<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
THRUPOINT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 7371 13-3747337
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
</TABLE>
--------------------------
1372 BROADWAY
NEW YORK, NEW YORK 10018
TEL: (917) 542-5300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------
RAMI MUSALLAM
CHIEF EXECUTIVE OFFICER
1372 BROADWAY
NEW YORK, NEW YORK 10018
TEL: (917) 542-5300
FAX: (917) 542-5525
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE OF PROCESS)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
MORTON A. PIERCE, ESQ. WINTHROP CONRAD, JR., ESQ.
DEWEY BALLANTINE LLP DAVIS POLK & WARDWELL
1301 AVENUE OF THE AMERICAS 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10017
TEL: (212) 259-6640 TEL: (212) 450-4890
FAX: (212) 259-6333 FAX: (212) 450-3890
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please 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, PAR VALUE $0.001 PER SHARE(2)......... $57,500,000 $15,180
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act of
1933, as amended.
(2) Includes the Series E Preferred Stock purchase rights associated with the
common stock.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES EXCHANGE COMMISSION ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED APRIL 20, 2000
SHARES
[LOGO]
COMMON STOCK
-----------------
THRUPOINT, INC. IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND
$ PER SHARE.
-------------------
WE INTEND TO FILE AN APPLICATION FOR OUR COMMON STOCK TO BE QUOTED ON THE NASDAQ
NATIONAL
MARKET UNDER THE SYMBOL "THRU."
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE .
-----------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS TO THRUPOINT
-------- ------------- ------------
<S> <C> <C> <C>
PER SHARE................................ $ $ $
TOTAL.................................... $ $ $
</TABLE>
THRUPOINT HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL
SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES OF COMMON STOCK
TO PURCHASERS ON , 2000.
-------------------
MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
THOMAS WEISEL PARTNERS LLC
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 8
Special Note Regarding Forward-Looking
Statements.......................... 17
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 21
Selected Financial Data............... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Business.............................. 31
Management............................ 46
Certain Transactions.................. 58
Principal Stockholders................ 61
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 69
Underwriters.......................... 71
Legal Matters......................... 73
Change in Accountants................. 73
Experts............................... 74
Where You Can Find More Information... 74
Index to Financial Statements......... F-1
</TABLE>
------------------------
In this prospectus, the terms "ThruPoint," "we," "us" and "our" refer to
ThruPoint, Inc. and its subsidiary.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
i
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
APPEARING ELSEWHERE IN THIS PROSPECTUS.
THRUPOINT, INC.
We are a leading technology consulting firm that provides advanced
internetworking solutions and services to help our clients design, deploy and
manage their computer networks. Our clients are primarily large, global
companies that are sophisticated, early adopters of new technology and that view
their networks as a critical part of their overall business strategy. We
currently offer our clients comprehensive network technology consulting
expertise and services that address all aspects of business communications. In
addition, we have used our accumulated experience and industry-specific
knowledge to develop packaged internetworking solutions that address common
network problems facing many of our clients.
We have formed two important strategic relationships with Cisco Systems,
Inc. and KPMG Consulting, LLC, which we believe will provide us with a
significant competitive advantage and allow us to expand our business and
increase our revenue growth.
- CISCO SYSTEMS. Our strategic relationship with Cisco Systems involves our
participation as one of three network consultants in its inner circle. As
part of the inner circle, we have early access to Cisco Systems' newest
products and advanced technologies, affording us the opportunity to
develop and market solutions based on these products and technologies
prior to their general availability in the market. In addition, we have a
preferred status in Cisco Systems' services referral network.
- KPMG CONSULTING. Through our recently formed alliance with KPMG
Consulting, we intend to work with KPMG Consulting to design and deploy
the networks which will support the revenue generating e-commerce
applications provided by KPMG Consulting to its clients. We also believe
that this relationship will provide us with opportunities for new client
referrals.
KPMG Consulting also has a strategic relationship with Cisco Systems and we
believe that our unique relationship with both Cisco Systems and KPMG Consulting
will allow our three organizations to work effectively together to provide
comprehensive e-commerce solutions to a broad customer base. Cisco Systems and
KPMG Consulting are significant investors in ThruPoint.
During 1999, we provided consulting services to over 50 clients across
several industries. Our clients include Morgan Stanley Dean Witter and Deutsche
Bank in financial services, Enron Broadband Services in communication services
and Celera Genomics in pharmaceuticals/biotechnology. As of March 31, 2000, we
employed 246 engineers. Our corporate headquarters are in New York City and we
have 14 additional U.S. offices and an office in London.
1
<PAGE>
OUR MARKET OPPORTUNITY
Networks today represent a competitive necessity as companies increasingly
transact business, communicate and operate electronically. To remain
competitive, companies need to make their networks available to their customers,
suppliers and employees virtually anytime and anywhere. We believe that the
importance of network infrastructure and the demand for network availability
will continue to increase, primarily as the result of the growth in both
business-to-business and business-to-consumer e-commerce as well as increased
worker mobility.
As the importance of networks and the demands placed on them have increased,
network infrastructures have also become increasingly complex. This complexity
has resulted from the use of a wide variety of platforms, devices and protocols,
the demand for new technologies and the need to integrate these new technologies
with existing legacy networks.
Companies have typically relied on internal technology teams to address
their network infrastructure needs. However, as both the technical complexity
and the number of alternative technology solutions increase, companies are
finding that it is more cost-effective to utilize outside network consultants to
assess, design, implement and manage their networks. We believe there is a
significant market opportunity for network consulting providers that combine a
thorough understanding of network technology with industry-specific expertise to
design and manage the deployment of high-quality internetworking solutions for
businesses whose networks serve as key components of their business and
operational strategies.
OUR SOLUTION
We provide our clients with network technology consulting services to help
design, build and operate their increasingly complex networks. The following are
the key elements of the ThruPoint solution:
NETWORK TECHNOLOGY LEADERSHIP. We offer our clients the best and most
advanced technology available, and deliver services and proven and reliable
solutions to address complex internetworking problems. We believe that we
maintain our technological expertise primarily by successfully servicing
technologically sophisticated customers and by using our inner circle alliance
with Cisco Systems to gain early access to new products and technologies.
INDUSTRY EXPERTISE. We believe that our industry expertise is critical to
our ability to help our clients reach their overall business objectives. We
provide services to clients in several industries that have been early adopters
and sophisticated users of network technology, including the financial services,
communication services and pharmaceuticals industries.
DISCIPLINED DELIVERY METHODOLOGY. We apply a highly disciplined, repeatable
methodology to all of our client engagements. Through our proprietary OptiPoint
methodology, we consistently deliver high-quality, reliable solutions on a
cost-effective basis across all our engagements.
COMPREHENSIVE PACKAGED SOLUTIONS. We develop and offer packaged solutions
that address specific internetworking problems commonly found among our clients
in particular industries or that involve particular technologies. We believe our
packaged solutions provide our clients with a proven answer to a specific
problem at a predictable cost while allowing us to provide a consistently high
quality of service efficiently and effectively.
2
<PAGE>
END-TO-END ENGAGEMENTS. We are able to provide our clients with end-to-end
network consulting services, from the initiation of a project to the on-going
management of the network, and any intermediate services our clients require. In
addition, during our engagements we often identify opportunities to provide
services beyond those for which we were initially engaged.
OUR STRATEGY
Our objective is to be the leading provider of network technology consulting
services to large, global companies that view their network as a key enabler of
their business and operational strategies. Our strategy for achieving this
objective is as follows:
- continuously develop new internetworking solutions;
- continue to attract and retain high-caliber employees;
- leverage position in Cisco Systems' inner circle and enter into additional
strategic relationships;
- focus on large global companies and penetrate new industries; and
- enter new geographic markets.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered in this offering...................... shares
Common stock to be outstanding after this offering:
Common stock............................................. shares
Non-voting common stock.................................. shares
Total.................................................. shares
Use of proceeds............................................ For general corporate purposes,
including working capital and capital
expenditures relating to the expansion
of our operations.
Proposed Nasdaq National Market symbol..................... THRU
</TABLE>
The number of shares of our common stock outstanding after this offering is
based on shares of our common stock outstanding as of , 2000 and
gives effect to:
- the redemption of all outstanding shares of Series A senior redeemable
preferred stock for shares of our non-voting common stock on
the closing of this offering, based upon an assumed price per common share
of $ , the midpoint of the range set forth on the cover of this
prospectus;
- the conversion of all outstanding shares of Series C convertible preferred
stock into 2,483,442 shares of our non-voting common stock on the closing
of this offering;
- the conversion of all outstanding shares of Series D convertible preferred
stock into 5,106,384 shares of our common stock on the closing of this
offering; and
- the exchange of shares of common stock owned by investment
funds affiliated with Morgan Stanley Dean Witter for the same number of
shares of non-voting common stock prior to this offering.
This information does not include:
- 12,201,282 shares of common stock issuable upon the conversion of
convertible notes held by Cisco Systems;
- 18,747,598 shares of common stock issuable upon the exercise of stock
options outstanding as of March 31, 2000 at a weighted average exercise
price of $.89 per share;
- 35,482,794 additional shares of common stock reserved for issuance under
our stock option plan; and
- additional shares of common stock available for issuance under
our employee stock purchase plan.
------------------------
We were formed in 1993 and commenced offering network consulting services in
1996. Our principal executive offices are located at 1372 Broadway, New York,
New York 10018 and our telephone number is (917) 542-5300. Our World Wide Web
address is www.thrupoint.net. The information in the Web site is not
incorporated by reference into this prospectus.
4
<PAGE>
Unless otherwise indicated, all information contained in this prospectus:
- assumes that the underwriters do not exercise their over-allotment option;
- assumes the conversion or redemption of the shares of preferred stock
described above;
- assumes the exchange of the shares of common stock described above into
shares of non-voting common stock; and
- does not assume the conversion of convertible notes held by Cisco Systems.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize the consolidated financial data for our
business and should be read in conjunction with the discussion in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $4,498 $10,315 $26,716
Cost of revenues......................................... 2,115 6,047 15,778
Gross profit............................................. 2,383 4,268 10,938
Operating income (loss).................................. 556 95 (7,462)
Net income (loss)........................................ 238 47 (6,818)
Net income (loss) applicable to common stockholders...... 238 (56) (7,684)
Net income (loss) per share
Basic and diluted...................................... $ 0.00 $ (0.00) $ (0.11)
Weighted average common shares outstanding
Basic and diluted...................................... 53,998,920 58,521,420 72,511,404
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $11,056 $26,056 $
Working capital............................................. 14,663 29,663
Total assets................................................ 21,182 36,182
Series A preferred stock.................................... 7,468 7,468
Total stockholders' equity (deficit)........................ (6,219) 16,249
</TABLE>
The pro forma column in the balance sheet data gives effect to the following
transactions occurring after December 31, 1999 as if they occurred on this date:
- the sale of 248,344 shares of our Series C convertible preferred stock in
February 2000 for $3.0 million;
- the sale of 851,064 shares of our Series D convertible preferred stock in
February 2000 for $12.0 million;
- the redemption of 99,804 shares of our Series A preferred stock
for shares of non-voting common stock on the closing of this
offering, based upon an assumed price per common share of $ , the
midpoint of the range set forth on the cover of this prospectus;
- the conversion of 413,907 shares of our Series C convertible preferred
stock into 2,483,442 shares of non-voting common stock on the closing of
this offering;
- the conversion of 851,064 shares of our Series D convertible preferred
stock into 5,106,384 shares of common stock on the closing of this
offering; and
6
<PAGE>
- the exchange of shares of common stock owned by investment funds
affiliated with Morgan Stanley Dean Witter for the same number of shares
of non-voting common stock prior to this offering.
The pro forma as adjusted column also gives effect to the sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us.
7
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND ALL THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. WHILE
THESE ARE THE RISKS AND UNCERTAINTIES THAT WE BELIEVE ARE MOST IMPORTANT FOR YOU
TO CONSIDER, YOU SHOULD BE AWARE THAT THEY ARE NOT THE ONLY RISKS OR
UNCERTAINTIES FACING US OR WHICH MAY ADVERSELY AFFECT OUR BUSINESS. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS OR
FINANCIAL CONDITION WOULD LIKELY SUFFER. THIS COULD CAUSE THE MARKET PRICE OF
OUR COMMON STOCK TO DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND EXPECT TO CONTINUE TO INCUR NET LOSSES FOR
THE FORESEEABLE FUTURE
We incurred a net loss of $6.8 million in 1999 and had net income of $47,000
in 1998. As of December 31, 1999, we had an accumulated deficit of
$7.2 million. We expect to continue to incur increased expenses related to new
product development, sales and marketing and general administrative functions as
we expand our business. As a result, we will need to generate significant
revenues to achieve profitability. We cannot be certain whether or when this
will occur because of the risks and uncertainties that affect our business.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT OUR FUTURE
SUCCESS
Because we were formed in 1993 and did not offer network consulting services
until 1996, we have a limited operating history upon which you can evaluate our
business. The limited amount of information about us and the limited period
during which we have provided our network consulting services makes it difficult
for you to predict whether or not we will be successful. You should evaluate our
chances of financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties associated with starting a new
business, many of which may be beyond our control. We compete in a relatively
new market which is rapidly evolving. We do not know if there will be
sustainable demand for our service offerings and, as a result, we face many
uncertainties.
BECAUSE WE RELY ON A SMALL NUMBER OF CLIENTS FOR MOST OF OUR REVENUES, THE
LOSS OF A SINGLE CLIENT COULD SIGNIFICANTLY REDUCE OUR REVENUES
In 1999, Morgan Stanley Dean Witter accounted for approximately 21% of our
revenues, Deutsche Bank accounted for approximately 12% of our revenues and a
consulting and network integration services client of ours accounted for
approximately 12% of our revenues, and our five largest clients collectively
accounted for approximately 58% of our revenues. If one or more of our major
clients do not engage us to perform additional services, or if they reduce the
amount of our services that they use, and we are not able to sell our services
to new clients at comparable or greater levels, our revenues may decline. In
addition, the non-payment or late payment of amounts due from our major clients
could adversely affect us.
BECAUSE OUR RELATIONSHIPS WITH CISCO SYSTEMS AND KPMG CONSULTING ARE
FUNDAMENTAL TO OUR BUSINESS STRATEGY AND CRITICAL TO OUR SUCCESS, ANY
DETERIORATION IN THESE RELATIONSHIPS COULD SIGNIFICANTLY HARM OUR BUSINESS
We have a strategic relationship with Cisco Systems that is central to our
business strategy. Any deterioration in this relationship could significantly
harm our business. Cisco Systems develops, manufactures, markets and supports
high-performance, multiprotocol internetworking systems. Our relationship with
Cisco Systems includes performing work for Cisco Systems and being part of their
inner circle of networking consultants. In addition, some of our client
relationships have resulted from referrals from Cisco Systems and as part of the
inner circle we have early access to Cisco Systems' newest products and
technologies, affording us the opportunity to develop and market solutions based
8
<PAGE>
on these products and technologies prior to their general availability in the
market. However, Cisco Systems is not obligated to provide us with such
engagements, referrals and access and may cease to do so at any time.
Additionally, any perception by our customers that our ability to provide
unbiased equipment recommendations has been compromised as a result of our
relationship with Cisco Systems could harm our relationships with those
customers. For a more detailed discussion about our relationship with Cisco
Systems, see "Business--Strategic Relationships" and "Certain Transactions."
We have recently entered into an alliance with KPMG Consulting which we
believe will provide us with opportunities to work with KPMG Consulting in their
systems integration engagements for their clients. We believe that our alliance
with KPMG Consulting will also broaden our potential customer base through
customer referrals. However, KPMG Consulting is not obligated to provide us with
any engagements or referrals and may cease to do so at any time. If our
relationship with KPMG Consulting does not develop as anticipated, our business
could be harmed. For a more detailed discussion about our relationship with KPMG
Consulting, see "Business--Strategic Relationships" and "Certain Transactions."
THE ABILITY OF OUR CLIENTS TO TERMINATE THEIR CONTRACTS WITH US ON SHORT
NOTICE MAKES OUR FUTURE REVENUES UNCERTAIN
Our services are generally delivered pursuant to short-term arrangements and
most clients can reduce or cancel their contracts for our services without
penalty and on short notice. If a client defers, modifies or cancels an
engagement, we must be able to rapidly redeploy our engineers to other
engagements to minimize underutilization. If we cannot rapidly redeploy our
engineers, our operating results will be negatively affected. In addition,
because we derive our revenues on an engagement-by-engagement basis, a client
that accounts for a significant portion of our revenues in a given period may
not generate a similar amount of revenues, or even any, in subsequent periods.
As a result, the size of our existing engagements may not be a reliable
indicator or measure of future revenues.
GROWTH IN OUR OPERATIONS HAS AND WILL CONTINUE TO STRAIN OUR RESOURCES; IF
WE ARE UNABLE TO SUCCESSFULLY MANAGE OUR GROWTH, OUR BUSINESS COULD BE SERIOUSLY
HARMED
We have recently experienced a period of rapid revenue and client growth, an
increase in the number of our employees and offices and an expansion in the
scope of our supporting infrastructure. If we are unable to successfully manage
our growth or if we have problems implementing our new systems or controls, our
business could be seriously harmed. We opened eight new offices in 1999 and our
current plans call for us to open additional offices in 10 new geographic
markets in the United States and around the world over the next two years. This
growth has placed, and our planned future growth is expected to place, a
significant strain on our management and other resources. To manage this growth,
we will be required to implement new operational and financial systems,
procedures and controls and expand and train our employee base. We cannot assure
you that our management or systems will be adequate to support our existing or
future operations.
WE NEED TO RECRUIT AND RETAIN QUALIFIED NETWORK SYSTEMS ENGINEERS WHO ARE IN
SHORT SUPPLY
Our future success depends on our ability to identify, hire, train and
retain highly qualified network systems engineers. If we cannot do this, our
ability to grow, complete existing projects and bid for new projects will be
adversely affected. Competition for qualified engineers is intense and is likely
to remain high for the foreseeable future. The planned expansion of our
operations also will require that we recruit and train a significant number of
additional qualified technical personnel, including project managers and senior
engineers. In addition, on occasion, we must rapidly hire a significant number
of technical personnel in order to staff new projects. If we are unable to hire
such personnel within a compressed time schedule, our customer relationships
could be damaged and our revenues could be negatively affected. We may also have
difficulty attracting and hiring our desired number of qualified professionals
after the offering since some may perceive that the stock option component of
9
<PAGE>
their compensation package is no longer as valuable. Moreover, even if we are
able to expand our employee base, the resources required to train and retain our
employees may adversely affect our operating margins.
WE DEPEND ON THE SERVICES OF A LIMITED NUMBER OF KEY EMPLOYEES AND A LOSS OF
ANY OF THESE EMPLOYEES COULD ADVERSELY AFFECT OUR BUSINESS; IF OUR RECENTLY
HIRED SENIOR MANAGEMENT TEAM DOES NOT PERFORM AS ANTICIPATED, OUR OPERATIONS
COULD BE ADVERSELY AFFECTED
Our future success depends, in significant part, upon the continued service
and performance of our senior management and other key employees, including Rami
Musallam, our Chief Executive Officer, William Nachtigal, our Chief Technology
Officer, and Robert Foley, our Chief Operating Officer, each of whom are subject
to employment agreements with us which expire August 2001, in the case of
Messrs. Musallam and Nachtigal and September 2003, in the case of Mr. Foley.
Losing the services of any of these individuals could impair our ability to
manage our company, obtain new or maintain existing client engagements and
recruit new engineers. In addition, if one or more key employees joins a
competitor or forms a competing company, the loss of such employees and any
resulting loss of existing or potential clients to any such competitor could
adversely affect our business. In the event of the loss of any such employee,
there is no assurance we could prevent the unauthorized disclosure or use of our
technical knowledge, practices or procedures by them. Any such disclosure or use
could harm our business.
Several members of our senior management joined us in 1999, including our
Chief Operating Officer, Chief Financial Officer, Vice President of Finance,
Vice President of Recruiting, and Vice President of Strategic Marketing. As a
result, our current senior management team has worked together for only a brief
period of time and may not be able to work together as effectively or
efficiently as we anticipate. The failure of our senior management team to work
well together could negatively affect our operations.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE THE MARKET PRICE
OF OUR COMMON STOCK TO DECLINE
Our levels of revenue growth and our operating results have varied from
quarter to quarter in the past and are likely to vary significantly from quarter
to quarter in the future. As a result of these fluctuations, our revenue growth
and operating results at a given time may fall below the expectations of
securities analysts or investors. If this occurs, the price of our common stock
is likely to decline.
Because a substantial majority of our operating expenses, particularly
compensation, depreciation and rent, are relatively fixed in advance of any
particular quarter, the underutilization of our engineers is a significant
factor that may cause our operating results to decline in a particular quarter.
As a result, if revenues for any quarter are below our expectations, we may not
be able to reduce operating expenses proportionately for that quarter. Such a
revenue shortfall would have a negative effect on our operating results and cash
flow for that quarter. Additional factors that may cause our results to
fluctuate include:
- cancellations or reductions in the scope of major projects;
- the loss of key employees;
- the number, size and scope of our projects;
- the misjudgment of the time and resources required to complete new or
ongoing projects;
- the development and introduction of new service offerings;
- our clients' extensive internal review and approval process, which results
in a long sales cycle for our service offerings;
10
<PAGE>
- reductions in our billing rates or those of our competitors;
- the cost of recruiting and training;
- reductions in business activity during the summer and year-end vacation
periods;
- our ability to manage our operating costs; and
- the timing and cost of new offices.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL ON FAVORABLE TERMS, OUR GROWTH
COULD BE ADVERSELY AFFECTED
Our future liquidity and capital requirements are difficult to predict
because they depend on numerous factors, including the pace at which we grow our
business, develop new internetworking solutions and open new offices. In
addition to the net proceeds we will receive from this offering, we may need to
raise additional funds. We cannot be certain that we will be able to obtain such
additional financing on favorable terms or at all. If we are unable to raise
additional funds when needed, our ability to operate and grow our business could
be impeded. Our ability to obtain additional financing will be subject to a
number of factors, including market conditions, our operating performance and
investor sentiment. These factors may make the timing, amount, terms and
conditions of additional financing unattractive for us.
WE MAY LOSE MONEY ON FIXED-FEE CONTRACTS
Although a small portion of our revenues in 1999 was derived from fixed-fee
contracts, we anticipate that the proportion of revenues that we receive from
fixed-fee contracts will increase in the future. If we misjudge the time and
resources we need to complete engagements with fixed fees, our margins could be
reduced and we could lose money. Fixed-fee contracts involve estimating the
resources necessary to perform the engagement and pose a significantly greater
risk of generating a loss or lower margins when compared with time-and-materials
contracts. The risk that such misjudgments may occur is high for us because we
work with complex technologies in compressed time frames. As a result, it is
difficult to judge the time and resources necessary to complete a project.
OUR BUSINESS WILL SUFFER IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGES
AND CLIENT DEMANDS
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions and evolving industry standards. If we are
unable to respond successfully to these technological developments or do not
respond in a timely or cost-effective manner, we will not be able to meet our
clients' increasingly sophisticated network consulting needs, our services will
become less competitive and our business and operating results will be seriously
harmed. In addition, the demands of our clients continue to change as their
business strategies evolve. As a result, if we fail to develop new services or
enhance our existing services in response to these changing client demands, our
business and operating results will also be seriously harmed.
BECAUSE OUR SERVICES ARE OFTEN CRITICAL TO OUR CLIENTS' OPERATIONS, WE MAY
BE SUBJECT TO SIGNIFICANT CLAIMS IF OUR SERVICES DO NOT MEET OUR CLIENTS
EXPECTATIONS
Many of our projects are critical to the operations of our clients'
businesses. If we cannot complete these projects to our clients' expectations,
we could materially harm our clients' operations. This could damage our
reputation, subject us to increased risk of litigation, result in our not being
paid for services rendered or result in our having to provide additional
services to a client at no charge. Prior to January 2000, our service
arrangements with our clients generally did not limit the amount of damages a
client could claim in the event of an alleged failure of or defect in our
performance. Any liability claim brought against us could have a material
adverse effect on our business. Although we carry general liability insurance
coverage, our insurance may not cover all potential claims to which we are
exposed or may not be adequate to indemnify us for all liability that may be
imposed on us.
11
<PAGE>
IF WE ARE NOT ABLE TO SUCCESSFULLY MAINTAIN AND EXPAND OUR INTERNATIONAL
OPERATIONS OR MARKET OUR SERVICES INTERNATIONALLY, OUR BUSINESS AND OUR ABILITY
TO GROW WILL BE NEGATIVELY AFFECTED
We expect to expand our international operations and international sales and
marketing efforts. We commenced operations in England during 1999 and intend to
commence operations in Japan, Singapore, Germany and the Netherlands in 2000. We
have had limited experience in marketing, selling and providing our services
internationally and such efforts may be more difficult or take longer than we
anticipate. In addition, we will have to attract and retain experienced
management and employees in these new international markets and we may be unable
to do so. If we are not able to successfully maintain and expand our
international operations or market our services internationally, our business
and our ability to grow will be negatively affected.
In addition to the risks that United States companies normally face in
expanding abroad, we believe that we could also be affected by the following
factors:
- longer payment cycles and problems in collecting accounts receivable in
markets outside the United States;
- technology export and import restrictions or prohibitions;
- employment laws and practices in foreign companies, particularly vacation
practices, that can negatively affect the utilization rate of our
engineers;
- difficulties in staffing and managing foreign operations;
- cultural and language differences; and
- seasonal reductions in business activity during the summer months in
Europe.
If we do not appropriately adapt our practices to address these factors, our
growth could be impeded and our results of operations could suffer.
WE MAY HAVE DIFFICULTY FINDING SUITABLE ACQUISITION CANDIDATES WHICH MAY
LIMIT OUR GROWTH AND ANY POTENTIAL FUTURE ACQUISITIONS COULD BE DIFFICULT TO
INTEGRATE AND MAY ADVERSELY AFFECT OUR OPERATING RESULTS
In order to grow our business we may seek to acquire or invest in
complementary businesses, technologies, services or products. Currently, we do
not have any such acquisitions or investments pending. Our failure to make
acquisitions or investments may limit our growth. In pursuing acquisition and
investment opportunities, we may be in competition with other companies having
similar growth and investment strategies. Competition for these acquisitions or
investment targets could result in increased acquisition or investment prices
and a diminished pool of businesses, technologies, services or products
available for acquisition or investment.
In addition, an acquisition may involve a number of special risks for us,
including:
- the failure to retain key personnel acquired;
- the inability to maintain uniform standards, controls, procedures and
policies,
- the distraction of our senior management;
- increased compensation expenses;
- difficulties in integrating systems, operations and cultures; and
- unanticipated problems with an acquired technology, service or product.
12
<PAGE>
RISKS RELATED TO THE NETWORK CONSULTING INDUSTRY
THE NETWORK CONSULTING INDUSTRY IS HIGHLY COMPETITIVE AND OUR FAILURE TO
COMPETE SUCCESSFULLY WILL LIMIT OUR ABILITY TO RETAIN OR INCREASE OUR MARKET
SHARE
The network consulting market has limited barriers to entry and is therefore
highly fragmented and highly competitive. Our primary competition continues to
be the internal information technology staffs of our current and potential
clients. Many organizations elect to meet their network services needs through
their own internal resources rather than by contracting with third-party service
organizations such as ourselves.
We also compete with other network consulting firms. Our current and
anticipated competitors include:
- systems integrators;
- professional services firms;
- local and regional network services firms;
- telecommunications suppliers;
- network equipment and software manufacturers and developers;
- computer systems vendors; and
- value-added resellers.
Many of our competitors are larger and have greater financial, technical,
sales and marketing resources, larger client bases and greater brand or name
recognition than we do. As a result, our competitors may be better able to
respond to technological changes or client needs or finance acquisitions or
internal growth. If we fail to compete successfully, we may not be able to
retain or increase our market share and our business could be seriously harmed.
In addition, competition could result in lower billing rates and gross margins
and could require us to increase our spending on sales and marketing.
Some of our competitors have in the past and may in the future form
alliances with various network equipment vendors that may give them an advantage
in implementing networks using that vendor's equipment.
IF THE GROWTH IN THE USE OF LARGE-SCALE, COMPLEX NETWORKS DOES NOT CONTINUE
OR DECLINES, OUR BUSINESS MAY NOT GROW AND OUR REVENUES MAY DECLINE
To date, a majority of our revenues has been derived from the delivery of
network consulting services related to large-scale, complex networks, and we
believe this will continue. If the growth in the use of large-scale networks and
the continued trend among our clients to use third-party service providers to
design, implement and manage such networks does not continue or declines, our
business may not grow and our revenues may decline.
IF GROWTH IN THE USE OF THE INTERNET DECLINES, THE DEMAND FOR OUR SERVICES
AND OUR GROWTH MAY ALSO DECLINE
The increasing demand for network consulting services has largely been
driven by the growth of the Internet. If the use of the Internet as a viable
business tool does not continue to grow, or grows more slowly than expected, our
growth would decline and our business would be harmed. Clients and businesses
may reject the Internet as a viable commercial medium for a number of reasons,
including:
- inadequate network infrastructure, standards and protocols required to
handle increased levels of Internet activity;
13
<PAGE>
- delays in the development of Internet enabling technologies and
performance improvements;
- delays in the development of security and authentication technology
necessary to effect secure transmission of confidential information;
- changes in, or insufficient availability of, telecommunications services
to support the Internet;
- increasing interruptions in Internet service as a result of outages,
cyber-vandalism and other delays occurring throughout the Internet network
infrastructure;
- failure of companies to meet their customers' expectations in delivering
goods and services over the Internet; and
- increasing governmental regulation.
IF WE ARE NOT ABLE TO PROTECT OUR CONFIDENTIAL INFORMATION AND PROPRIETARY
RIGHTS, OUR BUSINESS COULD BE ADVERSELY AFFECTED
Our success is dependent in part on our information technology and
methodology, some of which is proprietary, and other intellectual property
rights. Currently we hold no patents. Our proprietary information is generally
protected by copyrights or as trade secrets. While our employees and clients
generally execute confidentiality agreements to preserve these rights, we cannot
guarantee that this will be adequate to deter misappropriation of our
confidential information. In addition, we may not be able to detect unauthorized
use of our intellectual property or take appropriate steps to enforce our
rights. If third parties infringe or misappropriate our trademarks, copyrights,
trade secrets or other proprietary information, our business could be seriously
harmed. We are expanding our business internationally and the protection of
intellectual property in many foreign countries is weaker and less reliable than
in the United States. As we expand internationally, the risks associated with
protecting our intellectual property outside the United States will increase.
In addition, as the number of products and services in the network
management industry increases and the functionality of these products and
services further overlaps, companies may increasingly become subject to claims
of infringement or misappropriation of the intellectual property or proprietary
rights of others. There can be no assurance that third parties will not assert
infringement or misappropriation claims against us in the future with respect to
current or future products or services, or that any such assertion will not
require us to enter into royalty arrangements or litigation that would be costly
to us. Any claims or litigation, with or without merit, could result in a
diversion of management's attention and our financial resources, which could
have a material adverse effect on our business, financial condition and results
of operations. Adverse determinations in such claims or litigation could also
have a material adverse effect on our business, financial condition and results
of operations. We believe that our success is dependent in part upon our
proprietary technology, methodology and rights.
IF OUR NAME CHANGE CAUSES CONFUSION AMONG OUR CLIENTS, OUR BUSINESS COULD BE
HARMED
In April 2000, we changed our name from Total Network Solutions, Inc. to
ThruPoint, Inc. We have applied for service mark registrations in the United
States for our name, our name used with our logo and the name of our
methodology. Although we intend to promote brand recognition of our new name,
there may be a period of confusion and adjustment among our clients or potential
clients in connection with our name change. Furthermore, there can be no
assurance that we will be able to enforce rights related to the ThruPoint name,
that we will be free to use the name in all jurisdictions, that there will be no
challenges to the use of that name or that we will not be required to expend
significant resources in defending our use of that name.
14
<PAGE>
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AND MAY RESULT IN
SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES IN THE OFFERING
The market price of our common stock is likely to be highly volatile. The
stock market in general, and the market for technology-related stocks in
particular, has been highly volatile. As a result, investors in our common stock
may experience a decrease in the value of their common stock regardless of our
operating performance or prospects. We cannot assure you that our common stock
will trade at the same levels of other technology-related stocks or that
technology-related stocks in general will sustain their current market prices.
In addition, the initial public offering price may bear no relationship to the
price at which the common stock will trade upon completion of this offering. We
also cannot assure you that an active public market for our securities will
develop or continue after this offering.
In addition, the trading price of our common stock could be subject to wide
fluctuations in response to:
- our perceived prospects;
- variations in our operating results and our achievement of key business
targets;
- changes in securities analysts' recommendations or earnings estimates;
- differences between our reported results and those expected by investors
and securities analysts;
- announcements of new contracts or service offerings by us or our
competitors;
- market reaction to any acquisitions, joint ventures or strategic
investments announced by us or our competitors; and
- general economic or stock market conditions unrelated to our operating
performance.
WE ARE CONTROLLED BY A SMALL GROUP OF OUR EXISTING STOCKHOLDERS, WHOSE
INTERESTS MAY DIFFER FROM OTHER STOCKHOLDERS
Immediately after this offering, our directors, executive officers and
significant stockholders, whether acting alone or together, will have
significant influence in determining the outcome of any corporate transaction or
other matter submitted to the stockholders for approval, including mergers,
acquisitions, consolidations and the sale of all or substantially all of our
assets, and also the power to prevent or cause a change in control. The
interests of these stockholders, several of whom are also important clients of
ours, may differ from the interests of the other stockholders. Immediately after
this offering, our directors and executive officers and the stockholders listed
below will beneficially own the following percentages of our outstanding common
stock:
<TABLE>
<S> <C>
Affiliates of KPMG Consulting............................... %
Cisco Systems............................................... %
Directors and executive officers (including shares that will
be deemed to be owned by some of our officers and
directors as a result of their relationships with our
significant stockholders)............................... %
</TABLE>
15
<PAGE>
Following this offering, investment funds affiliated with Morgan Stanley
Dean Witter will beneficially own shares of common stock and shares
of non-voting common stock which will constitute an aggregate of % of our
outstanding capital stock. These funds will not be able to convert non-voting
common stock into common stock if they, together with their affiliates, would
thereafter beneficially own in excess of 4.9% of our outstanding common stock.
Each share of our non-voting common stock will automatically convert into a
share of our common stock when acquired by a person or entity that is not
affiliated with Morgan Stanley Dean Witter. We have entered into agreements
which provide that affiliates of KPMG Consulting, Cisco Systems and Morgan
Stanley Dean Witter will each have the right to designate one member of our
board of directors as long as each beneficially owns a certain amount of our
outstanding capital stock.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF THE NET PROCEEDS
FROM THIS OFFERING AND YOU MAY NOT AGREE WITH HOW WE USE THEM
Our management will have broad discretion as to the use of the net proceeds
from this offering. While we currently anticipate that we may use the net
proceeds of this offering for general corporate purposes, including working
capital and capital expenditures related to the expansion of our operations, as
described under "Use of Proceeds," our management may allocate the net proceeds
among these purposes as it determines is necessary. In addition, market factors
may require management to allocate all or portions of the net proceeds for other
purposes. Accordingly, you will be relying on the judgment of our management
with regard to the use of the net proceeds from this offering.
CISCO SYSTEMS HAS CONTRACTUAL RIGHTS THAT MAY INHIBIT A TAKEOVER THAT
STOCKHOLDERS MAY CONSIDER FAVORABLE
In connection with Cisco Systems' investments in our company, we have agreed
to comply with procedures for considering and entering into acquisition
agreements with third parties. These provisions may have the effect of delaying
or preventing a change of control that stockholders consider favorable or
beneficial. As further described under "Certain Transactions," Cisco Systems has
various rights in connection with any unsolicited acquisition proposals we
receive or acquisition proposals we initiate. These rights include notice
rights, rights to exclusive negotiation, a limited right of first refusal on
some types of acquisition proposals and the right to large monetary payments
from us if we accept an acquisition proposal under particular circumstances from
one of seven specified competitors of Cisco Systems or their affiliates.
OUR CHARTER DOCUMENTS AND NEW YORK LAW MAY INHIBIT A TAKEOVER THAT
STOCKHOLDERS MAY CONSIDER FAVORABLE
Certain provisions of our certificate of incorporation and by-laws may
discourage, delay or prevent a change of control or changes in our management
that stockholders consider favorable. Such provisions include:
- authorizing the issuance by our board of directors of "blank check"
preferred stock without any action by our stockholders;
- providing for a classified board of directors with staggered, three-year
terms;
- providing that directors may only be removed for cause by a two-thirds
vote of stockholders;
- limiting the persons who may call special meetings of stockholders; and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Additionally, because our existing stockholders will continue to hold voting
control after the offering, they will be able to prevent most changes of
control. We intend to adopt a stockholder rights plan which could substantially
deter a takeover attempt on terms we determine are unacceptable.
16
<PAGE>
Lastly, the New York Business Corporation Law imposes limitations on persons
proposing to merge with or acquire us. If a change of control or change in
management is delayed or prevented, the market price of our common stock could
decline.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT
OUR STOCK PRICE AND DILUTE YOUR OWNERSHIP IN US
Sales by our existing stockholders of a substantial number of shares of our
common stock in the public market after this offering, or the perception that
these sales could occur, could cause the market price of our common stock to
fall because there may be more supply than demand for our common stock. Such
sales could also impair our ability to raise capital through the sale of
additional equity securities. For a description of the shares of our common
stock that are available for future sale, see "Shares Eligible for Future Sale."
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION
The assumed initial public offering price per share of our common stock of
$ per share will significantly exceed the net tangible book value per share
after the offering of $ per share. Accordingly, investors purchasing shares in
this offering will suffer immediate dilution of $ per share in the net tangible
book value of the common stock. In addition, because our success is so heavily
dependent on our ability to attract and retain qualified personnel, we expect to
offer a significant number of stock options to employees in the future. As of
March 31, 2000, there were 18,747,598 shares of common stock issuable upon
exercise of outstanding stock options. The exercise of these options will result
in further dilution of the value of the shares purchased in this offering.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. You can identify these statements by forward-looking
words such as "may," "will," "expect," "anticipate," "believe," "estimate,"
"plan," "intend" and "continue" or similar words. You should read statements
that contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
condition or state other "forward-looking" information. This prospectus also
contains third-party estimates regarding the size and growth of markets and
Internet usage in general.
You should not place undue reliance on these forward-looking statements. The
sections captioned "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as any cautionary
language in this prospectus, provide examples of risks, uncertainties and events
that may cause our actual results to differ materially from the expectations.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus or to conform these
statements to actual results or to changes in our expectations, except with
respect to material developments related to previously disclosed information.
17
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of shares of common stock
in this offering will be approximately $ million, assuming an initial public
offering price of $ per share and after deducting underwriting discounts and
commissions and estimated offering expenses payable by us. If the underwriters'
over-allotment option is exercised in full, we estimate that the net proceeds
from this offering will be approximately $ million.
The primary purposes of this offering are to obtain additional equity
capital, create a public market for our common stock and facilitate future
access to public markets. As of the date of this prospectus, we have not made
any specific expenditure plans with respect to the net proceeds of this
offering. We expect to use the net proceeds of this offering for general
corporate purposes, including working capital and capital expenditures relating
to the expansion of our operations. A portion of the net proceeds may also be
used for the acquisition of or investment in complementary businesses,
technologies, services or products. We are not currently a party to any
contracts, letters of intent, commitments or agreements, and are not currently
engaged in active negotiations, with respect to any acquisitions or investments.
Pending such uses, we will invest the net proceeds of this offering in
short-term investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business. As a result, we do not intend to pay cash dividends in the
foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis after giving effect to;
(1) the sale of 248,344 shares of our Series C convertible preferred
stock in February 2000 for $3.0 million;
(2) the sale of 851,064 shares of our Series D convertible preferred
stock in February 2000 for $12.0 million;
(3) the redemption of all outstanding shares of Series A preferred stock
for shares of non-voting common stock, based upon an assumed
price per common share of $ , the midpoint of the range set
forth on the cover of this prospectus;
(4) the conversion of all outstanding shares of Series C convertible
preferred stock into 2,483,442 shares of non-voting common stock;
(5) the conversion of all outstanding shares of Series D convertible
preferred stock into 5,106,384 shares of common stock; and
(6) the exchange of shares of common stock owned by investment
funds affiliated with Morgan Stanley Dean Witter for the same number
of shares of non-voting common stock; and
- on a pro forma as adjusted basis to reflect our sale of shares of
common stock at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by us.
19
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Obligations under capital leases, including current
maturities................................................ $ 48
Convertible notes payable--related party.................... 16,589
Series A senior redeemable preferred stock, $.001 par value
per share, 170,000 shares designated, 99,804 shares issued
and outstanding, actual; no shares issued and outstanding,
pro forma and pro forma as adjusted....................... 7,468
Stockholders' equity (deficit):
Series B convertible preferred stock, $.001 par value per
share, 1,620,700 shares designated, no shares issued and
outstanding, actual, pro forma and pro forma as
adjusted................................................ --
Series C convertible preferred stock, $.001 par value per
share, 1,650,000 shares designated, 165,563 shares
issued and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted........ --
Series D convertible preferred stock, $.001 par value per
share, 1,170,526 shares designated, no shares issued and
outstanding, actual, pro forma and pro forma as
adjusted................................................ --
Common stock, $.001 par value per share, 150,000,000
shares authorized, 76,371,375 shares issued and
71,871,375 outstanding, actual; shares issued and
shares outstanding, pro forma; shares issued
and shares outstanding, pro forma as adjusted..... 76
Non-voting common stock, $.001 par value per share, no
shares authorized and outstanding, actual; shares
authorized, shares issued and outstanding, pro
forma and pro forma as adjusted.........................
Additional paid-in capital.................................. 7,299
Accumulated deficit......................................... (7,151)
Deferred compensation....................................... (4)
Treasury stock.............................................. (4,416)
Notes receivable--related parties........................... (2,034)
Accumulated other comprehensive income...................... 11
-------
Total stockholders' equity (deficit).................... (6,219)
-------
Total capitalization.................................... $17,886 $ $
=======
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999. It does
not include:
- 12,201,282 shares of common stock issuable upon the conversion of
convertible notes held by Cisco Systems;
- 18,747,598 shares of common stock issuable upon the exercise of options
outstanding as of March 31, 2000 at a weighted average exercise price of
$.89 per share;
- 35,482,794 additional shares of common stock reserved for issuance under
our stock option plan; and
- additional shares of common stock available for issuance under
our employee stock purchase plan.
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $ million, or $ per share of common stock. Pro forma net
tangible book value per share is determined by dividing our total tangible
assets less total liabilities by the number of shares of common stock
outstanding, assuming:
- the sale of 248,344 shares of our Series C convertible preferred stock in
February 2000 for $3.0 million;
- the sale of 851,064 shares of our Series D convertible preferred stock in
February 2000 for $12.0 million;
- the redemption of all outstanding shares of Series A preferred stock for
shares of non-voting common stock, based upon an assumed price
per common share of $ , the midpoint of the range set forth on the
cover of this prospectus;
- the conversion of all outstanding shares of Series C convertible preferred
stock into 2,483,442 shares of non-voting common stock;
- the conversion of all outstanding shares of Series D convertible preferred
stock into 5,106,384 shares of common stock; and
- the exchange of shares of common stock owned by investment funds
affiliated with Morgan Stanley Dean Witter for the same number of shares
of non-voting common stock.
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 our sale of shares of common stock in this offering
at an assumed initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, our adjusted pro forma net tangible book value would have been $
million, or $ per share. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares in
this offering. If the initial public offering price is higher or lower, the
dilution to the new investors will be greater or less, respectively. 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 as of
December 31, 1999..................................... $
Increase in pro forma net tangible book value per share
attributable to new investors.........................
-------
Pro forma net tangible book value per share after this
offering................................................
-------
Dilution per share to new investors....................... $
=======
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
1999, the number of shares of common stock, including non-voting common stock,
purchased from us, the total consideration paid and the average price per share
paid by our existing stockholders and to be paid by new investors in this
offering. The calculation below is based on an assumed initial public offering
price
21
<PAGE>
of $ per share, before deducting underwriting discounts and commissions and
estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ % $ % $
New investors................ % $ % $
-------- --- -------- ---
Total...................... 100% $ 100%
======== === ======== ===
</TABLE>
The foregoing assumes no exercise of any stock options outstanding as of
December 31, 1999. As of March 31, 2000, there were options outstanding to
purchase a total of 18,747,598 shares of common stock with a weighted average
exercise price of $.89 per share. To the extent that any of these options are
exercised, there will be further dilution to new investors.
22
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated balance sheet data as of December 31, 1998 and
1999 and the selected consolidated statement of operations data for the years
ended December 31, 1998 and 1999 have been derived from our consolidated
financial statements that have been audited by Ernst & Young LLP, independent
auditors and are included elsewhere in this prospectus. The selected
consolidated statement of operations data for the year ended December 31, 1997
has been derived from the consolidated statement of operations that has been
audited by Rothstein, Kass & Company, P.C., independent auditors, which are
included elsewhere in this prospectus. The selected consolidated balance sheet
data as of December 31, 1996 and 1997 and the selected consolidated statement of
operations data for the year ended December 31, 1996 have been derived from our
consolidated financial statements that have been audited by Rothstein, Kass &
Company, P.C., independent auditors, and which are not included in this
prospectus. The selected consolidated balance sheet data as of December 31, 1995
and the selected consolidated statement of operations data for the year ended
December 31, 1995 have been derived from our unaudited financial statements
which are not included in this prospectus.
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 126 $ 2,270 $ 4,498 $ 10,315 $ 26,716
Cost of revenues........................... 66 1,192 2,115 6,047 15,778
---------- ---------- ---------- ---------- ----------
Gross profit............................... 60 1,078 2,383 4,268 10,938
Sales and marketing expenses............... 12 149 449 796 3,359
General and administrative expenses........ 45 374 1,338 3,310 14,245
Depreciation and amortization.............. 1 5 40 67 749
Non-cash compensation...................... -- -- -- -- 47
---------- ---------- ---------- ---------- ----------
Operating income (loss).................... 2 550 556 95 (7,462)
Interest income............................ -- 2 10 40 136
Interest expense........................... -- -- (2) (8) (49)
---------- ---------- ---------- ---------- ----------
Income (loss) before provision (benefit)
for income taxes......................... 2 552 564 127 (7,375)
Provision (benefit) for income taxes....... 1 220 326 80 (557)
---------- ---------- ---------- ---------- ----------
Net income (loss).......................... 1 332 238 47 (6,818)
Preferred stock dividend and accretion..... -- -- -- 103 866
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common
stockholders............................. $ 1 $ 332 $ 238 $ (56) $ (7,684)
========== ========== ========== ========== ==========
Net income (loss) per common share:
Basic and diluted........................ $ 0.00 $ 0.00 $ 0.00 $ (0.00) $ (0.11)
Weighted average common shares outstanding:
Basic and diluted........................ 4,953,846 53,998,920 53,998,920 58,521,420 72,511,404
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 8 $ 2 $ 2 $3,372 $11,056
Working capital (deficiency)............... 6 355 503 5,096 14,663
Total assets............................... 11 939 1,616 7,663 21,182
Series A preferred stock................... -- -- -- 3,198 7,468
Total stockholders' equity (deficit)....... 10 369 607 2,315 (6,219)
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE INDICATED IN FORWARD-LOOKING STATEMENTS. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS."
OVERVIEW
ThruPoint is a leading technology consulting firm that provides advanced
internetworking solutions and services to help its clients design, deploy and
manage their networks. Our clients are primarily large, global companies that
are sophisticated, early adopters of new technology. We began providing network
consulting services in 1996. The number of our full-time employees grew from 21
at the end of 1997 to 313 at the end of 1999. Our revenues increased from
$4.5 million in 1997 to $26.7 million in 1999.
All of our revenues are derived from providing network consulting services
to our clients. We expect that our revenues will continue to be driven by the
number and scope of our client engagements and by the number of engineers we
employ. We price our services on both a time-and-materials and fixed-fee basis.
Revenues pursuant to time-and-materials contracts are generally recognized as
services are provided. Revenues pursuant to fixed-fee contracts are generally
recognized as services are rendered using the percentage-of-completion method of
accounting. For the year ended December 31, 1999, substantially all of our
revenues were derived from time-and-materials contracts. We expect that the
portion of our revenues derived from fixed-fee contracts will increase as a
percentage of total revenues in the future. Revenues exclude reimbursable
expenses charged to clients. Our clients are generally able to reduce or cancel
their use of our services without penalty and with little or no notice.
In pricing our fixed-fee contracts, we utilize a project review process that
helps provide accurate project cost and time-to-completion estimates. The review
process takes into consideration the number and skill level of engineers to be
deployed, the client's technology requirements and the overall project
timetable. A member of our senior management team must approve all of our
fixed-fee proposals. We make provisions for estimated losses on uncompleted
fixed-fee contracts on a contract-by-contract basis and recognize such losses in
the period in which the losses are estimated. To date, such provisions have not
had a material impact on our financial results.
In 1999, Morgan Stanley Dean Witter was our largest client and accounted for
approximately 21% of our revenues. In 1999, our five largest clients accounted
for approximately 58% of our revenues. Our revenues from any given client will
vary from period to period and the loss of any significant client could harm our
business and results of operations; however, we intend to decrease our
significant customer concentration levels in the future as we seek to expand our
customer base.
The utilization of our engineers is important in determining our operating
results and is defined as the percentage of our engineers' time that is billed
to clients. Given that a substantial portion of our operating expenses,
particularly compensation, depreciation and rent, is relatively fixed, any
reduction in the utilization of our engineers may cause significant variations
in our operating results. Factors which could cause a reduction in utilization
include:
- a reduction in the size, scope or timing of one or more significant
engagements;
- the completion of one or more significant engagements and the inability to
reallocate resources;
- the hiring of new engineers in advance of new business; and
- the timing and extent of training, vacations and holidays.
24
<PAGE>
Cost of revenues consists of compensation and benefits for our engineers and
non-reimbursable project-related travel expenses.
Sales and marketing expenses consist primarily of compensation (including
commissions for sales personnel) and benefits for our sales and marketing
personnel, related travel and entertainment expenses for such personnel and
related marketing activities.
General and administrative expenses consist primarily of compensation and
benefits for our administrative personnel and expenses related to recruiting,
professional development, professional fees, rent and research and development
in connection with the development of new internetworking solutions.
In 1999, we made significant investments in our operations as we initiated
our expansion plans. While revenue increased by 159%, 1999 was the first year
that we incurred an operating loss. This loss resulted primarily from our
investment in our expansion into eight new geographic markets, the hiring of
certain members of senior management and additional sales personnel and
recruiters.
We plan to continue to expand our operations by hiring additional engineers
and other employees, and adding new offices, systems and other infrastructure.
The resulting increase in operating expenses will have a material adverse effect
on our operating results if our revenues do not increase to support such
expenses. Based on all of the foregoing, we believe that our revenue and
operating results are likely to vary significantly in the future and that
period-to-period comparisons of our operating results are not necessarily
meaningful and should not be relied on as indications of future performance.
As of and for the years ended December 31, 1997, 1998 and 1999,
substantially all of our assets were located in the United States and we derived
substantially all of our revenues from customers located in the United States.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of revenues............................................ 47.0 58.6 59.1
----- ----- -----
Gross profit................................................ 53.0 41.4 40.9
Sales and marketing expenses................................ 10.0 7.7 12.6
General and administrative expenses......................... 29.7 32.1 53.3
Depreciation and amortization............................... 0.9 0.7 2.8
Non-cash compensation....................................... -- -- 0.1
----- ----- -----
Operating income (loss)..................................... 12.4 0.9 (27.9)
Other income, net........................................... 0.1 0.3 0.3
----- ----- -----
Income (loss) before provision (benefit) for income taxes... 12.5 1.2 (27.6)
Provision (benefit) for income taxes........................ 7.2 0.8 (2.1)
----- ----- -----
Net income (loss)........................................... 5.3% 0.4% (25.5)%
===== ===== =====
</TABLE>
25
<PAGE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues increased 159.0% from $10.3 million in 1998 to
$26.7 million in 1999. This increase was due primarily to an increase in the
number and size of our consulting engagements and an increase in the average
billing rates of our engineers. The number of our engineers also increased from
81 at December 31, 1998 to 211 at December 31, 1999.
COST OF REVENUES. Cost of revenues increased 160.9% from $6.0 million in
1998 to $15.8 million in 1999. This increase in cost of revenues was due
primarily to the increase in the number of engineers and the related
compensation and benefits paid to them. Gross profit as a percentage of revenues
decreased from 41.4% to 40.9% primarily due to increased compensation and
benefits paid to, and lower utilization rates for, our engineers. Gross profit
increased 156.3% from $4.3 million in 1998 to $10.9 million in 1999 as a result
of increased revenues resulting from our expansion into eight new geographic
markets during 1999.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 322.0%
from $796,000 in 1998 to $3.4 million in 1999. This increase was due primarily
to an increase of $1.4 million in compensation and benefits related to the
hiring of additional sales personnel, an increase of $724,000 in commissions
paid and an increase of $399,000 related to increased sales and marketing
activities. As a percentage of revenues, sales and marketing expenses increased
from 7.7% in 1998 to 12.6% in 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 330.4% from $3.3 million in 1998 to $14.2 million in 1999. This
increase was due primarily to an increase of $5.0 million in compensation and
benefits related to the hiring of additional administrative personnel, an
increase of $2.0 million in recruiting expenses, an increase of $1.2 million in
facilities and equipment costs and an increase of $2.7 million in professional
development and other costs. As a percentage of revenues, general and
administrative expenses increased from 32.1% in 1998 to 53.3% in 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$67,000 in 1998 to $749,000 in 1999. This increase was due to purchases of
additional equipment to support our growth and a change in the estimated useful
life of certain software applications, which are to be replaced in 2000.
NON-CASH COMPENSATION. Non-cash compensation of $47,000 in 1999 related to
the vesting of options to purchase shares of common stock of a former employee
in connection with the discontinuation of employment and the fair value of
options granted to certain advisory board members.
OTHER INCOME (EXPENSE), NET. Other income, net increased from $32,000 in
1998 to $87,000 in 1999. This increase was primarily due to interest income
related to increased cash balances during the year.
INCOME TAXES. The income tax provision was $80,000 on pre-tax income of
$127,000 in 1998. In 1999 the income tax benefit was $557,000 on a pre-tax loss
of $7.4 million.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues increased 129.3% from $4.5 million in 1997 to
$10.3 million in 1998. This increase was due primarily to an increase in the
number and size of our consulting engagements. The number of our engineers also
increased from 18 at December 31, 1997 to 81 at December 31, 1998.
COST OF REVENUES. Cost of revenues increased 185.9% from $2.1 million in
1997 to $6.0 million in 1998. This increase in cost of revenues was due
primarily to the increase in the number of engineers and the related
compensation and benefits paid to them. Gross profit as a percentage of revenues
decreased from 53.0% to 41.4% primarily due to increased compensation and
benefits paid to our
26
<PAGE>
engineers. Gross profit increased 79.1% from $2.4 million in 1997 to
$4.3 million in 1998 as a result of increased revenues.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 77.3%
from $449,000 in 1997 to $796,000 in 1998. This increase was due primarily to an
increase of $409,000 related to increased sales and marketing activities,
partially offset by a decrease in compensation and benefits. As a percentage of
revenues, sales and marketing expenses decreased from 10.0% in 1997 to 7.7% in
1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 147.4% from $1.3 million in 1997 to $3.3 million in 1998. This
increase was due primarily to an increase of $687,000 in compensation and
benefits paid related to the hiring of additional personnel, an increase of
$784,000 in recruiting expenses, an increase of $271,000 in facilities and
equipment costs and an increase of $231,000 in professional development and
other costs. As a percentage of revenues, general and administrative expenses
increased from 29.7% in 1997 to 32.1% in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$40,000 in 1997 to $67,000 in 1998. This increase was due to purchases of
additional equipment to support our growth.
OTHER INCOME (EXPENSE), NET. Other income, net increased from $8,000 in
1997 to $32,000 in 1998. This increase was primarily due to interest income
related to increased cash balances during the year.
INCOME TAXES. The income tax provision was $326,000 on pre-tax income of
$564,000 in 1997 and $80,000 on pre-tax income of $127,000 in 1998. The
effective tax rate was 57.8% and 63.0% 1997 and 1998, respectively. The
differences in the effective tax rate resulted principally from a greater amount
of non-tax deductible expenses during 1998.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statement of operations
data for each of the four quarters in the period ended December 31, 1999 and the
percentage of our revenues represented by each item in the respective quarters.
This information has been derived from our unaudited interim financial
statements which, in our opinion, have been prepared on substantially the same
basis as the audited financial statements contained elsewhere in this prospectus
and include all normal recurring adjustments necessary for a fair presentation
of the financial information for the periods presented.
27
<PAGE>
The operating results in any quarter are not necessarily indicative of the
results that may be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $4,198 $6,070 $ 7,349 $ 9,099
Cost of revenues.................................. 2,518 3,465 4,534 5,261
------ ------ ------- -------
Gross profit...................................... 1,680 2,605 2,815 3,838
Sales and marketing expenses...................... 512 668 868 1,311
General and administrative expenses............... 1,819 2,654 3,294 6,478
Depreciation and amortization..................... 63 142 198 346
Non-cash compensation............................. -- -- 47
------ ------ ------- -------
Operating loss.................................... (714) (859) (1,545) (4,344)
Other income, net................................. 12 22 39 14
------ ------ ------- -------
Loss before (benefit) for income taxes............ (702) (837) (1,506) (4,330)
(Benefit) for income taxes........................ (53) (63) (114) (327)
------ ------ ------- -------
Net loss.......................................... $ (649) $ (774) $(1,392) $(4,003)
====== ====== ======= =======
AS A PERCENTAGE OF REVENUE:
Revenues.......................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................................. 60.0 57.1 61.7 57.8
------ ------ ------- -------
Gross profit...................................... 40.0 42.9 38.3 42.2
Sales and marketing expenses...................... 12.2 11.0 11.8 14.4
General and administrative expenses............... 43.3 43.8 44.8 71.2
Depreciation and amortization..................... 1.5 2.3 2.7 3.8
Non-cash compensation............................. -- -- -- 0.5
------ ------ ------- -------
Operating loss.................................... (17.0) (14.2) (21.0) (47.7)
Other income, net................................. 0.3 0.4 0.5 0.1
------ ------ ------- -------
Loss before (benefit) for income taxes............ (16.7) (13.8) (20.5) (47.6)
(Benefit) for income taxes........................ (1.2) (1.0) (1.6) (3.6)
------ ------ ------- -------
Net loss.......................................... (15.5)% (12.8)% (18.9)% (44.0)%
====== ====== ======= =======
</TABLE>
REVENUES. During 1999 we experienced revenue growth during each of the four
quarters. These increases resulted from the increase in the number and size of
our consulting engagements and an increase in the average billing rates of our
engineers.
COST OF REVENUES. Cost of revenues increased in absolute dollars for each
quarter. Gross profit as a percentage of revenue declined during the third
quarter resulting from an increase in the number of engineers and a decline in
the utilization rate of our engineers in this period.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased in
absolute dollars for each quarter. Sales and marketing expenses as a percentage
of revenue increased in the fourth quarter as a result of hiring additional
sales personnel and incremental spending on marketing activities in this period.
28
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased in absolute dollars for each quarter. General and administrative
expenses as a percentage of revenue increased in the fourth quarter as a result
of hiring additional recruiters and senior management in this period.
LIQUIDITY AND CAPITAL RESOURCES
From inception through August 1998, we funded our operations primarily
through cash provided by operations. Since August 1998, we funded our operations
principally through the sale of preferred stock and a convertible note. In
December 1999, we established a bank line of credit of $10.0 million although we
did not draw against this line of credit as of December 31, 1999.
At December 31, 1998 and 1999, our cash balances were approximately
$3.4 million and $11.1 million, and our working capital was approximately
$5.1 million and $14.7 million, respectively.
Our operating activities provided cash of approximately $88,000 in 1997 and
used cash of approximately $713,000 in 1998 and $8.3 million in 1999. The
increase in cash used in 1998 primarily resulted from an increase in our
accounts receivable resulting both from significant growth in our revenue and
increased days outstanding. The increase in cash used in 1999 primarily resulted
from the loss we incurred in connection with our expansion into eight new
geographic markets and hiring of additional sales personnel, recruiters and
additional management. In addition, we experienced an increase in accounts
receivable as a result of our revenue growth.
We used cash for capital expenditures of approximately $84,000, $732,000 and
$2.8 million in 1997, 1998 and 1999. These expenditures were primarily for
computer equipment, lab equipment, office equipment, and furniture and leasehold
improvements. We expect our capital expenditures to continue to increase,
particularly as we increase our number of employees and expand into new
geographic markets.
In August 1998, we entered into a Series A Redeemable Preferred Stock and
Common Stock Agreement whereby we sold 49,848 shares of Series A preferred stock
and 12,060,000 shares of common stock for approximately $5.0 million. The
agreement also provided for future sales of additional Series A preferred stock
and common stock. In April 1999, we sold an additional 49,956 shares of
Series A preferred stock and 8,813,172 shares of common stock for approximately
$5.0 million. The proceeds from these sales were used for working capital and
other corporate purposes.
In May 1999, we sold 1,077,026 shares of Series B preferred stock for
approximately $3.2 million. The proceeds from this sale were used for working
capital and other corporate purposes. In December 1999, we exchanged all of the
issued and outstanding Series B preferred stock as well as 4,500,000 shares of
common stock for two convertible notes with principal amounts of approximately
$3.2 million and $4.4 million, respectively. Simultaneously, we sold a note
convertible into Series C preferred stock for approximately $9.0 million.
In December 1999, we sold 165,563 shares of Series C preferred stock for
$2.0 million. In February 2000, we sold an additional 248,344 shares of
Series C preferred stock for an additional $3.0 million and 851,064 shares of
our Series D convertible preferred stock for $12.0 million. The proceeds from
these sales are being used for working capital and other corporate purposes.
We believe that the net proceeds of this offering and the funds that are
available under our line of credit will be sufficient to fund our working
capital requirements for at least the next 12 months. There can be no
assurances, however, that our actual needs will not exceed expectations or that
we will be able to fund our operations from other sources. There can also be no
assurance that any additional required financing will be available through
additional bank borrowings, debt or equity offerings or otherwise, or that if
such financing is available, that it will be available on terms acceptable to
us.
29
<PAGE>
IMPACT OF THE YEAR 2000 COMPLIANCE
We have not experienced any business interruptions or supplier delays from
year 2000 problems to date and have not discovered any year 2000 problems in
internal computer systems material to our operations. We intend to continue to
monitor our internal systems for year 2000 problems. There can be no assurance,
however, that we or our suppliers may not face future problems as a result of
year 2000 issues.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including some derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, the FASB
issued SFAS No. 137 which postponed the mandatory adoption of SFAS 133 until
January 1, 2001. We have not entered into any derivative financial instrument
transactions.
30
<PAGE>
BUSINESS
OVERVIEW
We are a leading technology consulting firm that provides advanced
internetworking solutions and services to help our clients design, deploy and
manage their computer networks. Our clients are primarily large, global
companies that are sophisticated, early adopters of new technology and that view
their networks as a critical part of their overall business strategy. We
currently offer our clients comprehensive network technology consulting
expertise and services that address all aspects of business communications. In
addition, we have used our accumulated experience to develop packaged
internetworking solutions that address common network problems facing many of
our clients. These solutions are readily applicable from one project to another
but we also often customize them to meet the needs of a particular client and
industry. In providing our solutions, we utilize our proprietary OptiPoint
methodology and industry-specific knowledge to help our clients articulate a
business objective which can be attained through improved network
infrastructure, identify the appropriate technology solution, oversee the
implementation of the solution and, for certain clients, manage the resulting
network infrastructure.
We have formed important strategic relationships with Cisco Systems and KPMG
Consulting and we believe that they provide us with a significant competitive
advantage. Our strategic relationship with Cisco Systems involves our
participation as one of three network consultants in its inner circle. Cisco
Systems formed the inner circle in order to develop close relationships with
participants who would help its customers more effectively adopt its advanced
technologies. We believe that our participation in the inner circle provides us
with several important benefits. First, as part of the inner circle, we have
early access to Cisco Systems' newest products and advanced technologies,
affording us the opportunity to develop and market solutions based on these
products and technologies prior to their general availability in the market. In
this way, we are able to maintain our network technology leadership, expand our
business and increase our revenue growth. Second, we have a preferred status in
Cisco Systems' services referral network and as a result, we are well-positioned
to receive client referrals from Cisco Systems. We work with Cisco Systems'
account managers to develop referral opportunities by keeping them regularly
apprised of our latest service offerings and capabilities that we believe would
be valuable to its clients and provide opportunities to increase use of Cisco
Systems' technology. We also work closely with Cisco Systems at all levels of
our organization to pursue new engagements in which we are retained directly by
Cisco Systems to provide services to its customers.
Our alliance with KPMG Consulting was developed recently and continues to
evolve. We intend to work with KPMG Consulting to design and deploy the networks
which will support the revenue generating e-commerce applications provided by
KPMG Consulting to its clients. We believe that this relationship will also
provide us with opportunities for additional client referrals. In addition, KPMG
Consulting also has a strategic relationship with Cisco Systems and we believe
that our unique relationship with both Cisco Systems and KPMG Consulting will
allow our three organizations to work effectively together to provide
comprehensive e-commerce solutions to a broad customer base.
During 1999, we provided consulting services to over 50 clients across
several industries. Our clients include Morgan Stanley Dean Witter and Deutsche
Bank in financial services, Enron Broadband Services in communication services,
and Celera Genomics in pharmaceuticals/biotechnology. As of March 31, 2000, we
employed 246 engineers. Our corporate headquarters are in New York City and we
have 14 additional U.S. offices and an office in London.
INDUSTRY BACKGROUND
Networks today represent a competitive necessity as companies increasingly
transact business, communicate and operate electronically. To remain
competitive, companies need to make their networks available to their customers,
suppliers and employees virtually anytime and anywhere. We
31
<PAGE>
believe that the importance of network infrastructure and the demand for network
availability will continue to increase, primarily as the result of two major
factors:
- GROWTH IN E-BUSINESS: The Internet has fundamentally changed the dynamics
of business. Companies are increasingly taking advantage of the Internet's
reach to extend products and services to as wide a customer base as
possible, penetrate new markets, enhance customer service and transact
with buyers and suppliers more efficiently. We believe that the growth in
both business-to-business and business-to-consumer e-commerce will
continue as companies continue to migrate from traditional to electronic
business models. Forrester Research, Inc. projects that
business-to-business e-commerce in the United States will reach $2.7
trillion per year by 2004, and that consumers in the United States will
spend $184 billion online per year by 2004. This growth in e-business has
made it critical for businesses to have networks that are reliable and
accessible at all times.
- DEMAND FOR WORKER MOBILITY: New technologies are allowing more employees
to perform an increasing amount of work on a remote or mobile basis. In
response, companies are looking for ways to improve the productivity of
their remote or mobile employees through the use of personal computers,
wireless devices, e-mail and remote access to corporate networks.
International Data Corporation, or IDC, expects that the remote and mobile
workforce will grow from 35.7 million individuals in 1999 to 47.1 million
by the end of 2003. The increasing number of remote and mobile workers, as
well as the increasingly broad range of work that such workers perform on
a remote or mobile basis, will require improved networks that will support
the increased data requirements that they will generate.
As the importance of and demands placed on networks has increased, network
infrastructures have also become increasingly complex. In order to meet the
growing requirements of networks, vendors have typically delivered discrete,
targeted solutions to address specific needs resulting in complex, multi-vendor
network infrastructures that involve a wide variety of different platforms,
devices and protocols. The complexity of networks has also increased as major
new technology requirements, such as the demand for the convergence of voice,
video and data delivery and the increasing demand for wireless mobile
communications, emerge. In addition to requiring elaborate technologies and
specialized knowledge, these new technologies typically also must be integrated
with existing legacy networks, further increasing the level of technical and
operational complexity.
Companies have typically relied on internal technology teams to address
their network infrastructure needs. However, as both the technical complexity
and the number of alternative technology solutions increase, companies are
finding that it is more cost-effective to utilize outside network engineers to
assess, design, implement and manage their networks and focus the efforts of
their internal staff on core business competencies. In addition, as companies in
particular industries, such as communication services and financial services,
have come to rely on their networks, they have also developed network
requirements specific to their industries and require network engineers who
understand their businesses. IDC projects that the market for third-party
information technology services will grow from $15.6 billion in 1998 to
$32.6 billion by 2003.
As a result of these developments, we believe there is a significant market
opportunity for network consulting providers that combine a thorough
understanding of network technology with industry-specific expertise to design
and manage the deployment of high-quality internetworking solutions for
businesses whose networks serve as key components of their business and
operational strategies.
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THE THRUPOINT SOLUTION
We provide our clients with network technology consulting services to help
design, build and operate the increasingly complex networks which are critical
to their overall business strategies. The following are the key elements of the
ThruPoint solution:
NETWORK TECHNOLOGY LEADERSHIP. We offer our clients the best and most
advanced technology available, and deliver services and proven and reliable
solutions to address complex internetworking problems. We believe that we
maintain our technological expertise in three ways. First, we continue to gain
important practical experience by successfully servicing technologically
sophisticated customers that depend heavily on their networks. Second, we use
our inner circle alliance with Cisco Systems and other strategic alliances with
leading hardware and software providers to gain early access to new products and
technologies and an understanding of their applicability to actual business
problems. Finally, we have established our own laboratory to study and test new
products. This laboratory also serves as an important formal training facility,
providing our engineers with an opportunity to gain hands-on experience with
developed and emerging industry solutions.
INDUSTRY EXPERTISE. We believe that our industry expertise is critical to
our ability to help our clients reach their overall business objectives. We
provide services to clients in several industries that have been early adopters
and sophisticated users of network technology, including the financial services,
communication services and pharmaceuticals industries. Through our understanding
of our clients' businesses and competitive environments, we are able to provide
them with solutions that are highly relevant to their specific business needs.
We have developed our extensive base of industry expertise through targeted
hiring of experienced industry professionals, whom we then redeploy back into
the industry from which we hired them. We also continually train our engineers
so that they can maintain a high level of industry expertise.
DISCIPLINED DELIVERY METHODOLOGY. We apply a highly disciplined, repeatable
and proprietary methodology to all of our client engagements. Through our
OptiPoint methodology, we consistently deliver high-quality, reliable solutions
on a cost-effective basis across all our engagements. Our methodology involves a
step-by-step process which we utilize with every client to evaluate each element
of our engagement and develop the appropriate solution. Our web-based knowledge
management system fully supports our methodology by providing our professionals
with details on how to perform each of our services and reflects our cumulative
experience and expertise. This knowledge management system also ensures that our
methodology is applied consistently during every engagement.
COMPREHENSIVE PACKAGED SOLUTIONS. We develop and offer packaged solutions
that address specific internetworking problems commonly found among our clients
in particular industries or that involve particular technologies. Each package
includes all steps, and recommends the technology, necessary to develop, deploy
and manage an internetworking solution. A client can select one or more
solutions based on its network technology needs and subsequently acquire
additional solutions as its business needs evolve. When appropriate, we can
customize our packaged solutions to meet the specific needs of our clients. For
our clients, a comprehensive packaged solution provides a proven answer to a
specific problem at a predictable cost. We believe that these packaged solutions
also allow us to provide a consistently high quality of service efficiently and
effectively.
END-TO-END ENGAGEMENTS. We are able to provide our clients with end-to-end
network consulting services, from the initiation of a project to the on-going
management of the network, and any intermediate services our clients require. We
believe that our ability to provide a full range of services enables us to meet
all of the network needs of our clients as they arise on a cost-effective basis.
In addition, during our engagements we often identify opportunities to provide
services beyond those for which we were initially engaged.
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OUR STRATEGY
Our objective is to be the leading provider of network technology consulting
services to large, global companies that view their network as a key enabler of
their business and operational strategies. Our strategy for achieving this
objective is as follows:
CONTINUOUSLY DEVELOP INTERNETWORKING SOLUTIONS. We intend to continue
developing new internetworking solutions that we can implement quickly and
efficiently for our clients. We plan to focus our efforts on those industries in
which we have developed expertise and in which our proven and reliable solutions
can further our clients' business objectives. We believe that our strategic
relationships with leading vendors and the successful completion of engagements
for our clients will enable us to continuously develop new and enhanced
solutions that use the most advanced technology and processes. When we develop a
solution that is repeatable, we package and market it to our clients who have
similar needs. This process allows us to deliver our solutions rapidly and in an
efficient manner. We may also expand our range of solutions by making selective
acquisitions of other network services providers.
CONTINUE TO ATTRACT AND RETAIN HIGH-CALIBER EMPLOYEES. We will continue to
devote significant resources and attention to the recruitment and development of
highly skilled engineers. In particular, we will continue to focus on recruiting
highly experienced professionals with industry-specific technology experience.
In addition, we intend to expand our college recruiting efforts and training
program to further develop our pool of new engineers. We stress the importance
of professional training and development by providing formal training materials
and courses, keeping our laboratory current with respect to new technologies and
by closely tracking the development of our engineers' technical and business
expertise. We believe that our recruiting and training strategies, together with
the sophistication of our client base and the challenging nature of our
engagements, will continue to allow us to attract and retain skilled engineers.
LEVERAGE POSITION IN INNER CIRCLE AND ENTER INTO ADDITIONAL STRATEGIC
RELATIONSHIPS. We will continue to leverage our position in Cisco Systems' inner
circle of network consultants in order to further expand our client base and
technology leadership. As part of the inner circle we work very closely with
Cisco Systems at all levels of our sales and engineering organizations and we
intend to broaden and deepen this working relationship. We will also continue to
develop our relationship with KPMG Consulting to gain additional new client
engagements and referrals. We believe that our strategic relationships provide
us with a significant competitive advantage and we will seek to enter into
additional relationships with other leading hardware and software vendors in
order to gain a better understanding of their products, increase our service
offerings and expand our client base.
FOCUS ON LARGE GLOBAL COMPANIES AND PENETRATE NEW INDUSTRIES. We will
continue to target large global companies, particularly in the financial
services, communication services and pharmaceuticals industries, that depend on
their networks to generate revenues and operate more efficiently and
effectively. We believe these companies can continue to provide us with
significant growth opportunities as a result of their substantial technology
needs and their willingness to adopt new technologies. We will also look to
serve additional industries, such as manufacturing and media, in which networks
are becoming increasingly critical.
ENTER NEW GEOGRAPHIC MARKETS. We intend to offer our services through a
network of offices located in strategic locations throughout the world. We
currently have 15 offices in the United States and one office in London,
England. We currently expect to establish a presence in 10 new geographic
markets in the United States, Europe and Asia, including Germany, the
Netherlands, Japan and Singapore, over the next two years. Initially, we plan to
carry out our geographic expansion by providing services to our existing global
clients in the geographic areas in which they operate. We will then expand our
operations in these areas by attracting and serving new local clients. In
addition, we
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may choose to enter new geographic markets by selectively acquiring network
services providers operating in new regions.
OPTIPOINT METHODOLOGY
We use our proprietary OptiPoint methodology to provide clients with our
internetworking solutions on a consistent, repeatable basis. Our methodology is
based on our belief that many of our internetworking solutions employ
information and processes that can be replicated in other solutions. In order to
carry out our methodology, our engineers follow a step-by-step process for every
project for which we have been engaged. First, our engineers assess the
capability of a client's current network to meet the client's goals and
objectives. Based on this review, we provide the client with a report detailing
the internetworking solution that we will provide. Our engineers then design and
pilot test the solution. We then manage the deployment of the network
infrastructure and transition the operation of the systems to the client. For
certain clients, we also manage the solution on an on-going basis. In carrying
out an engagement, our engineers utilize guidebooks and manuals accessible
through our web-based knowledge management system, that enable them to apply our
methodology to deliver our internetworking solutions. By following this
methodology, we apply our collective experience and expertise to every
engagement and ensure that each client receives the solution it expects in a
timely, efficient and cost-effective manner.
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OUR SERVICES
We offer our clients internetworking solutions and services that meet a
broad range of network requirements, including packaged solutions which address
common network issues facing many of our clients. Each of these packaged
solutions is comprised of one or more of our basic component services. We can
also provide flexible solutions which involve bundling our component services in
a way that meets the needs of particular clients. The foundation for all of our
internetworking solutions and component services is our expertise in our five
practice areas which together cover all aspects of business communications.
The following diagram depicts the solutions and services we offer:
[CHART]
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PRACTICE AREAS
We believe that the increasing complexity of communications networks and the
rapid pace of technological change necessitate greater focus on particular areas
of expertise. We have organized our professionals into the following five
separate practice areas, with each of our engineers specializing in one or more
areas:
NETWORK TRANSPORT. Our network transport engineers focus on the skills
necessary to design and oversee the building, extension or upgrade of a client's
basic network infrastructure. Once the basic infrastructure is in place, it can
be enhanced with additional services provided by our other practice areas. We
believe that we are able to integrate new and existing elements of a client's
network with minimal disruption to ongoing business operations.
NETWORK MANAGEMENT. Our network management engineers focus on the skills
necessary to design, and oversee the implementation of, systems and processes
that regularly monitor network activity such as the volume of data, voice and
application traffic. The information generated by these systems and processes is
used to anticipate and respond to potential performance degradation or network
failures before they impact a client's business operations, as well as to
measure long-term performance and plan for future capacity requirements.
NETWORK ENABLING. Our network enabling engineers focus on the skills
necessary to design, and oversee the implementation of, advanced technologies
and features to allocate network resources, prioritize network applications and
maximize the performance of revenue-producing and other critical elements of the
network. These skills include response-time management, network simulation
modeling and capacity planning.
SECURITY. Our security engineers focus on the skills necessary to protect
the confidentiality, authenticity, integrity, and availability of our clients'
business applications and information. Our engineers assist clients in making
informed decisions about appropriate security policies, technologies and alarm
systems. These skills enable our clients to securely deliver
business-to-consumer products and services, or execute business-to-business
transactions, via the Internet.
VOICE/VIDEO. Our voice/video engineers focus on the skills necessary to
integrate voice and video traffic and applications into our clients' existing
network infrastructure. The capability to operate data, voice and video
applications on a single network allows clients to maximize the efficiency and
cost-effectiveness of network resources. These skills enable our clients to
introduce or augment voice or video services without interrupting their ability
to provide existing voice or data services.
COMPONENT SERVICES
Our component services form the basis for all of our internetworking
solutions. These component services may be purchased through our packaged
internetworking solutions or on an individual or grouped basis.
<TABLE>
<CAPTION>
COMPONENT SERVICE DESCRIPTION
- ----------------- ------------------------------------------------------------
<S> <C>
Network Audit Assesses a client's current network infrastructure. We
provide a detailed report to the client that analyzes its
network's capabilities, makes recommendations regarding
design and performance and focuses on the modifications
required to meet future business objectives.
</TABLE>
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<TABLE>
<CAPTION>
COMPONENT SERVICE DESCRIPTION
- ----------------- ------------------------------------------------------------
<S> <C>
Network Infrastructure Enables our clients to build and operate an efficient
communications network. Our engineers assist with planning,
designing and implementing a network, taking into account
the business applications that the network must support, the
number of users and the locations from which they will
access the network, as well as future expansion plans.
Multiservice Networking Assists clients in designing, implementing and managing a
network infrastructure that can support multiple services,
including voice, video and data traffic.
Dynamic Address Management Provides internal network access to all employees of a
client through the use of individual addresses that are not
linked to any particular computer terminal. This component
service also permits clients to control network access and
priorities in accessing Web-based applications for each
employee, and makes employee relocation and new user
connections more cost-effective.
Security Audit Assesses a client's existing network security environment,
including security systems and technologies, policies,
awareness and susceptibility to specific risks. This
component service includes recommendations on how to address
security deficiencies in a prioritized and efficient manner.
Public Key Infrastructure Enables our clients to use the Internet for their business
needs, including e-commerce transactions, e-mail and virtual
network access, without compromising security,
confidentiality, proper authentication or network integrity.
Virtual Private Networking Provides a client with secure, reliable remote access to its
network and other business resources and applications for
its employees, telecommuters and business partners using the
Internet.
Integrated Network Management Enables a client to keep its network and system
Systems infrastructure fully operational by managing the network's
reliability, scalability and performance. This component
service also includes the integration of software
technologies that provide fault monitoring, performance
measurement and capacity planning.
IP Telephony Assists a client in converging voice and data traffic onto a
single Internet Protocol, or IP network infrastructure while
maintaining the levels of reliability and usability our
clients have come to expect from their existing telephone
systems.
</TABLE>
INTERNETWORKING SOLUTIONS
Our internetworking solutions are each comprised of several of our component
services. These solutions address a broad range of common network issues and are
provided by us on either a packaged or flexible basis. Some of our packaged
solutions can be utilized by all of our clients while others are designed to be
particularly valuable for specific industries. These packaged solutions are
generally replicable from one project to another, but can also be customized to
meet the needs of a particular client. We also offer flexible solutions,
consisting of individual or grouped component
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services, designed to address the needs of particular clients. Our principal
packaged solutions are described below:
PACKAGED INTERNETWORKING SOLUTIONS FOR ALL OF OUR CLIENTS
<TABLE>
<CAPTION>
SOLUTION DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
Enterprise Backbone Delivers the basic network services to operate a client's
internal network. Our engineers assess the performance of
the client's current network, including its business needs
and its network access and priority requirements, and design
and oversee the building, re-configuring or upgrading of the
network.
Virtual Office Networking Provides remote or mobile workers with complete office
capabilities and secure, cost-effective access to their
company's internal network using the Internet.
e-Business Infrastructure Provides a reliable, scalable and secure network to support
a client's internal electronic presence and
business-to-business transactions. We design and oversee the
implementation of the network infrastructure that provides
access to partners, customers and suppliers.
Dot.com Provides the network infrastructure to support a secure,
continuously available electronic storefront for
business-to-consumer transactions. We focus on improving the
e-commerce experience of our clients' customers and on
optimizing back office collection of customer data, order
fulfillment and billing.
Enterprise Convergence Integrates a client's voice, video and data services into a
single network that can prioritize the delivery all of these
services. This solution reduces operating costs, improves
efficiency and accommodates business expansion.
Merger & Acquisition Integrates the network infrastructures of two or more
Integration merging companies to create a single network. This solution
includes establishing secure messaging between the merging
entities and recommending, and overseeing the implementation
of, a plan for the disposal of redundant network
infrastructure and system assets.
</TABLE>
PACKAGED INTERNETWORKING SOLUTIONS FOR PARTICULAR INDUSTRIES
<TABLE>
<CAPTION>
SOLUTION DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
Trading Floor Infrastructure Designs and delivers redundant, continuously available
network infrastructures to support the global distribution
of trading and market information for our financial services
clients. This solution also emphasizes data integrity and
confidentiality by segmenting customer and trading
information from different sources.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SOLUTION DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
Core Infrastructure Delivers the fundamental network backbone for our
communication services clients who rely on their networks
and the Internet to directly generate revenues. We focus on
providing a network infrastructure engineered to deliver
highly secure, reliable, and well-performing service.
Subscriber Provisioning Enables our communication services clients to quickly
connect new customers, provide revenue-producing services
and reduce the costs associated with customer turnover.
Circuit-to-Packet Migrates our communication services clients from a
Transition traditional telephone network (circuit-switched or
connection-oriented) to a data network (packet-based). This
solution enables our clients to efficiently offer new
revenue generating services over a single network.
Hosted Integration Enables our communication services clients to offer
outsourced and hosting services to their customers,
including the hosting or rental of business applications,
the outsourcing of network, systems or security management
and the hosting of web servers.
Supply Chain Integration Designs and delivers the network infrastructure to connect
our manufacturing clients to their global partners,
suppliers, and customers on a secure, reliable and
continuously available integrated network.
</TABLE>
CLIENTS
We provide our services to a variety of clients across a number of
industries. The following is a representative list of our current clients:
COMMUNICATION SERVICES
Adelphia Communications Corporation
Cisco Systems, Inc.
CTC Communications, Inc.
Enron Broadband Services
NET-tel Communications, Inc.
FINANCIAL SERVICES
Deutsche Bank AG New York
Dow Jones & Company
JP Morgan & Co., Incorporated
Merrill Lynch & Co., Inc.
Morgan Stanley & Co. Incorporated
PHARMACEUTICALS/BIOTECHNOLOGY
PE Corporation (Celera Genomics)
Pfizer, Inc.
Rhone-Poulenc Roher, Inc.
SmithKline Beecham Corporation
OTHER
Avon Products, Inc.
KPMG U.K.
Pearson, Inc.
Sunoco Inc.
Viacom International, Inc.
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CASE STUDIES
The following are representative examples of how our clients have used our
services:
ENRON BROADBAND SERVICES
Enron Broadband Services, or EBS, a wholly-owned subsidiary of Enron Corp.
and a leading provider of high quality, broadband Internet content and
application delivery services, faced the challenge of connecting the backbone of
its fiber optic network to various Internet Service Providers, or ISPs, in order
to deliver its products and services to end-users. We assisted EBS in the
development of a repeatable process to quickly and accurately identify the
connectivity requirements of numerous ISPs in the United States and Europe. This
process allowed EBS to increase the speed and efficiency with which it could
connect to ISPs and roll-out its network while also reducing costs.
JP MORGAN
JP Morgan is a leading international banking firm that offers commercial
banking and investment services, including investment banking; brokerage
services, asset-management and proprietary investing to customers throughout the
world. The company relies on a sophisticated wide-area network, or WAN, to
provide information, data, and business applications to over 15,000 employees in
more than 15 international locations. As such, managing the costs and
performance of remote access to the WAN is of critical importance to the
company's success.
JP Morgan had taken a distributed approach to its remote access strategy,
maintaining several infrastructure solutions across business units and
divisions. The company engaged ThruPoint to help it evaluate the merits of
moving to a single remote access infrastructure, focusing on carrier costs,
availability, performance and security.
We provided JP Morgan with our Virtual Private Network pre-packaged
solution. During the course of our engagement we utilized our proprietary
methodology to help evaluate the company's global remote access requirements and
delivered an assessment report. Based on this assessment, we next proposed the
design of a network solution that could provide high-quality, cost-effective and
secure Internet and remote access. We also helped the company manage the vendor
selection process for key components of the proposed network solution, including
the selection of a single network carrier, which has already resulted in a 51%
reduction in carrier charges. Finally, we completed a successful pilot test,
which validated the design and performance specifications of our proposed
solution. At present, we continue to work with JP Morgan to prepare detailed
specifications for implementation of the solution throughout the company.
KNOWLEDGE MANAGEMENT
We employ a proprietary web-based knowledge management system to develop,
collect, re-use, and provide our employees access to, our accumulated
intellectual capital. Our intellectual capital refers to all the tools,
processes, information, and resources necessary to effectively deliver our
services, grow our business, and quickly facilitate the creation of new offices,
both internationally and in the United States. We have found that while each
client engagement has unique features, many of our solutions employ information
and processes that can be used in other solutions. This is particularly true
given our emphasis on certain industries. Our knowledge management system is
designed to enable each of our professionals to bring the experiences of our
entire company to bear on every element of a client engagement. Our knowledge
management system is well-indexed and provides efficient online access to
support materials for the following critical functions of our business:
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SALES. For each of our component services and internetworking solutions,
our knowledge management system contains sales materials such as solutions
descriptions, marketing briefs, customer presentations, standard proposals, case
studies and client success references.
RECRUITING. For each type of engineer we hire, our knowledge management
system contains a specification that defines the requisite technical skills,
product knowledge, interpersonal skills and project experience the engineer must
possess. The specification also identifies companies where we may find
appropriate candidates and provides our recruiters with sample questions to
quickly qualify any candidate.
SOLUTIONS DELIVERY. Our knowledge management system contains our solution
specific methodologies that include detailed delivery instructions, sample
documents, document templates, and technical reference information. The system
also contains completed customer deliverables and project documentation.
TRAINING AND DEVELOPMENT. Our knowledge management system contains skill
definitions for each of our practice areas and the training curriculum that
support them. The training curriculum includes external, internal, web-based,
and hands-on lab technical coursework as well as solutions delivery courses and
interpersonal/communications courses.
In addition to providing access to existing information, our knowledge
management system supports our continuing focus on being among the first to
market with the most advanced internetworking technology solutions. The system
provides an efficient means of rolling out new solutions and managing
consistency and quality across our global organization. We expect to continue
investing in the collection of our intellectual capital and the functionality of
our knowledge management system. Our planned enhancements include a search
engine, an online communication and collaboration tool, automated content
submission, management report distribution, and secure customer access to
appropriate engagement information.
SALES AND MARKETING
We market our services in three ways. First, we market directly through our
account managers who identify and sell to clients and manage client
relationships within particular geographic regions. Second, we have established
a sales group devoted to our communication services clients independent of
geographic region. Finally, we maintain a sales group that focuses on developing
our alliances, including our relationships with Cisco Systems and KPMG
Consulting. Our account managers have primary responsibility for managing client
relationships; however, when appropriate, our account managers will work closely
with our field and technical managers and network systems engineers to assess
potential projects and communicate our specific expertise to potential clients.
For new clients, a typical sales cycle for our service offerings is between
three and five months long. We intend to expand our international marketing
efforts by opening regional offices in Germany, the Netherlands, Japan and
Singapore in 2000. As of March 31, 2000, we employed 34 sales personnel,
including 27 account managers, two salespeople in our communication services
sales group and five salespeople in our strategic relationships sales group.
We are also building awareness of our company, services, industry expertise
and reputation. These marketing efforts include public relations activities and
speaking engagements, Internet-based and direct mail marketing programs,
industry seminars and trade shows, industry analyst briefings, trade and
business press and promotional brochures. In marketing our services, we
emphasize the prior experience of our technical personnel in the industries in
which our clients operate, and work closely with each potential client to
identify its particular needs and devise a comprehensive solution designed to
meet its operational, timing and cost requirements.
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STRATEGIC RELATIONSHIPS
CISCO SYSTEMS. We are part of Cisco Systems' inner circle of networking
consultants. As a part of the inner circle we have early access to Cisco
Systems' newly developed products and advanced technologies, affording us the
opportunity to develop and market solutions based on these technologies prior to
their general availability in the market. We believe this helps us to maintain
our network technology leadership, expand our business and increase our revenue
growth. In addition, as part of the inner circle, we have a preferred status in
Cisco Systems' services referral network and receive referrals from Cisco
Systems. We regularly apprise Cisco Systems of our latest service offerings and
capabilities that we believe would be valuable to its clients and would provide
opportunities to increase use of Cisco Systems' technology. We also work closely
with Cisco Systems at all levels of our organization to pursue new engagements.
In these engagements, we are retained directly by Cisco Systems to provide the
services necessary to deploy its networking products as part of an overall
solution for its customers. We participate in virtually all phases of these
engagements, from the initial development of the scope of the project through
its implementation. During 1999, revenues from work performed for Cisco Systems
accounted for approximately 9.9% of our revenues. We believe that another
significant source of our revenues will continue to be engagements performed for
third parties resulting from referrals from Cisco Systems. Cisco Systems is not
obligated to provide us with engagement opportunities, referrals or access to
new products or technologies and may cease to do so at any time. Cisco Systems
is an investor in our company, is represented on our board of directors and has
certain registration and corporate governance rights, which are described under
the heading "Certain Transactions."
KPMG CONSULTING. In April 2000, we entered into an alliance with KPMG
Consulting which we believe will give us opportunities to provide services in
conjunction with KPMG Consulting's engagements. We intend to work with KPMG
Consulting to design and deploy the networks which will support the software
application integration services provided by KPMG Consulting to its clients. We
also believe that our relationship with KPMG Consulting will position us to
receive client referrals. We are working closely with KPMG Consulting to develop
these opportunities. However, KPMG Consulting is not obligated to provide us
with any engagements or referrals. KPMG Consulting and certain of its affiliates
are investors in our company, are represented on our board of directors and have
certain registration rights, which are described under the heading "Certain
Transactions."
HUMAN RESOURCES
We seek to attract, develop and retain the highest level of technical
talent. We believe that our success in continuing to recruit and retain
experienced, highly-qualified and highly-motivated personnel will depend in part
on our ability to continue to provide a rewarding work environment and culture
and to offer professional development opportunities. We believe that our
proactive approach to maintaining such an environment helps maximize our
employee retention rate and allows us to meet our high standard of service
delivery.
RECRUITING. We have invested significant resources in building a recruiting
organization of 12 full-time staff members. We also use referrals from existing
employees, external agencies and Internet sources and our relationships with
colleges and universities in our recruitment efforts. In general, we seek to
hire experienced engineers and recent college graduates who possess strong
technical knowledge and interpersonal skills. We also hire experienced engineers
who have skills in one or more of our five practice areas and who have a
background in the industries we serve. Approximately 92% of the engineers we
hired in 1999 were experienced professionals and the balance were recent college
and university graduates.
CORPORATE CULTURE. We have established an entrepreneurial culture in which
collaborative effort, individual development and innovation are strongly
encouraged. In addition, we have maintained an environment rich in professional
opportunity, challenge and personal growth and development. We also
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actively foster a set of basic values that include a dedication to quality and
technical excellence, communicating openly and working as a team, taking
responsibility for achieving success, acting with integrity and trustworthiness,
and delivering value to our customers. We believe that both our strong culture
and attractive work environment are critical to our ability to hire and retain
high quality employees at all levels, especially when they are in such high
demand.
PROFESSIONAL DEVELOPMENT. We consider professional development to be
critical to our business and our ability to provide a high standard of service.
We have established a formal professional development program that serves as the
basis for our recruitment efforts, project staffing, career planning and
professional skill development. We have two career pathways for our network
specialists: engineering and technical management. Our professional development
program defines the position levels, skills sets, and experiences required to
progress within each of these career pathways. A program is discussed with each
employee upon hiring and reviewed on an annual basis thereafter. We believe that
our development program allows our employees to establish a career path, gain
on-the-job experience in a chosen practice area, and have access to training,
development and knowledge sharing resources. The following programs and
resources support our professional development program:
- PROFESSIONAL TRAINING CURRICULUM. We maintain a comprehensive training
curriculum that includes external training partners and certification
programs, web-based coursework, in-house training seminars and hands-on
work in our internal lab facility.
- INTERNETWORK ENGINEER TRAINING PROGRAM. Our Internetwork Engineer Training
Program is an 18-month program in which recent college graduates with
technical degrees learn the fundamentals of internetworking. The program
combines intensive training with on-the-job experience as a junior member
of a project team. Each engineer in our program is assigned a mentor to
provide guidance and support throughout the program.
- KNOWLEDGE MANAGEMENT INTRANET. We maintain a web-based knowledge
management system for our employees that provides efficient, online access
to industry information, training and development resources, project
documentation, methodology, strategies and designs, training catalogs and
coursework and reference materials. Our knowledge management system allows
us to effectively distribute our accumulated intellectual capital to our
employees.
COMPENSATION. We encourage an entrepreneurial attitude and believe that
linking employee compensation to our success through performance-based incentive
programs encourages a high level of involvement from each team member, maximizes
our value, and increases our employee retention. We provide a highly competitive
compensation package that consists of a combination of base salary,
performance-based incentives, company stock options, and comprehensive benefit
packages.
COMPETITION
The network consulting market has limited barriers to entry and is therefore
highly fragmented and highly competitive. Our primary competition continues to
be the internal information technology staffs of our current and potential
clients. Many organizations elect to meet their network services needs through
their own internal resources rather than by contracting with third-party service
organizations such as ourselves.
We also compete with other network consulting firms. Our current and
anticipated competitors include:
- systems integrators;
- professional services firms;
- local and regional network services firms;
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- telecommunications suppliers;
- network equipment and software manufacturers and developers;
- computer systems vendors; and
- value-added resellers.
In many instances, our competitors have greater name recognition, more
established relationships with large clients in our markets, greater financial,
managerial, and technical resources, and longer operating histories. In
addition, many of these competitors are forming alliances with other technology
vendors, enabling specific advantages in some customer settings. As the demand
for network and IT services continues to grow both domestically and
internationally, we expect to encounter increased competition due to the entry
of new competitors in our markets.
We believe that the critical factors for success in the network consulting
market include:
- the ability to attract and retain skilled personnel;
- the quality and breadth of services offered;
- technical and strategic expertise;
- the reliability, pricing, and speed with which services are delivered;
- the ability to keep up with rapidly changing network and applications
technology; and
- the strength of client and strategic relationships.
We believe that we compete favorably in all these areas. We attempt to
differentiate ourselves through our expertise and experience in designing and
deploying complex network infrastructures in highly demanding customer
environments, our business experience in the industries we serve and our ability
to leverage our service offerings in complementary and similar markets.
INTELLECTUAL PROPERTY RIGHTS
We seek to protect our information technology, some of which is proprietary,
and other intellectual property rights through a combination of confidentiality
agreements and trade secret, copyright and trademark law. We generally enter
into confidentiality agreements with our employees and clients.
We changed the name of our company in April 2000. We have applied for
service mark registrations in the United States for our name, our name used with
our logo and the name of our methodology. Otherwise, our trademarks and service
marks are protected under common law in the United States, without the benefit
of registration.
Our efforts to protect our intellectual property rights could be inadequate
to deter misappropriation of our proprietary information. For example, we may
not be able to detect unauthorized use of our intellectual property or take
appropriate steps to enforce our rights. In addition, although we believe that
our proprietary rights and service marks do not infringe on the intellectual
property rights of others, other parties may assert infringement claims against
us or claim that we have violated their intellectual property rights. Such
claims, even if not true, could result in significant legal and other costs and
may be a distraction to management.
EMPLOYEES
As of March 31, 2000, we had 359 full time employees, including 246
engineers. None of our employees are represented by a labor union and we
consider our employee relations to be good.
45
<PAGE>
FACILITIES
Our principal executive offices are currently located in approximately
10,000 square feet of office space in New York, New York. Additionally, in
December 1999 we entered into an agreement to lease approximately 20,000 square
feet of office space in another facility in New York, New York. We expect to
move our principal executive offices to the new facilities in April 2000. The
lease for this office space expires in February 2010. We also have regional and
satellite offices in:
- Atlanta, Georgia;
- Blue Bell, Pennsylvania;
- Burlington, Massachusetts;
- Chicago, Illinois;
- Dallas, Texas;
- Denver, Colorado;
- Houston, Texas;
- Iselin, New Jersey;
- Mahwah, New Jersey;
- San Mateo, California;
- Seattle, Washington;
- St. Louis, Missouri;
- Tampa, Florida;
- Washington, D.C.; and
- London, England.
We lease all of our facilities. We believe that our existing facilities are
adequate for our current needs and that additional space will be available as
needed.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
46
<PAGE>
MANAGEMENT
The following table sets forth our executive officers, directors and key
employees, their ages and the positions they hold:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Rami Musallam............................. 35 Chairman of the Board, President, and Chief
Executive Officer
Robert Foley, Jr.......................... 51 Chief Operating Officer
Richard A. Glickman....................... 40 Executive Vice President, Chief Financial Officer
William A. Nachtigal...................... 34 Executive Vice President, Chief Technology Officer
Stephen Zimmerman......................... 30 Director, Executive Vice President, Eastern Region
Sales, Treasurer and Secretary
Peggy Walker.............................. 51 Executive Vice President, Expansion Region Sales
Kevin Mepyans............................. 42 Vice President of Human Resources
Rolando Ramirez........................... 36 Vice President of Recruiting
Thomas O'Flaherty......................... 39 Vice President of Finance
Ellen M. Carney........................... 43 Vice President of Strategic Marketing
Randolph C. Blazer........................ 49 Director
Bernard Goldstein(1)(2)................... 69 Director
Michael Bealmear(1)(2).................... 51 Director
Carlos Dominguez(1)(2).................... 41 Director
Noah Walley............................... 36 Director
</TABLE>
- ------------------------
(1) Member of the compensation committee upon completion of this offering.
(2) Member of the audit committee upon completion of this offering.
RAMI MUSALLAM is our President and CEO, and has held these roles since he
founded our company with Messrs. Nachtigal and Zimmerman in 1996. Mr. Musallam
was named Chairman in April 2000. Prior to founding our company, Mr. Musallam
was employed by Morgan Stanley & Co. Incorporated where he held various roles,
his most recent being VP of Global Intranet Communications. Prior to assuming
his VP of Global Intranet Communications responsibilities, Mr. Musallam managed
Global Network Operations at Morgan Stanley. From 1992 to 1995, Mr. Musallam was
employed by Control Data Systems, Automated Wagering Division, Lottery Gaming
Technologies, where he was an account executive responsible for new state
lottery clients. Mr. Musallam is a director of Business Engine Software
Corporation.
ROBERT FOLEY, JR. joined our company in October 1999 as our Chief Operating
Officer, where he is responsible for managing worldwide operations, business
development, and the domestic and global expansion of our company. Prior to
joining our company, Mr. Foley was President and CEO of COLLEGIS from 1993 until
1999. COLLEGIS is an information technology professional services firm serving
the higher education marketplace. Previously, Mr. Foley served as President of
Sysorex Information Systems, Inc., a federal and international government
systems integrator from 1988 to 1993. Mr. Foley also served as a director on the
boards of both COLLEGIS and Sysorex Information
47
<PAGE>
Systems. Mr. Foley has also held executive positions with Electronic Data
Systems, General Electric Information Systems, and Science Applications
International Corp.
RICHARD A. GLICKMAN is an Executive Vice President and our Chief Financial
Officer. Prior to joining our company in November of 1999, Mr. Glickman served
as Vice President and Chief Financial Officer for the U.S. Division of DMR
Consulting Group, Inc., a privately held global information technology services
consulting firm, from 1997 to 1999. Previously, Mr. Glickman served as Senior
Partner and Director of Finance for J. Walter Thompson Company, a global
marketing communications company from 1993 to 1997.
WILLIAM A. NACHTIGAL is one of the three co-founders of our company. He is
an Executive Vice President and our Chief Technology Officer and is responsible
for our practice areas and internetworking solutions. Prior to co-founding our
company, Mr. Nachtigal was employed by Morgan Stanley where he held various
roles within their network communications group from 1990 to 1995. From 1988 to
1990, Mr. Nachtigal was employed by Bankers Trust Company where he worked in
money transfer communication operations.
STEPHEN ZIMMERMAN is one of the three co-founders of our company and has
served as a Director since 1996. He is our Executive Vice President, Eastern
Region Sales, Treasurer and Secretary. Since co-founding our company in 1996, he
has been responsible for managing various financial, operational, and
administrative functions for the company. Prior to forming our company,
Mr. Zimmerman was a manager at Morgan Stanley from 1992 to 1995, where he was
responsible for managing global LAN operations.
PEGGY WALKER is our Executive Vice President, Expansion Region Sales. In
addition to this role within the company, she has also served as our Vice
President of Sales and Marketing. Prior to joining our company in 1998, she was
an independent consultant providing technical sales and marketing strategy and
advisory services for both large corporations and small start-up ventures.
Previously, Ms. Walker served as Vice President of Sales at Xing Technology, a
California-based streaming video software company, from 1996 to 1997.
Ms. Walker joined Xing Technology after serving as Regional Vice President of
Sales for MFS Datanet, a communications service provider, from 1993 to 1996.
Ms. Walker has also held senior executive roles at Wellfleet/Bay Networks, MCI,
Timeplex, and AT&T.
KEVIN MEPYANS has been our Vice President of Human Resources since
January 1998. Mr. Mepyans is responsible for our worldwide strategic direction,
development, implementation and administration of all phases of human resources.
Prior to joining our company, Mr. Mepyans held senior level human resources
positions at Deutsche Bank, Federal Home Loan Mortgage Corporation, a
residential mortgage company, Kidder Peabody & Co., Inc., a securities brokerage
company, as well as building an executive search and human resources consulting
practice.
ROLANDO RAMIREZ is our Vice President of Recruiting. Mr. Ramirez is
responsible for the development and implementation of functional and
organizational strategies geared toward meeting the staffing objectives
associated with the company's aggressive growth objectives. Prior to joining our
company in January 1999, Mr. Ramirez was Vice President of Recruiting for
Claremont Technology Group, Inc. a public systems integration firm specializing
in the development and implementation of object-oriented systems for the
communications, public retirement and manufacturing industries.
THOMAS O'FLAHERTY is our Vice President of Finance. Mr. O'Flaherty joined
our company in 1999, after spending 15 years with the company formerly known as
Timeplex Group, a company that builds and manages networks. During his
employment with Timeplex, Mr. O'Flaherty served in various capacities, with his
most recent responsibility as that of Corporate Controller. In addition, his
other responsibilities while employed by Timeplex included financial planning
and analysis, and general and cost accounting.
48
<PAGE>
ELLEN M. CARNEY is our Vice President of Strategic Marketing. In this role,
Ms. Carney is responsible for promoting brand awareness and competitive
positioning for the company within the marketplace. Prior to joining our company
in December 1999, Ms. Carney was a Director/ Principal Analyst for
GartnerGroup/Dataquest, an information technology research and analysis company,
from 1996 to December of 1999. While there, she was responsible for the
worldwide research direction for researching and communication trend, forecast,
operational benchmarks, and industry best practices within the Internet
infrastructure, security services, and managed network services markets.
Previous to GartnerGroup, Ms. Carney was employed by Cabletron Systems, Inc., a
networking products solutions company, from 1989 to 1996, where she had various
responsibilities including network design, project implementation and
management, and contract management.
RANDOLPH C. BLAZER has been a director since April 2000. Mr. Blazer is
currently Chief Executive Officer and President of KPMG Consulting, a provider
of Internet integration services. Mr. Blazer has served in these capacities
since February 2000. From January 1997 to January 31, 2000, Mr. Blazer served as
Vice Chairman-Consulting for KPMG LLP. From 1991 to January 1997, Mr. Blazer was
the partner-in-charge of the Public Sector Consulting Practice of KPMG LLP.
BERNARD GOLDSTEIN has been a director since 1998. He is a Director of
Broadview International, LLC, an investment banking company, which he co-founded
in 1979. Mr. Goldstein is a director of SunGard Data Systems, Inc., a computer
services company, GIGA Information Group, Inc., a research and advisory service
provider for e-business and SPSS, Inc., a software and professional services
company, as well as several privately held companies.
MICHAEL BEALMEAR has been a director since 1998. Mr. Bealmear is President
and Chief Executive Officer of Spear Technologies, a computerized maintenance
management systems company. Prior to joining Spear Technologies, Mr. Bealmear,
held positions as Executive Vice President and Senior Vice President with
Cadence Design Systems, Inc., a software company, Sybase Inc., a software
solutions provider, SHL Systemhouse, an IT consulting firm, and managing partner
with Coopers and Lybrand and KPMG Peat Marwick. Mr. Bealmear is a director of
Post Communications, an e-mail marketing services company, Inventa, a consulting
and systems integration company, Emerald Solutions, Inc., an e-business
engineering and consulting services company and Business Engine Software
Corporation, an e-business solutions company.
CARLOS DOMINGUEZ has been a director of our company since May of 1999. He is
currently an Area Vice President for Cisco Systems, covering the Northeast
United States. During his tenure at Cisco Systems he has held a number of
management positions, and is currently involved with the Cisco Systems business
development team, responsible for identifying acquisition candidates and
investments within his territory. Mr. Dominguez serves on the board of Avesta
Technologies, a network management software development company. In addition,
Mr. Dominguez serves on a number of management advisory boards, including Apogee
Networks and MD.com.
NOAH WALLEY has been a director of our company since August of 1998.
Mr. Walley is a General Partner of Morgan Stanley Dean Witter Venture Partners,
the venture capital arm of Morgan Stanley Dean Witter. Mr. Walley joined Morgan
Stanley Dean Witter in 1998 as a Vice President. Previously, he focused on the
telecommunications, technology and environmental industries for the private
equity firms of Bachow & Associates and Desai Capital Management, and as a
consultant at McKinsey & Co. Mr. Walley is a director of
freightquote.com, Inc., an Internet transportation service company, Osprey
Systems, Inc., a full service technology solutions company and Band-X, Inc., a
business-to-business exchange for telecommunications bandwidth and services.
49
<PAGE>
We intend to elect one additional director to our board of directors prior
to the completion of this offering.
OBSERVERS TO OUR BOARD OF DIRECTORS
Representatives of KMPG Consulting and Cisco Systems serve as observers to
our board of directors. Observers are given notice of all board of directors
meetings and copies of materials provided in connection with each meeting.
Observers do not have voting rights. Currently, Paul Ciandrini, Executive Vice
President, High Tech Industry of KPMG LLP, represents the KPMG affiliated
entities as an observer. In addition, William R. Nuti, Senior Vice President,
EMEA Operations of Cisco Systems, Inc., represents Cisco Systems as an observer.
Our observers participate in discussions and matters brought before the board of
directors.
BOARD COMMITTEES
THE AUDIT COMMITTEE. The audit committee reports to the board of directors
regarding the appointment of our independent public auditors, the scope and
results of our annual audits, compliance with our accounting and financial
policies and management's procedures and policies relative to the adequacy of
our internal accounting controls. The members of the audit committee are
Messrs. Goldstein and Bealmear, who were appointed in March 2000 and
Mr. Dominguez, who was appointed in April 2000. Prior to March 2000, the
responsibilities of the audit committee were handled by the entire board of
directors.
THE COMPENSATION COMMITTEE. The compensation committee reviews and makes
recommendations to the board of directors regarding our compensation policies
and all forms of compensation to be provided to our executive officers and
directors. In addition, the compensation committee reviews bonus and stock
compensation arrangements for all of our other employees. The members of the
compensation committee are Mr. Bealmear who was appointed in September 1999, and
Messrs. Walley, Dominguez and Goldstein, who were appointed in April 2000.
Mr. Walley will resign from the compensation committee immediately prior to the
offering. Prior to September 1999, the responsibilities of the compensation
committee were handled by the entire board of directors.
