<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FORT POINT PARTNERS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7373 77-0444124
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
111 SUTTER STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 395-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES T. ROCHE AND MATTHEW J.N.C. ROCHE
CO-CHIEF EXECUTIVE OFFICERS
CO-PRESIDENTS
FORT POINT PARTNERS INC.
111 SUTTER STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 395-4400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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KENNETH R. LAMB, ESQ. CORI M. ALLEN, ESQ.
GREGORY J. CONKLIN, ESQ. GIL LIVNAH, ESQ.
JOHN B. STONE, ESQ. JINGMING CAI, ESQ.
GIBSON, DUNN & CRUTCHER LLP MORRISON & FOERSTER LLP
ONE MONTGOMERY STREET 755 PAGE MILL ROAD
TELESIS TOWER, SUITE 2600 PALO ALTO, CA 94304
SAN FRANCISCO, CA 94104
</TABLE>
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _____________
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE(2)
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<S> <C> <C>
Common Stock, $0.001 par value.............................. $ 69,000,000 $ 18,216
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Calculated pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED MAY 3, 2000
Shares
[FORT POINT PARTNERS LOGO]
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $ and $ per share. We will apply to have our common stock
approved for listing on The Nasdaq Stock Market's National Market under the
symbol "FTPT".
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
4.
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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO FORT
PUBLIC COMMISSIONS POINT PARTNERS
-------- ------------- ----------------
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total.............................................. $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON DEUTSCHE BANC ALEX. BROWN
WR HAMBRECHT + CO
The date of this prospectus is , 2000
<PAGE> 3
[DESCRIPTION OF INSIDE FRONT COVER]
Within the borders of a black box is a beige and white background depicting
a section of the Golden Gate Bridge. In black typeset centered over the
background is text stating, "Some of our past and present clients include:
BlueLight.com, Inc., Elizabeth Arden Company, a Unilever company, eve.com, Inc.,
J.Crew Group, Inc., Kaplan, Inc., Lids Corp., The North Face, Inc., Petstore.com
Inc., Smith and Hawken, Ltd. and Tavolo, Inc." Centered below that text is the
Fort Point Partners blue and gold logo and the bolded text, "Fort Point
Partners."
<PAGE> 4
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 4
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 16
USE OF PROCEEDS....................... 17
DIVIDEND POLICY....................... 17
CAPITALIZATION........................ 18
DILUTION.............................. 19
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 21
BUSINESS.............................. 29
</TABLE>
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MANAGEMENT............................ 37
CERTAIN TRANSACTIONS.................. 46
PRINCIPAL STOCKHOLDERS................ 48
DESCRIPTION OF CAPITAL STOCK.......... 50
SHARES ELIGIBLE FOR FUTURE SALE....... 54
UNDERWRITING.......................... 56
NOTICE TO CANADIAN RESIDENTS.......... 58
LEGAL MATTERS......................... 59
EXPERTS............................... 59
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 59
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
Fort Point Partners(TM), Fort Point(TM), eSelling(TM), Fortified
Process(TM), EC Plan(TM), EC Build(TM), EC Grow(TM), Learning Infrastructure(TM)
and Selling Intelligence(TM) are our trademarks and are the subject of pending
trademark applications. This prospectus also makes reference to trademarks of
other companies.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
i
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained in greater detail
elsewhere in this prospectus. This summary may not contain all of the
information that you should consider before investing in our common stock. You
should carefully read this entire prospectus, including "Risk Factors" and the
financial statements and notes thereto, before you decide to buy our common
stock.
FORT POINT PARTNERS INC.
Fort Point Partners was formed specifically to provide eSelling solutions,
which we define as Internet services that enable companies to sell more
effectively. We are an Internet consulting firm that specializes in providing
strategy, technology and program management services to help companies combine
their existing capabilities with Web-based technologies to launch or expand an
e-business designed to maximize revenues and gain competitive advantage. Our
past and present clients include companies that are engaging in e-business, in
both business-to-business and business-to-consumer selling environments, such as
BlueLight.com, Elizabeth Arden, J.Crew and Kaplan. We provide our services
primarily on a fixed-price, fixed-timeframe basis.
Companies are increasingly launching e-businesses in response to the rapid
growth in the commercial use of the Internet. To do so, many companies require
the expertise of Internet services firms to better understand the Internet
opportunity and how to build e-businesses. International Data Corporation, or
IDC, estimates that the worldwide market for Internet services will grow from
$16.2 billion in 1999 to $99.1 billion in 2004.
We believe that the marketplace is entering the next phase of e-business,
characterized by a focus on maximizing profitable sales. To date, companies have
focused on developing a Web presence and Web-enabling enterprise applications.
However, as the number of e-businesses has grown, buyers have been empowered by
increased variety in product and service offerings, greater access to
information and real-time price and transaction capability. As buyers become
empowered, companies are seeking better ways to differentiate their products and
services to create competitive advantages and drive increased revenue and
profitability. Companies also face a growing number of options in the selection
of business plans, solution models and technologies.
We believe that we are well positioned to benefit from this next phase of
e-business because our eSelling solutions specifically focus on helping
companies maximize revenue. We distinguish ourselves by:
- working with our clients to design eSelling strategies built around
understanding every point of contact between our clients and their
customers such as sales, supply, fulfillment and customer service. We
then employ processes and technologies to remove barriers to buying and
to create additional revenue opportunities at each of these contact
points;
- our deep technology expertise and experience, which enables us to
architect and build scalable and flexible applications capable of
handling high transaction rates and large volumes of data and that can be
adapted to our clients' and their customers' changing needs,
technological innovation and business trends;
- employing a differentiated First-Stop Shop approach, which means that
clients engage us early in the strategic planning process to define and
assume responsibility for the entire eSelling solution. Our ecosystem of
relationships allows us to provide our clients with leading expertise in
all relevant areas necessary to implement high-quality eSelling solutions
as well as the flexibility to take advantage of the latest technologies;
- utilizing knowledge merchandising to identify, capture and reuse valuable
frameworks, tools and processes to achieve rapid time to market when
delivering our eSelling solutions; and
- having a disciplined methodology that ensures consistent delivery of high
quality eSelling solutions in a timely, cost-effective manner across all
client engagements.
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Our objective is to become the leading provider of eSelling solutions. Our
strategy for accomplishing this objective includes:
- continuing to develop new and innovative eSelling solutions to increase
the value of our client engagements and target large companies in the
manufacturing, retail, financial services and telecommunications
industries;
- targeting strategic eSelling initiatives for established enterprises to
help those companies use the Internet to leverage their substantial
existing corporate advantages across multiple channels;
- cultivating a culture that attracts and retains skilled,
multidisciplinary professionals;
- building long-term relationships, which lead to additional business
opportunities, large-scale client engagements, recurring revenue streams
and a strong base of referenceable clients;
- leveraging the relationships in our ecosystem to provide high-quality
eSelling solutions;
- fostering an effective selling organization to scale our business, obtain
large engagements and develop long-term client relationships; and
- expanding our geographic presence throughout the United States and
internationally to meet clients' eSelling needs.
We were incorporated in California in October 1996 and will reincorporate
as a Delaware corporation prior to the completion of this offering. As of March
31, 2000, we had 84 billable professionals. Our principal executive offices are
located at 111 Sutter Street, San Francisco, California 94104, and our telephone
number is (415) 395-4400. We also have an office in New York and are
establishing offices in Chicago and Germany.
THE OFFERING
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Common stock offered by Fort Point Partners............. shares
Common stock to be outstanding after this offering...... shares
Use of proceeds......................................... We intend to use the net proceeds of this
offering for working capital and general
corporate purposes.
Proposed Nasdaq symbol.................................. FTPT
</TABLE>
The common stock to be outstanding upon completion of this offering is
based on the number of shares outstanding as of March 31, 2000.
The common stock outstanding after this offering assumes the conversion
into common stock of all of our outstanding preferred stock and excludes
3,754,350 shares of common stock that are reserved for issuance under our 1996
Stock Option/Stock Issuance Plan, of which 1,396,244 shares were subject to
outstanding options as of March 31, 2000 with a weighted average exercise price
of $0.18. See "Capitalization," "Management -- Employee Benefit Plans" and
"Description of Capital Stock."
Except as otherwise indicated, we have presented all information in this
prospectus assuming that:
- the underwriters will not exercise their over-allotment option;
- all outstanding shares of our preferred stock will be converted into
common stock upon completion of this offering (see "Description of
Capital Stock"); and
- we have reorganized Fort Point Partners Inc. into a Delaware corporation
(see "Certain Transactions -- Reorganization of Fort Point Partners").
2
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes the results of our operations. The
consolidated statement of operations data set forth below for the years ended
December 31, 1997, 1998 and 1999 are derived from our audited consolidated
financial statements. The consolidated statement of operations data for the
quarters ended March 31, 1999 and 2000 are derived from our unaudited interim
consolidated financial statements. The pro forma net loss per common share data
reflect the sale in April 2000 of 3,426,411 shares of our Series E convertible
preferred stock for aggregate proceeds of approximately $30.0 million and the
automatic conversion of all outstanding shares of our convertible preferred
stock into shares of our common stock upon completion of this offering.
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<CAPTION>
YEARS ENDED DECEMBER 31, QUARTERS ENDED MARCH 31,
----------------------------------- ------------------------
1997 1998 1999 1999 2000
--------- --------- --------- --------- -----------
(UNAUDITED)
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue................................... $ 2,045 $ 2,489 $ 8,325 $ 1,224 $ 5,003
Operating expenses:
Professional services................... 620 1,037 4,875 584 2,527
Sales and marketing..................... 62 425 2,451 214 4,041
General and administrative.............. 1,021 1,768 6,150 500 4,386
Amortization of deferred stock-based
compensation.......................... 1 67 882 51 3,453
--------- --------- --------- --------- -----------
Total operating expenses.................. 1,704 3,297 14,358 1,349 14,407
--------- --------- --------- --------- -----------
Operating income (loss)................... 341 (808) (6,033) (125) (9,404)
Interest income (expense), net............ 8 (1) 144 (3) 75
Income tax (expense) benefit.............. (139) 83 (1) -- (1)
--------- --------- --------- --------- -----------
Net income (loss)......................... $ 210 $ (726) $ (5,890) $ (128) $ (9,330)
========= ========= ========= ========= ===========
Net income (loss) per common share:
Basic................................... $ 0.05 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========= ========= ========= ========= ===========
Diluted................................. $ 0.04 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========= ========= ========= ========= ===========
Weighted average shares used in computing
net income (loss) per common share:
Basic................................... 4,160,000 4,162,181 4,693,086 4,642,790 4,905,134
Diluted................................. 5,461,682 4,162,181 4,693,086 4,642,790 4,905,134
Pro forma basic and diluted net loss per
common share (unaudited)................ $ (0.67)
===========
Weighted average shares used in
computing pro forma net loss per
common share.......................... 14,003,870
</TABLE>
The following table is a summary of our consolidated balance sheet data. The
actual column is derived from our unaudited consolidated financial statements.
The pro forma column gives effect to the sale in April 2000 of 3,426,411 shares
of Series E convertible preferred stock for aggregate proceeds of approximately
$30.0 million. The pro forma as adjusted column reflects the sale in April 2000
of our Series E convertible preferred stock and the receipt of the net proceeds
from the sale of shares of common stock offered by us at assumed initial
public offering price of per share and the application of the net proceeds
from the offering, after deducting underwriting discounts and commissions and
estimated offering expenses.
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MARCH 31, 2000
-----------------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 5,709 $35,707 $
Working capital........................................ (809) 29,189
Total assets........................................... 14,371 44,369
Total long-term liabilities, including current
portion.............................................. 630 630 630
Total stockholders' equity............................. 4,658 34,656
</TABLE>
3
<PAGE> 8
RISK FACTORS
Any investment in our common stock includes a high degree of risk. You
should consider carefully the risks and uncertainties described below and the
other information in this prospectus before deciding whether to invest in shares
of our common stock. The risks and uncertainties described below are not the
only ones facing us. Additional risk and uncertainties not presently known to us
or that we currently deem immaterial may also impair our business operations.
Any of these presently unknown or immaterial risks or any of the following risks
could materially and adversely affect our business, operating results and
financial condition and could result in a partial or complete loss of your
investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES, WE EXPECT TO INCUR LOSSES IN THE FUTURE AND WE MAY
NEVER BE PROFITABLE
We cannot assure you that we will ever achieve or sustain profitability. We
incurred net losses of $9.3 million in the quarter ended March 31, 2000, $5.9
million in 1999 and $0.7 million during 1998. As of March 31, 2000, we had an
accumulated deficit of $15.8 million. We anticipate that we will continue to
incur net losses for the foreseeable future. We also expect that our
professional services, sales and marketing and general and administrative
expenses will continue to increase as we attempt to expand our business. As a
result, we will need to generate significant revenue to achieve profitability.
If we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future.
OUR OPERATING HISTORY IS MORE LIMITED THAN THAT OF MANY OTHER COMPANIES, SO YOU
MAY FIND IT DIFFICULT TO EVALUATE OUR BUSINESS IN MAKING AN INVESTMENT DECISION
We have limited experience in providing our services and have completed
only a limited number of engagements. Our limited operating history makes an
evaluation of our business and prospects difficult. Companies in an early stage
of development frequently encounter enhanced risks and unexpected expenses and
difficulties. These risks, expenses and difficulties are particularly relevant
to us because the market for Internet services is new and rapidly evolving. In
addition, many members of our senior management team and other employees have
worked with us for only a short period of time. Consequently, we have not
demonstrated that our business can succeed.
WE MAY EXPERIENCE SIGNIFICANT PERIOD-TO-PERIOD QUARTERLY AND ANNUAL FLUCTUATIONS
IN OUR REVENUE AND OPERATING RESULTS THAT MAY CAUSE OUR STOCK PRICE TO FLUCTUATE
We may experience significant period-to-period quarterly and annual
fluctuations in our revenue and operating results in the future due to a number
of factors. We have no control over many of these factors, and these factors are
difficult or impossible to forecast. Although our revenue has increased in each
of the past three years, we cannot assure you that we will be able to sustain
our historical growth rates, or that we will be able to grow at all. You should
not rely on the results of any prior quarterly or annual periods as an
indication of our future performance. It is likely that in some future period
our operating results will be below the expectations of public market analysts
or investors. If our operating results are below the expectations of analysts or
investors, our stock price may drop, perhaps significantly.
Some factors that may cause fluctuations in our revenue and operating
results are:
- variability in the demand for Internet services;
- our ability to obtain new and follow-on client engagements;
- the loss of any major client;
- the amount and timing of projects, project modifications and project
cancellations by our clients;
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<PAGE> 9
- our ability to attract, train and retain skilled professionals at various
levels of experience with a variety of technical and administrative
skills, including project management, strategy, engineering, systems
architecture, sales and marketing, and other disciplines;
- our employee utilization rate, including our ability to integrate new
employees and to transition employees from completed projects to new
projects;
- our ability to accurately estimate the resources we need to complete
projects;
- the introduction of new services by us or our competitors;
- changes in our pricing policies or those of our competitors;
- our ability to integrate any acquired businesses;
- our ability to manage costs, including personnel and support services
costs and the costs related to the expected opening of new offices; and
- general economic factors.
Our personnel costs constitute the substantial majority of our operating
expenses. Because we establish these expenses in advance of any particular
quarter, underutilization of our billable professionals may cause significant
reductions in our operating results for a particular quarter and could result in
losses for such quarter. In addition, we have hired and anticipate hiring a
large number of personnel in core support services, including technology
infrastructure, sales and marketing and finance and administration. As a result,
a significant portion of our operating expenses are fixed in the short term. Any
failure to generate revenue according to our expectations in a particular
quarter could result in losses for the quarter.
Although we have limited historical data, we have experienced and expect to
continue to experience seasonality in revenue, which may materially affect our
quarter-to-quarter operating results. Our revenue growth and operating results
in the quarter ended December 31 of each year typically are harmed by the
greater number of vacation days and holidays in that period. As we expand
internationally, we may encounter other seasonal trends, such as increased
vacation days during the summer in our planned European operations. These
seasonal trends slow the rate of completion of projects and, consequently, the
rate at which we recognize revenue for engagements.
OUR ABILITY TO ATTRACT, TRAIN AND RETAIN QUALIFIED EMPLOYEES IS CRUCIAL TO OUR
OPERATING RESULTS AND ANY FUTURE GROWTH
Our future success depends in large part on our ability to hire, train and
retain people at various levels of experience with a variety of technical and
administrative skills, including project management, strategy, engineering,
systems architecture, sales and marketing, and other disciplines. If we are
unable to hire, train and retain a sufficient number of qualified employees, we
will not be able to expand our business. Skilled personnel are in short supply,
and this shortage is likely to continue for some time. As a result, competition
for these people is intense, and the industry turnover rate is high. In
addition, we believe that prospective employees that we attempt to hire after
this offering, as well as existing employees, may perceive that the stock option
component of our compensation package is not as valuable as that component was
prior to this offering. Consequently, after this offering, we may have greater
difficulty hiring qualified employees that we are seeking.
Moreover, even if we are able to expand our employee base, we will be
required to expend significant financial and managerial resources in order to
attract and retain employees. We expect that the costs of training employees
will also increase as we grow. The increased costs of hiring, training and
retaining personnel will impact our ability to become profitable and, if we
become profitable, the level of profitability that we achieve. We also may be
unable to preserve our culture and the high quality of our employees as we grow,
which could harm our business, reputation and growth.
In addition, some companies have adopted a strategy of suing or threatening
to sue former employees and their new employers for alleged violations of
contractual or legal requirements regarding
5
<PAGE> 10
confidentiality, non-competition and similar matters. As we hire new employees
from our current or potential competitors, we are likely to become a party to
one or more lawsuits involving the former employment of one of our employees.
Any future litigation against us or our employees, regardless of the outcome,
may result in substantial costs and expenses to us and may divert management's
attention away from our business.
WE DEPEND ON OUR KEY PERSONNEL WITH WHOM WE DO NOT HAVE EMPLOYMENT AGREEMENTS,
AND THE LOSS OF ANY KEY PERSONNEL MAY ADVERSELY AFFECT OUR ABILITY TO OBTAIN,
MAINTAIN AND SERVICE CLIENTS
We believe that our success will depend on the continued employment of our
senior management team and other key personnel. This dependence is particularly
important to our business because personal relationships are a critical element
of obtaining and maintaining client engagements. If one or more members of our
senior management team or other key personnel were unable or unwilling to
continue in their present positions, such persons would be very difficult to
replace, and our business could be seriously harmed. To date, a majority of our
revenue has been generated by the selling efforts of our senior management.
Accordingly, the loss of one or more members of our senior management team could
have a direct adverse impact on our future sales. In particular, we depend on
the services of James T. Roche and Matthew J.N.C. Roche, our Co-Chief Executive
Officers and Co-Presidents.
In addition, if any of our key employees joins a competitor or forms a
competing company, some of our clients might choose to use the services of that
competitor or new company instead of our own. Furthermore, clients or other
companies may seek to develop in-house eSelling capabilities and may hire away
some of our key employees. This would not only result in the loss of key
employees but could also result in the loss of a client relationship or a new
business opportunity. Any losses of client relationships or inability to secure
new client relationships would seriously harm our business.
WE COULD LOSE MONEY OR INCUR PENALTIES ON OUR CONTRACTS BECAUSE THEY GENERALLY
HAVE A FIXED PRICE AND MUST BE COMPLETED IN SPECIFIED TIMEFRAMES
An important element of our strategy is to enter into fixed-price,
fixed-timeframe contracts, rather than contracts in which payment to us is
determined on a time and materials basis. Because we work with complex
technologies in compressed timeframes, it is difficult to judge the time and
resources necessary to complete a project, and there is a significant risk that
we will not be able to do so. If we fail to accurately estimate the resources
required for a project, we would likely incur larger than expected costs to
complete it. We may be unable to negotiate any increased payment from a client
in those circumstances, in which case the project may be less profitable than we
projected or the project may be completed at a loss. We have been required in
the past to commit unanticipated additional resources to complete some projects,
which has resulted in losses on contracts. We are likely to face similar
situations in the future.
In addition, although our contracts generally do not provide for penalties
for failure to meet agreed-upon timeframes, we may enter into agreements that do
include penalty provisions in the future. If we enter into contracts that
provide penalties for delay, our operating results may be seriously harmed.
IF WE ARE UNABLE TO TIME THE HIRING OF ADDITIONAL PEOPLE TO COINCIDE WITH NEW
ENGAGEMENTS, OUR PROFITABILITY WILL BE HARMED
We are currently hiring additional billable professionals to expand our
operations, which will increase our operating expenses. If we are unable to
obtain new engagements or if the timing of those new engagements does not
coincide with our hiring of additional billable professionals, we may be unable
to generate sufficient revenue to offset those additional operating expenses.
Consequently, the failure to correctly time the hiring of additional billable
professionals to match our new engagements will harm our profitability.
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OUR FAILURE TO MANAGE GROWTH MAY ADVERSELY AFFECT OUR BUSINESS
We have grown rapidly and expect to continue to grow rapidly both by hiring
new employees and serving new business and geographic markets. The size of our
workforce has grown from 34 as of December 31, 1998 to 177 as of March 31, 2000,
and several members of our senior management team have only recently joined Fort
Point Partners. We do not believe this growth rate is sustainable in the long
term. Our growth has placed, and will continue to place, a significant strain on
our management and our operating and financial systems.
Our personnel, systems, procedures and controls may be inadequate to
support our future operations. In order to accommodate the increased number of
engagements, number of clients and the increased size of our operations and
engagements, we will need to hire, train and retain the appropriate personnel to
manage our operations. We will also need to improve our financial and management
controls, reporting systems and operating systems. We are currently implementing
a new enterprise resource planning software system for some human resource and
financial functions. We may encounter difficulties in transitioning to the new
enterprise resource planning software system or in developing and implementing
other new systems. All of these endeavors will require substantial management
effort. After implementing new systems, our processes, systems, procedures and
controls may be inadequate to support our future operations. If we are unable to
effectively manage our expanding operations, our business will be harmed.
IF WE ARE NOT SUCCESSFUL IN OPENING AND GROWING NEW OFFICES, WE MAY BE UNABLE TO
CONTINUE TO GROW OR WE MAY GROW MUCH MORE SLOWLY THAN WE CURRENTLY ANTICIPATE
A key component of our growth strategy is to open offices in new geographic
locations. We began operations in San Francisco in late 1996, and added our New
York office in 1998. We anticipate opening additional offices. We are currently
in the process of establishing offices in Chicago and Germany. We have limited
experience in launching offices in new locations, and we may not be successful
in any new locations. Once we select locations for expansion, we anticipate
devoting substantial financial and management resources to launch and grow those
offices. These efforts may detract from the development and operation of our
existing offices. In addition, we cannot assure you that we will select
appropriate markets to enter, open new offices efficiently or manage new offices
profitably. Even if we successfully develop new offices, they may not grow as
fast as our existing offices. Our failure to accurately assess and manage these
risks could negatively impact our rate of revenue growth and ability to be
profitable and increase our capital requirements.
WE ARE DEPENDENT ON A SMALL NUMBER OF CLIENTS
We derive a significant portion of our revenue from large projects for a
limited number of clients. In 1999, our five largest clients accounted for
approximately 48% of our revenue. During that period, Petstore.com accounted for
approximately 11%, Kaplan accounted for approximately 10% and seven other
clients each accounted for more than 5% of our revenue. Because the size of our
engagements has been increasing, the level of client concentration is likely to
increase. For the quarter ended March 31, 2000, our five largest clients
represented approximately 81% of our revenue. During that period, IdeaForest.com
represented approximately 22%, BlueLight.com represented approximately 19%,
Kaplan represented approximately 17% and Tavolo represented approximately 15% of
our revenue. The loss of any client that has retained us for a significant
project or the reduction in scope of a significant project would reduce our
revenue and adversely affect our profitability. In the past, we have had
significant clients elect to defer additional phases of a project.
OUR ABILITY TO GROW WILL BE DEPENDENT ON OUR ABILITY TO ENTER INTO NEW
ENGAGEMENTS WITH NEW CLIENTS AS WE COMPLETE ENGAGEMENTS
The volume of work performed for specific clients will vary from year to
year. We do not expect that a client who generates a significant amount of
revenue for us in one year will typically generate significant revenue in
subsequent years. Consequently, to be successful, we must enter into agreements
with new clients to maintain and increase our revenue.
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WE DO NOT ENTER INTO LONG-TERM CONTRACTS WITH OUR CLIENTS, WHICH REDUCES THE
PREDICTABILITY OF OUR REVENUE
Our clients retain us on an engagement-by-engagement basis, rather than
under long-term contracts. As a result, our revenue is difficult to predict.
Because we incur a large portion of our costs in advance based on our
expectations of future revenue, our failure to predict our revenue accurately
would harm our profitability and cash flow. Since large projects typically
involve multiple phases or stages, a client may choose not to retain us for
additional phases of a project. The client may also cancel or delay additional
planned projects. In the past, we have had significant clients elect to defer
additional phases of a project. Cancellations or delays could result from
factors unrelated to our work product or the progress of the project, such as
general business or financial conditions of the client. Our operating expenses
are relatively fixed and cannot be reduced on short notice to compensate for
unanticipated variations in the number or scope of engagements. If a client
defers, modifies or cancels an engagement or chooses not to retain us for
additional phases of a project, we may be unable to rapidly redeploy our
employees to other engagements in order to minimize underutilization of
employees, which would harm our operating results.
OUR FAILURE TO MEET CLIENT EXPECTATIONS OR TO DELIVER ERROR-FREE SERVICES COULD
RESULT IN LOSSES AND UNFAVORABLE PUBLICITY
Our client engagements involve the development of strategies in new and
rapidly changing markets and the creation, implementation and improvement of
highly complex systems that are often critical to our clients' businesses. Any
defects or errors in these applications or failure to meet clients' expectations
could result in:
- delayed or lost revenue due to adverse client reaction;
- requirements to provide additional services to a client at no charge;
- penalties for failure to complete engagements in contractually-required
timeframes or to meet other agreed-upon criteria;
- unfavorable publicity regarding us and our services that could adversely
affect our ability to attract or retain clients and employees; and
- claims for substantial damages against us, regardless of our
responsibility for such failure.
Our contracts with clients generally contain provisions that limit our
liability for errors or omissions, unless those errors or omissions relate
specifically to tasks we have agreed to perform under our contracts. In
addition, our client contracts typically state that we will not be held liable
for indirect or consequential damages. However, we cannot be sure that these
contractual provisions will protect us from liability for damages in the event
we are sued. Our general liability insurance coverage may not continue to be
available on reasonable terms or in sufficient amounts to cover one or more
large claims, or the insurer may disclaim coverage as to any future claim. The
successful assertion of a large claim against us could seriously harm our
reputation, liquidity and operating results.
OUR BUSINESS WILL BE HARMED IF WE DO NOT KEEP UP WITH THE RAPID PACE OF
TECHNOLOGICAL CHANGE, EVOLVING INDUSTRY STANDARDS AND CHANGING CLIENT
REQUIREMENTS
The Internet services market is characterized by rapidly changing
technology, evolving industry standards and changing client needs. Our future
success will depend, in part, on our ability to:
- effectively use leading technologies;
- continue to develop our strategic and technical expertise;
- influence and respond to emerging industry standards and other
technological changes;
- hire, train and retain professionals who are apprised of technological
advances and developments;
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<PAGE> 13
- enhance our current services; and
- develop new services that meet changing client needs.
All of these challenges must be met in a timely and cost-effective manner.
The risk that we may not be able to keep up with these challenges is
significantly greater for us than it is for some other companies, because the
provision of our services requires that we understand and respond to changes
across a broad range of complex technologies. We cannot assure you that we will
succeed in effectively meeting these challenges, and our failure to do so would
seriously harm our business.
THE INTENSE COMPETITION IN THE MARKET FOR INTERNET SERVICES FROM ESTABLISHED
COMPETITORS AND NEW ENTRANTS FACING LOW BARRIERS TO ENTRY COULD DECREASE OUR
REVENUE, REDUCE OUR PROFITABILITY AND DECREASE OUR MARKET SHARE
The Internet services market is rapidly changing and intensely competitive.
We expect competition to intensify even further as this market evolves. Many of
our competitors have longer operating histories, more clients, longer
relationships with their clients, greater brand or name recognition and
significantly greater financial, technical, marketing and public relations
resources than we have. As a result, our competitors may be in a stronger
position to respond quickly to new or emerging technologies and changes in
client requirements and to engage in larger, more complex projects. They may
also develop and promote their products and services more effectively than we
do.
The Internet services market has relatively low barriers to entry. In
addition, we do not own any patented technology that inhibits competitors from
providing services similar to ours. As a result, new and unknown market entrants
pose a threat to our business. Current or future competitors may develop
services that are superior to ours or offer their services at a lower price,
which could significantly decrease our revenue and ability to become profitable.
Current or potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of these competitive alliances may
develop services that are superior to, or have greater market acceptance than,
the services that we offer.
THE SIZE OF OUR ENGAGEMENTS MAY DECREASE, WHICH WOULD HURT OUR ABILITY TO GROW
AND BECOME PROFITABLE
We plan to continue to target large engagements. If we do not obtain large
engagements or if the size of our engagements decreases, our revenue may not
increase, may increase more slowly than we anticipate or may decrease. Since our
operating expenses are relatively fixed and cannot be reduced on short notice to
compensate for unanticipated variations in the size of engagements, any effect
on our revenue will likely harm our profitability.
WE MAY BE UNABLE TO MEET THE CHALLENGES ASSOCIATED WITH THE INCREASING SIZE AND
COMPLEXITY OF OUR ENGAGEMENTS, WHICH WOULD HARM OUR GROWTH AND OPERATING RESULTS
The size and complexity of our engagements have increased and may continue
to do so. Any increase in the size and complexity of our engagements increases
the risk that we may be unable to provide high-quality eSelling solutions to our
clients. We may be unable to scale our operations to provide the necessary
resources to complete larger, more complex engagements. In addition, the
experience we have gained and the skills we have developed on our earlier
engagements may be inapplicable to larger, more complex engagements. Any failure
to adequately meet the challenges presented by the increasing size and
complexity of our engagements would harm our growth and operating results.
WE SOMETIMES AGREE NOT TO PERFORM SERVICES FOR OUR CLIENTS' COMPETITORS, WHICH
MAY DECREASE OUR REVENUE
We sometimes agree not to perform services for our clients' competitors.
These agreements may limit our opportunities to be retained by some potential
new clients. In addition, these agreements increase the
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significance of our client selection process because many of our clients compete
in markets where only a limited number of players will gain meaningful market
share. If we agree not to perform services for a particular client's competitors
and our client fails to capture a significant portion of its market, we are
unlikely to receive new engagements, and therefore new revenue, in that market.
OUR EFFORTS TO DEVELOP BRAND AWARENESS MAY NOT BE SUCCESSFUL
An important element of our business strategy is to develop and maintain
widespread awareness of the Fort Point Partners brand. To promote our brand, we
anticipate that our marketing expenses will be significant for the foreseeable
future. Moreover, our brand may be closely associated with the business success
or failure of some of our high-profile client engagements, many of which involve
unproven business models in competitive markets. As a result, the failure or
difficulties of any high-profile client may damage our brand. If we fail to
successfully promote and maintain our brand name or incur significant related
expenses, our revenue, operating margins and growth would suffer.
WE MAY BE UNABLE TO MAINTAIN OR EXPAND OUR ECOSYSTEM OF RELATIONSHIPS, WHICH
COULD HARM OUR ABILITY TO PROVIDE ESELLING SOLUTIONS THAT INCORPORATE THE LATEST
TECHNOLOGY OR INVOLVE PREFERRED SERVICE PROVIDERS
We have established an ecosystem of relationships with creative design and
marketing agencies, software vendors and application service providers in order
to help provide our clients with high-quality eSelling solutions. Parties with
whom we have existing relationships could decide to no longer participate in our
engagements. In addition, parties whom we would like to involve in our
engagements may decline to join our ecosystem of relationships. If we are unable
to involve desired parties in our engagements, our business and growth could be
harmed.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
If we fail to protect our proprietary rights, competitors could use our
proprietary information to deliver services in ways that could harm our
competitive position and decrease our revenue. We rely on a combination of
copyright, trademark and trade secret laws, as well as nondisclosure agreements
and other methods to protect our proprietary rights. We cannot guarantee that
the steps we have taken to protect our proprietary rights will be adequate to
deter misappropriation of our intellectual property. 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
copyrights, trade secrets, trademarks or other proprietary information, our
business would be seriously harmed. In addition, protection of intellectual
property in many foreign countries is weaker and less reliable than in the
United States, so if our business expands into foreign countries, risks
associated with protecting our intellectual property will increase.
SIGNIFICANT LITIGATION OVER INTELLECTUAL PROPERTY MAY CAUSE US TO BECOME
INVOLVED IN COSTLY AND LENGTHY LITIGATION, WHICH COULD SUBJECT US TO LIABILITY
OR REQUIRE US TO CHANGE THE WAY WE PROVIDE OUR SERVICES
We may become a party to litigation in the future either to protect our
intellectual property or as a result of alleged infringement of others'
intellectual property. These lawsuits, regardless of their outcome, would likely
be time-consuming and expensive to resolve and would divert management time and
attention. These lawsuits could:
- subject us to significant liability for damages;
- require us to change the manner in which we provide our services or to
stop using the allegedly infringing proprietary information or
intellectual property;
- invalidate our proprietary rights; and
- require us to attempt to obtain and pay for a license to relevant
intellectual property, which license may not be available on reasonable
terms or at all.
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In addition, our business involves, in part, the development of software
applications for our clients. Ownership of such software is often a subject of
negotiation and is sometimes assigned to the client. When the rights are
assigned to the client, we may retain a license for specific uses. If we do not
receive a license, our profitability may be harmed as a result of our need to
create new software that does not violate our client's rights. Issues relating
to the ownership of and rights to use software applications and frameworks can
be complicated, and there can be no assurance that disputes will not arise with
our clients that affect our ability to resell or reuse such applications and
frameworks or our client relationships.
CERTAIN OF OUR DIRECTORS, OFFICERS AND STOCKHOLDERS OWN A LARGE PERCENTAGE OF
OUR VOTING STOCK, WHICH MAY LIMIT YOUR ABILITY TO INFLUENCE CORPORATE MATTERS
Immediately following this offering, the officers, directors and
significant stockholders set forth below collectively will own approximately
% of the outstanding shares of our common stock and will own
individually the percentage set forth opposite their respective names:
<TABLE>
<CAPTION>
OFFICERS, DIRECTORS AND/OR SIGNIFICANT STOCKHOLDERS OWNERSHIP PERCENTAGE
- --------------------------------------------------- --------------------
<S> <C>
Baker Communications Fund, L.P..............................
Entities Affiliated with Accel Partners.....................
Entities Affiliated with Meritech Capital Partners..........
James T. Roche..............................................
Matthew J.N.C. Roche........................................
N. D'Arcy and Marilyn Roche.................................
----------
Total.............................................
</TABLE>
If the stockholders listed above choose to act or vote together, they will
have the power to control the election of a majority of our directors, and to
approve any other action requiring stockholder approval, including any
amendments to our certificate of incorporation and mergers or sales of all or
substantially all of our assets. Also, third parties could be discouraged from
making a tender offer or bid to acquire our company at a price per share that is
above the then-current market price.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN OUR CONTROL
Provisions of our certificate of incorporation and bylaws and the
provisions of Delaware law could have the effect of discouraging, delaying or
preventing our acquisition by a third party, despite the possible benefit to our
stockholders. The provisions of our certificate of incorporation and bylaws:
- stagger the election of our directors;
- prevent our stockholders from taking action by written consent;
- limit the ability of our stockholders to make proposals at stockholder
meetings;
- prohibit the removal of our directors except for cause or upon the
affirmative vote of at least 80% of our outstanding voting shares; and
- require supermajority voting for the amendment of the above provisions.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that the stockholder
became an interested stockholder. If Delaware law or the measures described
above discourage, delay or prevent our acquisition by a third party, the price
of our common stock could be harmed. See "Description of Capital Stock."
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WE MAY NEED TO RAISE ADDITIONAL CAPITAL FOR OUR OPERATIONS AND GROWTH, AND WE
MAY NOT BE ABLE TO DO SO ON ACCEPTABLE TERMS
To date, our cash flow from operations has not been sufficient to cover
expenses and capital needs, and we do not anticipate that it will be for the
foreseeable future. We may need to raise additional funds after this offering,
and we cannot be certain that we will be able to obtain additional financing on
favorable terms, if at all. If we raise additional capital through the issuance
of equity securities, the percentage ownership of our existing stockholders
would be reduced. Any equity securities that we issue may have rights,
preferences or privileges senior to those of our common stock. If we issue debt
securities, we may incur significant interest expense, which would harm our
profitability. The issuance of debt securities may also require us to agree to
various restrictions typical of debt securities, including limitations on
further borrowing and our right to pay dividends.
If we need additional capital and cannot raise it on acceptable terms, we
may be forced to curtail or cease operations.
OUR PLANNED INTERNATIONAL OPERATIONS MAY NOT SUCCEED
We anticipate opening offices and working with clients outside of the
United States, including in Germany where we are currently seeking to open an
office. We have no experience in marketing, selling and supporting our services
in foreign countries. Development of skills to do so may be more difficult or
take longer than we anticipate, especially due to language barriers, currency
exchange risks and the fact that the Internet infrastructure in foreign
countries may be less advanced than that existing in the United States.
International expansion will also require that we hire people outside of the
United States at various levels of experience with a variety of technical and
administrative skills, including project management, strategy, engineering,
systems architecture, sales and marketing and other disciplines. Competition for
such people is intense, and we may be unsuccessful in recruiting or retaining
sufficient qualified personnel to develop and expand our proposed international
operations.
Additionally, our current professional services delivery methodology and
business processes may not be profitable when used to deliver services in other
geographic regions. Moreover, international operations are subject to a variety
of additional risks, including the following:
- difficulties in obtaining government approvals and permits and complying
with foreign laws and regulations;
- political and economic instability;
- potentially adverse tax consequences;
- fluctuations in currency exchange rates;
- restrictions on the import and export of certain sensitive technologies,
including data security and encryption technologies that we may use;
- weaker protection for intellectual property rights in some countries; and
- seasonal reductions in business activity in certain parts of the world,
such as during the summer months in Europe.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND SEVERELY HARM OUR
FINANCIAL CONDITION
While we have no current agreements to do so, we may invest in or acquire
other businesses, technologies or assets. In the event of future acquisitions,
we could:
- issue stock that would dilute our then-current stockholders' percentage
ownership;
- incur debt;
- assume liabilities;
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- incur amortization expenses related to goodwill and other intangible
assets; or
- incur large and immediate write-offs.
We have no experience in integrating acquired businesses with our existing
business. Our operation of any acquired businesses will involve numerous risks,
including:
- problems combining any purchased operations with our own operations;
- unanticipated costs;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with customers;
- adverse effects on our culture;
- risks associated with entering markets in which we have limited or no
prior experience; and
- the potential loss of key employees, particularly those of the acquired
organization.
If we are unable to successfully integrate any acquired business, our
business and financial condition may be seriously harmed.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY, OR WE MAY FACE LIABILITY FOR, YEAR
2000 ISSUES
Some information technology and other systems that we designed, built or
implemented for our clients, or that we currently use in our operations, may not
be able to recognize date-related data arising from the use of two digits rather
than four digits to define the years after the year 1999. As of the date of this
prospectus, our systems have functioned properly with respect to dates starting
in the year 2000, and our clients have not informed us of any year 2000 problems
associated with the solutions we developed for them. However, year 2000 problems
may still affect us or our clients. If we or our clients experience year 2000
problems, we may incur material financial losses, liability to our clients or
damage to our reputation.
RISKS RELATED TO OUR INDUSTRY
OUR SUCCESS WILL DEPEND ON RAPID GROWTH IN THE DEMAND FOR INTERNET SERVICES AND
eSELLING SOLUTIONS
We cannot be certain that a viable market for the types of Internet
services that we provide will be sustainable. If the market for our services is
not sustained or does not grow rapidly, we will fail. Even if such a market
develops, we may not be able to differentiate our eSelling services from
services provided by other Internet services firms. If we are unable to
differentiate our services from those of our competitors, our revenue growth and
operating margins may decline.
OUR SUCCESS DEPENDS ON INCREASED ADOPTION OF THE INTERNET AS A MEANS FOR
COMMERCE
Our future success depends heavily on the acceptance and use of the
Internet as a means for commerce. The widespread acceptance and adoption of the
Internet for conducting business is likely only in the event that the Internet
provides increased profitability to businesses. If commerce on the Internet does
not continue to grow, or grows more slowly than expected, our growth would
decline, and our business would be seriously harmed. Consumers and businesses
may reject the Internet as a viable commercial medium for a number of reasons,
including:
- unreliable or inadequate network infrastructure;
- delays in the development of Internet-enabling technologies and
performance improvements;
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
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- 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; and
- the failure of companies to meet their clients' expectations in
delivering goods and services over the Internet.
U.S. OR FOREIGN GOVERNMENTAL LAWS AND REGULATIONS COULD HARM THE DEVELOPMENT OF
THE INTERNET, DECREASING DEMAND FOR INTERNET SERVICES
To date, governmental laws and regulations applicable to commerce on the
Internet have not materially harmed the development of the Internet. Although
there are currently few such laws and regulations, state, federal and foreign
governments may adopt new laws and regulations or enforce existing laws and
regulations, including those governing:
- privacy;
- the pricing and taxation of goods and services offered over the Internet;
- the content of Websites;
- copyrights;
- consumer protection; and
- the characteristics and quality of products and services offered over the
Internet.
For example, our planned international operations could be affected by a
directive by the European Union that imposes restrictions on the collection and
use of personal data. Other countries have adopted or may adopt similar
legislation. This directive and any other law or regulation related to the
Internet could dampen the growth of the Internet and decrease its acceptance as
a communications and commercial medium. If such a decline occurs, companies may
decide in the future not to use our services, which would seriously harm our
business and operating results.
RISKS RELATED TO THIS OFFERING
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION, WHICH
MEANS THAT THEY ARE GIVING UP VALUE THAT MAY NEVER BE RETURNED
The initial public offering price of our common stock will be substantially
higher than the book value per share of our common stock. As a result, if we
were liquidated for book value immediately following this offering, stockholders
purchasing in this offering would receive less than the price they paid for
their common stock. In addition, because our success depends so heavily on our
ability to attract and retain talented personnel, we expect to offer a
significant number of stock options to employees in the future. Such issuances
will likely cause further dilution to investors. See "Dilution."
OUR STOCK HAS NOT BEEN PUBLICLY TRADED PRIOR TO THIS OFFERING, AND WE EXPECT
THAT THE PRICE OF OUR STOCK MAY FLUCTUATE SUBSTANTIALLY
Prior to this offering, our common stock has not traded publicly. The
initial public offering price of our common stock will be determined by
negotiation among us and representatives of the underwriters and may not be
indicative of the price that will prevail in the open market after this
offering. In addition, the market price of our common stock may be highly
volatile and could be subject to wide fluctuations. Accordingly, we cannot
assure you that an active public trading market for our common stock will
develop or be sustained, or that the price of our common stock will not decline
after this offering. The market
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<PAGE> 19
price after this offering may vary significantly from the initial offering price
in response to any of the following factors, some of which are beyond our
control:
- variations in our operating results;
- changes in financial estimates or investment recommendations by
securities analysts relating to us or our competitors;
- changes in market valuations of other Internet services firms;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major client;
- additions or departures of key personnel; and
- fluctuations in the stock market price and volume of traded shares
generally, especially fluctuations in the volatile technology sector.
WE ARE AT INCREASED RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR
EXPECTED STOCK PRICE VOLATILITY
In the past, securities class action litigation has often been brought
against a company following a period of volatility in the market price of its
securities. Due to the potential volatility of our stock price, we may be the
target of similar litigation in the future. Securities litigation could result
in substantial costs and divert management's attention and resources, which
could seriously harm our financial condition and operating results.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS OUR STOCK
PRICE
After this offering, we will have shares of common stock
outstanding. Sales of a substantial number of shares of our common stock in the
public market following this offering could cause our stock price to decline.
All the shares sold in this offering will be freely tradable. Of the remaining
shares of common stock outstanding after this offering, approximately
shares will be subject to lock-up agreements with the underwriters
ending 180 days after the date of this prospectus, but will then be eligible for
sale in the public market. The remaining shares will become freely
tradable at various times after the date of this prospectus. Credit Suisse First
Boston may waive the restrictions of the lock up agreements at an earlier time
without prior notice or announcement and allow shareholders to sell their
shares. As restrictions on resale end, the market price of our stock could drop
significantly if the holders of restricted shares sell them or are perceived by
the market as intending to sell them. In addition, the sale of these shares
could impair our ability to raise capital through the sale of additional stock.
BECAUSE WE HAVE BROAD DISCRETION TO USE THE NET OFFERING PROCEEDS, HOW WE INVEST
THESE PROCEEDS MAY NOT INCREASE OUR PROFITS OR MARKET VALUE
As of the date of this prospectus, we have not yet quantified the amount of
the net proceeds of this offering that will be used for the various purposes
described under "Use of Proceeds." Accordingly our management will have
considerable discretion in the application of the net proceeds, and may apply
the net proceeds in ways that may not increase our profitability or our market
value. You will not have the opportunity, as part of your investment decision,
to assess whether the proceeds of this offering are being used appropriately.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this prospectus, we have made statements under the headings "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and in other sections that are
forward-looking statements. In some cases, you can identify these statements by
forward-looking words such as "may," "will," "should," "predicts," "projects,"
"potential," "continue," "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and variations of these words and similar
expressions. These forward-looking statements are not historical facts, but
rather are based on current expectations, estimates and projections about our
industry, our beliefs and our assumptions. These statements may include, among
other things, projections of future financial performance, our anticipated
growth strategies and plans, our ability to compete effectively in the Internet
services market and anticipated trends in our industry. These statements are
only predictions, are not guarantees of future performance and are subject to
risks, uncertainties and other factors, some of which are beyond our control and
difficult to predict, and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks and
uncertainties include those described in "Risk Factors" and elsewhere in this
prospectus. You should specifically consider the risks described under the
heading "Risk Factors." Except as required by law, we undertake no obligation to
update any forward-looking statement, whether as a result of new information,
future events or otherwise.
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USE OF PROCEEDS
The net proceeds to us from the sale of the shares being
offered by us at an assumed initial public offering price of $ per share,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $ million, or
approximately $ million if the underwriters' over-allotment option is
exercised in full.
We expect to use the net proceeds for working capital and general corporate
purposes, including increased spending on the hiring of additional employees,
the leasing of additional facilities, the development of new offices, the
expansion of our operational and administrative infrastructure and sales and
marketing. In addition, we may use a portion of the net proceeds to acquire or
invest in complementary businesses or technologies. However, we have no current
plans, agreements or commitments with respect to any such acquisition or
investment and we are not currently engaged in any negotiations with respect to
any such transaction.
We do not have specific uses committed for the net proceeds of this
offering. The size of the offering has been determined primarily based upon our
desire to raise a sufficient amount of capital to afford us significant business
flexibility in the future.
The principal purposes of this offering are to:
- obtain additional working capital;
- create a public market for our common stock;
- facilitate future access by us to public equity markets; and
- enhance our ability to use our stock to make future acquisitions due to
the fact that our shares will be publicly traded.
Pending use of the net proceeds, we intend to invest these proceeds in
short-term, investment grade, interest-bearing securities, certificates of
deposit or guaranteed obligations of the United States.
DIVIDEND POLICY
The payment of dividends is within the discretion of our board of
directors. However, our revolving line of credit currently prohibits the payment
of dividends. Our ability to pay any future dividends will depend on our
operating results and financial condition, projected capital requirements and
restrictions under our existing and future credit facilities. We have never
declared or paid any cash dividends on shares of our capital stock and do not
intend to do so at any time in the foreseeable future.
17
<PAGE> 22
CAPITALIZATION
The following table sets forth the following information:
- our actual capitalization as of March 31, 2000;
- our pro forma capitalization as of that date after giving effect to the
sale in April 2000 of 3,426,411 shares of our Series E convertible
preferred stock for aggregate proceeds of approximately $30.0 million,
the reorganization of Fort Point Partners and the automatic conversion of
all outstanding shares of convertible preferred stock into shares of
common stock on a one-for-one basis upon completion of this offering; and
- our pro forma capitalization as adjusted to reflect the receipt of the
net proceeds from our sale of shares of common stock at an
assumed initial public offering price of $ per share in this
offering, less underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
MARCH 31, 2000 (UNAUDITED)
------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------- ---------------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt, including current portion................. $ 630 $ 630 $ 630
-------- -------- --------
Stockholders' equity (deficit):
Convertible preferred stock, no par value, 20,000,000
shares authorized, 9,098,736 shares issued and
outstanding actual; $0.001 par value per share
20,000,000 shares authorized, no shares issued and
outstanding pro forma; and no shares issued and
outstanding pro forma as adjusted.................... 15,698 --
Common stock; no par value, 60,000,000 shares
authorized, 9,429,650 shares issued and outstanding
actual; $0.001 par value, 21,954,797 shares issued
and outstanding pro forma and shares
issued and outstanding pro forma as adjusted......... 9 22
Additional paid-in capital.............................. 21,932 67,615
Deferred stock-based compensation....................... (16,876) (16,876) (16,876)
Receivables from stockholders........................... (321) (321)
Accumulated deficit..................................... (15,784) (15,784) (15,784)
-------- -------- --------
Total stockholders' equity........................... 4,658 34,656
-------- -------- --------
Total capitalization.................................... $ 5,288 $ 35,286 $
======== ======== ========
</TABLE>
This table does not include: (a) 1,396,244 shares of common stock issuable
upon exercise of options outstanding as of March 31, 2000 at a weighted average
exercise price of $0.18; and (b) 2,358,106 additional shares available for grant
as of March 31, 2000 under our 1996 Stock Option/Stock Issuance Plan.
18
<PAGE> 23
DILUTION
Our pro forma net tangible book value as of March 31, 2000, after giving
effect to the automatic conversion of our preferred stock upon the closing of
this offering, was $ million, or $ per share of common stock. Net
tangible book value per share is determined by dividing our tangible book value
(total tangible assets less total liabilities) by the number of outstanding
shares of common stock at that date. After giving effect to the sale of the
shares of our common stock offered hereby at an assumed initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses, our net
tangible book value at March 31, 2000 would have been $ million, or
$ per share. The effect of the offering represents an immediate increase in
net tangible book value to existing stockholders of $ per share and an
immediate dilution to new investors of $ per share. The following table
illustrates the per share dilution:
<TABLE>
<CAPTION>
PER SHARE
---------
<S> <C>
Assumed initial public offering price per share............. $
--------
Pro forma net tangible book value per share as of March
31, 2000............................................... $
--------
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..................................................
--------
Net tangible book value dilution per share to new
investors................................................. $
--------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by the
existing stockholders and by the new public investors (based upon an assumed
initial public offering price of $ per share and before deducting estimated
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 public investors........ % $ %
-------- -------- -------- --------
Total..................
======== ======== ======== ========
</TABLE>
The above discussion and tables assume no exercise of stock options or
warrants outstanding as of March 31, 2000 and gives effect to the conversion of
all shares of our convertible preferred stock outstanding as of that date into
common stock upon completion of this offering. As of March 31, 2000, there were
options outstanding to purchase a total of shares of common stock
at a weighted average exercise price of $ per share under our 1996 Stock
Option/Stock Issuance Plan and additional shares were reserved
for grant of future options under such plan. To the extent that any of these
options are exercised, there will be further dilution to investors in this
offering.
19
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read
together with the consolidated financial statements and related notes,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the other information contained in this prospectus. The
consolidated statement of operations data set forth below for the years ended
December 31, 1997, 1998 and 1999 and the consolidated balance sheet data at
December 31, 1998 and 1999 are derived from, and are qualified by reference to,
the audited consolidated financial statements included elsewhere in this
prospectus. The balance sheet data as of December 31, 1997 are derived from
audited consolidated financial statements that are not included in this
prospectus. The consolidated statement of operations data for the quarters ended
March 31, 1999 and 2000 and the consolidated balance sheet data at March 31,
2000 are derived from our unaudited interim consolidated financial statements.
In management's opinion, the unaudited interim consolidated financial statements
have been prepared on substantially the same basis as the audited consolidated
financial statements and include all normal recurring adjustments necessary to
be in conformity with accounting principles generally accepted in the United
States. The pro forma net loss per share data reflect the issuance and sale in
April 2000 of 3,426,411 shares of our Series E convertible preferred stock for
aggregate proceeds of approximately $30.0 million and the automatic conversion
of all outstanding shares of our convertible preferred stock into common stock.
<TABLE>
<CAPTION>
QUARTER ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue........................................ $ 2,045 $ 2,489 $ 8,325 $ 1,224 $ 5,003
Operating expenses:
Professional services........................ 620 1,037 4,875 584 2,527
Sales and marketing.......................... 62 425 2,451 214 4,041
General and administrative................... 1,021 1,768 6,150 500 4,386
Amortization of deferred stock-based
compensation............................... 1 67 882 51 3,453
---------- ---------- ---------- ---------- ----------
Total operating expenses....................... 1,704 3,297 14,358 1,349 14,407
---------- ---------- ---------- ---------- ----------
Operating income (loss)........................ 341 (808) (6,033) (125) (9,404)
Interest income (expense), net................. 8 (1) 144 (3) 75
Income tax (expense) benefit................... (139) 83 (1) -- (1)
---------- ---------- ---------- ---------- ----------
Net income (loss).............................. $ 210 $ (726) $ (5,890) $ (128) $ (9,330)
========== ========== ========== ========== ==========
Net income (loss) per common share:
Basic........................................ $ 0.05 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== ========== ========== ==========
Diluted...................................... $ 0.04 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== ========== ========== ==========
Weighted average shares used in computing net
income (loss) per common share:
Basic........................................ 4,160,000 4,162,181 4,693,086 4,642,790 4,905,134
Diluted...................................... 5,461,682 4,162,181 4,693,086 4,642,790 4,905,134
Pro forma basic and diluted net loss per common
share (unaudited)............................ $ (0.67)
==========
Weighted average shares used in computing pro
forma net loss per common share.............. 14,003,870
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1997 1998 1999 2000
------ ------ ------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 250 $ 506 $ 7,643 $ 5,709
Working capital............................................. 580 526 5,835 (809)
Total assets................................................ 1,034 1,740 14,156 14,371
Total long-term liabilities, including current portion...... 7 59 604 630
Total stockholders' equity.................................. 724 686 10,228 4,658
</TABLE>
20
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Consolidated Financial Data" and our financial statements and the
notes to those consolidated financial statements appearing elsewhere in this
prospectus. This prospectus contains forward-looking statements that involve
risks, uncertainties and assumptions. See "Special Note Regarding
Forward-looking Statements." Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors including those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
We are an Internet consulting firm that provides eSelling solutions, which
we define as Internet services that enable companies to sell more effectively.
We provide strategy, technology and program management services to help
companies combine their existing capabilities with Web-based technologies in
order to maximize revenues and gain competitive advantage.
Our revenue is derived primarily from services performed on a fixed-price,
fixed-timeframe basis, which means that, after determining the scope of a
proposed engagement, we agree to perform the services for a specified fee and to
complete the engagement by a specified date. In order to determine the price for
an engagement, we use an estimation process that considers the overall technical
complexity, client deliverables, the project team of billable professionals
required and their associated billing rates, the projected length of the
engagement and other factors. We build into each fixed-price, fixed-timeframe
engagement the ability to adjust the price if the scope of the engagement
changes. All fixed-price, fixed-timeframe proposals must receive the prior
approval of designated senior officers.
Our revenue is determined principally by the number, size and scope of our
client engagements, as well as the percentage of completion of our engagements
at the end of each reporting period. Approximately 97% of our revenue for 1999
and approximately 90% of our revenue for the quarter ended March 31, 2000 were
derived from services performed on a fixed-price, fixed-timeframe basis, and we
expect to continue to derive our revenue primarily from fixed-price,
fixed-timeframe contracts in the future. The balance of our revenue is derived
from time and materials engagements, which means that we bill our clients for
the time spent on the engagement by our billable professionals based on their
standard billable rates, as well as for project-specific expenses incurred by us
in completing the engagement.
We recognize revenue using the percentage-of-completion method of
accounting for fixed-price, fixed-timeframe projects. Revenue for each project
is recognized based on the percentage determined by multiplying the total
billable hours incurred to date by our standard hourly billing rates for the
billable professionals and independent contractors assigned to the project and
dividing that product by the total estimated revenue to be earned on the
project. We generally apply consistent margins to our actual cost of our
billable professionals and independent contractors and, therefore, our method of
recognizing revenue approximates the ratio of the cost incurred to date to total
estimated project costs.
We frequently require deposits from our clients in advance of performing
services, which are recorded as deferred revenue. Depending on the billing
schedule in our project contract with our client, we may bill in advance of
recognizing revenue and the excess of amounts billed over revenue is recorded as
deferred revenue. If revenue exceeds billings to clients, an unbilled receivable
is recorded in current assets.
Project finance personnel meet regularly with project managers to review
the status of projects and to update estimated costs to complete projects. We
make provisions for losses on uncompleted contracts when it is probable that our
costs to complete a project will exceed total project revenue and the loss can
be reasonably estimated.
Revenue from time and materials engagements is recognized as billable hours
are incurred at agreed-upon hourly billing rates for the billable professionals
assigned to the project during the period plus project-related costs.
21
<PAGE> 26
We incurred net losses of $5.9 million in 1999 and $9.3 million for the
quarter ended March 31, 2000. We expect to continue to incur net losses
primarily because of expenses related to the opening of new offices, investment
in our knowledge management and operations infrastructure and increased
marketing and sales efforts.
A small number of clients have generated a significant portion of our
revenue, and we expect that significant customer concentration will continue
into the foreseeable future. In 1999, our five largest clients represented 48%
of our total revenue and, in the quarter ended March 31, 2000, our five largest
clients represented 81% of our total revenue. The increase in client
concentration resulted from a corresponding increase in overall project size. In
1998, our average contract size, as amended, was approximately $180,000. From
December 31, 1998 to March 31, 2000, our average contract size was approximately
$1.5 million. Our largest contract to date, which we signed in the quarter ended
December 31, 1999, was valued at $5.9 million. If any significant client
terminates its relationship with us or uses less of our services, our revenue
could decline significantly, and our operating results could be adversely
affected if we were unable to redeploy our billable professionals to other
client projects.
The following table lists clients who represented more than 10% of our
revenues in 1999 and in the quarter ended March 31, 2000.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
- ----------------------------------------------
CLIENT % OF REVENUE
- ------ ------------
<S> <C>
Petstore.com.................... 11%
Kaplan.......................... 10
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 2000
- ----------------------------------------------
CLIENT % OF REVENUE
- ------ ------------
<S> <C>
IdeaForest.com.................. 22%
BlueLight.com................... 19
Kaplan.......................... 17
Tavolo.......................... 15
</TABLE>
Professional services expenses consist primarily of salaries and benefits
for billable professionals and non-reimbursed out-of-pocket expenses incurred by
such billable professionals. Professional services expenses also include the
cost of subcontractors, independent contractors and allocated indirect costs.
Subcontractors consist of companies that have provided billable professional
services for us. In the future, we anticipate that our clients generally will
contract directly with these companies. We expect that professional services
expenses will increase over time primarily because of an increase in the number
of our billable professionals and independent contractors as well as wage
increases and inflation.
Sales and marketing expenses consist primarily of salaries, commissions,
travel and benefits for sales and marketing personnel. We include costs
associated with advertising, public relations and promotional activities in
sales and marketing expenses. We expect sales and marketing expenses to increase
principally as a result of continued promotion of our brand, branding efforts
associated with the opening of new offices and the expansion of our direct sales
force.
General and administrative expenses consist primarily of salaries for
senior management, finance, recruiting, administrative groups and associated
employee benefits, facilities costs including related depreciation and
amortization, training and other corporate costs. We expect general and
administrative expenses to increase to support the growth of our business. In
particular, we will incur additional general and administrative expenses related
to our ongoing enhancement of our information systems and opening of new
offices.
RESULTS OF OPERATIONS
The following table presents our consolidated statement of operations as a
percentage of our revenue for the period indicated. We have derived these
percentages from our audited consolidated financial statements for all periods
presented, except for the quarters ended March 31, 1999 and March 31, 2000,
22
<PAGE> 27
with respect to which we derived the percentages from our unaudited interim
consolidated financial statements.
PERCENTAGE OF REVENUE
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------
1997 1998 1999 1999 2000
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue.................................................. 100% 100% 100% 100% 100%
Operating expenses:
Professional services.................................. 30 42 59 48 51
Sales and marketing.................................... 3 17 29 17 81
General and administrative............................. 50 71 74 41 88
Amortization of deferred stock-based compensation...... -- 3 11 4 69
--- --- --- --- ----
Total operating expenses................................. 83 132 172 110 288
--- --- --- --- ----
Operating income (loss).................................. 17 (32) (72) (10) (188)
Interest income (expense), net........................... -- -- 2 -- 1
Income tax expense (benefit)............................. 7 (3) -- -- --
--- --- --- --- ----
Net income (loss)........................................ 10% (29)% (71)% (10)% (186)%
=== === === === ====
</TABLE>
COMPARISON OF QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 2000
Revenue. Our revenue increased from $1.2 million to $5.0 million, or 309%,
for the quarter ended March 31, 1999 compared to the same period in 2000. This
increase was primarily due to a substantial increase in the average size of our
engagements.
Professional Services Expenses. Our professional services expenses
increased from $0.6 million to $2.5 million, or 333%, for the quarter ended
March 31, 1999 compared to the same period in 2000. The increase in professional
services expenses was primarily due to increased employee-related costs, which
grew from $0.3 million to $1.4 million for the quarter ended March 31, 1999 to
the same period in 2000. Our billable headcount increased 282% from 22 billable
professionals at March 31, 1999 to 84 billable professionals at March 31, 2000.
We also incurred increased costs due to the use of subcontractors and increases
in allocated indirect costs associated with billable professionals. Professional
services expenses increased as a percentage of revenue due to increases in
non-billable expenses, increased use of independent contractors and
subcontractors, and increased allocation of indirect cost associated with
billable professionals, partially offset by a one-time resale of third-party
software at cost in the quarter ended March 31, 1999.
Sales and Marketing Expenses. Our sales and marketing expenses increased
as a percentage of revenue and in absolute dollars from $0.2 million to $4.0
million, or 1,788%, for the quarter ended March 31, 1999 compared to the same
period in 2000. These increases were primarily due to a significant investment
of $3.6 million in our initial corporate branding, advertising, marketing
promotions and public relations costs.
General and Administrative Expenses. Our general and administrative
expenses increased as a percentage of revenue and in absolute dollars from $0.5
million to $4.4 million, or 777%, for the quarter ended March 31, 1999 compared
to the same period in 2000. General and administrative expenses increased
primarily due to employee-related expenses resulting from a larger number of
senior management members and administrative staff in human resources and
finance, increased recruiting costs and one-time professional fees. Our general
and administrative headcount increased 400% from 11 employees at March 31, 1999
to 55 employees at March 31, 2000. We also incurred additional costs associated
with our facilities and information technology infrastructure.
23
<PAGE> 28
Deferred Stock-based Compensation. Deferred stock-based compensation
represents the difference between the estimated fair value of the underlying
common stock at the date of grant for accounting purposes and the exercise price
of stock options granted. The difference is recorded as a component of
stockholders' equity and is being amortized over the options' vesting period of
four years using a method that accelerates the recognition of expense. We
recorded deferred stock-based compensation of $17.2 million in the quarter ended
March 31, 2000. Our amortization of deferred stock-based compensation increased
as a percentage of revenues and in absolute dollars from $51,000 to $3.5
million, or 6,671%, for the quarter ended March 31, 1999 to the same period in
2000. These increases are due to grants of options primarily to new employees.
Based on the options granted through March 31, 2000, the amortization of
deferred stock-based compensation over the options' vesting periods is estimated
to be as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000............................................... $11,792
2001............................................... 5,390
2002............................................... 2,423
2003............................................... 716
2004............................................... 8
-------
$20,329
=======
</TABLE>
Net Interest Income (Expense). Our interest income increased as a
percentage revenue and in absolute dollars from $3,000 to $89,000, for the
quarter ended March 31, 1999 compared to the same period in 2000. This increase
was due to our higher cash and cash equivalent balances during the quarter ended
March 31, 2000. Our interest expense decreased as a percentage of revenue but
increased in absolute dollars from $6,000 to $14,000 for the quarter ended March
31, 1999 to the same period in 2000. This increase was due to increased
obligations under capital leases.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Revenue. Our revenue increased 22% from $2.0 million in 1997 to $2.5
million in 1998 and then 234% to $8.3 million in 1999. These increases were
primarily due to substantial increases in the average size of our engagements.
Professional Services Expenses. Our professional services expenses
increased 67% from $0.6 million in 1997 to $1.0 million in 1998 and then 370% to
$4.9 million in 1999. The increases in our professional services expenses were
primarily due to the larger number of billable professionals, increased
non-billable expenses and the use of independent contractors and subcontractors
on engagements. Our ending billable headcount increased 100% from 10 billable
professionals at the end of 1997 to 20 billable professionals by the end of 1998
and then 240% to 68 billable professionals by the end of 1999. Professional
services expenses as a percentage of revenue increased from 1997 to 1998 due
primarily to increased employee expenses related to the greater number of
billable professionals and increased non-billable expenses. Professional
services expenses as a percentage of revenue increased from 1998 to 1999 due to
increases in non-billable expenses, allocated indirect costs associated with
billable professionals and increased use of subcontractors.
Sales and Marketing Expenses. Our sales and marketing expenses increased
585% from $62,000 in 1997 to $0.4 million in 1998 and then 477% to $2.5 million
in 1999. Sales and marketing expenses as a percentage of revenue increased
throughout the period. The increased sales and marketing expenses were primarily
due to increases in sales and marketing personnel, increases in commission and
selling costs and execution of our initial corporate branding and advertising
efforts. Our sales and marketing headcount increased 200% from two employees by
the end of 1997 to six employees by the end of 1998 and then 17% to seven
employees by the end of 1999.
General and Administrative Expenses. Our general and administrative
expenses increased 73% from $1.0 million in 1997 to $1.8 million in 1998 and
then 248% to $6.2 million in 1999. General and
24
<PAGE> 29
administrative expenses as a percentage of revenue increased throughout the
period. The increases in general and administrative expenses were primarily due
to a larger number of senior management members and administrative staff in
human resources and finance. We also incurred additional costs associated with
the use of outside recruiting services, as well as increased costs for
facilities and information technology infrastructure. Our ending general and
administrative headcount increased 75% from four employees by the end of 1997 to
seven employees by the end of 1998 and then 300% to 28 employees by the end of
1999.
Deferred Stock-based Compensation. We recorded deferred stock-based
compensation of $3,000 in 1997, $0.1 million in 1998 and $4.0 million in 1999.
Amortization of deferred stock-based compensation totaled $1,000 in 1997,
$67,000 in 1998 and $0.9 million in 1999. These increases are due to grants of
options primarily to new employees.
Net Interest Income (Expense). Our interest income increased from $8,000
during 1997 to $13,000 in 1998 due to interest earned on cash received from the
Series C preferred stock financing. During 1999, interest income increased to
$0.2 million due to interest earned on cash received from the Series D preferred
stock financing. Interest expense increased from $14,000 in 1998 to $84,000 in
1999 due to additional capital leases entered into for financing of equipment
purchases and amounts owed on our line of credit during the first six months of
1999.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth a summary of our unaudited consolidated
quarterly financial information for the periods indicated. We derived the data
from our unaudited interim consolidated financial statements and, in our
opinion, included all adjustments necessary to fairly present the results of
operations for the periods shown. These unaudited consolidated quarterly results
should be read in conjunction with our consolidated financial statements and
notes to those financial statements included elsewhere in this prospectus. The
operating results in any quarter are not necessarily indicative of the results
that may be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1999 1999 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue................................... $1,224 $1,664 $ 2,532 $ 2,905 $ 5,003
Operating expenses:
Professional services................... 584 1,152 1,648 1,491 2,527
Sales and marketing..................... 214 324 579 1,334 4,041
General and administrative.............. 500 957 1,894 2,799 4,386
Amortization of deferred stock-based
compensation......................... 51 104 163 564 3,453
------ ------ ------- ------- -------
Total operating expenses.................. 1,349 2,537 4,284 6,188 14,407
------ ------ ------- ------- -------
Operating loss............................ (125) (873) (1,752) (3,283) (9,404)
Interest income (expense) net............. (3) 2 10 135 75
Income tax (expense)...................... -- -- -- (1) (1)
------ ------ ------- ------- -------
Net loss.................................. $ (128) $ (871) $(1,742) $(3,149) $(9,330)
====== ====== ======= ======= =======
</TABLE>
25
<PAGE> 30
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1999 1999 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF REVENUE
Revenue...................................... 100% 100% 100% 100% 100%
Operating expenses:
Professional services...................... 48 69 65 51 51
Sales and marketing........................ 17 19 23 46 81
General and administrative................. 41 58 75 96 88
Amortization of deferred stock-based
compensation............................ 4 6 6 19 69
--- --- --- ---- ----
Total operating expenses..................... 110 152 169 213 288
--- --- --- ---- ----
Operating loss............................... (10) (52) (69) (113) (188)
Interest income (expense), net............... -- -- -- 5 1
Income tax (expense)......................... -- -- -- -- --
--- --- --- ---- ----
Net loss..................................... (10)% (52)% (69)% (108)% (186)%
=== === === ==== ====
</TABLE>
Revenue. Our revenue increased in each of the quarterly periods presented,
primarily due to a substantial increase in the average size of our engagements.
Professional Services Expenses. Professional services expenses for the
quarters presented reflect the costs associated with the increased number of
billable professionals and the use of subcontractors and independent contractors
on some engagements. The decrease in professional services expenses in absolute
dollars in the quarter ended December 31, 1999 resulted from lower expenses for
subcontractors and independent contractors. For the quarters ended June 30 and
September 30, 1999, professional services expenses increased as a percentage of
revenue due primarily to the greater use of independent contractors and
subcontractors on larger engagements.
Sales and Marketing Expenses. Sales and marketing expenses increased in
absolute dollars and as a percentage of revenue for each of the quarterly
periods presented. The increase in the 1999 quarters reflects investments in
sales and marketing personnel. For the quarter ended December 31, 1999, sales
and marketing expenses increased as a percentage of revenue from 23% at the end
of September 30, 1999 to 46%. This increase reflects higher commissions paid to
sales personnel in the fourth quarter and, to a lesser extent, the execution of
our initial branding and advertising efforts. Sales and marketing expenses for
the quarter ended March 31, 2000 increased $2.7 million, or 203%, from the
quarter ended December 31, 1999 and increased as a percentage of revenue from
46% to 81%. These increases resulted from $3.6 million spent on the continuation
of our initial branding and advertising efforts, partially offset by lower sales
commission payments.
General and Administrative Expenses. General and administrative expenses
increased in absolute dollars in each of the quarterly periods presented. The
increases are due to the addition of personnel in knowledge management, human
resources, recruiting, finance, technology and administration and to recruitment
and relocation costs for some new employees. For the quarter ended March 31,
2000, general and administrative expenses decreased as a percentage of revenue
from the prior quarter. This decrease reflects an increase in the allocation of
indirect costs to professional services expenses.
Deferred Stock-based Compensation. Amortization of deferred stock-based
compensation increased in each of the quarterly periods presented. These
increases are due to grants of options primarily to new employees.
Net Interest Income (Expense). Our interest income increased for the
quarterly periods ended March 31, 1999 through December 31, 1999 due to
increased interest earned on cash received from the Series D preferred stock
financing. Interest income decreased in the quarter ended March 31, 2000
compared with the quarter ended December 31, 1999 due to a reduction in cash and
cash equivalents. Our
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interest expense increased in the quarter ended June 30, 1999 due to borrowings
under our revolving line of credit.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations and capital expenditures primarily through
the sale of preferred stock, capital leases and other debt financing. As of
December 31, 1999, we had raised $15.7 million of capital from the sale of
preferred stock. In addition, we raised approximately $30.0 million from the
sale of preferred stock during April 2000. We had cash and cash equivalents of
$7.6 million at December 31, 1999 and $5.7 million at March 31, 2000.
We have a revolving line of credit that allows us to borrow the lesser of
$1.3 million or 80% of eligible accounts receivable as defined by the line of
credit agreement. The revolving line of credit has a sub-limit of $0.3 million
for letters of credit. Borrowings under this revolving line of credit bear
interest at the prime lending rate plus 0.5%, which was 9.5% at March 31, 2000.
At March 31, 2000, there were no outstanding borrowings under this revolving
line of credit. At March 31, 2000, we had a $1.7 million letter of credit
outstanding related to a lease for office space. This letter of credit was
supported by the $0.3 million sub-limit under the revolving line of credit and a
certificate of deposit in the amount of $1.4 million. As a result, as of March
31, 2000, $1.0 million was available under the revolving line of credit.
We have entered into several lease agreements to finance purchases of
computer and communications equipment. In December 1999, we entered into a lease
agreement under which we borrowed $0.3 million to finance the purchase of a new
enterprise resource planning software package. As of March 31, 2000, we owed
$0.6 million under these lease agreements.
Net cash used in operating activities totaled $0.2 million in 1997, $0.8
million in 1998, $3.2 million in 1999 and $0.9 million in the quarter ended
March 31, 2000. In 1997, net cash used in operating activities resulted from net
income of $0.2 million, offset by increases in accounts receivable and unbilled
revenue. In 1998, net cash used in operating activities resulted from a net loss
of $0.7 million and increases in accounts receivable and prepaid expenses and
other current assets offset by increases in deferred revenue. In 1999, net cash
used in operating activities resulted from a net loss of $5.9 million and
increases in accounts receivable and unbilled receivables partially offset by
increases in deferred revenue and non-cash expenses. Non-cash expenses in this
period consisted of amortization of deferred stock-based compensation and
depreciation and amortization related to fixed assets. In the quarter ended
March 31, 2000, net cash used in operating activities resulted from a net loss
of $9.3 million and increases in accounts receivable partially offset by
increases in accrued expenses and accrued compensation and non-cash expenses.
Non-cash expenses in this period included amortization of deferred stock-based
compensation of $3.5 million. We expect that accounts receivable will continue
to increase to the extent our revenue continues to rise. Any such increase that
occurs at a greater rate than increases in revenue is likely to have an adverse
effect on net cash flows from operating activities.
Cash used in our investing activities totaled $0.1 million in 1997, $52,000
in 1998, $2.2 million in 1999 and $1.2 million in the quarter ended March 31,
2000. These amounts were used for capital expenditures for computer equipment
and software required by our increase in headcount.
Net cash provided by our financing activities totaled $0.6 million in 1997,
$1.1 million in 1998, $12.6 million in 1999 and $0.2 in the quarter ended March
31, 2000. Net cash provided by financing activities during 1997 resulted
primarily from the issuance of preferred stock. Net cash provided by financing
activities during 1998 resulted primarily from the issuance of preferred stock
and borrowings on our line of credit. Net cash provided by financing activities
during 1999 resulted primarily from the issuance of preferred stock, borrowings
and receipt of amounts receivable from stockholders partially offset by
principal payments on our line of credit. Additionally, at December 31, 1999, we
had $1.4 million in restricted cash related to a deposit on a lease for office
space. Net cash provided by financing activities in the quarter ended March 31,
2000 resulted primarily from exercises of common stock options.
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We believe that the net proceeds from the offering will be sufficient to
fund our planned operations for the next twelve months. However, we may require
significant additional funds for possible future acquisitions of businesses,
products or technologies.
Our ability to fund operations beyond twelve months will be dependent upon
the success of our operations and our future prospects, which will affect our
ability to raise debt or equity on commercially reasonable terms. If additional
funds are required, we may raise such funds from time to time through public or
private sales of equity or from borrowings. We currently have no plans for
further equity offerings but may undertake such offerings depending upon our
results of operations, capital requirements and the state of the economy and
capital markets.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities, establishing accounting and
reporting standards for derivative instruments and for hedging activities. The
statement requires that derivatives be recognized on the balance sheet at fair
value and specifies the accounting for changes in fair value. The Company must
adopt SFAS No. 133 on January 1, 2001. We do not enter into derivatives
transactions, and we anticipate that the adoption of the new statement will have
no impact on our results of operations or financial position.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which
identifies four basic criteria that must be met before revenue can be
recognized. These criteria are: (a) persuasive evidence that an arrangement
exists; (b) delivery has occurred or services have been rendered; (c) the
seller's price to the buyer is fixed or determinable; and (d) collectibility is
reasonably assured. We have already adopted the bulletin, and our revenue
recognition policies are in accordance with its provisions.
In March 2000, the Emerging Issues Task Force issued EITF Abstract No.
00-2, Accounting for Web Site Development Costs, which addresses accounting for
costs incurred to develop a Website. The abstract is effective for fiscal
quarters beginning after June 30, 2000. We do not expect adoption of the
abstract to have a significant impact on our results of operations or financial
position.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We do not currently hold any derivative instruments and do not engage in
hedging activities. We have a revolving line of credit with a variable interest
rate. At March 31, 2000, there were no outstanding borrowings under the
revolving line of credit. We have not entered into any transactions denominated
in a foreign currency. Thus, our current exposure to interest rate and foreign
exchange fluctuations is minimal.
YEAR 2000 COMPLIANCE DISCLOSURE
We have not experienced any problems with our computer systems relating to
recognizing date-related data arising from the use of two digits rather than
four digits to define the years after the year 1999, which problems generally
are referred to as year 2000 problems. We are also not aware of any material
year 2000 problems with our clients and vendors. Accordingly, we do not
anticipate incurring material expenses or experiencing any material disruptions
as a result of any year 2000 problems.
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BUSINESS
OVERVIEW
We provide eSelling solutions, which we define as Internet services that
enable companies to sell more effectively. We bring together strategy,
technology and program management services to provide eSelling solutions to our
clients. These solutions focus on helping established and start-up companies
combine their existing capabilities with Web-based and other evolving
technologies to maximize revenues and gain a competitive advantage rather than
merely reducing costs and automating business processes.
We excel at understanding every point of contact between our client and
their customers and employing technologies and processes to compel sales at each
of those contact points. We set the overall eSelling strategy and build, test
and deploy scalable, flexible eSelling solutions. We then work with our clients
on an ongoing basis to evaluate the results and options for subsequent phases.
We deliver our integrated strategy, technology implementation and program
management services through our teams of multidisciplinary professionals. In
addition, we have developed an ecosystem of relationships that enables us to
provide our clients with leading expertise in all relevant areas necessary to
develop, implement and maintain high-quality eSelling solutions as well as the
flexibility to continually take advantage of the latest technologies.
As of March 31, 2000, we had 84 billable professionals and had completed
over 40 eSelling engagements. Some of our past and present clients include
BlueLight.com, Elizabeth Arden, J.Crew and Kaplan. We have offices in San
Francisco and New York and are establishing offices in Chicago and Germany.
INDUSTRY BACKGROUND
Companies are increasingly launching e-businesses in response to the rapid
growth in the commercial use of the Internet. To understand the Internet
opportunity and launch e-businesses, many companies require the expertise of
Internet services firms. IDC estimates that the worldwide market for Internet
services will grow from $16.2 billion in 1999 to $99.1 billion in 2004.
To date, e-businesses have focused on developing a Web presence and
Web-enabling enterprise applications. As the number of e-businesses has grown,
buyers have been empowered by increased variety in product and service
offerings, greater access to information and real-time price and transaction
capability. As buyers become empowered, companies have encountered increasing
difficulty in differentiating their products and services and are looking for a
competitive advantage to increase revenues and profitability. These companies
are specifically focused on revenue growth and not merely cost reduction or
business process optimization.
This new stage of e-business also requires that companies select from an
increasingly diverse set of business models, such as online exchanges, auctions
and outsourcing. In addition, e-businesses must select from a greater variety of
technologies, including e-business applications, operating systems and
application service provider outsourcing services.
A number of Internet services firms serve this market. However, we believe
many of them focus primarily on reducing costs and optimizing business
processes, including Web-enabling of enterprise resource planning and customer
relationship management systems. In addition, we believe that few Internet
services firms have the program management and technology expertise to deliver
scalable, complex and flexible solutions that maximize revenues.
THE FORT POINT PARTNERS SOLUTION
Our eSelling solutions are specifically designed to address this new stage
of e-business. The key elements of our solution are:
Focus on eSelling. Our solution is focused on eSelling. Our clients engage
their customers at multiple points, including marketing, shopping, configuring,
pricing, selling, supply and fulfillment,
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customer service and product returns. At each point, we employ technologies and
processes to remove barriers to buying and to create additional revenue
opportunities. These opportunities include: flexible pricing based on changing
supply and demand; auctions and reverse auctions for excess inventory
liquidation; custom order configuration; up-selling and cross-selling; and
personalization.
Deep Technology Expertise and Experience. Technical program managers,
system architects and engineers comprise approximately 85% of our billable
professionals. Our technology professionals have extensive expertise in systems
architecture and Internet-based technologies, including wireless application
protocol (WAP), Linux and Java-enabled applications as well as protocols such as
XML, CORBA and EJB. We are also experienced in leading e-business,
personalization and messaging applications and integrating them with existing
computing environments. Our solutions typically involve high transaction rates
and large volumes of data.
Differentiated First-Stop Shop. Our clients engage us early in the
strategic planning process to define and execute an eSelling solution. Our
technology, strategy and project management skills allow us to assume
responsibility for the entire eSelling solution. We refer to this approach as
First-Stop Shop. We have established an ecosystem of relationships with creative
design and marketing agencies, software vendors and application service
providers that enables us to provide our clients with leading expertise in all
relevant areas necessary to develop, implement and maintain high-quality
eSelling solutions as well as the flexibility to continually take advantage of
the latest technologies.
Knowledge Merchandising for Speed of Execution. Knowledge merchandising is
our approach to identifying, capturing and reusing valuable frameworks, tools
and processes that we utilize to achieve rapid time to market when delivering
our eSelling solutions. For example, by reusing previously developed tools, we
were able to deploy a comprehensive eSelling solution for eve.com, that included
a catalog and sophisticated back-end integration, in only two months. We have a
team of technology professionals dedicated to continuously expanding and
refining our existing knowledge base, which we have built over the course of
three years and more than 40 completed eSelling engagements.
Implementation Using Proprietary Fortified Process. Over more than three
years, we developed our delivery model, the Fortified Process, to ensure rapid
time to market of our eSelling solutions and the disciplined application of
procedures that we believe produce high quality for every client engagement. The
Fortified Process consists of three stages, EC Plan, EC Build and EC Grow, that
enable us to develop, implement and enhance an eSelling solution. We designed
and optimized the Fortified Process specifically for the Internet and eSelling,
and it is constantly refined by a dedicated team of technology professionals.
The Fortified Process also allows us to provide our services on a fixed-price,
fixed-timeframe basis that focuses us and our clients on clearly defined
deliverables and aligns our interests with those of our clients.
STRATEGY
Our objective is to be the leading provider of eSelling solutions to
companies that are engaged in e-business, including in both business-to-business
and business-to-consumer selling environments. To accomplish this objective, we
employ the following strategies:
Developing New eSelling Solutions. We intend to continuously develop
innovative eSelling solutions by working with our clients to maximize sales
across all direct and indirect channels. For example, we recently developed a
business intelligence system, which we call Selling Intelligence, that allows
our clients to understand behavior across channels and to take actions that
increase revenue from customers, partners and resellers. We also plan to work
with our existing clients on expanding and refining their eSelling solutions. We
believe that our innovation will allow us to win large-scale client engagements
in the manufacturing, retail, financial services and telecommunications
industries.
Targeting Strategic eSelling Initiatives for Established Enterprises. As
e-business becomes a critical strategic growth area for established companies,
we are well-suited to help those companies use the Internet to leverage their
substantial existing corporate advantages. Established companies have three
distinct characteristics that are well-matched to our core skills: a requirement
for a robust, well-designed
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architecture due to heavy Website traffic upon first launch; a desire for
eSelling differentiation to retain leadership position; and a need for
sophisticated program management due to the complexity of the engagement and
significant organizational change and growth. We believe that this strategy will
enable us to continue to win large-scale projects in the manufacturing, retail,
financial services and telecommunications industries. These types of engagements
will also increase our brand awareness.
Cultivating our Culture. As we grow, we intend to continue to cultivate a
distinct corporate culture in order to attract, develop and retain skilled,
multidisciplinary professionals and to consistently deliver outstanding
solutions across our growing base of professionals. We have developed a culture
that emphasizes our commitment to: delivering real value to customers of our
clients; demonstrating resilience and creativity in addressing challenges;
developing successful relationships; and building a smart company through the
structured sharing of innovation and process improvement. Our values are
reinforced by our recruiting, orientation, training and evaluation of our
employees. For example, every new employee participates in a three week eMersion
program that not only exposes the employee to our culture and values, but
engages the employee in case studies designed to reinforce our values and
operational methodology.
Building Long-term Relationships with Clients. Our culture and approach
focus on developing long-term relationships with our clients. After the launch
of an eSelling solution, we continue to work with our clients to evaluate their
eSelling solutions in response to customer responses, our clients' and their
customers' changing needs, technological innovation and business trends. We
believe that this leads to additional business opportunities, large-scale client
engagements and recurring revenue streams, which enhance our ability to predict
revenue. In addition, by developing long-term client relationships, we are able
to build a strong base of referenceable clients, which helps us win new eSelling
engagements.
Continuing to Leverage Relationships. We have established an ecosystem of
relationships with creative design and marketing agencies, software vendors and
application service providers in order to help provide our clients with
high-quality eSelling solutions. In addition, these relationships provide us
with access to the latest technologies, sales leads, co-marketing opportunities,
channels of distribution, creative and enhanced solutions and new market
opportunities. We intend to enhance our existing alliances and selectively
expand our ecosystem to include additional companies that can offer us similar
or better benefits.
Fostering our Effective Selling Organization. We believe that an effective
direct sales force is critical to scale our business, obtain large engagements
and develop longer-term relationships. We also believe that an effective selling
organization and culture will be a source of long-term competitive advantage. As
of March 31, 2000, we had a sales and marketing team of 13 people and expect to
expand it in the future.
Expanding our Geographic Presence. We intend to establish a greater
geographic presence throughout the United States and internationally in order to
meet clients' eSelling needs. We believe significant revenue growth potential
exists from expanding our geographic presence. We currently have offices in San
Francisco and New York, and we are currently establishing offices in Chicago and
Germany.
THE FORTIFIED PROCESS
In order to predictably deliver high-quality eSelling solutions, we have
spent more than three years developing and refining a disciplined methodology,
which we call the Fortified Process. The Fortified Process is a critical
component of our orientation and training programs for new and existing
employees ensuring consistent delivery of high-quality eSelling solutions to our
clients in a timely, cost-effective manner across our offices and client
engagements. The proprietary tools and processes in our Fortified Process allow
us to deliver our services on a fixed-price, fixed-timeframe basis.
The Fortified Process consists of three phases: EC Plan; EC Build; and EC
Grow.
EC Plan. We begin our engagements by setting the overall goals of the
eSelling solution driven by an analysis and understanding of our clients' target
customers. Because an eSelling solution affects virtually the entire enterprise,
the client team may include representatives from sales, operations, information
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technology, marketing and finance departments. Our proprietary tools and
processes accelerate decisions among these constituents. We determine the
current and potential customer base, as well as the tasks, internal impact,
critical success factors and possible risk areas for the engagement. For each
target customer, we seek to increase sales by understanding how:
- the buyer finds products;
- our client controls access to products;
- the buyer orders products;
- our client fulfills the order; and
- the buyer's service needs are met.
The output of EC Plan is a business and technical roadmap, called the
Application Development Plan, that details all of the systems and processes to
be built, identifies the parties responsible for each task and allows us to fix
the price for EC Build. We also assist our client in selecting creative design
and marketing agencies, software vendors and application service providers.
EC Build. During EC Build, we build, test and deploy the eSelling solution
designed in EC Plan. As the program manager, we are responsible for the delivery
of the entire eSelling solution, including the management of our own team as
well as those of our clients and third parties. We build the eSelling solution
to allow for measurement of selling success and to enable continuous selling
improvement.
EC Grow. EC Grow is a strategic assessment and planning process that lays
the groundwork for continued refinement of the eSelling solution. During this
process, which begins during the deployment stage of EC Build, we work with our
clients to evaluate the results to date and options for subsequent phases. EC
Grow is particularly important given the dynamic and rapidly changing business
environment facing most eSelling clients. EC Grow is designed to help the client
follow a "launch and learn" approach to maximize performance and implement
further improvements. As a result, we engage with the client at both the
strategic and operational levels to lay the groundwork for the continued
evolution of the eSelling solution.
OUR COMPETENCIES
In the course of more than 40 client engagements, we have developed and
refined the core areas of expertise that are required to provide eSelling
solutions: strategy; project management; and technology.
Strategy. Our strategy professionals work closely with our clients to plan
their overall organizational design and business processes to meet the eSelling
objective. During EC Plan, they analyze target customers and develop the
specific strategies to be employed at the points of customer contact. These
strategy professionals also are involved in building strategic client
relationships by identifying additional opportunities for eSelling by our
existing clients. These individuals bring management consulting experience or
specific industry backgrounds to our clients.
Program Management. Our program managers are involved in specifying the
scope of the engagement, managing the work plan to fulfill the eSelling
objective and building, testing and deploying the individual modules and
applications that comprise the eSelling solution. The project managers focus on
the overall delivery of the eSelling solution and seek to ensure that project
milestones are met by our own project team, our client and any third parties. We
actively manage any third parties that are involved in the project, including
assisting our clients in structuring their contracts with third parties.
Technology. Our technology professionals are specialists in designing and
building large-scale enterprise solutions. Their primary responsibility is the
selection of the technology appropriate to the eSelling objective that can be
integrated well with existing systems and that can be managed easily by our
clients. Our technology professionals have extensive expertise in systems
architecture and Internet-based technologies, including wireless application
protocol (WAP), Linux and Java-enabled applications as well
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as protocols such as XML, CORBA and EJB. We also are experienced in leading
e-business, personalization and messaging applications and integrating them with
existing computer environments.
CASE STUDIES
BLUELIGHT.COM BlueLight.com, a joint venture between Kmart and Softbank,
is targeting Kmart's customer base to become a leading
e-business, offering free Internet access and online
shopping.
Objective: Establish a leading online shopping destination by building
Kmart's online brand and providing Kmart's customer base
with a compelling shopping experience.
eSelling Solution: We are BlueLight.com's leading partner in the overall
strategy and execution of Kmart's next generation e-business
site. In EC Plan, we focused on BlueLight.com's target
customers to design a sophisticated eSelling solution in an
environment with very high first day performance
expectations, complex organizational issues and high brand
risk. We are now delivering a wide range of enterprise
technologies central to the development of BlueLight.com
through a multi-phased approach. These EC Build phases will
entail:
- creating an advanced eSelling site that will drive
additional revenue by featuring functional components such
as: a dynamic promotion engine, sophisticated customer
segmentation, personalized offers and email campaign
management;
- building an infrastructure to support a high-volume
eSelling site that empowers BlueLight.com with the
stability and flexibility needed to rapidly scale its
operations over time;
- recommending, enlisting and managing the integration of
key partners required to create a unified eSelling
experience to drive additional revenue; and
- providing the ability to cross-sell and up-sell.
J.CREW J.Crew is a leading apparel manufacturer and retailer,
selling its products through its catalogs, retail stores and
Website.
Objective: Rebuild J.Crew's online systems architecture to handle a
large and growing volume of transactions to allow for
maximum flexibility and increased selling effectiveness.
eSelling Solution: We engaged with J.Crew on a multi-phase system rebuild.
Initially, we conducted a strategic evaluation of J.Crew's
customer types and behaviors, with an analysis of the
functionality and technology required to drive higher sales.
Next, we worked with Sun Microsystems to build a robust,
high-volume eSelling solution integrated with J.Crew's
existing systems. Subsequently, we introduced the eSelling
Intelligence infrastructure to continuously improve the
selling performance of the site by:
- employing targeted promotion, cross-selling and
up-selling;
- providing customized cross-channel reporting, segmentation
and analysis capabilities based upon buyer usage data; and
- incorporating advanced product search capabilities that
present buyers with products that they are more likely to
buy and that J.Crew is eager to sell.
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CLIENTS
We work with companies in both the business-to-business and the
business-to-consumer markets to develop and implement eSelling solutions. Since
1998, we have recognized revenue of at least $0.6 million in connection with
engagements for:
<TABLE>
<S> <C> <C>
BlueLight.com IdeaForest.com The North Face
Elizabeth Arden, J.Crew Petstore.com
a Unilever company Kaplan Smith & Hawken
eve.com Lids Tavolo
</TABLE>
SALES AND MARKETING
We focus our sales and marketing efforts on large companies in the
manufacturing, retail, financial services and telecommunications industries. We
have a direct sales team that is currently organized by geographic market. Many
of our sales leads are the result of referrals from members of our ecosystem of
relationships or from past or existing clients. In addition, our senior
consultants and members of our management frequently participate in establishing
contacts with potential clients and securing client engagements.
Our integrated effort to market our eSelling expertise includes: a brand
advertising campaign in both print and broadcast media, public relations,
strategic event participation and employee networking programs. In addition, we
intend to continue to develop the Fort Point Partners brand by showcasing our
thought leadership in eSelling through industry presentations and the
preparation of written materials. As of March 31, 2000, our sales and marketing
team consisted of 13 people.
CULTURE, RECRUITING AND TRAINING
Attracting, training and retaining professionals are critical to our
success. As a result, our people team is led by executive-level organization
development experts, and we have made early, significant investments in our
people programs.
Culture. We place tremendous importance on culture, particularly on the
core values that serve as the cornerstone of our culture. Our core values
include commitments to:
- delivering real value to customers of our clients, which we call Value;
- being resilient, optimistic and creative to resolve difficult situations
and ensure our clients' success, which we call Fortitude;
- building relationships that make our employees, clients and third parties
more successful, which we call Partnership; and
- sharing innovations and process improvements to make Fort Point Partners
more valuable, which we call Smart Company.
We have also implemented people programs that reinforce our values at all
levels in the organization. All recruits are evaluated based on whether they are
likely to embrace our company values. Each new employee is introduced to our
culture, core values and eSelling methodology through an intensive, three week
orientation and training program, which we call eMersion. In addition, all
employees are measured, rewarded and promoted based on their ability to
demonstrate these core values. Finally, our advanced training programs,
mentoring program and internal communications continuously act as further
reinforcements of our core values and our culture.
Recruiting. We have grown organically, which we believe has helped to
maintain the high level of our execution quality and client and employee
experiences. We have a dedicated recruiting team that ensures consistent hiring
practices across offices. In addition, we recruit a majority of our new
employees through an employee referral program. Services personnel are heavily
involved in the process and lead the team responsible for converting candidates
to full-time employees.
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Training. We have developed a series of programs that provide ongoing
skill-building opportunities for new hires and current employees. Our new
employees participate in the three week eMersion program that exposes new
employees to our culture, values and eSelling principles and engages them in
case-based learning. We also have a series of advanced training programs and
weekly briefings that enable our people to continue improving their skills to
meet new market opportunities, to keep up with technological advancements and to
share lessons learned from their projects.
COMPETITION
We compete against:
- Internet Commerce Systems Integrators. These firms offer
Internet-related systems integration, which is the development of
technology applications to meet Internet business needs. In addition,
they may also provide a variety of additional services like branding,
strategy consulting, application development and Web-hosting. Examples of
these firms include Proxicom, Sapient, Scient and Viant.
- Traditional Systems Integrators. These firms tend to be large companies
with integration experience that pre-dates the Internet. Most have a
background in large-scale technical implementations, such as enterprise
resource planning implementation projects. Examples of these firms
include Andersen Consulting, IBM Global Services and KPMG.
Given the low barriers to entry, the size and fragmentation of the market
and the rapidly changing landscape, a continued influx of new entrants is
likely. In addition, some firms that might contract with us or one of our
competitors may choose instead to rely on internal resources for their eSelling
needs.
We expect that we will continue to face intense competition for potential
engagements. The principal factors on which we compete are:
- reputation for designing and building effective e-business solutions;
- the depth and breadth of strategic, project management and engineering
expertise;
- the ability to articulate a compelling e-business solution early in the
process of bidding for engagements;
- speed of delivery of high quality e-business solutions;
- price; and
- the ability to stay current with technological changes.
We believe that we compete successfully overall with respect to these
competitive factors.
EMPLOYEES
We have grown organically from 34 employees at the end of 1998, to 110 at
the end of 1999 and to 177 as of March 31, 2000. Our employees are not
represented by any union and are retained on an at-will basis. We consider our
relations with our employees to be satisfactory.
PROPRIETARY RIGHTS
We have developed detailed frameworks, tools, processes, methodologies,
software code and other technologies that are used internally and in client
engagements. We seek to protect our proprietary rights and our other
intellectual property through a combination of copyrights, trademarks and trade
secret protection, as well as through contractual protections such as employee
and consultant invention assignment agreements and nondisclosure agreements. We
cannot guarantee that the steps we have taken to protect our proprietary rights
will be adequate to deter misappropriation of our intellectual property, and we
may not be able to detect unauthorized use and take appropriate steps to enforce
our intellectual property rights.
In addition, our business involves, in part, the development of software
applications for our clients. Ownership of such software is often a subject of
negotiation and is sometimes assigned to the client. When
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the rights are assigned to the client, we may retain a license for specific
uses. Issues relating to the ownership of and rights to use software
applications and frameworks can be complicated, and there can be no assurance
that disputes will not arise with our clients that affect our ability to resell
or reuse such applications and frameworks or our client relationships.
FACILITIES
Our corporate headquarters are located in San Francisco, California and
consist of approximately 28,000 square feet of office space. We have leased this
space through October 2007. We also lease office space under two leases in New
York, New York, consisting of approximately 22,000 square feet of office space.
Both of the New York office leases expire in April 2009. We anticipate that we
will enter into additional leases for office space in order to expand our
geographical presence in the U.S. and internationally, including in Chicago,
Illinois and Germany where we are currently in the process of obtaining office
space. We believe that additional office space will be available on commercially
reasonable terms.
LEGAL PROCEEDINGS
From time to time, we may become involved in litigation arising from our
ordinary course of business. We believe that there are no claims or actions
pending or threatened against us, the ultimate disposition of which would have a
material adverse effect on us.
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<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The names, ages and positions of our current executive officers, directors
and key employees are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James T. Roche............................ 34 Co-Chief Executive Officer, Co-President
and Director
Matthew J.N.C. Roche...................... 32 Co-Chief Executive Officer, Co-President
and Chairman of the Board
Kelyn J. Brannon.......................... 41 Chief Financial Officer
Barbara J. Beasley........................ 42 Executive Vice President of People
Jeffrey J. Held........................... 46 Chief Technology Officer
Michael P. Kelleher....................... 40 Vice President of Sales
Kathleen Kusek............................ 35 Vice President of Marketing
David Karas............................... 40 Vice President, General Counsel and
Secretary
Robert Schmults........................... 31 Vice President of Strategy
Scott Gilbertson.......................... 31 Director
Richard Kashnow(1)(2)..................... 58 Director
N. D'Arcy Roche........................... 62 Director
David Sanderson........................... 39 Director
Edward Scott(1)(2)........................ 37 Director
</TABLE>
- ---------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
James T. Roche is one of our co-founders and has served as our Co-Chief
Executive Officer, Co-President and Director since our inception. Prior to
founding Fort Point Partners, Mr. Roche established Webfactory, Inc., a computer
hardware and software sales services company and subsidiary of AGI Corp., where
he served as General Manager from October 1995 to November 1996. Prior to
establishing Webfactory, Inc., Mr. Roche worked at Silicon Graphics and KPMG.
Mr. Roche studied architecture at Yale University. Mr. Roche is the son of N.
D'Arcy Roche and the brother of Matthew J.N.C. Roche.
Matthew J.N.C. Roche is one of our co-founders and has served as our
Co-Chief Executive Officer and Co-President since our inception. Mr. Roche also
serves as the Chairman of the Board. Mr. Roche established Webfactory/Data, a
division of Webfactory, Inc., and, from October 1995 until December 1996, served
as its General Manager. Mr. Roche served as Product Manager of ParcPlace
Systems, Inc., a software company, from October 1994 to October 1995. Mr. Roche
also worked for Andersen Consulting from April 1992 until October 1994. Mr.
Roche holds a B.A. in English from Yale University. Mr. Roche is the son of N.
D'Arcy Roche and the brother of James T. Roche.
Kelyn J. Brannon has served as our Chief Financial Officer since December
1999. From October 1998 until December 1999, Ms. Brannon served as the Vice
President of Finance and Chief Accounting Officer of Amazon.com, Inc., an
Internet retailer, and as Chief Financial Officer of Amazon.com International.
Prior to joining Amazon.com, from October 1994 until October 1998, Ms. Brannon
served in various capacities at Sun Microsystems, Inc., a provider of computer
networking hardware, software and services, including as the Director of
Finance, Worldwide Field Organization in its Computer Systems Division. Prior to
working at Sun Microsystems, Ms. Brannon served with Ernst & Young LLP, an
accounting firm,
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<PAGE> 42
where she last served as Senior Manager. Ms. Brannon holds a B.A. in political
science from Murray State University in Kentucky.
Barbara J. Beasley is our Executive Vice President of People and has served
in that capacity since June 1999. From 1988 to May 1999, Ms. Beasley worked at
Andersen Consulting, a management consulting firm, in various capacities, last
serving as Associate Partner. Ms. Beasley holds a M.B.A. with a focus on
organizational development from the University of Southern California and a B.A.
in psychology and human biology from Stanford University.
Jeffrey J. Held is our Chief Technology Officer. From 1988 until March
2000, Mr. Held was a partner with Ernst & Young Consulting. During the period
from July 1998 to March 2000, he also served as the Chief Technology Officer for
the Ernst & Young's Americas Critical Technologies Unit and previously served as
a director of Ernst & Young's Center for Technology Enablement. Mr. Held holds a
M.S. and a B.S. in electrical engineering from the Massachusetts Institute of
Technology.
Michael P. Kelleher has served as our Vice President of Sales since January
2000. From January 1997 until January 2000, Mr. Kelleher served in the Sales
Management Division of IBM/Tivoli Systems, a systems management software
company. From January 1984 until December 1996, Mr. Kelleher served in the Sales
Management Division of Storage Technology, a company specializing in large data
storage. Mr. Kelleher holds a B.S. in business administration from the
University of Connecticut.
Kathleen Kusek has served as our Vice President of Marketing since November
1999. From April 1996 until November 1999, Ms. Kusek served as Director of New
Business at DDB Worldwide, a branding company. From September 1994 until April
1996, Ms. Kusek served as an Account Supervisor at Foote, Cone & Belding, an
advertising company. Ms. Kusek holds a M.S. in journalism from Northwestern
University and a B.S. in finance from the University of Illinois.
David Karas joined us in February 2000 and serves as our Vice President,
General Counsel and Secretary. Beginning in 1994, Mr. Karas held various
positions at Sun Microsystems, Inc. where he last served as Director and General
Counsel for the Professional Services business from September 1998 to February
2000. During his time at Sun Microsystems, he also was an Internal Audit Manager
conducting internal business process reviews, and Assistant General Counsel with
the SunService Division. He has also served as counsel with Citibank, N.A. and
Computerland Corporation. Mr. Karas holds a M.B.A. and a J.D. from Pace
University and a B.A. in economics from the University of Connecticut.
Robert Schmults is our Vice President of Strategy. Mr. Schmults joined us
in October 1999. From May 1997 until October 1999, Mr. Schmults worked with
McKinsey & Co., a management consulting company, where he advised companies on
e-commerce strategy. From October 1994 until January 1997, Mr. Schmults was the
Director of Marketing at Worlds, Inc., an Internet software company. Mr.
Schmults holds a Masters degree in international relations from Cambridge
University, a M.B.A. from Harvard University and a B.A. in history from Yale
University.
Richard Kashnow has served as a member of our board of directors since
August 1998. Since August 1999, Mr. Kashnow has served as President of Tyco
Ventures, a venture capital unit of Tyco International, a diversified
manufacturing and services company. From September 1995 until August 1999, Mr.
Kashnow served as the Chairman, Chief Executive Officer and President of Raychem
Corporation, an electrical and electronic components manufacturing company. From
1991 until 1995, Mr. Kashnow served as the President of Schuller International,
a subsidiary of Manville Corporation, a building products company. Mr. Kashnow
also serves on the board of directors of Applied Power, Inc., a manufacturer of
electronic and industrial products. Mr. Kashnow holds a B.S. in physics from
Worcester Polytechnic Institute and a Ph.D. in physics from Tufts University.
Scott Gilbertson has served as a member of our board of directors since May
1999. From October 1998 until March 2000, Mr. Gilbertson held various positions
at J.Crew Group, Inc., a clothing retailer, ultimately serving as its President,
eCommerce. Mr. Gilbertson helped found eVolution Global Partners, an investment
firm, in April 2000. From February 1998 until October 1998, Mr. Gilbertson
served as an Associate at Texas Pacific Group, an investment firm. From June
1991 until February 1998,
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<PAGE> 43
Mr. Gilbertson held various positions at Boston Consulting Group, a strategy and
management consulting firm. Mr. Gilbertson holds a B.A. in economics from
Claremont McKenna College and a M.B.A. from Northwestern University.
N. D'Arcy Roche has served as a member of our board of directors since
December 1996. Since February 2000, Mr. Roche has served as the President and
Chief Executive Officer of Mplus3, a start-up Internet audio device
manufacturer. From January 1999 until January 2000, Mr. Roche provided
consulting services to start-up telecommunications carriers and carrier
equipment manufacturers. From 1995 until December 1998, Mr. Roche was Vice
President with, and managed the global premises equipment and services business
unit of, AMP, an electronic parts company owned by Tyco International Ltd. Mr.
Roche holds a B.A. in English from Columbia University. Mr. Roche is the father
of James T. and Matthew J.N.C. Roche.
David Sanderson has served as a member of our board of directors since
August 1998. Since 1990, Mr. Sanderson has served as a Vice President at Bain &
Company, a management consulting company. Mr. Sanderson also helped found
eVolution Global Partners, an investment firm, in April 2000 and serves on the
board of directors of IdeaForest.com, an arts and crafts e-business. Mr.
Sanderson holds a B.S. in math from the University of Massachusetts, Amherst, a
M.S. in computer science from Syracuse University and a M.B.A. from Stanford
University.
Edward Scott has served as a member of our board of directors since June
1999. Mr. Scott is a founder and General Partner of the Baker Communications
Fund, L.P., a private equity fund that invests exclusively in communications,
services and applications companies. From December 1990 until March 1996, Mr.
Scott worked at the Apollo Investment Fund, L.P. Mr. Scott is a member of the
board of directors of Akamai Technologies, Inc., Advanced Switching
Communications, Inc., Broadview Networks Holdings, Inc., InterXion Holding,
N.V., Acuent Inc. and Style365.com. Mr. Scott holds a B.A. in history from
Columbia University and a M.B.A. from Harvard University.
BOARD OF DIRECTORS AND COMMITTEES
Our board of directors currently consists of seven directors. It has two
committees: an audit committee and a compensation committee. Our bylaws divide
our board of directors into three classes, as nearly equal in size as possible,
serving staggered three-year terms.
Audit Committee. Messrs. Kashnow, Scott and currently serve on
our audit committee. Our audit committee reviews our audited consolidated
financial statements and accounting practices, recommends independent auditors
and approves the fee arrangements with the independent auditors.
Compensation Committee. Messrs. Kashnow and Scott serve on our
compensation committee. The compensation committee determines salaries and
incentive compensation of our executive officers and recommends salaries and
incentive compensation of our other employees and consultants. In addition, the
compensation committee administers our stock option plan and other benefit
plans.
DIRECTOR COMPENSATION
We do not currently provide our directors with cash compensation for their
services as directors, although we do reimburse directors for reasonable
expenses in connection with their participation in board and committee meetings.
On May 18, 1998, we granted options to purchase 20,000 shares of common
stock to each of N. D'Arcy Roche and Messrs. Sanderson and Kashnow under our
1996 Stock Option/Stock Issuance Plan at an exercise price of $0.05 per share.
On January 20, 1999, we granted options to purchase 40,000 shares of common
stock to each of N. D'Arcy Roche and Messrs. Kashnow and Sanderson at an
exercise price of $0.11. On May 27, 1999, we granted options to purchase 40,000
shares of common stock to Mr. Gilbertson at an exercise price of $0.11. Each of
these options was immediately exercisable, but was subject to a right of
repurchase until vested over a four year vesting period. The options have a ten
year term.
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<PAGE> 44
On April 18, 2000, the board of directors resolved that any non-employee
director who joins the board after that date will be granted options to purchase
20,000 shares of common stock. The options will vest quarterly over three years
and have a term of ten years. The exercise price will be set at the fair market
value of the common stock at the time of grant. Each director will receive a new
option grant after the current option vests in full, on the same terms and
conditions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee has not yet held a meeting. Consequently, all
compensation decisions have been made by the entire board of directors. None of
our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation paid by us in 1999 to our Chief Executive Officers. These
individuals are referred to as the named executive officers in this prospectus.
No other executive officers earned more than $100,000 in 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------
------------------- SHARES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(1)
- --------------------------- --------- ------ -----------------
<S> <C> <C> <C>
James T. Roche........................................... $144,583 -- 40,000
Co-Chief Executive Officer and Co-President
Matthew J.N.C. Roche..................................... $144,583 -- 40,000
Co-Chief Executive Officer and Co-President
</TABLE>
- ---------------
(1) As adjusted to reflect the 4-for-1 split of our common stock effected on
November 22, 1999.
Barbara J. Beasley, our Executive Vice President of People, was compensated
at an annual rate of $175,000 in 1999. Kelyn J. Brannon, our Chief Financial
Officer, was compensated at an annual rate of $200,000 in 1999. Kathleen Kusek,
our Vice President of Marketing, was compensated at an annual rate of $150,000
in 1999.
