-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FnlxNSE0Nz04M9cafw5/Vz7Zrl3BXjJMUf5POukV4gLcqECW6zLX27Nt2WQCUP4H 1F1VAK7COCaHXhxF+fH/Pw== 0000912057-00-018244.txt : 20000417 0000912057-00-018244.hdr.sgml : 20000417 ACCESSION NUMBER: 0000912057-00-018244 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 26 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAR TELECOMMUNICATIONS INC CENTRAL INDEX KEY: 0001026486 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 770362681 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22581 FILM NUMBER: 602461 BUSINESS ADDRESS: STREET 1: 223 EAST DE LA GUERRA STREET STREET 2: STE 202 CITY: SANTA BARBARA STATE: CA ZIP: 93101 BUSINESS PHONE: 8058991962 MAIL ADDRESS: STREET 1: 223 EAST DE LA GUERRA STREET CITY: SANTA BARBARA STATE: CA ZIP: 93101 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO ______________ TO ______________. COMMISSION FILE NUMBER 000-22581 ------------------------ STAR TELECOMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) DELAWARE 77-0362681 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 223 EAST DE LA GUERRA 93101 SANTA BARBARA, CALIFORNIA (Zip Code) (Address of Principal Executive Offices)
(805) 899-1962 (Registrant's telephone number, including area code) Securities Registered Pursuant to Section 12(b) of the Act: NONE Name of each exchange on which registered: THE NASDAQ NATIONAL MARKET Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K /X/ The aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant on March 31, 2000, based on the average bid and asked prices for the Common Stock as reported by Nasdaq was approximately $127,968,042. As of March 31, 2000, the number of shares of the Registrant's Common Stock outstanding was 58,626,677 shares. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I This Annual Report on Form 10-K for the year ended December 31, 1999 (the "Form 10-K") contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are statements other than historical information or statements of current condition and relate to future events or our future financial performance. Some forward-looking statements may be identified by use of such terms as "expects," "anticipates," "intends," "estimates," "believes" and words of similar import. These forward-looking statements relate to plans, objectives and expectations for future operations. In light of the risks and uncertainties inherent in all such projected operation matters, the inclusion of forward-looking statements in this Form 10-K should not be regarded as a representation by us or any other person that our objectives or plans will be achieved or that any of our operating expectations will be realized. Revenues and results of operations are difficult to forecast and could differ materially from those projected in the forward-looking statements contained in this Form 10-K for the reasons detailed in the "Risk Factors" section of this Form 10-K, beginning on page 21, or elsewhere in this Form 10-K. ITEM 1. BUSINESS. OVERVIEW We are a leading facilities-based international telecommunications company. We provide high-quality, competitively priced, long distance telecommunication services to consumer and commercial retail customers as well as to other telecommunications carriers located within the U.S. and Europe. In Germany, we offer Internet service providers ("ISPs") wholesale dial-up services along with a range of support services including data center co-location and bandwidth provisioning. We seek to capitalize on the increasing demand for high-quality international communications services which is being driven by the globalization of the world's economies, the worldwide trend toward telecommunications deregulation, and the growth of voice, data and Internet traffic. Historically, we have focused our operations on the wholesale international long distance market. However, we have recently undertaken a number of strategic measures in order to diversify our revenue base and improve operating margins. In the first quarter of 1999, we closed two acquisitions in the U.S., providing us with consumer and commercial retail long distance operations. With the acquisition of PT-1 Communications, Inc. ("PT-1"), we acquired the leader in the U.S. prepaid calling card market as well as a dial around business that leverages the branding strength of the prepaid calling card business. The acquisition of United Digital Network, Inc. ("UDN") (now a part of our ALLSTAR Telecom division), provided us with a U.S. commercial retail services platform enabling us to target higher margin business customers for our long distance voice communication services. Additionally, in the second quarter of 1998, we commenced operations in Germany, the third largest telecommunications market in the world, to capitalize on the opportunities presented by the deregulation of the European telecommunications industry. We have established several key strategic alliances that may provide us with direct broadband access to the end user in Germany. The German operations act as our platform to expand into other European countries as deregulation occurs. We own and operate an extensive global communications network of transoceanic cables, domestic and international fiber optic capacity and switching facilities. We continue to expand our network through additional investments in international fiber optic cable capacity. Our management believes that ownership of our network is critical to providing high quality, competitively priced telecommunications services for the following reasons: - Transmission costs decline as we carry a larger percentage of our traffic on-net on both domestic and international routes; 2 - We have the ability to meet the needs of our customers, such as ISPs, who consistently demand large amounts of transmission capacity as well as those of smaller enterprises, which require less capacity or need it less frequently; - The network increases our flexibility in introducing new products and services, such as adding value enhancing data and Internet services to voice offerings, in order to provide our customers with a single source for their international and domestic voice, data and Internet needs; and - We have the ability to sell, lease or swap network segments, further enhancing our ability to expand the reach of our network and/or reduce transmission costs. MERGER WITH WORLD ACCESS During the first quarter of 1999, our Board of Directors (the "Board") and members of our management began searching for additional capital at a time when our core business margins were declining as a result of additional competition. In addition, significant capital costs were being incurred in connection with the expansion of our business into Germany and the development of our retail long distance operations. During this period, Goldman Sachs Credit Partners, LP. ("Goldman Sachs") Kaufman Brothers, Lehman Brothers, Morgan Stanley Dean Witter ("Morgan Stanley") and Deutsche Bank Securities, Inc. ("Deutsche Bank") were retained to pursue a possible high yield bond offering and to provide financial advice on potential transactions with strategic merger partners. We ultimately concluded that a high yield bond offering was not going to be an effective means of raising necessary capital. During this same period, we also consulted with each of Goldman Sachs, Kaufman Brothers, Lehman Brothers, Morgan Stanley and Deutsche Bank about the feasibility of spinning off our European operations, the possibility of the sale of stock of one or more of our subsidiaries and raising senior subordinated debt. Market conditions in the telecommunications business and our capital position made such contemplated transactions infeasible. We received several acquisition proposals in the last quarter of 1999, but each proposal was limited to the acquisition of our German operations. These proposals were not considered attractive by the Board as the sale of our German operations would have provided additional cash but did not fit with our strategy to diversify and improve our overall business mix. In the late fall of 1999, we were approached by World Access, Inc. ("World Access"), a leading provider of bundled voice, data and Internet services to key regions of the world, who was aware of our search for a strategic transaction. We were unable to discuss a transaction with World Access at that time as we were subject to a prior exclusive negotiating agreement with Global Crossing, Ltd. On December 20, 1999, after the exclusive negotiating agreement had expired we announced the execution of a letter of intent whereby World Access proposed to acquire all of our outstanding capital stock in exchange for shares of World Access common stock ("World Access Common Stock"), and possibly cash, valued at approximately $10.50 per share of our common stock. The letter also called for World Access to infuse cash in the form of a bridge loan upon the signing of the definitive agreement. During the due diligence period contemplated by the letter of intent, the price was renegotiated and World Access indicated that we were free to shop for better offers from other bidders. On February 2, 2000, the parties announced that after World Access' due diligence, World Access proposed a reduced price of between $7.50 and $8.00 per share, and that World Access had agreed to provide us with significant interim financing. During the period between December 20, 1999 and February 2, 2000, we did not receive a superior proposal from another potential competing bidder. Prior to signing a definitive agreement, the Board was free to and did seek other proposals. The Board met on February 7, 2000 and considered the revised proposal at length. Given our rising debt and cash shortage and the unavailability of superior offers, management was instructed to continue negotiations with World Access. 3 On or about February 7, 2000 and February 11, 2000, the Board met to consider World Access' renegotiated proposal. The Board received an opinion from Deutsche Bank that the proposal was fair from a financial point of view to us and our stockholders. The Board also received advice from Delaware legal counsel on its obligations with respect to its duty of care and its duty to exercise informed business judgment. At the meeting on February 11, 2000, the Board considered our current financial condition, the decline in margins in our core business due to increased competition and the significant capital required to accomplish management's program of diversification. The Board also considered the potential benefits of the merger, including relevant business, financial, legal and market factors. After due deliberation, the Board concluded that the proposed transaction was in our best interest and that of our stockholders for, among other things, the following reasons: - The combination would potentially solve our capital problems; - The combined company would have an enhanced and more diversified geographic and product market position; - The combination would provide us with significant cost savings and synergies; - The combined management team would enhance our capabilities; - We lacked alternative options for additional capital requirements; - We did not receive a superior offer and management was concerned about our capital position and ability to diversify in the face of declining margins in our core business; and - The contemplated transaction offered us the opportunity to receive interim financing from World Access. At the Board meeting held on February 11, 2000, the Board also voted to approve the definitive Agreement and Plan of Merger ("Merger Agreement") between us, World Access and STI Merger Co. ("Merger Sub") and the transactions contemplated thereby and voted to recommend that our stockholders vote for the approval and adoption of the Merger Agreement and the transactions contemplated thereby. Pursuant to the Merger Agreement we will be merged with and into Merger Sub (the "Merger") and all outstanding shares of our common stock, other than shares held by dissenting stockholders who perfect their statutory appraisal rights under Delaware law, will be converted into the right to receive a number of shares of World Access Common Stock equal to the Exchange Ratio (as defined below) or, at the election of World Access, 60% of the Merger consideration shall be paid in World Access Common Stock and 40% of the Merger consideration shall be paid in cash. In no event will World Access pay cash for more than 45% of the outstanding shares of our common stock, including cash paid for fractional shares and cash paid to dissenting stockholders. The "Exchange Ratio" will be .3905 plus a contingent feature based on the sale of certain of our assets. The transaction is valued at approximately $500 million subject to, among other things, certain regulatory approvals, the approval of our stockholders and the stockholders of World Access, and the divestiture of our dial around and prepaid calling card business segments for specified minimum net cash proceeds. Pursuant to the terms of the Merger Agreement, we are required to sell our dial around and prepaid calling card operations for proceeds of $150 million or more as a condition to the close of the Merger. On March 29, 2000, we entered into a letter of intent ("Letter of Intent") with a communications subsidiary of a publicly traded company ("PT-1 Acquiror") for the sale of all of the assets relating to our dial around and prepaid calling card business operated by PT-1 ("PT-1 Sale"). Pursuant to the terms of the Letter of Intent, PT-1 Acquiror will pay $150 million in cash for the assets of PT-1, less certain liabilities and subject to a purchase price adjustment based on an audit of PT-1 to be conducted after the close of the PT-1 Sale. The completion of the PT-1 Sale is subject to, among other things: (1) the completion of due diligence (which is currently in process) by PT-1 Acquiror satisfactory to PT-1 Acquiror in its absolute discretion, (2) the negotiation and execution of a definitive purchase agreement between us and PT-1 Acquiror, and (3) a 4 vote in favor of the transaction by a majority of our stockholders. Pursuant to the terms of the Merger Agreement, if we fail to sell our dial around and prepaid calling card business prior to the close of the Merger with World Access, then World Access does not have to complete the Merger. In addition, under the Merger Agreement, if we do not enter into a definitive agreement for the PT-1 Sale prior to the close of the Merger or if we do not receive net cash proceeds of at least $150 million from the sale of our dial around and prepaid calling card business, then World Access (1) does not have to complete the Merger, (2) may agree to amend the Merger Agreement or (3) may, in its sole discretion, agree to waive this condition. INDUSTRY BACKGROUND INTERNATIONAL LONG DISTANCE The international long distance telecommunications services industry, which includes all transmissions of voice and data that originate in one country and terminate in another, is undergoing a period of fundamental change. This change has resulted, and is expected to continue to result, in significant growth in the usage of international telecommunications services. According to TeleGeography, a leading telecommunications industry source, the international telecommunications long distance industry increased from approximately $27.0 billion in revenues and 24 billion minutes of use in 1988 to $66.0 billion in revenues and 82 billion minutes of use in 1997 representing a compound annual growth rate of approximately 10% in revenues. Furthermore, TeleGeography projects that the industry will reach approximately $80.0 billion in revenues and 159 billion minutes of use by the year 2001. We believe that a number of trends in the international telecommunications market will continue to drive growth in international traffic, including: - The globalization of the world's economies; - The worldwide trend of continuing deregulation and privatization of telecommunications markets driven by greater competition and resulting in declining prices and a wider choice of products and services; - The growth of data and Internet traffic worldwide; and - Increased telephone accessibility resulting from technological advances and greater investment in telecommunications infrastructure, including deployment of wireless networks. According to International Data Corporation ("IDC"), the European international long distance market for voice services was the largest in the world in 1998, with approximately 84 billion minutes. The market for total domestic and international long distance in the European countries in which we currently operate represented approximately $27.4 billion, with $18.1 billion representing domestic long distance and approximately $9.3 billion representing international long distance. In many European Union ("EU") member states, the ability to provide telecommunications services was liberalized on January 1, 1998. We believe that regulatory liberalization in Europe and technological advancements eventually will lead to market developments similar to those that have occurred in the U.S. and United Kingdom following deregulation, including an increase in both international and domestic traffic volume, reduced prices, increased service offerings and the emergence of new entrants. GERMAN TELECOMMUNICATIONS MARKET The German telecommunications market is the world's third largest and is estimated to be approximately $49 billion in 1999. This market has become one of the most competitive in Europe since the regulatory liberalization program was adopted in 1998. Germany represents an attractive market for telecommunications for the following reasons: - It is one of the world's largest economies with a gross domestic product of $2.1 trillion in 1998; 5 - Germany provides a liberalized telecommunications regulatory environment that favors competition from new entrants and mandates interconnection with the incumbent carrier on reasonable terms; - There is a robust national infrastructure on which to build local connections; - Germany's population density is approximately 230 people per square kilometer; - Business Internet access revenues are expected to grow at an approximate 25% compound annual growth rate through 2003; and - There are over seven million estimated Internet users. INTERNET AND DATA SERVICES Internet connectivity and enhanced Internet and data services represent two of the fastest growing segments of the telecommunications services market. We believe companies operating in these markets are particularly well positioned to benefit from the rise of the Internet and the development of the e-commerce industry, as they supply the critical tools and infrastructure that enable companies to participate in the "global digital economy". According to IDC, the number of Internet users worldwide reached approximately 100 million in 1998 and is forecasted to grow to approximately 320 million by 2002, representing a compound annual growth rate of 34%. In the United States and Europe, businesses increasingly use the Internet not only to offer e-commerce to consumers and other businesses, but also for mission critical applications such as sales, customer service and project coordination worldwide. These enterprises require high quality, competitively priced, voice and data services, in many cases internationally, with the flexibility to call on capacity as needed. The popularity of the Internet with consumers has driven the rapid proliferation of the Internet as a commercial medium. Businesses use the Internet to establish Web sites and corporate Intranets and Extranets to expand their customer reach and improve their communications efficiency. Most of these businesses, and substantially all consumers in the U.S. and Europe, obtain Internet connections from one of the large number of highly competitive Internet service providers who are seeking to increase their share of this market. Total ISP revenues for the United States are projected by IDC to grow from $10.7 billion in 1998 to $37.4 billion in 2003 while total ISP revenues for Western Europe are projected to grow from $4.3 billion in 1998 to $17.7 billion in 2003. Furthermore, IDC estimates that corporate dedicated access revenues in the U.S. will grow from $2.9 billion in 1998 to $12.0 billion in 2003 and that Western European corporate dedicated access revenues will grow from $2.2 billion to $7.7 billion over the same period. In addition to Internet connectivity, business customers are increasingly seeking a variety of enhanced products and applications to take full advantage of the Internet. For example, a growing number of businesses are implementing secured virtual private networks over the Internet as a more economical option than dedicated private networks. IDC estimates that the ISP value-added services market in the U.S. will grow from $3.0 billion in 1998 to over $12.9 billion in 2003 and the Western European ISP value-added services market will grow from $528 million to $3.7 billion over the same period. 6 We believe there is substantial market opportunity to leverage our extensive global network infrastructure by bundling Internet connectivity and enhanced data products and services with traditional voice services as a way to satisfy the needs of our existing customers and to attract additional customers as more users and businesses access the Internet internationally and as individuals and enterprises merge their voice and data traffic. OUR APPROACH NORTH AMERICA We are a multinational telecommunications services company focused primarily on the international long distance market. We offer highly reliable, low-cost switched voice services on a wholesale basis, primarily to U.S.-based long distance carriers. We provide international long distance service to approximately 200 foreign countries through a flexible network comprised of various foreign termination relationships, international gateway switches, leased and owned transmission facilities and resale arrangements with long distance providers. We have grown our revenues rapidly by capitalizing on the deregulation of international telecommunications markets, combining sophisticated information systems with flexible routing and leveraging management's industry expertise. We market our services to large global carriers seeking lower rates, as well as to small and medium-sized long distance companies that do not have the critical mass to invest in their own international transmission facilities or to obtain volume discounts from the larger facilities-based carriers. During the fourth quarter of 1999, we provided switched international long distance services to 241 customers and 12 of the top forty global carriers. In the first quarter of 1999, we acquired PT-1 and UDN. With these acquisitions, we began providing international and domestic long distance services to individual consumers and businesses. These commercial acquisitions provided us with a higher margin customer base and complemented our wholesale business by enabling us to maximize the use of available capacity on our network. EUROPE We commenced our European operations in August 1997, after obtaining an operating license and activating a London-based switch earlier that year. We targeted North America and Europe for the immediate development of our network due to the economic stability and the rapid pace of deregulation in those regions as compared to other areas of the world. We expect to expand our network into additional markets within our principal service regions. In addition, we are using our German operations as a platform to enter other major markets in Europe in conjunction with the deregulation of the telecommunications industry in certain EU countries, which began in 1998. This expansion commenced with our installation of international gateway switches in Vienna, Austria and Geneva, Switzerland. STRATEGY Our objective is to enhance our position as a leading facilities-based global telecommunications company by capitalizing on our extensive global communications network and international long distance experience in order to provide high quality, competitively priced international and domestic voice, data and Internet services to our customers. The key elements of our strategy to achieve this goal include the following: EXPAND SCOPE AND CAPABILITY OF OUR GLOBAL NETWORK. We believe that ownership of our network is critical to providing high quality, competitively priced communications services by enabling us to lower our transmission costs and better manage service offerings and transmission quality. To this end, we are continuing to pursue a flexible approach to expanding and enhancing our network facilities by investing in network, switching and transmission facilities upon determination that such investments would enhance 7 operating efficiency or reduce transmission costs. We have taken the following steps to expand the scope and capability of our network: - In September 1998, we entered into a 20-year agreement with Qwest Communications International, Inc ("Qwest") to obtain dedicated capacity over its nationwide U.S. network, which is still being implemented; and - Since 1998, we have added 13 national and international gateway switching facilities including Dallas and Miami, Dusseldorf, Frankfurt, Hamburg, Berlin, Hannover, Nuremberg, Stuttgart and Munich, Germany, Geneva, Switzerland, and Vienna, Austria. OFFER A PORTFOLIO OF VOICE, DATA AND INTERNET SERVICES. Historically, we have offered primarily wholesale and commercial long distance communication services to our customers. We intend to expand the scope of our data and Internet service offerings in order to provide a portfolio of communications services to our customers in selected key markets. For example, in the United States, we currently offer data center co-location and bandwidth partitioning to ISPs. In Europe, beginning with Germany, we currently offer data and Internet services to ISP customers and intend to offer these services to commercial and consumer retail customers through our own branded full service ISP. By expanding our data and Internet service offerings and bundling them with traditional long distance communication services, we believe we will attract and retain a strong base of commercial customers with higher operating margins than traditional long distance communications services alone. CAPITALIZE ON PROJECTED INTERNATIONAL LONG DISTANCE GROWTH. We believe that the international long distance market continues to provide attractive opportunities due to its high revenue, gross profit per minute and projected growth rate. We will continue to target international markets with high volumes of traffic, relatively high rates per minute and favorable prospects for deregulation and privatization. On an opportunistic basis, we will also target certain overseas markets for foreign origination of minutes, using traditional channels in markets where we are able to obtain an operating license or voice over IP in markets where regulatory barriers remain high. We believe foreign origination will continue to offer higher priced and higher margin minutes than U.S. originated routes. EXPAND OUR COMMERCIAL BUSINESSES. We recognize that the provision of telecommunications services to commercial customers is vital to the long term development of our business providing valuable stability and higher gross margins that cannot be sustained from wholesale services alone. As a result, we are expanding our commercial businesses in the U.S. and Germany, the two largest markets in which we operate. We are focused on building a commercial customer base with significant demand for international and domestic voice, data and Internet services on a stand-alone or bundled basis. LEVERAGE ESTABLISHED EUROPEAN MARKET PRESENCE AND LOCAL DISTRIBUTION NETWORK. We were one of the first telecommunications providers to establish a presence in Germany to capitalize on the opportunities presented by the deregulation of the European telecommunications industry. As a result, we have gained substantial experience in the operational, technical, financial, logistical and marketing issues involved in operating a network and selling our services before most other service providers in Europe. To market our products and services, we currently have 11 European sales offices, including London, Frankfurt, Geneva, Vienna and Berlin. In addition, we are using our German operations as a platform to expand into other European countries as evidenced by our recent service launches in Austria and Switzerland. IDENTIFY AND ENTER KEY MARKETS AHEAD OF FULL DEREGULATION. We believe there is significant market opportunity in the form of substantial growth and profit potential in providing competitively priced international telecommunications services as an early entrant in deregulating markets where the incumbent Post, Telegraph and Telephone operator ("PTT") is the sole telecommunications provider. Competitive advantages arising from early entry include: developing multiple sales and distribution channels and customer bases, achieving name recognition prior to widespread competition and acquiring experienced local telecommunications professionals. We believe that the ongoing trend toward deregulation and privatization will continue to create new opportunities for us to increase our revenues and profitability. In 8 order to speed entry into a new market, we initially emphasize providing wholesale or facilities-based services to our customers. As we establish ourselves in a market, we expand into commercial telecommunications services by investing in additional infrastructure, devoting employees to commercial sales efforts and developing products and services tailored to the local commercial market. We will continue to target international markets with high volumes of traffic, relatively high rates per minute and favorable prospects for deregulation and privatization. NETWORK We currently operate a state-of-the-art extensive global communications network of transoceanic cables, domestic and international fiber optic capacity and switching facilities. The network consists of: - A global backbone network connecting intelligent gateway switches in our principal service regions; - A domestic and international long distance network presence within certain countries in our principal service regions; and - A combination of owned and leased transmission facilities, termination arrangements and foreign carrier agreements. We believe that ownership of our network is critical to becoming a high quality, competitively priced provider of communications services by enabling us to (1) meet the needs of our customers who demand large amounts of transmission capacity, (2) increase our flexibility in introducing new products and services and (3) sell, lease or swap network segments which expands the reach of our network and reduces our transmission costs. We continue to pursue a flexible approach to expanding and enhancing our network facilities by investing in international fiber optic cable capacity, developing a pan-German fiber optic network and adding switching facilities worldwide. TRANSOCEANIC FIBER OPTIC CABLE SYSTEMS Where our customer base has developed sufficient traffic, we have purchased and leased transoceanic fiber optic cable transmission capacity to connect to our various switches. We either purchase lines or lease lines on a monthly or longer-term basis at a fixed cost and acquire economic interests in transmission capacity through minimum assignable ownership units and Indefeasible Rights of Use ("IRU") to international traffic destinations. OWNERSHIP INTERESTS IN TRANSOCEANIC FIBER OPTIC CABLE SYSTEMS. The following table sets forth a listing of the transoceanic fiber optic cable systems in which we have capacity through either ownership or IRU's:
CABLE SYSTEM COUNTRIES SERVED STATUS - --------------------- ---------------- ------ AC-1 United States--United Kingdom Existing Americas II United States--Argentina Under Construction APCN Japan--Indonesia Existing CANUS United States--Canada Existing CANTAT 3 United States--United Kingdom-- Denmark Existing Columbus III United States--Spain Under Construction Gemini United States--United Kingdom Existing Maya-1 United States--Mexico--Honduras-- Cayman Islands--Panama--Costa Rica--Columbia Under Construction NPC United States--Japan Existing ODIN Netherlands--Denmark Existing Pan American U.S. Virgin Islands--Aruba-- Venezuela--Panama--Columbia-- Ecuador--Peru--Chile Under Construction
9
CABLE SYSTEM COUNTRIES SERVED STATUS - --------------------- ---------------- ------ PTAT-1 United Kingdom--United States Existing RIOJA Netherlands--Belgium Existing TAT 12/13 United States--United Kingdom Existing TAT 14 United States--United Kingdom Existing TPC-5 United States--Japan Existing UK-NL 14 United Kingdom--Netherlands Existing
SWITCHES AND POINTS OF PRESENCE We have made substantial investments in switching infrastructure in the past three years. We believe that this investment in switches provides the network with several important benefits. First, switches help to maintain a relatively low network cost base by reducing the need for transmission capacity between points on the network. Second, switches substantially enhance the security and redundancy of the network. Our network consists of 22 high capacity, carrier-grade Nortel and Siemens Stromberg switches, including 12 international gateway switches and 10 domestic switches. We currently operate more than 150 points of presence within our principal service regions. The following table contains information regarding the location and type of our existing switches:
LOCATION TYPE OF SWITCH USE STATUS - -------- -------------- --- ------ New York City, NY DMS 300-250 International Gateway Existing New York City, NY Siemens DCO(2) International Gateway Existing Los Angeles, CA DMS 300-250 International Gateway Existing Los Angeles, CA Siemens DCO International Gateway Existing Dallas, TX DMS 250 Domestic Existing Miami, FL DMS 300-250 International Gateway Existing Miami, FL (PT-1) DMS 250 Domestic Existing Flushing, NY (PT-1) DMS 250 Domestic Existing Jersey City, NJ (PT-1) DMS 250 International Gateway Existing London, U.K. DMS 100E International Gateway Existing Hamburg, Germany DMS 100E Domestic Existing Dusseldorf, Germany DMS 100E Domestic Existing Munich, Germany DMS 100E Domestic Existing Frankfurt, Germany DMS 100E(2) International Gateway Existing Berlin, Germany DMS 100E Domestic Existing Hanover, Germany DMS 100E Domestic Existing Stuttgart, Germany DMS 100E Domestic Existing Nuremberg, Germany DMS 100E Domestic Existing Geneva, Switzerland DMS 100E International Gateway Existing Vienna, Austria DMS 100E International Gateway Existing
TERRESTRIAL FIBER OPTIC CABLE SYSTEMS We have made investments in terrestrial fiber networks in the U.S. and Europe. We intend to increase our investment in direct and IRU ownership of terrestrial cable systems in markets where we enter into operating agreements and in situations where we determine that such an investment would enhance operating efficiency and/or reduce transmission costs. UNITED STATES. We have made substantial investments in our terrestrial fiber network in the U.S. In September 1998, we entered into a 20-year agreement with Qwest to acquire OC-48, OC-12 and OC-3 transmission capacity on their U.S. Macro Capacity (SM) Fiber Network which is expected to serve over 130 cities in the U.S. This network, which is still being implemented, provides connections among our U.S. gateway switches and existing and future points of presence. As we replace existing leased lines in the U.S. 10 with this owned high-speed capacity, we are reducing our operating cost structure and providing improved service to customers on our high traffic routes. EUROPE. In 1998, we signed an agreement to lease domestic German capacity from o.tel.o Communications under a three-year contract and have recently signed an agreement with GTS Carrier Services (Ireland) Limited for additional capacity to augment the network. We have an agreement with Worldport Communications, Inc. providing us with an IRU for transmission capacity on their network from London to Frankfurt. In addition, we have leased capacity from VIAG Interkom GmbH & Co. on their networks from Stuttgart to Geneva and from Munich to Vienna. TERMINATION ARRANGEMENTS We offer international long distance telecommunications services to approximately 200 countries around the world. We seek to retain flexibility and maximize our termination opportunities by utilizing a continuously changing mix of routing alternatives, including alternative termination agreements, operating agreements and resale arrangements. Due to our diversified approach, we believe we are well positioned to take advantage of the rapidly evolving international telecommunications market to provide high-quality, competitively priced international long distance service to our customers. Our strategy is based on our ability to enter into and maintain: (1) operating agreements with PTTs in countries that have yet to become liberalized so that we would then be permitted to terminate traffic in, and receive return traffic from, that country, (2) operating agreements with PTTs and emerging carriers in foreign countries whose telecommunications markets have liberalized so we can terminate traffic in such countries, (3) resale agreements and transit and refile agreements to terminate our traffic in countries with which we do not have operating agreements so as to provide us with multiple options for routing traffic and (4) interconnection agreements with the PTT in each of the countries where we plan to have operating facilities so that we can terminate traffic in those countries. SALES AND MARKETING NORTH AMERICA We market our services on a wholesale basis to other telecommunications companies through our experienced direct sales force and marketing/account management team who leverage the long-term industry relationships of our senior management. We reach our customers primarily through domestic and international trade shows and through relationships gained from years of experience in the telecommunications industry. We had 71 direct sales and marketing employees as of December 31, 1999. In the wholesale market, our sales and marketing employees utilize the extensive, customer specific usage reports and network utilization data generated by our sophisticated information systems to effectively negotiate agreements with customers and prospective customers and to rapidly respond to changing market conditions. We believe that we have been able to compete more effectively as a result of the personalized service and ongoing senior management-level attention that is given to each customer. In connection with our expansion into the North American commercial market, we primarily market our domestic and international long distance services directly to individual consumers through two distinct marketing channels: prepaid calling cards and dial around services. We believe that prepaid calling cards and dial around services provide consumers with convenient, attractively priced alternatives to traditional presubscribed long distance services. The prepaid calling card market in the U.S. is estimated to be $2.5 billion and has exhibited considerable growth over the past several years, driven primarily by the overall decline in long distance pricing and by the need for convenient communication tools for an increasingly mobile population. PT-1 currently markets 40 cards, primarily to markets with major immigrant and ethnic populations, such as New York, Los Angeles, Washington DC and Miami, that have substantial international long distance calling requirements. 11 EUROPE We have a European carrier sales team headquartered in Zurich, Switzerland. This team is responsible for sales to wholesale customers throughout Europe. We also have a reseller sales team with offices in Frankfurt, Germany, Vienna, Austria, and Geneva, Switzerland that is responsible for sales to switch-based and switchless resellers in their respective markets. In connection with our expansion into the European commercial market, we market our services to small- and medium-sized enterprises through a network of independent sales agents and utilize a direct sales force of over 67 professionals to approach larger corporate accounts. We intend to provide our commercial retail customers with a bundled product offering local, long distance, data and Internet services which we believe provides us with a competitive advantage over other telecommunications carriers who have limited ability to offer a full suite of telecommunications services. As we expand our service offerings into other deregulating markets such as Austria and Switzerland, we expect to hire qualified, in-country managers to oversee our sales efforts in each market in addition to utilizing independent sales agents. CUSTOMER SERVICE We strive to provide personalized customer service and believe that the quality of our customer service is one of our competitive advantages. Our business customers are covered actively by dedicated account and service representatives who seek to identify, prevent and solve problems. We provide toll-free, customer service in Europe 24-hours per day seven days a week. Furthermore, advanced Network Management Systems ("NMS") have been implemented in order to maximize the visibility of our global switched network. In both the U.S. and Europe, our customer service and network management departments work closely together in order to minimize trouble resolution response time and maximize customer satisfaction. We also have a team of customer service representatives to handle our prepaid calling card and dial around businesses in the U.S. We believe that effective and convenient multilingual customer service is essential to attracting and retaining prepaid calling card customers. Our customer service center handles an average of 8,000 to 10,000 customer inquiries per day, including inquiries relating to prepaid calling card balances, prepaid calling card availability, rates, international calling service, billing and becoming a distributor. MANAGEMENT INFORMATION AND BILLING SYSTEMS Our operations use advanced information systems including call data collection and call data storage linked to a proprietary reporting system. We also maintain redundant billing systems for rapid and accurate customer billing. Our switching facilities are linked to a proprietary reporting system, which we believe provides us with a competitive advantage by permitting management on a real-time basis to determine the most cost-effective termination alternatives, monitor customer usage and manage gross margins by route. We are also able to ensure accurate and timely billing and to reduce routing errors as a result of our advanced information systems. Our proprietary reporting software compiles call, price and cost data into a variety of reports that we can use to re-program our routes on a real-time basis. The reporting software can generate the following reports as needed: - Customer usage, detailing usage by country and by time period within country, in order to track sales and rapidly respond to any loss of traffic from a particular customer; - Country usage, subtotaled by vendor or customer, which assists us with route and network planning; - Vendor rates, through an audit report that allows management to determine at a glance which vendors have the lowest rates for a particular country in a particular time period; 12 - Vendor usage by minute, enabling us to verify and audit vendor bills; - Dollarized vendor usage to calculate the monetary value of minutes passed to our vendors, which assists with calculating operating margin when used in connection with the customer reports; and - Loss reports used to rapidly highlight routing alternatives that are operating at a loss as well as identifying routes experiencing substantial overflow. We have built multiple redundancies into our billing and call data collections systems. Nine call collector computers receive call information in real-time, immediately duplicating data, sending one copy to billing, while the other copy is used internally for customer service and for traffic analysis. We maintain two independent and redundant billing systems in order to verify billing internally and to ensure that bills are sent out on a timely basis. We continually back up all of the call data and resulting billing data on tape drives and redundant storage devices, and regularly transport them to an off-site safe location. NETWORK OPERATIONS AND TECHNICAL SUPPORT Our switching facilities are linked to a proprietary reporting system, which we believe provides us with a competitive advantage by permitting management, on a real-time basis, to determine the most cost-effective termination alternatives, monitor customer usage and manage gross margins by route. We have installed multiple redundancies into our switching facilities to decrease the risk of a network failure. For example, we employ both battery and generator power back-up and have installed hardware that automatically shifts the system to auxiliary power during a power outage, rather than relying on manual override. We have network control centers in Los Angeles which control our switches and monitors our U.S. network, and Frankfurt which controls our switches and monitors our European network. Our switching facilities are staffed 24-hours per day, seven days per week. COMPETITION The international telecommunications industry is intensely competitive and subject to rapid change. Our competitors in the international wholesale switched long distance market include large, facilities-based multinational corporations and PTTs, smaller facilities-based providers in the U.S. and overseas that have emerged as a result of telecommunications deregulation, switched-based resellers of international long distance services and international joint ventures and alliances among such companies. International wholesale-switched long distance providers compete on the basis of price, customer service, transmission quality, breadth of service offerings and value-added services. We also compete abroad with a number of dominant telecommunications operators that previously held various monopolies established by law over the telecommunications traffic in their countries. Additionally, the telecommunications industry is in a period of rapid technological evolution, marked by the introduction of competitive new product and service offerings, such as the utilization of the Internet for international voice and data communications. We are unable to predict which of many possible future product and service offerings will be important to maintain our competitive position or how much it will cost to develop and provide such products and services. We believe we compete favorably on the basis of price, transmission quality and customer service. The number of our competitors is likely to increase as a result of the new competitive opportunities created by the World Trade Organization Basic Telecommunications Agreement ("WTO Agreement"). Further, under the terms of the WTO Agreement, the United States and the other 68 countries participating in the WTO Agreement have committed to open their telecommunications markets to competition, foreign ownership and adopt measures to protect against anticompetitive behavior. As a result, we believe that competition will continue to increase, placing downward pressure on prices. This pressure could adversely affect our gross margins if we cannot reduce our costs commensurate with these price reductions. 13 COMPETITION FROM DOMESTIC AND INTERNATIONAL COMPANIES AT&T, MCI WorldCom and Sprint currently generate a majority of the U.S. based international telecommunications services revenue. We also compete with other U.S. based and foreign long distance providers, including regional bell operating companies, which presently have Federal Communications Commission ("FCC") authority to resell and terminate international telecommunication services. Many of these companies have considerably greater financial and other resources and more extensive domestic and international communications networks than we do. Our business would be materially adversely affected to the extent that a significant number of our customers limit or cease doing business with us for competitive or other reasons. Consolidation in the telecommunications industry will continue to create even larger competitors with greater financial and other resources, and could adversely affect us by reducing the number of potential customers for our services. COMPETITION IN THE COMMERCIAL MARKET In the prepaid calling card market, we compete with other providers of prepaid calling cards and with providers of commercial telecommunications services in general. Many of the largest telecommunications providers currently offer prepaid calling cards, in addition to other telecommunications services. We also compete with smaller, emerging carriers in the prepaid calling card commercial market, including IDT Corporation, RSL Communications, SmarTalk Teleservices, Inc., Pacific Gateway Exchange, Inc., World Access, Inc. and Primus Telecommunications. To the extent we begin providing services to customers outside the U.S. market, we may compete with other large telecommunications companies such as British Telecommunications in the U.K. and Deutsche Telekom in Germany. Our ability to compete effectively in the telecommunications services industry will depend in part upon our ability to develop products that appeal to increasingly specialized segments of the telecommunications services market. GOVERNMENT REGULATION Our U.S. interstate and international telecommunications service offerings generally are subject to the regulatory jurisdiction of the FCC. Certain telecommunication services offered by us in the U.S. may also be subject to the jurisdiction of state regulatory authorities, commonly known as public utility commissions ("PUCs"). Our telecommunications service offerings outside the U.S. are also generally subject to regulation by national regulatory authorities. In addition, U.S. and foreign regulatory authorities may affect our international service offerings as a result of the termination or transit arrangements associated therewith. U.S. or foreign regulatory authorities may take actions or adopt regulatory requirements which could adversely affect us. See "Risk Factors" beginning on page 21. U.S. REGULATION Our business is subject to various U.S. and foreign laws, regulations, agency actions and court decisions. Our U.S. international telecommunications service offerings are subject to regulation by the FCC. The FCC requires international carriers to obtain authorization under Section 214 of the Communications Act of 1934, as amended (the "Communications Act"), prior to acquiring international facilities by purchase or lease, or providing international service to the public. Prior FCC approval is also required to transfer control of a certificated carrier. We are also subject to FCC policies and rules that regulate the manner in which international telecommunication services may be provided, including, for instance, the circumstances under which a carrier may provide international switched services using international private line ("IPL") facilities and under which it may route traffic through third countries to or from its final destination. The Communications Act and the FCC's rules and policies also impose certain other obligations on carriers providing international telecommunication services. These include the obligation (1) to file at the FCC and to maintain tariffs containing the rates, terms, and conditions applicable to their services, (2) to 14 file certain reports regarding international traffic and facilities, (3) to file certain contracts with correspondent carriers, (4) to disclose affiliations with foreign carriers and significant foreign ownership interests, and (5) to pay certain regulatory fees based upon, among other things, the carrier's revenues and ownership of international transmission capacity. INTERNATIONAL SERVICES FCC rules require us to obtain prior FCC authorization to acquire and operate international communication circuits in satellites and undersea fiber optic cables; similar FCC authority is required for us to resell such capacity. We hold both facilities-based and resale international authorizations, including a "global" authorization that provides broad authority to offer switched and private line international services. We have filed tariffs for international services with the FCC. FCC INTERNATIONAL PRIVATE LINE RESALE POLICY The FCC's IPL resale policy limits the conditions under which a carrier may connect IPLs to the public switched telephone network ("PSTN") at one or both ends to provide switched services, commonly known as international simple resale ("ISR"). A carrier generally may only offer ISR services to a foreign country if the FCC has found (a) the country is a member of the World Trade Organization ("WTO") and at least 50% of the U.S. billed and settled traffic to that country is settled at or below the benchmark settlement rate adopted by the FCC in IB Docket No. 96-261, or (b) the country is not a WTO member, but it offers U.S. carriers equivalent opportunities to engage in ISR and at least 50% of the U.S. billed and settled traffic is settled at or below the applicable benchmark. Settled traffic refers to traffic subject to an accounting rate agreement between the U.S. and foreign carriers. An accounting rate is a per minute wholesale charge negotiated by international carriers for terminating traffic in either direction. Each carrier is paid a settlement rate for terminating traffic on its own network which ordinarily is one-half of the accounting rate. Our FCC authority currently permits us to provide ISR service to Canada, the U.K., Sweden, New Zealand, Australia, the Netherlands, Germany, France, Belgium, Denmark, Norway, Austria, Switzerland, Luxembourg, Italy, Ireland, Hong Kong, Japan, Singapore, Spain, Iceland, Poland, Israel and the Dutch Antilles. The FCC is currently reviewing U.S. carrier applications to provide ISR to Finland and Mexico among other routes, and upon the grant of any such ISR application to a given country, the FCC's rules also would permit us to provide ISR service to that country. If ISR is not permitted on a route, absent prior FCC consent, U.S. facilities based international carriers must terminate switched telephone traffic in accordance with the International Settlement Policies ("ISP") which is primarily intended to deter foreign carriers with market power from discriminating amongst competing U.S. carriers by, for example, favoring the foreign carrier's U.S. affiliate. The ISP requires that all U.S. carriers terminate traffic with a foreign carrier on the same terms (i.e., that settlement rates be equivalent) and receive inbound traffic only in proportion to the volume of U.S. outbound traffic which they generate. On a few routes, we may use IPLs to terminate international switched telephone services where ISR has not been authorized. In such routes, therefore, our termination arrangements may not be consistent with the FCC's ISP. On any such route, however, to our knowledge the foreign correspondent lacks market power, no U.S. inbound traffic is involved, and the effective settlement rate is lower than the prevailing rate. Thus, we believe our actions are not inconsistent with the ISP's underlying purpose. If the FCC were to determine, by its own actions or in response to the filing of a third party, that any of our IPL arrangements violate its ISR policy or our ISR authorization, the FCC could order us to terminate any non-conforming arrangements. In addition, we could be subject to a monetary forfeiture and to other penalties, including the revocation of our FCC authorizations to operate as an international carrier. Any such FCC action could have a material adverse effect upon our business, operating results and financial condition. 15 FCC INTERNATIONAL SETTLEMENTS POLICY The FCC's ISP places limits on the arrangements which U.S. international carriers may enter into with dominant foreign carriers for exchanging public switched telecommunications traffic, which the FCC terms International Message Telephone Service ("IMTS"). The policy does not apply to ISR services and does not apply to U.S. carrier agreements with non-dominant foreign carriers. The ISP is primarily intended to deter dominant foreign carriers from discriminating amongst competing U.S. carriers by, for example, favoring the foreign carrier's U.S. affiliate. Absent FCC consent, the ISP requires that U.S. carriers receive an equal share of the accounting rate (i.e., that settlement rates be equivalent) and receive inbound traffic in proportion to the volume of U.S. outbound traffic which they generate. The ISP does not apply to certain "low cost" routes where 50% or more of the U.S. billed traffic is settled at rates which are 25% or more below an FCC benchmark rate. FCC policies also prohibit a U.S. carrier from offering or accepting a "special concession" from a foreign carrier where the foreign carrier possesses sufficient market power on the foreign end of the route to affect competition adversely in the U.S. market. A "special concession" is defined by the FCC as an exclusive arrangement involving services, facilities or functions on the foreign end of a U.S. international route which are necessary for providing basic telecommunications, and which are not offered to similarly situated U.S. carriers authorized to serve that route. It is possible that the FCC could find that certain of our arrangements with foreign operators were or are inconsistent with the ISP and that we have not requested prior FCC authority therefor. If the FCC were to determine by its own actions or in response to the filing of a third party that we have violated the ISP, the FCC could order us to terminate any non-conforming arrangement. In addition, we could be subject to a monetary forfeiture and to other penalties, including revocation of our FCC authorizations to operate as an international carrier. Any such FCC action could have a material adverse effect upon our business, operating results and financial condition. The FCC's policies also require U.S. international carriers providing IMTS to negotiate and adopt settlement rates with foreign correspondents for IMTS which are at or below certain benchmark rates beginning January 1, 1999 for high income countries. We currently have IMTS operating agreements with certain foreign correspondents which provide for settlement rates above the FCC's prescribed benchmarks. We will negotiate in good faith to establish IMTS settlement rates with our foreign correspondents which satisfy the FCC's benchmarks but there can be no assurance that such negotiations will succeed. If we are unable to negotiate benchmark settlement rates with certain foreign correspondents, the FCC may intervene on its own action or in response to a filing by a third party. We are unable to predict the form which such intervention may take but it could disrupt our arrangement for transmitting traffic to certain countries or require us to suspend direct service to certain countries or require us to make alternative termination arrangements with certain countries, all of which could have a material adverse effect on our business, operating results and financial condition. FCC POLICIES ON TRANSIT AND REFILE International switched telecommunication traffic is frequently routed indirectly via one or more third countries to its final destination. When such arrangements are mutually agreed upon, they are commonly based on a transit agreement under which settlement payments are made to all parties. In other cases, traffic may be sent to a third country and then forwarded or refiled for delivery to its final destination without the knowledge or consent of the destination carrier. We use both transit and refile arrangements to terminate our international traffic. The FCC routinely approves transit arrangements by U.S. international carriers. The FCC's rules also permit carriers to use ISR facilities in many cases to route traffic via a third country for refile through the public switched network. However, the extent to which U.S. carriers may enter into refile arrangements consistent with the ISP is currently under review by the FCC. In 1997, the FCC stated that above-cost accounting rates had led an increasing amount of international traffic to migrate to least cost routes through the use of practices such as hubbing, refile and reorigination. The FCC stated that such practices are an economically rational response to inflated settlement rates. Notwithstanding the FCC's past rules, policies and statements regarding the scope of permissible transit and refile arrangements, the FCC could find by its own actions or in response to the filing of a third party, that 16 certain of our transit or refile arrangements violate the ISP or other FCC policies. In that event, the FCC could order us to terminate any non-conforming transit or refile arrangements. In addition, we could be subject to a monetary forfeiture and to other penalties, including revocation of our FCC authorizations to operate as an international carrier. Any such FCC action could have a material adverse effect on our business, operating results and financial condition. REPORTING REQUIREMENTS International telecommunication carriers also are required by the FCC's rules to file timely certain reports regarding international traffic and revenues, the ownership and use of international facilities, and their affiliates with foreign carriers. The FCC considers a U.S. carrier to be a foreign carrier if it has a 25% interest in the capital stock of the carrier, or controls the foreign carrier or is under common ownership or control. The FCC requires these reports so that, among other things, it may monitor the development of industry competition and the potential for a dominant foreign carrier to discriminate amongst U.S. carriers. We generally have filed said traffic, facilities and foreign affiliation reports. The FCC's rules require international telecommunication carriers to file at the FCC copies of their contracts with other carriers, including operating agreements, within 30 days of execution. The FCC by its own action or in response to the filing of a third party could determine that we have failed to meet certain of the foregoing filing and reporting requirements or that certain filings are deficient. In that event, we could be directed to remedy any asserted non-compliance; we could also be subject to a monetary forfeiture and to other penalties, and, although we believe that it would be largely unprecedented in such circumstances, and hence unlikely, the FCC could revoke our authorizations to operate as an international carrier. Any such FCC action could have a material adverse effect on our business, operating results and financial condition. REGULATORY FEES The Communications Act, and FCC rules and policies, impose certain fees upon carriers providing interstate and international telecommunication services. These fees are levied, among other things, to defray the FCC's operating expenses, to underwrite universal telecommunication service (e.g., by subsidizing certain services used by schools and libraries), such as Internet access, and by other telecommunications users in areas of the U.S. where service costs are significantly above average, to fund the Telecommunications Relay Service ("TRS"), which provides special options for hearing-impaired users, and to support the administration of telephone numbering plans. Carriers that provide domestic interstate and international services must pay an annual regulatory fee based on their interstate revenues; for the 1999 filing year, the fee was 0.12% of net revenue. International carriers that own international transmission capacity must also pay a fee for each international 64 kilobit per second equivalent circuit they operate; for the 1999 filing year, the fee was $7 per circuit. Carriers that provide, or that have an affiliate which provides, domestic interstate services to end users must pay a universal telecommunications service fee each month based upon the total estimated demand for U.S. universal service funding. If applicable, each carrier's share is approximately 5% of the carrier's annual end user revenues (including both domestic and international end user revenue, unless only a small percentage of the carrier's end-user revenues comes from domestic interstate services, in which case only domestic revenues are counted). We generally offer our services only to other carriers that in turn provide services to end-users. Such carrier-to-carrier revenues are not subject to universal service fees, and thus we generally are not liable to pay universal service fees. U.S. interstate and international carriers must pay a percentage of their total revenue each year to support the North American Numbering Plan Administrator. The contribution rate is approximately 0.006% of net telecommunications revenue. U.S. carriers must pay a certain percentage of their domestic interstate revenues to support the Telecommunications Relay Services Fund. The contribution rate is approximately 0.04% of gross revenues. U.S. carriers must pay a percentage of their end-user revenue to support local number portability ("LNP"); that rate varies depending on the cost of the supported services and overall revenue for all carriers in different regions of the United States. Our LNP payments would typically be minimal because most of our revenue comes from other carriers rather than end users. We have routinely paid the foregoing regulatory fees; however, we may owe 17 approximately $150,000 in additional fees to satisfy our TRS and annual regulatory fee obligations for the 1996 and 1997 filing years. The foregoing regulatory fees typically change annually. We cannot predict the future regulatory fees for which we may be liable. Said fees could rise significantly for us and amount to 5% or more of our gross international and interstate revenues if we are no longer exempt from paying universal service in the event we provide service directly to end-users, or because amendments to the Communications Act repeal the universal service fee exemption for revenues from connecting carriers. Because the international telecommunication services business is highly competitive, an increase in the regulatory fees that we must pay could impair our market position and have a material adverse effect on our business, operating results and financial condition. RECENT AND POTENTIAL FCC ACTIONS Recent FCC rulemaking orders and other actions have lowered the entry barriers for new facilities-based and resale international carriers by streamlining the processing of new applications and granting non-dominant carriers greater flexibility in establishing non-standard settlement arrangements with non-dominant foreign carriers, including the non-dominant U.S. affiliates of such carriers. In addition, the FCC's rules implementing the WTO Agreement presume that competition will be advanced by the U.S. entry of facilities-based and resale carriers from WTO member countries, thus further increasing the number of potential competitors in the U.S. market and the number of carriers which may also offer end-to-end services. The FCC has recently approved several industry mergers, including the Concert joint venture between the AT&T and BritishTelecom international carrier businesses, the merger of Global Crossing and Frontier and the merger of LCI International and Qwest. There are also pending applications before the FCC for the merger of Sprint and MCI WorldCom and GTE and Bell Atlantic, among others. In December 1999, the FCC authorized Bell Atlantic to begin originating U.S. long distance service, including international service, in New York State under Section 271 of the Communications Act and other applications for "in region" service under Section 271 are expected to be filed and approved by the FCC in 2000. The 1996 amendment to the Communications Act permits the FCC to forbear enforcement of the tariff provisions in the Act, which apply to all interstate and international carriers, and the U.S. Court of Appeals is currently reviewing an FCC order directing all domestic interstate carriers to detariff their offerings. Subject to the Court's decision, the FCC may forbear its current tariff rules for U.S. international carriers, such as us, or order such carriers to detariff their services. In that event, we would have greater flexibility in pricing our service offerings and to compete, although any such FCC action likely would grant other non-dominant international carriers equivalent freedom. The FCC routinely reviews the contribution rate for various levels of regulatory fees, including the rate for fees levied to support universal service, which fees may be increased in the future for various reasons, including the need to support the universal service programs mandated by the Communications Act, the total costs for which are still under review by the FCC. The FCC also is reviewing the extent to which international carriers may refile traffic using international private line facilities or otherwise. Future FCC actions regarding refile could affect us by, for example, requiring us to discontinue certain termination arrangements which we now have or to implement alternative routing arrangements for certain countries; on the other hand, the FCC may further liberalize its existing rules and policies regarding refile, in which case we are likely to be well positioned to expand certain refile operations even though new opportunities may become available to our competitors. We cannot predict the net effect of these or other possible future FCC actions on our business, operating results and financial condition, although the net effect could be material. STATE REGULATION STATE Our intrastate long distance telecommunications operations and those of our subsidiaries are subject to various state laws and regulations, including prior certification, notification, registration and/or tariff requirements. In certain states, prior regulatory approval is required for changes in control of telecommunications services. The vast majority of states require us and our subsidiaries to apply for certification to provide intrastate telecommunications services, or at a minimum to register or to be found to be exempt 18 from regulation, prior to commencing sale of intrastate services. Additionally, the vast majority of states require us or our subsidiaries to file and maintain detailed tariffs setting forth rates charged by us to our end-users for intrastate services. Many states also impose various reporting requirements and/or require prior approval for transfers of control of certificated carriers and assignments of carrier assets, including customer bases, carrier stock offerings, and incurrence by carriers of significant debt. Certificates of authority can generally be conditioned, modified, canceled, terminated or revoked by state regulatory authorities for failure to comply with state laws and/or rules, regulations and policies of the state regulatory authorities. Fines and other penalties, including, for example, the return of all monies received for intrastate traffic from residents of a state in which a violation has occurred, may be imposed. We, along with our regulated subsidiaries, believe we have made the filings and taken the actions we believe are necessary to provide the intrastate services we currently provide to end-users throughout the U.S. We and/or our subsidiaries are qualified to do business as foreign corporations, and have received certification to provide intrastate telecommunications services in all states where certification is required, and have received approval for changes of control where such approvals are necessary. We and our subsidiaries are required to make periodic filings in order to maintain certificated status and remain qualified as foreign corporations. In early 1997, the FCC instituted significant changes to the current incumbent local exchange carrier access charge structure. These changes were meant, in part, to bring access charges closer to their actual costs. While there has been a general trend towards access charge reductions, new primary interexchange carrier charges ("PICCs") were authorized by the FCC to be imposed on interexchange carriers serving presubscribed access charges closer to their actual costs. PICCs are a flat-rated, per presubscribed line, per month access charge imposed upon all facilities-based carriers (although they may be passed through to resellers). Facilities-based carriers were assessed interstate PICCs effective January 1, 1998. Intrastate PICCs have also been adopted in the five-state Ameritech region (Michigan, Wisconsin, Illinois, Indiana, and Ohio), and may be adopted elsewhere. At the same time, we may pursue underlying carriers for pass throughs of any access charge reductions they may realize from incumbent local exchange carriers. ACTIONS AGAINST CEO In 1997, prior to our acquisition of CEO Telecommunications, Inc. ("CEO"), we settled disputes with the California PUC and with the District Attorney of Monterey, California regarding CEO's alleged unauthorized switching of long distance customers. As part of these settlements, CEO was subject to fines and restrictions on its business operations in California. In addition, the FCC has received numerous informal complaints against CEO regarding the alleged unauthorized switching of long distance customers, which complaints currently remain under review. Following our acquisition of CEO, and in order to comply with the settlements described above, we have imposed strict restrictions on certain former CEO employees, restricting these employees with respect to California intrastate telecommunications operations. Additionally, we have taken a number of steps to reduce the risk of a repeat occurrence regarding the alleged unauthorized switching of commercial customers in California. FOREIGN REGULATION UNITED KINGDOM In the U.K., telecommunications services offered by us and through our affiliate, STAR Europe Ltd. ("STAR Europe"), are subject to regulation by various U.K. regulatory agencies. The U.K. generally permits competition in all sectors of the telecommunications market, subject to licensing requirements and license conditions. We have been granted a license to provide international services on a resale basis and STAR Europe has been granted a license to provide international services over its own facilities, which licenses are subject to a number of restrictions. Implementation of these licenses have permitted us to engage in cost-effective routing of traffic between the U.S. and the U.K. and beyond. 19 GERMANY In Germany, telecommunications services offered by us through our affiliate, STAR Telecommunications Deutschland GmbH ("STAR Germany"), are subject to regulation by the Regulierungsbehorde fur Telekommunikation und Post (which is under the jurisdiction of the Ministry of Economy). Germany permits the competitive provision of international facilities-based and resale services. STAR Germany was granted a license for the provision of voice telephony on the basis of self-operated telecommunications networks in December 1997. Under this license, STAR Germany has installed telecommunications switching facilities in Dusseldorf, Frankfurt, Hamburg, Munich, Stuttgart, Berlin, Nuremberg and Hanover and is leasing connection transmission facilities between these switches and additional facilities. The network of STAR Germany will be used primarily for routing international telecommunications traffic between the U.S., the U.K., Germany and beyond. There can be no assurance that future changes in regulation of the services provided by STAR Germany will not have a material adverse effect on our business, operating results and financial condition. EMPLOYEES As of March 1, 2000, we employed 855 full-time employees. We are not subject to any collective bargaining agreements and we believe that our relationships with our employees are good. 20 RISK FACTORS IN EVALUATING US, OUR BUSINESS, OPERATIONS AND FINANCIAL POSITION, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS FORM 10-K. THIS FORM 10-K CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE SET FORTH BELOW AND ELSEWHERE IN THIS FORM 10-K. THERE CAN BE NO ASSURANCE THAT WE WILL REALIZE THE ANTICIPATED BENEFITS FROM THE MERGER WITH WORLD ACCESS. We expect that our Merger with World Access will result in a combined company that will be a leading provider of global telecommunications services, increasing stockholder value through significant cost savings and synergies. While the combination is expected to complement the geographic network coverage of each company and enhance World Access' European operations through the integration of our network assets and licenses in Germany, there can be no assurance that our operations will be successfully integrated into World Access' operations or that our stockholders will ultimately realize any of the anticipated benefits of the Merger. After due deliberation our Board concluded that the Merger was in our best interest, and that of our stockholders for, among other things, the following reasons: - The combination would potentially solve our capital problems; - The combined company would have an enhanced and more diversified geographic and product market position; - The combination would provide us with significant cost savings and synergies; - The combined management team would enhance our capabilities; - We lacked alternative options for additional capital requirements; - We did not receive a superior offer and management was concerned about our capital position and ability to diversify in the face of declining margins in our core business; and - The contemplated transaction offered us the opportunity to receive interim financing from World Access. There can be no assurance that any of the expected results will be accomplished as rapidly as currently expected or at all or that any savings or synergies will not be offset by increases in other expenses or operating losses incurred by World Access based on the occurrence of events or actions taken by World Access that are out of our control. In addition, the completion of the Merger is subject to, among other things, certain regulatory approvals, the approval of our stockholders and the stockholders of World Access, and the divestiture by us of certain business segments for specified minimum net cash proceeds. Accordingly, there can be no assurance that the Merger will be approved by our stockholders or the stockholders of World Access, that we will obtain the necessary regulatory approvals or that we will successfully complete the required sale of certain assets. In the event that the Merger is not successfully completed, we may face significant costs associated with the failed Merger, including a termination fee of $14 million, and we may need to obtain additional capital. We are not certain that we will be able to raise additional capital on favorable terms or at all. 21 IF THE PT-1 ASSET SALE IS NOT COMPLETED PRIOR TO THE CLOSING OF THE MERGER WITH WORLD ACCESS, OR IF WE DO NOT RECEIVE NET PROCEEDS OF AT LEAST $150 MILLION FROM THE PT-1 ASSET SALE, THE MERGER WITH WORLD ACCESS MAY NOT CLOSE OR THE CONSIDERATION TO BE RECEIVED BY OUR STOCKHOLDERS FROM THE MERGER MAY BE REDUCED. On March 29, 2000, we entered into a Letter of Intent with PT-1 Acquiror for the sale of all of the assets of PT-1. Pursuant to the terms of the Letter of Intent, PT-1 Acquiror will pay $150 million in cash for the assets of PT-1, less certain liabilities and subject to a purchase price adjustment based on the results of a final audit to be conducted after the close of the PT-1 Sale. While we expect that we will successfully complete the PT-1 Sale, there can be no assurance that we will complete the PT-1 Sale or that we will find another purchaser for the assets of PT-1. Further, there can be no assurance that we will complete the sale of the assets of PT-1 to PT-1 Acquiror, or to any other purchaser, for net cash proceeds of at least $150 million, as required by the Merger Agreement. Pursuant to the terms of the Merger Agreement, if we fail to sell the assets of PT-1 prior to the close of the Merger with World Access, then World Access does not have to complete the Merger. In addition, under the Merger Agreement, if we do not enter into a definitive agreement for the PT-1 Sale prior to the close of the Merger or if we do not receive net cash proceeds of at least $150 million from the sale of the assets of PT-1, then World Access (1) does not have to complete the Merger, (2) may agree to amend the Merger Agreement or (3) may, in its sole discretion, agree to waive this condition. In the event that the Merger is not completed, we may face significant costs associated with the failed Merger, including a termination fee of $14 million, and may need to obtain additonal capital. We are not certain that we will be able to raise additional capital on favorable terms or at all. While we believe we will complete the PT-1 Sale, the completion of the PT-1 Sale to PT-1 Acquiror is subject to, among other things: (1) the completion of due diligence by PT-1 Acquiror satisfactory to PT-1 Acquiror in its absolute discretion, (2) the negotiation and execution of a definitive purchase agreement between us and PT-1 Acquiror, (3) a vote in favor of the transaction by a majority of our stockholders, and (4) certain regulatory approvals. Accordingly, there can be no assurance that PT-1 Acquiror will be satisfied with the outcome of its due diligence, that we will reach satisfactory agreement on a definitive purchase agreement with PT-1 Acquiror, that our stockholders will approve the PT-1 Sale, or that we will obtain the necessary regulatory approvals. In addition, the completion of the PT-1 Sale for net cash proceeds of at least $150 million is dependent, in part, on the results of a final audit to be conducted after the close of the PT-1 Sale. There can be no assurance that the net value of the assets of PT-1 will be greater than or equal to the value of the assets as presented to PT-1 Acquiror in the Letter of Intent, which may result in net cash proceeds of less than $150 million for the PT-1 Sale. If we fail to complete the PT-1 Sale prior to the close of the Merger or to sell the assets of PT-1 for net proceeds of less than $150 million, the Merger may not close or the consideration to be received by our stockholders from the Merger may be reduced. IF OUR LENDERS ACCELERATE PAYMENT OF THE AMOUNTS WE OWE THEM, WE COULD BECOME INSOLVENT OR BE FORCED TO FILE FOR BANKRUPTCY. We are subject to certain restrictions under our financing arrangements, including our financing arrangements with WorldCom and RFC Capital Corporation ("RFC") and our anticipated financing arrangements with World Access. If we violate any restrictions under our financing arrangements, our lenders may accelerate payment of the amounts we owe them. If they accelerate payment on any of our debt, it could force us to file for bankruptcy or reorganize our business. Under our financing arrangements with WorldCom and our anticipated financing arrangements with World Access, if we commit a breach of the terms of the Merger Agreement which results in World Access having the right to terminate the Merger Agreement, World Access and WorldCom can accelerate payment of the outstanding balance. Our anticipated financing arrangement with World Access will provide for a predetermined initial advance with additional advances of up to $35 million to be made solely in World Access' discretion. There can be no assurance that we will not breach any restrictions under our financing arrangements, that we will not breach the terms of the Merger Agreement or that if we enter into a financing arrangement with World 22 Access, World Access will agree to make additional advances to us. We cannot predict what actions our lenders will take if we are out of compliance with any restrictions under any of our financing arrangements or under the Merger Agreement. WE MAY NOT HAVE SUFFICIENT CASH FLOW FROM OUR BUSINESS TO PAY OUR DEBT. The amount of our outstanding debt is large compared to our cash flow and the net book value of our assets. We have substantial repayment obligations under our outstanding debt. As of December 31, 1999 we had: - Total consolidated debt of approximately $212.5 million, including $99.5 million outstanding pursuant to our financing arrangements with RFC and including our financing arrangement with WorldCom which was entered into on April 12, 2000; and - Stockholders' equity of approximately of $278.1 million. The following chart shows our aggregate interest and principal payments due on all of our currently outstanding debt for each of the next five fiscal years, assuming our lenders do not accelerate payment of the amounts due under our financing arrangements. Also, because the interest rates under some of our financing arrangements. Also, because the interest rates under some of our financing arrangements are based upon variable market rates, the amount of these interest payments could fluctuate in the future.