ADVISORY COUNCILS
Our advisory councils provide direction with business strategy and in
evaluating the development, marketability and deliverability of our
internetworking solutions. Members of our advisory councils meet on a quarterly
basis. The enterprise advisory council is predominantly comprised of
professionals from the financial services industry and we intend to expand the
membership to include additional representatives of the pharmaceuticals and
other industries. The service provider advisory council is
50
<PAGE>
predominantly comprised of professionals from the communication services
industry who advise our company on matters particular to that industry. Our
advisory councils members are:
ENTERPRISE ADVISORY COUNCIL
<TABLE>
<S> <C>
Merritt Lutz (Chairman)................ Senior Advisor, Morgan Stanley Dean Witter
Frederick Matteson..................... Executive Vice President, Technology Services, Charles
Schwab Corporation
Terry Burnett.......................... Chief Information Officer, AT&T Corp.
Nick Adamo............................. Operations Director, Cisco Systems, Inc.
Chip Bunker............................ Senior Vice President, Paine Webber Group Inc.
Paul Toldalagi......................... Managing Director, Morgan Stanley Dean Witter
Christopher Corrado.................... Chief Technology Officer, Merrill Lynch & Co., Inc.
John Bruno............................. Global Director of Telecommunications, Bristol-Myers
Squibb Company
Howard Shallcross...................... Private consultant
SERVICE PROVIDER ADVISORY COUNCIL
Merritt Lutz (Chairman)................ Senior Advisor, Morgan Stanley Dean Witter
Anthony Naughtin....................... Chief Executive Officer, Internap Network Services
Corporation
Michael Malaga......................... Chief Executive Officer, Northpoint Communications, Inc.
Royce Holland.......................... Chief Executive Officer, Allegiance Telecom, Inc.
Deborah Traficante..................... Vice President, Cisco Systems, Inc.
</TABLE>
We expect to change the composition of our advisory councils from time to
time to match the evolving needs of our company.
We have granted the following options to the following members of our
advisory councils:
<TABLE>
<CAPTION>
NAME NO. OF OPTIONS EXERCISE PRICE GRANT DATE
- ---- -------------- -------------- ----------
<S> <C> <C> <C>
Christopher Corrado..................... 45,000 $0.42 1/4/99
Frederick Matteson...................... 45,000 0.42 1/4/99
Terry Burnett........................... 45,000 0.42 1/4/99
Paul Toldalagi.......................... 45,000 0.42 3/31/99
Chip Bunker............................. 45,000 0.42 3/31/99
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee are currently Messrs. Bealmear,
Walley, Dominguez and Goldstein. Mr. Walley is affiliated with Morgan Stanley
Dean Witter, which beneficially owns in excess of 5% of our voting stock, and
Mr. Dominguez is employed by Cisco Systems, which also beneficially owns in
excess of 5% of our voting stock. Mr. Walley will resign from the compensation
committee immediately prior to the offering. From September 1999, when the
compensation committee was formed, until April 2000, Merritt Lutz, who was our
Chairman until April 2000, served in lieu of Mr. Dominguez and from September
1999 until April 2000, Guy DeChazal, who is affiliated with Morgan Stanley Dean
Witter, served in lieu of Mr. Walley. None of our executive officers serves as a
member of the board of directors or compensation committee of an entity that has
one or more executive officers serving on our board of directors or compensation
committee.
Our compensation committee members have engaged in various transactions with
us. For information about these transactions please see "Certain
Transactions--Relationship with Cisco Systems."
51
<PAGE>
DIRECTOR COMPENSATION
We do not currently compensate our directors for attending meetings of the
board of directors or committee meetings of the board of directors, but we do
reimburse directors for their reasonable travel expenses incurred in connection
with attending these meetings. In addition, we grant stock options to our
directors. In September 1999, we granted 900,000 options to Merritt Lutz, who
was our Chairman until April 2000, at a price of $1.41 per share.
We have also granted the following options to the following outside
directors:
<TABLE>
<CAPTION>
NAME NO. OF OPTIONS EXERCISE PRICE GRANT DATE
- ---- -------------- -------------- --------------
<S> <C> <C> <C>
Bernard Goldstein.................. 150,000 $0.42 November 1998
Michael Bealmear................... 150,000 $0.42 January 1999
Carlos Dominguez................... 45,000 $0.42 January 1999
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued during
each of our last three fiscal years to our Chief Executive Officer and to each
of our four most highly compensated executive officers other than the Chief
Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ---------------
COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)(1)
- --------------------------- -------- --------- -------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Rami Musallam............................ 1999 $183,300 $96,014 162,900 $ 4,985
Chairman, President
and Chief Executive
Officer
Stephen Zimmerman........................ 1999 150,000 86,781 -- 4,985
Director, Executive Vice President,
Treasurer and Secretary
William Nachtigal........................ 1999 150,000 62,218 -- 4,947
Executive Vice
President and Chief
Technology Officer
Kevin Mepyans............................ 1999 130,000 36,515 109,488 2,374
Vice President of
Human Resources
Thomas O'Flaherty........................ 1999 111,279 32,500 141,000 976
Vice President of
Finance
</TABLE>
- ------------------------
(1) These amounts represent our company's matching contributions under our
401(k) Plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options for the year ended
December 31, 1999 to each of the executive officers named in the Summary
Compensation Table. We have never granted any stock appreciation rights. The
potential realizable value is calculated based on the term of the option at its
time of grant. It is calculated assuming that the fair market value of common
stock on the date of
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<PAGE>
grant appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price. These numbers are calculated
based on the requirements of the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth. The percentage of total
options granted to employees in the last fiscal year is based on options to
purchase an aggregate of 13,369,842 shares of common stock granted under our
option plans. There was no public market for our common stock as of
December 31, 1999. Accordingly, the fair market value on December 31, 1999 is
assumed to be the initial public offering price of $ per share.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO OR BASE TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rami Musallam............. 90,000 * 0.86 6/30/09
27,900 * 1.56 9/30/09
45,000 * 2.21 12/31/09
Stephen Zimmerman.........
William Nachtigal.........
Kevin Mepyans............. 30,000 * 0.42 3/31/09
30,000 * 0.78 6/30/09
25,743 * 1.41 9/30/09
23,745 * 2.01 12/31/09
Thomas O'Flaherty......... 105,000 * 0.42 2/22/09
15,000 * 0.78 8/16/09
21,000 * 2.01 12/31/09
</TABLE>
- ------------------------
* Less than 1%.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the value realized
upon exercise of options during 1999 and the number and value of unexercised
options held by each of our named executive officers at December 31, 1999. There
was no public market for our common stock as of December 31, 1999. Accordingly,
the values set forth below have been calculated on the basis of the fair market
value on December 31, 1999 assuming this was equal to the assumed initial public
offering price of $ per share, less the applicable exercise price per
share, multiplied by the number of shares underlying the options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN THE
UNEXERCISED OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL YEAR
SHARES YEAR END END
ACQUIRED VALUE --------------------------------- ---------------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---- -------------- ----------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Rami Musallam............. -- -- -- 162,900 -- $107,390
Stephen Zimmerman......... -- -- -- -- -- --
William Nachtigal......... -- -- -- -- -- --
Kevin Mepyans............. -- -- -- 257,184 -- $375,434
Thomas O'Flaherty......... -- -- -- 141,000 -- $186,100
</TABLE>
EMPLOYMENT AGREEMENTS
We have entered into executive employment agreements with Rami Musallam, our
Chief Executive Officer, Stephen Zimmerman and William Nachtigal, each of whom
are Executive Vice Presidents,
53
<PAGE>
Robert Foley, our Chief Operating Officer, and Richard Glickman, our Chief
Financial Officer. The employment agreements provide for an annual base salary
of $250,000 and a bonus of $130,000 to Mr. Musallam, an annual base salary of
$150,000 and a bonus of $132,000 to Mr. Zimmerman, an annual base salary of
$150,000 and a bonus of $100,000 to Mr. Nachtigal, an annual base salary of
$250,000 and a bonus of $125,000 to Mr. Foley and an annual base salary of
$200,000 and a bonus of $125,000 to Mr. Glickman.
The employment agreements also provide that the executives will be eligible
for a discretionary bonus as determined by the compensation committee of the
board of directors, except that Mr. Glickman's agreement provides for a
quarterly target bonus of $31,250 plus an annual bonus based upon achievement of
certain performance targets. In addition, Mr. Foley received options to purchase
2,127,195 shares of our common stock at a price of $1.41 per share, of which
539,283 options were exercised upon commencement of employment. Mr. Glickman
received options to purchase 1,196,547 shares of our common stock, in each case
at a price of $1.41 per share; the exercise price of 198,675 options was
subsequently increased to $2.01 per share. Subsequent to the execution of his
employment agreement, Mr. Glickman also received options to purchase 59,100
shares of our common stock at $2.35 per share. All of these options vest over
4 years.
The employment agreements entered into with Messrs. Musallam, Zimmerman and
Nachtigal expire on August 19, 2001, the employment agreement with Mr. Foley
expires on September 24, 2003 and the employment agreement with Mr. Glickman
expires on October 22, 2003, in each case subject to earlier termination or
extension. Each employment agreement provides that if the executive party
thereto is terminated by us without cause (as defined in the employment
agreement to cover serious misconduct by the executives) or if the executive
terminates his employment agreement for good reason, he will be entitled to a
payment of $230,000, in the case of Messrs. Musallam, Zimmerman and Nachtigal,
or an amount equal to 150% of his highest base salary, in the case of
Messrs. Foley and Glickman, as a severance payment. If the termination occurs
within one year following a change of control, the severance is required to be
paid in a lump sum; otherwise, it is payable in accordance with our usual
payroll practices. Additionally, all stock options granted to them will
immediately vest.
Under the agreements, good reason includes:
- a material breach of the agreements by us;
- conduct by us intended to harm the executive;
- relocation of our principal offices more than a given distance from New
York City; and
- following a change of control, a material change in the executive's duties
and responsibilities or the imposition of extraordinary travel
obligations.
Each employment agreement prohibits the executive party thereto from
competing with us, or soliciting our customers or employees, for a period of one
year from the date of his termination of employment, and contains covenants
regarding nondisclosure of confidential information and assignments of
inventions.
AMENDED AND RESTATED 1998 STOCK OPTION PLAN
The compensation committee of our board of directors serves as the plan
administrator with respect to the Total Network Solutions, Inc. Amended and
Restated 1998 Stock Option Plan.
The share reserve for the 1998 Option Plan is 21,303,000 shares. The maximum
number of shares of common stock with respect to options that may be granted to
any one participant in any one calendar year is 1,000,000 shares. In the event
any change is made to the outstanding shares of common stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without our receipt of
consideration, appropriate adjustments will be made to the securities issuable
in the aggregate under the 1998 Option Plan and to each outstanding option.
Shares subject to any outstanding options under the 1998 Option Plan which
expire or otherwise terminate prior to exercise are available for subsequent
issuance. Unvested shares issued under the 1998 Option Plan and subsequently
repurchased by us pursuant to our repurchase rights under the 1998 Option Plan
will also be available for subsequent issuance.
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<PAGE>
Officers and employees, non-employee board members and independent
consultants and advisors to our board of directors in our service are eligible
to participate in the 1998 Option Plan.
Following completion of this offering, the fair market value per share of
our common stock on any relevant date under the 1998 Option Plan will be the
closing selling price per share on that date on the Nasdaq National Market.
The options granted under the 1998 Option Plan may be either incentive stock
options under the federal tax laws or non-qualified options. Each granted option
has an exercise price per share not less than 100% of the fair market value per
share of our common stock on the option grant date, and no granted option has a
term in excess of ten years. The shares subject to each option generally vest in
a series of installments over a specified period of service measured from the
grant date. Upon cessation of service, the optionee has a limited period of time
in which to exercise any outstanding option to the extent exercisable for vested
shares. The plan administrator has complete discretion to extend the period
following the optionee's cessation of service during which his or her
outstanding options maybe exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. Such discretion may be exercised at
any time while the options remain outstanding, whether before or after the
optionee's actual cessation of service. Incentive stock options granted under
the 1998 Option Plan may not be assigned or transferred, except by the
provisions of the optionee's will or the laws of inheritance following his or
her death. Non-qualified options maybe assigned or transferred pursuant to the
optionee's will or the laws of inheritance and may also be assigned during the
optionee's lifetime, in connection with the optionee's estate plan, to members
of his or her immediate family or to a trust established exclusively for the
benefit of such individuals. The plan administrator has the authority to effect
the cancellation of outstanding options under the 1998 Option Plan and to issue
replacement options with an exercise price based on the fair market value of our
common stock at the time of the new grant.
In the event that we are acquired by merger or asset sale, each outstanding
option under the 1998 Option Plan which is not to be assumed or replaced by our
successor will automatically accelerate in full. The plan administrator will
have complete discretion to grant one or more options under the 1998 Option Plan
which will become fully exercisable in an acquisition or other corporate
transaction whether or not options are assumed or replaced by our successor or
the optionee's service with us or the acquiring entity is involuntarily
terminated or the optionee resigns for good cause within a designated period
following such acquisition or other corporate transaction.
The plan administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options. The plan
administrator will determine the terms of any such assistance. However, the
maximum amount of financing provided for any participant may not exceed the cash
consideration payable for the issued shares plus all applicable taxes incurred
in connection with the acquisition of the shares.
The plan administrator may provide one or more holders of options with the
right to have ThruPoint withhold a portion of the shares otherwise issuable to
such individuals in satisfaction of the tax liability incurred by such
individuals in connection with the exercise of those options or the vesting of
those shares. Alternatively, the plan administrator may allow such individuals
to deliver previously acquired shares of Common Stock in payment of such tax
liability.
Our board of directors may amend or modify the 1998 Option Plan in any or
all respects whatsoever, subject to any required stockholder approval, provided
that shareholder approval is required for amendments which increase the maximum
number of shares issuable and materially modify the eligibility requirements or
materially increase benefits accruing to participants. Our board of directors
may terminate the 1998 Plan at any time, and the 1998 Option Plan will in all
events terminate upon the expiration of its ten-year term measured from the date
of its adoption by our board of directors.
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THRUPOINT 2000 STOCK OPTION PLAN
Prior to completion of this offering, our board of directors intends to
adopt the ThruPoint 2000 Stock Option Plan. The 2000 Option Plan permits the
grant of non-qualified options and incentive stock options.
No more than 34,500,000 shares of our common stock may be issued pursuant to
all option grants under the 2000 Option Plan. The shares of common stock to be
issued will be made available from authorized but unissued shares of our common
stock or issued shares held in our treasury. Shares of our common stock that
have been issued upon the exercise of an option under the 2000 Option Plan will
not again be available for an option grant. However, if an option terminates for
any reason without being wholly exercised, the number of shares to which the
option termination relates will again be made available for an option grant
under the 2000 Option Plan. In the event of certain corporate reorganizations,
recapitalizations, or other specified corporate transactions affecting us or our
common stock, the 2000 Option Plan permits proportionate adjustments to the
number and kinds of shares subject to options and/or the exercise price of those
shares.
The 2000 Option Plan will be administered by a committee comprised of no
fewer than two persons selected by our board of directors. To the extent our
board of directors deems it necessary or advisable, each committee member will
meet the definition of a "nonemployee director" for purposes of Rule 16b-3 under
the Securities Exchange Act of 1934 and of an "outside director" under
section 162(m) of the Internal Revenue Code. Subject to the limitations set
forth in the 2000 Option Plan, the committee has the authority to determine the
persons to whom options are granted, the time at which options will be granted,
the number of shares subject to an option, the exercise price of an option, the
time or times at which the options will become vested, exercisable or payable,
and the duration of the option. The committee will have the right, from time to
time, to delegate to one or more of our officers the authority of the committee
to grant options and to determine the terms and conditions of option grants,
subject to the limitations as the committee shall determine. However, no such
authority may be delegated with respect to options awarded to any member of our
board of directors or any optionee who the committee determines may be subject
to section 162(m) of the Internal Revenue Code. Furthermore, option grants to
non-employee directors under the 2000 Option Plan must be approved by our board
of directors. With respect to awards to such directors, all rights, powers and
authorities vested in the committee under the 2000 Option Plan will instead be
exercised by our board of directors.
All of our employees and those of our subsidiaries and, in the case of
option grants other than incentive stock options, any officer, director, or
consultant or advisor to our board of directors providing services to us or a
subsidiary (or prospective officer, director, consultant or advisor), are
eligible to be granted options under the 2000 Option Plan, as selected from time
to time by the committee in its sole discretion.
The exercise price of an option may be determined by the committee, provided
that the exercise price of an incentive stock option may not be less than the
fair market value of a share of common stock on the date of grant. The value of
common stock (determined at the time of grant) that may be subject to incentive
stock options that become exercisable by any one employee in any one year is
limited to $100,000 by the Internal Revenue Code. The maximum number of shares
of our common stock that may be subject to options granted to any optionee
during any one calendar year will be , subject to adjustment in the event
of certain corporate reorganizations, recapitalizations or other specified
corporate transactions. The maximum term of stock options granted under the 2000
Option Plan is ten years from the date of grant.
Unless otherwise provided by the committee and set forth in the stock option
agreement, in the event of an optionee's death or permanent and total
disability, outstanding options that have become exercisable will remain
exercisable for a period of one year, and the committee will have the discretion
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to determine the extent to which any unvested options shall become vested and
exercisable in connection with death or disability. Similarly, unless otherwise
provided by the committee and set forth in the stock option agreement, upon a
"change in control" of us (as defined in the 2000 Option Plan), each outstanding
option, to the extent that it shall not otherwise have become vested and
exercisable, shall automatically become fully and immediately vested and
exercisable, without regard to any otherwise applicable vesting requirement. In
the case of any other termination of employment, outstanding options that have
previously become vested will remain exercisable for a period of 90 days, except
for a termination "for cause" (as defined in the 2000 Option Plan), in which
case all unexercised options will be immediately forfeited.
An option may be exercised in whole or in part at any time during the
option's term by written notice to us, together with payment of the exercise
price of the option. For non-qualified stock options, in addition to the
exercise price, the optionee must pay us in cash or, at the committee's
discretion) in common stock, the full amount of all applicable income tax and
employment tax amounts required to be withheld in connection with the exercise
of the option. All options shall be nontransferable except upon the optionee's
death, by the optionee's will or the laws of descent and distribution or, in the
case non-qualified stock options only, on a case-by-case basis as may be
approved by the committee in its discretion to permitted transferees (as defined
in each stock option agreement), in accordance with the terms of the 2000 Option
Plan.
The 2000 Option Plan has a term of ten years, subject to earlier termination
or amendment by our Board of Directors.
EMPLOYEE STOCK PURCHASE PLAN
Prior to completion of this offering, our board of directors intends to
adopt our 2000 Employee Stock Purchase Plan. The Stock Purchase Plan is intended
to satisfy the requirements of Section 423 of the Internal Revenue Code. The
Stock Purchase Plan is administered by the compensation committee. Any of our
employees or those of any subsidiary designated by the compensation committee
who customarily works at least 20 hours per week and five months per year is
eligible to participate in the Stock Purchase Plan after having worked for us
for six months. Approximately employees currently are eligible to participate
in the Stock Purchase Plan. Our non-employee directors are not eligible to
participate in the Stock Purchase Plan. Each employee eligible to participate in
the Stock Purchase Plan will be granted an option to contribute between one and
ten percent of the employee's compensation towards the purchase of our common
stock at a purchase price for each three-month purchase period (a "Purchase
Period") equal to the lower of (x) 85% of the fair market value of a share of
our common stock on the first day of the Purchase Period and (y) 85% of the fair
market value of a share of our common stock on the last day of the Purchase
Period. The amount to be contributed by a participant will be deducted from each
paycheck, held for the participant during a Purchase Period and applied towards
the purchase of our common stock on the last day of the Purchase Period. A
participant may change the percentage of his or her compensation to be
contributed for any given purchase period prior to the beginning of that period
and may elect not to participate with respect to one or more plan periods, but
then must wait until the next calendar year before participating again. The
number of shares available for purchase under the Stock Purchase Plan is
. Our board of directors at any time may amend, suspend or
discontinue the Stock Purchase Plan, in whole or in part.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation eliminates the liability of directors to
the maximum extent permitted by New York law. Our certificate of incorporation
provides for indemnification, to the fullest extent permitted by applicable law,
of our directors, officers, employees or agents for all actions brought against
them as a consequence of their service to ThruPoint, unless a judgment or other
final
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adjudication adverse to the director, officer, employee or agent establishes
that (i) his acts were committed in bad faith or were the result of active and
deliberate dishonesty and, in either case, were material to the cause of action
so adjudicated or (ii) he personally gained a financial profit or other
advantage to which he was not legally entitled. Our certificate of incorporation
also permit us to advance expenses incurred by an indemnified party in
connection with the defense of any action or proceeding arising out of the
party's status or service as a director, officer, employee or agent of ThruPoint
upon an undertaking by the party to repay such advances if it is ultimately
determined that the party is not entitled to indemnification.
We believe that our certificate of incorporation and bylaw provisions are
necessary to attract and retain qualified persons as directors and officers. We
also have directors' and officers' liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of ThruPoint where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for such
indemnification.
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CERTAIN TRANSACTIONS
RELATIONSHIP WITH CISCO SYSTEMS
In May 1999, we sold 1,077,026 shares of our Series B convertible preferred
stock to Cisco Systems for $2.94 per share. Simultaneously with its acquisition
of our Series B convertible preferred stock, Cisco Systems also acquired
4,500,000 shares of our common stock from a then greater-than-5% shareholder of
our company for $.98 per share.
In December 1999, we sold a promissory note convertible into our Series C
convertible preferred stock to Cisco Systems for $9,000,005 and simultaneously
converted all of the shares of our common stock and Series B convertible
preferred stock then held by Cisco Systems into notes having principal amounts
equal to the aggregate prices originally paid by Cisco Systems for those
securities. Following the closing of the offering, the Series B, Series C and
common stock convertible notes will be convertible into an aggregate of
12,201,282 shares of common stock at the option of Cisco Systems.
We have entered into an agreement which provides that Cisco Systems may
designate one nominee for our board of directors as long as it beneficially owns
at least 6,100,641 shares of our common stock. Cisco Systems is also entitled to
have an additional non-voting observer participate in our board meetings. Cisco
Systems has currently designated Carlos Dominguez to our board of directors and
Mr. Dominguez and another officer of Cisco Systems are also members of our
advisory councils. William R. Nuti currently serves as Cisco Systems' observer.
For our 1999 fiscal year, revenues from work performed for Cisco Systems were
$2.6 million, or 9.9% of our revenues. In addition, certain of our client
relationships have resulted from referrals from Cisco Systems.
In connection with our sale of the convertible notes to Cisco Systems, we
entered into an agreement with Cisco Systems that sets forth procedures for our
considering and entering into acquisition agreements with third parties.
Following the offering, Cisco Systems will have the following rights, among
others, in connection with any unsolicited acquisition proposals we receive or
acquisition proposals we initiate. The agreement with Cisco Systems provides
that such acquisition proposals will include those relating to any business
combinations resulting in the stockholders of our company owning less than 50%
of the total voting power of the surviving entity, or a vote of the board of
directors to sell 25% or more of the total voting power of our company to any of
the Cisco Systems competitors referred to below or substantially all of our
assets. In the event of any such acquisition proposal:
- we must inform Cisco Systems promptly of the acquisition proposal;
- Cisco Systems may match the acquisition proposal, or present an
alternative proposal, during a twenty business-day exclusive negotiating
period with us, if the potential acquiror is one of seven specified
competitors of Cisco Systems, or any entity in which any of the specified
competitors beneficially owns a 20% or greater interest, or a ten
business-day non-exclusive negotiating period in the case of other
potential acquirors (such other potential acquirors need not be identified
by name if we have agreed to keep their acquisition proposal
confidential);
- if Cisco Systems matches the value of an acquisition proposal from one of
its designated competitors, or an entity in which any of the specified
competitors beneficially owns a 20% or greater interest, we must accept
Cisco Systems' offer unless either the competing acquisition proposal was
unsolicited and is not accepted by us or our board determines that its
fiduciary duties preclude acceptance of the matching offer; and
- if we accept an acquisition proposal from one of Cisco Systems' designated
competitors, or an entity in which any of the specified competitors
beneficially owns a 20% or greater interest, after complying with these
procedures, we must pay Cisco Systems five times our trailing twelve-
month revenues and, at Cisco Systems' option, either pay all outstanding
principal and interest then due under the preferred convertible notes held
by Cisco Systems, which will be approximately $16,618,000 as of
December 31, 1999, or convert the notes held by Cisco Systems (upon
completion of the offering, the notes will be convertible into
approximately 12,201,282 shares of common stock, which will be
approximately % of our common stock then outstanding).
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If Cisco Systems matches the value of an acquisition offer from a potential
acquiror other than the specified competitors of Cisco Systems or entities in
which they beneficially own a 20% or greater interest, we have no obligation to
accept the matching offer. For purposes of determining whether Cisco Systems has
matched the value of an acquisition proposal which includes stock or other
securities, Cisco Systems may substitute cash or shares of its principal class
of common equity having a fair market value equivalent to the fair market value
of the stock component of the subject acquisition proposal.
The notice, exclusive negotiation and first refusal rights described above
terminate when Cisco Systems no longer beneficially owns at least 25% of the
shares of our common stock that it owned immediately after executing the note
purchase agreement and the monetary payment and redemption obligations described
above terminate when Cisco Systems no longer beneficially owns at least 50% of
the shares of our common stock that it owned immediately after executing the
note purchase agreement.
In addition, in , 2000 we entered into an agreement with Cisco
Systems providing that so long as Cisco Systems beneficially owns 6,100,641
shares of our common stock, Cisco Systems may designate one nominee for our
board of directors and may also have a non-voting observer attend our board
meetings.
RELATIONSHIP WITH KPMG
In February 2000, we sold an aggregate of 851,064 shares of our Series D
convertible preferred stock to KPMG LLP, KPMG Consulting, LLC and KPMG U.K. for
$14.10 per share. On the closing of this offering, all of the shares of
Series D convertible preferred stock owned by these KPMG investors will convert
into 5,106,384 shares of common stock. We have entered into an agreement which
provides that the KPMG investors may designate one nominee for our board of
directors as long as they collectively beneficially own at least 2,553,192
shares (approximately 3.3%) of our common stock. The KPMG investors are also
entitled to have an additional non-voting observer participate in our board
meetings and to designate a member of each of our service provider and
enterprise advisory councils. The KPMG investors have currently designated
Randolph Blazer to our board of directors. Paul Ciandrini currently serves as
the KPMG investors' observer.
In April 2000, we entered into an alliance agreement with KPMG Consulting.
The agreement provides for joint marketing and development activities in order
to expand each party's customer base, product and service offerings and
geographic reach. The agreement has a one-year term and may be extended by
mutual agreement for two additional one-year periods. Pursuant to this
agreement, each party agrees, to the best of its ability, to introduce client
opportunities to the other party that may require solutions that are aligned
with such other party's core competencies. In addition, KPMG Consulting agreed,
to the best of its ability, to identify and assist us in completing transactions
meeting certain revenue objectives in each year of the agreement, and we agreed,
to the best of our ability, to assist KPMG Consulting in obtaining new accounts
and in completing transactions meeting certain revenue objectives in each year
of the agreement. However, the agreement provides no recourse against either
party, other than the option to terminate the agreement, if these objectives are
not met and neither party will have any liability for failing to successfully
promote the products or services of the other party. The agreement can be
terminated by either party for any reason upon 30 days' prior notice. The
agreement does not prevent either party from entering into similar agreements
with other parties.
In addition, in , 2000 we entered into an agreement with the KPMG
investors providing that so long as the KPMG investors collectively beneficially
own 2,553,192 shares of our common stock, the KPMG investors may designate one
nominee for our board of directors and may also designate one member of each of
our enterprise and service provider advisory boards.
RELATIONSHIP WITH MORGAN STANLEY DEAN WITTER
In August 1998 and April 1999, we sold a total of 99,308 shares of our
Series A preferred stock and 6,923,108 shares of our common stock to investment
funds affiliated with Morgan Stanley Dean Witter for an aggregate purchase price
of $10.0 million. On the closing of this offering, all of the
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outstanding shares of Series A preferred stock will be redeemed by us for
shares of our non-voting common stock. Prior to this offering, investment funds
affiliated with Morgan Stanley Dean Witter will also exchange shares of
common stock for the same number of shares of our non-voting common stock. In
addition, in December 1999 and February 2000, we sold a total of 413,907 shares
of our Series C convertible preferred stock to the same investment funds for
$12.08 per share. On the closing of this offering, all of the outstanding shares
of Series C convertible preferred stock owned by these investment funds will
automatically convert into 2,483,442 shares of non-voting common stock. We have
entered into an agreement which provides that Morgan Stanley Venture Partners
III may designate one nominee for our board of directors as long as the Morgan
Stanley Dean Witter funds beneficially own 10% or more of our aggregate
outstanding common stock and non-voting common stock on a fully-diluted basis.
Noah Walley, one of our directors, is a general partner of Morgan Stanley Dean
Witter Venture Partners. In addition, the Morgan Stanley Dean Witter funds will
not transfer any common stock or non-voting common stock to any person or entity
who, to the knowledge of such funds, would own 10% or more of the total voting
power of our company after giving effect to such transfer.
We provide network engineering, implementation and administration services
to Morgan Stanley Dean Witter pursuant to purchase orders. The terms of these
purchase orders were negotiated by the parties in arms-length transactions and
were entered into prior to our selection of the underwriters of this offering.
For our 1999 fiscal year, revenues from work performed for Morgan Stanley Dean
Witter were $5.5 million (approximately 21% of our revenues). We may provide
network consulting services to other underwriters in this offering after the
date of this prospectus.
INVESTOR RIGHTS AGREEMENT
In April 2000, we entered into an investor rights agreement with Cisco
Systems, investment funds affiliated with Morgan Stanley Dean Witter, the KPMG
investors and our founding stockholders, including Messrs. Musallam, Zimmerman
and Nachtigal. This agreement provides that prior to August 20, 2001, our
founders will only sell a limited number of shares of our common stock to
unaffiliated third parties, unless earlier terminated by us without cause or by
such individual for good reason. In addition, if any founder who is an employee
is terminated by us for cause, then we have the right to purchase each share of
our common stock issued upon the exercise of options and then owned by such
founder for the exercise price of the option in respect of which such share was
issued.
LOANS TO OFFICERS
In September 1999, in connection with the exercise of options, we loaned
Merritt Lutz, who at such time was our Chairman, $1,272,000, and Robert Foley,
our Chief Operating Officer, $762,186, in each case at an interest rate of 5.89%
per annum. In April 2000 in connection with the exercise of options, we loaned
Richard Glickman, our Chief Financial Officer, $860,463 at an interest rate of
6.55% per annum. These loans are outstanding in their entirety. We may in the
future make loans to our officers or others.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock, as of March 31, 2000 and as adjusted to reflect
the sale of common stock offered by us in this offering for:
- each person known by us to beneficially own more than 5% of our common
stock;
- each executive officer named in the summary compensation table;
- each of our directors; and
- all of our executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
AND NON-VOTING
COMMON STOCK
NUMBER OF BENEFICIALLY OWNED (1)
SHARES ---------------------------
NAME OF BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED (1) OFFERING OFFERING (2)
- ---------------- ------------ ------------ ------------
<S> <C> <C> <C>
SIGNIFICANT STOCKHOLDERS:
Morgan Stanley Dean Witter Venture Partners (3)......... 23,252,766 31.2%
Cisco Systems, Inc. (4)................................. 12,201,282 14.5%
KPMG LLP (5)............................................ 5,106,384 6.6%
Barry Rich.............................................. 10,236,168 14.2%
EXECUTIVE OFFICERS AND DIRECTORS:
Rami Musallam (6)....................................... 9,952,254 13.8%
Stephen Zimmerman (7)................................... 9,221,266 12.8%
William A. Nachtigal (8)................................ 9,766,155 13.6%
Kevin Mepyans (9)....................................... 22,500 *
Thomas O'Flaherty....................................... 0 *
Michael Bealmear........................................ 0 *
Carlos Dominguez........................................ 0 *
Bernard Goldstein....................................... 408,159 *
Noah Walley............................................. 0 *
Randolph Blazer......................................... 0 *
Officers and directors as a group (15 persons) (10)..... 30,537,175 42.1%
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to the securities. Unless otherwise indicated, the address for
those listed below is c/o ThruPoint, Inc., 1372 Broadway, New York, New York
10018. Except as indicated by footnote, and subject to applicable community
property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. All shares of common stock subject to options
exercisable within 60 days following March 31, 2000 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
percentage of ownership of that person. They are not, however, deemed to be
outstanding and beneficially owned for the purpose of computing the
percentage ownership of any other person. Accordingly, percentage of
beneficial ownership is based on: (i) before the offering, 71,944,700 shares
of common stock outstanding as of March 31, 2000 and (ii) after the
offering, shares of common stock outstanding, which assumes (1) an
additional shares to be issued by us in the offering, (2) the redemption
of our Series A preferred stock for shares of non-voting common stock,
based upon an assumed
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price per common share of $ , the midpoint of the range set forth on
the cover of this prospectus, (3) the conversion of our Series C convertible
preferred stock into 2,483,442 shares of non-voting common stock and
(4) conversion of our Series D convertible preferred stock into 5,106,384
shares of common stock upon completion of the offering.
(2) Assumes no exercise of the underwriters' over-allotment option. If the
underwriters' over-allotment option is exercised in full, we will sell up to
an aggregate of shares of common stock and up to shares of common
stock will be outstanding after the completion of this offering.
(3) Following completion of this offering, includes shares of common stock
and shares of non-voting common stock held by Morgan Stanley Venture
Partners III, L.P., shares of common stock and shares of
non-voting common stock held by Morgan Stanley Venture Investors III, L.P.,
and shares of common stock and shares of non-voting common stock
held by The Morgan Stanley Venture Partners Entrepreneur Fund. The
institutional managing member of the general partner of Morgan Stanley
Venture Partners is a wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co., the parent of Morgan Stanley & Co. Incorporated. The address
of each of these funds is 1221 Avenue of the Americas, New York, New York
10020.
(4) Reflects shares receivable upon conversion of notes. The address of Cisco
Systems is 300 East Tasman Drive, San Jose, California 95134-1706.
(5) Includes 1,702,128 shares held by KPMG LLP; 1,702,128 shares held by KPMG
Consulting, LLC and 1,702,128 shares held by KPMG U.K. The address of KPMG
LLP is 345 Park Avenue, New York, NY 10017, the address of KPMG Consulting,
LLC is 500 East Middlefield Road, Mountain View, California 94043, and the
address of KPMG U.K. is 8 Salisbury Square, London, England EC44 8BB.
(6) Excludes 39,736 shares held by relatives of Mr. Musallam, as to which
Mr. Musallam disclaims beneficial ownership.
(7) Excludes 770,724 shares held by relatives of Mr. Zimmerman, as to which
Mr. Zimmerman disclaims beneficial ownership.
(8) Excludes 225,835 shares held by relatives of Mr. Nachtigal, as to which
Mr. Nachtigal disclaims beneficial ownership.
(9) Consists of 22,500 shares of common stock subject to options exercisable
within 60 days of March 31, 2000.
(10) Includes (i) 607,500 shares of common stock subject to options exercisable
within 60 days of March 31, 2000 and (ii) 539,283 shares of restricted stock
received upon exercise of options prior to vesting, none of which shall vest
within 60 days.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our amended and restated certificate of incorporation authorizes the
issuance of up to shares of common stock, par value $.001 per share,
shares of non-voting common stock, par value $.001 per share, and
5,000,000 shares of preferred stock, par value $.001 per share. The rights and
preferences of the preferred stock may be established from time to time by our
board of directors.
As of March 31, 2000,
(1) 71,944,700 shares of common stock were issued and outstanding,
(2) approximately 99,800 shares of our Series A preferred stock were issued and
outstanding,
(3) approximately 413,900 shares of our Series C convertible preferred stock
were issued and outstanding, and
(4) approximately 851,060 shares of our Series D convertible preferred stock
were issued and outstanding.
Upon the closing of this offering,
(1) all outstanding shares of Series A preferred stock will be redeemed for
shares of non-voting common stock,
(2) all outstanding shares of Series C convertible preferred stock will be
converted into 2,483,442 shares of non-voting common stock, and
(3) all outstanding shares of Series D convertible preferred stock will be
converted into 5,106,384 shares of common stock.
As of March 31, 2000, we also had convertible notes outstanding that are
convertible into 12,201,282 shares of our common stock at the option of the
holder of the notes. As of March 31, 2000, we had 129 stockholders of record.
COMMON STOCK AND NON-VOTING COMMON STOCK
Except with respect to voting and conversion, shares of common stock and
non-voting common stock are identical. Shares of non-voting common stock will
automatically convert to common stock at such time as they cease to be
beneficially owned by any entity affiliated with Morgan Stanley Dean Witter. In
addition,
(1) for so long as Morgan Stanley Dean Witter or any of its affiliates has a
director on our board, any common stock it acquires pursuant to
market-making activities will automatically convert to non-voting common
stock and will again convert to common stock upon its disposition; and
(2) for so long as Morgan Stanley Dean Witter or any of its affiliates does not
own in excess of 4.9% of our outstanding common stock, Morgan Stanley Dean
Witter may, at its option, elect to convert shares of non-voting common
stock into voting common stock such that the total amount of common stock
beneficially owned by Morgan Stanley Dean Witter or any of its affiliates
does not exceed 4.9% of the outstanding shares of our common stock.
VOTING RIGHTS
The holders of our common stock have one vote per share. Holders of our
common stock are not entitled to vote cumulatively for the election of
directors. Generally, all matters to be voted on by our stockholders must be
approved by a majority, or, in the case of election of directors, by a
plurality, of the votes cast at a meeting at which a quorum is present, voting
together as a single class, subject to
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any voting rights granted to holders of any then outstanding preferred stock.
After the closing of this offering, there will be no shares of preferred stock
outstanding.
Holders of our non-voting common stock have no voting rights except to the
extent required by applicable law.
DIVIDENDS
Holders of common stock and non-voting common stock will share ratably in
any dividends declared by our board of directors, subject to the preferential
rights of any preferred stock then outstanding. Dividends consisting of shares
of common stock may be paid to holders of shares of common stock. Dividends
consisting of shares of non-voting common stock may be paid to holders of shares
of non-voting common stock.
OTHER RIGHTS
On liquidation, dissolution or winding up of ThruPoint, all holders of
common stock and non-voting common stock are entitled to share ratably in any
assets available for distribution to holders of shares of common stock. No
shares of common stock are subject to redemption or have preemptive rights to
purchase additional shares of common stock.
PREFERRED STOCK
Our amended and restated certificate of incorporation provides that shares
of preferred stock may be issued from time to time in one or more series. Our
board of directors is authorized to fix the voting rights, if any, designations,
powers, preferences, qualifications, limitations and restrictions applicable to
the shares of each series. Our board of directors may, without stockholder
approval, issue preferred stock with voting and other rights that could
adversely affect the voting power and other rights of the holders of the common
stock and could have anti-takeover effects, including preferred stock or rights
to acquire preferred stock in connection with implementing a shareholder rights
plan. We have no present plans to issue any shares of preferred stock. The
ability of our board of directors to issue preferred stock without stockholder
approval could have the effect of delaying, deferring or preventing a change of
control of ThruPoint or the removal of existing management.
REGISTRATION RIGHTS
After this offering, holders of shares of our common stock, including
shares issuable upon the conversion of outstanding notes, and shares of
our non-voting common stock, or their permitted transferees, are entitled to
certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an agreement
between us and Cisco Systems, certain investment funds affiliated with Morgan
Stanley Dean Witter, certain affiliates of KPMG Consulting and Merritt Lutz, the
previous chairman of our board of directors. If we propose to register any of
our securities under the Securities Act for our own account or the account of
other security holders exercising registration rights, holders of registrable
securities are entitled to notice of the registration and to include their
shares in the registration, provided, among other conditions, that the
underwriters of any offering have the right to limit the number of shares
included in the registration. These registration rights have been waived in
connection with this offering. In addition, beginning August 20, 2001, we may be
required to prepare and file a registration statement under the Securities Act
at our expense if requested to do so by the holders of the registrable
securities, provided that the requested registration meets certain share number
or anticipated offering price minimums. We are required to use or best efforts
to effect such registration, subject to certain conditions and limitations. We
are not obligated to effect more than five of these shareholder-initiated
registrations.
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Further, the holders of the registrable securities may require us to file an
unlimited number of registration statements on Form S-3, subject to certain
conditions and limitations.
We are required to bear substantially all of the expenses incurred in
connection with any of the registrations described above, other than
underwriting discounts and commissions. Registration of any of the shares of
common stock held by stockholders with registration rights would result in those
shares becoming freely tradable without restriction under the Securities Act
immediately after effectiveness of the registration.
ANTI-TAKEOVER EFFECTS OF OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
AND BY-LAWS
A number of provisions of our amended and restated certificate of
incorporation and amended and restated By-laws which will be effective upon
completion of this offering concern matters of corporate governance and the
rights of stockholders. These provisions, as well as the ability of our board of
directors to issue shares of preferred stock and to set the voting rights,
preferences and other terms, may be deemed to have an anti-takeover effect and
may discourage takeover attempts not first approved by our board of directors,
including takeovers which stockholders may deem to be in their best interests.
These provisions, together with our classified board of directors, also could
delay or frustrate the removal of incumbent directors even if the removal of
incumbent directors would be beneficial to our stockholders. Our board of
directors believes that these provisions are appropriate to protect the
interests of ThruPoint and of our stockholders.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board of
directors will be elected each year. These provisions, when coupled with the
provision of our amended and restated certificate of incorporation authorizing
the board of directors to fill vacant directorships or increase the size of the
board of directors, may delay a stockholder from removing incumbent directors
and simultaneously gaining control of the board of directors by filling the
vacancies created by such removal with its own nominees.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT
Our amended and restated certificate of incorporation eliminates the ability
of stockholders to act by written consent. It further provides that special
meetings of our stockholders may be called only by the chairman of the board of
directors, a majority of the board of directors or the chief executive officer.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
Our amended and restated by-laws include advance notice and informational
requirements and time limitations on any director nomination or any new proposal
which a stockholder wishes to make at an annual meeting of stockholders. In
general, a stockholder's notice of a director nomination or proposal will be
timely if delivered to the secretary of ThruPoint at our principal executive
offices not less than 60 days nor more than 90 days prior to the scheduled date
of the annual meeting. These provisions may preclude stockholders from bringing
matters before an annual meeting or from making nominations for directors at
these meetings.
DIRECTOR VACANCIES AND REMOVAL
Our amended and restated certificate of incorporation provides that
vacancies in our board of directors may be filled only by the affirmative vote
of a majority of the remaining directors. Our amended and restated certificate
of incorporation also provides that directors may be removed from
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office only with cause and only by the affirmative vote of holders of two-thirds
of the shares then entitled to vote at an election of directors.
AMENDMENTS OF CERTIFICATE OF INCORPORATION AND BY-LAWS
Our amended and restated certificate of incorporation and amended and
restated by-laws impose supermajority vote requirements in connection with the
amendment of some provisions of our amended and restated certificate of
incorporation and amended and restated by-laws, including those provisions
relating to the classified board of directors and the ability of stockholders to
call special meetings.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
SHAREHOLDER RIGHTS PLAN
We intend to adopt a shareholder rights plan to help ensure that our
stockholders receive fair and equal treatment in the event of any proposed
acquisition of ThruPoint. The rights plan may delay, deter or prevent a change
of control of ThruPoint and, therefore, could adversely affect our stockholders'
ability to realize a premium over the then-prevailing market price for our
common stock in connection with such a transaction.
Upon adoption of the rights plan, our board of directors will declare a
dividend distribution of one voting preferred share purchase right for each
outstanding share of common stock and one non-voting preferred share purchase
right for each outstanding share of non-voting common stock. The dividend is
payable to stockholders of record immediately prior to the completion of this
offering, which is the record date for this distribution. Each voting preferred
share purchase right entitles the registered holder to purchase from ThruPoint
one one-thousandth of a share of Series E preferred stock, par value $.01 per
share and each non-voting preferred share purchase right entitles the registered
holder to purchase from ThruPoint one one-thousandth of a share of Series F
preferred stock, par value $.01 per share, each at a price of $ per one
one-thousandth of a share of preferred stock, subject to adjustment. The
description and terms of the voting preferred share purchase rights and
non-voting preferred share purchase rights are set forth in a rights agreement
between us and , as rights agent.
Initially, the rights will be attached to common stock and non-voting common
stock certificates and no separate rights certificates will be issued. Separate
certificates evidencing the rights will be mailed to holders of record of the
common stock and non-voting common stock as of the close of business on the
earlier to occur of (1) a public announcement that an acquiring person has
acquired beneficial ownership of 20% or more of our outstanding common stock or
(2) such date as may be determined by action of our board of directors following
the commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of our outstanding common stock.
The earlier of these two dates is referred to as the "Distribution Date". Prior
to the time that a person would otherwise become an acquiring person, however,
our board of directors may determine that the person shall not be an acquiring
person for purposes of the rights agreement.
The definition of an acquiring person includes a person or group of
affiliated or associated persons that beneficially owns 20% or more of our
outstanding common stock.
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The rights agreement provides that, until the Distribution Date, or earlier
redemption or expiration of the rights, (1) the rights will be transferred with
and only with the certificates for common stock or non-voting common stock,
(2) new common stock or non-voting common stock certificates issued after the
record date upon transfer or new issuance of common stock or non-voting common
stock will contain a notation incorporating the rights agreement by reference
and (3) the surrender for transfer of any certificates for common stock or
non-voting common stock outstanding as of the record date will also constitute
the transfer of the rights associated with the common stock or non-voting common
stock represented by such certificate.
The rights are not exercisable until the Distribution Date and will expire
at the close of business on the tenth anniversary of the effective date of the
rights agreement, unless the expiration date is extended or unless the rights
are earlier redeemed or exchanged by us.
If a person or group becomes an acquiring person, each holder of a right
will thereafter have the right to receive, upon exercise, common stock, in the
case of voting rights, or non-voting common stock, in the case of non-voting
rights, having a value equal to two times the exercise price of the right.
Notwithstanding any of the foregoing, following the existence of an acquiring
person, all rights that are, or were, beneficially owned by any acquiring person
will be null and void.
In the event that ThruPoint is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an acquiring person, proper
provision will be made so that each holder of a right will thereafter have the
right to receive, upon the exercise of the right at the then current exercise
price of the right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two
times the exercise price of the right.
At any time after any person or group becomes an acquiring person and prior
to the acquisition by such person or group of 50% or more of the outstanding
common stock, our board of directors may exchange the rights, other than rights
owned by the acquiring person or group which will have become void, in whole or
in part, at an exchange ratio of one share of common stock, one share of
non-voting common stock or one one-thousandth of a share of preferred stock, as
the case may be, per right, subject to adjustment.
At any time prior to the existence of an acquiring person, our board of
directors may redeem the rights, in whole but not in part, at a price of $.01
per right. The redemption of the rights may be made effective at the time, on
the basis and with any conditions as our board of directors, in its sole
discretion, may establish. Immediately upon any redemption of the rights, the
right to exercise the rights will terminate and the only right of the holders of
rights will be to receive the redemption price.
The terms of the rights may be amended by our board of directors without the
consent of the holders of the rights, except that from and after the existence
of an acquiring person no such amendment may adversely affect the interests of
the holders of the rights, other than the acquiring person.
The number of outstanding rights and the number of one one-thousandths of a
share of preferred stock issuable upon exercise of each right are subject to
adjustment under certain circumstances.
Until a right is exercised, the holder the right will have no rights as a
stockholder of ThruPoint by virtue of holding rights.
NEW YORK ANTI-TAKEOVER STATUTE
We are subject to the business combination provisions of Section 912 of the
New York Business Corporation Law and expect to continue to be so subject if and
for so long as we have a class of securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended. Section 912
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provides, with certain exceptions, that a New York corporation may not engage in
a business combination (e.g., merger, consolidation, recapitalization or
disposition of stock) with any "interested shareholder" for a period of five
years from the date that such person first became an interested shareholder
unless:
- the transaction resulting in a person becoming an interested shareholder
was approved by the board of directors of the corporation prior to that
person becoming an interested shareholder;
- the business combination is approved by the holders of a majority of the
outstanding voting stock not beneficially owned by such interested
shareholder;
- the business combination is approved by the disinterested shareholders at
a meeting called no earlier than five years after date that the interested
shareholder became an interested shareholder; or
- the business combination meets certain valuation requirements for the
capital stock of the New York corporation.
An interested shareholder is defined as any person that is the beneficial
owner of 20% or more of the outstanding voting stock of a New York corporation
or is an affiliate or associate of the corporation that at any time during the
prior five years was the beneficial owner, directly or indirectly, of 20% or
more of the then outstanding voting stock. A business combination includes
mergers, asset sales and other transactions resulting in a financial benefit to
the interested shareholder.
This statute could prohibit or delay the accomplishment of mergers, tender
offers or other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us. These provisions are likely
to impose greater restrictions on new, unaffiliated shareholders than on our
existing shareholders who will continue to own a majority of our outstanding
common stock after this offering.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock will be ,
New York, New York.
LISTING
We intend to file an application to list our common stock on the Nasdaq
National Market under the trading symbol "THRU."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect market prices prevailing from time to time. Furthermore,
because only a limited number of shares of our common stock will be available
for resale shortly after this offering due to existing contractual and legal
restrictions on sale as described below, there may be sales of substantial
amounts of our common stock in the public market after the restrictions lapse.
Such sales may adversely affect the then prevailing market price and our ability
to raise equity capital in the future.
Upon completion of this offering, we will have shares of common
stock outstanding, assuming no exercise of options and warrants outstanding as
of , 2000, and the conversion of all outstanding shares of preferred
stock. Of these shares, the shares sold in this offering will be freely
transferable without restriction or further registration under the Securities
Act, except for any shares purchased by one of our existing "affiliates," as
that term is defined in Rule 144 under the Securities Act. The remaining
shares of common stock existing are "restricted shares" as defined in Rule 144.
Restricted shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144 or 701 of the
Securities Act. As a result of the contractual 180-day lock-up period described
below and the provisions of Rules 144 and 701, these shares will be available
for sale in public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ---------------------------------------------
<S> <C>
.............................. On the date of this prospectus.
.............................. After 90 days from the date of this
prospectus.
.............................. After 180 days from the date of this
prospectus. (subject, in some cases, to
volume limitations).
.............................. At various times after 180 days from the date
of this prospectus (subject, in some cases,
to volume limitations).
</TABLE>
LOCK-UP AGREEMENTS
ThruPoint, our directors and executive officers and certain of our
stockholders have each agreed not to 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 to purchase, lend, or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, for a period
of 180 days after the date of this prospectus, without the prior written consent
of Morgan Stanley & Co. Incorporated, subject to limited exceptions. Morgan
Stanley & Co. 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.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this offering, a person, or persons whose shares are aggregated, who
owns shares that were purchased from us, or any affiliate, at least one year
previously, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of our then-outstanding shares of common
stock which will equal about shares immediately after this offering, or
the average weekly trading volume of our common stock on the Nasdaq National
Market during the four calendar weeks preceding the filing of a notice of the
sale on Form 144. Sales under Rule 144 are also subject to manner of sale
provisions, notice requirements and the availability of current public
information about us. Any person, or persons whose shares are aggregated who is
not deemed to have been one of our affiliates at any time during the three
months preceding a sale, and who owns shares within the definition of
"restricted
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securities" under Rule 144 that were purchased from us, or any affiliate, at
least two years previously, would be entitled to sell shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
RULE 701
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors or officers
prior to the date we become subject to the reporting requirements of the
Securities Exchange Act of 1934, or the Exchange Act, under written compensatory
benefit plans or written contracts relating to the compensation of these
persons. In addition, the Securities and Exchange Commission 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 Exchange Act, along with
the shares acquired upon exercise of the options, including exercises after the
date of this prospectus. Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than affiliates subject only to the manner of sale provisions of
Rule 144 and by affiliates under Rule 144 without compliance with its minimum
holding period requirements.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of shares of common
stock and the holders of 12,201,282 shares of common stock issuable upon the
conversion of our outstanding convertible notes, will be entitled to various
rights with respect to the registration of these shares under the Securities
Act. Registration of these shares under the Securities Act would result in these
shares becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of the registration, except for shares
purchased by affiliates. See "Description of Capital Stock--Registration Rights"
for a more complete description of these registration rights.
STOCK OPTIONS
As of March 31, 2000, options to purchase a total of 18,747,598 shares of
common stock under our stock option plans were outstanding and 1,812,172 were
exercisable. of the shares subject to options are subject to lockup
agreements. An additional 35,482,794 shares of common stock were available for
future option grants under our stock plans.
Upon completion of this offering, we intend to file a registration statement
under the Securities Act covering all shares of common stock subject to
outstanding options or issuable pursuant to our stock option plans. Subject to
Rule 144 volume limitations applicable to affiliates, shares registered under
any registration statements will be available for sale in the open market,
beginning 90 days after the date of the prospectus, except to the extent that
the shares are subject to vesting restrictions with us or the contractual
restrictions described above.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Lehman Brothers Inc. and Thomas Weisel
Partners LLC are acting as representatives, have severally agreed to purchase
and we have agreed to sell to them severally, the respective number of shares of
common stock set forth opposite the names of the underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- -------------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Lehman Brothers Inc.........................................
Thomas Weisel Partners LLC..................................
-------------
Total.....................................................
=============
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus are
subject to the approval of various legal matters by their counsel and to other
conditions. The underwriters are obligated to take and pay for all of the shares
of common stock offered by this prospectus, except those shares covered by the
over-allotment option described below, if any shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus and part to dealers at a price that represents a
concession not in excess of $ per share under the public offering price. Any
underwriter may allow, and these dealers may reallow, a concession not in excess
of $ per share to other underwriters or to other dealers. After the initial
offering of the shares of common stock, the offering price and other selling
terms may from time to time be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of additional
shares at the public offering price set forth on the cover page of this
prospectus, less underwriting discounts and commissions. The underwriters may
exercise this option solely for the purpose of covering over-allotments, if any,
made in connection with the offering of the shares of common stock offered by
this prospectus. To the extent this option is exercised, each underwriter will
become obligated, subject to specified conditions, to purchase about the same
percentage of additional shares as the number set forth next to the
underwriter's name in the preceding table bears to the total number of shares of
common stock set forth next to the names of all underwriters in the preceding
table. If the underwriters exercise the over-allotment option in full, the total
price to the public would be $ , the total underwriting discounts and
commissions would be $ and the total proceeds to ThruPoint would be
$ .
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
At our request, the underwriters have reserved up to of the shares of
common stock offered by this prospectus for sale at the initial public offering
price to some of our directors, officers, employees, business associates and
related persons of ThruPoint. The number of shares available for
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sale to the general public will be reduced to the extent that these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same basis as the other
shares offered by this prospectus.
ThruPoint intends to file an application for the common stock to be quoted
on the Nasdaq National Market under the symbol "THRU."
ThruPoint, our directors and executive officers and certain of our
stockholders have each agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, he, she or it will
not, during the period ending 180 days after the date of this prospectus:
- 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 to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,
whether any transaction described above is to be settled by delivery of shares
of common stock or such other securities, in cash or otherwise.
The restrictions described in the immediately preceding paragraph do not
apply to:
- the sale of shares of common stock to the underwriters;
- the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus;
- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of this offering; and
- issuances of shares of common stock or options to purchase shares of
common stock pursuant to our employee benefit plans in existence on the
date of this prospectus.
In addition, our officers, directors and stockholders have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the underwriters, none of such persons will, during the period ending
180 days after the date of the prospectus, make any demand for, or exercise any
right with respect to, the registration of any shares of common stock or any
security convertible into or exercisable or exchangeable for common stock.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed shares of common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
ThruPoint and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
Upon consummation of the offering, affiliates of Morgan Stanley & Co.
Incorporated will own % of our capital stock ( % of common stock and % of
non-voting common stock) on a fully-
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diluted basis ( % if the over-allotment option granted to the underwriters is
exercised in full). Currently, Morgan Stanley Venture Partners III, an affiliate
of Morgan Stanley & Co. Incorporated, has designated one member of our board of
directors.
Due to the fact that one of the representatives of the underwriters was
organized within the last three years, we are providing you the following
information. Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners has been named as lead or co-manager
of, or as a syndicate member in, numerous public offerings of equity securities.
Thomas Weisel Partners does not have any material relationship with us or any of
our officers, directors or other controlling persons, except with respect to its
contractual relationship with us pursuant to the underwriting agreement entered
into in connection with this offering.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price will be determined by
negotiations between us and the representatives of the underwriters. Among the
factors to be considered in determining the initial public offering price will
be:
- our future prospects and the future prospects of our industry in general;
- the experience of our management;
- our revenue, earnings and other financial and operating information in
recent periods; and
- the price-earnings ratios, price-revenue ratios, market prices of
securities and financial and operating information of companies engaged in
activities similar to ours.
The estimated initial public offering price range set forth on the cover
page of this prospectus is subject to change as a result of market conditions
and other factors.
LEGAL MATTERS
The validity of the common stock offered will be passed upon for us by Dewey
Ballantine LLP, New York, New York. Various legal matters in connection with
this offering will be passed upon for ThruPoint by Wollmuth Maher & Deutsch LLP,
New York, New York. An attorney at Wollmuth Maher & Deutsch holds 3,402 shares
of our common stock. Various legal matters in connection with this offering will
be passed upon for the underwriters by Davis Polk & Wardwell, New York, New
York.
CHANGE IN ACCOUNTANTS
ThruPoint, with the approval of its board of directors, on January 13, 1999
changed its independent auditors from Rothstein, Kass & Company, P.C. to
Ernst & Young LLP. Ernst & Young LLP's report on the financial statements of
ThruPoint, Inc., dated March 24, 2000, except for Note 2--Stock Split, as to
which the date is April , 2000, for the fiscal years ended December 31, 1999
and 1998, and the financial statements for the year ended December 31, 1997
reported on by Rothstein, Kass & Company, P.C., that are included in this
prospectus were not qualified or modified as to uncertainty, audit scope, or
accounting principles. During Rothstein, Kass & Company, P.C.'s appointment as
independent auditors, there was no disagreement on any matter of accounting
principles or practices, financial statements disclosure or auditing scope of
procedure which if not resolved to Rothstein, Kass & Company, P.C.'s
satisfaction would have caused Rothstein, Kass & Company, P.C. to make reference
to the subject matter of disagreement in connection with Rothstein, Kass &
Company, P.C.'s report on the financial statements for the year indicated above.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1998 and 1999, and for the
years then ended, as set forth in their reports. We have included our
consolidated financial statements and schedule at December 31, 1998, and 1999,
and for the years then ended in this prospectus in reliance on Ernst & Young
LLP's reports, given on their authority as experts in accounting and auditing.
Rothstein, Kass & Company, P.C., independent auditors, has audited our
statements of operations, changes in stockholders' equity and cash flows for the
year ended December 31, 1997, as set forth in their report. We have included our
statements of operations, changes in stockholders' equity and cash flows for the
year ended December 31, 1997 in this prospectus in reliance on Rothstein,
Kass & Company, P.C.'s report, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock being sold in this
offering. This prospectus constitutes a part of that registration statement.
This prospectus does not contain all the information set forth in the
registration statement and the exhibits and schedules to the registration
statement, because some parts have been omitted in accordance with the rules and
regulations of the Commission. For further information with respect to us and
our common stock being sold in this offering, you should refer to the
registration statement and the exhibits and schedules filed as part of the
registration statement. Statements contained in this prospectus regarding the
contents of any agreement, contract or other document referred to are not
necessarily complete; reference is made in each case to the copy of the contract
or document filed as an exhibit to the registration statement. Each statement is
qualified in all respects by reference to the exhibit.
When we complete this offering, we will be required to file annual,
quarterly and special reports, proxy statements and other information with the
Commission. You may read our filings, including the registration statement,
without charge at the Commission's principal office in Washington, D.C. and
obtain copies of these documents, upon payment of certain fees, from the
Commission's Public Reference Room at the Commission's principal office, 450
Fifth Street, N.W., Washington, D.C. 20549, or at the Commission's regional
offices in New York, located at 7 World Trade Center, Suite 1300, New York, New
York 10048, or in Chicago, located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may obtain information regarding the operation of
the Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission maintains an Internet site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The Commission's World Wide Web address is
www.sec.gov.
75
<PAGE>
THRUPOINT, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors (Ernst & Young LLP).......... F-2
Report of Independent Auditors (Rothstein, Kass & Company,
P.C.)..................................................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Changes in Stockholders' Equity
(Deficit)................................................. F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
ThruPoint, Inc.
We have audited the accompanying consolidated balance sheets of
ThruPoint, Inc. and subsidiary as of December 31, 1998 and 1999, and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
ThruPoint, Inc. and subsidiary at December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States.
New York, New York
March 24, 2000, except for
Note 2--Stock Splits, as to
which the date is April , 2000
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the restatement of the capital accounts described in Note 2--Stock Splits to
the consolidated financial statements.
/s/ Ernst & Young LLP
New York, New York
April 19, 2000
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
ThruPoint, Inc. (formerly Total Network Solutions, Inc.)
We have audited the accompanying statements of operations, changes in
stockholders' equity and cash flows of ThruPoint, Inc. (formerly Total Network
Solutions, Inc.) for the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
ThruPoint, Inc. (formerly Total Network Solutions, Inc.) for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
Roseland, New Jersey
March 23, 1998, except for Note 2--
Stock Splits which is as of
April , 2000
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the restatement of the capital accounts described in Note 2--Stock Splits to
the consolidated financial statements.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
April 19, 2000
F-3
<PAGE>
THRUPOINT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------ DECEMBER 31,
1998 1999 1999
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................. $3,372,000 $11,056,000 $11,056,000
Accounts receivable, less allowance for doubtful accounts
of $50,000 in 1998 and $328,000 in 1999................. 3,273,000 6,628,000 6,628,000
Prepaid expenses and other current assets................. 89,000 292,000 292,000
---------- ----------- -----------
Total current assets........................................ 6,734,000 17,976,000 17,976,000
Fixed assets, net of accumulated depreciation and
amortization of $113,000 in 1998 and $858,000 in 1999..... 810,000 2,823,000 2,823,000
Other assets................................................ 119,000 383,000 383,000
---------- ----------- -----------
$7,663,000 $21,182,000 $21,182,000
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 674,000 $ 1,468,000 $ 1,468,000
Accrued expenses.......................................... 708,000 1,773,000 1,773,000
Obligations under capital leases, current................. 15,000 17,000 17,000
Deferred income taxes..................................... 114,000 -- --
Loan from stockholder..................................... 100,000 -- --
Other current liabilities................................. 27,000 55,000 55,000
---------- ----------- -----------
Total current liabilities................................... 1,638,000 3,313,000 3,313,000
Deferred income taxes....................................... 463,000 -- --
Obligations under capital leases, less current maturities... 49,000 31,000 31,000
Convertible notes payable--related party.................... -- 16,589,000 16,589,000
Series A Senior Redeemable Preferred Stock; $.001 par value;
170,000 shares designated; 49,848 shares issued and
outstanding in 1998; 99,804 shares issued and outstanding
in 1999; and no shares issued and outstanding on a pro
forma basis (aggregate liquidation preference $10,050,000) 3,198,000 7,468,000 --
Stockholders' equity (deficit):
Preferred stock; 5,000,000 shares authorized
Series B Convertible Preferred Stock; $.001 par value;
1,620,700 shares designated; no shares issued and
outstanding........................................... -- -- --
Series C Convertible Preferred Stock; $.001 par value;
1,650,000 shares designated; no shares issued and
outstanding in 1998; 165,563 shares issued and
outstanding in 1999; and no shares issued and
outstanding on a pro forma basis (aggregate
liquidation preference $2,000,000).................... -- -- --
Common stock; $.001 par value; 150,000,000 shares
authorized, 66,058,920 shares issued and outstanding in
1998; 76,371,375 shares issued and 71,871,375
outstanding in 1999; and shares issued and
outstanding on a pro forma basis........................ 66,000 76,000
Additional paid-in capital................................ 1,716,000 7,299,000
Retained earnings (accumulated deficit)................... 533,000 (7,151,000) (7,151,000)
Deferred compensation..................................... -- (4,000) (4,000)
Treasury stock, at cost (4,500,000 shares of common
stock).................................................. -- (4,416,000) (4,416,000)
Notes receivable--related parties......................... -- (2,034,000) (2,034,000)
Accumulated other comprehensive income.................... -- 11,000 11,000
---------- ----------- -----------
Total stockholders' equity (deficit)........................ 2,315,000 (6,219,000) 1,249,000
---------- ----------- -----------
$7,663,000 $21,182,000 $21,182,000
========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
THRUPOINT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Revenues............................................... $4,498,000 $10,315,000 $26,716,000
Cost of revenues....................................... 2,115,000 6,047,000 15,778,000
---------- ----------- -----------
Gross profit........................................... 2,383,000 4,268,000 10,938,000
Sales and marketing expenses........................... 449,000 796,000 3,359,000
General and administrative expenses.................... 1,338,000 3,310,000 14,245,000
Depreciation and amortization.......................... 40,000 67,000 749,000
Non-cash compensation.................................. -- -- 47,000
---------- ----------- -----------
Operating income (loss)................................ 556,000 95,000 (7,462,000)
Interest income........................................ 10,000 40,000 136,000
Interest expense....................................... (2,000) (8,000) (49,000)
---------- ----------- -----------
Income (loss) before provision (benefit) for income
taxes................................................ 564,000 127,000 (7,375,000)
Provision (benefit) for income taxes................... 326,000 80,000 (557,000)
---------- ----------- -----------
Net income (loss)...................................... 238,000 47,000 (6,818,000)
Preferred stock dividend and accretion................. - 103,000 866,000
---------- ----------- -----------
Net income (loss) applicable to common stockholders.... $ 238,000 $ (56,000) $(7,684,000)
========== =========== ===========
Historical basic and diluted net income (loss) per
common share applicable to common stockholders....... $ 0.00 $ (0.00) $ (0.11)
========== =========== ===========
Historical number of shares used in computing basic and
diluted net loss per common share applicable to
common stockholders.................................. 53,998,920 58,521,420 72,511,404
========== =========== ===========
Pro forma basic and diluted net loss per common share
applicable to common stockholders.................... $
===========
Number of shares used in computing pro forma basic and
diluted net loss per common share applicable to
common stockholders..................................
===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
THRUPOINT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
SERIES B SERIES C
CONVERTIBLE CONVERTIBLE RETAINED
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
--------------------- --------------------- ----------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT)
---------- -------- -------- ---------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................. - $ -- - $ - 53,998,920 $ 54,000 $ (36,000) $ 351,000
Net income.............. - - - - -- -- -- 238,000
---------- -------- ------- ---------- ----------- --------- ----------- -----------
Balance at December 31,
1997.................. -- -- -- -- 53,998,920 54,000 (36,000) 589,000
Issuance of preferred
and common
stock--August......... -- -- -- -- 12,060,000 12,000 1,918,000 --
Stock issuance costs.... -- -- -- -- -- -- (166,000) --
Preferred stock
dividends and
accretion............. -- -- -- -- -- -- -- (103,000)
Net income.............. -- -- -- -- -- -- -- 47,000
---------- -------- ------- ---------- ----------- --------- ----------- -----------
Balance at December 31,
1998.................. -- -- -- -- 66,058,920 66,000 1,716,000 533,000
Issuance of preferred
and common
stock--April.......... -- -- -- -- 8,813,172 9,000 1,604,000 --
Issuance of preferred
stock--May............ 1,077,026 1,000 -- -- -- -- 3,172,000 --
Issuance of preferred
stock--December....... -- -- 165,563 -- -- -- 2,000,000 --
Exchange of preferred
and common stock--
December.............. (1,077,026) (1,000) -- -- -- -- (3,172,000) --
Exercise of stock
options............... -- -- -- -- 1,499,283 1,000 2,084,000 --
Amortization of deferred
compensation.......... -- -- -- -- -- -- -- --
Stock issuance costs.... -- -- -- -- -- -- (113,000) --
Preferred stock
dividends and
accretion -- -- -- -- -- -- 8,000 (866,000)
Comprehensive loss:
Net loss................ -- -- -- -- -- -- -- (6,818,000)
Translation
adjustment............ -- -- -- -- -- -- -- --
Comprehensive loss....
---------- -------- ------- ---------- ----------- --------- ----------- -----------
Balance at December 31,
1999.................. -- $ -- 165,563 $ -- 76,371,375 $ 76,000 $ 7,299,000 $(7,151,000)
========== ======== ======= ========== =========== ========= =========== ===========
<CAPTION>
ACCUMULATED
TREASURY STOCK OTHER
DEFERRED ------------------------- NOTES COMPREHENSIVE
COMPENSATION SHARES AMOUNT RECEIVABLE INCOME TOTAL
------------- ----------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................. $ -- - $ -- $ -- $ -- $ 369,000
Net income.............. -- -- -- -- -- 238,000
------- ----------- ----------- ----------- ------- -----------
Balance at December 31,
1997.................. -- -- -- -- -- 607,000
Issuance of preferred
and common
stock--August......... -- -- -- -- -- 1,930,000
Stock issuance costs.... -- -- -- -- -- (166,000)
Preferred stock
dividends and
accretion............. -- -- -- -- -- (103,000)
Net income.............. -- -- -- -- -- 47,000
------- ----------- ----------- ----------- ------- -----------
Balance at December 31,
1998.................. -- -- -- -- -- 2,315,000
Issuance of preferred
and common
stock--April.......... -- -- -- -- -- 1,613,000
Issuance of preferred
stock--May............ -- -- -- -- -- 3,173,000
Issuance of preferred
stock--December....... -- -- -- -- -- 2,000,000
Exchange of preferred
and common stock--
December.............. -- (4,500,000) (4,416,000) -- -- (7,589,000)
Exercise of stock
options............... (6,000) -- -- (2,034,000) -- 45,000
Amortization of deferred
compensation.......... 2,000 -- -- -- -- 2,000
Stock issuance costs.... -- -- -- -- -- (113,000)
Preferred stock
dividends and
accretion -- -- -- -- -- (858,000)
Comprehensive loss:
Net loss................ -- -- -- -- -- (6,818,000)
Translation
adjustment............ -- -- -- -- 11,000 11,000
Comprehensive loss.... (6,807,000)
------- ----------- ----------- ----------- ------- -----------
Balance at December 31,
1999.................. $(4,000) (4,500,000) $(4,416,000) $(2,034,000) $11,000 $(6,219,000)
======= =========== =========== =========== ======= ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
THRUPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................ $238,000 $ 47,000 $(6,818,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 40,000 67,000 749,000
Provision for bad debts.............................. 25,000 25,000 278,000
Provision for deferred income taxes.................. 255,000 87,000 (577,000)
Non-cash compensation................................ -- -- 47,000
Changes in assets and liabilities:
Accounts receivable................................ (549,000) (1,861,000) (3,624,000)
Prepaid expenses and other current assets.......... (27,000) (46,000) (203,000)
Accounts payable................................... 57,000 617,000 794,000
Accrued expenses................................... 49,000 324,000 1,065,000
Other current liabilities.......................... -- 27,000 28,000
-------- ----------- -----------
Net cash provided by (used in) operating activities...... 88,000 (713,000) (8,261,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets................................ (84,000) (732,000) (2,762,000)
Increase in other assets................................. -- (95,000) (264,000)
Loans to stockholders.................................... -- (35,000) --
-------- ----------- -----------
Net cash used in investing activities.................... (84,000) (862,000) (3,026,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment of) stockholder loans........... -- 100,000 (100,000)
Proceeds from issuance of convertible note payable....... -- -- 9,000,000
Proceeds from issuance of common stock and Series A
Senior Redeemable Preferred Stock...................... -- 5,025,000 5,025,000
Proceeds from issuance of Series B Convertible Preferred
Stock.................................................. -- -- 3,173,000
Proceeds from issuance of Series C Convertible Preferred
Stock.................................................. -- -- 2,000,000
Stock issuance costs paid................................ -- (166,000) (113,000)
Principal payments on obligations under capital leases... (4,000) (14,000) (16,000)
-------- ----------- -----------
Net cash (used in) provided by financing activities...... (4,000) 4,945,000 18,969,000
Effect of exchange rate changes on cash and cash
equivalents............................................ -- -- 2,000
-------- ----------- -----------
(Decrease) increase in cash and cash equivalents......... -- 3,370,000 7,684,000
Cash and cash equivalents at beginning of year........... 2,000 2,000 3,372,000
-------- ----------- -----------
Cash and cash equivalents at end of year................. $ 2,000 $ 3,372,000 $11,056,000
======== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................... $ 2,000 $ 8,000 $ 8,000
Income taxes........................................... $ 2,000 $ 110,000 $ 21,000
Exchange of Series B Convertible Preferred Stock and
common stock for convertible notes payable............. $ -- $ -- $ 7,589,000
Fixed assets acquired under capital leases............... $ 82,000 $ -- $ --
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND BUSINESS
ThruPoint, Inc., formerly Total Network Solutions, Inc., and its subsidiary
(collectively, the "Company") provides advanced internetworking solutions and
services to help its clients design, deploy and manage their networks. The
Company's clients at December 31, 1999 are primarily large, global corporations
or companies providing services to such organizations located throughout the
United States and the United Kingdom. At December 31, 1999, the Company's
principal offices were located in New York City and additional regional offices
were located in various other states and London, England.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of
ThruPoint, Inc. and its wholly-owned subsidiary, Nevolutions UK, Ltd., after
elimination of all intercompany accounts and transactions.
INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA BALANCE SHEET (UNAUDITED)
In February 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering ("IPO"). In conjunction with
a qualified IPO, as defined, all outstanding shares of Series A Senior
Redeemable Preferred Stock will be mandatorily redeemed at $100 per share in
shares of common stock valued at the offering price in the IPO and each
outstanding share of Series C Convertible Preferred Stock and Series D
Convertible Preferred Stock (see Note 15) will automatically convert into six
shares of common stock. Accordingly, the effect of the redemption and
conversions has been reflected in the accompanying unaudited pro forma balance
sheet as if they had occurred as of December 31, 1999.
STOCK SPLITS
In December 1999, the Company effected a three-for-one stock split of its
common stock. In , 2000, the Company effected a reverse stock split
whereby each share of common stock outstanding was exchanged for shares of
common stock. All outstanding share amounts in the accompanying consolidated
financial statements have been adjusted to reflect the aforementioned stock
splits.
FOREIGN CURRENCY TRANSLATION
Balance sheet accounts of the Company's United Kingdom subsidiary are
translated using the year-end exchange rates. Statement of operations accounts
are translated at monthly average exchange rates. The resulting translation
adjustment is recorded as other comprehensive income in stockholders' equity
(deficit).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheet as of
December 31, 1999 for cash and cash equivalents, accounts receivable, accounts
payable, loans from stockholders and the convertible notes payable approximate
their fair values.
F-8
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue from time and materials contracts are recognized during the period
in which the related services are provided. Revenue from fixed price contracts
is recognized using the percentage-of-
completion method whereby revenue and profit are recognized throughout the
performance period of the contract. The effects of changes in estimates of
contract costs are recorded currently. If estimates of costs indicate a loss,
provision is made for the total anticipated loss.
CASH AND CASH EQUIVALENTS
The Company considers all financial instruments with a maturity of three
months or less when purchased to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk include cash and cash equivalents and accounts receivable arising
from its normal course of business activities. The Company places its cash and
cash equivalents with high credit quality financial institutions. At
December 31, 1998 and 1999, cash and cash equivalents were held at two and four
such financial institutions, respectively.
The Company believes that its credit risk regarding accounts receivable is
limited due to the credit worthiness of its customer base. The Company routinely
assesses the financial strength of its customers and, based upon factors
surrounding the credit risk of its customers, establishes an allowance for
uncollectible accounts, where appropriate and, as a consequence, believes that
its accounts receivable credit risk exposure is limited.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation of office and computer
equipment is calculated on the straight-line method over the estimated useful
lives of the assets of three years. Depreciation of furniture and fixtures is
calculated on the straight-line method over the estimated useful lives of the
assets of five years. Property and equipment held under capital leases and
leasehold improvements are amortized using the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
This statement mandates the liability method of accounting for income taxes, and
requires that deferred tax assets and liabilities are recorded using currently
enacted tax rates, based upon the difference between the tax basis of assets and
liabilities and their carrying amounts for financial statement purposes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets
F-9
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are charged to expense when incurred.
Research and development costs were $923,000 for the year ended December 31,
1999 and immaterial for the years ended December 31, 1997 and 1998.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," prescribes
accounting and reporting standards for all stock-based compensation plans,
including employee stock options, restricted stock, employee stock purchase
plans and stock appreciation rights. SFAS No. 123 requires compensation expense
to be recorded (i) using the fair value method or (ii) using accounting rules
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and related interpretations with pro forma
disclosure of what net income (loss) would have been had the Company adopted the
fair value method. The Company accounts for its stock-based compensation plans
in accordance with the provisions of APB 25.
NET INCOME (LOSS) PER SHARE
The Company calculates net income (loss) per share in accordance with SFAS
No. 128, "Earnings Per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98.
Under the provisions of SFAS No. 128 and SAB No. 98, basic net income (loss) per
share applicable to common stockholders is computed by dividing net income
(loss) for the period by the weighted average number of common shares
outstanding. Convertible preferred stock and options issued by the Company were
anti-dilutive and, therefore, were excluded from the calculation of diluted net
income (loss) per share.
COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes rules for the
reporting and display of comprehensive income and its components. SFAS No. 130
requires foreign currency translation adjustments to be included in other
comprehensive income.
SEGMENT INFORMATION
The Company discloses information regarding segments in accordance with SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for reporting of financial information about
operating segments in annual financial statements and requires reporting
selected information about operating segments in interim financial reports. The
disclosure of segment information was not required as the Company operates in
only one business segment.
F-10
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As of and for the years ended December 31, 1997, 1998 and 1999,
substantially all of the Company's assets were located in the U.S. and the
Company derived substantially all of its revenues from customers located in the
U.S.
3. FIXED ASSETS
Fixed assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
-------- ----------
<S> <C> <C>
Office equipment and fixtures......................... $115,000 $ 668,000
Computer equipment.................................... 248,000 1,293,000
Leasehold improvements................................ 6,000 553,000
Construction in process............................... 554,000 128,000
Lab equipment costs................................... -- 1,043,000
-------- ----------
923,000 3,685,000
Less accumulated depreciation and amortization........ 113,000 862,000
-------- ----------
$810,000 $2,823,000
======== ==========
</TABLE>
Fixed assets include assets under capitalized lease obligations with a cost
of $82,000 and accumulated amortization of $14,000 and $32,000 as of
December 31, 1998 and 1999, respectively.
4. STOCKHOLDERS' EQUITY (DEFICIT)
The Company is authorized to issue up to 150,000,000 shares of $0.001 par
value common stock as well as up to 5,000,000 shares of $0.001 par value
preferred stock. As of December 31, 1999, the Company's board of directors had
designated 170,000 shares of the preferred stock as Series A Senior Redeemable
Preferred Stock ("Series A Preferred Stock"), 1,620,700 shares as Series B
Convertible Preferred Stock ("Series B Preferred Stock") and 1,650,000 shares as
Series C Convertible Preferred Stock ("Series C Preferred Stock").
In August 1998, the Company entered into a Series A Senior Redeemable
Preferred Stock and Common Stock Purchase Agreement (the "Agreement") with
Morgan Stanley Venture Partners ("MSVP") whereby the Company issued 49,848
shares of Series A Preferred Stock and 12,060,000 shares of common stock for
$5,025,000 (the "First Closing"). The Agreement also provided that the Company
would issue an additional 49,956 shares of preferred stock and 8,813,172 shares
of common stock for $5,025,000 on the satisfaction of certain conditions as set
forth in the Agreement (the "Second Closing"). In April 1999, the Company
consummated the Second Closing. Of the proceeds received in August 1998,
$3,095,000 was allocated to the Series A Preferred Stock. Of the proceeds
received in April 1999, $3,412,000 was allocated to the Series A Preferred
Stock. Such amounts were determined by discounting the amount at which the
Company may redeem the Series A Preferred Stock at the latest date possible,
without incurring dividends, using a 10% annual compounded rate. The Series A
Preferred Stock is being accreted up to a total redemption amount of $9,980,400.
In May 1999, the Company issued 1,077,026 shares of Series B Preferred Stock
to Cisco Systems, Inc. ("Cisco") for $3,173,000.
F-11
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
In December 1999, the Company exchanged all of the issued and outstanding
Series B Preferred Stock as well as 4,500,000 shares of common stock held by
Cisco for two convertible notes (the "Series B Note" and the "Common Note",
respectively) with principal amounts of $3,173,000 and $4,416,000, respectively.
The treasury stock on the accompanying balance sheet reflects the cost of the
common stock purchase. The Series B Preferred Stock purchased by the Company was
retired. The total principal amount of the two notes equalled the original price
paid by Cisco for its Series B Preferred Stock and common stock holdings.
In December 1999, the Company issued 165,563 shares of Series C Preferred
Stock to MSVP for $2,000,000.
The following are the characteristics of the Company's preferred stocks:
SERIES A PREFERRED STOCK
The Series A Preferred Stock is entitled to receive cumulative dividends at
an annual rate of 10%, compounded annually. No such cumulative dividends shall
be declared or become payable or deemed to have been accrued on the Series A
Preferred Stock unless such shares are outstanding on June 30, 2003. All accrued
dividends on any such shares that are outstanding on June 30, 2003 shall be paid
in the form of additional shares of Series A Preferred Stock valued at $100 per
share. Subsequent to June 30, 2003, dividends on unredeemed shares of Series A
Preferred Stock shall be payable in cash.
Subject to certain conditions, the Company may redeem shares of Series A
Preferred Stock, at its option, at any time, in whole or in part, at a
redemption price of $100 per share in cash, or at the option of the holder, in
shares of common stock. The value of the common stock shall be the fair market
value thereof as determined by the Board of Directors. The Company is required
to redeem all outstanding shares of Series A Preferred Stock at the earlier of
the effective date of an IPO, or June 30, 2005 at a redemption price of $100 per
share together with accrued dividends.
The Series A Preferred Stock has no voting rights with the exception of
matters related to (1) the creation or increase in the authorized amounts of
additional classes or series of shares of capital stock, (2) the liquidation,
dissolution, winding up, or sale of substantially all of the assets of the
Company, (3) the amendment, alteration or repeal of the Company's certificate of
incorporation or bylaws, (4) the entering into of any agreement that would
restrict the payment of dividends on Series A Preferred Stock or the redemption
of Series A Preferred Stock, (5) the merger or consolidation of the Company,
(6) the payment of dividends on or the redemption of junior securities, or
(7) the prepayment or amendment of the Common Note, the Series B Note or the
Series C Note.
In the event of a liquidation of the Company, including (unless otherwise
consented to by (1) holders of 75% of the Series A Preferred Stock and
(2) holders of Series B Preferred Stock, Series C Preferred Stock, and portions
of the Series B Note and Series C Note representing 75% of the shares of common
stock into which such securities are convertible) certain mergers and
reorganizations that are deemed to constitute liquidations, holders of shares of
Series A Preferred Stock are entitled to preference PARI PASSU with holders of
shares of Series B Preferred Stock and Series C Preferred Stock until holders of
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock have recovered their purchase price (taking into account any
dividend
F-12
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
payments made and, in the case of the Series B Preferred Stock and the Series C
Preferred Stock, interest paid on the Series B Note and Series C Note).
SERIES B PREFERRED STOCK
The Series B Preferred Stock is entitled to receive cumulative dividends at
an annual rate of 10%, compounded annually. No such cumulative dividends may be
declared or paid or be deemed to have accrued on the Series B Preferred Stock
unless (1) such shares are outstanding on June 30, 2003 and (2) one or more
shares of Series A Preferred Stock are outstanding on such date. All accrued and
payable dividends on any such shares that are outstanding on June 30, 2003 shall
be paid in the form of additional shares of Series B Preferred Stock valued at
$2.94 per share. Subsequent to June 30, 2003, dividends on outstanding Series B
Preferred Stock are payable in cash. In no event shall the aggregate dividends
with respect to the Series B Preferred Stock exceed $3,173,000 less the
aggregate amount of interest paid on the Series B Note. Subject to certain
exceptions, the Company may not pay dividends with respect to the Series B
Preferred Stock unless a pro rata dividend is paid simultaneously with respect
to the Series A Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock.
Each share of the Series B Preferred Stock may be converted into three
shares of common stock at the discretion of the holder, and automatically
convert upon the closing of an IPO of the Company's shares with net proceeds of
at least $20,000,000 (a "qualified IPO") or the written consent of holders of at
least 67% of the outstanding shares of the Series B Preferred Stock.
Holders of the Series B Preferred Stock are entitled to vote together with
the common stock on an as converted basis with respect to matters submitted to a
vote of the common stockholders. The Series B Preferred Stock has separate class
voting rights with respect to matters related to the increase in the authorized
amounts of Series B Preferred Stock, the sale of any additional Series B
Preferred Stock or the entering into of any agreement that would restrict the
payment of dividends on Series B Preferred Stock. The Series B Preferred Stock
also has the right to vote together with the Series C Preferred Stock and the
Series D Preferred Stock as a single class with respect to matters related to
(1) the creation or increase in the authorized amounts of additional classes or
series of shares of capital stock (other than junior securities) or the sale of
any such securities, (2) the liquidation, dissolution or winding up of the
Company, (3) the amendment, alteration or repeal of the Company's certificate of
incorporation or bylaws, (4) the redemption or repurchase of the Series A
Preferred Stock prior to June 30, 2003, other than in connection with an IPO and
(5) the payment of dividends on or redemption of junior securities.
In the event of a liquidation of the Company, including (unless otherwise
consented to by (1) holders of 75% of the Series A Preferred Stock and
(2) holders of Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and portions of the Series B Note and Series C Note representing
75% of the shares of common stock into which such securities are convertible)
certain mergers and reorganizations that are deemed to constitute liquidations,
holders of shares of Series B Preferred Stock are entitled to preference PARI
PASSU with holders of shares of Series A Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock until holders of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock have recovered their purchase price (taking into account any dividend
payments made and, in the
F-13
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
case of the Series B Preferred Stock and the Series C Preferred Stock, interest
paid on the Series B Note and Series C Note).
In addition, in the event of any such liquidation, following payment of the
liquidation preferences described in the preceding paragraph, holders of shares
of Series B Preferred Stock are entitled to preference PARI PASSU with holders
of shares of Series C Preferred Stock until holders of shares of Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock have
received additional payments equal to their purchase prices (taking into
account, to the extent not already taken into account in determining the
payments described in the preceding paragraph, any dividend payments made with
respect to the Series B Preferred Stock and the Series C Preferred Stock and any
interest payments made with respect to the Series B Note and Series C Note).
SERIES C PREFERRED STOCK
The Series C Preferred Stock is entitled to receive cumulative dividends at
an annual rate of 10%, compounded annually. No such cumulative dividends may be
declared or paid or be deemed to have accrued on the Series C Preferred Stock
unless (1) such shares are outstanding on June 30, 2003 and (2) one or more
shares of Series A Preferred Stock are outstanding on such date. All accrued and
payable dividends on any such shares that are outstanding on June 30, 2003 shall
be paid in the form of additional shares of Series C Preferred Stock valued at
$6.04 per share. Subsequent to June 30, 2003, dividends on unredeemed shares of
Series C Preferred Stock are payable in cash. In no event shall the aggregate
dividends with respect to the Series C Preferred Stock exceed $9,000,000 less
the aggregate amount of interest paid on the Series C Note.
Each share of the Series C Preferred Stock may be converted into six shares
of common stock at the discretion of the holder, and shall automatically be
converted upon a qualified IPO or with the written consent of holders of at
least 67% of the outstanding shares of the Series C Preferred Stock.
The Series C Preferred Stock has voting rights only to the extent that
outstanding amounts under the Series C Note have been converted into in excess
of 2,483,442 shares of common stock. Holders of shares of Series C Preferred
Stock that have become voting shares are entitled to vote together with the
common stock on an as converted basis with respect to matters submitted to a
vote of the common stockholders. To the extent voting rights have been
triggered, the Series C Preferred Stock has separate class voting rights with
respect to matters related to (a) the increase in the authorized amounts of
Series C Preferred Stock or the sale of any additional Series C Preferred Stock,
(b) the entering into of any agreement that would restrict the payment of
dividends on Series C Preferred Stock and (c) so long as Cisco beneficially owns
at least 90% of the Series C Preferred Stock initially issuable upon conversion
of the Series C Note, any change of control transaction or sale of substantially
all of the Company's assets unless a minimum valuation of the Company applies in
such transaction. To the extent voting rights have been triggered, the Series C
Preferred Stock will also have the right to vote together with the Series B
Preferred Stock and the Series D Preferred Stock as a single class with respect
to matters related to (1) the creation or increase in the authorized amounts of
additional classes or series of shares of capital stock (other than junior
securities) or the sale of any such securities, (2) the liquidation, dissolution
or winding up of the Company, (3) the amendment, alteration or repeal of the
Company's certificate of incorporation or bylaws, (4) the redemption of the
Series A
F-14
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Preferred Stock prior to June 30, 2003, other than in connection with an IPO and
(5) the payment of dividends on or redemption of junior securities.
In the event of a liquidation of the Company, including (unless otherwise
consented to by (1) 75% of the Series A Preferred Stock and (2) Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and portions
of the Series B and C Notes representing 75% of the shares of common stock into
which such securities are convertible) certain mergers and reorganizations that
are deemed to constitute liquidations, holders of shares of Series C Preferred
Stock are entitled to preference PARI PASSU with holders of shares of Series A
Preferred Stock, Series B Preferred Stock and Series D Preferred Stock up until
holders of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock have recovered their
purchase price (taking into account any dividend payments made and, in the case
of the Series B Preferred Stock and the Series C Preferred Stock, interest paid
on the Series B Note and Series C Note).
In addition, in the event of any such liquidation, following payment of the
liquidation preferences described in the preceding paragraph, holders of shares
of Series C Preferred Stock are entitled to preference PARI PASSU with holders
of shares of Series B Preferred Stock and Series D Preferred Stock up until
holders of shares of Series C Preferred Stock, Series B Preferred Stock and
Series D Preferred Stock have received additional payments equal to their
purchase prices (taking into account, to the extent not already taken into
account in determining the payments described in the preceding paragraph, any
dividend payments made with respect to the Series B Preferred Stock and the
Series C Preferred Stock and any interest payments made with respect to the
Series B Note and Series C Note).
5. CONVERTIBLE NOTES PAYABLE--RELATED PARTY
In December 1999, the Company issued to Cisco three convertible promissory
notes with principal amounts of $9,000,000, $3,173,000 and $4,416,000 (the
"Series C Note", the "Series B Note" and the "Common Note", respectively). The
Series B Note has a ten-year term and accrues interest at 6.47% per year. Prior
to a qualified IPO, the Series B Note is convertible into 3,231,078 shares of
Series B Preferred Stock (the number of such shares in consideration of the
redemption of which the Series B Note was issued) or, at the holder's option,
into three shares of common stock for each share of Series B Preferred Stock.
Following such a qualified IPO, the Series B Note will be convertible only into
common stock.
The Common Note has a ten-year term, accrues interest at 6.47% per year and
is convertible into 4,500,000 shares of common stock (the number of shares in
consideration of the redemption of which the Common Note was issued).
Simultaneously with its acquisition of the Series B Note and Common Note,
Cisco loaned the Company $9,000,000 in exchange for the Series C Note. The
Series C Note has a ten-year term and accrues interest at 6.47% per year. Prior
to a qualified IPO, the Series C Note is convertible into 745,000 shares of
Series C Preferred Stock or, at the holder's option, 4,470,204 shares of common
stock (the number of shares of common stock into which 745,000 shares of
Series C Preferred Stock are convertible). Following such an IPO, the Series C
Note will be convertible only into common stock.
Interest is payable on each of the three notes only upon maturity or
prepayment and is forfeited upon conversion of the notes.
F-15
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income (loss).................................... $ 238,000 $ 47,000 $(6,818,000)
Preferred stock dividends and accretion.............. -- 103,000 866,000
----------- ----------- -----------
Numerator for basic and diluted net income (loss) per
share--net income (loss) applicable to common
stockholders......................................... $ 238,000 $ (56,000) $(7,684,000)
=========== =========== ===========
Denominator:
Denominator for basic and diluted net income (loss)
per share applicable to common stockholders--weighted
average shares....................................... 53,998,920 58,521,420 72,511,404
=========== =========== ===========
Basic and diluted net loss per share................... $ 0.00 $ (0.00) $ (0.11)
=========== =========== ===========
</TABLE>
Diluted net loss per share applicable to common stockholders for the year
ended December 31, 1998 and 1999, does not include the effect of options to
purchase 7,504,863 and 18,733,203 shares of common stock, respectively. Diluted
net income (loss) per share applicable to common stockholders for the years
ended December 31, 1998 and 1999 does not include the effect of shares of common
stock issuable upon the conversion of Series A Preferred Stock and Series C
Preferred Stock on an "as if converted" basis, respectively, as the effect of
their inclusion is antidilutive during each period.
The following table sets forth the computation of the unaudited pro forma
basic and diluted income (loss) per share, assuming conversion of the Series A
Preferred Stock and the Series C Preferred Stock:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Numerator:
Net loss applicable to common stockholders................ $(7,684,000)
Preferred stock dividends and accretion................... 866,000
-----------
Numerator for pro forma loss applicable to common
stockholders.............................................. $(6,818,000)
===========
Denominator:
Weighted average number of common shares.................. 72,511,404
Assumed conversion of Preferred Stock to common shares (if
converted method).......................................
-----------
Denominator for pro forma basic and diluted loss per
share.....................................................
===========
Pro forma basic and diluted net loss per share applicable to
common stockholders....................................... $
===========
</TABLE>
F-16
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. STOCK OPTIONS
In January 1998, the Company adopted its 1998 Stock Option Plan (the "Plan")
which initially provided for the granting of incentive stock options ("ISO's")
or nonqualified options to purchase 6,000,000 shares of the Company's common
stock. In August 1998, the Plan was amended to increase the number of shares
reserved for issuance by 2,307,702 and, upon the Second Closing, an additional
12,995,298 shares of common stock were reserved. Accordingly, at December 31,
1999, 21,303,000 shares have been reserved for issuance. Until such time as the
occurrence of an IPO, as defined, the Company has the right of first refusal to
acquire any common stock to be disposed of, which was obtained pursuant to the
Plan. In no event shall the options be exercisable for a period in excess of ten
years from the option grant date. Should the Company be acquired by merger or
asset sale, each outstanding stock option will, subject to certain exceptions,
immediately vest in full at the time of and be exercisable immediately prior to,
but not after, such acquisition unless such stock options are assumed by the
acquirer or the acquirer issues comparable options to employee option holders.
The exercise price and duration of options issued pursuant to the Plan are
determined at the discretion of the Plan Administrator (which is currently the
Board of Directors), subject to the requirement that the exercise price
applicable to ISO's be at least equal to the fair market value (110% of fair
market value in the case of ISO's issued to 10% or greater stockholders) of the
Company's common stock at the date of the grant.
Generally, options granted in 1998 vest 30% two years after commencement of
service and thereafter in twelve equal quarterly installments and options
granted in 1999 vest 25% one year after grant and thereafter in thirty-six equal
monthly installments. The fair value of stock options issued was determined by
the Board of Directors by reference to the various preferred stock and other
financings, without providing any discount to such financings.
Information regarding the options outstanding at December 31, 1999 under the
Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at January 1, 1998.............................. -- $ --
Granted..................................................... 7,549,863 0.24
Canceled.................................................... (45,000) (0.16)
---------- ------
Outstanding at December 31, 1998............................ 7,504,863 0.24
Granted..................................................... 13,369,842 1.25
Exercised................................................... (1,499,283) (1.36)
Canceled.................................................... (642,219) (0.34)
---------- ------
Outstanding at December 31, 1999............................ 18,733,203 $ 0.86
========== ======
Exercisable at December 31, 1999............................ 1,586,185 $ 0.21
========== ======
Exercisable at December 31, 1998............................ 884,792 $ 0.20
========== ======
Available for grant at December 31, 1999.................... 1,070,514
==========
</TABLE>
The weighted average fair value of options granted during the year ended
December 31, 1999 was $0.32. The options granted during the year ended
December 31, 1998 had no fair value.
F-17
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. STOCK OPTIONS (CONTINUED)
The following table summarizes weighted average option exercise price
information:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------- -------------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
RANGE OF PRICES 1999 LIFE PRICE 1999 PRICE
- --------------- -------------- ---------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
$0.017--$0.033...................... 3,040,167 8.3 years $0.027 761,250 $0.017
$0.417--$0.570...................... 6,718,008 8.9 years 0.417 748,339 0.417
$0.783--$0.863...................... 1,874,361 9.5 years 0.787 76,596 0.783
$1.413--$1.553...................... 4,069,383 9.8 years 1.413 -- --
$2.013--$2.213...................... 3,031,284 10.0 years 2.017 -- --
---------- ---------- --------- --------- ------
18,733,203 9.2 years $0.863 1,586,185 $0.207
========== ========== ========= ========= ======
</TABLE>
During the year ended December 31, 1999, the Company recognized $45,000 of
expense related to the acceleration of vesting of options and related exercise
upon termination of an employee. An aggregate of 570,000 options were granted in
1999 to advisory board members. The fair value of such options has been recorded
as deferred compensation and is being amortized over the vesting period of the
related options. The related expense was $2,000 for the year ended December 31,
1999.
Had compensation expense for the Company's stock options been recognized
based on the fair value on the grant date under the methodology prescribed by
SFAS No. 123, the Company's net income (loss), basic and diluted net income
(loss) per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1999
--------- ------------
<S> <C> <C>
Pro forma net income (loss) applicable to common
stockholders.............................................. $(75,000) $(8,038,000)
Pro forma basic and diluted net income (loss) per share
applicable to common stockholders......................... $ (0.00) $ (0.11)
</TABLE>
Pro forma information regarding net income (loss) is required by SFAS
No. 123 which also requires that the information be determined as if the Company
has accounted for its stock option under the fair value method of the statement.
The fair value for these options was estimated using the minimum value method
with the following assumptions:
<TABLE>
<CAPTION>
ASSUMPTIONS 1998 1999
- ----------- -------- --------
<S> <C> <C>
Risk-free interest rate..................................... 5.00% 6.48%
Expected dividend yield..................................... 0.0% 0.0%
Expected life of options.................................... 5 years 5 years
</TABLE>
Because the determination of fair value of all options granted after the
Company becomes a public entity will include an expected volatility factor in
addition to the factors described in the preceding paragraph, the above results
may not be representative of future periods.
F-18
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. NOTES RECEIVABLE--RELATED PARTIES AND RELATED PARTY TRANSACTIONS
Notes receivable are due from two individual shareholders who borrowed
$1,272,000 and $762,000, respectively. The note in the principal amount of
$1,272,000 is due in September 2004 with interest payable quarterly at a rate of
5.89%. The note in the principal amount of $762,000 is due in September 2004
with interest due upon maturity at a rate of 5.89%. Each note is full recourse
and is secured by shares of the Company's common stock acquired upon the
exercise of stock options by the applicable borrowers using loan proceeds.
During the years ended December 31, 1997, 1998 and 1999, the Company
provided approximately $672,000, $3,210,000, and $5,480,000, respectively, of
services to MSVP and/or its afffiliates. During the years ended December 31,
1997, 1998 and 1999, the Company provided approximately $343,000, $540,000, and
$2,643,000, respectively, of services to Cisco and/or its affiliates.
9. INCOME TAXES
Information pertaining to the Company's income (loss) before income taxes
and the applicable provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1998 1999
-------- -------- -----------
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic.................................. $564,000 $127,000 $(6,472,000)
Foreign................................... -- -- (903,000)
-------- -------- -----------
$564,000 $127,000 $(7,375,000)
======== ======== ===========
Provision (benefit) for income taxes:
Current:
Federal................................. $ 26,000 $ (7,000) $ --
State and local......................... 45,000 -- 20,000
-------- -------- -----------
71,000 (7,000) 20,000
Deferred:
Federal................................. 116,000 54,000 (444,000)
State and local......................... 139,000 33,000 (133,000)
-------- -------- -----------
255,000 87,000 (577,000)
-------- -------- -----------
$326,000 $ 80,000 $ (557,000)
======== ======== ===========
</TABLE>
F-19
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 504,000 $ 3,158,000
Accounts payable and accrued expenses............ 525,000 205,000
Depreciation and amortization.................... 20,000 120,000
Other............................................ 83,000 156,000
----------- -----------
1,132,000 3,639,000
Valuation allowance................................ -- (2,483,000)
----------- -----------
1,132,000 1,156,000
Deferred tax liabilities:
Accounts receivable.............................. (1,709,000) (1,156,000)
----------- -----------
Net deferred tax liability....................... $ (577,000) $ --
=========== ===========
</TABLE>
At December 31, 1999, the Company had domestic net operating loss
carryforwards of $6,500,000 which will begin to expire in 2019, and foreign net
operating loss carryforwards of $700,000, which do not expire.
The effective income tax rate on income (loss) before income taxes varies
from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Statutory rate.................................... 34.0% 34.0% (34.0)%
State and local taxes, net of federal benefit..... 21.5 17.2 0.2
Non-deductible expenses........................... 2.3 19.7 0.7
Foreign operations................................ -- -- 0.4
Valuation allowance............................... -- -- 25.1
Other............................................. -- (7.9) --
---- ---- -----
Effective tax rate................................ 57.8% 63.0% (7.6)%
==== ==== =====
</TABLE>
10. LINE OF CREDIT
The Company has a $10,000,000 bank line of credit which bears interest at
the lender's base rate or at the London Interbank Offered Rate plus 0.275% and
is repayable on demand. The line of credit is secured by the Company's assets.
As of December 31, 1999, there were no borrowings outstanding under the line.
F-20
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
11. OBLIGATIONS UNDER CAPITAL LEASES
The Company is obligated under various capital lease obligations which
expire in July 2002 with interest rates ranging between approximately 10.0% and
12.5%.
Future aggregate minimum lease payments at December 31, 1999 were as
follows:
<TABLE>
<S> <C>
Year ending December 31:
2000...................................................... $22,000
2001...................................................... 22,000
2002...................................................... 11,000
-------
Total future aggregate minimum lease payments............... 55,000
Amount representing interest................................ 7,000
-------
Present value of future aggregate minimum lease payments.... 48,000
Less current portion........................................ 17,000
-------
$31,000
=======
</TABLE>
12. COMMITMENTS
Future aggregate minimum lease payments relating to office space under
noncancellable operating leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000...................................................... $ 986,000
2001...................................................... 1,044,000
2002...................................................... 636,000
2003...................................................... 1,076,000
2004...................................................... 1,041,000
Thereafter................................................ 4,853,000
----------
$9,636,000
==========
</TABLE>
Rent expense was approximately $11,000, $201,000 and $809,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.
In addition to minimum annual rent payments, the Company is liable for its
proportionate share of certain expenses. Certain leases are guaranteed by
certain of the Company's shareholders.
13. PROFIT SHARING PLAN
The Company has a defined contribution profit sharing plan with a 401(k)
provision covering all employees who meet certain eligibility requirements, as
defined in the plan. Participation in the 401(k) plan is voluntary. The Company
provides a matching contribution equal to 50% of the first 6% of the deferred
payroll contributed by each employee. Contributions for the years ended
December 31, 1997, 1998 and 1999 amounted to $38,000, $59,000 and $162,000,
respectively.
F-21
<PAGE>
THRUPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
14. MAJOR CUSTOMERS
In the three years ended December 31, 1999, the percentage of total revenues
attributable to each of the Company's most significant customers was 22%, 17%
and 15% (1997); 31% and 13% (1998); and 21%, 12% and 12% (1999).
15. SUBSEQUENT EVENTS
In February 2000, the Company issued an additional 248,344 shares of
Series C Preferred Stock to MSVP for $3,000,000.
In February 2000, the Company issued 851,064 shares of its Series D
Convertible Preferred Stock, each share having a par value of $0.001 to KPMG LLP
and two affiliated entities for an aggregate purchase price of $12,000,000. Of
the Company's 5,000,000 authorized shares of preferred stock, 1,170,526 shares
were designated as Series D Convertible Preferred Stock. Shares of the Series D
Preferred Stock may be converted into six shares of common stock at the
discretion of the holder, and shall automatically be converted into shares of
common stock upon a qualified IPO or with the written consent of holders of at
least 67% of the outstanding shares of the Series D Preferred Stock.
F-22
<PAGE>
[LOGO]
<PAGE>
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 the
underwriting discounts and commissions, payable by the registrant in connection
with the issuance and distribution of the common stock being registered. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee........................................ $ 15,180
NASD filing fee............................................. $ 6,250
Nasdaq National Market listing fee..........................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Printing, engraving and mailing.............................
Blue sky fees and expenses (including legal fees)...........
Transfer Agent and Registrar fees and expenses..............
Miscellaneous...............................................
Total....................................................... $
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Sections 721 through 725 of the New York Business Corporation Law, the
registrant has broad powers to indemnify its directors, officers and other
employees. These sections
(1) provide that the statutory indemnification and advancement of expenses
provision of the BCL are not exclusive, provided that no indemnification
may be made to or on behalf of any director or officer if a judgment or
other final adjudication adverse to the director or officer establishes
that his acts were committed in bad faith or were the result of active
and deliberate dishonesty and were material to the cause of action as
adjudicated, or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled,
(2) establish procedures for indemnification and advancement of expenses
that may be contained in the certificate of incorporation or by- laws,
or, when authorized by either of the foregoing, set forth in a resolution
of the shareholders or directors or an agreement providing for
indemnification and advancement of expenses,
(3) apply a single standard for statutory indemnification for third-party
and derivative suits by providing that indemnification is available if
the director or officer acted in good faith, for a purpose which he
reasonably believed to be in the best interests of the corporation, and,
in criminal actions, had no reasonable cause to believe that his conduct
was unlawful, and
(4) permit the advancement of litigation expenses upon receipt of an
undertaking to repay such advance if the director or officer is
ultimately determined not to be entitled to indemnification or to the
extent the expenses advanced exceed the indemnification to which the
director or officer is entitled. Section 726 of the New York Business
Corporation Law permits the purchase of insurance to indemnify a
corporation or its officers and directors to the extent permitted.
II-1
<PAGE>
The Certificate of Incorporation of the registrant eliminates personal
liability of directors, to the fullest extent permitted by the New York Business
Corporation Law, to the registrant or its shareholders.
As permitted by the New York Business Corporation Law, the Certificate of
Incorporation of the registrant provide for indemnification, to the fullest
extent permitted by applicable law, of its directors, officers, employees and
agents for all actions brought against them as a consequence of their services
to the registrant, unless a judgement or other final adjudication adverse to the
director, officer, employee or agent establishes that (1) his acts were
committed in bad faith or were the result of active and deliberate dishonesty
and, in either case, were material to the cause of action so adjudicated or
(2) he personally gained in fact a financial profit or other advantage to which
he was not legally entitled.
The Certificate of Incorporation of the registrant permit the registrant to
reimburse or advance expenses incurred by directors, officers, employees or
agents in connection with the defense of any action or proceeding arising out of
such party's service to the registrant, upon an undertaking by such party to
repay the reimbursement or advance if it is ultimately determined that such
party is not entitled to indemnification. The registrant has directors' and
officers' liability insurance.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate of Incorporation. The registrant is
not aware of any threatened litigation or proceeding that may result in a claim
for such indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The registrant has sold and issued the following securities since
January 1, 1997:
- On August 20, 1998 and April 21, 1999, the registrant issued 99,804 shares
of Series A Senior Redeemable Preferred Stock and 20,873,172 shares of
common stock in a private placement for an aggregate amount of $10,050,000
to four accredited investors in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act and
Regulation D thereunder.
- On May 13, 1999, the registrant issued 1,077,026 shares of Series B
Convertible Preferred Stock in a private placement for $3,173,000 to an
accredited investor in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act and Regulation D
thereunder.
- On December 21, 1999, the registrant issued three convertible notes having
principal amounts of $9,000,000, $3,173,000 and $4,416,000 to an
accredited investor and simultaneously issued 165,563 shares of Series C
Convertible Preferred Stock to three accredited investors in a private
placement for $2,000,000 in reliance upon the exemption from registration
provided by Section 4(2).
- On February 3, 2000, the registrant issued 248,344 shares of Series C
Convertible Preferred Stock in a private placement for $3,000,000 to three
accredited investors in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act and Regulation D
thereunder.
- On February 29, 2000, the registrant issued 851,064 shares of Series D
Convertible Preferred Stock in a private placement for $12,000,000 to an
accredited investor in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act and Regulation D
thereunder.
- The registrant from time to time has granted stock options to employees,
directors and engineers in reliance upon exemption from registration
pursuant to either (i) issuances to accredited investors in private
placements pursuant to Section 4(2) of the Securities Act of 1933,
II-2
<PAGE>
as amended (the "Securities Act"), or (ii) issuances to employees,
directors and engineers for services pursuant to Rule 701 promulgated
under the Securities Act. The following table sets forth certain
information regarding such grants:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE
---------------- --------------
<S> <C> <C>
January 1, 1997 to December 31, 1997........................
January 1, 1998 to December 31, 1998........................
January 1, 1999 to December 31, 1999........................
January 1, 2000 to present..................................
</TABLE>
No underwriters were involved in connection with the sales of securities
referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
*1.1 Form of underwriting agreement.
*3.1 Form of Restated Certificate of Incorporation.
*3.2 Form of Amended and Restated By-Laws.
*4.1 Specimen common stock certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation and By-laws of the registrant defining the
rights of holders of Common Stock of the registrant.
*4.3 Form of Rights Agreement between the Registrant and the
Rights Agent named therein.
*5.1 Opinion of Dewey Ballantine LLP.
10.1 Third Amended and Restated Registration Rights Agreement,
dated February 29, 2000, by and between the Registrant and
Morgan Stanley Venture Investors III, L.P., Morgan Stanley
Venture Partners III, L.P., The Morgan Stanley Venture
Partners Entrepreneur Fund, L.P., Merritt Lutz, Cisco
Systems, Inc., KPMG LLP, KPMG Consulting, LLC and KPMG U.K.