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<PAGE> 45
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, as to the named executive officers,
information concerning stock options granted in 1999.
The information regarding stock options granted to named executive officers
as a percentage of total options granted to employees in the fiscal year, as
disclosed in the table is based upon options to purchase an aggregate of
3,680,200 shares of common stock that were granted to all employees and
directors as a group, including the named executive officers, in 1999.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(1) 1999 ($/SHARE) DATE 5% 10%
- ---- ---------- ------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
James T. Roche.......................... 40,000 1.09% $.11 1/20/04
Matthew J.N.C. Roche.................... 40,000 1.09% $.11 1/20/04
</TABLE>
- ---------------
(1) As adjusted to reflect the 4-for-1 split of our common stock effected on
November 22, 1999.
The potential realizable value at assumed 5% and 10% annual rates of stock
appreciation are based upon an assumed initial public offering price of
$ per share over the five-year term, compounded annually and
subtracting from that result the total option exercise price. These rates of
appreciation are mandated by the rules of the Securities and Exchange Commission
and do not represent our estimate or projection of our future stock prices.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.
Our incentive stock options are immediately exercisable. However, we have a
right to repurchase all unvested shares of common stock issued upon exercise of
incentive stock options if executive officers are terminated for any reason. All
incentive stock options vest as to 25% of the shares one year from the vesting
commencement date with the remainder of the shares vesting at the rate of 1/48
of the shares at the end of each month thereafter, subject to continued service
as an employee or consultant. The repurchase right must be exercised by us
within 60 days of termination of the executive officer and lapses on the same
terms as the option vesting period discussed above.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The table below sets forth information with respect to the ownership and
value of options held by the named executive officers as of December 31, 1999.
No options were exercised by our named executive officers during the fiscal year
ended December 31, 1999. Options described below as exercisable are those that
have vested and are no longer subject to the right of repurchase. Options
described below as unexercisable remain subject to the right of repurchase. The
value of unexercised in-the-money options was calculated by determining the
difference between $ (the assumed initial public offering price) and
the exercise price of the option.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James T. Roche............................. 160,000 200,000
Matthew J.N.C. Roche....................... 160,000 200,000 $ $
</TABLE>
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<PAGE> 46
CHANGE OF CONTROL AND SEVERANCE ARRANGEMENTS; OFFER LETTERS
All of our employees are at-will employees, which means that either we or
our employee may terminate the employment relationship at any time for any
reason.
On November 30, 1999, our board of directors amended James T. Roche's
options to include immediate vesting in certain circumstances and agreed to
provide severance payments to Mr. Roche. If we (1) terminate Mr. Roche, (2)
change the executive team such that Mr. Roche is no longer a member or (3) are
involved in a corporate transaction, as defined in the 1996 Stock Option/Stock
Issuance Plan, and subsequent to that corporate transaction, Mr. Roche is
terminated by us or resigns, then, we shall be required to provide Mr. Roche, as
applicable, with the following: (1) severance payments equivalent to six months
worth of his highest monthly salary payments, and (2) all of the stock options
which have been granted to him, and any restricted shares subject to vesting
held by him shall immediately vest in full.
On November 30, 1999, our board of directors amended Matthew J.N.C. Roche's
options to include immediate vesting in certain circumstances and agreed to
provide severance payments to Mr. Roche. If we (1) terminate Mr. Roche, (2)
change the executive team such that Mr. Roche is no longer a member or (3) are
involved in a corporate transaction, as defined in the 1996 Stock Option/Stock
Issuance Plan, and subsequent to that corporate transaction, Mr. Roche is
terminated by us or resigns, then we shall be required to provide Mr. Roche, as
applicable, with the following: (1) severance payments equivalent to six months
worth of his highest monthly salary payments, and (2) all of the stock options
which have been granted to him, and any restricted shares subject to vesting
held by him, shall immediately vest in full.
We entered into an employment offer letter on December 13, 1999 with Kelyn
J. Brannon, our Chief Financial Officer. This letter established Ms. Brannon's
initial annual salary at $200,000 and provided for reimbursement of her
relocation expenses up to $100,000. In connection with Ms. Brannon's offer
letter, on January 26, 2000, the board of directors granted to Ms. Brannon an
option to purchase 300,000 shares of common stock. The offer letter also
provided that the board of directors would grant additional options to purchase
100,000 shares of common stock upon successful completion of this offering. Ms.
Brannon's options will vest in full if we are acquired, and as a result of that
acquisition, she is subsequently terminated without cause from her position or
we are not able to offer her a position that is equal to or better than the
Chief Financial Officer position. "Acquired" is defined to mean either (1)
merged with a third party or (2) more than 50% of the total combined voting
power of our outstanding securities are transferred to a third party, different
from the third parties holding those securities immediately prior to such
transaction. "Cause" means the commission of any act of fraud, embezzlement or
dishonesty, conviction of a felony under the laws of the United States or any
state thereof, gross misconduct, continued failure to perform assigned duties
for 30 days after receiving written notification from our board of directors,
any unauthorized use of disclosure of our confidential information or trade
secrets, or any other intentional misconduct that adversely affects our business
or affairs in a material manner.
We entered into an employment offer letter on May 12, 1999 with Barbara J.
Beasley, our Executive Vice President of People. This letter established Ms.
Beasley's initial annual salary at $175,000. In connection with Ms. Beasley's
offer letter, the board of directors granted to Ms. Beasley an option to
purchase 200,000 shares of common stock on August 26, 1999. The offer letter
provided that the board of directors would grant Ms. Beasley options to purchase
an additional 200,000 shares of common stock upon her attainment of mutually
agreed upon hiring criteria. The board of directors granted Ms. Beasley the
additional options to purchase 200,000 shares of common stock in February 2000.
Ms. Beasley's options will vest in full upon a change of control, as defined
above in the description of Ms. Brannon's offer letter.
We entered into an employment offer letter on December 20, 1999 with
Michael P. Kelleher, our Vice President of Sales. This letter established Mr.
Kelleher's initial annual salary at $175,000 and provided for reimbursement of
apartment rental costs of up to $2,500 per month for up to six months. In
addition, the offer letter provided for payment of round trip airfare between
San Francisco and Los Angeles once a week through the end of June 2000 and
reimbursement of his relocation expenses up to $15,000. In connection with Mr.
Kelleher's offer letter, the board of directors granted to Mr. Kelleher an
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<PAGE> 47
option to purchase 100,000 shares of common stock on January 26, 2000. Mr.
Kelleher's options will vest in full upon a change of control, as defined above
in the description of Ms. Brannon's offer letter.
We entered into an employment offer letter on January 24, 2000 with David
Karas, our Vice President, General Counsel and Secretary. This letter
established Mr. Karas' initial annual salary at $175,000 with a $10,000 signing
bonus. In connection with Mr. Karas' offer letter, the board of directors
granted to Mr. Karas an option to purchase 100,000 shares of common stock on
February 22, 2000. The offer letter also provided that the board of directors
would grant additional options to purchase 25,000 shares of common stock upon
attainment of criteria to be agreed upon by us and Mr. Karas. The criteria have
been determined and relate to required efforts to complete this offering and the
Series E preferred stock offering. Mr. Karas' options will vest in full upon a
change of control, as defined above in the description of Ms. Brannon's offer
letter.
EMPLOYEE BENEFITS PLANS
1996 Stock Option/Stock Issuance Plan. In December 1996, our board of
directors adopted the 1996 Stock Option/Stock Issuance Plan, which will
terminate no later than December 31, 2006. As of March 31, 2000, 3,754,350
shares of common stock were reserved for issuance under this plan. Of these
shares, 1,396,244 shares were subject to outstanding options at a weighted
average price of $0.18 per share and 2,358,106 were available for future grants.
Options have been granted by the board of directors so that they vest over
a four-year period from the date of grant, with 25% vesting one year from the
date of grant and the remaining options vesting on a pro rata basis over the
next 36 months. Options generally expire 10 years from the date of grant and
within some period after termination of employment, depending on the cause of
the termination. All canceled or expired options become available for future
grants. Plan participants may exercise options prior to vesting, although shares
issued upon the exercise of unvested options are subject to repurchase by us at
the original exercise price. The repurchase right expires on the same basis as
the vesting of the original stock option.
The plan authorizes the board of directors to grant incentive stock
options, as defined by the Internal Revenue Code of 1986, as amended, and
nonstatutory stock options. Upon the exercise of a vested nonstatutory stock
option, we generally are required to report the difference between the exercise
price and the fair value of the common stock on the date of exercise to the
employee and the Internal Revenue Service as compensation income and to withhold
income and payroll taxes on that compensation. The exercise of a vested
incentive stock option generally does not give rise to compensation income to
the employee for regular tax purposes, and we are not required to withhold
income and payroll taxes. However, the exercise of a vested incentive stock
option will result in alternative minimum taxable income to the extent the value
of shares on the exercise date exceeds the exercise price. If a participant
exercises an option prior to vesting and makes a special election, the exercise
results in consequences similar to those described above for vested options,
except that the value of the shares used to determine the employee's income and
our withholding obligation are determined without regard to our repurchase
right, and the participant will not receive a deduction for any income
recognized as a result of the election if the shares are later repurchased by us
at the original exercise price. If the special election is not made, the tax
consequences of exercise generally are determined at the time that our
repurchase right expires.
Incentive stock options may be granted only to our employees and those of
our subsidiary. Nonstatutory stock options may be granted to employees, employee
and non-employee directors and consultants. In accordance with the plan, the
exercise price of options granted cannot be less than 100% of the fair value of
the common stock on the date of grant for incentive stock options and cannot be
less than 85% of the fair value of the common stock for nonstatutory options. In
addition, under the Internal Revenue Code, the exercise price of an incentive
stock option generally may not be less than 100% of the fair market value of the
underlying stock on the date of grant, although a failure in an attempt, made in
good faith, to comply with this requirement will not disqualify the treatment of
an option as an incentive stock option. In addition, to the extent the fair
market value of stock with respect to which options, that otherwise would be
incentive stock options, first become exercisable in a single year exceeds
$100,000,
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<PAGE> 48
options relating to the excess over $100,000 generally will be treated as
nonstatutory stock options. We are required to withhold taxes with respect to
the exercise of an option that is intended to be, but does not actually qualify
as, an incentive stock option, and would be liable for all taxes that we are
required to but do not withhold, and could also be liable for interest and
penalties relating to those taxes.
Shares subject to each outstanding option will automatically vest in full
and outstanding repurchase rights will automatically terminate at the time of a
corporate transaction. A corporate transaction is either (1) a merger or
consolidation in which more than 50% of the total combined voting power of our
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or (2)
the sale, transfer or other disposition of all or substantially all of our
assets in a complete liquidation or dissolution. However, the outstanding
options will not vest on such an accelerated basis if (1) such outstanding
options and the repurchase rights are assumed by the successor corporation; (2)
such options are replaced with a cash incentive program or (3) the acceleration
of such option is subject to other limitations imposed by the administrator at
the time of the option grant.
Options granted under the plan are not transferable by the optionee other
than by will or by the laws of descent and distribution. Each option is
exercisable during the lifetime of the optionee only by such optionee. Unless
the administrator determines otherwise, options granted under this plan must be
exercised within three months of the optionee's separation of service from us,
or within twelve months after such optionee's termination by death or
disability, but in no event no later than the expiration of the option's term.
The plan also authorizes the board of directors to issue shares for cash or
past services. The purchase price per share cannot be lower than 85% of the fair
market value of the common stock on the issue date. Shares may be fully and
immediately vested upon issuance or may vest on a schedule imposed by the
administrator, but such vesting schedule may not be more restrictive than 20%
per year vesting, with initial vesting to occur not later than one year after
the issuance date. Upon the occurrence of a corporate transaction, all
outstanding repurchase rights will terminate automatically, and the shares of
common stock subject to those terminated rights will immediately vest in full
unless (1) the repurchase rights are assigned to the successor corporation or
(2) such accelerated vesting is precluded by other limitations imposed by the
administrator at the time the repurchase right is issued.
Our board of directors may not amend or modify this plan if the amendment
or modification would impair any outstanding rights and obligations with respect
to options or unvested stock issuances unless we first obtain the prior consent
of all option holders or recipients of stock issuances who would be adversely
affected.
401(k) Plan. We sponsor a defined contribution plan intended to qualify
under Section 401(k) of the Internal Revenue Code. Under the plan, all employees
who are at least 18 years old are generally eligible to participate and may
enter the plan as of the first day of each calendar quarter. Participants may
elect to make pre-tax contributions up to 15% of their current compensation to
the 401(k) plan, subject to the statutorily prescribed annual limit.
Participants are fully vested in their contributions and the investment
earnings. The plan permits us to make discretionary matching contributions,
which are subject to a vesting schedule. To date, we have not made matching
contributions under the plan.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION ON LIABILITY
Our certificate of incorporation that will be effective upon completion of
the offering limits the liability of directors to the fullest extent permitted
by Delaware law. Delaware law provides that directors of a corporation will not
be personally liable for monetary damages for breach of their fiduciary duties
as directors, expect liability for:
- breach of their duty of loyalty to the corporation or its stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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<PAGE> 49
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under
the federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
Our bylaws that will be effective upon completion of the offering provide
that we shall indemnify our directors, officers, employees and other agents to
the fullest extent permitted by law. Our bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the bylaws permit such indemnification. We currently maintain liability
insurance for our directors.
In addition to the indemnification provided for in our bylaws, we have
entered into indemnification agreements with each of our non-employee directors.
These agreements, among other things, provide for indemnification for certain
expenses, including attorney's fees, judgments, fines and settlement amounts
incurred by the indemnified party in any action or proceeding, including any
action by or in our right arising out of the indemnified party's services as a
director officer, employee, or agent of us or any of our subsidiaries. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
At present, there is no pending litigation or proceeding involving any of
our directors or officers in which indemnification is required or permitted, and
we are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
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<PAGE> 50
CERTAIN TRANSACTIONS
The following is a description of transactions since our inception in
October 1996 to which we have been a party, in which the amount involved in the
transaction exceeded $60,000 and in which any director, executive officer or
holder of more than 5% of our capital stock had or will have a direct or
indirect material interest other than compensation arrangements that are
otherwise required to be described under "Management."
ISSUANCE OF COMMON STOCK
In December 1996, we issued 2,080,000 shares of our common stock to James
T. Roche and 2,080,000 shares of common stock to Matthew J.N.C. Roche for
$.00025 per share. The number of shares issued and the price per share in the
immediately preceding sentence have been adjusted to reflect a 4-for-1 split of
our common stock effected on November 22, 1999.
ISSUANCES OF PREFERRED STOCK
In April 1997, we sold an aggregate of 1,300,000 shares of our Series A
preferred stock at a purchase price of $.25 per share. In May 1997, we sold an
aggregate of 500,000 shares of our Series B preferred stock at a purchase price
of $.50 per share. In August 1998, we sold an aggregate of 787,236 shares of our
Series C preferred stock at purchase price of $1.0975 per share. From June 1999
to August 1999, we sold an aggregate of 6,511,500 shares of our Series D
preferred stock at a purchase price of $2.2025 per share. In April 2000, we sold
an aggregate of 3,426,411 shares of our Series E preferred stock at a purchase
price of $8.755 per share. With respect to the issuances of Series A, B, C and D
preferred stock, the number of shares issued and the price per share in this
paragraph have been adjusted to reflect a 4-for-1 split of our common stock
effected on November 22, 1999.
The following table summarizes, as of April 26, 2000, private placement
transactions of our preferred stock to, among others, the following directors,
executive officers, holders of more than 5% of our outstanding stock and members
of the immediate families of our directors, executive officers and holders of
more than 5% of our outstanding stock. You should refer to "Principal
Stockholders" for more detail on shares of our common stock held by these
purchasers and their affiliations with our directors and officers.
<TABLE>
<CAPTION>
PREFERRED STOCK(1)
------------------------------------------------------
STOCKHOLDER SERIES A SERIES B SERIES C SERIES D SERIES E
- ----------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND IMMEDIATE
FAMILY
MEMBERS
N. D'Arcy and Marilyn Roche.................. 200,000 176,320 150,548 11,422
Stephan Roche(2)............................. 22,780 9,112 2,284
Richard Kashnow.............................. 45,560 6,625
SF Partners XIV(3)........................... 296,128 96,252 37,032
Peggy Dunne(4)............................... 13,364
Dunbar Hoskins(5)............................ 5,711
5% STOCKHOLDERS
Baker Communications Fund, L.P.(6)........... 3,859,252 659,167
Entities Affiliated with Accel Partners(7)... 1,816,120 114,221
Entities Affiliated with Meritech Capital
Partners(8)................................ 2,284,409
Carruthers Family LLC........................ 800,000 200,000 400,056
</TABLE>
- ---------------
(1) As adjusted to reflect the 4-for-1 split of our common stock effected on
November 22, 1999.
(2) Stephan Roche is brother to each of James T. Roche and Matthew J.N.C. Roche,
our Co-Chief Executive Officers and Co-Presidents, and son to N. D'Arcy
Roche, a member of our board of directors.
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<PAGE> 51
(3) David Sanderson is a Managing Partner in SF Partners XIV, and he serves on
our board of directors.
(4) Peggy Dunne is the mother-in-law of Matthew J.N.C. Roche.
(5) Dunbar Hoskins is the father-in-law of James T. Roche.
(6) Edward Scott, a member of our board of directors, is a General Partner of
Baker Communications Fund, L.P.
(7) Accel VII L.P. purchased 1,367,536 Series D preferred shares, Accel Internet
Fund III L.P. purchased 285,132 Series D preferred shares and Accel
Investors '99 L.P. purchased 163,452 Series D preferred shares (as adjusted
to reflect the 4-for-1 split of our common stock effected on November 22,
1999).
(8) Meritech Capital Partners L.P. purchased 2,247,858 shares of Series E
preferred stock, and Meritech Capital Affiliates L.P. purchased 36,551
shares of Series E preferred stock.
LOANS TO EXECUTIVE OFFICERS
In February 2000, Kelyn J. Brannon, our Chief Financial Officer, entered
into a full-recourse promissory note for $66,000 in our favor as consideration
for her exercise of options to purchase 300,000 shares of our common stock. In
February 2000, Barbara J. Beasley, our Executive Vice President of People,
entered into a full-recourse promissory note for $88,000 in our favor as
consideration for her exercise of options to purchase 400,000 shares of our
common stock. The shares received upon the exercise of those options remain
subject to the right of repurchase as described in "Management -- Option Grants
in Last Fiscal Year."
Each promissory note bears interest at the lower of the prime rate as
announced from time to time by Bank of America, or the maximum rate of interest
permitted by law. The principal on each promissory note is due on or before the
earlier of: (1) February 2003; (2) the termination of such person's employment;
or (3) the sale by such person of shares of common stock received upon the
option exercise.
REORGANIZATION OF FORT POINT PARTNERS
Prior to the consummation of this offering, we reorganized Fort Point
Partners from a California corporation into a Delaware corporation. We also
created a two-tiered corporate structure with Fort Point Partners, the issuer of
the shares in this offering and a Delaware corporation, as the parent and Fort
Point Partners California, a California corporation, as its wholly-owned
subsidiary. In conjunction with our reorganization, each of the holders of
common stock, preferred stock, warrants and options of our California
predecessor received equivalent securities in the new Delaware corporation on a
one-for-one basis. Each holder of securities that were convertible or
exercisable into common stock of our California predecessor received equivalent
securities that are convertible into common stock in the new Delaware
corporation.
OPTIONS, CHANGE-OF-CONTROL AGREEMENTS AND INDEMNIFICATION AGREEMENTS
We have granted options to some of our directors and executive officers.
See "Management -- Option Grants in the last Fiscal Year,"
"Management -- Director Compensation" and "Principal Stockholders." We have also
entered into change-of-control agreements with certain executive officers and
indemnification agreements with our directors. See "Management -- Change of
Control and Severance Arrangements; Offer Letters" and
"Management -- Indemnification of Directors and Officers and Limitation On
Liability."
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<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of April 26, 2000, with respect to shares
beneficially owned by:
- each person known by us to own beneficially more than 5% of our
outstanding shares;
- each director and executive officer; and
- all directors and executive officers as a group.
The percentage of beneficial ownership for the following table is based on
22,041,582 shares of our common stock outstanding on April 26, 2000, assuming
the conversion of all outstanding shares of preferred stock and other
convertible securities into common stock. The percentage of beneficial ownership
after this offering also assumes shares of common stock outstanding
after completion of this offering and assumes no exercise of the underwriters'
option to purchase additional shares in the offering.
Unless otherwise indicated below, to our knowledge, all persons listed
below have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law.
The number of shares beneficially owned by each stockholder is determined
in accordance with the rules of the Securities and Exchange Commission and is
not necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes those shares of common stock that the
stockholder has sole or shared voting or investment power and any shares of
common stock that the stockholder has a right to acquire within 60 days after
April 26, 2000 through the exercise of any option, warrant or other right. The
percentage ownership of the outstanding common stock, however, is based on the
assumption, expressly required by the rules of the Securities and Exchange
Commission, that only the person or entity whose ownership is being reported has
converted options or warrants into shares of common stock. In general, options
to purchase our capital stock are exercisable in full, with the underlying
shares subject to repurchase rights that lapse as the shares vest. As a result,
the percentage of outstanding shares of any person as shown in the following
table does not necessarily reflect the person's actual voting power at any
particular date.
Unless otherwise indicated, the address of each person owning more than 5%
of our outstanding shares is c/o Fort Point Partners Inc., 111 Sutter Street,
San Francisco, CA 94104.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
--------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------ ---------- ------- --------- -------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS:
Baker Communications Fund, L.P.(1)................ 4,518,419 20.5% 4,518,419 %
Matthew J.N.C. Roche.............................. 2,440,000 11.1 2,440,000
James T. Roche.................................... 2,440,000 11.1 2,440,000
Entities affiliated with Meritech Capital
Partners(2)..................................... 2,284,409 10.4 2,284,409
Entities affiliated with Accel Partners(3)........ 1,930,341 8.8 1,930,341
Caruthers Family LLC(4)........................... 1,400,056 6.4 1,400,056
N. D'Arcy Roche(5)................................ 598,290 2.7 598,290
Barbara J. Beasley................................ 400,000 1.8 400,000
Kelyn J. Brannon.................................. 300,000 1.4 300,000
Jeffrey J. Held(6)................................ 300,000 1.3 300,000
Richard Kashnow(7)................................ 112,185 * 112,185
Michael P. Kelleher(8)............................ 100,000 * 100,000
Kathleen Kusek(9)................................. 100,000 * 100,000
David Sanderson(10)............................... 95,961 * 95,961
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
--------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------ ---------- ------- --------- -------
<S> <C> <C> <C> <C>
Scott Gilbertson(11).............................. 40,000 * 40,000
Executive Officers and Directors as a Group (11
persons)(12).................................... 6,926,436 31.4 6,926,436
</TABLE>
- ---------------
* Less than one percent
(1) Represents shares issuable upon conversion of 4,518,419 shares of preferred
stock upon completion of this offering. Edward Scott, a member of our board
of directors, is a General Partner of Baker Communications Fund, L.P.
(2) Includes shares held by Meritech Capital Partners L.P. issuable upon
conversion of 2,247,858 shares of preferred stock upon completion of this
offering and shares held by Meritech Capital Affiliates L.P. issuable upon
conversion of 36,551 shares of preferred stock upon completion of this
offering.
(3) Includes shares held by Accel VII L.P. issuable upon conversion of
1,453,544 shares of preferred stock upon completion of this offering,
shares held by Accel Internet Fund III issuable upon conversion of 303,065
shares of preferred stock upon completion of this offering and shares held
by Accel Investors '99 L.P. issuable upon conversion of 173,732 shares of
preferred stock upon completion of this offering.
(4) Represents shares issuable upon conversion of 1,400,056 shares of preferred
stock upon completion of this offering.
(5) Represents shares issuable upon conversion of 538,290 shares of preferred
stock upon completion of this offering and 60,000 shares of common stock
subject to options that are exercisable or will become exercisable within
60 days of April 26, 2000.
(6) Represents 300,000 shares of common stock subject to options that are
exercisable or will become exercisable within 60 days of April 26, 2000.
(7) Includes shares issuable upon conversion of 52,185 shares of preferred
stock upon completion of this offering and 60,000 shares of common stock
subject to options that are exercisable or will become exercisable within
60 days of April 26, 2000.
(8) Represents 100,000 shares of common stock subject to options that are
exercisable or will become exercisable within 60 days of April 26, 2000.
(9) Includes 25,000 shares of common stock subject to options that are
exercisable or will become exercisable within 60 days of April 26, 2000.
(10) Represents shares issuable upon conversion of 35,961 shares of preferred
stock upon completion of this offering and 60,000 shares of common stock
subject to options that are exercisable or will become exercisable within
60 days of April 26, 2000.
(11) Represents 40,000 shares of common stock subject to options that are
exercisable or will become exercisable within 60 days of April 26, 2000.
(12) Includes the shares described in notes 5 through 11 above.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 60,000,000 shares of common stock, par value $0.001 per
share, and 20,000,000 shares of preferred stock, par value $0.001 per share. The
following description of our capital stock does not purport to be complete and
is subject to and qualified by our certificate of incorporation and bylaws,
which are included as exhibits to the Registration Statement of which this
prospectus is a part, and by the provisions of the applicable Delaware Law.
COMMON STOCK
As of April 26, 2000, assuming the conversion of all of our outstanding
preferred stock into 12,525,147 shares of common stock prior to the completion
of this offering, there were outstanding 22,041,582 shares of common stock held
of record by approximately 155 stockholders.
Voting Rights. Each holder of our common stock is entitled to one vote per
share on all matters to be voted on by the stockholders, including the election
of directors. We do not provide for cumulative voting in our certificate of
incorporation or in our bylaws.
Dividend Rights. Subject to the preferences that might be applicable to
any outstanding preferred stock, the holders of our common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the board of directors out of legally available funds.
Liquidation Rights. In the event of our liquidation, dissolution, or
winding up, the holders of our common stock are entitled to share in the assets
remaining after the payment of all of our liabilities and the satisfaction of
any liquidation preference granted to the holders of any outstanding shares of
our preferred stock.
Other Rights. Holders of our common stock have no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to our common stock. The rights, preferences and
privileges of the holders of our common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which we may designate and issue in the future.
PREFERRED STOCK
Upon the completion of this offering, our outstanding preferred stock will
convert automatically into 12,525,147 shares of our common stock, assuming that
each outstanding share of our Series A preferred stock, Series B preferred
stock, Series C preferred stock, Series D preferred stock and Series E preferred
stock will be converted into one share of our common stock.
Our board of directors has the authority, without further action by our
stockholders, to issue, from time to time, shares of our preferred stock in one
or more series. Our board of directors may fix the rights, preferences,
privileges and restrictions on any series of preferred stock, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, without further vote or action by the stockholders. The
preferences, powers, rights and restrictions of different series of preferred
stock may differ. Although the ability of our board of directors to designate
and issue preferred stock could provide flexibility in possible acquisitions or
other corporate purposes, issuance of preferred stock may have adverse effects
on the holders of our common stock such as making it more difficult for a third
party to acquire, or discouraging a third party from attempting to acquire, a
majority of the our outstanding voting stock, even if such an acquisition is
beneficial to the stockholders. The issuance of preferred stock could also
dilute the voting power of our common stock and negatively affect the other
rights of our common stock. After the completion of this offering, there will be
no shares of preferred stock outstanding, and we have no current plans to issue
any shares of preferred stock.
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<PAGE> 55
WARRANTS
We have one outstanding warrant to purchase 3,600 shares of our common
stock at an exercise price of $.01 per share. The warrant, which expires on
January 30, 2010, vests over the one-year period ending on January 31, 2001 if
certain services are provided by the holder.
REGISTRATION RIGHTS
As of April 26, 2000, the holders of 12,525,147 shares of common stock
issuable upon conversion of the Series A, B, C, D and E preferred stock have the
right to cause us to register these shares under the Securities Act so that
those shares may be publicly traded. The description below regarding the
registration rights provided in our investor rights agreement is not complete
and is qualified by our investor rights agreement that is included as an exhibit
to the registration statement of which this prospectus is a part.
Right to Request Registration. At any time six months after this offering,
the holders of 60% of the common stock issued upon conversion of Series A, B, C,
D and E preferred stock, or the holders of 50% of the common stock issued upon
conversion of Series D preferred stock, or the holders of 50% of the common
stock issued upon conversion of Series E preferred stock, may request that we
register their shares with respect to all or part of their registrable
securities having aggregate gross proceeds exceeding $10,000,000.
In addition, if at any time we are eligible to file a registration
statement on Form S-3, the holders of 30% of the common stock issuable upon
conversion of the Series A, B, C, D and E preferred stock, the holders of 30% of
the common stock issuable upon conversion of the Series D preferred stock and
the holders of 30% of the common stock issuable upon conversion of the Series E
preferred stock, each have the right to request registrations on Form S-3 if we
have not already effected a registration within the past 12 months and if the
aggregate proceeds are at least $2,500,000.
Piggyback Registration Rights. The holders of common stock issuable upon
conversion of the Series A, B, C, D and E preferred stock may request to have
their shares registered any time that we file a registration statement to
register any of our securities for our own account or for the account of others
subject to a pro rata cutback to a minimum of 20% of any offering.
Expenses of Registration. We will pay all registration expenses, other
than underwriting discounts and commissions, in connection with any requested or
piggyback registration.
Termination of Registration Rights. These registration rights terminate
for each holder of such rights upon the earlier of: (1) five years after the
completion of this offering; or (2) the date when the holder may immediately
sell all shares of common stock received upon conversion of Series A, B, C, D
and E preferred stock under Rule 144 during any 90-day period.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, AND
BYLAWS AND OF DELAWARE LAW
Classified Board of Directors; Election and Removal of Directors. Our
bylaws divide our board of directors into three classes, as nearly equal in size
as possible, serving staggered three-year terms. Our certificate of
incorporation and bylaws also provide that directors may be removed only for
cause and only by the affirmative vote of at least 80% of the total number of
the then outstanding shares of capital stock entitled to vote in the election of
directors. Our certificate of incorporation and bylaws do not provide for
cumulation of stockholder votes in the election of directors. In addition, our
certificate of incorporation provides that any vacancy on the board of directors
resulting from the removal of a director, may only be filled by vote of a
majority of the directors then in office. The classification of the board of
directors and the limitations on the removal of directors and filling vacancies
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring control of us.
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<PAGE> 56
Stockholder Action; Special Meeting of Stockholders. Our certificate of
incorporation and bylaws eliminate the ability of stockholders to act by written
consent. In addition, our bylaws provide that only our board of directors,
Chairman of the Board or either Co-President may call special meetings of our
stockholders. These provisions could have the effect of delaying actions that
are favored by some stockholders. These provisions may also discourage another
person from making a tender offer for our common stock, because that person,
even if it acquired a majority of our outstanding voting securities, would be
able to take action as a stockholder, such as electing new directors or
approving a merger, only at a duly called meeting of stockholders and not by
written consent.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder must give notice to our
Secretary not less than 90 days in advance of the annual meeting of stockholders
or, if later, within ten days after the date on which notice of the annual
meeting was made public. In addition, our bylaws specify certain requirements as
to the form and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting.
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.
Amendments; Supermajority Vote Requirements. Our bylaws require the
approval of holders of at least 80% of the outstanding shares of stock entitled
to vote in order to adopt, amend or repeal the provisions of our certificate of
incorporation relating to special meetings of stockholders, action without a
meeting, advance notice of stockholder business, advance notice of stockholder
nominees and removal of directors.
Effect of Delaware Anti-Takeover Statute. We are subject to Section 203 of
the Delaware General Corporation Law which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years following the date that
the stockholder became an interested stockholder, unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder attained such status;
- upon the closing of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by at least two-thirds of the outstanding voting stock that
is not owned by the interested stockholder.
Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
SECTION 2115 OF THE CALIFORNIA GENERAL CORPORATION LAW
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, some provisions of California corporate law will
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<PAGE> 57
apply to that company if more than 50% of its outstanding voting securities are
held of record by persons having addresses in California and the majority of the
company's operations occur in California. For example, while we are subject to
Section 2115, stockholders may cumulate votes in electing directors. Cumulative
voting allows each stockholder to vote the number of votes equal to the number
of candidates multiplied by the number of votes to which the stockholder's
shares are normally entitled in favor of one candidate and could potentially
facilitate minority stockholders electing some members of the board of
directors. When we are no longer subject to Section 2115, cumulative voting will
not be allowed and a holder of 50% or more of our voting stock will be able to
control the election of all directors. In addition to this difference, Section
2115 has the following additional effects:
- enables removal of directors with or without cause with majority
stockholder approval;
- places limitations on the distribution of dividends;
- extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of shares;
and
- provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2001 annual meeting
of stockholders. If these two conditions occur, then we will no longer be
subject to Section 2115 as of the record date for our 2001 annual meeting of
stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
Its telephone number is( ) - .
LISTING
We will apply to list our common stock on the Nasdaq National Market under
the trading symbol "FTPT."
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<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock, including shares
issued upon exercise of outstanding options and warrants, in the public market
after this offering could adversely affect the prevailing market price of our
common stock.
Upon completion of this offering, we will have shares of common
stock outstanding, based on shares outstanding at . Of these shares,
the shares sold in this offering will be freely tradable without
restriction under the Securities Act, unless purchased by our "affiliates," as
that term is defined in Rule 144 under the Securities Act. Substantially all
shares of our stock outstanding prior to this offering are subject to 180-day
lock-up agreements, and may not be sold in the public market prior to the
expiration of the lock-up agreements. Credit Suisse First Boston may release the
shares subject to the lock-up agreements in whole or in part at any time without
prior public notice. However, Credit Suisse First Boston has no current plans to
effect such a release. Upon the expiration of the lock-up agreements,
approximately additional shares will be available for sale in the
public market, subject in some cases to compliance with the volume and other
limitations of Rule 144.
RULE 144
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell within any three-month period commencing 90 days after the date of this
prospectus a number of shares that does not exceed the greater of:
- 1% of the then outstanding shares of our common stock (approximately
shares immediately after this offering); or
- the average weekly trading volume during the four calendar weeks
preceding such sale, subject to the filing of a Form 144 with respect to
the sale.
A person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
who has beneficially owned his or her shares for at least two years is entitled
to sell these shares pursuant to Rule 144(k) without regard to the limitations
described above. Affiliates must always sell pursuant to Rule 144, even after
the applicable holding periods have been satisfied.
We cannot estimate the number of shares that will be sold under Rule 144,
as this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future sale of substantial amounts of our
common stock in the open market may adversely affect the market price of our
common stock.
LOCK-UP AGREEMENTS
We and our directors, executive officers and substantially all of our
stockholders and holders of options have agreed pursuant to the underwriting
agreement and other agreements not to sell any of our common stock without the
prior consent of Credit Suisse First Boston until 180 days from the date of this
prospectus, except that we may, without such consent, grant options and sell
shares pursuant to our 1996 Stock Option/Stock Issuance Plan.
STOCK OPTIONS
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of our common stock that are subject to outstanding
options or reserved for issuance under our 1996 Stock Option/Stock Issuance Plan
within 180 days after the date of this prospectus, thus permitting the resale of
these shares by nonaffiliates in the public market without restriction under the
Securities Act.
54
<PAGE> 59
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell those shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with some of the restrictions,
including the holding period, contained in Rule 144, upon the expiration of the
180-day lock-up period.
REGISTRATION RIGHTS
After this offering, the holders of 12,525,147 shares of our common stock
will be entitled to certain rights with respect to registration of such 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 (except for shares purchased by our affiliates). See
"Description of Capital Stock -- Registration Rights."
55
<PAGE> 60
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Deutsche Bank Securities Inc. and W.R. Hambrecht + Co., LLC are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Deutsche Bank Securities Inc................................
W.R. Hambrecht + Co., LLC...................................
--------
Total..................................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all shares of common stock in the offering if any are purchased, other
than those shares covered by the over-allotment option described below. The
underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover of this prospectus and to selling group
members at that price less a concession of $ per share. The underwriters and
selling group members may allow a discount of $ per share on sales to other
broker/dealers. After the initial public offering, the public offering price and
concession and discount to broker/dealers may be changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us............. $ $ $ $
Expenses payable by us............... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to any shares of our common stock or securities convertible into or exchangeable
or exercisable for any shares of our common stock, or publicly disclose the
intention to make any such offer, sale, pledge, disposition or filing, without
the prior written consent of Credit Suisse First Boston Corporation for a period
of 180 days after the date of this prospectus, except issuances pursuant to the
exercise of employee stock options outstanding on the date hereof and issuances
of additional options under our 1996 Stock Option/Stock Issuance Plan.
Our executive officers, directors and existing holders of our securities
have agreed that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of our
common stock, enter into a transaction which would have the same effect, or
enter into any swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our common stock, whether
any such aforementioned transaction is to be settled by delivery of our common
56
<PAGE> 61
stock or such other securities, in cash or otherwise, or publicly disclose the
intention to make any such offer, sale, pledge or disposition, or to enter into
any such transaction, swap, hedge or other arrangement, without, in each case,
the prior written consent of Credit Suisse First Boston Corporation for a period
of 180 days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We will apply to list the shares of common stock on The Nasdaq Stock
Market's National Market.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalization and stage of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and
- estimates of our business potential.
We offer no assurances that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market following the offering or that an active trading market for the common
stock will develop and continue after the offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
A prospectus in electronic format will be made available on the Websites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations.
57
<PAGE> 62
WR Hambrecht + Co is an online investment bank that has received an allocation
of shares of common stock in its capacity as an underwriter.
WR Hambrecht + Co is an investment banking firm formed as a limited
liability company in February 1998. In addition to this offering, WR
Hambrecht + Co has engaged in the business of public and private equity
investing and financial advisory services since its inception. The chairman and
chief executive officer of WR Hambrecht + Co, William R. Hambrecht, has 40 years
of experience in the securities industry.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, such purchaser is purchasing as principal and not as agent and
(iii) such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer, and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
58
<PAGE> 63
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Gibson, Dunn & Crutcher LLP, San Francisco, California. A limited liability
company composed of current and former partners of Gibson, Dunn & Crutcher LLP
who elected to invest in the limited liability company purchased and holds
11,422 shares of our Series E preferred stock that will convert into 11,422
shares of our common stock on the consummation of this offering. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Morrison & Foerster LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedule filed as part of the
registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedule filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been filed as an
exhibit to the registration statement, we refer you to the copy of the contract
or document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. The registration statement, including exhibits and schedule, may
be inspected without charge at the principal office of the Securities and
Exchange Commission in Washington, D.C., and copies of all or any part of it may
be obtained from that office after payment of fees prescribed by the Securities
and Exchange Commission. The Securities and Exchange Commission maintains a
Website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission at http://www.sec.gov.
Upon completion of this offering, Fort Point Partners will become subject
to the information and periodic reporting requirements of the Securities
Exchange Act and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. These periodic reports, proxy
statements and other information will be available for inspection and copying at
the SEC's public reference rooms and the Website of the SEC referred to above.
We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and to
make available to our stockholders quarterly reports containing unaudited
consolidated interim financial data for the first three quarters of each year.
59
<PAGE> 64
FORT POINT PARTNERS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1998 and 1999
and at March 31, 2000 (unaudited)......................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 and 2000 (unaudited)................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1998 and 1999 and for the
three months ended March 31, 1999 and 2000 (unaudited).... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 and 2000 (unaudited)................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Fort Point Partners Inc.
We have audited the accompanying consolidated balance sheets of Fort Point
Partners Inc. as of December 31, 1998 and 1999 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Fort Point
Partners Inc. at December 31, 1998 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
San Francisco, California
March 3, 2000
except for Note 12,
as to which the date is
April 25, 2000, and
except for Note 13,
as to which the date is
May , 2000
The foregoing report is the form that will be signed upon the completion of
the reincorporation described in Note 13 to the financial statements.
/s/ ERNST & YOUNG LLP
San Francisco, California
April 25, 2000
F-2
<PAGE> 66
FORT POINT PARTNERS INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, MARCH 31, EQUITY AT
----------------- --------- MARCH 31,
1998 1999 2000 2000
------ ------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 506 $ 7,643 $ 5,709
Accounts receivable, net of allowance of $8, $129 and $94
at December 31, 1998 and 1999 and March 31, 2000,
respectively............................................ 798 1,146 2,269
Unbilled receivables...................................... 66 395 160
Prepaid expenses.......................................... 155 198 391
Other current assets...................................... 19 10 3
------ ------- --------
Total current assets.................................... 1,544 9,392 8,532
Property and equipment, net................................. 149 2,737 3,820
Restricted cash............................................. -- 1,383 1,397
Other assets................................................ 47 644 622
------ ------- --------
Total assets............................................ $1,740 $14,156 $ 14,371
====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 43 $ 463 $ 1,325
Accrued expenses.......................................... 227 941 4,203
Accrued compensation...................................... 13 625 864
Revolving line of credit.................................. 500 -- --
Current portion of obligations under capital leases....... 23 233 258
Deferred revenue.......................................... 212 1,295 2,691
------ ------- --------
Total current liabilities............................... 1,018 3,557 9,341
Obligations under capital leases, net of current portion.... 36 371 372
------ ------- --------
1,054 3,928 9,713
Stockholders' equity:
Convertible preferred stock, $.001 par value;
authorized -- 20,000,000 shares at December 31,1999,
March 31, 2000 and pro forma; issued and
outstanding -- 2,587,236 at December 31, 1998 and
9,098,736 at December 31, 1999 and March 31, 2000 (none
pro forma); aggregate liquidation preference of $1,439,
$16,320, and $16,606 at December 31, 1998, 1999 and
March 31, 2000, respectively............................ 1,418 15,698 15,698
Common stock, $.001 par value; authorized -- 60,000,000
shares at December 31, 1999, March 31, 2000 and pro
forma; issued and outstanding -- 4,164,000, 5,119,362
and 9,429,650 (18,528,386 pro forma) at December 31,
1998, 1999 and March 31, 2000, respectively............. 4 5 9 $ 19
Additional paid in capital.................................. 131 4,151 21,932 37,620
Deferred stock-based compensation........................... (65) (3,172) (16,876) (16,876)
Receivables from stockholders............................... (238) -- (321) (321)
Accumulated deficit......................................... (564) (6,454) (15,784) (15,784)
------ ------- -------- --------
Total stockholders' equity.............................. 686 10,228 4,658 $ 4,658
------ ------- -------- ========
Total liabilities and stockholders' equity.............. $1,740 $14,156 $ 14,371
====== ======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 67
FORT POINT PARTNERS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ ------------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue............................. $ 2,045 $ 2,489 $ 8,325 $ 1,224 $ 5,003
Operating expenses:
Professional services............. 620 1,037 4,875 584 2,527
Sales and marketing............... 62 425 2,451 214 4,041
General and administrative........ 1,021 1,768 6,150 500 4,386
Amortization of deferred
stock-based compensation....... 1 67 882 51 3,453
---------- ---------- ---------- ---------- -----------
Total operating expenses....... 1,704 3,297 14,358 1,349 14,407
---------- ---------- ---------- ---------- -----------
Operating income (loss)............. 341 (808) (6,033) (125) (9,404)
Other income (expense):
Interest income................... 8 13 228 3 89
Interest expense.................. -- (14) (84) (6) (14)
---------- ---------- ---------- ---------- -----------
Net income (loss) before income
taxes............................. 349 (809) (5,889) (128) (9,329)
Income tax expense (benefit)........ 139 (83) 1 -- 1
---------- ---------- ---------- ---------- -----------
Net income (loss)................... $ 210 $ (726) $ (5,890) $ (128) $ (9,330)
========== ========== ========== ========== ===========
Net income (loss) per common share:
Basic............................. $ 0.05 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== ========== ========== ===========
Diluted........................... $ 0.04 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== ========== ========== ===========
Weighted average shares used in
computing net income (loss) per
common share:
Basic............................. 4,160,000 4,162,181 4,693,086 4,642,790 4,905,134
========== ========== ========== ========== ===========
Diluted........................... 5,461,682 4,162,181 4,693,086 4,642,790 4,905,134
========== ========== ========== ========== ===========
Pro forma basic and diluted net loss
per common share.................. $ (0.67)
===========
Weighted average shares used in
computing pro forma net loss per
common share...................... 14,003,870
===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 68
FORT POINT PARTNERS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED RECEIVABLES
------------------- ------------------ PAID IN STOCK-BASED FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS
--------- ------- --------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997....... -- -- 4,160,000 $4 $ (2) $ -- $ --
Issuance of Series A preferred
stock, net of issuance costs
of $14....................... 1,300,000 $ 311 -- -- -- -- --
Issuance of Series B preferred
stock, net of issuance costs
of $2........................ 500,000 248 -- -- -- -- --
Deferred stock-based
compensation................. -- -- -- -- 3 (3) --
Amortization of deferred stock-
based compensation........... -- -- -- -- -- 1 --
Net income..................... -- -- -- -- -- -- --
--------- ------- --------- -- ------- -------- -----
Balance at December 31, 1997..... 1,800,000 559 4,160,000 4 1 (2) --
Issuance of Series C preferred
stock, net of issuance costs
of $5........................ 787,236 859 -- -- -- -- (238)
Issuance of common stock upon
exercise of stock options.... -- -- 4,000 -- -- -- --
Deferred stock-based
compensation................. -- -- -- -- 130 (130) --
Amortization of deferred stock-
based compensation........... -- -- -- -- -- 67 --
Net loss....................... -- -- -- -- -- -- --
--------- ------- --------- -- ------- -------- -----
Balance at December 31, 1998..... 2,587,236 1,418 4,164,000 4 131 (65) (238)
Payment of receivables from
stockholders................. -- -- -- -- -- -- 238
Issuance of Series D preferred
stock, net of issuance costs
of $62....................... 6,511,500 14,280 -- -- -- -- --
Issuance of common stock upon
exercise of stock options.... -- -- 955,362 1 31 -- --
Deferred stock-based
compensation................. -- -- -- -- 3,989 (3,989) --
Amortization of deferred stock-
based compensation........... -- -- -- -- -- 882 --
Net loss....................... -- -- -- -- -- -- --
--------- ------- --------- -- ------- -------- -----
Balance at December 31, 1999..... 9,098,736 15,698 5,119,362 5 4,151 (3,172) --
Issuance of common stock upon
exercise of stock options
(unaudited).................. -- -- 4,310,288 4 624 -- (321)
Deferred stock-based
compensation (unaudited)..... -- -- -- -- 17,157 (17,157) --
Amortization of deferred
stock-based compensation
(unaudited).................. -- -- -- -- -- 3,453 --
Net loss (unaudited)........... -- -- -- -- -- -- --
--------- ------- --------- -- ------- -------- -----
Balance at March 31, 2000
(unaudited).................... 9,098,736 $15,698 9,429,650 $9 $21,932 $(16,876) $(321)
========= ======= ========= == ======= ======== =====
<CAPTION>
TOTAL
STOCKHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
----------- -------------
<S> <C> <C>
Balance at January 1, 1997....... $ (48) $ (46)
Issuance of Series A preferred
stock, net of issuance costs
of $14....................... -- 311
Issuance of Series B preferred
stock, net of issuance costs
of $2........................ -- 248
Deferred stock-based
compensation................. -- --
Amortization of deferred stock-
based compensation........... -- 1
Net income..................... 210 210
-------- -------
Balance at December 31, 1997..... 162 724
Issuance of Series C preferred
stock, net of issuance costs
of $5........................ -- 621
Issuance of common stock upon
exercise of stock options.... -- --
Deferred stock-based
compensation................. -- --
Amortization of deferred stock-
based compensation........... -- 67
Net loss....................... (726) (726)
-------- -------
Balance at December 31, 1998..... (564) 686
Payment of receivables from
stockholders................. -- 238
Issuance of Series D preferred
stock, net of issuance costs
of $62....................... -- 14,280
Issuance of common stock upon
exercise of stock options.... -- 32
Deferred stock-based
compensation................. -- --
Amortization of deferred stock-
based compensation........... -- 882
Net loss....................... (5,890) (5,890)
-------- -------
Balance at December 31, 1999..... (6,454) 10,228
Issuance of common stock upon
exercise of stock options
(unaudited).................. -- 307
Deferred stock-based
compensation (unaudited)..... -- --
Amortization of deferred
stock-based compensation
(unaudited).................. -- 3,453
Net loss (unaudited)........... (9,330) (9,330)
-------- -------
Balance at March 31, 2000
(unaudited).................... $(15,784) $ 4,658
======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 69
FORT POINT PARTNERS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1997 1998 1999 1999 2000
----- ----- ------- ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 210 $(726) $(5,890) $(128) $(9,330)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 54 79 263 29 231
Amortization of deferred stock-based compensation.... 1 67 882 51 3,453
Deferred income taxes................................ 35 (3) -- -- --
Changes in operating assets and liabilities:
Accounts receivable.................................. (410) (372) (348) (125) (1,123)
Unbilled receivables................................. (196) 130 (329) 21 235
Prepaid expenses and other current assets............ (15) (158) (34) 21 (186)
Other assets......................................... (35) (12) (597) 12 22
Accounts payable..................................... (25) (9) 420 228 862
Accrued expenses and accrued compensation............ 87 88 1,326 96 3,501
Deferred revenue..................................... 96 116 1,083 (132) 1,396
----- ----- ------- ----- -------
Net cash provided by (used in) operating activities.... (198) (800) (3,224) 73 (939)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..................... (140) (52) (2,242) (61) (1,216)
----- ----- ------- ----- -------
Cash used in investing activities...................... (140) (52) (2,242) (61) (1,216)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit................. -- 500 995 -- --
Principal payments on revolving line of credit......... -- -- (1,495) (500) --
Restricted cash........................................ -- -- (1,383) -- (14)
Principal payments on capital lease obligations........ (1) (13) (64) (6) (72)
Proceeds from issuance of convertible preferred
stock................................................ 559 621 14,280 -- --
Proceeds from exercises of common stock options........ -- -- 32 3 307
Payment of receivables from stockholders............... -- -- 238 191 --
----- ----- ------- ----- -------
Net cash provided by (used in) financing activities.... 558 1,108 12,603 (312) 221
Net increase (decrease) in cash and cash equivalents... 220 256 7,137 (300) (1,934)
Cash and cash equivalents at beginning of period....... 30 250 506 506 7,643
----- ----- ------- ----- -------
Cash and cash equivalents at end of period............. $ 250 $ 506 $ 7,643 $ 206 $ 5,709
===== ===== ======= ===== =======
Supplemental disclosures of cash flows information:
Cash paid for interest............................... $ -- $ 13 $ 84 $ -- $ 13
===== ===== ======= ===== =======
Cash paid for income taxes........................... $ 80 $ 9 $ 11 $ 80 $ 9
===== ===== ======= ===== =======
Non-cash investing and financing activities:
Acquisition of equipment under capital lease
obligations....................................... $ 8 $ 65 $ 609 $ 16 $ 97
===== ===== ======= ===== =======
Stock issued for receivables from stockholders....... $ -- $ 238 $ -- $ -- $ 321
===== ===== ======= ===== =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 70
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
1. ORGANIZATION AND BUSINESS
Fort Point Partners Inc. ("Fort Point" or the "Company"), was originally
incorporated as Powerhouse Data Corp. on October 30, 1996. The Company changed
its name to Fort Point Partners Inc. on December 2, 1996. The Company is an
Internet consulting firm that provides strategy, technology and program
management services.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND USE OF ESTIMATES
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany transactions and
balances have been eliminated in consolidation.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States that require
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. These estimates are based on
information available as of the date of the financial statements. Actual results
could differ from those estimates.
On November 22, 1999 the Company effected a four-for-one split of its
outstanding shares of common stock. All share and per share information included
in the consolidated financial statements prior to that date have been
retroactively adjusted to reflect this stock split.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying financial statements at March 31, 2000 and for the three
months ended March 31, 1999 and 2000 are unaudited but include all adjustments
(consisting of normal recurring accruals) which, in the opinion of management,
are necessary for a fair statement of the financial position and the operating
results and cash flows for the interim date and periods presented. Results for
the interim period ended March 31, 2000 are not necessarily indicative of
results for the entire fiscal year or future periods.
CONCENTRATION OF CREDIT RISK
The Company extends credit to customers based on an evaluation of their
financial condition. The Company performs ongoing credit evaluations of its
customers and maintains an allowance for doubtful accounts. There has been no
revenue derived from customers outside the United States. At December 31, 1998
and 1999, three customers accounted for 61% and 47% of total accounts
receivable, respectively. In the years ended December 31, 1997, 1998 and 1999,
four customers, two customers and two customers accounted for 63%, 38% and 22%,
respectively, of the Company's revenues.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and investments in a money market
fund. The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of a deposit on a lease for office space.
F-7
<PAGE> 71
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, accounts
receivable and accounts payable approximate fair value due to the short-term
maturity of these instruments. Fair values are based on quoted market prices and
assumptions concerning the amount and timing of estimated future cash flows and
assumed discount rates reflecting varying degrees of perceived risk. Based upon
borrowing rates currently available to the Company for obligations with similar
terms, the carrying values of debt and capital lease obligations approximate
fair value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization are calculated using the
straight-line method over the estimated useful lives of the related assets
ranging from two to five years. Leasehold improvements and equipment under
capital leases are amortized over the lease term or estimated useful lives,
whichever is shorter. Repairs and maintenance costs are charged to expense when
incurred.
The Company has adopted Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use."
Capitalized internal use software costs with an expected useful life in excess
of one year are amortized on a straight-line basis over their estimated useful
lives. Internal use software costs, which are subject to continual and
substantial change, including Website development costs, are expensed as
incurred. Costs to maintain and add minor feature upgrades to the Company's
internally-developed software and Website are expensed as incurred.
REVENUE RECOGNITION
Revenue is recognized using the percentage-of-completion method of
accounting for fixed-price projects. Revenue for each project is recognized
based on the percentage of total billable hours incurred to date times standard
hourly billing rates divided by the total estimated contractual revenue to be
earned on a project. This method approximates a cost incurred to date to total
estimated project cost method. Revenue from time and materials contracts is
recognized as billable hours are incurred at agreed-upon hourly billing rates.
Deposits received in advance of performing services are recorded as
deferred revenue. Amounts billed in excess of recognized revenue are also
recorded as deferred revenue. Revenues recognized in excess of amounts billed
are recorded as unbilled receivables.
Provisions for losses on uncompleted contracts are recorded when it is
probable that costs to complete a project will exceed total project revenue and
the amount of the loss can be reasonably estimated.
ADVERTISING EXPENSES
The Company expenses the cost of advertising and promoting its services as
incurred. Advertising costs, which are included in sales and marketing, were
approximately $10, $2 and $100 for the years ended December 31, 1997, 1998 and
1999, respectively.
F-8
<PAGE> 72
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
SEGMENT REPORTING
The Company operates in one reportable segment under SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." The
Company conducts business in one operating segment, which has been determined by
the Company's management based upon how the business is managed and the results
of operations are reported.
NET INCOME (LOSS) PER SHARE
The Company computes basic and diluted 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 is computed by dividing net income (loss)
available to common stockholders for the period by the weighted average number
of common shares outstanding during the period. Diluted net income per share is
computed by dividing net income available to common stockholders for the period
by the weighted average number of common and common equivalent shares
outstanding during the period. For those periods in which the Company has
incurred a net loss, diluted net loss per share is equivalent to basic net loss
per share since the assumed exercise of the Company's stock options and the
assumed conversion of the Company's preferred stock would be anti-dilutive and,
accordingly, have been excluded from the calculation.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert to common shares upon completion of the Company's initial public
offering, using the if-converted method.
COMPREHENSIVE INCOME (LOSS)
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires that an enterprise report and display, by major components and as
a single total, the change in its net assets during the period from non-owner
sources. For the three years ending December 31, 1999 and the three months
ending March 31, 1999 and 2000, there was no difference between the Company's
comprehensive income (loss) and its net income (loss).
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but
does not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Under APB No. 25, compensation expense
is based on the difference, if any, on the
F-9
<PAGE> 73
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION (CONTINUED)
date of grant between the fair value of the Company's common stock and the
exercise price of the options to purchase that stock. The Company complies with
the disclosure provisions of SFAS No. 123.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and if so, the type of
hedge transaction. The Company must adopt SFAS No. 133 on January 1, 2001.
Management does not currently expect the adoption of SFAS No. 133 will have any
impact on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff issued SAB
No. 101, "Revenue Recognition in Financial Statements." The SAB identifies four
basic criteria that must be met before revenue can be recognized. These criteria
are (a) persuasive evidence that an arrangement exists; (b) delivery has
occurred or services have been rendered; (c) the seller's price to the buyer is
fixed or determinable; and (d) collectibility is reasonably assured. The Company
has early adopted the SAB and its revenue recognition policies are in accordance
with its provisions.
In March 2000, the Emerging Issues Task Force issued EITF Abstract No.
00-2, "Accounting for Web Site Development Costs," which addresses the
accounting for costs incurred to develop a Website. The Abstract is effective
for fiscal quarters beginning after June 30, 2000. The Company does not expect
adoption of the Abstract to have a significant impact on its results of
operations or financial position.
3. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Details of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
----- ------
<S> <C> <C>
Computer hardware........................................... $ 191 $ 956
Leasehold improvements...................................... 37 1,278
Furniture and equipment..................................... 49 424
Computer software........................................... 6 233
Construction in progress.................................... -- 243
----- ------
283 3,134
Less accumulated depreciation and amortization.............. (134) (397)
----- ------
$ 149 $2,737
===== ======
</TABLE>
Included in the above is equipment acquired under capital lease obligations
of $73 and $683 at December 31, 1998 and 1999, respectively. Accumulated
amortization on equipment acquired under capital lease obligations was $14 and
$21 as of December 31, 1998 and 1999, respectively.
F-10
<PAGE> 74
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
4. ACCRUED EXPENSES
Details of accrued expenses that, on an individual basis, exceed five
percent of total current liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Professional fees........................................... $144 $445
Accrual for loss contracts.................................. 70 --
Other....................................................... 13 496
---- ----
$227 $941
==== ====
</TABLE>
5. DEBT
On May 11, 1998, the Company entered into a Loan and Security Agreement
(the "Agreement") with a financial institution, which allows the Company to
borrow the lesser of the amount committed under a revolving line of credit or a
borrowing base (80% of eligible accounts as defined by the Agreement). The
committed amount available to the Company under the Agreement was $1,000. The
Agreement expired on May 10, 1999. A loan modification was entered into on May
10, 1999, which included an increase in the amount available to the Company
under the revolving line of credit to $1,250 with a sub-limit for letters of
credit of $300. The maturity date of the amended Agreement is May 10, 2000. At
December 31, 1999, a letter of credit of $1,660 was outstanding related to a
lease for office space. The letter of credit was supported by restricted cash
and the $300 sub-limit under the revolving line of credit. Interest is payable
monthly at the prime rate plus 0.5% (8.75% and 9.50% at December 31, 1998 and
1999, respectively). Borrowings under the revolving line of credit are
collateralized by substantially all of the assets of the Company. Additionally,
the Agreement contains certain covenants, limitations and restrictions. Under
the terms of the Agreement, the Company is prohibited from paying dividends to
shareholders.
6. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company is authorized under its articles of incorporation to issue
20,000,000 shares of convertible preferred stock as of December 31, 1999 and
March 31, 2000. The convertible preferred shares outstanding and related
liquidation preference by series of preferred stock are summarized in the
following table:
<TABLE>
<CAPTION>
AGGREGATE LIQUIDATION PREFERENCE
--------------------------------
SHARES ISSUED AND DIVIDEND RATE DECEMBER 31, MARCH 31,
SERIES OUTSTANDING PER SHARE 1999 2000
- ------ ----------------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
A 1,300,000 $0.0200 $ 325 $ 325
B 500,000 0.0400 250 250
C 787,236 0.0875 864 864
D 6,511,500 0.1750 14,881 15,167
--------- ------- -------
9,098,736 $16,320 $16,606
========= ======= =======
</TABLE>
F-11
<PAGE> 75
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
6. STOCKHOLDERS' EQUITY (CONTINUED)
CONVERSION
Each share of convertible preferred stock is convertible into one share of
common stock subject to certain anti-dilution adjustments. All issued and
outstanding shares of convertible preferred stock automatically convert into
common stock upon approval by a majority of the then outstanding preferred
stockholders voting as a class and a majority of then outstanding Series D
preferred stockholders. Outstanding convertible preferred shares also
automatically convert into common shares in the event of an initial public
offering with a per share price of not less than $6.61 and aggregate proceeds of
at least $10 million.
LIQUIDATION PREFERENCE
In the event of liquidation, Series A, B, C and D preferred stockholders
are entitled to receive their original investment. Series D preferred
stockholders are entitled to an additional 8% per annum on their original
investment.
DIVIDENDS
Series A, B, C and D preferred stockholders are entitled to receive
non-cumulative dividends at the rates indicated above when and if declared by
the board of directors.
The Series D preferred stock is senior, with respect to dividend
distributions and distributions upon a liquidation, to the common stock and
other series of convertible preferred stock.
VOTING RIGHTS
Holders of Series A, B, C and D convertible preferred stock have the right
to one vote for each share of common stock into which such shares of convertible
preferred stock can be converted.
7. STOCK OPTIONS
In December 1996, the Company adopted the 1996 Stock Option/Stock Issuance
Plan (the "Plan") that authorizes the board of directors to grant incentive
stock options, as defined by the Internal Revenue Code and nonstatutory stock
options. Incentive stock options may be granted only to Company employees.
Nonstatutory stock options may be granted to employees, directors, outside
directors and consultants. Upon the exercise of nonstatutory stock options, the
Company is required to include the difference between the estimated fair value
and the exercise price of the common stock on the date of exercise in the
employee's compensation and to withhold income and payroll taxes on that
compensation. The exercise of incentive stock options does not give rise to
compensation to the employee or obligate the Company to withhold taxes. To the
extent the fair value of stock issuable upon the exercise of incentive stock
options exceeds $100,000 in any single year, the excess over $100,000 is
generally treated as nonstatutory stock options. The maximum number of shares of
common stock, which may be issued over the term of the Plan, as amended by the
board of directors, cannot exceed 6,524,000 and 9,024,000 shares as of December
31, 1999 and March 31, 2000, respectively.
The options generally vest over a four year period from the date of grant;
25% vest after one year from the date of grant, with the remaining options
vesting on a pro rata basis over the next 36 months. Options generally expire
ten years from the date of grant; however, in the case of a stock option granted
to
F-12
<PAGE> 76
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
7. STOCK OPTIONS (CONTINUED)
a person owning more than 10% of the combined voting power of all classes of the
Company's stock, the term of the option will be five years from the date of the
grant. All canceled or expired options become available for future grants. Plan
participants may exercise options prior to vesting. Shares issued from the
exercise of unvested options are subject to repurchase by the Company at the
original exercise price. The repurchase right expires on the same basis as the
vesting of the original stock option.
In accordance with the Plan, the stated exercise price of options granted
cannot be less than 100% and 85% of the estimated fair value of the common stock
on the date of grant for incentive stock options and nonstatutory options,
respectively. The exercise price of a stock option granted to a more than 10%
percent shareholder cannot be less than 110% of the estimated fair value of the
common stock on the date of grant. The estimated fair value of the common stock
is determined in good faith by the board of directors at each grant date and may
be subject to review by tax authorities. Differences, if any, between the
estimated fair value as determined by the board of directors and tax authorities
may subject the Company to liability for tax withholding with respect to the
exercise of nonstatutory options and options that are intended to be, but do not
qualify as, incentive stock options, as well as interest and penalties relating
to those taxes.
As discussed in Note 2, the Company accounts for the Plan in accordance
with APB No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. In connection with certain stock grants, the Company recognized
deferred compensation that is being amortized over the vesting period of the
options using the graded method. The company recorded deferred compensation
expense of $3, $130, and $3,989 in each of the years in the three year period
ending December 31, 1999. Amortization of deferred stock-based compensation
expense in each of the years ending December 31, 1997, 1998 and 1999,
respectively, was $1, $67 and $882 for options granted to employees where the
estimated fair value of the stock for accounting purposes exceeded the exercise
price of the option at the grant date.
The following table summarizes activity under the Plan:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------------- ---------------------------- -----------------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE
--------- ---------------- --------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year....... 766,400 $0.00025 1,121,200 $0.00039 2,418,532 $0.03476
Granted................... 354,800 $0.00070 1,544,000 0.05373 3,680,200 0.15078
Canceled.................. -- -- (242,668) 0.00275 (1,002,548) 0.10368
Exercised................. -- -- (4,000) 0.00025 (1,100,867) 0.03155
--------- -------- --------- -------- ---------- --------
Options outstanding at end
of period............... 1,121,200 $0.00039 2,418,532 $0.03476 3,995,317 $0.12465
========= ======== ========= ======== ========== ========
Options vested at end of
period.................. 163,156 $0.00025 545,160 $0.00036 1,421,899 $0.02639
========= ======== ========= ======== ========== ========
<CAPTION>
MARCH 31, 2000
-----------------------------
NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Options outstanding at
beginning of year....... 3,995,317 $0.12465
Granted................... 1,786,000 0.22000
Canceled.................. (74,785) 0.20547
Exercised................. (4,310,288) 0.14494
---------- --------
Options outstanding at end
of period............... 1,396,244 $0.17965
========== ========
Options vested at end of
period.................. 451,912 $0.06188
========== ========
</TABLE>
F-13
<PAGE> 77
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
7. STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding
under the Plan, as of December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE VESTED PRICE
-------------- ----------- ----------- -------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.00025 - $0.0025 133,834 7.02 $0.00025 133,834 $0.00025 709,346 $0.00033
$0.005 - $0.11 2,620,483 8.91 $0.08585 2,620,483 $0.08585 712,553 0.05233
$0.22 1,241,000 9.80 $ 0.22 1,241,000 $ 0.22 -- --
--------- --------- ---------
3,995,317 3,995,317 1,421,899
========= ========= =========
</TABLE>
As of December 31, 1997, 1998 and 1999, 318,800, 1,017,468 and 1,569,321
shares, respectively, were available for future stock option grants under the
Plan. As of March 31, 2000, there were 2,358,106 shares available for future
grant. During the year ended December 31, 1999, 145,505 exercised unvested
shares were repurchased from Plan participants and are included in the shares
available for future stock option grants.
The weighted-average fair value of Plan options granted was $0.008, $0.129
and $1.219 for the years ended December 31, 1997, 1998 and 1999, respectively.
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Risk-free interest rate range....................... 5.8% - 6.5% 4.5% - 5.6% 4.6% - 6.1%
Expected lives (years).............................. 4 4 4
Expected dividend yields............................ 0% 0% 0%
Expected volatility................................. 80% 80% 80%
</TABLE>
Had compensation cost for the Company's stock options been determined using
the fair value at the grant dates for awards under the Plan, the Company's net
income (loss) and net income (loss) per share would have been as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----- ------ -------
<S> <C> <C> <C>
Net income (loss) -- as reported............................ $ 210 $ (726) $(5,890)
===== ====== =======
Net income (loss) -- pro forma.............................. $ 210 $ (763) $(6,311)
===== ====== =======
Basic net income (loss) per common share -- as reported..... $0.05 $(0.17) $ (1.26)
===== ====== =======
Basic net income (loss) per common share -- pro forma....... $0.05 $(0.18) $ (1.34)
===== ====== =======
Diluted net income (loss) per common share -- as reported... $0.04 $(0.17) $ (1.26)
===== ====== =======
Diluted net income (loss) per common share -- pro forma..... $0.04 $(0.18) $ (1.34)
===== ====== =======
</TABLE>
F-14
<PAGE> 78
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
8. INCOME TAXES
The Company's income tax provisions (benefit) for the years ended December
31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998 1999
---- ----- -------
<S> <C> <C> <C>
Current:
Federal................................................... $ 81 $ (81) $ --
State..................................................... 23 1 1
---- ----- -------
104 (80) 1
Deferred:
Federal................................................... 25 (141) (1,617)
State..................................................... 10 (64) (211)
---- ----- -------
35 (205) (1,828)
---- ----- -------
139 (285) (1,827)
Change in valuation allowance............................... -- 202 1,828
---- ----- -------
$139 $ (83) $ 1
==== ===== =======
</TABLE>
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense for the
years ended December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998 1999
---- ----- -----
<S> <C> <C> <C>
Tax at U.S. statutory rate........................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit........... 6.2 5.0 2.2
Change in valuation allowance........................ -- (24.3) (29.2)
Meals and entertainment.............................. 0.7 (0.7) (0.2)
Non-deductible stock-based compensation.............. -- (3.6) (6.8)
Other................................................ (1.1) (0.4) --
---- ----- -----
39.8% 10.0% --%
==== ===== =====
</TABLE>
Deferred tax assets and liabilities are determined based on differences
between financial reporting and the tax basis of assets and liabilities and are
measured using the effective tax rates and regulations that
F-15
<PAGE> 79
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
8. INCOME TAXES (CONTINUED)
will be in effect when the differences are expected to reverse. Significant
components of the Company's deferred tax assets and liabilities as of December
31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
----- -------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves................................... $ 88 $ 328
Net operating loss carryforward......................... 37 2,011
Fixed assets and intangibles............................ 23 --
Other................................................... 75 11
----- -------
Total deferred tax assets....................... 223 2,350
Valuation allowance....................................... (202) (2,030)
----- -------
Net deferred tax assets................................... 21 320
Deferred tax liabilities:
Fixed assets and intangibles............................ -- (29)
Other................................................... (21) (291)
----- -------
Total deferred tax liabilities.................. (21) (320)
----- -------
Net deferred tax assets................................... $ -- $ --
===== =======
</TABLE>
The valuation allowance increased by $202 and $1,828 in the years ended
December 31, 1998 and 1999, respectively.
As of December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $5,180, which expire beginning
in the tax year 2018. The Company also has net operating loss carryforwards for
state income tax purposes of approximately $2,830, which expire beginning in tax
year 2004.
Because of the "change in ownership" provisions of the Internal Revenue
Code, a portion of the Company's net operating loss carryforwards may be subject
to an annual limitation regarding their utilization against taxable income in
future periods. As a result of the annual limitation, a portion of these
carryforwards may expire before ultimately becoming available to reduce future
income tax liabilities.
9. 401(k) SAVINGS PLAN
In April 1997, the Company established a defined contribution plan
authorized under Section 401(k) of the Internal Revenue Code. All
benefits-eligible employees are eligible to participate in the plan. Employees
may contribute up to 15 percent of their pre-tax covered compensation through
salary deductions. The Company does not provide a match of contributions to the
plan.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space and office equipment under non-cancelable
operating and capital leases with initial or remaining terms of one year or
more. Total rent expense under operating leases was
F-16
<PAGE> 80
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
$62, $99 and $574 for the years ended December 31, 1997, 1998 and 1999,
respectively. The future minimum lease payments under all lease arrangements are
as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEARS ENDING DECEMBER 31, LEASES LEASES
------------------------- --------- -------
<S> <C> <C>
2000...................................................... $ 1,526 $296
2001...................................................... 1,821 289
2002...................................................... 1,835 118
2003...................................................... 1,905 --
2004...................................................... 1,919 --
Thereafter................................................ 6,960 --
------- ----
Total minimum lease payments........................... $15,966 703
=======
Less amount representing interest......................... 99
----
Present value of minimum lease payments................... 604
Less current portion of capital leases.................... 233
----
Long-term obligations under capital leases................ $371
====
</TABLE>
11. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing the net income
(loss) per share by the weighted average number of common shares outstanding for
the period. Diluted net income (loss) per share reflects the potential dilution
of securities by adding other common stock equivalents, including stock options
and convertible preferred stock, in the weighted average number of common shares
outstanding for a period, if dilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred stock not included above that will automatically convert
upon the completion of the Company's initial public offering, using the if-
converted method.
F-17
<PAGE> 81
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
11. NET INCOME (LOSS) PER SHARE (CONTINUED)
The calculation of historical and pro forma basic and diluted net income
(loss) per share is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1997 1998 1999 1999 2000
---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Historical:
Net income (loss).......................... $ 210 $ (726) $ (5,890) $ (128) $ (9,330)
========== ========== =========== ========== ===========
Net income (loss) per common share:
Basic.................................... $ 0.05 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== =========== ========== ===========
Diluted.................................. $ 0.04 $ (0.17) $ (1.26) $ (0.03) $ (1.90)
========== ========== =========== ========== ===========
Weighted average shares of common stock
outstanding used in computing net income
(loss) per common share:
Basic.................................. 4,160,000 4,162,181 4,693,086 4,642,790 4,905,134
========== ========== =========== ========== ===========
Diluted................................ 5,461,682 4,162,181 4,693,086 4,642,790 4,905,134
========== ========== =========== ========== ===========
Pro forma:
Net loss................................... $ (5,890) $ (9,330)
=========== ===========
Pro forma net basic and diluted net loss
per common share......................... $ (0.57) $ (0.67)
=========== ===========
Weighted average shares of common stock
used in computing basic and diluted net
loss per common share.................... 4,693,086 4,905,134
=========== ===========
Adjustment to reflect the effect of the
assumed conversion of preferred stock.... 5,686,367 9,098,736
=========== ===========
Weighted average shares of common stock
used in computing pro forma net loss per
common share............................. 10,379,453 14,003,870
=========== ===========
</TABLE>
If the Company had reported net income, the calculation of historical
diluted earnings per share would have included an additional 2,104,110,
5,686,367, 2,587,236 and 9,098,736 common equivalent shares related to the
conversion of preferred shares using the if-converted method for the years ended
December 31, 1998 and 1999 and for the three months ended March 31, 1999 and
2000, respectively. Additionally, if the Company had reported net income, the
calculation of diluted earnings per share would have included an additional
483,021, 1,131,593, 1,673,890 and 519,252 common equivalent shares related to
the exercise of stock options for the years ended December 31, 1998 and 1999 and
for the three months ended March 31, 1999 and 2000, respectively.
12. SUBSEQUENT EVENTS
During the three months ended March 31, 2000, the Company granted stock
options to acquire an aggregate of 1,786,000 shares of common stock at an
exercise price of $0.22. The Company has recorded additional deferred
stock-based compensation of approximately $17,157, which is being recognized
over the vesting period of the options using the graded method.
F-18
<PAGE> 82
FORT POINT PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 2000 IS UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
12. SUBSEQUENT EVENTS (CONTINUED)
On April 26, 2000, the Company issued 3,426,411 shares of Series E
convertible preferred stock (Series E) totaling $29,998, Each share of Series E
preferred stock is convertible at the option of the holder and automatically
converts into common stock upon the closing of a firm commitment underwritten
public offering with gross proceeds of $40,000. The conversion ratio generally
shall be one share of common stock for each share of Series E preferred.
However, if the Series E preferred stock is automatically converted as a result
of a public offering in which the initial per share price is less than $13.1325,
the number of shares to be received upon conversion will be subject to
adjustment. Holders of Series E preferred stock are entitled to a liquidation
preference of $8.755 per share. The rights and privileges of the Series E
convertible preferred stock are substantially the same as those of all other
series' of convertible preferred stock although the holders of the Series E
preferred stock are not entitled to vote for the election of directors.
The shares of Series E preferred stock are immediately convertible into
common stock at the option of the holder. The initial issuance price of the
Series E preferred stock was less than the estimated fair value of the common
stock into which it is convertible. The difference between the issue price of
the Series E preferred stock and the estimated fair value of the common stock
will be accounted for as a deemed dividend for the computation of earnings per
share in the three months ending June 30, 2000.
13. REINCORPORATION
On May , 2000, the Company reincorporated in Delaware through a tax-free
merger with its wholly owned Delaware subsidiary.
14. YEAR 2000
The Company completed its year 2000 readiness plan prior to December 31,
1999, which did not result in significant incremental costs to the Company.
Although year 2000 risk may decrease with the passage of time and the Company
has experienced no year 2000-related issues to date, the Company will continue
to monitor the implications of year 2000. The Company does not expect to expend
material additional funds in the future related to the year 2000 issue.
F-19
<PAGE> 83
[DESCRIPTION OF INSIDE BACK COVER]
Within the borders of a large black box is a black and white picture of a
salesman. The picture is cut off just below his neck. At the bottom of the
picture, appears the text "TEACH THE WEB THE LOST ART OF SCHMOOZING" in bold
white font, and in all capital letters. The blue and gold Fort Point Partners
logo is overlayed on the bottom right portion of the photograph. It includes a
view of a portion of the Golden Gate Bridge and the Fort Point Partners name.
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC Registration Fee........................................ $18,216
NASD Filing Fee............................................. 7,400
Nasdaq National Market Listing Fee.......................... *
Printing and Engraving...................................... *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. *
Transfer Agent Fees......................................... *
Director & Officer Liability Insurance (1933 Act
Premiums)................................................. *
Miscellaneous............................................... *
-------
Total..................................................... $
=======
</TABLE>
- -------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article VIII of the registrant's
certificate of incorporation (Exhibit 3.1 hereto) and Article VII of the
registrant's bylaws (Exhibit 3.2 hereto) provide for indemnification of the
registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the Delaware General Corporation Law. The
registrant has also entered into agreements with certain of its directors that
will require the registrant, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors to the fullest extent not prohibited by law.
The underwriting agreement (Exhibit 1.1) provides for indemnification by
ourselves and our underwriters for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1997, we have issued and sold the following unregistered
securities:
1. In April 1997, we issued and sold an aggregate of 1,300,000 shares
of Series A preferred stock to four investors for an aggregate
consideration of $325,000 in cash.
2. In May 1997, we issued and sold an aggregate of 500,000 shares of
Series B preferred stock to two investors for an aggregate consideration of
$250,000 in cash.
3. In August 1998, we issued and sold an aggregate of 787,236 shares
of Series C preferred stock to nine investors for an aggregate
consideration of $863,991.51 in cash.
II-1
<PAGE> 85
4. During the period from June 1999 through August 1999, we issued and
sold an aggregate of 6,511,500 shares of Series D preferred stock to 13
investors for an aggregate consideration of $14,341,578.96 in cash.
5. In April 2000, as partial consideration for services, we issued a
warrant to a vendor to purchase an aggregate of 3,600 shares of common
stock, which warrant expires, if not earlier exercised, on January 30,
2010. The warrant has an exercise price of $0.01 per share.
6. In April 2000, we issued and sold an aggregate of 3,426,411 shares
of Series E preferred stock to 26 investors for an aggregate consideration
of $29,998,228.38 in cash.
7. As of March 31, 2000, 7,365,000 shares of common stock had been
issued to our employees, directors and consultants upon exercise of options
at exercise prices ranging from $0.00025 to $0.22 per share and 1,396,244
shares of common stock were issuable upon exercise of outstanding options
under our stock option plan at a weighted average exercise price of $0.18
per share.
All share numbers and exercise prices for preferred and common stock have
been adjusted to reflect a 4-for-1 stock split of our Series A preferred stock,
Series B preferred stock, Series C preferred stock, Series D preferred stock and
common stock effected on November 22, 1999. All 1,300,000 shares of Series A
preferred stock, all 500,000 shares of our Series B preferred stock, all 787,236
shares of our Series C preferred stock, all 6,511,500 shares of our Series D
preferred stock and all 3,426,411 shares of our Series E preferred stock will
automatically convert on a one-to-one basis into shares of common stock upon the
consummation of this offering.
The sales of the above securities under Items 1 through 6 were exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder. The option grants and
exercise under Item 7 were exempt from registration under the Securities Act
pursuant to Rule 701 promulgated under Section 3(b) of the Securities Act.
The recipients of securities in each of these transactions represented
their intention to acquire the securities for investment only and not with view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access to information about the
registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
See exhibits listed on the Exhibit Index following the signature page of
the Form S-1, which is incorporated herein by reference.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), 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 its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate
II-2
<PAGE> 86
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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act 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, as amended, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing(s) specified in the underwriting agreements,
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
II-3
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on the 3rd day of May, 2000.
FORT POINT PARTNERS INC.
By: /s/ JAMES T. ROCHE
------------------------------------
James T. Roche,
Co-Chief Executive Officer,
Co-President
and Director
POWER OF ATTORNEY
KNOW ALL PERSON BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints James T. Roche and Matthew Roche and each
of them, his or her true and lawful attorneys-in-fact and agents with full power
of substitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and to sign any registration
statement for the same offering covered by the Registration Statement that is to
be effective upon filing pursuant to 462(b) promulgated under the Securities Act
of 1933, as amended, and to file the same with all exhibits thereto and all
documents in connection therewith, making such changes in this Registration
Statement as such person or person so acting deems appropriate, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as her or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his,
her or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MATTHEW J.N.C. ROCHE Co-President, Co-Chief Executive May 3, 2000
- --------------------------------------------- Officer and Chairman of the Board
Matthew J.N.C. Roche (Principal Executive Officer)
/s/ JAMES T. ROCHE Co-President and Co-Chief Executive May 3, 2000
- --------------------------------------------- Officer and Director (Principal
James T. Roche Executive Officer)
/s/ KELYN J. BRANNON Chief Financial Officer (Principal May 3, 2000
- --------------------------------------------- Financial and Accounting Officer)
Kelyn J. Brannon
/s/ SCOTT GILBERTSON Director May 3, 2000
- ---------------------------------------------
Scott Gilbertson
/s/ RICHARD KASHNOW Director May 3, 2000
- ---------------------------------------------
Richard Kashnow
</TABLE>
II-4
<PAGE> 88
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ N. D'ARCY ROCHE Director May 3, 2000
- ---------------------------------------------
N. D'arcy Roche
/s/ DAVID SANDERSON Director May 3, 2000
- ---------------------------------------------
David Sanderson
/s/ EDWARD SCOTT Director May 3, 2000
- ---------------------------------------------
Edward Scott
</TABLE>
II-5
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Bylaws of the Registrant
4.1* Form of Registrant's Common Stock Certificate
5.1* Opinion of Gibson, Dunn & Crutcher LLP
10.1 1996 Stock Option/Stock Issuance Plan
10.2 Amended and Restated Investor Rights Agreement, dated April
26, 2000.
10.3 111 Sutter Street Sublease by and between ShopNow.com, Inc.
and Fort Point Partners Inc., dated April 6, 2000
10.4 Office Building Lease by and between CEP Investors XII LLC
and Fort Point Partners Inc., dated August 5, 1999
10.5 Standard Form of Loft Lease and Rider by and between 162
Associates LLC and Fort Point Partners Inc., dated April 26,
1999 (related to the eighth floor in the building known as
162 Fifth Avenue)
10.6 Lease Modification Agreement by and between 162 Associates
LLC and Fort Point Partners Inc., dated May 14, 1999
(related to the entire eighth floor in the building known as
162 Fifth Avenue)
10.7 Lease Modification Agreement by and between 162 Associates
LLC and Fort Point Partners Inc., dated September 2, 1999
(related to the entire eighth floor in the building known as
162 Fifth Avenue)
10.8 Standard Form of Loft Lease and Rider by and between 162
Associates LLC and Fort Point Partners Inc., dated April 26,
1999 (related to the entire seventh floor in the building
known as 162 Fifth Avenue)
10.9 Loan and Security Agreement by and between Silicon Valley
Bank and Fort Point Partners Inc., dated May 11, 1998
10.10 Loan Modification Agreement by and between Silicon Valley
Bank and Fort Point Partners Inc., dated May 10, 1999
10.11 Standard Form of Indemnification Agreement
21.1* Subsidiaries
23.1* Consent of Gibson, Dunn & Crutcher, LLP (included in Exhibit
5.1)
23.2 Consent of Ernst & Young LLP, Independent Accountants
24.1 Power of Attorney (included in II-4)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.2
FORT POINT PARTNERS INC.
A DELAWARE CORPORATION
BYLAWS
ARTICLE I
OFFICES
SECTION 1.01 Registered Office. The registered office of Fort Point
Partners Inc. (hereinafter called the "Corporation") shall be in care of
National Registered Agents, Inc., 9 East Loockerman Street, Dover, County of
Kent, Delaware 19901, or at such other place as shall be determined by
resolution of the Board of Directors of the Corporation (hereinafter called the
"Board").
SECTION 1.02 Other Offices. The Corporation also may have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 Annual Meetings. Annual meetings of the stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
SECTION 2.02 Special Meetings. A special stockholders meeting for the
transaction of any proper business may be called at any time by the Board, the
Chairman of the Board or by the President. No other person or persons are
permitted to call a special meeting.
SECTION 2.03 Place of Meetings. All meetings of the stockholders shall
be held at such places, within or without the State of Delaware, as may from
time to time be designated by the person or persons calling the respective
meeting and specified in the respective notice or waiver of notice thereof.
SECTION 2.04 Notice of Meetings. Except as otherwise required by law,
notice of each stockholders meeting, whether annual or special, shall be given
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder of record entitled to vote at such meeting by (a)
delivering a typewritten or printed notice of the meeting to the stockholder
personally, (b) depositing such notice in the United States mail, in a postage
prepaid envelope, directed to the stockholder at (i) the post office address
furnished by him or her to the Secretary for the purpose of such notice or, if
the stockholder has not furnished his or her address to the Secretary for such
purpose, (ii) the post office address last known to the Secretary, or (c)
transmitting a notice to the stockholder at one of addresses described herein by
telegraph, cable, or wireless. Except as otherwise expressly required by law, no
publication of any notice of a stockholders meeting shall be required. Every
notice of a stockholders meeting shall state the
<PAGE> 2
place, date and hour of the meeting and, in the case of a special meeting, also
shall state the purpose or purposes for which the meeting is called. Notice of
any meeting of stockholders shall not be required to be given to any stockholder
who has waived such notice, and such notice shall be deemed waived by any
stockholder who attends such meeting, in person or by proxy, unless that
stockholder attends for the express purpose of objecting at the beginning of the
meeting that the meeting has not been lawfully called or convened and that no
further business should be transacted thereat. Except as otherwise expressly
required by law, notice of any adjourned stockholders meeting need not be given
if the time and place thereof are announced at the meeting at which the
adjournment is taken.
SECTION 2.05 Quorum. Except in the case of any meeting for the election
of directors summarily ordered as provided by law, the presence, in person or by
proxy, of persons holding the voting interest in a majority of the Corporation's
stock entitled to be voted at a stockholders meeting, shall constitute a quorum
for the transaction of business at any stockholders meeting or any adjournment
thereof. If a quorum is not present at a stockholders meeting or any adjournment
thereof, a majority in voting interest of the stockholders present in person or
by proxy and entitled to vote at such a meeting or, if no such stockholders are
present, any officer entitled to preside at or act as secretary of such meeting,
may adjourn such meeting from time to time. At any such adjourned meeting at
which a quorum is present, any business may be transacted that might have been
transacted at the meeting as originally called.
SECTION 2.06 Voting.
(a) At each stockholders meeting, each stockholder shall be entitled to
vote, in person or by proxy, each share or fractional share of the stock of the
Corporation having voting rights on the matter in question, so long as such
share was held by him or her and registered in his or her name on the books of
the Corporation:
(i) on the date fixed pursuant to Section 6.05 of these Bylaws
as the record date for the determination of stockholders entitled to
notice of and to vote at such meeting, or
(ii) if no such record date was fixed, (A) at the close of
business on the day immediately preceding the day on which notice of the
meeting was given or, if notice of the meeting was waived, (B) at the
close of business on the day immediately preceding the day on which the
meeting is held.
(b) Shares of stock belonging to the Corporation or to another
corporation, where a majority of the shares entitled to vote in the election of
directors for such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless the pledgor has expressly empowered the pledgee to vote the
pledged shares in the transfer on the books of the Corporation, in which case
only the pledgee, or his or her proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants in
common, tenants by entirety or otherwise, or with respect to which two or more
persons have the same fiduciary relationship, shall be voted in accordance with
the provisions of the General Corporation Law of the State of Delaware.
2
<PAGE> 3
(c) Any voting rights may be exercised by the stockholder so entitled in
person or by a proxy. Such proxy must be appointed by an instrument in writing,
subscribed by such stockholder or by his or her attorney thereunto authorized
and delivered to the secretary of the meeting. No proxy shall be voted or acted
upon, however, three years or more from its date, unless said proxy provides for
a longer period. The attendance at any meeting of a stockholder who may
theretofore have given a proxy shall not have the effect of revoking the proxy
unless the stockholder notifies the secretary of the meeting in writing prior to
the voting of the proxy that the proxy has been revoked. At any stockholders
meeting, all matters, except as otherwise provided in the Corporation's
Certificate of Incorporation, these Bylaws or by law, shall be decided by the
vote of a majority in voting interest of the stockholders present in person or
by proxy and entitled to vote at such meeting and on such a matter, provided
that a quorum is present. The vote at any stockholders meeting on any question
need not be by ballot, unless so directed by the chairman of the meeting. On a
vote by ballot, each ballot shall be signed by the stockholder voting, or by his
or her proxy if there be such proxy, and shall state the number of shares voted.
SECTION 2.07 List of Stockholders. At least ten (10) days before every
stockholders meeting, the Secretary of the Corporation shall prepare and make, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of such stockholder. Such list shall be open to
the examination of any stockholder during ordinary business hours for any
purpose germane to the meeting and for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held. The list also shall be
produced and kept at the time and place of the meeting and may be inspected by
any stockholder who is present.
SECTION 2.08 Judges. If at any stockholders meeting a vote by written
ballot is taken on any question, the chairman of such meeting may appoint a
judge or judges to act with respect to such vote. Each judge so appointed shall
first subscribe an oath faithfully to execute the duties of a judge at such
meeting with strict impartiality and according to the best of his or her
ability. Such judges shall (a) decide upon the qualification of the voters and
report the number of shares represented at the meeting and entitled to vote on
such question, (b) conduct and accept the votes, and, when the voting is
completed, (c) ascertain and report the number of shares voted respectively for
and against the question. Reports of judges shall be in writing and subscribed
and delivered by them to the Secretary. The judges need not be stockholders, and
any officer of the Corporation may be a judge on any question other than a vote
for or against a proposal with respect to which he or she has a material
interest.
SECTION 2.09 Action Without Meeting. Any action required to be taken, or
which may be taken, at an annual or special stockholders meeting, also may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing setting forth the action so taken is signed by stockholders having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Notwithstanding the foregoing,
if at any time the Corporation shall have a class of stock registered pursuant
to the provisions of the Securities Exchange Act of 1934, as amended,
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for so long as such class is so registered, any action by the stockholders of
such class must be taken at an annual or special meeting of stockholders and may
not be taken by written consent.
SECTION 2.10 Advance Notice of Stockholder Business. At any meeting of
the stockholders, only such business shall be conducted as shall have been
brought before the meeting (i) by or at the direction of the Board or (ii) by
any stockholder of the Corporation who complies with the notice procedures set
forth in this Section 2.10 and Section 2.11 of Article II. For business to be
properly brought before any meeting of the stockholders by a stockholder, the
stockholder must have given notice thereof in writing to the Secretary of the
Corporation not less than 90 days in advance of such meeting or, if later, the
tenth day following the first public announcement of the date of such meeting,
and such business must be a proper matter for stockholder action under the
General Corporation Law of the State of Delaware. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (1) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(2) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (3) the class and number of shares of the
Corporation that are beneficially owned by the stockholder, and (4) any material
interest of the stockholder in such business. In addition, the stockholder
making such proposal shall promptly provide any other information reasonably
requested by the Corporation. The chairman of any such meeting shall have the
power and the duty to determine whether any business proposed to be brought
before the meeting has been made in accordance with the procedure set forth in
these Bylaws and shall direct that any business not properly brought before the
meeting shall not be considered. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any meeting of the stockholders
except in accordance with the procedures set forth in this Section 2.10 and
Section 2.11 of Article II. For purposes of this Section 2.10 and Section 2.11
of Article II, "public announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or a comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, or any successor provision.
SECTION 2.11 Advance Notice of Stockholder Nominees. Nominations for the
election of directors may be made by the Board or by any stockholder entitled to
vote in the election of directors; provided, however, that a stockholder may
nominate a person for election as a director at a meeting only if written notice
of such stockholder's intent to make such nomination has been given to the
Secretary of the Corporation not later than 90 days in advance of such meeting
or, if later, the tenth day following the first public announcement of the date
of such meeting. Each such notice shall set forth: (i) the name and address of
the stockholder who intends to make the nomination and of the person or persons
to be nominated; (ii) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting and nominate the person or
persons specified in the notice; (iii) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder, (iv) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the Board; and (v) the consent of each nominee to serve as a
director of the Corporation if so elected. In
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addition, the stockholder making such nomination shall promptly provide any
other information reasonably requested by the Corporation. Notwithstanding the
foregoing provisions of this Section 2.11 of Article II, in the event that the
number of directors to be elected to the Board is increased and there is no
public announcement naming either all of the nominees for director or specifying
the size of the increased Board made by the Corporation at least 100 days in
advance of such meeting, a stockholder's notice required by this Section 2.11 of
Article II shall be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary of the Corporation not later than the tenth day following the day on
which such public announcement is first made by the Corporation. No person shall
be eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 2.11 of Article II. The
chairman of any meeting of stockholders shall have the power and the duty to
determine whether a nomination has been made in accordance with the procedure
set forth in this Section 2.11 of Article II and shall direct that any
nomination not made in accordance with these procedures be disregarded.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 General Powers. The property, business and affairs of the
Corporation shall be managed by the Board.
SECTION 3.02 Number and Term of Office. The number of directors on the
Board shall be no less than two (2) and no more than eight(8), until changed by
resolution adopted by the stockholders. The exact number of directors shall be
determined by the Board. Directors need not be stockholders. Each director shall
hold office until his or her successor has been duly elected and qualified or
until he or she resigns or is removed in the manner hereinafter provided.
SECTION 3.03 Election of Directors. Subject to the provisions of the
Certificate of Incorporation, the Board shall be classified into three classes
and the members of each class shall serve for a term of three years. At the
first annual meeting of stockholders, one-third of the directors shall be
elected for a term of three years, one-third of the directors shall be elected
for a term of two years and one-third of the directors shall be elected for a
term of one year. If the number of directors is not divisible by three, the
first extra director shall be elected for a term of three years and the second
extra director, if any, shall be elected for a term of two years. At any
subsequent annual meeting of stockholders, a number of directors shall be
elected equal to the number of directors with terms expiring at that annual
meeting. Directors elected at each such annual meeting shall be elected for a
term expiring with the annual meeting of stockholders three years thereafter.
There shall be no right with respect to the shares of stock of the Corporation
to cumulate votes in the election of directors.
SECTION 3.04 Resignations. Any director may resign at any time by giving
written notice to the Board or to the Secretary. Any such resignation shall take
effect at the time specified in the resignation notice or, if such time is not
specified therein, immediately upon delivery of the notice. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 3.05 Vacancies. Except as otherwise provided in the Certificate
of Incorporation or any agreement by and among the Corporation and its
stockholders, any vacancy
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on the Board, whether because of death, resignation, disqualification, an
increase in the number of directors, or any other cause, may be filled by vote
of the majority of the remaining directors, even if the number of such directors
is less than a quorum. Each director so chosen to fill a vacancy shall hold
office until his or her successor has been elected and qualified or until he or
she resigns or is removed in the manner hereinafter provided. If at any time the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
may call a special meeting of stockholders in accordance with the provisions of
the Certificate of Incorporation and these bylaws, or may apply to the Court of
Chancery for a decree summarily ordering an election as provided in Section 211
of the General Corporation Law of Delaware.
SECTION 3.06 Place of Meeting, Etc. The Board may hold any of its
meetings at such places within or without the State of Delaware as the Board may
designate from time to time by resolution or as shall be designated by the
person or persons calling the meeting or in the notice or waiver of notice of
such meeting. Directors may participate in any regular or special Board meeting
by means of conference telephone or similar communications equipment, pursuant
to which all persons participating in the meeting can hear one and other, and
such participation shall constitute presence in person at such meeting.
SECTION 3.07 First Meeting. The Board shall meet as soon as practicable
after each annual election of directors and notice of this first meeting shall
not be required.
SECTION 3.08 Regular Meetings. Regular meetings of the Board may be held
at such times as the Board determines from time to time by resolution. If any
day fixed for a regular meeting is a legal holiday in the place where the
meeting is to be held, then the meeting shall be held at the same hour and place
on the next succeeding business day that is not a legal holiday in that meeting
place. Except as provided by law, notice of regular Board meetings need not be
given.
SECTION 3.09 Special Meetings. Special meetings of the Board shall be
held whenever called by the President or a majority of the directors. Except as
otherwise provided by law or these Bylaws, notice of the time and place of each
such special meeting shall be (a) mailed to each director, addressed to him or
her at his or her residence or usual place of business, at least five (5) days
before the day on which the meeting is to be held, (b) sent to him or her at
such place by telegraph or cable or (c) delivered personally to him or her not
less than forty-eight (48) hours before the time at which the meeting is to be
held. Except where otherwise required by law or these Bylaws, notice of the
purpose of a special meeting need not be given. Notice of any meeting of the
Board shall not be required to be given to any director who is present at such
meeting, except a director who attends such meeting for the express purpose of
objecting to the transaction of any business at the beginning of the meeting
based on his or her contention that the meeting has not been lawfully called or
convened.
SECTION 3.10 Quorum and Manner of Acting. Except as otherwise provided
in these Bylaws or by law, the presence of a majority of the directors shall be
required to constitute a quorum for the transaction of business at any Board
meeting, and all matters shall be decided at any such meeting, a quorum being
present, by the affirmative votes of a majority of the directors present. In the
absence of a quorum, a majority of directors present at any meeting may adjourn
the same from time to time until a quorum is present. Notice of any adjourned
meeting need not
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be given. The directors shall act only as a Board, and the individual directors
shall have no power as such.
SECTION 3.11 Action by Consent. Any action required or permitted to be
taken at any meeting of the Board or any committee thereof may be taken without
a meeting if a written consent to such action is signed by all the members of
the Board or such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 3.12 Removal of Directors. Subject to the provisions of the
Certificate of Incorporation or any agreement by and among the Corporation and
its stockholders, any director may be removed at any time, but only for cause
and only by the affirmative vote of the stockholders having 80% of the total
number of shares of the Corporation entitled to vote thereon. Such vote shall be
taken at a special stockholders meeting called for that purpose.
SECTION 3.13 Compensation. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board also may provide that the Corporation shall reimburse each
director for any expense incurred by him or her on account of his or her
attendance at any Board or committee meeting. Neither the payment of such
compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
SECTION 3.14 Committees. Pursuant to a resolution passed by a majority
of the entire Board, the Board may designate one or more committees, each
committee to consist of one or more directors. To the extent provided in the
Board resolution, and except as otherwise limited by law, any such committee
shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers that may require it. Any
such committee shall keep written minutes of its meetings and report the same to
the Board at the next regular Board meeting following each committee meeting. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such members constitute a quorum, may unanimously appoint another member
of the Board to act at the meeting in place of the absent or disqualified
member.
ARTICLE IV
OFFICERS
SECTION 4.01 Number. The officers of the Corporation shall be a
President, a Chief Financial Officer, a Secretary and such other officers,
including a Chairman of the Board, as may be designated by the Board. Any number
of offices may be held by the same person unless the Certificate of
Incorporation provides otherwise.
SECTION 4.02 Election Term of Office and Qualifications. The officers of
the Corporation, except such officers as may be appointed in accordance with
Section 4.03, shall be elected annually by the Board at its first meeting
following Board elections. Each officer shall hold office until his or her
successor has been duly chosen and qualified or until his or her resignation or
removal in the manner hereinafter provided.
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SECTION 4.03 Assistants, Agents and Employees, Etc. In addition to the
officers specified in Section 4.01, the Board also may appoint such other
assistants, agents and employees as it deems necessary or advisable, including
one or more Assistant Secretaries, one or more Assistant Chief Financial
Officers and such other officers, including a Chairman of the Board, as may be
designated by the Board, each of whom shall hold office for such period, have
such authority and perform such duties as the Board may determine from time to
time. The Board may delegate the power to appoint, remove and prescribe the
duties of any such assistants, agents or employees to any officer of the
Corporation or any committee.
SECTION 4.04 Removal. Any officer, assistant, agent or employee of the
Corporation may be removed, with or without cause, at any time: (i) in the case
of any officer, assistant, agent or employee appointed by the Board, by
resolution of the Board; and, (ii) in the case of any other officer, assistant,
agent or employee, by the Board or any officer or committee upon whom or which
such power of removal has been conferred by the Board.
SECTION 4.05 Resignations. Any officer or assistant may resign at any
time by giving written notice of his or her resignation to the Board or the
Secretary. Any such resignation shall take effect at the time specified in the
resignation notice or, if the notice does not specify such a time, upon receipt
of the notice by the Board or the Secretary, as the case may be. Unless
otherwise specified in the resignation notice, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 4.06 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or other cause, may be filled for the
unexpired portion of the term of that office in the manner prescribed by these
Bylaws for regular appointments or elections to such office.
SECTION 4.07 The President. The President of the Corporation shall be
the chief executive officer of the Corporation and shall have, subject to the
control of the Board, general and active supervision and management over the
business of the Corporation and over its several officers, assistants, agents
and employees.
SECTION 4.08 The Chairman of the Board. The Chairman of the Board, if
there shall be such an officer, shall, if present, preside at all meetings of
the Board and exercise and perform such other powers and duties as may from time
to time be assigned by the Board or prescribed by these Bylaws.
SECTION 4.09 The Secretary. If present, the Secretary shall record the
proceedings of all meetings of the Board and the stockholders, and the meetings
of all committees for which a secretary has not been appointed. Such records
shall be made in one or more books provided for that purpose. The Secretary also
shall see that all notices are duly given in accordance with these Bylaws and as
required by law. He or she shall be custodian of the seal of the Corporation and
shall affix and attest the seal to all documents to be executed on behalf of the
Corporation under its seal. He or she also shall perform all the duties incident
generally to the office of Secretary and such other duties as may be assigned to
him or her from time to time by the Board.
SECTION 4.10 The Chief Financial Officer. The Chief Financial Officer
shall have the general care and custody of the funds and securities of the
Corporation, and shall deposit all such funds in the name of the Corporation in
such banks, trust companies or other depositories as shall
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be selected by the Board. He or she shall receive and give receipts for moneys
due and payable to the Corporation from any source whatsoever. He or she shall
exercise general supervision over expenditures and disbursements made by
officers, agents and employees, and the preparation of such records and reports
in connection therewith as may be necessary or desirable. In addition, he or she
shall perform all other duties incident generally to the office of Chief
Financial Officer and such other duties as may be assigned to him or her from
time to time by the Board.
SECTION 4.11 Representation of Shares of Other Corporations. The
Chairman of the Board, the President, any Vice President, the Chief Financial
Officer or any other person authorized by the Board or the President or Vice
President, is authorized to vote, represent and exercise on behalf of this
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this Corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
SECTION 4.12 Compensation. The compensation of the officers of the
Corporation shall be fixed from time to time by the Board. No officer shall be
prevented from receiving such compensation by reason of the fact that he or she
also is a director. Nothing contained herein shall preclude any officer from
serving the Corporation, or any subsidiary thereof, in any other capacity and
accepting appropriate compensation for his or her services.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.01 Execution of Contracts. Except as otherwise provided in
these Bylaws, the Board may authorize any officer or agent to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances. Unless so authorized by the Board or by these Bylaws, no officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement, pledge the Corporation's credit or render it liable
for any purpose or in any amount.
SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness issued in the name of
or payable to the Corporation shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the Board. Each such officer, assistant, agent or attorney so
authorized shall post such bond, if any, as the Board may require.
SECTION 5.03 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer, assistant, agent or attorney of the
Corporation to whom such power has been delegated by the Board. For the purpose
of deposit and collection for the account of the Corporation, the President (or
any other officer, assistant, agent or attorney of the Corporation who shall be
determined from time to time by the Board) may endorse, assign and deliver
checks, drafts and other orders for the payment of money payable to the order of
the Corporation.
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SECTION 5.04 General and Special Bank Accounts. From time to time, the
Board may authorize the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as the Board may select,
or as may be selected by any officer, assistant, agent or attorney of the
Corporation to whom such power has been delegated by the Board. The Board may
make such special rules and regulations with respect to such bank accounts as it
may deem expedient, but only to the extent that such rules and regulations are
not inconsistent with the provisions of these Bylaws.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.01 Certificates for Stock. Every owner of any shares of the
Corporation's stock shall be entitled to have a certificate or certificates in
such form as the Board shall prescribe, certifying the number and class of
shares owned by such stockholder. The certificates representing shares of such
stock shall be numbered in the order in which they are issued and shall be
signed in the name of the Corporation by the President and the Secretary. Any or
all of the signatures on the certificates may be by facsimile. If any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any stock certificate, ceases to hold that position before
such certificate is issued, such certificate may nevertheless be issued by the
Corporation with the same effect as though the person who signed such
certificate, or whose facsimile signature has been placed thereupon, was such
officer, transfer agent or registrar as of the date the certificate was issued.
A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by the stock certificates, the number
and class of shares represented by each certificate, the respective dates of the
certificates and, in case a certificate is canceled, the date of cancellation.
Every certificate surrendered to the Corporation for exchange or transfer shall
be canceled, and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate has been canceled,
except in cases provided for in Section 6.04 of this Article.
SECTION 6.02 Transfers of Stock. Transfers of shares of stock of the
Corporation only shall be made on the books of the Corporation by (a) the
registered holder of the shares, (b) his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, or (c) a transfer
clerk or a transfer agent appointed as provided in Section 6.03 of this Article.
Such transfer shall be made only upon surrender of the certificate or
certificates, properly endorsed, of the shares to be transferred and payment of
all taxes due upon such transfer. The person in whose name shares of stock stand
on the books of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation. Whenever any transfer of shares is for
collateral security only and is not absolute, such fact may be so expressed in
the entry of transfer on the books of the Corporation if both the transferor and
the transferee request such an entry when the certificate to be transferred is
presented to the Corporation.
SECTION 6.03 Regulations. The Board may make such rules and regulations
as it deems expedient concerning the issue, transfer and registration of the
Corporation's stock certificates, but only to the extent such rules and
regulations are not inconsistent with these Bylaws. The Board may appoint, or
authorize any officer to appoint, one or more transfer clerks or transfer agents
and one or more registrars, and may require all stock certificates to bear the
signature or signatures of any of them.
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SECTION 6.04 Lost Stolen Destroyed and Mutilated Certificates. In case
of the loss, theft, destruction or mutilation of any stock certificate, another
certificate may be issued in its place upon proof of such loss, theft,
destruction or mutilation, and upon the giving of a bond of indemnity to the
Corporation in such form and in such sum as the Board may direct; provided,
however, that a new certificate may be issued without requiring any bond when,
in the judgment of the Board, it is proper to do so.
SECTION 6.05 Fixing Date for Determination of Stockholders of Record. In
order to determine which stockholders are entitled to (a) receive notice of or
vote at any stockholders meeting or any adjournment thereof, (b) express consent
to corporate action in writing without a meeting, (c) receive payment of any
dividend or other distribution or allotment of any rights or (d) exercise any
rights in respect of any other change, conversion or exchange of stock, or for
the purpose of any other lawful action, the Board may fix a record date in
advance of a stockholders meeting, which date shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to any
other action. In any case involving the determination of stockholders for any
purpose other than notice of or voting at a stockholders meeting or expressing
consent to corporate action without a meeting, if the Board has not fixed a
record date, the record date for such purpose shall be the close of business on
the day the Board adopts a resolution relating thereto. A determination of which
stockholders are entitled to notice of or to vote at a stockholders meeting
shall apply to any adjournment of such meeting; provided, however, that the
Board may fix a new record date for the adjourned meeting.
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ARTICLE VII
INDEMNIFICATION
SECTION 7.01 Action, Etc., Other than by or in the Right of the
Corporation. The Corporation shall indemnify, in the manner and to the fullest
extent permitted by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (hereinafter referred to in this Article VII as the
"DGCL"), any person (or the estate of any person) who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, investigative or
otherwise (other than an action by or in the right of the Corporation), if such
person is made or is threatened to be made a party by reason of the fact that he
or she is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The Corporation shall indemnify any such person only against
expenses (including, without limitation, attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding, and only if he or she has acted
in good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Corporation and, with respect to any
criminal action or proceeding, only if he or she had no reasonable cause to
believe his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or plea of nolo contendere
or its equivalent shall not, in itself, create a presumption that the person did
not act in good faith or in a manner which he or she reasonably believed to be
in, or not opposed to, the best interests of the Corporation or, with respect to
any criminal action or proceeding, that he or she had reasonable cause to
believe that his or her conduct was unlawful.
SECTION 7.02 Actions, Etc., by or in the Right of the Corporation. The
Corporation shall indemnify, in the manner and to the fullest extent permitted
by the DGCL, any person (or the estate of any person) who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor, if such person is made a party by reason of the fact that he or she is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The Corporation shall indemnify any such person only against
expenses (including, without limitation, attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit, and only if he or she has acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the Corporation. Furthermore, no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged liable for negligence or misconduct in the performance of his or her
duty to the Corporation, unless and only to the extent that the Court of
Chancery, or the court in which such action or suit is brought, determines upon
application that, in view of all the circumstances of the case and despite the
adjudication of liability, such person is fairly and reasonably entitled to
indemnity for such expenses as the Court of Chancery or such other court deems
proper.
SECTION 7.03 Determination of Right of Indemnification. Any
indemnification under Section 7.01 or 7.02 of this Article (unless ordered by a
court) shall be made by the Corporation
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only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper under the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 7.01 or 7.02. Such determination shall be made (a) by the
majority vote of a quorum of directors who were not parties to such action, suit
or proceeding, or, if such a quorum is not obtainable or, even if such a quorum
is obtainable but a quorum of disinterested directors so directs, (b) by
independent legal counsel in a written opinion, or (c) by the stockholders.
SECTION 7.04 Indemnification Against Expenses of Successful Party.
Notwithstanding the other provisions of this Article, to the extent that a
director, officer, employee or agent of the Corporation has been successful, on
the merits or otherwise, in defense of any action, suit or proceeding referred
to in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein,
he or she shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith.