SCHEDULED PAYMENTS -------------------- INTEREST PRINCIPAL -------- --------- (IN THOUSANDS) For the year ending December 31: 2000...................................................... $10,012 $ 75,690 2001...................................................... 6,487 107,637 2002...................................................... 1,679 20,675 2003...................................................... 1,428 8,446 2004...................................................... 0 0
Due to the large amount of these principal and interest payments, we may not generate enough cash from our operations to meet these obligations. We have entered into a Letter of Intent with PT-1 Acquiror to sell the assets of PT-1, less certain liabilities for cash proceeds of approximately $150 million subject to a purchase price adjustment based on an audit of PT-1 to be conducted after the close of the PT-1 Sale. We expect that the proceeds we receive from the sale of PT-1 will provide us with sufficient capital to continue our operations and service our debt. However, there can be no assurance that we will reach a definitive agreement with PT-1 Acquiror regarding the sale of the assets of PT-1 or that the proceeds we receive from the sale will be sufficient. WE MAY NOT BE ABLE TO OBTAIN THE ADDITIONAL CAPITAL THAT WE NEED TO FINANCE OUR ONGOING CAPITAL REQUIREMENTS AND OUR GROWTH. We have considerable ongoing capital requirements related to our operations and our existing debt. In addition, we will need to continue to expand our network to maintain our competitive position and continue to meet the increasing demands for service quality, capacity and competitive pricing. We will need to raise additional capital from equity or debt sources if (1) our cash flow from operations after the end of a period is insufficient to meet our working capital and capital expenditure requirements, (2) our cash flow from operations after the end of a period is insufficient to service our debt, or (3) our growth exceeds current expectations. We are not certain that we will be able to raise this capital on favorable terms or at all. If we are unable to obtain this additional capital, we may be unable to continue our operations or service our debt and we may be required to reduce the scope of our anticipated expansion. Our ability to grow depends, in part, on our ability to expand our operations through the ownership and leasing of network capacity, which requires significant capital expenditures, that are often incurred prior to our receipt of the related revenue. We have entered into a Letter of Intent with PT-1 Acquiror to sell the assets of PT-1, less certain liabilities for cash proceeds of approximately $150 million subject to a purchase price 23 adjustment based on an audit of PT-1 to be conducted after the close of the PT-1 Sale. We expect that the proceeds we receive from the sale of PT-1 will provide us with sufficient capital to meet our working capital and capital expenditure requirements, service our debt and expand our network. However, there can be no assurance that we will reach a definitive agreement with PT-1 Acquiror regarding the sale of the assets of PT-1 or that the proceeds we receive from the sale will be sufficient. WE MAY NOT BE ABLE TO PROVIDE DATA TRANSMISSION SERVICES EFFECTIVELY. Our experience in providing data transmission services to date has been limited and, consequently, we can provide no assurance that we will be successful in the data transmission business. Our ability to successfully enter the data transmission business will depend upon, among other things, our ability to: - Select new equipment and software and integrate these into our network; - Hire and train qualified personnel; and - Enhance our billing, back-office and information systems to accommodate data transmission services. If we are not successful, there may be a material adverse effect on our business, financial condition and operations. The data transmission business is also extremely competitive and prices have declined substantially in recent years and are expected to continue to decline. In providing these services, we will be dependent upon vendors for assistance in the planning and development of our data product offerings, as well as ongoing training and support. In Europe, there are a number of different protocols for data transmission. Our network will need to be able to handle all of these protocols, which will pose technical difficulties. WE CANNOT ASSURE YOU THAT OUR PLANNED ENTRY INTO THE INTERNET AND DATA BUSINESS IN EUROPE WILL BE SUCCESSFUL. The market for Internet connectivity and related services is extremely competitive. Our primary competitors include other ISPs that have a significant national or international presence. Many of these carriers have substantially greater resources, capital and operational experience than we do. We also expect we will experience increased competition from traditional telecommunications carriers that expand into the market for Internet services. In addition, we will require substantial additional capital to make investments in our Internet operations and we may not be able to obtain that capital on favorable terms or at all. Further, even if we are able to establish and expand our Internet business, we will face numerous risks that may adversely affect the operations of our Internet business. These risks include: - Competition in the market for Internet services; - Our limited operating history as an ISP; - Our ability to adapt and react to rapid changes in technology related to our Internet business; - Uncertainty relating to the continuation of the adoption of the Internet as a medium of commerce and communications; - Vulnerability to unauthorized access, computer viruses and other disruptive problems due to the accidental or intentional actions of others; - Adverse regulatory developments; - The potential liability for information disseminated over our network; and - Our need to manage the growth of our Internet business, including the need to enter into agreements with other providers of infrastructure capacity and equipment and to acquire other ISPs and Internet-related businesses on acceptable terms. 24 OUR QUARTERLY OPERATING RESULTS FLUCTUATE SIGNIFICANTLY DUE TO MANY FACTORS AND ARE THEREFORE DIFFICULT TO FORECAST. Our quarterly operating results fluctuate significantly due to a number of factors, some of which are beyond our control, and are therefore difficult to forecast with any degree of accuracy. Because operating results fluctuate significantly, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of our future performance. Our revenues, costs and expenses have fluctuated significantly in the past and are likely to continue to fluctuate significantly in the future as a result of numerous factors. Our revenues in any given period can vary due to factors such as: - Call volume fluctuations, particularly in regions with relatively high per-minute rates; - The addition or loss of major customers, whether through competition or merger; - The loss of economically beneficial routing options for the termination of our traffic; - Pricing pressure resulting from increased competition; and - Technical difficulties with or failures of portions of our network that impact our ability to provide service to or bill our customers. Our cost of services and operating expenses in any given period can vary due to factors such as: - Fluctuations in rates charged by carriers to terminate our traffic; - Increases in bad debt expense and reserves; - The timing of capital expenditures, and other costs associated with acquiring or obtaining other rights to switching and other transmission facilities; - Changes in our sales incentive plans; and - Costs associated with changes in staffing levels of sales, marketing, technical support and administrative personnel. In addition, our operating results can vary due to factors such as: - Changes in routing due to variations in the quality of vendor transmission capability; - Our loss of favorable routing options; - The amount of, and the accounting policy for, return traffic under operating agreements; - Actions by domestic or foreign regulatory entities; - The level, timing and pace of our expansion in international and commercial markets; and - General domestic and international economic and political conditions. Further, we obtain a substantial portion of our transmission capacity on a variable, per minute and short term basis; therefore, we may experience unanticipated price increases and service cancellations. Since we do not generally have long term arrangements for the purchase or resale of long distance services, and since rates fluctuate significantly over short periods of time, our gross margins may also fluctuate significantly over short periods of time. Competitive pricing pressures may also negatively affect our gross margins. WE MAY NOT BE ABLE TO EFFECTIVELY CONTINUE OUR REVENUE GROWTH. Our revenues have increased from $67.0 million in 1995 to $1,061.8 million in 1999. You should not consider this growth indicative of our future revenue growth or operating results. We cannot predict whether we will be able to achieve or maintain profitability on a quarterly or annual basis in the future. If our revenue levels fall below expectations, net loss is likely to increase disproportionately because a proportionately smaller amount of our operating expenses varies with our revenues. This effect will probably increase as a greater percentage of our cost of services are associated with owned and leased 25 facilities. In our first two quarters of 1999, our operating results were below the expectations of public market analysts and investors. In future quarters we could have similar disappointments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." WE MAY NOT BE ABLE TO EFFECTIVELY CONTINUE TO MANAGE OUR REVENUE GROWTH. We cannot be certain that our personnel, systems, procedures and controls will be adequate to support our future operations. As part of our significant revenue growth, we have expanded, and plan to continue to expand, the number of our employees and the geographic scope of our operations. These factors create increased responsibilities for our management personnel and place increased demands upon our operating and financial systems, which may lead to unanticipated costs and divert our management's attention from day-to-day operations. We may also need to attract, train and retain additional highly qualified management, technical, sales and marketing and customer support personnel. The process of locating such personnel with the combination of skills and attributes necessary to implement our strategy is often lengthy. We expect that our expansion into foreign countries will lead to increased financial and administrative demands, such as: - Increased operational complexity associated with expanded network facilities; - Administrative burdens associated with managing an increasing number of foreign subsidiaries and relationships with foreign partners; and - Expanded treasury functions to manage foreign currency risks. With the acquisitions of CEO, UDN, and PT-1, we began servicing commercial markets, which are more labor intensive than the wholesale market, and as a result have higher overhead costs. We also may need to update and improve our billing systems and procedures and/or hire new management personnel to handle the demands of the commercial markets. There is a risk that we will not be able to effectively manage the costs of and risks associated with our expansion into the commercial markets. WE SELL A SIGNIFICANT PERCENTAGE OF OUR COMMERCIAL PRODUCTS ON CREDIT. IF WE HAVE DIFFICULTY COLLECTING RISING ACCOUNTS RECEIVABLE OR WE FACE SIGNIFICANT CREDIT LOSSES IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS. We sell prepaid cards on terms ranging from cash on delivery to thirty days credit. As accounts receivable balances grow and we extend credit to new commercial customers, we may not be able to adequately monitor and evaluate our accounts receivable and credit risks and we may not be able to collect all the money we are owed. If we have difficulty collecting rising accounts receivable or we face significant credit losses it could have a negative effect on our business, financial condition and results of operations. We usually sell prepaid cards that we ship with common carriers or that we sell over the counter in smaller amounts for cash on delivery. We extend 7-to-30 day credit to distributors who only market our prepaid cards and who introduce our products into new markets and territories. We also sell prepaid cards wholesale to carriers on credit, requiring them to pay us in 7-to-30 days. Customers are billed after services are rendered for dial around and presubscribed long distance services. INCREASED COMPETITION IN THE PREPAID CARD BUSINESS MAY FORCE US TO LOWER OUR PRICES AND IN TURN MAY NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS. We cannot guarantee that we will be able to continue to provide competitively priced prepaid cards to our distributors or that lower prices in the prepaid card marketplace will not have a negative effect on the results of our operations. The lack of customer loyalty to any particular prepaid card company and the increased entry into the prepaid card market by various competitors, including companies larger than us, could cause prices to drop throughout the prepaid card industry. Because we depend on informal relationships with independent distributors to market and sell our products, increased competition and lower prices could force us to further lower our prices to continue to sell prepaid cards to these distributors. 26 Our operations and the prepaid card business that we operate through PT-1 face a number of risks with respect to competition, which can be summarized to include the following: - The increased entry into the market by prepaid card vendors, including vendors that are larger than us; - The low barriers to entry for new prepaid card operators; - Our reliance on independent distributors to place prepaid cards in commercial outlets; - Our inability to create exclusive phone card distribution arrangements; - Our inability to enter into written agreements with distributors and the lack of written agreements among our distributors and any other party in our prepaid card chain of supply; - The price-sensitive, fickle nature of consumer demand; and - The lack of customer loyalty to any particular prepaid card company. THE GROWTH OF OUR TELECOMMUNICATIONS NETWORK WILL BE COSTLY, AND WE MAY NOT BE ABLE TO INCREASE OUR NETWORK CAPACITY AT A RATE THAT IS COMMENSURATE WITH THE DEMANDS OF OUR CUSTOMER BASE. We are currently in the process of expanding our network and as we expand our network and the volume of our network traffic, our cost of revenues will increasingly consist of fixed costs arising from the ownership and maintenance of switches and fiber optic cables. While we believe that in the long-term these investments will reduce our cost of service and enhance our service offerings, in the short-term, costs may increase and our operating margins may decrease. If our traffic volume were to decrease, or fail to increase to the extent expected or necessary to make efficient use of our network, our costs as a percentage of revenues would increase significantly, which could have a material adverse effect on our business, financial condition and results of operations. Historically, we have relied primarily on leased transmission capacity for the delivery of our telecommunications services. Our telecommunications expenses have in the past primarily been variable, based upon minutes of use, consisting largely of payments to other long distance carriers, customer/carrier interconnect charges, leased fiber circuit charges and switch facility costs. Recently, however, we have made considerable capital expenditures to expand our network, and intend to continue to do so. See "Business--Network." Our strategy is to establish significant traffic volumes prior to investing in fixed-cost facilities. At the same time, the development of these facilities entails significant costs and prior planning, which are based in part on our expectations concerning future revenue growth and market developments. In addition, our business depends in part on our ability to obtain transmission facilities on a cost-effective basis. We may not be able to obtain sufficient transmission facilities or access to undersea fiber optic cable on economically viable terms. Our failure to obtain telecommunications facilities that are sufficient to support our network traffic in a manner that ensures the reliability and quality of our telecommunications services could have a material adverse effect on our business, financial condition and results of operations. Undersea fiber optic cables typically take several years to plan and construct, carriers generally make investments well in advance, based on a forecast of anticipated traffic. Therefore, our operations are subject to the risk that we will not adequately anticipate the amount of traffic over our network, and may not procure sufficient cable capacity or network equipment in order to ensure the cost-effective transmission of customer traffic. Although we participate in the planning of undersea fiber optic transmission facilities, we do not control the construction of these facilities and must obtain access to these facilities through partial ownership positions. If ownership positions are not available, we must obtain access to these facilities through lease arrangements on negotiated terms that may vary with industry and market conditions. 27 THE INTERNATIONAL NATURE OF OUR OPERATIONS EXPOSES US TO REGULATORY, POLITICAL AND ECONOMIC RISKS. We have to date generated a substantial majority of our revenues by providing international telecommunications services to our customers on a wholesale basis. We send traffic to numerous countries throughout the world, including India, Mexico and China. The international nature of our operations involves certain risks, such as: - Changes in U.S. and foreign government regulations and telecommunications standards; - Dependence on foreign partners, tariffs, taxes and other trade barriers; - The potential for nationalization and economic downturns; and - Political instability in foreign countries. In addition, a reversal in the current trend toward deregulation of telecommunications carriers could adversely affect our business. We will continue to encounter these risks to the extent that we proceed with the planned expansion of our international operations. DEPENDENCE ON FOREIGN PARTNERS. We will increasingly rely on foreign partners to (1) terminate our traffic in foreign countries and (2) assist in installing transmission facilities and network switches, complying with local regulations, obtaining required licenses and assisting with customer and vendor relationships. We may have limited recourse if our foreign partners do not perform under their contractual arrangements with us. As a result of our arrangements with foreign partners, we may encounter significant legal, regulatory or economic risks. FOREIGN GOVERNMENT CONTROL AND HIGHLY REGULATED MARKETS. Foreign government actions in the future could have a material adverse effect on our operations. Governments of many countries exercise substantial influence over various aspects of the telecommunications market. In some cases, the government owns or controls companies that are or may become our competitors or companies, such as national telephone companies, upon which we and our foreign partners may depend for required interconnections to local telephone networks and other services. In highly regulated countries in which we do not deal directly with the dominant local exchange carrier, the dominant carrier may have the ability to terminate service to us or to our foreign partner and, if this occurs, we may have limited or no recourse. In some countries where competition is not yet fully established, we transact business through an alternative operator. Foreign laws in these countries may prohibit or impede new operators, like us, from offering services. FOREIGN CURRENCY FLUCTUATIONS. Our revenues and cost of long distance services are sensitive to foreign currency fluctuations. We expect that an increasing portion of our net revenue and expenses will be denominated in currencies other than U.S. dollars, and changes in exchange rates may have a significant effect on our results of operations. Although we utilize hedging instruments to reduce the risk of foreign currency fluctuations, we will not be fully protected from these risks and the instruments themselves involve a degree of risk. See "Quantitative and Qualitative Disclosure About Market Risk." FOREIGN CORRUPT PRACTICES ACT. The FCPA generally prohibits U.S. companies, like us, and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business. Past or future actions taken without our knowledge by agents, strategic partners and other intermediaries could expose us to liability under the FCPA. This liability could have a material adverse effect on our business, operating results and financial condition. OUR FAILURE TO MEET CURRENT OR FUTURE GOVERNMENT REGULATIONS COULD CAUSE US TO INCUR PENALTIES. FUTURE GOVERNMENT REGULATIONS COULD ALSO INCREASE COMPETITION OR IMPEDE THE EXPANSION OF OUR OPERATIONS. Our business is subject to various U.S. and foreign laws, regulations, agency actions and court decisions. The FCC regulates our U.S. international telecommunications service offerings. The FCC could determine, by its own actions or in response to a third party's filing, that some of our services, termination 28 arrangements, agreements with foreign carriers, transit or refile arrangements or reports do not or did not comply with FCC policies and rules. As a result, the FCC could order us to terminate noncompliant arrangements, fine us or revoke our authorizations. Any of these actions could have a material adverse effect on our business, operating results and financial condition. Generally, the FCC requires international carriers to obtain authorizations under Section 214 of the Communications Act, prior to acquiring international facilities by purchase or lease, or providing international service to the public. Prior FCC approval is also required to transfer control of a certificated carrier. We must file reports and contracts with the FCC and pay regulatory fees, which are subject to change. The FCC policies and rules discussed below also regulate our operations. Future FCC action may also negatively affect our operations by: - Intensifying the competition that we face; - Increasing our operating costs; - Disrupting our transmission arrangements; or - Otherwise requiring us to modify our operations. The FCC is encouraging new market entrants by implementing the WTO Agreement and through other actions. The FCC may approve pending mergers which could produce more effective competitors in our market. The FCC may increase regulatory fees by eliminating the exemption for carrier revenues obtained from other carriers for certain fees or through other actions, which could increase our costs of service. See "Business--Government Regulation." OUR PRACTICES MAY BE INCONSISTENT WITH THE FCC'S INTERNATIONAL SETTLEMENT POLICY. The FCC's international private line resale policy limits the conditions under which a carrier may connect IPLs to the PSTN at one or both ends to provide switched services, commonly known as ISR. We may use IPLs to terminate international switched telephone services on a few routes where the FCC has not yet authorized ISR. On these routes, therefore, our termination arrangements may not be consistent with the FCC's ISP. On any of these routes, however, to our knowledge the foreign correspondent lacks market power, no U.S. inbound traffic is involved, and the effective settlement rate is lower than the prevailing rate. Thus, we believe our actions are consistent with the ISP's underlying purpose. A carrier generally may only offer ISR services to a foreign country if the FCC has found (1) the country is a member of the WTO, and at least 50% of the U.S. billed and settled traffic to that country is settled at or below the FCC's benchmark settlement rate or (2) the country is not a WTO member, but it offers U.S. carriers equivalent opportunities to engage in ISR and at least 50% of the U.S. billed and settled traffic is settled at or below the applicable benchmark. If ISR is not permitted on a route, absent prior FCC consent, U.S. facilities based international carriers must terminate switched telephone traffic in accordance with the FCC's ISP. The ISP requires that all U.S. carriers terminate traffic with a foreign carrier on the same terms and receive inbound traffic only in proportion to the volume of U.S. outbound traffic which they generate. The FCC could also find that some of our IMTS arrangements with foreign operators are inconsistent with the ISP. The ISP limits the IMTS arrangements between U.S. international carriers and dominant foreign carriers for exchanging public switched telecommunications traffic. This policy does not apply to ISR services and does not apply to U.S. carrier agreements with non-dominant foreign carriers. The ISP requires that U.S. carriers receive an equal share of the accounting rate and receive inbound traffic in proportion to the volume of U.S. outbound traffic which they generate. The ISP and other FCC policies also prohibit a U.S. carrier and some foreign carriers from entering into exclusive arrangements involving services, facilities or functions on the foreign end of a U.S. international route which are necessary for providing basic telecommunications and which are not offered to similarly situated U.S. carriers. 29 We use both transit and refile arrangements to terminate our international traffic. Some of our transit or refile arrangements may violate the ISP or other FCC policies. The FCC routinely approves transit arrangements by U.S. international carriers. FCC rules also permit carriers in many cases to use ISR facilities to route traffic via a third country for refile through the PSTN. The extent to which U.S. carriers may enter into refile arrangements consistent with the ISP is currently under review by the FCC. OUR FAILURE TO COMPLY WITH STATE REGULATIONS COULD RESULT IN PENALTIES, INCLUDING REVOCATION OF ONE OF OUR CERTIFICATES OF AUTHORITY. Various state laws and regulations impose prior certification, notification, registration, tariff and/or other requirements on our intrastate long distance telecommunications operations and our subsidiaries. The vast majority of states require that we and our subsidiaries apply for certification to provide intrastate telecommunications services. In most jurisdictions, we also must file and obtain prior regulatory approval of tariffs for intrastate services. State regulatory authorities can generally condition, modify or revoke certificates of authority or impose fines and other penalties for failure to comply with state laws and regulations. FOREIGN REGULATIONS MAY IMPEDE OUR EXPANSION INTO RECENTLY DEREGULATED TELECOMMUNICATIONS MARKETS OUTSIDE OF THE U.S. Foreign countries, either independently or jointly as members of the International Telecommunications Union or other supra-national organizations, may have adopted or may adopt laws or regulatory requirements regarding telecommunications services that (1) would be difficult or expensive for us to comply with, (2) could force us to choose less cost-effective routing alternatives and (3) could adversely affect our business, operating results and financial condition. We are subject to regulation in foreign countries, such as the U.K. and Germany, in connection with some of our business activities. For example, laws or regulations in either the transited or terminating foreign jurisdiction may affect our use of transit, ISR or other routing arrangements. If we seek to provide telecommunications services in other non-U.S. markets, we will be subject to the developing laws and regulations governing the competitive provision of telecommunications services in those markets. We cannot be certain that the regulatory regime in any such countries will provide us with practical opportunities to compete in the near future, or at all, or that we will be able to take advantage of any such liberalization in a timely manner. We currently plan to provide a limited range of services in Mexico and Belgium, as permitted by regulatory conditions in those markets, and to expand our operations as these markets implement scheduled liberalization to permit competition in the full range of telecommunications services. The nature, extent and timing of the opportunity for us to compete in these markets will be determined, in part, by the actions taken by the governments in these countries to implement competition and the response of incumbent carriers to these efforts. See "Business--Government Regulation." THE FCC REQUIRES US TO PAY FEES TO PAY PHONE OWNERS WHEN OUR CUSTOMERS USE PAY PHONES TO ACCESS OUR SERVICES. WE MAY HAVE DIFFICULTY PASSING THESE FEES ON TO OUR CUSTOMERS. The Communications Act requires long distance carriers to compensate pay phone owners when a pay phone is used to make a call through a toll-free number. We cannot be certain that we will be able to continue to pass these costs on to our prepaid card customers or that these charges will not have a negative effect on our business, financial condition or results of operations. A small portion of our prepaid card customers use pay phones to access our services through our toll-free number. Recent regulations adopted under the Communications Act require that we pay $0.24 per call, although the grounds for this fee are being reconsidered by the FCC pursuant to a court order. In February 1998, PT-1 began passing these costs on to prepaid card customers who use pay phones. 30 OUR CUSTOMERS ARE SUBJECT TO GOVERNMENT REGULATIONS THAT MAY MATERIALLY AFFECT THEIR ABILITY TO DO BUSINESS WITH US. Our customers are also subject to actions taken by domestic or foreign regulatory authorities that may affect their ability to deliver traffic to us. Regulatory authorities have imposed sanctions on some of our customers in the past. While these sanctions have not adversely impacted the volume of traffic that we receive from these customers to date, future regulatory actions could materially adversely affect the volume of traffic received from a major customer, which could have a material adverse effect on our business, financial condition and results of operations. OUR BUSINESS IS DEPENDENT UPON THE INTEGRITY AND EXPANSION OF OUR NETWORK AND TELECOMMUNICATIONS FACILITIES WHICH PUTS OUR OPERATIONS AT RISK TO OUTSIDE FORCES BEYOND OUR CONTROL. Any system or network failure that interrupts our operations could have a material adverse effect on our business, financial condition or results of operations. Our operations are dependent on our ability to successfully expand our network and integrate new and emerging technologies and equipment into our network, which are likely to increase the risk of system failure and to cause strain upon the networks. Our operations also depend on our ability to protect our hardware and other equipment from damage from natural disasters such as fires, floods, hurricanes and earthquakes, other catastrophic events such as civil unrest, terrorism and war and other sources of power loss and telecommunications failures. Although we have taken a number of steps to prevent our network from being affected by natural or man-made disasters, such as building redundant systems for power supply to the switching equipment, we cannot be certain that these prophylactic measures will prevent our switches from becoming disabled in the event of an earthquake, power outage or otherwise. If our network fails, or our telephone traffic decreases significantly as a result of a natural or man-made disaster, this could have a material adverse effect on our relationships with our customers and our business, operating results and financial condition. See "Business--Network." WE ARE DEPENDENT ON A LIMITED NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PERCENTAGE OF OUR REVENUES. THE LOSS OF A SIGNIFICANT CUSTOMER COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. The loss of a significant customer could have a material adverse effect on our business. While our most significant customers vary from quarter to quarter, our five largest customers accounted for approximately 17.4% of our revenues in 1999. We could lose a significant customer for many reasons, including: - The entrance into the market of significant new competitors with lower rates than us; - Transmission quality problems; - Changes in U.S. or foreign regulations; or - Unexpected increases in our cost structure as a result of expenses related to installing a global network or otherwise. 31 WE HAVE OBTAINED BRAND AWARENESS WITH THE USE OF THE PT-1 NAME AND OTHER NAMES THAT WE USE TO MARKET OUR PREPAID CARDS, BUT OUR CONTINUED USE OF THOSE NAMES MAY BE CHALLENGED IN THE FUTURE. We believe that the prepaid card products that we market through PT-1 have achieved significant brand awareness with distributors, commercial outlets, ethnic communities and other consumer groups. In 1998, PT-1 changed its name from Phonetime, Inc. and the name of one of its prepaid cards from The PTI Card to The PT-1 Card in response to letters challenging PT-1's use of these names. We cannot guarantee that our continued efforts to protect the proprietary rights of our PT-1 operations will be successful or that other companies will not challenge the PT-1 trademarks and service marks. We also intend to expand the marketing of prepaid cards in foreign countries. This may result in the use of PT-1 prepaid cards in countries where intellectual property protections are limited. Our inability to protect our proprietary rights or continue to use such marks in the U.S. and abroad could have a negative effect on our business, financial condition and results of operations. WE MAY NOT BE ABLE TO RETAIN KEY PERSONNEL. Our success depends to a significant degree upon the efforts of senior management personnel and a group of employees with longstanding industry relationships and technical knowledge of our operations; in particular, Christopher E. Edgecomb, our Chief Executive Officer. We maintain and are the beneficiary under a key person life insurance policy in the amount of $10 million with respect to Mr. Edgecomb. We believe that our future success will depend in large part upon our continuing ability to attract and retain highly skilled personnel. Competition for qualified, high-level telecommunications personnel is intense and there can be no assurance that we will be successful in attracting and retaining such personnel. The loss of the services of one or more of our key individuals, or the failure to attract and retain other key personnel, could materially adversely affect our business, operating results and financial condition. See "Management." WE MAY FACE SIGNIFICANT COMPETITION FROM INTERNATIONAL AND DOMESTIC CARRIERS. The international telecommunications industry is intensely competitive and subject to rapid change. We believe that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce our costs commensurate with such price reductions. Our competitors in the international wholesale switched long distance market include large, facilities-based multinational corporations and smaller facilities-based providers in the U.S. and overseas that have emerged as a result of deregulation, switch-based resellers of international long distance services and international joint ventures and alliances among such companies. We also compete abroad with a number of dominant telecommunications operators that previously held various monopolies established by law over the telecommunications traffic in their countries. International wholesale switched service providers compete on the basis of price, customer service, transmission quality, breadth of service offerings and value-added services. Additionally, the telecommunications industry is in a period of rapid technological evolution, marked by the introduction of competitive product and service offerings, such as the utilization of the Internet for international voice and data communications. We are unable to predict which technological development will challenge our competitive position or the amount of expenditures that will be required to respond to a rapidly changing technological environment. Further, the number of competitors is likely to increase as a result of the competitive opportunities created by members of the WTO in February 1997. Under the terms of the WTO Agreement, starting February 5, 1998, the United States and over 68 countries have committed to open their telecommunications markets to competition and foreign ownership and to adopt measures to protect against anti-competitive behavior. COMPETITION FROM DOMESTIC AND INTERNATIONAL COMPANIES. A majority of the U.S.-based international telecommunications services revenue is currently generated by AT&T, MCI WorldCom and Sprint. We also compete with Pacific Gateway Exchange, Inc., and other U.S.-based and foreign long distance providers, including the Regional Bell Operating Companies, which presently have FCC authority to resell and 32 terminate international telecommunication services. Many of these competitors have considerably greater financial and other resources and more extensive domestic and international communications networks than we do. Our business would be materially adversely affected to the extent that a significant number of such customers limit or cease doing business with us for competitive or other reasons. Consolidation in the telecommunications industry could not only create even larger competitors with greater financial and other resources, but could also adversely affect us by reducing the number of potential customers for our services. EXPANSION INTO COMMERCIAL MARKET. With the acquisition of CEO, we began providing long distance service to the commercial market, a market that is subject to intense competition from a number of well capitalized companies. The commercial market is also characterized by the lack of customer loyalty, with commercial customers regularly changing service providers. There can be no assurance that we will be able to compete successfully in the commercial market. THE PRICE OF OUR STOCK IS SUBJECT TO FLUCTUATION BASED ON FACTORS BEYOND OUR CONTROL. The market price of the shares of our common stock has been highly volatile since our initial public offering in June 1997 and may be significantly affected by factors such as: - Actual or anticipated fluctuations in our operating results; - The announcement of potential acquisitions by us; - Changes in federal and international regulations; - Activities of the largest domestic providers; - Industry consolidation and mergers; - Conditions and trends in the international telecommunications market; - Adoption of new accounting standards affecting the telecommunications industry; - Changes in recommendations and estimates by securities analysts; and - General market conditions and other factors. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the shares of emerging growth companies like ours. These broad market fluctuations may adversely affect the market price of our common stock. FORWARD-LOOKING STATEMENTS Certain statements contained in this Form 10-K, including without limitation, statements containing the words "believe," "anticipate," "intend," "expect" and words of similar import, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: (1) general economic and business conditions, both nationally and in the regions in which we operate, (2) industry capacity, (3) existing government regulations and changes in, or the failure to comply with, government regulations, (4) competition, (5) changes in business strategy or development plans, (6) our ability to manage growth, (7) the availability and terms of capital to fund the expansion of our business, including the acquisition of additional businesses, and (8) other factors referenced in this Form 10-K. GIVEN THESE UNCERTAINTIES, THE STOCKHOLDERS OF THE COMPANY ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. 33 ITEM 2. PROPERTIES Our principal offices are located in Santa Barbara, California in nine facilities providing an aggregate of approximately 45,918 square feet of office space expiring between June 2002 and February 2007. Additionally, we have office and switching sites in the following locations (including the offices and switch sites for PT-1 and our ALLSTAR Telecom division):
APPROXIMATE OFFICE SITES SQUARE FEET EXPIRATION DATE - ------------ ----------- ------------------------------------- Vienna, Virginia............................... 3,909 May 2004 New York, New York (multiple leases)........... 4,625 December 2001--November 2008 Los Angeles, California (multiple leases)...... 24,898 June 2000--July 2005 Dallas, Texas.................................. 8,000 July 2000 Chelsea, Massachusetts......................... 2,000 July 2004 West New York, New Jersey...................... 2,000 June 2003 Rio Piedras, Puerto Rico....................... 1,200 July 2000 London, England................................ 5,414 December 2003 Jersey City, New Jersey........................ 5,565 January 2008 Los Angeles, California (multiple leases)...... 38,695 April 2001--September 2008 New York, New York (multiple leases)........... 62,491 March 2002--April 2008 Dallas, Texas.................................. 6,167 April 2007 Miami, Florida (multiple leases)............... 20,853 October 2007--March 2008 Atlanta, Georgia............................... 17,300 April 2008 Seattle, Washington............................ 7,020 June 2008 London, England................................ 5,600 July 2006 Hamburg, Germany............................... 9,981 January 2008--July 2009 Dusseldorf, Germany............................ 8,831 January 2008--July 2009 Frankfurt, Germany............................. 17,579 January 2008--August 2009 Munich, Germany................................ 7,473 February 2008--July 2009 Berlin, Germany................................ 6,719 April 2009 Hannover, Germany.............................. 5,857 March 2014 Nurnberg, Germany.............................. 5,454 June 2009 Stuttgart, Germany............................. 3,396 February 2009 Geneva, Switzerland............................ 5,578 May 2004 Vienna, Austria................................ 6,467 March 2000 Zurich, Switzerland............................ 663 May 2005
A number of the above-listed leases grant us the right to extend the lease term beyond the stated expiration date. The aggregate facility lease payments we made in 1999 were approximately $9.9 million. We believe that all other material terms of our leases are commercially reasonable terms that are typically found in commercial leases in each of the respective areas in which we lease space. We believe that our facilities are adequate to support our current needs and that additional facilities will be available at competitive rates as needed. ITEM 3. LEGAL PROCEEDINGS On February 14, 2000 and March 1, 2000 identical class action complaints were filed against us and directors Christopher E. Edgecomb, Mary A. Casey, Mark Gershien, Gordon Hutchins, Jr., John R. Snedegar, Arunas A. Chesonis, and Samer Tawfik. The complaints allege causes of action for breach of fiduciary duty arising from approval of the merger with World Access on the ground that the consideration to be received is unfair, unconscionable and grossly inadequate. The complaints seek both injunctive relief and damages, despite the fact that we have not yet published the full terms of the proposed merger in our joint proxy statement/prospectus. We believe that the complaints have no merit, and we are prepared to defend such claims vigorously. A demurrer to the complaint was filed on March 29, 2000 in the Santa Barbara Superior Court and is scheduled to be heard on April 26, 2000. On September 24, 1998, PT-1 was named in a cause of action filed in the Supreme Court of the State of New York by certain former partners of Samer Tawfik, one of our directors. The plaintiffs allege that 34 PT-1 is a successor corporation to a prior company owned by the plaintiffs and Mr. Tawfik and that they are entitled to a substantial percentage of PT-1. The cause of action seeks compensatory and punitive damages. On March 11, 1999, a proceeding was commenced by PT-1 by notice of petition following the election by a PT-1 shareholder to dissent from our proposed merger with PT-1 and following a demand for payment of the fair value of the approximately 2,731,330 shares of PT-1 held by such shareholder. The proceeding was commenced in the Supreme Court of the State of New York. The PT-1 shareholder is seeking damages in accordance with his appraisal rights under New York law. On April 9, 1999, we were named, along with PT-1, as defendants in a cause of action brought before the Superior Court of New Jersey, and thereafter removed to the federal district court in New Jersey, by Godotsoft LLC, a licensor of certain software code, documentation and related technology utilized by PT-1 in on-line rating and billing and dial around services. The plaintiff is suing for breach and anticipatory breach of the license agreement between Godotsoft and PT-1 and for breach of the duty of good faith and fair dealing. The plaintiff is seeking judgment against us for an unspecified amount of damages and punitive damages and seeks preliminary and permanent injunctive relief prohibiting us from any further use, exploitation or development of the licensed software. We believe that the legal proceedings listed above have no merit and we are prepared to defend such claims vigorously. From time to time, we are party to various legal proceedings, including billing disputes and collection matters, and actions brought by certain terminated employees that arise in the ordinary course of business. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in our opinion, any such liability will not have a material adverse effect on our operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS. None. 35 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our common stock has been traded on the Nasdaq National Market under the symbol "STRX" since June 12, 1997. The following table sets forth, for the fiscal periods indicated, the quarterly high and low sales prices for our common stock, as reported by Nasdaq and as adjusted to reflect the stock split that occurred on March 31, 1998.
HIGH LOW ------------ ------------ FISCAL YEAR ENDED DECEMBER 31, 1998 First Quarter............................................... 28 3/64 13 29/32 Second Quarter.............................................. 37 3/8 19 3/8 Third Quarter............................................... 23 9 11/16 Fourth Quarter.............................................. 18 7 1/8 FISCAL YEAR ENDED DECEMBER 31, 1999 First Quarter............................................... 15 3/4 9 5/8 Second Quarter.............................................. 11 7/8 7 7/16 Third Quarter............................................... 8 7/16 5 1/4 Fourth Quarter.............................................. 8 51/64 4 11/16
The last reported sale price of our common stock on the Nasdaq National Market on March 31, 2000 was $6.00 per share. As of March 31, 2000, there were approximately 269 holders of record of our common stock. We have never paid cash dividends on our common stock and have no intention of paying cash dividends in the foreseeable future. We anticipate that all future earnings, if any, generated from operations will be retained by us to develop and expand our business. Any future determination with respect to the payment of dividends will be at the discretion of the Board and will depend upon, among other things, our operating results, financial condition and capital requirements, the terms of then-existing indebtedness, general business conditions and such other factors as the Board deems relevant. We issued and sold the following unregistered securities during 1999: 1. On February 4, 1999, we acquired PT-1, a provider of international and domestic long-distance and local telecommunications services primarily through the marketing of prepaid calling cards. We issued 15,050,000 shares of common stock (valued at $153.6 million) and $19.5 million in cash or short-term promissory notes, made a $2 million payment to a former PT-1 shareholder and incurred estimated merger costs of $10 million for all outstanding shares of PT-1. In connection with the acquisition, we placed, along with PT-1, 500,000 shares of our common stock in escrow for distribution to certain PT-1 distributors for no consideration. We are recognizing the related compensation expense of approximately $2.8 million over a four year vesting period. As a result of subsequent negotiations, we entered into a distribution agreement with NY Phone Card Distributors LLC ("Distribution Co."), a partnership of distributors, on March 1, 2000. The agreement provides for a total of 400,000 shares of our common stock to be issued to Distribution Co. under the following arrangements: (i) 228,750 shares at the date of execution, (ii) 31,250 shares at the end of May 2000, provided that the agreement is still in effect, and (iii) 140,000 shares contingently issuable based on certain minimum purchase requirements. We also issued 179,973 options for outstanding PT-1 options at an exercise price of $0.01 per share of which 50% vested on the date of the merger, and the remaining 50% vested on October 15, 1999. 36 2. On March 24, 1999, we issued approximately 1,005,000 shares of our common stock in exchange for all of the outstanding capital stock of UDN, plus 36,142 stock options in exchange for UDN options in a transaction valued at $9,924,000. 3. During the year ended December 31, 1999, we granted to employees and directors options to purchase an aggregate of approximately 2,150,708 shares of our common stock pursuant to stock option agreements and our stock option plans. The sales and issuances described above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) thereof, as transactions by an issuer not involving any public offering, Regulation S of the Securities Act, or in reliance upon the exemption from registration provided by Rule 701 promulgated under the Securities Act. In addition, the recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us and our operations. 37 ITEM 6. SELECTED FINANCIAL DATA. The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and Notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations," each of which is included elsewhere in this Form 10-K. The consolidated statements of operations data for the years ended December 31, 1997, 1998, and 1999 and the balance sheet data at December 31, 1998 and 1999 are derived from audited financial statements included elsewhere in this Form 10-K. The consolidated statement of operations data for the years ended December 31, 1995 and 1996 and the balance sheet data at December 31, 1995, 1996 and 1997 are derived from audited financial statements not included in this Form 10-K.
YEARS ENDED DECEMBER 31, ------------------------------------------------------ 1995 1996 1997 1998 1999 -------- -------- -------- -------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues...................................... $66,964 $283,450 $434,086 $619,220 $1,061,774 Operating expenses: Cost of services............................ 50,300 244,153 374,504 523,621 925,206 Selling, general and administrative......... 13,356 41,804 48,906 66,140 160,067 Depreciation and amortization............... 952 2,343 5,650 15,054 44,236 Loss on impairment of goodwill.............. -- -- -- 2,604 -- Merger expense.............................. -- -- 286 1,026 1,878 ------- -------- -------- -------- ---------- Total operating expenses.................... 64,608 288,300 429,346 608,445 1,131,387 ------- -------- -------- -------- ---------- Income (loss) from operations............... 2,356 (4,850) 4,740 10,775 (69,613) Other income (expenses): Interest income............................. 65 138 464 4,469 2,192 Interest expense............................ (214) (1,270) (2,617) (3,386) (9,895) Legal settlements and expenses.............. -- (100) (1,653) -- -- Other....................................... (97) 186 208 (304) 1,373 ------- -------- -------- -------- ---------- Income (loss) before provision for income taxes..................................... 2,110 (5,896) 1,142 11,554 (75,943) Provision (benefit) for income taxes.......... 66 577 2,905 9,923 (12,096) ------- -------- -------- -------- ---------- Net income (loss)............................. $ 2,044 $ (6,473) $ (1,763) $ 1,631 $ (63,847) ======= ======== ======== ======== ========== Pro forma net income (loss) (unaudited)(1).... $ 478 $ (7,416) $ (1,958) ======= ======== ======== Income (loss) per common share(2) Basic and Diluted........................... $ 0.10 $ (0.27) $ (0.06) $ 0.04 $ (1.12) ======= ======== ======== ======== ========== Pro forma income (loss) per common share (unaudited)(2) Basic and Diluted........................... $ 0.02 $ (0.31) $ (0.06) ======= ======== ======== Weighted average number of common shares outstanding--basic(2) Basic....................................... 19,916 24,076 31,101 40,833 57,036 Diluted..................................... 19,916 24,076 31,101 42,434 57,036
38
AS OF DECEMBER 31, ----------------------------------------------------- 1995 1996 1997 1998 1999 -------- -------- -------- -------- --------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Working capital (deficit).................. $(1,065) $(10,913) $ 4,692 $ 46,698 $(197,921) Total assets............................... 37,169 76,250 130,382 374,651 807,754 Total long-term liabilities, net of current portion.................................. 2,980 8,834 14,800 33,048 96,693 Accumulated deficit........................ (6,294) (12,077) (13,737) (12,106) (75,953) Stockholders' equity....................... 6,614 9,986 40,615 195,591 278,054
YEARS ENDED DECEMBER 31, ---------------------------------------------------------- 1995 1996 1997 1998 1999 -------- -------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT RATE PER MINUTE DATA) OTHER CONSOLIDATED FINANCIAL AND OPERATING DATA: Capital expenditures(3)................ $ 2,922 $ 14,810 $ 26,584 $ 147,236 $ 150,588 North American wholesale billed minutes of use(4)............................ 38,106 479,681 1,034,187 1,657,523 2,129,296 North American wholesale revenue per billed minute of use(5).............. $0.4102 $ 0.4288 $ 0.3612 $ 0.3145 $ 0.2084
- ------------------------ (1) The pro forma net income or loss per share assumes that we and CEO, which we acquired in a pooling of interests transaction on November 30, 1997, were C-corporations for all periods presented. (2) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the method used to determine the number of shares used in computing basic and diluted income (loss) per common share and pro forma basic and diluted income (loss) per common share. (3) Includes assets financed with capital leases, notes and vendor financing arrangements. See Note 2 of Notes to Consolidated Financial Statements. (4) Does not include wholesale billed minutes of use from T-One prior to the year ended December 31, 1997. Includes wholesale billed minutes of use to UDN for all years presented. (5) Represents wholesale gross call usage revenue per billed minute. Amounts exclude other revenue related items such as finance charges. This data does not include wholesale billed minutes of use from T-One prior to the year ended December 31, 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS. THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO, EACH OF WHICH IS INCLUDED ELSEWHERE IN THIS FORM 10-K. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS, AS DEFINED IN SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS FORM 10-K. OVERVIEW We are a multinational telecommunications services company focused primarily on the international long distance market. We offer highly reliable, low-cost switched voice services on a wholesale basis, primarily to U.S.-based long distance carriers. We provide international long distance service to approximately 200 countries through our flexible network comprised of various foreign termination relationships, international gateway switches, leased and owned transmission facilities and resale arrangements with other long distance providers. 39 We installed our first international gateway switch in Los Angeles in June 1995 and initially recognized wholesale revenues through this switch in August 1995. A significant portion of our revenues in 1995 were generated by the commercial operations of CEO and UDN. REVENUES. Prior to 1999, the majority of our revenues were generated by the sale of international long distance services on a wholesale basis to other carriers, primarily domestic, long distance providers. Due to the acquisition of PT-1 on February 4, 1999, our mix of wholesale and commercial traffic in 1999 reached approximately 50% wholesale and 50% commercial. We record revenues from the sale of long distance services at the time of customer usage. Our agreements with our wholesale customers are short-term in duration and the rates charged to customers are subject to change from time to time, generally with five days notice to the customer. Our commercial business segments are a mix of traditional "picked" retail and commercial customers, accompanied by a significant presence in the debit card and "dial around" business primarily as a result of the PT-1 acquisition. Additionally, revenues in 1999 include broadband sales. Historically, we have increased total revenues from quarter to quarter, often times by a significant percentage. Our total revenues increased 71.5% to $1,061.8 million in 1999 over revenues of $619.2 million for 1998. Our North American wholesale minutes of use have also greatly increased from quarter to quarter, generally by amounts that exceed the relative increases in revenues. In the year ended December 31, 1999, North American wholesale revenues decreased by 12.1% over revenues for 1998. Over the same period to period comparison, North American minutes of wholesale use increased by 28.5%. The decline in North American wholesale revenues was offset by an increase in commercial revenues resulting from the acquisition of PT-1. There are a variety of reasons for the growth in our call volume, including the growth of our North American customer base, increased usage by existing North American customers, and increased capacity over our telecommunications network, with the addition of a number of switches and growth in available fiber optic lines. The growth in North American wholesale minutes has been accompanied by a corresponding decline in North American rates per minute. For example, for the year ended December 31, 1999, such rates declined by 32.3% from North American wholesale rates per minute in 1998. The decline in North American wholesale rates can be attributed to a number of factors, including a changing country mix that includes a growing number of minutes routed by us to lower rate per minute countries such as Mexico, Germany and the United Kingdom and, as the wholesale international long distance market continues to mature and evolve, a general downward trend in rates on competitive routes. Our pricing for wholesale minutes varies materially from customer to customer and is generally based on the time of day, the day of the week and the destination of the call. While we continue to route traffic to certain destinations at attractive rates, market conditions have forced us to reduce our overall wholesale rate per minute. Accordingly, we believe that the growth in our revenues has been fueled almost entirely by our ability to diversify our business into the commercial market. The general erosion in the rates per minute for North American wholesale traffic has partially offset the contribution to the increase of revenues made by such increased volume of North American commercial minutes. Through our acquisition of PT-1, we continued a high level of revenue growth in 1999. Although commercial rate per minute erosion is not as rapid as in the wholesale marketplace, management recognizes that similar rate per minute erosion could impact our ability to maintain our historic revenue growth rates. In addition, on March 29, 2000 we entered into a Letter of Intent to sell all of the assets of our prepaid calling card and dial around business operated by PT-1. We completed our acquisition of T-One in March 1998. Revenues from T-One's operations for the periods set forth below were not material to our overall results of operations during such periods. We completed our acquisition of PT-1 on February 4, 1999. Revenues for PT-1 are not included for periods previous to this date, as the acquisition was accounted for as a purchase. COSTS OF SERVICES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION). We have pursued a strategy of attracting customers and building calling volume and revenue by offering favorable rates compared to 40 other long distance providers. We continue our plan to lower cost of services (exclusive of depreciation and amortization) by (1) expanding our owned network facilities, (2) continuing to utilize our sophisticated information systems to route calls over the most cost-effective routes and (3) leveraging our traffic volumes and information systems to negotiate lower variable usage-based costs with domestic and foreign providers of transmission capacity. Costs of services (exclusive of depreciation and amortization) include those costs associated with the transmission and termination of domestic and international long distance services, as well as costs relating to broadband sales. Currently, a majority of the transmission capacity we use is obtained on a variable, per minute basis. As a result, some of our current costs of services (exclusive of depreciation and amortization) are variable. Our contracts with our vendors provide that rates may fluctuate, with rate change notice periods varying from five days to one year, with certain of our longer term arrangements requiring us to meet minimum usage commitments in order to avoid penalties. Such variability and the short-term nature of many of the contracts subject us to the possibility of unanticipated cost increases and the loss of cost-effective routing alternatives. Each quarter management reviews the network cost of services accrual and adjusts the balance for resolved items. Costs of services (exclusive of depreciation and amortization) also include fixed costs associated with the leasing of network facilities. We began providing international long distance services to commercial customers in certain European countries, including Germany in 1998. We began providing long distance service to commercial markets in the U.S. with the acquisition of CEO in November 1997. We continued our commercial expansion efforts through the acquisition of PT-1 in 1999. We believe that traffic from commercial customers will be more profitable than wholesale traffic. We expect that an expansion into this market will increase the risk of bad debt exposure and lead to higher overhead costs. Prices in the international long distance market have declined in recent years and, as competition continues to increase, we believe that prices are likely to continue to decline. Additionally, we believe that the increasing trend of deregulation of international long distance telecommunications will result in greater competition, which could adversely affect our revenue per minute. We believe, however, that the effect of such decreases in prices will be offset by increased calling volumes and decreased costs. OTHER OPERATING EXPENSES. Selling, general and administrative expenses consist primarily of personnel costs, advertising, tradeshow and travel expenses, commissions and consulting fees, as well as bad debt expense. These expenses have been increasing over the past year, which is consistent with our recent growth, accelerated expansion into Europe and investment in systems and facilities. We expect this trend to continue, and to include, among other things, a significant increase in depreciation and amortization. Management believes that additional selling, general and administrative expenses will be necessary to support the expansion of our network facilities, our sales and marketing efforts and our expansion into commercial markets. FOREIGN EXCHANGE. Our revenues and cost of long distance services are sensitive to foreign currency fluctuations. We expect that an increasing portion of our revenues and expenses will be denominated in currencies other than U.S. dollars, and changes in exchange rates may have a significant effect on our results of operations. See "Quantitative and Qualitative Disclosures About Market Risk." FACTORS AFFECTING FUTURE OPERATING RESULTS. Our quarterly operating results are difficult to forecast with any degree of accuracy because a number of factors subject these results to significant fluctuations. As a result, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance. Our revenues, costs and expenses have fluctuated significantly in the past and are likely to continue to fluctuate significantly in the future as a result of numerous factors. Our revenues in any given period can vary due to factors such as (1) call volume fluctuations, particularly in regions with relatively high per-minute rates, (2) the addition or loss of major customers, whether through competition, merger, consolidation or otherwise, (3) the loss of economically beneficial routing options for the termination of our traffic, 41 (4) financial difficulties of major customers, (5) pricing pressure resulting from increased competition, and (6) technical difficulties with or failures of portions of our network that impact our ability to provide service to or bill our customers. Our operating expenses in any given period can vary due to factors such as (1) fluctuations in rates charged by carriers to terminate our traffic, (2) increases in bad debt expense and reserves, (3) the timing of capital expenditures, and other costs associated with acquiring or obtaining other rights to switching and other transmission facilities, (4) changes in our sales incentive plans, and (5) costs associated with changes in staffing levels of sales, marketing, technical support and administrative personnel. In addition, our operating results can vary due to factors such as (1) changes in routing due to variations in the quality of vendor transmission capability, (2) loss of favorable routing options, (3) the amount of, and the accounting policy for, return traffic under operating agreements, (4) actions by domestic or foreign regulatory entities, (5) the level, timing and pace of our expansion in international and commercial markets, and (6) general domestic and international economic and political conditions. Further, a substantial portion of transmission capacity we use is obtained on a variable, per minute and short-term basis, subjecting us to the possibility of unanticipated price increases and service cancellations. Since we do not generally have long term arrangements for the purchase or resale of long distance services, and since rates fluctuate significantly over short periods of time, our operating results are subject to significant fluctuations over short periods of time. Our operating results also may be negatively impacted in the longer term by competitive pricing pressures. RECENT ACQUISITIONS AND DEVELOPMENTS We have recently acquired the following companies and have taken the following actions: - PT-1 COMMUNICATIONS, INC. On February 4, 1999, we acquired PT-1, a provider of international and domestic long-distance and local telecommunications services primarily through the marketing of prepaid calling cards. We issued 15,050,000 shares of common stock (valued at $153.6 million) and $19.5 million in cash or short-term promissory notes, made a $2 million payment to a former PT-1 shareholder and incurred estimated merger costs of $10 million for all outstanding shares of PT-1. In connection with the acquisition, we placed, along with PT-1, 500,000 shares of our common stock in escrow for distribution to certain PT-1 distributors for no consideration. We are recognizing the related compensation expense of approximately $2.8 million over a four year vesting period. We also issued 179,973 options for outstanding PT-1 options at an exercise price of $0.01 per share, of which 50% vested on the date of the merger, and the remaining 50% vested on October 15, 1999. On March 29, 2000, we entered into a Letter of Intent with PT-1 Acquiror for the sale of all of the assets of PT-1. Pursuant to the terms of the Letter of Intent, PT-1 Acquiror will pay $150 million in cash for the assets, less certain liabilities, and subject to adjustment based on the results of a final audit to be conducted after the close of the PT-1 Sale. We will record a loss on this transaction of approximately $100 million upon closing which is expected to occur during the second quarter of fiscal 2000. - UNITED DIGITAL NETWORK, INC. On March 24, 1999, we completed the acquisition of UDN for approximately 1,005,000 shares of our common stock in a transaction accounted for as a pooling of interests. All financial data presented has been restated to include the results of operations, financial position and cash flows of UDN. - MERGER WITH WORLD ACCESS, INC. On February 14, 2000, we entered into the Merger Agreement with World Access pursuant to which all of our outstanding capital stock will be exchanged for World Access Common Stock. The expected Merger with World Access complements our existing wholesale and commercial operations. The combined company is expected to increase stockholder value through increased cost savings and synergies. However, there can be no assurances that the Merger will be completed, or if the Merger is completed, that additional cost savings and synergies will be realized in 2000 and beyond. Pursuant to the terms of the Merger Agreement, we are required to sell PT-1. On March 29, 2000, we entered into a Letter of Intent with PT-1 Acquiror for the sale of all of the assets of PT-1, less certain liabilities. While we believe the PT-1 Sale and the World Access 42 Merger will be completed, the failure to complete the PT-1 Sale or the completion of the PT-1 Sale for less than $150 million may result in the termination of the Merger Agreement and, consequently, prevent the Merger with World Access. - NOTE WITH WORLDCOM. On April 12, 2000 STAR entered into a note agreement with WorldCom which provided for the conversion of $56.0 million of trade payables into a note payable. The note is secured by our customer base, bears interest at 16.0% per annum and is payable at the earlier of the close of the World Access Merger or August 1, 2000. 43 RESULTS OF OPERATIONS The following table sets forth certain selected items in our statements of operations as a percentage of total revenues for the periods indicated:
YEAR ENDED DECEMBER 31, ------------------------------------ 1997 1998 1999 -------- -------- -------- Revenues.................................................... 100.0% 100.0% 100.0% Operating expenses: Cost of services.......................................... 86.3 84.6 87.1 Selling, general and administrative expenses.............. 11.3 10.7 15.1 Depreciation and amortization............................. 1.3 2.4 4.2 Loss on impairment of goodwill............................ -- 0.4 -- ----- ----- ----- Total operating expenses................................ 98.9 98.3 106.6 Income (loss) from operations............................... 1.1 1.7 (6.6) ----- ----- ----- Income (loss) before provision for income taxes............. 0.3 1.9 (7.2) Provision for income taxes.................................. 0.7 1.6 (1.1) ----- ----- ----- Net income (loss)........................................... (0.4)% 0.3% (6.0)% ===== ===== =====
YEARS ENDED DECEMBER 31, 1999 AND 1998 REVENUES: Total revenues increased 71.5% to $1,061.8 million in the twelve months ended December 31, 1999 from $619.2 million in the twelve months ended December 31, 1998. The increase is primarily a result of the continued growth in the North American commercial operations due to the acquisition of PT-1, which contributed revenues from prepaid calling card and dial around programs, and the European operations. Revenues from North American wholesale customers decreased 12.1% to $465.8 million in the twelve months ended December 31, 1999 from $529.8 million in the twelve months ended December 31, 1998. North American wholesale revenues for the twelve months ended December 31, 1999 include broadband sales activity. Minutes of use generated by North American wholesale customers increased 28.5% to 2.1 billion minutes of use in the twelve months ended December 31, 1999, as compared to 1.7 billion minutes of use in the comparable period of the year prior. The increase in minutes of use reflects the continued growth in the number of North American wholesale customers to 241 at December 31, 1999, up from 151 customers at December 31, 1998, as well as an increase in usage by existing customers. The decrease in revenue for the twelve months ended December 31, 1999 resulted from a significant decline in rates per minute, as the average North American wholesale rate per minute of use declined approximately 32.3% to $0.21 for the current twelve month period as compared to $0.31 for the twelve month period ended December 31, 1998, reflecting continued lower prices on competitive routes. This decline is also attributable to a change in country mix that includes a larger proportion of lower rate per minute countries such as Mexico, Germany, the United Kingdom, Canada and Japan. The period to period decline in rate per minute was not a significant factor in the relative increase in minutes of use. North American commercial revenues increased over 680% to $471.5 million in the twelve months ended December 31, 1999 from $60.2 million in the comparable 1998 period. The growth is due primarily to the consummation of the PT-1 acquisition in the first quarter of 1999 which diversified our revenue base with both prepaid calling card and dial around programs. Minutes of use generated by North American commercial customers increased over 780% to 3.0 billion minutes in the twelve months ended December 31, 1999, as compared to 337.8 million minutes of use in the comparable twelve month period of the prior year. The average North American commercial rate per minute decreased approximately 11.1% to $0.16 per minute in the twelve months ended December 31, 1999 from $0.18 per minute in the twelve months ended December 31, 1998, primarily due to the increase in commercial usage from the prepaid calling card and dial around programs. 44 The twelve months ended December 31, 1999 also includes revenues from the European operations which increased over 320% to $124.4 million, as compared to $29.2 million in the comparable twelve month period of 1998. We had twelve switches throughout Europe at December 31, 1999, as compared to five switches at December 31, 1998. Management believes that the prospects for growth in Europe remain strong as STAR Telecommunications Deutschland GmbH is fully utilizing its interconnect with Deutsche Telekom AG, as well as with other European PTTs. In addition, management expects continued growth in European revenues as we further expand into Austria and Switzerland. COST OF SERVICES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION): Total cost of services (exclusive of depreciation and amortization) increased 76.7% to $925.2 million in the twelve months ended December 31, 1999 from $523.6 million in the twelve months ended December 31, 1998 and increased as a percentage of revenues for the same periods to 87.1% from 84.6%. Cost of services (exclusive of depreciation and amortization) from North American vendors increased 66.5% to $817.0 million in the twelve months ended December 31, 1999 from $490.7 million in the comparable 1998 period and increased as a percentage of North American revenues to 87.2% from 83.2%, respectively. Cost of services (exclusive of depreciation and amortization) includes costs relating to broadband sales during the twelve months ended December 31, 1999. The growth in cost of services (exclusive of depreciation and amortization) reflects the increase in minutes of use from the commercial usage generated from prepaid calling card and dial around programs offset by an overall declining average cost per minute. The average cost per minute declined as a result of competitive pricing pressures, a larger proportion of lower cost per minute countries, as well as an increasing proportion of traffic routed over our proprietary network. Management believes that the average cost per minute will continue to decline as we expand our domestic and international network. Cost of services (exclusive of depreciation and amortization) for the twelve months ended December 31, 1999, were negatively impacted as a result of delays in delivery for domestic network capacity which resulted in redundant leased line costs. The majority of this capacity was delivered and accepted in the fourth quarter of 1999. The twelve months ended December 31, 1999 also includes cost of services (exclusive of depreciation and amortization) of $108.2 million generated from the European operations, as compared to $33.0 million in the comparable twelve months ended December 31, 1998. The increase in cost of services (exclusive of depreciation and amortization) from the European operations was attributable to increased usage and increased private line costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: For the twelve months ended December 31, 1999, total selling, general and administrative expenses, exclusive of merger expenses of $1.9 million, increased over 142% to $160.1 million from $66.1 million in the twelve months ended December 31, 1998 and increased as a percentage of revenues to 15.1% from 10.7% over the comparable 1998 period. The increase is primarily a result of continued growth in our North American commercial and European operations. North American selling, general and administrative expenses increased by 128% to $126.2 million in the twelve months ended December 31, 1999 from $55.0 million in the comparable 1998 period. North American selling, general and administrative expenses increased as a percentage of North American revenues to 13.5% from 9.3%, respectively. The increase is primarily a result of PT-1 operating expenses subsequent to the acquisition, which include payroll, advertising, bad debt and other related expenses in connection with the expansion of the prepaid calling card and dial around programs. In addition, the increase is attributable to the sales force expansion and additional back office support personnel for ALLSTAR in the first and second quarters of 1999. The provision for bad debt expense increased for the twelve month period ending December 31, 1999 as compared to the twelve month period ending December 31, 1998 due, in part, to a reserve for a commercial customer of ALLSTAR in the second quarter of 1999 as well as increased bad debt reserves related to the North American wholesale and commercial segments. Selling, general and administrative expenses related to our European operations increased over 205% to $33.9 million in the twelve months ended December 31, 1999, from approximately $11.1 million in the 45 comparable 1998 period. The increase reflects our commitment to continue expansion efforts in Europe by adding personnel to become a carrier in additional European countries and to expand our commercial sales force and back office support personnel in Germany. DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense increased by 193.8% to $44.2 million for the twelve months ended December 31, 1999 from $15.1 million for the comparable 1998 period, and increased as a percentage of revenues to 4.2% from 2.4% over the comparable period in the prior year. The increase is primarily due to approximately $9.3 million of goodwill amortization expense resulting from the PT-1 acquisition. In addition, depreciation expense increased due to significant asset additions in Europe and the inclusion of the depreciation expense for PT-1 assets. Depreciation expense also increased as a result of our investment in domestic broadband capacity during 1999. Depreciation and amortization attributable to North American assets amounted to approximately $32.9 million. European operations realized total depreciation and amortization of approximately $11.3 million. We expect depreciation and amortization expense to continue to increase as a percentage of revenues as we continue to expand our global telecommunications network. INCOME (LOSS) FROM OPERATIONS: For the twelve months ended December 31, 1999, loss from operations was $69.6 million as compared to income from operations of $10.8 million in the comparable 1998 period. Operating margin in the twelve months ended December 31, 1999 was a negative 6.6% as compared to a positive 1.7% in 1998. Operating margin decreased in the twelve months ended December 31, 1999 due primarily to rate compression in the wholesale market, goodwill amortization, an accrued rate dispute related to European operations in the second quarter of 1999, and additional bad debt reserves in the second quarter of 1999, as well as increased payroll, commission, and operating expenses attributable to our expansion of our commercial programs. The decrease in operating margin was partially offset by profit realization of $9.5 million from broadband sales in the third and fourth quarters of 1999. In addition, our completion of two significant acquisitions in 1999 and approximately $1.9 million in merger expense contributed to the decline in operating margin in the twelve months ended December 31, 1999. OTHER INCOME (EXPENSE): We reported other expense, net, of $6.3 million for the twelve months ended December 31, 1999 as compared to other income, net, of approximately $779,000 for the comparable 1998 period. This increase is primarily due to an increase in interest expense to $9.9 million during the twelve months of 1999 from $3.4 million in the comparable period in 1998 due to interest incurred on borrowings from our line of credit and additional capital lease obligations for switches. During the twelve months ended December 31, 1998, we earned a substantial amount of interest on the proceeds from our May 1998 secondary equity offering. Therefore, interest income decreased to $2.2 million from $4.5 million for the periods ended December 31, 1999 and 1998, respectively. In addition, other income of $1.4 million reflects a $9.2 million gain from the sale of investments during the twelve month period ended December 31, 1999, which was partially offset by $7.8 million in other expense. Of the $7.8 million in other expense, $3.5 million related to the recognition of foreign currency translation losses and $2.9 million related to the amendment and termination of our credit facility with Foothill Capital Corporation. PROVISION (BENEFIT) FOR INCOME TAXES: We recorded a tax benefit of $12.0 million in the twelve months ended December 31, 1999 due to operating losses. The provision for income taxes for the twelve months ended December 31, 1998 was $9.9 million. YEARS ENDED DECEMBER 31, 1998 AND 1997 REVENUES: Total revenues increased 42.6% to $619.2 million in 1998 from $434.1 million in 1997 primarily as a result of the continued growth in North American wholesale operations, as described below. Revenues from North American wholesale customers increased 40.9% to $529.8 million in 1998 from $376.0 million in 1997. Minutes of use generated by North American wholesale customers increased 60.3% to 1.7 billion minutes of use (including wholesale billed minutes of use to UDN) in 1998, as compared to 46 1 billion minutes of use (including wholesale billed minutes of use to UDN) in 1997. The increase in revenues and minutes of use reflects the growth in the number of North American wholesale customers from 105 in 1997 to 151 at the end of 1998, as well as an increase in usage by existing customers, primarily resulting from our expanding transmission capacity. The increase in revenues was partially offset by a decline in rates per minute, as the average North American wholesale rate per minute of use declined from $0.36 per minute in 1997 to $0.31 per minute in 1998, reflecting continued lower prices on competitive routes. The decline in rates per minute is also attributable to the change in country mix to include a larger proportion of lower rate per minute countries such as Mexico, Germany and the United Kingdom. The period to period decline in rates per minute was not a significant factor in the relative increase in minutes of use. North American commercial revenues increased 3.6% to $60.2 million in 1998 from $58.1 million in 1997 reflecting the continued success of new international rate plans that target ethnic markets for Latin America and the Pacific Rim. The average North American commercial rate per minute of use decreased from $0.26 per minute in 1997 to $0.18 per minute in 1998, reflecting the continued pricing pressures in the international market. Commercial minutes and average rates per minute do not include any revenue or minutes attributable to UDN, which amounts were negligible in 1998 and 1997. In 1998, revenues generated from European operations totaled $29.2 million. Management believes that the prospects for growth in Germany remain strong as Star Telecommunications Deutschland GmbH is fully utilizing its interconnect with Deutsche Telekom, AG as well as other European PTTs, to lower our cost of services and to grow our European commercial customer base. COST OF SERVICES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION): Total cost of services (exclusive of depreciation and amortization) increased 39.8% to $523.6 million in 1998 from $374.5 million in 1997 and decreased as a percentage of total revenues for the same periods to 84.6% from 86.3%. Cost of services (exclusive of depreciation and amortization) from North American wholesale vendors increased 35.1% to $453.2 million in 1998 from $335.5 million in 1997 and decreased as a percentage of North American wholesale revenues for the same periods to 85.5% from 89.2%. North American commercial cost of services (exclusive of depreciation and amortization) decreased 4.1% to $37.4 million in 1998 from $39.0 million in 1997 and decreased as a percentage of North American commercial revenues for the same periods to 62.1% from 67.1%. The year ended 1998 also includes cost of services (exclusive of depreciation and amortization) of $33.0 million generated from our European operations. The growth in cost of services (exclusive of depreciation and amortization) reflects the increase in minutes of use as well as an increase in leased private line cost offset by an overall declining average cost per minute. The average cost per minute declined as a result of changes in country mix to include a larger proportion of lower cost per minute countries, competitive pricing pressures as well as an increasing proportion of traffic routed over our proprietary network. We currently have routes to 51 countries on our global network, up from 24 countries in 1997. Management believes that countries will continue to be added to our global network thereby contributing to an overall decline in cost per minute. SELLING, GENERAL AND ADMINISTRATIVE: In 1998, total selling, general and administrative expenses, (exclusive of merger costs of $1.0 million), increased 35.2% to $66.1 million from $48.9 million in 1997 and decreased as a percentage of revenues to 10.7% from 11.3% over the comparable periods, due primarily to an increased sales force, as described below. North American wholesale selling, general and administrative expenses increased 26.8% to $32.6 million in 1998 from $25.7 million in 1997 and decreased as a percentage of North American wholesale revenue to 6.2% from 6.8%, respectively. 47 North American commercial selling, general and administrative expense increased 2.8% to $22.4 million in 1998 from $21.8 million in 1997 and remained flat as a percentage of revenues between the two periods. We expect North American commercial selling, general and administrative costs to increase as a percentage of revenues as additions to the sales force are hired to expand our North American commercial customer base. Selling, general and administrative expenses related to the European operations amounted to $11.1 million in 1998 and $1.4 million in 1997 reflecting the start up of new business efforts in Europe. We expect overall selling, general and administrative expenses to continue to grow as a percentage of revenues as we add personnel to staff our German operations and to initiate carrier operations in additional European countries. DEPRECIATION AND AMORTIZATION: In 1998, depreciation expense attributable to North American assets amounted to $11.1 million and European operations realized total depreciation of $4.0 million. In 1998, total depreciation increased as a percentage of revenues to 2.4% from 1.3% for 1997. Depreciation expense increased as a result of our continuing expansion of our proprietary international network, which includes purchases of switches, submarine cable and leasehold improvements associated with switch sites. We expect depreciation expense to continue to increase as a percentage of revenues as we continue to expand our global telecommunications network. As of July 1, 1998, we revised the remaining lives of certain operating equipment from five to ten years. This charge reduced depreciation expenses and increased income before income taxes by approximately $2.0 million. INCOME FROM OPERATIONS: Income from operations increased 127.3% to $10.8 million during 1998 from $4.7 million in 1997. Operating margin increased to 1.7% from 1.1%, respectively. Operating margin is expected to expand as we continue to diversify our revenue base and as traffic is migrated from leased facilities onto our owned network. Offsetting the declining cost of services on a per minute basis were the startup costs of launching operations in Europe and the expansion of the North American based commercial operations. OTHER INCOME (EXPENSE): Other income (expense), net, increased to approximately $779,000 in 1998 from a net expense of $3.6 million in 1997. Interest income grew to $4.5 million in 1998 from $464,000 in 1997 as a result of interest earned on investing proceeds from our secondary equity offering in May 1998. Interest expense increased to $3.4 million in 1998 from $2.6 million in 1997 in response to the additional capital leases for the financing of new switches. PROVISION FOR INCOME TAXES: The provision for income taxes increased to $9.9 million in 1998 from $2.9 million in 1997 primarily due to the increase in our profitability. LIQUIDITY AND CAPITAL RESOURCES. We have incurred significant operating and net losses over the past twelve months. Several factors contributed to this situation. We experienced significant pricing pressures in the wholesale market, with deteriorating wholesale gross margins during the last twelve months. We continue to deploy new international direct circuits in an effort to increase the number of on-net countries which historically have provided higher wholesale margins. Wholesale gross margins were further affected by delayed delivery of North American fiber routes by one of our major vendors which significantly increased the cost of our leased lines. Completion of our domestic broadband network is expected to provide margin improvement in the first quarter of 2000, though there can be no assurances in that regard. As of December 31, 1999, we had cash and cash equivalents of approximately $25.6 million, short-term investments of $1.5 million, and a working capital deficit of $197.9 million. 48 Net cash provided by operating activities was $40.1 million for the twelve months ended December 31, 1999 as compared to net cash used of $12.4 million for the comparable 1998 period. This increase is due primarily to increases in accounts payable and accrued expenses offset by increases in accounts and notes receivable. The increase in accounts and notes receivable was due to general increases in volume and extended payment terms for certain customers. Our investing activities used cash of $58.3 million during the twelve months ended December 31, 1999 as compared to $101.0 million for the comparable 1998 period. This use of cash was the result of our continued investment in capital expenditures. Capital expenditures for the twelve months ended December 31, 1999 related primarily to the continued development of our network which included switch expansion, and the replacement of leased line facilities with IRU's and ownership interests on both domestic and international cable systems. On September 29, 1999, Star Telecommunications Deutschland GmbH entered into an agreement with Deutsche Leasing AG to finance new and pre-existing equipment through a capital lease-financing arrangement. Under the terms of the agreement, they had the option to finance equipment up to 80DM million or roughly $45 million. Cash generated from this arrangement was used primarily to finance pre-existing equipment resulting in a net decrease in capital expenditures as presented in the Consolidated Statement of Cash Flows. This use of cash was partially offset by the sale of substantially all of our investment in a Competitive Local Exchange Carrier ("CLEC") in 1999. Cash used by financing activities for the twelve months ended December 31, 1999, totaled $1.0 million as compared to cash provided by financing activities of $158.5 million for the comparable 1998 period. This reflects additional borrowings under our line of credit offset by repayments of the line of credit, long-term debt and capital lease obligation payments. The variance from 1999 to 1998 relates primarily to our secondary offering which generated approximately $144.7 million in cash for us in 1998. Our indebtedness at December 31, 1999 was approximately $156.4 million, of which $112.9 million represented long-term debt and $43.5 million represented short-term debt. Our debt is currently a combination of capital lease obligations, vendor financing for operating equipment and amounts due under our existing credit facility. On June 9, 1999, we entered into a $100 million two-year credit facility agreement with Foothill Capital Corporation ("Foothill"). We failed to meet the EBITDA and tangible net worth covenants in accordance with the agreement for the period ended June 30, 1999. On October 15, 1999, we received an amendment from the lender group which included resetting the financial covenants in accordance with our updated financial forecast. Interest rates were adjusted to 2.75% over the prime rate of interest for the revolving line of credit and 8.0% over the prime rate for the term note. The interest rate on the term note increased 1.0% per month for the remainder of the term. We also agreed to the reduction of eligible borrowings on the revolving portion of the line of credit to $30 million from $75 million as well as the payment of a supplemental agency fee of $500,000. The expiration date of the $25 million term loan was also modified to January 31, 2000 On November 30, 1999, we entered into a two year receivables financing agreement with RFC Capital Corporation ("RFC"). This facility allows us to borrow up to $75 million based upon our eligible accounts receivable, and replaced our facility with Foothill. The facility bears interest at the rate of prime plus 2.75% and expires on November 30, 2001. The facility was funded on December 23, 1999, allowing us to avoid $1 million in supplemental term loan fees from Foothill. Additionally, the RFC facility provides the flexibility to borrow against foreign receivables which would allow us to significantly increase our eligible receivables available for borrowings. As of December 31, 1999, we had $43.5 million outstanding and were in compliance with all covenants. On April 12, 2000, we signed a promissory note with WorldCom for $56.0 million dollars. This balance represents the total amount due to WorldCom for termination and leased line services provided to us through December 31, 1999. The note, secured by our customer base, bears interest at a rate of 16.0% per annum and does not require that any payment be made by us until the earlier of the close of World Access Merger or August 1, 2000. 49 On February 11, 2000, we entered into the Merger Agreement with World Access. The agreement calls for World Access to infuse cash in the form of bridge loan of up to $35 million with $25 million to go to our U.S. operations and $10 million to go to STAR Germany. Our anticipated financing arrangements with World Access will provide for predetermined initial advances with additional advances to be made solely in World Access' discretion. We believe that the PT-1 Sale and the Merger with World Access will be completed as scheduled and that the WorldCom note payable will be satisfied at maturity. We believe that our operating cash flow, World Access line of credit availability and the proceeds from the PT-1 Sale will be adequate to meet our operating requirements for at least fiscal 2000. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS FOREIGN CURRENCY RISK. As a global enterprise, we face exposure to adverse movements in foreign currency exchange rates. Our foreign currency exposures may change over time as the level of activity in foreign markets grows which could have a material adverse impact upon our financial results. Certain of our assets, including certain bank accounts and accounts receivable, exist in non dollar-denominated currencies, which are sensitive to foreign currency exchange rate fluctuations. The non dollar-denominated currencies are principally Deutschmarks and British Pounds Sterling. Additionally, certain of our current and long-term liabilities are denominated principally in Deutschmarks and British Pounds Sterling, which are also sensitive to foreign currency exchange rate fluctuations. We employ hedges in order to mitigate foreign currency exposure and intend to do so in the future, in appropriate circumstances. The success of this activity depends upon the estimation of international cash flow and intercompany balances denominated in various currencies, primarily the Deutschmark. To the extent that these forecasts are over- or understated during periods of currency volatility, we could experience unanticipated currency gains or losses. We had no foreign currency contracts outstanding as of December 31, 1999. INTEREST RATE RISK. As of December 31, 1999, we had borrowings under our receivables financing agreement amounting to $43.5 million. The interest rate on the receivables financing line is equal to prime plus 2.75%. At any time, a sharp rise in interest rates could have a material adverse impact upon our cost of working capital and interest expense. We do not currently hedge this interest rate exposure. In addition, we had borrowings under long-term debt for capital equipment amounting to $486,000 at December 31, 1999. The interest rate on this long-term debt from our two outstanding obligations is 8.0% and LIBOR plus 6.0%. At any time, a sharp rise in interest rates could have a material adverse impact upon our cost of working capital and interest expense. We do not currently hedge this interest rate exposure. The following table presents the hypothetical impact on our financial results for changes in interest rates for the variable rate obligations we held at December 31, 1999. The modeling technique used measures the change in our results arising from selected potential changes in interest rates. Market rate changes reflect immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis points ("BPS"), 100 BPS, and 150 BPS over a twelve month time horizon. INTEREST RATE EXPOSURE ANALYSIS INCREASE OR (DECREASE) IN ANNUAL INTEREST EXPENSE DUE TO CHANGES IN INTEREST RATES (DOLLARS IN THOUSANDS)
DESCRIPTION 50 BPS 100 BPS 150 BPS (50) BPS (100) BPS (150) BPS - ----------- -------- -------- -------- -------- --------- --------- Line of Credit.......................... $218 $435 $653 $(218) $(435) $(653) Long Term Debt.......................... $ 2 $ 5 $ 7 $ (2) $ (5) $ (7)
50 ITEM 8. FINANCIAL STATEMENTS. See the Index included at "Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 51 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Our officers and directors who served as officers and directors in 1999 and their ages as of March 6, 2000 are set forth in the table below. Mark Gershein and Arunas A. Chesonis have since resigned from their positions as directors and their seats on the Board are currently vacant. James E. Kolsrud has since resigned from his position as Executive Vice President--Operations and Engineering and his position is currently vacant.
