall be extended for the period of delay or inability to
perform due to such occurrences.
PAGE 6 OF 9
<PAGE> 7
18. MISCELLANEOUS
a) SEVERABILITY - In the event that one or more of the provisions,
or parts thereof, contained in the Agreement shall for any
reason be held to be invalid, illegal, or unenforceable by a
court of competent jurisdiction, the same shall not invalidate
or otherwise affect any other provision in the Agreement, and
the Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained therein.
b) ENTIRE AGREEMENT: MODIFICATION - The Agreement constitutes the
entire and exclusive statement by PURCHASER and MANUFACTURER of
the terms of their agreement, notwithstanding any additional or
different terms that may be contained in any quotation,
acknowledgment, confirmation, purchase order, invoice or other
form Of PURCHASER or MANUFACTURER. All prior and contemporaneous
proposals, negotiations, representations and agreements are
merged in the Agreement. These terms of the Agreement may not be
altered, modified, superseded, amended or rescinded, and no
additional terms shall become a part of the Agreement, except
pursuant to a writing specifically referencing the Agreement and
signed by a representative of the party against whom enforcement
is sought.
c) NOTICE - Unless otherwise specified in the Agreement, all
notices and other communications permitted or required by the
provisions of those documents shall be in writing and shall be
mailed, telecopied, telegraphed, telexed or delivered to the
other party at the address set forth below (or at such other
address as either party shall designate in writing to the other
party during the term of this Agreement) and shall be effective
and deemed received: i) if mailed, when actually received; ii)
if telecopied, when actually received; iii) if telegraphed, when
actually received; iv) if telexed, when dispatched; or v) if
personally delivered, when delivered. Each notice to
MANUFACTURER or PURCHASER shall be addressed, until notice of
change thereof, as follows:
i) If intended for MANUFACTURER, to:
Wellex Corporation
44141 S. Grimmer Blvd.
Fremont, CA 94538
Attn: Richard L. FitzGerald
ii) If intended for PURCHASER, to:
Telocity, Inc.
10355 N.De. Anza. Boulevard
Cupertino, Ca. 95014
Attn: Kevin Grundy
d) ASSIGNMENT - This Agreement shall not be assignable by either
party without the prior written consent of the other party,
provided however, that this agreement shall be assignable to
either Party's successor in the event of a change in control of
the company.
e) WAIVER - No failure or delay on the part of either party hereto
in exercising any right or remedy under the Agreement shall
operate as a waiver thereof; nor shall any single or partial
exercise of any such right or remedy. No provision of the
Agreement may be waived except in writing signed by the party
granting such waiver.
PAGE 7 OF 9
<PAGE> 8
MISCELLANEOUS (continued)
f) GOVERNING LAW: INTERPRETATION - The Agreement shall be governed
by and construed in accordance with the laws of the State of
California. Acceptance or acquiescence in a course of
performance rendered under the Agreement shall not be relevant
to determining the meaning of the Agreement, even though the
accepting or acquiescing party had knowledge of the nature of
the performance and an opportunity for objection. No course of
prior dealing between the parties and no usage of the trade
shall be relevant to supplement or explain any terms used in the
Agreement.
g) CONSEQUENTIAL DAMAGES - In no event shall PURCHASER or
MANUFACTURER be liable for any special, incidental or
consequential damages including without limitation, loss of
profits, even if advised of the possibility thereof.
19. PRICING
a) Prices and volume commitments for Products sold under this
Agreement are defined in purchase orders issued to the
MANUFACTURE and signed material liability agreements.
b) Every [*], PURCHASER and MANUFACTURER will review the actual
volume purchased.
c) Notwithstanding Part 2 of this section, if significant
fluctuations occur at any time in the material cost of
components required under this Agreement, PURCHASER and
MANUFACTURER will review the impact of such fluctuations and
mutually agree to any pricing changes arising therefrom.
(Significant fluctuation is defined to mean [*] of the quoted
Bill of Material cost.)
20. RETURN MATERIAL AUTHORIZATION
If product is found to be defective per Section 8 or 11 of this
Agreement, PURCHASER will notify MANUFACTURER and MANUFACTURER will
provide a Return Material Authorization number prior to PURCHASER
returning the Product. MANUFACTURER Will make best effort to provide an
RMA number within twenty four (24) hours.
21. Notwithstanding Paragraph 18, PURCHASER and MANUFACTURER will jointly
work towards process improvements in the following areas:
- Total Price
- Quality
- Cycle Time
- On-time Delivery
- Design improvements on manufacturability, quality and price
- ----------
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
PAGE 8 OF 9
<PAGE> 9
PURCHASER and MANUFACTURER Will meet every three (3) to six (6) months
to review current worldwide material prices for high dollar components
and make changes with mutual agreement to a procurement strategy to
achieve best total pricing.
AGREED: WELLEX CORPORATION AGREED: TELOCITY INC.
44141 SOUTH GRIMMER BLVD. 10355 N. DE ANZA BLVD.
FREMONT, CA 94538 CUPERTINO, CA 95014
BY: /s/ DICK FITZGERALD BY: /s/ KEVIN GRUNDY
-------------------------- -----------------------------
PRINT: Dick Fitzgerald PRINT: Kevin Grundy
-------------------------- -----------------------------
TITLE: President TITLE: VP ENG
-------------------------- -----------------------------
DATE: 11/14/99 DATE: 11/14/99
-------------------------- -----------------------------
PAGE 9 OF 9
<PAGE> 10
[WELLEX LETTERHEAD]
MATERIAL LIABILITY AGREEMENT
Telocity, Inc.
10355 North De Anza Blvd.
Cupertino, CA 95014
The Wellex Corporation agrees to purchase material classified as Long Lead Time
and Non Cancelable Non Returnable components based on Telocity's Coyote product
forecast. All engineering changes related to materials are the full liability of
the Telocity Corporation.
Wellex will provide Telocity a list of material, which will be identified as
Long Lead Time and Non Cancelable Non Returnable. Upon agreement of each item
and the quantity, Wellex will issue a purchase order to the appropriate supplier
/ vendor with a specified delivery date based on the Telocity product build
forecast. Telocity will provide Wellex with purchase orders at least [*] prior
to final product delivery. The purchase orders will cover costs for all
material, labor and burden including the material purchased by Wellex as Long
Lead Time and Non Cancelable Non Returnable. In the event, Telocity delays the
product delivery date in excess of [*] past the original delivery date, an
agreed to interest charge will be paid monthly.
If for any reason, the Telocity Corporation changes, modifies or cancels the
forecast or purchase orders, Telocity agrees to purchase all material (including
handling charges or cancellation fees) within the standard net [*] agreement.
All material engineering changes will also be the full liability of Telocity.
The Wellex Corporation will perform its best efforts to return material and
cancel material in both categories. In the event Wellex is not able to cancel
or return the identified material Telocity remains fully liable to purchase the
remaining material from Wellex.
AGREED: Wellex Corporation AGREED: Telocity Inc.
44141 South Grimmer Blvd. 10355 North De Anza Blvd.
Fremont, CA 94538 Cupertino, CA 95014
By: /s/ DICK FITZGERALD 10/26/99 By: /s/ KEVIN GRUNDY 10/26/99
------------------------------- --------------------------------
(Signature) (Date) (Signature) (Date)
Print Name: Dick Fitzgerald Print Name: Kevin Grundy
----------------------- ------------------------
Title: President Title: VP Engineering
---------------------------- -----------------------------
- ----------
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 1
EXHIBIT 10.10
AGREEMENT FOR SERVICES
This Agreement is made this 6th day of October, 1999, by and between Telamon-IMS
Inc., a corporation duly organized and existing under the laws of the State of
Indiana and having its principal place of business at 1000 E. 116th Street,
Carmel, Indiana 46032 ("Contractor"), and Telocity Corporation (including its
affiliates and subsidiaries), a corporation duly organized and existing under
the laws of the State of California and having its principal place of business
at 10355 N. De Anza Boulevard, Cupertino, California, 95014-2027 ("Customer").
In consideration of the promises, mutual covenants and agreements contained
herein, the receipt and sufficiency of which are hereby acknowledged, Customer
and Contractor agree as follows:
1. TERM
This Agreement shall commence on October 15th, 1999, and expire on April 15th,
2000, (the "Initial Term") and shall continue in such full force and effect for
successive periods of one year thereafter unless terminated by either party by
giving notice in writing by registered mail at least 30 days prior to the
expiration of any such yearly period. The parties may extend the Initial Term by
executing a separate written agreement of extension prior to the expiration of
the Initial Term.
2. TERMINATION OF AGREEMENT FOR CONVENIENCE
2.1 Either party shall, in addition to its rights to cancel this Agreement
for default, have the right for its convenience to terminate this
agreement without cause during the Initial Term or any extension
thereof by giving the other party at least ninety (90) days written
notice of termination specifying the extent to which the Agreement is
terminated and the date upon such termination becomes effective.
2.2 Upon notice of termination:
2.2.1 Contractor shall stop work under the Agreement on the date and
to the extent specified;
2.2.2 Both parties shall place no further contracts except as may be
necessary for completing such portions of the Agreement as
have not been terminated;
2.2.3 Both parties shall take all reasonable efforts to terminate
any contracts with third parties that relate to the portions
of this Agreement that have been terminated to the extent they
can do so without breaching those third-party agreements; and
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<PAGE> 2
2.2.4 Contractor shall take such action as may be necessary to
protect and preserve the property related to the Services
which is in Contractor's possession and which was provided by
Customer.
2.3 Termination of this Agreement shall not affect either Customer's or
Contractor's pre-termination obligations hereunder and shall be without
prejudice to enforcement of any discharged obligations existing at the
time of termination.
2.4 Neither party shall be liable for damages, loss, anticipated profit, or
unabsorbed indirect costs of overheads or any other losses or claims
whatsoever on account of or arising out of termination of this
Agreement for convenience.
3. SCOPE OF SERVICES
The description of the Services, together with the location(s), time(s) of
performance, and Performance Standards are described in the attached Service
Schedule made a part hereof by this reference. Services shall be performed upon
such terms as set forth in the Service Schedule(s) and this Agreement unless
expressly modified or amended in writing by the parties.
4. SERVICE FEE
As consideration for Contractor's performance of the Services, Customer agrees
to pay Contractor the Service Fee(s) set forth in the Service Schedule(s). The
Service Fee shall constitute the total financial obligation of Customer to
Contractor.
5. INVOICES AND PAYMENTS
Contractor shall issue invoices in the format required by Customer within thirty
(30) days following the completion of the Services. Invoices for completed
Services shall be paid within thirty (30) days following receipt of an invoice.
All amounts past due over thirty (30) days shall bear interest from the due date
until paid at the rate of two (2) percent per month or such lesser rate as may
be the maximum permissible rate under applicable law.
6. CANCELLATION OF AGREEMENT FOR DEFAULT
Should either party at any time (1) become the subject of bankruptcy proceedings
not terminated within thirty (30) days of any filing, make a general assignment
for the benefit of creditors, make or permit the appointment of a receiver for
all or substantially all or its property, or (2) fail or refuse to prosecute its
obligations hereunder diligently or perform any other requirement of this
Agreement and not cure such failure within (30) days after written notice
thereof from the other party, the other party shall have the right, at its
election and without prejudice to any other remedies, to cancel this Agreement
in whole or in part.
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<PAGE> 3
7. FURNISHING OF LABOR, TOOLS, EQUIPMENT AND MATERIAL
Contractor shall furnish, at its own expense, all labor, supervision, machinery,
tools, equipment, fuel, power, materials, expandable supplies, transportation,
licenses, permits, bonds and all other items, whether of the type described or
not, that may required or appropriate in the performance of the Services covered
by this Agreement except such items which may be specifically provided to be
furnished by Customer. All materials, supplies, and other items purchased by
Contractor shall be in Contractor's own name and account. Contractor shall be
responsible for all freight and delivery, costs of materials, supplies,
equipment, and other items on the work site and shall be responsible for
intransit loss or damage.
8. PROPRIETARY INFORMATION
All marketing information designated by either party as confidential, the
Customer's list of customers, and technical information, specifications,
drawings, documentation, methods and other proprietary information of any kind
and description whatsoever disclosed by either party to the other under this
Agreement, except insofar as such information is (i) in the public domain, (ii)
established to have been independently developed and so documented by the other
party or (iii) obtained by the other party from any person not in breach of
confidentiality obligations to the disclosing party, is the exclusive property
of the disclosing party (the "Proprietary Information"). Except as specifically
authorized in writing by the disclosing party or as permitted hereunder, the
nondisclosing party shall treat and protect the Proprietary Information as
confidential, shall not reproduce the Proprietary Information except to the
extent reasonably required for the performance of this Agreement, shall not
divulge the Proprietary Information in whole or in part to any third parties,
and shall use the Proprietary Information only for purposes necessary for the
performance of this Agreement. This obligation shall survive the termination of
this Agreement. Each party shall disclose the Proprietary Information only to
those of its employees and agents who have a "need-to-know" the Proprietary
Information for the purposes described herein after first making such employees
or agents aware of the confidentiality obligation set forth above.
9. INDEPENDENT CONTRACTOR
The parties represent that they are engaged in an independent business and will
perform their obligations under this Agreement as an independent contractor and
not as the agent or employee of the other party. Each party is solely
responsible for its acts and those of its personnel. Each party has and retains
the right to exercise full control of and supervision over the employment,
direction, compensation and discharge of all personnel assisting in the
performance of its obligations. Each is solely responsible for
3
<PAGE> 4
compensation to its personnel and each party shall comply with workers'
compensation, unemployment, disability applicable federal, state and local laws,
rules and regulations.
10. INDEMNITY
10.1 Each party hereto shall indemnify and save the other harmless from any
liabilities, claims or demands (including the costs, expenses and
reasonable attorney's fees on account thereof) that may be made by
anyone for personal injuries, including death, or damage to tangible
property, including theft, resulting from the negligence and/or willful
misconduct of that party, its employees and agents. Each party shall
defend the other at the other's request against any such liability,
claim or demand. Each party shall notify the other promptly of written
claims or demands against such party of which the other party is
responsible hereunder.
10.2 Customer shall indemnify Contractor for any loss, damage, expense or
liability including, without limitation, court costs and attorney's
fees that may result by reason of any infringement or claim of
infringement of any patent, trademark, copyright, trade secret or other
property right relating to Service furnished pursuant to this
Agreement. Customer shall defend and/or settle at its own expense any
action brought against Contractor to the extent that it is based on a
claim that Service furnished by Contractor pursuant to this Agreement
infringe any patent, trademark, copyright, trade secret or other
proprietary right.
11. ADVERTISING
No identification of Contractor, references to Contractor or third parties or
references to Contractor's name, marks, codes, drawings or specifications will
be used in any of Customer's advertising or promotional efforts in reference to
providing Services hereunder without Contractor's prior written permission.
Customer shall indemnify Contractor and any third parties against any claim
arising out of Customer's failure to do so.
12. TIME OF PERFORMANCE
Contractor shall use its best effort in performing the services in accordance
with the schedule described in the scope of service.
13. FORCE MAJEURE
If the performance of any obligation under this Agreement is interfered with by
reason of any circumstances beyond the reasonable control of the party affected,
including, without limitation, fire explosion, power failure, acts of God, war,
revolution, civil commotion, delays of the other party in the performance of any
of its obligations hereunder, delays of subcontractor or suppliers,
unavailability of sources of energy, acts of the public enemy,
4
<PAGE> 5
or any law, order, regulation, ordinance or requirement of any government or
legal body, and labor difficulties, including without limitation, strikes,
slowdown ?????????? boycotts; then the party affected shall be excused from such
performance for period equal to the delay resulting from any such causes and
such additional period as may be reasonably necessary to allow the party to
resume its obligations, (and the other party shall likewise be excused from
performance of its obligations to the extent such party's obligations relate to
the performance so interfered with). The party so affected shall make reasonable
efforts to remove such causes of nonperformance; provided, however, in the
context of labor difficulties, that a party shall not be obligated to accede any
demands being made by employees or other personnel. Notwithstanding the
foregoing, if any such event occurs, either party may terminate this Agreement
immediately unless the party suffering the event provides adequate assurance to
the other that it will be able to resume performance of substantially all of its
business activities within seven days of the event.
14. GOVERNING LAW AND ARBITRATION
This Agreement shall be governed by and construed in all respects in accordance
with the laws of the State of Indiana as to both substance and procedure. Venue
shall lie in Indianapolis, Indiana, regarding the resolution of any disputes
arising hereunder. Any controversy or claim arising out of or relating to this
Agreement shall be settled by arbitration in the City of Indianapolis, Indiana,
in accordance with the then-governing rules of the American Arbitration
Association. Judgment upon the award rendered may be entered and enforced in any
court of competent jurisdiction.
15. SEVERAL LIABILITY
The term Customer as used herein may be applicable to one or more parties and
the singular shall include the plural. If there shall be more than one party
referred to as Customer herein, then their original obligations and liabilities
shall be several, not joint.
16. NONWAIVER
Except as specifically provided for in a waiver signed by duly authorized
representatives of Customer and Contractor, failure by either party at any time
to require performance by the other party or to claim a breach of any provision
of this Agreement shall not be construed as affecting any subsequent breach or
the right to require performance with respect thereto or to claim a breach with
respect thereto.
17. REMEDIES CUMULATIVE
The remedies provided herein shall be cumulative and in addition to any other
remedies provided by law or equity.
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<PAGE> 6
18. AMENDMENTS
No change or modifications of any terms or conditions herein shall be valid or
binding on either party unless made in writing and signed by an authorized
representative of each party.
19. NOTICES
Where written notices, demands, or other communications are required under this
Agreement to be made in writing, they shall be deemed duly given when made in
writing and delivered in hand, or upon receipt when properly addressed
return-receipt-requested and delivered by the United States Postal Service or
other delivery service to the following addresses:
CONTRACTOR:
Telocity
10355 N. De Anza Boulevard
Cupertino, California
95014-2027
CUSTOMER:
Telamon Corporation
1000 East 116th Street
Carmel, IN
46032
Addresses may be changed by written notice to the parties.
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<PAGE> 7
20. ENTIRE AGREEMENT
This Agreement, together with all referenced attachments shall constitute the
entire Agreement between the parties with respect to the subject matter of this
Agreement. This Agreement supersedes all prior oral and written communications,
agreements and understandings of the parties with respect to the subject of this
Agreement.
If any of the provisions of this Agreement shall be adjudged invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render this Agreement unenforceable, but rather this Agreement shall be
construed and enforced accordingly, provided that, in the event either party
would not have entered into this Agreement without such provision, that party
shall have the right to terminate this Agreement.
The parties intending to be legally bound have caused this Agreement to be
executed by their duly authorized representatives on the dates set forth below.
TELAMON IMS CORPORATION
/s/ JAMES H. ROHRER /s/ KEVIN MENDELL
- --------------------------------- ---------------------------------
(Authorized Signature) (Authorized Signature)
James H. Rohrer Kevin Mendel
- --------------------------------- ---------------------------------
(Print or Type Name of Signatory) (Print or Type Name of Signatory)
Customer Care Officer V.P. Marketing & Sales
- --------------------------------- ---------------------------------
(Title) (Title)
10/28/99 11/1/99
- --------------------------------- ---------------------------------
(Execution Date) (Execution Date)
7
<PAGE> 8
SERVICE SCHEDULE NO. ONE
PRE-SALES/SALES ADMINISTRATION
o Answer all inbound telephone and email inquiries
o Provide product, service, and customer care information to prospective
and signed Telocity customers
o Track all calls in a Telamon database call log
o Generate of a customer record through the Telocity web site
o Qualify the prospective customer's phone line for DSL service using a
Telocity database
o Sell Telocity products and services
o Complete all customer data fields to include but not limited to the
customer's computer equipment, other telephony based systems such as
security monitors, and the network interface device (NID)
o Triage customer to either a) modem only sale, or b) modem sale plus
installation of equipment
o Process customer's charge using the generally accepted charge cards
(conducted onsite at Telamon between November 1st and January 1, 2000
and thereafter through the Telocity web site).
o Schedule shipment of the Telocity product
o Schedule installation (if required)
o Submit line activation order
o Track submission of line activation order request
o Update database with line activation due date or rejection information
(rejection criteria established by Telocity)
o If line activation is rejected, contact customer and inform. Cancel
installation if scheduled. Process charge card credit. Cancel shipment
of modem.
o Process product warranty claims
FEES
<TABLE>
<CAPTION>
ITEM FEE
- ------------------------------- -------------------------------
<S> <C>
Sales & General Information [*]
Support Services
Dispatch
Credit Card Processing
Installation Database
Installation Database
Modifications/Technical
Assistance
Telephony Charges
</TABLE>
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
8
<PAGE> 9
NOTES:
1. [*]
2. Installer help desk functions associated with Telocity's residential
installations have been built into the "Telamon Installation Proposal".
3. Hours of operation: 7:00 am - 7:00 pm Monday thru Friday. Saturday 9:00
am 5:00 pm. The times designated will correspond to the Atlanta,
Georgia time zone.
4. Telocity will provide Telamon with projected call volumes on the 30th
of each month; these volumes will be for two months in advance. When
such a report is received, Telamon will have 30 days to recruit, hire,
and train new staff for the Telocity project.
SYSTEMS INTERFACE - TELAMON TO TELOCITY
A. The interface mechanism and processes are to be determined.
B. Telamon proposes to download customer data in batch every two hours
during normal business hours.
C. Telamon proposes to upload shipping data at most twice per day from
Telamon to the Telocity OSS system.
D. Communication costs incurred by Telamon will be reimbursed by Telocity
to Telamon upon approval by Telocity.
1. ACCOUNT MANAGEMENT
Telamon has assigned an Account Manager, [*] to act as the Single
Point of Contact (SPOC) between Telocity and Telamon.
[*] will:
A. Assist Telocity staff in developing customer service processes and
procedures;
B. Understand the objectives of the business model and work to ensure
that Telamon's resources are properly assigned to meet
expectations;
C. Communicate/meet with Telocity staff when planning new promotions
or modifications to the web site;
D. Monitor work activity and generate and provide reports to Telocity
and Telamon personnel;
E. Generate any invoicing as defined by the agreement; and
F. Field inquiries and complaints from Telocity. The AM will be
responsible for providing a response to complaints within two
business days of the complaint.
REPORTING
Telamon will provide standard reports on business activity from this
agreement to help Telocity to monitor certain business results.
A. Submitted on a scheduled time interval as mutually agreed upon by
Telocity and Telamon.
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
9
<PAGE> 10
Installation
o Services, fees and schedules have been provided under separate cover
"Wiring Installation Process and Requirements for Bell South ADSL
Deployment" dated 9/15/99.
Excerpts from Telamon's installation proposal are included in the following
paragraphs.
Installer Reporting
Telamon proposes to provide real time results reporting to support this project.
The installer will input required information at the customer's location that
will update the database essentially immediately. Telamon's program is password
protected to insure the integrity of the information being reported. The format
for this information can be tailored to the needs of Telocity. Alternatively,
should Telocity require direct input to its database, this is certainly
feasible. Telamon would only request that Telocity provide Telamon customer
information on a daily basis. Such information is critical to the installers,
our dispatch team and our installer help desk in assuring optimal service for
the customer and minimizing redundancy of activity in the event of a failed
install, repair or service call.
Recommended Installation Schedule
Telamon typically schedules installations at 8 am, 11 am, 1 p.m. and 3 p.m.
daily, with a two-hour window to accomplish the installation. The installer
arrives at the customer's location as an example, between 7 a.m. and 9 a.m. for
the 8 a.m. installation, having obtained customer permission to arrive ahead of
schedule.
Telamon's normal hours of operation for the installation team are 7 a.m. to 5
p.m. Scheduled installations, which occur after 5 p.m. and on Saturdays will be
subject to an additional installation charge (to be negotiated).
Telamon maintains the following insurance limits, and will maintain them for the
entire term of the contract:
1. Commercial General Liability Insurance in an amount not less
than two million dollars ($2,000,000) per occurrence for
bodily injury or property damage;
2. Employer's Liability Insurance in an amount not less than one
million dollars ($1,000,000) per occurrence;
3. Workers' Compensation Insurance in an amount not less than
that prescribed by statutory limits;
4. Commercial Automobile Liability Insurance applicable to bodily
injury and property damage, covering owned, non-owned, leased
and hired vehicles, in an amount not less than one million
dollars ($1,000,000) per accident;
5. Umbrella or Excess Liability Insurance with a combined single
limit of no less than one million dollars ($1,000,000) per
occurrence to apply over
10
<PAGE> 11
Commercial General Liability, Employer's Liability, Workers'
Compensation, and Commercial Automobile Liability Insurance.
11
<PAGE> 12
Installer Help Desk
Telamon has an ADSL help desk capable of providing support for the installers.
Our technicians are experienced in dealing with a range of issues including the
following:
o ADSL help desk technicians are skilled in working with local exchange
carriers to troubleshoot and resolve local loop issues, and can serve
as the single point of contact between the carrier, the installers and
end users. This allows the carrier to be certain that standardized
troubleshooting procedures are being followed prior to their
involvement and also insures that changes in troubleshooting procedures
will be implemented immediately and pervasively.
o Telamon maintains an extensive technical knowledge base on the company
intranet that provides help desk technicians with quick access to
on-line reference material. The knowledge base is updated regularly to
insure that the technicians are using the most current information in
their troubleshooting procedures.
Additional
The final step of the installation is completion of the Customer Satisfaction
survey. In Telamon's system, the installer will open the survey on the
customer's computer enter his name, city, phone number and e-mail address. The
installer will then request the customer take a few minutes to voluntarily
complete the survey and forward to Telamon electronically. The web page will be
set up to forward a record to Telamon even in the event a customer chooses not
to fill out the survey. This assures Telamon that the installer is following the
procedures outlined in the installation manual as well as providing feedback on
the installer's performance.
INSTALLATION PRICING
<TABLE>
<CAPTION>
CATEGORY TERMS PRICING($) SPECIAL CONSIDERATIONS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Successful ADSL Not Not Applicable
(splitterless install) Applicable
ADSL and home alarm 30 days net [*] This is a more labor intensive
systems installation. The installer
helpdesk labor is included in
this price. Telephony access
charges are separate pass through
costs.
- ----------------------------------------------------------------------------------------------------
ADSL splitterless install 30 days net [*] The installer helpdesk labor is
with trouble ticket included in this price. Telephony
access charges are separate pass
through costs.
- ----------------------------------------------------------------------------------------------------
</TABLE>
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
12
<PAGE> 13
<TABLE>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repair 30 days net [*] Under these circumstances Telamon
anticipates the customer will be up
and running for a period of time and
then has problems that could not be
resolved by the Telocity's technical
helpdesk.
- ----------------------------------------------------------------------------------------------------
</TABLE>
NOTE:
o Any equipment costs incurred by Telamon (such as splitters), which
would be required to successfully complete an installation for and on
behalf of Telocity, will be considered a reimbursable expense and
passed through to Telocity with appropriate documentation.
o The following Installation Deployment Plan is based on Telocity's
projected capacity to ramp up:
INSTALLATION DEPLOYMENT PLAN
<TABLE>
<CAPTION>
CITY INSTALL DATE CITY INSTALL DATE
- ---- ----------- ---- ------------
<S> <C> <C> <C>
[*]
</TABLE>
o The Install Date is defined as: the date Telamon is prepared to install
ADSL in the above cities.
o The attached "Sales vs. Installers" spreadsheet is for reference. This
is Telocity's projected installation capacity.
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
13
<PAGE> 1
EXHIBIT 10.11
THE SUTHERLAND GROUP, LTD.
STANDARD TERMS AND CONDITIONS
AGREEMENT FOR SERVICES
This Agreement, including the attached Statement of Work (collectively
"Agreement") effective as of the date of the latest signature below, by and
between THE SUTHERLAND GROUP, LTD., a New York corporation with offices at 1160
Pittsford-Victor Road, Pittsford, New York 14534 ("SGL") and Telocity, Inc, with
offices at 10355 North De Anza Blvd., Cupertino, CA 95014 ("Client").
Client desires to obtain, and SGL desires to provide, services in relation to
the staffing and management of a program to be referred to as Technical Support
Program ("Program").
SCOPE:
SGL shall perform services at levels authorized by Client and shall manage and
supervise the Program as more specifically set forth in the attached Statement
of Work (the "Services").
SGL shall and does hereby acknowledge that SGL is an independent contractor
providing services to Client. SGL may perform its obligations through the use of
independent contractors, provided, however, SGL will not be relieved of its
obligations under this Agreement by use of any subcontractors.
OPERATIONS:
SGL shall provide the necessary personnel who shall have that level of training
and experience which is appropriate to the nature of the Services described in
the attached Statement of Work.
SGL shall comply at all times with all Federal, state and local authorities,
statutes, rules and regulations applicable to its business activities and shall
provide worker's compensation insurance in amounts required by applicable law.
SGL and its personnel shall comply at all times with all rules and regulations,
policies and practices applicable to Client's business activities which are
communicated to SGL management by Client.
FEES:
Client shall pay SGL for its services and costs as described in the attached
Statement of Work. Unless another payment schedule has been agreed upon and set
forth in the attached Statement of Work, SGL shall invoice on the first (1st)
day of the month in which services are to be rendered. Payment shall be due
within thirty (30) days of date of an invoice from SGL and, if not paid within
that time, will bear interest from that date, until paid, at the rate of one and
one-half percent (1-1/2%) per month.
<PAGE> 2
Notwithstanding anything to the contrary in this Agreement, if Client fails to
make any payment when due SGL past 60 days, SGL will have the right to
immediately suspend its performance under this Agreement. Any suspension of
performance will not limit or affect SGL's right to recover amounts owed by
Client prior to such suspension, or any other rights or remedies SGL may have.
TERM OF THE AGREEMENT:
The term of this Agreement shall be that specified in the attached Statement of
Work (the "Term"), subject to the right of the parties to terminate this
Agreement pursuant to the provisions of this Agreement.
Client may terminate for convenience all or any portion of SGL's Services
hereunder effective, upon ninety (90) days written notice to SGL; provided that
Client shall remain liable to SGL for amounts due up to the date of termination
(including, amounts due for services rendered and costs during the notice
period). As an alternative, Client may provide SGL with written demand that SGL
immediately cease performance of all services upon receipt of such demand, but
in that case, Client shall remain liable to SGL for service fees and costs for a
period of ninety (90) days from receipt of the demand at the same rates and in
the same amounts as if SGL had provided services during that period.
Client shall have the option to increase the SGL staffing from that provided in
the Statement of Work by giving thirty (30) days written notice to SGL and
paying SGL the associated personnel cost fee. SGL shall not modify its staffing
levels with respect to the Services without written concurrence from the Client.
In the event either party fails to perform any of its obligations under this
Agreement unless (i) such failure is cured within thirty (30) days after written
notice (10 days for payment default) to the defaulting party specifying the
nature of the failure or, (ii) the defaulting party is diligently proceeding
with the cure of such default, the non-defaulting party may, in addition to any
other remedies available at law or in equity, terminate the Agreement on the
date thirty (30) days after such notice to the defaulting party (10 days for
payment default). If Client terminates the Agreement, Client shall pay SGL for
all services rendered prior to the effective date of termination, including
services rendered during the relevant notice period.
UNAVOIDABLE DELAYS:
Neither party shall be responsible for delays or errors in its performance under
this agreement occurring by reasons or circumstances beyond its control,
including acts of civil or military authority, national emergencies, labor
difficulties, fire, flood or catastrophe, acts of God, insurrection, war, riots,
or failure of transportation, communication or power supply; provided, however,
that should any such delay continue for more than forty-five (45) days, the
Agreement may be terminated upon written notice by the party whose performance
is not affected by the delay.
-2-
<PAGE> 3
WARRANTY OF SGL AND LIMITATION OF LIABILITY:
SGL represents and warrants that the Services to be provided by SGL hereunder
shall be done in a workmanlike manner and conform at all times in all material
respects to the descriptions and levels of Service set forth in this Agreement.
EXCEPT AS SET FORTH IN THIS AGREEMENT, THE SERVICES TO BE PROVIDED BY SGL TO
CLIENT HEREUNDER ARE PROVIDED WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. IN NO EVENT WILL SGL HAVE ANY LIABILITY, WHETHER BASED ON
CONTRACT, TORT (INCLUDING, WITHOUT LIMITATION, NEGLIGENCE), WARRANTY OR ANY
OTHER LEGAL OR EQUITABLE GROUNDS, FOR ANY LOSS OF INTEREST, PROFIT OR REVENUE BY
THE OTHER PARTY OR FOR ANY CONSEQUENTIAL, INDIRECT, INCIDENTAL, SPECIAL,
PUNITIVE OR EXEMPLARY DAMAGES SUFFERED BY THE OTHER PARTY, ARISING FROM OR
RELATED TO THIS AGREEMENT, EVEN IF SGL HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH LOSSES OR DAMAGES.
The monetary liability of SGL (including that of its agents and subcontractors)
for all claims resulting from its performance or non-performance under this
Agreement, regardless of the form of the action, and whether in contract, tort
(including, but not limited to, negligence), warranty or other legal or
equitable grounds, will be limited to a cumulative aggregate amount equal to
three (3) times the average monthly invoice for Services rendered by SGL.
WARRANTY OF CLIENT:
Client warrants and represents that at no time during the Term of this Agreement
will the use of any services, information, materials, techniques, or products
provided by Client infringe upon any third party's patent, trademark copyright,
or other intellectual property right, nor make use of any misappropriated trade
secret. No statements contained in any written information furnished to SGL by
or on behalf of Client in connection with this Agreement contain any untrue
statement of a material fact or omit any material fact necessary to make the
statement not misleading.
INDEMNIFICATION:
Client agrees to indemnify, defend and hold SGL harmless from and against any
and all losses, arising from or in connection with, (a) any claims of
infringement made against SGL of any patent, trademark, copyright, or similar
property rights (including without limitation, misappropriation of trade
secrets), alleged to have occurred because of equipment, systems, products or
other resources, information or items provided to SGL by Client hereunder, (b)
any claim made against SGL based upon either the sale or license of any product
or service of Client as a result of the Services performed by SGL, or (c) any
representation made by SGL and approved by Client, whether such claim is based
on contract, tort (including, without limitation, negligence), warranty or any
other legal or equitable grounds.
-3-
<PAGE> 4
CONFIDENTIALITY:
All confidential or proprietary information and documentation ("Confidential
Information") relating to either party shall be held in confidence by the other
party to the same extent that and in at least the same manner as such party
protects its own confidential or proprietary information. Except as is
reasonably necessary to the performance of its duties and obligations under this
Agreement, neither party shall use, disclose, publish, release, transfer or
otherwise make available Confidential Information of the other party in any form
to, or for the use or benefit of, any person or entity without the other
parties' approval. Each party shall be permitted to disclose relevant aspects of
the other parties' Confidential Information to its officers, agents and
employees to the extent that such disclosure is reasonably necessary to the
performance of its duties and its obligations under this Agreement, provided
that such parties shall take all reasonable measurers to insure that
Confidential Information of the other party is not used, disclosed or duplicated
in the contravention of the provisions of this Agreement by such officers,
agents and employees.
All Confidential or Proprietary Information made available in document or other
tangible form must bear an appropriate legend indicating its confidential or
proprietary nature, and, if initially disclosed orally or visually, must be
identified as confidential at the time of disclosure and a written summary
thereof, also marked with such a legend, must be provided reasonably promptly
following the initial disclosure.
The obligations in this "Confidentiality" section shall not restrict any
disclosure by either party pursuant to any applicable law, or by order of any
court or government agency (provided that the disclosing party shall endeavor to
give such notice to the non-disclosing party as may be reasonable under the
circumstances) and shall not apply with respect to information three (3) years
after its disclosure, or that is independently developed by the other party,
becomes part of the public domain (other than through unauthorized disclosure),
is disclosed by the owner of such information to a third party free of any
obligation of confidentiality or which either party gained knowledge or
possession of, free of any obligation of confidentiality.
TAXES:
Client shall, in addition to other payments required hereunder, pay all sales,
use, transfer or service taxes, whether federal or state or local, however
designated, that are levied or assessed on the provision of the Services by SGL
to Client or on the charges to Client under this Agreement, excluding however,
income taxes that may be levied against SGL.
NON-SOLICITATION OF EMPLOYEES:
During the term of this Agreement and for a period of one (1) year after its
termination, neither SGL nor Client shall actively or knowingly solicit any
full-time employee of the other with whom it has had direct contact as a result
of this Agreement (or any such former employee who has left the employ of the
other within the prior one (1) year period), to become its employee or
contractor or through any third party without the consent of the other party to
this Agreement.
-4-
<PAGE> 5
NON-EXCLUSIVE AGREEMENT:
Nothing in this Agreement shall be construed as prohibiting or restricting
Client from independently developing or acquiring materials or services which
are competitive with those delivered hereunder, from marketing such materials or
services or from marketing the Client products or services which are the subject
of the Statement of Work either itself or through a third party. Further,
nothing in this Agreement shall be construed as prohibiting or restricting the
right of SGL to provide similar services to any other entity.
SGL will retain all rights to the ideas, know-how, techniques, and software
related to the contact management system used by SGL in rendering, or to
facilitate the rendering of, the Services or the manner and method by which the
Services are rendered.
NOTICES:
All notices, requests, and demands hereunder will be given in writing and shall
be deemed to have been given if delivered in person, or via a reputable,
receipted overnight courier service, or by United States mail, certified or
registered, with return receipt requested, in either case addressed to the party
at the address for that party first written above (or to such other address as
either party specifies in writing to the other). Any notice, sent as provided
above, will be deemed given upon receipt at the address provided for above.
DISPUTE RESOLUTION:
If a dispute arises between the parties relating to this Agreement, the parties
agree to use the following procedure prior to either party pursuing its right to
binding arbitration:
(a) Upon written request of either party (the "Dispute Notice"), a "Senior
Representative" from each of the parties will meet for the purpose of
endeavoring to resolve the dispute. The meeting shall occur at a
mutually agreeable time and site (which meeting may be by teleconference
if mutually agreed upon).
(b) Each Senior Representative shall, in good faith, give audience to the
other's presentation of its position, and they shall jointly attempt to
reach a resolution of the dispute. Promptly following the meeting, a
memorandum will be prepared for both parties signature setting forth any
points of agreement between the parties.
(c) If the dispute is not resolved within fifteen (10) days of the Dispute
Notice, then the party sending the Dispute Notice may institute
arbitration of the dispute.
(d) For the purposes of this section, a party's "Senior Representative"
shall be a senior level employee or officer not involved with the
project who has decision making authority regarding the resolution of
the dispute.
-5-
<PAGE> 6
BINDING ARBITRATION:
The parties agree that any controversy or dispute arising out of or relating to
this Agreement that is not resolved using the Dispute Resolution procedure set
forth above, shall be settled by arbitration in Rochester, New York, in
accordance with the rules of the American Arbitration Association then in force.
The arbitration shall be governed by the United States Arbitration Act, and
judgement upon the award rendered by the arbitrator(s) may be entered by any
court having jurisdiction thereof.
GOVERNING LAW; VENUE:
This Agreement shall be governed and construed in accordance with the laws of
the State of New York without regard to conflicts of law principles. Any action
or proceeding arising out of, or related to, this Agreement may be brought only
in an appropriate state or federal court in Monroe County, New York.
ATTORNEYS' FEES:
Each party shall reimburse the other party on demand for all reasonable
out-of-pocket expenses incurred by the other party, including arbitration/court
costs and fees and reasonable expenses of counsel, as a consequence of or in
connection with, the successful enforcement by such other party of any right or
remedy hereunder.
If any audit or examination reveals that Client has underpaid SGL by more than
two percent (2%) during the period to which the audit relates, the direct and
reasonable costs of such audit shall be borne by Client.
SURVIVAL:
The provisions hereof related to Warranty, Indemnification, and Binding
Arbitration will survive any termination of this Agreement. In addition, any
other terms of this Agreement which by their terms extend beyond the termination
of this Agreement shall remain in effect until fulfilled.
NON-WAIVER:
The failure of either party to enforce at any time of the provisions of this
Agreement or to require any act of performance hereunder shall not be construed
a waiver of such provisions or right to performance nor in any way to affect the
validity of this Agreement or the right of either party to, thereafter, enforce
each and every provision or right to performance.
SAVINGS CLAUSE:
The invalidity of, or inability to enforce any particular provision of this
Agreement will not affect the other provisions of this Agreement, and this
Agreement will be construed in all respects as if any invalid or unenforceable
provision had been omitted.
-6-
<PAGE> 7
CAPTIONS:
The paragraph headings in this Agreement have been inserted for the purpose of
convenience and ready reference. They do not purport to and shall not be deemed
to define, limit or extend the scope or intent of the paragraph to which they
pertain.
ASSIGNMENT, HEIRS AND ASSIGNS:
Client may assign this Agreement and/or the rights granted under this Agreement
in connection with a sale, merger, or other disposition of its business,
provided that the successor agrees to be bound by all the terms and conditions
hereof.
ENTIRE AGREEMENT:
This Agreement, the Statement of Work, any appendices and referenced agreements,
embody the entire agreement of the parties with respect to the subject matter
contained herein. There are no promises, terms, conditions, or obligations other
than those contained herein. This Agreement supersedes all previous and
contemporaneous communications, representations or agreements, either verbal or
written, between the parties. It shall not be modified except by a written
agreement dated subsequent to the date of this Agreement and signed on behalf of
SGL and the Client by their respective duly authorized representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement.
THE SUTHERLAND GROUP, LTD.
By: /s/ JAMES H. ROHRER By: /s/ THOMAS A TOPOLINSKI
------------------------------- -------------------------------
Name: James H. Rohrer Name: Thomas A Topolinski
------------------------------ ------------------------------
Title: Customer Care Officer Title: Vice President
----------------------------- -----------------------------
Date: Oct. 8, 1999 Date: 10/28/99
------------------------------- -------------------------------
-7-
<PAGE> 8
STATEMENT OF WORK
-8-
<PAGE> 9
[TELOCITY LOGO]
InterChange DSL Help Desk
- --------------------------------------------------------------------------------
STATEMENT OF WORK
FOR THE
[TELOCITY LOGO]
INTERCHANGE DSL HELP DESK
BY
THE SUTHERLAND GROUP, LTD.
[LOGO] [LOGO]
September 10, 1999
# PTMEB0786
v1.2
/s/ [SIGNATURE ILLEGIBLE] /s/ JAMES H. ROHRER 9/16/99
- ------------------------------ ----------------------------------
The Sutherland Group, Ltd Date Telocity Date
- --------------------------------------------------------------------------------
Confidential Page 1 9/16/99
[LOGO] [LOGO]
<PAGE> 10
[TELOCITY LOGO]
InterChange DSL Help Desk
- --------------------------------------------------------------------------------
INTRODUCTION
This Statement of Work (SOW) describes the work and services that The Sutherland
Group, Ltd. (Sutherland) is prepared to perform for Telocity by creating and
maintaining Telocity's InterChange DSL Technical Support Center.
EXECUTIVE SUMMARY
Telocity is in the initial stages of rolling out the InterChange DSL system to
selected markets throughout the United States. The launch will initially target
consumers in the "NFL Cities" market. InterChange DSL consists of a "smart" DSL
modem allowing the end-user to self-install the product, eliminating the need
for onsite installation by technical personnel ("truck roll"). The system is
specifically aimed at the home consumer market; therefore, many end users of
the product will require live technical support as well as associated Pre-Sales
Customer Service.
DELIVERABLES
In the spirit of partnership, Sutherland suggests the following service options
to minimize support costs while still delivering superior service to Telocity
customers:
o Pre-Sales Customer Service will be provided from 7 a.m. to 7 p.m.
Eastern Time (7x12).
o Post-Sales Technical Support will be provided from 7 a.m. to 11 p.m.
Eastern Time (7x16).
o Customers will dial a toll-free phone number dedicated to Telocity.
The call will be picked up by the IVRU (Interactive Voice Response
Unit) and directed to the dedicated TSE (Technical Support Engineer)
o Sutherland will utilize Telocity's OSS software and Remedy to track
and monitor all calls received by the Help Desk.
o Average call duration is expected to be 5 minutes for Pre-Sales
Customer Service Calls.
o Average call duration is expected to be 10 minutes for Help Desk
Technical Support Calls.
o Sutherland will provide service utilizing 15 dedicated Technical
Support Engineer's (TSE's)
- --------------------------------------------------------------------------------
Confidential Page 2 9/16/99
[LOGO]
<PAGE> 11
[TELOCITY LOGO]
InterChange DSL Help Desk
- -------------------------------------------------------------------------------
o Telocity will provide Sutherland with a working copy of the latest version
of InterChange and all associated hardware and software on an ongoing
basis. Sutherland will institute a lab environment for the use of the
InterChange DSL system TSE's in order to emulate the user's regular
environment and attempt to duplicate the problems that are the subject of
the support calls. This allows the TSE's to become proficient in the use
and support of Interchange DSL.
Sutherland has the ability to add foreign language support as the need arises..
Sutherland currently provides international Help Desk support to a variety of
clients from our San Diego, CA, Rochester, NY, and Syracuse, NY support
centers. Support is provided in a variety of languages, including English,
German, French, Spanish, Portuguese, Japanese, and Chinese, among others.
SCOPE OF SERVICES
The Sutherland/Telocity Help Desk will provide InterChange DSL customers access
to a team of qualified information technology personnel. The following
functions will be delivered through the Pre-Sales and Post-Sales Support Help
Desk:
Post-Installation Support Help Desk Services to include:
o Interchange DSL Support
o Related application support (software necessary for using Interchange DSL)
o
o Tracking of all calls to final resolution (defined as a satisfied
customer).
o Reports detailing activities and service levels
o Escalation services
HOURS OF SERVICE
The Telocity Post-Installation Support Help Desk will be accessible 7 days per
week 16 hours per day (7 am to 11 p.m. Eastern Time). Access will be primarily
provided via telephone using a dedicated toll-free number. Access will be
additionally provided through E-mail and Fax.
- -------------------------------------------------------------------------------
Confidential Page 3 9/16/99
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[TELOCITY LOGO]
InterChange DSL Help Desk
- --------------------------------------------------------------------------------
Access to the Help Desks via IVRU (Interactive Voice Response Unit) can be
provided to implement menu choices and specialized routing based on input.
SERVICE LEVELS
Service levels will be monitored by Sutherland and are reported to Telocity for
performance evaluation. This information will be utilized to make adjustments
to the program for higher quality results. The following are representative
metrics and goals for this program, starting 90 days after program inception,
scheduled for October 15, 1999:
[*]
Service level metrics reviews and renegotiation can be requested by either
party at any time following the standard change control process.
STAFFING
All staff on the Help Desk will be highly skilled, experienced, professionals
who are career employees, not contractors, of The Sutherland Group, Ltd.
[*]
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
- --------------------------------------------------------------------------------
Confidential Page 4 9/16/99
[LOGO]
<PAGE> 13
[TELOCITY LOGO]
InterChange DSL Help Desk
- --------------------------------------------------------------------------------
[*]
DEDICATED MODEL
Sutherland normally utilizes a dedicated program model for staffing technical
support projects. No customer program "sharing" is designed into our employee
model except for carefully planned overflow scenarios (controlled at the ACD).
We manage our program teams as such and locate them in common areas. It is
common that the teams stay together for long periods and become "attached" to
the customer for whom they are providing support. Sutherland's employee model
includes a guideline for one year minimum on each assignment, whenever possible.
GREETING/REPRESENTATION
The Technical Support Engineers (TSE) will represent themselves at all times
over any communication mode as Telocity personnel and will not disclose or
allude to an outsourced arrangement. The greeting will be similar to: "Thank
you for calling the Telocity InterChange Help Desk. This is FIRST NAME, how may
I help you?"
DIFFERENTIATORS
Among the differences between Sutherland and our competition is our approach to
the design and management of our programs. From inception of the program to its
execution, Sutherland excels at providing the optimal solution for our clients'
needs. [*]
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
- --------------------------------------------------------------------------------
Confidential Page 5 9/16/99
[LOGO]
<PAGE> 14
[TELOCITY LOGO]
InterChange DSL Help Desk
- --------------------------------------------------------------------------------
[*]
SUTHERLAND'S TECHNICAL ENVIRONMENT
CALL PROCESSING ARCHITECTURE (TELEPHONY)
Sutherland's telecommunications environment includes a collection of hardware,
software, and firmware that enables our call centers to implement and manage
complex telephony operations efficiently and consistently. Sutherland's call
centers utilize [*]
NETWORK ARCHITECTURE AND MANAGEMENT
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
- -------------------------------------------------------------------------------
Confidential Page 6 9/16/99
[LOGO]
<PAGE> 15
[TELOCITY LOGO]
InterChange DSL Help Desk
- --------------------------------------------------------------------------------
Sutherland's Network Infrastructure is based on industry standard products and
tools used to establish both our corporate local and wide area networking
communications as well as our external connectivity to our clients and strategic
partners. [*]
CALL MANAGEMENT SYSTEM
Sutherland will use Telocity's OSS enrollment application and Remedy for call
management and problem resolution. All necessary hardware, software licenses,
and requisite training will be provided to Sutherland by Telocity.
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
- --------------------------------------------------------------------------------
Confidential Page 7 9/16/99
[LOGO]
<PAGE> 16
[TELOCITY LOGO]
InterChange DSL Help Desk
- -------------------------------------------------------------------------------
The following standard reports are available and are delivered weekly (or on an
as-needed basis) and are available via e-mail:
[*]
Other standard reports will be available depending upon the capabilities of the
OSS application and Remedy AR. These reports will be developed jointly by
Telocity and Sutherland during the detailed requirements definitions phase.
Additional reporting requirements for Telocity will be determined during
program start up. Ad-hoc reports are available at an additional charge.
IMPLEMENTATION PLAN
Sutherland's implementation approach typically spans [*] days from initiation
to transition of calls to the Help Desk at Sutherland. The following describe
the primary activities associated with program setup.
KICKOFF MEETING
As soon as possible following final contract negotiations, a kickoff meeting
will be held to ensure clear understanding of the program objectives and
methods by both parties. The implementation plan developed by the Sutherland
team will be reviewed at that time, as will timetables for subsequent meetings
between Telocity and Sutherland.
PERSONNEL HIRING AND STAFFING
By virtue of our long term growth and experience in setting up information
technology centers, Sutherland has become extremely adept at staffing the
appropriate people for the task at hand. Selection of employees for specific
programs is based [*]. Sutherland has established thorough and rigid hiring
practices to ensure the proper selection of our support engineers.
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
- -------------------------------------------------------------------------------
Confidential Page 8 9/16/99
[LOGO]
<PAGE> 17
[TELOCITY LOGO]
InterChange DSL Help Desk
- --------------------------------------------------------------------------------
DETAILED REQUIREMENTS DEFINITION
This effort will ensure that the program design and operations meet Telocity's
expectations and integrates seamlessly with existing operations. Tasks include
[*]
PHONE/ACD SETUP
The setup of the phone system and ACD is critical to the success of the program
and includes assignment of extensions for the Telocity/Sutherland team, setup
of the inbound call queue, custom call routing design and setup, call
accounting codes setup, voice-mail, and testing of all components.
CALL FLOW PROCESSES
[*]
TRAINING
Training the Telocity/Sutherland team includes thorough understanding of
[*]
MONITORING AND REMOTE MONITORING
In accordance with our ISO 9002 certification all employees are monitored
regularly by their supervisors. [*]
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
- --------------------------------------------------------------------------------
Confidential Page 9 9/16/99
[LOGO]
<PAGE> 18
[TELOCITY LOGO]
InterChange DSL Help Desk
- --------------------------------------------------------------------------------
REPRESENTATION
Sutherland has the permission to use Telocity's name when answering the phone
on their behalf. Representation does not grant Sutherland the right to
represent Telocity beyond answering the phone or responding by e-mail or
letter. Sutherland does not have the right to make arrangements, commitments,
or promises on Telocity's behalf.
TERMINATION
Either party may cancel this agreement with 90 days written notice of
termination to the other party.
PROGRAM MANAGERS
Sutherland will assign a Program Manager for this program to be the main
contact for Telocity. The Program Manager's goal is to ensure that all
deliverables are met for Telocity. Telocity will assign a Program Manager who
will be the primary contact for setup and implementation for Sutherland. All
changes to this SOW or any other agreements must be approved in writing by each
Program Manager.
CHANGE CONTROL PROCESS
The Sutherland Program Manager and Telocity Program Manager must agree upon any
changes to this Statement of Work in writing. All written requests for changes
must be responded to in writing within 5 business days.
- --------------------------------------------------------------------------------
Confidential Page 12 9/16/99
[LOGO]
<PAGE> 19
[THE SUTHERLAND GROUP LID. LOGO]
October 18, 1999
Mr. James Rohrer
Vice President & Customer Care Officer Telocity, Inc.
10355 N. De Anza Blvd.
Cupertino, CA 95014-2027
Dear Jim:
This letter will outline some of the changes/additions to the
Telocity/Sutherland partnership.
1.) Program Headcount Pricing:
Any additions to program headcount will be invoiced to Telocity,
effective the month in which they are added to the program, at the
effective rate of Six Thousand ($6000) dollars per support
representative. If representatives are added during the month, the
associated fee will be prorated over the remainder of that month, on a
full week basis, at the prevailing rates.
2.) Program Expansion:
Effective October 25, 1999, SGL will add, at your request, an
additional five (5) headcount to the existing Telocity inbound
technical support center. These individuals will be added at our San
Diego facility. This will bring the program headcount to twenty (20)
support representatives.
3.) Headcount Reduction:
According the Terms and Condition of the Telocity/SGL contract, we
require 30 days notice to increase the size of the program. Should it
be necessary to reduce the size of the program, outside of a formal
termination notice, SGL will require 30 days notice for this process as
well. However, in both instances, we will add/delete headcount as
quickly as possible to meet your schedules.
These changes, except for the addition of personnel, will be documented as an
addendum to the original Statement Of Work. The addition of personnel will only
require written permission to add them, as outlined in this letter.
Jim, I hope this additional information is helpful to you. SGL is very excited
about this program, and the ensuing relationship. We will do everything
necessary to ensure the success of it as well as your company.
Please indicate your acceptance of these terms below.
Sincerely,
Thomas J. McGrath
Director, Business Development
<PAGE> 20
I have read, and agree with, the terms and conditions, as outlined above
/s/ JIM ROHRER 10/19/99
- ----------------------- ----------------------
Jim Rohrer, Customer Care Officer Date
<PAGE> 21
[THE SUTHERLAND GROUP LID. LOGO]
October 18, 1999
Mr. James Rohrer
Vice President & Customer Care Officer
Telocity
10355 N. De Anza Blvd.
Cupertino, CA 95014-2027
Dear Jim:
This will outline our understanding, and the subsequent pricing, for the call
flow routing you have requested between SGL and your customer care vendor.
To review, all calls to the 1-888-SPEED49 Telocity branded toll free number will
come into an AT&T central cloud where they will be routed, based on customer
selection, to the appropriate location. The customers will hear the IVR greeting
saying "press 1 for sales.. press 2 for tech support.. etc." then make their
choice. All calls for pre-sales support, sales or customer service will be
routed through the cloud to your customer care vendor. All calls for technical
support will be routed to SGL.
The costs involved include a combination of the number of calls AND the average
amount of time they listen to this greeting before making their choice. Again,
these costs below include the switching technology only, and do not include any
of the actual usage charges on the lines themselves.
The pricing plan formula will be as follows:
(Number of Inbound calls x $0.12 per call) (+) (Number of Inbound calls
x Average Greeting Play Time (in min) x $0.10).
Jim, if you are in agreement with this, please indicate your acceptance of these
terms below.
Sincerely,
Thomas J. McGrath
Director, Business Development
I have read, and agree with, the terms and conditions, as outlined above
/s/ JIM ROHRER 10/19/99
- ----------------------- ----------------------
Jim Rohrer, Customer Care Officer Date
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
Telocity, Inc. (the "Company") and Patricia Manuel ("Manuel") as of May 5, 1999
(the "Effective Date").
1. Position and Duties: Manuel shall be employed by the Company as its
President and Chief Executive Officer ("CEO"), reporting only to the Company's
Board of Directors (the "Board") effective as of Michael Solomon's resignation
which the Company expects to occur no later than July 22, 1999. As its President
and CEO, Manuel agrees to devote her full business time, energy and skill to her
duties at the Company. These duties shall include all those duties customarily
performed by the President and CEO, as well as those duties that may be assigned
by the Board from time to time. In addition, the Company will undertake its best
efforts to have its shareholders approve the nomination and election of Manuel
to the Board, which approval the Company anticipates will occur.
As a member of the Company's Board, Manuel shall be subject to the
provisions of the Company's bylaws and all applicable general corporation laws
relative to her position on the Board. In addition to the Company's bylaws, as a
member of the Board, Manuel shall also be subject to the statement of powers,
both specific and general, as set forth in the Company's Articles of
Incorporation.
2. Term of Employment: Manuel's employment with the Company will be for
no specified term, and may be terminated by Manuel or the Company at any time,
with or without cause. Upon the termination of Manuel's employment with the
Company, for any reason, neither Manuel nor the Company shall have any further
obligation or liability under this Employment Agreement to the other, except as
set forth in paragraphs 4, 5, 6, 7, 8 and 9, below.
3 . Compensation: Manuel shall be compensated by the Company for her
services as follows:
(a) Base Salary: As Chief Executive Officer, Manuel shall be paid
a monthly Base Salary of $25,000 per month ($300,000 on an annualized basis),
subject to applicable withholding, in accordance with the Company's normal
payroll procedures. Manuel's salary shall be reviewed on at least an annual
basis and may be modified as appropriate. In the event of such a modification,
the new amount shall become Manuel's Base Salary.
(b) Benefits: Manuel shall have the right, on the same basis as
other members of senior management of the Company, to participate in and to
receive benefits under any of the Company's employee benefit plans, as such
plans may be modified from time to time. In addition, Manuel shall be entitled
to the benefits afforded to other members of senior management under the
Company's vacation, holiday and business expense reimbursement policies.
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<PAGE> 2
(c) Bonuses: Manuel shall be entitled to the following bonuses:
(i) Signing Bonus: Within ninety (90) business days of the
Effective Date, the Company will pay Manuel a signing bonus in the total amount
of $150,000, less applicable withholding. In the event that Manuel voluntarily
resigns from her employment during the first year following the Effective Date,
Manuel agrees that she shall repay a pro-rata share of the signing bonus based
on the time remaining in the first year of service.
(ii) Guaranteed Bonus: At the conclusion of her first year
of service as CEO of the Company, Manuel shall receive a bonus in the total
amount of $100,000, less applicable withholding. The bonus payment shall be made
in accordance with the Company's normal payroll procedures for bonuses.
(iii) Performance Bonus: At the conclusion of her second
year of service as CEO of the Company, and each year of employment thereafter,
Manuel shall have the opportunity to earn a Performance Bonus that will be
payable in accordance with the Company's Performance Bonus Plan, as such plan
may be adopted and modified over time. (Manuel is expected to prepare and
present a form of Performance Bonus Plan for review and approval by the Board
and it is expected that such Performance Bonus Plan will set the minimum target
bonus at fifty percent (50%) of Manuel's then current base salary for the
achievement of minimum objectives approved by the Board). This Performance Bonus
shall be based upon the achievement of certain fiscal and performance-based
objectives as agreed to by Manuel and the Board and such payment to be made in
accordance with the Company's normal payroll procedures for bonuses. All bonus
payments made pursuant to this subsection are subject to the approval of the
Board.
(d) Attorneys' Fees In Negotiating Agreement: The Company
shall reimburse Manuel for all reasonable attorneys fees she incurs in the
review and negotiation of this Employment Agreement up to a maximum of $5000.
4. Stock Options: Manuel shall be granted the option to purchase
1,613,137 shares of the Common Stock of the Company, which represents seven
percent (7%) of the Company's fully-diluted, as converted equity, at an exercise
price per share equal to the fair market value of a share of Common Stock of the
Company on the date of grant as determined by the Board in its sole discretion.
To the extent possible, such Option will be an incentive stock option. The
Company currently anticipates (but does not guaranty) that the fair market value
of the Common Stock of the Company on the date of grant shall be $.70 per share.
Manuel's options shall vest monthly at the rate of 1/48 per month. Upon the
termination of Manuel's employment in accordance with the provisions of
paragraph 6(b), below, the options shall vest as described in those paragraphs.
Except as provided in paragraph 6(b), below, Manuel's options shall be subject
to the terms of the Company's Stock Option Plan, a copy of which is attached
hereto as Exhibit A, and the standard option agreement provided pursuant to the
plan. Manuel will be permitted to exercise the option in full prior to vesting
in the underlying shares, subject to the
2
<PAGE> 3
Company's right to repurchase any unvested shares at Manuel's original cost upon
her termination of employment. In addition, the Company shall permit Manuel to
pay the option exercise price with a full recourse loan (secured by the shares
acquired with the loan) at the lowest interest rate available to avoid the
imposition of imputed income under the tax laws to assist Manuel to exercise her
options. Such loan shall be repayable upon the earlier of: (i) the fifth year
anniversary of the Effective Date; (ii) the termination of Manuel's employment
for any reason; or (iii) the date twelve (12) months after Manuel is first
eligible to sell shares of the Company's stock that she holds following an
initial public offering of the Company's shares; provided, however, that in the
event of Manuel's Termination Without Cause, such loan shall be repayable upon
the earlier of the events stated in clauses (i) or (iii) immediately preceding.
For purposes of the resale of the underlying shares under the Option,
the Company covenants to use its good faith efforts to make available Rule 701
under the Securities Act of 1933, as amended (the "Securities Act"), or to
register the shares on Form S-1 or S-3 under the Securities Act (in the case
where the Company registers shares for its own account or for others holding
registration rights) or on Form S-8 under the Securities Act.
The agreement for the Options shall contain the following additional
provisions: (i) in the event that Manuel resigns from her position for "Good
Reason" (as defined below) within twelve (12) months following a Change of
Control of the Company (as also defined below), one half of the unvested shares
subject to the Options, or any other option grants made to Manuel, shall become
vested immediately prior to Manuel's resignation. For purposes of this
Employment Agreement, a "Change of Control" shall mean an "Ownership Change
Event" (as defined below) or a series of related Ownership Change Events
(collectively, the "Transaction") wherein the stockholders of the Company
immediately before the Transaction do not retain immediately after the
Transaction direct or indirect beneficial ownership of more than fifty percent
(50%) of the total combined voting power of the outstanding voting stock of the
Company or the corporation or corporations to which the assets of the Company
were transferred (the "Transferee Corporation(s)"), as the case may be. For
purposes of the preceding sentence, indirect beneficial ownership shall include,
without limitation, an interest resulting from ownership of the voting stock of
one or more corporations which, as a result of the Transaction, own the Company
or the Transferee Corporation(s), as the case may be, either directly or through
one or more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
For purposes of this Employment Agreement, an "Ownership Change Event"
shall be deemed to have occurred if any of the following occurs with respect to
the Company:
(1) the direct or indirect sale or exchange in a single or
series of related transactions by the stockholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(2) a merger or consolidation in which the Company is a
party;
3
<PAGE> 4
(3) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(4) a liquidation or dissolution of the Company.
For purposes of this Employment Agreement, "Good Reason" means any of
the following conditions, which condition(s) remain(s) in effect 15 days after
written notice to the Board from Manuel of such condition(s):
(1) a decrease in Manuel's Base Salary and/or a material
decrease in Manuel's Performance Bonus Plan or employee benefits;
(2) a material, adverse change in Manuel's title,
authority, responsibilities or duties, as measured against Manuel's title,
authority, responsibilities or duties immediately prior to such change;
(3) the relocation of Manuel's work place to a location
outside the San Francisco Bay Area (i.e., Marin County, Contra Costa County,
Alameda County, San Francisco County, San Joaquin County, San Mateo County or
Santa Clara County);
(4) any material breach by the Company of any provision of
this Employment Agreement, which breach is not cured within thirty (30) days
following written notice of such breach from Manuel; or
(5) any failure of the Company to obtain the assumption of
this Employment Agreement by any successor or assign of the Company.
5 . Benefits Upon Termination: In the event of Manuel's voluntary
termination from employment with the Company, or in the event that Manuel's
employment terminates as a result of her death or continued disability for
ninety (90) days ("disability" defined as the inability to perform the essential
functions of Manuel's position), Manuel shall be entitled to no compensation or
benefits from the Company other than those earned under paragraph 3 above
through the date of her termination or in the case of any stock options, vested
through the date of her termination. In the event that Manuel voluntarily
resigns from her employment with the Company she shall simultaneously resign
from any position she holds on the Company's Board.
6. Benefits Upon Other Termination. Manuel agrees that her employment
may be terminated by the Company at any time, with or without cause. In the
event of the termination of Manuel's employment by the Company for the reasons
set forth below, she shall be entitled to the following:
(a) Termination for Cause: If Manuel's employment is terminated
by the Company for "Cause" as defined below, Manuel shall be entitled to no
compensation or benefits from the Company other than those earned under
paragraph 3, or in the case of any stock options, vested through the date of her
termination.
4
<PAGE> 5
For purposes of this Employment Agreement, a termination for "Cause"
occurs if Manuel is terminated for any of the following reasons:
(1) theft, dishonesty, or falsification of any employment
or Company records;
(2) conviction of a felony or any act involving moral
turpitude;
(3) Manuel's refusal to perform any reasonable, assigned
duties after written notice from the Company of, and a reasonable opportunity to
correct, such refusal;
(4) improper disclosure of the Company's confidential or
proprietary information;
(5) any intentional act by Manuel that has a material
detrimental effect on the Company's reputation or business; or
(6) any material breach of this Employment Agreement,
which breach, if curable, is not cured within thirty (30) days following written
notice of such breach from the Company.
(b) Termination Without Cause: If Manuel's employment is
terminated by the Company for any reason other than for Cause, it shall be
deemed a "Termination Without Cause." In such case, Manuel shall be entitled to
the following separation benefits:
(i) in the event that: (i) Manuel's employment is
terminated prior to the closing date of an initial public offering of the common
stock of the Company; and (ii) such termination is effective during the first
year following the Effective Date, Manuel shall be entitled to receive the
greater of:
(A)
(1) all accrued compensation and benefits earned
through the date of termination;
(2) continued payment of Manuel's salary at her Base
Salary rate, less applicable withholding, for six (6) months following her
termination;
(3) payment of the Guaranteed Bonus described above;
and
(4) additional vesting in the Options described in
paragraph 4, above, or any other options granted to Manuel by the Board as if
Manuel continued to vest in the options for an additional six months; or
5
<PAGE> 6
(B)
(1) all accrued compensation and benefits earned
through the date of termination;
(2) continued payment of the Base Salary as provided
in paragraph 3(a) until the one year anniversary of the Effective Date;
(3) payment of the Guaranteed Bonus described in
paragraph 3(c)(ii), above, on the one year anniversary of the Effective Date;
and
(4) continued vesting in the Options described in
paragraph 4, above, and any other options granted to Manuel by the Board until
the one year anniversary of the Effective Date.
(ii) in the event that: (i) Manuel's employment is
terminated prior to the closing date of an initial public offering of the common
stock of the Company; and (ii) such termination is effective following the one
year anniversary of the Effective Date, Manuel shall receive:
(A) all accrued compensation and benefits earned through
the date of termination;
(B) continued payment of Manuel's salary at her Base
Salary rate, less applicable withholding, for six (6) months following her
termination;
(C) a pro rata portion of Manuel's target Performance
Bonus for the year in which the termination occurs; and
(D) an additional six (6) months vesting in the Options
described in paragraph 4, above and any other options granted to Manuel by the
Board.
(iii) in the event that Manuel's employment is terminated
on or following the closing date of an initial public offering of the common
stock of the Company, Manuel shall receive:
(A) all accrued compensation and benefits earned
through the date of termination;
(B) continued payment of Manuel's salary at her Base
Salary rate, less applicable withholding, for twelve (12) months following her
termination;
(C) a pro rata portion of Manuel's target Performance
Bonus for the year in which the termination occurs; and
6
<PAGE> 7
(D) an additional twelve (12) months' vesting in the
Options described in paragraph 4, above and any other options granted to Manuel
by the Board.
(iv) in the event that Manuel's employment is terminated
by the Company or she voluntarily resigns from the Company for Good Reason
within sixty (60) days prior to or twelve (12) months following a Change of
Control, Manuel shall receive in a lump sum:
(A) a severance payment equal to (1) twelve (12)
months salary at her then current Base Salary Rate and (2) her target annual
Performance Bonus for the term in which her employment terminated;
(B) continued benefits for up to twelve (12) months
following termination; and
(C) accelerated vesting as described in Paragraph 4.
7. Employee Inventions and Proprietary Rights Assignment Agreement:
Manuel agrees to abide by the terms and conditions of the Company's standard
Employee Inventions and Proprietary Rights Assignment Agreement.
8. Non-Solicitation: Manuel agrees that for a period of one year after
the date of the termination of her employment for any reason, she shall not,
either directly or indirectly: (i) solicit the services, or attempt to solicit
the services, of any employee of the Company to any other person or entity; or
(ii) solicit or otherwise encourage any customer, supplier or other business
contact of the Company to withdraw, curtail or cancel their business with the
Company.
9. Indemnification: The Company agrees to make Manuel a party to its
standard form of indemnification agreement as signed by the Company's other
officers and directors.
10. Dispute Resolution: In the event of any dispute or claim relating to
or arising out of this Employment Agreement (including, but not limited to, any
claims of breach of contract, wrongful termination or age, sex, race or other
discrimination), Manuel and the Company agree that all such disputes shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in San Francisco, California in accordance with its
National Employment Dispute Resolution rules, as those rules are currently in
effect (and not as they may be modified in the future). Manuel acknowledges that
by accepting this arbitration provision she is waiving any right to a jury trial
in the event of such dispute. Provided, however, that this arbitration provision
shall not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of trade secrets or proprietary information.
11. Attorneys' Fees: The prevailing party shall be entitled to recover
from the losing party its attorneys' fees and costs incurred in any action
brought to enforce any right arising out of this Employment Agreement.
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<PAGE> 8
12. Interpretation: Manuel and the Company agree that this Employment
Agreement shall be interpreted in accordance with and governed by the laws of
the State of California.
13. Successors and Assigns: This Employment Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns. In
view of the personal nature of the services to be performed under this
Employment Agreement by Manuel, she shall not have the right to assign or
transfer any of her rights, obligations or benefits under this Employment
Agreement, except as otherwise noted herein.
14. Entire Agreement: This Employment Agreement constitutes the entire
employment agreement between Manuel and the Company regarding the terms and
conditions of her employment, with the exception of (i) the agreement described
in paragraph 7 and (ii) any stock option agreements between Manuel and the
Company. To the extent that there is any inconsistency between this Employment
Agreement and any other agreement between Manuel and the Company, the terms of
this Employment Agreement will govern. This Employment Agreement (including the
documents described in (i) and (ii) herein) supersedes all prior negotiations,
representations or agreements between Manuel and the Company, whether written or
oral, concerning Manuel's employment by the Company.
15. Validity: If any one or more of the provisions (or any part thereof)
of this Employment Agreement shall be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
16. Modification: This Employment Agreement may only be modified or
amended by a supplemental written agreement signed by Manuel and the Company.
17. Counterparts: This Employment Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
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<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date and year written below.
TELOCITY, INC.
Date: April 30, 1999 By: Illegible
---------------------------- -----------------------------
Its: Director
----------------------------
Date:
---------------------------- --------------------------------
Patricia Manuel
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date and year written below.
TELOCITY, INC.
Date: By:
---------------------------- -----------------------------
Its:
----------------------------
Date: 5-5-99 /s/ PATRICIA MANUEL
---------------------------- --------------------------------
Patricia Manuel
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
MachOne Communications, Inc. ("Company") and Peter Olson ("Employee") effective
as of January 1, 1998.
I. Recitals.
A. MachOne's predecessor began business on April 15, 1997 as
FastBit Communications and changed its name to MachOne Communications on
April 15, 1997. MachOne Communications, Inc. was incorporated on August
18, 1997 (the foregoing businesses referred to herein, collectively, as
the "Company").
B. Company began employing Employee as its President & CEO
beginning on May 15, 1997. As of July 7, 1998, Employee's position
changed to the position as set forth below.
NOW, THEREFORE, the foregoing is incorporated herein by reference and,
in exchange for the mutual covenants contained below, the parties agree as
follows:
II. Definitions.
A. "COMMENCEMENT DATE" shall mean April 15, 1997.
B. "GOOD REASON" shall mean any of the following conditions: (i) a
decrease in Employee's base salary and/or bonus compensation; (ii) a material,
adverse change in Employee's title, authority, responsibilities or duties; (iii)
Company's relocation of the principal place of Employee's employment more than
fifty (50) miles; (iv) Company's material breach of any provision of this
Agreement; (v) Company's failure to obtain the assumption of this Agreement by
Company's successor or assign; (vi) Company's failure to continue Employee's
opportunity to participate, on the same or more favorable terms, in benefit or
compensation programs in which Employee was participating; or (vii) any
purported termination of Employee's employment for "material breach of contract"
which is not effected following a written notice and reasonable opportunity to
cure.
C. Termination for "CAUSE" shall mean: (i) Employee's theft, dishonesty,
or falsification of any Company documents or records; (ii) Employee's improper
use or disclosure of
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a materially detrimental effect on Company's reputation or business; (iv)
Employee's failure to perform any reasonable assigned duties after written
notice from Company and a reasonable opportunity to cure; or (v) any uncured
material breach by Employee of any written agreement between Employee and
Company.
III. Position.
Employee shall be employed by MachOne as its Chief Technical Officer
reporting only to the President, effective as of the Commencement Date. In that
position, Employee agrees to devote his full business time, energy and skill to
his duties at MachOne. Employee and MachOne agree that he will perform such
duties at MachOne's principal place of business, which shall be 992 South De
Anza Blvd., San Jose, CA 95129.
IV. Term.
Employee's employment with MachOne will be for no specified term and may
be terminated by MachOne or Employee at any time, with or without cause. Upon
the termination of Employee's employment with MachOne for any reason, neither
MachOne nor Employee shall have any further obligation or liability under this
Agreement to the other, except as set forth in paragraphs V, VI, VII, IX and X,
below.
V. Base Salary.
In the position as outlines above, Employee shall be paid a monthly Base
Salary of $15,000 per month ($180,000 on an annualized basis), subject to
applicable withholding, in accordance with MachOne's normal payroll procedures.
VI. Benefits.
Employee shall be entitled to the benefits afforded to other members of
the Company's executive management under the Company's vacation, holiday and
business expense reimbursement policies. Employee shall be entitled to the
medical and dental benefits provided to other employees of MachOne.
A. Benefits Upon Voluntary Termination: In the event of Employee's
voluntary termination from employment with Company, or in the event that
Employee's employment terminates as a result of his death, Employee shall be
entitled to no compensation or benefits from Company other than those earned
through the date of such termination or in the case of any stock options, vested
through the date of such termination (except as specifically set forth otherwise
in provisions below).
B. Benefits Upon Other Termination. In the event of the termination of
Employee's employment by MachOne for the reasons set forth below, he shall be
entitled to the following:
1. Termination for Cause. If Employee's employment is terminated
by MachOne for Cause, Employee shall be entitled to no compensation or
benefits, from MachOne other than those earned under through the date of
termination (which shall
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include bonuses for the fiscal year then in progress determined on a pro
rated basis), or in the case of any stock options, vested through the
date of termination.
2. Termination Without Cause. If Employee is terminated by
Company for any reason other than for Cause (or resigns for Good
Reason), Employee shall be entitled to all accrued compensation
(including pro-rated bonuses), salary and benefits for three months
following termination, plus continued vesting of the Shares for a period
of six (6) months.
C. Vesting Upon Death or Disability. If Employee's employment ceases as
a result of death or disability, as of the date of such termination the Shares
that have vested (the "Vested Percentage") at the time of such cessation shall
then be multiplied by a factor of two (2) (but in no case shall the Vested
Percentage exceed 100%).
VII. Bonus.
Employee shall have the opportunity to earn an annual Performance Bonus
for each fiscal year, beginning with fiscal year 1998. This Performance Bonus
shall be based 75% upon the Company's achievement of the fiscal goals it
establishes as the Company's threshold for executive level employee bonuses (the
"Company Objectives"), and 25% based on performance objectives specifically
related to Employee's areas of responsibility (the "Performance Objectives").
The Company Objectives and the Performance Objectives (together, the
"Objectives") shall be determined in good faith and set forth on Exhibit A. For
subsequent fiscal years, the Company Objectives shall be the fiscal goals that
the Company establishes as the threshold for executive level employee bonuses.
The Performance Objectives and the Target Bonus shall be negotiated annually in
good faith by the parties during the fourth quarter of each fiscal year for the
upcoming fiscal year.
VIII. Inventions and Proprietary Rights.
Employee agrees to abide by the terms and conditions of MachOne's
standard Employee Inventions and Proprietary Rights Assignment Agreement as
executed by Employee and attached hereto as Exhibit A.
IX. Agreement Not to Compete Unfairly.
Employee agrees that in the event of his termination at any time and for
any reason, he shall not compete with MachOne in any unfair manner, including,
without limitation, using any confidential or proprietary information of MachOne
to compete with MachOne in any way. Employee agrees that for a period of one (1)
year after the date of the termination of his employment for any reason, he
shall not, either directly or indirectly, solicit the services, or attempt to
solicit the services, of any employee of MachOne to any other person or entity.
X. General Provisions.
A. Dispute Resolution: In the event of any dispute or claim relating to
or arising out of this Agreement (including, but not limited to, any claims of
breach of contract, wrongful termination or age, sex, race or other
discrimination), Employee and MachOne agree that all
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such disputes shall be fully and finally resolved by binding arbitration
conducted by the American Arbitration Association in Santa Clara County,
California in accordance with its National Employment Dispute Resolution rules,
as those rules are currently in effect (and not as they may be modified in the
future). Employee acknowledges that by accepting this arbitration provision he
is waiving any right to a jury trial in the event of such dispute. Provided,
however, that this arbitration provision shall not apply to any disputes or
claims relating to or arising out of the misuse or misappropriation of trade
secrets or proprietary information.
B. Attorneys' Fees: The prevailing party shall be entitled to recover
from the losing party its attorneys' fees and costs incurred in any action
brought to enforce any right arising out of this Agreement.
C. Interpretation: Employee and MachOne agree that this Agreement shall
be interpreted in accordance with and governed by the laws of the State of
California.
D. Successors and Assigns: This Agreement shall inure to the benefit of
and be binding upon MachOne and its successors and assigns. In view of the
personal nature of the services to be performed under this Agreement by
Employee, he shall not have the right to assign or transfer any of his rights,
obligations or benefits under this Agreement, except as otherwise noted herein.
E. Entire Agreement: This Agreement constitutes the entire employment
agreement between Employee and Company regarding the terms and conditions of his
employment, with the exception of (i) the Employee Inventions and Proprietary
Rights Assignment Agreement described in paragraph VII and (ii) any Founders'
Stock Purchase Agreement between Employee and Company. This Agreement supersedes
all prior negotiations, representations or agreements between Employee and
Company, whether written or oral, concerning Employee's employment by Company.
F. Validity: If any one or more of the provisions (or any part thereof)
of this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
(or any part thereof) shall not in any way be affected or impaired thereby,
while giving the greatest possible effect to the parties' intent and the
exchange of consideration set forth in the Agreement.
G. Modification: This Agreement may only be modified or amended by a
supplemental written agreement signed by Employee and MachOne.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
MachOne Communications, Inc.
Date: By: /s/ AUTHORIZED SIGNATORY
----------------------- ----------------------------
Its: Authorized Officer
---------------------------
EMPLOYEE
Date: 7/8/98 Signature: /s/ PETER D. OLSON
---------------------
Printed Name: Peter D. Olson
------------------
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EXHIBIT 10.14
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
Telocity, Inc. (the "Company") and Jim Morrissey ("Mr. Morrissey) on September
14, 1999.
1. Position and Duties: Mr. Morrissey shall be employed by the Company
as its Executive Vice President and Chief Marketing Officer, reporting only to
the Company's Chief Executive Officer (the "CEO") beginning no later than
October 1, 1999 (the "Effective Date"). Mr. Morrissey agrees to devote his full
business time, energy and skill to his duties at the Company. These duties shall
include all those duties customarily performed by the Chief Marketing Officer,
including but not limited to advertising, public relations, promotional
activities, Internet presence, corporate communications, product marketing and
packaging, market targeting, and market segmentation, as well as those duties
that may be assigned by the CEO from time to time. Mr. Morrissey shall be
responsible for retaining and terminating, as necessary, all outside support for
the Company's marketing operations including, but not limited to, advertising,
sales promotion, media buying and public relations agencies, as well as website
design, product packaging design, and market research firms.
2. Term of Employment: Mr. Morrissey's employment with the Company will
be for no specified term, and may be terminated by Mr. Morrissey or the Company
at any time, for any reason, with or without cause, and neither Mr. Morrissey
nor the Company shall have any further obligation or liability whatsoever under
this Employment Agreement to the other, except as may be specifically set forth
herein,
3. Compensation: Mr. Morrissey shall be compensated by the Company for
his services as follows:
A. Base Salary: Mr. Morrissey shall be paid a monthly Base Salary
of $22,917 per month ($275,000 on an annualized basis), subject to applicable
withholding, in accordance with the Company's normal payroll procedures. Mr.
Morrissey's salary shall be reviewed on at least an annual basis and may be
increased as appropriate. In the event of such an increase, the new amount shall
become Mr. Morrissey's Base Salary.
B. Benefits: Mr. Morrissey shall have the right, on the same
basis as other members of the Company's senior management, to participate in and
to receive benefits under any of the Company's employee benefit plans, as such
plans may be modified from time to time. By way of description and not
limitation, Mr. Morrissey shall be entitled to the benefits afforded to other
members of senior management under the Company's Bonus Program, which shall be
defined within sixty (60) days of the Effective Date, and its vacation, holiday
and business expense reimbursement policies. Mr. Morrissey shall also be
entitled to participate in the same option increase evaluation process, if any,
afforded to other members of senior management at such time as such process may
be undertaken.
C. "Gross-Up Payments": In the event that Mr. Morrissey becomes
entitled to receive a payment pursuant to this Agreement (a "Payment"), and is
entitled to a Gross-Up for
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such Payment pursuant to a specific provision of this Agreement, then no later
than the fifth day following the date (the "Payment Date") on which Mr.
Morrissey becomes entitled to receive such Payment, the Company shall pay to Mr.
Morrissey additional amounts (the "Gross-Up Payments") such that the net amount
retained by Mr. Morrissey, after deduction of any Excise Tax (within the meaning
of Section 4999 of the Internal Revenue Code, the "Code"), or federal, state or
local income tax on the aggregate Payments received (or that Mr. Morrissey has
become entitled to receive) as of the Payment Date plus any federal, state or
local income tax and any Excise Tax upon the Gross-Up Payments (after taking
into account all Gross-Up Payments previously made), shall be equal to the
amount Mr. Morrissey is entitled to receive under the definition of such
Payment. For the purposes of determining whether any Payment will be subject to
Excise Tax and the amount of such Excise Tax, (i) all amounts received or to be
received by Mr. Morrissey in connection with a Change of Control (as defined in
Section 9A(i), below) shall be treated as "parachute payments" within the
meaning of Section 28OG(b)(2) of the Code, and all excess "parachute payments"
within the meaning of Section 28OG(b)(1) of the Code shall be treated as subject
to the Excise Tax, except to the extent that in the written opinion of
independent tax counsel selected by the Company's independent auditors (the "Tax
Counsel") which opinion shall be obtained at the Company's expense, any such
payments or benefits (in whole or in part) do not constitute parachute payments
or excess parachute payments (in whole or in part), or represent reasonable
compensation for personal services to be rendered or actually rendered before
the Change of Control in excess of the base amount, within the meaning of
Section 280(b)(4)(B) of the Code; and (ii) the value of any non-cash benefit or
any deferred cash payment included in the Payments shall be determined by the
Company's independent auditors in accordance with the principles of Section
28OG(d)(3) and (4) of the Code. For purposes of determining the amount of each
Gross-Up Payment, Mr. Morrissey shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in effect during the
calendar year in which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in effect in the state and
locality of Mr. Morrissey's residence on the date of payment, net of the maximum
reduction in federal income taxes that could be obtained from deduction of such
state and local taxes, but assuming that Mr. Morrissey has no other deductions
or credits available to reduce such taxes.