SECTION 7.05 Prepaid Expenses. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding if such payment is authorized by the Board in the specific case, and
then only upon receipt by the Corporation of the written undertaking by or on
behalf of the director or officer to repay such amount unless it shall
ultimately be determined that he or she is entitled to be indemnified by the
Corporation as authorized in this Article. Such undertaking shall not be
required to be guaranteed by any other person or collateralized, and shall be
accepted by the Corporation without regard to the financial ability of the
person providing such undertaking to make such repayment. Such expenses incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the Board deems appropriate.
SECTION 7.06 Other Rights and Remedies. The indemnification provided by
this Article shall not be deemed to limit the right of the Corporation to
indemnify any other person for any such expenses to the fullest extent permitted
by the DGCL, nor shall it be deemed exclusive of any other rights to which any
person seeking indemnification may be entitled under these Bylaws, any agreement
or vote of the stockholders or disinterested directors or otherwise, both as to
action in his or her official capacity and as to actions taken in another
capacity while holding such office. The indemnification provided by this Article
also shall continue as to a person who has ceased to be a director, officer,
employee or agent of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of that person.
SECTION 7.07 Insurance. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, indemnifying such person against any liability asserted against him
or her and incurred by him or her in his or her capacity as director, officer
employee or agent, or arising out of his or her status as such, whether or not
the Corporation would have the power to indemnify him or her against such
liability under the provisions of this Article.
SECTION 7.08 Constituent Corporations. For the purposes of this Article,
references to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as
13
<PAGE> 14
well as the resulting or surviving corporation, so that any person who is or was
a director, officer, employee or agent of such a constituent corporation, or is
or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as he or
she would have stood if he or she had served the resulting or surviving
corporation in the same capacity.
SECTION 7.09 Other Enterprises, Fines and Serving at Corporation's
Request. For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
position as a director, officer, employee or agent of the Corporation that
involves providing certain services or performing certain duties for an employee
benefit plan, its participants, or beneficiaries; and a person who acted in good
faith and in a manner he or she reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Seal. The Board shall provide for a corporate seal, which
shall be in the form adopted by the Board.
SECTION 8.02 Waiver of Notices. Whenever notice is required to be given
by these Bylaws, the Certificate of Incorporation or by law, the person entitled
to said notice may waive such notice in writing, either before or after the time
stated therein, and such waiver shall be deemed equivalent to notice.
SECTION 8.03 Amendments. These Bylaws, or any of them, may be altered,
amended or repealed and new Bylaws may be made (a) by a majority of the entire
Board, or (b) by the stockholders, by a vote of a majority of the shares
entitled to vote thereon, provided that notice of such proposed amendment,
modification, repeal or adoption is given in the notice of the stockholders'
meeting. Any Bylaws made or altered by the stockholders may be altered or
repealed by either the Board or the stockholders. Notwithstanding the foregoing,
the affirmative vote of 80% of the total number of the then outstanding shares
of capital stock of this Corporation entitled to vote generally in the election
of directors, voting together as a single class, shall be required to amend or
repeal, or adopt any provision inconsistent with the purpose or intent of, the
following sections of these Bylaws: Sections 2.02 (Special Meeting), 2.09
(Action without Meeting), 2.10 (Advance Notice of Stockholder Business), 2.11
(Advance Notice of Stockholder Nominees), 3.12 (Removal of Directors) and 8.03
(Amendments).
14
<PAGE> 1
EXHIBIT 10.1
FORT POINT PARTNERS, INC.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Option/Stock Issuance Plan is intended to promote the
interests of Fort Point Partners, Inc., a California 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 herein shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity programs:
(i) the Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued shares
of Common Stock directly, either through the immediate purchase of such
shares or as a bonus for services rendered the Corporation (or any Parent
or Subsidiary).
B. The provisions of Articles One and Four shall apply to both
equity programs under the Plan and shall accordingly govern the interests
of all persons under the Plan.
<PAGE> 2
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 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.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) 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 or stock 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 or stock issuance
thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine,
(i) 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, and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
to be paid by the Participant for such shares.
2.
<PAGE> 3
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
360,000 shares.
B. 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 cancelled 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 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 reissuance through one or
more subsequent option grants or direct stock issuances under the Plan.
C. 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 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.
3.
<PAGE> 4
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
and 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 in accordance with the following provisions:
(i) The exercise price per share shall not
be less than eighty-five percent (85%) of the Fair Market Value per
share of Common Stock on the option grant date.
(ii) If the person to whom the option is
granted is a 10% Shareholder, 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.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Four and the documents evidencing the option, be payable in cash
or check made payable to the Corporation. Should the Common Stock be registered
under Section 12(g) of the 1934 Act at the time the option is exercised, then
the exercise price may also be paid as follows:
(i) in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(ii) to the extent the option is exercised
for vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
written instructions (A) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable
4.
<PAGE> 5
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (B) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option 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 grant. However, no option shall have a term in excess of ten (10)
years measured from the option grant date.
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) Should the Optionee cease to remain in Service for any
reason other than Disability or death, then the Optionee shall have a
period of three (3) months following the date of such cessation of Service
during which to exercise each outstanding option held by such Optionee.
(ii) Should Optionee's Service terminate by reason of
Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an outstanding
option, then the personal representative of his or her estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance shall have a twelve (12)-month
period following the date of the Optionee's death to exercise such option.
(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration of the option term.
(v) 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
5.
<PAGE> 6
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
to be outstanding with respect to any and all option shares for which the
option is not otherwise at the time exercisable or in which the Optionee
is not otherwise at that time vested.
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 Optionee's cessation of Service or death from
the limited 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.
D. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder 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. UNVESTED SHARES. 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, all or (at the discretion of the Corporation and with the consent of the
Optionee) any 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) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right. The Plan Administrator may not impose a vesting schedule upon
any option grant or any shares of Common Stock subject to the option which is
more restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur not later than one (1) year after the option grant date.
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 by the
Optionee (or any successor in
6.
<PAGE> 7
interest) of any shares of Common Stock issued under the Plan. 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.
H. WITHHOLDING. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options shall not be subject to the
terms of this Section II.
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. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
7.
<PAGE> 8
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the Plan at
the time of a Corporate Transaction shall automatically vest in full 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 that option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. However, the shares
subject to an outstanding option shall NOT vest on such an accelerated basis if
and to the extent: (i) such option is assumed by the successor corporation
(or parent thereof) in the Corporate Transaction and the Corporation's
repurchase rights with respect to the unvested option shares are concurrently
assigned to such successor corporation (or parent thereof) or (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 those unvested option shares or
(iii) the acceleration of such option is subject to other limitations imposed
by the Plan Administrator at the time of the option grant.
B. 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 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.
C. 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).
D. 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.
E. 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 of one or more
outstanding repurchase rights, with the immediate vesting of the shares of
Common Stock subject to those terminated rights)
8.
<PAGE> 9
upon the occurrence of 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.
F. The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest on an accelerated basis should the
Optionee's Service 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 the option is assumed and the
repurchase rights applicable to those shares do not otherwise terminate. Any
such option shall remain exercisable for the fully-vested option shares until
the earlier of (i) the expiration of the option term or (ii) the expiration of
the one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more
of the outstanding repurchase rights with respect to shares held by the Optionee
at the time of such Involuntary Termination shall immediately terminate on an
accelerated basis, and the shares subject to those terminated rights shall
accordingly vest.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction shall remain exercisable as an Incentive Option
only to the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
H. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
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 Plan and to grant
in substitution therefor 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 option grant date.
9.
<PAGE> 10
ARTICLE THREE
STOCK ISSUANCE PROGRAM
1. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issue date. However, the purchase
price per share of Common stock issued to a 10% Shareholder shall not be less
than one hundred and ten percent (110%) of such Fair Market Value.
2. Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for any
of the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation,
or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. However, the Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program which is more
restrictive than twenty percent (20%) per year vesting, with initial vesting to
occur not later than one (1) year after the issuance date.
10.
<PAGE> 11
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
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 shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock
and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further shareholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
C. 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 by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. 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.
11
<PAGE> 12
II. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, all
outstanding repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are 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.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate on an
accelerated basis, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
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 repurchase rights are assigned
to the successor corporation (or parent thereof).
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
12.
<PAGE> 13
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price or the purchase price for shares issued to such person
under the Plan by delivering a full-recourse, interest-bearing promissory
note payable in one or more installments and secured by the purchased shares.
However, any promissory note delivered by a consultant must be secured by
property in addition to the purchased shares of Common Stock. In no event shall
the maximum credit available to the Optionee or Participant 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 or share purchase.
II. EFFECTIVE DATE AND TERM OF 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 Plan is approved by the Corporation's shareholders. If
such shareholder approval is not obtained within twelve (12) months after 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 or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. All options and unvested stock
issuances outstanding at that time under the Plan shall continue to have full
force and effect in accordance with the provisions of the documents evidencing
such options or issuances.
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 the rights and obligations with respect
to options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the
13.
<PAGE> 14
Participant consents to such amendment or modification. In addition, certain
amendments may require shareholder approval pursuant to applicable laws and
regulations.
B. Options may be granted under the Option Grant Program and shares
may be issued under the Stock Issuance Program which are in each instance in
excess of the number of shares of Common Stock then available for issuance under
the Plan, provided any excess shares actually issued under those programs shall
be held in escrow until there is obtained shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such shareholder approval is not obtained within
twelve (12) months after the date the first such excess issuances 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 and the Participants the exercise or purchase 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 cancelled
and cease to be outstanding.
IV. USE OF PROCEEDS
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.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of any options or upon the issuance or vesting of any shares issued
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the
Plan and the issuance of any shares of Common Stock (i) upon the exercise of any
option or (ii) under the Stock Issuance Program shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the shares of Common Stock issued pursuant to it.
VII. 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
14.
<PAGE> 15
expressly reserved by each, to terminate such person's Service at any time for
any reason, with or without cause.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income statement
at least annually to each individual holding an outstanding option under the
Plan, unless such individual is a key Employee whose duties in connection with
the Corporation (or any Parent or Subsidiary) assure such individual access to
equivalent information.
15.
<PAGE> 16
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION. shall mean Fort Point Partners, Inc., a California
corporation.
G. 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 and shall be determined by
the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any 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.
I. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
A-1.
<PAGE> 17
(i) 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. 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.
(ii) 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.
(iii) 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.
K. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) 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, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonuses under any
corporate-performance based bonus or incentive programs) by more than fifteen
percent (15%) or (C) a relocation of such individual's place of employment by
more than fifty (50) miles, provided and only if such change, reduction or
relocation is effected without the individual's consent.
M. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such
A-2.
<PAGE> 18
person of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as rounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any Parent or Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
P. OPTION GRANT PROGRAM shall mean the option grant program in effect
under the Plan.
Q. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
R. 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.
S. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
T. PLAN shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan, as set forth in this document.
U. PLAN ADMINISTRATOR shall mean either the Board or the Committee
acting in its capacity as administrator of the Plan.
V. 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, except to the
extent otherwise specifically provided in the documents evidencing the option
grant.
W. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
X. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock issuance program.
A-3.
<PAGE> 19
Y. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
under the Plan.
Z. 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.
AA. 10% SHAREHOLDER 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).
A-4.
<PAGE> 20
EXHIBIT E
Stock Option Agreement
15.
<PAGE> 21
FORT POINT PARTNERS, INC.
STOCK OPTION AGREEMENT
RECITALS.
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants and other independent
advisors in the service of the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or
a Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFOR, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to
Optionee, as of the Grant Date, an option to purchase up to the number of
Option Shares specified in the Grant Notice. The Option Shares shall be
purchasable from time to time during the option term specified in Paragraph 2
at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10)
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. During Optionee's lifetime,
this option shall be exercisable only by Optionee and shall not be assignable
or transferable other than by will or by the laws of descent and distribution
following Optionee's death.
4. DATES OF EXERCISE. This option shall become exercisable
for the Option Shares in one or more installments as specified in the Grant
Notice. As the Option becomes exercisable for such installments, those
installments shall accumulate and the option shall remain exercisable for the
accumulated installments until the Expiration Date or sooner termination of the
option term under Paragraph 5 or 6.
<PAGE> 22
5. CESSATION OF SERVICE. The option term specified in
Paragraph 2 shall terminate (and this option shall cease to be outstanding)
prior the Expiration Date should any of the following provisions become
applicable:
(a) Should Optionee cease to remain in Service for
any reason (other than death or Disability) while this option is outstanding,
then Optionee shall have a period of three (3) months (commencing with the date
of such cessation of Service) during which to exercise this option, but in no
event shall this option be exercisable at any time after the Expiration Date.
(b) Should Optionee die while this option is
outstanding, then the personal representative of Optionee's estate or the
person or persons to whom the option is transferred pursuant to Optionee's will
or in accordance with the laws of inheritance shall have the right to exercise
this option. Such right shall lapse, and this option shall cease to be
outstanding, upon the earlier of (i) the expiration of the twelve (12)- month
period measured from the date of Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of
Disability while this option is outstanding, then Optionee shall have a period
of twelve (12) months (commencing with the date of such cessation of Service)
during which to exercise this option. In no event shall this option be
exercisable at any time after the Expiration Date.
Note: Exercise of this option on a date later than three (3)
months following cessation of Service due to Disability will
result in loss of favorable Incentive Option treatment, unless
such Disability constitutes Permanent Disability. In the event
that Incentive Option treatment is not available, this option
will be taxed as a Non-Statutory Option upon exercise.
(d) During the limited period of post-Service
exercisability, this option may not be exercised in the aggregate for more than
the number of Option Shares in which Optionee is, at the time of Optionee's
cessation of Service, vested pursuant to the Vesting Schedule specified in the
Grant Notice or the special vesting acceleration provisions of Paragraph 6.
Upon the expiration of such limited exercise period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be outstanding for
any vested Option Shares for which the option has not been exercised. To the
extent Optionee is not vested in the Option Shares at the time of Optionee's
cessation of Service, this option shall immediately terminate and cease to be
outstanding with respect to those shares.
(e) In the event of a Corporate Transaction, the
provisions of Paragraph 6 shall govern the period for which this option is to
remain exercisable following Optionee's cessation of Service and shall
supersede any provisions to the contrary in this paragraph.
2.
<PAGE> 23
6. ACCELERATED VESTING.
(a) In the event of any Corporate Transaction, the Option
Shares at the time subject to this option but not otherwise vested shall
automatically vest in full so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become fully exercisable for all of
those Option Shares and may be exercised for any or all of those Option Shares
as fully-vested shares of Common Stock. However, the Option Shares shall NOT
vest on such an accelerated basis if and to the extent: (i) this option is
assumed by the successor corporation (or parent thereof) in the Corporate
Transaction and the Corporation's repurchase rights with respect to the unvested
Option Shares are assigned to such successor corporation (or parent thereof) or
(ii) this 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 (the excess of the Fair Market
Value of those Option Shares over the Exercise Price payable for such shares)
and provides for subsequent payout in accordance with the same Vesting Schedule
applicable to those unvested Option Shares as set forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. 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 total number
and/or class of securities subject to this option and (ii) the Exercise Price
in order to reflect such change and thereby preclude a dilution or enlargement
of benefits hereunder.
3.
<PAGE> 24
8. SHAREHOLDER RIGHTS. The holder of this option shall not have any
shareholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of
record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the Corporation; or
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Plan Administrator in accordance
with Paragraph 14.
Should the Common Stock be registered under Section 12(g) of the
1934 Act at the time the option is exercised, then the Exercise Price
may also be paid as follows:
(C) in shares of Common Stock held by the Optionee
(or any other person or persons exercising the option) for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date; or
(D) to the extent the option is exercised for vested
Option Shares, through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising
the option) shall concurrently provide irrevocable written
instructions (a) to a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the
Corporation by reason of such exercise
4.
<PAGE> 25
and (b) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete
the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Purchase Agreement delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other
than Optionee) have the right to exercise this option.
(iv) Execute and deliver to the Corporation such
written representations as may be requested by the Corporation in order
for it to comply with the applicable requirements of Federal and state
securities laws.
(v) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee) for
the satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE
OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS
ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN
THE PURCHASE AGREEMENT.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
5.
<PAGE> 26
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
14. FINANCING. The Plan Administrator may, in its absolute discretion
and without any obligation to do so, permit Optionee to pay the Exercise Price
for the purchased Option Shares by delivering a full-recourse, interest-bearing
promissory note secured by those Option Shares. The payment schedule in effect
for any such promissory note shall be established by the Plan Administrator in
its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
16. GOVERNING LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
17. SHAREHOLDER APPROVAL. If the Option Shares covered by this Agreement
exceed, as of the Grant Date, the number of shares of Common Stock which may be
issued under the Plan as last approved by the shareholders, then this option
shall be void with respect to such excess shares, unless shareholder approval of
an amendment sufficiently increasing the number of shares of Common Stock
issuable under the Plan is obtained in accordance with the provisions of the
Plan.
6.
<PAGE> 27
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.
(b) This option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this
option is deferred by reason of the foregoing limitation, the deferred portion
shall become exercisable in the first calendar year or years thereafter in which
the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b)
would not be contravened, but such deferral shall in all events end immediately
prior to the effective date of a Corporate Transaction in which this option is
not to be assumed, whereupon the option shall become immediately exercisable as
a Non-Statutory Option for the deferred portion of the Option Shares.
(c) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
7.
<PAGE> 28
APPENDIX
The following definitions shall be in effect under the
Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON Stock shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Fort Point Partners, Inc., a California
corporation.
G. DISABILITY shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute Permanent Disability in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any 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.
I. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
A-1.
<PAGE> 29
J. EXERCISE PRICE shall mean the exercise price payable per Option Share
as specified in the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) 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 the
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market or any successor system. 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.
(ii) 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.
(iii) 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.
M. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
0. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
A-2.
<PAGE> 30
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
R. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option.
S. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
T. 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.
U. PLAN shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan.
V. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
W. PURCHASE AGREEMENT shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
X. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
Z. 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.
AA. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
A-3.
<PAGE> 31
EXHIBIT F
STOCK PURCHASE AGREEMENT
16.
<PAGE> 32
FORT POINT PARTNERS, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made this _ day of ___________________________________
199___, by and between Fort Point Partners, Inc., a California corporation, and
________________________________, Optionee under the Corporation's 1996 Stock
Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. EXERCISE. Optionee hereby purchases shares of Common Stock
(the "Purchased Shares") pursuant to that certain option (the "Option") granted
Optionee on _________, 199_ (the "Grant Date") to purchase up to ________ shares
of Common Stock (the "Option Shares") under the Plan at the exercise price of
$______ per share (the "Exercise Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares
in accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. SHAREHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right or the First Refusal Right, Optionee (or any
successor in interest) shall have all the rights of a shareholder (including
voting, dividend and liquidation rights) with respect to the Purchased Shares,
subject however, to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that THE Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws
<PAGE> 33
or unless an exemption from such registration is available. Accordingly,
Optionee hereby acknowledges that Optionee is prepared to hold the Purchased
Shares for an indefinite period and that Optionee is aware that SEC Rule 144
issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
2. Restrictions on Disposition of Purchased Shares. Optionee
shall make no disposition of the Purchased Shares (other than a Permitted
Transfer) unless and until there is compliance with all of the following
requirements:
(i) Optionee shall have provided the Corporation with a
written summary of the terms and conditions of the proposed disposition.
(ii) Optionee shall have complied with all requirements
of this Agreement applicable to the disposition of the Purchased Shares.
(iii) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. Restrictive Legends. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be
sold or offered for sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a "no action" letter of the
Securities and Exchange Commission with respect to such sale or offer or
(c) satisfactory assurances to the Corporation that registration under
such Act is not required with respect to such sale or offer."
2.
<PAGE> 34
"The shares represented by this certificate are subject
to certain repurchase rights and rights of first refusal granted to the
Corporation and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement dated __________, 199__ between the
Corporation and the registered holder of the shares (or the predecessor
in interest to the shares). A copy of such agreement is maintained at
the Corporation's principal corporate offices."
C. TRANSFER RESTRICTIONS
1. Restriction on Transfer. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. Transferee Obligations. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Optionee.
3. Market Stand-Off.
(a) In connection with any underwritten public offering
by the Corporation of its equity securities pursuant to an effective
registration statement filed under the 1933 Act, including the Corporation's
initial public offering, Owner shall not Sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Purchased Shares without the prior written
consent of the Corporation or its underwriters. Such restriction (the "Market
Stand-Off") shall be in effect for such period of time from and after the
effective date of the final prospectus for the offering as may be requested by
the Corporation or such underwriters. In no event, however, shall such period
exceed one hundred eighty (180) days and the Market Stand-Off shall in all
events terminate two (2) years after the effective date of the Corporation's
initial public offering.
(b) Owner shall be subject to the Market Stand-Off
provided and only if the officers and directors of the Corporation are also
subject to similar restrictions.
3.
<PAGE> 35
(c) Any new, substituted or additional securities which
are by reason of any Recapitalization or Reorganization distributed with respect
to the Purchased Shares shall be immediately subject to the Market Stand-Off, to
the same extent the Purchased Shares are at such time covered by such
provisions.
(d) In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price all or (at the discretion of the
Corporation and with the consent of Optionee) any portion of the Purchased
Shares in which Optionee is not, at the time of his or her cessation of Service,
vested in accordance with the Vesting Schedule (such shares to be hereinafter
referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the Repurchase Right lapses shall, however, remain subject to
(i) the First Refusal Right and (ii) the Market Stand-Off.
4. AGGREGATE VESTING LIMITATION. If the Option is exercised in
more than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have
4.
<PAGE> 36
a fully-vested interest under this Agreement and all Prior Purchase Agreements
shall not exceed in the aggregate the number of Purchased Shares in which
Optionee would otherwise at the time be vested, in accordance with the Vesting
Schedule, had all the Purchased Shares (including those acquired under the Prior
Purchase Agreements) been acquired exclusively under this Agreement.
5. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right and
any escrow requirements hereunder, but only to the extent the Purchased Shares
are at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
6. CORPORATE TRANSACTION.
(a) The Repurchase Right shall automatically terminate
in its entirety, and all the Purchased Shares shall vest in full, immediately
prior to the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to any new securities
or other property (including any cash payments) received in exchange for the
Purchased Shares in consummation of the Corporate Transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation's capital structure; provided, however, that the aggregate purchase
price shall remain the same. The new securities or other property (including any
cash payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Optionee vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
E. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance with
the provisions of Article D. For purposes of this Article E, the term
"transfer" shall include any sale, assignment, pledge,
5.
<PAGE> 37
encumbrance or other disposition of the Purchased Shares intended to be made by
Owner, but shall not include any Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares subject to
the Disposition Notice upon the same terms as those specified therein or upon
such other terms (not materially different from those specified in the
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
6.
<PAGE> 38
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the Repurchase Right, but the acquired shares shall remain subject to the
First Refusal Right and the provisions of Article B and Paragraph C.3. In the
event Owner does not effect such sale or disposition of the Target Shares within
the specified thirty (30)-day period, the First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
(i) sale or other disposition of all the Target Shares
to the third-party offeror identified in the Disposition Notice, but in
full compliance with the requirements of Paragraph E.4, as if the
Corporation did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the
Target Shares which the Corporation has elected to purchase, such sale
to be effected in substantial conformity with the provisions of
Paragraph E.3. The First Refusal Right shall continue to be applicable
to any subsequent disposition of the remaining Target Shares until such
right lapses.
Owner's failure to deliver timely notification to the
Corporation shall be deemed to be an election by Owner to sell the Target Shares
pursuant to alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or
other property which is by reason of any Recapitalization distributed with
respect to the Purchased Shares shall be immediately subject to the First
Refusal Right, but only to the extent the Purchased Shares are at the time
covered by such right.
(b) In the event of a Reorganization, the First Refusal
Right shall remain in full force and effect and shall apply to the new capital
stock or other property received in exchange for the Purchased Shares in
consummation of the Reorganization, but only to the extent the Purchased Shares
are at the time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the earliest
to occur of (i) the first date on which shares of the Common Stock are held of
record by more than 7.
7.
<PAGE> 39
five hundred (500) persons, (ii) a determination is made by the Board that a
public market exists for the outstanding shares of Common Stock or (iii) a firm
commitment underwritten public offering, pursuant to an effective registration
statement under the 1933 Act, covering the offer and sale of the Common Stock in
the aggregate amount of at least ten million dollars ($10,000,000). However, the
Market Stand-Off shall continue to remain in full force and effect following the
lapse of the First Refusal Right.
F. SPECIAL-TAX ELECTION
The acquisition of the Purchased Shares may result in adverse
tax consequences which may be avoided or mitigated by filing an election under
Code Section 83(b). Such election must be filed within thirty (30) days after
the date of this Agreement. A description of the tax consequences applicable to
the acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more shareholders of the Corporation. If
the assignee of the Repurchase Right is other than (i) a wholly owned subsidiary
of the Corporation or (ii) the parent corporation owning one hundred percent
(100%) of the Corporation's outstanding capital stock, then such assignee must
make a cash payment to the Corporation, upon the assignment of the Repurchase
Right, in an amount equal to the excess (if any) of (i) the Fair Market Value of
the Purchased Shares at the time subject to the assigned Repurchase Right over
(ii) the aggregate repurchase price payable for the Purchased Shares.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon Optionee 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 Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party
8.
<PAGE> 40
entitled to such notice at the address indicated below such party's signature
line on this Agreement or at such other address as such party may designate by
ten (10) days advance written notice under this paragraph to all other parties
to this Agreement.
4. No Waiver. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Optionee. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. Cancellation of Shares. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
H. MISCELLANEOUS PROVISIONS
1. Optionee Undertaking. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
Pursuant to the provisions of this Agreement.
2. Agreement is Entire Contract. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
3. Governing Law. This Agreement shall be governed by, and
construed in accordance with,the laws of the State of California without resort
to that State's conflict-of-laws rules.
4. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and
9.
<PAGE> 41
upon Optionee, Optionee's permitted assigns and the legal representatives, heirs
and legatees of Optionee's estate, whether or not any such person shall have
become a party to this Agreement and have agreed in writing to join herein and
be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
FORT POINT PARTNERS, INC.
By:
----------------------------------------
Title:
-------------------------------------
Address:
-----------------------------------
-------------------------------------------
OPTIONEE
Address:
-----------------------------------
-------------------------------------------
10.
<PAGE> 42
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation) the
right of the Corporation (or its assigns) to purchase any Purchased Shares in
which Optionee is not vested at time of his or her cessation of Service.
-------------------------------------------
OPTIONEE'S SPOUSE
Address:
-----------------------------------
-------------------------------------------
11.
<PAGE> 43
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _________________ hereby sell(s), assign(s) and
transfer(s) unto Fort Point Partners, Inc. (the "Corporation"), ____________ ( )
shares of the Common Stock of the Corporation standing in his or her name on the
books of the Corporation represented by Certificate No. _________________
herewith and do(es) hereby irrevocably constitute and appoint ___________
Attorney to transfer the said stock on the books of the Corporation with full
power of substitution in the premises.
Dated:
Signature _____________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose. of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE> 44
EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
I. FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(b) ELECTION FOR
EXERCISE OF NON-STATUTORY OPTION. If the Purchased Shares are acquired pursuant
to the exercise of a Non-Statutory Option, as specified in the Grant Notice,
then under Code Section 83, the excess of the Fair Market Value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. However, Optionee may elect under Code Section
83(b) to be taxed at the time the Purchased Shares are acquired, rather than
when and as such Purchased Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of the Agreement. Even if the Fair Market
Value of the Purchased Shares on the date of the Agreement equals the Exercise
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE
APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY
INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
II. FEDERAL INCOME TAX CONSEQUENCES AND CONDITIONAL SECTION 83(b)
ELECTION FOR EXERCISE OF INCENTIVE OPTION. If the Purchased Shares are acquired
pursuant to the exercise of an Incentive Option, as specified in the Grant
Notice, then the following tax principles shall be applicable to the Purchased
Shares:
(i) For regular tax purposes, no taxable income will be recognized
at the time the Option is exercised.
(ii) The excess of (a) the Fair Market Value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over (b)
the Exercise Price paid for the Purchased Shares will be includible in
Optionee's taxable income for alternative minimum tax purposes.
(iii) If Optionee makes a disqualifying disposition of the Purchased
Shares, then Optionee will recognize ordinary income in the year of such
disposition equal in amount to the excess of (a) the Fair Market Value of
the Purchased Shares on the date the Option is exercised or (if later) on
the date any forfeiture restrictions applicable to the Purchased Shares
lapse over (b) the Exercise Price paid for the Purchased Shares. Any
additional gain recognized upon the disqualifying disposition will be
either
II-1.
<PAGE> 45
short-term or long-term capital gain depending upon the period for which
the Purchased Shares are held prior to the disposition.
(iv) For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right. The term "disqualifying
disposition" means any sale or other disposition (1) of the Purchased
Shares within two (2) years after the Grant Date or within one (1) year
after the exercise date of the Option.
(v) In the absence of final Treasury Regulations relating to
Incentive Options, it is not certain whether Optionee may, in connection
with the exercise of the Option for any Purchased Shares at the time
subject to forfeiture restrictions, file a protective election under Code
Section 83(b) which would limit (a) Optionee's alternative minimum taxable
income upon exercise and (b) Optionee's ordinary income upon a
disqualifying disposition to the excess of the Fair Market Value of the
Purchased Shares on the date the Option is exercised over the Exercise
Price paid for the Purchased Shares. Accordingly, such election if
properly filed will only be allowed to the extent the final Treasury
Regulations permit such a protective election. Page 2 of the attached form
for making the election should be filed with any election made in
connection with the exercise of an Incentive Option.
- ------------------
(1) Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Code.
II-2.
<PAGE> 46
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is ________
shares of the common stock of Fort Point Partners, Inc.
(3) The property was issued on _________, 199_.
(4) The taxable year in which the election is being made is the calendar year
199_.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if
for any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of installments over a four
(4)-year period ending on ________, 200_.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $_____ per share.
(7) The amount paid for such property is $_____ per share.
(8) A copy of this statement was furnished to Fort Point Partners, Inc. for
whom taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on ________, 199_.
- ------------------------------------ -----------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 47
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Purchase Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Fort Point Partners, Inc., a California
corporation.
G. DISPOSITION NOTICE shall have the meaning assigned to such
term in Paragraph E.2.
H. EXERCISE NOTICE shall have the meaning assigned to such term
in Paragraph E.3.
I. EXERCISE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
J. FAIR MARKET VALUE of a share of Common Stock on any relevant
date, prior to the initial public offering of the Common Stock, shall be
determined by the Plan Administrator after taking into account such
factors as it shall deem appropriate.
K. FIRST REFUSAL RIGHT shall mean the right granted to the
Corporation in accordance with Article E.
L. GRANT DATE shall have the meaning assigned to such term in
Paragraph A.l.
A- 1
<PAGE> 48
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option
pursuant to which Optionee has been informed of the basic terms of the
Option.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
0. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
P. 1933 ACT shall mean the Securities Act of 1933, as amended.
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. OPTION shall have the meaning assigned to such term in
Paragraph A.1.
T. OPTION AGREEMENT shall mean all agreements and other documents
evidencing the Option.
U. OPTIONEE shall mean the person to whom the Option is granted
under the Plan.
V. OWNER shall mean Optionee and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Optionee.
W. 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.
X. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Optionee's will or the laws of
intestate succession following Optionee's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness
incurred by Optionee in connection with the acquisition of the Purchased
Shares.
Y. PLAN shall mean the Corporation's 1996 Stock Option Plan.
Z. PLAN ADMINISTRATOR shall mean either the Board or a committee
of the Board acting in its capacity as administrator of the Plan.
A-2
<PAGE> 49
AA. PRIOR PURCHASE AGREEMENT shall have the meaning assigned to
such term in Paragraph D.4.
AB. PURCHASED SHARES shall have the meaning assigned to such term
in Paragraph A.1.
AC. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other
change affecting the Corporation's outstanding Common Stock as a class
without the Corporation's receipt of consideration.
AD. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or
persons different from the persons holding those securities
immediately prior to the merger, or
(iv) any transaction effected primarily to change the state
in which the Corporation is incorporated or to create a holding
company structure.
AE. REPURCHASE RIGHT shall mean the right granted to the
Corporation in accordance with Article D.
AF. SEC shall mean the Securities and Exchange Commission.
AG. SERVICE shall mean the Optionee's performance of services for
the Corporation (or any Parent or Subsidiary) in the capacity of an employee,
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, a non-employee member
of the board of directors or an independent consultant.
AH. 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.
A-3
<PAGE> 50
AI. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
AJ. VESTING SCHEDULE shall mean the vesting schedule specified in
the Grant Notice pursuant to which the Optionee is to vest in the Option Shares
in a series of installments over his or her period of Service.
AK. UNVESTED SHARES shall have the meaning assigned to such term
in Paragraph D.1.
A-4
<PAGE> 51
EXHIBIT G
Stock Issuance Agreement
17.
<PAGE> 52
FORT POINT PARTNERS, INC.
STOCK ISSUANCE AGREEMENT
AGREEMENT made as of this ________ day of ______________ 19__, by
and between Fort Point Partners, Inc., a California corporation, and
____________________________________________, Participant in the Corporation's
1996 Stock Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
1. PURCHASE. Participant hereby purchases __________ shares of
Common Stock (the "Purchased Shares") pursuant to the provisions of the Stock
Issuance Program at the purchase price of $_____ per share (the "Purchase
Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Participant shall pay the Purchase Price for the Purchased
Shares in cash or check payable to the Corporation and shall deliver a
duly-executed blank Assignment Separate from Certificate (in the form attached
hereto as Exhibit I) with respect to the Purchased Shares.
3. SHAREHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right or the First Refusal Right, Participant (or any
successor in interest) shall have all the rights of a shareholder (including
voting, dividend and liquidation rights) with respect to the Purchased Shares,
subject, however, to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Participant in reliance
upon the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Participant hereby
confirms that Participant has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Participant hereby acknowledges that Participant is prepared to hold the
Purchased Shares for an indefinite period and that Participant is aware that SEC
Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
<PAGE> 53
2. DISPOSITION OF PURCHASED SHARES. Participant shall make no
disposition of the Purchased Shares (other than a Permitted Transfer) unless and
until there is compliance with all of the following requirements:
(i) Participant shall have provided the Corporation with a
written summary of the terms and conditions of the proposed disposition.
(ii) Participant shall have complied with all requirements
of this Agreement applicable to the disposition of the Purchased Shares.
(iii) Participant shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold
or offered for sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a "no action" letter of the
Securities and Exchange Commission with respect to such sale or offer or
(c) satisfactory assurances to the Corporation that registration under
such Act is not required with respect to such sale or offer."
"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the
Corporation and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement dated __________, 199_ between the
Corporation and the registered holder of the shares (or the predecessor
in interest to the shares). A copy of such agreement is maintained at
the Corporation's principal corporate offices."
2.
<PAGE> 54
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Participant shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right, In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Participant.
3. MARKET STAND-OFF
(a) In connection with any underwritten public offering by
the Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred eighty
(180) days and the Market Stand-Off shall in all events terminate two (2) years
after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off
provided and only if the officers and directors of the Corporation are also
subject to similar restrictions.
(c) Any new, substituted or additional securities which
are by reason of any Recapitalization or Reorganization distributed with respect
to the Purchased Shares shall be immediately subject to the Market Stand-Off, to
the same extent the Purchased Shares are at such time covered by such
provisions.
(d) In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
3.
<PAGE> 55
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price all or (at the discretion of the Corporation
and with the consent of Participant) any portion of the Purchased Shares in
which Participant is not, at the time of his or her cessation of Service, vested
in accordance with the Vesting Schedule (such shares to be hereinafter referred
to as the "Unvested Shares").
2. EXERCISE OR THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Purchase Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Participant vests in accordance with the following Vesting Schedule:
(i) Upon Participant's completion of one (1) year of
Service measured from , 199_, Participant shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to,
twenty-five percent (25%) of the Purchased Shares.
(ii) Participant shall acquire a vested interest in, and
the Repurchase Right shall lapse with respect to, the remaining
Purchased Shares in a series of thirty-six (36) successive equal monthly
installments upon Participant's completion of each additional month of
Service over the thirty-six (36)-month period measured from the initial
vesting date under subparagraph (i) above.
All Purchased Shares as to which the Repurchase Right lapses
shall, however, remain subject to (i) the First Refusal Right and (ii) the
Market Stand-Off.
4.
<PAGE> 56
4. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right and
any escrow requirements hereunder, but only to the extent the Purchased Shares
are at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
5. CORPORATE TRANSACTION.
(a) The Repurchase Right shall automatically terminate in
its entirety, and all the Purchased Shares shall vest in full, immediately prior
to the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to any new securities
or other property (including any cash payments) received in exchange for the
Purchased Shares in consummation of the Corporate Transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation's capital structure; provided, however, that the aggregate purchase
price shall remain the same. The new securities or other property (including any
cash payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Optionee vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
(c) The Repurchase Right shall automatically lapse in its
entirety, and all the Purchased Shares shall immediately vest in full, upon an
Involuntary Termination of Optionee's Service within twelve (12) months
following the effective date of a Corporate Transaction in which the Repurchase
Right does not otherwise terminate in accordance with Paragraph D.5(a) above.
E. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Participant has vested in accordance
with the provisions of Article D. For purposes of this Article E, the term
"transfer" shall include any sale, assignment, pledge,
5.
<PAGE> 57
encumbrance or other disposition of the Purchased Shares intended to be made by
Owner, but shall not include any Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Participant has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares subject to
the Disposition Notice upon the same terms as those specified therein or upon
such other terms (not materially different from those specified in the
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
6.
<PAGE> 58
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the Repurchase Right and the First Refusal Right, but the acquired shares
shall remain subject to the provisions of Article B and Paragraph C.3. In the
event Owner does not effect such sale or disposition of the Target Shares within
the specified thirty (30)-day period, the First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in the Disposition Notice, but in
full compliance with the requirements of Paragraph E.4, as if the
Corporation did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target
Shares which the Corporation has elected to purchase, such sale to be
effected in substantial conformity with the provisions of Paragraph E.3.
The First Refusal Right shall continue to be applicable to any
subsequent disposition of the remaining Target Shares until such right
lapses.
Owner's failure to deliver timely notification to the Corporation
shall be deemed an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal
Right shall remain in full force and effect and shall apply to the new capital
stock or other property received in exchange for the Purchased Shares in
consummation of the Reorganization, but only to the extent the Purchased Shares
are at the time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the earliest
to occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market
7.
<PAGE> 59
exists for the outstanding shares of Common Stock or (iii) a firm commitment
underwritten public offering, pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of the Common Stock in the
aggregate amount of at least ten million dollars ($10,000,000). However, the
Market Stand-Off shall continue to remain in full force and effect following the
lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
1. SECTION 83(b) ELECTION . Under Code Section 83, the excess of
the Fair Market Value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be filed
with the Internal Revenue Service within thirty (30) days after the date of this
Agreement. Even if the Fair Market Value of the Purchased Shares on the date of
this Agreement equals the Purchase Price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. THE FORM
FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO. PARTICIPANT
UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY
(30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE
FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more shareholders of the Corporation. If
the assignee of the Repurchase Right is other than (i) a wholly owned subsidiary
of the Corporation or (ii) the parent corporation owning one hundred percent
(100%) of the Corporation's outstanding capital stock, then such assignee must
make a cash payment to the Corporation, upon the assignment of the Repurchase
Right, in an amount equal to the excess (if any) of (i) the Fair Market Value of
the Purchased Shares at the time subject to the assigned Repurchase Right over
(ii) the aggregate repurchase price payable for the Purchased Shares.
8.
<PAGE> 60
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon 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 Participant) or of Participant, which rights are hereby expressly
reserved by each, to terminate Participant's Service at any time for any reason,
with or without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Participant. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
H. MISCELLANEOUS PROVISIONS
1. PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Participant or the
Purchased Shares pursuant to the provisions of this Agreement.
2. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
9.
<PAGE> 61
3. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.
FORT POINT PARTNERS, INC
By:
---------------------------------
Title:
------------------------------
Address:
----------------------------
------------------------------------
PARTICIPANT
Address:
----------------------------
------------------------------------
10.
<PAGE> 62
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Participant has read and hereby approves the
foregoing Stock Issuance Agreement. In consideration of the Corporation's
granting Participant the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms of such Agreement, including (without
limitation) the right of the Corporation (or its assigns) to purchase any
Purchased Shares in which Participant is not vested at the time of his or her
cessation of Service.
------------------------------------
PARTICIPANT'S SPOUSE
Address:
----------------------------
------------------------------------
11.
<PAGE> 63
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________________ hereby sell(s), assign(s) and
transfer(s) unto Fort Point Partners, Inc. (the "Corporation"), ________________
(_____) shares of the Common Stock of the Corporation standing in his or her
name on the books of the Corporation represented by Certificate No.
________________ herewith and do hereby irrevocably constitute and appoint
________________________ Attorney to transfer the said stock on the books of the
Corporation with full power of substitution in the premises.
Dated:__________
Signature
---------------------------
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
<PAGE> 64
EXHIBIT 11
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is _______
shares of the common stock of Fort Point Partners, Inc.
(3) The property was issued on __________, 199__.
(4) The taxable year in which the election is being made is the calendar
year 199__.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of
installments over a four (4)-year period ending on
_____________________________, 200__.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will
never lapse) is $______ per share.
(7) The amount paid for such property is $_______ per share.
(8) A copy of this statement was furnished to Fort Point Partners, Inc. for
whom taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on _________________________, 199__.
- ------------------------------------ ------------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Issuance Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Participant must retain two (2) copies of the completed form for filing with his
or her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 65
APPENDIX
The following definitions shall be in effect under the
Agreement:
A. AGREEMENT shall mean this Stock Issuance Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Fort Point Partners, Inc., a California
corporation.
G. DISPOSITION NOTICE shall have the meaning assigned to such term in
Paragraph E.2.
H. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
I. FAIR MARKET VALUE of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
J. FIRST REFUSAL RIGHT shall mean the right granted to the Corporation
in accordance with Article E.
A-1
<PAGE> 66
K. INVOLUNTARY TERMINATION shall mean the termination of Participant's
Service which occurs by reason of:
(i) Participant's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) Participant's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in
Participant's level of compensation (including base salary, fringe
benefits and target bonuses under any corporate-performance based bonus
or incentive programs) by more than fifteen percent (15%) or (C) a
relocation of Participant's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is
effected by the Corporation without Participant's consent.
L. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
M. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Participant, any unauthorized use or disclosure by
Participant of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by Participant
adversely affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Participant or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
N. 1933 ACT shall mean the Securities Act of 1933, as amended.
O. OWNER shall mean Participant and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
P. 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.
Q. PARTICIPANT shall mean the person to whom shares are issued under the
Stock Issuance Program.
A-2.
<PAGE> 67
R. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.
S. PLAN shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan attached hereto as Exhibit III.
T. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
U. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
V. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
W. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
X. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation
is not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or persons
different from the persons holding those securities immediately prior to
the merger, or
(iv) any transaction effected primarily to change the
state in which the Corporation is incorporated or to create a holding
company structure.
Y. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article D.
Z. SEC shall mean the Securities and Exchange Commission.
A-3.
<PAGE> 68
AA. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by an individual in the capacity of an employee,
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, a non-employee member
of the board of directors or an independent consultant.
AB. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance Program under
the Plan.
AC. 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.
AD. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
AE. VESTING SCHEDULE shall mean the vesting schedule specified in
Paragraph D.3 pursuant to which Participant is to vest in the Purchased Shares
in a series of installments over the Participant's period of Service.
AF. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
A-4.
<PAGE> 1
EXHIBIT 10.2
FORT POINT PARTNERS INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
----------------------
April 26, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights........................................................1
1.1 Definitions......................................................1
1.2 Request for Registration.........................................2
1.3 Company Registration.............................................5
1.4 Form S-3 Registration............................................6
1.5 Obligations of the Company.......................................7
1.6 Information from Holder..........................................9
1.7 Expenses of Registration.........................................9
1.8 Delay of Registration...........................................10
1.9 Indemnification.................................................10
1.10 Reports Under the 1934 Act.....................................12
1.11 Assignment of Registration Rights..............................13
1.12 "Market Stand-Off"Agreement....................................13
1.13 Termination of Registration Rights.............................14
2. Covenants of the Company..................................................14
2.1 Delivery of Financial Statements................................14
2.2 Inspection......................................................14
2.3 Board Observer..................................................15
2.4 Termination of Information Inspection and
Board Observer Covenants........................................15
2.5 Right of First Offer............................................15
3. Miscellaneous.............................................................17
3.1 Successors and Assigns..........................................17
3.2 Governing Law...................................................17
3.3 Counterparts....................................................17
3.4 Titles and Subtitles............................................17
3.5 Notices.........................................................17
3.6 Expenses........................................................17
3.7 Amendments and Waivers..........................................17
3.8 Severability....................................................18
3.9 Aggregation of Stock............................................18
3.10 Entire Agreement...............................................18
3.11 Termination of Prior Agreement.................................18
</TABLE>
i
<PAGE> 3
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"Agreement") is made as of the 26th day of April, 2000, by and between Fort
Point Partners Inc., a California corporation (the "Company"), certain holders
of Preferred Stock of the Company, (the "Investors" or, individually, an
"Investor").
RECITALS
WHEREAS, the Company and certain of the Investors are parties
to that certain Amended and Restated Investors' Rights Agreement, dated June 8,
1999 (the "Prior Agreement");
WHEREAS, the Company and certain of the Investors (the "Series
E Investors") are parties to the Series E Preferred Stock Purchase Agreement of
even date herewith (the "Series E Agreement");
WHEREAS, in order to induce the Company to enter into the
Series E Agreement and to induce the Series E Investor to invest funds in the
Company pursuant to the Series E Agreement, the Investors and the Company hereby
agree that this Agreement shall govern the rights of the Investors regarding
certain matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees
as follows:
1.1 Definitions. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act
as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.10 hereof; provided, however, that James Roche and
Matthew Roche (the "Common Holders") shall not be deemed to be Holders for
purposes of Sections 1.2, 1.4 and 3.7.
(d) The term "Initial Offering" means the Company's
first firm commitment underwritten public offering of its Common Stock under the
Act.
(e) The term "1934 Act" means the Securities Exchange
Act of 1934, as amended.
<PAGE> 4
(f) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
(g) The term "Registrable Securities" means (i) the
Common Stock of the Company issuable or issued upon conversion of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock and the Series E Preferred Stock of the Company, (ii)
the 4,160,000 shares of Common Stock held by the Common Holders; provided,
however, that such shares of Common Stock shall not be deemed Registrable
Securities for the purposes of Sections 1.2, 1.4 and 3.7, and (iii) any Common
Stock of the Company issued (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued) as a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
shares referenced in (i) and (ii) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(h) The number of shares of "Registrable Securities"
outstanding shall be determined by the number of shares of Common Stock of the
Company outstanding that are, and the number of shares of Common Stock of the
Company issuable pursuant to then exercisable or convertible securities that
are, Registrable Securities.
(i) The term "SEC" shall mean the Securities and
Exchange Commission or any successor entity.
1.2 Request for Registration.
(a) (i) Subject to the conditions of this Section 1.2,
if the Company shall receive at any time after the earlier of (i) August 12,
2001 or (ii) six (6) months after the effective date of the Initial Offering, a
written request from the Holders of sixty percent (60%) or more of the
Registrable Securities then outstanding (the "Initiating Holders") that the
Company file a registration statement under the Act covering the registration of
Registrable Securities with an anticipated aggregate offering price of at least
$10,000,000, then the Company shall, within twenty (20) days after the receipt
thereof, give written notice of such request to all Holders, and subject to the
limitations of this Section 1.2, use best efforts to effect, as soon as
practicable, the registration under the Act of all Registrable Securities that
the Holders request to be registered in a written request received by the
Company within twenty (20) days of the mailing of the Company's notice pursuant
to this Section 1.2(a).
(ii) If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in Section 1.2(a)(i). In such event the right of any Holder
to include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders
2
<PAGE> 5
proposing to distribute their securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). Notwithstanding any other provision of this Section
1.2, if the underwriter advises the Company that marketing factors require a
limitation of the number of securities underwritten (including Registrable
Securities), then the Company shall so advise all Holders of Registrable
Securities that would otherwise be underwritten pursuant hereto, and the number
of shares that may be included in the underwriting shall be allocated to the
Holders of such Registrable Securities on a pro rata basis based on the number
of Registrable Securities held by all such Holders (including the Initiating
Holders). Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from the registration.
(b) (i) Subject to the conditions of this Section 1.2,
if the Company shall receive at any time after the earlier of (i) August 12,
2001 or (ii) six (6) months after the effective date of the Initial Offering, a
written request from the Holders of fifty percent (50%) or more of the Series D
Preferred Stock (including the Registrable Securities underlying the Series D
Preferred Stock) (the "Series D Initiating Holders") or from the Holders of
fifty percent (50%) or more of the Series E Preferred Stock (including the
Registrable Securities underlying the Series E Preferred Stock) (the "Series E
Initiating Holders") that the Company file a registration statement under the
Act covering the registration of Registrable Securities with an anticipated
aggregate offering price of at least $10,000,000, then the Company shall, within
twenty (20) days of the receipt thereof, give written notice of such request to
all Holders, and subject to the limitations of this Section 1.2, use best
efforts to effect, as soon as practicable, the registration under the Act of all
Registrable Securities that the Holders request to be registered in a written
request received by the Company within twenty (20) days of the mailing of the
Company's notice pursuant to this Section 1.2(b).
(ii) If the Series D Initiating Holders or Series
E Initiating Holders, as appropriate, intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 1.2
and the Company shall include such information in the written notice referred to
in Section 1.2(b)(i). In such event the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Series D Initiating Holders or Series E Initiating
Holders, as appropriate, and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Series D Initiating Holders or Series E Initiating Holders, as appropriate,
(which underwriter or underwriters shall be reasonably acceptable to the
Company). Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Company that marketing factors require a limitation of
the number of securities underwritten (including Registrable Securities), then
the Company shall so advise all Holders of Registrable Securities that would
otherwise be underwritten pursuant hereto, and the number of shares that may be
included in the underwriting shall be allocated (A) first, to the Series D
Initiating Holders or Series E Initiating Holders, as appropriate, and, if all
of the Registrable Securities of the Series D Initiating Holders or Series E
Initiating Holders,
3
<PAGE> 6
as appropriate, may be included, (B) second, to the other Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a
registration pursuant to this Section 1.2:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Act; or
(ii) in the case of a request for registration
under Section 1.2(a), after the Company has effected three (3) registrations
pursuant to such Section, and such registrations have been declared or ordered
effective and, if the method of disposition is a firm commitment underwritten
public offering, all shares requested to be sold thereunder shall have been sold
pursuant thereto, or, if such method of disposition includes the resale of
shares from time to time at prevailing market prices, such registration
statement has remained effective and available for resale at least one hundred
twenty (120) days; or
(iii) in the case of a request for registration
under Section 1.2(b) by the Series D Initiating Holders, after the Company has
effected three (3) registrations pursuant to such Section, and such
registrations have been declared or ordered effective and, if the method of
disposition is a firm commitment underwritten public offering, all shares
requested to be sold thereunder shall have been sold pursuant thereto, or, if
such method of disposition includes the resale of shares from time to time at
prevailing market prices, such registration statement has remained effective and
available for resale at least one hundred twenty (120) days; or
(iv) in the case of a request for registration
under Section 1.2(b) by the Series E Initiating Holders, after the Company has
effected two (2) registrations pursuant to such Section, and such registrations
have been declared or ordered effective and, if the method of disposition is a
firm commitment underwritten public offering, all shares requested to be sold
thereunder shall have been sold pursuant thereto, or, if such method of
disposition includes the resale of shares from time to time at prevailing market
prices, such registration statement has remained effective and available for
resale at least one hundred twenty (120) days; or
(v) during the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of the filing
of, and ending on a date ninety (90) days following the effective date of, a
Company-initiated registration subject to Section 1.3 below, provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
4
<PAGE> 7
(vi) if the Initiating Holders, Series D Initiating
Holders or Series E Initiating Holders propose to dispose of Registrable
Securities that may be registered on Form S-3 pursuant to Section 1.4 hereof; or
(vii) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 1.2, a certificate
signed by the Company's Chief Executive Officer or Chairman of the Board stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its shareholders for such
registration statement to be effected at such time, in which event the Company
shall have the right to defer such filing for a period of not more than ninety
(90) days after receipt of the request of the Initiating Holders, the Series D
Initiating Holders or Series E Initiating Holders, provided that such right to
delay a request shall be exercised by the Company not more than once in any
twelve (12)-month period.
1.3 Company Registration.
(a) If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan or a registration in which the only
Common Stock being registered is Common Stock issuable upon conversion of debt
securities that are also being registered), the Company shall, at such time,
promptly give each Holder written notice of such registration. Upon the written
request of each Holder given within twenty (20) days after mailing of such
notice by the Company in accordance with Section 3.5, the Company shall, subject
to the provisions of Section 1.3(c), use its best efforts to cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
(b) Right to Terminate Registration. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 1.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The expenses
of such withdrawn registration shall be borne by the Company in accordance with
Section 1.7 hereof.
(c) Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under this Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities,
5
<PAGE> 8
including Registrable Securities, that the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling Holders according to the
total amount of securities entitled to be included therein owned by each selling
Holder or in such other proportions as shall mutually be agreed to by such
selling Holders), but in no event shall (i) the amount of securities of the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
(including the Registrable Securities Underlying the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock) included in the offering be reduced below
twenty percent (20%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities, in which case such holders may be excluded if the underwriters make
the determination described above and no other shareholder's securities are
included, or (ii) notwithstanding (i) above, any shares being sold by a
shareholder exercising a demand registration right similar to that granted in
Section 1.2 be excluded from such offering. For purposes of the preceding
parenthetical concerning apportionment, for any selling shareholder that is a
Holder of Registrable Securities and that is a partnership or corporation, the
partners, retired partners and shareholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
Holder," and any pro rata reduction with respect to such "selling Holder" shall
be based upon the aggregate amount of Registrable Securities owned by all such
related entities and individuals.
1.4 Form S-3 Registration. In case the Company shall
receive from the Holders of at least thirty percent (30%) of the Registrable
Securities, thirty percent (30%) of the Series D Preferred Stock (including the
Registrable Securities underlying the Series D Preferred Stock) or thirty
percent (30%) of the Series E Preferred Stock (including the Registrable
Securities underlying the Series E Preferred Stock), as the case may be, a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company shall:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) use best efforts to effect, as soon as practicable,
such registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company, provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this Section
1.4:
(i) if Form S-3 is not available for such offering
by the Holders;
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(ii) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $2,500,000;
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chief Executive Officer or Chairman of the Board of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than ninety (90) days after
receipt of the request of the Holder or Holders under this Section 1.4;
provided, however, that the Company shall not utilize this right more than once
in any twelve (12) month period;
(iv) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected one
registration on Form S-3 for the Holders pursuant to this Section 1.4; or
(v) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as requests for registration effected pursuant
to Section 1.2.
1.5 Obligations of the Company. Whenever required under
this Section 1 to effect the registration of any Registrable Securities, the
Company shall use its best efforts to effect the registration and the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(a) prepare and within sixty (60) days (or forty-five
(45) days with respect to any registration on Form S-3) after the end of the
period within which requests for registration may be given to the Company file
with the SEC a registration statement with respect to such Registrable
Securities and use best efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective for
a period of (i) up to one hundred eighty (180) days or, if such registration
statement relates to an underwritten offering, such longer period as in the
opinion of counsel for the underwriters a prospectus is required by law to be
delivered in connection with sales of Registrable Securities by an underwriter
or dealer or (ii) if earlier, until the distribution contemplated in the
Registration Statement has been completed in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
Registration Statement (but in any event not before the expiration of any longer
period required under the Securities Act) (provided that before filing a
registration statement or
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<PAGE> 10
prospectus or any amendments or supplements thereto, the Company will furnish to
the counsel selected by the Holders of a majority of the Registrable Securities
initiating or participating in such registration statement copies of all such
documents proposed to be filed, which documents will be subject to review of
such counsel);
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement;
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, each amendment and supplement to
the prospectus, in conformity with the requirements of the Act, and such other
documents as they may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them;
(d) use best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holders to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such Holders, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions;
(e) in the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering, and take all
such other actions as the Holders of a majority of the Registrable Securities
being sold or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities (including, without
limitation, effecting a stock split or a combination of shares);
(f) notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) use its best efforts to cause all such Registrable
Securities registered pursuant hereunder to be listed on each securities
exchange on which similar securities issued by the Company are then listed, and,
if not so listed, to be listed on the NASD automated quotation system;
(h) provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration;
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(i) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve (12) months beginning with the first day of the
Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any securities included in such registration statement for sale
in any jurisdiction, the Company will use its reasonable best efforts promptly
to obtain the withdrawal of such order;
(l) use its best efforts to obtain one or more comfort
letters, dated the effective date of such registration statement (and, if such
registration includes a public offering, dated the date of the closing under the
underwriting agreement), signed by the Company's independent public accountants
in customary form and covering such matters of the type customarily covered by
comfort letters as the Holders of a majority of the Registrable Securities being
sold reasonably request; and
(m) use its best efforts to provide a legal opinion of
the Company's outside counsel, dated the effective date of such registration
statement (and, if such registration includes a public offering, dated the date
of the closing under the underwriting agreement), with respect to the
registration statement, each amendment and supplement thereto, the prospectus
included therein (including the preliminary prospectus) and such other documents
relating thereto in customary form and covering such matters of the type
customarily covered by legal opinions of such nature.
1.6 Information from Holder. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.7 Expenses of Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
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Company shall be borne by the Company. In connection with each request for
registration (i) pursuant to Section 1.2(a)(i) and each "piggyback registration"
pursuant to Section 1.3, the Company will reimburse the Holders covered by such
registration for the reasonable fees and disbursements of one counsel chosen by
the Holders of a majority of the Registrable Securities initiating or
participating in such registration and (ii) pursuant to Section 1.2(b)(i), the
Company will reimburse the Holders covered by such registration for the
reasonable fees and disbursements of one counsel chosen by the Holders of a
majority of the Series D Preferred Stock (including the Registrable Securities
underlying the Series D Preferred Stock) or a majority of the Series E Preferred
Stock (including the Registrable Securities underlying the Series E Preferred
Stock, as appropriate) initiating or participating in such registration.
Notwithstanding the foregoing, the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 1.2 or Section
1.4 if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all participating Holders shall bear such expenses pro rata based upon the
number of Registrable Securities that were to be requested in the withdrawn
registration), provided, however, that if at the time of such withdrawal, the
Holders have learned of a material adverse change in the condition, business, or
prospects of the Company from that known to the Holders at the time of their
request and have withdrawn the request with reasonable promptness following
disclosure by the Company of such material adverse change, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 1.2 or 1.4.
1.8 Delay of Registration. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable
Securities are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners or officers, directors and
shareholders of each Holder, legal counsel and accountants for each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the 1934
Act, against any losses, claims, damages, expenses, liabilities (joint or
several) or actions in respect thereof, to which they may become subject under
the Act, the 1934 Act or any state securities laws, insofar as such losses,
claims, damages, expenses, liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities laws or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities laws; and the Company will reimburse each such Holder, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any
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such loss, claim, damage, expense, liability or action; provided, however, that
the indemnity agreement contained in this subsection l.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, expense, liability
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, expense, liability or
action to the extent that it arises out of or is based upon a Violation that
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person; provided, further, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Holder or underwriter, or any person controlling
such Holder or underwriter, from whom the person asserting any such losses,
claims, damages, expenses, liabilities or actions purchased shares in the
offering, if a copy of the prospectus (as then amended or supplemented if the
Company shall have furnished such Holder with a sufficient number of copies of
any amendments or supplements thereto) was not sent or given by or on behalf of
such Holder or underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the shares to
such person, and if the prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage, expense, liability or
action, unless copies of such prospectus were not timely delivered to the
Holder.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, legal counsel and
accountants for the Company, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, expenses,
liabilities (joint or several) or actions in respect thereof, to which any of
the foregoing persons may become subject, under the Act, the 1934 Act or any
state securities laws, insofar as such losses, claims, damages, expenses,
liabilities (or actions in respect thereof) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any person intended to be indemnified
pursuant to this subsection l.9(b), for any legal or other expenses reasonably
incurred by such person in connection with investigating or defending any such
loss, claim, damage, expense, liability or action; provided, however, that the
indemnity agreement contained in this subsection l.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, expense, liability
or action if such settlement is effected without the consent of the Holder
(which consent shall not be unreasonably withheld), provided that in no event
shall any indemnity under this subsection l.9(b) exceed the net proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party
under this Section 1.9 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.9,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly
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noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party (together with all other
indemnified parties that may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 1.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section
1.9 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, claim, damage, expense, liability or
action referred to herein, then the indemnifying party, in lieu of indemnifying
such indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, claim, damage, expense,
liability or action in such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and of the indemnified party on
the other in connection with the statements or omissions that resulted in such
loss, claim, damage, expense, liability or action, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under
this Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.10 Reports Under the 1934 Act. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the Initial Offering;
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(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.11 Assignment of Registration Rights. The rights to cause
the Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that (i) is a subsidiary, affiliate, affiliated
fund, parent, partner, limited partner, retired partner, member, retired member
or shareholder of a Holder or (ii) is a Holder's family member or trust for the
benefit of an individual Holder, or (iii) after such assignment or transfer,
holds at least 300,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided: (a) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.12 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
1.12 "Market Stand-Off" Agreement. Each Holder hereby
agrees that it will not, without the prior written consent of the managing
underwriter, during the period commencing on the date of the final prospectus
relating to the Company's Initial Offering and ending on the date specified by
the Company and the managing underwriter (provided that such period is also
applicable to all directors and officers and five percent (5%) shareholders and
does not exceed one hundred eighty (l80) days) (a) lend, 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, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock of the Company or any securities convertible into or exercisable or
exchangeable for Common Stock of the Company (whether such shares or any such
securities are then owned by the Holder or are thereafter acquired), or (ii)
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 of
the Company, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock of the Company or such other
securities, in cash or otherwise. The underwriters in connection with the
Company's Initial Offering are intended third party beneficiaries of this
Section 1.12 and shall have the right, power and authority to enforce the
provisions hereof as though they were a party hereto.
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In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.13 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the Initial Offering or, as to any Holder,
such earlier time at which all Registrable Securities held by such Holder (and
any affiliate of the Holder with whom such Holder must aggregate its sales under
Rule 144) can be sold in any three (3)-month period without registration in
compliance with Rule 144 of the Act.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall
deliver to each Investor who holds at least Six hundred twenty-five thousand
shares of Preferred Stock of the Company and who executes a customary
non-disclosure agreement:
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end financial reports
to be in reasonable detail, prepared in accordance with generally accepted
accounting principles ("GAAP"), and audited and certified by independent public
accountants of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement, schedule
as to the sources and application of funds for such fiscal quarter and an
unaudited balance sheet as of the end of such fiscal quarter;
(c) with respect to the financial statements called for
in subsection (b) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment; and
(d) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time request;
provided, however, that the Company shall not be obligated under this subsection
(d) or any other subsection of Section 2.1 to provide information which it deems
in good faith to be a trade secret or similar confidential information.
2.2 Inspection. The Company shall permit each Investor, at
such Investor's expense, to visit and inspect the Company's properties, to
examine its books of
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account and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by the
Investor; provided, however, that the Company shall not be obligated pursuant to
this Section 2.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
2.3 Board Observer. So long as Meritech Capital Partners,
L.P. and its partners and affiliates ("Meritech") holds at least 500,000 shares
of Series E Preferred Stock of the Company (such number to be proportionately
adjusted for stock splits, stock dividends, and similar events), the Company
will permit a representative of Meritech to attend all meetings of the Company's
Board of Directors (the "Board") and all committees thereof (whether in person,
telephonic or other) in a non-voting, observer capacity and shall provide to
Meritech, concurrently with the members of the Board, and in the same manner,
notice of such meeting and a copy of all materials provided to such members;
provided, however, that Meritech and its representatives shall agree to hold in
confidence and trust all information so provided; and, provided further, that
the Company reserves the right to withhold any information and to exclude such
representative from any meeting or portion thereof if access to such information
or attendance at such meeting (i) would adversely affect the attorney-client
privilege between the Company and its counsel, (ii) would result in disclosure
to such representative of trade secrets, or (iii) if participation at such
meeting would create a conflict of interest between the Company and Meritech or
its representative.
2.4 Termination of Information, Inspection and Board
Observer Covenants. The covenants set forth in Section 2.1, Section 2.2 and
Section 2.3 shall terminate as to the Investors and be of no further force or
effect when the sale of securities pursuant to a registration statement filed by
the Company under the Act in connection with the firm commitment underwritten
offering of its securities to the general public is consummated or when the
Company first becomes subject to the periodic reporting requirements of Sections
12(g) or 15(d) of the 1934 Act, whichever event shall first occur.
2.5 Right of First Offer. Subject to the terms and
conditions specified in this Section 2.5, the Company hereby grants to each
Major Investor (as hereinafter defined) a right of first offer with respect to
future sales by the Company of its Shares (as hereinafter defined). For purposes
of this Section 2.5, a Major Investor shall mean any Investor who holds at least
325,000 shares of the Preferred Stock of the Company (or the common stock issued
upon conversion thereof) (as adjusted for stock splits, combination and similar
events). For purposes of this Section 2.5, the term "Investor" includes any
general partners and affiliates of an Investor. An Investor shall be entitled to
apportion the right of first offer hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified
mail ("Notice") to the Major Investors stating (i) its bona fide intention to
offer such Shares, (ii) the
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number of such Shares to be offered, and (iii) the price and terms, if any, upon
which it proposes to offer such Shares.
(b) By written notification received by the Company,
within twenty (20) calendar days after giving of the Notice, the Major Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that the
number of shares of Common Stock of the Company issued and held, or issuable
upon conversion of the Preferred Stock of the Company then held, by such Major
Investor bears to the total number of shares of Common Stock of the Company then
outstanding (assuming full conversion and exercise of all convertible or
exercisable securities). The Company shall promptly, in writing, inform each
Major Investor which purchases all the Shares available to it ("Fully-Exercising
Investor") of any other Major Investor's failure to do likewise. During the ten
(10) day period commencing after such information is given, each
Fully-Exercising Investor shall be entitled to obtain that portion of the Shares
for which Major Investors were entitled to subscribe but which were not
subscribed for by the Major Investors which is equal to the proportion that the
number of shares of Common Stock of the Company issued and held, or issuable
upon conversion of the Preferred Stock of the Company then held, by such
Fully-Exercising Investor bears to the total number of shares of Common Stock of
the Company issued and held, or issuable upon conversion of the Preferred Stock
of the Company then held, by all Fully-Exercising Investors who wish to purchase
some of the unsubscribed shares.
(c) If all Shares referred to in the Notice are not
elected to be obtained as provided in subsection 2.5(b) hereof, the Company may,
during the thirty (30) day period following the expiration of the periods in
subsection 2.5(b) hereof, offer the remaining unsubscribed portion of such
Shares to any person or persons at a price not less than, and upon terms no more
favorable to the offeree than those specified in the Notice. If the Company does
not sell, or enter into an agreement for the sale of the Shares, within such
period, or if such agreement is not consummated within thirty (30) days of the
execution thereof, the right provided hereunder shall be deemed to be revived
and such Shares shall not be offered unless first reoffered to the Major
Investors in accordance herewith.
(d) The right of first offer in this Section 2.5 shall
not be applicable (i) to the issuance or sale of Common Stock of the Company (or
options therefor) to consultants, directors or employees for the primary purpose
of soliciting or retaining their employment, (ii) to or after consummation of a
bona fide, firmly underwritten public offering of shares of common stock
registered under the Act pursuant to a registration statement on Form S-1, (iii)
to the issuance of Common Stock and convertible securities, and options,
warrants and other rights to acquire Common Stock or convertible securities
issued pursuant to the conversion or exercise of convertible or exercisable
securities, the issuance of which was subject to this section or that were
outstanding as of the date hereof, (iv) to the issuance or sale of securities in
connection with a bona fide business acquisition, merger, consolidation, sale of
assets, sale or exchange of stock or strategic relationships or similar
transactions approved by the Board, (v) to the issuance of stock, warrants or
other securities or rights to persons or entities with which the Company has
material business relationships, so long as such issuance is to the seller and
not to any existing shareholder of the Company and is unanimously approved by
the Board of Directors of the Company, or (vi) to the sale and issuance of the
Series E Preferred Stock of the Company.
16
<PAGE> 19
(e) The right of first offer set forth in this Section
2.5 may not be assigned or transferred, except that (i) such right is assignable
by each Holder to any affiliated fund of, wholly owned subsidiary or parent of,
or to any corporation or entity that is, within the meaning of the Act,
controlling, controlled by or under common control with, any such Holder, (ii)
such right is assignable between and among any of the Holders, and (iii) such
right is assignable in connection with the transfer of at least 325,000 shares
of Preferred Stock of the Company otherwise in compliance with the terms of this
Agreement.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 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.
3.4 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be deemed
effectively given if personally delivered to the party to be notified,
telecopied or mailed with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties. All notices are effective upon receipt or upon refusal if
properly delivered.
3.6 Expenses. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
3.7 Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company, holders of a
majority of the Registrable Securities then outstanding, holders of a
17
<PAGE> 20
majority of the Series D Preferred Stock and holders of a majority of the
Series E Preferred Stock. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities, and the
Company.
3.8 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9 Aggregation of Stock. All shares of Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
3.10 Entire Agreement. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof.
3.11 Termination of Prior Agreement. The parties to the
Prior Agreement (all of whom are parties to this Agreement) hereby agree that
the Prior Agreement is hereby terminated and of no further force and effect.
18
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
FORT POINT PARTNERS INC.
By: /s/ JAMES T. ROCHE
________________________________________
(signature)
Name: ______________________________________
Title: _____________________________________
Address: ____________________________________________
____________________________________________
INVESTORS:
SERIES D HOLDERS
BAKER COMMUNICATIONS FUND, L.P.,
By: Baker Capital Partners, LLC
Its General Partner
By: /s/ EDWARD SCOTT
________________________________________
Name: ______________________________________
Title: Manager
Address: Baker Communications Fund, L.P.
c/o Baker Capital Partners, LLC
540 Madison Avenue
New York, New York 10022
Facsimile: (202) 486-0660
Attention: Edward Scott
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 22
ACCEL VII L.P.
By: Accel VII Associates L.L.C.
It's General Partner
By: SIGNATURE ILLEGIBLE
_________________________________
Managing Member
ACCEL INTERNET FUND III L.P.
By: Accel Internet Fund III Associates L.L.C.
It's General Partner
By: SIGNATURE ILLEGIBLE
_________________________________
Managing Member
ACCEL INVESTORS '99 L.P.
By: SIGNATURE ILLEGIBLE
_________________________________
General Partner
SERIES E HOLDERS
MERITECH CAPITAL PARTNERS L.P.
By: Meritech Capital Associates L.L.C.
its General Partner
By: Meritech Management Associates L.L.C.
a managing member
By: ______________________________________
Paul S. Madera, a managing member
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 23
MERITECH CAPITAL AFFILIATES L.P.
By: Meritech Capital Associates L.L.C.
its General Partner
By: Meritech Management Associates L.L.C.
a managing member
By: /s/PAUL S. MADERA
_______________________________________
Paul S. Madera, a managing member
Address: 90 Middlefield Road, Suite 201
Menlo Park, CA 94025
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 24
CREDIT SUISSE FIRST BOSTON VENTURE FUND I, L.P.
By: QBB Management I, L.L.C., its General Partner
By: /s/ BILL BRADY
__________________________________
Name:
Title: Member
2400 Hanover Street
Palo Alto, CA 94304
Facsimile No.: (650) 614-5083
Attention: Frank Quattrone
CREDIT SUISSE FIRST BOSTON
TECHNOLOGY GROUP FUND II, L.P.
By: Merchant Capital, Inc., its General Partner
By: /s/ FRANK QUATTRONE
___________________________________
Name:
Title:
Facsimile No.: (650) 614-5083
2400 Hanover Street
Palo Alto, CA 94304
Attention: Frank Quattrone
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 25
KARR FAMILY 1982 TRUST
By: /s/ HOWARD L. KARR, TRUSTEE
______________________________________
Name: Howard L. Karr
____________________________________
Title: Trustee
___________________________________
Address: _________________________________
_________________________________
ROBERT T. VASAN TRUST DATED 4/10/97
By: /s/ ROBERT T. VASAN
______________________________________
(signature)
Name: Robert T. Vasan
____________________________________
Title: Trustee
____________________________________
Address: 2800 Sand Hill Road, Suite 250
_________________________________
Menlo Park, CA 94025
_________________________________
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 26
ELLIS PARTNERS LLC
By: /s/ JAMES F. ELLIS
_______________________________________
(signature)
Name: James F. Ellis
______________________________________
Title: Vice President
_____________________________________
Address: 433 California Street, Suite 610
San Francisco, CA 94104
WHITEWATER CAPITAL 15, LLC
By: CFSC Capital Corp. LXIV, its sole member
By: TIMOTHY S. CLARK
________________________________________
(signature)
Name: Timothy S. Clark
______________________________________
Title: Vice President
_____________________________________
Address: ATTN: THOMAS G. HUETTNER
________________________________________
12700 Whitewater Drive
_________________________________________
Minnetonka, MN 55343
_________________________________________
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 27
ACCEL VII L.P.
By: Accel VII Associates L.L.C.
Its General Partner
By: SIGNATURE ILLEGIBLE
________________________________________
Name: ______________________________________
Title: Managing Member
ACCEL INTERNET FUND III L.P.
By: Accel Internet Fund III Associates L.L.C.
Its General Partner
By: SIGNATURE ILLEGIBLE
________________________________________
Name: ______________________________________
Title: Managing Member
ACCEL INVESTORS '99 L.P.
By: SIGNATURE ILLEGIBLE
_________________________________________
Name: _______________________________________
Title: General Partner
Address: One Palmer Square
Princeton, NY 08542
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 28
BAKER COMMUNICATIONS FUND, L.P.
By: Baker Capital Partners, LLC
Its General Partner
By: /s/ EDWARD SCOTT
_____________________________________
Name: Edward Scott
___________________________________
Title: General Partner
__________________________________
Address: c/o Baker Capital Partners, LLC
540 Madison Avenue
New York, New York 10022
Facsimile: (202) 486-0660
Attention: Edward Scott
DR. ALFONSO CORRALES
By: /s/ ALFONSO CORRALES
_____________________________________
Name: Alfonso Corrales
_____________________________________
Title: __________________________________
Address: 30 Oxford Road
White Plains, NY 10605
MARK CORRALES
By: /s/ MARK CORRALES
_______________________________________
Name: Mark Corrales
_____________________________________
Title: VP Operations
____________________________________
Address: 1319 Talbot Avenue
Berkeley, CA 94702
PEGGY DUNNE
By: /s/ PEGGY DUNNE
______________________________________
Name: Peggy Dunne
_____________________________________
Title: __________________________________
Address: 13 Sleepy Oaks
Houston, TX 77024
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 29
GDC PARTNERS 2000 FUND LLC
By: /s/ HATEF BEHNIA
____________________________________
Name: Hatef Behnia
__________________________________
Title: Managing Member
_________________________________
Address: c/o Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
RICHARD KASHNOW
By: /s/ RICHARD KASHNOW
____________________________________
Name: Richard Kashnow
__________________________________
Title: _______________________________
Address: c/o TYPCO Ventures
300 Constitution Drive
Menlo Park, CA 94025
DAN LYKKEN
By: /s/ DANIEL LYKKEN
____________________________________
Name: Daniel Lykken
__________________________________
Title: _______________________________
Address: 6948 Torry Street
Arvada, CO
D'ARCY & MARILYN ROCHE
By: /s/ N. D'ARCY ROCH
____________________________________
Name: N. D'Arcy Roche
__________________________________
By: /s/ MARILYN M. ROCHE
____________________________________
Name: Marilyn M. Roche
__________________________________
Address: 128 Clark Drive
San Mateo, CA 94402
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 30
STEPHAN ROCHE
By: /s/ STEPHAN C. ROCHE
____________________________________
Name: Stephen C. Roche
__________________________________
Title: _______________________________
Address: 3749 Clay Street
San Francisco, CA 94118
SF PARTNERS XIV
By: /s/ DAVID SANDERSON
____________________________________
Name: David Sanderson
__________________________________
Title: _______________________________
Address: One Embarcadero, Suite 3600
San Francisco, CA 94111
KARL VON DER HEYDEN
By: /s/ KARL VON DER HEYDEN
____________________________________
Name: Karl Von Der Heyden
__________________________________
Title: _______________________________
Address: c/o PepsiCo., Inc.
700 Anderson Hill Road
Purchase, NY 10577
PHILLIP YAU
By: /s/ PHILLIP YAU
____________________________________
Name: Phillip Yau
__________________________________
Title: _______________________________
Address: 2404 Divisadero Street
San Francisco, CA 94115
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 31
AT INVESTORS
By: /s/ ARTHUR H. BILLER
________________________________
(signature)
Name: Arthur H. Biller
______________________________
Title: Managing Member
_____________________________
480 Bel Air Road
Los Angeles, CA 90077
Facsimile Number: (310) 385-9367
Attention: Art Bilger
DR. DUNBAR HOSKINS
By: /s/ H. DUNBAR HOSKINS, JR., MD
________________________________
(signature)
Name: H. Dunbar Hoskins, Jr., MD
______________________________
Title: ____________________________
Address: 655 Beach Street
San Francisco, CA 94109
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 32
J. THURSTON ROACH & CATHERINE B. ROACH
By: /s/ J. THURSTON ROACH
________________________________________
(signature)
/s/ CATHERINE B. ROACH
________________________________________
Name: ______________________________________
Title: ___________________________________
Address: 234 Maiden Lane East
Seattle, WA 98112
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 33
COMMON HOLDERS:
JAMES ROCHE
By: /s/ JAMES ROCHE
________________________________________
(signature)
Address: ____________________________________
____________________________________
MATTHEW ROCHE
By: /s/ MATTHEW ROCHE
________________________________
(signature)
Address: _____________________________________
_____________________________________
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 10.3
111 SUTTER STREET
SUBLEASE
(SHOPNOW.COM/FORT POINT PARTNERS)
THIS SUBLEASE is made and entered into as of April 6, 2000, to be
effective on the date on which this Sublease is fully executed and delivered by
the parties hereto and Landlord's written consent hereto is procured (the
"Effective Date"), by and between ShopNow.com, Inc., a Washington corporation
("ShopNow"), and Fort Point Partners, Inc., a California corporation
("Subtenant").
RECITALS
A. ShopNow entered into that certain Office Building Lease, dated
September 21, 1999 (the "Master Lease"), in which CEP Investors XII LLC
("Landlord") leased to ShopNow and ShopNow leased from Landlord certain premises
consisting approximately of 50,833 rentable square feet located on the 8th, 9th,
10th, and 11th floors of the building commonly known as 111 Sutter Street,
situated in the City of San Francisco, California, as more particularly
described in the Master Lease. A copy of the Master Lease is attached hereto as
Attachment 1. A complete copy of Tenant's Plans (as defined in the Master Lease)
is attached hereto as Attachment 2. All capitalized terms used herein, unless
otherwise provided herein, shall have the meanings ascribed to them in the
Master Lease.
B. ShopNow and Subtenant desire to enter into a sublease of a portion of
the Master Premises consisting approximately of 12,703 rentable square feet (the
"Premises") and consisting of the entire 9th floor portion of the Master
Premises, as shown on the floor plan attached hereto as Attachment 3, upon the
terms and conditions set forth herein.
AGREEMENTS
In consideration of the mutual promises and covenants herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Premises. ShopNow leases to Subtenant and Subtenant leases from
ShopNow the Premises.
2. Term. The term of this Sublease shall commence as of the later (the
"Sublease Commencement Date") of the Effective Date or the Term Commencement
Date (as defined in the Master Lease), and expire upon the earlier of (i)
expiration or earlier termination of the Master Lease, or (ii) the last day of
the month that is fourteen (14) months after the Sublease Commencement Date.
ShopNow agrees to use reasonable efforts to request Landlord to cause the Term
Commencement Date to occur on or before May 1, 2000. In the event that the
Sublease Commencement Date has not occurred as to all portions of the Premises
on or before May 1, 2000, due to
1
<PAGE> 2
causes within ShopNow's reasonable control, Subtenant shall be entitled to a
reduction in Base Rent to $37.00 per annum per rentable square foot of the
Premises not timely delivered for each day that possession of any portion of the
Premises is not timely delivered. If the Sublease Commencement Date as to all
portions of the Premises has not occurred on or before July 1, 2000, each of
ShopNow and Subtenant may elect to terminate this Sublease (in which case
neither party shall have any further duties or liabilities hereunder) upon five
(5) days written notice to the other party unless the Sublease Commencement Date
occurs during such 5-day period. From and after the later of the Effective Date
or the Physical Possession Date (as defined in the Master Lease) until the
Sublease Commencement Date, subject to the terms hereof and of the Master Lease,
Subtenant and its consultants and contractors shall be permitted to enter the
Premises in order to install telephone networks, computer networks and the
Cabling (as defined below) in accordance with Tenant's Plans, provided that such
work does not interfere with the construction of the Tenant Improvements and the
Landlord Improvements.
3. Incorporation of Master Lease. Except for the Premises, rent, the
total percentage of Tenant's Proportionate Share, commencement and termination
dates, rent payment due date, security deposit, notice addresses and brokers,
this Sublease is made upon and shall be subject to all of the terms and
conditions set forth in the Master Lease, which terms and conditions are
incorporated herein by this reference, as if ShopNow were the landlord and
Subtenant were the tenant and the Premises hereunder were the "Leased Premises"
under the Master Lease; provided, however, that any other provisions of the
Master Lease which are inconsistent or contradictory with the provisions of this
Sublease, and the following provisions of the Master Lease, are not incorporated
herein: Sections 3.01, 3.03, 5.14, 5.16 (excepting the first, second, seventh
and eighth sentences thereof), 8.01, 9.02, 9.11, Exhibit A and Exhibit B
(excepting the first two sentences of Section 1 [excluding provisions relating
to approval by Tenant], first sentence of Section 4(a), Section 4(b) and Section
8 thereof) and Exhibit F (collectively, the "Excluded Obligations"). In case of
any default hereof by Subtenant, ShopNow shall have all rights against Subtenant
as would be available to Landlord against the tenant under the Master Lease if
such default were by the tenant thereunder. Subtenant acknowledges that it has
read and understands the Master Lease attached hereto as Attachment 1, which
ShopNow represents and warrants is a true and complete copy of the Master Lease.
Except as otherwise provided herein with respect to the Premises, rent, Tenant's
Proportionate Share, commencement and termination dates, rent payment due date,
security deposit, notice addresses, brokers and the Excluded Obligations,
Subtenant agrees to perform, observe, and be bound by all of the promises,
obligations, acknowledgments, terms, and conditions by, of, or applicable to
ShopNow (but solely to the extent applicable to the Premises) under the Master
Lease from and after the Sublease Commencement Date. ShopNow hereby grants to
Subtenant the right to receive all of the rights, services and benefits with
respect to the Premises which are to be provided by Landlord under the Master
Lease. Notwithstanding anything contained herein to the contrary, ShopNow does
not by this Sublease promise or agree to perform any obligation undertaken or
assumed by Landlord under the Master Lease. Subtenant agrees that Subtenant
shall look solely to Landlord to furnish all services and to perform all
obligations which Landlord has agreed
2
<PAGE> 3
to perform and observe under the Master Lease with respect to the Premises, and
ShopNow shall not be liable to Subtenant or deemed in default hereunder for
failure of Landlord to perform or observe the same. ShopNow will, however, use
ShopNow's good faith, reasonable efforts to obtain performance by Landlord for
Subtenant's benefit under the Master Lease. Such efforts shall include, without
limitation, upon Subtenant's written request to ShopNow therefor, if ShopNow
reasonably concurs with Subtenant regarding Landlord's nonperformance,
immediately notifying Landlord of its nonperformance under the Master Lease and
requesting Landlord to perform its obligations under the Master Lease. If
Landlord does not perform its obligations under the Master Lease, subject to
ShopNow's prior written consent and exercise of reasonable efforts to cause such
performance by Landlord, Subtenant shall be entitled to pursue, in the name of
ShopNow, all remedies against Landlord which are available to the tenant under
the Master Lease and ShopNow agrees to reasonably cooperate with Subtenant, at
the sole cost of Subtenant, in any such action.
4. Rent. Subtenant shall pay to ShopNow, without demand or offset
(except as provided herein) on or before the date which is five (5) days before
the applicable due date under the Master Lease the Gross Rent (including Base
Rent and Tenant's Proportionate Share of Increased Basic Operating Cost), and,
on or before the later of (i) five (5) days after ShopNow's or Landlord's
written demand therefor; or (ii) five (5) days before the date such sums are
due, any Additional Rent and all other amounts payable under the Master Lease
and attributable to the Premises; provided, however, the Base Rent payable
hereunder by Subtenant shall be $63,515 per month and Tenant's Proportionate
Share of Increased Basic Operating Cost for the Premises shall be four and 96/00
percent (4.96%) for the Premises.
5. Additional Charges. If ShopNow shall be charged for additional rent
or other sums arising during the term of this Sublease pursuant to the
provisions of the Master Lease, attributable to the Premises or Subtenant,
including without limitation provisions relating to extra services provided to
Subtenant at its request, for which ShopNow is responsible under the Master
Lease, Subtenant shall be liable for such additional rent or sums. Any rent or
other sums payable by Subtenant under this Section 5 shall be additional rent
and collectible as such.
6. Security Deposit. Subtenant has paid ShopNow the sum of Ninety-five
Thousand Dollars ($95,000), as security for the full and faithful performance of
the terms, covenants, and conditions of this Sublease on Subtenant's part to be
performed or observed, including without limitation payment of Gross Rent and
Additional Rent and all other amounts payable hereunder and under the Master
Lease in default or for any other sum which ShopNow may reasonably expend or be
required to expend by reason of Subtenant's default, including any damages or
deficiencies in reletting the Premises, in whole or in part, whether such
damages or deficiencies shall accrue before or after summary proceedings or
other re-entry by ShopNow. If ShopNow uses or applies all or any part of the
security deposit, Subtenant shall, on demand, pay to ShopNow a sum sufficient to
restore the security deposit to the full amount required by this Sublease. If
Subtenant shall fully and faithfully comply with all the terms, covenants, and
conditions of this Sublease on Subtenant's part to be performed or observed, the
security deposit,
3
<PAGE> 4
or any unapplied balance thereof, shall be returned to Subtenant within thirty
(30) days after the termination of the term of this Sublease and the removal of
Subtenant and surrender of possession of the Premises to ShopNow. ShopNow shall
have no obligation to segregate the security deposit from its general funds or
to pay interest in respect thereof. No part of the security deposit shall be
considered to be held in trust, or to be prepayment of any monies to be paid by
Subtenant under this Sublease.
7. Indemnity. Subtenant agrees to indemnify, defend and hold harmless
ShopNow from and against all liabilities, claims, causes of action, losses,
costs and expenses (including reasonable attorneys' fees and court costs)
arising during the term of this Sublease to the extent caused by the negligence,
willful misconduct, breach of this Sublease or breach of the Master Lease by
Subtenant, its employees, contractors, invitees, licensees or agents. Nothing
herein shall require Subtenant to protect ShopNow from and against any such
risks to the extent caused by the negligence or willful misconduct by ShopNow,
Landlord or their respective employees, contractors, invitees, licensees or
agents or ShopNow's violation of laws or breach of its obligations or
representations under this Sublease. ShopNow agrees to indemnify, defend and
hold harmless Subtenant from and against all liabilities, claims, causes of
action, losses, costs and expenses (including reasonable attorneys' fees and
court costs) arising during the term of this Sublease to the extent caused by
the negligence, willful misconduct, breach of this Sublease or breach of the
Master Lease by ShopNow, its employees, contractors, invitees, licensees or
agents. Nothing herein shall require ShopNow to protect Subtenant from and
against any such risks to the extent caused by the negligence or willful
misconduct by Subtenant, Landlord or their respective employees, contractors,
invitees, licensees or agents or Subtenant's violation of laws or breach of its
obligations or representations under this Sublease.
8. Insurance. All insurance required to be maintained by ShopNow
pursuant to the Master Lease shall be maintained by Subtenant (to the extent
applicable to the Premises) and shall name ShopNow, Landlord and others
designated in the Master Lease as additional insureds, in the same manner and
with the same coverage, notice requirements, and endorsements as set forth in
the Master Lease. Subject to Landlord's written agreement that the waiver set
forth in Section 7.05 of the Master Lease shall run in favor of ShopNow and
Subtenant and Landlord shall inform its insurer of such waiver in accordance
therewith such that Landlord's insurer shall not hold any right of subrogation,
Subtenant agrees that the waiver set forth in Section 7.05 of the Master Lease
shall run in favor of Landlord, and Subtenant shall inform its insurer of such
waiver in accordance therewith such that Subtenant's insurer shall not hold any
right of subrogation.
9. Acceptance of Premises; Alterations. Subtenant accepts the Premises
in the condition existing at the Sublease Commencement Date. Subtenant will not
demand that ShopNow make any improvement on the Premises or provide any
maintenance thereof. Subtenant may make alterations and improvements to the
Premises only in accordance with the provisions of the Master Lease.
Notwithstanding anything herein or in the Master Lease to the contrary,
Subtenant shall not be required to contribute, reimburse or otherwise pay for
any costs of initial construction of the
4
<PAGE> 5
Landlord Improvements, the Tenant Improvements or any portions thereof, pursuant
to Exhibit B to the Master Lease.
10. Default by Subtenant; Re-entry. If Subtenant fails to pay rent or
other sums due hereunder within three (3) days after written demand that the
same are due or if Subtenant violates, breaches, or fails to keep or perform any
covenant, agreement, term, or condition of this Sublease (other than payment of
rent and other sums), and does not remedy such default or violation within
twenty (20) days after notice in writing thereof given by ShopNow or Landlord to
Subtenant specifying the matter claimed to be in default, ShopNow, at ShopNow's
option, may pursue against Subtenant those remedies provided to Landlord in
Section 7.08 and other applicable provisions of the Master Lease.
11. Surrender of Premises. Subtenant shall promptly yield and deliver to
ShopNow possession of the Premises at the expiration or sooner termination of
the term of this Sublease. Any holding over by Subtenant after the expiration or
sooner termination of the term of this Sublease, with ShopNow's and Landlord's
written consent, shall be construed to be a tenancy from month to month, at the
rents and on all the terms and conditions set forth herein, to the extent not
inconsistent with a month-to-month tenancy.
12. Assignment. Subtenant shall not assign, mortgage, transfer, pledge
or otherwise encumber its interest in this Sublease, nor sublet the Premises or
permit the Premises to be occupied or used by any person other than Subtenant,
in whole or in part, without ShopNow's and Landlord's consent, which shall not
be unreasonably withheld, conditioned or delayed.
13. Notices. Any notice or communication that either party desires or is
required to give to the other party shall be in writing and either (i) served
personally, (ii) sent by reputable courier service providing proof of delivery;
or (iii) sent by return receipt requested, prepaid, first class registered or
certified mail, addressed to the other party at the address set forth below. Any
party may change its address by notifying the other party of the change of
address. Notice shall be deemed received upon delivery evidenced by proof of
delivery or return receipt.
ShopNow:
ShopNow.Com, Inc.
411 First Avenue South
Suite 200N
Seattle, WA 98104
Attn: General Counsel
Fax: (206) 652 3105
AND
Haggingroup.com
5
<PAGE> 6
489 Miller Avenue
Mill Valley, CA 94941
Attn: Controller
Fax: (415) 381 1164
Subtenant:
Fort Point Partners, Inc.
111 Sutter Street, Suite No. 2200
San Francisco, CA 94104
Attn: Kelly Green
Fax: (415) 395 4783
14. Successors or Assigns. Except as otherwise expressly provided in
this Sublease, all the terms, conditions, covenants, and agreements of this
Sublease shall extend to and be binding upon ShopNow and Subtenant and their
respective successors and assigns, and upon any person or persons coming into
ownership or possession of any interest in the Premises by operation of law or
otherwise.
15. Partial Invalidity. If any term, covenant, or condition of this
Sublease or the Master Lease, or the application thereof to any person or
circumstance is, to any extent, invalid or unenforceable, the remainder of this
Sublease and the Master Lease, or the application of such term, covenant, or
condition to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term,
covenant, or condition of this Sublease shall be valid and shall be enforced to
the fullest extent permitted by law.
16. Recordation. Neither ShopNow nor Subtenant shall record this
Sublease or a memorandum hereof.
17. Waiver. The waiver by either ShopNow or Subtenant of a breach of any
term or condition of this Sublease shall not be deemed to constitute the waiver
of any other breach of the same or any other term or condition hereof.
18. Entire Agreement. This Sublease and the Master Lease under which it
is entered set forth the entire agreement of ShopNow and Subtenant concerning
the lease of the Premises, and there are no other agreements or understandings,
oral or written, between ShopNow and Subtenant concerning the lease of the
Premises. Any subsequent modification or amendment of this Sublease shall be
binding upon ShopNow and Subtenant only if in writing and signed by both
parties.
19. Brokers. ShopNow has been represented in this transaction by
Colliers International ("ShopNow's Broker"), and Subtenant has been represented
in this transaction by Cushman & Wakefield ("Subtenant's Broker"). Upon full
execution of this Sublease by ShopNow and Subtenant, and Landlord's written
consent hereto, ShopNow shall pay to ShopNow's Broker and Subtenant's Broker a
fee for brokerage services rendered by them in this transaction provided for in
separate written
6
<PAGE> 7
agreements between ShopNow and ShopNow's Broker. Each party represents and
warrants to the other that ShopNow's Broker and Subtenant's Broker are the only
agents, brokers, finders or other similar parties with whom such party has had
any dealings in connection with the negotiation of this Sublease and the
consummation of the transaction contemplated hereby. Each party hereby agrees to
indemnify, defend and hold the other party free and harmless from and against
liability for compensation or charges which may be claimed by any agent, broker,
finder or other similar party by reason of any dealings with or actions of such
indemnifying party in connection with the negotiation of this Sublease and the
consummation of this transaction, including without limitation any costs,
expenses and attorneys' fees incurred with respect thereto. The parties'
obligations under this Section shall survive the expiration or earlier
termination of this Sublease.
20. Applicable Law. This Sublease shall be governed by and construed in
accordance with the laws of the State of California.
21. Time. Time is of the essence hereof.
22. Approval of Landlord. Notwithstanding anything contained herein to
the contrary, this Sublease shall not be effective until and unless Landlord
consents to this Sublease by signing below. In the event that Landlord's consent
is not obtained on or before the date that is thirty (30) days after the
execution and delivery hereof by ShopNow and Subtenant, each of ShopNow and
Subtenant may elect to terminate this Sublease (in which case neither party
shall have any further duties or liabilities hereunder) upon five (5) days
written notice to the other party unless Landlord's consent is obtained during
such 5-day period.
23. Signage. Subject to Section 4.4 and other applicable provisions of
the Master Lease, ShopNow agrees to use reasonable efforts to cause Landlord to
provide identification of Subtenant's name and suite numerals on a building
directory in the Building lobby, to reasonably consent to Subtenant's proposed
signage, and to assist Subtenant to receive Landlord's consent to the
installation and maintenance of signage identifying Subtenant at each entrance
to the Premises, at Subtenant's sole cost.
24. Reimbursement of Cabling Costs. Commencing on the first day of the
tenth (10th) full month of the term of this Sublease, Subtenant shall be
entitled to deduct from Base Rent fifty percent (50%) of the costs incurred by
Subtenant to install data, voice, telephone and other communications cabling in
the Premises ("Cabling"); provided, however, the total amount to be so deducted
from Base Rent shall not exceed the lesser of the amount of the final bid
referenced below or $15,000 (the "Total Cost"), and the amount to be so deducted
from Base Rent during any month shall not exceed $5,000. If this Sublease
terminates for any reason whatsoever prior to the time Subtenant has received a
full reimbursement of the Total Cost by way of deductions from Base Rent,
Subtenant shall have no further right to receive reimbursement from ShopNow for
the Cabling. Within five (5) business days after receipt of each of Subtenant's
plans for the Cabling and/or the final bid for the Cabling, ShopNow shall
provide its approval (not to be unreasonably withheld, conditioned or delayed)
or specify
7
<PAGE> 8
the reasons for its disapproval. If ShopNow fails to timely provide its approval
or disapproval, ShopNow shall be deemed to have provided its approval. Subtenant
shall not be required or entitled to remove the Cabling upon expiration or
earlier termination of this Sublease.
25. Preservation of Master Lease. ShopNow agrees not to make any
amendment or modification to the Master Lease (including, without limitation,
Exhibit B (Initial Improvement of the Leased Premises) thereto and Tenant's
Plans attached hereto as Attachment 2) which would materially increase
Subtenant's obligations hereunder or decrease Subtenant's rights hereunder,
without Subtenant's prior written consent. ShopNow represents and warrants that,
to the best of its knowledge, neither party to the Master Lease is currently in
default of its obligations thereunder and no event has occurred that, with the
giving of notice or the passage of time, or both, will constitute an event of
default thereunder.
26. Authority. ShopNow and Subtenant represent and warrant to the other
party that (i) they are corporations, duly formed, validly existing and in good
standing under the laws of the State of Washington, and the State of California,
respectively, (ii) they have the legal power, right and authority to enter into
this Sublease, (iii) the individuals executing this Sublease and the instruments
referenced herein on behalf of such party have the legal power, right and actual
authority to bind that party to the terms and conditions hereof.
27. Limitation of Liability. No present or future member, partner,
advisor, trustee, director, officer, employee, beneficiary, shareholder,
participant or agent of or in ShopNow or Subtenant shall have any personal
liability, directly or indirectly, under or in connection with this Sublease and
each of Subtenant and ShopNow shall look solely to the other party's assets for
the payment of any claim or for any performance.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE.]
8
<PAGE> 9
EXECUTED as of the day and year first above written.
SHOPNOW.COM, INC.,
a Washington corporation
By: /s/ ALAN KOSLON
-----------------------------------
Name: Alan Koslon
---------------------------------
Title: CFO
--------------------------------
Date: , 2000
-----------------
FORT POINT PARTNERS, INC.,
a California corporation
By: /s/ JAMES T. ROCHE
-----------------------------------
Name: James T. Roche
---------------------------------
Title: Co-CEO, Co-President
--------------------------------
Date: April 10 , 2000
-----------------
Attachment 1: Copy of Master Lease
Attachment 2: Copy of Tenant's Plans
Attachment 3: Copy of Premises Floor Plan
9
<PAGE> 10
LANDLORD'S CONSENT
The undersigned, Landlord under the Master Lease, has read and approved
the foregoing Sublease and hereby consents to the subleasing of the Premises, as
described in the foregoing Sublease, on the terms and conditions set forth in
the foregoing Sublease. Landlord hereby covenants that, during the term of the
Sublease, all notices to be issued by Landlord under or in connection with the
Master Lease shall be sent to ShopNow at the address below, with a simultaneous
copy to Subtenant at the Premises. Landlord agrees that the waiver set forth in
Section 7.05 of the Master Lease shall run in favor of ShopNow and Subtenant and
Landlord shall inform its insurer of such waiver in accordance therewith such
that Landlord's insurer shall not hold any right of subrogation. Landlord
further agrees that if the Master Lease is terminated, surrendered or cancelled
(unless as a result of an act or omission that is required to be performed or
refrained from by Subtenant under the Sublease or the Master Lease), Landlord
hereby elects to continue the Sublease in accordance with Section 9.08 of the
Master Lease, and Subtenant agrees to attorn to Landlord as the sublandlord
under the Sublease and the Sublease shall continue in full force and effect upon
the same terms and conditions; provided, however, ShopNow shall incur no
additional obligation to Landlord or Subtenant resulting from such election of
Landlord or continuation of the Sublease.
ShopNow.Com, Inc.
411 First Avenue South
Suite 200N
Seattle, WA 98104
Attn: General Counsel
Fax: (206) 652 3105
AND
Haggingroup.com
489 Miller Avenue
Mill Valley, CA 94941
Attn: Controller
Fax: (415) 381 1164
LANDLORD:
CEP INVESTORS XII LLC, a Delaware limited liability company
By: EPI Investors XII LLC, a California limited liability company
Its: Manager
By: Ellis Partners, Inc., a California corporation
Its: Manager
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Date: , 2000.
------------
10
<PAGE> 1
EXHIBIT 10.4
- 111 SUTTER STREET -
- OFFICE BUILDING LEASE -
BASIC LEASE INFORMATION
DATE OF LEASE: August 5, 1999
LANDLORD: CEP INVESTORS XII LLC
LANDLORD'S ADDRESS: c/o Ellis Partners, Inc.
433 California Street, Sixth Floor
San Francisco, California 94104
Attn: Mr. James F. Ellis
TENANT: FORT POINT PARTNERS, INC.
TENANT'S ADDRESS: 111 Sutter Street
San Francisco, California 94104
Attn: Mr. Kelly Green
BUILDING: 111 Sutter Street, San Francisco, California
LEASED PREMISES: Approximately 27,899 square feet consisting of the
entire 20th (approximately 9,514 rentable square
feet), 21st (approximately 9,561 rentable square
feet), and 22nd (approximately 8,824 rentable
square feet) floors of the Building
RENTABLE AREA: Approximately 27,899 rentable square feet
TERM COMMENCEMENT DATE: The date the Tenant Improvements for the 20th floor
are Substantially Complete (estimated to be October
15, 1999)
TERM EXPIRATION DATE: The last day of the ninety-sixth (96th) full
calendar month after the Term Commencement Date
OPTION TO EXTEND:
Number of Extension Periods: One (1)
Years per Extension Period: Five (5)
<PAGE> 2
BASE RENT: Months 1 to 36 = $43.00 per rentable square foot of
Rentable Area per annum (notwithstanding the
foregoing, Tenant shall not pay Base Rent for the
21st floor or 22nd floor until the Tenant
Improvements for the 21st floor and 22nd (delivered
together) are Substantially Complete, estimated to
be December 1, 1999 for both the 21st and 22nd
floors).
Months 37 to 60 = $46.00 per rentable square foot
of Rentable Area per annum
Months 61 to 96 = $49.00 per rentable square foot
of Rentable Area per annum
BASE YEAR: 2000
TENANT'S PROPORTIONATE SHARE (BUILDING): approximately 10.69%
SECURITY DEPOSIT: $1,660,100.00
GUARANTOR: None
LANDLORD'S BROKER: The CAC Group
TENANT'S BROKER: Cushman & Wakefield
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE TO FOLLOW.]
<PAGE> 3
The foregoing BASIC LEASE INFORMATION is incorporated herein and made a
part of the LEASE to which it is attached. If there is any conflict between the
BASIC LEASE INFORMATION and the LEASE, the BASIC LEASE INFORMATION shall
control.
"LANDLORD":
CEP INVESTORS XII LLC,
a Delaware limited liability company
By: EPI Investors XII LLC,
a California limited liability company
Its Manager
By: Ellis Partners, Inc.,
a California corporation,
Its Manager
By: /s/ JAMES F. ELLIS
-------------------------
Typed Name: James F. Ellis
-----------------
Title: Vice President
----------------------
"TENANT":
FORT POINT PARTNERS, INC.
a California corporation
By: /s/ MATTHEW ROCHE
---------------------------------
Typed Name: Matthew Roche
-------------------------
Title: President
------------------------------
By: /s/ JAMES T. ROCHE
---------------------------------
Typed Name: James Roche
-------------------------
Title: CEO
------------------------------
iii
<PAGE> 4
OFFICE BUILDING LEASE
THIS LEASE, made as of the date specified in the BASIC LEASE INFORMATION
sheet, by and between the landlord specified in the BASIC LEASE INFORMATION
sheet ("Landlord") and the tenant specified in the BASIC LEASE INFORMATION sheet
("Tenant").
ARTICLE 1.
DEFINITIONS
1.1 DEFINITIONS: Terms used herein shall have the following meanings:
1.2 "ADDITIONAL RENT" shall mean all monetary obligations of Tenant
under this Lease other than the obligation for payment of Gross Rent.
1.3 "BASE EXPENSES" [intentionally deleted]
1.4 "BASE RENT" shall mean the sums due from time to time as rental for
the Leased Premises.
1.5 "BASE YEAR" shall mean the calendar year specified on the Basic
Lease Information sheet.
1.6 "BASIC OPERATING COST" shall have the meaning given in Section 3.05.
1.7 "BUILDING" shall mean the building and other improvements associated
therewith identified on the Basic Lease Information sheet.
1.8 "BUILDING STANDARD IMPROVEMENTS" shall mean the standard materials
ordinarily used by Landlord in the improvement of the Leased Premises.
1.9 "COMMON AREAS" shall mean (a) the areas on individual floors of the
Building devoted to non-exclusive uses such as common corridors, lobbies, fire
vestibules, elevator foyers, stairways, elevators, electric and telephone
closets, restrooms, mechanical closets, janitor closets and other similar
facilities for the benefit of all tenants (and invitees) on the particular floor
and other floors and (b) other areas of the Project available for the use and
benefit of all tenants (and invitees).
1.10 "COMPUTATION YEAR" shall mean a fiscal year consisting of the
calendar year commencing January 1st of each year during the Term, commencing in
the Base Year and continuing through the Term, with a short or stub fiscal year
in any partial fiscal year in which the Lease expires or is terminated for the
period between January 1 of such year and the date of lease termination or
expiration.
1.11 "GROSS RENT" shall mean the total of Base Rent and Tenant's
Proportionate Share of Increased Basic Operating Cost.
1.12 "LANDLORD'S BROKER" shall mean the individual or corporate broker
identified on the Basic Lease Information sheet as the broker for Landlord.
1.13 "LANDLORD'S CONTRIBUTION" shall have the meaning given in EXHIBIT
B.
1.14 "LANDLORD'S IMPROVEMENTS" shall have the meaning given in EXHIBIT
B.
1.15 "LEASED PREMISES" shall mean the floor area more particularly shown
on the floor plan attached hereto as EXHIBIT A, containing the Rentable Area (as
such term is defined in Section 1.18 below) specified on the Basic Lease
Information sheet.
1
<PAGE> 5
1.16 "PERMITTED USE" shall mean general office, and any other related
lawful use; provided, however, that Permitted Use shall not include (a) offices
or agencies of any foreign government or political subdivision thereof; (b)
offices of any agency or bureau of any state, county or city government; (c)
offices of any health care professionals; (d) schools or other training
facilities which are not ancillary to corporate, executive or professional
office use; or (e) retail or restaurant uses.
1.17 "PROJECT" shall mean the Building and common areas affiliated
therewith, and the real property on which the Building and common areas are
located.
1.18 "RENT" shall mean Gross Rent plus Additional Rent.
1.19 "RENTABLE AREA" shall mean the area or areas of space in the
Building determined in accordance with the Standard Method for Measuring Floor
Area in Office Buildings published by the Building Owners and Managers
Association International (ANSI-Z65.1-1996) and including a proportionate
allocation of the square footage of the Building's elevator and mechanical
equipment areas, telephone and electrical rooms, loading dock, janitorial
service areas, public lobbies and corridors. The Rentable Area of the Leased
Premises has been calculated on the basis of the foregoing definition and is
agreed for all purposes of this Lease to be the amount stated on the Basic Lease
Information sheet, subject to remeasurement by Landlord within sixty (60) days
of the date of this Lease. Such remeasurement, if any, shall be made by
Landlord's architect in accordance with this Section 1.19. Tenant's architect
may consult with Landlord's architect regarding such remeasurement.
1.20 "SECURITY DEPOSIT" shall mean the amount specified on the Basic
Lease Information sheet to be paid by Tenant to Landlord and held and applied
pursuant to Section 5.14.
1.21 "SUBSTANTIAL COMPLETION" shall mean (and the Leased Premises shall
be deemed "Substantially Complete") when (i) installation of the Tenant
Improvements and the Landlord's Improvements (as defined in EXHIBIT B) by the
Contractor has occurred; (ii) Tenant has direct access from the street to the
elevator lobby on the floor (or floors) where the Leased Premises are located;
(iii) basic services (as described in Section 4.01) are available to the Leased
Premises; (iv) Tenant's architect has issued a certificate of Substantial
Completion with respect to the Leased Premises; and (v) a certificate of
occupancy or its equivalent for the Leased Premises has been issued by
appropriate governmental authorities. Substantial Completion shall be deemed to
have occurred notwithstanding a requirement to complete "punchlist" items or
similar corrective work.
1.22 [intentionally deleted.]
1.23 "TENANT IMPROVEMENTS" shall have the meaning given in EXHIBIT B.
1.24 "TENANT'S BROKER" shall mean the individual or corporate broker
identified on the Basic Lease Information sheet as the broker for Tenant.
1.25 "TENANT'S PHYSICAL POSSESSION DATE" shall mean October 1, 1999 for
the 20th floor and November 15, 1999 for the 21st and 22nd floors.
1.26 "TENANT'S PROPORTIONATE SHARE" is specified on the Basic Lease
Information sheet and is based on the percentage which the Rentable Area of the
Leased Premises bears to the total Rentable Area of the Project, subject to
adjustment in the event of the remeasurement of the Building or the Project as
permitted under Section 1.19 above.
1.27 "TERM" shall mean the period commencing with the Term Commencement
Date and ending at midnight on the Term Expiration Date.
1.28 "TERM COMMENCEMENT DATE" shall be the date set forth on the Basic
Lease Information sheet.
2
<PAGE> 6
1.29 "TERM EXPIRATION DATE" shall be the date set forth on the Basic
Lease Information sheet, unless sooner terminated pursuant to the terms of this
Lease or unless extended pursuant to the provisions of Section 8.01.
1.30 OTHER TERMS. Other terms used in this Lease and on the Basic Lease
Information sheet shall have the meanings given to them herein and thereon.
ARTICLE 2.