*10.2 Investor Rights Agreement, by and among the Registrant, the
founding stockholders named therein and Morgan Stanley
Venture Investors III, L.P., Morgan Stanley Venture Partners
III, L.P., The Morgan Stanley Venture Partners Entrepreneur
Fund, L.P., Merritt Lutz, Cisco Systems, Inc., KPMG LLP,
KPMG Consulting, LLC and KPMG U.K.
10.3 Amended and Restated 1998 Stock Option Plan.
*10.4 2000 Stock Option Plan.
*10.5 Employee Stock Purchase Plan.
10.6 Convertible Note Purchase Agreement, dated December 21,
1999, by and between the Registrant and Cisco Systems, Inc.
10.7 Series B Convertible Promissory Note, dated December 21,
1999, by and between the Registrant and Cisco Systems, Inc.
10.8 Series C Convertible Promissory Note, dated December 21,
1999, by and between the Registrant and Cisco Systems, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
10.9 Common Stock Convertible Promissory Note, dated
December 21, 1999, by and between the Registrant and Cisco
Systems, Inc.
10.10 Lease Agreement, dated October 21, 1999, by and between the
Registrant and SL Green Operating Partnership, L.P.
10.11 Lease Agreement, dated June 24, 1997, by and between the
Registrant and 545 Fifth Avenue LLC.
10.12 Letter Agreement, dated December 21, 1999, by and between
the Registrant and Cisco Systems, Inc.
10.13 Form of Alliance Agreement by and between the Registrant and
KPMG Consulting LLC.
10.14 Employment Agreement, dated August 19, 1998, by and between
the Registrant and William Nachtigal.
10.15 Employment Agreement, dated August 19, 1998, by and between
the Registrant and Stephen Zimmerman.
10.16 Employment Agreement, dated August 19, 1998, by and between
the Registrant and Rami Mussallam.
10.17 Employment Agreement, dated October 22, 1999, by and between
the Registrant and Richard A. Glickman, as amended as of
December 29, 1999.
10.18 Employment Agreement, dated September 24, 1999, by and
between the Registrant and Robert Foley, as amended as of
December 29, 1999.
16.1 Letter re: change in certifying accountant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Rothstein, Kass & Company, P.C.
23.3 Consent of Dewey Ballantine LLP (included in Exhibit 5.1).
24.1 Powers of attorney (please see Signature Page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II-Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance
II-4
<PAGE>
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 of 1933, shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on April 19, 2000.
<TABLE>
<S> <C> <C>
By: /s/ RAMI MUSALLAM
--------------------------------------------
Name: Rami Musallam
Title: President and Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Rami Musallam and Richard A. Glickman, each of
them, individually, as his true and lawful attorneys-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead in any and all capacities, to sign this registration statement and any
and all amendments thereto and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said all that said attorneys-in-fact and agent, or his or her substitute, 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>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
Chairman of the Board of
/s/ RAMI MUSALLAM Directors, President, and
------------------------------------------- Chief Executive Officer April 19, 2000
Rami Musallam (Principal Executive
Officer)
Executive Vice President,
/s/ RICHARD A. GLICKMAN Chief Financial Officer
------------------------------------------- (Principal Financial April 19, 2000
Richard A. Glickman Officer, Principal
Accounting Officer)
/s/ CARLOS DOMINGUEZ
------------------------------------------- Director April 19, 2000
Carlos Dominguez
/s/ RANDOLPH C. BLAZER
------------------------------------------- Director April 19, 2000
Randolph C. Blazer
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ MICHAEL BEALMEAR
------------------------------------------- Director April 19, 2000
Michael Bealmear
/s/ BERNARD GOLDSTEIN
------------------------------------------- Director April 19, 2000
Bernard Goldstein
/s/ NOAH WALLEY
------------------------------------------- Director April 19, 2000
Noah Walley
/s/ STEPHEN ZIMMERMAN Executive Vice President,
------------------------------------------- Eastern Regional Sales and April 19, 2000
Stephen Zimmerman Director
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
ThruPoint, Inc.
We have audited the consolidated financial statements of ThruPoint, Inc. and
subsidiary as of December 31, 1998 and 1999, and for the two years then ended,
and have issued our report thereon dated March 24, 2000, except for
Note 2-Stock Split, as to which the date is April , 2000 (included elsewhere
in this Registration Statement). Our audits are also included the information
relating to 1998 and 1999 within the financial statement schedule listed in Item
16b of this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the information relating to 1998 and 1999 within the
financial statement schedule referred to above, when considered in relation to
the consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
New York, New York
March 24, 2000
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the restatement of the capital accounts described in Note 2-Stock Splits to
the consolidated financial statements.
/s/Ernst & Young LLP
New York, New York
April 19, 2000
S-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
ThruPoint, Inc. (formerly Total Network Solutions, Inc.)
In connection with our audit of the statements of operations, stockholders'
equity, and cash flows of ThruPoint, Inc. (formerly Total Network Solutions,
Inc.) for the year ended December 31, 1997, which financial statements are
included in the Prospectus, we have also audited the financial statement
schedule listed in Item 16(b) herein.
In our opinion this 1997 financial statement schedule, when considered in
relation to the basic statements of operations, stockholders' equity, and cash
flows taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
March 23, 1998, except for Note 2-
Stock Splits which is
as of April , 2000
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the restatement of the capital accounts described in Note 2-Stock Splits to
the consolidated financial statements.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
April 19, 2000
S-2
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
DESCRIPTION PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999................... $50,000 $278,000 $ -- $328,000
Deducted from asset accounts:
Allowance for doubtful accounts
Year ended December 31, 1998................... $25,000 $ 25,000 $ -- $ 50,000
Deducted from asset accounts:
Allowance for doubtful accounts
Year ended December 31, 1997................... $ -- $ 25,000 $ -- $ 25,000
Deducted from asset accounts:
Allowance for doubtful accounts
</TABLE>
S-3
<PAGE>
EXHIBIT 10.1
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of
February 29, 2000 by and among Total Network Solutions, Inc., a New York
corporation (the "COMPANY"), Morgan Stanley Venture Investors III, L.P., Morgan
Stanley Venture Partners III, L.P., The Morgan Stanley Venture Partners
Entrepreneur Fund, L.P. and Merritt Lutz (each, an "MSVP INVESTOR" and
collectively with their successors and assigns, the "MSVP INVESTORS") Cisco
Systems, Inc. (together with its successor and assigns ("CISCO") and KPMG LLP,
KPMG Consulting, LLC and KPMG U.K. (each, a "KPMG INVESTOR", collectively with
their succesors and assigns, the "KPMG INVESTORS", and together with the MSVP
Investors and Cisco, the "INVESTORS").
WHEREAS, the Company has issued (i) to the MSVP Investors, among other
things, shares of its Common Stock, par value $0.001 per share (the "COMMON
STOCK"), pursuant to the Series A Senior Redeemable Preferred Stock and Common
Stock Purchase Agreement (the "SERIES A PURCHASE AGREEMENT") dated as of August
7, 1998 among the Company and the MSVP Investors and (ii) to the MSVP Investors
other than Merritt Lutz shares of its Series C Convertible Preferred Stock (the
"SERIES C PREFERRED STOCK") pursuant to the Series C Convertible Preferred Stock
Purchase Agreements dated as of December 21, 1999 and February 3, 2000 among the
Company and such MSVP Investors (the "SERIES C PURCHASE AGREEMENTS"; the latter
such agreement being referred to herein as the "SECOND SERIES C PURCHASE
AGREEMENT"); and
WHEREAS, the Company has issued to Cisco (i) the Company's Common Stock
Convertible Note in the original principal amount of $4,416,150 (the "COMMON
STOCK NOTE") convertible into 4,500,000 shares of Common Stock, (ii) the
Company's Series B Convertible Note in the original principal amount of
$3,172,872.24 convertible into 1,077,026 shares of its Series B Convertible
Preferred Stock and (iii) the Company's Series C Convertible Note (the "SERIES C
NOTE") with the original principal amount $9,000,004.68 convertible into 745,034
shares of its Series C Preferred Stock, in each case pursuant to the Convertible
Note Purchase Agreement dated as of December 21, 1999 between the Company and
Cisco (the "NOTE PURCHASE AGREEMENT"); and
WHEREAS, the Company is issuing to the KPMG Investors on the date
hereof 851,064 shares of its Series D Convertible Preferred Stock (the "SERIES D
PREFERRED STOCK") pursuant to the Series D Convertible Preferred Stock Purchase
Agreement dated as of February 29, 2000 among the Company and the KPMG Investors
(the "SERIES D PURCHASE AGREEMENT"); and
<PAGE>
WHEREAS, one of the conditions to the investment in the Company by the
KPMG Investors pursuant to the Series D Purchase Agreement is the amendment and
restatement, as set forth herein, of the Second Amended and Restated
Registration Rights Agreement dated as of December 21, 1999 among the Company,
the MSVP Investors and Cisco;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. DEFINITIONS. (a) The following terms, as used herein, have
the following meanings:
"AFFILIATE" means, with respect to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, such Person. For purposes of this definition, the term "CONTROL"
(including the correlative terms "CONTROLLING", "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"COMMISSION" means the Securities and Exchange Commission or any
successor commission or agency having similar powers.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"IPO" means the initial Public Offering.
"PERSON" means an individual, partnership, corporation, limited
liability company, trust, joint stock company, association, joint venture, or
any other entity or organization.
"PUBLIC OFFERING" means any underwritten public offering of equity
securities of the Company pursuant to an effective registration statement under
2
<PAGE>
the Securities Act other than pursuant to a registration statement on Form S-4
or Form S-8 or any successor or similar form.
"REGISTRABLE COMMON SHARES" means all shares of Common Stock of the
Company owned by the Investors or issuable upon conversion of securities owned
by the Investors. Registrable Common Shares shall cease to be Registrable Common
Shares when (i) a registration statement with respect to the sale of such shares
of Common Stock shall have become effective under the Securities Act and such
shares of Common Stock shall have been disposed of pursuant to such registration
statement, or (ii) such shares of Common Stock shall have ceased to be
outstanding.
"REGISTRATION EXPENSES" means all (i) registration, qualification and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of a qualified independent
underwriter, if any, counsel in connection therewith and the reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Common Shares), (iii) printing expenses, (iv) internal expenses of
the Company (including, without limitation, all salaries and expenses of
officers and employees performing legal or accounting duties), (v) fees and
disbursements of counsel for the Company, (vi) customary fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any comfort letters or costs associated with the delivery by
independent certified public accountants of a comfort letter or comfort
letters), (vii) fees and expenses of any special experts retained by the Company
in connection with such registration, (viii) reasonable fees and expenses of one
separate firm of attorneys for the Investors (which counsel shall be selected
(A) in the case of a demand for registration initiated by one or more MSVP
Investors, by MSVP Investors holding a majority of the Registrable Common Shares
held by all MSVP Investors, (B) in the case of a demand for registration
initiated by Cisco, by Cisco, (C) in the case of a demand for registration by
one or more KPMG Investors, by KPMG Investors holding a majority of the
Registrable Shares held by all KPMG Investors and (D) in the case of a
registration in which one or more MSVP Investors, Cisco, and/or one or more KPMG
Investors are exercising piggy-back registration rights, by Investors holding a
majority of the Registrable Common Shares that are timely requested to be
included in the related registration statement (without regard to the impact of
underwriter cutbacks), (ix) fees and expenses of listing the Registrable Common
Shares on a securities exchange, (x) out-of-pocket expenses of the Investors,
(xi) transfer taxes and (xii) fees and expenses of underwriter's counsel; but
shall not include any underwriting fees or discounts or commissions attributable
to the sale of Registrable Common Shares or any overhead or expenses of the
Investors except as specified above.
3
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Disadvantageous Condition 2.1
Cisco Preamble
Company 2.6
Indemnified Party 2.6
Indemnifying Party 2.6
Inspectors 2.03
Investor Preamble
Maximum Offering Size 2.01
MSVP Investor Preamble
Priority Securities 2.2
Records 2.3
Remaining Availability 2.2
Rule 144 2.8
</TABLE>
ARTICLE 2
REGISTRATION RIGHTS
SECTION 2.1. DEMAND REGISTRATION RIGHTS. (a) REGISTRATION ON REQUEST.
(i) Commencing on August 20, 2001, if the MSVP Investors desire to effect the
registration under the Securities Act of outstanding Registrable Common Shares,
the MSVP Investors may make a written request that the Company effect such
registration; PROVIDED that such registration (A) covers at least 20% of the
Registrable Common Shares beneficially owned by the MSVP Investors immediately
following the closing under the Second Series C Purchase Agreement or (B) is
expected to result in an aggregate price to the public of not less than 20% of
the aggregate purchase price paid by the MSVP Investors to acquire shares of
capital stock of the Company (including without limitation the shares of Common
Stock) pursuant to the Series A Stock Purchase Agreement and the Series C
Purchase Agreements. Each such request will specify the number of shares of
Registrable Common Shares proposed to be sold and will also specify the intended
method of disposition thereof. The Company will use its reasonable best efforts
to effect, as promptly as practicable, the registration under the Securities Act
of the Registrable Common Shares which the Company
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has been so requested to register by such MSVP Investors pursuant to this
Section 2.1(a)(i), to the extent necessary to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable
Common Shares so to be registered.
(ii) Commencing on August 20, 2001, if Cisco desires to effect the
registration under the Securities Act of outstanding Registrable Common Shares,
Cisco may make a written request that the Company effect such registration;
PROVIDED that such registration (A) covers at least 20% of the Registrable
Common Shares beneficially owned by Cisco immediately following the closing
under the Note Purchase Agreement (determined on an as-converted basis) or (B)
is expected to result in an aggregate price to the public of not less than 20%
of the aggregate purchase price paid by Cisco to acquire shares of capital stock
of the Company pursuant to the Series B Purchase Agreement and the Series C Note
pursuant to the Note Purchase Agreement. Each such request will specify the
number of Registrable Common Shares proposed to be sold and will also specify
the intended method of disposition thereof. The Company will use its reasonable
best efforts to effect, as promptly as practicable, the registration under the
Securities Act of the Registrable Common Shares which the Company has been so
requested to register by Cisco pursuant to this Section 2.1(a)(ii), to the
extent necessary to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Common Shares so to be
registered.
(iii) Commencing on August 20, 2001, if the KPMG Investors desire to
effect the registration under the Securities Act of outstanding Registrable
Common Shares, the KPMG Investors may make a written request that the Company
effect such registration; PROVIDED that such registration (A) covers at least
20% of the Registrable Common Shares beneficially owned by the KPMG Investors
immediately following the closing under the Series D Purchase Agreement or (B)
is expected to result in an aggregate price to the public of not less than 20%
of the aggregate purchase price paid by the KPMG Investors to acquire shares of
Series D Preferred Stock of the Company pursuant to the Series D Purchase
Agreement. Such request will specify the number of shares of Registrable Common
Shares proposed to be sold and will also specify the intended method of
disposition thereof. The Company will use its reasonable best efforts to effect,
as promptly as practicable, the registration under the Securities Act of the
Registrable Common Shares which the Company has been so requested to register by
such KPMG Investors pursuant to this Section 2.1(a)(iii), to the extent
necessary to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of the Registrable Common Shares so to be registered.
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(iv) Notwithstanding Sections 2.1(a)(i), (ii) and (iii),
(A) the Company shall not be obligated to file a
registration statement pursuant to this Section 2.1 until 180
days after the consummation of the Company's initial public
offering of its equity securities, provided that such
limitation shall not apply to any such demand made on or after
June 30, 2005;
(B) the Company shall not be obligated to file a
registration statement relating to a registration request
pursuant to this Section 2.1 at any time during the six-month
period immediately following the effective date of another
registration statement filed by the Company (other than a
registration statement on Form S-4 or Form S-8 or any
successor or similar form);
(C) the Company shall not be obligated to file
pursuant to this Section 2.1 more than (w) two registration
statements on Form S-1 or S-2 initiated by the MSVP Investors,
(x) two registration statements on Form S-1 or S-2 initiated
by Cisco, (y) one registration statement on form S-1 or S-2
initiated by the KPMG Investors and (z) during any consecutive
twelve-month period, two registration statements on Form S-3
(or any successor form) initiated by the MSVP Investors, two
registration statements on Form S-3 (or any successor form)
initiated by Cisco and one registration statement on Form S-3
(or any successor form) initiated by the KPMG Investors, it
being understood that the aggregate price to the public with
respect to each such registration statement on Form S-3 must
be expected to be not less than $1 million; and
(D) if the Board of Directors of the Company
determines in its good faith reasonable judgment that the
Company should not file any registration statement otherwise
required to be filed pursuant to Section 2.1(a) or should
withdraw any such previously filed registration statement
because the Company is engaged in or in good faith plans to
engage in any financing, acquisition or other material
transaction which would be adversely affected by the filing or
maintenance of a registration statement otherwise required to
be filed or maintained pursuant to this Section 2.1 or that
the Company is in the possession of material nonpublic
information required to be disclosed in such registration
statement or an amendment or supplement thereto,
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the disclosure of which in such registration statement would
be materially disadvantageous to the Company (a
"DISADVANTAGEOUS CONDITION"), the Company shall be entitled to
postpone for the shortest reasonable period of time (but not
exceeding 180 days from the date of the determination), the
filing of such registration statement or, if such registration
statement has already been filed, may withdraw such
registration statement and shall promptly give the Investors
written notice of such determination, containing a general
statement of the reasons for such postponement and an
approximation of the anticipated delay. If the Company shall
so postpone the filing or effect the withdrawal of the
registration statement, the Investors who made the request for
registration shall have the right to withdraw the request for
registration by giving written notice to the Company within 30
days after receipt of the notice of postponement. The
Company's right to delay a request for registration or to
withdraw a registration statement pursuant to this Section 2.1
may not be exercised more than once in any one-year period.
As promptly as practicable after the receipt of a registration request
hereunder, the Company shall notify the Investors of any other Person requesting
shares of Common Stock to be included therein and the number of shares of Common
Stock requested to be included therein. The Investors that made the registration
request may, at any time prior to the effective date of the registration
statement relating to such registration, subject to Section 2.1(e), revoke such
request, without liability to any other Person, by providing a written notice to
the Company revoking such request. If the Company determines to take any action
pursuant to clause (D) above, the Company shall deliver a notice to the
Investors to such effect. Upon the receipt of any such notice, such Investors
shall forthwith discontinue use of the prospectus contained in such registration
statement and, if so directed by the Company, shall deliver to the Company all
copies of the prospectus then covering such Registrable Common Shares current at
the time of receipt of such notice (or, if no registration statement has yet
been filed, all drafts of the prospectus covering such Registrable Common
Shares). If any Disadvantageous Condition shall cease to exist, the Company
shall promptly notify the Investors to such effect. If any registration
statement shall have been withdrawn, the Company shall, if requested by the
Investors who made the request for registration, at such time as it is possible
or, if earlier, at the end of the 180-day period following such withdrawal, file
a new registration statement covering the Registrable Common Shares that were
covered by such withdrawn registration statement, and the effectiveness of such
registration statement shall be maintained for such time as may be necessary so
that the period of effectiveness of such new registration
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statement, when aggregated with the period during which such withdrawn
registration statement was effective, if any, shall be such time as may be
otherwise required by this Agreement.
(b) PRIORITY PARTICIPATION IN REQUESTED REGISTRATIONS. If a
registration pursuant to this Section 2.1 involves a Public Offering and the
managing underwriter shall advise the Company that, in its view, the number or
proposed mix of securities requested to be included in such registration
(including securities which the Company requests to be included which are not
Registrable Common Shares) exceeds the largest number of securities which can be
sold without having a material adverse effect on such offering (the "MAXIMUM
OFFERING SIZE"), including the price at which such securities can be sold, the
Company will include in such registration:
(i) FIRST, the Registrable Common Shares requested to be
included in such registration pursuant to Section 2.1(a) by the MSVP
Investors (in the case of a registration initiated by one or more MSVP
Investors), with such priorities among them as shall be determined by
MSVP Investors holding a majority of the Registrable Common Shares
requested to be included in such registration by all of the MSVP
Investors, Cisco (in the case of a registration initiated by Cisco) or
the KPMG Investors (in the case of a registration initiated by one or
more KPMG Investors), with such priorities among them as shall by
determined by KPMG Investors holding a majority of the Registrable
Common Shares requested to be included in such registration by all KPMG
Investors;
(ii) SECOND, the Registrable Common Shares requested to be
include in such registration by persons entitled to participate therein
pursuant to Section 2.2(a), with such priorities among them as are
provided for in Section 2.2(b); and
(iii) THIRD, shares of Common Stock to be sold for the account
of other Persons (including the Company), with such priorities among
them as the Company shall determine.
(c) REGISTRATION STATEMENT FORM. Registrations under this Section 2.1
shall be on such appropriate registration form of the Commission as shall be
selected by the Company, subject to Section 2.1(a), and as shall be reasonably
acceptable to the Investors initiating the registration. Notwithstanding
anything herein to the contrary, if, pursuant to a registration request under
this Section 2.1, the Company proposes to effect registration by filing of a
registration statement on Form S-3 (or any successor or similar short-form
registration
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statement) and any managing underwriter shall advise the Company in
writing that, in its opinion, the use of another form of registration statement
is of material importance to the success of such proposed offering, then such
registration shall be effected on such other form.
(d) EXPENSES. The Company will pay promptly all Registration Expenses
in connection with the registration requests made pursuant to this Section 2.1;
PROVIDED that the Company shall not be liable for fees and expenses of counsel
for all Investors in excess of $25,000 with respect to any single registration
requested hereunder. Each Investor shall pay all underwriting discounts and
commissions, if any, relating to the sale or disposition of such Investor's
Registrable Common Shares pursuant to a registration statement requested
pursuant to this Section 2.1.
(e) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected unless
either (i) the registration statement has been effective (and not subject to any
stop order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason) for a period of 90 days following
the date on which such registration statement was declared effective or such
shorter period which will terminate when all Registrable Common Shares covered
by such registration statement have been sold or (ii) the registration statement
is withdrawn after filing at the request of the Investors initiating such
registration or (iii) the registration statement is withdrawn prior to filing by
such Investors and such Investors fail to reimburse the Company for the
Registration Expenses (other than internal expenses of the Company) incurred by
the Company in connection therewith within 30 days of receipt of a reasonably
detailed invoice therefore.
(f) UNDERWRITERS. The managing underwriter or underwriters of any
Public Offering effected pursuant to this Section 2.1 shall be selected, subject
to the Company's reasonable consent, by (i) MSVP Investors holding a majority of
the Registrable Common Shares requested to be registered by the MSVP Investors
in such registration, in the case of a registration initiated by one or more
MSVP Investors, (ii) Cisco, in the case of a registration initiated by Cisco, or
(iii) KPMG Investors holding a majority of the Registrable Common Shares
requested to be registered by the KPMG Investors in such registration, in the
case of a registration initiated by one or more KPMG Investors, and the price,
terms and provisions of the offering shall be subject to the approval of such
Investor(s). Any Affiliate of the MSVP Investors may be selected to serve,
subject to compliance with NASD Conduct Rule 2720, on an arms-length basis, as
underwriter for an underwritten offering effected pursuant to this Section 2.1.
The Company will enter into customary agreements (including an underwriting
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agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Common Shares.
SECTION 2.2. PIGGY-BACK REGISTRATION RIGHTS. (a) RIGHT TO INCLUDE
REGISTRABLE COMMON SHARES. If the Company at any time proposes to register any
of its equity securities ("PRIORITY SECURITIES") under the Securities Act (other
than (i) by a registration on Form S-4, Form S-8 or any successor or similar
form or, (ii) in connection with a direct acquisition by the Company of another
Person), in each case whether or not for sale for its own account or as a result
of a demand from a securityholder, it will at each such time give prompt written
notice at least 30 days prior to the anticipated filing date of the registration
statement relating to such registration to the Investors of its intention to do
so and of the rights of the Investors under this Section 2.2. Any such notice
shall offer to each such Investor the opportunity to include in such
registration such number of Registrable Common Shares as such Investor may
request. Upon the written request of any Investor made within 20 days after the
receipt of any such notice (which request shall specify the number of
Registrable Common Shares intended to be disposed of by such Investor), the
Company will use its reasonable best efforts to effect the registration with the
Commission under the Securities Act and any related qualification or other
compliance of all Registrable Common Shares which the Company has been so
requested to register, to the extent required to permit the disposition of the
Registrable Common Shares to be so registered; PROVIDED that if, at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company shall give
written notice of such determination to each Investor and, thereupon, (x) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Common Shares in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of any Investor entitled
to do so, to request that such registration be effected as a registration under
Section 2.1, and (y) in the case of a determination to delay registering, shall
be permitted to delay registering any Registrable Common Shares, for the same
period as the delay in registering such other securities. If a registration
pursuant to this Section 2.2 involves a Public Offering, each Investor holding
Registrable Common Shares requesting to be included in such registration may
elect, in writing not less than five Business Days prior to the effective date
of the registration statement filed in connection with such registration, not to
register such securities in connection with such registration. No registration
effected under this Section 2.2 shall relieve the Company of its obligation to
effect any registration upon request under
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Section 2.1 except as provided therein. The Company will pay promptly all
Registration Expenses in connection with each registration of Registrable Common
Shares requested pursuant to this Section 2.2; PROVIDED that the Company shall
not be liable for fees and expenses of counsel for all Investors in excess of
$25,000 with respect to any single such registration. Each such Investor shall
pay all underwriting discounts and commissions, if any, relating to the sale or
disposition of such Investor's Registrable Common Shares pursuant to a
registration statement effected pursuant to this Section 2.2.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration pursuant
to this Section 2.2 involves a Public Offering and the managing underwriter
shall advise the Company that, in its view, the number or mix of securities
(including all Registrable Common Shares) which the Company, the Investors and
any other Persons intend to include in such registration exceeds the Maximum
Offering Size, the Company will include in such registration, in the priority
listed below, securities up to the Maximum Offering Size:
(i) FIRST, Priority Securities to be sold for the Company's
own account or as a result of a demand by a securityholder (pursuant to
Section 2.1 or otherwise); and
(ii) SECOND, Registrable Common Shares and shares of Common
Stock requested to be included in such registration pursuant to Section
2.2 by the Investors. The number of Registrable Common Shares which can
be sold pursuant to this paragraph (ii) (the "REMAINING AVAILABILITY")
shall be allocated among the Investors as follows: The lesser of (A)
30% of the sum of (1) number of Registrable Common Shares requested to
be included by Cisco and (2) the number of Registrable Common Shares
underlying shares of Series C Preferred Stock requested to be included
by the MSVP Investors and (B) the Remaining Availability shall be
allocated to Cisco and the MSVP Investors in the ratio 8.3:1. Any
unused portion of the Remaining Availability after application of the
preceding sentence up to the lesser of (x) 30% of the number of
Registrable Common Shares (other than Registrable Common Shares
underlying shares of Series C Preferred Stock) requested to be included
by the MSVP Investors and (y) such unused portion of the Remaining
Availability shall then be allocated pro rata among the MSVP Investors
on the basis of the number of shares each MSVP Investor has requested
to be included in such registration. Any unused portion of the
Remaining Availability after application of the preceding sentence up
to the lesser of (x) the number of Registrable Common Shares requested
to be included by Cisco (but not in excess of (1) 30% of the number of
Registrable Common Shares requested to be
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included by Cisco less (2) the number of Registrable Common Shares
allocated to Cisco pursuant to the second preceding sentence) and (y)
such unused portion of the Remaining Availability shall then be
allocated to Cisco. Any unused portion of the Remaining Availability
after application of the preceding sentence up to the lesser of (x) the
number of Registrable Common Shares requested to be included by the
MSVP Investors (but not in excess of (1) 30% of the number of
Registrable Common Shares underlying shares of Series C Preferred Stock
requested to be included by the MSVP Investors less (2) the number of
Registrable Common Shares allocated to the MSVP Investors pursuant to
the third preceding sentence) and (y) such unused portion of the
Remaining Availability shall then be allocated to the MSVSP Investors.
Any unused portion of the Remaining Availability after application of
the preceding four sentences shall be allocated pro rata among the
Investors whose requests for inclusion in such registration have not
theretofore been satisfied in full on the basis of the number of shares
requested to be included in such registration that have not theretofore
been included.
SECTION 2.3. REGISTRATION PROCEDURES. If the Company is required to use
its reasonable best efforts to effect the registration of any Registrable Common
Shares under the Securities Act as provided in Section 2.1 or 2.2, the Company
will, as promptly as possible:
(a) prepare and file with the Commission a registration statement on
an appropriate form (in accordance with Section 2.1(c)), and thereafter use its
reasonable best efforts to cause such registration statement to become effective
and to remain effective for the period specified in Section 2.1(e) and prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for the period specified
in Section 2.1(e) and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement until such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the Investors thereof set
forth in such registration statement; PROVIDED that the Company will, at least 3
Business Days prior to filing a registration statement or prospectus or any
amendment or supplement thereto, furnish to each Investor copies of such
registration statement or prospectus (or amendment or supplement) as proposed to
be filed (including, upon the request of such Investor, documents to be
incorporated by reference therein) which documents will be subject to the
reasonable review and comments of such Investor (and its attorneys) during such
3-Business-Day period and the Company will not file any registration statement,
any prospectus or any amendment or supplement thereto (or any such documents
incorporated
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by reference) containing any statements with respect to such Investor to which
such Investor shall reasonably object in writing during such period;
(b) furnish to each Investor and to any underwriter such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 or
Rule 430A under the Securities Act, in conformity with the requirements of the
Securities Act, documents incorporated by reference in such registration
statement, amendment, supplement or prospectus and such other documents (in each
case including all exhibits), as a Investor or underwriter may reasonably
request;
(c) after the filing of the registration statement, promptly notify
each Investor of the effectiveness thereof and of any stop order issued or
threatened by the Commission and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered and promptly notify such
Investor of such lifting or withdrawal of such order;
(d) use its reasonable best efforts to register or qualify all
Registrable Common Shares and other securities covered by such registration
statement under such other securities or blue sky laws of such jurisdictions as
the Investors or the underwriter shall reasonably request, to keep such
registration or qualification in effect for so long as such registration
statement remains in effect, and take any other action which may be reasonably
necessary or advisable to enable the Investors to consummate the disposition in
such jurisdictions of the securities owned by such Investors, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not but
for the requirements of this Section 2.3(d) be obligated to be so qualified, to
subject itself to taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
(e) use its reasonable best efforts to cause all Registrable Common
Shares covered by such registration statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to enable
the Investors to consummate the disposition of such Registrable Common Shares;
(f) furnish to each Investor and to each underwriter, if any, a signed
counterpart of: (i) an opinion of counsel for the Company addressed to such
Investor and underwriter on which opinion both such Investor and such
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underwriter are entitled to rely and (ii) a "comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included in such registration statement, each in customary form and
covering such matters of the type customarily covered by opinions or comfort
letters, as the case may be, as the Investors or the managing underwriter
therefor reasonably request. The Company will use its reasonable best efforts to
have such comfort letters addressed to each Investor;
(g) immediately notify each Investor at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, upon
discovery that, or upon 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 any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made, and
promptly prepare and furnish to such Investor a reasonable number of copies of
any supplement to or amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make statements
therein not misleading in the light of the circumstances under which they were
made;
(h) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other professional retained by any such Investor or
underwriter (collectively, the "INSPECTORS"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"RECORDS") as shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and shall use its reasonable best efforts to cause (i)
the Company's officers, directors and employees to supply all information
reasonably requested by any Inspectors and (ii) the senior management of the
Company and its subsidiaries to participate in any "road show" presentations to
investors, in each case in connection with such registration statement. Each
such Investor agrees that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such information is made generally available to the
public. Each such Investor further agrees that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential;
PROVIDED that the Company's obligation to make the Records available to any
underwriter
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shall be conditioned on comparable confidentiality undertakings by such
underwriter;
(i) obtain a CUSIP number for the Common Stock (to the extent that a
CUSIP number has not previously been obtained);
(j) use its reasonable best efforts to list all Registrable Common
Shares covered by such registration statement on any securities exchange or
quotation system on which any of the Company's securities are then listed or
traded, or to effect the listing of all such Registrable Common Shares on a
securities exchange or quotation system if Company's securities have not
previously been listed; and
(k) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security securityholders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months beginning with the first
full calendar month after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
The Company may require each Investor to promptly furnish to the
Company, as a condition precedent to including such Investor's Registrable
Common Shares in any registration, such information regarding such Investor and
the distribution of such securities as the Company may from time to time
reasonably request in writing.
Each Investor agrees that upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 2.3(g), such
Investor will forthwith discontinue such Investor's disposition of Registrable
Common Shares pursuant to the registration statement relating to such
Registrable Common Shares until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2.3(g) and, if so
directed by the Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in such Investor's
possession, of the prospectus and any amendments or supplements thereto relating
to such Registrable Common Shares current at the time of receipt of such notice.
In the event the Company shall give such notice, the period referred to in
Section 2.1(e) hereof shall be extended by the number of days during the period
from and including the date of the giving of notice pursuant to Section 2.3(g)
to the date when the Company shall make available to the Investors a prospectus
supplemented or amended to conform with the requirements of Section 2.3(g).
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SECTION 2.4. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any Public Offering pursuant to Section 2.1 or 2.2 unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
SECTION 2.5. HOLDBACK AGREEMENTS. (a) If any registration or offering
of Common Stock shall be in connection with a Public Offering, each Investor
holding Registrable Common Shares agrees not to effect any public sale or
distribution of any Registrable Common Shares or any securities convertible into
or exchangeable or exercisable for Registrable Common Shares (in each case other
than as part of such Public Offering, to the extent provided for herein), if and
to the extent requested by the managing underwriter, for a period beginning on
the effective date of such registration statement (or such earlier date as may
be required by applicable law) and ending on the day requested by such managing
underwriter without the written consent of such managing underwriter; PROVIDED
that such period shall not extend beyond the 180th day after such effective date
and PROVIDED FURTHER that each such Investor has received written notice of such
registration at least five Business Days prior to the anticipated beginning of
the period referred to above.
(b) If any registration or offering of Registrable Common Shares shall
be in connection with a Public Offering, the Company agrees (i) that, if and to
the extent requested by the managing underwriter, neither it nor any of its
Affiliates will effect any public sale or distribution of any of its equity
securities or of any security convertible into or exchangeable or exercisable
for any equity security of the Company (except as part of such Public Offering)
for a period beginning on the effective date of such registration statement (or
such earlier date as may be required by applicable law) and ending on the day
requested by such managing underwriter without the written consent of such
managing underwriter; PROVIDED that such period shall not extend beyond the
180th day after such effective date, and (ii) that any agreement entered into
after the date of this Agreement pursuant to which the Company issues or agrees
to issue any privately placed securities shall contain a provision under which
holders of such securities agree not to effect any public sale or distribution
of any such securities during the periods described in (i) above (except as part
of any such registration, if permitted).
SECTION 2.6. INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY. The
Company agrees to indemnify and hold harmless each Investor, its officers,
directors and agents and each Person, if any, who controls such Investor within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
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Act from and against any and all losses, claims, damages, liabilities or
expenses caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Common Shares (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Company will reimburse such Investor for any legal or any other expenses
reasonably incurred by it in connection with investigating or defending such
loss, claim, damage, liability or expense, except insofar as such losses,
claims, damages, liabilities or expenses are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
furnished in writing to the Company by such Investor or on such Investor's
behalf expressly for use therein; PROVIDED that with respect to any untrue
statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, or in any prospectus, as the case may be, the indemnity
agreement contained in this paragraph shall not apply to the extent that any
such loss, claim, damage, liability or expense results from the fact that a
current copy of the prospectus (or the amended or supplemented prospectus, as
the case may be) was not sent or given to the Person asserting any such loss,
claim, damage, liability or expense at or prior to the written confirmation of
the sale of the Registrable Common Shares concerned to such Person if it is
determined that the Company has provided such prospectus (or amended or
supplemented prospectus) and it was the responsibility of such Investor to
provide such Person with a current copy of the prospectus (or such amended or
supplemented prospectus, as the case may be) and such current copy of the
prospectus (or such amended or supplemented prospectus, as the case may be)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. The Company also agrees to indemnify any underwriters of the
Registrable Common Shares, their officers and directors and each Person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Investors provided in this Section 2.6(a).
(b) INDEMNIFICATION BY THE INVESTORS. Each Investor agrees, severally
but not jointly, to indemnify and hold harmless the Company, its officers,
directors and agents and each Person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Investor, but only (i) with respect to information furnished in writing by
such Investor or on such Investor's behalf expressly for use in any registration
statement or prospectus relating to the Registrable Common Shares, or any
amendment or supplement thereto, or any preliminary prospectus or (ii) to the
extent that any loss, claim, damage, liability or expense described in Section
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2.6(a) results from the fact that a current copy of the prospectus (or the
amended or supplemented prospectus, as the case may be) was not sent or given to
the Person asserting any such loss, claim, damage, liability or expense at or
prior to the written confirmation of the sale of the Registrable Common Shares
concerned to such Person if it is determined that it was the responsibility of
such Investor to provide such Person with a current copy of the prospectus (or
such amended or supplemented prospectus, as the case may be) and such current
copy of the prospectus (or such amended or supplemented prospectus, as the case
may be) would have cured the defect giving rise to such loss, claim, damage,
liability or expense. Each such Investor also agrees to indemnify and hold
harmless the underwriters of the Registrable Common Shares, their officers and
directors and each Person who controls such underwriters on substantially the
same basis as that of the indemnification of the Company provided in this
Section 2.6(b). Each Investor's obligation to indemnify pursuant to this Section
is several in the proportion that the proceeds of the offering received by such
Investor bears to the total proceeds of the offering received by all the
Investors and not joint.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to this Section 2.6,
such Person (an "INDEMNIFIED PARTY") shall promptly notify the Person against
whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall assume the
payment of all fees and expenses; PROVIDED that the failure of any Indemnified
Party so to notify the Indemnifying Party shall not relieve the Indemnifying
Party of its obligations hereunder except to the extent that the Indemnifying
Party is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of such Indemnified Party representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the Indemnified
Party that had the largest number of Registrable Common Shares included in such
registration. The Indemnifying Party shall not be liable for any settlement
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<PAGE>
of any proceeding effected without its written consent, but if settled with such
consent, or if there be a final judgment for the plaintiff, the Indemnifying
Party shall indemnify and hold harmless such Indemnified Parties from and
against any loss or liability (to the extent stated above) by reason of such
settlement or judgment. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Party is or could have
been a party and indemnity could have been sought hereunder by such Indemnified
Party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such proceeding.
(d) CONTRIBUTION. If the indemnification provided for in this Section
2.6 is unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein, then each Indemnifying Party, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) as between the Company and the Investors on the one hand and the
underwriters on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and such Investors on the one hand and
the underwriters on the other, from the offering of the Registrable Common
Shares, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company and such Investors on the one hand and of such
underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations and (ii) as between the Company on the one
hand and each such Investor on the other, in such proportion as is appropriate
to reflect the relative fault of the Company and of each such Investor in
connection with such statements or omissions, as well as any other relevant
equitable considerations. The relative benefits received by the Company and such
Investors on the one hand and such underwriters on the other shall be deemed to
be in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and such Investors bear to the total underwriting discounts and
commissions received by such underwriters, in each case as set forth in the
table on the cover page of the prospectus. The relative fault of the Company and
such Investors on the one hand and of such underwriters on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company and such
Investors or by such underwriters. The relative fault of the Company on the one
hand and of each such Investor on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement
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of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Investors agree that it would not be just and
equitable if contribution pursuant to this Section 2.6 were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 2.6, no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Common Shares underwritten by it and distributed
to the public were offered to the public exceeds the aggregate amount of any
damages which such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
Investor shall be required to contribute any amount in excess of the amount by
which the total price at which the Registrable Common Shares of such Investor
were offered to the public exceeds the amount of any damages which such Investor
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Each such Investor's obligation to contribute
pursuant to this Section 2.6 is several in the proportion that the proceeds of
the offering received by such Investor bears to the total proceeds of the
offering received by all such Investors and not joint.
SECTION 2.7. TRANSFERABILITY OF RIGHTS; PARTICIPATION OF CERTAIN FUTURE
STOCKHOLDERS. Notwithstanding anything herein to the contrary, each of the
Investors shall have the right to transfer and assign, to any Person, any of its
rights under this Agreement in respect of any Registrable Common Shares held by
it; PROVIDED that (i) in the case of an MSVP Investor or a KPMG Investor, such
Person shall have acquired (or will acquire in connection with such transfer) at
least 80% of the Registrable Common Shares then held by all of the MSVP
Investors or KPMG Investors, as applicable, and (ii) in the case of Cisco, such
Person shall have acquired (or will acquire in connection with such transfer) at
least 500,000 of the Registrable Common Shares then held by Cisco.
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Following any such transfer, such transferee shall possess the same rights under
this Agreement in respect of the Registrable Common Shares then owned by it as
the transferring Investor had possessed in respect of such securities prior to
the transfer.
SECTION 2.8. RULE 144 REPORTING. With a view to making available to the
Investors, the benefits of certain rules and regulations of the Commission which
permit the sale of Common Stock to the public without registration, the Company
agrees to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 promulgated under the Securities Act ("RULE
144") (including paragraph (c) (2) of such Rule);
(b) file with the Commission in a timely manner reports and other
documents, if any, required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to the Investors forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144, and of the Securities Act and the Exchange Act (if applicable), a copy
of the most recent annual or quarterly report of the Company filed with the
Commission, if any, and such other reports and documents of the Company and
other information in the possession of or reasonably obtainable by the Company
as the Investors may reasonably request in availing themselves of any rule or
regulation of the Commission allowing the Investors to sell securities without
registration.
ARTICLE 3
MISCELLANEOUS
SECTION 3.1. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein, and there are no restrictions, promises,
representations, warranties, covenants, or undertakings with respect to the
subject matter hereof, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties hereto with respect to the subject matter hereof.
SECTION 3.2. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopier) and shall be
deemed to have been duly given or made if sent by telecopy, delivered personally
or sent by registered or certified mail (postage prepaid, return receipt
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requested) to such party at its address or telecopier number set forth on the
signature pages hereof, or such other address or telecopier number as such party
may hereinafter specify for the purpose to the party giving such notice. All
such notices, requests and other communications shall be deemed received on the
date of receipt by the recipient thereof if received prior to 5:00 p.m. in the
place of receipt and such day is a Business Day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding Business Day in the place of receipt.
SECTION 3.3. APPLICABLE LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York, without
regard to the conflicts of law principles thereof.
SECTION 3.4. SUCCESSORS, ASSIGNS, TRANSFEREES. The provisions of this
Agreement shall be binding upon and accrue to the benefit of the parties hereto
and their respective heirs, executors, administrators, successors and permitted
assigns; PROVIDED that the Company may not transfer or assign any of its rights
or obligations under this Agreement except in connection with a transaction of
the type referred to in Section 3.5. Nothing in this Agreement, expressed or
implied, is intended to confer on any Person other than the parties hereto, and
their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
SECTION 3.5. RECAPITALIZATION, ETC. In the event that any capital stock
or other securities are issued in respect of, in exchange for, or in
substitution of, any shares of Common Stock by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Common Shares or any other change in capital
structure of the Company, appropriate adjustments shall be made with respect to
the relevant provisions of this Agreement so as to fairly and equitably
preserve, as far as practicable, the original rights and obligations of the
parties hereto under this Agreement.
SECTION 3.6. REMEDIES. The parties hereto acknowledge and agree that in
the event of any breach of this Agreement, the parties would be irreparably
harmed and could not be made whole by monetary damages. Each party hereto
accordingly agrees (i) not to assert by way of defense or otherwise that a
remedy at law would be adequate, and (ii) that the parties agree, in addition to
any other remedy to which they may be entitled, that the remedy of specific
performance of this Agreement is appropriate in any action in court.
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SECTION 3.7. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 3.8. WAIVERS; AMENDMENTS. (a) No failure or delay on the part
of any party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law.
(b) Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by the parties hereto or, in the case of a waiver, by the party or
parties against whom the waiver is to be effective.
SECTION 3.9. SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 3.10. TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TOTAL NETWORK SOLUTIONS, INC.
By:_______________________________________
Name: Rami Musallam
Title: President
Address: 545 Fifth Avenue
14th Floor
New York, NY 10017
Fax: 1-917-542-5525
MORGAN STANLEY VENTURE PARTNERS
III, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing Member
By:_______________________________________
Name: Noah Walley
Title: Vice President
Address: 1221 Avenue of the Americas
New York, New York 10020
Fax: (212) 762-8424
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MORGAN STANLEY VENTURE INVESTORS
III, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing Member
By:________________________________________
Name: Noah Walley
Title: Vice President
Address: 1221 Avenue of the Americas
New York, New York 10020
Fax: (212) 762-8424
THE MORGAN STANLEY VENTURE
PARTNERS ENTREPRENEUR FUND, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing Member
By:_________________________________________
Name: Noah Walley
Title: Vice President
Address: 1221 Avenue of the Americas
New York, New York 10020
Fax: (212) 762-8424
MERRITT LUTZ
_______________________________________
Name: Merritt Lutz
Address: 750 Seventh Avenue
16th Floor
New York, New York 10019
Fax: (212) 762-0516
CISCO SYSTEMS, INC.
By:___________________________________
Name: _____________________________
Title:_____________________________
Address: 170 West Tasman Drive
San Jose, California 95134
Fax: 408-527-9215
KPMG LLP
By:___________________________________
Name: _____________________________
Title:_____________________________
Address:
Fax:
KPMG CONSULTING, LLC
By:___________________________________
Name: _____________________________
Title:_____________________________
Address:
Fax:
KPMG U.K.
By:___________________________________
Name: _____________________________
Title:_____________________________
Address:
Fax:
<PAGE>
Exhibit 10.3
TOTAL NETWORK SOLUTIONS, INC.
AMENDED AND RESTATED 1998 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This Amended and Restated 1998 Stock Option Plan is intended
to promote the interests of Total Network Solutions, Inc., a New York
corporation, by providing eligible persons with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the
Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
The Plan shall consist of an Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any
or all administrative functions otherwise exercisable by the Board may be
delegated to the Committee. Members of the Committee shall serve for such period
of time as the Board may determine and may be removed by the Board at any time.
The Board may also at any time terminate the functions of the Committee and
reassume all powers and authority previously delegated to the Committee. No
member of the Board or the Committee shall be liable for any act done in good
faith with respect to this Plan or any Incentive Option or Non-Statutory Option
Agreement. All expenses of administering this Plan shall be borne by the
Corporation.
B. The Plan Administrator shall have full power and authority
to establish such rules and regulations as it may deem appropriate for proper
administration of the Plan and to make such determinations under, and issue such
interpretations of, the Plan and any outstanding options issuances thereunder as
it may deem necessary or advisable. Decisions of the Plan Administrator shall be
final and binding on all parties who have an interest in the Plan or any option
issuance thereunder.
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as
follows:
(i) Employees of the Corporation or an Affiliate (including a
corporation that becomes an Affiliate after the adoption of
the Plan). However, only Employees of the Corporation (or any
Parent or Subsidiary) are eligible to receive Incentive
Options.
(ii) Non-employee members of the Board or the board of
directors of any Parent or Subsidiary.
(iii) Consultants (and other independent advisors) who provide
services to the Corporation (or any Affiliate, Parent or
Subsidiary).
B. The Plan Administrator shall have full authority to
determine, with respect to the option grants under the Option Grant Program,
which eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
2,769,234 shares, provided that upon the occurrence of the Second Closing (as
defined in the Purchase Agreement), the maximum number of shares of Common Stock
permitted to be issued over the term of the Plan shall be automatically
increased to 7,101,000 without further action of the Board or the stockholders
of the Corporation.
B. The maximum number of shares of Common Stock with respect
to which Incentive Options or Non-Statutory Options may be granted to any one
Participant during any one calendar year shall be 1,000,000 shares.
C. Shares of Common Stock subject to outstanding options shall
be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii) the
options are canceled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently repurchased
by the Corporation, at the option exercise price paid per share, pursuant to the
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Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for issuance through one or more subsequent option
grants under the Plan.
D. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan and (ii) the number and/or class of securities and the
exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive. In
no event shall any such adjustments be made in connection with the conversion of
one or more outstanding shares of the Corporation's preferred stock into shares
of Common Stock.
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator and may be less than, equal to or greater than the Fair Market
Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Three and
the documents evidencing the option, be payable in cash or check made payable to
the Corporation. Payment of the exercise price for the purchased shares must be
made on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS.
1. Each option shall vest and shall be exercisable at such time or
times, during such period and for such number of shares as shall be determined
by the Plan Administrator and set forth in the documents evidencing the option.
However, no option shall have a term in excess of
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ten (10) years measured from the option grant date. Subject to Section I.E of
this Article Two, an option will be exercisable only to the extent that it is
vested on the Exercise Date.
2. The option holder must provide written notice to the Secretary of
the Corporation of the exercise of options granted under the Plan and the number
of options so exercised. An option granted under this Plan may be exercised with
respect to any number of whole shares less than the full number for which the
option could be exercised. An option may not be exercised with respect to
fractional shares of Common Stock. A partial exercise of an option shall not
affect the right to exercise the option from time to time in accordance with
this Plan and the applicable Agreement with respect to the remaining shares
subject to the option.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by
the Plan Administrator and set forth in the documents
evidencing the option, but no such option shall be exercisable
after the expiration of the option term. However, if the
option would then expire during the Pooling Period and the
Common Stock received upon the exercise of the option would be
subject to the Pooling Period transfer restrictions, then the
right to exercise the Option will expire ten (10) calendar
days after the end of the Pooling Period. "Pooling Period"
means the period in which property is subject to restrictions
on transfer in compliance with the "Pooling of Interests
Accounting" rules set forth in the Securities and Exchange
Commission Accounting Series Releases 130 and 135.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be exercised subsequently by
the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of
descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on
the date of the Optionee's cessation of Service. Upon the
expiration of the applicable exercise period or (if earlier)
upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the
option shall, immediately upon the Optionee's cessation of
Service, terminate and cease
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to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee
shall terminate and be forfeited by the Optionee immediately
and cease to be outstanding.
(v) In the event of an involuntary Termination following a
Corporate Transaction, the provisions of Section III of this
Article Two shall govern the period for which the outstanding
options are to remain exercisable following the Optionee's
cessation of Service and shall supersede any provisions to the
contrary in this section.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) Extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of
Service from the period otherwise in effect for that option to
such greater period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the
option term, and/or
(ii) Permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option
is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more additional
installments in which the Optionee would have vested under the
option had the Optionee continued in Service. In the absence
of any such specification by the Plan Administrator, options
granted under the Plan shall nevertheless automatically
accelerate upon a Termination of the Optionee's Service to the
extent provided in any written employment agreement between
the Corporation and the Optionee.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares (which, unless
otherwise specified shall be the vesting schedule applicable to the options upon
exercise of which such shares were
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<PAGE>
purchased)) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock
is first registered under Section 12(g) of the 1934 Act, the Corporation shall
have the right of first refusal with respect to any proposed disposition for
value by the Optionee (or any successor in interest) of any shares of Common
Stock issued under the Option Grant Program, subject and subordinate to any such
rights granted to third parties pursuant to the Purchase Agreement, any
agreements executed pursuant to the Purchase Agreement or any other agreement to
which the Corporation is a party and which has been approved by the
Corporation's Board of Directors. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, the option shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all options
that are specifically designated as Incentive Options. Except as modified by the
provisions of this Section II, all the provisions of Articles One, Two and Four
shall be applicable to Incentive Options.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date and the option term shall not
exceed five (5) years measured from the option grant date.
D. STOCK CERTIFICATE LEGENDS. The Corporation may require that
certificates evidencing shares of Common Stock purchased upon the exercise of
Incentive Stock Options issued under the Plan be endorsed with a legend in
substantially the following form:
The shares evidenced by this certificate may not be
sold or transferred prior to ________, 19__ in the
absence the absence of a written statement from the
Corporation to the effect that the Corporation is
aware of the facts of such sale or transfer.
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The blank contained in this legend shall be filled in with the
date that is the later of (i) one year and one day after the date of exercise of
such Incentive Option or (ii) two years and one day after the date of the grant
of such Incentive Option. Upon delivery to the Corporation, at its principal
executive office, of a written statement to the effect that such shares have
been sold or transferred prior to such date, the Corporation does hereby agree
to promptly deliver to the transfer agent for such shares a written statement to
the effect that the Corporation is aware of the fact of such sale or transfer.
E. DISPOSITION OF STOCK. An Optionee shall notify the
Corporation of any sale or other disposition of Common Stock acquired pursuant
to an Incentive Option if such sale or disposition occurs (i) within two years
of the grant of an Incentive Option or (ii) within one year of the issuance of
the Common Stock to the Optionee. Such notice shall be in writing and directed
to the Secretary of the Corporation.
III. CORPORATE TRANSACTION
A. The existence of outstanding options issued under this Plan
shall not affect the right or power of the Corporation or its stockholders to
make or authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the Corporation's capital structure or its business, or any
merger or consolidation of the Corporation, or any issuance of bonds, debentures
preferred or prior preference stock ahead of or affecting the Common Stock or
the rights thereof, or the dissolution or liquidation of the Corporation, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
B. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
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C. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
D. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
F. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration, in whole
or in part, of one or more outstanding options (and the automatic termination,
in whole or in part, of one or more outstanding repurchase rights, with the
immediate vesting of the shares of Common Stock subject to those terminated
rights) upon the occurrence of (i) a Corporate Transaction, whether or not those
options are to be assumed or replaced (or those repurchase rights are to be
assigned) in the Corporate Transaction or (ii) a change of control transaction
(as defined by the Plan Adminstrator and set forth in the documents establishing
the terms of such options) that is not a Corporate Transaction.
G. The Plan Administrator shall also have full power and
authority to grant options under the Plan which will automatically accelerate in
whole or in part should the Optionee's Service subsequently terminate by reason
of an involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Corporate Transaction in which
those options are assumed or replaced or the effective date of a change of
control transaction and do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully-vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of a period determined by
the Plan Administrator (not to exceed one (1) year measured from the effective
date of the involuntary Termination).
IV. CANCELLATION AND REGRANT OF OPTIONS
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The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Option Grant
Program and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price for shares issued under the Plan by
delivering a promissory note payable in one or more installments. The terms of
any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the SUM of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise.
B. The Plan Administrator may, in its discretion, determine
that one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
C. The Optionee or Participant may pay the option exercise
price for shares issued under the Plan, as well as any federal, state and local
income and employment tax liability arising in connection with such exercise, by
surrendering or electing to have withheld by the Corporation shares of capital
stock of the Corporation previously acquired by the Optionee or Participant,
except that the Plan Administrator may restrict the Optionee's or Participant's
right to so surrender or elect to the extent that such restrictions are
determined by the Plan Administrator in its sole discretion to be necessary in
order to avoid adverse accounting consequences to the Corporation. The Plan
Administrator may also permit any Optionee or Participant to pay the option
exercise price for shares issued under the Plan by other means, including, on
and after the date of the initial public offering of the Corporation's Common
Stock, through a sale and remittance procedure established by the Corporation.
II. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective when adopted by the Board,
but no option granted under the Plan may be exercised, and no shares shall be
issued under the Plan, until the
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<PAGE>
Plan is approved by the Corporation's stockholders. If such stockholder approval
is not obtained within twelve (12) months after the date of the Board's adoption
of the Plan, then all options previously granted under the Plan shall terminate
and cease to be outstanding, and no further options shall be granted and no
shares shall be issued under the Plan. Subject to such limitation, the Plan
Administrator may grant options and issue shares under the Plan at any time
after the effective date of the Plan and before the date fixed herein for
termination of the Plan.
B. The Plan shall terminate upon the EARLIEST of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued pursuant to the exercise of options or the
issuance of shares (whether vested or unvested) under the Plan or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options outstanding under the Plan
shall continue to have full force and effect in accordance with the provisions
of the documents evidencing such options.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect any rights and obligations with
respect to options at the time outstanding under the Plan, unless the Optionee
consents to such amendment or modification. In addition, the Board shall not,
without the approval of the Corporation's stockholders, (i) increase the maximum
number of shares issuable under the Plan, except for permissible adjustments in
the event of certain changes in the Corporation's capitalization, (ii)
materially modify the eligibility requirements for Plan participation or (iii)
materially increase the benefits accruing to Plan participants.
B. Options to purchase shares of Common Stock may be granted
under the Plan that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under the Plan are held in escrow until there is obtained stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock available for issuance under the Plan or increasing the maximum number of
shares of Common Stock with respect to which any one Participant may be granted
options in any one calendar year. If such stockholder approval is not obtained
within twelve (12) months after the date the first such excess grants are made,
then (i) any unexercised options granted on the basis of such excess shares
shall terminate and cease to be Outstanding and (ii) the Corporation shall
promptly refund to the Optionees the exercise price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short-Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically canceled and cease to
be outstanding.
IV. USE OF PROCEEDS
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<PAGE>
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
A. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock
upon the exercise of any options issued under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
V. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
under the Plan and the issuance of shares of Common Stock upon the exercise of
any option shall be subject to the Corporation's procurement of all approvals
and permits required by regulatory authorities having jurisdiction over the Plan
and the options granted under it. The Corporation shall have the right to rely
on an opinion of its counsel as to such compliance.
VI. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AFFILIATE shall mean (i) any entity that directly or indirectly, is
controlled by, or controls or is under common control with the Corporation, and
(ii) any entity in which the Corporation has a significant equity interest, in
either case determined by the Committee
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMITTEE shall mean a committee of two (2) or more Board members
meeting the requirements of Rule 16b-3 under the Securities Exchange Act of 1934
and Treasury Regulation 162.1-27(e)(iii) appointed by the Board to exercise one
or more administrative functions under the Plan.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CONSULTANT means any person performing consulting or advisory
services for the Corporation (or any Affiliate, Parent or Subsidiary), with or
without compensation, to whom the Committee chooses to grant a Non-Statutory
Option in accordance with the Plan.
G. CORPORATE TRANSACTION shall mean either of the following stockholder
approved transactions to which the Corporation is a party:
(a) a merger or consolidation in which (i) the Corporation is
not the surviving corporation or (ii) securities possessing
more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are issued
or transferred to persons holding securities of the
non-surviving corporation (whether or not such persons are
also securityholders of the Corporation), or
(b) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
H. CORPORATION shall mean Total Network Solutions, Inc., a New York
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Total Network Solutions, Inc. which shall by
appropriate action adopt the Plan.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Affiliate, Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
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J. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(a) If the Common Stock is at the time traded on the NASDAQ
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the NASDAQ National Market or any successor system.
(b) If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(c) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(d) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the NASDAQ National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
L. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
M. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(a) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(b) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or her
level of responsibility or (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than fifteen
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<PAGE>
percent (15%), provided and only if such change or reduction is effected by the
Corporation without the individual's consent.
N. MISCONDUCT shall deemed to include all of the acts and circumstances
constituting "Cause" within the meaning of the Form of Shareholders Agreement
annexed as Exhibit B to the Purchase Agreement.
O. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
P. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
Q. OPTION GRANT PROGRAM shall mean the option grant program in effect
under the Plan.
R. OPTIONEE shall mean any person to whom an option is granted under
the Option Grant Program.
S. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
T. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
U. PURCHASE AGREEMENT shall mean the Series A Senior Redeemable
Preferred Stock and Common Stock Purchase Agreement dated as of August 7, 1998,
among the Corporation, Morgan Stanley Venture Investors III, L.P., Morgan
Stanley Venture Partners III, L.P., Morgan Stanley Venture Partners Entrepreneur
Fund, L.P. and Merritt Lutz.
V. PERMANENT DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.
W. PLAN shall mean the Corporation's Amended and Restated 1998 Stock
Option Plan, as set forth in this document.
X. PLAN ADMINISTRATOR shall mean either the Board or the Committee, to
the
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<PAGE>
extent the Committee is at the time responsible for the administration of the
Plan.
Y. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option.
Z. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
BB. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
CC. TERMINATION means with respect to an individual the last to occur
of termination of an Employee's employment with the Corporation and its
Affiliates, the termination of a Director's membership on the Board and the
termination of a Consultant's consulting relationship with the Corporation and
its Affiliates.
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Exhibit 10.6
EXECUTION COPY
CONVERTIBLE NOTE PURCHASE AGREEMENT
between
TOTAL NETWORK SOLUTIONS, INC.
and
CISCO SYSTEMS, INC.
Dated as of December 21, 1999
<PAGE>
CONVERTIBLE NOTE PURCHASE AGREEMENT dated as of December 21, 1999
between TOTAL NETWORK SOLUTIONS INC., a New York corporation (the "COMPANY"),
and CISCO SYSTEMS, INC. (the "PURCHASER").
WHEREAS, the Company wishes to issue and sell to the Purchaser (i) a
convertible promissory note of the Company in the original principal amount of
$3,172,872.24 in the form annexed as Exhibit A-1 hereto and dated the Closing
Date (as defined below) (the "SERIES B NOTE"), (ii) a convertible promissory
note of the Company in the original principal amount of $9,000,004.68 in the
form annexed as Exhibit A-2 hereto and dated the Closing Date (the "SERIES C
NOTE") and (iii) a convertible promissory note of the Company in the original
principal amount of $4,416,150.00 in the form annexed as Exhibit B hereto and
dated the Closing Date (the COMMON STOCK Note" and, together with the Series B
Note and the Series C Note, the "CONVERTIBLE NOTES"); and
WHEREAS, the Purchaser wishes to purchase the Convertible Notes on the
terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE 1
THE CONVERTIBLE NOTES
SECTION 1.1. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE NOTES.
Subject to the terms and conditions of this Agreement and upon the basis of the
Purchaser's representations and warranties herein contained, the Company agrees
to issue and sell to the Purchaser and, upon the basis of the Company's
representations and warranties herein contained, the Purchaser agrees to
purchase from the Company at the closing (the "CLOSING"), the Convertible Notes.
SECTION 1.2. CLOSING. The Closing shall take place at the offices of
Roberts, Sheridan & Kotel, P.C., 12 East 49th Street, New York, NY 10017. The
Closing shall take place at 10:00 a.m., New York time, on December 21, 1999 or
the earliest practicable date thereafter on which the conditions set forth in
Sections 4.1 and 4.2 have been satisfied (but not later than February 28, 2000
unless the Purchaser and the Company otherwise agree). The date and time of the
Closing are referred to herein as a "CLOSING DATE". At the Closing, the Company
shall issue and deliver to the Purchaser the Convertible Notes registered in the
name of the Purchaser. As payment in full for the Series B Note and against
delivery of the Series B Note as aforesaid, on the Closing Date the Purchaser
shall surrender to the Company for cancellation the 1,077,026 shares of the
Company's Series B Convertible Preferred Stock held by the Purchaser. As payment
in full for the Series C Note and against delivery of the Series C Note as
aforesaid, on the Closing Date the Purchaser shall (i) deliver to the Company a
cashier's or certified check, payable to the order of the Company, in the amount
of $9,000,004.68, (ii) transfer such sum to the account of the Company by wire
transfer of immediately available funds or (iii) deliver or
<PAGE>
transfer such sum to the Company by any combination of such methods of payment.
As payment in full for the Common Stock Note and against delivery of the Common
Stock Note as aforesaid, on the Closing Date the Purchaser shall surrender to
the Company for cancellation the 4,500,000 shares of the Company's Common Stock
held by the Purchaser.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as of the date
hereof that, except as set forth in the Disclosure Schedule attached as Schedule
I (which Disclosure Schedule makes explicit reference to the particular
representation or warranty as to which exception is taken, which in each case
shall constitute the sole representation and warranty as to which such exception
shall apply) and except for (i) this Agreement, (ii) the Series C Convertible
Stock Purchase Agreement dated as of the date hereof among the Company and the
purchasers signatory thereto, and (iii) the agreements and instruments to be
executed pursuant to the agreements and instruments identified in clauses (i)
and (ii) above and the transactions contemplated by the agreements and
instruments identified in such clauses and in this clause (iii):
SECTION 2.1. ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New York and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification, except where failure to be so licensed
or to so qualify would not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the condition (financial or
otherwise), business, assets or results of operations of the Company and its
subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"). The Company has
the corporate power and authority to own and hold its properties and to carry on
its business as now conducted and as proposed to be conducted, to execute,
deliver and perform this Agreement, the Second Amended and Restated Registration
Rights Agreement in the form attached as Exhibit C (the "REGISTRATION RIGHTS
AGREEMENT") and the Second Amended and Restated Shareholders Agreement in the
form attached as Exhibit D (the "SHAREHOLDERS AGREEMENT" and together with this
Agreement, the Convertible Notes and the Registration Rights Agreement, the
"TRANSACTION DOCUMENTS"), to issue, sell and deliver the Convertible Notes at
the Closing and to issue the shares of Preferred Stock, par value $0.001 per
share ("PREFERRED STOCK"), and Common Stock, par value $0.001 per share, of the
Company ("COMMON STOCK") issuable upon conversion of the Convertible Notes (such
shares of Common Stock being referred to herein as the "COMMON NOTE SHARES",
such shares of Preferred Stock being referred to herein as the "PREFERRED NOTE
SHARES" and the Common Note Shares and the Preferred Note Shares being referred
to collectively as the "NOTE SHARES").
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<PAGE>
(b) The attached Schedule II contains a list of all subsidiaries of
the Company as of the date hereof and as of the date of Closing. Except for such
subsidiaries, the Company does not, as of the date hereof and as of the date of
Closing, (i) own of record or beneficially, directly or indirectly, (A) any
shares of capital stock or securities convertible into capital stock of any
other corporation or (B) any participating interest in any partnership, joint
venture or other non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity. Each of the Company's subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification, except where the failure to be so licensed or to so qualify would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Each of the Company's subsidiaries has the corporate power and
authority to own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted. All of the outstanding shares of
capital stock of each of the Company's subsidiaries are owned beneficially and
of record by the Company, one of its other subsidiaries, or any combination of
the Company and/or one or more of its other subsidiaries, in each case free and
clear of any liens, charges, restrictions, claims or encumbrances of any nature
whatsoever (collectively, "LIENS"). There are no outstanding subscriptions,
warrants, options, convertible securities, or other rights (contingent or other)
pursuant to which any of the subsidiaries is or may become obligated to issue
any shares of its capital stock to any person other than the Company or one of
the other subsidiaries. As used in Sections 2.6 through 2.9, 2.11 through 2.17,
2.21 and 2.23 through 2.30 inclusive, the term "COMPANY" shall mean the Company
and each of its subsidiaries.
SECTION 2.2. AUTHORIZATION OF AGREEMENTS, ETC.
(a) The execution and delivery by the Company of the Transaction
Documents, the performance by the Company of its obligations thereunder and the
issuance, sale and delivery of the Convertible Notes have been duly authorized
by all requisite corporate action and will not (i) violate any provision of law,
any order of any court or other agency of government, the Restated Certificate
of Incorporation of the Company, as amended and restated by the charter
amendment (the "CHARTER AMENDMENT") attached hereto as Exhibit E (as so amended,
the "CHARTER"), or the Amended and Restated By-laws of the Company, as amended
(the "BY-LAWS") attached hereto as Exhibit H, (ii) violate any provision of any
indenture, agreement or other instrument to which the Company, any of its
subsidiaries or any of their respective properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
other than any such violation, conflict or default that would not reasonably be
expected to cause a Material Adverse Effect or (iii) result in the creation or
imposition of any Lien upon any of the properties or assets of the Company or
any of its subsidiaries.
(b) The Convertible Notes have been duly authorized, executed
and delivered by the Company and, when issued and delivered in accordance with
the terms of this Agreement,
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will constitute the valid and binding obligations of the Company, enforceable in
accordance with their respective terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally and to general principles of equity, regardless of whether
enforcement is sought in equity or at law).
(c) The Preferred Note Shares have been duly authorized and,
when issued upon conversion of the Convertible Notes, will be validly issued,
fully paid and nonassessable shares of Series B Convertible Preferred Stock of
the Company ("SERIES B PREFERRED STOCK"), in the case of the Series B Note, or
Series C Convertible Preferred Stock of the Company ("SERIES C PREFERRED
STOCK"), in the case of the Series C Note, with no personal liability attaching
to the ownership thereof (other than such liability, if any, as may be (i)
imposed by Section 630 of the New York Business Corporation Law or (ii)
attributable to acts of the Purchaser) and will be free and clear of all Liens.
The issuance and delivery of the Preferred Note Shares is not subject to any
preemptive right of shareholders of the Company that has not been waived or to
any right of first refusal or other right in favor of any person that has not
been waived.
(d) The Common Note Shares have been duly authorized and, when
issued upon conversion of the Convertible Notes or the Preferred Note Shares, as
the case may be, will be validly issued, fully paid and nonassessable shares of
Common Stock with no personal liability attaching to the ownership thereof
(other than such liability, if any, as may be (i) imposed by Section 630 of the
New York Business Corporation Law or (ii) attributable to acts of the Purchaser)
and will be free and clear of all Liens. The issuance and delivery of the Common
Note Shares is not subject to any preemptive right of shareholders of the
Company that has not been waived or to any right of first refusal or other right
in favor of any person that has not been waived.
SECTION 2.3. VALIDITY. This Agreement has been duly executed and
delivered by the Company and this Agreement and each of the other Transaction
Documents, when executed and delivered in accordance with this Agreement, will
constitute the valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as the enforcement of any of such
Transaction Documents may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally and by equitable principles.
SECTION 2.4. AUTHORIZED CAPITAL STOCK. As of the date hereof, the
authorized capital stock of the Company consists of 150,000,000 shares of Common
Stock and 5,000,000 shares of preferred stock, par value $0.001 per share
("PREFERRED STOCK"), of which 170,000 shares have been designated Series A
Senior Redeemable Preferred Stock, 1,620,700 shares have been designated Series
B Convertible Preferred Stock and 1,650,000 have been designated Series C
Convertible Preferred Stock. As of the date hereof and immediately prior to the
Closing, 76,371,375 shares of Common Stock (exclusive of shares of Common Stock
(the "ADDITIONAL OPTION SHARES") issued upon exercise of options that are
outstanding as of the date hereof or are issued after the date hereof pursuant
to the Company's Amended and Restated 1998 Stock Option Plan (the "1998 PLAN")),
99,804.2276 shares Series A Preferred Stock, and 1,077,026
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shares of Series B Preferred Stock will be validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof (other than such liability, if any, as may be (i) imposed by Section 630
of the New York Business Corporation Law or (ii) attributable to acts of the
Purchaser) and no shares of Series C Preferred Stock will have been issued. The
Company has reserved 21,303,000 shares of Common Stock for issuance pursuant to
the 1998 Plan of which 15,014,883 shares (plus such shares as are subject to
options issued under the 1998 Plan between the date of this Agreement and the
Closing Date) will be subject to outstanding unexercised options immediately
prior to the Closing. The shareholders of record and holders of subscriptions,
warrants, options, convertible securities, and other rights (contingent or
other) to purchase or otherwise acquire equity securities of the Company, and
the number of shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock and the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each as of the date
hereof, are as set forth in the attached Schedule III. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of
each class and series of authorized capital stock of the Company are as set
forth in the Charter, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws. Except as set forth in the attached
Schedule III, as of the date hereof and immediately prior to the Closing, (i) no
person (other than a person receiving capital stock of the Company in accordance
with the procedures set forth in the Amended and Restated Shareholders Agreement
of the Company dated as of May 13, 1999 (the "EXISTING SHAREHOLDERS AGREEMENT"))
owns or will own of record any share of Common Stock (except for Additional
Option Shares) or Preferred Stock, (ii) no subscription, warrant, option,
convertible security, or other right (contingent or other) to purchase or
otherwise acquire equity securities of the Company (other than stock options
issued after the date hereof pursuant to the 1998 Plan) is or will be authorized
or outstanding and (iii) except for options that the Company has committed to
issue to employees pursuant to the 1998 Plan that have not yet been issued,
there is or will be no commitment by the Company to issue shares, subscriptions,
warrants, options, convertible securities, or other such rights or to distribute
to holders of any of its securities any evidence of indebtedness or asset.
Except as set forth in this Agreement, in the attached Schedule III or in the
Charter, the Company will have no obligation (contingent or other) to purchase,
redeem or otherwise acquire any of its equity securities or any interest therein
or to pay any dividend or make any other distribution in respect thereof. Except
for this Agreement, the Existing Shareholders Agreement and the stock option
agreements between the Company and each option holder of the Company, to the
best of the Company's knowledge there are no voting trusts or agreements,
shareholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any securities of the
Company or any of its subsidiaries (whether or not the Company or any of its
subsidiaries is a party thereto). All of the outstanding securities of the
Company were issued in compliance with all applicable Federal and state
securities laws.
SECTION 2.5. FINANCIAL STATEMENTS. The Company has furnished to the
Purchaser (i) the audited consolidated balance sheets of the Company and its
subsidiaries as of December 31, 1996, 1997 and 1998 and the related audited
consolidated statements of income, shareholders' equity and cash flows of the
Company and its subsidiaries for the years ended December 31,
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1996, 1997 and 1998 and (ii) the unaudited consolidated balance sheets of the
Company and its subsidiaries as of September 30, 1999 and the related unaudited
consolidated statements of income, shareholders' equity and cash flows of the
Company and its subsidiaries for the nine-month period ended September 30, 1999.
The unaudited consolidated balance sheet of the Company and its subsidiaries as
of September 30, 1999 is referred to herein as the "BALANCE SHEET" and, together
with the related unaudited consolidated statements of income, shareholders'
equity and cash flows of the Company and its subsidiaries for the nine months
then ended, as the "SEPTEMBER 30 STATEMENTS". (Complete copies of the September
30 Statements are attached hereto as Exhibit G.) All such financial statements
have been prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the consolidated financial position of
the Company and its subsidiaries as of their respective dates, and the
consolidated results of their operations and cash flows for the periods then
ended. Since the date of the Balance Sheet, (i) there has been no change in the
assets, liabilities or financial condition of the Company and its subsidiaries
(on a consolidated basis) from that reflected in the September 30 Statements
except for changes in the ordinary course of business which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect; and (ii) there has not otherwise occurred any Material Adverse Effect.
SECTION 2.6. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET. Since
the date of the Balance Sheet, the Company has not (i) issued any stock, bond or
other corporate security (other than stock options issued pursuant to the 1998
Plan and shares of Common Stock issued upon exercise of such options), (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any Lien or incurred or paid any obligation or liability
(absolute, accrued or contingent) other than current liabilities shown on the
Balance Sheet and current liabilities incurred since the date of the Balance
Sheet in the ordinary course of business, (iv) declared or made any payment or
distribution to shareholders or purchased or redeemed any share of its capital
stock or other security, (v) mortgaged, pledged, encumbered or subjected to Lien
any of its assets, tangible or intangible, other than Liens of current taxes not
yet due and payable and minor imperfections of title, if any, not material in
nature or amount and not materially detracting from the value or impairing the
use of the property subject thereto or impairing the operations of the Company
and its subsidiaries, (vi) sold, assigned or transferred any of its tangible
assets except in the ordinary course of business, or canceled any debt or claim,
(vii) sold, assigned, transferred or granted any exclusive license with respect
to any patent, trademark, trade name, service mark, copyright, trade secret or
other intangible asset, (viii) suffered any loss of, or waived, any right of
substantial value whether or not in the ordinary course of business, (ix) made
any change in officer compensation except in the ordinary course of business and
consistent with past practice, (x) made any material change in the manner of
business or operations of the Company, (xi) entered into any transaction except
in the ordinary course of business or as otherwise contemplated hereby or (xii)
entered into any commitment (contingent or otherwise) to do any of the
foregoing.
SECTION 2.7. LITIGATION; COMPLIANCE WITH LAW. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the Company's knowledge,
threatened against or
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affecting the Company, at law or in equity, before by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding relating to
the Company pending under collective bargaining agreements or otherwise or (iii)
governmental inquiry pending or, to the Company's knowledge, threatened against
or affecting the Company (including without limitation any inquiry as to the
qualification of the Company to hold or receive any license or permit), and, to
the Company's knowledge, there is no basis for any of the foregoing. The Company
is not in default with respect to any order, writ, injunction or decree known to
or served upon the Company of any court or of any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or suit by the Company
pending, threatened or contemplated against others. The Company has complied in
all material respects with all material laws, rules, regulations and orders
applicable to its business, operations, properties, assets, products and
services. The Company has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted, and the Company has been operating its business pursuant to and in
material compliance with the terms of all such permits, licenses and other
authorizations. There is no existing law, rule, regulation or order, whether
Federal, state, county or local, which would prohibit or restrict the Company
from, or otherwise materially adversely affect the Company in, conducting its
business in any jurisdiction in which it is now conducting business or, to the
Company's knowledge, in which it proposes to conduct business.
SECTION 2.8. PROPRIETARY INFORMATION OF THIRD PARTIES. No third party
has claimed or, to the Company's knowledge, has reason to claim that any person
employed by or affiliated with the Company has, in connection with such person's
employment or affiliation with the Company, (a) violated or may be violating any
of the terms or conditions of his employment, non-competition or non-disclosure
agreement with such third party, (b) disclosed or may be disclosing or utilized
or may be utilizing any trade secret or proprietary information or documentation
of such third party or (c) interfered or may be interfering in the employment
relationship between such third party and any of its present or former employees
in violation of any contractual obligation of such person to such third party.
No third party has requested information from the Company which suggests that
such a claim might be contemplated. To the Company's knowledge, no person
employed by or affiliated with the Company has employed or proposes to employ
any trade secret or any information or documentation proprietary to any former
employer, and to the Company's knowledge, no person employed by or affiliated
with the Company has violated any confidential relationship which such person
may have had with any third party, in connection with the development,
manufacture or sale of any product or proposed product or the development or
sale of any service or proposed service of the Company. To the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will conflict with or result in a breach
of the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any such person is obligated.
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SECTION 2.9. PATENTS, TRADEMARKS, ETC. (a) Set forth in Schedule I is a
list and brief description, as of the date hereof, of all domestic and foreign
patents, patent rights, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names and copyrights, and all
applications for such which are in the process of being prepared, owned by or
registered in the name of the Company, or of which the Company is a licensor or
licensee or in which the Company has any right, and in each case a brief
description of the nature of such right.
(b) The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know how (collectively,
"INTELLECTUAL PROPERTY") necessary or desirable to the conduct of its business
as conducted and as proposed to be conducted, and no claim is pending or, to the
Company's knowledge, threatened to the effect that the operations of the Company
infringe upon or conflict with the asserted rights of any other person under any
Intellectual Property, and to the Company's knowledge there is no basis for any
such claim (whether or not pending or threatened). No claim is pending or, to
the Company's knowledge, threatened to the effect that any such Intellectual
Property owned or licensed by the Company, or which the Company otherwise has
the right to use, is invalid or unenforceable by the Company, and, to the
Company's knowledge, there is no basis for any such claim (whether or not
pending or threatened). The Company has not granted or assigned to any other
person or entity any right to provide the services of the Company.
SECTION 2.10. TITLE TO PROPERTIES. The Company and its subsidiaries
have good, clear and marketable title to their respective properties and assets
reflected on the Balance Sheet or acquired by them since the date of the Balance
Sheet (other than properties and assets disposed of in the ordinary course of
business since the date of the Balance Sheet), and all such properties and
assets are free and clear of Liens (including without limitation, easements and
licenses), except for Liens for current taxes not yet due and payable and minor
imperfections of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations of the Company and its subsidiaries,
including without limitation, the ability of the Company and its subsidiaries to
secure financing using such properties and assets as collateral. To the
Company's knowledge, there are no condemnation, environmental, zoning or other
land use regulation proceedings, either instituted or planned to be instituted,
which would adversely affect the use or operation of the Company's and its
subsidiaries' properties and assets for their respective intended uses and
purposes, or the value of such properties, and neither the Company nor any
subsidiary has received notice of any special assessment proceedings which would
affect such properties and assets.
SECTION 2.11. LEASEHOLD INTERESTS. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement, duly authorized and entered into, without
any material default of the Company thereunder and, to the best of the Company's
knowledge, without any material default thereunder of any other party thereto.
No event has occurred which, with due notice or lapse of time or both,
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would constitute a material default or event of default by the Company under any
such lease or agreement or, to the Company's knowledge, by any other party
thereto. The Company's possession of such property has not been disturbed and,
to the Company's knowledge, no claim has been asserted against the Company
adverse to its rights in such leasehold interests.
SECTION 2.12. INSURANCE. The Company holds valid policies covering
insurance reasonably deemed by the Company to comply with Section 5.3.
SECTION 2.13. TAXES. The Company has filed all tax returns required to
be filed by it (which returns are accurate and complete in all material
respects), and the Company has paid all taxes shown to be due by such returns as
well as all other taxes, assessments and governmental charges which have become
due or payable, including, without limitation, all taxes which the Company is
obligated to withhold from amounts owing to employees, creditors and third
parties. The Company has established adequate reserves for all taxes accrued but
not yet payable. Except as set forth in Schedule I, all material tax elections
of any type which the Company has made as of the date hereof are set forth in
the financial statements referred to in Section 2.5. The Federal income tax
returns of the Company have never been audited by the Internal Revenue Service.
No deficiency or assessment with respect to, or proposed adjustment of, the
Company's Federal, state, county or local taxes is pending or, to the best of
the Company's knowledge, threatened. There is no tax lien (other than for
current taxes not yet due and payable), whether imposed by any Federal, state,
county or local taxing authority, outstanding against the assets, properties or
business of the Company.
SECTION 2.14. OTHER AGREEMENTS. The Company is not a party to or
otherwise bound by any contractual obligation, written or oral, which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect. Except as set forth in the attached Schedule IV, as of
the date hereof, the Company is not a party to or otherwise bound by any written
or oral:
(a) consulting agreement or agreement with a client or customer;
(b) agreement with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of its
employees);
(c) agreement with any supplier containing any provision permitting
any party other than the Company to renegotiate the price or other terms upon
the occurrence of a failure by the Company to meet its obligations under the
agreement when due or the occurrence of any other event;
(d) agreement for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
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(e) agreement for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis;
(f) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, agreement or
understanding pursuant to which benefits are provided to any employee of the
Company (other than group insurance plans which are not self-insured and are
applicable to employees generally);
(g) agreement relating to the borrowing of money or to the mortgaging
or pledging of, or otherwise placing a Lien on, any asset of the Company;
(h) guaranty of any obligation for borrowed money or otherwise;
(i) voting trust or agreement, shareholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights agreement
relating to any securities of the Company, other than this Agreement;
(j) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company has advanced or agreed
to advance money or has agreed to lease any property as lessee or lessor (except
for lease agreements under which the Company is the lessee and which are not,
individually or in the aggregate, material to the business of the Company);
(k) agreement or obligation (contingent or otherwise) to issue, sell
or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities, other than the
Charter;
(l) assignment, license or other agreement with respect to any form of
intangible property, including Intellectual Property;
(m) agreement under which it has granted any person any registration
rights;
(n) agreement under which it has limited or restricted its right to
compete with any person in any respect;
(o) other agreement or group of related agreements with the same party
involving more than $50,000 or continuing over a period of more than six months
from the date or dates thereof (including renewals or extensions optional with
another party), which agreement or group of agreements is not terminable by the
Company without penalty upon notice of 30 days or less; or
(p) other agreement, instrument, commitment, plan or arrangement, a
copy of which would be required to be filed with the Securities and Exchange
Commission (the "COMMISSION")
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as an exhibit to a registration statement on Form S-1 if the Company were
registering securities under the Securities Act of 1933, as amended (the
"SECURITIES ACT").
The Company, and to the Company's knowledge, each other party thereto have in
all material respects performed all the obligations required to be performed by
them to date (or each non-performing party has received a valid, enforceable and
irrevocable written waiver with respect to its non-performance), have received
no notice of default and are not in default (with due notice or lapse of time or
both) under any agreement, instrument, commitment, plan or arrangement to which
the Company is a party or by which it or its property is bound. The Company has
no present expectation or intention of not fully performing all its obligations
under each such agreement, instrument, commitment, plan or arrangement, and the
Company has no knowledge of any breach or anticipated breach by the other party
to any agreement, instrument, commitment, plan or arrangement to which the
Company is a party. The Company is in full compliance with all of the terms and
provisions of its Restated Certificate of Incorporation and Bylaws.
SECTION 2.15. LOANS AND ADVANCES. As of the date hereof, the Company
does not have any outstanding loans or advances to any person and is not
obligated to make any such loans or advances, except, in each case, for advances
to employees of the Company in respect of reimbursable business expenses
anticipated to be incurred by them in connection with their performance of
services for the Company.
SECTION 2.16. ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS OF OTHER
PERSONS. As of the date hereof, the Company has not assumed, guaranteed,
endorsed or otherwise become directly or contingently liable on any outstanding
indebtedness of any other person (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor, or otherwise to
assure the creditor against loss), except for guaranties by endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business.
SECTION 2.17. SIGNIFICANT CLIENTS AND SUPPLIERS. As of the date hereof,
no client which accounted for five percent or more of the Company's revenues
during the period covered by the financial statements referred to in Section
2.5, or which has been significant to the Company thereafter, has terminated,
materially reduced or, to the Company's knowledge, threatened to terminate or
materially reduce its purchases from the Company, as the case may be. Schedule V
sets forth each client which accounted for five percent or more of the Company's
revenues during the periods covered by the financial statements referred to in
Section 2.5, or which has been significant to the Company thereafter and the
approximate total amount of revenues generated by such client during such
periods.
SECTION 2.18. GOVERNMENTAL APPROVALS. Subject to the accuracy of the
representations and warranties of the Purchaser set forth in Article 3, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
the
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Transaction Documents and the issuance, sale and delivery of the Convertible
Notes other than (i) any required filings pursuant to state securities laws (all
of which filings will have been made by the Company prior to or at the Closing,
other than those which are required to be made after the Closing and which will
be duly made on a timely basis) in connection with the sale of the Convertible
Notes and (ii) with respect to the Registration Rights Agreement, the
registration of the shares covered thereby with the Commission and filings
pursuant to state securities laws and (iii) filing with the Secretary of State
of the State of New York of the Charter Amendment, in the form attached as
Exhibit E, fixing and determining the terms of the Series C Preferred Stock.
SECTION 2.19. DISCLOSURE. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading. None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein, in the light
of the circumstances under which they were made, not misleading. There is no
fact which the Company has not disclosed to the Purchaser or its counsel and
which is known to the Company (other than facts known to the general public or
generally known in the Company's industry) which materially and adversely
affects or is reasonably likely to materially and adversely affect the business,
financial condition, operations or property of the Company or any of its
subsidiaries. The Company has supplied the Purchaser with all written
information reasonably requested by it.
SECTION 2.20. OFFERING OF THE CONVERTIBLE NOTES. Neither the Company
nor any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Convertible Notes or
any security of the Company similar to the Convertible Notes has offered the
Convertible Notes or any such similar security for sale to, or solicited any
offer to buy the Convertible Notes or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action, in either case so as to subject the offering,
issuance or sale of the Convertible Notes to the registration provisions of the
Securities Act.
SECTION 2.21. BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22. OFFICERS. Set forth in Schedule I is a list of the names
of the titled officers of the Company as of the date hereof, together with the
title or job classification of each such person and the total compensation
anticipated to be paid to each such person by the Company and its subsidiaries
in 1999.
SECTION 2.23. TRANSACTIONS WITH AFFILIATES. No director, officer,
employee or shareholder of the Company, or member of the family of any such
person, or any corporation, partnership, trust or other entity in which any such
person, or any member of the family of any
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such person, has a substantial interest or is an officer, director, trustee,
partner or holder of more than five percent of the outstanding capital stock
thereof, is a party to any transaction with the Company, including any contract,
agreement or other arrangement providing for the employment of, furnishing of
services by, rental of real or personal property from or otherwise requiring
payments to any such person or firm, other than employment-at-will arrangements
in the ordinary course of business.
SECTION 2.24. EMPLOYEES. No employee has advised the Company (orally or
in writing) that he or she intends to terminate employment with the Company. The
Company has complied in all material respects with all applicable laws relating
to the employment of labor, including provisions relating to wages, hours, equal
opportunity, collective bargaining and the payment of Social Security and other
taxes.
SECTION 2.25. ENVIRONMENTAL PROTECTION. The Company has not caused or
allowed, or contracted with any party for, the generation, use, transportation,
treatment, storage or disposal of any Hazardous Substances (as defined below) in
connection with the operation of its business or otherwise. The Company, the
operation of its business, and any real property that the Company owns or, to
the knowledge of the Company, leases or otherwise occupies or uses (the
"PREMISES") are in compliance with all applicable Environmental Laws (as defined
below) and orders or directives of any governmental authorities having
jurisdiction under such Environmental Laws, including, without limitation, any
Environmental Laws or orders or directives with respect to any cleanup or
remediation of any release or threat of release of Hazardous Substances. The
Company has not received any citation, directive, letter or other communication,
written or oral, or any notice of any proceeding, claim or lawsuit, from any
person relating to a violation of applicable Environmental Laws and arising out
of the ownership or occupation of the Premises, or the conduct of its
operations, and the Company is not aware of any basis therefor. The Company has
obtained and is maintaining in full force and effect all necessary permits,
licenses and approvals required to be obtained by it by all Environmental Laws
applicable to the Premises and the business operations conducted thereon
(including operations conducted by tenants on the Premises), and is in material
compliance with all such permits, licenses and approvals. The Company has not
caused or allowed a release, or a threat of release, of any Hazardous Substance
unto, at or near the Premises, and, to the best of the Company's knowledge,
neither the Premises nor any property at or near the Premises has ever been
subject to a release, or a threat of release, of any Hazardous Substance. For
the purposes of this Agreement, the term "ENVIRONMENTAL LAWS" shall mean any
Federal, state or local law or ordinance or regulation pertaining to the
protection of human health or the environment, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Sections 9601, ET SEQ., the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Sections 11001, ET SEQ., and the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901, ET SEQ. For purposes of
this Agreement, the term "HAZARDOUS SUBSTANCES" shall include oil and petroleum,
products, asbestos, polychlorinated biphenyls, urea formaldehyde and any other
materials classified as hazardous or toxic under any Environmental Laws.
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SECTION 2.26. ERISA. (a) Schedule I lists each Employee Plan that
covers any employee of the Company, copies or descriptions of all of which have
previously been made available or furnished to the Purchaser. With respect to
each Employee Plan, the Company has provided the most recently filed Form 5500
(if any such report was required) and an accurate summary description of such
plan.
(b) Schedule I also includes a list of each Benefit Arrangement of the
Company, copies or descriptions of all of which have been made available or
furnished previously to the Purchaser.
(c) No Employee Plan is a Multiemployer Plan and no Employee Plan is
subject to Title IV of ERISA. The Company and its affiliates have not incurred
any liability under Title IV of ERISA arising in connection with the termination
of any plan covered or previously covered by Title IV of ERISA.
(d) None of the Employee Plans or other arrangements listed on
Schedule I covers any non-United States employee or former employee of the
Company.
(e) No "prohibited transaction", as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Employee Plan.
(f) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. The Company has furnished to the
Purchaser copies of the most recent Internal Revenue Service determination
letters with respect to each such plan. Each Employee Plan has been maintained
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such plan, except for violations which would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
(g) Each Employee Plan and each Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Employee Plan and Benefit Arrangement, except for violations
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(h) Except as disclosed in writing to the Purchaser prior to the date
hereof, there has been no amendment to, written interpretation of or
announcement (whether or not written) by the Company or any of its ERISA
Affiliates relating to, or change in employee participation or coverage under,
any Employee Plan or Benefit Arrangement that would increase materially the
expense of maintaining such Employee Plan or Benefit Arrangement above the level
of the expense incurred in respect thereof for the fiscal year ended prior to
the date hereof.
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(i) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.
(j) No tax under Section 4980B of the Code has been incurred in
respect of any Employee Plan that is a group health plan, as defined in Section
5000(b)(1) of the Code.
(k) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code.
(l) No employee of the Company will become entitled to any bonus,
retirement, severance or similar benefit or enhanced benefit solely as a result
of the transactions contemplated hereby.
(m) The Company does not have, nor is it reasonably expected to have,
any liability under Title IV of ERISA.
SECTION 2.27. QUESTIONABLE PAYMENTS. Neither the Company nor any
subsidiary, nor, to the Company's knowledge, any of the Company's or any
subsidiary's current or former shareholders, directors, officers, agents,
employees or other persons associated with or active on behalf of the Company or
any subsidiary, has on behalf of the Company or any subsidiary or in connection
with their business (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to foreign or domestic
government officials or employees from corporate funds; (c) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or any rules
and regulations thereunder; (d) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (e) made any false or
fictitious entries on the books and records of the Company; or (f) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment of any nature.
SECTION 2.28. FEDERAL RESERVE REGULATIONS. The Company is not engaged
in the business of extending credit for the purpose of purchasing or carrying
margin securities (within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System), and no part of the proceeds of the Convertible
Notes will be used to purchase or carry any margin security or to extend credit
to others for the purpose of purchasing or carrying any margin security or in
any other manner which would involve a violation of any of the regulations of
the Board of Governors of the Federal Reserve System.
SECTION 2.29. NO UNDISCLOSED LIABILITIES. There are no liabilities of
the Company of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability, other than:
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(a) liabilities provided for in the Balance Sheet;
(b) undisclosed liabilities which, individually or in the aggregate,
are not material to the Company; and
(c) liabilities incurred subsequent to the date of the Balance Sheet
in the ordinary course of business that would not reasonably be expected to
cause a Material Adverse Effect.
SECTION 2.30. NO CRIMINAL PROCEEDINGS. There are no pending actions,
charges, indictments, information, or investigations of the Company or, to the
Company's knowledge, of its agents, officers or employees, whether pending or
threatened, which involve allegations of criminal violations by the Company or
its agents, officers or employees of the Company of any Federal, state, or local
statute, law, or ordinance.
SECTION 2.31. YEAR 2000. To the knowledge of the Company, all of the
software and Hardware (as defined below) developed or obtained by the Company
for its customers, and all of the software and Hardware owned, used, or licensed
by the Company, are Year 2000 Compliant (as defined below). "Year 2000
Compliant" shall mean that the software and Hardware will correctly calculate,
compare, sort, extract, sequence, store, and otherwise process date related
information and associated date calculations, without creating any logical or
mathematical inconsistencies, or loss or degradation of functionality or
performance for dates before, during and after the year 2000. "Hardware" shall
mean any piece of equipment used in or for the operation of the Company or
obtained by the Company for its customers, as the case may be, including,
without limitation, any computer or communications system and network.
SECTION 2.32. INVESTMENT COMPANY. The Company is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as of the date
hereof that:
SECTION 3.1. ORGANIZATION. The Purchaser is organized and in good
standing under the laws of the State of California and the principal executive
office of the Purchaser is located in the State of California.
SECTION 3.2. POWER AND AUTHORIZATION. The execution, delivery and
performance by the Purchaser of the Transaction Documents are within the powers
of the Purchaser and have been
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duly authorized by all necessary action on the part of the Purchaser. This
Agreement has been duly executed and delivered by the Purchaser and this
Agreement and each of the Transaction Documents, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding agreement of
the Purchaser enforceable against the Purchaser in accordance with its terms,
except as the enforcement of any of such Transaction Documents may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally and by equitable
principles.
SECTION 3.3. PURCHASE FOR INVESTMENT.
(a) The Purchaser is an "accredited investor" within the
meaning of Rule 501 under the Securities Act and was not organized for
the specific purpose of acquiring the Convertible Notes;
(b) The Purchaser has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company's
stage of development and other relevant factors so as to be able to
evaluate the risks and merits of its investment in the Company and it
is able financially to bear the risks thereof;
(c) The Purchaser has had an opportunity to discuss the terms
of the offering and sale of the Convertible Notes and the Company's
business, management and financial affairs with the Company's
management and to obtain any additional information regarding the
foregoing which the Company possesses or can acquire without
unreasonable effort or expense;
(d) The Convertible Notes are being acquired for the
Purchaser's own account and not with a view to, or the intention of,
any distribution in violation of the Securities Act or any applicable
state securities laws;
(e) The Purchaser understands that (i) neither the Convertible
Notes nor the Note Shares have been registered under the Securities Act
by reason of the issuance of the Convertible Notes in a transaction
exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under
the Securities Act, (ii) the Convertible Notes and the Note Shares must
be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such
registration, (iii) the Convertible Notes and the Note Shares will bear
a legend to such effect and (iv) the Company will make a notation on
its transfer books to such effect. Subject to the foregoing and to the
terms of the Shareholders Agreement, the Purchaser may at any time
after the Closing, or from time to time thereafter, distribute any or
all of its Convertible Notes or the Note Shares to a Permitted
Transferee (as defined in the Shareholders Agreement).
ARTICLE 4
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CONDITIONS TO THE OBLIGATIONS
SECTION 4.1. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. (a) The
obligation of the Purchaser to purchase and pay for the Convertible Notes is
subject to the satisfaction, on or before the date of the Closing, of the
following conditions:
(i) OPINION OF COMPANY'S COUNSEL. The Purchaser shall have
received from Roberts, Sheridan & Kotel, a Professional Corporation,
counsel for the Company, an opinion dated the date of the Closing, in
form and scope satisfactory to the Purchaser and its counsel, to the
effect that:
(A) The Company is a corporation duly incorporated,
validly existing and subsisting under the laws of its
jurisdiction of incorporation, except that such counsel shall
not be required to express any opinion with respect to the
Company's failure to file a General Corporate Business
Franchise Tax Return in New York with respect to its 1993 tax
year. Based solely on a review of good standing certificates
by such counsel, the Company is duly licensed or qualified to
transact business as a foreign corporation and is in good
standing in each other jurisdiction in which, to the knowledge
of such counsel, it is required to be so qualified, except
that such counsel shall not be required to express any opinion
with respect to the absence of qualification in Illinois,
Georgia, California or Texas. To the knowledge of such
counsel, Schedule II to this Agreement contains a complete
list of all subsidiaries of the Company and each of such
subsidiaries is wholly-owned, directly or indirectly, by the
Company. The Company has the corporate power and authority to
own and hold its properties and to carry on its business as
currently conducted. The Company has the corporate power and
authority to execute, deliver and perform the Transaction
Documents and to issue and deliver the Note Shares in
accordance with the terms of the Convertible Notes and the
Charter.
(B) The Transaction Documents have been duly
authorized, executed and delivered by the Company and
constitute the valid and binding obligations of the Company,
enforceable in accordance with their respective terms (subject
to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors
generally and to general principles of equity, regardless of
whether enforcement is sought in equity or at law), except
that such counsel need not express any opinion as to the
validity or enforceability of the indemnification and
contribution provisions of the Registration Rights Agreement.
(C) The execution and delivery by the Company of the
Transaction Documents, the performance by the Company of its
obligations thereunder and the issuance, sale and delivery of
the Convertible Notes, will not violate any provision of
federal or New York law, the Charter or By-laws of the
Company,
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any order of any court or other agency of government known to
such counsel or any material indenture, agreement or other
instrument, identified to such counsel in an officer's
certificate provided by the Company, to which the Company or
any of its properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or lapse
of time or both) a default under any such indenture, agreement
or other instrument, or result in the creation or imposition
of any Lien upon any of the properties or assets of the
Company or any of its subsidiaries pursuant to any such
indenture, agreement or other instrument. In rendering the
foregoing opinion, such counsel may assume full disclosure to
the Purchaser of all material facts and may rely, as to
factual matters, on the representations of the Purchaser and
the Company contained in the Transaction Documents and, with
respect to performance by the Company of its obligations under
the Registration Rights Agreement, may assume compliance by
the Company at such time with the registration requirements of
the Securities Act and with applicable state securities laws
and may disclaim any opinion as to the validity or
enforceability of the indemnification and contribution
provisions of the Registration Rights Agreement.
(D) The authorized capital stock of the Company
consists of (a) 5,000,000 shares of Preferred Stock, of which
170,000 shares have been designated Series A Preferred Stock,
1,620,700 have been designated Series B Preferred Stock and
1,650,000 have been designated Series C Preferred Stock and
(b) 150,000,000 shares of Common Stock. Immediately prior to
the Closing, based solely on a review of the Company's stock
transfer ledger, 76,371,375 shares of Common Stock (exclusive
of Additional Option Shares), 99,804.2276 shares of Series A
Preferred Stock, 1,077,026 shares of Series B Preferred Stock
and no shares of Series C Preferred Stock will have been
issued. The Company has reserved 21,303,000 shares of Common
Stock for issuance pursuant to the 1998 Plan of which, to such
counsel's knowledge, 15,014,883 shares (adjusted for the
issuance of options after the date of this Agreement) are
subject to outstanding unexercised options. To such counsel's
knowledge, immediately prior to the Closing, the shareholders
of record and holders of record of subscriptions, warrants,
options, convertible securities, and other rights (contingent
or other) to purchase or otherwise acquire equity securities
of the Company, and the number of shares of Common Stock and
the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each,
will be as set forth in Schedule III (subject to adjustment
for the issuance and exercise of employee stock options
between the date hereof and the date of the Closing and for
transfers in accordance with the Existing Shareholders
Agreement). The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of
each class or series of authorized capital stock of the
Company are as set forth in the Charter, and all such
designations, powers, preferences, rights, qualifications,
limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws
(subject to applicable
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bankruptcy, reorganization, insolvency, moratorium and similar
laws affecting the rights of creditors generally and to
general principles of equity, regardless of whether
enforcement is sought in equity or at law). Except as set
forth in Schedule III and except for the Convertible Notes and
employee stock options issued after the date hereof, to the
knowledge of such counsel, immediately prior to the Closing no
subscription, warrant, option, convertible security, or other
right (contingent or other) to purchase or acquire equity
securities of the Company will be authorized or outstanding
and there will be no commitment by the Company to issue
shares, subscriptions, warrants, options, convertible
securities, or other such rights or to distribute to holders
of any of its equity securities any evidence of indebtedness
or asset. Except as set forth in Schedule III or as provided
for in this Agreement and in the Charter, to the knowledge of
such counsel the Company has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
Except for this Agreement, the Existing Shareholders Agreement
and the stock option agreements between the Company and each
optionholder of the Company, to such counsel's knowledge there
are no voting trusts or agreements, shareholders' agreements,
pledge agreements, buy-sell agreements, rights of first
refusal, preemptive rights or proxies relating to any
securities of the Company or any of its subsidiaries (whether
or not the Company or any of its subsidiaries is a party
thereto).
(E) The issuance and delivery of the Note Shares have
been duly authorized by all required corporate action and,
when delivered against the purchase price therefore, said
shares will have been validly issued, and will be fully paid
and nonassessable with no personal liability attaching to the
ownership thereof (other than such liability, if any, as may
be (i) imposed by Section 630 of the New York Business
Corporation law or (ii) attributable to acts of the Purchaser)
and, to the knowledge of such counsel, will be free and clear
of all Liens. Such counsel will not be required to express any
opinion with respect to veil piercing or comparable bases of
liability. Neither the issuance, sale nor delivery of the Note
Shares is subject to any preemptive right of shareholders of
the Company arising under law or the Charter or By-laws of the
Company, each as amended, that has not been waived or, to the
knowledge of such counsel, to any contractual right of first
refusal or other right in favor of any person.
(F) Except as described in Schedule I, to the
knowledge of such counsel, there is no (a) action, suit,
claim, proceeding or investigation pending or threatened by or
against the Company or any of its subsidiaries, at law or in
equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (b) arbitration
proceeding relating to the Company or any of its subsidiaries
pending under collective bargaining agreements or (c)
governmental inquiry pending or threatened against the Company
or any of its subsidiaries
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(including, without limitation, any inquiry as to the
qualification of the Company or any of its subsidiaries to
hold or receive any license or permit). To the knowledge of
such counsel, neither the Company nor any of its subsidiaries
is in default with respect to any order, writ, injunction or
decree known to such counsel of any court or of any Federal,
state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign.
(G) Assuming the accuracy of the representations and
warranties of the Purchaser set forth in Article 3, no
registration or filing with, and no consent or approval of, or
other action by any Federal, state or other governmental
agency or instrumentality is or will be necessary for the
valid execution, delivery and performance by the Company of
the Transaction Documents, the issuance, sale and delivery of
the Convertible Notes or the issuance and delivery of the Note
Shares under the circumstances contemplated by the Transaction
Documents and the Charter other than filings pursuant to New
York securities laws (all of which filings, other than those
which are permitted to be made after the Closing, have been
made by the Company). In rendering the foregoing opinion with
respect to performance by the Company of its obligations under
the Registration Rights Agreement, such counsel may assume
compliance by the Company at such time with the registration
requirements of the Securities Act and with applicable state
securities laws and may disclaim any opinion as to the
validity or enforceability of the indemnification and
contribution provisions of the Registration Rights Agreement.
(H) To such counsel's knowledge, all of the
Convertible Notes to be issued to the Purchaser will be issued
in compliance with the registration requirements of the
Securities Act and all applicable New York securities laws.
(I) Other than approvals or consents which have been
obtained in accordance with all applicable laws and
agreements, no approval or consent of or from any holder of
indebtedness of which such counsel has knowledge or any
security of the Company of which such counsel has knowledge is
required by law or by the Certificate of Incorporation or
Bylaws, or by any indenture, agreement or other instrument,
identified to such counsel in an officer's certificate
provided by the Company, to which the Company or any
subsidiary is a party or by which its property is bound in
connection with the issuance and delivery of the Convertible
Notes or the Note Shares and the performance of the Company's
obligations under the Transaction Documents.
(ii) REPRESENTATIONS AND WARRANTIES TO BE TRUE. The
representations and warranties contained in Sections 2.1, 2.2, 2.3,
2.4, 2.5 (other than clause (i) of than the last sentence thereof and,
to the extent any Material Adverse Effect is attributable to activities
in furtherance of the Company's expansion of its business operations or
its financing activities with Brown Brothers Harriman, clause (ii) of
such sentence), 2.6 (but
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only to the extent any failure of the representations and warranties
contained in such section to be true on and as of the Closing Date
shall have a Material Adverse Effect that is not attributable to
activities in furtherance of the Company's expansion of its business
operations or its financing activities with Brown Brothers Harriman),
2.7 (but only to the extent any failure of the representations and
warranties contained in such section to be true on and as of the
Closing Date shall have a Material Adverse Effect that is not
attributable to activities in furtherance of the Company's expansion of
its business operations or its financing activities with Brown Brothers
Harriman), 2.18, 2.21and 2.31 that are qualified as to materiality
shall be true and correct and the representations and warranties in
such sections that are not so qualified shall be true and correct in
all material respects on and as of the date of the Closing with the
same effect as though such representations and warranties had been made
on and as of such date (except to the extent that such representations
and warranties are made as of an earlier date), and the President and
Treasurer of the Company shall have certified to such effect to the
Purchaser in writing.
(iii) PERFORMANCE. The Company shall have performed and complied
in all material respects with all agreements contained herein required
to be performed or complied with by it prior to or at the date of the
Closing, and the President and Treasurer of the Company shall have
certified to the Purchaser in writing to such effect.
(iv) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and
other proceedings to be taken by the Company in connection with the
transactions contemplated hereby and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Purchaser
and their counsel, and the Purchaser and its counsel shall have
received all such counterpart originals or certified or other copies of
such documents as they reasonably may request.
(v) SUPPORTING DOCUMENTS. The Purchaser and its counsel shall
have received copies of the following documents:
(A) (a) the Charter, certified as of a recent date by
the Secretary of State of the State of New York, (b) a
certificate of said Secretary dated as of a recent date as to
the due incorporation and good standing of the Company, the
payment of all franchise taxes by the Company and listing all
documents of the Company on file with said Secretary and (c) a
certificate of the Secretary of State of the jurisdiction of
incorporation of each of the Company's subsidiaries dated as
of a recent date as to the due incorporation and good standing
of such subsidiary;
(B) a certificate of the Secretary or an Assistant
Secretary of the Company dated the date of the Closing and
certifying: (a) that attached thereto is a true and complete
copy of the By-laws of the Company as in effect on the date of
such certification; (b) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of
Directors and the shareholders of the
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Company authorizing the execution, delivery and performance of
the Transaction Documents and the issuance, sale and delivery
of the Convertible Notes, and that all such resolutions are in
full force and effect and are all the resolutions adopted in
connection with the transactions contemplated by the
Transaction Documents; (c) that the Charter has not been
amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (A)(b) above; and
(d) to the incumbency and specimen signature of each officer
of the Company executing any of the Transaction Documents or
any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the
incumbency and signature of the officer signing the
certificate referred to in this clause (B); and
(C) such additional supporting documents and other
information with respect to the operations and affairs of the
Company as the Purchaser or its counsel reasonably may
request.
(vi) TRANSACTION DOCUMENTS. Each of the parties to each
Transaction Document (other than this Agreement), other than the
Purchaser, shall have executed and delivered such Transaction Document
and, assuming due execution and delivery of such Transaction Document
by the Purchaser, if applicable, such Transaction Document shall be in
full force and effect.
(vii) CERTAIN EMPLOYMENT ARRANGEMENTS. Each employee of the
Company whose employment commenced at least 10 business days prior to
the Closing Date shall have entered into an Employee Non-Solicitation
and Non-Disclosure Agreement in the form attached as Exhibit F and each
employee of Company who has been granted any stock options shall have
entered into a stock option agreement in the form attached as Annex B
to the Shareholders Agreement and each such agreement shall be in full
force and effect.
(viii) CHARTER. The Charter Amendment shall have been duly filed
with the Secretary of State of the State of New York and become
effective and the Charter shall read in its entirety as set forth in
Exhibit E. The Bylaws shall have been duly authorized and adopted in
form and substance as set forth in Exhibit H attached hereto, shall be
in full force and effect under the laws of New York as of the Closing
and shall not have been further amended or modified.
(ix) WAIVERS AND CONSENTS. All shareholders of the Company
having any preemptive, first refusal or other rights with respect to
the issuance of the Convertible Notes or the Note Shares shall have
irrevocably waived the same in writing. The Company shall have obtained
all other material consents and waivers necessary or advisable to
execute and deliver the Transaction Documents and issue and deliver the
Convertible Notes and the Note Shares and all such consents and waivers
shall be in full force and effect.