D. Bonuses: In addition to the Company's Bonus Program, Mr.
Morrissey shall be entitled to the following additional bonuses:
i. Signing Bonus: Within thirty (30) days of the Effective Date,
the Company will pay Mr. Morrissey a signing bonus in the total
amount of $150,000, less applicable withholding. In the event
that Mr. Morrissey voluntarily resigns from his employment other
than for Good Reason during the first year following the
Effective Date, Mr. Morrissey agrees that he shall repay a
pro-rata share of the signing bonus based on the time remaining
in the first year of service.
ii. January 1, 2000 Conditional Bonus: On January 1, 2000,
provided that certain agreed to objectives have been met and Mr.
Morrissey shall have been continuously employed full time with
the Company since the Effective Date, he shall be entitled to a
bonus in the total amount of $150,000, less applicable
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withholding. Within sixty (60) days of the Effective Date, Mr.
Morrissey shall prepare and present to the CEO, for review, a
performance bonus plan specifically for the bonus described in
this subsection. The CEO and Mr. Morrissey shall then set forth
in writing a description of the mutually agreed upon objectives
for the bonus.
iii. Conditional Bonus at Initial Public Offering or Acquisition:
Provided that Mr. Morrissey shall have been continuously employed
full time with the Company since the Effective Date and that
certain agreed to objectives have been met, upon an initial
public offering of the Company's securities, or an acquisition of
the Company as set forth in Section 9A(i) of the Agreement, Mr.
Morrissey shall be entitled a bonus in the total amount of
$150,000, less applicable withholding. Within sixty (60) days of
the Effective Date, Mr. Morrissey shall prepare and present to
the CEO, for review, a performance bonus plan specifically for
the bonus described in this subsection. The CEO and Mr. Morrissey
shall then set forth in writing a description of the mutually
agreed upon objectives for the bonus.
4. Stock Options: Mr. Morrissey shall be granted the option to purchase
400,000 shares of the Company's Common Stock (the "Stock Options"), at an
exercise price per share equal to the fair market value of the Company's Common
Stock on the date of grant as determined by the Board in its sole discretion.
Such grant and determination shall be made no later than five (5) days after the
date on which Mr. Morrissey's employment with the Company commences. To the
extent possible, such option will be an incentive stock option. The Stock
Options shall vest monthly at the rate of 1/48 per month; however, there shall
be a twelve (12) month cliff, upon which the first 1/4 of the Stock Options
shall vest. Upon the termination of Mr. Morrissey's employment in accordance
with the provisions of Section 10, below, the Stock Options shall vest as
described in such provisions. Except as provided in Section 10, below, the Stock
Options shall be subject to the terms of the Company's Stock Option Plan and the
Company's standard incentive and non-statutory stock option agreements (the
"Standard Agreements"), provided pursuant to the Company's Stock Option Plan.
Mr. Morrissey will be permitted to exercise the Stock Options in full prior to
vesting in the underlying shares, subject to the Company's right to repurchase
any unvested shares at Mr. Morrissey's original cost upon his termination of
employment, as provided in the Standard Agreements. In addition, the Company
shall permit Mr. Morrissey to pay the option exercise price with a full recourse
loan (secured by the shares acquired with the loan) at the lowest interest rate
available to avoid the imposition of imputed income under the tax laws to assist
Mr. Morrissey to exercise the Stock Options. Such loan shall be repayable upon
the earliest of: (i) the fifth year anniversary of the Effective Date; (ii) the
termination of Mr. Morrissey's employment for any reason; or (iii) the date
twelve (12) months after Mr. Morrissey is first eligible to sell shares of the
Company's stock that he holds following an initial public offering of the
Company's shares; provided, however, that in the event of Mr. Morrissey's
termination without Cause or resignation for Good Reason or termination by
reason of death or Disability (as defined below), such loan shall be repayable
upon the earlier of the events stated in clauses (i) or (iii) immediately
preceding.
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A. For purposes of the resale of the underlying shares under the
Stock Options, the Company covenants to use its good faith efforts to make
available Rule 701 under the Securities Act of 1933, as amended (the "Securities
Act"), or to register the shares on Form S-1 or S-3 under the Securities Act (in
the case where the Company registers shares for its own account or for others
holding registration rights) or on Form S-8 under the Securities Act.
B. In the event that (i) any other employee of Telocity who has
been granted stock options is thereafter granted additional stock options; and
(ii) such employee is an officer or executive of the Company; and (iii) such
employee's employment contract is comparable to Mr. Morrissey's; then (iv) an
additional grant of stock options will be made to Mr. Morrissey to accomplish an
equal relative increase in Mr. Morrissey's stock options.
5. Moving Expenses: The Company shall reimburse Mr. Morrissey for all
actual reasonable moving costs associated with relocating to California from New
York, including real estate closing costs, legal fees incurred for the sale of
Mr. Morrissey's home, accounting expenses incurred for the sale of Mr.
Morrissey's home, and physically moving Mr. Morrissey's family's personal
possessions (the "Moving Expenses"). Mr. Morrissey shall be entitled to Gross-Up
Payments for the Moving Expenses. In addition, Company shall provide Mr.
Morrissey at Company's expense temporary lodging at a mid-priced hotel or
apartment for up to ninety (90) days, if necessary for Mr. Morrissey and his
spouse, during which Mr. Morrissey will conduct his search for permanent
lodging. Company will also provide at its expense, round trip coach airfare and
temporary mid-priced lodging in New York for Mr. Morrissey and his spouse, as
may be reasonably necessary to facilitate Mr. Morrissey's sale of his residence
in New York and other matters relating to the relocation.
6. Housing Loan: Beginning on October 1, 1999 and continuing for
twenty-four (24) months, provided that Mr. Morrissey is continuously employed as
an Officer of the Company, the Company shall make a loan each month to Mr.
Morrissey in the principal amount of Twenty Thousand Dollars ($20,000) at no
interest (the foregoing, the "Housing Loan"). On October 1, 2001, the following
actions shall be taken:
A. If on October 1, 2001, shares of the Company's Common Stock
are publicly tradable and the stock issuable to Mr. Morrissey by exercise of the
Stock Options has a fair market value of at least Forty Dollars ($40) per share
(allowing for splits, conversions and like events), then Mr. Morrissey shall
repay the Housing Loan no more than ninety (90) days thereafter.
B. Alternatively, if on October 1, 2001, shares of the Company's
common stock are not publicly tradable, or if such stock is publicly tradable
but the stock issuable to Mr. Morrissey by exercise of the Stock Options has a
fair market value of less than Forty Dollars ($40), then the Housing Loan shall
be forgiven by the Company. Such forgiveness shall be considered a Payment and
the Company shall make Gross Up Payments to Mr. Morrissey with respect to the
same.
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7. Other Loans from the Company to Mr. Morrissey: The Company shall
provide to Mr. Morrissey no later than November 1, 1999, a full recourse loan,
in the principal amount of Nine Hundred Thousand Dollars ($900,000) at the
lowest interest rate available to avoid the imposition of imputed income under
the tax laws (the "1999 Loan"). Starting on November 1, 1999, the Company shall
forgive the entire amount of the principal and interest of the 1999 Loan over a
thirty-six (36) month period, with one thirty-sixth (1/36) of the aggregate
principal of the 1999 Loan to be forgiven by the Company at the conclusion of
each full month continuously worked by Mr. Morrissey as an officer of the
Company since the Effective Date, along with the interest due on the 1999 Loan
for such month. The Company shall provide to Mr. Morrissey no later than January
1, 2000, a full recourse loan, in the principal amount of One Million One
Hundred Thousand Dollars ($1,100,000) at the lowest interest rate available to
avoid the imposition of imputed income under the tax laws (the "2000 Loan").
Starting on January 1, 2000, the Company shall forgive the entire amount of the
principal and interest of the 2000 Loan over a thirty-six (36) month period,
with one thirty-sixth (1/36) of the aggregate principal of the 2000 Loan to be
forgiven by the Company at the conclusion of each full month continuously worked
by Mr. Morrissey as an officer of the Company since the Effective Date, along
with the interest due on the 2000 Loan for such month (the 1999 Loan and the
2000 Loan sometimes referred to herein, collectively, as the "Loans").
8. Attorneys' Fees In Negotiating Agreement: The Company shall reimburse
Mr. Morrissey for all reasonable attorneys' fees he incurs in the review and
negotiation of this Employment Agreement up to a maximum of $5,000.
9. Definitions:
A. A "Change of Control" is defined as and shall be deemed to
have occurred if:
i. Any of the following transactions occurs with respect to the
Company, provided that with respect to the transactions described
in clauses (a), (b) and (c) below the shareholders of the Company
immediately before the transaction do not retain immediately
after the transaction, in substantially the same proportions as
their ownership of shares of the Company's voting stock
immediately before the transaction, direct or indirect beneficial
ownership of more than fifty percent (50%) of the total combined
voting power of the outstanding stock of the Company or its
successor, or, in the case of a transaction described in clause
(c) below, of the corporation or corporations to which the assets
of the Company were transferred: (a) the direct or indirect sale
or exchange in a single or series of related transactions by the
shareholders of the Company of more than fifty percent (50%) of
the voting stock of the Company; (b) a merger or consolidation in
which the Company is a party; (c) the sale, exchange, or transfer
of all or substantially all of the assets of the Company; or (d)
a liquidation or dissolution of the Company; or
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ii. Within eighteen (18) months of the Effective Date: (a) the
Company terminates Patti Hart's employment as CEO of the Company;
or (b) Patti Hart resigns as CEO of the Company "involuntarily",
which shall be defined as a resignation for any of the reasons
cited below in Section 9B(i), substituting the words "Patti Hart"
for "Mr. Morrissey" in subsections (a) through (c) and the word
"her" for the word "this" in subsection (d) and (e).
For the purposes of Section A(i)(a), above, the Board shall have the
right to determine whether multiple sales or exchanges of the voting stock of
the Company are related, and its determination shall be final, binding and
conclusive.
B. "Good Reason" is defined as and shall be deemed to exist if
any of the following conditions occur:
i. Within one (1) year following a Change in Control, provided
that such conditions persist for fifteen (15) business days after
written notice to the Board from Mr. Morrissey and failure of the
Company to cure within that period: (a) the Company, its
successor or assign decreases Mr. Morrissey's Base Salary; (b)
the Company its successor or assign makes a material, adverse
change in Mr. Morrissey's title, authority, responsibilities or
duties, as measured against Mr. Morrissey's title, authority,
responsibilities or duties immediately prior to such change; (c)
the Company, its successor or assign requires the relocation of
Mr. Morrissey's work place to a location outside the San
Francisco Bay Area (i.e., outside Marin County, Contra Costa
County, Alameda County, San Francisco County, San Mateo County or
Santa Clara County); (d) the Company, its successor or assign
materially breaches any provision of this Employment Agreement;
or (e) the Company fails to obtain the assumption of this
Employment Agreement by any successor or assign of the Company;
or
ii. Within one (1) year following a Change in Control described
in Section 9A(i) and within eighteen (18) months of the Effective
Date, provided that such conditions persist for fifteen (15)
business days after written notice to the Board from Mr.
Morrissey and failure of the Company to cure within that period:
(a) the Company terminates the employment of Patti Hart as CEO of
the Company; or (b) Patti Hart resigns as CEO of the Company
"involuntarily", defined as a resignation for any of the reasons
described in Section 9B(i), substituting the words "Patti Hart"
for "Mr. Morrissey" in subsections (a) through (c) and the word
"her" for the word "this" in subsection (d) and (e).
C. For "Cause" is defined as a termination of Mr. Morrissey based
upon: (i) theft, dishonesty, or falsification of any employment or Company
records; (ii) conviction of a felony or any act involving moral turpitude; (iii)
Mr. Morrissey's refusal to perform any reasonable, assigned duties after written
notice from the Company of, and a reasonable opportunity to correct, such
refusal; (iv) improper disclosure of the Company's confidential or proprietary
information; (v) any act by Mr. Morrissey undertaken by Mr. Morrissey with the
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intent to materially harm the Company's reputation or business; or (vi) any
material breach of this Employment Agreement, which breach, if curable, is not
cured within thirty (30) days following written notice of such breach from the
Company.
10. Benefits Upon Termination. Mr. Morrissey agrees that his employment
may be terminated by the Company at any time, for any reason, with or without
cause. In the event of the termination of Mr. Morrissey's employment by the
Company for any of the reasons set forth below, he shall be entitled as his sole
remedy and compensation for such event, to the following:
A. Termination for Cause: If Mr. Morrissey's employment is
terminated by the Company for Cause, Mr. Morrissey shall be entitled to no
compensation or benefits from the Company other than those under Section 3
earned up to such termination and, in the case of stock options (or underlying
shares), vested through the date of termination. The Loans shall be due and
payable within ninety (90) days after such termination.
B. Voluntary Resignation: In the event of Mr. Morrissey's
voluntary resignation from employment with the Company, other than for Good
Reason, Mr. Morrissey shall be entitled to no compensation or benefits from the
Company other than those earned under Section 3 above through the date of his
resignation, or in the case of stock options (or underlying shares), vested
through the date of resignation. The Loans shall be due and payable within
ninety (90) days after such resignation.
C. Death or Disability In the event that Mr. Morrissey's
employment terminates as a result of his death or continued disability for
ninety (90) days ("disability" being defined as the inability to perform the
essential functions of Mr. Morrissey's position), Mr. Morrissey shall be
entitled to the following as of the date of death or disability:
i. All accrued salary, benefits and vesting earned through such
date;
ii. All accrued bonuses earned through such date. If the date of
death or disability is prior to January 1, 2000, the bonus set
forth in Section 3D(ii) shall be paid pro rata based on time
employed with the Company prior to January 1, 2000. If the date
of death or disability is prior to July 1, 2000, the bonus set
forth in Section 3D(iii) shall be paid pro rata based on time
employed with the Company prior to July 1, 2000. If the date of
death or disability occurs prior to the date of any other bonus
for which Mr. Morrissey may become eligible, then such bonus
shall be payable pro rata based on the amount of the applicable
bonus period worked by Mr. Morrissey prior to the date of death
or disability.
iii. Termination of any obligation Mr. Morrissey shall have to
repay any portion of the Loans; and
iv. Removal of any "cliff date" in calculating the number of
Stock Options (or underlying shares) vested upon the date of
death or disability.
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D. Termination Without Cause or Resignation for Good Reason:
Except as provided in Section 10E, below, if Mr. Morrissey's employment is
terminated by the Company without Cause, or if Mr. Morrissey resigns as an
employee of the Company for Good Reason, then such termination shall be deemed a
"Termination Without Cause" and Mr. Morrissey shall be entitled, on such date,
to all of the following:
i. All accrued salary, benefits and vesting earned through the
date of termination or resignation;
ii. All accrued bonuses earned through such date. If the date of
termination or resignation is prior to January 1, 2000, the bonus
set forth in Section 3D(ii) shall be paid pro rata based on time
employed with the Company prior to January 1, 2000. If the date
of termination or resignation is prior to July 1, 2000, the bonus
set forth in Section 3D(iii) shall be paid pro rata based on time
employed with the Company prior to July 1, 2000. If the date of
termination or resignation occurs prior to the date of any other
bonus for which Mr. Morrissey may become eligible, then such
bonus shall be payable pro rata based on the amount of the
applicable bonus period worked by Mr. Morrissey prior to the date
of termination or resignation;
iii. Continued payment of Mr. Morrissey's salary at his Base
Salary rate, less applicable withholding, for one (1) year
following his termination or resignation;
iv. Continued payment of the Housing Loan for one (1) year after
the date of termination or resignation;
v. Termination of any conditional obligation that Mr. Morrissey
may have to repay any part of the Housing Loan he has received or
will receive based on Section 10D(iv), above, and any related
Gross Up Payments;
vi. Termination of any obligation Mr. Morrissey shall have to
repay any portion of the Loans;
vii. Removal of any "cliff date" in calculating the number of
Stock Options or underlying shares vested upon such date; and
viii. An additional six (6) months vesting in the Stock Options
(or underlying shares), or any other options (or underlying
shares) granted to Mr. Morrissey by the Board, as if Mr.
Morrissey continued to vest in the options for an additional six
months.
E. Resignation or Termination following Certain Events: If: (i)
prior to October 1, 2000, any of the events listed in Section 9A(i) occur; and
(ii) within eighteen (18) months following such event, Mr. Morrissey resigns for
any of the reasons listed in Sections 9B(i)(a) through 9(B)(i)(e) or Mr.
Morrissey is terminated by the Company without Cause, he
8
<PAGE> 9
shall be entitled to all of the benefits listed in Sections 10D(i) through
10D(vii) and, in lieu of the benefits provided in Section 10D(viii), to the
greater of: (a) the percentage of vesting in the Stock Options (or underlying
shares), or any other options (or underlying shares) granted to him, that would
result from Section 10D(viii); or (b) fifty percent (50%) vesting in such
options (or underlying shares). By way of example, under the foregoing and
assuming the Stock Options are granted on October 1, 1999, if any such
termination or resignation were to occur on November 1, 2000, the Stock Options
and/or underlying shares would be deemed to be fifty percent (50%) vested, and
if any such termination or resignation were to occur on September 1, 2001, the
Stock Options and/or underlying shares would be deemed to be 29/48 vested.
11. Acceleration Upon Non-assumption of Options. In the event of a
Change of Control described in Section 9A(i), the surviving, continuing,
successor, or purchasing corporation or parent corporation thereof, as the case
may be (the "Acquiring Corporation"), shall either assume the Company's rights
and obligations under the Stock Options and any other options granted to Mr.
Morrissey to the extent such options are then outstanding and unexercised (the
"Outstanding Options") or substitute for the Outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. If the Acquiring
Corporation fails to assume the Company's rights and obligations under the
Outstanding Options or to substitute for the Outstanding Options in connection
with the Change of Control, and provided that Mr. Morrissey's employment with
the Company has not terminated prior to such Change of Control, then, with
respect to each Outstanding Option which has not been assumed or substituted
for, either (a) Mr. Morrissey shall be credited with an additional six (6)
months of employment for vesting purposes under such Outstanding Option or (b)
such Outstanding Option shall be deemed to be fifty percent (50%) vested,
whichever of (a) or (b) provides the greater benefit to Mr. Morrissey. Any such
acceleration of vesting shall be effective immediately prior to the consummation
of the Change of Control.
12. Employee Inventions and Proprietary Rights Assignment Agreement:
Mr. Morrissey agrees to abide by the terms and conditions of the Company's
standard Employee Inventions and Proprietary Rights Assignment Agreement.
13. Non-Solicitation: Mr. Morrissey agrees that for a period of one year
after the date of the termination of his employment for any reason, he shall
not, either directly or indirectly: (i) solicit the services, or attempt to
solicit the services, of any employee of the Company to any other person or
entity; or (ii) solicit or otherwise encourage any customer, supplier or other
business contact of the Company to withdraw, curtail or cancel their business
with the Company.
14. Indemnification: The Company agrees to make Mr. Morrissey a party to
its standard form of indemnification agreement as may be signed by the Company's
other officers and directors from time to time.
15. Dispute Resolution: In the event of any dispute or claim relating to
or arising out of this Employment Agreement (including, but not limited to, any
claims of breach of contract, wrongful termination or age, sex, race or other
discrimination), Mr. Morrissey and the Company agree that all such disputes
shall be fully and finally resolved by binding arbitration conducted by
9
<PAGE> 10
the American Arbitration Association in Santa Clara County, California in
accordance with its National Employment Dispute Resolution rules, as those rules
are currently in effect (and not as they may be modified in the future). MR.
MORRISSEY ACKNOWLEDGES THAT BY ACCEPTING THIS ARBITRATION PROVISION HE IS
WAIVING ANY RIGHT TO A JURY TRIAL IN THE EVENT OF SUCH DISPUTE. This arbitration
provision shall not apply to any disputes or claims relating to or arising out
of the misuse or misappropriation of trade secrets or proprietary information.
16. Attorneys' Fees: The prevailing party shall be entitled to recover
from the losing party its attorneys' fees and costs incurred in any action
brought to enforce any right arising out of this Employment Agreement.
17.Interpretation: Mr. Morrissey and the Company agree that this
Employment Agreement shall be interpreted in accordance with and governed by the
laws of the State of California.
18. Successors and Assigns: This Employment Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns. In
view of the personal nature of the services to be performed under this
Employment Agreement by Mr. Morrissey, he shall not have the right to assign or
transfer any of his rights, obligations or benefits under this Employment
Agreement, except as otherwise noted herein.
19. Entire Agreement: This Employment Agreement constitutes the entire
employment agreement between Mr. Morrissey and the Company regarding the terms
and conditions of his employment with the Company, with the exception of the
Stock Option Agreement described in Section 4. To the extent that there is any
inconsistency between this Employment Agreement and any other agreement between
Mr. Morrissey and the Company, the terms of this Employment Agreement will
govern. This Employment Agreement supersedes all prior negotiations,
representations or agreements between Mr. Morrissey and the Company, whether
written or oral, concerning Mr. Morrissey's employment by the Company.
20. Validity: If any one or more of the provisions (or any part thereof)
of this Employment Agreement shall be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
21. Modification: This Employment Agreement may only be modified or
amended by a supplemental written agreement signed by Mr. Morrissey and the
Company.
22. Counterparts: This Employment Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
23. Conflicts: In the event of a conflict between a provision of this
Employment Agreement and a provision of the Standard Agreements, the Option
Plan, or the Employee Inventions and Proprietary Rights Agreement, this
Employment Agreement shall control. The
10
<PAGE> 11
parties shall take all actions reasonably necessary to assure the realization of
the rights and the fulfillment of the obligations set forth in this Employment
Agreement.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date and year written below.
Date: TELOCITY INC.
---------
By: /s/ MATT STEPOVICH
-------------------------------
Its: VP Legal Affairs
------------------------------
Date: 9/21/99
---------
/s/ JIM MORRISSEY
----------------------------------
Jim Morrissey
11
<PAGE> 1
Exhibit 10.15
[MACHONE COMMUNICATIONS LETTERHEAD]
August 1, 1997
VIA HAND DELIVERY
Thomas Obenhuber
712 Wisconsin Street
San Francisco, CA 94107
Dear Thomas,
We are very pleased to offer you the position of Vice President of Product
Marketing and Operations with MachOne Communications. You will report directly
to the President.
Your initial salary will be $120,000.00 annually and will be adjusted upward
when the company has obtained its initial round of funding.
In addition, you will be granted 240,000 shares of MachOne founders' stock at
the founders' stock purchase price, when founders' shares are issued. Those
shares will be subject to a declining right of repurchase by the company, such
that six months from the above date, the repurchase right will terminate on one
eighth of your shares and the right of repurchase on one forty-eighth of the
shares will terminate after each month of the next forty-two months of your
employment with the company. Under that plan, which will be set forth in a
Founders' Stock Purchase Agreement, your shares will have completely "vested"
after 48 months with the company. In the event there is a change in control of
the company and the company does not continue your employment, the right to
repurchase will terminate, in essence accelerating the vesting of your options.
Your vesting will accelerate in the event of an IPO.
A bonus program including stock options or cash will also be put in place by the
beginning of next year. Seventy five percent of your bonus will be automatic
based on company performance and twenty five percent will be based upon your
reaching mutually agreed upon personal goals.
MachOne will offer full medical and dental coverage for benefits once financing
has been secured. As the company expands, we will offer a 401k and other
benefits. Our option plan is presently being prepared and will provide the
maximum tax benefits to all of our employees. The company will either have ISO
qualified options or we will provide purchase contracts with company repurchase
options to guarantee capital gains treatment of the stock.
Regards,
/s/ PETER D. OLSON
- ---------------------
Peter D. Olson
President & CEO
<PAGE> 2
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
MachOne Communications, Inc. ("Company") and Thomas Obenhuber ("Employee")
effective as of January 1, 1998.
1. Recitals.
A. MachOne's predecessor began business on April 15,
1997 as FastBit Communications and changed its name to MachOne
Communications on May 1, 1997. MachOne Communications, Inc. was
incorporated on August 18, 1997 (the foregoing businesses referred to
herein, collectively, as the "Company").
B. Company began employing Employee as its Vice
President of Product Marketing and Development beginning on August 1,
1997.
C. This Agreement is intended to formalize in writing
certain agreements which have been in effect since the time Employee
was initially employed by Company and shall supersede the offer letter
from Company to Employee dated August 1, 1997.
NOW, THEREFORE, the foregoing is incorporated herein by reference and,
in exchange for the mutual covenants contained below, the parties agree as
follows:
II. Definitions.
A. "COMMENCEMENT DATE" shall mean August 1, 1998.
B. "GOOD REASON" shall mean any of the following conditions:
(i) a decrease in Employee's base salary and/or bonus compensation;
(ii) a material, adverse change in Employee's title, authority,
responsibilities or duties; (iii) Company's relocation of the principal
place of Employee's employment more than fifty (50) miles; (iv)
Company's material breach of any provision of this Agreement; (v)
Company's failure to obtain the assumption of this Agreement by
Company's successor or assign; (vi) Company's failure to continue
Employee's opportunity to participate, on the same or more favorable
terms, in benefit or compensation programs in which Employee was
participating; or (vii) any purported termination of Employee's
<PAGE> 3
employment for "material breach of contract" which is not effected
following a written notice and reasonable opportunity to cure.
C. Termination for "CAUSE" shall mean: (i) Employee's theft,
dishonesty, or falsification of any Company documents or records; (ii)
Employee's improper use or disclosure of Company's confidential or
proprietary information; (iii) any intentional act by Employee that has
a materially detrimental effect on Company's reputation or business;
(iv) Employee's failure to perform any reasonable assigned duties after
written notice from Company and a reasonable opportunity to cure; or
(v) any uncured material breach by Employee of any written agreement
between Employee and Company.
III. Position and Duties.
Employee shall be employed by MachOne as its Vice President of Product
Marketing and Development reporting only to the President, effective as of the
Commencement Date. In that position, Employee agrees to devote his full business
time, energy and skill to his duties at MachOne. Employee and MachOne agree that
he will perform such duties at MachOne's principal place of business, which
shall be 992 South De Anza Blvd., San Jose, CA 95129. These duties shall
include, among other things, coordinating the development of the MachOne
Network, the development of the services provided by MachOne, and the
development of the MachOne back office system.
IV. Term.
Employee's employment with MachOne will be for no specified term and
may be terminated by MachOne or Employee at any time, with or without cause.
Upon the termination of Employee's employment with MachOne for any reason,
neither MachOne nor Employee shall have any further obligation or liability
under this Agreement to the other, except as set forth in paragraphs V, VI, VII,
IX and X, below.
V. Base Salary.
In the position as outlined above, Employee shall be paid a monthly
Base Salary of $10,000 per month ($120,000 on an annualized basis), subject to
applicable withholding, in accordance with MachOne's normal payroll procedures.
The Base Salary shall be adjusted upward % upon the occurrence of the
completion of an equity financing in which MachOne issues shares of its equity
securities or any securities convertible into or exchangeable therefor, or any
grant of rights to acquire its equity securities and receives net proceeds in an
aggregate of at least Three Million Dollars $3,000,000 in consideration for such
issuance.
VI. Benefits.
Employee shall be entitled to the benefits afforded to other members of
the Company's executive management under the Company's vacation, holiday and
business expense reimbursement policies. Employee shall be entitled to the
medical and dental benefits provided to other employees of MachOne.
<PAGE> 4
A. Benefits Upon Voluntary Termination: In the event of Employee's
voluntary termination from employment with Company, or in the event that
Employee's employment terminates as a result of his death, Employee shall be
entitled to no compensation or benefits from Company other than those earned
through the date of such termination or in the case of any stock options, vested
through the date of such termination (except as specifically set forth otherwise
in provisions below).
B. Benefits Upon Other Termination. In the event of the termination of
Employee's employment by MachOne for the reasons set forth below, he shall be
entitled to the following:
1. Termination for Cause. If Employee's employment is
terminated by MachOne for Cause, Employee shall be entitled to no
compensation or benefits, from MachOne other than those earned under
through the date of termination (which shall include bonuses for the
fiscal year then in progress determined on a pro rated basis), or in
the case of any stock options, vested through the date of termination.
2. Termination Without Cause. If Employee's employment is
terminated by MachOne for any reason other than for cause, Employee
shall be entitled to all accrued compensation (including pro-rated
bonuses), salary and benefits for three months following termination,
plus continued vesting of the Shares for a period of six (6) months.
C. Vesting Upon Death or Disability. If Employee's employment ceases as
a result of death or disability, as of the date of such termination the Shares
that have vested (the "Vested Percentage") at the time of such cessation shall
then be multiplied by a factor of two (2) (but in no case shall the Vested
Percentage exceed 100%).
VII. Bonus.
Employee shall have the opportunity to earn an annual Performance Bonus
for each fiscal year, beginning with fiscal year 1998. This Performance Bonus
shall be based 75% upon the Company's achievement of the fiscal goals it
establishes as the Company's threshold for executive level employee bonuses (the
"Company Objectives"), and 25% based on performance objectives specifically
related to Employee's areas of responsibility (the "Performance Objectives").
The Company Objectives and the Performance Objectives (together, the
"Objectives") shall be determined in good faith and set forth on Exhibit A. For
subsequent fiscal years, the Company Objectives shall be the fiscal goals that
the Company establishes as the threshold for executive level employee bonuses.
The Performance Objectives and the Target Bonus shall be negotiated annually in
good faith by the parties during the fourth quarter of each fiscal year for the
upcoming fiscal year.
VIII. Inventions and Proprietary Rights.
Employee agrees to abide by the terms and conditions of MachOne's
standard Employee Inventions and Proprietary Rights Assignment Agreement as
executed by Employee and attached hereto as Exhibit A.
<PAGE> 5
IX. Agreement Not to Compete Unfairly.
Employee agrees that in the event of his termination at any time and
for any reason, he shall not compete with MachOne in any unfair manner,
including, without limitation, using any confidential or proprietary information
of MachOne to compete with MachOne in any way. Employee agrees that for a period
of one (1) year after the date of the termination of his employment for any
reason, he shall not, either directly or indirectly, solicit the services, or
attempt to solicit the services, of any employee of MachOne to any other person
or entity.
X. General Provisions.
A. Dispute Resolution: In the event of any dispute or claim relating to
or arising out of this Agreement (including, but not limited to, any claims of
breach of contract, wrongful termination or age, sex, race or other
discrimination), Employee and MachOne agree that all such disputes shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Santa Clara County, California in accordance with its
National Employment Dispute Resolution rules, as those rules are currently in
effect (and not as they may be modified in the future). Employee acknowledges
that by accepting this arbitration provision he is waiving any right to a jury
trial in the event of such dispute. Provided, however, that this arbitration
provision shall not apply to any disputes or claims relating to or arising out
of the misuse or misappropriation of trade secrets or proprietary information.
B. Attorneys' Fees: The prevailing party shall be entitled to recover
from the losing party its attorneys' fees and costs incurred in any action
brought to enforce any right arising out of this Agreement.
C. Interpretation: Employee and MachOne agree that this Agreement shall
be interpreted in accordance with and governed by the laws of the State of
California.
D. Successors and Assiqns: This Agreement shall inure to the benefit of
and be binding upon MachOne and its successors and assigns. In view of the
personal nature of the services to be performed under this Agreement by
Employee, he shall not have the right to assign or transfer any of his rights,
obligations or benefits under this Agreement, except as otherwise noted herein.
E. Entire Agreement: This Agreement constitutes the entire employment
agreement between Employee and Company regarding the terms and conditions of his
employment, with the exception of (i) the Employee Inventions and Proprietary
Rights Assignment Agreement described in paragraph VII and (ii) any Founders'
Stock Purchase Agreement between Employee and Company. This Agreement supersedes
all prior negotiations, representations or agreements between Employee and
Company, whether written or oral, concerning Employee's employment by Company.
F. Validity: If any one or more of the provisions (or any part thereof)
of this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
(or any part thereof) shall not in any way be affected or impaired thereby,
while giving the greatest possible effect to the parties' intent and the
exchange of consideration set forth in the Agreement.
<PAGE> 6
G. Modification: This Agreement may only be modified or amended by a
supplemental written agreement signed by Employee and MachOne,
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
<TABLE>
<S> <C>
MACHONE COMMUNICATIONS, INC.
Date: 1/3/98 By: /s/ PETER D. OLSON
----------------------------- -----------------------------
Its: President
-----------------------------
EMPLOYEE
Date: 1/3/98 Signature: /s/ THOMAS OBENHUBER
----------------------------- -----------------------
Printed Name: Thomas Obenhuber
-------------------
</TABLE>
<PAGE> 7
Exhibit A
Performance Objectives
Target Bonus:_____________________
Company Goals:
Personal Goals:
Initials:
- -------------------- ----------------------
Company Signatory Employee
<PAGE> 1
EXHIBIT 10.16
[TELOCITY LETTERHEAD]
Via Hand Delivery
August 24, 1999
Mr. Jim Rohrer
2225 Island Point Dr.
Evergreen, CO 80439
Dear Jim,
We are pleased to offer you the regular full time position of Customer Care
Officer for Telocity, Inc. You will report directly to me. Your anticipated
start date would be August 24, 1999.
Duties. If you accept the offer, you will be responsible for budgeting,
managing, monitoring and reporting for all customer care functions of the
Company, including but not limited to: (i) customer service; (ii) activation of
new customers; (iii) technical support; (iv) credit approval, debt management,
and collections; (vi) churn; (vii) upsell; and (v) ACD statistics. Your
responsibilities will also include staffing your organization and
selecting/managing Customer Care vendors.
Stock Options. If you accept this offer, upon approval by the Company's Board of
Directors you will be granted options to purchase 50,000 shares of the Company's
common stock with a per share purchase price equal to the fair market value at
the time of the grant. The options will vest over a two-year period calculated
based on your start date with the Company. Six months after your start date, a
vesting "cliff" will occur, meaning, the first 1/4 of your options (12,500
shares) will vest. Thereafter, 1/18th (2,083 shares) of the your remaining
options (37,500 shares) will vest on the first day of each of the following
eighteen months that you work continuously as a regular employee of the Company
until your options have fully vested.
Accelerated Vesting. Notwithstanding the vesting schedule described above, your
options will fully vest on an accelerated basis upon the completion of certain
Company and/or performance milestones. We acknowledge that these milestones have
yet to be set. However, within sixty days of the effective date of this Letter
Agreement, you and I will meet and mutually agree to the milestones. Thereafter,
the milestones will be attached as an addendum to this Letter Agreement.
Salary. If you accept the offer, you will receive a monthly salary of $13,333.33
($160,000 annualized) which will be paid in two installments in accordance with
the Company's normal payroll procedures, on the fifteenth and last day of each
month. Initially, as described below, you would be required to work full time
on-location at our offices in Cupertino. During that period of time the Company
will cover your travel and lodging expenses.
<PAGE> 2
August 24, 1999
Page 2 of 3
Term of Employment Agreement. The duration of this Employment Agreement will be
for one (1) year, during which termination will be only for cause. In the event
of termination without cause, the Company will fulfill its salary and vesting
obligations as set forth above for the remainder of the one-year term of this
Agreement. At the end of one (1) this Agreement may be terminated by either
party with or without cause without penalty of any kind. If, at the end of the
one (1) year term of this Agreement the parties wish to mutually extend the
term, then such extension will be upon the terms and conditions then agreed
upon. Nothing in this Agreement should be construed to create or in fact creates
any employment obligations by either party beyond the end of the one (1) year
term.
Location. During the "Initial Phase" of the one (1) year term of this agreement,
you will be required to work full time in the Company's Cupertino Main Office.
The "Initial Phase" is from the effective date of this Agreement until the
Company's customer care organization is completed, functional, and operating at
or above the level of the Company's competition.
Health Care Coverage. Telocity offers full medical and dental coverage benefits
for its employees, for which you will become eligible on your first day of
employment. The Company offers a 401(k) Savings Plan and section 125 Pretax
Savings for which you will be eligible for on the 1st of the following month of
employment.
Immigration Requirements. For purposes of federal immigration law, you will be
required to provide the Company documentary evidence of your identity and
eligibility for employment in the United States, which will be your H-1 visa.
Such documentation must be provided to us within three business days of your
date of hire, or our employment relationship with you may be terminated. You
will also be required to sign an Employee Inventions and Proprietary Rights
Assignment Agreement as a condition of your employment.
Dispute Resolution. In the event of any dispute or claim relating to or arising
out of our employment relationship, this agreement, or the termination of our
employment relationship (including but not limited to claims of wrongful
termination or age, sex, disability, race or other discrimination or
harassment), you and the Company agree that all such disputes shall be fully and
finally resolved by binding arbitration conducted by the American Arbitration
Association in Santa Clara County, California. By making this agreement, both
you and the Company waive our respective rights to have such disputes tried by a
court or jury. However, we agree that this arbitration provision will not apply
to any disputes or claims relating to the misuse or misappropriation of trade
secrets or proprietary information.
General. This letter and the Employee Inventions and Proprietary Rights
Assignment Agreement set forth terms of your employment with the Company and
supercede any prior representations or agreements, whether written or oral. This
letter may not be modified or amended except by a written agreement signed by
both parties.
Acceptance. To indicate your acceptance of the Company's offer, please sign and
date this letter, and the enclosed Employee Inventions and Proprietary Rights
Agreement. Return both pages of this letter by fax to our confidential fax
number (408) 863-4783, no later than the close of business on Monday, August 23,
1999. A duplicate original of the letter and the Employee Inventions and
Proprietary Rights Agreement is enclosed for your files. Please keep them in a
secure place. This
This Document Highly Confidential
<PAGE> 3
August 24, 1999
Page 3 of 3
offer is highly confidential, so please do not disclose its terms to anyone
other than your advisor(s). Please bring both the originals of the letter and
the Agreement with you on your first day.
We are excited about the prospect of you joining our team and look forward to
working with you.
Sincerely,
/s/ PATTI HART
- ---------------
Patti Hart
President & CEO
Enclosures
Agreed to and Accepted:
/s/ JIM ROHRER 8/24/99
- ------------------------ -------------------
Jim Rohrer Date
This Document Highly Confidential
<PAGE> 1
EXHIBIT 10.17
[MACHONE COMMUNICATIONS LETTERHEAD]
May 15, 1997
VIA HAND DELIVERY
Matt Stepovich
19672 Stevens Creek Blvd. #422
Cupertino, CA 95014
Dear Matt,
We are very pleased to offer you the position of Director, Office of the
President with MachOne Communications. You will report directly to the
President.
Your initial salary will be $96,000.00 annually. Until the initial bridge
financing has been completed, the company will defer payment on one fourth of
your salary, $2,000 per month, and the deferred salary will be paid in a lump
sum upon completion of the bridge financing. Your initial salary will be
adjusted upward when the company has obtained its initial round of funding.
In addition, you will be granted 72,000 shares of MachOne founders' stock at the
founders' stock purchase price. Those shares will be subject to a declining
right of repurchase by the company such that six months from the above date, the
repurchase right will terminate on one eighth of your shares and thereafter, the
right of repurchase on one forty-eighth of the shares will terminate after each
month of the next forty-two months of your employment with the company. Under
that plan, which will be set forth in a Founders' Stock Purchase Agreement, your
shares will have completely "vested" after 48 months with the company. In the
event there is a change in control of the company and the company does not
continue your employment, the right to repurchase will terminate, in essence
accelerating the vesting of your options. Your vesting will accelerate in the
event of an IPO.
A bonus program including stock options or cash will also be put in place by the
beginning of next year. Seventy five percent of your bonus will be automatic
based on company performance and twenty five percent will be based upon your
reaching mutually agreed upon personal goals.
MachOne will offer full medical and dental coverage for benefits once financing
has been secured. As the company expands, we will offer a 401k and other
benefits. Our option plan is presently being prepared and will provide the
maximum tax benefits to all of our employees. The company will either have ISO
qualified options or we will provide purchase contracts with company repurchase
options to guarantee capital gains treatment of the stock.
Regards,
/s/ PETER D. OLSON
- -------------------
Peter D. Olson
President & CEO
<PAGE> 2
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
MachOne Communications, Inc. ("Company") and Matthew J. Stepovich ("Employee")
effective as of January 1, 1998.
I. Recitals.
A. MachOne's predecessor began business on April 15,
1997 as FastBit Communications and changed its name to MachOne
Communications on May 1, 1997. MachOne Communications, Inc. was
incorporated on August 18, 1997 (the foregoing businesses referred to
herein, collectively, as the "Company").
B. Company began employing Employee as its Director of
the Office of the President beginning on May 15, 1997.
C. This Agreement is intended to formalize in writing
certain agreements which have been in effect since the time Employee
was initially employed by Company and shall supersede the offer letter
from Company to Employee dated May 15, 1997.
D.
NOW, THEREFORE, the foregoing is incorporated herein by reference and,
in exchange for the mutual covenants contained below, the parties agree as
follows:
II. Definitions.
A. "COMMENCEMENT DATE" shall mean May 1, 1997.
B. "GOOD REASON" shall mean any of the following conditions: (i) a
decrease in Employee's base salary and/or bonus compensation; (ii) a material,
adverse change in Employee's title, authority, responsibilities or duties; (iii)
Company's relocation of the principal place of Employee's employment more than
fifty (50) miles; (iv) Company's material breach of any provision of this
Agreement; (v) Company's failure to obtain the assumption of this Agreement by
Company's successor or assign; (vi) Company's failure to continue Employee's
opportunity to participate, on the same or more favorable terms, in benefit or
compensation
1
<PAGE> 3
programs in which Employee was participating; or (vii) any purported termination
of Employee's employment for "material breach of contract" which is not effected
following a written notice and reasonable opportunity to cure.
C. Termination for "CAUSE" shall mean: (i) Employee's theft,
dishonesty, or falsification of any Company documents or records; (ii)
Employee's improper use or disclosure of Company's confidential or proprietary
information; (iii) any intentional act by Employee that has a materially
detrimental effect on Company's reputation or business; (iv) Employee's failure
to perform any reasonable assigned duties after written notice from Company and
a reasonable opportunity to cure; or (v) any uncured material breach by Employee
of any written agreement between Employee and Company.
III. Position and Duties.
Employee shall be employed by MachOne as its Vice President of Legal
and Regulatory Affairs reporting only to the President, effective as of the
Commencement Date. In that position, Employee agrees to devote his full business
time, energy and skill to his duties at MachOne. Employee and MachOne agree that
he will perform such duties at MachOne's principal place of business, which
shall be 992 South De Anza Blvd., San Jose, CA 95129. These duties shall
include, among other things, coordinating the various legal counsel and firms
that will provide legal advice to Company, administering all contracts and
contract negotiations for the Company, managing the Company's involvement in
regulatory processes, and directing interconnection negotiations with incumbent
local exchange carriers and related strategies. Employee will also manage the
administrative and operational functions of the Company offices.
IV. Term.
Employee's employment with MachOne will be for no specified term and
may be terminated by MachOne or Employee at any time, with or without cause.
Upon the termination of Employee's employment with MachOne for any reason,
neither MachOne nor Employee shall have any further obligation or liability
under this Agreement to the other, except as set forth in paragraphs V, VI, VII,
IX and X, below.
V. Base Salary.
In the position as outlines above, Employee shall be paid a monthly
Base Salary of $8,000 per month ($96,000 on an annualized basis), subject to
applicable withholding, in accordance with MachOne's normal payroll procedures.
The Base Salary shall be adjusted upward 20% to $10,000/month upon the
occurrence of the completion of an equity financing in which MachOne issues
shares of its equity securities or any securities convertible into or
exchangeable therefor, or any grant of rights to acquire its equity securities
and receives net proceeds in an aggregate of at least Three Million Dollars
$3,000,000 in consideration for such issuance.
2
<PAGE> 4
VI. Benefits.
Employee shall be entitled to the benefits afforded to other members of
the Company's executive management under the Company's vacation, holiday and
business expense reimbursement policies. Employee shall be entitled to the
medical and dental benefits provided to other employees of MachOne.
A. Benefits Upon Voluntary Termination: In the event of Employee's
voluntary termination from employment with Company, or in the event that
Employee's employment terminates as a result of his death, Employee shall be
entitled to no compensation or benefits from Company other than those earned
through the date of such termination or in the case of any stock options, vested
through the date of such termination (except as specifically set forth otherwise
in provisions below).
B. Benefits Upon Other Termination. In the event of the termination of
Employee's employment by MachOne for the reasons set forth below, he shall be
entitled to the following:
1. Termination for Cause. If Employee's employment is
terminated by MachOne for Cause, Employee shall be entitled to no
compensation or benefits, from MachOne other than those earned under
through the date of termination (which shall include bonuses for the
fiscal year then in progress determined on a pro rated basis), or in
the case of any stock options, vested through the date of termination.
2. Termination Without Cause. If Employee is terminated by
Company for any reason other than for Cause (or resigns for Good
Reason), Employee shall be entitled to all accrued compensation
(including pro-rated bonuses), salary and benefits for three months
following termination, plus continued vesting of the Shares for a
period of six (6) months.
C. Vesting Upon Death or Disability. If Employee's employment ceases as
a result of death or disability, as of the date of such termination the Shares
that have vested (the "Vested Percentage") at the time of such cessation shall
then be multiplied by a factor of two (2) (but in no case shall the Vested
Percentage exceed 100%).
VII. Bonus.
Employee shall have the opportunity to earn an annual Performance Bonus
for each fiscal year, beginning with fiscal year 1998. This Performance Bonus
shall be based 75% upon the Company's achievement of the fiscal goals it
establishes as the Company's threshold for executive level employee bonuses (the
"Company Objectives"), and 25% based on performance objectives specifically
related to Employee's areas of responsibility (the "Performance Objectives").
The Company Objectives and the Performance Objectives (together, the
"Objectives") shall be determined in good faith and set forth on Exhibit A. For
subsequent fiscal years, the Company Objectives shall be the fiscal goals that
the Company establishes as the threshold for executive level employee bonuses.
The Performance Objectives and the Target Bonus shall be negotiated annually in
good faith by the parties during the fourth quarter of each fiscal year for the
upcoming fiscal year.
3
<PAGE> 5
VIII. Inventions and Proprietary Rights.
Employee agrees to abide by the terms and conditions of MachOne's
standard Employee Inventions and Proprietary Rights Assignment Agreement as
executed by Employee and attached hereto as Exhibit A.
IX. Agreement Not to Compete Unfairly.
Employee agrees that in the event of his termination at any time and
for any reason, he shall not compete with MachOne in any unfair manner,
including, without limitation, using any confidential or proprietary information
of MachOne to compete with MachOne in any way. Employee agrees that for a period
of one (1) year after the date of the termination of his employment for any
reason, he shall not, either directly or indirectly, solicit the services, or
attempt to solicit the services, of any employee of MachOne to any other person
or entity.
X. General Provisions.
A. Dispute Resolution: In the event of any dispute or claim relating to
or arising out of this Agreement (including, but not limited to, any claims of
breach of contract, wrongful termination or age, sex, race or other
discrimination), Employee and MachOne agree that all such disputes shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Santa Clara County, California in accordance with its
National Employment Dispute Resolution rules, as those rules are currently in
effect (and not as they may be modified in the future). Employee acknowledges
that by accepting this arbitration provision he is waiving any right to a jury
trial in the event of such dispute. Provided, however, that this arbitration
provision shall not apply to any disputes or claims relating to or arising out
of the misuse or misappropriation of trade secrets or proprietary information.
B. Attorneys' Fees: The prevailing party shall be entitled to recover
from the losing party its attorneys' fees and costs incurred in any action
brought to enforce any right arising out of this Agreement.
C. Interpretation: Employee and MachOne agree that this Agreement shall
be interpreted in accordance with and governed by the laws of the State of
California.
D. Successors and Assigns: This Agreement shall inure to the benefit of
and be binding upon MachOne and its successors and assigns. In view of the
personal nature of the services to be performed under this Agreement by
Employee, he shall not have the right to assign or transfer any of his rights,
obligations or benefits under this Agreement, except as otherwise noted herein.
E. Entire Agreement: This Agreement constitutes the entire employment
agreement between Employee and Company regarding the terms and conditions of his
employment, with the exception of (i) the Employee Inventions and Proprietary
Rights Assignment Agreement described in paragraph VII and (ii) any Founders'
Stock Purchase Agreement between Employee and Company. This Agreement supersedes
all prior negotiations, representations or agreements between Employee and
Company, whether written or oral, concerning Employee's employment by Company.
4
<PAGE> 6
F. Validity: If any one or more of the provisions (or any part thereof)
of this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
(or any part thereof) shall not in any way be affected or impaired thereby,
while giving the greatest possible effect to the parties' intent and the
exchange of consideration set forth in the Agreement.
G. Modification: This Agreement may only be modified or amended by a
supplemental written agreement signed by Employee and MachOne.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
MACHONE COMMUNICATIONS, INC.
Date: 1/3/98 By: /s/ PETER D. OLSON
-------------------------- -------------------------------
Its: PRESIDENT
-------------------------------
EMPLOYEE
Date: 1/3/98 Signature: /s/ MATT STEPOVICH
-------------------------- -------------------------------
Printed Name: Matt Stepovich
5
<PAGE> 7
EXHIBIT A
Performance Objectives
Target Bonus:
---------
Company Goals:
Personal Goals:
Initials:
- ---------------------------- ---------------------------------
Company Signatory Employee
6
<PAGE> 1
EXHIBIT 10.18
[TELOCITY LETTERHEAD]
September 13, 1999
TRANSMITTED VIA FACSIMILE
Regina Wiedemann
1017 Twin Brooks Dr.
San Jose, CA 95126
Fax (408) 995-6558
Dear Regina,
We are pleased to offer you the regular full time position as Senior Vice
President of Business Development with Telocity. You will report directly to
me. Your anticipated start date would be October 1, 1999.
If you accept the offer, you will receive a monthly salary of $11,666.67, which
will be paid in two installments, on the fifteenth and last day of each month,
in accordance with the Company's normal payroll procedures.
If you accept this offer, upon approval by the Company's Board of Directors you
will be granted options to purchase 120,000 shares of the Company's common
stock with a per share purchase price equal to the fair market value at the time
of the grant. The options will vest over a four-year period calculated based on
your original start date with the Company. On the six-month anniversary of your
actual start date, your vesting "cliff" will occur, meaning the first 1/8 of
your options will vest. Thereafter, 1/42nd of your remaining options will vest
on the first day of each month that you work continuously as a regular employee
of the Company until your options have fully vested.
Telocity offers full medical and dental coverage benefits for its employees, for
which you will become eligible on your first day of employment. The Company
offers a 401(k) Savings Plan and section 125 Pretax Savings for which you will
be eligible on the 1st of the following month of employment.
If you choose to accept the offer, your employment with the Company will be
voluntarily entered into and will be for no specified period. As a result, you
will be free to resign at any time, for any reason or for no reason, with or
without Cause, as you deem appropriate. The Company will have a similar right
and may terminate your employment at any time, for any reason or no reason,
with or without Cause, provided that the following provisions will apply to
terminations or resignations, as described below, after a "Change of Control."
A "Change of Control" will be deemed to have occurred if any of the following
occurs with respect to the Company: (i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company; (ii) a
merger or consolidation in which the Company is a party; (iii) the sale,
exchange, or transfer of all or substantially all of the assets of the Company;
or (iv) a liquidation or dissolution of the Company. For the purposes of
Subsection (i), above, the board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company are related, and
its determination shall be final, binding and conclusive.
<PAGE> 2
September 13, 1999
Page 2 of 3
"Good Reason" for a resignation will be deemed to exist if any of the following
conditions occur within one (1) year of a Change in Control, provided that such
conditions persist for fifteen (15) business days after written notice to the
Board from you and reasonable opportunity for the Company to cure: (i) the
Company, its successor or assign decreases your salary or compensation; (ii) the
Company its successor or assign makes a material, adverse change in your title,
authority, responsibilities or duties, as measured against your title,
authority, responsibilities or duties immediately prior to such Ownership Change
Event; (iii) the Company its successor or assign requires you to relocate your
work place to a location outside the San Francisco Bay Area (i.e., outside Marin
County, Contra Costa County, Alameda County, San Francisco County, San Mateo
County or Santa Clara County); (iv) the Company its successor or assign
materially breaches any provision of this Agreement; or (v) the Company fails to
obtain the assumption of this Agreement by any successor or assign of the
Company.
Termination for "Cause" is defined as a termination based upon: (i) theft,
dishonesty, or falsification of any employment or Company records; (ii)
conviction of a felony or any act involving moral turpitude; (iii) the refusal
to perform any reasonable, assigned duties; (iv) improper disclosure of the
Company's confidential or proprietary information; (v) any act you may
undertake with the intent to (or with reckless disregard of the likelihood that
your action may) materially harm the Company's reputation or business; or (vi)
any material breach of this Employment Agreement, which breach, if curable, is
not cured within thirty (30) days following written notice from the Company.
In the event that the Company terminates your employment for Cause after a
Change in Control, you would then be entitled to no compensation or benefits
from the Company other than salary, vesting (if any), bonuses and benefits
earned prior to such termination for Cause.
If, after a Change in Control, the Company were to terminate your employment
without Cause, or if, after a Change in Control, you were to resign from the
Company for Good Reason, then you would be entitled, on such date, to all of
the following, as your exclusive compensation and remedy: (i) All accrued
salary, benefits; vesting (if any) and bonuses (if any) earned through the date
of termination or resignation; (ii) Continued salary (less applicable
withholding) benefits and vesting at the above base salary rate (plus any
increases), for six (6) months following such termination or resignation; and
(iii) Removal of the "cliff date" described in paragraph three of this
Agreement. The latter provision means that if the Company were to terminate
your employment without Cause or you were to resign for Good Reason during the
first six months of your employment, you would be entitled to monthly vesting
through the date of such event despite the cliff, which otherwise would require
you to work as an employee of the Company for six months before any vesting
would accrue. At such time you would also be entitled to an additional six
months vesting as provided in section (ii) of this paragraph.
For purposes of federal immigration law, you will be required to provide the
Company documentary evidence of your identity and eligibility for employment in
the United States. Such documentation must be provided to us within three
business days of your date of hire, or our employment relationship with you may
be terminated. You will also be required to sign an Employee Inventions and
Proprietary Rights Assignment Agreement as a condition of your employment
(attached).
In the event of any dispute or claim relating to or arising out of our
employment relationship, this agreement, or the termination of our employment
relationship (including but not limited to claims of wrongful termination or
age, sex, disability, race or other discrimination or harassment), you and the
Company agree that all such disputes shall be fully and finally resolved by
binding arbitration conducted by the American Arbitration Association in Santa
Clara County, California. By making this agreement, both you and the Company
waive our respective
This Document Highly Confidential
<PAGE> 3
September 9, 1999
Page 3 of 3
rights to have such disputes tried by a court or jury. However, we agree that
this arbitration provision will not apply to any disputes or claims relating to
the misuse or misappropriation of trade secrets or proprietary information.
This letter and the Employee Inventions and Proprietary Rights Assignment
Agreement set forth terms of your employment with the Company and supersede any
prior representations or agreements, whether written or oral. This letter may
not be modified or amended except by a written agreement signed by both parties.
To indicate your acceptance of the Company's offer, please sign and date this
letter, and the enclosed Employee Inventions and Proprietary Rights Agreement.
Return both pages of this letter by fax to our confidential fax number (408)
863-4783, no later than the close of business on Friday, September 10, 1999.
This offer is highly confidential, so please do not disclose its terms to
anyone other than your advisor(s). Please bring both the originals of the
letter and the Agreement with you on your first day with the Company.
We at Telocity are excited about the prospect of you joining our team. We look
forward to working together.
Sincerely,
/s/ PATTI S. HART
Patti Hart
President and CEO
Enclosures
Agreed to and Accepted:
/s/ REGINA WEIDEMANN 9/13/99
- ----------------------------------
Regina Wiedemann Date
This Document Highly Confidential
<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
MachOne Communications, Inc. ("Company") and Kevin Grundy ("Employee") effective
as of February 26, 1998.
I. Definitions.
A. "COMMENCEMENT DATE" shall mean February 25, 1998.
B. "GOOD REASON" shall mean any of the following conditions: (i) a
decrease in Employee's base salary and/or bonus compensation; (ii) a
material, adverse change in Employee's title, authority,
responsibilities or duties; (iii) Company's relocation of the principal
place of Employee's employment more than fifty (50) miles; (iv)
Company's material breach of any provision of this Agreement; (v)
Company's failure to obtain the assumption of this Agreement by
Company's successor or assign; (vi) Company's failure to continue
Employee's opportunity to participate, on the same or more favorable
terms, in benefit or compensation programs in which Employee was
participating; or (vii) any purported termination of Employee's
employment for "material breach of contract" which is not effected
following a written notice and reasonable opportunity to cure.
C. Termination for "CAUSE" shall mean: (i) Employee's theft, dishonesty,
or falsification of any Company documents or records; (ii) Employee's
improper use or disclosure of Company's confidential or proprietary
information; (iii) any intentional act by Employee that has a materially
detrimental effect on Company's reputation or business; (iv) Employee's
failure to perform any reasonable assigned duties after written notice
from Company and a reasonable opportunity to cure; or (v) any uncured
material breach by Employee of any written agreement between Employee
and Company.
II. Position and Duties
Employee shall be employed by Company as its Vice President of
Engineering reporting only to the President effective on the Commencement Date.
In that position, Employee agrees to devote his full business time, energy and
skill to his duties at Company. Employee and Company agree that he will perform
such duties at Company's principal place of business, which shall be 992 South
De Anza Blvd., San Jose, CA 95129. These duties shall include the development of
aggregator modem and related software and hardware utilized by Company to
deliver its services to Company customers and affiliates.
1
<PAGE> 2
Term of Employment
Employee's employment with Company will be for no specified term, and
may be terminated by Company or Employee at any time, with or without cause.
Upon the termination of Employee's employment with Company for any reason,
neither Company nor Employee shall have any further obligation or liability
under this Agreement to the other, except as set forth in paragraphs V, VI and
VII below.
III. Base Salary
In the position as outlines above, Employee shall be paid a monthly Base
Salary of $10,000 per month ($120,000 on an annualized basis), subject to
applicable withholding, in accordance with Company's normal payroll procedures.
IV. Benefits
Employee shall be entitled to the benefits afforded to other members of
senior management under Employee's vacation, holiday and business expense
reimbursement policies. Employee shall be entitled to the medical and dental
benefits provided to other employees of Company.
A. Benefits Upon Voluntary Termination: In the event of Employee's
voluntary termination from employment with Company (unless otherwise set
forth herein), Employee shall be entitled to no compensation or benefits
from Company other than those earned through the date of such
termination or in the case of any stock options, vested through the date
of such termination.
B. Benefits Upon Other Termination. In the event of the termination of
Employee's employment by Company for the reasons set forth below, he
shall be entitled to:
1. Termination for Cause. If Employee's employment is terminated
by Company for Cause as defined above, Employee shall be
entitled to no compensation or benefits from Company other than
those earned under through the date of termination, or in the
case of any stock options, vested through the date of
termination.
2. Termination Without Cause. If Employee is terminated by
Company for any reason other than for Cause (or resigns for Good
Reason), including the death of Employee, Employee shall be
entitled to all accrued compensation (including pro-rated target
bonuses), salary and benefits for three months following
termination, plus continued vesting under the Options for a
period of six (6) months.
V. Stock Vesting Upon Death or Disability
If Employee's employment ceases as a result of death or disability, as
of the date of such termination: (i) the vested percentage of options or shares
for Company stock held by Employee at that time shall then be multiplied by a
factor of two (2) (but in no case shall the vested percentage exceed 100%).
2
<PAGE> 3
VI. Employee Inventions and Proprietary Rights Assignment.
Employee agrees to abide by the terms and conditions of Company's
standard Employee Inventions and Proprietary Rights Assignment Agreement as
executed by Employee and attached hereto as Exhibit A.
VII. Agreement Not To Compete Unfairly.
Employee agrees that in the event of his termination at any time and for
any reason, he shall not compete with Company in any unfair manner, including,
without limitation, using any confidential or proprietary information of Company
to compete with Company in any way. Employee agrees that for a period of one (1)
year after the date of the termination of his employment for any reason, he
shall not, either directly or indirectly, solicit the services, or attempt to
solicit the services, of any employee of Company to any other person or entity.
VIII. General Provisions.
A. Dispute Resolution: In the event of any dispute or claim relating to
or arising out of this Agreement (including, but not limited to, any
claims of breach of contract, wrongful termination or age, sex, race or
other discrimination), Employee and Company agree that all such disputes
shall be fully and finally resolved by binding arbitration conducted by
the American Arbitration Association in Santa Clara County, California
in accordance with its National Employment Dispute Resolution rules, as
those rules are currently in effect (and not as they may be modified in
the future). Employee acknowledges that by accepting this arbitration
provision he is waiving any right to a jury trial in the event of such
dispute. Provided, however, that this arbitration provision shall not
apply to any disputes or claims relating to or arising out of the misuse
or misappropriation of trade secrets or proprietary information.
B. Attorneys' Fees: The prevailing party shall be entitled to recover
from the losing party its attorneys' fees and costs incurred in any
action brought to enforce any right arising out of this Agreement.
C. Interpretation: Employee and Company agree that this Agreement shall
be interpreted in accordance with and governed by the laws of the State
of California.
D. Successors and Assigns: This Agreement shall inure to the benefit of
and be binding upon Company and its successors and assigns. In view of
the personal nature of the services to be performed under this Agreement
by Employee, he shall not have the right to assign or transfer any of
his rights, obligations or benefits under this Agreement, except as
otherwise noted herein.
E. Entire Agreement: This Agreement constitutes the entire employment
agreement between Employee and Company regarding the terms and
conditions of his employment, with the exception of (i) the Employee
Inventions and Proprietary Rights Assignment Agreement described in
paragraph VII and (ii) any stock option agreements between Employee and
Company. To the extent that any provision of such option agreement
conflicts with this Agreement, this Agreement shall control. This
Agreement
3
<PAGE> 4
(including the documents described in (i) and (ii) herein) supersedes
all prior negotiations, representations or agreements between Employee
and Company, whether written or oral, concerning Employee's employment
by Company.
F. Validity: If any one or more of the provisions (or any part thereof)
of this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or
impaired thereby, while giving the greatest possible effect to the
parties' intent and the exchange of consideration set forth in the
Agreement.
G. Modification: This Agreement may only be modified or amended by a
supplemental written agreement signed by Employee and Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
MACHONE COMMUNICATIONS, INC.
Date: 2/26/98 By: PETER D. OLSON
--------- -------------------------------
Its: President
------------------------------
Date: Signature: /s/ KEVIN GRUNDY
--------- ------------------------
Printed Name: Kevin Grundy
---------------------
4
<PAGE> 1
EXHIBIT 10.20
November 2, 1999
Mr. Jef Raskin
8 Gypsy Hill
Pacifica, CA 94044
Dear Jef:
I am pleased to offer you the regular full time position of Vice President,
Human Interaction reporting to me with a tentative start date of November 15,
1999.
If you accept this offer, you will receive a monthly salary of $13,333.33 which
will be paid in two installments, on the fifteenth and last day of each month,
in accordance with the Company's normal payroll procedures.
If you accept this offer, upon approval by the Company's Board of Directors you
will be granted options to purchase 120,000 shares of the Company's common stock
with a per share purchase price equal to the fair market value at the time of
the grant. The options will vest over a four-year period, with 25% vesting after
twelve months of continuous employment. After the first twelve months, 1/36th of
the remaining options will vest on the first day of each month that you work
continuously as a regular employee of the Company.
Telocity offers full medical and dental coverage benefits for its employees, for
which you will become eligible on your first day of employment. The Company
offers a 401(k) Savings Plan and section 125 Pretax Savings for which you will
be eligible for on the 1st of the following month of employment.
If you choose to accept the offer, your employment with the Company will be
voluntarily entered into and will be for no specified period. As a result, you
will be free to resign at any time, for any reason or for no reason, as you deem
appropriate. The Company will have a similar right and may terminate your
employment at any time, with or without cause.
For purposes of federal immigration law, you will be required to provide the
Company documentary evidence of your identity and eligibility for employment in
the United States. Such documentation must be provided to us within three
business days of your date of hire, or our employment relationship with you may
be terminated. You will also be required to sign an Employee Inventions and
Proprietary Rights Assignment Agreement as a condition of your employment.
In the event of any dispute or claim relating to or arising out of our
employment relationship, this agreement, or the termination of our employment
relationship (including but not limited to claims of wrongful termination or
age, sex, disability, race or other discrimination or harassment), you and the
Company agree that all such disputes shall be fully and finally resolved by
binding arbitration conducted by the American Arbitration
<PAGE> 2
Association in Santa Clara County, California. By making this agreement, both
you and the Company waive our respective rights to have such disputes tried by a
court or jury. However, we agree that this arbitration provision will not apply
to any disputes or claims relating to the misuse or misappropriation of trade
secrets or proprietary information.
This letter and the Employee Inventions and Proprietary Rights Assignment
Agreement set forth terms of your employment with the Company and supercede any
prior representations or agreements, whether written or oral. This letter may
not be modified or amended except by a written agreement signed by both parties.
To indicate your acceptance of the Company's offer, please sign and date this
letter, and the enclosed Employee Inventions and Proprietary Rights Agreement.
Return both pages of this letter by fax to our confidential fax number 408
777-4043, no later than November 1, 1999. A duplicate original of the letter and
the Employee Inventions and Proprietary Rights Agreement is enclosed for your
files. Please keep them in a secure place. This offer is highly confidential, so
please do not disclose its terms to anyone other than your advisor(s). Please
bring both the originals of the letter and the Agreement with you on your first
day with the Company.
We at Telocity are excited about the prospect of you joining our team. We look
forward to working together.
Sincerely,
Peter Olson
Executive Vice President
Enclosures
Agreed to and Accepted:
/s/ JEF RASKIN 5 Nov 99
- -------------------------------
Jef Raskin Date
<PAGE> 1
EXHIBIT 10.21
[TELOCITY LOGO]
992 South De Anza Blvd.
San Jose, CA 95129
408.863.6602 (Fax) 408.777.1451
April 1, 1999
HAND DELIVERED
Mr. Andrew Robinson
Dear Andrew,
I am pleased to offer you the regular full time position of Director of ISP
Business Development reporting to me with an anticipated start date of April 1,
1999. Your initial assignment will be to establish an ISP for the company and to
assist me in structuring an on going operations staff to run the day to day
operations of the ISP.
If you accept this offer, you will receive a monthly salary of 10,833.33 which
will be paid in two installments, on the fifteenth and last day of each month,
in accordance with the Company's normal payroll procedures.
If you accept this offer, upon approval by the Company's Board of Directors you
will be granted options to purchase 50,000 shares of the Company's common stock
with a per share purchase price equal to the fair market value at the time of
the grant. The options will vest over a four year period, with 25% vesting after
twelve months of continuous employment. After the first twelve months, 1/36th of
the remaining options will vest on the first day of each month that you work
continuously as a regular employee of the Company.
You will be eligible for a one-time 10,000 share stock bonus and $20,000 cash
bonus at the end of one year of continuous employment with the company, if at
that time the company has: (1) a successful ISP offering which includes all of
the normal services associated with ISP's; and (2) the company's ISP has a
service which is differentiated from other ISP services as a result of its
ability to deliver always connected and/or broadband services. The
differentiation and measurement thereof will be defined mutually and agreed upon
in writing within the next 120 days.
Telocity offers full medical and dental coverage benefits for its employees, for
which you will become eligible on your first day of employment. The Company
offers a 401(k) Savings Plan and section 125 Pretax Savings for which you will
be eligible for on the 1st of the following month of employment.
If you choose to accept the offer, the Company will reimburse you for documented
moving expenses incurred during the next eight (8) months and while employed by
the Company up to an aggregate total of $38,500 for sellers' costs for your
existing home, buyers' costs for a new
<PAGE> 2
April 1, 1999
Page 2 of 2
home, and mover costs. The Company will reimburse you for $1,500 in
miscellaneous moving expenses.
If you choose to accept the offer, your employment with the Company will be
voluntarily entered into and will be for no specified period. As a result, you
will be free to resign at any time, for any reason or for no reason, as you deem
appropriate. The Company will have a similar right and may terminate your
employment at any time, with or without cause.
For purposes of federal immigration law, you will be required to provide the
Company documentary evidence of your identity and eligibility for employment in
the United States. Such documentation must be provided to us within three
business days of your date of hire, or our employment relationship with you may
be terminated. You will also be required to sign an Employee Inventions and
Proprietary Rights Assignment Agreement as a condition of your employment.
In the event of any dispute or claim relating to or arising out of our
employment relationship, this agreement, or the termination of our employment
relationship (including but not limited to claims of wrongful termination or
age, sex, disability, race or other discrimination or harassment), you and the
Company agree that all such disputes shall be fully and finally resolved by
binding arbitration conducted by the American Arbitration Association in Santa
Clara County, California. By making this agreement, both you and the Company
waive our respective rights to have such disputes tried by a court or jury.
However, we agree that this arbitration provision will not apply to any disputes
or claims relating to the misuse or misappropriation of trade secrets or
proprietary information.
This letter and the Employee Inventions and Proprietary Rights Assignment
Agreement set forth terms of your employment with the Company and supercede any
prior representations or agreements, whether written or oral. This letter may
not be modified or amended except by a written agreement signed by both parties.
To indicate your acceptance of the Company's offer, please sign and date this
letter, and the enclosed Employee Inventions and Proprietary Rights Agreement.
Return both pages of this letter by fax to our confidential fax number (408)
863-4783, no later than April 1, 1999. A duplicate original of the letter and
the Employee Inventions and Proprietary Rights Agreement is enclosed for your
files. Please keep them in a secure place. This offer is highly confidential, so
please do not disclose its terms to anyone other than your advisor(s). Please
bring both the originals of the letter and the Agreement with you on your first
day with the Company.
We at Telocity are excited about the prospect of you joining our team. We look
forward to working together.
Sincerely,
/s/ PETER D. OLSON
Peter D. Olson
Executive Vice President,
Enclosures
This Document Highly Confidential
<PAGE> 3
April 1, 1999
Page 3 of 2
Agreed to and Accepted:
/s/ D ROBINSON 4/1/99
- -------------------------------
Date
This Document Highly Confidential
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
Telocity, Inc. (the "Company") and Edward J. Hayes, Jr. (the "Employee") on
December 10th, 1999.
1. POSITION AND DUTIES: The Employee shall be employed by the Company as its
Executive Vice President and Chief Financial Officer reporting only to the
Company's Chief Executive Officer (CEO) beginning no later than January
3rd, 2000 (the "Effective Date"). Employee agrees to devote his full
business time, energy and skill to his duties at the Company. These duties
shall include those duties customarily performed by the Chief Financial
Officer, as well as those duties that may be assigned by the CEO from time
to time.
2. TERM OF EMPLOYMENT. The Employee's employment with the Company will be for
no specified term, and may be terminated by the Employee or the Company at
any time, for any reason, with or without cause, and neither the Employee
nor the Company shall have any further obligation or liability whatsoever
under this Employment Agreement to the other, except as may be
specifically set forth herein.
3. COMPENSATION: The Employee shall be compensated by the Company for his
services as follows:
A. Base Salary. The Employee shall be paid a monthly Base Salary of
$20,833.33 per month ($250,000.00 [Two Hundred and Fifty Thousand
U.S. Dollars] on an annualized basis), subject to applicable
withholding, in accordance with the Company's normal payroll
procedures. The Employee's base salary shall be reviewed on at least
an annual basis and may be increased as appropriate. In the event of
such an increase, the new amount shall become the Employee's Base
Salary.
B. Benefits: The Employee shall have the right, on the same basis as
other members of the Company's senior management, to participate in
and receive benefits under any of the Company's Employee Benefit
Plans (broadly structured in Attachment A), as such plans may be
modified from time to time. The Employee shall be entitled to the
benefits afforded to other members of senior management under the
Company's vacation, holiday and business expense reimbursement
policies. The Employee will be entitled to five (5) weeks vacation.
To the extent the Employee is unable in the execution of his duties
and responsibilities to take the allotted (and any previously-
carried-over) vacation in any given year, the Employee will be
eligible to roll-over up to five (5) weeks of vacation annually.
C. Annual Incentive Bonus: By way of description and not limitation, the
Employee shall be entitled to the benefits afforded to other members
of senior management under the Company's Bonus Program (broadly
structured in Attachment B regarding components based upon company
performance and individual performance in any given fiscal year). The
Bonus Program shall be defined within thirty (30) days of the
Effective Date and which shall, in any case, contain a target bonus
amount of 50% of the Employee's base salary. The range of this annual
incentive bonus shall be determined by senior management as it
formulates the mechanics of the Company's management incentive
compensation plan.
Edward J. Hayes, Jr. Employment Agreement 1
<PAGE> 2
D. Hiring Bonus: In order to incent the Employee to join the Company and
address certain forfeitures, including forfeited stock options, prompted
by leaving the Employee's current employer, and to reimburse the
Employee for certain relocation expenses, the Company will provide a
one-time Hiring Bonus award of $325,000.00 (Three Hundred and
Twenty-Five Thousand U.S. Dollars), payable within thirty (30) days of
the Effective Date.
4. STOCK OPTIONS: The Employee shall be granted the option to purchase 370,000
(Three Hundred and Seventy Thousand) shares of the Company's Common stock
(the "Stock Options"), at an exercise price per share equal to the fair
market value of the Company's Common Stock on the date of grant as
determined by the Board in its sole discretion. Such grant and
determination shall be made no later than thirty (30) days after the
Effective Date. To the extent possible, such Option will be an incentive
stock option. The Stock Options shall vest monthly at the rate of 1/48 per
month; however there shall be a twelve (12) month cliff vesting period,
upon which the first 1/4th of the Stock Options shall vest. Upon the
termination of the Employee's employment in accordance with the provision
of Paragraph 6 below, the Stock Options shall vest as described in such
provisions. Except as provided herein and in Paragraph 6 below, the Stock
Options shall be subject to the terms of the Company's Stock Option Plan
and the Company's standard incentive and non-statutory Stock Option
Purchase Agreements (the "Standard Agreements" described in Attachment D),
provided pursuant tot he Company's Stock Option Plan. The Employee will be
permitted to exercise the option in full prior to vesting in the underlying
shares, subject to the Company's right to repurchase any unvested shares
(subject to Paragraph 6 below) at the Employee's original cost upon his
termination of employment, as provided in the Standard Agreements. In
addition, the Company shall permit the Employee to pay the option exercise
price with a full recourse loan (secured by the shares acquired with the
loan) at the lowest interest rate available to avoid the imposition of
imputed income under the tax laws to assist the Employee to exercise the
Stock Options. Such loan shall be repayable upon the earlier of: (i) the
fifth year anniversary of the Effective Date; (ii) the date six (6) months
after termination of the Employee's employment for any reason; or (iii) the
date twelve (12) months after the Employee is first eligible to sell shares
of the Company's stock that he holds following an initial public offering
of the Company's shares; provided however that in the event of termination
of the Employee Without Cause or the employee's Resignation for Good
Reason, such loan shall be repayable upon the earlier of the events stated
in clauses (i) or (iii) immediately preceding. Going forward, the Employee
will be eligible to receive additional Stock Options at amounts and
exercise prices then prevailing, but consistent with the proportional
amounts of the original grant vis-a-vis other senior manager's original
grant allotments.
5. DEFINITIONS APPLICABLE TO TERMINATIONS: For the purposes of "terminations"
as described in Paragraph 6, the following definitions shall apply:
A. A "Change of Control" is defined as and shall be deemed to have
occurred if any of the following occurs with respect to the Company
(except as may occur with a re-incorporation of the Company in Delaware
in advance of an initial public offering of the Company's stock): (i)
the direct or indirect sale or exchange in a single or series of
related transactions by the stockholders of the company of more than
fifty percent (50%) of the voting stock of the Company; (ii) a merger
or consolidation in which the Company is not the surviving party; (iii)
the sale, exchange, or transfer of all or substantially all of the
assets of the Company; or (iv) a liquidation or dissolution of the
Company. The re-incorporation of the Company without a
Edward J. Hayes, Jr. Employment Agreement 2
<PAGE> 3
material change in voting rights of the stockholders of the Company
shall not be deemed a Change in Control.
B. "Good Reason" shall be defined as, and shall be deemed to exist, if
any of the following conditions occur, provided that such conditions
persist for fifteen (15) business days after written notice to the
Board from the Employee and reasonable opportunity for the Company
to cure: (i) the Company, its successors or assigns decreases the
Employee's Base Salary; (ii) the Company, its successors or assigns
makes a material, adverse change in the Employee's title, authority,
responsibilities or duties, as measured against the Employee's
title, authority, responsibilities or duties immediately prior to
such change (provided that the Company or its successor may provide
an equivalent position); (iii) the Company, its successors or
assigns requires the relocation of the Employee's work place to a
location outside the San Francisco Bay Area (i.e., outside Marin
County, Contra Costa County, Alameda County, San Francisco County,
San Mateo County or Santa Clara County); (iv) Patti Hart leaves the
Company for reasons other than "Cause"; (v) covered above (vi) the
Company, its successors or assigns materially breaches any provision
of this Employment Agreement; or (vii) the Company fails to obtain
the assumption of this Employment Agreement by any successor or
assign of the Company.
C. Termination for "Cause" is defined as a termination of the Employee
based upon: (i) theft of the Company's assets; (ii) falsification of
any employment applications; (ii) conviction of a felony or
conviction of a crime involving fraud or dishonesty; or (iii)
improper and willful disclosure of the Company's confidential or
proprietary information that could materially harm the Company.
6. BENEFITS UPON TERMINATION: The Employee agrees that his employment may be
terminated by the Company at any time, for any reason, with or without
cause, and he shall be entitled as his sole remedy and compensation only
the compensation provided, below, in this Section 6. In the event of the
termination of the Employee's employment by the Company for any reasons
set forth below, he shall be entitled to the following:
A. Termination for "Cause": If the Employee's employment is terminated
by the Company for "Cause" as described above, the Employee shall be
entitled to no compensation or benefits from the Company other than
those under Paragraph 3 earned up until such termination and, in the
case of the Stock Options under Paragraph 4, shares vested through
the date of termination.
B. Voluntary Resignation: In the event of the Employee's voluntary
resignation from employment with the Company, other than for Good
Reason as described above, the Employee shall be entitled to no
compensation or benefits from the Company other than those under
Paragraph 3, earned up until such termination and, in the case of
the Stock Options under Paragraph 4, shares vested through the date
of his resignation.
C. Death or Disability: In the event that the Employee's employment
terminates as a result of his death or continued disability for
ninety (90) days ("disability" being defined as the inability to
perform specifically the essential functions of the Employee's
position as Chief Financial Officer), the Employee shall be entitled
to the following as of the date of death or disability.
<PAGE> 4
i. all accrued compensation and benefits earned through such date;
ii. the removal of any "cliff date" in calculating the number of
Stock Options vested upon the date of death or disability.
iii. an immediate vesting of all Stock Options granted and unvested as
of the date of death or disability. These Stock Options would be
then deemed immediately exercisable and remain exercisable for
the duration of the exercise period originally granted under the
Company's Stock Option Plan.
D. Termination Without Cause and/or Resignation for Good Reason: If the
Employee's employment is terminated by the Company without Cause, or
if the Employee resigns as an Employee of the Company for Good Reason
(provided that the underlying conditions persist for fifteen (15)
business days after written notice to the Company), then the Employee
shall be entitled, on such date, to all of the following:
i. all accrued compensation, benefits and vesting earned through the
date of termination or resignation;
ii. a lump-sum severance payment equal to twelve months of the
Employee's base salary and target incentive bonus, less
applicable withholding, payable immediately.
iii. the removal of any "cliff date" in calculating the number of
Stock Options vested upon such date; and
iv. The greater of: an immediate six (6) month acceleration in the
vesting schedule, or fifty percent (50%) of any unvested Stock
Options, shall be deemed to vest immediately on the date of
termination or resignation. These vested, and all previously
vested and unexercised, Stock Options would be then deemed
immediately exercisable and remain exercisable for the duration
of the exercise period originally granted under the Company's
Stock Option Plan.
7. EMPLOYEE INVENTIONS AND PROPRIETARY RIGHTS ASSIGNMENT AGREEMENT: The
Employee agrees to abide by the terms and conditions of the Company's
standard Employee Inventions and Proprietary Rights Assignment Agreement
(as described in Attachment E).
8. NON-SOLICITATION: The Employee agrees that for a period of one (1) year
after the date of the termination of his employment for any reason, he
shall not, either directly or indirectly; (i) solicit the services, or
attempt to solicit the services, of any employee of the Company to any
other person or entity; or (ii) solicit or otherwise encourage any supplier
or other business contract of the Company to withdraw, curtail or cancel
their business with the Company.
9. INDEMNIFICATION: The Company agrees to make the Employee a party to its
standard form of indemnification agreement (as described in Attachment F)
as may be signed by the Company's other officers and directors from time to
time. The Employee will be covered under the Company-provided Directors'
and Officers' Liability Insurance Policies, which protections shall be
commensurate with the duties, responsibilities and risks of the Chief
Financial Officer position.
10. DISPUTE RESOLUTION: In the event of any dispute or claim relating to or
arising out of this Employment Agreement (including, but not limited to,
and claims of breach of contract, wrongful termination or age, sex, race or
other discrimination), the Employee and the Company agree that all such
disputes shall be fully and finally resolved by binding arbitration
conducted by the
Edward J. Hayes, Jr. Employment Agreement 4
<PAGE> 5
American Arbitration Association in Santa Clara County, California in
accordance with its National Employment Dispute Resolution rules, as those
rules are currently in effect (and not as they may be modified in the
future). The Employee acknowledges that by accepting this arbitration
provision he is waiving any right to a jury trial in the event of such
dispute. Provided, however, that this arbitration provision shall not apply
to any disputes or claims relating to or arising out of the misuse or
misappropriation of trade secrets or proprietary information.
11. ATTORNEY'S FEES: In the event that the Employee must bring action against
the Company to remedy breaches of the above Agreement, or to enforce any
right arising out of this Agreement, the following shall apply: (i) if the
action brought by the Employee fails to win the decision in the
arbitration, the Company shall not be liable to reimburse any costs
incurred by the Employee; (ii) if the action brought by the Employee
prevails in the arbitration, the Company shall be liable to reimburse the
Employee his incurred attorney's fees, arbitration costs and/or other costs
associated with the action or actions.
12. INTERPRETATION: The Employee and the Company agree that this Employment
Agreement shall be interpreted in accordance with and governed by the laws
of the State of California.
13. SUCCESSORS AND ASSIGNS: This Employment Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns.
In view of the personal nature of the services to be performed under this
Employment Agreement by the Employee, he shall not have the right to assign
or transfer any of his rights, obligations or benefits under the Employment
Agreement, except as otherwise noted herein. This agreement may be assigned
to the Company's successor without consent of the Employee (understanding
Change in Control provisions still apply).
14. ENTIRE AGREEMENT: This Employment Agreement constitutes the entire
employment agreement between the Employee and the Company regarding the
terms and conditions of his employment with the Company. To the extent that
there is any inconsistency between this Employment Agreement and any other
agreement between The Employee and the Company, the terms of this
Employment Agreement will govern. This Employment Agreement supersedes all
prior negotiations, representations or agreements between the Employee and
the Company, whether written or oral, concerning the Employee's employment
by the Company.
15. VALIDITY: If any one or more of the provisions (or any part thereof) of
this Employment Agreement shall be held invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or
impaired thereby.
16. MODIFICATION: This Employment Agreement and its Addenda may only be
modified or amended by a supplemental written agreement signed by the
Employee and the Company.
17. COUNTERPARTS: This Employment Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of
the date and year written below.
Edward J. Hayes, Jr. Employment Agreement
5
<PAGE> 6
Date: December 10, 1999 TELOCITY, INC.