LEASED PREMISES
2.1 LEASE. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the Leased Premises upon all of the terms, covenants and
conditions set forth in this Lease.
2.2 ACCEPTANCE OF LEASED PREMISES. Tenant acknowledges that: (a) it has
been advised by Landlord, Landlord's Broker and Tenant's Broker, if any, to
satisfy itself with respect to the condition of the Leased Premises (including,
without limitation, the heating, ventilation, electrical, plumbing and other
mechanical installations, fire sprinkler systems, security, environmental
aspects, and compliance with applicable laws, ordinances, rules and regulations)
and the present and future suitability of the Leased Premises for Tenant's
intended use; (b) Tenant has made such inspection and investigation as it deems
necessary with reference to such matters and assumes all responsibility therefor
as the same relate to Tenant's occupancy of the Leased Premises and the term of
this Lease; and (c) neither Landlord nor Landlord's Broker nor any of Landlord's
agents has made any oral or written representations or warranties with respect
to the condition, suitability or fitness of the Leased Premises other than as
may be specifically set forth in this Lease. Subject to completion of the
Landlord's Improvements and the Tenant Improvements set forth in EXHIBIT B
attached hereto, Tenant accepts the Leased Premises in its AS IS condition
existing on the date Tenant executes this Lease, subject to all matters of
record and applicable laws, ordinances, rules and regulations. Tenant
acknowledges that neither Landlord nor Landlord's Broker nor any of Landlord's
agents has agreed to undertake any alterations or additions or to perform any
maintenance or repair of the Leased Premises except for the routine maintenance
and janitorial work specified herein and except as may be expressly set forth in
EXHIBIT B.
2.3 RIGHT TO RELOCATE LEASED PREMISES. [intentionally Deleted].
2.4 RESERVATION OF RIGHTS. Landlord reserves the right from time to
time, so long as reasonable access and basic services to the Leased Premises
remain available, to install, use, maintain, repair, relocate and/or replace
pipes, conduits, wires and equipment within and around the Building and to do
and perform such other acts and make such other changes in, to or with respect
to the Building or the Project (including without limitation with respect to the
driveways, parking areas (if any), walkways and entrances to the Project) as
Landlord may, in the exercise of sound business judgment, deem to be
appropriate. In connection therewith, Landlord shall have the right to close
temporarily any of the Common Areas so long as reasonable access to the Leased
Premises remains available. If any construction, installation, repair,
replacement, relocation, remodeling or other activity is performed in or around
the Building by Landlord (or by other tenants of the Building acting with
Landlord's consent), Landlord shall undertake such activities (or cause them to
be undertaken, if done by others) so as to prevent unreasonable interference
with Tenant's business at the Leased Premises.
ARTICLE 3.
TERM, USE AND RENT
3.1 TERM. Except as otherwise provided in this Lease, the Term shall
commence upon the Term Commencement Date, and shall continue in full force for
the Term. Tenant shall be given access to the
3
<PAGE> 7
Leased Premises starting on the Tenant's Physical Possession Date in order for
Tenant and other consultants and/or Tenant's contractors to install, if any,
furniture, telephone networks, and computer networks as long as such work does
not interfere with the construction of the Tenant Improvements and the
Landlord's Improvements. From the date Tenant has access to the Leased Premises
through the Term Commencement Date, Tenant shall be subject to all of the
covenants in this Lease, except that Tenant's obligation to pay Rent shall
commence in accordance with Section 3.03 below. When the Term Commencement Date
and the Term Expiration Date have been ascertained, the parties shall promptly
execute a Confirmation of Term of Lease substantially in the form attached as
EXHIBIT C.
3.2 USE. Tenant shall use the Leased Premises solely for the Permitted
Use and for no other use or purpose, except as permitted by Landlord pursuant to
Landlord's written consent, which consent will not be unreasonably withheld,
conditioned or delayed. It shall not be deemed unreasonable for Landlord to
withhold its consent to a proposed change of use if the proposed use is one set
forth in Section 1.16 (a) through (e).
3.3 BASE RENT.
(a) Tenant shall pay the Base Rent to Landlord in accordance
with the schedule set forth on the Basic Lease Information sheet and in the
manner described below. Tenant shall pay the Base Rent for the first month of
the Term upon execution of this Lease. Commencing with the first day of the
second full calendar month of the Term, Tenant shall pay the Gross Rent
(consisting of Base Rent plus, when applicable in accordance with Section 3.04
below, Tenant's Proportionate Share of Increased Basic Operating Cost) in
monthly installments on or before the first day of each calendar month during
the Term and any extensions or renewals thereof, in advance without demand and
without any reduction, abatement, counterclaim or setoff, except as otherwise
provided herein, in lawful money of the United States at Landlord's address
specified on the Basic Lease Information sheet or at such other address as may
be designated by Landlord in the manner provided for giving notice under Section
9.11 hereof.
(b) If the Term commences on other than the first day of a
month, then the Base Rent provided for such partial month shall be prorated
based upon a thirty (30)-day month and the prorated installment shall be paid on
the first day of the calendar month next succeeding the Term Commencement Date
together with the other amounts payable on that day. If the Term terminates on
other than the last day of a calendar month, then the Gross Rent provided for
such partial month shall be prorated based upon a thirty (30)-day month and the
prorated installment shall be paid on the first day of the calendar month in
which the date of termination occurs.
3.4 TENANT'S PROPORTIONATE SHARE OF INCREASED BASIC OPERATING COST.
(a) Commencing in the 2001 Computation Year and continuing
through the remainder of the Term, Tenant shall pay to Landlord Tenant's
Proportionate Share of the total dollar increase, if any, in Basic Operating
Cost attributable to each Computation Year over Base Year expenses.
(b) During the 2001 Computation Year, on or before the first day
of each month during such year, Tenant shall pay to Landlord one-twelfth
(1/12th) of Landlord's estimate of the amount payable by Tenant under Section
3.04(a) as set forth in Landlord's written notice to Tenant delivered on or
before the Term Commencement Date. Commencing in the 2000 Computation Year and
continuing thereafter through the remainder of the Term, during the last month
of each Computation Year (or as soon thereafter as practicable), Landlord shall
give Tenant notice of Landlord's estimate of the amount payable (as well as
reasonable documentation of its estimate) by Tenant under Section 3.04(a) for
the following Computation Year. On or before the first day of each month during
the following Computation Year, Tenant shall pay to Landlord one-twelfth (1/12)
of such estimated amount, provided that if Landlord fails to give such notice in
the last month of the prior year, then Tenant shall continue to pay on the basis
of the prior year's estimate until the first day of the calendar month next
succeeding the date such notice is given by Landlord; and from the first day of
the calendar month following the date such notice is given, Tenant's payments
shall be adjusted so that the estimated amount for that Computation Year will be
fully paid by the end of that Computation Year. If at any time or times Landlord
determines that the amount payable under
4
<PAGE> 8
Section 3.04(a) for the current Computation Year will vary from its estimate
given to Tenant, Landlord, by not less than ten (10) business days' notice to
Tenant, may revise its estimate for such Computation Year, and subsequent
payments by Tenant for such Computation Year shall be based upon such revised
estimate.
(c) Following the end of each Computation Year (beginning with
the 2001 Computation Year), Landlord shall deliver to Tenant a statement of
amounts payable under Section 3.04(a) for such Computation Year prepared by
Landlord's agent. If such statement shows an amount owing by Tenant that is less
than the payments for such Computation Year previously made by Tenant, and if no
event of default (as defined below) is outstanding at the time such statement is
delivered, Landlord shall credit such amount to the next payment(s) of Gross
Rent falling due under this Lease, or if an event of default is outstanding,
Landlord shall apply such amount against any amounts owed by Tenant. If such
statement shows an amount owing by Tenant that is more than the estimated
payments for such Computation Year previously made by Tenant, Tenant shall pay
the deficiency to Landlord within ten (10) business days after delivery of such
statement. If, within one hundred twenty (120) days of Tenant's receipt of
Landlord's statement, Tenant notifies Landlord that Tenant desires to audit or
review Landlord's statement, Landlord shall cooperate with Tenant to permit such
audit or review during normal business hours. Landlord shall make available in
the San Francisco Bay Area at Landlord's, or at Landlord's election at
Landlord's property manager's, place of business, such books and records as are
reasonably necessary for Tenant to conduct and complete such audit. Tenant shall
have the right to make copies of such books and records at Tenant's sole cost
and expense. Tenant shall bear all other costs and expenses associated with
Tenant's audit (including fees of Tenant's auditor). Within five (5) business
days of completion of the audit, if Tenant desires to challenge Landlord's
statement, then Tenant shall provide Landlord with a copy of Tenant's auditor's
report. Within thirty (30) days of Landlord's receipt of Tenant's auditor's
report, Landlord shall notify Tenant as to whether Landlord agrees or disagrees
with the conclusions reached in Tenant's auditor's report. Landlord's failure to
respond shall be deemed to constitute a disagreement with the Tenant's auditor's
report. After Landlord's notice, Landlord and Tenant shall endeavor to resolve
any disagreements regarding Tenant's auditor's report. If Landlord and Tenant
are unable to resolve such disagreement regarding Tenant's auditor's report
within twenty (20) business days of the completion of such audit, then Landlord
and Tenant shall submit the matter to an independent audit conducted by an
independent nationally recognized accounting firm or a nationally recognized
real estate management or consulting firm that has been mutually selected by
Tenant and Landlord. The results of such independent audit shall be conclusive
and binding upon Landlord and Tenant. In the event such audit reveals a
discrepancy in Tenant's favor, and/or Landlord agrees with the conclusions of
Tenant's auditor, then Landlord shall credit the amount of such discrepancy to
the next payment(s) of Gross Rent falling due under this Lease. In the event
such audit reveals a discrepancy in Landlord's favor, Tenant shall pay the
amount of the discrepancy to Landlord within ten (10) business days of
completion of the audit. The failure of Tenant to notify Landlord that Tenant
desires an audit within one hundred twenty (120) days of Tenant's receipt of
Landlord's statement under this Section 3.04(c) shall constitute an acceptance
by Tenant of Landlord's statement and a waiver by Tenant of its right to audit
for such Computation Year. If Tenant commences an audit in accordance with this
Section 3.04(c), then such audit and the Tenant's auditor's report must be
completed within sixty (60) days of Tenant's notice to Landlord of Tenant's
desire to audit. Failure of Tenant to complete the audit within such sixty (60)
day period shall constitute an acceptance by Tenant of Landlord's statement for
such Computation Year. The respective obligations of Landlord and Tenant under
this Section 3.04(c) shall survive the Term Expiration Date, and, if the Term
Expiration Date is a day other than the last day of a Computation Year, the
adjustment in Tenant's Proportionate Share of Increased Basic Operating Cost
pursuant to this Section 3.04(c) for the Computation Year in which the Term
Expiration Date occurs shall be prorated in the proportion that the number of
days in such Computation Year preceding the Term Expiration Date bears to three
hundred sixty-five (365).
(d) Landlord shall have the same remedies for a default in the
payment of Tenant's Proportionate Share of Increased Basic Operating Cost as for
a default in the payment of Base Rent.
3.5 BASIC OPERATING COST.
(a) Basic Operating Cost shall mean all expenses and costs (but
not specific costs which are separately billed to and paid by particular tenants
of the Building) of every kind and nature which Landlord
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shall pay or become obligated to pay because of or in connection with the
management, ownership, maintenance, repair, preservation and operation of the
Project and its supporting facilities directly servicing the Project (determined
in accordance with generally accepted accounting principles, consistently
applied) including, but not limited to, the following:
(1) Wages, salaries and related expenses and benefits of
all on-site and off-site employees and personnel engaged in the operation,
maintenance, repair and security of the Project, to the extent such charges are
directly allocable to services rendered by the employees and personnel for the
benefit of the Project.
(2) Costs of Landlord's office located in the Building
(including the property management office) and office operation in the Project,
as well as the costs of operation of a room for delivery and distribution of
mail to tenants of the Building.
(3) All supplies, materials, equipment and equipment
rental used in the operation, maintenance, repair and preservation of the
Project.
(4) Utilities, including water, sewer and power,
telephone, communication and cable television facilities, lighting, heating and
ventilating the entire Project.
(5) All maintenance, janitorial and service agreements
for the Project and the equipment therein, including, without limitation, alarm
and/or security service, window cleaning, elevator maintenance, sidewalks,
landscaping, Building exterior and service areas.
(6) A property management fee in an amount not to exceed
five percent (5%) of all Rent (excluding such management cost recovery) derived
from the Building; provided, however, such property management fee shall not
exceed the current "market" rate during a particular Computation Year.
(7) Legal and accounting services for the Project,
including the costs of audits by certified public accountants; provided,
however, that legal expenses shall not include the cost of lease negotiations,
termination of leases, extension of leases or legal costs incurred in
proceedings by or against any specific tenant.
(8) All insurance costs, including, but not limited to,
the cost of all risk property and liability coverage and rental income and
earthquake insurance (for earthquake insurance, only increases in premiums over
the Base Year shall be included; if earthquake insurance is not carried in the
Base Year, then only increases in premiums over the first year earthquake
insurance is carried shall be included) applicable to the Project and Landlord's
personal property used in connection therewith, as well as commercially
reasonable deductible amounts applicable to such insurance; provided, however,
that Landlord may, but shall not be obligated to, carry earthquake insurance.
(9) Repairs, replacements and general maintenance
(except for repairs paid by proceeds of insurance or by Tenant or other tenants
of the Building or third parties, and alterations attributable solely to tenants
of the Project other than Tenant).
(10) All real estate or personal property taxes,
possessory interest taxes, business or license taxes or fees, service payments
in lieu of such taxes or fees, annual or periodic license or use fees, excises,
transit charges, housing fund assessments, open space charges, assessments,
bonds, levies, fees or charges, general and special, ordinary and extraordinary,
unforeseen as well as foreseen, of any kind which are assessed, levied, charged,
confirmed or imposed by any public authority upon the Project (or any portion or
component thereof), its operations, this Lease, or the Rent due hereunder (or
any portion or component thereof), except: (i) inheritance or estate taxes
imposed upon or assessed against the Project, or any part thereof or interest
therein, and (ii) Landlord's personal or corporate income, gift or franchise
taxes.
(11) Amortization (together with reasonable financing
charges) of capital
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improvements made to the Project subsequent to the Term Commencement Date which
are designed to improve the operating efficiency of the Project, or which may be
required by governmental authorities, including those improvements required for
energy conservation and for the benefit of individuals with disabilities ("ADA
Improvements"), in relation to new laws or changes in existing laws, applicable
to the Building, which arise or take affect after the date of this Lease;
provided, however, that no new expense shall be included as a Basic Operating
Cost during Tenant's last twelve (12) months of the Term (if Tenant does not
exercise its option to renew) or the Option Term (as defined in Section 8.01),
as the case may be.
(b) In the event any of the Basic Operating Costs are not
allocable solely to the Building or are not provided on a uniform basis,
Landlord shall make an appropriate and equitable adjustment, in Landlord's sole
and absolute discretion, to the relevant cost allocations to the Building and
Tenant shall pay its proportionate share of such Basic Operating Costs allocable
solely to the Building and 100% of such Basic Operating Costs allocable solely
to the Leased Premises.
(c) Notwithstanding any other provision of this Lease to the
contrary, in the event that the Project is not fully occupied during any year of
the Term, an adjustment shall be made in computing Basic Operating Cost for such
year (including the Base Year) so that Basic Operating Cost shall be computed as
though the Building had been 95% occupied during such year.
(d) The following items shall be excluded from Basic Operating
Costs: (i) depreciation on the Building and the Project; (ii) debt service;
(iii) rental under any ground or underlying lease; (iv) attorneys' fees and
expenses incurred in connection with lease negotiations with prospective Project
tenants or alleged defaults with other Project tenants; (v) the cost of any
improvements or equipment which would be properly classified as capital
expenditures (except for any capital expenditures expressly included in Section
3.05(a), including, without limitation, Section 3.05(a)(11)); the cost of
decorating, improving for tenant occupancy, painting or redecorating portions of
the Building to be demised to tenants; (vii) advertising expenses relating to
vacant space; (viii) real estate brokers' or other leasing commissions; (ix)
interest or penalties due as a result of Landlord's late payment of any of the
costs included within Basic Operating Costs; (x) fees paid to any affiliates of
Landlord to the extent such fees exceed market rates charged for such service
provided; (xi) any costs for making the Building comply with federal, state and
local laws, regulations and directives applicable to the Building as of the date
of this Lease, including any costs, penalties or fines imposed upon Landlord by
any governmental authority as a result of the violation of any such laws,
regulations and directives by Landlord, or its employees, agents, contractors or
assigns; and (xii) except as otherwise provided in ARTICLE 6 of this Lease, the
cost of any hazardous materials cleanup, detoxification, or similar action
undertaken by Landlord, whether or not required by any governmental or
quasi-governmental agency, including, without limitation asbestos removal from
the Premises or any other area of the Building.
ARTICLE 4.
LANDLORD'S COVENANTS
4.1 BASIC SERVICES. Landlord shall operate the Project to a standard of
quality consistent with that of other similar-class office projects in the
immediate geographical area, and shall:
(a) Administer improvement of the Leased Premises in accordance
with EXHIBIT B (if any).
(b) Furnish Tenant during Tenant's occupancy of the Leased
Premises the following basic services:
(i) Hot and cold water at those points of supply provided
for general use of other tenants in the Project; steam heating and
ventilating during the Building hours of operation specified in the
rules and regulations for the Project adopted pursuant to Section 5.17
and at such temperatures, during such seasons, and in such amounts as
are standard for the comfortable use and occupancy of similar Class A
office buildings and the Leased Premises or, in all events, as may be
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permitted or controlled by applicable laws, ordinances, rules and
regulations. Notwithstanding the foregoing, the Building does not have
central air conditioning; however, a condenser water loop serves each
floor of the Building for access to condensed water for Tenant's air
conditioning needs (Tenant, at its sole cost, shall be responsible for
the installation, operation and maintenance of such air conditioning
units, if needed).
(ii) Structural and exterior maintenance (including
exterior glass and glazing) and routine maintenance, repairs and
electric lighting service for all public areas and service areas of the
Project.
(iii) Janitorial service on a five (5) day per week basis,
excluding holidays.
(iv) Electric lighting service throughout the Leased
Premises and electrical facilities to provide sufficient power for
typewriters, standard size personal computers and other standard office
machines of similar low electrical consumption twenty-four (24) hours
per day, seven (7) days per week, but not including electricity required
for electronic data processing equipment, special lighting in excess of
Building Standard Improvements, and any other item of electrical
equipment which consumes electricity in amounts in excess of standard
office equipment.
(v) Building Standard lamps, bulbs, starters and ballasts
used in the Leased Premises.
(vi) Public elevator service serving the floors on which
the Leased Premises are situated twenty-four (24) hours per day, seven
(7) days per week, including freight elevator service when prearranged
with Landlord, subject to such rules and regulations as Landlord shall
promulgate from time to time.
(c) Landlord shall not be liable for damages to either person or
property, nor shall Landlord be deemed to have evicted Tenant, nor shall there
be any abatement of Rent, nor shall Tenant be relieved from performance of any
covenant on its part to be performed under this Lease by reason of any (i)
deficiency in the provision of basic services; (ii) breakdown of equipment or
machinery utilized in supplying services; or (iii) curtailment or cessation of
services due to causes or circumstances beyond the reasonable control of
Landlord or by the making of the necessary repairs or improvements, unless such
deficiency, breakdown, curtailment or cessation is due to the negligence or
willful misconduct of Landlord. Landlord shall use reasonable diligence to make
such repairs as may be required to machinery or equipment within the Project to
provide restoration of services and, where the cessation or interruption of
service has occurred due to circumstances or conditions beyond Project
boundaries, to cause the same to be restored, by diligent application or request
to the provider thereof. In no event shall any mortgagee or the beneficiary
under any deed of trust referred to in Section 5.12 be or become liable for any
default of Landlord under this Section 4.01(c).
4.2 EXTRA SERVICES. Landlord shall provide to Tenant at Tenant's sole
cost and expense (and subject to the limitations hereinafter set forth) the
following extra services:
(a) Such extra cleaning and janitorial services if requested by
Tenant;
(b) Additional ventilating capacity required by reason of any
electrical, data processing or other equipment, facilities or services required
to support the same, in excess of that which would be required for Building
Standard Improvements, when prearranged with Landlord;
(c) Heating, ventilation, or extra electrical service (for
electrical equipment which consumes electricity in excess of the standard
amounts set forth in Section 4.01(b)(iv) above), provided by Landlord to Tenant
(i) during hours other than the Building hours of operation specified in the
rules and regulations for the Project adopted pursuant to Section 5.17, which
shall provide for Building hours of operation of 7:00 A.M. to 6:00 P.M., Monday
through Friday (excluding holidays), or (ii) on Saturdays,
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Sundays, or holidays, all said heating, ventilation or extra electrical service
to be furnished solely upon the prior written request of Tenant submitted during
business hours to Landlord at least 24 hours in advance of the time such service
is needed, or pursuant to such other procedures as may be established from time
to time by Landlord for the Building or the Project (such after-hour heating,
ventilation and lighting charge shall be billed at Landlord's actual cost basis
prorated with the similar use of other tenants of the Building);
(d) Maintaining and replacing non-Building Standard lamps,
bulbs, starters and ballasts (whether or not the light fixtures were installed
by Landlord as part of the Tenant Improvements);
(e) Upon Tenant's request or otherwise as permitted by the
provisions herein, repair and maintenance service which is the obligation of
Tenant under this Lease;
(f) To the extent not covered by insurance either carried or
required to be carried by Landlord hereunder, and subject to the waiver of
subrogation rights set forth in Section 7.05, repair, maintenance or janitorial
service to the Leased Premises or the Common Areas which is required as a result
of the acts or omissions of Tenant, its agents, employees, contractors, invitees
or licensees; and
(g) Any basic service in amounts reasonably determined by
Landlord to exceed the amounts required to be provided under Section 4.01(b),
but only if Landlord elects to provide such additional or excess service.
For the purposes of this Section 4.02, if, in Landlord's
reasonable opinion, Tenant's use of electrical and/or water service at the
Leased Premises is excessive, Landlord may install a separate meter(s) at the
Leased Premises to measure the amount of electricity and/or water consumed by
Tenant therein. The cost of such installation and of such excess electricity
and/or water (at the rates charged for such services by the local public
utility) shall be paid by Tenant to Landlord upon receipt by Tenant of a bill
therefor, which cost shall not be included within the computation of Basic
Operating Costs.
The cost chargeable to Tenant for all extra services shall
constitute Additional Rent and shall include an amount equal to Landlord's
actual out-of-pocket expenses for administering such extra services. Additional
Rent shall be paid monthly by Tenant to Landlord concurrently with the payment
of Base Rent.
4.3 WINDOW COVERINGS. All window coverings for the Leased Premises shall
be those provided by Landlord (with the actual cost of such blinds to be
deducted from Landlord's Contribution) as Building Standard Improvements. Tenant
shall not place or maintain any window coverings, blinds, curtains or drapes
other than those supplied by Landlord on any exterior window without Landlord's
prior written approval, which Landlord shall have the right to grant or withhold
in its absolute and sole discretion.
4.4 GRAPHICS AND SIGNAGE. Landlord shall provide identification (the
size of such identification shall be approximately its pro rata share) of
Tenant's name and suite numerals on a building directory in the Building lobby.
All signs, notices, advertisements and graphics of every kind or character,
visible in or from the Common Areas or the exterior of the Leased Premises shall
be subject to Landlord's prior written approval, not to be unreasonably
withheld, conditioned or delayed. Landlord may remove, without notice to and at
the expense of Tenant, any sign, notice, advertisement or graphic of any kind
inscribed, displayed or affixed in violation of the foregoing requirement. All
approved signs, notices, advertisements or graphics shall be printed, affixed or
inscribed at Tenant's expense by a person selected by Landlord. Landlord shall
be entitled to revise the Project graphics and signage standards at any time.
4.5 [Intentionally deleted.]
4.6 REPAIR OBLIGATION. Landlord's obligation with respect to maintenance
and repair shall be limited to (i) the structural portions of the Building; (ii)
the exterior walls of the Building, including exterior glass and glazing; (iii)
the exterior roof; (iv) mechanical, electrical, plumbing and life safety
systems; (v) the Common Areas; and (vi) landscaped areas. However, Landlord
shall not have any obligation to repair damage caused by Tenant, its agents,
employees, contractors, invitees or licensees. Landlord shall have the right,
but
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not the obligation, to undertake work of repair which Tenant is required to
perform under this Lease and which Tenant fails or refuses to perform within the
notice and cure periods permitted hereunder. Tenant shall reimburse Landlord
upon demand, as Additional Rent, for all costs incurred by Landlord in
performing any such repair for the account of Tenant, together with an amount
equal to ten percent (10%) of such costs to reimburse Landlord for its
administration and managerial effort. Except as specifically set forth in this
Lease, Landlord shall have no obligation whatsoever to maintain or repair the
Leased Premises or the Project. The parties intend that the terms of this Lease
govern their respective maintenance and repair obligations. Tenant expressly
waives the benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to such obligations or
which affords Tenant the right to make repairs at the expense of Landlord or
terminate this Lease by reason of the condition of the Leased Premises or any
needed repairs. Subject to the provisions of Section 5.04 below, Landlord shall,
at all times during the Term, keep and maintain all portions of the Project,
including the Building (other than the interior of the Leased Premises), in the
condition and repair maintained by landlords of similar Class A office space in
the financial district of San Francisco. Without limiting the foregoing and
except as otherwise provided herein, Landlord shall be responsible for causing
the Building to comply with all applicable federal, state and local laws,
statutes, ordinances, rules or regulations.
4.7 PEACEFUL ENJOYMENT. Landlord covenants with Tenant that upon Tenant
paying the Rent and all other charges required under this Lease and performing
all of Tenant's covenants and agreements herein contained, Tenant shall
peacefully have, hold and enjoy the Leased Premises subject to all of the terms
of this Lease and to any deed of trust, mortgage, ground lease or other
agreement to which this Lease may be subordinate. This covenant and the other
covenants of Landlord contained in this Lease shall be binding upon Landlord and
its successors only with respect to breaches occurring during its or their
respective ownerships of Landlord's interest hereunder.
ARTICLE 5.
TENANT'S COVENANTS
5.1 PAYMENTS BY TENANT. Tenant shall pay Rent at the times and in the
manner provided in this Lease. All obligations of Tenant hereunder to make
payments to Landlord shall constitute Rent and failure to pay the same when due
shall give rise to the rights and remedies provided for in Section 7.08. If
there is more than one Tenant, the obligations imposed under this Lease upon
Tenant shall be joint and several.
5.2 TENANT IMPROVEMENTS. The Tenant Improvements shall be installed and
constructed by the Contractor pursuant to EXHIBIT B. All Tenant Improvements
shall become the property of Landlord upon installation and shall be surrendered
to Landlord without compensation to Tenant upon termination of this Lease by
lapse of time or otherwise.
5.3 TAXES ON PERSONAL PROPERTY. In addition to, and wholly apart from
its obligation to pay Tenant's Proportionate Share of Increased Basic Operating
Costs, Tenant shall be responsible for, and shall pay prior to delinquency, all
taxes or governmental service fees, possessory interest taxes, fees or charges
in lieu of any such taxes, capital levies, and any other charges imposed upon,
levied with respect to, or assessed against Tenant's personal property and on
its interest pursuant to this Lease. To the extent that any such taxes are not
separately assessed or billed to Tenant, Tenant shall pay the amount thereof as
invoiced to Tenant by Landlord, which invoice shall include a copy of a tax bill
or signed statement from the applicable taxing authority which shall state that
such tax is directly attributable to Tenant's interest in this Lease or personal
property located at the Premises.
5.4 REPAIRS BY TENANT. Tenant shall be obligated to maintain and repair
the Leased Premises, to keep the same at all times in good order, condition and
repair, and, upon expiration of the Term, to surrender the same to Landlord in
the same condition as on the Term Commencement Date, reasonable wear and tear,
taking by condemnation, and damage by casualty excepted. Tenant's obligations
shall include, without limitation, the obligation to maintain and repair all
non-structural portions of the walls, floors, ceilings and fixtures and to
repair all damage caused by Tenant, its agents, employees, contractors, invitees
and others
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using the Leased Premises with Tenant's expressed or implied permission, to the
extent not covered by insurance either carried or required to be carried by
Landlord hereunder, and subject to the waiver of subrogation rights set forth in
Section 7.05. At the request of Tenant, Landlord shall perform the work of
maintenance and repair constituting Tenant's obligation under this Section 5.04
at Tenant's sole cost and expense and as an extra service to be rendered
pursuant to Section 4.02(e). Any work of repair and maintenance performed by or
for the account of Tenant by persons other than Landlord shall be performed by
contractors approved by Landlord and in accordance with reasonable procedures
Landlord shall from time to time establish. Tenant shall give Landlord prompt
notice of any damage to or defective condition in any part of the Building's
mechanical, electrical, plumbing, life safety or other system servicing, located
in or passing through the Leased Premises of which Tenant is or becomes aware.
5.5 WASTE. Tenant shall not commit or allow any waste or damage to be
committed in any portion of the Leased Premises or the Project.
5.6 ASSIGNMENT OR SUBLEASE.
(a) Tenant shall not voluntarily or by operation of law assign,
transfer or encumber (collectively "Assign") or sublet all or any part of
Tenant's interest in this Lease or in the Leased Premises without Landlord's
prior written consent, which shall not be unreasonably withheld, given under and
subject to the terms of this Section 5.06. Notwithstanding the foregoing, the
Tenant may, upon written notice to the Landlord, in whole or in part, sublet the
Leased Premises, or Assign this Lease to an affiliate, parent or subsidiary of
the Tenant which retains at least a fifty percent (50%) interest in the Tenant,
so long as Tenant shall remain responsible in case of default, and, provided,
further, no such permitted subletting or assignment shall relieve the Tenant of
liability under this Lease. An assignment of this Lease to an entity arising as
a result of merger, acquisition or consolidation shall be permitted as long as
the entity's financial condition is at least equivalent to the greater of (i)
the financial condition of Tenant as of the date of this Lease, or (ii) the
financial condition of Tenant as of the date of the proposed merger, acquisition
or consolidation.
(b) Except as permitted in Section 5.06(a), if Tenant desires to
Assign this Lease or any interest herein or sublet the Leased Premises or any
part thereof, Tenant shall give Landlord written notice of such intent. Tenant's
notice shall specify the date the proposed assignment or sublease would be
effective and be accompanied by information pertinent to Landlord's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or subtenant, including, without
limitation, its name, business and financial condition, financial details of the
proposed transfer, the intended use (including any modification) of the Leased
Premises, and exact copies of all of the proposed agreement(s) between Tenant
and the proposed assignee or subtenant. Tenant shall promptly provide Landlord
with (i) such other or additional information or documents reasonably requested
(within ten (10) days after receiving Tenant's notice) by Landlord, and (ii) an
opportunity to meet and interview the proposed assignee or subtenant, if
requested by Landlord.
(c) Landlord shall have a period of twenty (20) days following
such interview and receipt of such additional information (or thirty (30) days
from the date of Tenant's original notice if Landlord does not request
additional information or an interview) within which to notify Tenant in writing
that Landlord elects either (i) to terminate this Lease as to the space so
affected as of the effective date specified by Tenant, in which event Tenant
will be relieved of all further obligations hereunder as to such space (Landlord
shall recapture such space in its "as is" condition with all costs of such
recapture being borne by Landlord), or (ii) to permit Tenant to Assign this
Lease or sublet such space, subject, however, to prior written approval of the
proposed assignee or sublessee by Landlord, such consent not to be unreasonably
withheld, conditioned or delayed so long as the use of the Leased Premises by
such proposed assignee or sublessee would be a Permitted Use, the proposed
assignee or sublessee is of sound financial condition as determined by Landlord
in its reasonable discretion, the proposed assignee or sublessee executes such
reasonable assumption documentation as Landlord shall require, and the proposed
assignee or sublessee is not a party with whom Landlord has been discussing the
leasing of space in the Building. Notwithstanding the foregoing, if Landlord
elects option (i) above, Tenant may elect to withdraw Tenant's request to sublet
or assign such portion of the Premises by written notice to Landlord given on or
before the date which is five (5) business days following
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Landlord's notice to Tenant of its intent to recapture such space. Upon such
notice by Tenant, Landlord's election to recapture the subject space in that
instance shall be null and void and Tenant shall retain possession of such
subject space. If Landlord fails to notify Tenant in writing of such election
within said period, Landlord shall be deemed to have waived option (i) above,
but written approval by Landlord of the proposed assignee or sublessee shall
still be required. Failure by Landlord to approve a proposed subtenant or
assignee shall not cause a termination of this Lease.
(d) In the event Tenant shall request the consent of Landlord to
any assignment or subletting hereunder, Tenant shall pay Landlord a processing
fee of $250.00 and shall reimburse Landlord for Landlord's reasonable attorneys'
fees incurred in connection therewith. All such fees shall be deemed Additional
Rent under this Lease.
(e) Any rent or other consideration realized by Tenant under any
such sublease or assignment in excess of (i) the Rent payable hereunder, (ii)
any reasonable tenant improvement allowance or other economic concession (e.g.,
space planning allowance, moving expenses, free or reduced rent periods, etc.),
(iii) any advertising costs and brokerage commissions associated with such
assignment or sublease, and (iv) any reasonable legal fees associated with such
assignment or sublease ("Profit"), shall be divided and paid as follows: fifty
percent (50%) to Tenant and fifty percent (50%) to Landlord; provided, however,
that if Tenant is in default hereunder beyond any applicable cure period,
Landlord shall be entitled to all such excess rent.
(f) In any subletting undertaken by Tenant, Tenant shall
diligently seek to obtain not less than fair market sublease rent for the space
to sublet. In any assignment of this Lease in whole or in part, Tenant shall
seek to obtain from the assignee consideration reflecting a value of not less
than fair market assignment rent for the space subject to such assignment.
(g) The consent of Landlord to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Tenant or to any subsequent or successive assignment or subletting by the
assignee or subtenant. However, Landlord may consent to subsequent assignments
and sublettings of the Lease or sublease or amendments or modifications thereto,
without notifying Tenant or any other party liable on the Lease or sublease and
without obtaining their consent. Such action shall not relieve Tenant or any
such other party from liability under this Lease or a sublease.
(h) No assignment or subletting by Tenant shall relieve Tenant
of any obligation under this Lease. In the event of default by an assignee or
subtenant of Tenant or any successor of Tenant in the performance of any of the
terms hereof, Landlord may proceed directly against Tenant without the necessity
of exhausting remedies against such assignee, subtenant or successor. Any
assignment or subletting which conflicts with the provisions hereof shall be
void and, at Landlord's option, shall constitute a default under this Lease.
(i) Notwithstanding anything to the contrary contained within
this Section 5.06, Landlord acknowledges that, although Tenant anticipates that
its space needs will encompass the total of the Leased Premises at some point in
the near future, a portion of the space which Tenant is currently accepting and
leasing may be initially determined to be in excess of Tenant's current short
term space planning needs. As a result, should Tenant submit a request to
Landlord for Landlord's consent to Tenant's sublease of a portion of the Leased
Premises, at any time during the first thirty (30) months of the Term, such
request shall not be subject to Landlord's right of recapture pursuant to
Subsection 5.06(c) above. After the thirtieth (30th) month of the Term, should
Tenant submit a request to Landlord for Landlord's consent to Tenant's sublease
of a portion of the Leased Premises and such sublease along with all other
current subleases and assignments, in the aggregate, do not exceed 9,561
rentable square feet, such request shall not be subject to Landlord's right of
recapture pursuant to Subsection 5.06(c) above.
5.7 ALTERATIONS, ADDITIONS AND IMPROVEMENTS.
(a) Tenant shall not make or allow to be made any alterations or
additions in or to the
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Leased Premises without first obtaining the written consent of Landlord.
Landlord's consent will not be unreasonably withheld, conditioned or delayed
with respect to proposed alterations and additions which (i) comply with all
applicable laws, ordinances, rules and regulations; (ii) are compatible with and
does not adversely affect the Building and its mechanical, electrical, heating,
ventilation and life safety systems; (iii) will not affect the structural
portions of the Building; (iv) will not unreasonably interfere with the use and
occupancy of any other portion of the Building by any other tenant, its
employees or invitees; and (v) will not trigger any additional costs to
Landlord. Specifically, but without limiting the generality of the foregoing,
Landlord's right of consent shall encompass plans and specifications for the
proposed alterations or additions, construction means and methods, the identity
of any contractor or subcontractor to be employed on the work of alterations or
additions, and the time for performance of such work. Tenant shall supply to
Landlord any additional documents and information requested by Landlord in
connection with Tenant's request for consent hereunder. For the purposes herein,
the Landlord Improvements and Tenant Improvements set forth in EXHIBIT B hereto
shall not constitute alterations, additions or improvements.
(b) Any consent given by Landlord under this Section 5.07 shall
be deemed conditioned upon: (i) Tenant's acquiring all applicable permits
required by governmental authorities; (ii) Tenant's furnishing to Landlord
copies of such permits, together with copies of the approved plans and
specifications, prior to commencement of the work thereon; and (iii) the
compliance by Tenant with the conditions of all applicable permits and approvals
in a prompt and expeditious manner.
(c) Tenant shall provide Landlord with not less than fifteen
(15) days prior written notice of commencement of the work so as to enable
Landlord to post and record appropriate notices of non-responsibility. All
alterations and additions permitted hereunder shall be made and performed by
Tenant without cost or expense to Landlord. Tenant shall pay the contractors and
suppliers all amounts due to them when due and keep the Leased Premises and the
Project free from any and all mechanics', materialmen's and other liens and
claims arising out of any work performed, materials furnished or obligations
incurred by or for Tenant. Landlord may require, at its sole option, that Tenant
provide to Landlord, at Tenant's expense, a lien and completion bond in an
amount equal to the total estimated cost of any alterations, additions or
improvements to be made in or to the Leased Premises, to protect Landlord
against any liability for mechanics', materialmen's and other liens and claims
related to such alterations, additions or improvements, and to ensure timely
completion of the work. In the event any alterations or additions to the Leased
Premises are performed by Landlord hereunder, whether by prearrangement or
otherwise, Landlord shall be entitled to charge Tenant a ten percent (10%)
administration fee in addition to the actual costs of labor and materials
provided. No administration fee, however, shall be charged on the costs of and
installation of wall and floor coverings and finishes. Such costs and fees shall
be deemed Additional Rent under this Lease, and may be charged and payable prior
to commencement of the work.
(d) Any and all alterations, additions or improvements made to
the Leased Premises by Tenant shall become the property of Landlord upon
installation and shall be surrendered to Landlord without compensation to Tenant
upon the termination of this Lease by lapse of time or otherwise unless (i)
Landlord conditioned its approval of such alterations, additions or improvements
on Tenant's agreement to remove them, or (ii) if Tenant did not provide a
Removal Determination Request (as defined below), Landlord notifies Tenant prior
to (or promptly after) the Term Expiration Date that the alterations, additions
and/or improvements must be removed, in which case Tenant shall, by the Term
Expiration Date (or promptly thereafter), remove such alterations, additions and
improvements, repair any damage resulting from such removal and restore the
Leased Premises to their condition existing prior to the date of installation of
such alterations, additions and improvements, normal wear, tear and damage by
casualty excepted. Prior to making any alterations, additions or improvements to
the Leased Premises, Tenant may make a written request that Landlord determine
in advance whether or not Tenant must remove such alterations, additions or
improvements on the Term Expiration Date ("Removal Request Determination").
Notwithstanding anything to the contrary set forth above, this clause shall not
apply to movable equipment or furniture owned by Tenant. Tenant shall repair at
its sole cost and expense all damage caused to the Leased Premises and the
Project by removal of Tenant's movable equipment or furniture and such other
alterations, additions and improvements as Tenant shall be required or allowed
by Landlord to remove from the Leased Premises; provided, such repair shall not
include painting of walls or replacement of carpeting.
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(e) All alterations, additions and improvements permitted under
this Section 5.07 shall be constructed diligently, in a good and workmanlike
manner with new, good and sufficient materials and in compliance with all
applicable laws, ordinances, rules and regulations (including, without
limitation, building codes and those related to accessibility and use by
individuals with disabilities). Tenant shall, promptly upon completion of the
work, furnish Landlord with "as built" drawings for any alterations, additions
or improvements performed under this Section 5.07.
5.8 COMPLIANCE WITH LAWS AND INSURANCE STANDARDS. Tenant shall not
occupy or use, or permit any portion of the Leased Premises to be occupied or
used in a manner that violates any applicable law, ordinance, rule, regulation,
order, permit, covenant, easement or restriction of record, or the
recommendations of Landlord's engineers or consultants, relating in any manner
to the Project, or for any business or purpose which is disreputable,
objectionable or productive of fire hazard. Tenant shall not do or permit
anything to be done which would result in the cancellation, or in any way
increase the cost, of the all risk property insurance coverage on the Project
and/or its contents. Landlord represents and warrants to the best of its
knowledge that office use of the Leased Premises permitted hereunder is not
prohibited by, nor does it conflict with, any covenant, easement or restriction
encumbering the Project, and further represents and warrants that the office use
of the Leased Premises will not increase or affect the existing rate of any fire
or other insurance policy covering damage to the Project, or cause cancellation
of any such insurance policy. If Tenant does or permits anything to be done
which increases the cost of any insurance covering or affecting the Project,
then Tenant shall reimburse Landlord, upon demand, as Additional Rent, for such
additional costs. Landlord shall deliver to Tenant a written statement setting
forth the amount of any such insurance cost increase and showing in reasonable
detail the manner in which it has been computed, which statement shall be signed
by Landlord's insurance carrier setting forth that the increase in insurance
premiums is directly attributable to Tenant's acts or omissions. Tenant shall,
at Tenant's sole cost and expense, comply with all laws, ordinances, rules,
regulations and orders (state, federal, municipal or promulgated by other
agencies or bodies having or claiming jurisdiction) related to Tenant's
particular use of the Leased Premises now in effect or which may hereafter come
into effect including, but not limited to, (a) accessibility and use by
individuals with disabilities, and (b) environmental conditions in, on or about
the Leased Premises. If anything done by Tenant in its use or occupancy of the
Leased Premises shall create, require or cause imposition of any requirement by
any public authority for structural or other upgrading of or alteration or
improvement to the Project, Tenant shall, at Landlord's option, either perform
the upgrade, alteration or improvement at Tenant's sole cost and expense or
reimburse Landlord upon demand, as Additional Rent, for the cost to Landlord of
performing such work. The judgment of any court of competent jurisdiction or the
admission by Tenant in any action against Tenant, whether Landlord is a party
thereto or not, that Tenant has violated any law, ordinance, rule, regulation,
order, permit, covenant, easement or restriction shall be conclusive of that
fact as between Landlord and Tenant. Landlord represents and warrants that a
path of travel, as that term is used in Title 24 and the Americans With
Disabilities Act (collectively "ADA"), which is compliant with the requirements
of the ADA either (i) currently exists, or (ii) Landlord has obtained a hardship
waiver for certain areas, extending from the entry of the Building through the
entry of the Leased Premises.
5.9 NO NUISANCE; NO OVERLOADING. Tenant shall use and occupy the Leased
Premises, and control its agents, employees, contractors, invitees and visitors
in such manner so as not to create any nuisance, or unreasonably interfere with,
annoy or disturb (whether by noise, odor, vibration or otherwise) any other
tenant or occupant of the Project or Landlord in its operation of the Project.
Tenant shall not place or permit to be placed any loads upon the floors, walls
or ceilings in excess of the maximum designed load specified by Landlord or
which might damage the Leased Premises, the Building, or any portion thereof.
5.10 FURNISHING OF FINANCIAL STATEMENTS; TENANT'S REPRESENTATIONS. In
order to induce Landlord to enter into this Lease, Tenant agrees that it shall
promptly furnish Landlord, from time to time, within ten (10) business days of
receipt of Landlord's written request therefor, with financial statements in
form and substance reasonably satisfactory to Landlord reflecting Tenant's
current financial condition as of the end of Tenant's previous fiscal year;
provided, such financial statements may not be requested more frequently than
once annually. Tenant represents and warrants that to Tenant's knowledge all
financial statements, records and information furnished by Tenant to Landlord in
connection with this Lease are true, correct and complete
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in all respects.
5.11 ENTRY BY LANDLORD. Landlord, its employees, agents and consultants,
shall have the right to enter the Leased Premises at any time, in cases of an
emergency, and otherwise at reasonable times to inspect the same, to clean, to
perform such work as may be permitted or required under this Lease, to make
repairs to or alterations of the Leased Premises or other portions of the
Project or other tenant spaces therein, to deal with emergencies, to post such
notices as may be permitted or required by law to prevent the perfection of
liens against Landlord's interest in the Project or to show the Leased Premises
to prospective tenants during the last six (6) months of the Term, purchasers or
encumbrancers; provided, however, that Landlord shall use its best efforts to
minimize interference with Tenant's business operations in the Leased Premises.
Tenant shall not be entitled to any abatement of Rent or damages by reason of
the exercise of any such right of entry.
5.12 NONDISTURBANCE AND ATTORNMENT.
(a) This Lease and the rights of Tenant hereunder shall be
subject and subordinate to the lien of any deed of trust, mortgage or other
hypothecation or security instrument (collectively, "Security Device") now or
hereafter placed upon, affecting or encumbering the Project or any part thereof
or interest therein, and to any and all advances made thereunder, interest
thereon or costs incurred and any modifications, renewals, supplements,
consolidations, replacements and extensions thereof. With respect to any
Security Device entered into by Landlord after execution of this Lease, such
subordination is conditioned on Landlord obtaining assurance in a commercially
reasonable form (a "nondisturbance agreement") from the holder of or beneficiary
under such encumbrance that Tenant's possession will not be disturbed so long as
Tenant is not in default under this Lease and attorns to the record owner of the
Leased Premises. Landlord shall obtain and deliver to Tenant a nondisturbance
agreement from Fleet National Bank in the form attached hereto as EXHIBIT E
within ten (10) business days of full execution of this Lease. Without the
consent of Tenant, the holder of any such Security Device or the beneficiary
thereunder shall have the right to elect to be subject and subordinate to this
Lease, such subordination to be effective upon such terms and conditions as such
holder or beneficiary may direct which are not inconsistent with the provisions
hereof. Tenant agrees to attorn to and recognize as the Landlord under this
Lease the holder or beneficiary under a Security Device or any other party that
acquires ownership of the Leased Premises by reason of a foreclosure or sale
under any Security Device (or deed in lieu thereof). The new owner following
such foreclosure, sale or deed shall not be (i) liable for any act or omission
of any prior landlord or with respect to events occurring prior to acquisition
of ownership; (ii) subject to any offsets or defenses which Tenant might have
against any prior landlord; (iii) bound by prepayment of more than one (1)
month's Rent; or (iv) liable to Tenant for any security deposit not actually
received by such new owner.
(b) Tenant shall not unreasonably withhold its consent to
changes or amendments to this Lease requested by the holder of a Security Device
so long as these changes do not alter the basic business terms of this Lease or
otherwise materially diminish any rights or materially increase any obligations
of Tenant hereunder. If, within fifteen (15) days after notice from Landlord,
Tenant fails or unreasonably refuses to execute with Landlord the amendment(s)
to this Lease accomplishing the reasonable change(s) or amendment(s) which are
requested by such holder such amendments shall be deemed accepted and shall be
enforceable by Landlord and such lender and binding upon Tenant, its successors
and assigns as if agreed to in writing, without need of further action or
documentation.
5.13 ESTOPPEL CERTIFICATE. Within fifteen (15) days following either
party's request, the other party shall execute, acknowledge and deliver written
estoppel certificates addressed to the persons or parties identified in such
request, on a form specified by such requesting party, certifying as to such
facts (if true) and agreeing to such notice provisions and other matters as such
mortgagee(s) or purchaser(s) may reasonably require, including, without
limitation, the following: (a) that this Lease is unmodified and in full force
and effect (or in full force and effect as modified, and stating the
modifications); (b) the amount of, and date to which Rent and other charges have
been paid in advance; (c) the amount of any Security Deposit; and (d)
acknowledging that neither party is in default under this Lease (or, if a party
is claimed to be in default, stating the nature of the alleged default).
However, in no event shall any such estoppel certificate require an
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amendment of the provisions of this Lease or otherwise affect or abridge a
party's rights hereunder. Any such estoppel certificate may be relied upon by
any such person or party designated in such request. Failure by a party to
execute and deliver any such estoppel certificate within the time requested
shall be conclusive upon such party that (1) this Lease is in full force and
effect and has not been modified except as represented by the requesting party;
(2) not more than one month's Rent has been paid in advance; and (3) neither
party is in default under this Lease.
5.14 SECURITY DEPOSIT.
(a) Concurrently with the execution hereof, Tenant shall pay to
Landlord the agreed upon Security Deposit as security for the full and faithful
performance of Tenant's obligations under this Lease. If at any time during the
Term, Tenant shall be in default in the payment of Rent or in default for any
other reason, Landlord may use, apply or retain such part of the Security
Deposit as necessary for cure of Tenant's failure to make payment of any amount
due Landlord or to cure such default or to reimburse or compensate Landlord for
any liability, loss, cost, expense or damage (including attorneys' fees) which
Landlord may suffer or incur by reason of Tenant's defaults. If Landlord uses or
applies all or any part of the Security Deposit, Tenant shall, on demand, pay to
Landlord a sum sufficient to restore the Security Deposit to the full amount
required by this Lease. Upon expiration of the Term or earlier termination of
this Lease and after Tenant has vacated the Leased Premises, Landlord shall
return the Security Deposit to Tenant, reduced by such amounts as may be
required by Landlord to remedy defaults on the part of Tenant in the payment of
Rent and to perform Tenant's obligations hereunder. The portion of the deposit
not so required shall be paid over to Tenant (or, at Landlord's option, to the
last assignee of Tenant's interest in this Lease) within thirty (30) days after
expiration of the Term or earlier termination hereof. Landlord shall hold the
Security Deposit for the foregoing purposes and shall segregate the Security
Deposit from its general funds in an interest bearing account. No part of the
Security Deposit shall be considered to be held in trust, or to be prepayment of
any monies to be paid by Tenant under this Lease.
(b) In lieu of a cash deposit, Tenant may deliver the Security
Deposit to Landlord in the form of a clean and irrevocable letter of credit (the
"Letter of Credit") issued by and drawable upon (said issuer being referred to
as the "Issuing Bank" (Tenant shall have the right to change the Issuing Bank
during the term of this Lease)) a financial institution which is approved by
Landlord in its sole discretion, provided that Landlord shall not unreasonably
withhold its consent to an Issuing Bank which has outstanding unsecured,
uninsured and unguaranteed indebtedness, or shall have issued a letter of credit
or other credit facility that constitutes the primary security for any
outstanding indebtedness (which is otherwise uninsured and unguaranteed), that
is then rated, without regard to qualification of such rating by symbols such as
"+" or "-" or numerical notation, "Aa" or better by Moody's Investors Service
and "AA" or better by Standard & Poor's Rating Service, and has combined
capital, surplus and undivided profits of not less than $100,000,000. Such
Letter of Credit shall (a) name Landlord as beneficiary, (b) be in the amount of
the Security Deposit, (c) have a term of not less than one year, (d) permit
multiple drawings, (e) be fully transferable by Landlord, and (f) otherwise be
in form and content reasonably satisfactory to Landlord. If upon any transfer of
the Letter of Credit, any fees or charges shall be so imposed, then such fees or
charges shall be payable solely by Tenant and the Letter of Credit shall so
specify. The Letter of Credit shall provide that it shall be deemed
automatically renewed, without amendment, for consecutive periods of one year
each thereafter during the Term unless the Issuing Bank sends a notice (the
"Non-Renewal Notice") to Landlord by certified mail, return receipt requested,
not less than 45 days next preceding the then expiration date of the Letter of
Credit stating that the Issuing Bank has elected not to renew the Letter of
Credit. Landlord shall have the right, upon receipt of the Non-Renewal Notice,
to draw the full amount of the Letter of Credit, by sight draft on the Issuing
Bank, and shall thereafter hold or apply the cash proceeds of the Letter of
Credit pursuant to the terms of this Article. The Issuing Bank shall agree with
all drawers, endorsers and bona fide holders that drafts drawn under and in
compliance with the terms of the Letter of Credit will be duly honored upon
presentation to the Issuing Bank at an office location in San Francisco. The
Letter of Credit shall be subject in all respects to the Uniform Customs and
Practice for Documentary Credits (1993 revision), International Chamber of
Commerce Publication No. 500.
(c) Notwithstanding anything in this Section 5.14 to the
contrary, on the third (3rd)
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anniversary of the Term Commencement Date, the amount of the Security Deposit
shall be reduced by $200,000; on the fourth (4th) anniversary of the Term
Commencement Date, the amount of the Security Deposit shall be reduced by an
additional $200,000; on the fifth (5th) anniversary of the Term Commencement
Date, the amount of the Security Deposit shall be reduced by an additional
$200,000; and on the sixth (6th) anniversary of the Term Commencement Date, the
amount of the Security Deposit shall be reduced by an additional $200,000. In
addition, on the sixth (6th) anniversary of the Term Commencement Date or any
time thereafter, if Tenant has achieved an audited net worth (as defined by
GAAP) of $50,000,000 or greater, the Security Deposit shall be reduced by an
additional $200,000. Upon any reduction of the amount of the Security Deposit,
such amount reduced shall be returned to Tenant, or a reduction shall be made to
the Letter of Credit, as the case may be.
5.15 SURRENDER. Subject to the provisions of Section 5.07 hereof, on the
Term Expiration Date (or earlier termination of this Lease), Tenant shall quit
and surrender possession of the Leased Premises to Landlord in as good order and
condition as they were in on the Term Commencement Date, reasonable wear and
tear, taking by condemnation and damage by casualty excepted. Reasonable wear
and tear shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Tenant performing all of its
obligations under this Lease. Tenant shall, without cost to Landlord, remove all
furniture, equipment, trade fixtures, debris and articles of personal property
owned by Tenant in the Leased Premises, and shall repair any damage to the
Project resulting from such removal, provided such repair shall not include
either repainting or recarpeting of the Leased Premises. Any such property not
removed by Tenant by the Term Expiration Date (or earlier termination of this
Lease) shall be considered abandoned, and Landlord may remove any or all of such
items and dispose of same in any lawful manner or store same in a public
warehouse or elsewhere for the account and at the expense and risk of Tenant. If
Tenant shall fail to pay the cost of storing any such property after storage for
thirty (30) days or more, Landlord may sell any or all of such property at
public or private sale, in such manner and at such times and places as Landlord
may deem proper, without notice to or demand upon Tenant. Landlord shall apply
the proceeds of any such sale as follows: first, to the costs of such sale;
second, to the costs of storing any such property; third, to the payment of any
other sums of money which may then or thereafter be due to Landlord from Tenant
under any of the terms of this Lease; and fourth, the balance, if any, to
Tenant.
5.16 TENANT'S REMEDIES. Landlord shall not be deemed in breach of this
Lease unless Landlord fails within a reasonable time to perform an obligation
required to be performed by Landlord. For purposes of this Section 5.16, a
reasonable time shall in no event, be less than thirty (30) days after receipt
by Landlord (except in the event of an emergency, in which case Landlord's
response time must be reasonable in light of the emergency), and by the holders
of any ground lease, deed of trust or mortgage covering the Leased Premises
whose name and address shall have been furnished Tenant in writing for such
purpose, of written notice specifying wherein such obligation of Landlord has
not been performed; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days after such notice are
reasonably required for its performance, then Landlord shall not be in breach of
this Lease if performance is commenced within said thirty (30)-day period and
thereafter diligently pursued to completion. If Landlord fails to cure such
default within the time provided for in this Lease, the holder of any such
ground lease, deed of trust or mortgage shall have an additional thirty (30)
days to cure such default (except in the case of an emergency); provided that if
such default cannot reasonably be cured within that thirty (30) day period, then
such holder shall have such additional time to cure the default as is reasonably
necessary under the circumstances. Tenant shall look solely to Landlord's
interest in the Project for recovery of any judgment from Landlord. Except with
respect to Landlord's interest in the Building and proceeds therefrom, neither
Landlord nor any of its trustees, directors, officers, agents, employees or
representatives (or, if Landlord is a partnership, its partners, whether general
or limited) shall ever be personally liable for any such judgment. Any lien
obtained to enforce any such judgment and any levy of execution thereon shall be
subject and subordinate to any lien, deed of trust or mortgage to which Section
5.12 applies or may apply. Tenant shall not have the right to terminate this
Lease or withhold, reduce or offset any amount against any payments of Rent due
and payable under this Lease by reason of a breach of this Lease by Landlord.
5.17 RULES AND REGULATIONS. Tenant shall comply with the rules and
regulations for the Project attached as EXHIBIT D and such reasonable amendments
thereto as Landlord may adopt from time to time
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with prior notice to Tenant.
ARTICLE 6.
ENVIRONMENTAL MATTERS
6.1 HAZARDOUS MATERIALS PROHIBITED.
(a) Except for a battery back-up system (for emergency power)
provided by Tenant, at its sole cost and expense, and subject to Landlord's
reasonable approval, Tenant shall not cause or permit any Hazardous Material (as
defined in Section 6.01(c) below) to be brought, kept, used, generated, released
or disposed in, on, under or about the Leased Premises or the Project by Tenant,
its agents, employees, contractors or invitees; provided, however, that Tenant
may use, store and dispose of, in accordance with applicable Laws, limited
quantities of standard office and janitorial supplies, but only to the extent
reasonably necessary for Tenant's operations in the Leased Premises. Tenant
hereby indemnifies Landlord from and against (i) any breach by Tenant of the
obligations stated in the preceding sentence, (ii) any breach of the obligations
stated in Section 6.01(b) below, or (iii) any claims or liability resulting from
Tenant's use of Hazardous Materials. Tenant hereby agrees to defend and hold
Landlord harmless from and against any and all claims, liability, losses,
damages, costs and/or expenses (including, without limitation, diminution in
value of the Project, or any portion thereof, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the Project,
damages arising from any adverse impact on marketing of space in the Project,
and sums paid in settlement of claims, fines, penalties, attorneys' fees,
consultants' fees and experts' fees) which arise during or after the Term as a
result of any breach of the obligations stated in Sections 6.01(a) or 6.01(b) or
otherwise resulting from Tenant's use of Hazardous Materials. This
indemnification of Landlord by Tenant includes, without limitation, death of or
injury to person, damage to any property or the environment and costs incurred
in connection with any investigation of site conditions or any cleanup,
remedial, removal, or restoration work required by any federal, state or local
governmental agency or political subdivision because of any Hazardous Material
present in, on, under or about the Leased Premises or the Project (including
soil and ground water contamination) which results from such a breach. Without
limiting the foregoing, if the presence of any Hazardous Material in, on, under
or about the Leased Premises or the Project caused or permitted by Tenant
results in any contamination of the Leased Premises or the Project, Tenant shall
promptly take all actions at its sole expense as are necessary to return the
same to the condition existing prior to the introduction of such Hazardous
Material; provided that Landlord's approval of such actions, and the contractors
to be used by Tenant in connection therewith, shall first be obtained. This
indemnification of Landlord by Tenant shall survive the expiration or sooner
termination of this Lease.
(b) Tenant covenants and agrees that Tenant shall at all times
be responsible and liable for, and be in compliance with, all federal, state,
local and regional laws, ordinances, rules, codes and regulations, as amended
from time to time ("Governmental Requirements"), relating to health and safety
and environmental matters, arising, directly or indirectly, out of Tenant's use
of Hazardous Materials (as defined in Section 6.01(c) below) in the Project.
Health and safety and environmental matters for which Tenant is responsible
under this paragraph include, without limitation (i) notification and reporting
to governmental agencies, (ii) the provision of warnings of potential exposure
to Hazardous Materials to Landlord and Tenant's agents, employees, licensees,
contractors and others, (iii) the payment of taxes and fees, (iv) the proper
off-site transportation and disposal of Hazardous Materials, and (v) all
requirements, including training, relating to the use of equipment. Immediately
upon discovery of a release of Hazardous Materials associated with Tenant's
activities, Tenant shall give written notice to Landlord, whether or not such
release is subject to reporting under Governmental Requirements. The notice
shall include information on the nature and conditions of the release and
Tenant's planned response. Tenant shall be liable for the cost of any clean-up
of the release of any Hazardous Materials by Tenant on the Project.
(c) As used in this Lease, the term "Hazardous Material" means
any hazardous or toxic substance, material or waste which is or becomes
regulated by any local governmental authority, the State of California or the
United States Government. The term "Hazardous Material" includes, without
limitation, any substance, material or waste which is (i) defined as a
"hazardous waste" or similar term under the laws of the
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jurisdiction where the Project is located; (ii) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317); (iii) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource, Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq. (42 U.S.C. Section 6903); (iv) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C.
Section 9601); (v) hydrocarbons, petroleum, gasoline, crude oil or any products,
by-products or fractions thereof; or (vi) asbestos in any form or condition.
(d) As used in this Article 6, the term "Laws" means any
applicable federal, state or local laws, ordinances, rules or regulations
relating to any Hazardous Material affecting the Project, including, without
limitation, the specific laws, ordinances and regulations referred to in Section
6.01(c) above. References to specific Laws shall also be references to any
amendments thereto and to any applicable successor Laws.
(e) To the best of Landlord's knowledge, except as disclosed in
the environmental reports (the "Environmental Reports") provided to Tenant by
Landlord (at Landlord's sole cost and expense) (i) there are no Hazardous
Materials in the Building, and (ii) the Building is in compliance with all Laws
relating to any Hazardous Material. Landlord's knowledge is limited to the
matters contained in the Environmental Reports. Tenant acknowledges its receipt
and review of the Environmental Reports prior to entering into this Lease.
Landlord represents and warrants that (i) during the period of its ownership of
the Project prior to entering into this Lease, it has not released any Hazardous
Materials on the Project, and (ii) after entering into this Lease, Landlord will
not release any Hazardous Materials on the Project. Landlord hereby agrees to
indemnify, protect, defend and hold the Tenant harmless of and from any and all
claims, liability, costs, penalties, fines, damages, injury, judgments,
forfeiture, losses or expenses (including without limitation reasonable
attorneys' fees) arising out of or in any way related to any breach by Landlord
of its representations and warranties in this Section 6.01(e) and Landlord shall
be liable for the cost of any clean-up of the release of any Hazardous Materials
by Landlord on the Project. Landlord, at its sole expense, shall cause to be
removed any asbestos or other Hazardous Materials discovered in the Leased
Premises (except any Hazardous Materials installed by Tenant or part of the
Tenant Improvements) during the term of this Lease required by Government
Requirements to be removed and Landlord shall restore the Leased Premises to its
condition prior to the removal of such Hazardous Materials. Landlord hereby
agrees to indemnify, protect, defend and hold the Tenant harmless of and from
any and all claims, liability, costs, penalties, fines, damages, injury,
judgments, forfeiture, losses or expenses (including without limitation
reasonable attorneys' fees) arising out of or in any way related to or resulting
from any Hazardous Materials discovered in the Leased Premises or on the Project
with were not brought, kept, used, generated, released or disposed in, on, under
or about the Leased Premises or the Project by Tenant, its agents, employees,
contractors or invitees.
6.2 LIMITATIONS ON ASSIGNMENT AND SUBLETTING. It shall not be
unreasonable for Landlord to withhold its consent to any proposed assignment or
subletting of the Leased Premises if (i) the proposed transferee's anticipated
use of the Leased Premises involves the generation, storage, use, treatment, or
disposal of Hazardous Material (excluding standard office and janitorial
supplies; in limited quantities as hereinabove provided); (ii) the proposed
transferee has been required by any prior landlord, lender or governmental
authority to take remedial action in connection with Hazardous Material
contaminating a property if the contamination resulted from such transferee's
actions or use of the property in question; or (iii) the proposed transferee is
subject to an enforcement order issued by any governmental authority in
connection with the generation, storage, use, treatment or disposal of a
Hazardous Material.
6.3 RIGHT OF ENTRY. Landlord, its employees, agents and consultants,
shall have the right to enter the Leased Premises at any time, in case of an
emergency, and otherwise during reasonable hours and upon reasonable notice to
Tenant, in order to conduct periodic environmental inspections and tests to
determine whether any Hazardous Materials are present. The costs and expenses of
such inspections shall be paid by Landlord unless a default or breach of this
Lease, violation of Laws or contamination caused or permitted by Tenant is found
to exist. In such event, Tenant shall reimburse Landlord upon demand, as
Additional Rent, for the costs and expenses of such inspections.
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6.4 NOTICE TO LANDLORD. Tenant shall immediately notify Landlord in
writing of: (i) any enforcement, clean-up, removal or other governmental or
regulatory action instituted or threatened regarding the Leased Premises or the
Project pursuant to any Laws; (ii) any claim made or threatened by any person
against Tenant or the Leased Premises relating to damage, contribution, cost
recovery, compensation, loss or injury resulting from or claimed to result from
any Hazardous Material; and (iii) any reports made to or received from any
governmental agency arising out of or in connection with any Hazardous Material
in or removed from the Leased Premises or the Project, including any complaints,
notices, warnings or asserted violations in connection therewith. Tenant shall
also supply to Landlord as promptly as possible, and in any event within three
(3) business days after Tenant first receives or sends the same, copies of all
claims, reports, complaints, notices, warnings, asserted violations or other
communications relating in any way to the Leased Premises or Tenant's use
thereof.
ARTICLE 7.
INSURANCE, INDEMNITY, CONDEMNATION, DAMAGE AND DEFAULT
7.1 LANDLORD'S INSURANCE. Landlord shall secure and maintain policies of
insurance for the Project (including the Leased Premises) covering loss of or
damage to the Project, including the Tenant Improvements, but excluding all
subsequent alterations, additions and improvements to the Leased Premises, with
loss payable to Landlord and to the holders of any deeds of trust, mortgages or
ground leases on the Project. Landlord shall not be obligated to obtain
insurance for Tenant's trade fixtures, equipment, furnishings, machinery or
other property. Such policies shall provide protection against fire and extended
coverage perils and such additional perils as Landlord deems suitable, and with
such deductible(s) as Landlord shall deem reasonably appropriate. Landlord shall
further secure and maintain commercial general liability insurance with respect
to the Project in such amount as Landlord shall determine, such insurance to be
in addition to, and not in lieu of, the liability insurance required to be
maintained by Tenant. In addition, Landlord may secure and maintain rental
income insurance. If the annual cost to Landlord for any such insurance exceeds
the standard rates because of the nature of Tenant's operations, Tenant shall,
upon receipt of appropriate invoices together with a statement signed by
Landlord's insurance carrier setting forth that the increase in insurance
premiums is directly attributable to Tenant's operations at the Leased Premises,
reimburse Landlord for such increases in cost, which amounts shall be deemed
Additional Rent hereunder. Tenant shall not be named as an additional insured on
any policy of insurance maintained by Landlord. The proceeds from any property
damage insurance maintained by Landlord hereunder shall be used in repair and
restoration of the Building.
7.2 TENANT'S LIABILITY INSURANCE.
(a) Tenant (with respect to both the Leased Premises and the
Project) shall secure and maintain, at its own expense, at all times during the
Term, a policy or policies of commercial general liability insurance protecting
Tenant and naming Landlord, the holders of any deeds of trust, mortgages or
ground leases on the Project, and Landlord's representatives (which term,
whenever used in this Article 7, shall be deemed to include Landlord's partners,
trustees, ancillary trustees, officers, directors, shareholders, beneficiaries,
agents, employees and independent contractors) as additional insureds against
claims for bodily injury, personal injury, advertising injury and property
damage (including attorneys' fees) based upon, involving or arising out of
Tenant's operations, assumed liabilities or Tenant's use, occupancy or
maintenance of the Leased Premises and the Common Areas of the Project. Such
insurance shall provide for a minimum amount of Two Million Dollars
($2,000,000.00) for property damage or injury to or death of one or more than
one person in any one accident or occurrence, with an annual aggregate limit of
at least Four Million Dollars ($4,000,000.00). The coverage required to be
carried shall include fire legal liability, blanket contractual liability,
personal injury liability (libel, slander, false arrest and wrongful eviction),
broad form property damage liability, products liability and completed
operations coverage (as well as owned, non-owned and hired automobile liability
if an exposure exists) and the policy shall contain an exception to any
pollution exclusion which insures damage or injury arising out of heat, smoke or
fumes from a hostile fire. Such insurance shall be written on an occurrence
basis and contain a separation of insureds provision or cross-liability
endorsement
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acceptable to Landlord. Tenant shall provide Landlord with a certificate
evidencing such insurance coverage. The certificate shall indicate that the
insurance provided specifically recognizes the liability assumed by Tenant under
this Lease (including without limitation performance by Tenant under Section
7.04) and that Tenant's insurance is primary to and not contributory with any
other insurance maintained by Landlord, whose insurance shall be considered
excess insurance only. Not more frequently than every two (2) years, if, in the
opinion of any mortgagee of Landlord or of the insurance broker retained by
Landlord, the amount of liability insurance coverage at that time is not
adequate, then Tenant shall increase its liability insurance coverage as
required by either any mortgagee of Landlord or Landlord's insurance broker.
(b) Tenant shall, at Tenant's expense, comply with (i) all
insurance company requirements pertaining to the use of the Leased Premises and
(ii) all rules, orders, regulations or requirements of the American Insurance
Association (formerly the National Board of Fire Underwriters) and with any
similar body.
7.3 TENANT'S ADDITIONAL INSURANCE REQUIREMENTS.
(a) Tenant shall secure and maintain, at Tenant's expense, at
all times during the Term, a policy of physical damage insurance on all of
Tenant's fixtures, furnishings, equipment, machinery, merchandise and personal
property in the Leased Premises and on any alterations, additions or
improvements made by or for Tenant upon the Leased Premises, all for the full
replacement cost thereof without deduction for depreciation of the covered items
and in amounts that meet any co-insurance clauses of the policies of insurance.
Such insurance shall insure against those risks customarily covered in an "all
risk" policy of insurance covering physical loss or damage. Tenant shall use the
proceeds from such insurance for the replacement of fixtures, furnishings,
equipment and personal property and for the restoration of any alterations,
additions or improvements to the Leased Premises. In addition, Tenant shall
secure and maintain, at all times during the Term, loss of income, business
interruption and extra expense insurance in such amounts as will reimburse
Tenant for direct or indirect loss of earnings and incurred costs attributable
to all perils commonly insured against by prudent tenants or attributable to
prevention of access to the Leased Premises or to the Building as a result of
such perils; such insurance shall be maintained with Tenant's property insurance
carrier. Further, Tenant shall secure and maintain at all times during the Term
workers' compensation insurance in such amounts as are required by law,
employer's liability insurance in the amount of One Million Dollars
($1,000,000.00) per occurrence, and all such other insurance as may be required
by applicable law or as may be reasonably required by Landlord. In the event
Tenant makes any alterations, additions or improvements to the Leased Premises,
prior to commencing any work in the Leased Premises, Tenant shall secure
"builder's all risk" insurance which shall be maintained throughout the course
of construction, such policy being an all risk builder's risk completed value
form, in an amount approved by Landlord, but not less than the total contract
price for the construction of such alterations, additions or improvements and
covering the construction of such alterations, additions or improvements, and
such other insurance as Landlord may reasonably require, it being understood and
agreed that all of such alterations, additions or improvements shall be insured
by Tenant pursuant to this Section 7.03 immediately upon completion thereof.
Tenant shall provide Landlord with certificates of all such insurance. The
property insurance certificate shall confirm that the waiver of subrogation
required to be obtained pursuant to Section 7.05 is permitted by the insurer.
Tenant shall, prior to the expiration of any policy of insurance required to be
maintained by Tenant under this Lease, furnish Landlord with an "insurance
binder" or other satisfactory evidence of renewal thereof.
(b) All policies required to be carried by Tenant under this
Lease shall be issued by and binding upon a reputable insurance company of good
financial standing licensed or authorized to do business in the State of
California with a rating of at least A-VII, or such other rating as may be
required by a lender having a lien on the Project, as set forth in the most
current issue of "Best's Insurance Reports." Tenant shall not do or permit
anything to be done that would invalidate the insurance policies referred to in
this Article 7. Evidence of insurance provided to Landlord shall include an
endorsement showing that Landlord, its representatives and the holders of any
deeds of trust, mortgages or ground leases on the Project are included as
additional insureds on general liability insurance, and as loss payees for
property insurance, to the extent required hereunder, and an endorsement whereby
the insurer agrees not to cancel, non-renew or materially
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alter the policy without at least thirty (30) days prior written notice to
Landlord, its representatives and any mortgagee of Landlord.
(c) In the event that Tenant fails to provide evidence of
insurance required to be provided by Tenant under this Lease, prior to
commencement of the Term, and thereafter during the Term, within thirty (30)
days following Landlord's request therefor, and prior to the expiration date of
any such coverage, Landlord shall be authorized (but not required) to procure
such coverage in the amounts stated with all costs thereof (plus a ten percent
(10%) administrative fee) to be chargeable to Tenant and payable upon written
invoice therefor, which amounts shall be deemed Additional Rent hereunder.
(d) The minimum limits of insurance required by this Lease, or
as carried by Tenant, shall not limit the liability of Tenant nor relieve Tenant
of any obligation hereunder.
7.4 INDEMNITY AND EXONERATION.
(a) Except for the negligence or willful misconduct of Landlord
and Landlord's representatives, Landlord and Landlord's representatives shall
not be liable for any loss, injury or damage to person or property of Tenant,
Tenant's agents, employees, contractors, invitees or any other person, whether
caused by theft, fire, act of God, acts of the public enemy, riot, strike,
insurrection, war, court order, requisition or order of governmental body or
authority or which may arise through repair, alteration or maintenance of any
part of the Project or failure to make any such repair or from any other cause
whatsoever, except as expressly otherwise provided in Sections 7.06 and 7.07.
Landlord shall not be liable for any loss, injury or damage arising from any act
or omission of any other tenant or occupant of the Project, nor shall Landlord
be liable under any circumstances for damage or inconvenience to Tenant's
business or for any loss of income or profit therefrom.
(b) Tenant shall indemnify, protect, defend and hold the
Project, Landlord and its representatives, harmless of and from any and all
claims, liability, costs, penalties, fines, damages, injury, judgments,
forfeiture, losses (including without limitation diminution in the value of the
Leased Premises) or expenses (including without limitation attorneys' fees,
consultant fees, testing and investigation fees, expert fees and court costs)
arising out of or in any way related to or resulting directly or indirectly from
(i) the use or occupancy of the Leased Premises, (ii) the activities of Tenant,
its agents, employees, contractors or invitees in or about the Leased Premises
or the Project (where not covered by Landlord's insurance), (iii) any failure of
Tenant to comply with any applicable law, and (iv) any default or breach by
Tenant in the performance of any obligation of Tenant under this Lease;
provided, however, that the foregoing indemnity shall not be applicable to
claims arising by reason of the negligence or willful misconduct of Landlord or
Landlord's representative or are related to any Landlord default under this
Lease.
(c) Tenant shall indemnify, protect, defend and hold the
Project, Landlord and its representatives, harmless of and from any and all
claims, liability, costs, penalties, fines, damages, injury, judgments,
forfeiture, losses (including without limitation diminution in the value of the
Leased Premises) or expenses (including without limitation attorneys' fees,
consultant fees, testing and investigation fees, expert fees and court costs)
arising out of or in any way related to or resulting directly or indirectly from
work or labor performed, materials or supplies furnished to or at the request of
Tenant or in connection with obligations incurred by or performance of any work
done for the account of Tenant in the Leased Premises or the Project, with the
exception of any such work, labor, materials or supplies directly related to any
Landlord Improvements or Tenant Improvements constructed pursuant to EXHIBIT B
attached hereto.
(d) The provisions of this Section 7.04 shall survive the
expiration or sooner termination of this Lease. BY SIGNING ITS INITIALS BELOW,
TENANT ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND
RAMIFICATIONS OF THE PROVISIONS SET FORTH IN THIS SECTION 7.04 AND FURTHER
ACKNOWLEDGES THAT SUCH PROVISIONS WERE SPECIFICALLY NEGOTIATED.
- ------------------------
TENANT'S INITIALS
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7.5 WAIVER OF SUBROGATION. Anything in this Lease to the contrary
notwithstanding, Landlord and Tenant each waives all rights of recovery, claim,
action or cause of action against the other, its agents (including partners,
both general and limited), trustees, officers, directors, and employees, for any
loss or damage that may occur to the Leased Premises, or any improvements
thereto, or the Project or any personal property of such party therein, by
reason of any cause required to be insured against under this Lease to the
extent of the coverage required, regardless of cause or origin, including
negligence of the other party hereto, provided that such party's insurance is
not invalidated thereby; and each party covenants that, to the fullest extent
permitted by law, no insurer shall hold any right of subrogation against such
other party. Tenant shall advise its insurers of the foregoing and such waiver
shall be a part of each policy maintained by Tenant which applies to the Leased
Premises, any part of the Project or Tenant's use and occupancy of any part
thereof.
7.6 CONDEMNATION.
(a) If the Leased Premises are taken under the power of eminent
domain or sold under the threat of the exercise of such power (all of which are
referred to herein as "condemnation"), this Lease shall terminate as to the part
so taken as of the date the condemning authority takes title or possession,
whichever first occurs (the "date of taking"). If the Leased Premises or any
portion of the Project is taken by condemnation to such an extent as to render
the Leased Premises untenantable as reasonably determined by Landlord and
Tenant, this Lease shall, at the option of either party to be exercised in
writing within thirty (30) days after receipt of written notice of such taking,
forthwith cease and terminate as of the date of taking. All proceeds from any
condemnation of the Leased Premises shall belong and be paid to Landlord,
subject to the rights of any mortgagee of Landlord's interest in the Project or
the beneficiary of any deed of trust which constitutes an encumbrance thereon;
provided that Tenant shall be entitled to any compensation separately awarded to
Tenant for Tenant's relocation expenses or, loss of Tenant's trade fixtures. If
this Lease continues in effect after the date of taking pursuant to the
provisions of this Section 7.06(a), Landlord shall proceed with reasonable
diligence to repair, at its expense, the remaining parts of the Project and the
Leased Premises to substantially their former condition to the extent that the
same is feasible (subject to reasonable changes which Landlord shall deem
desirable) and so as to constitute a complete and tenantable Project and Leased
Premises. Gross Rent shall abate to the extent appropriate during the period of
restoration, and Gross Rent shall thereafter be equitably adjusted according to
the remaining Rentable Area of the Leased Premises and the Building.
(b) In the event of a temporary taking of all or a portion of
the Leased Premises, there shall be no abatement of Rent and Tenant shall remain
fully obligated for performance of all of the covenants and obligations on its
part to be performed pursuant to the terms of this Lease. All proceeds awarded
or paid with respect thereto shall belong to Tenant.
7.7 DAMAGE OR DESTRUCTION. In the event of a fire or other casualty in
the Leased Premises, Tenant shall immediately give notice thereof to Landlord.
The following provisions shall then apply:
(a) If the damage is limited solely to the Leased Premises and
the Leased Premises can, in Landlord's opinion, be made tenantable with all
damage repaired within six (6) months from the date of damage, then Landlord
shall be obligated to rebuild the same to substantially their former condition
to the extent that the same is feasible (subject to reasonable changes which
Landlord shall deem desirable and such changes as may be required by applicable
law) and shall proceed with reasonable diligence to do so and this Lease shall
remain in full force and effect.
(b) If portions of the Project outside the boundaries of the
Leased Premises are damaged or destroyed (whether or not the Leased Premises are
also damaged or destroyed) and the Leased Premises and the Project can, in
Landlord's reasonable opinion, both be made tenantable with all damage repaired
within six (6) months from the date of damage or destruction, and provided that
Landlord determines that it is economically feasible, then Landlord shall be
obligated to rebuild the same to substantially their former condition to the
extent that the same is feasible (subject to reasonable changes which Landlord
shall
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reasonably deem desirable and such changes as may be required by applicable law)
and shall proceed with reasonable diligence to do so and this Lease shall remain
in full force and effect.
(c) Notwithstanding anything to the contrary contained in
Sections 7.07(a) or 7.07(b) above, Landlord shall not have any obligation
whatsoever to repair, reconstruct or restore the Leased Premises when any damage
thereto or to the Project occurs during the last twelve (12) months of the Term
and Tenant has not effectively exercised any option granted to Tenant to extend
the Term. Under such circumstances, Landlord shall promptly notify Tenant of its
decision not to rebuild, whereupon the Lease shall terminate as of the date of
such notice.
(d) If neither Section 7.07(a) nor 7.07(b) above applies,
Landlord shall so notify Tenant within sixty (60) days after the date of the
damage or destruction and either Tenant or Landlord may terminate this Lease
within thirty (30) days after the date of such notice, such termination notice
to be immediately effective; provided, however, that Landlord shall have the
right to elect to reconstruct the Project and the Leased Premises, in which
event (i) Landlord shall notify Tenant of such election within said sixty (60)
day period and Tenant shall thereupon have no right to terminate this Lease, and
(ii) Landlord shall proceed with reasonable diligence to rebuild the Project and
the Leased Premises to substantially their former condition to the extent that
the same is feasible (subject to reasonable changes which Landlord shall deem
desirable and such changes as may be required by applicable law).
(e) During any period when Tenant's use of the Leased Premises
is significantly impaired by damage or destruction, Gross Rent shall abate in
proportion to the degree to which Tenant's use of the Leased Premises is
impaired until such time as the Leased Premises are made tenantable as
reasonably determined by Landlord; provided that no such rental abatement shall
be permitted if the casualty is the result of the negligence or willful
misconduct of Tenant or Tenant's employees, agents, contractors or invitees.
(f) The proceeds from any insurance paid by reason of damage to
or destruction of the Project or any part thereof insured by Landlord shall
belong to and be paid to Landlord, subject to the rights of any mortgagee of
Landlord's interest in the Project or the beneficiary of any deed of trust which
constitutes an encumbrance thereon. Tenant shall be responsible at its sole cost
and expense for the repair, restoration and replacement of (i) its fixtures,
furnishings, equipment, machinery, merchandise and personal property in the
Leased Premises, and (ii) its alteration, additions and improvements; provided,
however, that Landlord shall have the option of requiring Tenant to assign to
Landlord (or any party designated by Landlord) some or all of the proceeds
payable to Tenant under this Article 7, whereupon Landlord shall be responsible
for the repair or restoration of such insured property.
(g) Landlord's repair and restoration obligations under this
Section 7.07 shall not impair or otherwise affect the rights and obligations of
the parties set forth elsewhere in this Lease. Subject to Section 7.07(e),
Landlord shall not be liable for any inconvenience or annoyance to Tenant, its
employees, agents, contractors or invitees, or injury to Tenant's business
resulting in any way from such damage or the repair thereof. Landlord and Tenant
agree that the terms of this Lease shall govern the effect of any damage to or
destruction of the Leased Premises or the Project with respect to the
termination of this Lease and hereby waive the provisions of any present or
future statute or law to the extent inconsistent therewith.
7.8 DEFAULT BY TENANT.
(a) Events of Default. The occurrence of any of the following
shall constitute an event of default on the part of Tenant:
(1) Abandonment. Vacating the Leased Premises without
the intention to reoccupy same, or abandonment of the Leased Premises for a
continuous period of six (6) months.
(2) Nonpayment Of Rent. Failure to pay any installment
of Rent due and payable hereunder on the date when payment is due, such failure
continuing for a period of three (3) business days after written notice of such
failure; provided, however, that Landlord shall not be required to provide
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such notice more than one (1) time during any Computation Year of the Term with
respect to non-payment of Gross Rent or Additional Rent, the third such
non-payment constituting default without requirement of notice; furthermore, if
Tenant shall be served with a demand for the payment of past due Rent, any
payment(s) tendered thereafter to cure any default by Tenant shall be made only
by cashier's check, wire-transfer or direct deposit of immediately available
funds;
(3) Other Obligations. Failure to perform any
obligation, agreement or covenant under this Lease other than those matters
specified in subsections 7.08(a)(1) and 7.08(a)(2), such failure continuing for
a period of fifteen (15) business days after written notice of such failure (or
such longer period as is reasonably necessary to remedy such default, provided
that Tenant commences the remedy within such fifteen (15)-day period and
continuously and diligently pursues such remedy at all times until such default
is cured);
(4) General Assignment. Any general arrangement or
assignment by Tenant for the benefit of creditors;
(5) Bankruptcy. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary petition against Tenant,
which involuntary petition remains undischarged for a period of sixty (60) days.
In the event that under applicable law the trustee in bankruptcy or Tenant has
the right to affirm this Lease and continue to perform the obligations of Tenant
hereunder, such trustee or Tenant shall, within such time period as may be
permitted by the bankruptcy court having jurisdiction, cure all defaults of
Tenant hereunder outstanding as of the date of the affirmance of this Lease and
provide to Landlord such adequate assurances as may be necessary to ensure
Landlord of the continued performance of Tenant's obligations under this Lease;
(6) Receivership. The appointment of a trustee or
receiver to take possession of all or substantially all of Tenant's assets or
the Leased Premises, where possession is not restored to Tenant within ten (10)
business days;
(7) Attachment. The attachment, execution or other
judicial seizure of all or substantially all of Tenant's assets or the Leased
Premises, if such attachment or other seizure remains undismissed or
undischarged for a period of ten (10) business days after the levy thereof;
(8) Insolvency. The admission by Tenant in writing of
its inability to pay its debts as they become due; the filing by Tenant of a
petition seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation; the filing by Tenant of an answer admitting or failing timely
to contest a material allegation of a petition filed against Tenant in any such
proceeding; or, if within sixty (60) days after the commencement of any
proceeding against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding shall not have been
dismissed;
(9) Guarantor. If the performance of Tenant's
obligations under this Lease is guaranteed: (i) the death of a guarantor; (ii)
the termination of a guarantor's liability with respect to this Lease other than
in accordance with the terms of such guaranty; (iii) a guarantor's becoming
insolvent or the subject of a bankruptcy filing; (iv) a guarantor's refusal to
honor the guaranty; or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Tenant's failure, within sixty (60) days
following written notice by or on behalf of Landlord to Tenant of any such
event, to provide Landlord with written alternative assurance or security,
which, when coupled with the then existing resources of Tenant, equals or
exceeds the combined financial resources of Tenant and the guarantor(s) that
existed at the time of execution of this Lease; or
(10) Partner. If Tenant is a partnership or consists of
more than one (1) person or entity, if any partner of the partnership or any
person or entity constituting Tenant is involved in any of the events or acts
described in subsections 7.08(a)(4) through (8).
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(11) Misrepresentation. The discovery by Landlord that
any representation, warranty or financial statement given to Landlord by Tenant
or any guarantor of Tenant's obligations under this Lease was materially false
or misleading.
(b) Remedies Upon Default:
(1) Termination. If an event of default occurs, Landlord
shall have the right, with or without notice or demand, immediately (after
expiration of any applicable grace period specified herein) to terminate this
Lease, and at any time thereafter recover possession of the Leased Premises or
any part thereof and expel and remove therefrom Tenant and any other person
occupying the same, by any lawful means, and again repossess and enjoy the
Leased Premises without prejudice to any of the remedies that Landlord may have
under this Lease, or at law or in equity by reason of Tenant's default or of
such termination.
(2) Continuation After Default. Even though Tenant has
breached this Lease and/or abandoned the Leased Premises, this Lease shall
continue in effect for so long as Landlord does not terminate Tenant's right to
possession under subsection 7.08(b)(1) hereof in writing, and Landlord may
enforce all of its rights and remedies under this Lease, including (but without
limitation) the right to recover Rent as it becomes due, and Landlord, without
terminating this Lease, may exercise all of the rights and remedies of a
landlord under Section 1951.4 of the Civil Code of the State of California or
any amended or successor code section. Acts of maintenance or preservation,
efforts to relet the Leased Premises or the appointment of a receiver upon
application of Landlord to protect Landlord's interest under this Lease shall
not constitute an election to terminate Tenant's right to possession. If
Landlord elects to relet the Leased Premises for the account of Tenant, the rent
received by Landlord from such reletting shall be applied as follows: first, to
the payment of any indebtedness other than Rent due hereunder from Tenant to
Landlord; second, to the payment of any costs of such reletting; third, to the
payment of the cost of any alterations or repairs to the Leased Premises;
fourth, to the payment of Rent due and unpaid hereunder; and the balance, if
any, shall be held by Landlord and applied in payment of future Rent as it
becomes due. If that portion of rent received from the reletting which is
applied against the Rent due hereunder is less than the amount of the Rent due,
Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord.
Such deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as determined, any costs and expenses incurred by Landlord in
connection with such reletting or in making alterations and repairs to the
Leased Premises, which are not covered by the rent received from the reletting.
(c) Damages Upon Termination. Should Landlord terminate this
Lease pursuant to the provisions of subsection 7.08(b)(1) hereof, Landlord shall
have all the rights and remedies of a landlord provided by Section 1951.2 of the
Civil Code of the State of California. Upon such termination, in addition to any
other rights and remedies to which Landlord may be entitled under applicable
law, Landlord shall be entitled to recover from Tenant: (i) the worth at the
time of award of the unpaid Rent and other amounts which had been earned at the
time of termination; (ii) the worth at the time of award of the amount by which
the unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such Rent loss that Tenant proves could have been
reasonably avoided; (iii) the worth at the time of award of the amount by which
the unpaid Rent for the balance of the Term after the time of award exceeds the
amount of such Rent loss that Tenant proves could be reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
Lease or which, in the ordinary course of things, would be likely to result
therefrom. The "worth at the time of award" of the amounts referred to in
clauses (i) and (ii) shall be computed with interest at the lesser of twelve
percent (12%) per annum or the maximum rate then allowed by law. The "worth at
the time of award" of the amount referred to in clause (iii) shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of the award plus one percent (1%).
(d) Computation of Rent for Purposes of Default. For purposes of
computing unpaid Rent which would have accrued and become payable under this
Lease pursuant to the provisions of
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Section 7.08(c), unpaid Rent shall consist of the sum of:
(1) the total Base Rent for the balance of the Term,
plus
(2) a computation of Tenant's Proportionate Share of
Increased Basic Operating Cost for the balance of the Term, the assumed amount
for the Computation Year of the default and each future Computation Year in the
Term to be equal to Tenant's Proportionate Share of Increased Basic Operating
Cost for the Computation Year immediately prior to the year in which default
occurs, compounded at a per annum rate equal to the mean average rate of
inflation for the preceding five (5) calendar years as determined by the United
States Department of Labor, Bureau of Labor Statistics Consumer Price Index (All
Urban Consumers, all items (1982-84=100)) for the Metropolitan Area or Region in
which the Project is located. If such Index is discontinued or revised, the
average rate of inflation shall be determined by reference to the index
designated as the successor or substitute index by the government of the United
States.
(e) Late Charge. If any payment required to be made by Tenant
under this Lease is not received by Landlord on or before the date the same is
due after expiration of all applicable notice and cure periods, Tenant shall pay
to Landlord an amount equal to ten percent (10%) of the delinquency. The parties
agree that Landlord would incur costs not contemplated by this Lease by virtue
of such delinquencies, including without limitation administrative, collection,
processing and accounting expenses, the amount of which would be extremely
difficult to compute, and the amount stated herein represents a reasonable
estimate thereof. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's breach or default with respect to such
delinquency, or prevent Landlord from exercising any of Landlord's other rights
and remedies.
(f) Interest on Past-Due Obligations. Except as expressly
otherwise provided in this Lease, any Rent due Landlord hereunder, other than
late charges, which is not received by Landlord on the date on which it was due,
shall bear interest from the day after it was due at the maximum rate then
allowed by law, in addition to the late charge provided for in Section 7.08(e).
(g) Landlord's Right to Perform. Notwithstanding anything to the
contrary set forth elsewhere in this Lease, in the event Tenant fails to perform
any affirmative duty or obligation of Tenant under this Lease, then after
expiration of all applicable notice and cure periods (except without notice in
case of an emergency) Landlord may (but shall not be obligated to) perform such
duty or obligation on Tenant's behalf, including, without limitation, the
obtaining of insurance policies or governmental licenses, permits or approvals.
Tenant shall reimburse Landlord upon demand for the costs and expenses of any
such performance (including penalties, interest and attorneys' fees incurred in
connection therewith). Such costs and expenses incurred by Landlord shall be
deemed Additional Rent hereunder.
(h) Remedies Cumulative. All rights, privileges and elections or
remedies of Landlord are cumulative and not alternative with all other rights
and remedies at law or in equity to the fullest extent permitted by law.
(i) Waiver. Tenant waives any right of redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law in the event Tenant is evicted and
Landlord takes possession of the Leased Premises by reason of a default.
ARTICLE 8.
OPTION TO RENEW
8.1 OPTION TO RENEW.
(a) Landlord hereby grants to Tenant one (1) option (the
"Option") to extend the term of this Lease for an additional period of five (5)
years (the "Option Term"), all on the following terms and conditions:
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(1) The Option must be exercised, if at all, by written
notice irrevocably exercising the Option ("Option Notice") delivered by Tenant
to Landlord not later than twelve (12) months prior to the Term Expiration Date.
Further, the Option shall not be deemed to be properly exercised if, as of the
date of the Option Notice or at the Term Expiration Date, (i) Tenant is in
default under this Lease, (ii) Tenant has assigned this Lease or its interest
therein (other than to an affiliate or subsidiary of Tenant), or (iii) Tenant,
or Tenant's affiliate or subsidiary, is in possession of less than fifty percent
(50%) of the square footage of the Leased Premises. Provided Tenant has properly
and timely exercised the Option, the term of this Lease shall be extended for
the period of the Option Term, and all terms, covenants and conditions of this
Lease shall remain unmodified and in full force and effect, except that the Base
Rent shall be modified as set forth in subsection 8.01(a)(2) below.
(2) The Base Rent payable for the Option Term shall be
the greater of (i) the Base Rent payable on the Term Expiration Date, or (ii)
the then-current rental rate per rentable square foot (as further defined below,
"FMRR") being agreed to in new leases by the Landlord and other landlords of
buildings in the San Francisco, California area which are comparable in quality,
location and prestige to the Building ("Comparable Buildings") and tenants
leasing space in the Building or Comparable Buildings. As used herein, "FMRR"
shall mean the rental rate per rentable square foot for which Landlord and other
landlords are entering into new leases within the time period of fifteen (15) to
twelve (12) months prior to the Term Expiration Date ("Market Determination
Period"), with new tenants leasing from Landlord and other landlords office
space in the Building and Comparable Buildings ("Comparative Transactions"). To
the extent such other Comparable Buildings have historically received lower or
higher rents from the rents in the Building, then for the purpose of arriving at
the FMRR, such rates when used to establish the FMRR in the Building shall be
increased or decreased as appropriate to reflect such historical differences.
Landlord shall provide its determination of the FMRR to Tenant within twenty
(20) days after Landlord receives the Option Notice. Tenant shall have fifteen
(15) days ("Tenant's Review Period") after receipt of Landlord's notice of the
FMRR within which to accept such FMRR or to reasonably object thereto in
writing. In the event Tenant objects to the FMRR submitted by Landlord, Landlord
and Tenant shall attempt to agree upon such FMRR. If Landlord and Tenant fail to
reach agreement on such FMRR within fifteen (15) days following Tenant's Review
Period (the "Outside Agreement Date"), then each party shall place in a separate
sealed envelope its final proposal as to FMRR and such determination shall be
submitted to arbitration in accordance with subparagraph 8.01(b) below.
(b) Landlord and Tenant shall meet with each other within five
(5) business days of the Outside Agreement Date and exchange the sealed
envelopes and then open such envelopes in each other's presence. If Landlord and
Tenant do not mutually agree upon the FMRR within one (1) business day of the
exchange and opening of envelopes, then, within ten (10) business days of the
exchange and opening of envelopes, Landlord and Tenant shall agree upon and
jointly appoint one arbitrator who shall be by profession be a real estate
appraiser or broker who shall have been active over the five (5) year period
ending on the date of such appointment in the leasing of comparable commercial
properties in the vicinity of the Building. Neither Landlord nor Tenant shall
consult with such broker or appraiser as to his or her opinion as to FMRR prior
to the appointment. The determination of the arbitrator shall be limited solely
to the issue of whether Landlord's or Tenant's submitted FMRR for the Premises
is the closer to the actual rental rate per rentable square foot for new leases
within the Market Determination Period for Comparative Transactions. Such
arbitrator may hold such hearings and require such briefs as the arbitrator, in
his or her sole discretion, determines is necessary. In addition, Landlord or
Tenant may submit to the arbitrator with a copy to the other party within five
(5) business days after the appointment of the arbitrator any data and
additional information that such party deems relevant to the determination by
the arbitrator ("Data") and the other party may submit a reply in writing within
five (5) business days after receipt of such Data.
(1) The arbitrator shall, within thirty (30) days of his
or her appointment, reach a decision as to whether the parties shall use
Landlord's or Tenant's submitted FMRR, and shall notify Landlord and Tenant of
such determination.
(2) The decision of the arbitrator shall be binding upon
Landlord and Tenant.
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(3) If Landlord and Tenant fail to agree upon and
appoint such arbitrator, then the appointment of the arbitrator shall be made by
the American Arbitration Association.
(4) The cost of arbitration shall be paid by Landlord
and Tenant equally.
(5) The arbitration proceeding and all evidence given or
discovered pursuant thereto shall be maintained in confidence by all parties.
ARTICLE 9.
MISCELLANEOUS MATTERS
9.1 PARKING. None.
9.2 BROKERS. Landlord has been represented in this transaction by
Landlord's Broker. Tenant has been represented in this transaction by Tenant's
Broker. Upon full execution of this Lease by both parties, Landlord shall pay to
Landlord's Broker and Tenant's Broker a fee for brokerage services rendered by
it in this transaction provided for in separate written agreements between
Landlord and Landlord's Broker and Landlord's Broker and Tenant's Broker. Tenant
represents and warrants to Landlord that the brokers named in the Basic Lease
Information sheet are the only agents, brokers, finders or other similar parties
with whom Tenant has had any dealings in connection with the negotiation of this
Lease and the consummation of the transaction contemplated hereby. Tenant hereby
agrees to indemnify, defend and hold Landlord free and harmless from and against
liability for compensation or charges which may be claimed by any agent, broker,
finder or other similar party by reason of any dealings with or actions of
Tenant in connection with the negotiation of this Lease and the consummation of
this transaction, including any costs, expenses and attorneys' fees incurred
with respect thereto.
9.3 NO WAIVER. No waiver by either party of the default or breach of any
term, covenant or condition of this Lease by the other shall be deemed a waiver
of any other term, covenant or condition hereof, or of any subsequent default or
breach by the other of the same or of any other term, covenant or condition
hereof. Landlord's consent to, or approval of, any act shall not be deemed to
render unnecessary the obtaining of Landlord's consent to, or approval of, any
subsequent or similar act by Tenant, or be construed as the basis of an estoppel
to enforce the provision or provisions of this Lease requiring such consent.
Regardless of Landlord's knowledge of a default or breach at the time of
accepting Rent, the acceptance of Rent by Landlord shall not be a waiver of any
preceding default or breach by Tenant of any provision hereof, other than the
failure of Tenant to pay the particular Rent so accepted. Any payment given
Landlord by Tenant may be accepted by Landlord on account of monies or damages
due Landlord (with the exception of any such amounts in dispute) notwithstanding
any qualifying statements or conditions made by Tenant in connection therewith,
which statements and/or conditions shall be of no force or effect whatsoever
unless specifically agreed to in writing by Landlord at or before the time of
deposit of such payment.
9.4 RECORDING. Neither this Lease nor a memorandum thereof shall be
recorded without the prior written consent of Landlord, which consent may be
withheld in Landlord's sole discretion.
9.5 HOLDING OVER. If Tenant holds over after expiration or termination
of this Lease without the written consent of Landlord, Tenant shall pay for each
month of hold-over tenancy 150% of the Gross Rent which Tenant was obligated to
pay for the month immediately preceding the end of the Term for each month or
any part thereof of any such hold-over period, together with such other amounts
as may become due hereunder. Any holding over shall constitute a lease from
month-to-month, terminable upon thirty (30) days' notice from either party on
the terms of this Lease except that monthly rental shall be 150% of the Gross
Rent which Tenant was obligated to pay for the month immediately preceding the
end of the Term, together with such other amounts as may become due hereunder.
9.6 TRANSFERS BY LANDLORD. The term "Landlord" as used in this Lease
shall mean the owner(s) at
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the time in question of the fee title to the Leased Premises or, if this is a
sublease, of the Tenant's interest in the master lease. If Landlord transfers,
in whole or in part, its rights and obligations under this Lease or in the
Project, upon its transferee's assumption of Landlord's obligations hereunder
and delivery to such transferee of any unused Security Deposit then held by
Landlord, no further liability or obligations shall thereafter accrue against
the transferring or assigning person as Landlord hereunder. Subject to the
foregoing, the obligations and/or covenants in this Lease to be performed by the
Landlord shall be binding only upon the Landlord as defined in this Section
9.06.
9.7 ATTORNEYS' FEES. In the event either party places the enforcement of
this Lease, or any part of it, or the collection of any Rent due, or to become
due, hereunder, or recovery of the possession of the Leased Premises, in the
hands of an attorney, or files suit upon the same, the prevailing party shall
recover its reasonable attorneys' fees, costs and expenses, including those
which may be incurred on appeal. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not suit is filed or any suit that may
be filed is pursued to decision or judgment. The term "prevailing party" shall
include, without limitation, a party who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other party of its claim or defense. The attorneys'
fee award shall not be computed in accordance with any court fee schedule, but
shall be such as to fully reimburse all attorneys' fees reasonably incurred.
9.8 TERMINATION; MERGER. No act or conduct of Landlord, including,
without limitation, the acceptance of keys to the Leased Premises, shall
constitute an acceptance of the surrender of the Leased Premises by Tenant
before the scheduled Term Expiration Date. Only a written notice from Landlord
to Tenant shall constitute acceptance of the surrender of the Leased Premises
and accomplish a termination of this Lease. Unless specifically stated otherwise
in writing by Landlord, the voluntary or other surrender of this Lease by
Tenant, the mutual termination or cancellation hereof, or a termination hereof
by Landlord for default by Tenant, shall automatically terminate any sublease or
lesser estate in the Leased Premises; provided, however, Landlord shall, in the
event of any such surrender, termination or cancellation, have the option to
continue any one or all of any existing subtenancies. Landlord's failure within
thirty (30) days following any such event to make any written election to the
contrary by written notice to the holder of any such lesser interest, shall
constitute Landlord's election to have such event constitute the termination of
such interest.
9.9 AMENDMENTS; INTERPRETATION. This Lease may not be altered, changed
or amended, except by an instrument in writing signed by the parties in interest
at the time of the modification. The captions of this Lease are for convenience
only and shall not be used to define or limit any of its provisions.
9.10 SEVERABILITY. If any term or provision of this Lease, or the
application thereof to any person or circumstances, shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and shall be enforceable to the fullest extent
permitted by law.
9.11 NOTICES. All notices, demands, consents and approvals which are
required or permitted by this Lease to be given by either party to the other
shall be in writing and shall be deemed to have been fully given by personal
delivery or by recognized overnight courier service or when deposited in the
United States mail, certified or registered, with postage prepaid, and addressed
to the party to be notified at the address for such party specified on the Basic
Lease Information sheet, or to such other place as the party to be notified may
from time to time designate by at least fifteen (15) days' notice to the
notifying party given in accordance with this Section 9.11, except that upon
Tenant's taking possession of the Leased Premises, the Leased Premises shall
constitute Tenant's address for notice purposes. A copy of all notices given to
Landlord under this Lease shall be concurrently transmitted to such party or
parties at such addresses as Landlord may from time to time hereafter designate
by notice to Tenant.
Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. Notices delivered
by nationally recognized overnight courier shall be deemed given twenty-four
(24) hours
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after delivery of the same to the courier. If notice is received on a Saturday,
Sunday or legal holiday, it shall be deemed received on the next business day.
Tenant hereby appoints as its agent to receive the service of all default
notices and notice of commencement of unlawful detainer proceedings the person
in charge of or apparently in charge of or occupying the Leased Premises at the
time, and, if there is no such person, then such service may be made by
attaching the same on the main entrance of the Leased Premises.
9.12 FORCE MAJEURE. Any prevention, delay or stoppage of work to be
performed by Landlord or Tenant which is due to strikes, labor disputes,
inability to obtain labor, materials, equipment or reasonable substitutes
therefor, acts of God, governmental restrictions or regulations or controls,
judicial orders, enemy or hostile government actions, civil commotion, or other
causes beyond the reasonable control of the party obligated to perform
hereunder, shall excuse performance of the work by that party for a period equal
to the duration of that prevention, delay or stoppage. Nothing in this Section
9.12 shall excuse or delay Tenant's obligation to pay Rent or other charges due
under this Lease.
9.13 GUARANTOR. If there are to be any guarantors of this Lease, the
guarantee shall be on a form provided by Landlord, and each such guarantor shall
have the same obligations as Tenant under this Lease, including, but not limited
to, the obligation to provide the estoppel certificate and information called
for by Section 5.13. It shall constitute a default of Tenant under this Lease if
any such guarantor fails or refuses, upon reasonable request by Landlord, to
give: (a) evidence of the due execution of the guarantee called for by this
Lease, including the authority of the guarantor (and of the party signing on
guarantor's behalf) to obligate such guarantor on said guarantee, and including,
in the case of a corporate guarantor, a certified copy of a resolution of the
board of directors of guarantor authorizing the making of such guarantee,
together with a certificate of incumbency showing the signatures of the persons
authorized to sign on its behalf; (b) current financial statements of guarantor
as may, from time to time, be requested by Landlord; (c) an estoppel
certificate; or (d) written confirmation that the guarantee is still in effect.
9.14 SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and inure
to the benefit of Landlord, its successors and assigns (subject to the
provisions hereof, including, without limitation, Section 5.15), and shall be
binding upon and inure to the benefit of Tenant, its successors, and to the
extent assignment or subletting, may be approved or deemed approved by Landlord
hereunder, Tenant's assigns or subtenants.
9.15 FURTHER ASSURANCES. Landlord and Tenant each agree to promptly sign
all documents reasonably requested to give effect to the provisions of this
Lease.
9.16 INCORPORATION OF PRIOR AGREEMENTS. This Lease, including the
exhibits and addenda attached to it, contains all agreements of Landlord and
Tenant with respect to any matter referred to herein. No prior agreement or
understanding pertaining to such matters shall be effective.
9.17 APPLICABLE LAW. This Lease shall be governed by, construed and
enforced in accordance with the laws of the State of California.
9.18 TIME OF THE ESSENCE. Time is of the essence of each and every
covenant of this Lease. Each and every covenant, agreement or other provision of
this Lease on Tenant's part to be performed shall be deemed and construed as a
separate and independent covenant of Tenant, not dependent on any other
provision of this Lease or on any other covenant or agreement set forth herein.
9.19 NO JOINT VENTURE. This Lease shall not be deemed or construed to
create or establish any relationship of partnership or joint venture or similar
relationship or arrangement between Landlord and Tenant hereunder.
9.20 AUTHORITY. If Tenant is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of Tenant represents
and warrants that he or she is duly authorized to execute and deliver this Lease
on Tenant's behalf and that this Lease is binding upon Tenant in accordance with
its terms. If Tenant is a corporation, trust or partnership, Tenant shall,
within ten (10) business days after
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request by Landlord, deliver to Landlord evidence satisfactory to Landlord of
such authority.
9.21 [intentionally deleted].
9.22 OFFER. Preparation of this Lease by Landlord or Landlord's agent
and submission of same to Tenant shall not be deemed an offer to lease to
Tenant. This Lease is not intended to be binding and shall not be effective
until fully executed by both Landlord and Tenant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE TO FOLLOW.]
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9.23 EXHIBITS; ADDENDA. The following Exhibits and addenda are attached
to, incorporated in and made a part of this Lease: EXHIBIT A Floor Plan of the
Leased Premises; EXHIBIT B Initial Improvement of the Leased Premises; EXHIBIT C
Confirmation of Term of Lease; EXHIBIT D Building Rules and Regulations; and
EXHIBIT E Form of Fleet National Bank's Lease Subordination, Non-Disturbance and
Attornment Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first written above.
"LANDLORD":
CEP INVESTORS XII LLC,
a Delaware limited liability company
By: EPI Investors XII LLC,
a California limited liability company
Its Manager
By: Ellis Partners, Inc.,
a California corporation
Its Manager
By: /s/ JAMES F. ELLIS
-------------------------
Typed Name: James F. Ellis
-----------------
Title:
----------------------
"TENANT":
FORT POINT PARTNERS, INC.,
a California corporation
By: /s/ MATTHEW ROCHE
---------------------------------
Typed Name: Matthew Roche
-------------------------
Title: President
------------------------------
By: /s/ JAMES T. ROCHE
---------------------------------
Typed Name: James Roche
-------------------------
Title: CEO
------------------------------
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EXHIBIT A
FLOOR PLAN
OF THE
LEASED PREMISES
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<PAGE> 38
EXHIBIT B
INITIAL IMPROVEMENT OF THE LEASED PREMISES
1. Tenant Improvements and Landlord Improvements. Landlord shall cause
Pankow Builders (the "Contractor") to construct and install the Tenant
Improvements (as defined below) and the Landlord Improvements (as defined
below). The Contractor shall construct and install the tenant improvements (the
"Tenant Improvements") in the Leased Premises, substantially in accordance with
plans, working drawings and specifications ("Tenant's Plans") prepared by
Landlord's architects and electrical, structural, mechanical, HVAC and other
engineers and consultants and approved by Landlord and Tenant, which approval
shall not be unreasonably withheld, conditioned or delayed by either party. The
contract between Landlord and Landlord's architect shall be subject to Tenant's
approval, which approval shall not be unreasonably withheld. The costs of
preparing Tenant's Plans and performing the Tenant Improvements shall be
allocated between, and paid by, Landlord and Tenant as set forth in this EXHIBIT
B.