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(x) FEES OF PURCHASER'S COUNSEL. The Company shall have paid
in accordance with Section 6.1 the reasonable fees and disbursements of
Purchaser's counsel (not in excess of $20,000) invoiced at or after the
Closing.
All such documents shall be satisfactory in form and substance to the
Purchaser and its counsel.
SECTION 4.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to issue and deliver the Convertible Notes being
purchased by the Purchaser at the Closing is subject to the satisfaction, on or
before the date of the Closing, of the following conditions:
(i) REPRESENTATIONS AND WARRANTIES TO BE TRUE. The
representations and warranties contained in Article 3 shall be true on
and as of the date of the Closing with the same effect as though such
representations and warranties had been made on and as of such date;
and the Purchaser shall have certified to such effect to the Company in
writing.
(ii) CHARTER. The Charter Amendment shall have been duly filed
with the Secretary of State of the State of New York and become
effective and the Charter shall read in its entirety as set forth in
Exhibit E.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that:
SECTION 5.1. FINANCIAL STATEMENTS, REPORTS, ETC. The Company shall
furnish to the Purchaser:
(a) within 90 days after the end of each fiscal year of the Company a
consolidated balance sheet of the Company and its subsidiaries, if any, as of
the end of such fiscal year and the related consolidated statements of income,
shareholders' equity and cash flows for the fiscal year then ended, prepared in
accordance with generally accepted accounting principles and audited by a firm
of independent public accountants of recognized national standing selected by
the Board of Directors of the Company or the Audit Committee thereof;
(b) within 20 days after the end of each month in each fiscal year
(other than the last month in each fiscal year) a profit and loss statement and
sales report for such month certified by the Chief Financial Officer (or if
there is none, the President) of the Company;
(c) within 45 days after the end of each quarter in each fiscal year
(other than the last quarter in each fiscal year) a consolidated balance sheet
of the Company and its subsidiaries, if
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any, and the related consolidated statements of income, shareholders' equity and
cash flows, unaudited but prepared in accordance with generally accepted
accounting principles and certified by the Chief Financial Officer (or if there
is none, the President) of the Company, such consolidated balance sheet to be as
of the end of such quarter and such consolidated statements of income,
shareholders' equity and cash flows to be for such quarter and for the period
from the beginning of the fiscal year to the end of such quarter, in each case
with comparative statements for the prior fiscal year;
(d) at the time of delivery of each annual financial statement
pursuant to Section 5.1(a), a certificate executed by the Chief Financial
Officer (or if there is none, the President) of the Company stating that such
officer has caused this Agreement and the Series B Preferred Stock to be
reviewed and has no knowledge of any default by the Company in the performance
or observance of any of the provisions of this Agreement or the Series B
Preferred Stock or, if such officer has such knowledge, specifying such default
and the nature thereof;
(e) at the time of delivery of each quarterly statement pursuant to
Section 5.1(c), a management narrative report explaining all significant
variances from forecasts and all significant current developments related to
executive hiring and geographic expansion;
(f) prior to the start of each fiscal year, consolidated capital and
operating expense budgets, cash flow projections and income and loss projections
for the Company and its subsidiaries in respect of such fiscal year, all
itemized in reasonable detail and prepared on a monthly basis, and, promptly
after preparation, any material revisions to any of the foregoing;
(g) promptly following receipt by the Company, each audit response
letter, accountant's management letter and other written report submitted to the
Company by its independent public accountants in connection with an annual or
interim audit of the books of the Company or any of its subsidiaries;
(h) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries of the type described
in Sections 2.7 and 2.30 that could materially adversely affect the Company or
any of its subsidiaries, if any;
(i) promptly upon sending, making available or filing the same, all
press releases, reports and financial statements that the Company sends or makes
available to its shareholders or files with the Commission; and
(j) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of the
Company and its subsidiaries as the Purchaser reasonably may request, PROVIDED,
that the Company shall not be required to disclose to the Purchaser pursuant to
this Section 5.1, or otherwise pursuant to this Agreement, any information which
is the property of a third party and with respect to which the Company or any of
its subsidiaries is under an obligation of confidentiality ("PROTECTED THIRD
PARTY INFORMATION").
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SECTION 5.2. CORPORATE EXISTENCE. The Company shall maintain and,
except as otherwise permitted by Section 5.10, cause each of its subsidiaries to
maintain, their respective corporate existence, rights and franchises in full
force and effect.
SECTION 5.3. PROPERTIES, BUSINESS, INSURANCE. The Company shall
maintain and cause each of its subsidiaries to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient.
SECTION 5.4. INSPECTION, CONSULTATION AND ADVICE. The Company shall
permit and cause the of its subsidiaries to permit the Purchaser and such
persons as it may designate, at the Purchaser's expense, to visit and inspect
any of the properties of the Company and its subsidiaries, examine their books
and take copies and extracts therefrom, and discuss the affairs, finances and
accounts of the Company and its subsidiaries with their officers, employees and
public accountants (and the Company hereby authorizes said accountants to
discuss with the Purchaser and such designees such affairs, finances and
accounts), all at reasonable times and upon reasonable notice.
SECTION 5.5. CONFIDENTIALITY AGREEMENT. The Purchaser shall use its
best efforts to ensure that any information which is delivered by the Company to
the Purchaser pursuant to Section 5.1 or 5.4 will be kept confidential, not be
copied except for internal use, and be used solely to monitor and protect the
Purchaser's investment in the Convertible Notes; PROVIDED, that the foregoing
obligation shall not prohibit any the Purchaser from divulging any information,
whether or not confidential, (i) to the extent required, to any regulatory
authority having jurisdiction over the Purchaser, (ii) if the Purchaser is
compelled to do so by any judicial or administrative process or by other
requirements of law, after giving the Company notice and an opportunity to
oppose such disclosure or to seek confidential treatment in connection
therewith, in each case to the extent reasonably practicable or (iii) except for
(x) Protected Third Party Information or (y) in the case of any prospective
purchaser that is an actual or potential competitor of the Company, proprietary
or technical information of the Company or any of its subsidiaries, or
information the disclosure of which could reasonable be expected to result in a
competitive disadvantage to the Company or any of its subsidiaries, to any
prospective purchaser of Convertible Notes from the Purchaser in a transaction
exempt from the registration requirements of the Securities Act and not effected
through the facilities of a securities exchange or quotation system so long as
such prospective purchaser agrees to be bound by the confidentiality provisions
contained herein; and PROVIDED, FURTHER, that the foregoing obligation shall
remain in effect as to any confidential information except to the extent that
such information can be shown to have been (i) previously known on a
nonconfidential basis by the Purchaser, (ii) in the public domain through no
fault of the Purchaser, (iii) later lawfully acquired by the Purchaser from
sources other than the Company or any subsidiary other than information known by
the Purchaser to be acquired in violation of an existing confidentiality
agreement or (iv) independently developed by the Purchaser. The obligation of
the Purchaser to hold any
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<PAGE>
confidential information in confidence shall be satisfied if the Purchaser
exercises the same care with respect to such information as it would take to
preserve the confidentiality of its own similar information.
SECTION 5.6. RESTRICTIVE AGREEMENTS PROHIBITED. Neither the Company nor
any of its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of any of the Transaction Documents, or the
Charter as it may be amended from time to time.
SECTION 5.7. TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into any
transaction with any director, officer, employee or holder of more than five
percent of the outstanding capital stock of any class or series of capital stock
of the Company or any of its subsidiaries, member of the family of any such
person, or any corporation, partnership, trust or other entity in which any such
person, or member of the family of any such person, is a director, officer,
trustee, partner or holder of more than five percent of the outstanding capital
stock thereof, except for transactions on customary terms related to such
person's employment.
SECTION 5.8. BY-LAWS. The Company shall at all times maintain
provisions in its By-laws and/or Charter indemnifying all directors against
liability and absolving all directors from liability to the Company and its
shareholders to the maximum extent permitted under the laws of the State of New
York.
SECTION 5.9. EMPLOYEE NON-SOLICITATION AND NON-DISCLOSURE AGREEMENTS.
The Company shall use commercially reasonable efforts to obtain, and shall cause
its subsidiaries to use commercially reasonable efforts to obtain, an Employee
Non-Solicitation and Non-Disclosure Agreement in substantially the form of
Exhibit F and a Noncompetition Agreement in substantially the form of Exhibit I
from all future officers and key employees of the Company or any of its
subsidiaries, upon their employment by the Company or any of its subsidiaries.
SECTION 5.10. ACTIVITIES OF SUBSIDIARIES. Except as approved by at
least 70% of the members of the entire Board of Directors, the Company will not
(a) organize or acquire any entity that is a subsidiary unless such subsidiary
is wholly-owned (directly or indirectly) by the Company; (b) permit any
subsidiary to consolidate or merge into or with or sell or transfer all or
substantially all its assets, except that any subsidiary may (i) consolidate or
merge into or with or sell or transfer assets to any other subsidiary, (ii)
merge into or sell or transfer assets to the Company or (iii) subject its assets
to the lien of, and the potential exercise of remedies contained in, an Approved
Third Party Credit Agreement (as defined in the Charter); (c) sell or otherwise
transfer any shares of capital stock of any subsidiary, except to the Company or
another subsidiary, or permit any subsidiary to issue, sell or otherwise
transfer any shares of its capital stock or the capital stock of any subsidiary,
except to the Company or another subsidiary; or (d) permit any subsidiary to
purchase or set aside any sums for the purchase of, or pay any dividend
27
<PAGE>
or make any distribution on, any shares of its stock, except for dividends or
other distributions payable to the Company or another subsidiary.
SECTION 5.11. COMPLIANCE WITH LAWS. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could materially adversely affect its business
or condition, financial or otherwise.
SECTION 5.12. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company
shall keep, and cause each subsidiary to keep, adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all reserves required by generally accepted accounting principles for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
SECTION 5.13. CHANGE IN NATURE OF BUSINESS. The Company shall not make,
or permit any subsidiary to make, any material change in the nature of its
business as it is conducted on the date hereof.
SECTION 5.14. RULE 144A INFORMATION. The Company shall, at all times
during which it is neither subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange
Act, provide in writing, upon the written request of the Purchaser or a
prospective buyer of Convertible Notes from the Purchaser, all information
required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the
Commission under the Securities Act ("RULE 144A INFORMATION"). The Company also
shall, upon the written request of the Purchaser, cooperate with and assist the
Purchaser or any member of the National Association of Securities Dealers, Inc.
PORTAL system in applying to designate and thereafter maintain the eligibility
of the Convertible Notes for trading through PORTAL. The Company's obligations
under this Section shall at all times be contingent upon the Purchaser's
obtaining from the prospective buyer of Convertible Notes a written agreement to
take all reasonable precautions to safeguard the Rule 144A Information from
disclosure to anyone other than a person who will assist such buyer in
evaluating the purchase of any Convertible Notes.
SECTION 5.15. TERMINATION OF COVENANTS. (a) The covenants set forth in
Sections 5.1(a) through 5.1(d), 5.1(i) and 5.14 shall terminate and be of no
further force or effect when the Purchaser no longer beneficially owns any
shares of capital stock or rights to acquire capital stock of the Company.
(b) All of the other covenants set forth in this Article 5 shall
terminate and be of no further force or effect upon the earlier to occur of (i)
the Purchaser having sold or otherwise disposed of more than 75% of the number
of shares of Common Stock beneficially owned (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) by it (appropriately
adjusted to reflect stock splits, stock dividends, combinations of shares and
the
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<PAGE>
like) immediately following the Closing or (ii) the completion of an
underwritten public offering of equity securities of the Company pursuant to an
effective registration statement under the Securities Act other than pursuant to
a registration statement on Form S-4 or Form S-8 or any successor or similar
form in which at least $20 million of gross proceeds are received by the
Company; PROVIDED that the covenant set forth in Section 5.5 shall terminate and
be of no further force or effect on the third anniversary of the termination of
all other covenants in this Article 5 as provided in this sentence.
ARTICLE 6
MISCELLANEOUS
SECTION 6.1. EXPENSES. Each party hereto will pay its own expenses in
connection with the transactions contemplated by the Transaction Documents,
whether or not such transactions shall be consummated; PROVIDED that the Company
shall pay up to $20,000 of the reasonable fees and disbursements of the
Purchaser's special counsel, Brobeck, Phleger & Harrison LLP, in connection with
such transactions and any subsequent amendment, waiver, consent or enforcement
thereof, but only if the Closing is consummated.
SECTION 6.2. SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made in any of the Transaction Documents or any
certificate or instrument delivered to the Purchaser pursuant to or in
connection with any of the Transaction Documents, shall survive the execution
and delivery of all of the Transaction Documents, the issuance, sale and
delivery of the Convertible Notes, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or thereunder
or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.
SECTION 6.3. BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.4. STAMP TAX. The Company will pay all federal or New York
stamp and other taxes, if any, which may be payable in respect of the sale of
the Convertible Notes to the Purchaser and the issuance thereof to the
Purchaser, and will save the Purchaser harmless against any loss or liability
resulting from nonpayment or delay in payment of any such tax.
SECTION 6.5. PARTIES IN INTEREST. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Notwithstanding the
foregoing, neither this Agreement nor any right, remedy, obligation or liability
arising hereunder or by reason hereof shall be assignable (including by
operation of law)
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<PAGE>
by any party without the consent of the other parties hereto; PROVIDED that (i)
all representations, covenants and agreements benefiting the Purchaser (other
than Sections 5.1(e) through 5.1(h), 5.1(j), 5.4 and 6.1, which shall be
transferable only to a Permitted Transferee (as defined in the Shareholders
Agreement) of a Purchaser), shall inure to the benefit of any and all subsequent
holders from time to time of the Convertible Notes to whom the Purchaser shall
have executed a written assignment of its rights with respect to such
representations, covenants and agreements, which subsequent holders shall,
subject to clause (iii) below, collectively be deemed to be the "Purchaser" for
the purposes of this Agreement; (ii) the Purchaser may not transfer its rights
under Sections 5.1(a) through 5.1(d) and 5.1(i) to more than one person (who
shall be the sole holder of such rights) and (iii) a person to whom such
assignment is made who is not a Permitted Transferee shall not constitute the
"Purchaser" for purposes of Section 5.15 hereof with respect to the time at
which any obligation of the Company shall terminate. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto, and their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 6.6. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier, addressed as follows:
(a) if to the Company, at 545 Fifth Avenue, 14th Floor, New York, New
York, 10017, Attention: Rami Musallam, President, telecopier number (917)
542-5525, with a copy to Kenneth G. Alberstadt, Esq., Roberts, Sheridan & Kotel,
a Professional Corporation, 12 East 49th Street, 30th Floor, New York, New York
10017, telecopier number (212) 299-8686; and
(b) if to the Purchaser, at the address of the Purchaser set forth on
the signature pages hereof, with a copy to Therese A. Mrozek, Esq., Brobeck,
Phleger & Harrison, LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto,
California 94303-0913, telecopier number (650) 496-2885;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflicts of law principles thereof.
SECTION 6.8. ENTIRE AGREEMENT. The Transaction Documents constitute the
entire agreement and understanding between the parties hereto and thereto in
respect of the subject matter contained herein and therein, and there are no
restrictions, promises, representations, warranties, covenants, or undertakings
with respect to the subject matter hereof or thereof, other than those expressly
set forth or referred to herein or therein; PROVIDED that all Schedules and
Exhibits hereto are hereby incorporated herein by reference. The Transaction
Documents
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<PAGE>
supersede all prior agreements and understandings between the parties hereto and
thereto with respect to the subject matter hereof and thereof. No statement,
representation, warranty, covenant or agreement of any kind not expressly set
forth in the Transaction Documents shall affect, or be used to interpret, change
or restrict, the express terms and provisions of the Transaction Documents. The
Series B Convertible Preferred Stock Purchase Agreement dated as of May 13, 1999
between the Company and Cisco and any rights and remedies of the parties
thereunder shall terminate upon the Closing.
SECTION 6.9. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.10. WAIVERS; AMENDMENTS. (a) No failure or delay on the part
of any party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law.
(b) Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by the parties hereto or, in the case of a waiver, by the party or
parties against whom the waiver is to be effective.
SECTION 6.11. SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.12. TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.13. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "AFFILIATE" means with respect to any person, any other person
directly or indirectly controlling, controlled by or under common control with
such person. For the purposes of this definition, the term "CONTROL" (including
its correlative meanings, the terms "CONTROLLING", "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise.
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(b) "BENEFIT ARRANGEMENT" means each employment, severance or other
similar contract, arrangement or policy (written or oral) and each plan or
arrangement (written or oral) providing for severance benefits, insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights or other forms of incentive compensation or
postretirement insurance, compensation or benefits which (i) is not an Employee
Plan and (ii) covers any employee or former employee of the Company.
(c) "BENEFICIAL OWNER" has the meaning ascribed to such term pursuant
to Rule 13d-3 under the Exchange Act.
(d) "EMPLOYEE PLAN" means each "EMPLOYEE BENEFIT PLAN," as such term
is defined in Section 3(3) of ERISA, that (A)(i) is subject to any provision of
ERISA and (ii) is maintained or contributed to by the Company, or (B)(i) is
subject to any provision of Title IV of ERISA and (ii) is maintained or
contributed to by any of the Company's ERISA Affiliates.
(e) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(f) "ERISA AFFILIATE" of any entity means any other entity that,
together with such entity, would be treated as a single employer under Section
414 of the Code.
(g) information "KNOWN" by any entity means that the individuals
associated with such entity who, in the ordinary course of carrying their
employment function, would be expected to acquire such information have in fact
acquired such information and are consciously aware of the same.
(h) "MULTIEMPLOYER PLAN" means each Employee Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA.
(i) "PERSON" means an individual, corporation, trust, partnership,
limited liability company, joint venture, unincorporated organization,
government agency or any agency or political subdivision thereof, or other
entity.
(j) "SUBSIDIARY" means, as to the Company, any corporation of which
more than 50% of the outstanding stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation is at the time directly
or indirectly owned by the Company, or by one or more of its subsidiaries, or by
the Company and one or more of its subsidiaries.
SECTION 6.14. INDEMNIFICATION. The Company shall indemnify and hold
harmless each holder of Convertible Notes against and from any losses, claims,
expenses, damages or liabilities, insofar as such losses, claims, expenses,
damages or liabilities (or actions in respect thereof) arise
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out of or are based upon (i) the falsity or incorrectness of any representation
or warranty of the Company contained in or made pursuant to Article 2 hereof or
(ii) the existence of any condition, event or fact constituting, or which with
notice or passage of time, or both, would constitute a default in the observance
of any of the Company's undertakings or covenants hereunder, under the other
Transaction Documents, or pursuant to the Charter. The Company shall also pay
all attorney's and accountant's fees and costs and court costs incurred by any
holder of Convertible Notes in enforcing the indemnification provided for in
this Section (provided, however, that where more than one person is requesting
the indemnification provided for in this Section, the Company shall only be
obligated to attorney's fees of one counsel to represent all such persons).
Notwithstanding the foregoing, the Company expressly agrees and acknowledges
that the right of indemnification granted herein to each holder of Convertible
Notes shall not be deemed to be the exclusive remedy available to such holder
for any of the matters described in this Section.
SECTION 6.15. DELIVERY OF CERTAIN SIGNATURE PAGES. Concurrently with
the execution of this Agreement, the parties are executing and delivering to
counsel for the Company signature pages to the Registration Rights Agreement,
the Shareholders Agreement, the Convertible Notes and a letter agreement
establishing certain procedures relating to potential acquisitions and asset
sales involving the Company. The parties hereto hereby agree that such signature
pages are being delivered to counsel for the Company for safekeeping pending the
Closing and that neither such agreements and instruments nor any other Closing
documents delivered to counsel for the Company shall have effect prior to the
satisfaction (or the waiver by the party entitled to insist on performance
thereof) of the conditions to the Closing contained in Article 4,
notwithstanding that such agreements and instruments may be dated prior to the
Closing Date.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
TOTAL NETWORK SOLUTIONS, INC.
By:
------------------------------
Name: Rami Musallam
Title: President
PURCHASER:
CISCO SYSTEMS, INC.
By:
------------------------------
Name:
Title:
Address:
Fax:
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<PAGE>
Exhibit 10.7
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NEITHER THIS NOTE NOR ANY SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY 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 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.
THE SECURITIES ISSUABLE UPON EXERCISE OF THIS CONVERTIBLE PROMISSORY NOTE ARE
ALSO SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN A SHAREHOLDERS AGREEMENT, AS
AMENDED, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE SECRETARY OF THE
COMPANY.
PAYMENTS ON ACCOUNT OF THE INDEBTEDNESS EVIDENCED BY THIS CONVERTIBLE PROMISSORY
NOTE ARE SUBORDINATED AS PROVIDED HEREIN.
$3,172,872.24 CONVERTIBLE PROMISSORY NOTE
-----------------------------------------
$3,172,872.24 December 21, 1999
Total Network Solutions, Inc., a New York corporation (the
"COMPANY"), for value received, promises to pay to Cisco Systems, Inc., a
California corporation (the "HOLDER"), the principal sum of Three Million One
Hundred Seventy-Two Thousand Eight Hundred Seventy-Two Dollars and Twenty-Four
Cents ($3,172,872.24), plus interest on the unpaid balance hereof (the "NOTE").
Interest shall be computed on the basis of a 360-day year and actual number of
days elapsed and shall accrue from and including the date funds are advanced
hereunder at the rate of six point forty seven percent (6.47%) per annum to but
excluding the date of repayment.
1. DEFINITIONS. As used in this Note, the following terms
shall have the definitions ascribed to them below:
a. "Common Note" shall mean the $4,416,150
Convertible Promissory Note to be issued by the Company to the Holder pursuant
to the Purchase Agreement (as defined below).
b. "Conversion Share Price" shall be equal to: (i)
the sum of accrued interest and the principal amount of $3,172,872.24; (ii)
divided by (x) in the case of a conversion into Common Stock, a number equal to
the number of Common Stock into which 1,077,026 shares of Series B Preferred (as
defined below) issued on the date hereof would be convertible pursuant to the
Restated Certificate of Incorporation of the Company (the "Restated
Certificate") (as appropriately adjusted therein for dilution, stock splits,
stock dividends, combinations,
<PAGE>
reclassifications and the like) and (y) in the case of a conversion into Series
B Preferred, 1,077,026.
c. "Conversion Stock" shall mean: (1) prior to the
Company consummating an Initial Public Offering (as defined below) shares of the
Company's common stock or Series B Preferred, at the option of the Holder,
purchasable upon conversion of this Note, or (2) subsequent to the Company
consummating an Initial Public Offering, the shares of the Company's common
stock issuable upon conversion of this Note. The total number of shares of
Conversion Stock shall be determined by dividing (A) the amount of the
outstanding principal and accrued interest under this Note which the Holder
elects to convert at the time of conversion by (B) the Conversion Share Price.
d. "Highest Lawful Rate" shall mean the maximum
non-usurious rate of interest, as in effect from time to time, which may be
charged, contracted for, reserved, received or collected by the Holder in
connection with this Note under applicable law.
e. "Holder" shall mean the person specified in the
introductory paragraph together with its successors and permitted assigns.
f. "Initial Public Offering" shall mean the Company's
first firm commitment underwritten offering pursuant to a registration statement
under the Securities and Exchange Act of 1933, as amended, covering the sale of
the Company's common stock with net proceeds to the Company of at least Twenty
Million Dollars ($20,000,000).
g. "Letter Agreement" shall mean the Letter
Agreement, dated as of December 21, 1999, by and between the Company and the
Holder.
h. "Note" shall mean this $3,172,872.24 Convertible
Promissory Note.
i. "Purchase Agreement" shall mean the Convertible
Note Purchase Agreement, dated as of December 21, 1999, by and between the
Company and the Holder.
j. "Registration Rights Agreement" shall mean the
Second Amended and Restated Registration Rights Agreement, dated as of December
21, 1999, by and among the Company, Morgan Stanley Venture Investors III, L.P.,
Morgan Stanley Venture Partners III, L.P., The Morgan Stanley Venture Partners
Entrepreneur Fund, L.P., Merritt Lutz and the Holder.
k. "Second Convertible Note" shall mean the
$9,000,004.68 Convertible Promissory Note to be issued by the Company to the
Holder pursuant to the Purchase Agreement.
l. "Series B Preferred" shall mean shares of the
Company's Series B Preferred Stock.
m. "Shareholders Agreement" shall mean the shall mean
the Second Amended and Restated Shareholders Agreement, dated as of December 21,
1999, by and among
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<PAGE>
the Company, Morgan Stanley Venture Investors III, L.P., Morgan Stanley Venture
Partners III, L.P., The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.,
Merritt Lutz, the Holder and each of the stockholders listed on the signature
pages thereof.
2. MATURITY. The principal of this Note shall mature and be
due and payable on December 21, 2009 (the "MATURITY DATE"). All accrued and
unpaid interest shall be due and payable on the earlier of (i) the Maturity Date
or (ii) the maturity of the principal of this Note (whether at scheduled
maturity or upon acceleration of maturity following an Event of Default (as
defined below)), provided that in no event shall any interest be payable prior
to June 30, 2003.
3. CONVERSION.
A. HOLDER'S OPTION. The unpaid principal and interest
outstanding under this Note shall be convertible at any time or from time to
time, in whole or in part, at the option of the Holder, into Conversion Stock at
the Conversion Price. The Holder will give the Company thirty (30) days' prior
written notice of its intention to effectuate such conversion. No fractional
shares shall be issued and the value of any fractional share shall be paid by
the Company to the Holder in cash. Commencing ninety (90) days prior to the
Maturity Date, if the Note has not been converted by the Holder in accordance
with the terms hereof and the Company wishes to pay the Note, the Company shall
give thirty (30) days' prior written notice to the Holder (the "NOTICE PERIOD").
After the commencement of the Notice Period, the Holder shall have thirty (30)
days thereof to advise the Company whether it will exercise its right to convert
the Note, in whole or in part, into shares of Conversion Stock or whether it
will accept payment or prepayment of the Note, in whole, from the Company. The
Company may not voluntarily pay prior to the Maturity Date any portion of the
Note if the conversion of such portion would result in the Holder acquiring
19.9% or more of the equity ownership of the Company or if the Holder advises
the Company during the Notice Period that such conversion would require the
Holder to undertake the equity method of accounting in connection with its
ownership of the Conversion Stock (the "EQUITY LIMITATION") (it being understood
that the Equity Limitation shall be inapplicable to any payment on this Note on
or after the Maturity Date). Any portion of the Note at any time outstanding
because of the Equity Limitation set forth in the preceding sentence may be
voluntarily paid prior to the Maturity Date only at the option of the Holder.
B. CONDITION TO AN ACQUISITION TRANSACTION. If
neither prepayment nor conversion has occurred prior to (i) any reorganization,
merger or consolidation in which the Company is not the surviving entity or (ii)
the sale or transfer by the Company of all or substantially all of its assets
otherwise than to a wholly owned affiliate of the Company, (any such transaction
being an "ACQUISITION TRANSACTION"), unless this Note is paid or converted as
provided in Section 5, as a condition to the consummation of the Acquisition
Transaction, the Note shall be cancelled and the surviving entity or transferee
shall enter into a successor note agreement with the Holder (the "SUCCESSOR
NOTE"). The Successor Note shall provide (i) that the Holder may convert it for
the kind and amount of capital stock or other securities or property which the
Holder would have received immediately after the Acquisition Transaction if the
Holder had converted the Note immediately before the effective date of the
Acquisition Transaction and (ii) that the surviving entity in the Acquisition
Transaction shall succeed to and be substituted to every right and obligation of
the Company in respect of this Note. The
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Successor Note shall provide for adjustment which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section 3.
Notwithstanding the foregoing, if the Company enters into an Acquisition
Transaction and consideration payable to holders of shares of the Company's
common stock issuable or, deliverable upon conversion of the Note in connection
with such Acquisition Transaction consists solely of cash, then the Holder shall
be entitled to receive distributions on the date of such event on an equal basis
with holders of shares of the Company's common stock issuable upon conversion of
the Note as if the Note had been converted immediately prior to such event and
upon such distribution, the Note shall be cancelled and the Company's
obligations under the Note shall be terminated.
C. CONDITIONAL CONVERSION. Subject to Section 3(a),
the Holder may specify that the conversion of the Note, in whole or in part, is
contingent upon and shall occur simultaneously with the consummation of (i) the
acquisition of the Company by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation), or (ii) a sale of all or substantially
all of the assets of the Company (including, for purposes of this paragraph,
intellectual property rights which, in the aggregate, constitute substantially
all of the Company's assets).
4. MECHANICS AND EFFECT OF CONVERSION. Upon the conversion of
this Note pursuant to Section 3 above, the Holder shall surrender this Note,
duly endorsed, at the principal office of the Company. At its expense, the
Company shall, as soon as practicable thereafter, issue and deliver to such
Holder at such principal office a certificate or certificates for the number of
shares of such Conversion Stock to which the Holder shall be entitled upon such
conversion (bearing such legends as are required by applicable state and federal
securities laws in the opinion of counsel to the Company), together with any
other securities and property to which the Holder is entitled upon such
conversion under the terms of this Note, including a check payable to the Holder
for any cash amounts payable as described above. Upon conversion of this Note,
the Company shall be forever released from all its obligations and liabilities
under this Note.
5. PREPAYMENTS. In addition to the Company's right to prepay
the Note pursuant to Section 3, if on or prior to the Maturity Date, the Company
notifies the Holder that it intends to consummate a merger, consolidation,
reorganization or sale of all or substantially all of its assets following which
the holders of the Company's voting securities outstanding prior to such
transaction will not hold more than 50% of the voting securities of the
surviving entity or transferee in such transaction (or an entity controlling
such surviving entity or transferee), the Company may prepay the Note in whole;
PROVIDED, HOWEVER, that the Company shall give the Holder at least thirty (30)
days prior written notice (or such other time as may be remaining if there are
less than 30 days remaining prior to the consummation of such transaction) of
its intent to consummate such transaction and; PROVIDED, FURTHER, that such
prepayment is subject to the Holder's right to convert the Note pursuant to
Section 3(a), and that such prepayment shall occur only upon the consummation of
such transaction. Upon the consummation of such transaction, the Holder shall
surrender the Note, duly endorsed, at the principal office of the Company, and
the Company shall pay the Holder in immediately available Funds the unpaid
principal and interest of the Note.
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6. USURY. Any scheduled principal payments hereunder, or any
other amounts payable hereunder, not paid within five (5) days from the date due
shall bear interest at a rate of 10% per annum, or the maximum rate permitted by
law, whichever is less. Overdue interest shall be payable on demand. All
computations of interest shall be made on the basis of a year of 360 days for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest is payable. Anything herein to
the contrary notwithstanding, if during any period for which interest is
computed hereunder, the amount of interest computed on the basis provided for in
this Note, together with all fees, charges and other payments which are treated
as interest under applicable law, as provided for herein or in any other
document executed in connection herewith, would exceed the amount of such
interest computed on the basis of the Highest Lawful Rate, the Company shall not
be obligated to pay, and the Holder shall not be entitled to charge, collect,
receive, reserve or take, interest in excess of the Highest Lawful Rate, and
during any such period the interest payable hereunder shall be computed on the
basis of the Highest Lawful Rate.
7. EVENTS OF DEFAULT. The entire unpaid principal balance and
accrued interest of this Note shall immediately be due and payable at the option
of the Holder upon the occurrence of any Event of Default. For purposes of this
Note, the Company shall be in default under this Note upon the happening of any
condition or event set forth below (herein called an "EVENT OF DEFAULT"):
a. The Company's failure to pay any principal or
accrued interest evidenced hereby within five (5) days after such payment of
principal or interest becomes due in accordance with the terms of this Note;
b. The Company's failure to perform, keep or observe
any of its covenants, conditions, promises, agreements or obligations under this
Note, if such failure would have a material adverse effect on the Company's
assets, operations or condition, financial or otherwise and such failure is not
cured by the Company within thirty (30) days (or such longer period as shall be
reasonably necessary to effect such cure if efforts to cure are commenced within
such 30-day period and are pursued with reasonable diligence until completion)
of the date that written notice of such failure is delivered to the Company.
c. The institution of proceedings against the
Company, or the Company's filing of a petition or answer or consent seeking
reorganization or release, under the Federal Bankruptcy Code, or the
commencement of any proceeding under any bankruptcy or insolvency laws by or
against the Company which results in the entry of an order for relief or which
remains undismissed, undischarged or unbonded for a period of sixty (60) days or
more, or the Company's consent to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee or other similar
official of the Company or of any substantial part of its property, or the
Company's making of an assignment for the benefit of creditors, or the taking of
corporate action in furtherance of such action;
d. Any warranty or representation contained in this
Note, the Letter Agreement, the Common Note, the Second Convertible Note, the
Registration Rights Agreement, the Shareholders Agreement or the Purchase
Agreement proves to have been false in
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<PAGE>
any material respect when made or furnished and such falsity would have a
material adverse effect on the Company's assets, operations or condition,
financial or otherwise.
8. NEGATIVE COVENANTS. For so long as any amounts are
outstanding under this Note and are convertible into shares of Series B
Preferred Stock, the Company shall not, without the consent of the holders of
75% of the principal amount of this Note:
a. Redeem, repurchase or pay any dividends on any
Junior Securities (as defined in the Restated Certificate) other than (i)
dividends or distributions paid in shares of, or options, warrants or rights to
subscribe for or purchase shares of, Junior Securities, (ii) a redemption,
purchase or other acquisition of shares of Common Stock made pursuant to an
employee incentive or benefit plan of the Corporation or any subsidiary or the
terms of any grant pursuant thereto that has been approved by the Board of
Directors or other administrator thereof or (iii) pursuant to the Shareholders
Agreement;
b. Amend, alter or repeal any provision of, or add
any provision to, the Restated Certificate (including without limitation any
provision of the Restated Certificate fixing and determining the terms of any
series of Preferred Stock, including without limitation the Series B Preferred
Stock, but excluding any Preferred Stock constituting Junior Securities, whether
now or hereafter authorized) or the Company's Bylaws (other than (i) any
increase in the authorized capital of the Company that has been approved by the
Board of Directors and that does not require the vote of the holders of Series B
Preferred Stock pursuant to paragraph D.9(c)(i) or D.9(d)(i) of the Restated
Certificate or (ii) except to the extent the same shall adversely change the
rights, preferences or privileges of the Series B Preferred Stock or the Series
C Preferred Stock (in which event any separate class vote of such series
provided for by law or in the Restated Certificate shall also be required), in
connection with any merger, consolidation, business combination or other
extraordinary corporate transaction following compliance with the Letter
Agreement, to the extent applicable);
c. Create or authorize the creation of any additional
class or series of shares of capital stock other than Junior Securities, or
increase the authorized amount of any additional class or series of shares of
capital stock other than Junior Securities, or create or authorize any
obligation or security convertible into shares of any other class or series of
capital stock other than Junior Securities, or issue any additional shares of
any other class or series of capital stock other than Junior Securities (other
than any Additional Shares (as defined in the Restated Certificate)) whether any
such creation, authorization, increase or issuance shall be by means of
amendment to the Restated Certificate or by merger, consolidation or otherwise;
d. Consent to any liquidation, dissolution or winding
up of the Corporation (other than a Deemed Liquidation (as defined in the
Restated Certificate) or in connection with a merger, consolidation, business
combination or other extraordinary corporate transaction following compliance
with the Letter Agreement, to the extent applicable);
e. Redeem or repurchase any shares of Series A
Preferred Stock prior to June 30, 2003 other than pursuant to paragraph C.3 or
clause (i) of paragraph C.4(b) of Article Fourth of the Restated Certificate;
6
<PAGE>
f. Increase the authorized amount of the Series B
Preferred Stock, create or authorize any obligation or security convertible into
shares of Series B Preferred Stock or issue any additional shares of Series B
Preferred Stock (other than Additional Series B Shares (as defined in the
Restated Certificate)); or
g. Enter into, or permit any Subsidiary to enter
into, any agreement, indenture or other instrument which contains any provision
restricting the payment of dividends by the Corporation on the Series B
Preferred Stock when due to the full extent required by Article Fourth,
paragraph D.3 of the Restated Certificate, other than any Approved Third Party
Credit Agreement (as defined in the Restated Certificate).
9. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company
shall reserve and keep available out of its authorized but unissued shares of
preferred or common stock such number of shares as shall from time to time be
sufficient to effect the conversion of this Note; and, if at any time the number
of authorized but unissued shares of the Company's preferred or common stock
shall not be sufficient to effect the conversion of the entire outstanding
principal amount of this Note, without limitation of such other remedies as
shall be available to the Holder of this Note, the Company will use its best
efforts to take such corporate action as, in the opinion of counsel, may be
necessary to increase its authorized but unissued shares of preferred or common
stock to such number of shares as shall be sufficient for such purposes.
10. NOTICES. Any notice required by any provision of this Note
to be given to the Holder shall be in writing or by telegram or facsimile
confirmed answer back, and shall be deemed to have been duly made when delivered
in person or sent by telegram or facsimile confirmed answer back , same day or
overnight courier, or 72 hours after having been deposited in the United States
first class or registered or certified mail return receipt requested, postage
prepaid. All such communications shall be addressed to the Holder of record at
its address appearing on the books of the Company.
11. NO RIGHTS AS STOCKHOLDER. Without limitation of Section 8,
this Note, as such, shall not entitle the Holder to any rights as a stockholder
of the Company, except as otherwise specified herein.
12. LEGAL FEES. The Company agrees to pay on demand all the
losses, costs, and expenses (including, without limitation, attorneys' fees and
disbursements) which the Holder incurs in connection with enforcement or
attempted enforcement of this Note, or the protection or preservation of the
Holder's rights under this Note, whether by judicial proceedings or otherwise.
Such costs and expenses include, without limitation, those incurred in
connection with any workout or refinancing, or any bankruptcy, insolvency,
liquidation or similar proceedings.
13. HEADINGS. The headings in this Note are inserted for
convenience only and do not constitute a part of this Note.
14. GOVERNING LAW. This Note shall be governed by the laws of
the State of New York, without giving effect to conflicts of law principles.
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<PAGE>
15. ASSIGNMENT. This Note shall be binding on the Company and
its successors and permitted assigns, and shall be binding upon and inure to the
benefit of the Holder, any future holder of this Note and their respective
successors and permitted assigns. Neither the Company nor the Holder may assign
or transfer this Note or any of its rights or obligations hereunder (other than
by operation of law) without the other party's prior written consent; PROVIDED,
HOWEVER, that the Holder may transfer this Note and any of its rights and
obligations hereunder to a majority-owned affiliate thereof. Any transferee of
this Note shall become a party to the Shareholders Agreement in accordance with
the terms thereof.
16. WAIVER. The Company hereby waives notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor
and all other notices or demands relative to this Note. No single or partial
exercise of any power under this Note shall preclude any other or further
exercise of such power or exercise of any other power. No delay or omission on
the part of the Holder in exercising any right under this Note shall operate as
a waiver of such right or any other right hereunder.
17. SEVERABILITY. In the event any one or more of the
provisions contained in this Note shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and this Note
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
18. SUBORDINATION. By accepting this Note, the Holder agrees
that all payments on account of the indebtedness, liabilities and other
obligations of the Company to the Holder of this Note, including, without
limitation, all amounts of principal, all interest accrued hereon, and all other
amounts payable by the Company to the Holder under this Note or in connection
herewith (the "Subordinated Indebtedness") shall be subordinate and subject in
right of payment, to the extent and in the manner set forth herein, to the prior
payment in full in cash or cash equivalents of the Senior Indebtedness. As used
herein, "Senior Indebtedness" shall mean (i) any indebtedness, liabilities and
other obligations of the Company (whether as primary obligor or as guarantor) to
any person (each a "Senior Lender") with respect to (a) any working capital,
revolving credit or other line of credit facility, any term loan facility, or
any other extension of credit by any individual or entity (whether or not
secured), including reimbursement obligations under letters of credit or
guaranties and (b) obligations in respect of bankers' acceptances purchased by,
and interest rate protection agreements and currency exchange and purchase
agreements entered into with, any individual or entity, (ii) any such types of
indebtedness which are incurred by any affiliate of the Company, (iii) all other
amounts due on or in connection with such Senior Indebtedness, including all
charges, fees, indemnities and expenses (including reasonable fees and expenses
of counsel), (iv) all interest accruing with respect to such Senior Indebtedness
during the pendency of a bankruptcy or insolvency proceeding, whether or not
allowable thereunder, and (v) all extensions, renewals, refinancings and
deferrals of the amounts referred to in clauses (i) through (iv) above. The
terms "indebtedness," "liabilities" and "obligations" are used herein in their
most comprehensive sense and include any and all advances, debts, obligations
and liabilities, now existing or hereafter arising, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.
8
<PAGE>
As long as any of the Senior Indebtedness shall remain
outstanding and unpaid, the Holder shall not accept or receive, directly or
indirectly, and the Company shall not make, any Subordinated Debt Payment (as
defined below), except that prior to the occurrence of any Senior Lender Default
(as defined below) and receipt of the notice from the Senior Lender described
below, the Holder shall be entitled to accept and receive payments of principal
and interest under this Note, in accordance with the terms of this Note. Upon
the occurrence of any Senior Lender Default (or if any Senior Lender Default
would exist immediately after the making of a Subordinated Debt Payment), and
upon receipt by the Company and the Holder of notice in writing of such Senior
Lender Default, and until such Senior Lender Default is cured or waived, the
Company shall not make, and the Holder shall not accept or receive, any
Subordinated Debt Payment. In the event that, notwithstanding the foregoing
provisions, any Subordinated Debt Payments shall be received in contravention
hereof by the Holder before all Senior Indebtedness shall be paid, such
Subordinated Debt Payments shall be held in trust for the benefit of the Senior
Lenders and shall be paid over or delivered to the Senior Lenders for
application to the payment in full in cash or cash equivalents of all Senior
Indebtedness remaining unpaid to the extent necessary to give effect hereto,
after giving effect to any concurrent payments or distributions to any Senior
Lender in respect of the Senior Indebtedness. As used herein, "Senior Lender
Default" means any default in respect of any Senior Indebtedness, or any other
default specified in the agreement or instrument under which any Senior
Indebtedness is issued, continuing beyond the grace period, if any, specified in
any such agreement or instrument; and "Subordinated Debt Payment" means any
payment or distribution by or on behalf of the Company, directly or indirectly,
of assets of the Company or any person or entity with a right of reimbursement
against the Company of any kind or character, whether in cash, property or
securities, including on account of the purchase, redemption or other
acquisition of Subordinated Indebtedness, or by setoff, exchange or in any other
manner, for or on account of the Subordinated Indebtedness.
If, while any Subordinated Indebtedness is outstanding, any
bankruptcy, insolvency, reorganization, receivership, arrangement, marshalling
of assets and liabilities or similar proceeding is commenced by or against the
Company or its property, the Holder shall promptly take such action as any
Senior Lender may reasonably request (A) to collect the Subordinated
Indebtedness for the account of the Senior Lenders and to file appropriate
claims or proofs of claim in respect of the Subordinated Indebtedness, (B) to
execute and deliver to the Senior Lenders, such powers of attorney, assignments
and other instruments as they may request to enable them to enforce any and all
claims with respect to the Subordinated Indebtedness (to the extent and in the
manner provided herein), and (C) to collect and receive any and all payments or
distributions which may be payable or deliverable upon or with respect to the
Subordinated Indebtedness for the account of the Senior Lenders.
In the event of any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, upon
the dissolution, winding up or total or partial liquidation or reorganization,
readjustment, arrangement or similar proceeding relating to the Company or its
property, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership, arrangement or similar proceedings or upon an assignment for the
benefit of creditors, or upon any other marshalling or composition of the assets
and liabilities of the Company, or otherwise: (i) all amounts owing on account
of the Senior Indebtedness shall first be paid in full in cash, or payment
provided for in cash or in cash equivalents, before any
9
<PAGE>
Subordinated Debt Payment is made; and (ii) to the extent permitted by
applicable law, any Subordinated Debt Payment to which the Holder would be
entitled except for the provisions hereof, shall be paid or delivered by the
trustee in bankruptcy, receiver, assignee for the benefit of creditors or other
liquidating agent making such payment or distribution directly to the Senior
Lenders for application to the payment of the Senior Indebtedness in accordance
with clause (i) above, after giving effect to any concurrent payment or
distribution or provision therefor to the Senior Lenders in respect of such
Senior Indebtedness.
If an Event of Default under Section 7 shall occur and be
continuing, the Holder shall, at least twenty (20) days prior to accelerating,
and as a condition to the effectiveness of any acceleration of, this Note, send
a written notice of such acceleration designated as a "Notice of Intent to
Accelerate" to all holders of Senior Indebtedness that have been identified as
such by the Company (or by any such holder of Senior Indebtedness).
The subordination provisions of this Note are intended solely
for the purpose of defining the relative rights against the Company of the
Holder, on the one hand, and the Senior Lenders, on the other hand. Nothing
contained herein shall (i) impair, as between the Company and the Holder, the
obligation of the Company to pay the principal of or interest on this Note and
its other obligations with respect to the Subordinated Indebtedness as and when
the same shall become due and payable in accordance with the terms thereof, or
(ii) otherwise affect the relative rights against the Company of the Holder, on
the one hand, and the creditors of the Company (other than the Senior Lenders),
on the other hand.
Until the payment and performance in full of all Senior
Indebtedness, the Holder shall not have, and shall not directly or indirectly
exercise, any rights that it may acquire by way of subrogation under this Note,
by any payment or distribution to the Senior Lenders hereunder or otherwise.
Upon the payment and performance in full of all Senior Indebtedness, the Holder
shall be subrogated to the rights of the Senior Lenders to receive payments or
distributions applicable to the Senior Indebtedness until the Subordinated
Indebtedness shall be paid in full. For the purposes of the foregoing
subrogation, no payments or distributions to the Senior Lenders of any cash,
property or securities to which the Holder would be entitled except for the
provisions of this Note shall, as among the Company, its creditors (other than
the Senior Lenders and the Holder), be deemed to be a payment by the Company to
or on account of the Senior Indebtedness.
Each Holder of this Note shall, upon request by the Company,
enter into an intercreditor agreement reflecting the foregoing provisions of
this Section 18 and other customary provisions reasonably acceptable to such
Holder implementing the foregoing provisions of this Section 18.
[signature page follows]
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IN WITNESS WHEREOF, the Company has duly caused this
$3,172,872.24 Convertible Promissory Note to be signed in its names and on its
behalf by its duly authorized officers as of the date first above written.
TOTAL NETWORK SOLUTIONS, INC.
By:________________________________________________________
Name:______________________________________________
Title:_____________________________________________
ACCEPTED AND AGREED:
CISCO SYSTEMS, INC.
By:________________________________________________________
Name:______________________________________________
Title:_____________________________________________
[signature page - $3,172,872.24 Convertible Promissory Note]
<PAGE>
Exhibit 10.8
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NEITHER THIS NOTE NOR ANY SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY 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 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.
THE SECURITIES ISSUABLE UPON EXERCISE OF THIS CONVERTIBLE PROMISSORY NOTE ARE
ALSO SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN A SHAREHOLDERS AGREEMENT, AS
AMENDED, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE SECRETARY OF THE
COMPANY.
PAYMENTS ON ACCOUNT OF THE INDEBTEDNESS EVIDENCED BY THIS CONVERTIBLE PROMISSORY
NOTE ARE SUBORDINATED AS PROVIDED HEREIN.
$9,000,004.68 CONVERTIBLE PROMISSORY NOTE
$9,000,004.68 December 21, 1999
Total Network Solutions, Inc., a New York corporation (the "COMPANY"),
for value received, promises to pay to Cisco Systems, Inc., a California
corporation (the "HOLDER"), the principal sum of Nine Million Four Dollars and
Sixty-Eight Cents ($9,000,004.68), plus interest on the unpaid balance hereof
(the "NOTE"). Interest shall be computed on the basis of a 360-day year and
actual number of days elapsed and shall accrue from and including the date funds
are advanced hereunder at the rate of six point forty seven percent (6.47%) per
annum to but excluding the date of repayment.
1. DEFINITIONS. As used in this Note, the following terms shall have
the definitions ascribed to them below:
a. "Common Note" shall mean the $4,416,150 Convertible
Promissory Note to be issued by the Company to the Holder pursuant to the
Purchase Agreement (as defined below).
b. "Conversion Share Price" shall be equal to: (i) the sum of
accrued interest and the principal amount of $9,000,004.68; (ii) divided by (x)
in the case of a conversion into Common Stock, a number equal to the number of
Common Stock into which 745,034 shares of Series C Preferred (as defined below)
issued on the date hereof would be convertible pursuant to the Restated
Certificate of Incorporation of the Company (the "Restated Certificate") (as
appropriately adjusted therein for dilution, stock splits, stock dividends,
combinations,
<PAGE>
reclassifications and the like) and (y) in the case of a conversion into Series
C Preferred, 745,034.
c. "Conversion Stock" shall mean: (1) prior to the Company
consummating an Initial Public Offering (as defined below) shares of the
Company's common stock or Series C Preferred, at the option of the Holder,
purchasable upon conversion of this Note, or (2) subsequent to the Company
consummating an Initial Public Offering, the shares of the Company's common
stock issuable upon conversion of this Note. The total number of shares of
Conversion Stock shall be determined by dividing (A) the amount of the
outstanding principal and accrued interest under this Note which the Holder
elects to convert at the time of conversion by (B) the Conversion Share Price.
d. "First Convertible Note" shall mean the $3,172,872.24
Convertible Promissory Note to be issued by the Company to the Holder pursuant
to the Purchase Agreement.
e. "Highest Lawful Rate" shall mean the maximum non-usurious
rate of interest, as in effect from time to time, which may be charged,
contracted for, reserved, received or collected by the Holder in connection with
this Note under applicable law.
f. "Holder" shall mean the person specified in the introductory
paragraph together with its successors and permitted assigns.
g. "Initial Public Offering" shall mean the Company's first firm
commitment underwritten offering pursuant to a registration statement under the
Securities and Exchange Act of 1933, as amended, covering the sale of the
Company's common stock with net proceeds to the Company of at least Twenty
Million Dollars ($20,000,000).
h. "Letter Agreement" shall mean the Letter Agreement, dated as
of December 21, 1999, by and between the Company and the Holder.
i. "Note" shall mean this $9,000,004.68 Convertible Promissory
Note.
j. "Purchase Agreement" shall mean the Convertible Note Purchase
Agreement, dated as of December 21, 1999, by and between the Company and the
Holder.
k. "Registration Rights Agreement" shall mean the Second Amended
and Restated Registration Rights Agreement, dated as of December 21, 1999, by
and among the Company, Morgan Stanley Venture Investors III, L.P., Morgan
Stanley Venture Partners III, L.P., The Morgan Stanley Venture Partners
Entrepreneur Fund, L.P., Merritt Lutz and the Holder.
l. "Series C Preferred" shall mean shares of the Company's
Series C Preferred Stock.
m. "Shareholders Agreement" shall mean the shall mean the Second
Amended and Restated Shareholders Agreement, dated as of December 21, 1999, by
and among
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the Company, Morgan Stanley Venture Investors III, L.P., Morgan Stanley Venture
Partners III, L.P., The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.,
Merritt Lutz, the Holder and each of the stockholders listed on the signature
pages thereof.
2. MATURITY. The principal of this Note shall mature and be due and
payable on December 21, 2009 (the "MATURITY DATE"). All accrued and unpaid
interest shall be due and payable on the earlier of (i) the Maturity Date or
(ii) the maturity of the principal of this Note (whether at scheduled maturity
or upon acceleration of maturity following an Event of Default (as defined
below)), provided that in no event shall any interest be payable prior to June
30, 2003.
3. CONVERSION.
a. HOLDER'S OPTION. The unpaid principal and interest
outstanding under this Note shall be convertible at any time or from time to
time, in whole or in part, at the option of the Holder, into Conversion Stock at
the Conversion Price. The Holder will give the Company thirty (30) days' prior
written notice of its intention to effectuate such conversion. No fractional
shares shall be issued and the value of any fractional share shall be paid by
the Company to the Holder in cash. Commencing ninety (90) days prior to the
Maturity Date, if the Note has not been converted by the Holder in accordance
with the terms hereof and the Company wishes to pay the Note, the Company shall
give thirty (30) days' prior written notice to the Holder (the "NOTICE PERIOD").
After the commencement of the Notice Period, the Holder shall have thirty (30)
days thereof to advise the Company whether it will exercise its right to convert
the Note, in whole or in part, into shares of Conversion Stock or whether it
will accept payment or prepayment of the Note, in whole, from the Company. The
Company may not voluntarily pay prior to the Maturity Date any portion of the
Note if the conversion of such portion would result in the Holder acquiring
19.9% or more of the equity ownership of the Company or if the Holder advises
the Company during the Notice Period that such conversion would require the
Holder to undertake the equity method of accounting in connection with its
ownership of the Conversion Stock (the "EQUITY LIMITATION") (it being understood
that the Equity Limitation shall be inapplicable to any payment on this Note on
or after the Maturity Date). Any portion of the Note at any time outstanding
because of the Equity Limitation set forth in the preceding sentence may be
voluntarily paid prior to the Maturity Date only at the option of the Holder.
b. CONDITION TO AN ACQUISITION TRANSACTION. If neither
prepayment nor conversion has occurred prior to (i) any reorganization, merger
or consolidation in which the Company is not the surviving entity or (ii) the
sale or transfer by the Company of all or substantially all of its assets
otherwise than to a wholly owned affiliate of the Company (any such transaction
being an "ACQUISITION TRANSACTION"), unless this Note is paid or converted as
provided in Section 5, as a condition to the consummation of the Acquisition
Transaction, the Note shall be cancelled and the surviving entity or transferee
shall enter into a successor note agreement with the Holder (the "SUCCESSOR
NOTE"). The Successor Note shall provide (i) that the Holder may convert it for
the kind and amount of capital stock or other securities or property which the
Holder would have received immediately after the Acquisition Transaction if the
Holder had converted the Note immediately before the effective date of the
Acquisition Transaction and (ii) that the surviving entity in the Acquisition
Transaction shall succeed to and be substituted to every right and obligation of
the Company in respect of this Note. The
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Successor Note shall provide for adjustment which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section 3.
Notwithstanding the foregoing, if the Company enters into an Acquisition
Transaction and consideration payable to holders of shares of the Company's
common stock issuable or, deliverable upon conversion of the Note in connection
with such Acquisition Transaction consists solely of cash, then the Holder shall
be entitled to receive distributions on the date of such event on an equal basis
with holders of shares of the Company's common stock issuable upon conversion of
the Note as if the Note had been converted immediately prior to such event and
upon such distribution, the Note shall be cancelled and the Company's
obligations under the Note shall be terminated.
c. CONDITIONAL CONVERSION. Subject to Section 3(a), the Holder
may specify that the conversion of the Note, in whole or in part, is contingent
upon and shall occur simultaneously with the consummation of (i) the acquisition
of the Company by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation), or (ii) a sale of all or substantially all of the assets of
the Company (including, for purposes of this paragraph, intellectual property
rights which, in the aggregate, constitute substantially all of the Company's
assets).
4. MECHANICS AND EFFECT OF CONVERSION. Upon the conversion of this
Note pursuant to Section 3 above, the Holder shall surrender this Note, duly
endorsed, at the principal office of the Company. At its expense, the Company
shall, as soon as practicable thereafter, issue and deliver to such Holder at
such principal office a certificate or certificates for the number of shares of
such Conversion Stock to which the Holder shall be entitled upon such conversion
(bearing such legends as are required by applicable state and federal securities
laws in the opinion of counsel to the Company), together with any other
securities and property to which the Holder is entitled upon such conversion
under the terms of this Note, including a check payable to the Holder for any
cash amounts payable as described above. Upon conversion of this Note, the
Company shall be forever released from all its obligations and liabilities under
this Note.
5. PREPAYMENTS. In addition to the Company's right to prepay the Note
pursuant to Section 3, if on or prior to the Maturity Date, the Company notifies
the Holder that it intends to consummate a merger, consolidation, reorganization
or sale of all or substantially all of its assets following which the holders of
the Company's voting securities outstanding prior to such transaction will not
hold more than 50% of the voting securities of the surviving entity or
transferee in such transaction (or an entity controlling such surviving entity
or transferee), the Company may prepay the Note in whole; PROVIDED, HOWEVER,
that the Company shall give the Holder at least thirty (30) days prior written
notice (or such other time as may be remaining if there are less than 30 days
remaining prior to the consummation of such transaction) of its intent to
consummate such transaction and; PROVIDED, FURTHER, that such prepayment is
subject to the Holder's right to convert the Note pursuant to Section 3(a), and
that such prepayment shall occur only upon the consummation of such transaction.
Upon the consummation of such transaction, the Holder shall surrender the Note,
duly endorsed, at the principal office of the Company, and the Company shall pay
the Holder in immediately available Funds the unpaid principal and interest of
the Note.
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<PAGE>
6. USURY. Any scheduled principal payments hereunder, or any other
amounts payable hereunder, not paid within five (5) days from the date due shall
bear interest at a rate of 10% per annum, or the maximum rate permitted by law,
whichever is less. Overdue interest shall be payable on demand. All computations
of interest shall be made on the basis of a year of 360 days for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest is payable. Anything herein to the contrary
notwithstanding, if during any period for which interest is computed hereunder,
the amount of interest computed on the basis provided for in this Note, together
with all fees, charges and other payments which are treated as interest under
applicable law, as provided for herein or in any other document executed in
connection herewith, would exceed the amount of such interest computed on the
basis of the Highest Lawful Rate, the Company shall not be obligated to pay, and
the Holder shall not be entitled to charge, collect, receive, reserve or take,
interest in excess of the Highest Lawful Rate, and during any such period the
interest payable hereunder shall be computed on the basis of the Highest Lawful
Rate.
7. EVENTS OF DEFAULT. The entire unpaid principal balance and accrued
interest of this Note shall immediately be due and payable at the option of the
Holder upon the occurrence of any Event of Default. For purposes of this Note,
the Company shall be in default under this Note upon the happening of any
condition or event set forth below (herein called an "EVENT OF DEFAULT"):
a. The Company's failure to pay any principal or accrued
interest evidenced hereby within five (5) days after such payment of principal
or interest becomes due in accordance with the terms of this Note;
b. The Company's failure to perform, keep or observe any of its
covenants, conditions, promises, agreements or obligations under this Note, if
such failure would have a material adverse effect on the Company's assets,
operations or condition, financial or otherwise and such failure is not cured by
the Company within thirty (30) days (or such longer period as shall be
reasonably necessary to effect such cure if efforts to cure are commenced within
such 30-day period and are pursued with reasonable diligence until completion)
of the date that written notice of such failure is delivered to the Company.
c. The institution of proceedings against the Company, or the
Company's filing of a petition or answer or consent seeking reorganization or
release, under the Federal Bankruptcy Code, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against the Company
which results in the entry of an order for relief or which remains undismissed,
undischarged or unbonded for a period of sixty (60) days or more, or the
Company's consent to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee or other similar official of the Company
or of any substantial part of its property, or the Company's making of an
assignment for the benefit of creditors, or the taking of corporate action in
furtherance of such action;
d. Any warranty or representation contained in this Note, the
Letter Agreement, the Common Note, the First Convertible Note, the Registration
Rights Agreement, the Shareholders Agreement or the Purchase Agreement proves to
have been false in any
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<PAGE>
material respect when made or furnished and such falsity would have a material
adverse effect on the Company's assets, operations or condition, financial or
otherwise.
8. NEGATIVE COVENANTS. For so long as any amounts are outstanding
under this Note and are convertible into shares of Series C Preferred Stock, the
Company shall not, without the consent of the holders of 75% of the principal
amount of this Note:
a. Redeem, repurchase or pay any dividends on any Junior
Securities (as defined in the Restated Certificate) other than (i) dividends or
distributions paid in shares of, or options, warrants or rights to subscribe for
or purchase shares of, Junior Securities, (ii) a redemption, purchase or other
acquisition of shares of Common Stock made pursuant to an employee incentive or
benefit plan of the Corporation or any subsidiary or the terms of any grant
pursuant thereto that has been approved by the Board of Directors or other
administrator thereof or (iii) pursuant to the Shareholders Agreement;
b. Amend, alter or repeal any provision of, or add any provision
to, the Restated Certificate (including without limitation any provision of the
Restated Certificate fixing and determining the terms of any series of Preferred
Stock, including without limitation the Series C Preferred Stock, but excluding
any Preferred Stock constituting Junior Securities, whether now or hereafter
authorized) or the Company's Bylaws (other than (i) any increase in the
authorized capital of the Company that has been approved by the Board of
Directors and that does not require the vote of the holders of Series C
Preferred Stock pursuant to paragraph E.9(c)(i) or E.9(d)(i) of the Restated
Certificate or (ii) except to the extent the same shall adversely change the
rights, preferences or privileges of the Series B Preferred Stock or the Series
C Preferred Stock (in which event any separate class vote of such series
provided for by law or in the Restated Certificate shall also be required), in
connection with any merger, consolidation, business combination or other
extraordinary corporate transaction following compliance with the Letter
Agreement, to the extent applicable);
c. Create or authorize the creation of any additional class or
series of shares of capital stock other than Junior Securities, or increase the
authorized amount of any additional class or series of shares of capital stock
other than Junior Securities, or create or authorize any obligation or security
convertible into shares of any other class or series of capital stock other than
Junior Securities, or issue any additional shares of any other class or series
of capital stock other than Junior Securities (other than any Additional Shares
(as defined in the Restated Certificate)) whether any such creation,
authorization, increase or issuance shall be by means of amendment to the
Restated Certificate or by merger, consolidation or otherwise;
d. Consent to any liquidation, dissolution or winding up of the
Corporation (other than a Deemed Liquidation (as defined in the Restated
Certificate) or in connection with a merger, consolidation, business combination
or other extraordinary corporate transaction following compliance with the
Letter Agreement, to the extent applicable); or
e. Redeem or repurchase any shares of Series A Preferred Stock
prior to June 30, 2003 other than pursuant to paragraph C.3 or clause (i) of
paragraph C.4(b) of Article Fourth of the Restated Certificate.
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<PAGE>
f. Increase the authorized amount of the Series C Preferred
Stock, create or authorize any obligation or security convertible into shares of
Series C Preferred Stock or issue any additional shares of Series C Preferred
Stock (other than Additional Series C Shares (as defined in the Restated
Certificate));
g. For so long as 90% of the shares of Series C Preferred Stock
beneficially owned by Cisco immediately following the closing under the Note
Purchase Agreement (appropriately adjusted for any issuance of Additional Series
C Shares) are beneficially owned by Cisco, enter into a Regulated Transaction
(as defined in the Restated Certificate) in connection with which there is a
Valuation Shortfall (as defined in the Restated Certificate); or
h. Enter into, or permit any Subsidiary to enter into, any
agreement, indenture or other instrument which contains any provision
restricting the payment of dividends by the Corporation on the Series C
Preferred Stock when due to the full extent required by Article Fourth,
paragraph E.3 of the Restated Certificate, other than any Approved Third Party
Credit Agreement (as defined in the Restated Certificate).
9. RESERVATION OF STOCK ISSUABLE UPON CONVERSION The Company shall
reserve and keep available out of its authorized but unissued shares of
preferred or common stock such number of shares as shall from time to time be
sufficient to effect the conversion of this Note; and, if at any time the number
of authorized but unissued shares of the Company's preferred or common stock
shall not be sufficient to effect the conversion of the entire outstanding
principal amount of this Note, without limitation of such other remedies as
shall be available to the Holder of this Note, the Company will use its best
efforts to take such corporate action as, in the opinion of counsel, may be
necessary to increase its authorized but unissued shares of preferred or common
stock to such number of shares as shall be sufficient for such purposes.
10. NOTICES. Any notice required by any provision of this Note to be
given to the Holder shall be in writing or by telegram or facsimile confirmed
answer back, and shall be deemed to have been duly made when delivered in person
or sent by telegram or facsimile confirmed answer back , same day or overnight
courier, or 72 hours after having been deposited in the United States first
class or registered or certified mail return receipt requested, postage prepaid.
All such communications shall be addressed to the Holder of record at its
address appearing on the books of the Company.
11. NO RIGHTS AS STOCKHOLDER. Without limitation of Section 8, this
Note, as such, shall not entitle the Holder to any rights as a stockholder of
the Company, except as otherwise specified herein.
12. LEGAL FEES. The Company agrees to pay on demand all the losses,
costs, and expenses (including, without limitation, attorneys' fees and
disbursements) which the Holder incurs in connection with enforcement or
attempted enforcement of this Note, or the protection or preservation of the
Holder's rights under this Note, whether by judicial proceedings or otherwise.
Such costs and expenses include, without limitation, those incurred in
connection
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<PAGE>
with any workout or refinancing, or any bankruptcy, insolvency, liquidation or
similar proceedings.
13. HEADINGS. The headings in this Note are inserted for convenience
only and do not constitute a part of this Note.
14. GOVERNING LAW. This Note shall be governed by the laws of the
State of New York, without giving effect to conflicts of law principles.
15. ASSIGNMENT. This Note shall be binding on the Company and its
successors and permitted assigns, and shall be binding upon and inure to the
benefit of the Holder, any future holder of this Note and their respective
successors and permitted assigns. Neither the Company nor the Holder may assign
or transfer this Note or any of its rights or obligations hereunder (other than
by operation of law) without the other party's prior written consent; PROVIDED,
HOWEVER, that the Holder may transfer this Note and any of its rights and
obligations hereunder to a majority-owned affiliate thereof. Any transferee of
this Note shall become a party to the Shareholders Agreement in accordance with
the terms thereof.
16. WAIVER. The Company hereby waives notice of default, presentment
or demand for payment, protest or notice of nonpayment or dishonor and all other
notices or demands relative to this Note. No single or partial exercise of any
power under this Note shall preclude any other or further exercise of such power
or exercise of any other power. No delay or omission on the part of the Holder
in exercising any right under this Note shall operate as a waiver of such right
or any other right hereunder.
17. SEVERABILITY. In the event any one or more of the provisions
contained in this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Note shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
18. SUBORDINATION. By accepting this Note, the Holder agrees that all
payments on account of the indebtedness, liabilities and other obligations of
the Company to the Holder of this Note, including, without limitation, all
amounts of principal, all interest accrued hereon, and all other amounts payable
by the Company to the Holder under this Note or in connection herewith (the
"Subordinated Indebtedness") shall be subordinate and subject in right of
payment, to the extent and in the manner set forth herein, to the prior payment
in full in cash or cash equivalents of the Senior Indebtedness. As used herein,
"Senior Indebtedness" shall mean (i) any indebtedness, liabilities and other
obligations of the Company (whether as primary obligor or as guarantor) to any
person (each a "Senior Lender") with respect to (a) any working capital,
revolving credit or other line of credit facility, any term loan facility, or
any other extension of credit by any individual or entity (whether or not
secured), including reimbursement obligations under letters of credit or
guaranties and (b) obligations in respect of bankers' acceptances purchased by,
and interest rate protection agreements and currency exchange and purchase
agreements entered into with, any individual or entity, (ii) any such types of
indebtedness which are incurred by any affiliate of the Company, (iii) all other
amounts due on or in connection with such Senior Indebtedness, including all
charges, fees, indemnities and
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expenses (including reasonable fees and expenses of counsel), (iv) all interest
accruing with respect to such Senior Indebtedness during the pendency of a
bankruptcy or insolvency proceeding, whether or not allowable thereunder, and
(v) all extensions, renewals, refinancings and deferrals of the amounts referred
to in clauses (i) through (iv) above. The terms "indebtedness," "liabilities"
and "obligations" are used herein in their most comprehensive sense and include
any and all advances, debts, obligations and liabilities, now existing or
hereafter arising, whether voluntary or involuntary and whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined.
As long as any of the Senior Indebtedness shall remain outstanding and
unpaid, the Holder shall not accept or receive, directly or indirectly, and the
Company shall not make, any Subordinated Debt Payment (as defined below), except
that prior to the occurrence of any Senior Lender Default (as defined below) and
receipt of the notice from the Senior Lender described below, the Holder shall
be entitled to accept and receive payments of principal and interest under this
Note, in accordance with the terms of this Note. Upon the occurrence of any
Senior Lender Default (or if any Senior Lender Default would exist immediately
after the making of a Subordinated Debt Payment), and upon receipt by the
Company and the Holder of notice in writing of such Senior Lender Default, and
until such Senior Lender Default is cured or waived, the Company shall not make,
and the Holder shall not accept or receive, any Subordinated Debt Payment. In
the event that, notwithstanding the foregoing provisions, any Subordinated Debt
Payments shall be received in contravention hereof by the Holder before all
Senior Indebtedness shall be paid, such Subordinated Debt Payments shall be held
in trust for the benefit of the Senior Lenders and shall be paid over or
delivered to the Senior Lenders for application to the payment in full in cash
or cash equivalents of all Senior Indebtedness remaining unpaid to the extent
necessary to give effect hereto, after giving effect to any concurrent payments
or distributions to any Senior Lender in respect of the Senior Indebtedness. As
used herein, "Senior Lender Default" means any default in respect of any Senior
Indebtedness, or any other default specified in the agreement or instrument
under which any Senior Indebtedness is issued, continuing beyond the grace
period, if any, specified in any such agreement or instrument; and "Subordinated
Debt Payment" means any payment or distribution by or on behalf of the Company,
directly or indirectly, of assets of the Company or any person or entity with a
right of reimbursement against the Company of any kind or character, whether in
cash, property or securities, including on account of the purchase, redemption
or other acquisition of Subordinated Indebtedness, or by setoff, exchange or in
any other manner, for or on account of the Subordinated Indebtedness.
If, while any Subordinated Indebtedness is outstanding, any bankruptcy,
insolvency, reorganization, receivership, arrangement, marshalling of assets and
liabilities or similar proceeding is commenced by or against the Company or its
property, the Holder shall promptly take such action as any Senior Lender may
reasonably request (A) to collect the Subordinated Indebtedness for the account
of the Senior Lenders and to file appropriate claims or proofs of claim in
respect of the Subordinated Indebtedness, (B) to execute and deliver to the
Senior Lenders, such powers of attorney, assignments and other instruments as
they may request to enable them to enforce any and all claims with respect to
the Subordinated Indebtedness (to the extent and in the manner provided herein),
and (C) to collect and receive any and all payments or distributions which may
be payable or deliverable upon or with respect to the Subordinated Indebtedness
for the account of the Senior Lenders.
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In the event of any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, upon the
dissolution, winding up or total or partial liquidation or reorganization,
readjustment, arrangement or similar proceeding relating to the Company or its
property, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership, arrangement or similar proceedings or upon an assignment for the
benefit of creditors, or upon any other marshalling or composition of the assets
and liabilities of the Company, or otherwise: (i) all amounts owing on account
of the Senior Indebtedness shall first be paid in full in cash, or payment
provided for in cash or in cash equivalents, before any Subordinated Debt
Payment is made; and (ii) to the extent permitted by applicable law, any
Subordinated Debt Payment to which the Holder would be entitled except for the
provisions hereof, shall be paid or delivered by the trustee in bankruptcy,
receiver, assignee for the benefit of creditors or other liquidating agent
making such payment or distribution directly to the Senior Lenders for
application to the payment of the Senior Indebtedness in accordance with clause
(i) above, after giving effect to any concurrent payment or distribution or
provision therefor to the Senior Lenders in respect of such Senior Indebtedness.
If an Event of Default under Section 7 shall occur and be continuing,
the Holder shall, at least twenty (20) days prior to accelerating, and as a
condition to the effectiveness of any acceleration of, this Note, send a written
notice of such acceleration designated as a "Notice of Intent to Accelerate" to
all holders of Senior Indebtedness that have been identified as such by the
Company (or by any such holder of Senior Indebtedness).
The subordination provisions of this Note are intended solely for the
purpose of defining the relative rights against the Company of the Holder, on
the one hand, and the Senior Lenders, on the other hand. Nothing contained
herein shall (i) impair, as between the Company and the Holder, the obligation
of the Company to pay the principal of or interest on this Note and its other
obligations with respect to the Subordinated Indebtedness as and when the same
shall become due and payable in accordance with the terms thereof, or (ii)
otherwise affect the relative rights against the Company of the Holder, on the
one hand, and the creditors of the Company (other than the Senior Lenders), on
the other hand.
Until the payment and performance in full of all Senior Indebtedness,
the Holder shall not have, and shall not directly or indirectly exercise, any
rights that it may acquire by way of subrogation under this Note, by any payment
or distribution to the Senior Lenders hereunder or otherwise. Upon the payment
and performance in full of all Senior Indebtedness, the Holder shall be
subrogated to the rights of the Senior Lenders to receive payments or
distributions applicable to the Senior Indebtedness until the Subordinated
Indebtedness shall be paid in full. For the purposes of the foregoing
subrogation, no payments or distributions to the Senior Lenders of any cash,
property or securities to which the Holder would be entitled except for the
provisions of this Note shall, as among the Company, its creditors (other than
the Senior Lenders and the Holder), be deemed to be a payment by the Company to
or on account of the Senior Indebtedness.
Each Holder of this Note shall, upon request by the Company, enter into
an intercreditor agreement reflecting the foregoing provisions of this Section
18 and other customary provisions reasonably acceptable to such Holder
implementing the foregoing provisions of this Section 18.
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[signature page follows]
11
<PAGE>
IN WITNESS WHEREOF, the Company has duly caused this $9,000,004.68
Convertible Promissory Note to be signed in its names and on its behalf by its
duly authorized officers as of the date first above written.
TOTAL NETWORK SOLUTIONS, INC.
By:
-------------------------------------------
Name:
Title:
ACCEPTED AND AGREED:
CISCO SYSTEMS, INC.
By:
-------------------------------------------
Name:
Title:
[signature page - $9,000,004.68 Convertible Promissory Note]
<PAGE>
Exhibit 10.9
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NEITHER THIS NOTE NOR ANY SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY 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 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.
THE SECURITIES ISSUABLE UPON EXERCISE OF THIS CONVERTIBLE PROMISSORY NOTE ARE
ALSO SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN A SHAREHOLDERS AGREEMENT, AS
AMENDED, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE SECRETARY OF THE
COMPANY.
PAYMENTS ON ACCOUNT OF THE INDEBTEDNESS EVIDENCED BY THIS CONVERTIBLE PROMISSORY
NOTE ARE SUBORDINATED AS PROVIDED HEREIN.
$4,416,150 CONVERTIBLE PROMISSORY NOTE
$4,416,150 December 21, 1999
Total Network Solutions, Inc., a New York corporation (the
"COMPANY"), for value received, promises to pay to Cisco Systems, Inc., a
California corporation (the "HOLDER"), the principal sum of Four Million Four
Hundred Sixteen Thousand One Hundred Fifty Dollars ($4,416,150), plus interest
on the unpaid balance hereof (the "NOTE"). Interest shall be computed on the
basis of a 360-day year and actual number of days elapsed and shall accrue from
and including the date funds are advanced hereunder at the rate of six point
forty seven percent (6.47%) per annum to but excluding the date of repayment.
1. DEFINITIONS. As used in this Note, the following
terms shall have the definitions ascribed to them below:
a. "Conversion Share Price" shall be equal to
the quotient obtained by dividing (A) the sum of accrued interest and the
principal amount of $4,416,150 by (B) 4,500,000 (and as appropriately adjusted
for any dilution, stock split, stock dividend, combination, reclassification or
similar event with respect to the Company's common stock).
b. "Conversion Stock" shall mean shares of the
Company's common stock issuable upon conversion of this Note. The total number
of shares of Conversion Stock shall be determined by dividing (A) the amount of
the outstanding principal and accrued interest under this Note which the Holder
elects to convert at the time of conversion by (B) the Conversion Share Price.
<PAGE>
c. "First Convertible Note" shall mean the
$3,172,872.24 Convertible Promissory Note to be issued by the Company to the
Holder pursuant to the Purchase Agreement.
d. "Highest Lawful Rate" shall mean the maximum
non-usurious rate of interest, as in effect from time to time, which may be
charged, contracted for, reserved, received or collected by the Holder in
connection with this Note under applicable law.
e. "Holder" shall mean the person specified in
the introductory paragraph together with its successors and permitted assigns.
f. "Initial Public Offering" shall mean the
Company's first firm commitment underwritten offering pursuant to a registration
statement under the Securities and Exchange Act of 1933, as amended, covering
the sale of the Company's common stock with net proceeds to the Company of at
least Twenty Million Dollars ($20,000,000).
g. "Letter Agreement" shall mean the Letter
Agreement, dated as of December 21, 1999, by and between the Company and the
Holder.
h. "Note" shall mean this $4,416,150
Convertible Promissory Note.
i. "Purchase Agreement" shall mean the
Convertible Note Purchase Agreement, dated as of December 21, 1999, by and
between the Company and the Holder.
j. "Registration Rights Agreement" shall mean
the Second Amended and Restated Registration Rights Agreement, dated as of
December 21, 1999, by and among the Company, Morgan Stanley Venture Investors
III, L.P., Morgan Stanley Venture Partners III, L.P., The Morgan Stanley Venture
Partners Entrepreneur Fund, L.P., Merritt Lutz and the Holder.
k. "Second Convertible Note" shall mean the
$9,000,004.68 Convertible Promissory Note to be issued by the Company to the
Holder pursuant to the Purchase Agreement.
l. "Series B Preferred" shall mean shares of
the Company's Series B Preferred Stock.
m. "Shareholders Agreement" shall mean the
shall mean the Second Amended and Restated Shareholders Agreement, dated as of
December 21, 1999, by and among the Company, Morgan Stanley Venture Investors
III, L.P., Morgan Stanley Venture Partners III, L.P., The Morgan Stanley Venture
Partners Entrepreneur Fund, L.P., Merritt Lutz, the Holder and each of the
stockholders listed on the signature pages thereof.
2. MATURITY. The principal of this Note shall mature and
be due and payable on December 21, 2009 (the "MATURITY DATE"). All accrued and
unpaid interest shall be due and payable on the earlier of (i) the Maturity Date
or (ii) the maturity of the principal of this Note (whether at scheduled
maturity or upon acceleration of maturity following an Event of Default
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<PAGE>
(as defined below)), provided that in no event shall any interest be payable
prior to June 30, 2003.
3. CONVERSION.
a. HOLDER'S OPTION. The unpaid principal and
interest outstanding under this Note shall be convertible at any time or from
time to time, in whole or in part, at the option of the Holder, into Conversion
Stock at the Conversion Share Price. The Holder will give the Company thirty
(30) days' prior written notice of its intention to effectuate such conversion.
No fractional shares shall be issued and the value of any fractional share shall
be paid by the Company to the Holder in cash. Commencing ninety (90) days prior
to the Maturity Date, if the Note has not been converted by the Holder in
accordance with the terms hereof and the Company wishes to pay the Note, the
Company shall give thirty (30) days' prior written notice to the Holder (the
"NOTICE PERIOD"). After the commencement of the Notice Period, the Holder shall
have thirty (30) days thereof to advise the Company whether it will exercise its
right to convert the Note, in whole or in part, into shares of Conversion Stock
or whether it will accept payment or prepayment of the Note, in whole, from the
Company. The Company may not voluntarily pay prior to the Maturity Date any
portion of the Note if the conversion of such portion would result in the Holder
acquiring 19.9% or more of the equity ownership of the Company or if the Holder
advises the Company during the Notice Period that such conversion would require
the Holder to undertake the equity method of accounting in connection with its
ownership of the Conversion Stock (the "EQUITY LIMITATION") (it being understood
that the Equity Limitation shall be inapplicable to any payment on this Note on
or after the Maturity Date). Any portion of the Note at any time outstanding
because of the Equity Limitation set forth in the preceding sentence may be
voluntarily paid prior to the Maturity Date only at the option of the Holder.
b. CONDITION TO AN ACQUISITION TRANSACTION. If
neither prepayment nor conversion has occurred prior to (i) any reorganization,
merger or consolidation in which the Company is not the surviving entity or (ii)
the sale or transfer by the Company of all or substantially all of its assets
otherwise than to a wholly owned affiliate of the Company, (any such transaction
being an "ACQUISITION TRANSACTION"), unless this Note is paid or converted as
provided in Section 5, as a condition to the consummation of the Acquisition
Transaction, the Note shall be cancelled and the surviving entity or transferee
shall enter into a successor note agreement with the Holder (the "SUCCESSOR
NOTE"). The Successor Note shall provide (i) that the Holder may convert it for
the kind and amount of capital stock or other securities or property which the
Holder would have received immediately after the Acquisition Transaction if the
Holder had converted the Note immediately before the effective date of the
Acquisition Transaction and (ii) that the surviving entity in the Acquisition
Transaction shall succeed to and be substituted to every right and obligation of
the Company in respect of this Note. The Successor Note shall provide for
adjustment which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3. Notwithstanding the foregoing, if
the Company enters into an Acquisition Transaction and consideration payable to
holders of shares of the Company's common stock issuable or, deliverable upon
conversion of the Note in connection with such Acquisition Transaction consists
solely of cash, then the Holder shall be entitled to receive distributions on
the date of such event on an equal basis with holders of shares of the Company's
common stock issuable upon conversion of the Note as if the Note had been
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<PAGE>
converted immediately prior to such event and upon such distribution, the Note
shall be cancelled and the Company's obligations under the Note shall be
terminated.
c. CONDITIONAL CONVERSION. Subject to Section
3(a), the Holder may specify that the conversion of the Note, in whole or in
part, is contingent upon and shall occur simultaneously with the consummation of
(i) the acquisition of the Company by another entity by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation), or (ii) a sale of all or substantially
all of the assets of the Company (including, for purposes of this paragraph,
intellectual property rights which, in the aggregate, constitute substantially
all of the Company's assets).
4. MECHANICS AND EFFECT OF CONVERSION. Upon the
conversion of this Note pursuant to Section 3 above, the Holder shall surrender
this Note, duly endorsed, at the principal office of the Company. At its
expense, the Company shall, as soon as practicable thereafter, issue and deliver
to such Holder at such principal office a certificate or certificates for the
number of shares of such Conversion Stock to which the Holder shall be entitled
upon such conversion (bearing such legends as are required by applicable state
and federal securities laws in the opinion of counsel to the Company), together
with any other securities and property to which the Holder is entitled upon such
conversion under the terms of this Note, including a check payable to the Holder
for any cash amounts payable as described above. Upon conversion of this Note,
the Company shall be forever released from all its obligations and liabilities
under this Note.
5. PREPAYMENTS. In addition to the Company's right to
prepay the Note pursuant to Section 3, if on or prior to the Maturity Date, the
Company notifies the Holder that it intends to consummate a merger,
consolidation, reorganization or sale of all or substantially all of its assets
following which the holders of the Company's voting securities outstanding prior
to such transaction will not hold more than 50% of the voting securities of the
surviving entity or transferee in such transaction (or an entity controlling
such surviving entity or transferee), the Company may prepay the Note in whole;
PROVIDED, HOWEVER, that the Company shall give the Holder at least thirty (30)
days prior written notice (or such other time as may be remaining if there are
less than 30 days remaining prior to the consummation of such transaction) of
its intent to consummate such transaction and; PROVIDED, FURTHER, that such
prepayment is subject to the Holder's right to convert the Note pursuant to
Section 3(a), and that such prepayment shall occur only upon the consummation of
such transaction. Upon the consummation of such transaction, the Holder shall
surrender the Note, duly endorsed, at the principal office of the Company, and
the Company shall pay the Holder in immediately available Funds the unpaid
principal and interest of the Note.
6. USURY. Any scheduled principal payments hereunder, or
any other amounts payable hereunder, not paid within five (5) days from the date
due shall bear interest at a rate of 10% per annum, or the maximum rate
permitted by law, whichever is less. Overdue interest shall be payable on
demand. All computations of interest shall be made on the basis of a year of 360
days for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is payable. Anything
herein to the contrary notwithstanding, if during any period for which interest
is computed hereunder, the amount of interest computed on the basis provided for
in this Note, together with all fees, charges and other
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<PAGE>
payments which are treated as interest under applicable law, as provided for
herein or in any other document executed in connection herewith, would exceed
the amount of such interest computed on the basis of the Highest Lawful Rate,
the Company shall not be obligated to pay, and the Holder shall not be entitled
to charge, collect, receive, reserve or take, interest in excess of the Highest
Lawful Rate, and during any such period the interest payable hereunder shall be
computed on the basis of the Highest Lawful Rate.
7. EVENTS OF DEFAULT. The entire unpaid principal
balance and accrued interest of this Note shall immediately be due and payable
at the option of the Holder upon the occurrence of any Event of Default. For
purposes of this Note, the Company shall be in default under this Note upon the
happening of any condition or event set forth below (herein called an "EVENT OF
DEFAULT"):
a. The Company's failure to pay any principal
or accrued interest evidenced hereby within five (5) days after such payment of
principal or interest becomes due in accordance with the terms of this Note;
b. The Company's failure to perform, keep or
observe any of its covenants, conditions, promises, agreements or obligations
under this Note, if such failure would have a material adverse effect on the
Company's assets, operations or condition, financial or otherwise and such
failure is not cured by the Company within thirty (30) days (or such longer
period as shall be reasonably necessary to effect such cure if efforts to cure
are commenced within such 30-day period and are pursued with reasonable
diligence until completion) of the date that written notice of such failure is
delivered to the Company.
c. The institution of proceedings against the
Company, or the Company's filing of a petition or answer or consent seeking
reorganization or release, under the Federal Bankruptcy Code, or the
commencement of any proceeding under any bankruptcy or insolvency laws by or
against the Company which results in the entry of an order for relief or which
remains undismissed, undischarged or unbonded for a period of sixty (60) days or
more, or the Company's consent to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee or other similar
official of the Company or of any substantial part of its property, or the
Company's making of an assignment for the benefit of creditors, or the taking of
corporate action in furtherance of such action;
d. Any warranty or representation contained in
this Note, the Letter Agreement, the First Convertible Note, the Second
Convertible Note, the Registration Rights Agreement, the Shareholders Agreement
or the Purchase Agreement proves to have been false in any material respect when
made or furnished and such falsity would have a material adverse effect on the
Company's assets, operations or condition, financial or otherwise.
8. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Company shall reserve and keep available out of its authorized but unissued
shares of preferred or common stock such number of shares as shall from time to
time be sufficient to effect the conversion of this Note; and, if at any time
the number of authorized but unissued shares of the Company's preferred or
common stock shall not be sufficient to effect the conversion of the entire
outstanding principal amount of this Note, without limitation of such other
remedies as shall be
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<PAGE>
available to the Holder of this Note, the Company will use its best efforts to
take such corporate action as, in the opinion of counsel, may be necessary to
increase its authorized but unissued shares of preferred or common stock to such
number of shares as shall be sufficient for such purposes.
9. NOTICES. Any notice required by any provision of this
Note to be given to the Holder shall be in writing or by telegram or facsimile
confirmed answer back, and shall be deemed to have been duly made when delivered
in person or sent by telegram or facsimile confirmed answer back , same day or
overnight courier, or 72 hours after having been deposited in the United States
first class or registered or certified mail return receipt requested, postage
prepaid. All such communications shall be addressed to the Holder of record at
its address appearing on the books of the Company.
10. NO RIGHTS AS STOCKHOLDER. This Note, as such, shall
not entitle the Holder to any rights as a stockholder of the Company, except as
otherwise specified herein.
11. LEGAL FEES. The Company agrees to pay on demand all
the losses, costs, and expenses (including, without limitation, attorneys' fees
and disbursements) which the Holder incurs in connection with enforcement or
attempted enforcement of this Note, or the protection or preservation of the
Holder's rights under this Note, whether by judicial proceedings or otherwise.
Such costs and expenses include, without limitation, those incurred in
connection with any workout or refinancing, or any bankruptcy, insolvency,
liquidation or similar proceedings.
12. HEADINGS. The headings in this Note are inserted for
convenience only and do not constitute a part of this Note.
13. GOVERNING LAW. This Note shall be governed by the
laws of the State of New York, without giving effect to conflicts of law
principles.
14. ASSIGNMENT. This Note shall be binding on the Company
and its successors and permitted assigns, and shall be binding upon and inure to
the benefit of the Holder, any future holder of this Note and their respective
successors and permitted assigns. Neither the Company nor the Holder may assign
or transfer this Note or any of its rights or obligations hereunder (other than
by operation of law) without the other party's prior written consent; PROVIDED,
HOWEVER, that the Holder may transfer this Note and any of its rights and
obligations hereunder to a majority-owned affiliate thereof. Any transferee of
this Note shall become a party to the Shareholders Agreement in accordance with
the terms thereof.
15. WAIVER. The Company hereby waives notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor
and all other notices or demands relative to this Note. No single or partial
exercise of any power under this Note shall preclude any other or further
exercise of such power or exercise of any other power. No delay or omission on
the part of the Holder in exercising any right under this Note shall operate as
a waiver of such right or any other right hereunder.
16. SEVERABILITY. In the event any one or more of the
provisions contained in this Note shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such
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<PAGE>
invalidity, illegality or unenforceability shall not affect any other provision
hereof, and this Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
17. SUBORDINATION. By accepting this Note, the Holder
agrees that all payments on account of the indebtedness, liabilities and other
obligations of the Company to the Holder of this Note, including, without
limitation, all amounts of principal, all interest accrued hereon, and all other
amounts payable by the Company to the Holder under this Note or in connection
herewith (the "Subordinated Indebtedness") shall be subordinate and subject in
right of payment, to the extent and in the manner set forth herein, to the prior
payment in full in cash or cash equivalents of the Senior Indebtedness. As used
herein, "Senior Indebtedness" shall mean (i) any indebtedness, liabilities and
other obligations of the Company (whether as primary obligor or as guarantor) to
any person (each a "Senior Lender") with respect to (a) any working capital,
revolving credit or other line of credit facility, any term loan facility, or
any other extension of credit by any individual or entity (whether or not
secured), including reimbursement obligations under letters of credit or
guaranties and (b) obligations in respect of bankers' acceptances purchased by,
and interest rate protection agreements and currency exchange and purchase
agreements entered into with, any individual or entity, (ii) any such types of
indebtedness which are incurred by any affiliate of the Company, (iii) all other
amounts due on or in connection with such Senior Indebtedness, including all
charges, fees, indemnities and expenses (including reasonable fees and expenses
of counsel), (iv) all interest accruing with respect to such Senior Indebtedness
during the pendency of a bankruptcy or insolvency proceeding, whether or not
allowable thereunder, and (v) all extensions, renewals, refinancings and
deferrals of the amounts referred to in clauses (i) through (iv) above. The
terms "indebtedness," "liabilities" and "obligations" are used herein in their
most comprehensive sense and include any and all advances, debts, obligations
and liabilities, now existing or hereafter arising, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.
As long as any of the Senior Indebtedness shall remain
outstanding and unpaid, the Holder shall not accept or receive, directly or
indirectly, and the Company shall not make, any Subordinated Debt Payment (as
defined below), except that prior to the occurrence of any Senior Lender Default
(as defined below) and receipt of the notice from the Senior Lender described
below, the Holder shall be entitled to accept and receive payments of principal
and interest under this Note, in accordance with the terms of this Note. Upon
the occurrence of any Senior Lender Default (or if any Senior Lender Default
would exist immediately after the making of a Subordinated Debt Payment), and
upon receipt by the Company and the Holder of notice in writing of such Senior
Lender Default, and until such Senior Lender Default is cured or waived, the
Company shall not make, and the Holder shall not accept or receive, any
Subordinated Debt Payment. In the event that, notwithstanding the foregoing
provisions, any Subordinated Debt Payments shall be received in contravention
hereof by the Holder before all Senior Indebtedness shall be paid, such
Subordinated Debt Payments shall be held in trust for the benefit of the Senior
Lenders and shall be paid over or delivered to the Senior Lenders for
application to the payment in full in cash or cash equivalents of all Senior
Indebtedness remaining unpaid to the extent necessary to give effect hereto,
after giving effect to any concurrent payments or distributions to any Senior
Lender in respect of the Senior Indebtedness. As used herein, "Senior Lender
Default" means any default in respect of any Senior
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<PAGE>
Indebtedness, or any other default specified in the agreement or instrument
under which any Senior Indebtedness is issued, continuing beyond the grace
period, if any, specified in any such agreement or instrument; and "Subordinated
Debt Payment" means any payment or distribution by or on behalf of the Company,
directly or indirectly, of assets of the Company or any person or entity with a
right of reimbursement against the Company of any kind or character, whether in
cash, property or securities, including on account of the purchase, redemption
or other acquisition of Subordinated Indebtedness, or by setoff, exchange or in
any other manner, for or on account of the Subordinated Indebtedness.
If, while any Subordinated Indebtedness is outstanding, any
bankruptcy, insolvency, reorganization, receivership, arrangement, marshalling
of assets and liabilities or similar proceeding is commenced by or against the
Company or its property, the Holder shall promptly take such action as any
Senior Lender may reasonably request (A) to collect the Subordinated
Indebtedness for the account of the Senior Lenders and to file appropriate
claims or proofs of claim in respect of the Subordinated Indebtedness, (B) to
execute and deliver to the Senior Lenders, such powers of attorney, assignments
and other instruments as they may request to enable them to enforce any and all
claims with respect to the Subordinated Indebtedness (to the extent and in the
manner provided herein), and (C) to collect and receive any and all payments or
distributions which may be payable or deliverable upon or with respect to the
Subordinated Indebtedness for the account of the Senior Lenders.
In the event of any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, upon
the dissolution, winding up or total or partial liquidation or reorganization,
readjustment, arrangement or similar proceeding relating to the Company or its
property, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership, arrangement or similar proceedings or upon an assignment for the
benefit of creditors, or upon any other marshalling or composition of the assets
and liabilities of the Company, or otherwise: (i) all amounts owing on account
of the Senior Indebtedness shall first be paid in full in cash, or payment
provided for in cash or in cash equivalents, before any Subordinated Debt
Payment is made; and (ii) to the extent permitted by applicable law, any
Subordinated Debt Payment to which the Holder would be entitled except for the
provisions hereof, shall be paid or delivered by the trustee in bankruptcy,
receiver, assignee for the benefit of creditors or other liquidating agent
making such payment or distribution directly to the Senior Lenders for
application to the payment of the Senior Indebtedness in accordance with clause
(i) above, after giving effect to any concurrent payment or distribution or
provision therefor to the Senior Lenders in respect of such Senior Indebtedness.
If an Event of Default under Section 7 shall occur and be
continuing, the Holder shall, at least twenty (20) days prior to accelerating,
and as a condition to the effectiveness of any acceleration of, this Note, send
a written notice of such acceleration designated as a "Notice of Intent to
Accelerate" to all holders of Senior Indebtedness that have been identified as
such by the Company (or by any such holder of Senior Indebtedness).
The subordination provisions of this Note are intended solely
for the purpose of defining the relative rights against the Company of the
Holder, on the one hand, and the Senior Lenders, on the other hand. Nothing
contained herein shall (i) impair, as between the Company and the Holder, the
obligation of the Company to pay the principal of or interest on this Note and
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<PAGE>
its other obligations with respect to the Subordinated Indebtedness as and when
the same shall become due and payable in accordance with the terms thereof, or
(ii) otherwise affect the relative rights against the Company of the Holder, on
the one hand, and the creditors of the Company (other than the Senior Lenders),
on the other hand.
Until the payment and performance in full of all Senior
Indebtedness, the Holder shall not have, and shall not directly or indirectly
exercise, any rights that it may acquire by way of subrogation under this Note,
by any payment or distribution to the Senior Lenders hereunder or otherwise.
Upon the payment and performance in full of all Senior Indebtedness, the Holder
shall be subrogated to the rights of the Senior Lenders to receive payments or
distributions applicable to the Senior Indebtedness until the Subordinated
Indebtedness shall be paid in full. For the purposes of the foregoing
subrogation, no payments or distributions to the Senior Lenders of any cash,
property or securities to which the Holder would be entitled except for the
provisions of this Note shall, as among the Company, its creditors (other than
the Senior Lenders and the Holder), be deemed to be a payment by the Company to
or on account of the Senior Indebtedness.
Each Holder of this Note shall, upon request by the Company,
enter into an intercreditor agreement reflecting the foregoing provisions of
this Section 17 and other customary provisions reasonably acceptable to such
Holder implementing the foregoing provisions of this Section 17.
[signature page follows]
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IN WITNESS WHEREOF, the Company has duly caused this
$4,416,150 Convertible Promissory Note to be signed in its names and on its
behalf by its duly authorized officers as of the date first above written.
TOTAL NETWORK SOLUTIONS, INC.
By:____________________________________
Name:_______________________________
Title:______________________________
ACCEPTED AND AGREED:
CISCO SYSTEMS, INC.
By:____________________________________
Name:_______________________________
Title:______________________________
[signature page - $4,416,150 Convertible Promissory Note]
<PAGE>
Exhibit 10.10
EXECUTION ORIGINAL
- --------------------------------------------------------------------------------
AGREEMENT OF LEASE
Between
SL GREEN OPERATING PARTNERSHIP, L.P.
Landlord,
AND
TOTAL NETWORK SOLUTIONS, INC.
Tenant.
Premises:
Part of the sixth (6th) Floor
1372 Broadway
New York, New York
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT OF LEASE, made as of this 21 day of October, 1999 between SL GREEN
OPERATING PARTNERSHIP, L.P., a New York limited partnership having an office c/o
SL Green Realty Corp., 420 Lexington Avenue, New York, New York 10170
("Landlord") and TOTAL NETWORK SOLUTIONS, INC., a New York corporation, having
an office at 545 Fifth Avenue, New York, New York 10017 ("Tenant").
WITNESSETH:
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
1. BASIC LEASE TERMS.
A. PREMISES. Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord a portion of the sixth (6th) floor, as more particularly shown
hatched on Exhibit 1 annexed hereto and made a part hereof (the "Premises") in
the building known as 1372 Broadway, in the Borough of Manhattan, New York
County, City and State of New York (the "Building" and together with the plot of
land upon which such building stands, the "Real Property") for a term (the
"Term") to commence on the "Commencement Date" (hereinafter defined), and to end
on the "Expiration Date" (hereinafter defined), both dates inclusive, unless the
Term shall sooner end pursuant to any of the terms, covenants or conditions of
this Lease or pursuant to law at the "Rent" (hereinafter defined, which Rent
shall also include any additional rent payable hereunder), which Tenant agrees
to pay in lawful money of the United States which shall be legal tender in
payment of all debts and dues, public and private, at the time of payment, in
equal monthly installments, in advance, commencing on the Commencement Date and
on the first (1st) day of each calendar month thereafter during the Term (except
as hereinafter otherwise provided), at the office of Landlord or such other
place as Landlord may designate, without any set-off, offset, abatement or
deduction whatsoever, except that Tenant shall pay the first monthly installment
on the execution hereof. If the Commencement Date (as hereinafter defined) shall
occur on a date other than the first (1st) day of any calendar month, Tenant
shall pay to Landlord, on the first (1st) day of the month next succeeding the
month during which the Commencement Date shall occur, an amount equal to such
proportion of an equal monthly installment of Rent as the number of days from
and including the Commencement Date bears to the total number of days in said
calendar month. Such payment, together with the sum paid by Tenant upon the
execution of this Lease, shall constitute payment of the Rent for the period
from the Commencement Date to and including the last day of the next succeeding
calendar month. In the event that, on the Commencement Date, or thereafter,
Tenant shall be in default in the payment of Rent to Landlord or any affiliate
of Landlord pursuant to the terms of another lease of space with Landlord or any
affiliate of Landlord, or with any predecessor-in-interest of Landlord or
Landlord's affiliate, Landlord may, at Landlord's option and without notice to
Tenant, add the amount of such arrearages to any monthly installment of the Rent
and the same shall be payable to Landlord as additional rent hereunder.
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<PAGE>
B. DEFINITIONS. The following definitions contained in this subsection B
of this Article 1 shall have the meanings hereinafter set forth used throughout
this Lease, Exhibits, Schedules and Riders (if any).
(i) "Commencement Date" shall mean October 21, 1999.
(ii) "Expiration Date" shall mean the last day of the month in which
the tenth (10th) anniversary of the Rent Commencement Date (as
hereinafter defined) shall occur.
(iii) "Rent" shall mean:
(a) for the period commencing on the Commencement Date through
and including the day immediately preceding the date on
which the second (2nd) anniversary of the Rent Commencement
Date shall occur, Five Hundred Seventy-Five Thousand Four
Hundred Fifty-Six and 00/100 ($575,456.00) Dollars per
annum, payable in equal monthly installments of Forty-Seven
Thousand Nine Hundred Fifty-Four and 67/100 ($47,954.67)
Dollars each;
(b) for the period commencing on the date on which the second
(2nd) anniversary of the Rent Commencement Date shall occur
through and including the day immediately preceding the
date on which fifth (5th) anniversary of the Rent
Commencement Date shall occur, Six Hundred Sixteen Thousand
Five Hundred Sixty and 00/100 ($616,560.00) Dollars per
annum, payable in equal monthly installments of Fifty-One
Thousand Three Hundred Eighty and 00/100 ($51,380.00)
Dollars each;
(c) for the period commencing on the date on which the fifth
(5th) anniversary of the Rent Commencement Date shall occur
through and including the day immediately preceding the
date on which the eighth (8th) anniversary of the Rent
Commencement Date shall occur, Six Hundred Fifty-Seven
Thousand Six Hundred Sixty-Four and 00/100 ($657,664.00)
Dollars per annum, payable in equal monthly installments of
Fifty-Four Thousand Eight Hundred Five and 33/100
($54,805.33) Dollars each; and
(d) for the period commencing on the date on which the eighth
(8th) anniversary of the Rent Commencement Date shall occur
through and including the Expiration Date, Six Hundred
Ninety-Eight Thousand Seven Hundred Sixty-Eight and 00/100
($698,768.00) Dollars per annum, payable in equal monthly
installments of Fifty-Eight Thousand Two Hundred Thirty and
67/100 ($58,230.67) Dollars each.
(iv) "Rent Commencement Date" shall mean February 21, 2000,
subject to the provisions of Article 23 hereof.
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<PAGE>
(v) "Permitted Uses" shall mean executive and general offices
in connection with Tenant's business.
(vi) "Base Tax Year" shall mean the New York City real estate
tax year (as defined in Article 28 hereof) 1999/2000.
(vii) "Tenant's Proportionate Share" shall mean percent four and
five hundredths percent (4.05%), based upon the agreement
of the parties hereto that the Premises is deemed to
consist of 20,552 rentable square feet and the Building is
deemed to consist of 507,948 rentable square feet.
(viii) "Base Rate" shall mean the Rate (as hereinafter defined) in
effect during the calendar year 2000.
(ix) "Multiplication Factor" shall mean 20,552.
(x) "Security Deposit" shall mean the sum of $191,818.68.
(xi) "Broker" shall mean collectively, Collins Tuttle and
Company, Inc. and SL Green Leasing, Inc.
(xii) "Hazardous Substances" shall mean, collectively, (a)
asbestos and polychlorinated biphenyls and (b) hazardous or
toxic materials, wastes and substances which are defined,
determined and identified as such pursuant to any law.
Notwithstanding anything to the contrary contained in this subsection B
of this Article 1, Articles 1 through 39 shall control the rights and
obligations of the parties hereto except that the provisions of any Exhibits and
Schedules shall supersede any inconsistent provisions in Articles 1 through 39,
as the case may be.
C. RENT CREDIT. Notwithstanding anything to the contrary herein above set
forth, provided this Lease is in full force and effect and Tenant is not in
default under this Lease, Tenant shall be entitled to a credit against the Rent
for the four (4) month period commencing on the Commencement Date and ending on
the day immediately preceding the Rent Commencement Date in the aggregate amount
of $191,818.68 which credit shall be applied against the Rent in equal monthly
installments of $47,954.67. The foregoing rent credit shall be null and void "ab
initio" if Landlord at any time terminates this Lease on account of any default
of Tenant under this Lease or re-enters or repossesses the Premises on account
of any default of Tenant under this Lease, and Landlord shall be entitled to
recover from Tenant, in addition to all other amounts Landlord is entitled to
recover, the aggregate amount of the rent credit herein provided for.
2. USE AND OCCUPANCY.
A. PERMITTED USES. Tenant shall use and occupy the Premises for the
Permitted Uses, and for no other purpose.
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B. USE PROHIBITIONS. Tenant hereby represents, warrants and agrees that
Tenant's business is not and shall not be photographic, multilith or multigraph
reproductions or offset printing. Anything contained herein to the contrary
notwithstanding, Tenant shall not use the Premises or any part thereof, or
permit the Premises or any part thereof to be used, (i) for the business of
photographic, multilith or multigraph reproductions or offset printing, (ii) for
a banking, trust company, depository, guarantee or safe deposit business, (iii)
as a savings bank, a savings and loan association or a loan company, (iv) for
the sale of travelers checks, money orders, drafts, foreign exchange or letters
of credit or for the receipt of money for transmission, (v) as a "retail" stock
broker's or dealer's office which shall be open to the general public (except
pursuant to prior appointment), (vi) as a restaurant or bar or for the sale of
confectionery, soda, beverages, sandwiches, ice cream or baked goods or for the
preparation, dispensing or consumption of food or beverages in any manner
whatsoever, (vii) as a news or cigar stand, (viii) as an employment agency,
labor union office, physician's or dentist's office or for the rendition of any
other diagnostic or therapeutic services, dance or music studio, school (except
for the training of employees of Tenant), (ix) as a barber shop, beauty salon or
manicure shop (x) for the direct sale, at retail, wholesale or otherwise, of any
goods or products, (xi) for a public stenographer or typist, (xii) for a
telephone or telegraph agency, telephone or secretarial service for the public
at large, (xiii) for a messenger service for the public at large, (xiv) gambling
or gaming activities, obscene or pornographic purposes or any sort of commercial
sex establishment (xv) for the possession, storage, manufacture or sale of
alcohol, drugs or narcotics, (xvi) for the conduct of a public auction, (xvii)
for the offices or business of any federal, state or municipal agency or any
agency of any foreign government or (xviii) for any use that would cause the
Premises to be deemed a place of public accommodation under the Americans with
Disabilities Act of 1990. Nothing in this subsection B shall preclude Tenant
from using any part of the Premises for photographic, multilith or multigraph
reproductions in connection with, either directly or indirectly, its own
business and/or activities.
3. ALTERATIONS.
A. ALTERATIONS WITHIN PREMISES. Tenant shall not make or perform or
permit the making or performance of, any alterations, installations,
improvements, additions or other physical changes in or about the Premises
("Alterations") without Landlord's prior consent. Landlord agrees not to
withhold or delay unreasonably its consent to any Alterations proposed to be
made by Tenant to adapt the Premises for those business purposes permitted by
subsection A of Article 2 hereof, which are nonstructural and which do not
affect the Building's mechanical, electrical, plumbing, Class E or other
Building systems or the structural integrity of the Building, provided that such
Alterations are performed only by contractors or mechanics approved by Landlord,
do not affect any part of the Building other than the Premises, do not affect
any service required to be furnished by Landlord to Tenant or to any other
tenant or occupant of the Building, do not reduce the value or utility of the
Building and are performed in compliance with all applicable laws. Tenant shall
not perform work which would (i) require changes to the structural components of
the Building or the exterior design of the Building, (ii) require any material
modification to the Building's mechanical, electrical, plumbing installations or
other Building installations outside the Premises, (iii) not be in compliance
with all applicable laws, rules, regulations and requirements of any
governmental department having jurisdiction over the Building and/or the
construction of the Premises, including, but not limited to, the Americans with
Disabilities Act of 1990, or (iv) be incompatible with the Certificate of
Occupancy for the Building. Any changes required by any governmental department
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affecting the construction of the Premises required in connection with Tenant's
particular manner of use of the Premises (other than use of be Premises for
executive and general offices) or the acts or omissions of Tenant or any person
or entity acting by or on behalf of Tenant including the performance of
Alterations shall be performed at Tenant's sole cost. All Alterations shall be
done at Tenant's expense and at such times and in such manner as Landlord may
from time to time reasonably designate pursuant to the conditions for
Alterations prescribed by Landlord for the Premises. A copy of the current
construction conditions and requirements for tenant alteration work and new
construction is annexed hereto as Schedule D and made a part hereof. All
furniture, furnishings and movable fixtures and removable partitions installed
by Tenant must be removed from the Premises by Tenant, at Tenant's expense,
prior to the Expiration Date. All Alterations in and to the Premises which may
be made by Landlord or Tenant prior to and during the Term, or any renewal
thereof, shall become the property of Landlord upon the Expiration Date or
earlier end of the Term or any renewal thereof, and shall not be removed from
the Premises by Tenant unless Landlord, at Landlord's option by notice to Tenant
prior to the Expiration Date, elects to have them removed from the Premises by
Tenant, in which event the same shall be removed from the Premises by Tenant, at
Tenant's expense, prior to the Expiration Date. Notwithstanding the foregoing,
Tenant may, at the time of its initial submission of plans and specifications
showing such Alterations to Landlord for Landlord's review and approval, request
in writing that Landlord waive its right to compel Tenant to remove the
Alterations identified on such plans and specifications. If Landlord waives its
right to compel Tenant to remove such Alterations, in whole or in part, Landlord
shall notify Tenant at the time of the approval of such plans and specifications
of those Alterations which Tenant may be required to remove in accordance with
the terms of this Article prior to the expiration of the Term or upon the
occurrence of a termination of this Lease and Tenant shall, upon the expiration
of the Term or upon such termination, unless instructed otherwise by Landlord,
be required to remove only such Alterations specified in Landlord's notice. In
the event Landlord elects to have Tenant remove such Alterations, Tenant shall
repair and restore in a good and workmanlike manner to Building standard
original condition (reasonable wear and tear excepted) any damage to the
Premises or the Building caused by such removal. Any of such fixtures or
installations not so removed by Tenant at or prior to the Expiration Date or
earlier termination of the Term shall become the property of Landlord, but
nothing herein shall be deemed to relieve Tenant of responsibility for the cost
of removal of any such fixtures or installations which Tenant is obligated to
remove hereunder.