By: Beth S. Hart
------------------------
Its: Pres. - CEO
-----------------------
Date: December 10, 1999
/S/ EDWARD HAYES
-----------------------------
EMPLOYEE
Attachments
Edward J. Hayes, Jr. Employment Agreement 6
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between Telocity,
Inc. (the "Company") and Scott E. Martin (the "CAO") on December 8, 1999.
1. Position and Duties: CAO shall be employed by the Company as its
Executive Vice President, Chief Administrative Officer and Corporate Secretary,
reporting only to the Company's Chief Executive Officer or President and Chief
Operating Officer (COO) beginning no later than December 8, 1999 (the "Effective
Date"). CAO shall serve on the most senior management or executive committee of
the Company. CAO agrees to devote his full business time, energy and skill to
his duties at the Company. These duties shall include, without limitation,
senior executive responsibility for the legal and regulatory, human resources,
facilities, materials, procurement, Corporate Secretary functions and all those
senior executive duties customarily performed by the Chief Administrative
Officer and Corporate Secretary, as well as those senior executive duties that
may be assigned by the CEO (or COO as the case may be) from time to time
(collectively, the "Duties").
2. Term of Employment: CAO's employment with the Company will be for no
specified term, and may be terminated by CAO or the Company at any time, for any
reason, with or without cause, and neither CAO nor the Company shall have any
further obligation or liability whatsoever under this Employment Agreement to
the other, except as may be specifically set forth herein.
3. Compensation: CAO shall be compensated by the Company for his services
as follows:
A. Base Salary: CAO shall be paid a monthly Base Salary of $15,800 per
month ($190,000 on an annualized basis), subject to applicable withholding, in
accordance with the Company's normal payroll procedures. CAO's salary shall be
reviewed on at least an annual basis and may be increased as appropriate. In the
event of such an increase, the new amount shall become CAO's Base Salary.
B. Benefits: CAO shall have the right, on the same basis as other
members of the Company's senior management, to participate in and to receive
benefits under any of the Company's employee benefit plans, as such plans may be
modified from time to time. By way of description and not limitation, CAO shall
be entitled to the benefits afforded to other members of senior management under
the Company's Bonus Program, which shall be defined with sixty (60) days of the
Effective Date and which shall, in any case, contain a bonus amount of up to
100% of CAO's Base Salary with a target bonus of 50% of CAO's Base Salary. CAO
shall be entitled to the benefits afforded to other members of senior management
under the Company's vacation, holiday and business expense reimbursement
policies.
C. Signing Bonus: Within thirty (30) days of the Effective Date, the
Company will pay CAO a signing bonus in the total amount of $150,000, less
applicable withholding. In the event that CAO voluntarily resigns from his
employment other than for Good Reason during
<PAGE> 2
the first year following the Effective Date, CAO agrees that he shall repay a
pro-rata share of the signing bonus based on the time remaining in the first
year of service.
4. Stock Options: CAO shall be granted the option to purchase 245,000
shares of the Company's Common Stock (the "Stock Options"), at an exercise price
per share equal to the fair market value of the Company's Common Stock on the
date of grant as determined by the Board in its sole discretion. Such grant and
determination shall be made no later than twenty (20) days after the Effective
Date. To the extent possible, such Option will be an incentive stock option. The
Stock Options shall vest monthly at the rate of 1/48 per month, however there
shall be a six (6) month cliff, upon which the first 1/8 of the Stock Options
shall vest. Upon the termination of CAO's employment in accordance with the
provisions of Section 7, below, the Stock Options shall vest as described in
such provisions. Except as provided in Section 7, below, the Stock Options shall
be subject to the terms of the Company's Stock Option Plan and the Company's
standard incentive and non-statutory Stock Option Purchase Agreements (the
"Standard Agreements"), provided pursuant to the Company's Stock Option Plan.
CAO will be entitled to participate in future stock option award programs and
equity incentive programs that may exist for senior management of the Company.
CAO will be permitted to exercise the option in full prior to vesting in the
underlying shares, subject to the Company's right to repurchase any unvested
shares at CAO's original cost upon his termination of employment, as provided in
the Standard Agreements. In addition, the Company shall permit CAO to pay the
option exercise price with a full recourse loan (secured by the shares acquired
with the loan) at the lowest interest rate available to avoid the imposition of
imputed income under the tax laws to assist CAO to exercise the Stock Options.
Such loan shall be repayable upon the earlier of (i) the fifth year anniversary
of the Effective Date; (ii) the termination of CAO's employment for any reason;
or (iii) the date twelve (12) months after CAO is first eligible to sell shares
of the Company's stock that he holds following an initial public offering of the
Company's shares; provided, however, that in the event of CAO's termination
without Cause, Death or Disability or Resignation for Good Reason, such loan
shall be repayable upon the earlier of the events stated in clauses (i) or (iii)
immediately preceding.
5. Housing Allowance: In addition to the Base Salary, beginning on December
6, 1999 and continuing through June 30, 2000, Provided that CAO is continuously
employed as the Company's Chief Administrative Officer, Company shall provide,
at Company's expense, lodging in a corporate apartment within a reasonable
distance of the Company and suitable for a member of the senior management team
of other similarly situated companies.
6. Definitions Applicable to Terminations: For the purposes of other
terminations as described in Section 7, the following definitions shall apply:
A. A "Change of Control" is defined as and shall be deemed to have
occurred if any of the following occurs with respect to the Company (except as
may occur with a reincorporation of the Company in Delaware in advance of an
initial public offering of the Company's stock): (i) the direct or indirect sale
or exchange in a single or series of related transactions by the stockholders of
the Company of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a party; (iii) the
2
<PAGE> 3
sale, exchange, or transfer of all or substantially all of the assets of the
Company; or (iv) liquidation or dissolution of the Company.
B. "Good Reason" shall be defined as and shall be deemed to exist if
any of the following conditions occur, provided that such conditions persist for
fifteen (15) business days after written notice to the Board from CAO and
reasonable opportunity for the Company to cure: (i) the Company, its successor
or assign decreases CAO's Base Salary or Benefits as defined above; (ii) the
Company its successor or assign makes an adverse change in CAO's Position and
Duties, as defined above, or to any additional title, authority,
responsibilities or duties that CAO assumes during the course of his employment
with the Company (provided that the Company or its successor may provide an
equivalent position, with the consent of CAO, which consent will not be
unreasonably withheld); (iii) the Company its successor or assign requires the
relocation of CAO's work place to a location outside of the San Francisco Bay
Area (i.e., outside Marin County, Contra Costa County, Alameda County, San
Francisco County, San Mateo County or Santa Clara County); (iv) the Company its
successor or assign breaches any provision of this Employment Agreement; or (v)
the Company fails to obtain the assumption of this Employment Agreement by any
successor or assign of the Company.
C. Termination "for Cause" is defined as a termination of CAO based
upon: (i) willful and serious misconduct injurious to the Company, provided the
Company gives written notice to the CAO describing the manner in which it
believes the CAO may have violated this provision and an opportunity to respond;
(ii) conviction of a crime that constitutes a felony; (iii) CAO's willful
refusal to perform any of the Duties as set forth in Section 1, above, provided
the Company gives written notice to the CAO describing the manner in which it
believes the CAO may have violated this provision and an opportunity to correct
such willful refusal; (iv) improper disclosure of the Company's confidential or
proprietary information; (v) any act by CAO undertaken by CAO with the intent to
materially harm the Company's reputation or business, provided the Company gives
written notice to the CAO describing the manner in which it believes the CAO may
have violated this provision and an opportunity to respond; or (vi) any material
breach of this Employment Agreement, which breach, if curable, is not cured
within thirty (30) days following written notice of such breach from the
Company.
7. Benefits Upon Termination. CAO agrees that his employment may be
terminated by the Company at any time, for any reason, with or without cause,
and he shall be entitled as his sole remedy and compensation only the
compensation provided, below, in this Section 7. In the event of the termination
of CAO's employment by the Company for any of the reasons set forth below, he
shall be entitled to the following:
A. Termination for Cause: If CAO's employment is terminated by the
Company For Cause, CAO shall be entitled to no compensation or benefits from the
Company other than those under Section 3 earned up until such termination and,
in the case of the Stock Options under Section 4, shares vested through the date
of termination.
B. Voluntary Resignation: In the event of CAO's voluntary resignation
from employment with the Company, other than for Good Reason, CAO shall be
entitled to no compensation or benefits from the Company other than those under
Section 3 earned up until
3
<PAGE> 4
such termination and, in the case of the Stock Options under Section 4, shares
vested through the date of his resignation.
C. Death or Disability: In the event that CAO's employment terminates
as a result of his death or continued disability for ninety (90) days
("disability" being defined as the inability to perform the essential functions
of CAO's position), CAO shall be entitled solely to the following as of the date
of death or disability:
i. all accrued compensation and benefits earned through such date;
ii. the removal of any "cliff date" in calculating the number of Stock
Options vested upon the date of death or disability;
iii. an immediate doubling of the number of Stock Options vested as of
the date of death or disability, but in no event more than 100% of the
Stock Options granted.
D. Change in Control: Termination Without Cause or Resignation for
Good Reason: If within one (1) month prior to or within one (1) year after a
Change in Control, provided that such conditions persist for fifteen (15)
business days after written notice to the CAO, CAO's employment is terminated by
the Company without Cause, or if CAO resigns as CAO of the Company for Good
Reason, then CAO shall be entitled, on such date, as sole remedy, to all of the
following:
i. all accrued compensation, benefits and vesting earned through the
date of termination or resignation,
ii. continued payment of CAO's salary at his Base Salary rate, less
applicable withholding, for six months year following his termination
or resignation;
iii. the removal of any "cliff date" in calculating the number of
Stock Options vested upon such date; and
iv. Fifty percent (50%) of the unvested Stock Options shall be deemed
to have vested immediately upon such termination or resignation
(provided that Company fails to cure the cause of such resignation
after notice from CAO).
E. Absent Change in Control: Termination Without Cause or Resignation for
Good Reason: If there has not been a Change in Control, but CAO's employment is
terminated by the Company without Cause, or if CAO resigns as CAO of the Company
for Good Reason, then CAO shall be entitled, on such date, as sole remedy, to
all of the following:
i. all accrued compensation, benefits and vesting earned through the
date of termination or resignation;
ii. the removal of any "cliff date" in calculating the number of Stock
Options vested upon such date; and
4
<PAGE> 5
iii. a lump sum payment from the Company in the amount of One Hundred
Fifty Thousand Dollars ($150,000); and
iv. continued medical and dental benefits for six (6) months.
8. Employee Inventions and Proprietary Rights Assignment Agreement: CAO
agrees to abide by the terms and conditions of the Company's standard Employee
Inventions and Proprietary Rights Assignment Agreement.
9. Non-Solicitation: CAO agrees that for a period of one year after the
date of the termination of his employment for any reason, he shall not, either
directly or indirectly: (i) solicit the services, or attempt to solicit the
services, of any employee of the Company to any other person or entity; or (ii)
solicit or otherwise encourage any customer, supplier or other business contact
of the Company to withdraw, curtail or cancel their business with the Company.
10. Indemnification: The Company will indemnify CAO to the fullest extent
of applicable law and pursuant to its by-laws and any standard form of
indemnification agreement that may be signed by the Company's other officers and
directors from time to time.
11. Dispute Resolution: In the event of any dispute or claim relating to or
arising out of this Employment Agreement, CAO and the Company agree that all
such disputes shall be fully and finally resolved by binding arbitration
conducted by the American Arbitration Association in Santa Clara County,
California in accordance with its National Employment Dispute Resolution rules,
as those rules are currently in effect (and not as they may be modified in the
future). CAO acknowledges that by accepting this arbitration provision he is
waiving any right to a jury trial in the event of such dispute. Provided,
however, that this arbitration provision shall not apply to: (1) any disputes or
claims relating to or arising out of the misuse or misappropriation of trade
secrets or proprietary information; or (2) (without acknowledging whether or not
such claims would be viable under the "sole remedy" language set forth in
Section 7, above) any disputes or claims relating to any federal, state or local
law establishing or relating to the rights of employees.
12. Attorneys' Fees: The prevailing party shall be entitled to recover from
the losing party its attorneys' fees and costs incurred in any action brought to
enforce any right arising out of this Employment Agreement.
13. Interpretation: CAO and the Company agree that this Employment
Agreement shall be interpreted in accordance with and governed by the laws of
the State of California.
14. Successors and Assigns: This Employment Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns. In
view of the personal nature of the services to be performed under this
Employment Agreement by CAO, he shall not have the right to assign or transfer
any of his rights, obligations or benefits under this Employment Agreement,
except as otherwise noted herein. This agreement may be assigned to the
Company's successor without consent of CAO.
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15. Entire Agreement: This Employment Agreement constitutes the entire
employment agreement between CAO and the Company regarding the terms and
conditions of his employment with the Company, with the exception of the Stock
Option Agreement described in Section 4 and the Employee Inventions and
Proprietary Rights Assignment Agreement referred to in Section 8, which shall
be modified as necessary to reflect the term relating to options set forth in
the Employment Agreement. To the extent that there is any inconsistency between
this Employment Agreement and any other agreement between CAO and the Company,
the terms of this Employment Agreement will govern. This Employment Agreement
supersedes all prior negotiations, representations or agreements between CAO and
the Company, whether written or oral, concerning CAO's employment by the
Company.
16. Validity: If any one or more of the provisions (or any part thereof) of
this Employment Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
(or any part thereof) shall not in any way be affected or impaired thereby.
17. Modification: This Employment Agreement and its Addenda may only be
modified or amended by a supplemental written agreement signed by CAO and the
Company.
18. Counterparts: This Employment Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the date and year written below.
Date: 12/13/99 TELOCITY, INC.
---------------------
By: /s/ PATTI S. HART
------------------------------------
Name: Patti Hart
Date: December 13, 1999 Its: President and Chief Executive Officer
/s/ SCOTT E. MARTIN
----------------------------------------
Scott E. Martin
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EXHIBIT 10.24
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT 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.
TELOCITY, INC.
IMMEDIATELY EXERCISABLE
NONSTATUTORY STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT (the
"OPTION AGREEMENT") is made and entered into as of the Date of Option Grant by
and between Telocity, Inc. and __________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the Telocity, Inc.
1998 Stock Option Plan (the "Plan") an option to purchase certain shares of
Stock, upon the terms and conditions set forth in this Option Agreement (the
"OPTION"). The Option shall in all respects be subject to the terms and
conditions of the Plan, the provisions of which are incorporated herein by
reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means
____________________, 199__.
(b) "NUMBER OF OPTION SHARES" means _________ shares
of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $ _______ per share of
Stock, as adjusted from time to time pursuant to Section 9.
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(d) "INITIAL EXERCISE DATE" means the later of the
Date of Option Grant or the date the Optionee's Service commences.
(e) "INITIAL VESTING DATE" means ___________________.
(f) "VESTED PERCENTAGE" means, on any relevant date,
the percentage determined as follows:
<TABLE>
<CAPTION>
Vested Percentage
-----------------
<S> <C>
Prior to Initial Vesting Date 0%
On Initial Vesting Date, provided
the Optionee's Service has not terminated
prior to such date _______%
Plus:
For each full month of the Optionee's
continuous Service from the Initial Vesting
Date until the Vested Percentage equals
100%, an additional _______%
</TABLE>
(g) "OPTION EXPIRATION DATE" means the date ten (10)
years after the Date of Option Grant.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. TAX CONSEQUENCES.
2.1 TAX STATUS OF OPTION. This Option is intended to be a
Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option
within the meaning of Section 422(b) of the Code.
2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Service terminates, (b) the Optionee is an Insider and,
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<PAGE> 3
under certain circumstances, exercises the Option within six (6) months of the
Date of Option Grant (if a class of equity security of the Company is registered
under Section 12 of the Exchange Act), or (c) the Optionee is subject to a
restriction on transfer to comply with "Pooling-of-Interests Accounting" rules.
Failure to file an election under Section 83(b), if appropriate, may result in
adverse tax consequences to the Optionee. The Optionee acknowledges that the
Optionee has been advised to consult with a tax advisor prior to the exercise of
the Option regarding the tax consequences to the Optionee of the exercise of the
Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE
DATE ON WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE
EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b)
ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS
THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. ADMINISTRATION.
All questions of interpretation concerning this Option
Agreement shall be determined by the Board. All determinations by the Board
shall be final and binding upon all persons having an interest in the Option.
Any officer of a Participating Company shall have the authority to act on behalf
of the Company with respect to any matter, right, obligation, or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares previously acquired
upon exercise of the Option, subject to the Optionee's agreement that any shares
purchased upon exercise are subject to the Company's repurchase rights set forth
in Section 11 and Section 12.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered in person, by certified or registered mail,
return receipt requested, by confirmed facsimile transmission, or by such other
means as the Company may permit, to the Chief Financial Officer of the Company,
or other authorized representative of the Participating Company Group, prior to
the termination of the Option as set forth in Section 6, accompanied by (i) full
payment of the aggregate Exercise Price for the number of shares of Stock being
purchased and (ii) an executed copy, if required herein, of the then current
form of escrow agreement referenced below. The Option shall be deemed to be
exercised upon receipt by the Company of such written notice, the aggregate
Exercise Price, and, if required by the Company, such executed agreement.
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<PAGE> 4
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company, or
attestation to the ownership, of whole shares of Stock owned by the Optionee
having a Fair Market Value (as determined by the Company without regard to any
restrictions on transferability applicable to such stock by reason of federal or
state securities laws or agreements with an underwriter for the Company) not
less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise,
as defined in Section 4.3(c), or (iv) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing,
the Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock to the extent such tender, or attestation to the
ownership, of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock unless such shares either have been owned by the
Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means
the assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares of Stock acquired upon the
exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested, and
the Company shall have no obligation to issue a certificate for such shares or
release such shares from any escrow provided for herein.
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<PAGE> 5
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares subject to the Option shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained. As a condition to the
exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION.
The Option may be exercised during the lifetime of the
Optionee only by the Optionee or the Optionee's guardian or legal representative
and may not be assigned or transferred in any manner except by will or by the
laws of descent and distribution. Following the death of the Optionee, the
Option, to the extent provided in Section 7, may be exercised by the Optionee's
legal representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and distribution.
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<PAGE> 6
6. TERMINATION OF THE OPTION.
The Option shall terminate and may no longer be exercised on
the first to occur of (a) the Option Expiration Date, (b) the last date for
exercising the Option following termination of the Optionee's Service as
described in Section 7, or (c) a Change in Control to the extent provided in
Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of six (6)
months after the date on which the Optionee's Service terminated, but in any
event no later than the Option Expiration Date. The Optionee's Service shall be
deemed to have terminated on account of death if the Optionee dies within one
(1) month after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within one (1) month (or such other longer period of
time as determined by the Board, in its sole discretion) after the date on which
the Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
7.2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding
the provisions of Section 7.1, the Option may not be exercised after the
Optionee's termination of Service to the extent that the shares to be acquired
upon exercise of the Option would be subject to the Unvested Share Repurchase
Option as provided in Section 11.
7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until one (1) month after the date the Optionee
is notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
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<PAGE> 7
7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange
in a single or series of related transactions by the shareholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the
Company is a party; or
(iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the
Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a
Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's
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<PAGE> 8
rights and obligations under the Option or substitute for the Option a
substantially equivalent option for the Acquiring Corporation's stock. The
Option shall terminate and cease to be outstanding effective as of the date of
the Change in Control to the extent that the Option is neither assumed or
substituted for by the Acquiring Corporation in connection with the Change in
Control nor exercised as of the date of the Change in Control. Notwithstanding
the foregoing, shares acquired upon exercise of the Option prior to the Change
in Control and any consideration received pursuant to the Change in Control with
respect to such shares shall continue to be subject to all applicable provisions
of this Option Agreement except as otherwise provided herein. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Change in Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the Option shall not
terminate unless the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
In the event of any stock dividend, stock split, reverse stock
split, recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a
majority of the shares which are of the same class as the shares that are
subject to the Option are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the Number of Option Shares and the Exercise Price shall be adjusted
in a fair and equitable manner, as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 9 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
Exercise Price be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 9 shall be final, binding and conclusive.
10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT.
The Optionee shall have no rights as a shareholder with
respect to any shares covered by the Option until the date of the issuance of a
certificate for the shares for which the Option has been exercised (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company). No adjustment shall be made for dividends,
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in Section 9. If the Optionee is
an Employee, the Optionee understands and acknowledges that, except as otherwise
provided in a separate, written employment agreement between a Participating
Company and the Optionee, the Optionee's employment is "at will" and is for no
specified term. Nothing in this Option Agreement shall confer upon the Optionee
any right to continue in the Service of a Participating Company or
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<PAGE> 9
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. UNVESTED SHARE REPURCHASE OPTION.
11.1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event
the Optionee's Service with the Participating Company Group is terminated for
any reason or no reason, with or without cause, or, if the Optionee, the
Optionee's legal representative, or other holder of shares acquired upon
exercise of the Option attempts to sell, exchange, transfer, pledge, or
otherwise dispose of (other than pursuant to an Ownership Change Event) any
shares acquired upon exercise of the Option which exceed the Vested Shares as
defined in Section 11.2 below (the "UNVESTED SHARES"), the Company shall have
the right to repurchase the Unvested Shares under the terms and subject to the
conditions set forth in this Section 11 (the "UNVESTED SHARE REPURCHASE
Option").
11.2 VESTED SHARES AND UNVESTED SHARES DEFINED. The "VESTED
SHARES" shall mean, on any given date, a number of shares of Stock equal to the
Number of Option Shares multiplied by the Vested Percentage determined as of
such date and rounded down to the nearest whole share. On such given date, the
"UNVESTED SHARES" shall mean the number of shares of Stock acquired upon
exercise of the Option which exceed the Vested Shares determined as of such
date.
11.3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company
may exercise the Unvested Share Repurchase Option by written notice to the
Optionee within sixty (60) days after (a) termination of the Optionee's Service
(or exercise of the Option, if later) or (b) the Company has received notice of
the attempted disposition of Unvested Shares. If the Company fails to give
notice within such sixty (60) day period, the Unvested Share Repurchase Option
shall terminate unless the Company and the Optionee have extended the time for
the exercise of the Unvested Share Repurchase Option. The Unvested Share
Repurchase Option must be exercised, if at all, for all of the Unvested Shares,
except as the Company and the Optionee otherwise agree.
11.4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
9 (the "REPURCHASE PRICE"). The Company shall pay the aggregate Repurchase Price
to the Optionee in cash within thirty (30) days after the date of the written
notice to the Optionee of the Company's exercise of the Unvested Share
Repurchase Option. For purposes of the foregoing, cancellation of any purchase
money indebtedness of the Optionee to any Participating Company for the shares
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled. The shares being repurchased shall
be delivered to the Company by the Optionee at the same time as the delivery of
the Repurchase Price to the Optionee.
11.5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The
Company shall have the right to assign the Unvested Share Repurchase Option at
any time, whether or not such option is then exercisable, to one or more persons
as may be selected by the Company.
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11.6 OWNERSHIP CHANGE EVENT. Upon the occurrence of an
Ownership Change Event, any and all new, substituted or additional securities or
other property to which the Optionee is entitled by reason of the Optionee's
ownership of Unvested Shares shall be immediately subject to the Unvested Share
Repurchase Option and included in the terms "Stock" and "Unvested Shares" for
all purposes of the Unvested Share Repurchase Option with the same force and
effect as the Unvested Shares immediately prior to the Ownership Change Event.
While the aggregate Repurchase Price shall remain the same after such Ownership
Change Event, the Repurchase Price per Unvested Share upon exercise of the
Unvested Share Repurchase Option following such Ownership Change Event shall be
adjusted as appropriate. For purposes of determining the Vested Percentage
following an Ownership Change Event, credited Service shall include all Service
with any corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event.
12. RIGHT OF FIRST REFUSAL.
12.1 GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in
Section 12.7 below, in the event the Optionee, the Optionee's legal
representative, or other holder of shares acquired upon exercise of the Option
proposes to sell, exchange, transfer, pledge, or otherwise dispose of any Vested
Shares (the "TRANSFER SHARES") to any person or entity, including, without
limitation, any shareholder of a Participating Company, the Company shall have
the right to repurchase the Transfer Shares under the terms and subject to the
conditions set forth in this Section 12 (the "RIGHT OF FIRST REFUSAL").
12.2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed
transfer of the Transfer Shares, the Optionee shall deliver written notice (the
"TRANSFER NOTICE") to the Company describing fully the proposed transfer,
including the number of Transfer Shares, the name and address of the proposed
transferee (the "PROPOSED TRANSFEREE") and, if the transfer is voluntary, the
proposed transfer price, and containing such information necessary to show the
bona fide nature of the proposed transfer. In the event of a bona fide gift or
involuntary transfer, the proposed transfer price shall be deemed to be the Fair
Market Value of the Transfer Shares, as determined by the Board in good faith.
If the Optionee proposes to transfer any Transfer Shares to more than one
Proposed Transferee, the Optionee shall provide a separate Transfer Notice for
the proposed transfer to each Proposed Transferee. The Transfer Notice shall be
signed by both the Optionee and the Proposed Transferee and must constitute a
binding commitment of the Optionee and the Proposed Transferee for the transfer
of the Transfer Shares to the Proposed Transferee subject only to the Right of
First Refusal.
12.3 BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 12, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 12. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
10
<PAGE> 11
12.4 EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company
determines the proposed transfer to be bona fide, the Company shall have the
right to purchase all, but not less than all, of the Transfer Shares (except as
the Company and the Optionee otherwise agree) at the purchase price and on the
terms set forth in the Transfer Notice by delivery to the Optionee of a notice
of exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the present
value cash equivalent of the consideration described in the Transfer Notice as
reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
12.5 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the
Company fails to exercise the Right of First Refusal in full (or to such lesser
extent as the Company and the Optionee otherwise agree) within the period
specified in Section 12.4 above, the Optionee may conclude a transfer to the
Proposed Transferee of the Transfer Shares on the terms and conditions described
in the Transfer Notice, provided such transfer occurs not later than ninety (90)
days following delivery to the Company of the Transfer Notice. The Company shall
have the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 12.
12.6 TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 12 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 12 are met.
11
<PAGE> 12
12.7 TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The
Right of First Refusal shall not apply to any transfer or exchange of the shares
acquired upon exercise of the Option if such transfer or exchange is in
connection with an Ownership Change Event. If the consideration received
pursuant to such transfer or exchange consists of stock of a Participating
Company, such consideration shall remain subject to the Right of First Refusal
unless the provisions of Section 12.9 below result in a termination of the Right
of First Refusal.
12.8 ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall
have the right to assign the Right of First Refusal at any time, whether or not
there has been an attempted transfer, to one or more persons as may be selected
by the Company.
12.9 EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Change in Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
13. ESCROW.
13.1 ESTABLISHMENT OF ESCROW. To ensure that shares subject to
the Unvested Share Repurchase Option will be available for repurchase, the
Company may require the Optionee to deposit the certificate evidencing the
shares which the Optionee purchases upon exercise of the Option with an agent
designated by the Company under the terms and conditions of escrow and security
agreements approved by the Company. If the Company does not require such deposit
as a condition of exercise of the Option, the Company reserves the right at any
time to require the Optionee to so deposit the certificate in escrow. Upon the
occurrence of an Ownership Change Event or a change, as described in Section 9,
in the character or amount of any of the outstanding stock of the corporation
the stock of which is subject to the provisions of this Option Agreement, any
and all new, substituted or additional securities or other property to which the
Optionee is entitled by reason of the Optionee's ownership of shares of Stock
acquired upon exercise of the Option that remain, following such Ownership
Change Event or change described in Section 9, subject to the Unvested Share
Repurchase Option shall be immediately subject to the escrow to the same extent
as such shares of Stock immediately before such event. The Company shall bear
the expenses of the escrow.
13.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after the expiration of the Unvested Share Repurchase Option, but not more
frequently than twice each calendar year, the escrow agent shall deliver to the
Optionee the shares and any other property no longer subject to such
restrictions and no longer securing any promissory note.
12
<PAGE> 13
13.3 NOTICES AND PAYMENTS. In the event the shares and any
other property held in escrow are subject to the Company's exercise of the
Unvested Share Repurchase Option or the Right of First Refusal, the notices
required to be given to the Optionee shall be given to the escrow agent, and any
payment required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares and any other property which the Company has purchased to the
Company and shall deliver the payment received from the Company to the Optionee.
14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT.
If, from time to time, there is any stock dividend, stock
split or other change, as described in Section 9, in the character or amount of
any of the outstanding stock of the corporation the stock of which is subject to
the provisions of this Option Agreement, then in such event any and all new,
substituted or additional securities to which the Optionee is entitled by reason
of the Optionee's ownership of the shares acquired upon exercise of the Option
shall be immediately subject to the Unvested Share Repurchase Option and the
Right of First Refusal with the same force and effect as the shares subject to
the Unvested Share Repurchase Option and the Right of First Refusal immediately
before such event.
15. LEGENDS.
The Company may at any time place legends referencing the
Unvested Share Repurchase Option, the Right of First Refusal, and any applicable
federal, state or foreign securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this Section. Unless otherwise specified by the Company, legends placed on such
certificates may include, but shall not be limited to, the following:
15.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE
IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES
AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY
TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
15.2 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO AN UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, OR SUCH HOLDER'S
13
<PAGE> 14
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
15.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE
SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR
SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS CORPORATION."
16. PUBLIC OFFERING.
The Optionee hereby agrees that in the event of any
underwritten public offering of stock, including an initial public offering of
stock, made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The Optionee shall be subject to this Section provided and only
if the officers and directors of the Company are also subject to similar
arrangements.
17. RESTRICTIONS ON TRANSFER OF SHARES.
No shares acquired upon exercise of the Option may be sold,
exchanged, transferred (including, without limitation, any transfer to a nominee
or agent of the Optionee), assigned, pledged, hypothecated or otherwise disposed
of, including by operation of law, in any manner which violates any of the
provisions of this Option Agreement and, except pursuant to an Ownership Change
Event, until the date on which such shares become Vested Shares, and any such
attempted disposition shall be void. The Company shall not be required (a) to
transfer on its books any shares which will have been transferred in violation
of any of the provisions set forth in this Option Agreement or (b) to treat as
owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares will have been so transferred.
18. BINDING EFFECT.
Subject to the restrictions on transfer set forth herein, this
Option Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, executors, administrators, successors and
assigns.
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<PAGE> 15
19. TERMINATION OR AMENDMENT.
The Board may terminate or amend the Plan or the Option at any
time; provided, however, that except as provided in Section 8.2 in connection
with a Change in Control, no such termination or amendment may adversely affect
the Option or any unexercised portion hereof without the consent of the Optionee
unless such termination or amendment is necessary to comply with any applicable
law or government regulation. No amendment or addition to this Option Agreement
shall be effective unless in writing.
20. NOTICES.
Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given (except to the extent that this
Option Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery or upon deposit in the United States Post Office,
by registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature or at such other
address as such party may designate in writing from time to time to the other
party.
21. INTEGRATED AGREEMENT.
This Option Agreement and the Plan constitute the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein and therein and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein or therein. To the
extent contemplated herein or therein, the provisions of this Option Agreement
shall survive any exercise of the Option and shall remain in full force and
effect.
15
<PAGE> 16
22. APPLICABLE LAW.
This Option Agreement shall be governed by the laws of the
State of California as such laws are applied to agreements between California
residents entered into and to be performed entirely within the State of
California.
TELOCITY, INC.
By:
--------------------------------------
Title:
-----------------------------------
Address: 10355 North DeAnza Boulevard
Cupertino, California 95014
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11 and the Right of First Refusal set forth in
Section 12, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Option Agreement. The undersigned acknowledges receipt of a
copy of the Plan.
OPTIONEE
Date:
--------------------------- -----------------------------------------
Optionee Address:
-----------------------------------------
-----------------------------------------
16
<PAGE> 17
Optionee: ________________________
Date: ____________________________
IMMEDIATELY EXERCISABLE
NONSTATUTORY STOCK OPTION
EXERCISE NOTICE
Telocity, Inc.
Attention: Contracts Manager
10355 North DeAnza Boulevard
Cupertino, California 95014
Ladies and Gentlemen:
1. Exercise of Option. I was granted a nonstatutory stock option (the
"OPTION") to purchase shares of the common stock of Telocity, Inc. (the
"COMPANY") pursuant to the Company's 1998 Stock Option Plan (the "PLAN") and my
Immediately Exercisable Nonstatutory Stock Option Agreement dated
__________________, 19___ (the "OPTION AGREEMENT"). I hereby elect to exercise
the Option as to a total of __________________ shares of the common stock of the
Company (the "SHARES"), of which ________________ are Vested Shares and
______________ are Unvested Shares as determined in accordance with the Option
Agreement.
2. Payments. Enclosed herewith is full payment in the aggregate amount
of $_____________ (representing $_______ per share) for the Shares in the manner
set forth in the Option Agreement. I authorize payroll withholding and otherwise
will make adequate provision for foreign, federal, state and local tax
withholding obligations of the Company, if any.
3. Binding Effect. I agree that the Shares are being acquired in
accordance with and subject to the terms, provisions and conditions of the
Option Agreement, including the Unvested Share Repurchase Option and the Right
of First Refusal set forth therein, to all of which I hereby expressly assent.
This Agreement shall inure to the benefit of and be binding upon the my heirs,
executors, administrators, successors and assigns. I agree to deposit the
certificate or certificates evidencing the Shares, along with a blank stock
assignment separate from certificate executed by me, with an escrow agent
designated by the Company, to be held by such escrow agent pursuant to the
Company's standard Joint Escrow Instructions, an executed copy of which I have
delivered herewith.
4. Transfer. I am aware that Rule 144, promulgated under the Securities
Act, which permits limited public resale of securities acquired in a nonpublic
offering, is not currently available with respect to the Shares and, in any
event, is available only if certain conditions are satisfied. I understand that
any sale of the Shares that might be made in reliance upon Rule 144 may only be
made in limited amounts in accordance with the terms and conditions of such rule
and that a copy of Rule 144 will be delivered to me upon request.
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<PAGE> 18
My address is:_________________________________________________________
_________________________________________________________
My Social Security Number is:__________________________________________
5. Election Under Section 83(b) of the Code. I understand and
acknowledge that if I am exercising the Option to purchase Unvested Shares
(i.e., shares that remain subject to the Company's Unvested Share Repurchase
Option), that I should consult with my tax advisor regarding the advisability of
filing with the Internal Revenue Service an election under Section 83(b) of the
Code, which must be filed no later than thirty (30) days after the date on which
I exercise the Option. I acknowledge that I have been advised to consult with a
tax advisor prior to the exercise of the Option regarding the tax consequences
to me of exercising the Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED
WITHIN 30 DAYS AFTER THE DATE ON WHICH I PURCHASE SHARES. THIS TIME PERIOD
CANNOT BE EXTENDED. I ACKNOWLEDGE THAT TIMELY FILING OF A SECTION 83(b) ELECTION
IS MY SOLE RESPONSIBILITY, EVEN IF I REQUEST THE COMPANY OR ITS REPRESENTATIVES
TO FILE SUCH ELECTION ON MY BEHALF.
I understand that I am purchasing the Shares pursuant to the terms of
the Plan and my Option Agreement, copies of which I have received and carefully
read and understand.
Very truly yours,
_________________________________________
Receipt of the above is hereby acknowledged.
TELOCITY, INC.
By:__________________________________
Title:_______________________________
Dated:_______________________________
2
<PAGE> 19
November 17, 1999
[Telocity Letterhead]
Telocity Optionee
c/o Telocity, Inc.
10355 North DeAnza Boulevard
Cupertino, CA 95014
RE: SECTION 83(b) ELECTION UPON EXERCISE OF NONSTATUTORY STOCK
OPTION FOR UNVESTED SHARES
Dear Optionee:
If you elect to exercise your nonstatutory stock option to purchase
unvested shares of the company's stock that will vest over time, the income tax
consequences of your option exercise are quite complex, and we strongly urge you
to consult with a tax advisor knowledgeable regarding your financial
circumstances and nonstatutory stock options. Telocity Inc. cannot advise you
regarding tax matters.
As described in the attached memorandum prepared by our legal counsel,
you may derive significant tax benefits by filing with the Internal Revenue
Service an election under Section 83(b) of the Internal Revenue Code (a "Section
83(b) Election). However, if you wish to make a Section 83(b) Election, it must
be filed with the IRS within 30 days of the date on which you exercised your
option. SINCE THE DUE DATE IS THIRTY DAYS FROM THE EXERCISE DATE, IF YOU
EXERCISE YOUR OPTIONS, YOUR PROMPT ATTENTION TO THIS MATTER IS REQUIRED.
Please review the attached memorandum. If you decide to file a Section
83(b) Election, a form of Section 83(b) Election is enclosed for your
convenience. However, the timely filing of a Section 83(b) Election is solely
your responsibility. Please follow the filing instructions contained in the
memorandum.
We strongly recommend that you consult with your personal tax or
financial advisor to determine whether filing a Section 83(b) Election is
appropriate for you.
Very truly yours,
TELOCITY, INC.
By: /s/ MICHAEL GALLO
----------------------------------
Enclosures
<PAGE> 20
GRAY CARY WARE & FREIDENRICH
MEMORANDUM
TO: Optionees under the Telocity, Inc. 1998 Stock Option Plan
FROM: Gray Cary Ware & Freidenrich
DATE: September 1, 1998
RE: Election Under Section 83(b) of the Internal Revenue Code Upon
Exercise of Nonstatutory Stock Option to Purchase Unvested
Shares
- --------------------------------------------------------------------------------
As counsel to Telocity, Inc. (the "Company"), we have been asked to
prepare this memorandum to alert optionees exercising a nonstatutory stock
option to purchase shares subject to the Unvested Share Repurchase Option of the
potential application of an election under Section 83(b) (a "Section 83(b)
Election") of the Internal Revenue Code of 1986 and a similar section of the
California Revenue and Taxation Code (collectively referred to as "Section 83").
AN OPTIONEE WHO WISHES TO MAKE A SECTION 83(b) ELECTION MUST MAKE SUCH ELECTION
WITHIN THIRTY (30) DAYS OF THE DATE ON WHICH THE UNVESTED SHARES WERE ACQUIRED.
ACCORDINGLY, PROMPT ATTENTION TO THIS MATTER IS REQUIRED.
This information is intended to be a general summary of the issues
involved for federal income tax purposes as of the date set forth above. An
optionee's particular circumstances may result in consequences different from
those described. In addition, the application of state, local, and foreign tax
consequences is beyond the scope of this memorandum. Optionees are advised,
therefore, to consult their own tax advisor regarding the tax consequences to
the optionee of the exercise of an incentive stock option and subsequent sale of
the stock.
An optionee who elects to exercise his or her nonstatutory stock option
to acquire unvested shares ("Unvested Shares") is subject to the Company's
Unvested Share Repurchase Option (the "Repurchase Right") set forth in the
option agreement. The Repurchase Right grants the Company the right to reacquire
at the optionee's original exercise price any shares remaining unvested on the
optionee's termination of employment. By filing a Section 83(b) Election with
the Internal Revenue Service (the "IRS") within thirty (30) days of the
acquisition of the Unvested Shares, the optionee may change the amount of
ordinary income recognized and the characterization of any gain recognized on a
subsequent sale of the Unvested Share.
1. Section 83 and Treatment of Nonstatutory Stock Option. If an
optionee exercises a nonstatutory stock option to purchase stock of his employer
that is subject to a Repurchase Right, the excess, if any, of the fair market
value of the stock on the date or dates the Repurchase
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<PAGE> 21
Right lapses over the amount paid for such stock is includable in the gross
income of the optionee in the year such Repurchase Right lapses.
To avoid the potential characterization of post-exercise appreciation
as ordinary income and to defer the payment of tax on such appreciation until
the stock is sold, the optionee may file an election (a "Section 83(b)
election") with the Internal Revenue Service within 30 days of the option
exercise date. The election details the terms of the transaction, and by making
the election the optionee agrees to report as ordinary income in the year of
purchase the excess, if any, of the fair market value per share of the stock on
the option exercise date (without regard to the Repurchase Right) over the
exercise price paid per share.
If the exercise occurs when the fair market value is equal to the
exercise price, there will be no difference between the fair market value of the
stock on the option exercise date and the amount paid for such stock. Therefore,
a Section 83(b) election will not cause any immediate recognition of gain.
(However, if the fair market value of the stock increases between the option
grant date and the option exercise date, a Section 83(b) election will result in
such increase being taxable in the year of the purchase. Although the Section
83(b) election states what the employee believes to be the fair market value of
the stock, neither the optionee's nor the Company's determination of the stock's
fair market value is binding on the taxing authorities, who might assert that
the stock had a higher fair market value on the option exercise date than stated
on the Section 83(b) election.) By filing a Section 83(b) election, any gain
recognized by the optionee on the stock attributable to post-exercise
appreciation will be treated as a capital gain and will only be taxed at such
time as the optionee sells the stock.
2. Section 16(b) of the Securities Exchange Act of 1934. Employees
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, as amended, (that is, officers directors and major shareholders of most
public companies), should be aware that the stock acquired on exercise of an
option is deemed subject to a Repurchase Right (whether or not vested) for so
long as the sale of the stock at a profit would subject the employee to suit
under Section 16(b). Such employees may file a Section 83(b) election with
respect to such deemed Repurchase Right. If the shares of stock are both
unvested and subject to a deemed Section 16(b) Repurchase Right, a Section 83(b)
election, if any is filed, will apply to both the vesting restriction and the
Section 16(b) restriction.
3. Making the Election.
(a) Federal. If you elect to file a Section 83(b) Election,
you must do so within thirty (30) days of the date on which you exercised your
option. If you have purchased Unvested Shares, the Company will provide you with
a form of Section 83(b) Election for your convenience. If you would like to file
a Section 83(b) Election, you should sign the original, fill in your social
security number and address under Item 1, and mail a signed and dated original
and one photocopy of the Section 83(b) Election to the IRS office where you file
your federal income tax return. We recommend that the Section 83(b) Election be
mailed certified mail, return receipt requested and that the letter transmitting
the election request acknowledgment of receipt of the election by signing and
dating or received-stamping the enclosed photocopy of the
2
<PAGE> 22
Section 83(b) Election. A self-addressed stamped envelope must be included for
purposes of returning the acknowledgment copy.
If you file the Section 83(b) Election, you must send a photocopy of
the election to the Company for its records.
You should also retain a copy of the Section 83(b) Election in your
files.
YOU MUST FILE AN ADDITIONAL COPY OF THE SECTION 83(b) ELECTION WITH
YOUR FEDERAL INCOME TAX RETURN FOR THE TAXABLE YEAR IN WHICH THE SHARES WERE
PURCHASED.
(b) State. If a proper Section 83(b) Election is filed with
the IRS, such election is deemed to be a proper election for California income
tax purposes as well. A copy of the federal election should be furnished to the
California Franchise Tax Board only upon request.
Residents of states other than California should consult with their
personal tax or financial advisor to determine the state and local tax
consequences with respect to the purchase of the shares.
4. Incentive Stock Options. If an optionee purchases stock upon the
exercise of an option which qualifies as an incentive stock option for income
tax purposes, a number of different rules apply. Additional information is
available with respect to such options.
5. Consultation with Tax Advisors. The tax consequences of nonstatutory
stock options are complex and subject to change. In addition, the circumstances
of a particular employee may result in some variation of the above-described
rules, and the application of state, local, or foreign taxes may affect an
employee's situation. Accordingly, employees are urged to consult with their own
personal tax advisor prior to the exercise of any option and prior to the sale
of any shares of stock acquired in connection with such exercises.
3
<PAGE> 23
Section 83(b) Election Form
(For Nonstatutory Stock Options)
___________________, 199__
Internal Revenue Service
[IRS Service Center
where Form 1040 is filed]
RE: SECTION 83(b) ELECTION
NAME OF OPTIONEE: _________________________
SSN: ___________________________
Dear Sir or Madam:
The following information is submitted pursuant to section 1.83-2 of
the Treasury Regulations in connection with this election by the undersigned
under section 83(b) of the Internal Revenue Code of 1986, as amended (the
"Code").
1. The name, address and taxpayer identification number of the
taxpayer are:
Name:________________________________________________
Address: ____________________________________________
Soc. Sec. No.: ____________________________________
2. The following is a description of each item of property with
respect to which the election is made:
________________ shares of common stock of Telocity,
Inc (the "Shares"), purchased from Telocity, Inc.
(the "Company") pursuant to a nonstatutory stock
option.
3. The property was transferred to the undersigned on:
___________________, 199__.
The taxable year for which the election is made is:
Calendar, 199__.
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<PAGE> 24
4. The nature of the restriction to which the property is
subject:
The Shares are subject to repurchase by the Company
or its assignee upon the occurrence of certain
events. This repurchase right lapses with regard to a
portion of the Shares based upon the continued
performance of services by the taxpayer over time.
5. The following is 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 each
property with respect to which the election is made:
$________________ (____________ Shares at $__________
per share).
The property was transferred to the taxpayer pursuant to the
exercise of a nonstatutory stock option.
6. The following is the amount paid for the property:
$________________ (____________ Shares at $__________
per share).
7. A copy of this election has been furnished to the Company, the
corporation for which the services were performed by the
undersigned.
Please acknowledge receipt of this election by date or
received-stamping the enclosed copy of this letter and returning it to the
undersigned. A self-addressed stamped envelope is provided for your convenience.
Very truly yours,
_________________________________________
Enclosures
cc: Telocity, Inc
2
<PAGE> 25
Sample Transmittal Letter to Internal Revenue Service with
83(b) Election
[Name]
[Address]
[Address]
_____________________, 19__
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
[IRS Service Center
where Form 1040 Filed]
Re: Section 83(b) Election
Name of Taxpayer: _______________________________
SSN: ____________________________
Dear Sir or Madam:
Enclosed please find an original and one copy of an election under
section 83(b) of the Internal Revenue Code of 1986, as amended.
Please acknowledge receipt of the enclosed by date- or receive-stamping
the enclosed copy of the election and returning it to the undersigned. A
self-addressed stamped envelope is enclosed for your convenience.
Very truly yours,
_________________________________________
[Signature]
Enclosures
<PAGE> 26
Acknowledgment of Receipt of 83(b) Materials
ACKNOWLEDGMENT OF RECEIPT
OF SECTION 83(b) MATERIALS
The undersigned optionee ("Optionee") hereby acknowledges receipt of a
form for making an election pursuant to section 83(b) of the Internal Revenue
Code of 1986, as amended, and a memorandum regarding such election in connection
with the Optionee's exercise of an immediately exercisable stock option under
the Telocity, Inc. 1998 Stock Option Plan.
Dated: ________________________ ____________________________________
Signature
____________________________________
Name printed
<PAGE> 1
EXHIBIT 10.25
MARKET DEVELOPMENT AGREEMENT
This Market Development Agreement ("Agreement") is made this Oct 5 day of 1999,
by and between BellSouth Business Systems, Inc. ("BBS"), a Georgia corporation,
and Telocity, Inc. ("Company").
WHEREAS, BBS markets and sells on behalf of BellSouth Telecommunications, Inc.
("BST"), Asymmetric Digital Subscriber Line services ("ADSL"), a technology
provisioned on end user telephone lines that enables high speed access to the
Internet and other destinations;
WHEREAS, BBS desires to achieve market awareness about ADSL, a new technology
relatively unknown to the market to date; and
WHEREAS, Company has the resources and desires to market the ADSL technology,
but requires funding for its operational and advertising efforts.
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
parties agree as set forth below.
I. ADVERTISING
A. Media. Company will create or increase market awareness of the
ADSL technology in the consumer or small business markets
through one or more of the following forms of media:
- direct mail
- outbound telemarketing
- website
- e-mail communication
- Internet banner advertising
- radio or TV broadcasting
- billboard advertising
- newspapers
- magazines
- door-to-door campaigns.
B. Coordination. BBS will provide Company with information about
the locations where BST's ADSL service is or will be available
by December 31, 1999. Company will coordinate its advertising
campaign with BST's 1999 projected deployment schedule and
target end users in areas where and when BST's ADSL service is
or will be available.
C. Timing. Company's advertising will begin on or before October
15, 1999 in anticipation of the 1999 Christmas holiday
shopping season.
II. OPERATIONS
Company will develop methods and procedures, train personnel and create
mechanized tools to be operationally ready to take end users' orders
for ADSL services by October 15, 1999.
III. FUNDING
A. Sales. BBS will provide funding for Company's successful
launch of ADSL services. Company's success in advertising and
operational readiness for ADSL services will be measured and
rewarded based upon Company's sales of BST ADSL lines in
services BY
<PAGE> 2
MARCH 31, 2000 AND REMAINING IN SERVICE UNTIL AT LEAST
JUNE 30, 2000 as set forth in the following table.
<TABLE>
<CAPTION>
Number of Installed ADSL Lines Marketing Dollars per ADSL Line
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
B. Payments. BBS will pay Company a marketing fee according to
the number of BST ADSL lines Company has successfully placed
in service by December 31, 1999, and maintained until March
21, 2000. Payment of such a fee will be paid incrementally as
follows. On or before December 15, 1999, BBS will make the
first payment per ADSL line placed in service by Company and
installed by BST as of November 30, 1999, according to the
table set forth above. The parties will true-up such prior
payment based on Company's total BST ADSL lines in service on
February 15, 2000, and again, on March 31, 2000. Actual
payment will be made no later than fifteen (15) days after
each true-up date. For further clarification, the true-up
process is described as follows. If from November 30, 1999 to
December 31, 1999, the number of ADSL lines placed and
maintained in service by Company increases, and that number of
such ADSL lines is maintained in service by Company on
February 15, 2000, BBS will remit to Company, on or before
March 1, 2000, the balance of marketing dollars per such ADSL
line according to the table above. If such additional number
of ADSL lines in service increases the level of marketing
dollars payable per line, BBS will also remit the additional
amount of marketing dollars payable on the lines already paid
previously according to the table above. On the other hand, if
the Company total number of ADSL lines in service decreases in
any manner, Company will remit back to BBS the amount of
overage originally paid. The final true up will occur on March
31, 2000, and, if a remittance back to BBS is required,
Company will pay BBS no later than April 15, 2000.
IV. RELATIONSHIP OF THE PARTIES
This Agreement is not intended by the parties to constitute or create a
joint venture, partnership or formal business organization of any kind,
and the rights and obligations of the parties shall be only those
expressly set forth herein. The parties shall be independent entities
from each other for all purposes at all times; neither party shall act
as agent for, or representative of the other and the employees of one
shall not be deemed to be employees of the other. Nothing herein shall
be construed as providing for the sharing of profits or losses arising
out of the efforts of any of the parties.
V. LIABILITY
Each party to this Agreement shall be solely, individually, and
separately responsible for its own risks, costs, expenses, and
liability of any kind that it may incur by reason of its obligations
under this Agreement. Further, in no event shall any party to this
Agreement be liable to the other party to this Agreement for
consequential, indirect or incidental damages arising out of the
advertising campaign pursuant to this Agreement or the sale or
provision of service directly or indirectly related to this Agreement.
Finally, Company shall hold BBS and BST harmless for BST's failure to
rollout ADSL services according to the schedule provided to Company in
accordance with Section I above. Such failure shall not relieve Company
from its sales target required in order to qualify for the marketing
funding set forth in Section III above.
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
2
<PAGE> 3
VI NON-EXCLUSIVE AGREEMENT
In no event does this Agreement limit the right of any party to enter
into a marketing agreement with any other third party for the purpose
of creating market awareness of the ADSL technology.
VII. CONFIDENTIAL INFORMATION
The parties acknowledge that disclosure of information is necessary
between the parties with regard to the planning and preparation for the
coordination of Company's advertising campaign with BST's ADSL rollout
schedule. Such information includes, but is not limited to, technical
and business plans, technical information, specifications, drawings,
products, and services. Accordingly, the parties understand that they
may disclose to each other information that may be considered
confidential and proprietary. Unless such confidential information was
previously known to the obtaining party free of any obligation to keep
it confidential or has been or is subsequently made public by the other
or a third party, the obtaining party shall use the same degree of care
in keeping it confidential as it does its own confidential information.
Such confidential information shall be used only in the performance of
obligations hereunder, and may be used for other purposes only upon
such terms as may be agreed upon in writing.
VIII. ASSIGNMENT
This Agreement may not be assigned or otherwise transferred by either
party in whole or part without the express prior written consent of the
other party, which consent will not be unreasonably withheld.
IX. ENFORCEABILITY
If any part, term or provision of this Agreement shall be held void,
illegal, unenforceable, or in conflict with any law, regulation or
order of a federal, state or local government agency or court thereof
having jurisdiction over this Agreement or the parties, the validity of
the remaining portions or provisions shall not be affected thereby.
VII. PUBLICITY
Any news release, public announcement, advertisement or publicity
released by either party concerning this Agreement will be subject to
prior mutual agreement. Any such publicity shall give appropriate
credit to the contribution of each party. Company agrees to submit to
BBS all advertising, sales promotions, press releases, and other
publicity matters relating to this Agreement or mentioning or implying
the trade names, logos, trademarks or service marks (collectively
called "Marks") of BellSouth Corporation and/or any of its affiliated
companies or language from which the connection of said Marks therewith
may be inferred or implied, or mentioning or implying the names of any
personnel of BellSouth Corporation and/or any of its affiliated
companies, Company further agrees not to publish or use such
advertisements, sales promotions, press releases, or publicity matters
without BBS's prior written consent.
XI. MODIFICATION AND WAIVER
This Agreement shall not be amended or modified, nor shall any waiver
or any right hereunder be effective, unless set forth in a document
executed by authorized representatives of the parties. The waiver of
any breach of any term, covenant or condition contained herein shall
not be deemed to be a waiver of such term, covenant or condition.
XII. NOTICES
3
<PAGE> 4
All notices, certificates, acknowledgments and other reports hereunder
shall be in writing and shall be deemed properly delivered when duly
mailed to the other party at its address as follows, or to such other
address as either party may, by written notice, designate to the other.
<TABLE>
<CAPTION>
BellSouth Business Systems, Inc. Company
<S> <C>
Suite 600 Steve Ghareeb
2400 Century Pkwy Telocity, Inc.
Atlanta, GA 30345 10355 N. De Anza Blvd.
ATTN: Chuck Carr ATTN: Cupertino, CA 95014-2027
</TABLE>
XIII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia.
XIV. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may not be
modified except in accordance with the provisions herein.
XV. EXECUTION
The parties may execute this Agreement in counterparts. Each such
counterpart copy of the Agreement executed by all parties shall be
deemed an original and complete executed Agreement.
IN WITNESS WHEREOF, the parties have caused their representative
authorized representatives to sign this Agreement.
<TABLE>
<CAPTION>
BELLSOUTH BUSINESS SYSTEMS, INC. COMPANY
<S> <C>
By: /s/ [Signature Illegible] By: /s/ PETER D. OLSON
- ------------------------------- ------------------------------
Title: President - BBS Title: Exec Vice Pres
- ------------------------------- ------------------------------
Date: Date: 10/5/99
- ------------------------------- ------------------------------
</TABLE>
4
<PAGE> 5
AGREEMENT FOR PROVISION OF LIST OF ADSL QUALIFIED LOOPS
The undersigned customer (hereinafter "customer") has made an election
to take ADSL service from BellSouth Telecommunications, Inc., (hereinafter "
Company"). ADSL service is provided pursuant to and subject to the terms and
conditions of the Company's Federal Communications Commission Tariff No. 1.
The customer has further requested a list of telephone numbers of ADSL
qualified loops (hereinafter "bulk list") for each metropolitan area
(hereinafter "metro") where customer plans to sell ADSL service. The list of
such metros is contained in the ADSL Letter of Election signed by the customer.
In consideration of the terms and conditions enumerated below, the Company
hereby agrees to provide the bulk list to the customer:
1. The Company makes no claim as to the accuracy or completeness
of the bulk list While the bulk list is the Company's best estimation as to the
telephone numbers that qualify for ADSL service in a given area, the bulk list
will contain errors. Some telephone numbers on the bulk list will not qualify
for ADSL service. Some telephone numbers in a given metro not on the list will
indeed qualify for ADSL service.
2. The customer will indemnify, defend, and hold harmless the
Company and any of its licensors, employees, or agents from and against any and
all claims, demands, actions, causes of action, suits, proceedings, losses,
damages, costs, and expenses, including reasonable attorneys' fees, arising from
or relating to errors and/or omissions in the bulk list.
3. The customer is responsible for acting within the local,
state, and federal law governing the use of the bulk list for the purpose of,
but not limited to, marketing of BellSouth's ADSL service through direct mail or
telemarketing. Furthermore, the customer hereby agrees to refrain from abusive
telemarketing practices.
4. The customer will indemnify, defend, and hold harmless the
Company and any of its licensors, employees, or agents from and against any and
all claims, demands, actions, causes of action, suits, proceedings, losses,
damages, costs, and expenses, including reasonable attorneys' fees, arising from
or relating to use of the bulk list by the customer. This includes, but is not
limited to, use of the bulk list by the customer to sell BellSouth's ADSL
service via direct mail and/or telemarketing.
5. Customer agrees that it will use the bulk list and/or any
information directly derived from the bulk list for the sole purpose of
qualifying and selling BellSouth ADSL service (whether by itself or in a package
of other offerings).
6. Customer will not use the bulk list for the purpose of
conducting research, marketing, qualifying, or selling products and/or services
other than the Company's ADSL service (or a package of services containing
Company's ADSL service).
<PAGE> 6
7. Customer will not provide the bulk list, any portion or
portions of the bulk list, copies of the bulk list, or any information derived
directly from the bulk list to others without the prior written consent of the
Company.
8. Customer acknowledges and agrees to the Company's right to
revoke and terminate the use of the bulk list by the customer. The Company may
exercise this right of revocation and/or termination at any time, for any
purpose, by oral or written notice to the customer. In such event, the customer
agrees to immediately destroy or return all copies and/or components of the bulk
list. For purposes of this paragraph, the term "immediately" shall be defined
as a period of time not to exceed forty-eight (48) hours.
BY: /s/ STEVEN D. GHAREEB TITLE: Dir. Business Development
---------------------------- Telocity, Inc.
SUBSCRIBER/COMPANY NAME:
ADDRESS: 992 S. De Anza Blvd.
San Jose, CA 95129
BELLSOUTH TELECOMMUNICATIONS, INC.
BY: /s/ [Signature Illegible]
-----------------------------
TITLE: AVP
------------------------------
DATE:
------------------------------
<PAGE> 7
ADSL SERVICE LETTER OF ELECTION
The undersigned customer (hereinafter "customer") requests BellSouth
Telecommunications, Inc. (hereinafter "Company") to provide service as described
below:
1. Service is provided pursuant to, and subject to the terms and condition
of the Federal Communications Commission Tariff No. 1.
2. ADSL region-wide volume commitment is (check one):
<TABLE>
<S> <C>
51 - 500 7,501 - 10,000
----- -----
501 - 2,500 10,001 - 40,000
----- -----
2,501 - 5,000 x 40,001 and up
----- -----
5,001 - 7,500
-----
</TABLE>
3. Customers specifying volume commitments of from 5 1-40,000 virtual
circuits (VCs) will have 24 months to meet the commitment level.
Customers specifying volume commitments of 40,001 virtual circuits
(VCs) and up will have 36 months to meet the commitment level. If the
customer does not meet the level of commitment in the appropriate
initial period, a shortfall charge will apply (as illustrated in the
example attached).
4. The customer must purchase or have available a suitable ATM connection
prior to ordering ADSL service. Indicate all metros where the customer
plans to have ATM available in connection with its provision of ADSL.
The company will provide the list of qualified loops for all metros
indicated:
<TABLE>
<CAPTION>
Customer requested Company expected
ATM service date: ATM service date*
<S> <C> <C> <C>
X Atlanta 9/1/99
- ----- ---------------- -----------------
Birmingham
- ----- ---------------- -----------------
Charlotte
- ----- ---------------- -----------------
X Ft. Lauderdale 9/1/99
- ----- ---------------- -----------------
Jacksonville
- ----- ---------------- -----------------
New Orleans
- ----- ---------------- -----------------
Raleigh
- ----- ---------------- -----------------
others TBD
</TABLE>
* This is the earliest date on which ATM service can be reasonably be made to
the customer (this column to be completed by the Company).
5. Customer designated E-mail address for loop qualification is TBD.
<PAGE> 8
6. The ADSL billing to the customer begins when the Company order
completes, which is generally at least 72 hours after the order is
placed.
7. Rates and charges applicable to this agreement are those in effect in
accordance with the tariff on the date the Company receives a signed
original of this agreement and all correct information to establish a
miscellaneous billing account, which shall evidence the customer's firm
commitment for the service.
8. The foregoing service is provided in accordance with the Company's
lawfully filed tariffs, including any changes therein as may be made
from time to time.
<TABLE>
<S> <C>
BY: /s/ STEVEN D. GHAREEB TITLE: Dir. Business Development
- -----------------------------------
CUSTOMER: Telocity, Inc.
ADDRESS: 992 S. De Anza Blvd.
San Jose, Ca 95129
BELLSOUTH Telecommunications, Inc.
BY: /s/ [Signature Illegible]
-------------------------------
TITLE: AVP
-------------------------------
Date Accepted:
--------------------
</TABLE>
<PAGE> 9
ADSL SERVICE LETTER OF ELECTION
ATTACHMENT
<TABLE>
<CAPTION>
Example Scenario Assumption Set:
ISP commits to 10,001-40,000 unit volume tier, qualifying for a $30/month ADSL unit price
After the conclusion of the 24-month ramp-up period, ISP actually achieved 8,000 customers
-------------------------- -------------------------------------
Reconciliation After Initial 24-Month
Monthly/Cumm Billings Period
- ---------- -------- ----- --------------------- -------------------------- -------------------------------------
# Month's Calendar Month [ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE]
of Service Year
- ---------- -------- ----- --------------------- -------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1998 Sep $ 45
2 Oct $ 45
3 Nov $ 45
4 Dec $ 45
- ---------- -------- ----- --------------------- -------------------------- -------------------------------------
5 1999 Jan $ 42
6 Feb $ 42
7 Mar $ 42
8 Apr $ 42
9 May $ 42
10 Jun $ 42
11 Jul $ 42
12 Aug $ 42
13 Sep $ 45
14 Oct $ 42
15 Nov $ 37
16 Dec $ 37
- ---------- -------- ----- --------------------- -------------------------- -------------------------------------
17 2000 Jan $ 37
18 Feb $ 37
19 Mar $ 37
20 Apr $ 37
21 May $ 34
22 Jun $ 34
23 Jul $ 34
24 Aug 8,000 $1,857,300 $ 32 $408,140
- ---------- -------- ----- --------------------- -------------------------- -------------------------------------
</TABLE>
<PAGE> 10
LIGHTGATE(SM) SERVICE
TRANSPORT PAYMENT PLAN
The undersigned customer (hereinafter "customer") requests BellSouth
(hereinafter "Telephone Company") to provide LightGate(SM) Service as described
below.
1. LightGate Service is provided pursuant to and in accordance with the
BellSouth Companies Tariff F.C.C. No. 1, including the Transport Payment Plan
(TPP) as it applies to LightGate Service.
2. The LightGate Service provided to the customer shall consist of the
locations and configuration described in Exhibit 1 and all rate elements which
are consequently added to such configuration.
3. The service capacity desired is (check one):
- LightGate 1 [ ] - LightGate 2 [ ]
- LightGate 3 [ ] - LightGate 4 [ ]
- LightGate OC3 [X] - LightGate OC12 [ ]
- LightGate OC48 [ ]
4. The TPP payment plan and service period for this service is:
- Payment plan A for 36 months
- Payment plan B for __ months
- Payment plan C for __ months
5. The earliest date on which this service can reasonably be made available
to the customer is __________________ (to be completed by the Telephone
Company). There is no standard service interval for this service.
6. The service date requested by the customer is 9/30/99.
7. The service period shall commence on the actual service date, i.e., the
date the service is actually made available to the customer.
8. The Application Date is the date the Telephone Company receives a signed
original of this Agreement and all correct information needed to start the
ordering process, which shall evidence the customer's firm commitment for the
service.
<PAGE> 11
9. Rates and charges applicable to this Agreement are those in effect in
accordance with the tariff on the:
(check one)
[X] Application Date (if the service date requested by the customer is
earlier than or the same as the date in paragraph 5 above).
[ ] Actual service date (if the service date requested by the customer is
later than the date in paragraph 5 above).
10. The foregoing service is provided in accordance with the Telephone
Company's lawfully filed tariffs, including any changes therein as may be made
from time to time, except that the applicable rates and charges for the service
described herein shall not be subject to any Telephone Company-initiated rate
changes.
BY: /s/ [SIGNATURE ILLEGIBLE] TITLE: Controller
------------------------- ----------------------
SUBSCRIBER: Telocity, Inc.
---------------------------------------------------------
ADDRESS: 10355 De Anza Blvd., Cupertino, CA 95014
---------------------------------------------------------
BellSouth
BY: /s/ [SIGNATURE ILLEGIBLE]
--------------------------
TITLE: AVP
-------------------------
ACCEPTED: 9/1/99
----------------------
<PAGE> 12
[COPY ILLEGIBLE]
EXHIBIT 1 - LIGHTGATE Service
Customer: Telocity
Customer Location #1
NPA/NXX 404-724
245 Courtland Street NE 1st Flr
Atlanta, Ga 30308
BellSouth CO-ATLNGACS
<TABLE>
<CAPTION>
Qty Item USOCs NRC MRC
- --- ---- ----- --- ---
[COPY ILLEGIBLE]
<S> <C> <C> <C> <C>
LOCAL CHANNEL - 0.45 MILES
1 LightGate OC3 System (includes first half mile) HFSOW $0 $2,560
1 Customer OC3 Interface 1PQF5 $235 $190
Total $235 $2,750
</TABLE>
Customer Location #2
NPA/NXX 305-530
49 NW 5th Street
Miami, FL 33128
BellSouth CO-MIAMFLGR
<TABLE>
<CAPTION>
Qty Item USOCs NRC MRC
- --- ---- ----- --- ---
<S> <C> <C> <C> <C>
[COPY ILLEGIBLE]
LOCAL CHANNEL - 0.086 MILES
1 LightGate OC3 System (includes first half mile) HFSOW $0 $2,560
1 Customer OC3 Interface 1PQF5 $235 $190
Total $235 $2,750
Total for both locations $470 $5,500
See ATM EXHIBIT 1 for additional Charges
</TABLE>
<PAGE> 13
FAST PACKET SERVICES PAYMENT PLAN AGREEMENT
The undersigned customer (hereinafter "customer") requests BellSouth
Telecommunications, Inc. (hereinafter "Telephone Company:) to provide service
as described below.
1. Service is provided pursuant to and in accordance with the Federal
Communications Commission 1 Tariff, including the Fast Packet Services
Payment Plan (FPSPP).
2. The service type desired is (check one):
Exchange Access Frame Relay Service
Exchange Access Connectionless Data Service
X Exchange Access Asynchronous Transfer
Mode Service
3. The FPSPP payment plan and service period for this service are:
Plan A for __ months.
Plan B for 36 months.
4. The earliest date on which this service can reasonably be made available to
the customer is _____________ (to be completed by the Telephone Company).
5. The service date requested by the customer is 9/30/99.
6. The service period shall commence on the actual service date, i.e., the
date the service is actually made available to the customer.
7. The application date is the date the Telephone Company receives a signed
original of this Agreement and all correct information needed to start the
ordering process, which shall evidence the customer's firm commitment for
the service.
8. Rates and charges applicable to this Agreement are those in effect in
accordance with the tariff on the:
X Application Date (provided that the actual service date does not
-------- exceed the later of (1) the Service Date under a standard service
interval, or (2) the earliest date on which service can
reasonably be made available to the customer by the Telephone
Company).
Actual service date (if the customer desires a service date
-------- later than as provided in the Application Date discussion
preceding).
<PAGE> 14
Fast Packet Services Payment Plan
Page 2
9. The foregoing service is provided in accordance with the Telephone
Company's lawfully filed tariffs, including any changes therein as may be
made from time to time, except that the applicable rates and charges for
the service described herein shall not be subject to any Telephone Company
initiated rate increases for the period of the agreement.
BY: /s/ [SIGNATURE ILLEGIBLE] TITLE: Controller
---------------------------------
SUBSCRIBER: Telocity, Inc.
ADDRESS: 10355 De Anza Blvd. Cupertino, CA 95014
BELLSOUTH Telecommunications, Inc.
BY: /s/ [SIGNATURE ILLEGIBLE]
---------------------------------
TITLE: AVP
DATE ACCEPTED: 9/1/99
<PAGE> 15
[COPY ILLEGIBLE]
EXHIBIT 1 - ATM CONNECTION
Customer: Telocity
Customer Location #1
NPA/NXX 404-724
345 Courtland Street NE 1st Flr
Atlanta, Ga 30308
BellSouth CO ATM switch-ATLNGACS
<TABLE>
<CAPTION>
Qty Item USOCs NRC MRC
- --- ---- ----- --- ---
[COPY ILLEGIBLE]
<S> <C> <C> <C> <C>
ATM CONNECTION
1 OC3 ATM Network Interface XAA17 $1,000 $2,880
1 UBR XAAA7 $0 $500
1 PVC XAAUS $70 $5
Total $1,070 $3,385
</TABLE>
Customer Location #2
NPA/NXX 305-530
49 NW 5th Street
Miami, FL 33128
BellSouth CO ATM switch-MIAMFLGR
<TABLE>
<CAPTION>
Qty Item USOCs NRC MRC
- --- ---- ----- --- ---
<S> <C> <C> <C> <C>
[COPY ILLEGIBLE]
ATM CONNECTION
1 OCS ATM Network Interface XAA17 $1,000 $2,880
1 UBR XAAA7 $0 $500
1 PVC XAAUS $70 $5
Total $1,070 $3,385
Total for both locations $2,140 $6,770
See LightGate EXHIBIT 1 for additional Charges
</TABLE>
<PAGE> 16
LIGHTGATE(SM) SERVICE
TRANSPORT PAYMENT PLAN
The undersigned customer (hereinafter "customer") requests BellSouth
(hereinafter "Telephone Company") to provide LightGate(SM) Service as described
below.
1. LightGate Service is provided pursuant to and in accordance with the
BellSouth Companies Tariff F.C.C. NO. 1, including the Transport Payment Plan
(TPP) as it applies to LightGate Service.
2. The LightGate Service provided to the customer shall consist of the
locations and configuration described in Exhibit 1 and all rate elements which
are consequently added to such configuration.
3. The service capacity desired is (check one):
- LightGate 1 X - LightGate 2
--- ---
- LightGate 3 - LightGate 4
--- ---
- LightGate OC3 - LightGate OC12
--- ---
- LightGate OC48
---
4. The TPP payment plan and service period for this service is:
- Payment plan A for 36 months
---
- Payment plan B for months
---
- Payment plan C for months
---
5. The earliest date on which this service can reasonably be made available
to the customer is _________________ (to be completed by the Telephone
Company). There is no standard service interval for this service.
6. The service date requested by the customer is 09/30/99 .
----------------------
7. The service period shall commence on the actual service date, i,e. the
date the service is actually made available to the customer.
8. The Application Date is the date the Telephone Company receives a signed
original of this Agreement and all correct information needed to start the
ordering process, which shall evidence the customer's firm commitment for the
service.
<PAGE> 17
9. Rates and charges applicable to this Agreement are those in effect in
accordance with the tariff on the:
(check one)
___ Application Date (if the service date requested by the customer is
earlier than or the same as the date in paragraph 5 above).
X Actual service date (if the service date requested by the customer is
later than the date in paragraph 5 above).
10. The foregoing service is provided in accordance with the Telephone
Company's lawfully filed tariffs, including any changes therein as may be made
from time to time, except that the applicable rates and charges for the service
described herein shall not be subject to any Telephone Company-initiated rate
changes.
BY: /s/ [Signature Illegible] TITLE: Director
----------------------------- -----------------------------
SUBSCRIBER: Telocity, Inc.
----------------------------------------------------------
ADDRESS: 10355 N. De Anza Blvd., Cupertino 95014
-------------------------------------------------------------
BellSouth
BY: /s/ [Signature Illegible]
----------------------------
TITLE: AVP
-------------------------
ACCEPTED: 9/1/99
----------------------
<PAGE> 18
FAST PACKET SERVICES PAYMENT PLAN AGREEMENT
The undersigned customer (hereinafter "customer") requests BellSouth
Telecommunications, Inc. (hereinafter "Telephone Company") to provide service
as described below.
1. Service is provided pursuant to and in accordance with the Federal
Communications Commission 1 Tariff, including the Fast Packet Services
Payment Plan (FPSPP).
2. The service type desired is (check one):
Exchange Access Frame Relay Service
Exchange Access Connectionless Data Service
X Exchange Access Asynchronous Transfer
Mode Service
3. The FPSPP payment plan and service period for this service are:
Plan A for months.
Plan B for 36 months.
4. The earliest date on which this service can reasonably be made available
to the customer is ________________ (to be completed by the Telephone
Company).
5. The service date requested by the customer is 09/30/99 .
--------------------
6. The service period shall commence on the actual service date, i.e., the
date the service is actually made available to the customer.
7. The application date is the date the Telephone Company receives a signed
original of this Agreement and all correct information needed to start the
ordering process, which shall evidence the customer's firm commitment for
the service.
8. Rates and charges applicable to this Agreement are those in effect in
accordance with the tariff on the:
Application Date (provided that the actual service date does not
exceed the later of (1) the Service Date under a standard service
interval, or (2) the earliest date on which service can reasonably be
made available to the customer by the Telephone Company).
X Actual service date (if the customer desires a service date later
than as provided in the Application Date discussion preceding).
<PAGE> 19
Fast Packet Services Payment Plan
Page 2
9. The foregoing service is provided in accordance with the Telephone
Company's lawfully filed tariffs, including any changes therein as may be
made from time to time, except that the applicable rates and charges for
the service described herein shall not be subject to any Telephone Company
initiated rate increases for the period of the agreement.
BY: /s/ [Signature Illegible] TITLE: Director
---------------------------------
SUBSCRIBER: Telocity, Inc.
ADDRESS: 10355 N. De Anza Blvd., Cupertino, CA
BELLSOUTH Telecommunications, Inc.
BY:
TITLE:
DATE ACCEPTED:
<PAGE> 20
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
[COPY ILLEGIBLE]
- ------------------------------------------------------------------------------------------------------------------------------------
(ATLANTA, GEORGIA) UNIT PRICES
---------------------------------- -------------------------------
QTY ITEM USOCs [COPY ILLEGIBLE] [COPY ILLEGIBLE]
- --- ---- ----- ---------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LOCAL CHANNEL FOR LOCATION A
1 LightGate 1 System (includes first half mile) HFSC6/7 $ 300 $1,800 $1,600 $1,450 $1,300
0 Additional Half Miles of Local Channel 1LPEA 0 0 0 0 0
1 Async Central Office Interface - per DS3 1PQEC 180 115 70 70 70
0 Async Central Office Interface - per DS1 1PQE1 0 0 0 0 0
1 Async Customer Premises Interface - per DS3 1PQEP 235 115 70 70 70
0 Async Customer Premises Interface - per DS1 1PQE2 0 0 0 0 0
0 SAFT I per system 1LBEA 0 0 0 0 0
0 SAFT I Per half mile 1LBEA 0 0 0 0 0
0 SAFT II per system 1LBEP 0 0 0 0 0
0 SAFT II per half mile 1LBEP 0 0 0 0 0
INTEROFFICE CHANNEL
0 Per DS3, Mileage band 0-8 Fixed, per System 1LPS8 0 0 0 0 0
0 Mileage band 0-8, Per Mile 1LPE8 0 0 0 0 0
0 Per DS3, Mileage band 9-25 Fixed, per System 1LPS9 0 0 0 0 0
0 Mileage band 9-25, Per Mile 1LPE9 0 0 0 0 0
0 Per DS3, Mileage band 26+ Fixed, per System 1LPS6 0 0 0 0 0
0 Mileage band 28+, Per Mile 1LPS6 0 0 0 0 0
0 Async C.O. Chan Interface per Term per DS3 1PQE1 0 0 0 0 0
0 Async C.O. Chan Inter Per DS1 1PQE1 0 0 0 0 0
ATM CONNECTION
1 44M ATM Network Interface XAA14 750 2,426 1,920 1,550 1,550
1 UBR XAAA4 0 250 250 250 250
-------------------------------
TOTAL LIGHTGATE COSTS $1,465 $4,706 $3,910 $3,399 $3,240
</TABLE>
Spreadsheet Updated 8/17 - MJH
<PAGE> 1
[LEVEL 3 COMMUNICATIONS LOGO] EXHIBIT 10.26
GENERAL TERMS AND CONDITIONS
FOR DELIVERY OF SERVICE
These Terms and Conditions for Delivery of Service are applicable to Customer
Orders executed by Customer for Services delivered by Level 3 Communications,
LLC ("Level 3"), and are incorporated into each Customer Order. The Terms and
Conditions include these General Terms and Conditions for Delivery of Service
and all terms and conditions attached thereto which relate to any Service
provided by Level 3 to Customer. These Terms and Conditions are applicable to
sales of Services originating or terminating in the United States.
DEFINITIONS
CONFIDENTIAL INFORMATION: Licensed Software, and all source code, source
documentation, inventions, know-how, and ideas, updates and any documentation
and information related to the Licensed Software, and any non-public
information regarding the business of a party provided to either party by the
other party where such information is marked or otherwise communicated as
being "proprietary" or "confidential" or the like, or where such information
is, by its nature, confidential.
COMMITTED DATA RATE: A commitment made by Customer (where applicable)
obligating it to order and pay for a minimum amount of a Level 3 Service
expressed in Megabits per second (Mbps).
CUSTOMER: The person, firm or corporation so named on the Customer Order.
CUSTOMER ORDER: A request for Level 3 Service submitted by the Customer for
acceptance by Level 3.
FACILITIES: Any and all devices supplied by Level 3 used to deliver Services,
including but not limited to all terminal and other equipment, wires, lines,
circuits, ports, routers, switches, channel service units, data service units,
cabinets, racks, private rooms and the like. Facilities shall not include any
such devices sold to Customer by Level 3 and paid for by Customer or owned by
Customer or any third party.
LICENSED SOFTWARE: Computer software, in object code format only, the use of
which is required for use of Service ordered by Customer.
PREMISES: The location(s) occupied by Customer or its end users to which
Service will be delivered by Level 3. Premises does not include Space as
defined below.
REVENUE COMMITMENT: A commitment made by Customer obligating it to order and
pay for a minimum volume of Services during an agreed term.
SERVICE: A service offered by Level 3 pursuant to a Customer Order.
SPACE: The location(s) within Level 3 gateways into which Customer is permitted
to colocate telecommunications or internet equipment pursuant to a colocation
Customer Order accepted by Level 3.
TARGET INSTALL DATE: A written communication from Level 3 to Customer
indicating the date upon which it is anticipated that Services will be
available to Customer.
SECTION 1. CUSTOMER ORDERS
1.1 SUBMISSION OF CUSTOMER ORDERS. To order any Service, Customer may submit to
Level 3 an order form for Services, completed with Level 3's assistance
("Customer Order") requesting the provision of Service. Level 3's delivery of a
Target Install Date respecting such Service shall constitute Level 3's
acceptance of the Customer Order. The Customer Order and its backup detail
shall set forth the Service, the Premises and/or Space, the prices to be
charged for Services and any applicable term and/or Revenue Commitment.
1.2 UNDERTAKING OF LEVEL 3. If Level 3 issued a Target Install Date respecting
Services, Level 3 will furnish such Services in accordance with the Terms and
Conditions and any Customer Orders.
SECTION 2. BILLING AND PAYMENT
2.1 PAYMENT OF BILLS. Level 3 bills all charges incurred by Customer on a
monthly basis. Level 3 bills in advance for all Services to be provided during
the ensuing month, except for charges which are dependent upon usage of
Service, which are billed in arrears. Billing for partial months will be
prorated based on a Calendar month. All bills are due upon receipt, and become
past due thirty (30) days later. The unpaid balance of any past due bills shall
bear interest at a rate of 1.5% per month (prorated on a daily basis beginning
on the past due date), or the highest rate allowed by law, whichever is less.
To the extent Customer orders any service designated as "Burstable," the
following billing method shall apply: Customer will be billed as set forth above
for its Committed Data Rate. In addition, over each month, Customer's usage of
the Service will be sampled by Level 3 in five minute inbound and outbound
averages. At the end of the month, the top ten percent of the
Page 1 of 18
<PAGE> 2
inbound and outbound averages shall be discarded. The highest of the resulting
ninetieth percentile for inbound and outbound traffic will be compared to the
Committed Data Rate. If the ninetieth percentile of either inbound or outbound
traffic is higher than the Committed Data Rate, Customer will, in addition to
being billed for its Committed Data Rate, be billed for its utilization of the
Service that exceeds their Committed Data Rate, which shall be billed at the
contracted-for price per Mbps.
2.2 TAXES AND FEES. Except for taxes based on Level 3's net income and ad
valorem, personal and real property taxes imposed on Level 3's property,
Customer shall be responsible for payment of all sales, use, gross receipts,
excise, access, bypass, franchise or other local, state and federal taxes,
fees, charges, or surcharges, however designated, imposed on or based upon the
provision, sale or use of the Services.
2.3 REGULATORY AND LEGAL CHANGES. In the event of any change in applicable law,
regulation, decision, rule or order that materially increases the costs or
other terms of delivery of Service, Level 3 and Customer agree to negotiate
regarding the rates to be charged to Customer to reflect such increase in cost
and, in the event that the parties are unable to reach agreement respecting new
rates within thirty (30) days after Level 3's delivery of written notice
requesting renegotiation, then (a) Level 3 may pass such increased costs
through to Customer, and (b) Customer may terminate the affected Customer Order
without termination liability upon sixty (60) days' prior written notice.
2.4 DISPUTED BILLS. In the event that Customer disputes any portion of a Level
3 bill, Customer must pay the undisputed portion of the bill and submit a
written claim for the disputed amount. All claims must be submitted to Level 3
within sixty (60) days of receipt of billing for those Services. Customer
acknowledges that it is able to and that it is reasonable to require Customer
to dispute bills within that time, and Customer therefore waives the right to
dispute charges not disputed within the time frame set forth above.
2.5 CREDIT APPROVAL AND DEPOSITS. Customer shall provide Level 3 with credit
information as requested, and delivery of Service is subject to credit
approval. Level 3 may require Customer to make a deposit (which will not exceed
Customer's estimated charges for two months' Service) as a condition to Level
3's acceptance of any Customer Order, or as a condition to Level 3's
continuation of Service, which deposit shall be held by Level 3 as security for
payment of Customer's charges. At such time as the provision of Service to
Customer is terminated, the amount of the deposit will be credited to
Customer's account and any credit balance which may remain will be refunded.
2.6 FRAUDULENT USE OF SERVICES. Customer is responsible for all charges
attributable to Customer incurred respecting the Services, even if incurred as
the result of fraudulent or unauthorized use of the Services, unless Level 3
has actual knowledge of the same and fails to notify Customer thereof. Level 3
may, but is not obligated to, detect or report unauthorized or fraudulent use
of Services.
SECTION 3. DISCONTINUANCE OF CUSTOMER ORDERS
3.1 DISCONTINUANCE OF CUSTOMER ORDER BY LEVEL 3. Level 3 may terminate any
Customer Order and discontinue Service without liability:
A. If Customer fails to pay a past due balance for Services within thirty (30)
days of written notice thereof provided by Level 3;
B. If Customer violates any law, rule, regulation or policy of any government
authority having jurisdiction over the Services; if Customer makes a material
misrepresentation in any submission of information in a Customer Order or other
submission of information to Level 3; if Customer engages in any fraudulent use
of the Services; or if a court or other government authority having
jurisdiction over the Services prohibits Level 3 from furnishing the Services;
C. If Customer fails to cure its breach of any provision of these Terms and
Conditions or any Customer Order within thirty (30) days written notice thereof
provided by Level 3;
D. If Customer files bankruptcy, for reorganization, or fails to discharge an
involuntary petition therefore within sixty (60) days;
E. If Customer's use of the Services materially exceeds Customer's credit
limit, unless within fourteen (14) days written notice thereof by Level 3,
Customer provides adequate security for payment for the Services.