NAME AGE POSITION - ---- -------- -------- Christopher E. Edgecomb(1)................ 41 Chief Executive Officer, Chairman of the Board and Director Mary A. Casey(1)(2)....................... 37 President, Secretary and Director David Vaun Crumly......................... 36 Executive Vice President--Sales and Marketing James E. Kolsrud.......................... 55 Executive Vice President--Operations and Engineering Kelly D. Enos............................. 41 Chief Financial Officer, Treasurer and Assistant Secretary Mark Gershien............................. 48 Director Gordon Hutchins, Jr.(3)................... 50 Director John R. Snedegar(2)(3).................... 50 Director Arunas A. Chesonis........................ 37 Director Samer Tawfik.............................. 34 Director
- ------------------------ (1) Member of Non-Executive Stock Option Committee (2) Member of Audit Committee (3) Member of Compensation Committee CHRISTOPHER E. EDGECOMB co-founded us in September 1993. He served as our President until January 1996 and has served as our Chief Executive Officer and Chairman of the Board since January 1996. Mr. Edgecomb has been one of our directors since our inception. Prior to that time, Mr. Edgecomb was a founder and the Executive Vice President of West Coast Telecommunications ("WCT"), a nation-wide long distance carrier, from August 1989 to December 1994. Prior to founding WCT, Mr. Edgecomb was President of Telco Planning, a telecommunications consulting firm, from January 1986 to July 1989. Prior to that time, Mr. Edgecomb held senior level sales and marketing positions with TMC Communications, American Network and Bay Area Teleport. MARY A. CASEY has been a director and our Secretary since co-founding us in September 1993, and has served as our President since January 1996. Prior to that time, Ms. Casey was Director of Customer Service at WCT from December 1991 to June 1993, and served as Director of Operator Services at Call America, a long distance telecommunications company, from May 1988 to December 1991. DAVID VAUN CRUMLY has served as our Executive Vice President--Sales and Marketing since January 1996. Prior to that time, Mr. Crumly served as a consultant to the Company from November 1995 to January 1996, was Vice President of Carrier Sales of Digital Network, Inc. from June 1995 to November 1995 and was Director of Carrier Sales of WCT from June 1992 to June 1995. Prior to joining WCT, Mr. Crumly served in various sales and marketing capacities with Metromedia, a long-distance company, from September 1990 to June 1992 and with Claydesta, a long-distance company, from May 1987 to September 1989. JAMES E. KOLSRUD has served as our Executive Vice President--Operations and Engineering since September 1996 and resigned from such position effective February 15, 2000. Prior to joining us, Mr. Kolsrud was an international telecommunications consultant from March 1995 to September 1996. 52 Prior to that time, he was a Vice President, Corporate Engineering and Administration of IDB Communications Group, Inc. ("IDB"), an international communications company, from October 1989 to March 1995, and prior to that time, he was President of the International Division of IDB. KELLY D. ENOS has served as our Chief Financial Officer since December 1996 and as Treasurer and Assistant Secretary since April 1997. Prior to that time, Ms. Enos was an independent consultant in the merchant banking field from February 1996 to November 1996 and a Vice President of Fortune Financial, a merchant banking firm, from April 1995 to January 1996. Ms. Enos served as a Vice President of Oppenheimer & Co., Inc., an investment bank, from July 1994 to March 1995 and a Vice President of Sutro & Co., an investment bank, from January 1991 to June 1994. MARK GERSHIEN has served as one of our directors since March 1998, and resigned as a director effective October 20, 1999. Mr. Gershien has been the Senior Vice President of Sales and Marketing for Level 3 Communications, a telecommunications and information services company, since January 1998. Prior to that time, Mr. Gershien was the Senior Vice President of National Accounts for WorldCom, Inc., an international telecommunications company, and President and Chief Executive Officer of MFS Telecom, a division of MFS Communications, Inc. prior to its merger with WorldCom, Inc. GORDON HUTCHINS, JR. has served as one of our directors since January 1996. Mr. Hutchins has been President of GH Associates, a telecommunications consulting firm, since July 1989. Prior to founding GH Associates, Mr. Hutchins served as President and Chief Executive Officer of ICC Telecommunications, a competitive access provider, and held senior management positions with several other companies in the telecommunications industry. JOHN R. SNEDEGAR has served as one of our directors since January 1996. Mr. Snedegar has been the Chief Executive Officer of Micro General Corp. since April 1999. He served as Chief Executive Officer of UDN from June 1990 to April 1999. From June 1980 to February 1992, Mr. Snedegar was the President and Chief Executive Officer of AmeriTel Management, Inc., a provider of long distance telecommunications and management services. Mr. Snedegar is also a director for StarBase Corporation, a software development company, Micro General Corporation, a full service communications service provider, and Shopnow.com, an electronic commerce software company. Mr. Snedegar also serves as President of Kendall Venture Funding, Ltd., a reporting company in Alberta, Canada. ARUNAS A. CHESONIS has served as one of our directors since May 1998, and resigned as a director effective February 22, 2000. Mr. Chesonis is presently the Chairman and Chief Executive Officer of PaeTec Communications, Inc., a local exchange carrier located in Fairfield, New York. From May 1987 to April 1998, Mr. Chesonis served in various executive positions with ACC Corp. and its subsidiaries, including most recently President of ACC Corp. and President and Chief Operating Officer of ACC Global Corp. SAMER TAWFIK has served as one of our directors since February 1999. Mr. Tawfik founded PT-1 in April 1995 and served as Chief Executive Officer of PT-1 until February 3, 1999, at which time Mr. Tawfik assumed the title of President of PT-1 Communications. Mr. Tawfik resigned his position on December 31, 1999. From 1984 to 1994, Mr. Tawfik was principal owner and manager of three amusement companies. BOARD COMPOSITION In accordance with the terms of our Certificate of Incorporation, the terms of office of the Board are divided into three classes: Class I, whose term will expire at the annual meeting of stockholders to be held in 2001; Class II, whose term will expire at the annual meeting of stockholders to be held in 2002; and Class III, whose term will expire at the annual meeting of stockholders to be held in 2000. The Class I directors are Gordon Hutchins, Jr. and John R. Snedegar, the Class II directors are Mary A. Casey and Samer Tawfik, and the Class III director is Christopher E. Edgecomb. At each annual meeting of stockholders after the initial classification, the successors to directors whose term will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. This classification of the Board may have the effect of delaying or preventing changes in control or changes in our management. 53 Each officer is elected by and serves at the discretion of our Board. Each of our officers and directors, other than nonemployee directors, devotes substantially full time to our affairs. Our nonemployee directors devote such time to our affairs as is necessary to discharge their duties. There are no family relationships among any of our directors and officers. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act ("Section 16") requires our executive officers, directors and beneficial owners of more than 10% of our common stock (collectively, "Insiders") to file reports of ownership and changes in ownership of our common stock with the Securities and Exchange Commission and to furnish us with copies of all Section 16 forms they file. We became subject to Section 16 in conjunction with the registration of our common stock under the Exchange Act effective June 12, 1997. Based solely on our review of the copies of such forms we received, or written representations from certain reporting persons that no reports on Form 5 were required for those persons, we believe that our Insiders complied with all applicable Section 16 filing requirements during 1999. ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION The following Summary Compensation Table sets forth the compensation earned by our Chief Executive Officer and four other executive officers who earned (or would have earned) salary and bonus in excess of $100,000 for services rendered in all capacities to us and our subsidiaries (the "STAR Named Officers") for each of the fiscal years in the three-year period ended December 31, 1999. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ SECURITIES FISCAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($) - --------------------------- -------- --------- -------- ------------ --------------- Christopher E. Edgecomb ................ 1999 305,000 95,000 -- -- Chief Executive Officer and Chairman 1998 360,000 -- -- -- of the Board 1997 360,000 -- -- 3,202(1) 1999 292,000 95,000 -- 10,413(2) Mary A. Casey .......................... 1998 240,000 -- -- 10,413(2) President and Secretary 1997 217,500 -- -- 13,615(2) David Vaun Crumly ...................... 1999 338,901(4) 20,000 137,746 9,000(2) Executive Vice President-Sales and 1998 351,005 -- 4,200 7,000(2) Marketing 1997 380,779 253 -- 6,202(3) James E. Kolsrud ....................... 1999 237,500 20,000 39,500 9,600(2) Executive Vice President-Operations 1998 200,833 354 4,200 9,600(2) and Engineering 1997 177,083 1,014 -- 5,528(6) 1999 180,000 20,000 10,000 -- Kelly D. Enos .......................... 1998 160,833 259 4,200 -- Chief Financial Officer 1997 150,000 1,014 20,500 25,924(5)
- ------------------------ (1) Consists of life and health insurance premiums paid by us. (2) Consists of a car allowance paid by us. 54 (3) Consists of life and health insurance premiums and a car allowance paid by us. (4) Includes $218,901 of sales commissions. (5) Consists of a moving allowance of $22,721 and life and health insurance premiums paid by us. (6) Consists of health insurance premiums paid by us. The following table contains information concerning the stock option grants made to each of the STAR Named Officers named below during the year ended December 31, 1999. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE OF ASSUMED ANNUAL RATES NUMBER OF OF STOCK PRICE SECURITIES PERCENT OF TOTAL APPRECIATION FOR UNDERLYING OPTIONS GRANTED OPTION TERM(1) OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION -------------------- NAME GRANTED(#) FISCAL YEAR PER SHARE($/SH) DATE 5%($) 10%($) - ---- ---------- ---------------- --------------- ---------- -------- --------- 10,000(2) 0.5% $13.00 2/8/09 81,756 207,187 2,746(3) 0.1% $16.39 3/24/09 28,305 71,729 David Vaun Crumly ...... 125,000(4) 5.8% $ 8.88 5/28/09 698,073 1,769,054 10,000(5) 0.5% $13.00 1/31/01 81,756 207,187 James E. Kolsrud ....... 29,500(5) 1.4% $ 4.91 1/31/01 91,092 230,846 Kelly D. Enos........... 10,000(2) 0.5% $13.00 2/08/09 81,756 207,187
- ------------------------ (1) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission. There can be no assurance provided to any executive officer or any other holder of our securities that the actual stock price appreciation over the 10-year option term will be at the assumed 5% and 10% levels or at any other defined level. Unless the market price of our common stock appreciates over the option term, no value will be realized from the option grants made to the executive officer. (2) The option becomes exercisable in four equal annual installments on February 8, 2000, 2001, 2002 and 2003. (3) The option becomes exercisable in four equal annual installments on March 24, 2000, 2001, 2002 and 2003. (4) The option becomes exercisable in four equal annual installments on May 28, 2000, 2001, 2002 and 2003. (5) The option is fully vested as of February 11, 2000. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS VALUES
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY ACQUIRED ON (#)VALUE OPTIONS AT FY-END(#) OPTIONS AT FY-END($) NAME EXERCISE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ---- ----------- ----------- ------------------------- --------------------------------- David Vaun Crumly..... -- -- 65,904/103,376 $168,514/$0 James E. Kolsrud...... -- -- 0/197,450 $0/$1,028,070 Kelly D. Enos......... -- -- 130,139/58,311 $426,158/$147,479
No stock appreciation rights were exercised during 1999 nor were any outstanding at the end of that year. 55 DIRECTOR COMPENSATION Our non-employee directors receive $2,000 for each Board meeting attended and $1,000 for each telephonic Board meeting. In addition, each non-employee director is reimbursed for out-of-pocket expenses incurred in connection with attendance at meetings of the Board and its committees. In 1999, Messrs. Hutchins, Chesonis and Gershien were each granted stock options to purchase 10,000 shares of our common stock. See "Certain Relationships and Related Transactions--Transactions with Outside Directors." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of the Board (the "Compensation Committee") was formed in May 1996, and, in 1999, the members of the Compensation Committee were Gordon Hutchins, Jr. and John R. Snedegar. Neither of these individuals was at any time during the year ended December 31, 1999, or at any other time, our officer or employee. The Non-Executive Compensation Committee of the Board (the "Non-Executive Compensation Committee") was formed in 1997, and the members are Christopher E. Edgecomb and Mary A. Casey. No member of the Compensation Committee or the Non-Executive Compensation Committee served at any time during the year ended December 31, 1999 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, Compensation Committee or Non-Executive Compensation Committee. The Compensation Committee and the Non-Executive Compensation Committee shall collectively be referred to hereafter as the "Compensation Committees." See "Certain Relationships and Related Transactions--Transactions with Outside Directors" for information regarding the interests of Messrs. Snedegar and Hutchins in certain transactions and arrangements involving us. 1997 OMNIBUS STOCK INCENTIVE PLAN Our 1997 Omnibus Stock Incentive Plan (as amended, the "Omnibus Plan") was adopted by the Board on January 30, 1997 as the successor to our 1996 Supplemental Option Plan (the "Supplemental Plan"). We have issued and reserved for issuance an aggregate of 4,075,000 shares under the Omnibus Plan, comprised of (i) the 2,050,000 shares that were available for issuance under the Supplemental Plan, plus (ii) an increase of 2,025,000 shares. As of December 31, 1999, 371,074 shares had been issued under the Supplemental and Omnibus Plans, options for approximately 3,648,833 shares were outstanding (594,446 of which were granted under the Supplemental Plan) and options for approximately 55,093 shares remained available for future grant. Outstanding options, including options granted under the Supplemental Plan, which expire or terminate prior to exercise, will be available for future issuance under the Omnibus Plan. In addition, if stock appreciation rights ("SARs") and stock units are settled under the Omnibus Plan, then only the number of shares actually issued in settlement will reduce the number of shares available for future issuance under this plan. Under the Omnibus Plan, employees, outside directors and consultants may be awarded options to purchase shares of our common stock, SARs, restricted shares and stock units. Options may be incentive stock options designed to satisfy Section 422 of the Internal Revenue Code or nonstatutory stock options not designed to meet such requirements. SARs may be awarded in combination with options, restricted shares or stock units, and such an award may provide that the SARs will not be exercisable unless the related options, restricted shares or stock units are forfeited. The Omnibus Plan is administered by the Board or the Compensation Committees (the "Administrator"). The Administrator has the complete discretion to determine which eligible individuals are to receive awards; determine the award type, number of shares subject to an award, vesting requirements and other features and conditions of such awards; interpret the Omnibus Plan; and make all other decisions relating to the operation of the Omnibus Plan. 56 The exercise price for options granted under the Omnibus Plan may be paid in cash or in outstanding shares of our common stock. Options may also be exercised on a cashless basis, by a pledge of shares to a broker or by promissory note. The payment for the award of newly issued restricted shares will be made in cash. If an award of SARs, stock units or restricted shares from our treasury is granted, no cash consideration is required. The Administrator has the authority to modify, extend or assume outstanding options and SARs or may accept the cancellation of outstanding options and SARs in return for the grant of new options or SARs for the same or a different number of shares and at the same or a different exercise price. The Board may determine that an outside director may elect to receive his or her annual retainer payments and meeting fees from us in the form of cash, options, restricted shares, stock units or a combination thereof. The Board will decide how to determine the number and terms of the options, restricted shares or stock units to be granted to outside directors in lieu of annual retainers and meeting fees. Upon a change in control, the Administrator may determine that an option or SAR will become fully exercisable as to all shares subject to such option or SAR. A change in control includes a merger or consolidation, certain changes in the composition of the Board and an acquisition of 50% or more of the combined voting power of our outstanding stock. In the event of a merger or other reorganization, outstanding options, SARs, restricted shares and stock units will be subject to the agreement of merger or reorganization, which may provide for the assumption of outstanding awards by the surviving corporation or its parent, their continuation by us (if we are the surviving corporation), accelerated vesting and accelerated expiration, or settlement in cash. The Board may amend or terminate the Omnibus Plan at any time. Amendments may be subject to stockholder approval to the extent required by applicable laws. In any event, the Omnibus Plan will terminate on January 22, 2007, unless sooner terminated by the Board. 1996 STOCK INCENTIVE PLAN Our 1996 Stock Incentive Plan ("the Plan") was adopted by the Board on January 22, 1996, and amended on March 31, 1996. We have issued and reserved for issuance an aggregate of 1,476,000 shares under the Plan. As of December 31, 1999, 1,165,572 shares had been issued under the Plan, options for 177,790 shares were outstanding and options for 132,638 shares remained available for future grant. Outstanding options which expire or terminate prior to exercise will be available for future issuance under the Plan. Under the Plan, employees, outside directors and consultants may be awarded options to purchase shares of our common stock. These options may be incentive stock options designed to satisfy Section 422 of the Internal Revenue Code or nonstatutory stock options not designed to meet such requirements. The Plan is administered by the Board or the Compensation Committees (the "Administrator"). The Administrator has the complete discretion to determine which eligible individuals are to receive awards; determine the award type, number of shares subject to an award, vesting requirements and other features and conditions of such awards; interpret the Plan; and make all other decisions relating to the operation of the Plan. The exercise price for options granted under the Plan may be paid in cash or, at the discretion of the Administrator, in outstanding shares of our common stock. Options may also be exercised by delivery of an irrevocable direction to a broker to sell shares and deliver all or part of the sales proceeds in payment of the exercise price to us, by the proceeds of a loan secured by the shares or, at the discretion of the Administrator, by full recourse promissory note. 57 Upon a change in control, the Board may determine that an option shall become fully exercisable as to all shares subject to such option. A change in control includes an acquisition of more than 50% of our stock outstanding immediately prior to such acquisition, a merger whereby our stockholders, immediately after consummation of such transaction, own equity securities possessing less than 50% of the voting power of the surviving or acquiring corporation and the sale or other disposition of all or substantially all of our assets. In the event that we merge with or into another entity in which our stockholders receive cash in exchange for their shares, the Board may provide that, upon consummation of such merger, all then outstanding options shall automatically be converted into the right to receive cash in an amount equal to the difference, if any, between the price to be received by holders of our common stock for their shares and the respective exercise prices of the outstanding options. If a change in control occurs and the Board does not determine that an option shall become fully exercisable, the exercisability of an option granted under the Plan shall not be affected, except that any options held by an optionee whose employment with us is terminated other than for cause within one year of such change of control shall be deemed fully exercisable as of the date of such termination of employment. The Board may amend or terminate the Plan at any time. Any amendment which increases the number of shares which may be issued under the Plan, materially increases the benefits accruing to persons eligible to purchase shares under the Plan or materially modifies the requirements for eligibility under the Plan shall not become effective unless and until approved by our stockholders. The Plan shall expire on January 22, 2006, unless sooner terminated by the Board. 1996 OUTSIDE DIRECTOR NONSTATUTORY STOCK OPTION PLAN Our 1996 Outside Director Nonstatutory Stock Option Plan (the "Director Plan") was ratified and approved by the Board as of May 14, 1996. We have issued and reserved for issuance an aggregate of 410,000 shares of our common stock under the Director Plan. As of December 31, 1999, 82,000 shares had been issued under the Director Plan, options for 71,500 shares were outstanding and options for 256,500 shares remained available for future grant. If an outstanding option expires or terminates unexercised, then the shares subject to such option will again be available for issuance under the Director Plan. Under the Director Plan, our outside directors may receive nonstatutory options to purchase shares of our common stock. The Director Plan is administered by the Board or the Compensation Committee (the "Administrator"). The Administrator has the discretion to determine which eligible individuals will receive options, the number of shares subject to each option, vesting requirements and any other terms and conditions of such options. The exercise price for options granted under the Director Plan will be at least 85% of the fair market value of our common stock on the option grant date, shall be 110% of the fair market value of our common stock on the option grant date if the option is granted to a holder of more than 10% of our common stock outstanding and may be paid in cash, check or shares of our common stock. The exercise price may also be paid by cashless exercise or pledge of shares to a broker. The Administrator may modify, extend or renew outstanding options or accept the surrender of such options in exchange for the grant of new options, subject to the consent of the affected optionee. Upon a change in control, the Board may accelerate the exercisability of outstanding options and provide an exercise period during which such accelerated options may be exercised. The Board also has the discretion to terminate any outstanding options that had been accelerated and had not been exercised during such exercise period. In the event that we merge into another corporation in which holders of our common stock receive cash for their shares, the Board may settle the option with a cash payment equal to the difference between the exercise price and the amount paid to holders of our common stock pursuant to the merger. 58 The Board may amend or terminate the Director Plan at any time. In any event, the Director Plan will terminate on May 14, 2006, unless sooner terminated by the Board. EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS We have an employment agreement with Mary A. Casey, pursuant to which Ms. Casey holds the position of President, is paid an annual salary of $20,000 per month, subject to adjustment to reflect increases in the Consumer Price Index, was entitled to purchase 1,677,273 shares of our common stock, and is eligible to receive a bonus, as determined by the Chief Executive Officer and the Board. The agreement provides that if Ms. Casey's employment is terminated without cause, she will continue to receive the compensation provided in the agreement until its expiration on December 31, 2000, less any amounts she earns from other employment. Under the agreement and the other employment agreements discussed below, cause is defined as a material act of dishonesty, fraud or misrepresentation or any act of moral turpitude, the default in the performance of the person's duties or if the person fails to execute the specific instructions of the Board or management and does not correct the failure after receiving notice from us. In January 1996, we entered into an employment agreement with David Vaun Crumly pursuant to which Mr. Crumly became Executive Vice President--Sales and Marketing. The agreement provides for an annual salary of $10,000 per month with an annual increase, plus incentive bonuses tied to our gross revenues. The agreement also provides for a commission on certain of our accounts and an option to purchase 369,000 shares of our common stock at an exercise price of $0.73 per share. In addition, in the event of a Sale Transaction, Mr. Crumly will receive a bonus payment equal to the lesser of $1,500,000 or a percentage of the monthly gross sales of accounts relating to customers introduced to us by Mr. Crumly. If his employment is terminated in certain circumstances, without cause, within four months after a Sale Transaction (as defined below), Mr. Crumly is entitled to receive the compensation provided in this agreement, minus any compensation earned by other employment, until the expiration of the agreement on December 31, 2000. A Sale Transaction is an acquisition of more than 75% of our voting securities, pursuant to a tender offer or exchange offer approved in advance by the Board. In December 1996, we entered into an employment agreement with Kelly D. Enos, pursuant to which Ms. Enos became Chief Financial Officer. The agreement provides for an annual salary of $150,000 (which has been increased to $180,000) and an option to purchase 153,750 shares of our common stock at an exercise price of $4.00 per share. The agreement also provides that Ms. Enos will receive a severance payment equal to the compensation which she would have received under the remaining term of the agreement, or December 31, 2000, if terminated without cause. The amounts Ms. Enos earns by virtue of other employment will reduce the amounts she receives under the agreement prior to the expiration of the term. In September 1996, we entered into an employment agreement with James Kolsrud, pursuant to which Mr. Kolsrud became Executive Vice President--Operations and Engineering. The agreement provides for a monthly salary of $20,000. The agreement also provides for Mr. Kolsrud to receive a severance payment equal to the compensation which he would have received under the remaining term of the agreement, or December 31, 2000, if terminated without cause. The amounts Mr. Kolsrud earns by virtue of other employment will reduce the amounts he receives under the agreement prior to the expiration of the term. We accepted Mr. Kolsrud's resignation from his position as Executive Vice President--Operations and Engineering effective February 25, 2000. We accelerated the vesting of Mr. Kolsrud's options effective upon his resignation and extended the period during which he may exercise such options to January 31, 2001. 59 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information known to us regarding beneficial ownership of our common stock as of March 31, 2000 by (i) each person who is known by us to own beneficially more than five percent of our common stock, (ii) each of our directors, (iii) each of the STAR Named Officers, and (iv) all current officers and directors as a group.
SHARES BENEFICIALLY OWNED(1) ----------------------- NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(2) - ------------------------------------ ---------- ---------- West Highland Capital(3).................................... 7,737,660 13.2% Gotel Investments Ltd.(4)................................... 4,192,296 7.1% Gordon Hutchins(5).......................................... 202,260 * John R. Snedegar(6)......................................... 20,250 * Mark Gershien(6)............................................ 20,250 * Arunas A. Chesonis(6)....................................... 20,000 * Christopher E. Edgecomb(7).................................. 13,166,265 22.4% Mary A. Casey............................................... 1,596,613 2.7% David Vaun Crumly(8)........................................ 803,936 1.4% James E, Kolsrud(9)......................................... 319,197 * Kelly D. Enos(10)........................................... 151,859 * Samer Tawfik................................................ 9,138,717 15.6% All directors and executive officers as a group (10 persons)(11).............................................. 25,439,347 42.9%
- ------------------------ * Represents beneficial ownership of less than 1% of the outstanding shares of our common stock. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to securities. The address for each listed director and officer is c/o STAR Telecommunications, Inc., 223 East De La Guerra Street, Santa Barbara, California 93101. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of our common stock. (2) Percentage of beneficial ownership is based on 58,693,650 shares of our common stock outstanding as of March 31, 2000. The number of shares of our common stock beneficially owned includes the shares issuable pursuant to stock options and warrants that are exercisable within sixty days of March 31, 2000. (3) Represents 2,079,500 shares of our common stock held by West Highland Capital, Inc., 1,789,330 shares of our common stock held by Estero Partners, LLC, 2,079,500 shares of our common stock held by Lang H. Gerhard, 1,539,790 shares of our common stock held by West Highland Partners, L.P., and 249,540 shares of our common stock held by Buttonwood Partners, L.P., as reported by West Highland Capital, Inc. in its Schedule 13G filed with the Securities and Exchange Commission on February 11, 1999. (4) Represents 1,397,432 shares of our common stock held by Gotel Investments Ltd., 1,397,432 shares of our common stock held by Global Investments Trust, and 1,397,432 shares of our common stock held by Intertrust (Guernsey) Limited, as reported by Gotel Investments Ltd. in its Schedule 13G filed with the Securities and Exchange Commission on February 9, 1999. (5) Consists of 3,660 shares of our common stock and 198,600 shares of our common stock issuable upon the exercise of stock options exercisable within sixty days of March 31, 2000. 60 (6) Consists entirely of shares of our common stock issuable upon the exercise of stock options exercisable within sixty days of March 31, 2000. (7) Mr. Edgecomb disclaims beneficial ownership with respect to 4,100 shares of our common stock. (8) Consists of 738,032 shares of our common stock, and 65,904 shares of our common stock issuable upon the exercise of stock options exercisable within sixty days of March 31, 2000. (9) Consists of 121,747 shares of our common stock held in joint tenancy and 197,450 shares of our common stock issuable upon the exercise of stock options exercisable within sixty days of March 31, 2000. (10) Consists of 21,720 shares of our common stock and 130,139 shares of our common stock issuable upon the exercise of stock options exercisable within sixty days of March 31, 2000. (11) Consists of 652,593 shares of our common stock issuable upon the exercise of stock options exercisable within sixty days of March 31, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. TRANSACTIONS WITH OUTSIDE DIRECTORS During 1998, we invested $5.1 million in the common stock of PaeTec Communications, Inc. ("PaeTec"), a competitive local exchange carrier. Our investment represented approximately 19% of PaeTec's equity outstanding at December 31, 1998. Arunas Chesonis, a former director, is a majority shareholder and the Chief Executive Officer of PaeTec. During the third and fourth quarters of 1999, we sold substantially all of our interest for $14.3 million dollars. On February 22, 2000, Arunas Chesonis resigned from our Board. At December 31, 1998 and 1999, we had an obligation to John Snedegar, a director, in the amount of $1 million with interest at 10%. GH Associates, an affiliate of Gordon Hutchins, Jr., a director, provides consulting services to us. For the year ended December 31, 1999, we paid approximately $33,612 to GH Associates for general business consulting services relating to the telecommunications industry and for the performance of other tasks requested by our Chief Executive Officer, President and Board. During 1999, our non-employee directors were granted nonstatutory stock options under the Director Plan. See "Management--Director Compensation." TRANSACTIONS WITH EXECUTIVE OFFICERS For the year ended December 31, 1999, we provided $2.1 million in long distance services to Pae Tec. Pae Tec is a company in which Mr. Edgecomb is a member of the board of directors and approximately a 10% shareholder. During 1999, we purchased $43,000 in services from Pae Tec. On April 12, 1999, we provided Kelly Enos, our Chief Financial Officer, with a revolving line of credit in the aggregate amount of approximately $111,000 at an annual interest rate of 8%. Approximately $120,000 of this debt was outstanding at March 31, 2000. On April 12, 1999, we provided James Kolsrud, our Executive Vice President--Operations and Engineering, with a revolving line of credit in the aggregate amount of approximately $100,000 at an annual interest rate of 8%. Approximately $107,000 of this debt was outstanding at March 31, 2000. Ms. Enos received incentive stock options to purchase 10,000 shares of our common stock at an exercise price of $13.00 in February 1999. 61 Mr. Crumly received incentive stock options to purchase 125,000 shares of our common stock at an exercise price of $8.88 in May 1999, incentive stock options to purchase 2,746 shares of our common stock at an exercise price of $16.39 in March 1999 and incentive stock options to purchase 10,000 shares of our common stock at an exercise price of $13.00 in January 1999. Mr. Kolsrud received incentive stock options to purchase 29,500 shares of our common stock at an exercise price of $4.91 in October 1999 and incentive stock options to purchase 10,000 shares of our common stock at an exercise price of $13.00 in February 1999. INDEMNIFICATION OF DIRECTORS AND OFFICERS Our Amended and Restated Certificate of Incorporation limits the liability of our directors for monetary damages arising from a breach of their fiduciary duty as directors, except to the extent otherwise required by the Delaware General Corporation Law. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. Our Bylaws provide that we shall indemnify our directors and officers to the fullest extent permitted by Delaware law, including in circumstances in which indemnification is otherwise discretionary under Delaware law. We have also entered into or will enter into indemnification agreements with our officers and directors containing provisions that may require us, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors' and officers' insurance if available on reasonable terms. We believe that all of the transactions set forth above were made on terms no less favorable to us than could have been obtained from unaffiliated third parties. All future transactions, including loans between us and our officers, directors, principal stockholders and their affiliates will be approved by a majority of the Board, including a majority of the independent and disinterested outside directors on the Board, and will continue to be on terms no less favorable to us than could be obtained from unaffiliated third parties. 62 SIGNATURE Pursuant to the requirements of Section 15(d) of the Securities Act of 1934, the registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in Santa Barbara, California on April 14, 2000. STAR TELECOMMUNICATIONS, INC. By: /s/ CHRISTOPHER E. EDGECOMB ----------------------------------------- Christopher E. Edgecomb CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher E. Edgecomb, Mary A. Casey and Kelly D. Enos, and each of them, his true and lawful attorney-in-fact with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Report on Form 10-K and to file same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ CHRISTOPHER E. EDGECOMB Chief Executive Officer and ------------------------------------------- Director (Principal and April 14, 2000 Christopher E. Edgecomb Executive Officer) /s/ MARY A. CASEY ------------------------------------------- President and Director April 14, 2000 Mary A. Casey /s/ KELLY D. ENOS Chief Financial Officer ------------------------------------------- (Principal Financial April 14, 2000 Kelly D. Enos Officer) /s/ JOHN J. PASINI Vice President of Finance ------------------------------------------- (Principal Accounting April 14, 2000 John J. Pasini Officer)
63
SIGNATURE TITLE DATE --------- ----- ---- /s/ GORDON HUTCHINS, JR. ------------------------------------------- Director April 14, 2000 Gordon Hutchins, Jr. /s/ JOHN R. SNEDEGAR ------------------------------------------- Director April 14, 2000 John R. Snedegar /s/ SAMER TAWFIK ------------------------------------------- Director April 14, 2000 Samer Tawfik
64 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Documents filed as part of this Report: (1) Index to Financial Statements: Report of Independent Public Accountants.................... F-1 Consolidated Balance Sheets as of December 31, 1998 and 1999...................................................... F-2 Consolidated Statements of Operations for the years ended December 31, 1997, 1998 and 1999.......................... F-3 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1998 and 1999.............. F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999.......................... F-5 Notes to Consolidated Financial Statements.................. F-6 (2) Index to Financial Statement Schedules: Report of Independent Public Accountants on Supplemental Schedules................................................. S-1 Schedule II--Valuation and Qualifying Accounts.............. S-2 (3) Exhibits:
EXHIBIT NUMBER DESCRIPTION - ----------------------------------------- ------------------------------------------------------------ 2.1* Amended and Restated Stock Acquisition Agreement and Plan of Merger dated as of November 30, 1997 by and among the Registrant, Big Dave's Acquisition Corp., LCCR, Inc., and the shareholders listed on the signature page thereto. 2.2++ Agreement and Plan of Merger dated as of November 19, 1997 by and among the Registrant, IIWII Corp. and United Digital Network, Inc. 2.3** Stock Purchase Agreement dated as of January 26, 1998 by and among the Registrant, T-One Corp. and Taha Mikati, as amended. 2.4- Amended and Restated Agreement and Plan of Merger dated as of August 20, 1998 by and among the Registrant, Sierra Acquisition Co., Inc., PT-1 Communications, Inc. ("PT-1") and the Stockholders listed on the signature page thereto, (the PT-1 Merger Agreement). 2.5++ First Amendment to the PT-1 Merger Agreement dated September 1, 1998. 2.6++ Second Amendment to the PT-1 Merger Agreement dated December 29, 1998. 2.7 Agreement and Plan of Merger dated February 11, 2000, by and among the Registrant and World Access, Inc. 3.1** Amended and Restated Certificate of Incorporation of the Registrant. 3.2** Bylaws of the Registrant. 4.1+ Specimen Common Stock certificate. 4.2+ Registration Rights Agreement, dated September 24, 1996, between the Registrant and the investors named therein. 4.3+ Registration Rights Agreement, dated July 12, 1996, between the Registrant and the investor named therein. 4.4+ Investor Rights Agreement dated July 25, 1996, between the Registrant and the investors named therein.
65
EXHIBIT NUMBER DESCRIPTION - ----------------------------------------- ------------------------------------------------------------ 4.5* Registration Rights Agreement dated as of November 30, 1997 by and among the Registrant and the shareholders listed on the signature page thereto. 4.6** Registration Rights Agreement dated as of March 10, 1998 between the Registrant and Taha Mikati. 4.7-- Registration Rights and Restricted Share Agreement dated as of February 3, 1999 between the Registrant and the shareholders named therein. 10.l+ Form of Indemnification Agreement. 10.2+ 1996 Amended and Restated Stock Incentive Plan. 10.3+ 1996 Outside Director Nonstatutory Stock Option Plan. 10.4+ 1997 Omnibus Stock Incentive Plan. 10.5+ Employment Agreement between the Registrant and Mary Casey dated July 14, 1995, as amended. 10.6+ Employment Agreement between the Registrant and Kelly Enos dated December 2, 1996. 10.7+ Employment Agreement between the Registrant and David Vaun Crumly dated January 1, 1996. 10.8+ Intentionally omitted. 10.9+ Consulting Agreement between the Registrant and Gordon Hutchins, Jr. dated May 1, 1996. 10.10+ Nonstatutory Stock Option Agreement between the Registrant and Gordon Hutchins, Jr. dated May 15, 1996. 10.11+ Free Standing Commercial Building Lease between the Registrant and Thomas M. Spear, as receiver for De La Guerra Court Investments, dated for reference purposes as of March 1, 1996. 10.12+ Standard Office Lease Gross between the Registrant and De La Guerra Partners, L.P. dated for reference purposes as of July 9, 1996. 10.13+ Office Lease between the Registrant and WHUB Real Estate Limited Partnership dated June 28, 1996, as amended. 10.14+ Standard Form of Office Lease between the Registrant and Hudson Telegraph Associates dated February 28, 1996. 10.15+ Agreement for Lease between the Registrant and Telehouse International Corporation of Europe Limited dated July 16, 1996. 10.16+ Sublease between the Registrant and Borton, Petrini & Conron dated March 20, 1994, as amended. 10.17+ Office Lease between the Registrant and One Wilshire Arcade Imperial, Ltd. dated June 28, 1996. 10.18+ Lease Agreement between the Registrant and Telecommunications Finance Group dated April 6, 1995. 10.19+ Lease Agreement between the Registrant and Telecommunications Finance Group dated January 3, 1996, as amended. 10.20+ Master Lease Agreement between the Registrant and NTFC Capital Corporation dated December 20, 1996. 10.21+ Variable Rate Installment Note between the Registrant and Metrobank dated October 4, 1996. 10.22+ Assignment of Purchase Order and Security Interest between the Registrant and DSC Finance Corporation dated January 1, 1996.
66
EXHIBIT NUMBER DESCRIPTION - ----------------------------------------- ------------------------------------------------------------ 10.23+ Line of Credit Promissory Note between the Registrant and Christopher E. Edgecomb dated November 7, 1996, as amended. 10.24+ Office Lease Agreement between the Registrant and Beverly Hills Center LLC effective as of April 1, 1997. 10.25** Credit Agreement dated as of September 30, 1997 among the Registrant, the financial institutions party thereto and Sanwa Bank California, as amended. 10.26** Office Lease between the Registrant, Hudson Telegraph Associates and American Communications Corp., as amended. 10.27** Amendment Number Three to Employment Agreement between the Registrant and Mary A. Casey dated as of July 1, 1997. 10.28** Amendment Number One to Employment Agreement between the Registrant and Kelly D. Enos dated as of November 12, 1997. 10.29** Amendment Number One to First Restatement of Employment Agreement between the Registrant and James Kolsrud dated as of June 16, 1997. 10.30** Amendment Number One to Employment Agreement between the Registrant and David Vaun Crumly dated as of November 11, 1997. 10.31** First Amendment to Amended and Restated 1996 Stock Incentive Plan. 10.32*** Agreement dated as of December 1, 1997 between the Registrant and Nortel Dasa Network Systems GmbH & Co. KG. 10.33** Leasing Agreement between the Registrant and Nortel Dasa Network Systems GmbH & Co. KG. 10.34** Guarantee Agreement between the Registrant and Nortel Dasa Network Systems GmbH & Co. KG. 10.35** Note and Security Agreement dated as of December 18, 1997 between the Registrant and NationsBanc Leasing Corporation. 10.36** Amendment of Lease dated as of September 30, 1997 between the Registrant and Hudson Telegraph (reference is hereby made to Exhibit 10.14). 10.37 Intentionally omitted. 10.38** Lease Agreement dated July 29, 1996 between the Registrant and Telecommunications Finance Group. 10.39** Promissory Note issued by Christopher E. Edgecomb in favor of the Registrant dated November 26, 1997. 10.40** Stock Pledge Agreement dated November 26, 1997 between the Registrant and Christopher E. Edgecomb. 10.41** Commercial Lease dated October 31, 1997 between the Registrant and Prinzenpark GbR. 10.42** Commercial Lease dated October 9, 1997 between the Registrant and WSL Weststadt Liegenschafts GmbH. 10.43** Office Lease between the Registrant and Airport-Center KGHP Gewerbeban GmbH & Cie. 10.44** Lease dated November 19, 1997 between the Registrant and DIFA Deutsche Immobilien Fonds Aktiengesellschaft. 10.45- Second Restatement of Employment Agreement between the Registrant and James Kolsrud dated as of July 9, 1998. 10.46- First Amendment to 1997 Omnibus Stock Incentive Plan.
67
EXHIBIT NUMBER DESCRIPTION - ----------------------------------------- ------------------------------------------------------------ 10.47--- Loan and Security Agreement dated as of June 9, 1999 by and among the Registrant and certain of its subsidiaries as the Obligors, and the financial institutions that are identified therein as the Lenders, and Foothill Capital Corporation ("Foothill") as Agent. 10.48--- Pledge Agreement dated as of June 9, 1999 by and among the Registrant certain of its subsidiaries and Foothill, as Agent. 10.49--- General Continuing Guaranty dated as of June 9, 1999 delivered by certain subsidiaries of the Registrant to Foothill, as Agent. 10.50--- Suretyship Agreement dated as of June 9, 1999 among Foothill, as Agent, the Registrant and certain of its subsidiaries. 10.51--- Intercompany Subordination Agreement dated as of June 9, 1999 among the Registrant, certain of its subsidiaries and Foothill, as Agent. 10.52--- Trademark Security Agreement dated as of June 9, 1999 by the Registrant certain of its subsidiaries and Foothill, as Agent. 10.53--- Copyright Security Agreement dated as of June 9, 1999 by the Registrant certain of its subsidiaries and Foothill, as Agent. 10.54 Receivables Sale Agreement dated as of November 30, 1999, by and between the Registrant, the entities listed on the signature pages thereto, and RFC Capital Corporation as Purchaser. 10.55 Amendment Number Four to Employment Agreement between the Registrant and Mary A. Casey dated as of April 21, 1999. 10.56 Amendment Number Two to Employment Agreement between the Registrant and Kelly D. Enos dated as of April 21, 1999. 10.57 Amendment Number One to Second Restatement of Employment Agreement between the Registrant and James Kolsrud dated as of May 5, 1999. 10.58 Amendment Number Two to Employment Agreement between the Registrant and David Vaun Crumly dated as of April 21, 1999. 10.59 Amendment Number Three to Employment Agreement between the Registrant and David Vaun Crumly dated as of November 11, 1999. 10.60 Revolving Line of Credit Promissory Note dated April 12, 1999 between the Registrant and Kelly Enos. 10.61 Revolving Line of Credit Promissory Note dated April 12, 1999 between the Registrant and James Kolsrud. 10.62 Master Lease Purchase Agreement dated February 20, 1998, as amended, by and among the Registrant, PT-1 and Chase Equipment Leasing. 10.63 Office and Switch Lease dated April 8, 1997 between PT-1 and Golden Union, LLC, C/O Alma Realty Co., 28-18 31st Street, Astoria, NY 11102. 10.64 Office and Switch Lease dated October, 1997 between PT-1 and Evergreen America Corporation. 10.65 Office and Switch Lease dated July, 1997 between the Registrant and NWT Partners, Ltd. 10.66 Office Switch Lease between STAR Telecommunications Deutschland GmbH ("STAR GmbH") and Prinzzenpark GbR Kanzlerstr, 4. 10.67 Office and Switch Lease dated April 1, 1999 between STAR GmbH and Rentax Gesellschaft Fur Grundbesitzan-Lagen GmbH. (English language summary of the original German language lease is attached thereto.)
68
EXHIBIT NUMBER DESCRIPTION - ----------------------------------------- ------------------------------------------------------------ 10.68 Office and Switch Lease dated March 1, 1999 between STAR GmbH and Gewerbehof Athen. (English language summary of the original German language lease is attached thereto.) 10.69 Office and Switch Lease dated June 1, 1999 between STAR GmbH and Hamm & Co. (English language summary of the original German language lease is attached thereto.) 10.70 Office and Switch Lease dated February 1, 1999 between STAR GmbH and Rudolf Geray. (English language summary of the original German language lease is attached thereto.) 10.71 Office and Switch Lease dated August 1, 1999 between STAR GmbH and Erbengemeinschaft Fiszman. (English language summary of the original German language lease is attached thereto.) 10.72 Office and Switch Lease dated February 1, 1999 between STAR GmbH and Kallco Projekt Projekges GmbH. (English language summary of the original German language lease is attached thereto.) 10.73 Office and Switch Lease dated June 1, 1999 between STAR GmbH and Comptoir Genvois Immobilier. (English language summary of the original German language lease is attached thereto.) 10.74 Office and Switch Lease between PT-1 and NWT Partners, Ltd. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants. 24.1 Power of Attorney (included on page 63). 27.1 Financial Data Schedule.
- ------------------------ + Filed as an exhibit to the Registrant's Registration Statement on Form S-1 (Registration No. 333-21325) on February 7, 1997 and incorporated by reference herein. ++ Filed as an exhibit to the Registrant's Registration Statement on Form S-4 (Registration No. 333-53335) and incorporated by reference herein. * Filed on December 15, 1997 as an exhibit to the Registrant's Current Report on Form 8-K (File No. 000-22581) and incorporated by reference herein. ** Filed as an exhibit to the Registrant's Registration Statement on Form S-1 (Registration No. 333-48559) on March 24, 1998 and incorporated by reference herein. *** Filed as an exhibit to the Registrant's Annual Report on Form 10-K (File No. 000-22581) on March 31, 1998 and incorporated by reference herein. - Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q (File No. 000-22581) on November 11, 1998 and incorporated by reference herein. -- Filed as an exhibit to the Registrant's Current Report on Form 8-K (File No. 000-22581) on February 19, 1999 and incorporated by reference herein. - --- Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q (File No. 000-22851) on August 16, 1999 incorporated by reference herein. (4) Reports on Form 8-K. (a) None.