B. CHLOROFLUOROCARBONS. Anything contained herein to the contrary
notwithstanding, in the event Landlord shall elect to have Tenant repair or
remove any mechanical or other equipment installed by or on behalf of Tenant
within the Premises containing chlorofluorocarbons ("CFC's"), the repair or
removal of such equipment, as the case may be, shall conform with all
requirements of law and industry practices. Additionally, any such repair or
removal shall be done by contractors approved by Landlord and subject to the
procedures to which Landlord's consent shall have previously been obtained.
Tenant shall indemnify and hold Landlord harmless from any liability or damages
resulting from any contamination within the Building, as a result of the repair
or removal of any of the aforesaid equipment containing CFC's by Tenant.
C. SUBMISSION OF PLANS. Prior to making any Alterations, Tenant (i) shall
submit to Landlord or to a consultant appointed by Landlord ("Landlord's
Consultant") detailed plans and specifications (including layout, architectural,
mechanical, electrical, plumbing, Class E sprinkler and structural drawings
stamped by a professional engineer or architect licensed in the State of
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New York) for each proposed Alteration and shall not commence any such
Alteration without first obtaining Landlord's approval of such plans and
specifications (which approval shall be granted or withheld in accordance with
the terms of this Article 3), (ii) shall pay to Landlord all costs and expenses
incurred by Landlord (including the cost of Landlord's Consultant) in connection
with Landlord's review of Tenant's plans and specifications (which, with respect
to Landlord's review of Tenant's plans and specifications for Tenant's Initial
Alteration, shall not exceed $2,000.00), (iii) shall, at its expense, obtain all
permits, approvals and certificates required by any governmental or
quasi-governmental bodies, and (iv)shall furnish to Landlord duplicate original
policies of worker's compensation insurance (covering all persons to be employed
by Tenant, and Tenant's contractors and subcontractors in connection with such
Alteration) and comprehensive public liability (including property damage
coverage) insurance in such form, with such companies, for such periods and in
such amounts as Landlord may reasonably require, naming Landlord and its agents
as additional insureds. Upon notice to Tenant, Landlord or Landlord's Consultant
may assume responsibility, at Tenant's expense, to file all plans and obtain the
necessary building permits, which filing and the obtaining of building permits,
if undertaken, shall be accomplished within fifteen (15) working days following
the date of notice to Tenant that Landlord or Landlord's Consultant is assuming
responsibility therefor, subject to any delays caused by the City of New York.
Upon completion of such Alteration, Tenant, at Tenant's expense, shall obtain
certificates of final approval of such Alteration, including the "as-built"
drawings showing such Alterations, required by any governmental or
quasi-governmental bodies and shall furnish Landlord with copies thereof. All
Alterations shall be made and performed in accordance with the Rules and
Regulations (hereinafter defined) and in accordance with the Americans with
Disabilities Act of 1990, including but not limited to the accessibility
provisions thereof; all materials and equipment to be incorporated in the
Premises as a result of all Alterations shall be new and first quality; no such
materials or equipment shall be subject to any lien, encumbrance, chattel
mortgage or title retention or security agreement. Landlord agrees not to
withhold or delay unreasonably its consent to any Alterations proposed to be
made by Tenant to adapt the Premises for those business purposes permitted by
subsection A of Article 2 hereof, which are nonstructural and which do not
affect the Building's mechanical, electrical, plumbing, Class E or other
Building systems or the structural integrity of the Building, provided that such
Alterations are performed only by contractors or mechanics reasonably approved
by Landlord, do not affect any part of the Building other than the Premises, do
not affect any service required to be furnished by Landlord to Tenant or to any
other tenant or occupant of the Building, do not reduce the value or utility of
the Building and are performed in compliance with all applicable laws. Tenant
shall not perform work which would (i) require changes to the structural
components of the Building or the exterior design of the Building, (ii) require
any material modification to the Building's mechanical, electrical, plumbing
installations or other Building installations outside the Premises, (iii) not be
in compliance with all applicable laws, rules, regulations and requirements of
any governmental department having jurisdiction over the Building and/or the
construction of the Premises, including but not limited to, the Americans with
Disabilities Act of 1990, or (iv) be incompatible with the Certificate of
Occupancy for the Building. In the event any Alterations are performed by
contractors approved by Landlord or any entity which is an affiliate of Landlord
or any general partner or managing member of Landlord, the failure by Tenant to
pay the cost of such Alterations upon rendition of a bill therefore shall be
deemed a material default under this Lease. Landlord's approval of Tenant's
plans, specifications and working drawings for Alterations shall create no
responsibility or liability
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on the part of Landlord with respect to their completeness, design,
sufficiency or compliance with all applicable laws, rules or regulations of
governmental agencies or authorities.
D. MECHANICS' LIENS: LABOR CONFLICTS. Any mechanic's lien filed against
the Premises, or the Real Property, for work claimed to have been done for, or
materials claimed to have been furnished to, Tenant shall be discharged by
Tenant within ten (10) days thereafter, at Tenant's expense, by payment or
filing the bond required by law. Tenant shall not, at any time prior to or
during the Term, directly or indirectly employ, or permit the employment of, any
contractor, mechanic or laborer in the Premises, whether in connection with any
Alteration or otherwise, if, in Landlord's sole discretion, such employment will
interfere or cause any conflict with other contractors, mechanics, or laborers
engaged in the construction, maintenance or operation of the Building by
Landlord, Tenant or others. In the event of any such interference or conflict,
Tenant, upon demand of Landlord, shall cause all contractors, mechanics or
laborers causing such interference or conflict to leave the Building
immediately.
4. REPAIRS - FLOOR LOAD. Landlord shall maintain and repair the public
portions of the Building, both exterior and interior. Tenant shall, throughout
the Term, take good care of the Premises and the fixtures and appurtenances
therein and at Tenant's sole cost and expense, make all nonstructural repairs
thereto as and when needed to preserve them in good working order and condition,
reasonable wear and tear and damage for which Tenant is not responsible under
the terms of this Lease excepted. Tenant shall pay Landlord for all replacements
to the lamps, tubes, ballasts and starters in the lighting fixtures installed in
the Premises. Notwithstanding the foregoing, all damage or injury to the
Premises or to any other part of the Building, or to its fixtures, equipment and
appurtenances, whether requiring structural or nonstructural repairs, caused by
or resulting from carelessness, omission, neglect or improper conduct of or
Alterations made by Tenant or any of Tenant's servants, employees, invitees or
licensees, shall be repaired promptly by Tenant, at its sole cost and expense,
to the satisfaction of Landlord. Tenant also shall repair all damage to the
Building and the Premises caused by the moving of Tenant's fixtures, furniture
or equipment. All the aforesaid repairs shall be of quality and class equal to
the original work or construction and shall be made in accordance with the
provisions of Article 3 hereof. If Tenant fails after ten (10) days notice to
proceed with due diligence to make repairs required to be made by Tenant
hereunder, the same may be made by Landlord, at the expense of Tenant, and the
expenses thereof incurred by Landlord shall be collectible by Landlord as
additional rent promptly after rendition of a bill or statement therefor. Tenant
shall give Landlord prompt notice of any defective condition in any plumbing,
electrical, air-cooling or heating system located in, servicing or passing
through the Premises. Tenant shall not place a load upon any floor of the
Premises exceeding the floor load per square foot area which such floor was
designed to carry and which is allowed bylaw. Landlord reserves the right to
prescribe the weight and position of all safes, business machines and heavy
equipment and installations. Business machines and mechanical equipment shall be
placed and maintained by Tenant at Tenant's expense in settings sufficient in
Landlord's judgment to absorb and prevent vibration, noise and annoyance. Except
as expressly provided in Article 10 hereof, there shall be no allowance to
Tenant for a diminution of rental value and no liability on the part of Landlord
by reason of inconvenience, annoyance or injury to business arising from
Landlord, Tenant or others making, or failing to make, any repairs, alterations,
additions or improvements in or to any portion of the Building, or the Premises,
or in or to fixtures, appurtenances, or equipment thereof. If the Premises be or
become infested with vermin, Tenant, at Tenant's expense, shall cause the same
to be exterminated from time to time to the satisfaction of
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Landlord and shall employ such exterminators and such exterminating company or
companies as shall be approved by Landlord. The water and wash closets and other
plumbing fixtures shall not be used for any purposes other than those for which
they were designed or constructed, and no sweepings, rubbish, rags, acids or
other substances shall be deposited therein.
5. WINDOW CLEANING. Tenant shall not clean, nor require, permit, suffer or
allow any window in the Premises to be cleaned, from the outside in violation of
Section 202 of the Labor Law, or any other applicable law, or of the rules of
the Board of Standards and Appeals, or of any other board or body having or
asserting jurisdiction.
6. REQUIREMENTS OF LAW. Tenant, at its sole expense, shall comply with all
laws, statutes, orders, directives and regulations of federal, state, county,
city and municipal authorities, departments, bureaus, boards, agencies,
commissions and other sub-divisions thereof, and of any official thereof and any
other governmental and quasi-public authority and all rules, orders, regulations
or requirements of the New York Board of Fire Underwriters, or any other similar
body which shall now or hereafter impose any violation, order or duty upon
Landlord or Tenant with respect to the Premises as a result of the particular
manner of use or occupation thereof by Tenant (other than use of the Premises
for executive and general offices) or as a result of any act, omission or
Alteration thereof made by Tenant or any person or entity acting by or on behalf
of Tenant. Tenant shall not do or permit to be done any act or thing upon the
Premises which will invalidate or be in conflict with any insurance policies
covering the Building and fixtures and property therein; and shall not do, or
permit anything to be done in or upon the Premises, or bring or keep anything
therein, except as now or hereafter permitted by the New York City Fire
Department, New York Board of Fire Underwriters, New York Fire Insurance Rating
Organization or other authority having jurisdiction and then only in such
quantity and manner of storage as not to increase the rate for fire insurance
applicable to the Building, or use the Premises in a manner which shall increase
the rate of fire insurance on the Building or on property located therein, over
that in similar type buildings or in effect prior to this Lease. Any work or
installations made or performed by or on behalf of Tenant or any person claiming
through or under Tenant pursuant to this Article shall be made in conformity
with, and subject to the provisions of, Article 3 hereof. If by reason of
Tenant's failure to comply with the provisions of this Article, the fire
insurance rate shall at the beginning of this Lease or at any time thereafter be
higher than it otherwise would be, then Tenant shall reimburse Landlord, as
additional rent hereunder, for that part of all fire insurance premiums
thereafter paid by Landlord which shall have been charged because of such
failure of use by Tenant, and shall make such reimbursement upon the first day
of the month following such outlay by Landlord. In any action or proceeding
wherein Landlord and Tenant are parties, a schedule or "make up" of rates for
the Building or the Premises issued by the New York Fire Insurance Rating
Organization, or other body fixing such fire insurance rates, shall be
conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to the Premises.
7. SUBORDINATION.
A. SUBORDINATION. This Lease is subject and subordinate to each and every
ground or underlying lease of the Real Property or the Building heretofore or
hereafter made by Landlord (collectively, the "Superior Leases") and to each and
every trust indenture and mortgage (collectively, the "Mortgages") which may now
or hereafter affect the Real Property, the Building
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or any such Superior Lease and the leasehold interest created thereby, and to
all renewals, extensions, supplements, amendments, modifications,
consolidations, and replacements thereof or thereto, substitutions therefor and
advances made thereunder. This clause shall be self-operative and no further
instrument of subordination shall be required to make the interest of any lessor
under a Superior Lease, or trustee or mortgagee of a Mortgage superior to the
interest of Tenant hereunder. In confirmation of such subordination, however,
Tenant shall execute promptly any certificate that Landlord may request and
Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's
attorney-in-fact to execute any such certificate or certificates for and on
behalf of Tenant. If the date of expiration of any Superior Lease shall be the
same day as the Expiration Date, the Term shall end and expire twelve (12) hours
prior to the expiration of the Superior Lease. Tenant covenants and agrees that,
except as expressly provided herein, Tenant shall not do anything that would
constitute a default under any Superior Lease or Mortgage, or omit to do
anything that Tenant is obligated to do under the terms of this Lease so as to
cause Landlord to be in default under any of the foregoing. If, in connection
with the financing of the Real Property, the Building or the interest of the
lessee under any Superior Lease, any lending institution shall request
reasonable modifications of this Lease that do not increase (other than to a de
minimis extent) the obligations or adversely affect (other than to a de minimis
extent) the rights of Tenant under this Lease, Tenant covenants to make such
modifications; it being understood that the amount of Rent and additional rent
shall not be modified. Upon Tenant's request, Landlord shall use reasonable
efforts to obtain from the present holder of any Mortgage and from any future
holder of a Mortgage encumbering the Building a subordination, non-disturbance
and attainment agreement in the form generally used by such present or future
holder, as the case may be; it being expressly understood that the failure to
obtain any such agreement shall in no way relieve Tenant of any of its
obligations hereunder or alter the subordination of this Lease as provided in
this Article and that the reasonable efforts of Landlord shall not require
Landlord to (i) expend any sums or incur any fees in connection with such
efforts unless Tenant pays the same to Landlord in advance, or (ii) rejecting
potential financing or seek alternate financing arrangements.
B. ATTORNMENT. If at any time prior to the expiration of the Term, any
Mortgage shall be foreclosed or any Superior Lease shall terminate or be
terminated for any reason, Tenant agrees, at the election and upon demand of any
owner of the Real Property or the Building, or the lessor under any such
Superior Lease, or of any mortgagee in possession of the Real Property or the
Building, to attorn, from time to time, to any such owner, lessor or mortgagee,
upon the then executory terms and conditions of this Lease, for the remainder of
the term originally demised in this Lease, provided that such owner, lessor or
mortgagee, as the case may be, or receiver caused to be appointed by any of the
foregoing, shall not then be entitled to possession of the Premises. The
provisions of this subsection B shall inure to the benefit of any such owner,
lessor or mortgagee, shall apply notwithstanding that, as a matter of law, this
Lease may terminate upon the termination of any such Superior Lease, and shall
be self-operative upon any such demand, and no further instrument shall be
required to give effect to said provisions. Tenant, however, upon demand of any
such owner, lessor or mortgagee, agrees to execute, from time to time,
instruments in confirmation of the foregoing provisions of this subsection B,
satisfactory to any such owner, lessor or mortgagee, acknowledging such
attornment and setting forth the terms and conditions of its tenancy. Nothing
contained in this subsection B shall be construed to impair any right otherwise
exercisable by any such owner, lessor or mortgagee.
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8. RULES AND REGULATIONS. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations annexed hereto and made a part hereof as Schedule A and
such other and further reasonable Rules and Regulations as Landlord or
Landlord's agents may from time to time adopt (collectively, the "Rules and
Regulations") on such notice to be given as Landlord may elect. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter made
or adopted by Landlord or Landlord's agents, the parties hereto agree to submit
the question of the reasonableness of such Rule or Regulation for decision to
the Chairman of the Board of Directors of the Management Division of The Real
Estate Board of New York, Inc., or to such impartial person or persons as he may
designate, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
assessed by service of a notice in writing upon Landlord within thirty (30) days
after receipt by Tenant of written notice of the adoption of any such additional
Rule or Regulation. Nothing in this Lease contained shall be construed to impose
upon Landlord any duty or obligation to enforce the Rules and Regulations or
terms, covenants or conditions in any other lease, against any other tenant and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, its servants, employees, agents, visitors or licensees.
9. INSURANCE.
A. TENANT'S INSURANCE. Tenant shall obtain at its own expense and keep in
full force and effect during the Term, a policy of commercial general liability
insurance (including, without limitation, insurance covering Tenant's
contractual liability under this Lease), under which Tenant is named as the
insured, and Landlord, Landlord's managing agent, the present and any future
mortgagee of the Real Property or the Building and/or such other designees
specified by Landlord from time to time, are named as additional insureds. Such
policy shall contain a provision that no act or omission of Tenant shall affect
or limit the obligation of the insurance company to pay the amount of any loss
sustained. Such policy shall also contain a provision which provides the
insurance company will not cancel or refuse to renew the policy, or change in
any material way the nature or extent of the coverage provided by such policy,
without first giving Landlord at least thirty (30) days written notice by
certified mail, return receipt requested, which notice shall contain the policy
number and the names of the insureds and policy holder. The minimum limits of
liability shall be a combined single limit with respect to each occurrence in an
amount of not less than $3,000,000 for injury (or death) and damage to property
or such greater amount as may be consistent with and comparable to limits
required to be carried by owners of buildings in midtown Manhattan comparable to
the Building. Tenant shall also maintain at its own expense during the Term a
policy of workers' compensation insurance providing statutory benefits for
Tenant's employees and employer's liability. Tenant shall provide to Landlord
upon execution of this Lease and at least thirty (30) days prior to the
termination of any existing policy, a certificate evidencing the effectiveness
of the insurance policies required to be maintained hereunder which shall
include the named insured, additional insured, carrier, policy number, limits of
liability, effective date, the name of the insurance agent and its telephone
number. Tenant shall provide Landlord with a complete copy of any such policy
upon written request of Landlord. Tenant shall have no right to obtain any of
the insurance required hereunder pursuant to a blanket policy covering other
properties unless the blanket policy contains an endorsement that names
Landlord, Landlord's managing agent and/or designees specified by Landlord from
time to time, as additional insureds, references the Premises, and guarantees a
minimum limit available for the Premises equal to the
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amount of insurance required to be maintained hereunder. Each policy required
hereunder shall contain a clause that the policy and the coverage evidenced
thereby shall be primary with respect to any policies carried by Landlord, and
that any coverage carried by Landlord shall be excess insurance. The limits of
the insurance required under this subsection shall not limit the liability of
Tenant under this Lease. All insurance required to be carried by Tenant pursuant
to the terms of this Lease shall be effected under valid and enforceable
policies issued by reputable and independent insurers permitted to do business
in the State of New York, and rated in Best's Insurance Guide, or any successor
thereto (or if there be none, an organization having a national reputation) as
having a general policyholder rating of "A" and a financial rating of at least
"13". In the event that Tenant fails to continuously maintain insurance as
required by this subsection, Landlord may, at its option and without relieving
Tenant of any obligation hereunder, order such insurance and pay for the same at
the expense of Tenant. In such event Tenant shall repay the amount expended by
Landlord, with interest thereon, immediately upon Landlord's written demand
therefor.
B. TENANT'S IMPROVEMENT INSURANCE. Tenant shall also maintain at its own
expense during the Term a policy against fire and other casualty on an "all
risk" form covering all Alterations, construction and other improvements
installed within the Premises, whether existing at the Premises on the date
hereof or hereinafter installed by or on behalf of Landlord or Tenant, and on
all furniture, fixtures, equipment, personal property and inventory of Tenant
located in the Premises and any property in the care, custody and control of
Tenant (fixed or otherwise) sufficient to provide 100% full replacement value of
such items, which policy shall otherwise comply with the provisions of
subsections A and C of this Article 9. On any such policy, Tenant shall name
Landlord as a loss payee, as its interest may appear. In addition, such policy
shall contain (i) a waiver of subrogation against Landlord or a consent to a
waiver of right of recovery against Landlord and (ii) and agreement by the
insurer that it will not make any claim against or seek to recover from Landlord
for any loss, damage or claim covered under such policy. If the payment of an
additional premium is required for the inclusion of such waiver of subrogation
provision, Tenant shall advise Landlord of the amount thereof and Landlord shall
pay the same or be deemed to have waived the benefit thereof.
C. WAIVER OF SUBROGATION. The parties hereto shall procure an appropriate
clause in, or endorsement on, any "all-risk" property insurance covering the
Premises and the Building, including its respective Alterations, construction
and other improvements as well as personal property, fixtures, furniture,
inventory and equipment located thereon or therein, pursuant to which the
insurance companies waive subrogation or consent to a waiver of right of
recovery, and each party hereby agrees that it will not make any claim against
or seek to recover from the other or the partners, directors, officers,
shareholders or employees of such party for any loss or damage to its property
or the property of others resulting from fire or other hazards covered by such
"all-risk" property insurance policies to the extent that such loss or damage is
actually recoverable under such policies exclusive of any deductibles. Such
waiver will not apply should any loss or damage result from one of the parties'
gross negligence or willful misconduct. If the payment of an additional premium
is required for the inclusion of such waiver of subrogation provision, each
party shall advise the other of the amount of any such additional premiums and
the other party shall pay the same. It is expressly understood and agreed that
Landlord will not carry insurance on the Alterations, construction and other
improvements presently existing or hereafter installed within
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the Premises or on Tenant's fixtures, furnishings, equipment, personal property
or inventory located in the Premises or insurance against interruption of
Tenant's business.
10. DESTRUCTION OF THE PREMISE; PROPERTY LOSS OR DAMAGE.
A. REPAIR OF DAMAGES. If the Premises shall be damaged by fire or other
casualty, then Landlord shall proceed to repair and restore (subject to receipt
of insurance proceeds) the Premises to its condition preceding the damage,
subject to the provisions of this Article 10. Landlord shall have no liability
to Tenant, and Tenant shall not be entitled to terminate this Lease, if such
repairs and restoration are not in fact completed within Landlord's estimated
time period, so long as Landlord shall have proceeded with reasonable due
diligence. The Rent until such repairs shall be made shall be reduced in the
proportion which the area of the part of the Premises which is not usable by
Tenant bears to the total area of the Premises; PROVIDED, HOWEVER, should Tenant
reoccupy a portion of the Premises for the conduct of its business prior to the
date such repairs are made, the Rent shall be reinstated with respect to such
reoccupied portion of the Premises and shall be payable by Tenant from the date
of such occupancy. Further, should Landlord, at its sole option, make available
to Tenant, during the period of such repair, other space in the Building which
is reasonably suitable for the temporary carrying on of Tenant's business, the
Rent shall be reinstated with respect to such temporarily occupied space and
shall be payable by Tenant from the date such space is occupied by Tenant.
Whenever in this Article 10 reference is made to restoration of the Premises,
(i) Tenant's obligation shall be as to all property within the Premises
including Tenant's furniture, fixtures, equipment and other personal property,
any and all Alterations, construction or other improvements made to the Premises
by or on behalf of Tenant and any other leasehold improvements existing in the
Premises on the date hereof, all of which shall be restored and replaced at
Tenant's sole cost and expense and (ii) Landlord's obligation, if any, shall be
as to the shell, which constitutes the structure of the Building and the
mechanical, electrical, plumbing, air-conditioning and other building systems up
to the point of connection into the Premises. Landlord's obligation to repair or
rebuild, and Tenant's right to rent abatement, as described in this Article 10,
are only effective provided the damage or destruction is not due to the
intentional or negligent acts or omissions of Tenant, its agents, employees,
licensees or invitees. During any period of Tenant's repair and restoration
following substantial completion of Landlord's repair and restoration work, Rent
and additional rent shall be payable as if said fire or other casualty had not
occurred.
B. LANDLORD'S TERMINATION OPTION. Anything in subsection A of this
Article 10 to the contrary notwithstanding, if the Premises are totally damaged
or are rendered wholly untenantable, and if Landlord shall decide not to restore
the Premises, or if the Building shall be so damaged by fire or other casualty
that, in Landlord's opinion, either substantial alteration, demolition or
reconstruction of the Building shall be required (whether or not the Premises
shall have been damaged or rendered untenantable) or the Building, after its
proposed repair, alteration or restoration shall not be economically viable as
an office building, then in any of such events, Landlord, at Landlord's option,
may, not later than ninety (90) days following the damage, give Tenant a notice
in writing terminating this Lease. In addition, (i) if substantial damage shall
occur to the Premises or the Building, in Landlord's sole but reasonable
judgement, during the last two (2) years of the Term, Landlord shall have the
option to terminate this Lease by thirty (30) days prior written notice to
Tenant and (ii) Landlord shall not be obligated to repair or restore the
Premises or the Building a holder of a mortgage or underlying leasehold applies
proceeds of insurance to the
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loan or lease payment balance, and the remaining proceeds, if any, available to
Landlord are insufficient to pay for such repair or restoration. If Landlord
elects to terminate this Lease, the Term shall expire upon the tenth (10th) day
after such notice is given, and Tenant shall vacate the Premises and surrender
the same to Landlord. If Tenant shall not be in default under this Lease, then
upon the termination of this Lease under the conditions provided for in the next
preceding sentence, Tenant's liability for Rent thereafter accruing shall cease
as of the day following such damage.
C. REPAIR DELAYS. Landlord shall not be liable for reasonable delays
which may arise by reason of the claim adjustment with any insurance company on
the part of Landlord and/or Tenant, and for reasonable delays on account of
"labor troubles" or any other cause beyond Landlord's control.
D. PROVISION CONTROLLING. The parties agree that this Article 10
constitutes an express agreement governing any case of damage or destruction of
the Premises or the Building by fire or other casualty, and that Section 227 of
the Real Property Law of the State of New York, which provides for such
contingency in the absence of an express agreement, and any other law of like
import now or hereafter in force shall have no application in any such case.
E. PROPERTY LOSS OR DAMAGE. Any Building employee to whom any property
shall be entrusted by or on behalf of Tenant shall be deemed to be acting as
Tenant's agent with respect to such property and neither Landlord nor its agents
shall be liable for any damage to property of Tenant or of others entrusted to
employees of the Building, nor for the loss of or damage to any property of
Tenant by theft or otherwise. Neither Landlord nor its agents shall be liable
for any injury or damage to persons or property or interruption of Tenant's
business resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain or snow or leaks from any part of the Building or from
the pipes, appliances or plumbing works or from the roof, street or subsurface
or from any other place or by dampness or by any other cause of whatsoever
nature; nor shall Landlord or its agents be liable for any such damage caused by
other tenants or persons as Building or caused by construction of any private,
public or quasi-public work; nor shall Landlord be liable for any latent defect
in the Premises or in the Building. Anything in this Article 10 to the contrary
notwithstanding, nothing in this Lease shall be construed to relieve Landlord
from responsibility directly to Tenant for any loss or damage caused directly to
Tenant wholly or in part by the gross negligence or willful misconduct of
Landlord. Nothing in the foregoing sentence shall affect any right of Landlord
to indemnity from Tenant to which Landlord may be entitled under Article 37
hereof in order to recoup for payments made to compensate for losses of third
parties. If at any time any windows of the Premises are temporarily closed,
darkened or bricked-up for any reason whatsoever including, but not limited to,
Landlord's own acts, or any of such windows are permanently closed, darkened or
bricked-up if required bylaw or related to any construction upon property
adjacent to the Real Property by Landlord or others, Landlord shall not be
liable for any damage Tenant may sustain thereby and Tenant shall not be
entitled to any compensation therefor nor abatement of Rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction. Tenant
shall reimburse and compensate Landlord as additional rent within thirty (30)
days after rendition of a statement for all expenditures made by, or damages or
fines sustained or incurred by, Landlord due to nonperformance or noncompliance
with or breach or failure to observe any term, covenant or condition of this
Lease upon Tenant's part to be kept, observed, performed or complied with Tenant
shall give immediate notice to Landlord in case of
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fire or accident in the Premises or in the Building. Tenant shall not move any
safe, heavy machinery, heavy equipment, freight, bulky matter or fixtures into
or out of the Building without Landlord's prior consent and payment to Landlord
of Landlord's costs in connection therewith. If such safe, machinery, equipment,
freight, bulky matter or fixtures requires special handling, Tenant agrees to
employ only persons holding a Master Rigger's License to do said work, and that
all work in connection therewith shall comply with the Administrative Code of
the City of New York and all other laws and regulations applicable thereto, and
shall be done during such hours as Landlord may designate and, notwithstanding
said consent of Landlord, Tenant shall indemnify Landlord for, and hold Landlord
harmless and free from, damages sustained by persons or property and for any
damages or monies paid out by Landlord in settlement of any claims or judgments,
as well as for all expenses and attorneys' fees incurred in connection therewith
and all costs incurred in repairing any damage to the Building or appurtenances.
11. CONDEMNATION.
A. CONDEMNATION. If the whole of the Real Property, the Building or the
Premises shall be acquired or condemned for any public or quasi-public use or
purpose, this Lease and the Term shall end as of the date of the vesting of
title with the same effect as if said date were the Expiration Date. If only a
part of the Real Property shall be so acquired or condemned then, (i) except as
hereinafter provided in this subsection A, this Lease and the Term shall
continue in force and effect but, if a part of the Premises is included in the
part of the Real Property so acquired or condemned, from and after the date of
the vesting of title, the Rent shall be reduced in the proportion which the area
of the part of the Premises so acquired or condemned bears to the total area of
the Premises immediately prior to such acquisition or condemnation; (ii) whether
or not the Premises shall be affected thereby, Landlord, at Landlord's option,
may give to Tenant, within sixty (60) days next following the date upon which
Landlord shall have received notice of vesting of title, a five (5) days notice
of termination of this Lease; and (iii) if the part of the Real Property so
acquired or condemned shall contain more than thirty percent (30%) of the total
area of the Premises immediately prior to such acquisition or condemnation, or
if, by reason of such acquisition or condemnation, Tenant no longer has
reasonable means of access to the Premises, Tenant, at Tenant's option, may give
to Landlord, within sixty (60) days next following the date upon which Tenant
shall have received notice of vesting of title, a five (5) days notice of
termination of this Lease. If any such five (5) days notice of termination is
given by Landlord or Tenant this Lease and the Term shall come to an end and
expire upon the expiration of said five (5) days with the same effect as if the
date of expiration of said five (5) days were the Expiration Date. If a part of
the Premises shall be so acquired or condemned and this Lease and the Term shall
not be terminated pursuant to the foregoing provisions of this subsection A,
Landlord, at Landlord's expense, shall restore that part of the Premises not so
acquired or condemned to a self-contained rental unit. In the event of any
termination of this Lease and the Term pursuant to the provisions of this
subsection A, the Rent shall be apportioned as of the date of sooner termination
and any prepaid portion of Rent for any period after such date shall be refunded
by Landlord to Tenant.
B. AWARD. In the event of any such acquisition or condemnation of all or
any part of the Real Property, Landlord shall be entitled to receive the entire
award for any such acquisition or condemnation, Tenant shall have no claim
against Landlord or the condemning authority for the value of any unexpired
portion of the Term and Tenant hereby expressly assigns to Landlord all of its
right and to any such award. Nothing contained in this subsection B shall be
deemed to prevent
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Tenant from making a claim in any condemnation proceedings for the then value of
any furniture, furnishings and fixtures installed by and at the sole expense of
Tenant and included in such taking, provided that such award shall not reduce
the amount of the award otherwise payable to Landlord.
12. ASSIGNMENT AND SUBLETTING.
A. PROHIBITION WITHOUT CONSENT. Tenant, for itself, its heirs,
distributees, executors, administrators, legal representatives, successors and
assigns, expressly covenants that it shall not assign, mortgage, pledge,
encumber or otherwise transfer this Lease, nor underlet, nor suffer, nor permit
the Premises or any part thereof to be used or occupied by others (whether for
desk space, mailing privileges or otherwise), without the prior written consent
of Landlord in each instance. If this Lease be assigned, or if the Premises or
any part thereof be underlet or occupied by anybody other than Tenant, Landlord
may, after default by Tenant, collect rent from the assignee, under tenant or
occupant, and apply the net amount collected to the Rent herein reserved, but no
assignment, underletting, occupancy or collection shall be deemed a waiver of
the provisions hereof, the acceptance of the assignee, under tenant or occupant
as tenant, or are lease of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Landlord to an
assignment or underletting shall not in any way be construed to relieve Tenant
from obtaining the express consent in writing of Landlord to any further
assignment or underletting. In no event shall any permitted subtenant assign or
encumber its sublease or further sublet all or any portion of its sublet space,
or otherwise suffer or permit the sublet space or any part thereof to be used or
occupied by others, without Landlord's prior written consent in each instance.
Any assignment, sublease, mortgage, pledge, encumbrance or transfer in
contravention of the provisions of this Article 12 shall be void.
B. NOTICE OF PROPOSED TRANSFER. If Tenant shall at any time or times
during the Term desire to assign this Lease or sublet all or part of the
Premises, Tenant shall give notice thereof to Landlord, which notice shall be
accompanied by (i) a conformed or photostatic copy of the proposed assignment or
sublease, the effective or commencement date of which shall be not less than
thirty (30) nor more than ninety (90) days after the giving of such notice, (ii)
a statement setting forth in reasonable detail the identity of the proposed
assignee or subtenant, the nature of its business and its proposed use of the
Premises, (iii) current financial information with respect to the proposed
assignee or subtenant, including, without limitation, its most recent financial
report, (iv) an agreement by Tenant to indemnify Landlord against liability
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant or by any brokers or other persons claiming a commission
or similar compensation in connection with the proposed assignment or sublease
and (v) the case of a sublease, such additional information related to the
proposed subtenant as Landlord shall reasonably request, if any.
C. LANDLORD'S OPTIONS. The notice containing all of the information set
forth in Subsection B of this Article 12 above shall be deemed an offer from
Tenant to Landlord whereby Landlord (or Landlord's designee) may, at its option,
(a) sublease such space (hereinafter called the "Leaseback Space") from Tenant
upon the terms and conditions hereinafter set forth (if the proposed transaction
is a sublease of all or part of the Premises), or (b) terminate this Lease (if
the proposed transaction is an assignment or a sublease of all or substantially
all of the Premises). Said options may be exercised by Landlord by notice to
Tenant at any time within thirty (30) days after
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the aforesaid notice has been given by Tenant to Landlord; and during such
thirty (30) day period Tenant shall not assign this Lease nor sublet such space
to any person or entity.
D. TERMINATION BY LANDLORD. If Landlord exercises its option to terminate
this Lease in the case where Tenant desires either to assign this Lease or
sublet all or substantially all of the Premises, then this Lease shall end and
expire on the date that such assignment or sublet was to be effective or
commence, as the case may be, and the Rent and additional rent due hereunder
shall be paid and apportioned to such date. Furthermore, if Landlord exercises
its option to terminate this Lease pursuant to subsection C of this Article 12,
Landlord shall be free to and shall have no liability to Tenant if Landlord
should lease the Premises (or any part thereof) to Tenant's prospective assignee
or subtenant.
E. TAKEBACK BY LANDLORD. If Landlord exercises its option to sublet the
Leaseback Space, such sublease to Landlord or its designee (as subtenant) shall
be at the lower of (i) the rental rate per rentable square foot of Rent and
additional rent then payable pursuant to this Lease, or (ii) the rentals set
forth in the proposed sublease, and shall be for the same term as that of the
proposed subletting, and such sublease:
(i) shall be expressly subject to all of the covenants,
agreements, terms, provisions and conditions of this Lease
except such as are irrelevant or inapplicable, and except
as otherwise expressly set forth to the contrary in this
Article 12;
(ii) shall be upon the same terms and conditions as those
contained in the proposed sublease, except such as are
irrelevant or inapplicable and except as otherwise
expressly set forth to the contrary in this Article 12;
(iii) shall give the subtenant the unqualified and unrestricted
right, without Tenant's permission, to assign such sublease
or any interest then and/or to sublet the space covered by
such sublease or any part or pats of such space and to make
any and all changes, alterations and improvements in the
space covered by such sublease, and if the proposed
sublease will result in all or substantially all of the
Premises being sublet, grant Landlord or its designee the
option to extend the term of such sublease for the balance
of the term of this Lease less one (1) day;
(iv) shall provide that any assignee or further subtenant of
Landlord or its designee, may, at the election of Landlord,
be permitted to make alterations, decorations and
installations in such space or any part thereof and shall
also provide in substance at any such alterations,
decorations and installations in such space therein made by
any assignee or subtenant of Landlord or its designee may
be removed, in whole or in part, by such assignee or
subtenant, at its option, prior to or upon the expiration
or other termination of such sublease provided that such
assignee or subtenant, at its expense, shall repair any
damage and injury to such space so sublet caused by such
removal; and
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(v) shall also provide that (a) the parties to such sublease
expressly negate any intention that any estate created
under such sublease be merged with any other estate held by
either of said parties, (b) any assignment or subletting by
Landlord or its designee (as the subtenant) may be for any
purpose or purposes that Landlord, in Landlord's
uncontrolled discretion, shall deem suitable or
appropriate, (c) Tenant, at Tenant's expense, shall and
will at all times provide and permit reasonably appropriate
means of ingress to and egress from such space so sublet by
Tenant to Landlord or its designee, (d) Landlord, at
Tenant's expense, may make such alterations as may be
required or deemed necessary by Landlord to physically
separate the subleased space from the balance of the
Premises and to comply with any legal or insurance
requirements relating to such separation, and (e) that at
the expiration of the term of such sublease, Tenant will
accept the space covered by such sublease in its then
existing condition, subject to the obligations of the
subtenant to make such repairs thereto as may be necessary
to preserve the premises demised by such sublease in good
order and condition.
F. EFFECT OF TAKEBACK OR TERMINATION. If Landlord exercises its option to
sublet the Leaseback Space, (i) Landlord shall indemnify and save Tenant
harmless from all obligations under this Lease as to the Leaseback Space during
the period of time it is so sublet to Landlord; (ii) performance by Landlord, or
its designee, under a sublease of the Leaseback Space shall be deemed
performance by Tenant of any similar obligation under this Lease and any default
under any such sublease shall not give rise to a default under a similar
obligation contained in this Lease nor shall Tenant be liable for any default
under this Lease or deemed to be in default hereunder if such default is
occasioned by or arises from any act or omission of the tenant under such
sublease or is occasioned by or arises from any act or omission of any occupant
holding under or pursuant to any such sublease; and (iii) Tenant shall have no
obligation, at the expiration or earlier termination of the Term, to remove any
alteration, installation or improvement made in the Leaseback Space by Landlord
(or its designee); In addition, if required by applicable law in connection with
any termination of this Lease, or subletting of all or any portion of the
Leaseback Space to Landlord or its designee, Tenant shall complete, swear to and
file any questionnaires, tax returns, affidavits or other documentation which
may be required to be filed with the appropriate governmental agency in
connection with any other tax which may now or hereafter be in effect. Tenant
further agrees to pay any amounts which may be assessed in connection with any
of such taxes and to indemnify Landlord against and to hold Landlord harmless
from any claims for payment of such taxes as a result of such transactions.
G. CONDITIONS FOR LANDLORD'S APPROVAL. In the event Landlord does not
exercise either of the options provided to it pursuant to subsection C of this
Article 12 and provided that Tenant is not in default of any of Tenant's
obligations under this Lease (after notice and the expiration of any applicable
grace period) as of the time of Landlord's consent, and as of the effective date
of the proposed assignment or commencement date of the proposed sublease,
Landlord's consent (which must be in writing and form reasonably satisfactory to
Landlord) to the proposed assignment or sublease shall not be unreasonably
withheld or delayed, provided and upon condition that:
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(i) Tenant shall have complied with the provisions of
subsection B of this Article 12 and Landlord shall not have
exercised any of its options under subsection C of this
Article 12 within the time permitted therefor;
(ii) In Landlord's reasonable judgment the proposed assignee or
subtenant is engaged in a business or activity, and the
Premises, or the relevant part thereof, will be used in a
manner, which (a) is in keeping with the then standards of
the Building, (b) is limited to the use of the Premises as
general and executive offices, and (c) will not violate any
negative covenant as to use contained in any other tease of
office space in the Building;
(iii) The proposed assignee or subtenant is a reputable person of
good character and with sufficient financial worth
considering the responsibility involved, and Landlord has
been furnished with reasonable proof thereof;
(iv) Neither (a) the proposed assignee or subtenant nor (b) any
person which, directly or indirectly, controls, is
controlled by or is under common control with, the proposed
assignee or subtenant, is then an occupant of any part of
the Building;
(v) The proposed assignee or subtenant is not a person with
whom Landlord is or has been, within the preceding three
(3) month period, negotiating to lease space in the
Building;
(vi) The form of the proposed sublease or instrument of
assignment (a) shall be in form reasonably satisfactory to
Landlord, and (b) shall comply with the applicable
provisions of this Article 12;
(vii) There shall not be more than two (2) subtenants (including
Landlord or its designee) of the Premises;
(viii) The amount of the aggregate rent to be paid by the proposed
subtenant is not less than eighty percent (80%) of the then
current sublease market rent per rentable square foot for
the Premises as though the Premises were vacant (taking
into consideration the fact that it is a sublease), the
length of the remaining Term and the incentives given to
the subtenant (I.E., improvements made to prepare the
premises demised under the sublease for such subtenant's
occupancy and free rent), and the rental and other terms
and conditions of the sublease are the same as those
contained in the proposed sublease furnished to Landlord
pursuant to subsection B of this Article 12;
(ix) Within five (5) days after receipt of a bill therefor,
Tenant shall reimburse Landlord for the reasonable costs
that may be incurred by Landlord in connection with said
assignment or sublease, including, without limitation, the
costs of making investigations as to the acceptability of
the proposed assignee or subtenant, and reasonable legal
costs incurred by Landlord in connection with the granting
of any requested consent, which legal costs shall not
exceed $2,000,000 in any one instance;
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(x) Tenant shall not have advertised or publicized in any form
of media the availability of the Premises without prior
notice to and approval by Landlord, nor shall any media
advertisement state the name (as distinguished from the
address) of the Building or the proposed rental;
(xi) The proposed occupancy shall not, in Landlord's sole but
reasonable opinion, materially increase the office cleaning
requirements or the Building's operating or other expenses
or materially increase Landlord's financial obligations or
liability with respect to services to be supplied by
Landlord to Tenant,
(xii) The proposed assignee or subtenant or its business shall
not be subject to compliance with additional requirements
of law (including related regulations) beyond those
requirements which are applicable to the named Tenant
herein if such requirement would increase Landlord's
financial obligations or liability; and
(xiii) The proposed subtenant or assignee shall not be entitled,
directly or indirectly, to diplomatic or sovereign immunity
and shall be subject to the service of process in, and the
jurisdiction of the courts of New York State.
Except for any subletting by Tenant to Landlord or its designee pursuant
to the provisions of this Article 12, each subletting pursuant to this
subsection G of this Article 12 shall be subject to all of the covenants,
agreements, terms, provisions and conditions contained in this Lease.
Notwithstanding any such subletting to Landlord or any such subletting to any
other subtenant and/or acceptance of Rent or additional rent by Landlord from
any subtenant, Tenant shall and will remain fully liable for the payment of the
Rent and additional rent due and to become due hereunder and 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 all acts and omissions of
any licensee or subtenant or anyone claiming under or through any subtenant
which shall be in violation of any of the obligations of this Lease shall be
deemed to be a violation by Tenant. Tenant further agrees that notwithstanding
any such subletting, no other and further subletting of the Premises by Tenant
or any person claiming through or under Tenant shall or will be made except upon
compliance with and subject to the provisions of this Article 12. If Landlord
shall decline to give its consent to any proposed assignment or sublease, or if
Landlord shall exercise either of its options under subsection C of this Article
12, Tenant shall indemnify, defend and hold harmless Landlord against and from
any and all loss, liability, damages, costs, and expenses (including reasonable
counsel fees) resulting from any claims that may be made against Landlord by the
proposed assignee or subtenant or by any brokers or other persons claiming a
commission or similar compensation in connection with the proposed assignment or
sublease.
H. FUTURE REQUESTS. In the event that (i) Landlord fails to exercise
either of its options under subsection C of this Article 12 and consents to a
proposed assignment or sublease, and (ii) Tenant fails to execute and deliver
the assignment or sublease to which Landlord consented within ninety (90) days
after the giving of such consent, then, Tenant shall again comply with all of
the provisions and conditions of subsection B of this Article 12 before
assigning this Lease or subletting all or part of the Premises.
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I. SUBLEASE PROVISIONS. With respect to each and every sublease or
subletting authorized by Landlord under the provisions of this Lease, it is
further agreed that:
(i) No subletting shall be for a term ending later than one (1)
day prior to the Expiration Date of this Lease;
(ii) No sublease shall be delivered, and no subtenant shall take
possession of the Premises or any part thereof, until an
executed counterpart of such sublease has been delivered to
Landlord;
(iii) Each sublease shall provide that it is subject and
subordinate to this Lease and to the matters to which this
Lease is or shall be subordinate, and that in the event of
termination, re-entry or dispossession by Landlord under
this Lease Landlord may, at its option, take over all of
the right, title and interest of Tenant, as sublessor,
under such sublease, and such subtenant shall, at
Landlord's option, attorn to Landlord pursuant to the then
executory provisions of such sublease, except that Landlord
shall not (a) be liable for any previous act or omission of
Tenant under such sublease, (b) be subject to any
counterclaim, offset or defense, not expressly provided in
such sublease, which theretofore accrued to such subtenant
against Tenant, or (c) be bound by any previous
modification of such sublease or by any previous prepayment
of more than one (1) month's Rent. The provisions of this
Article 12 shall be self-operative and no further
instrument shall be required to give effect to this
provision.
(iv) If any laws, orders, rules or regulations of any applicable
governmental authority require that any Hazardous
Substances, including, without limitation, asbestos,
contained in or about the Premises to be sublet (the
"Sublet Space") be dealt with in any particular manner in
connection with any alteration of the Sublet Space or
otherwise, then it shall be the subtenant's obligation, at
the subtenant's expense, to deal with such Hazardous
Substances in accordance with all such laws, orders, rules
and regulations. In the event the subtenant is required to
deal with Hazardous Substances in accordance with the
foregoing provisions of this paragraph (iv) of subsection I
of Article 12, then, notwithstanding anything herein to the
contrary, Landlord, at Landlord's election, shall have the
option to deal with such Hazardous Substances itself and,
in such event, the subtenant shall reimburse Landlord for
all of Landlord's costs and expenses in connection
therewith within ten (10) days next following the rendition
of a statement by Landlord to the subtenant requesting such
reimbursement. If the subtenant shall fail to so reimburse
Landlord for the aforesaid costs and expenses within the
ten (10) day period referred to above, ten notwithstanding
anything contained in the Lease to the contrary, such costs
and expenses shall, at Landlord's option, be paid by Tenant
to Landlord, within ten (10) days next following of
Landlord's demand therefor.
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J. PROFITS FROM ASSIGNMENT OR SUBLETTING. If Landlord shall give its
consent to any assignment of this Lease or to any sublease or if Tenant shall
enter into any other assignment or sublease permitted hereunder, Tenant shall in
consideration therefor, pay to Landlord, as additional rent:
(i) In the case of an assignment, fifty percent (50%) of an
amount equal to all sums and other considerations paid to
Tenant by the assignee for or by reason of such assignment
(including, but not limited to, sums paid for the sale of
Tenant's fixtures, leasehold improvements, equipment,
furniture, furnishings or other personal property, less, in
the case of a sale thereof, the then fair market value
thereof) less all expenses reasonably and actually incurred
by Tenant on account of brokerage commissions and
advertising costs in connection with such assignment,
provided that Tenant shall submit to Landlord a receipt
evidencing the payment of such expenses (or other proof of
payment as Landlord shall require); and
(ii) In the case of a sublease, fifty percent (50%) of any
rents, additional charges or other consideration payable
under the sublease on a per square foot basis to Tenant by
the subtenant which is in excess of the Rent and additional
rent accruing during the term of the sublease in respect of
the subleased space (at the rate per square foot payable by
Tenant hereunder) pursuant to the terms hereof (including,
but not limited to, sums paid for the sale or rental of
Tenant's fixtures, leasehold improvements, equipment,
furniture or other personal property, less, in the case of
the sale thereof, the then fair market value thereof), less
all expenses reasonably and actually incurred by Tenant on
account of brokerage commissions, advertising costs and the
cost of demising the premises so sublet in connection with
such sublease, provided that Tenant shall submit to
Landlord a receipt evidencing the payment of such expenses
(or other proof of payment as Landlord shall require). The
sums payable under this subsection J (ii) of this Article
12 shall be paid to Landlord as and when payable by the
subtenant to Tenant.
K. OTHER TRANSFERS. (i) If Tenant is a corporation other than a
corporation whose stock is listed and traded on a nationally recognized stock
exchange (hereinafter referred to as a "public corporation"), the provisions of
subsection A of this Article 12 shall apply to a transfer (by one or more
transfers) of a majority of the stock of Tenant as if such transfer of a
majority of the stock of Tenant were an assignment of this Lease; but said
provisions shall not apply to transactions with a corporation into or with which
Tenant is merged or consolidated or to which substantially all of Tenant's
assets are transferred, provided that in any of such events (a) the successor to
Tenant has a net worth computed in accordance with generally accepted accounting
principles at least equal to the greater of (1) the net worth of Tenant
immediately prior to such merger, consolidation or transfer, or (2) the net
worth of Tenant herein named on the date of this Lease and (b) proof
satisfactory to Landlord of such net worth shall have been delivered to Landlord
at least ten (10) days prior to the effective date of any such transaction.
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(ii) If Tenant is a partnership, the provisions of subsection A
of this Article 12 shall apply to a transfer (by one or
more transfers) of a majority interest in the partnership,
as if such transfer were an assignment of this Lease.
(iii) If Tenant is a subdivision, authority, body, agency,
instrumentality or other entity created and/or controlled
pursuant to the laws of the State of New York or any city,
town or village of such state or of federal government
("Governmental Entity"), the provisions of subsection A of
this Article 12 shall apply to a transfer (by one or more
transfers) of any of Tenant's rights to use and occupy the
Premises, to any other Governmental Entity, as if such
transfer of the right of use and occupancy were an
assignment of this Lease; but said provisions shall not
apply to a transfer of any of Tenant's rights in and to the
Premises to any Governmental Entity which shall replace or
succeed to substantially similar public functions,
responsibilities and areas of authority as Tenant, provided
that in any of such events the successor Governmental
Entity (a) shall utilize the Premises in a manner
substantially similar to Tenant, and (b) shall not utilize
the Premises in any manner which, in Landlord's judgment,
would impair the reputation of the Building as a
first-class office building.
L. RELATED CORPORATION. Tenant may, with Landlord's consent which shall
not be unreasonably withheld or delayed, permit any corporations or other
business entities (but not including Governmental Entities) which control, are
controlled by, or are under common control with Tenant (herein referred to as
"related corporation") to sublet all or part of the Premises for any of the
purposes permitted to Tenant, subject however to compliance with Tenant's
obligations under this Lease. Such subletting shall not be deemed to vest in any
such related corporation any right or interest in this Lease or the premises nor
shall it relieve, release, impair or discharge any of Tenant's obligations
hereunder. For the purposes hereof, "control" shall be deemed to mean ownership
of not less than fifty percent (50%) of all of the voting stock of such
corporation or not less than fifty percent (50%) of all of the legal and
equitable interest in any other business entities.
M. ASSUMPTION BY ASSIGNEE. Any assignment or transfer, whether made with
Landlord's consent pursuant to subsection A of this Article 12 or without
Landlord's consent pursuant to subsection K of this Article 12, shall be made
only if, and shall not be effective until, the assignee shall execute,
acknowledge and deliver to Landlord an agreement in form and substance
satisfactory to Landlord whereby the assignee shall assume the obligations of
this Lease on the part of Tenant to be performed or observed and whereby the
assignee shall agree that the provisions in subsection A of this Article 12
shall, notwithstanding such assignment or transfer, continue to be binding upon
it in respect of all future assignments and transfers. The original named Tenant
covenants that, notwithstanding any assignment or transfer whether or not in
violation of the provisions of this Lease, and notwithstanding the acceptance of
Rent and/or additional rent by Landlord from an assignee, transferee or any
other party, the original named Tenant shall remain fully liable for the payment
of the Rent and additional rent and for the other obligations of this Lease on
the part of Tenant to be performed or observed.
N. LIABILITY OF TENANT. The joint and several liability of Tenant and any
immediate or remote successor in interest of Tenant and the due performance of
the obligations of this Lease on
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Tenant's part to be performed or observed shall not be discharged, released or
impaired in any respect by any agreement or stipulation made by Landlord
extending the time, or modifying any of the obligations, of this Lease, or by
any waiver or failure of Landlord to enforce any of the obligations of this
Lease.
O. LISTINGS. The listing of any name other than that of Tenant, whether
on the doors of the Premises or the Building directory, or otherwise, shall not
operate to vest any right or interest in this Lease or in the Premises, nor
shall it be deemed to be the consent of Landlord to any assignment or transfer
of this Lease or to any sublease of the Premises or to the use or occupancy
thereof by others. Any such listing shall constitute a privilege extended by
Landlord, revocable at Landlord's will by notice to Tenant.
P. EXCLUSIVE BROKER. In the event Tenant desires to sublet the Premises
or assign this Lease, at Landlord's option, Tenant shall designate Landlord, the
then managing agent of the Building or other agent designated by Landlord, as
Tenant's exclusive agent for a period of not less than ninety (90) days to
effect such sublease or assignment and shall pay Landlord, the managing agent or
such other agent, as the case may be, a reasonable brokerage commission for any
sublease or assignment effectuated during such period (or thereafter in
connection with the efforts of Landlord, the managing agent or such other agent,
as the case may be), computed in accordance with the usual rates charged by
Landlord, the managing agent or such other agent.
Q. RE-ENTRY BY LANDLORD. If Landlord shall recover or come into
possession of the Premises before the date herein fixed for the termination of
this Lease, Landlord shall have the right, at its option, to take over any and
all subleases or sublettings of the Premises or any part thereof made by Tenant
and to succeed to all the rights of said subleases and sublettings or such of
them as it may elect to take over. Tenant hereby expressly assigns and transfers
to Landlord such of the subleases and sublettings as Landlord may elect to take
over at the time of such recovery of possession, such assignment and transfer
not to be effective until the termination of this Lease or re-entry by Landlord
hereunder or if Landlord shall otherwise succeed to Tenant's estate in the
Premises, at which time Tenant shall upon request of Landlord, execute,
acknowledge and deliver to Landlord such further instruments of assignment and
transfer as may be necessary to vest in Landlord the then existing subleases and
sublettings. Every subletting hereunder is subject to the condition and by its
acceptance of and entry into a sublease, each subtenant thereunder shall be
deemed conclusively to have thereby agreed from and after the termination of
this Lease or re-entry by Landlord hereunder of or if Landlord shall otherwise
succeed to Tenant's estate in the Premises, the such subtenant shall waive any
right to surrender possession or to terminate the sublease and, at Landlord's
election; such subtenant shall be bound to Landlord for the balance of the term
of such sublease and shall attorn to and recognize Landlord, as its landlord,
under all of the then executory terms of such sublease, except that Landlord
shall not (i) be liable for any previous act, omission or negligence of Tenant
under such sublease, (ii) be subject to any counterclaim, defense or offset not
expressly provided for in such sublease, which theretofore accrued to such
subtenant against Tenant, (iii) be bound by any previous modification or
amendment of such sublease or by any previous prepayment of more than one (1)
month's rent and additional rent which shall be payable as provided in the
sublease, (iv) be obligated to repair the subleased space or the Building or any
part thereof, in the event of total or substantial total damage beyond such
repair as can reasonably be accomplished from the net proceeds of insurance
actually made available to Landlord, (v) be obligated to repair the subleased
space or the Building or any part thereof, in the event of partial
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condemnation beyond such repair as can reasonably be accomplished from the net
proceeds of any award actually made available to Landlord as consequential
damages allocable to the part of the subleased space or the Building not taken
or (vi) be obligated to perform any work in the subleased space of the Building
or to prepare them for occupancy beyond Landlord's obligations under this Lease,
and the subtenant shall execute and deliver to Landlord any instruments Landlord
may reasonably request to evidence and confirm such attornment. Each subtenant
or licensee of Tenant shall be deemed automatically upon and as a condition of
occupying or using the Premises or any part thereof, to have given a waiver of
the type described in and to the extent and upon the conditions set forth in
this Article 12.
13. CONDITION OF THE PREMISES.
A. ACCEPTANCE BY TENANT. Tenant agrees to accept possession of the
Premises in the condition which shall exist on the Commencement Date "as is"
vacant and broom clean, except, for those items of furniture, fixtures and
equipment identified on Exhibit 3 attached hereto and made a part hereof, which
items Tenant has purchased from the previous tenant of the Premises pursuant to
a separate agreement between Tenant and such previous tenant, and further agrees
that Landlord shall have no obligation to perform any work or make any
installations in order to prepare the Premises for Tenant's occupancy except
that Landlord shall cause the air cooling system serving the Premises to be in
good working order on the Commencement Date and Landlord shall make available,
upon Tenant's request, up to an additional 800 amperes of electricity to the
point of connection to the Premises; it being agreed that all actual
out-of-pocket costs and expenses incurred by Landlord in connection with making
available such additional 800 amperes of electricity to the point of connection
to the Premises shall be reimbursed by Tenant to Landlord within thirty (30)
days of Landlord's rendition of bills therefor. The taking of possession of the
Premises by Tenant shall be conclusive evidence as against Tenant that, at the
time such possession was so taken, the Premises, the Building and the
air-cooling system serving the Premises were in good and satisfactory condition.
If (i) any asbestos containing materials other than Excluded Materials (as
herein after defined) in the Premises are required to be encapsulated, removed
or otherwise managed as of the Commencement Date to comply with applicable laws,
or (ii) if as a result of Tenant's Initial Alteration any asbestos-containing
materials other than the Excluded Materials are discovered and are required to
be encapsulated, removed or otherwise managed to comply with applicable laws,
Landlord shall encapsulate, remove or otherwise manage, at its election, same in
accordance with applicable laws within a commercially reasonable time, at
Landlord's expense. As used herein, the term "Excluded Materials" shall mean
collectively (i) vinyl asbestos tile (VAT) and similar floor coverings, (ii)
asbestos-containing materials within columns or similar enclosures (but not
walls or ceilings) and (iii) any asbestos-containing materials either installed
in the Premises, or disturbed, by or on behalf of Tenant. At Tenant's request,
Landlord shall provide to Tenant an ACP-5 Form with respect to Tenant's Initial
Alterations promptly following Landlord's approval of Tenant's Final Plans (as
defined in Schedule B hereto).
B. TENANT'S INITIAL ALTERATION. Tenant agrees to perform, or to cause
contractors approved by Landlord to perform, Tenant's Initial Alteration
described in Schedule B annexed hereto in accordance with the terms, conditions
and provisions thereof, and in accordance with all other terms, conditions and
provisions contained in this Lease, including, without limitation, Schedules C
and D annexed hereto. All of the terms, covenants and conditions of Schedules C
and D are incorporated in this Lease as if fully set forth at length herein.
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14. ACCESS TO PREMISES. Tenant shall permit Landlord, Landlord's agents and
public utilities servicing the Building to erect, use and maintain, concealed
ducts, pipes and conduits in and through the Premises. Landlord or Landlord's
agents shall have the right to enter the Premises at all reasonable times after
reasonable prior notice (which may be oral or telephonic, except in the event of
an emergency in which case no such notice shall be required) to (i) examine the
same, (ii) to show them to prospective purchasers, mortgagees or lessees of the
Building or space therein, (iii) to make such decorations, repairs, alterations,
improvements or additions as Landlord may deem necessary or desirable to the
Premises or to any other portion of the Building or which Landlord may elect to
perform following Tenant's failure to make repairs or perform any work which
Tenant is obligated to perform under this Lease, or (iv) for the purpose of
complying with laws, regulations or other requirements of government
authorities; Landlord shall be Allowed to take all necessary material and
equipment into and upon the Premises and to store them within the Premises
without the same constituting an eviction or constructive eviction of Tenant in
whole or in part and the Rent shall in nowise abate while any decorations,
repairs, alterations, improvements or additions are being made, by reason of
loss or interruption of business of Tenant, or otherwise. During the one (1)
year prior to the Expiration Date or the expiration of any renewal or extended
term, Landlord may exhibit the Premises to prospective tenants thereof upon
reasonable prior notice to Tenant (which may be oral or telephonic). If, during
the last four (4) months of the Term, Tenant shall have removed all or
substantially all of Tenant's property therefrom, Landlord may immediately enter
and alter, renovate and redecorate the Premises, without elimination or
abatement of Rent, or incurring liability to Tenant for any compensation, and
such acts shall not be deemed an actual or constructive eviction and shall have
no effect upon this Lease. If Tenant shall not be personally present to open and
permit an entry into the Premises, at any time, when for any reason an entry
therein shall, be necessary or permissible, Landlord or Landlord's agents may
enter the same by a master key, or may forcibly enter the same, without
rendering Landlord or such agents liable therefor (if during such entry Landlord
or Landlord's agents shall accord reasonable care to Tenant's property), and
without in any manner affecting the obligations and covenants of this Lease.
Nothing herein contained, however, shall be deemed or construed to impose upon
Landlord any obligation, responsibility or liability whatsoever, or the care,
supervision or repair of the Building or any part thereof, other than as herein
provided. Landlord also shall have the right at any time, without the same
constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor, to change the arrangement and/or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets or other public parts of the Building and to change the name, number or
designation by which the Building is commonly known. In addition, Tenant
understands and agrees that Landlord may perform substantial renovation work in
and to the public parts of the Building and the mechanical and other systems
serving the Building (which work may include the replacement of the building
exterior facade and window glass, requiring access to the same from within the
Premises), and that Landlord shall incur no liability to Tenant, nor shall
Tenant be entitled to any abatement of Rent on account of any noise, vibration
or other disturbance to Tenant's business at the Premises (PROVIDED that Tenant
is not denied access to said Premises) which shall arise out of the performance
by Landlord of the aforesaid renovations of the Building. Tenant understands and
agrees that all parts (except surfaces facing the interior of the Premises) of
all walls, windows and doors bounding the Premises (including exterior Building
walls, core corridor walls, doors and entrances), all balconies, terraces and
roofs adjacent to the Premises, all space in or adjacent to the Premises used
for shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan rooms,
heating, air cooling, plumbing and other mechanical facilities, service
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closets and other Building facilities are not part of the Premises, and Landlord
shall have the use thereof, as well as access thereto through the Premises for
the purposes of operation, maintenance, alteration and repair. Notwithstanding
anything to the contrary contained in this Lease, in the exercise of its rights
under this Article 14, Landlord agrees to use reasonable efforts to minimize
material interference with the conduct of Tenant's business (PROVIDED, HOWEVER,
that nothing contained herein shall require Landlord to employ labor on an
overtime or premium-pay basis).
15. CERTIFICATE OF OCCUPANCY. Tenant shall not at anytime use or occupy the
Premises in violation of the certificate of occupancy issued for the Premises or
for the Building and in the event that any department of the City or State of
New York shall hereafter at any time contend and/or declare by notice,
violation, order or in any other manner whatsoever that the Premises are used
for a purpose which is a violation of such certificate of occupancy whether or
not such use shall be a Permitted Use, Tenant shall, upon five (5) days' written
notice from Landlord, immediately discontinue such use of the Premises. Failure
by Tenant to discontinue such use after such notice shall be considered a
default in the fulfillment of a covenant of this Lease and Landlord shall have
the right to terminate this Lease immediately, and in addition thereto shall
have the right to exercise any and all rights and privileges and remedies given
to Landlord by and pursuant to the provisions of Articles 17 and 18 hereof.
Landlord represents that, to the best of its knowledge, without due inquiry, as
of the Commencement Date there are no violations filed by the Department of
Buildings of the City of New York affecting the Premises, Tenant shall not be
responsible for the removal of any violations filed by the Department of
Buildings of the City of New York prior to the Commencement Date affecting the
Premises.
16. LANDLORD'S LIABILITY. The obligations of Landlord under this Lease shall
not be binding upon Landlord named herein after the sale, conveyance, assignment
or transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may be, and in the event of
any such sale, conveyance, assignment or transfer, Landlord shall be and hereby
is entirely freed and relieved of all covenants and obligations of Landlord
hereunder, and it shall be deemed and construed without further agreement
between the parties or their successors in interest, or between the parties and
the purchaser, grantee, assignee or other transferee that such purchaser,
grantee, assignee or other transferee has assumed and agreed to carry out any
and all covenants and obligations of Landlord hereunder. Neither the
shareholders, directors or officers of Landlord, if Landlord is a corporation,
nor the partners comprising Landlord (nor any of the shareholders, directors or
officers of such partners), if Landlord is a partnership (collectively, the
"Parties"), shall be liable for the performance of Landlord's obligations under
this Lease. Tenant shall look solely to Landlord to enforce Landlord's
obligations hereunder and shall not seek any damages against any of the Parties.
The liability of Landlord for Landlord's obligations under this Lease shall not
exceed and shall be limited to Landlord's interest in the Building and the Real
Property and Tenant shall not look to or attach any other property or assets of
Landlord or the property or assets of any of the Parties in seeking either to
enforce Landlord's obligations under this Lease or to satisfy a judgment for
Landlord's failure to perform such obligations. In no event shall Landlord (or
any of the officers, trustees, directors, partners, beneficiaries, joint
ventures, members, stockholders or other principals or representatives and the
like, disclosed or undisclosed, thereof) ever be liable for incidental or
consequential damages.
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17. DEFAULT.
A. EVENTS OF DEFAULT; CONDITIONS OF LIMITATION. This Lease and the term
and estate hereby granted are subject to the limitations that upon the
occurrence, at any time prior to or during the Term, of any one or more of the
following events (referred to as "Events of Default"):
(i) If Tenant shall default in the payment when due of any
installment of Rent or in the payment when due of any
additional rent, and such default shall continue for a
period of five (5) days after notice by Landlord to Tenant
of such default; or
(ii) If Tenant shall default in the observance or performance of
any term, covenant or condition of this Lease on Tenant's
part to be observed or performed (other than the covenants
for the payment of Rent and additional rent) and Tenant
shall fail to remedy such default within fifteen (15) days
after notice by Landlord to Tenant of such default, or if
such default is of such a nature that it cannot be
completely remedied within said period of fifteen (15) days
and Tenant shall not commence within said period of fifteen
(15) days, or shall not thereafter diligently prosecute to
completion all steps necessary to remedy such default; or
(iii) If the Premises shall become deserted or abandoned; or
(iv) If Tenant's interest in this Lease shall devolve upon or
pass to any person, whether by operation of law or
otherwise, except as may be expressly permitted under
Article 12 hereof; or
(v) If Tenant shall file a voluntary petition in bankruptcy or
insolvency, or shall be adjudicated a bankrupt or
insolvent, or shall file any petition or answer seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the
present or any future federal bankruptcy act or any other
present or future applicable federal, state or other
statute or law, or shall make an assignment for the benefit
of creditors or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver or liquidator of
Tenant or of all or any part of Tenant's property; or
(vi) If, within sixty (60) days after the commencement of any
proceeding against Tenant, whether by the filing of a
petition or otherwise, seeking any reorganization,
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any
future federal bankruptcy act or any other present or
future applicable federal, state or other statute or law,
such proceeding shall not have been dismissed, or if,
within sixty (60) days after the appointment of any
trustee, receiver or liquidator of Tenant, or of all or any
part of Tenant's property, without the consent or
acquiescence of Tenant, such appointment shall not have
been vacated or otherwise discharged, or if any execution
or attachment shall be
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issued against Tenant or any of Tenant's property pursuant
to which the Premises shall be taken or occupied or
attempted to be taken or occupied;
then, in any of said cases, at any time prior to or during the Term, of any one
or more of such Events of Default, Landlord, at any time thereafter, at
Landlord's option, may give to Tenant a five (5) days notice of termination of
this Lease and, in the event such notice is given, this Lease and the Term shall
come to an end and expire (whether or not the Term shall have commenced) upon
the expiration of said five (5) days with the same effect as if the date of
expiration of said five (5) days were the Expiration Date, but Tenant shall
remain liable for damages as provided in Article 18 hereof.
B. EFFECT OF BANKRUPTCY. If, at any time, (i) Tenant shall be comprised
of two (2) or more persons, or (ii) Tenant's obligations under this Lease shall
have been guaranteed by any person other than Tenant, or (iii) Tenant's interest
in this Lease shall have been assigned, the word "Tenant", as used in clauses
(vi) and (vii) of subsection A of this Article 17, shall be deemed to mean any
one or more of the persons primarily or secondarily liable for Tenant's
obligations under this Lease. Any monies received by Landlord from or on behalf
of Tenant during the pendency of any proceeding of the types referred to in said
clauses (vi) and (vii) shall be deemed paid as compensation for the use and
occupation of the Premises and the acceptance of any such compensation by
Landlord shall not be deemed an acceptance of rent or a waiver on the part of
Landlord of any rights under said subsection A.
C. CONDITIONAL LIMITATION. If Tenant shall default in the payment of Rent
or additional rent hereunder more than three (3 times in any twelve (12) month
period during the Term hereof, nothing contained in this Article 17 shall be
deemed to require Landlord to give the notices herein provided for prior to the
commencement of a summary proceeding for non-payment of rent or a plenary action
for recovery of rent on account of any default in the payment of the same, it
being intended that such notices are for the sole purpose of creating a
conditional limitation hereunder pursuant to which this Lease shall terminate
and if Tenant thereafter remains in possession after such termination, Tenant
shall do so as a holdover tenant. As used in this Subsection C, "default in the
payment of rent" shall mean Tenant has paid the Rent or additional rent in
question later than the third (3rd) day after such Rent or additional rent was
due and payable hereunder (i.e., after the expiration of the notice and cure
period provided in subsection a(i) of Article 17 hereof).
18. REMEDIES AND DAMAGES.
A. LANDLORD'S REMEDIES. (i) If Tenant shall default in the payment when
due of any installment of Rent or in the payment when due of any additional
rent, or if any execution or attachment shall be issued against Tenant or any of
Tenant's property whereupon the Premises shall be taken or occupied or attempted
to betaken or occupied by someone other than Tenant, or if Tenant shall fail to
move into or take possession of the Premises within fifteen (15) days after the
Commencement Date, or if this Lease and the Term shall expire and come to an end
as provided in Article 17:
(a) Landlord and its agents and servants may
immediately, or at any time after such default or
after the date upon which this Lease and the Term
shall expire and come to an end, re-enter the
Premises or any
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part thereof, either by summary proceedings, or by
any other applicable action or proceeding (without
being liable to indictment, prosecution or damages
therefor), and may repossess the Premises and
dispossess Tenant and any other persons from the
Premises and remove any and all of their property
and effects from the Premises; and
(b) Landlord, at Landlord's option, may relet the whole
or any part or parts of the Premises from time to
time, either in the name of Landlord or otherwise,
to such tenant or tenants, for such term or terms
ending before, on or after the Expiration Date, at
such rental or rentals and upon such other
conditions, which may include concessions and free
rent periods, as Landlord, in its sole discretion,
may determine. Landlord shall have no obligation to
relet the Premises or any part thereof and shall in
no event be liable for refusal or failure to relet
the Premises or any part thereof, or, in the event
of any such reletting, for refusal or failure to
collect any time due upon any such reletting, and no
such refusal or failure shall operate to relieve
Tenant of any liability under this Lease or
otherwise to affect any such liability; Landlord, at
Landlord's option, may make such repairs,
replacements, alterations, additions, improvements,
decorations and other physical changes in and to the
Premises as Landlord, in its sole discretion,
considers advisable or necessary in connection with
any such reletting or proposed reletting, without
relieving Tenant of any liability under this Lease
or otherwise affecting any such liability.
(ii) Tenant hereby waives the service of any notice of intention
to re-enter or to institute legal proceedings to that end
which may otherwise be required to be given under any
present or future law. Tenant, on its own behalf and on
behalf of all persons claiming through or under Tenant,
including all creditors, does further hereby waive any and
all rights which Tenant and all such persons might
otherwise have under any present or future law to redeem
the Premises, or to re-enter or repossess the Premises, or
to restore the operation of this Lease, after (a) Tenant
shall have been dispossessed by a judgment or by warrant of
any court or judge, or (b) any re-entry by Landlord, or (c)
any expiration or termination of this Lease and the Term,
whether such dispossess, re-entry, expiration or
termination shall be by operation of law or pursuant to the
provisions of this Lease. The words "re-enter", "re-entry"
and "re-entered" as used in this Lease shall not be deemed
to be restricted to their technical legal meanings. In the
event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term,
covenant or condition of this Lease on Tenant's part to be
observed or performed, Landlord shall have the right to
enjoin such breach and the right to invoke any other remedy
allowed bylaw or in equity as if re-entry, summary
proceedings and other special remedies were not provided in
this Lease for such breach. The right to invoke the
remedies
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herein before set forth are cumulative and shall not
preclude Landlord from invoking any other remedy allowed at
law or in equity.
B. DAMAGES. (i) If this Lease and the Term shall expire and come to an
end as provided in Article 17, or by or under any summary proceeding or any
other action or proceeding, or if Landlord shall re-enter the Premises as
provided in subsection A of this Article 18, or by or under any summary
proceeding or any other action or proceeding, then, in any of said events:
(a) Tenant shall pay to Landlord all Rent,
additional rent and other charges payable
under this Lease by Tenant to Landlord to the
date upon which this Lease and the Term shall
have expired and come to an end or to the
date of re-entry upon the Premises by
Landlord, as the case may be;
(b) Tenant also shall be liable for and shall pay
to Landlord, as damages, any deficiency
(referred to as "Deficiency") between the
Rent reserved in this Lease for the period
which otherwise would have constituted the
unexpired portion of the Term and the net
amount, if any, of rents collected under any
reletting effected pursuant to the provisions
of subsection A(i) of this Article 18 for any
part of such period (first deducting from the
rents collected under any such reletting all
of Landlord's expenses in connection with the
termination of this Lease, or Landlord's
reentry upon the Premises and with such
reletting including, but not limited to, all
repossession costs, brokerage commissions,
legal expenses, attorneys' fees and
disbursements, alteration costs and other
expenses of preparing the Premises for such
reletting); any such Deficiency shall be paid
in monthly installments by Tenant on the days
specified in this Lease for payment of
installments of Rent, Landlord shall be
entitled to recover from Tenant each monthly
Deficiency as the same shall arise, and no
suit to collect the amount of the Deficiency
for any month shall prejudice Landlord's
right to collect the Deficiency for any
subsequent month by a similar proceeding; and
(c) Whether or not Landlord shall have collected
any monthly Deficiencies as aforesaid,
Landlord shall be entitled to recover from
Tenant, and Tenant shall pay to Landlord, on
demand, in lieu of any further Deficiencies
as and for liquidated and agreed final
damages, a sum equal to the amount by which
the Rent reserved in this Lease for the
period which otherwise would have constituted
the unexpired portion of the Term exceeds the
then fair and reasonable rental value of the
Premises for the same period, less the
aggregate amount of Deficiencies theretofore
collected by Landlord pursuant to the
provisions of subsection B(1)(b) of this
Article 18 for the same period; if, before
presentation of proof of such liquidated
damages to any court, commission or tribunal,
the Premises, or any part thereof, shall have
been relet by Landlord for the period which
otherwise
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would have constituted the unexpired portion
of the Term, or any part thereof, the amount
of rent reserved upon such reletting shall be
deemed, prima facie, to be the fair and
reasonable rental value for the part or the
whole of the Premises so relet during the
term of the reletting.
(ii) If the Premises, or any part thereof, shall be relet
together with other space in the Building, the rents
collected or reserved under any such reletting and
the expenses of any such reletting shall be
equitably apportioned for the purposes of this
subsection B. Tenant shall in no event be entitled
to any rents collected or payable under any
reletting, whether or not such rents shall exceed
the Rent reserved in this Lease. Solely for the
purposes of this Article, the term "Rent" as used in
subsection B(i) of this Article 18 shall mean the
Rent in effect immediately prior to the date upon
which this Lease and the Term shall have expired and
come to an end, or the date of re-entry upon the
Premises by Landlord, as the case may be, adjusted
to reflect any increase or decrease pursuant to the
provisions of Article 28 hereof for the Comparison
Year (as defined in said Article 28) immediately
preceding such event. Nothing contained in Article
17 or this Article 18 shall be deemed to limit or
preclude the recovery by Landlord from Tenant of the
maximum amount allowed to be obtained as damages by
any statute or rule of law, or of any sums or
damages to which Landlord may be entitled in
addition to the damages set forth in subsection B(i)
of this Article 18.
C. LEGAL FEES. (i) Tenant hereby agrees to pay, as additional rent, all
reasonable attorneys' fees and disbursements (and all other court costs or
expenses of legal proceedings) which Landlord may incur or pay out by reason of,
or in connection with:
(a) Any action or proceeding by Landlord to
terminate this Lease in which Landlord
prevails;
(b) Any other action or proceeding by Landlord
against Tenant (including, but not limited
to, any arbitration proceeding) in which
Landlord prevails;
(c) Any default by Tenant in the observance or
performance of any obligation under this
Lease (including, but not limited to, matters
involving payment of rent and additional
rent, computation of escalations, alterations
or other Tenant's work and subletting or
assignment), whether or not Landlord
commences any action or proceeding against
Tenant;
(d) Any action or proceeding brought by Tenant
against Landlord (or any officer, partner or
employee of Landlord) in which Tenant does
not prevail and with respect to which no
appeal is sought; and
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(e) Any other appearance by Landlord (or any
officer, partner or employee of Landlord) as
a witness or otherwise in any action or
proceeding whatsoever involving or affecting
Landlord. Tenant or this Lease in which
Landlord prevails.
(ii) Tenant's obligations under this subsection C of
Article 18 shall survive the expiration of the Term
hereof or any earlier termination of this Lease.
This provision is intended to supplement (and not to
limit) other provisions of this Lease pertaining to
indemnities and/or attorneys' fees.
19. FEES AND EXPENSES.
A. CURING TENANT'S DEFAULTS. If Tenant shall default in the observance or
performance of any term or covenant on Tenant's part to be observed or performed
under or by virtue of any of the terms or provisions in any Article of this
Lease, Landlord may immediately or at any time thereafter on five (5) business
days notice perform the same for the account of Tenant, and if Landlord makes
any expenditures or incurs any obligations for the payment of money in
connection therewith including, but not limited to, reasonable attorneys' fees
and disbursements in instituting, prosecuting or defending any action or
proceeding, such sums paid or obligations incurred with interest and costs shall
be deemed to be additional rent hereunder and shall be paid by Tenant to
Landlord within fifteen (15) business days of rendition of any bill or statement
to Tenant therefor.
B. LATE CHARGES. If Tenant shall fail to make payment of any installment
of rent or any additional rent within ten (10) business days after the date when
such payment is due, Tenant shall pay to Landlord, in addition to such
installment of Rent or such additional rent, as the case may be, as a late
charge and as additional rent, a sum based on rate equal to the lesser of (i)
five percent (5%) per annum above the then current prime rate charged by
Citibank, N.A. or its successor and (ii) the maximum rate permitted by
applicable law, of the amount unpaid computed from the date such payment was due
to and including the date of payment, but in no event shall interest be computed
and payable for less than a full calendar month. Tenant acknowledges and agrees
that, except as otherwise expressly provided herein, if Tenant fails to dispute
any item of additional rent within thirty (30) days of receipt of a bill or
notice therefor, Tenant shall be deemed to have waived its right to dispute the
same.
20. NO REPRESENTATIONS BY LANDLORD. Landlord or Landlord's agents have made
no representations or promises with respect to the Building, the Real Property,
the Premises or Taxes (as defined in Article 28 hereof) except as herein
expressly set forth and no rights, easements or licenses are acquired by Tenant
by implication or otherwise except as expressly set forth herein. All references
in this Lease to the consent or approval of Landlord shall be deemed to mean the
written consent of Landlord or the written approval of Landlord and no consent
or approval of Landlord shall be effective for any purpose unless such consent
or approval is set forth in a written instrument executed by Landlord.
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21. END OF TERM.
A. SURRENDER OF PREMISES. Upon the expiration or other termination of the
Term, Tenant shall quit and surrender to Landlord the Premises, broom clean, in
good order and condition, ordinary wear and tear and damage for which Tenant is
not responsible under the terms of this Lease excepted, and Tenant shall remove
all of its property pursuant to Article 3 hereof. Tenant's obligation to observe
or perform this covenant shall survive the expiration or sooner termination of
the Term. If the last day of the Term or any renewal thereof falls on Saturday
or Sunday this Lease shall expire on the business day immediately preceding. In
addition, the parties recognize and agree that the damage to Landlord resulting
from any failure by Tenant to timely surrender possession of the Premises as
aforesaid will be substantial, will exceed the amount of the monthly
installments of the Rent theretofore payable hereunder, and will be impossible
to accurately measure. Tenant therefore agrees that if possession of the
Premises is not surrendered to Landlord within twenty-four (24) hours after the
Expiration Date or sooner termination of the Term, in addition to any other
rights or remedy Landlord may have hereunder or at law, Tenant shall pay to
Landlord for each month and for each portion of any month during which Tenant
holds over in the Premises after the Expiration Date or sooner termination of
this Lease, a sum equal to two (2) times he aggregate of that portion of the
Rent and the additional rent which was payable under this Lease during the last
month of the Term. Nothing herein contained shall be deemed to permit Tenant to
retain possession of the Premises after the Expiration Date or sooner
termination of this Lease and no acceptance by Landlord of payments from Tenant
after the Expiration Date or sooner termination of the Term shall be deemed to
be other than on account of the amount to be paid by Tenant in accordance with
the provisions of this Article 21, which provisions shall survive the Expiration
Date or sooner termination of this Lease.
B. HOLDOVER BY TENANT. If Tenant shall hold-over or remain in possession
of any portion of the Premises beyond the Expiration Date of this Lease,
notwithstanding the acceptance of any Rent and additional rent paid by Tenant
pursuant to subsection A above, Tenant shall be subject not only to summary
proceeding and all damages related thereto, but also to any damages arising out
of lost opportunities (and/or new leases) by Landlord to re-let the Premises (or
any part thereof). All damages to Landlord by reason of such holding over by
Tenant may be the subject of a separate action and need not be asserted by
Landlord in any summary proceedings against Tenant.
22. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon
Tenant paying the Rent and additional rent and observing and performing all the
terms, covenants and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the Premises subject, nevertheless, to
the terms and conditions of this Lease including, but not limited to, Article 16
hereof and to all Superior Leases and Mortgages.
23. FAILURE TO GIVE POSSESSION. Tenant waives any right to rescind this Lease
under Section 223-a of the New York Real Property Law or any successor statute
of similar import then in force and further waives the right to recover any
damages which may result from Landlord's failure to deliver possession of the
Premises on the date set forth in Article 1 hereof for the commencement of the
Term. If Landlord shall be unable to give possession of the Premises on such
date, and provided Tenant is not responsible for such inability to give
possession, the Rent reserved and covenanted to be paid herein shall not
commence until the possession of the Premises
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is given or the Premises are available for occupancy by Tenant, and no such
failure to give possession on such date shall in any way affect the validity of
this Lease or the obligations of Tenant hereunder or give rise to any claim for
damages by Tenant or claim for rescission of this Lease. Notwithstanding
anything to the contrary herein above set forth, if Landlord shall fail to
deliver possession of the Premises to Tenant (other than as a result of an act
or omission of Tenant or any person or entity acting by or on behalf of Tenant
(collectively, a "Tenant Act"), by the Commencement Date, then in no event and
under no circumstances shall Landlord be liable for any of Tenant's costs or
expenses; it be agreed that unless such failure is a result of a Tenant Act, the
Rent Commencement Date and the Expiration Date shall be postponed one (1) day
for every day occurring between the Commencement Date and the date on which the
Premises are available for occupancy, and such postponement of the Rent
Commencement Date and the Expiration Date shall be Tenant's sole remedy for such
failure. If permission is given to Tenant to enter into the possession of the
Premises or to occupy premises other than the Premises prior to the Commencement
Date, Tenant covenants and agrees that such occupancy shall be deemed to be
under all the terms, covenants, conditions and provisions of this Lease,
including the covenant to pay Rent. Tenant acknowledges that the Premises are
currently occupied by a tenant pursuant to an existing lease. Tenant further
acknowledges that the expiration of the lease covering the Premises expires by
its terms on April 30, 2000, and that Landlord and the existing on tenant have
executed a surrender agreement with respect to the Premises simultaneously with
the execution and delivery of this Lease, which surrender agreement is effective
as of October 20, 1999.
24. NO WAIVER. If there be any agreement between Landlord and Tenant
providing for the cancellation of this Lease upon certain provisions or
contingencies and/or an agreement for the renewal hereof at the expiration of
the Term, the right to such renewal or the execution of a renewal agreement
between Landlord and Tenant prior to the expiration of the Term shall not be
considered an extension thereof or a vested right in Tenant to such further
term, so as to prevent Landlord from canceling this Lease and any such extension
thereof during the remainder of the original Term; such privilege, if and when
so exercised by Landlord, shall cancel and terminate this Lease and any such
renewal or extension previously entered into between Landlord and Tenant or the
right of Tenant to any such renewal or extension; any right herein contained on
the part of Landlord to cancel this Lease shall continue during any extension or
renewal hereof; any option on the part of Tenant herein contained for an
extension or renewal hereof shall not be deemed to give Tenant any option for a
further extension beyond the first renewal or extended term. No act or thing
done by Landlord or Landlord's agents during the Term shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept such
surrender shall be valid unless in writing signed by Landlord. No employee of
Landlord or of Landlord's agents shall have any power to accept the keys of the
Premises prior to the termination of this Lease. The delivery of keys to any
employee of Landlord or of Landlord's agents shall not operate as a termination
of this Lease or a surrender of the Premises. In the event Tenant at anytime
desires to have Landlord sublet the Premises for Tenant's account, Landlord or
Landlord's agents are authorized to receive said keys for such purpose without
releasing Tenant from any of the obligations under this Lease, and Tenant hereby
relieves Landlord of any liability for loss of or damage to any of Tenant's
effects in connection with such subletting. The failure of Landlord to seek
redress for violation of, or to insist upon the strict performance of, any
covenant or condition of this Lease, or any of the Rules and Regulations set
forth or hereafter adopted by Landlord, shall not prevent a subsequent act,
which would have originally constituted a violation, from having all force and
effect of an original violation. The receipt by Landlord of Rent with knowledge
of the breach of any covenant of this Lease shall not
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be deemed a waiver of such breach. The failure of Landlord to enforce any of the
Rules and Regulations set forth, or hereafter adopted, against Tenant and/or any
other tenant in the Building shall not be deemed a waiver of any such Rules and
Regulations. No provision of this Lease shall be deemed to have been waived by
Landlord unless such waiver be in writing signed by Landlord. No payment by
Tenant or receipt by Landlord of a lesser amount than the monthly Rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated Rent, or as Landlord may elect to apply same, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such Rent or pursue any other remedy in this Lease provided. This
Lease contains the entire agreement between the parties and all prior
negotiations and agreements are merged in this Lease. Any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
25. WAIVER OF TRIAL BY JURY. It is mutually agreed by and between Landlord
and Tenant that the respective parties hereto shall and they hereby do waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other on any matters whatsoever arising out of or in
any way connected with this Lease, the relationship of Landlord and Tenant
Tenant's use or occupancy of the Premises, and/or any claim of personal injury
or property damage, or for the enforcement of any remedy under any statute,
emergency or otherwise. It is further mutually agreed that in the event Landlord
commences any summary proceeding (whether for nonpayment of rent or because
Tenant continues in possession of the Premises after the expiration or
termination of the Term), Tenant will not interpose any counterclaim (except for
mandatory or compulsory counterclaims) of whatever nature or description in any
such proceeding.
26. INABILITY TO PERFORM. This Lease and the obligation of Tenant to pay Rent
and additional rent hereunder and perform all of the other covenants and
agreements hereunder on the part of Tenant to be performed shall in nowise be
affected, impaired or excused because Landlord is unable to fulfill any of its
obligations under this Lease expressly or impliedly to be performed by Landlord
or because Landlord is unable to make, or is delayed in making any repairs,
additions, alterations, improvements or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of strikes or labor troubles or by accident or
by any cause whatsoever reasonably beyond Landlord's control, including, but not
limited to, laws, governmental preemption in connection with a National
Emergency or by reason of any rule, order or regulation of any federal, state,
county or municipal authority or any department or subdivision thereof or any
government agency or by reason of the conditions of supply and demand which have
been or are affected by war or other emergency.
27. BILLS AND NOTICES. Except as otherwise expressly provided in this Lease,
any bills, statements, notices, demands, requests or other communications given
or required to be given under this Lease shall be deemed sufficiently given or
rendered if in writing and sent by registered or certified mail (return receipt
requested) or by recognized overnight courier (E.G., Federal Express) addressed
(i) to Tenant (a) at Tenant's address set forth in this Lease if mailed prior to
Tenant's taking possession of the Premises, or (b) at the Building if mailed
subsequent to Tenant's taking possession of the Premises, or (c) at any place
where Tenant or any agent or employee of
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Tenant may be found if mailed subsequent to Tenant's vacating, deserting,
abandoning or surrendering the Premises, with a courtesy copy to Tenant's
attorneys, Rotondi 8 Associates, P.C., 330 West 42nd Street, 32nd Floor, New
York, New York, 10036, Attention: Louis J. Rotondi, Esq. or (ii) to Landlord at
Landlord's address set forth in this Lease with a courtesy copy to Landlord's
attorneys, Younkins & Schecter LLP, 420 Lexington Avenue, New York, New York
10170, or (iii) to such other address as either Landlord or Tenant may designate
as its new address for such purpose by notice given to the others in accordance
with the provisions of this Article 27. Tenant hereby acknowledges and agrees
that any such bill, statement, demand, notice, request or other communication
may be given by Landlord's agent on behalf of Landlord. Any such bill,
statement, demand, notice, requestor other communication shall be deemed to have
been rendered or given on the date when it shall have been mailed or on the date
receipt is refused if sent by overnight courier, each as provided in this
Article 27. Notwithstanding anything contained in this Article 27 to the
contrary, bills and statements issued by Landlord may be sent by the method(s)
set forth herein above, without copies to any other party. This notice provision
has been specifically negotiated between the parties hereto.
28. ESCALATION.
A. RENT ESCALATION. COST INCREASE. (i) (a) For purposes of the formula
and other provisions set forth in this Article 28A and elsewhere in this Lease:
(i) "Rate" shall mean the minimum regular hourly wage rate,
including adjustments of every kind and nature, other than
fringe employee benefits (including, without limitation,
adjustments provided for in subsection (i)(a)(iii) of this
Article 28A prescribed for Porters (as hereinafter defined)
for Class A office buildings (or any successor category),
pursuant to the present and any successor agreement between
the Realty Advisory Board on Labor Relations, Incorporated
(or any successor thereto) and Local 32B of the Building
Service Employees International Union, AFL-CIO (or any
successor thereto), covering the wage rates for Porters in
such buildings ("Agreement"); PROVIDED, HOWEVER, that, (a)
if, at any time during the Term, regular employment of
Porters occurs on days or during hours when the overtime or
other premium pay rates are in effect pursuant to the
Agreement, "Rate" shall mean the average hourly wage rate,
including adjustments of every kind and nature, other than
fringe employee benefits (including, without limitation,
adjustment provided for in subsection (i)(a)(iii) of this
Article 28A for the hours in a calendar week during which
Porters are regularly employed (E.G., if pursuant to
the Agreement, the regular weekly employment of Porters is
for forty hours, at a regular hourly wage rate of $12.00
for the first thirty hours and an overtime hourly wage rate
of $15.00 for the remaining ten hours, the average hourly
wage rate for the applicable period shall, before
adjustment pursuant to the provisions of subsection
(i)(a)(iii) of this Article 28A, be the weekly wage rate of
$510.00 divided by the number of regular hours of
employment, to wit, forty, or $12.75), and that, (b) if, at
anytime during the Term, no Agreement exists, "Rate" shall
mean the average minimum regular hourly wage rate,
including adjustments of every kind and nature, other than
fringe employee benefits (including,
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without limitation, adjustments provided for in subsection
(i)(a)(iii) of this Article 28A actually payable to Porters
at the rate for Porters employed at Class A office
buildings as such buildings are presently described in the
Agreement, except that at no time shall the amount payable
be less than the amount being paid by the Tenant pursuant
to this subsection (i)(a)(i) of this Article 28A at the
time the rate ceases to exist.
(ii) "Porters" shall mean those employees who have been employed
for ten (10) years or more and who are engaged in the
general maintenance and operation of office buildings,
classified as "Others" in the current Agreement or, failing
such classification in any subsequent Agreement, the most
nearly comparable classification in such Agreement:
(iii) In determining the Rate and the Base Rate on each
applicable occasion pursuant to this Lease, the Base Rate
and the Rate, as specified in the Agreement, shall be
adjusted on the basis of the number of hours Porters
actually are to work, pursuant to the Agreement, during the
applicable calendar year (E.G., if the Agreement is
predicated on a 2,080 hour work year (40 hours x 52 weeks)
and Porters are paid for the following time which they
actually are not to work (Vacation-120 hours, Holidays-88
hours, Birthday-8 hours, Medical Checkup-16 hours, Sick
Days-80 hours, Disaster Day-8 hours and Relief Time-147
hours), totaling 467 hours, then the Base Rate and the Rate
shall be calculated on the basis of Porters actually
working 1,613 hours (2,080 hours less 467 hours).
(i) (b) If, in any year during the Term, the Rate exceeds the Base Rate.
Tenant shall pay Landlord an amount ("Expense Escalation") equal to the product
of the Multiplication Factor multiplied by 100% of the amount by which the Rate
exceeds the Base Rate, appropriately adjusted for any such period which is only
partially within the Term. The Expense Escalation shall be payable in equal
monthly installments, commencing with the first installment of Rent due on or
after the effective date of any increase in the Rate and continuing thereafter
until the effective date of any subsequent increase, whereupon such installments
shall be appropriately adjusted. Landlord shall furnish Tenant with a statement
itemizing Tenant's liability pursuant to this subsection (i)(b) of this Article
28A whenever such liability arises or changes. Except as limited by Articles 10
and 11 of this Lease, Tenant's obligation to make such payments shall survive
the Expiration Date or any sooner termination of this Lease. Notwithstanding the
foregoing, if, by reason of any law or any rule, order, regulation or
requirement of any governmental or quasi-governmental authority having or
asserting jurisdiction (collectively, "Law"), an increase in the Rate is reduced
or does not take effect, or increases in the Rate are limited or prohibited,
then, for the period covered by the Law ("Law Period"), the applicable increase
("Increase") in the Rate for purposes of this Article 28A shall be the increase
in the Rate ("Prior Increase") which most immediately preceded the effective
date of the Law. The Increase shall take effect on the date following the
expiration of the period for the Prior Increase and an equivalent Increase shall
take effect on each anniversary of such effective date during the Law Period.
(i) (c) Each notice given by Landlord pursuant to subsection (i)(b) of
this Article 28A shall be binding upon Tenant unless, within thirty (30) days
after is receipt of such notice,
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Tenant notifies Landlord of its disagreement therewith, specifying the portion
thereof with which Tenant disagrees. Pending resolution of such dispute, Tenant
shall, without prejudice to its rights, pay all amounts determined by Landlord
to be due, subject to prompt refund by Landlord (without interest) upon any
contrary determination.
(i) (d) Landlord's failure to timely bill all or any portion of the
Expense Escalation (or any increase therein) for any period or periods during
the Term (whether because of failure to timely consummate an Agreement or
because of error or oversight of Landlord or its managing agent or for any other
reason) shall not constitute a waiver of Landlord's right to ultimately collect
such amount, nor a waiver of Landlord's right to bill Tenant at any subsequent
time retroactively for the entire amount so unbilled, which unbilled amount
shall be payable within thirty (30) days after being so billed.
B. REAL ESTATE TAX ESCALATION. (i) Tenant shall pay to Landlord, as
additional rent, tax escalation in accordance with this Article 28B.
(i) (a) As used in this Article 28B, the following definitions shall
apply:
(i) The term "Comparative Year" shall mean the respective
twelve (12) months following the Base Tax Year, and each
subsequent period of twelve (12) months.
(ii) The term "Real Estate Taxes" shall mean the total of all
real property taxes and special or other assessments and/or
vault charges levied, assessed or imposed at any time by
any governmental authority or against the Real Property,
and also any tax or assessment levied, assessed or imposed
at any time by any governmental authority in connection
with the receipt of income or rents from said Real Property
to the extent that same shall be in lieu of all or a
portion of any of the aforesaid taxes or assessments, or
additions or increases thereof, upon or against said Real
Property and any Business Improvement District Charges. If,
due to a future change in the method of taxation or in the
taxing authority, or for any other reason, a franchise,
income, transit, profit or other tax or governmental
imposition, however designated, shall be levied against
Landlord in substitution in whole or in part for the Real
Estate Taxes, or in lieu of additions to or increases of
said Real Estate Taxes, then such franchise, income,
transit, profit or other tax or governmental imposition
shall be deemed to be included within the definition of
"Real Estate Taxes" for the purposes hereof. As to special
assessments which are payable over a period of time
extending beyond the Term, only a pro rata portion thereof,
covering the portion of the Term unexpired at the time of
the imposition of such assessment, shall be included in
"Real Estate Taxes". If, by law, any assessment may be paid
in installments, then, for the purposes hereof (a) such
assessment shall be deemed to have been payable in the
maximum number of installments permitted bylaw and (b)
there shall be included in Real Estate Taxes, for each
Comparative Year in which such installments may be paid,
the installments of such assessments so becoming payable
during the
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Comparative Year, together with interest payable during
such Comparative Year.
(iii) The phrase "Real Estate Taxes payable during the Base Tax
Year" shall mean that amount obtained by multiplying the
valuations actually used by the City of New York, of the
land and building of the Real Property(whether same be
actual or a transitional assessment), for purposes of
billing Real Estate Taxes during he Base Tax Year by the
Base Tax Year rate for each $100,000 for such valuation.
(ii)(b) In the event that the Real Estate Taxes payable for any
Comparative Year shall exceed the amount of such Real Estate Taxes payable
during the Base Tax Year, Tenant shall pay to Landlord, as additional rent for
such Comparative Year, an amount equal to Tenant's Proportionate Share of the
excess. By or after the start of the Comparative Year following the Base Tax
Year, and by or after the start of each Comparative Year thereafter, Landlord
shall furnish to Tenant a statement of the Real Estate Taxes payable during the
Base Tax Year and each Comparative Year, which statement shall reflect the
amount to be paid by the Tenant pursuant to this subsection (ii)(b) of this
Article 28B. Tenant's obligation to pay the amount herein provided for shall
survive the expiration or earlier termination of this Lease.
(ii)(c) The amount due pursuant to the calculation provided for in
subsection (ii)(b) of this Article 28B above shall be due and payable within ten
(10) days after Landlord shall have delivered to Tenant a statement setting
forth the amount equal to Tenant's Proportionate Share of the excess and the
basis therefor. Bills for such Taxes shall be sufficient evidence of amount, for
the purpose of calculating Tenant's Proportionate Share. In the event Tenant
fails to pay Tenant's Proportionate Share when due, Landlord shall be entitled,
with respect thereto, to any and all remedies to which Landlord may be entitled
under this Lease for default in the payment of Rent. The failure of Landlord to
bill Tenant for the additional rent due in any fiscal year shall not prejudice
the right of Landlord to subsequently bill Tenant for such fiscal year or any
subsequent fiscal year.
(ii)(d) Should the Real Estate Taxes payable during the Base Tax Year be
reduced by final determination of legal proceedings, settlement or otherwise,
then, the Real Estate Taxes payable during the Base Tax Year shall be
correspondingly revised, the additional rent theretofore paid or payable
hereunder for all Comparative Years shall be recomputed on the basis of such
reduction, and Tenant shall pay to Landlord as additional rent, within ten (10)
days after being billed therefor, any deficiency between the amount of such
additional rent as theretofore computed and the amount thereof due as the result
of such recomputations. Should the Real Estate Taxes payable during the Base Tax
Year be increased by such final determination of legal proceedings, settlement
or otherwise, then appropriate recomputation and adjustment also shall be made
and the amount due by Landlord to Tenant shall be paid within ten (10) days
after there computation. Should the Real Estate Taxes paid during any
Comparative Year be increased or decreased by a final determination of legal
proceedings, settlement or otherwise, then an appropriate recomputation and
adjustment shall be made between Landlord and Tenant and any amount owed by
Tenant shall be paid within ten (10) days after Tenant is billed therefor and be
deemed additional rent, and any amount owed by Landlord to Tenant shall be paid
within ten (10) days of the recomputation.
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(ii)(e) Tenant shall separately reimburse Landlord, as additional rent
within ten (10) days after having been billed by Landlord therefor, Tenant's
Proportionate Share of all expenses incurred by Landlord in reviewing or
contesting the validity or amount of any Real Estate Taxes for any Comparative
Year and for the valuations used by the City of New York for the land and the
Building of the Real Property for purposes of billing such Real Estate Taxes,
including, without limitation, the fees and disbursements of attorneys, third
party consultants, experts and others.
(ii)(f) Upon the date of any expiration or termination of this Lease
(except termination because of Tenant's default), whether the same be the date
hereinabove set forth for the expiration of the Term or any prior or subsequent
date, a proportionate share of said additional rent for the Comparative Year
during which such expiration or termination occurs shall immediately become due
and payable by Tenant to Landlord, if not theretofore already billed and paid.
The said proportionate share shall be based upon the length of time that this
Lease shall have been in existence during such Comparative Year. Landlord shall,
as soon as reasonably practicable, compute the additional rent due from Tenant,
as aforesaid, which computations shall either be based on that Comparative
Year's actual figures or be an estimate based upon the most recent statements
prepared by Landlord and furnished to Tenant. If an estimate is used, then
Landlord shall cause statements to be prepared on the basis of the Comparative
Year's actual figures as soon as they are available, and within ten (10) days
after such statement or statements are prepared by Landlord and furnished to
Tenant, Landlord and Tenant shall make appropriate adjustments of any estimated
payments theretofore made, which shall survive any expiration or termination of
this Lease.
(ii)(g) Any delay or failure of Landlord in billing for any additional
rent shall not constitute a waiver of or in any way impair the continuing
obligation of Tenant to pay such additional rent.
(ii)(h) Notwithstanding any contrary or inconsistent provisions of this
Article 28B, Tenant shall pay to Landlord on the first day of each calendar
month during the Term an amount (the "Estimated Monthly Tax Payment") equal to
1/12th of Landlord's estimate (in Landlord's sole discretion) of the payment
which will be due to Landlord from Tenant pursuant to subsection (ii)(b) of this
Article 28B for the next Comparative Year. Landlord shall provide such estimate
to Tenant together with the monthly billing of Estimated Monthly Tax Payment
during each calendar year. For example: if Landlord estimates that the amount
payable by Tenant pursuant to subsection (ii)(b) of this Article 28B for the
Comparative Year July 1,1998 through June 30,1999 will be $144 then Landlord
shall provide Tenant such estimate together with a billing for Estimated Monthly
Tax Payment for each month of the term during the calendar year 1998 for the sum
of $12; and the Estimated Monthly Tax Payments for each calendar month of 1998
shall each be $12 until such estimate is revised. Notwithstanding the foregoing,
after the sum actually payable for the Comparative Year in question is
determined, the Estimated Monthly Tax Payments made or to be made for all
calendar months included within such Comparative Year shall be equitably
adjusted, and any balance due Landlord or Tenant, as the case may be, shall be
paid forthwith.
C. CAPITAL IMPROVEMENTS. If any capital improvement is made to the Real
Property during any calendar year during the Term in compliance with any
Federal, state or local law or regulation, whether or not valid or mandatory,
then Tenant shall pay to Landlord, immediately upon demand therefor, Tenant's
Proportionate Share of the reasonable annual amortization, with interest, of the
cost of such improvement in each calendar year during the Term during which such
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amortization occurs. Notwithstanding the foregoing, in no event shall Tenant's
obligation to pay additional rent pursuant to this subsection C exceed $7,500.00
in respect of any twelve (12) month period.
29. SERVICES.
A. ELEVATOR. Landlord shall provide passenger elevator facilities on
business days from 8:00 A.M. to 6:00 P.M. and shall have one passenger elevator
in the bank of elevators servicing the Premises available at all other times.
Landlord shall provide freight elevator services on an "as available" basis for
incidental use by Tenant from 8:00 A.M. through 12:00 Noon and from 1:00 P.M.
through 5:00 P.M. on business days only. Any extended use may be arranged with
Landlord's prior consent and Tenant shall pay as additional rent all building
standard charges therefor. Notwithstanding the foregoing, Tenant shall not be
charged for use of freight elevator service during Tenant's initial move into he
Premises, but not in excess of eight (8) consecutive hours, which move-in shall
be scheduled on one day and during such consecutive hours as Landlord shall
reasonably designate(which may be after business hours or on a weekend).
B. HEATING. Landlord shall furnish heat to the Premises when and as
required by law, on business days from 8:00 P.M. to 6:00 P.M. Landlord shall not
be responsible for the adequacy, design or capacity of the heating distribution
system if the normal operation of the heat distribution system serving the
Building shall fail to provide heat at reasonable temperatures or any reasonable
volumes or velocities in any parts of the Premises by reason of any
rearrangement of partitioning or other Alterations made or performed by or on
behalf of Tenant or any person claiming through or under Tenant.
C. COOLING. Tenant shall have the privilege of using the air-cooling
system presently serving the Premises which air-cooling system shall be
maintained by Landlord, provided that Tenant shall within ten (10) days after
the date of receipt of an invoice therefor, pay the costs of the service
contract obtained by Landlord for such air-cooling system as determined by
Landlord, including, without limitation, but subject to the provisions of the
next succeeding sentence, the costs of repair and replacement of any component
parts thereof to the extent same is necessary for the proper maintenance of the
air-cooling system. Tenant shall not alter, modify or replace such air-cooling
system, or any part thereof, without Landlord's consent, which consent shall not
be unreasonably withheld. Notwithstanding the foregoing, Landlord shall be
responsible for the cost of any repair to or replacement of major components of
the air-cooling system (and not for regular repair, maintenance or replacement
of the air-cooling system which shall be the responsibility of Tenant as
provided above) made during the period commencing on the Commencement Date
through and including the first anniversary of the Commencement Date. Anything
in this Lease to the contrary notwithstanding, Landlord shall not be responsible
if the normal operation of the air-cooling system shall fail to provide cooled
air at reasonable temperatures, pressures or degrees of humidity or any
reasonable volumes or velocities in any parts of the Premises by reason of (i)
human occupancy factors and any machinery or equipment installed by or on behalf
of Tenant or any person claiming through or under Tenant, having an electrical
load in excess of the average electrical load for the air-cooling system as
designed or (ii) any rearrangement of partitioning or other Alterations made or
performed by or on behalf of Tenant or any person claiming through or under
Tenant. Tenant agrees to keep and cause to be kept closed all of the windows in
the Premises whenever the air-cooling system is in operation and agrees to lower
and close the blinds
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when necessary because of the sun's position whenever the air-cooling system is
in operation. Tenant at all times agrees to cooperate fully with Landlord and to
abide by the regulations and requirements which Landlord may prescribe for the
proper functioning and protection of the air-cooling system. Landlord,
throughout the Term, shall have free access to any and all mechanical
installations of Landlord, including, but not limited to, air-cooling, fan,
ventilating, machine rooms and electrical closets. Tenant shall pay for the
costs of electrical energy consumed by the air-cooling system in accordance with
the provisions of Article 29, subsection H, hereof.
D. AFTER HOURS AND ADDITIONAL SERVICES. The Rent does not include any
charge to Tenant for the furnishing of any additional passenger elevator
facilities, any freight elevator facilities (other than as contemplated in
Article 29 subsection A) or for the service of heat to the Premises during
periods other than the hours and days set forth in sections A and B of this
Article 29 for the furnishing and distributing of such facilities or services
(referred to as "Overtime Periods"). Accordingly, if Landlord shall furnish any
(i) passenger elevator facilities to Tenant during Overtime Periods or freight
elevator facilities, except as provided in subsection A of this Article 29, or
(ii) heat to the Premises during Overtime Periods, then Tenant shall pay
Landlord additional rent for such facilities or services at the standard rates
then fixed by the Landlord for the Building or, if no such rates are then fixed,
at reasonable rates. Neither the facilities nor the services referred to in this
Article 29D shall be furnished to Tenant or the Premises if Landlord has not
received advance notice from Tenant specifying the particular facilities or
services requested by Tenant at least twenty-four (24) hours prior to the date
on which the facilities or services are to be furnished; or if Tenant is in
default under or in breach of any of the terms, covenants or conditions of this
Lease; or if Landlord shall determine, in its sole and exclusive discretion,
that such facilities or services are requested in connection with, or the use
thereof shall create or aid in a default under or a breach of any term, covenant
or condition of this Lease. All of the facilities and services referred to in
this Article 29D are conveniences and are not and shall not be deemed to be
appurtenances to the Premises, and the failure of Landlord to furnish any or all
of such facilities or services shall not constitute or give rise to any claim of
an actual or constructive eviction, in whole or in part, or entitle Tenant to
any abatement or diminution of Rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord or its
agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business or otherwise. Landlord may limit the
furnishing during Overtime Periods of any of the facilities or services referred
to in this Article 29D to a total of twenty (20) hours in any one week. In the
event Tenant installs a supplemental air cooling system in the Premises, and if
condenser water for such system shall be supplied by Landlord, (x) Tenant shall
pay to Landlord, annually upon demand, a sum equal to $1000.00 per ton of air
conditioning capacity, adjusted annually, to compensate Landlord for the cost of
supplying condenser water for such supplemental system and (y) Tenant shall pay
to Landlord upon demand, Tenant's share of the cost of maintaining, repairing
and/or replacing the cooling tower providing such condenser water, such share to
be based upon Tenant's total demand of condenser water relative to the total
demand of all other tenants and occupants in the Building who are similarly
supplied condenser water by Landlord. In addition, any such supplemental
air-cooling system shall be installed with balancing valves and circuit setters
manufactured by a company satisfactory to Landlord for balancing by Landlord, at
Tenant's sole cost and expense.
E. CLEANING. Tenant at Tenant's expense, shall cause the Premises to be
kept clean in a manner satisfactory to Landlord and no one other than person or
entities approved by Landlord
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shall be permitted to enter the Premises or the Building for such purpose;
PROVIDED, HOWEVER, Landlord shall only designate entities which provide cleaning
services at rates which are not in excess of those rates customarily charged by
reputable cleaning contractors for comparable services in Midtown Manhattan.