3.2 EFFECT OF DISCONTINUANCE. Upon Level 3's discontinuance of Service to
Customer, Level 3 may, in addition to all other remedies that may be available
to Level 3 at law or in equity, assess and collect from Customer any applicable
termination charge.
3.3 RESUMPTION OF SERVICE. If Service has been discontinued by Level 3 and
Customer requests that Service be restored, Level 3 shall have the sole and
absolute discretion to restore such Service. Nonrecurring charges, with the
exception of any charges for the build-out of Colocation Space already paid by
Customer, may apply to restoration of Service.
3.4 DISCONTINUANCE OF CUSTOMER ORDER BY CUSTOMER. Customer shall have the right
to terminate any Customer Order and discontinue Service prior to the end of the
agreed term with respect to which a Customer Order has been executed without
payment of any applicable termination charge if: (i) such Service is
Page 2 of 18
<PAGE> 3
Unavailable (as defined below) on two or more separate occasions of more than
eight (8) hours each in any 30 day period, and (ii) following written notice
thereof from Customer to Level 3, Level 3 has an Unavailability event of more
than 12 hours at any time within the 12 month period immediately following said
notice. For purposes of the foregoing, Unavailability shall mean the period of
time beginning when Customer reports an outage in its Service to the Level 3
Customer Service and Support Organization (1-877-4LEVEL3) and shall end when
the Service is operative. Unavailability shall not apply to any outage which is
caused by Customer, Customer's end users or any third party, which results from
failure of power or equipment provided by Customer or others, which occurs or
continues during any period in which Level 3 is not given access to the
Premises or the Space, or which results from maintenance events. Customer must
exercise its right to terminate under this Section, in writing, no later than
thirty (30) days after the Unavailability event giving rise to a right of
termination hereunder.
SECTION 4. DELIVERY OF SERVICES
4.1 LEVEL 3 ACCESS TO PREMISES AND SPACE. Customer shall allow Level 3 access to
the Premises to the extent reasonably determined by Level 3 for the
installation, inspection and scheduled or emergency maintenance of
Facilities relating to the Service. Level 3 shall notify Customer two (2)
business days in advance of any regularly scheduled maintenance that will
require access to the Premises. Level 3 retains the right to access any Space
for any legitimate business purpose.
4.2 LEVEL 3 FACILITIES. Level 3 will use reasonable efforts to provide and
maintain the Facilities in good working order. Customer shall not and shall not
permit others to rearrange, disconnect, remove, attempt to repair, or otherwise
tamper with any of the Facilities. If the same occurs without first obtaining
Level 3's written approval, in addition to being a breach by Customer of
Customer's obligations hereunder, Customer shall (1) pay Level 3 the cost to
repair any damage to the Facilities caused thereby; and (2) be responsible for
the payment of service charges in the event that maintenance or inspection of
the Facilities is required as a result of Customer's breach of this Section. In
no event shall Level 3 be liable to Customer or any other person for
interruption of Service or for any other loss, cost or damage caused or related
to improper use or maintenance of the Facilities, unless the same is caused by
the negligence of Level 3, and then only to the extent of Section 5.2.
4.3 TITLE AND POWER. Title to all Facilities (except as otherwise agreed) shall
remain with Level 3. The electric power consumed by such Facilities on the
Premises shall be provided by and maintained at the expense of Customer.
Electric power to the Space shall be provided by Level 3.
4.4 CUSTOMER-PROVIDED EQUIPMENT. Level 3 may install certain Customer provided
communications equipment upon installation of Service and the Facilities, but
unless otherwise agreed by Level 3 in writing, Level 3 shall not thereafter be
responsible for the operation or maintenance of any Customer provided
communication equipment. Level 3 shall not be responsible for the transmission
or reception of signals by Customer-provided equipment or for the quality of,
or defects in, such transmission.
4.5 REMOVAL OF FACILITIES. Customer agrees to allow Level 3 to remove all
Facilities from the Premises:
A. after termination of the Service in connection with which the Facilities
were used; and
B. for repair, replacement or otherwise as Level 3 may determine is necessary,
but Level 3 shall use reasonable efforts to minimize disruptions to the Service
caused thereby.
At the time of such removal, the Facilities shall be in the same condition as
when installed, normal wear and tear excepted. Customer shall reimburse Level 3
for the depreciated cost of any Facilities not in such condition.
4.6 SERVICE SUBJECT TO AVAILABILITY. The furnishing of Service is subject to
the availability thereof, on a continuing basis, and is limited to the capacity
of Level 3 to provide the Service as well as the capacity which Level 3 may
obtain from other carriers to furnish Service from time to time as required at
the sole discretion of Level 3. Nothing in these Terms and Conditions shall be
construed to obligate Customer to submit, or Level 3 to accept, Customer
Orders. In the event Service becomes unavailable pursuant to this paragraph
4.6, Customer shall have the rights set forth in Section 3.4 of these Terms and
Conditions.
SECTION 5. OBLIGATIONS AND LIABILITY LIMITATION
5.1 OBLIGATIONS OF THE CUSTOMER. Customer shall be responsible for:
A. The Payment of all charges applicable to the Service;
B. Damage or loss of the Facilities installed on the Premises or in the Space
(unless caused by the negligence or willful misconduct of the employees or
agents of Level 3);
C. Providing the level of power, heating and air conditioning necessary to
maintain the proper environment on the Premises for the provision of Service;
D. Providing a safe place to work and complying with all laws and regulations
regarding the working conditions on the Premises;
Page 3 of 18
<PAGE> 4
E. Granting Level 3 or its employees access to the Premises as set forth in
Section 4.1 of these Terms and conditions; and
F. Keeping Level 3's facilities located on Premises free and clear of any liens
or encumbrances.
5.2 LIABILITY. Except as provided in Section 8.4, the liability of Level 3 for
damages arising out of the furnishing of or the failure to furnish Service,
including but not limited to mistakes, omissions, interruptions, delays,
tortious conduct, representations, errors, or other defects, whether caused by
acts of commission or omission, shall be limited to the extension of credit
allowances or refunds due under any applicable Service Level Agreement. Except
as provided in Section 8.4, the extension of such credit allowances or refunds
shall be the sole remedy of Customer and the sole liability of Level 3.
5.3 NO SPECIAL DAMAGES. Notwithstanding any other provision hereof, neither
party shall be liable for any indirect, incidental, special, consequential,
exemplary or punitive damages (including but not limited to damages for lost
profits or lost revenues), whether or not caused by the acts of omissions or
negligence of its employees or agents, and regardless of whether such party has
been informed by the possibility of likelihood of such damages.
5.4 DISCLAIMER OF WARRANTIES. LEVEL 3 MAKES NO WARRANTIES OR REPRESENTATIONS,
EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR
OTHERWISE, INCLUDING WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR
USE, EXCEPT THOSE EXPRESSLY SET FORTH IN ANY APPLICABLE SERVICE LEVEL AGREEMENT.
SECTION 6. SOFTWARE TERMS
6.1 LICENSE. If and to the extent that Customer requires the use of Licensed
Software in order to use the Service supplied under any Customer Order,
Customer shall have a nonexclusive, nontransferable (except pursuant to
paragraph 8.2 hereof) license to use such Licensed Software only and solely to
the extent required to permit delivery of the Service. Customer may not claim
title to or any ownership interest in any Licensed Software (or any derivations
or improvements thereto), and Customer shall execute any documentation
reasonably required by Level 3 to memorialize Level 3's existing and continued
ownership of the Licensed Software.
6.2 RESTRICTIONS. Customer agrees that it shall not:
A. copy the Licensed Software except for emergency backup purposes or as
permitted by the express written consent of Level 3;
B. reverse engineer, decompile or disassemble the Licensed Software;
C. sell, lease, license or sublicense the Licensed Software; or
D. create, write or develop any derivative software or any other software
program based on the Licensed Software.
SECTION 7. CONFIDENTIAL INFORMATION
7.1 DISCLOSURE AND USE. Any Confidential Information disclosed by either party
shall be kept by the receiving party in strict confidence and not disclose to
any third party (except as authorized by these Terms and Conditions) without
the disclosing party's express written consent. Each party agrees to treat all
Confidential Information of the other in the same manner as it treats its own
proprietary information, but in no case will the degree of care be less than
reasonable care.
7.2 RESTRICTED USE. Each party agrees:
A. to use Confidential Information only for the purpose of performance of any
Customer Order or as otherwise expressly permitted by these Terms and
Conditions;
B. not to make copies of Confidential Information or any part thereof except
for purposes consistent with these Terms and Conditions; and
C. to reproduce and maintain on any copies of any Confidential Information such
proprietary legends or notices (whether of disclosing party or a third party)
as are contained in or on the original or as the disclosing party may otherwise
reasonably request.
7.3 EXCEPTIONS. Notwithstanding the foregoing, each party's confidentiality
obligations hereunder shall not apply to information which:
A. is already known to the receiving party;
B. becomes publicly available without fault of the receiving party;
C. is rightfully obtained by the receiving party from a third party without
restriction as to disclosure, or is approved for release by written
authorization of the disclosing party;
D. is developed independently by the receiving party without use of the
disclosing party's Confidential Information;
E. is required to be disclosed by law.
7.4 PUBLICITY. This agreement grants no right to use any party's or its
affiliates' trademarks, service marks or trade names or to otherwise refer to
the other party in any marketing, promotional or advertising materials or
activities. Neither party shall issue any publication or press release relating
to, or otherwise disclose the existence of, or the terms and conditions of any
contractual relationship between Level 3 and Customer, except as may be
required by law.
7.5 REMEDIES. Notwithstanding any other section of these Terms and Conditions,
the non-beaching party
Page 4 of 18
<PAGE> 5
shall be entitled to seek equitable relief to protect its interests, including
but not limited to preliminary and permanent injunctive relief. Nothing stated
herein shall be construed to limit any other remedies available to the parties.
7.6 SURVIVAL. The obligations of confidentiality and limitation of use shall
survive the termination of any applicable Customer Order.
SECTION 8. GENERAL TERMS
8.1 FORCE MAJEURE. Neither party shall be liable, nor shall any credit allowance
or other remedy be extended, for any failure of performance or equipment due to
causes beyond such party's reasonable control, including but not limited to:
acts of God, fire, flood or other catastrophes; any law, order, regulation,
direction, action, or request of any governmental entity or agency, or any civil
or military authority; national emergencies, insurrections, riots, wars;
unavailability of rights-of-way or materials; or strikes, lock-outs, work
stoppages, or other labor difficulties. In the event any of the foregoing occur
and Level 3 is unable to deliver the Service for fourteen (14) consecutive days,
Customer shall not be obligated to pay Level 3 for the affected Service for so
long as Level 3 is unable to delivery them, provided, however, that the term of
the Customer Order respecting those Services shall be extended for a period of
time equal to the period of time for which Level 3 was unable to provide and
Customer was not required to pay for the affected Service.
8.2 ASSIGNMENT OR TRANSFER. Except with respect to a merger or sale of
substantially all of Customer's Assets, Customer may not transfer, sublease or
assign the use of Service without the express prior written consent of Level 3,
and then only when such transfer or assignment can be accomplished without
interruption of the use or location of Service. Level 3 will not unreasonably
withhold its consent. These Terms and Conditions shall apply to any transferees
or assignees. Customer shall remain liable for the payment of all charges due
under each Customer Order.
8.3 NOTICES. Notices hereunder shall be deemed properly given when delivered, if
delivered in person, or when sent via facsimile, overnight courier, electronic
mail or when deposited with the U.S. Postal Service, (a) with respect to
Customer, the address listed on any Customer Order, or (b) with respect to Level
3, to: Contracts Administration, Level 3 Communications, LLC, 1450 Infinite
Drive, Louisville, CO 80027. Customer shall notify Level 3 of any changes to its
addresses listed on any Customer Order.
8.4 INDEMNIFICATION BY LEVEL 3. Level 3 shall indemnify, defend and hold
Customer harmless from any claim, loss, damage, expense or liability (including
attorney's fees and court costs) (hereinafter "Claims") made against Customer
for property damage, patent infringement or personal injury caused by Level 3's
negligence or willful misconduct.
8.5 INDEMNIFICATION BY CUSTOMER. Customer shall indemnify, defend and hold Level
3 harmless from Claims (including Claims for patent infringement) (i) made
against Level 3 by any end user of Customer in connection with the delivery or
consumption of Service, (ii) made against Level 3 arising out of any commission
or negligent omission by Customer in connection with the Service, or (iii)
arising from Customer's negligence or willful misconduct.
8.6 APPLICATION OF TARIFFS. Level 3 may elect or be required to file with the
appropriate regulatory agency tariffs respecting the delivery of certain
Service. In the event that such tariffs are filed respecting Service ordered by
Customer, then (to the extent such provisions are not inconsistent with the
terms of a Customer Order) the terms set forth in the applicable tariff shall
govern Level 3's delivery of, and Customer's consumption or use of, such
Service.
8.7 CONTENTS OF COMMUNICATIONS. Level 3 does not monitor and shall have no
liability or responsibility for the content of any communications transmitted
via the Service, and Customer shall hold Level 3 harmless from any and all
claims (including claims by governmental entities seeking to impose penal
sanctions) related to such content attributable to Customer or its agents,
employees or end users.
8.8 ENTIRE UNDERSTANDING. These Terms and Conditions, including any Customer
Orders executed hereunder, constitute the entire understanding of the parties
related to the subject matter hereof. In the event of any conflict between these
Terms and Conditions and the terms and conditions of any Customer Order, these
Terms and Conditions shall control. These Terms and Conditions shall be governed
and construed in accordance with the laws of the state of Colorado.
8.9 NO WAIVER. No failure by either party to enforce any rights hereunder shall
constitute a waiver of such right(s).
Page 5 of 18
<PAGE> 6
ADDITIONAL TERMS AND CONDITIONS
FOR PRIVATE LINE SERVICE
The following additional terms and conditions are applicable where, pursuant to
a Customer Order, Customer orders metropolitan (local), city to city (within the
United States) and international (from the United States to another country)
private line, non-switchable circuits (the "Private Line Services").
1. Any state or federal tariffs applicable to the Private Line Services to be
delivered under any Customer Order are incorporated into the terms thereof.
Level 3's pricing to Customer for Private Line Services may, if required, be
subject to PUC or other regulatory approval.
2. The nonrecurring charges and monthly recurring rates for the Private Line
Services provided by Level 3 are shall be set forth in each Customer Order.
3. The rates and other charges set forth in each Customer Order are established
in reliance on the term commitment made therein, and Customer shall pay the same
in accordance therewith. In the event that Customer terminates Services ordered
in any Customer Order which is accepted by Level 3 or in the event that the
delivery of Services is terminated due to a failure of Customer to satisfy the
requirements set forth in these Terms and Conditions prior to the end of the
agreed term, Customer shall (unless Customer has made a Revenue Commitment) pay
a termination charge equal to the percentage of the monthly recurring charges
for the terminated Private Line Service calculated as follows:
A. 100% of the monthly recurring charge that would have been incurred for the
private line service for months 1-12 of the agreed term; plus
B. 75% of the monthly recurring charge that would have been incurred for the
Private Line Service for months 13-24 of the agreed term; plus
C. 50% of the monthly recurring charge that would have been incurred for the
Private Line Service for months 25 through the end of the agreed term.
In the event that a Revenue Commitment is made and is then being satisfied by
Customer. Customer may terminate, rearrange or reconfigure the Private Line
Services ordered under a Customer Order without payment of the termination
charge specified above; PROVIDED, HOWEVER, that Customer shall be responsible
for payment of Level 3's then-current standard nonrecurring charges applicable
to such termination, rearrangement or reconfiguration.
4. Level 3 makes the Service Level Agreements in the attached Exhibit "A"
respecting Private Line Service.
Page 6 of 18
<PAGE> 7
Standard Service Level Agreement (SLA)
INTERNATIONAL / US NATIONAL PRIVATE LINE
International/National Private Line service will be backed by a Standard Service
Level Agreement that has two components: a Service Delivery SLA and a Network
Performance SLA.
NOTE: The total number of credits per month for both Service Delivery is
limited to four days.
SERVICE DELIVERY SLA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
US ON-NET CITY STANDARD SERVICE DELIVERY INTERVALS
(US NPLS AND IPL)
- ---------------------------------------------------------------------------------------------------------------
Nx64K, DS1, E1* DS3 OC3/OC12
- ---------------------------------------------------------------------------------------------------------------
US NPLS IPL US NPLS IPL US NPLS IPL
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
On-Net 20 working 20 working 30 working 30 working 40 working 30
days days days days days
- ---------------------------------------------------------------------------------------------------------------
Off-Net building within 30 working 60 working 45 working 60 working 60 working ICB
SSA (either end) days days days days days
- ---------------------------------------------------------------------------------------------------------------
Off-net building outside 30 working 60 working 45 working 60 working 70 working ICB
SSA (within 50 miles) days days days days days
(either end)
===============================================================================================================
- ---------------------------------------------------------------------------------------------------------------
US DOMESTIC SERVED STANDARD SERVICE DELIVERY INTERVALS
OFF-NET CITY
- ---------------------------------------------------------------------------------------------------------------
DSI DS3 OC3
- ---------------------------------------------------------------------------------------------------------------
One side of the circuit 30 working days 45 working days 60 working days (70
is served by an off-net days would apply if
city POP the customer location
served by the gateway
city is outside of the
SSA)
===============================================================================================================
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Off-net building must have DS3 local service availability in order to support
**E1 delivery is available in NYC only and is dependent upon local availability
of E1 delivery
- - Single toll-free number to reach Level 3 Customer Service for all customer
issues, including technical, billing, and product inquiries.
- - Mean Time to Respond - Within 30 minutes
- - 2 hour calendar month Average Time To Repair (ATTR)
If Level 3 fails to meet any of the guarantees above, Level 3 will review all
reported failures at the end of the month, and calculate the applicable credits:
- - Any customer inquiry to the Level 3 Customer Service Center that results in a
Time to Respond of >30 minutes will result in a one day service credit when
the customer notifies Level 3 of the failure.
- - ATTR is calculated as a monthly average. All reported customer trouble
tickets will be totaled over the month, then the average time to close each
ticket will be calculated. If the ATTR is greater than 2 hours, the customer
will receive a one day service credit.
- - Credits will only be applied to events where the Customer reports a failure
to the Level 3 Customer Care organization. Customers must report any Service
Delivery failures within five business days of the event.
Page 7 of 18
<PAGE> 8
NETWORK PERFORMANCE SLA
o 99.99% Service Availability
o Target Bit Error Rate(1)
End-to-end link (Level 3 on-net) < 1 x 10[-11] at T1 Rate
(equivalent rate for DSO 1 x 10[4])
End-to-end link (Non-Level 3 access) < 1 x 10[-7] (Dependent on local
supplier)
* Target Severely Errored Seconds(2)
End-to-end link (Level 3 fiber access) < 0.008%
End-to-end link (Non-Level 3 access) < 0.013% (Dependent on local
supplier)
> Availability refers to customer's access point to the Level 3 Backbone
Network, including their Level 3 provided local access circuit.
> Availability does not include regularly scheduled or emergency maintenance
events, or customer caused outages or disruptions.
> Customers may report service unavailability events of longer than 15
consecutive minutes to Level 3 customer service within 48 hours of the event.
If the event is confirmed by Level 3 customer service, the customer will
receive a pro-rated service credit that equals the time of the unavailability.
NOTES:
> All measurements are based on monthly averages.
> These guarantees only apply to the Level 3 Network (including the Local Access
to the customer). They do not apply to off-net city circuits which do not
transit the Level 3 Backbone Network (or the portion the circuit which does
not transit the Level 3 Backbone)
> This SLA does not apply to periods of regularly scheduled or emergency
maintenance that Level 3 performs on its network or associated hardware and
software.
> Credits will only be applied to events where the Customer reports a network
performance failure to the Level 3 Customer Care organization.
> Customers must report any Network Performance failures (unavailability or
delay) within 48 hours (two business days) of the service affecting event in
order to receive a credit. Customers must report any Service Delivery failures
within five business days of the event.
- ---------
(1) Bit Error Rate Figure excludes periods of more than 10 seconds having error
rates equal to, or worse than 1 x 10[-3]
(2) Severely Errored Seconds have bit error rates, to, or worse than 1 x 10[-3]
Page 8 of 18
<PAGE> 9
ADDITIONAL TERMS AND CONDITIONS
FOR TELEPHONY AND IP COLOCATION
The following additional terms and conditions are applicable where, pursuant to
a Customer Order, Customer orders the use of space within Level 3 gateways to be
used for the purpose of colocating telecommunications equipment or equipment
used for connection to the internet (the "Space").
1. Customer is granted the right to occupy the Space identified in a Customer
Order. Customer shall be permitted reasonable access to the Space subject to any
and all rules, regulations and access requirements imposed by Level 3 governing
such access. Customer may submit multiple Customer Orders requesting use of
different Space, each of which shall be governed by the terms hereof.
2. Customer shall be permitted to use the Space only for placement and
maintenance of communications equipment. The nonrecurring and monthly recurring
charges for the Space and any Services ordered by Customer shall be set forth in
each Customer Order. Customer hereby agrees, within six (6) months of ordering
such Space, to use the Space for placement and maintenance of telecommunications
or internet access equipment. In the event Customer fails to fill said Space as
set forth herein, Level 3 has the right to reclaim the proportion of Space not
being used exclusively as indicated above, if the same is not cured within
forty-five (45) days' prior notice thereof to Customer. Customer agrees to
immediately vacate such recaptured Space and Level 3 shall reduce the Colocation
fees allocated to such recaptured Space. Customer further agrees that no refunds
shall be made to Customer regarding such recaptured Space.
3. Level 3 shall perform such janitorial services, environmental systems
maintenance, power plant maintenance and other actions as are reasonably
required to maintain the gateway in which the Space is located in a condition
which is suitable for the placement of telecommunications and internet access
equipment. Customer shall maintain the Space in an orderly and safe condition,
and shall return the Space to Level 3 at the conclusion of the term set forth in
the Customer Order in the same condition (reasonable wear and tear excepted) as
when such Space was delivered to Customer. EXCEPT AS EXPRESSLY STATED HEREIN OR
IN ANY CUSTOMER ORDER, THE SPACE SHALL BE DELIVERED AND ACCEPTED "AS IS" BY
CUSTOMER, AND NO REPRESENTATION HAS BEEN MADE BY LEVEL 3 AS TO THE FITNESS OF
THE SPACE FOR CUSTOMER'S INTENDED PURPOSE.
4. The term of use of the Space shall begin on the later to occur of the date
requested by Customer or the date that Level 3 completes the build-out of the
Space. Customer's use of the Space beyond the initial term shall be on a
month-to-month basis, unless Customer and Level 3 have agreed in writing to a
renewal of the right to use such Space. Customer hereby agrees to pay for the
Space and any related Services for the term of this Agreement. The rates and
other charges set forth in each Customer Order are established in reliance on
the term commitment made therein. In the event that Customer terminates a
Customer Order for Space which is accepted by Level 3 or in the event that the
Customer Order is terminated due to a failure of Customer to satisfy the
requirements set forth herein or in the Customer Order prior to the end of the
agreed term, Customer shall pay a termination charge equal to the costs incurred
by Level 3 in returning the Space to a condition suitable for use by other
parties, plus the percentage of the monthly recurring fees for the terminated
Space calculated as follows:
a. 100% of the monthly recurring fees that would have been charged for the
space for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring fees that would have been charged for the
Space for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring fees that would have been charged for the
Space for months 25 through the end of the agreed term.
In the event that a Revenue Commitment is made and is then being satisfied by
Customer, Customer may terminate the Space ordered pursuant to a Customer Order
without payment of the termination, charge specified above; PROVIDED, HOWEVER,
that Customer shall be responsible for payment of Level 3's then-current
standard nonrecurring charges applicable to such termination.
5. Level 3 shall use reasonable efforts to complete the build-out and make the
Space available to Customer on or before the date requested by Customer. In the
event that Level 3 fails to complete the build-out within sixty (60) days of the
date requested by Customer, then Customer may terminate its rights to use such
Space and receive a refund of any fees paid for the use or build-out of such
Space.
6. Customer shall abide by any posted or otherwise communicated rules relating
to use of, access to, or
Page 9 of 18
<PAGE> 10
security measures respecting the Space. Customers use of the Space will be
immediately terminated in the event Customer or any of its agents or employees
is found in Level 3's gateway with any firearms, drugs, alcohol or is found
engaging in any criminal activity, eavesdropping, foreign intelligence, card
selling or slamming. Persons found engaging in any such activity or in
possession of the aforementioned prohibited items will be immediately escorted
from the gateway. In the event that unauthorized parties gain access to the
Space through access cards, keys or other access devices provided to Customer,
Customer shall be responsible for any damages incurred as a result thereof.
Customer shall be responsible for the cost of replacing any security devices
lost or stolen after delivery thereof to Customer. In addition, Level 3 shall
have the right to terminate Customer's use of the Space or the Services in the
even that: (a) Level 3's rights to use the facility within which the Space is
located terminates or expires for any reason; (b) Customer has violated the
terms hereof or of any Customer Order submitted hereunder; (c) Customer makes
any material alterations to the Space without first obtaining the written
consent of Level 3; (d) Customer allows personnel or contractors to enter the
Space who have not been approved by Level 3 in advance; or (e) Customer violates
any posted or otherwise communicated rules relating to use of or access to the
Space. With respect to items (b), (c), (d) and (e) immediately above, unless the
same interferes or has the potential to interfere with other Level 3 Colocation
customers, Level 3 shall provide Customer a written notice of the foregoing and
a 10-day opportunity to cure the same before terminating Customer's rights to
the Space.
7. Customer may sublease the Space under the following conditions: i) all
proposed sublessees must be approved, in writing, by Level 3 in Level 3's sole
discretion; ii) Customer hereby guarantees that all Sublessees shall abide by
all terms and conditions set forth between Customer and Level 3; iii) Customer
shall indemnify, defend and hold Level 3 harmless from all claims brought
against Level 3 arising from any act or omission of any subcontractor and iv)
any sublessee shall be considered customer's agent and all of sublessees' acts
and omissions and usage of the Space or Services hereunder shall be attributable
to Customer for the purposes of these Terms and Conditions.
8. Level 3 reserves the right to change the location or configuration of the
Space, provided, however, that Level 3 shall not arbitrarily or discriminatorily
require such changes. Level 3 and Customer shall work in good faith to minimize
any disruption in Customer's services that may be caused by such changes in
location or configuration of the Space.
9. Prior to occupancy and during the term of use of any Space, Customer shall
procure and maintain the following minimum insurance coverage: (a) Workers'
Compensation in compliance with all applicable statutes of appropriate
jurisdiction. Employer's Liability with limits of $500,000 each accident; (b)
Commercial General Liability with combined single limits of $1,000,000 each
occurrence; and (c) "All Risk" Property insurance covering all of Customers
personal property located in the Space. Customer's Commercial general Liability
policy shall be endorsed to show Level 3 (and any underlying property owner, as
requested by Level 3) as an additional insured. All policies shall provide that
Customer's insurers waive all rights of subrogation against Level 3. Customer
shall furnish Level 3 with certificates of insurance demonstrating that Customer
has obtained the required insurance coverages prior to occupancy of the Space.
Such certificates shall contain a statement that the insurance coverage shall
not be materially changed or cancelled without at least thirty (30) days prior
written notice to Level 3. Customer shall require any contractor entering the
Space on its behalf to procure and maintain the same types, amounts and coverage
extensions as required of Customer above.
10. Customer may order and pay for Level 3 to perform certain limited ("remote
hands") maintenance services on Customer's equipment within the space, which
shall be performed in accordance with Customer's directions. "Remote hands"
maintenance services includes power cycling equipment. Level 3 shall in no event
be responsible for the repair, configuration or tuning of equipment, or for
installation of Customer's equipment (although Level 3 will provide reasonable
assistance to Customer in such installation).
Page 10 of 18
<PAGE> 11
ADDITIONAL TERMS AND CONDITIONS FOR
DEDICATED, RAPID ACCESS AND DIAL UP INTERNET ACCESS
The following additional terms and conditions are applicable where, pursuant to
a Customer Order, Customer orders dedicated, rapid access and/or dial-up
Internet Access Service (the "Internet Access Services").
1. Any state or federal tariffs applicable to the Internet Access Services to
be delivered under any Customer Order are incorporated into the terms thereof.
The Internet Access Services shall at all times be used in compliance with
Level 3's then-current Acceptable Use Policy and Privacy Policy, as amended by
Level 3 from time to time and which are available through Level 3's web site.
2. The nonrecurring charges and monthly recurring rates for the Internet Access
Services provided by Level 3 to Customer are set forth in each Customer Order.
3. The rates and other charges set forth in each Customer Order are established
in reliance on the term and/or volume commitment made therein, and Customer
agrees to pay the same. In the event that Customer terminates Internet Access
Services ordered in any Customer Order which is accepted by Level 3 or in the
event that the delivery of Internet Access Services is terminated due to a
failure of the Customer to satisfy the requirements set forth herein or in the
Customer Order prior to the end of the agreed term, Customer shall (unless
Customer has made a Revenue Commitment) pay a termination charge equal to the
percentage of the monthly recurring charges for the terminated Internet Access
Services calculated as follows:
a. 100% of the monthly recurring charge that would have been incurred for the
Internet Access Service for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would have been incurred for the
Internet Access Service for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would have been incurred for the
Internet Access Service for months 25 through the end of the agreed term.
Customer may, in the event that a Revenue Commitment is made and is then being
satisfied by Customer, terminate, rearrange or reconfigure the Internet Access
Services ordered under a Customer Order without payment of the termination
charge specified above; PROVIDED, HOWEVER, that Customer shall be responsible
for payment of Level 3's then-current standard nonrecurring charge applicable
to such termination, rearrangement or reconfiguration.
4. Level 3 provides only access to the Internet; Level 3 does not operate or
control the information, service, opinions or other content of the Internet.
Customer agrees that it shall make no claim whatsoever against Level 3 relating
to the content of the Internet or respecting any information, product, service
or software ordered through or provided by virtue of the Internet.
5. This Section 5 applies only to Customers who order Dial-Up Internet Access
Services. The Dial-Up Internet Access Services shall be used only by an
officer, director, employee or agent ("Employee") of Customer. Customer shall
assure that each Employee accessing the Dial-Up Internet Access Service abides
by these Terms and Conditions. Prior to any Employee accessing Dial-Up Internet
Access Services, such Employee will be required to accurately complete an
on-line registration process. During this registration process, each Employee
will be required to identify himself/herself through some means satisfactory to
Level 3. Pursuant to the registration process, by clicking an "ACCEPT" icon,
each Employee will (i) agree to accurately complete the registration; (ii)
agree to abide by all of the provisions, terms, limitations, conditions and
restrictions of these Terms and Conditions; and (iii) agree to use the Dial-Up
Internet Access Services in accordance with any requirements set forth in the
online registration process and for the legitimate business purposes of
Customer only. Each Employee will also receive a password which such Employee
will agree to keep in strict confidence and which will be required whenever
accessing the Dial-Up Internet Access Services.
6. If Customer orders Burstable Dedicated Internet Access Services pursuant to
a Customer Order, the Customer shall be permitted to make two (2) changes to
its Committed Data Rate each contract year, provided that such change be to a
higher Committed Data Rate.
7. This Section 7 applies only to Customers who order Dedicated Internet Access
and Rapid Access Services. Level 3 makes the following Service Level Agreements
attached as Exhibit "A" respecting Dedicated Internet Access and Rapid Access
Service.
Page 11 of 18
<PAGE> 12
Standard Service Level Agreement (SLA)
Release 1
INTERNET DEDICATED ACCESS
Dedicated Internet Access service will be backed by a Standard Service Level
Agreement that has two components: a Service Delivery SLA and a Network
Performance SLA.
NOTE: The total number of credits per month for both Service Delivery and
Network Performance is limited to four days.
SERVICE DELIVERY SLA
o 30 Calendar Day Installation Guarantee for Customers buying Dedicated Internet
Access in speeds from 64 Kbps - 1.544 Kbps within the Standard Service Area.
o 45 Calendar Day Installation Guarantee for Customers buying Dedicated Internet
Access in speeds from 3 Mbps - 45 Mbps within the Standard Service Area.
o Single toll-free number to reach Level 3 Customer Service for all customer
service issues, including technical, billing, and product inquiries.
o Time to Respond - Within 30 minutes.
o 2 hour calendar month Average Time To Repair (ATTR).
If Level 3 fails to meet any of the guarantees above, Level 3 will review all
reported failures at the end of the month, and calculate the applicable credits:
> Any customer inquiry to the Level 3 Customer Service Center that results in a
Time to Respond of >30 minutes will result in a one day service credit when
the customer notifies Level 3 of the failure.
> ATTR is calculated as a monthly average. All reported customer trouble tickets
will be totaled over the month, then the average time to close each ticket
will be calculated. If the ATTR is greater than 2 hours, the customer will
receive a one day service credit.
> Credits will only be applied to events where the Customer reports a failure to
the Level 3 Customer Care organization. Customers must report any Service
Delivery failures within five business days of the event.
NETWORK PERFORMANCE SLA
o SERVICE AVAILABILITY
> Availability refers to customer's access point to the Level 3 Internet
network, including their Level 3 provided local access circuit, and the
customer's port.
> Unavailability Events are defined as an outage of the Level 3 provided local
access circuit and the customer's port of longer than 15 consecutive minutes.
> The Availability Guarantee does not extend to the performance of Internet
networks controlled by other companies, or traffic exchange points (including
NAPs and MAEs) which are controlled by other companies.
> Availability does not include regularly scheduled or emergency maintenance
events, or customer caused outages or disruptions.
> Customer may report service availability event of longer than 15 consecutive
minutes to Level 3 customer service within 48 hours of the event. If the event
is confirmed by Level 3 customer service, the customer will receive a
pro-rated service credit that equals the time of the unavailability.
Page 12 of 18
<PAGE> 13
ADDITIONAL TERMS AND CONDITIONS FOR
MANAGED MODEM - DEDICATED, QUICKSTART AND TRANSIT SERVICES
The following additional terms and conditions are applicable where, pursuant to
a Customer Order Customer orders services required to allow access to
"Dedicated Services," "Dedicated Service with QuickStart" and "Transit
Services" as offered by Level 3 (the "Managed Modem Services") ordered by
Customer under any Customer Order.
1. Any state or federal tariffs applicable to the Managed Modem Services to be
delivered under any Customer Order are incorporated into the terms thereof. The
Managed Modem Services shall at all times be used in compliance with Level 3's
then-current Acceptable Use Policy and Privacy Policy, as amended by Level 3
from time to time and which are available through Level 3's web site.
2. In the event Customer orders "Dedicated Service," end user traffic will be
routed through and aggregated in Level 3's facility, sent to the Customer's
Premises via a dedicated circuit, and then routed to its final destination by
Customer. In the event that Customer orders "Transit Services," End User
traffic will be routed to Level 3's facility and then routed to its final
destination by Level 3 via the Internet. Dedicated Service with "QuickStart"
will initially be provisioned to the Customer in the same fashion as Transit
Services, until such time as Level 3 has provisioned the dedicated circuit to
send end user traffic from Level 3's facility to the Customer's Premises.
QuickStart will then be migrated to standard Dedicated Service. Customers
ordering Dedicated Services will be required to make a portion of the Premises
available to Level 3 for the placement of equipment necessary to provide such
Dedicated Services. For Dedicated Service, all Customer CPE as well as the
private line necessary to support this service will be ordered, installed and
managed by Level 3. Any telephone numbers used in providing the Managed Modem
Services shall be released to Customer upon expiration or termination hereof to
the extent that it is technically feasible for Level 3 to port packet switched
telephone numbers and then only if Customer is in compliance with all of the
terms contained herein or in the General Terms and Conditions.
3. Section 1.1 of the General Terms and Conditions for Delivery of Service
notwithstanding, a Customer order for Managed Modem Service shall be accepted
by Level 3 once Level 3 has provisioned and tested the ports. Customer's
billing respecting said ports shall commence once tested and found to be
functioning properly by Level 3 notwithstanding Customer's: i) refusal to
accept the ports or ii) Customer's refusal to acknowledge communications by
Level 3 to Customer respecting the ports. Termination liability shall apply once
a Customer Order for these Services is accepted by Level 3.
4. Customer shall have the option to purchase twenty percent (20%) port overage
from Level 3. If ordered, Level 3 shall provision an additional twenty percent
(20%) of ports over the number of ports actually ordered by Customer to accept
Customer traffic in the event Customer's traffic bursts and its usage exceeds
the capacity of the ports actually ordered. In the event Customer chooses not
to purchase twenty percent (20%) port overage from Level 3, if the Customer's
traffic bursts as set forth above, Customer will get a busy signal in the event
its ordered capacity is exceeded.
5. Customer must utilize all Managed Modem ports provisioned hereunder at no
less than fifty percent (50%) of the capacity of such port. Customer agrees to
allow Level 3 to monitor Customer's utilization of the ports provisioned
herein. In the event Customer is Under-Utilizing (as defined below) such ports,
Level 3 retains the right to reclaim such ports after which Customer shall have
no further right to use the ports Under-Utilized. Termination liability shall
apply to any ports reclaimed pursuant to this paragraph.
6. The nonrecurring charges and monthly recurring rates for the Managed Modem
Services provided by Level 3 to Customer shall be set forth in each Customer
Order. Level 3 will dedicate the specified number of ports to Customer in the
Level 3 facilities as identified in each Customer Order. Customer may be
responsible for additional monthly charges if Customer's use of the Managed
Modem Services requires and utilizes more ports than the number committed to
and ordered by Customer.
7. The rates and other charges set forth in each Customer Order are established
in reliance on the term commitment made therein, and Customer agrees to pay the
same. In the event that Customer terminates Managed Modem Services ordered in
any Customer Order which is accepted by Level 3 or in the event that the
delivery of Managed Modem Services is terminated due to a failure of Customer
to satisfy the requirements set forth herein or in the Customer Order prior to
the end of the agreed term, Customer shall (unless Customer has made a Revenue
Commitment) pay a termination
Page 14 of 18
<PAGE> 14
charge equal to the percentage of the monthly recurring charges for the
terminated Managed Modem Services calculated as follows:
a. 100% of the monthly recurring charge that would have been incurred for the
Managed Modem Service for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would have been incurred for the
Managed Modem Service for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would have been incurred for the
Managed Modem Service for months 25 through the end of the agreed term.
Customer may, in the event that a Revenue Commitment is made and is then being
satisfied by Customer, terminate, rearrange or reconfigure the Managed Modem
Services ordered under a Customer Order without payment of the termination
charge specified above; PROVIDED, HOWEVER, that Customer shall be responsible
for payment of Level 3's then-current standard nonrecurring charges for such
termination, rearrangement or reconfiguration.
8. Level 3 provides only access to the Internet; Level 3 does not operate or
control the information, services, opinions or other content of the Internet.
Customer agrees that it shall make no claim whatsoever against Level 3 relating
to the content of the Internet or respecting any information, product, service
or software ordered through or provided by virtue of the Internet.
9. Level 3 makes the Service Level Agreement attached as Exhibit "A" respecting
Managed Modem Services.
Page 15 of 18
<PAGE> 15
Standard Service Level Agreement (SLA)
Release 1
Managed Modem
Managed Modem service will be backed by a Service Delivery SLA.
NOTE: The total number of credits per month is limited to four days.
Service Delivery SLA
o 30 Calendar Day Installation Guarantee for Customers buying Managed
Modem service in speeds from 64 Kbps -- 1,544 Kbps within the Standard
Service Area.
o 45 Calendar Day Installation Guarantee for Customers buying Managed
Modem service in speeds from 3 Mbps -- 45 Mbps within the Standard
Service Area.
o Single toll-free number to reach Level 3 Customer Service for all customer
issues, including technical, billing, and product inquiries.
o Time to Respond - Within 30 minutes
o 2 hour calendar month Average Time To Repair (ATTR)
If Level 3 fails to meet any of the guarantees above, Level 3 will review all
reported failures at the end of the month, and calculate the applicable credits:
> Any customer inquiry to the Level 3 Customer Service Center that results in
a Time to Respond of >30 minutes will result in a one day service credit
when the customer notifies Level 3 of the failure.
> ATTR is calculated as a monthly average. All reported customer trouble
tickets will be totaled over the month, then the average time to close each
ticket will be calculated. If the ATTR is greater than 2 hours, the customer
will receive a one day service credit.
> Credits will only be applied to events where the Customer reports a failure
to the Level 3 Customer Care organization. Customers must report any Service
Delivery failures within five business days of the event.
Page 16 of 18
<PAGE> 16
ADDITIONAL TERMS AND CONDITIONS FOR
IP CROSSROADS
The following additional terms and conditions are applicable where, pursuant to
a Customer Order, Customer orders IP CrossRoads.
1. Any state or federal tariffs applicable to the IP CrossRoads Services to be
delivered under any Customer Order are incorporated into the terms thereof. The
IP CrossRoads Services shall at all times be used in compliance with Level 3's
then-current Acceptable Use Policy and Privacy Policy, as amended by Level 3
from time to time and which are available through Level 3's web site.
2. The nonrecurring charges and monthly recurring rates for the IP CrossRoads
Services provided by Level 3 to Customer are set forth in each Customer Order.
3. The rates and other charges set forth in each Customer Order are established
in reliance on the term and/or volume commitment made therein, and Customer
agrees to pay the same. In the event that Customer terminates IP CrossRoads
Services ordered in any Customer Order which is accepted by Level 3 or in the
event that the delivery of IP CrossRoads Services is terminated due to a failure
of Customer to satisfy the requirements set forth herein or in the Customer
Order prior to the end of the agreed term, Customer shall (unless Customer has
made a Revenue Commitment) pay a termination charge equal to the percentage of
the monthly recurring charges for the terminated IP CrossRoads Services
calculated as follows:
a. 100% of the monthly recurring charge that would have been incurred for the
IP CrossRoads Service for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would have been incurred for the IP
CrossRoads Service for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would have been incurred for the IP
CrossRoads Service for months 25 through the end of the agreed term.
Customer may, in the event that a Revenue Commitment is made and is then being
satisfied by Customer, terminate, rearrange or reconfigure the IP CrossRoads
Services ordered under a Customer Order without payment of the termination
charge specified above; PROVIDED, HOWEVER, that Customer shall be responsible
for payment of Level 3's then-current standard nonrecurring charges applicable
to such termination, rearrangement or reconfiguration.
4. Level 3 provides only access to the Internet; Level 3 does not operate or
control the information, services, opinions or other content of the Internet.
Customer agrees that it shall make no claim whatsoever against Level 3 relating
to the content of the Internet or respecting any information, product, service
or software ordered through or provided by virtue of the Internet.
5. If Customer orders IP CrossRoads Services pursuant to a Customer Order, the
Customer shall be permitted to make two (2) changes to its Committed Data Rate
each contract year, provided that such change be a higher Committed Data Rate.
6. Level 3 reserves the right, but does not undertake the obligation, to
provide any Customer or potential customer bound by a Nondisclosure Agreement
access to a list of (i) Level 3's Customers which are connected to the IP
CrossRoads Intra-Gateway Exchange Network Platform; and/or (ii) Autonomous
Systems Internet Network Platform. By this Agreement, Customer consents to such
disclosures.
Level 3 makes no guarantee of any Customer's willingness to exchange Internet
traffic with any other customer. Level 3 will, however, use reasonable efforts
to arrange an introduction between customers or prospective customers bound by a
Nondisclosure Agreement to facilitate an agreement between them respecting the
exchange of Internet traffic.
Level 3 undertakes no obligations and accepts no liability for the
configuration, management, performance or any other issue relating to Customer's
routers or other customer provided equipment used for access to or the exchange
of traffic in connection with Level 3's IP CrossRoads Service.
7. Level 3 makes the Service Level Agreement attached as Exhibit "A" respecting
IP CrossRoads Service.
Page 17 of 18
<PAGE> 17
[LOGO]
SERVICE LEVEL AGREEMENT
Level 3 IP CrossRoads Service is backed by the following Service Level
Agreement. If the Level 3 Obligation is missed, the credit set forth below will
be issued to the Customer when requested.
- -------------------------------------------------------------------------------
Level 3 Obligation Credit
- -------------------------------------------------------------------------------
INSTALLATION - Level 3 guarantees installation of IP CrossRoads 1 day
Service in Level 3's standard service area within the following time
frames upon Level 3's acceptance of a Customer order: 20 business days
or less for Ethernet port speeds of 10Mbps, 100Mbps, or 1000Mbps
terminating in Level 3 Collocation
- -------------------------------------------------------------------------------
RESPONSE TIME - Level 3's response time to any issue reported to and 1 day
confirmed by Level 3 Customer Service will be 30 minutes or less. As
soon as an issue is reported. Level 3 will open a trouble ticket.
RESOLUTION TIME - Level 3's mean time to resolve ("MTTR") Customer
issues relating to the technical performance or nonperformance of
Level 3's IP CrossRoads Service will be 2 hours or less, on a monthly 1 day
average basis. MTTR is calculated by taking the monthly aggregate of
time to close all trouble tickets relating to the technical
performance of Level 3's IP CrossRoads Service, divided by the number
of trouble tickets opened that month.
The Response Time and Resolution Time Obligations are depicted on the
timeline below:
<--30 min.--> <-------2 hrs.----->
O--------------------------------------------------->
Customer Customer Response Time Resolution Time
Issue Notifies (ticket opened) (ticket closed)
Level 3
- -------------------------------------------------------------------------------
100% SERVICE AVAILABILITY - Service Unavailability means an IP 1 day
CrossRoads outage was confirmed by Level 3 Customer Service. This
outage is reported by a Customer within 48 hours of the outage, which
relates to the Customer's access point on the Level 3 Internet
Network, including the Customer's Level 3-provided port and local
access circuit. Service Unavailability does not include outages
associated with maintenance events, customer-caused outages or
disruptions, the performance of Internet networks controlled by other
companies, or traffic exchange points that are controlled by other
companies. Customers will receive credits, calculated monthly as an
aggregate of all Service Unavailability events in 15-minute
increments.
- -------------------------------------------------------------------------------
DELAY GUARANTEE - 40 ms one-way. Delay refers to the one-way average 1 day
delay over a calendar month of traffic between all major gateways on
the Level 3 U.S. Internet Network. Delay does not apply to Customer's
local access circuit, transit or peering connections, circuits to the
traffic exchange points, maintenance events, or to customer-caused
outages or disruptions. Customer may obtain a report from Level 3 if
there is a question whether a delay has occurred. This request must be
made within five (5) days from the last day of the month in question.
- -------------------------------------------------------------------------------
Contact Level 3 Customer Service toll-free at: 1-877-4LEVEL3 (877-453-8353) for
all issues, including technical, billing, and product inquiries.
THE TOTAL NUMBER OF CREDITS PER MONTH IS LIMITED TO FIVE (5) DAYS. CUSTOMER
MUST REQUEST CREDITS WITHIN FIVE DAYS OF THE END OF ANY MONTH
TO RECEIVE CREDITS.
Page 18 of 18
<PAGE> 18
ADDENDUM TO SERVICE ORDER
This Addendum (the "Addendum") modifies that certain terms and Conditions
for Delivery of Service ("Terms and Conditions") version number 2.6 between
TELOCITY, INC., FORMERLY KNOWN AS MACH ONE ("Customer") and Level 3
Communications, LLC ("Level 3") dated 8/23/1999. Capitalized terms used but not
defined herein shall have the meanings set forth in the Terms and Conditions.
The terms and conditions contained in this Addendum modify the Terms and
Conditions in the following respects:
1. DISCONTINUANCE OF CUSTOMER ORDER BY CUSTOMER. The first sentence of
Section 3.4 shall be modified by replacing "eight (8)" with "four (4)" and
subsection (ii) shall be deleted in its entirety.
2. TITLE AND POWER. Section 4.3 shall be modified by replacing the first
sentence with the following: "Title to all equipment and devices supplied by
Level 3 and used by Level 3 in the furnishing of the Services, including all
terminal equipment, wires, lines, circuits, ports, routers, switches, channel
service units, data service units, cabinets, racks, private rooms and the like,
shall remain with Level 3."
3. ENTIRE UNDERSTANDING. Section 8.8 shall be modified by adding the
following sentence to the end of such section: "The Terms and Conditions and
the Addendum shall only be modified in writing, specifically referencing the
document to be modified and shall be signed by both parties."
4. RAMP PERIOD. "Ramp Period #1 shall mean that date [*] after the acceptance
of the first Customer Order for Services. "Ramp Period #2" shall mean that date
[*] after the acceptance of the first Customer Order for Services.
5. REVENUE COMMITMENT. Customer hereby commits that, by Ramp Period #1,
Customer will submit Customer Orders and pay the Monthly Recurring Charges for
no less than [*]. Customer further commits that, by Ramp Period #2, Customer
will submit Customer Orders and pay the Monthly Recurring Charges for no less
than [*]. The Monthly Recurring Charges shall include those payments made to
Level 3 for Services pursuant to this Addendum. The commitment set forth above
is a "take or pay" commitment; in the event that Customer has not submitted
Customer Orders for the agreed amount on or prior to the respective Ramp Period,
Customer will be billed for, and will be obligated to pay the Monthly Recurring
Charges for a minimum term of three (3) years, from the acceptance of the first
Customer Order for Services.
6. SUBSTITUTE SERVICES. In the event Customer orders Services provided by
Level 3, on Level 3's existing network, and such Services are not available for
Customer's use within ninety (90) days after Customer has given written notice
to Level 3 requesting such Services, customer may order such Services from
another provider at Customer's sole cost and expense. The actual costs incurred
for such substitute Services shall be included in Customer's Revenue Commitment
as described above.
7. FUTURE SERVICES. The parties acknowledge that Customer desires to order
certain Services in Phoenix, Arizona, although Level 3 does not currently
provide such Services in Phoenix, Arizona. The parties further acknowledge that
when Level 3 provides such Services in Phoenix, Arizona, Level 3 will
reconfigure the then current Services being provided to Customer so that those
Services shall include Phoenix, Arizona with no additional installation charges
to Customer.
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 19
8. CROSS CONNECTIONS. Level 3 hereby agrees to provide for the termination of
third-party circuits via cross connects on a reasonable and non-discriminatory
basis. Level 3 cross connection charges described above shall not exceed [*] per
cross connect per month. Such cross connects shall be delivered to Customer at
Customer's collocation Space in a reasonably timely manner and in no case
greater than ten (10) business days following Level 3's receipt and acceptance
of a circuit facilities assignment and a design layout record from Customer.
9. BUILD-OUT PLAN. Attached hereto and incorporated herein as Exhibit A is a
Build-Out Staging Plan consisting of five parts in descending order of priority.
In the event the stages cannot be built-out by Level 3 simultaneously, no
charges will be due and payable for elements of a lower priority stage until
each of the elements of the higher priority stages have been completed by Level
3; provided, however, Customer shall be responsible and obligated to pay for
all actual usage of Services.
ADDITIONAL TERMS AND CONDITIONS FOR PRIVATE LINE SERVICE:
10. The Service Level Agreement for International/National Private Line is
deleted in its entirety and replaced with the following:
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
2
<PAGE> 20
PRIVATE LINE
[LEVEL 3 LOGO]
SERVICE LEVEL AGREEMENT
Level 3 Private Line Services (PLS) are backed by the following Service Level
Agreement (SLA). If the Level 3 obligation is missed, the credit set forth below
will be issued to the customer if requested, once verified by Level 3. The total
number of credits per month is limited to the Monthly Recurring Charge (MRC) for
the affected service. To receive credit if these obligations have not been met,
the customer must contact Level 3 Customer Service within five (5) days of the
end of the month for which credit is requested.
Level 3 provides a toll-free number connecting the customer to Level 3 Customer
Service for all issues -- including technical, billing, and product inquiries;
1-877-4LEVELS (1-877-453-8353).
ORDER ACCEPTANCE DEFINITION
An order is accepted by Level 3 (for the purposes of this Installation Guarantee
only) as soon as the Order Entry Specialist receives the order in Customer
Implementation Management (CIM).
INDIVIDUAL CASE BASIS (ICB) DEFINITION
Individual case basis (ICB) is defined as a service where a standard service
interval is not defined. For ICB categories, Level 3 will provide a Firm Order
Commitment Date (FOC) for services as soon as possible. The FOC date is
determined by a combination of Level 3 internal process as well as the dates
supplied to Level 3 by Level 3 vendors (where applicable). These vendor-supplied
FOC dates vary by vendor, region, and city.
CHANGES TO EXISTING ORDERS IN PROGRESS
The SLA implementation dates apply to intervals between original order date and
original due date. If a customer requests a change to an order date during the
implementation of a service, the following effects will occur;
CHANGES TO ORDERS IN PROGRESS
<TABLE>
<CAPTION>
CHANGE ORDER PLACED CHARGE EFFECT ON DELIVERY
- ------------------- ------ ------------------
<S> <C> <C>
1st Week of Order Process $250 SLA implementation clock will begin again once change is accepted
2nd Week of Order Process $250 SLA implementation clock will begin again once change is accepted
3rd Week of Order Process $250 SLA implementation clock will begin again once change is accepted
4th Week of Order Process $500 SLA implementation clock will begin again once change is accepted
< 3 Days Before Delivery 25% of MRC for SLA implementation clock will begin again once change is accepted
each week of
requested delay
</TABLE>
Effective 9/1/99 For internal Use Only--Level 3 Communications, LLC 1 of 3
3
<PAGE> 21
Level 3 will accept one requested change of delivery date per circuit order.
Level 3 will begin billing the service on the day that the service is made
available to the customer.
INSTALLATION OBLIGATIONS
Level 3 guarantees installation of its PLS within the following times beginning
with Level 3's acceptance of a customer order (see definition of order
acceptance on page 1) following Level 3's approval of client credit:
<TABLE>
<CAPTION>
National and International PLS (Gateway Cities Only)
- ------------------------------------------------------------------------------------------------------------------------------
LEVEL 3 OBLIGATION
- ------------------------------------------------------------------------------------------------
STANDARD SERVICE DELIVERY INTERVALS BY PRODUCT
(BUSINESS DAYS)
------------------------------------------------------ CREDIT
SERVICE STM-1/OC-3/
DS-1, E-1 DS-3 OC-12
------------------------------------------------------
NPLS IPL NPLS IPL NPLS IPL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
On-Net Gateway-to-Gateway, 20 20 20 20 20 20 One (1) day for
100% Level 3 Fiber each day missed
- ------------------------------------------------------------------------------------------------ (up to 4 days total
Non-Level 3 Fiber Between 40 40 60 60 ICB ICB credit)
Gateways or Off-Net Within SSA
(Either End)
- ------------------------------------------------------------------------------------------------------------------------------
Outside SSA (<50 miles) 40 ICB ICB ICB ICB ICB
(Either End)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
U.S. Metropolitan PLS
- ------------------------------------------------------------------------------------------------------------------------------
LEVEL 3 OBLIGATION
- ------------------------------------------------------------------------------------------------------ CREDIT
<S> <C> <C>
SPEED OF ON-NET BUILDING SERVICE INTERVAL* OFF-NET BUILDING SERVICE INTERVAL*
SERVICE
- ------------------------------------------------------------------------------------------------------
E-1** 20 business days 45 business days One (1) day for
- ------------------------------------------------------------------------------------------------------ each day
DS-1 20 business days 40 business days missed (up to
- ------------------------------------------------------------------------------------------------------ 4 days total
DS-3 20 business days 60 business days credit)
- ------------------------------------------------------------------------------------------------------
STM-1 20 business days Individual case basis
- ------------------------------------------------------------------------------------------------------
OC-3 20 business days Individual case basis
- ------------------------------------------------------------------------------------------------------
OC-12 20 business days Individual case basis
- ------------------------------------------------------------------------------------------------------
OC-48 Individual case basis Individual case basis
- ------------------------------------------------------------------------------------------------------
OC-192 Individual case basis Individual case basis
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Service interval dates exclude any additional riser infrastructure within a
building required to reach the customer suite (where this infrastructure is
not already in place).
**E-1 Off-Net Metro Private Line is not a stand-alone service in the U.S. in
the U.S., this service is sold only in conjunction with an International
Private Line.
- --------------------------------------------------------------------------------
Effective 9/1/99 For Internal Use Only--Level 3 Communications, LLC 2 of 3
<PAGE> 22
AVAILABILITY OBLIGATIONS
Level 3 makes the following additional guarantees respecting it's PLS:
Private Line Services Availability
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
LEVEL 3 OBLIGATION CREDIT*
- --------------------------------------------------------------------------------
<S> <C>
99.99% SERVICE ABILITY GUARANTEE*
Service Unavailability refers to a period during which there is a break in
transmission, reported to and confirmed by Level 3 Customer Service. The start
of the break is signaled by the first of ten consecutive severely erred seconds
("SESs"), as defined below, and the end is signaled by the first of ten
consecutive non-SESs. An SES is a second with a bit error ratio of greater than
or equal to 1 in 1000. Service Unavailability does not include SESs associated
with maintenance events, customer-caused SESs or SESs caused by companies other
than Level 3. Customers will receive credits, calculated monthly as an
aggregate of all Service Unavailability events, in accordance with the chart
below:
- --------------------------------------------------------------------------------
Service unavailable < 15 minutes no credit
- --------------------------------------------------------------------------------
Service unavailable 15 minutes-8 hours 3 hours credit*
- --------------------------------------------------------------------------------
Service unavailable 8-12 hours 12 hours credit*
- --------------------------------------------------------------------------------
Service unavailable 12-16 hours 18 hours credit*
- --------------------------------------------------------------------------------
Service unavailable 16-24 hours 24 hours credit*
- --------------------------------------------------------------------------------
</TABLE>
*The total number of credits per month is limited to the Monthly Recurring
Charge (MRC) for the afflicted service.
Service Availability is calculated from the ingress of the Level 3 Network to
the egress of the Level 3 network. Where a customer is served directly by the
Level 3 Metro networks (lit by Level 3 fiber) this parameter is extended to the
customer building. Where we are dependent upon a third party for local
connectivity to the backbone, the availability of 99.99% is applicable from
Level 3 Gateway to Level 3 Gateway. For circuits terminating in Germany, the
local loop will hold, and the availability target of 97.5% is applicable.
Please see note on Germany below.
*NOTE: If the customer has signed a contract governed by German law, and/or
Private Line service is provisioned in Germany, the following Availability
Guarantee shall instead apply:
LOCAL LOOP GUARANTEE: 97.5% ANNUAL AVAILABILITY
The unavailability time is calculated as the total number of outages a customer
experiences during a calendar month. The maximum unavailability time may vary
depending on the total number of days in the month. Example, 352-day year, the
unavailability maximum would be 211 hours. If Level 3 exceeds the maximum
availability time of 211 hours over the first 12 months of the customer's
contract, then Level 3 would be liable to pay the customer service credits for
the unavailability time exceeding 211 hours.
Effective 9/1/99 For Internal Use Only - Level 3 Communications, LLC 3 of 3
<PAGE> 23
ADDITIONAL TERMS AND CONDITIONS FOR TELEPHONE AND IP COLOCATION:
11. Section 8 shall be modified by adding the following sentence to the end of
such section: "Level 3 agrees to pay for all actual reinstallation charges
associated with a change in Customer's Space pursuant to this Section 8."
12. ROOF RIGHTS. "Level 3 shall use reasonable efforts to provide contact names
and numbers to Customer to facilitate Customer's efforts in obtaining roof
rights on various Level 3 Gateway facilities."
IN WITNESS WHEREOF, the parties agree to the foregoing by executing this
Addendum below, effective as of the date first set forth above.
CUSTOMER ACCEPTANCE LEVEL 3 ACCEPTANCE
By: /s/ Peter Olson By:
------------------------------ --------------------------------
Its: [Illegible] Its:
------------------------------ -------------------------------
Date: 9/02/99 Date:
----------------------------- ------------------------------
6
<PAGE> 24
Level 3 Deployment
All pricing is based on 3 year term and [*] volume commitment.
Level 3 will give Telocity a 12 month ramp to reach this volume.
<TABLE>
<CAPTION>
# of Year Year
Collocation Racks NPA/NXX Address Circuits Price 2 3
- ----------- ----- ------------------------------------------ -------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
[*]
STAGE 5
Phoenix** 1 n/a OC3 to Phoenix to
Los Angeles and
Phoenix to Dallas
</TABLE>
** When Phoenix is available we wish to re-route the Dallas to Los Angeles link
via Phoenix.
Level 3 will address this and provide an estimate date for a Phoenix gateway.
We will require roof rights/access in all locations for the purpose of
installing a Skycache Satellite Feed Requirement under review.
We also require the ability to terminate circuits from 3rd party vendors at
each of these locations. Approved.
* San Jose Location as Telocity's New Offices on 10355 N. DeAnza, Cupertino.
OC3 local loop pricing from Level 3 Sunnyvale gateway to 10355 N. DeAnza
requires special pricing. [5-10 business days]
All Stages are to be built out simultaneously.
Billing of stages. However delivery is to be completed in staged order for the
purposes of billing.
The whole of stage 1 must be completed before billing starts on any portion of
the stage 1 build. The whole of stage 1 must be completed before billing will
commence on stage 2 and so on with stage 3 Approved. However, Telocity will be
billed for usage of any service.
Cableset pricing is the same as original proposal [$525 per each]. Qty. 17
cabinets = $8,925 per month
Bandwidth usage priced at 10-24 Mbps tier. [9Mbps shown here plus existing
usage in Chicago]
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 25
Telocity, Inc. Customer Order
Dated: 8/23/99
-------------
<TABLE>
<S> <C> <C> <C> <C> <C>
10030 Telephony Colocation [*] [*] [*] [*]
10031 Telephony Colocation [*] [*] [*] [*]
Total: [*] [*] [*]
CUSTOMER COMMITMENT
Volume: [*] Term 3 Year Ramp Up [*]
CUSTOMER APPROVAL:
</TABLE>
This Customer Order is governed by the Level 3 Communications, LLC ("Level 3")
General Terms and Conditions for Delivery of Service, its attachments, addenda,
and Level 3 Quote Number 000008236 dated 8/17/98, all of which are attached
hereto and referred to collectively as "the Agreement." All of the terms,
conditions and definitions set forth in the Agreement are hereby incorporated
into this Customer Order. Neither party shall be liable for any indirect,
incidental, special, consequential, exemplary or punitive damages (including
but not limited to damages for lost profits or lost revenues), whether or not
caused by the acts or omissions or negligence of its employees or agents, and
regardless of whether such party has been informed of the possibility or
likelihood of such damages.
Other than the Agreement and the provisions set forth in this Customer Order,
there are no other agreements, promises or understandings, whether written or
verbal, relating to the subject matter hereof, which are not set forth in the
Agreement or the Customer Order.
Telocity, Inc.
Authorized Signature: /s/ PETER OLSON
Name: Peter Olson
Title: C.T.O.
Level 3
Authorized Signature:
Name:
Title:
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 26
[LEVEL (3) LOGO]
TERM VOLUME
COMMITMENT COMMITMENT
3 Year [*]
Company Name: Telocity
Address: 10355 N DE ANZA BLVD
CUPERTINO, CA 95014-2027
Route Number: 000008236
<TABLE>
<CAPTION>
Qty. Name/Gateway Product Cd Description Term Amount Net NRC Per Unit 1st Year MRC 2nd Year MRC 3rd Year MRC
- ---- ------------- ---------- --------------- ------ -------------- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*]
</TABLE>
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
1
<PAGE> 27
[LEVEL 3 LOGO]
PRICE QUOTE
<TABLE>
<CAPTION>
Qty. Name/Gateway Product Cd Description Term Amount Net NRC Per Unit 1st Year MRC 2nd Year MRC 3rd Year MRC
- ---- ------------ ---------- ----------- ---- ------ ------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*]
</TABLE>
2
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 28
[LEVEL(3) LOGO]
PRICE QUOTE
<TABLE>
<CAPTION>
Qty. Name/Gateway Product Cd Description Term Amount Net NRC Per Unit 1st Year MRC 2nd Year MRC 3rd Year MRC
- ---- ------------ ---------- ----------- ---- ------ ------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*]
</TABLE>
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 29
[LEVEL(3) LOGO]
PRICE QUOTE
<TABLE>
<CAPTION>
Qty. Name/Gateway Product Cd Description Term Amount Net NRC Per Unit 1st Year MRC 2nd Year MRC 3rd Year MRC
- ---- ------------ ---------- ---------------- ---- ---------- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*]
</TABLE>
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
4
<PAGE> 30
[LEVEL(3) LOGO]
PRICE QUOTE
<TABLE>
<CAPTION>
Qty. Name/Gateway Product Cd Description Term Amount Net NRC Per Unit 1st Year MRC 2nd Year MRC 3rd Year MRC
- ---- ------------ ---------- ---------------- ---- ---------- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*]
</TABLE>
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
5
<PAGE> 31
[LEVEL(3) LOGO]
PRICE QUOTE
<TABLE>
<CAPTION>
Qty. Name/Gateway Product Cd Description Term Amount Net NRC Per Unit 1st Year MRC 2nd Year MRC 3rd Year MRC
- ---- ------------ ---------- ---------------- ---- ---------- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*]
</TABLE>
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
6
<PAGE> 32
[LEVEL(3) LOGO]
PRICE QUOTE
<TABLE>
<CAPTION>
Qty. Name/Gateway Product Cd Description Term Amount Net NRC Per Unit 1st Year MRC 2nd Year MRC 3rd Year MRC
- ---- ------------ ---------- ---------------- ---- ---------- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*]
</TABLE>
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
7
<PAGE> 33
[LEVEL(3) LOGO]
PRICE QUOTE
<TABLE>
<CAPTION>
Qty. Name/Gateway Product Cd Description Term Amount Net NRC Per Unit 1st Year MRC 2nd Year MRC 3rd Year MRC
- ---- ------------ ---------- ---------------- ---- ---------- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*]
</TABLE>
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
8
<PAGE> 34
[LEVEL(3) LOGO]
PRICE QUOTE
<TABLE>
<CAPTION>
Qty. Name/Gateway Product Cd Description Term Amount Net NRC Per Unit 1st Year MRC 2nd Year MRC 3rd Year MRC
- ---- ------------ ---------- ---------------- ---- ---------- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*]
</TABLE>
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
9
<PAGE> 35
[LEVEL(3) LOGO]
PRICE QUOTE
<TABLE>
<CAPTION>
Qty. Name/Gateway Product Cd Description Term Amount Net NRC Per Unit 1st Year MRC 2nd Year MRC 3rd Year MRC
- ---- ------------ ---------- ---------------- ---- ---------- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[*]
This Price Quote is governed by Level 3 Communications, LLC's Terms and
Conditions for Delivery of Service (which are available for your review
either upon request or on the Level 3 website), and shall be incorporated
into the Customer Order submitted by Customer for the foregoing Service.
Price Quote valid through:
**Notes:
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
10
<PAGE> 36
ADDENDUM
This addendum (the "Addendum"), effective as of 8/23/99, 1999, modifies
the Level 3 Terms and Conditions for Delivery of Service attached hereto plus
all its exhibits addenda, and the Customer Order (all of which are executed
concurrently herewith, attached hereto, and referred to herein, collectively,
as the "Terms & Conditions") by and between Level 3 Communications, LLC ("Level
3") and Telocity, Inc. ("Customer") formerly known as MachOne Communications,
Inc. Capitalized terms used but not defined herein shall have the meanings set
forth in the Terms & Conditions. The provisions, terms and conditions contained
in this Addendum modify the Terms and Conditions, as set forth below. In the
event that any provision, term or condition of this Addendum conflicts with, or
is deemed to conflict with, any provision of the Terms and Conditions, then
this Addendum shall control. This addendum may only be modified by a written
document, specifically stating that it is intended to modify this Addendum,
signed by both parties:
CHANGES TO GENERAL TERMS AND CONDITIONS FOR DELIVERY OF SERVICE
The Terms and Conditions is hereby amended by:
1. In Section 4.2 replacing the words "...pay Level three the cost to
repair any damage to the Facilities caused thereby; and (2) be responsible for
the payment of service charges..." with the words:
"... pay Level three the reasonable cost to repair any damage to the
Facilities cause thereby; and (2) be responsible for the payment of
reasonable service charges...".
2. Replacing the first sentence of Section 4.3 with the following sentence:
"Title to all equipment and devices supplied by Level 3 and used by Level 3
in the furnishing of the Services, including all terminal equipment, wires,
lines, circuits, ports, routers, switches, channel service units, data
service units, cabinets, racks, private rooms and the like, shall remain
with Level 3.
3. By replacing the first sentence of Section 6.1 with the following
sentence:
"If and to the extent that Customer requires the use of Licensed Software
in order to use the Services supplied under any Customer Order, then
Customer shall have a non-exclusive, non-transferable (except as set forth
in Section 8.2 of these Terms and Conditions) license to use such Licensed
Software only and solely to the extent required to permit delivery of the
Service."
4. By replacing the first sentence of Section 8.2 with the following
sentence:
"Customer may not transfer or assign the use of the Service without the
express prior written consent of Level 3, which consent shall not be
unreasonably withheld, and then only when such transfer or assignment can
be accomplished without interruption of the use or location of Service."
MODIFICATIONS TO ADDITIONAL TERMS AND CONDITIONS FOR PRIVATE LINE SERVICE
Section 3 of the Terms and Conditions, "Additional Terms and Conditions
for Private Line
Page 1 of 5
<PAGE> 37
Service" is amended by adding to the end of that section of new paragraph as
follows:
"Notwithstanding the above, Customer shall have the right to discontinue
the Service prior to the end of the agreed term with respect to which a
Service order has been executed without payment of any of the termination
charges set forth above if such Service [*] Customer must exercise its
right to terminate under this Section, in writing, no later than thirty
(30) days after the failure which gave rise to the right to terminate. The
termination right granted herein shall not be applicable to Service
failures which are caused by Customer, End User or any third party over
whom Level 3 does not have direct control, which result from failure of
power or equipment provided by Customer or third parties, which occur or
continue during any period in which Level 3 is not given access to the
Premises, provided that such access would have allowed Level 3 to remedy
such failure, or which result from scheduled maintenance and repair."
MODIFICATIONS TO STANDARD SERVICE LEVEL AGREEMENT (SLA)
INTERNATIONAL/US NATIONAL PRIVATE LINE
The Terms and Conditions, "Service Level Agreement for International/US
National Private Line" is amended by:
1. Deleting the second paragraph stating: "NOTE: The total number of
credits per month for both Service Delivery and Network Performance is limited
to four days."
2. Deleting from the section entitled "Network Performance SLA" the
phrase "99.99% Service Availability" and replacing it with all of the following:
Level 3's target service availability is 99.99%. Should Level 3's service
availability fall below that level, Customer will receive a service credit
based on the chart below:
SERVICE LEVEL PERFORMANCE CREDIT IF SERVICE LEVEL NOT MET
<TABLE>
<S> <C> <C>
Availability [*] [*]
(monthly)
Availability [*] [*]
(monthly)
Availability [*] [*]
(monthly)
Availability [*] [*]
(monthly)
Noting that:
</TABLE>
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
Page 2 of 5
<PAGE> 38
[*]
A circuit is not Available during a period where there is a break in
transmission, where the start of a break in transmission is signaled by
[*]. For the purposes of the foregoing, the circuit shall be considered
Available until Customer reports a failure to the Level 3 Customer Service
and Support Organization (1-877-4Level3) and Level 3 opens a trouble
ticket.
In no event shall Customer's total circuit charge credits exceed 100% of
Customer's total circuit charges in any one month period."
3. Deleting the balance of the "Network Performance SLA" excepting the
section entitled "NOTES".
MODIFICATIONS TO ADDITIONAL TERMS AND CONDITIONS FOR TELEPHONY AND IP
COLOCATION
The Terms and Conditions, "Additional Terms and Conditions for Telephony
and IP Colocation" is amended by:
1. Deleting Section 2 and replacing it with the following provision:
"Customer shall be permitted to use the Space only for placement and
maintenance of communications equipment. The nonrecurring and monthly
recurring charges for the Space and any Services ordered by Customer shall
be set forth in each Customer Order. Customer hereby agrees, within six (6)
months of ordering such colocation Space, to use the Space for placement
and maintenance of communications equipment. In the event customer fails to
fill said Space, Level 3 has the right to reclaim the proportion of Space
not being used exclusively as indicated above, upon forty-five (45) days'
prior notice and opportunity to cure. Upon the expiration of such 45 day
period, if Customer has not so cured, Customer shall immediately vacate
such recaptured Space and Level 3 shall reduce the colocation fees
allocated to such recaptured Space. No refunds shall be made to Customer
regarding such recaptured Space."
2. Adding to the end of Section 9 the following sentence to the end of
that Section:
"Level 3 shall pay for all reinstallation charges associated with a change
in Customer's Space pursuant to this Section 9."
MODIFICATIONS TO TERMS AND CONDITIONS IP COLOCATION
---------------------------------------------------
The Terms and Conditions, "IP Colocation" is amended by:
1. Deleting Section 2 and replacing it with the following provision:
"Customer shall be permitted to use the Space only for placement and
maintenance of communications equipment. The nonrecurring and monthly
recurring charges for the
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
Page 3 of 5
<PAGE> 39
Space and any Services ordered by Customer shall be set forth in each
Customer Order. Customer hereby agrees, within six (6) months of ordering
such colocation Space, to use the Space for placement and maintenance of
communications equipment. In the event customer fails to fill said Space,
Level 3 has the right to reclaim the proportion of Space not being used
exclusively as indicated above, upon forty-five (45) days' prior notice
and opportunity to cure. Upon the expiration of such 45 day period, if
Customer has not so cured, Customer shall immediately vacate such
recaptured Space and Level 3 shall reduce the colocation fees allocated to
such recaptured Space. No refunds shall be made to Customer regarding such
recaptured Space."
3. Section 8 of the Terms and Conditions, IP Colocation is amended by
adding the following sentence to the end of that Section:
"Level 3 shall pay for all reinstallation charges associated with a change
in Customer's Space pursuant to this Section 8."
MODIFICATIONS TO TERMS AND CONDITIONS -- DEDICATED RAPID ACCESS
AND DIAL UP INTERNET ACCESS
The Terms and Conditions, "Additional Terms and Conditions for Dedicated,
Rapid Access and Dial Up Internet Access" is amended by:
1. Adding to the end of Section 3 a new paragraph as follows:
"Notwithstanding the above, Customer shall have the right to discontinue
the Service prior to the end of the agreed term with respect to which a
Service Order has been executed without payment of any of the termination
[*] Customer must exercise its right to terminate under this Section, in
writing, no later than thirty (30) days after the failure which gave rise
to the right to terminate. The termination right granted herein shall not
be applicable to Service failures which are caused by Customer, End User or
any third party over whom Level 3 does not have direct control, which
result from failure of power or equipment provided by Customer or third
parties, which occur or continue during any period in which Level 3 is not
given access to the Premises, provided that such access would have allowed
Level 3 to remedy such failure, or which result from scheduled maintenance
and repair."
2. Adding to the end of paragraph 6 the sentence:
"Such changes shall be permitted without penalty."
MODIFICATIONS TO STANDARD SERVICE LEVEL AGREEMENT (SLA)
RELEASE 1
INTERNET DEDICATED ACCESS 1
The Terms and Conditions, "Service Level Agreement (SLA) Release for
Internet Dedicated Access is amended by deleting from paragraph two the phrase
"NOTE: The total number of credits per month for both Service Delivery and
Network Performance is limited to four days."
ADDITIONS TO THE GENERAL TERMS AND CONDITIONS
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
Page 4 of 5
<PAGE> 40
1. Nothing in the Agreement or any attachment or addenda shall be deemed
to prohibit or in fact does prohibit Telocity from or penalize Telocity for
using any third party supplier to provide any Service to Telocity. In the event
that Telocity has a Service requirement that cannot be met by Level 3, if
Telocity obtains such Service or the equivalent of such Service from another
supplier, then Telocity's expenditures for the third party Service will be
credited toward Telocity's [*] Revenue Commitment as if the Services had
been purchased from Level 3.
2. Upon the execution of this Addendum, the parties acknowledge that,
although Telocity desires to utilize certain Services in Phoenix AZ in the near
future, Level 3 does not provide such Service in Phoenix. The parties further
acknowledge that they have agreed that when the Services are available in
Phoenix and Telocity desires to order the Services, Level 3 will reconfigure the
services then-being provided to Telocity so that those Services include Phoenix,
at no NRC charge to Telocity.
3. Level 3 will provide roof rights, access, and connectivity as
reasonably requested by Telocity, in order facilitate the use of Skycache or
other satellite caching services in the Telocity colocation space.
4. Level 3 will reasonably and on a non-discriminatory basis provide for
the termination of third-party circuits via cross connects that will not exceed
[*] per cross connect per month. Such cross connects will be delivered to
Telocity at its colocation space in a reasonable timely manner and in no case
less than 7 days after such third party circuit was delivered to the Level 3
facility.
5. All San Jose circuits ordered under the Agreements will be delivered
to Telocity's main office located at 10355 North De Anza Blvd, Cupertino, CA.
Pricing for the local loop for such circuits will be determined within seven
days of the effective date of this Agreement. If the parties cannot agree on
such pricing, at Telocity's discretion, the Agreement shall be cancelable
without penalty to either party.
6. Attached hereto is a Build Out Staging Plan consisting of five parts
in descending order of priority. In the event that the stages cannot be built
out by Level 3 simultaneously, no charges will be due and payable for elements
of a lower priority stage until each of the elements of the higher priority
stages have been completed by Level 3.
IN WITNESS WHEREOF, the parties agree to the foregoing by executing this
Addendum below, effective as of the dates first set forth above.
TELOCITY, INC. LEVEL 3
/s/ PETER OLSON
- ------------------------------ --------------------------------
Authorized Signature Authorized Signature
Peter Olson
- ------------------------------ --------------------------------
Typed or Printed Name Typed or Printed Name
C.T.O.
- ------------------------------ --------------------------------
Title Title
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
Page 5 of 5
<PAGE> 1
Exhibit 10.27
[MCI WORLDCOM LOGO]
PRIVATE LINE SERVICE AGREEMENT
This Service Agreement (the "Agreement") for services described below is made
by and between MCI WORLDCOM Communications, Inc., formerly known as and doing
business as WorldCom Technologies, Inc. ("MCI WORLDCOM") and
Customer Name: TELOCITY, INC. (hereinafter "Customer"), with its principal
office at 10355 N. DeAnza Blvd.; Cupertino, CA 95014.
SECTION I: SERVICE AGREEMENT
1. SERVICE: MCI WORLDCOM will provide the following service (the "Service")
pursuant to the applicable tariffs of MCI WORLDCOM and its affiliates and
subsidiaries (the "Tariffs") (choose one):
<TABLE>
<S> <C>
[ ] International Private Line [ ] Digital Private Line (DS0)
[ ] Managed International Private Line [ ] Digital Private Line (Fractional DS1)
[ ] Metro Private Line [X] DIGITAL PRIVATE LINE (DS1)
[ ] Voice Grade Private Line [ ] Digital Private Line (Fractional DS3)
[X] SONET (OC-3) [X] DIGITAL PRIVATE LINE (DS3)
</TABLE>
The Tariffs provide terms and conditions of the Service which include, but
are not limited to, taxes, pricing, discounts, credit approval procedures,
Customer credits, termination liability, and limitations with respect to
the assignment of the Service. The Tariffs may be modified from time to
time by MCI WORLDCOM in accordance with law and thereby affect the Service
furnished to Customer. In the event of a conflict between the Tariffs and
this Agreement the terms and conditions of the Tariffs shall control.
2. EFFECTIVE DATE: For the purposes of this Agreement, (i) if Customer has an
existing service agreement with MCI WORLDCOM, the "Effective Date" will be
the next billing cycle following the date this Agreement has been executed
and Customer has received a satisfactory credit review and approval from
MCI WORLDCOM's Credit Department, and all security documentation, if any,
required by MCI WORLDCOM has been properly executed and delivered to MCI
WORLDCOM (collectively, the "Credit Review"); and (ii) if Customer does not
have an existing service agreement with MCI WORLDCOM, the "Effective Date"
will be the date this Agreement has been executed and the Credit Review has
been completed.
3. CIRCUITS AND CONNECTIONS: Customer shall receive the following pursuant to
this Agreement:
MCI WORLDCOM DOMESTIC PRIVATE LINE*
<TABLE>
<S> <C>
DS-1 [*]
DS-3 Linear [*]
DS-3 Restorable [*]
OC-3 Linear [*]
OC-3 Restorable [*]
</TABLE>
* Rates will apply to Inter-exchange Carrier (IXC) charges only
* Rates will apply to Tier A cities only (all other are ICB)
* Local access is additional and non-discountable.
MCI WORLDCOM LOCAL ACCESS
<TABLE>
<CAPTION>
SERVICE TYPE(1) MILE(2) PRICING
<S> <C> <C> <C>
DS-3 1 0 mile [*]
DS-3 1 1 mile [*]
</TABLE>
(1) Type I sites consist of sites which are provisioned entirely on MCI
WORLDCOM's local network.
(2) Each additional mile is [*] per mile.
4. REVENUE COMMITMENT: Customer agrees to the following minimum Monthly
Revenue Commitment ("MRC") of [*] for a forty-five (45)-month term with a
nine (9) month [ILLEGIBLE] receive the associated rates as set forth in
Section 3 above and in the applicable Tariffs [ILLEGIBLE].
5. MONTHLY UNDERUTILIZATION: If Customer's usage fails to meet the MRC,
Customer will pay [*] of the difference between Customer's usage during
each month and Customer's MRC. Monthly usage in excess of the MRC cannot be
carried forward to another month.
Page 1 of 2
Please mail originals to: MCI WorldCom Sales Contracts Administration,
500 Clinton Center Drive, Bldg. 4; Clinton, MS 39056
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
CONFIDENTIAL - PROPRIETARY INFORMATION REV 6/8/99
<PAGE> 2
[MCI WORLDCOM LOGO]
6. LETTER OF AGENCY ("LOA"): The undersigned hereby authorizes MCI WORLDCOM
and/or the Local Exchange Company ("LEC"), and/or Foreign
Telecommunications Provider ("FTP"), if requested by Customer, to provision
Customer's Local Access. This LOA supersedes all previous LOAs and shall
remain in effect until canceled by Customer in writing.
7. COMPLETE AGREEMENT: This Agreement, including the MCI WORLDCOM Application
for Credit, the Tariffs and any documents incorporated herein by reference,
constitutes the full understanding of the parties and supersedes any prior
agreements between the parties relating to the Service. Alterations to this
Agreement shall render this Agreement null and void. Customer acknowledges
that MCI WORLDCOM is under no duty, implied or otherwise, to activate the
Service and will not be subject to liability, if any, under the terms of
this Agreement until such Service is activated.
8. SIGNATURE AUTHORIZATION: The parties have duly executed and agreed to be
bound by this Agreement as evidenced by the signatures of their authorized
representatives below. Each party represents and warrants to the other that
the signatory identified beneath its name below has full authority to
execute this Agreement on its behalf.
ACCEPTED BY: ACCEPTED BY:
TELOCITY, INC. MCI WORLDCOM COMMUNICATIONS, INC.
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ FRANK GRILLO
----------------------------- ------------------------------
Name: Matt [ILLEGIBLE] Name: Frank Grillo,
--------------------------- ----------------------------
Title: VP Legal Title: V.P. Marketing
-------------------------- ---------------------------
Date: 10-10-99 Date: 10-18-99
--------------------------- ----------------------------
Page 2 of 2
Please mail originals to: MCI WorldCom Sales Contracts Administration,
500 Clinton Center Drive, Bldg. 4; Clinton, MS 39056
CONFIDENTIAL - PROPRIETARY INFORMATION REV 6/8/99
<PAGE> 3
[WORLDCOM LOGO] PRIVATE LINE SERVICE Log #
ORDER FORM -----------
SO #
-----------
Page 1 of 2
Today's Date: 7/13/99
Sales Office: San Francisco
SECTION I: SERVICE AGREEMENT
This Service Agreement (the "Agreement") for services described below is made
by and between WorldCom Technologies, Inc. ("WorldCom") and Customer Name:
Telocity, Inc. (hereinafter "Customer").