69 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of STAR Telecommunications, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of STAR TELECOMMUNICATIONS, INC. (a Delaware corporation) and Subsidiaries 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. STAR Telecommunications, Inc. has entered into a merger agreement under which it is required to sell certain operations prior to consummation of the merger. To meet this requirement, STAR Telecommunications, Inc. has entered into a letter of intent to sell certain net assets of its prepaid calling card and dial around operations for an amount that is significantly less than the net carrying value of the operations. See Notes 1 and 13 to the accompanying consolidated financial statements for a description of this proposed transaction and related matters. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of STAR Telecommunications, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the results of their operations and their 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. ARTHUR ANDERSEN LLP Los Angeles, California April 14, 2000 F-1 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
DECEMBER 31, ------------------- 1998 1999 -------- -------- CURRENT ASSETS: Cash and cash equivalents................................. $ 47,297 $ 25,561 Short-term investments.................................... 835 1,482 Accounts and notes receivable, net of allowance of $12,561 and $46,707 at December 31, 1998 and 1999, respectively............................................ 100,235 167,403 Receivables from related parties.......................... 762 1,390 Inventory................................................. -- 1,088 Other receivables......................................... 23,017 2,478 Prepaid expenses and other................................ 14,295 9,838 Deferred income taxes..................................... 6,269 25,846 -------- -------- Total current assets.................................. 192,710 235,086 -------- -------- PROPERTY AND EQUIPMENT: Operating equipment....................................... 158,811 351,605 Leasehold improvements.................................... 14,853 24,744 Furniture, fixtures and equipment......................... 19,106 38,399 -------- -------- 192,770 414,748 Less--Accumulated depreciation and amortization........... (21,818) (51,659) -------- -------- 170,952 363,089 -------- -------- OTHER ASSETS: Intangible assets, net.................................... 2,497 200,582 Other..................................................... 8,492 8,997 -------- -------- 10,989 209,579 -------- -------- Total assets.......................................... $374,651 $807,754 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Revolving line of credit.................................. $ 19,330 $ 43,540 Current portion of long-term debt......................... 2,085 486 Current portion of capital lease obligations.............. 8,567 18,042 Accounts payable.......................................... 43,989 159,920 Taxes payable............................................. 1,640 3,361 Related party payable..................................... 2,267 1,133 Accrued network costs..................................... 51,262 147,672 Other accrued expenses.................................... 15,772 22,479 Deferred revenue.......................................... 1,100 36,374 -------- -------- Total current liabilities............................. 146,012 433,007 -------- -------- LONG-TERM LIABILITIES: Capital lease obligations, net of current portion......... 29,407 49,324 Deferred income taxes..................................... 2,991 -- Other long-term liabilities............................... 650 47,369 -------- -------- Total long-term liabilities........................... 33,048 96,693 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Series A preferred stock, $.001 par value, authorized--5,000 shares; issued and outstanding--none....................................... -- -- Common stock, $.001 par value, authorized--100,000 shares; issued and outstanding--43,245 and 58,574 at December 31, 1998 and 1999, respectively................ 43 58 Additional paid-in capital................................ 207,466 365,845 Deferred compensation..................................... -- (2,160) Note receivable from stockholder.......................... -- (3,714) Accumulated other comprehensive income (loss)............. 188 (6,022) Accumulated deficit....................................... (12,106) (75,953) -------- -------- Total stockholders' equity.............................. 195,591 278,054 -------- -------- Total liabilities and stockholders' equity............ $374,651 $807,754 ======== ========
See accompanying notes to these consolidated balance sheets. F-2 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1998 1999 -------- -------- ---------- REVENUES.................................................... $434,086 $619,220 $1,061,774 OPERATING EXPENSES: Cost of services.......................................... 374,504 523,621 925,206 Selling, general and administrative expenses.............. 48,906 66,140 160,067 Depreciation and amortization............................. 5,650 15,054 44,236 Loss on impairment of goodwill............................ -- 2,604 -- Merger expense............................................ 286 1,026 1,878 -------- -------- ---------- 429,346 608,445 1,131,387 -------- -------- ---------- Income (loss) from operations........................... 4,740 10,775 (69,613) -------- -------- ---------- OTHER INCOME (EXPENSES): Interest income........................................... 464 4,469 2,192 Interest expense.......................................... (2,617) (3,386) (9,895) Legal settlements and expenses............................ (1,653) -- -- Other income (expense).................................... 208 (304) 1,373 -------- -------- ---------- (3,598) 779 (6,330) -------- -------- ---------- Income (loss) before provision (benefit) for income taxes................................................. 1,142 11,554 (75,943) PROVISION (BENEFIT) FOR INCOME TAXES........................ 2,905 9,923 (12,096) -------- -------- ---------- NET INCOME (LOSS)........................................... $ (1,763) $ 1,631 $ (63,847) ======== ======== ========== Basic and diluted income (loss) per share................... $ (0.06) $ 0.04 $ (1.12) ======== ======== ==========
See accompanying notes to these consolidated statements. F-3 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER, 1997, 1998 AND 1999 (AMOUNTS IN THOUSANDS)
NOTE PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE ------------------- ------------------- PAID-IN DEFERRED FROM SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION SHAREHOLDER -------- -------- -------- -------- ---------- ------------ ----------- Balance, December 31, 1996......... 2,802 $ 3 25,511 $26 $ 22,152 $ (118) $ -- Net loss....................... -- -- -- -- -- -- -- Effect of CEO Telecommunications, Inc. terminating the S-corporation election....... -- -- -- -- (61) -- -- Effect of UDN's change in fiscal year end.............. -- -- (37) (1,916) -- -- Conversion of redeemable preferred stock to common stock........................ (2,802) (3) 1,868 2 1 -- -- Initial public offering of common stock................. -- -- 8,097 8 30,936 -- -- Private placement.............. -- -- 49 -- 1,740 -- -- Exercise of stock options...... -- -- 493 -- 496 -- -- Exercise of warrants........... -- -- 10 -- 384 -- -- Converion of debenture......... -- -- 37 -- 500 -- -- Compensation expense relating to stock options............. -- -- -- -- -- 88 -- Tax benefit from non-qualified stock options................ -- -- -- -- 114 -- -- Cash distributions to stockholders................. -- -- -- -- -- -- -- ------ ---- ------ --- -------- ------- ------- Balance, December 31, 1997......... -- -- 36,028 36 54,346 (30) -- Comprehensive income: Net income................... -- -- -- -- -- -- -- Foreign currency translation adjustment................. -- -- -- -- -- -- -- Comprehensive income........... -- -- -- -- -- -- -- Secondary public offering of common stock................. -- -- 5,685 6 144,705 -- -- Exercise of stock options...... -- -- 1,533 1 2,506 -- -- Exercise of warrants........... -- -- 25 -- 274 -- -- Cancellation of escrow shares....................... -- -- (26) -- -- -- -- Compensation expense relating to stock options............. -- -- -- -- -- 30 -- Tax benefit from non-qualified stock options................ -- -- -- -- 5,635 -- -- ------ ---- ------ --- -------- ------- ------- Balance, December 31, 1998 -- -- 43,245 43 207,466 -- -- Comprehensive income: Net loss..................... -- -- -- -- -- -- -- Foreign currency translation adjustment................. -- -- -- -- -- -- -- Comprehensive loss............. -- -- -- -- -- -- -- PT-1 acquisition............... -- -- 15,050 15 153,563 -- (3,559) Shares reserved for PT-1 distributors................. -- -- -- -- 2,803 (2,803) -- Exercise of stock options...... -- -- 279 -- 716 -- -- Compensation expense relating to distributor shares........ -- -- -- -- -- 643 -- Interest on note receivable from stockholder............. -- -- -- -- -- -- (155) Tax benefit from non-qualified stock options................ -- -- -- -- 1,297 -- -- ------ ---- ------ --- -------- ------- ------- Balance, December 31, 1999......... -- $ -- 58,574 $58 $365,845 $(2,160) $(3,714) ====== ==== ====== === ======== ======= ======= ACCUMULATED OTHER COMPREHENSIVE ACCUMULATED INCOME DEFICIT TOTAL ------------- ----------- -------- Balance, December 31, 1996......... -- $(12,077) $ 9,986 Net loss....................... -- (1,763) (1,763) Effect of CEO Telecommunications, Inc. terminating the S-corporation election....... -- 61 -- Effect of UDN's change in fiscal year end.............. -- 1,100 (816) Conversion of redeemable preferred stock to common stock........................ -- -- -- Initial public offering of common stock................. -- -- 30,944 Private placement.............. -- -- 1,740 Exercise of stock options...... -- -- 496 Exercise of warrants........... -- -- 384 Converion of debenture......... -- -- 500 Compensation expense relating to stock options............. -- -- 88 Tax benefit from non-qualified stock options................ -- -- 114 Cash distributions to stockholders................. -- (1,058) (1,058) ------- -------- -------- Balance, December 31, 1997......... -- (13,737) 40,615 Comprehensive income: Net income................... -- 1,631 1,631 Foreign currency translation adjustment................. 188 -- 188 Comprehensive income........... 188 1,631 1,819 Secondary public offering of common stock................. -- -- 144,711 Exercise of stock options...... -- -- 2,507 Exercise of warrants........... -- -- 274 Cancellation of escrow shares....................... -- -- -- Compensation expense relating to stock options............. -- -- 30 Tax benefit from non-qualified stock options................ -- -- 5,635 ------- -------- -------- Balance, December 31, 1998 188 (12,106) 195,591 Comprehensive income: Net loss..................... -- (63,847) (63,847) Foreign currency translation adjustment................. (6,210) -- (6,210) Comprehensive loss............. (6,210) (63,847) (70,057) PT-1 acquisition............... -- -- 150,019 Shares reserved for PT-1 distributors................. -- -- -- Exercise of stock options...... -- -- 716 Compensation expense relating to distributor shares........ -- -- 643 Interest on note receivable from stockholder............. -- -- (155) Tax benefit from non-qualified stock options................ -- -- 1,297 ------- -------- -------- Balance, December 31, 1999......... $(6,022) $(75,953) $278,054 ======= ======== ========
See accompanying notes to these consolidated statements. F-4 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1998 1999 -------- -------- -------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss)......................................... $(1,763) $ 1,631 $(63,847) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization............................. 5,650 15,054 44,236 Loss on impairment of goodwill............................ -- 2,604 -- Gain on investments....................................... -- -- (9,953) Compensation expense relating to stock options............ 88 30 643 Provision for doubtful accounts........................... 13,770 7,477 25,003 Deferred income taxes..................................... (3,699) 421 (2,014) Proceeds from factoring of trade receivables, net......... 2,092 -- -- Other..................................................... 79 107 -- Decrease (increase) in assets, net of acquisitions: Accounts and notes receivable............................. (24,320) (61,510) (105,573) Related party receivable.................................. 99 (721) (79) Other receivables......................................... (1,914) (20,428) 10,184 Prepaid expenses and other assets......................... (1,853) (8,757) 286 Deposits.................................................. (425) (558) 1,254 Increase (decrease) in liabilities, net of acquisitions: Accounts payable.......................................... (593) 23,913 59,304 Taxes payable............................................. 2,270 5,119 (7,618) Related party payable..................................... (269) 2,267 (2,301) Accrued network costs..................................... 19,747 11,697 86,232 Other accrued expenses.................................... 2,353 8,440 3,574 Deferred revenue.......................................... -- 1,100 (3,120) Other liabilities......................................... 164 (265) 3,927 ------- -------- -------- Net cash provided by (used in) operating activities..... 11,476 (12,379) 40,138 ------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (14,674) (113,020) (60,317) Investments............................................... 126 (5,083) (2,829) Short-term investments.................................... (16,975) 17,796 477 Sale of investments....................................... -- -- 14,350 Purchase of PT-1, net of cash acquired.................... -- -- (4,435) Purchase of CTN, net of cash acquired..................... (350) -- -- Other..................................................... 716 (679) (5,543) ------- -------- -------- Net cash used in investing activities................... (31,157) (100,986) (58,297) ------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Stockholders' distributions............................... (1,058) -- -- Borrowings under lines of credit.......................... 34,211 19,330 460,820 Repayments under lines of credit.......................... (42,025) -- (441,610) Borrowings under lines of credit with stockholder......... 583 -- 2,500 Repayments under lines of credit with stockholder......... (471) (138) (2,500) Borrowings under long-term debt........................... 193 -- -- Payments under long-term debt............................. (3,587) (1,798) (8,122) Payments under capital lease obligations.................. (2,236) (6,360) (12,801) Issuance of common stock.................................. 32,684 144,711 -- Stock options exercised................................... 496 2,507 716 Warrants exercised........................................ 384 274 -- Other financing activities................................ -- -- 6 ------- -------- -------- Net cash provided by (used in) financing activities..... 19,174 158,526 (991) ------- -------- -------- EFFECTS OF CHANGE IN UDN'S FISCAL YEAR END.................. 54 -- -- EFFECTS OF FOREIGN CURRENCY TRANSLATION..................... -- 188 (2,586) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (453) 45,349 (21,736) CASH AND CASH EQUIVALENTS: Beginning of year......................................... 2,401 1,948 47,297 ------- -------- -------- End of year............................................... $ 1,948 $ 47,297 $ 25,561 ======= ======== ========
See accompanying notes to these consolidated statements. F-5 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 1. NATURE OF BUSINESS AND PROPOSED MERGER STAR Telecommunications, Inc., a Delaware Corporation, and Subsidiaries (the "Company" or "STAR"), is a multinational telecommunications services company focused primarily on the international long distance market. STAR offers low-cost switched voice services on a wholesale basis primarily to U.S. based long distance carriers. STAR provides international long distance services through a flexible network comprised of foreign termination relationships, international gateway switches, leased and owned transmission facilities and resale arrangements with other long distance providers. During 1997, 1998 and 1999, the Company established several wholly-owned foreign subsidiaries to further expand its international network. The Company made substantial investments to install switch facilities in four of these subsidiaries, Star Europe Limited ("SEL") which is located in London, England, Star Telecommunications Deutschland ("GmbH") which is located in Frankfurt, Germany, Star Telecommunications Switzerland which is located in Geneva, Switzerland, and Star Telecommunications Austria GmbH which is located in Vienna, Austria. The Company uses these switching facilities to decrease international traffic termination costs and to initiate outbound calls from these local markets. In November 1997, the Company entered into the domestic commercial long-distance market through the acquisition of L.D. Services Inc., now known as CEO Telecommunications, Inc. ("CEO"). CEO is a commercial long-distance service provider throughout the United States. In March 1998, the Company consummated a merger with T-One Corp. ("T-One"), an international wholesale long-distance telecommunications provider. In March 1999, the Company expanded its commercial operations through the acquisition of United Digital Network, Inc. and its affiliated companies ("UDN" now known as "ALLSTAR Telecom"). The mergers constituted tax-free reorganizations and have been accounted for as poolings of interests. Accordingly, all prior period consolidated financial data has been restated to include the results of operations, financial position and cash flows of CEO, T-One and UDN. In February 1999, the Company completed its acquisition of PT-1 Communications ("PT-1"). PT-1 is a provider of international and domestic long distance and local telecommunications services primarily through the marketing of prepaid calling cards and dial around service. The transaction constituted a tax free reorganization and has been accounted for as a purchase under Accounting Principles Board Opinion No. 16. Accordingly, the consolidated financial statements presented include the results of operations, financial position and cash flows of PT-1 subsequent to the date of acquisition. On February 11, 2000, STAR and World Access, Inc. ("World Access") entered into a merger agreement (the "Merger Agreement") pursuant to which World Access will acquire all of the outstanding common stock of STAR in exchange for World Access common stock or, at the election of World Access, a combination of cash and common stock. Based upon the market price of World Access common stock at the date of the Merger Agreement, the purchase price exceeds STAR's net book value. The Merger Agreement requires that STAR sell PT-1 for minimum net cash proceeds of $150 million. On March 29, 2000, STAR entered into a letter of intent to sell the assets of PT-1 to a communications subsidiary of a publicly traded company ("PT-1 Acquiror") for cash proceeds of $150 million, less certain liabilities, and subject to a purchase price adjustment based on an audit of PT-1 to be conducted after the close of the sale of PT-1. Due diligence is currently in process by PT-1 Acquiror and the definitive acquisition agreement is expected to be completed by April 21, 2000. STAR will record a loss on this transaction of approximately $100 million at closing which is expected to occur during the second quarter of fiscal 2000. See Note 13 for further details of this transaction and related matters. F-6 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 1. NATURE OF BUSINESS AND PROPOSED MERGER (CONTINUED) The Company is subject to various risks in connection with the operation of its business. These risks include, but are not limited to, regulations (both domestic and foreign), dependence on transmission facilities-based carriers and suppliers, price competition and competition from larger industry participants. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of STAR. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. REVENUE RECOGNITION AND DEFERRED REVENUE The Company records revenues for telecommunications sales, direct dial, prepaid calling card, and travel card long distance services at the time of customer usage. Sales of prepaid calling cards are made to distributors with no contractual right of return. At the time of sale, the Company becomes legally obligated to provide such service. Such sales are initially recorded as deferred revenue upon shipment and revenue is recognized in accordance with the terms of the card as the ultimate card users utilize calling time and service fees for all prepaid cards. The terms of the card refer to the rates, fees and expiration dates of the card as well as any other provisions which govern their use. The Company assesses a monthly service fee per card, commencing 30 days after the date a prepaid calling card is first used to make a telephone call by reducing the unused card balance available for calls. All prepaid calling cards sold by PT-1 expire upon the earlier to occur of (i) an expiration date printed on the prepaid calling card or (ii) six months after the prepaid calling card is first used. Upon expiration and cancellation of the prepaid calling card, the Company recognizes the related deferred revenue as revenue. In 1999, the Company began selling excess broadband fiber optic capacity that they obtained under 20 year Indefeasable Rights of Use ("IRU") agreements. Revenues from broadband sales are recorded upon customer acceptance and the fulfillment of all the Company's obligations under the original lease agreement and all of the Company's obligations under the sales contract are complete. The accounting for sale of broadband is evolving and may require the Company to account for future broadband sales as operating leases over the lives of the agreements, generally 20 years. During 1999, the Company realized a profit of $9.5 million from its broadband sales. COST OF SERVICES Cost of services for wholesale long distance services represents direct charges from vendors that the Company incurs to deliver service to its customers. These include leasing costs for the dedicated phone lines and rate-per-minute charges from other carriers that terminate traffic on behalf of the Company. In addition, commercial long distance service costs include billing and collection service fees, call rating services, and per minute charges from other carriers that terminate traffic on behalf of the Company. The primary costs associated with the provision of telecommunications services to holders of prepaid calling cards and travel cards are carrier costs for transport of traffic and switch administration fees. Cost of services for broadband sales represents the cost capitalized under the original IRU agreement less any accumulated depreciation applicable to the IRU. F-7 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUES FROM FOREIGN CUSTOMERS The Company has carrier service agreements with telecommunications carriers in foreign countries under which international long distance traffic is both originated and terminated on the Company's network. The Company records revenues and related costs as the traffic is recorded in its switches. Revenues from foreign customers amounted to $6,577,000, $83,998,000 and $183,768,000 for the years ended December 31, 1997, 1998 and 1999, respectively. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of demand deposits and money market funds, which are highly liquid short-term instruments with original maturities of three months or less. Cash and cash equivalents are stated at cost, which approximates market. The Company has restricted cash of $1 million as of December 31, 1999. FINANCIAL INSTRUMENTS The carrying amounts of lines of credit, long-term debt and capital lease obligations approximate their fair value as interest rates approximate market rates for similar instruments. Off balance sheet derivative financial instruments at December 31, 1998 consisted of foreign currency exchange agreements. There were no off balance sheet derivatives at December 31, 1999. During 1997, 1998 and 1999, the Company entered into currency exchange contracts in the normal course of business to manage its exposure against foreign currency fluctuations on payable positions resulting from fixed asset purchases and other contractual expenditures denominated in foreign currencies. The principle objective of such contracts was to minimize the risks and costs associated with financial and global operating activities. The Company does not utilize financial instruments for trading or other speculative purposes. The fair value of foreign currency contracts is estimated by obtaining quotes from brokers. At December 31, 1998, the Company had foreign currency contracts outstanding with a notional and fair value of $35,000,000. Accordingly, no gain or loss was recognized in operations. The Company had contracts in German Marks at December 31, 1998, but none at December 31, 1999. For the years ended December 31, 1997, 1998 and 1999, gains and losses on foreign exchange contracts were not material to the consolidated financial statements. SHORT-TERM INVESTMENTS Short-term investments consist of interest bearing securities with original maturities in excess of three months. At December 31, 1998 and 1999, the fair market value of temporary investments, classified as "available for sale securities," approximated cost, thus no unrealized holding gains or losses were reported in the accompanying balance sheets. During 1997, the Company realized gains from the sale of securities of approximately $48,000. The Company did not realize any gains or losses from sale of securities during 1998 or 1999. INVENTORY Inventory consists of costs of production and packaging of unsold prepaid calling cards, is valued using the average cost method, and is charged to cost of services when the card is sold. F-8 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation and amortization of property and equipment are computed using the straight-line method over the following estimated useful lives:
Operating equipment......................................... 2-25 years Leasehold improvements...................................... Life of lease Furniture, fixtures and equipment........................... 3-7 years
Operating equipment includes assets financed under capital lease obligations of $51,738,000 and $92,405,000 at December 31, 1998 and 1999, respectively. Accumulated amortization related to assets financed under capital leases was $7,908,000 and $15,763,000 at December 31, 1998 and 1999, respectively. In addition, operating equipment includes twelve and fourteen IRUs in international cable systems amounting to $29,943,000 and $41,254,000 and eight and ten ownership interests in international cables amounting to $3,101,000 and $51,540,000 at December 31, 1998 and 1999, respectively. Included in ownership interests at December 31, 1998 and 1999, is $1,508,000 and $48,684,000, respectively, for the China-US Undersea Cable System. This capacity was not in use as of December 31, 1999, and was reclaimed during the first quarter of fiscal 2000. During 1999, the Company acquired two additional domestic IRUs with major points of presence in Los Angeles, New York, Dallas and Miami, amounting to $71,755,000 at December 31, 1999. These assets are amortized over the life of the agreements of 5 to 20 years. As of July 1, 1998, the Company prospectively revised the remaining useful lives of certain operating equipment from five to ten years. The increase in the estimated life of these assets was based on the knowledge gained by the Company in making the transition from a reseller of telephone services to a facility based provider, as well as to the fact that the Company is purchasing more sophisticated telephone switches and has transitioned from smaller Stromberg switches to larger capacity, more feature-rich Nortel switches. This change reduced depreciation expense and increased income before provision for income taxes for the year ended December 31, 1998 by approximately $2 million. The difference between depreciating all switch equipment over a 5-year life versus a 10-year life since acquisition would represent approximately $2.9 million for the year ended December 31, 1998, or 4 cents per diluted share for the year then ended. Replacements and betterments, renewals and extraordinary repairs that extend the life of the asset are capitalized; other repairs and maintenance are expensed. The cost and accumulated depreciation applicable to assets sold or retired are removed from the accounts and the gain or loss on disposition is recognized in operations. INTANGIBLE ASSETS Intangible assets consist of the cost to purchase customer lists, a non-compete agreement and goodwill associated with the purchase of PT-1 and other acquisitions. These intangibles are amortized using the straight-line method over their estimated useful lives. The realizability of goodwill and customer lists is evaluated periodically as events or circumstances indicate a possible inability to recover their carrying amount. Such evaluation is based on various analyses, including cash flow and profitability projections that incorporate, as applicable, the impact on existing company businesses. These analyses involve significant F-9 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) management judgment to evaluate the capacity of an acquired business to perform within projections. During the year ended December 31, 1998, the Company recorded a loss on impairment of goodwill of approximately $2.6 million. Intangible assets consist of (in thousands):
DECEMBER 31, -------------------- 1998 1999 -------- --------- Goodwill.................................................... $5,065 $ 215,382 Customer lists and non-compete agreement.................... 1,579 3,742 ------ --------- 6,644 219,124 Accumulated amortization.................................... (1,543) (15,938) Accumulated loss on impairment.............................. (2,604) (2,604) ------ --------- $2,497 $ 200,582 ====== =========
The Company amortizes goodwill over 20 years, customer lists over 4 to 7 years and the non-compete agreement over 3 years. OTHER ASSETS At December 31, 1998 and 1999, other assets consist primarily of investments and deposits. During 1998, the Company made a $5.1 million investment in a competitive local exchange carrier ("CLEC") for 2.9 million common shares, representing 18.97 percent of the CLEC's common shares outstanding at December 31, 1998. A stockholder of the Company is also an investor and board member of this company. The Company accounted for this investment under the cost method. Substantially all of this investment was sold in 1999 for approximately $14.3 million. The Company had investments in one and three telecommunications companies totaling $5.1 million and $2.8 million at December 31, 1998 and 1999, respectively. At December 31, 1998, the investment was carried at cost. At December 31, 1999, three new investments totaling $2.0 million were accounted for under the equity method. During 1999, STAR's share of earnings or losses from these investments was not material. Included in other assets are deposits of approximately $2.2 million at December 31, 1998 and 1999, which represent payments made to long distance providers to secure lower rates. These deposits are refunded or applied against future services. ACCRUED NETWORK COSTS Accrued network costs represent accruals for services to transmit and terminate long distance telephone traffic, which has been provided to the Company but not yet billed. It also includes differences between billings received by the Company and the liability computed by the Company's own systems which are being resolved by the Company and its vendors. F-10 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CONSOLIDATED STATEMENTS OF CASH FLOWS During the years ended December 31, 1997, 1998, and 1999, cash paid for interest was $2,357,000, $4,396,000 and $8,719,000, respectively. For the same periods, cash paid for income taxes amounted to $3,761,000, $4,146,000 and $1,832,000, respectively. Non-cash investing and financing activities, which are excluded from the consolidated statements of cash flows, are as follows (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------- 1997 1998 1999 -------- -------- --------- Equipment purchased through capital leases..... $10,020 $34,216 $ 27,605 Deposit applied against capital leases......... -- 4,405 -- Notes issued for asset purchases............... 1,890 -- -- Assets acquired through a vendor financing arrangement.................................. -- -- 62,666 Operating agreement acquired through issuance of note...................................... 350 -- -- Conversion of debenture........................ 500 -- -- Tax benefits related to stock options.......... 114 5,635 1,297 Issuance of convertible debenture and note payable for acquisition of CTN capital stock........................................ 1,050 -- -- Detail of PT-1 acquisition: Fair value of assets acquired................ -- -- 299,960 Liabilities assumed.......................... -- -- (140,780) Common stock issued.......................... -- -- (153,578) Notes payable issued......................... -- -- (1,167)
NET INCOME (LOSS) PER COMMON SHARE The following schedule summarizes the information used to compute basic and diluted net income or loss per common share for the years ended December 31, 1997, 1998 and 1999 (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------ 1997 1998 1999 -------- -------- -------- Weighted average number of common shares used to compute basic net income (loss) per common share............................................. 31,101 40,833 57,036 Weighted average common share equivalents........... -- 1,601 -- ------ ------ ------ Weighted average number of common shares and common share equivalents used to compute diluted net income (loss) per common share.................... 31,101 42,434 57,036 ====== ====== ======
F-11 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Options to purchase 4,045,723 shares of common stock at prices ranging from $0.01 to $34.38 were outstanding at December 31, 1999, but were not included in the computation of diluted earnings per share, as the effect would be antidilutive due to the net loss. CONCENTRATIONS OF RISK At December 31, 1998 and 1999, no individual customer had an accounts receivable balance greater than 10% of gross accounts receivable other than PT-1, which was acquired on February 4, 1999. The two largest customers represented approximately 15%, 11% and 11% of revenues during the years ended December 31, 1997, 1998 and 1999, respectively. During 1997 and 1999, no customer exceeded 10% of revenues. During 1998, no customer, other than PT-1, exceeded 10% of revenues. The Company performs ongoing credit evaluations of its customers. The Company analyzes daily traffic patterns and concludes whether or not the customer's credit status justifies the traffic volume. If the customer is deemed to carry too large a volume in relation to its credit history, the traffic received by the Company's facilities is reduced to prevent further build up of the receivable from this customer. The Company's allowance for doubtful accounts is based on current market conditions. Purchases from the four largest vendors for the years ended December 31, 1997, 1998 and 1999 amounted to 32%, 29%, and 38% of total purchases, respectively. Included in the Company's balance sheets at December 31, 1998 and 1999 is approximately $85,207,000 and $121,518,000, respectively, of equipment which is located in foreign countries. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998 and June 1999, the AICPA issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 137, which delayed the effective date of SFAS No. 133. The Company will adopt the standard in January 2001 and is currently analyzing the statement to determine the impact, if any, on the Company's financial position or results of operations. TRANSLATION OF FOREIGN CURRENCY Management determined that the functional currency of its foreign subsidiaries, excluding its German subsidiary, is the U.S. dollar. Thus, all foreign translation gains or losses, which were immaterial for the years ended December 31, 1997 and 1998, and amounted to a loss of $3,470,000 in 1999, are reflected in the results of operations as a component of other income (expense). On July 1, 1998, due to the fact that GmbH became self sufficient as an operating entity, the Company changed the functional currency from F-12 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the U.S. dollar to the German mark. As a result, translation effects of this subsidiary after July 1, 1998 are reflected as other comprehensive income in the consolidated statements of stockholders' equity. The foreign subsidiaries' balance sheets, excluding the German subsidiary, are translated into U.S. dollars using the year-end exchange rates except for prepayments, property, other long-term assets, and stockholders' equity accounts, which are translated at rates in effect when these balances were originally recorded. Revenues and expenses are translated at average rates during the year except for depreciation and amortization, which are translated at historical rates. The German subsidiary's balance sheet at December 31, 1999 is translated into U.S. dollars using the year-end exchange rate except for stockholders' equity accounts, which are translated at rates in effect when these balances were originally recorded. Revenues and expenses are translated at average rates during the year. Effective April 1, 1999, management recharacterized the balance of the intercompany loan from STAR to GmbH from a note payable to equity. As a result, the translation effect on the note balance after April 1, 1999 is reflected as other comprehensive loss in the accompanying financial statements. TAXES ON PREPAID CALLING CARDS Various jurisdictions levy taxes on telecommunications services whether provided through prepaid cards or some other means utilizing different methods and rates. The Company accrues for excise, sales and other usage based taxes on telecommunication services based on the enacted method and rate for each jurisdiction in the period usage occurs and revenue is recognized. The taxation of prepaid calling cards is evolving and is not specifically addressed by many of the states in which the Company does business. While the Company believes it has adequately provided for any such taxes it may ultimately be required to pay, certain states that enact legislation which specifically provides for taxation of such cards or may interpret current laws in a manner resulting in additional tax liabilities. ADVERTISING COSTS Advertising costs are expensed as incurred. Advertising costs for the years ended December 31, 1997 and 1998 were not material to the consolidated financial statements. For the year ended December 31, 1999, they amounted to $16.8 million. RECLASSIFICATIONS Certain prior year balances have been reclassified to conform to the current year presentation. 3. LINES OF CREDIT REVOLVING LINES OF CREDIT. Effective September 30, 1997, the Company executed an agreement with Sanwa Bank, California for a $25 million line of credit, which expired on July 1, 1999. This facility was paid in full and replaced with the Foothill facility on June 9, 1999. F-13 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 3. LINES OF CREDIT (CONTINUED) On June 9, 1999, the Company entered into a two year credit facility agreement with Foothill. The Company failed to meet the EBITDA and tangible net worth covenants in accordance with the agreement for the period ended June 30, 1999. On October 15, 1999, the Company received an amendment from the lender group which included resetting the financial covenants in accordance with the Company's updated financial forecast. In exchange for the amendment, the Company agreed to pay Foothill a supplemental agency fee of $500,000, and a term loan supplemental fee of $2 million due January 31, 2000. Interest rates were adjusted to 2.75 percent over the prime rate of interest for the revolving line of credit. For the term note, interest rates were adjusted to 8.0 percent over the prime rate through the end of September and increased by 1.0 percent over the prime rate during each month thereafter. The Company also agreed to the reduction of eligible borrowings on the revolving portion of the line of credit to $30 million from $75 million. The expiration date of the $25 million term loan was also modified to January 31, 2000. The agreement with Foothill was terminated on December 23, 1999, when a new agreement was executed with RFC Capital Corporation ("RFC"). As such, the $2 million term loan supplemental fee was reduced to $1 million. On November 30, 1999, the Company entered into a two year purchase of receivables financing agreement with RFC. This facility allows the Company to borrow up to $75 million based upon the eligible accounts receivable of the Company. The Company was in compliance with all covenants under this facility as of December 31, 1999. At December 31, 1999 approximately $43.5 million was outstanding under this facility. The weighted average interest rate on short-term debt during the years ended December 31, 1997, 1998 and 1999, was 9.12%, 7.75% and 13.16%, respectively. REVOLVING LINES OF CREDIT WITH STOCKHOLDER The Company had revolving lines of credit with its founder and chief executive officer. The debt matured on March 30, 1998 with interest payable at a rate of 9%. The Company recognized interest expense related to this debt of $9,000, $4,000, and $0 for the years ended December 31, 1997, 1998 and 1999, respectively. F-14 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS The Company finances some of its telecommunications equipment under capital lease arrangements or through notes payable as follows (in thousands):
DECEMBER 31, ------------------- 1998 1999 -------- -------- Convertible debenture with interest of 7 percent due January 1999.......................................... $ 500 $ -- Notes payable in monthly installments of principal plus interest of 8 percent through February 2000........... -- 147 Notes payable for Indefeasible Rights of Use, payable in quarterly installments of principal plus interest at LIBOR plus 6 percent (11.1 percent at December 31, 1998) through various dates in 2000................... 471 339 Notes payable in monthly installments of principal plus interest at 7 percent to 9.5 percent through January 1999.................................................. 1,114 -- Obligations under capital leases........................ 37,974 67,366 -------- -------- 40,059 67,852 Less current portion.................................. (10,652) (18,528) -------- -------- $ 29,407 $ 49,324 ======== ========
Minimum future payments under capital lease obligations at December 31, 1999 are as follows (in thousands):
CAPITAL YEAR ENDING DECEMBER 31, LEASES - ------------------------ -------- 2000.................................................... $22,143 2001.................................................... 21,392 2002.................................................... 22,354 2003.................................................... 9,874 ------- 75,763 Less amount representing interest........................... (8,397) ------- $67,366 =======
On September 29, 1999, Star Telecommunications Deutschland GmbH entered into an agreement with Deutsche Leasing AG to finance new and pre-existing equipment through a capital lease financing arrangement. Under the terms of the agreement the Company has the option to finance equipment up to 80DM million or roughly $45 million. The contract includes provisions to increase that amount as GmbH's equipment needs expand. The financing terms of the agreement are a minimum lease commitment of four years with an interest rate of approximately 6%. Cash generated from this arrangement is used to help fund the growth and operations of the German business. At December 31, 1999, approximately $8.0 million is available for additional borrowing under this agreement. F-15 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED) OTHER LONG-TERM LIABILITIES On September 15, 1998, STAR entered into a commitment to purchase an $85 million IRU on the Qwest Communications US Domestic Fiber Optic Cable System. On March 24, 1999, the agreement was amended to include the following terms: Qwest Communications International, Inc. ("Qwest") agreed to allow the conversion of a substantial portion of STAR's outstanding liability to a vendor financing arrangement. The terms of this arrangement allow STAR to provide long distance services to Qwest with the balance being offset against STAR's liability to Qwest on a monthly basis. Additionally, STAR was given the option to meet its obligation through the purchase of a combination of IRU's switched services and dedicated private line services. Any remaining balance outstanding to Qwest as of April 30, 2001 must be paid in full. The remaining balance due under this arrangement as of December 31, 1999 was approximately $45 million. During the year STAR sold certain portions of this capacity to other third parties. STAR has paid these portions in full and has no further obligations to Qwest under this agreement. 5. COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company leases office space, dedicated private telephone lines, equipment and other items under various agreements expiring through 2014. At December 31, 1999, the minimum aggregate payments under non-cancelable operating leases are summarized as follows (in thousands):
FACILITIES AND DEDICATED YEAR ENDING DECEMBER 31, EQUIPMENT PRIVATE LINES TOTAL - ------------------------ -------------- ------------- -------- 2000................................. $10,457 $24,569 $ 35,026 2001................................. 10,023 7,984 18,007 2002................................. 9,130 1,154 10,284 2003................................. 8,102 65 8,167 2004................................. 8,631 65 8,696 Thereafter........................... 24,990 368 25,358 ------- ------- -------- $71,333 $34,205 $105,538 ======= ======= ========
Office facility and equipment rent expense for the years ended December 31, 1997, 1998 and 1999 was approximately $3,669,000, $5,704,000, and $12,542,000 respectively. Dedicated private line expense was approximately $9,414,000, $24,306,000 and $67,090,000, respectively, for those same periods and is included in cost of services in the accompanying consolidated statements of operations. EMPLOYMENT AGREEMENTS The Company has employment agreements through December 31, 2000 with several employees and executives. Some of these agreements provide for a continuation of salaries in the event of a termination, with or without cause, following a change in control of the Company. One agreement provides for a payment of up to $1,500,000 in the event of a change in control of the Company. F-16 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company expensed $64,000, $52,000, and $0 of deferred compensation relating to these agreements for the years ended December 31, 1997, 1998 and 1999, respectively. PURCHASE COMMITMENTS The Company is obligated under various service agreements with long distance carriers to pay minimum usage charges. The Company anticipates exceeding the minimum usage volume with these vendors. The Company has minimum future usage charges at December 31, 1999 of $6,747,000 payable through December 31, 2000. The Company signed an $85 million agreement with Qwest to purchase the long-term rights to use capacity, switched services, and dedicated private line services over Qwest's domestic network over a twenty-year period. In addition, in November 1998, the Company signed an IRU agreement with IXC Communication, Inc. ("IXC") and has a commitment to purchase $10 million of capacity on IXC's U.S. based digital fiber network. As of December 31, 1999, STAR had completed its financial commitment to both IXC and Qwest. These commitments are not included in the above table. LEGAL MATTERS The Company is subject to litigation from time to time in the normal course of business. Although it is not possible to predict the outcome of such litigation, based on the facts known to the Company and after consultation with counsel, management believes that such litigation will not have a material adverse effect on its financial position or results of operations. On September 4, 1997, prior to the merger between CEO and the Company, CEO entered into a settlement agreement with the Consumer Services Division of the California Public Utilities Commission ("PUC"). The agreement settled the alleged unauthorized switching of long-distance customers to CEO between the years 1995 and 1996. It included payment of $760,000 to the PUC for restitution to affected customers as defined in the agreement. Additionally, CEO agreed to a voluntary revocation of its operating authority in the State of California. Under the agreement, service to all California customers had to be terminated within 120 days after approval of the agreement by the PUC. On November 19, 1997, the PUC approved the agreement along with a transfer of control to STAR. On November 15, 1997, CEO settled a civil suit with the District Attorney of Monterey, California for a monetary payment of $700,000 and various non-monetary concessions as defined in the agreement. This suit was of the same nature as the above action of the PUC and covers complaints from the years 1994 through 1997. During the third quarter of 1999, GmbH recorded a cost of services accrual of approximately $6.7 million for a retroactive rate increase imposed by a European telecom carrier that is currently being disputed. The outcome of this dispute in not determinable as of December 31, 1999. LETTERS OF CREDIT At December 31, 1999, the Company had 17 stand by letters of credit outstanding, which expire beginning April 28, 2000. These letters of credit, which are secured by deposits held at the issuing financial institutions, totaled approximately $1.9 million. F-17 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 6. RELATED PARTY TRANSACTIONS During 1997, the Company provided a short-term loan to the chief executive officer for $8,000,000. The loan carried interest of 7 percent per annum, was secured by $30,000,000 of the stockholder's stock in the Company, and was repaid in seven days. During 1999, the chief executive officer provided a short-term loan to the Company for $2,500,000, which was repaid in 70 days. The Company was not charged any interest on this borrowing. During 1998 and 1999, the Company paid for certain expenses for this individual, which are to be reimbursed to the Company, resulting in a receivable due to the Company of $164,000 and $65,000 at December 31, 1998 and 1999, respectively. During 1997, 1998 and 1999, the Company provided services to a company related to an employee of STAR in the amounts of $926,000, $289,000, and $20,000 respectively. As of December 31, 1998 and 1999, the account receivable from this related party amounted to $11,000 and $0, respectively. During 1997, 1998 and 1999, the Company purchased consulting services from a company owned by a board member in the amount of $72,000, $71,000 and $27,000, respectively. The Company has a payable to this company of $6,000 and $0 at December 31, 1998 and 1999, respectively. The Company purchased equipment and services from a company owned in part by an employee of STAR in the amount of $1,114,000, $10,013,000 and $3,967,000 in 1997, 1998 and 1999, respectively. At December 31, 1998 and 1999, the Company has a payable due to this related party of $1,261,000 and $35,000, respectively. Additionally, the Company provided services to this company in the amount of $543,000 and $1,351,000 in 1998 and 1999, respectively. During 1999, the Company provided long-distance telephone service to a company in which the founder and chief executive officer of STAR, other STAR employees and board members are investors. Services provided were $2,139,000 during 1999. Additionally, STAR purchased services from this company in the amount of $43,000 during 1999. At December 31, 1998 and 1999, the Company had an obligation to a board member in the amount of $1,000,000 with interest at a rate of 10 percent. During 1999, the Company advanced $500,000 to a company, which is 50 percent owned by STAR. At December 31, 1999, this advance was still outstanding. The Company has various receivables due from other related parties, primarily employee receivables, in the amount of $46,000 and $434,000 at December 31, 1998 and 1999, respectively. The Company also has payables due to other related parties in the amount of $98,000 at December 31, 1999. STAR believes that all of the transactions set forth above were made on terms no less favorable to STAR than could have been obtained from unaffiliated third parties. 7. BUSINESS COMBINATIONS POOLING OF INTEREST TRANSACTIONS In November 1997, the Company acquired CEO, a domestic commercial long distance telecommunications provider, in a transaction that was accounted for as a pooling of interests. The Company issued 849,298 shares of its common stock to CEO shareholders in exchange for all outstanding CEO shares plus shares of certain non-operating entities owned by CEO shareholders and majority ownership in an affiliated telephone retailer controlled by CEO. F-18 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 7. BUSINESS COMBINATIONS (CONTINUED) On March 10, 1998, the Company acquired T-One, an international wholesale long distance telecommunications provider, in a transaction accounted for as a pooling of interests. The Company issued 1,353,000 shares of its common stock to the T-One shareholder in exchange for all outstanding T-One shares. On March 24, 1999, the Company acquired UDN, a telephone service provider focused on switched and dedicated local and long distance, toll free and calling card services to multinational corporations, in a transaction that was accounted for as a pooling of interests. The Company issued approximately 1,005,000 shares of common stock in exchange for all outstanding shares of UDN, plus 36,142 stock options in exchange for UDN options based on the exchange ratio of 1 to 0.1464. Upon completion of the merger, the Company changed the name UDN to ALLSTAR Telecom. The accompanying consolidated financial statements have been restated to include the financial position and results of operations of CEO, T-One and UDN for all periods presented. Revenues and historical net income (loss) of STAR, CEO, T-One and UDN through the dates of acquisitions are as follows (in thousands):
1997 1998 1999 -------- -------- ---------- Revenues: STAR.............................................. $348,738 $584,170 $1,056,839 CEO............................................... 27,460 -- -- T-ONE............................................. 30,438 11,788 -- UDN............................................... 30,622 29,166 7,478 Eliminations...................................... (3,172) (5,904) (2,543) -------- -------- ---------- Total........................................... $434,086 $619,220 $1,061,774 ======== ======== ========== Net income (loss): STAR.............................................. $ 4,464 $ 8,061 $ (60,381) CEO............................................... (37) -- -- T-ONE............................................. 201 (88) -- UDN............................................... (6,391) (6,342) (3,466) -------- -------- ---------- Total........................................... $ (1,763) $ 1,631 $ (63,847) ======== ======== ==========
Revenues and net income (loss) subsequent to the dates of acquisitions are included in the STAR balances above. PURCHASE TRANSACTIONS On February 4, 1999, the Company acquired PT-1, a provider of international and domestic long-distance and local telecommunications services primarily through the marketing of prepaid phone cards. The Company issued 15,050,000 shares of common stock (valued at $153.6 million) and $19.5 million in cash or short-term promissory notes, made a $2 million payment to a former PT-1 shareholder and incurred estimated merger costs of $10 million for all outstanding shares of PT-1. In connection with the F-19 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 7. BUSINESS COMBINATIONS (CONTINUED) acquisition, the Company and PT-1 placed 500,000 shares of STAR common stock in escrow for distribution to certain PT-1 distributors for no consideration. The Company is recognizing the related compensation expense of approximately $2.8 million over a four year vesting period. The Company also issued 179,973 options for outstanding PT-1 options at an exercise price of $0.01 per share, of which 50 percent vested on the date of the merger, and the remaining 50 percent vested on October 15, 1999. The acquisition has been accounted for by the purchase method and, accordingly, the results of operations of PT-1 have been included with those of the Company since the date of acquisition. The purchase price has been allocated to assets and liabilities based on preliminary estimates of fair value as of the date of acquisition. The final allocation of the purchase price will be determined when appraisals and other studies are completed. Based on the preliminary allocation of the purchase price over the net assets acquired, goodwill of approximately $204 million was recorded. Such goodwill is being amortized on a straight-line basis over 20 years. The following summary, prepared on a pro forma basis, combines the results of operations as if PT-1 had been acquired as of the beginning of the periods presented. The summary includes the impact of certain adjustments such as goodwill amortization and estimated changes in interest income because of cash outlays associated with the transaction and the related income tax effects (in thousands, except per-share amounts):
YEARS ENDED DECEMBER 31, ------------------------- 1998 1999 ----------- ----------- (UNAUDITED) Pro forma sales............................................. $1,023,847 $1,082,623 Pro forma net loss.......................................... (26,299) (75,356) Pro forma basic and diluted net loss per common share....... $ (0.47) $ (1.29)
8. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No.109, "Accounting for Income Taxes," under which deferred assets and liabilities are provided on differences between financial reporting and taxable income using enacted tax rates. Deferred income tax expenses or credits are based on the changes in deferred income tax assets or liabilities from period to period. Under SFAS No. 109, deferred tax assets may be recognized for temporary differences that will result in deductible amounts in future periods. A valuation allowance is recognized if, on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. F-20 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 8. INCOME TAXES (CONTINUED) The Company has recorded a net deferred tax asset of $25,846,000 at December 31, 1999. Realization is dependent on generating sufficient taxable income in the future. Although realization is not assured, management believes it is likely that the net deferred tax asset will be realized. The components of the net deferred tax asset at December 31, 1998 and 1999 are as follows (in thousands):
1998 1999 -------- -------- Deferred taxes short-term: Reserve for accounts and notes receivable................. $ 4,564 $ 17,512 Accrued network costs..................................... 1,707 1,886 Other accrued liabilities................................. 360 6,911 State income taxes........................................ 270 7 Change in tax method...................................... 41 (226) Merger costs.............................................. (163) -- ------- -------- 6,779 26,090 Valuation reserve......................................... (510) (510) ------- -------- $ 6,269 $ 25,580 ======= ======== Deferred taxes long-term: Net operating loss........................................ $ 9,255 $ 34,827 Deferred rent............................................. 313 -- Depreciation and amortization............................. (3,304) (7,900) Basis difference arising from purchase accounting......... (296) (317) ------- -------- 5,968 26,610 Valuation reserve......................................... (8,959) (26,344) ------- -------- $(2,991) $ 266 ======= ========
In prior years, T-One generated net operating losses ("NOL's") for financial statement and income tax purposes, which may be available for carryforwards against future income. As of December 31, 1999, T-One has deductions available for carryforward in the amount of approximately $500,000. These NOL's will expire through 2010. ALLSTAR has net operating loss carryforwards of approximately $17.7 million, which expire through 2018. Utilization of the net operating loss carryforwards may be limited by the separate return loss year rules and by ownership changes, which have occurred or could occur in the future. The Company also has foreign NOL's of approximately $44.7 million. F-21 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 8. INCOME TAXES (CONTINUED) The provision (benefit) for income taxes for the years ended December 31, 1997, 1998 and 1999 are as follows (in thousands):
1997 1998 1999 -------- -------- -------- Current taxes: Federal................................................ $ 4,900 $7,146 $(10,726) State.................................................. 1,147 1,909 20 Foreign................................................ -- 447 626 ------- ------ -------- 6,047 9,502 (10,080) ------- ------ -------- Deferred taxes: Federal................................................ (2,273) 278 (1,714) State.................................................. (869) 143 (302) ------- ------ -------- (3,142) 421 (2,016) Provision (benefit) for income taxes..................... $ 2,905 $9,923 $(12,096) ======= ====== ========
Differences between the provision (benefit) for income taxes and income taxes at the statutory federal income tax rate for the years ended December 31, 1997, 1998 and 1999 are as follows (in thousands):
1997 1998 1999 -------- -------- -------- Income taxes at the statutory federal rate................ $ 400 $4,044 $(26,580) State income taxes, net of federal income tax effect...... 66 663 (4,557) Foreign taxes at rates different than U.S. taxes.......... 187 (359) (1,372) Changes in valuation reserve.............................. 862 3,455 17,385 Permanent differences..................................... 119 319 4,958 Other..................................................... 1,271 1,801 (1,930) ------ ------ -------- $2,905 $9,923 $(12,096) ====== ====== ========
9. STOCK OPTIONS On January 22, 1996, the Company adopted the 1996 Stock Incentive Plan (the "Plan"). The Plan, which was amended on March 31, 1996, provides for the granting of stock options to purchase up to 1,476,000 shares of common stock and terminates January 22, 2006. Options granted become exercisable at a rate of not less than 20 percent per year for five years. During 1996, the Company entered into three separate stock option agreements outside the Plan to issue 1,025,000 option shares at fair market value. At December 31, 1999, options of 147,600 issued under these agreements were outstanding. On September 23, 1996, the Company adopted the 1996 Supplemental Stock Option Plan. This plan, which expires on August 31, 2006, has essentially the same features as the Plan. The Company can issue options or other rights to purchase up to 2,050,000 shares of stock which expire up to 10 years after the date of grant, except for incentive options issued to a holder of more than 10 percent of the common stock outstanding, which expire five years after the date of grant. F-22 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 9. STOCK OPTIONS (CONTINUED) In December 1996, the Company issued 174,000 options at $4.00 per share. The Board of Directors determined the market value of the December options to be $4.68 per share. The Company is recognizing the difference between the market value at the date of grant and the exercise price as compensation expense over the vesting period. At December 31, 1999, options of 772,236 were outstanding under the aggregate of the 1996 Stock Incentive Plan and the Supplemental Stock Option Plan. On May 14, 1996, the Company adopted the 1996 Outside Director Nonstatutory Stock Option Plan (the "Director Plan"). The number of shares which may be issued under this plan upon exercise of options may not exceed 410,000 shares. The exercise price of an option is determined by the Board of Directors and may not be less than 85 percent of the fair market value of the common stock at the time of grant and has to be 110 percent of the fair market value of the common stock at the time of grant if the option is granted to a holder of more than 10 percent of the common stock outstanding. At the discretion of the administrator, the options vest at a rate of not less than 20 percent per year, which may accelerate upon a change in control, as defined. The plan expires on May 14, 2006. At December 31, 1999, options of 71,500 were outstanding under the Director Plan. On January 30, 1997, the Board of Directors approved the 1997 Omnibus Stock Option Incentive Plan (the "Omnibus Plan") to replace the existing 1996 Supplemental Stock Option Plan upon the effective date of the initial public offering. The plan provides for awards to employees, outside directors and consultants in the form of restricted shares, stock units, stock options and stock appreciation rights and terminates on January 22, 2007. The maximum number of shares available for issuance under this plan may not exceed 4,075,000 shares, comprised of the 2,050,000 shares that were available for issuance under the Supplemental Stock Option Plan, plus an increase of 2,025,000 shares. Under this Plan, options granted to any one optionee may not exceed more than 1,025,000 common shares per year subject to certain adjustments. Incentive stock options may not have a term of more than 10 years from the date of grant. At December 31, 1999, options of 3,054,387 were outstanding under the Omnibus Plan. F-23 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 9. STOCK OPTIONS (CONTINUED) Information regarding the Company's stock option plans and nonqualified stock options as of December 31, 1997, 1998 and 1999, and changes during the years ended on those dates is summarized as follows:
WEIGHTED-AVERAGE SHARES EXERCISE PRICE ---------- ---------------- December 31, 1996......................................... 3,464,500 $ 1.89 ---------- ------ Granted................................................. 914,296 7.91 Exercised............................................... (488,925) 0.89 Forfeited............................................... (392,774) 2.40 ---------- ------ December 31, 1997......................................... 3,497,097 3.54 ---------- ------ Granted................................................. 1,026,925 15.37 Exercised............................................... (1,522,649) 1.57 Forfeited............................................... (104,987) 10.79 ---------- ------ December 31, 1998......................................... 2,896,386 8.62 ---------- ------ Granted................................................. 2,157,458 7.32 Exercised............................................... (279,472) 2.56 Forfeited............................................... (728,649) 12.14 ---------- ------ December 31, 1999......................................... 4,045,723 $ 7.63 ========== ======
At December 31, 1997, 1998 and 1999, 1,275,645, 765,317 and 1,286,322 options were exercisable at weighted average exercise prices of $1.51, $4.28 and $5.49 per share, respectively. The options outstanding at December 31, 1999 expire in various years through 2009. Information about stock options outstanding at December 31, 1999 is summarized as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ---------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED NUMBER REMAINING AVERAGE NUMBER AVERAGE RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ------------------------ ----------- ---------------- -------------- ----------- -------------- $0.01 to $1.46 474,194 7.11 $ 1.07 387,722 $ 0.98 $4.00 to $6.83 1,659,213 8.51 $ 4.82 510,860 $ 4.44 $8.11 to $12.19 1,421,687 8.65 $10.03 277,250 $ 9.18 $12.81 to $20.94 456,829 8.41 $15.67 102,040 $15.95 $27.00 to $34.38 33,800 8.32 $27.87 8,450 $27.87 --------- ---- ------ --------- ------ 4,045,723 8.38 $ 7.67 1,286,322 $ 5.49 ========= ==== ====== ========= ======
F-24 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 9. STOCK OPTIONS (CONTINUED) The fair value of each STAR option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions for the grants:
1997 1998 1999 -------- -------- -------- Expected life (years)....................................... 6 6 6 Interest rate............................................... 6.2% 5.2% 5.8% Volatility.................................................. 31.05% 75.49% 79.73% Dividend yield.............................................. -- -- --
The Company has elected to adopt FASB No. 123 for disclosure purposes only and applies APB Opinion No. 25 and related interpretations in accounting for its employee stock options. Approximately $88,000, $30,000, and $0 in compensation cost was recognized relating to consultant options for the years ended December 31, 1997, 1998 and 1999, respectively. Had compensation cost for stock options awarded under these plans been determined based on the fair value at the dates of grant consistent with the methodology of FASB No. 123, the Company's net income or loss and basic and diluted income or loss per share for the years ended December 31, 1997, 1998 and 1999 would have reflected the following pro forma amounts:
1997 1998 1999 ----------- -------- ------------ Pro forma net income (loss)...................... $(2,575,000) $65,000 $(69,311,000) Pro forma basic and diluted net income (loss) per common share................................... $ (0.08) $ 0.00 $ (1.20)
Because the Company did not have a stock option program prior to 1996, the resulting pro forma compensation cost may not be representative of that to be expected in future years. 10. CAPITAL STOCK In June 1997, the Company completed its Initial Public Offering ("IPO") of 9,430,000 shares of common stock of which 8,097,500 shares were sold by the Company and 1,332,500 shares were sold by certain selling stockholders. The net proceeds to the Company (after deducting underwriting discounts and offering expenses of approximately $4.6 million) from the sale of shares was approximately $30.9 million. On November 30, 1997, the Company completed the acquisition of CEO pursuant to the terms of the agreement and 849,298 shares were issued for all of the outstanding shares of CEO. On March 10, 1998, the Company completed the acquisition of T-One, and 1,353,000 shares were issued for all of the outstanding shares of T-One. On March 31, 1998, the Company effected a 2.05 for 1 stock split in the nature of a stock dividend. The stock split has been reflected in the consolidated financial statements for all periods presented. On May 4, 1998, the Company completed a secondary public offering of 6,000,000 shares of common stock of which 5,685,000 were sold by the Company and 315,000 shares were sold by a selling stockholder. On June 4, 1998, an additional 30,900 shares of common stock were sold by a selling stockholder of STAR. The net proceeds to the Company (after deducting underwriting discounts and offering expenses) from the sale of such shares of common stock were approximately $145 million. F-25 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 10. CAPITAL STOCK (CONTINUED) On February 4, 1999, in connection with the PT-1 merger, the Company issued approximately 15,050,000 shares of common stock, and together with PT-1, placed 500,000 shares of STAR common stock in escrow for distribution to certain PT-1 distributors for no consideration. In connection with the acquisition, the Company acquired a stockholder note receivable issued in connection with the exercise of stock options. The note was originally in the amount of $3.57 million, and increased to $3.71 million at December 31, 1999 due to interest which is earned at 8%. The note is due on February 4, 2001. On March 24, 1999, in connection with the UDN merger, the Company issued approximately 1,005,000 shares of common stock in exchange for all outstanding shares of UDN. 11. BUSINESS SEGMENTS At December 31, 1999, STAR has three separately managed business segments, North American Wholesale, North American Commercial and European long distance telecommunications. The accounting policies of the segments are the same as those described in the significant accounting policies; however, the Company evaluates performance based on profit or loss from operations before income taxes and non-recurring gains or losses. For the year ended December 31, 1998, STAR evaluated performance based on profit or loss from North American and European operations, however, with the acquisition of PT-1, senior management began analyzing operations by its North American Wholesale, North American Commercial and European segments. Reportable segment information for the years ended December 31, 1997, 1998 and 1999 are as follows (in thousands):
NORTH NORTH AMERICAN AMERICAN WHOLESALE COMMERCIAL EUROPEAN TOTAL --------- ---------- -------- ---------- 1997 Revenues from external customers................ $376,004 $ 58,082 $ -- $ 434,086 Revenue between segments........................ 1,141 -- 321 1,462 Interest income................................. 464 -- -- 464 Interest expense................................ 1,482 906 229 2,617 Depreciation and amortization................... 4,152 1,069 429 5,650 Segment net income (loss) before provision for income taxes.................................... 10,632 (7,569) (1,921) 1,142 Other significant non-cash items: Capital lease additions....................... 6,755 -- 3,265 10,020 Property financed by notes payable............ 1,890 -- -- 1,890 Operating agreement acquired through issuance of a note..................................... 350 -- -- 350 Issuance of convertible debenture and note payable for CTN capital stock................. 1,050 -- -- 1,050 Segment assets.................................. 99,077 19,373 11,932 130,382 Expenditures for segment assets................. 10,944 931 2,799 14,674 1998 Revenues from external customers................ $529,807 $ 60,242 $ 29,171 $ 619,220 Revenue between segments........................ 21,547 -- 34,018 55,565
F-26 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 11. BUSINESS SEGMENTS (CONTINUED)
NORTH NORTH AMERICAN AMERICAN WHOLESALE COMMERCIAL EUROPEAN TOTAL --------- ---------- -------- ---------- Interest income................................. 4,387 39 43 4,469 Interest expense................................ 1,518 565 1,303 3,386 Depreciation and amortization................... 8,951 2,066 4,037 15,054 Segment net income (loss) before provision for income taxes.................................... 26,207 (12,863) (1,790) 11,554 Other significant non-cash items: Capital lease additions....................... 11,080 -- 23,136 34,216 Deposit applied against capital leases........ -- -- 4,405 4,405 Tax benefit related to stock options.......... 5,635 -- -- 5,635 Segment assets.................................. 208,125 16,615 149,911 374,651 Expenditures for segment assets................. 59,288 837 52,895 113,020 1999 Revenues from external customers................ $465,831 $471,504 $124,439 $1,061,774 Revenue between segments........................ 214,742 15,683 33,874 264,299 Interest income................................. 1,812 261 119 2,192 Interest expense................................ (2,241) (4,783) (2,871) (9,895) Depreciation and amortization................... 16,797 16,071 11,368 44,236 Segment net income (loss) before provision for income taxes.................................... (13,018) (25,860) (37,065) (75,943) Other significant non-cash items: Capital lease additions....................... -- -- 27,605 27,605 Vendor financing arrangements................. 62,666 -- -- 62,666 Segment assets................................ 290,364 343,888 173,502 807,754 Expenditures for segment assets................. 54,797 1,481 4,039 60,317
Segment information for North America represents primarily activity in the United States. In 1999, approximately 98.1 percent of European revenue from external customers was generated in Germany. 12. QUARTERLY CONSOLIDATED INFORMATION (UNAUDITED) The following table presents unaudited quarterly operating results, including the results of CEO, T-One and UDN for each of the Company's eight quarters in the two-year period ended December 31, 1999 (in thousands):
QUARTER ENDED ------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, --------- -------- --------- -------- 1998 Net sales......................................... $136,571 $138,911 $169,686 $174,052 Operating income (loss)........................... 3,622 4,337 4,204 (1,388) Net income (loss)................................. 1,343 2,365 2,356 (4,433) 1999 Net sales......................................... $228,209 $272,269 $279,216 $282,080 Operating loss.................................... (6,342) (33,248) (8,559) (21,464) Net loss.......................................... (7,552) (27,932) (8,763) (19,600)
F-27 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 13. SUBSEQUENT EVENTS On January 18, 2000 STAR was notified that its capacity on the China-US Undersea Cable System would be reclaimed, unless a payment of approximately $47.0 million was made by February 1, 2000. The $47.0 million represents the total amount of liabilities due to the China-US Undersea Cable System as of December 31, 1999. STAR elected to allow reclamation of the capacity to take place. As a result, STAR will remove the capitalized cost of $48.7 million, which is included in operating equipment at December 31, 1999, and the related accounts payable balance in the first quarter of 2000. On February 11, 2000, World Access and STAR entered into a definitive agreement to merge STAR with and into World Access. Under the terms of the agreement, each share of STAR common stock will be converted into 0.3905 shares of World Access common stock. World Access may, at its election, pay up to 40% of the merger consideration in cash. The merger is subject to, among other things, certain regulatory approvals, the approval of the shareholders of World Access and STAR, and the divestiture by STAR of its prepaid card and dial around businesses for minimum net cash proceeds of $150 million. Any net proceeds in excess of the specified minimum proceeds would be added to the merger consideration. The merger will be accounted for as a purchase transaction. The transaction is expected to close by the end of the second quarter of 2000. In connection with the acquisition of PT-1 on February 4, 1999, the Company and PT-1 placed 500,000 shares of STAR common stock into escrow for issuance to certain PT-1 distributors for no consideration. As a result of subsequent negotiations, the Company entered into a distribution agreement with NY Phone Card Distributors LLC ("Distribution Co."), a partnership of distributors, on March 1, 2000. The agreement provides for a total of 400,000 shares of STAR common stock to be issued to Distribution Co. under the following arrangements: (i) 228,750 shares at the date of execution, (ii) 31,250 shares at the end of May 2000, provided that the agreement is still in effect, and (iii) 140,000 shares contingently issuable based on certain minimum purchase requirements. Under the agreement, the accounts receivable balances totaling $1.2 million as of March 1, 2000 were converted into interest free notes receivable due in monthly installments through January 2001. The agreement requires Distribution Co. to purchase a minimum of approximately $121 million of prepaid calling cards from PT-1 during the period from March 2000 through May 2001, with additional quarterly increases of three percent from June 2001 through May 2002. On March 29, 2000, STAR entered into a Letter of Intent to sell the assets of PT-1 to PT-1 Acquiror for cash proceeds of $150 million less certain liabilities, and subject to a purchase price adjustment based on an audit of PT-1 to be conducted after the close of the sale of PT-1. Due diligence is currently in process by PT-1 Acquiror and a definitive acquisition agreement is expected to be completed by April 21, 2000. This transaction is subject to shareholder approval. STAR expects to close this transaction during the second quarter of fiscal 2000 and to record a loss of approximately $100 million on this sale at closing. On April 12, 2000, STAR entered into a note agreement with WorldCom which provides for the conversion of $56.0 million of trade payables into a note payable. The note is secured by the customer base of the Company, bears interest at 16.0% per annum and is payable at the earlier of the close of the World Access, Inc. merger or August 1, 2000. Management believes that the PT-1 asset sale and the World Access merger will close as planned and the WorldCom note will be satisfied at maturity. F-28 STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 13. SUBSEQUENT EVENTS (CONTINUED) On February 14, 2000 an individual shareholder of STAR Telecommunications, Inc., filed a lawsuit in Santa Barbara Superior Court seeking to block STAR's pending merger with World Access. The suit alleges that STAR and its Board of Directors failed to take actions necessary to attain a higher valuation for the company than provided for in the World Access merger, and seeks to block the pending merger. STAR believes the lawsuit is without merit and will defend itself vigorously against the class action shareholder lawsuit. STAR has filed demurrers on the grounds that the complaints are legally deficient. F-29 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of STAR Telecommunications, Inc. and Subsidiaries We have audited in accordance with generally accepted auditing standards the consolidated financial statements of STAR Telecommunications, Inc. and Subsidiaries, included in this Form 10-K, and have issued our report thereon dated April 14, 2000. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule of valuation and qualifying accounts is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Los Angeles, California April 14, 2000 S-1 SCHEDULE II STAR TELECOMMUNICATIONS, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT BALANCE AT BEGINNING OF END OF PERIOD ACQUISITION PROVISION WRITE-OFF PERIOD ------------ ----------- --------- --------- ---------- (IN THOUSANDS) Allowance for doubtful accounts Year ended December 31, 1997............ $ 6,521 $ -- $13,770 $ (7,229) $13,062 Year ended December 31, 1998............ $13,062 $ -- $ 7,477 $ (7,978) $12,561 Year ended December 31, 1999............ $12,561 $37,925 $25,003 $(28,782) $46,707 Deferred tax valuation allowance Year ended December 31, 1997............ $ 5,152 $ -- $ 862 $ -- $ 6,014 Year ended December 31, 1998............ $ 6,014 $ -- $ 3,455 $ -- $ 9,469 Year ended December 31, 1999............ $ 9,469 $ -- $17,385 $ -- $26,854