F. SPRINKLER SYSTEM. If there now is or shall be installed in the
Building a "sprinkler system", and such system or any of its appliances shall be
damaged or injured or not in proper working order by reason of any act or
omission of Tenant, Tenant's agents, servants, employees, licensees or visitors,
Tenant shall forthwith restore the same to good working condition at its own
expense; and if the New York Board of Fire Underwriters or the New York Fire
Insurance Rating Organization or any bureau, department or official of the state
or city government, shall require or recommend that any changes, modifications,
alterations or additional sprinkler heads or other equipment be made or supplied
by reason of Tenant's business, or the location of the partitions, trade
fixtures, or other contents of the Premises, Tenant shall, at Tenant's expense,
promptly make and supply such changes, modifications, alterations, additional
sprinkler heads or other equipment.
G. WATER. If Tenant requires, uses or consumes water for any purpose in
addition to ordinary drinking, cleaning or lavatory purposes, Landlord may
install a water meter and thereby measure Tenant's water consumption for all
purposes. In such event (i) Tenant shall pay Landlord for the cost of the meter
and the cost of the installation thereof and through the duration of Tenant's
occupancy Tenant shall keep said meter and installation equipment in good
working order and repair at Tenant's own cost and expense in default of which
Landlord may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant; (ii) Tenant agrees to pay for water
consumed, as shown on said meter as and when bills are rendered, and on default
in making such payment Landlord may pay such charges and collect the same from
Tenant; and (iii) Tenant covenants and agrees to pay the sewer rent, charge or
any other tax, rent, levy or charge which now or hereafter is assessed, imposed
or shall become a lien upon the Premises or the realty of which they are part
pursuant to law, order or regulation made or issued in connection with any such
metered use, consumption, maintenance or supply of water, water system, or
sewage or sewage connection or system. The bill rendered by Landlord for the
above shall be based upon Tenant's consumption and shall be payable by Tenant as
additional rent within five (5) days of rendition. Any such costs or expenses
incurred or payments made by Landlord for any of the reasons or purposes
hereinabove stated shall be deemed to be additional rent payable by Tenant and
collectible by Landlord as such. Independently of and in addition to any of the
remedies reserved to Landlord hereinabove or elsewhere in this Lease, Landlord
may sue for and collect any monies to be paid by Tenant or paid by Landlord for
any of the reasons or purposes herein above set forth.
H. ELECTRICITY SERVICE. (i) Tenant agrees that Landlord may furnish, or
make available for Tenant to redistribute in and to the Premises, electricity on
a "submetering" basis. Electricity and electric service, as used herein, shall
mean any element affecting the generation, transmission and/or distribution or
redistribution of electricity, including, but not limited to, services which
facilitate the distribution of service.
(ii) Tenant covenants and agrees to purchase submetered
electricity from Landlord or Landlord's designated agent at
charges, terms and rates computed in the manner hereinafter
described, to wit, a sum equal to Landlord's cost for such
electricity ("Landlord's Cost") plus ten (10%)
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percent thereof. Landlord's Cost for such electricity shall
be equal to (a) by Tenant's electricity consumption ("KWH")
and demand ("KW") for the relevant billing period recorded
on Tenant's submeter at the service classification rates
under which Landlord purchases electric current that is
appropriate for Tenant's level of consumption (but never
less than Landlord's actual cost for the electricity so
redistributed), (b) Landlord's costs for measuring,
calculating and reporting Tenant's electricity charges,
including the fees of an electrical consultant ("Consultant
Costs") and (c) and all taxes paid by Landlord. Where more
than one meter measures the service of Tenant in the
Building, the service rendered through each meter may be
computed and billed separately in accordance with the rates
herein specified. Bills therefor shall be rendered at such
times as Landlord may elect and the amount, as computed
from a meter, shall be deemed to be, and be paid as,
additional rent. In the event that such bills are not paid
within thirty (30) days after the same are rendered,
Landlord may, without further notice, discontinue the
service of electric current to the Premises without
releasing Tenant from any liability under this Lease and
without Landlord or Landlord's agent incurring any
liability for any damage or loss sustained by Tenant by
such discontinuance of service. If any tax is imposed upon
Landlord's receipt from the sale, resale or redistribution
of electricity or gas or telephone service to Tenant by any
Federal, State or Municipal authority, Tenant covenants and
agrees that where permitted by law, Tenant's pro-rata share
of such taxes shall be passed onto and included in the bill
of, and paid by, Tenant to Landlord.
(iii) If all or part of the submetering, additional rent payable
in accordance with this Article becomes uncollectible or
reduced or refunded by virtue of any law, order or
regulation, the parties agree that, at Landlord's option,
in lieu of submetering additional rent, and in
consideration of Tenant's use of the Building's electrical
distribution system and receipt of electricity and payment
by Landlord of consultant's fees and other costs, the Rent
to be paid under this Lease shall be increased by an
"alternative charge" which shall be a sum equal to
$61,656.00 per annum payable in equal monthly installments
of $5,138.00 each, changed in the same percentage as any
increase in the cost to Landlord for electricity for the
entire Building subsequent to May 1, 1996, because of
electric rate, service classification or market price
changes, such percentage change to be computed as provided
in subparagraph (i) hereof.
(iv) Landlord shall not be liable to Tenant for any loss or
damage or expense which Tenant may sustain or incur if
either the quantity or character of electric service is
changed or is no longer available or suitable for Tenant's
requirements. Tenant covenants and agrees that at all times
its use of electric current shall never exceed the capacity
of existing feeders to the Building or wiring installation.
Tenant agrees not to connect any additional electrical
equipment to the Building electric distribution system,
other than lamps, typewriters and other small office
machines which consume comparable
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amounts of electricity, without Landlord's prior written
consent. Any riser or risers to supply Tenant's electrical
requirements, upon written request of Tenant, will be
installed by Landlord, at the sole cost and expense of
Tenant, if, in Landlord's sole judgment, the same are
necessary and will not cause permanent damage or injury to
the Building or the Premises or cause or create a dangerous
or hazardous condition or entail excessive or unreasonable
alterations, repairs or expense or interfere with or
disturb other tenants or occupants. In addition to the
installation of such riser or risers, Landlord will also at
the sole cost and expense of Tenant, install all other
equipment proper and necessary in connection therewith
subject to the aforesaid terms and conditions. The parties
acknowledge that they understand that it is anticipated
that electric rates, charges, etc., may be changed by
virtue of time-of day rates or changes in other methods of
billing, and/or electricity purchases and the
redistribution thereof, and fluctuation in the market price
of electricity, and that the references in the foregoing
paragraphs to changes in methods of or rules on billing are
intended to include any such changes. Anything hereinabove
to the contrary notwithstanding, in no event is the
submetering additional rent or any "alternative charge" to
be less than an amount equal to the total of Landlord's
payments to public utilities and/or other providers for the
electricity consumed by Tenant (and any taxes thereon or on
redistribution of same) plus 5% thereof for transmission
line loss, plus 15% thereof for transmission line loss and
other costs. If Landlord exercises such option, Tenant
shall pay to Landlord, as additional rent, on demand, from
time to time, but no more frequently than monthly, for its
consumption and demand of electrical energy at the then
on-peak rate, or prevailing rate, as applicable, then
prescribed by the utility serving the Building for
sub-metered electrical energy, plus a surcharge in the
amount of fifteen percent (15%) of the total electric bill,
for, among other Landlord expenses, administrative charges
and line and transformer losses.
(v) Landlord reserves the right to terminate the furnishing of
electricity on a submetering, or any other basis at any
time, upon thirty (30) days' notice to Tenant, in which
event Tenant may make application directly to the public
utility and/or other providers for Tenant's entire separate
supply of electric current and Landlord shall permit its
wires and conduits, to the extent available and safety
capable, to be used for such purpose, but only to the
extent of Tenant's then authorized load. Any meters, risers
or other equipment or connections necessary to enable
Tenant to obtain electric current directly from such
utility and/or other providers shall be installed at
Tenant's sole cost and expense. Only rigid conduit or
electricity metal tubing (EMT) will be allowed. Landlord,
upon the expiration of the aforesaid thirty (30) days'
notice to Tenant, may discontinue furnishing the electric
current but this Lease shall otherwise remain in full force
and effect.
(vi) Landlord shall not be liable to Tenant in any way for any
interruption, curtailment or failure, or defect in the
supply or character of electricity
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furnished to the Premises by reason of any requirement, act
or omission of Landlord or of any utility or other company
servicing the Building with electricity or for any other
reason except Landlord's gross negligence or willful
misconduct. If either the quantity or character of
electrical service is changed by the utility or other
company supplying electrical service to the Building or is
no longer available or suitable for Tenant's requirements,
no such change, unavailability or unsuitability shall
constitute an actual or constructive eviction, in whole or
in part, or entitle Tenant to any abatement or diminution
of rent, or relieve Tenant from any of its obligations
under this Lease, or impose any liability upon Landlord, or
its agents, by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business,
or otherwise.
I. INTERRUPTION OF SERVICES. Landlord reserves the right to stop service
of the heating system and all other Building systems during any period of a
violation or breach by Tenant of the provisions of this Lease and to stop the
service of the heating system or the elevator, electrical, plumbing or other
mechanical systems or facilities in the Building when necessary, by reason of
accident or emergency, or for repairs, additions, alterations, replacements,
decorations or improvements in the judgment of Landlord desirable or necessary
to be made, until said repairs, alterations, replacements or improvements shall
have been completed. Landlord shall have no responsibility or liability for
interruption, curtailment or failure to supply cooled or outside air, heat,
elevator, plumbing or electricity when prevented by exercising its right to stop
service or by strikes, labor troubles or accidents or by any cause whatsoever
reasonably beyond Landlord's control, or by failure of independent contractors
to perform or by laws, orders, rules or regulations of any federal, state,
county or municipal authority, or failure of suitable fuel supply, or inability
by exercise of reasonable diligence to obtain suitable fuel or by reason of
governmental preemption in connection with a National Emergency or by reason of
the conditions of supply and demand which have been or are affected by war or
other emergency. Tenant acknowledges that the air-cooling system serving the
Premises may contain freon or other chlorofluorocarbons (CFC's) and that future
federal, state or city regulations may require the removal of CFC's as well as
the alteration or replacement of equipment utilizing CFC's. In connection
therewith (i) Landlord reserves the right to stop service of the air-cooling
system or any other mechanical systems containing CFC's for such duration as may
be necessary to convert any such systems to eliminate the use of CFC's and (ii)
to enter upon the Premises, as necessary to install replacement equipment within
the Premises required by any such change. The exercise of such right or such
failure by Landlord shall not constitute an actual or constructive eviction, in
whole or in part, or entitle Tenant to any compensation or to any abatement or
diminution of Rent, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Landlord or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise.
30. PARTNERSHIP TENANT.
A. PARTNERSHIP TENANTS. If Tenant's interest in this Lease shall be
assigned to a partnership pursuant to Article 12 (any such partnership is
referred to in this Article 30 as a "Partnership Tenant"), the following
provisions of this Article 30 shall apply to such Partnership Tenant (i) the
liability of each of the parties comprising a Partnership Tenant shall be joint
and
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several, and (ii) each of the parties comprising a Partnership Tenant hereby
consents in advance to, and agrees to be bound by, any written instrument which
may hereafter be executed, changing, modifying or discharging this Lease, in
whole or in part, or surrendering all or any part of the Premises to Landlord,
and by any notices, demands, requests or other communications which may
hereafter be given by a Partnership Tenant or by any of the parties comprising a
Partnership Tenant, and (iii) any bills, statements, notices, demands, requests
or other communications given or rendered to a Partnership Tenant and to all
such parties shall be binding upon a Partnership Tenant and all such parties,
and (iv) if a Partnership Tenant shall admit new partners, all of such new
partners shall, by their admission to a Partnership Tenant, be deemed to have
assumed performance of all of the terms, covenants and conditions of this Lease
on Tenant's part to be observed and performed, and (v) a Partnership Tenant
shall give prompt notice to Landlord of the admission of any such new partners,
and upon demand of Landlord, shall cause each such new partner to execute and
deliver to Landlord an agreement in form satisfactory to Landlord, wherein each
such new partner shall assume performance of all the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed (but
neither Landlord's failure to request any such agreement nor the failure of any
such new partner to execute or deliver any such agreement to Landlord shall
vitiate the provisions of subdivision (iv) of subsection A of this Article 30).
B. LIMITED LIABILITY ENTITY. Notwithstanding anything to the contrary
contained herein, if Tenant is a limited or general partnership (or is comprised
of two (2) or more persons, individually or as co-partners), the change or
conversion of Tenant to (i) a limited liability company, (ii) a limited
liability partnership, or (iii) any other entity which possesses the
characteristics of limited liability (any such limited liability company,
limited liability partnership or entity is collectively referred to as a
"Limited Liability Successor Entity"), shall be prohibited unless the prior
written consent of Landlord is obtained, which consent may be withheld in
Landlord's sole discretion. Notwithstanding the foregoing, Landlord agrees not
to unreasonably withhold or delay such consent provided that:
(a) The Limited Liability Successor Entity succeeds to
all or substantially all of Tenant's business and
assets;
(b) The Limited Liability Successor Entity shall have a
net worth, determined in accordance with generally
accepted accounting principles, consistently
applied, of not less than the greater of the net
worth of Tenant on (1) the date of execution of this
Lease, or (2) the day immediately preceding the
proposed effective date of such conversion;
(c) Tenant is not in default of any of the terms,
covenants or conditions of this Lease on the
proposed effective date of such conversion;
(d) Tenant shall cause each partner of Tenant to execute
and deliver to Landlord an agreement, in form and
substance satisfactory to Landlord, wherein each
such partner agrees to remain personally liable for
all of the terms, covenants and conditions of this
Lease that are to be observed and performed by the
Limited Liability Successor Entity; and
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(e) Tenant shall reimburse Landlord within ten (10)
business days following demand by Landlord for any
and all reasonable costs and expenses that may be
incurred by Landlord in connection with said
conversion of Tenant to a Limited Liability
Successor Entity, including, without limitation, any
attorney's fees and disbursements.
31. VAULT SPACE. Any vaults, vault space or other space outside the
boundaries of the Real Property, notwithstanding anything contained in this
Lease or indicated on any sketch, blueprint or plan are not included in the
Premises. Landlord makes no representation as to the location of be boundaries
of the Real Property. All vaults and vault space and all other space outside the
boundaries of the Real Property which Tenant may be permitted to use or occupy
is to be used or occupied under a revocable license, and if any such license
shall be revoked, or if the amount of such space shall be diminished or required
by any Federal, State or Municipal authority or by any public utility company,
such revocation, diminution or requisition shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Landlord. Any fee, tax or charge imposed by
any governmental authority for any such vaults, vault space or other space used
by Tenant with Landlord's consent shall be paid by Tenant.
32. SECURITY DEPOSIT.
A. GENERAL PROVISIONS. Tenant shall deposit with Landlord on the signing
of this Lease the Security Deposit (as defined in Article 1 of this Lease) as
security for the faithful performance and observance by Tenant of the terms,
conditions and provisions of this Lease, including, without limitation, the
surrender of possession of the Premises to Landlord herein provided. Landlord
agrees to deposit the Security Deposit in an interest bearing bank account
located in New York State. To the extent not prohibited by law, Landlord shall
be entitled to receive and retain as an administrative expense that portion of
the interest received on such account equal to one percent (1%) per annum of the
Security Deposit, which fee Landlord shall have the right to withdraw from time
to time, at Landlord's discretion. The balance of the interest shall be added to
and held as part of the Security Deposit subject to and in accordance with the
provisions of this Lease. Landlord shall not be required to credit Tenant with
any interest for any period during which Landlord does not receive interest on
the Security Deposit, nor shall Landlord have any liability or obligation for
loss of all or any portion of the Security Deposit by reason of the insolvency
or failure of the bank in which the Security Deposit is deposited. It is agreed
that in the event Tenant defaults in respect of any of the terms, provisions and
conditions of this Lease, including, but not limited to, the payment of Rent and
additional rent, Landlord may apply or retain the whole or any part of the
Security Deposit so deposited to the extent required for the payment of any Rent
and additional rent or any other sum as to which Tenant is in default or for any
sum which Landlord may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of this Lease,
including, but not limited to, any damages or deficiency in the reletting of the
Premises, whether such damages or deficiency accrue or accrues before or after
summary proceedings or other reentry by Landlord. If Landlord applies or retains
any part of the Security Deposit so deposited, Tenant, within three (3) days'
after notice from Landlord, shall deposit with Landlord the amount so applied or
retained so that Landlord shall have the full Security Deposit on hand at all
times during the Term. The failure by Tenant to deposit such additional amount
within the foregoing time period shall be deemed a material default
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pursuant to Article 17 of this Lease. If Tenant shall fully and faithfully
comply with all of the terms, provisions, covenants and conditions of this
Lease, the security shall be returned to Tenant after the Expiration Date and
after delivery of the entire possession of the Premises to Landlord. In the
event of a sale of the Real Property or the Building or leasing of the Building,
Landlord shall have the right to transfer the Security Deposit to the vendee or
lessee and Landlord shall thereupon be released by Tenant from all liability for
the return of the Security Deposit; and Tenant agrees to look solely to the new
Landlord for the return of the Security Deposit; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
Security Deposit to a new Landlord. Tenant further covenants that it will not
assign or encumber or attempt to assign or encumber the Security Deposit and
that neither Landlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance.
B. LETTER OF CREDIT. In lieu of a cash deposit by Tenant for the Security
Deposit, Tenant may deposit with Landlord a clean, irrevocable and unconditional
letter of credit ("Letter of Credit") issued by and drawn upon any commercial
bank reasonably acceptable to Landlord with offices for banking purposes in the
City of New York and having a net worth of not less than One Billion
($1,000,000,000) Dollars, which letter of credit shall be in the amount of the
Security Deposit in the form annexed hereto as Exhibit 2. At any time that
Tenant is in default under this Lease beyond any applicable notice and grace
period, Landlord shall have the right to draw down the entire credit and apply
the proceeds or any part thereof in accordance with the provisions of this
Article 32. Landlord shall also have the right to draw down the entire amount of
the credit in the event that Landlord fails to receive a replacement Letter of
Credit on or prior to the thirtieth (30th) day preceding the expiration date
thereof. If Landlord shall have drawn down the Letter of Credit and applied all
or a portion thereof in accordance with the terms of this Article 32, then
Tenant shall deposit with Landlord, within three (3) days' after notice from
Landlord, a sufficient amount of cash to bring the balance of the cash held by
Landlord under this Article 32 to the amount of the Security Deposit. The
failure by Tenant to deposit such additional amount within the foregoing time
period shall be deemed a material default pursuant to Article 17 of this Lease.
C. INCREASED SECURITY DEPOSIT. If at any time during the Term hereof the
then current assets of Tenant less the then current liabilities of Tenant, as
shown on the then most recent audited financial statements of Tenant, shall
equal an amount less than $5,000,000 then Tenant shall within five (5) business
days after notice from Landlord, deposit with Landlord a sum equal to two (2)
months of the then escalated monthly rent (the "Additional Security") to be held
by Landlord as an additional Security Deposit in accordance with the provisions
of the Article 32. In the event Tenant shall have theretofore deposited with
Landlord a Letter of Credit, Landlord shall accept a substitute Letter of Credit
increased by the amount of the Additional Security (to be given to Landlord
within five (5) business days after notice from Landlord) and shall thereupon
return to Tenant the original Letter of Credit then being held by Landlord.
33. CAPTIONS. The Captions are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope of this Lease
nor the intent of any provision thereof.
50
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34. ADDITIONAL DEFINITIONS.
A. The term "office" or "offices", wherever used in this Lease, shall not
be construed to mean premises used as a store or stores, for the sale or
display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing.
B. The words "reenter" and "reentry" as used in this Lease are not
restricted to their technical legal meaning.
C. The term "rent" as used in this Lease shall mean and be deemed to
include Rent, any increases in Rent, all additional rent and any other sums
payable hereunder.
D. The term "business days" as used in this Lease shall exclude
Saturdays, Sundays and all days observed by the State or Federal Government as
legal holidays and union holidays for those unions that materially affect the
delivery of services in the Building.
35. PARTIES BOUND. The covenants, conditions and agreements contained in this
Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees executors, administrators, successors, and,
except as otherwise provided in this Lease, their assigns.
36. BROKER. Tenant represents and warrants that Tenant has dealt directly
with (and only with), the Broker (as defined in Article 1 herein) as broker in
connection with this Lease, and that insofar as Tenant knows no other broker
negotiated this Lease or is entitled to any commission in connection therewith,
and the execution and delivery of this Lease by Landlord shall be conclusive
evidence that Landlord has relied upon the foregoing representation and
warranty. Landlord shall pay the Broker any commission due and payable in
connection herewith pursuant to a separate agreement between Landlord and the
Broker.
37. INDEMNITY. Tenant shall not do or permit any act or thing to be done upon
the Premises which may subject Landlord to any liability or responsibility for
injury, damages to persons or property or to any liability by reason of any
violation of law or of any legal requirement of public authority, but shall
exercise such control over the Premises as to fully protect Landlord against any
such liability. Tenant agrees to indemnify and save harmless Landlord from and
against (i) all claims of whatever nature against Landlord arising from any act,
omission or negligence of Tenant, its contractors, licensees, agents, servants,
employees, invitees or visitors, including any claims arising from any act,
omission or negligence of Landlord or Landlord and Tenant, (ii) all claims
against Landlord arising from any accident, injury or damage whatsoever caused
to any person or to the property of any person and occurring during the Term in
or about the Premises, (iii) all claims against Landlord arising from any
accident, injury or damage to any person, entity or property, occurring outside
of the Premises but anywhere within or about the Real Property, where such
accident, injury or damage results or is claimed to have resulted from an act or
omission of Tenant or Tenant's agents, employees, invitees or visitors,
including any claims arising from any act, omission or negligence of Landlord or
Landlord and Tenant, and (iv) any breach, violation or nonperformance of any
covenant, condition or agreement in this Lease set forth and contained on the
part of Tenant to be fulfilled, kept, observed and performed and (v) any claim,
loss or liability arising or claimed to arise from Tenant, or any of Tenant's
contractors, licensees,
51
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agents, servants, employees, invitees or visitors causing or permitting any
Hazardous Substance to be brought upon, kept or used in or about the Premises or
the Real Property or any seepage, escape or release of such Hazardous
Substances. As used herein and in all other provisions in this Lease containing
indemnities made for the benefit of Landlord, the term "Landlord" shall mean SL
Green Operating Partnership, L.P., SL Green Realty Corp. and SL Green Management
LLC and their respective parent companies and/or corporations, the irrespective
controlled, associated, affiliated and subsidiary companies and/or corporations
and their respective members, officers, partners, agents, consultants, servants,
employees, successors and assigns. This indemnity and hold harmless agreement
shall include indemnity from and against any and all liability, fines, suits,
demands, costs and expenses of any kind or nature incurred in or in connection
with any such claim or proceeding brought thereon, and the defense thereof.
38. ADJACENT EXCAVATION SHORING. If an excavation shall be made upon land
adjacent to the Premises, or shall be authorized to be made, Tenant shall afford
to the person causing or authorized to cause such excavation, license to enter
upon the Premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the Building from injury or damage and to
support the same by proper foundations without any claim for damages or
indemnity against Landlord, or diminution or abatement of Rent.
39. MISCELLANEOUS.
A. NO OFFER. This Lease is offered for signature by Tenant and it is
understood that this Lease shall not be binding upon Landlord unless and until
Landlord shall have executed and delivered a fully executed copy of this Lease
to Tenant.
B. SIGNATORIES. If more than one person executes this Lease as Tenant,
each of them understands and hereby agrees that the obligations of each of them
under this Lease are and shall be joint and several, that the term "Tenant" as
used in this Lease shall mean and include each of them jointly and severally and
that the act of or notice from, or notice or refund to, or the signature of, any
one or more of them, with respect to the tenancy and/or this Lease, including,
or not limited to, any renewal, extension, expiration, termination or
modification of this Lease, shall be binding upon each and all of the persons
executing this Lease as Tenant with the same force and effect as if each and all
of them had so acted or so given or received such notice or refund or so signed.
C. CERTIFICATES. From time to time, within seven (7) days next following
request by Landlord or the mortgagee of a Mortgage, Tenant shall deliver to
Landlord or such mortgagee, as the case may be, a written statement executed and
acknowledged by Tenant, in form satisfactory to Landlord or such mortgagee, (i)
stating that this Lease is then in full force and effect and has not been
modified (or if modified, setting forth all modifications), (ii) setting forth
the date to which the Rent, additional rent and other charges hereunder have
been paid, together with the amount of fixed base monthly Rent then payable,
(iii) stating whether or not, to the best knowledge of Tenant, Landlord is in
default under this Lease, and, if Landlord is in default, setting forth the
specific nature of all such defaults, (iv) stating the amount of the security
deposit under this Lease, (v) stating whether there are any subleases affecting
the Premises, (vi) stating the address of Tenant to which all notices and
communications under the Lease shall be sent, the Commencement Date and the
Expiration Date, and (vii) as to any other matters requested by Landlord or such
mortgagee. Tenant acknowledges that any statement delivered pursuant to this
subsection C may be relied upon
52
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by any purchaser or owner of the Real Property or the Building, or Landlord's
interest in the Real Property or the Building or any Superior Lease, or by any
mortgagee of a Mortgage, or by any assignee of any mortgagee of a Mortgage, or
by any lessor under any Superior Lease.
D. DIRECTORY LISTING. Landlord agrees to provide Tenant, at Landlord's
sole cost and expense, with up to three (3) listings of Tenant's name on the
directory in the lobby of the Building. Upon written request by Tenant, Landlord
agrees to provide Tenant with additional listings on such directory, at Tenant's
sole cost and expense, provided Tenant shall be limited to a number of listings
determined by multiplying Tenant's Proportionate Share by the total number of
spaces for listings on such directory.
E. AUTHORITY. If Tenant is a corporation or partnership, each individual
executing this Lease on behalf of Tenant hereby represents and warrants that
Tenant is a duly formed and validly existing entity qualified to do business in
the State of New York and that Tenant has full right and authority to execute
and deliver this Lease and that each person signing on behalf of Tenant is
authorized to do so.
F. SIGNAGE. Tenant shall not exhibit, inscribe, paint or affix any sign,
advertisement, notice or other lettering on any portion of the Building or the
outside of the Premises without the prior written consent of Landlord in each
instance. A plan of all signage or other lettering proposed to be exhibited,
inscribed, painted or affixed shall be prepared by Tenant in conformity with
building standard signage requirements and submitted to Landlord for Landlord's
consent. If the proposed signage is acceptable to Landlord, Landlord shall
approve such signage or other lettering by written notice to Tenant. All signage
or other lettering which has been approved by Landlord shall thereafter be
installed by Landlord at Tenant's sole cost and expense. Payment of all charges
therefor shall be deemed additional rent hereunder. In the event Landlord
requires payment in advance for the installation of any such signage or other
lettering, no installation shall be commenced by Landlord until Landlord has
received payment in full.
Upon installation of any such signage or other lettering, such signage or
lettering shall not be removed, changed or otherwise modified in any way without
Landlord's prior written approval. The removal, change or modification of any
signage or other lettering theretofore installed shall be performed solely by
Landlord at Tenant's sole cost and expense. Tenant shall not exhibit, inscribe,
paint or affix on any part of the Premises or the Building visible to the
general public any signage or lettering including the words "temporary" or
"personnel".
Any signage, advertisement, notice or other lettering which shall be
exhibited, inscribed, painted or affixed by or on behalf of Tenant in violation
of the provisions of this section may be removed by Landlord and the cost of any
such removal shall be paid by Tenant as additional rent.
G. CONSENTS AND APPROVALS. Wherever in this Lease Landlord's consent or
approval is required, if Landlord shall delay or refuse such consent or
approval, Tenant in no event shall be entitled to make, nor shall Tenant make,
any claim, and Tenant hereby waives any claim for money damages (nor shall
Tenant claim any money damages by way of set-off, counterclaim or defense) based
upon any claim or assertion by Tenant that Landlord unreasonably withheld or
unreasonably
53
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delayed its consent or approval. Tenant's sole remedy shall be an action or
proceeding to enforce any such provision, for specific performance, injunction
or declaratory judgment.
H. FINANCIAL STATEMENTS. Tenant shall furnish to Landlord within ten (10)
business days after request therefor the then most current audited financial
statement of Tenant and on March 1 of each year during the Term a current
audited financial statement of Tenant with respect to the prior calendar year.
54
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IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
SL GREEN OPERATING PARTNERSHIP. L.P.
By: SL Green Realty Corp., General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
TOTAL NETWORK SOLUTIONS, INC., Tenant
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
- ---------------------------------
Tenant's Tax I.D. Number
55
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Exhibit 10.11
EXECUTION ORIGINAL
-----------------------------
AGREEMENT OF LEASE
Between
545 FIFTH AVENUE LLC
Landlord,
and
TOTAL NETWORK SOLUTIONS, INC.
Tenant.
Premises:
Part of the Ninth (9th) Floor
545 Fifth Avenue
New York, New York
-----------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. BASIC LEASE TERM............................................................................................1
A. Premises.................................................................................................1
B. Commencement Notice......................................................................................1
C. Definitions..............................................................................................1
D. Rent Credit..............................................................................................3
2. USE AND OCCUPANCY...........................................................................................3
A. Permitted Uses...........................................................................................3
B. Use Prohibitions.........................................................................................3
3. ALTERATIONS.................................................................................................4
A. Alterations Within Premises..............................................................................4
B. Chlorofluorocarbons......................................................................................5
C. Submission of Plans......................................................................................6
D. Mechanics' Liens: Labor Conflicts.......................................................................6
4. REPAIRS - FLOOR LOAD........................................................................................7
5. WINDOW CLEANING.............................................................................................7
6. REQUIREMENTS OF LAW.........................................................................................8
7. SUBORDINATION...............................................................................................8
A. Subordination............................................................................................8
B. Attornment...............................................................................................9
C. Non-Disturbance..........................................................................................9
8. RULES AND REGULATIONS.......................................................................................9
9. INSURANCE..................................................................................................10
A. Tenant's Insurance......................................................................................10
B. Tenant's Improvement Insurance..........................................................................11
C. Waiver of Subrogation...................................................................................11
D. Landlord's Insurance....................................................................................11
10. DESTRUCTION OF THE PREMISES: PROPERTY LOSS OR DAMAGE......................................................12
A. Repair of Damage........................................................................................12
B. Landlord's Termination Option...........................................................................12
C. Repair Delays...........................................................................................13
D. Provision Controlling...................................................................................13
E. Property Loss or Damage.................................................................................13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
11. CONDEMNATION...............................................................................................14
A. Condemnation............................................................................................14
B. Award...................................................................................................15
12. ASSIGNMENT AND SUBLETTING..................................................................................15
A. Prohibition Without Consent.............................................................................15
B. Notice of Proposed Transfer.............................................................................15
C. Landlord's Options......................................................................................16
D. Termination by Landlord.................................................................................16
E. Takeback by Landlord....................................................................................16
F. Effect of Takeback or Termination.......................................................................17
G. Conditions for Landlord's Approval......................................................................18
H. Future Requests.........................................................................................20
I. Sublease Provisions.....................................................................................20
J. Profits from Assignment or Subletting...................................................................21
K. Other Transfers.........................................................................................21
L. Related Corporation.....................................................................................22
M. Assumption by Assignee..................................................................................22
N. Liability of Tenant.....................................................................................22
O. Listings................................................................................................23
P. Re-entry by Landlord....................................................................................23
13. CONDITION OF THE PREMISES..................................................................................24
A. Acceptance by Tenant....................................................................................24
B. Landlord's Initial Construction.........................................................................24
14. ACCESS TO PREMISES.........................................................................................24
15. CERTIFICATE OF OCCUPANCY...................................................................................25
16. LANDLORD'S LIABILITY.......................................................................................25
17. DEFAULT....................................................................................................26
A. Events of Default, Conditions of Limitation.............................................................26
B. Effect of Bankruptcy....................................................................................27
C. Conditional Limitation..................................................................................27
18. REMEDIES AND DAMAGES.......................................................................................27
A. Landlord's Remedies.....................................................................................27
B. Damages.................................................................................................28
C. Legal Fees..............................................................................................30
D. Additional Landlord's Remedies..........................................................................30
19. FEES AND EXPENSES..........................................................................................30
A. Curing Tenant's Defaults................................................................................30
</TABLE>
ii
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<TABLE>
<S> <C>
B. Late Charges............................................................................................31
20. NO REPRESENTATIONS BY LANDLORD.............................................................................31
21. END OF TERM................................................................................................31
A. Surrender of Premises...................................................................................31
B. Holdover by Tenant......................................................................................32
22. QUIET ENJOYMENT............................................................................................32
23. INTENTIONALLY DELETED......................................................................................32
24. NO WAIVER..................................................................................................32
25. WAIVER OF TRIAL BY JURY....................................................................................33
26. INABILITY TO PERFORM.......................................................................................33
27. BILLS AND NOTICES..........................................................................................33
28. ESCALATION.................................................................................................34
A. Defined Terms...........................................................................................34
B. Escalation..............................................................................................36
C. Payment of Escalations..................................................................................36
D. Adjustments.............................................................................................37
E. Capital Improvements....................................................................................38
29. SERVICES...................................................................................................38
A. Elevator................................................................................................38
B. Heating.................................................................................................39
C. Cooling.................................................................................................39
D. After Hours and Additional Services.....................................................................39
E. Cleaning................................................................................................40
F. Sprinkler System........................................................................................40
G. Water...................................................................................................41
H. Electricity Service.....................................................................................41
I. Interruption of Services................................................................................45
30. PARTNERSHIP TENANT.........................................................................................46
A. Partnership Tenants.....................................................................................46
B. Limited Liability Entity................................................................................46
31. VAULT SPACE................................................................................................47
32. SECURITY DEPOSIT...........................................................................................47
A. Interest Bearing Security Deposit.......................................................................47
B. Letter of Credit........................................................................................48
</TABLE>
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<TABLE>
<S> <C>
33. CAPTIONS...................................................................................................49
34. ADDITIONAL DEFINITIONS.....................................................................................49
35. PARTIES BOUND..............................................................................................49
36. BROKER.....................................................................................................49
37. INDEMNITY..................................................................................................49
38. ADJACENT EXCAVATION SHORING................................................................................50
39. MISCELLANEOUS..............................................................................................50
A. No Offer................................................................................................50
B. Signatories.............................................................................................50
C. Certificates............................................................................................50
D. Directory Listings......................................................................................51
E. Authority...............................................................................................51
F. Signage.................................................................................................51
G. Consents and Approvals..................................................................................52
40. LANDLORD'S OPTION TO RELOCATE TENANT.......................................................................52
</TABLE>
iv
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EXHIBITS AND SCHEDULES
Exhibit 1 Floor plan of premises
Exhibit 2 Letter of Credit
Exhibit 3 Preliminary Floor Plan
schedule A Rules and Regulations
Schedule B Landlord's Initial Construction
Schedule C Tenant Alteration Work
Conditions and Requirements
v
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
<S> <C>
Alterations.......................................................................................................4
Base Labor Rates .................................................................................................36
Base Tax Year .................................................................................................... 2
Base Taxes .......................................................................................................35
Broker ........................................................................................................... 3
business days ....................................................................................................49
Class A Office Buildings .........................................................................................35
Commencement Date ................................................................................................ 2
Comparison Year ..................................................................................................35
Cosmetic Alterations ............................................................................................. 4
Deficiency .......................................................................................................29
Electrical Inclusion Factor ...................................................................................... 3
Events of Default ................................................................................................26
Expiration Date .................................................................................................. 2
Governmental Entity ..............................................................................................22
Hazardous Substances ............................................................................................. 3
Labor Rate Factor ................................................................................................ 3
Labor Rate Multiple .............................................................................................. 3
Labor Rates ......................................................................................................35
Landlord ......................................................................................................2, 50
Leaseback Space ..................................................................................................16
Legal Requirements ............................................................................................... 8
Letter of Credit .................................................................................................48
Mortgages ........................................................................................................ 9
Others ...........................................................................................................35
Overtime Periods .................................................................................................39
Parties ..........................................................................................................25
</TABLE>
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<TABLE>
<S> <C>
Partnership Tenant ...............................................................................................46
Permitted Uses ................................................................................................... 2
Premises ......................................................................................................... 2
R.A.B ............................................................................................................35
Real Property .................................................................................................... 2
related corporation ..............................................................................................22
Relocation Notice ................................................................................................52
Rent ..........................................................................................................2, 29
Rent Commencement Date ........................................................................................... 2
Rules and Regulations ............................................................................................10
Security Deposit ................................................................................................. 3
Sublet Space .....................................................................................................20
Substitution Space ...............................................................................................52
Superior Leases .................................................................................................. 9
Tax Year .........................................................................................................35
Taxes ............................................................................................................34
Tenant ....................................................................................................2, 27, 50
Term ............................................................................................................. 2
</TABLE>
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AGREEMENT OF LEASE, made as of this 24th day of June, 1997 between 545 FIFTH
AVENUE LLC, a New York limited liability company having an office c/o Axiom Real
Estate Management, Inc., 545 Fifth Avenue, New York, New York 10017 ("Landlord")
and TOTAL NETWORK SOLUTIONS, INC., a New York corporation, having an office at
350 Fifth Avenue, Suite 3304, New York, New York ("Tenant").
WITNESSETH:
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
1. BASIC LEASE TERM.
A. PREMISES. Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord a portion of the ninth (9th) floor, as more particularly shown hatched
on Exhibit 1 annexed hereto and made a part hereof (the "Premises") in the
building known as 545 Fifth Avenue, in the Borough of Manhattan, New York
County, City and State of New York (the "Building" and together with the plot of
land upon which such building stands, the "Real Property") for a term (the
"Term") to commence on the "Commencement Date" (hereinafter defined), and to end
on the "Expiration Date" (hereinafter defined), both dates inclusive, unless the
Term shall sooner end pursuant to any of the terms, covenants or conditions of
this Lease or pursuant to law at the "Rent" (hereinafter defined, which Rent
shall also include any additional rent payable hereunder), which Tenant agrees
to pay in lawful money of the United States which shall be legal tender in
payment of all debts and dues, public and private, at the time of payment, in
equal monthly installments, in advance, commencing on the Commencement Date and
on the first (1st) day of each calendar month thereafter during the Term (except
as hereinafter otherwise provided), at the office of Landlord or such other
place as Landlord may designate, without any setoff, offset, abatement or
deduction whatsoever, except that Tenant shall pay the first monthly installment
on the execution hereof. If the Rent Commencement Date (as hereinafter defined)
shall occur on a date other than the first (1st) day of any calendar month,
Tenant shall pay to Landlord, on the first (1st) day of the month next
succeeding the month during which the Rent Commencement Date shall occur, an
amount equal to such proportion of an equal monthly installment of Rent as the
number of days from and including the Rent Commencement Date bears to the total
number of days in said calendar month. Such payment, together with the sum paid
by Tenant upon the execution of this Lease, shall constitute payment of the Rent
for the period from the
<PAGE>
Commencement Date to and including the last day of the next succeeding calendar
month.
B. COMMENCEMENT NOTICE. After the determination of the Commencement Date,
and at Landlord's request, Tenant agrees, upon demand of Landlord, to execute,
acknowledge and deliver to Landlord an instrument, in form satisfactory to
Landlord, setting forth the Commencement Date.
C. DEFINITIONS. The following definitions contained in this subsection C of
this Article 1 shall have the meanings hereinafter set forth used throughout
this Lease, Exhibits, Schedules and Riders (if any).
(i) "Commencement Date" shall mean the date of substantial completion
of Landlord's Initial Construction.
(ii) "Expiration Date" shall mean the last day of the month in which
the fifth (5th) anniversary of the Rent Commencement Date shall
occur.
(iii)"Rent" shall mean:
(a) for the period commencing on the Commencement Date through
and including the day immediately preceding the date on
which the second (2nd) anniversary of the Commencement Date
shall occur, Ninety-Four Thousand Eight Hundred Sixteen and
00/100 ($94,816.00) Dollars per annum, payable in equal
monthly installments of Seven Thousand Nine Hundred One and
34/100 ($7,901.34) Dollars each;
(b) for the period commencing on the date on which the second
(2nd) anniversary of the Commencement Date shall occur
through and including the day immediately preceding the date
on which the third (3rd) anniversary of the Commencement
Date shall occur, Ninety-Seven Thousand Seven Hundred
Seventy-Nine and 00/100 ($97,779.00) Dollars per annum,
payable in equal monthly installments of Eight Thousand One
Hundred Forty-Eight and 25/100 ($8,148.25) Dollars; and
(c) for the period commencing on the date on which the third
(3rd) anniversary of the Commencement Date shall occur
through and including the Expiration Date, One Hundred
2
<PAGE>
Thousand Seven hundred Forty-Two and 00/100 ($100,742.00)
Dollars per annum, payable in equal monthly installments of
Eight Thousand Three Hundred Ninety-Five and 17/100
($8,395.17) Dollars each.
(iv) "Landlord's Initial Construction" shall mean the work and
installations at the Premises as set forth in Schedule B. All of
the terms, covenants and conditions of Schedule B are
incorporated in this Lease by reference and shall be deemed a
part of this Lease as though more fully set forth in the body of
this Lease.
(v) "Rent Commencement Date" shall mean the eighty-ninth (89th) day
following the Commencement Date, subject to the provisions of
Section D below.
(vi) "Permitted Uses" shall mean executive and general offices in
connection with Tenant's business.
(vii) "Base Tax Year" shall mean the Tax Year (as defined in Article 28
hereof) 1997/1998.
(viii) "Tenant's Proportionate Share" shall mean two percent (2%), based
upon the agreement of the parties that the Premises consists of
2,963 rentable square feet. Landlord represents that for all
leases currently being executed by Landlord named herein, the
proportionate share for all tenants under all such leases is
computed by (a) dividing the number of rentable square feet
deemed to be in the applicable premises by 145,412 which is the
number of rentable square feet deemed to be in the Building and
then (b) rounding the hundredths decimal place, if any, of the
quotient arrived at in clause (a) above upwards to the nearest
tenths decimal place.
(ix) "Base Labor Year" shall mean the calendar year 1997.
(x) "Labor Rate Factor" shall mean 2963.
(xi) "Labor Rate Multiple" shall mean one (1).
(xii) "Electrical Inclusion Factor" shall mean $ 8,889.00.
(xiii) "Security Deposit" shall mean the sum of $22,222.50.
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(xiv) "Broker" shall mean collectively, Newmark & Company Real Estate,
Inc., Bernstein Real Estate and Terrence O'Connor.
(xv) "Hazardous Substances" shall mean, collectively, (a) asbestos and
polychlorinated biphenyls and (b) hazardous or toxic materials,
wastes and substances which are defined, determined and
identified as such pursuant to any law.
Notwithstanding anything to the contrary contained in this subsection C of
this Article 1, Articles 1 through 41 shall control the rights and obligations
of the parties hereto except that the provisions of any Riders shall supersede
any inconsistent provisions in Articles 1 through 41, as the case may be.
D. RENT CREDIT. Notwithstanding anything to the contrary hereinabove set
forth, provided this Lease is in full force and effect and Tenant is not in
default under this Lease, Tenant shall be entitled to a credit against the Rent
(exclusive of the Electrical Inclusion Factor) for the ninety (90) day period
commencing on the Commencement Date and ending on the day immediately preceding
the Rent Commencement Date in the aggregate amount of Twenty One Thousand Four
Hundred Eighty-One and 77/100 ($21,481.77) Dollars, which credit shall be
applied against the Rent during such ninety (90) day period in three (3) equal
monthly installments of Seven Thousand One Hundred Sixty and 59/100 ($7,160.59)
Dollars each.
2. USE AND OCCUPANCY.
A. PERMITTED USES. Tenant shall use and occupy the Premises for the
Permitted Uses, and for no other purpose.
B. USE PROHIBITIONS. Tenant hereby represents, warrants and agrees that
Tenant's business is not and shall not be photographic, multilith or multigraph
reproductions or offset printing. Anything contained herein to the contrary
notwithstanding, Tenant shall not use the Premises or any part thereof, or
permit the Premises or any part thereof to be used, (i) for the business of
photographic, multilith or multigraph reproductions or offset printing, (ii) for
a banking, trust company, depository, guarantee or safe deposit business, (iii)
as a savings bank, a savings and loan association or a loan company, (iv) for
the sale of travelers checks, money orders, drafts, foreign exchange or letters
of credit or for the receipt of money for transmission, (v) as a "retail" stock
broker's or dealer's office which shall be open to the general public (except
pursuant to prior appointment), (vi) as a restaurant or bar or for the sale of
confectionery, soda, beverages, sandwiches, ice cream or baked goods or for the
preparation, dispensing or consumption of food or
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beverages in any manner whatsoever, (vii) as a news or cigar stand, (viii) as an
employment agency, labor union office, physician's or dentist's office or for
the rendition of any other diagnostic or therapeutic services, dance or music
studio, school (except for the training of employees of Tenant), (ix) as a
barber shop, beauty salon or manicure shop, (x) for the direct sale, at retail,
wholesale or otherwise, of any goods or products, (xi) for a public stenographer
or typist, (xii) for a telephone or telegraph agency, telephone or secretarial
service for the public at large, (xiii) for a messenger service for the public
at large, (xiv) gambling or gaming activities, obscene or pornographic purposes
or any sort of commercial sex establishment, (xv) for the possession, storage,
manufacture or sale of alcohol, drugs or narcotics, (xvi) for the conduct of a
public auction, (xvii) for the offices or business of any federal, state or
municipal agency or any agency of any foreign government or (xviii) for any use
that would cause the Premises to be deemed a place of public accommodation under
the Americans with Disabilities Act of 1990. Nothing in this subsection B shall
preclude Tenant from using any part of the Premises for photographic, multilith
or multigraph reproductions in connection with, either directly or indirectly,
its own business and/or activities.
3. ALTERATIONS.
A. ALTERATIONS WITHIN PREMISES. Tenant shall not make or perform or permit
the making or performance of, any alterations, installations, improvements,
additions or other physical-changes in or about the Premises ("Alterations")
without Landlord's prior consent. Landlord agrees not to withhold unreasonably
its consent to any Alterations proposed to be made by Tenant to adapt the
Premises for those business purposes permitted by subsection A of Article 2
hereof, which are nonstructural and which do not affect the Building's
mechanical, electrical, plumbing, Class E or other Building systems or the
structural integrity of the Building, provided that such Alterations are
performed only by contractors or mechanics approved by Landlord, do not affect
any part of the Building other than the Premises, do not affect any service
required to be furnished by Landlord to Tenant or to any other tenant or
occupant of the Building, do not reduce the value or utility of the Building and
are performed in compliance with all applicable laws. Notwithstanding the
foregoing, Tenant may, without Landlord's consent, perform alterations of a
purely cosmetic or decorative nature (e.g., painting or the installation of wall
covering or carpeting) (collectively "Cosmetic Alterations") provided that (i)
the estimated cost of the labor and materials for such Alterations in any one
instance (or in a series of instances effectuating a single alteration plan)
does not exceed Seven Thousand Five Hundred and 00/100 ($7,500.00) Dollars, (ii)
such Alterations are performed by contractors reasonably acceptable to Landlord,
(iii) Landlord shall have received, at least ten (10) days prior to the
commencement of such Alterations, notice of the Alterations to be performed, the
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identity of the contractors performing such Alterations (together with
certificates of insurance required to be maintained by such contractors) and
copies of drawings, plans and specifications prepared with respect to such
Alterations, and (d) the terms and provisions of this Lease regarding
Alterations are otherwise fully complied with. Tenant shall not perform work
which would (a) require changes to the structural components of the Building or
the exterior design of the Building, (b) require any material modification to
the Building's mechanical, electrical, plumbing installations or other Building
installations outside the Premises, (c) not be in compliance with all applicable
laws, rules, regulations and requirements of any governmental department having
jurisdiction over the Building and/or the construction of the Premises,
including but not limited to, the Americans with Disabilities Act of 1990, or
(d) be in compatible with the Certificate of Occupancy for the Building. Any
changes required by any governmental department affecting the construction of
the Premises shall be performed at Tenant's sole cost. All Alterations shall be
done at Tenant's expense and at such times and in such manner as Landlord may
from time to time reasonably designate pursuant to the conditions for
Alterations prescribed by Landlord for the Premises. Notwithstanding anything to
the contrary contained herein, the parties hereto acknowledge that the
provisions of this Subsection A are inapplicable with respect to Landlord's
Initial Construction, the performance of which is governed by the terms,
covenants and provisions contained in Schedule B annexed to this Lease. A copy
of the current construction conditions and requirements for tenant alteration
work is annexed hereto as Schedule C and made a part hereof. All furniture,
furnishings and movable fixtures and removable partitions installed by Tenant
must be removed from the Premises by Tenant, at Tenant's expense, prior to the
Expiration Date. All Alterations in and to the Premises which may be made by
Landlord or Tenant prior to and during the Term, or any renewal thereof, shall
become the property of Landlord upon the Expiration Date or earlier end of the
Term or any renewal thereof, and shall not be removed from the Premises by
Tenant unless Landlord, at Landlord's option by notice to Tenant prior to the
Expiration Date, elects to have them removed from the Premises by Tenant, in
which event the same shall be removed from the Premises by Tenant, at Tenant's
expense, prior to the Expiration Date. Notwithstanding the foregoing, Tenant
may, at the time of its initial submission of plans and specifications showing
such Alterations to Landlord for Landlord's review and approval, request in
writing that Landlord waive its right to compel Tenant to remove the Alterations
identified on such plans and specifications. If Landlord waives such right to
compel Tenant to remove such Alterations, in whole or in part, Landlord shall
notify Tenant at the time of the approval of such plans and specifications of
those Alterations which Tenant may be required to remove in accordance with the
terms of this Article prior to the expiration of the Term or upon the occurrence
of a termination of this Lease and Tenant shall, upon the expiration of the Term
or upon such termination unless instructed otherwise by Landlord, be required to
remove only such Alterations
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specified in Landlord's notice. In the event Landlord elects to have Tenant
remove such Alterations, Tenant shall repair and restore in a good and
workmanlike manner to Building standard original condition (reasonable wear and
tear excepted) any damage to the Premises or the Building caused by such
removal. Any of such fixtures or installations not so removed by Tenant at or
prior to the Expiration Date or earlier termination of the Term shall become the
property of Landlord, but nothing herein shall be deemed to relieve Tenant of
responsibility for the cost of removal of any such fixtures or installations
which Tenant is obligated to remove hereunder.
B. CHLOROFLUOROCARBONS. Anything contained herein to the contrary
notwithstanding, in the event Landlord shall elect to have Tenant repair or
remove any mechanical or other equipment installed within the Premises by or on
behalf of Tenant containing chlorofluorocarbons ("CFC's"), the repair or removal
of such equipment, as the case may be, shall conform with all requirements of
law and industry practices; provided, however, Landlord acknowledges that for
purposes of this Subsection B, Landlord's Initial Construction shall not be
deemed to be done on behalf of Tenant. Additionally, any such repair or removal
shall be done by contractors approved by Landlord and subject to the procedures
to which Landlord's consent shall have previously been obtained. Tenant shall
indemnify and hold Landlord harmless from any liability or damages resulting
from any contamination within the Building, as a result of the repair or removal
of any of the aforesaid equipment containing CFC's by Tenant.
C. SUBMISSION OF PLANS. Prior to making any Alterations, Tenant (i) shall
submit to Landlord or to a consultant appointed by Landlord ("Landlord's
Consultant") detailed plans and specifications (including layout, architectural,
mechanical, electrical, plumbing, Class E sprinkler and structural drawings
stamped by a professional engineer or architect licensed in the State of New
York) for each proposed Alteration and shall not commence any such Alteration
without first obtaining Landlord's approval of such plans and specification,
(ii) shall pay to Landlord all costs and expenses incurred by Landlord
(including the cost of Landlord's Consultant) in connection with Landlord's
review of Tenant's plans and specifications, (iii) shall, at its expense, obtain
all permits, approvals and certificates required by any governmental or
quasi-governmental bodies, and (iv) shall furnish to Landlord duplicate original
policies of worker's compensation insurance (covering all persons to be employed
by Tenant, and Tenant's contractors and subcontractors in connection with such
Alteration) and comprehensive public liability (including property damage
coverage) insurance in such form, with such companies, for such periods and in
such amounts as Landlord may reasonably require, naming Landlord and its agents
as additional insureds. Upon notice to Tenant, Landlord or Landlord's Consultant
may assume responsibility, at Tenant's expense, to file all plans and obtain the
necessary building permits, which filing and the obtaining of
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building permits, if undertaken, shall be accomplished within fifteen (15)
working days following the date of notice to Tenant that Landlord or Landlord's
Consultant is assuming responsibility therefor, subject to any delays caused by
the City of New York. Upon completion of such Alteration, Tenant, at Tenant's
expense, shall obtain certificates of final approval of such Alteration,
including the "as-built" drawings showing such Alterations, required by any
governmental or quasi-governmental bodies and shall furnish Landlord with copies
thereof. All Alterations shall be made and performed in accordance with the
Rules and Regulations (hereinafter defined) and in accordance with the Americans
with Disabilities Act of 1990, including but not limited to the accessibility
provisions thereof; all materials and equipment to be incorporated in the
Premises as a result of all Alterations shall be new and first quality; no such
materials or equipment shall be subject to any Lien, encumbrance, chattel
mortgage or title retention or security agreement. In the event any Alterations
are performed by a general partner of Landlord or any entity which is under the
common control of Landlord or any general partner of Landlord, the failure by
Tenant to pay the cost of such Alterations upon rendition of a bill therefor
shall be deemed a material default under this Lease. Landlord's approval of
Tenant's plans, specifications and working drawings for Alterations shall create
no responsibility or liability on the part of Landlord with respect to their
completeness, design, sufficiency or compliance with all applicable laws, rules
or regulations of governmental agencies or authorities.
D. MECHANICS' LIENS; LABOR CONFLICTS. Any mechanic's lien filed against the
Premises, or the Real Property, for work claimed to have been done for, or
materials claimed to have been furnished to, Tenant shall be discharged by
Tenant within thirty (30) days thereafter, at Tenant's expense, by payment or
filing the bond required bylaw. Tenant shall not, at any time prior to or during
the Term, directly or indirectly employ, or permit the employment of, any
contractor, mechanic or laborer in the Premises, whether in connection with any
Alteration or otherwise, if, in Landlord's sole but reasonable discretion, such
employment will interfere or cause any conflict with other contractors,
mechanics, or laborers engaged in the construction, maintenance or operation of
the Building by Landlord, Tenant or others. In the event of any such
interference or conflict, Tenant, upon demand of Landlord, shall cause all
contractors, mechanics or laborers causing such interference or conflict to
leave the Building immediately.
4. REPAIRS - FLOOR LOAD. Landlord shall maintain and repair the public portions
of the Building, both exterior and interior and the structural elements thereof
except for repairs required to be performed by Tenant in accordance with the
terms of this Lease. Tenant shall, throughout the Term, take good care of the
Premises and the fixtures and appurtenances therein and at Tenant's sole cost
and expense, make all nonstructural repairs thereto as and when needed to
preserve
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them in good working order and condition, reasonable wear and tear and damage
for which Tenant is not responsible under the terms of this Lease excepted.
Tenant shall pay Landlord for all replacements to the lamps, tubes, ballasts and
starters in the lighting fixtures installed in the Premises. Notwithstanding the
foregoing, all damage or injury to the Premises or to any other part of the
Building, or to its fixtures, equipment and appurtenances, whether requiring
structural or nonstructural repairs, caused by or resulting from carelessness,
omission, neglect or improper conduct of or Alterations made by Tenant or any of
Tenant's servants, employees, invitees or licensees, shall be repaired promptly
by Tenant, its sole cost and expense, to the satisfaction of Landlord. Tenant
also shall repair all damage to the Building and the Premises caused by the
moving of Tenant's fixtures, furniture or equipment. All the aforesaid repairs
shall be of quality and class equal to the original work or construction and
shall be made in accordance with the provisions of Article 3 hereof. If Tenant
fails after fifteen (15) days notice to proceed with due diligence to make
repairs required to be made by Tenant hereunder, the same may be made by
Landlord, at the expense of Tenant, and the expenses thereof incurred by
Landlord shall be collectible by Landlord as additional rent promptly after
rendition of a bill or statement therefor. Tenant shall give Landlord prompt
notice of any defective condition in any plumbing, electrical, air-cooling or
heating system located in, servicing or passing through the Premises. Tenant
shall not place a load upon any floor of the Premises exceeding the floor load
per square foot area which such floor was designed to carry and which is allowed
by law. Landlord reserves the right to prescribe the weight and position of all
safes, business machines and heavy equipment and installations. Business
machines and mechanical equipment shall be placed and maintained by Tenant at
Tenant's expense in settings sufficient in Landlord's judgment to absorb and
prevent vibration, noise and annoyance. Except as expressly provided in Article
10 hereof, there shall be no allowance to Tenant for a diminution of rental
value and no liability on the part of Landlord by reason of inconvenience,
annoyance or injury to business arising from Landlord, Tenant or others making,
or failing to make, any repairs, alterations, additions or improvements in or to
any portion of the Building, or the Premises, or in or to fixtures,
appurtenances, or equipment thereof. If the Premises be or become infested with
vermin, Tenant, at Tenant's expense, shall cause the same to be exterminated
from time to time to the satisfaction of Landlord and shall employ such
exterminators and such exterminating company or companies as shall be approved
by Landlord. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed or
constructed, and no sweepings, rubbish, rags, acids or other substances shall be
deposited therein.
5. WINDOW CLEANING. Tenant shall not clean, nor require, permit, suffer or allow
any window in the Premises to be cleaned, from the outside in violation of
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Section 202 of the Labor Law, or any other applicable law, or of the rules of
the Board of Standards and Appeals, or of any other board or body having or
asserting jurisdiction.
6. REQUIREMENTS OF LAW. Tenant, at its sole expense, shall comply with all
laws, statutes, orders, directives and regulations of federal, state, county,
city and municipal authorities, departments, bureaus, boards, agencies,
commissions and other sub-divisions thereof, and of any official thereof and any
other governmental and quasi-public authority and all rules, orders, regulations
or requirements of the New York Board of Fire Underwriters, or any other similar
body which shall now or hereafter impose any violation, order or duty
(hereinafter collectively referred to as the "Legal Requirements" and
individually referred to as a "Legal Requirement") upon Landlord or Tenant with
respect to the Premises as a result of the use, occupation or alteration thereof
by Tenant. Tenant shall not be responsible for complying with any Legal
Requirement that requires structural modifications to the Building and/or
modifications to the common areas of the Building, unless compliance with such
Legal Requirement is necessitated by or in connection with an act or omission of
Tenant or any person or entity acting by or on behalf of Tenant, including,
without limitation, any Alteration by Tenant or its subtenants or Tenant's
particular manner of use of the Premises; provided, however, the cost of such
compliance may be reimbursable to Landlord to the extent and in the manner set
forth in Article 28 hereof. Tenant shall not do or permit to be done any act or
thing upon the Premises which will invalidate or be in conflict with any
insurance policies covering the Building and fixtures and property therein; and
shall not do, or permit anything to be done in or upon the Premises, or bring or
keep anything therein, except as now or hereafter permitted by the New York City
Fire Department, New York Board of Fire Underwriters, New York Fire Insurance
Rating Organization or other authority having jurisdiction and then only in such
quantity and manner of storage as not to increase the rate for fire insurance
applicable to the Building, or use the Premises in a manner which shall increase
the rate of fire insurance on the Building or on property located therein, over
that in similar type buildings or in effect prior to this Lease. Any work or
installations made or performed by or on behalf of Tenant or any person claiming
through or under Tenant pursuant to this Article shall be made in conformity
with, and subject to the provisions of, Article 3 hereof. If by reason of
Tenant's failure to comply with the provisions of this Article, the fire
insurance rate shall at the beginning of this Lease or at any time thereafter be
higher than it otherwise would be, then Tenant shall reimburse Landlord, as
additional rent hereunder, for that part of all fire insurance premiums
thereafter paid by Landlord which shall have been charged because of such
failure of use by Tenant, and shall make such reimbursement upon the first day
of the month following such outlay by Landlord. In any action or proceeding
wherein Landlord and Tenant are parties, a schedule or "make up" of rates for
the Building or the
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Premises issued by the New York Fire Insurance Rating Organization, or other
body fixing such fire insurance rates, shall be conclusive evidence of the facts
therein stated and of the several items and charges in the fire insurance rates
then applicable to the Premises.
7. SUBORDINATION.
A. SUBORDINATION. This Lease is subject and subordinate to each and every
ground or underlying lease of the Real Property or the Building heretofore or
hereafter made by Landlord (collectively the "Superior Leases") and to each and
every trust indenture and mortgage (collectively the "Mortgages") which may now
or hereafter affect the Real Property, the Building or any such Superior Lease
and the leasehold interest created thereby, and to all renewals, extensions,
supplements, amendments, modifications, consolidations, and replacements thereof
or thereto, substitutions therefor and advances made thereunder. This clause
shall be self-operative and no further instrument of subordination shall be
required to make the interest of any lessor under a Superior Lease, or trustee
or mortgagee of a Mortgage superior to the interest of Tenant hereunder. In
confirmation of such subordination, however, Tenant shall execute promptly any
certificate that Landlord may request. If the date of expiration of any Superior
Lease shall be the same day as the Expiration Date, the Term shall end and
expire twelve (12) hours prior to the expiration of the Superior Lease. Tenant
covenants and agrees that, except as expressly provided herein, Tenant shall not
do anything that would constitute a default under any Superior Lease or Mortgage
of which Tenant has been given prior notice, or omit to do anything that Tenant
is obligated to do under the terms of this Lease so as to cause Landlord to be
in default under any of the foregoing. If, in connection with the financing of
the Real Property, the Building or the interest of the lessee under any Superior
Lease, any lending institution shall request reasonable modifications of this
Lease that do not increase the obligations (other than to a de minimis extent)
or adversely affect the rights of Tenant under this Lease (other than to a de
minimis extent), Tenant covenants to make such modifications.
B. ATTORNMENT. If at any time prior to the expiration of the Term, any
Mortgage shall be foreclosed or any Superior Lease shall terminate or be
terminated for any reason, Tenant agrees, at the election and upon demand of any
owner of the Real Property or the Building, or the lessor under any such
Superior Lease, or of any mortgagee in possession of the Real Property or the
Building, to attorn, from time to time, to any such owner, lessor or mortgagee,
upon the then executory terms and conditions of this Lease, for the remainder of
the term originally demised in this Lease, provided that such owner, lessor or,
mortgagee, as the case may be, or receiver caused to be appointed by any of the
foregoing, shall not then be entitled to possession of the Premises. The
provisions of this subsection B shall
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inure to the benefit of any such owner, lessor or mortgagee, shall apply
notwithstanding that, as a matter of law, this Lease may terminate upon the
termination of any such Superior Lease, and shall be self-operative upon any
such demand, and no further instrument shall be required to give effect to said
provisions. Tenant, however, upon demand of any such owner, lessor or mortgagee,
agrees to execute, from time to time, instruments in confirmation of the
foregoing provisions of this subsection B, satisfactory to any such owner,
lessor or mortgagee, acknowledging such adornment and setting forth the terms
and conditions of its tenancy. Nothing contained in this subsection B shall be
construed to impair any right otherwise exercisable by any such owner, lessor or
mortgagee.
C. NON-DISTURBANCE. Landlord agrees that it shall request from the holder
of the first Mortgage currently encumbering the Real Property, a non-disturbance
agreement in favor of Tenant in the form generally used by the holder of such
first Mortgage; it being expressly understood and agreed that the failure to
obtain any such subordination, non-disturbance and attornment agreement shall in
no way relieve Tenant of any of its obligations hereunder or affect the
subordination of this Lease as provided herein. Landlord shall not be required
to expend any sums or incur any fees in connection with any such request unless
Tenant shall pay such sums to Landlord in advance.
8. RULES AND REGULATIONS. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations annexed hereto and made a part hereof as Schedule A and
such other and further reasonable Rules and Regulations as Landlord or
Landlord's agents may from time to time adopt (collectively, the "Rules and
Regulations") on such notice to be given as Landlord may elect. Nothing in this
Lease contained shall be construed to impose upon Landlord any duty or
obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, against any other tenant and Landlord shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees but Landlord shall not enforce the
Rules and Regulations in a discriminatory manner against Tenant.
9. INSURANCE. A. TENANT'S INSURANCE. Tenant shall obtain at its own expense and
keep in full force and effect during the Term, a policy of commercial general
liability insurance (including, without limitation, insurance covering Tenant's
contractual liability under this Lease), under which Tenant is named as the
insured, and Landlord, Landlord's managing agent, the present and any future
mortgagee of the
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Real Property or the Building and/or such other designees specified by Landlord
from time to time, are named as additional insureds. Such policy shall contain
(i) a provision that no act or omission of Tenant shall affect or limit the
obligation of the insurance company to pay the amount of any loss sustained,
(ii) a waiver of subrogation against Landlord or a consent to a waiver of right
of recovery against Landlord and (iii) an agreement by the insurer that it will
not make any claim against or seek to recover from Landlord for any loss, damage
or claim whether or not covered under such policy except for Landlord's
deliberate negligence. Such policy shall also contain a provision which provides
the insurance company will not cancel or refuse to renew the policy, or change
in any material way the nature or extent of the coverage provided by such
policy, without first giving Landlord at least thirty (30) days' written notice
by certified mail, return receipt requested, which notice shall contain the
policy number and the names of the insureds and policy holder. The minimum
limits of liability shall be a combined single limit with respect to each
occurrence in an amount of not less than $3,000,000 for injury (or death) and
damage to property or such greater amount as Landlord may, from time to time,
reasonably require. Tenant shall also maintain at its own expense during the
Term a policy of workers' compensation insurance providing statutory benefits
for Tenant's employees and employer's liability. Tenant shall provide to
Landlord upon execution of this Lease and at least thirty (30) days prior to the
termination of any existing policy, a certificate evidencing the effectiveness
of the insurance policies required to be maintained hereunder which shall
include the named insured, additional insured, carrier, policy number, limits of
liability, effective date, the name of the insurance agent and its telephone
number. Tenant shall provide Landlord with a complete copy of any such policy
upon written request of Landlord. Tenant shall have no right to obtain any of
the insurance required hereunder pursuant to a blanket policy covering other
properties unless the blanket policy contains an endorsement that names
Landlord, Landlord's managing agent and/or designees specified by Landlord from
time to time, as additional insureds, references the Premises, and guarantees a
minimum limit available for the Premises equal to the amount of insurance
required to be maintained hereunder. Each policy required hereunder shall
contain a clause that the policy and the coverage evidenced thereby shall be
primary with respect to any policies carried by Landlord, and that any coverage
carried by Landlord shall be excess insurance. The limits of the insurance
required under this subsection shall not limit the liability of Tenant under
this Lease. All insurance required to be carried by Tenant pursuant to the terms
of this Lease shall be effected under valid and enforceable policies issued by
reputable and independent insurers permitted to do business in the State of New
York, and rated in Best's Insurance Guide, or any successor thereto (or if there
be none, an organization having a national reputation) as having a general
policyholder rating of "A" and a financial rating of at least "13". In the event
that Tenant fails to continuously maintain insurance as required by this
subsection, Landlord may, at its option and without relieving Tenant of any
obligation hereunder, order such
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insurance and pay for the same at the expense of Tenant. In such event, Tenant
shall repay the amount expended by Landlord, with interest thereon, immediately
upon Landlord's written demand therefor.
B. TENANT'S IMPROVEMENT INSURANCE. Tenant shall also maintain at its own
expense during the Term a policy against fire and other casualty on an "all
risk" form covering all Alterations, construction and other improvements
installed within the Premises, whether existing in the Premises on the date
hereof or hereinafter installed by or on behalf of Landlord or Tenant, and on
all furniture, fixtures, equipment, personal property and inventory of Tenant
located in the Premises and any property in the care, custody and control of
Tenant (fixed or otherwise) sufficient to provide 100% full replacement value of
such items, which policy shall otherwise comply with the provisions of
subsections A and C of this Article 9. On any such policy, Tenant shall name
Landlord as a loss payee, as its interest may appear.
C. WAIVER OF SUBROGATION. The parties hereto shall procure an appropriate
clause in, or endorsement on, any "all-risk" property insurance covering the
Premises and the Building, including its respective Alterations, construction
and other improvements as well as personal property, fixtures, furniture,
inventory and equipment located thereon or therein, pursuant to which the
insurance companies waive subrogation or consent to a waiver of right of
recovery, and each party hereby agrees that it will not make any claim against
or seek to recover from the other for any loss or damage to its property or the
property of others resulting from fire or other hazards covered by such
"all-risk" property insurance policies to the extent that such loss or damage is
actually recoverable under such policies exclusive of any deductibles. Such
waiver will not apply should any loss or damage result from one of the parties'
gross negligence or willful misconduct. If the payment of an additional premium
is required for the inclusion of such waiver of subrogation provision, each
party shall advise the other of the amount of any such additional premiums and
the other party shall pay the same. It is expressly understood and agreed that
Landlord will not carry insurance on the Alterations, construction and other
improvements presently existing or hereafter installed within the Premises or on
Tenant's fixtures, furnishings, equipment, personal property or inventory
located in the Premises or insurance against interruption of Tenant's business.
D. LANDLORD'S INSURANCE. Landlord shall at all times during the Term of
this Lease cause the Building to be insured against fire and extended coverage
perils in an amount not less than full replacement cost value or in such lesser
amounts as will avoid co-insurance provided, however, if (i) such insurance
coverage ceases to be available or (ii) the cost of such insurance increases so
that owners of similar properties in New York County, New York generally cease
to carry such insurance,
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Landlord shall maintain such insurance coverage as is customarily maintained by
owners of similar properties in New York County, New York, due regard being
given to the height and type of building, its construction, age, use and
occupancy.
10. DESTRUCTION OF THE PREMISES; PROPERTY LOSS OR DAMAGE.
A. REPAIR OF DAMAGE. If the Premises shall be damaged by fire or other
casualty, then Landlord shall proceed to repair and restore (subject to receipt
of insurance proceeds) the Premises to its condition preceding the damage,
subject to the provisions of this Article 10. Landlord shall have no liability
to Tenant, and Tenant shall not be entitled to terminate this Lease, if such
repairs and restoration are not in fact completed within Landlord's estimated
time period, so long as Landlord shall have proceeded with reasonable due
diligence. The Rent until such repairs shall be made shall be reduced in the
proportion which the area of the part of the Premises which is not usable by
Tenant bears to the total area of the Premises; provided, however, should Tenant
reoccupy a portion of the Premises for the conduct of its business prior to the
date such repairs are made, the Rent shall be reinstated with respect to such
reoccupied portion of the Premises and shall be payable by Tenant from the date
of such occupancy. Within seventy-five (75) days after notice to Landlord of
damage to the Premises or any part thereof by fire or other casualty, Landlord
shall deliver to Tenant an estimate prepared by a reputable contractor selected
by Landlord setting forth such contractor's estimate as to the reasonable time
required to repair such damage. If the estimated time period exceeds twelve (12)
months, Tenant may elect to terminate this Lease by notice to Landlord given not
later than fifteen (15) days following the delivery of such estimate to Tenant.
If Tenant elects to terminate this Lease, the Term of this Lease shall expire
upon the thirtieth (30th) day after notice of such election is given by Tenant
and Tenant shall vacate the Premises and surrender the same to Landlord and the
Rent and additional rent shall be apportioned as of the effective date of such
termination. Further, should Landlord, at its sole option, make available to
Tenant, during the period of such repair, other space in the Building which is
reasonably suitable for the temporary carrying on of Tenant's business, the Rent
shall be reinstated with respect to such temporarily occupied space and shall be
payable by Tenant from the date such space is occupied by Tenant; it being
agreed that the Rent payable with respect to such space shall not exceed on a
per square foot basis the then current Rent for the Premises and shall not
exceed the Rent payable by Tenant hereunder immediately prior to such fire or
other casualty. Whenever in this Article 10 reference is made to restoration of
the Premises, (i) Tenant's obligation shall be as to all property within the
Premises including Tenant's furniture, fixtures, equipment and other personal
property, any and all Alterations, construction or other improvements made to
the Premises by or on behalf of Tenant and any other leasehold improvements
existing in the Premises
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on the date hereof, all of which shall be restored and replaced at Tenant's sole
cost and expense and (ii) Landlord's obligation, if any, shall be as to the
shell, which constitutes the structure of the Building and the mechanical,
electrical, plumbing, air-conditioning and other building systems up to the
point of connection into the Premises. Landlord's obligation to repair or
rebuild, and Tenant's right to rent abatement, as described in this Article 10,
are only effective provided the damage or destruction is not due to the
intentional or negligent acts or omissions of Tenant, its agents, employees,
licensees or invitees. During any period of Tenant's repair and restoration
following substantial completion of Landlord's repair and restoration work, Rent
and additional rent shall be payable as if said fire or other casualty had not
occurred.
B. LANDLORD'S TERMINATION OPTION. Anything in subsection A of this Article
10 to the contrary notwithstanding, if the Premises are totally damaged or are
rendered wholly untenantable, and if Landlord shall decide not to restore the
Premises, or if the Building shall be so damaged by fire or other casualty that,
in Landlord's opinion, either substantial alteration, demolition or
reconstruction of the Building shall be required (whether or not the Premises
shall have been damaged or rendered untenantable) or the Building, after its
proposed repair, alteration or restoration shall not be economically viable as
an office building, then in any of such events, Landlord, at Landlord's option,
may, not later than ninety (90) days following the damage, give Tenant a notice
in writing terminating this Lease. In addition, (i) if any damage shall occur to
the Premises or the Building during the last year of the Term, Landlord shall
have the option to terminate this Lease by written notice to Tenant and in such
event this Lease shall terminate on the later of the date of the notice of
termination or the date Tenant vacates the Premises and removes all of its
property therefrom and (ii) Landlord shall not be obligated to repair or restore
the Premises or the Building if a holder of a mortgage or underlying leasehold
applies proceeds of insurance to the loan or lease payment balance, and the
remaining proceeds, if any, available to Landlord are insufficient to pay for
such repair or restoration. If Landlord elects to terminate this Lease, the Term
shall expire upon the thirtieth (30th) day after such notice is given, and
Tenant shall vacate the Premises and surrender the same to Landlord. If Tenant
shall not be in default under this Lease, then upon the termination of this
Lease under the conditions provided for in the next preceding sentence, Tenant's
liability for Rent thereafter accruing shall cease as of the day following such
damage.
C. REPAIR DELAYS. Landlord shall not be liable for reasonable delays which
may arise by reason of the claim adjustment with any insurance company on the
part of Landlord and/or Tenant, and for reasonable delays on account of "labor
troubles" or any other cause beyond Landlord's control.
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D. PROVISION CONTROLLING. The parties agree that this Article 10
constitutes an express agreement governing any case of damage or destruction of
the Premises or the Building by fire or other casualty, and that Section 227 of
the Real Property Law of the State of New York, which provides for such
contingency in the absence of an express agreement, and any other law of like
import now or hereafter in force shall have no application in any such case.
E. PROPERTY LOSS OR DAMAGE. Any Building employee to whom any property
shall be entrusted by or on behalf of Tenant shall be deemed to be acting as
Tenant's agent with respect to such property and neither Landlord nor its agents
shall be liable for any damage to property of Tenant or of others entrusted to
employees of the Building, nor for the loss of or damage to any property of
Tenant by theft or otherwise. Neither Landlord nor its agents shall be liable
for any injury or damage to persons or property or interruption of Tenant's
business resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain or snow or leaks from any part of the Building or from
the pipes, appliances or plumbing works or from the roof, street or subsurface
or from any other place or by dampness or by any other cause of whatsoever
nature; nor shall Landlord or its agents be liable for any such damage caused by
other tenants or persons in the Building or caused by construction of any
private, public or quasi-public work; nor shall Landlord be liable for any
latent defect in the Premises or in the Building. Anything in this Article 10 to
the contrary notwithstanding, nothing in this Lease shall be construed to
relieve Landlord from responsibility directly to Tenant for any loss or damage
caused directly to Tenant wholly or in part by the gross negligence or willful
misconduct of Landlord. Nothing in the foregoing sentence shall affect any right
of Landlord to the indemnity from Tenant to which Landlord may be entitled under
Article 37 hereof in order to recoup for payments made to compensate for losses
of third parties. If at any time any windows of the Premises are temporarily
closed, darkened or bricked-up for any reason whatsoever including, but not
limited to, Landlord's own acts, or any of such windows are permanently closed,
darkened or bricked-up if required by law or related to any construction upon
property adjacent to the Real Property by Landlord or others, Landlord shall not
be liable for any damage Tenant may sustain thereby and Tenant shall not be
entitled to any compensation therefor nor abatement of Rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction. Tenant
shall reimburse and compensate Landlord as additional rent within fifteen (15)
days after rendition of a statement for all expenditures made by, or damages or
fines sustained or incurred by, Landlord due to nonperformance or noncompliance
with or breach or failure to observe any term, covenant or condition of this
Lease upon Tenant's part to be kept, observed, performed or complied with.
Tenant shall give immediate notice to Landlord in case of fire or accident in
the Premises or in the Building. Tenant shall not move any safe, heavy
machinery, heavy equipment, freight, bulky matter or fixtures into or out of the
Building without Landlord's prior consent and
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payment to Landlord of Landlord's costs in connection therewith. If such safe,
machinery, equipment, freight, bulky matter or fixtures requires special
handling, Tenant agrees to employ only persons holding a Master Rigger's License
to do said work, and that all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto, and shall be done during such hours as Landlord may
designate and, notwithstanding said consent of Landlord, Tenant shall indemnify
Landlord for, and hold Landlord harmless and free from, damages sustained by
persons or property and for any damages or monies paid out by Landlord in
settlement of any claims or judgments, as well as for all expenses and
attorneys' fees incurred in connection therewith and all costs incurred in
repairing any damage to the Building or appurtenances.
11. CONDEMNATION.
A. CONDEMNATION. If the whole of the Real Property, the Building or the
Premises shall be acquired or condemned for any public or quasi-public use or
purpose, this Lease and the Term shall end as of the date of the vesting of
title with the same effect as if said date were the Expiration Date. If only a
part of the Real Property shall be so acquired or condemned then, (i) except as
hereinafter provided in this subsection A, this Lease and the Term shall
continue in force and effect but, if a part of the Premises is included in the
part of the Real Property so acquired or condemned, from and after the date of
the vesting of title, the Rent shall be reduced in the proportion which the area
of the part of the Premises so acquired or condemned bears to the total area of
the Premises immediately prior to such acquisition or condemnation; (ii) whether
or not the Premises shall be affected thereby, Landlord, at Landlord's option,
may give to Tenant, within sixty (60) days next following the date upon which
Landlord shall have received notice of vesting of title, a five (5) days' notice
of termination of this Lease; and (iii) if the part of the Real Property so
acquired or condemned shall contain more than thirty percent (30%) of the total
area of the Premises immediately prior to such acquisition or condemnation, or
if, by reason of such acquisition or condemnation, Tenant no longer has
reasonable means of access to the Premises, Tenant, at Tenant's option, may give
to Landlord, within sixty (60) days next following the date upon which Tenant
shall have received notice of vesting of title, a five (5) days' notice of
termination of this Lease. If any such five (5) days' notice of termination is
given by Landlord or Tenant this Lease and the Term shall come to an end and
expire upon the expiration of said five (5) days with the same effect as if the
date of expiration of said five (5) days were the Expiration Date. If a part of
the Premises shall be so acquired or condemned and this Lease and the Term shall
not be terminated pursuant to the foregoing provisions of this subsection A,
Landlord, at Landlord's expense, shall restore that part of the Premises not so
acquired or condemned to a self-contained rental unit. In the event of any
termination of this Lease and the
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Term pursuant to the provisions of this subsection A, the Rent shall be
apportioned as of the date of sooner termination and any prepaid portion of Rent
for any period after such date shall be refunded by Landlord to Tenant.
B. AWARD. In the event of any such acquisition or condemnation of all or
any part of the Real Property, Landlord shall be entitled to receive the entire
award for any such acquisition or condemnation, Tenant shall have no claim
against Landlord or the condemning authority for the value of any unexpired
portion of the Term and Tenant hereby expressly assigns to Landlord all of its
right in and to any such award. Nothing contained in this subsection B shall be
deemed to prevent Tenant from making a claim in any condemnation proceedings for
the then value of any furniture, furnishings and fixtures installed by and at
the sole expense of Tenant and included in such taking and for moving expenses,
provided that such award shall not reduce the amount of the award otherwise
payable to Landlord.
12. ASSIGNMENT AND SUBLETTING.
A. PROHIBITION WITHOUT CONSENT. Tenant, for itself, its heirs,
distributees, executors, administrators, legal representatives, successors and
assigns, expressly covenants that it shall not assign, mortgage, pledge,
encumber or otherwise transfer this Lease, nor underlet, nor suffer, nor permit
the Premises or any part thereof to be used or occupied by others (whether for
desk space, mailing privileges or otherwise), without the prior written consent
of Landlord in each instance. If this Lease be assigned, or if the Premises or
any part thereof be underlet or occupied by anybody other than Tenant, Landlord
may, after default by Tenant, collect rent from the assignee, undertenant or
occupant, and apply the net amount collected to the Rent herein reserved, but no
assignment, underletting, occupancy or collection shall be deemed a waiver of
the provisions hereof, the acceptance of the assignee, undertenant or occupant
as tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Landlord to an
assignment or underletting shall not in any way be construed to relieve Tenant
from obtaining the express consent in writing of Landlord to any further
assignment or underletting. In no event shall any permitted subtenant assign or
encumber its sublease or further sublet all or any portion of its sublet space,
or otherwise suffer or permit the sublet space or any part thereof to be used or
occupied by others, without Landlord's prior written consent in each instance.
Any assignment, sublease, mortgage, pledge, encumbrance or transfer in
contravention of the provisions of this Article 12 shall be void.
B .NOTICE OF PROPOSED TRANSFER. If Tenant shall at any time or times during
the Term desire to assign this Lease or sublet all or part of the Premises,
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Tenant shall give notice thereof to Landlord, which notice shall be accompanied
by (i) a conformed or photostatic copy of the proposed assignment or sublease,
the effective or commencement date of which shall be not less than sixty (60)
nor more than one hundred and eighty (180) days after the giving of such notice,
(ii) a statement setting forth in reasonable detail the identity of the proposed
assignee or subtenant, the nature of its business and its proposed use of the
Premises, (iii) current financial information with respect to the proposed
assignee or subtenant, including, without limitation, its most recent financial
report, (iv) an agreement by Tenant to indemnify Landlord against liability
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant or by any brokers or other persons claiming a commission
or similar compensation in connection with the proposed assignment or sublease
and (v) in the case of a sublease, such additional information related to the
proposed subtenant as Landlord shall reasonably request, if any.
C. LANDLORD'S OPTIONS. The notice containing all of the information set
forth in Subsection B of this Article 12 above shall be deemed an offer from
Tenant to Landlord whereby Landlord (or Landlord's designee) may, at its option,
(a) sublease such space (hereinafter called the "Leaseback Space") from Tenant
upon the terms and conditions hereinafter set forth (if the proposed transaction
is a sublease of all or part of the Premises), or (b) terminate this Lease (if
the proposed transaction is an assignment or a sublease of all or substantially
all of the Premises). Said options may be exercised by Landlord by notice to
Tenant at any time within sixty (60) days after the aforesaid notice has been
given by Tenant to Landlord; and during such sixty (60) day period Tenant shall
not assign this Lease nor sublet such space to any person or entity.
D. TERMINATION BY LANDLORD. If Landlord exercises its option to terminate
this Lease in the case where Tenant desires either to assign this Lease or
sublet all or substantially all of the Premises, then this Lease shall end and
expire on the date that such assignment or sublet was to be effective or
commence, as the case may be, and the Rent and additional rent due hereunder
shall be paid and apportioned to such date. Furthermore, if Landlord exercises
its option to terminate this Lease pursuant to subsection C of this Article 12,
Landlord shall be free to and shall have no liability to Tenant if Landlord
should lease the Premises (or any part thereof) to Tenant's prospective assignee
or subtenant.
E. TAKEBACK BY LANDLORD. If Landlord exercises its option to sublet the
Leaseback Space, such sublease to Landlord or its designee (as subtenant) shall
be at the lower of (i) the rental rate per rentable square foot of Rent and
additional rent then payable pursuant to this Lease, or (ii) the rentals set
forth in the proposed sublease, and shall be for the same term as that of the
proposed subletting, and such sublease:
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(i) shall be expressly subject to all of the covenants, agreements,
terms, provisions and conditions of this Lease except such as are irrelevant or
inapplicable, and except as otherwise expressly set forth to the contrary in
this Article 12;
(ii) shall be upon the same terms and conditions as those contained in
the proposed sublease, except such as are irrelevant or inapplicable and except
as otherwise expressly set forth to the contrary in this Article 12;
(iii) shall give the subtenant the unqualified and unrestricted right,
without Tenant's permission, to assign such sublease or any interest therein
and/or to sublet the space covered by such sublease or any part or parts of such
space and to make any and all changes, alterations and improvements in the space
covered by such sublease, and if the proposed sublease will result in or
substantially all of the Premises being sublet, grant Landlord or its designee
the option to extend the term of such sublease for the balance of the term of
this Lease less one (1) day;
(iv) shall provide that any assignee or further subtenant of Landlord
or its designee, may, at the election of Landlord, be permitted to make
alterations, decorations and installations in such space or any part thereof and
shall also provide in substance that any such alterations, decorations and
installations in such space therein made by any assignee or subtenant of
Landlord or its designee may be removed, in whole or in part, by such assignee
or subtenant, at its option, prior to or upon the expiration or other
termination of such sublease provided that such assignee or subtenant, at its
expense, shall repair any damage and injury to such space so sublet caused by
such removal; and
(v) shall also provide that (a) the parties to such sublease expressly
negate any intention that any estate created under such sublease be merged with
any other estate held by either of said parties, (b) any assignment or
subletting by Landlord or its designee (as the subtenant) may be for any purpose
or purposes that Landlord, in Landlord's uncontrolled discretion, shall deem
suitable or appropriate, (c) Tenant, at Tenant's expense, shall and will at all
times provide and permit reasonably appropriate means of ingress to and egress
from such space so sublet by Tenant to Landlord or its designee, (d) Landlord,
at Tenant's expense, may make such alterations as may be required or deemed
reasonably necessary by Landlord to physically separate the subleased space from
the balance of the Premises and to comply with any legal or insurance
requirements relating to such separation, and (e) that at the expiration of the
term of such sublease, Tenant will accept the space covered by such sublease in
its then existing condition, subject to the obligations of the subtenant to make
such repairs thereto as may be necessary to preserve the premises demised by
such sublease in good order and condition.
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F. EFFECT OF TAKEBACK OR TERMINATION. If Landlord exercises its option to
sublet the Leaseback Space, (i) Landlord shall indemnify and save Tenant
harmless from all obligations under this Lease as to the Leaseback Space during
the period of time it is so sublet to Landlord; (ii) performance by Landlord, or
its designee, under a sublease of the Leaseback Space shall be deemed
performance by Tenant of any similar obligation under this Lease and any default
under any such sublease shall not give rise to a default under a similar
obligation contained in this Lease nor shall Tenant be liable for any default
under this Lease or deemed to be in default hereunder if such default is
occasioned by or arises from any act or omission of the tenant under such
sublease or is occasioned by or arises from any act or omission of any occupant
holding under or pursuant to any such sublease; and (iii) Tenant shall have no
obligation, at the expiration or earlier termination of the Term, to remove any
alteration, installation or improvement made in the Leaseback Space by Landlord
(or its designee); in addition, if required by applicable law in connection with
any termination of this Lease, or subletting of all or any portion of the
Leaseback Space to Landlord or its designee, Tenant shall complete, swear to and
file any questionnaires, tax returns, affidavits or other documentation which
may be required to be filed (a) with the Commissioner of Finance of the City of
New York or the New York State Department of Taxation and Finance in connection
with Article 31 of the Tax Law of the State of New York, (b) with the
Commissioner of Finance of the City of New York in connection with the New York
City Real Property Transfer Tax and, (c) with the appropriate governmental
agency in connection with any other tax which may now or hereafter be in effect.
Tenant further agrees to pay any amounts which may be assessed in connection
with any of such taxes and to indemnify Landlord against and to hold Landlord
harmless from any claims for payment of such taxes as a result of such
transactions.
G. CONDITIONS FOR LANDLORD'S APPROVAL. In the event Landlord does not
exercise either of the recapture options provided to it pursuant to subsection C
of this Article 12 and providing that Tenant is not in default of any of
Tenant's obligations under this Lease (after notice and the expiration of any
applicable grace period) as of the time of Landlord's consent, and as of the
effective date of the proposed assignment or commencement date of the proposed
sublease, Landlord's consent (which must be in writing and form reasonably
satisfactory to Landlord) to the proposed assignment or sublease shall not be
unreasonably withheld or delayed, provided and upon condition that:
(i). Tenant shall have complied with the provisions of subsection B of
this Article 12 and Landlord shall not have exercised any of its options under
subsection C of this Article 12 within the time permitted therefor;
(ii). In Landlord's reasonable judgment the proposed assignee or
subtenant is engaged in a business or activity, and the Premises, or the
relevant
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part thereof, will be used in a manner, which (a) is in keeping with the then
standards of the Building, (b) is limited to the use of the Premises as general
and executive offices, and (c) will not violate any negative covenant as to use
contained in any other lease of office space in the Building;
(iii). The proposed assignee or subtenant is a reputable person of good
character and with sufficient financial worth considering the responsibility
involved, and Landlord has been furnished with reasonable proof thereof;
(iv). Neither (a) the proposed assignee or subtenant nor (b) any person
which, directly or indirectly, controls, is controlled by or is under common
control with, the proposed assignee or subtenant, is then an occupant of any
part of the Building;
(v). The proposed assignee or subtenant is not a person with whom
Landlord is or has been, within the preceding six (6) month period, negotiating
to lease space in the Building;
(vi). The form of the proposed sublease or instrument of assignment (a)
shall be in form reasonably satisfactory to Landlord, and, without limitation,
shall not provide for a rental or other payment for the use, occupancy or
utilization of the space demised thereby based in whole or in part on the income
or profits derived by any person from the property so leased, used, occupied or
utilized other than an amount based on a fixed percentage or percentages of
gross receipts or sales and (2) shall provide that no person having an interest
in the possession, use, occupancy or utilization of the space demised thereby
shall enter into any lease, sublease, license, concession or other agreement for
use, occupancy or utilization of such space which provides for a rental or other
payment for such use, occupancy or utilization based in whole or in part on the
income or profits derived by any person from the property so leased, used,
occupied or utilized other than an amount based on a fixed percentage or
percentages of gross receipts or sales, and that any such purported lease,
sublease, concession or other agreement shall be absolutely void and ineffective
AB INITIO and (b) shall comply with the applicable provisions of this Article
12;
(vii). There shall not be more than two (2) subtenants (including
Landlord or its designee) of the Premises;
(viii). The amount of the aggregate rent to be paid by the proposed
subtenant is not less than the then current market rent per rentable square foot
for the Premises as though the Premises were vacant, and the rental and other
terms and conditions of the sublease are the same as those contained in
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the proposed sublease furnished to Landlord pursuant to subsection B of this
Article 12;
(ix). Within five (5) days after receipt of a bill therefor, Tenant
shall reimburse Landlord for the reasonable costs that may be incurred by
Landlord in connection with said assignment or sublease, including without
limitation, the costs of making investigations as to the acceptability of the
proposed assignee or subtenant, and reasonable legal costs incurred by Landlord
in connection with the granting of any requested consent;
(x). Tenant shall not have (a) advertised or publicized in any way the
availability of the Premises without prior notice to and approval by Landlord,
nor shall any advertisement state the name (as distinguished from the address)
of the Building or the proposed rental, (b) listed the Premises for subletting
or assignment, with a broker, agent or representative other than the then
managing agent of the Building or other agent designated by Landlord;
(xi). The proposed occupancy shall not, in Landlord's opinion, increase
the office cleaning requirements or the Building's operating or other expenses
or impose an extra burden upon services to be supplied by Landlord to Tenant;
(xii). The proposed assignee or subtenant or its business shall not be
subject to compliance with additional requirements of law (including related
regulations) beyond those requirements which are applicable to the named Tenant
herein; and
(xiii). The proposed subtenant or assignee shall not be entitled,
directly or indirectly, to diplomatic or sovereign immunity and shall be subject
to the service of process in, and the jurisdiction of the courts of New York
State.
Except for any subletting by Tenant to Landlord or its designee pursuant to
the provisions of this Article 12, each subletting pursuant to this subsection G
of this Article 12 shall be subject to all of the covenants, agreements, terms,
provisions and conditions contained in this Lease. Notwithstanding any such
subletting to Landlord or any such subletting to any other subtenant and/or
acceptance of Rent or additional rent by Landlord from any subtenant, Tenant
shall and will remain fully liable for the payment of the Rent and additional
rent due and to become due hereunder and 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 all acts and omissions of any licensee
or subtenant or anyone claiming under or through any subtenant which shall be in
violation of any of the obligations of this Lease shall be deemed to be a
violation by Tenant. Tenant further agrees that notwithstanding any such
subletting, no other and further
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subletting of the Premises by Tenant or any person claiming through or under
Tenant shall or will be made except upon compliance with and subject to the
provisions of this Article 12. If Landlord shall decline to give its consent to
any proposed assignment or sublease, or if Landlord shall exercise either of its
options under subsection C of this Article 12, Tenant shall indemnify, defend
and hold harmless Landlord against and from any and all loss, liability,
damages, costs, and expenses (including reasonable counsel fees) resulting from
any claims that may be made against Landlord by the proposed assignee or
subtenant or by any brokers or other persons claiming a commission or similar
compensation in connection with the proposed assignment or sublease.
H. FUTURE REQUESTS. In the event that (i) Landlord fails to exercise either
of its options under subsection C of this Article 12 and consents to a proposed
assignment or sublease, and (ii) Tenant fails to execute and deliver the
assignment or sublease to which Landlord consented within one hundred eighty
(180) days after the giving of such consent, then, Tenant shall again comply
with all of the provisions and conditions of subsection B of this Article 12
before assigning this Lease or subletting all or part of the Premises.
I. SUBLEASE PROVISIONS. With respect to each and every sublease or
subletting authorized by Landlord under the provisions of this Lease, it is
further agreed that:
(i). No subletting shall be for a term ending later than one (1) day
prior to the Expiration Date of this Lease;
(ii). No sublease shall be delivered, and no subtenant shall take
possession of the Premises or any part thereof, until an executed counterpart of
such sublease has been delivered to Landlord;
(iii). Each sublease shall provide that it is subject and subordinate
to this Lease and to the matters to which this Lease is or shall be subordinate,
and that in the event of termination, re-entry or dispossession by Landlord
under this Lease Landlord may, at its option, take over all of the right, title
and interest of Tenant, as sublessor, under such sublease, and such subtenant
shall, at Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that Landlord shall not (a) be liable for
any previous act or omission of Tenant under such sublease, (b) be subject to
any counterclaim, offset or defense, not expressly provided in such sublease,
which theretofore accrued to such subtenant against Tenant, or (c) be bound by
any previous modification of such sublease or by any previous prepayment of more
than one (1) month's Rent. The provisions of this Article 12 shall be
self-operative and no further instrument shall be required to give effect to
this provision.
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(iv). If any laws, orders, rules or regulations of any applicable
governmental authority require that any Hazardous Substances, including, without
limitation, asbestos, contained in or about the Premises to be sublet (the
"Sublet Space") be dealt within any particular manner in connection with any
alteration of the Sublet Space or otherwise, then it shall be the subtenant's
obligation, at the subtenant's expense, to deal with such Hazardous Substances
in accordance with all such laws, orders, rules and regulations. In the event
the subtenant is required to deal with Hazardous Substances in accordance with
the foregoing provisions of this paragraph (iv) of subsection I of Article 12,
then, notwithstanding anything herein to the contrary, Landlord, at Landlord's
election, shall have the option to deal with such Hazardous Substances itself
and, in such event, the subtenant shall reimburse Landlord for all of Landlord's
costs and expenses in connection therewith within ten (10) days next following
the rendition of a statement by Landlord to the subtenant requesting such
reimbursement. If the subtenant shall fail to so reimburse Landlord for the
aforesaid costs and expenses within the ten (10) day period referred to above,
then notwithstanding anything contained in the Lease to the contrary, such costs
and expenses shall, at Landlord's option, be paid by Tenant to Landlord, within
ten (10) days next following of Landlord's demand therefor.
J. PROFITS FROM ASSIGNMENT OR SUBLETTING. If Landlord shall give its
consent to any assignment of this Lease or to any sublease or if Tenant shall
enter into any other assignment or sublease permitted hereunder, Tenant shall in
consideration therefor, pay to Landlord, as additional rent:
(i). in the case of an assignment, an amount equal to all sums and
other considerations paid to Tenant by the assignee for or by reason of such
assignment (including, but not limited to, sums paid for the sale of Tenant's
fixtures, leasehold improvements, equipment, furniture, furnishings or other
personal property, less, in the case of a sale thereof, the then net unamortized
or undepreciated cost thereof determined on the basis of Tenant's federal income
tax returns) less all expenses reasonably and actually incurred by Tenant on
account of brokerage commissions and advertising costs in connection with such
assignment, provided that Tenant shall submit to Landlord a receipt evidencing
the payment of such expenses (or other proof of payment as Landlord shall
require); and
(ii). in the case of a sublease, any rents, additional charges or other
consideration payable under the sublease on a per square foot basis to Tenant by
the subtenant which is in excess of the Rent and additional rent accruing during
the term of the sublease in respect of the subleased space (at the rate per
square foot payable by Tenant hereunder) pursuant to the terms hereof
(including, but not limited to, sums paid for the sale or rental of Tenant's
fixtures, leasehold improvements, equipment, furniture or other personal
property, less, in the case of
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the sale thereof, the then net unamortized or undepreciated cost thereof
determined on the basis of Tenant's federal income tax returns), less all
expenses reasonably and actually incurred by Tenant on account of brokerage
commissions, advertising costs and the cost of demising the premises so sublet
in connection with such sublease, provided that Tenant shall submit to Landlord
a receipt evidencing the payment of such expenses (or other proof of payment as
Landlord shall require). The sums payable under this subsection J (ii) of this
Article 12 shall be paid to Landlord as and when payable by the subtenant to
Tenant.
K. OTHER TRANSFERS. (i) If Tenant is a corporation other than a corporation
whose stock is listed and traded on a nationally recognized stock exchange
(hereinafter referred to as a "public corporation"), the provisions of
subsection A of this Article 12 shall apply to a transfer (by one or more
transfers) of a majority of the stock of Tenant as if such transfer of a
majority of the stock of Tenant were an assignment of this Lease; but said
provisions shall not apply to transactions with a corporation into or with which
Tenant is merged or consolidated or to which substantially all of Tenant's
assets are transferred, provided that in any of such events (a) the successor to
Tenant has a net worth computed in accordance with generally accepted accounting
principles at least equal to the greater of (1) the net worth of Tenant
immediately prior to such merger, consolidation or transfer, or (2) the net
worth of Tenant herein named on the date of this Lease and (b) proof
satisfactory to Landlord of such net worth shall have been delivered to Landlord
at least ten (10) days prior to the effective date of any such transaction.
(ii). If Tenant is a partnership, the provisions of subsection A of
this Article 12 shall apply to a transfer (by one or more transfers) of a
majority interest in the partnership, as if such transfer were an assignment of
this Lease.
(iii). If Tenant is a subdivision, authority, body, agency,
instrumentality or other entity created and/or controlled pursuant to the laws
of the State of New York or any city, town or village of such state or of
federal government ("Governmental Entity"), the provisions of subsection A of
this Article 12 shall apply to a transfer (by one or more transfers) of any of
Tenant's rights to use and occupy the Premises, to any other Governmental
Entity, as if such transfer of the right of use and occupancy were an assignment
of this Lease; but said provisions shall not apply to a transfer of any of
Tenant's rights in and to the Premises to any Governmental Entity which shall
replace or succeed to substantially similar public functions, responsibilities
and areas of authority as Tenant, provided that in any of such events the
successor Governmental Entity (a) shall utilize the Premises in a manner
substantially similar to Tenant, and (b) shall not utilize the Premises in any
manner which, in Landlord's judgment, would impair the reputation of the
Building as a first-class office building.
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L. RELATED CORPORATION. Tenant may, with Landlord's consent which shall not
be unreasonably withheld, permit any corporations or other business entities
(but not including Governmental Entities) which control, are controlled by, or
are under common control with Tenant (herein referred to as "related
corporation") to sublet all or part of the Premises for any of the purposes
permitted to Tenant, subject however to compliance with Tenant's obligations
under this Lease. Such subletting shall not be deemed to vest in any such
related corporation any right or interest in this Lease or the Premises nor
shall it relieve, release, impair or discharge any of Tenant's obligations
hereunder. For the purposes hereof, "control" shall be deemed to mean ownership
of not less than fifty percent (50%) of all of the voting stock of such
corporation or not less than fifty percent (50%) of all of the legal and
equitable interest in any other business entities.
M. ASSUMPTION BY ASSIGNEE. Any assignment or transfer, whether made with
Landlord's consent pursuant to subsection A of this Article 12 or without
Landlord's consent pursuant to subsection K of this Article 12, shall be made
only if, and shall not be effective until, the assignee shall execute,
acknowledge and deliver to Landlord an agreement in form and substance
reasonably satisfactory to Landlord whereby the assignee shall assume the
obligations of this Lease on the part of Tenant to be performed or observed and
whereby the assignee shall agree that the provisions in subsection A of this
Article 12 shall, notwithstanding such assignment or transfer, continue to be
binding upon it in respect of all future assignments and transfers. The original
named Tenant covenants that, notwithstanding any assignment or transfer, whether
or not in violation of the provisions of this Lease, and notwithstanding the
acceptance of Rent and/or additional rent by Landlord from an assignee,
transferee or any other party, the original named Tenant shall remain fully
liable for the payment of the Rent and additional rent and for the other
obligations of this Lease on the part of Tenant to be performed or observed.
N. LIABILITY OF TENANT. The joint and several liability of Tenant and any
immediate or remote successor in interest of Tenant and the due performance of
the obligations of this Lease on Tenant's part to be performed or observed shall
not be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord extending the time, or modifying any of the
obligations, of this Lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this Lease.
O. LISTINGS. The listing of any name other than that of Tenant, whether on
the doors of the Premises or the Building directory, or otherwise, shall not
operate to vest any right or interest in this Lease or in the Premises, nor
shall it be deemed to be the consent of Landlord to any assignment or transfer
of this Lease or to any sublease of the Premises or to the use or occupancy
thereof by
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others. Any such listing shall constitute a privilege extended by Landlord,
revocable at Landlord's will by notice to Tenant.
P. RE-ENTRY BY LANDLORD. If Landlord shall recover or come into possession
of the Premises before the date herein fixed for the termination of this Lease,
Landlord shall have the right, at its option, to take over any and all subleases
or sublettings of the Premises or any part thereof made by Tenant and to succeed
to all the rights of said subleases and sublettings or such of them as it may
elect to take over. Tenant hereby expressly assigns and transfers to Landlord
such of the subleases and sublettings as Landlord may elect to take over at the
time of such recovery of possession, such assignment and transfer not to be
effective until the termination of this Lease or re-entry by Landlord hereunder
or if Landlord shall otherwise succeed to Tenant's estate in the Premises, at
which time Tenant shall upon request of Landlord, execute, acknowledge and
deliver to Landlord such further instruments of assignment and transfer as may
be necessary to vest in Landlord the then existing subleases and sublettings.
Every subletting hereunder is subject to the condition and by its acceptance of
and entry into a sublease, each subtenant thereunder shall be deemed
conclusively to have thereby agreed from and after the termination of this Lease
or re-entry by Landlord hereunder of or if Landlord shall otherwise succeed to
Tenant's estate in the Premises, that such subtenant shall waive any right to
surrender possession or to terminate the sublease and, at Landlord's election,
such subtenant shall be bound to Landlord for the balance of the term of such
sublease and shall attorn to and recognize Landlord, as its landlord, under all
of the then executory terms of such sublease, except that Landlord shall not (i)
be liable for any previous act, omission or negligence of Tenant under such
sublease, (ii) be subject to any counterclaim, defense or offset not expressly
provided for in such sublease, which theretofore accrued to such subtenant
against Tenant, (iii) be bound by any previous modification or amendment of such
sublease or by any previous prepayment of more than one (1) month's rent and
additional rent which shall be payable as provided in the sublease, (iv) be
obligated to repair the subleased space or the Building or any part thereof, in
the event of total or substantial total damage beyond such repair as can
reasonably be accomplished from the net proceeds of insurance actually made
available to Landlord, (v) be obligated to repair the subleased space or the
Building or any part thereof, in the event of partial condemnation beyond such
repair as can reasonably be accomplished from the net proceeds of any award
actually made available to Landlord as consequential damages allocable to the
part of the subleased space or the Building not taken or (vi) be obligated to
perform any work in the subleased space of the Building or to prepare them for
occupancy beyond Landlord's obligations under this Lease, and the subtenant
shall execute and deliver to Landlord any instruments Landlord may reasonably
request to evidence and confirm such attornment. Each subtenant or licensee of
Tenant shall be deemed automatically upon and as a condition of occupying or
using the Premises or any
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part thereof, to have given a waiver of the type described in and to the extent
and upon the conditions set forth in this Article 12.
13. CONDITION OF THE PREMISES.
A. ACCEPTANCE BY TENANT. Tenant agrees to accept possession of the Premises
in the condition which shall exist on the Commencement Date "as is", except for
Landlord's Initial Construction and further agrees that Landlord shall have no
other obligation to perform any work or make any installations in order to
prepare the Premises for Tenant's occupancy. The taking of possession of the
Premises by Tenant shall be conclusive evidence as against Tenant that, at the
time such possession was so taken, the Premises and the Building were in good
and satisfactory condition and that Landlord's Initial Construction was
substantially completed.
B. LANDLORD'S INITIAL CONSTRUCTION. Landlord agrees to perform Landlord's
Initial Construction described in Schedule B annexed hereto in accordance with
the terms, conditions, and provisions thereof. All of the terms, covenants and
conditions of Schedule B are incorporated in this Lease as if fully set forth at
length herein.
14. ACCESS TO PREMISES. Tenant shall permit Landlord, Landlord's agents and
public utilities servicing the Building to erect, use and maintain, concealed
ducts, pipes and conduits in and through the Premises. Landlord or Landlord's
agents shall have the right to enter the Premises at all reasonable times to (i)
examine the same, (ii) to show them to prospective purchasers, mortgagees or
lessees of the Building or space therein, (iii) to make such decorations,
repairs, alterations, improvements or additions as Landlord may deem necessary
or desirable to the Premises or to any other portion of the Building or which
Landlord may elect to perform following Tenant's failure to make repairs or
perform any work which Tenant is obligated to perform under this Lease, or (iv)
for the purpose of complying with laws, regulations or other requirements of
government authorities; Landlord shall be allowed to take all necessary material
and equipment into and upon the Premises and to store them within the Premises
without the same constituting an eviction or constructive eviction of Tenant in
whole or in part and the Rent shall in nowise abate while any decorations,
repairs, alterations, improvements or additions are being made, by reason of
loss or interruption of business of Tenant, or otherwise. During the one (1)
year prior to the Expiration Date or the expiration of any renewal or extended
term, Landlord may exhibit the Premises to prospective tenants thereof. If,
during the last twelve (12) months of the Term, Tenant shall have removed all or
substantially all of Tenant's property therefrom, Landlord may
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immediately enter and alter, renovate and redecorate the Premises, without
elimination or abatement of Rent, or incurring liability to Tenant for any
compensation, and such acts shall not be deemed an actual or constructive
eviction and shall have no effect upon this Lease. If Tenant shall not be
personally present to open and permit an entry into the Premises, at any time,
when for any reason an entry therein shall be necessary or permissible, Landlord
or Landlord's agents may enter the same by a master key, or may forcibly enter
the same, without rendering Landlord or such agents liable therefor (if during
such entry Landlord or Landlord's agents shall accord reasonable care to
Tenant's property), and without in any manner affecting the obligations and
covenants of this Lease. Nothing herein contained, however, shall be deemed or
construed to impose upon Landlord any obligation, responsibility or liability
whatsoever, for the care, supervision or repair of the Building or any part
thereof, other than as herein provided. Landlord also shall have the right at
any time, without the same constituting an actual or constructive eviction and
without incurring any liability to Tenant therefor, to change the arrangement
and/or location of entrances or passageways, doors and doorways, and corridors,
elevators, stairs, toilets or other public parts of the Building and to change
the name, number or designation by which the Building is commonly known. In
addition, Tenant understands and agrees that Landlord may perform substantial
renovation work in and to the public parts of the Building and the mechanical
and other systems serving the Building (which work may include the replacement
of the building exterior facade and window glass, requiring access to the same
from within the Premises), and that Landlord shall incur no liability to Tenant,
nor shall Tenant be entitled to any abatement of Rent on account of any noise,
vibration or other disturbance to Tenant's business at the Premises (provided
that Tenant is not denied access to said Premises) which shall arise out of the
performance by Landlord of the aforesaid renovations of the Building. Tenant
understands and agrees that all parts (except surfaces facing the interior of
the Premises) of all walls, windows and doors bounding the Premises (including
exterior Building walls, core corridor walls, doors and entrances), all
balconies, terraces and roofs adjacent to the Premises, all space in or adjacent
to the Premises used for shafts, stacks, stairways, chutes, pipes, conduits,
ducts, fan rooms, heating, air cooling, plumbing and other mechanical
facilities, service closets and other Building facilities are not part of the
Premises, and Landlord shall have the use thereof, as well as access thereto
through the Premises for the purposes of operation, maintenance, alteration and
repair. Any entry upon the Premises by Landlord or its agents pursuant to this
Article 14 shall be effected after reasonable notice to Tenant (which notice may
be by telephone) except in the case of an emergency and in a manner intended to
minimize interference with the conduct of Tenant's business in the Premises
(without any requirement that Landlord utilize overtime or premium pay labor).