(a) Landlord shall enter into a construction contract with
Contractor for the construction of the Tenant Improvements in accordance with
Tenant's Plans. The construction contract shall be in a form and shall contain
such terms and conditions as may be approved by Tenant, which approval shall not
be unreasonably withheld. Tenant shall have three (3) days to review the first
draft of the proposed construction contract and two (2) business days to respond
to any revision of the construction contract thereafter. The construction
contract shall provide that Tenant is a third party beneficiary of the contract
and shall be entitled to enforce all warranties directly against the Contractor.
The construction contract shall also provide that the work to be performed shall
be performed for cost plus a fixed fee of fifteen percent (15%) (which fee shall
include the Contractor's overhead, general conditions and profit) to a
guaranteed maximum price with all savings to accrue to the Tenant. The
guaranteed price may include a contingency of up to five percent (5%) of the
total amount of bids received from subcontractors and materialmen for the work
and the use of such contingency shall require the consent of the Tenant. Any
unused contingency shall be credited to Tenant. The construction contract shall
include allowances only for those items for which Tenant approves allowances,
which approval shall not be unreasonably withheld. The Contractor shall be
responsible for any costs due to its negligence or breach and for overtime
required to complete the work (unless approved by Tenant) on time and for any
changes due to governmental or other requirements which are not properly
addressed or included in the Tenant's Plans.
(b) Landlord shall require Contractor to competitively bid major
subcontracts and materials purchases. With the exception of mechanical,
electrical and fire safety subcontractors (whose charges shall not exceed those
generally charged in other similar buildings in the vicinity for tenant
improvement projects of the sort described in the Tenant's Plans), at least
three bids shall be secured for each subcontract and material contract. All bids
shall be on a fixed price basis. Tenant shall have the right to select which of
the bids will be acceptable.
(c) Landlord shall supervise the completion of the Tenant
Improvements in accordance with Tenant's Plans and shall use best efforts to
secure Substantial Completion of such work by October 15, 1999, as to the 20th
floor, and by December 1, 1999, as to the balance of the Leased Premises.
Landlord and Tenant acknowledge that completion of the 20th floor by October 15,
1999 may require overtime and Tenant will not unreasonably withhold its approval
for use of overtime labor.
2. Tenant's Plans. Tenant and Landlord shall mutually approve Tenant's
Plans in writing, each party's approval shall not be unreasonably withheld. When
the Tenant's Plans are completed, they shall be submitted to Tenant for review
together with a preliminary estimate of costs prepared by Contractor broken down
by category and trade, so that Tenant may review the Tenant's Plans and make
reasonable decisions concerning costs. Tenant's Plans shall also be submitted by
Landlord to the appropriate governmental body for plan checking and a building
permit. Landlord shall, at Landlord's sole cost and expense, make any changes to
Tenant's Plans required to obtain a building permit. Tenant shall have ten (10)
days from its receipt of Tenant's Plans and preliminary cost estimates to
approve or disapprove Tenant's Plans in writing. If
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Tenant disapproves Tenant's Plans, Landlord shall cause Tenant's Plans to be
revised and new preliminary estimates of costs to be prepared to reflect the
changes requested by Tenant and revised Tenant's Plans and revised preliminary
cost estimates shall be submitted to Tenant for its approval or disapproval. The
process of review, revision and submission to Tenant for approval or disapproval
shall be continued until Tenant's Plans and the preliminary costs are approved
by Landlord and Tenant. Tenant shall be deemed to have disapproved Tenant's
Plans if Tenant fails to reply within such ten-day period, but such failure to
reply shall constitute a Tenant Delay. Landlord shall use commercially
reasonable efforts to ensure that the Tenant's Plans comply with all applicable
codes, laws, ordinances, rules and regulations, not adversely affect the
Building shell or core or any systems, components or elements of the Building,
are in a form sufficient to secure the approval of all government authorities
with jurisdiction over the Building, and are otherwise satisfactory to Landlord
and Tenant in their reasonable discretion. Tenant's Plans shall be complete
plans, working drawings and specifications for the layout, improvement and
finish of the Leased Premises consistent with the construction of the Building,
including mechanical and electrical drawings and decorating plans, showing at a
minimum, all of the following:
(1) Location and type of all partitions;
(2) Location and type of all doors, with hardware and keying
schedule;
(3) Ceiling plans, including light fixtures;
(4) Location of telephone equipment room, with all special
electrical and cooling requirements;
(5) Location and type of all electrical outlets, switches,
telephone outlets, and lights;
(6) Location of all sprinklers (on a design build basis or in
consultation with a sprinkler engineer);
(7) Location and type of all equipment requiring special
electrical requirements;
(8) Location, weight per square foot and description of any
heavy equipment or filing system exceeding fifty (50) pounds per square foot
live and dead load;
(9) Requirements for air conditioning or special ventilation;
(10) Location, type and color of floor covering;
(11) Location, type and color of wall covering;
(12) Location, type and color of paint or finishes;
(13) Location and type of plumbing;
(14) Location, brands, model numbers and type of kitchen
equipment;
(15) Indicate critical dimensions necessary for construction;
(16) Details showing all millwork with verified dimensions and
dimensions of all equipment to be built in, corridor entrances, bracing or
support of special walls or glass partitions, and any other items or information
requested by Landlord;
(17) Location of all cabling; and
(18) Location and design of Tenant's server room and battery
back-up system and other
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systems and all special electrical and heating and ventilation requirements.
3. Landlord's review and approval of Tenant's Plans shall not
constitute, and Landlord shall not be deemed to have made, any representation or
warranty as to the suitability of the Leased Premises or the Tenant Improvements
for Tenant's needs, except as expressly provided in this Lease.
4. Construction.
(a) The Tenant Improvements and the Landlord Improvements in the
Leased Premises and in the Building shall be diligently completed substantially
in accordance with Tenant's Plans by the Contractor in a good and workmanlike
manner. Notwithstanding anything in the Lease to the contrary, "Substantial
Completion" of the Tenant Improvements on any floor shall not be deemed to have
occurred until Tenant's receipt of a factually correct notice from Landlord's
architect certifying to Tenant that each of the following is true and correct:
(a) the Tenant Improvements on the floor in question are substantially complete
except for minor details which will not adversely affect Tenant's ability to
conduct its business operations on such floor; (b) Landlord's Improvements on or
affecting the floor in question have been substantially completed; and (c) all
mechanical and electrical systems serving the floor in question are functioning
in a normal manner, consistent with their design. Landlord shall have no
liability to Tenant if the Leased Premises is not suitable for Tenant's
occupancy or if Tenant or Landlord has not obtained all the necessary permits
for Tenant to occupy the Leased Premises by October 15, 1999, as to the 20th
floor, and by December 1, 1999, as to the balance of the Leased Premises.
(b) Landlord, at its sole cost and expense, shall provide or
construct the following (collectively, "Landlord's Improvements") in the Leased
Premises and the Building (if applicable), in accordance with all applicable
laws, rules, codes and ordinances, including without limitation, the Americans
with Disabilities Act, the disability access requirements of California Title
24, and building codes:
(i) Floor Coverings: All existing floor coverings shall
be removed.
(ii) Elevator: The elevator systems serving, and the
elevator lobbies located on, the 20th, 21st and 22nd floors shall be restored
and refurbished using first-class materials, including, without limitation,
incandescent lighting and carpeting or high-quality tiling and wood paneling.
(iii) Partitions/Ceilings: All existing partitions shall
be demolished.
(iv) Sprinkler System: Landlord shall provide the tap
into the main sprinkler riser and install the main sprinkler loop around the
core area of the Leased Premises in compliance with all requirements of Section
403.24.1, et. seq., of the San Francisco Building Code as the same exist as of
the date of this Lease regardless of when such requirements will become
effective, including the installation of sprinkler drops and heads.
(v) Life Safety Systems: Landlord shall provide Class
"E" and strobe panels with adequate connection points on the floors of the
Leased Premises for code-required speaker and strobe lights as well as flow and
tamper switches for the sprinkler systems, in accordance with existing code. The
panels are to be installed in proximity to the Leased Premises. Landlord shall
provide life safety systems in all common areas on the floors of the Leased
Premises, if any, in accordance with all applicable laws, codes and ordinances,
including, without limitation, ADA compliant strobe/horn units ad addressable
manual pull stations at all exits, exit stairways, and in common area corridors
of the floors of the Leased Premises, if any. Landlord shall supply the capacity
to the base building fire alarm system to add all tenant fire alarm devices
required by all applicable laws, codes and ordinances in the Leased Premises.
The point of connection shall for such wiring shall be a junction box in the
base building electrical room of each floor. Landlord shall provide a power
supply connected to the base building fire alarm system to power ADA-compliant
strobe lights required by code in the Leased Premises. The power supply shall
provide four outputs of 1.5 amps maximum each or 4 amps maximum total.
(vi) Bathrooms and Common Corridors: All restrooms (one
for each sex on each
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floor) on the floors of the Leased Premises shall be brought to meet all local
codes, as well as ADA. Cosmetically, Landlord shall refurbish the restrooms in a
manner consistent with a Class "A" San Francisco office tower including, without
limitation, ceramic floor and wall tiles (up to ceiling), new fixtures similar
in style to those found in other restrooms in the Building. Landlord shall also
correct all existing code violations, if any, in the common areas on the floors
of the Leased Premises, if any.
(vii) Electrical Load Requirements: Landlord shall
provide an average of 6.5 watts per usable square foot of the Leased Premises
(1.5 watts of the 6.5 watts shall be for lighting), peak demand load, of
electrical power per floor stubbed to electrical closets on each floor of the
Leased Premises each located at either end of the core area of the Leased
Premises. Notwithstanding the foregoing, Tenant may use more electrical power as
long as Tenant's use does not adversely affect any other Tenant of the Building.
(viii) Telephone Requirements: Landlord shall provide to
Tenant 200 pairs of copper phone wire per floor stubbed to the telephone closet
(with capacity to add fiber optic cable) of each floor located at the core area
of the Leased Premises.
(ix) Condenser Water Loop: Landlord shall provide a
condenser water loop stubbed to each of the floors of the Leased Premises for
access to condensed water for Tenant's air conditioning needs (however, Tenant,
at its sole cost, shall be responsible for the installation, operation and
maintenance of such air conditioning units).
(x) Exterior: Complete weather-tight exterior.
(xi) Heating and Ventilating Control System: Any
Building management system for control of the heating and ventilating system as
may be required by the Landlord.
(xii) Security System: Any security systems required by
the Landlord.
(xiii) Structural: A structural system in compliance
with all seismic and other codes.
(xiv) Asbestos Abatement: Removal (if accessible) or
encapsulation of all asbestos containing materials located in the Leased
Premises.
5. Landlord's and Tenant's Contributions. Landlord shall give Tenant an
allowance in the maximum amount of (i) $30.00 per square foot of Rentable Area
as to the 20th floor ($285,420 based upon 9,514 rentable square feet), (ii)
$30.00 per square foot of Rentable Area as to the 21st floor ($286,830 based
upon 9,561 rentable square feet), and (iii) $38.00 per square foot of Rentable
Area as to the 22nd floor ($335,312 based upon 8,824 rentable square feet),
which equals $907,562.00 ("Landlord's Contribution"). A maximum of $2.00 per
square foot of Rentable Area may be used by Tenant towards communications
equipment and cabling. Landlord shall pay Landlord's Contribution directly to
Landlord's architects and engineers and to the Contractor for the account of
Tenant, in installments as professional services for Tenant's Plans are
rendered, and Tenant Improvements are completed, upon Landlord's receipt of a
written request for payment accompanied by written invoices and other written
evidence reasonably satisfactory to Landlord showing the costs incurred, until
Landlord's Contribution is exhausted. Tenant shall pay to Landlord (or Landlord
may deduct from Landlord's Contribution), a construction management fee of $1.00
per square foot of rentable Area, which equals $27,899.00, based upon 27,899
rentable square feet (the "Construction Management Fee").
(a) If the Improvement Costs (as defined below) for which Tenant
is responsible are reasonably estimated to exceed Landlord's Contribution, then
Tenant shall contribute, within ten (10) days after request from the Landlord
its share of each progress payment or other Improvement Cost paid by Landlord
which share shall be the percentage derived by dividing the amount by which the
Improvement Costs, in excess of Landlord's Contribution, for which Tenant is
responsible by the total Improvement Costs.
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When the work in the Leased Premises is completed, then Landlord shall, as soon
as reasonably practicable, furnish Tenant with an accounting of all Improvement
Costs and Tenant's share of such costs for Tenant's approval, which approval
shall not be unreasonably withheld or delayed (in no event shall Tenant's
approval take longer than ten (10) days). Any amounts owing to either party
shall be settled in cash within ten (10) days after the accounting has been
approved by Tenant. If Landlord's Contribution is not expended for the Tenant
Improvements within three months after substantial completion of the Tenant
Improvements, then the amount not expended shall be given to Tenant as a credit
against Base Rent next coming due under the Lease.
(b) Landlord's Contribution shall be expended only for
"Improvement Costs", which shall consist only of the following to the extent
expended for Tenant Improvements (and the preparation of Tenant's Plans):
(i) all amounts paid to the Contractor, pursuant to
Landlord's general construction contract therewith, for costs of the work,
subject to the guaranteed maximum price in the general contract;
(ii) all costs paid to the Contractor with respect to
any changes which have been requested by Tenant and which are not required as a
result of any errors or omissions by Landlord;
(iii) fees, charges, and levies by any governmental
agencies for authorizations, licenses, and permits required in connection with
the Tenant Improvements;
(iv) all utility connection charges and payments;
(v) sales and use taxes;
(vi) testing and inspection costs;
(vii) costs paid to contractors installing Tenant's
cabling, telephone, furniture systems and other work designated by Tenant or to
other contractors which Landlord and Landlord agree shall perform any work of
improvement at the Leased Premises;
(viii) all reasonable amounts paid to Landlord's
architects and to prepare Tenant's Plans, but excluding any changes thereto
which are required as a result of any errors or omissions by Landlord; and
(ix) the Construction Management Fee.
(c) All costs other than Improvement Costs which are incurred by
Landlord in connection with the design and construction of work in the Leased
Premises or the Building shall be borne by Landlord, which excluded items shall
include, without limitation, the following:
(i) all costs to complete Landlord's Improvements and
the Building core and shell including, without limitation, all costs of plans,
permits and engineering associated therewith;
(ii) costs for any improvements which are not described
in the final Tenant's Plans;
(iii) accountants' fees and attorneys' fees incurred by
Landlord;
(iv) other than as agreed to by Tenant in the guaranteed
maximum price contract or an approved change order, costs for overtime labor in
excess of any reasonable amount provided for in the general contract or any
subcontract or material supply contract if not previously approved by Tenant;
(v) except to the extent caused by Tenant delays, costs
incurred as a
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consequence of delay, errors or omissions, or construction defects caused by
Landlord;
(vi) the costs of correcting or replacing any work for
which monies are payable under any warranty or insurance; and
(vii) charges for the use of elevators, hoists, parking
or other Building facilities, services or equipment during construction.
6. Changes. Except for minor and immaterial changes, if Tenant requests
any change in Tenant's Plans, Tenant shall request such change in a written
notice to Landlord. Any such Tenant requested change ("Change Request") in
materials or change in specifications in the Tenant's Plans after the approval
thereof by Landlord and Tenant, shall be made only after the approval of
Landlord which shall not be unreasonably withheld, conditioned or delayed. No
Change Request shall be incorporated into the Tenant's Improvements unless
Landlord has submitted an estimate to Tenant in writing of the increased cost
thereof, and Landlord and Tenant have agreed in writing on such Change Request
in excess of such item which would have been provided in accordance with
Tenant's Plans. If Tenant approves such estimate it shall notify Landlord in
writing within seven (7) days and the Contractor shall process such work. If
Tenant shall fail to timely approve such estimate, such failure shall be deemed
a disapproval and the Contractor shall proceed with the work as set forth in
Tenant's Plans. Savings resulting from any Change Request incorporated into the
Tenant Improvements shall reduce the guaranteed maximum price. The net
additional cost any Change Request incorporated into the Tenant Improvements
shall increase the guaranteed price and shall be an Improvement Cost.
7. Other Work by Tenant. The furnishing and installing of furniture,
telephone equipment (excluding wiring and cabling to the extent a part of the
Landlord's Improvements), office equipment and wiring, shall be furnished and
installed by Tenant at Tenant's expense. Subject to the provisions of the Lease
and subject to the approval of the Contractor, Tenant shall have the right to
install computer cabling, telephone cabling and other telecommunications cabling
and equipment during construction of the Tenant Improvements so that they are
integrated with the Tenant Improvements. Subject to the provisions of the Lease
and subject to the approval of the Contractor, Tenant shall also have the right
to have its equipment and furniture systems installed during continuation of the
work on the Tenant Improvements so that they are integrated with the other work
being performed on the Leased Premises. Landlord shall make reasonable efforts
to accommodate such work by Tenant and shall keep Tenant informed of scheduling
and other information reasonably required so that Tenant may schedule such work
and its move into the Leased Premises.
8. Requirements for Other Work Performed by Tenant. All other work
performed at the Building or in the Project by Tenant or Tenant's contractor or
subcontractors shall be subject to the following additional requirements:
(a) Such work shall not proceed until Landlord has reasonably
approved in writing: (i) Tenant's contractor, (ii) the amount and coverage of
public liability and property damage insurance, with Landlord named as an
additional insured, carried by Tenant's contractor, (iii) complete and detailed
plans and specifications for such work, and (iv) a schedule for the work.
Landlord shall provide its approval or disapproval (and specifying the reasons
for any disapproval) within two (2) business days after request by Tenant. If
Landlord fails to respond to any request within such two-day period, Landlord
shall be deemed to have disapproved such requested matters.
(b) All work shall be done in conformity with a valid permit
when required, a copy of which shall be furnished to Landlord before such work
is commenced. In any case, all such work shall be performed in accordance with
all applicable laws. Notwithstanding any failure by Landlord to object to any
such work, Landlord shall have no responsibility for Tenant's failure to comply
with applicable laws.
(c) Tenant or Tenant's contractor shall arrange for necessary
utility, hoisting and freight elevator service, on a nonexclusive basis, with
Landlord for which Landlord shall not charge Tenant. Landlord
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shall have the right to require any necessary movement of large, heavy or bulky
materials requiring the use of a freight elevator to be done after regular
working hours.
(d) Tenant shall be responsible for cleaning the Leased
Premises, the Building and the Project and removing all debris in connection
with work by Tenant or its contractors. All completed work shall be subject to
inspection and acceptance by Landlord. Tenant shall reimburse Landlord for the
cost all extra reasonable expense incurred by Landlord by reason of faulty work
done by Tenant or Tenant's contractor or by reason of inadequate cleanup by
Tenant or Tenant's contractor. Landlord will provide Tenant with copies of third
party consultant invoices within five (5) business days of Tenant's request for
such invoices.
9. Tenant Delay. If the completion of the Tenant Improvements is delayed
(i) at the written request of Tenant, (ii) by Tenant's failure to comply with
the foregoing provisions (including failure to pay any sums payable by Tenant
within the time periods specified herein), (iii) by changes in the Tenant's
Plans ordered by Tenant or by extra work ordered by Tenant, (iv) because Tenant
chooses to have additional work performed by Landlord, or (v) because of any
other act or omission of Tenant (collectively, "Tenant Delay"), then Tenant
shall be responsible for all costs and any expenses occasioned by such Tenant
Delay including, without limitation, any costs and expenses attributable to
increases in labor or materials. Notwithstanding the foregoing, and except as
provided for in paragraph 2 above, no Tenant Delay shall be deemed to have
occurred unless and until Landlord has provided notice to Tenant, in compliance
with the Lease, specifying the action or inaction by Tenant which Landlord
contends constitutes a Tenant Delay. If such action or inaction is not cured by
Tenant within one (1) business day after receipt of such notice and if such
action actually causes a delay in the Substantial Completion of the work in the
Leased Premises, then a Tenant Delay, as set forth in such notice, shall be
deemed to have occurred commencing as of the second (2nd) business day following
receipt of such notice and continuing for the number of days Landlord was in
fact delayed in the Substantial Completion of the Tenant Improvements in the
Leased Premises. If a Tenant Delay actually causes the delay of Substantial
Completion and the Term Commencement Date, then Tenant shall pay Lessor the Base
Rent for the portion of the Leased Premises affected for the entire period of
such delay.
10. Punch List. Substantial Completion shall be October 15, 1999 for the
20th floor and December 1, 1999 for the 21st and 22nd floors unless Landlord
provides Tenant with a written notice that Substantial Completion of the Tenant
Improvements will be a later date. Except as otherwise specified by Tenant in
the punch list described, and except for latent defects, Tenant shall be deemed
to have accepted the Leased Premises upon Substantial Completion. If Tenant
discovers minor deviations or variations from the plans and specifications for
Tenant's improvements which do not materially and adversely affect Tenant's use
of the Leased Premises and are of a nature commonly found on a "punch list" (as
that term is used in the construction industry), Tenant shall, within fifteen
(15) days of Substantial Completion, notify Landlord in writing ("Punch List")
of such deviations. Landlord shall promptly repair all Punch List items. The
existence of such Punch List items, and Landlord's correction and repair of the
same, shall not postpone the Term Commencement Date or Tenant's obligation to
pay Rent. All Punch List items shall be completed as soon as reasonably
practicable, but not later than thirty (30) days after the Punch List is given
to the Landlord by the Tenant.
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EXHIBIT C
CONFIRMATION OF TERM OF LEASE
This Confirmation of Term of Lease is made by and between _____, a
_____, as Landlord, and _____, a _____, as Tenant, who agree as follows:
1. Landlord and Tenant entered into a Lease dated ____________________,
19_____ (the "Lease"), in which Landlord leased to Tenant and Tenant leased from
Landlord the Leased Premises described in the Basic Lease Information sheet of
the Lease (the "Leased Premises").
2. Pursuant to Section 3.01 of the Lease, Landlord and Tenant agree to
confirm the commencement date and expiration date of the Term of the Lease as
follows:
a. _________________________, 19_____, is the Term Commencement
Date;
b. _________________________, 19_____, is the Term Expiration
Date;
c. _________________________, 19_____, is the commencement date
of Rent under the Lease.
3. Tenant hereby confirms that the Lease is in full force and effect
and:
a. It has accepted possession of the Leased Premises as provided
in the Lease;
b. The improvements and space required to be furnished by
Landlord under the Lease have been furnished;
c. Landlord has fulfilled all its duties of an inducement
nature;
d. The Lease has not been modified, altered or amended, except
as follows:__________________________________________________
_____; and
e. There are no setoffs or credits against Rent and no security
deposit has been paid except as expressly provided by the
Lease.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE TO FOLLOW.]
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4. The provisions of this Confirmation of Term of Lease shall inure to
the benefit of, or bind, as the case may require, the parties and their
respective successors, subject to the restrictions on assignment and subleasing
contained in the Lease.
DATED: _________________________, 19_____
"LANDLORD": "TENANT":
CEP INVESTORS XII LLC, FORT POINT PARTNERS, INC.,
a Delaware limited liability company a California corporation
By: EPI Investors XII LLC, By:____________________________
a California limited liability company
Its Manager Typed Name:____________________
Title:_________________________
By: Ellis Partners, Inc.,
a California corporation,
Its Manager
By:______________________________
Typed Name:______________________
Title:___________________________
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EXHIBIT D
BUILDING RULES AND REGULATIONS
1. The sidewalks, doorways, halls, stairways, vestibules and other
similar areas shall not be obstructed by Tenant or used by it for any purpose
other than ingress to and egress from the Leased Premises, and for going from
one part of the Building to another part. Corridor doors, when not in use, shall
be kept closed. Before leaving the Building, Tenant shall ensure that all doors
to the Leased Premises are securely locked and all water faucets and electricity
are shut off.
2. Plumbing fixtures shall be used only for their designated purpose,
and no foreign substances of any kind shall be deposited therein. Damage to any
such fixtures resulting from misuse by Tenant or any employee or invitee of
Tenant shall be repaired at the expense of Tenant.
3. Nails, screws and other attachments to the Building require prior
written consent from Landlord, except for the routine hanging of pictures and
diplomas or certifications. Tenant shall not mar or deface the Leased Premises
in any way. Tenant shall not place anything on or near the glass of any window,
door or wall which may appear unsightly from outside the Leased Premises.
4. All contractors and technicians rendering any installation service to
Tenant shall be subject to Landlord's approval and supervision prior to
performing services. This applies to all work performed in the Building,
including, but not limited to, installation of telephones, telegraph equipment,
wiring of any kind, and electrical devices, as well as all installations
affecting floors, walls, woodwork, windows, ceilings and any other physical
portion of the Building.
5. Movement in or out of the Building of furniture, office equipment,
safes or other bulky material which requires the use of elevators, stairways, or
the Building entrance and lobby shall be restricted to hours established by
Landlord. All such movement shall be under Landlord's supervision, and the use
of an elevator for such movements shall be restricted to the Building's freight
elevator. Arrangements shall be made at least 24 hours in advance with Landlord
regarding the time, method, and routing of such movements. Tenant shall pay for
the services of the employees of the elevator service company employed when
safes and other heavy articles are moved into or from the Building, and Tenant
shall assume all risks of damage and pay the cost of repairing or providing
compensation for damage to the Building, to articles moved and injury to persons
or property resulting from such moves. Landlord shall not be liable for any acts
or damages resulting from any such activity.
6. Landlord shall have the right to limit the weight and size of, and to
designate the location of, all safes and other heavy property brought into the
Building.
7. Tenant shall cooperate with Landlord in maintaining the Leased
Premises. Tenant shall not employ any person for the purpose of cleaning the
Leased Premises other than the Building's cleaning and maintenance personnel.
Window cleaning shall be done only by Landlord's agents at such times and during
such hours as Landlord shall elect. Janitorial services will not be furnished on
nights when rooms are occupied after 7:00 P.M.
8. Deliveries of water, soft drinks, newspapers or other such items to
the Leased Premises shall be restricted to hours established by Landlord and
made by use of the freight elevator if Landlord so directs.
9. Nothing shall be swept or thrown into the corridors, halls, elevator
shafts or stairways. No birds, fish or animals of any kind shall be brought into
or kept in, on or about the Leased Premises, with the exception of guide dogs
where necessary.
10. No cooking shall be done in the Leased Premises except in connection
with a convenience lunch room for the sole use of employees and guests (on a
non-commercial basis) in a manner which complies with all of the provisions of
the Lease and which does not produce fumes or odors.
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11. Food, soft drink or other vending machines shall not be placed
within the Leased Premises without Landlord's prior written consent.
12. Tenant shall not install or operate on the Leased Premises any
electric heater, stove or similar equipment without Landlord's prior written
consent. Tenant shall not use or keep on the Leased Premises any kerosene,
gasoline, or inflammable or combustible fluid or material other than limited
quantities reasonably necessary for the operation and maintenance of office
equipment utilized at the Leased Premises. No explosives shall be brought onto
the Project at any time.
13. Tenant shall not waste electricity or water and agrees to cooperate
fully with Landlord to assure the most effective operation of the Building's
heating and to comply with any governmental energy-saving rules, laws or
regulations of which Tenant has actual notice.
14. [Intentionally deleted]
15. Tenant, its employees, agents and invitees shall each comply with
all requirements necessary for the security of the Leased Premises, including,
if implemented by Landlord, the use of service passes issued by Landlord for
after-hours movement of office equipment/packages, and the signing of a security
register in the Building lobby after hours. Landlord reserves the right to
refuse entry to the Building after normal business hours to Tenant, its
employees, agents or invitees, or any other person without satisfactory
identification showing his or her right of access to the Building at such time.
Landlord shall not be liable for any damages resulting from any error in regard
to any such identification or from such admission to or exclusion from the
Building. Landlord shall not be liable to Tenant for losses due to theft or
burglary, or for damage by unauthorized persons in, on or about the Project, and
Tenant assumes full responsibility for protecting the Leased Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry closed.
16. Landlord will furnish Tenant with a reasonable number of initial
keys for entrance doors into the Leased Premises, and may charge Tenant for
additional keys thereafter. All such keys shall remain the property of Landlord.
No additional locks are allowed on any door of the Leased Premises without
Landlord's prior written consent and Tenant shall not make any duplicate keys.
Upon termination of this Lease, Tenant shall surrender to Landlord all keys to
the Leased Premises, and give to Landlord the combination of all locks for safes
and vault doors, if any, in the Leased Premises.
17. Tenant shall not bring into (or permit to be brought into) the
Building any bicycle or other type of vehicle.
18. Landlord retains the right at any time, without liability to Tenant,
to change the name and street address of the Building, except as otherwise
expressly provided in the Lease with respect to signage.
19. Canvassing, peddling, soliciting, and distribution of handbills in
or at the Project are prohibited and Tenant will cooperate to prevent these
activities.
20. The Building hours of operation are 7:00 A.M. to 6:00 P.M., Monday
through Friday, excluding holidays. Landlord reserves the right to close and
keep locked all entrance and exit doors of the Building on Saturdays, Sundays
and legal holidays, and between the hours of 6:01 P.M. of any day and 6:59 A.M.
of the following day, and during such other hours as Landlord may deem advisable
for the protection of the Building and the tenants thereof.
21. The requirements of Tenant will be attended to only upon application
to the Project manager. Employees will not perform any work or do anything
outside of their regular duties unless under specific instruction from the
Project manager.
22. Tenant shall cooperate fully with the life safety program of the
Building as established and administered by Landlord. This shall include
participation by Tenant and its employees in exit drills, fire inspections, life
safety orientations and other programs relating to fire and life safety that may
be established
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by Landlord.
23. No smoking shall be permitted in the Building.
24. Landlord reserves the right to rescind any of these rules and
regulations and to make future rules and regulations required for the safety,
protection and maintenance of the Project, the operation and preservation of the
good order thereof, and the protection and comfort of the tenants and their
employees and visitors. Such rules and regulations, when made and written notice
thereof given to Tenant, shall be binding as if originally included herein.
Landlord shall not be responsible to Tenant for the non-observance or violation
of these rules and regulations by any other tenant of the Building. Landlord
reserves the right to exclude or expel from the Project any person who, in
Landlord's judgment, is under the influence of liquor or drugs, or who shall in
any manner do any act in violation of any of these rules and regulations
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LANDLORD REPRESENTS AND WARRANTS THAT TO THE BEST OF ITS KNOWLEDGE ANY HANDLING,
TRANSPORTATION, STORAGE, TREATMENT OR USE OF HAZARDOUS MATERIALS, AS DEFINED
BELOW, THAT HAVE OCCURRED IN, ON, UNDER OR IN THE VICINITY OF THE PREMISES OR
THE BUILDING PRIOR TO THE COMMENCEMENT DATE HAVE BEEN IN COMPLIANCE WITH ALL
APPLICABLE LAWS; THAT NO LEAK, SPILL, RELEASE, DISCHARGE, EMISSION OR DISPOSAL
OF HAZARDOUS MATERIALS HAS OCCURRED IN, ON, UNDER OR IN THE VICINITY OF THE
PREMISES OR THE BUILDING PRIOR TO THE COMMENCEMENT DATE; THAT THE SOIL,
GROUNDWATER, AND SOIL VAPOR IN, ON, UNDER OR IN THE VICINITY OF THE PREMISES AND
THE BUILDING ARE FREE OF TOXIC OR HAZARDOUS MATERIALS AS OF THE COMMENCEMENT
DATE AND THAT AS OF THE COMMENCEMENT DATE THE PREMISES, DOES NOT CONTAIN ANY
ASBESTOS, LEAD PAINT RADON OR PCB'S.
Landlord covenants and agrees that, as between Tenant and Landlord, Landlord
shall at all times be responsible and liable for, and be in compliance with all
Governmental Requirements relating to health and safety and environmental
matters, arising, directly or indirectly, out of use of Hazardous Materials in
the Project, with the exception of any such use of Hazardous Materials by
Tenant. Landlord shall be liable for, and shall promptly perform, all clean-up,
remediation and monitoring of any release of Hazardous Materials within the
Project, with the exception of any release for which Tenant is responsible
pursuant to Subsection 6.01(b) above, and the cost of such clean-up, remediation
and monitoring shall not be included within Basic Operating Costs.
6
<PAGE> 52
EXHIBIT E
LEASE SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
This agreement ("Lease Subordination,, Non-Disturbance and Attornment
Agreement" or "Agreement") is made as of the _______ day of
_______________________, 199_, among FLEET NATIONAL BANK, a national banking
association organized under the laws of the United States, and having a place of
business at Suite 800, 111 Westminster Street, Providence, Rhode Island 02903,
as Agent (the "Agent") for the Lenders (as that term is defined in a certain
Loan Agreement by and between the hereinafter defined Borrower, the Agent and
the Lenders), ___________________, a ____________________, having a place of
business at ________________________ ("Landlord" or "Borrower"), and
_____________________________________ ("Tenant").
Introductory Provisions
A. Agent and the Lenders are relying on this Agreement as an inducement
to Lenders in making and maintaining a loan ("Loan") secured by, among other
things, a [Mortgage and Security Agreement] [Deed of Trust and Security
Agreement] ("Mortgage") given by Borrower to Agent covering property commonly
known as and numbered __________________________, ___________________,
__________________ and further described in Exhibit A attached hereto
("Property"). Agent is also the "Assignee" under an Assignment of Leases and
Rents ("Assignment") from Borrower with respect to the Property.
B. Tenant is the tenant under that certain lease ("Lease") dated
________________, 19__, made with [Landlord] [Landlord's predecessor in title],
covering certain premises ("Premises") at the Property as more particularly
described in the Lease [and in the "Notice of Lease" dated
______________________, 19__ which has been recorded at __________________ in
Book _____________, Page __________].
C. Lenders require, as a condition to the making and maintaining of the
Loan, that the Mortgage be and remain superior to the Lease and that Agent's
rights under the Assignment be recognized.
D. Tenant requires as a condition to the Lease being subordinate to the
Mortgage that its rights under the Lease be recognized.
E. Agent, Landlord, and Tenant desire to confirm their understanding
with respect to the Mortgage and the Lease.
<PAGE> 53
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein, and other valuable consideration, the receipt
and adequacy of which are hereby acknowledged, and with the understanding by
Tenant that Lenders shall rely hereon in making and maintaining the Loan, Agent,
Landlord, and Tenant agree as follows:
1. Subordination. The Lease and the rights of Tenant thereunder are
subordinate and inferior to the Mortgage and any amendment, renewal,
substitution, extension or replacement thereof and each advance made thereunder
as though the Mortgage, and each such amendment, renewal, substitution,
extension or replacement were executed and recorded, and the advance made,
before the execution of the Lease.
2. Non-Disturbance. So long as Tenant is not in default (beyond any
period expressed in the Lease within which Tenant may cure such default) in the
payment of rent or in the performance or observance of any of the terms,
covenants or conditions of the Lease on Tenant's part to be performed or
observed, (i) Tenant's occupancy of the Premises shall not be disturbed by
Agent in the exercise of any of its rights under the Mortgage during the term of
the Lease, or any extension or renewal thereof made in accordance with the terms
of the Lease, and (ii) Agent will not join Tenant as a party defendant in any
action or proceeding for the purpose of terminating Tenant's interest and estate
under the Lease because of any default under the Mortgage.
3. Attornment and Certificates. In the event Agent succeeds to the
interest of Borrower as Landlord under the Lease, or if the Property or the
Premises are sold pursuant to any foreclosure of the Mortgage, Tenant shall
attorn to Agent, or a purchaser upon any such foreclosure sale, and shall
recognize Agent, or such purchaser, thereafter as the Landlord under the Lease.
Such attornment shall be effective and self-operative without the execution of
any further instrument. Tenant agrees, however, to execute and deliver at any
time and from time to time, upon the request of any holder(s) of any of the
indebtedness or other obligations secured by the Mortgage, or upon request of
any such purchaser, (a) any instrument or certificate which, in the reasonable
judgment of such holder(s), or such purchaser, may be necessary or appropriate
in any such foreclosure proceeding or otherwise to evidence such attornment, and
(b) an instrument or certificate regarding the status of the Lease, consisting
of statements, if true (and if not true, specifying in what respect), (i) that
the Lease is in full force and effect, (ii) the date through which rentals have
been paid, (iii) the duration and date of the commencement of the term of the
Lease, (iv) the nature of any amendments or modifications to the Lease, (v) that
no default, or state of facts, which with the passage of time, or notice, or
both, would constitute a default, exists on the part of either party to the
Lease, and (vi) the dates on which payments of additional rent, if any, are due
under the Lease.
2
<PAGE> 54
4. Limitations. If Agent exercises any of its rights under the
Assignment or the Mortgage, or if Agent shall succeed to the interest of
Landlord under the Lease in any manner, or if any purchaser acquires the
Property, or the Premises, upon or after any foreclosure of the Mortgage, or any
deed in lieu thereof, Agent or such purchaser, as the case may be, shall have
the same remedies by entry, action or otherwise in the event of any default by
Tenant (beyond any period expressed in the Lease within which Tenant may cure
such default) in the payment of rent or in the performance or observance of any
of the terms, covenants and conditions of the Lease on Tenant's part to be paid,
performed or observed that the Landlord had or would have had if Agent or such
purchaser had not succeeded to the interest of the present Landlord. From and
after any such attornment, Agent or such purchaser shall be bound to Tenant
under all the terms, covenants and conditions of the Lease, and Tenant shall,
from and after such attornment to Agent, or to such purchaser, have the same
remedies against Agent, or such purchaser, for the breach of an agreement
contained in the Lease that Tenant might have had under the Lease against
Landlord, if Agent or such purchaser had not succeeded to the interest of
Landlord. Provided, however, that Agent or such purchaser shall only be bound
during the period of its ownership, and that in the case of the exercise by
Agent of its rights under the Mortgage, or the Assignment, or any combination
thereof, or a foreclosure, or deed in lieu of foreclosure, all Tenant claims
shall be satisfied only out of the interest, if any, of Agent, or such
purchaser, in the Property, and Agent and such purchaser shall not be (a) liable
for any act or omission of any prior landlord (including the Landlord); or (b)
liable for or incur any obligation with respect to the construction of the
Property or any improvements of the Premises or the Property; or (c) subject to
any offsets or defenses which Tenant might have against any prior landlord
(including the Landlord); or (d) bound by any rent or additional rent which
Tenant might have paid for more than the then current rental period to any prior
landlord (including the Landlord); or (e) bound by any amendment or modification
of the Lease, or any consent to any assignment or sublet, made without Agent's
prior written consent; or (f) bound by or responsible for an security deposit
not actually received by Agent; or (g) liable for or incur any obligation with
respect to any breach of warranties or representations of any nature under the
Lease or otherwise including without limitation any warranties or
representations respecting use, compliance with zoning, landlord's title,
landlord's authority, habitability and/or fitness for any purpose, or
possession; or (h) liable for consequential damages. The foregoing shall not,
however: (i) relieve Agent or such purchaser, of the obligation to remedy or
cure any conditions at the Premises the existence of which constitutes a
Landlord default under the Lease and which continue at the time of such
succession or acquisition, or (ii) deprive the Tenant of the right to terminate
the Lease for a breach of Landlord covenant which is not cured as provided for
herein and in the Lease and as
3
<PAGE> 55
a result of which there is a material interference with Tenant's permitted use
and occupation of the Premises or any permitted business conducted therein.
5. Rights Reserved. Nothing herein contained is intended nor shall it
be construed, to abridge or adversely affect any right or remedy of: (a) the
Landlord under the Lease, or any subsequent Landlord, against the Tenant in the
event of any default by Tenant (beyond any period expressed in the Lease within
which Tenant may cure such default) in the payment of rent or in the performance
or observance of any of the terms, covenants or conditions of the Lease on
Tenant's part to be performed or observed; or (b) the Tenant under the Lease
against the original or any prior Landlord in the event of any default by the
original Landlord to pursue claims against such original or prior Landlord
whether or not such claim is barred against Agent or a subsequent purchaser.
6. Notice and Right to Cure. Tenant agrees to provide Agent with a copy
of each notice of default given to Landlord under the Lease, at the same time as
such notice of default is given to the Landlord, and that in the event of any
default by the Landlord under the Lease, Tenant will take no action to terminate
the Lease (a) if the default is not curable by Agent (so long as the default
does not interfere with Tenant's use and occupation of the Premises), or (b) if
the default is curable by Agent, unless the default remains uncured for a period
of thirty (30) days after written notice thereof shall have been given, postage
prepaid, to Agent at the address provided in Section 7 below; provided, however,
that if any such default is such that it reasonably cannot be cured within such
thirty (30) day period, such period shall be extended for such additional period
of time as shall be reasonably necessary (including, without limitation, a
reasonable period of time to obtain possession of the Property and to foreclose
the Mortgage), if Agent gives Tenant written notice within such thirty (30) day
period of Agent's election to undertake the cure of the default and if curative
action (including, without limitation, action to obtain possession and
foreclose) is instituted within a reasonable period of time and is thereafter
diligently pursued. Agent shall have no obligation to cure any default under the
Lease.
7. Notices. Any notice or communication required or permitted hereunder
shall be in writing, and shall be given or delivered: (i) by United States mail,
registered or certified, postage fully prepaid, return receipt requested, or
(ii) by recognized courier service or recognized overnight delivery service; and
in any event addressed to the party for which it is intended at its address set
forth below:
To Agent: Fleet National Bank, as Agent
111 Westminster Street
Suite 800
Providence, Rhode Island 02903
4
<PAGE> 56
Attention: Commercial Real Estate Department
To Tenant: ___________________________________________
___________________________________________
___________________________________________
___________________________________________
or such other address as such party may have previously specified by notice
given or delivered in accordance with the foregoing. Any such notice shall be
deemed to have been given and received on the date delivered or tendered for
delivery during normal business hours as herein provided.
8. No Oral Change. This Agreement may not be modified orally or in any
manner than by an agreement in writing signed by the parties hereto or their
respective successors in interest.
9. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, their respective heirs, personal
representatives, successors and assigns, and any purchaser or purchasers at
foreclosure of the Property or any portion thereof, and their respective heirs,
personal representatives, successors and assigns.
10. Payment of Rent To Agent. Tenant acknowledges that it has notice
that the Lease and the rent and all sums due thereunder have been assigned to
Agent as part of the security for the obligations secured by the Mortgage. In
the event Agent notifies Tenant of a default under the Loan and demands that
Tenant pay its rent and all other sums due under the Lease to Agent, Tenant
agrees that it will honor such demand and pay its rent and all other sums due
under the Lease to Agent, or Agent's designated agent, until otherwise notified
in writing by Agent. Borrower unconditionally authorizes and directs Tenant to
make rental payments directly to Agent following receipt of such notice and
Borrower further agrees that Tenant may rely upon such notice without any
obligation to further inquire as to whether or not any default exists under the
Mortgage or the Assignment and notwithstanding any notice from or claim of
Borrower to the contrary. Borrower shall have no right or claim against Tenant
for or by reason of any payments of rent or other charges made by Tenant to
Agent following Tenant's receipt of any such notice.
11. No Amendment or Cancellation of Lease. As long as the Mortgage
remains undischarged of record, Tenant shall not agree to amend or modify the
Lease in any material respect, or agree to cancel or terminate the Lease or
agree to subordinate the Lease to any other mortgage or deed of trust, without
Agent's prior written consent in each instance.
12. No Waiver. This Agreement does not:
(a) constitute a waiver by Agent of any of its rights under the
Mortgage or any of the other Loan Documents (as defined in the
Mortgage); or
5
<PAGE> 57
(b) in any way release Borrower from its obligations to comply with
the terms, provisions, conditions, covenants and agreements and
clauses of the Mortgage and other Loan Documents.
13. Borrower Compliance. The provisions of the Mortgage remain in full
force and effect and must be complied with by Borrower.
14. Captions. Captions and headings of sections are not parts of this
Agreement and shall not be deemed to affect the meaning or construction of any
of the provisions of this Agreement.
15. Counterparts. This Agreement may be executed in several counterparts
each of which when executed and delivered is an original, but all of which
together shall constitute one instrument.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of ____________________.
17. Parties Bound. The provisions of this Agreement shall be binding
upon and inure to the benefit of Tenant, Agent, Lenders and Borrower and their
respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as a sealed instrument, as of the date first above written.
AGENT:
FLEET NATIONAL BANK, as Agent
By:_________________________________
Name:____________________________
Title:___________________________
Date executed by Agent:
TENANT:
[insert name]
BY:_________________________________
Name:____________________________
Title:___________________________
Date executed by Tenant:____________
6
<PAGE> 58
LANDLORD:
[insert name]
BY:_________________________________
Name:____________________________
Title:___________________________
Date executed by Landlord:_______
[INSERT APPLICABLE STATE ACKNOWLEDGEMENTS FOR All PARTIES)
7
<PAGE> 1
EXHIBIT 10.5
-------------------------------------------
STANDARD FORM OF LOFT LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
-------------------------------------------
AGREEMENT OF LEASE, made as of this 26 day of April 1999, between 162 Associates
LLC, having an address at Helmsley-Spear, Inc., 60 East 42nd Street, New York,
New York 10165, party of the first part, hereinafter referred to as OWNER, and
Fort Point Partners, Inc., having an address at 55 Broad Street, New York, New
York 10004, party of the second part, hereinafter referred to as TENANT,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner the
entire eighth (8th) floor in the building known as 162 Fifth Avenue in the
Borough of Manhattan, City of New York, for the term of ten (10) years (or until
such term shall sooner cease and expire as hereinafter provided) to commence on
the 1st day of May nineteen hundred and ninety-nine, and to end on the 30th day
of April, 2009 and both dates inclusive, at an annual rental rate of See Rider
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 on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this lease
be a renewal).
In the event that at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT:
1. Tenant shall pay the rent as above and as hereinafter provided.
OCCUPANCY:
2. Tenant shall use and occupy demised premises for executive and general
offices provided such use is in accordance with the certificate of occupancy for
the building, if any, and for no other purpose.
ALTERATIONS:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to the prior written consent of
Owner, and to the provisions of this article, Tenant, at Tenant's expense, may
make alterations, installations, additions or improvements which are
nonstructural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises using
contractors or mechanics first approved in each instance by Owner. Tenant
shall, at its expense, before making any alterations, additions, installations
or improvements obtain all permits, approval and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates
of final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner. Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as
Owner may require. If any mechanic's lien is filed against the demised
premises, or the building of which the same forms a part, for work claimed to
have been done for, or materials furnished to, Tenant, whether or not done
pursuant to this article, the same shall be discharged by Tenant within thirty
days thereafter, at Tenant's expense, by payment or filing the bond required by
law or otherwise. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by tenant or by
Owner on Tenant's behalf, shall, upon installation, become the property of
Owner and shall remain upon and be surrendered with the demised premises unless
Owner, by notice to Tenant no later than twenty days prior to the date fixed as
the termination of this lease, elects to relinquish Owner's right thereto and
to have them removed by Tenant, in which event the same shall be removed from
the demised premises by Tenant prior to the expiration of the lease, at
Tenant's expense. Nothing in this Article shall be construed to give Owner
title to or to prevent Tenant's removal of trade fixtures, moveable office
furniture and equipment, but upon removal of any such from the premises or upon
removal of other installations as may be required by Owner, Tenant shall
immediately and at its expense, repair and restore the premises to the
condition existing prior to installation and repair any damage to the demised
premises or the building due to such removal. All property permitted or
required to be removed by Tenant at the end of the term remaining in the
premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or removed from the
premises by Owner, at Tenant's expense.
REPAIRS:
4. Owner shall maintain and repair the exterior of and the public portions of
the building. Tenant shall, throughout the term of this lease, take good care
of the demised premises including the bathrooms and lavatory facilities (if the
demised premises encompass the entire floor of the building) and the windows
and window frames and, the fixtures and appurtenances therein and at Tenant's
sole cost and expense promptly make all repairs thereto and to the building,
whether structural or non-structural in nature, caused by or resulting from the
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
lease, including Article 6. Tenant shall also repair all damage to the building
and the demised premises caused by the moving of Tenant's fixtures, furniture
or equipment. All the aforesaid repairs shall be of quality or class equal to
the original work or construction. If Tenant fails, after ten days notice, to
proceed with due diligence to make repairs required to be made by Tenant, the
same may be made by the Owner at the expense of Tenant, and the expenses thereof
incurred by Owner shall be collectible, as additional rent, after rendition of
a bill or statement therefor. If the demised premises be or become invested
with vermin, Tenant shall, at its expense, cause the same to be exterminated.
Tenant shall give Owner prompt notice of any defective condition in any
plumbing, heating system or electrical lines located in the demised premises
and following such notice, Owner shall remedy the condition with due diligence,
but at the expense of Tenant, if repairs are necessitated by damage or injury
attributable to Tenant, Tenant's servants, agents, employees, invitees or
licensees as aforesaid. Except as specifically provided in Article 9 or
elsewhere in this lease, there shall be no allowance to the Tenant for a
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner, Tenant or
others making or failing to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises or in
and to the fixtures, appurtenances or equipment thereof. It is specifically
agreed that Tenant shall not be entitled to any set off or reduction of rent by
reason of any failure of Owner to comply with the covenants of this or any
other article of this lease. Tenant agrees that Tenant's sole remedy at law in
such instance will be by way of any action for damages for breach of contract.
The provisions of this Article 4 with respect to the making of repairs shall
not apply in the case of fire or other casualty with regard to which Article 9
hereof shall apply.
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any window in
the demised premises to be cleaned from the outside in violation of Section 202
of the New York State 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.
REQUIREMENTS OF LAW, FIRE INSURANCE:
6. prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter Tenant shall, at Tenant's sole cost and
expense, promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments,
departments, commissions and boards and any direction of any public officer
pursuant to law, and all orders, rules and regulations of the New York Board of
Fire Underwriters, or the Insurance Services Office, or any similar body which
shall impose any violation, order or duty upon Owner or Tenant with respect to
the demised premises, whether or not arising out of Tenant's use or manner of
use thereof, or, with respect to the building, if arising out of Tenant's use
or manner of use of the demised premises of the building (including the use
permitted under the lease). Except as provided in Article 30 hereof, nothing
herein shall require Tenant to make structural repairs or alterations unless
Tenant has, by its manner of use of the demised premises or method of operation
therein, violated any such laws, ordinances, orders, rules, regulations or
requirements with respect thereto. Tenant shall not do or
<PAGE> 2
permit any act or thing to be done in or to the demised premises which is
contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner. Tenant shall not keep anything in the demised premises except
as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization and other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over than in effect prior to the commencement of
Tenant's occupancy. If by reason of failure to comply with the foregoing the
first 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
Owner, as addition rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged because of such
failure by Tenant. In any action or proceeding wherein Owner and Tenant are
parties, a schedule or "make-up" or rate for the building or demised premises
issued by a body making fire insurance rates applicable to said premises shall
be conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to said premises. Tenant
shall not place a loan upon any floor of the demised premises exceeding the
floor load per square foot area which it was designed to carry and which is
allowed by law. Owner reserves the right to prescribe the weight and position of
all safes, business machines and mechanical equipment. Such installations shall
be placed and maintained by Tenant, at Tenant's expense, in settings sufficient,
in Owner's judgement, to absorb and prevent vibration, noise and annoyance.
SUBORDINATION:
7. This lease is subject and subordinate to all ground or underlying leases and
to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
TENANT'S LIABILITY INSURANCE PROPERTY LOSS, DAMAGE, INDEMNITY:
8. Owner or its agents shall not be liable for any damage to property of Tenant
or of others entrusted to employees of the building, nor for loss of or damage
to any property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agents, servants, or employees; Owner
or its agents shall not be liable for any damage caused by other tenants or
persons in, upon or about said building or caused by operations in connection of
any private, public or quasi public work. If at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or permanently
closed, darkened or bricked up, if required by law) for any reason whatsoever
including, but not limited to Owner's own acts, Owner shall not be liable for
any damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction. Tenant
shall indemnify and save harmless Owner against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Owner
shall not be reimbursed by insurance, including reasonable attorney's fees,
paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licensees, of any covenant or condition of
this lease, or the carelessness, negligence or improper conduct of the Tenant,
Tenant's agents, contractors, employees, invitees or licensees. Tenant's
liability under this lease extends to the acts and omissions of any sub-tenant,
and any agent, contractor, employee, invitee or licensee of any sub-tenant. In
case any action or proceeding is brought against Owner by reason of any such
claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist
or defend such action or proceeding by counsel approved by Owner in writing,
such approval not to be unreasonably withheld.
DESTRUCTION, FIRE AND OTHER CASUALTY:
9. (a) If the demised premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent and other items of additional rent, until such
repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable by
fire or other casualty, then the rent and other items of additional rent as
hereinafter expressly provided shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner (or sooner reoccupied in part by Tenant
then rent shall be apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant,
given within 90 days after such fire or casualty, or 30 days after adjustment of
the insurance claim for such fire or casualty, whichever is sooner, specifying a
date for the expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in such notice the
term of this lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrender and vacate the premises without prejudice however, to
Owner's rights and remedies against Tenant under the lease provisions in effect
prior to such termination, and any rent owing shall be paid up to such date and
any payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall serve a
termination notice as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume five (5) days after written notice form Owner that the premises are
substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, including Owner's
obligation to restore under subparagraph (b) above, each party shall look first
to any insurance in its favor before making any claim against the other party
for recovery for loss or damage resulting from fire or other casualty, and to
the extent that such insurance is in force and collectible and to the extent
permitted by law, Owner and Tenant each hereby releases and waives all right of
recovery with respect to subparagraphs (b), (d) and (e) above, against the other
or any one claiming through or under each of them by way of subrogation or
otherwise. The release and waiver herein referred to shall be deemed to include
any loss or damage to the demised premises and/or to any personal property,
equipment, trade fixtures, goods and merchandise located therein. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the insurance. If, and to the extent, that such waiver can be obtained only by
the payment of additional premiums, then the party benefitting from the waiver
shall pay such premium within ten days after written demand or shall be deemed
to have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be obligated to
repair any damage thereto or replace the same. (f) Tenant hereby waives the
provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
EMINENT DOMAIN:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease. Tenant shall have the right to make
an independent claim to the condemning authority for the value of Tenant's
moving expenses and personal property, trade fixtures and equipment, provided
Tenant is entitled pursuant to the terms of the lease to remove such property,
trade fixtures and equipment at the end of the term and provided further such
claim does not reduce Owner's award.
ASSIGNMENT, MORTGAGE, ETC.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representatives, successors and assigns, expressly covenants that it shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
the prior written consent of Owner in each instance. Transfer of the majority of
the stock of a corporate Tenant or the majority partnership interest of a
partnership Tenant shall be deemed an assignment. If this lease be assigned, or
if the demised premises or any part thereof be underlet or occupied by anybody
other than Tenant, Owner 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 such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant 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 Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting.
ELECTRIC CURRENT:
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in RIDER attached hereto. Tenant covenants and agrees
that at all times its use of electric current shall not exceed the capacity of
existing feeders to the building or the risers or wiring installation and Tenant
may not use any electrical equipment which, in Owner's opinion, reasonably
exercised, will overload such installations or interfere with the use thereof by
other tenants of the building. The change at any time of the character of
electric service shall in no wise make Owner liable or responsible to Tenant,
for any loss, damages or expenses which Tenant may sustain.
ACCESS TO PREMISES:
13. Owner or Owner's agents shall have the right (but shall not be obligated) to
enter the demised premises in any emergency at any time, and, at other
reasonable times, to examine the same and to make such repairs, replacements and
improvements as Owner may deem necessary and reasonably desirable to any portion
of the building or which Owner may elect to perform in the premises after
Tenant's failure to make repairs or perform any work which Tenant is obligated
to perform under this lease, or for the purpose of complying with laws,
regulations and other directions of governmental authorities. Tenant shall
permit Owner to use and maintain and replace pipes and conduits in and through
the demised premises and to erect new pipes and conduits therein provided,
wherever possible, they are within walls or otherwise concealed. Owner may,
during the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof Owner shall have the right to
enter the demised premises at reasonable hours for the purpose of showing the
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the same to prospective
tenants and may, during said six months period, place upon
<PAGE> 3
the demised premises the usual notice "To Let" and "For Sale" which notices
Tenant shall permit to remain thereon without molestation. If Tenant is not
present to open and permit an entry into the demised premises, Owner or Owner's
agents may enter the same whenever such entry may be necessary or permissible by
master key or forcibly and provided reasonable care is exercised to safeguard
Tenant's property, such entry shall not render Owner or its agents liable
therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of the term Tenant shall have removed all or
substantially all of Tenant's property therefrom. Owner may immediately enter,
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligation hereunder.
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder anything contained
in or indicated on any sketch, blue print or plan, or anything contained
elsewhere in this lease to the contrary notwithstanding. Owner makes no
representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant, if used by Tenant,
whether or not specifically leased hereunder.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record. If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business, Tenant shall be responsible for
and shall procure and maintain such license or permit.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this
lease may be cancelled by Owner by sending of a written notice to Tenant within
a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assignment
or any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party then owning Tenant's interest
in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
DEFAULT:
17. (1) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional rent; or if the
demised premises becomes vacant or deserted "or if this lease be rejected under
Section 235 of Title 11 of the U.S. Code (bankruptcy code);" or if any execution
or attachment shall be issued against Tenant or any of Tenant's property
whereupon the demised premises shall be taken or occupied by someone other than
Tenant; or if Tenant shall make default with respect to any other lease between
Owner and Tenant; or if Tenant shall have failed, after five (5) days written
notice, to redeposit with Owner any portion of the security deposited hereunder
which Owner has applied to the payment of any rent and additional rent due and
payable hereunder or failed to move into or take possession of the premises
within thirty (30) days after the commencement of the term of this lease, of
which fact Owner shall be the sole judge; then in any one or more of such
events, upon Owner serving a written fifteen (15) days notice upon Tenant
specifying the nature of said default and upon the expiration of said fifteen
days, if Tenant shall have failed to comply with or remedy such default, or if
the said default or omission complained of shall be of a nature that the same
cannot be completely cured or remedied within said fifteen (15) day period, and
if Tenant shall not have diligently commenced during such default within such
fifteen (15) day period, and shall not thereafter with reasonable diligence and
in good faith, proceed to remedy or cure such default, then Owner may serve a
written five (5) days' notice of cancellation of this lease upon Tenant, and
upon the expiration of said five (5) days this lease and the term thereunder
shall end and expire as fully and completely as if the expiration of such five
(5) day period were the day herein definitely fixed for the end and expiration
of this lease and the term thereof and Tenant shall then quit and surrender the
demised premises to Owner but Tenant shall remain liable as hereinafter
provided.
(2) If the notice provided for in (1) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the commencement
of any renewal or extension of this lease, Owner may cancel and terminate such
renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or other wise, (a) the rent, and additional rent, shall
become due thereupon and be paid up to the time of such re-entry, dispossess
and/or expiration, (b) Owner may re-let the premises or any part or parts
thereof, either in the name of Owner or otherwise, for a term or terms, which
may at Owner's option be less than or exceed the period which would otherwise
have constituted the balance of the term of this lease and may grant concessions
or free rent or charge a higher rental than that in this lease, (c) Tenant or
the legal representatives of Tenant shall also pay Owner as liquidated damages
for the failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and or covenanted to
be paid and the net amount, if any, of the rents collected on account of the
subsequent lease or leases of the demised premises for each month of the period
which would otherwise have constituted the balance of the term of this lease.
The failure of Owner to re-let the premises or any part or parts thereof shall
not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses as
Owner may incur in connection with re-letting, such as legal expenses,
reasonable attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this lease and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws.
FEES AND EXPENSES:
19. 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, after notice if
required and upon expiration of any applicable grace period if any, (except in
an emergency), then, unless otherwise provided elsewhere in this lease, Owner
may immediately or at any time thereafter and without notice perform the
obligation of Tenant thereunder. If Owner, in connection with the foregoing or
in connection with any default by Tenant in the covenant to pay rent hereunder,
makes any expenditures or incurs any obligations for the payment of money,
including but not limited to reasonable attorney's fees, in instituting,
prosecuting or defending any action or proceedings, and prevails in any such
action or proceeding, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within ten (10) days of rendition of any bill
or statement to Tenant therefor. If Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or injury
to business arising from Owner or other Tenant making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
any controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
<PAGE> 4
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or promises
with respect to the physical condition of the building, the land upon which it
is erected or the demised premises, the rents, leases, expenses of operation or
any other matter or thing affecting or related to the demised premises or the
building 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 in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition and
agrees to take the same "as is" on the date possession is tendered and
acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and Tenant and 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.
END OF TERM:
22. Upon the expiration or other termination of the term of this lease, Tenant
shall quit and surrender to Owner the demised premises, broom clean, in good
order and condition, ordinary wear and damages which Tenant is not required to
repair as provided elsewhere in this lease excepted, and Tenant shall remove all
its property from the demised premises. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
lease. If the last day of the term of this Lease or any renewal thereof, falls
on Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day.
QUIET ENJOYMENT:
23. Owner 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 hereby demised, subject, nevertheless, to the
terms and conditions of this lease including, but not limited to, Article 34
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
FAILURE TO GIVE POSSESSION:
24. If Owner is unable to give possession of the demised premises on the date of
the commencement of the term hereof, because of the holding-over or retention of
possession of any tenant, undertenant or occupants or if the demised premises
are located in a building being constructed, because such building has not been
sufficiently completed to make the premises ready for occupancy or because of
the fact that a certificate of occupancy has not been procured or if Owner has
not completed any work required to be performed by Owner, or for any other
reason, Owner shall not be subject to any liability for failure to give
possession on said date and the validity of the lease shall not be impaired
under such circumstances, nor shall the same be construed in any wise to extend
the term of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for Owner's inability to obtain possession or complete
any work required) until after Owner shall have given Tenant notice that Owner
is able to deliver possession in the condition required by this lease. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to the date
specified as the commencement of the term of this lease, Tenant covenants and
agrees that such possession and/or occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this lease, except the obligation
to pay the fixed annual rent set forth in page one of this lease. The provisions
of this article are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property Law.
NO WAIVER:
25. The failure of Owner to seek redress for violation of, or to insist upon the
strict performance of any covenant or condition of this lease or of any of the
Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent
a subsequent act which would have originally constituted a violation from having
all the force and effect of an original violation. The receipt by Owner of rent
with knowledge of the breach of any covenant of this lease shall not be deemed a
waiver of such breach and no provision of this lease shall be deemed to have
been waived by Owner unless such waiver be in writing signed by Owner. No
payment by Tenant or receipt by Owner of a lesser amount than the monthly rent
herein stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement of any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Owner may accept such check or payment without prejudice to
Owner's right to recover the balance of such rent or pursue any other remedy in
this lease provided. All checks tendered to Owner as and for the rent of the
demised premises shall be deemed payments for the account of Tenant. Acceptance
by Owner of rent from anyone other than Tenant shall not be deemed to operate as
an attornment to Owner by the payor of such rent or as a consent by Owner to an
assignment or subletting by Tenant of the demised premises to such payor, or as
a modification of the provisions of this lease. No act or thing done by Owner or
Owner's agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
WAIVER OF TRIAL BY JURY:
26. It is mutually agreed by and between Owner 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 (except for personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further mutually agreed
that in the event Owner commences any proceeding or action for possession
including a summary proceeding for possession of the premises, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding including a counterclaim under Article 4 except for statutory
mandatory counterclaims.
INABILITY TO PERFORM:
27. This Lease and the obligations of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures or other materials if Owner is prevented or delayed from doing so by
reason of strike or labor troubles or any cause whatsoever beyond Owner's sole
control including, but not limited to, government preemption or restrictions or
by reason of any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions which have been
or are affected, either directly or indirectly, by war or other emergency.
BILLS AND NOTICES:
28. Except as otherwise in this lease provided, a bill statement, notice or
communication which Owner may desire or be required to give to Tenant, shall be
deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
WATER CHARGES:
29. If Tenant requires, uses or consumes water for any purpose in addition to
ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the
sole judge) Owner may install a water meter and thereby measure Tenant's water
consumption for all purposes. Tenant shall pay Owner for the cost of the meter
and the cost of the installation, thereof and throughout 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 Owner may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant, as additional rent. 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 Owner may pay such charges and collect the
same from Tenant, as additional rent. Tenant covenants and agrees to pay, as
additional rent, the sewer rent, charge or any other tax, rent, levy or charge
which now or hereafter is assessed, imposed or a lien upon the demised premises
or the realty of which they are part pursuant to law, order or regulation made
or issued in connection with the use, consumption, maintenance or supply of
water, water system or sewage or sewage connection or system. If the building or
the demised premises or any part thereof is supplied with water through a meter
through which water is also supplied to other premises Tenant shall pay to
Owner, as additional rent, on the first day of each month, ($200.00) of the
total meter charges as Tenant's portion. Independently and in addition to any of
the remedies reserved to Owner hereinabove or elsewhere in this lease, Owner may
sue for and collect any monies to be paid by Tenant or paid by Owner for any of
the reasons or purposes hereinabove set forth.
SPRINKLERS:
30. Anything elsewhere in this lease to the contrary notwithstanding, if the New
York Board of Fire Underwriters or the New York Fire Insurance Exchange or any
bureau, department or official of the federal, state or city government
recommend or require the installation of a sprinkler system or that any changes,
modifications, alterations, or additional sprinkler heads or other equipment be
made or supplied in an existing sprinkler system by reason of Tenant's business,
or the location of partitions, trade fixtures, or other contents of the demised
premises, or for any other reason, of if any such sprinkler system
installations, modifications, alterations, additional sprinkler heads or other
such equipment, become necessary to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system in the fire insurance
rate set by any said Exchange or by any fire insurance company, Tenant shall, at
Tenant's expense, promptly make such sprinkler system installations, changes,
modifications, alterations, and supply additional sprinkler heads or other
equipment as required whether the work involved shall be structural or
non-structural in nature. Tenant shall pay to Owner as additional rent the sum
of $100.00, on the first day of each month during the term of this lease, as
Tenant's portion of the contract price for sprinkler supervisory service.
ELEVATORS, HEAT, CLEANING:
31. As long as Tenant is not in default under any of the covenants of this lease
beyond the applicable grace period provided in this lease for the curing of such
defaults, Owner shall: (a) provide necessary passenger elevator facilities on
business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (b)
if freight elevator service is provided, same shall be provided only on regular
business days Monday through Friday inclusive, and on those days only between
the hours of 9 a.m. and 12 noon and between 1 p.m. and 5 p.m.; (c) furnish heat,
water and other services supplied by Owner to the demised premises, when and as
required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays from 8
<PAGE> 5
\a.m. to 1 p.m.; (d) clean the public halls and public portions of the building
which are used in common by all tenants. Tenant shall, at Tenant's expense,
keep the demised premises, including the windows, clean and in order, to the
reasonable satisfaction of Owner, and for that purpose shall employ the person
or persons, or corporation approved by Owner. Tenant shall pay to Owner the
cost of removal of any of Tenant's refuse and rubbish from the building. Bills
for the same shall be rendered by Owner to Tenant at such time as Owner may
elect and shall be due and payable hereunder, 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 rubbish
and refuse in the event that Tenant does not wish to have same done by
employees of Owner. 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 Owner, are necessary for the proper operation of the
building. Owner reserves the right to stop service of the heating, elevator,
plumbing and electrical systems, when necessary, by reason of accident, or
emergency, or for repairs, alterations, replacements or improvements, in the
judgment of Owner desirable or necessary to be made, until said repairs,
alterations, replacements or improvements shall have been completed. If the
building of which the demised premises are a part supplies manually operated
elevator service, Owner may proceed diligently with alterations necessary to
substitute automatic control elevator service without in any way affecting
the obligations of Tenant hereunder.
SECURITY: See Rider
CAPTIONS:
33. 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.
DEFINITIONS:
34. The term "Owner" as used in this lease means only the owner of the fee or
of the leasehold of the building, or the mortgagee in possession, for the time
being of the land and building (or the owner of a lease of the building or of
the land and building) of which the demised premises form a part, so that in
the event of any sale or sales of said land and building or of said lease, or
in the event of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner 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, at any such sale, or the said lessee of
the building, or of the land and building, that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term "rent"
includes the annual rental rate whether so expressed or expressed in monthly
installments, and "additional rent." "Additional rent" means all sums which
shall be due to Owner from Tenant under this lease, in addition to the annual
rental rate. 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 those designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service. Wherever it is expressly
provided in this lease that consent shall not be unreasonably withheld, such
consent shall not be unreasonably delayed.
ADJACENT EXCAVATION-SHORING:
35. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorizing to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations
without any claims for damages or indemnity against Owner, or diminution or
abatement of rent.
RULES AND REGULATIONS:
36. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations annexed hereto and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Notice of
any additional rules or regulations shall be given in such manner as Owner may
elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, 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
asserted by service of a notice, in writing upon Owner within fifteen (15) days
after the giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against
any other tenant an Owner shall not be liable to Tenant for violation of the
same by any other tenant, its servants, employees, agents, visitors or
licensees.
GLASS:
37. Owner shall replace, at the expense of the Tenant, any and all plate
and other glass damaged or broken from any cause whatsoever in and about the
demised premises. Owner may insure, and keep insured, at Tenant's expense, all
plate and other glass in the demised premises for and in the name of Owner.
Bills for the premiums therefor shall be rendered by Owner to Tenant at such
times as Owner may elect, and shall be due from, and payable by, Tenant when
rendered and the amount thereof shall be deemed to be, and be paid, as
additional rent.
ESTOPPEL CERTIFICATE:
38. Tenant, at any time, and from time to time, upon at least 10 days'
prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or
to any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified in full force and effect (or, if there
have been modifications, that the same is in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent
and additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
DIRECTORY BOARD LISTING:
39. If, at the request of and as accommodation to Tenant, Owner shall
place upon the directory board in the lobby of the building, one or more names
of persons other than Tenant, such directory board listing shall not be
construed as the consent by Owner to an assignment or subletting by Tenant to
such person or persons.
SUCCESSORS AND ASSIGNS:
40. The covenants, conditions and agreements contained in this lease
shall bind and inure to the benefit of Owner and Tenant and their respective
heirs, distributees, executors, administrators, successors, and except as
otherwise provided in this lease, their assigns. Tenant shall look only to
Owner's estate and interest in the land and building for the satisfaction of
Tenant's remedies for the collection of a judgment (or other judicial process)
against Owner in the event of any default by Owner hereunder, and no other
property or assets of such Owner (or any partner, member, officer or director
thereof, disclosed or undisclosed), shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Tenant's remedies under or
with respect to this lease, the relationship of Owner and Tenant hereunder, or
Tenant's use and occupancy of the demised premises.
- ----------------
SPACE TO BE FILLED IN OR DELETED.
See Rider annexed hereto and made a part thereof.
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
162 Associates LLC
Witness for Owner: By: Helmsley-Spear, Inc., as agent [SEAL]
-------------------------------
- -------------------------------- By: [SIGNATURE ILLEGIBLE] [L.S.]
-------------------------------
Witness for Tenant: Fort Point Partners, Inc. [SEAL]
----------------------------------
- -------------------------------- By: /s/ James Roche [L.S.]
-------------------------------
<PAGE> 6
ACKNOWLEDGEMENTS
<TABLE>
<S> <C>
CORPORATE TENANT INDIVIDUAL TENANT
STATE OF NEW YORK, ss.: STATE OF NEW YORK, ss.:
COUNTY OF COUNTY OF
On this day of , 19 , before On this day of , 19 , before
me personally came me personally came
to me known, who being by me duly sworn, did depose and to be known and known to me to be the individual
say that he resides in described in and who, as TENANT, executed the
that he is the of foregoing instrument and acknowledged to me
the corporation described in and which executed the that he executed
following instrument, as TENANT, that he knows the the same.
seal of said corporation; that the seal affixed to said --------------------------------------
instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by
like order.
------------------------------------
</TABLE>
IMPORTANT -- PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE IN
ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and 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,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors of the halls, elevators, or out of the doors or windows or stairways
of the building and Tenant shall no use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reason of noise,
odors, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisements, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Owner, and
at hours and under regulations fixed by Owner. Canvassing, soliciting and
peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building all persons who
do not present a pass to the building signed by Owner. Owner will furnish passes
to persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Notwithstanding the foregoing, Owner
shall not be required to allow Tenant or any person to enter or remain in the
building, except on business days from 8:00 a.m. to 6:00 p.m. and on Saturdays
from 8:00 a.m. to 1:00 p.m. Tenant shall not have a claim against Owner by
reason of Owner excluding from the building any person who does not present such
a pass.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a loft building, and upon written notice from Owner, Tenant
shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, or explosive, or hazardous
fluid, material, chemical or substance, or cause or permit any odors of cooking
or other processes, or any unusual or other objectionable odors to permeate in
or emanate from the demised premises.
13. Tenant shall not use the demised premises in a manner which disturbs or
interferes with other Tenants in the beneficial use of their premises.
Address
Premises
=============================================
TO
=============================================
STANDARD FORM OF
[SEAL] LOFT [SEAL]
LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
(c) Copyright 1994. All rights Reserved.
Reproduction in whole or in part prohibited.
=============================================
Dated 19
Rent Per Year
Rent Per Month
Term
From
To
Drawn by
------------------------------------
Checked by
----------------------------------
Entered by
----------------------------------
Approved by
---------------------------------
============================================='
<PAGE> 7
EXHIBIT A
[HELMSLEY-SPEAR FLOOR PLAN OF 9TH FLR. BATHROOMS]
<PAGE> 8
RIDER ANNEXED TO LEASE DATED APRIL 26, 1999 BETWEEN 162 ASSOCIATES LLC, AS
LANDLORD, AND FORT POINT PARTNERS, INC. AS TENANT, FOR THE ENTIRE EIGHTH FLOOR
AT 162 FIFTH AVENUE, NEW YORK, NEW YORK.
41. PROVISION OF RIDER
This rider is annexed to and made a part of the printed part of the
Lease to which it is attached and in each instance in which the provisions of
this Rider shall contradict or be inconsistent with the provisions of the
printed portion of this Lease, as constituted without this Rider, the provisions
of this Rider shall prevail and govern and the contradicted or inconsistent
provisions of the printed portion of this Lease shall be deemed amended
accordingly.
42. CERTIFICATES BY TENANT
At any time and from time to time, Tenant, for the benefit of Landlord
and the lessor under any ground lease or underlying lease or the holder of any
leasehold mortgage affecting any ground lease or underlying lease, or of any fee
mortgage covering the building containing the demised premises (the "Building")
and the land (the "Land") upon which the Building is erected, on at least five
(5) days' prior written request by Landlord, will deliver to Landlord a
statement certifying that this Lease is not modified and is in full force and
effect (or if there shall have been modifications, that the same is in full
force and effect as modified, and stating the modifications), the commencement
and expiration dates hereof, the dates to which the fixed rent, additional rent
and other charges have been paid, and whether or not, to the best knowledge of
the signer of such statement, there are then any existing defaults on the part
of either Landlord or Tenant in the performance of the terms, covenants and
conditions of this Lease, and if so, specifying the default of which the signer
of such statement has knowledge.
43. LIMITATION OF LIABILITY
(a) Notwithstanding anything to the contrary in this Lease, none of the
Landlord Parties (defined below) shall be liable to Tenant or its partners,
principals, directors, officers, contractors, agents, employees, invitees,
sublessees, assignees, licensees or any other person or entity claiming through
or under Tenant for any loss, injury or damage to Tenant or to any other person
or entity, or to its or their property, or for any inconvenience, annoyance,
interruption or injury to business arising from (i) Landlord performing any
maintenance, repairs, alterations, additions or improvements in or to any
portion of the Building or the demised premises or in or to the fixtures,
equipment or appurtenances of the Building or the demised premises (nor shall
Tenant or any other person or entity be entitled to any abatement or suspension
of its obligation to pay fixed annual rent or any additional rent or any other
obligations hereunder or be construed to be constructively or otherwise evicted
on account of the foregoing), irrespective of the cause of such loss, injury,
damage, inconvenience, annoyance, interruption or injury unless caused by or
resulting from the gross negligence or willful misconduct of Landlord or its
agents or employees; provided, however, that even if due to any such gross
negligence or willful misconduct of Landlord, its agents or employees, Tenant
waives, to the full extent permitted by law, any claim for any indirect,
consequential or punitive damages, including loss of profits in connection
therewith and (ii) (notwithstanding whether the loss, injury or damage is caused
by the gross negligence or willful misconduct of any Landlord Party) any injury
or damage for which Tenant would have been reimbursed under policies of
insurance required to be maintained by Tenant by the terms of this Lease had
Tenant (A) not failed to procure or maintain such policies of insurance and (B)
not failed to procure or maintain such policies of insurance with at least the
limits specified herein.
(b) Tenant shall look solely to the estate and property of Landlord in
the Land and Building for the satisfaction of Tenant's remedies for the
collection of a judgment or judicial process or arbitration award requiring the
payment of money by Landlord and no other property or assets of Landlord,
Landlord's agents, shareholders, officers, directors, partners, members,
principals (disclosed or undisclosed) or affiliates, whether directly or
indirectly through Landlord or through any receiver,
<PAGE> 9
assignee, trustee in bankruptcy or through any other person or entity shall be
subject to levy, lien, execution, attachment or other enforcement procedure for
any liability of Landlord to Tenant under this Lease or under law.
(c) In no event shall Landlord be liable for any loss, injury or damage
(including indirect, consequential or punitive damages) claimed by Tenant or any
person or entity claiming through or under Tenant in connection with the failure
or refusal by Landlord to grant its consent or approval with respect to any
matter as to which it is entitled to give its consent or approval pursuant to
this Lease. If Landlord withholds or delays its consent or conditions its
consent and Tenant believes that Landlord did so unreasonably, Tenant may
prosecute an action for declaratory relief to determine if Landlord properly
withheld, delayed or conditioned its consent, but Tenant waives and discharges
any claims it may have against Landlord for damages arising from Landlord's
withholding, delaying or conditioning its consent. In any such action, the
non-prevailing party shall bear all reasonable attorneys' fees incurred by the
parties in connection therewith.
44. INSURANCE
To the extent any injury, loss, claim, or damage to any person or
property is not covered by insurance, Tenant shall save Landlord harmless and
indemnify it from and against all injury, loss, claims or damage to any person
or property while on the demised premises arising out of the manner of use of
the demised premises by Tenant and from and against all injury, loss, claim or
damage to any person or property anywhere occasioned by the acts or omissions of
Tenant or Tenant's servants, employees or licensees.
Tenant covenants and agrees that during the term of this Lease it will
provide and keep in force (a) general public liability insurance covering and
indemnifying persons and property in or about the demised premises and in the
connecting corridor in a limit of not less than three million ($3,000,000)
dollars in respect of any one occurrence, (b) broad form commercial general
liability insurance written on a per occurrence basis with a per occurrence
limit of not less than three hundred thousand ($300,000) dollars, (c) business
interruption insurance in a face amount of not less than the aggregate amount,
for a period of twelve (12) months following the insured against peril, of 100%
of all rent and additional rent to be paid by Tenant hereunder, (d) worker's
compensation insurance and employer's liability coverage in statutory limits,
and New York State disability insurance as required by law, covering all
employees, and (e) such other coverage, and with such other limits, that
Landlord may reasonably require.
All such insurance to be obtained by Tenant in connection with this
Lease shall be effected in standard form under valid enforceable policies issued
by insurers licensed to do business in the State of New York as shall be
reasonably acceptable to Landlord and shall, except in the case of workmen's
compensation insurance, name Landlord and Tenant as the insureds as their
respective interests may appear. Certificates of such insurance shall be
delivered to Landlord prior to the commencement date hereof and from time to
time during the term of this Lease at least ten (10) days prior to the
expiration date of the previous policy together with certificates evidencing the
renewal of such policy with satisfactory evidence of payment of the premium on
such policy. To the extent obtainable, all such policies shall contain
agreements by the insurers that (i) such policies shall not be canceled except
upon thirty (30) days' prior written notice to each name insured and (ii) the
coverage afforded thereby shall not be affected by the performance of any work
upon, in or about the demised premises. Nothing in this paragraph shall prevent
Tenant from taking out such insurance under a blanket insurance policy or
policies which also can cover other properties, or parts thereof, owned, leased
or operated by Tenant as well as the demised premises, provided the insurance
applicable to the demised premises is not less than the amounts required herein.
Tenant agrees to pay all premiums and charges for such insurance, and in
the event of its failure to make any such payment when due, or in the event of
its failure to provide such insurance or renewal thereof, Landlord may procure
the same and/or pay the premium thereon (but in no event shall Landlord be
obligated so to do), and Tenant agrees to pay such premiums to Landlord upon
demand as additional rent.
2
<PAGE> 10
Neither Landlord nor Tenant shall be liable to the other or to any
insurance company (by way of subrogation or otherwise) insuring any of the other
parties, and each hereby waive their entire right of recovery against the other,
for any loss or damage arising out of or incident to the perils insured, or
required pursuant to this Lease to be insured even though such loss or damage
might have been occasioned by the negligence of Landlord, Tenant, or their
respective agents, employees, contractors, invitees and/or permitted subtenants.
The foregoing waiver is subject, however, to the amount of insurance obtained or
required to be obtained (whichever is greater) by the other party and to the
extent such insurance is collectible. Each of Landlord and Tenant (i) shall give
notice to their respective insurers that the foregoing mutual waiver of recovery
is contained in this Lease and, if required by any such insurer, shall obtain
such insurer's prior consent to the foregoing waiver of its and its insured's
right of recovery, and (ii) shall endeavor to obtain from their respective
insurers an appropriate clause in, or an endorsement upon, each such insurance
policy pursuant to which each such insurer shall agree that the foregoing waiver
shall not affect the validity or enforceability of its insured's coverage. If
such a clause or endorsement is obtainable only upon payment of an additional
premium, each party shall pay such additional premium. If Tenant's insurer shall
refuse to issue such clause or endorsement even with an additional premium, then
Landlord shall have the right to designate another insurer who would be prepared
to permit such clause or endorsement and Tenant shall use such other insurer. If
it is not possible to obtain a clause or endorsement of the type described in
clause (ii) above, then the party unable to obtain such clause or endorsement
shall notify the other party of this fact and such party shall no longer be
obligated hereunder to endeavor to obtain such a clause or endorsement in its
insurance policies. The provisions of this subparagraph shall be applicable to
any new or renewal insurance policies which Tenant may obtain during the term
hereof.
45. COMPLIANCE WITH LAW
(a) If at any time during the term of this Lease, the fire and life
safety law requirements of the City of New York pursuant to Local Law #5 of
1973, Local Law # 16 of 1984 or otherwise ("Fire Requirements") or the masonry
or exterior wall requirements of the City of New York pursuant to Local Law #10
of 1980 or otherwise ("Masonry Requirements") or any other laws or requirements
of the City of New York or any agency having jurisdiction ("Other Requirements")
shall impose any obligations or requirements upon Landlord to perform any
alterations, installations, changes or improvements (collectively "changes") to
the Building and/or the demised premises, then Tenant shall pay to Landlord as
additional rent, 9.1 % ("Tenant's Payment") of all costs and expenses incurred
by Landlord in complying with the Fire, Masonry or Other Requirements during the
term hereof. Tenant's payment shall be due and payable to Landlord within thirty
(30) days after rendition of a bill therefor accompanied by a statement setting
forth the changes performed by Landlord. The obligation of Tenant in respect of
such additional rent shall survive the expiration of this Lease.
(b) (i) Tenant covenants and agrees, at its sole cost and expense, to
comply with all present and future laws, orders, and regulations of all state,
federal, municipal and local governments, departments, commissions and boards
regarding the collection, sorting, separation and recycling of waste products,
garbage, refuse and trash. Tenant or Tenant's cleaning contractor shall sort and
separate such waste products, garbage, refuse and trash into such categories as
provided by law. Each separately sorted category of waste products, garbage,
refuse and trash shall be placed in separate receptacles reasonably approved by
Landlord. Such separate receptacles may, at Landlord's option, be removed from
the demised premises in accordance with a collection schedule prescribed by law.
(ii) Landlord reserves the right to prohibit the removal of refuse
or to collect or accept from Tenant any waste products, garbage, refuse or trash
that are not separated and sorted as required by law, and to require Tenant to
arrange for such collection at Tenant's sole cost and expense, utilizing a
contractor satisfactory to Landlord. Tenant shall pay all costs, expenses,
fines, penalties or damages that may be imposed on Landlord or Tenant by reason
of Tenant's failure to comply with the provisions of this Article and, at
Tenant's sole cost and expense, shall indemnify, defend and hold Landlord
harmless from and against any actions, claims, suits, costs and expenses
(including legal fees and expenses) arising from such noncompliance, utilizing
counsel reasonably satisfactory to Landlord.
3
<PAGE> 11
(c) (i) Tenant shall, at Tenant's expense, comply with all laws now or
hereafter existing, whether or not such compliance requires work which is
structural or non-structural, ordinary or extraordinary, foreseen or unforeseen,
that impose any obligation, order or duty on Landlord or Tenant: (i) with
respect to the demised premises; or (ii) with respect to the Building or any
part thereof (including the demised premises) if such obligation, order or duty
arises from: (A) the manner of conduct of Tenant's business or operation of its
equipment therein; (B) any cause or condition created by or at the instigation
of Tenant, including, without limitation, any improvement or alteration; (C) the
default in any of Tenant's obligations hereunder beyond the expiration of any
applicable grace or cure period; or (D) any Hazardous Material (defined below)
brought into the Building by Tenant, any assignee or subtenant of Tenant or any
of their agents, contractors or invitees. Tenant shall promptly forward to
Landlord any notice it receives of the violation of any law involving the
demised premises. Tenant shall pay, within twenty (20) days after demand
therefor, all actual, out of pocket costs and expenses, and all fines, penalties
and damages that may be imposed upon Landlord by reason of or arising out of
Tenant's failure to comply with the provisions of this Article.
(ii) Tenant shall promptly comply with all requirements relating to
the Americans with Disabilities Act, 42 U.S.C. Sections 12,101 et seq. and the
regulations promulgated thereunder as in effect from time to time ("ADA
Requirements") to the extent same applies to the demised premises only. Tenant
shall have exclusive responsibility for compliance with ADA Requirements
pertaining to the interior of the demised premises, including for the design and
construction of the access thereto and egress therefrom. Landlord shall have
responsibility for compliance with ADA Requirements which affect the common
areas of the Building to the extent same is not necessitated by the acts or
omissions of Tenant, its employees or agents or is otherwise the obligation of
another tenant. Tenant shall comply with any reasonable plan adopted by Landlord
which is designed to comply with ADA Requirements.
46. BINDING EFFECT
The submission by Landlord of this Lease in draft form shall be deemed
solely for Tenant's consideration and not for acceptance and execution. Such
submission shall have no binding force or effect and shall confer no rights nor
impose any obligation, including brokerage obligations, on either party unless
and until both Landlord and Tenant shall have executed this Lease and duplicate
originals hereof shall have been delivered to the respective parties.
47. REAL ESTATE TAXES
Tenant shall pay to Landlord, as additional rent, real estate tax
escalations based on increases in Real Estate Taxes (defined below) in
accordance with this Paragraph:
(a) Definitions: For the purpose of this Paragraph, the following
definitions shall apply:
(i) The term "Base Tax Year" as hereinafter set forth for the
determination of real estate tax escalation, shall mean the New York City real
estate tax year commencing July 1, 1999 and ending June 30, 2000.
(ii) The term "The Percentage" shall mean 9.1%.
(iii) The term "The Building Project" shall mean all of the Land
together with improvements thereon known as 162 Fifth Avenue, New York, New
York.
(iv) The term "Comparative Year" shall mean the twelve months
following the Base Tax Year and each subsequent period of twelve months.
(v) The term "Real Estate Taxes" shall mean the total of all
taxes and special or other assessments levied, assessed or imposed at any time
by any governmental authority upon or against the Building Project, 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 Building
Project to the extent that same shall be in lieu of all or a portion of any of
the aforesaid taxes or
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assessments, or additions or increases thereof, upon or against said Building
Project. 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 or 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
purpose hereof. As to special assessments which are payable over a period of
time extending beyond the term of this Lease, only a pro rata portion thereof,
covering the portion of the term of this Lease 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 by law 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 assessment so becoming payable during such Comparative
Year, together with interest payable during such Comparative Year.
(vi) The phrase "Real Estate Taxes payable during the Base Tax
Year" shall mean the Real Estate Taxes payable for the Base Tax Year.
(vii) In addition to the foregoing, Tenant will be responsible
to pay to Landlord, within ten (10) days of being billed therefor, The
Percentage of any business improvement district or similar tax imposed against
the Building Project or Landlord.
(b) Real Estate Taxes:
1. 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 The Percentage of the excess.
Following the expiration of each Tax Year, Landlord shall submit to Tenant a
statement, certified by Landlord, setting forth the Real Estate Tax escalation
due for the current Comparative Year and the payment, if any, due to Landlord
from Tenant for such Comparative Year. The rendition of such statement to Tenant
together with a copy of the tax bill shall constitute prima facie proof of the
accuracy thereof and, if such statement shows a payment due from Tenant to
Landlord with respect to such current Comparative Year, then (i) Tenant shall
make payment of any unpaid portion thereof within ten (10) days after receipt of
such statement; and (ii) Tenant shall also pay to Landlord, as additional rent,
within ten (10) days after receipt of such statement, an amount equal to the
product obtained by multiplying the total payment due for the current
Comparative Year by a fraction, the denominator of which shall be 12 and the
numerator of which shall be the number of months or any portion thereof in the
current Comparative Year which shall have elapsed prior to the first day of the
month immediately following the rendition of such statement; and (iii) Tenant
shall also pay to Landlord, as additional rent, commencing as of the first day
of the month immediately following the rendition of such statement and on the
first day of each month thereafter until a new statement is rendered, 1/12th of
the total payment for the current Comparative Year. The aforesaid monthly
payments based on the total payment due for the current Comparative Year may be
adjusted to reflect, if Landlord can reasonably so estimate, known increases in
rates for the subsequent Comparative Year, whenever such increases become known
during such current Comparative Year. The payments required to be made under
(ii) and (iii) above shall be credited toward the payment due from Tenant for
the subsequent Comparative Year, subject to adjustment as and when the statement
for such subsequent Comparative Year is rendered by Landlord.
2. Should the Real Estate Tax payable during the Base Tax Year
be reduced by final determination of legal proceedings, settlement or otherwise,
then the Real Estate Taxes 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.
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3. If, after Tenant shall have made a payment of additional rent
under this subdivision (b), Landlord shall receive a refund of any portion of
the Real Estate Taxes payable during any Comparative Year after the Base Tax
Year on which such payment of additional rent shall have been based, as a result
of a reduction of such Real Estate Taxes by final determination of legal
proceedings, settlement or otherwise, Landlord shall, within ten (10) days after
receiving the refund, pay to Tenant The Percentage of the refund less The
Percentage of reasonable expenses (including reasonable attorneys' and
appraisers' fees) incurred by Landlord in connection with any such application
or proceeding. If, prior to the payment of taxes for any Comparative Year,
Landlord shall have obtained a reduction of that Comparative Year's assessed
valuation of the Building Project, and therefore of said taxes, then the term
"Real Estate Taxes" for that Comparative Year shall be deemed to include the
amount of Landlord's reasonable expenses in obtaining such reduction in assessed
valuation, including reasonable attorneys' and appraisers' fees.
(c) In no event shall the fixed annual rent under this Lease be reduced
by virtue of this Paragraph.
(d) Upon the date of any expiration or termination of this Lease,
whether the same be the date hereinabove set forth for the expiration of the
term (hereinafter called the "lease expiration date") or any prior or subsequent
date, a proportionate share of the additional rent for the Comparative Year
during which such expiration or termination occurs shall become due and payable
by Tenant to Landlord. The said proportionate share shall be based upon the
length of time that this Lease shall have been in existence during such
Comparative Year. Promptly after said expiration or termination, Landlord shall
compute the additional rent 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 theretofore prepared by Landlord and
furnished to Tenant under subdivisions (b) and (c) above. If an estimate is
used, then Landlord shall promptly cause statements to be prepared on the basis
of that Comparative Year's actual figures 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.
(e) Notwithstanding any expiration or termination of this Lease prior to
the Lease expiration date (except in the case of a cancellation by mutual
agreement, casualty or condemnation), Tenant's obligation to pay any and all
additional rent under this Lease shall continue and shall cover all periods up
to the Lease expiration or termination date. Landlord's and Tenant's obligation
to make the adjustments referred to in subdivision (d) above shall survive any
expiration or termination of this Lease.
(f) Any delay or failure of Landlord in billing for any additional rent
payable as hereinabove provided shall not constitute a waiver of or in any way
impair the continuing obligation of Tenant to pay such additional rent
hereunder.
48. COST OF LIVING ADJUSTMENTS
The annual rent reserved in this Lease and payable hereunder shall be
adjusted, as of the times and in the manner set forth in this Paragraph.
(a) Definitions: For the purposes of this Paragraph the following
definitions shall apply:
(i) The term "Base Year" shall mean the month of May, 1999.
(ii) The term "Price Index" shall mean the Consumer Price Index
published by the Bureau of Labor Statistics of the U.S. Department of Labor, All
Items, U.S. city average, all urban consumers (presently denominated "CPI-U"),
or a successor or substitute index appropriately adjusted.
(iii) The term "Price Index for the Base Year" shall mean the
monthly All Items Price Index for the Base Year.
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(b) Effective as of each January and July subsequent to the Base Year,
there shall be made a cost of living adjustment of the annual rent payable
hereunder. The July adjustment shall be based on one hundred (100%) percent of
the percentage difference between the Price Index for the preceding month of
June and the Price Index for the Base Year. The January adjustment shall be
based on one hundred (100%) percent of the percentage difference between the
Price Index for the preceding month of December and the Price Index for the Base
Year.
(i) In the event the Price Index for June in any calendar year
during the term of this Lease reflects an increase over the Price Index for the
Base Year, then the annual rent herein provided to be paid as of the July 1st
following such month of June, i.e., fixed annual rent originally provided to be
paid for in this Lease (unchanged by any adjustments under this Lease), shall
be multiplied by one hundred (100%) percent of the percentage difference between
the Price Index for June and the Price Index for the Base Year, and the
resulting sum shall be added to such annual rent, effective as of such July 1st.
Said adjusted annual rent shall thereafter be payable hereunder, in equal
monthly installments, until it is readjusted pursuant to the terms of this
Lease.
(ii) In the event the Price Index for December in any calendar
year during the term of this Lease reflects an increase over the Price Index for
the Base Year, then the annual rent herein provided to be paid as of the January
lst following such month of December, i.e., fixed annual rent originally
provided to be paid for in this Lease (unchanged by any adjustments under this
Article), shall be multiplied by one hundred (100%) percent of the percentage
difference between the Price Index for December and the Price Index for the Base
Year, and the resulting sum shall be added to such annual rent, effective as of
such January lst. Said adjusted annual rent shall thereafter be payable
hereunder, in equal monthly installments, until it is readjusted pursuant to the
terms of this Lease.
The following illustrates the intentions of the parties hereto as to the
computation of the aforementioned cost of living adjustment in the annual rent
payable hereunder:
Assuming that said annual rent is $10,000, that the
Price Index for the Base Year was 102.0 and that the Price Index
for the month of June in a calendar year following the Base Year
was 105.0, then the percentage increase thus reflected, i.e.,
2.941% (3.0/102.0) would be multiplied by one hundred (100%)
percent and then by $10,000, and said annual rent would be
increased by $294.10, which would be divided by 12. Such
resulting dividend, $24.51, would be added to the base monthly
rent provided to be paid under this Lease, effective as of July
1st of said calendar year, until such time that a new adjustment
is provided to be made pursuant to the terms of this article.
In the event that the Price Index ceases to use 1982/84 = 100 as the
basis of calculation, or if a substantial change is made in the terms or number
of items contained in the Price Index, then the Price Index shall be adjusted to
the figure that would have been arrived at had the manner of computing the Price
in effect at the date of this Lease not been altered. In the event such Price
Index (or a successor or substitute index) is not available, a reliable
governmental or other non-partisan publication evaluating the information
heretofore used in determining the Price Index shall be used.
No adjustments or recomputations, retroactive or otherwise, shall be
made due to any revision which may later be made in the first published figure
of the Price Index for any month.
(c) Landlord will cause statements of the cost of living adjustments
provided in subdivision (b) to be prepared in reasonable detail and delivered to
Tenant.
(d) In no event shall the annual rent originally provided to be paid
under this Lease (exclusive of the adjustments under this Paragraph) be reduced
by virtue of this Paragraph.
(e) Any delay or failure of Landlord, beyond July or January of any
year, in computing or billing for the rent adjustments hereinabove provided,
shall not constitute a waiver of or in any way impair the continuing obligation
of Tenant to pay such rent adjustments hereunder.
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(f) Notwithstanding any expiration or termination of this Lease prior to
the lease expiration date (except in the case of a cancellation by mutual
agreement), Tenant's obligation to pay rent as adjusted under this Paragraph
shall continue and shall cover all periods up to the lease expiration date, and
shall survive any expiration or termination of this Lease.
(g) Tenant shall not be obligated to make any payments arising under
this Article until July, 2000.
49. ALTERATIONS
Anything in Article 3 to the contrary notwithstanding, Landlord shall
not unreasonably withhold or delay approval of written requests of Tenant to
make non-structural interior alterations, decorations, additions and
improvements (herein referred to as "alterations") in the demised premises,
provided that such alterations do not affect utility services or plumbing and
electrical lines or other systems of the Building, and provided that all such
alterations shall be performed in accordance with the following conditions:
(a) All such alterations costing more than $10,000 shall be performed in
accordance with plans and specifications first submitted to Landlord for its
prior written approval.
(b) All alterations shall be performed in a good and workmanlike manner.
All alterations shall be performed in compliance with all other applicable
provisions of this Lease and with all applicable laws, ordinances, directions,
rules and regulations of governmental authorities having jurisdiction; and
Tenant shall, prior to the commencement of any such alterations, at its sole
cost and expense, obtain and exhibit to Landlord any governmental permit
required in connection with such alterations.
(c) All work in connection with alterations shall be performed with
union labor having the proper jurisdictional qualifications.
(d) Tenant shall keep the Building and the demised premises free and
clear of all liens for any work or material claimed to have been furnished to
Tenant or to the demised premises.
(e) Prior to the commencement of any work by or for Tenant, Tenant shall
furnish to Landlord certificates evidencing the existence of the following
insurance:
(i) Workmen's compensation insurance covering all persons
employed for such work and with respect to whom death or bodily injury claims
could be asserted against Landlord, Tenant or the demised premises.
(ii) General liability insurance naming Tenant as insured and
Landlord and its designees as additional insured, with limits of not less than
$500,000 in the event of bodily injury to one person and not less than
$1,000,000 in the event of bodily injury to any number of persons in any one
occurrence, and with limits of not less than $500,000 for property damage.
Tenant, at its sole cost and expense, shall cause all
such insurance to be maintained at all times when the work to be performed for
or by Tenant is in progress. All such insurance shall be obtained from a company
authorized to do business in New York and reasonably satisfactory to Landlord,
and all policies, or certificates therefor, issued by the insurer and bearing
notations evidencing the payment of premiums, shall be delivered to Landlord.
(f) All work to be performed by Tenant shall be performed in a manner
which will not unreasonably interfere with or disturb other tenants and
occupants of the Building.
(g) Tenant shall not be required to remove any fixtures, panelling,
partitions, railings or other installations presently constituting a part of the
demised premises, constituting a part of the initial fitting up of the demised
premises for Tenant's occupancy, installed by Landlord at its expense or
subsequently installed by Tenant and reasonably usable for an ordinary office
tenancy.
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(h) All trade fixtures and other movable property installed by Tenant in
the demised premises shall remain Tenant's property and shall be removed by
Tenant on or before the lease expiration date or upon the sooner termination of
this Lease, provided only that Tenant shall repair any damage to the demised
premises resulting from such removal.
(i) Any alterations to be made by Tenant (other than plumbing and
electrical work) may be performed by any reputable contractor or mechanic
(collectively, the "Contractor") selected by Tenant and approved by Landlord,
which approval Landlord agrees it will not unreasonably withhold or delay,
provided the Contractor's performance of the alterations would not result in any
labor discord in the Building. In connection with any alteration performed by
Tenant, Landlord shall not be entitled to any supervisory fees but Tenant shall
reimburse Landlord, within ten (10) days of request therefor, for all actual
out-of-pocket costs incurred by Landlord in connection with such alterations.
(j) Tenant may, at any time during the Term, remove any alteration made
by Tenant which is not otherwise prohibited by the terms of this Lease, solely
at its expense, provided Tenant promptly repairs any damage resulting from such
removal.
(k) Any restoration or repair which Tenant is required to make (whether
structural or non-structural) shall be of quality or class equal to the then
Building standard, as determined by Landlord.
50. SUBLETTING AND ASSIGNMENT
Supplementing the provisions of Article 11 hereof, Landlord shall not
unreasonably withhold or delay its consent to an assignment of this Lease or to
a subletting of all or part of the demised premises, provided that any such
assignment or subletting shall be made solely upon the following terms and
conditions:
1. No assignment and no subletting shall become effective unless and
until Tenant shall have given Landlord at least thirty (30) business days' prior
written notice of such proposed assignment or proposed bona fide subletting,
together with a statement containing the name and address of the proposed
sublessee or assignee, adequate information as to its reputation and financial
condition and the intended use of the demised premises along with a copy of the
proposed sublease or assignment. The parties agree that if there is a proposed
assignment or a proposed subletting of all of the demised premises for all or
substantially all of the balance of the term of this Lease, then Landlord shall
thereupon have the option, exercisable by written notice within thirty (30)
business days after receipt of the notice from Tenant, to terminate this Lease
effective as of the effective date of the proposed assignment or the
commencement date of the term of such proposed subletting. If there is a
proposed subletting of all of the demised premises for less than substantially
all of the balance of the term of this Lease or of part but not all of the
demised premises, then Landlord shall thereupon have the option, exercisable
by written notice within thirty (30) business days after the receipt of the
notice from Tenant, to delete the space proposed to be subleased from the
demised premises (with a prorated adjustment in all payments due hereunder for
the period of such proposed subletting) effective as of the commencement date of
the term of such proposed subletting and for the period of such proposed
subletting. If Landlord shall so terminate this Lease or delete portions of
space therefrom, then Tenant shall vacate and surrender the demised premises or
the deleted portions of space, to Landlord, on or before the effective date
pursuant hereto.
2. If (i) Landlord shall delete any space (the "Space") to be subleased
constituting a portion of the demised premises or shall terminate this Lease in
the event of any assignment or subletting of all of the demised premises (also
the "Space") in accordance with the provisions of paragraph 1 of this Article
50, or (ii) Landlord shall not elect to terminate this Lease or delete portions
of Space herefrom pursuant to the provisions of paragraph 1 and the Space is
sublet or assigned by Tenant in accordance with the provisions thereof, then all
rent and additional rent payable by (a) the assignee or any new tenant to whom
Landlord rents the demised premises shall be paid to Landlord, and (b) the
sublessee to whom Tenant subleases the demised premises or any portion thereof
shall be paid to Tenant. Upon receipt of such rent and additional rent for any
month, Landlord or Tenant, as the case may be, shall disburse the rent and
additional rent received from such new Tenant or
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sublessee as follows: (i) if received by Landlord, first to Landlord until
Landlord has received the monthly rent and additional rent which would have been
paid to Landlord pursuant to this Lease by Tenant for the Space (which rent is
the "Original Rent"), including, but not limited to, fixed annual rent,
escalation rent for taxes or other additional rent, including electricity, water
and sprinkler charges; (ii) if received by Tenant, first to Tenant until Tenant
has been reimbursed for the amount of the monthly Original Rent paid by Tenant
to Landlord; (iii) then, to Landlord or Tenant, whichever is appropriate, an
amount equal to the amount by which such rent and additional rent from the
assignee, subtenant or new tenant exceeds the Original Rent (which amount is
hereinafter "The Excess") until it recoups the entire cost of brokerage
commissions, installations and other costs of renting to such assignee, new
tenant or subtenant; (iv) then, to Tenant, out of The Excess, an amount equal to
Tenant's unrecouped Installation Cost (as hereinafter defined). Tenant's
unrecouped Installation Cost equals Tenant's Installation Cost times a fraction,
the numerator of which is the number of months remaining in the term of this
Lease from and after the date of the assignment or subletting as if it were not
terminated or the Space sublet or assigned and the denominator of which is the
number of months during the term of this Lease (as extended by any exercised
option), less payments previously made hereunder therefor. In the event Landlord
shall not have deleted any space or terminated this Lease, any remaining portion
of The Excess received shall be distributed 50% to Landlord and 50% to Tenant.
Tenant shall not be entitled to any payment hereunder from Landlord for any
period beyond the date this Lease would have expired or terminated, as provided
herein, had Landlord not terminated this Lease with respect to the Space
pursuant to this Article 50. If Tenant or Landlord, as the case may be, shall
receive a payment to which the other is entitled hereunder, payment to the party
entitled thereto shall be made within ten (10) days of receipt thereof and that
portion payable by Tenant hereunder shall be paid as additional rent in
accordance with the terms hereof.
3. There shall be no default (after notice and the expiration of any
applicable grace period) by Tenant under any of the terms, covenants and
conditions of this Lease at the time that Landlord's consent to any such
subletting or assignment is requested and on the date of the commencement of the
term of any such proposed sublease or the effective date of any such proposed
assignment.
4. Upon receiving Landlord's written consent, a duly executed copy of
the sublease or assignment shall be delivered to Landlord within thirty (30)
days after execution thereof. Any such sublease shall provide that the sublease
is subject and subordinate to this Lease. Any such assignment of Lease shall
contain an assumption by the assignee of all of the terms, covenants and
conditions of this Lease thereafter to be performed by Tenant.
5. Anything herein contained to the contrary notwithstanding:
(a) Tenant shall not publicly advertise the availability of the
demised premises for assignment or subletting at a rental rate lower than the
rental rate at which Landlord is then offering to lease comparable space in the
Building (but Tenant shall not be prohibited from assigning or subletting for
less than such rental rate).
(b) No assignment or subletting shall be made:
(i) by the legal representatives of Tenant or by any
person to whom Tenant's interest under this Lease passes by operation of law,
except in compliance with the provisions of this Article and Article 11 hereof;
(ii) to any school, governmental office or agency;
messenger service, personnel or employment agency; medical facility or
counseling service of any kind; or to any person or entity for the conduct of a
business which is not in keeping with the standards for and general character of
the Building (to be determined in Landlord's sole discretion); and
(iii) to any party which is then a tenant, subtenant,
licensee, or occupant of any part of the Building.
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6. Anything hereinabove contained to the contrary notwithstanding,
Landlord herewith consents to an assignment of this Lease or sublease of all or
part of the demised premises to any entity in which Tenant or its stockholders
own at least 51% of the beneficial interest or the parent of Tenant or to any
corporation into or with which Tenant may be merged or consolidated or to which
substantially all of its assets or stock may be transferred, provided that any
such assignment of Lease shall contain an assumption by the assignee of all of
the terms, covenants and conditions of this Lease thereafter to be performed by
Tenant. Tenant agrees that no such assignment or subletting shall be effective
unless and until Tenant gives Landlord written notice thereof, together with a
true copy of the assignment or sublease.
7. "Installation Cost" shall mean the costs and expenses incurred and
paid for by Tenant in performing alterations in accordance with plans and
specifications approved by Landlord for its initial occupancy, as evidenced by
paid receipts for materials supplied and services rendered by independent
contractors.
8. In no event shall any permitted sublessee 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. Similarly, in
no event shall permitted assigns be permitted to sublet any portion of the
demised premises or further assign this Lease without the prior written consent
of Landlord.
51. ELECTRICAL AND PLUMBING SYSTEMS
When in this Lease, Tenant shall take or be required to take any action
which may affect or alter the plumbing or electrical facilities or services
furnished by Landlord in the Building, the demised premises, or any portion
thereof, Tenant shall only be entitled to have such work performed by the
Building contractor designated from time to time by Landlord, in its sole and
absolute discretion, to perform such alteration and Landlord shall not be
required to permit, and Tenant shall not be entitled to use, any contractor not
designated as Landlord's selected contractor.
52. EXTRA HEAT
If Tenant shall request heat for the demised premises at any time other
than when Landlord is required to furnish heat as provided herein, Landlord
shall furnish heat and shall be entitled to receive, as additional rent
hereunder and in consideration therefor, an amount computed in accordance with
Landlord's standard Building rates from time to time for supplying heat. Tenant
shall be required to give reasonable prior notice to Landlord in accordance with
Landlord's standard procedure if such heat is required. Payment of the
additional rent shall be made within ten (10) days of Tenant being notified and
billed therefor by Landlord.
53. CASUALTY DAMAGE
Anything in Article 9 to the contrary notwithstanding, in the event of
damage or destruction to the demised premises by fire or other casualty
(collectively, "Casualty") then, if it is determined by Landlord's architect or
engineer that the demised premises cannot be restored to substantially its
condition immediately prior to the Casualty within twelve (12) months after the
occurrence of the Casualty, or if the demised premises are not so restored
within such twelve (12) month period, or if Landlord shall not have commenced
the restoration work six (6) months after the occurrence of the Casualty then,
in any such circumstance, Tenant may terminate this Lease, by written notice
sent to Landlord within thirty (30) days after the expiration of such twelve
(12) month period or of the six (6) month period if Landlord shall not have
commenced the restoration work, whichever is earlier, in which event this Lease
shall terminate as of the date set forth in such notice. Fixed annual rent,
additional rent and all other amounts payable under this Lease shall be
apportioned as of such date and the parties shall have no liability for
subsequently accruing obligations hereunder, except to the extent otherwise
provided herein.
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54. TENANTS CONDEMNATION CLAIM
Anything in Article 10 to the contrary notwithstanding, Tenant shall
have the right to make a claim against the condemning authority for the value of
its trade fixtures and business machines and equipment taken in the condemnation
and for reimbursement of its resultant moving expenses provided such claim does
not diminish or otherwise adversely affect Landlord's award.