1. SERVICE: WorldCom will provide Private Line service ("Service") pursuant
to the applicable tariffs of WorldCom Network Services, Inc., a wholly owned
subsidiary of WorldCom (the "Tariffs"). The Tariffs provide terms and
conditions of the Service which include, but are not limited to, taxes, credit
approval procedures, Customer credits, termination liability and limitations
with respect to the assignment of the Service. The Tariffs may be modified from
time to time by WorldCom in accordance with law and thereby affect the Service
furnished to Customer.
2. TERMS AND CONDITIONS: For the convenience of the parties, Service will be
provided by WorldCom subject to the rules and regulations set forth in the
applicable Tariff, in addition to the terms and conditions set forth herein.
(Check the appropriate box.)
(a) Service Commitment Period ("Service Commitment Period"):
[ ] month to month [ ] 1 Year [ ] 2 Year [X] 3 Year [ ] 4 Year [ ] 5 Year
(b) Service Location*/Type
<TABLE>
<CAPTION>
Loc. A NPA-NXX Loc. Z NPA-NXX Access Type Circuit Type
<S> <C> <C> <C>
[*]
</TABLE>
- --------
* Additional customer service locations, if applicable, shown on attachment A
attached hereto and incorporated herein.
(c) Effective Date: For purposes of this Agreement, (i) if Customer has an
existing service agreement with WorldCom, the "Effective Date" will be the next
billing cycle following the date this Agreement has been executed and Customer
has received a satisfactory credit review and approval from WorldCom's Credit
Department, and all security documentation, if any, required by WorldCom has
been properly executed and delivered to WorldCom (collectively, the "Credit
Review"), and (ii) if Customer does not have an existing service agreement with
WorldCom, the "Effective Date" will be the date this Agreement has been
executed and the Credit Review has been completed.
3. CHARGES/DISCOUNTS: During the Service commitment period of this Agreement,
Customer shall receive rates and discounts for Service as set forth in the
Tariff.
4. LETTER OF AGENCY ("LOA"): The undersigned [duly authorized representative
of Customer] hereby authorizes WorldCom and/or the Local Exchange Company
("LEC"), if requested by Customer, to provision Customer's local access. This
LOA supersedes all previous LOAs and shall remain in effect until canceled by
Customer in writing.
This Agreement, including the WorldCom Application for Credit, the Tariffs and
any documents incorporated herein by reference, constitutes the full
understanding of the parties and supersedes any prior agreements between the
parties relating to private line telecommunications services. Alterations to
this Section I of the WORLDCOM PRIVATE LINE SERVICE AGREEMENT/SERVICE ORDER
shall render this Agreement null and void. Activation of Service shall indicate
WorldCom's acceptance of this Agreement.
ATTACHMENT: YES [X] NO [ ] (see "Private Line Service Agreement")
AS AUTHORIZED AGENT OF CUSTOMER, I AGREE TO THE ABOVE TERMS AND CONDITIONS:
NAME: * Peter Olson SIGNATURE: * /s/ PETER OLSON
--------------------------- ------------------------
TITLE: * CTO COMPANY/ACCOUNT NAME: Telocity, Inc.
--------------------------- --------------
DATE: 9-13-99
----------------------------
NOTE 1: This order is for interconnection with Bell South.
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 4
WORLD COM Page 2 of 2
Today's Date 9/13/99
Customer Abbreviation TELOCITY
<TABLE>
<CAPTION>
Service Location/Type
Loc. A NPA-NXX Loc. Z NPA-NXX Access Type Circuit Type
<S> <C> <C> <C>
[*]
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
_______ _______ [ ] DS-0 [ ] DS-1 [ ] DS-2 [ ] DS-0 [ ] FT-1 [ ] DS-1 [ ] FT-3
</TABLE>
As authorized agent of customer, I agree to the above terms and conditions:
Name: Peter Olson Signature: /s/ PETER OLSON
-------------------- ---------------------
Title: CTO Company/Account Name: Telocity, Inc.
-------------------- --------------
Date: 9-13-99
--------------------
696/02/98.1 This form valid 2/2/98 through 8/31/98.
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 5
[MCI LOGO]
PRIVATE LINE SERVICE AGREEMENT
This Service Agreement (the "Agreement") for services described below is made by
and between MCI WORLDCOM Communications, Inc., formerly known as and doing
business as WorldCom Technologies, Inc. ("MCI WORLDCOM") and
Customer Name: TELOCITY, INC. (hereinafter "Customer"), with its principal
office at 10355 N. DeAnza Blvd.; Cupertino, CA 95014.
SECTION I: SERVICE AGREEMENT
1. SERVICE: MCI WORLDCOM will provide the following service (the "Service")
pursuant to the applicable tariffs of MCI WORLDCOM and its affiliates and
subsidiaries (the "Tariffs") (choose one):
<TABLE>
<S> <C>
[ ] International Private Line [ ] Digital Private Line (DS0)
[ ] Managed International Private Line [ ] Digital Private Line (Fractional DS1)
[ ] Metro Private Line [X] DIGITAL PRIVATE LINE (DS1)
[ ] Voice Grade Private Line [ ] Digital Private Line (Fractional DS3)
[X] SONET (OC-3) [X] DIGITAL PRIVATE LINE (DS3)
</TABLE>
The Tariffs provide terms and conditions of the Service which include, but
are not limited to, taxes, pricing, discounts, credit approval procedures,
Customer credits, termination liability, and limitations with respect to the
assignment of the Service. The Tariffs may be modified from time to time by
MCI WORLDCOM in accordance with law and thereby affect the Service furnished
to Customer. In the event of a conflict between the Tariffs and this
Agreement the terms and conditions of the Tariffs shall control.
2. EFFECTIVE DATE: For the purposes of this Agreement, (i) if Customer has an
existing service agreement with MCI WORLDCOM, the "Effective Date" will be
the next billing cycle following the date this Agreement has been executed
and Customer has received a satisfactory credit review and approval from MCI
WORLDCOM's Credit Department, and all security documentation, if any,
required by MCI WORLDCOM has been properly executed and delivered to MCI
WORLDCOM (collectively, the "Credit Review"); and (ii) if Customer does not
have an existing service agreement with MCI WORLDCOM, the "Effective Date"
will be the date this Agreement has been executed and the Credit Review has
been completed.
3. CIRCUITS AND CONNECTIONS: Customer shall receive the following pursuant to
this Agreement:
MCI WORLDCOM DOMESTIC PRIVATE LINE*
<TABLE>
<S> <C>
DS-1 [*]
DS-3 Linear [*]
DS-3 Restorable [*]
OC-3 Linear [*]
OC-3 Restorable [*]
</TABLE>
*Rates will apply to Inter-exchange Carrier (IXC) charges only
*Rates will apply to Tier A cities only (all other are ICB)
*Local access is additional and non-discountable.
MCI WORLDCOM LOCAL ACCESS
<TABLE>
<CAPTION>
SERVICE TYPE(1) MILE(2) PRICING
<S> <C> <C> <C>
DS-3 1 0 mile [*]
DS-3 1 1 mile [*]
</TABLE>
(1) Type I sites consist of sites which are provisioned entirely on MCI
WORLDCOM's local network.
(2) Each additional mile is [*] per mile
4. REVENUE COMMITMENT: Customer agrees to the following minimum monthly revenue
commitment ("mrc") of [*] Forty-Five (45)-month term with a (9) month ramp
and shall receive the associated rates as set forth in Section 3 above, and
in the applicable tariffs.
5. MONTHLY-UNDERUTILIZATION: If Customer's usage fails to meet the MRC,
Customer will pay [*] of the difference between Customer's usage during each
month and Customer's MRC. Monthly usage in excess of the MRC cannot be carried
forward to another month.
Page 1 of 2
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 6
[MCI WORLDCOM LOGO]
6. LETTER OF AGENCY ("LOA"): The undersigned hereby authorizes MCI WORLDCOM
and/or the Local Exchange Company ("LEC"), and/or Foreign Telecommunications
Provider ("FTP"), if requested by Customer, to provision Customer's Local
Access. This LOA supersedes all previous LOAs and shall remain in effect
until canceled by Customer in writing.
7. COMPLETE AGREEMENT: This Agreement, including the MCI WORLDCOM Application
for Credit, the Tariffs and any documents incorporated herein by reference,
constitutes the full understanding of the parties and supersedes any prior
agreements between the parties relating to the Service. Alterations to this
Agreement shall render this Agreement null and void. Customer acknowledges
that MCI WORLDCOM is under no duty, implied or otherwise, to activate the
Service and will not be subject to liability, if any, under the terms of
this Agreement until such Service is activated.
8. SIGNATURE AUTHORIZATION: The parties have duly executed and agreed to be
bound by this Agreement as evidenced by the signatures of their authorized
representatives below. Each party represents and warrants to the other that
the signatory identified beneath its name below has full authority to
execute this Agreement on its behalf.
ACCEPTED BY: ACCEPTED BY:
TELOCITY, INC. MCI WORLDCOM COMMUNICATIONS, INC.
By: /s/ PETER OLSON By:
--------------------------- ---------------------------------
Name: Peter Olson Name: Frank Grillo
--------------------------- ---------------------------------
Title: CTO Title: V.P. Marketing
--------------------------- ---------------------------------
Date: 9/13/99 Date:
--------------------------- ---------------------------------
Page 2 of 2
<PAGE> 7
[WORLDCOM LOGO] WORLDCOM MAE(R) ATM SERVICE AGREEMENT
This Service Agreement (the "Agreement") is made by and between WorldCom
Technologies, Inc. ("WorldCom"), located at 515 East Amite, Jackson,
Mississippi 39201-2702, and Telocity ("Customer"), with its principal office at
10355 N. Deanza Blvd., Cupertino, CA 95014, for services described below.
1. SERVICE: WorldCom will provide Customer MAE ATM service consisting of: (i) a
port connection, i.e., access to the WorldCom MAE switching equipment and the
connection of the port to either the local access facilities or to the
Customer's equipment, the permanent virtual circuits or other virtual data
paths assigned to said port, if desired ("MAE Connections") and (ii)
maintenance of the equipment and services provided by WorldCom (collectively
"Service"). The Service is subject to the terms and conditions contained here
and the WorldCom Commercial Application for Credit.
2. TERM: The Term of this Agreement shall be [ ] 1 Year [ ] 2 Years [X] 3 Years
("Term"). Upon expiration of the Term, unless either party gives written notice
to the other party thirty (30) days prior to the end of the Term, the Term will
continue on a month-to-month basis until this Agreement is terminated by either
party on at least thirty (30) days prior written notice to the other party.
Customer shall be liable for all charges associated with actual usage of the
Services during the Term and any extension thereof.
3. EFFECTIVE DATE: For the purposes of this Agreement, (i) if Customer has an
existing service agreement with WorldCom, the "Effective Date" will be the next
billing cycle following the date this Agreement has been fully executed by both
parties and Customer has received a satisfactory credit review and approval
from WorldCom's Credit Department, and all security documentation, if any,
required by WorldCom has been properly executed and delivered to WorldCom
(collectively, the "Credit Review"), and (ii) if Customer does not have an
existing service agreement with WorldCom, the "Effective Date" will be the date
this Agreement has been fully executed by both parties and the Credit Review
has been completed.
4. SERVICE RATES: (Check desired port)
<TABLE>
<CAPTION>
MONTHLY RECURRING START-UP
SERVICE CHARGE CHARGE
<S> <C> <C>
[ ] 45 Mbps ATM port [*] [*]
[X] 155 Mbps ATM port [*] [*]
[ ] 622 Mbps ATM port [*] [*]
ANCILLARY CHARGES
Permanent Virtual Circuit (PVC) moves, adds or changes $ [*]/PVC
(Charge does not apply to PVCs setup at time of initial
port installation)
Non-Administrative Order Charge/Port
Pre-engineering [*]
Post-engineering [*]
</TABLE>
Customer purchasing CPE from WorldCom under separate agreement (check
applicable box): [ ] Yes [X] No
TERM AND VOLUME DISCOUNTS: The following discount schedule applies to the
Monthly Recurring Charge for MAE ATM ports only, as shown in Section 4.
<TABLE>
<CAPTION>
TERM
------------------------------------
TOTAL MONTHLY SERVICE CHARGES* 1 YEAR 2 Year 3 Year
<S> <C> <C> <C>
$0 [*] [*] [*]
$2,500 [*] [*] [*]
$5,000 [*] [*] [*]
$7,500 [*] [*] [*]
$10,000 [*] [*] [*]
$15,000 [*] [*] [*]
$20,000 [*] [*] [*]
$30,000 [*] [*] [*]
$40,000 [*] [*] [*]
$50,000 [*] [*] [*]
</TABLE>
*Charges set forth in Section 4 of this Agreement excluding local access
monthly recurring and/or installation fees, collocation fees or additional
customer premises equipment costs. Customer shall be responsible for all such
charges associated with the service
258/08/98.3
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 8
5. PAYMENT BILLING:
A. Payment is due 30 days after date of invoice. Accounts are in
default if payment is not received within such 30-day period.
Accounts unpaid 60 days after date of invoice may have their service
disconnected without further notice to Customer.
Such disconnection does not relieve Customer from the obligation to
pay the monthly charge and any applicable cancellation charges. Only
a written request to terminate Customer's service relieves Customer
of Customer's obligation to pay the monthly account charge. Accounts
in default are subject to an interest charge of 1.5% per month on
the outstanding balance. If Customer's state law does not allow an
interest rate of 1.5% per month, the maximum allowable rate for
Customer's state will be charged. Customer agrees to pay WorldCom
its reasonable expenses, including attorney and collection agency
fees, incurred in enforcing its rights under this Agreement.
B. Billing for Service will commence when the connection from the MAE
facility is completed to Customer's site or collocation space and IP
packets can be passed. Service is invoiced monthly in advance.
6. CANCELLATION CHARGE:
A. After this Agreement is accepted by WorldCom, Customer may cancel
all or a portion of the Service if Customer provides written
notification thereof to WorldCom thirty (30) days in advance of the
effective date of cancellation. In such case, Customer shall pay to
WorldCom all charges for Service described herein provided through
the effective date of such cancellation plus a cancellation charge
determined as follows: (i) if the Term is one (1) year or less, then
the cancellation charge shall be an amount equal to the balance of
the monthly recurring charges (then in effect at the time of
cancellation) for such canceled Service that otherwise would have
become due for the unexpired balance of the Term (but in no event
less than zero); (ii) if the Term is longer than one (1) year and
such cancellation becomes effective prior to completion of the first
year of the Term, then the cancellation charge shall be an amount
equal to the balance of the monthly recurring charges (then in
effect at the time of cancellation) for such canceled Service that
otherwise would have become due for the unexpired portion of the
first year of the Term plus eighty-five percent (85%) of the balance
of such monthly recurring charges for the remainder of the Term
beyond the first year; and, (iii) if the Term for the canceled
Service is longer than one (1) year and such cancellation becomes
effective after completion of the first year of the Term, then the
cancellation charge shall be an amount equal to seventy-five percent
(75%) of the balance of the monthly recurring charges (then in
effect at the time of cancellation) for such canceled Service that
otherwise would have become due for the unexpired portion of the
Term. It is agreed that WorldCom's damages in the event Customer
cancels Service shall be difficult or impossible to ascertain. The
aforementioned provision for a cancellation charge is intended to
establish liquidated damages in the event of a cancellation and is
not intended as a penalty.
B. Service Credits: If Customer notifies WorldCom immediately upon
failure to access Service and WorldCom determines in its reasonable
commercial judgment that Service is unavailable to Customer, the
following will apply: (i) if WorldCom determines that Service is
unavailable for one (1) or more (but fewer than four) consecutive
hours during such calendar month, WorldCom, upon Customer's request,
will credit Customer's account for such month the pro-rated charges
equal to one (1) day's service, (ii) if WorldCom determines that
Service is unavailable for four (4) or more hours during such
calendar month, WorldCom, upon Customer's request, will credit
Customer's account for such month for the pro-rated charges equal to
one (1) week's service. This paragraph states WorldCom's sole
obligation and Customer's exclusive remedy for any unavailability of
Service. The remedies set forth in this paragraph shall not apply if
unavailability of Service is due to scheduled maintenance,
Customer's equipment, Customer access connections, network
unavailability outside of Service or events of force majeure.
Credits will not apply to charges for local access or any charges
for services other than the Service as described in paragraph (i)
above. Customers with multiple connections to a failed MAE ATM
facility will not receive credits pursuant to this paragraph if at
least one connection continues with Service available. Customer's
account shall not be credited more than once per month pursuant to
this paragraph.
7. CUSTOMER'S RESPONSIBILITIES:
A. Fraudulent Transactions: In the event WorldCom discovers fraudulent
use of Service (or reasonably believes such fraudulent use exists),
nothing contained herein shall prohibit WorldCom from taking
immediate action (without notice to Customer) that is reasonably
necessary to prevent such fraudulent use of Service from taking
place, including without limitation, denying or terminating Service
to and from specific locations.
B. Preparation: WorldCom is not responsible for the installation,
maintenance, compatibility or performance of any equipment or
software not provided by WorldCom, and Customer shall indemnify
WorldCom and its affiliates against any infringement claims arising
out of the use of such third party equipment or software in
connection with the Service. If such third party equipment or
software impairs Service, Customer shall remain liable for payment,
and if such third party equipment is likely to cause hazard or
service obstruction, Customer shall eliminate such likelihood at
WorldCom's request.
<PAGE> 9
C. Use of Products and Services: Customer shall not, nor shall it permit or
assist others including Customer's end users and customers to: (i) use
the Service for any purpose other than that for which it is intended or
use the Service in violation of any applicable law or regulation or in
aid of any unlawful act including any use that is harassing, or which
infringes on another's intellectual property rights, copyrighted
material, material legally judged to be threatening or obscene, or
material protected by trade secret, or which otherwise constitutes
Service abuse, and Customer shall be responsible for any such misuse of
the Service, (ii) use Service so as to interfere with the use of the MAE
facility or any other network or the use of any Service by other
customers or authorized users, (iii) use the Service to access, alter,
destroy or attempt to access, alter or destroy any information of
another WorldCom customer, (iv) fail to maintain a suitable environment
specified by WorldCom, or (v) alter, tamper with, adjust or repair the
Service. Upon the occurrence of any of the above, WorldCom shall be
completely released from any liability or obligation to Customer
relative to the Service and this Agreement, and Customer shall be liable
to WorldCom for costs or damages incurred by WorldCom resulting
therefrom. Customer shall indemnify and hold WorldCom harmless against
any liabilities losses, demands, liabilities, suits or actions including
any claims resulting from Customer's use of Service, or use of the
Service by its customers or others throughout Customer's chain of
distribution, including end users, which damages WorldCom or a third
party. Customer shall be responsible for communicating with Customer's
own users of the Service, and for handling all complaints and trouble
reports made by such users. Customer must comply with reasonable
security procedures and standards with respect to Customer's own routers
or switch equipment that interface with Service. WorldCom may (but is
under no obligation to) communicate security issues to Customer from
time to time when abuse or misuse is observed or reported by others.
Customer shall be responsible for compliance with rules governing the
networks of other WorldCom MAE Service customers which may include
executing interconnection agreements with such other WorldCom MAE
Service customers. Customer shall indemnify, defend and hold WorldCom
harmless, from and against any and all losses, claims, demands,
liabilities, suits or actions by any WorldCom MAE Service customers to
the extent such claim, demand, liability, suit or action relates to
Customers obligations contained herein.
D. Customer equipment: Customer agrees to connect only WorldCom certified
equipment to the MAE ATM switch equipment. This applies whether the
Service is terminated at collocation space within WorldCom facilities or
the service is terminated at Customer's premises by use of WorldCom's or
any other carriers' local access circuits.
E. Maintenance: WorldCom reserves the right to perform scheduled and
emergency maintenance on the MAE facilities and any other equipment used
to provide the Service. In the case of scheduled maintenance, WorldCom
agrees to give Customer prior notice of the maintenance outage. In the
case of emergency maintenance, WorldCom agrees to use its best efforts
to notify Customer prior to such maintenance outage.
F. Peering: WorldCom does not undertake to secure a commercial agreement
and technical implementation between two Internet service providers to
exchange Internet traffic between their two networks ("Peering") for
the Customer. Connection to a MAE does not indicate that Customer will
be able to transmit traffic to or receive traffic from any other Service
customer connected to a MAE. WorldCom in no way guarantees Customer that
any other customer connected to a MAE will remain connected. Before
WorldCom will provide Customer with Service, Customer must provide
WorldCom with a copy of a bona fide Peering agreement between Customer
and a WorldCom MAE Customer.
8. MODIFICATION OF SERVICES: WorldCom reserves the right to eliminate Service
offerings and/or modify charges for Service offerings (which charge
modifications shall not exceed then current generally available WorldCom
charges for comparable services), upon not less than thirty (30) days prior
notice to Customer, which notice will state the effective date for the
charge modifications. In the event WorldCom notifies Customer of the
elimination of a Service offering and/or an increase in the charge,
Customer may terminate the affected Service without incurring a
cancellation charge. In order to cancel that offering, Customer must notify
WorldCom, in writing, at least fifteen (15) days prior to the effective
date of the increase in charges.
9. WARRANTY; DISCLAIMER OF WARRANTIES; LIMITED LIABILITY: CUSTOMER ASSUMES
TOTAL RESPONSIBILITY FOR CUSTOMER AND CUSTOMER USER'S USE OF THE SERVICES.
WORLDCOM MAKES NO EXPRESS OR IMPLIED WARRANTIES, REPRESENTATIONS OR
ENDORSEMENTS REGARDING ANY MERCHANDISE, INFORMATION, PRODUCTS OR SERVICES
PROVIDED THROUGH THE INTERNET. THE SERVICE IS PROVIDED ON AN "AS IS" AND
"AS AVAILABLE" BASIS WITHOUT WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF TITLE, NONINFRINGEMENT OR
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
NO ADVICE OR INFORMATION GIVEN BY WORLDCOM'S EMPLOYEES, AGENTS OR
CONTRACTORS SHALL CREATE A WARRANTY. UNDER NO CIRCUMSTANCES SHALL WORLDCOM
BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR
CONSEQUENTIAL DAMAGES THAT RESULT FROM CUSTOMER OR CUSTOMER USERS' USE OF
OR INABILITY TO ACCESS ANY PART OF THE INTERNET OR CUSTOMER OR CUSTOMER
USERS' RELIANCE ON OR USE OF INFORMATION, SERVICES OR MERCHANDISE PROVIDED
ON OR THROUGH THE SERVICE, OR THAT RESULT FROM
<PAGE> 10
MISTAKES, OMISSIONS, INTERRUPTIONS, DELETION OF FILES, ERRORS, DEFECTS,
DELAYS IN OPERATION, OR TRANSMISSION, OR ANY FAILURE OF PERFORMANCE. If
Customer is dissatisfied with the Service, excluding the remedies set
forth in 8(B), Customer's sole exclusive remedy is to terminate this
Agreement.
10. INDEMNIFICATION: Customer agrees to indemnify, hold harmless, and defend
WoldCom, its respective directors, officers, agents, employees and/or
representatives from and against any and all claims, demands, causes of
action, losses, expenses or liabilities, including reasonable attorney's
fees, on account of injury or death of any person or loss of or damage to
any and all property arising, directly or indirectly, out of the acts or
omissions of Customer, any subcontractor, director, officer, agent,
employee and/or representative of each of them, in the performance of any
work under this Agreement, except to the extent such cause of action,
loss, expense or liability is caused solely by the gross negligence of
WorldCom.
11. NOTICES: Notices under this Agreement shall be in writing and delivered to
the person identified below at the offices of the parties as they appear
below, or as otherwise provided for, by proper notice hereunder. Notices
will be effective and deemed delivered (i) three (3) business days after
posting with the United States Postal Service ("U.S. Mail") when mailed by
certified mail, return receipt requested; (ii) one (1) business day after
pick-up by a courier service when sent by overnight courier; or (iii) one
(1) business day after the date of the sender's electronic confirmation of
receipt when sent by facsimile transmission. The party sending a notice by
U.S. Mail or overnight courier will bear the postage charges required for
the selected delivery method. Parties to receive notices are:
IF TO WORLDCOM: IF TO CUSTOMER:
Director of Marketing Director, Legal Affairs
- ------------------------------------- ----------------------------------------
(NAME - PARTY TO RECEIVE NOTICES) (NAME - PARTY TO RECEIVE NOTICES)
Address (not P.O. Box address): Address (not P.O. Box address):
515 East Amite 10355 N. De Anza Blvd.
- ------------------------------------- ----------------------------------------
Fourth Floor
- ------------------------------------- ----------------------------------------
Jackson, MS 39201-2702
- ------------------------------------- ----------------------------------------
Phone No.: 601-974-8425 Phone No.: 408-863-6602
-------------------------- -----------------------------
Fax No.: 601-974-8450 Fax No.: 408-777-1451
---------------------------- -------------------------------
12. USE OF SERVICE: The provision of Service will not create a partnership or
joint venture between the parties or result in a joint communications
service offering to any third parties. Only upon express written consent
shall Customer be permitted to use WorldCom's name, trademarks, tradename,
service marks or any other intangible property owned by WorldCom for the
promotion of Customer's use of the Service.
13. GENERAL: Customer may not assign this Agreement. Customer may not
subcontract with other persons or entities to undertake any of Customer's
obligations that are set forth in this Agreement. Any legal action arising
out of this Agreement must be brought within one (1) year.
14. SURVIVAL OF TERMS: The terms and provisions contained in this Agreement
that by their sense and content are intended to survive the performance
thereof by the parties hereto shall so survive the completion of
performance and termination of this Agreement, including, without
limitation, provisions for indemnification and the making of any and all
payments due hereunder.
C. ENTIRE AGREEMENT: This Agreement, including any documents incorporated
herein by reference, and the WorldCom Commercial Application for
Credit, constitutes the full understanding of the parties and
supersedes any and all previous representations, understandings or
agreements between the parties and shall prevail notwithstanding any
variance with terms and conditions of any order submitted.
<PAGE> 11
This Agreement is subject to the Credit Application forms executed in
connection with the services provided herein and sets forth the entire
Agreement and understanding of the parties relating to the subject matter
covered, and supersedes and cancels all prior agreements between Customer and
WorldCom relating to MAE services. Limitations may apply to combining the Term
discount with other special offers. Modifications to the standard terms and
conditions contained in this Agreement are not permitted and shall not be
valid. Activation of Service shall indicate WorldCom's acceptance of this
Agreement Customer acknowledges that WorldCom is under no duty, implied or
otherwise, to activate the Service and will not be subject to liability, if
any, under the terms of this Agreement until such Service is activated. As
authorized agent of Customer, I agree to the above terms and conditions of this
Agreement.
Name: PETER OLSON
---------------------------------------------------------------
Company/Account Name: TELOCITY, INC.
-----------------------------------------------
Signature: /s/ PETER D. OLSON
----------------------------------------------------------
Title: C.T.O.
--------------------------------------------------------------
Date: 8/23/99
------------------------
<PAGE> 12
[WORLDCOM LOGO] CUSTOMER SERVICE ORDER FORM
<TABLE>
<CAPTION>
ORDER
<S> <C> <C> <C>
Billed Company Name: Telocity, Inc. Customer Desired Date: 10/30/1999
Service Type: SONET oc3 point-to-point Related Order Id:
Quantity: 1 Contract Term: 01
Order Id: I11267 Contract Unit: year
Initiator: Andrew Robinson Billing Address: 10355 N De Anza Blvd. 1st Fl
Initiator Company Name: Telocity, Inc. Cupertino, CA 95014-2027
Initiator Phone: (408) 863-5656
Initiator Fax: (408) 777-1451
</TABLE>
<TABLE>
<CAPTION>
LOCATION 1 LOCATION 2
<S> <C> <C> <C>
Address: 10355 N De Anza Blvd Address: 55 S Market St
Cupertino, CA 95014-2027 San Jose, CA 95113-2324
Company: Telocity Company: Mae West
Floor: 1st Room: telco Floor: 10 Room: colo 3
Customer Circuit: Customer Circuit:
Customer PO: Customer PO:
Technical Contract: Andrew Robinson Technical Contact: Dan Schafer (7480)
Technical Contact Phone: (408) 863-6656 Technical Contact Phone: (415) 395-7480
</TABLE>
<TABLE>
<CAPTION>
DS-0
<S> <C> <C>
DS0 Service Type:
DS-1 DS-3 EQUIPMENT
Line Coding: Framed: Equipment Type:
Framing:
</TABLE>
OTHER SERVICES
Description; optical
REMARKS
1. please note that location 1 will be added to the network, thus, we
2. will NOT need a type2 circuit.
3.
SERVICE CHARGES
<TABLE>
<CAPTION>
MONTHLY RECURRING CHARGES NON-RECURRING CHARGES
<S> <C> <C> <C> <C>
Unit $ Total $ Unit $ Total $
Facility Charge: [*] [*] [*] [*]
Equipment Charge: [*] [*] [*] [*]
Total Charges: [*] [*]
</TABLE>
Customer Approval /s/ PETER OLSON
---------------------------------------------------------------
SIGNATURE TITLE DATE
Services which are under the jurisdiction of the Federal Communication (F.C.C.)
will be provided subject to the terms and conditions of applicable Worldcom,
Inc. tariffs on file with the F.C.C.. Services subject to state jurisdiction
will be rendered according to terms and conditions set forth in WorldCom, Inc.
tariffs filed with the applicable regulatory agency of the state in which the
service is provided. All relevant tariff provisions are incorporated by
reference in any customer service order. Tariffs are available for inspection
from the F.C.C. or the state regulatory agency, as appropriate or from
WorldCom, Inc.
FOR WORLDCOM INTERNAL USE ONLY
SIGNATURE TITLE DATE
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 13
[WORLDCOM LOGO] CUSTOMER SERVICE ORDER FORM
ORDER
<TABLE>
<S> <C>
Billed Company Name: Telocity, Inc. Customer Desired Date: 10/30/1999
Service Type: SONET oc3 point-to-point Related Order Id:
Quantity: 1 Contract Term: 01
Order Id: I11267 Contract Unit: year
Initiator: Andrew Robinson Billing Address: 10355 N De Anza Blvd 1st Fl
Initiator Company Name: Telocity, Inc. Cupertino, CA 95014-2027
Initiator Phone: (408) 863-6656
Initiator Fax: (408) 777-1451
LOCATION 1 LOCATION 2
Address: 10355 N De Anza Blvd Address: 55 S Market St
Cupertino, CA 95014-2027 San Jose, CA 95113-2324
Company: Telocity Company: Mae West
Floor: 1st Room: telco Floor: 10 Room: colo 3
Customer Circuit: Customer Circuit:
Customer PO: Customer PO:
Technical Contact: andrew robinson Technical Contact: Dan Schafer (7480)
Technical Contact Phone: (408) 863-6656 Technical Contact Phone: (415) 395-7480
DS-0
DS0 Service Type:
DS-1 DS-3 EQUIPMENT
Line Coding: Framed: Equipment Type:
Framing:
OTHER SERVICES
Description: optical
</TABLE>
REMARKS:
1: please note that location 1 will be added to the network, thus, we
2: will NOT need a type2 circuit.
3:
SERVICE CHARGES
<TABLE>
<CAPTION>
Monthly Recurring Charges Non-Recurring Charges
Unit $ Total $ Unit $ Total $
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Facility Charge: [*] [*] [*] [*]
Equipment Charge: [*] [*] [*] [*]
Total Charges: [*] [*]
</TABLE>
Customer Approval /s/ PETER OLSON
--------------------------------------------------------------
SIGNATURE TITLE DATE
Services which are under the jurisdiction of the Federal Communication (F.C.C.)
will be provided subject to the terms and conditions of applicable WorldCom,
Inc. tariffs on file with the F.C.C. Services subject to state jurisdiction will
be rendered according to terms and conditions set forth in WorldCom, Inc.
tariffs filed with the applicable regulatory agency of the state in which the
service is provided. All relevant tariff provisions are incorporated by
reference in any customer service order. Tariffs are available for inspection
from the F.C.C. or the state regulatory agency, as appropriate or from
WorldCom, Inc.
FOR WORLDCOM INTERNAL USE ONLY
SIGNATURE TITLE DATE
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 14
[WORLDCOM LOGO] CUSTOMER SERVICE ORDER FORM
ORDER
<TABLE>
<S> <C>
Billed Company Name: Telocity, Inc. Customer Desired Date: 10/29/1999
Service Type: SONET oc3 point-to-point Related Order Id:
Quantity: 1 Contract Term: 03
Order Id: I24283 Contract Unit: years
Initiator: Andrew Robinson Billing Address: 10355 N De Anza Blvd 1st Fl
Initiator Company Name: Telocity, Inc. Cupertino, CA 95014-2027
Initiator Phone: (408) 863-6656
Initiator Fax: (408) 777-1451
LOCATION 1 LOCATION 2
Address: 1919 Gallows Rd. Address: 1755 Old Meadow Rd
Vienna, VA 22182-3964 McLean, VA 22102-4301
Company: MFS MAE EAST Company: Level 3 Communications
Floor: P1 Room: colo Floor: 1 Room:
Customer Circuit: Customer Circuit:
Customer PO: Customer PO:
Technical Contact: John Milne (2017) Technical Contact: Annette Martin
Technical Contact Phone: (703) 506-2017 Technical Contact Phone: (800) 373-2499
DS-0
DS0 Service Type:
DS-1 DS-3 EQUIPMENT
Line Coding: Framed: Equipment Type:
Framing:
OTHER SERVICES
Description: optical
</TABLE>
REMARKS:
1: this is a new oc-3c between the level3 collocation site at loc2 and
2: MAE East at loc1.
3:
SERVICE CHARGES
<TABLE>
<CAPTION>
Monthly Recurring Charges Non-Recurring Charges
Unit $ Total $ Unit $ Total $
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Facility Charge: [*] [*] [*] [*]
Equipment Charge: [*] [*] [*] [*]
Total Charges: [*] [*]
</TABLE>
Customer Approval /s/ PETER OLSON
--------------------------------------------------------------
SIGNATURE TITLE DATE
Services which are under the jurisdiction of the Federal Communication (F.C.C.)
will be provided subject to the terms and conditions of applicable WorldCom,
Inc. tariffs on file with the F.C.C. Services subject to state jurisdiction will
be rendered according to terms and conditions set forth in WorldCom, Inc.
tariffs filed with the applicable regulatory agency of the state in which the
service is provided. All relevant tariff provisions are incorporated by
reference in any customer service order. Tariffs are available for inspection
from the F.C.C. or the state regulatory agency, as appropriate or from
WorldCom, Inc.
FOR WORLDCOM INTERNAL USE ONLY
SIGNATURE TITLE DATE
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 15
[WORLDCOM LOGO] CUSTOMER SERVICE ORDER FORM
ORDER
<TABLE>
<S> <C>
Billed Company Name: Telocity, Inc. Customer Desired Date: 10/29/1999
Service Type: SONET oc3 point-to-point Related Order Id:
Quantity: 1 Contract Term: 03
Order Id: I24283 Contract Unit: years
Initiator: Andrew Robinson Billing Address: 10355 N De Anza Blvd 1st Fl
Initiator Company Name: Telocity, Inc. Cupertino, CA 95014-2027
Initiator Phone: (408) 863-6656
Initiator Fax: (408) 777-1451
LOCATION 1 LOCATION 2
Address: 1919 Gallows Rd. Address: 1755 Old Meadow Rd
Vienna, VA 22182-3964 McLean, VA 22102-4301
Company: MFS MAE EAST Company: Level 3 Communications
Floor: P1 Room: colo Floor: 1 Room:
Customer Circuit: Customer Circuit:
Customer PO: Customer PO:
Technical Contact: John Milne (2017) Technical Contact: Annette Martin
Technical Contact Phone: (703) 506-2017 Technical Contact Phone: (800) 373-2499
DS-0
DS0 Service Type:
DS-1 DS-3 EQUIPMENT
Line Coding: Framed: Equipment Type:
Framing:
OTHER SERVICES
Description: optical
</TABLE>
REMARKS:
1: this is a new oc-3c between the level3 collocation site at loc2 and
2: MAE East at loc1.
3:
SERVICE CHARGES
<TABLE>
<CAPTION>
Monthly Recurring Charges Non-Recurring Charges
Unit $ Total $ Unit $ Total $
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Facility Charge: [*] [*] [*] [*]
Equipment Charge: [*] [*] [*] [*]
Total Charges: [*] [*]
</TABLE>
Customer Approval /s/ PETER OLSON
--------------------------------------------------------------
SIGNATURE TITLE DATE
Services which are under the jurisdiction of the Federal Communication (F.C.C.)
will be provided subject to the terms and conditions of applicable Worldcom,
Inc. tariffs on file with the F.C.C. Services subject to state jurisdiction will
be rendered according to terms and conditions set forth in WorldCom, Inc.
tariffs filed with the applicable regulatory agency of the state in which the
service is provided. All relevant tariff provisions are incorporated by
reference in any customer service order. Tariffs are available for inspection
from the F.C.C. or the state regulatory agency, as appropriate or from
WorldCom, Inc.
FOR WORLDCOM USE ONLY
SIGNATURE TITLE DATE
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 16
DIRECTIONS: Fill in information with SHADED AREAS TELOCITY
LOGO
Vendor: MCI/Worldcom
Telcom Sales
201 Spear Street, 5th Floor, SF, CA 94105
Phone: 415-228-1439
Fax: 415-228-1309
Purchase
Request Form
For purchasing department use only:
PO# CO# RLS# CDO: Y N
Acct Distribution:
- --------------------------------------------------------------------------------
Date Confirmed Vendor Contact Required Delivery Date
- --------------------------------------------------------------------------------
DATE OF REQUEST IN CURRENT YEAR'S PLAN? Requisition #
8/20/99 YES N/A
- --------------------------------------------------------------------------------
REASON FOR PURCHASE (BUSINESS JUSTIFICATION):
MAE - East, MAE - West, Ports & Colo 3 Year Contract
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ship Via F.O.B. Point Destination Terms Taxable
- --------------------------------------------------------------------------------
In-Plant DEPARTMENT Project # Buyer
Destination Network N/A Sonia Colgan
- --------------------------------------------------------------------------------
Special Instructions (If any)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
QUANTITY Vendor Telocity
Item REQUESTED Part Number Part Number DESCRIPTION
- --------------------------------------------------------------------------------
1 1 Mae East Port Install
- --------------------------------------------------------------------------------
2 1 Mae East Port Monthly
- --------------------------------------------------------------------------------
3 1 Mae East Colo
- --------------------------------------------------------------------------------
4 1 Mae West Port Install
- --------------------------------------------------------------------------------
5 1 Mae West Port Monthly
- --------------------------------------------------------------------------------
6 1 Mae West Colo
- --------------------------------------------------------------------------------
7
- --------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
- --------------------------------------------------------
Suggested Unit Actual Unit
Price Price Extended Amount
- --------------------------------------------------------
[*] [*] [*]
- --------------------------------------------------------
[*] [*] [*]
- --------------------------------------------------------
[*] [*]
- --------------------------------------------------------
[*] [*] [*]
- --------------------------------------------------------
[*] [*] [*]
- --------------------------------------------------------
[*] [*]
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
TOTAL VALUE OF PURCHASE REQUEST [*]
- --------------------------------------------------------
Andrew Robinson
- ------------------------ ---------------------------
REQUESTER - PRINT OR TYPE APPROVAL #1 - PRINT OR TYPE
- ---------------------------
Approval #2 - Print or Type
SIGNATURES: /s/ Andrew Robinson
------------------------ ---------------------------
REQUESTER - SIGNATURE APPROVAL #1 - SIGNATURE
/s/ PETER OLSON
- ---------------------------
Approval #2 (if necessary)
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 1
EXHIBIT 10.28
NBCi/TELOCITY OPERATING AGREEMENT
This Operating Agreement (the "Agreement") is made and entered into as
of December 10, 1999 (the "Effective Date") between NBC Internet, Inc., a
Delaware corporation, with its principal place of business at 225 Bush Street,
San Francisco, California 94104 ("NBCi") and Telocity, Inc., a California
corporation, with its principal place of business at 10355 N. De Anza Boulevard,
Cupertino, California 95014-2027 ("Telocity"). Subject to the provisions of
Section 20.7, Telocity acknowledges that NBCi will fulfill its obligations under
this Agreement itself and through various of its subsidiaries, including Snap!
L.L.C. ("Snap"), a Delaware limited liability company and Xoom.com, Inc.
("Xoom"), a Delaware corporation. The parties hereby agree as follows:
1. Background.
1.1. Telocity is an emerging provider of branded, broadband services,
currently and primarily provided through DSL, targeted
specifically at the residential market space. Telocity will
provide the next-generation of broadband services to consumers
by deploying the first open, end-to-end platform for delivering
digital services to, and throughout, the home.
1.2. NBCi and/or its subsidiaries operate a search and aggregation
"portal" site on the Web and a direct marketing site on the Web.
1.3. Concurrently with this Agreement, Telocity, NBCi, NBC and others
have entered into a Series C Preferred Stock Purchase Agreement
dated December 10, 1999 ("Stock Purchase Agreement").
1.4. Concurrently with this Agreement, Telocity and NBC have entered
into a Letter Agreement dated December 10, 1999 ("Letter
Agreement") whereby NBC will provide Telocity with certain
television advertising services.
1.5. Concurrently with this Agreement, Telocity and NBCi have entered
into a Letter Agreement dated December 10, 1999 ("Letter
Agreement") whereby NBCi will provide Telocity with certain
television advertising services.
2. Certain Definitions. As used in this Agreement, the terms set forth
below shall have the following meanings:
2.1. "Above the Fold" means that a particular item on a Web page is
viewable on a computer screen at an 800 x 600 pixels resolution
when the User first accesses such Web page, without scrolling
down to view more of the Web page.
2.2. "Additional Interfaces" shall have the meaning set forth in
Section 4.4.
2.3. "Affiliate" means as to any Person, (i) any other Person that
directly or indirectly controls, owns, is controlled or owned
by, or is under common control or ownership with such first
Person, (ii) any subsidiary of such first Person, and (iii) any
subsidiary of any subsidiary of such first Person. A Person
shall be
1
<PAGE> 2
deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the
direction of the management, policies and/or decision making of
such other Person, whether through the ownership of voting
securities, by contract or otherwise.
2.4. "Co-Branded Site" means the co-branded version of the Enhanced
Site that will be created in accordance with Section 4 below.
2.5. "Content Portal(s)" means the specific aggregations of linked
content within areas of the Co-Branded Site, which are organized
around the Telocity Content.
2.6. "Enhanced Site" means the enhanced, high-speed version of the
NBCi Sites focused on rich media content, together with any
successor site(s) thereof and any co-branded editions of such
service that have been or may be developed for NBCi's third
party distribution partners and licensees.
2.7. "Impression" means the display of any Promotion on any NBCi
Site.
2.8. "Intellectual Property Right(s)" means any patent, copyright,
trademark, trade secret, trade dress, mask work, moral right,
right of attribution or integrity or other intellectual or
industrial property rights or proprietary rights arising under
the laws of any jurisdiction (including, without limitation, all
claims and causes of action for infringement, misappropriation
or violation thereof and all rights in any registrations and
renewals).
2.9. "Interfaces" means the Front Door Interfaces and the Additional
Interfaces.
2.10. "Last Mile Technologies" means all technologies used to provide
the last, short-distance link of broadband Internet
functionality to and from consumers' residences to and from the
broad telecommunications infrastructure.
2.11. "Last Mile Technologies Expenses" means the following Telocity
expenses incurred in providing Last Mile Technologies as part of
the Telocity Services through the Co-Branded Site; including,
without limitation, recurring monthly line cost (which are the
monthly fees Telocity incurs for last mile connectivity services
from carriers), nonrecurring telecommunications costs (i.e. RBOC
costs) and nonrecurring inside wiring costs.
2.12. "Launch Date" means the date on which the Co-Branded Site
functions properly and is made accessible to Users.
2.13. "Look and Feel" means the graphical user interface and flow of
User experience of an Internet site.
2.14. "Market Deployment Plan" means the introduction of the Telocity
Platform in at least thirty-two (32) markets covering
eighty-five percent (85%) of the DSL-ready homes of Telocity's
last mile providers in those markets by the end of 2000 and
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fifty-one (51) markets covering eighty-five percent (85%) of the
DSL-ready homes of Telocity's last mile providers in those
markets by the end of 2001.
2.15. "NBC" means the National Broadcasting Company, Inc., a Delaware
corporation with its principal place of business at 30
Rockefeller Plaza, New York, New York 10112.
2.16. "NBCi Competitor" means any entity or Affiliate thereof listed
in Exhibit C. NBCi may update this list of competitors
periodically with the prior written approval of Telocity.
2.17. "NBCi's Core Business" means (a) information, navigation and
content aggregation services distributed primarily through the
Internet that provide, across more than several topics of
general interest that do not relate to each other or to a common
topic, a combination of all or substantially all of the
following: Internet searching, content aggregation, topical
interest categories and web directories (a "Portal Service");
(b) community services distributed, primarily through the
Internet that offer its members, at a minimum, homepages, e-mail
and chat rooms (a "Community Service"); or (c) selling or
marketing a broad range of third party products and services
primarily through the Internet (an "e-Commerce Service").
2.18. "NBCi Aggregate User Data" means any aggregate data collected by
NBCi or any NBCi subsidiary about Users of broadband services or
promotions.
2.19. "NBCi Marks" means any trademarks, trade names, service marks
and logos that may be delivered by NBCi to Telocity hereunder.
2.20. "NBCi Member" means a User who has registered to become a member
of one of NBCi's, or one of NBCi's subsidiary's, registration
based services, including without limitation, the NBCi Sites and
the free email service available at www.email.com.
2.21. "NBCi Product Manager" means an NBCi employee or independent
contractor holding editorial authority and responsibility for a
portal, site, collection, area, center or page on the NBCi
Sites.
2.22. "NBCi Properties" means the NBCi Sites and the Co-Branded Site.
2.23. "NBCi Services" means the Web-based services offered by NBCi
through the Co-Branded Site.
2.24. "NBCi Sites" means: (i) subject to the "Distributor" (as defined
in Section 8.1) exclusion in Section 8.1, any and all search and
aggregation "portal," direct marketing, and commerce Web sites,
whether operated by NBCi, a subsidiary of NBCi, or a third party
under an "NBCi" brand, including, without limitation, the Web
sites located at http://www.snap.com, http://www.xoom.com,
http://www.nbc.com, and http://www.videoseeker.com, together
with any mirror sites, any co-branded editions of such site that
have been or may be developed for
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Distributors (other than the Co-Branded Site), and successors to
the foregoing; (ii) the Enhanced Site, and successors to the
foregoing; (iii) the International Editions if the parties
mutually agree in writing pursuant to Section 8.2; (iv) any
third party Web sites hosted by NBCi; and (v) if NBCi so elects
within its sole discretion, the Web site located at
http://www.nbci.com and successors thereto, and NBC's network of
affiliate Web stations' Web sites, as updated from time to time
by NBCi in its sole discretion.
2.25. "NBCi Wires" means NBCi's email newsletters sent by NBCi or an
subsidiary to NBCi Members.
2.26. "Network Operation Expenses" means fees and monthly depreciation
cost of network equipment related to the Telocity Services
including, cost of tail circuits, co-location fees, bandwidth
capacity costs, POP driven costs, and other network costs (which
are NOC capital costs, subscriber driven costs, transit costs,
fixed data exchange costs and monthly backbone costs).
2.27. "OSS" means Telocity's operational service and support system
described in Exhibit B plus the modifications that may be made
from time to time to such operational service and support
system.
2.28. "Overlapping Services" means those products and services
each party offers to its customers (e.g., utility and communication
products and services) that share a significant degree of commonality.
2.29. "Person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof,
or any other legal entity.
2.30. "Promotions" means (i) banners, buttons, windows, portals,
front door windows, text links, and other promotions that are offered by
NBCi now or in the future and link directly to the Telocity Sites and/or
Co-Branded Site from the NBCi Sites; and/or (ii) text links within email
newsletters distributed by NBCi (including, without limitation, NBCi
Wires) and other promotions that are offered by NBCi now or in the
future and link directly to the Telocity Sites and/or Co-Branded Site.
2.31. "Shipping and Handling Expenses" means all of Telocity's
shipping and handling expenses incurred in shipping the Gateway to
Subscribers.
2.32. "Subscriber Fees" means all fees paid by Subscribers for a
Telocity Service.
2.33. "Telocity Aggregate User Data" means any aggregate data
collected by Telocity or any Telocity subsidiary about Users of
broadband services or promotions.
2.34. "Telocity Competitor" means any entity listed in Exhibit
D. Telocity may update this list of competitors periodically with the
prior written approval of NBCi.
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2.35. "Telocity Content" means Telocity's and its licensors' text
links, logos, graphic links, and other materials, tools,
content, or text that are delivered by Telocity to NBCi
hereunder.
2.36. "Telocity's Core Business" means the provision of next
generation, Subscriber-based broadband services to consumers
emphasizing convenience, utility and ease of use. Telocity is
deploying the first open, end-to-end platform for delivering
these services to its Subscribers, both to the home and
throughout the home which provides an infrastructure for
delivering value-added services to Subscribers.
2.37. "Telocity Database" means User Profile Data and any other
information relating to Users of the Telocity Sites or the
Co-Branded Site or other customers of Telocity or purchasers of
Telocity Services who have had information about them collected
or otherwise obtained by Telocity, or for Telocity's use or
benefit, for the purpose of direct marketing or other
communication activities, and all updates or additional
information that may be added to such database during the Term.
2.38. "Telocity Fraction" for a quarter means (a) the total number of
pages displayed by the Co-Branded Site for during the quarter,
divided by (b) the total number of pages displayed by the entire
NBCi Properties for such period; provided, however, that at such
time as NBCi distinguishes between broadband and narrow band
editions in its ad serving accounting, item (b) shall be limited
to the pages displayed by the broadband editions of the NBCi
Properties for such period.
2.39. The "Telocity Gateway" (or the "Gateway") means the gateway
described in Exhibit B, plus the modifications that may be made
from time to time to such gateway.
2.40. "Telocity Marks" means Telocity's and its licensors' trademarks,
trade names, service marks and logos that may be delivered by
Telocity to NBCi hereunder.
2.41. "Telocity Network" means Telocity's network described in Exhibit
B plus the modifications that may be made from time to time to
such network.
2.42. "Telocity Only Service" means a Telocity service that is not an
Overlapping Service.
2.43. "Telocity Services" means any and all services and products
offered through the Telocity Platform.
2.44. "Telocity Sites" means the Internet site operated by Telocity at
http://www.telocity.com, together with any mirror sites, which
shall not provide products or services competitive with those
offered on the Co-Branded Site.
2.45. "Telocity Users" means all Users described in the Telocity
Database.
2.46. "Telocity Window" means a window on the Front Door Interfaces as
described in Section 4.3.
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2.47. "Term" means the term of this Agreement as defined in Section
12.1.
2.48. "User" means any end-user of the Web.
2.49. "User Profile Data" means data regarding a User provided by the
User on the NBCi Sites, the Telocity Sites or the Co-Branded
Site or otherwise to NBCi or Telocity: the User's name,
password, hint question, hint answer, birthday, zip code,
country, time zone and gender.
2.50. "Web" means the World Wide Web part of the Internet.
3. Telocity Platform.
3.1. Proprietary Technology. Telocity and/or (to the best of
Telocity's knowledge) its licensors own, and over the
course of the Term shall own pursuant to Section 13.8,
various patents and other Intellectual Property Rights
in certain technology that enable Telocity to create and
operate the Telocity Platform and provide the Telocity
Services (the "Proprietary Technology"), including, but
not limited to, the following:
3.1.1 the automated personal computer/telephone-based loop
qualification for a customer's DSL line qualification,
Web-based customer sign-up, and Web-based system for
deployment, provisioning and customer support.
3.1.2 The Gateway combines a DSL modem, an analog modem, and a
microprocessor unit that automates installation,
customer support and service upgrades. The Gateway
allows a consumer who subscribes to a Telocity Service
(a "Subscriber") to split the broadband Internet
connection to multiple devices within the home. The
Gateway allows for the measuring, metering and billing
of both subscription and value added services provided
to the Subscriber.
3.2. Telocity Platform Described. Telocity has developed and is using
the Proprietary Technology to provide to consumers a broadband
Internet distribution platform consisting of the Gateway, the
Telocity Network, and OSS (collectively, the "Telocity
Platform") that will facilitate the delivery of broadband
Internet access services to, and throughout, the home. The
Telocity Platform is an "always on", automated broadband service
platform that is available to consumers utilizing the Gateway.
Telocity will use the Telocity Platform to deploy broadband
Internet service to the home initially via DSL, but also via
other means of high data rate connections to the home such as
cable, wireless local loop, satellite and any such delivery
platforms that may emerge as reasonably accepted industry
standards in the future.
3.3. Modifications. Telocity agrees to consider in good faith any
reasonable requests of NBCi to modify the Telocity Platform from
time to time to improve the Telocity Platform's ability to work
with the Co-Branded Site and the Interfaces. For purposes of
this Agreement, all modifications to the Telocity Platform,
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including those made pursuant to this Section 3.3, shall be
deemed to be included within the defined term Telocity Platform.
4. Co-Branded Site.
4.1. Co-Branded Site Described. NBCi will develop the Co-Branded Site
for use with the Telocity Platform in accordance with this
Section 4, and Telocity will provide reasonable assistance in
connection therewith. The Co-Branded Site will be a co-branded
version of the Enhanced Site focused on instant access to
information, communications, utility, and entertainment/media
content and will include, among other things, content and
services tailored to capitalize on the always on, broadband
environment. The parties will jointly develop the specifications
for the Co-Branded Site, and NBCi will create the Co-Branded
Site according to the joint specifications developed by the
parties. NBCi, however, will have ultimate decision making
authority over all aspects of the Co-Branded Site, including the
content contained therein, subject to compliance with the
mutually agreed upon specifications.
4.2. Front Door Interfaces. NBCi will develop interfaces to the
Co-Branded Site for: (i) the personal computer; (ii) the
television; and (iii) devices with flat panel displays in which
the presentation of information will be similar to that of a
personal computer (e.g. information appliances), specifically
designed for the broadband delivery of high-speed Internet
access over the Telocity Platform (collectively, the "Front Door
Interfaces"). The parties will collaborate to provide input to
the development of specifications for the Front Door Interfaces,
and the specifications will detail a User experience that is
compatible with the Co-Branded Site. NBCi will create the Front
Door Interfaces according to the joint specifications developed
by the parties. NBCi, however, will have ultimate decision
making authority over all aspects of the Front Door Interfaces
(other than the Telocity Window), subject to compliance with the
mutually agreed upon specifications.
4.3. Telocity Window. The Telocity Window will appear on the Front
Door Interfaces at any time there is Telocity Content, Telocity
Services or Telocity technologies (i.e., technologies and/or
access to technologies which may appear in an Additional
Interface) that cannot be effectively integrated into the Front
Door Interface. The Telocity Window may contain only Telocity
Content, Telocity Services and Telocity technologies (i.e.,
technologies and/or access to technologies which may appear in
an Additional Interface) that cannot be effectively integrated
into the Front Door Interface at that time. The parties will
collaborate to provide input to the development of
specifications for the Telocity Window, including which party
will host the Telocity Window, and the specifications will
detail a User experience that is compatible with the Co-Branded
Site. NBCi will create the Telocity Window according to the
joint specifications developed by the parties. Telocity,
however, will have ultimate decision making authority over all
aspects of the Telocity Window, subject to compliance with the
mutually agreed upon specifications.
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4.4. Additional Interfaces. The parties anticipate that over time
different interfaces to the Co-Branded Site or other information
in addition to the Front Door Interfaces ("Additional
Interfaces") will be created for other devices (e.g. flat-panel
displays other than those included within Front Door Interfaces,
wireless devices (WAP format and future format standards that
may emerge), personal digital assistants, cordless phones,
cellular phones, information appliances which do not present
information in a similar manner to that of a personal computer,
and other devices that may emerge in the future) (the "Other
Devices") for use in the home and "on the go" which will
necessitate that content from the Co-Branded Site or other
sources be displayed in different formats. For Additional
Interfaces designed and created by NBCi as set out in Section
4.5, the parties will jointly develop the specifications for the
Additional Interfaces with the intention of creating a
consistent and cohesive User experience across the various
features and applications offered on the Co-Branded Site. The
goal with such Additional Interfaces will be to mix the
functional requirements of the Other Device while maintaining a
consistent Look and Feel to the Co-Branded Site. However, for
such Additional Interfaces designed by a party, ultimate
decision making authority will reside with a party, subject to
compliance with the mutually agreed upon specifications.
4.5. Review and Implementation of Content for Other Devices and
Additional Interfaces. NBCi and Telocity will jointly develop
the Top Level Specifications for the design of Additional
Interfaces. Both parties agree to make good faith efforts to
analyze the cost and revenue potential for each Other Device and
share information pertaining to market research, consumer
behavior, emerging business models, and other such relevant
information. Prior to beginning the process itself or with a
third party, Telocity agrees to give NBCi at [*] days after
delivery of a written request to NBCi to determine whether NBCi
will provide content from the Co-Branded Site to an Additional
Interface for an Other Device and design and create the
Additional Interface for such Other Device. NBCi may, in its
sole discretion, determine that the aggregation, packaging, and
design of content from the Co-Branded Site for delivery to a
specific Other Devices is not commercially and/or strategically
viable to pursue.
4.5.1 Should NBCi elect to provide content designed for the
Other Device in a manner that is compatible with an
Additional Interface and implement the joint
specifications for the Additional Interface, NBCi will
make commercially reasonable efforts to deliver the
content and the Additional Interface within a mutually
agreed upon period of time.
4.5.2 Should NBCi elect to provide content designed for the
Other Device in a manner that is compatible with an
Additional Interface but not design and create such
Additional Interface, (i) NBCi will make commercially
reasonable efforts to deliver the content within a
mutually agreed upon period and (ii) Telocity may
contract with an independent third party, who is not an
NBCi Competitor, to provide such Additional Interface
design and creation services, provided that such
services are delivered to the
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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Subscriber in such a manner that the Subscriber
experiences the same Look and Feel of the Co-Branded
Site across the various Interfaces.
4.5.3 Should NBCi decide to neither provide such content nor
design and create such Additional Interface, Telocity
shall ask NBCi, for a mutually agreed fee, for NBCi to
provide additional resources needed to provide content
and create and design such Additional Interface, and if
the parties are unable to reach agreement with respect
to such fee within ten (10) days, then Telocity may
contract with an independent third party, who is not an
NBCi Competitor, to provide such services, provided that
such services are delivered to the Telocity Subscriber
in such a manner that the User experiences the same Look
and Feel of the Co-Branded Site, to the extent
reasonable, across the various Interfaces.
4.6. Co-Branding Features. Each page on the Co-Branded Site will
include branding for NBCi and Telocity so that the NBCi Marks
and Telocity Marks are both Above the Fold and are of
substantially equivalent value and prominence to each other.
Telocity Services and the customer care features for such
services will also be prominently displayed on the Co-Branded
Site. The parties shall mutually agree on the branding for
content delivered from the Co-Branded Sites to Other Devices and
the Additional Interfaces.
4.7. Launch Date. NBCi and Telocity will use diligent efforts to
achieve a Launch Date for the Co-Branded Site before [*].
4.8. Hosting. Except as expressly set forth in this Agreement, NBCi
will host the Co-Branded Site and the Front Door Interfaces on
its servers, on servers within its control, or servers of a
third party under contract with NBCi and will provide all
computer hardware, software and personnel necessary to operate
and maintain the Co-Branded Site as a functional site accessible
to Users.
4.9. Advertising. NBCi shall own and have the right to use or sell
all of the advertising inventory on the Co-Branded Site, except
that neither NBCi or any NBCi subsidiary shall display on the
Co-Branded Site any window or banner advertisements for Telocity
Competitors. Moreover, other than as expressly set forth herein,
NBCi shall have the right to display any third party links,
media, banner advertisements, other promotions, and/or paid or
unpaid editorial content anywhere on the NBCi Sites.
4.10. DNS Redirecting. Except as expressly set forth in this
Agreement, using Domain Name System redirection, the URL for the
Co-Branded Site will begin with http://telocity.snap.com.
Telocity agrees that NBCi will be entitled to count all page
views of the Co-Branded Site towards NBCi's traffic as measured
by Media Metrics and other Internet traffic-auditing firms.
4.11. Harvesting. Telocity shall provide all Telocity Content as
required herein pursuant to NBCi's harvesting technical
specifications, as updated in NBCi's sole
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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discretion from time to time, including those set forth at
http://partnermarketing.snap.com/guide/htmlharvest.html
(Standard HTML Harvest Specifications),
http://partnermarketing.snap.com/guide/htmlsample.html (Sample
of HTML harvested content);
http://partnermarketing.snap.com/Thor/media_mockups.html (Rich
Media Harvesting Specifications), or any other successor URLs
designated by Snap. Harvested Telocity Content will maintain the
Enhanced Sites' Look and Feel and will include branding for
Telocity using Telocity Marks, in such form and placement as a
NBCi Product Manager shall determine in his or her sole
discretion. Telocity shall ensure that all Telocity Content
remains at all times current by continually providing NBCi with
timely updates to the Telocity Content. Furthermore, under no
circumstances shall Telocity Content include any content of a
NBCi Competitor, reference an NBCi Competitor or a service which
conflicts with an offering of NBCi.
4.12. Exclusivity. During the Term, except as expressly provided
otherwise in this section, NBCi shall be the exclusive Internet
content provider to Telocity for the Telocity Platform for
utility, communications, media and entertainment content
(collectively, the "Exclusive Content"). In addition, Telocity
may not enter into any other agreement with third parties for
provision of Portal Services, Community Service or E-Commerce
Services on the Telocity Platform during the Term. Further,
during the Term, Telocity may not own any material equity
interest in, loan any monies to, or enter into any joint venture
or partnership with any NBCi Competitor without the consent of
NBCi. If Telocity identifies a category of products or a content
area within the Exclusive Content that is then currently not
provided by NBCi ("Unavailable Content"), Telocity shall notify
NBCi in writing of such deficiency; provided, however, that
Telocity may not request a product or content specific to a
particular vendor. If NBCi does not notify Telocity in writing,
within [*] of NBCi's receipt of Telocity's notification, of
NBCi's election to deliver, or is not able to deliver, within a
mutually agreeable time period from such notification, the
Unavailable Content, Telocity shall have the right to contract
with an independent third party for development services to
produce the Unavailable Content, provided that (i) NBCi is not
obligated to pay for such incremental services, and (ii) no NBCi
Competitors may be chosen by Telocity unless the desired product
or content is only available from an NBCi Competitor. Telocity
shall select third party content providers that are consistent
with the same level of quality, experience, and reliability
offered on the combined Telocity Platform and Co-Branded Site.
4.13. Promotional Exclusivity. During the first three (3) years of the
Term, NBCi will not promote, through co-branded, on-air
television marketing, any Telocity Competitors offering
broadband delivery of Internet services. However, NBCi shall
have the right to terminate the promotional exclusivity set out
in this section under the following circumstances: (a) Telocity
fails to launch the Telocity Platform in more than fifty percent
(50%) of the service markets on an annual basis as designated in
the Market Deployment Plan, (b) in the event that Patti
Manuel-Hart should leave the employ of Telocity for any reason
during the first
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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three (3) years of the Term, or (c) within eighteen (18) months
following the Effective Date, Telocity fails to complete a
Qualifying Offering (as defined in Telocity's Third Amended and
Restated Articles of Incorporation) or a private placement of
its debt or equity securities (not including the private
placement contemplated by the Stock Purchase Agreement) that
results in net proceeds to Telocity of an amount that will
enable the continued expansion of the Subscriber base for the
Telocity Platform at least fifty percent (50%) of the rates set
forth in the Market Deployment Plan for a period of six (6)
months following the closing of such Qualifying Offering or
private placement, as applicable.
4.14. Satellite Delivery. Telocity agrees to grant NBCi's Affiliate,
GE AmeriCom, a right of first negotiation for the delivery of
the Telocity Service via satellite. This right is strictly for
the carriage of Telocity Service via satellite. This right does
not pertain to any content distribution on the Telocity Service.
Beginning after thirty (30) days following the date that
Telocity provides GE Americom with written notice of its desire
to begin such discussions, which shall not be sent by Telocity
before Telocity is prepared to begin good faith negotiations,
Telocity shall be free to begin discussions with third parties
regarding the satellite delivery of the Telocity Services. The
parties agree that time is of the essence with respect to this
Section 4.14.
4.15. Video Programming and Channels. In the event that, during the
Term, Telocity or NBCi desires to offer any new class or type of
video programming or channels (i.e., full motion video of [*] or
more in length) containing news, sports or entertainment on the
Telocity Platform or the Co-Branded Site, Telocity or NBCi, as
the case may be (the "Offering Party"), shall so notify NBC in
writing. NBC and the Offering Party shall then negotiate
exclusively and in good faith with one another for a period of
thirty (30) days following NBC's receipt of such written notice
concerning the inclusion of video programming or channels of NBC
and its affiliates (including, for example, anything broadcast
on the NBC Television Network, all television stations owned and
operated by NBC or any cable, digital or Internet network owned
or controlled by NBC or its affiliates). In the event that the
parties are unable to reach a final agreement during such
period, then, on the last day of such period, the Offering Party
shall submit to NBC its final offer, in writing (the "Offer"),
which offer shall be made in good faith and shall represent the
price, terms and conditions that the Offering Party reasonably
expects to receive for such programming or channel in an
arm's-length transaction with a third party. NBC shall then have
ten (10) business days to accept or reject the Offer. If NBC
rejects the Offer, the Offering Party shall be free to negotiate
with and enter into agreements with third party(s) with respect
to such video programming or channels. NBC and Telocity
acknowledge that, in accordance with Section 4.12 hereof, NBCi
shall be the exclusive Internet content provider to Telocity for
the Telocity Platform for media and entertainment content and
that this Section 4.15 does not limit such exclusivity in any
manner. This Section 4.15 shall not be amended without the
written consent of NBC.
5. Product Development; Overlapping Services.
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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5.1. Product Development. Both parties shall mutually agree to the
top-level specifications and objectives ("Top Level
Specifications") for overall jointly developed product offerings
relating to the Telocity Network, End User Hardware and Software
Products, and associated software and utilities.
5.2. Telocity Network. The parties shall mutually develop the Top
Level Specifications and requirements of the Telocity Network,
including content distribution infrastructure, network speed,
hosting capabilities, usage monitoring and interconnect points,
for the purpose of supporting a jointly developed product
offering. Under no circumstances will such collaboration be
construed to create or grant NBCi or any NBCi Affiliate any
Intellectual Property Rights in the Telocity Platform or any
component thereof, such as the Gateway or the OSS. Telocity will
reasonably consider NBCi's comments with respect to the Telocity
Network, but Telocity will have the ultimate decision making
authority with respect to the Telocity Network, subject to
compliance with the Top Level Specifications. NBCi will
reasonably consider Telocity's comments with respect to
advertising serving and tracking, but NBCi will have the
ultimate decision making authority with respect to the with
respect to advertising serving and tracking.
5.3. End User Hardware and Software Products. The parties shall
mutually develop the Top Level Specifications and requirements
of the joint hardware and software offerings (respectively, "End
User Hardware" and "Software Products"), including Gateway
capabilities, software installer features, and integration of
software and services onto the Subscriber's operating system.
Telocity will reasonably consider in good faith NBCi's comments
with respect to End User Hardware and Software Products, but
Telocity will have the ultimate decision making authority with
respect to the End User Hardware and Software Products, subject
to compliance with the Top Level Specifications. Under no
circumstances will such collaboration be construed to create or
grant NBCi or any NBCi Affiliate any Intellectual Property
Rights in the Telocity Platform or any component thereof, such
as the Gateway or the OSS.
5.4. New Product/Service Milestones. Telocity agrees to use
commercially reasonable efforts to introduce at least one new
product or service for use on the Telocity Platform [*]
following the Effective Date.
5.5. Overlapping Services. Although NBCi's Core Business and
Telocity's Core Business are distinctly different businesses,
the parties acknowledge that there is and may nevertheless be
Overlapping Services. Each party shall share in the revenue
streams created by the Overlapping Services as set forth in
Section 10.1. In order to maximize and coordinate the collective
opportunity presented by Overlapping Services, the parties agree
as follows:
5.5.1 If either party has an existing product or service, and
the other party wishes to offer an Overlapping Service,
then the other party will be free to
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set features, pricing and revenue models for such Overlapping
Service, but will confer with the party with the existing
product or service.
5.5.2 In all instances where NBCi releases a generally
commercially available full production version of an
Overlapping Service which is similar to an existing
Telocity Service, then the existing revenue share for
the applicable Telocity Services shall be adjusted as
provided in Section 10.1. For those Overlapping Services
that are non Web-based, NBCi shall design such
Overlapping Service to include materially enhanced
features and functionality to distinguish the product
from the Overlapping Service offered by Telocity.
5.5.3 In all instances where Telocity releases a generally
commercially available full production version of an
existing NBCi Service, Telocity shall design such
Overlapping Service to include materially enhanced
features and functionality to distinguish the product
from the Overlapping Service offered by NBCi.
5.5.4 If an Overlapping Service is identified by either party,
then the parties will work together to develop the
specifications for integrating the product or services
into the Telocity Platform and the Co-Branded Site, as
appropriate.
5.5.5 Any disputes concerning Overlapping Services will be
subject to the negotiation procedures described in
Section 19. If the negotiation procedures detailed in
Section 19 fail, then both parties agree that such
"Overlapping Services" will be placed within the
Telocity Window. The purpose of such placement will be
to minimize the confusion to the Subscriber caused by
the placement of two (2) similar products that do not
offer distinctly differentiated features or
functionality.
6. Account Management.
6.1. Service Quality Milestones. Both parties will mutually agree in
writing on an annual basis on appropriate performance criteria
for the Telocity Services and Co-Branded Site.
6.2. Billing. Telocity shall be solely responsible for all billing,
collection services and customer support services with respect
to all products and services delivered by the parties to
Subscribers via the Telocity Platform.
6.3. Account Management.
6.3.1. Account and Contact Managers. For the purposes of this
Agreement, [*] shall be NBCi's account manager for
Telocity and [*] shall be Telocity's contact manager for
NBCi (collectively, the "Managers"). Subject to Section
20.12, the Managers shall be the primary
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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points of contact for inquiries and requests and
information related to the activities conducted by
either party pursuant to this Agreement. Each Manager
shall provide the other with such information and
assistance as may be reasonably requested by the other
from time to time. Either party to this Agreement may
change its designated Manager by giving the other party
written notice of such change provided in accordance
with Section 20.12.
6.3.2. Meetings. Each party shall designate a team of
individuals for specific responsibilities of the party
under this Agreement, such as technical integration and
marketing (collectively, the "Teams"). Each party's Team
shall include the active participation of at least one
(1) officer at the vice president level. The individuals
on the initial Teams are outlined in Exhibit F. Each
team will meet on a frequency determined to be necessary
by the applicable team, but no less than once per month
during the first three (3) years of the Term and
approximately at least once per quarter during each year
thereafter; each of those Teams shall meet separately at
the offices of Telocity or NBCi (with the location to
alternate between the two) to monitor and manage the
relationship of the parties and any items under this
Agreement either party wishes to bring to the attention
of the other party.
6.3.3. Annual Review. Beginning three (3) years after the
Effective Date, the parties will meet on an annual basis
to review the business arrangement set out in this
Agreement in light of changed industry conditions and
other business considerations and mutually agree upon
certain milestones to be set forth for the remainder of
the Term with respect to both parties' continued
performance under this Agreement. Any modifications or
amendments to this Agreement relating to such milestones
will require the written consent of both Telocity and
NBCi.
6.3.4. Board Review. NBCi and Telocity agree to review the
status of the activities specified in this Agreement at
least twice a year during each party's respective board
meetings.
7. Advertising, Marketing and Promotion.
7.1. Email Solicitations. During the Term, NBCi will have the
exclusive right to transmit all direct marketing email
solicitations to Subscribers as provided in Section 9, except as
provided in Section 9.4.
7.2. Marketing by Telocity. Subject to Section 13.5, Telocity shall
use commercially reasonable efforts to market the Telocity
Services in the relevant local markets of the United States, by
direct marketing to Subscribers by means other than email
solicitations, including, without limitation, voice messaging in
the message inbox, print advertising, direct physical mail,
outdoor, radio and television, and other means of marketing that
may emerge in the future; provided, however, Telocity
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<PAGE> 15
shall not use email in any such marketing activities except as
provided in Section 9.4. All third party messages included in
such marketing efforts will contain no content of or reference
to NBCi Competitors. The third party messages shall not be on
behalf of any third parties and shall be solely for the purpose
of promoting or upselling Telocity Services and the Telocity
Platform; provided, however, that such third party messages may
include third party products and services (for example, in
connection with Telocity's affinity program) without NBCi's
approval from entities that are not NBCi Competitors so long as
the third party product or service is not in a category for
which NBCi has an express contractual relationship (of which
Telocity has notice) with respect to the direct marketing of
such product or service. NBCi will provide Telocity with a list
of such relationships within thirty (30) days of the Effective
Date and will update the list from time to time. Telocity will
be responsible for all marketing expenses for the Telocity
Services with the exception of the Promotions described in
Section 7.5.
7.3. Promotional Events. Both parties shall make good faith efforts
to identify additional promotional events to support the
Telocity Services (e.g. special product and marketing
announcements ) and the Co-Branded Site through the use of the
Co-Branded Site to deliver exclusive broadband content for such
promotional events to Telocity Subscribers.
7.4. Online Promotion Design. Telocity will design and create all
Telocity Content required for the Promotions in accordance with
NBCi's technical and editorial guidelines, as updated in NBCi's
sole discretion from time to time, including those set forth at
http://www.snap.com/media/ or any successor URL designated by
NBCi.
7.5. Online Promotions. Beginning on the Effective Date, NBCi will
use commercially reasonable efforts to deliver a total value of
online promotional value in the aggregate dollar amount of Five
Million Dollars ($5,000,000) during the first three (3) years of
the Term through the delivery of Impressions on the NBCi Sites;
provided, however, that at least fifty percent (50%) of all
Impressions delivered hereunder shall be delivered to the
locations of the NBCi Sites as mutually agreed in writing by the
parties. Except as specified in the foregoing sentence, the
delivery of the Impressions hereunder and the format of the
Promotions will be based on a schedule and placement guidelines
selected by NBCi, in its sole discretion and at the rates set
forth in the applicable NBCi standard rate card. Any Impression
not listed in the applicable NBCi standard rate card shall be
assigned the value of a comparable Impression on such rate card
by NBCi. If NBCi fails to deliver the required number of
Impressions during the first three (3) years of the Term,
Telocity agrees that NBCi shall have an additional six (6)
months to deliver such Impressions.
8. Co-Branded and International Editions.
8.1 Co-Branded Editions. Telocity acknowledges that NBCi produces
co-branded editions of the NBCi Sites for various resellers,
distributors, other licensees and/or
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<PAGE> 16
joint venture partners (collectively the "Distributors"). In
some cases, such Distributors are entitled to replace NBCi's
default content with other content within their own co-branded
editions of any NBCi Site. Notwithstanding any other provisions
of this Agreement, if any such Distributor has exercised its
right to replace Telocity Content with other content, then NBCi
will not be required to display the Promotions or Telocity
Content within such Distributor's co-branded edition of the NBCi
Sites. If NBCi does display the Promotions or Telocity Content
within a co-branded edition of any NBCi Site, such display will
be governed by this Agreement.
8.2 International Editions. NBCi is currently considering creating
one (1) or more international editions of the NBCi Sites to
reflect appropriate localized and local partner content
("International Editions") and may desire to include localized
Telocity Content within such International Editions. Upon NBCi's
request, Telocity agrees to negotiate in good faith regarding
the terms under which Telocity would agree to amend this
Agreement to grant NBCi the right to include Telocity Content
and Promotions on one (1) or more International Editions.
9. User Profile Data and Direct Marketing.
9.1. Data Ownership. Each Subscriber whose User Profile Data is
collected by a party or its subsidiaries through the Co-Branded
Site, the Telocity Site or the Telocity Platform, shall be asked
to consent to the provision of such User Profile Data to the
other party. Each party shall in its reasonable discretion,
place and word such consent request on the Co-Branded Site, the
Telocity Sites and the Telocity Platform, as applicable, and
shall consider comments from the other party with respect to
such consent requests. The User Profile Data for each Subscriber
who so consents shall be provided to the other party and shall
be jointly owned by NBCi and Telocity. Any data collected
through the Co-Branded Site for all other Users, except for the
Telocity Aggregate User Data, shall remain owned solely by NBCi.
At all times, NBCi will be the sole owner of all User data that
is collected from the NBCi Sites and Telocity will be the sole
owner of all User data that is collected from the Telocity
Sites. NBCi Aggregate User Data and Telocity Aggregate User Data
shall be jointly owned by NBCi and Telocity. Before a User is
permitted to become a Subscriber, the User must consent (e.g.,
in the Telocity terms of service) to the provision of the User's
User Profile Data to NBCi.
9.2. Use of Information and Confidentiality. Each party will have the
right to use any information provided by the other party subject
to the confidentiality restrictions set forth in Section 20.4.
All data collected from Users through the Co-Branded Site, the
Telocity Sites and the Telocity Platform will be kept
confidential and not disclosed to non-affiliated third parties
by each party in accordance with the privacy policy and
standards established by that party's respective privacy policy.
9.3. Direct Marketing. During the Term, NBCi, shall have the
exclusive right to use (or allow an Affiliate to use, in which
case all references to "NBCi" in this Section 9 shall refer to
such Affiliate) the information contained in Telocity
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Database for email-based direct marketing purposes as set forth
in this Section (with the exception of customer correspondence
specifically pertaining to non-commercial communications with
Subscribers, including, but not limited to, customer service,
billing and technical support). NBCi shall have a right to
execute, or cause to be executed, promotional email offers to
all or some of the Users described in the Telocity Database.
Such email offers shall be drafted by NBCi following a mutually
agreed upon template, approved by Telocity (and such approval
shall not be unreasonably withheld) and will appear to come from
"Telocity and Snap"; provided, however, each email will not be
subject to Telocity's approval. Such email messages may have
links to the NBCi Sites or the Co-Branded Site, as NBCi shall
decide in its sole discretion. Products offered in such emails
may include NBCi's products or services or third party products
and/or services that NBCi has the right to offer, and NBCi shall
select all of such products to be offered in its sole
discretion. NBCi agrees that any direct marketing solicitations
to Subscribers will not include advertisements or commercial
messages for Telocity Competitors. NBCi may choose to distribute
emails to some or all Users in Telocity Database. NBCi shall
also have the option to create and host "sell" pages for any
marketing campaign, arrange for purchase orders to be processed
and fulfilled, and for customer service and inventory matters to
be coordinated in relation to the products offered in emails
distributed pursuant to this Section, as NBCi shall determine in
its sole discretion. All direct marketing solicitations will
afford the User with an easy and accessible means to
unsubscribe. NBCi agrees that co-branded advertisements will not
include advertisements or commercial messages for Telocity
Competitors.
9.4. Telocity Promotional Offers. Notwithstanding Section 9.3,
Telocity shall have the right to send (i) emails to Users
described in Telocity Database solely with respect to the
billing and administration of the Telocity Services; and (ii)
periodic email newsletters related to the Telocity Services, but
such emails and newsletters may not promote services provided by
an NBCi Competitor. Further, Telocity may present promotional
offers to its Subscribers with their bill or newsletter (the
"Promotional Offers"). The Promotional Offers shall not be on
behalf of any third parties and shall be solely for the purpose
of promoting or upselling Telocity Services; provided that,
however, such Promotional Offers may include third party
products and services (for example, in connection with
Telocity's affinity program) without NBCi's approval from
entities that are not NBCi Competitors so long as the third
party product or service is not in a category for which NBCi has
an express contractual relationship with respect to such product
or service. NBCi will provide Telocity with a list of such
relationships and will update the list from time to time. With
the exception of the aforementioned emails and newsletters, all
other emails to Users described in Telocity Database will be
delivered by NBCi in order to ensure a consistent marketing
message.
9.5. Telocity Database Management. Subject to Telocity's agreements
with Subscribers, on or before the Launch Date, Telocity will
electronically send NBCi all User Profile Data then contained in
the Telocity Database to one (1) or more FTP addresses
designated by NBCi in a mutually agreed upon format. In the
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event that such agreements prohibit the foregoing, Telocity will
make best efforts to obtain consent of the Subscribers to the
transfer of the User Profile Data to NBCi. Beginning one (1)
month following the Launch Date, on a monthly basis, Telocity
will send NBCi updates of the User Profile Data. Such updates
will be provided in a mutually agreed-upon format. Both parties
will use commercially reasonable efforts to implement NBCi's
universal User registration process by the Launch Date so that
Users who have registered to become Subscribers do not need to
again enter their personal data to become NBCi Members. Telocity
will provide NBCi, on a monthly basis, Telocity's standard
report containing the Telocity Aggregate User Data.
9.6. NBCi Aggregate User Data Management. NBCi will provide Telocity,
on a monthly basis, NBCi's standard report containing the NBCi
Aggregate User Data.
10. Payments and Credits.
10.1. Revenue Sharing.
10.1.1 Telocity Only Services. Beginning on the Launch Date,
Telocity shall pay to NBCi, on a quarterly basis, ten
percent (10%) of the net revenues actually received by
Telocity for the basic Telocity internet access service.
For purposes of this Section 10.1.1, net revenues shall
mean gross revenues less a cost of goods sold figure
based on the following items: (i) Last Mile Technologies
Expenses, (ii) Shipping and Handling Expenses, and (iii)
Network Operations Expenses, but excluding all Gateway
rebate expenses, which shall be treated as customer
acquisition costs by Telocity.
10.1.2 Value-Added Services. Telocity will pay, on a quarterly
basis, ten percent (10%) of the net revenues actually
received by Telocity for value-added services, which are
Telocity subscriber services other than internet access.
For the first eighteen (18) months after the Effective
Date, net revenues shall mean gross revenues less a cost
of goods sold figure based on the following items: (i)
Last Mile Technologies Expenses, (ii) Shipping and
Handling Expenses, and (iii) Network Operations
Expenses, but excluding all Gateway rebate expenses,
which shall be treated as customer acquisition costs by
Telocity. After eighteen (18) months from the Effective
Date, net revenues for value-added services will be
calculated as gross revenues less a cost of goods sold
figure arrived at in accordance with generally accepted
accounting principles.
10.1.3 Overlapping Services. At such time as a value-added
service is an Overlapping Service, Telocity will pay
NBCi, on a quarterly basis, forty percent (40%) of the
net revenues referenced in Section 10.1.2 actually
received from revenues generated by the Overlapping
Service provided by Telocity.
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10.1.4 NBCi Services. NBCi shall pay Telocity, on a quarterly
basis, forty percent (40%) of the net revenues actually
received by NBCi or its subsidiaries derived from (i)
all revenue from advertising running on the Co-Branded
Site (including, but not limited to, banner ads and
windows) multiplied by the Telocity Fraction; (ii)
anchor tenancies and other tenancies that are solely on
the Co-Branded Site; (iii) e-Commerce Services
(including but not limited to, targeted e-mails and
product sales, fees for "host and sell" pages, and
transaction fees from national online merchants)
attributable to Subscribers (NBCi will make best efforts
to ensure that such revenues can be attributed to
Telocity Subscribers); and (iv) subscription and pay per
view media (including but not limited to, music, video,
gaming, and other media services) attributable to
Telocity Users. For purposes of this Section 10.1.4,
"net revenues" shall mean gross revenues actually
received by NBCi or its subsidiaries, less, as
applicable, agency fees, selling expenses, returns, bad
debt expenses, revenue sharing expenses payable to third
parties, content fees, licensing fees, fraud,
commissions and service fees. After eighteen (18) months
from the Effective Date, net revenues for NBCi Services
will be calculated as gross revenues less a cost of
goods sold figure arrived at in accordance with
generally accepted accounting principles.