S-2 EX-2.7 2 EX-2.7 Exhibit 2.7 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, dated as of February 11, 2000 (this "AGREEMENT"), is made and entered into among WORLD ACCESS, INC., a Delaware corporation ("WAXS"), STI Merger Co., a Delaware corporation and wholly-owned subsidiary of WAXS ("MERGER SUB"), and STAR TELECOMMUNICATIONS, INC., a Delaware corporation ("STAR"). W I T N E S S E T H: WHEREAS, the Boards of Directors of STAR and WAXS deem it advisable and in the best interests of each corporation and its respective stockholders that STAR and WAXS engage in a business combination in order to advance the long-term strategic business interests of STAR and WAXS; WHEREAS, the combination of STAR and WAXS shall be effected by the terms of this Agreement through a merger as outlined below (the "MERGER"); WHEREAS, in furtherance thereof, the respective Boards of Directors of STAR, Merger Sub and WAXS have approved the Merger, upon the terms and subject to the conditions set forth in this Agreement, pursuant to which each share of common stock, par value $0.001 per share, of STAR ("STAR COMMON STOCK") issued and outstanding immediately prior to the Effective Time (as defined in Section 1.3) will be converted into the right to receive the consideration set forth in Section 1.6; WHEREAS, for federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"), and the regulations promulgated thereunder; and WHEREAS, simultaneously with the execution and delivery of this Agreement, WAXS and Christopher E. Edgecomb and Samer Tawfik (the "PRINCIPAL STOCKHOLDERS") are entering into an agreement (the "VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT") pursuant to which each Principal Stockholder will agree to, among other things, vote in favor of the Merger and certain restrictions on the transfer of the consideration received in the Merger. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I THE MERGER 1.1 THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the General Corporation Law of the State of Delaware (the "DGCL"), STAR shall be merged with and into Merger Sub at the Effective Time (as defined below). Following the Merger, the separate corporate existence of STAR shall cease and Merger Sub shall continue as the surviving corporation (the "SURVIVING CORPORATION"). 1.2 CLOSING. Subject to the satisfaction or waiver of the conditions set forth in Article VI, the closing of the Merger and the transactions contemplated by this Agreement (the "CLOSING") will take place on the second business day following the satisfaction or waiver of such conditions, unless another time or date is agreed to in writing by the parties hereto (the date of the Closing being referred to herein as the "CLOSING DATE"). The Closing shall be held at the offices of Long Aldridge & Norman LLP, 303 Peachtree Street, Suite 5300, Atlanta, Georgia 30303, unless another place is agreed to by the parties hereto. 1.3 EFFECTIVE TIME. On the Closing Date the parties shall (i) file a certificate of merger (the "CERTIFICATE OF MERGER") in such form as is required by, and executed in accordance with, the relevant provisions of the DGCL and (ii) make all other filings or recordings required under the DGCL in connection with the Merger. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Delaware Secretary of State or at such subsequent time as WAXS and STAR shall agree and as shall be specified in the Certificate of Merger (the date and time the Merger becomes effective being the "EFFECTIVE TIME"). 1.4 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger will have the effects set forth in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers, licenses, authorizations and franchises of Merger Sub and STAR shall be vested in the Surviving Corporation, and all debts, liabilities and duties of Merger Sub and STAR shall become the debts, liabilities and duties of the Surviving Corporation. 1.5 CERTIFICATE OF INCORPORATION/BYLAWS. The certificate of incorporation and bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the certificate of incorporation and bylaws of the Surviving Corporation, until thereafter changed or amended as provided therein or by applicable law. 1.6 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the Merger and without any action on the part of WAXS, Merger Sub, STAR or the holders of any of the following securities: (a) [INTENTIONALLY OMITTED.] 2 (b) Each share of STAR Common Stock issued and outstanding and directly or indirectly owned or held by STAR or a Subsidiary thereof at the Effective Time shall, by virtue of the Merger, cease to be outstanding and shall be canceled and retired and no capital stock of WAXS or other consideration shall be delivered in exchange therefor. (c) Subject to Section 2.4, each share of STAR Common Stock issued and outstanding immediately prior to the Effective Time (other than the Dissenter's Shares (as defined in Section 8.12)) shall be converted into the right to receive, at the election of WAXS by written notice to STAR prior to the Closing, (i) the number of shares of WAXS Common Stock obtained by solving for "X" in the following formula (the "Exchange Ratio"): X = 7.81 + Z -------- 20 or (ii) such number of shares of WAXS Common Stock as shall equal sixty percent (60%) of the Exchange Ratio and an amount in cash equal to forty percent (40%) of the sum of $7.81 plus "Z" (as defined below); provided, however, that WAXS and STAR expressly agree that, notwithstanding anything in this Agreement to the contrary, in order to ensure that the Merger satisfies the continuity of interest requirement under Treasury Regulation Section 1.368-1(e), that in no event shall WAXS issue cash for more than forty-five percent (45%) of the outstanding shares of STAR Common Stock, including for purposes of this calculation cash paid for fractional shares pursuant to Section 2.4 and cash paid for Dissenters' Shares. For purposes of this Section 1.6, "Z" shall equal the PT-1 Excess Proceeds (as defined in Section 8.12) DIVIDED BY 62,856,702. All shares of STAR Common Stock, at the Effective Time, shall no longer be outstanding and shall automatically be canceled and retired and each holder of a certificate representing any such shares (a "CERTIFICATE") shall cease to have any rights with respect thereto, except as set forth in this Section 1.6(c), Section 2.4 or at law. The shares of WAXS Common Stock issued pursuant to this Section 1.6(c) together with any cash in lieu of fractional shares paid pursuant to Section 2.4 shall be referred to herein as the "MERGER CONSIDERATION." 1.7 STAR STOCK OPTIONS. (a) At the Effective Time, by virtue of the Merger and without any further action on the part of STAR, WAXS, Merger Sub or the holder of any outstanding option, warrant or other right to acquire STAR capital stock (a "STAR STOCK OPTION"), each STAR Stock Option will be automatically converted into a WAXS Stock Option (as defined in Section 3.1(b)) to purchase shares of WAXS Common Stock in an amount equal to the number of shares of STAR Common Stock covered under such STAR Stock Option multiplied by the Exchange Ratio (rounded to the nearest whole number of shares of WAXS Common Stock) at a price per share of WAXS Common Stock 3 equal to the per share option exercise price specified in the STAR Stock Option divided by the Exchange Ratio (rounded to the nearest whole cent). Each such WAXS Stock Option shall contain terms and provisions which are substantially similar to those terms, conditions and provisions governing the original STAR Stock Option, except that references to STAR in such STAR Stock Option will be deemed to refer to WAXS and the date of grant of the STAR Stock Option shall be deemed to be the date of grant of such WAXS Stock Option. At the Effective Time, for purposes of interpretation of such new WAXS Stock Option, (i) all references in any stock option plan of STAR shall be deemed to refer to WAXS; (ii) any stock option plan of STAR which governs the STAR Stock Option shall continue to govern the WAXS Stock Option substituted therefor; and (iii) WAXS shall, as soon as practicable after the Effective Time, issue to each holder of an outstanding STAR Stock Option a document evidencing the foregoing issued and substituted WAXS Stock Option by WAXS. It is the intention of the parties: (1) that, subject to applicable law, STAR Stock Options assumed by WAXS qualify, following the Effective Time, as incentive stock options, as defined in Section 422 of the Code, to the extent that STAR Stock Options qualified as incentive stock options prior to the Effective Time, (2) that each holder of a STAR Stock Option shall receive a new WAXS Stock Option which preserves (but does not increase) the excess of the fair market value of the shares subject to such STAR Stock Option immediately before the Effective Time over the aggregate option price of such shares immediately before the Effective Time, if any such excess then exists, (3) that the terms, conditions, restrictions and provisions of the WAXS Stock Option be substantially similar to the terms, conditions, restrictions and provisions of the STAR Stock Option, and (4) any terms conditions, restrictions or provisions of a STAR Stock Option applicable to a number of shares rather than a percentage or fraction of shares should be appropriately adjusted based upon the Exchange Ratio. Without the prior written consent of WAXS (which may be withheld in its discretion), no new options shall be issued by STAR on or after the date hereof, including, without limitation, under any stock option plan currently maintained by STAR. (b) With respect to each STAR Stock Option converted into a WAXS Stock Option pursuant to Section 1.7(a), and with respect to the shares of WAXS Common Stock underlying such option, WAXS shall file and keep current all requisite registration statements, on Form S-8 or other appropriate form, for as long as such options remain outstanding, which registration statement shall include a prospectus meeting the requirements of General Instruction C to Form S-8 with respect to affiliates of STAR, subject at all times to compliance with all applicable federal and state securities laws. (c) After the date of this Agreement, STAR agrees that it will not grant any restricted stock, stock appreciation rights or limited stock appreciation rights and also agrees that it will not permit cash payments to holders of STAR Stock Options in lieu of the substitution therefor of WAXS Stock Options, as described in this Section 1.7. 1.8 CERTAIN ADJUSTMENTS. If between the date hereof and the Effective Time, the outstanding WAXS Common Stock or STAR Common Stock shall have been changed into a different number of shares or different class by reason of any reclassification, recapitalization, stock split, split-up, combination, exchange of shares or similar capital stock event or a stock dividend or 4 dividend payable in any other securities shall be declared with a record date within such period, or any similar event shall have occurred, the Exchange Ratio shall be appropriately adjusted to provide to the holders of STAR Common Stock and the holders of STAR Stock Options the same economic effect as contemplated by this Agreement prior to such event. ARTICLE II EXCHANGE OF CERTIFICATES 2.1 EXCHANGE FUND. At least five (5) days prior to the mailing of the Joint Proxy Statement/Prospectus (as defined in Section 5.1), WAXS shall appoint a commercial bank or trust company reasonably acceptable to STAR to act as exchange agent hereunder (the "EXCHANGE AGENT") for the purpose of exchanging Certificates for the Merger Consideration. Immediately prior to the Effective Time, WAXS shall deposit with the Exchange Agent, in trust for the benefit of holders of shares of STAR Common Stock, cash payable and certificates representing the WAXS Common Stock issuable pursuant to Section 1.6 in exchange for outstanding shares of STAR Common Stock. WAXS agrees to deposit with the Exchange Agent from time to time as needed, cash sufficient to pay cash in lieu of fractional shares pursuant to Section 2.4 and any dividends and other distributions pursuant to Section 2.3. Any cash and certificates of WAXS Common Stock deposited with the Exchange Agent shall hereinafter be referred to as the "EXCHANGE FUND". 2.2 EXCHANGE PROCEDURES. As soon as reasonably practicable after the Effective Time, WAXS shall cause the Exchange Agent to mail to each holder of a Certificate (other than to holders of Dissenter's Shares) (i) a letter of transmittal which shall advise such holder of the effectiveness of the Merger and specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent, and which letter shall be in customary form and have such other provisions as WAXS may reasonably specify and (ii) instructions for effecting the surrender of such Certificates in exchange for the applicable Merger Consideration. Upon surrender of a Certificate to the Exchange Agent together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor promptly (A) one or more shares of WAXS Common Stock (which shall be in uncertificated book entry form unless a physical certificate is requested) representing, in the aggregate, the whole number of shares that such holder has the right to receive pursuant to Section 1.6 (after taking into account all shares of STAR Common Stock then held by such holder), and (B) a check in the amount equal to the cash that such holder has the right to receive pursuant to the provisions of Section 1.6(c), if any, and this Article II, including cash in lieu of any additional shares of WAXS Common Stock pursuant to Section 2.4 and dividends and other distributions pursuant to Section 2.3. No interest will be paid or will accrue on any cash payable pursuant to 1.6(c), Section 2.3 or Section 2.4. In the event of transfer of ownership of STAR Common Stock which is not registered in the transfer records of STAR, one or more shares of WAXS Common Stock evidencing, in the aggregate, the proper number of shares of WAXS Common Stock, a check in the proper amount of cash in lieu of any additional shares of WAXS 5 Common Stock pursuant to Section 2.4, a check in the proper amount of cash pursuant to Section 1.6(c) and any dividends or other distributions to which such holder is entitled pursuant to Section 2.3, may be issued with respect to such STAR Common Stock to such a transferee if the Certificate representing such shares of STAR Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. 2.3 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED CERTIFICATES. No dividends or other distributions declared or made with respect to shares of WAXS Common Stock with a record date after the Effective Time shall be paid to the holder of any unexchanged Certificate with respect to the shares of WAXS Common Stock that such holder would be entitled to receive upon surrender of such Certificate and no cash payment in lieu of fractional shares of WAXS Common Stock shall be paid to any such holder pursuant to Section 2.4 until such holder shall surrender such Certificate in accordance with Section 2.2. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to such holder of shares of WAXS Common Stock issuable in exchange therefor, without interest, (a) promptly after the time of such surrender, the amount of any cash payable in lieu of fractional shares of WAXS Common Stock to which such holder is entitled pursuant to Section 2.4 and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of WAXS Common Stock, and (b) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date subsequent to such surrender payable with respect to such shares of WAXS Common Stock. 2.4 NO FRACTIONAL SHARES OF WAXS COMMON STOCK. (a) No certificates or scrip or shares of WAXS Common Stock representing fractional shares of WAXS Common Stock or book-entry credit of the same shall be issued upon the surrender for exchange of Certificates and such fractional share interests will not entitle the owner thereof to vote or to have any rights of a stockholder of or a holder of shares of WAXS Common Stock. (b) Notwithstanding any other provision of this Agreement, each holder of shares of STAR Common Stock exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of WAXS Common Stock (after taking into account all Certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to the product of (i) such fractional part of a share of WAXS Common Stock multiplied by (ii) the average of the daily closing price for a share of WAXS Common Stock on the Nasdaq for the ten (10) consecutive trading days in which such shares are traded on the Nasdaq, ending at the close of trading on the date of the Effective Time or, if such date is not a business day, the business day immediately preceding the date on which the Effective Time occurs. As promptly as practicable after the determination of the amount of cash, if any, to be paid to holders of fractional interests, the Exchange Agent shall so notify WAXS, and WAXS shall promptly deposit such amount with the Exchange Agent and shall cause the Exchange Agent to promptly forward payments to such holders of fractional interests subject to and in accordance with the terms hereof. 6 2.5 NO FURTHER OWNERSHIP RIGHTS IN STAR COMMON STOCK. As applicable, all shares of WAXS Common Stock issued and cash paid upon conversion of shares of STAR Common Stock in accordance with the terms of Article I and this Article II (including any cash paid pursuant to Section 2.4) shall be deemed to have been issued or paid in full satisfaction of all rights pertaining to the shares of STAR Common Stock. 2.6 TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which remains undistributed to the holders of Certificates for six (6) months after the Effective Time shall be delivered to the Surviving Corporation or otherwise on the instruction of the Surviving Corporation, and any holders of the Certificates who have not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation and WAXS for the Merger Consideration with respect to the shares of STAR Common Stock formerly represented thereby to which such holders are entitled pursuant to Section 1.6 and Section 2.2, any cash in lieu of fractional shares of WAXS Common Stock to which such holders are entitled pursuant to Section 2.4 and any dividends or distributions with respect to shares of WAXS Common Stock to which such holders are entitled pursuant to Section 2.3. Any such portion of the Exchange Fund remaining unclaimed by holders of shares of STAR Common Stock five (5) years after the Effective Time (or such earlier date immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Entity (as defined in Section 3.1(c)(3)) shall, to the extent permitted by law, become the property of the Surviving Corporation free and clear of any claims or interest of any Person previously entitled thereto. 2.7 NO LIABILITY. None of WAXS, Merger Sub, STAR, the Surviving Corporation or the Exchange Agent shall be liable to any Person in respect of any Merger Consideration from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 2.8 INVESTMENT OF THE EXCHANGE FUND. The Exchange Agent shall invest any cash included in the Exchange Fund as directed by the Surviving Corporation on a daily basis. Any interest and other income resulting from such investments shall promptly be paid to the Surviving Corporation. 2.9 LOST CERTIFICATES. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such Person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will deliver in exchange for such lost stolen or destroyed Certificate the applicable Merger Consideration with respect to the shares of STAR Common Stock formerly represented thereby, any cash in lieu of fractional shares of WAXS Common Stock, and unpaid dividends and distributions on shares of WAXS Common Stock deliverable in respect thereof, pursuant to this Agreement. 7 2.10 WITHHOLDING RIGHTS. Each of the Surviving Corporation and WAXS shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of STAR Common Stock such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code and the rules and regulations promulgated thereunder, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Surviving Corporation or WAXS, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of STAR Common Stock in respect of which such deduction and withholding was made by the Surviving Corporation or WAXS, as the case may be. 2.11 STOCK TRANSFER BOOKS. The stock transfer books of STAR shall be closed immediately upon the Effective Time and there shall be no further registration of transfers of shares of STAR Common Stock thereafter on the records of STAR. On or after the Effective Time, any Certificates presented to the Exchange Agent or WAXS for any reason shall be converted as provided in Articles I and II hereof. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 REPRESENTATIONS AND WARRANTIES OF WAXS AND MERGER SUB. Except as set forth in the WAXS SEC Reports (as defined below) filed and publicly available prior to the date hereof or the WAXS Disclosure Schedule delivered by WAXS to STAR prior to the execution of this Agreement (the "WAXS DISCLOSURE SCHEDULE") (each section of which qualifies the correspondingly numbered representation and warranty or covenant to the extent specified therein), WAXS and Merger Sub represent and warrant to STAR as follows: (a) ORGANIZATION; STANDING AND POWER; SUBSIDIARIES. (1) Each of WAXS, its Subsidiaries (as defined in Section 8.12) and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a Material Adverse Effect on WAXS, and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary other than in such jurisdictions where the failure to so qualify or to be in good standing would not have a Material Adverse Effect on WAXS. The copies of the certificate of incorporation and bylaws of WAXS and Merger Sub which were previously furnished or made available to STAR are true, complete and correct copies of such documents as in effect on the date of this Agreement. 8 (2) Exhibit 21.1 to WAXS's Annual Report on Form 10-K for the year ended December 31, 1998 includes all the Subsidiaries of WAXS which as of the date of this Agreement are Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X of the SEC). All the outstanding shares of capital stock of, or other equity interests in, each such Significant Subsidiary have been validly issued and are fully paid and nonassessable and are owned directly or indirectly by WAXS, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively "LIENS") and free of any other restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests). Neither WAXS nor any of its Subsidiaries directly or indirectly owns any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity (other than the Subsidiaries of WAXS) that is or would reasonably be expected to be material to WAXS and its Subsidiaries taken as a whole. (b) CAPITAL STRUCTURE. As of February 7, 2000: (1) The authorized capital stock of WAXS consists of (A) 150,000,000 shares of WAXS Common Stock, of which 53,787,805 shares are outstanding and no shares are held in the treasury of WAXS and (B) 10,000,000 shares of Preferred Stock, par value $.01 per share, of which 50,000 shares designated as 4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A, par value $.01 per share (the "SERIES A PREFERRED STOCK"), and 350,259.875 shares designated as Convertible Preferred Stock, Series C (the "SERIES C PREFERRED STOCK"), are outstanding. WAXS has reserved or has available 4,347,827 shares of WAXS Common Stock for issuance upon conversion of the Series A Preferred Stock and 18,027,478 shares of WAXS Common Stock for issuance upon conversion of the Series C Preferred Stock. All issued and outstanding shares of the capital stock of WAXS are duly authorized, validly issued, fully paid and nonassessable, and no class of capital stock is entitled to preemptive rights. In addition to the rights described in Section 3.1(b) of the WAXS Disclosure Schedule, there are outstanding options, warrants or other rights (a "WAXS STOCK OPTION") to acquire 13,133,837 shares of capital stock from WAXS. (2) No bonds, debentures, notes or other indebtedness of WAXS having the right to vote on any matters on which holders of capital stock of WAXS may vote ("WAXS VOTING DEBT") are issued or outstanding. (3) Except as otherwise set forth in this Section 3.1(b) and as contemplated by Section 1.5 and Section 1.6, there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which WAXS or any of its Subsidiaries is a party or by which any of them is bound obligating WAXS or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of WAXS or any of its Subsidiaries or obligating WAXS or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call right, commitment, agreement, arrangement or 9 undertaking. There are no outstanding obligations of WAXS or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of WAXS or any of its Subsidiaries. (c) AUTHORITY; NO CONFLICTS. (1) WAXS and Merger Sub have all requisite corporate power and authority to enter into this Agreement and to consummate the Merger and the other transactions contemplated hereby, subject, in the case of WAXS, to the approval by the stockholders of WAXS by the Required WAXS Vote (as defined in Section 3.1(g)) of this Agreement, the Merger and the other transactions contemplated hereby and, in the case of Merger Sub, the affirmative vote of WAXS, as sole stockholder thereof, of this Agreement, the Merger and the other transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the Merger and the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of WAXS and Merger Sub, subject, in the case of WAXS, to the approval by the stockholders of WAXS of this Agreement, the Merger and the transactions contemplated hereby by the Required WAXS Vote and subject, in the case of Merger Sub, to the affirmative vote of WAXS, as sole stockholder thereof, of this Agreement, the Merger and the other transactions contemplated hereby. This Agreement has been duly executed and delivered by WAXS and Merger Sub and constitutes a valid and binding agreement of each of WAXS and Merger Sub, enforceable against it in accordance with its terms, except to the extent that its enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). (2) Subject, in the case of WAXS, to the approval by the stockholders of WAXS of this Agreement, the Merger and the transactions contemplated hereby by the Required WAXS Vote and, in the case of Merger Sub, the affirmative vote of WAXS, as sole stockholder thereof, of this Agreement, the Merger and the other transactions contemplated hereby, the execution and delivery of this Agreement by WAXS and Merger Sub does not, and the consummation by WAXS and Merger Sub of the Merger and the other actions contemplated hereby will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, amendment, cancellation or acceleration of any obligation or the loss of a material benefit under, or the creation of a Lien on any assets (any such conflict, violation, default, right of termination, amendment, cancellation or acceleration, loss or creation, a "VIOLATION") of: (A) any provision of the certificate of incorporation or bylaws of WAXS, any Subsidiary of WAXS or Merger Sub, or (B) except as would not have a Material Adverse Effect on WAXS and subject to obtaining or making the consents, approvals, orders, authorizations, registrations, declarations and filings referred to in paragraph (3) below, any loan or credit agreement, note, mortgage, bond, indenture, lease, or other agreement, obligation, instrument, permit, concession, franchise, license, judgment, order, decree, 10 statute, law, ordinance, rule or regulation applicable to WAXS, any Subsidiary of WAXS or their respective properties or assets. (3) No consent, approval, order or authorization of, or registration, declaration or filing with, any supranational, national, state, municipal, local or foreign government, any instrumentality, subdivision, court, administrative agency or commission or other authority thereof, or any quasi-governmental or private body exercising any supranational, national, state, municipal, local or foreign regulatory, taxing, importing or other governmental or quasi-governmental authority (a "GOVERNMENTAL ENTITY"), is required by or with respect to WAXS, any Subsidiary of WAXS or Merger Sub in connection with the execution and delivery of this Agreement by WAXS or Merger Sub or the consummation of the Merger and the other transactions contemplated hereby, except for those required under or in relation to (A) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), (B) state securities or "blue sky" laws (the "BLUE SKY LAWS"), (C) the Communications Act of 1996, as amended (the "COMMUNICATIONS ACT"), and all applicable state public utilities laws, (D) the Securities Act, (E) the Exchange Act, (F) the DGCL with respect to the filing of the Certificate of Merger, (G) rules and regulations of Nasdaq, (H) antitrust or other competition laws of other jurisdictions, (I) such consents, approvals, orders, authorizations, registrations, declarations and filings as are required by applicable laws, regulations and rules governing the telecommunications business including, without limitation, those of the United States Federal Communication Commission (the "FCC"), (J) any filings and approvals expressly contemplated by this Agreement, and (K) such consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to make or obtain would not have a Material Adverse Effect on WAXS. Consents, approvals, orders, authorizations, registrations, declarations and filings required under or in relation to any of the foregoing clauses (A) through (K) are hereinafter referred to as "NECESSARY CONSENTS". (d) REPORTS AND FINANCIAL STATEMENTS. (1) WAXS has filed all required registration statements, prospectuses, reports, schedules, forms, statements and other documents required to be filed by it under the federal securities laws with the SEC since January 1, 1998 (collectively, including all exhibits thereto, the "WAXS SEC REPORTS"). No Subsidiary of WAXS, including, without limitation Merger Sub, is required to file any form, report, registration statement, prospectus or other document with the SEC not otherwise filed with a WAXS SEC Report. As of the respective times such documents were filed or, as applicable, became effective, or as subsequently amended, the WAXS SEC Reports complied as to form and content, in all material respects, with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations promulgated thereunder and, taken as a whole, the WAXS SEC Reports do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the financial statements (including the related notes) included in the WAXS SEC Reports (or, 11 if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) presents fairly, in all material respects, the consolidated financial position and consolidated results of operations and cash flows of WAXS and its Subsidiaries as of the respective dates or for the respective periods set forth therein all in conformity with GAAP consistently applied during the periods involved except as otherwise noted therein, and subject, in the case of the unaudited interim financial statements, to normal and recurring year-end adjustments that have not been and are not expected to be material in amount. All of such WAXS SEC Reports, as of their respective dates (or as of the date of any amendment to the respective WAXS SEC Report filed prior to the date of this Agreement), complied or will comply as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder. (2) Since December 31, 1998, WAXS and its Subsidiaries have not incurred any liabilities that are of a nature that would be required to be disclosed on a balance sheet of WAXS and its Subsidiaries or the footnotes thereto prepared in conformity with GAAP, other than (A) liabilities incurred in the ordinary course of business or (B) liabilities that would not have a Material Adverse Effect on WAXS. (e) INFORMATION SUPPLIED. None of the information supplied or to be supplied by WAXS for inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus (as defined herein) will, on the date it is first mailed to WAXS's and STAR's stockholders, as applicable, or at the time of the WAXS Stockholders Meeting or the STAR Stockholders Meeting, as applicable, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Joint Proxy Statement/Prospectus will, on the date it is first mailed to WAXS's and STAR's stockholders and at the time of the WAXS Stockholders Meeting and the STAR Stockholders Meeting, comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. (f) WAXS BOARD APPROVAL. The Board of Directors of WAXS, by resolutions duly adopted by unanimous vote at a meeting duly called and held and not subsequently rescinded or modified in any way (the "WAXS BOARD APPROVAL"), has duly (i) determined that this Agreement, the Merger and the other transactions contemplated hereby are fair to and in the best interests of WAXS and its stockholders, (ii) approved this Agreement, the Merger and the other transactions contemplated hereby and (iii) declared the advisability of this Agreement, the Merger and the other transactions contemplated hereby, and, further, (iv) recommended that the stockholders of WAXS approve and adopt this Agreement, the Merger and the other transactions contemplated hereby and directed that this Agreement and the transactions contemplated hereby be submitted for consideration by WAXS's stockholders at the WAXS Stockholders Meeting. (g) REQUIRED WAXS STOCKHOLDER VOTE. The affirmative vote of holders of shares of WAXS Common Stock, Series A Preferred Stock and Series C Preferred Stock, voting together as a single class, representing a majority of the outstanding shares of WAXS Common Stock, Series A Preferred Stock and Series C Preferred Stock (the "REQUIRED WAXS VOTE"), is the only vote of 12 the holders of any class or series of WAXS capital stock necessary to adopt this Agreement and approve the Merger and the other transactions contemplated hereby. (h) REQUIRED MERGER SUB BOARD APPROVAL. The Board of Directors of Merger Sub, by resolutions duly adopted by a unanimous written consent and not subsequently rescinded or modified in any way, has duly (i) determined that this Agreement, the Merger and the other transactions contemplated hereby are fair to and in the best interests of Merger Sub and its sole stockholder, WAXS, (ii) approved this Agreement, the Merger and the other transactions contemplated hereby and (iii) declared the advisability of this Agreement, the Merger and the other transactions contemplated hereby, and, further, (iv) recommended that WAXS adopt this Agreement and approve the Merger and the other transactions contemplated hereby and directed that this Agreement and the transactions contemplated hereby be submitted for consideration by WAXS at a meeting duly called. (i) REQUIRED MERGER SUB STOCKHOLDER VOTE. The affirmative vote of WAXS, as sole stockholder of Merger Sub, is the only vote of the holders of any class or series of Merger Sub capital stock necessary to adopt this Agreement and approve the Merger and the other transactions contemplated hereby. (j) LITIGATION: COMPLIANCE WITH LAWS. (1) There is no suit, investigation, action or proceeding pending or, to the Knowledge of WAXS, threatened, against or affecting WAXS or any Subsidiary of WAXS having, or which would have a Material Adverse Effect on WAXS, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against WAXS or any Subsidiary of WAXS having, or which would have a Material Adverse Effect on WAXS. (2) Except as would not have a Material Adverse Effect on WAXS, WAXS and its Subsidiaries hold all permits, licenses, variances, authorizations, exemptions, orders and approvals of all Governmental Entities including, without limitation, the FCC and state public utilities commissions, which are necessary for the operation of the businesses of WAXS and its Subsidiaries (the "WAXS PERMITS"). Such WAXS permits are valid and in full force and effect and WAXS and its Subsidiaries are in compliance with the terms of the WAXS Permits, except where the failure to be valid and in full force and effect or to so comply would not have a Material Adverse Effect on WAXS. The businesses of WAXS and its Subsidiaries are not being conducted in violation of, and WAXS has not received any notices of violations with respect to, any law, ordinance or regulation of any Governmental Entity, except for possible violations which would not have a Material Adverse Effect on WAXS. WAXS is not aware of any threatened suspension, cancellation or invalidation of any such WAXS Permit. Except as set forth in the WAXS SEC Reports or except as would not have a Material Adverse Effect on WAXS, neither WAXS nor any of its Subsidiaries has received notice from either the FCC or any state public utilities commissions of any 13 complaint filed therewith concerning WAXS or any of its Subsidiaries, operations or services. (k) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for liabilities incurred in connection with this Agreement or the transactions contemplated hereby, and except as permitted by Section 4.1, since December 31, 1998 through and including the date hereof, (i) WAXS and its Subsidiaries have conducted, in all material respects, their business only in the ordinary course and (ii) there has not been any change, circumstance or event which has had, or would reasonably be expected to have, a Material Adverse Effect on WAXS, other than any change, circumstance or effect relating (A) to the economy or financial markets in general, or (B) in general to the industries in which WAXS and its Subsidiaries operate and not specifically relating to WAXS and its Subsidiaries. (l) INTELLECTUAL PROPERTY. Except as would not have a Material Adverse Effect on WAXS: (i) WAXS and each of its Subsidiaries owns, or is licensed to use (in each case, free and clear of any Liens, or claim of rights therein by any third party) all Intellectual Property (as defined below) used in or necessary for the conduct of its business as currently conducted, (ii) the use of any Intellectual Property by WAXS and its Subsidiaries does not infringe on or otherwise violate the rights of any Person and is in accordance with any applicable license pursuant to which WAXS or any Subsidiary acquired the right to use any Intellectual Property; (iii) to the Knowledge of WAXS, no Person is challenging, infringing on or otherwise violating any right of WAXS or any of its Subsidiaries with respect to any Intellectual Property owned by and/or licensed to WAXS or its Subsidiaries; and (iv) neither WAXS nor any of its Subsidiaries has received any written notice of any pending claim with respect to any Intellectual Property used by WAXS and its Subsidiaries and to WAXS's Knowledge no Intellectual Property owned and/or licensed by WAXS or its Subsidiaries is being used or enforced in a manner that would result in the abandonment, cancellation or unenforceability of such Intellectual Property. For purposes of this Agreement, "INTELLECTUAL PROPERTY" shall mean trademarks, service marks, brand names, certification marks, trade dress and other indications of origin, the goodwill associated with the foregoing and registrations in any jurisdiction of, and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration or application; inventions, discoveries and ideas, whether patentable or not, in any jurisdiction; patents, applications for patents (including, without limitation, divisions, continuations, continuations in part and renewal applications), and any renewals, extensions or reissues thereof, in any jurisdiction; non-public information, trade secrets and confidential information and rights in any jurisdiction to limit the use or disclosure thereof by any person; writings and other works, whether copyrightable or not, in any jurisdiction; registrations or applications for registration of copyrights in any jurisdiction, and any renewals or extensions thereof; any similar intellectual property or proprietary rights; and any claims or causes of action arising out of or relating to any infringement or misappropriation of any of the foregoing. (m) BROKERS OR FINDERS. No agent, broker, investment banker, financial advisor or other firm or Person is or will be entitled to any broker's or finder's fee or any other similar commission or fee in connection with any of the transactions contemplated by this Agreement based upon arrangements made by or on behalf of WAXS, except Donaldson, Lufkin & Jenrette Securities 14 Corporation (the "WAXS FINANCIAL ADVISOR"), whose fees and expenses will be paid by WAXS in accordance with WAXS's agreement with such firm, a copy of which has been, or will be promptly when available, provided to STAR. (n) OPINION OF WAXS FINANCIAL ADVISOR. WAXS has received the opinion of the WAXS Financial Advisor, dated the date of this Agreement, to the effect that as of such date, the Merger Consideration is fair, from a financial point of view, to WAXS and its stockholders, a copy of which has been provided to STAR. (o) TAXES. (1) (i) All material Tax Returns of WAXS and each of its Subsidiaries have been filed, or requests for extensions have been timely filed and have not expired; (ii) all Tax Returns filed by WAXS and its Subsidiaries are complete and accurate in all material respects; (iii) all Taxes shown to be due on such Tax Returns or on subsequent assessments with respect thereto have been paid or adequate reserves have been established for the payment of such Taxes, and no other material Taxes are payable by WAXS or any of its Subsidiaries with respect to items or periods covered by such Tax Returns (whether or not shown on or reportable on such Tax Returns) or with respect to any period prior to the date of this Agreement; (iv) there are no material liens on any of the assets of WAXS or any of its Subsidiaries with respect to Taxes, other than liens for Taxes not yet due and payable or for Taxes that WAXS and its Subsidiaries is contesting in good faith through appropriate proceedings and for which appropriate reserves have been established; and (v) there is no audit, examination, deficiency or refund litigation or matter in controversy with respect to any Taxes of WAXS and its Subsidiaries that might reasonably be expected to result in a Tax determination which would have a Material Adverse Effect on WAXS. (2) There are no contracts, agreements, plans or arrangements, including but not limited to the provisions of this Agreement, covering any employee or former employee of WAXS or any of its Subsidiaries that, individually or collectively, could give rise to the payment of any amount (or portion thereof) that would not be deductible pursuant to Sections 280G, 404, or 162 of the Code. (3) Neither WAXS nor any of its Subsidiaries is a party to a Tax Sharing Agreement. (p) CERTAIN CONTRACTS. Neither WAXS nor any of its Subsidiaries is a party to or bound by (i) any "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC), (ii) any noncompetition agreement or any other agreement or arrangement that limits or otherwise restricts WAXS or any of its Subsidiaries or any successor thereto, from engaging or competing in any line of business or in any geographic area, which agreement or arrangement would have a Material Adverse Effect on WAXS or the Surviving Corporation after giving effect to the Merger, or (iii) any agreement or arrangement between WAXS or any of its Subsidiaries, on the one hand, and any affiliates, directors or officers of WAXS or its Subsidiaries, on the other hand, that 15 is not on arm's-length terms. All contracts filed with the WAXS SEC Reports and the contracts listed on Section 3.1(p) of the WAXS Disclosure Schedule are valid, binding and are in full force and effect and enforceable in accordance with their respective terms, except to the extent that such enforceability may be subject to applicable bankruptcy, insolvency, moratorium, reorganization, or other laws affecting the enforcement or creditors' rights generally or by general equitable principles, and other than such contracts which by their terms are no longer in force or effect. Neither WAXS nor its Subsidiaries are in violation or breach of or default under any such contract, nor to WAXS's and its Subsidiaries' Knowledge, is any other party to any such contract in violation or breach or other default under any such contract, except for any such violation, breach or default which would not have a Material Adverse Effect on WAXS. 3.2 REPRESENTATIONS AND WARRANTIES OF STAR. Except as set forth in the STAR SEC Reports (as defined below) filed and publicly available prior to the date hereof or the STAR Disclosure Schedule delivered by STAR to WAXS prior to the execution of this Agreement (the "STAR DISCLOSURE SCHEDULE") (each section of which qualifies the correspondingly numbered representation and warranty or covenant to the extent specified therein), STAR represents and warrants to WAXS as follows: (a) ORGANIZATION; STANDING AND POWER; SUBSIDIARIES. (1) Each of STAR and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a Material Adverse Effect on STAR, and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, other than in such jurisdictions where the failure to so qualify or to be in good standing would not have a Material Adverse Effect on STAR. The copies of the certificate of incorporation and bylaws of STAR which were previously furnished or made available to WAXS are true, complete and correct copies of such documents as in effect on the date of this Agreement. (2) Exhibit 21.1 to STAR's Annual Report on Form 10-K for the year ended December 31, 1998 includes all the Subsidiaries of STAR which as of the date of this Agreement are Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X of the SEC). All the outstanding shares of capital stock of, or other equity interests in, each such Significant Subsidiary have been validly issued and are fully paid and nonassessable and are owned directly or indirectly by STAR, free and clear of all Liens and free of any other restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests). Neither STAR nor any of its Subsidiaries directly or indirectly owns any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity (other than the Subsidiaries of STAR), 16 that is or would reasonably be expected to be material to STAR and its Subsidiaries taken as a whole. (b) CAPITAL STRUCTURE. (1) The authorized capital stock of STAR consists of (A) 50,000,000 shares of STAR Common Stock, of which 58,683,131 shares are outstanding and no shares are held in the treasury of STAR and (B) 5,000,000 shares of preferred stock, par value $0.001 per share, of which no shares are outstanding. All issued and outstanding shares of the capital stock of STAR are duly authorized, validly issued, fully paid and nonassessable, and no class of capital stock is entitled to preemptive rights. There are outstanding options, warrants or other rights to acquire 4,173,571 shares of capital stock from STAR. Section 3.2(b) of the STAR Disclosure Schedule lists the exercise price and vesting schedule for each STAR Stock Option. (2) No bonds, debentures, notes or other indebtedness of STAR having the right to vote on any matters on which holders of capital stock of STAR may vote ("STAR VOTING DEBT") are issued or outstanding. (3) Except as otherwise set forth in this Section 3.2(b), there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which STAR or any of its Subsidiaries is a party or by which any of them is bound obligating STAR or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of STAR or any of its Subsidiaries or obligating STAR or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are no outstanding obligations of STAR or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of STAR or any of its Subsidiaries. (c) AUTHORITY; NO CONFLICTS. (1) STAR has all requisite corporate power and authority to enter into this Agreement and to consummate the Merger and the other transactions contemplated hereby, subject to the approval by the stockholders of STAR by the Required STAR Vote (as defined in Section 3.2(g)) of this Agreement, the Merger and the other transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the Merger and the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of STAR, subject to the approval by the stockholders of STAR of this Agreement and the Merger and the other transactions contemplated hereby by the Required STAR Vote. This Agreement has been duly executed and delivered by STAR and constitutes a valid and binding agreement of STAR, enforceable against it in accordance with its terms, except to the extent that its enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' 17 rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). (2) Subject to the approval by the stockholders of STAR of this Agreement, the Merger and the other transactions contemplated hereby by the Required STAR Vote, the execution and delivery of this Agreement by STAR does not, and the consummation by STAR of the Merger and the other actions contemplated hereby will not, conflict with, or result in a Violation of: (A) any provision of the certificate of incorporation or bylaws of STAR or a Shareholder or any Subsidiary of STAR or (B) except as would not have a Material Adverse Effect on STAR, subject to obtaining or making the consents, approvals, orders, authorizations, registrations, declarations and filings referred to in paragraph (3) below, any loan or credit agreement, note, mortgage, bond, indenture, lease, or other agreement, obligation, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to STAR, any Subsidiary of STAR or their respective properties or assets. (3) No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to STAR or any Subsidiary of STAR in connection with the execution and delivery of this Agreement by STAR, or the consummation of the Merger and the other transactions contemplated hereby, except the Necessary Consents and such consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to make or obtain would not have a Material Adverse Effect on STAR. (d) REPORTS AND FINANCIAL STATEMENTS. (1) STAR has filed all required registration statements, prospectuses, reports, schedules, forms, statements and other documents required to be filed by it under the federal securities laws with the SEC since January 1, 1998 (collectively, including all exhibits thereto, the "STAR SEC REPORTS"). No Subsidiary of STAR is required to file any form, report, registration statement or prospectus or other document with the SEC not otherwise filed with an STAR SEC Report. As of the respective times such documents were filed or, as applicable, became effective, or as subsequently amended, the STAR SEC Reports complied as to form and content, in all material respects, with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations promulgated thereunder, and, taken as a whole, the STAR SEC Reports do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the financial statements (including the related notes) included in the STAR SEC Reports (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) presents fairly, in all material respects, the consolidated financial position and consolidated results of operations and cash flows of STAR and its Subsidiaries as of the respective dates or for the respective periods set forth therein, all in conformity with GAAP consistently applied during the periods 18 involved except as otherwise noted therein, and subject, in the case of the unaudited interim financial statements, to normal and recurring year-end adjustments that have not been and are not expected to be material in amount. All of such STAR SEC Reports, as of their respective dates (or as of the date of any amendment to the respective STAR SEC Report filed prior to the date of this Agreement), complied or will comply as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder. (2) Since December 31, 1998, STAR and its Subsidiaries have not incurred any liabilities that are of a nature that would be required to be disclosed on a balance sheet of STAR and its Subsidiaries or the footnotes thereto prepared in conformity with GAAP, other than (A) liabilities incurred in the ordinary course of business or (B) liabilities that would not have a Material Adverse Effect on STAR. (e) INFORMATION SUPPLIED. None of the information supplied or to be supplied by STAR for inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus will, on the date it is first mailed to WAXS's or STAR's stockholders, as applicable, or at the time of the WAXS Stockholders Meeting (as defined in Section 5.1) or the STAR Stockholders Meeting, as applicable, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) BOARD APPROVAL. The Board of Directors of STAR, by resolutions duly adopted by unanimous vote at a meeting duly called and held and not subsequently rescinded or modified in any way (the "STAR BOARD APPROVAL"), has duly (i) determined that this Agreement, the Merger and the other transactions contemplated hereby are fair to and in the best interests of STAR and its stockholders, (ii) approved this Agreement, the Merger and the other transactions contemplated hereby and (iii) declared the advisability of this Agreement, the Merger and the other transactions contemplated hereby, and, further, (iv) recommended that the stockholders of STAR approve and adopt this Agreement, the Merger and the other transactions contemplated hereby and directed that this Agreement and the transactions contemplated hereby be submitted for consideration by STAR's stockholders. (g) REQUIRED STOCKHOLDER VOTE. The affirmative vote of the holders of a majority of the outstanding shares of STAR Common Stock (the "REQUIRED STAR VOTE") is the only vote of the holders of any class or series of STAR capital stock necessary to adopt this Agreement and approve the Merger and the other transactions contemplated hereby. (h) LITIGATION: COMPLIANCE WITH LAWS. (1) There is no suit, investigation, action or proceeding pending or, to the Knowledge of STAR, threatened, against or affecting STAR or any Subsidiary of STAR having, or which would have a Material Adverse Effect on STAR, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against 19 STAR or any Subsidiary of STAR having, or which would have a Material Adverse Effect on STAR. (2) Except as would not have a Material Adverse Effect on STAR, STAR and its Subsidiaries hold all permits, licenses, variances, authorizations, exemptions, orders and approvals of all Governmental Entities including, without limitation, the FCC and state public utilities commissions, necessary for the operation of the businesses of STAR and its Subsidiaries (the "STAR PERMITS"). Such STAR permits are valid and in full force and effect and STAR and its Subsidiaries are in compliance with the terms of the STAR Permits, except where the failure to be valid and in full force and effect or to so comply would not have a Material Adverse Effect on STAR. The businesses of STAR and its Subsidiaries are not being conducted in violation of, and STAR has not received any notices of violations with respect to, any law, ordinance or regulation of any Governmental Entity, except for possible violations which would not have a Material Adverse Effect on STAR. STAR is not aware of any threatened suspension, cancellation or invalidation of any STAR Permit. Except as set forth in the STAR SEC Reports or except as would not have a Material Adverse Effect on STAR, STAR has not received notice from either the FCC or any state public utilities commissions of any complaint filed therewith concerning STAR or any of its Subsidiaries, operations or services. (i) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for liabilities incurred in connection with this Agreement or the transactions contemplated hereby, except as disclosed in the STAR SEC Reports filed prior to the date of this Agreement, and except as permitted by Section 4.2, since December 31, 1998 through and including the date hereof, (i) STAR and its Subsidiaries have conducted, in all material respects, their business only in the ordinary course and (ii) there has not been any change, circumstance or event which has had, or would reasonably be expected to have, a Material Adverse Effect on STAR, other than any change, circumstance or effect relating (A) to the economy or financial markets in general, or (B) in general to the industries in which STAR and its Subsidiaries operate and not specifically relating to STAR and its Subsidiaries. (j) EMPLOYEE BENEFITS MATTERS. (1) Section 3.2(j)(l) of the STAR Disclosure Schedule sets forth a list of all material agreements, arrangements, commitments, and policies (i) which relate to employee benefits; (ii) which pertain to present or former employees, retirees, directors or independent contractors (or their beneficiaries, dependents or spouses) of STAR; and (iii) which are currently or expected to be adopted, maintained by, sponsored by, or contributed to by STAR or any other employer (a "STAR AFFILIATE") which, under Section 414 of the Code, would constitute a single employer with STAR (collectively referred to as "STAR EMPLOYEE BENEFIT PLANS"), including, but not limited to, all: (A) employee benefit plans as defined in Section 3(3) of ERISA; and (B) all other deferred compensation, incentive, profit-sharing, thrift, stock ownership, stock appreciation rights, bonus, stock option, stock purchase, vacation, or other benefit plans or arrangements. 20 (2) STAR and all STAR Affiliates have complied with their respective substantive obligations with respect to all STAR Employee Benefit Plans (including, but not limited to, (i) filing or distributing all reports or notices required by ERISA or the Code and (ii) complying with all requirements of Part 6 of Title I of ERISA and Code Section 4980B) and have maintained the STAR Employee Benefit Plans in compliance with all applicable laws and regulations (including, but not limited to, ERISA and the Code), except where the failure to comply with such obligations would not result in a Material Adverse Effect on STAR. Each STAR Employee Benefit Plan that is intended to qualify under Code Section 401(a) has received a favorable determination letter (or other ruling indicating its tax-qualified status) from the IRS, and the IRS has not threatened or taken any action to revoke any favorable determination letter issued with respect to any such STAR Employee Benefit Plan. No statement, either oral or written, has been made by STAR or any STAR Affiliate (or any agent of either) to any Person regarding any STAR Employee Benefit Plans that is not in accordance with the terms of that plan that would have a Material Adverse Effect on STAR. (3) STAR has made available to WAXS true, correct and complete copies of all of the current documents relating to the STAR Employee Benefit Plans, including, but not limited to: (i) all plan texts (including any subsequent amendments), trust instruments and other funding arrangements adopted or entered into in connection with each of the STAR Employee Benefit Plans; (ii) the notices and election forms used to notify employees and their dependents of their continuation coverage rights under group health plans (under Code Section 4980B(f) and ERISA Section 606), if applicable; and (iii) the most recent Form 5500 annual reports (including all schedules thereto), summary plan descriptions and favorable determination letters, if applicable, for Employee Benefit Plans. Since the date such documents were supplied to WAXS, no plan amendments have been adopted and no such amendments or changes shall be adopted or made prior to the Closing Date without WAXS's approval, except as required by applicable law after the date hereof. (4) Neither STAR nor any STAR Affiliate has any agreement, arrangement, commitment or understanding to create any additional STAR Employee Benefit Plans or to continue, modify, change or terminate any existing STAR Employee Benefit Plans that could have a Material Adverse Effect on STAR. (5) None of the STAR Employee Benefit Plans (i) is currently under investigation, audit or review by the U.S. Department of Labor, the IRS, the Pension Benefit Guaranty Corporation or any other federal or state agency or (ii) is liable for any federal, state, local or foreign taxes that would have a Material Adverse Effect on STAR. Except for such liabilities that would not have a Material Adverse Effect on STAR, there is no transaction in connection with which STAR or any STAR Affiliate could be subject to either a civil penalty assessed pursuant to ERISA Section 502, a tax imposed by Code Section 4975 or liability for a breach of fiduciary responsibility under ERISA. 21 (6) Other than routine claims for benefits payable to participants or beneficiaries in accordance with the terms of the STAR Employee Benefit Plans, or relating to qualified domestic relations orders (as defined in Section 414(p) of the Code), there are no claims, pending or threatened, by any participant or beneficiary against any of the STAR Employee Benefit Plans or any fiduciary of any of the STAR Employee Benefit Plans that could have a Material Adverse Effect on STAR. (7) Neither STAR nor any STAR Affiliate has at any time maintained, sponsored or contributed to any "pension plan" as defined in ERISA Section 3(2) which is subject to Title IV of ERISA or contributed to any pension plan which is a "multiemployer plan" as defined in ERISA Section 3(37)(A). (8) Section 3.2(j)(8) of the STAR Disclosure Schedule sets forth a list of all agreements, arrangements, commitments and STAR Employee Benefit Plans, under which (i) any benefits will be increased, (ii) the vesting or exercisability of benefits will be accelerated, (iii) amounts will become immediately payable, and/or (iv) the immediate funding for any benefits is required, upon the occurrence of the transaction contemplated by this Agreement. Section 3.2(j)(8) of the STAR Disclosure Schedule sets forth an estimate of the total value and/or cost of any such change in control benefits and/or funding and the time periods in which such payments must be made and/or funding obligations must be met, including but not limited to the value and/or costs of any gross up payments for tax purposes. (9) To the Knowledge of STAR, no key employee, or group of employees of STAR has any plans to terminate employment with STAR other than employees with plans to retire. STAR has complied in all material respects with all laws relating to the employment of labor, including provisions thereof relating to wages, hours and equal opportunity, and it does not have any material labor relations problems (including threatened or actual strikes or work stoppages or material grievances). (10) Neither STAR nor any of its Subsidiaries is a party to any collective bargaining agreement. (k) INTELLECTUAL PROPERTY. Except as would not have a Material Adverse Effect on STAR: (i) STAR and each of its Subsidiaries owns, or is licensed to use (in each case, free and clear of any Liens, or claims of rights therein by any third party), all Intellectual Property used in or necessary for the conduct of its business as currently conducted, (ii) the use of any Intellectual Property by STAR and its Subsidiaries does not infringe on or otherwise violate the rights of any Person and is in accordance with any applicable license pursuant to which STAR or any Subsidiary acquired the right to use any Intellectual Property; (iii) to the Knowledge of STAR, no Person is challenging, infringing on or otherwise violating any right of STAR or any of its Subsidiaries with respect to any Intellectual Property owned by and/or licensed to STAR or its Subsidiaries; and (iv) neither STAR nor any of its Subsidiaries has received any written notice of any pending claim with respect to any Intellectual Property used by STAR and its Subsidiaries and to STAR's Knowledge, no Intellectual Property owned and/or licensed by STAR or its Subsidiaries is being used or enforced 22 in a manner that would result in the abandonment, cancellation or unenforceability of such Intellectual Property. (l) BROKERS OR FINDERS. No agent, broker, investment banker, financial advisor or other firm or Person is or will be entitled to any broker's or finder's fee or any other similar commission or fee in connection with any of the transactions contemplated by this Agreement, based upon arrangements made by or on behalf of STAR except Deutsche Bank Alex Brown (the "STAR FINANCIAL ADVISOR"), whose fees and expenses will be paid by STAR in accordance with STAR's agreement with such firm, a copy of which has been, or will be promptly when available, provided to WAXS. (m) OPINION OF STAR FINANCIAL ADVISOR. STAR has received the opinion of the STAR Financial Advisor, dated the date of this Agreement, to the effect that as of such date, the Merger Consolidation is fair, from a financial point of view, to STAR and its stockholders, a copy of which has been provided to WAXS. (n) TAXES. (1) (i) All material Tax Returns of STAR and each of its Subsidiaries have been filed, or requests for extensions have been timely filed and have not expired; (ii) all Tax Returns filed by STAR and its Subsidiaries are complete and accurate in all material respects; (iii) all Taxes shown to be due on such Tax Returns or on subsequent assessments with respect thereto have been paid or the STAR SEC Reports reflect that adequate reserves have been established for the payment of such Taxes, and no other material Taxes are payable by STAR and its Subsidiaries with respect to items or periods covered by such Tax Returns (whether or not shown on or reportable on such Tax Returns) or with respect to any period prior to the date of this Agreement; (iv) STAR and each of its Subsidiaries have disclosed on its federal income Tax Return all positions taken therein that could give rise to a substantial understatement of income Tax within the meaning of Section 6662 of the Code; (v) there are no material liens on any of the assets of STAR or any of its Subsidiaries with respect to Taxes, other than liens for Taxes not yet due and payable or for Taxes that STAR or any of its Subsidiaries is contesting in good faith through appropriate proceedings and for which the STAR SEC Reports reflect that appropriate reserves have been established; (vi) no power of attorney to deal with Tax matters or waiver or extension of any statute of limitations with respect to Taxes has been granted by STAR or any of its Subsidiaries; and (vii) there is no (X) audit, examination, deficiency or refund litigation or matter in controversy with respect to any Taxes of STAR and its Subsidiaries nor (Y) has the IRS nor any other Tax authority asserted any claim for Taxes in writing, or to the knowledge of STAR, is threatening to assert any claim for Taxes, that might reasonably be expected to result in a Tax determination which would have a Material Adverse Effect on STAR. (2) [INTENTIONALLY OMITTED.] 23 (3) There are no contracts, agreements, plans or arrangements, including but not limited to the provisions of this Agreement, covering any employee or former employee of STAR or any of its Subsidiaries that, individually or collectively, could give rise to the payment of any amount (or portion thereof) that would not be deductible pursuant to Sections 280G, 404, or 162 of the Code. (4) Neither STAR nor any of its Subsidiaries is a party to (A) a Tax Sharing Agreement, (B) transactions which have produced deferred intercompany gains, losses or other intercompany items or excess loss accounts (within the meaning of Treas. Reg. Section 1.1502-13 or 1.1502-19, respectively, or any predecessor regulations or any comparable items for state, local or non-United States Tax purposes), or (C) any joint venture, partnership, limited liability company or other arrangement or contract that should be treated as a partnership for federal income Tax purposes or as to which, an election has been made under Treas. Reg. Section 301.7701-3 to have the entity disregarded for federal income Tax purposes as an entity separate from its owner. (5) None of STAR and its Subsidiaries (A) has or has had operations or assets outside the United States taxable as a "branch" by the United States or as a "permanent establishment" by any foreign country, (B) has received written notice of any claim made by a Tax authority in a jurisdiction where STAR or any of its Subsidiaries does not file Tax Returns that it is or may be subject to Taxes in such jurisdiction, (C) does business in or derives income from any state, local territorial or non-United States taxing jurisdiction other than those for which Tax Returns have been filed and made available to WAXS pursuant to Section 3.2 (n)(6) hereof, (D) is a "passive foreign investment company" within the meaning of the Code, (E) has participated in or cooperated with an international boycott or has been requested to do so in connection with any prior transaction or the transactions contemplated by this Agreement, and (F) has availed itself of any Tax amnesty, Tax holiday or similar relief in any jurisdiction. (6) STAR has made available to WAXS true copies of (A) all material Tax Returns that STAR or its Subsidiaries have filed since January 1, 1994 and (B) all material correspondence, including without limitation, closing agreements, private letter rulings, advance pricing agreements and gain recognition agreements and other written submissions to or communications with any Tax authorities. (o) CERTAIN CONTRACTS. Neither STAR nor any of its Subsidiaries is a party to or bound by (i) any "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC), (ii) any noncompetition agreement or any other agreement or arrangement that limits or otherwise restricts STAR or any of its Subsidiaries or any successor thereto or that would, after the Effective Time, limit or restrict WAXS or the Surviving Corporation or any of its affiliates or any successor thereto, from engaging or competing in any line of business or in any geographic area, which agreement or arrangement would have a Material Adverse Effect on WAXS or the Surviving Corporation, (iii) any agreement or arrangement between STAR or any of its Subsidiaries, on the one hand, and any affiliates, directors or officers of STAR or its Subsidiaries, on the other hand, that is 24 not on arm's-length terms or (iv) any agreement or arrangement that may require the payment of money or provision of services in excess of $500,000 annually or $1,000,000 over the term of such agreement or arrangement. All contracts filed with the STAR SEC Reports and the contracts listed on Section 3.2(o) of the STAR Disclosure Schedule are valid binding and are in full force and effect and enforceable in accordance with their respective terms, except to the extent that such enforceability may be subject to applicable bankruptcy, insolvency, moratorium, reorganization, or other laws affecting the enforcement of creditors' rights generally or by general equitable principles, and other than such contracts which by their terms are no longer in force or effect. Neither STAR nor its Subsidiaries are in violation or breach of or default under any such contract, nor to STAR's Knowledge, is any other party to any such contract in violation or breach or other default under any such contract, except for any such violation, breach or default which would not have a Material Adverse Effect on STAR. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1 COVENANTS OF STAR. During the period from the date of this Agreement and continuing until the Effective Time, STAR agrees as to itself and its Subsidiaries that (except as expressly required, contemplated or permitted by this Agreement or the STAR Disclosure Schedule or as required by a Governmental Entity of competent jurisdiction or any law or regulation or to the extent that WAXS shall otherwise consent in writing, which consent shall not be unreasonably withheld, delayed or conditioned): (a) ORDINARY COURSE. STAR and its Subsidiaries shall carry on their respective businesses in the usual, regular and ordinary course in all material respects, in substantially the same manner as heretofore conducted, and shall use all reasonable efforts to preserve intact their present lines of business, maintain their rights and franchises and preserve their relationships with customers, suppliers and others having significant business dealings with them. (b) DIVIDENDS; CHANGES IN SHARE CAPITAL. STAR shall not, and shall not permit any of its Subsidiaries to, and shall not propose to, (i) declare or pay any dividends on or make other distributions in respect of any of its capital stock, except for dividends by wholly owned Subsidiaries of STAR, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for, shares of its capital stock, except for any such action by a wholly owned Subsidiary of STAR which remains a wholly owned Subsidiary after consummation of such transaction, or (iii) repurchase, redeem or otherwise acquire any shares of capital stock of STAR or any of its Subsidiaries or any securities convertible into or exercisable for any shares of such capital stock except for the purchase from time to time by STAR of STAR Common Stock in the ordinary course of business consistent with past practice in connection with the STAR Employee Benefit Plans. 25 (c) ISSUANCE OF SECURITIES. STAR shall not, and shall not permit any of its Subsidiaries to, issue, deliver or sell, or authorize or propose the issuance, delivery or sale of, any shares of its capital stock of any class, any STAR Voting Debt or any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any such shares or STAR Voting Debt, or enter into any agreement with respect to any of the foregoing, other than (i) the issuance of STAR Common Stock upon the exercise of STAR Stock Options or in connection with other stock-based Benefits Plans outstanding on the date hereof, in each case in accordance with their present terms, or (ii) issuances by a wholly-owned Subsidiary of STAR of capital stock to such Subsidiary's parent or another wholly-owned subsidiary of STAR. (d) GOVERNING DOCUMENTS. Except to the extent required by the rules and regulations of the Nasdaq, neither STAR nor any of its Subsidiaries shall amend or propose to amend their respective certificates of incorporation, by-laws or other governing documents. (e) ACQUISITIONS. STAR shall not, and shall not permit any of its Subsidiaries to acquire or agree to acquire, by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets (other than the acquisition of assets used in the operations of the business of STAR and its Subsidiaries in the ordinary course). (f) SALES. Except as set forth in Section 4.1(f) of the STAR Disclosure Schedule, STAR shall not, and shall not permit any of its Subsidiaries to, sell or agree to sell by merging or consolidating with, or by selling or substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise sell or agree to sell any assets (other than the sale of assets used in the operations of the business of STAR and its Subsidiaries in the ordinary course; provided, however, STAR may enter into a definitive agreement for (and consummate) the PT-1 Sale on terms and conditions which would satisfy the condition set forth in Section 6.2(h) hereof). (g) INVESTMENTS; INDEBTEDNESS. STAR shall not, and shall not permit any of its Subsidiaries to, (i) make any loans, advances or capital commitments to, or investments in, any other Person, other than (x) by STAR or a Subsidiary of STAR to or in STAR or in any Subsidiary of STAR or (y) pursuant to any contract or other legal obligation of STAR or any of its Subsidiaries existing at the date hereof or (ii) create, incur, assume or suffer to exist any indebtedness, issuances of debt or securities, guarantees, loans or advances not in existence as of the date hereof except pursuant to credit facilities, indentures and other arrangements in existence on the date hereof or in the ordinary course of business consistent with past practice, in each case as such credit facilities, indentures and other arrangements may be amended, extended, modified, refunded, renewed or refinanced after the date hereof. (h) COMPENSATION. Other than as contemplated by Section 4.1(h) of the STAR Disclosure Schedule, STAR shall not increase the amount of compensation of any director or 26 executive officer except in the ordinary course of business consistent with past practice or as required by an existing agreement, make any increase in or commitment to increase any employee benefits, issue any additional STAR Stock Options, adopt or make any commitment to adopt any additional employee benefit plan or make any contribution, other than regularly scheduled contributions, to any Employee Benefit Plan. (i) ACCOUNTING METHODS; INCOME TAX MATTERS. STAR shall not change its methods of accounting in effect on December 31, 1998, except as required by changes in GAAP as concurred in by STAR's independent auditors. STAR shall not (i) change its fiscal year, (ii) make any material tax election, (iii) adopt or change any Tax accounting method, (iv) enter into any closing agreement, (v) settle or compromise a Tax liability with a Tax authority, (vi) surrender any right to claim a refund of Taxes, or (vii) take (or permit any Subsidiary of STAR to take) any other action which would have the effect of materially increasing the Tax liability or materially decreasing any Tax Asset of STAR or any of its Subsidiaries, other than in the ordinary course of business consistent with past practice. (j) CERTAIN AGREEMENTS. STAR shall not, and shall not permit any of its Subsidiaries to, enter into any agreement or arrangement that limits or otherwise restricts STAR or any of its Subsidiaries or any of their respective affiliates or any successor thereto, or that could, after the Effective Time, limit or restrict WAXS or the Surviving Corporation or any of their respective affiliates or any successor thereto, from engaging or competing in any line of business or, in any geographic area which agreement or arrangement would reasonably be expected to have a Material Adverse Effect on WAXS or the Surviving Corporation. (k) OTHER ACTIONS. Notwithstanding the fact that STAR may take certain actions as permitted under Article IV hereof, STAR agrees not to take any action which could reasonably be expected to cause the Merger to fail to qualify as a reorganization within the meaning of Section 368(a) of the Code. (l) LITIGATION. STAR shall not and shall not permit any of its Subsidiaries to settle or, compromise any litigation, except where the amount paid or payable, in each case, does not exceed $200,000. 4.2 CONTROL OF STAR'S BUSINESS. Except as provided in Section 5.9, nothing contained in this Agreement shall give WAXS, directly or indirectly, the right to control or direct STAR's operations prior to the Effective Time. Prior to the Effective Time, STAR shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its operations. 27 ARTICLE V ADDITIONAL AGREEMENTS 5.1 PREPARATION OF PROXY STATEMENT: STOCKHOLDERS MEETINGS. (a) As promptly as reasonably practicable following the date hereof, WAXS and STAR shall prepare (in form and substance reasonably satisfactory to each of WAXS and STAR) and file with the SEC proxy materials which shall constitute the joint proxy statement and prospectus in connection with the WAXS Stockholders Meeting and the STAR Stockholders Meeting (such proxy statement and prospectus, and any amendments or supplements thereto, the "JOINT PROXY STATEMENT/PROSPECTUS") and WAXS shall prepare (in form and substance reasonably satisfactory to each of WAXS and STAR) and file a registration statement on Form S-4 with respect to the issuance of WAXS Common Stock in the Merger (the "REGISTRATION STATEMENT"). The Joint Proxy Statement/Prospectus will be included in and will constitute a part of the Registration Statement as WAXS's prospectus. The Registration Statement and the Joint Proxy Statement/Prospectus shall comply as to form in all material respects with the applicable provisions of the Securities Act and the Exchange Act and the rules and regulations thereunder. Each of WAXS and STAR shall use reasonable efforts to have the Registration Statement declared effective by the SEC as promptly as reasonably practicable after filing with the SEC and to keep the Registration Statement effective as long as is necessary to consummate the Merger and the actions contemplated thereby. WAXS and STAR shall, as promptly as practicable after receipt thereof, provide the other party copies of any written comments and advise the other party of any oral comments, with respect to the Joint Proxy Statement/Prospectus received from the SEC. WAXS will provide STAR with a reasonable opportunity to review and comment on any amendment or supplement to the Registration Statement prior to filing such with the SEC, and will provide STAR with a copy of all such filings made with the SEC. Notwithstanding any other provision herein to the contrary, no amendment or supplement (including by incorporation by reference) to the Joint Proxy Statement/Prospectus or the Registration Statement shall be made without the approval of both parties, which approval shall not be unreasonably withheld or delayed; PROVIDED, that with respect to documents filed by a party which are incorporated by reference in the Registration Statement or Joint Proxy Statement/Prospectus, this right of approval shall apply only with respect to information relating to the other party or its business, financial condition or results of operations. WAXS will use reasonable efforts to cause the Joint Proxy Statements/Prospectus to be mailed to WAXS's stockholders, and STAR will use reasonable efforts to cause the Joint Proxy Statement/Prospectus to be mailed to STAR's stockholders, in each case as promptly as practicable after the Registration Statement is declared effective under the Securities Act. WAXS shall also take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified or to file a general consent to service of process) required to be taken under any applicable state securities laws in connection with the issuance of WAXS Common Stock and STAR shall furnish all information concerning STAR and the holders of STAR Common Stock as may be reasonably requested in connection with any such action. Each party will advise the other party, promptly after it receives notice thereof, of the time when the Registration Statement has become effective, the issuance of any stop order, the suspension of the qualification of the WAXS Common Stock issuable in connection with the Merger for offering 28 or sale in any jurisdiction, or any request by the SEC for amendment of the Joint Proxy Statement/Prospectus or the Registration Statement. If at any time prior to the Effective Time any information relating to WAXS or STAR, or any of their respective affiliates, officers or directors, should be discovered by WAXS or STAR which should be set forth in an amendment or supplement to any of the Registration Statement or the Joint Proxy Statement/Prospectus so that any of such documents would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other party hereto and, to the extent required by law, rules or regulations, an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and disseminated to the stockholders of WAXS and STAR. (b) Subject to Section 5.4, STAR shall, as promptly as reasonably practicable following the execution of this Agreement, duly take all lawful action to call, give notice of, convene and hold a meeting of its stockholders (the "STAR STOCKHOLDERS MEETING ") (which meeting the parties intend to be held no later than thirty (30) days following the date on which the Registration Statement has been declared effective by the SEC) for the purpose of obtaining the Required STAR Vote with respect to the actions contemplated by this Agreement and shall take all lawful action to solicit the adoption of this Agreement by the Required STAR Vote. Subject to Section 5.4, the Board of Directors of STAR shall recommend adoption of this Agreement by the stockholders of STAR to the effect as set forth in Section 3.2(f), and shall not withdraw, modify or materially qualify in any manner adverse to WAXS such recommendation or take any action or make any statement in connection with the STAR Stockholders Meeting materially inconsistent with such recommendation (collectively, an "ADVERSE CHANGE IN THE STAR RECOMMENDATION"); provided, however, that the foregoing shall not prohibit accurate disclosure of factual information regarding the business, financial condition or results of operations of WAXS or STAR or the fact that an Acquisition Proposal has been made, the identity of the party making such proposal or the material terms of such proposal (provided, that the Board of Directors of STAR does not withdraw, modify or materially qualify in any manner adverse to WAXS its recommendation) in the Registration Statement or the Joint Proxy Statement/Prospectus, to the extent such information, facts, identity or terms is required to be disclosed therein under applicable law. (c) WAXS shall, as promptly as reasonably practicable following the execution of this Agreement, duly take all lawful action to call, give notice of, convene and hold a meeting of its stockholders (the "WAXS STOCKHOLDERS MEETING") (which meeting the parties intend to be held no later than thirty (30) days following the date on which the Registration Statement has been declared effective by the SEC) for the purpose of obtaining the Required WAXS Vote with respect to the transactions contemplated by this Agreement and shall take all lawful action to solicit the approval of the transactions contemplated hereby by the Required WAXS Vote. The Board of Directors of WAXS shall recommend approval of the transactions contemplated hereby by the stockholders of WAXS to the effect as set forth in Section 3.1(f), and shall not withdraw, modify or materially qualify in any manner adverse to STAR such recommendation or take any action or make any statement in connection with the WAXS Stockholders Meeting materially inconsistent with 29 such recommendation; provided, however, that the foregoing shall not prohibit accurate disclosure of factual information regarding the business, financial condition or operations of WAXS or STAR. 5.2 ACCESS TO INFORMATION. Upon reasonable notice, each of STAR and WAXS shall (and shall cause its Subsidiaries to) afford to the officers, employees, accountants, counsel, financial advisors and other representatives of the other party hereto reasonable access during normal business hours, during the period prior to the Effective Time, to all its properties, books, contracts, commitments, records, officers and employees and, during such period, each of STAR and WAXS shall (and shall cause its Subsidiaries to) furnish promptly to the other party hereto (a) a copy of each report, schedule, registration statement and other document filed, published, announced or received by it during such period pursuant to the requirements of federal or state securities laws, as applicable (other than documents which such party is not permitted to disclose under applicable law), and (b) consistent with its legal obligations, all other information concerning it and its business, properties and personnel as such other party may reasonably request; provided, however, that either STAR or WAXS may restrict the foregoing access to the extent that any law, treaty, rule or regulation of any Governmental Entity applicable to such party requires such party or its Subsidiaries to restrict access to any properties or information. The parties will hold any such information which is non-public in confidence to the extent required by, and in accordance with, the provisions of the Confidentiality Agreement, dated December 17, 1999, between STAR and WAXS (the "CONFIDENTIALITY AGREEMENT"). Any investigation by WAXS or STAR shall not affect the representations and warranties made herein of STAR or WAXS, as the case may be. 5.3 REASONABLE EFFORTS. (a) Subject to the terms and conditions of this Agreement, each party will use reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the Merger and the other transactions contemplated by this Agreement as soon as practicable after the date hereof, including (i) preparing and filing as promptly as practicable all documentation to effect all necessary applications, notices, petitions, filings, and other documents and to obtain as promptly as practicable all consents, waivers, licenses, orders, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any third party and/or any Governmental Entity in order to consummate the Merger or any of the other transactions contemplated by this Agreement and (ii) taking all reasonable steps as may be necessary to obtain all such material consents, waivers, licenses, registrations, permits, authorizations, tax rulings, orders and approvals. The parties each shall keep the other apprised of the status of matters relating to completion of the transactions contemplated hereby, including promptly furnishing the other with copies of notices or other communications received by it or any of its Subsidiaries or affiliates from any Governmental Entity or third party with respect to the Merger or any of the other transactions contemplated by this Agreement, in each case, to the extent permitted by law or regulation or any applicable confidentiality agreements existing on the date hereof. (b) Promptly following execution of this Agreement, STAR and WAXS shall promptly prepare and file any required notifications with the United States Department of Justice and 30 the Federal Trade Commission as required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"). The parties shall cooperate with each other in connection with the preparation of such notifications and related matters, including sharing information concerning sales and ownership and such other information as may be needed to complete such notification, and providing a copy of such notifications to the other prior to filing; provided, that WAXS and STAR shall have the right to redact any dollar revenue information from the copies of such notifications provided to the other parties. The parties shall keep all information about the other obtained in connection with the preparation of such notification confidential pursuant to the terms of the Confidentiality Agreement. Each Person shall pay the filing fee required under the regulations promulgated pursuant to the HSR Act with respect to its own filing thereunder. 5.4 ACQUISITION PROPOSALS. Without the prior written consent of WAXS, pending the Effective Time or earlier termination of this Agreement pursuant to Section 7.1, STAR agrees that neither it nor any of its Subsidiaries shall, and that it shall use its reasonable efforts to cause its employees, officers, directors, affiliates, agents and representatives (including any investment banker, financial advisor, attorney or accountant retained by any of them) not to, directly or indirectly, initiate, solicit, encourage or knowingly facilitate (including by way of furnishing information or engaging in discussions or negotiations) any inquiries or the making of any proposal or offer with respect to a merger, reorganization, share exchange, consolidation, business combination, recapitalization, liquidation, dissolution or similar action involving STAR, or any purchase or sale of a material portion of the assets of (including stock of Subsidiaries) of STAR, taken as a whole, or any purchase or sale of, or tender or exchange offer for, a material portion of the equity securities of STAR (any such proposal or offer being hereinafter referred to as an "ACQUISITION PROPOSAL"). STAR further agrees that neither it nor any of its Subsidiaries shall, and that it shall use its reasonable efforts to cause it and its Subsidiaries' officers, directors, affiliates, employees, agents and representatives (including any investment banker, financial advisor, attorney or accountant retained by it or any of its Subsidiaries) not to, directly or indirectly, have any discussion with or provide any confidential information or data to any Person relating to an Acquisition Proposal, or engage in any negotiations concerning an Acquisition Proposal, or knowingly facilitate any effort or attempt to make or implement an Acquisition Proposal or accept an Acquisition Proposal. STAR agrees that it and its Subsidiaries will, and will cause its officers, directors, affiliates, employees, agents and representatives to, immediately cease and cause to be terminated any activities, discussions or negotiations existing as of the date of this Agreement with any parties conducted heretofore with respect to any Acquisition Proposal. STAR agrees that it will promptly inform its directors, officers, affiliates, key employees, agents and representatives of the obligations undertaken in this Section 5.4. Notwithstanding anything contained in this Section 5.4 or otherwise in this Agreement to the contrary, STAR or its Board of Directors shall be permitted to (A) in response to an unsolicited bona fide written Acquisition Proposal by any Person, recommend approval of such an unsolicited bona fide written Acquisition Proposal to its stockholders or effect an Adverse Change in the STAR Recommendation or (B) engage in any discussions or negotiations with, or provide any information to, any person in response to an unsolicited bona fide written Acquisition Proposal by any such Person, if and only to the extent that, in any such case as is referred to in clause (A) or (B), (i) the STAR Stockholders Meeting shall not have occurred, (ii) its Board of Directors (x) in the case of clause (A) above, concludes in good faith 31 that such Acquisition Proposal constitutes a Superior Proposal (as defined in Section 8.12) and terminates this Agreement pursuant to Section 7.1 (h) or (y) in the case of clause (B) above concludes in good faith that such Acquisition Proposal could reasonably be expected to result in a Superior Proposal, (iii) prior to providing any information or data to any Person in connection with an Acquisition Proposal by any such Person, its Board of Directors receives from such Person an executed confidentiality agreement containing confidentiality terms at least as stringent as those contained in the Confidentiality Agreement, and (iv) prior to providing any information or data to any Person or entering into discussions or negotiations with any such Person regarding such Acquisition Proposal, its Board of Directors notifies WAXS promptly of such inquiries, proposals or offers received by, any such information requested from, or any such discussions or negotiations sought to be initiated or continued with, any of its representatives indicating, in connection with such notice, the name of such Person and the material terms and conditions of any inquiries, proposals or offers. STAR agrees that it will promptly keep WAXS informed of the status and terms of any such proposals or offers and the status and terms of any such discussions or negotiations. STAR agrees that it will, and will cause its officers, directors and representatives to, immediately cease and cause to be terminated any activities, discussions or negotiations existing as of the date of this Agreement with any parties conducted heretofore with respect to any Acquisition Proposal. STAR agrees that it will promptly inform its directors, officers, key employees, agents and representative of the obligations undertaken in this Section 5.4. Nothing in this Section 5.4 shall (x) permit STAR or WAXS to terminate this Agreement (except as specifically provided in Article VII hereof) or (y) affect any other obligation of STAR or WAXS under this Agreement. 