55. ACCESS TO THE DEMISED PREMISES
Supplementing the provisions of Article 13, Landlord's right to enter
the demised premises and its access thereto to make repairs and alterations and
to erect and maintain pipes and conduits therein (except in the event of any
emergency, in which event such right and access shall be unrestricted), shall be
subject to the following conditions:
A. Landlord shall give Tenant reasonable advance notice of proposed
entry or access;
B. All such pipes and conduits shall, to the extent reasonably possible,
be concealed in a building standard manner;
C. Landlord shall use its reasonable efforts to effect all such repairs
and alterations and erect and maintain all such pipes and conduits so as to
minimize interference with Tenant's normal business operations, but no provision
hereof shall obligate Landlord to perform such work other than during normal
business hours; and
D. Landlord shall retain the right to change the arrangement and/or
location of public entrances, passageways, doors, doorways, corridors,
elevators, stairs, toilets or other public parts of the Building, and such work
shall be performed at Landlord's sole cost and expense. If the demised premises
or the means of access thereto are materially adversely affected, such changes
shall be subject to Tenant's prior written consent, which consent shall not be
unreasonably withheld provided, however, that if such change is made in
compliance with any law, order or regulation of any governmental authority
having jurisdiction, the New York Board of Fire Underwriters or similar
organization, or any insurer of the Building and/or Landlord's interest therein,
Tenant's consent shall not be required.
56. LANDLORD'S PERFORMANCE OF TENANT'S OBLIGATIONS
Supplementing the provisions of Article 19, except in the event of an
emergency, Landlord shall not perform any obligation of Tenant under this Lease
nor incur any expenditure for such purpose until after the expiration of any
applicable grace period.
57. TENANT'S TAKING POSSESSION OF THE DEMISED PREMISES
Anything in Article 21 to the contrary notwithstanding, Tenant's taking
possession of the demised premises shall be conclusive evidence that the demised
premises and the Building were in good and satisfactory condition at the time
such possession was so taken, except as to latent defects and to any items as to
which Tenant notifies Landlord within thirty (30) days after initially taking
possession.
58. TENANT'S ACCESS
Tenant shall be entitled to have access to the demised premises 24 hours
a day, 7 days a week, without additional charge provided, however, that Landlord
shall be entitled to charge Tenant for any heating services supplied to Tenant
other than during hours and on days during which Landlord has the obligation to
supply such services pursuant to Articles 31 and 52 hereof.
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59. HOLIDAYS
Heat and/or manual elevator facilities shall not be provided on
holidays deemed to be commercial building contract holidays of Local 32B-32J of
Services Employees Union.
60. SQUARE FOOTAGE
Tenant does hereby acknowledge that no representations have been
made by Landlord or anyone acting on behalf of Landlord as to the amount of
square footage in the demised premises. Tenant has inspected the demised
premises and relies upon its own judgement in computing the square footage.
61. BUILDING CODE COMPLIANCE
Following is a list of steps involved in the processing of Tenant plans
which Tenant herein must comply with by engaging such firm as may be designated
by Landlord from time to time to insure proper code compliance:
1. Architectural and mechanical plans are reviewed for compliance with
the Building standard and New York City Building Code.
2. Insertion of appropriate standard Building Department notes and
details.
3. Certification by a professional engineer as to compliance with the
Building Code.
4. Filing plans and specifications with the Department of Buildings and
processing to approval.
5. Making controlled inspection of air conditioning system, completion
inspection of entire installation and filing of forms 10E and 23A indicating
proper completion of installation with the Department of Buildings.
A Tenant installation will not be considered complete until an approved
Completion Certificate is filed with the Department of Buildings and an amended
Certificate of Occupancy reflecting Tenant's use of the demised premises has
been obtained, which Tenant shall hereby agree to obtain if required to permit
Tenant's legal use of the demised premises.
62. FLAMMABLE MATERIALS
Neither Tenant nor any of Tenant's servants, employees, agents, visitors
or licensees shall bring, keep or use in or upon the demised premises or the
Building, any solvent having a flash point below 110 degrees F, nor shall any
liquid which emits volatile vapors below the temperature of 100 degrees F be
brought, kept or used in or upon the demised premises or the Building, except as
follows:
A. The process using such liquids shall be conducted in a room of fire
resistant construction, as the same is or may hereafter be defined by the Fire
Insurance Rating Organization;
B. If more than one but not more than two gallons of such liquids are
kept on the demised premises, they shall be stored in safety cans. If more than
two but less than ten gallons of such liquids are kept on the demised premises,
they must be stored in safety cans and kept in a cabinet constructed by Tenant
in a manner approved by the fire insurance rating organization. Reasonable
amounts in excess of ten gallons may be kept provided they are stored in a vault
constructed by Tenant in a manner approved by said Organization; and
C. Any use or storage of such liquids shall at all times be in
accordance with the requirements of the Fire Department, Board of Fire
Underwriters and the Fire Insurance Rating Organization.
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A breach of the aforesaid regulations shall be deemed a default of this Lease
under Article 17 hereof.
63. SECURITY
Tenant shall, upon its execution and delivery of this Lease, deliver to
Landlord an irrevocable commercial letter of credit in the amount of
$231,000.00, such letter of credit to be in form and substance satisfactory to
Landlord, and issued by a member bank of the New York Clearing House
Association, or such other bank with assets and reserves substantially
equivalent to any of such member banks and acceptable to Landlord, payable upon
the presentation by Landlord to such bank of a sight-draft, without presentation
of any other documents, statements or authorizations, which letter of credit
shall provide (i) for the continuance of such credit for the period of at least
one (1) year from the date hereof, (ii) for the automatic extension of such
letter of credit for additional periods of one (1) year from the initial and
each future expiration date thereof (the last such extension to provide for the
continuance of such letter of credit for at least thirty (30) days beyond the
expiration date of this Lease) unless such bank gives Landlord notice of its
intention not to renew such letter of credit, not less than 45 days prior to the
initial or any future expiration date of such letter of credit and (iii) that in
the event such notice is given by such bank, Landlord shall have the right to
draw on such bank at sight for the balance remaining in such letter of credit
and hold and apply the proceeds thereof in accordance with the provisions of
this Article and this Lease. Each letter of credit to be deposited and
maintained with Landlord (or the proceeds thereof) shall be held by Landlord as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this Lease, and in the event that (x) any default
by Tenant beyond any applicable notice and cure periods occurs under this Lease,
or (y) Landlord transfers its right, title and interest under this Lease to a
third party and, after ten (10) days notice from Landlord, the bank issuing such
letter of credit does not consent to the transfer of such letter of credit to
such third party, or (z) notice is given by the bank issuing such letter of
credit that it does not intend to renew the same, as above provided, and a
substitute letter of credit in form and substance satisfactory to Landlord and
otherwise complying with the terms of this Article is not received by Landlord
within ten (10) days after such notice is given, then, in any such event,
Landlord may draw on such letter of credit, and the proceeds of such letter of
credit shall then be held and applied as security (and be replenished, if
necessary) as provided in this Article and this Lease. In the event Landlord
shall use, apply or retain the whole or any part of the security deposit
hereunder, Tenant shall immediately deliver to Landlord an amount equal to the
sum used, applied or retained by Landlord in accordance therewith so that at all
times during the term hereof, Landlord shall have as the security hereunder an
amount equal to the security deposit. Provided Tenant is not then in default
beyond any applicable notice and cure periods hereunder, and provided Tenant
shall have timely delivered possession of the demised premises to Landlord, any
letter of credit, or any remaining portion of any sum drawn by Landlord on any
such letter of credit under this Article, together with any other portion of or
sum held by Landlord as security hereunder, shall be returned to Tenant promptly
following the expiration of this Lease (or, provided Tenant is not then in
default beyond any applicable notice and cure periods hereunder, the earlier
termination of this Lease).
64. EXTERMINATION
Tenant, at its sole cost and expense, shall maintain such extermination
services as are necessary to keep the demised premises free of pests and vermin
at all times.
65. ODORS
Tenant shall not cause or permit any unusual or objectionable odors,
by-products or waste material to permeate from the demised premises. Tenant
covenants that it will hold Landlord harmless against all claims, damages or
causes of action for damages arising after the commencement of the term of this
Lease and will indemnify Landlord for all such suits, orders or decrees and
judgments entered therein, resulting from the use of said unusual or
objectionable odors, by-products or waste material, and, in addition, Tenant
covenants to pay any attorneys' fees and other legal expenses made necessary in
connection with any claim or suit as aforesaid, all provided, however, that
Tenant is given immediate written notice thereof with the opportunity to defend
by attorneys of its designation
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For the purpose of eliminating any such odors, waste material or
by-products, Tenant may erect and maintain such facilities and appurtenances as
may be necessary to eliminate any such odors, by-products or waste materials.
All such facilities or appurtenances shall be erected at Tenant's sole cost and
expense, shall be in accordance with applicable laws, orders and regulations of
all governmental authorities and the New York Board of Fire underwriters as set
forth in Article 6 of this Lease, and shall be subject to Landlord's reasonable
approval.
66. FLOOR LOADS
Tenant shall not place a load upon any floor of the demised premises
exceeding the floor load per square foot area which it was designed to carry and
which is allowed by law. Tenant agrees to position all machines, safes,
business machines, printing equipment or other mechanical equipment in such
locations as to minimize noise and vibration emanating therefrom. All of such
installations shall be placed and maintained by Tenant, at Tenant's sole cost
and expense, in settings sufficient, in Landlord's sole judgment, to absorb and
prevent vibration, noise and annoyance to other tenants in the Building.
All of such machines and/or equipment installed by Tenant in the demised
premises shall not at any time be in violation of existing laws affecting the
demised premises or in violation of the Certificate of Occupancy issued for the
Building.
67. LANDLORD'S COSTS BY TENANT'S DEFAULTS
If Landlord, as a result of a default by Tenant of any of the provisions
of this Lease, including the covenants to pay rent and/or additional rent, makes
any expenditure or incurs any obligations for the payment of money including,
but not limited to, reasonable attorney's fees, in instituting, prosecuting or
defending any action or proceeding, such sums so paid or obligations so incurred
with interest (at the prime rate then being charged by Citibank, N.A. plus five
(5 %) percent) and costs shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Landlord within five (5) days of rendition of any
bill or statement to Tenant therefor, and if any expenditure is incurred in
collecting such obligations, such sum shall also be recoverable by Landlord as
additional damages.
69. LOBBY ATTENDANT
For the purpose of maintaining lobby attendant service in the passenger
lobby of the Building, Tenant agrees to pay to Landlord a sum equal to 10% of
Landlord's total cost of maintaining such lobby attendant service. This sum
shall be payable as additional rent due under this Lease. As the cost of
maintaining such lobby attendant shall increase or decrease, so shall the above
mentioned charge be adjusted proportionate to the increase or decrease in the
total cost of maintaining such lobby attendant service.
69. PLATE GLASS
Tenant, at its own cost and expense, shall replace all damaged or broken
plate glass or other glass in or about the demised premises.
70. BROKER
Tenant warrants that it has dealt with no real estate broker other than
Helmsley-Spear, Inc. and Cushman & Wakefield, Inc. (collectively the "Brokers"),
in negotiating this Lease and agrees to indemnify and hold harmless Landlord in
the event that any claims for a brokerage commission are made by any party other
than the Brokers. This provision shall survive the expiration or sooner
termination of this Lease.
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71. SUBORDINATION AND ATTORNMENT
Supplementing Article 7 hereof:
(a) This Lease, and all rights of Tenant under it, are subordinate and
subject to all present and future ground, master or operating leases of the Land
and the Building and any and all present and future mortgages, security
interests or other security documents upon or affecting the Land and the
Building and to all advances thereunder and all renewals, replacements,
modifications, amendments, consolidations and extensions thereof (all of the
foregoing, collectively, the "Senior Interests", and the holders of Senior
Interests, collectively, "Senior Interest Holders"), unless any Senior Interest
Holder elects, by written notice to Tenant, that this Lease shall be superior
to its lease or mortgage. This Article shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall, within twenty (20) days of demand therefor,
execute, acknowledge and deliver any instrument that Landlord, any Senior
Interest Holder or any of their respective successors in interest may (in the
form required by the Senior Interest Holder requesting the same) request to
evidence such subordination.
(b) Any Senior Interest Holder who succeeds to the rights of Landlord
under this Lease is sometimes referred to herein as a "Successor Landlord".
Tenant acknowledges and agrees that, upon a Successor Landlord's succession to
the rights of Landlord under this Lease, Tenant shall, at the option of such
Successor Landlord, fully and completely attorn to and recognize the Successor
Landlord as Tenant's landlord hereunder and shall promptly execute and deliver
to such Successor Landlord any additional instrument that such Successor
Landlord may request to evidence such attornment. Upon attornment, this Lease
shall continue in full force and effect as a direct Lease between Tenant and the
Successor Landlord upon all of the terms, covenants and conditions contained
herein except that the Successor Landlord shall not be: (a) liable for any
previous act or omission of Landlord under this Lease, (b) subject to any offset
which had occurred to Tenant against any prior Landlord, (c) obligated to
complete any construction of the Building or the demised premises, (d) obligated
to make any payment to or on behalf of Tenant, (e) required to account for any
security deposit except to the extent of any security deposit actually delivered
to the Successor Landlord, or (f) bound by any previous modification of this
Lease or by any prepayment of more than one month's fixed annual rent or
additional rent unless such modification or prepayment was expressly approved in
writing by the Successor Landlord. Nothing contained in this Article shall be
construed to impair any right otherwise exercisable by a Senior Interest Holder.
72. USE AND OCCUPANCY
Supplementing Article 2 hereof:
(a) Subject to and in accordance with all rules, regulations, laws,
ordinances, statutes and requirements of all governmental authorities and any
bodies having jurisdiction thereof, Tenant covenants and agrees that it shall
use the demised premises solely for executive, administrative and general
offices and for no other purpose.
(b) Tenant covenants that Tenant will (i) not use or suffer or permit
any person to use the demised premises for any unlawful purpose and (ii) obtain
and maintain at Tenant's sole cost and expense all licenses and permits from any
and all governmental authorities having jurisdiction of the demised premises
which may be necessary for the conduct of Tenant's business therein. Tenant
further covenants to comply with all applicable laws, resolutions, codes, rules
and regulations of any department, bureau, agency or any governmental authority
having jurisdiction over the operation occupancy, maintenance and use of the
demised premises for the purpose set forth herein. Tenant indemnifies and saves
Landlord harmless from and against any claims, penalties, loss, damage, cost or
expense imposed by reason of a violation of any applicable law or the rules and
regulations of governmental authorities having jurisdiction thereof relating to
Tenant's use and occupancy of the demised premises.
(c) Tenant shall not, and shall not direct, suffer or permit any of its
agents, contractors, employees, licensees or invitees to at any time handle,
use, manufacture, store or dispose of in or
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about the demised premises or the Building, any (collectively "HAZARDOUS
MATERIALS) flammable materials, explosives, radioactive materials, hazardous
wastes or materials, toxic wastes or materials, or other similar substances,
petroleum products or derivatives or any substance subject to regulation by or
under any federal, state and local laws and ordinances relating to the
protection of the environment or the keeping, use or disposition of
environmentally hazardous materials, substances, or wastes, presently in effect
or hereafter adopted, all amendments to any of them, and all rules and
regulations issued pursuant to any of such laws or ordinances (collectively
"Environmental Laws"), nor shall Tenant suffer or permit any Hazardous Materials
to be used in any manner not fully in compliance with all Environmental Laws in
the demised premises or the Building or allow the environment to become
contaminated with any Hazardous Materials. Notwithstanding the foregoing, and
subject to Landlord's prior consent, Tenant may handle, store, use or dispose of
products containing small quantities of Hazardous Materials (such as aerosol
cans containing insecticides, toner for copiers, paints, paint remover and the
like) to the extent customary and necessary for the use of the demised premises
as permitted herein; provided that Tenant shall always handle, store, use, and
dispose of any such Hazardous Materials in a safe and lawful manner and never
allow such Hazardous Materials to contaminate the demised premises, Building or
the environment. Tenant shall protect, defend, indemnify and hold each and all
of the Landlord Parties harmless from and against any and all loss, claims,
liability or costs (including court costs and attorney's fees) incurred by
reason of any failure of Tenant to fully comply with all applicable
Environmental Laws, or the presence, handling, use or disposition in or from the
demised premises of any Hazardous Materials (even though permissible under all
applicable Environmental Laws or the provisions of this Lease), or by reason of
any actual or asserted failure of Tenant to keep, observe, or perform any
provision hereof.
73. AIR CONDITIONING
Tenant agrees that the payment for cost of electric power consumed by
the air conditioning system shall be the responsibility of Tenant.
During the term of this Lease, the air conditioning system shall be
owned by Landlord and shall be surrendered to Landlord at the expiration or
sooner termination of this Lease in good working condition, reasonable wear and
tear excepted. Tenant agrees to maintain the system and provide periodic service
thereto but not less than once per year at its sole cost and expense make
replacements of parts to the air conditioning unit as they may become necessary
during the term of this Lease.
74. HOLDING OVER
If Tenant holds over in possession after the expiration or sooner
termination of the original term or of any extended term of this Lease, such
holding over shall not be deemed to extend the term of or constitute a renewal
of this Lease, but such holding shall be upon the covenants and conditions
herein set forth, except that the charge for use and occupancy of the demised
premises for each calendar month or part thereof (even if such part shall be a
small fraction of a calendar month) that Tenant so holds over shall be equal to
the sum of:
a. 1/12 of the highest annual rent rate set forth in this Lease, times
2.0, plus
b. l/ 12 of the net increase, if any, in fixed annual rent due solely to
increase in the cost of the value of electric service furnished to the demised
premises in effect on the last day of the term of this Lease, plus
c. 1/12 of all other items of annual additional rent (including, but not
limited to, real estate tax escalations), which annual additional rent would
have been payable pursuant to this Lease had this Lease not expired, plus
d. those other items of additional rent (not annual additional rent)
which would have been payable monthly pursuant to this Lease, had this Lease
not expired, which total sum Tenant agrees to pay to Landlord promptly upon
demand, in full, without set-off or deduction. Neither the billing nor the
collection of use and occupancy in the above amount shall be deemed a waiver of
any right of Landlord to collect damages for Tenant's failure to vacate the
demised premises after the expiration
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or sooner termination of this Lease. The aforesaid provisions of this Article
shall survive the expiration or sooner termination of this Lease.
75. SIGNAGE
Tenant shall be allowed three (3) listings in the Building lobby
directory, for which it agrees to pay to Landlord a one time charge which shall
not exceed Landlord's cost, per listing requested. No other signs or advertising
of any kind will be permitted in the Building lobby.
Tenant will be permitted to display upon the entrance door to the
demised premises a sign of size, material and design subject to Building
standard. Tenant further agrees to submit the text and design of such door sign
to Landlord for Landlord's reasonable approval. Upon approval by Landlord,
Landlord shall cause such sign to be prepared and installed, the cost for which
Tenant agrees to reimburse Landlord within five (5) days of receipt of request
by Landlord for payment.
Landlord reserves right to change Building standard from time to time
and to change the signs and listings to comply with the Building standard. In no
instance will Tenant he permitted to display any signs or advertising in the
windows of the Building.
76. ELECTRIC CURRENT
Tenant acknowledges that its consumption of electrical energy at the
demised premises during the term hereof shall be measured by a separate meter
servicing the demised premises and Landlord shall have no responsibility in
connection therewith. Tenant shall make all necessary arrangements and pay all
charges for the installation and maintenance of such meter. Tenant shall 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 safely capable, to be used for such
purpose, but only to the extent of Tenant's then authorized load.
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. 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
demised 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 meters and other equipment proper and necessary in connection
therewith subject to the aforesaid terms and conditions. Only rigid conduit or
electricity metal tubing (EMT) will be allowed.
77. EFFECT OF GOVERNMENTAL LIMITATION ON RENTS AND OTHER CHARGES
If any law, decision, order, rule or regulation (collectively called
"Limiting Law") of any governmental authority shall have the effect of limiting
for any period of time the amount of rent or other amounts payable by Tenant to
any amount less than the amount required by this Lease, then:
A. throughout the period of limitation, Tenant shall remain liable for
the maximum amount of rent and other amounts which are legally payable; and
B. when the period of limitation ends, or if the Limiting Law is
repealed, or following any order or ruling that substantially restrains or
prohibits enforcement of the Limiting Law, Tenant shall pay to Landlord, on
demand (to the extent that payment of such amounts is not prohibited by law),
all amounts that would have been due from Tenant to Landlord during the period
of limitation but which were not paid because of the Limiting Law; and
thereafter Tenant shall pay to Landlord rent
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and all other amounts due pursuant to this Lease, all calculated as though there
had been no intervening period of limitation.
78. LATE PAYMENTS
Tenant acknowledges that monthly fixed rent and additional rent payments
are due on or before the first (1st) day of each month. Tenant shall herein be
permitted to make such payments up to the fifth (5th) day of each month without
additional charge. In the event that, during any calendar year, Tenant fails to
make such payments of any portion of rents due by the fifth (5th) day of each
month, Landlord shall, for each lateness after the first occurrence, be
permitted to charge Tenant, as additional rent, the sum of one thousand two
hundred and fourteen ($1,214.00) Dollars as liquidated damages and not as a
penalty, which Tenant agrees to pay within fifteen (15) days of receipt of
invoice.
79. FURTHER PROVISIONS AS TO DEFAULT
All sums of money, other than the fixed annual rent reserved in this
Lease, which shall become due from and payable by Tenant to Landlord hereunder,
shall constitute additional rent, the default in the payment of which Landlord
shall have the same remedies as for a default in the payment of fixed annual
rent.
If Tenant is late in making any payments due to Landlord from Tenant
under this Lease for thirty (30) or more days, then interest shall become due
and owing to Landlord on such payment from the date thirty (30) days after which
it was due, which interest shall be computed at the following rates:
(i) for an individual or partnership tenant, computed at the maximum
lawful rate of interest;
(ii) for a corporate tenant, computed at the rate of two and 00/100
(2.00%) percent per month, but in no event in excess of the maximum lawful rate
of interest chargeable to corporations in the State of New York.
Bills for any expenses incurred by Landlord in connection with any
performance by it for the account of Tenant after a default hereunder beyond the
applicable grace period, and bills for all costs, expenses and disbursements of
every kind and nature whatsoever including, but not limited to, reasonable
counsel fees, involved in collecting or endeavoring to collect the fixed annual
rent or any additional rent or any part thereof, enforcing or endeavoring to
enforce any rights against Tenant or any of Tenant's obligations against Tenant,
under or in connection with this Lease, or pursuant to law, including any such
cost, expense and disbursement involved in instituting and prosecuting summary
proceedings, as well as bills for any property, material, labor, or services
provided, furnished, or rendered, by Landlord at Tenant's instance to or for the
benefit of Tenant, may be sent by Landlord to Tenant monthly, or immediately, at
Landlord's option, and shall be due and payable in accordance with the terms of
such bills.
80. TERM: CONDITION OF DEMISED PREMISES; LANDLORD'S WORK
(a) The term of this Lease (the "Term") shall commence on May 1, 1999
(the "Commencement Date") and shall expire on April 30, 2009 (the "Expiration
Date"), unless sooner terminated pursuant to any provision hereof or by law. The
taking of occupancy or possession of the whole or any portion of the demised
premises by Tenant shall be conclusive evidence that the demised premises and
the Building were in good and satisfactory condition as of such date. Tenant
covenants and agrees that if permission is given to Tenant to enter into
possession of all or any portion of the demised premises prior to the
Commencement Date, then Tenant shall pay all charges for water, sewage disposal,
heating, cooling, electricity, lighting and any other utilities attributable to
the demised premises which are payable by Tenant hereunder from the date upon
which the demised premises are delivered to Tenant. Any such charges which may
be paid by Landlord shall be reimbursed to Landlord by Tenant within fifteen
(15) days of rendition of a bill therefor. In addition, from such date
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of delivery through and including the Commencement Date, Tenant shall perform
all of its obligations hereunder (other than the obligation to pay fixed annual
rent) including, without limitation, its indemnity and insurance obligations.
(b) Tenant acknowledges that has made or been given the opportunity to
make a thorough examination and inspection of the demised premises. Tenant
agrees that it is entering into this Lease without any representations or
warranties by Landlord, its employees, agents, representatives or servants or
any other person as to the condition of the demised premises or the
appurtenances thereof or any improvements therein or thereon, or any other
matters pertinent thereto or to this Lease, except to the extent specifically
set forth herein. Tenant agrees to accept the demised premises in "as is'
condition at the time possession is given to Tenant, without requiring any
alterations, improvements, repairs or decorations to be made by Landlord or at
Landlord's expense, other than the performance of Landlord's Work (defined
below).
(c) Tenant agrees to accept the demised premises in "as is" condition,
with the exception of the following work ("Landlord's Work") to be performed by
Landlord:
(i) remove any asbestos in the demised premises in
compliance with applicable law and deliver to Tenant an
ACP-5 certificate for the demised premises;
(ii) construct two (2) new bathrooms in compliance with the
Americans with Disabilities Act in accordance with the
plan attached as Exhibit A;
(iii) provide adequate electrical power (400 amp service);
(iv) install a 30 ton tenant-controlled air conditioning unit
without duct work;
(v) the demised premises shall be sprinklered to the extent
required by applicable law;
(vi) sand wood floors in the demised premises and apply one
(1) coat of polyurethane; and
(vii) deliver the demised premises in broom clean condition.
81. RENT
(a) Beginning on the Commencement Date and continuing thereafter
throughout the term of this Lease, Tenant shall pay to Landlord fixed annual
rent as follows:
1. for the period commencing on the Commencement
Date and ending on the last day of the sixtieth
month of the term hereof, $291,500.00 per annum,
payable in consecutive equal monthly
installments of $24,291.67 on the first day of
each calendar month during such period; and
2. for the period commencing on the first day of
the sixty-first month of the term hereof and
ending on the last day of the one hundred and
twentieth month of the term hereof, $313,500.00
per annum, payable in consecutive equal monthly
installments of $26,125,00 on the first day of
each calendar month during such period;
provided, however, that if Tenant shall not be in default on any of its
obligations hereunder, Landlord shall waive the monthly installments of fixed
annual rent for the first three (3) months of the term hereof. Notwithstanding
the foregoing, if Landlord's work shall not have been substantially completed
within three (3) months from the Commencement Date, Tenant's free rent period
will be extended until the day that Landlord's Work is substantially completed
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(b) Beginning on the Commencement Date, Tenant shall pay to Landlord as
additional rent all sums payable by Tenant under the provisions of this Lease
other than fixed annual rent including, without limitation, all interest that
may accrue thereon in the event of Tenant's failure to pay such amounts when
due, and all damages, costs and expenses which Landlord may incur by reason of
any default of Tenant or failure on Tenant's part to comply with the terms of
this Lease, all of which shall be due and payable within twenty (20) days of
demand therefor unless another time is expressly provided for in this Lease.
Landlord shall have the same remedies for failure to pay additional rent as for
non-payment of fixed annual rent.
(c) Tenant shall pay the fixed annual rent and additional rent when due,
without notice or demand, and without any abatement, deduction or set-off,
except for any notices, demands, abatements, deductions or set-offs expressly
provided for elsewhere in this Lease. Tenant shall pay such amounts to Landlord
in lawful money of the United States by check or other method of payment so that
in any case the funds are "available" on the due date for payment thereof at the
address of Landlord or such other place Landlord may designate by notice to
Tenant.
(d) The rent payable for any portion of a calendar month included in the
term shall be prorated in the ratio that the number of days in such portion
bears to the actual number of days in such month.
(e) The first monthly installment of Rent payable hereunder shall be
paid upon Tenant's execution and delivery of this Lease.
82. INDEMNIFICATION Tenant shall defend, indemnify and hold harmless
Landlord, its agents, officers, directors, shareholders, partners,
members and principals (whether disclosed or undisclosed) (hereinafter the
"Landlord Parties") from and against any and all claims, demands, liability,
loss, damage, costs and expenses (including reasonable attorneys' fees and
disbursements) arising from or in connection with: (a) any breach or default
beyond the expiration of any applicable grace or cure period by Tenant in the
full and prompt payment and performance of Tenant's obligations hereunder; (b)
the use or occupancy or manner of use or occupancy of the demised premises by
Tenant or any person. claiming under or through Tenant; (c) any act, omission or
negligence of Tenant or any of its subtenants, assignees or licensees or its or
their partners, principals, directors, officers, agents, invitees, employees,
guests, customers or contractors during the term hereof; (d) any accident,
injury or damage occurring in or about the demised premises during the term
hereof; (e) the performance of any alteration in the demised premises including,
without limitation, Tenant's failure to obtain any permit, authorization or
license or failure to pay in full any contractor, subcontractor or materialmen
performing work on such alteration; and (f) any mechanics lien filed, claimed or
asserted in connection with any alteration or any other work, labor, services or
materials done for or supplied to, or claimed to have been done for or supplied
to, Tenant, or any person claiming through or under Tenant provided, however,
that same shall not have been caused by the gross negligence or willful
misconduct of Landlord, its agents, contractors, principals, officers,
directors, employees or assigns. If any claim, action or proceeding is brought
against any of the Landlord Parties for a matter covered by this indemnity,
Tenant, upon notice from the indemnified person or entity, shall defend such
claim, action or proceeding with counsel reasonably satisfactory to Landlord and
the indemnified person or entity.
83. LANDLORD'S APPROVALS
Whenever Tenant shall submit to Landlord any plan, agreement or other
document for Landlord's consent or approval, and Landlord shall require the
expert opinion of Landlord's counsel or architect as to the form or substance
thereof, Tenant agrees to pay the reasonable fee of such architect and/or
counsel for reviewing the said plan, agreement or document.
84. intentionally omitted.
21
<PAGE> 29
85. ACCESS TO FREIGHT ELEVATOR
Tenant will be permitted non-exclusive access to the Building's freight
elevators at no charge during normal business hours, but Tenant's use thereof
shall be in compliance with all of the provisions of this Lease including,
without limitation, the Building's Rules and Regulations.
86. VENTING
Subject to the reasonable rules of Landlord and to Landlord's
requirements regarding its location and manner of venting, Tenant shall be
permitted to vent any special equipment installed in the demised premises
(including, but not limited to, any air-cooled supplemental HVAC units) through
the Building's windows (other than on the Fifth Avenue side of the Building)
provided Tenant otherwise complies with the provisions of this Lease, including,
but not limited to, the Building's Rules and Regulations.
162 ASSOCIATES LLC
By: Helmsley-Spear, Inc., as Agent
By [SIGNATURE ILLEGIBLE]
---------------------------------
FORT POINT PARTNERS, INC.
By James Roche
---------------------------------
22
<PAGE> 1
EXHIBIT 10.6
LEASE MODIFICATION AGREEMENT
THIS LEASE MODIFICATION AGREEMENT (this "Agreement") is made as of the
14 day of May, 1999, by and between 162 Associates LLC ("Landlord"), having an
office at c/o Helmsley-Spear, Inc., 60 East 42nd Street, New York, New York
10165, and Fort Point Partners, Inc. ("Tenant") , having an address at 55 Broad
Street, New York, New York 10004.
W I T N E S S E T H
WHEREAS, Landlord and Tenant previously entered into a certain Agreement
of Lease (the "Lease") dated as of April, 26, 1999 demising to Tenant the entire
eighth (8th) floor in the building (the "Building") known as 162 Fifth Avenue,
New York, New York; and
WHEREAS, Landlord and Tenant are desirous of modifying the Lease as
provided herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. ARTICLE 63 IS MODIFIED
Article 63 of the Lease is hereby modified to read as follows:
(a) Tenant shall, upon the signing of this Lease, either (i)
deposit with Landlord cash in the amount of $231,000 (the "Security Deposit") or
(ii) deliver to Landlord a letter of credit (the "Letter of Credit") issued in
favor of Landlord in the sum of the Security Deposit, in either case as security
for the faithful performance and observance by Tenant of the terms, conditions
and provisions of this Lease. Provided Tenant is not in default under this
Lease then, if the Security Deposit hereunder is in the form of cash, Tenant, at
Tenant's option, but only during the first year of the term of the Lease, may
substitute in lieu of such cash Security Deposit being held by Landlord, a
replacement Letter of Credit issued in favor of Landlord in an amount equal to
the sum of the cash Security Deposit being substituted by such replacement
Letter of Credit; provided that in no event shall Landlord have less than the
full Security Deposit on hand at any time during the term hereof. Upon receipt
by Landlord of a replacement Letter of Credit satisfying the requirements
contained in this Article and in the amount required by the preceding sentence,
Landlord shall pay to Tenant cash in the amount of the cash Security Deposit
substituted by such replacement Letter of Credit.
<PAGE> 2
(b) 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 fixed annual rent and additional rent beyond any
applicable notice and grace period or any other sum for which Tenant is liable
hereunder, Landlord may draw upon the Letter Of Credit and apply or retain any
portion or all of the amount received from such draw or apply or retain the
whole or any part of the cash Security Deposit so deposited, as the case may be,
to the extent required for the payment of any fixed annual 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
demised premises, whether such damages or deficiency accrue or accrues before or
after summary proceedings or other re-entry by Landlord. If Landlord draws upon
any part of the Letter of Credit and applies or retains any portion or all of
the amount received from such draw or applies or retains any part of the cash
Security Deposit so deposited (as the case may be), Tenant, upon demand, shall
restore the face amount of the Letter of Credit to an amount equal to the
Security Deposit or deposit with Landlord cash equal to the amount so applied or
retained so that Landlord shall have the full Security Deposit on hand at all
times during the tern hereof.
(c) Any Letter of Credit delivered by Tenant shall be an
irrevocable commercial Letter of Credit in the amount of the Security Deposit,
such Letter of Credit to be in form and substance satisfactory to Landlord, and
issued by a member bank of the New York Clearing House Association acceptable to
Landlord, or issued by such other bank with assets and reserves substantially
equivalent to any of such member banks-and acceptable to Landlord, payable upon
the presentation by Landlord to such bank of a sightdraft, without presentation
of any other documents, statements or authorizations, which Letter of Credit
shall provide (i) for the continuance of such Letter of Credit for the period of
at least one (1) year from the date hereof, (ii) for the automatic extension of
such Letter of Credit for additional periods of one (1) year from the initial
and each future expiration date thereof (the last such extension to provide for
the continuance of such Letter of Credit for at least thirty (30) days beyond
the Expiration Date of this Lease) unless such bank gives Landlord notice of its
intention not to renew such Letter of Credit, not less than 45 days prior to the
initial or any future expiration date of such Letter of Credit and (iii) that in
the event such notice, is given by such bank, Landlord shall have the right to
draw on such bank at sight for the balance remaining in such Letter of Credit
and hold and apply the proceeds thereof in accordance with the provisions of
this Article and this Lease. Each Letter of Credit to be deposited and
maintained with Landlord (or the proceeds thereof) shall be held by Landlord as
security for the faithful performance and observance by Tenant of
2
<PAGE> 3
the terms, provisions and conditions of this Lease, and in the event that (x)
any default by Tenant beyond any applicable notice and cure periods occurs under
this Lease, or (y) Landlord transfers its right, title and interest under this
Lease to a third party and, after ten (10) days notice from Landlord, the bank
issuing such Letter of Credit does not consent to the transfer of such Letter of
Credit to such third party, or (z) notice is given by the bank issuing such
Letter of Credit that it does not intend to renew the same, as above provided,
and a substitute Letter of Credit in form and substance satisfactory to Landlord
and otherwise complying with the terms of this Article is not received by
Landlord within ten (10) days after such notice is given, then, in any such
event, Landlord may draw on such Letter of Credit, and the proceeds of such
Letter of Credit shall then be held and applied as security (and be replenished,
if necessary) as provided in this Article and this Lease.
(d) If Tenant shall fully and faithfully comply with all of the
terms, provisions, covenants and renditions of this Lease, the Security Deposit
delivered by Tenant shall be returned to Tenant promptly after the Expiration
Date and after delivery of the entire possession of the demised premises to
Landlord in the condition required pursuant to the terms of this Lease. In the
event of a sale of 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.
2. Modification to Landlord's Work
Article 81(c) is hereby modified as follows:
(a) subparagraph (iii) is hereby modified to read as
follows: "provide 400 amp electrical service to the
demised premises";
(b) subparagraph (iv) is hereby modified to read as follows:
"install one thirty (30) ton or two fifteen (15) ton (to
be determined in Landlord's sole discretion) air cooled
package air conditioning unit(s), without duct work";
and
(c) subparagraphs (v) and (vi) are deleted.
3
<PAGE> 4
3. TENANT UNDERTAKING
As a material inducement to Landlord's execution and delivery of
the Lease, Tenant undertakes to spend not less than $165,000 in constructing
and fixturing (i.e., "hard costs") the demised premises for Tenant's initial
occupancy thereof ("Initial Work"). In connection therewith, promptly after
completion of the Initial Work, Tenant will deliver to Landlord receipted bills
evidencing the hard costs spent by Tenant on its Initial Work, together with (a)
lien waivers from all contractors, subcontractors, materialmen and suppliers
with whom Tenant has dealt, (b) an affidavit from Tenant stating that all bills
have been paid and there are no outstanding obligations owed with respect to the
Initial Work and (c) an affidavit from Tenant's architect stating that all of
the Initial Work performed by Tenant has been completed in accordance with the
plans previously approved by Landlord with respect thereto.
4. MULTIPLE COUNTERPARTS
This Agreement may be executed in any number of counterparts,
each of which shall constitute an original but all of which, taken together,
shall constitute but one and the same instrument.
5. HEADINGS
The captions of the individual paragraphs are for convenience of
reference only and shall not affect the construction to be given any provision
hereof.
6. SUPERSEDING EFFECT
In the event that any of the terms or provisions of this
Agreement are inconsistent with any of the terms or provisions of the Lease as
originally executed, the terms and provisions of this Agreement shall govern and
supersede the terms and provisions of the Lease as originally executed.
7. CONFIRMATION OF LEASE
Except as otherwise set forth herein, the Lease is ratified and
confirmed in all respects.
8. NON-BINDING EFFECT
This Agreement shall not be binding upon or inure to the benefit
of either party unless and until it is duly executed and delivered by both
parties.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
duly executed and delivered as of the date first above written.
162 ASSOCIATES LLC
BY: HELMSLEY-SPEAR, INC., AS AGENT
By: [SIGNATURE ILLEGIBLE]
---------------------------------
Name: [NAME ILLEGIBLE]
-------------------------------
Title: S.V.P.
------------------------------
FORT POINT PARTNERS, INC.
By: /s/ JAMES T. ROCHE
---------------------------------
Name: James T. Roche
-------------------------------
Title: CEO
------------------------------
5
<PAGE> 1
EXHIBIT 10.7
LEASE MODIFICATION AGREEMENT
THIS LEASE MODIFICATION AGREEMENT (this "Agreement") is made as of the
2 day of September 1999, by and between 162 Associates LLC ("Landlord"), having
an office at c/o Helmsley-Spear, Inc., 60 East 42nd Street, New York, New York
10165, and Fort Point Partners, Inc, ("Tenant"), having an office at 162 Fifth
Avenue, New York, New York 10010.
WITNESSETH
WHEREAS, Landlord and Tenant previously entered into a certain Agreement
of Lease dated as of April 26, 1999 demising to Tenant certain premises known as
the entire eighth floor in the building (the "Building") known as 162 Fifth
Avenue, New York, New York; and
WHEREAS, Landlord and Tenant modified the Lease pursuant to a Lease
Modification Agreement dated May 14, 1999 (the Lease, as modified by such Lease
Modification Agreement, is hereinafter referred to as the "Lease"); and
WHEREAS, Landlord and Tenant desire to modify the Lease to incorporate
certain additional provisions therein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Tenant hereby agree as follows.
1. Lease Modification
The Lease is hereby modified as follows:
(a) Article 45(a) of the Lease is hereby modified to incorporate
the following at the end thereof
Notwithstanding anything to the contrary contained
herein, to the extent that Tenant is required to make any payments
pursuant to this paragraph (a) then, to the extent any such changes have
a useful life which is reasonably estimated by Landlord to extend beyond
the expiration date of this Lease, Tenant shall only be required to pay
for that portion of the cost of such change equal to the product of (1)
the total cost of such change and (2) a fraction, the numerator of which
shall be the number of months remaining in the term of this Lease, and
the denominator of which shall be the total number of months in the term
of this Lease.
(b) The following paragraph 9 is hereby added to Article 50:
Notwithstanding anything to the contrary contained
herein, a public offering of shares of Tenant's stock shall not
constitute an assignment of this Lease. Additionally, the transfer of
shares of Tenant for purposes of this Article shall not include the sale
of shares by persons other than those deemed "insiders" within the
meaning of
<PAGE> 2
the Securities Exchange Act of 1934, as amended, which sale is effected
through the "over-the-counter market" or through any recognized stock
exchange.
(c) Tenant affirmatively acknowledges that Landlord's work as
set forth in Article 80(c) of the Lease has been completed as of August 1, 1999.
2. NO OTHER BROKERS
Tenant represents that the terms of this Agreement were brought
about solely by Helmsley-Spear, Inc. (the "Broker") and that Tenant has dealt
with no other real estate brokers or other persons acting as such in connection
herewith other than the Broker. Landlord shall pay the Broker a commission
pursuant to a separate agreement. Tenant shall pay the commission of any broker
with whom Tenant may have dealt (other than the Broker) and Tenant agrees that
should any claim be made against Landlord for commissions by any other broker on
account of any acts or dealings of Tenant or Tenant's representatives, Tenant
will indemnify and hold Landlord harmless from and against any and all
liabilities and expenses in connection therewith, including (without limitation)
reasonable legal fees and disbursements. The provisions of this paragraph shall
survive the expiration or sooner termination of the Lease as modified hereby.
3. MULTIPLE COUNTERPARTS
This Agreement may be executed in any number of counterparts,
each of which shall constitute an original but all of which, taken together,
shall constitute but one and the same instrument.
4. HEADINGS
The captions of the individual paragraphs are for convenience of
reference only and shall not affect the construction to be given any provision
hereof.
5. SUPERSEDING EFFECT
In the event that any of the terms or provisions of this
Agreement are inconsistent with any of the terms or provisions of the Lease as
originally executed, the terms and provisions of this Agreement shall govern and
supersede the terms and provisions of the Lease as originally executed.
6. CONFIRMATION OF LEASE
Except as otherwise set forth herein, the Lease is ratified and
confirmed in all respects.
7. NON-BINDING EFFECT
This Agreement shall not be binding upon or inure to the benefit
of either party unless and until it is duly executed and delivered by both
parties.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
duly executed and delivered as of the date first above written.
162 Associates LLC
By: Helmsley-Spear, Inc., as Agent
Name: [SIGNATURE ILLEGIBLE]
Title: S.V.P.
Fort Point Partners, Inc.
By: /s/ MATTHEW ROCHE
Name: Matthew Roche
Title: President
-3-
<PAGE> 1
EXHIBIT 10.8
-------------------------------------------
STANDARD FORM OF LOFT LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
-------------------------------------------
AGREEMENT OF LEASE, made as of this ______ day of _____________ 1999, between
162 Associates LLC, having an address at Helmsley-Spear, Inc., 60 East 42nd
Street, New York, New York 10165, party of the first part, hereinafter referred
to as OWNER, and Fort Point Partners, Inc., having an office at 162 Fifth
Avenue, New York, New York 10010, party of the second part, hereinafter referred
to as TENANT,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner the
entire seventh (7th) floor in the building known as 162 Fifth Avenue in the
Borough of Manhattan, City of New York, for the term of nine (9) years and eight
(8) months (or until such term shall sooner cease and expire as hereinafter
provided) to commence on the 1st day of September nineteen hundred and
ninety-nine, and to end on the 30th day of April, 2009 and both dates inclusive,
at an annual rental rate of See Rider
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 on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this lease
be a renewal).
In the event that at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT:
1. Tenant shall pay the rent as above and as hereinafter provided.
OCCUPANCY:
2. Tenant shall use and occupy demised premises for executive and general
offices provided such use is in accordance with the certificate of occupancy for
the building, if any, and for no other purpose.
ALTERATIONS:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to the prior written consent of
Owner, and to the provisions of this article, Tenant, at Tenant's expense, may
make alterations, installations, additions or improvements which are
nonstructural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises using
contractors or mechanics first approved in each instance by Owner. Tenant
shall, at its expense, before making any alterations, additions, installations
or improvements obtain all permits, approval and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates
of final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner. Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as
Owner may require. If any mechanic's lien is filed against the demised
premises, or the building of which the same forms a part, for work claimed to
have been done for, or materials furnished to, Tenant, whether or not done
pursuant to this article, the same shall be discharged by Tenant within thirty
days thereafter, at Tenant's expense, by payment or filing the bond required by
law or otherwise. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by tenant or by
Owner on Tenant's behalf, shall, upon installation, become the property of
Owner and shall remain upon and be surrendered with the demised premises unless
Owner, by notice to Tenant no later than twenty days prior to the date fixed as
the termination of this lease, elects to relinquish Owner's right thereto and
to have them removed by Tenant, in which event the same shall be removed from
the demised premises by Tenant prior to the expiration of the lease, at
Tenant's expense. Nothing in this Article shall be construed to give Owner
title to or to prevent Tenant's removal of trade fixtures, moveable office
furniture and equipment, but upon removal of any such from the premises or upon
removal of other installations as may be required by Owner, Tenant shall
immediately and at its expense, repair and restore the premises to the
condition existing prior to installation and repair any damage to the demised
premises or the building due to such removal. All property permitted or
required to be removed by Tenant at the end of the term remaining in the
premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or removed from the
premises by Owner, at Tenant's expense.
REPAIRS:
4. Owner shall maintain and repair the exterior of and the public portions of
the building. Tenant shall, throughout the term of this lease, take good care
of the demised premises including the bathrooms and lavatory facilities (if the
demised premises encompass the entire floor of the building) and the windows
and window frames and, the fixtures and appurtenances therein and at Tenant's
sole cost and expense promptly make all repairs thereto and to the building,
whether structural or non-structural in nature, caused by or resulting from the
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
lease, including Article 6. Tenant shall also repair all damage to the building
and the demised premises caused by the moving of Tenant's fixtures, furniture
or equipment. All the aforesaid repairs shall be of quality or class equal to
the original work or construction. If Tenant fails, after ten days notice, to
proceed with due diligence to make repairs required to be made by Tenant, the
same may be made by the Owner at the expense of Tenant, and the expenses thereof
incurred by Owner shall be collectible, as additional rent, after rendition of
a bill or statement therefor. If the demised premises be or become invested
with vermin, Tenant shall, at its expense, cause the same to be exterminated.
Tenant shall give Owner prompt notice of any defective condition in any
plumbing, heating system or electrical lines located in the demised premises
and following such notice, Owner shall remedy the condition with due diligence,
but at the expense of Tenant, if repairs are necessitated by damage or injury
attributable to Tenant, Tenant's servants, agents, employees, invitees or
licensees as aforesaid. Except as specifically provided in Article 9 or
elsewhere in this lease, there shall be no allowance to the Tenant for a
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner, Tenant or
others making or failing to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises or in
and to the fixtures, appurtenances or equipment thereof. It is specifically
agreed that Tenant shall not be entitled to any set off or reduction of rent by
reason of any failure of Owner to comply with the covenants of this or any
other article of this lease. Tenant agrees that Tenant's sole remedy at law in
such instance will be by way of any action for damages for breach of contract.
The provisions of this Article 4 with respect to the making of repairs shall
not apply in the case of fire or other casualty with regard to which Article 9
hereof shall apply.
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any window in
the demised premises to be cleaned from the outside in violation of Section 202
of the New York State 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.
REQUIREMENTS OF LAW, FIRE INSURANCE:
6. prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter Tenant shall, at Tenant's sole cost and
expense, promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments,
departments, commissions and boards and any direction of any public officer
pursuant to law, and all orders, rules and regulations of the New York Board of
Fire Underwriters, or the Insurance Services Office, or any similar body which
shall impose any violation, order or duty upon Owner or Tenant with respect to
the demised premises, whether or not arising out of Tenant's use or manner of
use thereof, or, with respect to the building, if arising out of Tenant's use
or manner of use of the demised premises of the building (including the use
permitted under the lease). Except as provided in Article 30 hereof, nothing
herein shall require Tenant to make structural repairs or alterations unless
Tenant has, by its manner of use of the demised premises or method of operation
therein, violated any such laws, ordinances, orders, rules, regulations or
requirements with respect thereto. Tenant shall not do or
<PAGE> 2
permit any act or thing to be done in or to the demised premises which is
contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner. Tenant shall not keep anything in the demised premises except
as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization and other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over than in effect prior to the commencement of
Tenant's occupancy. If by reason of failure to comply with the foregoing the
first 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
Owner, as addition rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged because of such
failure by Tenant. In any action or proceeding wherein Owner and Tenant are
parties, a schedule or "make-up" or rate for the building or demised premises
issued by a body making fire insurance rates applicable to said premises shall
be conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to said premises. Tenant
shall not place a loan upon any floor of the demised premises exceeding the
floor load per square foot area which it was designed to carry and which is
allowed by law. Owner reserves the right to prescribe the weight and position of
all safes, business machines and mechanical equipment. Such installations shall
be placed and maintained by Tenant, at Tenant's expense, in settings sufficient,
in Owner's judgement, to absorb and prevent vibration, noise and annoyance.
SUBORDINATION:
7. This lease is subject and subordinate to all ground or underlying leases and
to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
TENANT'S LIABILITY INSURANCE PROPERTY LOSS, DAMAGE, INDEMNITY:
8. Owner or its agents shall not be liable for any damage to property of Tenant
or of others entrusted to employees of the building, nor for loss of or damage
to any property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agents, servants, or employees; Owner
or its agents shall not be liable for any damage caused by other tenants or
persons in, upon or about said building or caused by operations in connection of
any private, public or quasi public work. If at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or permanently
closed, darkened or bricked up, if required by law) for any reason whatsoever
including, but not limited to Owner's own acts, Owner shall not be liable for
any damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction. Tenant
shall indemnify and save harmless Owner against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Owner
shall not be reimbursed by insurance, including reasonable attorney's fees,
paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licensees, of any covenant or condition of
this lease, or the carelessness, negligence or improper conduct of the Tenant,
Tenant's agents, contractors, employees, invitees or licensees. Tenant's
liability under this lease extends to the acts and omissions of any sub-tenant,
and any agent, contractor, employee, invitee or licensee of any sub-tenant. In
case any action or proceeding is brought against Owner by reason of any such
claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist
or defend such action or proceeding by counsel approved by Owner in writing,
such approval not to be unreasonably withheld.
DESTRUCTION, FIRE AND OTHER CASUALTY:
9. (a) If the demised premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent and other items of additional rent, until such
repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable by
fire or other casualty, then the rent and other items of additional rent as
hereinafter expressly provided shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner (or sooner reoccupied in part by Tenant
then rent shall be apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant,
given within 90 days after such fire or casualty, or 30 days after adjustment of
the insurance claim for such fire or casualty, whichever is sooner, specifying a
date for the expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in such notice the
term of this lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrender and vacate the premises without prejudice however, to
Owner's rights and remedies against Tenant under the lease provisions in effect
prior to such termination, and any rent owing shall be paid up to such date and
any payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall serve a
termination notice as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume five (5) days after written notice form Owner that the premises are
substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, including Owner's
obligation to restore under subparagraph (b) above, each party shall look first
to any insurance in its favor before making any claim against the other party
for recovery for loss or damage resulting from fire or other casualty, and to
the extent that such insurance is in force and collectible and to the extent
permitted by law, Owner and Tenant each hereby releases and waives all right of
recovery with respect to subparagraphs (b), (d) and (e) above, against the other
or any one claiming through or under each of them by way of subrogation or
otherwise. The release and waiver herein referred to shall be deemed to include
any loss or damage to the demised premises and/or to any personal property,
equipment, trade fixtures, goods and merchandise located therein. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the insurance. If, and to the extent, that such waiver can be obtained only by
the payment of additional premiums, then the party benefitting from the waiver
shall pay such premium within ten days after written demand or shall be deemed
to have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be obligated to
repair any damage thereto or replace the same. (f) Tenant hereby waives the
provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
EMINENT DOMAIN:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease. Tenant shall have the right to make
an independent claim to the condemning authority for the value of Tenant's
moving expenses and personal property, trade fixtures and equipment, provided
Tenant is entitled pursuant to the terms of the lease to remove such property,
trade fixtures and equipment at the end of the term and provided further such
claim does not reduce Owner's award.
ASSIGNMENT, MORTGAGE, ETC.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representatives, successors and assigns, expressly covenants that it shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
the prior written consent of Owner in each instance. Transfer of the majority of
the stock of a corporate Tenant or the majority partnership interest of a
partnership Tenant shall be deemed an assignment. If this lease be assigned, or
if the demised premises or any part thereof be underlet or occupied by anybody
other than Tenant, Owner 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 such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant 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 Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting.
ELECTRIC CURRENT:
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in RIDER attached hereto. Tenant covenants and agrees
that at all times its use of electric current shall not exceed the capacity of
existing feeders to the building or the risers or wiring installation and Tenant
may not use any electrical equipment which, in Owner's opinion, reasonably
exercised, will overload such installations or interfere with the use thereof by
other tenants of the building. The change at any time of the character of
electric service shall in no wise make Owner liable or responsible to Tenant,
for any loss, damages or expenses which Tenant may sustain.
ACCESS TO PREMISES:
13. Owner or Owner's agents shall have the right (but shall not be obligated) to
enter the demised premises in any emergency at any time, and, at other
reasonable times, to examine the same and to make such repairs, replacements and
improvements as Owner may deem necessary and reasonably desirable to any portion
of the building or which Owner may elect to perform in the premises after
Tenant's failure to make repairs or perform any work which Tenant is obligated
to perform under this lease, or for the purpose of complying with laws,
regulations and other directions of governmental authorities. Tenant shall
permit Owner to use and maintain and replace pipes and conduits in and through
the demised premises and to erect new pipes and conduits therein provided,
wherever possible, they are within walls or otherwise concealed. Owner may,
during the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof Owner shall have the right to
enter the demised premises at reasonable hours for the purpose of showing the
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the same to prospective
tenants and may, during said six months period, place upon
<PAGE> 3
the demised premises the usual notice "To Let" and "For Sale" which notices
Tenant shall permit to remain thereon without molestation. If Tenant is not
present to open and permit an entry into the demised premises, Owner or Owner's
agents may enter the same whenever such entry may be necessary or permissible by
master key or forcibly and provided reasonable care is exercised to safeguard
Tenant's property, such entry shall not render Owner or its agents liable
therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of the term Tenant shall have removed all or
substantially all of Tenant's property therefrom. Owner may immediately enter,
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligation hereunder.
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder anything contained
in or indicated on any sketch, blue print or plan, or anything contained
elsewhere in this lease to the contrary notwithstanding. Owner makes no
representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant, if used by Tenant,
whether or not specifically leased hereunder.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record. If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business, Tenant shall be responsible for
and shall procure and maintain such license or permit.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this
lease may be cancelled by Owner by sending of a written notice to Tenant within
a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assignment
or any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party then owning Tenant's interest
in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
DEFAULT:
17. (1) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional rent; or if the
demised premises becomes vacant or deserted "or if this lease be rejected under
Section 235 of Title 11 of the U.S. Code (bankruptcy code);" or if any execution
or attachment shall be issued against Tenant or any of Tenant's property
whereupon the demised premises shall be taken or occupied by someone other than
Tenant; or if Tenant shall make default with respect to any other lease between
Owner and Tenant; or if Tenant shall have failed, after five (5) days written
notice, to redeposit with Owner any portion of the security deposited hereunder
which Owner has applied to the payment of any rent and additional rent due and
payable hereunder or failed to move into or take possession of the premises
within thirty (30) days after the commencement of the term of this lease, of
which fact Owner shall be the sole judge; then in any one or more of such
events, upon Owner serving a written fifteen (15) days notice upon Tenant
specifying the nature of said default and upon the expiration of said fifteen
days, if Tenant shall have failed to comply with or remedy such default, or if
the said default or omission complained of shall be of a nature that the same
cannot be completely cured or remedied within said fifteen (15) day period, and
if Tenant shall not have diligently commenced during such default within such
fifteen (15) day period, and shall not thereafter with reasonable diligence and
in good faith, proceed to remedy or cure such default, then Owner may serve a
written five (5) days' notice of cancellation of this lease upon Tenant, and
upon the expiration of said five (5) days this lease and the term thereunder
shall end and expire as fully and completely as if the expiration of such five
(5) day period were the day herein definitely fixed for the end and expiration
of this lease and the term thereof and Tenant shall then quit and surrender the
demised premises to Owner but Tenant shall remain liable as hereinafter
provided.
(2) If the notice provided for in (1) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the commencement
of any renewal or extension of this lease, Owner may cancel and terminate such
renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or other wise, (a) the rent, and additional rent, shall
become due thereupon and be paid up to the time of such re-entry, dispossess
and/or expiration, (b) Owner may re-let the premises or any part or parts
thereof, either in the name of Owner or otherwise, for a term or terms, which
may at Owner's option be less than or exceed the period which would otherwise
have constituted the balance of the term of this lease and may grant concessions
or free rent or charge a higher rental than that in this lease, (c) Tenant or
the legal representatives of Tenant shall also pay Owner as liquidated damages
for the failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and or covenanted to
be paid and the net amount, if any, of the rents collected on account of the
subsequent lease or leases of the demised premises for each month of the period
which would otherwise have constituted the balance of the term of this lease.
The failure of Owner to re-let the premises or any part or parts thereof shall
not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses as
Owner may incur in connection with re-letting, such as legal expenses,
reasonable attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this lease and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws.
FEES AND EXPENSES:
19. 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, after notice if
required and upon expiration of any applicable grace period if any, (except in
an emergency), then, unless otherwise provided elsewhere in this lease, Owner
may immediately or at any time thereafter and without notice perform the
obligation of Tenant thereunder. If Owner, in connection with the foregoing or
in connection with any default by Tenant in the covenant to pay rent hereunder,
makes any expenditures or incurs any obligations for the payment of money,
including but not limited to reasonable attorney's fees, in instituting,
prosecuting or defending any action or proceedings, and prevails in any such
action or proceeding, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within ten (10) days of rendition of any bill
or statement to Tenant therefor. If Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or injury
to business arising from Owner or other Tenant making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
any controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
<PAGE> 4
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or promises
with respect to the physical condition of the building, the land upon which it
is erected or the demised premises, the rents, leases, expenses of operation or
any other matter or thing affecting or related to the demised premises or the
building 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 in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition and
agrees to take the same "as is" on the date possession is tendered and
acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and Tenant and 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.
END OF TERM:
22. Upon the expiration or other termination of the term of this lease, Tenant
shall quit and surrender to Owner the demised premises, broom clean, in good
order and condition, ordinary wear and damages which Tenant is not required to
repair as provided elsewhere in this lease excepted, and Tenant shall remove all
its property from the demised premises. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
lease. If the last day of the term of this Lease or any renewal thereof, falls
on Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day.
QUIET ENJOYMENT:
23. Owner 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 hereby demised, subject, nevertheless, to the
terms and conditions of this lease including, but not limited to, Article 34
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
FAILURE TO GIVE POSSESSION:
24. If Owner is unable to give possession of the demised premises on the date of
the commencement of the term hereof, because of the holding-over or retention of
possession of any tenant, undertenant or occupants or if the demised premises
are located in a building being constructed, because such building has not been
sufficiently completed to make the premises ready for occupancy or because of
the fact that a certificate of occupancy has not been procured or if Owner has
not completed any work required to be performed by Owner, or for any other
reason, Owner shall not be subject to any liability for failure to give
possession on said date and the validity of the lease shall not be impaired
under such circumstances, nor shall the same be construed in any wise to extend
the term of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for Owner's inability to obtain possession or complete
any work required) until after Owner shall have given Tenant notice that Owner
is able to deliver possession in the condition required by this lease. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to the date
specified as the commencement of the term of this lease, Tenant covenants and
agrees that such possession and/or occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this lease, except the obligation
to pay the fixed annual rent set forth in page one of this lease. The provisions
of this article are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property Law.
NO WAIVER:
25. The failure of Owner to seek redress for violation of, or to insist upon the
strict performance of any covenant or condition of this lease or of any of the
Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent
a subsequent act which would have originally constituted a violation from having
all the force and effect of an original violation. The receipt by Owner of rent
with knowledge of the breach of any covenant of this lease shall not be deemed a
waiver of such breach and no provision of this lease shall be deemed to have
been waived by Owner unless such waiver be in writing signed by Owner. No
payment by Tenant or receipt by Owner of a lesser amount than the monthly rent
herein stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement of any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Owner may accept such check or payment without prejudice to
Owner's right to recover the balance of such rent or pursue any other remedy in
this lease provided. All checks tendered to Owner as and for the rent of the
demised premises shall be deemed payments for the account of Tenant. Acceptance
by Owner of rent from anyone other than Tenant shall not be deemed to operate as
an attornment to Owner by the payor of such rent or as a consent by Owner to an
assignment or subletting by Tenant of the demised premises to such payor, or as
a modification of the provisions of this lease. No act or thing done by Owner or
Owner's agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
WAIVER OF TRIAL BY JURY:
26. It is mutually agreed by and between Owner 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 (except for personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further mutually agreed
that in the event Owner commences any proceeding or action for possession
including a summary proceeding for possession of the premises, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding including a counterclaim under Article 4 except for statutory
mandatory counterclaims.
INABILITY TO PERFORM:
27. This Lease and the obligations of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures or other materials if Owner is prevented or delayed from doing so by
reason of strike or labor troubles or any cause whatsoever beyond Owner's sole
control including, but not limited to, government preemption or restrictions or
by reason of any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions which have been
or are affected, either directly or indirectly, by war or other emergency.
BILLS AND NOTICES:
28. Except as otherwise in this lease provided, a bill statement, notice or
communication which Owner may desire or be required to give to Tenant, shall be
deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
WATER CHARGES:
29. If Tenant requires, uses or consumes water for any purpose in addition to
ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the
sole judge) Owner may install a water meter and thereby measure Tenant's water
consumption for all purposes. Tenant shall pay Owner for the cost of the meter
and the cost of the installation, thereof and throughout 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 Owner may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant, as additional rent. 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 Owner may pay such charges and collect the
same from Tenant, as additional rent. Tenant covenants and agrees to pay, as
additional rent, the sewer rent, charge or any other tax, rent, levy or charge
which now or hereafter is assessed, imposed or a lien upon the demised premises
or the realty of which they are part pursuant to law, order or regulation made
or issued in connection with the use, consumption, maintenance or supply of
water, water system or sewage or sewage connection or system. If the building or
the demised premises or any part thereof is supplied with water through a meter
through which water is also supplied to other premises Tenant shall pay to
Owner, as additional rent, on the first day of each month, ($200.00) of the
total meter charges as Tenant's portion. Independently and in addition to any of
the remedies reserved to Owner hereinabove or elsewhere in this lease, Owner may
sue for and collect any monies to be paid by Tenant or paid by Owner for any of
the reasons or purposes hereinabove set forth.
SPRINKLERS:
30. Anything elsewhere in this lease to the contrary notwithstanding, if the New
York Board of Fire Underwriters or the New York Fire Insurance Exchange or any
bureau, department or official of the federal, state or city government
recommend or require the installation of a sprinkler system or that any changes,
modifications, alterations, or additional sprinkler heads or other equipment be
made or supplied in an existing sprinkler system by reason of Tenant's business,
or the location of partitions, trade fixtures, or other contents of the demised
premises, or for any other reason, of if any such sprinkler system
installations, modifications, alterations, additional sprinkler heads or other
such equipment, become necessary to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system in the fire insurance
rate set by any said Exchange or by any fire insurance company, Tenant shall, at
Tenant's expense, promptly make such sprinkler system installations, changes,
modifications, alterations, and supply additional sprinkler heads or other
equipment as required whether the work involved shall be structural or
non-structural in nature. Tenant shall pay to Owner as additional rent the sum
of $100.00, on the first day of each month during the term of this lease, as
Tenant's portion of the contract price for sprinkler supervisory service.
ELEVATORS, HEAT, CLEANING:
31. As long as Tenant is not in default under any of the covenants of this lease
beyond the applicable grace period provided in this lease for the curing of such
defaults, Owner shall: (a) provide necessary passenger elevator facilities on
business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (b)
if freight elevator service is provided, same shall be provided only on regular
business days Monday through Friday inclusive, and on those days only between
the hours of 9 a.m. and 12 noon and between 1 p.m. and 5 p.m.; (c) furnish heat,
water and other services supplied by Owner to the demised premises, when and as
required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays from 8
<PAGE> 5
a.m. to 1 p.m.; (d) clean the public halls and public portions of the building
which are used in common by all tenants. Tenant shall, at Tenant's expense,
keep the demised premises, including the windows, clean and in order, to the
reasonable satisfaction of Owner, and for that purpose shall employ the person
or persons, or corporation approved by Owner. Tenant shall pay to Owner the
cost of removal of any of Tenant's refuse and rubbish from the building. Bills
for the same shall be rendered by Owner to Tenant at such time as Owner may
elect and shall be due and payable hereunder, 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 rubbish
and refuse in the event that Tenant does not wish to have same done by
employees of Owner. 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 Owner, are necessary for the proper operation of the
building. Owner reserves the right to stop service of the heating, elevator,
plumbing and electrical systems, when necessary, by reason of accident, or
emergency, or for repairs, alterations, replacements or improvements, in the
judgment of Owner desirable or necessary to be made, until said repairs,
alterations, replacements or improvements shall have been completed. If the
building of which the demised premises are a part supplies manually operated
elevator service, Owner may proceed diligently with alterations necessary to
substitute automatic control elevator service without in any way affecting
the obligations of Tenant hereunder.
SECURITY: See Rider
CAPTIONS:
33. 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.
DEFINITIONS:
34. The term "Owner" as used in this lease means only the owner of the fee or
of the leasehold of the building, or the mortgagee in possession, for the time
being of the land and building (or the owner of a lease of the building or of
the land and building) of which the demised premises form a part, so that in
the event of any sale or sales of said land and building or of said lease, or
in the event of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner 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, at any such sale, or the said lessee of
the building, or of the land and building, that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term "rent"
includes the annual rental rate whether so expressed or expressed in monthly
installments, and "additional rent." "Additional rent" means all sums which
shall be due to Owner from Tenant under this lease, in addition to the annual
rental rate. 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 those designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service. Wherever it is expressly
provided in this lease that consent shall not be unreasonably withheld, such
consent shall not be unreasonably delayed.
ADJACENT EXCAVATION-SHORING:
35. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorizing to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations
without any claims for damages or indemnity against Owner, or diminution or
abatement of rent.
RULES AND REGULATIONS:
36. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations annexed hereto and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Notice of
any additional rules or regulations shall be given in such manner as Owner may
elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, 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
asserted by service of a notice, in writing upon Owner within fifteen (15) days
after the giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against
any other tenant an Owner shall not be liable to Tenant for violation of the
same by any other tenant, its servants, employees, agents, visitors or
licensees.
GLASS:
37. Owner shall replace, at the expense of the Tenant, any and all plate
and other glass damaged or broken from any cause whatsoever in and about the
demised premises. Owner may insure, and keep insured, at Tenant's expense, all
plate and other glass in the demised premises for and in the name of Owner.
Bills for the premiums therefor shall be rendered by Owner to Tenant at such
times as Owner may elect, and shall be due from, and payable by, Tenant when
rendered and the amount thereof shall be deemed to be, and be paid, as
additional rent.
ESTOPPEL CERTIFICATE:
38. Tenant, at any time, and from time to time, upon at least 10 days'
prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or
to any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified in full force and effect (or, if there
have been modifications, that the same is in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent
and additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
DIRECTORY BOARD LISTING:
39. If, at the request of and as accommodation to Tenant, Owner shall
place upon the directory board in the lobby of the building, one or more names
of persons other than Tenant, such directory board listing shall not be
construed as the consent by Owner to an assignment or subletting by Tenant to
such person or persons.
SUCCESSORS AND ASSIGNS:
40. The covenants, conditions and agreements contained in this lease
shall bind and inure to the benefit of Owner and Tenant and their respective
heirs, distributees, executors, administrators, successors, and except as
otherwise provided in this lease, their assigns. Tenant shall look only to
Owner's estate and interest in the land and building for the satisfaction of
Tenant's remedies for the collection of a judgment (or other judicial process)
against Owner in the event of any default by Owner hereunder, and no other
property or assets of such Owner (or any partner, member, officer or director
thereof, disclosed or undisclosed), shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Tenant's remedies under or
with respect to this lease, the relationship of Owner and Tenant hereunder, or
Tenant's use and occupancy of the demised premises.
- ----------------
SPACE TO BE FILLED IN OR DELETED.
See Rider annexed hereto and made a part thereof.
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
162 Associates LLC
Witness for Owner: By: Helmsley-Spear, Inc., as agent [SEAL]
-------------------------------
- -------------------------------- By: [SIGNATURE ILLEGIBLE] [L.S.]
-------------------------------
Witness for Tenant: Fort Point Partners, Inc. [SEAL]
----------------------------------
- -------------------------------- By: /s/ JAMES ROCHE [L.S.]
-------------------------------
<PAGE> 6
ACKNOWLEDGEMENTS
<TABLE>
<S> <C>
CORPORATE TENANT INDIVIDUAL TENANT
STATE OF NEW YORK, ss.: STATE OF NEW YORK, ss.:
COUNTY OF COUNTY OF
On this day of , 19 , before On this day of , 19 , before
me personally came me personally came
to me known, who being by me duly sworn, did depose and to be known and known to me to be the individual
say that he resides in described in and who, as TENANT, executed the
that he is the of foregoing instrument and acknowledged to me
the corporation described in and which executed the that he executed
following instrument, as TENANT, that he knows the the same.
seal of said corporation; that the seal affixed to said --------------------------------------
instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by
like order.
------------------------------------
</TABLE>
IMPORTANT -- PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE IN
ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and 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,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors of the halls, elevators, or out of the doors or windows or stairways
of the building and Tenant shall no use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reason of noise,
odors, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisements, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Owner, and
at hours and under regulations fixed by Owner. Canvassing, soliciting and
peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building all persons who
do not present a pass to the building signed by Owner. Owner will furnish passes
to persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Notwithstanding the foregoing, Owner
shall not be required to allow Tenant or any person to enter or remain in the
building, except on business days from 8:00 a.m. to 6:00 p.m. and on Saturdays
from 8:00 a.m. to 1:00 p.m. Tenant shall not have a claim against Owner by
reason of Owner excluding from the building any person who does not present such
a pass.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a loft building, and upon written notice from Owner, Tenant
shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, or explosive, or hazardous
fluid, material, chemical or substance, or cause or permit any odors of cooking
or other processes, or any unusual or other objectionable odors to permeate in
or emanate from the demised premises.
13. Tenant shall not use the demised premises in a manner which disturbs or
interferes with other Tenants in the beneficial use of their premises.
Address
Premises
=============================================
TO
=============================================
STANDARD FORM OF
[SEAL] LOFT [SEAL]
LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
(c) Copyright 1994. All rights Reserved.
Reproduction in whole or in part prohibited.
=============================================
Dated 19
Rent Per Year
Rent Per Month
Term
From
To
Drawn by
------------------------------------
Checked by
----------------------------------
Entered by
----------------------------------
Approved by
---------------------------------
============================================='
<PAGE> 7
RIDER ANNEXED TO LEASE DATED __________ ___, 1999 BETWEEN 162
ASSOCIATES LLC, AS LANDLORD, AND FORT POINT PARTNERS, INC. AS
TENANT, FOR THE ENTIRE SEVENTH FLOOR AT 162 FIFTH AVENUE, NEW YORK,
NEW YORK
41. PROVISION OF RIDER
This rider is annexed to and made a part of the printed part of the Lease
to which it is attached and in each instance in which the provisions of this
Rider shall contradict or be inconsistent with the provisions of the printed
portion of this Lease, as constituted without this Rider, the provisions of this
Rider shall prevail and govern and the contradicted or inconsistent provisions
of the printed portion of this Lease shall be deemed amended accordingly.
42. CERTIFICATES BY TENANT
At any time and from time to time, Tenant, for the benefit of Landlord and
the lessor under any ground lease or underlying lease or the holder of any
leasehold mortgage affecting any ground lease or underlying lease, or of any fee
mortgage covering the building containing the demised promises (the "Building")
and the land (the "Land") upon which the Building is erected, on at least five
(5) days' prior written request by Landlord, will deliver to Landlord a
statement certifying that this Lease is not modified and is in full force and
effect (or if there shall have been modifications, that the same is in full
force and effect as modified, and stating the modifications), the commencement
and expiration dates hereof, the dates to which the fixed rent, additional rent
and other charges have been paid, and whether or not, to the best knowledge of
the signer of such statement, there are then any existing defaults on the part
of either Landlord or Tenant in the performance of the terms, covenants and
conditions of this Lease, and if so, specifying the default of which the signer
of such statement has knowledge.
43. LIMITATION OF LIABILITY
(a) Notwithstanding anything to the contrary in this Lease, none of the
Landlord Parties (defined below) shall be liable to Tenant or its partners,
principals, directors, officers, contractors, agents, employees, invitees,
sublessees, assignees, licensees or any other person or entity claiming through
or under Tenant for any loss, injury or damage to Tenant or to any other person
or entity, or to its or their property, or for any inconvenience, annoyance,
interruption or injury to business arising from (i) Landlord performing any
maintenance, repairs, alterations, additions or improvements in or to any
portion of the Building or the demised premises or in or to the fixtures,
equipment or appurtenances of the Building or the demised premises (nor shall
Tenant or any other person or entity be entitled to any abatement or suspension
of its obligation to pay fixed annual rent or any additional rent or any other
obligations hereunder or be construed to be constructively or otherwise evicted
on account of the foregoing), irrespective of the cause of such loss, injury,
damage, inconvenience, annoyance, interruption or injury unless caused by or
resulting from the gross negligence or willful misconduct of Landlord or its
agents or employees; provided, however, that even if due to any such gross
negligence or willful misconduct of Landlord, its agents or employees, Tenant
waives, to the full extent permitted by law, any claim for any indirect,
consequential or punitive damages, including loss of profits in connection
therewith and (ii) (notwithstanding whether the loss, injury or damage is caused
by the gross negligence or willful misconduct of any Landlord Party) any injury
or damage for which Tenant would have been reimbursed under policies of
insurance required to be maintained by Tenant by the terms of this Lease had
Tenant (A) not failed to procure or maintain such policies of insurance and (B)
not failed to procure or maintain such policies of insurance with at least the
limits specified herein.
(b) Tenant shall look solely to the estate and property of Landlord in the
Land and Building for the satisfaction of Tenant's remedies for the collection
of a judgment or judicial process or arbitration award requiring the payment of
money by Landlord and no other property or assets of Landlord, Landlord's
agents, shareholders, officers, directors, partners, members, principals
(disclosed or undisclosed) or affiliates, whether directly or indirectly through
Landlord or through any receiver, assignee, trustee in bankruptcy or through any
other person or entity shall be subject to levy, lien, execution, attachment or
other enforcement procedure for any liability of Landlord to Tenant under this
Lease or under law.
<PAGE> 8
(c) In no event shall Landlord be liable for any loss, injury or damage
(including indirect, consequential or punitive damages) claimed by Tenant or any
person or entity claiming through or under Tenant in connection with the failure
or refusal by Landlord to grant its consent or approval with respect to any
matter as to which it is entitled to give its consent or approval pursuant to
this Lease. If Landlord withholds or delays its consent or conditions its
consent and Tenant believes that Landlord did so unreasonably, Tenant may
prosecute an action for declaratory relief to determine if Landlord properly
withheld, delayed or conditioned its consent, but Tenant waives and discharges
any claims it may have against Landlord for damages arising from Landlord's
withholding, delaying or conditioning its consent. In any such action, the
non-prevailing party shall bear all reasonable attorneys' fees incurred by the
parties in connection therewith.
44. INSURANCE
To the extent any injury, loss, claim, or damage to any person or property
is not covered by insurance, Tenant shall save Landlord harmless and indemnify
it from and against all injury, loss, claims or damage to any person or property
while on the demised premises arising out of the manner of use of the demised
premises by Tenant and from and against all injury, loss, claim or damage to any
person or property anywhere occasioned by the acts or omissions of Tenant or
Tenant's servants, employees or licensees.
Tenant covenants and agrees that during the term of this Lease it will
provide and keep in force (a) general public liability insurance covering and
indemnifying persons and property in or about the demised premises and in the
connecting corridor in a limit of not less than three million ($3,000,000)
dollars in respect of any one occurrence, (b) broad form commercial general
liability insurance written on a per occurrence basis with a per occurrence
limit of not less than three hundred thousand ($300,000) dollars, (c) business
interruption insurance in a face amount of not less than the aggregate amount,
for a period of twelve (12) months following the insured against peril, of 100%
of all rent and additional rent to be paid by Tenant hereunder, (d) worker's
compensation insurance and employer's liability coverage in statutory limits,
and New York State disability insurance as required by law, covering all
employees, and (e) such other coverage, and with such other limits, that
Landlord may reasonably require.
All such insurance to be obtained by Tenant in connection with this Lease
shall be effected in standard form under valid enforceable policies issued by
insurers licensed to do business in the State of New York as shall be reasonably
acceptable to Landlord and shall, except in the case of workmen's compensation
insurance, name Landlord and Tenant as the insureds as their respective
interests may appear. Certificates of such insurance shall be delivered to
Landlord prior to the commencement date hereof and from time to time during the
term of this Lease at least ten (10) days prior to the expiration date of the
previous policy together with certificates evidencing the renewal of such policy
with satisfactory evidence of payment of the premium on such policy. To the
extent obtainable, all such policies shall contain agreements by the insurers
that (i) such policies shall not be canceled except upon thirty (30) days' prior
written notice to each name insured and (ii) the coverage afforded thereby shall
not be affected by the performance of any work upon, in or about the demised
premises. Nothing in this paragraph shall prevent Tenant from taking out such
insurance under a blanket insurance policy or policies which also can cover
other properties, or parts thereof, owned, leased or operated by Tenant as well
as the demised premises, provided the insurance applicable to the demised
premises is not less than the amounts required herein.
Tenant agrees to pay all premiums and charges for such insurance, and in
the event of its failure to make any such payment when due, or in the event of
its failure to provide such insurance or renewal thereof, Landlord may procure
the same and/or pay the premium thereon (but in no event shall Landlord be
obligated so to do), and Tenant agrees to pay such premiums to Landlord upon
demand as additional rent.
Neither Landlord nor Tenant shall be liable to the other or to any
insurance company (by way of subrogation or otherwise) insuring any of the other
parties, and each hereby waive their entire right of recovery against the other,
for any loss or damage arising out of or incident to the perils insured, or
required pursuant to this Lease to be insured even though such loss or damage
might have been occasioned by the negligence of Landlord, Tenant, or their
respective agents, employees, contractors, invitees and/or permitted subtenants.
The foregoing waiver is subject, however, to the amount of insurance obtained or
required to be obtained (whichever is greater) by the other party and to the
extent such insurance is collectible. Each of Landlord and Tenant (i) shall give
notice to their respective insurers that the foregoing mutual waiver of recovery
is contained in this Lease and, if required by any
2
<PAGE> 9
such insurer, shall obtain such insurer's prior consent to the foregoing waiver
of its and its insured's right of recovery, and (6) shall endeavor to obtain
from their respective insurers an appropriate clause in, or an endorsement upon,
each such insurance policy pursuant to which each such insurer shall agree that
the foregoing waiver shall not affect the validity or enforceability of its
insured's coverage. If such a clause or endorsement is obtainable only upon
payment of an additional premium, each party shall pay such additional premium.
If Tenant's insurer shall refuse to issue such clause or endorsement even with
an additional premium, then Landlord shall have the right to designate another
insurer who would be prepared to permit such clause or endorsement and Tenant
shall use such other insurer. If it is not possible to obtain a clause or
endorsement of the type described in clause (ii) above, then the party unable to
obtain such clause or endorsement shall notify the other party of this fact and
such party shall no longer be obligated hereunder to endeavor to obtain such a
clause or endorsement in its insurance policies. The provisions of this
subparagraph shall be applicable to any new or renewal insurance policies which
Tenant may obtain during the term hereof
45. COMPLIANCE WITH LAW
(a) If at any time during the term of this Lease, the fire and
life safety law requirements of the City of New York pursuant to Local Law #5 of
1973, Local Law #16 of 1984 or otherwise ("Fire Requirements") or the masonry
or exterior wall requirements of the City of New York pursuant to Local Law #10
of 1980 or otherwise ("Masonry Requirements") or any other laws or requirements
of the City of New York or any agency having jurisdiction ("Other Requirements")
shall impose any obligations or requirements upon Landlord to perform any
alterations, installations, changes or improvements (collectively "changes") to
the Building and/or the demised premises, then Tenant shall pay to Landlord as
additional rent, 9.1% ("Tenant's Payment") of all costs and expenses incurred by
Landlord in complying with the Fire, Masonry or Other Requirements during the
term hereof Tenant's payment shall be due and payable to Landlord within thirty
(30) days after rendition of a bill therefor accompanied by a statement setting
forth the changes performed by Landlord. The obligation of Tenant in respect of
such additional rent shall survive the expiration of this Lease. Notwithstanding
anything to the contrary contained herein, to the extent that Tenant is required
to make any payments pursuant to this paragraph (a) then, to the extent any such
changes have a useful life which is reasonably estimated by Landlord to extend
beyond the expiration date of this Lease, Tenant shall only be required to pay
for that portion of the cost of such change equal to the product of (1) the
total cost of such change and (2) a fraction, the numerator of which shall be
the number of months remaining in the term of this Lease, and the denominator of
which shall be the total number of months in the term of this Lease.
(b) (i) Tenant covenants and agrees, at its sole cost and expense, to
comply with all present and future laws, orders, and regulations of all state,
federal, municipal and local governments, departments, commissions and boards
regarding the collection, sorting, separation and recycling of waste products,
garbage, refuse and trash. Tenant or Tenant's cleaning contractor shall sort and
separate such waste products, garbage, refuse and trash into such categories as
provided by law. Each separately sorted category of waste products, garbage,
refuse and trash shall be placed in separate receptacles reasonably approved by
Landlord. Such separate receptacles may, at Landlord's option, be removed from
the demised premises in accordance with a collection schedule prescribed by law.
(ii) Landlord reserves the right to prohibit the removal of refuse
or to collect or accept from Tenant any waste products, garbage, refuse or trash
that are not separated and sorted as required by law, and to require Tenant to
arrange for such collection at Tenant's sole cost and expense, utilizing a
contractor satisfactory to Landlord. Tenant shall pay all costs, expenses,
fines, penalties or damages that may be imposed on Landlord or Tenant by reason
of Tenant's failure to comply with the provisions of this Article and, at
Tenant's sole cost and expense, shall indemnify, defend and hold Landlord
harmless from and against any actions, claims, suits, costs and expenses
(including legal fees and expenses) arising from such noncompliance, utilizing
counsel reasonably satisfactory to Landlord.
(c) (i) Tenant shall, at Tenant's expense, comply with all laws now or
hereafter existing, whether or not such compliance requires work which is
structural or non-structural, ordinary or extraordinary, foreseen or unforeseen,
that impose any obligation, order or duty on Landlord or Tenant: (i) with
respect to the demised premises; or (ii) with respect to the Building or any
part thereof (including the demised premises) if such obligation, order or duty
arises from: (A) the manner of conduct of Tenant's business or operation of its
equipment therein; (B) any cause or condition created by or at the instigation
of Tenant, including, without limitation, any improvement or alteration; (C) the
default in any of Tenant's obligations hereunder beyond the expiration of any
applicable grace or cure period; or (D) any Hazardous Material (defined below)
brought into the Building by Tenant, any assignee or subtenant of Tenant or any
of their agents, contractors or invitees. Tenant shall promptly
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forward to Landlord any notice it receives of the violation of any law involving
the demised premises. Tenant shall pay, within twenty (20) days after demand
therefor, all actual, out of pocket costs and expenses, and all fines, penalties
and damages that may be imposed upon Landlord by reason of or arising out of
Tenant's failure to comply with the provisions of this Article,
(ii) Tenant shall promptly comply with all requirements relating to
the Americans with Disabilities Act, 42 U.S.C. Section 12,101 et seq. and the
regulations promulgated thereunder as in effect from time to time ("ADA
Requirements") to the extent same applies to the demised premises only. Tenant
shall have exclusive responsibility for compliance with ADA Requirements
pertaining to the interior of the demised premises, including for the design and
construction of the access thereto and egress therefrom. Landlord shall have
responsibility for compliance with ADA Requirements which affect the common
areas of the Building to the extent same is not necessitated by the acts or
omissions of Tenant, its employees or agents or is otherwise the obligation of
another tenant. Tenant shall comply with any reasonable plan adopted by Landlord
which is designed to comply with ADA Requirements.
46. BINDING EFFECT
The submission by Landlord of this Lease in draft form shall be deemed
solely for Tenant's consideration and not for acceptance and execution. Such
submission shall have no binding force or effect and shall confer no rights nor
impose any obligation, including brokerage obligations, on either party unless
and until both Landlord and Tenant shall have executed this Lease and duplicate
originals hereof shall have been delivered to the respective parties.
47. REAL ESTATE TAXES
Tenant shall pay to Landlord, as additional rent, real estate tax
escalations based on increases in Real Estate Taxes (defined below) in
accordance with this Paragraph:
(a) Definitions: For the purpose of this Paragraph, the following
definitions shall apply:
(i) The term "Base Tax Year" as hereinafter set forth for the
determination of real estate tax escalation, shall mean the New York City real
estate tax year commencing July 1, 1999 and ending June 30, 2000.
(ii) The term "The Percentage" shall mean 9.1%.
(iii) The term "The Building Project" shall mean all of the Land
together with improvements thereon known as 162 Fifth Avenue, New York, New
York.
(iv) The term "Comparative Year" shall mean the twelve months
following the Base Tax Year and each subsequent period of twelve months.
(v) The term "Real Estate Taxes" shall mean the total of all taxes
and special or other assessments levied, assessed or imposed at any time by any
governmental authority upon or against the Building Project, 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 Building Project 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 Building Project. 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 or 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 purpose hereof. As to special assessments which are
payable over a period of time extending beyond the term of this Lease, only a
pro rata portion thereof, covering the portion of the term of this Lease
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 by law 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 assessment so becoming
payable during such Comparative Year, together with interest payable during such
Comparative Year.
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(vi) The phrase "Real Estate Taxes payable during the Base Tax
Year" shall mean the Real Estate Taxes payable for the Base Tax Year.
(vii) In addition to the foregoing, Tenant will be responsible to
pay to Landlord, within ten (10) days of being billed therefor, The Percentage
of any business improvement district or similar tax imposed against the Building
Project or Landlord.
(b) Real Estate Taxes:
1. 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 The Percentage of the excess.
Following the expiration of each Tax Year, Landlord shall submit to Tenant a
statement, certified by Landlord, setting forth the Real Estate Tax escalation
due for the current Comparative Year and the payment, if any, due to Landlord
from Tenant for such Comparative Year. The rendition of such statement to Tenant
together with a copy of the tax bill shall constitute prima facie proof of the
accuracy thereof and, if such statement shows a payment due from Tenant to
Landlord with respect to such current Comparative Year, then (i) Tenant shall
make payment of any unpaid portion thereof within ten (10) days after receipt of
such statement; and (ii) Tenant shall also pay to Landlord, as additional rent,
within ten (10) days after receipt of such statement, an amount equal to the
product obtained by multiplying the total payment due for the current
Comparative Year by a fraction, the denominator of which shall be 12 and the
numerator of which shall be the number of months or any portion thereof in the
current Comparative Year which shall have elapsed prior to the first day of the
month immediately following the rendition of such statement; and (iii) Tenant
shall also pay to Landlord, as additional rent, commencing as of the first day
of the month immediately following the rendition of such statement and on the
first day of each month thereafter until a new statement is rendered, 1/12th of
the total payment for the current Comparative Year. The aforesaid monthly
payments based on the total payment due for the current Comparative Year may be
adjusted to reflect, if Landlord can reasonably so estimate, known increases in
rates for the subsequent Comparative Year, whenever such increases become known
during such current Comparative Year. The payments required to be made under
(ii) and (iii) above shall be credited toward the payment due from Tenant for
the subsequent Comparative Year, subject to adjustment as and when the statement
for such subsequent Comparative Year is rendered by Landlord.
2. 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 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.
3. If, after Tenant shall have made a payment of additional rent
under this subdivision (b), Landlord shall receive a refund of any portion of
the Real Estate Taxes payable during any Comparative Year after the Base Tax
Year on which such payment of additional rent shall have been based, as a result
of a reduction of such Real Estate Taxes by final determination of legal
proceedings, settlement or otherwise, Landlord shall, within ten (10) days after
receiving the refund, pay to Tenant The Percentage of the refund less The
Percentage of reasonable expenses (including reasonable attorneys' and
appraisers' fees) incurred by Landlord in connection with any such application
or proceeding. If, prior to the payment of taxes for any Comparative Year,
Landlord shall have obtained a reduction of that Comparative Year's assessed
valuation of the Building Project, and therefore of said taxes, then the term
"Real Estate Taxes" for that Comparative Year shall be deemed to include the
amount of Landlord's reasonable expenses in obtaining such reduction in assessed
valuation, including reasonable attorneys' and appraisers' fees.
(c) In no event shall the fixed annual rent under this Lease be reduced
by virtue of this Paragraph.
(d) Upon the date of any expiration or termination of this Lease,
whether the same be the date hereinabove set forth for the expiration of the
term (hereinafter called the "lease expiration date") or any prior or subsequent
date, a proportionate share of the additional rent for the Comparative Year
during which such expiration or termination occurs shall become due and payable
by Tenant to
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Landlord. The said proportionate share shall be based upon the length of time
that this Lease shall have been in existence during such Comparative Year.
Promptly after said expiration or termination Landlord shall compute the
additional rent 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 theretofore prepared by Landlord and furnished to Tenant
under subdivisions (b) and (c) above. If an estimate is used, then Landlord
shall promptly cause statements to be prepared on the basis of that Comparative
Year's actual figures 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.
(e) Notwithstanding any expiration or termination of this Lease prior to
the Lease expiration date (except in the case of a cancellation by mutual
agreement, casualty or condemnation), Tenant's obligation to pay any and all
additional rent under this Lease shall continue and shall cover all periods up
to the Lease expiration or termination date. Landlord's and Tenant's obligation
to make the adjustments referred to in subdivision (d) above shall survive any
expiration or termination of this Lease.
(f) Any delay or failure of Landlord in billing for any additional rent
payable as hereinabove provided shall not constitute a waiver of or in any way
impair the continuing obligation of Tenant to pay such additional Tent
hereunder.
48. COST OF LIVING ADJUSTMENTS
The annual rent reserved in this Lease and payable hereunder shall be
adjusted, as of the times and in the manner set forth in this Paragraph.
(a) Definitions: For the purposes of this Paragraph the following
definitions shall apply:
(i) The term "Base Year" shall mean the month of August, 1999.
(ii) The term "Price Index" shall mean the "Consumer Price Index"
published by the Bureau of Labor Statistics of the U.S. Department of Labor, All
Items, U.S. city average, all urban consumers (presently denominated "CPI-U"),
or a successor or substitute index appropriately adjusted.
(iii) The term "Price Index for the Base Year" shall mean the
monthly All Items Price Index for the Base Year.
(b) Effective as of each January and July subsequent to the Base Year,
there shall be made a cost of living adjustment of the annual rent payable
hereunder. The July adjustment shall be based on one hundred (100%) percent of
the percentage difference between the Price Index for the preceding month of
June and the Price Index for the Base Year. The January adjustment shall be
based on one hundred (100%) percent of the percentage difference between the
Price Index for the preceding month of December and the Price Index for the Base
Year.
(i) In the event the Price Index for June in any calendar year
during the term of this Lease reflects an increase over the Price Index for the
Base Year, then the annual rent herein provided to be paid as of the July 1st
following such month of June, i.e., fixed annual rent originally provided to be
paid for in this Lease (unchanged by any adjustments under this Lease), shall
be multiplied by one hundred (100%) percent of the percentage difference between
the Price Index for June and the Price Index for the Base Year, and the
resulting sum shall be added to such annual rent, effective as of such July 1st.
Said adjusted annual rent shall thereafter be payable hereunder, in equal
monthly installments, until it is readjusted pursuant to the terms of this
Lease.
(ii) In the event the Price Index for December in any calendar year
during the term of this Lease reflects an increase over the Price Index for the
Base Year, then the annual rent herein provided to be paid as of the January 1st
following such month of December, i.e., fixed annual rent originally provided to
be paid for in this Lease (unchanged by any adjustments under this Article),
shall be multiplied by one hundred (100%) percent of the percentage difference
between the Price Index for December and the Price Index for the Base Year, and
the resulting sum shall be added to such annual rent, effective as of such
January 1st. Said adjusted annual rent shall thereafter be payable hereunder, in
equal monthly installments, until it is readjusted pursuant to the terms of this
Lease.
The following illustrates the intentions of the parties hereto as to the
computation of the aforementioned cost of living adjustment in the annual rent
payable hereunder:
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Assuming that said annual rent is $10,000, that the
Price Index for the Base Year was 102.0 and that the Price
Index for the month of June in a calendar year following the
Base Year was 105.0, then the percentage increase thus
reflected, i.e., 2.941% (3.0/102.0) would be multiplied by
one hundred (100%) percent and then by $10,000, and said
annual rent would be increased by $294.10, which would be
divided by 12. Such resulting dividend, $24.51, would be
added to the base monthly rent provided to be paid under this
Lease, effective as of July 1st of said calendar year, until
such time that a new adjustment is provided to be made
pursuant to the terms of this article.
In the event that the Price Index ceases to use 1982/84=100 as the basis
of calculation, or if a substantial change is made in the terms or number of
items contained in the Price Index, then the Price Index shall be adjusted to
the figure that would have been arrived at had the manner of computing the Price
in effect at the date of this Lease not been altered. In the event such Price
Index (or a successor or substitute index) is not available, a reliable
governmental or other non-partisan publication evaluating the information
heretofore used in determining the Price Index shall be used.
No adjustments or recomputations, retroactive or otherwise, shall be made
due to any revision which may later be made in the first published figure of the
Price Index for any month.
(c) Landlord will cause statements of the cost of living adjustments
provided in subdivision(b) to be prepared in reasonable detail and delivered to
Tenant.
(d) In no event shall the annual rent originally provided to be paid
under this Lease (exclusive of the adjustments under this Paragraph) be reduced
by virtue of this Paragraph.
(e) Any delay or failure of Landlord, beyond July or January of any
year, in computing or billing for the rent adjustments hereinabove provided,
shall not constitute a waiver of or in any way impair the continuing obligation
of Tenant to pay such rent adjustments hereunder.
(f) Notwithstanding any expiration or termination of this Lease prior to
the lease expiration date (except in the case of a cancellation by mutual
agreement), Tenant's obligation to pay rent as adjusted under this Paragraph
shall continue and shall cover all periods up to the lease expiration date, and
shall survive any expiration or termination of this Lease.
(g) Tenant shall not be obligated to make any payments arising under
this Article until July, 2000.
49. ALTERATIONS
Anything in Article 3 to the contrary notwithstanding, Landlord shall not
unreasonably withhold or delay approval of written requests of Tenant to make
non-structural interior alterations, decorations, additions and improvements
(herein referred to as "alterations") in the demised premises, provided that
such alterations do not affect utility services or plumbing and electrical lines
or other systems of the Building, and provided that all such alterations shall
be performed in accordance with the following conditions:
(a) All such alterations costing more than $10,000 shall be performed in
accordance with plans and specifications first submitted to Landlord for its
prior written approval.
(b) All alterations shall be performed in a good and workmanlike manner.
All alterations shall be performed in compliance with all other applicable
provisions of this Lease and with all applicable laws, ordinances, directions,
rules and regulations of governmental authorities having jurisdiction; and
Tenant shall, prior to the commencement of any such alterations, at its sole
cost and expense, obtain and exhibit to Landlord any governmental permit
required in connection with such alterations.
(c) All work in connection with alterations shall be performed with
union labor having the proper jurisdictional qualifications.
(d) Tenant shall keep the Building and the demised premises free and
clear of all liens for any work or material claimed to have been furnished to
Tenant or to the demised premises.
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(e) Prior to the commencement of any work by or for Tenant, Tenant shall
furnish to Landlord certificates evidencing the existence of the following
insurance:
(i) Workmen's compensation insurance covering all persons employed
for such work and with respect to whom death or bodily injury claims could be
asserted against Landlord, Tenant or the demised premises.
(ii) General liability insurance naming Tenant as insured and
Landlord and its designees as additional insured, with limits of not less than
$500,000 in the event of bodily injury to one person and not less than
$1,000,000 in the event of bodily injury to any number of persons in any one
occurrence, and with limits of not less than $500,000 for property damage.
Tenant, at its sole cost and expense, shall cause all such
insurance to be maintained at all times when the work to be performed for or by
Tenant is in progress. All such insurance shall be obtained from a company
authorized to do business in New York and reasonably satisfactory to Landlord,
and all policies, or certificates therefor, issued by the insurer and bearing
notations evidencing the payment of premiums, shall be delivered to Landlord.
(f) All work to be performed by Tenant shall be performed in a manner
which will not unreasonably interfere with or disturb other tenants and
occupants of the Building.
(g) Tenant shall not be required to remove any fixtures, panelling,
partitions, railings or other installations presently constituting a part of the
demised premises, constituting a part of the initial fitting up of the demised
premises for Tenant's occupancy, installed by Landlord at its expense or
subsequently installed by Tenant and reasonably usable for an ordinary office
tenancy.
(h) All trade fixtures and other movable property installed by Tenant in
the demised premises shall remain Tenant's property and shall be removed by
Tenant on or before the lease expiration date or upon the sooner termination of
this Lease, provided only that Tenant shall repair any damage to the demised
premises resulting from such removal.
(i) Any alterations to be made by Tenant (other than plumbing and
electrical work) may be performed by any reputable contractor or mechanic
(collectively, the "Contractor") selected by Tenant and approved by Landlord,
which approval Landlord agrees it will not unreasonably withhold or delay,
provided the Contractor's performance of the alterations would not result in any
labor discord in the Building. In connection with any alteration performed by
Tenant, Landlord shall not be entitled to any supervisory fees but Tenant shall
reimburse Landlord, within ten (10) days of request therefor, for all actual
out-of-pocket costs incurred by Landlord in connection with such alterations.
(j) Tenant may, at any time during the Term, remove any alteration made
by Tenant which is not otherwise prohibited by the terms of this Lease, solely
at its expense, provided Tenant promptly repairs any damage resulting from such
removal.
(k) Any restoration or repair which Tenant is required to make (whether
structural or nonstructural) shall be of quality or class equal to the then
Building standard, as determined by Landlord.
50. SUBLETTING AND ASSIGNMENT
Supplementing the provisions of Article 11 hereof, Landlord shall not
unreasonably withhold or delay its consent to an assignment of this Lease or to
a subletting of all or part of the demised premises, provided that any such
assignment or subletting shall be made solely upon the following terms and
conditions
1. No assignment and no subletting shall become effective unless and
until Tenant shall have given Landlord at least thirty (30) business days' prior
written notice of such proposed assignment or proposed bona fide subletting,
together with a statement containing the name and address of the proposed
sublessee or assignee, adequate information as to its reputation and financial
condition and the intended use of the demised premises along with a copy of the
proposed sublease or assignment. The parties agree that if there is a proposed
assignment or a proposed subletting of all of the demised premises for all or
substantially all of the balance of the term of this Lease, then Landlord shall
thereupon have the option, exercisable by written notice within thirty (30)
business days after receipt of the notice from Tenant, to terminate this Lease
effective as of the effective date of the proposed assignment or the
commencement date of the term of such proposed subletting. If there is a
proposed subletting of all of the demised premises for less than substantially
all of the balance of the
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term of this Lease or of part but not all of the demised premises, then Landlord
shall thereupon have the option, exercisable by written notice within thirty
(30) business days after the receipt of the notice from Tenant, to delete the
space proposed to be subleased from the demised premises (with a prorated
adjustment in all payments due hereunder for the period of such proposed
subletting) effective as of the commencement date of the term of such proposed
subletting and for the period of such proposed subletting. If Landlord shall so
terminate this Lease or delete portions of space therefrom, then Tenant shall
vacate and surrender the demised premises or the deleted portions of space, to
Landlord, on or before the effective date pursuant hereto.
2. If (i) Landlord shall delete any space (the "Space") to be subleased
constituting a portion of the demised premises or shall terminate this Lease in
the event of any assignment or subletting of all of the demised premises (also
the "Space") in accordance with the provisions of paragraph 1 of this Article
50, or (ii) Landlord shall not elect to terminate this Lease or delete portions
of Space herefrom pursuant to the provisions of paragraph 1 and the Space is
sublet or assigned by Tenant in accordance with the provisions thereof, then all
rent and additional rent payable by (a) the assignee or any new tenant to whom
Landlord rents the demised premises shall be paid to Landlord, and (b) the
sublessee to whom Tenant subleases the demised premises or any portion thereof
shall be paid to Tenant. Upon receipt of such rent and additional rent for any
month, Landlord or Tenant, as the case may be, shall disburse the rent and
additional rent received from such new Tenant or sublessee as follows: (i) if
received by Landlord, first to Landlord until Landlord has received the monthly
rent and additional rent which would have been paid to Landlord pursuant to this
Lease by Tenant for the Space (which rent is the "Original Rent"), including,
but not limited to, fixed annual rent, escalation rent for taxes or other
additional rent, including electricity, water and sprinkler charges; (ii) if
received by Tenant, first to Tenant until Tenant has been reimbursed for the
amount of the monthly Original Rent paid by Tenant to Landlord; (iii) then, to
Landlord or Tenant, whichever is appropriate, an amount equal to the amount by
which such rent and additional rent from the assignee, subtenant or new tenant
exceeds the Original Rent (which amount is hereinafter "The Excess") until it
recoups the entire cost of brokerage commissions, installations and other costs
of renting to such assignee, new tenant or subtenant; (iv) then, to Tenant, out
of The Excess, an amount equal to Tenant's unrecouped Installation Cost (as
hereinafter defined). Tenant's unrecouped Installation Cost equals Tenant's
Installation Cost times a fraction, the numerator of which is the number of
months remaining in the term of this Lease from and after the date of the
assignment or subletting as if it were not terminated or the Space sublet or
assigned and the denominator of which is the number of months during the term of
this Lease (as extended by any exercised option), less payments previously made
hereunder therefor. In the event Landlord shall not have deleted any space or
terminated this Lease, any remaining portion of The Excess received shall be
distributed 50% to Landlord and 50% to Tenant. Tenant shall not be entitled to
any payment hereunder from Landlord for any period beyond the date this Lease
would have expired or terminated, as provided herein, had Landlord not
terminated this Lease with respect to the Space pursuant to this Article 50. If
Tenant or Landlord, as the case may be, shall receive a payment to which the
other is entitled hereunder, payment to the party entitled thereto shall be made
within ten (10) days of receipt thereof and that portion payable by Tenant
hereunder shall be paid as additional rent in accordance with the terms hereof.
3. There shall be no default (after notice and the expiration of any
applicable grace period) by Tenant under any of the terms, covenants and
conditions of this Lease at the time that Landlord's consent to any such
subletting or assignment is requested and on the date of the commencement of the
term of any such proposed sublease or the effective date of any such proposed
assignment.
4. Upon receiving Landlord's written consent, a duly executed copy of
the sublease or assignment shall be delivered to Landlord within thirty (30)
days after execution thereof. Any such sublease shall provide that the sublease
is subject and subordinate to this Lease. Any such assignment of Lease shall
contain an assumption by the assignee of all of the terms, covenants and
conditions of this Lease thereafter to be performed by Tenant.
5. Anything herein contained to the contrary notwithstanding:
(a) Tenant shall not publicly advertise the availability of the
demised premises for assignment or subletting at a rental rate lower than the
rental rate at which Landlord is then offering to lease comparable space in the
Building (but Tenant shall not be prohibited from assigning or subletting for
less than such rental rate).
(b) No assignment or subletting shall be made:
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(i) by the legal representatives of Tenant or by any person
to whom Tenant's interest under this Lease passes by operation of law, except in
compliance with the provisions of this Article and Article 11 hereof,
(ii) to any school, governmental office or agency; messenger
service, personnel or employment agency; medical facility or counseling service
of any kind; or to any person or entity for the conduct of a business which is
not in keeping with the standards for and general character of the Building (to
be determined in Landlord's sole discretion); and
(iii) to any party which is then a tenant, subtenant,
licensee, or occupant of any part of the Building.
6. Anything hereinabove contained to the contrary notwithstanding,
Landlord herewith consents to an assignment of this Lease or sublease of all or
part of the demised premises to any entity in which Tenant or its stockholders
own at least 51% of the beneficial interest or the parent of Tenant or to any
corporation into or with which Tenant may be merged or consolidated or to which
substantially all of its assets or stock may be transferred, provided that any
such assignment of Lease shall contain an assumption by the assignee of all of
the terms, covenants and conditions of this Lease thereafter to be performed by
Tenant. Tenant agrees that no such assignment or subletting shall be effective
unless and until Tenant gives Landlord written notice thereof, together with a
true copy of the assignment or sublease.
7. "Installation Cost" shall mean the costs and expenses incurred and
paid for by Tenant in performing alterations in accordance with plans and
specifications approved by Landlord for its initial occupancy, as evidenced by
paid receipts for materials supplied and services rendered by independent
contractors.
8. In no event shall any permitted sublessee 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. Similarly, in
no event shall permitted assigns be permitted to sublet any portion of the
demised premises or further assign this Lease without the prior written consent
of Landlord.
9. Notwithstanding anything to the contrary contained herein, a public
offering of shares of Tenant's stock shall not constitute an assignment of this
Lease. Additionally, the transfer of shares of Tenant for purposes of this
Article shall not include the sale of shares by persons other than those deemed
"insiders" within the meaning of the Securities Exchange Act of 1934, as
amended, which sale is effected through the "over-the-counter market" or through
any recognized stock exchange.
51. ELECTRICAL AND PLUMBING SYSTEMS
When in this Lease, Tenant shall take or be required to take any action
which may affect or alter the plumbing or electrical facilities or services
furnished by Landlord in the Building, the demised premises, or any portion
thereof, Tenant shall only be entitled to have such work performed by the
Building contractor designated from time to time by Landlord, in its sole and
absolute discretion, to perform such alteration and Landlord shall not be
required to permit, and Tenant shall not be entitled to use, any contractor not
designated as Landlord's selected contractor.
52. EXTRA HEAT
If Tenant shall request heat for the demised premises at any time other
than when Landlord is required to furnish heat as provided herein, Landlord
shall furnish heat and shall be entitled to receive, as additional rent
hereunder and in consideration therefor, an amount computed in accordance with
Landlord's standard Building rates from time to time for supplying heat. Tenant
shall be required to give reasonable prior notice to Landlord in accordance with
Landlord's standard procedure if such heat is required. Payment of the
additional rent shall be made within ten (10) days of Tenant being notified and
billed therefor by Landlord.
53. CASUALTY DAMAGE
Anything in Article 9 to the contrary notwithstanding, in the event of
damage or destruction to the demised premises by fire or other casualty
(collectively, "Casualty") then, if it is determined by Landlord's architect or
engineer that the demised premises cannot be restored to substantially its
condition immediately prior to the Casualty within twelve (12) months after the
occurrence of the
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Casualty, or if the demised premises are not so restored within such twelve (12)
month period, or if Landlord shall not have commenced the restoration work six
(6) months after the occurrence of the Casualty then, in any such circumstance,
Tenant may terminate this Lease, by written notice sent to Landlord within
thirty (30) days after the expiration of such twelve (12) month period or of the
six (6) month period if Landlord shall not have commenced the restoration work,
whichever is earlier, in which event this Lease shall terminate as of the date
set forth in such notice. Fixed annual rent, additional rent and all other
amounts payable under this Lease shall be apportioned as of such date and the
parties shall have no liability for subsequently accruing obligations hereunder,
except to the extent otherwise provided herein.
54. TENANT'S CONDEMNATION CLAIM
Anything in Article 10 to the contrary notwithstanding, Tenant shall have
the right to make a claim against the condemning authority for the value of its
trade fixtures and business machines and equipment taken in the condemnation and
for reimbursement of its resultant moving expenses provided such claim does not
diminish or otherwise adversely affect Landlord's award.
55. ACCESS TO THE DEMISED PREMISES
Supplementing the provisions of Article 13, Landlord's right to enter the
demised premises and its access thereto to make repairs and alterations and to
erect and maintain pipes and conduits therein (except in the event of any
emergency, in which event such right and access shall be unrestricted), shall be
subject to the following conditions:
A. Landlord shall give Tenant reasonable advance notice of proposed
entry or access;
B. All such pipes and conduits shall, to the extent reasonably
possible, be concealed in a building standard manner;
C. Landlord shall use its reasonable efforts to effect all such repairs
and alterations and erect and maintain all such pipes and conduits so as to
minimize interference with Tenant's normal business operations, but no provision
hereof shall obligate Landlord to perform such work other than during normal
business hours; and
D. Landlord shall retain the right to change the arrangement and/or
location of public entrances, passageways, doors, doorways, corridors,
elevators, stairs, toilets or other public parts of the Building, and such work
shall be performed at Landlord's sole cost and expense. If the demised premises
or the means of access thereto are materially adversely affected, such changes
shall be subject to Tenant's prior written consent, which consent shall not be
unreasonably withheld provided, however, that if such change is made in
compliance with any law, order or regulation of any governmental authority
having jurisdiction, the New York Board of Fire Underwriters or similar
organization, or any insurer of the Building and/or Landlord's interest therein,
Tenant's consent shall not be required.