10.1.5 Unavailable Content. In the event that Telocity chooses
to contract with an independent third party for
Unavailable Content, NBCi shall receive forty percent
(40%) of the gross revenues actually received from the
placements of such Unavailable Content within the
Telocity Platform, less, as applicable, agency fees,
selling expenses, returns, bad debt expenses, revenue
sharing expenses payable to third parties, content fees,
licensing fees, fraud, commissions and service fees.
10.2. Bundled Services. Telocity may offer bundled services from time
to time that will be priced less than the aggregate price for
all the component parts. In order to calculate the net revenues
due NBCi for purposes of Section 10.1 based on the sale of the
bundled Telocity Services, the parties will jointly determine
the appropriate net revenue share for each item in the bundle,
determine the ratio of the relative value of each item in the
bundle based on the price of all items when purchased
individually and apply such ratio to the revenue generated by
the bundled offering. For example, assume a bundled Telocity
Service package consisting of ten (10) discrete Telocity
Services (seven (7) of which are Telocity Only Services and
three (3) are Overlapping Services that meet the criteria of
Section 5.5.2) costs a Subscriber One Hundred Dollars ($100) a
month. Purchasing these ten (10) discrete Telocity Services
individually would cost the Subscriber Two Hundred Dollars
($200) a month. If the three (3) Overlapping Services
individually priced cost Fifty Dollars ($50) per month, the
ratio would be twenty-five percent (25%) for the Overlapping
Services. Therefore the net revenue share payable to NBCi by
Telocity for the three (3) Overlapping Services would be 40% of
25% of the net revenues for such $100 and the net revenue share
payable to NBCi by Telocity for the 7 Telocity Only Services
would be 10% of
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75% of the net revenues for such $100. NBCi shall have the
right, exercisable in its reasonable discretion, to permit
Telocity to bundle NBCi Services (such as pay-per-view movies)
with Telocity Services; provided, however, that NBCi will have
the right in its sole discretion to establish the price to
Telocity for such bundled NBCi Services, and Telocity shall have
the right in its sole discretion to price the overall bundle to
the Subscriber.
10.3. Payment. Payments under this Agreement will be made by check or
wire transfer of immediately available funds. All amounts due
from one party to another party hereunder shall be due and
payable [*] in which such amount can be reasonably accrued in
accordance with generally accepted accounting principles.
10.4. Warrants. Upon execution of this Agreement, Telocity will issue
to NBCi a warrant to purchase 1,039,122 shares of Series C
Preferred Stock, in the form attached hereto as Exhibit G and,
to NBC, a warrant to purchase 850,191 shares of Series C
Preferred Stock, in the form attached hereto as Exhibit G.
11. Records and Audits.
11.1. Accounting Standards. It is expressly understood and agreed by
the parties that all computations relating to the determination
of the amounts due and payable pursuant to this Agreement shall
be made in accordance with nationally recognized and generally
accepted accounting principles and practices that are recognized
as such by the American Institute of Certified Public
Accountants acting through its Accounting Principles Board or by
the Financial Accounting Standards Board ("F.A.S.B.") or through
other appropriate boards or committees thereof and shall be
consistently applied for all periods after the Effective Date.
The parties will recognize topline revenues related to this
Agreement based generally upon principles for revenue
recognition used by F.A.S.B. for accounting practices, and the
SEC for reporting practices.
11.2. Audit Rights. Each party agrees to keep accurate books of
account and records at its principal place of business covering
all transactions relating to this Agreement. Each party or any
duly authorized representative shall have the right, at all
reasonable hours of the day, but no more than once a year, to
audit, each of the other party's books of account and records
and all other documents and material in the possession or under
the control of such other party, whether in electronic format or
otherwise, with respect to the subject matter and the terms of
this Agreement and to make copies and extracts thereof; provided
that no such audit may include any periods more than three years
prior to the date of audit. In the event that any such audit
reveals an underpayment by the audited party, the audited party
shall immediately remit payment to appropriate party in the
amount of such underpayment plus interest calculated at a rate
of one and one-half (1 1/2%) per month, or the maximum rate
allowed by law, compounded daily, calculated from the date such
payments were actually due until the date when such payment is
in fact actually made. Further, in the event that any such
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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underpayment is greater than [*] of the amount due for the
period being audited, the audited party shall reimburse the
party conducting the audit for the reasonable costs and expenses
of such audit. All books of account and records of each party
covering all transactions relating to this Agreement shall be
retained by such party for at least three (3) years after the
expiration or termination of this Agreement, as the case may be,
for possible inspection and/or audit by the other parties.
12. Term; Termination.
12.1. Term. The term of this Agreement will begin on the Effective
Date and end on the last day of the fifteenth (15TH) year after
the Effective Date, unless otherwise terminated as set forth in
this Agreement (the "Term").
12.2. Termination for Cause. Either NBCi or Telocity may terminate
this Agreement at any time by giving written notice of
termination to the other party if any other party commits a
material breach of its obligations hereunder, including a
material breach of a relevant party's privacy policy, that is
not cured within sixty (60) days after notice thereof from the
non-breaching party.
12.3. Termination for Insolvency. Either party may terminate this
Agreement upon sixty (60) days notice, and shall have no further
obligation under this Agreement, if the other party becomes
insolvent; makes an assignment for the benefit of creditors;
makes or sends notice of a bulk transfer; calls a meeting of its
creditors with respect to its inability to pay its obligations
owed to such creditors on customary terms; defaults under any
agreement, document or instrument relating to the party's
indebtedness for borrowed money; or ceases to do business as a
going concern; or if a petition is filed by or against the party
under any bankruptcy or insolvency laws which is not dismissed
within ninety (90) days of the date of filing.
12.4. Competitor Termination. NBCi may terminate this Agreement at any
time by giving written notice of termination to Telocity if
Telocity experiences a change in its ownership, such that an NBC
Competitor (as defined in the Stock Purchase Agreement) or an
NBCi Competitor, directly or indirectly, holds an equity
interest greater than thirty-three (33) percent in Telocity, or
otherwise acquires control of Telocity, or if Telocity is
acquired by or merges with an NBCi Competitor. NBCi shall have
the right to exercise the termination right set forth in this
Section 12.4 for up to three (3) months after the occurrence of
the event that triggered such a termination right.
12.5. Termination by NBCi. NBCi may terminate this Agreement at any
time by giving written notice of termination to Telocity if
within eighteen (18) months following the Effective Date,
Telocity fails to complete a Qualifying Offering (as defined in
Telocity's Third Amended and Restated Articles of Incorporation)
or a private placement of its debt or equity securities (not
including the private placement contemplated by the Stock
Purchase Agreement) that results in net proceeds to
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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Telocity of an amount that will enable the continued expansion
of the Subscriber base for the Telocity Platform at least fifty
percent (50%) of the rates set forth with the Market Deployment
Plan for a period of six (6) months following the closing of
such Qualifying Offering or private placement, as applicable.
12.6. Consequences of Termination. Upon the termination or expiration
of this Agreement, all licenses granted hereunder shall
immediately terminate and each party shall return or destroy all
Confidential Information of the other party in its possession.
Neither party shall be liable to the other for damages of any
sort resulting solely from any termination of this Agreement in
accordance with its terms.
13. Intellectual Property.
13.1 Ownership.
13.1.1 Telocity Materials. NBCi acknowledges that Telocity and
its licensors own and shall own all rights, title and
interest in the Telocity Marks, Telocity Content, the
Telocity Window and its specifications, Additional
Interfaces developed by Telocity without NBCi (except as
provided in Section 13.4), Telocity Sites, Proprietary
Technology (collectively referred to as "Telocity
Materials"). NBCi acknowledges that it has no, and shall
receive under this Agreement no, ownership rights in the
Telocity Materials. In the event NBCi or any of its
subsidiaries, by operation of law or otherwise obtains
any Intellectual Property Rights in the Telocity
Materials, NBCi shall, or cause its subsidiaries to,
irrevocably assign to Telocity and its successors and
assigns any of NBCi's or its subsidiaries' right, title
and interest thereto, including without limitation, any
and all worldwide copyrights and patent rights and all
renewals and extensions and divisionals, continuations
in part and foreign applications and registrations
thereof and for all uses and purposes whatsoever.
13.1.2 NBCi Materials. Telocity acknowledges that NBCi, and its
licensors own and shall own all rights, title and
interest in the NBCi Marks, the NBCi Sites, Co-Branded
Site (except the Telocity Content contained therein),
the Front Door Interfaces, the specifications to such
Front Door Interfaces, the Additional Interfaces
developed by NBCi without Telocity (except as provided
in Section 13.4), and the specifications to such
Additional Interfaces (collectively referred to as "NBCi
Materials"). Telocity acknowledges that it has no, and
shall receive under this Agreement no, ownership rights
in the NBCi Materials. In the event Telocity by
operation of law or otherwise obtains any Intellectual
Property Rights in the NBCi Materials, Telocity shall
irrevocably assign to NBCi and its successors and
assigns of any and all of Telocity's right, title and
interest thereto, including without limitation any and
all worldwide copyrights and any and all renewals and
extensions thereof and for all uses and purposes
whatsoever.
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13.1.3 Jointly Developed Additional Interfaces. Except for (i)
Additional Interfaces developed by Telocity without
NBCi, (ii) Additional Interfaces developed by NBCi
without Telocity and (iii) Section 13.4, each party
acknowledges that the other party jointly owns all
jointly developed Additional Interfaces and all
specifications to such Additional Interfaces, and
neither party shall have an obligation of accounting to
the other with respect to such jointly developed
Additional Interfaces and specifications thereto.
13.2 Telocity Marks and Content. Telocity hereby grants to NBCi and
its subsidiaries a non-exclusive, non-transferable, royalty-free
license, effective throughout the Term, (i) to use, display and
publish the Telocity Marks and Telocity Content, and (ii)to
modify and create derivative works of the Telocity Content,
solely for purposes of rescaling. In the event the International
Editions are deemed included within this Agreement pursuant to
Section 8.2, Telocity hereby further grants to NBCi and its
subsidiaries a non-exclusive, non-transferable, royalty-free
license, effective throughout the Term, to modify and create
derivative works of the Telocity Content solely as permitted
hereunder. In the event the International Editions are deemed
included within this Agreement pursuant to Section 8.2, Telocity
shall in good faith modify the Telocity Marks to incorporate
changes reasonably suggested by NBCi for the relevant target
audience (e.g., complying with local laws or avoiding the use of
offensive terms in the local language). Any use of the Telocity
Marks by NBCi must comply with any reasonable usage guidelines
communicated by Telocity to NBCi from time to time. Nothing
contained in this Agreement will give NBCi any right, title or
interest in or to the Telocity Content, Telocity Marks or the
goodwill associated therewith, except for the limited usage
rights expressly provided above. Telocity will have the right to
approve all marketing materials used by NBCi that use the
Telocity Marks in any way. NBCi acknowledges that Telocity is
the sole and exclusive owner of the Telocity Marks. NBCi shall
use Telocity Marks so that they create a separate and distinct
impression from any other trademark that may be used on
materials bearing the Telocity Marks. NBCi agrees that all use
of the Telocity Marks by NBCi shall inure to the benefit of and
be on behalf of Telocity and its licensors.
13.3 Proprietary Technology. Telocity hereby grants NBCi and its
subsidiaries (and, to the extent necessary for NBCi to perform
hereunder, to subcontractors designated by NBCi, which are not
Telocity Competitors) a non-exclusive, non-transferable
royalty-free right and license during the Term to access and/or
use the Proprietary Technology, including related documentation,
methodology and tools, whether existing as of the Effective Date
or developed by Telocity after the Effective Date, to enable
NBCi to fulfill its obligations hereunder. Any subcontractors
who receive a license under this provision shall first have
signed a written agreement at least as protective of Telocity's
rights as the terms and conditions of Section 20.4.
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13.4 Integration Technologies. Telocity acknowledges that NBCi and
its licensors own and shall own all rights, title and interest
in the technology used to integrate the Telocity Window into the
Front Door Interfaces and that such technology shall constitute
NBCi Materials for purposes of this Agreement; provided,
however, if NBCi has to develop specific technology to integrate
the Telocity Window into the Front Door Interfaces, then the
parties shall jointly own such technology. If in designing and
creating an Additional Interface, NBCi has to develop specific
technology to design and create the Additional Interface, then
the parties shall jointly own such technology. With respect to
any such jointly owned technology neither party shall have an
obligation to accounting to the other.
13.5 NBCi's License Grants. NBCi hereby grants to Telocity a
non-exclusive, non-transferable, royalty free license, effective
throughout the Term, to use, display and publish the NBCi Marks
as permitted in Section 7.2 and to use, reproduce and display
the NBCi Marks in advertising, marketing and promotion of the
Co-Branded Site, the Telocity Platform and the Telocity
Services. Any use of the NBCi Marks by Telocity must comply with
any reasonable editorial and usage guidelines communicated to
Telocity by NBCi from time to time. Telocity shall submit for
approval to NBCi, and NBCi shall have the sole right of approval
over any uses of the NBCi Marks; provided that NBCi shall use
the same standard of approval as it applies to any proposed use
by NBCi or its subsidiaries and provided, further, that
following approval of a particular format and purpose of use,
Telocity shall be deemed to have continuing approval in the
specific manner and for the format and purpose of use approved
without the necessity of seeking specific approvals for each
additional use. Nothing contained in this Agreement will give
Telocity any right, title or interest in or to the NBCi Marks or
the goodwill associated therewith, except for the limited usage
rights expressly provided above. Telocity acknowledges and
agrees that, as between Telocity and NBCi, NBCi or its licensors
are the sole owners of all rights in and to the NBCi Marks. NBCi
will have the right to approve all marketing materials used by
Telocity that use the NBCi Marks in any way. Telocity agrees
that all use of the NBCi Marks by Telocity shall inure to the
benefit of and be on behalf of NBCi and its licensors.
13.6 General Limitation. Neither party will use the other party's
proprietary marks in a manner that disparages the other party or
its products or services, or portrays the other party or its
products or services in a false, competitively adverse or poor
light. If a party is authorized to use the other party's
proprietary marks, the party will comply with the other party's
requests as to the use of the other party's proprietary marks
and will avoid any action that diminishes the value of such
marks. Either party's unauthorized use of the other's
proprietary marks is strictly prohibited.
13.7 General Reservation. Neither party grants any license to the
other except as specifically set forth in this Section 13.
Except as is expressly set forth under this
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Section 13, both parties expressly reserve all of their right,
title and interest in their respective Intellectual Property
Rights.
13.8 Protection of Telocity Platform. Telocity agrees to use
commercially reasonable efforts to protect the Telocity Platform
through owning and/or licensing all Intellectual Property Rights
therein and to use commercially reasonable efforts to maintain
and enforce the same.
14. Responsibility for the Sites and Products. Telocity acknowledges and
agrees that, as between Telocity and NBCi, Telocity will be solely
responsible for any claims or other losses associated with or resulting
from the marketing or operation of the Telocity Platform and the
Telocity Sites and the offer or sale of any Telocity Services by
Telocity or through Telocity Sites or Co-Branded Site, or through emails
delivered for Telocity by NBCi. NBCi acknowledges and agrees that, as
between NBCi and Telocity, NBCi will be solely responsible for any
claims or other losses associated with or resulting from the marketing
or operation of the NBCi Properties and the NBCi Services and the offer
or sale of any NBCi Services by Telocity or by NBCi.
15. Telocity Representations and Warranties.
15.1 Telocity represents and warrants: (i) Telocity possesses
sufficient right, title, interest and license in or to all
Intellectual Property Rights embodied in or used in connection
with the Telocity Marks, the Telocity Content, the Telocity
Platform, and the Telocity Site to perform its obligations
hereunder; (ii) Telocity has full power and authority to grant
the licenses in Sections 13.2 and 13.3 above; (iii) Telocity's
use of the Co-Branded Site, the Telocity Platform and the
Telocity Services pursuant to the license granted it in Section
13.5 above shall in no way constitute an infringement or other
violation of an Intellectual Property Right or any other right
of any third party; and (iv) the execution of this Agreement by
Telocity, and the performance by Telocity of its obligations and
duties hereunder, do not and will not violate any agreement to
which Telocity is a party or by which it is otherwise bound.
15.2 EXCEPT AS EXPRESSLY SET FORTH IN SECTION 15.1 ABOVE, TELOCITY
MAKES NO REPRESENTATIONS OR WARRANTIES, AND HEREBY SPECIFICALLY
DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, REGARDING THE TELOCITY CONTENT, TELOCITY MARKS,
TELOCITY PLATFORM, TELOCITY SERVICES AND TELOCITY SITES,
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THIRD PARTY RIGHTS AND
IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF
PERFORMANCE, OR AS MAY BE SET FORTH IN EXHIBIT B.
16. NBCi Representations and Warranties.
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16.1 NBCi represents and warrants to Telocity: (i) NBCi possesses
sufficient right, title, interest and license in or to all
Intellectual Property Rights (excluding rights to third party
content, for example, user-generated content) embodied in or
used in connection with the Front Door Interface and the
Co-Branded Site to perform its obligations hereunder; (ii) NBCi
has full power and authority to grant the licenses in Sections
13.5 above; (iii) NBCi's use of the Telocity Marks, Telocity
Content and Proprietary Technology pursuant to the license
granted it in Sections 13.2 and 13.3 above shall in no way
constitute an infringement or other violation of an Intellectual
Property Right or any other right of any third party; and (iv)
the execution of this Agreement by NBCi, and the performance by
NBCi of its obligations and duties hereunder, do not and will
not violate any agreement to which NBCi is a party or by which
it is otherwise bound.
16.2 EXCEPT AS EXPRESSLY SET FORTH IN SECTION 16.1 ABOVE, NBCi MAKES
NO REPRESENTATIONS OR WARRANTIES, AND HEREBY SPECIFICALLY
DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, REGARDING THE NBCi MARKS, NBCi PROPERTIES AND NBCi
SERVICES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THIRD
PARTY RIGHTS AND IMPLIED WARRANTIES ARISING FROM COURSE OF
DEALING OR COURSE OF PERFORMANCE.
17. LIMITATION OF DAMAGES. EXCEPT FOR SECTION 18, NO PARTY WILL BE LIABLE
FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING
OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY (INCLUDING NEGLIGENCE), AND EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
18. Mutual Indemnification.
18.1. Indemnification by NBCi. NBCi shall indemnify, defend and hold
Telocity and its officers, directors, employees and agents
harmless from and against any costs, losses, liabilities and
expenses, including all court costs, reasonable expenses and
reasonable attorney's fees (collectively, "Losses") that
Telocity may suffer, incur or be subjected to by reason of any
legal action, proceeding, arbitration or other claim by a third
party, whether commenced or threatened, arising out of or as a
result of (i) the operation of the NBCi Properties, (ii) the
transmission of emails or other solicitations by NBCi or any
NBCi subsidiary to a Subscriber in violation of any applicable
privacy policy or legislation or anti-spamming statutes, (iv)
Telocity's use of the NBCi Marks in accordance with this
Agreement, (v) any claim that the intellectual property of NBCi
or any NBCi subsidiary infringes an Intellectual Property Right
of any third party (except in cases where Telocity is required
to indemnify NBCi under Section 18.2), and (vi) the use or
disclosure of User Profile Data in violation of this Agreement
or any applicable law or regulation.
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18.2. Indemnification by Telocity. Telocity shall indemnify, defend
and hold NBCi, and its Affiliates, officers, directors,
employees and agents, harmless from and against any Losses that
NBCi or its Affiliates may suffer, incur or be subjected to by
reason of any legal action, proceeding, arbitration or other
claim by a third party, whether commenced or threatened, arising
out of or as a result of (i) the use of the Telocity Content,
Telocity Marks or Proprietary Technology by NBCi and/or its
Affiliates in accordance with this Agreement; (ii) the operation
of the Telocity Sites or Telocity Platform; (iii) the offer or
sale of Telocity Services by Telocity on or through Telocity
Sites or the Co-Branded Site or any emails sent by NBCi or a
third party pursuant to Section 9.3, (iv) any claim that the
intellectual property of Telocity or any Telocity subsidiary or
provided by Telocity hereunder (including the Proprietary
Technology), Telocity Sites or Telocity Content infringes an
Intellectual Property Right of any third party, (v) the use or
disclosure of User Profile Data in violation of this Agreement
or any applicable law or regulation, or (vi) the violation of
any telecommunications laws, rules or regulations by Telocity.
18.3. Indemnification Procedures. If any party entitled to
indemnification under this Section (an "Indemnified Party")
makes an indemnification request to the other, the Indemnified
Party shall permit the other party (the "Indemnifying Party") to
control the defense, disposition or settlement of the matter at
its own expense; provided that the Indemnifying Party shall not,
without the consent of the Indemnified Party enter into any
settlement or agree to any disposition that imposes an
obligation on the Indemnified Party that is not wholly
discharged or dischargeable by the Indemnifying Party, or
imposes any conditions or obligations on the Indemnified Party
other than the payment of monies that are readily measurable for
purposes of determining the monetary indemnification or
reimbursement obligations of Indemnifying Party. The Indemnified
Party shall notify the Indemnifying Party promptly of any claim
for which Indemnifying Party is responsible and shall cooperate
with the Indemnifying Party in every commercially reasonable way
to facilitate defense of any such claim; provided that the
Indemnified Party's failure to notify Indemnifying Party shall
not diminish Indemnifying Party's obligations under this Section
except to the extent that Indemnifying Party is materially
prejudiced as a result of such failure. An Indemnified Party
shall at all times have the option to participate in any matter
or litigation through counsel of its own selection and at its
own expense.
19. Alternative Dispute Resolution. Unless the parties otherwise agree in
writing and except as qualified in Section 5.5.5, any dispute,
controversy, disagreement or claim, regardless of the legal or equitable
theory involved, arising out of or with reference to this Agreement
(each, a "Dispute") shall be settled in accordance with the terms of
this Section 19. Other than as expressly provided otherwise in this
Agreement, the parties will act in good faith and use commercially
reasonable efforts to resolve any Dispute between the parties or any of
their respective subsidiaries under or related to this Agreement or any
document executed pursuant to this Agreement or any of the transactions
contemplated hereby within ten (10) days of notice by one party to the
other of a specific dispute. Upon the expiration of such initial ten
(10) day period, if a Dispute
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has not been resolved by the parties, the parties shall submit such
Dispute to the parties' chief executive officers, who shall meet within
an additional ten (10) day period to discuss the resolution of such
Dispute in good faith. Such meeting shall continue for a minimum of two
(2) business days, unless the dispute is resolved prior to the
expiration of such two (2) day period. Except as provided in Section
5.5.5, upon the expiration of the second ten (10) day period, if such
Dispute remains unresolved, each party may seek any remedy available to
it at law or otherwise. Neither party will seek, nor will be entitled to
seek, outside resolution of the Dispute until after expiration of the
second ten (10) day period.
20. Miscellaneous.
20.1. Assignment. NBCi shall have the right to assign all of its
rights and liabilities hereunder to an Affiliate or to any
person or entity that (i) acquires all or substantially all of
NBCi's operating assets (whether by asset sale, stock sale,
merger or otherwise) or (ii) results from a merger or
reorganization of NBCi pursuant to any plan of merger or
reorganization. Telocity shall have the right to assign all of
its rights and liabilities hereunder to any person or entity
that (i) acquires all or substantially all of Telocity's
operating assets (whether by asset sale, stock sale, merger or
otherwise) or (ii) results from a merger or reorganization of
Telocity pursuant to any plan of merger or reorganization;
provided, however, that such person or entity is not an NBCi
Competitor.
20.2. Relationship of Parties. This Agreement will not be construed to
create a joint venture, partnership or the relationship of
principal and agent between any of the parties hereto, nor to
impose upon any party any obligations for any losses, debts or
other obligations incurred by another party except as expressly
set forth herein.
20.3. Applicable Law. This Agreement will be construed in accordance
with and governed by the laws of the State of California,
without regard to principles of conflicts of law. Litigation of
disputes under this Agreement shall be conducted in the state or
federal courts for the Northern District of California. The
parties hereto consent to the jurisdiction of any local, state
or federal court in which an action is commenced and located in
accordance with the terms of this Section 20.3 and that is
located in the Northern District of California. The parties
further agree not to disturb such choice of forum, and if not
residing in such state, waive the personal service of any and
all process upon them, and consent that such service of process
may be made by certified or registered mail, return receipt
requested, addressed to the parties as set forth herein.
20.4. Confidentiality. In connection with the activities contemplated
by this Agreement, each party may have access to confidential or
proprietary technical or business information of another party,
including without limitation (i) proposals, ideas or research
related to possible new products or services; (ii) financial
statements and other financial information; (iii) any reporting
information in Section 11 herein; and (iv) the terms of this
Agreement and the relationship among the parties; (collectively,
"Confidential Information"). Each party will
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take reasonable precautions to protect the confidentiality of
each of the other party's Confidential Information, which
precautions will be at least equivalent to those taken by such
party to protect its own Confidential Information. Except as
required by law or as necessary to perform under this Agreement,
no party will knowingly disclose the Confidential Information of
any other party or use such Confidential Information for its own
benefit or for the benefit of any third party. Each party's
obligations in this Section with respect to any portion of
another party's Confidential Information shall terminate when
the party seeking to avoid its obligation under such Section can
document that: (i) it was in the public domain at or subsequent
to the time it was communicated to the receiving party
("Recipient") by the disclosing party ("Discloser") through no
fault of Recipient; (ii) it was rightfully in Recipient's
possession free of any obligation of confidence at or subsequent
to the time it was communicated to Recipient by Discloser; (iii)
it was developed by employees or agents of Recipient
independently of and without reference to any information
communicated to Recipient by Discloser; (iv) it was communicated
by the Discloser to an unaffiliated third party free of any
obligation of confidence; or (v) the communication was in
response to a valid order by a court or other governmental body,
was otherwise required by law or was necessary to establish the
rights of either party under this Agreement.
20.5. Press Release. No party will make any public statement or other
announcement (including without limitation, issuing a press
release) or pre-briefing any member of the press or other third
party) relating to the terms or existence of this Agreement
without the prior written approval of the other parties.
Notwithstanding the foregoing and Section 20.4, the parties
shall issue an initial joint press release, the timing and
wording of which will be subject to each party's reasonable
approval (which shall not be unreasonably withheld or delayed),
regarding the relationship between the parties.
20.6. Injunctive Relief. Each party agrees that in the event of a
breach or alleged breach of Sections 20.4 or 20.5 above that the
other parties shall not have an adequate remedy at law,
including monetary damages, and that the other parties shall
consequently be entitled to seek a temporary restraining order,
injunction, or other form of equitable relief against the
continuance of such breach, in addition to any and all remedies
to which any other party shall be entitled.
20.7. Subsidiaries. Each party unconditionally guarantees to the other
party the performance of all obligations by any of its
subsidiaries under the Agreement (including, without limitation,
payment obligations), as amended from time to time, or any other
obligation of any subsidiary to the other party, now existing or
hereafter arising. If either party's subsidiary does not perform
such obligation, such party shall immediately perform such
obligation.
20.8. Captions and Section Headings. Captions and section headings
used in this Agreement are for convenience only and are not a
part of this Agreement and shall not be used in construing it.
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20.9. Survival. Termination or expiration of this Agreement for any
reason shall not release any party from any liabilities or
obligations set forth in this Agreement which (i) the parties
have expressly agreed shall survive any such termination or
expiration, or (ii) remain to be performed or by their nature
would be intended to be applicable following any such
termination or expiration.
20.10. Force Majeure. If any party shall be delayed in its performance
of any obligation hereunder or be prevented entirely from
performing any such obligation due to causes or events beyond
its reasonable control, including without limitation any act of
God, fire, strike or other labor problem, such delay or
non-performance shall be excused and the time for performance
shall be extended to include the period of such delay or
non-performance.
20.11. Consents and Approvals. Except where expressly provided as being
in the sole discretion of a party, where agreement, approval,
acceptance, consent, confirmation, notice or similar action by
either party is required under this Agreement, such action shall
not be unreasonably delayed or withheld. An approval or consent
given by a party under this Agreement shall not relieve the
other party from responsibility for complying with the
requirements of this Agreement, nor shall it be construed as a
waiver of any rights under this Agreement, except as and to the
extent otherwise expressly provided in such approval or consent.
20.12. Notices. All notices or other communications that shall or may
be given pursuant to this Agreement, shall be in writing, in
English, shall be sent by certified or registered air mail with
postage prepaid, return receipt requested, by facsimile,
overnight express mail, or by hand delivery. Such communications
shall be deemed given and received upon confirmation of receipt,
if sent by facsimile; the day after delivery if by overnight
express mail; or upon delivery if hand delivered; or upon
receipt of mailing, if sent by certified or registered mail; and
shall be addressed to the parties as set forth above on the
first page of this Agreement and to the attention of the Legal
Department, with a Copy to the Office of the President, if to
Telocity; and to the attention of the Legal Department, with a
copy to the Office of the President, if to NBCi; or to such
other addresses or persons as the parties may designate in
writing from time to time.
20.13. Third Party Beneficiary. The parties hereto agree that NBC shall
be a third party beneficiary of this Agreement for purposes of
Section 4.15.
20.14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed a duplicate original
and all of which, when taken together, shall constitute one and
the same document.
20.15. Entire Agreement. This Agreement constitutes and contains the
entire agreement between the parties with respect to the subject
matter hereof and supersedes any prior or contemporaneous oral
or written agreements. This Agreement may not be amended except
in writing signed by all parties. Each party acknowledges and
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<PAGE> 31
agrees that the other has not made any representations,
warranties or agreements of any kind, except as expressly set
forth herein. All exhibits attached to this Agreement are
incorporated hereby and shall be treated as if set forth herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives on the dates indicated below.
NBC INTERNET, INC. TELOCITY, INC.
By: /s/ EDMOND SANCTIS By: /s/ PATTI HART
---------------------------------- ----------------------------------
(Signature) (Signature)
Name: Edmond Sanctis Name: Patti Hart
-------------------------------- --------------------------------
(Please print) (Please print)
Title: Title:
------------------------------- -------------------------------
Date: Date:
-------------------------------- --------------------------------
FOR PURPOSES OF SECTION 4.14 AND 10.4:
NATIONAL BROADCASTING COMPANY, INC.
By: /s AUTHORIZED SIGNATORY
----------------------------------
(Signature)
Name: Authorized Officer
--------------------------------
(Please print)
Title:
-------------------------------
Date:
--------------------------------
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EXHIBIT A
[INTENTIONALLY LEFT BLANK]
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EXHIBIT B
OSS, NETWORK, GATEWAY
OSS
Telocity's back-end operational system is a customer focused web-enabled
business process that ties together all of the Company's functional departments
including sales, customer service, marketing, billing, accounting, line
qualification and order fulfillment. It is technically based on a best-of-breed
approach utilizing standard products for customer relationship management,
billing, for network monitoring and order processing. Using Telocity's automated
back office process, customers can self-subscribe for service without requiring
interaction. Once an order has been placed, the customer information is
populated in real-time to information technology systems within the Company.
After the customer completes the automated line test to determine if the phone
line qualifies for the broadband service, the Telocity back office system can
handle order provisioning for the central office cross connect. Simultaneously,
Telocity's residential gateway modem is automatically sent to the customer. With
these internal information systems, Telocity is able to retrieve real-time order
status, customer and financial information.
Telocity's OSS design is based on "best-of-breed" approach. The Company has
selected the best packages from order entry to billing and integrated them with
the customer as the focus point. [*].
NETWORK
The Company is in the process of deploying a high performance network
IP-based network backbone starting at OC-3 capacity.
The Telocity network features the following:
o A nationwide, managed delivery platform for broadband content, based on
open Internet standards, with QoS between consumers and partners, including
local caching, proxy and media server support. Four levels of QoS from
Internet access to voice based quality.
o Peering and transit arrangements with major backbone partners
o Local media distribution centers with caching via satellite feed and local
media servers for high speed distribution. Extensible to support new
caching mechanism and media distribution schemas.
o IP-protocol based high-speed connectivity to the Internet and to Telocity's
nationwide backbone for partners, supporting various carrier mechanisms
from ATM, xDSL up to point-to-point high-speed circuits.
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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The Company has negotiated agreements for long-haul capacity from national
carriers to form the basis of its nationwide backbone. In addition, the Company
has executed last-mile interconnection agreements with major last mile
providers.
Telocity's network and OSS are managed and monitored on a 24x7 basis. The
Company's network operations center is located in Cupertino, California. From
this center, Telocity provides end-to-end network monitoring and management
using advanced network management tools 24 hours a day, 7 days a week. This
enhances Telocity's ability to address performance issues before they affect the
end-user experience and allows the Company to remotely install and/or upgrade a
customer's requested suite of products. During first half of 2000, Telocity
intends to establish a back-up data center in a low cost region within the
United States. The network operations center, customer service center and the
data center have a back-up generator and a battery back-up.
GATEWAY
Telocity's residential gateway, which includes the DSL modem, provides for
a simple installation. Once a phone line has been DSL activated in the home, the
residential gateway is shipped to the customer. It does not require installation
of any special cards in the computer or require a site visit by a computer
technician. To activate the DSL service, the customer simply plugs a phone line
into the modem, plugs the modem into the back of the computer and then follows
the automated instructions on the computer screen.
The simplicity behind Telocity's next-generation broadband services is
embodied in its intelligent device called the Telocity residential gateway. The
device combines a DSL modem, an analog modem and a microprocessor unit that
automates installation, customer support and service upgrades. The residential
gateway is a small standalone unit that operates independent of the user's
computer's operating system and does not require a network interface card to be
installed in the computer. As a result, the always-on Internet connection of the
DSL service remains in operation even if the computer crashes or shuts down. The
gateway and Telocity's integrated back office system combine to fully automate
installing, configuring, and upgrading service, including service level upgrades
and the addition of new features and services.
Key benefits of the residential gateway design include:
o Automated broadband residential gateway
o Advanced application and service offerings through automated software
downloading
o Interoperability with industry standard DSLAMs for ADSL, SDSL and G.Lite
o Intelligence to download the necessary software to support future advanced
applications
o Flexible PC connectivity with universal Parallel, Ethernet and USB ports
o Speeds scale from 320 Kbps to 1.1 Mbps for SDSL, and up to 8 Mbps for ADSL
The Company expects to extend services throughout the home with the following
features:
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o Home networking through the existing telephone wire
o Wireless home connectivity
o Automation through X10 integration
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EXHIBIT C
[*]
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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EXHIBIT D
TELOCITY COMPETITORS
[*]
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
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EXHIBIT E
[INTENTIONALLY LEFT BLANK]
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EXHIBIT F
TEAMS
The parties shall mutually agree in writing on the contents of this Exhibit F
within thirty (30) days of the Effective Date of the Agreement.
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EXHIBIT G
FORM OF WARRANTS
40
<PAGE> 41
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT.
No.____________
WARRANT TO PURCHASE PREFERRED STOCK
of
TELOCITY, INC.
(void after December 13, 2004)
1. Number of Shares Subject to Warrant. FOR VALUE RECEIVED, on and after
the Commencement Date (as defined below), and subject to the terms and
conditions herein set forth, the Holder (as defined below) is entitled to
purchase from Telocity, Inc., a California corporation (the "Company"), at any
time before 5:00 p.m. California time on December 13, 2004 ("Termination Date"),
at a price per share equal to the Warrant Price (as defined below), the Warrant
Stock (as defined below and subject to adjustments as described below) upon
exercise of this Warrant pursuant to Section 6 hereof.
2. Definitions. As used in this Warrant, the following terms shall have
the definitions ascribed to them below:
a. "Commencement Date" shall mean December 13, 1999.
b. "Holder" shall mean NBC Internet, Inc.
c. "Securities" shall mean fully paid and non-assessable shares
of Series C Preferred Stock of the Company, or after an initial public offering
in which all outstanding shares of Preferred Stock convert into Common Stock,
Common Stock of the Company.
d. "Warrant Price" shall be equal to $5.24 per share.
e. "Warrant Stock" shall mean the Securities purchasable upon
exercise of this Warrant or issuable upon conversion of this Warrant. The total
number of shares to be issued upon exercise of the Warrant, subject to
adjustment as described in Section 3 below, shall equal 1,039,122 shares.
2. Adjustments and Notices. The Warrant Price shall be subject to
adjustment from time to time in accordance with the following provisions:
<PAGE> 42
a. Subdivision, Stock Dividends or Combinations. In case the
Company shall at any time subdivide the outstanding shares of the Securities or
shall issue a stock dividend with respect to the Securities, the Warrant Price
in effect immediately prior to such subdivision or the issuance of such dividend
shall be proportionately decreased, and in case the Company shall at any time
combine the outstanding shares of the Securities, the Warrant Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision, dividend or
combination, as the case may be.
b. Reclassification, Exchange, Substitution, In-Kind
Distribution. Upon any reclassifications, exchange, substitution, or other event
that results in a change of the number and/or class of the securities issuable
upon exercise or conversion of this Warrant or upon the payment of a dividend in
securities or property other than Securities, the Holder shall be entitled to
receive, upon exercise or conversion of this Warrant, the number and kind of
securities and property that the Holder would have received for the Securities
if this Warrant had been exercised immediately before the record date for such
reclassification, exchange, substitution, or other event or immediately prior to
the record date for such dividend. The Company or its successor shall promptly
issue to the Holder a new Warrant for such new securities or other property. The
new Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 3 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The provisions
of this Section 3(b) shall similarly apply to successive reclassifications,
exchanges, substitutions, or other events and successive dividends.
c. Reorganization, Merger etc. In case of any merger or
consolidation of the Company into or with another corporation, the Company, or
such successor or purchasing corporation, as the case may be, shall, as a
condition to closing any such reorganization, merger or sale, duly execute and
deliver to the Holder hereof a new warrant so that the Holder shall have the
right to receive, at a total purchase price not to exceed that payable upon the
exercise of the unexercised portion of this Warrant, and in lieu of the shares
of the Securities theretofore issuable upon exercise of this Warrant, the kind
and amount of shares of stock, other securities, money and property receivable
upon such reorganization, merger or sale by the Holder of the number of shares
of Securities then purchasable under this Warrant. Such new warrant shall
provide for adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 3. The provisions of this
subparagraph (c) shall similarly apply to successive reorganizations, mergers
and sales.
d. No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Section 3 and in taking all such action as may be necessary or appropriate
to protect the Holder's rights under this Section 3 against impairment. If the
Company takes any action affecting the Securities other than as described above
that adversely affects the Holder's rights under this Warrant, the Warrant Price
shall be adjusted downward by an amount equal to the diminution in value of the
Warrant (including any unrealized gain) as a result of such action.
<PAGE> 43
e. Notice. Upon any adjustment of the Warrant Price and any
increase or decrease in the number of shares of the Securities purchasable upon
the exercise or conversion of this Warrant, then, and in each such case, the
Company, as promptly as practicable thereafter, shall give written notice
thereof to the Holder of this Warrant at the address of such Holder as shown on
the books of the Company which notice shall state the Warrant Price as adjusted
and the increased or decreased number of shares purchasable upon the exercise or
conversion of this Warrant, setting forth in reasonable detail the method of
calculation of each. The Company further agrees to notify the Holder of this
Warrant in writing of a reorganization, merger or sale in accordance with
Section 3(c) hereof at least forty-five (45) days prior to the effective date
thereof. The Company also agrees to notify the Holder of this Warrant in writing
of a proposed public offering at least thirty (30) days prior to the effective
date thereof.
f. Fractional Shares. No fractional shares shall be issuable upon
exercise or conversion of the Warrant and the number of shares to be issued
shall be rounded to the nearest whole share.
3. No Shareholder Rights. This Warrant, by itself, as distinguished from
any shares purchased hereunder, shall not entitle its Holder to any of the
rights of a shareholder of the Company.
4. Reservation of Stock; Taxes.
a. On and after the Commencement Date, the Company will reserve
from its authorized and unissued Securities a sufficient number of shares to
provide for the issuance of Warrant Stock upon the exercise or conversion of
this Warrant and shall reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock upon the
conversion of the Warrant Stock. Issuance of this Warrant shall constitute full
authority to the Company's officers who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for shares of
Warrant Stock issuable upon the exercise or conversion of this Warrant.
b. The Company covenants that all Securities that may be issued
upon the exercise of rights represented by this Warrant will, upon exercise, be
fully paid and nonassessable and free from all taxes, liens and charges in
respect of the issue (other than taxes in respect of any transfer occurring
contemporaneously with such issue). The Company shall pay any and all United
States federal, state and local taxes and other charges that may be payable in
connection with the preparation, issuance and delivery of the certificates
representing Securities issued hereunder.
5. Exercise of Warrant. This Warrant may be exercised in whole or part
by the Holder, at any time after the date hereof prior to the termination of
this Warrant, by the surrender of this Warrant, together with the Notice of
Exercise and Investment Representation Statement in the forms attached hereto as
Attachments 1 and 2, respectively, duly completed and executed at the principal
office of the Company, specifying the portion of the Warrant to be exercised and
accompanied by payment in full of the Warrant Price in cash or by check with
respect to the shares of Warrant Stock being purchased. This Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
date of its surrender for exercise as provided
<PAGE> 44
above, and the person entitled to receive the shares of Warrant Stock issuable
upon such exercise shall be treated for all purposes as Holder of such shares of
record as of the close of business on such date. As promptly as practicable
after such date (but no later than fifteen (15) days after such date), the
Company shall issue and deliver to the person or persons entitled to receive the
same a certificate or certificates for the number of full shares of Warrant
Stock issuable upon such exercise. If the Warrant shall be exercised for less
than the total number of shares of Warrant Stock then issuable upon exercise,
promptly after surrender of the Warrant upon such exercise (but no later than
fifteen (15) days after such surrender), the Company will execute and deliver a
new Warrant, dated the date hereof, evidencing the right of the Holder to the
balance of the Warrant Stock purchasable hereunder upon the same terms and
conditions set forth herein.
6. Conversion.
a. In lieu of exercising this Warrant or any portion hereof, the
Holder hereof shall have the right to convert this Warrant or any portion hereof
into Warrant Stock by executing and delivering to the Company at its principal
office the written Notice of Conversion and Investment Representation Statement
in the forms attached hereto as Attachments 2 and 3, specifying the portion of
the Warrant to be converted, and accompanied by this Warrant. The number of
shares of Warrant Stock to be issued to the Holder upon such conversion shall be
computed using the following formula:
X = (P)(Y)(A-B)/A
where X = the number of shares of Securities to be issued to
the Holder for the portion of the Warrant being
converted.
P = the portion of the Warrant being converted
expressed as a decimal fraction.
Y = the total number of shares of Securities issuable
upon exercise of the Warrant in full.
A = the Fair Market Value of one share of Warrant
Stock.
B = the Warrant Price on the date of conversion.
b. For purposes of this Section 6, "Fair Market Value" shall
mean:
(i) the closing price of shares of the Company's common
stock quoted on the Nasdaq National Market or the closing price
quoted on any exchange on which such shares are listed, whichever
is applicable, on the trading day immediately preceding the date
of delivery of the notices pursuant to this Section 3 (it being
understood that the original Warrant may be surrendered on the
subsequent day if such original Warrant is provided to an
overnight courier service (eg, Federal Express) on the date of
delivery of such notices), or
(ii) if the Company's common stock is not listed on the
Nasdaq National Market or on an exchange, the fair market value
of one share of common
<PAGE> 45
stock as determined in good faith by the Company's Board of
Directors.; provided, however, that if the Holder shall dispute
the market price as determined by the Board, the Holder and the
Company may retain an independent expert mutually agreed upon in
good faith by the Holder and the Board (an "Independent Expert").
The determination of market price by the Independent Expert shall
be final, binding and conclusive on the Company and the Holder.
All costs and expenses of the Independent Expert shall be borne
by the Holder unless the determination of fair market value is
more favorable to such Holder by 5% or more, in which case, all
such costs and expenses shall be borne by the Company.
c. Any portion of this Warrant that is converted shall be
immediately canceled. This Warrant or any portion hereof shall be deemed to have
been converted immediately prior to the close of business on the date of its
surrender for conversion as provided above, and the person entitled to receive
the shares of Warrant Stock issuable upon such conversion shall be treated for
all purposes as the Holder of such shares of record as of the close of business
on such date. As promptly as practicable after such date (but no later than
fifteen (15) days after such date), the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of full shares of Warrant Stock issuable upon such conversion. If the
Warrant shall be converted for less than the total number of shares of Warrant
Stock then issuable upon conversion, promptly after surrender of the Warrant
upon such conversion (but no later than fifteen (15) days after such surrender),
the Company will execute and deliver a new Warrant, dated the date hereof,
evidencing the right of the Holder to the balance of the Warrant Stock
purchasable hereunder upon the same terms and conditions set forth herein.
Notwithstanding anything to the contrary contained herein, the Holder may elect
to receive a net issuance of Securities pursuant to this Section 6 when
converting this Warrant in part.
7. Transfer of Warrant. This Warrant may be transferred or assigned by
the Holder hereof in whole or in part to an affiliate of the Holder if (i) the
transferee agrees in writing to be subject to the terms of this Warrant; and
(ii) the transferee delivers written notice of such transfer to the Company.
Upon any partial transfer, the Company will at its expense issue and deliver to
the Holder a new Warrant of like tenor, in the name of the Holder, which shall
be exercisable for such number of Securities that were not so transferred.
8. Representations and Warranties. The Company hereby makes all the
representations and warranties set forth in Section 3 of the Series C Preferred
Stock Purchase Agreement dated as of the date hereof among the Company, the
Holder and certain other investors (the "Series C Preferred Stock Purchase
Agreement"). The Holder hereby makes all the representations and warranties set
forth in Section 4 of the Series C Preferred Stock Purchase Agreement.
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor and dated as of such cancellation or
delivery, in lieu of this Warrant.
<PAGE> 46
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday in San
Francisco, California, then such action may be taken or such right may be
exercised on the next succeeding day not a legal holiday in San Francisco,
California.
11. Termination. This Warrant shall terminate on 5:00 p.m. California
time on the Termination Date.
12. Miscellaneous. This Warrant shall be governed by the laws of the
State of California, as such laws are applied to contracts to be entered into
and performed entirely in California. The headings in this Warrant are for
purposes of convenience and reference only, and shall not be deemed to
constitute a part hereof. Neither this Warrant nor any term hereof may be
changed or waived orally, but only by an instrument in writing signed by the
Company and the Holder of this Warrant. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company, the Holder and
their respective successors and assigns. All notices and other communications
from the Company to the Holder of this Warrant shall be delivered personally or
mailed by first class mail, postage prepaid, to the address furnished to the
Company by the Holder in the Series C Preferred Stock Purchase Agreement, or to
such other address as the Holder or any transferee or assignee thereof shall
have furnished to the Company in writing, and if mailed shall be deemed given
three days after deposit in the United States mail.
ISSUED:December 13, 1999
TELOCITY, INC.
By:
-------------------------------------
Patti Hart, President
<PAGE> 47
Attachment 1
NOTICE OF EXERCISE
TO: TELOCITY, INC.
1. The undersigned hereby elects to purchase shares of the Warrant Stock
of Telocity, Inc. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price in full.
2. Please issue a certificate or certificates representing said shares
of Warrant Stock in the name of the undersigned or in such other name as is
specified below:
----------------------------------------
(Name)
----------------------------------------
(Address)
- ------------------------- ----------------------------------------
(Date) (Name of Warrant Holder)
By:
------------------------------------
Title:
----------------------------------
<PAGE> 48
Attachment 2
INVESTMENT REPRESENTATION STATEMENT
Shares of the Securities
(as defined in the attached Warrant) of
TELOCITY, INC.
In connection with the purchase of the above-listed securities, the
undersigned hereby represents to Telocity, Inc. (the "Company") as follows:
(a) The securities to be received upon the exercise of the Warrant (the
"Securities") will be acquired for investment for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and the undersigned has no present intention of selling, granting
participation in or otherwise distributing the same, but subject, nevertheless,
to any requirement of law that the disposition of its property shall at all
times be within its control. By executing this Statement, the undersigned
further represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participations to such
person or to any third person, with respect to any Securities issuable upon
exercise of the Warrant.
(b) The undersigned understands that the Securities issuable upon
exercise of the Warrant at the time of issuance may not be registered under the
Securities Act of 1933, as amended (the "Act"), and applicable state securities
laws, on the ground that the issuance of such securities is exempt pursuant to
Section 4(2) of the Act and state law exemptions relating to offers and sales
not by means of a public offering, and that the Company's reliance on such
exemptions is predicated on the undersigned's representations set forth herein.
(c) Except for a transfer by the undersigned, in the event the
undersigned is a partnership, to a limited or general partner of such
partnership, the undersigned agrees that in no event will it make a disposition
of any Securities acquired upon the exercise of the Warrant unless and until (i)
it shall have notified the Company of the proposed disposition, and (ii) it
shall have furnished the Company with an opinion of counsel reasonably
satisfactory to the Company and Company's counsel to the effect that (A)
appropriate action necessary for compliance with the Act and any applicable
state securities laws has been taken or an exemption from the registration
requirements of the Act and such laws is available, and (B) the proposed
transfer will not violate any of said laws. Notwithstanding the foregoing, no
opinion of counsel shall be required for any transfer to an affiliate (as such
term is defined in Rule 405 of the Act) of the undersigned.
(d) The undersigned acknowledges that an investment in the Company is
highly speculative and represents that it is able to fend for itself in the
transactions contemplated by this Statement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investments, and has the ability to bear the economic risks
(including the risk of a total loss) of its investment. The undersigned
represents that it has had the opportunity to ask questions of the Company
concerning the Company's business and assets and to obtain any additional
information which it considered necessary to verify the
<PAGE> 49
accuracy of or to amplify the Company's disclosures, and has had all questions
which have been asked by it satisfactorily answered by the Company.
(e) The undersigned acknowledges that the Securities issuable upon
exercise of the Warrant must be held indefinitely unless subsequently registered
under the Act or an exemption from such registration is available. The
undersigned is aware of the provisions of Rule 144 promulgated under the Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain current
public information about the Company, the resale occurring not less than one
year after a party has purchased and paid for the security to be sold, the sale
being through a "broker's transaction" or in transactions directly with a
"market makers" (as provided by Rule 144(f)) and the number of shares being sold
during any three-month period not exceeding specified limitations.
Dated:
----------------------
----------------------------------------
(Typed or Printed Name)
By:
-------------------------------------
(Signature)
----------------------------------------
(Title)
<PAGE> 50
Attachment 3
NOTICE OF CONVERSION
TO: TELOCITY, INC.
1. The undersigned hereby elects to acquire shares of the Securities of
Telocity, Inc. pursuant to the terms of the attached Warrant, by conversion of
percent ( %) of the Warrant.
2. Please issue a certificate or certificates representing said shares
of Securities in the name of the undersigned or in such other name as is
specified below:
----------------------------------------
(Name)
----------------------------------------
(Address)
- ------------------------- ----------------------------------------
(Date) (Name of Warrant Holder)
By:
------------------------------------
Title:
----------------------------------
<PAGE> 51
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT.
No.____________
WARRANT TO PURCHASE PREFERRED STOCK
of
TELOCITY, INC.
(void after December 13, 2004)
1. Number of Shares Subject to Warrant. FOR VALUE RECEIVED, on and after
the Commencement Date (as defined below), and subject to the terms and
conditions herein set forth, the Holder (as defined below) is entitled to
purchase from Telocity, Inc., a California corporation (the "Company"), at any
time before 5:00 p.m. California time on December 13, 2004 ("Termination Date"),
at a price per share equal to the Warrant Price (as defined below), the Warrant
Stock (as defined below and subject to adjustments as described below) upon
exercise of this Warrant pursuant to Section 6 hereof.
2. Definitions. As used in this Warrant, the following terms shall have
the definitions ascribed to them below:
a. "Commencement Date" shall mean December 13, 1999.
b. "Holder" shall mean National Broadcasting Company, Inc.
c. "Securities" shall mean fully paid and non-assessable shares
of Series C Preferred Stock of the Company, or after an initial public offering
in which all outstanding shares of Preferred Stock convert into Common Stock,
Common Stock of the Company.
d. "Warrant Price" shall be equal to $5.24 per share.
e. "Warrant Stock" shall mean the Securities purchasable upon
exercise of this Warrant or issuable upon conversion of this Warrant. The total
number of shares to be issued upon exercise of the Warrant, subject to
adjustment as described in Section 3 below, shall equal 850,191 shares.
2. Adjustments and Notices. The Warrant Price shall be subject to
adjustment from time to time in accordance with the following provisions:
<PAGE> 52
a. Subdivision, Stock Dividends or Combinations. In case the
Company shall at any time subdivide the outstanding shares of the Securities or
shall issue a stock dividend with respect to the Securities, the Warrant Price
in effect immediately prior to such subdivision or the issuance of such dividend
shall be proportionately decreased, and in case the Company shall at any time
combine the outstanding shares of the Securities, the Warrant Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision, dividend or
combination, as the case may be.
b. Reclassification, Exchange, Substitution, In-Kind
Distribution. Upon any reclassifications, exchange, substitution, or other event
that results in a change of the number and/or class of the securities issuable
upon exercise or conversion of this Warrant or upon the payment of a dividend in
securities or property other than Securities, the Holder shall be entitled to
receive, upon exercise or conversion of this Warrant, the number and kind of
securities and property that the Holder would have received for the Securities
if this Warrant had been exercised immediately before the record date for such
reclassification, exchange, substitution, or other event or immediately prior to
the record date for such dividend. The Company or its successor shall promptly
issue to the Holder a new Warrant for such new securities or other property. The
new Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 3 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The provisions
of this Section 3(b) shall similarly apply to successive reclassifications,
exchanges, substitutions, or other events and successive dividends.
c. Reorganization, Merger etc. In case of any merger or
consolidation of the Company into or with another corporation, the Company, or
such successor or purchasing corporation, as the case may be, shall, as a
condition to closing any such reorganization, merger or sale, duly execute and
deliver to the Holder hereof a new warrant so that the Holder shall have the
right to receive, at a total purchase price not to exceed that payable upon the
exercise of the unexercised portion of this Warrant, and in lieu of the shares
of the Securities theretofore issuable upon exercise of this Warrant, the kind
and amount of shares of stock, other securities, money and property receivable
upon such reorganization, merger or sale by the Holder of the number of shares
of Securities then purchasable under this Warrant. Such new warrant shall
provide for adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 3. The provisions of this
subparagraph (c) shall similarly apply to successive reorganizations, mergers
and sales.
d. No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Section 3 and in taking all such action as may be necessary or appropriate
to protect the Holder's rights under this Section 3 against impairment. If the
Company takes any action affecting the Securities other than as described above
that adversely affects the Holder's rights under this Warrant, the Warrant Price
shall be adjusted downward by an amount equal to the diminution in value of the
Warrant (including any unrealized gain) as a result of such action.
<PAGE> 53
e. Notice. Upon any adjustment of the Warrant Price and any
increase or decrease in the number of shares of the Securities purchasable upon
the exercise or conversion of this Warrant, then, and in each such case, the
Company, as promptly as practicable thereafter, shall give written notice
thereof to the Holder of this Warrant at the address of such Holder as shown on
the books of the Company which notice shall state the Warrant Price as adjusted
and the increased or decreased number of shares purchasable upon the exercise or
conversion of this Warrant, setting forth in reasonable detail the method of
calculation of each. The Company further agrees to notify the Holder of this
Warrant in writing of a reorganization, merger or sale in accordance with
Section 3(c) hereof at least forty-five (45) days prior to the effective date
thereof. The Company also agrees to notify the Holder of this Warrant in writing
of a proposed public offering at least thirty (30) days prior to the effective
date thereof.
f. Fractional Shares. No fractional shares shall be issuable upon
exercise or conversion of the Warrant and the number of shares to be issued
shall be rounded to the nearest whole share.
3. No Shareholder Rights. This Warrant, by itself, as distinguished from
any shares purchased hereunder, shall not entitle its Holder to any of the
rights of a shareholder of the Company.
4. Reservation of Stock; Taxes.
a. On and after the Commencement Date, the Company will reserve
from its authorized and unissued Securities a sufficient number of shares to
provide for the issuance of Warrant Stock upon the exercise or conversion of
this Warrant and shall reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock upon the
conversion of the Warrant Stock. Issuance of this Warrant shall constitute full
authority to the Company's officers who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for shares of
Warrant Stock issuable upon the exercise or conversion of this Warrant.
b. The Company covenants that all Securities that may be issued
upon the exercise of rights represented by this Warrant will, upon exercise, be
fully paid and nonassessable and free from all taxes, liens and charges in
respect of the issue (other than taxes in respect of any transfer occurring
contemporaneously with such issue). The Company shall pay any and all United
States federal, state and local taxes and other charges that may be payable in
connection with the preparation, issuance and delivery of the certificates
representing Securities issued hereunder.
5. Exercise of Warrant. This Warrant may be exercised in whole or part
by the Holder, at any time after the date hereof prior to the termination of
this Warrant, by the surrender of this Warrant, together with the Notice of
Exercise and Investment Representation Statement in the forms attached hereto as
Attachments 1 and 2, respectively, duly completed and executed at the principal
office of the Company, specifying the portion of the Warrant to be exercised and
accompanied by payment in full of the Warrant Price in cash or by check with
respect to the shares of Warrant Stock being purchased. This Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
date of its surrender for exercise as provided
<PAGE> 54
above, and the person entitled to receive the shares of Warrant Stock issuable
upon such exercise shall be treated for all purposes as Holder of such shares of
record as of the close of business on such date. As promptly as practicable
after such date (but no later than fifteen (15) days after such date), the
Company shall issue and deliver to the person or persons entitled to receive the
same a certificate or certificates for the number of full shares of Warrant
Stock issuable upon such exercise. If the Warrant shall be exercised for less
than the total number of shares of Warrant Stock then issuable upon exercise,
promptly after surrender of the Warrant upon such exercise (but no later than
fifteen (15) days after such surrender), the Company will execute and deliver a
new Warrant, dated the date hereof, evidencing the right of the Holder to the
balance of the Warrant Stock purchasable hereunder upon the same terms and
conditions set forth herein.
6. Conversion.
a. In lieu of exercising this Warrant or any portion hereof, the
Holder hereof shall have the right to convert this Warrant or any portion hereof
into Warrant Stock by executing and delivering to the Company at its principal
office the written Notice of Conversion and Investment Representation Statement
in the forms attached hereto as Attachments 2 and 3, specifying the portion of
the Warrant to be converted, and accompanied by this Warrant. The number of
shares of Warrant Stock to be issued to the Holder upon such conversion shall be
computed using the following formula:
X = (P)(Y)(A-B)/A
where X = the number of shares of Securities to be issued to
the Holder for the portion of the Warrant being
converted.
P = the portion of the Warrant being converted expressed
as a decimal fraction.
Y = the total number of shares of Securities issuable
upon exercise of the Warrant in full.
A = the Fair Market Value of one share of Warrant Stock.
B = the Warrant Price on the date of conversion.
b. For purposes of this Section 6, "Fair Market Value" shall
mean:
(i) the closing price of shares of the Company's common
stock quoted on the Nasdaq National Market or the closing price
quoted on any exchange on which such shares are listed, whichever
is applicable, on the trading day immediately preceding the date
of delivery of the notices pursuant to this Section 3 (it being
understood that the original Warrant may be surrendered on the
subsequent day if such original Warrant is provided to an
overnight courier service (eg, Federal Express) on the date of
delivery of such notices), or
(ii) if the Company's common stock is not listed on the
Nasdaq National Market or on an exchange, the fair market value
of one share of common
<PAGE> 55
stock as determined in good faith by the Company's Board of
Directors.; provided, however, that if the Holder shall dispute
the market price as determined by the Board, the Holder and the
Company may retain an independent expert mutually agreed upon in
good faith by the Holder and the Board (an "Independent
Expert"). The determination of market price by the Independent
Expert shall be final, binding and conclusive on the Company and
the Holder. All costs and expenses of the Independent Expert
shall be borne by the Holder unless the determination of fair
market value is more favorable to such Holder by 5% or more, in
which case, all such costs and expenses shall be borne by the
Company.
c. Any portion of this Warrant that is converted shall be
immediately canceled. This Warrant or any portion hereof shall be deemed to have
been converted immediately prior to the close of business on the date of its
surrender for conversion as provided above, and the person entitled to receive
the shares of Warrant Stock issuable upon such conversion shall be treated for
all purposes as the Holder of such shares of record as of the close of business
on such date. As promptly as practicable after such date (but no later than
fifteen (15) days after such date), the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of full shares of Warrant Stock issuable upon such conversion. If the
Warrant shall be converted for less than the total number of shares of Warrant
Stock then issuable upon conversion, promptly after surrender of the Warrant
upon such conversion (but no later than fifteen (15) days after such surrender),
the Company will execute and deliver a new Warrant, dated the date hereof,
evidencing the right of the Holder to the balance of the Warrant Stock
purchasable hereunder upon the same terms and conditions set forth herein.
Notwithstanding anything to the contrary contained herein, the Holder may elect
to receive a net issuance of Securities pursuant to this Section 6 when
converting this Warrant in part.
7. Transfer of Warrant. This Warrant may be transferred or assigned by
the Holder hereof in whole or in part to an affiliate of the Holder if (i) the
transferee agrees in writing to be subject to the terms of this Warrant; and
(ii) the transferee delivers written notice of such transfer to the Company.
Upon any partial transfer, the Company will at its expense issue and deliver to
the Holder a new Warrant of like tenor, in the name of the Holder, which shall
be exercisable for such number of Securities that were not so transferred.
8. Representations and Warranties. The Company hereby makes all the
representations and warranties set forth in Section 3 of the Series C Preferred
Stock Purchase Agreement dated as of the date hereof among the Company, the
Holder and certain other investors (the "Series C Preferred Stock Purchase
Agreement"). The Holder hereby makes all the representations and warranties set
forth in Section 4 of the Series C Preferred Stock Purchase Agreement.
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor and dated as of such cancellation or
delivery, in lieu of this Warrant.
<PAGE> 56
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday in San
Francisco, California, then such action may be taken or such right may be
exercised on the next succeeding day not a legal holiday in San Francisco,
California.
11. Termination. This Warrant shall terminate on 5:00 p.m. California
time on the Termination Date.
12. Miscellaneous. This Warrant shall be governed by the laws of the
State of California, as such laws are applied to contracts to be entered into
and performed entirely in California. The headings in this Warrant are for
purposes of convenience and reference only, and shall not be deemed to
constitute a part hereof. Neither this Warrant nor any term hereof may be
changed or waived orally, but only by an instrument in writing signed by the
Company and the Holder of this Warrant. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company, the Holder and
their respective successors and assigns. All notices and other communications
from the Company to the Holder of this Warrant shall be delivered personally or
mailed by first class mail, postage prepaid, to the address furnished to the
Company by the Holder in the Series C Preferred Stock Purchase Agreement, or to
such other address as the Holder or any transferee or assignee thereof shall
have furnished to the Company in writing, and if mailed shall be deemed given
three days after deposit in the United States mail.
ISSUED:December 13, 1999
TELOCITY, INC.
By:
-------------------------------
Patti Hart, President
<PAGE> 57
Attachment 1
NOTICE OF EXERCISE
TO: TELOCITY, INC.
1. The undersigned hereby elects to purchase _________ shares of the
Warrant Stock of Telocity, Inc. pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price in full.
2. Please issue a certificate or certificates representing said shares
of Warrant Stock in the name of the undersigned or in such other name as is
specified below:
----------------------------------------
(Name)
----------------------------------------
(Address)
- ------------------------------- -------------------------------
(Date) (Name of Warrant Holder)
By:
----------------------------
Title:
-------------------------
<PAGE> 58
Attachment 2
INVESTMENT REPRESENTATION STATEMENT
Shares of the Securities
(as defined in the attached Warrant) of
TELOCITY, INC.
In connection with the purchase of the above-listed securities, the
undersigned hereby represents to Telocity, Inc. (the "Company") as follows:
(a) The securities to be received upon the exercise of the Warrant (the
"Securities") will be acquired for investment for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and the undersigned has no present intention of selling, granting
participation in or otherwise distributing the same, but subject, nevertheless,
to any requirement of law that the disposition of its property shall at all
times be within its control. By executing this Statement, the undersigned
further represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participations to such
person or to any third person, with respect to any Securities issuable upon
exercise of the Warrant.
(b) The undersigned understands that the Securities issuable upon
exercise of the Warrant at the time of issuance may not be registered under the
Securities Act of 1933, as amended (the "Act"), and applicable state securities
laws, on the ground that the issuance of such securities is exempt pursuant to
Section 4(2) of the Act and state law exemptions relating to offers and sales
not by means of a public offering, and that the Company's reliance on such
exemptions is predicated on the undersigned's representations set forth herein.
(c) Except for a transfer by the undersigned, in the event the
undersigned is a partnership, to a limited or general partner of such
partnership, the undersigned agrees that in no event will it make a disposition
of any Securities acquired upon the exercise of the Warrant unless and until (i)
it shall have notified the Company of the proposed disposition, and (ii) it
shall have furnished the Company with an opinion of counsel reasonably
satisfactory to the Company and Company's counsel to the effect that (A)
appropriate action necessary for compliance with the Act and any applicable
state securities laws has been taken or an exemption from the registration
requirements of the Act and such laws is available, and (B) the proposed
transfer will not violate any of said laws. Notwithstanding the foregoing, no
opinion of counsel shall be required for any transfer to an affiliate (as such
term is defined in Rule 405 of the Act) of the undersigned.
(d) The undersigned acknowledges that an investment in the Company is
highly speculative and represents that it is able to fend for itself in the
transactions contemplated by this Statement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investments, and has the ability to bear the economic risks
(including the risk of a total loss) of its investment. The undersigned
represents that it has had the opportunity to ask questions of the Company
concerning the Company's business and assets and to obtain any additional
information which it considered necessary to verify the
<PAGE> 59
accuracy of or to amplify the Company's disclosures, and has had all questions
which have been asked by it satisfactorily answered by the Company.
(e) The undersigned acknowledges that the Securities issuable upon
exercise of the Warrant must be held indefinitely unless subsequently registered
under the Act or an exemption from such registration is available. The
undersigned is aware of the provisions of Rule 144 promulgated under the Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain current
public information about the Company, the resale occurring not less than one
year after a party has purchased and paid for the security to be sold, the sale
being through a "broker's transaction" or in transactions directly with a
"market makers" (as provided by Rule 144(f)) and the number of shares being sold
during any three-month period not exceeding specified limitations.
Dated:
-------------------------------
-------------------------------
(Typed or Printed Name)
By:
----------------------------
(Signature)
-------------------------------
(Title)
<PAGE> 60
Attachment 3
NOTICE OF CONVERSION
TO: TELOCITY, INC.
1. The undersigned hereby elects to acquire _________ shares of the
Securities of Telocity, Inc. pursuant to the terms of the attached Warrant, by
conversion of ____ percent (__%) of the Warrant.
2. Please issue a certificate or certificates representing said shares
of Securities in the name of the undersigned or in such other name as is
specified below:
------------------------------------
(Name)
------------------------------------
(Address)
Dated:
-------------------------------
-------------------------------
(Typed or Printed Name)
By:
---------------------------
(Signature)
-------------------------------
(Title)
<PAGE> 1
EXHIBIT 10.29
December 13, 1999
Ms. Patti Manuel-Hart
President and Chief Executive Officer
Telocity, Inc.
10355 North De Anza Boulevard
San Jose, CA 94014
Purchase of NBC TV Advertising Inventory
Dear Ms. Hart:
This letter sets forth the agreement between the National Broadcasting
Company, Inc. ("NBC"), and Telocity, Inc. ("Advertiser") with respect to NBC's
agreement to provide Advertiser with the right to use certain advertising
inventory on NBC Television Network and its owned and operated television
stations (collectively, "NBC TV") to promote Advertiser only, subject to the
following terms and conditions:
1. Spots. (a) NBC shall provide Advertiser with the use of fifteen (15) and
thirty (30) second advertising spots (the "Spots") to be telecast on NBC TV on
the Dates, Days and Times mutually agreed by NBC and Advertiser; provided,
however, that in the event that no such agreement is reached with regard to the
number or value of Spots to be broadcast in any calendar quarter or year, NBC
may propose and implement a reasonable schedule for the broadcast of Spots in
accordance with the terms of Section 2(a) below and based upon Advertiser's
reasonable request for such schedule. An initial schedule for the first quarter
of 2000 shall be determined as soon as practicable following the date hereof.
All such Spots run by Advertiser shall be subject to NBC TV's standard terms and
conditions for such advertising which are described in the "Participating
Sponsorship Agreement" attached hereto as Exhibit A (the "Standard Terms") and
which are made a part of this Letter Agreement in their entirety; provided,
however, that in the case of a conflict between the terms of this Letter
Agreement and the terms of the Standard Terms, the terms of this Letter
Agreement shall govern. For purposes of the Standard Terms, Advertiser shall be
both the "Advertiser" and the "Agency" as such terms are used therein.
(b) The Spots shall promote Advertiser and its high-speed Internet
services only and may not advertise, promote or mention any other product,
service, television program, web site
<PAGE> 2
2
or third party whatsoever (other than NBC Internet, Inc. and its products,
services and websites) without the prior written consent of NBC. In addition,
with respect to the placement or telecast of Advertiser's Spots in any
particular Program, NBC may reject such placement or telecast if such placement
or telecast would compete with or violate the rights of any other advertiser,
sponsor or supplier of such Program or program category, as determined by NBC in
its sole discretion and in good faith; it being understood that NBC's aggregate
commitments set forth in Section 2 below shall not be affected by any such
rejection.
(c) On or before two weeks prior to the Advertiser's first scheduled
Spot, Advertiser shall deliver to NBC commercial material for the first of
Advertiser's Spots. Advertiser acknowledges that if it fails to deliver such
commercial material by such date, or such commercial material is rejected in
accordance with this Section 1, then NBC TV shall be deemed to have telecast
Advertiser's Spots for purposes hereof even if Advertiser's Spot is not actually
shown when the Program is telecast. If, after such date, Advertiser delivers any
new commercial material to NBC in compliance with this Section 1 and Advertiser
instructs NBC to use such new commercial material in lieu of the commercial
material previously delivered to NBC, then NBC will use reasonable commercial
efforts to telecast such new commercial material in the Spots as soon as
practicable after receipt of such commercial material but not later than 72
hours after receipt.
2. Value of Spots. NBC shall telecast Spots with a total spot value of
$15,000,000 (the "Total Spot Value") during the thirty-six (36) months
commencing on January 1, 2000 (the "Effective Date"). The value of each Spot for
purpose of this Agreement shall [*]. The parties agree that no agency fees or
other expenses may be deducted by Advertiser in any way in connection with
determining the number of Shares (as defined below) to be paid to NBC pursuant
to Section 3 hereof at any time.
3. Payment for the Spots. (a) Advertiser shall deliver to NBC 2,862,595 shares
of Series C Preferred Stock of Advertiser pursuant to the terms and conditions
of that certain Series C Preferred Stock Purchase Agreement dated as of the date
hereof between Advertiser and certain investors (the "Purchase Agreement").
(b) NBC shall provide Advertiser with a written report within 10
business days after the end of each calendar month after the Effective Date
during which Advertiser's Spots have been telecast and setting forth the
aggregate value of Advertiser's Spots telecast by NBC in the preceding month.
4. Representations and Warranties. NBC and Advertiser each represent and warrant
that this Letter Agreement has been duly authorized, executed and delivered by
such party and that this Letter Agreement constitutes the legal, valid and
binding obligations of such party, enforceable
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 3
3
against it in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency or similar laws affecting creditors' rights generally
or by general principles of equity.
5. Termination. (a) Notwithstanding any other remedy available to NBC,
in the event that:
(i) NBC notifies Advertiser in writing (with
specificity) that Advertiser has materially breached this Letter
Agreement and Advertiser has not cured such alleged breach within
thirty (30) days of its receipt of such notice; or
(ii) upon the occurrence of a Change of Control (as
hereinafter defined); or
(iii) Advertiser admits in writing its inability to pay its
debts generally; makes a general assignment for the benefit of
creditors; has any proceeding instituted by or against it seeking to
adjudicate it as bankrupt or insolvent, or seeking liquidation, winding
up, reorganization, arrangement, adjustment, protection, relief, or
composition of Advertiser or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a
receiver, trustee, or similar official for it or any substantial part
of its property; provided, in the case where such proceeding is
involuntarily instituted against Advertiser, such proceeding remains
undismissed after thirty (30) days,
then, in any such case, NBC shall have the right, but not the obligation, to
terminate this Letter Agreement, without prejudice to the rights of the parties
hereunder and, in the event of a termination after NBC's receipt of the Shares
pursuant to Section 3(a) hereof, NBC shall pay Advertiser a cash amount equal to
the difference, if positive, between the Total Spot Value and the value of the
Spots already telecast (or deemed telecast), as determined and calculated
pursuant to Sections 1 and 2 above. Notwithstanding the foregoing, the terms
contained in Sections 5, 6, 7 and 8 shall survive the termination hereof. Any
such termination right in connection with a Change of Control shall be
exercisable no later than the later to occur of (x) ten (10) business days prior
to the consummation of such Change of Control and (y) ten (10) business days
after receipt by NBC of notice (which notice shall identify the third party
having or acquiring Control over Advertiser, be in writing, explicitly state
that it is being delivered in accordance with this Section 5 and provide NBC
with such additional information as has been provided to the other stockholders
of Advertiser) from Advertiser of such Change of Control (which termination
shall become effective, at NBC's discretion, upon the consummation of such
Change of Control or following receipt of such notice from Advertiser). For
purposes of this Section 5, the following terms shall have the following
meanings:
"Change of Control" shall mean (A) any consolidation,
reorganization or merger of Advertiser with any third party, other than
a transaction resulting in the holders of the capital stock of
Advertiser (prior to such consolidation, reorganization or merger)
having Control over the surviving or resulting entity, (B) any third
party (other than NBC)
<PAGE> 4
4
having Control over Advertiser or (C) any sale, transfer or other
disposition by Advertiser of all or substantially all
of its assets to any third party (other than NBC); and
"Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of Advertiser, whether through ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise.
(b) Notwithstanding any other remedy available to Advertiser, in the
event that:
(i) Advertiser notifies NBC in writing (with specificity) that NBC has
materially breached this Letter Agreement and NBC has not cured such alleged
breach within thirty (30) days of its receipt of such notice; or
(ii) NBC admits in writing its inability to pay its debts generally; makes a
general assignment for the benefit of creditors; has any proceeding instituted
by or against it seeking to adjudicate it as bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of NBC or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, or similar official
for it or any substantial part of its property; provided, in the case where such
proceeding is involuntarily instituted against NBC, such proceeding remains
undismissed after thirty (30) days,
then, in any such case, Advertiser shall have the right, but not the obligation,
to terminate this Letter Agreement, without prejudice to the rights of the
parties hereunder and, in the event of a termination after NBC's receipt of the
Shares pursuant to Section 3(a) hereof, require NBC to pay Advertiser a cash
amount equal to the difference, if positive, between the Total Spot Value and
the value of the Spots already telecast (or deemed telecast), as determined and
calculated pursuant to Sections 1 and 2 above. Notwithstanding the foregoing,
the terms contained in Sections 5, 6, 7 and 8 shall survive the termination
hereof.
6. Miscellaneous. This Letter Agreement, the Purchase Agreement and the exhibits
and schedules hereto and thereto constitute the entire agreement and
understanding of the parties relating to the subject matter hereof and supersede
all prior and contemporaneous agreements, negotiations, and understandings
between the parties, both oral and written relating thereto. No waiver or
modification of any provision of this Letter Agreement shall be effective unless
in writing and signed by both parties. The terms of this Letter Agreement shall
apply to parties hereto and any of their successors or assigns; provided,
however, that this Letter Agreement may not be transferred or assigned by
Advertiser, including, without limitation, the right to receive Spots to be
telecast by NBC TV, without the prior written consent of NBC. This Letter
Agreement may be executed in counterparts, each of which when executed shall be
deemed to be
<PAGE> 5
5
an original but all of which taken together shall constitute one and the same
agreement.
7. Governing Law and Jurisdiction. This Letter Agreement shall be governed by
and construed under the laws of the State of New York applicable to contracts
fully performed in New York, without regard to New York conflicts law. The
parties hereto irrevocably consent to and submit to the exclusive jurisdiction
of the federal and state courts located in the County of
<PAGE> 6
6
New York. The parties hereto irrevocably waive any and all rights to trial by
jury in any proceeding arising out of or relating to this Agreement.
8. Liability for Failure to Broadcast Spots. In the event that NBC does not
telecast Spots equal to the Total Spot Value during the thirty-six (36) months
after the Effective Date, then as liquidated damages and not a penalty, NBC
shall pay Advertiser in cash an amount equal to the difference, if positive,
between the Total Spot Value and the value of the Spots actually telecast, as
calculated pursuant to Section 2 above. Except for damages arising out of the
gross negligence of willful misconduct of either party hereto, no party shall be
liable to the other party or its affiliates, officers, directors, successors or
assigns for any incidental, consequential, special or punitive damages or lost
profits arising out of this Letter Agreement, whether liability is asserted in
contract or tort and irrespective of whether it has advised or been advised of
the possibility of any such loss or damage.
If you are in agreement with the above terms and conditions, please
indicate your acceptance by signing in the space provided below, and return one
original to me. This Letter Agreement shall be null and void if not signed
within two (2) days of the date set forth above.
Very truly yours,
NATIONAL BROADCASTING COMPANY, INC.
By: /s/ AUTHORIZED SIGNATORY
-------------------------------
Name:
Title:
ACCEPTED AND AGREED:
TELOCITY, INC.
By: /s/ AUTHORIZED SIGNATORY
------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.30
December 13, 1999
Patti Hart
President & Chief Executive Officer
Telocity, Inc.
10355 North De Anza Boulevard
San Jose, CA 94014
Advertising Agreement
Dear Ms. Hart:
This letter sets forth the agreement between NBC Internet, Inc. ("NBCi")
and Telocity, Inc. ("Advertiser") with respect to NBCi's agreement to provide
Advertiser with the right to use certain of NBCi's advertising inventory on NBC
Television Network and its owned and operated television stations (collectively,
"NBC TV") to promote Advertiser only, subject to the following terms and
conditions:
1. Spots. (a) NBCi shall develop and produce fifteen (15) and thirty (30)
second advertising spots to promote the next generation Internet services
available on the Co-Branded site accessible through Advertiser's high-speed
Internet services (the "Spots"). Advertiser shall [*]. Use of each Spot will be
subject to Advertiser's approval, not to be withheld or delayed unreasonably.
NBCi will instruct NBC TV to telecast the Spots on NBC TV on the Dates, Days and
Times mutually agreed by NBCi and Advertiser (subject to NBCi's available
inventory and prior sales commitments); provided, however, that in the event
that no such agreement is reached with regard to the number or value of Spots to
be broadcast in any calendar quarter or year, NBCi may propose and implement a
reasonable schedule for the broadcast of Spots in accordance with the terms of
Section 2 below and based upon Advertiser's reasonable request for such
schedule. An initial schedule for the first quarter of 2000 shall be determined
as soon as practicable following the date hereof. All spots run by Advertiser
pursuant to this Letter Agreement shall be subject to NBC TV's standard terms
and conditions for such advertising which are described in the "Participating
Sponsorship Agreement" attached hereto as Exhibit A (the "Standard Terms") and
which are made a part of this Letter Agreement in their entirety; provided,
however, that in the case of a conflict
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 2
between the terms of this Letter Agreement and the terms of the Standard Terms,
the terms of this Letter Agreement shall govern. For purposes of the Standard
Terms, Advertiser shall be both the "Advertiser" and the "Agency" as such terms
are used therein.
(b) With respect to the placement or telecast of Advertiser's Spots in
any particular Program, Advertiser acknowledges that NBC TV may reject such
placement or telecast if such placement or telecast would compete with or
violate the rights of any other advertiser, sponsor or supplier of such Program
or program category, as determined by NBC TV in its sole discretion and in good
faith; it being understood that NBCi's aggregate commitments set forth in
Section 2 below shall not be affected by any such rejection.
(c) Advertiser may elect to substitute up to [*] of the value of Spots
to be provided by NBCi in any given financial quarter with an equivalent value
of on-line advertising at [*] of the applicable NBCi standard rate card, subject
to the restrictions set forth in Section 7.5 ("Online Promotions") of the
Operating Agreement among NBCi, NBC TV, and Advertiser dated December 13th, 1999
(the "Operating Agreement"), provided that Advertiser gives NBCi three-months
prior written notice.
2. Value of Spots. NBCi shall telecast Spots with a total spot value of
$13,000,000 (the "Total Spot Value") during the thirty-six (36) months
commencing on January 1, 2000 (the "Effective Date"). The value of each Spot for
purpose of this Letter Agreement shall [*]. The parties agree that no agency
fees or other expenses may be deducted by Advertiser in any way in connection
with determining the number of Shares (as defined below) to be paid to NBCi
pursuant to Section 3 hereof at any time.
3. Payment for the Spots. (a) Advertiser shall deliver to NBCi 2,480,916
shares of Series C Preferred Stock of Advertiser pursuant to the terms and
conditions of that certain Series C Preferred Stock Purchase Agreement dated as
of the date hereof between Advertiser and certain investors (the "Purchase
Agreement").
(b) NBCi shall provide Advertiser with a written report within 10
business days after the end of each calendar month after the Effective Date
during which Advertiser's Spots have been telecast and setting forth the
aggregate value of Advertiser's Spots telecast by NBCi in the preceding month.
4. Representations and Warranties. NBCi and Advertiser each represent and
warrant that this Letter Agreement has been duly authorized, executed and
delivered by such party and that this Letter Agreement constitutes the legal,
valid and binding obligations of such party, enforceable against it in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
by general
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 3
principles of equity.
5. Termination. (a) Notwithstanding any other remedy available to NBCi, in
the event that:
(i) NBCi notifies Advertiser in writing (with specificity) that
Advertiser has materially breached this Letter Agreement and Advertiser
has not cured such alleged breach within thirty (30) days of its receipt
of such notice; or
(ii) upon the occurrence of a Change of Control (as hereinafter
defined); or
(iii) Advertiser admits in writing its inability to pay its debts
generally; makes a general assignment for the benefit of creditors; has
any proceeding instituted by or against it seeking to adjudicate it as
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of Advertiser
or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, or similar official for
it or any substantial part of its property; provided, in the case where
such proceeding is involuntarily instituted against Advertiser, such
proceeding remains undismissed after thirty (30) days,
then, in any such case, NBCi shall have the right, but not the obligation, to
terminate this Letter Agreement, without prejudice to the rights of the parties
hereunder and, in the event of a termination after NBCi's receipt of the Shares
pursuant to Section 3(a) hereof, NBCi shall pay Advertiser a cash amount equal
to the difference, if positive, between the Total Spot Value and the value of
the Spots already telecast (or deemed telecast), as determined and calculated
pursuant to Sections 1 and 2 above. Notwithstanding the foregoing, the terms
contained in Sections 5, 6, 7 and 8 shall survive the termination hereof. Any
such termination right in connection with a Change of Control shall be
exercisable no later than the later to occur of (x) ten (10) business days prior
to the consummation of such Change of Control and (y) ten (10) business days
after receipt by NBCi of notice (which notice shall identify the third party
having or acquiring Control over Advertiser, be in writing, explicitly state
that it is being delivered in accordance with this Section 5 and provide NBCi
with such additional information as has been provided to the other stockholders
of Advertiser) from Advertiser of such Change of Control (which termination
shall become effective, at NBCi's discretion, upon the consummation of such
Change of Control or following receipt of such notice from Advertiser). For
purposes of this Section 5, the following terms shall have the following
meanings:
"Change of Control" shall mean (A) any consolidation, reorganization
or merger of Advertiser with any third party, other than a transaction
resulting in the holders of the capital stock of Advertiser (prior to such
consolidation, reorganization or merger) having Control over the surviving
or resulting entity, (B) any third party having Control over Advertiser or
(C) any sale, transfer or other disposition by Advertiser of all or
<PAGE> 4
substantially all of its assets to any third party; and
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of
Advertiser, whether through ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise.