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15. CERTIFICATE OF OCCUPANCY. Tenant shall not at any time use or occupy
the Premises in violation of the certificate of occupancy issued for the
Premises or for the Building and in the event that any department of the City or
State of New York shall hereafter at any time contend and/or declare by notice,
violation, order or in any other manner whatsoever that the Premises are used
for a purpose which is a violation of such certificate of occupancy whether or
not such use shall be a Permitted Use, Tenant shall, upon five (5) days written
notice from Landlord, immediately discontinue such use of the Premises. Failure
by Tenant to discontinue such use after such notice shall be considered a
default in the fulfillment of a covenant of this Lease and Landlord shall have
the right to terminate this Lease immediately, and in addition thereto shall
have the right to exercise any and all rights and privileges and remedies given
to Landlord by and pursuant to the provisions of Articles 17 and 18 hereof.
16. LANDLORD'S LIABILITY. The obligations of Landlord under this Lease
shall not be binding upon Landlord named herein after the sale, conveyance,
assignment or transfer by such Landlord (or upon any subsequent landlord after
the sale, conveyance, assignment or transfer by such subsequent landlord) of its
interest in the Building or the Real Property, as the case may be, and in the
event of any such sale, conveyance, assignment or transfer, Landlord shall be
and hereby is entirely freed and relieved of all covenants and obligations of
Landlord thereafter accruing hereunder, and it shall be deemed and construed
without further agreement between the parties or the successors in interest, or
between the parties and the purchaser, grantee, assignee or other transferee
that such purchaser, grantee, assignee or other transferee has assumed and
agreed to carry out any and all covenants and obligations of Landlord hereunder.
Neither the shareholders, directors or officers of Landlord, if Landlord is a
corporation, nor the partners comprising Landlord (nor any of the shareholders,
directors or officers of such partners), if Landlord is a partnership
(collectively, the "Parties"), shall be liable for the performance of Landlord's
obligations under this Lease. Tenant shall look solely to Landlord to enforce
Landlord's obligations hereunder and shall not seek any damages against any of
the Parties. The liability of Landlord for Landlord's obligations under this
Lease shall not exceed and shall be limited to Landlord's interest in the
Building and the Real Property and Tenant shall not look to or attach any other
property or assets of Landlord or the property or assets of any of the Parties
in seeking either to enforce Landlord's obligations under this Lease or to
satisfy a judgment for Landlord's failure to perform such obligations.
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17. DEFAULT.
A. EVENTS OF DEFAULT, CONDITIONS OF LIMITATION. This Lease and the term and
estate hereby granted are subject to the limitations that upon the occurrence,
at any time prior to or during the Term, of any one or more of the following
events (referred to a s "Events of Default"):
(i). if Tenant shall default in the payment when due of any installment
of Rent or in the payment when due of any additional rent, and such default
shall continue for a period of five (5) days after notice by Landlord to Tenant
of such default; or
(ii). if Tenant shall default in the observance or performance of any
term, covenant or condition of this Lease on Tenant's part to be observed or
performed (other than the covenants for the payment of Rent and additional rent)
and Tenant shall fail to remedy such default within fifteen (15) days after
notice by Landlord to Tenant of such default, or if such default is of such a
nature that it cannot be completely remedied within said period of fifteen (15)
days and Tenant shall not commence within said period of fifteen (15) days, or
shall not thereafter diligently prosecute to completion all steps necessary to
remedy such default; or
(iii). if Tenant shall default in the observance or performance of any
term, covenant or condition on Tenant's part to be observed or performed under
any other lease with Landlord or Landlord's predecessor in interest of space in
the Building and such default shall continue beyond any grace period set forth
in such other lease for the remedying of such default; or
(iv). if the Premises shall become vacant, deserted or abandoned; or
(v). if Tenant's interest in this Lease shall devolve upon or pass to
any person, whether by operation of law or otherwise, except as may be expressly
permitted under Article 12 hereof; or
(vi). Tenant shall file a voluntary petition in bankruptcy or
insolvency, or shall be adjudicated a bankrupt or insolvent, or shall file any
petition or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the present or
any future federal bankruptcy act or any other present or future applicable
federal, state or other statute or la w, or shall make a n assignment for the
benefit of creditors or shall seek or consent to or acquiesce in the appointment
of any trustee, receiver or liquidator of Tenant or of all or any part of
Tenant's property; or
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(vii). if, within sixty (60) days after the commencement of any
proceeding against Tenant, whether by the filing of a petition or otherwise,
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act or any other present or future applicable federal, state or other statute or
law, such proceeding shall not have been dismissed, or if, within sixty (60)
days after the appointment of any trustee, receiver or liquidator of Tenant, or
of all or any part of Tenant's property, without the consent or acquiescence of
Tenant, such appointment shall not have been vacated or otherwise discharged, or
if any execution or attachment shall be issued against Tenant or any of Tenant's
property pursuant to which the Premises shall be taken or occupied or attempted
to be taken or occupied;
then, in any of said cases, at any time prior to or during the Term, of any one
or more of such Events of Default, Landlord, at any time thereafter, at
Landlord's option, may give to Tenant a five (5) days notice of termination of
this Lease and, in the event such notice is given, this Lease and the Term shall
come to an end and expire (whether or not the Term shall have commenced) upon
the expiration of said five (5) days with the same effect as if the date of
expiration of said five (5) days were the Expiration Date, but Tenant shall
remain liable for damages as provided in Article 18 hereof.
B. EFFECT OF BANKRUPTCY. If, at any time,(i) Tenant shall be comprised of
two (2) or more persons, or (ii) Tenant's obligations under this Lease shall
have been guaranteed by any person other than Tenant, or (iii) Tenant's interest
in this Lease shall have been assigned, the word "Tenant", as used in clauses
(vi) and (vii) of subsection A of this Article 17, shall be deemed to mean any
one or more of the persons primarily or secondarily liable for Tenant's
obligations under this Lease. Any monies received by Landlord from or on behalf
of Tenant during the pendency of any proceeding of the types referred to in said
clauses (vi) and (vii) shall be deemed paid as compensation for the use and
occupation of the Premises and the acceptance of any such compensation by
Landlord shall not be deemed an acceptance of rent or a waiver on the part of
Landlord of any rights under said subsection A.
C. CONDITIONAL LIMITATION. Nothing contained in this Article 17 shall be
deemed to require Landlord to give the notices herein provided for prior to the
commencement of a summary proceeding for non-payment of rent or a plenary action
for recovery of rent on account of any default in the payment of the same, it
being intended that such notices are for the sole purpose of creating a
conditional limitation hereunder pursuant to which this Lease shall terminate
and if Tenant thereafter remains in possession after such termination, Tenant
shall do so as a holdover tenant.
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18. REMEDIES AND DAMAGES.
A. LANDLORD'S REMEDIES. (i) If Tenant shall default in the payment when due
of any installment of Rent or in the payment when due of any additional rent, or
if any execution or attachment shall be issued against Tenant or any of Tenant's
property whereupon the Premises shall betaken or occupied or attempted to be
taken or occupied by someone other than Tenant, or if Tenant shall fail to move
into or take possession of the Premises within fifteen (15) days after the
Commencement Date, or if this Lease and the Term shall expire and come to an end
as provided in Article 17:
(a).Landlord and its agents and servants may immediately, or at any
time after such default or after the date upon which this Lease and the Term
shall expire and come to an end, re-enter the Premises or any part thereof,
either by summary proceedings, or by any other applicable action or proceeding,
(without being liable to indictment, prosecution or damages therefor), and may
repossess the Premises and dispossess Tenant and any other persons from the
Premises and remove any and all of their property and effects from the Premises;
and
(b). Landlord, at Landlord's option, may relet the whole or any part
or parts of the Premises from time to time, either in the name of Landlord or
otherwise, to such tenant or tenants, for such term or terms ending before, on
or after the Expiration Date, at such rental or rentals and upon such other
conditions, which may include concessions and free rent periods, as Landlord, in
its sole discretion, may determine. Landlord shall have no obligation to relet
the Premises or any part thereof and shall in no event be liable for refusal or
failure to relet the Premises or any part thereof, or, in the event of any such
reletting, for refusal or failure to collect any rent due upon any such
reletting, and no such refusal or failure shall operate to relieve Tenant of any
liability under this Lease or otherwise to affect any such liability; Landlord,
at Landlord's option, may make such repairs, replacements, alterations,
additions, improvements, decorations and other physical changes in and to the
Premises as Landlord, in its sole discretion, considers advisable or necessary
in connection with any such reletting or proposed reletting, without relieving
Tenant of any liability under this Lease or otherwise affecting any such
liability.
(ii). Tenant hereby waives the service of any notice of intention to
re-enter or to institute legal proceedings to that end which may otherwise be
required to be given under any present or future law. Tenant, on its own behalf
and on behalf of all persons claiming through or under Tenant, including all
creditors, does further hereby waive any and all rights which Tenant and all
such persons might otherwise have under any present or future law to redeem the
Premises, or
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to re-enter or repossess the Premises, or to restore the operation of this
Lease, after (a) Tenant shall have been dispossessed by a judgment or by warrant
of any court or judge, or (b) any re-entry by Landlord, or (c) any expiration or
termination of this Lease and the Term, whether such dispossess, re-entry,
expiration or termination shall be by operation of law or pursuant to the
provisions of this Lease. The words "re-enter", "re-entry" and "re-entered" as
used in this Lease shall not be deemed to be restricted to their technical legal
meanings. In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or condition of
this Lease on Tenant's part to be observed or performed, Landlord shall have the
right to enjoin such breach and the right to invoke any other remedy allowed by
law or in equity as if re-entry, summary proceedings and other special remedies
were not provided in this Lease for such breach. The right to invoke the
remedies hereinbefore set forth are cumulative and shall not preclude Landlord
from invoking any other remedy, allowed at law or in equity.
B. DAMAGES. (i) If this Lease and the Term shall expire and come to an end
as provided in Article 17, or by or under any summary proceeding or any other
action or proceeding, or if Landlord shall re-enter the Premises as provided in
subsection A of this Article 18, or by or under any summary proceeding or any
other action or proceeding, then, in any of said events:
(a). Tenant shall pay to Landlord all Rent, additional rent and
other charges payable under this Lease by Tenant to Landlord to the date upon
which this Lease and the Term shall have expired and come to an end or to the
date of re-entry upon the Premises by Landlord, as the case may be;
(b). Tenant also shall be liable for and shall pay to Landlord, as
damages, any deficiency (referred to as "Deficiency") between the Rent reserved
in this Lease for the period which otherwise would have constituted the
unexpired portion of the Term and the net amount, if any, of rents collected
under any reletting effected pursuant to the provisions of subsection A(i) of
this Article 18 for any part of such period (first deducting from the rents
collected under any such reletting all of Landlord's expenses in connection with
the termination of this Lease, or Landlord's reentry upon the Premises and with
such reletting including, but not limited to, all repossession costs, brokerage
commissions, legal expenses, attorneys' fees and disbursements, alteration costs
and other expenses of preparing the Premises for such reletting); any such
Deficiency shall be paid in monthly installments by Tenant on the days specified
in this Lease for payment of installments of Rent, Landlord shall be entitled to
recover from Tenant each monthly Deficiency as the same shall arise, and no suit
to collect the amount of the Deficiency for any month shall prejudice Landlord's
right to collect the Deficiency for any subsequent month by a similar
proceeding; and
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(c). whether or not Landlord shall have collected any monthly
Deficiencies as aforesaid, Landlord shall be entitled to recover from Tenant,
and Tenant shall pay to Landlord, on demand, in lieu of any further Deficiencies
as and for liquidated and agreed final damages, a sum equal to the amount by
which the Rent reserved in this Lease for the period which otherwise would have
constituted the unexpired portion of the Term exceeds the then fair and
reasonable rental value of the Premises for the same period, less the aggregate
amount of Deficiencies theretofore collected by Landlord pursuant to the
provisions of subsection (B)(1)(b) of this Article 18 for the same period; if,
before presentation of proof of such liquidated damages to any court, commission
or tribunal, the Premises, or any part thereof, shall have been relet by
Landlord for the period which otherwise would have constituted the unexpired
portion of the Term, or any part thereof, the amount of rent reserved upon such
reletting shall be deemed, prima facie, to be the fair and reasonable rental
value for the part or the whole of the Premises so relet during the term of the
reletting.
(ii). If the Premises, or any part thereof, shall be relet together
with other space in the Building, the rents collected or reserved under any such
reletting and the expenses of any such reletting shall be equitably apportioned
for the purposes of this subsection B. Tenant shall in no event be entitled to
any rents collected or payable under any reletting, whether or not such rents
shall exceed the Rent reserved in this Lease. Solely for the purposes of this
Article, the term "Rent" as used in subsection B(i) of this Article 18 shall
mean the Rent in effect immediately prior to the date upon which this Lease and
the Term shall have expired and come to an end, or the date of re-entry upon the
Premises by Landlord, as the case may be, adjusted to reflect any increase or
decrease pursuant to the provisions of Article 28 hereof for the Comparison Year
(as defined in said Article 28) immediately preceding such event. Nothing
contained in Article 17 or this Article 18 shall be deemed to limit or preclude
the recovery by Landlord from Tenant of the maximum amount allowed to be
obtained as damages by any statute or rule of law, or of any sums or damages to
which Landlord may be entitled in addition to the damages set forth in
subsection B(i) of this Article 18.
C. LEGAL FEES. (i) Tenant hereby agrees to pay, as additional rent, all
attorneys' fees and disbursements (and all other court costs or expenses of
legal proceedings) which Landlord may incur or pay out by reason of, or in
connection with
(a). any action or proceeding by Landlord to terminate this Lease in
which Landlord prevails;
(b). any other action or proceeding by Landlord against Tenant
(including, but not limited to, any arbitration proceeding) in which Landlord
prevails;
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(c). any default by Tenant in the observance or performance of any
obligation under this Lease (including, but not limited to, matters involving
payment of rent and additional rent, computation of escalations, alterations or
other Tenant's work and subletting or assignment), whether or not Landlord
commences any action or proceeding against Tenant;
(d). any action or proceeding brought by Tenant against Landlord (or
any officer, partner or employee of Landlord) in which Tenant fails to secure a
final unappealable judgment against Landlord; and
(e). any other appearance by Landlord (or any officer, partner or
employee of Landlord) as a witness or otherwise in any action or proceeding
whatsoever involving or affecting Landlord, Tenant or this Lease in which
Tenant does not prevail.
(ii). Tenant's obligations under this subsection C of Article 18 shall
survive the expiration of the Term hereof or any earlier termination of this
Lease. This provision is intended to supplement (and not to limit) other
provisions of this Lease pertaining to indemnities and/or attorneys' fees.
D. ADDITIONAL LANDLORD'S REMEDIES. Tenant hereby acknowledges and agrees
that in the event this Lease and the Term hereof shall expire and come to an end
as provided in Article 17, Tenant shall be liable for an amount equal to the sum
of the unamortized portion of (i) the cost of Landlord's Initial Construction
plus (ii) any brokerage commissions or fees paid by Landlord in connection with
this Lease (amortized on a straight-line basis over the Term of this Lease),
which sum shall be immediately due and payable by Tenant on demand by Landlord
and deemed to be additional rent hereunder.
19. FEES AND EXPENSES.
A. CURING TENANT'S DEFAULTS. If Tenant shall default in the observance or
performance of any term or covenant on Tenant's part to be observed or performed
under or by virtue of any of the terms or provisions in any Article of this
Lease, Landlord may immediately or at any time thereafter on five (5) days
notice perform the same for the account of Tenant, and if Landlord makes any
expenditures or incurs any obligations for the payment of money in connection
therewith including, but not limited to reasonable attorneys' fees and
disbursements in instituting, prosecuting or defending any action or proceeding,
such sums paid or obligations incurred with interest and costs shall be deemed
to be additional rent hereunder and shall be paid by Tenant to Landlord within
fifteen (15) days of rendition of any bill or statement to Tenant therefor.
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B. LATE CHARGES. If Tenant shall fail to make payment of any installment of
Rent or any additional rent within ten (10) days after the date when such
payment is due, Tenant shall pay to Landlord, in addition to such installment of
Rent or such additional rent, as the case may be, as a late charge and as
additional rent, a sum based on a rate equal to the lesser of (i) five percent
(5%) per annum above the then current prime rate charged by Citibank, N.A. or
its successor and (ii) the maximum rate permitted by applicable law, of the
amount unpaid computed from the date such payment was due to and including the
date of payment, but in no event shall interest be computed and payable for less
than a full calendar month. Tenant acknowledges and agrees that, except as
otherwise expressly provided herein, if Tenant fails to dispute any item of
additional rent within ninety (90) days of receipt of a bill or notice therefor,
Tenant shall be deemed to have waived its right to dispute the same.
20. NO REPRESENTATIONS BY LANDLORD. Landlord or Landlord's agents have made
no representations or promises with respect to the Building, the Real Property,
the Premises or Taxes (as defined in Article 28 hereof) except as herein
expressly set forth and no rights, easements or licenses are acquired by Tenant
by implication or otherwise except as expressly set forth herein. All references
in this Lease to the consent or approval of Landlord shall be deemed to mean the
written consent of Landlord or the written approval of Landlord and no consent
or approval of Landlord shall be effective for any purpose unless such consent
or approval is set forth in a written instrument executed by Landlord.
21. END OF TERM.
A. SURRENDER OF PREMISES. Upon the expiration or other termination of the
Term, Tenant shall quit and surrender to Landlord the Premises, broom clean, in
good order and condition, ordinary wear and tear and damage for which Tenant is
not responsible under the terms of this Lease excepted, and Tenant shall remove
all of its property pursuant to Article 3 hereof. Tenant's obligation to observe
or perform this covenant shall survive the expiration or sooner termination of
the Term. If the last day of the Term or any renewal thereof falls on Saturday
or Sunday this Lease shall expire on the business day immediately preceding. In
addition, the parties recognize and agree that the damage to Landlord resulting
from any failure by Tenant to timely surrender possession of the Premises as
aforesaid will be substantial, will exceed the amount of the monthly
installments of the Rent theretofore payable hereunder, and will be impossible
to accurately measure. Tenant therefore agrees that if possession of the
Premises is not surrendered to Landlord within twenty-four (24) hours after the
Expiration Date or sooner termination of the Term, in addition to any other
rights or remedy Landlord may
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have hereunder or at law, Tenant shall pay to Landlord for each month and for
each portion of any month during which Tenant holds over in the Premises after
the Expiration Date or sooner termination of this Lease, a sum equal to two (2)
times the aggregate of that portion of the Rent and the additional rent which
was payable under this Lease during the last month of the Term. Nothing herein
contained shall be deemed to permit Tenant to retain possession of the Premises
after the Expiration Date or sooner termination of this Lease and no acceptance
by Landlord of payments from Tenant after the Expiration Date or sooner
termination of the Term shall be deemed to be other than on account of the
amount to be paid by Tenant in accordance with the provisions of this Article
21, which provisions shall survive the Expiration Date or sooner termination of
this Lease.
B. HOLDOVER BY TENANT. If Tenant shall hold-over or remain in possession of
any portion of the Premises beyond the Expiration Date of this Lease,
notwithstanding the acceptance of any Rent and additional rent paid by Tenant
pursuant to subsection A above, Tenant shall be subject to summary proceeding
and all damages related thereto. In addition, if any such holdover by or
possession of Tenant continues for more than thirty (30) days beyond the
Expiration Date, Tenant shall also be subject to any damages arising out of lost
opportunities (and/or new leases) by Landlord to re-let the Premises (or any
part thereof). All damages to Landlord by reason of such holding over by Tenant
may be the subject of a separate action and need not be asserted by Landlord in
any summary proceedings against Tenant.
22.QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon
Tenant paying the Rent and additional rent and observing and performing all the
terms, covenants and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the Premises subject, nevertheless, to
the terms and conditions of this Lease including, but not limited to, Article 16
hereof and to all Superior Leases and Mortgages.
23. INTENTIONALLY DELETED.
24. NO WAIVER. If there be any agreement between Landlord and Tenant
providing for the cancellation of this Lease upon certain provisions or
contingencies and/or an agreement for the renewal hereof at the expiration of
the Term, the right to such renewal or the execution of a renewal agreement
between Landlord and Tenant prior to the expiration of the Term shall not be
considered an extension thereof or a vested right in Tenant to such further
term, so as to prevent Landlord from canceling this Lease and any such extension
thereof during the remainder of
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the original Term; such privilege, if and when so exercised by Landlord, shall
cancel and terminate this Lease and any such renewal or extension previously
entered into between Landlord and Tenant or the right of Tenant to any such
renewal or extension; any right herein contained on the part of Landlord to
cancel this Lease shall continue during any extension or renewal hereof; any
option on the part of Tenant herein contained for an extension or renewal hereof
shall not be deemed to give Tenant any option for a further extension beyond the
first renewal or extended term. No act or thing done by Landlord or Landlord's
agents during the Term shall be deemed an acceptance of a surrender of the
Premises, and no agreement to accept such surrender shall be valid unless in
writing signed by Landlord. No employee of Landlord or of Landlord's agents
shall have any power to accept the keys of the Premises prior to the termination
of this Lease. The delivery of keys to any employee of Landlord or of Landlord's
agents shall not operate as a termination of this Lease or a surrender of the
Premises. In the event Tenant at any time desires to have Landlord sublet the
Premises for Tenant's account, Landlord or Landlord's agents are authorized to
receive said keys for such purpose without releasing Tenant from any of the
obligations under this Lease, and Tenant hereby relieves Landlord of any
liability for loss of or damage to any of Tenant's effects in connection with
such subletting. The failure of Landlord to seek redress for violation of, or to
insist upon the strict performance of, any covenant or condition of this Lease,
or any of the Rules and Regulations set forth or hereafter adopted by Landlord,
shall not prevent a subsequent act, which would have originally constituted a
violation, from having all force and effect of an original violation. The
receipt by Landlord of Rent with knowledge of the breach of any covenant of this
Lease shall not be deemed a waiver of such breach. The failure of Landlord to
enforce any of the Rules and Regulations set forth, or hereafter adopted,
against Tenant and/or any other tenant in the Building shall not be deemed a
waiver of any such Rules and Regulations. No provision of this Lease shall be
deemed to have been waived by Landlord unless such waiver be in writing signed
by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly Rent herein stipulated shall be deemed to be other than on account
of the earliest stipulated Rent, or as Landlord may elect to apply same, nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment as Rent be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such Rent or pursue any other remedy in this Lease provided. This
Lease contains the entire agreement between the parties and all prior
negotiations and agreements are merged in this Lease. Any executory agreement
hereafter made shall be in effective to change, modify, discharge or effect an
abandonment of it in whole or in part unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
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25. WAIVER OF TRIAL BY JURY. It is mutually agreed by and between Landlord
and Tenant that the respective parties hereto shall and they hereby do waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other on any matters whatsoever arising out of or in
any way connected with this Lease, the relationship of Landlord and Tenant,
Tenant's use or occupancy of the Premises, and/or any claim of injury or damage,
or for the enforcement of any remedy under any statute, emergency or otherwise.
It is further mutually agreed that in the event Landlord commences any summary
proceeding (whether for nonpayment of rent or because Tenant continues in
possession of the Premises after the expiration or termination of the Term),
Tenant will not interpose any counterclaim (except for mandatory or compulsory
counterclaims) of whatever nature or description in any such proceeding.
26. INABILITY TO PERFORM. This Lease and the obligation of Tenant to pay
Rent and additional rent hereunder and perform all of the other covenants and
agreements hereunder on the part of Tenant to be performed shall in nowise be
affected, impaired or excused because Landlord is unable to fulfill any of its
obligations under this Lease expressly or impliedly to be performed by Landlord
or because Landlord is unable to make, or is delayed in making any repairs,
additions, alterations, improvements or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of strikes or labor troubles or by accident or
by any cause whatsoever reasonably beyond Landlord's control, including but not
limited to, laws, governmental preemption in connection with a National
Emergency or by reason of any rule, order or regulation of any, federal, state,
county or municipal authority or any department or subdivision thereof or any
government agency or by reason of the conditions of supply and demand which have
been or are affected by war or other emergency.
27. BILLS AND NOTICES. Except as otherwise expressly provided in this
Lease, any bills, statements, notices, demands, requests or other communications
given or required to be given under this Lease shall be deemed sufficiently
given or rendered if in writing, sent by registered or certified mail (return
receipt requested) addressed (a) to Tenant (i) at Tenant's address set forth in
this Lease if mailed prior to Tenant's taking possession of the Premises, or
(ii) at the Building if mailed subsequent to Tenant's taking possession of the
Premises, or (iii) at any place where Tenant or any agent or employee of Tenant
may be found if mailed subsequent to Tenant's vacating, deserting, abandoning or
surrendering the Premises, or (b) to Landlord at Landlord's address set forth in
this Lease, with a copy to Landlord's counsel, Younkins & Schecter LLP, 545
Fifth Avenue, New York, New York 10017 or (c) to such other address as either
Landlord or Tenant
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may designate at its new address for such purpose by notice given to the others
in accordance with the provisions of this Article 27. Tenant hereby acknowledges
and agrees that any such bill, statement, demand, notice, request or other
communication may be given by Landlord's agent on behalf of Landlord. Any such
bill, statement, demand, notice, request or other communication shall be deemed
to have been rendered or given on the date when it shall have been mailed as
provided in this Article 27. Notwithstanding anything contained in this Article
27 to the contrary, bills and statements issued by Landlord may be sent by the
method(s) set forth hereinabove, without copies to any other party. This notice
provision has been specifically negotiated between the parties hereto.
28. ESCALATION.
A. DEFINED TERMS. In a determination of any increase in the Rent under the
provisions of this Article 28, Landlord and Tenant agree as follows:
(i). "Taxes" shall mean the aggregate amount of real estate taxes and
any special or other assessments (exclusive of penalties and interest thereon)
imposed upon the Real Property and real estate taxes or assessments imposed in
connection with the receipt of income or rents from the Building to the extent
that same shall be in lieu of all or a portion of the aforesaid taxes or
assessments, or additions or increases thereof (including, without limitation,
(i) assessments made upon or with respect to any "air rights", and (ii)
assessments made in connection with the Grand Central Partnership Business
Improvement District and (iii) any assessments levied after the date of this
Lease for public benefits to the Real Property or the Building (excluding an
amount equal to the assessments payable in whole or in part during or for the
Base Tax Year (as defined in Article 1 of this Lease) which assessments, if
payable in installments, shall be deemed payable in the maximum number of
permissible installments and there shall be included in real estate taxes for
each Comparison Year in which such installments may be paid, the installments of
such assessment so becoming payable during such Comparison Year (in the manner
in which such taxes and assessments are imposed as of the date hereof);
provided, that if because of any change in the taxation of real estate, any
other tax or assessment (including, without limitation, any occupancy, gross
receipts, rental, income, franchise, transit or other tax) is imposed upon
Landlord or the owner of the Real Property or the Building, or the occupancy,
rents or income therefrom, in substitution for or in addition to, any of the
foregoing Taxes, such other tax or assessment shall be deemed part of the Taxes.
With respect to any Comparison Year (hereinafter defined) all expenses,
including attorneys' fees and disbursements, experts' and other witnesses' fees,
incurred in contesting the validity or amount of any Taxes or in obtaining a
refund of Taxes shall be considered as part of the Taxes for such year.
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(ii). "Assessed Valuation" shall mean the amount for which the Real
Property is assessed pursuant to applicable provisions of the New York City
Charter and of the Administrative Code of the City of New York for the purpose
of imposition of Taxes.
(iii). "Tax Year" shall mean the period July 1 through June 30 (or such
other period as hereinafter may be duly adopted by the City of New York as its
fiscal year for real estate tax purposes).
(iv). "Base Taxes" shall mean the Taxes payable for the Base Tax Year.
(v). "Comparison Year" shall mean (a) with respect to Taxes, any Tax
Year subsequent to the Base Tax Year and (b) with respect to Labor Rates
(hereinafter defined) any calendar year subsequent to the Base Labor Year
(hereinafter defined) for any part or all of which there is an increase in the
Rent pursuant to subsection B of this Article 28.
(vi). "R.A.B." shall mean the Realty Advisory Board On Labor Relations,
Incorporated, or its successor.
(vii). "Local 32B-32J" shall mean Local 32B-32J of the Building Service
Employees International Union, AFL-CIO, or its successor.
(viii). "Class A Office Buildings" shall mean office buildings in the
same class or category as the Building under any agreement between R.A.B. and
Local 32B-32J, regardless of the designation given to such office buildings in
any such agreement.
(ix). "Labor Rates" shall mean a sum equal to the regular hourly wage
rate required to be paid to Others (hereinafter defined) employed in Class A
Office Buildings pursuant to an agreement between R.A.B. and Local 32B-32J;
provided, however, that if, as of October 1st of any Comparison Year, any such
agreement shall require Others in Class A Office Buildings to be regularly
employed on days or during hours when overtime or other premium pay rates are in
effect pursuant to such agreement, then the term "regular hourly wage rate", as
used in this subsection A(ix) shall mean the average hourly wage rate for the
hours in a calendar week during which Others are required to be regularly
employed; and provided, further, that if no such agreement is in effect as of
October 1st of any Comparison Year with respect to Others, then the term
"regular hourly wage rate", as used in this subsection A(ix) shall mean the
regular hourly wage rate actually paid to Others employed in the Building by
Landlord or by an independent contractor engaged by Landlord; and provided,
further, the term "regular hourly wage rate" in all events shall include all
payments and benefits of any kind,
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including, but not limited to, those payable directly to taxing authorities or
others on account of the employment and all welfare, pension benefits and
payments of any kind paid or given pursuant to such agreement, but shall
specifically exclude all fringe employee benefits.
(x). "Others" shall mean that classification of employee engaged in the
general maintenance and operation of Class A Office Buildings most nearly
comparable to the classification now applicable to "others" in the current
agreement between R.A.B. and Local 32B-32J.
(xi). "Base Labor Rates" shall mean the Labor Rates in effect for the
Base Labor Year.
(xii). "Landlord's Statement" shall mean an instrument or instruments
containing a comparison of any increase or decrease in the Rent for the
preceding Comparison Year pursuant to the provisions of this Article 28.
B. ESCALATION. (i) If the Taxes payable for any Comparison Year (any part
or all of which falls within the Term) shall represent an increase above the
Base Taxes, then the Rent for such Comparison Year and continuing thereafter
until a new Landlord's Statement is rendered to Tenant, shall be increased by
Tenant's Proportionate Share of such increase. The Taxes shall be initially
computed on the basis of the Assessed Valuation in effect at the time Landlord's
Statement is rendered (as the Taxes may have been settled or finally adjudicated
prior to such time) regardless of any then pending application, proceeding or
appeal respecting the reduction of any such Assessed Valuation, but shall be
subject to subsequent adjustment as provided in subsection D(i)(a)of this
Article 28.
(ii). If the Labor Rates in effect for any Comparison Year (any part or
all of which falls within the Term) shall be greater than the Base Labor Rates,
then the Rent for such Comparison Year and continuing thereafter until a new
Landlord's Statement is rendered to Tenant, shall be increased by a sum equal to
the Labor Rate Factor multiplied by the Labor Rate Multiple multiplied by the
number of cents (inclusive of any fractions of a cent) of such increase.
C. PAYMENT OF ESCALATIONS. (i) At any time prior to, during or after any
Comparison Year Landlord shall render to Tenant, either in accordance with the
provisions of Article 27 hereof or by personal delivery at the Premises, a
Landlord's Statement or Statements showing separately or together (a) a
comparison of the Taxes payable for the Comparison Year with the Base Taxes, (b)
a comparison of the Labor Rates for the Comparison Year with the Base Labor
Rates, and (c) the amount of the increase in the Rent resulting from each of
such comparisons. Landlord's failure to render a Landlord's Statement and/or
receive payments with
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respect thereto during or with respect to any Comparison Year shall not
prejudice Landlord's right to render a Landlord's Statement and/or receive
payments with respect thereto during or with respect to any subsequent
Comparison Year, and shall not eliminate or reduce Tenant's obligation to pay
increases in the Rent pursuant to this Article 28 for such Comparison Year.
Landlord may also at any time and from time to time, furnish to Tenant a revised
Landlord's Statement or Statements showing separately or together (a) a
comparison of the Taxes payable for the Comparison Year with the Base Taxes and
(b) a comparison of the Labor Rates for the Comparison Year with the Base Labor
Rates.
(ii) (a). Tenant's obligations with respect to increases in Labor Rates
shall be payable by Tenant on the first day of the month following the
furnishing to Tenant of a Landlord's Statement with respect to Labor Rates in an
amount equal to one-twelfth (1/12th) of such increase in the Rent multiplied by
the number of months (and any fraction thereof) of the Term then elapsed since
the commencement of the Comparison Year for which the increase is applicable,
together with a sum equal to one-twelfth (1/12th) of such increase with respect
to the month following the furnishing to Tenant of a Landlord's Statement; and
thereafter, commencing with the next succeeding monthly installment of Rent and
continuing monthly thereafter until rendition of the next succeeding Landlord's
Statement, the monthly installments of Rent shall be increased by an amount
equal to one-twelfth (1/12th) of such increase. Any increase in the Rent shall
be collectible by Landlord in the same manner as Rent.
(b). With respect to an increase in the Rent resulting from an
increase in the Taxes for any Comparison Year above the Base Taxes, Tenant shall
pay to Landlord a sum equal to one-half (1/2)of such increase on the first day
of June and a sum equal to one-half (1/2) of such increase on the first day of
December of each calendar year. If Landlord's Statement shall be furnished to
Tenant after the commencement of the Comparison Year to which it relates, then
(1) until Landlord's Statement is rendered for such Comparison Year, Tenant
shall pay Tenant's Proportionate Share of Taxes for such Comparison Year in
semi-annual installments, as described above, based upon the last prior
Landlord's Statement rendered to Tenant with respect to Taxes, and (2) Tenant
shall, within ten (10) days after Landlord's Statement is furnished to Tenant,
pay to Landlord an amount equal to any underpayment of the installments of Taxes
theretofore paid by Tenant for such Comparison Year and, in the event of an
overpayment by Tenant, Landlord shall permit Tenant to credit against subsequent
payments under this subsection (C)(ii)(b) of this Article 28 the amount of such
overpayment. If during the Term of this Lease, Taxes are required to be paid
(either to the appropriate taxing authorities or as tax escrow payments to a
mortgagee or ground lessor) in full or in monthly, quarterly, or other
installments, on any other date or dates than as presently required, then, at
Landlord's option, Tenant's Proportionate Share with respect to
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Taxes shall be correspondingly accelerated or revised so that Tenant's
Proportionate Share is due at least thirty (30) days prior to the date payments
are due to the taxing authorities or the superior mortgagee or ground lessor, as
the case may be. The benefit of any discount for any early payment or prepayment
of Taxes shall accrue solely to the benefit of Landlord, and such discount shall
not be subtracted from Tenant's Proportionate Share of such Taxes.
(c). Following each Landlord's Statement, a reconciliation shall be
made as follows: Tenant shall be debited with any increase in the Rent shown on
such Landlord's Statement and credited with the aggregate, if any, paid by
Tenant on account in accordance with the provisions of subsection C(ii)(a) or
C(ii)(b) for the Comparison Year in question; Tenant shall pay any net debit
balance to Landlord within fifteen (15) days next following rendition by
Landlord, either in accordance with the provisions of Article 27 hereof or by
personal delivery to the Premises, of an invoice for such net debit balance; any
net credit balance shall be applied against the next accruing monthly
installment of Rent.
D. ADJUSTMENTS. (i) (a) In the event that, after a Landlord's Statement has
been sent to Tenant, an Assessed Valuation which had been utilized in computing
the Taxes for a Comparison Year is reduced (as a result of settlement, final
determination of legal proceedings or otherwise), and as a result thereof a
refund of Taxes is actually received by or on behalf of Landlord, then, promptly
after receipt of such refund, Landlord shall send Tenant a statement adjusting
the Taxes for such Comparison Year (taking into account the expenses mentioned
in the last sentence of subsection A(i) of this Article 28) and setting forth
Tenant's Proportionate Share of such refund and Tenant shall be entitled to
receive such Share by way of a credit against the Rent next becoming due after
the sending of such Statement; provided, however, that Tenant's Share of such
refund shall be limited to the amount, if any, which Tenant had theretofore paid
to Landlord as increased Rent for such Comparison Year on the basis of the
Assessed Valuation before it had been reduced.
(b). In the event that, after a Landlord's Statement has been sent
to Tenant, the Assessed Valuation which had been utilized in computing the Base
Taxes is reduced (as a result of settlement, final determination of legal
proceedings or otherwise) then, and in such event: (1) the Base Taxes shall be
retroactively adjusted to reflect such reduction, (2) the monthly installment of
Rent shall be increased accordingly and (3) all retroactive additional rent
resulting from such retroactive adjustment shall be forthwith payable when
billed by Landlord. Landlord promptly shall send to Tenant a statement setting
forth the basis for such retroactive adjustment and additional rent payments.
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(ii). Any Landlord's Statement sent to Tenant shall be conclusively
binding upon Tenant unless, within sixty (60) days after such statement is sent,
Tenant shall (a) pay to Landlord the amount set forth in such statement, without
prejudice to Tenant's right to dispute the same, and (b) send a written notice
to Landlord objecting to such statement and specifying the particular respects
in which such statement is claimed to be incorrect. The parties recognize the
unavailability of Landlord's books and records because of the confidential
nature thereof.
(iii). Anything in this Article 28 to the contrary notwithstanding,
under no circumstances shall the rent payable under this Lease be less than the
Rent set forth in Article 1 hereof.
(iv). The expiration or termination of this Lease during any Comparison
Year for any part or all of which there is an increase or decrease in the Rent
under this Article shall not affect the rights or obligations of the parties
hereto respecting such increase or decrease and any Landlord's Statement
relating to such increase or decrease may, on a pro rata basis, be sent to
Tenant subsequent to, and all such rights and obligations shall survive, any
such expiration or termination. Any payments due under such Landlord's Statement
shall be payable within twenty (20) days after such statement is sent to Tenant.
E. CAPITAL IMPROVEMENTS. If any capital improvement is made to the Real
Property during any calendar year during the Term, then Tenant shall pay to
Landlord, immediately upon demand therefor, Tenant's Proportionate Share of the
reasonable annual amortization, with interest, of the cost of such improvement
in each calendar year during the Term during which such amortization occurs.
Notwithstanding the foregoing, in no event shall Tenant's obligation to pay
additional rent pursuant to this subsection E exceed Four Thousand Five Hundred
and 00/100 ($4,500.00) Dollars in any twelve (12) month period during the Term.
29. SERVICES.
A. ELEVATOR. Landlord shall provide passenger elevator facilities on
business days from 8:00 A.M. to 6:00 P.M. and shall have one passenger elevator
in the bank of elevators servicing the Premises available at all other times.
Landlord shall provide freight elevator services on an "as available" basis for
incidental use by Tenant from 8:00 AM through 12:00 Noon and from 1:00 P.M.
through 5:00 P.M. on business days only. Any extended use may be arranged with
Landlord's prior consent and Tenant shall pay as additional rent all building
standard charges therefor.
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B. HEATING. Landlord shall furnish heat to the Premises when and as
required by law, on business days from 8:00 A.M. to 6:00 P.M. Landlord shall not
be responsible for the adequacy, design or capacity of the heating distribution
system if the normal operation of the heat distribution system serving the
Building shall fail to provide heat at reasonable temperatures or any reasonable
volumes or velocities in any parts of the Premises by reason of any
rearrangement of partitioning or other Alterations made or performed by or on
behalf of Tenant or any person claiming through or under Tenant.
C. COOLING. Tenant shall have the privilege of using the air-cooling system
presently serving the Premises on business days from 8:00 A.M. to 6:00 P.M. from
May 15 through October 15 of each year during the Term when it may be required
for the comfortable occupancy of the Premises, which system Landlord agrees to
maintain and repair at its own cost and expense except in the event that any
such repairs or maintenance are required by reason of Tenant's acts, omissions,
use or misuse of such air-cooling system. Tenant shall not alter, modify or
replace such air-cooling system, or any part thereof, without Landlord's
consent. Anything in this subsection C to the contrary notwithstanding, Landlord
shall not be responsible if the normal operation of the Building air-cooling
system shall fail to provide cooled air at reasonable temperatures, pressures or
degrees of humidity or any reasonable volumes or velocities in any parts of the
Premises by reason of (i) human occupancy factors and any machinery or equipment
installed by or on behalf of Tenant or any person claiming through or under
Tenant that have an electrical load in excess of the average electrical load for
the Building air-cooling system as designed or (ii) any rearrangement of
partitioning or other Alterations made or performed by or on behalf of Tenant or
any person claiming through or under Tenant. Tenant agrees to keep and cause to
be kept closed all of the windows in the Premises whenever the air-cooling
system is in operation and agrees to lower and close the blinds when necessary
because of the sun's position whenever the air-cooling system is in operation.
Tenant at all times agrees to cooperate fully with Landlord and to abide by the
regulations and requirements which Landlord may prescribe for the proper
functioning and protection of the air-cooling system. Landlord, throughout the
Term, shall have free access to any and all mechanical installations of
Landlord, including but not limited to air-cooling, fan, ventilating, machine
rooms and electrical closets. Tenant shall pay for its pro rata share of the
costs of electrical energy consumed by the air-cooling system in accordance with
the provisions of subsection H of this Article 29.
D. AFTER HOURS AND ADDITIONAL SERVICES. The Rent does not include any
charge to Tenant for the furnishing of any additional passenger elevator
facilities, any freight elevator facilities (other than as contemplated in
Article 29 subsection A) or for the service of heat, cooled air or mechanical
ventilation to the Premises during periods other than the hours and days set
forth in sections A, B and C of
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this Article 29 for the furnishing and distributing of such facilities or
services (referred to as "Overtime Periods"). Accordingly, if Landlord shall
furnish any (i) passenger elevator facilities to Tenant during Overtime Periods
or freight elevator facilities, except as provided in subsection A of this
Article 29, or (ii) heat, cooled air or ventilation to the Premises during
Overtime Periods (which overtime use of cooled air and ventilation by Tenant may
be measured by a "check" meter installed by Landlord), then Tenant shall pay
Landlord additional rent for such facilities or services at the standard rates
then fixed by the Landlord for the Building or, if no such rates are then fixed,
at reasonable rates. Neither the facilities nor the services referred to in this
Article 29 D shall be furnished to Tenant or the Premises if Landlord has not
received advance notice from Tenant specifying the particular facilities or
services requested by Tenant at least twenty-four (24) hours prior to the date
on which the facilities or services are to be furnished; or if Tenant is in
default under or in breach of any of the terms, covenants or conditions of this
Lease; or if Landlord shall determine, in its sole and exclusive discretion,
that such facilities or services are requested in connection with, or the use
thereof shall create or aid in a default under or a breach of any term, covenant
or condition of this Lease. All of the facilities and services referred to in
this Article 29D are conveniences and are not and shall not be deemed to be
appurtenances to the Premises, and the failure of Landlord to furnish any or all
of such facilities or services shall not constitute or give rise to any claim of
an actual or constructive eviction, in whole or in part, or entitle Tenant to
any abatement or diminution of Rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord or its
agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business or otherwise. In the event Tenant installs a
supplemental air cooling system in the Premises, and if condenser water for such
system shall be supplied by Landlord, (x) Tenant shall pay to Landlord, annually
upon demand, a sum equal to $750 per ton of air conditioning capacity, adjusted
annually, to compensate Landlord for the cost of supplying condenser water for
such supplemental system and (y) Tenant shall pay to Landlord upon demand,
Tenant's share of the cost of maintaining, repairing and/or replacing the
cooling tower providing such condenser water, such share to be based upon
Tenant's total demand of condenser water relative to the total demand of all
other tenants and occupants in the Building who are similarly supplied condenser
water by Landlord. In addition, any such supplemental air-cooling system shall
be installed with balancing valves and circuit setters manufactured by Bell &
Gossett for balancing by Landlord, at Tenant's sole cost and expense.
E. CLEANING. Landlord, at Landlord's expense, shall cause the Premises to
be kept clean in building standard manner. Tenant shall, however, have the
option in its sole discretion to clean or independently contract for the
cleaning of the Premises at Tenant's sole expense, without any adjustment in the
Rent, provided that such cleaning is done in a manner satisfactory to Landlord
and no one other
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than persons approved by Landlord shall be permitted to enter the Premises or
the Building for such purpose. Tenant shall pay to Landlord the cost of removal
of any of Tenant's refuse and rubbish from the Premises and the Building to the
extent that the same exceeds the refuse and rubbish usually attendant upon the
use of such Premises as offices. Bills for the same shall be rendered by
Landlord to Tenant at such time as Landlord may elect and shall be due and
payable when rendered and the amount of such bills shall be deemed to be, and be
paid as additional rent. Tenant shall, however, have the option of independently
contracting for the removal of such refuse and rubbish in the event that Tenant
does not wish to have same done by employees of Landlord. Under such
circumstances, however, the removal of such refuse and rubbish by others shall
be subject to such rules and regulations, as in the judgment of Landlord, are
necessary for the proper operation of the Building.
F. SPRINKLER SYSTEM. If there now is or shall be installed in the Building
a "sprinkler system", and such system or any of its appliances shall be damaged
or injured or not in proper working order by reason of any act or omission of
Tenant, Tenant's agents, servants, employees, licensees or visitors, Tenant
shall forthwith restore the same to good working condition at its own expense;
and if the New York Board of Fire Underwriters or the New York Fire Insurance
Rating Organization or any bureau, department or official of the state or city
government, shall require or recommend that any changes, modifications,
alterations or additional sprinkler heads or other equipment be made or supplied
by reason of Tenant's business, or the location of the partitions, trade
fixtures, or other contents of the Premises, Tenant shall, at Tenant's expense,
promptly make and supply such changes, modifications, alterations, additional
sprinklerheads or other equipment.
G. WATER. If Tenant requires, uses or consumes water for any purpose in
addition to ordinary drinking, cleaning or lavatory purposes, Landlord may
install a water meter and thereby measure Tenant's water consumption for all
purposes. In such event (i) Tenant shall pay Landlord for the cost of the meter
and the cost of the installation thereof and through the duration of Tenant's
occupancy Tenant shall keep said meter and installation equipment in good
working order and repair at Tenant's own cost and expense in default of which
Landlord may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant; (ii) Tenant agrees to pay for water
consumed, as shown on said meter as and when bills are rendered, and on default
in making such payment Landlord may pay such charges and collect the same from
Tenant; and (iii) Tenant covenants and agrees to pay the sewer rent, charge or
any other tax, rent, levy or charge which now or hereafter is assessed, imposed
or shall become a lien upon the Premises or the realty of which they are part
pursuant to law, order or regulation made or issued in connection with any such
metered use, consumption, maintenance or supply of water, water system, or
sewage or sewage connection or system. The bill rendered
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by Landlord for the above shall be based upon Tenant's consumption and shall be
payable by Tenant as additional rent within fifteen (15) days of rendition. Any
such costs or expenses incurred or payments made by Landlord for any of the
reasons or purposes hereinabove stated shall be deemed to be additional rent
payable by Tenant and collectible by Landlord as such. Independently of and in
addition to any of the remedies reserved to Landlord hereinabove or elsewhere in
this Lease, Landlord may sue for and collect any monies to be paid by Tenant or
paid by Landlord for any of the reasons or purposes hereinabove set forth.
H. ELECTRICITY SERVICE. (i) Landlord, at Landlord's expense, shall
redistribute electrical energy for the use of Tenant in the Premises for the
operation or servicing of the lighting fixtures, electrical receptacles and
air-cooling equipment installed in, or exclusively servicing the Premises on the
Commencement Date, which electrical energy shall be made available to the point
of connection into, or electrical panel servicing, the Premises. If such
electrical panel is not located within the Premises, Tenant is responsible for
bringing the electrical energy into the Premises at Tenant's sole cost and
expense. There shall be no specific charge by way of measuring such electrical
energy on any meter or otherwise, as the charge for the service of
redistributing or furnishing such electrical energy has been included in the
Rent on a so-called "rent-inclusion" basis. The parties agree that although the
charge for the service of redistributing or furnishing electrical energy is
included in the Rent on a so-called "rent- inclusion" basis, the value to Tenant
of such service may not be fully reflected in the Rent. Accordingly, Tenant
agrees that Landlord may cause an independent electrical engineer or electrical
consulting firm, selected by Landlord, to make a final determination, following
the commencement of Tenant's normal business activities in the Premises, of the
full value to Tenant of such services supplied by Landlord, to wit: the
estimated consumption and demand of electrical energy supplied to Tenant
annually based upon the connected load, the utilization of electricity by Tenant
during Tenant's normal business hours, the then current on-peak rates of the
utility serving the Premises, or the prevailing rate, as applicable, plus
Landlord's add-on charge in the amount of ten percent (10%) of the redetermined
Electrical Inclusion Factor. Such engineer or consulting firm shall certify such
determination in writing to Landlord and Tenant, which shall be conclusive and
binding upon Tenant. If it shall be determined by such engineer or consulting
firm that the full value to Tenant of such service is in excess of the then
Electrical Inclusion Factor, the Rent and the Electrical Inclusion Factor shall
be automatically and unconditionally increased, without further act or
instrument, effective as of the date of the change in Tenant's electrical use
and retroactive to such date if necessary for the balance of the Term (or until
any subsequent determinations are made), by an annual amount equal to such
excess. However, if it shall be so determined that the full value to Tenant of
such service does not meet or exceed the Electrical Inclusion Factor, there
shall be no increase or decrease in the Rent or the Electrical Inclusion Factor
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by reason of such determination. Following any such initial determination,
Landlord may, from time to time thereafter during the Term of this Lease, and at
its sole option, cause an engineer or consulting firm to make subsequent
determinations of the then full value of such services supplied to Tenant on the
basis hereinabove set forth, and if such value is in excess of the then
Electrical Inclusion Factor, the Rent and the Electrical Inclusion Factor shall
be adjusted accordingly, effective as of the date of change in Tenant's
electrical use.
(ii). Landlord shall redistribute six (6) watts of connected electrical
load per rentable square foot for the servicing of all of Tenant's electrical
needs within the Premises including any air-cooling equipment located in, or
exclusively servicing, the Premises. If Tenant requires additional electrical
energy beyond the wattage specified above for any reason whatsoever, including
without limitation, the use of additional business machines, office equipment or
other appliances in the Premises which utilize electrical energy, Tenant shall
request such additional electrical energy from Landlord in each instance. If
Landlord agrees to provide the same, the Rent and the Electrical Inclusion
Factor will be increased following a determination of the full value of such
electrical service supplied to Tenant pursuant to the procedure set forth in
subsection H(i) of this Article 29, plus a connection fee of Three Hundred Fifty
and 00/100 ($350.00) Dollars per kilovolt ampere. In addition, any additional
feeders or risers to be installed to supply Tenant's additional electrical
requirements, and all other equipment proper and necessary in connection with
such feeders or risers, shall be installed by Landlord upon Tenant's request, at
the sole cost and expense of Tenant, provided that, in Landlord's judgment, such
additional feeders or risers are necessary and are permissible under applicable
laws and insurance regulations and the installation of such feeders or risers
will not cause permanent damage or injury to the Building or the Premises or
cause or create a dangerous or hazardous condition or entail excessive or
unreasonable alterations or interfere with or disturb other tenants or occupants
of the Building. Tenant covenants that at no time shall the use of electrical
energy servicing the Premises exceed the capacity of the existing feeders or
wiring installations then serving the Premises nor shall Tenant install
electrical panels which provide Tenant with greater than six (6) watts of
connected electrical load per rentable square foot. Tenant shall not make or
perform, or permit the making or performance of, any Alterations to wiring
installations or other electrical facilities in or serving the Premises without
the prior consent of Landlord in each instance and without paying Landlord's
customary charges therefor. Any such Alterations, additions or consent by
Landlord shall be subject to the provisions of subsection H(iii) of this Article
29, as well as to other provisions of this Lease including, but not limited to,
the provisions of Article 3 hereof. If, at any time following Tenant's first
full year of business operations at the Premises, Landlord determines that
Tenant's consumption and demand of electrical energy within the Premises is less
than the wattage furnished to Tenant pursuant to the provisions of this
subsection
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H(iii), Landlord may, at its sole option and cost, redistribute the excess
electrical energy to other locations within the Building.
(iii). If, at the request of Tenant, at any time or times during the
Term, electrical feeders, risers, wiring or other electrical facilities serving
the Premises shall be installed by Landlord, Tenant or others, on behalf of
Tenant or any person claiming through or under Tenant in addition to the
feeders, risers, wiring or other electrical facilities necessary to serve the
lighting fixtures, electrical receptacles and air-cooling equipment installed
in, or exclusively servicing the Premises on the Commencement Date, the Rent and
Electrical Inclusion Factor each shall be increased in an annual amount which
shall reflect the full value to Tenant of the additional service to be furnished
by Landlord, to wit: the estimated consumption and demand of additional
electrical energy made available to Tenant annually based upon the connected
load, utilization of electricity by Tenant during Tenant's normal business hours
through such additional electrical feeders, risers, wiring or other electrical
facilities, the then current on-peak rates of the utility serving the Premises,
or the prevailing rate, as applicable plus Landlord's add-on charge in the
amount of ten percent (10%) of the redetermined Electrical Inclusion Factor. The
amount of any such increase in the Rent and the Electrical Inclusion Factor
shall be finally determined by an independent electrical engineer or electrical
consulting firm selected by Landlord who shall certify such determination in
writing to Landlord and Tenant. Following any such determination, the Rent and
the Electrical Inclusion Factor for the remainder of the Term shall be increased
in an annual amount equal to the value of such additional service as so
determined. Any such increase shall be effective as of the date of the first
availability to Tenant of such additional service and shall be retroactive to
such date if necessary.
(iv). If, at any time or times after the date of execution of this
Lease, the rates at which Landlord purchases electrical energy from the utility
supplying electrical service to the Building or any charges incurred or taxes
payable by Landlord in connection therewith shall be increased, the Rent and the
Electrical Inclusion Factor shall be increased upon demand of Landlord in an
annual amount which shall fairly represent the estimated increase in the annual
value to Tenant of the electrical service provided by Landlord to Tenant under
the provisions of this subsection H. If, within ten (10) days after any such
demand, Landlord and Tenant shall fail to agree upon the amount of such increase
in the Rent and the Electrical Inclusion Factor then, in lieu of such agreement,
the estimated increase in the annual value to Tenant of the electrical service
provided by Landlord to Tenant under the provisions of this subsection H shall
be finally determined by an independent electrical engineer or electrical
consulting firm selected by Landlord who shall certify such determination in
writing to Landlord and Tenant. Any such determination made by an engineer or
consulting firm shall be conclusive and binding upon Tenant. Following any such
agreement or determination, of an
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increase in such annual value, the Rent and the Electrical Inclusion Factor for
the remainder of the Term shall be increased in an annual amount equal to such
estimated increase in the annual value to Tenant of the electrical service
provided by Landlord to Tenant under the provisions of this subsection, as so
agreed or determined. Any such increase in the Rent and the Electrical Inclusion
Factor shall be automatically and unconditionally effective without further act
or instrument, as of the date of such increase in rates, charges or taxes, and
shall be retroactive to such date if necessary. Anything in this subsection H(4)
to the contrary notwithstanding, under no circumstances shall the Electrical
Inclusion Factor be an amount less than the amount set forth in subsection H(1)
of this Article 29, as escalated.
(v). Any increase in the Rent pursuant to the provisions of subsection
H(i), H(iii) or H(iv) of this Article 29 with respect to the period from the
effective date of such increase to the last day of the month in which such
increase shall be fixed shall be payable by Tenant upon demand of Landlord. The
monthly installments of the Rent payable after the date upon which any such
increase is so fixed shall be proportionately adjusted to reflect such increase
in the Rent.
(vi). Landlord shall have the option of installing sub-meters at
Landlord's expense to measure Tenant's consumption of electrical energy. If
Landlord exercises such option, Tenant shall pay to Landlord, as additional
rent, on demand, from time to time, but no more frequently than monthly, for its
consumption and demand of electrical energy at the then on-peak rate, or
prevailing rate, as applicable, then prescribed by the utility serving the
Building for sub-metered electrical energy, plus a surcharge in the amount of
twelve percent (12%) of the total electric bill, for, among other Landlord
expenses, administrative charges and line and transformer losses. In such event,
the Rent shall be reduced by an amount equal to the then Electrical Inclusion
Factor as of commencement of the operation of such sub-meters. For the purpose
of this subsection H(vi) the rate to be paid by Tenant in the event of
sub-metering shall include any taxes or other charges in connection therewith.
If any tax shall be imposed upon Landlord's receipts from the sale or resale of
electrical energy to Tenant, the pro rata share allocable to the electrical
energy service received by Tenant shall be passed on to, included in the bill
of, and paid by Tenant if and to the extent permitted by law. Where more than
one meter measures the electricity supplied to Tenant, the electricity rendered
through each meter may be computed and billed separately in accordance with the
provisions hereinabove set forth. Tenant expressly acknowledges that, in
connection with the installation of the sub-meters, the electricity being
furnished to the Premises may be temporarily interrupted. Landlord shall use
reasonable efforts to minimize interference with the conduct of Tenant's
business in connection with such installation, but the foregoing shall not
require Landlord to utilize premium or overtime labor in connection therewith.
If following
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the installation of sub-meters pursuant to this subsection H(vi), Landlord is
prohibited from selling or reselling electrical energy to Tenant, Landlord shall
have the option of removing the sub-meters and redistributing electrical energy
to Tenant pursuant to subsections H(i), H(ii), H(iii), H(iv) and H(v) of this
Article 29.
(vii). Landlord reserves the right to discontinue furnishing
electricity to Tenant in the Premises on not less than thirty (30) days' notice
to Tenant if Landlord is required to do so by law or by the public utility
company supplying electricity to the Premises or if Landlord shall discontinue
furnishing electricity to tenants of at least twenty percent (20%) of the office
space in the Building. If Landlord exercises such right to discontinue, or is
compelled to discontinue furnishing electricity to Tenant, this Lease shall
continue in full force and effect and shall be unaffected thereby, except only
that from and after the effective date of such discontinuance, Landlord shall
not be obligated to furnish electricity to Tenant and the Rent shall be reduced
by an amount equal to the then Electrical Inclusion Factor. If Landlord so
discontinues furnishing electricity to Tenant, Tenant shall arrange to obtain
electricity directly from the utility or other company servicing the Building.
Such electricity may be furnished to Tenant by means of the then existing
electrical facilities serving the Premises to the extent that the same are
available, suitable and safe for such purposes. All meters and all additional
panel boards, feeders, risers, wiring and other conductors and equipment which
may be required to obtain electricity, of substantially the same quantity,
quality and character, shall be installed by Landlord, at Tenant's sole cost and
expense. Landlord shall not voluntarily discontinue furnishing electricity to
Tenant until Tenant is able to receive electricity directly from the utility or
other company servicing the Building.
(viii). Landlord shall not be liable to Tenant in any way for any
interruption, curtailment or failure, or defect in the supply or character of
electricity furnished to the Premises by reason of any requirement, act or
omission of Landlord or of any utility or other company servicing the Building
with electricity or for any other reason except Landlord's gross negligence or
willful misconduct. If either the quantity or character of electrical service is
changed by the utility or other company supplying electrical service to the
Building or is no longer available or suitable for Tenant's requirements, no
such change, unavailability or unsuitability shall constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Landlord, or its agents, by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise.
(ix). In the event Tenant shall occupy the Premises prior to the Rent
Commencement Date, Tenant shall pay to Landlord a sum equivalent to one-twelfth
(1/12th) of the Electrical Inclusion Factor (the "Interim Electric Charge"), on
the
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first day of its occupancy of the Premises and on the first day of each calendar
month thereafter until the Rent Commencement Date, as additional rent
representing the cost of electricity consumed within the Premises for such
period. If the first day of Tenant's occupancy occurs on a date other than the
first day of a calendar month, the Interim Electric Charge for such month shall
be an amount equal to such proportion of the Interim Electric Charge as the
number of days from and including the first day of such occupancy through the
last day in such calendar month bears to the total number of days in such
calendar month.
(x). Following the date Tenant first takes possession of the Premises
and throughout the remainder of the Term of this Lease, Tenant may, with
Landlord's prior written approval, participate in any electricity rebate program
offered by any city, state or federal governmental authority or any agency
thereof.
I. INTERRUPTION OF SERVICES. Landlord reserves the right to stop service of
the HVAC system and all other Building systems during any period of a violation
or breach by Tenant of the provisions of this Lease and to stop the service of
the HVAC system or the elevator, electrical, plumbing or other mechanical
systems or facilities in the Building when necessary, by reason of accident or
emergency, or for repairs, additions, alterations, replacements, decorations or
improvements in the judgment of Landlord desirable or necessary to be made,
until said repairs, alterations, replacements or improvements shall have been
completed. Landlord shall have no responsibility or liability for interruption,
curtailment or failure to supply cooled or outside air, heat, elevator, plumbing
or electricity when prevented by exercising its right to stop service or by
strikes, labor troubles or accidents or by any cause whatsoever reasonably
beyond Landlord's control, or by failure of independent contractors to perform
or by laws, orders, rules or regulations of any federal, state, county or
municipal authority, or failure of suitable fuel supply, or inability by
exercise of reasonable diligence to obtain suitable fuel or by reason of
governmental preemption in connection with a National Emergency or by reason of
the conditions of supply and demand which have been or are affected by war or
other emergency. Tenant acknowledges that the Building HVAC system may contain
freon or other chlorofluorocarbons (CFC's) and that future federal, state or
city regulations may require the removal of CFC's as well as the alteration or
replacement of equipment utilizing CFC's. In connection therewith (i) Landlord
reserves the right to stop service of the HVAC system or any other mechanical
systems containing CFC's for such duration as may be necessary to convert any
such systems to eliminate the use of CFC's and (ii) to enter upon the Premises,
as necessary to install replacement equipment within the Premises required by
any such change. The exercise of such right or such failure by Landlord shall
not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any compensation or to any abatement or diminution of Rent, or
relieve Tenant from any of its obligations under this Lease, or impose any
liability upon Landlord or
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its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise.
30. PARTNERSHIP TENANT.
A. PARTNERSHIP TENANTS. If Tenant is a partnership (or is comprised of two
(2) or more persons, individually and as co-partners of a partnership) or if
Tenant's interest in this Lease shall be assigned to a partnership (or to two
(2) or more persons, individually and as co-partners of a partnership) pursuant
to Article 12 (any such partnership and such persons are referred to in this
Article 30 as a "Partnership Tenant"), the following provisions of this Article
30 shall apply to such Partnership Tenant: (i) the liability of each of the
parties comprising a Partnership Tenant shall be joint and several, and (ii)
each of the parties comprising a Partnership Tenant hereby consents in advance
to, and agrees to be bound by, any written instrument which may hereafter be
executed, changing, modifying or discharging this Lease, in whole or in part, or
surrendering all or any part of the Premises to Landlord, and by any notices,
demands, requests or other communications which may hereafter be given by a
Partnership Tenant or by any of the parties comprising a Partnership Tenant, and
(iii) any bills, statements, notices, demands, requests or other communications
given or rendered to a Partnership Tenant and to all such parties shall be
binding upon a Partnership Tenant and all such parties, and (iv) if a
Partnership Tenant shall admit new partners, all of such new partners shall, by
their admission to a Partnership Tenant, be deemed to have assumed performance
of all of the terms, covenants and conditions of this Lease on Tenant's part to
be observed and performed, and (v) a Partnership Tenant shall give prompt notice
to Landlord of the admission of any such new partners, and upon demand of
Landlord, shall cause each such new partner to execute and deliver to Landlord
an agreement in form satisfactory to Landlord, wherein each such new partner
shall assume performance of all the terms, covenants and conditions of this
Lease on Tenant's part to be observed and performed (but neither Landlord's
failure to request any such agreement nor the failure of any such new partner to
execute or deliver any such agreement to Landlord shall vitiate the provisions
of subdivision (iv) of subsection A of this Article 30).
B. LIMITED LIABILITY ENTITY. Notwithstanding anything to the contrary
contained herein, if Tenant is a limited or general partnership (or is comprised
of two (2) or more persons, individually or as co-partners), the change or
conversion of Tenant to (i) a limited liability company, (ii) a limited
liability partnership, or (iii) any other entity which possesses the
characteristics of limited liability (any such limited liability company,
limited liability partnership or entity is collectively referred to as a
"Limited Liability Successor Entity"), shall be prohibited unless the prior
written consent of Landlord is obtained, which consent may be withheld in
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Landlord's sole discretion. Notwithstanding the foregoing, Landlord agrees not
to unreasonably withhold or delay such consent provided that:
(a) The Limited Liability Successor Entity succeeds to all or
substantially all of Tenant's business and assets;
(b) The Limited Liability Successor Entity shall have a net worth,
determined in accordance with generally accepted accounting principles,
consistently applied, of not less than the greater of the net worth of Tenant on
(i) the date of execution of this Lease, or (ii) the day immediately preceding
the proposed effective date of such conversion;
(c) Tenant is not in default of any of the terms, covenants or
conditions of this Lease on the proposed effective date of such conversion;
(d) Tenant shall cause each partner of Tenant to execute and
deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, wherein each such partner agrees to remain personally liable for all
of the terms, covenants and conditions of this Lease that are to be observed and
performed by the Limited Liability Successor Entity; and
(e) Tenant shall reimburse Landlord within ten (10) business days
following demand by Landlord for any and all reasonable costs and expenses that
may be incurred by Landlord in connection with said conversion of Tenant to a
Limited Liability Successor Entity, including, without limitation, any
attorney's fees and disbursements.
31. VAULT SPACE. Any vaults, vault space or other space outside the
boundaries of the Real Property, notwithstanding anything contained in this
Lease or indicated on any sketch, blueprint or plan are not included in the
Premises. Landlord makes no representation as to the location of the boundaries
of the Real Property. All vaults and vault space and all other space outside the
boundaries of the Real Property which Tenant may be permitted to use or occupy
is to be used or occupied under a revocable license, and if any such license
shall be revoked, or if the amount of such space shall be diminished or required
by any Federal, State or Municipal authority or by any public utility company,
such revocation, diminution or requisition shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Landlord. Any fee, tax or charge imposed by
any governmental authority for any such vaults, vault space or other space shall
be paid by Tenant.
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32. SECURITY DEPOSIT.
A. INTEREST BEARING SECURITY DEPOSIT. Tenant shall deposit with Landlord on
the signing of this Lease the Security Deposit (as defined in Article 1 of this
Lease) as security for the faithful performance and observance by Tenant of the
terms, conditions and provisions of this Lease, including without limitation the
surrender of possession of the Premises to Landlord as herein provided. Landlord
agrees to deposit the Security Deposit in an interest bearing bank account
located in New York State. To the extent not prohibited by law, Landlord shall
be entitled to receive and retain as an administrative expense that portion of
the interest received on such account equal to one percent (1%) per annum of the
Security Deposit, which fee Landlord shall have the right to withdraw from time
to time, at Landlord's discretion. The balance of the interest shall be added to
and held as part of the Security Deposit subject to and in accordance with the
provisions of this Lease. Landlord shall not be required to credit Tenant with
any interest for any period during which Landlord does not receive interest on
the Security Deposit, nor shall Landlord have any liability or obligation for
loss of all or any portion of the Security Deposit by reason of the insolvency
or failure of the bank in which the Security Deposit is deposited. It is agreed
that in the event Tenant defaults in respect of any of the terms, provisions and
conditions of this Lease, including, but not limited to, the payment of Rent and
additional rent, Landlord may apply or retain the whole or any part of the
Security Deposit so deposited to the extent required for the payment of any Rent
and additional rent or any other sum as to which Tenant is in default or for any
sum which Landlord may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of this Lease,
including but not limited to, any damages or deficiency in the reletting of the
Premises, whether such damages or deficiency accrue or accrues before or after
summary proceedings or other reentry by Landlord. If Landlord applies or retains
any part of the Security Deposit so deposited, Tenant, within three (3) days
after notice from Landlord, shall deposit with Landlord the amount so applied or
retained so that Landlord shall have the full Security Deposit on hand at all
times during the Term. The failure by Tenant to deposit such additional amount
within the foregoing time period shall be deemed a material default pursuant to
Article 17 of this Lease. If Tenant shall fully and faithfully comply with all
of the terms, provisions, covenants and conditions of this Lease, the security
shall be returned to Tenant after the Expiration Date and after delivery of the
entire possession of the Premises to Landlord. In the event of a sale of the
Real Property or the Building or leasing of the Building, Landlord shall have
the right to transfer the Security Deposit to the vendee or lessee and Landlord
shall thereupon be released by Tenant from all liability for the return of the
Security Deposit; and Tenant agrees to look solely to the new Landlord for the
return of the Security Deposit; and it is agreed that the provisions hereof
shall apply to every transfer or assignment made of the Security Deposit to a
new Landlord. Tenant
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further covenants that it will not assign or encumber or attempt to assign or
encumber the Security Deposit and that neither Landlord nor its successors or
assigns shall be bound by any such assignment, encumbrance, attempted assignment
or attempted encumbrance.
B. LETTER OF CREDIT. In lieu of a cash deposit by Tenant for the Security
Deposit, Tenant may deposit with Landlord a clean, irrevocable and unconditional
letter of credit ("Letter of Credit") issued by and drawn upon any commercial
bank reasonably acceptable to Landlord with offices for banking purposes in the
City of New York and having a net worth of not less than One Hundred Million
($100,000,000) Dollars, which letter of credit shall be in the amount of Twenty
Two Thousand Two Hundred Twenty-Two and 50/100 ($22,222.50) Dollars in the form
annexed hereto as Exhibit 2. At any time that Tenant is in default under this
Lease beyond any applicable notice and grace period, Landlord shall have the
right to draw down the entire credit and apply the proceeds or any part thereof
in accordance with the provisions of this Article 32. Landlord shall also have
the right to draw down the entire amount of the credit in the event that
Landlord fails to receive a replacement Letter of Credit on or prior to the
thirtieth (30th) day preceding the expiration date thereof. If Landlord shall
have drawn down the Letter of Credit and applied all or a portion thereof in
accordance with the terms of this Article 32, then Tenant shall deposit with
Landlord, within three (3) days after notice from Landlord, a sufficient amount
of cash to bring the balance of the cash held by Landlord under this Article 32
to the amount of the Security Deposit. The failure by Tenant to deposit such
additional amount within the foregoing time period shall be deemed a material
default pursuant to Article 17 of this Lease.
33. CAPTIONS. The Captions are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope of this Lease
nor the intent of any provision thereof.
34. ADDITIONAL DEFINITIONS.
A. The term "office" or "offices", wherever used in this
Lease, shall not be construed to mean premises used as a store or stores, for
the sale or display, at any time, of goods, wares or merchandise, of any kind,
or as a restaurant, shop, booth, bootblack or other stand, barber shop, or for
other similar purposes or for manufacturing.
B. The words "reenter" and "reentry" as used in this
Lease are not restricted to their technical legal meaning.
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C. The term "rent" as used in this Lease shall mean and
be deemed to include Rent, any increases in Rent, all additional rent and any
other sums payable hereunder.
D. The term "business days" as used in this Lease shall
exclude Saturdays, Sundays and all days observed by the State or Federal
Government as legal holidays and union holidays for those unions that materially
affect the delivery of services in the Building.
35. PARTIES BOUND. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors, and,
except as otherwise provided in this Lease, their assigns.
36. BROKER. Tenant represents and warrants that Tenant has dealt directly
with (and only with), the Broker (as defined in Article 1 herein) as broker in
connection with this Lease, and that insofar as Tenant knows no other broker
negotiated this Lease or is entitled to any commission in connection therewith,
and the execution and delivery of this Lease by Landlord shall be conclusive
evidence that Landlord has relied upon the foregoing representation and
warranty.
37. INDEMNITY. Tenant shall not do or permit any act or thing to be done
upon the Premises which may subject Landlord to any liability or responsibility
for injury, damages to persons or property or to any liability by reason of any
violation of law or of any legal requirement of public authority, but shall
exercise such control over the Premises as to fully protect Landlord against any
such liability. Tenant agrees to indemnify and save harmless Landlord from and
against (i) all claims of whatever nature against Landlord arising from any act,
omission or negligence of Tenant, its contractors, licensees, agents, servants,
employees, invitees or visitors, including any claims arising from any act,
omission or negligence of Landlord or Landlord and Tenant, (ii) all claims
against Landlord arising from any accident, injury or damage whatsoever caused
to any person or to the property of any person and occurring during the Term in
or about the Premises, (iii) all claims against Landlord arising from any
accident, injury or damage to any person, entity or property, occurring outside
of the Premises but anywhere within or about the Real Property, where such
accident, injury or damage results or is claimed to have resulted from an act or
omission of Tenant or Tenant's agents, employees, invitees or visitors,
including any claims arising from any act, omission or negligence of Landlord or
Landlord and Tenant, and (iv) any breach, violation or nonperformance of any
covenant, condition or agreement in this Lease set forth and contained on the
part of Tenant to be
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fulfilled, kept, observed and performed and (v) any claim, loss or liability
arising or claimed to arise from Tenant, or any of Tenant's contractors,
licensees, agents, servants, employees, invitees or visitors causing or
permitting any Hazardous Substance to be brought upon, kept or used in or about
the Premises or the Real Property or any seepage, escape or release of such
Hazardous Substances. As used herein and in all other provisions in this Lease
containing indemnities made for the benefit of Landlord, the term "Landlord"
shall mean Axiom Real Estate Management, Inc. and the originally named Landlord
herein and their respective parent companies and/or corporations, their
respective controlled, associated, affiliated and subsidiary companies and/or
corporations and their respective members, officers, partners, agents,
consultants, servants, employees, successors and assigns. This indemnity and
hold harmless agreement shall include indemnity from and against any and all
liability, fines, suits, demands, costs and expenses of any kind or nature
incurred in or in connection with any such claim or proceeding brought thereon,
and the defense thereof.
38. ADJACENT EXCAVATION SHORING. If an excavation shall be made upon and
adjacent to the Premises, or shall be authorized to be made, Tenant shall afford
to the person causing or authorized to cause such excavation, license to enter
upon the Premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the Building from injury or damage and to
support the same by proper foundations without any claim for damages or
indemnity against Landlord, or diminution or abatement of Rent.
39. MISCELLANEOUS.
A. NO OFFER. This Lease is offered for signature by Tenant and it is
understood that this Lease shall not be binding upon Landlord unless and until
Landlord shall have executed and delivered a fully executed copy of this Lease
to Tenant.
B. SIGNATORIES. If more than one person executes this Lease as Tenant, each
of them understands and hereby agrees that the obligations of each of them under
this Lease are and shall be joint and several, that the term "Tenant" as used in
this Lease shall mean and include each of them jointly and severally and that
the act of or notice from, or notice or refund to, or the signature of, any one
or more of them, with respect to the tenancy and/or this Lease, including, but
not limited to, any renewal, extension, expiration, termination or modification
of this Lease, shall be binding upon each and all of the persons executing this
Lease as Tenant with the same force and effect as if each and all of them had so
acted or so given or received such notice or refund or so signed.
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C. CERTIFICATES. From time to time, within ten (10) days next following
request by Landlord or the mortgagee of a Mortgage, Tenant shall deliver to
Landlord or such mortgagee, as the case may be, a written statement executed and
acknowledged by Tenant, in form satisfactory to Landlord or such mortgagee, (i)
stating that this Lease is then in full force and effect and has not been
modified (or if modified, setting forth all modifications), (ii) setting forth
the date to which the Rent, additional rent and other charges hereunder have
been paid, together with the amount of fixed base monthly Rent then payable,
(iii) stating whether or not, to the best knowledge of Tenant, Landlord is in
default under this Lease, and, if Landlord is in default, setting forth the
specific nature of all such defaults, (iv) stating the amount of the security
deposit under this Lease, (v) stating whether there are any subleases affecting
the Premises, (vi) stating the address of Tenant to which all notices and
communications under the Lease shall be sent, the Commencement Date and the
Expiration Date, and (vii) as to any other matters requested by Landlord or such
mortgagee. Tenant acknowledges that any statement delivered pursuant to this
subsection C may be relied upon by any purchaser or owner of the Real Property
or the Building, or Landlord's interest in the Real Property or the Building or
any Superior Lease, or by any mortgagee of a Mortgage, or by any assignee of any
mortgagee of a Mortgage, or by any lessor under any Superior Lease.
D. DIRECTORY LISTINGS. Landlord agrees to provide Tenant, at Landlord's
sole cost and expense, with a single listing of Tenant's name on the directory
in the lobby of the Building. Upon written request by Tenant, Landlord agrees to
provide Tenant with additional listings on such directory, at Tenant's sole cost
and expense, provided Tenant shall be limited to a number of listings determined
by multiplying Tenant's Proportionate Share by the total number of spaces for
listings on such directory.
E. AUTHORITY. If Tenant is a corporation or partnership, each individual
executing this Lease on behalf of Tenant hereby represents and warrants that
Tenant is a duly formed and validly existing entity qualified to do business in
the State of New York and that Tenant has full right and authority to execute
and deliver this Lease and that each person signing on behalf of Tenant is
authorized to do so.
F. SIGNAGE. Tenant shall not exhibit, inscribe, paint or affix any sign,
advertisement, notice or other lettering on any portion of the Building or the
outside of the Premises without the prior written consent of Landlord in each
instance. A plan of all signage or other lettering proposed to be exhibited,
inscribed, painted or affixed shall be prepared by Tenant in conformity with
building standard signage requirements and submitted to Landlord for Landlord's
consent. If the proposed signage is acceptable to Landlord, Landlord shall
approve such signage or other
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lettering by written notice to Tenant. All signage or other lettering which has
been approved by Landlord shall thereafter be installed by Landlord at Tenant's
sole cost and expense. Payment of all charges therefor shall be deemed
additional rent hereunder. In the event Landlord requires payment in advance for
the installation of any such signage or other lettering, no installation shall
be commenced by Landlord until Landlord has received payment in full. Upon
installation of any such signage or other lettering, such signage or lettering
shall not be removed, changed or otherwise modified in any way without
Landlord's prior written approval. The removal, change or modification of any
signage or other lettering theretofore installed shall be performed solely by
Landlord at Tenant's sole cost and expense. Tenant shall not exhibit, inscribe,
paint or affix on any part of the Premises or the Building visible to the
general public any signage or lettering including the words "temporary" or
"personnel". Any signage, advertisement, notice or other lettering which shall
be exhibited, inscribed, painted or affixed by or on behalf of Tenant in
violation of the provisions of this section may be removed by Landlord and the
cost of any such removal shall be paid by Tenant as additional rent.
G. CONSENTS AND APPROVALS. Wherever in this Lease Landlord's consent or
approval is required, if Landlord shall delay or refuse such consent or
approval, Tenant in no event shall be entitled to make, nor shall Tenant make,
any claim, and Tenant hereby waives any claim for money damages (nor shall
Tenant claim any money damages by way of set-off, counterclaim or defense) based
upon any claim or assertion by Tenant that Landlord unreasonably withheld or
unreasonably delayed its consent or approval. Tenant's sole remedy shall be an
action or proceeding to enforce any such provision, for specific performance,
injunction or declaratory judgment.
40. LANDLORD'S OPTION TO RELOCATE TENANT. Landlord shall have the right,
upon not less than sixty (60) days prior written notice (the "Relocation
Notice") to Tenant, to relocate Tenant, at Landlord's sole expense, to other
space located in the Building (the "Substitution Space") of substantially
comparable size and condition as the Premises, and in the same line of the
Building (with windows on both 45th Street and Fifth Avenue). If Landlord shall
exercise its right to relocate Tenant as aforesaid, Tenant shall vacate the
Premises on the date specified in the Relocation Notice and enter into an
amendment of this Lease with Landlord to provide for (i) the deletion of all
reference to the Premises and the insertion of the Substitution Space in place
thereof, (ii) affixed annual rent equal to the then current fixed annual rent
per square foot payable by Tenant under this Lease multiplied by the number of
rentable square feet in the Substitution Space and (iii) a modification of the
definition of (A) Tenant's Proportionate Share (as currently defined in Article
1 hereof) to accurately represent the percentage which the Substitution Space
bears to the total rentable area of the Building, (B) Labor Rate Factor (as
currently
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defined in Article 1 hereof) to accurately represent the number of rentable
square feet comprising the Substitution Space and (C) Electrical Inclusion
Factor (as currently defined in Article 1 hereof) to accurately represent that
portion of the fixed annual rent for the Substitution Space attributable to
furnishing the Substitution Space with electricity on a rent inclusion basis. In
all other respects, the terms and conditions contained in this Lease (including
escalations and base years) shall remain unmodified and continue in full force
and effect.
IN WITNESS WHEREOF, Landlord and Tenant have respectively
executed this Lease as of the day and year first above written.
545 FIFTH AVENUE LLC, a New York limited liability company, Landlord
By: Axiom Real Estate Management, Inc.
as authorized agent
By: /s/Abraham Gelber
-------------------------------
Abraham Gelber, General Manager
TOTAL NETWORK SOLUTIONS, INC.,
a New York corporation,
Tenant
By: /s/Joseph P. Brunetti
-------------------------------
Name: Joseph P. Brunetti
-----------------------------
Title: President
-----------------------------
13-3747337
- ----------------------------
Tenant's Tax I.D. Number
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EXHIBIT 10.12
CISCO SYSTEMS, INC.
170 WEST TASMAN DRIVE
SAN JOSE, CALIFORNIA 95134
December 21, 1999
Total Network Solutions, Inc.
545 Fifth Ave., Suite 920
New York, New York 10017
Attn: Mr. Rami Musallam
Re: Additional Rights Granted in Connection with the Purchase of the
Convertible Promissory Notes
----------------------------------------------------------------
Ladies and Gentlemen:
This letter (the "LETTER AGREEMENT") confirms our agreement that in
connection with the purchase by Cisco Systems, Inc., a California corporation
("CISCO"), of: (i) Convertible Promissory Note of Total Network Solutions, Inc.,
a New York corporation (the "COMPANY"), in the principal amount of $4,416,150.00
(the "COMMON CONVERTIBLE NOTE"), (ii) Convertible Promissory Note of the
Company, in the principal amount of $3,172,872.24 (the "FIRST CONVERTIBLE NOTE")
and (iii) Convertible Promissory Note of the Company in the principal amount of
$9,000,004.68 (the "SECOND CONVERTIBLE NOTE") (collectively, the "CONVERTIBLE
NOTES"), Cisco will be entitled to the following contractual rights in addition
to the other rights specifically provided for in the Convertible Promissory Note
Purchase Agreement (the "PURCHASE AGREEMENT"), Second Amended and Restated
Registration Rights Agreement and Second Amended and Restated Stockholders
Agreement (collectively, the "AGREEMENTS") being executed in connection with
Cisco's purchase of the Convertible Notes. All capitalized terms used herein but
not otherwise defined shall have the meanings assigned to them in the
Agreements.
1. ACQUISITIONS; RIGHT OF NOTIFICATION; ACQUISITION PAYMENT.
(A) NOTICE. In the event that the Board of Directors of the Company (i)
receives a bona fide offer in writing to be acquired by means of (x) a merger,
consolidation or other business combination pursuant to which the stockholders
of the Company immediately prior to the effective date of such transaction have
beneficial ownership of less than fifty percent (50%) of the total combined
voting power for election of directors of the surviving corporation immediately
following such transaction, or (y) the sale of all or substantially all of the
assets of the Company, or (ii) votes to initiate a sale to a Cisco Competitor of
(xx) twenty-five percent (25%) or more of the total voting power of the Company,
or (yy) all or substantially all of the Company's assets (each of these, an
"ACQUISITION PROPOSAL"), then prior to accepting such Acquisition Proposal, the
Company shall provide to Cisco written notice within 24 hours (the "NOTICE") of
the receipt of such bona fide offer or of such vote, as the case may be, of the
proposed terms of such Acquisition Proposal. The Acquisition Proposal may be
subject to customary conditions, such as the negotiation of a definitive
agreement. The Notice shall include the following information: (a) the identity
of the party making the Acquisition Proposal
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and (b) the material terms of the Acquisition Proposal, provided that, from and
after the earlier of December 31, 2000 or the completion of the Company's first
firm commitment underwritten offering pursuant to a registration statement under
the Securities and Exchange Act of 1933, as amended, covering the sale of the
Company's common stock with gross proceeds to the Company of at least Twenty
Million Dollars ($20,000,000) (the "Initial Public Offering"), the Company shall
not be required to disclose to Cisco any information that is subject to a
confidentiality obligation of the Company to any third party that is not a Cisco
Competitor (as defined below).
(B) NEGOTIATION PERIOD. Cisco shall have a period of twenty (20) business
days, in the case of an Acquisition Proposal involving a Cisco Competitor (as
defined below), or ten (10) business days, in all other cases (which time period
may be extended by mutual written agreement), following its receipt of the
Notice ("NEGOTIATION PERIOD") in which to present to the Company a counter offer
("CISCO OFFER"). During such Negotiation Period, Cisco, at its sole option,
shall have the opportunity in such Cisco Offer either to match such Acquisition
Proposal or to propose to the Company's Board of Directors an alternative
acquisition proposal. TNS (i) may decline an alternative acquisition proposal
only in accordance with the procedures set forth in the second succeeding
sentence, (ii) may decline a matching offer and/or consummate the Acquisition
Proposal if the Board of Directors determines in good faith that such action is
required to comply with its fiduciary duties under applicable law, and (iii) may
decline a matching offer if the Acquisition Proposal both was unsolicited and is
not accepted by the Company. In any event, during such Negotiation Period Cisco
shall have the exclusive right to engage in negotiations with the Company with
respect to such Cisco Offer; PROVIDED, HOWEVER, that from and after the earlier
of December 31, 2000 or the completion of the Company's Initial Public Offering,
this sentence and the two previous sentences shall not apply to an Acquisition
Proposal received from a third party that is not a Cisco Competitor. In the
event: (i) Cisco does not deliver a Cisco Offer within the Negotiation Period,
(ii) Cisco notifies the Company, in writing, of Cisco's decision not to present
a Cisco Offer or (iii) the Company elects not to accept the Cisco Offer, which
election shall be subject to the Company's obligations under the second and
third preceding sentences, then, and only then, the Company shall be free, for a
period of ninety (90) calendar days following the expiration of the Negotiation
Period, to agree to accept the Acquisition Proposal on the terms and conditions
set forth in the Notice or on such other terms and conditions, in the aggregate,
not materially more favorable to the potential acquiror than those specified in
the Notice. Any proposed acquisition of the Company or sale of its assets
pursuant to an Acquisition Proposal after the end of such 90-day period or any
change in the terms of such Acquisition Proposal which are materially more
favorable to the potential acquiror shall require a new Notice, and shall give
rise anew to the rights of Cisco provided in this Section 1. If the terms of any
Acquisition Proposal include stock or other securities ("STOCK"), Cisco shall be
deemed to have matched the terms of such Acquisition Proposal if it agrees to
substitute for such Stock component of the Acquisition Proposal either cash or
Cisco's principal outstanding class of common equity ("Cisco Stock") having a
"fair market value" equivalent to the fair market value of the Stock component
of the subject Acquisition Proposal. "FAIR MARKET VALUE" shall mean, with
respect to the Stock of any potential acquiror or with regard to Cisco Stock (i)
which is traded on a nationally recognized exchange, the average of the three
(3) trading days closing price of such Stock on the date immediately prior to
the Cisco Offer; (ii) which is actively traded over-the-counter, the average of
the three (3) trading days closing sale price (or, if there is no sale on any
such trading day, the average of the closing bid and ask prices
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for such day) of such Stock immediately prior to the Cisco Offer; and (iii) if
such Stock is not publicly traded, the value assigned to such Stock on the date
immediately prior to the Cisco Offer by Arthur Andersen LLP, or if Arthur
Andersen LLP is unwilling or unable to serve, by a nationally recognized
valuation agent designated by the mutual agreement of the Company and Cisco
within 15 days of a request for such designation by either party. The costs and
expenses incurred in connection with the valuation of the Stock by any
nationally recognized valuation agent designated by the previous sentence shall
be borne equally by Cisco and the Company. The fair market value of any other
non-cash consideration shall be determined in the same manner as for such
non-publicly traded stock.
(C) DEFINITION OF CISCO COMPETITOR. For purposes of this Section 1, and
subject to the limitations in this subsection 1(c), "CISCO COMPETITOR" shall
mean any one of the seven (7) entities (which shall be deemed to include all of
such entities' subsidiaries or affiliates as defined below) that are listed in
SCHEDULE A hereto. For purposes of this Section 1, an entity shall be deemed to
be a subsidiary or affiliate of a Cisco Competitor if the Cisco Competitor has
beneficial ownership of 20% or more of such entity's common stock or any other
security convertible into or exercisable for common stock of such entity.
(D) COMPETITOR ACQUISITION PAYMENT. In the event that, after compliance
with the other provisions of this Section 1, the Company accepts an Acquisition
Proposal from a Cisco Competitor, the Company shall pay to Cisco an amount equal
to five times (5x) the Company's last twelve (12) months' trailing revenues
(determined in accordance with GAAP), such twelve-month period to end as of the
last day of the month immediately prior to the month in which the closing of the
acquisition of the Company by a Cisco Competitor occurs. The amount payable
under this subsection 1(d) shall be paid to Cisco in immediately available funds
simultaneously with, and such payment obligation shall by contingent upon, the
closing of the acquisition of the Company by a Cisco Competitor. The Company and
Cisco agree that the relationship between Cisco and the Company is special and
unique, that the actual damages to Cisco arising from the loss of this special
relationship with the Company as a result of its acquisition by a Cisco
Competitor are difficult or impossible to determine with precision, and that the
amount payable under this subsection 1(d) represents a reasonable approximation
of the damages to Cisco from such an event.
(E) REDEMPTION OF CONVERTIBLE NOTES OR PREFERRED STOCK UPON ACQUISITION BY
COMPETITOR.
(i) REDEMPTION OF CONVERTIBLE NOTES. In the event the Company accepts
an Acquisition Proposal from a Cisco Competitor, Cisco shall have the right, at
any time prior to closing of such a transaction, either to elect to have the
Company pay all or a portion of the outstanding principal and interest then due
under the Convertible Notes (other than the Common Convertible Note if there is
an active public trading market for the securities Cisco will receive upon
conversion of the Common Convertible Note immediately following the acquisition
of the Company) or to convert, in whole or in part, the Convertible Notes, in
each case in accordance with their terms.
(ii) REDEMPTION OF PREFERRED STOCK. In the event the Company accepts
an Acquisition Proposal from a Cisco Competitor, Cisco shall have the right, at
any time
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<PAGE>
prior to closing of such a transaction, to elect to have the Company redeem all
or a portion of the shares of Series B or Series C Preferred Stock beneficially
owned by Cisco by paying the applicable liquidation preference of such shares.
(iii) CLOSING CONTINGENCY. Any payment or conversion obligation
arising under clause (i) or (ii) above shall be satisfied simultaneously with,
and shall be contingent upon, the closing of the Acquisition Proposal the
acceptance of which gave rise thereto.
(f) VOID TRANSACTIONS. Unless the Company shall have complied fully with
all of the procedures and requirements of this Section 1, then any Acquisition
Proposal which the Company may accept, and any transaction it may purport to
effect pursuant thereto, shall be void AB INITIO.
(g) APPLICABILITY AND TERMINATION. Subsections 1(a) through (c) shall
terminate when Cisco no longer beneficially owns (within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended) ("beneficially
owns") 25% of the shares of the Company's common stock beneficially owned by
Cisco immediately following the closing under the Purchase Agreement.
Subsections 1(d) and 1(e) shall terminate at such time as Cisco no longer
beneficially owns 50% the shares of the Company's common stock beneficially
owned by Cisco immediately following the closing under the Purchase Agreement.
Provided the Company has complied with the other subsections herein, Subsections
1(a) through 1(e) shall terminate upon the Company's becoming a party to a
merger, sale of assets or other reorganization in which the holders of the
outstanding shares of the Company prior to such transaction do not retain a
majority of the voting power of the surviving or transferee company or its
parent. Subsection 1(f) shall survive indefinitely.
2. CONFIDENTIALITY.
(a) PRESS RELEASES, ETC. Within sixty (60) days of the Closing, the Company
may issue a press release disclosing that Cisco has invested in the Company;
PROVIDED, that the final form of the press release is approved in advance in
writing by Cisco, such approval not to be unreasonably withheld. Except as
required by applicable law (including without limitation the rules and
regulations of the Securities and Exchange Commission), no other announcement
regarding Cisco's investment to the general public (except to potential bona
fide investors who are under appropriate nondisclosure obligations or in
connection with any roadshows arranged by the Company in preparation of
consummating an Initial Public Offering or pursuant to any pre-effective filing)
may be made without Cisco's prior written consent.
(b) LEGALLY COMPELLED DISCLOSURE. Each of the Company and Cisco will
cooperate in the manner set forth below to seek confidential treatment relating
to any legally required disclosure of the confidential terms of the Agreements
or this Letter Agreement to the extent reasonably requested by the other. Cisco
acknowledges that the Company may be required in connection with consummating a
public offering, and thereafter in connection with various filings under
federal, state and foreign securities laws, to file the Agreements and/or this
Letter Agreement or describe the provisions thereof in publicly available
documents. The Company and Cisco agree, within 30 days prior to the Company's
initial filing with the SEC in connection with its initial public offering, to
meet to discuss the various provisions of the Agreements and/or Letter
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Agreement for which the Company and/or Cisco wish to obtain confidential
treatment, provided that in no event shall the Company be required to request
confidential treatment of any provision of the Agreements or this Letter
Agreement which the lead managing underwriter reasonably requires to be
disclosed. Subject to the foregoing, upon request by Cisco pursuant to the
consultations conducted as a result of the preceding sentence, the Company will
use reasonable efforts to file a confidential treatment request and will
diligently respond with the input and advice of Cisco to SEC comments in
connection with such request; provided, however, that if confidential treatment
of any provision submitted is denied by the SEC staff reviewer, the Company
shall not be required to continue seeking confidential treatment for such
provision and in no event shall the Company be required to delay the
consummation of its initial public offering or any subsequent offering of its
securities because of any attempt to comply with this subsection.
3. CONSULTING ENGAGEMENTS. The Company shall be one of Cisco's inner circle
of networking consultants. This inner circle is intended to be a limited number
of preferred networking consultants, currently comprised of four such companies.
In connection with the Company's preferred status, Cisco will use reasonable
efforts to offer the Company consulting engagements in amounts and frequency as
appropriate given the Company's resources and Cisco's business opportunities. If
the number of preferred networking consultants increases, then Cisco and the
Company shall discuss ways in which the Company would be able to continue to
enjoy the frequency and amounts of business it enjoyed when the number of
preferred networking consultants was no more than four. The parties agree that
the failure of either Cisco or the Company to offer such engagements or to
provide such services shall not give rise to an action for damages, specific
performance or any other legal or equitable remedy, or otherwise affect the
respective rights and obligations of the Company or Cisco under the Agreements
or this Letter Agreement.
4. NON-ASSIGNABILITY. This Letter Agreement shall be binding on the Company
and its successors and permitted assigns. Neither the Company nor Cisco may
assign or transfer this Letter Agreement or any of its rights or obligations
hereunder (other than by operation of law) without the other party's prior
written consent; provided, however, that Cisco may transfer this Letter
Agreement and any of its rights and obligations hereunder to a majority-owned
affiliate thereof.
5. APPLICABLE LAW. The validity, legality, enforceability and interpretation
of this Letter Agreement shall be governed by the laws of the State of
California without giving effect to principles of conflict of laws.
6. HEADINGS. All Section and subsection headings herein are inserted for
convenience only and shall not modify or affect the construction or
interpretation of any provision of this Letter Agreement.
7. SEVERABILITY. In the event any one or more of the provisions contained in
this Letter Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Letter Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
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[signature page follows]
6
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Please acknowledge your agreement with the foregoing terms by
executing a counterpart of this Letter Agreement in the space provided below and
returning an original to the undersigned.
Very truly yours,
CISCO SYSTEMS, INC.
By:
----------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
ACCEPTED AND AGREED THIS
-------
DAY OF DECEMBER, 1999
TOTAL NETWORK SOLUTIONS, INC.
By:
-------------------------------------
Name:
-----------------------------
Title:
----------------------------
cc: Therese A. Mrozek, Esq.
Kenneth G. Alberstadt, Esq.
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Schedule A
CISCO COMPETITORS
Alcatel
Ericcson
Lucent Technologies, Inc.
Microsoft Corporation
Nokia Corporation
Northern Telecom
Siemens
8
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Exhibit 10.13
ALLIANCE AGREEMENT
This Alliance Agreement is entered into on this day of , 2000 by and between
Total Network Solutions, Inc. with offices located at 545 Fifth Avenue, 14th
Floor, New York, NY 10017 ("TNS") and KPMG Consulting, LLC with offices located
at 500 East Middlefield Road, Mountain View, CA, 94043 ("KPMG").
1. PURPOSE. KPMG, a provider of management consulting and system
integration services, and TNS, a provider of network consulting
services, desire to enter into this Alliance for the purpose of jointly
pursuing global market opportunities for network integration, network
and application performance solutions and related services, as agreed
between the Parties (the "Target Markets") which are intended to result
in new revenue to each company. The Alliance Agreement is intended to
structure a relationship such that both KPMG and TNS view each other as
business partners in both client delivery and new product development
opportunities where jointly offering their respective expertise is
anticipated to be effective.
This Agreement covers certain activities necessary for the Parties to
jointly develop and market specific offerings in the Target Markets.
These activities include but are not limited to joint marketing
programs, sales activities, proposal development, program development
to package-integrated offerings, delivery, and support activities for
joint network integration, and performance solutions. It is intended
that multiple projects will be initiated under this Agreement and will
be managed per the guidelines defined herein.
The parties further intend that an Addendum for Participation will
ultimately be the sole and exclusive vehicle for which KPMG member
firms ("Member Firms") may participate or access this Agreement on a
global basis. Each Member Firm that desires to participate under this
Agreement, receive or have access to TNS' services must execute an
Addendum for Participation in the form attached hereto as Exhibit B. If
such addendum is not secured on behalf of a Member Firm, then such
member Firm shall not be permitted to participate in this Agreement.
2. PERIOD OF PERFORMANCE. This Agreement shall be effective for a period
of one year. The parties may mutually agree to extend the term of this
Agreement for two additional renewal periods. Either party may
terminate this Agreement upon thirty (30) days prior written notice to
the other party.
3. SCOPE OF COOPERATION AND INITIAL PROJECTS. The cooperative efforts will
focus initially on four categories:
3.1 NETWORK INTEGRATION SOLUTIONS. KPMG and TNS will deliver
offerings jointly targeted to network integration and directory
enabled applications for IP based networks with the target market
being enterprise and service provider accounts. The capabilities
offered might include architectural design, network engineering,
and network integration. In addition, both Parties may commit to
working together on projects that result from any CISCO
relationship(s) that either Party has which are
<PAGE>
appropriate to the nature of this Alliance relationship. TNS will
to the best of its ability introduce KPMG to existing and future
client opportunities that may require solutions that are aligned
with KPMG's core competencies that include, but are not limited
to, IP Business Strategy, IP Based OSS/BSS integration, new
service creation, directory enabled applications, and service
provisioning (VPN, DSL, Cable modem). In turn, KPMG will to the
best of its ability introduce TNS to existing and future client
opportunities that may require solutions that are aligned with
TNS's core competencies that may include network consulting
services and performance solutions.
3.2 TNS recognizes KPMG has a broad offering of services and
solutions that may be useful to TNS'S installed client base and,
where appropriate, TNS will introduce KPMG or recommend such
services to its clients for the purpose of assisting KPMG in
marketing KPMG's broader offerings and to assist the Parties in
achieving the goals described in Section 5.4 below.
3.3 NETWORK INTEGRATION OFFERINGS PACKAGED AROUND VERTICAL
SOLUTION INITIATIVES. KPMG and TNS will attempt to develop
packaged network integration service and performance offerings
around KPMG led Industry focused Service solution initiatives,
such as, but not limited to Self Service HR, Internet Commerce,
e2e Supply Chain and R2I Oracle. TNS will incentivize its
workforce to introduce client opportunities to KPMG that are
outside its service offerings that are aligned with KPMG's core
solutions such as, but not limited to customer management, ERP,
CRM, supply chain management and e-Engineering.
3.4 GEOGRAPHIC EXPANSION. KPMG IS INTERESTED IN EXPANDING PRESENCE AND
DELIVERY CAPABILITY IN LATIN AMERICA, EUROPE AND ASIA. TNS and
KPMG will work together to develop a market expansion plan for
each region consistent with the available resources of each. To
the extent possible, the parties will attempt to develop a
cooperative relationship with their practices in Europe. The
specifics of the offerings may be similar to the ones identified
in Sections 3.1-3.3 above, or as mutually agreed between the
Parties.
4. TEAMING. The Parties contemplate that their collaboration described in
Section 3 above will enable them to approach mutual customers in the
Target Market in the following ways:
4.1 One Party with an existing customer relationship may
introduce the other Party to that customer, and will thereafter
facilitate the introduced Party's marketing efforts to that
customer - with each Party contracting directly with the mutual
customer; or
4.2 The Parties may team together to jointly present their
respective offerings to a customer, and either: (a) as mutually
agreed one Party will act as "prime contractor" to the customer,
and the other Party will act as a subcontractor to the prime
contractor in order to deliver specialized services and solutions
to the customer; or (b) each Party will contract directly with
the mutual customer for provision of its respective services and
solutions. The Parties will enter into a definitive agreement
before
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undertaking any project contemplated under subsection (a) above.
The Parties agree to develop a Master Services Provisioning Plan
that details how both parties will work together.
Within 30 days of the Effective Date of this Alliance Agreement,
the designated Alliance Managers will develop and publish a
target account program and a project plan to focus their initial
efforts.
5. PERFORMANCE CONDITIONS AND GOALS.
5.1 ALLIANCE MANAGERS. Both Parties shall designate an alliance
manager to serve as the single point of contact to coordinate all
activities between the Parties relative to this Agreement. These
activities include joint account planning sessions, marketing,
technical product development, and sales and solutions delivery.
The following personnel will assist in managing the alliance:
<TABLE>
<CAPTION>
TNS KPMG
--- ----
<S> <C> <C>
Executive Sponsor Bob Foley Dick Kearney
Alliance Manager Giny Ellwell Sharon Hume
</TABLE>
5.2 MARKETING AND SALES ACTIVITIES. Both Parties agree to jointly
enter into marketing and sales activities. These activities shall
include, but not be limited to the following: a joint marketing
event calendar including but not limited to seminars and trade
shows, collateral, white papers, a joint sales plan and sales
kit. The Parties shall promptly create a co-marketing and sales
plan which will identify specific targets, activities,
responsibilities, and schedules to guide the Parties in these
efforts. In that plan, both Parties will attempt to describe the
Solution Development Roles and Responsibilities and the service
Delivery Activities and Responsibilities. This plan will be
evaluated quarterly by TNS and KPMG executive management and
updated collaboratively as necessary by both Parties. All
marketing material developed hereunder shall be subject to the
reasonable review and approval of both Parties.
Each Party will be responsible for its own marketing expenses.
5.3 PERFORMANCE REVIEWS. Both Parties agree that the Alliance
performance will be reviewed on a quarterly basis with a status
report being prepared for the Executive sponsor of the respective
organizations. The performance review shall include but not be
limited to status on revenue generated by the alliance year to
date, sales leads being pursued, planned marketing activity,
joint development activity, and any issues or concerns.
5.4 GOALS. Both Parties will attempt to achieve a minimum
performance threshold for the Alliance to be meaningful to both
parties. KPMG will to the best of its ability identify and assist
TNS in closing deals with a revenue of $20,000,000 in the first
year of this Agreement; $30,000,000 in the second year of this
Agreement and
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$50,000,000 in the third year of this Agreement. TNS will to the
best of its ability introduce KPMG, and assist KPMG in obtaining
ten new accounts and in closing deals with a combined revenue of
$25,000,000 each year of this Agreement. For the purposes of this
section a "year" shall be considered a calendar year beginning
January 1, 2000.
6. TERMINATION FOR CAUSE.
6.1 TERMINATION DUE TO MATERIAL CHANGES IN MARKET CONDITIONS.
Should either Party reasonably conclude that there exists little
or no market opportunity for their joint service offerings, then
such Party shall have the option to terminate this Agreement upon
thirty (30) days prior written notice to the other Party.
6.2 TERMINATION FOR FAILURE TO MEET GOALS. If either Party does
not meet it performance threshold under Section 5.4 the other
Party shall have the option to terminate the alliance agreement
upon thirty (30) days prior written notice to the non-performing
Party. If either party determines that the Alliance is not
resulting in mutually meaningful opportunities it may terminate
this Agreement upon thirty (30) days prior written notice to the
other party.
6.3 CHANGE OF CONTROL. For purposes of this Section 6.3 any sale,
assignment, pledge or other transfer of ten percent (10%)or more
of any of the capital stock (or any other securities) of either
Party will constitute a change of control. Upon execution of any
of the above stated activities written notification must be
provided by the Party undergoing the change of control within
fifteen (15) days and the other Party shall have the option to
terminate this Alliance Agreement upon thirty (30) days prior
written notice, except that KPMG shall have the right to assign
this Agreement, without the prior written consent of TNS to the
successor to substantially all of the assets or business of KPMG.
6.4 TERMINATION PROCESS. Should either Party allege that the
other Party has materially breached this Agreement, the aggrieved
Party shall provide notice in writing of such breach to the
alliance manager of the Party that is alleged to be in breach.
In the event that the two alliance managers cannot resolve the
dispute within ten (10) business days, the dispute shall be
escalated to the executive contacts of each company.
In the event the executive contacts are not able to resolve the
dispute within five (5) business days, either Party may terminate
this Agreement immediately upon written notice to the other. In
the event the resolution provides the breaching party with the
opportunity to cure the breach, this Agreement shall terminate
within fifteen (15) days of the date of notice if the breach is
not cured.
If the dispute is resolved, the resolution shall be provided in
writing to both Parties within five (5) business days.
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<PAGE>
6.5 EFFECT OF TERMINATION. Unless the parties otherwise agree,
Termination of this Agreement shall not impact any active
engagements in process under a SOW.
In the event of a termination of this Agreement, the Parties
shall have no further obligation to each other, except for the
obligation set forth in Sections 7, 8, 10 and 11.1, 11.2, and
11.3.
Upon any termination of this Agreement, each party shall
immediately return all advertising materials and other
properties, including Proprietary Information of the other Party,
except KPMG may retain one copy to ensure compliance with
professional practices. Both parties shall cease acting in a
manner that would suggest any continuing relationship between the
parties relating to this Alliance.
7. MUTUAL CONFIDENTIALITY.
7.1 MUTUAL CONFIDENTIALITY AGREEMENT. The mutual confidentiality
Agreement that has been executed by the Parties is attached
hereto as Exhibit A. All confidential information exchanged by
the Parties will be governed by the terms of Exhibit A.
7.2 PUBLIC DISCLOSURE. Neither Party may individually disclose
and represent to clients or prospects the Alliance relationship,
without the prior written approval of the other Party except to
the extent necessary to perform its obligations hereunder. All
press releases, public announcement, advertisement, publicity or
any disclosures of a public nature require the approval of each
Party's executive sponsor, except for any disclosures required to
be made by law, regulation or court order. Neither party shall
release any information concerning this Alliance, the parties
relationship or any matters arising under this Agreement without
the prior written approval of each party's executive sponsor.
7.3 MARKS. The Parties agree that they will not use in any way
the other party's name, trade names, trademarks, service marks or
other proprietary designations of that party or its affiliates
(collectively, "Marks") without the prior written consent of that
party. Both parties acknowledges the other's exclusive right,
title and interest in the others' Marks. Neither party will be
deemed by anything in this Agreement, or actions taken pursuant
to it, to acquire any right, title or interest in or to any
Marks, or any portion of any marks.
7.4 MUTUAL NON-SOLICITATION. Each Party will agree not to solicit
employees of the other directly involved in providing the
services under this Agreement during the term of the Alliance
provided that any response by an employee of one Party to any
advertisement of employment opportunities made by the other Party
targeted to the general public shall not be deemed to be a breach
of the foregoing provision.
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<PAGE>
8. INTELLECTUAL PROPERTY.
8.1 PRE-EXISTING PRODUCTS AND OTHER INTELLECTUAL PROPERTY. Each
Party shall retain ownership of any of its pre-developed or
separately developed intellectual property (e.g. proprietary
software, commercial off-the-shelf products, platforms, drawings,
reference models, libraries, and technical data). In particular,
the separate property of TNS includes, but is not limited to,
its proprietary methodology, the Productized Service offerings,
and software, tools, specifications, drawings, sketches, models,
samples, records and documentation, as well as copyrights,
trademarks, service marks, ideas, concepts, know-how,
methodologies, techniques, knowledge or data, which have been
originated, developed or purchased by TNS. The separate property
of KPMG includes, but is not limited to, OSS/BSS templates and
methodologies, software, tools, specifications, drawings,
sketches, models, samples, records and documentation, as well as
copyrights, trademarks, service marks, ideas, concepts, know-how,
methodologies, techniques, knowledge or data, which have been
originated, developed or purchased by KPMG. Neither Party shall
have the right to use the intellectual property of the other
without the prior written consent of the other Party, provided
however, to the extent that any separate intellectual property of
either Party is utilized in the development of any service or
software initiatives jointly developed by the Parties under this
Alliance Agreement, the owner of such separate intellectual
property grants to the other a license to use such separate
intellectual property during the term of this Alliance Agreement
only to the extent necessary to meet the initiatives established
herein.
8.2 JOINTLY DEVELOPED INTELLECTUAL PROPERTY. Inventions conceived
solely by employees of TNS shall belong exclusively to TNS.
Inventions conceived solely by employees of KPMG shall belong
exclusively to KPMG. Upon the development of Jointly Developed
Intellectual Property, the Parties shall mutually agree to the
ownership of such Jointly Owned Intellectual Property. Jointly
Owned Intellectual Property shall mean all inventions,
discoveries, technologies, patents, know-how, trademarks,
copyrights, service marks, trade secrets, methods, tools,
routines, techniques, methodologies, know-how, computer programs,
utilities, ideas, process and practices developed jointly by both
Parties under this Agreement. This section may be modified as
required by applicable governmental regulations or the terms of
the prime contract or resultant subcontract between the parties.