56. LANDLORD'S PERFORMANCE OF TENANT'S OBLIGATIONS
Supplementing the provisions of Article 19, except in the event of an
emergency, Landlord shall not perform any obligation of Tenant under this Lease
nor incur any expenditure for such purpose until after the expiration of any
applicable grace period.
57. TENANT'S TAKING POSSESSION OF THE DEMISED PREMISES
Anything in Article 21 to the contrary notwithstanding, Tenant's taking
possession of the demised premises shall be conclusive evidence that the demised
premises and the Building were in good and satisfactory condition at the time
such possession was so taken, except as to latent defects and to any items as to
which Tenant notifies Landlord within thirty (30) days after initially taking
possession.
58. TENANT'S ACCESS
Tenant shall be entitled to have access to the demised premises 24 hours a
day, 7 days a week, without additional charge provided, however, that Landlord
shall be entitled to charge Tenant for any heating services supplied to Tenant
other than during hours and on days during which Landlord has the obligation to
supply such services pursuant to Articles 31 and 52 hereof.
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59. HOLIDAYS
Heat and/or manual elevator facilities shall not be provided on holidays
deemed to be commercial building contract holidays of Local 32B-32J of Services
Employees Union.
60. SQUARE FOOTAGE
Tenant does hereby acknowledge that no representations have been made by
Landlord or anyone acting on behalf of Landlord as to the amount of square
footage in the demised premises. Tenant has inspected the demised premises and
relies upon its own judgment in computing the square footage.
61. BUILDING CODE COMPLIANCE
Following is a list of steps involved in the processing of Tenant plans
which Tenant herein must comply with by engaging such firm as may be designated
by Landlord from time to time to insure proper code compliance:
1. Architectural and mechanical plans are reviewed for compliance with
the Building standard and New York City Building Code.
2. Insertion of appropriate standard Building Department notes and
details.
3. Certification by a professional engineer as to compliance with the
Building Code.
4. Filing plans and specifications with the Department of Buildings and
processing to approval.
5. Making controlled inspection of air conditioning system, completion
inspection of entire installation and filing of forms 10E and 23A indicating
proper completion of installation with the Department of Buildings.
A Tenant installation will not be considered complete until an approved
Completion Certificate is filed with the Department of Buildings and an amended
Certificate of Occupancy reflecting Tenant's use of the demised premises has
been obtained, which Tenant shall hereby agree to obtain if required to permit
Tenant's legal use of the demised premises.
62. FLAMMABLE MATERIALS
Neither Tenant nor any of Tenant's servants, employees, agents, visitors
or licensees shall bring, keep or use in or upon the demised premises or the
Building, any solvent having a flash point below 110 degrees F, nor shall any
liquid which emits volatile vapors below the temperature of 100 degrees F be
brought, kept or used in or upon the demised premises or the Building, except as
follows:
A. The process using such liquids shall be conducted in a room of fire
resistant construction, as the same is or may hereafter be defined by the Fire
Insurance Rating Organization;
B. If more than one but not more than two gallons of such liquids are
kept on the demised premises, they shall be stored in safety cans. If more than
two but less than ten gallons of such liquids are kept on the demised premises,
they must be stored in safety cans and kept in a cabinet constructed by Tenant
in a manner approved by the fire insurance rating organization. Reasonable
amounts in excess of ten gallons may be kept provided they are stored in a vault
constructed by Tenant in a manner approved by said Organization; and
C. Any use or storage of such liquids shall at all times be in
accordance with the requirements of the Fire Department, Board of Fire
Underwriters and the Fire Insurance Rating Organization.
A breach of the aforesaid regulations shall be deemed a default of this Lease
under Article 17 hereof.
63. SECURITY
(a) Tenant shall, upon the signing of this Lease, either (i)
deposit with Landlord cash in the amount of $330,000 (the "Security Deposit") or
(ii) deliver to Landlord a letter of credit (the "Letter of Credit") issued in
favor of Landlord in the sum of the Security Deposit, in either case as
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security for the faithful performance and observance by Tenant of the terms,
conditions and provisions of this Lease. Provided Tenant is not in default under
this Lease then, if the Security Deposit hereunder is in the form of cash,
Tenant, at Tenant's option, but only during the first year of the term of the
Lease, may substitute in lieu of such cash Security Deposit being held by
Landlord, a replacement Letter of Credit issued in favor of Landlord in an
amount equal to the sum of the cash Security Deposit being substituted by such
replacement Letter of Credit; provided that in no event shall Landlord have less
than the full Security Deposit on hand at any time during the term hereof. Upon
receipt by Landlord of a replacement Letter of Credit satisfying the
requirements contained in this Article and in the amount required by the
preceding sentence, Landlord shall pay to Tenant cash in the amount of the cash
Security Deposit substituted by such replacement Letter of Credit.
(b) 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 fixed annual rent and additional rent beyond any
applicable notice and grace period or any other sum for which Tenant is liable
hereunder, Landlord may draw upon the Letter of Credit and apply or retain any
portion or all of the amount received from such draw or apply or retain the
whole or any part of the cash Security Deposit so deposited, as the case may be,
to the extent required for the payment of any fixed annual 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
demised premises, whether such damages or deficiency accrue or accrues before or
after summary proceedings or other re-entry by Landlord. If Landlord draws upon
any part of the Letter of Credit and applies or retains any portion or all of
the amount received from such draw or applies or retains any part of the cash
Security Deposit so deposited (as the case may be), Tenant, upon demand, shall
restore the face amount of the Letter of Credit to an amount equal to the
Security Deposit or deposit with Landlord cash equal to the amount so applied or
retained so that Landlord shall have the full Security Deposit on hand at all
times during the term hereof
(c) Any Letter of Credit delivered by Tenant shall be an
irrevocable commercial Letter of Credit in the amount of the Security Deposit,
such Letter of Credit to be in form and substance satisfactory to Landlord, and
issued by a member bank of the New York Clearing House Association acceptable to
Landlord, or issued by such other bank with assets and reserves substantially
equivalent to any of such member banks and acceptable to Landlord, payable upon
the presentation by Landlord to such bank of a sight-draft, without presentation
of any other documents, statements or authorizations, which Letter of Credit
shall provide (i) for the continuance of such Letter of Credit for the period of
at least one (1) year from the date hereof, (ii) for the automatic extension of
such Letter of Credit for additional periods of one (1) year from the initial
and each future expiration date thereof (the last such extension to provide for
the continuance of such Letter of Credit for at least thirty (30) days beyond
the Expiration Date of this Lease) unless such bank gives Landlord notice of its
intention not to renew such Letter of Credit, not less than 45 days prior to the
initial or any future expiration date of such Letter of Credit and (iii) that in
the event such notice is given by such bank, Landlord shall have the right to
draw on such bank at sight for the balance remaining in such Letter of Credit
and hold and apply the proceeds thereof in accordance with the provisions of
this Article and this Lease. Each Letter of Credit to be deposited and
maintained with Landlord (or the proceeds thereof) shall be held by Landlord as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this Lease, and in the event that (x) any default
by Tenant beyond any applicable notice and cure periods occurs under this Lease,
or (y) Landlord transfers its right, title and interest under this Lease to a
third party and, after ten (10) days notice from Landlord, the bank issuing such
Letter of Credit does not consent to the transfer of such Letter of Credit to
such third party, or (z) notice is given by the bank issuing such Letter of
Credit that it does not intend to renew the same, as above provided, and a
substitute Letter of Credit in form and substance satisfactory to Landlord and
otherwise complying with the terms of this Article is not received by Landlord
within ten (10) days after such notice is given, then, in any such event,
Landlord may draw on such Letter of Credit, and the proceeds of such Letter of
Credit shall then be held and applied as security (and be replenished, if
necessary) as provided in this Article and this Lease.
(d) If Tenant shall fully and faithfully comply with all of the
terms, provisions, covenants and renditions of this Lease, the Security Deposit
delivered by Tenant shall be returned to Tenant promptly after the Expiration
Date and after delivery of the entire possession of the demised premises to
Landlord in the condition required pursuant to the terms of this Lease. In the
event of a sale of 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
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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.
(e) On or after the fifth (5th) anniversary of the term of this
Lease, Tenant shall be permitted to reduce the amount of the Security Deposit to
$247,500 provided, however, Tenant shall, as of the date of such reduction, (i)
not then be in default of any of its obligations under this Lease, (ii) show, to
Landlord's reasonable satisfaction, that during the immediately preceding four
(4) month period, Tenant generated an operating profit, as determined in
accordance with generally accepted accounting principles and (iii) have a net
worth, also determined in accordance with generally accepted accounting
principles, of not less than $50,000,000. If the Security Deposit is in cash,
Landlord will pay to Tenant the amount of the reduction within thirty (30) days
after receipt of Tenant's written request therefor. If the Security Deposit then
held by Landlord is in the form of a Letter of Credit, Landlord will accept a
Letter of Credit complying with the applicable provisions of this Lease in the
proper reduced amount in exchange for the existing Letter of Credit, or will
enter into an amendment of the existing Letter of Credit reducing the amount
thereof to the proper reduced amount.
64. EXTERMINATION
Tenant, at its sole cost and expense, shall maintain such extermination
services as are necessary to keep the demised premises free of pests and vermin
at all times.
65. ODORS
Tenant shall not cause or permit any unusual or objectionable odors,
by-products or waste material to permeate from the demised premises. Tenant
covenants that it will hold Landlord harmless against all claims, damages or
causes of action for damages arising after the commencement of the term of this
Lease and will indemnify Landlord for all such suits, orders or decrees and
judgments entered therein, resulting from the use of said unusual or
objectionable odors, by-products or waste material, and, in addition, Tenant
covenants to pay any attorneys' fees and other legal expenses made necessary in
connection with any claim or suit as aforesaid, all provided, however, that
Tenant is given immediate written notice thereof with the opportunity to defend
by attorneys of its designation (which attorneys are reasonably acceptable to
Landlord) and that Landlord cooperates in said defense (but at no cost to
Landlord).
For the purpose of eliminating any such odors, waste material or
by-products, Tenant may erect and maintain such facilities and appurtenances as
may be necessary to eliminate any such odors, by-products or waste materials.
All such facilities or appurtenances shall be erected at Tenant's sole cost and
expense, shall be in accordance with applicable laws, orders and regulations of
all governmental authorities and the New York Board of Fire underwriters as set
forth in Article 6 of this Lease, and shall be subject to Landlord's reasonable
approval.
66. FLOOR LOADS
Tenant shall not place a load upon any floor of the demised premises
exceeding the floor load per square foot area which it was designed to carry and
which is allowed by law. Tenant agrees to position all machines, safes, business
machines, printing equipment or other mechanical equipment in such locations as
to minimize noise and vibration emanating therefrom. All of such installations
shall be placed and maintained by Tenant, at Tenant's sole cost and expense, in
settings sufficient, in Landlord's sole judgment, to absorb and prevent
vibration, noise and annoyance to other tenants in the Building.
All of such machines and/or equipment installed by Tenant in the demised
premises shall not at any time be in violation of existing laws affecting the
demised premises or in violation of the Certificate of Occupancy issued for the
Building.
67. LANDLORD'S COSTS BY TENANT'S DEFAULTS
If Landlord, as a result of a default by Tenant of any of the provisions
of this Lease, including the covenants to pay rent and/or additional rent, makes
any expenditure or incurs any obligations for the payment of money including,
but not limited to, reasonable attorney's fees, in instituting, prosecuting or
defending any action or proceeding, such sums so paid or obligations so incurred
with
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interest (at the prime rate then being charged by Citibank, N.A. plus five (5%)
percent) and costs shall be deemed to be additional rent hereunder and shall be
paid by Tenant to Landlord within five (5) days of rendition of any bill or
statement to Tenant therefor, and if any expenditure is incurred in collecting
such obligations, such sum shall also be recoverable by Landlord as additional
damages.
68. LOBBY ATTENDANT
For the purpose of maintaining lobby attendant service in the passenger
lobby of the Building, Tenant agrees to pay to Landlord a sum equal to 10% of
Landlord's total cost of maintaining such lobby attendant service. This sum
shall be payable as additional rent due under this Lease. As the cost of
maintaining such lobby attendant shall increase or decrease, so shall the above
mentioned charge be adjusted proportionate to the increase or decrease in the
total cost of maintaining such lobby attendant service.
69. PLATE GLASS
Tenant, at its own cost and expense, shall replace all damaged or broken
plate glass or other glass in or about the demised premises.
70. BROKER
Tenant warrants that it has dealt with no real estate broker other than
Helmsley-Spear, Inc. and Cushman & Wakefield, Inc. (collectively the "Brokers"),
in negotiating this Lease and hereby agrees to indemnify and hold harmless
Landlord in the event that any claims for a brokerage commission are made by any
party other than the Brokers. This provision shall survive the expiration or
sooner termination of this Lease.
71. SUBORDINATION AND ATTORNMENT
Supplementing Article 7 hereof.
(a) This Lease, and all rights of Tenant under it, are subordinate and
subject to all present and future ground, master or operating leases of the Land
and the Building and any and all present and future mortgages, security
interests or other security documents upon or affecting the Land and the
Building and to all advances thereunder and all renewals, replacements,
modifications, amendments, consolidations and extensions thereof (all of the
foregoing, collectively, the "SENIOR INTERESTS", and the holders of Senior
Interests, collectively, "SENIOR INTEREST HOLDERS"), unless any Senior Interest
Holder elects, by written notice to Tenant, that this Lease shall be superior to
its lease or mortgage. This Article shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall, within twenty (20) days of demand therefor,
execute, acknowledge and deliver any instrument that Landlord, any Senior
Interest Holder or any of their respective successors in interest may (in the
form required by the Senior Interest Holder requesting the same) request to
evidence such subordination.
(b) Any Senior Interest Holder who succeeds to the rights of Landlord
under this Lease is sometimes referred to herein as a "SUCCESSOR LANDLORD".
Tenant acknowledges and agrees that, upon a Successor Landlord's succession to
the rights of Landlord under this Lease, Tenant shall, at the option of such
Successor Landlord, fully and completely attorn to and recognize the Successor
Landlord as Tenant's landlord hereunder and shall promptly execute and deliver
to such Successor Landlord any additional instrument that such Successor
Landlord may request to evidence such attornment. Upon attornment, this Lease
shall continue in full force and effect as a direct Lease between Tenant and the
Successor Landlord upon all of the terms, covenants and conditions contained
herein except that the Successor Landlord shall not be: (a) liable for any
previous act or omission of Landlord under this Lease, (b) subject to any offset
which had accrued to Tenant against any prior Landlord, (c) obligated to
complete any construction of the Building or the demised premises, (d) obligated
to make any payment to or on behalf of Tenant, (e) required to account for any
security deposit except to the extent of any security deposit actually delivered
to the Successor Landlord, or (f) bound by any previous modification of this
Lease or by any prepayment of more than one month's fixed annual rent or
additional rent unless such modification or prepayment was expressly approved in
writing by the Successor Landlord. Nothing contained in this Article shall be
construed to impair any right otherwise exercisable by a Senior Interest Holder.
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72. USE AND OCCUPANCY
Supplementing Article 2 hereof:
(a) Subject to and in accordance with all rules, regulations, laws,
ordinances, statutes and requirements of all governmental authorities and any
bodies having jurisdiction thereof, Tenant covenants and agrees that it shall
use the demised premises solely for executive, administrative and general
offices and for no other purpose.
(b) Tenant covenants that Tenant will (i) not use or suffer or permit
any person to use the demised premises for any unlawful purpose and (ii) obtain
and maintain at Tenant's sole cost and expense all licenses and permits from any
and all governmental authorities having jurisdiction of the demised premises
which may be necessary for the conduct of Tenant's business therein. Tenant
further covenants to comply with all applicable laws, resolutions, codes, rules
and regulations of any department, bureau, agency or any governmental authority
having jurisdiction over the operation, occupancy, maintenance and use of the
demised premises for the purpose set forth herein. Tenant indemnifies and saves
Landlord harmless from and against any claims, penalties, loss, damage, cost or
expense imposed by reason of a violation of any applicable law or the rules and
regulations of governmental authorities having jurisdiction thereof relating to
Tenant's use and occupancy of the demised premises.
(c) Tenant shall not, and shall not direct, suffer or permit any of its
agents, contractors, employees, licensees or invitees to at any time handle,
use, manufacture, store or dispose of in or about the demised premises or the
Building, any (collectively "HAZARDOUS MATERIALS") flammable materials,
explosives, radioactive materials, hazardous wastes or materials, toxic wastes
or materials, or other similar substances, petroleum products or derivatives or
any substance subject to regulation by or under any federal, state and local
laws and ordinances relating to the protection of the environment or the
keeping, use or disposition of environmentally hazardous materials, substances,
or wastes, presently in effect or hereafter adopted, all amendments to any of
them, and all rules and regulations issued pursuant to any of such laws or
ordinances (collectively "Environmental Laws"), nor shall Tenant suffer or
permit any Hazardous Materials to be used in any manner not fully in compliance
with all Environmental Laws in the demised premises or the Building or allow the
environment to become contaminated with any Hazardous Materials. Notwithstanding
the foregoing, and subject to Landlord's prior consent, Tenant may handle,
store, use or dispose of products containing small quantities of Hazardous
Materials (such as aerosol cans containing insecticides, toner for copiers,
paints, paint remover and the like) to the extent customary and necessary for
the use of the demised premises as permitted herein; provided that Tenant shall
always handle, store, use, and dispose of any such Hazardous Materials in a safe
and lawful manner and never allow such Hazardous Materials to contaminate the
demised premises, Building or the environment. Tenant shall protect, defend,
indemnify and hold each and all of the Landlord Parties harmless from and
against any and all loss, claims, liability or costs (including court costs and
attorney's fees) incurred by reason of any failure of Tenant to fully comply
with all applicable Environmental Laws, or the presence, handling, use or
disposition in or from the demised premises of any Hazardous Materials (even
though permissible under all applicable Environmental Laws or the provisions of
this Lease), or by reason of any actual or asserted failure of Tenant to keep,
observe, or perform any provision hereof.
73. AIR CONDITIONING
Tenant agrees that the payment for cost of electric power consumed by the
air conditioning system shall be the responsibility of Tenant.
During the term of this Lease, the air conditioning system shall be owned
by Landlord and shall be surrendered to Landlord at the expiration or sooner
termination of this Lease in good working condition, reasonable wear and tear
excepted. Tenant agrees to maintain the system and provide periodic service
thereto but not less than once per year at its sole cost and expense make
replacements of parts to the air conditioning unit as they may become necessary
during the term of this Lease.
74. HOLDING OVER
If Tenant holds over in possession after the expiration or sooner
termination of the original term or of any extended term of this Lease, such
holding over shall not be deemed to extend the term of or constitute a renewal
of this Lease, but such holding shall be upon the covenants and conditions
herein set forth, except that the charge for use and occupancy of the demised
premises for each
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calendar month or part thereof (even if such part shall be a small fraction of a
calendar month) that Tenant so holds over shall be equal to the sum of:
a. 1/12 of the highest annual rent rate set forth in this Lease, times
2.0, plus
b. 1/12 of the net increase, if any, in fixed annual rent due solely to
increase in the cost of the value of electric service furnished to the demised
premises in effect on the last day of the term of this Lease, plus
c. 1/12 of all other items of annual additional rent (including, but
not limited to, real estate tax escalations), which annual additional rent would
have been payable pursuant to this Lease had this Lease not expired, plus
d. those other items of additional rent (not annual additional rent)
which would have been payable monthly pursuant to this Lease, had this Lease not
expired, which total sum Tenant agrees to pay to Landlord promptly upon demand,
in full, without set-off or deduction. Neither the billing nor the collection of
use and occupancy in the above amount shall be deemed a waiver of any right of
Landlord to collect damages for Tenant's failure to vacate the demised premises
after the expiration or sooner termination of this Lease. The aforesaid
provisions of this Article shall survive the expiration or sooner termination of
this Lease.
75. SIGNAGE
Tenant shall be allowed three (3) listings in the Building lobby
directory, for which it agrees to pay to Landlord a one time charge which shall
not exceed Landlord's cost, per listing requested. No other signs or advertising
of any kind will be permitted in the Building lobby.
Tenant will be permitted to display upon the entrance door to the demised
premises a sign of size, material and design subject to Building standard.
Tenant further agrees to submit the text and design of such door sign to
Landlord for Landlord's reasonable approval. Upon approval by Landlord, Landlord
shall cause such sign to be prepared and installed, the cost for which Tenant
agrees to reimburse Landlord within five (5) days of receipt of request by
Landlord for payment.
Landlord reserves right to change Building standard from time to time and
to change the signs and listings to comply with the Building standard. In no
instance will Tenant be permitted to display any signs or advertising in the
windows of the Building.
76. ELECTRIC CURRENT
Tenant acknowledges that its consumption of electrical energy at the
demised premises during the term hereof shall be measured by a separate meter
servicing the demised premises and Landlord shall have no responsibility in
connection therewith. Tenant shall make all necessary arrangements and pay all
charges for the installation and maintenance of such meter. Tenant shall 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 safely capable, to be used for such
purpose, but only to the extent of Tenant's then authorized load.
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 amounts of
electricity, without Landlord's prior written consent, which consent shall not
be unreasonably withheld. 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
demised 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 meters and other equipment proper and necessary in connection
therewith subject to the aforesaid terms and conditions. Only rigid conduit or
electricity metal tubing (EMT) will be allowed.
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77. EFFECT OF GOVERNMENTAL LIMITATION ON RENTS AND OTHER CHARGES
If any law, decision, order, rule or regulation (collectively called
"Limiting Law") of any governmental authority shall have the effect of limiting
for any period of time the amount of rent or other amounts payable by Tenant to
any amount less than the amount required by this Lease, then:
A. throughout the period of limitation, Tenant shall remain liable for
the maximum amount of rent and other amounts which are legally payable; and
B. when the period of limitation ends, or if the Limiting Law is
repealed, or following any order or ruling that substantially restrains or
prohibits enforcement of the Limiting Law, Tenant shall pay to Landlord, on
demand (to the extent that payment of such amounts is not prohibited by law),
all amounts that would have been due from Tenant to Landlord during the period
of limitation but which were not paid because of the Limiting Law; and
thereafter Tenant shall pay to Landlord rent and all other amounts due pursuant
to this Lease, all calculated as though there had been no intervening period of
limitation.
78. LATE PAYMENTS
Tenant acknowledges that monthly fixed rent and additional rent payments
are due on or before the first (1st) day of each month. Tenant shall herein be
permitted to make such payments up to the fifth (5th) day of each month without
additional charge. In the event that, during any calendar year, Tenant fails to
make such payments of any portion of rents due by the fifth (5th) day of each
month, Landlord shall for each lateness after the first occurrence, be permitted
to charge Tenant, as additional rent, the sum of one thousand three hundred and
seventy-five (1,375.00) Dollars as liquidated damages and not as a penalty,
which Tenant agrees to pay within fifteen (15) days of receipt of invoice.
79. FURTHER PROVISIONS AS TO DEFAULT
All sums of money, other than the fixed annual rent reserved in this
Lease, which shall become due from and payable by Tenant to Landlord hereunder,
shall constitute additional rent, the default in the payment of which Landlord
shall have the same remedies as for a default in the payment of fixed annual
rent.
If Tenant is late in making any payments due to Landlord from Tenant under
this Lease for thirty (30) or more days, then interest shall become due and
owing to Landlord on such payment from the date thirty (30) days after which it
was due, which interest shall be computed at the following rates:
(i) for an individual or partnership tenant, computed at the maximum
lawful rate of interest;
(ii) for a corporate tenant, computed at the rate of two and 00/100
(2.00%) percent per month, but in no event in excess of the maximum lawful rate
of interest chargeable to corporations in the State of New York.
Bills for any expenses incurred by Landlord in connection with any
performance by it for the account of Tenant after a default hereunder beyond the
applicable grace period, and bills for all costs, expenses and disbursements of
every kind and nature whatsoever including, but not limited to, reasonable
counsel fees, involved in collecting or endeavoring to collect the fixed annual
rent or any additional rent or any part thereof, enforcing or endeavoring to
enforce any rights against Tenant or any of Tenant's obligations against Tenant,
under or in connection with this Lease, or pursuant to law, including any such
cost, expense and disbursement involved in instituting and prosecuting summary
proceedings, as well as bills for any property, material, labor, or services
provided, furnished, or rendered, by Landlord at Tenant's instance to or for the
benefit of Tenant, may be sent by Landlord to Tenant monthly, or immediately, at
Landlord's option, and shall be due and payable in accordance with the terms of
such bills.
80. TERM; CONDITION OF DEMISED PREMISES; LANDLORD'S WORK
(a) The term of this Lease (the "Term") shall commence on September 1,
1999 (the "Commencement Date") and shall expire on April 30, 2009 (the
"Expiration Date"), unless sooner terminated pursuant to any provision hereof or
by law. The taking of occupancy or possession of the whole or any portion of the
demised premises by Tenant shall be conclusive evidence that the demised
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premises and the Building were in good and satisfactory condition as of such
date. Tenant covenants and agrees that if permission is given to Tenant to enter
into possession of all or any portion of the demised premises prior to the
Commencement Date, then Tenant shall pay all charges for water, sewage
disposal, heating, cooling, electricity, lighting and any other utilities
attributable to the demised premises which are payable by Tenant hereunder from
the date upon which the demised premises are delivered to Tenant. Any such
charges which may be paid by Landlord shall be reimbursed to Landlord by Tenant
within fifteen (15) days of rendition of a bill therefor. In addition, from such
date of delivery through and including the Commencement Date, Tenant shall
perform all of its obligations hereunder (other than the obligation to pay fixed
annual rent) including, without limitation, its indemnity and insurance
obligations.
(b) Tenant acknowledges that it has made or been given the opportunity
to make a thorough examination and inspection of the demised premises. Tenant
agrees that it is entering into this Lease without any representations or
warranties by Landlord, its employees, agents, representatives or servants or
any other person as to the condition of the demised premises or the
appurtenances thereof or any improvements therein or thereon, or any other
matters pertinent thereto or to this Lease, except to the extent specifically
set forth herein. Tenant agrees to accept the demised premises in "as is"
condition at the time possession is given to Tenant, without requiring any
alterations, improvements, repairs or decorations to be made by Landlord or at
Landlord's expense, other than the performance of Landlord's Work (defined
below).
(c) Tenant agrees to accept the demised premises in "as is" condition,
with the exception of the following work ("Landlord's Work") to be performed by
Landlord:
(i) remove any asbestos in the demised premises in compliance with
applicable law and deliver to Tenant an ACP-5 certificate for
the demised premises;
(ii) provide 400 amp, 3 phase electrical service to the panel box;
(iii) install two (2) 15 ton air-cooled package air-conditioning
units on stands, without duct work;
(iv) make all windows within the demised premises operable and
weather-proof;
(v) sand existing wood floors in the demised premises and apply
one (1) coat of polyurethane; and
(vi) demolish the existing drywall partitioning within the demised
premises and deliver the demised premises in broom clean
condition.
81. RENT
(a) Beginning on the Commencement Date and continuing thereafter
throughout the term of this Lease, Tenant shall pay to Landlord fixed annual
rent in the amount of $330,000.00 per annum, payable in consecutive equal
monthly installments of $27,500.00 on the first day of each calendar month
during the term hereof, provided, however, that if Tenant shall not be in
default on any of its obligations hereunder, Landlord shall waive the monthly
installments of fixed annual rent for the first three (3) months of the term
hereof. Notwithstanding the foregoing, if Landlord's work shall not have been
substantially completed within three (3) months from the Commencement Date,
Tenant's free rent period will be extended until the day that Landlord's Work is
substantially completed.
(b) Beginning on the Commencement Date, Tenant shall pay to Landlord as
additional rent all sums payable by Tenant under the provisions of this Lease
other than fixed annual rent including, without limitation, all interest that
may accrue thereon in the event of Tenant's failure to pay such amounts when
due, and all damages, costs and expenses which Landlord may incur by reason of
any default of Tenant or failure on Tenant's part to comply with the terms of
this Lease, all of which shall be due and payable within twenty (20) days of
demand therefor unless another time is expressly provided for in this Lease.
Landlord shall have the same remedies for failure to pay additional rent as for
non-payment of fixed annual rent.
(c) Tenant shall pay the fixed annual rent and additional rent when due,
without notice or demand, and without any abatement, deduction or set-off,
except for any notices, demands, abatements, deductions or set-offs expressly
provided for elsewhere in this Lease. Tenant shall pay such amounts to Landlord
in lawful money of the United States by check or other method of payment
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<PAGE> 26
so that in any case the funds are "available" on the due date for payment
thereof at the address of Landlord or such other place Landlord may designate by
notice to Tenant.
(d) The rent payable for any portion of a calendar month included in the
term shall be prorated in the ratio that the number of days in such portion
bears to the actual number of days in such month.
(e) The first monthly installment of Rent payable hereunder shall be
paid upon Tenant's execution and delivery of this Lease.
82. INDEMNIFICATION
Tenant shall defend, indemnify and hold harmless Landlord, its agents,
officers, directors, shareholders, partners, members and principals (whether
disclosed or undisclosed) (hereinafter the "Landlord Parties") from and against
any and all claims, demands, liability, loss, damage, costs and expenses
(including reasonable attorneys' fees and disbursements) arising from or in
connection with: (a) any breach or default beyond the expiration of any
applicable grace or cure period by Tenant in the full and prompt payment and
performance of Tenant's obligations hereunder; (b) the use or occupancy or
manner of use or occupancy of the demised premises by Tenant or any person
claiming under or through Tenant, (c) any act, omission or negligence of Tenant
or any of its subtenants, assignees or licensees or its or their partners,
principals, directors, officers, agents, invitees, employees, guests, customers
or contractors during the term hereof, (d) any accident, injury or damage
occurring in or about the demised premises during the term hereof; (e) the
performance of any alteration in the demised premises including, without
limitation, Tenant's failure to obtain any permit, authorization or license or
failure to pay in full any contractor, subcontractor or materialmen performing
work on such alteration; and (f) any mechanics lien filed, claimed or asserted
in connection with any alteration or any other work, labor, services or
materials done for or supplied to, or claimed to have been done for or supplied
to, Tenant, or any person claiming through or under Tenant provided, however,
that same shall not have been caused by the gross negligence or willful
misconduct of Landlord, its agents, contractors, principals, officers,
directors, employees or assigns. If any claim, action or proceeding is brought
against any of the Landlord Parties for a matter covered by this indemnity,
Tenant, upon notice from the indemnified person or entity, shall defend such
claim, action or proceeding with counsel reasonably satisfactory to Landlord and
the indemnified person or entity.
83. LANDLORD'S APPROVALS
Whenever Tenant shall submit to Landlord any plan, agreement or other
document for Landlord's consent or approval, and Landlord shall require the
expert opinion of Landlord's counsel or architect as to the form or substance
thereof, Tenant agrees to pay the reasonable fee of such architect and/or
counsel for reviewing the said plan, agreement or document.
84. ACCESS TO FREIGHT ELEVATOR
Tenant will be permitted non-exclusive access to the Building's freight
elevators at no charge during normal business hours, but Tenant's use thereof
shall be in compliance with all of the provisions of this Lease including,
without limitation, the Building's Rules and Regulations.
85. VENTING
Subject to the reasonable rules of Landlord and to Landlord's requirements
regarding its location and manner of venting, Tenant shall be permitted to vent
any special equipment installed in the demised premises (including, but not
limited to, any air-cooled supplemental HVAC units) through the Building's
windows (other than on the Fifth Avenue side of the Building) provided Tenant
otherwise complies with the provisions of this Lease, including, but not limited
to, the Building's Rules and Regulations.
86. TENANT'S WORK
Upon its execution and delivery of this Lease, Tenant shall deposit with
M&T Bank, in its branch office located at 350 Park Avenue, New York, New York,
the sum of $250,000 (the "Fund") to secure Tenant's obligation to pay for its
initial "hard cost" alterations to the demised premises (such initial hard cost
alterations are hereinafter referred to as the "Work"). For purposes of the
preceding
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sentence, the term "hard costs" shall include, but is not limited to electrical
work, air conditioning duct work, painting, installation of drywall and lighting
fixtures, etc. Tenant, upon Landlord's request, shall furnish to Landlord
evidence that the Fund has been established in the required amount.
As the Work progresses, Tenant will make periodic payments to its
contractors out of the Fund and, within five (5) days after any such payment out
of the Fund, Tenant shall deliver to Landlord a copy of the receipted invoice
for which the withdrawal was made together with a copy of the check in payment
of the invoice.
In the event Tenant shall withdraw from the Fund any amounts which are not
the subject of a proper invoice, such withdrawal shall constitute a default by
Tenant hereunder, thereby entitling Landlord to all of the remedies available to
Landlord arising from a default by Tenant.
162 ASSOCIATES LLC
By: Helmsley-Spear, Inc., as Agent
By: /s/ [SIGNATURE ILLEGIBLE]
---------------------------------
FORT POINT PARTNERS, INC.
By: /s/ MATTHEW ROCHE
---------------------------------
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ATTACHMENT 1
111 Sutter Street
Master Lease
Dated September 21, 1999
<PAGE> 29
- III SUTTER STREET -
- OFFICE BUILDING LEASE -
BASIC LEASE INFORMATION
DATE OF LEASE: September 21, 1999
LANDLORD: CEP INVESTORS XII LLC
LANDLORD'S ADDRESS: c/o Ellis Partners, Inc.
433 California Street, Sixth Floor
San Francisco, California 94104
Attn: James F. Ellis
TENANT: SHOPNOW.COM INC.
TENANT'S ADDRESS: 111 Sutter Street
San Francisco, California 94104
Attn: Mr. Michael A. Wychochi
BUILDING: 111 Sutter Street, San Francisco, California
LEASED PREMISES: Approximately 50,833 rentable square feet
consisting of the entire 8th (approximately 12,747
rentable square feet), 9th (approximately 12,703
rentable square feet), 10th (approximately 12,672
rentable square feet), and 11th (approximately
12,711 rentable square feet) floors of the Building
RENTABLE AREA: Approximately 50,833 rentable square feet
TERM COMMENCEMENT DATE: The date the Tenant Improvements are Substantially
Complete (estimated to be April 1, 2000)
TERM EXPIRATION DATE: The last day of the calendar month in which the
tenth (10th) anniversary of the Term Commencement
Date occurs
OPTION TO EXTEND: Number of Extension Periods: One (1)
Years per Extension Period: Five (5)
<PAGE> 30
BASE RENT: Months 1 and 2 = $0.00 per rentable square foot of
Rentable Area per annum.
Months 3 to 12 = $37.00 per rentable square foot of
Rentable Area per annum.
Months 13 to 60 = $39.25 per rentable square foot
of Rentable Area per annum
Months 61 to 84 = $42.00 per rentable square foot
of Rentable Area per annum
Months 85 to 108 = $44.00 per rentable square foot
of Rentable Area per annum
Months 109 to 120 = $45.00 per rentable square foot
of Rentable Area per annum
BASE YEAR: 2000
TENANT'S PROPORTIONATE SHARE (BUILDING): approximately 19.84%
SECURITY DEPOSIT: $2,500,000.00 (as set forth in Section 5.14)
GUARANTOR: None
LANDLORD'S BROKER. The CAC Group
TENANT'S BROKER: Colliers International
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE TO FOLLOW.]
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<PAGE> 31
The foregoing BASIC LEASE INFORMATION is incorporated herein and made a
part of the LEASE to which it is attached. If there is any conflict between the
BASIC LEASE INFORMATION and the LEASE, the BASIC LEASE INFORMATION shall
control.
"LANDLORD":
CEP INVESTORS XII LLC,
a Delaware limited liability company
By: EPI Investors XII LLC,
a California limited liability company
Its Manager
By: Ellis Partners, Inc.,
a California corporation,
Its Manager
By:
-------------------------------
Typed Name:
-----------------------
Title:
----------------------------
"TENANT":
SHOPNOW.COM INC,
a Washington corporation
By: /s/ JOE ARCINIEGA
-------------------------------------------
Typed Name: Joe Arciniega
-----------------------------------
Title: CHIEF OPERATING OFFICER
----------------------------------------
By:
-------------------------------------------
Typed Name:
-----------------------------------
Title:
----------------------------------------
iii
<PAGE> 32
OFFICE BUILDING LEASE
THIS LEASE, made as of the date specified in the BASIC LEASE INFORMATION
sheet, by and between the landlord specified in the BASIC LEASE INFORMATION
sheet ("Landlord") and the tenant specified in the BASIC LEASE INFORMATION sheet
("Tenant").
ARTICLE 1.
DEFINITIONS
1.01 DEFINITIONS: Terms used herein shall have the following meanings:
1.02 "ADDITIONAL RENT" shall mean all monetary obligations of Tenant
under this Lease other than the obligation for payment of Gross Rent.
1.03 [Intentionally deleted.]
1.04 "BASE RENT" shall mean the sums due from time to time as rental for
the Leased Premises.
1.05 "BASE YEAR" shall mean the calendar year specified on the Basic
Lease Information sheet.
1.06 "BASIC OPERATING COST" shall have the meaning given in Section
3.05.
1.07 "BUILDING" shall mean the building and other improvements
associated therewith identified on the Basic Lease Information sheet.
1.08 "BUILDING STANDARD IMPROVEMENTS" shall mean the standard materials
ordinarily used by Landlord in the improvement of the Leased Premises.
1.09 "COMMON AREAS" shall mean (a) the areas on individual floors of the
Building devoted to non-exclusive uses such as common corridors, lobbies, fire
vestibules, elevator foyers, stairways, elevators, electric and telephone
closets, restrooms, mechanical closets, janitor closets and other similar
facilities for the benefit of all tenants (and invitees) on the particular floor
and other floors and (b) other areas of the Project available for the use and
benefit of all tenants (and invitees).
1.10 "COMPUTATION YEAR" shall mean a fiscal year consisting of the
calendar year commencing January 1st of each year during the Term, commencing in
the Base Year and continuing through the Term, with a short or stub fiscal year
in any partial fiscal year in which the Lease expires or is terminated for the
period between January 1 of such year and the date of lease termination or
expiration.
1.11 "GROSS RENT" shall mean the total of Base Rent and Tenant's
Proportionate Share of Increased Basic Operating Cost.
1.12 "LANDLORD'S BROKER" shall mean the individual or corporate broker
identified on the Basic Lease Information sheet as the broker for Landlord.
1.13 "LANDLORD'S CONTRIBUTION" shall have the meaning given in Exhibit
B.
1.14 "LANDLORD'S IMPROVEMENTS" shall have the meaning given in Exhibit
B.
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1.15 "LEASED PREMISES" shall mean the floor area more particularly shown
on the floor plan attached hereto as EXHIBIT A, containing the Rentable Area (as
such term is defined in Section 1.20 below) specified on the Basic Lease
Information sheet.
1.16 "PERMITTED USE" shall mean primarily general office and the
ancillary use of preparation and photography (but not film processing) of food
items and other general items for inclusion in catalogs (in a variety of media),
and any other related lawful use; provided, however, that Permitted Use shall
not include (a) offices or agencies of any foreign government or political
subdivision thereof; (b) offices of any agency or bureau of any state, county
or city government; (c) offices of any health care professionals; (d) schools or
other training facilities which are not ancillary to corporate, executive or
professional office use; or (e) retail or restaurant uses.
1.17 "PROJECT" shall mean the Building and common areas affiliated
therewith, and the real property on which the Building and common areas are
located.
1.18 "PROPERTY TAXES" shall have the meaning given in Section 3.06.
1.19 "RENT" shall mean Gross Rent plus Additional Rent.
1.20 "RENTABLE AREA" shall mean the area or areas of space in the
Building determined in accordance with the Standard Method for Measuring Floor
Area in Office Buildings published by the Building Owners and Managers
Association International (ANSI-Z65.1-1996) and including a proportionate
allocation of the square footage of the Building's elevator and mechanical
equipment areas, telephone and electrical rooms, loading dock, janitorial
service areas, public lobbies and corridors. The Rentable Area of the Leased
Premises has been calculated on the basis of the foregoing definition and is
agreed for all purposes of this Lease to be the amount stated on the Basic Lease
Information sheet, subject to remeasurement by Landlord only in the event of a
change in method of measurement for the Building or Project as hereinabove
provided.
1.21 "SECURITY DEPOSIT" shall mean the amount specified on the Basic
Lease Information sheet to be paid by Tenant to Landlord and held and applied
pursuant to Section 5.14.
1.22 "SUBSTANTIAL COMPLETION" shall mean (and the Leased Premises shall
be deemed "Substantially Complete") when (i) installation of the Tenant
Improvements and the Landlord's Improvements (as defined in EXHIBIT B) by the
Contractor has occurred; (ii) Tenant has direct access from the street to the
elevator lobby on the floor (or floors) where the Leased Premises are located;
(iii) basic services (as described in Section 4.01) are available to the Leased
Premises; (iv) the Architect (as defined in EXHIBIT B) has issued a certificate
of Substantial Completion with respect to the Leased Premises; and (v) a
certificate of occupancy or its equivalent for the Leased Premises has been
issued by appropriate governmental authorities. Substantial Completion shall be
deemed to have occurred notwithstanding a requirement to complete "punchlist"
items or similar corrective work.
1.23 [Intentionally deleted.]
1.24 "TENANT IMPROVEMENTS" shall have the meaning given in EXHIBIT B.
1.25 "TENANT'S BROKER" shall mean the individual or corporate broker
identified on the Basic Lease Information sheet as the broker for Tenant.
1.26 "TENANT'S PHYSICAL POSSESSION DATE" shall mean February 15, 2000.
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<PAGE> 34
1.27 "TENANT'S PROPORTIONATE SHARE" is specified on the Basic Lease
Information sheet and is based on the percentage which the Rentable Area of the
Leased Premises bears to the total Rentable Area of the Project, subject to
adjustment in the event of the remeasurement of the Building or (the Project as
permitted under Section 1.20 above.
1.28 "TERM" shall mean the period commencing with the Term Commencement
Date and ending at midnight on the Term Expiration Date.
1.29 "TERM COMMENCEMENT DATE" shall be the date set forth on the Basic
Lease Information sheet.
1.30 "TERM EXPIRATION DATE" shall be the date set forth on the Basic
Lease Information sheet, unless sooner terminated pursuant to the terms of this
Lease or unless extended pursuant to the provisions of Section 8.01.
1.31 OTHER TERMS. Other terms used in this Lease and on the Basic Lease
Information sheet shall have the meanings given to them herein and thereon.
ARTICLE 2.
LEASED PREMISES
2.01 LEASE. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the Leased Premises upon all of the terms, covenants and
conditions set forth in this Lease.
2.02 ACCEPTANCE OF LEASED PREMISES. Tenant acknowledges that: (a) it has
been advised by Landlord, Landlord's Broker and Tenant's Broker, if any, to
satisfy itself with respect to the condition of the Leased Premises (including,
without limitation, the heating, ventilation, electrical, plumbing and other
mechanical installations, fire sprinkler systems, security, environmental
aspects, and compliance with applicable laws, ordinances, rules and regulations)
and the present and future suitability of the Leased Premises for Tenant's
intended use; (b) Tenant has made such inspection and investigation as it deems
necessary with reference to such matters and assumes all responsibility therefor
as the same relate to Tenant's occupancy of the Leased Premises and the term of
this Lease; and (c) neither Landlord nor Landlord's Broker nor any of Landlord's
agents has made any oral or written representations or warranties with respect
to the condition, suitability or fitness of the Leased Premises other than as
may be specifically set forth in this Lease or otherwise made in connection with
the completion of the Landlord Improvements described in Exhibit B. Tenant
accepts the Leased Premises in its AS IS condition existing on the date Tenant
executes this Lease, subject to (i) all matters of record, (ii) applicable laws,
ordinances, rules and regulations, and (iii) the completion of the Landlord
Improvements and the Tenant Improvements described in Exhibit B. Tenant
acknowledges that neither Landlord nor Landlord's Broker nor any of Landlord's
agents has agreed to undertake any alterations or additions or to perform any
maintenance or repair of the Leased Premises except as set forth in this Lease
and except as may be expressly set forth in Exhibit B.
2.03 RIGHT TO RELOCATE LEASED PREMISES. [intentionally deleted].
2.04 RESERVATION OF RIGHTS. Landlord reserves the right from time to
time, so long as reasonable access and basic services to the Leased Premises
remain available, to install, use, maintain, repair, relocate and/or replace
pipes, conduits, wires and equipment within and around the Building and to do
and perform such other acts and make such other changes in, to or with respect
to the Building or the Project (including
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<PAGE> 35
without limitation with respect to the driveways, parking areas (if any),
walkways and entrances to the Project) as Landlord may, in the exercise of sound
business judgment, deem to be appropriate; provided, however, that in all events
Landlord shall exercise its reserved right in a manner that is consistent with
all of Tenant's then-current security measures for the Leased Premises, does not
unreasonably interfere with Tenant's use and occupancy of the Leased Premises,
and does not reduce the Rentable Area of the Leased Premises, without Tenant's
prior written consent, which consent shall not be unreasonably withheld,
conditioned, or delayed. In connection therewith, Landlord shall have the right
to close temporarily any of the Common Areas so long as reasonable access to the
Leased Premises remains available to Tenant and Tenant's licensees and invitees.
ARTICLE 3.
TERM, USE AND RENT
3.01 TERM. Except as otherwise provided in this Lease, the Term shall
commence upon the Term Commencement Date, and shall continue in full force for
the Term. Tenant shall be given access to the Leased Premises starting on the
Tenant's Physical Possession Date in order for Tenant and other consultants
and/or Tenant's contractors to install, if any, furniture, telephone networks,
and computer networks as long as such work does not interfere with the
construction of the Tenant Improvements and the Landlord's Improvements.
Notwithstanding any other provision of this Lease to the contrary, if physical
possession to the Leased Premises is not given to Tenant by June 1, 2000,
excluding from such tally (x) each day of Tenant Delay, and (y) each day of
delay caused by factors entirely beyond the reasonable control of Landlord, then
Tenant, as its sole remedy, may, at its option, by notice in writing to Landlord
within ten (10) days thereafter, cancel this Lease in which event neither
Landlord nor Tenant shall have any further obligations hereunder. If written
notice of cancellation is not received by Landlord within such ten (10)-day
period, Tenant's right to cancel this Lease shall terminate and be of no further
force or effect. From the Tenant's Physical Possession Date through the Term
Commencement Date, Tenant shall be subject to all of the covenants in this
Lease, except that Tenant's obligation to pay Rent shall commence in accordance
with Section 3.03 below. When the Term Commencement Date and the Term Expiration
Date have been ascertained, the parties shall promptly execute a Confirmation of
Term of Lease substantially in the form attached as EXHIBIT C.
3.02 USE. Tenant shall use the Leased Premises solely for the Permitted
Use and for no other use or purpose, except as permitted by Landlord pursuant to
Landlord's written consent, which consent will not be unreasonably withheld,
conditioned, or delayed. It shall not be deemed unreasonable for Landlord to
withhold its consent to a proposed change of use if the proposed use is one set
forth in Section 1.16(a) through (e).
3.03 BASE RENT.
(a) Tenant shall pay the Base Rent to Landlord in accordance with the
schedule set forth on the Basic Lease Information sheet and in the manner
described below. Tenant shall pay the Base Rent for the THIRD (3RD) month of the
Term upon execution of this Lease. Commencing with the first day of the FOURTH
(4TH) calendar month of the Term, Tenant shall pay the Gross Rent (consisting of
Base Rent plus, when applicable in accordance with Section 3.04 below, Tenant's
Proportionate Share of Increased Basic Operating Cost (and/or Tenant's
Proportionate Share of Increased Property Taxes) in monthly installments on or
before the first day of each calendar month during the Term and any extensions
or renewals thereof, in advance without demand and without any reduction,
abatement, counterclaim or setoff, except as otherwise set forth in this Lease,
in lawful money of the United States at Landlord's address specified on the
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<PAGE> 36
Basic Lease Information sheet or at such other address as may be designated by
Landlord in the manner provided for giving notice under Section 9.11 hereof.
(b) Notwithstanding any other provision of this Lease to the contrary,
if the Term Commencement Date occurs on a day other than the first day of a
month, then the Base Rent provided for such partial month shall be prorated
based upon a thirty (30)-day month and the prorated installment shall be paid on
the first day of the third (3rd) full calendar month after the Term Commencement
Date together with the other amounts payable on that day. If the Term terminates
on other than the last day of a calendar month, then the Gross Rent provided for
such partial month shall be prorated based upon a thirty (30)-day month and the
prorated installment shall be paid on the first day of the calendar month in
which the date of termination occurs.
3.04 TENANT'S PROPORTIONATE SHARE OF INCREASED BASIC OPERATING COST.
(a) Commencing in the 2001 Computation Year and continuing through the
remainder of the Term, Tenant shall pay to Landlord (i) Tenant's Proportionate
Share of the total dollar increase, if any, in Basic Operating Cost attributable
to each Computation Year over Base Year expenses ("Tenant's Proportionate Share
of Increased Basic Operating Cost"), and (ii) Tenant's Proportionate Share of
the total dollar increase, if any, in Property Taxes attributable to each
Computation Year over Base Year Property Taxes ("Tenant's Proportionate Share of
Increased Property Taxes").
(b) During the 2001 Computation Year, on or before the first day of each
month during such Computation Year, Tenant shall pay to Landlord one-twelfth
(1/12th) of Landlord's reasonable estimate of the amounts payable by Tenant
under Section 3.04(a) for Tenant's Proportionate Share of Increased Basic
Operating Cost and for Tenant's Proportionate Share of increased Property Taxes,
as set forth in Landlord's written notice to Tenant delivered on or before the
Term Commencement Date. Commencing in the 2000 Computation Year and continuing
thereafter through the remainder of the Term, during the last month of each
Computation Year (or as soon thereafter as practicable), Landlord shall give
Tenant notice of Landlord's reasonable estimate of the amounts payable by Tenant
under Section 3.04(a) for Tenant's Proportionate Share of Increased Basic
Operating Cost and for Tenant's Proportionate Share of Increased Property Taxes
for the following Computation Year. On or before the first day of each month
during the following Computation Year, Tenant shall pay to Landlord one-twelfth
(1/12) of each of such estimated amounts, provided that if Landlord fails to
give such notice in the last month of the prior year, then Tenant shall continue
to pay on the basis of the prior Computation Year's estimate until the first
day of the calendar month next succeeding the date such notice is given by
Landlord; and from the first day of the calendar month following the date such
notice is given, Tenant's payments shall be adjusted so that the estimated
amount for that Computation Year will be fully paid by the end of that
Computation Year. If at any time or times Landlord reasonably determines that
the amount or amounts payable under Section 3.04(a) for Tenant's Proportionate
Share of Increased Basic Operating Cost and/or for Tenant's Proportionate Share
of Increased Property Taxes for the current Computation Year will vary from the
respective estimate thereof given to Tenant, Landlord, by not less than ten (10)
business days' notice to Tenant, may revise such estimate for such Computation
Year, and subsequent payments by Tenant for such Computation Year shall be based
upon such revised estimate.
(c) Following the end of each Computation Year (beginning with the 2001
Computation Year), but in no event later than one hundred twenty (120) days
after the end of such Computation Year, Landlord shall deliver to Tenant a
statement of amounts payable under Section 3.04(a) for such Computation Year
prepared by Landlord's agent, together with such supporting documentation,
including information about such amounts payable during the Base Year, as Tenant
may reasonably request. If Landlord fails to deliver such a statement to Tenant
within such one hundred twenty (120) day period, Landlord shall be
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deemed to have waived and forfeited any right Landlord may have to collect any
underpayment by Tenant for such Computation Year, but nothing herein shall
prevent Tenant from requiring Landlord to deliver such a statement after such
one hundred twenty (120) day period and receiving a credit for any overpayment
shown thereby. If such statement shows an amount or amounts owing by Tenant with
respect to Basic Operating Cost or Property Taxes that is less than the payments
for such Computation Year previously made by Tenant therefor, respectively,
Landlord shall credit such amount to the next payment(s) of Gross Rent falling
due under this Lease. If such statement shows an amount owing by Tenant with
respect to Basic Operating Cost or Property Taxes that is more than the
estimated payments for such Computation Year previously made by Tenant therefor,
respectively, Tenant shall pay the deficiency to Landlord within twenty (20)
business days after delivery of such statement. If, within ninety (90) days of
Tenant's receipt of Landlord's statement, Tenant notifies Landlord that Tenant
desires to audit or review Landlord's statement, Landlord shall cooperate with
Tenant to permit such audit or review during normal business hours. Any such
audit may only be conducted by an independent nationally recognized accounting
firm or a nationally recognized real estate management or consulting firm that
is not being compensated by Tenant on a contingency fee basis, with the
assistance of Tenant's legal counsel. Landlord shall make available in the San
Francisco Bay Area at Landlord's, or at Landlord's election at Landlord's
property manager's, place of business, such books and records as are reasonably
necessary for Tenant to conduct and complete such audit. Tenant shall have the
right to make copies of such books and records at Tenant's sole cost and
expense, except as otherwise set forth in this Section 3.04. Except as otherwise
set forth in this Section 3.04, Tenant shall bear all other costs and expenses
associated with Tenant's audit (including fees of Tenant's auditor). Within ten
(10) business days of completion of the audit, if Tenant desires to challenge
Landlord's statement, then Tenant shall provide Landlord with a copy of Tenant's
auditor's report. Within thirty (30) days of Landlord's receipt of Tenant's
auditor's report, Landlord shall notify Tenant as to whether Landlord agrees or
disagrees with the conclusions reached in Tenant's auditor's report. Landlord's
failure to respond shall be deemed to constitute a disagreement with the
Tenant's auditors report. If Landlord agrees with the conclusions of Tenant's
auditor's report showing a discrepancy in Tenant's favor, then Landlord shall
credit the amount of such discrepancy to the payment of Gross Rent due or
falling due under this Lease. If, however, Landlord disagrees with, or is deemed
to disagree with, Tenant's auditor's report, Landlord and Tenant shall endeavor
to resolve any disagreements regarding Tenant's auditors report. If Landlord and
Tenant are unable to resolve such disagreement regarding Tenant's auditor's
report within twenty (20) business days after Landlord's notice of disagreement
or failure to respond, then Landlord and Tenant shall submit the matter to an
independent audit conducted by an independent nationally recognized accounting
firm or a nationally recognized real estate management or consulting firm that
has been mutually selected by Tenant and Landlord. The results of such
independent audit shall be conclusive and binding upon Landlord and Tenant. In
the event such independent audit reveals a discrepancy in Tenant's favor, then
Landlord shall credit the amount of such discrepancy to the payment of Gross
Rent due or falling due under this Lease. In the event such independent audit
reveals a discrepancy in Landlord's favor, Tenant shall pay the amount of the
discrepancy to Landlord within twenty (20) business days of completion of the
audit. The failure of Tenant to notify Landlord that Tenant desires an audit
within ninety (90) days of Tenant's receipt of Landlord's statement under this
Section 3.04(c) shall constitute an acceptance by Tenant of Landlord's statement
and a waiver by Tenant of its right to audit for such Computation Year. If
Tenant commences an audit in accordance with this Section 3.04(c) then such
audit and the Tenant's auditor's report must be completed within sixty (60) days
of Tenant's notice to Landlord of Tenant's desire to audit provided that such
sixty (60) day period shall be extended, day-for-day, for each day Landlord
prevents or delays the conduct of such audit. Failure of Tenant to complete the
audit within such sixty (60) day period (as the same may be extended for
Landlord delays) shall constitute an acceptance by Tenant of Landlord's
statement for such Computation Year. The respective obligations of Landlord and
Tenant under this Section 3.04(c) shall survive the Term Expiration Date, and,
if the Term Expiration Date is a day other than the last day of a Computation
Year, the adjustments in Tenant's Proportionate Share of Increased Basic
Operating Cost and in Tenant's Proportionate Share of Increased Property Taxes
pursuant to this Section 3.04(c) for the
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Computation Year in which the Term Expiration Date occurs shall be prorated in
the proportion that the number of days in such Computation Year preceding the
Term Expiration Date bears to three hundred sixty-five (365). Notwithstanding
any other provision of this Lease to the contrary, in the event any Tenant's
auditor's report to which Landlord agrees with the auditor's conclusions or any
independent audit reveals a discrepancy in the amount actually owed by Tenant
for Basic Operating Cost, Increased Property Taxes, or both, of more than four
percent (4%), then Landlord shall bear all of the costs and expenses of the
audits (including Tenant's audit).
(d) Landlord shall have the same remedies for a default in the payment
of Tenant's Proportionate Share of Increased Basic Operating Cost or for a
default in the payment of Tenant's Proportionate Share of Increased Property
Taxes as for a default in the payment of Base Rent.
3.05 BASIC OPERATING COST.
(a) Basic Operating Cost shall mean all expenses and costs (but not
specific costs which are separately billed to and paid by particular tenants of
the Building) of every kind and nature which Landlord shall pay or become
obligated to pay because of or in connection with the management, ownership,
maintenance, repair, preservation and operation of the Project and its
supporting facilities directly servicing the Project (determined in accordance
with generally accepted accounting principles, consistently applied) including,
but not limited to, the following:
(1) Wages, salaries and related expenses and benefits of all
on-site and off-site employees and personnel engaged in the operation,
maintenance, repair and security of the Project, to the extent such charges are
directly allocable to services rendered by the employees and personnel for the
benefit of the Project.
(2) Costs of Landlord's office (including the property management
office) and office operation in the Project, as well as the costs of operation
of a room for delivery and distribution of mail to tenants of the Building.
(3) All supplies, materials, equipment and equipment rental used
in the operation, maintenance, repair and preservation of the Project.
(4) Utilities, including water, sewer and power, telephone,
communication and cable television facilities, lighting, heating and ventilating
the entire Project.
(5) All maintenance, janitorial and service agreements for the
Project and the equipment therein, including, without limitation, alarm and/or
security service, window cleaning, elevator maintenance, sidewalks, landscaping,
Building exterior and service areas.
(6) A management cost recovery in an amount not to exceed five
percent (5%) of all Rent (excluding such management cost recovery) derived from
the Building.
(7) Legal and accounting services for the Project, including the
costs of audits by certified public accountants (other than audits for which
Landlord must bear the cost pursuant to Section 3.04; provided, however, that
legal expenses shall not include the cost of lease negotiations, termination of
leases, extension of leases or legal costs incurred in proceedings by or against
any specific tenant.
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(8) All insurance costs, including, but not limited to,
the cost of all risk property and liability coverage and rental income and
earthquake insurance applicable to the Project and Landlord's personal property
used in connection therewith, as well as commercially reasonable deductible
amounts applicable to such insurance; provided, however, that Landlord may, but
shall not be obligated to, carry earthquake insurance, but if Landlord does not
obtain earthquake insurance in the Base Year, but thereafter chooses to obtain
such insurance, Landlord shall adjust the Basic Operating Costs for the Base
Year to include an amount equal to the premium for such insurance that would
have been paid if such insurance had been obtained in the Base Year.
(9) Repairs, replacements and general maintenance (except
for repairs paid by proceeds of insurance or by Tenant or other tenants of the
Building or third parties, and alterations attributable solely to specific
tenants of the Project.
(10) Amortization (together with reasonable financing
charges) of capital improvements made to the Project subsequent to the Term
Commencement Date which are designed to and do improve the operating efficiency
of the Project, in Landlord's reasonable opinion, or which may be required by
governmental authorities, including those improvements required for energy
conservation and for the benefit of individuals with disabilities ("ADA
Improvements"), in relation to new laws or changes in existing laws, applicable
to the Building, which arise or take affect after the date of this Lease.
(b) In the event any of the Basic Operating Costs are not
allocable solely to the Building or are not provided on a uniform basis within
the Building, Landlord shall make an appropriate and equitable adjustment, in
Landlord's reasonable discretion, to the relevant cost allocations to the
Building and the Leased Premises and Tenant shall pay only its proportionate
share of any increase in the amounts allocable to the Building and the Leased
Premises over the amounts so allocated in the Base Year on a consistent basis.
(c) Notwithstanding any other provision of this Lease to the
contrary, in the event that the Project is not fully occupied during any year of
the Term, an adjustment shall be made in computing Basic Operating Cost for such
year (including the Base Year) so that Basic Operating Cost shall be computed as
though the Building had been 95% occupied during such year.
(d) The following items shall be excluded from Basic Operating
Costs: (i) depreciation on the Building and the Project; (ii) debt service;
(iii) rental under any ground or underlying lease; (iv) attorneys' fees and
expenses incurred in connection with lease negotiations with prospective Project
tenants or alleged defaults with Project tenants; (v) the cost of any
improvements or equipment which would be properly classified as capital
expenditures (except for any capital expenditures expressly included in Section
3.05(a), including, without limitation, Section 3.05(a)(10)); the cost of
decorating, improving for tenant occupancy, painting or redecorating portions of
the Building to be demised to tenants; (vii) advertising expenses relating to
vacant space; (viii) real estate brokers' or other leasing commissions; and (ix)
Property Taxes.
3.06 PROPERTY TAXES.
(a) "Property Taxes" shall mean all real estate or personal
property taxes, possessory interest taxes, business or license taxes or fees,
service payments in lieu of such taxes or fees, annual or periodic license or
use fees, excises, transit charges, housing fund assessments, open space
charges, assessments, bonds, levies, fees or charges, general and special,
ordinary and extraordinary, unforeseen as well as foreseen, of any kind which
are assessed, levied, charged, confirmed or imposed by any public authority upon
the Project (or any portion or component thereof), its operations, this Lease,
or the Rent due hereunder (or any portion or component thereof), except: (i)
inheritance or estate taxes imposed upon or
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assessed against the Project, or any part thereof or interest therein, (ii)
Landlord's personal or corporate income, gift or franchise taxes; or (iii) any
other fees or payments in lieu of the taxes described in clauses (i) and (ii)
hereof.
(b) In the event any of the Property Taxes are not allocable
between the Leased Premises, the Building and other improvements in the Project
on a uniform basis, Landlord shall make an appropriate and equitable adjustment,
in Landlord's reasonable discretion, to the relevant allocations of Property
Taxes to the Leased Premises or the Building and Tenant shall pay only its
proportionate share of any increase in the amounts allocable to the Building and
the Leased Premises over the amounts so allocated in the Base Year on a
consistent basis.
(c) Notwithstanding any other provision of this Lease to the
contrary, in the event that the Project is not fully occupied during any year of
the Term, an adjustment shall be made in computing Property Taxes for such year
(including the Base Year) so that Property Taxes shall be computed as though the
Building had been 95% occupied during such year.
ARTICLE 4.
LANDLORD'S COVENANTS
4.01 BASIC SERVICES. Landlord shall operate the Project to a standard of
quality consistent with that of other similar-class office projects in the
immediate geographical area, and shall:
(a) Administer the improvement of the Leased Premises in
accordance with EXHIBIT B, and cause the Landlord Improvements described therein
to be made as and when set forth in EXHIBIT B.
(b) Furnish Tenant during Tenant's occupancy of the Leased
Premises the following basic services:
(1) Hot and cold water at those points of supply set forth
in EXHIBIT B within the Leased Premises and at such other points of supply
maintained for general use of tenants in the Project; steam heating and
ventilating during the Building hours of operation specified in the rules and
regulations for the Project adopted pursuant to Section 5.17 and at such
temperatures, during such seasons, and in such amounts as are standard for the
comfortable use and occupancy of similar Class A office buildings and the Leased
Premises or, in all events, as may be permitted or controlled by applicable
laws, ordinances, rules and regulations. Notwithstanding the foregoing, the
Building does not have central air conditioning; however, a condenser water loop
serves each floor of the Building for access to condensed water for Tenant's air
conditioning needs (Tenant, at its sole cost, shall be responsible for the
installation, operation and maintenance of such air conditioning units, if
needed), which installation may, at Tenant's option be part of the Tenant
Improvements described in EXHIBIT B and paid for with Landlord's Contribution).
(2) Structural and exterior maintenance (including
exterior glass and glazing) and routine maintenance, repairs and electric
lighting service for all public areas and service areas of the Project.
(3) Janitorial service on a five (5) day per week basis,
excluding holidays.
(4) Electric lighting service throughout the Leased
Premises and electrical facilities to provide sufficient power to meet the
electricity requirements set forth in EXHIBIT B.
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(5) Building Standard lamps, bulbs, starters and ballasts
used in the Leased Premises.
(6) Public elevator service serving the floors on which
the Leased Premises are situated twenty-four (24) hours per day, seven (7) days
per week, including freight elevator service when prearranged with Landlord,
subject to such rules and regulations as Landlord shall promulgate from time to
time.
(c) Landlord shall not be liable for damages to either
person or property, nor shall Landlord be deemed to have evicted Tenant, nor
shall there be any abatement of Rent, nor shall Tenant be relieved from
performance of any covenant on its part to be performed under this Lease by
reason of any (i) deficiency in the provision of basic services; (ii) breakdown
of equipment or machinery utilized in supplying services; or (iii) curtailment
or cessation of services due to causes or circumstances beyond the reasonable
control of Landlord or by the making of the necessary repairs or improvements,
unless such deficiency, breakdown, curtailment or cessation is due to the
negligence or willful misconduct of Landlord. Landlord shall use reasonable
diligence to make such repairs as may be required to machinery or equipment
within the Project to provide restoration of services and, where the cessation
or interruption of service has occurred due to circumstances or conditions
beyond Project boundaries, to cause the same to be restored, by diligent
application or request to the provider thereof. In no event shall any mortgagee
or the beneficiary under any deed of trust referred to in Section 5.12 be or
become liable for any default of Landlord under this Section 4.01(c).
4.02 EXTRA SERVICES. Landlord shall provide to Tenant at Tenant's sole
cost and expense (and subject to the limitations hereinafter set forth) the
following extra services:
(a) Such extra cleaning and janitorial services as requested by
Tenant;
(b) [intentionally deleted.]
(c) Heating, ventilation, or extra electrical service (for
electrical equipment which consumes electricity in excess of the standard
amounts set forth in Section 4.01(b)(4) above), provided by Landlord to Tenant
(i) during hours other than the Building hours of operation specified in the
rules and regulations for the Project adopted pursuant to Section 5.17, which
shall provide for Building hours of operation of 7:00 a.m. to 6:00 p.m., Monday
through Friday (excluding holidays), or (ii) on Saturdays, Sundays, or holidays,
all said heating, ventilation or extra electrical service to be furnished solely
upon the prior written request of Tenant submitted during business hours to
Landlord at least 24 hours in advance of the time such service is needed, or
pursuant to such other procedures as may be established from time to time by
Landlord for the Building or the Project (such after-hour heating, ventilation
and lighting charge shall be billed at Landlord's actual cost basis prorated
with the similar use of other tenants of the Building);
(d) Maintaining and replacing non-Building Standard lamps, bulbs,
starters and ballasts (whether or not the light fixtures were installed by
Landlord as part of the Tenant Improvements);
(e) Repair and maintenance service which is the obligation of
Tenant under this Lease;
(f) Repair, maintenance or janitorial service to the Leased
Premises or the Common Areas which is required as a result of the acts or
omissions of Tenant, its agents, employees, contractors, invitees or licensees;
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(g) Any basic service in amounts reasonably determined by
Landlord to exceed the amounts required to be provided under Section 4.01(b),
but only if Landlord elects to provide such additional or excess service;
(h) For the purposes of this Section 4.02, if, in Landlord's
reasonable opinion, Tenant's use of electrical and/or water service at the
Leased Premises is excessive, Landlord may install one or more submeter(s) at
the Leased Premises to measure the amount of electricity and/or water consumed
by Tenant therein. The cost of such installation and of such excess electricity
and/or water (at the rates charged for such services by the local public
utility) shall be paid by Tenant to Landlord upon receipt by Tenant of a bill
therefor; and
(i) The cost chargeable to Tenant for all extra services shall
constitute Additional Rent and shall include a management fee payable, to
Landlord of five percent (5%); provided that no such management fee shall be
added to the charges described in Section 4.02(h). Additional Rent shall be paid
monthly by Tenant to Landlord concurrently with the payment of Base Rent.
4.03 WINDOW COVERINGS. All window coverings for the Leased Premises
shall be those provided by Landlord (with the actual cost of such blinds to be
deducted from Landlord's Contribution) as Building Standard Improvements. Tenant
shall not place or maintain any window coverings, blinds, curtains or drapes
other than those supplied by Landlord on any exterior window without Landlord's
prior written approval, which approval shall not be unreasonably withheld,
conditioned, or delayed.
4.04 GRAPHICS AND SIGNAGE. Landlord shall provide identification of
Tenant's name and suite numerals on a building directory in the Building lobby.
All signs, notices, advertisements and graphics of every kind or character,
visible in or from the Common Areas or the exterior of the Leased Premises shall
be subject to Landlord's prior written approval, which approval shall not be
unreasonably withheld, conditioned or delayed. Landlord may remove, without
notice to and at the expense of Tenant, any sign, notice, advertisement or
graphic of any kind inscribed, displayed or affixed in violation of the
foregoing requirement. All approved signs, notices, advertisements or graphics
shall be printed, affixed or inscribed at Tenant's expense by a person selected
by Landlord. Landlord shall be entitled to revise the Project graphics and
signage standards at any time; provided that Landlord shall bear all cost and
expenses associated with changing any previously approved graphics and signage
to any such new standards.
4.05 [Intentionally deleted.]
4.06 REPAIR OBLIGATION. Landlord's obligation with respect to
maintenance and repair shall be limited to (i) the structural portions of the
Building; (ii) the exterior walls of the Building, including exterior glass and
glazing; (iii) the exterior roof; (iv) heating, ventilating, mechanical,
electrical, plumbing, life safety and any Building-wide or Project-wide systems;
(v) the Common Areas; and (vi) landscaped areas. Landlord shall be obligated to
keep and maintain the foregoing at all times in good order, condition and
repair. Landlord shall not have any obligation to repair damage to such portions
of the Building or the Project to the extent such damage is caused by Tenant,
its agents, employees, contractors, invitees or licensees, unless such damage is
covered by insurance Landlord is maintaining. Landlord shall have the right, but
not the obligation, to undertake work of repair which Tenant is required to
perform under this Lease and which Tenant fails or refuses to perform in a
timely and efficient manner. Tenant shall reimburse Landlord upon demand, as
Additional Rent, for all costs incurred by Landlord in performing any such
repair for the account of Tenant, together with an amount equal to five percent
(5%) of such costs to reimburse Landlord for its administration and managerial
effort. Except as specifically set forth in this Lease, Landlord shall have no
obligation whatsoever to maintain or repair the Leased Premises or the Project.
The parties intend that the terms of this Lease govern their respective
maintenance and repair obligations. Except as
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otherwise provided in Section 5.16, Tenant expressly waives the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to such obligations or which affords Tenant the
right to make repairs at the expense of Landlord or terminate this Lease by
reason of the condition of the Leased Premises or any needed repairs.
4.07 PEACEFUL ENJOYMENT. Landlord covenants with Tenant that upon Tenant
paying the Rent and all other charges required under this Lease and performing
all of Tenant's material covenants and agreements herein contained, Tenant shall
peacefully have, hold and enjoy the Leased Premises subject to all of the terms
of this Lease and to any deed of trust, mortgage, ground lease or other
agreement to which this Lease may be subordinate. This covenant and the other
covenants of Landlord contained in this Lease shall be binding upon Landlord and
its successors only with respect to breaches occurring during its or their
respective ownerships of Landlord's interest hereunder.
ARTICLE 5.
TENANT'S COVENANTS
5.01 PAYMENTS BY TENANT. Tenant shall pay Rent at the times and in the
manner provided in this Lease. All obligations of Tenant hereunder to make
payments to Landlord shall constitute Rent and failure to pay the same when due
shall give rise to the rights and remedies provided for in Section 7.08. If
there is more than one Tenant, the obligations imposed under this Lease upon
Tenant shall be joint and several.
5.02 TENANT IMPROVEMENTS. The Tenant Improvements shall be installed and
constructed by the Contractor pursuant to EXHIBIT B. All Tenant Improvements
shall become the property of Landlord upon installation and shall be surrendered
to Landlord without compensation to Tenant upon termination of this Lease by
lapse of time or otherwise.
5.03 TAXES ON PERSONAL PROPERTY. In addition to, and wholly apart from
its obligation to pay Tenant's Proportionate Share of Increased Property Taxes,
Tenant shall be responsible for, and shall pay prior to delinquency, all taxes
or governmental service fees, possessory interest taxes, fees or charges in lieu
of any such taxes, capital levies, and any other charges imposed upon, levied
with respect to, or assessed against Tenant's personal property and on its
interest pursuant to this Lease. To the extent that any such taxes are not
separately assessed or billed to Tenant, Tenant shall pay the amount thereof as
invoiced to Tenant by Landlord. Notwithstanding any other provision of this
Lease to the contrary, Tenant may, at Tenant's option and expense, contest any
such taxes, governmental service fees, possessory interest taxes, fees or
charges in lieu thereof, capital levies or other charges, or Landlord's
allocation thereof to Tenant or the Leased Premises, by any lawful means.
5.04 REPAIRS BY TENANT. Tenant shall be obligated to maintain and repair
the Leased Premises, to keep the same at all times in good order, condition and
repair, and, upon expiration of the Term, to surrender the same to Landlord in
the same condition as on the Term Commencement Date, reasonable wear and tear,
taking by condemnation, and damage by casualty excepted. Tenant's obligations
shall include, without limitation, the obligation to maintain and repair all
walls, floors, ceilings and fixtures and to repair all damage caused by Tenant,
its agents, employees, contractors, invitees and others using the Leased
Premises with Tenant's expressed or implied permission. At the request of
Tenant, Landlord shall perform the work of maintenance and repair constituting
Tenant's obligation under this Section 5.04 at Tenant's sole cost and expense
and as an extra service to be rendered pursuant to Section 4.02(e). Any work of
repair and maintenance performed by or for the account of Tenant by persons
other than Landlord shall be performed by contractors approved by Landlord and
in accordance with reasonable procedures Landlord shall from time to time
establish. Tenant shall give Landlord prompt notice of any damage to or
defective condition in any
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part of the Building's mechanical, electrical, plumbing, life safety or other
system servicing, located in or passing through the Leased Premises.
5.05 WASTE. Tenant shall not commit or authorize its agents, employees,
contractors, invitees or licensees to commit, any waste in or damage to any
portion of the Leased Premises or the Project.
5.06 ASSIGNMENT OR SUBLEASE.
(a) Tenant shall not voluntarily or by operation of law assign,
transfer or encumber (collectively "Assign") or sublet all or any part of
Tenant's interest in this Lease or in the Leased Premises without Landlord's
prior written consent, which consent shall not be unreasonably withheld,
conditioned, or delayed, given under and subject to the terms of this Section
5.06. Notwithstanding the foregoing, the Tenant may, upon written notice to the
Landlord, in whole or in part, sublet the Leased Premises, or Assign this Lease
to an affiliate, parent or subsidiary of the Tenant which retains at least a
fifty percent (50%) interest in the Tenant, so long as Tenant shall remain
responsible in case of default, and, provided, further, no such permitted
subletting or assignment shall relieve the Tenant of liability under this Lease.
An assignment of this Lease to an entity arising as a result of merger,
acquisition or consolidation shall be also permitted without the consent of
Landlord (but with written notice to the Landlord) as long as the entity's
financial condition is at least equivalent to the greater of (i) the financial
condition of Tenant as of the date of this Lease, or (ii) the financial
condition of Tenant as of the date of the proposed merger, acquisition or
consolidation.
(b) Except as permitted in Section 5.06(a), if Tenant desires to
Assign this Lease or any interest herein or sublet the Leased Premises or any
part thereof, Tenant shall give Landlord written notice of such intent. Tenant's
notice shall specify the date the proposed assignment or sublease would be
effective and be accompanied by information pertinent to Landlord's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or subtenant, including, without
limitation, its name, business and financial condition, financial details of the
proposed transfer, the intended use (including any modification) of the Leased
Premises, and exact copies of all of the proposed agreements between Tenant and
the proposed assignees or subtenants. If requested by Landlord within ten (10)
business days after receipt of Tenant's notice, Tenant shall promptly provide
Landlord with (i) such other or additional information or documents reasonably
requested by Landlord, and (ii) an opportunity to meet and interview the
proposed assignees or subtenants.
(e) Landlord shall have a period of ten (10) days following such
interview and receipt of such additional information (or twenty (20) days from
the date of Tenant's original notice if Landlord does not request additional
information or an interview) within which to notify Tenant in writing that
Landlord elects either (i) to terminate this Lease as to the space so affected
as of the effective date specified by Tenant, in which event Tenant will be
relieved of all further obligations hereunder as to such space, or (ii) to
permit Tenant to Assign this Lease or sublet such space to the proposed assignee
or sublessee; or (iii) to not permit Tenant to Assign this Lease or sublet such
space to the proposed assignee or sublessee. If Landlord fails to notify Tenant
in writing of such election within said period, Landlord shall be deemed to have
approved the proposed assignee or sublessee. Failure by Landlord to approve a
proposed subtenant or assignee shall not cause a termination of this Lease.
(d) In the event Tenant shall request the consent of Landlord to
any assignment or subletting hereunder, Tenant shall pay Landlord a processing
fee of $250.00 and shall reimburse Landlord for Landlord's reasonable attorneys'
fees (not to exceed $2,000.00) incurred in connection therewith. All such fees
shall be deemed Additional Rent under this Lease.
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(e) Any rent or other consideration realized by Tenant under any
such sublease or assignment in excess of (i) the Rent payable hereunder, (ii)
any reasonable tenant improvement allowance or other economic concession (e.g.,
space planning allowance, moving expenses, free or reduced rent periods, etc.),
(iii) any advertising costs and brokerage commissions associated with such
assignment or sublease, and (iv) any reasonable legal fees associated with such
assignment or sublease ("Profit"), shall be divided and paid as follows: fifty
percent (50%) to Tenant and fifty percent (50%) to Landlord; provided, however,
that if Tenant is in default hereunder beyond any applicable cure period,
Landlord shall be entitled to receive, for the account of Tenant, Tenant's share
of such excess rent and Landlord shall credit Tenant's share of such excess rent
toward any amounts owed by Tenant to Landlord.
(f) In any subletting undertaken by Tenant, Tenant shall use
commercially reasonable efforts to obtain not less than fair market sublease
rent for the space to sublet. In any assignment of this Lease in whole or in
part, Tenant shall use commercially reasonable efforts to obtain from the
assignee consideration reflecting a value of not less than fair market
assignment rent for the space subject to such assignment.
(g) The consent of Landlord to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Tenant or
to any subsequent or successive assignment or subletting by the assignee or
subtenant. However, Landlord may consent to subsequent assignments and
sublettings of the Lease or sublease or amendments or modifications thereto,
without notifying Tenant or any other party liable on the Lease or sublease and
without obtaining their consent. Such action shall not relieve Tenant or any
such other party from liability under this Lease or a sublease.
(h) Except to the extent the parties otherwise agree in writing,
no assignment or subletting by Tenant shall relieve Tenant of any obligation
under this Lease. In the event of default by an assignee or subtenant of Tenant
or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against such assignee, subtenant or successor. Any assignment or
subletting which conflicts with the provisions hereof shall be void and, at
Landlord's option, shall constitute a default under this Lease.
(i) Notwithstanding anything to the contrary contained within
this Section 5.06, Landlord acknowledges that, although Tenant anticipates that
its space needs will encompass the total of the Leased Premises at some point in
the near future, a portion of the space which Tenant is currently accepting and
leasing may be initially determined to be in excess of Tenant's current short
term space planning needs. As a result, should Tenant submit a request to
Landlord for Landlord's consent to Tenant's sublease of a portion of the Leased
Premises at any time during the first thirty (30) months of the Term and such
sublease along with all other current subleases and assignments, in the
aggregate, do not exceed 25,440 rentable square feet, such request shall not be
subject to Landlord's right of recapture pursuant to Section 5.06(c) above.
5.07 ALTERATIONS, ADDITIONS AND IMPROVEMENTS.
(a) Tenant shall not make or allow its agents, employees,
contractors, invitees, or licensees to make, any structural alterations or
additions in or to the Leased Premises or any nonstructural alterations or
additions with an estimated cost of more than Twenty-Five Thousand Dollars
($25,000) (collectively "Alterations") without first obtaining the written
consent of Landlord, which consent shall not be unreasonably withheld,
conditioned, or delayed, so long as the proposed Alterations (i) comply with all
applicable laws, ordinances, rules and regulations; (ii) are reasonably
compatible with and do not adversely affect the Building and its mechanical,
electrical, heating, ventilation and life safety systems; (iii) will not affect
the structural portions of the Building; (iv) will not interfere with the use
and occupancy of any other
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portion of the Building by any other tenant, its employees or invitees; and (v)
will not trigger any additional costs to Landlord. Specifically, but without
limiting the generality of the foregoing, Landlord's right of consent shall
encompass plans and specifications for the proposed Alterations, construction
means and methods, the identity of any contractor or subcontractor to be
employed on the work of the Alterations, and the time for performance of such
work. Tenant shall supply to Landlord any additional documents and information
requested by Landlord in connection with Tenant's request for consent for any
such Alteration. For the purposes herein, the Landlord Improvements and Tenant
Improvements set forth in EXHIBIT B hereto shall not constitute Alterations or
alterations, additions or improvements under this Section 5.07.
(b) Any consent given by Landlord under this Section 5.07 shall
be deemed conditioned upon: (i) Tenant's acquiring all applicable permits
required by governmental authorities; (ii) Tenant's furnishing to Landlord
copies of such permits, together with copies of the approved plans and
specifications; prior to commencement of the work thereon; and (iii) the
compliance by Tenant with the conditions of all applicable permits and approvals
in a prompt and expeditious manner.
(c) Tenant shall provide Landlord with not less than fifteen (15)
days prior written notice of commencement of the work so as to enable Landlord
to post and record appropriate notices of non-responsibility. All alterations
and additions permitted under this Section 5.07, including Alterations, shall be
made and performed by Tenant without cost or expense to Landlord. Tenant shall
pay the contractors and suppliers all amounts due to them when due and keep the
Leased Premises and the Project free from any and all mechanics', materialmen's
and other liens and claims arising out of any work performed, materials
furnished or obligations incurred by or for Tenant; provided, however, that
nothing herein shall prevent Tenant from contesting any such amounts due or any
such liens placed if Tenant provides any required bond therefor. For any
Alteration, Landlord may require, at its sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount equal to
the total estimated cost of any alterations, additions or improvements to be
made in or to the Leased Premises, to protect Landlord against any liability for
mechanics', materialmen's and other liens and claims, and to ensure timely
completion of the work. In the event any alterations or additions to the Leased
Premises are performed by Landlord hereunder, whether by prearrangement or
otherwise, Landlord shall be entitled to charge Tenant a ten percent (10%)
administration fee in addition to the actual costs of labor and materials
provided. Such costs and fees shall be deemed Additional Rent under this Lease,
and may be charged and payable prior to commencement of any work by Landlord.
(d) Any and all alterations, additions or improvements, including
Alterations, made to the Leased Premises by Tenant shall become the property of
Landlord upon installation and shall be surrendered to Landlord without
compensation to Tenant upon the termination of this Lease by lapse of time or
otherwise unless (i) Landlord conditioned its approval of such Alterations on
Tenant's agreement to remove them, or (ii) if Tenant did not provide a Removal
Determination Request (as defined below), Landlord notifies Tenant prior to (or
promptly after) the Term Expiration Date that the alterations, additions and/or
improvements must be removed, in which case Tenant shall, by the Term Expiration
Date (or promptly thereafter), remove such Alterations and repair any damage
resulting from such removal and restore the Leased Premises to their condition
existing prior to the date of installation of such Alterations. Prior to making
any alterations, additions or improvements to the Leased Premises, Tenant may
make a written request that Landlord determine in advance whether or not Tenant
must remove such alterations, additions or improvements on the Term Expiration
Date ("Removal Request Determination").
(e) Notwithstanding anything to the contrary set forth in this
Lease, this Section 5.07 shall not apply to the installation and removal of
trade fixtures, movable equipment or furniture owned by Tenant. Tenant shall
repair at its sole cost and expense all damage caused to the Leased Premises and
the Project by installation and removal of Tenant's trade fixtures, movable
equipment or furniture.
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(f) All alterations, additions and improvements permitted under
this Section 5.07 shall be constructed diligently, in a good and workmanlike
manner with new, good and sufficient materials and in compliance with all
applicable laws, ordinances, rules and regulations (including, without
limitation, building codes and those related to accessibility and use by
individuals with disabilities). Tenant shall, promptly upon completion of the
work, furnish Landlord with "as built" drawings for any alterations, additions
or improvements performed under this Section 5.07.
5.08 COMPLIANCE WITH LAWS AND INSURANCE STANDARDS. Tenant shall not
occupy or use, or permit its agents, employees, contractors, invitees, or
licensees to occupy or use, any portion of the Leased Premises in a manner that
violates any applicable law, ordinance, rule, regulation, order, permit,
covenant, easement or restriction of record, or the recommendations of
Landlord's engineers or consultants of which Landlord makes Tenant aware in
writing relating in any manner to the Project, or for any business or purpose
which is disreputable, objectionable or productive of fire hazard (provided,
however, that Landlord acknowledges that Tenant's proposed use of the Leased
Premises is not disreputable or objectionable. Tenant shall not do or permit its
agents, employees, contractors, invitees, or licensees to do anything which
would result in the cancellation, or in any way increase the cost, of the all
risk property insurance coverage on the Project and/or its contents. If Tenant
does or permits its agents, employees, contractors, invitees, or licensees to do
anything which increases the cost of any insurance covering or affecting the
Project, then Tenant shall reimburse Landlord, upon demand, as Additional Rent,
for such additional costs. Landlord shall deliver to Tenant a written statement
setting forth the amount of any such insurance cost increase and showing in
reasonable detail the manner in which it has been computed. Tenant shall, at
Tenant's sole cost and expense, comply with all laws, ordinances, rules,
regulations and orders (whether state, federal, municipal or promulgated by
other agencies or bodies having or claiming jurisdiction) ("Applicable Laws")
related to its use of the Leased Premises now in effect or which may hereafter
come into effect including, but not limited to, (a) accessibility and use by
individuals with disabilities, and (b) environmental conditions in, on or about
the Leased Premises; provided, however, that as of the Term Commencement Date,
Landlord covenants that the Leased Premises, the Building, and the Project, will
comply with all Applicable Laws, including, without limitation (a) accessibility
and use by individuals with disabilities, and (b) environmental conditions in,
on or about the Leased Premises, the Building, and the Project. If, after the
Term Commencement Date, anything done by Tenant in its use or occupancy of the
Leased Premises shall create, require or cause imposition of any requirement by
any public authority for structural or other upgrading of or alteration or
improvement to the Project, Tenant shall, at Landlord's option, either perform
the upgrade, alteration or improvement at Tenant's sole cost and expense or
reimburse Landlord upon demand, as Additional Rent, for the cost to Landlord of
performing such work. The judgment of any court of competent jurisdiction or the
admission by Tenant in any action against Tenant, whether Landlord is a party
thereto or not, that Tenant has violated any law, ordinance, rule, regulation,
order, permit, covenant, easement or restriction shall be conclusive of that
fact as between Landlord and Tenant.
5.09 NO NUISANCE; NO OVERLOADING. Tenant shall use and occupy the Leased
Premises, and control its agents, employees, contractors, invitees and visitors
in such manner so as not to create any nuisance, or interfere with, annoy or
disturb (whether by noise, odor, vibration or otherwise) any other tenant or
occupant of the Project or Landlord in its operation of the Project. Tenant
shall not place or permit to be placed any loads upon the floors, walls or
ceilings in excess of the maximum designed load specified by Landlord and of
which Landlord gives Tenant written notice.
5.10 FURNISHING OF FINANCIAL STATEMENTS; TENANT'S REPRESENTATIONS. In
order to induce Landlord to enter into this Lease, Tenant agrees that it shall
promptly furnish Landlord, from time to time, within ten (10) business days of
receipt of Landlord's written request therefor, with a copy of Tenant's most
recent financial statement (whether audited or unaudited) prepared in the
ordinary course of Tenant's
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business operations. Tenant represents and warrants that to Tenant's knowledge
all financial statements, records and information furnished by Tenant to
Landlord in connection with this Lease are true, correct and complete in all
respects as of the date of delivery.
5.11 ENTRY BY LANDLORD. Landlord, its employees, agents and consultants,
shall have the right to enter the Leased Premises at any time in case of an
emergency to deal with such emergency, and otherwise upon not less than one (1)
business day's prior written notice and during normal business hours or such
other time as Tenant may agree, to inspect the same, to clean, to perform such
work as may be permitted or required under this Lease, to make repairs to or
alterations of the Leased Premises or other portions of the Project or other
tenant spaces therein, to deal with emergencies, to post such notices as may be
permitted or required by law to prevent the perfection of liens against
Landlord's interest in the Project or to show the Leased Premises to prospective
tenants during the last twelve (12) months of the Term, purchasers or
encumbrancers; provided, however, that Landlord shall use its best efforts to
minimize interference with Tenant's business operations in the Leased Premises
when exercising any such right of entry. Tenant shall not be entitled to any
abatement of Rent or damages by reason of the exercise of any such right of
entry.
5.12 NONDISTURBANCE AND ATTORNMENT.
(a) This Lease and the rights of Tenant hereunder shall be
subject and subordinate to the lien of any deed of trust, mortgage or other
hypothecation or security instrument (collectively, "Security Device") now or
hereafter placed upon, affecting or encumbering the Project or any part thereof
or interest therein, and to any and all advances made thereunder, interest
thereon or costs incurred and any modifications, renewals, supplements,
consolidations, replacements and extensions thereof, if, but only if, with
respect to any Security Device entered into by Landlord after execution of this
Lease, such subordination is conditioned on Landlord obtaining assurance in a
commercially reasonable form (a "nondisturbance agreement") from the holder of
or beneficiary under such encumbrance that Tenant's possession of the Leased
Premises and right of ingress and egress over and across the Project will not be
disturbed so long as Tenant is not in default under this Lease. Landlord shall
obtain and deliver to Tenant a nondisturbance agreement from Fleet National Bank
in the form attached hereto as EXHIBIT E within ten (10) business days of full
execution of this Lease. Without the consent of Tenant, the holder of any such
Security Device or the beneficiary thereunder shall have the right to elect to
be subject and subordinate to this Lease, such subordination to be effective
upon such terms and conditions as such holder or beneficiary may direct which
are not inconsistent with the provisions hereof. Tenant agrees to attorn to and
recognize as the Landlord under this Lease the holder or beneficiary under a
Security Device or any other party that acquires ownership of the Leased
Premises by reason of a foreclosure or sale under any Security Device (or deed
in lieu thereof) commencing on the fifth (5th) business day after Tenant has
received notice from such holder, beneficiary, or owner. Tenant shall be
entitled to rely upon such notice without any investigation and Tenant shall not
be liable to Landlord for any amounts paid to, or any other performance
performed for the benefit of, such holder, beneficiary or owner pursuant to such
notice. Any new owner following such foreclosure, sale or deed shall not be (i)
liable for any act or omission of any prior landlord or with respect to events
occurring prior to acquisition of ownership; (ii) subject to any offsets or
defenses which Tenant might have against any prior landlord; or (iii) bound by
prepayment of more than one (1) month's Rent.
(b) Tenant shall not unreasonably withhold its consent to changes
or amendments to this Lease requested by the holder of a Security Device so long
as such requested changes do not alter the basic business terms of this Lease or
otherwise diminish or abridge any rights or impose or increase any obligations
of Tenant hereunder. Landlord shall pay Tenant a processing fee of $250.00 and
shall reimburse Tenant for Tenant's reasonable attorneys' fees (not to exceed
$2,000.00) incurred in connection with Tenant's review, negotiation, and
execution of any such changes and amendments. If, within fifteen (15) business
days after notice from Landlord, Tenant fails or unreasonably refuses to execute
with Landlord any amendment to this
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Lease accomplishing the reasonable changes or amendments which are requested by
such holder such amendments shall be deemed accepted and shall be enforceable by
Landlord and such lender and binding upon Tenant, its successors and assigns as
if agreed to in writing, without need of further action or documentation.
5.13 ESTOPPEL CERTIFICATE. Within ten (10) business days following
Landlord's request, Tenant shall execute, acknowledge and deliver written
estoppel certificates addressed to (i) any mortgagee or prospective mortgagee of
Landlord, or (ii) any purchaser or prospective purchaser of all or any portion
of, or interest in, the Project, on a form reasonably specified by landlord,
certifying as to such facts (if true) and agreeing to such notice provisions as
such mortgagee(s) or purchaser(s) may reasonably require, including, without
limitation, the following: (a) that this Lease is unmodified and in full force
and effect (or in full force and effect as modified, and stating the
modifications); (b) the amount of, and date to which Rent and other charges have
been paid in advance; (c) the amount of any Security Deposit; and (d)
acknowledging that Landlord is not in default under this Lease (or, if Landlord
is claimed to be in default, stating the nature of the alleged default).
However, in no event shall any such estoppel certificate require an amendment of
the provisions of this Lease, alter the basic business terms of this Lease, or
otherwise diminish or abridge any rights or impose or increase any obligations
of Tenant hereunder, Any such estoppel certificate may be relied upon by any
such mortgagee or purchaser. Failure by Tenant to execute and deliver any such
estoppel certificate within the time permitted hereunder shall be conclusive
upon Tenant that (1) this Lease is in full force and effect and has not been
modified except as represented by Landlord; (2) not more than one month's Rent
has been paid in advance; and (3) Landlord is not in default under this Lease.
5.14 SECURITY DEPOSIT.
(a) On or before September 30, 1999, Tenant shall pay to Landlord
the agreed upon Security Deposit as security for the full and faithful
performance of Tenant's obligations under this Lease. If Tenant fails to pay to
Landlord the agreed upon Security Deposit on or before September 30, 1999,
Landlord may terminate this Lease upon written notice to Tenant. If Landlord
elects to terminate this Lease as set forth in the previous sentence, Tenant
shall reimburse Landlord for Landlord's reasonable attorneys' fees (not to
exceed $10,000.00) incurred in connection with this Lease. If at any time during
the Term, Tenant shall be in default in the payment of Rent or in default for
any other reason, Landlord may use, apply or retain such part of the Security
Deposit as necessary for cure of Tenant's failure to make payment of any amount
due Landlord or to cure such default or to reimburse or compensate Landlord for
any liability, loss, cost, expense or damage (including attorneys' fees) which
Landlord may suffer or incur by reason of Tenant's defaults. If Landlord uses or
applies all or any part of the Security Deposit, Tenant shall, on demand, pay to
Landlord a sum sufficient to restore the Security Deposit to the full amount
required by this Lease. Upon expiration of the Term or earlier termination of
this Lease and after Tenant has vacated the Leased Premises, Landlord shall
return the Security Deposit to Tenant, reduced by such amounts as may be
required by Landlord to remedy defaults on the part of Tenant in the payment of
Rent and to perform Tenant's obligations hereunder. The portion of the deposit
not so required shall be paid over to Tenant (or, at Landlord's option, to the
last assignee of Tenant's interest in this Lease) within thirty (30) days after
expiration of the Term or earlier termination hereof. Landlord shall hold the
Security Deposit for the foregoing purposes; provided, however, that Landlord
shall have no obligation to segregate the Security Deposit from its general
funds or to pay interest in respect thereof. No part of the Security Deposit
shall be considered to be held in trust, or to be prepayment of any monies to be
paid by Tenant under this Lease.
(b) In lieu of a cash deposit, Tenant shall deliver the Security
Deposit to Landlord in substantially the form attached hereto as EXHIBIT F, an
irrevocable letter of credit (the "Letter of Credit") issued by and drawable
upon (said issuer being referred to as the "Issuing Bank") the financial
institution indicated on EXHIBIT F or such other financial institution which may
be approved by Landlord in its
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reasonable discretion, provided that Landlord shall not unreasonably withhold,
condition, or delay its consent to an Issuing Bank which has outstanding
unsecured, uninsured and unguaranteed indebtedness, or shall have issued a
letter of credit or other credit facility that constitutes the primary security
for any outstanding indebtedness (which is otherwise uninsured and
unguaranteed), that is then rated, without regard to qualification of such
rating by symbols such as "+" or "-" or numerical notation, "Aa" or better by
Moody's Investors Service and "AA" or better by Standard & Poor's Rating
Service, and has combined capital, surplus and undivided profits of not less
than $100,000,000. If upon any transfer of the Letter of Credit, any fees or
charges shall be so imposed, then such fees or charges shall be payable solely
by Tenant and the Letter of Credit shall so specify. The Letter of Credit shall
provide that it shall be deemed automatically renewed, without amendment, for
consecutive periods of one year each thereafter during the Term unless the
Issuing Bank sends a notice (the "Non-Renewal Notice") to Landlord by certified
mail, return receipt requested, not less than 45 days preceding the then
expiration date of the Letter of Credit stating that the Issuing Bank has
elected not to renew the Letter of Credit. Landlord shall have the right, upon
receipt of the Non-Renewal Notice, to draw the full amount of the Letter of
Credit, by sight draft on the Issuing Bank, and shall thereafter hold or apply
the cash proceeds of the Letter of Credit pursuant to the terms of this Article.
The Issuing Bank shall agree with all drawers, endorsers and bona fide holders
that drafts drawn under and in compliance with the terns of the Letter of Credit
will be duly honored upon presentation to the Issuing Bank at an office location
in San Francisco. The Letter of Credit shall be subject in all respects to the
Uniform Customs and Practice for Documentary Credits (1993 revision),
International Chamber of Commerce Publication No. 500.
(c) If at any time after the first eighteen (18) months of the
Term Tenant shall concurrently have become a publicly traded company, have
achieved an audited net worth (as defined by GAAP) of $80,000,000 or greater,
have achieved net working capital (as defined by GAAP) of $60,000,000 or
greater, and Tenant shall have no uncured monetary defaults, the Security
Deposit shall be reduced to the Minimum Amount of Security Deposit (as defined
below).
(d) Notwithstanding anything in this Section 5.14 to the
contrary, the amount of the Security Deposit shall be reduced by twenty percent
(20%) of the original amount of the Security Deposit on the last day of the
twenty-fourth (24th), thirty-sixth (36th), forty-eighth (48th), and sixtieth
(60th) months of the Term; however, in no event shall the Security Deposit be
less than $571,758.75 (the "Minimum Amount of Security Deposit").
5.15 SURRENDER. Subject to the provisions of Section 5.07 hereof, on
the Term Expiration Date (or earlier termination of this Lease), Tenant shall
quit and surrender possession of the Leased Premises to Landlord in as good
order and condition as they were in on the Term Commencement Date, reasonable
wear and tear, taking by condemnation and damage by casualty excepted.
Reasonable wear and tear shall not include any damage or deterioration that
would have been prevented by good maintenance practice or by Tenant performing
all of its obligations under this Lease. Tenant shall, without cost to Landlord,
remove all furniture, equipment, trade fixtures, debris and articles of personal
property owned by Tenant in the Leased Premises, and shall repair any damage to
the Project resulting from such removal. Any such property not removed by Tenant
by the Term Expiration Date (or earlier termination of this Lease) shall be
considered abandoned, and Landlord may remove any or all of such items and
dispose of same in any lawful manner or store same in a public warehouse or
elsewhere for the account and at the expense and risk of Tenant. If Tenant shall
fail to pay the cost of storing any such property after storage for thirty (30)
days or more, Landlord may sell any or all of such property at public or private
sale, in such manner and at such times and places as Landlord may deem proper,
without notice to or demand upon Tenant. Landlord shall apply the proceeds of
any such sale as follows: first, to the costs of such sale; second, to the costs
of storing any such property; third, to the payment of any other sums of money
which may then or thereafter be due to Landlord from Tenant under any of the
terms of this Lease; and fourth, the balance, if any, to Tenant.
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5.16 TENANT'S REMEDIES. Landlord shall not be deemed in breach of this Lease
unless Landlord fails within a reasonable time to perform an obligation required
to be performed by Landlord. For purposes of this Section 5.16, a reasonable
time shall not be less than thirty (30) days after receipt by Landlord (except
in the event of an emergency, which shall be defined to mean any risk of
imminent harm to persons or property, in which case Landlord's response time
must be reasonable in light of the emergency), and by the holders of any ground
lease, deed of trust or mortgage covering the Leased Premises whose name and
address shall have been furnished Tenant in writing for such purpose
("Holders"), of written notice specifying wherein such obligation of Landlord
has not been performed; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days after such notice are
reasonably required for its performance, then Landlord shall not be in breach of
this Lease if performance is commenced within said thirty (30)-day period and
thereafter diligently pursued to completion. If Landlord fails to cure such
default within the time provided for in this Lease, any Holder may, by notice
given to Tenant, elect to cure such Landlord's breach, and any such electing
Holder shall have an additional thirty (30) days to cure such default (except in
the case of an emergency, in which event additional time shall be permitted for
cure only if it is reasonable in light of the emergency); provided that if such
default cannot reasonably be cured within such additional thirty (30) day
period, then such electing Holder shall have such additional time to cure
Landlord's breach as is reasonably necessary under the circumstances as long as
such electing Holder commences the cure within such additional thirty (30) day
period and thereafter diligently pursues such cure to completion. Tenant shall
look solely to Landlord's interest in the Project for recovery of any judgment
from Landlord. Neither Landlord nor any of its trustees, directors, officers,
agents, employees or representatives (or, if Landlord is a partnership, its
partners, whether general or limited) shall ever be personally liable for any
such judgment. Any lien obtained to enforce any such judgment and "any levy of
execution thereon shall be subject and subordinate to any lien, deed of trust or
mortgage to which Section 5.12 applies or may apply. Tenant shall not have the
right to terminate this Lease or withhold, reduce or offset any amount against
any payments of Rent due and payable under this Lease (except as provided below)
by reason of a breach of this Lease by Landlord; provided, however, if Landlord
fails to repair within the time frame required in this Section 5.16 and Tenant
provides written notice to Landlord of its intention to undertake such repairs,
five (5) days after such written notice is provided to Landlord, Tenant may
undertake such repairs and send Landlord a written demand for payment of
Tenant's reasonable costs (in light of the circumstances) incurred in taking
such action on Landlord's behalf (including a reasonably particularized
statement). If within thirty (30) days after Landlord's receipt of Tenant's
written demand Landlord has not paid the invoice or delivered to Tenant a
detailed written objection to it, or if Landlord and Tenant are unable to
resolve a disagreement as to the need or costs of the repairs, Tenant's sole
remedy shall be to institute legal proceedings or binding arbitration against
Landlord to collect the amount set forth in Tenant's invoice; furthermore, if
the Tenant is the substantially successful party pursuant to the legal
proceedings or arbitration, the judge or arbitrator, as the case may be, may,
among other remedies, decide that Tenant may offset an amount determined by the
judge or arbitrator, as the case may be, as damages caused by Landlord's breach
against payment of Rent in future months.
5.17 RULES AND REGULATIONS. Tenant shall comply with the rules and
regulations for the Project attached as EXHIBIT D and such reasonable amendments
thereto as Landlord may adopt from time to time with prior notice to Tenant.
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ARTICLE 6.
ENVIRONMENTAL MATTERS
6.01 HAZARDOUS MATERIALS PROHIBITED.
(a) Tenant shall not cause or permit any Hazardous Material (as
defined in Section 6.01(c) below) to be brought, kept, used, generated, released
or disposed in, on, under or about the Leased Premises or the Project by Tenant,
its agents, employees, contractors, invitees and licensees; provided, however,
that Tenant, its agents, employees, contractors, invitees and licensees may use,
store and dispose of, in accordance with applicable Laws, limited quantities of
standard office and janitorial supplies which are Hazardous Materials, but only
to the extent reasonably necessary for Tenant's, its agents', employees',
contractors', invitees' and licensees' operations in the Leased Premises. Tenant
hereby indemnifies Landlord from and against (i) any breach by Tenant of the
obligations stated in the preceding sentence, (ii) any breach of the obligations
stated in Section 6.01(b) below, or (iii) any claims or liability resulting from
Tenant's use of Hazardous Materials. Tenant hereby agrees to defend and hold
Landlord harmless from and against any and all claims, liability, losses,
damages, costs and/or expenses (including, without limitation, diminution in
value of the Project, or any portion thereof, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the Project,
damages arising from any adverse impact on marketing of space in the Project,
and sums paid in settlement of claims, fines, penalties, attorneys' fees,
consultants' fees and experts' fees) which arise during or after the Term as a
result of any breach of the obligations stated in Sections 6.01(a) or 6.01(b) or
otherwise resulting from Tenant's use of Hazardous Materials. This
indemnification of Landlord by Tenant includes, without limitation, death of or
injury to person, damage to any property or the environment and costs incurred
in connection with any investigation of site conditions or any cleanup,
remedial, removal, or restoration work required by any federal, state or local
governmental agency or political subdivision because of any Hazardous Material
present in, on, under or about the Leased Premises or the Project (including
soil and ground water contamination) which results from such a breach. Without
limiting the foregoing, if the presence of any Hazardous Material in, on, under
or about the Leased Premises or the Project is caused by Tenant or Tenant's
agents, employees, contractors, invitees or licensees, and such presence results
in any contamination of the Leased Premises or the Project, Tenant shall
promptly take all actions at its sole expense as are necessary to return the
same to the condition existing prior to the introduction of such Hazardous
Material; provided that Landlord's approval of such actions, and the contractors
to be used by Tenant in connection therewith, shall first be obtained. This
indemnification of Landlord by Tenant shall survive the expiration or sooner
termination of this Lease.
(b) Tenant covenants and agrees that Tenant shall at all times be
responsible and liable for, and be in compliance with, all federal; state, local
and regional laws, ordinances, rules, codes and regulations, as amended from
time to time ("Governmental Requirements"), relating to health and safety and
environmental matters, arising, directly or indirectly, out of Tenant's use of
Hazardous Materials (as defined in Section 6.01(c) below) in the Project. Health
and safety and environmental matters for which Tenant is responsible under this
paragraph include, without limitation (i) notification and reporting to
governmental agencies, (ii) the provision of warnings of potential exposure to
Hazardous Materials to Landlord and Tenant's agents, employees, licensees,
contractors, invitees and licensees, (iii) the payment of taxes and fees, (iv)
the proper off-site transportation and disposal of Hazardous Materials, and (v)
all requirements, including training, relating to the use of equipment.
Immediately upon discovery of a release of Hazardous Materials associated with
Tenant's activities, Tenant shall give written notice to Landlord, whether or
not such release is subject to reporting under Governmental Requirements. The
notice shall include information on the nature and conditions of the release and
Tenant's planned response. Tenant shall be liable for the cost of any clean-up
of the release of any Hazardous Materials by Tenant on the Project.
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(c) As used in this Lease, the term "Hazardous Material" means
any hazardous or toxic substance, material or waste which is or becomes
regulated by any local governmental authority, the State of California or the
United States Government. The term "Hazardous Material" includes, without
limitation, any substance, material or waste which is (i) defined as a
"hazardous waste" or similar term under the laws of the jurisdiction where the
Project is located; (ii) designated as a "hazardous substance" pursuant to
Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section 1317);
(iii) defined as a "hazardous waste" pursuant to Section 1004 of the Federal
Resource, Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42
U.S.C. Section 6903); (iv) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601); (v)
hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or
fractions thereof, or (vi) asbestos in any form or condition.
(d) As used in this Article 6, the term "Laws" means any
applicable federal, state or local laws, ordinances, rules or regulations
relating to any Hazardous Material affecting the Project, including, without
limitation, the specific laws, ordinances and regulations referred to in Section
6.01(c) above. References to specific Laws shall also be references to any
amendments thereto and to any applicable successor Laws.
(e) To the best of Landlord's knowledge, except as disclosed in
the environmental reports (the "Environmental Reports") provided to Tenant by
Landlord (at Landlord's sole cost and expense) (i) there are no Hazardous
Materials in the Building, and (ii) the Building is in compliance with all Laws
relating to any Hazardous Material. Landlord's knowledge is limited to the
matters contained in the Environmental Reports. Tenant acknowledges its receipt
and review of the Environmental Reports prior to entering into this Lease.
Landlord represents, warrants and covenants that (i) during the period of its
ownership of the Project prior to entering into this Lease, it has not released
any Hazardous Materials on the Project, and (ii) after entering into this Lease,
Landlord will not cause or permit any Hazardous Material to be brought, kept,
used, generated, released or disposed in, on, under or about the Project by
Landlord, its agents, employees, contractors, tenants, invitees and licensees;
provided, however, that Landlord, its agents, employees, contractors, tenants,
invitees and licensees may use, store and dispose of, in accordance with
applicable Laws, limited quantities of standard office and janitorial supplies
which are Hazardous Materials, but only to the extent reasonably necessary for
Landlord's, its agents', employees', contractors', tenants', invitees' and
licensees' operations in and about the Project. Landlord hereby agrees to
indemnify, protect, defend and hold the Tenant harmless of and from any and all
claims, liability, costs, penalties, fines, damages, injury, judgments,
forfeiture, losses or expenses (including without limitation reasonable
attorneys' fees) arising out of or in any way related to (i) any breach by
Landlord of its representations, warranties, and covenants in this Section
6.01(e), and (ii) the presence of any Hazardous Materials on or about the
Project other than Hazardous Materials brought into the Project by Tenant or
Tenants agents, employees, contractors, invitees or licensees. This
indemnification of Tenant by Landlord includes, without limitation, death of or
injury to person, damage to any property or the environment and costs incurred
in connection with any investigation of site conditions or any cleanup,
remedial, removal, or restoration work required by any federal, state or local
governmental agency or political subdivision because of any Hazardous Material
present in, on, under or about the Leased Premises or the Project (including
soil and ground water contamination) except as specifically provided in this
Section 6.01(e). Without limiting the foregoing, if the presence of any
Hazardous Material in, on, under or about the Leased Premises or the Project is
caused by Landlord or any one other than Tenant or Tenants agents, employees,
contractors, invitees or licensees, and such presence results in any
contamination of the Leased Premises or the Project, Landlord shall promptly
take all actions at its sole expense as are necessary to return the same to the
condition existing prior to the introduction of such Hazardous Material.