(b) Notwithstanding any other remedy available to Advertiser, in the
event that:
(i) Advertiser notifies NBCi in writing (with specificity) that
NBCi has materially breached this Letter Agreement and NBCi has not cured
such alleged breach within thirty (30) days of its receipt of such notice;
or
(ii) NBCi admits in writing its inability to pay its debts
generally; makes a general assignment for the benefit of creditors; has
any proceeding instituted by or against it seeking to adjudicate it as
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of NBCi or its
debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or similar official for it or any
substantial part of its property; provided, in the case where such
proceeding is involuntarily instituted against NBCi, such proceeding
remains undismissed after thirty (30) days,
then, in any such case, Advertiser shall have the right, but not the obligation,
to terminate this Letter Agreement, without prejudice to the rights of the
parties hereunder and, in the event of a termination after NBCi's receipt of the
Shares pursuant to Section 3(a) hereof, require NBCi to pay Advertiser a cash
amount equal to the difference, if positive, between the Total Spot Value and
the value of the Spots already telecast (or deemed telecast), as determined and
calculated pursuant to Sections 1 and 2 above. Notwithstanding the foregoing,
the terms contained in Sections 5, 6, 7 and 8 shall survive the termination
hereof.
(c) In the event that the Operating Agreement is terminated pursuant to Section
12 ("Term; Termination") thereof, NBCi in its sole discretion may (i) terminate
its obligations under this Letter Agreement and provide Advertiser with cash in
lieu of the unused portion of the advertising; or (ii) telecast spots which
promote solely Advertiser and its high-speed Internet services only
("Advertiser-Branded Spot") in lieu of the unused portion of the advertising,
provided that such Advertiser-Branded Spots shall be valued at [*] of the
scatter market rate of a similar spot charged by NBC TV at the time that each
Advertiser-Branded Spot is scheduled by NBCi. In the event that NBCi terminates
the promotional exclusivity set forth in Section 4.12 ("Promotional
Exclusivity") of the Operating Agreement, NBCi will telecast Advertiser-Branded
Spots in lieu of the unused portion of the advertising, provided that such
Advertiser-Branded
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 5
Spots shall be valued at [*] of the scatter market rate of a similar spot
charged by NBC TV at the time that each Advertiser-Branded Spot is scheduled by
NBCi. Advertiser shall bear the total cost of the production of all
Advertiser-Branded Spots. Advertiser agrees that it will comply with NBCi's
then-current policies regarding the timely delivery of commercial materials
related to the Advertiser-Branded Spots.
6. Miscellaneous. This Letter Agreement, the Purchase Agreement, the
Operating Agreement, and the exhibits and schedules hereto and thereto
constitute the entire agreement and understanding of the parties relating to the
subject matter hereof and supersede all prior and contemporaneous agreements,
negotiations, and understandings between the parties, both oral and written
relating thereto. No waiver or modification of any provision of this Letter
Agreement shall be effective unless in writing and signed by both parties. The
terms of this Letter Agreement shall apply to parties hereto and any of their
successors or assigns; provided, however, that this Letter Agreement may not be
transferred or assigned by Advertiser, including, without limitation, the right
to receive Spots to be telecast by NBC TV, without the prior written consent of
NBCi which shall not be unreasonably withheld. This Letter Agreement may be
executed in counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
7. Governing Law and Jurisdiction. This Letter Agreement shall be governed by
and construed under the laws of the State of New York applicable to contracts
fully performed in New York, without regard to New York conflicts law. The
parties hereto irrevocably consent to and submit to the exclusive jurisdiction
of the federal and state courts located in the County of New York. The parties
hereto irrevocably waive any and all rights to trial by jury in any proceeding
arising out of or relating to this Agreement.
8. Liability. In the event that NBC TV does not telecast Spots equal to the
Total Spot Value during the thirty-six (36) months after the Effective Date,
then as liquidated damages and not a penalty, NBCi shall pay Advertiser in cash
an amount equal to the difference, if positive, between the Total Spot Value and
the value of the Spots actually telecast, as calculated pursuant to Section 2
above. Except for damages arising out of the gross negligence of willful
misconduct of either party hereto, no party shall be liable to the other party
or its affiliates, officers, directors, successors or assigns for any
incidental, consequential, special or punitive damages or lost profits arising
out of this Letter Agreement, whether liability is asserted in contract or tort
and irrespective of whether it has advised or been advised of the possibility of
any such loss or damage.
If you are in agreement with the above terms and conditions, please
indicate your acceptance by signing in the space provided below, and return one
original to me. This Letter Agreement shall be null and void if not signed
within two (2) days of the date set forth above.
[*] The Registrant has requested confidential treatment for certain portions of
this exhibit. The omitted portions have been separately filed with the
Commission.
<PAGE> 6
Very truly yours,
NBC INTERNET, INC.
By: /s/ AUTHORIZED SIGNATORY
-------------------------
Name:
Title:
ACCEPTED AND AGREED:
TELOCITY, INC.
By: /s/ AUTHORIZED SIGNATORY
-------------------------
Name:
Title:
[SIGNATURE PAGE TO TELOCITY ADVERTISING LETTER AGREEMENT]
<PAGE> 1
EXHIBIT 10.31
FOUNDER STOCK PURCHASE AGREEMENT
This Founder Stock Purchase Agreement is dated as of the 23rd day of
December, 1997 (the "Effective Date") by and between MachOne Communications,
Inc., a California corporation (the "Company"), and Peter D. Olson ("Founder").
WITNESSETH:
WHEREAS, Founder is a founder and a key employee of the Company.
WHEREAS, the Company desires to issue and the Founder desires to acquire
stock of the Company as herein described, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Number of Shares and Price Per Share. The Founder hereby agrees to
purchase from the Company and the Company agrees to sell to the Founder
2,331,000 shares of the Company's Common Stock (the "Stock") with a fair market
value of $2,331.00 (or $0.001 per share). The consideration for the Stock (the
"Purchase Price") will be paid by Purchaser in cash by check or by promissory
note concurrent with the execution of this Agreement against the Company's
delivery of a stock certificate evidencing the Stock.
2. Unvested Share Repurchase Option. The Company shall have the option
(the "Unvested Share Repurchase Option") to reacquire any shares purchased
pursuant to this Agreement which have not vested in the Founder pursuant to
subsection 2(a) (the "Unvested Shares") under the terms set forth in this
Section 2.
(a) Vesting of Shares. The "Initial Vesting Date" shall be October 3,
1997. The shares of Stock purchased by the Founder will vest (the "Vested
Shares") on and after the Initial Vesting Date in accordance with the following
formula:
<TABLE>
<CAPTION>
Date Number of Shares Vested
- ---- -----------------------
<S> <C>
On the Initial Vesting Date 801,276 shares of Stock will vest
For each of the following full months An additional 1.5625% of the
of the Company's continuous Stock will vest (36,422
employment of Founder following shares) for each full month of
the Effective Date service,
</TABLE>
1
<PAGE> 2
Provided that the aggregate number of shares of Stock constituting Vested
Shares may not exceed 2,331,000 shares (as adjusted for stock splits and the
like). In the event a fraction of a share is vested, the number of vested shares
shall be rounded to the nearest whole number.
(b) Exercise of Unvested Share Repurchase Option. If the Founder's
employment with the Company is terminated for any reason, with or without cause,
voluntarily or involuntarily, including termination due to death or disability
(as defined below), or if the Founder or the Founder's legal representative
attempts to dispose of any Unvested Shares other than as allowed in this
Agreement the Company may exercise the Unvested Share Repurchase Option by
written notice to the Escrow Agent (as defined in Section 8) and to the Founder
or the Founder's legal representative within 60 days after such termination or
after the Company has received notice of the attempted disposition.
(c) Payment for Shares and Return of Shares. Payment by the Company to
the Escrow Agent on behalf of the Founder or the Founder's legal representative
shall be made in cash within 60 days after the date of the mailing of the
written notice of exercise of the Unvested Share Repurchase Option. For purposes
of the foregoing, cancellation of any promissory note of the Founder to the
Company shall be treated as payment to the Founder in cash to the extent of the
unpaid principal and any accrued interest canceled. The purchase price per share
being purchased by the Company pursuant to the Unvested Share Repurchase Option
shall be $0.001 per share, adjusted appropriately to reflect any stock split,
stock dividend, recapitalization, etc. Within 30 days after payment by the
Company, the Escrow Agent shall give the shares which the Company has purchased
to the Company and shall give the payment received from the Company to the
Founder.
(d) Early Termination of Unvested Share Repurchase Option. The other
provisions of Section 2 notwithstanding, upon any Transfer of Control (as
defined below), the Unvested Share Repurchase Option shall terminate as of a
date prior to the Transfer of Control, as the Board so determines, or if no such
determination is made, two days prior to the closing of the transaction
involving the Transfer of Control. Any such termination that was permissible
solely by reason of this subsection 2(d) shall be conditioned upon the
consummation of the Transfer of Control. For purposes of this subsection 2(d), a
Transfer of Control shall be deemed to have occurred upon any of the following
events: (i) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the stock of the Company where the
shareholders of the Company before such sale or exchange do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company; (ii) a merger in which the shareholders of the Company
before the merger do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Company; or (iii) the sale,
exchange, or transfer of all or substantially all of the Company's assets (other
than a sale, exchange, or transfer to one or more corporations where the
shareholders of the Company before such sale, exchange, or transfer retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the corporation(s) to which the assets were transferred).
(e) Transfers Not Subject to the Unvested Share Repurchase Option. The
Unvested Share Repurchase Option shall not apply to a transfer of shares of the
Stock to the Founder's ancestors, descendants or spouse or to a trustee for
their benefit or the benefit of the
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<PAGE> 3
Founder, provided that such transferee shall agree in writing (in a form
satisfactory to the Company) to take the shares of the Stock subject to all the
terms and conditions of this Section 2.
(f) Assignment of Unvested Share Repurchase Option. The Company may
assign the Unvested Share Repurchase Option to one or more persons, who shall
have the right to exercise the Unvested Share Repurchase Option in his or her
own name for his or her own account.
3. Right of First Refusal. Before any shares of the Stock registered in the
name of Founder may be sold or transferred (including transfer by operation of
law), such shares shall first be offered to the Company, which will have the
right to purchase all or any part of such shares proposed to be transferred
("Right of First Refusal"), in the following manner:
(a) Transfer Notice. The Founder or his or her legal representative
shall first give written notice (the "Transfer Notice") of any proposed transfer
to the Company. The Transfer Notice shall name the proposed transferee, state
the number of shares of Stock to be transferred, the price per share and all
other terms of the offer. The Transfer Notice shall be signed by the Founder or
his or her representative and the prospective transferee and must constitute a
binding agreement for the transfer of the Stock subject only to the Right of
First Refusal.
(b) Bona Fide Determination. Within 30 days of delivery of the
Transfer notice, the Company's Board of Directors shall determine the bona fide
nature of the proposed transfer and give the Founder written notice of its
determination. If the proposed transfer is deemed to be bona fide, the remaining
subsections of this section shall apply to the sale. If the proposed transfer is
deemed not to be bona fide, the Founder will be responsible for providing
additional information to the Board to show the bona fide nature of the proposed
transfer and no Stock will be transferred on the books of the Company until the
Board has approved the proposed transfer as bona fide.
(c) Failure to Exercise; Exercise. If the Company elects not to or
fails to exercise in full the Right of First Refusal within 30 days from the
later of the date the Transfer Notice is delivered to the Company or 30 days
after the date the transfer is determined to be bona fide (if the Founder is
required to provide additional information as provided in Section 3(b)), the
Founder may, by the later of 60 days after the delivery of the Transfer Notice
to the Company or 30 days after the date the transfer is determined to be bona
fide (if the Founder is required to provide additional information as provided
in Section 3(b)), conclude a transfer of the shares of Stock subject to the
Transfer Notice which have not been purchased by the Company pursuant to
exercise of the Right of First Refusal on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by the Founder, shall again be subject to the Right of First Refusal
and shall require compliance by the Founder with the procedure described in this
Section 3. If the Company exercises the Right of First Refusal, the parties
shall consummate the sale of shares of Stock on the terms set forth in the
Transfer Notice by the later of 60 days after the delivery of the Transfer
Notice to the Company or 30 days after the date the transfer is determined to be
bona fide (if the Purchaser is required to provide additional information as
provided in Section 3(b)); provided, however, in the event the Transfer
3
<PAGE> 4
Notice provides for the payment for the shares of Stock other than in cash, the
Company shall have the option of paying for the shares of Stock by the
discounted cash equivalent of the consideration described in the Transfer Notice
as reasonably determined by the Company.
(d) Condition to Transfer. All transferees of shares of Stock or any
interest therein other than the Company shall be required as a condition of such
transfer to agree in writing (in a form satisfactory to the Company) that they
will receive and hold such shares of Stock or interests subject to the
provisions of this Agreement, including the Right of First Refusal.
(e) Assignment of Right of First Refusal. The Company may assign the
Right of First Refusal to one or more persons, who shall have the right to
exercise the Right of First Refusal in his or her own name for his or her own
account.
(f) Termination. The Right of First Refusal will terminate upon the
closing of a firm commitment underwritten public offering to the public of the
Company's Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended (the "IPO").
(g) Transfer Not Subject to Right of First Refusal. The Right of First
Refusal shall not apply to a transfer of shares of the Stock to the Founder's
ancestors, descendants or spouse or to a trustee for their benefit or the
benefit of the Founder, provided that such transferee shall agree in writing (in
a form satisfactory to the Company) to take the shares of Stock subject to all
the terms and conditions of this Section 3.
4. Piggyback Registration Rights.
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a shareholder(s) exercising demand
registration rights, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a transaction pursuant to
Rule 145 promulgated under the Securities Act of 1933, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Stock, the Company will promptly
give to the Founder written notice thereof and include in such registration (and
any related qualification under blue sky laws), and in any underwriting involved
therein, the number of Vested Shares specified in a written request made by the
Founder within fifteen (15) days after receipt of such written notice from the
Company, except as set forth in Section 4(b) below.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the right of any Founder
to registration shall be conditioned upon the Founder's participation in such
underwriting and the inclusion of such Founder's Stock in the underwriting
pursuant to an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
this Section, if the underwriter reasonably determines that marketing factors
require a limitation on the number of shares to be underwritten the underwriter
may exclude some or all
4
<PAGE> 5
of the Stock with the number of shares that may be included in the registration
and underwriting being allocated among the Founder and all other shareholders
entitled to have securities included in such registration in proportion, as
nearly as practicable, to the respective amounts of securities which they had
requested to be included in such registration (provided, however, that if the
registration is for the account of shareholders exercising demand registration
rights, the number of shares that may be included by the Founder shall be cut
back entirely before any limitation on the number of shares that may be included
by such shareholders).
(c) All expenses of the registration shall be borne by the Company,
except underwriting discounts and selling commissions applicable to the sale of
any of Founder's Stock and any other securities of the Company being sold in the
same registration by other shareholders, which shall be borne by the Founder and
such other shareholders pro rata on the basis of the number of their shares
registered.
5. Stock Dividends, etc. If, from time to time, there is any stock
dividend, stock split or other change in the character or amount of any of the
outstanding stock of the Company, then in such event any and all new substituted
or additional securities to which Founder is entitled by reason of Founder's
ownership of Unvested Shares or Stock shall be immediately subject to the
Unvested Share Repurchase Option or the Right of First Refusal, respectively,
with the same force and effect as the Unvested Shares or Stock.
6. Consent of Spouse. If the Founder is married on the date of this
Agreement, the Founder's spouse shall execute a Consent of Spouse in the form of
Exhibit A hereto, effective on the date hereof. Such consent shall not be deemed
to confer or convey to the spouse any rights in the Stock that do not otherwise
exist by operation of law or the agreement of the parties. If the Founder should
marry or remarry subsequent to the date of this Agreement, the Founder shall
within thirty (30) days thereafter obtain his or her new spouse's acknowledgment
of and consent to the existence and binding effect of all restrictions contained
in this Agreement by signing an additional Consent of Spouse in the form of
Exhibit A.
7. Legends. All certificates representing any shares of Stock subject to
the provisions of this Agreement shall have endorsed thereon the following
legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
REPURCHASE OPTION AND RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS COMPANY.
(b) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
5
<PAGE> 6
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(c) Any legend required to be placed thereon by the federal or state
securities authorities.
8. Warranties and Representations. In connection with the proposed
purchase of the Stock, the Founder hereby agrees, represents and warrants as
follows:
(a) The Founder is purchasing the Stock solely for his own account for
investment and not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933 as amended
(the "Act"). The Founder further represents that he or she does not have any
present intention of selling, offering to sell or otherwise disposing of or
distributing the Stock or any portion thereof; and that the entire legal and
beneficial interest of the Stock he or she is purchasing is being purchased for,
and will be held for the account of, the Founder only and neither in whole nor
in part for any other person.
(b) The Founder is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Stock. The Founder
further represents and warrants that he or she has discussed the Company and its
plans, operations and financial condition with its officers, has received all
such information as he or she deems necessary and appropriate to enable him or
her to evaluate the financial risk inherent in making an investment in the Stock
and has received satisfactory and complete information concerning the business
and financial condition of the Company in response to all inquiries in respect
thereof.
(c) The Founder realizes that his or her purchase of the Stock will be
a highly speculative investment, and he is able, without impairing his
financial condition, to hold the Stock for an indefinite period of time and to
suffer a complete loss on his investment.
(d) The Company has disclosed to the Founder that:
(i) The sale of the Stock has not been registered under the Act,
and the Stock must be held indefinitely unless a transfer of it is subsequently
registered under the Act or an exemption from such registration is available,
and that the Company is under no obligation to register the Stock;
(ii) The Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
9. Escrow. As security for his faithful performance of the terms of this
Agreement and to ensure the availability for delivery of the Stock upon exercise
of the Unvested Share Repurchase Option and the Right of First Refusal herein
provided for, the Founder agrees to deliver to and deposit with Gray Cary Ware &
Freidenrich, a Professional Corporation (the "Escrow Agent"), as Escrow Agent in
this transaction, two Stock Assignments duly endorsed
6
<PAGE> 7
(with date and number of shares blank) in the form attached hereto as Exhibit B,
together with the certificate or certificates evidencing the Stock. Such
documents shall be held by the Escrow Agent pursuant to the Joint Escrow
Instructions of the Company and the Founder set forth in Exhibit C attached
hereto and incorporated by this reference, which instructions shall also be
delivered to the Escrow Agent at the closing hereunder.
10. Transfers in Violation of Agreement. The Company shall not be
required (i) to transfer on its books any shares of Stock of the Company which
shall have been sold or transferred in violation of any of the provisions set
forth in this Agreement or (ii) to treat as owner of such shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom
such shares shall have been so transferred.
11. Rights as Shareholder. Subject to the provisions of this Agreement,
the Founder shall exercise all rights and privileges of a shareholder of the
Company with respect to the Stock deposited in escrow.
12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
13. "Market Stand-Off" Agreement. Founder hereby agrees that in
connection with the IPO, during the period of duration (not to exceed 180 days)
specified by the Company and an underwriter of common stock of the Company
following the effective date of the registration statement of the Company filed
under the Securities Act with respect to the IPO, he shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase, pledge or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by him at any time during such period except common stock included in such
registration. Founder agrees to the terms of any form of such a stand-off
agreement as approved by the company or the underwriter of the IPO.
14. Notice. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, or upon delivery to an overnight courier service
addressed to the other party at the address hereinafter shown below his
signature or at such other address as such party may designate by ten (10) days'
advance written notice to the other party.
15. Successors and Assigns. This Agreement shall inure to the benefit
of, and be binding upon, the successors and assigns of each party, including,
without limitation, in the case of the Founder, Founder's heirs, executors,
administrators, successors and assigns.
16. Entire Agreement; Amendments. This Agreement, together with the
Exhibits hereto, shall be construed under the laws of the State of California
(as it applies to agreements between California residents, entered into and to
be performed entirely within California), and constitutes the entire agreement
of the parties with respect to the subject matter hereof
7
<PAGE> 8
superseding all prior written or oral agreements, and no amendment or addition
hereto shall be deemed effective unless agreed to in writing by the parties.
17. Right to Specific Performance. The Founder agrees that the Company
shall be entitled to a decree of specific performance of the terms hereof or an
injunction restraining violation of this Agreement, said right to be in addition
to any other remedies available to the Company.
18. Separability. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
19. Tax Consequences and Tax Election Notification.
(a) The Founder understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code") taxes as ordinary income the difference
between the amount paid for the Stock and the fair market value of the Stock as
of the date any restrictions on the Stock lapse. In this context "restriction"
means the right of the Company to buy back the stock pursuant to the Unvested
Share Repurchase Option. The Founder understands that he or she may elect to be
taxed at the time the Stock is purchased rather than when and as the Unvested
Share Repurchase Option expires by filing an election under Section 83(b) of the
Code with the Internal Revenue Service (the "IRS") within 30 days from the date
of purchase. Even if the fair market value of the Stock equals the amount paid
for the Stock, the election must be made to avoid adverse tax consequences in
the future. The Founder understands that failure to make this filing timely will
result in the recognition of ordinary income by the Founder, as the Unvested
Share Repurchase Option lapses, on the difference between the purchase price and
the fair market value of the Stock at the time such restriction lapses.
(b) The Founder understands that the purchase price of the Stock has
been set by the Board of Directors and that the Company believes this valuation
is a fair attempt to appraise it. The Founder understands, however, that if the
Founder files a Section 83(b) election, the Company can give no assurances that
the purchase price will be accepted as the fair market value of the Stock by the
IRS, and that the IRS could assert that the value of the Stock on the Date of
purchase was substantially greater than the purchase price.
If the IRS were to successfully argue in a tax determination that the
Stock had a value greater than the price paid by the Founder, and the Founder
has filed a Section 83(b) election, the additional value would constitute
ordinary income as of the date of its receipt. The additional taxes (and
interest) due would be payable by the Founder. There is no provision for the
Company to reimburse the Founder for any potential tax liability, and the
Founder assumes all responsibility for any such liability. If the additional
value attributed to the Stock was more than 25 percent of the Founder's gross
income for the year in which that value was taxable, the IRS would have six
years from the due date for filing of the Founder's the return (or the actual
filing date of the return if filed thereafter) within which to assess the
additional tax and interest.
8
<PAGE> 9
THE FOUNDER ACKNOWLEDGES THAT IT IS THE FOUNDER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S RESPONSIBILITY TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE FOUNDER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE FOUNDER'S BEHALF. THE FOUNDER FURTHER UNDERSTANDS THAT ANY
PURPORTED ELECTION PURSUANT TO SECTION 83(b) MUST COMPLY WITH THE PROVISIONS OF
TREASURY REGULATION SECTION 1.83-2. FOUNDER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO SEEK THE ASSISTANCE OF A TAX ADVISOR IN THIS MATTER.
(c) The Founder shall notify the Company in writing if Founder files
an election pursuant to Section 83(b) of the Code. The Company intends, in the
event it does not receive from Founder evidence of such filing, to claim a tax
deduction for any amount which would be taxable to Founder in the absence of
such an election.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"FOUNDER" "COMPANY"
Peter D. Olson MachOne Communications, Inc.
/s/ PETER D. OLSON By: /s/ PETER D. OLSON
--------------------------------- ---------------------------------
Peter D. Olson
Address: Title: President
----------------------------- ------------------------------
- -------------------------------------
9
<PAGE> 10
EXHIBIT A
CONSENT OF SPOUSE
I, ____________ spouse of ___________ acknowledge that I have read the
Founder Stock Purchase Agreement dated as of ___________ 1997, to which this
Consent is attached as Exhibit A (the "Agreement") and that I know its contents.
I am aware that by its provisions the Company has the option to purchase certain
shares of Stock of the Company which my spouse owns pursuant to the Agreement
including any interest I might have therein, upon termination of his employment
under circumstances set forth in the Agreement, and that certain other
restrictions are imposed upon the sale or other disposition of the Stock during
my spouse's lifetime and in the event of his death.
I agree that my interest, if any, in the Stock subject to the Agreement
shall be bound by the Agreement and further understand and agree that any
community property interest I may have in the Stock shall be similarly bound by
the Agreement.
Signed and Dated: ____________ .
<PAGE> 11
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, __________ hereby sells, assigns and transfers unto
________ _______ (____) shares of the Common Stock of MachOne Communications,
Inc., a California corporation, standing in the undersigned's name on the books
of said corporation represented by Certificate No. _______ herewith, and do
hereby irrevocably constitute and appoint __________ attorney to transfer the
said stock on the books of the said corporation with full power of substitution
in the premises.
Date: December 23, 1997 By: /s/ PETER D. OLSON
---------------------------------
Peter D. Olson
<PAGE> 12
EXHIBIT A
CONSENT OF SPOUSE
I, Jane E. Olson, spouse of Peter D. Olson, acknowledge that I have read
the Founder acknowledge that I have read the Founder Stock Purchase Agreement
dated as of _________, 1997, to which this Consent is attached as Exhibit A (the
"Agreement") and that I know its contents. I am aware that by its provisions the
Company has the option to purchase certain shares of Stock of the Company which
my spouse owns pursuant to the Agreement including any interest I might have
there upon termination of his employment under circumstances set forth in the
Agreement, and that certain other restrictions are imposed upon the sale or
other disposition of the Stock during my spouse's lifetime and in the event of
his death.
I agree that my interest if any, in the Stock subject to the Agreement
shall be bound by the Agreement and further understand and agree that any
community property interest I may have in the Stock shall be similarly bound by
the Agreement.
Signed and Dated: /s/ JANE E. OLSON
--------------------------------
<PAGE> 13
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ___________________ hereby sells, assigns and
transfers unto ____________________________ (________) shares of the Common
Stock of MachOne Communications, Inc., a California corporation, standing in
the undersigned's name on the books of said corporation represented by
Certificate No. ____ herewith, and do hereby irrevocably constitute and appoint
______________________ attorney to transfer the said stock on the books of the
said corporation with full power of substitution in the premises.
Date: ______________________ By: /s/ PETER D. OLSON
--------------------------------
Peter D. Olson
<PAGE> 1
EXHIBIT 10.32
FOUNDER STOCK PURCHASE AGREEMENT
This Founder Stock Purchase Agreement is dated as of the 23rd day of
December, 1997 (the "Effective Date") by and between MachOne Communications,
Inc., a California corporation (the "Company"), and Michael Solomon ("Founder").
WITNESSETH
WHEREAS, Founder is a founder and a key employee of the Company.
WHEREAS, the Company desires to issue and the Founder desires to acquire
stock of the Company as herein described, on the terms and conditions
hereinafter set forth,
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Number of Shares and Price Per Share. The Founder hereby agrees to
purchase from the Company and the Company agrees to sell to the Founder 777,000
shares of the Company's Common Stock (the "Stock") with a fair market value of
$777.00 (or $0.001 per share). The consideration for the Stock (the "Purchase
Price") will be paid by Purchaser in cash, by check or promissory note
concurrent with the execution of this Agreement against the Company's delivery
of a stock certificate evidencing the Stock.
2. Unvested Share Repurchase Option. The Company shall have the option (the
"Unvested Share Repurchase Option") to reacquire any shares purchased pursuant
to this Agreement which have not vested in the Founder pursuant to subsection
2(a) (the "Unvested Shares") under the terms set forth in this Section 2.
(a) Vesting of Shares. The "Initial Vesting Date" shall be
October 3, 1997. The shares of Stock purchased by the Founder will vest (the
"Vested Shares") on and after the Initial Vesting Date in accordance with the
following formula:
<TABLE>
<CAPTION>
Number of Shares Vested
-----------------------
<S> <C>
On the Initial Vesting Date 267,094 shares of Stock will
vest
For each of the following 42 full months An additional 1.5625% of the
of the Company's continuous Stock will vest (12,141 shares)
employment of Founder following the for each full month of service.
Initial Vesting Date
</TABLE>
Provided that the aggregate number of shares of Stock constituting Vested
Shares may not exceed 777,000 shares (as adjusted for stock splits and the
like). In the event a fraction of a share is vested, the number of vested shares
shall be rounded to the nearest whole number.
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<PAGE> 2
(b) Exercise of Unvested Share Repurchase Option. If the Founder's
employment with the Company is terminated for any reason, with or without cause,
voluntarily or involuntarily, including termination due to death or disability
(as defined below), or if the Founder or the Founder's legal representative
attempts to dispose of any Unvested Shares other than as allowed in this
Agreement, the Company may exercise the Unvested Share Repurchase Option by
written notice to the Escrow Agent (as defined in Section 8) and to the Founder
or the Founder's legal representative within 60 days after such termination or
after the Company has received notice of the attempted disposition.
(c) Payment for Shares and Return of Shares. Payment by the Company to
the Escrow Agent on behalf of the Founder or the Founder's legal representative
shall be made in cash within 60 days after the date of the mailing of the
written notice of exercise of the Unvested Share Repurchase Option. For purposes
of the foregoing, cancellation of any promissory note of the Founder to the
Company shall be treated as payment to the Founder in cash to the extent of the
unpaid principal and any accrued interest canceled. The purchase price per share
being purchased by the Company pursuant to the Unvested Share Repurchase Option
shall be $0.001 per share, adjusted appropriately to reflect any stock split,
stock dividend, recapitalization, etc. Within 30 days after payment by the
Company, the Escrow Agent shall give the shares which the Company has purchased
to the Company and shall give the payment received from the Company to the
Founder.
(d) Early Termination of Unvested Share Repurchase Option. The other
provisions of Section 2 notwithstanding, upon any Transfer of Control (as
defined below), the Unvested Share Repurchase Option shall terminate as of a
date prior to the Transfer of Control, as the Board so determines, or if no such
determination is made, two days prior to the closing of the transaction
involving the Transfer of Control. Any such termination that was permissible
solely by reason of this subsection 2(d) shall be conditioned upon the
consummation of the Transfer of Control. For purposes of this subsection 2(d), a
Transfer of Control shall be deemed to have occurred upon any of the following
events: (i) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the stock of the Company where the
shareholders of the Company before such sale or exchange do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company; (ii) a merger in which the shareholders of the Company
before the merger do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Company; or (iii) the sale,
exchange, or transfer of all or substantially all of the Company's assets (other
than a sale, exchange, or transfer to one or more corporations where the
shareholders of the Company before such sale, exchange, or transfer retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the corporation(s) to which the assets were transferred).
(e) Transfers Not Subject to the Unvested Share Repurchase Option. The
Unvested Share Repurchase Option shall not apply to a transfer of shares of the
Stock to the Founder's ancestors, descendants or spouse or to a trustee for
their benefit or the benefit of the Founder, provided that such transferee shall
agree in writing (in a form satisfactory to the Company) to take the shares of
the Stock subject to all the terms and conditions of this Section 2.
(f) Assignment of Unvested Share Repurchase Option. The Company may
assign the Unvested Share Repurchase Option to one or more persons, who shall
have the right to
2
<PAGE> 3
exercise the Unvested Share Repurchase Option in his or her own name for his or
her own account.
3. Right of First Refusal. Before any shares of the Stock registered in
the name of Founder may be sold or transferred (including transfer by operation
of law), such shares shall first be offered to the Company, which will have the
right to purchase all or any past of such shares proposed to be transferred
("Right of First Refusal"), in the following manner:
(a) Transfer Notice. The Founder or his or her legal representative
shall first give written notice (the "Transfer Notice") of any proposed transfer
to the Company. The Transfer Notice shall name the proposed transferee, state
the number of shares of Stock to be transferred, the price per share and all
other terms of the offer. The Transfer Notice shall be signed by the Founder or
his or her representative and the prospective transferee and must constitute a
binding agreement for the transfer of the Stock subject only to the Right of
First Refusal.
(b) Bona Fide Determination. Within 30 days of delivery of the
Transfer Notice, the Company's Board of Directors shall determine the bona fide
nature of the proposed transfer and give the Founder written notice of its
determination. If the proposed transfer is deemed to be bona fide, the remaining
subsections of this section shall apply to the sale. If the proposed transfer is
deemed not to be bona fide, the Founder will be responsible for providing
additional information to the Board to show the bona fide nature of the proposed
transfer and no Stock will be transferred on the books of the Company until the
Board has approved the proposed transfer as bona fide.
(c) Failure to Exercise; Exercise. If the Company elects not to or
fails to exercise in full the Right of First Refusal within 30 days from the
later of the date the Transfer Notice is delivered to the Company or 30 days
after the date the transfer is determined to be bona fide (if the Founder is
required to provide additional information as provided in Section 3(b)), the
Founder may, by the later of 60 days after the delivery of the Transfer Notice
to the Company or 30 days after the date the transfer is determined to be bona
fide (if the Founder is required to provide additional information as provided
in Section 3(b)), conclude a transfer of the shares of Stock subject to the
Transfer Notice which have not been purchased by the Company pursuant to
exercise of the Right of First Refusal on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by the Founder, shall again be subject to the Right of first Refusal
and shall require compliance by the Founder with the procedure described in this
Section 3. If the Company exercises the Right of First Refusal, the parties
shall consummate the sale of shares of Stock on the terms set forth in the
Transfer Notice by the later of 60 days after the delivery of the Transfer
Notice to the Company or 30 days after the date the transfer is determined to be
bona fide (if the Purchaser is required to provide Additional information as
provided in Section 3(b)); provided, however, in the event the Transfer Notice
provides for the payment for the shares of Stock other than in cash, the Company
shall have the option of paying for the shares of Stock by the discounted cash
equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Company.
(d) Condition to Transfer. All transferees of shares of Stock or any
interest therein other than the Company shall be required as a condition of such
transfer to agree in
3
<PAGE> 4
writing (in a form satisfactory to the Company) that they will receive and hold
such shares of Stock or interests subject to the provisions of this Agreement,
including the Right of First Refusal.
(e) Assignment of Right of First Refusal. The Company may assign the
Right of First Refusal to one or more persons, who shall have the right to
exercise the Right of First Refusal in his or her own name for his or her own
account.
(f) Termination. The Right of First Refusal will terminate upon the
closing of a firm commitment underwritten public offering to the public of the
Company's Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended (the "IPO").
(g) Transfer Not Subject to Right of First Refusal. The Right of First
Refusal shall not apply to a transfer of shares of the Stock to the Founder's
ancestors, descendants or spouse or to a trustee for their benefit or the
benefit of the Founder, provided that such transferee shall agree in writing (in
a form satisfactory to the Company) to take the shares of Stock subject to all
the terms and conditions of this Section 3.
4. Piggyback Registration Rights.
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a shareholder(s) exercising demand
registration rights, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a transaction pursuant to
Rule 145 promulgated under the Securities Act of 1933, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Stock, the Company will promptly
give to the Founder written notice thereof and include in such registration (and
any related qualification under blue sky laws), and in any underwriting involved
therein, the number of Vested Shares specified in a written request made by the
Founder within fifteen (15) days after receipt of such written notice from the
Company, except as set forth in Section 4(b) below.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the right of any Founder
to registration shall be conditioned upon the Founder's participation in such
underwriting and the inclusion of such Founder's Stock in the underwriting
pursuant to an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
this Section, if the underwriter reasonably determines that marketing factors
require a limitation on the number of shares to be underwritten the underwriter
may exclude some or all of the Stock with the number of shares that may be
included in the registration and underwriting being allocated among the Founder
and all other shareholders entitled to have securities included in such
registration in proportion, as nearly as practicable, to the respective amounts
of securities which they had requested to be included in such registration
(provided, however, that if the registration is for the account of shareholders
exercising demand registration rights, the number of shares that may be included
by the Founder shall be cut back entirely before any limitation on the number of
shares that may be included by such shareholders).
4
<PAGE> 5
(c) All expenses of the registration shall be borne by the Company,
except underwriting discounts and selling commissions applicable to the sale of
any of Founder's Stock and any other securities of the Company being sold in the
same registration by other shareholders, which shall be borne by the Founder and
such other shareholders pro rata on the basis of the number of their shares
registered.
5. Stock Dividends, etc. If, from time to time, there is any stock
dividend, stock split or other change in the character or amount of any of the
outstanding stock of the Company, then in such event any and all new substituted
or additional securities to which Founder is entitled by reason of Founder's
ownership of Unvested Shares or Stock shall be immediately subject to the
Unvested Share Repurchase Option or the Right of First Refusal, respectively,
with the same force and effect as the Unvested Shares or Stock.
6. Consent of Spouse. If the Founder is married on the date of this
Agreement, the Founder's spouse shall execute a Consent of Spouse in the form of
Exhibit A hereto, effective on date hereof. Such consent shall not be deemed to
confer or convey to the spouse any rights in Stock that do not otherwise exist
by operation of law or the agreement of the parties. If the Founder should marry
or remarry subsequent to the date of this Agreement, the Founder shall within
thirty (30) days thereafter obtain his or her new spouse's acknowledgment of and
consent to the existence and binding effect of all restrictions contained in
this Agreement by signing an additional Consent of Spouse in the form of
Exhibit A.
7. Legends. All certificates representing any shares of Stock subject to
the provisions of this Agreement shall have endorsed thereon the following
legends:
(a) "THE SHARES REPRESENTED BY MS CERTIFICATE ARE SUBJECT TO A
REPURCHASE OPTION AND RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS COMPANY.
(b) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT."
(c) Any legend required to be placed thereon by the federal or state
securities authorities.
8. Warranties and Representations. In connection with the proposed
purchase of the Stock, the Founder hereby agrees, represents and warrants as
follows:
5
<PAGE> 6
(a) The Founder is purchasing the Stock solely for his own account for
investment and not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933 as amended
(the "Act"). The Founder further represents that he or she does not have any
present intention of selling, offering to sell or otherwise disposing of or
distributing the Stock or any portion thereof; and that the entire legal and
beneficial interest of the Stock he or she is purchasing is being purchased for,
and will be held for the account of, the Founder only and neither in whole nor
in part for any other person.
(b) The Founder is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Stock. The Founder
further represents and warrants that he or she has discussed the Company and its
plans, operations and financial condition with its officers, has received all
such information as he or she deems necessary and appropriate to enable him or
her to evaluate the financial risk inherent in making an investment in the Stock
and has received satisfactory and complete information concerning the business
and financial condition of the Company in response to all inquiries in respect
thereof.
(c) The Founder realizes that his or her purchase of the Stock will be
a highly speculative investment, and he is able, without impairing his financial
condition, to hold the Stock for an indefinite period of time and to suffer a
complete loss on his investment.
(d) The Company has disclosed to the Founder that:
(i) The sale of the Stock has not been registered under the Act,
and the Stock must be held indefinitely unless a transfer of it is subsequently
registered under the Act or an exemption from such registration is available,
and that the Company is under no obligation to register the Stock;
(ii) The Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
9. Escrow. As security for his faithful performance of the terms of this
Agreement and to ensure the availability for delivery of the Stock upon exercise
of the Unvested Share Repurchase Option and the Right of First Refusal herein
provided for, the Founder agrees to deliver to and deposit with Gray Cary Ware &
Freidenrich, a Professional Corporation (the "Escrow Agent"), as Escrow Agent in
this transaction, two Stock Assignments duly endorsed (with date and number of
shares blank) in the form attached hereto as Exhibit B, together with the
certificate or certificates evidencing the Stock. Such documents shall be held
by the Escrow Agent pursuant to the Joint Escrow Instructions of the Company and
the Founder set forth in Exhibit C attached hereto and incorporated by this
reference, which instructions shall also be delivered to the Escrow Agent at the
closing hereunder.
10. Transfers in Violation of Agreement. The Company shall not be
required (i) to transfer on its books any shares of Stock of the Company which
shall have been sold or transferred in violation of any of the provisions set
forth in this Agreement or (ii) to treat as owner of such shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom
such shares shall have been so transferred.
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<PAGE> 7
11. Rights as Shareholder. Subject to the provisions of this Agreement, the
Founder shall exercise all rights and privileges of a shareholder of the Company
with respect to the Stock deposited in escrow.
12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
13. "Market Stand-Off" Agreement. Founder hereby agrees that in connection
with the IPO, during the period of duration (not to exceed 180 days) specified
by the Company and an underwriter of common stock of the Company following the
effective date of the registration statement of the Company filed under the
Securities Act with respect to the IPO, he shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase, pledge or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of the Company held by
him at any time during such period except common stock included in such
registration. Founder agrees to the terms of any form of such a stand-off
agreement as approved by the company or the underwriter of the IPO.
14. Notice. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, or upon delivery to an overnight courier service
addressed to the other party at the address hereinafter shown below his
signature or at such other address as such party may designate by ten (10) days'
advance written notice to the other party.
15. Successors and Assigns. This Agreement shall inure to the benefit of,
and be binding upon, the successors and assigns of each party, including,
without limitation, in the case of the Founder, Founder's heirs, executors,
administrators, successors and assigns.
16. Entire Agreement; Amendments. This Agreement, together with the
Exhibits hereto, shall be construed under the laws of the State of California
(as it applies to agreements between California residents, entered into and to
be performed entirely within California), and constitutes the entire agreement
of the parties with respect to the subject matter hereof superseding all prior
written or oral agreements, and no amendment or addition hereto shall be deemed
effective unless agreed to in writing by the parties.
17. Right to Specific Performance. The Founder agrees that the Company
shall be entitled to a decree of specific performance of the terms hereof or an
injunction restraining violation of this Agreement, said right to be in addition
to any other remedies available to the Company.
18. Separability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
19. Tax Consequences and Tax Election Notification.
7
<PAGE> 8
(a) The Founder understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code") taxes as ordinary income the difference
between the amount paid for the Stock and the fair market value of the Stock as
of the date any restrictions on the Stock lapse. In this context, "restriction"
means the right of the Company to buy back the stock pursuant to the Unvested
Share Repurchase Option. The Founder understands that he or she may elect to be
taxed at the time the Stock is purchased rather than when and as the Unvested
Share Repurchase Option expires by filing an election under Section 83(b) of the
Code with the Internal Revenue Service (the "IRS") within 30 days from the date
of purchase. Even if the fair market value of the Stock equals the amount paid
for the Stock, the election must be made to avoid adverse tax consequences in
the future. The Founder understands that failure to make this filing timely will
result in the recognition of ordinary income by the Founder, as the Unvested
Share Repurchase Option lapses, on the difference between the purchase price and
the fair market value of the Stock at the time such restriction lapses.
(b) The Founder understands that the purchase price of the Stock has
been set by the Board of Directors and that the Company believes this valuation
is a fair attempt to appraise it. The Founder understands, however, that if the
Founder files a Section 83(b) election, the Company can give no assurances that
the purchase price will be accepted as the fair market value of the Stock by the
IRS, and that the IRS could assert that the value of the Stock on the date of
purchase was substantially greater than the purchase price.
If the IRS were to successfully argue in a tax determination that the
Stock had a value greater than the price paid by the Founder, and the Founder
has filed a Section 83(b) election, the additional value would constitute
ordinary income as of the date of its receipt. The additional taxes (and
interest) due would be payable by the Founder. There is no provision for the
Company to reimburse the Founder for any potential tax liability, and the
Founder assumes all responsibility for any such liability. If the additional
value attributed to the Stock was more than 25 percent of the Founder's gross
income for the year in which that value was taxable, the IRS would have six
years from the due date for filing of the Founder's the return (or the actual
filing date of the return if filed thereafter) within which to assess the
additional tax and interest.
THE FOUNDER ACKNOWLEDGES THAT IT IS THE FOUNDER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S RESPONSIBILITY TO FILE TIMELY THE ELECTION UNDER SECTION
83(B), EVEN IF THE FOUNDER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE FOUNDER'S BEHALF. THE FOUNDER FURTHER UNDERSTANDS THAT ANY
PURPORTED ELECTION PURSUANT TO SECTION 83(B) MUST COMPLY WITH THE PROVISIONS OF
TREASURY REGULATION SECTION 1.83-2. FOUNDER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO SEEK THE ASSISTANCE OF A TAX ADVISOR IN THIS MATTER.
(c) The Founder shall notify the Company in writing if Founder files
an election pursuant to Section 83(b) of the Code. The Company intends, in the
event it does not receive from Founder evidence of such filing, to claim a tax
deduction for any amount which would be taxable to Founder in the absence of
such an election.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"FOUNDER" "COMPANY"
Michael Solomon MachOne Communications, Inc.
/s/ MICHAEL SOLOMON By: /s/ PETER D. OLSON
- ---------------------------- -------------------------------
Michael Solomon
Address: [Illegible] Title: President
-------------------- ----------------------------
[Illegible]
- ----------------------------
9
<PAGE> 10
EXHIBIT A
CONSENT OF SPOUSE
I, Kim Solomon, spouse of Michael Solomon, acknowledge that I have read the
Founder Stock Purchase Agreement dated as of ____________, 1997, to which this
Consent is attached as Exhibit A (the "Agreement") and that I know its
contents. I am aware that by its provisions the Company has the option to
purchase certain shares of Stock of the Company which my spouse owns pursuant
to the Agreement including any interest I might have therein, upon termination
of his employment under circumstances set forth in the Agreement, and that
certain other restrictions are imposed upon the sale or other disposition of
the Stock during my spouse's lifetime and in the event of his death.
I agree that my interest, if any, in the Stock subject to the Agreement
shall be bound by the Agreement and further understand and agree that any
community property interest I may have in the Stock shall be similarly bound by
the Agreement.
Signed and Dated: /s/ KIM SOLOMON
---------------
<PAGE> 11
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, _____________ hereby sells, assigns and transfers unto
_______________ ___________ (____) shares of the Common Stock of MachOne
Communications, Inc., a California corporation, standing in the undersigned's
name on the books of said corporation represented by Certificate No. ______
herewith, and do hereby irrevocably constitute and appoint ____________________
attorney to transfer the said stock on the books of the said corporation with
full power of substitution in the premises.
Date: December 23, 1997 By: /s/ MICHAEL SOLOMON
------------------------------
Michael Solomon
<PAGE> 1
EXHIBIT 10.33
FOUNDER STOCK PURCHASE AGREEMENT
This Founder Stock Purchase Agreement is dated as of the 23rd day of
December, 1997 (the "Effective Date") by and between MachOne Communications,
Inc., a California corporation (the "Company"), and Thomas Obenhuber
("Founder").
WITNESSETH:
WHEREAS, Founder is a founder and a key employee of the Company.
WHEREAS, the Company desires to issue and the Founder desires to acquire
stock of the Company as herein described, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Number of Shares and Price Per Share. The Founder hereby agrees to
purchase from the Company and the Company agrees to sell to the Founder 240,000
shares of the Company's Common Stock (the "Stock") with a fair market value of
$240.00 (or $0.001 per share). The consideration for the Stock (the "Purchase
Price") will be paid by Purchaser in cash, by check or promissory note
concurrent with the execution of this Agreement against the Company's delivery
of a stock certificate evidencing the Stock.
2. Unvested Share Repurchase Option. The Company shall have the option
(the "Unvested Shares Repurchase Option") to reacquire any shares purchased
pursuant to this Agreement which have not vested in the Founder pursuant to
subsection 2(a) (the "Unvested Shares") under the terms set forth in this
Section 2.
(a) Vesting Shares. The "Initial Vesting Date" shall be February 3,
1998. The shares of Stock purchased by the Founder will vest (the "Vested
Shares") on and after the Initial Vesting Date in accordance with the following
formula:
<TABLE>
<CAPTION>
Date Number of Shares Vested
---- -----------------------
<S> <C>
On the Initial Vesting Date 30,000 shares of stock will
vest
For each of the following 42 full An additional 2.0833% of the
month of the Company's continuous Stock will vest (5,000 shares)
employment of Founder following the for each full month of service.
Initial Vesting Date
</TABLE>
Provided that the aggregate number of shares of Stock constituting Vested
Shares may not exceed 240,000 shares (as adjusted for stock splits and the
like). In the event a fraction of a share is vested, the number of vested
shares shall be rounded to the nearest whole number.
1
<PAGE> 2
(b) Exercise of Unvested Share Repurchase Option. If the Founder's
employment with the Company is terminated for any reason, with or without
cause, voluntarily or involuntarily, including termination due to death or
disability (as defined below), or if the Founder or the Founder's legal
representative attempts to dispose of any Unvested Shares other than as allowed
in this Agreement, the Company may exercise the Unvested Share Repurchase
Option by written notice to the Escrow Agent (as defined in Section 8) and to
the Founder or the Founder's legal representative within 60 days after such
termination or after the Company has received notice of the attempted
disposition.
(c) Payment for Shares and Return of Shares. Payment by the Company to
the Escrow Agent on behalf of the Founder or the Founder's legal representative
shall be made in cash within 60 days after the date of the mailing of the
written notice of exercise of the Unvested Share Repurchase Option. For
purposes of the foregoing, cancellation of any promissory note of the Founder
to the Company shall be treated as payment to the Founder in cash to the extent
of the unpaid principal and any accrued interest canceled. The purchase price
per share being purchased by the Company pursuant to the Unvested Share
Repurchase Option shall be $0.001 per share, adjusted appropriately to reflect
any stock split, stock dividend, recapitalization, etc. Within 30 days after
payment by the Company, the Escrow Agent shall give the shares which the
Company has purchased to the Company and shall give the payment received from
the Company to the Founder.
(d) Early Termination of Unvested Share Repurchase Option. The other
provisions of Section 2 notwithstanding, upon any Transfer of Control (as
defined below), the Unvested Share Repurchase Option shall terminate as of a
date prior to the Transfer of Control, as the Board so determines, or if no
such determination is made, two days prior to the closing of the transaction
involving the Transfer of Control. Any such termination that was permissible
solely by reason of this subsection 2(d) shall be conditioned upon the
consummation of the Transfer of Control. For purposes of this subsection 2(d),
a Transfer of Control shall be deemed to have occurred upon any of the
following events: (i) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company where the shareholders of the Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company; (ii) a merger in which the
shareholders of the Company before the merger do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Company; or (iii) the sale, exchange, or transfer of all or
substantially all of the Company's assets (other than a sale, exchange, or
transfer to one or more corporations where the shareholders of the Company
before such sale, exchange, or transfer retain, directly or indirectly, at
least a majority of the beneficial interest in the voting stock of the
corporation(s) to which the assets were transferred).
(e) Transfers Not Subject to the Unvested Share Repurchase Option. The
Unvested Share Repurchase Option shall not apply to a transfer of shares of the
Stock to the Founder's ancestors, descendants or spouse or to a trustee for
their benefit or the benefit of the Founder, provided that such transferee
shall agree in writing (in a form satisfactory to the Company) to take the
shares of the Stock subject to all the terms and conditions of this Section 2.
(f) Assignment of Unvested Share Repurchase Option. The Company may
assign the Unvested Share Repurchase Option to one or more persons, who shall
have the right to
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<PAGE> 3
exercise the Unvested Share Repurchase Option in his or her own name for his or
her own account.
3. Right of First Refusal. Before any shares of the Stock registered in
the name of Founder may be sold or transferred (including transfer by operation
of law), such shares shall first be offered to the Company, which will have the
right to purchase all or any part of such shares proposed to be transferred
("Right of First Refusal"), in the following manner:
(a) Transfer Notice. The Founder or his or her legal representative
shall first give written notice (the "Transfer Notice") of any proposed
transfer to the Company. The Transfer Notice shall name the proposed
transferee, state the number of shares of Stock to be transferred, the price
per share and all other terms of the offer. The Transfer Notice shall be signed
by the Founder or his or her representative and the prospective transferee and
must constitute a binding agreement for the transfer of the Stock subject only
to the Right of First Refusal.
(b) Bona Fide Determination. Within 30 days of delivery of the
Transfer Notice, the Company's Board of Directors shall determine the bona fide
nature of the proposed transfer and give the Founder written notice of its
determination. If the proposed transfer is deemed to be bona fide, the
remaining subsections of this section shall apply to the sale. If the proposed
transfer is deemed not to be bona fide, the Founder will be responsible for
providing additional information to the Board to show the bona fide nature of
the proposed transfer and no Stock will be transferred on the books of the
Company until the Board has approved the proposed transfer as bona fide.
(c) Failure to Exercise; Exercise. If the Company elects not to or
fails to exercise in full the Right of First Refusal within 30 days from the
later of the date the Transfer Notice is delivered to the Company or 30 days
after the date the transfer is determined to be bona fide (if the Founder is
required to provide additional information as provided in Section 3(b)), the
Founder may, by the later of 60 days after the delivery of the Transfer Notice
to the Company or 30 days after the date the transfer is determined to be bona
fide (if the Founder is required to provide additional information as provided
in Section 3(b)), conclude a transfer of the shares of Stock subject to the
Transfer Notice which have not been purchased by the Company pursuant to
exercise of the Right of First Refusal on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by the Founder, shall again be subject to the Right of First Refusal
and shall require compliance by the Founder with the procedure described in
this Section 3. If the Company exercises the Right of First Refusal, the
parties shall consummate the sale of shares of Stock on the terms set forth in
the Transfer Notice by the later of 60 days after the delivery of the Transfer
Notice to the Company or 30 days after the date the transfer is determined to
be bona fide (if the Purchaser is required to provide additional information as
provided in Section 3(b)); provided, however, in the event the Transfer Notice
provides for the payment for the shares of Stock other than in cash, the
Company shall have the option of paying for the shares of Stock by the
discounted cash equivalent of the consideration described in the Transfer
Notice as reasonably determined by the Company.
(d) Condition to Transfer. All transferees of shares of Stock or any
interest therein other than the Company shall be required as a condition of
such transfer to agree in
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<PAGE> 4
writing (in a form satisfactory to the Company) that they will receive and hold
such shares of Stock or interests subject to the provisions of this Agreement,
including the Right of First Refusal.
(e) Assignment of Right of First Refusal. The Company may assign
the Right of First Refusal to one or more persons, who shall have the right to
exercise the Right of First Refusal in his or her own name for his or her own
account.
(f) Termination. The Right of First Refusal will terminate upon
the closing of a firm commitment underwritten public offering to the public of
the Company's Common Stock pursuant to a registration statement under the
Securities Act of 1933, as amended (the "IPO").
(g) Transfer Not Subject to Right of First Refusal. The Right of
First Refusal shall not apply to a transfer of shares of the Stock to the
Founder's ancestors, descendants or spouse or to a trustee for their benefit or
the benefit of the Founder, provided that such transferee shall agree in
writing (in a form satisfactory to the Company) to take the shares of Stock
subject to all the terms and conditions of this Section 3.
4. Piggyback Registration Rights.
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a shareholder(s)
exercising demand registration rights, other than a registration relating
solely to employee benefit plans, or a registration relating solely to a
transaction pursuant to Rule 145 promulgated under the Securities Act of 1933,
or a registration on any registration form which does not permit secondary
sales or does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Stock, the Company will promptly give to the Founder written notice thereof and
include in such registration (and any related qualification under blue sky
laws), and in any underwriting involved therein, the number of Vested Shares
specified in a written request made by the Founder within fifteen (15) days
after receipt of such written notice from the Company, except as set forth in
Section 4(b) below.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the right of any Founder
to registration shall be conditioned upon the Founder's participation in such
underwriting and the inclusion of such Founder's Stock in the underwriting
pursuant to an underwriting agreement in customary form with the underwriter or
underwriters pursuant to an underwriting agreement in customary form with the
underwriter or underwriters selected by the Company. Notwithstanding any other
provision of this Section, if the underwriter reasonably determines that
marketing factors require a limitation on the number of shares to be
underwritten the underwriter may exclude some or all of the Stock with the
number of shares that may be included in the registration and underwriting being
allocated among the Founder and all other shareholders entitled to have
securities included in such registration in proportion, as nearly as
practicable, to the respective amounts of securities which they had requested to
be included in such registration (provided, however, that if the registration is
for the account of shareholders exercising demand registration rights, the
number of shares that may be included by the Founder shall be cut back entirely
before any limitation on the number of shares that may be included by such
shareholders).
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<PAGE> 5
(c) All expenses of the registration shall be borne by the
Company, except underwriting discounts and selling commissions applicable to
the sale of any of Founder's Stock and any other securities of the Company
being sold in the same registration by other shareholders, which shall be borne
by the Founder and such other shareholders pro rata on the basis of the number
of their shares registered.
5. Stock Dividends, etc. If, from time to time, there is any stock
dividend, stock split or other change in the character or amount of any of the
outstanding stock of the Company, then in such event any and all new
substituted or additional securities to which Founder is entitled by reason of
Founder's ownership of Unvested Shares or Stock shall be immediately subject to
the Unvested Share Repurchase Option or the Right of First Refusal,
respectively, with the same force and effect as the Unvested Shares or Stock.
6. Consent of Spouse. If the Founder is married on the date of this
Agreement, the Founder's spouse shall execute a Consent of Spouse in the form
of Exhibit A hereto, effective on the date hereof. Such consent shall not be
deemed to confer or convey to the spouse any rights in the Stock that do not
otherwise exist by operation of law or the agreement of the parties. If the
Founder should marry or remarry subsequent to the date of this Agreement, the
Founder shall within thirty (30) days thereafter obtain his or her new spouse's
acknowledgement of and consent to the existence and binding effect of all
restrictions contained in this Agreement by signing an additional Consent of
Spouse in the form of Exhibit A.
7. Legends. All certificates representing any shares of Stock subject
to the provisions of this Agreement shall have endorsed thereon the following
legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
REPURCHASE OPTION AND RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THIS COMPANY.
(b) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE MADE IN ACCORDANCE
WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(c) Any legend required to be placed thereon by the federal or
state securities authorities.
8. Warranties and Representations. In connection with the proposed
purchase of the Stock, the Founder hereby agrees, represents and warrants as
follows:
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<PAGE> 6
(a) The Founder is purchasing the Stock solely for his own account
for investment and not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933 as
amended (the "Act"). The Founder further represents that he or she does not have
any present intention of selling, offering to sell or otherwise disposing of or
distributing the Stock or any portion thereof; and that the entire legal and
beneficial interest of the Stock he or she is purchasing is being purchased for,
and will be held for the account of, the Founder only and neither in whole nor
in part for any other person.
(b) The Founder is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Stock. The
Founder further represents and warrants that he or she has discussed the
Company and its plans, operations and financial condition with its officers,
has received all such information as he or she deems necessary and appropriate
to enable him or her to evaluate the financial risk inherent in making an
investment in the Stock and has received satisfactory and complete information
concerning the business and financial condition of the Company in response to
all inquiries in respect thereof.
(c) The Founder realizes that his or her purchase of the Stock will
be a highly speculative investment, and he is able, without impairing his
financial condition, to hold the Stock for an indefinite period of time and to
suffer a complete loss on his investment.
(d) The Company has disclosed to the Founder that:
(i) The sale of the Stock has not been registered under the
Act, and the Stock must be held indefinitely unless a transfer of it is
subsequently registered under the Act or an exemption from such registration is
available, and that the Company is under no obligation to register the Stock;
(ii) The Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
9. Escrow. As security for his faithful performance of the terms of this
Agreement and to ensure the availability for delivery of the Stock upon
exercise of the Unvested Share Repurchase Option and the Right of First
Refusal herein provided for, the Founder agrees to deliver to and deposit with
Gray Cary Ware & Freidenrich, a Professional Corporation (the "Escrow Agent"),
as Escrow Agent in this transaction, two Stock Assignments duly endorsed (with
date and number of shares blank) in the form attached hereto as Exhibit B,
together with the certificate or certificates evidencing the Stock. Such
documents shall be held by the Escrow Agent pursuant to the Joint Escrow
Instructions of the Company and the Founder set forth in Exhibit C attached
hereto and incorporated by this reference, which instructions shall also be
delivered to the Escrow Agent at the closing hereunder.
10. Transfers in Violation of Agreement. The Company shall not be
required (i) to transfer on its books any shares of Stock of the Company which
shall have been sold or transferred in violation of any of the provisions set
forth in this Agreement or (ii) to treat as owner of such shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom
such shares shall have been so transferred.
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<PAGE> 7
11. Rights as Shareholder. Subject to the provisions of this Agreement,
the Founder shall exercise all rights and privileges of a shareholder of the
Company with respect to the Stock deposited in escrow.
12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
13. "Market Stand-Off" Agreement. Founder hereby agrees that in
connection with the IPO, during the period of duration (not to exceed 180 days)
specified by the Company and an underwriter of common stock of the Company
following the effective date of the registration statement of the Company filed
under the Securities Act with respect to the IPO, he shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase, pledge or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by him at any time during such period except common stock included in such
registration. Founder agrees to the terms of any form of such a stand-off
agreement as approved by the company or the underwriter of the IPO.
14. Notice. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, or upon delivery to an overnight courier service
addressed to the other party at the address hereinafter shown below his
signature or at such other address as such party may designate by ten (10)
days' advance written notice to the other party.
15. Successors and Assigns. This Agreement shall inure to the benefit
of, and be binding upon, the successors and assigns of each party, including,
without limitation, in the case of the Founder, Founder's heirs, executors,
administrators, successors and assigns.
16. Entire Agreement; Amendments. This Agreement, together with the
Exhibits hereto, shall be construed under the laws of the State of California
(as it applies to agreements between California residents, entered into and to
be performed entirely within California), and constitutes the entire agreement
of the parties with respect to the subject matter hereof superseding all prior
written or oral agreements, and no amendment or addition hereto shall be deemed
effective unless agreed to in writing by the parties.
17. Right to Specific Performance. The Founder agrees that the Company
shall be entitled to a decree of specific performance of the terms hereof or an
injunction restraining violation of this Agreement, said right to be in
addition to any other remedies available to the Company.
18. Separability. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
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<PAGE> 8
19. Tax Consequences and Tax Election Notification.
(a) The Founder understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code") taxes as ordinary income the difference
between the amount paid for the Stock and the fair market value of the Stock as
of the date any restrictions on the Stock lapse. In this context, "restriction"
means the right of the Company to buy back the stock pursuant to the Unvested
Share Repurchase Option. The Founder understands that he or she may elect to be
taxed at the time the stock is purchased rather than when and as the Unvested
Share Repurchase Option expires by filing an election under Section 83(b) of
the Code with the Internal Revenue Service (the "IRS") within 30 days from the
date of purchase. Even if the fair market value of the Stock equals the amount
paid for the Stock, the election must be made to avoid adverse tax consequences
in the future. The Founder understands that failure to make this filing timely
will result in the recognition of ordinary income by the Founder, as the
Unvested Share Repurchase Option lapses, on the difference between the purchase
price and the fair market value of the Stock at the time such restriction
lapses.
(b) The Founder understands that the purchase price of the Stock has
been set by the Board of Directors and that the Company believes this valuation
is a fair attempt to appraise it. The Founder understands, however, that if the
Founder files a Section 83(b) election, the Company can give no assurances that
the purchase price will be accepted as the fair market value of the Stock by
the IRS, and that the IRS could assert that the value of the Stock on the date
of purchase was substantially greater than the purchase price.
If the IRS were to successfully argue in a tax determination that the
Stock had a value greater than the price paid by the Founder, and the Founder
has filed a Section 83(b) election, the additional value would constitute
ordinary income as of the date of its receipt. The additional taxes (and
interest) due would be payable by the Founder. There is no provision for the
Company to reimburse the Founder for any potential tax liability, and the
Founder assumes all responsibility for any such liability. If the additional
value attributed to the Stock was more than 25 percent of the Founder's gross
income for the year in which that value was taxable, the IRS would have six
years from the due date for filing of the Founder's the return (or the actual
filing date of the return if filed thereafter) within which to assess the
additional tax and interest.
THE FOUNDER ACKNOWLEDGES THAT IT IS THE FOUNDER'S SOLE RESPONSIBILITY
AND NOT THE COMPANY'S RESPONSIBILITY TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE FOUNDER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE FOUNDER'S BEHALF. THE FOUNDER FURTHER UNDERSTANDS THAT ANY
PURPORTED ELECTION PURSUANT TO SECTION 83(b) MUST COMPLY WITH THE PROVISIONS OF
TREASURY REGULATION SECTION 1.83-2. FOUNDER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO SEEK THE ASSISTANCE OF A TAX ADVISOR IN THIS MATTER.
(c) The Founder shall notify the Company in writing if Founder files
an election pursuant to Section 83(b) of the Code. The Company intends, in the
event it does not receive from Founder evidence of such filing, to claim a tax
deduction for any amount which would be taxable to Founder in the absence of
such an election.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"FOUNDER" "COMPANY"
Thomas Obenhuber MachOne Communications, Inc.
/s/ THOMAS OBENHUBER By: /s/ PETER D. OLSON
- ---------------------------- -------------------------------
Thomas Obenhuber
Address: 112 Wisconsin St. Title: President
-------------------- ----------------------------
San Francisco, CA 94107
- ----------------------------
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EXHIBIT A
CONSENT OF SPOUSE
I, __________________, spouse of ________________, acknowledge that I have
read the Founder Stock Purchase Agreement dated as of ____________, 1997, to
which this Consent is attached as Exhibit A (the "Agreement") and that I know
its contents. I am aware that by its provisions the Company has the option to
purchase certain shares of Stock of the Company which my spouse owns pursuant to
the Agreement including any interest I might have therein, upon termination of
his employment under circumstances set forth in the Agreement, and that certain
other restrictions are imposed upon the sale or other disposition of the Stock
during my spouse's lifetime and in the event of his death.
I agree that my interest, if any, in the Stock subject to the Agreement
shall be bound by the Agreement and further understand and agree that any
community property interest I may have in the Stock shall be similarly bound by
the Agreement.
Signed and Dated:
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<PAGE> 11
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ___________________ hereby sells, assigns and
transfers unto _______________ ____________ (________) shares of the Common
Stock of MachOne Communications, Inc., a California corporation, standing in
the undersigned's name on the books of said corporation represented by
Certificate No. ____ herewith, and do hereby irrevocably constitute and appoint
______________________ attorney to transfer the said stock on the books of the
said corporation with full power of substitution in the premises.
Date: December 23, 1997 By: /s/ THOMAS OBENHUBER
--------------------------------
Thomas Obenhuber
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<PAGE> 1
Exhibit 10.34
FOUNDER STOCK PURCHASE AGREEMENT
This Founder Stock Purchase Agreement is dated as of the 23rd day of
December, 1997 (the "Effective Date") by and between MachOne Communications,
Inc., a California corporation (the "Company"), and Matt Stepovich ("Founder").
WITNESSETH:
WHEREAS, Founder is a founder and a key employee of the Company.
WHEREAS, the Company desires to issue and the Founder desires to acquire
stock of the Company as herein described, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Number of Shares and Price Per Share. The Founder hereby agrees to
purchase from the Company and the Company agrees to sell to the Founder 72,000
shares of the Company's Common Stock (the "Stock") with a fair market value of
$72.00 (or $0.001 per share). The consideration for the Stock (the "Purchase
Price") will be paid by Purchaser in cash, by check or promissory note
concurrent with the execution of this Agreement against the Company's delivery
of a stock certificate evidencing the Stock.
2. Unvested Share Repurchase Option. The Company shall have the option
(the "Unvested Share Repurchase Option") to reacquire any shares purchased
pursuant to this Agreement which have not vested in the Founder pursuant to
subsection 2(a) (the "Unvested Shares") under the terms set forth in this
Section 2.
(a) Vesting of Shares. The "Initial Vesting Date" shall be
December 3, 1997. The shares of Stock purchased by the Founder will vest (the
"Vested Shares") on and after the Initial Vesting Date in accordance with the
following formula:
<TABLE>
<CAPTION>
Date Number of Shares Vested
---- -----------------------
<S> <C>
On the Initial Vesting Date 9,000 shares of Stock will vest
For each full month of the An additional 2.0833% of the Stock
Company's continuous employment will vest (1,500 shares) for each
of Founder following the initial full month of service.
Vesting Date
</TABLE>
Provided that the aggregate number of shares of Stock constituting Vested
Shares may not exceed 72,000 shares (as adjusted for stock splits and the like).
In the event a fraction of a share is vested, the number of vested shares shall
be rounded to the nearest whole number.
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<PAGE> 2
Provided that the aggregate number of shares of Stock constituting Vested
Shares may not exceed 72,000 shares (as adjusted for stock splits and the
like). In the event a fraction of a share is vested, the number of vested
shares shall be rounded to the nearest whole number.
(b) Exercise of Unvested Share Repurchase Option. If the
Founder's employment with the Company is terminated for any reason, with or
without cause, voluntarily or involuntarily, including termination due to death
or disability (as defined below), or if the Founder or the Founder's legal
representative attempts to dispose of any Unvested Shares other than as allowed
in this Agreement, the Company may exercise the Unvested Share Repurchase
Option by written notice to the Escrow Agent (as defined in Section 8) and to
the Founder or the Founder's legal representative within 60 days after such
termination or after the Company has received notice of the attempted
disposition.
(c) Payment for Shares and Return of Shares. Payment by the
Company to the Escrow Agent on behalf of the Founder or the Founder's legal
representative shall be made in cash within 60 days after the date of the
mailing of the written notice of exercise of the Unvested Share Repurchase
Option. For purposes of the foregoing, cancellation of any promissory note of
the Founder to the Company shall be treated as payment to the Founder in cash
to the extent of the unpaid principal and any accrued interest canceled. The
purchase price per share being purchased by the Company pursuant to the
Unvested Share Repurchase Option shall be $0.001 per share, adjusted
appropriately to reflect any stock split, stock dividend, recapitalization,
etc. Within 30 days after payment by the Company, the Escrow Agent shall give
the shares which the Company has purchased to the Company and shall give the
payment received from the Company to the Founder.
(d) Early Termination of Unvested Share Repurchase Option. The
other provisions of Section 2 notwithstanding, upon any Transfer of Control (as
defined below, the Unvested Share Repurchase Option shall terminate as of a
date prior to the Transfer of Control, as the Board so determines, or if no
such determination is made, two days prior to the closing of the transaction
involving the Transfer of Control. Any such termination that was permissible
solely by reason of this subsection 2(d) shall be conditioned upon the
consummation of the Transfer of Control. For purposes of this subsection 2(d),
a Transfer or Control shall be deemed to have occurred upon any of the
following events: (i) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company where the shareholders of the Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company; (ii) a merger in which the
shareholders of the Company before the merger do not retain, directly or
indirectly, at lease a majority of the beneficial interest in the voting stock
of the Company; or (iii) the sale, exchange, or transfer to one or more
corporations where the shareholders of the Company before such sale, exchange,
or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred).
(e) Transfers Not Subject to the Unvested Share Repurchase Option.
The Unvested Share Repurchase Option shall not apply to a transfer of shares of
the Stock to the Founder's ancestors, descendants or spouse or to a trustee for
their benefit or the benefit of the
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Founder, provided that such transferee shall agree in writing (in a form
satisfactory to the Company) to take the shares of the Stock subject to all the
terms and conditions of this Section 2.
(f) Assignment of Unvested Share Repurchase Option. The Company may
assign the Unvested Share Repurchase Option to one or more persons, who shall
have the right to exercise the Unvested Shares Repurchase Option in his or her
own name for his or her own account.
3. Right of First Refusal. Before any shares of the Stock registered in
the name of Founder may be sold or transferred (including transfer by operation
of law), such shares shall first be offered to the Company, which will have the
right to purchase all or any part of such shares proposed to be transferred
("Right of First Refusal"), in the following manner:
(a) Transfer Notice. The Founder or his or her legal representative
shall first give written notice (the "Transfer Notice") of any proposed
transfer to the Company. The Transfer Notice shall name the proposed
transferee, state the number of shares of Stock to be transferred, the price
per share and all other terms of the offer. The Transfer Notice shall be signed
by the Founder or his or her representative and the prospective transferee and
must constitute a binding agreement for the transfer of the Stock subject only
to the Right of First Refusal.
(b) Bona Fide Determination. Within 30 days of delivery of the
Transfer Notice, the Company's Board of Directors shall determine the bona fide
nature of the proposed transfer and give the Founder written notice of its
determination. If the proposed transfer is deemed to be bona fide, the
remaining subsections of this section shall apply to the sale. If the proposed
transfer is deemed not to be bona fide, the Founder will be responsible for
providing additional information to the Board to show the bona fide nature of
the proposed transfer and no Stock will be transferred on the books of the
Company until the Board has approved the proposed transfer as bona fide.
(c) Failure to Exercise; Exercise. If the Company elects not to or
fails to exercise in full the Right of First Refusal within 30 days from the
later of the date the Transfer Notice is delivered to the Company or 30 days
after the date the transfer is determined to be bona fide (if the Founder is
required to provide additional information as provided in Section 3(b)), the
Founder may, by the later of 60 days after the delivery of the Transfer Notice
to the Company or 30 days after the date the transfer is determined to be bona
fide (if the Founder is required to provide additional information as provided
in Section 3(b)), conclude a transfer of the shares of Stock subject to the
Transfer Notice which have not been purchased by the Company pursuant to
exercise of the Right of First Refusal on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by the Founder, shall again be subject to the Right of First Refusal
and shall require compliance by the Founder with the procedure described in
this Section 3. If the Company exercises the Right of First Refusal, the
parties shall consummate the sale of shares of Stock on the terms set forth in
the Transfer Notice by the later of 60 days after the delivery of the Transfer
Notice to the Company or 30 days after the date the transfer is determined to
be bona fide (if the Purchaser is required to provide additional information as
provided in Section 3(b)); provided, however, in the event the Transfer
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<PAGE> 4
Notice provides for the payment for the shares of Stock other than in cash, the
Company shall have the option of paying for the shares of Stock by the
discounted cash equivalent of the consideration described in the Transfer
Notice as reasonably determined by the Company.
(d) Condition to Transfer. All transferees of shares of Stock or any
interest therein other than the Company shall be required as a condition of
such transfer to agree in writing (in a form satisfactory to the Company) that
they will receive and hold such shares of Stock or interests subject to the
provisions of this Agreement, including the Right of First Refusal.
(e) Assignment of Right of First Refusal. The Company may assign the
Right of First Refusal to one or more persons, who shall have the right to
exercise the Right of First Refusal in his or her own name for his or her own
account.
(f) Termination. The Right of First Refusal will terminate upon the
closing of a firm commitment underwritten public offering to the public of the
Company's Common Stock pursuant to a registration statement under the
Securities Act of 1933, as amended (the "IPO").
(g) Transfer Not Subject to Right of First Refusal. The Right of
First Refusal shall not apply to a transfer of shares of the Stock to the
Founder's ancestors, descendants or spouse or to a trustee for their benefit or
the benefit of the Founder, provided that such transferee shall agree in
writing (in a form satisfactory to the Company) to take the shares of Stock
subject to all the terms and conditions of this Section 3.
4. Piggyback Registration Rights.
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a shareholder(s) exercising demand
registration rights, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a transaction pursuant to
Rule 145 promulgated under the Securities Act of 1933, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Stock, the Company will
promptly give to the Founder written notice thereof and include in such
registration (and any related qualification under blue sky laws), and in any
underwriting involved therein, the number of Vested Shares specified in a
written request made by the Founder within fifteen (15) days after receipt of
such written notice from the Company, except as set forth in Section 4(b) below.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the right of any Founder
to registration shall be conditioned upon the Founder's participation in such
underwriting and the inclusion of such Founder's Stock in the underwriting
pursuant to an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
this Section, if the underwriter reasonably determines that marketing factors
require a limitation on the number of shares to be underwritten the underwriter
may exclude some or all of the Stock with the number of shares that may be
included in the registration and underwriting being allocated among the Founder
and all other shareholders entitled to have securities included
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<PAGE> 5
in such registration in proportion, as nearly as practicable, to the respective
amounts of securities which they had requested to be included in such
registration (provided, however, that if the registration is for the account of
shareholders exercising demand registration rights, the number of shares that
may be included by the Founder shall be cut back entirely before any limitation
on the number of shares that may be included by such shareholders).
(c) All expenses of the registration shall be borne by the Company,
except underwriting discounts and selling commissions applicable to the sale of
any of Founder's Stock and any other securities of the Company being sold in
the same registration by other shareholders, which shall be borne by the
Founder and such other shareholders pro rata on the basis of the number of
their shares registered.
5. Stock Dividends, etc. If, from time to time, there is any stock
dividend, stock split or other change in the character or amounts of any of the
outstanding stock of the Company, then in such event any and all new substituted
or additional securities to which Founder is entitled by reason of Founder's
ownership of Unvested Shares or Stock shall be immediately subject to the
Unvested Share Repurchase Option or the Right of First Refusal, respectively,
with the same force and effect as the Unvested Shares or Stock.
6. Consent of Spouse. If the Founder is married on the date of this
Agreement, the Founder's spouse shall execute a Consent of Spouse in the form
of Exhibit A hereto, effective on the date hereof. Such consent shall not be
deemed to confer or convey to the spouse any rights in the Stock that do not
otherwise exist by operation of law or the agreement of the parties. If the
Founder should marry or remarry subsequent to the date of this Agreement, the
Founder shall within thirty (30) days thereafter obtain his or her new spouse's
acknowledgment of and consent to the existence and binding effect of all
restrictions contained in this Agreement by signing an additional Consent of
Spouse in the form of Exhibit A.
7. Legends. All certificates representing any shares of Stock subject to
the provisions of this Agreement shall have endorsed thereon the following
legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
REPURCHASE OPTION AND RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THIS COMPANY.
(b) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
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<PAGE> 6
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT."
(c) Any legend required to be placed thereon by the federal or state
securities authorities.
8. Warranties and Representations. In connection with the proposed
purchase of the Stock, the Founder hereby agrees, represents and warrants as
follows:
(a) The Founder is purchasing the Stock solely for his own account
for investment and not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933 as
amended (the "Act"). The Founder further represents that he or she does not
have any present intention of selling, offering to sell or otherwise disposing
of or distributing the Stock or any portion thereof; and that the entire legal
and beneficial interest of the Stock he or she is purchasing is being purchased
for, and will be held for the account of, the Founder only and neither in whole
nor in part for any other person.
(b) The Founder is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Stock. The
Founder further represents and warrants that he or she has discussed the
Company and its plans, operations and financial condition with its officers,
has received all such information as he or she deems necessary and appropriate
to enable him or her to evaluate the financial risk inherent in making an
investment in the Stock and has received satisfactory and complete information
concerning the business and financial condition of the Company in response to
all inquiries in respect thereof.
(c) The Founder realizes that his or her purchase of the Stock will
be a highly speculative investment, and he is able, without impairing his
financial condition, to hold the Stock for an indefinite period of time and to
suffer a complete loss on his investment.
(d) The Company has disclosed to the Founder that:
(i) The sale of the Stock has not been registered under the Act,
and the Stock must be held indefinitely unless a transfer of it is subsequently
registered under the Act or an examination from such registration is available,
and that the Company is under no obligation to register the Stock;
(ii) The Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
9. Escrow. As security for his faithful performance of the terms of this
Agreement and to ensure the availability for delivery of the Stock upon
exercise of the Unvested Share Repurchase Option and the Right of First Refusal
herein provided for, the Founder agrees to deliver to and deposit with Gray
Cary Ware & Freidenrich, a Professional Corporation (the "Escrow Agent"), as
Escrow Agent in this transaction, two Stock Assignments duly endorsed (with
date and number of shares blank) in the form attached hereto as Exhibit B,
together with the certificate or certificates evidencing the Stock. Such
documents shall be held by the Escrow Agent pursuant to the Joint Escrow
Instructions of the Company and the Founder set forth in
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<PAGE> 7
Exhibit C attached hereto and incorporated by this reference, which
instructions shall also be delivered to the Escrow Agent at the closing
hereunder.
10. Transfers in Violation of Agreement. The Company shall not be
required (i) to transfer on its books any shares of Stock of the Company which
shall have been sold or transferred in violation of any of the provisions set
forth in this Agreement or (ii) to treat as owner of such shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom
such shares shall have been so transferred.
11. Rights as Shareholder. Subject to the provisions of this Agreement,
the Founder shall exercise all rights and privileges of a shareholder of the
Company with respect to the Stock deposited in escrow.
12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
13. "Market Stand-Off" Agreement. Founder hereby agrees that in
connection with the IPO, during the period of duration (not to exceed 180 days)
specified by the Company and an underwriter of common stock of the Company
following the effective date of the registration statement of the Company filed
under the Securities Act with respect to the IPO, he shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase, pledge or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any securities of the
Company held by him at any time during such period except common stock included
in such registration. Founder agrees to the terms of any form of such a
stand-off agreement as approved by the company or the underwriter of the IPO.
14. Notice. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, or upon delivery to an overnight courier service
addressed to the other party at the address hereinafter shown below his
signature or at such other address as such party may designate by ten (10)
days' advance written notice to the other party.
15. Successors and Assigns. This Agreement shall inure to the benefit of,
and be binding upon, the successors and assigns of each party, including,
without limitation, in the case of the Founder, Founder's heirs, executors,
administrators, successors and assigns.
16. Entire Agreement; Amendments. This Agreement, together with the
Exhibits hereto, shall be construed under the laws of the State of California
(as it applies to agreements between California residents, entered into and to
be performed entirely within California), and constitutes the entire agreement
of the parties with respect to the subject matter hereof superseding all prior
written or oral agreements, and no amendment or addition hereto shall be deemed
effective unless agreed to in writing by the parties.
17. Right to Specific Performance. The Founder agrees that the Company
shall be entitled to a decree of specific performance of the terms hereof or an
injunction restraining
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<PAGE> 8
violation of this Agreement, said right to be in addition to any other remedies
available to the Company.
18. Separability. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with
the purposes and tenor and effect of this Agreement.
19. Tax Consequences and Tax Election Notification
(a) The Founder understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code") taxes as ordinary income the difference
between the amount paid for the Stock and the fair market value of the Stock as
of the date any restrictions on the Stock lapse. In this context, "restriction"
means the right of the Company to buy back the stock pursuant to the Unvested
Share Repurchase Option. The Founder understands that he or she may elect to be
taxed at the time the Stock is purchased rather than when and as the Unvested
Share Repurchase Option expires by filing an election under Section 83(b) of
the Code with the Internal Revenue Service (the "IRS") within 30 days from the
date of purchase. Even if the fair market value of the Stock equals the amount
paid for the Stock, the election must be made to avoid adverse tax consequences
in the future. The Founder understands that failure to make this filing timely
will result in the recognition of ordinary income by the Founder, as the
Unvested Share Repurchase Option lapses, on the difference between the purchase
price and the fair market value of the Stock at the time such restriction
lapses.
(b) The Founder understands that the purchase price of the Stock has
been set by the Board of Directors and that the Company believes this valuation
is a fair attempt to appraise it. The Founder understands, however, that if the
Founder files a Section 83(b) election, the Company can give no assurances that
the purchase price will be accepted as the fair market value of the Stock by
the IRS, and that the IRS could assert that the value of the Stock on the date
of purchase was substantially greater than the purchase price.
If the IRS were to successfully argue in a tax determination that the
Stock had a value greater than the price paid by the Founder, and the Founder
has filed a Section 83(b) election, the additional value would constitute
ordinary income as of the date of its receipt. The additional taxes (and
interest) due would be payable by the Founder. There is no provision for the
Company to reimburse the Founder for any potential tax liability, and the
Founder assumes all responsibility for any such liability. If the additional
value attributed to the Stock was more than 25 percent of the Founder's gross
income for the year in which that value was taxable, the IRS would have six
years from the due date for filing of the Founder's the return (or the actual
filing date of the return if filed thereafter) within which to assess the
additional tax and interest.
THE FOUNDER ACKNOWLEDGES THAT IT IS THE FOUNDER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S RESPONSIBILITY TO FILE TIMELY THE ELECTION UNDER SECTION
83(B), EVEN IF THE FOUNDER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE FOUNDER'S BEHALF. THE FOUNDER FURTHER UNDERSTANDS THAT ANY
PURPORTED ELECTION PURSUANT TO SECTION 83(B) MUST COMPLY WITH THE PROVISIONS
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OF TREASURY REGULATION SECTION 1.83-2. FOUNDER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO SEEK THE ASSISTANCE OF A TAX ADVISOR IN THIS MATTER.
(c) The Founder shall notify the Company in writing if Founder files
an election pursuant to Section 83(b) of the Code. The Company intends, in the
event it does not receive from Founder evidence of such filing, to claim a tax
deduction for any amount which would be taxable to Founder in the absence of
such an election.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"FOUNDER" "COMPANY"
Matt Stepovich MachOne Communications, Inc.