Except as stated above, nothing contained in this Agreement shall
be deemed, by implication, estoppel or otherwise, to grant any
right or license in respect of patents, inventions or technical
information at any time owned by the other party.
9. FINANCIAL PERFORMANCE. The intent of this Alliance is to generate new
revenues for each of the Parties. Each Party agrees to use commercially
reasonable efforts to achieve the following:
9.1 ANNUAL REVENUES. Failure to achieve the any hoped for
financial goals specified in Section 5.4 shall not be deemed a
material breach of this Agreement. Neither party shall have any
liability if it fails to successfully promote the products and/or
services of the other party.
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10. REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants to the other that:
(a) it has the right and power to enter into this Agreement and to
grant and convey the rights granted;
(b) entering into this Agreement does not violate the terms and
conditions of any other agreement, or any applicable, law, rule or
regulation;
(c) to the best of its knowledge, the information which it may disclose
to the other party, and the process of disclosure and the use of such
information in accordance with this Agreement will not violate any
trade secret, trademark, patent, copyright or other proprietary right
of any third party;
(d) it holds good title or right, free and clear of all liens and
encumbrances, to the Products and Services which it is providing under
this Agreement;
(e) the Products and Services being provided under this Agreement do
not infringe any copyright, trademark, patent, trade secret or other
proprietary right of any third party; and
(f) EXCEPT AS SPECIFICALLY SET FORTH IN THIS SECTION, NEITHER PARTY
MAKES ANY OTHER WARRANTY AND EACH PARTY HEREBY DISCLAIMS, ALL OTHER
WARRANTIES, EITHER EXPRESS, IMPLIED OR STATUTORY, OR ARISING BY COURSE
OF CONDUCT OR PERFORMANCE, CUSTOM OR USAGE OF TRADE, INCLUDING BUT NOT
LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
11. GENERAL.
11.1 Each Party hereby agrees to indemnify, hold harmless and
defend the other Party from and against any and all claims,
liabilities, losses, expenses (including reasonable attorneys'
fees), fines, penalties, taxes or damages (collectively
"Liabilities") asserted against such other Party by a third party
to the extent such Liabilities result from the claim that the use
of the Indemnifying Party's product constitutes infringement of
any third party's patent issued as of the date of this Agreement
trade secret, trademark or copyright; provided, that such
indemnified Party (i) promptly notifies the indemnifying Party of
any third party claim subject to indemnification hereunder, (ii)
gives the indemnifying Party the right to control and direct the
preparation, defense and settlement of any such claim and (iii)
gives full cooperation to the indemnifying Party for the defense
of same. The foregoing provisions shall not apply to any
infringement arising out of: (i) use of the applicable
intellectual property other than in accordance with applicable
documentation or instructions supplied by the indemnifying Party;
(ii) any alteration, modification or revision of the applicable
intellectual property not expressly authorized in writing by the
indemnifying Party;
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or (iii) the combination of the applicable intellectual property
with materials not supplied by the indemnifying Party.
EXCEPT WITH RESPECT TO SUCH PARTY'S OBLIGATIONS PURSUANT TO
INFRINGMENT HEREOF, EACH PARTY'S MAXIMUM LIABILITY TO THE OTHER
PARTY ARISING FOR ANY REASON RELATING TO THIS AGREEMENT SHALL BE
LIMITED TO THE AMOUNT RECEIVED UNDER THE SOW TO WHICH THE CLAIM
IS REFERRED.
NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, PUNITIVE,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH
OR ARISING OUT OF THIS AGREEMENT (INCLUDING LOSS OF PROFITS),
HOWSOEVER ARISING, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
11.2 INDEPENDENT CONTRACTORS. Each party acknowledges that it is
not and shall not hold itself out as, a joint venturer,
franchisee, partner, employee, servant, representative or agent
of the other party. It is expressly agreed that the parties are
acting as independent contractors for their own account and under
no circumstances shall any employee of one party be deemed an
employee of the other party for any purpose. This agreement shall
not be construed as authority for any party to act for another
party in any agency or other capacity, or to make commitments of
any kind for the account of or on behalf of the other party.
Neither party is responsible to any Customer for the quality of
Services or Products provided by the other party.
11.3 Neither party is or may act as a distributor or agent for
the products or services of the other Party. Each party's
products and services shall be available to a prospective
Customer only through a separate agreement between that party and
the Customer, unless the parties agree to a subcontractor
relationship for a particular engagement. Each party shall
independently develop and price its respective products and
services in a separate agreement between such party and the
Customer or as may be agreed to in a SOW or subcontractor
agreement. No Party shall be or become liable or bound by any
representation, act or omission whatsoever of any other Party.
11.4 All costs incurred by each Party in connection with this
Alliance shall be the responsibility of the Party incurring the
costs, unless a written agreement executed by the Parties'
authorized representatives has been signed that expresses a
specific agreement with respect to certain costs.
11.5 Neither party shall assign, transfer, or subcontract this
Agreement or any of its obligations hereunder without the other
party's express, prior written consent. Notwithstanding the
foregoing, KPMG shall have the right to assign without prior
consent or approval of TNS to the successor to substantially all
of the assets and business of KPMG.
11.6 This Alliance Agreement constitutes the entire agreement
between the Parties and may not be amended excepted in writing
signed by an officer of both Parties. This
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Agreement shall be governed by the laws of New York, without
regard to any conflict of laws provisions.
11.7 This Agreement is non-exclusive. Nothing in this Agreement
shall limit or restrict either party from entering into or
continuing any agreement or other arrangement with any third
party, whether or not similar to this Agreement in nature and
scope.
KPMG CONSULTING, LLC
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Date:
-------------------------------------
TOTAL NETWORK SOLUTIONS, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Date:
-------------------------------------
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EXHIBIT A
CONFIDENTIAL DISCLOSURE AGREEMENT
EFFECTIVE DATE:
In order to protect certain confidential information, TNS Systems, Inc.,
("TNS"), and KPMG LLP ("KPMG") and their corporate affiliates, agree that:
1. DISCLOSING PARTY: The Parties disclosing confidential information (each a
"Discloser or the "Disclosing Party") are KPMG and TNS.
2. PRIMARY REPRESENTATIVE: Each Party's representative for coordinating
disclosure or receipt of confidential information is:
KPMG: Dick Kearney
TNS: Bob Foley
3. DESCRIPTION OF CONFIDENTIAL INFORMATION: "Confidential Information" means
any information, technical data, or know-how (including, but not limited to,
information relating to research, products, software, services, development,
inventions, processes, engineering, marketing, techniques, customers, pricing,
internal procedures, business and marketing plans or strategies, finances,
employees and business opportunities) disclosed by the Disclosing Party to a
Recipient either directly or indirectly in any form whatsoever (including, but
not limited to, in writing, in machine readable or other tangible form, orally
or visually): (i) that has been marked as confidential; (ii) whose confidential
nature has been made known by Disclosing Party, orally or in writing, to such
Recipient; or (iii) that due to its character and nature, a reasonable person
under like circumstances would treat as confidential.
4. USE OF CONFIDENTIAL INFORMATION: The Party receiving confidential
information ("Recipient") shall make use of the confidential information only
for the furtherance of any mutually agreed upon projects and engagements.
Recipient agrees not to use the Confidential Information for its own use or for
any purposes except those purposes expressly set forth above. Recipient shall
not use the Confidential Information for purposes of unfair or improper
competition. Recipient agrees not to copy, alter, modify, disassemble, reverse
engineer or decompile any of the materials unless permitted in writing by the
Disclosing Party.
5. CONFIDENTIALITY PERIOD: This Agreement and Recipient's duty to hold
confidential information in confidence shall survive any expiration or
termination of this Agreement in perpetuity.
6. DISCLOSURE PERIOD: This Agreement pertains to confidential information that
is disclosed between the Effective Date and the date any Party hereto terminates
this Agreement.
7. STANDARD OF CARE: Recipient agrees not to disclose the Confidential
Information to any third parties or to any of its employees except those
employees who have a need to know the Confidential Information for accomplishing
the stated purposes described herein and where such
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<PAGE>
employees shall be made aware that the information is confidential and shall be
under a written contractual restriction on nondisclosure and proper treatment of
confidential information that is no less restrictive than the terms of this
Agreement. Notwithstanding the foregoing, Recipient may disclose the Disclosing
Party's Confidential Information to the extent required by a valid order by a
court or other governmental body or by applicable law; provided, however, that
Recipient will use all reasonable efforts to notify Disclosing Party of the
obligation to make such disclosure in advance of the disclosure so that
Disclosing Party will have a reasonable opportunity to object to such
disclosure.
Recipient shall protect the disclosed confidential information by using the same
degree of care, but no less than a reasonable degree of care, to prevent the
unauthorized use, dissemination, or publication of the confidential information
as Recipient uses to protect its own confidential information of a like nature.
Recipient agrees to advise the Disclosing Party in writing of any
misappropriation or misuse by any person of such Confidential Information of
which Recipient may become aware.
8. EXCLUSIONS: This Agreement imposes no obligation upon Recipient with respect
to information that: (a) was in Recipient's possession before receipt from
Discloser; (b) is or becomes a matter of public knowledge through no fault of
Recipient; (c) is rightfully received by Recipient from a third Party without a
duty of confidentiality; (d) is disclosed by Discloser to a third party without
a duty of confidentiality on the third party; (e) is independently developed by
Recipient without reference to another party's Confidential Information; (f) is
disclosed under operation of law; or (g) is disclosed by Recipient with
Discloser's prior written approval.
9. WARRANTY: Each Discloser warrants that it has the right to make the
disclosures under this Agreement. NO OTHER WARRANTIES ARE MADE BY EITHER PARTY
UNDER THIS AGREEMENT. ANY INFORMATION EXCHANGED UNDER THIS AGREEMENT IS PROVIDED
"AS IS".
10. MISCELLANEOUS:
a. This Agreement imposes no obligation on any Party to purchase, sell, license,
transfer or otherwise dispose of any technology, services or products.
b. The Parties shall adhere to all applicable laws, regulations and rules
relating to the export of technical data, and shall not export or re-export any
technical data, any products received from Discloser, or the direct product of
such technical data to any proscribed country listed in such applicable laws,
regulations and rules unless properly authorized.
c. This Agreement does not create any agency or partnership relationship.
d. This Agreement represents the entire Agreement between the Parties as to the
matters set forth herein and supersedes all prior discussions, representations
or understandings between them. All additions or modifications to this Agreement
must be made in writing and must be signed by the Parties.
e. This Agreement is made under, and shall be construed according to, the laws
of the State of New York, U.S.A. The parties agree that all litigation or other
legal proceedings under this
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Agreement shall be brought in the state courts of the State of New York and the
United States District Courts located therein and the parties hereby submit to
the exclusive personal and subject matter jurisdiction and venue of such courts.
The validity, interpretation and performance of this Agreement shall be based
upon New York law.
f. Neither party shall communicate any information to the other in violation of
the proprietary rights of any third party.
g. Any materials or documents of Disclosing Party which are furnished to
Recipient, and all copies thereof, at the earlier of Disclosing Party's request
for return of the materials, or the termination of the business relationship
between the Disclosing Party and Recipient, at the Disclosing Party's option,
will either be: (i) promptly returned to the Disclosing Party; or (ii) destroyed
by Recipient (with Recipient providing written certification of such
destruction). However, KPMG may retain one copy for compliance with professional
standards.
h. The Confidential Information shall remain the sole property of the Disclosing
Party. No license is granted to Recipient under any patents, copyrights, mask
work rights or other proprietary rights by the disclosure of any information
hereunder, nor is any warranty made as to such information.
i. Recipient understands and agrees that the Disclosing Party is providing the
Confidential Information to Recipient in reliance upon this Agreement, and
Recipient will be fully responsible to the Disclosing Party for any damages or
harm caused to the Disclosing Party by a breach of this Agreement by Recipient
or any of its officers, directors, employees, consultants or affiliates.
Recipient acknowledges and agrees that a breach of any of its promises or
agreements contained herein will result in irreparable injury to the Disclosing
Party for which there will be no adequate remedy at law, and the Disclosing
Party shall be entitled to apply for equitable relief, including injunction and
specific performance, in the event of any breach or threatened breach or
intended breach of this Agreement by Recipient. Such remedies, however, shall
not be deemed to be the exclusive remedies for any breach of the Agreement but
shall be in addition to all other remedies available at law or in equity.
j. In the event of any litigation or other legal proceedings between the
parties, the prevailing party shall be entitled to reasonable attorneys' fees
and all costs of proceedings incurred in enforcing this Agreement. shall be
governed by the laws of the State of New York, excluding its conflict of law
rules.
k. This Agreement may be amended or modified only in writing signed on behalf of
Recipient and an authorized representative of the Disclosing Party.
l. If any provision of this Agreement is found by a proper authority to be
unenforceable or invalid, such unenforceability or invalidity shall not affect
the other provisions of this Agreement and the unenforceable or invalid
provision shall be construed to be amended in order to avoid such
unenforceablility or invalidity while preserving as closely as possible the
intent of the parties.
m. Neither party shall assign, transfer, or subcontract this Agreement or any of
its obligations hereunder without the other party's express, prior written
consent. Notwithstanding the
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foregoing, (i) to the extent any of the Services will be performed in or relate
to a jurisdiction outside of the United States, KPMG shall have the right,
without the prior consent or approval of TNS, to subcontract the performance of
such Services to the member firm of KPMG International practicing in such
jurisdiction and (ii) KPMG shall have the right to assign without prior consent
or approval of TNS to the successor to substantially all of the assets and
business of KPMG.
n. All notices or reports permitted or required under this Agreement shall be in
writing and shall be by personal delivery, nationally recognized overnight
courier service, facsimile transmission or by certified or registered mail,
return receipt requested, and shall be deemed given upon the earlier of actual
receipt or one (1) day after deposit with the courier service, or receipt by
sender of confirmation of electronic transmission or five (5) days after deposit
in the mail. Notices shall be sent to the addresses set forth at the end of this
Agreement or such other address as either party may specify in writing.
KPMG CONSULTING LLC
Address:
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By:
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Date:
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Name:
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Title:
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TOTAL NETWORK SOLUTIONS, INC.
Address:
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By:
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Date:
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Name:
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Title:
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EXHIBIT B
ADDENDUM FOR PARTICIPATION TO THE ALLIANCE AGREEMENT]
This Addendum amends the Alliance Agreement between KPMG Consulting, LLC and
Total Network Solutions, Inc. dated ______________, 2000.
The Parties, being the entities doing business in the participating country,
agree that the terms and sections of this Addendum and the performance hereunder
will dictate and supersede any corresponding terms and sections of the initial
Alliance Agreement in connection with the sale and license of Products and
Services by the Parties and the remarketing of those Products and Services by
the parties and their respective affiliates.
The Parties further agree that any fee or payment schedules, conditions for
termination and any and all deemed material default committed by and between the
Parties will abide solely with the Parties executing this Addendum. Neither
Party will seek payment resolution, termination rights, or material default
remedies or cures from any affiliate nor subsidiary of the other in connection
with this Addendum.
THE AGREEMENT IS AMENDED AS FOLLOWS:
A. Territory in Master Agreement is expanded to include: [specify participating
country]
B. Related Terms and Conditions:
C. Offerings covered under this Addendum:
D. Training covered under this Addendum:
E. Business and Market Planning Team/Roles and Responsibilities:
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Except as indicated in this Addendum, the Alliance Agreement shall remain
unchanged.
Agreed and Accepted:
Total Network Solutions, Inc. KPMG Consulting, LLC
By:_________________________ By____________________________
Name: Name:
Title: Title: Sponsoring Partner (local)
Date:_______________________ Date:______________________
APPROVED:
By__________________________
Name:
Title: Sponsoring Partner (in host country)
Date:______________________
15
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Exhibit 10.14
Employment Agreement, dated as of
August 19, 1998 (the "Effective Date"), by and
between Total Network Solutions, Inc., a New York
corporation (the "Employer"), and William Nachtigal,
an individual (the "Employee").
In consideration of the agreements, provisions and covenants
herein contained, Employer and Employee hereby agree as follows:
1. EMPLOYMENT AND TITLE
The Employer engages and employs the Employee, and the
Employee hereby accepts engagement and employment, as Managing Director --
Professional Services and Vice President of the Employer. The Employee shall
devote his full professional time and efforts to the proper discharge of his
duties and responsibilities under this Agreement.
2. TERM
The Employee's employment hereunder shall, unless earlier
terminated in accordance with Section 9, be for a term of three years commencing
on the Effective Date and continuing through the third anniversary of such date
(the "Term").
3. COMPENSATION
(a) As compensation for the performance of his duties on
behalf of the Employer, the Employee shall be compensated during the Term as
follows:
(i) the Employee shall be paid a base salary of not
less than $110,000 per annum, subject to increase at the discretion of
the Compensation Committee (the "Compensation Committee") of the Board
of Directors of Employer (the "Board"); and
(ii) A nondiscretionary bonus of not less than
$120,000. In addition, the Employee shall be eligible to be
considered for a discretionary bonus as determined by the
Compensation Committee.
The Compensation Committee shall meet with the Employee as
necessary to establish such goals and performance standards as such Committee
determines are to be taken into account in determining the Employee's
discretionary bonus awards provided for above.
The Employer shall withhold all applicable federal, state and
local taxes, social security and workers' compensation contributions and such
other amounts as may be required by law or agreed upon by the parties with
respect to the compensation payable to the Employee pursuant to this section
3(a) or otherwise in connection with his employment by the Employer.
(b) The Employee will be considered annually by the
Compensation Committee for an award of stock options pursuant to the Employer's
1998 Stock Option/Stock Issuance Plan or any successor plans or programs of the
Employer.
<PAGE>
(c) The Employer shall reimburse the Employee for all normal,
usual and necessary expenses incurred by the Employee in furtherance of the
business and affairs of the Employer, including reasonable travel and
entertainment, against receipt by the Employer of appropriate vouchers or other
evidence of the Employee's expenditures and otherwise in accordance with such
expense reimbursement policy as may from time to time be adopted by the Board.
(d) The Employee shall be entitled, during the Term, to not
less than three weeks per year of paid vacation time. The days selected for the
Employee's vacation must be mutually agreeable to the Employer and the Employee.
(e) During the Term, the Employee shall be entitled to
participate in any group insurance, hospitalization, medical, dental, health and
accident, disability or similar plan or program of Employer now existing or
established hereafter to the extent that he is eligible under the general
provisions thereof and in any other benefit programs made available to executive
officers of the Employer generally.
(f) The Employee shall continue to be entitled to receive his
salary and benefits hereunder for any period during which he is unable to
perform his duties hereunder because of ill health or Disability (as defined
below). Subject to paragraphs (d) through (f) of Section 9 below, the Employee
must be an employee of the Employer at the time that any compensation is due in
order to receive such compensation.
4. REPRESENTATIONS AND WARRANTIES BY THE EMPLOYEE AND EMPLOYER
The Employee hereby represents and warrants to the Employer as
follows:
(a) Neither the execution and delivery of this Agreement nor
the performance by the Employee of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or conflict
with or constitute a default under (whether immediately, upon the giving of
notice or lapse of time or both) any prior employment agreement, contract, or
other instrument to which the Employee is a party or by which he is bound.
(b) The Employee has the full right, power and legal capacity
to execute and deliver this Agreement and to perform his duties and other
obligations hereunder. This Agreement constitutes the legal, valid and binding
obligation of the Employee enforceable against him in accordance with its terms.
The Employer hereby represents and warrants to the Employee as
follows:
(a) The Employer is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, with all
requisite corporate power and authority to own its properties and conduct its
business in the manner presently contemplated.
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<PAGE>
(b) The Employer has full power and authority to enter into
this Agreement and to incur and perform its obligations hereunder. This
Agreement constitutes the legal, valid and binding obligation of the Employer
enforceable against the Employer in accordance with its terms.
(c) The execution, delivery and performance by the Employer of
this Agreement does not conflict with or result in a breach or violation of or
constitute a default under (whether immediately, upon the giving of notice or
lapse of time or both) the certificate of incorporation or by-laws of the
Employer, or any agreement or instrument to which the Employer is a party or by
which the Employer or any of its properties may be bound or affected.
5. NON-COMPETITION
(a) The Employee understands and recognizes that his services
to the Employer are special and unique and agrees that, during the Term and for
a period of one year from the date of termination of his employment hereunder,
he shall not in any manner, directly or indirectly, on behalf of himself or any
person, firm, partnership, joint venture, corporation or other business entity
("Person"), enter into or engage in any business directly competitive with the
Employer's business of providing consulting services relating to the design and
implementation of computer networks, either as an individual for his own
account, or as a partner, joint venturer, employee, agent, consultant,
salesperson, officer, director or shareholder of a Person operating or intending
to operate within the area in which the Employer is, at the date of termination,
conducting its business (collectively, "Restricted Businesses"); provided,
however, that nothing herein will preclude the Employee from holding one percent
(1%) or less of the stock of any publicly traded company. This paragraph 5(a)
shall be null and void in the event the Employer fails to make any payment due
to the Employee pursuant to Section 9(d), 9(e) or 9(f) within five business days
after notice of such failure by the Employee to the Employer.
(b) During the Term and for one year thereafter, the Employee
shall not, directly or indirectly, without the prior written consent of the
Employer (i) interfere with, disrupt or attempt to disrupt (through solicitation
or otherwise) any past, present or prospective relationship, contractual or
otherwise, between the Employer and any of its licensors, licensees, clients,
customers, suppliers, employees or others, or solicit or induce for hire any of
the employees, agents, consultants or advisors of the Employer or any employee
who has left the employment of the Employer within one year of the termination
of said employee's employment with the Employer, (ii) solicit or accept
employment or be retained by any party who, at any time during the Term, was a
customer, client or supplier of the Employer or (iii) solicit or accept the
business of any customer or client or supplier of the Employer with respect to
products or services similar to those previously supplied by the Employer to
such customer or client.
6. DISCLOSURE AND ASSIGNMENT OF INVENTIONS
(a) During the Term, the Employee agrees that he will promptly
disclose to the Employer, or any persons designated by the Employer, all
improvements, inventions, designs, ideas, works of authorship, copyrightable
works, discoveries, trademarks, copyrights,
3
<PAGE>
trade secrets, formulas, processes, structures, product concepts, marketing
plans, strategies, customer lists, information about the Employer's employees
and/or Employees (including, without limitation, job performance of such
employees and/or Employees), techniques, blueprints, sketches, records, notes,
devices, drawings, know-how, data, whether or not patentable, patent
applications, continuation applications, continuation-in-part applications, file
wrapper continuation applications and divisional applications, made or conceived
or reduced to practice or learned by him, either alone or jointly with others,
during the Term (collectively, the "Inventions").
(b) Employee agrees that all Inventions shall be the sole
property of the Employer to the maximum extent permitted by applicable law and
to the extent permitted by law shall be "works made for hire" as that term is
defined in the United States Copyright Act (17 USCA, Section 101). The Employer
shall be the sole owner of all patents, copyrights, trade secret rights, and
other intellectual property or other rights in connection therewith. Employee
hereby assigns to the Employer all right, title and interest he may have or
acquire in all Inventions. Employee further agrees to assist the Employer in
every proper way (but at the Employer's expense) to obtain and from time to time
enforce patents, copyrights or other rights on said Inventions in any and all
countries, and to that end the Employee will execute all documents necessary to
(i) apply for, obtain and vest in the name of the Employer alone (unless the
Employer otherwise directs) letters patent, copyrights or other analogous
protection in any country throughout the world and when so obtained or vested to
renew and restore the same and (ii) to defend any opposition proceedings in
respect of such applications and any opposition proceedings or petitions or
applications for revocation of such letters patent, copyright or other analogous
protection.
(c) The Employee's obligation to assist the Employer in
obtaining and enforcing patents and copyrights for the Inventions in any and all
countries shall continue beyond the Term, but the Employer agrees to compensate
the Employee at a reasonable rate after the expiration of the Term for time
actually spent by the Employee at the Employer's request on such assistance.
7. CONFIDENTIALITY
The Employee agrees that at any time during or after the
Employee's employment with the Employer, the Employee will not, directly or
indirectly, without the prior written authorization of the Employer, disclose or
make accessible to any person or entity other than the Employer any confidential
information or material of the Employer or its affiliates or any information or
material received during the course of the Employee's employment from third
parties such as the Employer's customers and suppliers (collectively, the
"Material"). The Employee agrees, during the Employee's employment with the
Employer, not to take any such Material or reproductions thereof from the
Employer's or its clients' facilities, except as required in the performance of
the Employee's duties to the Employer. The Employee agrees immediately to return
all such Material and reproductions thereof in the Employee's possession to the
Employer upon request and in any event upon termination of Employee's employment
with the Employer. In the event that the Employee is required as a matter of law
or pursuant to any subpoena or other legal process to disclose any Material, the
Employee shall take all
4
<PAGE>
reasonable steps to ensure the confidential treatment of such Material and shall
promptly notify the Employer and shall use his or her best efforts to assist the
Employer in obtaining such confidential treatment.
8. EQUITABLE RELIEF
In the event that the Employee breaches any provisions of
Section 5, 6 or 7 or there is a threatened breach, then, in addition to any
other rights which the Employer may have, the Employer shall be entitled,
without the posting of a bond or other security, to injunctive relief to enforce
the restrictions contained herein. In the event that an actual proceeding is
brought in equity to enforce the provisions of Section 5, 6 or 7, the Employee
shall not urge as a defense that there is an adequate remedy at law nor shall
the Employer be prevented from seeking any other remedies which may be
available.
9. TERMINATION
(a) The Employee's employment hereunder shall begin on the
Effective Date and shall continue for the period set forth in Section 2 hereof
unless sooner terminated upon the first to occur of the following events:
(i) The death of the Employee;
(ii) The Disability (as defined below) of the
Employee;
(iii) Termination by the Board of Directors of the
Employer for just cause. Any of the following actions by the
Employee shall constitute just cause:
(A) Material breach by the Employee of Section 5
of this Agreement;
(B) So long as no Change of Control (as defined
below) has occurred, material breach by the Employee
of any provision of this Agreement other than Section
5 which is not cured by the Employee within 30 days
of written notice thereof from the Employer;
(C) negligent or, for one year after a Change of
Control, grossly negligent performance by the
Employee of his duties as Managing Director --
Professional Services and Vice President of the
Employer, as determined in good faith by the Board
after notice to the Employee of the alleged
negligence or gross negligence and an opportunity for
the Employee to confer with the Board;
(D) Any misconduct or omission on the part of
the Employee intended to cause harm to the Employer;
or
(E) The conviction of the Employee of any felony
or crime involving moral turpitude.
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<PAGE>
(iv) Termination by the Employee for good reason. Any
of the following actions or omissions by the Employer shall
constitute good reason:
(A) Material breach by the Employer of any
provision of this Agreement which is not cured by the
Employer within 30 days of written notice thereof
from the Employee;
(B) Any misconduct or omission on the part of
the Employer intended to cause material harm to the
Employee;
(C) A determination by the Board to move the
headquarters of the Employer more than 30 miles from
New York City;
(D) Following a Change of Control (as defined
below), either
(I) The failure of the Employer to
provide the Employee with a position, authority
or duties at least equivalent to the most
significant position, authority or duties (other
than those relating to the Board of Directors or
any committee thereof) held by the Employee
during the 120 days ending on the date of the
Change of Control; or
(II) The imposition of extraordinary
travel obligations on the Employee three times
in any six-month period. For such purpose, an
"extraordinary travel obligation" shall mean any
requirement by the Employer that the Employee
travel outside the New York City area for more
than ten business days in any 30-business day
period.
(b) For purposes hereof, a "Change of Control" shall be deemed
to have occurred in the event either
(i) any person or group acquires beneficial ownership
of more than 50% of the then outstanding common stock of the
Employer; or
(ii) a merger, consolidation or sale or other
disposition of all or substantially all of the assets of the
Employer (a "Business Combination") is consummated unless,
following such Business Combination, at least a majority of
the members of the Board of Directors of the surviving entity
or transferee were members of the Board of Directors of the
Employer at the time of the initial action of the Board of
Directors providing for such Business Combination.
(c) For purposes hereof, a "Disability" of the Employee shall
be deemed to have occurred in the event (i) the Employee is absent from work or
otherwise substantially unable to assume his normal duties for a period of 30
successive days or an aggregate of 60 days during any 12-month period because of
physical or mental disability, accident, illness or other cause other than
approved vacation or leave of absence or (ii) the Employee is deemed by a
licensed physician
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<PAGE>
designated by the Employer and reasonably acceptable to the Employee to have a
permanent disability such that Employee will be unable to perform his duties
under this agreement (it being understood that the Employer shall have the right
to have the Employee examined by such physician).
(d) Upon termination by Employer pursuant to either
subparagraphs (i), (ii) or (iii) of paragraph (a) above or by Employee other
than pursuant to subparagraph (iv) of paragraph (a) above, the Employee (or his
estate in the event of termination pursuant to subparagraph (i)), shall be
entitled to receive the Employee's base salary accrued but unpaid as of the date
of termination.
(e) Upon termination by the Employer (other than within one
year following a Change of Control) for any reason other than as set forth in
subparagraphs (i), (ii) or (iii) of paragraph (a) above or by the Employee for
any reason set forth in clause (A), (B) or (C) of subparagraph (iv) of paragraph
(a) above, then the Employer shall continue to pay the Employee, for one year
following such termination, at a per annum rate of $230,000 in accordance with
the Employer's normal payroll practices. Any stock options granted to the
Employee shall become immediately vested in full upon such termination.
(f) Upon termination by the Employer (other than as set forth
in subparagraph (i), (ii) or (iii) of paragraph (a) above) within one year
following a Change of Control or by the Employee pursuant to clause (D) of
subparagraph (iv) of paragraph (a) above within one year following a Change of
Control, then the Employer shall pay the Employee, as the Employee's sole
damages for such termination, a lump sum payment equal to $230,000. In addition,
any stock options granted to the Employee shall thereupon become immediately
vested.
(g) It shall be a condition to the Employee's right to receive
the benefits provided for in paragraphs (d) through (f) above that the Employee
shall have delivered to the Employer a general release (excluding Employee's
rights pursuant to this agreement, any benefit plans of the Company explicitly
providing benefits subsequent to termination, rights under COBRA and rights
under stock option or comparable agreements) dated as of the date of termination
of the Employee's employment hereunder.
10. NOTICES
Any notice or other communication under this Agreement shall
be in writing and shall be deemed to have been given: when delivered personally
against receipt therefor; one (1) day after being sent by Federal Express or
similar overnight delivery; or three (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to either party at
the address set forth below, or to such other address as such party shall give
by notice hereunder to the other party.
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If to Employer:
Total Network Solutions, Inc.
545 Fifth Avenue, 14th Floor
New York, NY 10017
Att: Rami Musallam
If to Employee:
William Nachtigal
325 Riverside Drive, Apt. 83
New York, New York 10025
11. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a
court of competent jurisdiction to be invalid, illegal or incapable of being
enforced in whole or in part, the remaining conditions and provisions or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provision shall be deemed dependent upon any other covenant or provision unless
so expressed herein.
12. ENTIRE AGREEMENT; MODIFICATION
This Agreement contains the entire agreement of the parties
relating to the subject matter hereof and supersede in their entirety any prior
employment agreements entered into between the parties, and the parties hereto
have made no agreements, representations or warranties relating to the subject
matter of this Agreement which are not set forth herein. No modification of this
Agreement shall be valid unless made in writing and signed by the parties
hereto.
13. BINDING EFFECT
The rights, benefits, duties and obligations under this
Agreement shall inure to, and be binding upon, the Employer, its successors and
assigns, and upon the Employee and his legal representatives. This Agreement
constitutes a personal service agreement, and the performance of the Employee's
obligations hereunder may not be transferred or assigned by the Employee.
14. NON-WAIVER
The failure of either party to insist upon the strict
performance of any of the terms, conditions and provisions of this Agreement
shall not be construed as a waiver or relinquishment of future compliance
therewith, and said terms, conditions and provisions shall remain in full force
and effect. No waiver of any term or condition of this Agreement on the part of
either party shall be effective for any purpose whatsoever unless such waiver is
in writing and signed by such party.
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15. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York without regard
to principles of conflict of laws.
16. HEADINGS
The headings of paragraphs are inserted for convenience and
shall not affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
-------------------------------
William Nachtigal
TOTAL NETWORK SOLUTIONS, INC.
By: __________________________
Name:
Title:
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Exhibit 10.15
Employment Agreement, dated as of
August 19, 1998 (the "Effective Date"), by and
between Total Network Solutions, Inc., a New York
corporation (the "Employer"), and Stephen Zimmerman,
an individual (the "Employee").
In consideration of the agreements, provisions and covenants
herein contained, Employer and Employee hereby agree as follows:
1. EMPLOYMENT AND TITLE
The Employer engages and employs the Employee, and the
Employee hereby accepts engagement and employment, as Managing Director --
Business Operations, Secretary and Treasurer of the Employer. The Employee shall
devote his full professional time and efforts to the proper discharge of his
duties and responsibilities under this Agreement.
2. TERM
The Employee's employment hereunder shall, unless earlier
terminated in accordance with Section 9, be for a term of three years commencing
on the Effective Date and continuing through the third anniversary of such date
(the "Term").
3. COMPENSATION
(a) As compensation for the performance of his duties on
behalf of the Employer, the Employee shall be compensated during the Term as
follows:
(i) the Employee shall be paid a base salary of not
less than $110,000 per annum, subject to increase at the discretion of
the Compensation Committee (the "Compensation Committee") of the Board
of Directors of Employer (the "Board"); and
(ii) A nondiscretionary bonus of not less than
$120,000. In addition, the Employee shall be eligible to be
considered for a discretionary bonus as determined by the
Compensation Committee.
The Compensation Committee shall meet with the Employee as
necessary to establish such goals and performance standards as such Committee
determines are to be taken into account in determining the Employee's
discretionary bonus awards provided for above.
The Employer shall withhold all applicable federal, state and
local taxes, social security and workers' compensation contributions and such
other amounts as may be required by law or agreed upon by the parties with
respect to the compensation payable to the Employee pursuant to this section
3(a) or otherwise in connection with his employment by the Employer.
(b) The Employee will be considered annually by the
Compensation Committee for an award of stock options pursuant to the Employer's
1998 Stock Option/Stock Issuance Plan or any successor plans or programs of the
Employer.
<PAGE>
(c) The Employer shall reimburse the Employee for all normal,
usual and necessary expenses incurred by the Employee in furtherance of the
business and affairs of the Employer, including reasonable travel and
entertainment, against receipt by the Employer of appropriate vouchers or other
evidence of the Employee's expenditures and otherwise in accordance with such
expense reimbursement policy as may from time to time be adopted by the Board.
(d) The Employee shall be entitled, during the Term, to not
less than three weeks per year of paid vacation time. The days selected for the
Employee's vacation must be mutually agreeable to the Employer and the Employee.
(e) During the Term, the Employee shall be entitled to
participate in any group insurance, hospitalization, medical, dental, health and
accident, disability or similar plan or program of Employer now existing or
established hereafter to the extent that he is eligible under the general
provisions thereof and in any other benefit programs made available to executive
officers of the Employer generally.
(f) The Employee shall continue to be entitled to receive his
salary and benefits hereunder for any period during which he is unable to
perform his duties hereunder because of ill health or Disability (as defined
below). Subject to paragraphs (d) through (f) of Section 9 below, the Employee
must be an employee of the Employer at the time that any compensation is due in
order to receive such compensation.
4. REPRESENTATIONS AND WARRANTIES BY THE EMPLOYEE AND EMPLOYER
The Employee hereby represents and warrants to the Employer as
follows:
(a) Neither the execution and delivery of this Agreement nor
the performance by the Employee of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or conflict
with or constitute a default under (whether immediately, upon the giving of
notice or lapse of time or both) any prior employment agreement, contract, or
other instrument to which the Employee is a party or by which he is bound.
(b) The Employee has the full right, power and legal capacity
to execute and deliver this Agreement and to perform his duties and other
obligations hereunder. This Agreement constitutes the legal, valid and binding
obligation of the Employee enforceable against him in accordance with its terms.
The Employer hereby represents and warrants to the Employee as
follows:
(a) The Employer is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, with all
requisite corporate power and authority to own its properties and conduct its
business in the manner presently contemplated.
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(b) The Employer has full power and authority to enter into
this Agreement and to incur and perform its obligations hereunder. This
Agreement constitutes the legal, valid and binding obligation of the Employer
enforceable against the Employer in accordance with its terms.
(c) The execution, delivery and performance by the Employer of
this Agreement does not conflict with or result in a breach or violation of or
constitute a default under (whether immediately, upon the giving of notice or
lapse of time or both) the certificate of incorporation or by-laws of the
Employer, or any agreement or instrument to which the Employer is a party or by
which the Employer or any of its properties may be bound or affected.
5. NON-COMPETITION
(a) The Employee understands and recognizes that his services
to the Employer are special and unique and agrees that, during the Term and for
a period of one year from the date of termination of his employment hereunder,
he shall not in any manner, directly or indirectly, on behalf of himself or any
person, firm, partnership, joint venture, corporation or other business entity
("Person"), enter into or engage in any business directly competitive with the
Employer's business of providing consulting services relating to the design and
implementation of computer networks, either as an individual for his own
account, or as a partner, joint venturer, employee, agent, consultant,
salesperson, officer, director or shareholder of a Person operating or intending
to operate within the area in which the Employer is, at the date of termination,
conducting its business (collectively, "Restricted Businesses"); provided,
however, that nothing herein will preclude the Employee from holding one percent
(1%) or less of the stock of any publicly traded company. This paragraph 5(a)
shall be null and void in the event the Employer fails to make any payment due
to the Employee pursuant to Section 9(d), 9(e) or 9(f) within five business days
after notice of such failure by the Employee to the Employer.
(b) During the Term and for one year thereafter, the Employee
shall not, directly or indirectly, without the prior written consent of the
Employer (i) interfere with, disrupt or attempt to disrupt (through solicitation
or otherwise) any past, present or prospective relationship, contractual or
otherwise, between the Employer and any of its licensors, licensees, clients,
customers, suppliers, employees or others, or solicit or induce for hire any of
the employees, agents, consultants or advisors of the Employer or any employee
who has left the employment of the Employer within one year of the termination
of said employee's employment with the Employer, (ii) solicit or accept
employment or be retained by any party who, at any time during the Term, was a
customer, client or supplier of the Employer or (iii) solicit or accept the
business of any customer or client or supplier of the Employer with respect to
products or services similar to those previously supplied by the Employer to
such customer or client.
6. DISCLOSURE AND ASSIGNMENT OF INVENTIONS
(a) During the Term, the Employee agrees that he will promptly
disclose to the Employer, or any persons designated by the Employer, all
improvements, inventions, designs, ideas, works of authorship, copyrightable
works, discoveries, trademarks, copyrights,
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trade secrets, formulas, processes, structures, product concepts, marketing
plans, strategies, customer lists, information about the Employer's employees
and/or Employees (including, without limitation, job performance of such
employees and/or Employees), techniques, blueprints, sketches, records, notes,
devices, drawings, know-how, data, whether or not patentable, patent
applications, continuation applications, continuation-in-part applications, file
wrapper continuation applications and divisional applications, made or conceived
or reduced to practice or learned by him, either alone or jointly with others,
during the Term (collectively, the "Inventions").
(b) Employee agrees that all Inventions shall be the sole
property of the Employer to the maximum extent permitted by applicable law and
to the extent permitted by law shall be "works made for hire" as that term is
defined in the United States Copyright Act (17 USCA, Section 101). The Employer
shall be the sole owner of all patents, copyrights, trade secret rights, and
other intellectual property or other rights in connection therewith. Employee
hereby assigns to the Employer all right, title and interest he may have or
acquire in all Inventions. Employee further agrees to assist the Employer in
every proper way (but at the Employer's expense) to obtain and from time to time
enforce patents, copyrights or other rights on said Inventions in any and all
countries, and to that end the Employee will execute all documents necessary to
(i) apply for, obtain and vest in the name of the Employer alone (unless the
Employer otherwise directs) letters patent, copyrights or other analogous
protection in any country throughout the world and when so obtained or vested to
renew and restore the same and (ii) to defend any opposition proceedings in
respect of such applications and any opposition proceedings or petitions or
applications for revocation of such letters patent, copyright or other analogous
protection.
(c) The Employee's obligation to assist the Employer in
obtaining and enforcing patents and copyrights for the Inventions in any and all
countries shall continue beyond the Term, but the Employer agrees to compensate
the Employee at a reasonable rate after the expiration of the Term for time
actually spent by the Employee at the Employer's request on such assistance.
7. CONFIDENTIALITY
The Employee agrees that at any time during or after the
Employee's employment with the Employer, the Employee will not, directly or
indirectly, without the prior written authorization of the Employer, disclose or
make accessible to any person or entity other than the Employer any confidential
information or material of the Employer or its affiliates or any information or
material received during the course of the Employee's employment from third
parties such as the Employer's customers and suppliers (collectively, the
"Material"). The Employee agrees, during the Employee's employment with the
Employer, not to take any such Material or reproductions thereof from the
Employer's or its clients' facilities, except as required in the performance of
the Employee's duties to the Employer. The Employee agrees immediately to return
all such Material and reproductions thereof in the Employee's possession to the
Employer upon request and in any event upon termination of Employee's employment
with the Employer. In the event that the Employee is required as a matter of law
or pursuant to any subpoena or other legal process to disclose any Material, the
Employee shall take all
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reasonable steps to ensure the confidential treatment of such Material and shall
promptly notify the Employer and shall use his or her best efforts to assist the
Employer in obtaining such confidential treatment.
8. EQUITABLE RELIEF
In the event that the Employee breaches any provisions of
Section 5, 6 or 7 or there is a threatened breach, then, in addition to any
other rights which the Employer may have, the Employer shall be entitled,
without the posting of a bond or other security, to injunctive relief to enforce
the restrictions contained herein. In the event that an actual proceeding is
brought in equity to enforce the provisions of Section 5, 6 or 7, the Employee
shall not urge as a defense that there is an adequate remedy at law nor shall
the Employer be prevented from seeking any other remedies which may be
available.
9. TERMINATION
(a) The Employee's employment hereunder shall begin on the
Effective Date and shall continue for the period set forth in Section 2 hereof
unless sooner terminated upon the first to occur of the following events:
(i) The death of the Employee;
(ii) The Disability (as defined below) of the
Employee;
(iii) Termination by the Board of Directors of the
Employer for just cause. Any of the following actions by the
Employee shall constitute just cause:
(A) Material breach by the Employee of Section 5
of this Agreement;
(B) So long as no Change of Control (as defined
below) has occurred, material breach by the Employee
of any provision of this Agreement other than Section
5 which is not cured by the Employee within 30 days
of written notice thereof from the Employer;
(C) negligent or, for one year after a Change of
Control, grossly negligent performance by the
Employee of his duties as Managing Director --
Business Operations, Secretary and Treasurer of the
Employer, as determined in good faith by the Board
after notice to the Employee of the alleged
negligence or gross negligence and an opportunity for
the Employee to confer with the Board;
(D) Any misconduct or omission on the part of
the Employee intended to cause harm to the Employer;
or
(E) The conviction of the Employee of any felony
or crime involving moral turpitude.
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(iv) Termination by the Employee for good reason. Any
of the following actions or omissions by the Employer shall
constitute good reason:
(A) Material breach by the Employer of any
provision of this Agreement which is not cured by the
Employer within 30 days of written notice thereof
from the Employee;
(B) Any misconduct or omission on the part of
the Employer intended to cause material harm to the
Employee;
(C) A determination by the Board to move the
headquarters of the Employer more than 30 miles from
New York City;
(D) Following a Change of Control (as defined
below), either
(I) The failure of the Employer to
provide the Employee with a position, authority or
duties at least equivalent to the most significant
position, authority or duties (other than those
relating to the Board of Directors or any committee
thereof) held by the Employee during the 120 days
ending on the date of the Change of Control; or
(II) The imposition of extraordinary
travel obligations on the Employee three times in any
six-month period. For such purpose, an "extraordinary
travel obligation" shall mean any requirement by the
Employer that the Employee travel outside the New
York City area for more than ten business days in any
30-business day period.
(b) For purposes hereof, a "Change of Control" shall be deemed
to have occurred in the event either
(i) any person or group acquires beneficial ownership
of more than 50% of the then outstanding common stock of the
Employer; or
(ii) a merger, consolidation or sale or other
disposition of all or substantially all of the assets of the
Employer (a "Business Combination") is consummated unless,
following such Business Combination, at least a majority of
the members of the Board of Directors of the surviving entity
or transferee were members of the Board of Directors of the
Employer at the time of the initial action of the Board of
Directors providing for such Business Combination.
(c) For purposes hereof, a "Disability" of the Employee shall
be deemed to have occurred in the event (i) the Employee is absent from work or
otherwise substantially unable to assume his normal duties for a period of 30
successive days or an aggregate of 60 days during any 12-month period because of
physical or mental disability, accident, illness or other cause other than
approved vacation or leave of absence or (ii) the Employee is deemed by a
licensed physician
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<PAGE>
designated by the Employer and reasonably acceptable to the Employee to have a
permanent disability such that Employee will be unable to perform his duties
under this agreement (it being understood that the Employer shall have the right
to have the Employee examined by such physician).
(d) Upon termination by Employer pursuant to either
subparagraphs (i), (ii) or (iii) of paragraph (a) above or by Employee other
than pursuant to subparagraph (iv) of paragraph (a) above, the Employee (or his
estate in the event of termination pursuant to subparagraph (i)), shall be
entitled to receive the Employee's base salary accrued but unpaid as of the date
of termination.
(e) Upon termination by the Employer (other than within one
year following a Change of Control) for any reason other than as set forth in
subparagraphs (i), (ii) or (iii) of paragraph (a) above or by the Employee for
any reason set forth in clause (A), (B) or (C) of subparagraph (iv) of paragraph
(a) above, then the Employer shall continue to pay the Employee, for one year
following such termination, at a per annum rate of $230,000 in accordance with
the Employer's normal payroll practices. Any stock options granted to the
Employee shall become immediately vested in full upon such termination.
(f) Upon termination by the Employer (other than as set forth
in subparagraph (i), (ii) or (iii) of paragraph (a) above) within one year
following a Change of Control or by the Employee pursuant to clause (D) of
subparagraph (iv) of paragraph (a) above within one year following a Change of
Control, then the Employer shall pay the Employee, as the Employee's sole
damages for such termination, a lump sum payment equal to $230,000. In addition,
any stock options granted to the Employee shall thereupon become immediately
vested.
(g) It shall be a condition to the Employee's right to receive
the benefits provided for in paragraphs (d) through (f) above that the Employee
shall have delivered to the Employer a general release (excluding Employee's
rights pursuant to this agreement, any benefit plans of the Company explicitly
providing benefits subsequent to termination, rights under COBRA and rights
under stock option or comparable agreements) dated as of the date of termination
of the Employee's employment hereunder.
10. NOTICES
Any notice or other communication under this Agreement shall
be in writing and shall be deemed to have been given: when delivered personally
against receipt therefor; one (1) day after being sent by Federal Express or
similar overnight delivery; or three (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to either party at
the address set forth below, or to such other address as such party shall give
by notice hereunder to the other party.
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<PAGE>
If to Employer:
Total Network Solutions, Inc.
545 Fifth Avenue, 14th Floor
New York, NY 10017
Att: Rami Musallam
If to Employee:
Stephen Zimmerman
60 West 13th Street, Apt. 9D
New York, New York 10011
11. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a
court of competent jurisdiction to be invalid, illegal or incapable of being
enforced in whole or in part, the remaining conditions and provisions or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provision shall be deemed dependent upon any other covenant or provision unless
so expressed herein.
12. ENTIRE AGREEMENT; MODIFICATION
This Agreement contains the entire agreement of the parties
relating to the subject matter hereof and supersede in their entirety any prior
employment agreements entered into between the parties, and the parties hereto
have made no agreements, representations or warranties relating to the subject
matter of this Agreement which are not set forth herein. No modification of this
Agreement shall be valid unless made in writing and signed by the parties
hereto.
13. BINDING EFFECT
The rights, benefits, duties and obligations under this
Agreement shall inure to, and be binding upon, the Employer, its successors and
assigns, and upon the Employee and his legal representatives. This Agreement
constitutes a personal service agreement, and the performance of the Employee's
obligations hereunder may not be transferred or assigned by the Employee.
14. NON-WAIVER
The failure of either party to insist upon the strict
performance of any of the terms, conditions and provisions of this Agreement
shall not be construed as a waiver or relinquishment of future compliance
therewith, and said terms, conditions and provisions shall remain in full force
and effect. No waiver of any term or condition of this Agreement on the part of
either party shall be effective for any purpose whatsoever unless such waiver is
in writing and signed by such party.
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15. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York without regard
to principles of conflict of laws.
16. HEADINGS
The headings of paragraphs are inserted for convenience and
shall not affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
-----------------------
Stephen Zimmerman
TOTAL NETWORK SOLUTIONS, INC.
By: __________________________
Name:
Title:
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Exhibit 10.16
Employment Agreement, dated as of August 19, 1998 (the
"Effective Date"), by and between Total Network Solutions,
Inc., a New York corporation (the "Employer"), and Rami
Musallam, an individual (the "Employee").
In consideration of the agreements, provisions and covenants herein
contained, Employer and Employee hereby agree as follows:
1. EMPLOYMENT AND TITLE
The Employer engages and employs the Employee, and the Employee hereby
accepts engagement and employment, as President and Chief Executive Officer of
the Employer. The Employee shall devote his full professional time and efforts
to the proper discharge of his duties and responsibilities under this Agreement.
2. TERM
The Employee's employment hereunder shall, unless earlier terminated in
accordance with Section 9, be for a term of three years commencing on the
Effective Date and continuing through the third anniversary of such date (the
"Term").
3. COMPENSATION
(a) As compensation for the performance of his duties on behalf of the
Employer, the Employee shall be compensated during the Term as follows:
(i) the Employee shall be paid a base salary of not less than $110,000
per annum, subject to increase at the discretion of the Compensation
Committee (the "Compensation Committee") of the Board of Directors of
Employer (the "Board"); and
(ii) A nondiscretionary bonus of not less than $120,000. In addition,
the Employee shall be eligible to be considered for a discretionary bonus as
determined by the Compensation Committee.
The Compensation Committee shall meet with the Employee as necessary to
establish such goals and performance standards as such Committee determines are
to be taken into account in determining the Employee's discretionary bonus
awards provided for above.
The Employer shall withhold all applicable federal, state and local taxes,
social security and workers' compensation contributions and such other amounts
as may be required by law or agreed upon by the parties with respect to the
compensation payable to the Employee pursuant to this section 3(a) or otherwise
in connection with his employment by the Employer.
(b) The Employee will be considered annually by the Compensation Committee
for an award of stock options pursuant to the Employer's 1998 Stock Option/Stock
Issuance Plan or any successor plans or programs of the Employer.
<PAGE>
(c) The Employer shall reimburse the Employee for all normal, usual and
necessary expenses incurred by the Employee in furtherance of the business and
affairs of the Employer, including reasonable travel and entertainment, against
receipt by the Employer of appropriate vouchers or other evidence of the
Employee's expenditures and otherwise in accordance with such expense
reimbursement policy as may from time to time be adopted by the Board.
(d) The Employee shall be entitled, during the Term, to not less than
three weeks per year of paid vacation time. The days selected for the Employee's
vacation must be mutually agreeable to the Employer and the Employee.
(e) During the Term, the Employee shall be entitled to participate in any
group insurance, hospitalization, medical, dental, health and accident,
disability or similar plan or program of Employer now existing or established
hereafter to the extent that he is eligible under the general provisions thereof
and in any other benefit programs made available to executive officers of the
Employer generally.
(f) The Employee shall continue to be entitled to receive his salary and
benefits hereunder for any period during which he is unable to perform his
duties hereunder because of ill health or Disability (as defined below). Subject
to paragraphs (d) through (f) of Section 9 below, the Employee must be an
employee of the Employer at the time that any compensation is due in order to
receive such compensation.
4. REPRESENTATIONS AND WARRANTIES BY THE EMPLOYEE AND EMPLOYER
-----------------------------------------------------------
The Employee hereby represents and warrants to the Employer as follows:
(a) Neither the execution and delivery of this Agreement nor the
performance by the Employee of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or conflict
with or constitute a default under (whether immediately, upon the giving of
notice or lapse of time or both) any prior employment agreement, contract, or
other instrument to which the Employee is a party or by which he is bound.
(b) The Employee has the full right, power and legal capacity to execute
and deliver this Agreement and to perform his duties and other obligations
hereunder. This Agreement constitutes the legal, valid and binding obligation of
the Employee enforceable against him in accordance with its terms.
The Employer hereby represents and warrants to the Employee as follows:
(a) The Employer is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York, with all requisite
corporate power and authority to own its properties and conduct its business in
the manner presently contemplated.
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<PAGE>
(b) The Employer has full power and authority to enter into this Agreement
and to incur and perform its obligations hereunder. This Agreement constitutes
the legal, valid and binding obligation of the Employer enforceable against the
Employer in accordance with its terms.
(c) The execution, delivery and performance by the Employer of this
Agreement does not conflict with or result in a breach or violation of or
constitute a default under (whether immediately, upon the giving of notice or
lapse of time or both) the certificate of incorporation or by-laws of the
Employer, or any agreement or instrument to which the Employer is a party or by
which the Employer or any of its properties may be bound or affected.
5. NON-COMPETITION
(a) The Employee understands and recognizes that his services to the
Employer are special and unique and agrees that, during the Term and for a
period of one year from the date of termination of his employment hereunder, he
shall not in any manner, directly or indirectly, on behalf of himself or any
person, firm, partnership, joint venture, corporation or other business entity
("Person"), enter into or engage in any business directly competitive with the
Employer's business of providing consulting services relating to the design and
implementation of computer networks, either as an individual for his own
account, or as a partner, joint venturer, employee, agent, consultant,
salesperson, officer, director or shareholder of a Person operating or intending
to operate within the area in which the Employer is, at the date of termination,
conducting its business (collectively, "Restricted Businesses"); provided,
however, that nothing herein will preclude the Employee from holding one percent
(1%) or less of the stock of any publicly traded company. This paragraph 5(a)
shall be null and void in the event the Employer fails to make any payment due
to the Employee pursuant to Section 9(d), 9(e) or 9(f) within five business days
after notice of such failure by the Employee to the Employer.
(b) During the Term and for one year thereafter, the Employee shall not,
directly or indirectly, without the prior written consent of the Employer (i)
interfere with, disrupt or attempt to disrupt (through solicitation or
otherwise) any past, present or prospective relationship, contractual or
otherwise, between the Employer and any of its licensors, licensees, clients,
customers, suppliers, employees or others, or solicit or induce for hire any of
the employees, agents, consultants or advisors of the Employer or any employee
who has left the employment of the Employer within one year of the termination
of said employee's employment with the Employer, (ii) solicit or accept
employment or be retained by any party who, at any time during the Term, was a
customer, client or supplier of the Employer or (iii) solicit or accept the
business of any customer or client or supplier of the Employer with respect to
products or services similar to those previously supplied by the Employer to
such customer or client.
6. DISCLOSURE AND ASSIGNMENT OF INVENTIONS
(a) During the Term, the Employee agrees that he will promptly disclose to
the Employer, or any persons designated by the Employer, all improvements,
inventions, designs, ideas, works of authorship, copyrightable works,
discoveries, trademarks, copyrights,
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trade secrets, formulas, processes, structures, product concepts, marketing
plans, strategies, customer lists, information about the Employer's employees
and/or Employees (including, without limitation, job performance of such
employees and/or Employees), techniques, blueprints, sketches, records, notes,
devices, drawings, know-how, data, whether or not patentable, patent
applications, continuation applications, continuation-in-part applications, file
wrapper continuation applications and divisional applications, made or conceived
or reduced to practice or learned by him, either alone or jointly with others,
during the Term (collectively, the "Inventions").
(b) Employee agrees that all Inventions shall be the sole property of the
Employer to the maximum extent permitted by applicable law and to the extent
permitted by law shall be "works made for hire" as that term is defined in the
United States Copyright Act (17 USCA, Section 101). The Employer shall be the
sole owner of all patents, copyrights, trade secret rights, and other
intellectual property or other rights in connection therewith. Employee hereby
assigns to the Employer all right, title and interest he may have or acquire in
all Inventions. Employee further agrees to assist the Employer in every proper
way (but at the Employer's expense) to obtain and from time to time enforce
patents, copyrights or other rights on said Inventions in any and all countries,
and to that end the Employee will execute all documents necessary to (i) apply
for, obtain and vest in the name of the Employer alone (unless the Employer
otherwise directs) letters patent, copyrights or other analogous protection in
any country throughout the world and when so obtained or vested to renew and
restore the same and (ii) to defend any opposition proceedings in respect of
such applications and any opposition proceedings or petitions or applications
for revocation of such letters patent, copyright or other analogous protection.
(c) The Employee's obligation to assist the Employer in obtaining and
enforcing patents and copyrights for the Inventions in any and all countries
shall continue beyond the Term, but the Employer agrees to compensate the
Employee at a reasonable rate after the expiration of the Term for time actually
spent by the Employee at the Employer's request on such assistance.
7. CONFIDENTIALITY
The Employee agrees that at any time during or after the Employee's
employment with the Employer, the Employee will not, directly or indirectly,
without the prior written authorization of the Employer, disclose or make
accessible to any person or entity other than the Employer any confidential
information or material of the Employer or its affiliates or any information or
material received during the course of the Employee's employment from third
parties such as the Employer's customers and suppliers (collectively, the
"Material"). The Employee agrees, during the Employee's employment with the
Employer, not to take any such Material or reproductions thereof from the
Employer's or its clients' facilities, except as required in the performance of
the Employee's duties to the Employer. The Employee agrees immediately to return
all such Material and reproductions thereof in the Employee's possession to the
Employer upon request and in any event upon termination of Employee's employment
with the Employer. In the event that the Employee is required as a matter of law
or pursuant to any subpoena or other legal process to disclose any Material, the
Employee shall take all
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reasonable steps to ensure the confidential treatment of such Material and shall
promptly notify the Employer and shall use his or her best efforts to assist the
Employer in obtaining such confidential treatment.
8. EQUITABLE RELIEF
In the event that the Employee breaches any provisions of Section 5, 6 or
7 or there is a threatened breach, then, in addition to any other rights which
the Employer may have, the Employer shall be entitled, without the posting of a
bond or other security, to injunctive relief to enforce the restrictions
contained herein. In the event that an actual proceeding is brought in equity to
enforce the provisions of Section 5, 6 or 7, the Employee shall not urge as a
defense that there is an adequate remedy at law nor shall the Employer be
prevented from seeking any other remedies which may be available.
9. TERMINATION
(a) The Employee's employment hereunder shall begin on the Effective Date
and shall continue for the period set forth in Section 2 hereof unless sooner
terminated upon the first to occur of the following events:
(i) The death of the Employee;
(ii) The Disability (as defined below) of the Employee;
(iii) Termination by the Board of Directors of the Employer for just
cause. Any of the following actions by the Employee shall constitute just
cause:
(A) Material breach by the Employee of Section 5 of this
Agreement;
(B) So long as no Change of Control (as defined below) has
occurred, material breach by the Employee of any provision of this
Agreement other than Section 5 which is not cured by the Employee
within 30 days of written notice thereof from the Employer;
(C) negligent or, for one year after a Change of Control,
grossly negligent performance by the Employee of his duties as
President and Chief Executive Officer of the Employer, as determined
in good faith by the Board after notice to the Employee of the
alleged negligence or gross negligence and an opportunity for the
Employee to confer with the Board;
(D) Any misconduct or omission on the part of the Employee
intended to cause harm to the Employer; or
(E) The conviction of the Employee of any felony or crime
involving moral turpitude.
5
<PAGE>
(iv) Termination by the Employee for good reason. Any of the following
actions or omissions by the Employer shall constitute good reason:
(A) Material breach by the Employer of any provision of this
Agreement which is not cured by the Employer within 30 days of
written notice thereof from the Employee;
(B) Any misconduct or omission on the part of the Employer
intended to cause material harm to the Employee;
(C) A determination by the Board to move the headquarters of
the Employer more than 30 miles from New York City;
(D) Following a Change of Control (as defined below), either
(I) The failure of the Employer to provide the Employee
with a position, authority or duties at least equivalent to
the most significant position, authority or duties (other than
those relating to the Board of Directors or any committee
thereof) held by the Employee during the 120 days ending on
the date of the Change of Control; or
(II) The imposition of extraordinary travel obligations
on the Employee three times in any six-month period. For such
purpose, an "extraordinary travel obligation" shall mean any
requirement by the Employer that the Employee travel outside
the New York City area for more than ten business days in any
30-business day period.
(b) For purposes hereof, a "Change of Control" shall be deemed to have
occurred in the event either
(i) any person or group acquires beneficial ownership of more than 50%
of the then outstanding common stock of the Employer; or
(ii) a merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Employer (a "Business Combination") is
consummated unless, following such Business Combination, at least a majority
of the members of the Board of Directors of the surviving entity or
transferee were members of the Board of Directors of the Employer at the time
of the initial action of the Board of Directors providing for such Business
Combination.
(c) For purposes hereof, a "Disability" of the Employee shall be deemed to
have occurred in the event (i) the Employee is absent from work or otherwise
substantially unable to assume his normal duties for a period of 30 successive
days or an aggregate of 60 days during any 12-month period because of physical
or mental disability, accident, illness or other cause other than approved
vacation or leave of absence or (ii) the Employee is deemed by a licensed
physician
6
<PAGE>
designated by the Employer and reasonably acceptable to the Employee to have a
permanent disability such that Employee will be unable to perform his duties
under this agreement (it being understood that the Employer shall have the right
to have the Employee examined by such physician).
(d) Upon termination by Employer pursuant to either subparagraphs (i),
(ii) or (iii) of paragraph (a) above or by Employee other than pursuant to
subparagraph (iv) of paragraph (a) above, the Employee (or his estate in the
event of termination pursuant to subparagraph (i)), shall be entitled to receive
the Employee's base salary accrued but unpaid as of the date of termination.
(e) Upon termination by the Employer (other than within one year following
a Change of Control) for any reason other than as set forth in subparagraphs
(i), (ii) or (iii) of paragraph (a) above or by the Employee for any reason set
forth in clause (A), (B) or (C) of subparagraph (iv) of paragraph (a) above,
then the Employer shall continue to pay the Employee, for one year following
such termination, at a per annum rate of $230,000 in accordance with the
Employer's normal payroll practices. Any stock options granted to the Employee
shall become immediately vested in full upon such termination.
(f) Upon termination by the Employer (other than as set forth in
subparagraph (i), (ii) or (iii) of paragraph (a) above) within one year
following a Change of Control or by the Employee pursuant to clause (D) of
subparagraph (iv) of paragraph (a) above within one year following a Change of
Control, then the Employer shall pay the Employee, as the Employee's sole
damages for such termination, a lump sum payment equal to $230,000. In addition,
any stock options granted to the Employee shall thereupon become immediately
vested.
(g) It shall be a condition to the Employee's right to receive the
benefits provided for in paragraphs (d) through (f) above that the Employee
shall have delivered to the Employer a general release (excluding Employee's
rights pursuant to this agreement, any benefit plans of the Company explicitly
providing benefits subsequent to termination, rights under COBRA and rights
under stock option or comparable agreements) dated as of the date of termination
of the Employee's employment hereunder.
10. NOTICES
Any notice or other communication under this Agreement shall be in writing
and shall be deemed to have been given: when delivered personally against
receipt therefor; one (1) day after being sent by Federal Express or similar
overnight delivery; or three (3) days after being mailed registered or certified
mail, postage prepaid, return receipt requested, to either party at the address
set forth below, or to such other address as such party shall give by notice
hereunder to the other party.
7
<PAGE>
If to Employer:
Total Network Solutions, Inc.
545 Fifth Avenue, 14th Floor
New York, NY 10017
Att: Rami Musallam
If to Employee:
Rami Musallam
1109 Willow Avenue, Apt. 510
Hoboken, New Jersey 07030
11. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, the remaining conditions and provisions or portions thereof
shall nevertheless remain in full force and effect and enforceable to the extent
they are valid, legal and enforceable, and no provision shall be deemed
dependent upon any other covenant or provision unless so expressed herein.
12. ENTIRE AGREEMENT; MODIFICATION
This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersede in their entirety any prior employment
agreements entered into between the parties, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein. No modification of this Agreement
shall be valid unless made in writing and signed by the parties hereto.
13. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Employer, its successors and assigns, and
upon the Employee and his legal representatives. This Agreement constitutes a
personal service agreement, and the performance of the Employee's obligations
hereunder may not be transferred or assigned by the Employee.
14. NON-WAIVER
The failure of either party to insist upon the strict performance of any
of the terms, conditions and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of either party shall be
effective for any purpose whatsoever unless such waiver is in writing and signed
by such party.
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<PAGE>
15. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York without regard to principles
of conflict of laws.
16. HEADINGS
The headings of paragraphs are inserted for convenience and shall not
affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
---------------------------------
Rami Musallam
TOTAL NETWORK SOLUTIONS, INC.
By:
------------------------------
Name:
Title:
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<PAGE>
Employment Agreement, dated as of
October 22, 1999 (the "Effective Date"), by and
between Total Network Solutions, Inc., a New York
corporation (the "Employer"), and Richard Glickman,
an individual (the "Employee").
In consideration of the agreements, provisions and covenants
herein contained, Employer and Employee hereby agree as follows:
1. EMPLOYMENT AND TITLE
The Employer engages and employs the Employee, and the
Employee hereby accepts engagement and employment, as Chief Financial Officer of
the Employer. The Employee shall devote his full professional time and efforts
to the proper discharge of his duties and responsibilities under this Agreement.
2. TERM
The Employee's employment hereunder shall, unless earlier
terminated in accordance with Section 9, be for a term of four years commencing
on the Effective Date and continuing through the fourth anniversary of such date
(the "Term").
3. COMPENSATION
(a) As compensation for the performance of his duties on
behalf of the Employer, the Employee shall be paid during the Term:
(i) a base salary of $200,000 per annum, subject to
increase at the discretion of the Compensation Committee (the
"Compensation Committee") of the Board of Directors of Employer (the
"Board");
(ii) a nondiscretionary signing bonus of $50,000 upon
execution of this Agreement;
(iii) a guaranteed bonus of $20,833 with respect to
the fourth quarter of 1999 (regardless of the date of commencement of
the Employee's employment with the Employer);
(iv) commencing with the first quarter of 2000, a
quarterly target bonus of $31,250, 80% of which shall be awarded based
upon the Employer achieving projected financial results for the quarter
with respect to which the bonus is awarded and 20% of which shall be
awarded based upon the Employee's achievement of major business
objectives; and
(v) a bonus with respect to any year in which the
Employer exceeds its projected financial results determined based on
parameters established by the executives
<PAGE>
designated by the Chief Executive Officer as the "executive management
team" of the Employer.
The Chief Executive Officer of the Company shall meet with the
Employee as necessary to establish such goals and performance standards as the
Chief Executive Officer determines are to be taken into account in determining
the MBO portion of the Employee's bonus awards provided for in (iv) above.
The Employer shall withhold all applicable federal, state and
local taxes, social security and workers' compensation contributions and such
other amounts as may be required by law or agreed upon by the parties with
respect to the compensation payable to the Employee pursuant to this section
3(a) or otherwise in connection with his employment by the Employer.
(b) Simultaneously with the execution hereof by the parties,
the Employee will be granted options to purchase 404,463 shares of the Common
Stock, par value $0.001 per share, of the Employer ("Common Stock") pursuant to
the Employer's Amended and Restated 1998 Stock Option Plan. The terms of such
grant shall be specified in further detail in a notice of grant in the form of
Exhibit A hereto and shall be subject to the execution by the Employee of a
stock option agreement substantially in the form of Exhibit B hereto.
Notwithstanding the designation of any portion of any option granted to the
Employee under this Agreement as an incentive stock option, the provisions of
the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder may prevent some or all of such option from being treated
as incentive stock options. The Employer shall have no liability to the Employee
with respect to the tax treatment of such option or the shares of Common Stock
purchasable upon exercise thereof.
(c) The Employer shall reimburse the Employee for all normal,
usual and necessary expenses incurred by the Employee in furtherance of the
business and affairs of the Employer, including reasonable travel and
entertainment, against receipt by the Employer of appropriate vouchers or other
evidence of the Employee's expenditures and otherwise in accordance with such
expense reimbursement policy as may from time to time be adopted by the Board.
(d) The Employee shall be entitled, during the Term, to not
less than three weeks per year of paid vacation time. The days selected for the
Employee's vacation must be mutually agreeable to the Employer and the Employee.
(e) During the Term, the Employee shall be entitled to
participate in any group insurance, hospitalization, medical, dental, health and
accident, disability or similar plan or program of Employer now existing or
established hereafter to the extent that he is eligible under the general
provisions thereof and in each other benefit program made available to executive
officers of the Employer generally.
(f) The Employee shall continue to be entitled to receive his
salary and benefits hereunder for each period during which he is unable to
perform his duties hereunder because of ill health or Disability (as defined
below). Subject to paragraphs (d), (e) and (g) of
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<PAGE>
Section 9 below, the Employee must be an employee of the Employer at the time
that any compensation is due in order to receive such compensation.
4. REPRESENTATIONS AND WARRANTIES BY THE EMPLOYEE AND
EMPLOYER
The Employee hereby represents and warrants to the Employer
as follows:
(a) Neither the execution and delivery of this Agreement nor
the performance by the Employee of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or conflict
with or constitute a default under (whether immediately, upon the giving of
notice or lapse of time or both) any prior employment agreement, contract, or
other instrument to which the Employee is a party or by which he is bound.
(b) The Employee has the full right, power and legal capacity
to execute and deliver this Agreement and to perform his duties and other
obligations hereunder. This Agreement constitutes the legal, valid and binding
obligation of the Employee enforceable against him in accordance with its terms.
The Employer hereby represents and warrants to the Employee as
follows:
(a) The Employer is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, with all
requisite corporate power and authority to own its properties and conduct its
business in the manner presently contemplated.
(b) The Employer has full power and authority to enter into
this Agreement and to incur and perform its obligations hereunder. This
Agreement constitutes the legal, valid and binding obligation of the Employer
enforceable against the Employer in accordance with its terms.
(c) The execution, delivery and performance by the Employer of
this Agreement does not conflict with or result in a breach or violation of or
constitute a default under (whether immediately, upon the giving of notice or
lapse of time or both) the certificate of incorporation or by-laws of the
Employer, or any agreement or instrument to which the Employer is a party or by
which the Employer or any of its properties may be bound or affected.
5. NON-COMPETITION
(a) The Employee understands and recognizes that his services
to the Employer are special and unique and agrees that, during the Term and for
a period of one year after the date of termination of his employment hereunder,
he shall not in any manner, directly or indirectly, on behalf of himself or a
business unit of any person, firm, partnership, joint venture, corporation or
other business entity ("Person"), enter into or engage in any business directly
competitive with the Employer's business of providing consulting services
relating to the design and implementation of computer networks, either as an
individual for his own account, or as a partner, joint venturer, employee,
agent, consultant, salesperson, officer, director or shareholder
3
<PAGE>
of any Person (collectively, "Restricted Businesses"); provided, however, that
nothing herein will preclude the Employee from holding three percent (3%) or
less of the stock of any publicly traded company. A Person shall be deemed to be
engaged in a business that is "directly competitive" with the Employer if more
than 75% of the revenues of the relevant business unit are derived from
consulting services relating to the design and implementation of computer
networks. This paragraph 5(a) shall be null and void in the event the Employer
fails to make any payment due to the Employee pursuant to Section 9(d), 9(e) or
9(g) within five business days after notice of such failure by the Employee to
the Employer.
(b) During the Term and for one year thereafter, the Employee
shall not, directly or indirectly, without the prior written consent of the
Employer (i) interfere with, disrupt or attempt to disrupt (through solicitation
or otherwise) any past, present or prospective relationship, contractual or
otherwise, between the Employer and any of its licensors, licensees, clients,
customers, suppliers, employees or others, or solicit or induce for hire any of
the employees, agents, consultants or advisors of the Employer or any employee
who has left the employment of the Employer within one year of the termination
of said employee's employment with the Employer, (ii) solicit or accept
employment or be retained by any party who, at any time during the Term, was a
customer or client of the Employer or (iii) solicit or accept the business of
any customer or client of the Employer with respect to products or services
similar to those previously supplied by the Employer to such customer or client.
For purposes of this Section 5(b) a "customer" or "client" shall be a customer
or client of the Employer to whom invoices totaling at least $100,000 are issued
in respect of any fiscal year of the Employer.
6. DISCLOSURE AND ASSIGNMENT OF INVENTIONS
(a) During the Term, the Employee agrees that he will promptly
disclose to the Employer, or any persons designated by the Employer, all
improvements, inventions, designs, ideas, works of authorship, copyrightable
works, discoveries, trademarks, copyrights, trade secrets, formulas, processes,
structures, product concepts, marketing plans, strategies, customer lists,
information about the Employer's employees and/or Employees (including, without
limitation, job performance of such employees and/or Employees), techniques,
blueprints, sketches, records, notes, devices, drawings, know-how, data, whether
or not patentable, patent applications, continuation applications,
continuation-in-part applications, file wrapper continuation applications and
divisional applications, made or conceived or reduced to practice or learned by
him, either alone or jointly with others, during the Term (collectively, the
"Inventions").
(b) Employee agrees that all Inventions shall be the sole
property of the Employer to the maximum extent permitted by applicable law and
to the extent permitted by law shall be "works made for hire" as that term is
defined in the United States Copyright Act (17 USCA, Section 101). The Employer
shall be the sole owner of all patents, copyrights, trade secret rights, and
other intellectual property or other rights in connection therewith. Employee
hereby assigns to the Employer all right, title and interest he may have or
acquire in all Inventions. Employee further agrees to assist the Employer in
every proper way (but at the Employer's expense) to obtain and from time to time
enforce patents, copyrights or other rights on said Inventions in any and all
countries, and to that end the Employee will execute all
4
<PAGE>
documents necessary to (i) apply for, obtain and vest in the name of the
Employer alone (unless the Employer otherwise directs) letters patent,
copyrights or other analogous protection in any country throughout the world and
when so obtained or vested to renew and restore the same and (ii) to defend any
opposition proceedings in respect of such applications and any opposition
proceedings or petitions or applications for revocation of such letters patent,
copyright or other analogous protection.
(c) The Employee's obligation to assist the Employer in
obtaining and enforcing patents and copyrights for the Inventions in any and all
countries shall continue beyond the Term, but the Employer agrees to compensate
the Employee at a reasonable rate after the expiration of the Term for time
actually spent by the Employee at the Employer's request on such assistance.
7. CONFIDENTIALITY
The Employee agrees that at any time during or after the
Employee's employment with the Employer, the Employee will not, directly or
indirectly, without the prior written authorization of the Employer, disclose or
make accessible to any person or entity other than the Employer any confidential
information or material of the Employer or its affiliates or any information or
material received during the course of the Employee's employment from third
parties such as the Employer's customers and suppliers (collectively, the
"Material"). The Employee agrees, during the Employee's employment with the
Employer, not to take any such Material or reproductions thereof from the
Employer's or its clients' facilities, except as required in the performance of
the Employee's duties to the Employer. The Employee agrees immediately to return
all such Material and reproductions thereof in the Employee's possession to the
Employer upon request and in any event upon termination of Employee's employment
with the Employer. In the event that the Employee is required as a matter of law
or pursuant to any subpoena or other legal process to disclose any Material, the
Employee shall take all reasonable steps to cause the confidential treatment of
such Material and shall promptly notify the Employer and shall use his or her
best efforts to assist the Employer in obtaining such confidential treatment.
8. EQUITABLE RELIEF
In the event that the Employee breaches any provisions of
Section 5, 6 or 7 or there is a threatened breach, then, in addition to any
other rights which the Employer may have, the Employer shall be entitled,
without the posting of a bond or other security, to injunctive relief to enforce
the restrictions contained herein. In the event that an actual proceeding is
brought in equity to enforce the provisions of Section 5, 6 or 7, the Employee
shall not urge as a defense that there is an adequate remedy at law nor shall
the Employer be prevented from seeking any other remedies which may be
available.
5
<PAGE>
9. TERMINATION
(a) The Employee's employment hereunder shall begin on the
Effective Date and shall continue for the period set forth in Section 2 hereof
unless sooner terminated upon the first to occur of the following events:
(i) The death of the Employee;
(ii) The Disability (as defined below) of the
Employee;
(iii) Termination by the Board of Directors of the
Employer for just cause. Any of the following actions by the Employee
shall constitute just cause:
(A) Material breach by the Employee of
Section 5, 6 or 7 of this Agreement;
(B) So long as no Change of Control (as
defined below) has occurred, material breach by the Employee
of any provision of this Agreement other than Section 5, 6 or
7 which is not cured by the Employee within 30 days of written
notice thereof from the Employer (or 90 days in the event such
cure cannot reasonably be effected within such 30-day period
and the Employee commences efforts to effect such cure within
such 30-day period);
(C) negligent (or, for one year after a
Change of Control, grossly negligent) performance by the
Employee of his duties as Chief Financial Officer of the
Employer, as determined in good faith by the Board after
notice to the Employee of the alleged negligence or gross
negligence and an opportunity for the Employee to confer with
the Board;
(D) Any misconduct or omission on the part
of the Employee intended to cause harm to the Employer; or
(E) The conviction of the Employee of any
felony or crime involving moral turpitude.
(iv) Termination by the Employee for good reason.
Any of the following actions or omissions by the Employer shall
constitute good reason:
(A) Material breach by the Employer of any
provision of this Agreement which is not cured by the Employer
within 30 days of written notice thereof from the Employee;
(B) Any misconduct or omission on the part
of the Employer intended to cause material harm to the
Employee;
6
<PAGE>
(C) A determination by the Board to move the
headquarters of the Employer more than 30 miles from New York
City;
(D) Following a Change of Control (as
defined below), either
(I) The failure of the Employer to
provide the Employee with a position, authority or
duties at least equivalent to the most significant
position, authority or duties (other than those
relating to the Board of Directors or any committee
thereof) held by the Employee during the 120 days
ending on the date of the Change of Control; or
(II) The imposition of extraordinary
travel obligations on the Employee three times in any
six-month period. For such purpose, an "extraordinary
travel obligation" shall mean any requirement by the
Employer that the Employee travel outside the New
York City area for more than ten business days in any
30-business day period.
(b) For purposes hereof, a "Change of Control" shall be deemed
to have occurred in the event either
(i) any person or group acquires beneficial ownership
of more than 50% of the then outstanding common stock of the Employer;
or
(ii) a merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Employer
(a "Business Combination") is consummated unless, following such
Business Combination, at least a majority of the members of the Board
of Directors of the surviving entity or transferee were members of the
Board of Directors of the Employer at the time of the initial action of
the Board of Directors providing for such Business Combination.
(c) For purposes hereof, a "Disability" of the Employee shall
be deemed to have occurred in the event (i) the Employee is absent from work or
otherwise substantially unable to perform his normal duties for a period of 30
successive days or an aggregate of 60 days during any 12-month period because of
physical or mental disability, accident, illness or other cause other than
approved vacation or leave of absence or (ii) the Employee is deemed by a
licensed physician designated by the Employer and reasonably acceptable to the
Employee to have a permanent disability such that Employee will be unable to
perform his duties under this Agreement (it being understood that the Employer
shall have the right to have the Employee examined by such physician).
(d) Upon termination by Employer pursuant to either
subparagraphs (i), (ii) or (iii) of paragraph (a) above or by Employee other
than pursuant to subparagraph (iv) of paragraph (a) above, the Employee (or his
estate in the event of termination pursuant to subparagraph (i)), shall be
entitled to receive the Employee's base salary accrued but unpaid as of the date
of termination.
7
<PAGE>
(e) Upon termination by the Employer (other than within one
year following a Change of Control) for any reason other than as set forth in
subparagraphs (i), (ii) or (iii) of paragraph (a) above or by the Employee for
any reason set forth in clause (A), (B) or (C) of subparagraph (iv) of paragraph
(a) above, the Employer shall continue to pay the Employee, for one year
following such termination, at a per annum rate equal to 1.5 times the
Employee's highest base salary in effect during the 18 months preceding such
termination in accordance with the Employer's normal payroll practices, subject
to offset for amounts earned by the Employee from other sources during such
period. All unvested stock options granted to the Employee shall become
immediately vested in full upon such termination.
(f) Upon the occurrence of a Change of Control, a portion of
the stock options granted to the Employee that are unvested at the time of such
Change of Control but that would (assuming continued employment of the Employee)
vest on or prior to the first anniversary of such Change of Control shall become
immediately vested upon such Change of Control. Such acceleration shall have no
effect on the time or times at which the remainder of such stock options shall
vest in accordance with the vesting schedule applicable to such options.
(g) Upon termination by the Employer (other than as set forth
in subparagraph (i), (ii) or (iii) of paragraph (a) above) within one year
following a Change of Control or by the Employee pursuant to clause (D) of
subparagraph (iv) of paragraph (a) above within one year following a Change of
Control, the Employer shall pay the Employee, as the Employee's sole damages for
such termination, a lump sum payment equal to 1.5 times the annualized amount of
the Employee's highest base salary in effect during the 18 months preceding such
termination. In addition, all unvested stock options granted to the Employee
shall thereupon become immediately vested.
(h) It shall be a condition to the Employee's right to receive
the benefits provided for in paragraphs (d), (e) and (g) above that the Employee
shall have delivered to the Employer a general release (excluding Employee's
rights pursuant to this Agreement, any benefit plans of the Company explicitly
providing benefits subsequent to termination, rights under COBRA and rights
under stock option or comparable agreements) dated as of the date of termination
of the Employee's employment hereunder.
10. NOTICES
Each notice and other communication under this Agreement shall
be in writing and shall be deemed to have been given: when delivered personally
against receipt therefor; one (1) day after being sent by Federal Express or
similar overnight delivery; or three (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to either party
8
<PAGE>
at the address set forth below, or to such other address as such party shall
give by notice hereunder to the other party.
If to Employer:
Total Network Solutions, Inc.
545 Fifth Avenue, 14th Floor
New York, NY 10017
Att: Rami Musallam
If to Employee:
Richard Glickman
444 East 82nd Street, Apt. 22F
New York, New York 10028
11. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a
court of competent jurisdiction to be invalid, illegal or incapable of being
enforced in whole or in part, the remaining conditions and provisions or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provision shall be deemed dependent upon any other covenant or provision unless
so expressed herein.
12. ENTIRE AGREEMENT; MODIFICATION
This Agreement contains the entire agreement of the parties
relating to the subject matter hereof and supersede in their entirety any prior
employment agreements entered into between the parties, and the parties hereto
have made no agreements, representations or warranties relating to the subject
matter of this Agreement which are not set forth herein. No modification of this
Agreement shall be valid unless made in writing and signed by the parties
hereto.
13. BINDING EFFECT
The rights, benefits, duties and obligations under this
Agreement shall inure to, and be binding upon, the Employer, its successors and
assigns, and upon the Employee and his legal representatives. This Agreement
constitutes a personal service agreement, and the performance of the Employee's
obligations hereunder may not be transferred or assigned by the Employee.
9
<PAGE>
14. NON-WAIVER
The failure of either party to insist upon the strict
performance of any of the terms, conditions and provisions of this Agreement
shall not be construed as a waiver or relinquishment of future compliance
therewith, and said terms, conditions and provisions shall remain in full force
and effect. No waiver of any term or condition of this Agreement on the part of
either party shall be effective for any purpose whatsoever unless such waiver is
in writing and signed by such party.
15. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York without regard
to principles of conflict of laws.
16. HEADINGS
The headings of paragraphs are inserted for convenience and
shall not affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
-------------------------------
Richard Glickman
TOTAL NETWORK SOLUTIONS, INC.
By: __________________________
Name:
Title:
10
<PAGE>
Amendment dated as of December 29,
1999 to the Employment Agreement dated as of October
22, 1999 (the "Employment Agreement"), by and between
Total Network Solutions, Inc., a New York corporation
(the "Employer"), and Richard Glickman, an individual
(the "Employee").
WHEREAS, pursuant to the Employment Agreement, the Employee
was to be granted options to purchase 1.125% of the fully-diluted equity of the
Employer based on the Employer's projected capitalization following the
completion of the sale of its Series C Convertible Preferred Stock to Cisco
Systems, Inc. and investment funds affiliated with Morgan Stanley Dean Witter
(the "Series C Financing"); and
WHEREAS, as a consequence of certain changes in the terms of
the Series C Financing, the number of options granted to the Employee pursuant
to the Employment Agreement exceeds 1.125% of the Employer's fully-diluted
equity;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Section 3(b) of the Employment Agreement is hereby amended
in its entirety to read as follows:
(b) Simultaneously with the execution hereof by the parties,
the Employee will be granted options to purchase 398,849 shares of the Common
Stock, par value $0.001 per share, of the Employer ("Common Stock") pursuant to
the Employer's Amended and Restated 1998 Stock Option Plan. Notwithstanding the
designation of any portion of any option granted to the Employee under this
Agreement as an incentive stock option, the provisions of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
may prevent some or all of such option from being treated as incentive stock
options. The Employer shall have no liability to the Employee with respect to
the tax treatment of such option or the shares of Common Stock purchasable upon
exercise thereof.
2. Except as set forth above, the Employment Agreement shall
remain unmodified and in full force and effect.
3. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
law principles thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
------------------------
Richard Glickman
TOTAL NETWORK SOLUTIONS, INC.
By: __________________________
Name:
Title:
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<PAGE>
EXHIBIT 10.18
Employment Agreement, dated as of September 24, 1999 (the
"Effective Date"), by and between Total Network Solutions, Inc., a
New York corporation (the "Employer"), and Robert Foley, an
individual (the "Employee").
In consideration of the agreements, provisions and covenants herein
contained, Employer and Employee hereby agree as follows:
1. EMPLOYMENT AND TITLE
The Employer engages and employs the Employee, and the Employee hereby
accepts engagement and employment, as Chief Operating Officer of the Employer.
The Employee shall devote his full professional time and efforts to the proper
discharge of his duties and responsibilities under this Agreement.
2. TERM
The Employee's employment hereunder shall, unless earlier terminated in
accordance with Section 9, be for a term of four years commencing on the
Effective Date and continuing through the fourth anniversary of such date (the
"Term").
3. COMPENSATION
(a) As compensation for the performance of his duties on behalf of the
Employer, the Employee shall be compensated during the Term as follows:
(i) the Employee shall be paid a base salary of $250,000 per annum,
subject to increase at the discretion of the Compensation Committee (the
"Compensation Committee") of the Board of Directors of Employer (the
"Board"); and
(ii) a quarterly bonus of up to $31,250 as determined in the sole
discretion of the Chief Executive Officer of the Company.
The Chief Executive Officer of the Company shall meet with the Employee as
necessary to establish such goals and performance standards as the Chief
Executive Officer determines are to be taken into account in determining the
Employee's discretionary bonus awards provided for above.
The Employer shall withhold all applicable federal, state and local taxes,
social security and workers' compensation contributions and such other amounts
as may be required by law or agreed upon by the parties with respect to the
compensation payable to the Employee pursuant to this section 3(a) or otherwise
in connection with his employment by the Employer.
(b) (i) Simultaneously with the execution hereof by the parties, the
Employee will be granted options to purchase 719,046 shares of the Common Stock,
par value $0.001 per share, of the Employer ("Common Stock") pursuant to the
Employer's Amended and Restated
<PAGE>
1998 Stock Option Plan. 94,336 such options shall be denominated as incentive
stock options and 624,710 such options shall be denominated as non-statutory
options (the "NSO's"). The terms of such grant shall be specified in further
detail in a notice of grant in the form of Exhibit A hereto and shall be subject
to the execution by the Employee of a stock option agreement substantially in
the form of Exhibit B hereto. Notwithstanding the designation of any portion of
any option granted to the Employee under this Agreement as an incentive stock
option, the provisions of the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder may prevent some or all of such
option from being treated as incentive stock options. The Employer shall have no
liability to the Employee with respect to the tax treatment of such option or
the shares of Common Stock purchasable upon exercise thereof.
(ii) The Employer shall make a loan (the "Loan") to the Employee upon
execution of this Agreement in an amount equal to the aggregate exercise price
of the NSO's exercised by the Employee upon execution of this Agreement,
provided that the principal amount of the Loan shall not exceed $762,186.64. The
Loan shall be represented by a promissory note in the form attached hereto as
Exhibit C (the "Note"), shall bear interest at a rate of 8.25% per annum payable
upon maturity, acceleration or optional or mandatory prepayment of the Note and
shall be secured by (but recourse with respect thereto shall in no event be
limited to) the shares of Common Stock purchased upon exercise of the NSO's
exercised using the proceeds of the Loan (the "Collateral") pursuant to a
security agreement substantially in the form of Exhibit D hereto.
(iii) Until such time as the Employee's obligations with respect to the
Loan and the Note have been satisfied in full, the Employee shall maintain all
options granted to the Employee by the Employer and the shares of Common Stock
purchased or purchasable upon exercise of such options free and clear of all
liens, claims and encumbrances of any kind or nature whatsoever other than
claims and rights of the Employer as provided hereunder and in the exhibits
hereto. The Employer shall have the right to place a legend on the certificates
representing such shares of Common Stock referencing the restriction set forth
in this subparagraph (iii).
(c) The Employer shall reimburse the Employee for the following relocation
expenses:
(i) real estate commissions and other reasonable out-of-pocket costs
incurred by the Employee in connection with the sale of his principal residence
(the fair market value of which is estimated to be approximately $650,000); and
(ii) reasonable expenses of moving the Employee's personal effects to the
New York City area.
(d) The Employer shall provide the Employee with a suitable apartment in
the New York City area through December 31, 1999.
(e) The Employer shall reimburse the Employee for all normal, usual and
necessary expenses incurred by the Employee in furtherance of the business and
affairs of the
2
<PAGE>
Employer, including reasonable travel and entertainment, against receipt by the
Employer of appropriate vouchers or other evidence of the Employee's
expenditures and otherwise in accordance with such expense reimbursement policy
as may from time to time be adopted by the Board for employees.
(f) The Employee shall be entitled, during the Term, to not less than
three weeks per year of paid vacation time. The days selected for the Employee's
vacation must be mutually agreeable to the Employer and the Employee.
(g) During the Term, the Employee shall be entitled to participate in any
group insurance, hospitalization, medical, dental, health and accident,
disability or similar plan or program of Employer now existing or established
hereafter to the extent that he is eligible under the general provisions thereof
and in each other benefit program made available to executive officers of the
Employer generally.
(h) The Employee shall continue to be entitled to receive his salary and
benefits hereunder for each period during which he is unable to perform his
duties hereunder because of ill health or Disability (as defined below). Subject
to paragraphs (d), (e) and (g) of Section 9 below, the Employee must be an
employee of the Employer at the time that any compensation is due in order to
receive such compensation.
4. REPRESENTATIONS AND WARRANTIES BY THE EMPLOYEE AND EMPLOYER
The Employee hereby represents and warrants to the Employer as follows:
(a) Neither the execution and delivery of this Agreement nor the
performance by the Employee of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or conflict
with or constitute a default under (whether immediately, upon the giving of
notice or lapse of time or both) any prior employment agreement, contract, or
other instrument to which the Employee is a party or by which he is bound.
(b) The Employee has the full right, power and legal capacity to execute
and deliver this Agreement and to perform his duties and other obligations
hereunder. This Agreement constitutes the legal, valid and binding obligation of
the Employee enforceable against him in accordance with its terms.
The Employer hereby represents and warrants to the Employee as follows:
(a) The Employer is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York, with all requisite
corporate power and authority to own its properties and conduct its business in
the manner presently contemplated.
(b) The Employer has full power and authority to enter into this Agreement
and to incur and perform its obligations hereunder. This Agreement constitutes
the legal, valid
3
<PAGE>
and binding obligation of the Employer enforceable against the Employer in
accordance with its terms.
(c) The execution, delivery and performance by the Employer of this
Agreement does not conflict with or result in a breach or violation of or
constitute a default under (whether immediately, upon the giving of notice or
lapse of time or both) the certificate of incorporation or by-laws of the
Employer, or any agreement or instrument to which the Employer is a party or by
which the Employer or any of its properties may be bound or affected.
5. NON-COMPETITION
(a) The Employee understands and recognizes that his services to the
Employer are special and unique and agrees that, during the Term and for a
period of one year after the date of termination of his employment hereunder, he
shall not in any manner, directly or indirectly, on behalf of himself or any
person, firm, partnership, joint venture, corporation or other business entity
("Person"), enter into or engage in any business directly competitive with the
Employer's business of providing consulting services relating to the design and
implementation of computer networks, either as an individual for his own
account, or as a partner, joint venturer, employee, agent, consultant,
salesperson, officer, director or shareholder of a Person operating or intending
to operate within the area in which the Employer is, at the date of termination,
conducting its business (collectively, "Restricted Businesses"); provided,
however, that nothing herein will preclude the Employee from holding one percent
(1%) or less of the stock of any publicly traded company. This paragraph 5(a)
shall be null and void in the event the Employer fails to make any payment due
to the Employee pursuant to Section 9(d), 9(e) or 9(g) within five business days
after notice of such failure by the Employee to the Employer.
(b) During the Term and for one year thereafter, the Employee shall not,
directly or indirectly, without the prior written consent of the Employer (i)
interfere with, disrupt or attempt to disrupt (through solicitation or
otherwise) any past, present or prospective relationship, contractual or
otherwise, between the Employer and any of its licensors, licensees, clients,
customers, suppliers, employees or others, or solicit or induce for hire any of
the employees, agents, consultants or advisors of the Employer or any employee
who has left the employment of the Employer within one year of the termination
of said employee's employment with the Employer, (ii) solicit or accept
employment or be retained by any party who, at any time during the Term, was a
customer, client of the Employer or (iii) solicit or accept the business of any
customer or client or supplier of the Employer with respect to products or
services similar to those previously supplied by the Employer to such customer
or client.
6. DISCLOSURE AND ASSIGNMENT OF INVENTIONS
(a) During the Term, the Employee agrees that he will promptly disclose to
the Employer, or any persons designated by the Employer, all improvements,
inventions, designs, ideas, works of authorship, copyrightable works,
discoveries, trademarks, copyrights, trade secrets, formulas, processes,
structures, product concepts, marketing plans, strategies, customer lists,
information about the Employer's employees and/or Employees (including,
4
<PAGE>
without limitation, job performance of such employees and/or Employees),
techniques, blueprints, sketches, records, notes, devices, drawings, know-how,
data, whether or not patentable, patent applications, continuation applications,
continuation-in-part applications, file wrapper continuation applications and
divisional applications, made or conceived or reduced to practice or learned by
him, either alone or jointly with others, during the Term (collectively, the
"Inventions").
(b) Employee agrees that all Inventions shall be the sole property of the
Employer to the maximum extent permitted by applicable law and to the extent
permitted by law shall be "works made for hire" as that term is defined in the
United States Copyright Act (17 USCA, Section 101). The Employer shall be the
sole owner of all patents, copyrights, trade secret rights, and other
intellectual property or other rights in connection therewith. Employee hereby
assigns to the Employer all right, title and interest he may have or acquire in
all Inventions. Employee further agrees to assist the Employer in every proper
way (but at the Employer's expense) to obtain and from time to time enforce
patents, copyrights or other rights on said Inventions in any and all countries,
and to that end the Employee will execute all documents necessary to (i) apply
for, obtain and vest in the name of the Employer alone (unless the Employer
otherwise directs) letters patent, copyrights or other analogous protection in
any country throughout the world and when so obtained or vested to renew and
restore the same and (ii) to defend any opposition proceedings in respect of
such applications and any opposition proceedings or petitions or applications
for revocation of such letters patent, copyright or other analogous protection.
(c) The Employee's obligation to assist the Employer in obtaining and
enforcing patents and copyrights for the Inventions in any and all countries
shall continue beyond the Term, but the Employer agrees to compensate the
Employee at a reasonable rate after the expiration of the Term for time actually
spent by the Employee at the Employer's request on such assistance.
7. CONFIDENTIALITY
The Employee agrees that at any time during or after the Employee's
employment with the Employer, the Employee will not, directly or indirectly,
without the prior written authorization of the Employer, disclose or make
accessible to any person or entity other than the Employer any confidential
information or material of the Employer or its affiliates or any information or
material received during the course of the Employee's employment from third
parties such as the Employer's customers and suppliers (collectively, the
"Material"). The Employee agrees, during the Employee's employment with the
Employer, not to take any such Material or reproductions thereof from the
Employer's or its clients' facilities, except as required in the performance of
the Employee's duties to the Employer. The Employee agrees immediately to return
all such Material and reproductions thereof in the Employee's possession to the
Employer upon request and in any event upon termination of Employee's employment
with the Employer. In the event that the Employee is required as a matter of law
or pursuant to any subpoena or other legal process to disclose any Material, the
Employee shall take all reasonable steps to cause the confidential treatment of
such Material and shall promptly notify
5
<PAGE>
the Employer and shall use his or her best efforts to assist the Employer in
obtaining such confidential treatment.
8. EQUITABLE RELIEF
In the event that the Employee breaches any provisions of Section 5, 6 or
7 or there is a threatened breach, then, in addition to any other rights which
the Employer may have, the Employer shall be entitled, without the posting of a
bond or other security, to injunctive relief to enforce the restrictions
contained herein. In the event that an actual proceeding is brought in equity to
enforce the provisions of Section 5, 6 or 7, the Employee shall not urge as a
defense that there is an adequate remedy at law nor shall the Employer be
prevented from seeking any other remedies which may be available.
9. TERMINATION
(a) The Employee's employment hereunder shall begin on the
Effective Date and shall continue for the period set forth in Section 2 hereof
unless sooner terminated upon the first to occur of the following events:
(i) The death of the Employee;
(ii) The Disability (as defined below) of the Employee;
(iii) Termination by the Board of Directors of the Employer
for just cause. Any of the following actions by the Employee shall
constitute just cause:
(A) Material breach by the Employee of Section 5 of this
Agreement;
(B) So long as no Change of Control (as defined below)
has occurred, material breach by the Employee of any provision
of this Agreement other than Section 5 which is not cured by
the Employee within 30 days of written notice thereof from the
Employer;
(C) negligent (or, for one year after a Change of
Control, grossly negligent) performance by the Employee of his
duties as Chief Operating Officer of the Employer, as
determined in good faith by the Board after notice to the
Employee of the alleged negligence or gross negligence and an
opportunity for the Employee to confer with the Board;
(D) Any misconduct or omission on the part of the
Employee intended to cause harm to the Employer; or
(E) The conviction of the Employee of any felony or
crime involving moral turpitude.
6
<PAGE>
(iv) Termination by the Employee for good reason. Any of the
following actions or omissions by the Employer shall constitute
good reason:
(A) Material breach by the Employer of any provision of
this Agreement which is not cured by the Employer within 30
days of written notice thereof from the Employee;
(B) Any misconduct or omission on the part of the
Employer intended to cause material harm to the Employee;
(C) A determination by the Board to move the
headquarters of the Employer more than 30 miles from New York
City;
(D) Following a Change of Control (as defined below),
either
(I) The failure of the Employer to provide the
Employee with a position, authority or duties at least
equivalent to the most significant position, authority
or duties (other than those relating to the Board of
Directors or any committee thereof) held by the Employee
during the 120 days ending on the date of the Change of
Control; or
(II) The imposition of extraordinary travel
obligations on the Employee three times in any six-month
period. For such purpose, an "extraordinary travel
obligation" shall mean any requirement by the Employer
that the Employee travel outside the New York City area
for more than ten business days in any 30-business day
period.
(b) For purposes hereof, a "Change of Control" shall be deemed to have
occurred in the event either
(i) any person or group acquires beneficial ownership of more than
50% of the then outstanding common stock of the Employer; or
(ii) a merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Employer (a "Business Combination")
is consummated unless, following such Business Combination, at least a
majority of the members of the Board of Directors of the surviving entity
or transferee were members of the Board of Directors of the Employer at
the time of the initial action of the Board of Directors providing for
such Business Combination.
(c) For purposes hereof, a "Disability" of the Employee shall be deemed to
have occurred in the event (i) the Employee is absent from work or otherwise
substantially unable to perform his normal duties for a period of 30 successive
days or an aggregate of 60 days during any 12-month period because of physical
or mental disability, accident, illness or other cause other than approved
vacation or leave of absence or (ii) the Employee is deemed by a licensed
physician designated by the Employer and reasonably acceptable to the Employee
to have a permanent
7
<PAGE>
disability such that Employee will be unable to perform his duties under this
Agreement (it being understood that the Employer shall have the right to have
the Employee examined by such physician).
(d) Upon termination by Employer pursuant to either subparagraphs (i),
(ii) or (iii) of paragraph (a) above or by Employee other than pursuant to
subparagraph (iv) of paragraph (a) above, the Employee (or his estate in the
event of termination pursuant to subparagraph (i)), shall be entitled to receive
the Employee's base salary accrued but unpaid as of the date of termination.
(e) Upon termination by the Employer (other than within one year following
a Change of Control) for any reason other than as set forth in subparagraphs
(i), (ii) or (iii) of paragraph (a) above or by the Employee for any reason set
forth in clause (A), (B) or (C) of subparagraph (iv) of paragraph (a) above, the
Employer shall continue to pay the Employee, for one year following such
termination, at a per annum rate equal to 1.5 times the Employee's highest base
salary in effect during the 18 months preceding such termination in accordance
with the Employer's normal payroll practices. All unvested stock options granted
to the Employee shall become immediately vested in full upon such termination.
(f) Upon the occurrence of a Change of Control, a portion of the stock
options granted to the Employee that are unvested at the time of such Change of
Control but that would (assuming continued employment of the Employee) vest on
or prior to the first anniversary of such Change of Control shall become
immediately vested upon such Change of Control. Such acceleration shall have no
effect on the time or times at which the remainder of such stock options shall
vest in accordance with the vesting schedule applicable to such options.
(g) Upon termination by the Employer (other than as set forth in
subparagraph (i), (ii) or (iii) of paragraph (a) above) within one year
following a Change of Control or by the Employee pursuant to clause (D) of
subparagraph (iv) of paragraph (a) above within one year following a Change of
Control, the Employer shall pay the Employee, as the Employee's sole damages for
such termination, a lump sum payment equal to 1.5 times the annualized amount of
the Employee's highest base salary in effect during the 18 months preceding such
termination. In addition, all unvested stock options granted to the Employee
shall thereupon become immediately vested.
(h) It shall be a condition to the Employee's right to receive the
benefits provided for in paragraphs (d), (e) and (g) above that the Employee
shall have delivered to the Employer a general release (excluding Employee's
rights pursuant to this Agreement, any benefit plans of the Company explicitly
providing benefits subsequent to termination, rights under COBRA and rights
under stock option or comparable agreements) dated as of the date of termination
of the Employee's employment hereunder.
10. INDEMNIFICATION
The Employer shall indemnify the Employee for an a maximum aggregate
amount of up to $50,000 in expenses, costs, claims or damages incurred by the
Employee in
8
<PAGE>
connection with claims made or threatened in writing against him by Stolberg,
Meehan and Scano or its affiliates (collectively, "SMS"). The Employee
represents to the Employer that (i) the documents dated August 20, 1999 and June
, 1999 entitled "Newco Summary of Understanding" (the "Term Sheets"), the
document dated January 22, 1999 entitled "Arrangements Between Bob Foley and
SMS" (the "Outline") and a letter of intent (the "Letter of Intent") relating to
a potential acquisition encompassed by the Term Sheets are the only documents
submitted to him for signature by SMS, (ii) true and complete copies of the Term
Sheets and the Outline (in each case as shown to be redacted) have been provided
to the Employer but the Employee has not provided the Employer with a copy of
the Letter of Intent because the Employee has not retained a copy of the Letter
of Intent, (iii) the Term Sheets were never executed by the Employee, (iv) to
the Employee's knowledge, the Letter of Intent did not purport to impose any
legally binding obligations on the Employee and does not preclude the Employee
from entering into an employment agreement with the Employer, (v) any obligation
the Employee may have had to deal exclusively with SMS has expired, (vi) the
last payment received by the Employee from SMS was in the amount of $6,200 and
was received on or about August 2, 1999 for work performed during the period
ending July 22, 1999, (vii) no oral agreement concerning the subject matter of
the Term Sheets, the Outline or the Letter of Intent exists between the Employee
and SMS, (viii) no transaction between the Employee and SMS has been consummated
and (ix) no claim is pending or, except as set forth in a letter from SMS dated
September 24, 1999, a true and complete copy of which has been provided to the
Employer (as shown to be redacted), threatened against the Employee with respect
to the foregoing. The Employer shall be entitled to offset against its maximum
indemnity obligations to the Employee any damages or expenses incurred by the
Employer as a result of a breach of any of the foregoing representations.
11. NOTICES
Each notice and other communication under this Agreement shall be in
writing and shall be deemed to have been given: when delivered personally
against receipt therefor; one (1) day after being sent by Federal Express or
similar overnight delivery; or three (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to either party at
the address set forth below, or to such other address as such party shall give
by notice hereunder to the other party.
If to Employer:
Total Network Solutions, Inc.
545 Fifth Avenue, 14th Floor
New York, NY 10017
Att: Rami Musallam
If to Employee:
Robert Foley
307 Running Wind Lane
Maitland, FL 32751
9
<PAGE>
with a copy to
Joseph C. Coates III, Esq.
Steel Hector & Davis LLP
1900 Phillips Point West
777 South Flagler Drive
West Palm Beach, FL 33401-6198
12. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, the remaining conditions and provisions or portions thereof
shall nevertheless remain in full force and effect and enforceable to the extent
they are valid, legal and enforceable, and no provision shall be deemed
dependent upon any other covenant or provision unless so expressed herein.
13. ENTIRE AGREEMENT; MODIFICATION
This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersede in their entirety any prior employment
agreements entered into between the parties, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein. No modification of this Agreement
shall be valid unless made in writing and signed by the parties hereto.
14. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Employer, its successors and assigns, and
upon the Employee and his legal representatives. This Agreement constitutes a
personal service agreement, and the performance of the Employee's obligations
hereunder may not be transferred or assigned by the Employee.
15. NON-WAIVER
The failure of either party to insist upon the strict performance of any
of the terms, conditions and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of either party shall be
effective for any purpose whatsoever unless such waiver is in writing and signed
by such party.
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<PAGE>
16. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York without regard to principles
of conflict of laws.
17. HEADINGS
The headings of paragraphs are inserted for convenience and shall not
affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
------------------------------------
Robert Foley
TOTAL NETWORK SOLUTIONS, INC.
By:
---------------------------------
Name:
Title:
11
<PAGE>
Amendment dated as of December 29,
1999 to the Employment Agreement dated as of
September 24, 1999 (the "Employment Agreement"), by
and between Total Network Solutions, Inc., a New York
corporation (the "Employer"), and Robert Foley, an
individual (the "Employee").
WHEREAS, pursuant to the Employment Agreement, the Employee
was to be granted options to purchase 2.00% of the fully-diluted equity of the
Employer based on the Employer's projected capitalization following the
completion of the sale of its Series C Convertible Preferred Stock to Cisco
Systems, Inc. and investment funds affiliated with Morgan Stanley Dean Witter
(the "Series C Financing"); and
WHEREAS, as a consequence of certain changes in the terms of
the Series C Financing, the number of options granted to the Employee pursuant
to the Employment Agreement exceeds 2.00% of the Employer's fully-diluted
equity;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Section 3(b)(i) of the Employment Agreement is hereby
amended in its entirety to read as follows:
(b) (i) Simultaneously with the execution hereof by the
parties, the Employee will be granted options to purchase 709,065 shares of the
Common Stock, par value $0.001 per share, of the Employer ("Common Stock")
pursuant to the Employer's Amended and Restated 1998 Stock Option Plan. 94,336
such options shall be denominated as incentive stock options and 614,729 such
options shall be denominated as non-statutory options (the "NSO's").
Notwithstanding the designation of any portion of any option granted to the
Employee under this Agreement as an incentive stock option, the provisions of
the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder may prevent some or all of such option from being treated
as incentive stock options. The Employer shall have no liability to the Employee
with respect to the tax treatment of such option or the shares of Common Stock
purchasable upon exercise thereof.
2. Except as set forth above, the Employment Agreement shall
remain unmodified and in full force and effect.
3. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
law principles thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
-----------------------------
Robert Foley
TOTAL NETWORK SOLUTIONS, INC.
By: __________________________
Name:
Title:
2
<PAGE>
EXHIBIT 16.1
April 11, 2000
Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir/Madam:
We have read the statements made by ThruPoint, Inc. (formerly Total Network
Solutions, Inc.) included in the Form S-1 which we understand will be filed with
the Commission pursuant to Item 304 of Regulation S-K. We agree with the
statements concerning our Firm in such Form S-1, except that we are not in a
position to agree or disagree with the date of the change of independent
auditors.
Very truly yours,
Rothstein, Kass & Company, P.C.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated March 24, 2000
(except Note 2--Stock Splits, as to which the date is April , 2000) in the
Registration Statement (Form S-1) and related Prospectus of ThruPoint, Inc. for
the registration of its common stock.
New York, New York
------------------------
The foregoing consent is in the form that will be signed upon the completion
of the restatement of the capital accounts described in Note 2--Stock Splits to
the consolidated financial statements.
/s/ Ernst & Young LLP
New York, New York
April 19, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated March 23, 1998, except for Note 2--Stock Splits which is as of
April , 2000, on our audit of the statements of operations, stockholders'
equity and cash flows and financial statement schedule of ThruPoint, Inc.
(formerly Total Network Solutions, Inc.) for the year ended December 31, 1997.
We also consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data."
------------------------
The foregoing consent is in the form that will be signed upon completion of
the restatement of capital accounts described in Note 2--Stock Splits to the
consolidated financial statements.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
April 19, 2000
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