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6.02 LIMITATIONS ON ASSIGNMENT AND SUBLETTING. It shall not be
unreasonable for Landlord to withhold its consent to any proposed assignment or
subletting of the Leased Premises if (i) the proposed assignee's or sublessee's
anticipated use of the Leased Premises involves the generation, storage, use,
treatment, or disposal of Hazardous Material (excluding standard office and
janitorial supplies; in limited quantities as hereinabove provided); (ii) the
proposed assignee or sublessee has been required by any prior landlord, lender
or governmental authority to take remedial action in connection with Hazardous
Material contaminating a property if the contamination resulted from such
assignee's or sublessee's actions or use of the property in question; or (iii)
the proposed assignee or sublessee is subject to an enforcement order issued by
any governmental authority in connection with the generation, storage, use,
treatment or disposal of a Hazardous Material.
6.03 RIGHT OF ENTRY. Landlord, its employees, agents and consultants,
shall have the right to enter the Leased Premises at any time, in case of an
emergency relating to Hazardous Materials to deal with such emergency, and
otherwise upon not less than one (1) business day's prior written notice and
during normal business hours or such other time as Tenant may agree in order to
conduct periodic environmental inspections and tests to determine whether any
Hazardous Materials are present. The costs and expenses of such inspections
shall be paid by Landlord unless a default or breach of this Lease, violation of
Laws or contamination caused by Tenant or Tenant's agents, employees,
contractors, invitees or licensees, is found to exist. In such event, Tenant
shall reimburse Landlord upon demand, as Additional Rent, for the costs and
expenses of such inspections.
6.04 NOTICE TO LANDLORD. Each party shall immediately notify the other
in writing of: (i) any enforcement, clean-up, removal or other governmental or
regulatory action instituted or threatened regarding the Leased Premises or the
Project pursuant to any Laws; (ii) any claim made or threatened by any person
against Tenant, the Leased Premises, or the Project relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from or
claimed to result from any Hazardous Material; and (iii) any reports made to or
received from any governmental agency arising out of or in connection with any
Hazardous Material in or removed from the Leased Premises or the Project,
including any complaints, notices, warnings or asserted violations in connection
therewith. Each party shall also supply to the other, as promptly as possible,
and in any event within three (3) business days after such party first receives
or sends the same, copies of all claims, reports, complaints, notices, warnings,
asserted violations or other communications relating in any way to the Leased
Premises, the Project or Tenant's or Landlord's use thereof.
ARTICLE 7.
INSURANCE, INDEMNITY, CONDEMNATION, DAMAGE AND DEFAULT
7.01 LANDLORD'S INSURANCE. Landlord shall secure and maintain policies
of insurance for the Project (including the Leased Premises) covering loss of or
damage to the Project, including the Tenant Improvements, but excluding all
subsequent alterations, additions and improvements to the Leased Premises, with
loss payable to Landlord and to the holders of any deeds of trust, mortgages or
ground leases on the Project. Landlord shall not be obligated to obtain
insurance for Tenant's trade fixtures, equipment, furnishings, machinery or
other property. Such policies shall provide protection against fire and extended
coverage perils and such additional perils as Landlord deems suitable, and with
such deductible(s) as Landlord shall deem reasonably appropriate. Landlord shall
further secure and maintain commercial general liability insurance with respect
to the Project in such amount as Landlord shall determine, such insurance to be
in addition to, and not in lieu of, the liability insurance required to be
maintained by Tenant. In addition, Landlord shall secure and maintain rental
income insurance. Notwithstanding any other provision in this Lease to the
contrary, in the event of any loss or claim for which Landlord has received
insurance
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proceeds from such rental income insurance (or would have been entitled to
receive insurance proceeds had Landlord obtained and maintained the insurance
required by this Section 7.01), Tenant's Rent obligations under this Lease shall
abate with respect to the extent of such insurance proceeds received (or
Landlord would have been entitled to receive had Landlord obtained and
maintained the insurance required by this Section 7.01). If the annual cost to
Landlord for any such insurance exceeds the standard rates because of the nature
of Tenant's operations, Tenant shall, upon receipt of appropriate invoices and
supporting documentation detailing the reasons for such increased costs,
reimburse Landlord for such increases in cost, which amounts shall be deemed
Additional Rent hereunder. Tenant shall not be named as an additional insured on
any policy of insurance maintained by Landlord.
7.02 TENANT'S LIABILITY INSURANCE.
(a) Tenant (with respect to both the Leased Premises and the
Project) shall secure and maintain, at its own expense, at all times during the
Term, a policy or policies of commercial general liability insurance with the
premiums thereon fully paid by the installment due date, protecting Tenant and
naming Landlord, the holders of any deeds of trust, mortgages or ground leases
on the Project, and Landlord's representatives (which term, whenever used in
this Article 7, shall be deemed to include Landlord's partners, trustees,
ancillary trustees, officers, directors, shareholders, beneficiaries, agents,
employees and independent contractors) as additional insureds against claims for
bodily injury, personal injury, advertising injury and property damage
(including attorneys' fees) based upon, involving or arising out of Tenant's
operations, assumed liabilities or Tenant's use, occupancy or maintenance of the
Leased Premises and the Common Areas of the Project. Such insurance shall
provide for a minimum amount of Two Million Dollars ($2,000,000.00) for property
damage or injury to or death of one or more than one person in any one accident
or occurrence, with an annual aggregate limit of at least Four Million Dollars
($4,000,000.00). The coverage required to be carried shall include fire legal
liability, blanket contractual liability, personal injury liability (libel,
slander, false arrest and wrongful eviction), broad form property damage
liability, products liability and completed operations coverage (as well as
owned, non-owned and hired automobile liability if an exposure exists) and the
policy shall contain an exception to any pollution exclusion which insures
damage or injury arising out of heat, smoke or fumes from a hostile fire. Such
insurance shall be written on an occurrence basis and contain a separation of
insureds provision or cross-liability endorsement acceptable to Landlord. Tenant
shall provide Landlord with a certificate evidencing such insurance coverage.
The certificate shall indicate that the insurance provided specifically
recognizes the liability assumed by Tenant under this Lease (including without
limitation performance by Tenant under Section 7.04) and that Tenant's insurance
is primary to and not contributory with any other insurance maintained by
Landlord, whose insurance shall be considered excess insurance only. Not more
frequently than every two (2) years, if, in the opinion of any mortgagee of
Landlord or of the insurance broker retained by Landlord, the amount of
liability insurance coverage at that time is not adequate, then Tenant shall
increase its liability insurance coverage as required by either any mortgagee of
Landlord or Landlord's insurance broker.
(b) Tenant shall, at Tenant's expense, comply with (i) all
insurance company requirements pertaining to the use of the Leased Premises and
(ii) all rules, orders, regulations or requirements of the American Insurance
Association (formerly the National Board of Fire Underwriters) and with any
similar body.
7.03 TENANT'S ADDITIONAL INSURANCE REQUIREMENTS.
(a) Tenant shall secure and maintain, at Tenant's expense, at all
times during the Term, a policy of physical damage insurance on all of Tenant's
fixtures, furnishings, equipment, machinery, merchandise and personal property
in the Leased Premises and on any alterations, additions or improvements made by
or for Tenant upon the Leased Premises (other than the Tenant Improvements which
shall be insured
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by Landlord), all for the full replacement cost thereof without deduction for
depreciation of the covered items and in amounts that meet any co-insurance
clauses of the policies of insurance. Such insurance shall insure against those
risks customarily covered in an "all risk" policy of insurance covering physical
loss or damage. Tenant shall use the proceeds from such insurance for the
replacement of fixtures, furnishings, equipment and personal property and for
the restoration of any alterations, additions or improvements to the Leased
Premises. In addition, Tenant shall secure and maintain, at all times during the
Term, loss of income, business interruption and extra expense insurance in such
amounts as will reimburse Tenant for direct or indirect loss of earnings and
incurred costs attributable to all perils commonly insured against by prudent
tenants or attributable to prevention of access to the Leased Premises or to the
Building as a result of such perils; such insurance shall be maintained with
Tenant's property insurance carrier. Further, Tenant shall secure and maintain
at all times during the Term workers' compensation insurance in such amounts as
are required by law, employer's liability insurance in the amount of One Million
Dollars ($1,000,000.00) per occurrence, and all such other insurance as may be
required by applicable law or as may be reasonably required by Landlord. In the
event Tenant makes any alterations, additions or improvements to the Leased
Premises, prior to commencing any work in the Leased Premises, Tenant shall
secure "builder's all risk" insurance which shall be maintained throughout the
course of construction, such policy being an all risk builder's risk completed
value form, in an amount approved by Landlord, but not less than the total
contract price for the construction of such alterations, additions or
improvements and covering the construction of such alterations, additions or
improvements, and such other insurance as Landlord may reasonably require, it
being understood and agreed that all of such alterations, additions or
improvements shall be insured by Tenant pursuant to this Section 7.03
immediately upon completion thereof. Tenant shall provide Landlord with
certificates of all such insurance. The property insurance certificate shall
confirm that the waiver of subrogation required to be obtained pursuant to
Section 7.05 is permitted by the insurer. Tenant shall, at least thirty (30)
days prior to the expiration of any policy of insurance required to be
maintained by Tenant under this Lease, furnish Landlord with an "insurance
binder" or other satisfactory evidence of renewal thereof.
(b) All policies required to be carried by Tenant under this
Lease shall be issued by and binding upon a reputable insurance company of good
financial standing authorized to do business in the State of California with a
rating of at least A-VII, or such other rating as may be required by a lender
having a lien on the Project, as set forth in the most current issue of "Best's
Insurance Reports." Tenant shall not do or permit anything to be done that would
invalidate the insurance policies referred to in this Article 7. Evidence of
insurance provided to Landlord shall include an endorsement showing that
Landlord, its representatives and the holders of any deeds of trust, mortgages
or ground leases on the Project are included as additional insureds on general
liability insurance, and as loss payees for property insurance, to the extent
required hereunder, and an endorsement whereby the insurer agrees not to cancel,
non-renew or materially alter the policy without at least thirty (30) days prior
written notice to Landlord, its representatives and any mortgagee of Landlord.
(c) In the event that Tenant fails to provide evidence of
insurance required to be provided by Tenant under this Lease, prior to
commencement of the Term, and thereafter during the Term, within ten (10) days
following Landlord's request therefor, and thirty (30) days prior to the
expiration date of any such coverage, Landlord shall be authorized (but not
required) to procure such coverage in the amounts stated with all costs thereof
(plus a fifteen percent (15%) administrative fee) to be chargeable to Tenant and
payable upon written invoice therefor, which amounts shall be deemed Additional
Rent hereunder.
(d) The minimum limits of insurance required by this Lease, or as
carried by Tenant, shall not limit the liability of Tenant nor relieve Tenant of
any obligation hereunder.
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7.04 INDEMNITY AND EXONERATION.
(a) To the extent not prohibited by law, Landlord and Landlord's
representatives shall not be liable for any loss, injury or damage to person or
property of Tenant, Tenant's agents, employees, contractors, invitees or any
other person, whether caused by theft, fire, act of God, acts of the public
enemy, riot, strike, insurrection, war, court order, requisition or order of
governmental body or authority or which may arise through repair, alteration or
maintenance of any part of the Project or failure to make any such repair or
from any other cause whatsoever, except as expressly otherwise provided in
Sections 7.06 and 7.07. Landlord shall not be liable for any loss, injury or
damage arising from any act or omission of any other tenant or occupant of the
Project, nor shall Landlord be liable under any circumstances for damage or
inconvenience to Tenant's business or for any loss of income or profit
therefrom.
(b) To the extent not covered by Landlord's insurance, Tenant
shall indemnify, protect, defend and hold the Project, Landlord and its
representatives, harmless of and from any and all claims, liability, costs,
penalties, fines, damages, injury, judgments, forfeiture, losses (including
without limitation diminution in the value of the Leased Premises) or expenses
(including without limitation attorneys' fees, consultant fees, testing and
investigation fees, expert fees and court costs) arising out of or in any way
related to or resulting directly or indirectly from (i) the use or occupancy of
the Leased Premises, (ii) the activities of Tenant, its agents, employees,
contractors or invitees in or about the Leased Premises or the Project, (iii)
any failure to comply with any applicable law, and (iv) any default or breach by
Tenant in the performance of any obligation of Tenant under this Lease;
provided, however, that the foregoing indemnity shall not be applicable to
claims arising by reason of the negligence or willful misconduct of Landlord.
(c) To the extent not covered by Landlord's insurance, Tenant
shall indemnify, protect, defend and hold the Project, Landlord and its
representatives, harmless of and from any and all claims, liability, costs,
penalties, fines, damages, injury, judgments, forfeiture, losses (including
without limitation diminution in the value of the Leased Premises) or expenses
(including without limitation attorneys' fees, consultant fees, testing and
investigation fees, expert fees and court costs) arising out of or in any way
related to or resulting directly or indirectly from work or labor performed,
materials or supplies furnished to or at the request of Tenant or in connection
with obligations incurred by or performance of any work done for the account of
Tenant in the Leased Premises or the Project, with the exception of any such
work, labor, materials or supplies directly related to any Landlord Improvements
or Tenant Improvements constructed pursuant to EXHIBIT B attached hereto.
(d) The provisions of this Section 7.04 shall survive the
expiration or sooner termination of this Lease. BY SIGNING ITS INITIALS BELOW,
TENANT ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND
RAMIFICATIONS OF THE PROVISIONS SET FORTH IN THIS SECTION 7.04 AND FURTHER
ACKNOWLEDGES THAT SUCH PROVISIONS WERE SPECIFICALLY NEGOTIATED.
7.05 WAIVER OF SUBROGATION. Anything in this Lease to the contrary
notwithstanding, Landlord and Tenant on behalf of themselves and their
respective successors and assigns (including, without limitation, the holders of
any deeds of trust, mortgages or ground leases on the Project, and Landlord's
representatives) each waives all rights of recovery, claim, action or cause of
action against the other, its agents (including partners, both general and
limited), trustees, officers, directors, and employees, for any loss or damage
that may occur to the Leased Premises, or any improvements thereto, or the
Project or any personal property of
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such party therein, by reason of any cause required to be insured against under
this Lease to the extent of the coverage required, regardless of cause or
origin, including negligence of the other party hereto, provided that such
party's insurance is not invalidated thereby; and each party covenants that, to
the fullest extent permitted by law, no insurer shall hold any right of
subrogation against such other party. Landlord and Tenant shall each advise its
respective insurers of the foregoing and such waiver shall be a part of each
policy maintained by Tenant and Landlord which applies to the Leased Premises,
any part of the Project or Tenant's use and occupancy and Landlord's ownership
and management of any part thereof,
7.06 CONDEMNATION.
(a) If the Leased Premises are taken under the power of eminent
domain or sold under the threat of the exercise of such power (all of which are
referred to herein as "condemnation"), this Lease shall terminate as to the part
so taken as of the date the condemning authority takes title or possession,
whichever first occurs (the "date of taking"). If the Leased Premises or any
portion of the Project is taken by condemnation to such an extent as to render
the Leased Premises untenantable as reasonably determined by Landlord and
Tenant, this Lease shall, at the option of either party to be exercised in
writing within thirty (30) days after receipt of written notice of such taking,
forthwith cease and terminate as of the date of taking. All proceeds from any
condemnation of the Leased Premises shall belong and be paid to Landlord,
subject to the rights of any mortgagee of Landlord's interest in the Project or
the beneficiary of any deed of trust which constitutes an encumbrance thereon;
provided that Tenant shall be entitled to any compensation separately awarded to
Tenant for Tenant's relocation expenses or, loss of Tenant's trade fixtures. If
this Lease continues in effect after the date of taking pursuant to the
provisions of this Section 7.06(a), Landlord shall proceed with reasonable
diligence to repair, at its expense, the remaining parts of the Project and the
Leased Premises to substantially their former condition to the extent that the
same is feasible (subject to reasonable changes which Landlord shall deem
desirable) and so as to constitute a complete and tenantable Project and Leased
Premises. Gross Rent shall abate to the extent appropriate during the period of
restoration, and Gross Rent shall thereafter be equitably adjusted according to
the remaining Rentable Area of the Leased Premises and the Building.
(b) In the event of a temporary taking of all or a portion of the
Leased Premises, there shall be no abatement of Rent and Tenant shall remain
fully obligated for performance of all of the covenants and obligations on its
part to be performed pursuant to the terms of this Lease, except that Tenant's
maintenance and repair obligations with respect to the area affected by the
temporary taking shall abate during any such temporary taking. All proceeds
awarded or paid with respect thereto shall belong to Tenant.
7.07 DAMAGE OR DESTRUCTION. In the event of a fire or other casualty in
the Leased Premises, Tenant shall immediately give notice thereof to Landlord.
The following provisions shall then apply:
(a) If the damage is limited solely to the Leased Premises and
the Leased Premises can, in Landlord's reasonable opinion, be made tenantable
with all damage repaired within six (6) months from the date of damage, then
Landlord shall be obligated to rebuild the same to substantially their former
condition to the extent that the same is feasible (subject to reasonable changes
which Landlord shall deem desirable and such changes as may be required by
applicable law) and shall proceed with reasonable diligence to do so and this
Lease shall remain in full force and effect.
(b) If portions of the Project outside the boundaries of the
Lease Premises are damaged or destroyed (whether or not the Leased Premises are
also damaged or destroyed) and the Leased Premises and the Project can, in
Landlord's reasonable opinion, both be made tenantable with all damage repaired
within six (6) months from the date of damage or destruction, and provided that
Landlord determines that it is economically feasible, then Landlord shall be
obligated to rebuild the same to substantially their former
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condition to the extent that the same is feasible (subject to reasonable changes
which Landlord shall reasonably deem desirable and such changes as may be
required by applicable law) and shall proceed with reasonable diligence to do so
and this Lease shall remain in full force and effect.
(c) Notwithstanding anything to the contrary contained in
Sections 7.07(a) or 7.07(b) above, Landlord shall not have any obligation
whatsoever to repair, reconstruct or restore the Leased Premises when any damage
thereto or to the Project occurs during the last twelve (12) months of the Term
and Tenant has not effectively exercised any option granted to Tenant to extend
the Term. Under such circumstances, Landlord shall promptly notify Tenant of its
decision not to rebuild, whereupon the Lease shall terminate as of the date of
the damage or destruction.
(d) If neither Section 7.07(a) nor 7.07(b) above applies,
Landlord shall so notify Tenant within sixty (60) days after the date of the
damage or destruction and either Tenant or Landlord may terminate this Lease
within thirty (30) days after the date of such notice, such termination notice
to be effective as of the date of the damage or destruction.
(e) During any period when Tenant's use of the Leased Premises is
significantly impaired by damage or destruction, Gross Rent shall abate in
proportion to the degree to which Tenant's use of the Leased Premises is
impaired until such time as the Leased Premises are made tenantable as mutually
agreed by Landlord and Tenant.
(f) The proceeds from any insurance paid by reason of damage to
or destruction of the Project or any part thereof insured by Landlord shall
belong to and be paid to Landlord, subject to the rights of any mortgagee
of Landlord's interest in the Project or the beneficiary of any deed of trust
which constitutes an encumbrance thereon. Tenant shall be responsible at its
sole cost and expense for the repair, restoration and replacement of (i) its
fixtures, furnishings, equipment, machinery, merchandise and personal property
in the Leased Premises, and (ii) its alteration, additions and improvements
other than the Tenant Improvements and the Landlord Improvements; provided,
however, that Landlord shall have the option of requiring Tenant to assign to
Landlord (or any party designated by Landlord) some or all of the proceeds
payable to Tenant under this Article 7, whereupon Landlord shall be responsible
for the repair or restoration of such insured property.
(g) Landlord's repair and restoration obligations under this
Section 7.07 shall not impair or otherwise affect the rights and obligations of
the parties set forth elsewhere in this Lease. Subject to Section 7.07(e).
Landlord shall not be liable for any inconvenience or annoyance to Tenant, its
employees, agents, contractors or invitees, or injury to Tenant's business
resulting in any way from such damage or the repair thereof. Landlord and Tenant
agree that the terms of this Lease shall govern the effect of any damage to or
destruction of the Leased Premises or the Project with respect to the
termination of this Lease and hereby waive the provisions of any present or
future statute or law to the extent inconsistent therewith.
7.08 DEFAULT BY TENANT.
(a) Events of Default. The occurrence of any of the following
shall constitute an event of default on the part of Tenant:
(1) Abandonment. Vacating the Leased Premises without the
intention to reoccupy same, or abandonment of the Leased Premises for a
continuous period of not less than thirty (30) consecutive days.
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(2) Nonpayment of Rent. Failure to pay any installment of
Rent due and payable hereunder on the date when payment is due, such failure
continuing for a period of three (3) business days after written notice of such
failure; provided, however, that Landlord shall not be required to provide such
notice more than two (2) times during any calendar year during the Term with
respect to non-payment of Gross Rent or Additional Rent, the third such
non-payment constituting default without requirement of notice; furthermore, if
Tenant shall be served with a demand for the payment of past due Rent, any
payment(s) tendered thereafter to cure any default by Tenant shall be made only
by cashier's check, wire-transfer or direct deposit of immediately available
funds.
(3) Other Obligations. Failure to perform any obligation,
agreement or covenant under this Lease other than those matters specified in
subsections 7.08(a)(1) and 7.08(a)(2), such failure continuing for a period of
thirty (30) days after written notice of such failure (or such longer period as
is reasonably necessary to remedy such failure; provided that Tenant commences
the remedy within such thirty (30)-day period and continuously and diligently
pursues such remedy at all times until such failure is cured).
(4) General Assignment. Any general arrangement or
assignment by Tenant for the benefit of creditors.
(5) Bankruptcy. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary petition against Tenant,
which involuntary petition remains undischarged for a period of sixty (60) days.
In the event that under applicable law the trustee in bankruptcy or Tenant has
the right to affirm this Lease and continue to perform the obligations of Tenant
hereunder, such trustee or Tenant shall, within such time period as may be
permitted by the bankruptcy court having jurisdiction, cure all defaults of
Tenant hereunder outstanding as of the date of the affirmance of this Lease and
provide to Landlord such adequate assurances as may be necessary to ensure
Landlord of the continued performance of Tenant's obligations under this Lease.
(6) Receivership. The appointment of a trustee or receiver
to take possession of all or substantially all of Tenant's assets or the Leased
Premises, where possession is not restored to Tenant within forty-five (45)
days.
(7) Attachment, The attachment, execution or other
judicial seizure of all or substantially all of Tenant's assets or the Leased
Premises, if such attachment or other seizure remains undismissed or
undischarged for a period of forty-five (45) days after the levy thereof.
(8) Insolvency. The admission by Tenant in writing of its
inability to pay its debts as they become due; the filing by Tenant of a
petition seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation; the filing by Tenant of an answer admitting or failing timely
to contest a material allegation of a petition filed against Tenant in any such
proceeding; or, if within sixty (60) days after the commencement of any
proceeding against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding shall not have been
dismissed.
(9) Guarantor. [intentionally deleted.]
(10) Partner. If Tenant is a partnership or consists of
more than one (1) person or entity, if any partner of the partnership or any
person or entity constituting Tenant is involved in any of the events or acts
described in subsections 7.08(a)(4) through (8).
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(11) Misrepresentation. The discovery by Landlord that any
representation, warranty or financial statement given to Landlord by Tenant
under this Lease was materially false or misleading and materially affects
Tenant's ability to perform its obligations under this Lease.
(b) Remedies Upon Default.
(1) Termination. If an event of default occurs, Landlord
shall have the right, with or without notice or demand, immediately (after
expiration of any applicable grace period specified herein) to terminate this
Lease, and at any time thereafter recover possession of the Leased Premises or
any part thereof and expel and remove therefrom Tenant and any other person
occupying the same, by any lawful means, and again repossess and enjoy the
Leased Premises without prejudice to any of the remedies that Landlord may have
under this Lease, or at law or in equity by reason of Tenant's default or of
such termination.
(2) Continuation After Default. Even though Tenant has
breached this Lease and/or abandoned the Leased Premises, this Lease shall
continue in effect for so long as Landlord does not terminate Tenant's right to
possession under Section 7.08(b)(1) hereof in writing, and Landlord may enforce
all of its rights and remedies under this Lease, including (but without
limitation) the right to recover Rent as it becomes due, and Landlord, without
terminating this Lease, may exercise all of the rights and remedies of a
landlord under Section 1951.4 of the Civil Code of the State of California or
any amended or successor code section. Acts of maintenance or preservation,
efforts to relet the Leased Premises or the appointment of a receiver upon
application of Landlord to protect Landlord's interest under this Lease shall
not constitute an election to terminate Tenant's right to possession. If
Landlord elects to relet the Leased Premises for the account of Tenant, the rent
received by Landlord from such reletting shall be applied as follows: first, to
the payment of any indebtedness other than Rent due hereunder from Tenant to
Landlord; second, to the payment of any costs of such reletting; third, to the
payment of the cost of any alterations or repairs to the Leased Premises;
fourth, to the payment of Rent due and unpaid hereunder; and the balance, if
any, shall be held by Landlord and applied in payment of future Rent as it
becomes due. If that portion of rent received from the reletting which is
applied against the Rent due hereunder is less than the amount of the Rent due,
Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord.
Such deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as determined, any costs and expenses incurred by Landlord in
connection with such reletting or in making alterations and repairs to the
Leased Premises, which are not covered by the rent received from the reletting.
(c) Damages Upon Termination. Should Landlord terminate
this Lease pursuant to the provisions of Section 7.08(b)(1) hereof, Landlord
shall have all the rights and remedies of a landlord provided by Section 1951.2
of the Civil Code of the State of California. Upon such termination, in addition
to any other rights and remedies to which Landlord may be entitled under
applicable law, Landlord shall be entitled to recover from Tenant: (i) the worth
at the time of award of the unpaid Rent and other amounts which had been earned
at the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination until the
time of award exceeds the amount of such Rent loss that Tenant proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such Rent loss that Tenant proves could be reasonably
avoided; and (iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "worth at the time of award" of the amounts referred to in
clauses (i) and (ii) shall be computed with interest at the lesser of thirteen
percent (13%) per annum or the maximum rate then allowed by law. The "worth at
the time of award" of the amount referred to in clause (iii) shall be computed
by discounting such
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amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of the award plus one percent (1%).
(d) Computation of Rent for Purposes of Default. For purposes of
computing unpaid Rent which would have accrued and become payable under this
Lease pursuant to the provisions of Section 7.08(c), unpaid Rent shall consist
of the sum of:
(1) the total Base Rent for the balance of the Term, plus
(2) a computation of Tenant's Proportionate Share of
Increased Basic Operating Cost and of Tenant's Proportionate Share of Increased
Property Taxes for the balance of the Term, the assumed amounts for the
Computation Year of the default and each future Computation Year in the Term to
be equal to Tenant's Proportionate Share of Increased Basic Operating Cost and
Tenant's Proportionate Share of Property Taxes, respectively, for the
Computation Year immediately prior to the year in which default occurs,
compounded at a per annum rate equal to the mean average rate of inflation for
the preceding five (5) calendar years as determined by the United States
Department of Labor, Bureau of Labor Statistics Consumer Price Index (All Urban
Consumers, all items (1982-84=100)) for the Metropolitan Area or Region in which
the Project is located. If such Index is discontinued or revised, the average
rate of inflation shall be determined by reference to the index designated as
the successor or substitute index by the government of the United States.
(e) Late Charge. If any payment required to be made by Tenant
under this Lease is not received by Landlord within ten (10) days after the date
the same became due, Tenant shall pay to Landlord a one-time late charge in an
amount equal to five percent (5%) of the delinquent amount. The parties agree
that Landlord would incur costs not contemplated by this Lease by virtue of such
delinquencies, including without limitation administrative, collection,
processing and accounting expenses, the amount of which would be extremely
difficult to compute, and the amount stated herein represents a reasonable
estimate thereof. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's breach or default with respect to such
delinquency, or prevent Landlord from exercising any of Landlord's other rights
and remedies except that acceptance of the delinquent amount, together with any
applicable late charge and interest, shall constitute a complete cure of any
such default.
(f) Interest on Past-Due Obligations. Except as expressly
otherwise provided in this Lease, any Rent due Landlord hereunder, other than
late charges, which is not received by Landlord within ten (10) days after the
date on which it was due, shall bear interest from the day after it was due at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
the award plus eight percent (8%) in addition to the late charge provided for in
Section 7.08(e).
(g) Landlord's Right to Perform. Notwithstanding anything to the
contrary set forth elsewhere in this Lease, in the event Tenant fails to perform
any affirmative duty or obligation of Tenant under this Lease, then within five
(5) business days after written notice to Tenant (and without notice in case of
an emergency) Landlord may (but shall not be obligated to) perform such duty or
obligation on Tenant's behalf, including, without limitation, the obtaining of
insurance policies or governmental licenses, permits or approvals. Tenant shall
reimburse Landlord upon demand for the costs and expenses of any such
performance (including penalties, interest and attorneys' fees incurred in
connection therewith). Such costs and expenses incurred by Landlord shall be
deemed Additional Rent hereunder.
(h) Remedies Cumulative, All rights, privileges and elections or
remedies of Landlord are cumulative and not alternative with all other rights
and remedies at law or in equity to the fullest extent permitted by law.
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(i) Waiver. Tenant waives any right of redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law in the event Tenant is evicted and
Landlord takes possession of the Leased Premises by reason of a default.
ARTICLE 8.
OPTION TO RENEW
8.01 OPTION TO RENEW.
(a) Landlord hereby grants to Tenant one (1) option (the
"Option") to extend the term of this Lease for an additional period of five (5)
years (the "Option Term"), all on the following terms and conditions:
(1) The Option must be exercised, if at all, by written
notice irrevocably exercising the Option ("Option Notice") delivered by Tenant
to Landlord not later than twelve (12) months prior to the Term Expiration Date.
Further, the Option shall not be deemed to be properly exercised if, as of the
date of the Option Notice or at the Term Expiration Date, (i) Tenant is in
default under this Lease, (ii) Tenant has assigned this Lease or its interest
therein (other than to an affiliate, parent or subsidiary of Tenant) or in
connection with a permitted merger or acquisition, or (iii) Tenant, or Tenant's
affiliate, parent or subsidiary, is in possession of less than fifty percent
(50%) of the square footage of the Leased Premises. Provided Tenant has properly
and timely exercised the Option, the term of this Lease shall be extended for
the period of the Option Term, and all terms, covenants and conditions of this
Lease shall remain unmodified and in full force and effect, except that the Base
Rent shall be modified as set forth in Section 8.01(a)(2) below.
(2) The Base Rent payable for the Option Term shall be the
greater of (i) the Base Rent payable on the Term Expiration Date, or (ii) the
then-current rental rate per rentable square foot (as further defined below,
"FMRR") being agreed to in new leases by the Landlord and other landlords of
buildings in the San Francisco, California area which are comparable in quality,
location and prestige to the Building ("Comparable Buildings") and tenants
leasing space in the Building or Comparable Buildings. As used herein, "FMRR"
shall mean the rental rate per rentable square foot for which Landlord and/or
other landlords are entering into new leases within the time period of fifteen
(15) to twelve (12) months prior to the Term Expiration Date ("Market
Determination Period"), with new tenants leasing from Landlord and other
landlords office space in the Building and/or Comparable Buildings ("Comparative
Transactions"). To the extent such other Comparable Buildings have historically
received lower or higher rents from the rents in the Building, then for the
purpose of arriving at the FMRR, such rates when used to establish the FMRR in
the Building shall be increased or decreased as appropriate to reflect such
historical differences. Landlord shall provide its determination of the FMRR to
Tenant within twenty (20) days after Landlord receives the Option Notice. Tenant
shall have fifteen (15) days ("Tenant's Review Period") after receipt of
Landlord's notice of the FMRR within which to accept such FMRR or to reasonably
object thereto in writing. In the event Tenant objects to the FMRR submitted by
Landlord, Landlord and Tenant shall attempt to agree upon such FMRR. If Landlord
and Tenant fail to reach agreement on such FMRR within fifteen (15) days
following the expiration of Tenant's Review Period (the "Outside Agreement
Date"), then each party shall place in a separate seated envelope its final
proposal as to FMRR and such determination shall be submitted to arbitration in
accordance with subparagraph 8.01(b) below.
(b) Landlord and Tenant shall meet with each other within five
(5) business days of the Outside Agreement Date and exchange the sealed
envelopes and then open such envelopes in each other's
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presence. If Landlord and Tenant do not mutually agree upon the FMRR within two
(2) business days after the exchange and opening of envelopes, then, within ten
(10) business days of the exchange and opening of envelopes, Landlord and Tenant
shall agree upon and jointly appoint one (1) arbitrator who shall be by
profession be a real estate appraiser or broker who shall have been active over
the ten (10) year period ending on the date of such appointment in the leasing
of comparable commercial properties in the vicinity of the Building: Neither
Landlord nor Tenant shall consult with such broker or appraiser as to his or her
opinion as to FMRR prior to the appointment. The determination of the arbitrator
shall be limited solely to the issue of whether Landlord's or Tenant's submitted
FMRR for the Premises is the closer to the actual rental rate per rentable
square foot for new leases within the Market Determination Period for
Comparative Transactions. Such arbitrator may hold such hearings and require
such briefs as the arbitrator, in his or her sole discretion, determines is
necessary. In addition, Landlord or Tenant may submit to the arbitrator with a
copy to the other party within five (5) business days after the appointment of
the arbitrator any data and additional information that such party deems
relevant to the determination by the arbitrator ("Data") and the other party may
submit a reply in writing within five (5) business days after receipt of such
Data.
(1) The arbitrator shall, within thirty (30) days of his
or her appointment, reach a decision as to whether the parties shall use
Landlord's or Tenant's submitted FMRR, and shall notify Landlord and Tenant of
such determination.
(2) The decision of the arbitrator shall be binding upon
Landlord and Tenant.
(3) If Landlord and Tenant fail to agree upon and appoint
such arbitrator, then the appointment of the arbitrator shall be made by the
American Arbitration Association.
(4) The cost of arbitration shall be paid by Landlord and
Tenant equally.
(5) The arbitration proceeding and all evidence given or
discovered pursuant thereto shall be maintained in confidence by all parties.
ARTICLE 9.
MISCELLANEOUS MATTERS
9.01 PARKING. None.
9.02 BROKERS. Landlord has been represented in this transaction by
Landlord's Broker. Tenant has been represented in this transaction by Tenant's
Broker. Upon full execution of this Lease by both parties, Landlord shall pay to
Landlord's Broker and Tenant's Broker a fee for brokerage services rendered by
it in this transaction provided for in separate written agreements between
Landlord and Landlord's Broker and Landlord's Broker and Tenant's Broker. Each
party represents and warrants to the other that the brokers named in the Basic
Lease Information sheet are the only agents, brokers, finders or other similar
parties with whom such party has had any dealings in connection with the
negotiation of this Lease and the consummation of the transaction contemplated
hereby. Each party hereby agrees to indemnify, defend and hold the other party
free and harmless from and against liability for compensation or charges which
may be claimed by any agent, broker, finder or other similar party by reason of
any dealings with or actions of such indemnifying party in connection with the
negotiation of this Lease and the consummation of this transaction, including
any costs, expenses and attorneys' fees incurred with respect thereto.
9.03 NO WAIVER. No waiver by either party of the default or breach of
any term, covenant or condition of this Lease by the other shall be deemed a
waiver of any other term, covenant or condition hereof,
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or of any subsequent default or breach by the other of the same or of any other
term, covenant or condition hereof. Landlord's consent to, or approval of, any
act shall not be deemed to render unnecessary the obtaining of Landlord's
consent to, or approval of, any subsequent or similar act by Tenant, or be
construed as the basis of an estoppel to enforce the provision or provisions of
this Lease requiring such consent. Regardless of Landlord's knowledge of a
default or breach at the time of accepting Rent, the acceptance of Rent by
Landlord shall not be a waiver of any preceding default or breach by Tenant of
any provision hereof, other than the failure of Tenant to pay the particular
Rent so accepted. Any payment given Landlord by Tenant may be accepted by
Landlord on account of monies or damages due Landlord, notwithstanding any
qualifying statements or conditions made by Tenant in connection therewith,
which statements and/or conditions shall be of no force or effect whatsoever
unless specifically agreed to in writing by Landlord at or before the time of
deposit of such payment.
9.04 RECORDING. Neither this Lease nor a memorandum thereof shall be
recorded without the prior written consent of Landlord, which consent may be
withheld in Landlord's sole discretion. Notwithstanding the foregoing, Tenant
may record that certain Memorandum of Lease substantially in the form attached
hereto as EXHIBIT G.
9.05 HOLDING OVER. If Tenant holds over after expiration or termination
of this Lease, Tenant shall pay for each month of hold-over tenancy two hundred
(200%) times the Gross Rent which Tenant was obligated to pay for the month
immediately preceding the end of the Term for each month or any part thereof of
any such hold-over period, together with such other amounts as may become due
hereunder. No holding over by Tenant after the Term shall operate to extend the
Term. In the event of any unauthorized holding over, Tenant shall indemnify,
defend and hold Landlord harmless from and against all claims, demands,
liabilities, losses, costs, expenses (including attorneys' fees), injury and
damages incurred by Landlord as a result of Tenant's delay in vacating the
Leased Premises.
9.06 TRANSFERS BY LANDLORD. The term "Landlord" as used in this Lease
shall mean the owner(s) at the time in question of the fee title to the Leased
Premises or, if this is a sublease, of the Tenant's interest in the master
lease. If Landlord transfers, in whole or in part, its rights and obligations
under this Lease or in the Project, upon its transferee's assumption of
Landlord's obligations hereunder and delivery to such transferee of any unused
Security Deposit then held by Landlord, no further liability or obligations
shall thereafter accrue against the transferring or assigning person as Landlord
hereunder. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Landlord shall be binding only upon the Landlord as
defined in this Section 9.06.
9.07 ATTORNEYS' FEES. In the event either party places the enforcement
of this Lease, or any part of it, or the collection of any Rent due, or to
become due, hereunder, or recovery of the possession of the Leased Premises, in
the hands of an attorney, or files suit upon the same, the prevailing party
shall recover its reasonable attorneys' fees, costs and expenses, including
those which may be incurred on appeal. Such fees may be awarded in the same suit
or recovered in a separate suit, whether or not suit is filed or any suit that
may be filed is pursued to decision or judgment. The terms "prevailing party"
shall include, without limitation, a party who substantially obtains or defeats
the relief sought, as the case may be, whether by compromise, settlement,
judgment, or the abandonment by the other party of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred.
9.08 TERMINATION; MERGER. No act or conduct of Landlord, including,
without limitation, the acceptance of keys to the Leased Premises, shall
constitute an acceptance of the surrender of the Leased Premises by Tenant
before the scheduled Term Expiration Date. Prior to the Term Expiration Date,
only a written notice from Landlord to Tenant shall constitute acceptance of the
surrender of the Leased Premises
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and accomplish a termination of this Lease. Unless specifically stated otherwise
in writing by Landlord, the voluntary or other surrender of this Lease by
Tenant, the mutual termination or cancellation hereof, or a termination hereof
by Landlord for default by Tenant, shall automatically terminate any sublease or
lesser estate in the Leased Premises; provided, however, Landlord shall, in the
event of any such surrender, termination or cancellation, have the option to
continue any one or all of any existing subtenancies. Landlord's failure within
thirty (30) days following any such event to make any written election to the
contrary by written notice to the holder of any such lesser interest, shall
constitute Landlord's election to have such event constitute the termination of
such interest.
9.09 AMENDMENTS; INTERPRETATION. This Lease may not be altered, changed
or amended, except by an instrument in writing signed by the parties in interest
at the time of the modification. The captions of this Lease are for convenience
only and shall not be used to define or limit any of its provisions.
9.10 SEVERABILITY. If any term or provision of this Lease, or the
application thereof to any person or circumstances, shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and shall be enforceable to the fullest extent
permitted by law.
9.11 NOTICES. All notices, demands, consents and approvals which are
required or permitted by this Lease to be given by either party to the other
shall be in writing and shall be deemed to have been fully given by personal
delivery or by recognized overnight courier service or when deposited in the
United States mail, certified or registered, with postage prepaid, and addressed
to the party to be notified at the address for such party specified on the Basic
Lease Information sheet, or to such other place as the party to be notified may
from time to time designate by at least fifteen (15) days' notice to
the notifying party given in accordance with this Section 9.11, except that upon
Tenant's taking possession of the Leased Premises, the Leased Premises shall
constitute Tenant's address for notice purposes. A copy of all notices given to
Landlord or Tenant under this Lease shall be concurrently transmitted to such
party or parties at such addresses as Landlord or Tenant, as the case may be,
may from time to time hereafter designate by notice to the other party.
Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. Notices delivered
by nationally recognized overnight courier shall be deemed given twenty-four
(24) hours after delivery of the same to the courier. If notice is received on a
Saturday, Sunday or legal holiday, it shall be deemed received on the next
business day. Tenant hereby appoints as its agent to receive the service of all
default notices and notice of commencement of unlawful detainer proceedings the
person in charge of or apparently in charge of or occupying the Leased Premises
at the time, and, if there is no such person, then such service may be made by
attaching the same on the main entrance of the Leased Premises.
9.12 FORCE MAJEURE. Any prevention, delay or stoppage of work to be
performed by Landlord or Tenant which is due to strikes, labor disputes,
inability to obtain labor, materials, equipment or reasonable substitutes
therefor, acts of God, governmental restrictions or regulations or controls,
judicial orders, enemy or hostile government actions, civil commotion, or other
causes beyond the reasonable control of the party obligated to perform
hereunder, shall excuse performance of the work by that party for a period equal
to the duration of that prevention, delay or stoppage. Nothing in this Section
9.12 shall excuse or delay Tenant's obligation to pay Rent or other charges due
under this Lease.
9.13 GUARANTOR. [intentionally deleted.]
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9.14 SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and inure
to the benefit of Landlord, its successors and assigns (subject to the
provisions hereof, including, without limitation, Section 5.15), and shall be
binding upon and inure to the benefit of Tenant, its successors, and to the
extent assignment or subletting, may be approved by Landlord hereunder, Tenant's
assigns or subtenants.
9.15 FURTHER ASSURANCES. Landlord and Tenant each agree to promptly sign
all documents reasonably requested to give effect to the provisions of this
Lease.
9.16 INCORPORATION OF PRIOR AGREEMENTS. This Lease, including the
exhibits and addenda attached to it, contains all agreements of Landlord and
Tenant with respect to any matter referred to herein. No prior agreement or
understanding pertaining to such matters shall be effective.
9.17 APPLICABLE LAW. This Lease shall be governed by, construed and
enforced in accordance with the laws of the State of California.
9.18 TIME OF THE ESSENCE. Time is of the essence of each and every
covenant of this Lease. Each and every covenant, agreement or other provision of
this Lease on either party's part to be performed shall be deemed and construed
as a separate and independent covenant of such party, not dependent on any other
provision of this Lease or on any other covenant or agreement set forth herein.
9.19 NO JOINT VENTURE. This Lease shall not be deemed or construed to
create or establish any relationship of partnership or joint venture or similar
relationship or arrangement between Landlord and Tenant hereunder.
9.20 AUTHORITY. If a party is a corporation, trust, general or limited
partnership or limited liability company, each individual executing this Lease
on behalf of such party represents and warrants that he or she is duly
authorized to execute and deliver this Lease on such party's behalf and that
this Lease is binding upon such party in accordance with its terms. If a party
is a corporation, trust, partnership, or limited liability company, such party
shall, within ten (10) business days after request by the other party, deliver
to the requesting party evidence satisfactory to the requesting party of such
authority.
9.21 [intentionally deleted].
9.22 OFFER. Preparation of this Lease by Landlord or Landlord's agent
and submission of same to Tenant shall not be deemed an offer to lease to
Tenant. This Lease is not intended to be binding and shall not be effective
until fully executed by both Landlord and Tenant.
9.23 EXHIBITS; ADDENDA. The following Exhibits and addenda are attached
to, incorporated in and made a part of this Lease: EXHIBIT A Floor Plan of the
Leased Premises; EXHIBIT B Initial Improvement of the Leased Premises; EXHIBIT C
Confirmation of Term of Lease; Exhibit D Building Rules and Regulations; EXHIBIT
E Form of Fleet National Bank's Lease Subordination, Non-Disturbance and
Attornment Agreement; EXHIBIT F Form of Letter of Credit; and EXHIBIT G Form of
Memorandum of Lease.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE TO FOLLOW.]
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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the Date of Lease shown on Basic Lease Information sheet.
"LANDLORD":
CEP INVESTORS XII LLC,
a Delaware limited liability company
By: EPI Investors XII LLC,
a California limited
liability company
Its Manager
By: Ellis Partners, Inc.,
California corporation
Its Manager
By: [ILLEGIBLE SIGNATURE]
----------------------
Type Name:
---------------
Title:
-------------------
"TENANT":
SHOPNOW.COM INC,
a Washington corporation
By: /s/ JOE ARCINIEGA
-----------------------------------
Type Name: Joe Arciniega
----------------------------
Title: Chief Operating Officer
--------------------------------
By:
-----------------------------------
Type Name:
----------------------------
Title:
--------------------------------
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EXHIBIT A
FLOOR PLAN
OF THE
LEASED PREMISES
1
<PAGE> 70
[FLOOR PLAN]
8TH FLOOR
111 SUTTER STREET
N.T.S.
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[FLOOR PLAN]
9TH FLOOR
111 SUTTER STREET
N.T.S.
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[FLOOR PLAN]
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[FLOOR PLAN]
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EXHIBIT B
INITIAL IMPROVEMENT OF THE LEASED PREMISES
1. Tenant Improvements and Landlord Improvements. Landlord shall cause
Pankow Builders (the "Contractor") to construct and install the Tenant
Improvements (as defined below) and the Landlord Improvements (as defined
below). The Contractor shall construct and install the tenant improvements (the
"Tenant Improvements") in the Leased Premises, substantially in accordance with
plans, working drawings and specifications ("Tenant's Plans") prepared by
Ginsler (the "Architect") and approved by Landlord and Tenant, which approval
shall not be unreasonably withheld by either party. Tenant's Plans shall include
a kitchen (the "Product Kitchen") used solely for the preparation of food items
to be photographed for inclusion in catalogs (in a variety of media). The costs
of preparing Tenant's Plans and performing the Tenant Improvements shall be
allocated between, and paid by, Landlord and Tenant as set forth in this EXHIBIT
B. Landlord shall require Contractor to competitively bid major subcontracts and
materials purchases. With the exception of mechanical, electrical and fire
safety subcontractors (whose charges shall not exceed those generally charged in
other similar buildings in the vicinity for tenant improvement projects of the
sort described in the Tenant's Plans), at least three bids shall be secured for
each subcontract and material contract.
2. Tenant's Plans. Tenant and Landlord shall mutually approve Tenant's
Plans in writing, each party's approval shall not be unreasonably withheld,
conditioned or delayed. Tenant's Plans (including, but not limited to, the
Product Kitchen) shall comply with all applicable codes, laws, ordinances, rules
and regulations, shall not adversely affect the Building shell or core or any
systems, components or elements of the Building, shall be in a form sufficient
to secure the approval of all government authorities with jurisdiction over the
Building, and shall be otherwise satisfactory to Landlord in Landlord's
reasonable discretion. Tenant's Plans shall be complete plans, working drawings
and specifications for the layout, improvement and finish of the Leased Premises
consistent with the design and construction of the Building, including
mechanical and electrical drawings and decorating plans, showing as many of the
following as possible:
(1) Location and type of all partitions;
(2) Location and type of all doors, with hardware and keying
schedule;
(3) Ceiling plans, including light fixtures;
(4) Location of telephone equipment room, with all special
electrical and cooling requirements;
(5) Location and type of all electrical outlets, switches,
telephone outlets, and lights;
(6) Location of all sprinklers (on a design build basis or in
consultation with a sprinkler engineer);
(7) Location and type of all equipment requiring special
electrical requirements;
(8) Location, weight per square foot and description of any heavy
equipment or filing system exceeding fifty (50) pounds per square foot live and
dead load;
(9) Requirements for air conditioning or special ventilation;
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(10) Type and color of floor covering;
(11) Location, type and color of wall covering;
(12) Location, type and color of paint or finishes;
(13) Location and type of plumbing;
(14) Location and type of kitchen equipment;
(15) Indicate critical dimensions necessary for construction;
(16) Details showing all millwork with verified dimensions and
dimensions of all equipment to be built in, corridor entrances, bracing or
support of special walls or glass partitions, and any other items or information
requested by Landlord; and
(17) Location of all cabling.
3. Landlord's review and approval of Tenant's Plans shall not
constitute, and Landlord shall not be deemed to have made, any representation or
warranty as to the compliance of the Tenant Improvements with any laws or as to
the suitability of the Leased Premises or the Tenant Improvements for Tenant's
needs.
4. Construction.
(a) The Tenant Improvements in the Leased Premises shall be
completed substantially in accordance with Tenant's Plans by the Contractor in a
good and workmanlike manner. Tenant shall promptly pay when due the entire cost
of all of the Tenant Improvements (including the cost of all utilities, permits,
fees, taxes, and property and liability insurance in connection therewith)
required by Tenant's Plans. Landlord shall have no liability to Tenant if the
Leased Premises is not suitable for Tenant's occupancy or if Tenant or Landlord
has not obtained all the necessary permits for Tenant to occupy the Leased
Premises by the Term Commencement Date; provided, however, that Base Rent shall
abate until all permits necessary for Tenant's occupancy have been issued.
(b) Landlord, at its sole cost and expense, shall provide or
construct the following (collectively, the "Landlord Improvements") in the
Leased Premises:
(i) Floor Coverings: All existing floor coverings shall be
removed.
(ii) Elevator Lobby: The elevator lobbies on the floors of
the Leased Premises shall be restored.
(iii) Partitions: All existing partitions shall be
demolished.
(iv) Sprinkler System: Landlord shall provide the tap into
the main sprinkler riser and install the main sprinkler loop around the core
area of the Leased Premises.
(v) Life Safety Systems: Landlord shall provide Class "E"
fire life safety floor subpanels with adequate connection points on the floors
of the Leased Premises for code-required speaker and strobe lights as well as
flow and tamper switches for the sprinkler systems, in accordance with existing
code. The panels are to be installed in proximity to the Leased Premises. The
code-required speakers,
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strobe lights, flow and tamper switches, and other equipment for the sprinkler
systems shall be part of the Tenant Improvements.
(vi) Bathrooms: All restrooms on the floors of the Leased
Premises shall be brought to meet all local codes, as well as ADA. Cosmetically,
Landlord shall refurbish the restrooms in a manner consistent with a Class "A"
San Francisco office tower. Landlord shall also correct all existing code
violations in the common areas, if any, on the floors of the Leased Premises.
(vii) Electrical Load Requirements: Landlord shall provide
an average of 6.5 watts per usable square foot of the Leased Premises (1.5 watts
of the 6.5 watts shall be for lighting), peak demand load, of electrical power
per floor stubbed to electrical closets on each floor of the Leased Premises
each located at either end of the core area of the Leased Premises.
(viii) Telephone Requirements: Landlord shall provide to
Tenant 200 pairs of copper phone wire per floor stubbed to the telephone closet
(with capacity to add fiber optic cable) of each floor located at the core area
of the Leased Premises.
(ix) Condenser Water Loop: Landlord shall provide a
condenser water loop stubbed to each of the floors of the Leased Premises for
access to condensed water for air conditioning necessary for Tenant's air
conditioning needs (however, Tenant, at Tenant's cost but which may be paid from
the Landlord's Contribution, shall be responsible for the installation,
operation and maintenance of such air conditioning units).
5. Landlord's and Tenant's Contributions. As Landlord's contribution for
the costs of Tenant Plans and reimbursable expenses by the Architect, Landlord
shall give Tenant an allowance in the maximum amount of $0.15 per square foot of
Rentable Area, which equals $7,624.95 based upon 50,833 rentable square feet
("Landlord's Plans Contribution"). As Landlord's contribution for the costs of
Tenant Improvements, Landlord shall give Tenant an allowance in the maximum
amount of $29.85 per square foot of Rentable Area, which equals $1,517,365.05
based upon 50,833 rentable square feet ("Landlord's Tenant Improvements
Contribution"). Tenant shall have the right prior to Tenant's Physical
Possession Date to request in writing (along with third party bids or other
documentation showing the proposed expenditures) that Landlord provide to Tenant
an additional contribution for the construction of Tenant Improvements of up to
a maximum of $4.00 per square foot of Rentable Area, or $203,332.00 ("Landlord's
Additional Contribution," Landlord's Plans Contribution, Landlord's Tenant
Improvements Contribution, and Landlord's Additional Contribution, if any, shall
be collectively referred to as "Landlord's Contribution"). Landlord's Additional
Contribution shall be added to Base Rent utilizing an interest rate of eleven
percent (11%) per annum and a ten (10) year amortization schedule (i.e., for
every one dollar ($1.00) per rentable square foot of Landlord's Additional
Contribution, $8,402.70 per annum, or $700.22 per month shall be added to Base
Rent). Landlord's Tenant Improvements Contribution and Landlord's Additional
Contribution, if any, may be used only for direct hard and soft costs, including
construction costs, architect fees, and consultant fees. Notwithstanding the
foregoing, Tenant may use a maximum of $2.00 per square foot of Rentable Area
(or $101,666.00) of Landlord's Contribution for communication equipment and
cabling. Any costs of preparing Tenant's Plans and constructing the Tenant
Improvements in excess of Landlord's Contribution shall be paid by Tenant.
Landlord shall pay Landlord's Contribution directly to the Architects and
engineers and to the Contractor for the account of Tenant, in installments as
professional services for Tenant's Plans are rendered, and Tenant improvements
are completed, upon Landlord's receipt of a written request for payment
accompanied by written invoices and other written evidence reasonably
satisfactory to Landlord showing the costs incurred, until Landlord's
Contribution is exhausted, Tenant shall indemnify and protect Landlord against
any liability for mechanics, materialmen's and other liens or claims with
respect to the Tenant Improvements and shall obtain releases to liens as
payments are made relating to such liens. Tenant shall
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also provide to Landlord (at Tenant's expense or as a deduction from Landlord's
Contribution), if reasonably required by Landlord, lien insurance or a lien
completion bond in the amount provided for Section 5.07( c) of the Lease- Tenant
shall pay to Landlord (or Landlord may deduct from Landlord's Contribution) a
construction management fee equal to the lesser of (i) three and one-half
percent (3.5%) of the total costs of the Tenant Improvements, or (ii) $ 1.00 per
square foot of Rentable Area.
6. Changes. Except for minor non-structural changes, if Tenant requests
any change in Tenant's Plans, Tenant shall request such change in a written
notice to Landlord.
7. Other Work by Tenant. All work not within the scope of the normal
construction trades employed on the Building, such as the furnishing and
installing of furniture, telephone equipment, office equipment and wiring, shall
be furnished and installed by Tenant at Tenant's expense.
8. Requirements for Other Work Performed by Tenant. All other work
performed at the Building or in the Project by Tenant or Tenant's contractor or
subcontractors shall be subject to the following additional requirements:
a. Such work shall not proceed until Landlord has approved in
writing: (i) Tenant's contractor, (ii) the amount and coverage of public
liability and property damage insurance, with Landlord named as an additional
insured, carried by Tenant's contractor, (iii) complete and detailed plans and
specifications for such work, and (iv) a schedule for the work.
b. All work shall be done in conformity with a valid permit when
required, a copy of which shall be furnished to Landlord before such work is
commenced. In any case, all such work shall be performed in accordance with all
applicable laws. Notwithstanding any failure by Landlord to object to any such
work, Landlord shall have no responsibility for Tenant's failure to comply with
applicable laws.
c. Tenant or Tenant's contractor shall arrange for necessary
utility, hoisting and elevator service, on a nonexclusive basis, with Landlord.
Landlord shall have the right to require any necessary movement of materials by
the elevator to be done after regular working hours.
d. Tenant shall be responsible for cleaning the Leased Premises,
the Building and the Project and removing all debris in connection with its
work. All completed work shall be subject to inspection and acceptance by
Landlord. Tenant shall reimburse Landlord for the cost all extra expense
incurred by Landlord by reason of faulty work done by Tenant or Tenant's
contractor or by reason of inadequate cleanup by Tenant or Tenant's contractor.
Landlord will provide Tenant with copies of third party consultant invoices
within five (5) business days of Tenant's request for such invoices.
9. Tenant Delay. If the completion of the Tenant Improvements is delayed
(i) at the request of Tenant, (ii) by Tenant's failure to comply with the
foregoing provisions (including failure to pay any sums payable by Tenant within
the time periods specified herein), (iii) by changes in the Tenant's Plans
ordered by Tenant or by extra work ordered by Tenant, (iv) because Tenant
chooses to have additional work performed by Landlord, or (v) because of any
other act or omission of Tenant (collectively, "Tenant Delay"), then Tenant
shall be responsible for all costs and any expenses occasioned by such Tenant
Delay including, without limitation, any costs and expenses attributable to
increases in labor or materials; and, if such delay actually delays the Term
Commencement Date, then Tenant shall pay Lessor the Base Rent for the entire
period of such delay.
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EXHIBIT C
CONFIRMATION OF TERM OF LEASE
This Confirmation of Term of Lease is made by and between ______, a
_______, as Landlord, and________________, a__________ , as Tenant, who agree as
follows:
1. Landlord and Tenant entered into a Lease dated ________, 19__ (the
"Lease"), in which Landlord leased to Tenant and Tenant leased from Landlord the
Leased Premises described in the Basic Lease Information sheet of the Lease (the
"Leased Premises").
2. Pursuant to Section 3.01 of the Lease, Landlord and Tenant agree to
confirm the commencement date and expiration date of the Term of the Lease as
follows:
a. ___________________, 19__, is the Term Commencement Date;
b. ___________________, 19__, is the Term Expiration Date;
c. ___________________, 19__, is the commencement date of Rent under the
Lease.
3. Tenant hereby confirms that the Lease is in full force and effect
and:
a. It has accepted possession of the Leased Premises as provided in the
Lease;
b. The improvements and space required to be furnished by Landlord under
the Lease have been furnished;
c. Landlord has fulfilled all its duties of an inducement nature;
d. The Lease has not been modified, altered or amended, except as
follows:
__________________________________________________________; and
e. There are no setoffs or credits against Rent and no security deposit
has been paid except as expressly provided by the Lease.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE TO FOLLOW.]
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4. The provisions of this Confirmation of Term of Lease shall inure to
the benefit of, or bind, as the case may require, the parties and their
respective successors, subject to the restrictions on assignment and subleasing
contained in the Lease.
DATED:________________________, 19__
"LANDLORD": "TENANT":
CEP INVESTORS XII LLC, SHOPNOW.COM INC, a Washington
a Delaware limited liability company corporation
By: EPI Investors X11 LLC, By:
a California limited liability company -----------------------------
Its Manager Typed Name:
---------------------
By: Ellis Partners, Inc., Title:
a California corporation, ---------------------------
Its Manager
By:
-----------------------------
Typed Name:
---------------------
Title:
---------------------------
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EXHIBIT D
BUILDING RULES AND REGULATIONS
1. The sidewalks, doorways, halls, stairways, vestibules and other
similar areas shall not be obstructed by Tenant or used by it for any purpose
other than ingress to and egress from the Leased Premises, and for going from
one part of the Building to another part. Corridor doors, when not in use, shall
be kept closed. Before leaving the Building, Tenant shall ensure that all doors
to the Leased Premises are securely locked and all water faucets and electricity
are shut off.
2. Plumbing fixtures shall be used only for their designated purpose,
and no foreign substances of any kind shall be deposited therein. Damage to any
such fixtures resulting from misuse by Tenant or any employee or invitee of
Tenant shall be repaired at the expense of Tenant.
3. Nails, screws and other attachments to the Building require prior
written consent from Landlord, except for the routine hanging of pictures,
artwork, photographs, maps, diplomas, licenses, or certificates or similar
items. Tenant shall not mar or deface the Leased Premises in any way. Tenant
shall not place anything on or near the glass of any window, door or wall which
may appear unsightly from outside the Leased Premises.
4. All contractors and technicians rendering any installation service to
Tenant shall be subject to Landlord's approval and supervision prior to
performing services. This applies to all work performed in the Building,
including, but not limited to, installation of telephones, telegraph equipment,
wiring of any kind, and electrical devices, as well as all installations
affecting floors, walls, woodwork, windows, ceilings and any other physical
portion of the Building.
5. Movement in or out of the Building of furniture, office equipment,
safes or other bulky material which requires the use of elevators, stairways, or
the Building entrance and lobby shall be restricted to hours established by
Landlord. All such movement shall be under Landlord's supervision, and the use
of an elevator for such movements shall be restricted to the Building's freight
elevator. Arrangements shall be made at least 24 hours in advance with Landlord
regarding the time, method, and routing of such movements. Tenant shall pay for
the services of the employees of the elevator service company employed when
safes and other heavy articles are moved into or from the Building, and Tenant
shall assume all risks of damage and pay the cost of repairing or providing
compensation for damage to the Building, to articles moved and injury to persons
or property resulting from such moves.
6. Landlord shall have the right to limit the weight and size of, and to
designate the location of, all safes and other heavy property brought into the
Building.
7. Tenant shall cooperate with Landlord in maintaining the Leased
Premises. Tenant shall not employ any person for the purpose of cleaning the
Leased Premises other than the Building's cleaning and maintenance personnel:
Window cleaning shall be done only by Landlord's agents at such times and during
such hours as Landlord shall elect. Janitorial services will not be furnished on
nights when rooms are occupied after 7:00 p.m.
8. Deliveries of water, soft drinks, newspapers or other such items to
the Leased Premises shall be restricted to hours established by Landlord and
made by use of the freight elevator if Landlord so directs.
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9. Nothing shall be swept or thrown into the corridors, halls, elevator
shafts or stairways. No birds, fish or animals of any kind shall be brought into
or kept in, on or about the Leased Premises, with the exception of guide dogs
where necessary.
10. No cooking shall be done in the Leased Premises except in connection
with the Product Kitchen (as defined in EXHIBIT B) and a convenience lunch room
for the sole use of employees and guests (on a non-commercial basis) in a manner
which complies with all of the provisions of the Lease and which does not
produce fumes or odors.
11. Food, soft drink or other vending machines shall not be placed
within the Leased Premises without Landlord's prior written consent, which
consent shall not be unreasonably withheld, conditioned or delayed.
12. Tenant shall not install or operate on the Leased Premises any
electric heater, stove or similar equipment (but specifically excluding coffee
machines and microwave ovens) without Landlord's prior written consent, which
consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall
not use or keep on the Leased Premises any kerosene, gasoline, or inflammable or
combustible fluid or material other than limited quantities reasonably necessary
for the operation and maintenance of office equipment utilized at the Leased
Premises. No explosives shall be brought onto the Project at any time.
13. Tenant shall not waste electricity or water and agrees to cooperate
fully with Landlord to assure the most effective operation of the Building's
heating and to comply with any governmental energy-saving rules, laws or
regulations of which Tenant has actual notice.
14. [Intentionally deleted]
15. Tenant, its employees, agents and invitees shall each comply with
all requirements necessary for the security of the Leased Premises, including,
if implemented by Landlord, the use of service passes issued by Landlord for
after-hours movement of office equipment/packages, and the signing of a security
register in the Building lobby after hours. Landlord reserves the right to
refuse entry to the Building after normal business hours to Tenant, its
employees, agents or invitees, or any other person without satisfactory
identification showing his or her right of access to the Building at such time.
Landlord shall not be liable for any damages resulting from any error in regard
to any such identification or from such admission to or exclusion from the
Building. Landlord shall not be liable to Tenant for losses due to theft or
burglary, or for damage by unauthorized persons in, on or about the Project, and
Tenant assumes full responsibility for protecting the Leased Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry closed.
16. Landlord will furnish Tenant with a reasonable number of initial
keys for entrance doors into the Leased Premises, and may charge Tenant for
additional keys thereafter. All such keys shall remain the property of Landlord.
No additional locks are allowed on any door of the Leased Premises without
Landlord's prior written consent and Tenant shall not make any duplicate keys.
Upon termination of this Lease, Tenant SHALL surrender to Landlord all keys to
the Leased Premises, and give to Landlord the combination of all locks for safes
and vault doors, if any, in the Leased Premises.
17. Tenant shall not bring into (or permit to be brought into) the
Building any bicycle or other type of vehicle (but specifically excluding
strollers, carriages, wheelchairs, and similar devices).
18. Landlord retains the right at any time, without liability to Tenant,
to change the name and street address of the Building, except as otherwise
expressly provided in the Lease with respect to signage.
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19. Canvassing, peddling, soliciting, and distribution of handbills in
or at the Project are prohibited and Tenant will cooperate to prevent
these activities.
20. The Building hours of operation are 7:00 a.m. to 6:00 p.m., Monday
through Friday, excluding holidays. Landlord reserves the right to close and
keep locked all entrance and exit doors of the Building on Saturdays, Sundays
and legal holidays, and between the hours of 6:01 p.m. of any day and 6:59 a.m.
of the following day, and during such other hours as Landlord may deem advisable
for the protection of the Building and the tenants thereof; provided, however,
that Tenant and Tenant's employees; agents, contractors, invitees, and licensees
shall have access to the Leased Premises 24 hours per day, 7 days per week, 365
days per year.
21. The requirements of Tenant will be attended to only upon application
to the Project manager. Employees will not perform any work or do anything
outside of their regular duties unless under specific instruction from the
Project manager.
22. Tenant shall cooperate fully with the life safety program of the
Building as established and administered by Landlord. This shall include
participation by Tenant and its employees in exit drills, fire inspections, life
safety orientations and other programs relating to fire and life safety that may
be established by Landlord.
23. No smoking shall be permitted in the Building.
24. Landlord reserves the right to rescind any of these rules and
regulations and to make future rules and regulations required for the safety,
protection and maintenance of the Project, the operation and preservation of the
good order thereof, and the protection and comfort of the tenants and their
employees and visitors; provided that in all events Landlord shall only make and
enforce rules that are reasonable, do not materially restrict Tenant's use and
occupancy of the Leased Premises as contemplated in the Lease, and that are
nondiscriminatory in nature and enforcement. Such rules and regulations, when
made and written notice thereof given to Tenant, shall be binding as if
originally included herein. Landlord shall not be responsible to Tenant for the
non-observance or violation of these rules and regulations by any other tenant
of the Building. Landlord reserves the right to exclude or expel from the
Project any person who, in Landlord's judgment, is under the influence of liquor
or drugs, or who shall in any manner do any act in violation of any of these
rules and regulations, provided that Tenant has been previously apprised of any
rule or regulation pursuant to which such person is excluded or expelled.
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EXHIBIT E
LEASE SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
This agreement ("Lease Subordination, Non-Disturbance and Attornment
Agreement" or "Agreement") is made as of the ______ day of ___________________,
199_, among FLEET NATIONAL BANK, a national banking association organized under
the laws of the United States, and having a place of business at Suite 800, 111
Westminster Street, Providence, Rhode Island 02903, as Agent (the "Agent") for
the Lenders (as that term is defined in a certain Loan Agreement by and between
the hereinafter defined Borrower, the Agent and the Lenders),
__________________, a _______________, having a place of business at
______________ ("Landlord" or "Borrower"), and _________________ ("Tenant").
Introductory Provisions
A. Agent and the Lenders are relying on this Agreement as an inducement
to Lenders in making and maintaining a loan ("Loan") secured by, among other
things, a [Mortgage and Security Agreement] [Deed of Trust and Security
Agreement] ("Mortgage") given by Borrower to Agent covering property commonly
known as and numbered ______________________________, _______________,
____________ and further described in Exhibit A attached hereto ("Property").
Agent is also the "Assignee" under an Assignment of Leases and Rents
("Assignment") from Borrower with respect to the Property.
B. Tenant is the tenant under that certain lease ("Lease") dated
_________, 19__, made with [Landlord] [Landlord's predecessor in title],
covering certain premises ("Premises") at the Property as more particularly
described in the Lease [and in the "Notice of Lease" dated ________________,
19__, which has been recorded at _____________ in Book _________, Page _______].
C. Lenders require, as a condition to the making and maintaining of the
Loan, that the Mortgage be and remain superior to the Lease and that Agent's
rights under the Assignment be recognized.
D. Tenant requires as a condition to the Lease being subordinate to the
Mortgage that its rights under the Lease be recognized.
E. Agent, Landlord, and Tenant desire to confirm their understanding
with respect to the Mortgage and the Lease.
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NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements contained herein, and other valuable consideration, the
receipt and adequacy of which are hereby acknowledged, and with the
understanding by Tenant that Lenders shall rely hereon in making and
maintaining the Loan, Agent, Landlord, and Tenant agree as follows:
1. Subordination. The Lease and the rights of Tenant thereunder are
subordinate and inferior to the Mortgage and any amendment, renewal,
substitution, extension or replacement thereof and each advance made thereunder
as though the Mortgage, and each such amendment, renewal, substitution,
extension or replacement were executed and recorded, and the advance made,
before the execution of the Lease.
2. Non-Disturbance. So long as Tenant is not in default (beyond any
period expressed in the Lease within which Tenant may cure such default) in the
payment of rent or in the performance or observance of any of the terms,
covenants or conditions of the Lease on Tenant's part to be performed or
observed, (i) Tenant's occupancy of the Premises shall not be disturbed by
Agent in the exercise of any of its rights under the Mortgage during the term of
the Lease, or any extension or renewal thereof made in accordance with the terms
of the Lease, and (ii) Agent will not join Tenant as a party defendant in any
action or proceeding for the purpose of terminating Tenant's interest and estate
under the Lease because of any default under the Mortgage.
3. Attornment and Certificates. In the event Agent succeeds to the
interest of Borrower as Landlord under the Lease, or if the Property or the
Premises are sold pursuant to any foreclosure of the Mortgage, Tenant shall
attorn to Agent, or a purchaser upon any such foreclosure sale, and shall
recognize Agent, or such purchaser, thereafter as the Landlord under the Lease.
Such attornment shall be effective and self-operative without the execution of
any further instrument. Tenant agrees, however, to execute and deliver at any
time and from time to time, upon the request of any holder(s) of any of the
indebtedness or other obligations secured by the Mortgage, or upon request of
any such purchaser, (a) any instrument or certificate which, in the reasonable
judgment of such holder(s), or such purchaser, may be necessary or appropriate
in any such foreclosure proceeding or otherwise to evidence such attornment, and
(b) an instrument or certificate regarding the status of the Lease, consisting
of statements, if true (and if not true, specifying in what respect), (i) that
the Lease is in full force and effect, (ii) the date through which rentals have
been paid, (iii) the duration and date of the commencement of the term of the
Lease, (iv) the nature of any amendments or modifications to the Lease, (v) that
no default, or state of facts, which with the passage of time, or notice, or
both, would constitute a default, exists on the part of either party to the
Lease, and (vi) the dates on which payments of additional rent, if any, are due
under the Lease.
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4. Limitations. If Agent exercises any of its rights under the
Assignment or the Mortgage, or if Agent shall succeed to the interest of
Landlord under the Lease in any manner, or if any purchaser acquires the
Property, or the Premises, upon or after any foreclosure of the Mortgage, or any
deed in lieu thereof, Agent or such purchaser, as the case may be, shall have
the same remedies by entry, action or otherwise in the event of any default by
Tenant (beyond any period expressed in the Lease within which Tenant may cure
such default) in the payment of rent or in the performance or observance of any
of the terms, covenants and conditions of the Lease on Tenant's part to be paid,
performed or observed that the Landlord had or would have had if Agent or such
purchaser had not succeeded to the interest of the present Landlord. From and
after any such attornment, Agent or such purchaser shall be bound to Tenant
under all the terms, covenants and conditions of the Lease, and Tenant shall,
from and after such attornment to Agent, or to such purchaser have the same
remedies against Agent, or such purchaser, for the breach of an agreement
contained in the Lease that Tenant might have had under the Lease against
Landlord, if Agent or such purchaser had not succeeded to the interest of
Landlord. Provided, however, that Agent or such purchaser shall only be bound
during the period of its ownership, and that in the case of the exercise by
Agent of its rights under the Mortgage, or the Assignment, or any combination
thereof, or a foreclosure, or deed in lieu of foreclosure, all Tenant claims
shall be satisfied only out of the interest, if any, of Agent, or such
purchaser, in the Property, and Agent and such purchaser shall not be (a) liable
for any act or omission of any prior landlord (including the Landlord); or (b)
liable for or incur any obligation with respect to the construction of the
Property or any improvements of the Premises or the Property; or (c) subject to
any offsets or defenses which Tenant might have against any prior landlord
(including the Landlord); or (d) bound by any rent or additional rent which
Tenant might have paid for more than the then current rental period to any prior
landlord (including the Landlord); or (e) bound by any amendment or modification
of the Lease, or any consent to any assignment or sublet, made without Agent's
prior written consent; or (f) bound by or responsible for any security deposit
not actually received by Agent; or (g) liable for or incur any obligation with
respect to any breach of warranties or representations of any nature under the
Lease or otherwise including without limitation any warranties or
representations respecting use, compliance with zoning, landlord's title,
landlord's authority, habitability and/or fitness for any purpose, or
possession; or (h) liable for consequential damages. The foregoing shall not,
however: (i) relieve Agent or such purchaser, of the obligation to remedy or
cure any conditions at the Premises the existence of which constitutes a
Landlord default under the Lease and which continue at the time of such
succession or acquisition, or (ii) deprive the Tenant of the right to terminate
the Lease for a breach of Landlord covenant which is not cured as provided for
herein and in the Lease and as
3
<PAGE> 86
a result of which there is a material interference with Tenant's permitted use
and occupation of the Premises or any permitted business conducted therein.
5. Rights Reserved. Nothing herein contained is intended, nor shall it
be construed, to abridge or adversely affect any right or remedy of: (a) the
Landlord under the Lease, or any subsequent Landlord, against the Tenant in the
event of any default by Tenant (beyond any period expressed in the. Lease within
which Tenant may cure such default) in the payment of rent or in the performance
or observance of any of the terms, covenants or conditions of the Lease on
Tenants part to be performed or observed; or (b) the Tenant under the Lease
against the original or any prior Landlord in the event of any default by the
original Landlord to pursue claims against such original or prior Landlord
whether or not such claim is barred against Agent or a subsequent purchaser.
6. Notice and Right to Cure. Tenant agrees to provide Agent with a copy
of each notice of default given to Landlord under the Lease, at the same time as
such notice of default is given to the Landlord, and that in the event of any
default by the Landlord under the Lease, Tenant will take no action to terminate
the Lease (a) if the default is not curable by Agent (so long as the default
does not interfere with Tenant's use and occupation of the Premises), or (b) if
the default is curable by Agent, unless the default remains uncured for a period
of thirty (30) days after written notice thereof shall have been given, postage
prepaid, to Agent at the address provided in Section 7 below; provided, however,
that if any such default is such that it reasonably cannot be cured within such
thirty (30) day period, such period shall be extended for such additional period
of time as shall be reasonably necessary (including, without limitation, a
reasonable period of time to obtain possession of the Property and to foreclose
the Mortgage), if Agent gives Tenant written notice within such thirty (30) day
period of Agent's election to undertake the cure of the default and if curative
action (including, without limitation, action to obtain possession and
foreclose) is instituted within a reasonable period of time and is thereafter
diligently pursued. Agent shall have no obligation to cure any default under the
Lease.
7. Notices. Any notice or communication required or permitted hereunder
shall be in writing, and shall be given or delivered: (i) by United States mail,
registered or certified, postage fully prepaid, return receipt requested, or
(ii) by recognized courier service or recognized overnight delivery service; and
in any event addressed to the party for which it is intended at its address set
forth below:
To Agent: Fleet National Bank, as Agent
111 Westminster Street
Suite 800
Providence, Rhode Island 02903
4
<PAGE> 87
Attention: Commercial Real Estate Department
To Tenant:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
or such other address as such party may have previously specified by notice
given or delivered in accordance with the foregoing. Any such notice shall be
deemed to have been given and received on the date delivered or tendered for
delivery during normal business hours as herein provided.
8. No Oral Change. This Agreement may not be modified orally or in any
manner than by an agreement in writing signed by the parties hereto or their
respective successors in interest.
9. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, their respective heirs, personal
representatives, successors and assigns, and any purchaser or purchasers at
foreclosure of the Property or any portion thereof, and their respective heirs,
personal representatives, successors and assigns.
10. Payment of Rent To Agent. Tenant acknowledges that it has notice
that the Lease and the rent and all sums due thereunder have been assigned to
Agent as part of the security for the obligations secured by the Mortgage. In
the event Agent notifies Tenant of a default under the Loan and demands that
Tenant pay its rent and all other sums due under the Lease to Agent, Tenant
agrees that it will honor such demand and pay its rent and all other sums due
under the Lease to Agent, or Agent's designated agent, until otherwise notified
in writing by Agent. Borrower unconditionally authorizes and directs Tenant to
make rental payments directly to Agent following receipt of such notice and
Borrower further agrees that Tenant may rely upon such notice without any
obligation to further inquire as to whether or not any default exists under the
Mortgage or the Assignment and notwithstanding any notice from or claim of
Borrower to the contrary. Borrower shall have no right or claim against Tenant
for or by reason of any payments of rent or other charges made by Tenant to
Agent following Tenant's receipt of any such notice.
11. No Amendment or Cancellation of Lease. As long as the Mortgage
remains undischarged of record, Tenant shall not agree to amend or modify the
Lease in any material respect, or agree to cancel or terminate the Lease or
agree to subordinate the Lease to any other mortgage or deed of trust, without
Agent's prior written consent in each instance.
12. No Waiver. This Agreement does not:
(a) constitute a waiver by Agent of any of its rights under
the Mortgage or any of the other Loan Documents (as
defined in the Mortgage); or
5
<PAGE> 88
(b) in any way release Borrower from its obligations to
comply with the terms, provisions, conditions, covenants
and agreements and clauses of the Mortgage and other
Loan Documents.
13. Borrower Compliance. The provisions of the Mortgage remain in full
force and effect and must be complied with by Borrower.
14. Captions. Captions and headings of sections are not parts of this
Agreement and shall not be deemed to affect the meaning or construction of any
of the provisions of this Agreement.
15. Counterparts. This Agreement may be executed in several
counterparts each of which when executed and delivered is an original, but all
of which together shall constitute one instrument.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of ______________.
17. Parties Bound. The provisions of this Agreement shall be binding
upon and inure to the benefit of Tenant, Agent, Lenders and Borrower and their
respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as a sealed instrument, as of the date first above written.
AGENT:
FLEET NATIONAL BANK, as Agent
By:
------------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
Date executed by Agent:
----------------------------
TENANT:
[insert name]
BY:
------------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
Date executed by Tenant:
---------------------------
6
<PAGE> 89
LANDLORD:
[insert name]
BY:
------------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
Date executed by Landlord:
-------------------------
[INSERT APPLICABLE STATE ACKNOWLEDGEMENTS FOR ALL PARTIES]
7
<PAGE> 90
EXHIBIT F
Irrevocable Standby
Letter of Credit
No.
------------------------------
Issuance Date:
-------------------
Expiration Date:
-----------------
Beneficiary:
NAME & ADDRESS
Attn:
----------------------
Ladies & Gentlemen:
We hereby establish our Irrevocable Standby Letter of Credit in your
favor for the account of Shopnow.com for a maximum amount of
________________(__________________ 00/100 USD) available for payment at sight
by your draft(s) drawn on us when accompanied by the following document:
Beneficiary's dated statement purportedly signed by one of its officials
reading: "The amount of this drawing $ __________ under PaineWebber Incorporated
L/C No.________represents funds due us as Shopnow.com is in default under the
terms of the Lease agreement dated _________ between Shopnow.com and
_____________."
PaineWebber Incorporated does not require receipt of the original Letter
of Credit Document for draws under this Letter of Credit.
Up to the maximum amount, partial and multiple drawings are allowed.
It is a condition of this Letter of Credit that it will be automatically
renewed without amendment for a one year period upon the expiration date set
forth above and upon each anniversary of such date, unless 60 (sixty) days prior
to the expiration date, or prior to any anniversary of such date, we notify you
in writing by certified mail, return receipt requested mail, or by courier,
that we elect not to so renew this Letter of Credit.
Upon receipt of our notice of election not to renew this L/C you may
draw on us for up to the balance remaining and within the then applicable
expiration date by your sight draft drawn on us.
Continued on Page Two
<PAGE> 91
Page Two
L/C No.__________
This Letter of Credit may only be transferred in its entirety by
PaineWebber Incorporated upon our receipt of the attached "Exhibit A" duly
completed and executed by the Beneficiary and accompanied by the original Letter
of Credit and all Amendment(s), if any, together with the payment of our
transfer fee of 1/4 of 1% of the transfer amount.
Drafts and Documents must be presented for payment at our office located
at 1200 Harbor Blvd., 4th Floor, Weehawken, NJ 07087 to the attention of the
Letter of Credit Dept. on or before the expiration date specified herein.
This credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 revision) ICC Publication No. 500, and to the extent
not inconsistent therewith, the law of the State of New York, including Article
5 of the New York Uniform Commercial Code.
We hereby engage with you to honor drafts and documents drawn under and
in compliance with the terms of this credit. If we receive these documents not
later than 12:00 noon (Eastern Time) on a banking day we will honor the same on
the next succeeding banking day via a Federal Funds Wire. If we receive these
documents after 12:00 noon (Eastern Time) on a banking day we will honor the
same on the second succeeding banking day via a Federal Funds Wire.
All communications to us with respect to this L/C must be addressed to
our office located at 1200 Harbor Blvd., 4th Floor, Weehawken, NJ 07087 to the
attention of the Letter of Credit Dept.
Very Truly Yours,
Authorized Signature
<PAGE> 92
[PAINEWEBBER INCORPORATED LETTERHEAD]
THIS FORM TO BE USED WHERE A LETTER OF CREDIT IS TRANSFERRED IN ITS ENTIRETY
Date:
-------------------
Re: Letter of Credit Number:____________ issued by PaineWebber Incorporated
Gentlemen:
For value received, the undersigned beneficiary hereby irrevocably
transfers to:
---------------------------------------------------------------
(Name of Transferee)
---------------------------------------------------------------
(Address)
all rights of the undersigned beneficiary to draw under the above Letter of
Credit in its entirety.
By this transfer, all rights of the undersigned beneficiary in such
Letter of Credit are transferred ??? the transferee and the transferee shall
have the sole rights as beneficiary thereof, including sole ??? in relating to
any amendments whether increases or extensions or other amendments and whether
??? existing or hereafter made. All amendments are to be advised direct to the
transferee without necess ??? any consent of or notice to the undersigned
beneficiary.
The original advice of such Letter of Credit is returned herewith
together with any ??? and amendments, and we ask you to endorse the transfer on
the reverse of the original advice, and forward to the transferee with your
customary notice of transfer.
Enclosed is remittance of $ ________ in payment of your transfer
commission and in ad ??? thereto we agree to pay to you on demand any expenses
which may be incurred by you in connection ??? this transfer.
Yours very truly,
SIGNATURE GUARANTEED
- ------------------------------------ -----------------------------------
Name of Bank Name of Beneficiary
- ----------------------------------- -----------------------------------
Authorized Signature Authorized Signature
<PAGE> 93
EXHIBIT G
Attention: Suzanne M. Larsen, Esq.
Graham & James LLP/Riddell Williams P.S.
1001 Fourth Avenue, Suite 4500
Seattle, WA 98154-1065
================================================================================
MEMORANDUM OF LEASE
Lessor: CEP Investors XII LLC,
a Delaware limited liability company
Lessee: ShopNow.com, Inc.
a Washington corporation
Legal Description (Abbr.):
-----------------------------------------------
Additional Legal Description on Pages______of
Memorandum
Assessor's Tax Parcel Number:
---------------------------------------------
Date: September__ 1999.
1. Premises. CEP Investors XII LLC, a Delaware limited liability company
("CEP") and ShopNow.com, Inc., a Washington corporation ("ShopNow")
entered into a Lease Agreement dated as of September _, 1999 (the
"Lease") pursuant to which CEP leased a portion of the building located
on the real property commonly known as 111 Sutter Street, San Francisco,
California and more particularly described as follows:
------------------------------------------------------
Situate in the City and County of San Francisco, State of California.
to ShopNow. The complete terms and conditions of their agreement are set
forth in the Lease.
2. Term. The lease is for a term of approximately ten (10) years commencing
after the completion of certain improvements by CEP.
<PAGE> 94
3. Purpose. This Memorandum is prepared for the purposes of recordation and
to provide constructive notice of the Lease, and it in no way modifies
or amends the terms and conditions of the Lease.
MADE EFFECTIVE as of the day and year first above written.
CEP: ShopNow:
CEP Investors XII LLC, Shop Now.com, Inc.,
a Delaware limited liability company a Washington corporation
By: By:
------------------------ ---------------------------
Name: Name:
---------------------- -------------------------
Title: Title:
--------------------- ------------------------
<PAGE> 95
ACKNOWLEDGEMENTS
STATE OF___________________ )
) ss
COUNTY OF__________________ )
On this_______ day of September, 1999, before me personally appeared
__________________, to me known to be the ______________ of CEP Investors XII
LLP, a Delaware limited liability company, the company that executed the
foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said company, for the uses and purposes therein
mentioned, and on oath stated that he was authorized to execute said instrument
and that the seal affixed, if any, is the seal of said company.
DATED:
------------------------- ----------------------------------------
Print Name:
-----------------------------
NOTARY PUBLIC in and for the
State of__________, residing
at______________________________________
My appointment expires:_________________
STATE OF WASHINGTON )
)ss
COUNTY OF KING )
On this______day of September, 1999, before me personally
appeared _______________, to me known to be the _______________ of ShopNow.com,
Inc., a Washington corporation, the corporation that executed the foregoing
instrument, and acknowledged said instrument to be the free and voluntary act
and deed of said corporation, for the uses and purposes therein mentioned, and
on oath stated that he was authorized to execute said instrument on behalf of
said corporation and that the seal affixed, if any, is the corporate seal of
said corporation.
DATED:
------------------------- ----------------------------------------
Print Name:
-----------------------------
NOTARY PUBLIC in and for the
State of Washington, residing
at______________________________________
My appointment expires:_________________
<PAGE> 96
ATTACHMENT 2
Tenant's Plans
111 Sutter Street
Office Building
9th Floor
<PAGE> 97
haggingroup.com
GENSLER
FLOOR PLAN
2A.1
<PAGE> 98
haggingroup.com
GENSLER
FLOOR PLAN
2A.2
<PAGE> 99
haggingroup.com
GENSLER
FLOOR PLAN
2A.3
<PAGE> 100
haggingroup.com
GENSLER
FLOOR PLAN
2A.4
<PAGE> 1
EXHIBIT 10.9
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
FORT POINT PARTNERS INC.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1 ACCOUNTING AND OTHER TERMS........................................... 4
2 LOAN AND TERMS OF PAYMENT............................................ 4
2.1 Advances........................................................ 4
2.2 Overadvances.................................................... 4
2.3 Interest Rate, Payments......................................... 4
2.4 Fees............................................................ 5
3 CONDITIONS OF LOANS.................................................. 5
3.1 Conditions Precedent to Initial Advance......................... 5
3.2 Conditions Precedent to all Advances............................ 5
4 CREATION OF SECURITY INTEREST........................................ 5
4.1 Grant of Security Interest...................................... 5
5 REPRESENTATIONS AND WARRANTIES....................................... 5
5.1 Due Organization and Authorization.............................. 5
5.2 Collateral...................................................... 6
5.3 Litigation...................................................... 6
5.4 No Material Adverse Change in Financial Statements.............. 6
5.5 Solvency........................................................ 6
5.6 Regulatory Compliance........................................... 6
5.7 Subsidiaries.................................................... 6
5.8 Full Disclosure................................................. 7
6 AFFIRMATIVE COVENANTS................................................ 7
6.1 Government Compliance........................................... 7
6.2 Financial Statements, Reports, Certificates..................... 7
6.3 Inventory; Returns.............................................. 7
6.4 Taxes........................................................... 8
6.5 Insurance....................................................... 8
6.6 Primary Accounts................................................ 8
6.7 Financial Covenants............................................. 8
6.8 Further Assurances.............................................. 8
7 NEGATIVE COVENANTS................................................... 8
7.1 Dispositions.................................................... 8
7.2 Changes in Business, Ownership, Management or
Business Locations......................................... 9
7.3 Mergers or Acquisitions......................................... 9
7.4 Indebtedness.................................................... 9
7.5 Encumbrance..................................................... 9
7.6 Distributions; Investments...................................... 9
7.7 Transactions with Affiliates.................................... 9
7.8 Subordinated Debt............................................... 9
7.9 Compliance...................................................... 9
8 EVENTS OF DEFAULT.................................................... 10
8.1 Payment Default................................................. 10
8.2 Covenant Default................................................ 10
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
8.3 Material Adverse Change......................................... 10
8.4 Attachment...................................................... 10
8.5 Insolvency...................................................... 10
8.6 Other Agreements................................................ 10
8.7 Judgments....................................................... 10
8.8 Misrepresentations.............................................. 11
9 BANK'S RIGHTS AND REMEDIES........................................... 11
9.1 Rights and Remedies............................................. 11
9.2 Power of Attorney............................................... 11
9.3 Accounts Collection............................................. 12
9.4 Bank Expenses................................................... 12
9.5 Bank's Liability for Collateral................................. 12
9.6 Remedies Cumulative............................................. 12
9.7 Demand Waiver................................................... 12
10 NOTICES.............................................................. 12
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER........................... 12
12 GENERAL PROVISIONS................................................... 13
12.1 Successors and Assigns.......................................... 13
12.2 Indemnification................................................. 13
12.3 Time of Essence................................................. 13
12.4 Severability of Provision....................................... 13
12.5 Amendments in Writing, Integration.............................. 13
12.6 Counterparts.................................................... 13
12.7 Survival........................................................ 13
12.8 Confidentiality................................................. 14
12.9 Attorneys' Fees, Costs and Expenses............................. 14
13 DEFINITIONS.......................................................... 14
13.1 Definitions..................................................... 14
</TABLE>
3
<PAGE> 4
THIS LOAN AND SECURITY AGREEMENT dated May 11, 1998, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 and FORT POINT PARTNERS INC. ("Borrower), whose address is 612
Howard Street, Suite 300, San Francisco, California 94105 provides the terms on
which Bank will lend to Borrower and Borrower will repay Bank. The parties
agree as follows:
1. ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.
2. LOAN TERMS OF PAYMENT
2.1 ADVANCES.
Borrower will pay Bank the unpaid principal amount of all Advances
and interest on the unpaid principal amount of the Advances.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding the lesser of (A) the
Committed Revolving Line of (B) the Borrowing Base, whichever is less. Amounts
borrowed under this Section may be repaid and reborrowed during the term of
this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based
on instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving
Maturity Date, when all Advances and their amounts due under this Agreement are
immediately payable.
2.2 OVERADVANCES.
If Borrower's Obligations under Section 1.1.1 exceed the lesser of
either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower
must immediately pay Bank the excess.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Advances accrue interest on the outstanding
principal balance at a per annum rate of 0.5 percentage points above the Prime
Rate. After an Event of Default, Obligations accrue interest at 5 percent above
the rate effective immediately before the Event of Default. The interest rate
increases or decreases when the Prime Rate changes. Interest is computed on a
360 day year for the actual number of days elapsed.
(b) Payments. Interest due on the Committed Revolving Line is
payable on the 10th of each month. Bank may debit any of Borrower's deposit
accounts including Account Number.
4
<PAGE> 5
______________________ - for principal and interest payments or any amounts
Borrower owes Bank. Bank will notify Borrower when it debits Borrower's
accounts. These debits are not a set-off. Payments received after 12:00 noon
Pacific time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest accrue.
2.4 FEES
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of
$1,000 due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable
attorneys' fees and expenses) incurred through and after the date of this
Agreement, are payable when due.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE.
Bank's obligation to make the initial Advance is subject to the
condition precedent that it receive the agreements, documents and fees it
requires, along with an initial audit of Borrower's Accounts, in form and
substance acceptable to Bank.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES.
Bank's obligations to make each Advance, including the initial
Advance, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Advance and no Event of Default may have occurred and be
continuing, or result from the Advance. Each Advance is Borrower's
representation and warranty on that date that the representations and
warranties of Section 5 remain true.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and
performance of each of Borrower's duties under the Loan Documents. Except for
Permitted Liens, any security interest will be a first priority security
interest in the Collateral. Bank may place a "hold" on any deposit account
pledged as Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing
in its state of formation and qualified and licensed to do business in, and in
good standing in, any state in which the conduct of this business or its
ownership of property requires that it be qualified.
5
<PAGE> 6
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower
is bound. Borrower is not in default under any agreement to which or by which
it is bound in which the default could cause a Material Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has no notice of any actual or imminent Insolvency Proceeding of any
account debtor whose accounts are an Eligible Account in any Borrowing Base
Certificate. All Inventory is in all material respects of good and marketable
quality, free from material defects.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as
they mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made adequate
provision to pay, all taxes, except those being contested in good faith with
adequate reserves under GAAP. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary
to continue its business as currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
6
<PAGE> 7
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could have a material adverse
effect on Borrower's business or operations. Borrower will comply, and have
each Subsidiary comply, with all laws, ordinances and regulations to which it
is subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no later
than 30 days after the last day of each month, beginning month ended April 30,
1998, a company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during the period, in a form and
certified by a Responsible Officer acceptable to Bank; (ii) as soon as
available, but no later than 90 days after the last day of Borrower's fiscal
year, beginning with fiscal year ending December 31, 1998, reviewed
consolidated financial statements prepared under GAAP, consistently applied,
from an independent certified public accounting firm acceptable to Bank; (iii)
a prompt report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of $100,000 or more; and (iv) budgets, sales projections, operating
plans or other financial information Bank requests.
(b) Within 20 days after the last day of each month, beginning month
ended April 30, 1998, Borrower will deliver to Bank a Borrowing Base
Certificate signed by a Responsible Officer in the form of Exhibit C, with aged
listings of accounts receivable and accounts payable.
(c) Within 30 days after the last day of each month, beginning month
ended April 30, 1998, Borrower will deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in the form
of Exhibit D.
(d) Bank has the right to audit Borrower's Accounts at Borrower's
expense, but the audits will be conducted no more often than every 6 months
unless an Event of Default has occurred and is continuing. The cost of each
audit shall be capped at $350.00.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution
of this Agreement. Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims, that involve more than $50,000.
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6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured
and provide that the insurer must give Bank at least 20 days notice before
canceling its policy. At Bank's request, Borrower will deliver certified copies
of policies and evidence of all premium payments. Proceeds payable under any
policy will, at Bank's option, be payable to Bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository and operating accounts with
Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each month:
(i) QUICK RATIO. A ratio of Quick Assets to Current Liabilities of
at least 1.25 to 1.00
(ii) DEBT/TANGLE NET WORTH RATIO. A ratio of Total Liabilities less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than
2.00 to 1.00.
(iii) TANGIBLE NET WORTH. A Tangible Net Worth of at least $725,000.
(iv) PROFITABILITY. Borrower will be profitable each quarter and
fiscal year, except that Borrower may suffer a one fiscal quarterly loss per
fiscal year.
6.8 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS.
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
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7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25%. Borrower will not, without at
least 30 days prior written notice, relocate its chief executive office or add
any new offices or business locations.
7.3 MERGERS OR ACQUISITIONS.
(i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, if no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement
or result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge
or consolidate a Subsidiary into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest
granted here.
7.6 DISTRIBUTIONS, INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any investment
in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an
arm's length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Advance for that purpose; fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur, fail to comply with the Federal Fair Labor
Standards Act or violate any other law or regulation, if the violation could
have a material adverse effect on Borrower's business or operations or cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.
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8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations;
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrower's attempts within a 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default. During the additional time, the
failure to cure the default is not an Event of Default (but no Advances will be
made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or priority of
the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Advances will be made
during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Advances will be made before any
Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Advances
will be made before the judgment is stayed or satisfied); or
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8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Advances terminates.
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9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS.
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THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and permitted
assigns of each party. Borrower may not assign this Agreement or any rights
under it without Bank's prior written consent which may be granted or withheld
in Bank's discretion. Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank's obligations, rights and benefits under this
Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agrement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
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12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either; (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.
13. DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights;
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the Committed
Revolving Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"BORROWING BASE" is 80% of Eligible Accounts as determined by Bank from
Borrower's most recent Borrowing Base Certificate.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
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"COLLATERAL" is the property described on Exhibit A.
"COMMITTED REVOLVING LINE" is an Advance of up to $1,000,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but, Bank may change eligibility standards by giving Borrower notice. Unless
Bank agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have not
been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts
that exceed that percentage, unless the Bank approves in writing,
except for those certain Accounts from E*Trade Group, Inc. for which
the percentage may be 50% and Informix Software, Inc., for which the
percentage may be 30%.
(e) Accounts for which the account debtor does not have its principal
place of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which goods
are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if account debtor's payment may be
conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up
to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding, or becomes insolvent, or goes out
of business;
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(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of credits, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody
or possession or in transit and including returns on any accounts or other
proceeds (including insurance proceeds) from the sale or disposition of any of
the foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
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(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing
Date; and
(b)(i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates
of deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges
or levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority
over any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by
Borrower or its Subsidiaries incurred for financing the acquisition of the
Equipment, or (ii) existing on equipment when acquired, if the Lien is confined
to the property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease of license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if
it is not Bank's lowest rate.
"QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is May 10, 1999.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
17
<PAGE> 18
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
"TOTAL LIABILITIES" is on any day, obligations that should, under
GAAP, be classified as liabilities on Borrower's consolidated balance sheet,
including all indebtedness, and current portion Subordinated Debt allowed to be
paid, but excluding all other Subordinated Debt.
BORROWER:
Fort Point Partners Inc.
By: /s/ JAMES ROCHE
-------------------------------
Title: CEO
----------------------------
BANK:
SILICON VALLEY BANK
By: [Signature Illegible]
-------------------------------
Title: AVP
----------------------------
18
<PAGE> 19
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
The inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, design rights,
income tax refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and
any and all credit insurance guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any
of the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
<PAGE> 1
EXHIBIT 10.10
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of May 10, 1999, by
and between Fort Point Partners, Inc. ("Borrower") and Silicon Valley Bank
("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated May 11, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Revolving Line in the original principal
amount of One Million Dollars ($1,000,000). Defined terms used but not
otherwise defined herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement
1. Subparagraph (a) in Section 2.1.1 entitled "Revolving Advances"
shall now read as:
(a) Bank will make Advances not exceeding (i) the Committed
Revolving Line or the Borrowing Base, whichever is less, minus
(ii) the amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit). Amounts borrowed under
this Section may be repaid and reborrowed during the term of this
Agreement.
2. The following shall be included as Section 2.1.2 entitled
"Letters of Credit":
Letters of Credit. Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an aggregate face amount not to exceed (i) the lesser of
the Committed Revolving Line or the Borrowing Base minus (ii) the then
outstanding principal balance of the Note; provided that the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) shall not in any case exceed Three Hundred Thousand Dollars ($300,000).
Each such Letter of Credit shall have an expiry date no later than one hundred
eighty (180) days after the Revolving Maturity Date of the Committed Revolving
Line, provided that Borrower's Letter of Credit reimbursement obligation shall
be secured by cash on terms acceptable to Bank at any time after the Revolving
Maturity Date if the term of the Agreement is not extended by Bank. All such
Letters of Credit shall be, in form and substance, acceptable to Bank in its
sole discretion and shall be subject to the terms and conditions of Bank's form
of application and Letter of Credit agreement.
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<PAGE> 2
Borrower shall indemnify, defend and hold Bank harmless from any
loss, cost, expense or liability, including, without limitation,
reasonable attorneys' fees, arising out of or in connection with
any Letters of Credit.
Borrower may request that Bank issue a Letter of Credit payable
in a currency other than United States Dollars. If a demand for
payment is made under any such Letter of Credit, Bank shall treat
such demand as an Advance to Borrower of the equivalent of the
amount thereof (plus cable charges) in United States currency at
the then prevailing rate of exchange in San Francisco,
California, for sales of that other currency for cable transfer
to the country of which it is the currency.
Upon the issuance of any Letter of Credit payable in a currency
other than United States Dollars, Bank shall create a reserve
(the "Letter of Credit Reserve") under the Committed Line for
Letters of Credit against fluctuations in currency exchange
rates, in an amount equal to ten percent (10%) of the face amount
of such Letter of Credit. The amount of such reserve may be
amended by Bank from time to time to account for fluctuations in
the exchange rate. The availability of funds under the Committed
Revolving Line shall be reduced by the amount of such reserve for
so long as such Letter of Credit remains outstanding.
3. Notwithstanding anything to the contrary contained in Section 6.2
entitled "Financial Statements, Reports, Certificates", Borrower
shall submit its audited fiscal year end financial statements
within 120 days of year end, beginning with the year ending
December 31, 1999.
4. Section 6.7 entitled "Financial Covenants" is hereby deleted in
its entirety and replaced with the following:
Borrower will maintain as of the last day of each month:
(i) Quick Ratio. A ratio of Quick Assets to Current Liabilities
of at least 1.40 to 1.00.
(ii) Debt/Tangible Net Worth Ratio. A ratio of Total Liabilities
less Subordinated Debt to Tangible Net Worth plus Subordinated
Debt of not more than 1.50 to 1.00.
(iii) Profitability. Borrower will be profitable each quarter,
except that Borrower may suffer a one fiscal quarterly loss per
fiscal year.
5. In Section 13 entitled "Definitions", the subsection (d) of the
definition of "Eligible Accounts" shall now read as:
(d) Accounts for an account debtor, including Affiliates, whose
total obligations to Borrower exceeded 25% of all Accounts, for
the amounts that exceed that percentage, unless the Bank approves
in writing.
6. Section 13 entitled "Definitions" is hereby amended as follows:
"Committed Revolving Line" is an Advance of up to $1,250,000.
"Revolving Maturity Date" is May 10, 2000.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
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<PAGE> 3
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of Six
Thousand Two Hundred Fifty Dollars ($6,250) (the "Loan Fee").
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
FORT POINT PARTNERS, INC. SILICON VALLEY BANK
*By: /s/ JAMES ROCHE By: /s/ FRANCISCO TERRIZZANO
-------------------------------- --------------------------------
*Name: JAMES ROCHE Name: Francisco Terrizzano
------------------------------ ------------------------------
*Title: CEO Title: VP
----------------------------- -----------------------------
3
<PAGE> 1
EXHIBIT 10.11
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this ____ day
of __________, ______, by and between Fort Point Partners Inc., a California
corporation (the "Company"), and ___________________.
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action or proceeding if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe Indemnitee's conduct
was unlawful. The termination of any action or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that (i) Indemnitee did not act in
good faith and in a manner which
<PAGE> 2
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, or (ii) with respect to any criminal action or proceeding,
Indemnitee had reasonable cause to believe that Indemnitee's conduct was
unlawful.
(b) Proceedings By or in the Right of the Company. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding by
or in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and, to the
fullest extent permitted by law, amounts paid in settlement, in each case to the
extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or proceeding if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in or not opposed to
the best interests of the Company and its shareholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its shareholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
2. Expenses: Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action or proceeding referenced in
Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any
such action or proceeding which amounts are not considered expenses which can be
advanced). Indemnitee hereby undertakes to repay such amounts advanced only if,
and to the extent that, it shall ultimately be determined by a Court of
competent jurisdiction that Indemnitee is not entitled to be indemnified by the
Company as authorized hereby. The advances to be made hereunder shall be paid by
the Company to Indemnitee within forty-five (45) days following delivery of a
written request therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as reasonably practicable of any claim
made against Indemnitee for which indemnification is or will be sought under
this Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received three business days after the date
postmarked if sent by domestic certified or registered mail, properly addressed;
otherwise notice shall be deemed received when such notice shall actually be
received by the Company. In addition,
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<PAGE> 3
Indemnitee shall give the Company such information and cooperation as it may
reasonably require and as shall be within Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
Section 1 and this Section 2 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's Restated
Articles of Incorporation or Bylaws providing for indemnification, is not paid
in full by the Company within forty-five (45) days after a written request for
payment thereof has first been received by the Company, Indemnitee may, but need
not, at any time thereafter bring an action against the Company to recover the
unpaid amount of the claim and, subject to Section 12 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action or proceeding in advance of its final disposition)
that Indemnitee has not met the standards of conduct which make it permissible
under applicable law for the Company to indemnify Indemnitee for the amount
claimed, but the burden of proving such defense shall be on the Company and
Indemnitee shall be entitled to receive interim payments of expenses pursuant to
Subsection 2(a) unless and until such defense may be finally adjudicated by
court order or judgment from which no further right of appeal exists. It is the
parties' intention that if the Company contests Indemnitee's right to
indemnification, the question of Indemnitee's right to indemnification shall be
for the court to decide, and neither the failure of the Company (including its
Board of Directors, any committee or subgroup of the Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
that indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct required by applicable
law, nor an actual determination by the Company (including its Board of
Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its shareholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a
notice of a claim pursuant to Section 2(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated under Section 2(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, which approval
shall not be unreasonably withheld, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same proceeding,
provided that (i) Indemnitee shall have the right to employ his counsel in any
such proceeding at Indemnitee's expense; and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company,
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<PAGE> 4
(B) Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not, in fact, have employed counsel to assume the
defense of such proceeding, then the fees and expenses of Indemnitee's counsel
shall be at the expense of the Company.
3. Additional Indemnification Rights: Nonexclusivity.
(a) Scope. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Restated Articles of Incorporation, the Company's Bylaws or by statute. In the
event of any change, after the date of this Agreement, in any applicable law,
statute or rule which expands the right of a California corporation to indemnify
a member of its Board of Directors, an officer or other corporate agent, such
changes shall be ipso facto, within the purview of Indemnitee's rights and
Company's obligations, under this Agreement. In the event of any change in any
applicable law, statute or rule which narrows the right of a California
corporation to indemnify a member of its Board of Directors, an officer or other
corporate agent, such changes, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement shall have no effect on this
Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Restated Articles of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested Directors, the General
Corporation Law of the State of California, or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such office. The indemnification provided under this Agreement shall
continue as to Indemnitee for any action taken or not taken while serving in an
indemnified capacity even though he may have ceased to serve in such capacity at
the time of any action, suit or other covered proceeding.
4. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
5. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
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<PAGE> 5
6. Officer and Director Liability Insurance. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director, or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer, or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Company.
7. Severability. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 7. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or
omissions or transactions from which a director may not be relieved of liability
under the California General Corporation Law; or
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 317 of the California General Corporation Law, but such indemnification
or advancement of expenses may be provided by the Company in specific cases if
the Board of Directors has approved the initiation or bringing of such suit; or
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material
5
<PAGE> 6
assertions made by the Indemnitee in such proceeding was not made in good faith
or was frivolous; or
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company; or
(e) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that if Indemnitee is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent.: with respect to an employee benefit plan, its participants,
or beneficiaries; and if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "not opposed to the best interests of the Company" as referred
to in this Agreement.
10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
11. Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), and shall inure to
the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives
and assigns. The Company shall require and cause any successor (whether direct
or indirect, and whether by purchase, merger, consolidation or otherwise) to
all, substantially all, or a substantial
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<PAGE> 7
part, of the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect whether or not Indemnitee continues to serve as a
director, officer, employee or agent (as applicable) of the Company or of any
other enterprise at the Company's request.
12. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all costs and expenses, including reasonable attorneys' fees, incurred
by Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
13. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing, shall be effective upon receipt, and
shall be delivered by Federal Express or a similar courier, personal delivery,
certified or registered air mail, or by facsimile transmission. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
14. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
15. Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California, as
applied to contracts between California residents entered into and to be
performed entirely within California.
16. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provision of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
7
<PAGE> 8
17. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable to
corporation effectively to bring suit to enforce such rights.
18. Continuation of Indemnification. All agreements and obligations of
the Company contained herein shall continue during the period that Indemnitee is
a director, officer or agent of the Company and shall continue thereafter so
long as Indemnitee shall be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Indemnitee was
serving in the capacity-referred to herein.
19. Amendment and Termination. Subject to Section 17, no amendment,
modification, termination or cancellation of this Agreement shall be effective
unless in writing signed by both parties hereto.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FORT POINT PARTNERS INC.
By:
---------------------------------
James T. Roche, Chief Executive
Officer
Address:
AGREED TO AND ACCEPTED:
INDEMNITEE
------------------------------------
Address:
9
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 3, 2000, except for Note 12, as to which the
date is April 25, 2000, and except for Note 13, as to which the date is May ,
2000 in the Registration Statement on Form S-1 and the related Prospectus of
Fort Point Partners Inc. dated on or about May 3, 2000.
San Francisco, California
The foregoing consent is in the form that will be signed upon the completion of
the reincorporation described in Note 13 to the financial statements.
/s/ Ernst & Young LLP
San Francisco, California
May 3, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORT POINT
PARTNERS INC. AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 12/31/99 AND ITS
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENT AS OF AND FOR THE THREE
MONTHS ENDED 3/31/00 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
S-1.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> DEC-31-1999 MAR-31-2000
<CASH> 7,643 5,709
<SECURITIES> 0 0
<RECEIVABLES> 1,146 2,269
<ALLOWANCES> 129 94
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,392 8,532
<PP&E> 3,134 4,447
<DEPRECIATION> 397 627
<TOTAL-ASSETS> 14,156 14,371
<CURRENT-LIABILITIES> 3,557 9,341
<BONDS> 0 0
0 0
15,698 15,698
<COMMON> 5 9
<OTHER-SE> (5,475) (11,049)
<TOTAL-LIABILITY-AND-EQUITY> 14,156 14,371
<SALES> 0 0
<TOTAL-REVENUES> 8,325 5,003
<CGS> 0 0
<TOTAL-COSTS> 4,875 2,527
<OTHER-EXPENSES> 9,483 11,880
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 84 14
<INCOME-PRETAX> (5,889) (9,329)
<INCOME-TAX> 1 1
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,890) (9,330)
<EPS-BASIC> (1.26) (1.90)
<EPS-DILUTED> (1.26) (1.90)
</TABLE>