/s/ MATT STEPOVICH By: /s/ PETER D. OLSON
- ------------------------------------- ---------------------------------
Matt Stepovich
Address: Title: President & CEO
----------------------------- ------------------------------
- -------------------------------------
- -------------------------------------
<PAGE> 10
OF TREASURY REGULATION SECTION 1.83-2. FOUNDER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO SEEK THE ASSISTANCE OF A TAX ADVISOR IN THIS MATTER.
(c) The Founder shall notify the Company in writing if Founder files
an election pursuant to Section 83(b) of the Code. The Company intends, in the
event it does not receive from Founder evidence of such filing, to claim a tax
deduction for any amount which would be taxable to Founder in the absence of
such an election.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"FOUNDER" "COMPANY"
Matt Stepovich MachOne Communications, Inc.
/s/ MATT STEPOVICH By:
- ------------------------------------- ---------------------------------
Matt Stepovich
Address: Title:
----------------------------- ------------------------------
- -------------------------------------
- -------------------------------------
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EXHIBIT A
CONSENT OF SPOUSE
I, _____________, spouse of ____________, acknowledge that I have read
the Founder Stock Purchase Agreement dated as of _________, 1997, to which this
Consent is attached as Exhibit A (the "Agreement") and that I know its contents.
I am aware that by its provisions the Company has the option to purchase certain
shares of Stock of the Company which my spouse owns pursuant to the Agreement
including any interest I might have therein, upon termination of his employment
under circumstances set forth in the Agreement, and that certain other
restrictions are imposed upon the sale or other disposition of the Stock during
my spouse's lifetime and in the event of his death.
I agree that my interest, if any, in the Stock subject to the Agreement
shall be bound by the Agreement and further understand and agree that any
community property interest I may have in the Stock shall be similarly bound by
the Agreement.
Signed and Dated:
--------------------------------
/s/ [Signature Illegible]
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EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns and
transfers unto __________________________ ________________ (______) shares of
the Common Stock of MachOne Communications, Inc., a California corporation,
standing in the undersigned's name on the books of said corporation represented
by Certificate No. ____ herewith, and do hereby irrevocably constitute and
appoint __________________________ attorney to transfer the said stock on the
books of the said corporation with full power of substitution in the premises.
Date: December 23, 1997 By: /s/ MATT STEPOVICH
_________________________________
Matt Stepovich
<PAGE> 1
EXHIBIT 10.35
FOUNDER STOCK REPURCHASE AGREEMENT
This Founder Stock Repurchase Agreement is dated as of the first day of
June 1998 (the "Effective Date") by and between MachOne Communications, Inc., a
California corporation (the "Company"), and Peter D. Olson ("Founder").
WITNESSETH:
WHEREAS, Founder is a founder and a key employee of the Company.
WHEREAS, Founder is the holder of 2,331,000 shares of the Company's
common stock (the "Original Shares"), which were purchased by Founder
pursuant to the Founders Stock Purchase Agreement by and between the
Company and Founder dated December 23, 1997 (the "Original Purchase
Agreement").
WHEREAS, the Company desires to repurchase and the Founder desires to
resell to Company certain of the Original Shares on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Number of Shares and Price Per Share. The Founder hereby agrees to
sell to Company and the Company agrees to repurchase from Founder one million
three hundred thirty-one thousand (1,331,000) shares of the Company's Common
Stock (the "Shares") from Founder's Original Shares at Founder's original
purchase price (of $0.001 per share). The consideration for the repurchase of
the Shares (the "Purchase Price") will be the agreement by the Company to amend
the promissory note provided by Purchaser to Company in exchange for the
purchase of the Original Shares. The original principal amount of the note will
be amended and reduced from two thousand three hundred thirty-one ($2,331.00)
to a new principal amount of one thousand dollars ($1,000.00).
2. Repurchase Pursuant to the Provisions of the Unvested Share
Repurchase Option. The Company acknowledges that none of the events that would
trigger the Unvested Share Repurchase Option as set forth in the Founders Stock
Purchase Agreement (the "Unvested Share Repurchase Option") have occurred.
However, the parties acknowledge that the repurchase set forth herein is in
their mutual best interest and will benefit both parties by allowing for the
restructure of the equity ownership in the Company necessary for the ongoing
success of the Company. Accordingly, the parties agree that the repurchase of
the Shares shall be accomplished pursuant to the provisions of the Unvested
Share Repurchase Option, although no such right to repurchase shall exist with
respect to the remaining one million (1,000,000) shares of the Original Shares
(the "Remaining Shares"), except as set forth in Section 4 ("Unvested Share
Repurchase Option") below. Other than as set forth in Section 4, all other
provisions of the
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Original Purchase Agreement shall remain in full force and effect with respect
to the Remaining Shares.
3. Representations and Warranties of the Founder. The Founder represents
and warrants to the Company as follows:
(a) Valid Title. The Founder is the lawful and beneficial owner of
the Shares free and clear of any and all liens, encumbrances, restrictions and
claims of any kind. The Founder has full legal right, power and authority to
sell, assign, transfer and convey such Shares in accordance with the terms of
this Assignment. The delivery to the Company of the Shares pursuant to the
provisions hereof will transfer to the Company valid title thereto, free and
clear of any and all adverse claims.
(b) Requisite Power and Authority. The Founder has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and to carry out its provisions. All action required on
the part of the Founder for the lawful execution and delivery of this Agreement
has been or will be effectively taken prior to the date of this Agreement. Upon
its execution and delivery, this Agreement will be a valid and binding
obligation of the Founder, enforceable in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights
and by general principles of equity that restrict the availability of equitable
remedies.
(c) No Conflicts. The performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a breach
of or default under any material bond, debenture, note or other evidence of
indebtedness, or any material contract, indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which the Founder is
a party or by which the Founder or any Shares hereunder may be bound or, to the
best knowledge of the Founder, result in any violation of any law, order, rule,
regulation, writ, injunction or decree of any court or governmental agency or
body.
4. Unvested Share Repurchase Option. The Company shall have the option
(the "Unvested Share Repurchase Option") to reacquire any of the Remaining
Shares which have not vested in the Founder pursuant to subsection 4(a) (the
"Unvested Shares") under the terms set forth in this Section 4, which amends
and restates Section 2 of the Original Purchase Agreement.
(a) Vesting of Shares. The "Initial Vesting Date" shall be October
3, 1997. The Remaining Shares will vest (the "Vested Shares") on and after the
Initial Vesting Date in accordance with the following formula:
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<PAGE> 3
Number of Shares Vested
-----------------------
On the Initial Vesting Date 343,750 shares will vest
For each of the following 42 full An additional 1.5625% of the
months of the Company's continuous Remaining Shares will vest
employment of Founder following the (15,625 shares) for each full
Initial Vesting Date month of services.
Provided that the aggregate number of shares of Remaining Shares
constituting Vested Shares may not exceed 10,000,000 shares (as adjusted for
stock splits and the like). In the event a fraction of a share is vested, the
number of vested shares shall be rounded to the nearest whole number.
(b) Exercise of Unvested Share Repurchase Option. If the Founder's
employment with the Company is terminated for any reason, with or without
cause, voluntarily or involuntarily, including termination due to death or
disability (as defined below), or if the Founder or the Founder's legal
representative attempts to dispose of any Unvested Shares other than as allowed
in this Agreement, the Company may exercise the Unvested Share Repurchase
Option by written notice to the Escrow Agent (as defined in Section 5) and to
the Founder or the Founder's legal representative within 60 days after such
termination or after the Company has received notice of the attempted
disposition.
(c) Payment for Shares and Return of Shares. Payment by the Company
to the Escrow Agent on behalf of the Founder or the Founder's legal
representative shall be made in cash within 60 days after the date of the
mailing of the written notice of exercise of the Unvested Share Repurchase
Option. For purposes of the foregoing, cancellation of any promissory note of
the Founder to the Company shall be treated as payment to the Founder in cash
to the extent of the unpaid principal and any accrued interest canceled. The
purchase price per share being purchased by the Company pursuant to the
Unvested Share Repurchase Option shall be $0.001 per share, adjusted
appropriately to reflect any stock split, stock dividend, recapitalization,
etc. Within 30 days after payment by the Company, the Escrow Agent shall give
the shares which the Company has purchased to the Company and shall give the
payment received from the Company to the Founder.
(d) Early Termination of Unvested Share Repurchase Option. The other
provisions of this Section 4 notwithstanding, upon any Transfer of Control (as
defined below), the Unvested Share Repurchase Option shall terminate as of a
date prior to the Transfer of Control, as the Board so determines, or if no
such determination is made, two days prior to the closing of the transaction
involving the Transfer of Control. Any such termination that was permissible
solely by reason of this subsection 4(d) shall be conditioned upon the
consummation of the Transfer of Control. For purposes of this subsection 4(d),
a Transfer of Control shall be deemed to have occurred upon any of the
following events: (i) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company where the shareholders of the Company before such sale or exchange do
not retain,
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<PAGE> 4
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Company; (ii) a merger in which the shareholders of the
Company before the merger do not retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the Company; or
(iii) the sale, exchange, or transfer of all or substantially all of the
Company's assets (other than a sale, exchange, or transfer to one or more
corporations where the shareholders of the Company before such sale, exchange,
or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred).
(e) Transfers Not Subject to the Unvested Share Repurchase Option.
The Unvested Share Repurchase Option shall not apply to a transfer of shares of
the Remaining Shares to the Founder's ancestors, descendants or spouse or to a
trustee for their benefit or the benefit of the Founder, provided that such
transferee shall agree in writing (in a form satisfactory to the Company) to
take the shares of the Remaining Shares subject to all the terms and conditions
of this Section 4.
(f) Assignment of Unvested Share Repurchase Option. The Company may
assign the Unvested Share Repurchase Option to one or more persons, who shall
have the right to exercise the Unvested Share Repurchase Option in his or her
own name for his or her own account.
5. Escrow. Founder agrees to instruct Gray Cary Ware & Freidenrich, a
Professional Corporation (the "Escrow Agent"), to take all such action
necessary with respect to the Original Shares to properly reflect the
repurchase of the Shares as set forth herein. This Agreement, when executed,
shall serve as such instruction.
6. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
7. Entire Agreement; Amendments. This Agreement shall be construed under
the laws of the State of California (as it applies to agreements between
California residents, entered into and to be performed entirely within
California), and constitutes the entire agreement of the parties with respect
to the subject matter hereof superseding all prior written or oral agreements,
and no amendment or addition hereto shall be deemed effective unless agreed to
in writing by the parties. This Agreement shall be deemed an amendment to the
Original Purchase Agreement, however any provision of the Original Purchase
Agreement not specifically amended hereby shall remain in full force and effect.
8. Right to Specific Performance. The Founder agrees that the Company
shall be entitled to a decree of specific performance of the terms hereof or an
injunction restraining violation of this Agreement, said right to be in
addition to any other remedies available to the Company.
9. Separability. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with
the purposes and tenor and effect of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"FOUNDER" "COMPANY"
Peter D. Olson MachOne Communications, Inc.
/s/ PETER D. OLSON By: /s/ [SIGNATURE ILLEGIBLE]
- ---------------------------------- -----------------------------
Peter D. Olson
Address: 15768 Hidden Hill Place, Title: Secretary
-------------------------- --------------------------
Los Gatos, CA 95130
- ----------------------------------
5
<PAGE> 1
Exhibit 10.36
FOUNDER STOCK REPURCHASE AGREEMENT
This Founder Stock Repurchase Agreement is dated as of the first day
of June, 1998 (the "Effective Date") by and between MachOne Communications,
Inc., a California corporation (the "Company"), and Michael Solomon ("Founder").
WITNESSETH:
WHEREAS, Founder is a founder and a key employee of the Company.
WHEREAS, Founder is the holder of 777,000 shares of the Company's
common stock (the "Original Shares"), which were purchased by Founder
pursuant to the Founders Stock Purchase Agreement by and between the
Company and Founder dated December 23, 1997 (the "Original Purchase
Agreement").
WHEREAS, the Company desires to repurchase and the Founder desires to
resell to Company certain of the Original Shares on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Number of Shares and Price Per Share. The Founder hereby agrees to
sell to Company and the Company agrees to repurchase from Founder seventy-seven
thousand (77,000) shares of the Company's Common Stock (the "Shares") from
Founder's Original Shares at Founder's original purchase price (of $0.001 per
share). The consideration for the repurchase of the Shares (the "Purchase
Price") will be the agreement by the Company to amend the promissory note
provided by Purchaser to Company in exchange for the purchase of the Original
Shares. The original principal amount of the note will be amended and reduced
from seven hundred seventy-seven dollars ($777.00) to a new principal amount of
seven hundred dollars ($700.00).
2. Repurchase Pursuant to the Provisions of the Unvested Share Repurchase
Option. The Company acknowledges that none of the events that would trigger the
Unvested Share Repurchase Option as set forth in the Founders Stock Purchase
Agreement (the "Unvested Share Repurchase Option") have occurred. However, the
parties acknowledge that the repurchase set forth herein is in their mutual
best interest and will benefit both parties by allowing for the restructure of
the equity ownership in the Company necessary for the ongoing success of the
Company. Accordingly, the parties agree that the repurchase of the Shares shall
be accomplished pursuant to the provisions of the Unvested Share Repurchase
Option, although no such right to repurchase shall exist with respect to the
remaining 700,000 shares of the Original Shares (the "Remaining Shares"),
except as set forth in Section 4 ("Unvested Share Repurchase Option") below.
Other than as set forth in Section 4, all other provisions of the Original
Purchase Agreement shall remain in full force and effect with respect to the
Remaining Shares.
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3. Representations and Warranties of the Founder. The Founder
represents and warrants to the Company as follows:
(a) Valid Title. The Founder is the lawful beneficial owner of
the Shares free and clear of any and all liens, encumbrances, restrictions and
claims of any kind. The Founder has full legal right, power and authority to
sell, assign, transfer and convey such Shares in accordance with the terms of
this Agreement. The delivery to the Company of the Shares pursuant to the
provisions hereof will transfer to the Company valid title thereto, free and
clear of any and all adverse claims.
(b) Requisite Power and Authority. The Founder has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and to carry out its provisions. All action required on
the part of the Founder for the lawful execution and delivery of this
Agreement has been or will be effectively taken prior to the date of this
Agreement. Upon its execution and delivery, this Agreement will be a valid and
binding obligation of the Founder, enforceable in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights and by general principles of equity that restrict the
availability of equitable remedies.
(c) No Conflicts. The performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
breach of or default under any material bond, debenture, note or other evidence
of indebtedness, or any material contract, indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which the Founder is
a party or by which the Founder or any Shares hereunder may be bound or, to the
best knowledge of the Founder, result in any violation of any law, order, rule,
regulation, writ, injunction or decree of any court or governmental agency or
body.
4. Unvested Share Repurchase Option. The Company shall have the option
(the "Unvested Share Repurchase Option") to reacquire any of the Remaining
Shares which have not vested in the Founder pursuant to subsection 4(a) (the
"Unvested Shares") under the terms set forth in this Section 4, which amends
and restates Section 2 of the Original Purchase Agreement.
(a) Vesting of Shares. The "Initial Vesting Date" shall be
October 3, 1997. The Remaining Shares will vest (the "Vested Shares") on and
after the Initial Vesting Date in accordance with the following formula:
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Number of Shares Vested
-----------------------
On the Initial Vesting Date 240,625 shares will vest
For each of the following 42 full An additional 1.5625% of the
months of the Company's continuous Remaining Shares will vest
employment of Founder following the (10,938 shares) for each full
Initial Vesting Date month of service.
Provided that the aggregate number of shares of Remaining Shares
constituting Vested Shares may not exceed 700,000 shares (as adjusted for
stock splits and the like). In the event a fraction of a share is vested, the
number of vested shares shall be rounded to the nearest whole number.
(b) Exercise of Unvested Share Repurchase Option. If the Founder's
employment with the Company is terminated for any reason, with or without
cause, voluntarily or involuntarily, including termination due to death or
disability (as defined below), or if the Founder or the Founder's legal
representative attempts to dispose of any Unvested Shares other than as allowed
in this Agreement, the Company may exercise the Unvested Share Repurchase
Option by written notice to the Escrow Agent (as defined in Section 5) and to
the Founder or the Founder's legal representative within 60 days after such
termination or after the Company has received notice of the attempted
disposition.
(c) Payment for Shares and Return of Shares. Payment by the Company
to the Escrow Agent on behalf of the Founder or the Founder's legal
representative shall be made in cash within 60 days after the date of the
mailing or the written notice of exercise of the Unvested Share Repurchase
Option. For purposes of the foregoing, cancellation of any promissory note of
the Founder to the Company shall be treated as payment to the Founder in cash
to the extent of the unpaid principal and any accrued interest canceled. The
purchase price per share being purchased by the Company pursuant to the
Unvested Share Repurchase Option shall be $0.001 per share, adjusted
appropriately to reflect any stock split, stock dividend, recapitalization,
etc. Within 30 days after payment by the Company, the Escrow Agent shall give
the shares which the Company has purchased to the Company and shall give the
payment received from the Company to the Founder.
(d) Early Termination of Unvested Share Repurchase Option. The other
provisions of this Section 4 notwithstanding, upon any Transfer of Control (as
defined below), the Unvested Share Repurchase Option shall terminate as of a
date prior to the Transfer of Control, as the Board so determines, or if no
such determination is made, two days prior to the closing of the transaction
involving the Transfer of Control. Any such termination that was permissible
solely by reason of this subsection 4(d) shall be conditioned upon the
consummation of the Transfer of Control. For purposes of this subsection 4(d),
a Transfer of Control shall be deemed to have occurred upon any of the
following events: (i) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company where the shareholders of the Company before such sale or exchange do
not retain,
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directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Company; (ii) a merger in which the shareholders of the
Company before the merger do not retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the Company; or
(iii) the sale, exchange, or transfer of all or substantially all of the
Company's assets (other than a sale, exchange, or transfer to one or more
corporations where the shareholders of the Company before such sale, exchange,
or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred).
(e) Transfers Not Subject to the Unvested Share Repurchase Option.
The Unvested Share Repurchase Option shall not apply to a transfer of shares of
the Remaining Shares to the Founder's ancestors, descendants or spouse or to a
trustee for their benefit or the benefit of the Founder, provided that such
transferee shall agree in writing (in a form satisfactory to the Company) to
take the shares of the Remaining Shares subject to all the terms and conditions
of this Section 4.
(f) Assignment of Unvested Share Repurchase Option. The Company may
assign the Unvested Share Repurchase Option to one or more persons, who shall
have the right to exercise the Unvested Share Repurchase Option in his or her
own name for his or her own account.
5. Escrow. Founder agrees to instruct Gray Cary Ware & Freidenrich, a
Professional Corporation (the "Escrow Agent"), to take all such action
necessary with respect to the Original Shares to properly reflect the
repurchase of the Shares as set forth herein. This Agreement, when executed,
shall serve as such instruction.
6. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
7. Entire Agreement; Amendments. This Agreement shall be construed under
the laws of the State of California (as it applies to agreements between
California residents, entered into and to be performed entirely within
California), and constitutes the entire agreement of the parties with respect
to the subject matter hereof superseding all prior written or oral agreements,
and no amendment or addition hereto shall be deemed effective unless agreed to
in writing by the parties. This Agreement shall be deemed an amendment to the
Original Purchase Agreement, however any provision of the Original Purchase
Agreement not specifically amended hereby shall remain in full force and effect.
8. Right to Specific Performance. The Founder agrees that the Company
shall be entitled to a decree of specific performance of the terms hereof or an
injunction restraining violation of this Agreement, said right to be in
addition to any other remedies available to the Company.
9. Separability. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless
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continue in full force and effect without being impaired or invalidated in any
way and shall be construed in accordance with the purposes and tenor and effect
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"FOUNDER" "COMPANY"
Michael Solomon MachOne Communications, Inc.
/s/ MICHAEL SOLOMON By: /s/ [SIGNATURE ILLEGIBLE]
- ----------------------------- -------------------------------------
Michael Solomon
Address: P.O. Box 426 Title: Secretary
Ross, Co. 94957
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EXHIBIT A
CONSENT OF SPOUSE
I, ______________, spouse of ________________, acknowledge that I have read
the Founder Stock Repurchase Agreement dated as of June 1, 1998, to which this
Consent is attached as Exhibit A (the "Agreement") and that I know its contents.
I am aware that by its provisions the Company has repurchased certain shares of
stock of the Company which my spouse owns pursuant to the Agreement including
any interest I might have therein, and to the extent as may be necessary, I
consent to the repurchase. I am aware that certain other restrictions continue
to be imposed upon the sale or other disposition of the Remaining Shares during
my spouse's lifetime and in the event of his death.
I agree that my interest, if any, in the Remaining Shares subject to the
Original Purchase Agreement shall be bound by the Original Purchase Agreement
and further understand and agree that any community property interest I may have
in the Shares shall be similarly bound by the Agreement.
Signed:_________________________
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EXHIBIT A
CONSENT OF SPOUSE
I, ______________, spouse of ________________, acknowledge that I have read
the Founder Stock Repurchase Agreement dated as of June 1, 1998, to which this
Consent is attached as Exhibit A (the "Agreement") and that I know its contents.
I am aware that by its provisions the Company has repurchased certain shares of
stock of the Company which my spouse owns pursuant to the Agreement including
any interest I might have therein, and to the extent as may be necessary, I
consent to the repurchase. I am aware that certain restrictions continue to be
imposed upon the sale or other disposition of the Remaining Shares during my
spouse's lifetime and in the event of his death.
I agree that my interest, if any, in the Remaining Shares subject to the
Original Purchase Agreement shall be bound by the Original Purchase Agreement
and further understand and agree that any community property interest I may have
in the Shares shall be similarly bound by the Agreement.
Signed:
-------------------------
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EXHIBIT 10.37
FOUNDER STOCK PURCHASE AGREEMENT
This Founder Stock Purchase Agreement is dated as of the tenth day of June
1998 (the "Effective Date") by and between MachOne Communications, Inc., a
California corporation (the "Company"), and Kevin Grundy ("Founder").
WITNESSETH:
WHEREAS, Founder is a founder and a key employee of the Company.
WHEREAS, the Company desires to issue and the Founder desires to acquire
stock of the Company as herein described, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Number of Shares and Price Per Share. The Founder hereby agrees to
purchase from the Company and the Company agrees to sell to the Founder eight
hundred thousand shares of the Company's Common Stock (the "Stock") with a fair
market value of $8,000 (or $0.01 per share). The consideration for the Stock
(the "Purchase Price") will be paid by Founder in cash, by check, or promissory
note concurrent with the execution of this Agreement against the Company's
delivery of a stock certificate evidencing the Stock.
2. Unvested Share Repurchase Option. The Company shall have the option
(the "Unvested Share Repurchase Option") to reacquire any shares purchased
pursuant to this Agreement which have not vested in the Founder pursuant to
subsection 2(a) (the "Unvested Shares") under the terms set forth in this
Section 2.
(a) Vesting of Shares. Founder shall purchase the Stock effective
upon the date first written above, but the "Initial Vesting Date" for
determination of vesting of the Stock shall be December 3, 1997. The shares of
Stock purchased by the Founder will vest (the "Vested Shares") on and after the
Initial Vesting Date in accordance with the following formula:
<TABLE>
<CAPTION>
Date Number of Shares Vested
---- -----------------------
<S> <C>
On the Initial Vesting Date 116,664 shares of Stock will
vest (14.583%)
For each full month of the Company's An additional 2.0833% of the
continuous employment of Founder Stock will vest (16,664 shares)
following the Initial Vesting Date for each full month of service.
</TABLE>
Provided that the aggregate number of shares of Stock constituting Vested
Shares may not exceed 800,000 shares (as adjusted for stock splits and the
like). In the event a fraction of a share is vested, the number of vested
shares shall be rounded to the nearest whole number.
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(b) Exercise of Unvested Share Repurchase Option. If the Founder's
employment with the Company is terminated for any reason, with or without
cause, voluntarily or involuntarily, including termination due to death or
disability (as defined below), or if the Founder or the Founder's legal
representative attempts to dispose of any Unvested Shares other than as allowed
in this Agreement, the Company may exercise the Unvested Share Repurchase
Option by written notice to the Escrow Agent (as defined in Section 8) and to
the Founder or the Founder's legal representative within 60 days after such
termination or after the Company has received notice of the attempted
disposition.
(c) Payment for Shares and Return of Shares. Payment by the Company
to the Escrow Agent on behalf of the Founder or the Founder's legal
representative shall be made in cash within 60 days after the date of the
mailing of the written notice of exercise of the Unvested Share Repurchase
Option. For purposes of the foregoing, cancellation of any promissory note of
the Founder to the Company shall be treated as payment to the Founder in cash
to the extent of the unpaid principal and any accrued interest canceled. The
purchase price per share being purchased by the Company pursuant to the
Unvested Share Repurchase Option shall be $0.001 per share, adjusted
appropriately to reflect any stock split, stock dividend, recapitalization,
etc. Within 30 days after payment by the Company, the Escrow Agent shall give
the shares which the Company has purchased to the Company and shall give the
payment received from the Company to the Founder.
(d) Early Termination of Unvested Shares Repurchase Option. The
other provisions of Section 2 notwithstanding, upon any Transfer of Control (as
defined below), the Unvested Share Repurchase Option shall terminate as of a
date prior to the Transfer of Control, as the Board so determines pursuant to
the definition below, or if no such determination is made, two days prior to
the closing of the transaction involving the Transfer of Control. Any such
termination that was permissible solely by reason of this subsection 2(d) shall
be conditioned upon the consummation of the Transfer of Control. For purposes
of this subsection 2(d), a Transfer of Control shall be deemed to have occurred
upon any of the following events: (i) the direct or indirect sale or exchange
by the shareholders of the Company of all or substantially all of the stock of
the Company where the shareholders of the Company before such sale or exchange
do not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company; (ii) a merger in which the
shareholders of the Company before the merger do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Company; or (iii) the sale, exchange, or transfer of all or
substantially all of the Company's assets (other than a sale, exchange, or
transfer to one or more corporations where the shareholders of the Company
before such sale, exchange, or transfer retain, directly or indirectly, at least
a majority of the beneficial interest in the voting stock of the corporation(s)
to which the assets were transferred).
For the purposes of early termination of the unvested share repurchase
option, a Transfer of Control shall be deemed to have occurred only if one of
the events described in the paragraph above has occurred and, within one year
of such event: (i) there is a decrease in Founder's base salary, benefits
and/or bonus compensation; (ii) there is a material breach by Company (or its
successor or assign) of this Agreement or of Founder's Employment Agreement
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with the Company; (iv) the Company fails to obtain the assumption of this
Assignment and the Employment Agreement by MachOne's successor or assign.
(e) Transfers Not Subject to the Unvested Share Repurchase Option.
The Unvested Share Repurchase Option shall not apply to a transfer of shares of
the Stock to the Founder's ancestors, descendants or spouse or to a trustee for
their benefit or the benefit of the Founder, provided that such transferee shall
agree in writing (in a form satisfactory to the Company) to take the shares of
the Stock subject to all the terms and conditions of this Section 2.
(f) Assignment of Unvested Share Repurchase Option. The Company may
assign the Unvested Share Repurchase Option to one or more persons, who shall
have the right to exercise the Unvested Shares Repurchase Option in his or her
own name for his or her own account.
(g) Waiver of Other Option. Founder acknowledges that the Company
has agreed to issue to Founder options to purchase 70,000 shares of its common
stock. Founder relinquishes and waives all right to such issuance or such
options.
3. Right of First Refusal. Before any shares of the Stock registered in
the name of Founder may be sold or transferred (including transfer by operation
of law), such shares shall first be offered to the Company, which will have the
right to purchase all or any part of such shares proposed to be transferred
("Right of First Refusal"), in the following manner:
(a) Transfer Notice. The Founder or his or her legal representative
shall first give written notice (the "Transfer Notice") of any proposed
transfer to the Company. The Transfer Notice shall name the proposed
transferee, state the number of shares of Stock to be transferred, the price
per share and all other terms of the offer. The Transfer Notice shall be signed
by the Founder or his or her representative and the prospective transferee and
must constitute a binding agreement for the transfer of the Stock subject only
to the Right of First Refusal.
(b) Bona Fide Determination. Within 30 days of delivery of the
Transfer Notice, the Company's Board of Directors shall determine the bona fide
nature of the proposed transfer and give the Founder written notice of its
determination. If the proposed transfer is deemed to be bona fide, the
remaining subsections of this section shall apply to the sale. If the proposed
transfer is deemed not to be bona fide, the Founder will be responsible for
providing additional information to the Board to show the bona fide nature of
the proposed transfer and no Stock will be transferred on the books of the
Company until the Board has approved the proposed transfer as bona fide.
(c) Failure to Exercise; Exercise. If the Company elects not to or
fails to exercise in full the Right of First Refusal within 30 days from the
later of the date the Transfer Notice is delivered to the Company or 30 days
after the date the transfer is determined to be bona fide (if the Founder is
required to provide additional information as provided in Section 3(b)), the
Founder may, by the later of 60 days after the delivery of the Transfer Notice
to the Company or 30 days after the date the transfer is determined to be bona
fide (if the Founder is required to provide additional information as provided
in Section 3(b)), conclude a transfer of the shares of
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Stock subject to the Transfer Notice which have not been purchased by the
Company pursuant to exercise of the Right of First Refusal on the terms and
conditions described in the Transfer Notice. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as well as any
subsequent proposed transfer by the Founder, shall again be subject to the Right
of First Refusal and shall require compliance by the Founder with the procedure
described in this Section 3. If the Company exercises the Right of First
Refusal, the parties shall consummate the sale of shares of Stock on the terms
set forth in the Transfer Notice by the later of 60 days after the delivery of
the Transfer Notice to the Company or 30 days after the date the transfer is
determined to be bona fide (if the Purchaser is required to provide additional
information as provided in Section 3(b)); provided, however, in the event the
Transfer Notice provides for the payment for the shares of Stock other than in
cash, the Company shall have the option of paying for the shares of Stock by
the discounted cash equivalent of the consideration described in the Transfer
Notice as reasonably determined by the Company.
(d) Condition to Transfer. All transferees of shares of Stock or any
interest therein other than the Company shall be required as a condition of
such transfer to agree in writing (in a form satisfactory to the Company) that
they will receive and hold such shares of Stock or interests subject to the
provisions of this Agreement, including the Right of First Refusal.
(e) Assignment of Right of First Refusal. The Company may assign the
Right of First Refusal to one or more persons, who shall have the right to
exercise the Right of First Refusal in his or her own name for his or her own
account.
(f) Termination. The Right of First Refusal will terminate upon the
closing of a firm commitment underwritten public offering to the public of the
Company's Common Stock pursuant to a registration statement under the
Securities Act of 1933, as amended (the "IPO").
(g) Transfer Not Subject to Right of First Refusal. The Right of
First Refusal shall not apply to a transfer of shares of the Stock to the
Founder's ancestors, descendants or spouse or to a trustee for their benefit or
the benefit of the Founder, provided that such transferee shall agree in
writing (in a form satisfactory to the Company) to take the shares of Stock
subject to all the terms and conditions of this Section 3.
4. Piggyback Registration Rights.
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a shareholder(s) exercising demand
registration rights, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a transaction pursuant to
Rule 145 promulgated under the Securities Act of 1933, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Stock, the Company will
promptly give to the Founder written notice thereof and include in such
registration (and any related qualification under blue sky laws), and in any
underwriting involved therein, the number of Vested Shares specified in a
written request made by the Founder within fifteen (15) days after receipt of
such written notice from the Company, except as set forth in Section 4(b) below.
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(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the right of any Founder
to registration shall be conditioned upon the Founder's participation in such
underwriting and the inclusion of such Founder's Stock in the underwriting
pursuant to an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
this Section, if the underwriter reasonably determines that marketing factors
require a limitation on the number of shares to be underwritten the underwriter
may exclude some or all of the Stock with the number of shares that may be
included in the registration and underwriting being allocated among the Founder
and all other shareholders entitled to have securities included in such
registration in proportion, as nearly as practicable, to the respective amounts
of securities which they had requested to be included in such registration
(provided, however, that if the registration is for the account of shareholders
exercising demand registration rights, the number of shares that may be
included by the Founder shall be cut back entirely before any limitation on the
number of shares that may be included by such shareholders).
(c) All expenses of the registration shall be borne by the Company,
except underwriting discounts and selling commissions applicable to the sale
of any of Founder's Stock and any other securities of the Company being sold in
the same registration by other shareholders, which shall be borne by the
Founder and such other shareholders pro rata on the basis of the number of
their shares registered.
5. Stock Dividends, etc. If, from time to time, there is any stock
dividend, stock split or other change in the character or amount of any of the
outstanding stock of the Company, then in such event any and all new
substituted or additional securities to which Founder is entitled by reason of
Founder's ownership of Unvested Shares or Stock shall be immediately subject to
the Unvested Share Repurchase Option or the Right of First Refusal,
respectively, with the same force and effect as the Unvested Shares or Stock.
6. Consent of Spouse. If the Founder is married on the date of this
Agreement, the Founder's spouse shall execute a Consent of Spouse in the form
of Exhibit A hereto, effective on the date hereof. Such consent shall not be
deemed to confer or convey to the spouse any rights in the Stock that do not
otherwise exist by operation of law or the agreement of the parties. If the
Founder should marry or remarry subsequent to the date of this Agreement, the
Founder shall within thirty (30) days thereafter obtain his or her new spouse's
acknowledgment of and consent to the existence and binding effect of all
restrictions contained in this Agreement by signing an additional Consent of
Spouse in the form of Exhibit A.
7. Legends. All certificates representing any shares of Stock subject
to the provisions of this Agreement shall have endorsed thereon the following
legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
REPURCHASE OPTION AND RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THIS COMPANY.
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(b) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(c) Any legend required to be placed thereon by the federal or state
securities authorities.
8. Warranties and Representations. In connection with the proposed
purchase of the Stock, the Founder hereby agrees, represents and warrants as
follows:
(a) The Founder is purchasing the Stock solely for his own account
for investment and not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933 as
amended (the "Act"). The Founder further represents that he or she does not
have any present intention of selling, offering to sell or otherwise disposing
of or distributing the Stock or any portion thereof; and that the entire legal
and beneficial interest of the Stock he or she is purchasing is being purchased
for, and will be held for the account of, the Founder only and neither in whole
nor in part for any other person.
(b) The Founder is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Stock. The
Founder further represents and warrants that he or she has discussed the
Company and its plans, operations and financial condition with its officers,
has received all such information as he or she deems necessary and appropriate
to enable him or her to evaluate the financial risk inherent in making an
investment in the Stock and has received satisfactory and complete information
concerning the business and financial condition of the Company in response to
all inquiries in respect thereof.
(c) The Founder realizes that his or her purchase of the Stock will
be a highly speculative investment, and he is able, without impairing his
financial condition, to hold the Stock for an indefinite period of time and to
suffer a complete loss on his investment.
(d) The Company has disclosed to the Founder that:
(i) The sale of the Stock has not been registered under the Act,
and the Stock must be held indefinitely unless a transfer of it is
subsequently registered under the Act or an examination from such registration
is available, and that the Company is under no obligation to register the Stock;
(ii) The Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
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9. Escrow. As security for his faithful performance of the terms of this
Agreement and to ensure the availability for delivery of the Stock upon
exercise of the Unvested Share Repurchase Option and the Right of First Refusal
herein provided for, the Founder agrees to deliver to and deposit with Gray Cary
Ware & Freidenrich, a Professional Corporation (the "Escrow Agent"), as Escrow
Agent in this transaction, two Stock Assignments duly endorsed (with date and
number of shares blank) in the form attached hereto as Exhibit B, together with
the certificate or certificates evidencing the Stock. Such documents shall be
held by the Escrow Agent pursuant to the Joint Escrow Instructions of the
Company and the Founder set forth in Exhibit C attached hereto and incorporated
by this reference, which instructions shall also be delivered to the Escrow
Agent at the closing hereunder.
10. Transfers in Violation of Agreement. The Company shall not be
required (i) to transfer on its books any shares of Stock of the Company which
shall have been sold or transferred in violation of any of the provisions set
forth in this Agreement or (ii) to treat as owner of such shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom
such shares shall have been so transferred.
11. Rights as Shareholder. Subject to the provisions of this Agreement,
the Founder shall exercise all rights and privileges of a shareholder of the
Company with respect to the Stock deposited in escrow.
12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
13. "Market Stand-Off" Agreement. Founder hereby agrees that in
connection with the IPO, during the period of duration (not to exceed 180 days)
specified by the Company and an underwriter of common stock of the Company
following the effective date of the registration statement of the Company filed
under the Securities Act with respect to the IPO, he shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase, pledge or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any securities of the
Company held by him at any time during such period except common stock included
in such registration. Founder agrees to the terms of any form of such a
stand-off agreement as approved by the company or the underwriter of the IPO.
14. Notice. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, or upon delivery to an overnight courier service
addressed to the other party at the address hereinafter shown below his
signature or at such other address as such party may designate by ten (10)
days' advance written notice to the other party.
15. Successors and Assigns. This Agreement shall inure to the benefit of,
and be binding upon, the successors and assigns of each party, including,
without limitation, in the case of the Founder, Founder's heirs, executors,
administrators, successors and assigns.
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<PAGE> 8
16. Entire Agreement; Amendments. This Agreement, together with the
Exhibits hereto, shall be construed under the laws of the State of California
(as it applies to agreements between California residents, entered into and to
be performed entirely within California), and constitutes the entire agreement
of the parties with respect to the subject matter hereof superseding all prior
written or oral agreements, and no amendment or addition hereto shall be deemed
effective unless agreed to in writing by the parties.
17. Right to Specific Performance. The Founder agrees that the Company
shall be entitled to a decree of specific performance of the terms hereof or an
injunction restraining violation of this Agreement, said right to be in addition
to any other remedies available to the Company.
18. Separability. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with
the purposes and tenor and effect of this Agreement.
19. Tax Consequences and Tax Election Notification.
(a) The Founder understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code") taxes as ordinary income the difference
between the amount paid for the Stock and the fair market value of the Stock as
of the date any restrictions on the Stock lapse. In this context, "restriction"
means the right of the Company to buy back the stock pursuant to the Unvested
Share Repurchase Option. The Founder understands that he or she may elect to be
taxed at the time the Stock is purchased rather than when and as the Unvested
Share Repurchase Option expires by filing an election under Section 83(b) of
the Code with the Internal Revenue Service (the "IRS") within 30 days from the
date of purchase. Even if the fair market value of the stock equals the amount
paid for the Stock, the election must be made to avoid adverse tax consequences
in the future. The Founder understands that failure to make this filing timely
will result in the recognition of ordinary income by the Founder, as the
Unvested Share Repurchase Option lapses, on the difference between the purchase
price and the fair market value of the Stock at the time such restriction
lapses.
(b) The Founder understands that the purchase price of the Stock has
been set by the Board of Directors and that the Company believes this valuation
is a fair attempt to appraise it. The Founder understands, however, that if the
Founder files a Section 83(b) election, the Company can give no assurances that
the purchase price will be accepted as the fair market value of the Stock by
the IRS, and that the IRS could assert that the value of the Stock on the date
of purchase was substantially greater than the purchase price.
If the IRS were to successfully argue in a tax determination that the
Stock had a value greater than the price paid by the Founder, and the Founder
has filed a Section 83(b) election, the additional value would constitute
ordinary income as of the date of its receipt. The additional taxes (and
interest) due would be payable by the Founder. There is no provision for the
Company to reimburse the Founder for any potential tax liability, and the
Founder assumes all responsibility for any such liability. If the additional
value attributed to the Stock was more than 25 percent of the Founder's gross
income for the year in which that value was taxable, the
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<PAGE> 9
IRS would have six years from the due date for filing of the Founder's the
return (or the actual filing date of the return if filed thereafter) within
which to assess the additional tax and interest.
THE FOUNDER ACKNOWLEDGES THAT IT IS THE FOUNDER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S RESPONSIBILITY TO FILE TIMELY THE ELECTION UNDER SECTION
83(B), EVEN IF THE FOUNDER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE FOUNDER'S BEHALF. THE FOUNDER FURTHER UNDERSTANDS THAT ANY
PURPORTED ELECTION PURSUANT TO SECTION 83(B) MUST COMPLY WITH THE PROVISIONS OF
TREASURY REGULATION SECTION 1.83-2. FOUNDER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO SEEK THE ASSISTANCE OF A TAX ADVISOR IN THIS MATTER.
(c) The Founder shall notify the Company in writing if Founder files
an election pursuant to Section 83(b) of the Code. The Company intends, in the
event it does not receive from Founder evidence of such filing, to claim a tax
deduction for any amount which would be taxable to Founder in the absence of
such an election.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"FOUNDER" "COMPANY"
/s/ KEVIN GRUNDY MachOne Communications, Inc.
KEVIN GRUNDY By: /s/ MICHAEL SOLOMON
- ------------------------------------- ---------------------------------
Address: 43525 VISTA DEL MAR Title: CEO
----------------------------- ------------------------------
FREMONT, CA 94539
- -------------------------------------
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<PAGE> 10
EXHIBIT A
CONSENT OF SPOUSE
I, ____________, spouse of ________________, acknowledge that I have read
the Founder Stock Purchase Agreement dated as of ____________, 1998, to which
this Consent is attached as Exhibit A (the "Agreement") and that I know its
contents. I am aware that by its provisions the Company has the option to
purchase certain shares of Stock of the Company which my spouse owns pursuant to
the Agreement including any interest I might have therein, upon termination of
his employment under circumstances set forth in the Agreement, and that certain
other restrictions are imposed upon the sale or other disposition of the Stock
during my spouse's lifetime and in the event of his death.
I agree that my interest, if any, in the Stock subject to the Agreement
shall be bound by the Agreement and further understand and agree that any
community property interest I may have in the Stock shall be similarly bound by
the Agreement.
Signed and Dated:
-------------------------
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<PAGE> 11
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, KEVIN GRUNDY hereby sells, assigns and transfers unto
_______________ _____________ (________) shares of the Common Stock of MachOne
Communications, Inc., a California corporation, standing in the undersigned's
name on the books of said corporation represented by Certificate No. ____
herewith, and do hereby irrevocably constitute and appoint _________________
attorney to transfer the said stock on the books of the said corporation with
full power of substitution in the premises.
Date: _________, 1998 By: /s/ KEVIN GRUNDY
---------------------------------
<PAGE> 1
EXHIBIT 10.38
FOUNDER STOCK PURCHASE AGREEMENT
This Founder Stock Purchase Agreement is dated as of the tenth day of June
1998 (the "Effective Date") by and between MachOne Communications, Inc., a
California corporation (the "Company"), and Thomas Obenhuber ("Founder").
WITNESSETH:
WHEREAS, Founder is a founder and a key employee of the Company.
WHEREAS, Founder has purchased from the Company 240,000 shares of the
Company's Common Stock (the "Original Shares") pursuant to that certain Founder
Stock Purchase Agreement, by and between Company and Founder, dated as of
December 23, 1997 (the "Initial Purchase Agreement").
WHEREAS, the Company desires to issue and the Founder desires to acquire
stock of the Company as herein described, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Number of Shares and Price Per Share. The Founder hereby agrees to
purchase from the Company and the Company agrees to sell to the Founder five
hundred sixty thousand (560,000) shares of the Company's Common Stock (the
"Stock") with a fair market value of $5,600 (or $0.01 per share). The
consideration for the Stock (the "Purchase Price") will be paid by Founder in
cash, by check, or promissory note concurrent with the execution of this
Agreement against the Company's delivery of a stock certificate evidencing the
Stock.
2. Unvested Share Repurchase Option. The Company shall have the option (the
"Unvested Share Repurchase Option") to reacquire any shares purchased pursuant
to this Agreement which have not vested in the Founder pursuant to subsection
2(a) (the "Unvested Shares") under the terms set forth in this Section 2.
(a) Vesting of Shares. Founder shall purchase the Stock effective upon
the date first written above, but the "Initial Vesting Date" for determination
of vesting of the Stock shall be December 3, 1997. The shares of Stock purchased
by the Founder will vest (the "Vested Shares") on and after the Initial Vesting
Date in accordance with the following formula:
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<PAGE> 2
<TABLE>
<CAPTION>
Date Number of Shares Vested
- ---- -----------------------
<S> <C>
On the Initial Vesting Date 81,666 shares of Stock will
vest (14.5837%)
For each full month of the Company's An additional 2.0833% of the
continuous employment of Founder Stock will vest (11,667 shares)
following the Initial Vesting Date for each full month of service.
</TABLE>
Provided that the aggregate number of shares of Stock constituting Vested
Shares may not exceed 560,000 shares (as adjusted for stock splits and the
like). In the event a fraction of a share is vested, the number of vested shares
shall be rounded to the nearest whole number. The parties acknowledge that
nothing in this Agreement shall revise or alter the vesting provisions for the
Original shares as set forth in the Initial Purchase Agreement.
(b) Exercise of Unvested Share Repurchase Option. If the Founder's
employment with the Company is terminated for any reason, with or without cause,
voluntarily or involuntarily, including termination due to death or disability
(as defined below), or if the Founder or the Founder's legal representative
attempts to dispose of any Unvested Shares other than as allowed in this
Agreement, the Company may exercise the Unvested Share Repurchase Option by
written notice to the Escrow Agent (as defined in Section 8) and to the Founder
or the Founder's legal representative within 60 days after such termination or
after the Company has received notice of the attempted disposition.
(c) Payment for Shares and Return of Shares. Payment by the Company to
the Escrow Agent on behalf of the Founder or the Founder's legal representative
shall be made in cash within 60 days after the date of the mailing of the
written notice of exercise of the Unvested Share Repurchase Option. For purposes
of the foregoing, cancellation of any promissory note of the Founder to the
Company shall be treated as payment to the Founder in cash to the extent of the
unpaid principal and any accrued interest canceled. The purchase price per share
being purchased by the Company pursuant to the Unvested Share Repurchase Option
shall be $0.001 per share, adjusted appropriately to reflect any stock split,
stock dividend, recapitalization, etc. Within 30 days after payment by the
Company, the Escrow Agent shall give the shares which the Company has purchased
to the Company and shall give the payment received from the Company to the
Founder.
(d) Early Termination of Unvested Share Repurchase Option. The other
provisions of Section 2 notwithstanding, upon any Transfer of Control (as
defined below), the Unvested Share Repurchase Option shall terminate as of a
date prior to the Transfer of Control, as the Board so determines pursuant to
the definition below, or if no such determination is made, two days prior to the
closing of the transaction involving the Transfer of Control. Any such
termination that was permissible solely by reason of this subsection 2(d) shall
be conditioned upon the consummation of the Transfer of Control. For purposes of
this subsection 2(d), a Transfer of Control shall be deemed to have occurred
upon any of the following events: (i) the direct or indirect sale or exchange by
the shareholders of the Company of all or substantially all of the stock of the
Company where the shareholders of the Company before such sale or
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<PAGE> 3
exchange do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Company; (ii) a merger in which
the shareholders of the Company before the merger do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Company; or (iii) the sale, exchange, or transfer of all or substantially
all of the Company's assets (other than a sale, exchange, or transfer to one or
more corporations where the shareholders of the Company before such sale,
exchange, or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred).
For the purposes of early termination of the unvested share repurchase
option, a Transfer of Control shall be deemed to have occurred only if one of
the events described in the paragraph above has occurred and, within one year of
such event: (i) there is a decrease in Founder's base salary and/or bonus
compensation; (ii); (iii) there is a material breach by Company (or its
successor or assign) of this Agreement or of Founder's Employment Agreement with
the Company; (iv) the Company fails to obtain the assumption of this Agreement
and the Employment Agreement by MachOne's successor or assign; or (v) MachOne
(or its successor or assign) fails to continue Founder's opportunity to
participate, on the same or more favorable terms, in benefit or compensation
programs in which Founder was participating prior to the transfer of control.
(e) Transfers Not Subject to the Unvested Share Repurchase Option.
The Unvested Share Repurchase Option shall not apply to a transfer of shares of
the Stock to the Founder's ancestors, descendants or spouse or to a trustee for
their benefit or the benefit of the Founder, provided that such transferee shall
agree in writing (in a form satisfactory to the Company) to take the shares of
the Stock subject to all the terms and conditions of this Section 2.
(f) Assignment of Unvested Share Repurchase Option. The Company may
assign the Unvested Share Repurchase Option to one or more persons, who shall
have the right to exercise the Unvested Share Repurchase Option in his or her
own name for his or her own account.
3. Right of First Refusal. Before any shares of the Stock registered in
the name of Founder may be sold or transferred (including transfer by operation
of law), such shares shall first be offered to the Company, which will have the
right to purchase all or any part of such shares proposed to be transferred
("Right of First Refusal"), in the following manner:
(a) Transfer Notice. The Founder or his or her legal representative
shall first give written notice (the "Transfer Notice") of any proposed transfer
to the Company. The Transfer Notice shall name the proposed transferee, state
the number of shares of Stock to be transferred, the price per share and all
other terms of the offer. The Transfer Notice shall be signed by the Founder or
his or her representative and the prospective transferee and must constitute a
binding agreement for the transfer of the Stock subject only to the Right of
First Refusal.
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<PAGE> 4
(b) Bona Fide Determination. Within 30 days of delivery of the
Transfer Notice, the Company's Board of Directors shall determine the bona fide
nature of the proposed transfer and give the Founder written notice of its
determination. If the proposed transfer is deemed to be bona fide, the remaining
subsections of this section shall apply to the sale. If the proposed transfer is
deemed not to be bona fide, the Founder will be responsible for providing
additional information to the Board to show the bona fide nature of the proposed
transfer and no Stock will be transferred on the books of the Company until the
Board has approved the proposed transfer as bona fide.
(c) Failure to Exercise; Exercise. If the Company elects not to or
fails to exercise in full the Right of First Refusal within 30 days from the
later of the date the Transfer Notice is delivered to the Company or 30 days
after the date the transfer is determined to be bona fide (if the Founder is
required to provide additional information as provided in Section 3(b)), the
Founder may, by the later of 60 days after the delivery of the Transfer Notice
to the Company or 30 days after the date the transfer is determined to be bona
fide (if the Founder is required to provide additional information as provided
in Section 3(b)), conclude a transfer of the shares of Stock subject to the
Transfer Notice which have not been purchased by the Company pursuant to
exercise of the Right of First Refusal on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by the Founder, shall again be subject to the Fight of First Refusal
and shall require compliance by the Founder with the procedure described in this
Section 3. If the Company exercises the Right of First Refusal, the parties
shall consummate the sale of shares of Stock on the terms set forth in the
Transfer Notice by the later of 60 days after the delivery of the Transfer
Notice to the Company or 30 days after the date the transfer is determined to be
bona fide (if the Purchaser is required to provide additional information as
provided in Section 3(b)); provided, however, in the event the Transfer Notice
provides for the payment for the shares of Stock other than in cash, the Company
shall have the option of paying for the shares of Stock by the discounted cash
equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Company.
(d) Condition to Transfer. All transferees of shares of Stock or any
interest therein other than the Company shall be required as a condition of such
transfer to agree in writing (in a form satisfactory to the Company) that they
will receive and hold such shares of Stock or interests subject to the
provisions of this Agreement, including the Right of First Refusal.
(e) Assignment of Right of First Refusal. The Company may assign the
Right of First Refusal to one or more persons, who shall have the right to
exercise the Right of First Refusal in his or her own name for his or her own
account.
(f) Termination. The Right of First Refusal will terminate upon the
closing of a firm commitment underwritten public offering to the public of the
Company's Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended (the "IPO").
(g) Transfer Not Subject to Right of First Refusal. The Right of First
Refusal shall not apply to a transfer of shares of the Stock to the Founder's
ancestors, descendants or
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<PAGE> 5
spouse or to a trustee for their benefit or the benefit of the Founder, provided
that such transferee shall agree in writing (in a form satisfactory to the
Company) to take the shares of Stock subject to all the terms and conditions of
this Section 3.
4. Piggyback Registration Rights.
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a shareholder(s) exercising demand
registration rights, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a transaction pursuant to
Rule 145 promulgated under the Securities Act of 1933, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Stock, the Company will promptly
give to the Founder written notice thereof and include in such registration (and
any related qualification under blue sky laws), and in any underwriting involved
therein, the number of Vested Shares specified in a written request made by the
Founder within fifteen (15) days after receipt of such written notice from the
Company, except as set forth in Section 4(b) below.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the right of any Founder
to registration shall be conditioned upon the Founder's participation in such
underwriting and the inclusion of such Founder's Stock in the underwriting
pursuant to an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
this Section, if the underwriter reasonably determines that marketing factors
require a limitation on the number of shares to be underwritten the underwriter
may exclude some or all of the Stock with the number of shares that may be
included in the registration and underwriting being allocated among the Founder
and all other shareholders entitled to have securities included in such
registration in proportion, as nearly as practicable, to the respective amounts
of securities which they had requested to be included in such registration
(provided, however, that if the registration is for the account of shareholders
exercising demand registration rights, the number of shares that may be included
by the Founder shall be cut back entirely before any limitation on the number of
shares that may be included by such shareholders).
(c) All expenses of the registration shall be borne by the Company,
except underwriting discounts and selling commissions applicable to the sale of
any of Founder's Stock and any other securities of the Company being sold in the
same registration by other shareholders, which shall be borne by the Founder and
such other shareholders pro rata on the basis of the number of their shares
registered.
5. Stock Dividends, etc. If, from time to time, there is any stock
dividend, stock split or other change in the character or amount of any of the
outstanding stock of the Company, then in such event any and all new substituted
or additional securities to which Founder is entitled by reason of Founder's
ownership of Unvested Shares or Stock shall be immediately subject to the
Unvested Share Repurchase Option or the Right of First Refusal, respectively,
with the same force and effect as the Unvested Shares or Stock.
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<PAGE> 6
6. Consent of Spouse. If the Founder is married on the date of this
Agreement, the Founder's spouse shall execute a Consent of Spouse in the form of
Exhibit A hereto, effective on the date hereof Such consent shall not be deemed
to confer or convey to the spouse any rights in the Stock that do not otherwise
exist by operation of law or the agreement of the parties. If the Founder should
marry or remarry subsequent to the date of this Agreement, the Founder shall
within thirty (30) days thereafter obtain his or her new spouse's acknowledgment
of and consent to the existence and binding effect of all restrictions contained
in this Agreement by signing an additional Consent of Spouse in the form of
Exhibit A.
7. Legends. All certificates representing any shares of Stock subject to
the provisions of this Agreement shall have endorsed thereon the following
legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
REPURCHASE OPTION AND RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS COMPANY.
(b) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(c) Any legend required to be placed thereon by the federal or state
securities authorities.
8. Warranties and Representations. In connection with
the proposed purchase of the Stock, the Founder hereby agrees, represents and
warrants as follows:
(a) The Founder is purchasing the Stock solely for his own account for
investment and not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933 as amended
(the "Act"). The Founder further represents that he or she does not have any
present intention of selling, offering to sell or otherwise disposing of or
distributing the Stock or any portion thereof; and that the entire legal and
beneficial interest of the Stock he or she is purchasing is being purchased for,
and will be held for the account of, the Founder only and neither in whole nor
in part for any other person.
(b) The Founder is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Stock. The Founder
further represents and warrants that
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<PAGE> 7
he or she has discussed the Company and its plans, operations and financial
condition with its officers, has received all such information as he or she
deems necessary and appropriate to enable him or her to evaluate the financial
risk inherent in making an investment in the Stock and has received satisfactory
and complete information concerning the business and financial condition of the
Company in response to all inquiries in respect thereof.
(c) The Founder realizes that his or her purchase of the Stock will be
a highly speculative investment, and he is able, without impairing his financial
condition, to hold the Stock for an indefinite period of time and to suffer a
complete loss on his investment.
(d) The Company has disclosed to the Founder that:
(i) The sale of the Stock has not been registered under the Act,
and the Stock must be held indefinitely unless a transfer of it is subsequently
registered under the Act or an exemption from such registration is available,
and that the Company is under no obligation to register the Stock;
(ii) The Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
9. Escrow. As security for his faithful performance of the terms of this
Agreement and to ensure the availability for delivery of the Stock upon exercise
of the Unvested Share Repurchase Option and the Right of First Refusal herein
provided for, the Founder agrees to deliver to and deposit with Gray Cary Ware &
Freidenrich, a Professional Corporation (the "Escrow Agent"), as Escrow Agent in
this transaction, two Stock Assignments duly endorsed (with date and number of
shares blank) in the form attached hereto as Exhibit B. together with the
certificate or certificates evidencing the Stock. Such documents shall be held
by the Escrow Agent pursuant to the Joint Escrow Instructions of the Company and
the Founder set forth in Exhibit C attached hereto and incorporated by this
reference, which instructions shall also be delivered to the Escrow Agent at the
closing hereunder.
10. Transfers in Violation of Agreement. The Company shall not be required
(i) to transfer on its books any shares of Stock of the Company which shall have
been sold or transferred in violation of any of the provisions set forth in this
Agreement or (ii) to treat as owner of such shares or to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
shall have been so transferred.
11. Rights as Shareholder. Subject to the provisions of this Agreement, the
Founder shall exercise all rights and privileges of a shareholder of the Company
with respect to the Stock deposited in escrow.
12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
13. "Market Stand-Off" Agreement. Founder hereby agrees that in connection
with the IPO, during the period of duration (not to exceed 180 days) specified
by the Company and an underwriter of common stock of the Company following the
effective date of the registration
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<PAGE> 8
statement of the Company filed under the Securities Act with respect to the IPO,
he shall not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase, pledge or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
any securities of the Company held by him at any time during such period except
common stock included in such registration. Founder agrees to the terms of any
form of such a stand-off agreement as approved by the company or the underwriter
of the IPO.
14. Notice. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, or upon delivery to an overnight courier service
addressed to the other party at the address hereinafter shown below his
signature or at such other address as such party may designate by ten (10) days'
advance written notice to the other party.
15. Successors and Assigns. This Agreement shall inure to the benefit of,
and be binding upon, the successors and assigns of each party, including,
without limitation, in the case of the Founder, Founder's heirs, executors,
administrators, successors and assigns.
16. Entire Agreement: Amendments. This Agreement together with the Exhibits
hereto, shall be construed under the laws of the State of California (as it
applies to agreements between California residents, entered into and to be
performed entirely within California), and constitutes the entire agreement of
the parties with respect to the subject matter hereof superseding all prior
written or oral agreements, and no amendment or addition hereto shall be deemed
effective unless agreed to in writing by the parties.
17. Right to Specific Performance. The Founder agrees that the Company
shall be entitled to a decree of specific performance of the terms hereof or an
injunction restraining violation of this Agreement, said right to be in addition
to any other remedies available to the Company.
18. Separability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
19. Tax Consequences and Tax Election Notification.
(a) The Founder understands that Section 83 of the Internal Revenue Code
of 1986, as amended (the "Code") taxes as ordinary income the difference between
the amount paid for the Stock and the fair market value of the Stock as of the
date any restrictions on the Stock lapse. In this context, "restriction" means
the right of the Company to buy back the stock pursuant to the Unvested Share
Repurchase Option. The Founder understands that he or she may elect to be taxed
at the time the Stock is purchased rather than when and as the Unvested Share
Repurchase Option expires by filing an election under Section 83(b) of the Code
with the Internal Revenue Service (the "IRS") within 30 days from the date of
purchase. Even if the fair market value of the Stock equals the amount paid for
the Stock, the election must be made to
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<PAGE> 9
avoid adverse tax consequences in the future. The Founder understands that
failure to make this filing timely will result in the recognition of ordinary
income by the Founder, as the Unvested Share Repurchase Option lapses, on the
difference between the purchase price and the fair market value of the Stock at
the time such restriction lapses.
(b) The Founder understands that the purchase price of the Stock has
been set by the Board of Directors and that the Company believes this valuation
is a fair attempt to appraise it. The Founder understands, however, that if the
Founder files a Section 83(b) election, the Company can give no assurances that
the purchase price will be accepted as the fair market value of the Stock by the
IRS, and that the IRS could assert that the value of the Stock on the date of
purchase was substantially greater than the purchase price.
If the IRS were to successfully argue in a tax determination that the
Stock had a value greater than the price paid by the Founder, and the Founder
has filed a Section 83(b) election, the additional value would constitute
ordinary income as of the date of its receipt. The additional taxes (and
interest) due would be payable by the Founder. There is no provision for the
Company to reimburse the Founder for any potential tax liability, and the
Founder assumes all responsibility for any such liability. If the additional
value attributed to the Stock was more than 25 percent of the Founder's gross
income for the year in which that value was taxable, the IRS would have six
years from the due date for filing of the Founder's the return (or the actual
filing date of the return if filed thereafter) within which to assess the
additional tax and interest.
THE FOUNDER ACKNOWLEDGES THAT IT IS THE FOUNDER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S RESPONSIBILITY TO FILE TIMELY THE ELECTION UNDER SECTION
83(B), EVEN IF THE FOUNDER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE FOUNDER'S BEHALF. THE FOUNDER FURTHER UNDERSTANDS THAT ANY
PURPORTED ELECTION PURSUANT TO SECTION 83(B) MUST COMPLY WITH THE PROVISIONS OF
TREASURY REGULATION SECTION 1.83-2. FOUNDER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO SEEK THE ASSISTANCE OF A TAX ADVISOR TN THIS MATTER.
(c) The Founder shall notify the Company in writing if Founder files
an election pursuant to Section 83(b) of the Code. The Company intends, in the
event it does not receive from Founder evidence of such filing, to claim a tax
deduction for any amount which would be taxable to Founder in the absence of
such an election.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"FOUNDER" "COMPANY"
MachOne Communications, Inc.
/s/ THOMAS OBENHUBER By: [SIGNATURE ILLEGIBLE]
- ------------------------------------- ---------------------------------
Address: 712 Wisconsin St. Title: CEO
---------------------------- ------------------------------
San Francisco, CA 94107
----------------------------
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EXHIBIT A
CONSENT OF SPOUSE
I, ____________________, spouse of _____________________ acknowledge that I
have read the Founder Stock Purchase Agreement dated as of ______________ 1998,
to which this Consent is attached as Exhibit A (the "Agreement") and that I know
its contents. I am aware that by its provisions the Company has the option to
purchase certain shares of Stock of the Company which my spouse owns pursuant to
the Agreement including any interest I might have therein, upon termination of
his employment under circumstances set forth in the Agreement, and that certain
other restrictions are imposed upon the sale or other disposition of the Stock
during my spouse's lifetime and in the event of his death.
I agree that my interest, if any, in the Stock subject to the Agreement
shall be bound by the Agreement and further understand and agree that any
community property interest I may have in the Stock shall be similarly bound by
the Agreement.
Signed and Dated: ______________________.
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EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ____________________ hereby sells, assigns and
transfers unto ___________________ _________________ (___) shares of the Common
Stock of MachOne Communications, Inc., a California corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. ___ herewith, and do hereby irrevocably constitute and appoint _____
attorney to transfer the said stock on the books of the said corporation with
full power of substitution in the premises.
Date: June __, 1998 By:
------------------------------------
<PAGE> 1
EXHIBIT 10.39
FOUNDER STOCK PURCHASE AGREEMENT
This Founder Stock Purchase Agreement is dated as of the tenth day of June
1998 (the "Effective Date") by and between MachOne Communications, Inc., a
California corporation (the "Company"), and Matthew J. Stepovich ("Founder").
WITNESSETH:
WHEREAS, Founder is a founder and a key employee of the Company.
WHEREAS, Founder has purchased from the Company 72,000 shares of the
Company's Common Stock (the "Original Shares") pursuant to that certain Founder
Stock Purchase Agreement, by and between Company and Founder, dated as of
December 23, 1997 (the "Initial Purchase Agreement").
WHEREAS, the Company desires to issue and the Founder desires to acquire
stock of the Company as herein described, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Number of Shares and Price Per Share. The Founder hereby agrees to
purchase from the Company and the Company agrees to sell to the Founder one
hundred seventy-eight thousand (178,000) shares of the Company's Common Stock
(the "Stock") with a fair market value of $1,780.00 (or $0.01 per share). The
consideration for the Stock (the "Purchase Price") will be paid by Purchaser in
cash, by check, or promissory note concurrent with the execution of this
Agreement against the Company's delivery of a stock certificate evidencing the
Stock.
2. Unvested Share Repurchase Option. The Company shall have the option (the
"Unvested Share Repurchase Option") to reacquire any shares purchased pursuant
to this Agreement which have not vested in the Founder pursuant to subsection
2(a) (the "Unvested Shares") under the terms set forth in this Section 2. The
parties hereto acknowledge and agree that
(a) Vesting of Shares. Founder shall purchase the Stock effective upon
the date first written above, but the "Initial Vesting Date" for determination
of vesting of the Stock shall be December 3, 1997. The shares of Stock purchased
by the Founder will vest (the "Vested Shares") on and after the Initial Vesting
Date in accordance with the following formula:
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<PAGE> 2
<TABLE>
<CAPTION>
Date Number of Shares Vested
- ---- -----------------------
<S> <C>
On the Initial Vesting Date 25,958 shares of Stock will
vest (14.5832%)
For each full month of the Company's An additional 2.0833% of the
continuous employment of Founder Stock will vest (3,708 shares)
following the Initial Vesting Date for each full month of service.
</TABLE>
Provided that the aggregate number of shares of Stock constituting Vested
Shares may not exceed 178,000 shares (as adjusted for stock splits and the
like). In the event a fraction of a share is vested, the number of vested shares
shall be rounded to the nearest whole number. The parties acknowledge that
nothing in this Agreement shall revise or alter the vesting provisions for the
Original shares as set forth in the Initial Purchase Agreement.
(b) Exercise of Unvested Share Repurchase Option. If the Founder's
employment with the Company is terminated for any reason, with or without cause,
voluntarily or involuntarily, including termination due to death or disability
(as defined below), or if the Founder or the Founder's legal representative
attempts to dispose of any Unvested Shares other than as allowed in this
Agreement, the Company may exercise the Unvested Share Repurchase Option by
written notice to the Escrow Agent (as defined in Section 8) and to the Founder
or the Founder's legal representative within 60 days after such termination or
after the Company has received notice of the attempted disposition.
(c) Payment for Shares and Return of Shares. Payment by the Company to
the Escrow Agent on behalf of the Founder or the Founder's legal representative
shall be made in cash within 60 days after the date of the mailing of the
written notice of exercise of the Unvested Share Repurchase Option. For purposes
of the foregoing, cancellation of any promissory note of the Founder to the
Company shall be treated as payment to the Founder in cash to the extent of the
unpaid principal and any accrued interest canceled. The purchase price per share
being purchased by the Company pursuant to the Unvested Share Repurchase Option
shall be $0.001 per share, adjusted appropriately to reflect any stock split,
stock dividend, recapitalization, etc. Within 30 days after payment by the
Company, the Escrow Agent shall give the shares which the Company has purchased
to the Company and shall give the payment received from the Company to the
Founder.
(d) Early Termination of Unvested Share Repurchase Option. The other
provisions of Section 2 notwithstanding, upon any Transfer of Control (as
defined below), the Unvested Share Repurchase Option shall terminate as of a
date prior to the Transfer of Control, as the Board so determines pursuant to
the definition below, or if no such determination is made, two days prior to the
closing of the transaction involving the Transfer of Control. Any such
termination that was permissible solely by reason of this subsection 2(d) shall
be conditioned upon the consummation of the Transfer of Control. For purposes of
this subsection 2(d), a Transfer of Control shall be deemed to have occurred
upon any of the following events: (i) the direct or indirect sale or exchange by
the shareholders of the Company of all or substantially all of the stock of the
Company where the shareholders of the Company before such sale or
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<PAGE> 3
exchange do not retain, directly or indirectly, at least a majority of the
beneficial interest the voting stock of the Company; (ii) a merger in which the
shareholders of the Company before the merger do not retain, directly or
indirectly, at least a majority of the beneficial Interest in the voting stock
of the Company; or (iii) the sale, exchange, or transfer of all or substantially
all of the Company's assets (other than a sale, exchange, or transfer to one or
more corporations where the shareholders of the Company before such sale,
exchange, or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred).
For the purposes of early termination of the unvested share repurchase
option, a Transfer of Control shall be deemed to have occurred only if one of
the events described in the paragraph above has occurred and, within one year of
such event: (i) there is a decrease in Founder's base salary, benefits and/or
bonus compensation; (ii); (iii) there is a material breach by Company (or its
successor or assign) of this Agreement or of Founder's Employment Agreement with
the Company; (iv) the Company fails to obtain the assumption of this Agreement
and the Employment Agreement by MachOne's successor or assign.
(e) Transfers Not Subject to the Unvested Share Repurchase Option. The
Unvested Share Repurchase Option shall not apply to a transfer of shares of the
Stock to the Founder's ancestors, descendants or spouse or to a trustee for
their benefit or the benefit of the Founder, provided that such transferee shall
agree in writing (in a form satisfactory to the Company) to take the shares of
the Stock subject to all the terms and conditions of this Section 2.
(f) Assignment of Unvested Share Repurchase Option. The Company may
assign the Unvested Share Repurchase Option to one or more persons, who shall
have the right to exercise the Unvested Share Repurchase Option in his or her
own name for his or her own account.
3. Right of First Refusal. Before any shares of the Stock registered in the
name of Founder may be sold or transferred (including transfer by operation of
law), such shares shall first be offered to the Company, which will have the
right to purchase all or any part of such shares proposed to be transferred
("Right of First Refusal"), in the following manner:
(a) Transfer Notice. The Founder or his or her legal representative
shall first give written notice (the "Transfer Notice") of any proposed transfer
to the Company. The Transfer Notice shall name the proposed transferee, state
the number of shares of Stock to be transferred, the price per share and all
other terms of the offer. The Transfer Notice shall be signed by the Founder or
his or her representative and the prospective transferee and must constitute a
binding agreement for the transfer of the Stock subject only to the Right of
First Refusal.
(b) Bona Fide Determination. Within 30 days of delivery of the
Transfer Notice, the Company's Board of Directors shall determine the bona fide
nature of the proposed transfer and give the Founder written notice of its
determination. If the proposed transfer is deemed to be bona fide, the remaining
subsections of this section shall apply to the sale. If the
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<PAGE> 4
proposed transfer is deemed not to be bona fide, the Founder will be responsible
for providing additional information to the Board to show the bona fide nature
of the proposed transfer and no Stock will be transferred on the books of the
Company until the Board has approved the proposed transfer as bona fide.
(c) Failure to Exercise; Exercise. If the Company elects not to or
fails to exercise in full the Right of First Refusal within 30 days from the
later of the date the Transfer Notice is delivered to the Company or 30 days
after the date the transfer is determined to be bona fide (if the Founder is
required to provide additional information as provided in Section 3(b)), the
Founder may, by the later of 60 days after the delivery of the Transfer Notice
to the Company or 30 days after the date the transfer is determined to be bona
fide (if the Founder is required to provide additional information as provided
in Section 3(b)), conclude a transfer of the shares of Stock subject to the
Transfer Notice which have not been purchased by the Company pursuant to
exercise of the Right of First Refusal on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by the Founder, shall again be subject to the Right of First Refusal
and shall require compliance by the Founder with the procedure described in this
Section 3. If the Company exercises the Right of First Refusal, the parties
shall consummate the sale of shares of Stock on the terms set forth in the
Transfer Notice by the later of 60 days after the delivery of the Transfer
Notice to the Company or 30 days after the date the transfer is determined to be
bona fide (if the Purchaser is required to provide additional information as
provided in Section 3(b)); provided, however, in the event the Transfer Notice
provides for the payment for the shares of Stock other than in cash, the Company
shall have the option of paying for the shares of Stock by the discounted cash
equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Company.
(d) Condition to Transfer. All transferees of shares of Stock or any
interest therein other than the Company shall be required as a condition of such
transfer to agree in writing (in a form satisfactory to the Company) that they
will receive and hold such shares of Stock or interests subject to the
provisions of this Agreement, including the Right of First Refusal.
(e) Assignment of Right of First Refusal. The Company may assign the
Right of First Refusal to one or more persons, who shall have the right to
exercise the Right of First Refusal in his or her own name for his or her own
account.
(f) Termination. The Right of First Refusal will terminate upon the
closing of a firm commitment underwritten public offering to the public of the
Company's Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended (the "IPO").
(g) Transfer Not Subject to Right of First Refusal. The Right of First
Refusal shall not apply to a transfer of shares of the Stock to the Founder's
ancestors, descendants or spouse or to a trustee for their benefit or the
benefit of the Founder, provided that such transferee shall agree in writing (in
a form satisfactory to the Company) to take the shares of Stock subject to all
the terms and conditions of this Section 3.
4. Piggyback Registration Rights.
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<PAGE> 5
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a shareholders) exercising demand
registration rights, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a transaction pursuant to
Rule 145 promulgated under the Securities Act of 1933, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Stock, the Company will promptly
give to the Founder written notice thereof and include in such registration (and
any related qualification under blue sky laws), and in any underwriting involved
therein, the number of Vested Shares specified in a written request made by the
Founder within fifteen (15) days after receipt of such written notice from the
Company, except as set forth in Section 4(b) below.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the right of any Founder
to registration shall be conditioned upon the Founder's participation in such
underwriting and the inclusion of such Founder's Stock in the underwriting
pursuant to an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
this Section, if the underwriter reasonably determines that marketing factors
require a limitation on the number of shares to be underwritten the underwriter
may exclude some or all of the Stock with the number of shares that may be
included in the registration and underwriting being allocated among the Founder
and all other shareholders entitled to have securities included in such
registration in proportion, as nearly as practicable, to the respective amounts
of securities which they had requested to be included in such registration
(provided, however, that if the registration is for the account of shareholders
exercising demand registration rights, the number of shares that may be included
by the Founder shall be cut back entirely before any limitation on the number of
shares that may be included by such shareholders).
(c) All expenses of the registration shall be borne by the Company,
except underwriting discounts and selling commissions applicable to the sale of
any of Founder's Stock and any other securities of the Company being sold in the
same registration by other shareholders, which shall be borne by the Founder and
such other shareholders pro rata on the basis of the number of their shares
registered.
5. Stock Dividends, etc. If, from time to time, there is any stock
dividend, stock split or other change in the character or amount of any of the
outstanding stock of the Company, then in such event any and all new substituted
or additional securities to which Founder is entitled by reason of Founder's
ownership of Unvested Shares or Stock shall be immediately subject to the
Unvested Share Repurchase Option or the Right of First Refusal, respectively,
with the same force and effect as the Unvested Shares or Stock.
6. Consent of Spouse. If the Founder is married on the date of this
Agreement, the Founder's spouse shall execute a Consent of Spouse in the form of
Exhibit A hereto, effective on the date hereof. Such consent shall not be deemed
to confer or convey to the spouse any rights in the Stock that do not otherwise
exist by operation of law or the agreement of the parties. If the Founder should
marry or remarry subsequent to the date of this Agreement, the Founder shall
within thirty (30) days thereafter obtain his or her new spouse's acknowledgment
of and consent
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<PAGE> 6
to the existence and binding effect of all restrictions contained in this
Agreement by signing an additional Consent of Spouse in the form of Exhibit A.
7. Legends. All certificates representing any shares of Stock subject to
the provisions of this Agreement shall have endorsed thereon the following
legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
REPURCHASE OPTION AND RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS COMPANY.
(b) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(c) Any legend required to be placed thereon by the federal or state
securities authorities.
8. Warranties and Representations. In connection with the proposed purchase
of the Stock, the Founder hereby agrees, represents and warrants as follows:
(a) The Founder is purchasing the Stock solely for his own account for
investment and not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933 as amended
(the "Act"). The Founder further represents that he or she does not have any
present intention of selling, offering to sell or otherwise disposing of or
distributing the Stock or any portion thereof; and that the entire legal and
beneficial interest of the Stock he or she is purchasing is being purchased for,
and will be held for the account of, the Founder only and neither in whole nor
in part for any other person.
(b) The Founder is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Stock. The Founder
further represents and warrants that he or she has discussed the Company and its
plans, operations and financial condition with its officers, has received all
such information as he or she deems necessary and appropriate to enable him or
her to evaluate the financial risk inherent in making an investment in the Stock
and has received satisfactory and complete information concerning the business
and financial condition of the Company in response to all inquiries in respect
thereof.
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<PAGE> 7
(c) The Founder realizes that his or her purchase of the Stock will be
a highly speculative investment, and he is able, without impairing his financial
condition, to hold the Stock for an indefinite period of time and to suffer a
complete loss on his investment.
(d) The Company has disclosed to the Founder that:
(i) The sale of the Stock has not been registered under the Act,
and the Stock, must be held indefinitely unless a transfer of it is subsequently
registered under the Act or an exemption from such registration is available,
and that the Company is under no obligation to register the Stock;
(ii) The Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
9. Escrow. As security for his faithful performance of the terms of this
Agreement and to ensure the availability for delivery of the Stock upon exercise
of the Unvested Share Repurchase Option and the Right of First Refusal herein
provided for, the Founder agrees to deliver to and deposit with Gray Cary Ware &
Freidenrich, a Professional Corporation (the "Escrow Agent"), as Escrow Agent in
this transaction, two Stock Assignments duly endorsed (with date and number of
shares blank) in the form attached hereto as Exhibit B. together with the
certificate or certificates evidencing the Stock. Such documents shall be held
by the Escrow Agent pursuant to the Joint Escrow Instructions of the Company and
the Founder set forth in Exhibit C attached hereto and incorporated by this
reference, which instructions shall also be delivered to the Escrow Agent at the
closing hereunder.
10. Transfers in Violation of Agreement. The Company shall not be required
(i) to transfer on its books any shares of Stock of the Company which shall have
been sold or transferred in violation of any of the provisions set forth in
this Agreement or (ii) to treat as owner of such shares or to accord the right
to vote as such owner or to pay dividends to any transferee to whom such shares
shall have been so transferred.
11. Rights as Shareholder. Subject to the provisions of this Agreement, the
Founder shall exercise all rights and privileges of a shareholder of the Company
with respect to the Stock deposited in escrow.
12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
13. "Market Stand-Off" Agreement. Founder hereby agrees that in connection
with the IPO, during the period of duration (not to exceed 180 days) specified
by the Company and an underwriter of common stock of the Company following the
effective date of the registration statement of the Company filed under the
Securities Act with respect to the IPO, he shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase, pledge or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of the Company held by
him at any time during such period except common stock
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<PAGE> 8
included in such registration. Founder agrees to the terms of any form of such a
stand-off agreement as approved by the company or the underwriter of the IPO.
14. Notice. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, or upon delivery to an overnight courier service
addressed to the other party at the address hereinafter shown below his
signature or at such other address as such party may designate by ten (10)
days' advance written notice to the other party.
15. Successors and Assigns. This Agreement shall inure to the benefit of,
and be binding upon, the successors and assigns of each party, including,
without limitation, in the case of the Founder, Founder's heirs, executors,
administrators, successors and assigns.
16. Entire Agreement; Amendments. This Agreement, together with the
Exhibits hereto, shall be construed under the laws of the State of California
(as it applies to agreements between California residents, entered into and to
be performed entirely within California), and constitutes the entire agreement
of the parties with respect to the subject matter hereof superseding all prior
written or oral agreements, and no amendment or addition hereto shall be deemed
effective unless agreed to in writing by the parties.
17. Right to Specific Performance. The Founder agrees that the Company
shall be entitled to a decree of specific performance of the terms hereof or an
injunction restraining violation of this Agreement, said right to be in addition
to any other remedies available to the Company.
18. Separability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
19. Tax Consequences and Tax Election Notification.
(a) The Founder understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code") taxes as ordinary income the difference
between the amount paid for the Stock and the fair market value of the Stock as
of the date any restrictions on the Stock lapse. In this context, "restriction"
means the right of the Company to buy back the stock pursuant to the Unvested
Share Repurchase Option. The Founder understands that he or she may elect to be
taxed at the time the Stock is purchased rather than when and as the Unvested
Share Repurchase Option expires by filing an election under Section 83(b) of the
Code with the Internal Revenue Service (the "IRS") within 30 days from the date
of purchase. Even if the fair market value of the Stock equals the amount paid
for the Stock, the election must be made to avoid adverse tax consequences in
the future. The Founder understands that failure to make this filing timely will
result in the recognition of ordinary income by the Founder, as the Unvested
Share Repurchase Option lapses, on the difference between the purchase price and
the fair market value of the Stock at the time such restriction lapses.
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<PAGE> 9
(b) The Founder understands that the purchase price of the Stock has
been set by the Board of Directors and that the Company believes this valuation
is a fair attempt to appraise it. The Founder understands, however, that if the
Founder files a Section 83(b) election, the Company can give no assurances that
the purchase price will be accepted as the fair market value of the Stock by the
IRS, and that the IRS could assert that the value of the Stock on the date of
purchase was substantially greater than the purchase price.
If the IRS were to successfully argue in a tax determination that the
Stock had a value greater than the price paid by the Founder, and the Founder
has filed a Section 83(b) election, the additional value would constitute
ordinary income as of the date of its receipt. The additional taxes (and
interest) due would be payable by the Founder. There is no provision for the
Company to reimburse the Founder for any potential tax liability, and the
Founder assumes all responsibility for any such liability. If the additional
value attributed to the Stock was more than 25 percent of the Founder's gross
income for the year in which that value was taxable, the IRS would have six
years from the due date for filing of the Founder's the return (or the actual
filing date of the return if filed thereafter) within which to assess the
additional tax and interest.
THE FOUNDER ACKNOWLEDGES THAT IT IS THE FOUNDER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S RESPONSIBILITY TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE FOUNDER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
TIES FILING ON THE FOUNDER'S BEHALF. THE FOUNDER FURTHER UNDERSTANDS THAT ANY
PURPORTED ELECTION PURSUANT TO SECTION 83(b) MUST COMPLY WITH THE PROVISIONS OF
TREASURY REGULATION SECTION 1.83-2. FOUNDER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO SEEK THE ASSISTANCE OF A TAX ADVISOR IN THIS MATTER.
(c) The Founder shall notify the Company in writing if Founder files
an election pursuant to Section 83(b) of the Code. The Company intends, in the
event it does not receive from Founder evidence of such filing, to claim a tax
deduction for any amount which would be taxable to Founder in the absence of
such an election.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"FOUNDER" "COMPANY"
MachOne Communications, Inc.
/s/ MATTHEW J. STEPOVICH By: [SIGNATURE ILLEGIBLE]
- ------------------------------------- ---------------------------------
Address: 26-1/2 Ashler Ave. Title: CEO
---------------------------- ------------------------------
Los Gatos, CA 95030
----------------------------
9
<PAGE> 10
EXHIBIT A
CONSENT OF SPOUSE
I, _______________ spouse of _______________, acknowledge that I have
read the Founder Stock Purchase Agreement dated as of _____________, 1998, to
which this Consent is attached as Exhibit A (the "Agreement") and that I know
its contents. I am aware that by its provisions the Company has the option to
purchase certain shares of Stock of the Company which my spouse owns pursuant to
the Agreement including any interest I might have therein, upon termination of
his employment under circumstances set forth in the Agreement, and that certain
other restrictions are imposed upon the sale or other disposition of the Stock
during my spouse's lifetime and in the event of his death.
I agree that my interest, if any, in the Stock subject to the Agreement
shall be bound by the Agreement and further understand and agree that any
community property interest I may have in the Stock shall be similarly bound by
the Agreement.
Signed and Dated:
----------------------
10
<PAGE> 11
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ________________ hereby sells, assigns and
transfers unto __________________ _________________ (___) shares of the Common
Stock of MachOne Communications, Inc., a California corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. _____ herewith, and do hereby irrevocably constitute and appoint
________________ attorney to transfer the said stock on the books of the said
corporation with full power of substitution in the premises.
Date: June __, 1998 By:
----------------------------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
PDO Communications, Inc.
Aspen Internet Systems, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
of our report dated August 6, 1999, except for Note 13, which is as of December
13, 1999, relating to the consolidated financial statements of Telocity, Inc.,
which appear in such Registration Statement. We also consent to the references
to us under the headings "Experts" and "Selected Financial Data" in such
Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
January 6, 2000
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