5.5 FEES AND EXPENSES. All Expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such Expenses. As used in this Agreement, "EXPENSES" includes all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party hereto and its affiliates) incurred by a party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and performance of this Agreement and the transactions contemplated hereby. 5.6 PUBLIC ANNOUNCEMENTS. Neither WAXS nor STAR shall, without the prior consent of the other party, issue a press release or any other public statement with respect to this Agreement or the transactions contemplated hereby except pursuant to a joint communications plan, unless otherwise required by applicable law or by obligations pursuant to any listing agreement with, or rules of, any securities exchange, in which case the parties shall use reasonable efforts to consult with each other before issuing any press release or otherwise making any public statement with respect to this Agreement or the transactions contemplated hereby. 5.7 LISTING. So long as WAXS Common Stock is quoted on the Nasdaq or listed on any national securities exchange, WAXS, prior to the Effective Time, will cause to be quoted or listed, upon official notice of issuance, and keep quoted or listed on such system or exchange, all WAXS Common Stock issuable pursuant to Article I hereof. 32 5.8 TERMINATION OF TAX SHARING AGREEMENT. As of the Effective Time, STAR shall cause all Tax Sharing Agreements to which STAR or any of its Subsidiaries is a party to be terminated and of no further force and effect after the Effective Time, thereby extinguishing any rights or obligations of any party thereunder. 5.9 MANAGEMENT SERVICES. Subject to obtaining any necessary regulatory or third party consents and to the extent permitted under applicable law, WAXS and STAR intend to enter into a management agreement pursuant to which WAXS will provide, under the supervision and direction of the STAR board of directors, certain management services to STAR. Neither party shall have any obligation under this Section 5.9 and the provision of the foregoing services shall be subject to the negotiation of a definitive agreement satisfactory to each of WAXS and STAR in its sole discretion. 5.10 NEW DIRECTOR OF WAXS. WAXS shall take all appropriate action such that, immediately following the Effective Time, and without further action by WAXS, one (1) designee of STAR shall be elected to the Board of Directors of WAXS. Such STAR designee shall be Christopher E. Edgecomb, or such other person designated by STAR and agreed to by WAXS prior to the Effective time. 5.11 FURTHER ASSURANCES. At and after the Effective Time, the officers and directors of the Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of STAR or Merger Sub, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of STAR or Merger Sub, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all rights, properties, or assets acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger. 5.12 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. (a) From the Effective Time through the sixth (6th) anniversary of the date on which the Effective Time occurs, WAXS shall indemnify and hold harmless each present (as of the Effective Time) or former officer or director of STAR and its Subsidiaries (the "INDEMNIFIED PARTIES"), against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys' fees and disbursements (collectively, "COSTS"), incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to (i) the fact that the Indemnified Party is or was an officer or director of STAR or any of its Subsidiaries or (ii) matters existing or occurring at or prior to the Effective Time (including this Agreement and the transactions and actions contemplated hereby), whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent permitted under applicable law; PROVIDED that no Indemnified Party may settle any such claim without the prior approval of WAXS (which approval shall not be unreasonably withheld or delayed). Each Indemnified Party will be entitled to advancement of expenses incurred in the defense of any claim, action, suit, proceeding or investigation from WAXS within ten (10) business days of receipt by WAXS from the Indemnified Party of a request therefor; PROVIDED that any person 33 to whom expenses are advanced provides an undertaking, to the extent required by the DGCL, to repay such advances if it is ultimately determined that such person is not entitled to indemnification. (b) WAXS shall maintain, at no expense to the beneficiaries, in effect for six years from the Effective Time the current policies of the directors' and officers' liability insurance maintained by STAR with respect to matters existing or occurring at or prior to the Effective Time (including the transactions contemplated by this Agreement); PROVIDED that WAXS may substitute therefor policies of at least the same coverage containing terms and conditions which are not materially less advantageous to any beneficiary thereof; and PROVIDED, FURTHER, that in no event shall WAXS be required to pay annual premiums for such insurance in excess of 125% of the annual premiums currently paid by STAR for such insurance. (c) Notwithstanding anything herein to the contrary, if any claim, action, suit, proceeding or investigation (whether arising before, at or after the Effective Time) is made against any Indemnified Party, on or prior to the sixth (6th) anniversary of the Effective Time, the provisions of this Section 5.12 shall continue in effect until the final disposition of such claim, action, suit, proceeding or investigation. (d) The covenants contained in this Section 5.12 are intended to be for the benefit of, and shall be enforceable by, each of the Indemnified Parties and their respective heirs and legal representatives and shall not be deemed exclusive of any other rights to which an Indemnified Party is entitled, whether pursuant to law, contract or otherwise. (e) In the event that the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, proper provision shall be made so that the successors or assigns of the Surviving Corporation or the purchaser of such properties and assets shall succeed to the obligations set forth in this Section 5.12. 5.13 CONFIDENTIALITY. The parties each agree that the Confidentiality Agreement shall continue in full force and effect until the Effective Time, and if this Agreement is terminated or if the Merger is not consummated for any reason whatsoever, such Confidentiality Agreement shall thereafter remain in full force and effect in accordance with its terms. 5.14 COMPLIANCE WITH DISSENTERS' RIGHTS STATUTE. STAR shall comply with all procedures and requirements applicable to it under Section 262 of the DGCL. 5.15 INTERIM FINANCING. The parties have agreed that WAXS will make available up to $25,000,000 in secured financing to STAR and up to $10,000,000 in secured financing to STAR's subsidiary, STAR Telecommunications GmbH, (collectively, the "Interim Financing") pursuant to the terms of the Loan Documents (as defined below). The Interim Financing will mature at the earlier of one year from the date hereof and ninety (90) days after any termination of this Agreement 34 (other than a termination due to STAR's breach or default under this Agreement which will result in the Interim Financing becoming immediately due and payable). The Interim Financing will be made pursuant to, and subject to the finalization of, appropriate loan and security documents (the "Loan Documents") substantially in the form of, and as contemplated by, the draft Loan Documents distributed to STAR on or prior to the date hereof. ARTICLE VI CONDITIONS PRECEDENT 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligations of STAR and WAXS to effect the Merger are subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) HSR ACT. The waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have been terminated or shall have expired. (b) STOCKHOLDER APPROVAL. WAXS shall have obtained the Required WAXS Vote in connection with the approval of this Agreement and the Merger and STAR shall have obtained the Required STAR Vote in connection with the approval of this Agreement and the Merger. (c) REGISTRATION STATEMENT. The Registration Statement shall have been declared effective by the SEC under the Securities Act. No stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC and no proceedings for that purpose shall have been initiated or, to the Knowledge of WAXS or STAR, threatened by the SEC. 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF WAXS. The obligations of WAXS to effect the Merger are subject to the satisfaction of, or waiver by WAXS, on or prior to the Closing Date of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties of STAR set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent in either case that such representations and warranties speak as of another date, in which case any such representations and warranties shall be true and correct as of such date), except where any failures to be true and correct would not have a Material Adverse Effect on WAXS or the Surviving Corporation, and WAXS shall have received a certificate of the chief executive officer and the chief financial officer of STAR to such effect. (b) PERFORMANCE OF OBLIGATIONS OF STAR. STAR shall have performed or compl ied in all material respects with all material agreements and covenants required to be performed by it under this Agreement at or prior to the Closing Date, and WAXS shall have received a certificate of the chief executive officer and the chief financial officer of STAR to such effect. 35 (c) CONSENTS AND APPROVALS. Other than the filing provided for under Section 1.3, all consents, approvals and actions of, filings with and notices to any Governmental Entity required to consummate the Merger and the other transactions contemplated hereby, or of any other third party required of STAR or any of its Subsidiaries to consummate the Merger and the other transactions contemplated hereby, the failure of which to be obtained or taken would have a Material Adverse Effect on WAXS or the Surviving Corporation, shall have been obtained; provided, however, that the provisions of this Section 6.2(c) shall not be available to WAXS, if its failure to fulfill its obligations pursuant to Section 5.3 shall have been the cause of, or shall have resulted in, the failure to obtain such consent or approval. (d) NO MATERIAL CHANGE. STAR and its Subsidiaries, taken as a whole, shall not have suffered, since the date hereof, a Material Adverse Effect, other than any change, circumstance or effect relating (i) to the economy or financial markets in general, (ii) in general to the industries in which STAR operates and not specifically relating to STAR or (iii) the trading price of STAR Common Stock. (e) OPINION OF COUNSEL TO STAR. WAXS shall have received from Riordan & McKinzie an opinion, dated the Closing Date, in form and substance reasonably satisfactory to WAXS. (f) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No laws shall have been adopted or promulgated, and no temporary restraining order, preliminary or permanent injunction or other order issued by a court or other Governmental Entity of competent jurisdiction shall be in effect (i) having the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger or (ii) which otherwise would have a Material Adverse Effect on WAXS or the Surviving Corporation; provided, however, that the provisions of this Section 6.2(f) shall not be available to WAXS if its failure to fulfill its obligations pursuant to Section 5.3 shall have been the cause of, or shall have resulted in any such order or injunction. (g) DISSENTERS' RIGHTS. STAR shall have complied with all procedures and requirements applicable to it under Section 262 of the DGCL, the period for exercising dissenters' rights of appraisal pursuant to the DGCL in connection with the Merger shall have expired, and holders of less than one percent (1%) of the shares of STAR Common Stock issued and outstanding immediately prior to the Closing shall have exercised such dissenters' rights of appraisal, and WAXS shall have received a certificate from an officer of STAR to all such effects. (h) SALE OF PT-1. STAR shall have consummated the sale of the capital stock of PT-1 Communications, Inc. ("PT-1"), or the assets of PT-1 on a substantially equivalent basis, for Net PT-1 Sale Proceeds (as defined in Section 8.12 ) of at least $150,000,000 pursuant to an agreement in form and substance reasonably satisfactory to WAXS (the "PT-1 Sale"); PROVIDED, HOWEVER, if (i) the PT-1 Sale has not been consummated prior to the Closing Date, (but STAR has entered into a definitive agreement, in form and substance satisfactory to WAXS, for the PT-1 Sale) 36 and (ii) WAXS determines in its sole discretion to waive compliance with this Section 6.2(h) and proceed with the Merger, then WAXS and STAR agree that in such event, they shall amend this Agreement to provide that (A) the formula used to determine the Exchange Ratio shall be modified by deleting "Z" therefrom and (B) a holder of STAR Common Stock and STAR Stock Options immediately prior to the Effective Time shall have a right to receive such holder's pro rata share of an aggregate number of additional "contingent" shares of WAXS Common Stock, if and when the PT-1 Sale is consummated pursuant to such definitive agreement (or, in the case of a holder of STAR Stock Option, when such option is exercised), equal to the PT-1 Excess Proceeds DIVIDED BY twenty (20) (the "Contingent Shares") and that the provisions of any such amendment to this Agreement concerning the issuance of such Contingent Shares will satisfy the requirements of Section 3.03 of IRS Revenue Procedure 77-37, as it has been amplified and superseded, which established the circumstances under which the Internal Revenue Service previously issued advanced rulings on contingent stock arrangements in mergers intended to qualify as "reorganizations" under Section 368(a) of the Code. (i) STAR shall have provided evidence satisfactory to WAXS that any and all obligations of STAR (or any of its affiliates) relating to or arising in connection with the China-U.S. Cable Network were fully satisfied by the reclamation of STAR's capacity in such network and neither STAR nor any of its affiliates has any further obligation or liability with respect thereto, including without limitation payment of the amounts claimed and owing by STAR according to that letter dated January 11, 2000 from Kou Yinsen, Director, CBP to Jim Kolsrud. 6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF STAR. The obligations of STAR to effect the Merger are subject to the satisfaction of, or waiver by STAR, on or prior to the Closing Date of the following additional conditions: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties of WAXS set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent in either case that such representations and warranties speak as of another date, in which case any such representations and warranties shall be true and correct as of such date), except where any failures to be true and correct would not have a Material Adverse Effect on WAXS, and STAR shall have received a certificate of the chief executive officer and the chief financial officer of WAXS to such effect. (b) PERFORMANCE OF OBLIGATIONS OF WAXS. WAXS shall have performed or complied in all material respects with all material agreements and covenants required to be performed by it under this Agreement at or prior to the Closing Date, and STAR shall have received a certificate of the chief executive officer and the chief financial officer of WAXS to such effect. (c) CONSENTS AND APPROVALS. Other than the filing provided for under Section 1.3, all consents, approvals and actions of, filings with and notices to any Governmental Entity required to consummate the Merger and the other transactions contemplated hereby, or of any other third 37 party required of WAXS or any of its Subsidiaries to consummate the Merger and the transactions contemplated hereby, the failure of which to be obtained or taken would have a Material Adverse Effect on WAXS, shall have been obtained; provided, however, that the provisions of this Section 6.3(c) shall not be available to STAR if its failure to fulfill any of its obligations pursuant to Section 5.3 shall have been the cause of, or shall have resulted in, the failure to obtain such consent or approval. (d) NO MATERIAL CHANGE. WAXS shall not have suffered, since the date hereof, a Material Adverse Effect, other than any change, circumstance or effect relating (i) to the economy or financial markets in general, (ii) in general to the industries in which WAXS operates and not specifically relating to WAXS or (iii) the trading price of WAXS Common Stock. (e) OPINION OF COUNSEL TO WAXS. STAR shall have received from Long Aldridge & Norman LLP an opinion, dated the Closing Date, in form and substance reasonably satisfactory to STAR. (f) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No laws shall have been adopted or promulgated, and no temporary restraining order, preliminary or permanent injunction or other order issued by a court or other Governmental Entity of competent jurisdiction shall be in effect (i) having the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger or (ii) which otherwise would have a Material Adverse Effect on WAXS after giving effect to the Merger; provided, however, that the provisions of this Section 6.3(g) shall not be available to STAR if its failure to fulfill its obligations pursuant to Section 5.3 shall have been the cause of, or shall have resulted in any such order or injunction. (g) EXCHANGE FUND. An officer of the Exchange Agent shall have certified in writing to STAR that the deposit required to be made by WAXS into the Exchange Fund pursuant to Section 2.1 has been made in connection with the establishment thereof. ARTICLE VII TERMINATION AND AMENDMENT 7.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, by action taken or authorized by the Board of Directors of the terminating party or parties: (a) By mutual written consent of WAXS and STAR; (b) By either WAXS or STAR, if the other party shall have failed to comply in any material respect with any of its material covenants or agreements contained in this Agreement, which failure to so comply has not been cured within ten (10) business days following receipt by such other party of written notice of such failure to comply; provided, however, that if any such 38 breach is curable by the breaching party through the exercise of the breaching party's reasonable efforts and for so long as the breaching party shall be so using its reasonable efforts to cure such breach, the non-breaching party may not terminate this Agreement pursuant to this paragraph; and PROVIDED, FURTHER, that no party shall have the right to terminate this Agreement pursuant to this Section 7.1(b) if such party is then failing to comply in any material respect with any of its covenants or agreements contained in this Agreement; (c) By either WAXS or STAR, if there has been a breach by the other party of any representations or warranties, which breach has not been cured within ten (10) business days following receipt by such other party of written notice of such failure to comply; provided, however, that if any such breach is curable by the breaching party through the exercise of the breaching party's reasonable efforts and for so long as the breaching party shall be so using reasonable efforts to cure such breach, the non-breaching party may not terminate this Agreement pursuant to this paragraph; and provided further, that this provision shall not apply to such breaches which would not have a Material Adverse Effect on WAXS or the Surviving Corporation; (d) By either STAR or WAXS, if the Effective Time shall not have occurred on or before September 30, 2000 (the "TERMINATION DATE"); provided, however, that the right to terminate this Agreement under this Section 7.1(d) shall not be available to any party whose action or failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before the Termination Date and any such action or failure constitutes a breach of this Agreement by such party; (e) By either STAR or WAXS if any Governmental Entity (i) shall have issued an order, decree or ruling or taken any other action (which the parties shall have used their reasonable efforts to resist, resolve or lift, as applicable, in accordance with Section 5.3) permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling, or other action shall have become final and nonappealable or (ii) shall have failed to issue an order, decree or ruling or to take any other action (which order, decree, ruling or other action the parties shall have used their reasonable efforts to obtain, in accordance with Section 5.3), which, in the case of each of (i) and (ii) is necessary to fulfill the conditions set forth in Section 6.2(f) with respect to WAXS or Section 6.3(g) with respect to STAR, and such denial of a request to issue such order, decree, ruling or take such other action shall have become final and nonappealable; provided, however, that the right to terminate this Agreement under this Section 7.1(e) shall not be available to any party whose action or failure to fulfill any obligation under this Agreement has been the cause of such action or inaction and any such action or failure constitutes a breach of this Agreement by such party; (f) By WAXS or STAR if the adoption of this Agreement by the stockholders of WAXS or the stockholders of STAR shall not have been obtained by reason of the failure to obtain the Required WAXS Vote or the Required STAR Vote, as applicable, in each case upon the taking of such vote at a duly held meeting of stockholders of WAXS or STAR, or at any adjournment thereof; 39 (g) By WAXS if the Board of Directors of STAR, prior to the Required STAR Vote, shall make an Adverse Change in the STAR Recommendation (other than in connection with STAR's termination of this Agreement pursuant to Section 7.1(b)) or approve or recommend a Superior Proposal pursuant to Section 5.4 or shall resolve to take any such actions; (h) By STAR, at any time prior to the Required STAR Vote upon three (3) business days' prior notice to WAXS, if its Board of Directors shall have determined as of the date of such notice that an Acquisition Proposal is a Superior Proposal; provided, however, that (i) STAR shall have complied with Section 5.4, (ii) prior to such termination, STAR shall, if requested by WAXS in connection with a revised proposal by it, negotiate in good faith for such three (3) business day period with WAXS and (iii) the Board of Directors of STAR shall have concluded in good faith, as of the effective date of such termination, after taking into account any revised proposal by WAXS during such three (3) business day period, that an Acquisition Proposal is a Superior Proposal; and provided, further, that it shall be a condition to termination by STAR pursuant to this Section 7.1(h) that STAR shall have made the payment of the fee to WAXS pursuant to Section 7.2(b); (i) By WAXS, if (X) either STAR or any of its material Subsidiaries (1) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (2) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of STAR or any of its Subsidiaries or for all or a material portion of the property or assets of STAR or any of its Subsidiaries or (3) effects any general assignment for the benefit of creditors or (Y) a Governmental Entity having jurisdiction enters a decree or order for (a) relief in respect of STAR or any of its material Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (b) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of STAR or any of its Subsidiaries or for all or a material portion of the property and assets of STAR or any of its Subsidiaries or (c) the winding up or liquidation of the affairs of STAR or any of its material Subsidiaries and, in each case, such decree or order shall remain unstayed and in effect for a period of 30 consecutive days; or (j) By WAXS if there has been an Event of Default under the Credit Agreement, of even date herewith, between WAXS and STAR. 7.2 EFFECT OF TERMINATION. (a) In the event of any termination of this Agreement by either STAR or WAXS, as provided in Section 7.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of WAXS or STAR or their respective officers or directors except with respect to Section 3.1(m), Section 3.2(l), the second sentence of Section 5.2, Section 5.5, Section 5.6, this Section 7.2, and Article VIII, which provisions shall survive such termination and except that, notwithstanding anything to the contrary contained in this Agreement, neither WAXS nor STAR 40 shall be relieved or released from any liabilities or damages arising out of its breach of this Agreement; (b) If this Agreement is terminated by STAR pursuant to Section 7.1(h), STAR shall, prior to such termination, pay to WAXS $14,000,000 in immediately available funds (the "TERMINATION FEE"); (c) If this Agreement is terminated by WAXS pursuant to Section 7.1(g), STAR shall, within three (3) days following such termination, pay to WAXS the Termination Fee; and (d) If this Agreement is terminated by WAXS or STAR pursuant to Section 7.1(f) because STAR's stockholders have failed to adopt this Agreement by the Required Star Vote and STAR enters into a definitive agreement with respect to a Business Combination within twelve (12) months following such termination, then STAR shall pay to WAXS the Termination Fee prior to or at the consummation thereof. 7.3 AMENDMENT. This Agreement may be amended by STAR and WAXS, by action taken or authorized by their respective Boards of Directors or representatives or authorized officers, at any time before or after approval of the matters presented in connection with the Merger by the stockholders of STAR and WAXS (including, without limitation, an amendment as described in Section 6.2(h)), but, after any such approval, no amendment shall be made which by law or in accordance with the rules of any relevant stock exchange or automatic quotations system requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of STAR and WAXS. 7.4 EXTENSION, WAIVER. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Boards of Directors, representatives or authorized officers, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. 41 ARTICLE VIII GENERAL PROVISIONS 8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the representations, warranties, covenants and other agreements in this Agreement or in any instrument delivered pursuant to this Agreement including any rights arising out of any breach of such representations, warranties, covenants and other agreements, shall survive the Effective Time, except for those covenants and agreements contained herein and therein that by their terms apply or are to be performed in whole or in part after the Effective Time and this Article VIII. 8.2 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, or by telecopy or facsimile, upon confirmation of receipt, (b) on the first business day following the date of dispatch if delivered by a recognized next day courier service, or (c) on the tenth business day following the date of mailing if delivered by registered or certified mail return receipt requested, postage prepaid All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice: (a) If to WAXS or Merger Sub, to: World Access, Inc. Resurgens Plaza, Suite 2210 945 East Paces Ferry Road Atlanta, Georgia 30326 Facsimile No.: (404) 233-2280 Attention: John D. Phillips with a copy to Long Aldridge & Norman LLP 303 Peachtree Street, Suite 5300 Atlanta, Georgia 30308 Facsimile No.: (404) 527-4198 Attention: H. Franklin Layson 42 (b) If to STAR to: STAR Telecommunications, Inc. 223 East De La Guerra Santa Barbara, California 93101 Facsimile No.: (805) 884-1137 Attention: Christopher E. Edgecomb with a copy to Riordan & McKinzie Twenty-Ninth Floor 300 South Grand Avenue Los Angeles, California 90071 Facsimile No.: (213) 229-8550 Attention: Richard J. Welch 8.3 INTERPRETATION. When a reference is made in this Agreement to Sections, Exhibits, the WAXS Disclosure Schedule or the STAR Disclosure Schedule, such reference shall be to a Section of or Exhibit or schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". All Exhibits, the WAXS Disclosure Schedule and the STAR Disclosure Schedule are incorporated herein and made a part hereof. 8.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that both parties need not sign the same counterpart. 8.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. (a) This Agreement and the Confidentiality Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, including, without limitation, that certain Letter of Intent, dated December 17, 1999, between WAXS and STAR, among the parties with respect to the subject matter hereof. (b) This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, except as provided for in Section 5.12. 43 8.6 GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware (without giving effect to choice of law principles thereof). 8.7 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the actions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. 8.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto, in whole or in part (whether by operation of law or otherwise), without the prior written consent of the other parties, and any attempt to make any such assignment without such consent shall be null and void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 8.9 SUBMISSION TO JURISDICTION; WAIVERS. Each of WAXS and STAR irrevocably agrees that any legal action or proceeding with respect to this Agreement or for recognition and enforcement of any judgment in respect hereof brought by the other party hereto or its successors or assigns may be brought and determined in the Chancery or other Courts of the State of Delaware, and each of WAXS and STAR hereby irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each of WAXS and STAR hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (i) any right to trial by jury with respect to any action, suit or proceeding arising out of or relating to this Agreement, the Merger or any other transaction contemplated hereby, (ii) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason other than the failure to lawfully serve process, (iii) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (iv) to the fullest extent permitted by applicable law, that (a) the suit, action or proceeding in any such court is brought in an inconvenient forum, (b) the venue of such suit, action or proceeding is improper and (c) this Agreement, or the subject matter hereof, may not be enforced in or by such courts. 8.10 ENFORCEMENT. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms. It is accordingly agreed that the parties shall be entitled to specific performance of the terms hereof, this being in addition to any other remedy to which they are entitled at law or in equity. 44 8.11 HEADINGS. The headings contained in this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 8.12 DEFINITIONS. As used in this Agreement: (a) "BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWN" shall have the meaning under Section 13(d) of the Exchange Act and the rules and regulations thereunder. (b) "BOARD OF DIRECTORS" means the Board of Directors of any specified Person and any committees thereof. (c) "BUSINESS COMBINATION" means (i) a merger, reorganization, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving a party as a result of which either (A) such party's stockholders prior to such transaction (by virtue of their ownership of such party's shares) in the aggregate cease to own at least 65% of the voting securities of the entity surviving or resulting from such transaction (or the ultimate parent entity thereof) or, regardless of the percentage of voting securities held by such stockholders, if any Person shall beneficially own, directly or indirectly, at least 20% of the voting securities of such ultimate parent entity, or (B) the individuals comprising the board of directors of such party prior to such transaction do not constitute a majority of the board of directors of such ultimate parent entity, (ii) a sale, lease, exchange, transfer or other disposition of at least 50% of the assets of such party and its Subsidiaries, taken as whole, in a single transaction or a series of related transactions, or (iii) the acquisition, directly or indirectly, by a Person of beneficial ownership of 20% or more of the common stock of such party whether by merger, consolidation, share exchange, business combination, tender or exchange offer or otherwise. (d) "DISSENTERS' SHARES" means shares of STAR Common Stock for which dissenter's rights of appraisal have been exercised pursuant to the DGCL. (e) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (f) "GAAP" means United States generally accepted accounting principles. (g) "KNOWN" OR "KNOWLEDGE" means, with respect to any party, the knowledge of such party's executive officers after reasonable inquiry. (h) "MATERIAL ADVERSE EFFECT" means, with respect to any entity, any change, circumstance or effect or any breach of the provisions of this Agreement that, individually or in the aggregate with all other changes, circumstances and effects or breaches, is or would reasonably be expected to be materially adverse to (i) the business, financial condition or results of operations of such entity and its Subsidiaries taken as a whole, or (ii) the ability of such entity (or the party owning such entity) to consummate the transactions contemplated by this Agreement. 45 (i) "NASDAQ" means the National Market System of the NASDAQ Stock Market. (j) "NET PT-1 PROCEEDS" means the cash proceeds received by STAR at the consummation of the PT-1 Sale, net of all Taxes, fees, expenses and costs incurred in connection with the PT-1 Sale, including, without limitation: (1) fees or expenses for investment banking or other financial services; (2) agency, brokerage, finder's or other similar fees or commissions; (3) legal, accounting, consulting or other professional fees or expenses; (4) the cost of any remedial or corrective actions or measures; (5) the costs associated with the transfer or termination of any PT-1 employees; or (6) the costs of any right or obligation the vesting of which is accelerated by the PT-1 Sale. (k) "PERSON" means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization, other entity or group (as defined in the Exchange Act). (l) "PRE-CLOSING PRICE" means the closing price of WAXS Common Stock as reported on the Nasdaq for the trading day (in which such shares are traded on the Nasdaq) ending at the close of trading on the second (2nd) trading day preceding the Closing. (m) "PT-1 EXCESS PROCEEDS" means the Net PT-1 Proceeds in excess of $150,000,000. (n) "SEC" means the Securities and Exchange Commission. (o) "SECURITIES ACT" means the Securities Act of 1933, as amended. (p) "SUBSIDIARY", when used with respect to any party means any corporation or other organization, whether incorporated or unincorporated, (i) of which such party or any other Subsidiary of such party is a general partner (excluding partnerships, the general partnership interests of which held by such party or any Subsidiary of such party do not have a majority of the voting interests in such partnership) or (ii) at least a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or 46 indirectly owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries. (q) "SUPERIOR PROPOSAL" means a written proposal made by a Person unaffiliated with STAR which is for (I) (i) a merger, reorganization, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving STAR as a result of which either (A) STAR's stockholders prior to such action (by virtue of their ownership of STAR's shares) in the aggregate cease to own at least 50% of the voting securities of the entity surviving or resulting from such transaction (or the ultimate parent entity thereof) or (B) the individuals comprising the board of directors of STAR prior to such transaction do not constitute a majority of the board of directors of such ultimate parent entity, (ii) a sale, lease, exchange, transfer or other disposition of at least 50% of the assets of STAR and its Subsidiaries, taken as a whole, in a single transaction or a series of related transactions, or (iii) the acquisition, directly or indirectly, by a Person of beneficial ownership of 50% or more of the common stock of STAR whether by merger, consolidation, share exchange, business combination, tender or exchange offer or otherwise, and which is (II) otherwise on terms which the Board of Directors of STAR in good faith concludes (after consultation with its financial advisors and outside legal counsel), taking into account among other things, all legal, financial, regulatory and other aspects of the proposal and the Person making the proposal, (i) would, if consummated, result in a transaction that is more favorable to its stockholders (in their capacities as stockholders), from a financial point of view, than the transactions contemplated by this Agreement and (ii) is reasonably capable of being completed. (r) "TAX" (and, with correlative meaning, "TAXES" shall mean: (i) all taxes, charges, fees, levies or other assessments, however denominated, including any interest, penalties or other additions to tax that may become payable in respect thereof, imposed by any federal, territorial, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income or profits taxes (including, but not limited to, federal income taxes and state income taxes), payroll and employee withholding taxes, unemployment insurance, social security taxes, sales and use taxes, ad valorem taxes, excise taxes, employer tax, estimated, severance, telecommunications, occupation, goods and services, capital, profits, value added taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, transfer taxes, workers' compensation, Pension Benefit Guaranty Corporation premiums and other governmental charges, and other obligations of the same or of a similar nature to any of the foregoing, which the Person is required to pay, withhold or collect; and (ii) any liability for the payment of any amounts described in clause (i) as a result of being a successor to or transferee of any individual or entity or a member of an affiliated, consolidated or unitary group for any period 47 (including pursuant to Treas. Reg. Section 1.1502-6 or comparable provisions of state, local or foreign tax law); and (iii) any liability for the payment of amounts described in clause (i) or clause (ii) as a result of any express or implied obligation to indemnify any Person or as a result of any obligations under agreements or arrangements with any Person. (s) "TAX ASSET" means any net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction or any other credit or tax attribute which could reduce Taxes (including, without limitation, credits related to alternative minimum Taxes). (t) "TAX RETURN" shall mean all reports, estimates, declarations of estimated tax, information statements and returns (including any attached schedules) or similar statement relating to, or required to be filed in connection with, any Taxes, including information returns or reports with respect to backup withholding and other payments to third parties. (u) "TAX SHARING AGREEMENT" shall mean any and all existing Tax sharing agreements, or arrangements written or unwritten, express or implied, binding two or more Persons with respect to the payment of Taxes, including any agreements or arrangements which afford any other Person the right to receive any payment from one or more other Persons in respect to any Taxes or the benefit of any Tax Asset of one or more other Persons or require or permit the transfer or assignment of any income, revenue, receipts or gains. [SIGNATURES APPEAR ON FOLLOWING PAGE] 48 IN WITNESS WHEREOF, WAXS, Merger Sub and STAR have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first above written. WAXS: WORLD ACCESS, INC. By: ----------------------------------------------- Name: John D. Phillips Title: Chairman and Chief Executive Officer STAR: STAR TELECOMMUNICATIONS, INC. By: ----------------------------------------------- Name: Title: MERGER SUB: STI MERGER CO. By: ----------------------------------------------- Name: John D. Phillips Title: Chairman and Chief Executive Officer 49 EX-10.54 3 EXHIBIT 10.54 RECEIVABLES SALE AGREEMENT Dated as of November 30, 1999 by and between STAR TELECOMMUNICATIONS, INC., THE ENTITIES LISTED ON THE SIGNATURE PAGE TO THIS AGREEMENT, individually and collectively as Seller and Subservicer, and RFC CAPITAL CORPORATION, as Purchaser RECEIVABLES SALE AGREEMENT (the "Agreement"), dated as of November 30, 1999, by and between STAR TELECOMMUNICATIONS, INC. ("STAR"), THE ENTITIES LISTED ON THE SIGNATURE PAGE TO THIS AGREEMENT ("OTHER SELLERS"), Star and the Other Sellers, each together with its respective successors and assigns, individually and collectively, as Seller and Subservicer, and RFC CAPITAL CORPORATION, a Delaware corporation, as Purchaser. WITNESSETH: WHEREAS, the Seller desires to sell certain of its telecommunication receivables and the Purchaser is a corporation formed for the purpose of purchasing certain telecommunication receivables from time to time; WHEREAS, the Purchaser shall retain the complete right and ultimate authority to perform certain servicing, administrative and collection functions in respect of the receivables purchased by the Purchaser under this Agreement; WHEREAS, the Purchaser desires that the Subservicer be appointed to perform certain servicing, administrative and collection functions in respect of the Purchased Receivables; and WHEREAS, the Seller has been requested and is willing to act as the Subservicer. NOW, THEREFORE, the parties agree as follows: ARTICLE I - DEFINITIONS Section 1.1. CERTAIN DEFINED TERMS. The capitalized terms used in this Agreement shall have the respective meanings set forth on Exhibit A to this Agreement. Section 1.2. OTHER TERMS. All accounting terms not specifically defined in this Agreement shall be construed in accordance with generally accepted accounting principles. All terms defined in Article 9 of the UCC, and not specifically defined in this Agreement, are used in this Agreement as defined in such Article 9 of the UCC. ARTICLE II - PURCHASE AND SALE; ESTABLISHMENT OF ACCOUNTS Section 2.1. OFFER TO SELL. Seller shall offer to sell, transfer, assign and set over to Purchaser those Eligible Receivables selected for sale by Seller, in its sole discretion, and to be set forth on a list of such Eligible Receivables which list shall be delivered by the Seller to the Purchaser no later than three (3) Business Days prior to each Purchase Date; provided, notwithstanding the foregoing, Seller agrees to offer for Purchase to the Purchaser Eligible Receivables in an amount not less than twenty percent (20.0%) of the Purchase Commitment during any ninety (90) day period during the term of this Agreement. Section 2.2. PURCHASE OF RECEIVABLES. (a) Until the occurrence of a Termination Date, upon receipt of the list of Eligible Receivables and offer to sell pursuant to Section 2.1, the Purchaser, in its sole discretion, will confirm which of the Eligible Receivables offered by Seller that the Purchaser will Purchase. The Purchase of such Receivables shall occur upon payment of the applicable Purchase Price, as provided at Section 2.3 of this Agreement. Upon Purchase of the Receivables, Seller will have sold, transferred, assigned, set over and conveyed to Purchaser, without recourse except as expressly provided herein, all of Seller's right, title and interest in and to the Purchased Receivables, and title to such Purchased Receivables shall have passed to Purchaser at such time. If, in the event the Purchaser determines, in its sole discretion, not to Purchase Eligible Receivables of like character and quality as those previously purchased under this Section 2.2, and provided there has not occurred any Event of Seller Default or material adverse change in the business or financial condition of the Seller, the Purchaser shall provide the Seller with notice of the same within five Business Days of Purchaser's receipt of the Seller's list of Eligible Receivables pursuant to Section 2.1 and if, as a result thereof, Seller elects to provide written notice to the Purchaser of its intention to terminate this Agreement, resulting in the occurrence of a Termination Date, then the Seller shall not be obligated to pay to the Purchaser a Termination Fee. (b) The Seller shall not take any action inconsistent with such ownership and, from and after the date of such transfer, shall not claim any ownership in any Purchased Receivable. The Seller shall indicate in its Records that ownership interest in any Purchased Receivable is held by the Purchaser. In addition, the Seller shall respond to any inquiries with respect to ownership of a Purchased Receivable by stating that it is no longer the owner of such Purchased Receivable and that ownership of such Purchased Receivable is held by the Purchaser. Documents relating to the Purchased Receivables shall be held in trust by the Seller and the Subservicer, for the benefit of the Purchaser as the owner of the Purchased Receivables, and possession of any Required Information relating to the Purchased Receivables so retained is for the sole purpose of facilitating the servicing of the Purchased Receivables and carrying out the terms of this Agreement. Such retention and possession is at the will of the Purchaser and in a custodial capacity for the benefit of the Purchaser only, except to the extent necessary for the Seller's enforcement of its rights under this Agreement. Section 2.3. PURCHASE PRICE AND PAYMENT. The Purchase Price for Receivables purchased on any Purchase Date and paid by the Purchaser to the Seller shall be an amount equal to the aggregate Net Values of such Purchased Receivables and shall be paid by the Purchaser to the Seller by wire transfer on such respective Purchase Date. The Purchase Price to be paid on such Purchase Date shall be reduced by (a) the Program Fees as of such Purchase Date, (b) the amount, if any, by which the Seller Credit Reserve Account (net of withdrawals required hereunder) is less than the Specified Credit Reserve Balance as of such Purchase Date, (c) any Rejected Receivable Amount, and (d) other amounts due the Purchaser in accordance with this Agreement. At any time the aggregate Net Value of all Purchased Receivables shall not exceed the Purchase Commitment. Section 2.4. ESTABLISHMENT OF ACCOUNTS; CONVEYANCE OF INTERESTS THEREIN; INVESTMENTS. (a) One or more Lockbox Accounts will be established or assigned, as the case may be, for the benefit of the Purchaser into which all Collections from Payors with respect to Receivables shall be deposited. The Lockbox Accounts will be maintained at the expense of the Seller. The Seller, or the Subservicer, as the case may be, agrees to deposit all Collections it receives with respect to Receivables in said Lockbox Accounts and will instruct all Payors to make all payments on Receivables to said Lockbox Accounts. All funds in said Lockbox Accounts will be remitted to the Collection Account as instructed by the Purchaser. (b) The Purchaser has established and shall maintain the "Collection Account" (the "Collection Account"), the "Purchase Account" (the "Purchase Account") and the "Seller Credit Reserve Account" (the "Seller Credit Reserve Account"). (c) The Seller does hereby sell, transfer, assign, set over and convey to the Purchaser all right, title and interest of the Seller in and to all amounts deposited, from time to time, in the Lockbox Accounts, the Collection Account and the Seller Credit Reserve Account. Any Collections relating to Receivables held by the Seller or the Subservicer pending deposit to the Lockbox Accounts as provided in this Agreement, shall be held in trust for the benefit of the Purchaser until such amounts are deposited into the Lockbox Accounts. All Collections in respect of Purchased Receivables received by the Seller and not deposited directly by the Payor in the Lockbox Accounts shall be remitted to the Lockbox Accounts on the day of receipt or the following Business Day if the day of receipt is not a Business Day, and if such Collections are not remitted by Seller on a timely basis, in addition to its other remedies hereunder, the Purchaser shall be entitled to receive a late charge (which shall be in addition to the Program Fee) equal to 15% per annum of such Collections or the maximum rate legally permitted if less than such rate, calculated as of the first Business Day of such delinquency. Section 2.5. GRANT OF SECURITY INTEREST. It is the intention of the parties to this Agreement that each payment of the Purchase Price by the Purchaser to the Seller for Purchased Receivables to be made under this Agreement shall constitute payment of consideration for a purchase of such Purchased Receivables and not a loan. In the event, however, that a court of competent jurisdiction were to hold that the transaction evidenced by this Agreement constitutes a loan and not a purchase and sale, it is the intention of the parties that this Agreement shall constitute a security agreement under the UCC and any other applicable law, and that the Seller shall be deemed to have granted to the Purchaser a first priority perfected security interest in all of the Seller's right, title and interest in, to and under the Purchased Receivables; all payments of principal of or interest on such Purchased Receivables; all amounts on deposit from time to time in the Lockbox Accounts, the Collection Account and the Seller Credit Reserve Account; all other rights relating to and payments made under this Agreement, and all proceeds of any of the foregoing. Section 2.6. FURTHER ACTION EVIDENCING PURCHASES. The Seller agrees that, from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or appropriate, or that the Purchaser may reasonably request, in order to perfect, protect or more fully evidence the transfer of ownership of the Purchased Receivables or to enable the Purchaser to exercise or enforce any of its rights hereunder. ARTICLE III - CONDITIONS OF PURCHASES Section 3.1. CONDITIONS PRECEDENT TO ALL PURCHASES. Each Purchase from the Seller by the Purchaser shall be subject to the conditions precedent that as of each Purchase Date, the satisfaction of which will be determined by the Purchaser in good faith: (a) No Event of Seller Default has occurred and the Seller is in compliance in all material respects with any representation, warranty or covenant provided under this Agreement or any other agreement or certificate relating to the transactions contemplated hereby; (b) The Seller shall have delivered to the Purchaser as of such Purchase Date or on any previous Purchase Date a complete copy of each of the then current Carrier Agreements, Clearinghouse Agreements and Billing and Collection Agreements and any amendment or modification of such agreements and a copy of each material written notice (e.g., termination, delinquent payment, threat of suspended service, etc.) delivered by or received by either the Carrier, Billing and Collection Agent, Clearinghouse Agent or the Seller with respect to any Carrier Agreement, Clearinghouse Agreement and/or the Billing and Collection Agreement; (c) Purchaser shall have received, in form and substance satisfactory to Purchaser, all consents, waivers, acknowledgments, releases, terminations and other agreements and documents from third persons which Purchaser may deem necessary in order to permit, protect and perfect its rights, ownership or otherwise, in the Purchased Receivables and liens upon any collateral or to effectuate the provisions or purposes of this Agreement; (d) The Termination Date shall not have occurred; (e) The Seller shall have taken such other action, including but not limited to the delivery of an opinion of counsel prior to the initial Purchase Date in the form of Exhibit D hereto, or delivered such other approvals, opinions or documents to the Purchaser, as the Purchaser may reasonably request; 2 (f) Chris Edgecomb shall continue to (i) hold at least such title and authority as held as of the Closing Date and (ii) be a full time employee of Seller, unless a reasonably acceptable replacement is identified and meets with Purchaser's written approval within ninety (90) days thereafter; (g) The Seller shall not (i) have made any material change in the nature of the business that Seller presently conducts or change its name or the location of its chief executive office or the location of the office where records are kept, (ii) merge or consolidate with any other corporation (where the Seller will not be the surviving entity without the Purchaser's written consent), or purchase any stock or assets of any other party, other than assets used by Seller in the ordinary course of its business; (h) The Seller's Tangible Net Worth (as defined in this Section) shall be not less than $60,000,000. "Tangible Net Worth" means the stockholders' equity of Seller and Seller's subordinated debt, reduced by intangible assets of Seller, amounts owing to Seller by any interested party or Seller Affiliate and all other assets of Seller not readily convertible into money, as reasonably determined by Purchaser. (i) The Seller's ratio of its current assets to its current liabilities shall be not less than 0.45 to 1.0; provided, however, that in the event all or substantially all of the assets or capital stock of any individual Seller hereto is sold, transferred, assigned or conveyed to any third party, such ration shall be not less than 1.0 to 1.0; (j) Other than the $80,000,000 capital expenditure related to the Indefeasible Right to Use Agreement by and between Qwest Communications Corporation and Helvey Com, Inc. dated September 15, 1998, and the $40,000,000 capital expenditure related to Seller's participation in China-U.S. Cable Network, LLC, the Seller shall not have made capital expenditures of any kind or nature, including leases of property which are required to be capitalized on Seller's balance sheet, in an aggregate amount in excess of $120,000,000 during the period commending as of the Closing Date and ending on two year anniversary of such Closing Date; (k) the Seller's ratio of Net Value to monthly Collections shall not be greater than 1.5 to 1.0 with respect to Receivables purchased hereunder which are not International Receivables; (l) the Seller's ratio of Net Value to monthly Collections shall not be greater than 1.0 to 1.0 with respect to Receivables purchased hereunder which are International Receivables; (m) the outstanding Net Value of International Receivables purchased pursuant to this Agreement at any time shall not exceed ten percent (10.0%) of the Net Value of all Receivables purchased pursuant to this Agreement; (n) the Purchaser shall have successfully syndicated or participated out a not less than $55,000,000 of the Purchase Commitment as determined by the Purchaser in its sole and exclusive discretion; (o) the Purchaser shall have determined, in good faith, that it has received any and all consents, documents, items or agreements reasonably necessary and in a form acceptable to the Purchaser which pertain to any International Receivables or the Purchaser's contemplated purchase thereof; (p) the Seller shall (i) timely file all tax returns which Seller is required by law to file or has obtained valid extensions therefor and all taxes and other sums owing by Seller to any governmental authority have been fully paid, (ii) maintain adequate reserves to pay such tax liabilities as they accrue, (iii) delivered to Purchaser satisfactory evidence that Seller is in good standing and material compliance with any and all relevant taxing, administrative, regulatory and/or Governmental Authorities; and (q) As of the initial Purchase Date, the Purchaser shall have received background checks on certain of Seller's shareholders, directors, officers or manages, the results of which shall be satisfactory to the Purchaser in its sole discretion. 3 ARTICLE IV - REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER Section 4.1. REPRESENTATIONS, WARRANTIES AND COVENANTS AS TO THE SELLER. The Seller represents and warrants to the Purchaser, as of the date of this Agreement and as of each subsequent Purchase Date, as follows: (a) The Seller is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and is duly qualified to do business and is in good standing in each jurisdiction in which it is doing business, except where the failure to be so qualified would not result in a material adverse effect on the Seller or its business or financial condition, and has the power and authority to own and convey all of its properties and assets and to execute and deliver this Agreement and the Related Documents and to perform the transactions contemplated thereby; and each is the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms; (b) The execution, delivery and performance by the Seller of this Agreement and the Related Documents and the transactions contemplated thereby (i) have been duly authorized by all necessary corporate or other action on the part of the Seller, (ii) do not contravene or cause the Seller to be in default under (A) any contractual restriction contained in any loan or other agreement or instrument binding on or affecting the Seller or its property; or (B) any law, rule, regulation, order, writ, judgment, award, injunction, or decree applicable to, binding on or affecting the Seller or its property and (iii) does not result in or require the creation of any Adverse Claim upon or with respect to any of the property of the Seller (other than in favor of the Purchaser as contemplated hereunder); (c) There is no court order, judgment, writ, pending or threatened action, suit or proceeding, of a material nature against or affecting the Seller, its officers or directors, or the property of the Seller, in any court or tribunal, or before any arbitrator of any kind or before or by any Governmental Authority (i) asserting the invalidity of this Agreement or any of the Related Documents, (ii) seeking to prevent the sale and assignment of any Receivable or the consummation of any of the transactions contemplated thereby, (iii) seeking any determination or ruling that might materially and adversely affect the Seller, this Agreement, the Related Documents, the Receivables, the Contracts or any LOA, or (iv) asserting a claim for payment of money in excess of $100,000; (d) The primary business of the Seller is the provision of telecommunication services and/or equipment. All license numbers issued to the Seller by any Governmental Authority are set forth on Schedule 1 and the Seller has complied in all material respects with all applicable laws, rules, regulations, orders and related Contracts and all restrictions contained in any agreement or instrument binding on or affecting the Seller, and has and maintains all permits, licenses, certifications, authorizations, registrations, approvals and consents of Governmental Authorities or any other party necessary for the business of the Seller and each of its Subsidiaries; (e) The Seller (i) has filed on a timely basis all tax returns (federal, state, and local) required to be filed and has paid or made adequate provisions for the payment of all taxes, assessments, and other governmental charges due from the Seller; (ii) the financial statements of the Seller, copies of which have been furnished to the Purchaser, fairly present the financial condition of the Seller, all in accordance with generally accepted accounting principles(1) consistently applied except as noted in footnotes thereto; (iii) since September 30, 1999, there has been no material adverse change in any such condition, business or operations; and (iv) the Seller has delivered to the Purchaser (a) within 45 days after the end of each subsequent three-month period the financial statements, including balance sheet and income statement prepared in accordance with generally accepted accounting principles, of the Seller as of the end of such - ------------------------ (1)References herein to the preparation of financial statements in accordance with GAAP shall be deemed, in the case of unaudited financial statements, to refer to GAAP, subject to the absence of notes and to normal year-end audit adjustments. 4 three-month period, certified by an officer of the Seller and accompanied by a management narrative summarizing circumstances and issues underlying such financial statements and facing the Seller going forward and (b) within 90 days after the end of the fiscal year of the Seller the financial statements, including balance sheet and income statement prepared by Arthur Andersen, LLP, or such other accounting firm of national repute; (f) All written or printed information furnished by or on behalf of the Seller to the Purchaser in connection with this Agreement is true and complete in all material respects and does not omit to state a material fact and the sales of Purchased Receivables under this Agreement are made by the Seller in good faith and without intent to hinder, delay or defraud present or future creditors of the Seller; (g) The Lockbox Accounts is the only Lockbox Accounts to which Payors have been or will be instructed to direct Receivable proceeds and each Payor of an Eligible Receivable has been directed upon its receipt of the notice attached hereto as Exhibit B, which such notice was mailed or provided to such Payors prior to the initial Purchase Date, to remit all payments with respect to such Receivable for deposit in the Lockbox Accounts; (h) The principal place of business and chief executive office of each respective Seller are located at the address of such Seller set forth under its signature below and there are not now, and during the past four months there have not been, any other locations where such Seller is located (as that term is used in the UCC) or keeps Records except as set forth in the designated space beneath its signature line in this Agreement and at such office locations set forth on the attached Schedule 4.1(h); (i) The legal name of the Seller is as set forth at the beginning of this Agreement and the Seller has not changed its legal name in the last six years, and during such period, the Seller did not use, nor does the Seller now use any tradenames, fictitious names, assumed names or "doing business as" names other than those appearing on the signature page of this Agreement; (j) The Seller has not done anything to impede or interfere with the collection by the Purchaser of the Purchased Receivables and has not amended, waived or otherwise permitted or agreed to any deviation from the terms or conditions of any Purchased Receivable or any related Carrier Agreement, Clearinghouse Agreement, Billing and Collection Agreement, Contract or LOA so as to (i) create an Adverse Claim with respect to any Receivable or (ii) materially affect the ability of Subservicer or the Purchaser to act in its capacity as such; and has not allowed any invoice due and owing by the Seller relating to any Carrier Agreement, Clearinghouse Agreement or Billing and Collection Agreement to become any more than thirty (30) days past due; (k) For federal income tax reporting and accounting purposes, the Seller will treat the sale of each Purchased Receivable pursuant to this Agreement as a sale of, or absolute assignment of its full right, title and ownership interest in such Purchased Receivable to the Purchaser; (l) All computer software, equipment and/or related systems that either relate to the Purchased Receivables, include imbedded date sensitive software or are utilized by Seller in connection with and are material to the operation of its business are "Year 2000 Compliant." For purposes hereof, "Year 2000 Compliant" shall mean that the applicable computer software will (a) function properly and without material interruption before, during, and immediately after January 1, 2000; (b) accurately process date and time data (including calculating, comparing, and sequencing) between the twentieth and twenty-first centuries and between the years 1999 and 2000; (c) will respond to two-digit year input in a way that resolves ambiguity as to century in a defined and predetermined manner; and (d) will store and provide output of date information in ways that are unambiguous as to century. (m) The assets of the Seller, collectively, represent substantially all of the assets associated with Star Telecommunications, Inc., its Affiliates or any entity related thereto. 5 Section 4.2. REPRESENTATIONS AND WARRANTIES OF THE SELLER AS TO PURCHASED RECEIVABLES. With respect to each Purchased Receivable sold pursuant to this Agreement the Seller represents and warrants, as of the date hereof and as of each subsequent Purchase Date, as follows: (a) Such Purchased Receivable (i) includes all the Required Information; (ii) is the obligation of an Eligible Payor, provided, that, unless the Purchaser otherwise agrees in writing, the obligation of each respective Payor to the Seller does not comprise more than five percent (5.0%) of the Net Value of all Purchased Receivables or more than $200,000 except for those Receivables to be purchased from entities listed on Schedule 3 (which, to the extent a Receivable is purchased by the Purchaser, the Purchaser shall be deemed to have provided its written consent to the Seller); (iii) was created by the provision or sale of telecommunication services or equipment by the Seller in the ordinary course of its business; (iv) has a Purchase Date no later than 90 days from its Billing Date; (v) is not a Purchased Receivable which with respect to which, as of any Determination Date, payment by the Payor of such Receivable has been received and is not duplicative of any other Receivable; and (vi) is owned by the Seller free and clear of any Adverse Claim, and the Seller has the right to sell, assign and transfer the same and interests therein as contemplated under this Agreement and no consent other than those secured and delivered to the Purchaser on or prior to the Closing Date from any Governmental Authority, the Payor, a Carrier, the Billing and Collection Agent, the Clearinghouse Agent or any other Person shall be required to effect the sale of any such Purchased Receivable; (b) The Billed Amount of such Purchased Receivable is payable in United States Dollars and the Eligible Receivable Amount with respect thereto, unless the Purchaser and Seller otherwise agree in writing, is not in excess of $200,000 with respect to any one individual Payor of any Payor Class other than an Eligible Receivable payable under a Billing and Collection Agreement as set forth on the attached Schedule 3, and is net of any adjustments or other modifications contemplated by any Carrier Agreement, Clearinghouse Agreement, Billing and Collection Agreement or otherwise and neither the Receivable nor the related Carrier Agreement, Clearinghouse Agreement, Billing and Collection Agreement or Contract has been compromised, adjusted, extended, satisfied, subordinated, rescinded, set-off or modified by the Seller, the Payor, the Carrier, the Clearinghouse Agent or the Billing and Collection Agent, and is not subject to compromise, adjustment, termination or modification, whether arising out of transactions concerning the Contract, any Carrier Agreement, Clearinghouse Agreement, Billing and Collection Agreement or otherwise; and (c) There are no procedures or investigations pending or threatened before any Governmental Authority (i) asserting the invalidity of such Receivable, Carrier Agreement, Clearinghouse Agreement, Billing and Collection Agreement, LOA or such Contract, (ii) asserting the bankruptcy or insolvency of the related Payor, (iii) seeking the payment of such Receivable or payment and performance of the related Carrier Agreement, Clearinghouse Agreement, Billing and Collection Agreement, or such other Contract or LOA, or (iv) seeking any determination or ruling that might materially and adversely affect the validity or enforceability of such Receivable or the related Carrier Agreement, Clearinghouse Agreement, Billing and Collection Agreement, or such other Contract or LOA. Section 4.3. NEGATIVE COVENANTS OF THE SELLER. The Seller shall not, without the written consent of the Purchaser, which such consent shall not be unreasonably withheld: (a) Sell, assign or otherwise dispose of, or create or suffer to exist any Adverse Claim or lien upon its capital stock, any Receivable and related Contracts, its Customer Base, the Lockbox Accounts, the Collection Account, or any other account in which any Collections of any Receivable are deposited, or assign any right to receive income in respect of any Receivable; (b) Submit or permit to be submitted to Payors any invoice for telecommunication services or equipment rendered by or on behalf of Seller which contains a "pay to" address other than the Lockbox Accounts; 6 (c) Make any change to (i) the location of its chief executive office or the location of the office where Records are kept or (ii) its corporate name or use any tradenames, fictitious names, assumed names or "doing business as" names; (d) Enter into or execute any Clearinghouse Agreement or Billing and Collection Agreement (other than those listed on Schedule 3 hereof) or any amendment or modification thereof; or (e) In the event Seller has failed to timely pay any amounts due and owing Purchaser hereunder and the expiration of any applicable cure period, other than as relates to Collections in respect of Purchased Receivables, the Seller shall not pay to or compensate any of the following executive officers: Chris Edgecomb, Mary Casey, Vaughn Crumley, Jim Colsund or Kelly Enos, or any member of such person's family, any additional compensation in the form of a bonus, stock options or other similar incentive compensation, and shall suspend any then existing bonus and incentive compensation payment structure, until such time as all amounts then due and owing Purchaser have been satisfied. Section 4.4. REPURCHASE OBLIGATIONS. Upon discovery by any party to this Agreement of a breach of any representation or warranty in Sections 4.1 or 4.2 of this Article IV which materially and adversely affects the value of a Purchased Receivable or the interests of the Purchaser therein (herein a "Rejected Receivable"), the party discovering such breach shall give prompt written notice to the other parties to this Agreement. Thereafter, on the next Purchase Date, the Net Value of the Rejected Receivables shall be deducted from the amount otherwise payable to the Seller pursuant to Section 2.3 and deposited in the Collection Account in satisfaction of the Rejected Receivable Amount and, provided the full Net Value of such Rejected Receivables is deposited in the Collection Account, such Rejected Receivables shall then be considered to have been repurchased by the Seller. In the event that the full Net Value of such Rejected Receivables is not deposited in the Collection Account pursuant to the foregoing sentence, the Purchaser shall deduct any such deficiency from the Excess Collection Amount or make demand upon the Seller to pay any such deficiency to the Purchaser for deposit to the Collection Account. Upon full payment of the amounts set forth above to the Collection Account, the Seller will be deemed to have repurchased such Rejected Receivable. ARTICLE V - ACCOUNTS ADMINISTRATION Section 5.1. COLLECTION ACCOUNT. The Purchaser acknowledges that certain amounts deposited in the Collection Account may relate to Receivables other than Purchased Receivables and that such amounts continue to be owned by the Seller. All such amounts shall be administered in accordance with Section 5.3. Section 5.2. DETERMINATIONS OF THE PURCHASER. On each Determination Date, the Purchaser will determine, in good faith, the following: (a) the Net Value of all Purchased Receivables which have become Rejected Receivables since the prior Purchase Date and which have not been repurchased or offset in the manner set forth in Section 4.4 (the "Rejected Receivable Amount"); (b) the amount of Collections up to the Purchase Price of all Purchased Receivables received since the prior Determination Date (the "Paid Receivables Amount"); (c) the Net Value of all Purchased Receivables which have become Defaulted Receivables since the prior Purchase Date (the "Defaulted Receivable Amount" or "Credit Deficiency"); (d) the aggregate amount deposited in the Collection Account in excess of the Purchase Price of each Purchased Receivable, including Collections pertaining to Receivables not purchased under this Agreement, since the prior Determination Date (the "Excess Collection Amount"); 7 (e) the Net Value of all Purchased Receivables less the Rejected Receivable Amount and the Defaulted Receivable Amount as of the current Determination Date; and (f) the amount of any accrued and unpaid Program Fee. The Purchaser's determinations of the foregoing amounts shall be made in good faith and shall be deemed conclusive in the absence of manifest error. The Purchaser shall notify the Seller of such good faith determinations. Section 5.3. DISTRIBUTIONS FROM ACCOUNTS. (a) On each Determination Date, following the determinations set forth in Section 5.2, the Purchaser will make the following withdrawals and deposits: (i) withdraw the Paid Receivables Amount and the Rejected Receivable Amount plus any outstanding Rejected Receivable Amount applicable to any prior period, to the extent such Rejected Receivable Amount is not paid to the Purchaser as a reduction in Purchase Price to be paid to the Seller, from the Collection Account and deposit such amount in the Purchase Account; (ii) withdraw the Defaulted Receivable Amount from the Seller Credit Reserve Account and deposit such amount in the Purchase Account; (iii) withdraw the Excess Collection Amount from the Collection Account and deposit such amount in the Seller Credit Reserve Account to the extent that the Seller Credit Reserve Account is less than the Specified Credit Reserve Balance; and (iv) withdraw the balance of the Excess Collection Amount from the Collection Account and, subject to any offset required under Section 5.3(b) of this Agreement, remit such amount by wire transfer to an account designated by the Seller; PROVIDED, HOWEVER, with respect to Receivables processed or cleared pursuant to any Carrier Agreement, Clearinghouse Agreement or Billing and Collection Agreement, if applicable, any Excess Collection Amount shall be retained by the Purchaser in the Collection Account until such time that the Seller's billing cycle (or batch) to which such Excess Collection Amount applies is deemed closed by the Purchaser which, absent the occurrence of an Event of Seller Default and provided that the Purchaser has received information in sufficient form and format to allow the Purchaser to properly apply and/or post Collections against Purchased Receivables, will occur no later than the next immediate Purchase Date following such determination. (b) The full amount of the Purchase Price before any offsets shall be withdrawn from the Purchase Account and paid and administered as follows: (i) the Program Fee due and owing as of each respective Purchase Date shall be paid to the Purchaser, (ii) the amount, if any, by which the Seller Credit Reserve Account is less than the Specified Credit Reserve Balance as of such respective Purchase Date shall be deposited in the Seller Credit Reserve Account, (iii) the amount, if any, due and owing the Purchaser pursuant to Section 9.4 of this Agreement shall be paid to the Purchaser, and (iv) any remaining amount shall be paid to the Seller in accordance with Section 2.3 of this Agreement. (c) Until the Termination Date, with commercially reasonable best efforts on each Purchase Date or in any event within two Business Days of each Purchase Date, the Purchaser shall withdraw all amounts deposited hereunder (net of withdrawals required hereunder) from the Seller Credit Reserve Account which are in excess of the Specified Credit Reserve Balance and shall pay to the Purchaser all amounts due and owing the Purchaser in accordance with Sections 2.3, 4.4, 5.3, 8.1, 9.4 and any applicable Termination Fee, and pay the balance, if any, by wire transfer to an account designated by the Seller. Section 5.4. ALLOCATION OF MONEYS FOLLOWING TERMINATION DATE. (a) Upon the occurrence of a Termination Date hereunder, the Purchaser shall administer and monitor the Lockbox Accounts and any 8 and all Collections and apply the amount of such Collections to the outstanding Net Value of Purchased Receivables. Following the Termination Date and the Purchaser's receipt of the Termination Fee, if applicable, from the Seller, the Purchaser shall, to the extent funds deposited hereunder (net of withdrawals required hereunder) are sufficient, withdraw an amount equal to the Program Fee from the Seller Credit Reserve Account on each Purchase Date and deposit it in the Purchase Account. To the extent that such funds do not equal the Program Fee, the Seller shall deposit in the Purchase Account the balance of the Program Fee within five Business Days following demand therefor. To the extent any Purchased Receivable becomes a Defaulted Receivable, the Purchaser may withdraw an amount equal to such Defaulted Receivable Amount from the Seller Credit Reserve Account and deposit such amount in the Collection Account, PROVIDED, HOWEVER, that such recourse is expressly limited to the monies which comprise the Seller Credit Reserve Account at the time of the Termination Date which shall not at any time exceed the Specified Credit Reserve Balance. Thereafter, any Excess Collection Amount may not be used for deposit to the Seller Credit Reserve Account and shall be otherwise administered in accordance with this Agreement. (b) In any event, following the Termination Date and the Purchaser's receipt of the Termination Fee, if any, the Seller may, at its option, repurchase all previously Purchased Receivables which have not been fully paid by the respective Payors thereof by depositing with the Purchaser the then aggregate Net Value of such Purchased Receivables. Following such payment and any other amount due and owing the Purchaser under this Agreement, this Agreement shall be deemed terminated. (c) On the first Determination Date on which the aggregate Net Value of all Purchased Receivables (other than Defaulted Receivables) (i) is less than 10% of the aggregate Net Value of Purchased Receivables (other than Defaulted Receivables) on the Termination Date and (ii) is less than the aggregate amount remaining in the Seller Credit Reserve Account, the Purchaser shall withdraw an amount equal to such aggregate Net Value from such accounts and deposit it in the Purchase Account. Thereupon the Purchaser shall disburse all remaining amounts held in the Seller Credit Reserve Account to the Seller and all interests of the Purchaser in all Purchased Receivables owned by the Purchaser shall be reconveyed by the Purchaser to the Seller. Following such disbursement and reconveyance, this Agreement shall be deemed terminated. ARTICLE VI - APPOINTMENT OF THE SUBSERVICER Section 6.1. APPOINTMENT OF THE SUBSERVICER. Subject to Section 6.5, as consideration for the Seller's receipt of that portion of the Excess Collection Amount relating to Purchased Receivables, the Purchaser hereby appoint the Seller and the Seller hereby accepts such appointment to act as Subservicer under this Agreement. The Subservicer may, with the prior consent of the Purchaser, which consent shall not be unreasonably withheld, subcontract with a subservicer for billing, collection, servicing or administration of the Receivables. Any termination or resignation of the Subservicer under this Agreement shall not affect any claims that the Purchaser may have against the Subservicer for events or actions taken or not taken by the Subservicer arising prior to any such termination or resignation. Section 6.2. DUTIES AND OBLIGATIONS OF THE SUBSERVICER. (a) The Subservicer shall service the Purchased Receivables and enforce the Purchaser's respective rights and interests in and under each Purchased Receivable and each related Contract or LOA; and shall take, or cause to be taken, all such actions as may be necessary or advisable to service, administer and collect each Purchased Receivable all in accordance with (i) customary and prudent servicing procedures for telecommunication receivables of a similar type, and (ii) all applicable laws, rules and regulations; and shall serve in such capacity until the termination of its responsibilities pursuant to Section 6.4 or 7. 1. The Subservicer shall at any time permit the Purchaser or any of its representatives to visit the offices of the Subservicer and examine and make copies of all Servicing Records; 9 (b) The Subservicer shall notify the Purchaser of any action, suit, proceeding, dispute, offset, deduction, defense or counterclaim that is or may be asserted by any Person with respect to any Purchased Receivable. (c) The Purchaser shall not have any obligation or liability with respect to any Purchased Receivables which may arise out of a related Contract, nor shall it be obligated to perform any of the obligations of the Subservicer hereunder. Section 6.3. SUBSERVICING EXPENSES. The Subservicer shall be required to pay for all expenses incurred by the Subservicer in connection with its activities hereunder (including any payments to accountants, counsel or any other Person) and shall not be entitled to any payment or reimbursement therefor. Section 6.4. SUBSERVICER NOT TO RESIGN. The Subservicer shall not resign from the duties and responsibilities hereunder except upon determination that (a) the performance of its duties hereunder has become impermissible under applicable law and (b) there is no reasonable action which the Subservicer could take to make the performance of its duties hereunder permissible under applicable law evidenced as to clause (a) above by an opinion of counsel to such effect delivered to the Purchaser. Section 6.5. AUTHORIZATION OF THE PURCHASER. The Seller hereby acknowledges that the Purchaser (including any of its successors or assigns), shall retain the authority to take any and all reasonable steps in its name and on its behalf necessary or desirable in the determination of the Purchaser to collect all amounts due under any and all Purchased Receivables, process all Collections, commence proceedings with respect to enforcing payment of such Purchased Receivables and the related Contracts, and adjusting, settling or compromising the account or payment thereof. The Seller shall furnish the Purchaser (and any successors thereto) with any powers of attorney and other documents necessary or appropriate to enable the Purchaser to carry out its servicing and administrative duties under this Agreement, and shall cooperate with the Purchaser to the fullest extent in order to facilitate the collectibility of the Purchased Receivables. ARTICLE VII - EVENTS OF SELLER DEFAULT Section 7.1. EVENTS OF SELLER DEFAULT. If any of the following events (each, an "Event of Seller Default") shall occur and be continuing: (a) The Seller (either as Seller or Subservicer) shall materially fail to perform or observe any term, covenant or agreement contained in this Agreement for a period of ten days after delivery of notice from the Purchaser, or such longer period as may be required to enable such failure to be cured so long as the Seller commences the cure of such failure and notifies the Purchaser of such commencement within such ten day period and thereafter continues without interruption diligently to prosecute such cure to completion; provided, however, that if such failure (i) consists of or involves any diversion of funds in violation of this Agreement, (ii) poses an imminent threat of suspension or termination of services pursuant to any Carrier Agreement, or (iii) poses an imminent threat to the validity, effectiveness or priority of any of the Purchaser's ownership or security interests created pursuant to this Agreement, then, and in any of the circumstances specified in the immediately preceding clauses (i), (ii) and/or (iii), the period within which such failure may be cured shall be limited to three business days following Seller's actual or constructive knowledge of same; (b) The Seller or any Affiliate defaults: (i) whether as primary or secondary obligor, in the payment of any principal or interest on any obligation for borrowed money beyond any applicable grace period or, if such obligation is payable on demand, fails to pay such obligation upon demand; or (ii) in the observance of any covenant, term or condition contained in any agreement, if the effect of such default is 10 to cause, or to permit any other party to such obligation to cause, all or part of such obligation to become due before its stated maturity; (c) An Insolvency Event shall have occurred and which has not been cured within thirty (30) days of such Insolvency Event; (d) There is a material breach of any of the representations and warranties of the Seller as stated in Sections 4.1 or 4.2 that has remained uncured for a period of 30 days, or, as such breach may pertain to a Purchased Receivable, has not been cured pursuant to Section 4.4; (e) Any Governmental Authority shall file notice of a lien with regard to any of the assets of the Seller or with regard to the Seller which remains undischarged for a period of 30 days; (f) As of the first day of any month, the aggregate Net Value of Purchased Receivables which became Defaulted Receivables or Rejected Receivables during the prior three month period shall exceed 10.0% of the Net Value of all Purchased Receivables then owned by the Purchaser at the end of each of such three months; (g) This Agreement shall for any reason cease to evidence the transfer to the Purchaser (or its assignees or transferees) of the legal and equitable title to, and ownership of, the Purchased Receivables; (h) The termination of any Clearinghouse Agreement, if applicable, and/or any Carrier Agreement or Billing and Collection Agreement for any reason whatsoever absent the consummation of a substitute Clearinghouse Agreement, Carrier Agreement and/or Billing and Collections Agreement, as the case may be, within ten Business Days of the termination thereof, and/or, any invoice due and owing by the Seller relating to any Carrier Agreement, Clearinghouse Agreement or Billing and Collection Agreement has become more than thirty days past due; or (i) The amount deposited hereunder (net of withdrawals required hereunder) in the Seller Credit Reserve Account has remained at less than the Specified Credit Reserve Balance for fourteen consecutive days; then and in any such event, the Purchaser may, by notice to the Seller declare that an Event of Seller Default shall have occurred and, the Termination Date shall forthwith occur, without demand, protest or further notice of any kind, and the Purchaser shall make no further Purchases from the Seller. The Purchaser, in addition to all other rights and remedies under this Agreement, all other rights and remedies provided under the UCC and other applicable law, which rights shall be cumulative. ARTICLE VIII - INDEMNIFICATION AND SECURITY INTEREST Section 8.1. INDEMNITIES BY THE SELLER. (a) Without limiting any other rights that the Purchaser or any director, officer, employee or agent of the Purchaser (each an "Indemnified Party") may have under this Agreement or under applicable law, the Seller hereby agrees to indemnify each Indemnified Party from and against any and all claims, losses, liabilities, obligations, damages, penalties, actions, judgments, suits, and related costs and expenses of any nature whatsoever, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") which may be imposed on, incurred by or asserted against an Indemnified Party in any way arising out of or relating to this Agreement or the ownership of the Purchased Receivables or in respect of any Receivable or any Contract, excluding, however, Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of any Indemnified Party. (b) Any Indemnified Amounts subject to the indemnification provisions of this Section shall be paid to the Indemnified Party within five Business Days following demand therefor, together with 11 interest at the lesser of 10% per annum or the highest rate permitted by law from the date of demand for such Indemnified Amount. Section 8.2 SECURITY INTEREST. The Seller hereby grants to the Purchaser a first priority perfected security interest in the Seller's Customer Base, including but not limited to, all past, present and future customer contracts, lists, agreements, LOA's or arrangements relating thereto; all of the Seller's right, title and interest in, to and under all of the Seller's Receivables not sold to the Purchaser hereunder, including all rights to payments under any related Contracts, contract rights, instruments, documents, chattel paper, general intangibles, LOA's or other agreements with all Payors and all the Collections, Records and proceeds thereof; any other obligations or rights of Seller to receive any payments in money or kind; all cash or non-cash proceeds of the foregoing; all of the right, title and interest of the Seller in and with respect to the goods, services or other property which gave rise to or which secure any of the foregoing as security for the timely payment and performance of any and all obligations the Seller or the Subservicer may owe the Purchaser under Sections 2.3, 4.4, 5.3, 8.1, 9.4 and any applicable Termination Fee and Purchase Commitment Fees, but excluding recourse for unpaid Purchased Receivables. This Section 8.2 shall constitute a security agreement under the UCC and any other applicable law and the Purchaser shall have the rights and remedies of a secured party thereunder. Such security interest shall be further evidenced by Seller's execution of appropriate UCC-1 financing statements prepared by and acceptable to the Purchaser, and such other further assurances that may be reasonably requested by the Purchaser from time to time. Section 8.3. FURTHER ASSURANCES. Seller covenants to execute such other assignments, security agreements, financing statements, and other documents that Purchaser may reasonably deem necessary to further evidence the obligations provided for herein or under this Agreement, or to perfect, extend, or clarify Purchaser's rights in the Purchased Receivables, including but not limited to International Receivables, or under this Agreement. ARTICLE IX - MISCELLANEOUS Section 9.1. NOTICES, ETC. All notices, shall be in writing and mailed or telecommunicated, or delivered as to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall not be effective until received by the party to whom such notice or communication is addressed. Section 9.2. REMEDIES. No failure or delay on the part of the Purchaser to exercise any right hereunder shall operate as a waiver or partial waiver thereof. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 9.3. BINDING EFFECT; ASSIGNABILITY. This Agreement shall be binding upon and inure to the benefit of the Seller, the Subservicer, the Purchaser and their respective successors and permitted assigns. Neither the Seller nor the Subservicer may assign any of their rights and obligations hereunder or any interest herein without the prior written consent of the Purchaser. Purchaser shall have the right, from time to time, without notice to Seller, to sell, assign or otherwise transfer its interest in this Agreement and the Purchased Receivables, either in whole or in part, to any other party or enter into participation arrangements with any other party. Seller authorizes Purchaser to deliver to potential assignees or participants Seller's financial information and all other information delivered to Purchaser pursuant to the terms of this Agreement so long as the potential transferee agrees in writing to comply with the confidentiality provision of this Agreement. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until its termination; PROVIDED, that the rights and remedies with respect to any breach of any representation and warranty made by the Seller pursuant to Article IV and the indemnification and payment provisions of Article VIII shall be continuing and shall survive any termination of this Agreement. 12 Section 9.4. COSTS, EXPENSES AND TAXES. (a) In addition to the rights of indemnification under Article VIII, the Seller agrees to pay upon demand, all reasonable costs and expenses in connection with this Agreement and the other documents to be delivered hereunder, including, without limitation: (i) the periodic auditing of the Seller and the modification or amendment of this Agreement; (ii) the reasonable fees and out-of-pocket expenses of counsel for the Purchaser with respect to (A) advising the Purchaser as to its rights and remedies under this Agreement or (B) the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement or the other documents to be delivered hereunder; (iii) any and all accrued Program Fee and amounts related thereto not yet paid to the Purchaser; (iv) any and all Purchase Commitment Fees and amounts related thereto not yet paid to the Purchaser; and (v) any and all stamp, sales, excise and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing or recording of this Agreement or the other agreements and documents to be delivered hereunder, and agrees to indemnify and save each Indemnified Party from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. (b) If the Seller or the Subservicer fails to pay any Lockbox Accounts fees or other charges or debits related to such accounts, or to pay or perform any agreement or obligation contained under this Agreement, the Purchaser may pay or perform, or cause payment or performance of, such agreement or obligation, and the expenses of the Purchaser incurred in connection therewith shall be payable by the party which has failed to so perform. Section 9.5. AMENDMENTS; WAIVERS; CONSENTS. No modification, amendment or waiver of, or with respect to, any provision of this Agreement or the Related Documents, shall be effective unless it shall be in writing and signed by each of the parties hereto. This Agreement, the Related Documents and the documents referred to therein embody the entire agreement among the Seller, the Subservicer and the Purchaser, and supersede all prior agreements and understandings relating to the subject hereof, whether written or oral. Section 9.6. GOVERNING LAW; CONSENT TO JURISDICTION. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF OHIO, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF THE PURCHASER IN THE PURCHASED RECEIVABLES OR REMEDIES HEREUNDER OR THEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF OHIO. (b) THE SELLER AND THE SUBSERVICER HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF OHIO AND THE UNITED STATES DISTRICT COURT LOCATED IN THE SOUTHERN DISTRICT OF OHIO, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE SELLER AND THE SUBSERVICER EACH HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE PURCHASER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE PURCHASER TO BRING ANY ACTION OR PROCEEDING AGAINST THE SELLER OR ITS PROPERTY, OR THE SUBSERVICER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. THE SELLER AND THE SUBSERVICER EACH HEREBY AGREE THAT THE EXCLUSIVE AND APPROPRIATE FORUMS FOR ANY DISPUTE HEREUNDER ARE 13 THE COURTS OF THE STATE OF OHIO AND THE UNITED STATES DISTRICT COURT LOCATED IN THE SOUTHERN DISTRICT OF OHIO AND AGREE NOT TO INSTITUTE ANY ACTION IN ANY OTHER FORUM. Section 9.7. EXECUTION IN COUNTERPARTS; SEVERABILITY. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 9.8. CONFIDENTIALITY. The Purchaser and Seller understand and agree to keep confidential, and shall cause its respective directors, officers, shareholders, employees, agents, and attorneys to keep confidential the terms and conditions of this Agreement, all documents referenced herein and the respective terms thereof, and any communication between the parties regarding this Agreement or the services to be provided hereunder hereby, except to the extent that (a) any party makes any disclosure to his or its auditors, attorneys or other professional advisors, (b) any disclosure is otherwise required by law or pursuant to any rule or regulation of any federal, state or other governmental authority or regulatory agency, provided that Seller provides prior written notice thereof or (c) any party is in receipt of the prior written consent of the other with respect to any compromise of the confidentiality contemplated hereunder. Purchaser and Seller further understand and agree that the violation by a party of the foregoing shall entitle the other party, at its option, to obtain injunctive relief without a showing of irreparable harm or injury and without bond. Section 9.9. THIRD PARTY CONSULTATION. The Seller hereby agrees and acknowledges that it has had the opportunity to seek out and consult with legal counsel and/or independent business advisors of its own choosing in connection with the negotiation, execution and delivery of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Agreement, or any part hereof, to be drafted. 14 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. STAR TELECOMMUNICATIONS, INC., a Delaware corporation, as Seller and Subservicer By: ------------------------------------- Name: Mary Casey Title: President Address at which the chief executive office is located: Address: 223 East De La Guerra Santa Barbara, CA 93101 Attention: John Pasini Phone number: 805/889-1962 Telecopier number: 805/889-2972 ADDITIONAL LOCATIONS AT WHICH THE SELLER DOES BUSINESS AND MAINTAINS RECORDS: See Schedule 4.1(h) ADDITIONAL NAMES UNDER WHICH SELLER DOES BUSINESS: Star Vending, Inc. PT-1 LONG DISTANCE, INC., a Delaware, as Seller and Subservicer By: ------------------------------------- Name: Mary Casey Title: Chief Executive Officer Address at which the chief executive office is located: Address: 30-50 Whitestone Expressway Flushing, NY 11354 Attention: Mary Casey c/o STAR Telecommunications, Inc. 223 E. De La Guerra Santa Barbara, CA 93101 Phone number: 805/889-1962 Telecopier number: 805/889-2972 ADDITIONAL LOCATIONS AT WHICH THE SELLER DOES BUSINESS AND MAINTAINS RECORDS: See Schedule 4.1(h) ADDITIONAL NAMES UNDER WHICH SELLER DOES BUSINESS: None 15 PT-1 COMMUNICATIONS, INC., a New York corporation, as Seller and Subservicer By: ------------------------------------- Name: Mary Casey Title: Chief Executive Officer Address at which the chief executive office is located: Address: 30-50 Whitestone Expressway Flushing, NY 11354 Attention: Mary Casey c/o STAR Telecommunications, Inc. 223 E. De La Guerra Santa Barbara, CA 93101 Phone number: 805/889-1962 Telecopier number: 805/889-2972 ADDITIONAL LOCATIONS AT WHICH THE SELLER DOES BUSINESS AND MAINTAINS RECORDS: See Schedule 4.1(h) ADDITIONAL NAMES UNDER WHICH SELLER DOES BUSINESS: None HELVEY COM, INC., a California corporation, as Seller and Subservicer By: ------------------------------------- Name: Mary Casey Title: President Address at which the chief executive office is located: Address: 223 E. De La Guerra Santa Barbara, CA 93101 Attention: Mary Casey Phone number: 805/889-1962 Telecopier number: 805/889-3842 ADDITIONAL LOCATIONS AT WHICH THE SELLER DOES BUSINESS AND MAINTAINS RECORDS: None ADDITIONAL NAMES UNDER WHICH SELLER DOES BUSINESS: None 16 CEO CALIFORNIA TELECOMMUNICATIONS, INC., a California corporation, as Seller and Subservicer By: ------------------------------------- Name: Mary Casey Title: President Address at which the chief executive office is located: Address: 223 E. De La Guerra Santa Barbara, CA 93101 Attention: Mary Casey Phone number: 850/889-1962 Telecopier number: 850/889-3842 ADDITIONAL LOCATIONS AT WHICH THE SELLER DOES BUSINESS AND MAINTAINS RECORDS: See Schedule 4.1(h) ADDITIONAL NAMES UNDER WHICH SELLER DOES BUSINESS: CEO Telecom AS TELECOMMUNICATIONS, INC., an Arizona corporation, as Seller and Subservicer By: ------------------------------------- Name: Mary Casey Title: Chief Financial Officer Address at which the chief executive office is located: Address: 3030 North Central Avenue, Suite 702 Phoenix, AZ 85012 Attention: Mary Casey c/o STAR Telecommunications, Inc. 223 E. De La Guerra Santa Barbara, CA 93101 Phone number: 850/889-1962 Telecopier number: 850/889-3842 ADDITIONAL LOCATIONS AT WHICH THE SELLER DOES BUSINESS AND MAINTAINS RECORDS: See Schedule 4.1(h) ADDITIONAL NAMES UNDER WHICH SELLER DOES BUSINESS: ALLSTAR Telecom 17 CEO TELECOMMUNICATIONS, INC., a California corporation, as Seller and Subservicer By: ------------------------------------- Name: Mary Casey Title: President Address at which the chief executive office is located: Address: 12440 Firestone Blvd., Suite 3000 Norwalk, CA 90650 Attention: Mary Casey c/o STAR Telecommunications, Inc. 223 East De La Guerra Santa Barbara, CA 93101 Phone number: 850/889-1962 Telecopier number: 850/889-3842 ADDITIONAL LOCATIONS AT WHICH THE SELLER DOES BUSINESS AND MAINTAINS RECORDS: See Schedule 4.1(h) ADDITIONAL NAMES UNDER WHICH SELLER DOES BUSINESS: CEO Telecom STAR EUROPE, LIMITED, organized under the laws of the United Kingdom, as Seller and Subservicer By: ------------------------------------- Name: Mary Casey Title: President Address at which the chief executive office is located: Address: Kingsgate House 536 Kings Road 4th Floor London, SW10 United Kingdom Attention: Mary Casey c/o STAR Telecommunications, Inc. 223 East De La Guerra Santa Barbara, CA 93101 Phone number: 850/889-1962 Telecopier number: 850/889-3842 ADDITIONAL LOCATIONS AT WHICH THE SELLER DOES BUSINESS AND MAINTAINS RECORDS: None ADDITIONAL NAMES UNDER WHICH SELLER DOES BUSINESS: 18 STAR Europe STAR TELECOMMUNICATIONS DEUTSCHLAND, GmbH, organized under the laws of Germany, as Seller and Subservicer By: ------------------------------------- Name: Kelly Enos Title: Chief Financial Officer Address at which the chief executive office is located: Address: Voltatrasse 1a Frankfurt am Main, Germany Attention: Mary Casey c/o STAR Telecommunications, Inc. 223 East De La Guerra Santa Barbara, CA 93101 Phone number: 850/889-1962 Telecopier number: 850/889-3842 ADDITIONAL LOCATIONS AT WHICH THE SELLER DOES BUSINESS AND MAINTAINS RECORDS: ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ADDITIONAL NAMES UNDER WHICH SELLER DOES BUSINESS: STAR Germany RFC CAPITAL CORPORATION By: ------------------------------------- Name: Mark D. Quinlan Title: Vice President Address: 130 East Chestnut Street Suite 400 Columbus, OH 43215 Attention: Mark D. Quinlan Phone number: (614) 229-7979 Telecopier number: (614) 229-7980 19 EX-10.55 4 EXHIBIT 10.55 Exhibit 10.55 AMENDMENT NUMBER FOUR TO EMPLOYMENT AGREEMENT THIS AMENDMENT NUMBER FOUR TO EMPLOYMENT AGREEMENT (this "Amendment") is effective as of _______________, 1999, between STAR TELECOMMUNICATIONS, INC., a Delaware corporation ("STAR"), and MARY CASEY ("EXECUTIVE"). RECITALS: A. STAR (or STAR Vending, Inc., a Nevada corporation, predecessor in interest to STAR) and Executive are parties to that certain Employment Agreement effective as of July 14, 1995, as amended by that certain Amendment Number One to Employment Agreement effective as of January 1, 1996, that certain Amendment Number Two to Employment Agreement effective as of July 15, 1996, and that certain Amendment Number Three to Employment Agreement effective as of July 1, 1997 (collectively, the "Employment Agreement"), pursuant to which Executive is employed by STAR. B. The parties desire to modify certain terms of the Employment Agreement, as set forth in this Amendment. AGREEMENTS: NOW, THEREFORE, the parties agree to amend the Employment Agreement as follows: 1. DEFINED TERMS. Capitalized terms used in this Amendment and not otherwise defined shall have the meanings ascribed to them in the Employment Agreement. From and after the date hereof, the term "Agreement" as used in the Employment Agreement will mean the Employment Agreement as amended by this Amendment, unless and until such Employment Agreement may again be amended. 2. AMENDMENT OF SECTION 7. Section 7 of the Employment Agreement is hereby amended to read in its entirety as follows: "7. TERMINATION. 7.1 METHODS OF TERMINATION. This Agreement and the employment of Executive may be terminated at any time: A. By mutual agreement of the parties. B. By STAR if Executive dies or becomes physically or mentally disabled (the term "disabled" shall mean any mental or physical illness or disability that renders the Executive unable to perform the essential functions of her position, after reasonable accommodation of such disability by STAR). -1- C. By STAR, for cause, if Executive (a) has committed any material act of dishonesty, fraud or misrepresentation or any act of moral turpitude; (b) is in default in the performance of Executive's material obligations, services or duties under this Agreement; or (c) has failed to execute specific instructions from STAR's Board of Directors or executive officers, which failure is not corrected by Executive after reasonable notice from STAR. D. By STAR, without cause, at any time during the term of this Agreement. E. By the Executive if STAR is in default of its material obligations or duties under this Agreement. F. By the Executive, without cause, at any time during the term of this Agreement. 7.2 CONSEQUENCES OF TERMINATION. Executive shall be entitled to the following compensation in the event of a termination: A. In the event of any termination under Sections 7.1A, 7.1B, 7.1C, or 7.1F, Executive (or, in the event of Executive's death, her estate) shall be entitled to receive compensation accrued and payable to her as of the date of termination or death, and all other amounts payable under this Agreement shall thereupon cease. B. In the event of any termination under Section 7.1D or Section 7.1E, then Executive shall continue to receive the compensation provided in this Agreement until the expiration of this Agreement. Any amounts earned by her (other than through her personal investment activities) prior to such expiration by virtue of other employment shall be deducted from amounts to which she is entitled under this Agreement. 7.3 IRC VIOLATIONS. Any provision in this Agreement to the contrary notwithstanding, in no event will Executive receive a payment which would trigger the excise taxes and disallowance of deductions contemplated by Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the "Code"). In the event that any amount calculated would result in such a payment, such amount shall be reduced to the largest amount that would not result in such a payment. This reduction shall apply to any and all compensation, including compensation pursuant to stock option grants governed by separate agreement between STAR and Executive. If, at the time of any such payment, no stock of STAR is readily tradeable on an established securities market or otherwise, then STAR agrees to use its best efforts to cause such payment to meet the exemption set forth in Sections 280G(b)(5)(A)(ii) and (B) of the Code, so that no reduction will be required under this Agreement." -2- 3. CONFIRMATION. Except as specifically amended by this Amendment, the Employment Agreement will continue unchanged, and the terms and conditions of the Employment Agreement, as amended by this Amendment, are ratified and confirmed. IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the date first set forth above. "STAR" STAR TELECOMMUNICATIONS, INC., a Delaware corporation By: -------------------------------------- Christopher E. Edgecomb, Chief Executive Officer "EXECUTIVE" -------------------------------------- Mary Casey -3- EX-10.56 5 EXHIBIT 10.56 Exhibit 10.56 AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT -------------------------------------------- THIS AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT (this "Amendment") is effective as of _______________, 1999, between STAR TELECOMMUNICATIONS, INC., a Delaware corporation (the "COMPANY"), and KELLY ENOS ("EMPLOYEE"). RECITALS: -------- A. The Company (or STAR Vending, Inc., a Nevada corporation, predecessor in interest to the Company) and Employee are parties to that certain Employment Agreement effective as of December 2, 1996, as amended by that certain Amendment Number One to Employment Agreement effective as of November 12, 1997 (collectively, the "Employment Agreement"), pursuant to which Employee is employed by the Company. B. The parties desire to modify certain terms of the Employment Agreement, including the monthly base salary payable to Employee under the Employment Agreement, as set forth in this Amendment. AGREEMENTS: ---------- NOW, THEREFORE, the parties agree to amend the Employment Agreement as follows: 1. DEFINED TERMS. Capitalized terms used in this Amendment and not otherwise defined shall have the meanings ascribed to them in the Employment Agreement. From and after the date hereof, the term "Agreement" as used in the Employment Agreement will mean the Employment Agreement as amended by this Amendment, unless and until such Employment Agreement may again be amended. 2. AMENDMENT OF SECTION 3.1. Section 3.1 of the Employment Agreement is hereby amended to read in its entirety as follows: "3.1 BASE SALARY. The Company shall pay Employee a monthly salary during the term of this Agreement. This salary shall be $15,000.00 per month. Employee's salary shall not be reduced at any time during the term of this Agreement, but the foregoing shall not limit the Company's rights under Section 7." 3. AMENDMENT OF SECTION 7. Section 7 of the Employment Agreement is hereby amended to read in its entirety as follows: -1- "7. TERMINATION. 7.1 METHODS OF TERMINATION. This Agreement and the employment of Employee may be terminated at any time: A. By mutual agreement of the parties. B. By the Company if Employee dies or becomes physically or mentally disabled (the term "disabled" shall mean any mental or physical illness or disability that renders the Employee unable to perform the essential functions of her position, after reasonable accommodation of such disability by the Company). C. By the Company, for cause, if Employee (a) has committed any material act of dishonesty, fraud or misrepresentation or any act of moral turpitude; (b) is in default in the performance of Employee's material obligations, services or duties under this Agreement; or (c) has failed to execute specific instructions from the Company's Board of Directors or executive officers, which failure is not corrected by Employee after reasonable notice from the Company. D. By the Company, without cause, at any time during the term of this Agreement. E. By the Employee if the Company is in default of its material obligations or duties under this Agreement. F. By the Employee, without cause, at any time during the term of this Agreement. 7.2 CONSEQUENCES OF TERMINATION. Employee shall be entitled to the following compensation in the event of a termination: A. In the event of any termination under Sections 7.1A, 7.1B, 7.1C, or 7.1F, Employee (or, in the event of Employee's death, her estate) shall be entitled to receive compensation accrued and payable to her as of the date of termination or death, and all other amounts payable under this Agreement shall thereupon cease. B. In the event of any termination under Section 7.1D or Section 7.1E, then Employee shall continue to receive the compensation provided in this Agreement until the expiration of this Agreement. Any amounts earned by her (other than through her personal investment activities) prior to such expiration by virtue of other employment shall be deducted from amounts to which she is entitled under this Agreement. 7.3 IRC VIOLATIONS. Any provision in this Agreement to the contrary notwithstanding, in no event will Employee receive a payment which would trigger the excise taxes and disallowance of deductions contemplated by Sections 280G and -2- 4999 of the Internal Revenue Code of 1986, as amended (the "Code"). In the event that any amount calculated would result in such a payment, such amount shall be reduced to the largest amount that would not result in such a payment. This reduction shall apply to any and all compensation, including compensation pursuant to stock option grants governed by separate agreement between the Company and Employee. If, at the time of any such payment, no stock of the Company is readily tradeable on an established securities market or otherwise, then the Company agrees to use its best efforts to cause such payment to meet the exemption set forth in Sections 280G(b)(5)(A)(ii) and (B) of the Code, so that no reduction will be required under this Agreement." 4. CONFIRMATION. Except as specifically amended by this Amendment, the Employment Agreement will continue unchanged, and the terms and conditions of the Employment Agreement, as amended by this Amendment, are ratified and confirmed. IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the date first set forth above. "COMPANY" STAR TELECOMMUNICATIONS, INC., a Delaware corporation By: ------------------------------------ Mary Casey, President "EMPLOYEE" ------------------------------------ Kelly Enos -3- EX-10.57 6 EXHIBIT 10.57 Exhibit 10.57 AMENDMENT NUMBER ONE TO ----------------------- SECOND RESTATEMENT OF EMPLOYMENT AGREEMENT ------------------------------------------ THIS AMENDMENT NUMBER ONE TO SECOND RESTATEMENT OF EMPLOYMENT AGREEMENT (this "Amendment") is effective as of _______________, 1999, between STAR TELECOMMUNICATIONS, INC., a Delaware corporation ("STAR"), and JAMES KOLSRUD ("EMPLOYEE"). RECITALS: -------- A. STAR (and/or STAR Vending, Inc., a Nevada corporation, predecessor in interest to STAR) and Employee are parties to that certain Employment Agreement effective as of September 14, 1996, as amended and restated by that certain First Restatement of Employment Agreement effective as of December 18, 1996, as amended and restated by that certain First Restatement of Employment Agreement effective as of June 16, 1997, as amended and restated by that certain Second Restatement of Employment Agreement effective as of April 1, 1998 (collectively, the "Employment Agreement"), pursuant to which Employee is employed by STAR. B. The parties desire to modify the monthly base salary payable to Employee under the Employment Agreement, as set forth in this Amendment. AGREEMENTS: ---------- NOW, THEREFORE, the parties agree to amend the Employment Agreement as follows: 1. DEFINED TERMS. Capitalized terms used in this Amendment and not otherwise defined shall have the meanings ascribed to them in the Employment Agreement. From and after the date hereof, the term "Agreement" as used in the Employment Agreement will mean the Employment Agreement as amended by this Amendment, unless and until such Employment Agreement may again be amended. 2. AMENDMENT OF SECTION 3.1. Section 3.1 of the Employment Agreement is hereby amended to read in its entirety as follows: "3.1 BASE SALARY. STAR shall pay Employee a monthly salary during the term of this Agreement. This salary shall be $20,000.00 per month. Employee's salary shall not be reduced at any time during the term of this Agreement, but the foregoing shall not limit STAR's rights under Section 7." 3. CONFIRMATION. Except as specifically amended by this Amendment, the Employment Agreement will continue unchanged, and the terms and conditions of the Employment Agreement, as amended by this Amendment, are ratified and confirmed. -1- IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the date first set forth above. "STAR" STAR TELECOMMUNICATIONS, INC., a Delaware corporation By: ------------------------------------ Mary Casey, President "EMPLOYEE" ------------------------------------ James Kolsrud -2- EX-10.58 7 EXHIBIT 10.58 Exhibit 10.58 AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT THIS AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT (this "Amendment") is effective as of _______________, 1999, between STAR TELECOMMUNICATIONS, INC., a Delaware corporation (the "COMPANY"), and DAVID VAUN CRUMLY ("EMPLOYEE"). RECITALS: A. The Company (or Star Vending, Inc., a Nevada corporation, predecessor in interest to the Company) and Employee are parties to that certain Employment Agreement effective as of January 1, 1996, as amended by that certain Amendment Number One to Employment Agreement effective as of November 11, 1997 (collectively, the "Employment Agreement"), pursuant to which Employee is employed by the Company. B. The parties desire to modify certain terms of the Employment Agreement, as set forth in this Amendment. AGREEMENTS: NOW, THEREFORE, the parties agree to amend the Employment Agreement as follows: 1. DEFINED TERMS. Capitalized terms used in this Amendment and not otherwise defined shall have the meanings ascribed to them in the Employment Agreement. From and after the date hereof, the term "Agreement" as used in the Employment Agreement will mean the Employment Agreement as amended by this Amendment, unless and until such Employment Agreement may again be amended. 2. AMENDMENT OF SECTION 7. Section 7 of the Employment Agreement is hereby amended to read in its entirety as follows: "7. TERMINATION. 7.1 METHODS OF TERMINATION. This Agreement and the employment of Employee may be terminated at any time: A. By mutual agreement of the parties. B. By the Company if Employee dies or becomes physically or mentally disabled (the term "disabled" shall mean any mental or physical illness or disability that renders the Employee unable to perform the essential functions of his position, after reasonable accommodation of such disability by the Company). C. By the Company, for cause, if Employee (a) has committed any material act of dishonesty, fraud or misrepresentation or any act of moral turpitude; (b) is in default in the performance of Employee's material -1- obligations, services or duties under this Agreement; or (c) has failed to execute specific instructions from the Company's Board of Directors or executive officers, which failure is not corrected by Employee after reasonable notice from the Company. D. By the Company, without cause, at any time during the term of this Agreement. E. By the Employee if the Company is in default of its material obligations or duties under this Agreement. F. By the Employee, without cause, at any time during the term of this Agreement. 7.2 CONSEQUENCES OF TERMINATION. Employee shall be entitled to the following compensation in the event of a termination: 1. In the event of any termination under Sections 7.1A, 7.1B, 7.1C, or 7.1F, Employee (or, in the event of Employee's death, his estate) shall be entitled to receive compensation accrued and payable to him as of the date of termination or death, and all other amounts payable under this Agreement shall thereupon cease. G. In the event of any termination under Section 7.1D or Section 7.1E, then Employee shall continue to receive the compensation provided in this Agreement until the expiration of this Agreement. Any amounts earned by him (other than through his personal investment activities) prior to such expiration by virtue of other employment shall be deducted from amounts to which he is entitled under this Agreement. 7.3 IRC VIOLATIONS. Any provision in this Agreement to the contrary notwithstanding, in no event will Employee receive a payment which would trigger the excise taxes and disallowance of deductions contemplated by Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the "Code"). In the event that any amount calculated would result in such a payment, such amount shall be reduced to the largest amount that would not result in such a payment. This reduction shall apply to any and all compensation, including compensation pursuant to stock option grants governed by separate agreement between the Company and Employee. If, at the time of any such payment, no stock of the Company is readily tradeable on an established securities market or otherwise, then the Company agrees to use its best efforts to cause such payment to meet the exemption set forth in Sections 280G(b)(5)(A)(ii) and (B) of the Code, so that no reduction will be required under this Agreement." 3. CONFIRMATION. Except as specifically amended by this Amendment, the Employment Agreement will continue unchanged, and the terms and conditions of the Employment Agreement, as amended by this Amendment, are ratified and confirmed. -2- IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the date first set forth above. "COMPANY" STAR TELECOMMUNICATIONS, INC., a Delaware corporation By: ----------------------------------- Mary Casey, President "EMPLOYEE" ----------------------------------- David Vaun Crumly -3- EX-10.59 8 EXHIBIT 10.59 Exhibit 10.59 AMENDMENT NUMBER THREE TO EMPLOYMENT AGREEMENT This AMENDMENT NUMBER THREE TO EMPLOYMENT AGREEMENT, (the "AMENDMENT") is effective as of November 11, 1999 (the "EFFECTIVE DATE"), between STAR TELECOMMUNICATIONS, INC., a Delaware corporation (the "COMPANY") and DAVID VAUN CRUMLY (the "EMPLOYEE"). RECITALS: A. The Company (or STAR Vending, Inc. a Nevada corporation, predecessor in interest to the Company) and Employee are parties to that certain Employment Agreement effective January 1, 1996, as amended by Amendment Number One to Employment Agreement effective as of November 11, 1997 and by Amendment Number Two to Employment Agreement effective as of April 21, 1999 (collectively the "Employment Agreement"), pursuant to which Employee is employed by the Company. B. The parties desire to modify certain terms of the Employment Agreement, as set forth in this Amendment. AGREEMENT: NOW, THEREFORE, the parties agree to amend the Employment Agreement as follows: 1. DEFINED TERMS. Capitalized terms used in this Agreement and not otherwise defined shall have the meanings ascribed to them in the Employment Agreement. From and after the date hereof, the term "Agreement" as used in the Employment Agreement will mean the Employment Agreement as amended by this Agreement, unless and until such Employment Agreement may again be amended. 2. AMENDMENT OF EXHIBITS A, B AND D. Exhibits A, B and D are hereby amended in their entirety as set forth in Exhibits A, B and D attached hereto and incorporated herein. 3. CONFIRMATION. Except as specifically amended by the Amendment, the Employment Agreement will continue unchanged, and the terms and conditions of the Employment Agreement, as amended by this Amendment, are ratified and confirmed. [signature page to follow] Third Amendment to Employment Agreement Page 1 IN WITNESS WHEREOF, that parties have executed this Amendment effective as of the date first set forth above. "COMPANY" STAR TELECOMMUNICATIONS, INC., A Delaware corporation By: --------------------------------------- Mary Casey President "EMPLOYEE" --------------------------------------- David Vaun Crumly Third Amendment to Employment Agreement Page 2 EX-10.60 9 EXHIBIT 10.60 Exhibit 10.60 REVOLVING LINE OF CREDIT PROMISSORY NOTE 1. FUNDAMENTAL PROVISIONS The following terms will be used as defined terms in this Note: DATE OF THIS NOTE: April 12, 1999 BORROWER: KELLY ENOS LENDER: STAR TELECOMMUNICATIONS, INC., a Delaware corporation PRINCIPAL AMOUNT: One Hundred Thousand Dollars ($100,000.00) INTEREST RATE: Eight percent (8%) per annum, or the maximum rate permitted by law, whichever is less
2. PROMISE TO PAY For good and valuable consideration, Borrower promises to pay to Lender, or order, the Principal Amount, or so much thereof as is advanced (pursuant to the terms of this Note) and outstanding, with interest at the Interest Rate from the dates of the respective advances by Lender, until paid, in accordance with the terms contained herein. The unpaid balance of this obligation at any time shall be the total amounts advanced hereunder less the amount of payments made hereon by or for Maker, which balance may be endorsed from time to time by Holder at EXHIBIT A hereto. Interest shall be computed on the basis of a three hundred sixty (360) day year and the actual number of days elapsed. Should any interest not be paid when due, it shall thereafter accrue interest as principal. 3. LIMITATIONS ON ADVANCES Advances of the Principal Amount shall be made by Lender to Borrower at any time and from time to time at the written request of Borrower ("Advance Request"); provided, however, in no event shall the outstanding Principal Amount exceed in the aggregate the amount of One Hundred Thousand Dollars ($100,000.00). Advances shall be paid to Borrower within ten (10) business days following the receipt by Lender of the Advance Request. Notwithstanding the -1- foregoing, no advances shall be made hereunder following the delivery by Lender to Borrower of the Maturity Date Notice or a Default Notice. 4. INTEREST Interest shall be payable monthly on or before the first (1st) day of each calendar month during the term hereof, commencing on the first day of the first full calendar month following the initial advance of the Principal Amount made hereunder. The monthly payments of interest shall be based upon estimates of the actual amounts of interest payable with respect to the outstanding Principal Amount, as increased from time to time by the advances, and reduced from time to time by the repayments, made in accordance herewith. Lender shall deliver to Borrower on a quarterly basis a statement ("Interest Statement") of the actual interest payable by Borrower under this Note for the preceding calendar quarter. In the event that the aggregate amount of interest paid by Borrower during a calendar quarter exceeds the actual amount of interest payable for said calendar quarter, as specified in the Interest Statement, such excess shall be applied to reduce the Principal Amount outstanding effective as of the end of said calendar quarter. In the event that the aggregate amount of interest paid by Borrower during a calendar quarter is less than the actual amount of interest payable for said calendar quarter, as specified in the Interest Statement, such deficiency shall be paid by Borrower, together with the next monthly payment of interest due hereunder. 5. MATURITY DATE The Principal Amount (as advanced hereunder from time to time) and all accrued and unpaid interest shall be due and payable on the date of the expiration of the one (1) year period following the delivery by Lender to Borrower of a written demand for payment of all outstanding indebtedness hereunder, including all outstanding amounts of the Principal Amount and all accrued and unpaid interest ("Maturity Date Notice"). 6. APPLICATION OF PAYMENTS All payments shall be applied first to accrued interest, and then to the Principal Amount. 7. PLACE AND MANNER OF PAYMENT All payments shall be made to Lender at 223 East De La Guerra Street, Santa Barbara, California 93101, or at such other place as Lender may from time to time designate. All payments shall be made -2- in lawful money of the United States. Checks will constitute payment only when collected. 8. PREPAYMENTS The Principal Amount or any portion thereof may be prepaid at any time and from time to time without penalty. 9. EVENT OF DEFAULT At the option of Lender, it shall be an "Event of Default" hereunder if (i) Borrower fails to pay when due any sum payable under this Note; (ii) Borrower fails to perform any obligation or commits a breach of any agreement set forth in this Note; (iii) any event of default by Borrower under any other agreement between Borrower and Lender or any other promissory note or instrument executed by Borrower in favor of Lender; or (iv) any of the following: (a) an application by Borrower for, or her consent to, the appointment of a trustee, receiver, or custodian of her assets is filed; (b) an order for relief with respect to Borrower is filed in proceedings under the United States Bankruptcy Code, as amended or superseded from time to time; (c) Borrower makes a general assignment for the benefit of creditors; (d) an order, judgment, or decree by any court of competent jurisdiction appointing a trustee, receiver, or custodian of the assets of Borrower is entered, unless the proceedings and the person appointed are dismissed within ninety (90) days; (e) Borrower fails generally to pay her debts as the debts become due within the meaning of Section 303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy Court; or (f) Borrower admits in writing her inability to pay her debts as they become due. 10. ACCELERATION Upon the occurrence of an Event of Default, then, at the option of Lender, the entire sum of the outstanding Principal Amount and all accrued and unpaid interest shall become immediately due and payable within sixty (60) days following the delivery to Borrower of written notice thereof ("Default Notice"). 11. ATTORNEYS' FEES If Lender refers this Note to an attorney to enforce, construe or defend any provision hereof, or as a consequence of any Event of Default hereunder, with or without the filing of any legal action or proceeding, Borrower shall pay to Lender upon demand the amount of all attorneys' fees, costs and other expenses incurred by Lender in connection therewith, together with interest thereon from the date of demand at the Interest Rate. The reference to "attorneys' fees" in this Paragraph shall include without limitation such -3- amounts as may then be charged by Lender for legal services furnished by attorneys in the employ of Lender at rates not exceeding those that would be charged by outside attorneys for comparable services. 12. WAIVER OF DEFAULTS No delay or omission of Lender in exercising any right or power arising in connection with any Event of Default shall be construed as a waiver or as an acquiescence therein, nor shall any single or partial exercise thereof preclude any further exercise thereof. Lender may, at its option, waive any of the conditions herein and no such waiver shall be deemed to be a waiver of Lender's rights hereunder, but rather shall be deemed to have been made in pursuance of this Note and not in modification thereof. No waiver of any Event of Default shall be construed to be a waiver of or acquiescence in or consent to any preceding or subsequent Event of Default. 13. WAIVER OF NOTICES Except as provided in this Note, Borrower, and all endorsers, all guarantors and all persons liable or to become liable on this Note waive presentment, protest, demand, notice of protest, dishonor or non-payment of this Note, and any and all other notices or matters of a like nature, consent to any and all renewals and extensions of the time of payment hereto, and agree further that at any time and from time to time without notice, the terms of payment hereof may be modified, or any security at any time securing this Note may be released in whole or in part, or increased, changed or exchanged by agreement between Lender and any owner of any collateral affected thereby, without in any way affecting the liability of Maker under this Note, or any endorser, any guarantor, or any person liable or to become liable with respect to any indebtedness evidenced hereby. 14. MISCELLANEOUS PROVISIONS No provision of this Note may be amended, modified, supplemented, changed, waived, discharged or terminated unless Lender consents thereto in writing. In case any one or more of the provisions contained in this Note should be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. This Note shall be binding upon and inure to the benefit of Borrower, Lender, and their respective successors and assigns. This Note is not assumable. Lender shall have the right to sell, assign or otherwise transfer, either in part or in its entirety, this Note, without Borrower's consent, with any such transferee being entitled -4- to be treated in all favorable respects as a holder or holders in due course. Time is of the essence of this Note and the performance of each of the covenants and agreements contained herein. This Note shall be governed by and construed in accordance with the laws of the State of California. If Borrower consists of more than one person or entity, the obligations of Borrower shall be the joint and several obligations of all such persons or entities, and any married person who executes this Note agrees that recourse may be had against his or her separate property for satisfaction of his or her obligations hereunder. IN WITNESS WHEREOF, Borrower has executed this Note on the Date of this Note. BORROWER: - --------------------------------------- KELLY ENOS -5- EX-10.61 10 EXHIBIT 10.61 Exhibit 10.61 REVOLVING LINE OF CREDIT PROMISSORY NOTE ---------------------------------------- 1. FUNDAMENTAL PROVISIONS ---------------------- The following terms will be used as defined terms in this Note:
DATE OF THIS NOTE: April 12, 1999 BORROWER: JAMES KOLSRUD LENDER: STAR TELECOMMUNICATIONS, INC., a Delaware corporation PRINCIPAL AMOUNT: One Hundred Thousand Dollars ($100,000.00) INTEREST RATE: Eight percent (8%) per annum, or the maximum rate permitted by law, whichever is less
2. PROMISE TO PAY -------------- For good and valuable consideration, Borrower promises to pay to Lender, or order, the Principal Amount, or so much thereof as is advanced (pursuant to the terms of this Note) and outstanding, with interest at the Interest Rate from the dates of the respective advances by Lender, until paid, in accordance with the terms contained herein. The unpaid balance of this obligation at any time shall be the total amounts advanced hereunder less the amount of payments made hereon by or for Maker, which balance may be endorsed from time to time by Holder at EXHIBIT A hereto. Interest shall be computed on the basis of a three hundred sixty (360) day year and the actual number of days elapsed. Should any interest not be paid when due, it shall thereafter accrue interest as principal. 3. LIMITATIONS ON ADVANCES ----------------------- Advances of the Principal Amount shall be made by Lender to Borrower at any time and from time to time at the written request of Borrower ("Advance Request"); provided, however, in no event shall the outstanding Principal Amount exceed in the aggregate the amount of One Hundred Thousand Dollars ($100,000.00). Advances shall be paid to Borrower within ten (10) business days following the receipt by Lender of the Advance Request. Notwithstanding the -1- foregoing, no advances shall be made hereunder following the delivery by Lender to Borrower of the Maturity Date Notice or a Default Notice. 4. INTEREST -------- Interest shall be payable monthly on or before the first (1st) day of each calendar month during the term hereof, commencing on the first day of the first full calendar month following the initial advance of the Principal Amount made hereunder. The monthly payments of interest shall be based upon estimates of the actual amounts of interest payable with respect to the outstanding Principal Amount, as increased from time to time by the advances, and reduced from time to time by the repayments, made in accordance herewith. Lender shall deliver to Borrower on a quarterly basis a statement ("Interest Statement") of the actual interest payable by Borrower under this Note for the preceding calendar quarter. In the event that the aggregate amount of interest paid by Borrower during a calendar quarter exceeds the actual amount of interest payable for said calendar quarter, as specified in the Interest Statement, such excess shall be applied to reduce the Principal Amount outstanding effective as of the end of said calendar quarter. In the event that the aggregate amount of interest paid by Borrower during a calendar quarter is less than the actual amount of interest payable for said calendar quarter, as specified in the Interest Statement, such deficiency shall be paid by Borrower, together with the next monthly payment of interest due hereunder. 5. MATURITY DATE ------------- The Principal Amount (as advanced hereunder from time to time) and all accrued and unpaid interest shall be due and payable on the date of the expiration of the one (1) year period following the delivery by Lender to Borrower of a written demand for payment of all outstanding indebtedness hereunder, including all outstanding amounts of the Principal Amount and all accrued and unpaid interest ("Maturity Date Notice"). 6. APPLICATION OF PAYMENTS ----------------------- All payments shall be applied first to accrued interest, and then to the Principal Amount. 7. PLACE AND MANNER OF PAYMENT --------------------------- All payments shall be made to Lender at 223 East De La Guerra Street, Santa Barbara, California 93101, or at such other place as Lender may from time to time designate. All payments shall be made -2- in lawful money of the United States. Checks will constitute payment only when collected. 8. PREPAYMENTS ----------- The Principal Amount or any portion thereof may be prepaid at any time and from time to time without penalty. 9. EVENT OF DEFAULT ---------------- At the option of Lender, it shall be an "Event of Default" hereunder if (i) Borrower fails to pay when due any sum payable under this Note; (ii) Borrower fails to perform any obligation or commits a breach of any agreement set forth in this Note; (iii) any event of default by Borrower under any other agreement between Borrower and Lender or any other promissory note or instrument executed by Borrower in favor of Lender; or (iv) any of the following: (a) an application by Borrower for, or his consent to, the appointment of a trustee, receiver, or custodian of his assets is filed; (b) an order for relief with respect to Borrower is filed in proceedings under the United States Bankruptcy Code, as amended or superseded from time to time; (c) Borrower makes a general assignment for the benefit of creditors; (d) an order, judgment, or decree by any court of competent jurisdiction appointing a trustee, receiver, or custodian of the assets of Borrower is entered, unless the proceedings and the person appointed are dismissed within ninety (90) days; (e) Borrower fails generally to pay his debts as the debts become due within the meaning of Section 303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy Court; or (f) Borrower admits in writing his inability to pay his debts as they become due. 10. ACCELERATION ------------ Upon the occurrence of an Event of Default, then, at the option of Lender, the entire sum of the outstanding Principal Amount and all accrued and unpaid interest shall become immediately due and payable within sixty (60) days following the delivery to Borrower of written notice thereof ("Default Notice"). 11. ATTORNEYS' FEES --------------- If Lender refers this Note to an attorney to enforce, construe or defend any provision hereof, or as a consequence of any Event of Default hereunder, with or without the filing of any legal action or proceeding, Borrower shall pay to Lender upon demand the amount of all attorneys' fees, costs and other expenses incurred by Lender in connection therewith, together with interest thereon from the date of demand at the Interest Rate. The reference to "attorneys' fees" in this Paragraph shall include without limitation such -3- amounts as may then be charged by Lender for legal services furnished by attorneys in the employ of Lender at rates not exceeding those that would be charged by outside attorneys for comparable services. 12. WAIVER OF DEFAULTS ------------------ No delay or omission of Lender in exercising any right or power arising in connection with any Event of Default shall be construed as a waiver or as an acquiescence therein, nor shall any single or partial exercise thereof preclude any further exercise thereof. Lender may, at its option, waive any of the conditions herein and no such waiver shall be deemed to be a waiver of Lender's rights hereunder, but rather shall be deemed to have been made in pursuance of this Note and not in modification thereof. No waiver of any Event of Default shall be construed to be a waiver of or acquiescence in or consent to any preceding or subsequent Event of Default. 13. WAIVER OF NOTICES ----------------- Except as provided in this Note, Borrower, and all endorsers, all guarantors and all persons liable or to become liable on this Note waive presentment, protest, demand, notice of protest, dishonor or non-payment of this Note, and any and all other notices or matters of a like nature, consent to any and all renewals and extensions of the time of payment hereto, and agree further that at any time and from time to time without notice, the terms of payment hereof may be modified, or any security at any time securing this Note may be released in whole or in part, or increased, changed or exchanged by agreement between Lender and any owner of any collateral affected thereby, without in any way affecting the liability of Maker under this Note, or any endorser, any guarantor, or any person liable or to become liable with respect to any indebtedness evidenced hereby. 14. MISCELLANEOUS PROVISIONS ------------------------ No provision of this Note may be amended, modified, supplemented, changed, waived, discharged or terminated unless Lender consents thereto in writing. In case any one or more of the provisions contained in this Note should be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. This Note shall be binding upon and inure to the benefit of Borrower, Lender, and their respective successors and assigns. This Note is not assumable. Lender shall have the right to sell, assign or otherwise transfer, either in part or in its entirety, this Note, without Borrower's consent, with any such transferee being entitled -4- to be treated in all favorable respects as a holder or holders in due course. Time is of the essence of this Note and the performance of each of the covenants and agreements contained herein. This Note shall be governed by and construed in accordance with the laws of the State of California. If Borrower consists of more than one person or entity, the obligations of Borrower shall be the joint and several obligations of all such persons or entities, and any married person who executes this Note agrees that recourse may be had against his or her separate property for satisfaction of his or her obligations hereunder. IN WITNESS WHEREOF, Borrower has executed this Note on the Date of this Note. BORROWER: --------------------------------------- JAMES KOLSRUD -5- EX-10.62 11 EXHIBIT 10.62 Exhibit 10.62 CHASE EQUIPMENT LEASING, INC. THIS MASTER LEASE PURCHASE AGREEMENT dated as of February 20, 1998 (hereinafter referred to as "Lease") by and between Chase Equipment Leasing, Inc., a New York corporation, with a place of business located at One Chase, Rochester, NY 14643 (hereinafter referred to together with its assigns, if any, as "Lessor") and PHONETIME TECHNOLOGIES, INC., a (corporation / partnership / proprietorship / limited liability company) organized and existing under the laws of the State of with its mailing address and chief place of business at 30-50 Whitestone Expressway, Flushing, New York 11354 (hereinafter referred to as "Lessee"). The Parties hereto for good and valuable consideration and intending to be legally bound hereby agree as follows: 1. PROCEDURE FOR LEASING: (a) SCHEDULES. Subject to the terms and conditions set forth herein, Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor such unit or units of equipment (the "Equipment" and individually sometimes "Item" or "Item of Equipment") described in any Master Lease Schedule (a "Schedule") from time to time executed by the parties pursuant hereto, and any and all such Schedules are deemed a part hereof. Each Schedule incorporates by reference this Lease and shall constitute, subject to Section 9 hereof, a separate lease. Capitalized terms not otherwise defined herein have the meaning provided for in any Schedule. (b) CONDITIONS PRECEDENT. The obligation of Lessor to purchase Equipment from the manufacturer or supplier thereof ("Supplier") and to lease the same to Lessee under any Schedule is subject to receipt by Lessor prior to the Commencement Date with respect to the Schedule of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then being leased hereunder, (ii) a purchase order assignment, (iii) a Certificate of Acceptance and Closing Certificate, (iv) a certificate of Insurance which complies with the requirements of Section 4(f) and the Schedule, and (v) a bill of sale transferring title to each Item to Lessor and such other documents and conditions as Lessor may reasonably require including Lessor's determination that there has been no material adverse change in the financial condition of Lessee or any Guarantor. Lessor hereby appoints Lessee its agent for inspection and acceptance of each Item from the Supplier. Upon execution by Lessee of the Certificate of Acceptance, each Item described therein will be deemed to have been delivered to, and irrevocably accepted by Lessee for lease hereunder. 2. TERM AND RENT: The lease of and rent for Equipment will commence on the day specified in the related Schedule as the Commencement Date, and will continue for the period specified as the "term" therein as the same may be extended pursuant to the terms hereof. Lessee promises to make each payment of rent during the term on the due dates and in the amounts set forth in each Schedule without notice or demand at Lessor's address set forth above or as otherwise directed by Lessor in writing and no payment of rent will be refunded for any cause or reason whatsoever. The parties hereto intend that the rents and other amounts payable by Lessee hereunder will continue to be payable in all events unless the obligation to pay same is terminated pursuant to the terms hereof. If any payment hereunder falls due on a day on which Lessor is not open for business, such payment shall be due and payable on the next preceding day on which Lessor is open for business. To secure all obligations of Lessee under each Schedule, Lessee hereby grants to Lessor a security interest in: (i) any security deposit or advance rent paid by Lessee hereunder, each of which shall be in all cases non-interest bearing; and (ii) all other funds, balances, accounts, proceeds of collateral and/or other property of any kind of Lessee or in which Lessee has an interest now or hereafter in the possession, custody, or control of Lessor or The Chase Manhattan Bank and any of its direct or indirect affiliates and subsidiaries, including without limitation Chase Securities, Inc. 3. LATE CHARGE: If any rent or any other amount due hereunder from Lessee other than the amounts due under this Section 3 is not paid within five (5) days after the due date, Lessee agrees to pay a late charge equal to five percent (5%) on the amount of such delinquent rent or other payment, but not exceeding the maximum amount permissible under applicable law. The failure of Lessor to collect any late charge will not constitute a waiver of Lessor's right with respect thereto. Late charges will be due and payable on the due date for the next following payment of rent. 4. LESSEE REPRESENTATIONS AND COVENANTS: Lessee represents and warrants, and covenants and agrees, as follows and each such representation, warranty and covenant shall be deemed made and renewed as of the date hereof and as of the Commencement Date under each Schedule without the necessity of any further act or instrument: (a) GENERAL. (i) Lessee is duly organized and validly existing under the laws of the state indicated at the outset; this Lease and each Schedule and all instruments delivered in connection herewith and therewith have been duly authorized by all necessary action, and duly executed and delivered and constitute valid, legal and binding agreements, enforceable in accordance with their terms except to the limited by applicable bankruptcy and insolvency laws; and no such document nor Lessee's performance thereunder will conflict with Lessee's performance thereunder will conflict with Lessee's organizational documents or with any indenture, contract or agreement by which Lessee is bound or with any statute, judgment, decree, rule or regulation binding upon Lessee; (ii) no consent or approval of any trustee or holder of any indebtedness or obligation of Lessee, and no consent or approval of any governmental authority, is necessary for Lessee's execution or performance of this Lease; (iii) there is no litigation or other proceeding pending, or to the best of the Lessee's knowledge, threatened against or affecting Lessee which, if decided adversely to Lessee, would adversely affect or impair the title of Lessor to the Equipment or which, if decided adversely to Lessee would materially adversely affect the business operations or financial condition of Lessee; (iv) all balance sheets, statements of profit and loss and other financial data that have been delivered to Lessor with respect to Lessee are complete and correct in all material respects, fairly present the financial condition of the Lessee on the dates for which, and the results of its operations for the periods for which, the same have been furnished and have been prepared in accordance with generally accepted accounting principles consistently applied; and (v) there has been no material adverse change in the condition of Lessee, financial or otherwise, since the date of the most recent financial statements delivered to Lessor. (b) NO ABATEMENT. This is a net Lease and Lessee's promise to pay rent and all other amounts hereunder is irrevocable and independent and not subject to cancellation, termination, modification, repudiation, excuse or substitution without the written consent of Lessor. Lessee agrees to pay all such amounts when due by acceleration or otherwise without abatement, irrespective of any claims, demands, set-offs, actions, suits, or proceedings that it may have or assert against Lessor or any Supplier or manufacturer of Equipment. Lessor will have no liability to Lessee upon the failure of any Supplier, manufacturer or one or more others to perform any obligations at any time due to Lessor, Lessee or any other person and, in all such events, Lessee waives any right in any suit, action or proceeding to any exemplary, punitive or consequential damages whatsoever. (c) LIENS AND ENCUMBRANCES. THE EQUIPMENT IS FREE AND CLEAR FROM ALL CLAIMS, LIENS AND ENCUMBRANCES WHATSOEVER; LESSEE WILL DEFEND THE EQUIPMENT AGAINST ALL LIENS AND WILL NOT SELL, ASSIGN, SUBLET, MORTGAGE, OR ALTER ANY OF THE EQUIPMENT LEASED HEREUNDER OR ANY INTEREST IN THIS LEASE, NOR WILL LESSEE REMOVE ANY OF THE EQUIPMENT FROM THE LOCATION SPECIFIED IN THE SCHEDULE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, AND ANY ATTEMPT TO SO SELL, ASSIGN, SUBLET, MORTGAGE, HYPOTHECATE, ALTER OR REMOVE WILL CONSTITUTE A DEFAULT HEREUNDER AND SUCH SALE, ASSIGNMENT, SUBLEASE, MORTGAGE, OR HYPOTHECATION WILL BE VOID AND WITHOUT EFFECT. In order to secure all obligations of Lessee hereunder, Lessee assigns and grants to Lessor a security interest in all rights, powers and privileges under any sublease of the Equipment hereafter authorized in writing by Lessor. (d) USE AND OPERATION. Lease will at all times use the Equipment only in compliance with applicable laws and consistent with the instructions supplied and use intended for such Equipment by the Supplier and manufacturer thereof. Lessee will not use the Equipment to carry, contain or produce directly or indirectly any hazardous substances as defined under applicable federal, state or local law or regulation. Lessee will not without the prior written consent of Lessor affix or install any accessory, equipment or device on any Equipment leased hereunder if such addition will impair the originally intended function or use of such Equipment. All additions, repairs, parts, supplies, accessories, equipment and devices furnished, attached or fixed to any Equipment will thereupon without further act or instrument become the property of Lessor (except such as may be removed without in any way affecting or impairing the originally intended function, condition or use of such Item). Further, Lessee will not, without the prior written consent of Lessor and subject to such conditions as Lessor may impose for its protection, affix to or install any Equipment in any other personal property or in real property. (e) SERVICE AND MAINTENANCE. Lessee will at its sole expense at all times maintain all Equipment in good operating order, repair, condition and appearance and keep all Equipment protected from the elements, except during use in the normally contemplated manner. At Lessor's request, Lessee will at its expense affix in a prominent position on each Item of Equipment plates, tags or other identifying labels showing ownership of the Equipment by Lessor. Lessor will at all reasonable times have the right to inspect the Equipment and Lessee's maintenance records related thereto. Lessee at its sole expense will make all alterations and modifications with respect to the Equipment that may at any time during the term of this Lease or any Schedule hereunder be required to comply with any applicable law or any governmental rule or regulation. (f) INSURANCE. Lessee hereby assumes all risks of damage, loss, theft, or destruction, partial or complete, with respect to each Item of Equipment during the term of the Lease and during any storage period until Lessee has returned or disposed of the Equipment as provided for herein. Lessee will at its own expense keep each Item of Equipment insured for an amount at least equal to the Stipulated Loss Value of the Equipment as set forth in the Schedule against all risks with extended coverage and insurance companies acceptable to Lessor with Lessor named as loss payee. Lessee agrees to obtain and maintain at its expense with insurance companies acceptable to Lessor general public liability insurance naming Lessor as an additional insured together with Lessee, as their interests may appear, in no event less than One Million Dollars (1,000,000) or such greater amount, if any, as specified in the related Schedule against claims for bodily injury, death or property damage arising out of the use, ownership, possession, operation or condition of the Equipment. Each insurer will agree, by endorsement upon the policy or policies issued by it, or by independent instruments furnished to Lessor, that Lessor will have the power to file claims against the insurer under said policy, that it will give Lessor thirty (30) days written notice before the policy or policies in question will be altered, expired or canceled, and that no act or default of any person other than Lessor, its agents, or those claiming under Lessor, will affect Lessor's right to recover under such policy or policies in case of loss. Although any and all obligations imposed on the insured shall be obligations solely of Lessee, Lessee will deliver to Lessor the policies or evidence of insurance satisfactory to Lessor prior to the Commencement Date and thirty (30) days prior to each expiration date thereof for each Item of Equipment. The failure of Lessee to secure or maintain such insurance will constitute a default under this Lease. In the event of such breach, Lessor may, but will not be obligated to, obtain such insurance. In the event that Lessor obtains such insurance, an amount equal to the cost of such insurance will be deemed supplemental rent to be paid forthwith by Lessee. In the event that any policies insuring against liability risks described above shall now or hereafter provide coverage on a "claims made" basis, Lessee shall continue to maintain such policies in effect for a period of not less than three years after the expiration of the Lease term of any Schedules. (g) DISPOSITION OF EQUIPMENT. Upon termination of any Schedule under the Lease by expiration of the term hereof, except as provided for in Section 9, Lessor will, upon satisfaction of all Lessee's obligations to Lessor with respect to any particular Item of Equipment and provided Lessee is not otherwise then in default hereunder or under any other Schedule, transfer title to such Item to Lessee. 5. TRANSFER OF WARRANTIES: To the extent permitted by law and contract, Lessor will pass through without representation to Lessee the benefit of all warranties, if any, of the Supplier of the Equipment and, so long as there is no default hereunder, Lessee will have the right to, and will, directly avail itself of all warranties by the Supplier with respect to the Equipment. Lessor will not take any action which prejudices Lessee's right to, or under the terms of, any such warranty. If subsequent to the Commencement Date Lessee shall determine that the Equipment is unsatisfactory for any reason including any failure of the Equipment to conform to the specifications set forth in any purchase order, Lessee shall make any claim on account thereof solely against the Supplier and Lessee will give Lessor notice of any such claim made by Lessee against any Supplier and any cash settlement of any such claim will be payable solely to Lessor. 6. LOSS OR DAMAGE: (a) Lessee hereby assumes and is solely responsible for the entire risk of use and operation of the Equipment and for each and every accident or hazard resulting therefrom and all losses and damages associated therewith howsoever arising. (b) In the event of total loss, destruction, theft, confiscation or damage beyond repair (determined without reference to the remaining term with respect thereto) to the Equipment or any Item (a "Casualty Occurrence"), Lessee will pay to Lessor on the next due date for rent following the Casualty Occurrence or on the last day of the term thereof, whichever first occurs, any unpaid rent due with respect to such Equipment plus an amount determined by application of the liquidated damage provision in the third paragraph of Section 9 hereof. Upon payment of such amounts, and provided no default exists hereunder, Lessee will be entitled to recover possession of such Item and title thereto will vest in Lessee free and clear of the right and interest of Lessor. (c) In the event of damage to any Item of Equipment which does not amount to a Casualty Occurrence, Lessee will give prompt notice of such damage to Lessor and at Lessee's sole cost and expense promptly repair such Item to its previous condition which assumes Lessee has met all of its obligations required for maintenance hereunder. Provided Lessee is not in breach or default of this Lease, any proceeds of insurance received by Lessor with respect to any such loss will be paid over by Lessor to Lessee to the extent necessary to reimburse Lessee for costs incurred and paid by Lessee in repairing such damaged Equipment, but only upon evidence satisfactory to Lessor that such repairs have been accomplished. 7. FIRST PRIORITY LIEN: Lessee represents and warrants to Lessor for each Schedule that upon the filing of the financing statements delivered to Lessor on or prior to the respective Commencement Date in the jurisdiction(s) where the Equipment is located as indicated in the related Schedule, then Lessor shall have a first prior perfected security interest in the Equipment free and clear of all other liens and encumbrances except the interest of Lessee hereunder. 8. INDEMNIFICATION: LESSEE ACKNOWLEDGES THAT IT ALONE SELECTS THE EQUIPMENT AND THE SUPPLIER(S) THEREOF. LESSEE UNDERSTANDS AND AGREES THAT LESSOR MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESSED OR IMPLIED, WITH RESPECT TO THE EQUIPMENT INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT AS IS. NO DEFECT OR UNFITNESS OF THE EQUIPMENT SHALL RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR OF ANY OTHER OBLIGATION UNDER THIS LEASE. Accordingly, Lessee agrees to indemnify, save and keep harmless Lessor, its agents, employees, successors and assigns from and against any and all losses, damages, expenses (including legal expenses), penalties, injuries, claims, actions and suits of whatsoever kind and nature, in contract or tort, howsoever arising from any cause whatsoever including, but not limited to, Lessor's strict liability in tort, or otherwise arising out of (i) the selection, manufacture, purchase, financing, acceptance or rejection of Equipment, the ownership of Equipment during the term of the Lease, and the delivery, lease, possession, maintenance, uses, condition, return or operation of Equipment (including without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee and any claim for patent, trademark or copyright infringement); or (ii) the condition of Equipment sold or disposed of after use by Lessee, any sublessee or employee of Lessee. Lessee will, upon request, at its expense, defend any and all actions base on, or arising out of, any of the foregoing. This indemnification shall survive the expiration or cancellation of the Lease. 9. DEFAULT; REMEDIES: Each of the following will constitute a default hereunder; (a) Lessee fails to pay rent within five (5) days from and after the date such payment of rent is due and payable or Lessee fails to pay any other amount when due under any Schedule; (b) Lessee fails to maintain the insurance required hereunder or breaches any other term, provision, obligation or covenant hereof (including without limitation any Schedule) or commits any other act of default specified in this Lease; (c) any representation or warranty of Lessee contained herein or in any other document or instrument delivered in connection herewith or made from time to time hereafter is false or misleading when made; (d) Lessee or any guarantor, surety, endorser or pledgor of property given to secure Lessee's obligations hereunder ("Guarantor") becomes insolvent, ceases to do business as a going concern, or transfers or sells all or substantially all of its assets without the prior written consent of Lessor; (e) the Equipment or any Item is abused, illegally used, or misused; (f) the death, dissolution , merger, consolidation or reorganization of Lessee or any Guarantor; (g) Lessee or any Guarantor makes any assignment for the benefit of creditors, or if a petition in bankruptcy, reorganization, insolvency, receivership or the like is filed with respect to Lessee or any Guarantor or property of Lessee or any Guarantor is attached or a receiver, trustee or liquidator is appointed for Lessee or any Guarantor or any of Lessee's or Guarantor's property or whenever Lessor may deem itself insecure hereunder; (h) the transfer of more than a 25% ownership interest in Lessee or any Guarantor by shareholders, partners, members or proprietors thereof in any year without Lessor's prior written consent, (i) Lessee or any Guarantor (x) incurs any accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974, as amended from time to time and the regulations thereunder, equal to 5% of Lessee's consolidated tangible net worth (as defined by generally accepted accounting principles), or (y) incurs any liability of comparable size to the pension Benefit Guaranty Corporation, (j) Lessee or any material subsidiary or any Guarantor fails to comply with the provisions of the Fair Labor Standards Act of 1938, as amended, (k) Lessee or any Guarantor fails to pay or perform or observe any term, covenant, agreement or condition contained in, or there shall occur any payment or other default under or as defined in, any other agreement applicable to Lessee or any Guarantor or by which Lessee or any Guarantor is bound (as used herein, an "Other Agreement") involving a liability, indebtedness or performance obligation of Lessee or any Guarantor with a potential liability to Lessee or any Guarantor in an amount equal to or in excess of $50,000, which shall not be remedied within the period of time (if any) within which such Other Agreement permits such default to be remedied, regardless of whether such default (i) is waived by any other party to such Other Agreement or (ii) produces or results in the cancellation of such Other Agreement or the acceleration of such liability, indebtedness or other obligation; (l) attachment, distraint, levy, execution or final judgment for the payment of money aggregating in excess of $50,000 will be outstanding against Lessee or its property for more than sixty (60) days from the date of entry and will not have been discharged in full or stayed or fully bonded; (m) Lessee or any Guarantor shall suffer the loss of any material license or franchise when Lessor shall reasonably conclude that such loss fairly impairs Lessee's or such Guarantor's ability to perform its obligations required hereunder or with respect hereto; or (n) Lessee or any Guarantor shall violate any financial covenant contained in any agreement for borrowed money applicable to Lessee or Guarantor as of the Commencement Date of any Schedule and all such financial covenants shall survive the satisfaction of debt applicable thereto and shall be deemed incorporated herein by reference and remain fully applicable to Lessee's obligations hereunder. Upon any such default, Lessor, at its option, may do any one or more of the following: (1) declare this Lease and any or all Schedules in default upon notice to Lessee, whereupon the entire amount of rent and all other amounts remaining to be paid over the balance of the term of all Equipment then leased thereunder, computed from the date of Lessee's default, will become immediately due and payable and be accelerated; (2) proceed by appropriate court action or actions to enforce Lessee's performance of this Lease and/or to recover damages for the breach thereof; (3) cancel this Lease and any or all Schedules upon notice to Lessee; (4) whether or not this Lease or any Schedules be so cancelled, and without notice to Lessee, repossess the Equipment wherever found, with or without legal process, and for this purpose Lessor and/or its agents may enter upon any premises of or under control or jurisdiction of Lessee or any agent of Lessee without liability for suit, action or other proceeding by Lease (any damages occasioned by such repossession being hereby expressly waived by Lessee except for damages occasioned by gross negligence or willful misconduct) and remove the Equipment therefrom. Lessor's remedies as provided herein are not exclusive but are cumulative and in addition to all other remedies in Lessor's favor at law, in equity or in bankruptcy. The receipt and acceptance by Lessor of any rent or other payment after a default will not be deemed to be a waiver of such default by Lessor. Lessor shall not, by any act, delay, omission, or otherwise, be deemed to have waived any default or any of its rights or remedies hereunder unless such waiver be in writing, signed by the Lessor, and then only to the extent therein set forth. In the event that any court determines that any provision in this Lease is invalid or unenforceable in whole or in part, such determination will not prohibit Lessor from establishing its damages as a result of any breach of this Lease in any action in which Lessor seeks to recover such damages. Any repossession or resale of any Equipment will not bar an action for damages for breach of this Lease, and the bringing of an action or the entry of judgment against Lessee will not bar Lessor's right to repossess any or all Equipment. Upon cancellation of any Schedule upon default, Lessee will, at its sole cost and expense, cease using the Equipment, store the Equipment for up to ninety (90) days while maintaining the insurance required above, promptly return the Equipment to Lessor when directed to do so F.O.B. the destination specified by Lessor, in the same condition as received, reasonable wear and tear and normal depreciation excepted. Lessee shall pay on demand holdover rent equal to a full monthly rent for each month or any day thereof during which Lessee fails to return the Equipment when so directed by Lessor and this obligation is without limitation to any consequential damages for which Lessee may be responsible as a result of such failure to return the Equipment. With respect to any Equipment returned to Lessor, or repossessed by Lessor pursuant to provision (4) above, Lessor may hold or use such Equipment for any purpose whatsoever or either sell same at private or public sale, for cash or credit, or re-lease same for such term and upon such rental as will be solely determined by Lessor. In the event that Lessor is able to sell or re-lease all or any Equipment returned to Lessor then the proceeds of any sale or re-leasing of such Equipment, after first deducting therefrom all costs and expenses of repossession, storage, repairs, reconditioning, sale, re-leasing, attorneys' fees and collection fees with respect to such Equipment, shall be deducted from the damages for which Lessee is obligated hereunder. In the event of the sale or re-leasing by Lessor of any such Equipment after default hereunder or in the event of a Casualty Occurrence under Section 6 hereof, then Lessee will be liable for, and Lessor may forthwith recover from Lessee as liquidated damages for breach or termination of this Lease, and not as a penalty, an amount equal to the sum of (X) the entire amount of rent which would have accrued for the balance of the term for such Equipment computed from the date of Lessee's default or, in the case of a Casualty Occurrence, computed as of the rent payment date immediately preceding the date of the Casualty Occurrence discounted in each case as provided for hereinafter plus (Y) any final payment due under the Schedule discounted as provided for hereinafter, less (Z) the proceeds, if any, of any sale or re-leasing of such Equipment, after first deducting therefrom all costs and expenses of repossession, storage, repairs, reconditioning, sale, re-leasing, attorney's fees and collection fees with respect to such Equipment provided, however, the amount for which Lessee shall be obligated as liquidated damages shall in no event be an amount less than 10% of Lessor's Cost. If Lessee fails to deliver any Equipment to Lessor or Lessor is unable, for any reason, to effect repossession of any Equipment, then with respect to such Equipment, Lessee will be liable for, and Lessor may forthwith recover from Lessee as liquidated damages for breach or termination of this Lease, and not as a penalty, an amount equal to the sum of the amounts specified in items (X) and (Y) above for such Equipment. Whether or not any Equipment is returned to, or repossessed by Lessor, as aforesaid, Lessee will also be liable for, and Lessor may forthwith recover from Lessee, all unpaid rent and other unpaid sums that accrued prior to the date of Lessee's default. In addition to the foregoing, Lessor may also recover from Lessee all costs and expenses, including without limitation fees of collection agencies and reasonable attorney's fees, including the allocated costs and fees of Lessor's in-house legal counsel, incurred by Lessor in exercising any of its rights or remedies hereunder. Since pursuant to the foregoing Lessor may receive or recover payment of the amounts specified in clause (1) of the preceding paragraph or the amounts specified in items (X) and (Y) above earlier than Lessor would otherwise be entitled to receive or recover same but for Lessee's default, such amounts will be discounted to their then present value at the rate of six percent (6%) per annum, and there will be added to such amounts after such discount, interest at the rate specified in Section 12 hereof from the date Lessee's default up to the date of the payment of such amounts to Lessor. Lessee irrevocably consents to the in personam jurisdiction of the federal and/or state courts located in the State of New York over controversies arising from or relating to this Lease or any obligation with respect thereto and waives the right to impose any counterclaim or offset of any nature in any such litigation. Lessee irrevocably appoints each and every owner, partner, member and/or officer of Lessee as its attorney upon whom may be served certified mail any process, notice or pleading in any action or proceeding against it under this Lease or related thereto. 10. ASSIGNMENTS: LESSOR MY WITHOUT LESSEE'S CONSENT ASSIGN OR OTHERWISE TRANSFER OR GRANT A SECURITY INTEREST IN ITS RIGHT AND INTEREST IN ANY ITEM OR SCHEDULE AND THE RENT DUE OR TO BECOME DUE THERUNDER AND WHEN SO ASSIGNED, TRANSFERRED OR ENCUMBERED, EACH SCHEDULE WILL BE FREE OR ANY COUNTERCLAIM, SET-OFF, DEFENSE, OR CROSSCLAIM BY LESSEE AS AGAINST LESSOR OR SUCH ASSIGNEE WHENEVER ARISING, BEFORE OR AFTER SUCH SALE, ASSIGNMENT, TRANSFER OR SECUTIRY GRANT BUT NO SUCH ACTION WILL INCREASE LESSEE'S OBLIGATIONS HEREUNDER, EXCEPT THAT UPON NOTICE TO LESSEE THEREOF, LESSEE AGREES TO DIRECT ALL PAYMENTS HEREUNDER, IF REQUESTED, TO LESSOR'S ASSIGNEE. Lessor may provide lease information on a confidential basis to any prospective purchaser, assignee or participant. 11. PAYMENT OF TAXES: Lessee agrees to pay promptly when due, and to indemnify and hold Lessor harmless from, all license, title and registration fees whatsoever, all levies, imposts, duties, charges or withholdings whatsoever, and all sales, use, personal property, franchisee (howsoever calculated), and other taxes whosoever (together with any penalties, fines, or interest thereon) whether assessed, levied or imposed by any governmental or taxing authority against or upon Lessor or otherwise, with respect to any Equipment or the purchase, acquisition, ownership, delivery, leasing, possession, use, operation, control, return, or other disposition thereof, or the rents, receipts or earnings arising therefrom, or with respect to the Lease, excluding, however, (i) any such taxes or charges to the extent they are included in Lessor's Cost, (ii) any federal taxes levied on Lessor's net income, or (iii) state or local taxes levied on Lessor's net income, as net income is determined under and at rates which do not exceed those originally imposed by the jurisdiction in which the Equipment is located as specified in the related Schedule. In the event any such fees, levies, imposts, duties, charges or taxes are paid by Lessor, or if Lessor be required to collect or pay any thereof, Lessee will reimburse Lessor therefor (plus any penalties, fines, interest thereon) promptly upon demand. Until Lessor notifies Lessee to the contrary, Lessee will promptly before any penalty attaches, prepare and file in Lessor's name or on Lessor's behalf all personal property tax returns covering the Equipment and Lessee will pay the personal property taxes or assessed therein directly to the levying authority. If Lessor timely notifies Lessee that Lessor will prepare and/or file any such return, Lessee will, promptly upon being involved by Lessor, reimburse Lessor for the full amount of such personal property taxes so paid by Lessor. If any capital adequacy requirements are imposed upon Lessor or its parent which require the maintenance of additional capital or impose additional expenses as a result of this Lease, and the effect of such requirements is to reduce Lessor's expected rate of return hereunder, Lessee shall pay to Lessor such amount or amounts as may be necessary to compensate Lessor for such reduction. The indemnification obligation of Lessee under this Section will continue in full force and effect notwithstanding the expiration or other cancellation hereof. Lessee will either provide Lessor a copy of all property and other tax returns field hereunder by Lessee in Lessor's name or on Lessor's behalf or provided to Lessor an affidavit of a responsible corporate officer certifying that the property taxes so identified therein have been reported and are current. The amount which Lessee shall be required to pay to Lessor with respect to any obligation which is subject to indemnification under this Section 11 shall be an amount sufficient to restore to the same position after considering the effect of the receipt of such indemnification on it United States federal income taxes and state and city income taxes or franchise taxes based on net income, that it would have been in had such indemnification not been required hereunder. 12. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS: In case of failure of Lessee to comply with any provision of this Lease or any Schedule, Lessor will have the right, but will not be obligated, to effect such compliance in whole or in part, and all money spent by expenses of Lessor will be paid by lessee forthwith and will bear interest at the daily equivalent of eighteen percent (18%) per annum from the date said obligation was due. Lessor's action in effecting such compliance will not be a waiver of Lessee's default. All such money spent by and expenses of Lessor and any other obligation assumed or incurred by Lessor in effecting such compliance will constitute additional rent payable to Lessor with the next rent payment. 13. NOTICES: All notices required or permitted to be given hereunder will be in writing and will be deemed given and receive three (3) days after first deposit in the United States mail if sent by registered or certified mail to the address of Lessor or Lessee stated herein or in any Schedule or to such other place as either party may in writing direct pursuant to the Section. Notice by hand delivery shall be deemed given and receive upon delivery. Notice by overnight courier shall be deemed given and received on the date scheduled for delivery. 14. FINANCIAL INFORMATION AND REPORTING: (a) Lessee shall annually, within ninety (90) days after the close of Lessee's first fiscal year, furnish to Lessor an audit report of financial statements of Lessee (including a balance sheet as of the close of such year and statements of income, changes in financial condition and shareholder's equity for such year) prepared in accordance with generally accepted accounting principles and certified by Lessee's independent public accountants. Lessee shall also provide quarterly financial statements of Lessee similarly prepared for each of the three quarters of each fiscal year, which shall be certified (subject to normal year-end adjustments) by Lessee's chief financial officer and furnished within forty-five (45) days following the end of the quarter. (b) Lessee will furnish Lessor with any and all information regarding Lessee's business, condition or operations, financial or otherwise, which Lessee furnishes to any other creditor. This information shall be furnished to Lessor at the same time it is furnished to such other creditor. (c) Lessee will immediately furnish Lessor with such further information regarding Lessee's business, condition, property, assets or operations, financial or otherwise, as Lessor may from time to time reasonably request, all prepared in form and detail reasonably satisfactory to Lessor. (d) Lessee will at all times maintain true and complete records and books of account including, without limiting the generality of the foregoing, appropriate reserves for possible losses and liabilities, all in accordance with generally accepted accounting principles consistently applied. (e) Lessee shall permit, and cause any subsidiary to permit, representatives of Lessor to visit and inspect any of the properties of Lessee or any Subsidiary, to examine its or their corporate or partnership books and records, to make extracts or copies of such books and records, and to discuss its or their affairs, finances and accounts with its or their officers or partners, as applicable. The foregoing may be done at any time within regular business hours. (f) Lessee will promptly notify Lessor in writing of the commencement of any litigation to which Lessee or any of its subsidiaries or affiliates may be a party (except for litigation in which Lessee's (or the affiliate's) contingent liability is fully covered by insurance) which, if decided adversely to Lessee would adversely affect or impair the title of Lessor to the Equipment or which, if decided adversely to Lessee would materially adversely affect the business operations or financial condition of Lessee. In addition, Lessee will immediately notify Lessor, in writing, of any judgment against Lessee if such judgment would have the effect described in the preceding sentence. 15. ADDITIONAL DOCUMENTS Lessee agrees to execute or obtain and deliver to Lessor at Lessor's request such additional documents as Lessor may reasonably deem necessary to protect Lessor's interest in the Equipment and this Lease including, without limitation, financing statements, and Lessee hereby authorizes Lessor to execute in Lessee's name as Lessee's attorney-in-fact any financing statements and amendments thereto necessary or appropriate to protect Lessor's interest hereunder. Lessee will pay, or reimburse Lessor on demand, for any filing fees or expenses incurred by Lessor in connection with any such additional documents. Lessee will obtain, at Lessee's sole expense, from each owner, landlord, mortgage or other person having an encumbrance, lien or other interest on or in the premises in which the Equipment is or will be located, all necessary consents to the installation and use of the Equipment therein and the removal thereof in accordance with the terms of the Lease, together with waivers of claim with respect to the Equipment, and record the same when and where necessary. Lessee hereby designates Lessor its attorney-in-fact and authorizes and empowers Lessor to execute, endorse, and complete in Lessee's name and on Lessee's behalf all instruments representing the proceeds or any security or insurance for the Lease or Equipment thereunder, all financing statements and other documents including Schedules and Riders and to insert thereon all dates, amounts and serial numbers as necessary or appropriate to provide to Lessor the benefits anticipated by any Schedule. 16. MISCELLANEOUS The validity, construction and performance of this Lease and each Schedule will in all respects be governed by the laws of the State of New York without reference to conflict of law provisions. The Lease will not be binding on Lessor until executed by an authorized officer of Lessor. LESSOR AND LESSEE WAIVE ALL RIGHTS TO TRIAL BY JURY IIN ANY LITIGATION ARISING HEREFROM OR RELATED HERETO. Any provision herein contained which may be illegal, unenforceable, or inconsistent with applicable law or any governmental rule or regulation will be deemed modified or altered to conform thereto, or otherwise omitted but shall in no way impair the legality or enforceability of the remaining Lease provisions. Lessee shall promptly pay (or reimburse, as Lessor may elect) all costs and expenses including reasonable attorney's fees, including the allocated costs and fees of Lessor's in-house legal counsel, which Lessor has or may hereafter incur in connection with the negotiation and preparation of the Lease and any amendment, modification, consent or waiver hereunder. If more than one party executes this Lease as Lessee, each party shall be jointly and severally bound by the terms and provision of this Lease. Any person who signs as an officer or agent for a corporation, partnership or other entity warrants that he has the authority from such corporation, partnership or other entity to enter into this Lease on its behalf. Each Item of Equipment delivered pursuant to this Lease to a subsidiary of Lessee or to any entity or person designated by Lessee, whether at the request of Lessee or such subsidiary, entity or person shall be Equipment for all purposes of this Lease, and Lessee shall be and remain primarily liable for the obligations under this lease with respect to such Equipment. Lessor shall not be obligated to purchase and deliver any Item of Equipment unless Lessor has executed a Schedule covering the Equipment. 17. ENTIRE AGREEMENT This lease and any instrument referred to herein together with any Schedule(s), Attachment(s) or Rider(s) signed by the parties or delivered in connection herewith constitute the entire agreement of the parties with respect to the subject matter hereof and will collectively constitute the Lease with respect to an Item of Equipment and supersede all negotiations and prior written or oral agreement of the parties with respect thereto. No agent or employee of the Supplier is authorized to bind Lessor to the Lease, to waive or alter any term or condition herein or add any provision hereto. No modification of the Lease or waiver of any of its provisions or conditions will be valid unless in writing and signed by Lessor and Lessee. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the date set forth above. Chase Equipment Leasing, Inc. (Lessor) PHONETIME TECHNOLOGIES, INC. (Lessee) By: /DANIEL J. QUINLISK 2ND VP BY: /DOUGLAS BARLEY CFO & SECRETARY/ ------------------------------- ----------------------------------- (Signature) (Title) (Signature) (Title) AMENDMENT TO MASTER LEASE AGREEMENT DATED FEBRUARY 20, 1998 BETWEEN CHASE EQUIPMENT LEASING, INC. ("LESSOR") AND PHONETIME TECHNOLOGIES, INC. (LESSEE) The following modifications are hereby incorporated in and made a part of the above referenced Master Lease Agreement effective as of the date first written above. Capitalized terms used herein shall have the meaning attributable to them in the Master Lease Agreement. In the event of any conflict between the terms of the Master Lease Agreement and this Amendment, this Amendment shall govern. Lessee and Lessor hereby agree as follows: 1. Section 9: DEFAULT: REMEDIES: Delete default (h) in its entirety. In the 2nd paragraph at the 6th line down, after the phrase, "or without legal process," insert "without trespass," CHASE EQUIPMENT LEASING, INC. PHONETIME TECHNOLOGIES, INC. (LESSOR) (LESSEE) BY: /Daniel J. Quinlisk/ BY: /Douglas Barley/ ------------------------ ---------------------- TITLE: 2nd Vice President TITLE: CFO & Secretary ---------------------- ------------------- SECOND AMENDMENT TO MASTER LEASE PURCHASE AGREEMENT DATED FEBRUARY 20, 1998 BETWEEN CHASE EQUIPMENT LEASING, INC. AS LESSOR AND PHONETIME TECHNOLOGIES, INC. AS LESSEE (HEREINAFTER, THE "LEASE") This Second Amendment is incorporated by reference into the above referenced Lease as if set forth at length and Lessee and Lessor confirm all the terms and provisions thereof except as specifically set forth herein to the contrary. Effective MAY 14, 1999 the above Lease and all Schedules and ancillary documents thereunder are hereby amended as follows: The term "Lessee" now means individually and collectively, PHONETIME TECHNOLOGIES, INC., PT-COMMUNICATIONS, INC. and STAR TELECOMMUNICATIONS, INC., all New York corporations having their mailing address and chief place of business at 30-50 Whitestone Expressway, Flushing, NY 11354. Each Lessee hereby assumes, ratifies and confirms all Schedules now in existence or hereafter entered into. Except as expressly modified hereby, all terms and provisions of the Lease shall remain in full force and effect. The parties hereto have caused their duly authorized officers to execute this Second Amendment effective this 14th day of May 1999. CHASE EQUIPMENT LEASING, INC. PHONETIME TECHNOLOGIES, INC. (LESSOR) (LESSEE) By: /Daniel J. Quinlisk/ By: /Mary Casey/ ------------------------ ------------------------- Title: Asst. VP Title: CEO --------------------- ---------------------- PT-1 COMMUNICATIONS, INC. (LESSEE) By: /Mary Casey/ ------------------------- Title: CEO ---------------------- STAR TELECOMMUNICATIONS, INC. (LESSEE) By: /Mary Casey/ ------------------------- Title: President ---------------------- EX-10.63 12 EXHIBIT 10.63 EXHIBIT 10.63 AGREEMENT OF LEASE made as of this 8th day of April, 1997 between GOLDEN UNION, LLC, having its principal office c/o ALMA REALTY CO., 28-18 31st Street, Astoria, New York 1 1102 (hereinafter referred to as "Landlord"), and PHONETIME, INC, having its principal office at 30-60 Whitestone Expressway, Flushing, New York 11354 (hereinafter referred to as "Tenant"). WITNESSETH Landlord and Tenant hereby covenant and agree as follows SPACE 1. Landlord is the fee owner of the Building and the parcel of real property on which the Building is located (which includes the Building Parking Area as defined below). Landlord hereby leases to Tenant and Tenant hereby leases from Landlord approximately 2,700 square feet on the ground floor, approximately 15,600 square feet, which is the entire second floor and approximately 9,000 square feet on the third floor substantially as shown on the Rental Plan initialed by the parties and made part hereof as Exhibit I ("Demised Premises") in the building known as the Whitestone Executive Plaza, 30-50 Whitestone Expressway, Flushing, New York 11354, (hereinafter referred to as the 'Building"). The Demised Premises currently contains approximately 27,300 rentable square feet which currently constitutes 43.86 percent of the rentable area of the Building. In addition to occupying the Demised Premises, Tenant, during the entire term of this Lease shall have the right to use in common with others, at no additional expense to Tenant a) all common areas and public portions of the Building, b) all remaining available space on the roof of the Building, whereby Tenant shall install telecommunications equipment; and c) space located in the parking lot or adjoining the Building, whereby Tenant shall install/house an electrical generator TERM 2. The term of this lease shall commence April 1, 1997 hereinafter referred to as the "Term Commencement Date", and shall terminate on March 31, 2002, hereinafter referred to as the "Expiration Date". The term of this Lease is subject to extensions as provided for below Should the Term Commencement Date be a date other than the first day of the month, the Tenant shall pay a pro rata portion of the rent from such date through and including the last day of such month. Should the Expiration Date be a date other than the last day of the month, the Tenant shall pay a pro rate portion of the base rent from the first day of such month through and including such Expiration Date In consideration of Tenant entering this Lease, Landlord hereby waives (i) the payment of all rent for the second and third floor for the months of April 1, thru June 30, 1997 and (ii) all rent for the 2,700 square feet of the first floor until the later to occur of (a) June 30,1997 or (b) the completion of all construction work to be performed b) Landlord on such first floor space to Tenant's reasonable satisfaction. RENT 3. The basic annual rental rate is as follows:
LEASE YEAR ANNUAL RENT MONTHLY RENT ---------- ----------- ------------ 1st $480,000.00 $40,000.00 2nd 499,200.00 41,600.00 3rd 519,168.00 43,264.00 4th 539,934.72 44,994,57 5th 561,532.11 46,794.34
During the term of this Lease, the basic annual rental shall be as cited above, payable in equal monthly installments as listed above, which Tenant agrees to pay in lawful money of the U.S. which shall be legal tender in payment of the debts and dues, public and private, at the time of payment, in advance on the first day of each calendar month during the Demised Term at the Office of the Landlord, except that Tenant shall pay the first monthly installment on the signing of this Lease and, subject to the rent concessions set forth in paragraph 2 above, each month thereafter from the "Term Commencement Date". Tenant shall pay the rent as above and as hereinafter provided, without any set off or deduction whatsoever, except as set forth herein. 3.1 RENEWAL OPTION Provided that Tenant is not then in default beyond any applicable cure period of any of the covenants and conditions of this Lease, Landlord hereby grants to Tenant an option to continue leasing the Leased Premises for One (1) Five (5) Year Option Period commencing on the day following the last day of the initial Lease Term. Tenant shall exercise this renewal option by giving to Landlord, at least one hundred eighty (180) days prior to the expiration of the respective preceding Lease Term, written notice from Tenant stating that Tenant intends to exercise said renewal option. In the event that Tenant fails to exercise its renewal option hereunder, or such renewal notice from Tenant is not timely given, the renewal option provided for herein shall immediately cease and be thereafter null and void. During the renewal Lease Term, the terms and provisions of this Lease, including those terms relating to additional rent, shall remain unchanged, except that tins Article 3.1 shall be deleted. The Base Rent for such renewal term shall be as follows:
ANNUAL RENT MONTHLY RENT ----------- ------------ 1st $583,993.40 $48,666.12 2nd 607,353.14 50,612.76 3rd 631,647.25 52,637.27 4th 656,913.15 54,742.76 5th 683,189.68 56,932.47
3.2 TERMINATION OF LEASE Provided that Tenant is not in default beyond any applicable cure period of any of the covenants and conditions of tins Lease, Landlord hereby grants to Tenant the right to terminate this Lease at any time, but, only during the Option Period of this Lease. In order to exercise the termination option, Tenant must first notify Landlord in writing of its option to terminate and the effective date of termination. This notice must be given to Landlord at least three (3) months prior to the effective date of termination. An additional requirement in order for Tenant to exercise its Termination Option shall be that Tenant must pay to Landlord an amount equal to six (6) months base rent for the six (6) month period that follows the effective date of Tenant's termination. (For example, if Tenant notifies Landlord that July 1, 2004 shall be the effective date of termination, Tenant must be current with its rent through June 30, 2004 and must pay to Landlord the six (6) month Lease buy-out for months covering July 1, 2004 through December 31, 2004 at $50,612.76/month * six (6) months = $303,676~56) Once Landlord receives the six (6) months of the Lease buy-out, payable ONLY by certified funds, and Tenant vacates the Premises and leaves same in broom clean condition, Landlord and Tenant shall execute a Surrender of Lease Agreement and thereafter Tenant shall not be liable for any of the remaining Lease term or any obligations of this Lease. USE 4. The Tenant shall use and occupy the Demised Premises only for General Office use and for the installation and maintenance of a telecommunication switching facility and related equipment and for no other purpose. Tenant shall also have the tight to install and maintain, at Tenant's expense, conduits both inside the Building and from the generator into the Building in connection with the use of its equipment. SERVICES 5. Landlord will provide heat and air conditioning to the Demised Premises (subject to the conditions set forth in "Schedule C" attached hereto and made part hereof) during business hours of 8:00 a.m. to 6:00 p.m. on weekdays and from 9:00 a.m. to 6:00 p.m. on Saturdays; excluding all legal holidays. Tenant will pay proportionate share of utility charges as it relates to the Demised Premises as billed by Landlord. Tenant's proportionate share will be 43.86% of the Building's bill for the aforementioned charges, which proportionate share is subject to change based upon any change in the square footage of the Building or the Demised Premises. Landlord will manage the Building in accordance with building standards for similarly situated first class office buildings. Charges for heat, air conditioning and utilities for common areas shall be prorated to the Tenant in accordance with the percentage of the building's rentable space occupied by the Tenant. Landlord will furnish copies of all such bills to Tenant promptly upon receipt thereof. 6. Landlord will provide cleaning services which will be performed between the hours 5:00 p.m. and 6:00 a.m. on Monday through Friday, legal holidays excepted, as set forth in Schedule "D", attached hereto and made part hereof. 7. Landlord will furnish elevator service to the Demised Premises during business hours at no charge to Tenant. 8. Landlord will furnish adequate hot and cold tempered water for lavatory, drinking and cleaning services at no charge to Tenant. 9. At any hours other than the aforementioned business hours at the Tenant' s request and upon Landlord's agreement, not to be unreasonably withheld or delayed, any services heretofore enumerated will be provided at the Tenant's expense as overtime services, except that there will be no charge for overtime service for moving in and out of the Demised Premises Heat and Air Conditioning overtime charge is $25.00 per hour or any part thereof. This charge will escalate annually at the rate of five percent (5%/year). Except for the months expressly payable by Tenant under this Article entitled "Services" as well as amounts payable by Tenant under Article 17 below, Tenant shall not be responsible for the payment of any other operating expenses incurred by the Landlord in connection with the Building or the Property. 10. Any diminution services required by Federal, State or Municipal Law or by virtue of any code or regulation or directive of any Environmental Agency or Conservation Program of the Federal State, City, County or local government body of any nature whatsoever, shall not entitle the Tenant to any diminution, abatement or refund of rent or other charges due under the provisions of this Lease except if it renders the Demised Premises unusable. LANDLORD'S REPAIRS 11. (A) Landlord at its expense, will make all the repairs to and provide the maintenance for the Demised Premises (excluding painting and decoration) and for all public areas and facilities, and to the roof and structure to the Building and to the building systems including but not limited to plumbing, electrical, HVAC and mechanical servicing the Demised Premises and to the windows of the building in a manner appropriate for a first class office building in Flushing, New York, except such repairs and maintenance as may be necessitated by the negligence, improper care or use of such premises and facilities by Tenant, its agents, employees, licensees or invitees, which will be made by Landlord at Tenant's expense. Landlord represents that all systems function, roof does not leak and there are no structural defects in the building (B) Notwithstanding the aforementioned, Landlord shall provide the following to Tenant at no cost to Tenant: a) paint and plaster the Demised Premises prior to Tenant's occupancy of same; b) Landlord shall clean and repair the carpet in the Demised Premises as needed; c) Landlord shall install a swipe system that can print details of users access at the front entrance and at the entrance of Tenant's space on each of the three floors; d) Landlord shall install two sets of glass doors for the second floor rear elevators with a card access swipe lock; e) Landlord shall install a security system comprising of cameras, intercoms and buzzers for all three floors; f) Landlord shall pave the driveway; g) construct a loading dock; h) Landlord shall build-out Tenant's space located on the first floor in accordance with reasonable plans and specifications to be submitted by Tenant to Landlord; and (i) Landlord shall remove the two offices and closets located on the third floor space and install a secure double door in accordance with reasonable plans and specifications provided by Tenant to Landlord, all of which work shall be completed by Landlord lien free arid in a good and workmanlike manner in accordance with all applicable laws and regulations Landlord shall provide the following at Tenant's sole cost: a) security bars/gates for the first (1") floor space; and b) Landlord to provide Tenant with an adequate exterior location (mutually agreed upon by both parties) whereby Tenant shall install/house a generator. No additional rent shall be payable on account of such space Landlord represents that the Building of which the Demised Premises forms a part of shall be cable ready by the time Tenant occupies same. PARKING FIELD 12. Tenant shall have the right at no additional cost to Tenant or its employees or invitees, to self-park in 125 reserved parking spaces for the reserved parking of automobiles of the Tenant, its employees and invitees, in the parking area reserved for tenants of the Building (hereinafter sometimes referred to as "Building Parking Area") subject to the Rules and Regulations now or hereafter reasonably adopted by Landlord. Said parking spaces shall be marked as Reserved PT1. Landlord shall have no obligation to police said parking spaces, but shall be obligated to maintain the Building Parking Area. DIRECTORY 13. Landlord will furnish in the lobby of the Building a directory which will contain a Tenant List. Tenant shall have the right to install its own directory in the lobby of each floor of the Building in which Tenant occupies space but must first obtain Landlord's consent, which consent shall not be unreasonably withheld or delayed. TENANT'S REPAIRS 14. Tenant shall take good care of the Demised Premises and, subject to the provisions hereof, Landlord after fifteen (15) days notice to Tenant, except in an emergency, at the expense of Tenant shall make as and when needed as a result of misuse or neglect by Tenant or Tenant's servants, employees, agents or licensees, all repairs in and about Demised Premises necessary to preserve them in good order and condition. When caused by misuse or neglect by Tenant or Tenant's servants, employees, agents, licensees or invitees, except as provided in Article 36 hereof there shall be no allowance to Tenant for a diminution of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from Landlord, Tenant or others making any repairs, alterations, additions or improvements in or to any portion of the Building or of Demised Premises, or in or to the fixtures, appurtenances or equipment thereof, except for Landlord's own negligence or that of its agents, contractors or employees. Landlord agrees to use its best efforts to not interfere with Tenant's business. Landlord shall not be obligated to do work at "premium hours." FLOOR LOADING 15. The placement of any equipment which will impose an evenly distributed floor load in excess of 50 pounds per square foot live load shall be done only after written permission is received from the Landlord which shall not be unreasonably withheld. Such permission will be granted only after adequate proof is furnished by a professional engineer that such floor loading will not endanger the structure INSURANCE 16. Tenant, at its expense, shall maintain at all times during the term of this Lease, public liability insurance in respect of the Demised Premises and the conduct or operation of business therein, with Landlord as an additional named insured, and with not less than $1,000,000 for property damage and not less than $1,000,000 for bodily injury or death to any number of persons in any one occurrence under a customary property insurance policy. Tenant shall promptly deliver to Landlord a Certificate of Insurance for such fully paid for policies prior to occupancy, and Tenant shall deliver to Landlord such Certificate of Insurance for renewal policy at least thirty (30) days before the expiration of any existing policy. All such policies shall be issued by companies licensed to do business in the State of New York and all such policies shall contain a provision whereby the same cannot be canceled or materially modified unless Landlord is given at least twenty (20) days prior written notice of such cancellation or material modification, including, without limitation, any cancellation resulting from the non-payment of premiums. Landlord, at its expense, shall maintain at all tunes public liability insurance coverage of $3,000,000.00 on the Building and also have the Building insured for its full replacement value REAL ESTATE TAX ESCALATION 17. (A) For purposes of this Article 17, the following definitions shall apply: (a) The term "Tax Year" shall mean the City of New York fiscal year, July 1 to June30 (or such other fiscal year as hereafter may be duly adopted by the City of New York as the fiscal year for real estate tax purposes). (b) The term "Escalation Year" shall mean any Tax Year during the term of this Lease commencing with Tax Year commencing July 1,1998. (c) The term "Base Tax Year' shall mean the July 1, 1997 to June30, 1998 Tax Year. (d) The term 'Base Taxes" shall mean the Taxes computed by the taxing jurisdiction for the Base Tax Year (e) The term "Taxes" shall be deemed to include all real estate taxes upon or with respect to the tax lot upon which the building is situated and imposed by the City of New York, County of Queens, or any other taxing authority, provided that the tax assessed by any other taxing authority is to create a new or additional source of revenue through taxation of real estate as such. If, due to any change in the method or taxation, or other tax shall be substituted for, or levied against Landlord or any owner of the Budding or the Real Property, in lieu of any real estate taxes or assessments upon or with respect to the Real Property, such tax shall be included in the term Taxes for the purposes of this Article, except taxes such as franchise, income, or revenue tax on Landlord's rental income receipts. Landlord hereby represents that there are no other improvements on the tax lot other than the Building and Building Parking Area. (B) If taxes payable in any Escalation Year shall be in such amount as shall constitute an increase above or decrease below Base Taxes, Tenant shall pay "Tenant's Proportionate Share", (i e currently 43 86%) of such increase or Tenant shall receive its proportionate share of any decrease &Tenant's Proportionate Share shall mean the fraction, the denominator of which is the net rentable area of the Building (currently 62,260 square feet) and the numerator of which is the Demised Premises area (currently 27,300 square feet). Increases in taxes, payable by reason of reductions in Landlord's tax abatement shall be deemed tax increases subject to provision of this Escalation Clause. (1) INTENTIONALLY OMITTED. (2) If the sum of the installments of Taxes payable by Landlord in any Escalation Year exceeds the Landlord's Base Taxes for the Base Tax Year, the annual rental reserved hereunder for such Escalation Year shall be increased by Tenant's Proportionate Share of the amount of such excess and shall be payable during such Escalation Year in monthly amounts equal to 1/12th of tie amount of such increase (as reasonably estimated by Landlord if not finally determinable on the first day of such Tax Year, subject to later adjustment). (3) If a final determination shall be rendered reducing the assessed valuation of the land and/or Building for the Landlord's Base Tax Year, the assessed valuation as so reduced shall, for all purposes be the assessed valuation used in computing the Landlord's Base Taxes under section (d) of subparagraph (A) above. If said determination is rendered subsequent to the submission by Landlord to Tenant of any statements referred to in sub paragraph (5) below, Landlord shall submit revised statements to Tenant based upon the reduced assessed valuation and Tenant shall, within thirty (30) days after submission of said revised statements, pay Landlord any additional rent due by reason of such recomputations which computation shall be adequately set forth in the said revised statements. (4) If Landlord shall receive a refund of Taxes for any Tax Year with respect to which Tenant paid additional rent by reason of an increase in Taxes, Landlord shall set forth in the first statement thereafter submitted to Tenant pursuant to subparagraph (5) below the amount of such refund and the amount of the legal fees and other expenses incurred in connection with the collection of the refund; and, provided that Tenant is not in arrears, credit for Tenant's Proportionate Share of the refund maybe taken against the installment or installments of rent next falling due equal to Tenants Proportionate Share of the amount by which the refund exceeds said fees and expenses. In no event shall such fees and expenses exceed the refund. (5) Landlord shall from time to time during the term of this Lease, after the respective amounts of taxes for the period in question become ascertainable, submit to Tenant statements setting forth the computation of any increase or decrease in rental. Landlord's failure to submit a statement or statements pursuant to this sub-paragraph (5) or sub-paragraph (2) above shall not constitute a waiver of any rent increases payable by Tenant under this paragraph, provided however, that such additional rental shall only become due and payable following Tenant's receipt of such statement from Landlord. Landlord may submit its statements (or estimates thereof) separately and at different times, but the payment of additional rent shall nevertheless he made in the manner and within the time limits herein above set forth with respect to each statement so submitted (6) If the term of this Lease expires on a day other than the last day of the Tax Year, rental increases pursuant to subparagraph (2) above shall be pro-rated as of said expiration date. (7) In the event of a taking, pursuant to the power of eminent domain, of a portion of the Building under such circumstances as shall not result in a termination of this Lease then from and after the date of such taking (i) the Base Tax Amount shall be deemed reduced in proportion to the reduction in the number of square feet of rentable space in the Building resulting from such taking, and (ii) Tenant's Proportionate Share shall be adjusted so as to be equal to a fraction of which the denominator is the reduced number of square feet of rentable space in the building and the numerator is the number of square feet of space leased to Tenant following such taking. (8) The provisions of this paragraph shall survive the expiration or termination of this Lease until a final adjustment has been made for the Tax Year in which the Expiration Date occurs. (9) The statements of the adjustment to be furnished by Landlord as provided in subdivision (5) shall be based on data submitted by Landlord to a firm of Certified Public Accountants (who may be the firm now or then currently employed by Landlord for the audit of its accounts). In the accountant's opinion based on the date submitted, such statements shall present fairly the escalation adjustment for the periods represented thereby. (10) Any delay or failure of Landlord, beyond January of any year, in computing the billing for the rent adjustments herein above provided, shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such rent adjustments hereunder upon Tenant's receipt of such statements (11) Notwithstanding any expiration or termination of this Lease prior to the Lease expiration dare (except in the case of a cancellation by mutual agreement, termination upon casualty or condemnation or upon termination by Tenant in accordance with Article 3.2) Tenant's obligation to pay rent as adjusted under this Article shall continue and snail cover all periods up to the Lease expiration date, and shall survive an expiration or termination of this Lease until such amounts previously accruing have been paid. 18. If the first or final lease year during which escalations may occur shall contain less than twelve (12) months, the additional rental under this Lease shall be prorated. MISCELLANEOUS 19. Landlord shall upon Tenant's request execute a Memorandum of Lease in recordable form. 20. THIS SPACE IS INTENTIONALLY OMITTED. 21. THIS SPACE IS INTENTIONALLY OMITTED. 22. In the event the Tenant shall fail to pay Landlord the charges and expenses as required by the terms of this Lease, the Landlord shall have the same rights and remedies as those provided for in the Lease with regard to the Tenant's failure to pay an installment of the annual base rent. 23. The term "Lease Interest Rate" shall mean interest at the rate of ten (10%) percent per annum provided such rate does not violate the usury laws of New York State. If such rate violates such usury laws, then it shall be 1/2% below the maximum permissible rate. FIXTURES & INSTALLATIONS 24. All appurtenances, fixtures, improvements, additions and other property attached to or built into the Demised Premises, by Landlord at Landlord' s expense, shall be and remain the property of Landlord, except that any such fixtures, improvements, additions and other property installed at the expense of Tenant may be removed by Tenant on the condition that Tenant shall repair at its expense any damage to the Demised Premises or the Building resulting from such removal. Notwithstanding anything herein to the contrary, all equipment installed by Tenant shall remain the property of Tenant in all events. Except as otherwise provided for herein, all the outside walls of the Demised Premises including corridor walls and the outside entrance doors to the Demised Premises, any balconies, terraces or roofs adjacent to the Demised Premises and any space of the Demised Premises used for shafts, stacks, pipes, conduit ducts or other building facilities, and the use thereof as well as access thereto upon notice and accompanied by Tenant in and through the Demised Premises for the purpose of operation, maintenance, decoration and repair, are expressly reserved to Landlord, and Landlord does not convey any rights to Tenant therein, provided the area demised to Tenant is not reduced thereby or the use of the Demised Premises by Tenant is not restricted or interfered with thereby. Notwithstanding the foregoing, Tenant shall enjoy full right of access to the Demised Premises through the public entrances, public corridors and public areas within the Building. ALTERATIONS 25. (A) After completion of the Demised Premises, except items that can be removed at the end of term the installation of winch do not require permits, Tenant shall make no structural alterations, decorations, installations, additions or improvements in or to the Demised Premises without Landlord's prior written consent (which consent shall not be unreasonably withheld or delayed) and then only by contractors or mechanics who do not interfere with Landlord's work in the Building by labor disharmony (B) All installations or work done by Tenant shall at all times comply with: (1) Laws rules, orders and regulations of governmental authorities having jurisdiction thereof. (2) Reasonable rules and regulations of the Landlord. (3) Plans and specifications prepared by and at the expense of Tenant shall he submitted to Landlord for its prior written approval which approval will not be unreasonably withheld or delayed; no installations or work shall be undertaken, started, or begun by Tenant, its agents, servants or employees, until Landlord has approved such plans and specifications, and no material amendments or additions to such plans and specifications shall be made without prior written consent of Landlord, which will not be unreasonably withheld or delayed. Tenant agrees That it will not either directly or indirectly, use any contractors and/or labor and/or materials that would or will create any labor disharmony with any contractors and/or labor engaged by Landlord in the construction, maintenance and/or operation of the Building or any part thereof. (4) The indemnity contained in Article 34 (B) shall apply to any claim arising out of the performance of said Tenant's work. Tenant shall supply Landlord with workmen's compensation certificates for all persons and/or contractors performing work for Tenant at the Demised Premises, a public liability insurance policy in the sum of Two Million ($2,000,000 00) Dollars for personal injuries and death claims and Five Hundred Thousand ($500,000.00) Dollars for property damage. In the event any mechanics lien shall be filed against the Building by any of the Tenant's contractors, subcontractors or material men, for work done on behalf of Tenant, Tenant shall discharge the lien by bond, payment or otherwise, within thirty (30) days of filing thereof after notice to Tenant and upon Tenant's failure to so discharge any lien, Landlord may, at its option, remove the lien by bonding and charge the Tenant with the cost thereof, together with reasonable attorneys' fees. REQUIREMENTS OF LAW 26. (A) Tenant, at Tenant's sole cost and expense shall comply with all applicable laws, orders and regulations of Federal, State, County and Municipal authorities, and with all directions, pursuant to law, of all public officers, which shall impose any duty upon Tenant with respect to the special use or occupation of the Demised Premises by Tenant, except that Tenant shall not be required to make any structural alterations in order so to comply unless such alterations shall be necessitated or occasioned, by the improper acts, omissions, or negligence of Tenant or any person claiming through or under Tenant or any of their employees, contractors, agents, invitees or licensees. (B) Tenant shall not do anything, or permit anything to be done, in the Demised Premises which shall (i) invalidate or be in conflict with the provisions of any fire or other insurance policies covering the Building or any property located therein, or (ii) result in a refusal by fire insurance companies of good standing to insure the Building or any such property, or (iii) cause any increase in the fire insurance rates applicable to the Building or property located therein at the beginning of the Demised Term or at any time thereafter Tenant at Tenant's expense, shall comply with all the rules, orders, regulations or requirements of the New York Board of Fire Underwriters and the New York Fire Insurance Rating organization or any similar body. Landlord represents that the use of the Demised Premises as general offices and the installation and maintenance of a telecommunication switching facility and related equipment will not give rise to sub-paragraph (i) through (iii) above being effective. (C) In any action or proceeding wherein Landlord and Tenant are parties, a schedule or "make-up" of rates applicable to the Building or property located therein issued by the New York Fire Insurance Rating Organization or other similar body fixing such fire insurance rates, shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rates then applicable to the Building or property located therein. (D) Landlord shall be responsible for curing any notices of violation not arising out of Tenant's acts issued by any governmental agency affecting the Demised Premises and the Building and Property and otherwise complying with all applicable laws and regulations affecting the Building and the Property. END OF TERM 27. Upon the expiration or other termination of the term of this Lease, Tenant shall quit and surrender to Landlord the Demised Premises broom clean, in good order and condition, ordinary wear and casualty excepted, and Tenant shall remove all if its property and shall repair all damage to the Demised Premises or the Building occasioned by such removal. Any property not removed from the premises shall be deemed abandoned by Tenant and may be disposed of in any manner deemed appropriate by the Landlord, unless otherwise agreed to in writing (i.e extension of time to remove). Tenant expressly waives, for itself and for any person claiming through or under Tenant, any rights which Tenant or any such person may have under the provisions of Section 221 of the Real Property Actions and Proceedings Law and of any successor law of like import then in force in connection with any holdover or summary proceedings which Landlord may institute to enforce the foregoing provisions of this Article at the end of the term as expressed herein. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of this lease. If the last day of the term of this lease or any renewal hereof falls on a Sunday or a legal holiday this lease shall expire on the business day immediately preceding. QUIET ENJOYMENT 28. Landlord covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing arid performing all the terms, covenants and conditions on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the Demised Premises during the term of this lease without hindrance or molestation by anyone claiming by or through Landlord subject, nevertheless, to the terms, covenants and conditions of this Lease including, but not limited to Article 37. SIGNS 29. a) No sign or lettering of any nature may be put on or in any window, nor on the exterior of the Building or elsewhere within the Demised Premises such as shall be visible from the sweet, except with the written approval of the Landlord. b) Notwithstanding the aforementioned in paragraph 29 (a) above, upon receiving Landlord's approval which approval shall not be unreasonably withheld or delayed, Tenant shall have the exclusive right to erect/post one (1) sign on each side of the Building, one (I) sign on the rear of the Building. Tenant shall not erect/post any sign(s) on the front of the Building. In addition hereto, Tenant shall have the exclusive right to erect/post one (1) sign in the ground level of the Building. Tenant must provide Landlord with a design/sketch of the sign(s) to be erected, which said sign(s) Landlord shall permit Tenant to install upon Landlord's approval, on the rear, and both sides of the exterior of the Building signs identifying Tenant. Tenant will be solely responsible for the fees and costs associated with erecting the sign on the exterior of the Building and for the future removal of the sign, if any, if and when the Tenant ceases to occupy the Demised Premises at the Building c) Tenant's sign(s) shall not exceed the dimensions of the existing signs on the Building, i. e. that of the Long Island Savings Bank, Omnipoint Communications and Enterprise Rent-A-Car. d) Tenant, after complying with the provisions of 29 (a & b) above, shall have the right to install an illuminated rotating sign on the roof of the Building. The location of this rotating sign will be restricted to the roof of the mechanical/elevator room located on the roof of the Building. e) Tenant shall have the right to maintain all of such signs in their approved locations during the term of this Lease and Landlord shall not grant any rights to any other tenant of the Building or any third party which would interfere with the visibility of any such sign RULES AND REGULATIONS 30. Tenant and Tenant's agents, employees, invitees, and licensees shall faithfully comply with the Rules and Regulations set forth on Schedule "E" annexed hereto and made part hereof, and with such further reasonable Rules and Regulations as Landlord at any time may make and communicate in writing to Tenant which, in Landlord's reasonable judgement shall be necessary for the reputation, safety, care or appearance of the Building and the land allocated to it or the preservation of good order therein, or the operation or maintenance of the Building, and such land, its equipment, or the more useful occupancy or the comfort of the tenants or others in the Building. Landlord shall not be liable to Tenant for the violation of any of said Rules and Regulations, or the breach of any covenant or condition in any lease by any other tenant in the Building, provided such are applied in an equal and non-discriminatory manner. In the event of a conflict between this Lease and the Rules and Regulations, terms of this Lease shall prevail. Landlord shall not enforce any of the Rules and Regulations in a manner discriminatory to Tenant. ASSIGNMENT AND SUBLETTING 31. (A) Tenant, for itself, its successors and assigns, expressly covenants that it shall not assign, mortgage or encumber this Agreement nor under let the Demised Premises or any part thereof or license or permit the Demised Premises or any part thereof to be used by others, without the prior written consent of the Landlord, such consent not to be unreasonably withheld or delayed in each instance and upon due compliance with the provisions of this Article 31. (B) The Tenant shall have no right to assign this Lease or sublet all or any portion of the Demised Premises for a period of less than one (1) year, unless assignment or subletting is to an affiliate entity. (C) Prior to requesting the approval of Landlord to an assignment or subletting as herinafter provided, Tenant shall offer to terminate this lease as of the last day of calendar month which is at least sixty (60) days from the date of Tenant's notice, during the term hereof, which day shall be prior to the effective date of such proposed assignment or subletting and to vacate and surrender the Demised Premises to Landlord. Simultaneously with said offer to terminate this lease, Tenant shall advise the Landlord of all the terms, covenants and conditions of the Tenant's proposed sublease or assignment. A sublease of less than 40% of the Demised Area shall not give rise to Landlord's recapture rights herein. The provisions of this subsection 30 (c) shall not be applicable during the initial term of this Lease, provided (i) in the case of a sublease(s) in excess of forty (40%) percent of the demised Area, fifty (50%) percent of all rent and additional rent received by Tenant for sublease(s) in excess of the rent and additional rent received herein, shall be paid to Landlord within fifteen (15) days of receipt, as additional rent, and (ii) in the case of an assignment, fifty (50%) percent of any consideration paid to Tenant for said assignment, except that which is paid for Tenant's furniture, fixtures, equipment leasehold improvements and goodwill shall be paid to Landlord within fifteen (15) days of receipt. In either of the foregoing cases, Tenant shall first deduct its expenses, including brokerage fees, before submitting to Landlord (D) With respect to any proposed subtenant or assignee who is not an "Affiliated Entity" (as defined below) Tenant shall submit to Landlord the most recent fiscal year's financial statements of such entity as well as a description of the business of the entity. Upon Tenant's due compliance with the aforesaid provisions of this Article 31, Landlord agrees not to unreasonably withhold its consent to an assignment or subletting) provided that the Tenant is not then in default beyond any cure period under this Lease and that the proposed assignee or undertenant is (a) financially responsible (b) credit worthy and (c) of good reputation. (E) No such assignment shall be effective until duplicate originals of such Assignment and Assumption Agreement wherein Assignee agrees to perform all the obligations of the Tenant under this lease in form appropriate for recording and delivered to Landlord. (F) No sub-letting of the Demised Premises shall release or discharge the Tenant hereunder from any of its obligations to be performed under this Lease, unless otherwise agreed upon by the parties herein. Any assignment of the Lease approved by Landlord shall release Tenant from all obligations arising from and after the effective date of such assignment. (G) Notwithstanding anything contained in this Lease to the contrary) Landlord shall not be obligated to entertain or consider any request by Tenant to consent to any proposed assignment of this Lease or sublease unless each request by Tenant is accompanied by non-refundable fee by certified check not to exceed $1,500.00 to cover Landlord's reasonable legal fees and related costs to process the proposed assignment. Neither Tenant's payment nor Landlord's acceptance of the foregoing fee shall be construed to impose any obligation whatsoever upon Landlord to consent to Tenant's request. (H) Notwithstanding anything to the contrary herein, Tenant may (i) assign this Lease to any successor by merger, purchase, reorganization, acquisition or consolidation, subsidiary, parent or affiliate (hereinafter called collectively "Affiliated Entity ) provided that a copy of said assignment, in recordable form, is delivered to the Landlord containing full assumption by the assignee of all the Tenant's obligations hereunder) or (ii) sublease the Demised Premises or any portion thereof to an Affiliated Entity. LANDLORD'S ACCESS TO PREMISES 32. (A) Landlord or Landlord's agents shall have the right to enter and/or pass through the Demised Premises at all times after reasonable notice and during normal business hours and accompanied by Tenant; except in an emergency) to examine the same, and to show them to mortgagees, ground lessors, prospective purchasers or lessees or mortgagees of the Building, and to make such repairs, improvements or additions as Landlord may deem necessary and Landlord shall be allowed to make all material into and upon and/or through said Demised Premises that may be required therefore, provided thc same does not interfere with Tenant's business operation. During the six months prior to the expiration of the term of the this lease, or any renewal term, Landlord may exhibit, upon notice, the Demised Premises to prospective tenants or purchasers at all reasonable hours and without unreasonably interfering with Tenant's business. If Tenant shall not be personally present to open and permit an entry into said premises at any time when for any reason an entry therein shall be necessary in an emergency, Landlord or Landlord's agents may enter the same by a master key without rendering Landlord or such agent liable therefore (if during such entry Landlord or Landlord's agents shall accord reasonable care to Tenant's property) Landlord shall not have access to secure areas designated by Tenant, as such, except in an emergency. (B) Landlord shall also have the right at any time, to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets and other public parts of the Building, provided, however, the Landlord shall make no change in the arrangement and/or location of entrances or passageways or other public parts of the Building which will adversely affect in any manner Tenant's use and enjoyment of the Demised Premises as set forth in Article 4 herein and provided the same does not diminish Tenant's usable area or obstruct Tenants access to the Demised Premises, or visibility of the Demised Premises (C) Provided the Landlord complies with the terms hereof, the exercise by Landlord or its agents of any right reserved to Landlord in this Article 32 shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord, or its agents, or upon any lessor under any ground or underlying lease, by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise Landlord agrees to use its best efforts to minimize interference with Tenant's business SUBORDINATION 33. (A) Subject to the delivery of the Subordination and Non-Disturbance Agreement described below, this Lease is subject and subordinate in all respects to all ground leases and/or underlying leases and to all first mortgages which may now be placed on or affect such leases and/or the real property of which the Demised Premise forms a part, or any part of parts of such real property and/or Landlord's interest or estate therein, and to each advance made and/or hereafter to be made under any such mortgages, and to all renewals, modifications, consolidations, replacements and extensions thereof. In confirmation of such subordination, Tenant shall execute and deliver promptly any reasonable certificate that Landlord and or any mortgagee and/or the lessor under any ground or underlying lease and/or their respective successors in interest may reasonably request subject to the delivery of the Subordination and Non-Disturbance Agreement referred to below. A Subordination Non-Disturbance Agreement in form and content reasonably satisfactory to Tenant shall be delivered by all current and future mortgagees and ground lessors, as a precondition to such subordination. (B) Without limitation of any of the provisions of this Lease, in the event that any mortgagee or its assigns shall succeed to the interest of Landlord or of any successor Landlord and/ shall have become lessee under a new ground or underlying lease then, this Lease shall nevertheless continue in full force and effect and Tenant shall and does hereby agree to attorn to sorb mortgagee or its assigns and recognize such mortgagee or its respective assigns as its Landlord provided A Subordination Non-Disturbance Agreement was received. (C) Tenant shall, at any time and from time to time upon not less than fifteen (15) days prior notice by Landlord, execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modification and the dates to which the rent, additional rent and other charges have been paid in advance, if any, and stating whether or not to the best knowledge of the signer of such certificate that Landlord is in default in performance of any covenant; agreement, term, provision or condition contained in this lease, and if so, specifying each such default of which the signer may have knowledge, it being intended that any such statement delivered pursuant hereto may be relied upon by any mortgagee, prospective purchaser or lessee of said real property or any interest or estate therein, any prospective mortgagee thereof or any prospective assignee of any mortgage thereof. PROPERTY LOSS, DAMAGE REIMBURSEMENT 34. (A) Landlord 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 the loss of or damage to, any property of Tenant by theft or otherwise, unless caused by negligence or misconduct of Landlord, its agents, contractors, servants and/or employees. Landlord or its agents shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electrical, electrical disturbance, water, rain or snow or leaks from any part of the Building or from the pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or by any other cause whatsoever nature, unless caused by or due to the negligence or willful misconduct of Landlord, its agents, servants, contractors or employees; nor shall Landlord or its agents be liable for any such damage caused by other tenants or persons in the Building or caused by operations of construction or any private, public or quasi-public work. If at any time any windows of the Demised Premises are temporarily closed or darkened incident to or for the purpose of repair, replacement, maintenance and/or cleaning in, on or about the Building or any part or parts thereof Landlord shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefore nor abatement of rent nor shall the same release Tenant from obligations hereunder nor constitute an eviction, provided Landlord uses its best efforts to restore the same, unless caused by Landlord, agent employee or contractor negligence. Tenant shall reimburse and compensate Landlord as additional rent for all expenditures made by, or damages or fines sustained or incurred by Landlord due to Tenant's non-performance or non compliance with or breach or failure to observe any term, covenants or conditions of this Lease, on Tenant's part to be kept, observed, performed or complied with, after notice to Tenant with an opportunity to cure. Landlord shall reimburse and compensate Tenant for all expenditures made by, or damages or fines sustained or incurred by Tenant due to nonperformance of or non-compliance with or breach or failure to observe any terms, covenants or conditions of this tease on Landlord's part to be kept, observed, performed or complied with, after notice to Landlord, with an opportunity to cure. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Building or of defects therein or in any fixtures or equipment of which Tenant has knowledge, provided no liability or obligation shall be imposed upon Tenant for failure to so notify Landlord with respect to the Building and not the Demised Premises. TENANT'S INDEMNITY (B) Except if caused by negligence or willful act of Landlord, its agents, contractors or employees, Tenant shall indemnify and hold harmless Landlord against and from any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations arising from the omission of any Tenant work or thing whatsoever done by Tenant (other than by Landlord or its contractors or the agents or employees of either) in and on the Demised Premise during the term of this Lease and during the period of time, if any, prior to the specified commencement date that Tenant may have been given access to the Demised Premises for the purpose of making installations, and will further indemnify and save harmless Landlord against and from any and all claims arising from any condition of the Demised Premises due to or arising from any willful misconduct or breach of Lease or negligence of Tenant or any of its agents, contractors servants, employees, licensees or invitees and against and from all reasonable costs, expenses, and liabilities incurred in connection with any such claim or claims or action or proceeding brought thereon; and in case any action or proceeding be brought against Landlord by reason of any such claim Tenant, upon notice from Landlord, agrees that Tenant, at Tenant's expense will resist or defend such action or proceeding and will employ counsel therefore LANDLORD'S INDEMNITY (C) Except if caused by negligence or willful act of Tenant, its agents, contractors, employees or invitees, Landlord shall indemnify and save harmless Tenant against and from any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations arising from the omission of any Landlord work or thing whatsoever done by Landlord (other than by Tenant or its agents, contractors or employees of either) in and on the Demised Premises, the common areas and the Building during the term of this Lease and during the period of time, if any, prior to the specified commencement date that Landlord may have had access to the Demised Premises for the purpose making installations, and will further indemnify and save harmless Tenant against and from any and all claims arising from any condition of the Demised Premises due to or arising from any willful misconduct or breach of Lease or negligence of Landlord or any of its agents, contractors or employees and against and from all reasonable costs, expenses, and liabilities incurred in connection with any such claim or claims or action or proceeding brought thereon, and in case any action or proceeding be brought against Tenant by reason of such claim, Landlord, upon nonce from Tenant, agrees that Landlord, at Landlord's expense will resist or defend such action or proceeding and will employ counsel therefore DESTRUCTION - FIRE OR OTHER CASUALTY 35. If the Demised Premises shall be damaged by fire or other casualty Landlord, at Landlords expense, shall promptly repair such damage but in all events, within 120 days of fire or casualty to substantially the same condition as existed prior to such casualty. However, Landlord shall have no obligation to repair any damage to, or to replace, Tenant's personal property or any other property or effect of Tenant except if such fire or casualty was caused by the negligence or willful misconduct of Landlord or its agents, contractors or employees. If the entire Demised Premises shall be rendered untenantable by reason of any such damage, the rent and additional rent shall abate for the period from the date of such damage to the date when such damage shall have been repaired, and if only a part of the Demised Premises shall be so rendered untenantable, the rent and additional rent shall abate for such period in the proportion which the area of the part of the Demised Premises so rendered untenantable bears to the total area of the Demised Premises. However, if, prior to the date when all of such damage shall have been repaired any part of the Demised Premises so damaged shall be rendered tenantable and shall be used or occupied by Tenant or any person or persons claiming through or under Tenant, the amount by which the rent and additional rent shall abate shall be equitably apportioned for the period from the date of any such use or occupancy to the date when all such damage shall have been repaired. Tenant hereby expressly waives the provisions of Section 227 of the New York Real Property Law and of any successor law of like import then in force and Tenant agrees that the provision of this Article shall govern and control in lieu thereof. Notwithstanding the foregoing provisions of this Section, if, prior to or during the Demised Term (i) the Demised Premises shall be totally damaged or rendered wholly untenantable by fire or other casualty, and if Landlord shall decide not to restore the Demised Premises, or (ii) the Building shall be so damaged by fire or other casualty that total alteration, demolition or reconstruction of the Building shall be required, such that restoration would take 120 days or more (whether or not the Demised Premises shall be damaged or rendered untenantable), then, in any such events, Landlord, at Landlord's option, may give to Tenant within forty-five (45) days after such fire or other casualty, a thirty (30) days notice of termination of this lease and, in the event such notice is given, this Lease and the Demised Term shall come to an end and expire (whether or not said term shall have commenced) upon the expiration of said thirty (30) days with the same effect as if fire date of expiration of said thirty (30) days were the Expiration Date, the rent and additional rent shall be apportioned and any prepaid portion of rent and additional rent for any period after such date shall be refunded by Landlord to Tenant In the event that the Demised Premises shall be damaged to such an extent that (i) Tenant reasonably determines that they cannot be restored within ninety (90) days of the occurrence of such damage, or ii) if Landlord does not restore the Demised Premise within said ninety (90) days to substantially the same condition as existed prior to the casualty, Tenant shall have the option of canceling this Lease, on notice to landlord, at the end of such ninety (90) day period, or immediately under (i). SUBROGATION 36. Each of the parties hereto and their successors or assigns hereby waives any and all rights of action against the other party hereto which may hereafter arise for damage to the premises or to property therein resulting from any fire or other casualty of the kind covered by standard fire insurance policies with extended coverage, carried by such respective parties. Both parties agree to obtain and maintain a waiver of subrogation from their respective carrier and to carry insurance covering their respective interests in the Building and the Demised Premises. EMINENT DOMAIN 37. (A) In the event that the whole of the Demised Premises or access thereto or a material part of the parking area is taken without substitution of comparable parking space located within a three (3) block radius of the Building, shall be lawfully condemned or taken in any manner for any public or quasi-public use, this Lease and the term and estate hereby granted shall forthwith cease and terminate as of the date of vesting of title. In the event that a material part of the Demised Premises shall be so condemned or taken, then effective as of the date of vesting of title, rent and additional rent hereunder shall be abated in an amount thereof apportioned according to the area of the Demised Premises so condemned or taken. In the event that a material part of the Building (in excess of 40%) shall be so condemned or taken, then (a) Landlord (whether or not the Demised Premises be affected) may, at its option terminate this Lease and the term and estate hereby granted as of the date of such vesting of title by notifying Tenant in writing of such termination within forty-five (45) days following date on which Landlord shall have received notice of vesting of title, and (b) if such condemnation or taking shall be of a substantial part of the Demised Premises (in excess of 25% of the Demised Premises) or a substantial part (25% or more) of the means of access thereto or of the parking, Tenant shall have the right, by delivery of notice in writing to Landlord within sixty (60) days following the date on which Tenant shall have received notice of vesting of title, to terminate this Lease and the term and estate hereby granted as of the date of vesting of title or, (c) if neither Landlord nor Tenant elects to terminate this Lease, as aforesaid, this Lease shall be and remain unaffected by such condemnation or taking, except that the rent and additional rent shall be abated to the extent, if any, herein above provided in this Article 36. In the event that only a part of the Demised Premises shall be so condemned or taken and this Lease and the term and estate hereby granted are not terminated as hereinbefore provided, Landlord will, at its expense, promptly (but lii all events in less than 120 days) restore the remaining portion of the Demised Premises as nearly as practicable to the same condition as it was in prior to such condemnation or taking. In the event Landlord fails to restore the Demised Premises, Tenant shall have the right, upon ten (10) days' notice to Landlord, to terminate this Lease. (B) In the event of a termination in any of the cases herein above provided, this lease and the term and estate granted shall expire as of the date of such termination with the same effect as if that were the date hereinbefore set forth for the expiration of the term of this Lease, and the rent and additional rent hereunder shall be apportioned as of such date. (C) In the event of any condemnation or taking herein above mentioned of all or a part of the Building, Landlord shall be entitled to receive the entire award made for the value of the estate vested by this Lease in Tenant, except that the Tenant may file a claim for any taking of removable fixtures owned by Tenant and for moving expenses incurred by Tenant. WASTE 38. Tenant will not do or suffer any waste or damage, disfigurement or injury to the Building or any part thereof. CERTIFICATE OF OCCUPANCY 39. Tenant will not at any time use or occupy the Demised Premises in violation of the Certificate of Occupancy (temporary or permanent) issued for the Building or portion thereof of which the Demised Premises form a part. If Tenant does not use the premises in accordance with the Certificate of Occupancy, such shall constitute a default hereunder upon notice of default and fifteen (15) days notice to cure. This Article is without prejudice to Landlord's rights by reason of Tenant's default or as otherwise set forth herein and without obligation on the part of the Landlord to recompense Tenant. Nothing herein this Article 39 shall relieve Tenant of its obligation to pay base rent and additional rent for the term hereof. Landlord represents that the permitted use described in paragraph four (4) does not violate the Certificate of Occupancy and will furnish a copy of same to Tenant. DEFAULT 40. (A) Upon the occurrence, at any time prior to or during the Demised Term of any one or more of the following events (referred to as "Events of Default"): (i) If Tenant shall default in the payment when due of any installment of rent or in the payment when due of any additional rent, and such default shall continue for a period of fifteen (15) days after notice by Landlord to Tenant of such default; or (ii) If Tenant shall default in the observance or performance of any term, covenant or condition of this Lease on Tenant's part to be observed or performed (other than the covenants for the payment of rent and additional rent) and Tenant shall fail to remedy such default within thirty (30) days after notice by Landlord to Tenant of such default, or if such default is of such a nature that it cannot be completely remedied within said period of thirty (30) days and Tenant shall not commence curing such default within said period of thirty (30) days, or shall not thereafter diligently prosecute to completion all steps necessary to remedy such default; or (iii) If Tenant shall file a voluntary petition in bankruptcy or insolvency, or shall be adjudicated bankrupt or become insolvent or shall file any petition seeking any reorganization, arrangement, composition, readjustment, liquidation dissolution or similar relief under the present or any future federal bankruptcy act or any other present or future applicable federal, state or other statute of law, or shall make an assignment for the benefit of creditors or shall seek or consent to, or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of all or any part of Tenant's property; or (iv) If within seventy-five (75) days after the commencement of any proceeding against Tenant, whether by the filing of a petition or otherwise seeking any reorganization, arrangement composition, liquidation, dissolution or further relief under the present or any future federal bankruptcy act or any other present or future applicable federal, state or other statute or law, such proceedings shall not have been dismissed, or if within seventy-five (75) days after the appointment of any trustee, receiver or liquidator of Tenant or of all or any part of Tenant's property, without the consent or acquiescence of Tenant such appointment shall not have been vacated or otherwise discharged, or if any execution or attachment shall be issued against Tenant or any of Tenants property pursuant to which the Demised Premises shall be taken or occupied or attempted to be taken or occupied and not dismissed within seventy-five (75) days; or (v) If the Demised Premises shall become vacant, deserted or abandoned and Tenant ceases to pay rent; or (vi) If Tenant's interest in this Lease shall devolve upon or pass to any person, whether by operation of law or otherwise, except as expressly permitted under Article 31; then upon the occurrence, at any time prior to or during the Demised Term, of any one or more of such Events of Default, Landlord, at any time thereafter, at Landlord's option, may give to Tenant a five (5) days notice of termination of this Lease after fifteen (15) days notice to cure said default during which period there was no cure and, in the event such notice is given, this Lease and the Demised Term shall come to an end and expire (whether or not said term shall have commenced) upon the expiration of said five (5) days with the same effect as if the date of expiration of said five (5) days were the Expiration Date but Tenant shall remain liable for damages as provided in Article 43 Any monies received by Landlord from or on behalf of Tenant during the pendency of any proceeding of the types referred to in said subsections (iii) and (iv) shall be deemed paid as compensation for the use and occupancy of the Demised Premises and the acceptance of any such compensation by Landlord shall not be deemed a waiver on the part of Landlord of any rights under this Article 40 (B) In the event Landlord shall default in the performance of or observance of any material term, covenant or condition of this lease on Landlord's part to be performed and Landlord shall fail to remedy such default within thirty (30) days after notice by Tenant to Landlord of such default, or if such default is of such a nature that it cannot be completely remedied within said period of thirty (30) days and landlord shall not commence curing such default within such thirty (30) days, or shall not thereafter diligently prosecute to completion the cure of such default then, in such event, Tenant shall have the right to pursue whatever remedies it may have under this Lease or all rights and remedies at law or in equity to which Tenant may be entitled 41. (A) 1f Tenant shall default in the payment when due of any installment of rent or in the payment when due for any additional rent and such default shall continue for a period of fifteen (15) days after notice by Landlord to Tenant of such default or if this Lease and the Demised Term shall expire and come to an end as provided in this Article 41. i. Landlord and its agents and servants may immediately or at any time after such Event of Default or after the date upon which the Lease and the Demised Term shall expire and come to an end, re-enter the Demised Premises or any part thereof, with notice, only by summary proceedings or by any other applicable action or proceeding and after obtaining an order of a court of competent jurisdiction authorizing same, and may repossess the Demised Premises and dispossess Tenant and any other persons from the Demised Premises and remove any and all of their property and effects from the Demised Premises; and ii. Landlord at Landlord's option, may relet the whole or any part or parts of the Demised Premises from time to time either in the name of Landlord or otherwise, to such tenant or tenants, for such term or terms ending before, on or after the Expiration Date at such rental or rentals and upon such other conditions, which may include concessions and free rent periods, as Landlord, in its reasonable discretion, may determine. Landlord shall have use commercially reasonable efforts to relet the Demised Premises or any part thereof but shall in no event be liable for refusal or failure to relet the Demised Premises or any part thereof, where such refusal was commercially reasonable under the circumstances, or, in the event of any such reletting, for refusal or failure to collect any rent due upon any such reletting, and no such refusal or failure shall operate to relieve Tenant of any liability under this Lease where such refusal was commercially reasonable under the circumstances. Provided Landlord treats the Demised Premises, like the balance of its available space inventory, Landlord at Landlord's option, may make such repairs, replacements, alterations, additions, improvements, decorations and other physical changes in and to the Demised Premises as Landlord, in its reasonable discretion considers advisable or necessary in connection with any such reletting without relieving Tenant of any liability under this Lease or otherwise affecting any such liability. Landlord shall use commercially reasonable efforts to relet the Demised Premises. (B) Tenant, on its own behalf and on behalf of all persons claiming through or under Tenant, including all creditors, does hereby waive any and all rights which Tenant and all such persons might otherwise have under any present or future law to redeem the Demises Premises, or to reenter or repossess the Demised Premises, or to restore the operation of this Lease, after (i) Tenant shall have been dispossessed by a judgement or by warrant of any court or judge or (ii) and re-entry by Landlord, or (iii) any expiration or termination of this Lease and the Demised Term, whether such dispossess, re-entry, expiration or termination shall be by operation of law or pursuant to the provisions of this Lease. SPRINKLERS 42. Anything elsewhere in this Lease to the contrary notwithstanding, if the New York Board of Fire Underwriters or New York Fire Insururance Exchange or any bureau, department, official of the federal, state or city government 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 solely by reason of Tenant's business, or if any such sprinkler system installations changes, 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 any fire insurance company, Tenant shall, at Tenant's expense, promptly make such sprinkler system installations, change, modifications, alterations, and supply additional sprinkler heads or other equipment as required. DAMAGES 43. (A) If this Lease and the Demised Term shall expire and come to an end as provided in Article 27 or by or under any summary proceeding, or any other action or proceeding or if Landlord shall re-enter the Demised Premises as provided in Article 40 by or under any summary proceedings or any other action or proceeding then in any of said events: i. Tenant shall pay to Landlord all rent, additional rent and other charges payable under this Lease by Tenant to Landlord to the date upon which this Lease and the Demised Term shall have expired and come to an end or to the date of re-entry upon the Demised Premises by Landlord, as the case maybe; and ii. Tenant shall also be liable for, and shall pay to Landlord, as liquidated and agreed final damages, any deficiency (referred to as "Deficiency") which is the sum equal to the amount by which the rent and additional rent reserved in the Lease for the period which otherwise would have constituted the unexpired portion of the Demised Term (excluding any unexercised extension option) exceeds the net amount, if any, of rents collected under any re letting effected pursuant to the provision of Section 41(A) for any part of such period (first deducting from the rents collected under any such re-letting all of Landlord's reasonable and actual expenses regarding such re-letting including, but not limited to, all repossession costs, brokerage commissions, reasonable legal expenses reasonable attorneys' fees, alteration costs and other expenses of preparing the Demised Premises for such re-letting). Any such Deficiency shall be paid in monthly installments by Tenant on the days specified in this Lease for payment of installments of rent. Landlord shall be entitled to recover from Tenant each monthly Deficiency as the same shall arise, and no suit to collect the amount of the Deficiency for any month shall prejudice Landlord's rights to collect the Deficiency for any subsequent month by a similar proceeding. (B) If the Demised Premises, or any part thereof, shall be relet together with other space in the Building, the rent collected or reserved under any such re-letting and the expenses of any such re-letting shall be equitably apportioned for the purpose of this Article 43. Tenant shall in no event be entitled to any rents collected or payable under any re-letting, whether or not such rents shall exceed the rent reserved in this Lease. Solely for the purposes of this Article, the term "rent" as used in Section 43 A shall mean the rent in effect immediately prior to the date upon which this Lease and the Demised Term shall have expired and come to an end, or the date of re-entry upon the Demised Premises by Landlord, as the case may be, plus any additional rent payable pursuant to the provisions of Article 17A (i) immediately preceding such event. SUMS DUE LANDLORD 44. (A) If Tenant shall default after notice and the expiration of any applicable cure period, in the performance of any covenants on Tenant's part to be performed in this Lease contained, Landlord may immediately, or at any time thereafter, after thirty (30) days notice, perform the same for the account of the Tenant, except in an emergency. If Landlord at any time is compelled to pay or elects to pay any sum of money, or do any act which will require the payment of any sum of money, by reason of the failure of Tenant to comply with any provision hereof, or, if Landlord is compelled to do or does incur any reasonable expense including reasonable attorney's fees, instituting, prosecuting and/or defending any action or proceeding instituted by reason of any default of Tenant hereunder, the sum or sums so paid by Landlord with all interest and reasonable costs, shall be deemed to be additional rent hereunder and shall be due from Tenant to Landlord on the first day of the month following the incurring of such respective expenses, or at Landlords option on the first day of any subsequent month. Any sum of money (other than rent) accruing from Tenant to Landlord pursuant to Schedule "C", whether prior to or after the Term Commencement Date, may, at Landlord's option, be deemed additional rent, and Landlord shall have the same remedies for Tenant's failure to pay any item of additional rent when due as for Tenants failure to pay any installment of rent when due. Tenant's obligations under this Article shall survive the expiration or sooner termination of the Demised Term. In any case in which the base rent or additional rent is not paid within fifteen (15) days of notice that it was not paid upon the day when same is due, Tenant shall pay a late charge equal to 5 cents for each dollar so due (B) If Landlord shall default, after notice from Tenant and the expiration of thirty (30) days, except in the event of an emergency, in which case Tenant shall only be obligated to provide such notice as is reasonable under the circumstances, in any of its obligations or covenants on Landlord's part to be performed in this Lease contained, Tenant may immediately (but shall be under no obligation to) perform the same for the account of Landlord. If Tenant at any time is compelled to pay or elects to pay any reasonable sum of money by reason of failure of Landlord to comply with any provision hereof, or if Tenant is compelled to do or does incur any reasonable expense including reasonable attorneys fees instituting, prosecuting and/or defending any action or proceeding instituted by reason of a default by Landlord hereunder, the sum or sums shall be due from Landlord to Tenant on the first day of the month following the incurring of such expenses and Tenant shall have the right to offset such amounts against the next installments of basic rent due and payable hereunder. Landlord's obligations hereunder shall survive the expiration or termination of this Lease. Amounts not paid to Tenant hereunder within fifteen (15) days of the due date shall bear interest at Lease Interest Rate. NO WAIVER 45. (A) No act or thing done by Landlord or Landlord's agents during the term hereby demised shall be deemed an acceptance or surrender of said Demised Premises and no agreement to accept such surrender of the Demised Premises shall be valid unless in writing signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys of said Demised Premises prior to the termination of this Lease. The delivery of keys to any employee of Landlord or of Landlord's agents shall not operate as a termination of this Lease or a surrender of the Demised Premises. In the event of Tenant at any time desiring to have Landlord under let the Demised Premises for Tenant's account, Landlord or Landlord's agents are authorized to receive said keys for such purposes without releasing Tenant from any liability for loss of or damage to any of Tenants effects in connection with such under letting, except if due to Landlord negligence. The failure of either party to seek redress for violation of, or to insist upon the strict performance of, any covenants or conditions of this Lease, or any of the Rules and Regulations annexed hereto and made part hereof or hereafter reasonably adopted by Landlord, 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 failure by Landlord to enforce any of the Rules and Regulations annexed hereto and made part hereof, or hereafter reasonably adopted, against Tenant and/or any other tenant in the Building shall not be deemed a waiver of any such Rules and Regulations. No provision of this Lease shall be deemed to have been waived by Landlord or Tenant, unless such waiver be in writing signed by Landlord and Tenant. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided. (B) Landlord's failure to timely render a Landlord's Statement with respect to any Escalation Year Per Article 18 shall not prejudice Landlord's right to render a Landlord's Statement with respect to any Escalation Year, provided such statement is rendered within twenty-four (24) months of the end of the Escalation Year. The obligation of Landlord and Tenant under the provisions of Article 18 with respect to any additional rent payable by Tenant thereunder for any Escalation Year shall survive thc expiration or any sooner termination of the Demised Term, for two (2) years after the term of this Lease. WAIVER OF TRIAL BY JURY 46. To the extent such waiver is permitted by law, Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by Landlord or Tenant against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, the use or occupancy of the Demised Premises by Tenant or any person claiming through or under Tenant, any claim of injury or damage, and any emergency or other statutory remedy, except personal injury claim. The provisions of the foregoing sentence shall survive the expiration or any sooner termination of the Demised Term. If Landlord commences any summary proceeding for nonpayment of rent, Tenant agrees not to interpose any non-compulsory counterclaim of whatever nature or description in any such proceeding. Nothing herein shall prohibit Tenant from bringing a separate action against the Landlord. BILLS AND NOTICES 47. Except as otherwise expressly provided in this Lease, any bills, statements, notices, demands, requests or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing, sent by Registered or Certified Mail (return receipt requested), addressed (A) to Tenants at Tenant's address set forth in this Lease if mailed prior to Tenant's taking possession of the Demised Premises, and to (B) Landlord at Landlord's address set forth in this Lease, with a copy to (C) Mihos & Karabelas, Esqs., 2818 31St Street, Suite 202, Astoria, New York 11102 or (D) addressed to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Article. Any such bills, statements, notices, demands, requests or other communications shall be deemed to have been rendered or given on the date when it shall have been mailed as provided in this Article. INABILITY TO PERFORM 45. (A) If by reason of strikes or other labor disputes, fire or other casualty, accidents orders or regulations of any Federal, State, County or municipal authority or any other cause beyond Landlord's reasonable control, whether or not such other cause shall be similar in nature to those hereinbefore enumerated, Landlord is unable to furnish or is delayed in furnishing any utility or service required to be furnished by Landlord under the provisions of this Lease or any collateral instrument, or is unable to perform or make or is delayed in performing or making any installations, decorations, repairs, alterations, additions or improvements, whether or not required to be performed or made under this Lease or under any collateral instrument, or is unable to fulfill or is delayed in fulfilling any of Landlord's other obligations under this Lease, or any collateral instrument, no such inability or delay shall constitute an actual or constructive eviction, in whole or in part or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or its agents by reasons of the inconvenience or annoyance to Tenant, or injury to, or interruption of Tenant's business, or otherwise, but only for so long a. such force majeure conditions exist provided, however that in the event such condition renders the Demised Premises untenantable, Tenant shall be entitled to a rental abatement for the period in which such condition exists. If Tenant is unable to fulfill its obligations hereunder by reason of the conditions specified in this Section 48A Tenant shall not be deemed to be in default hereunder by reason thereof. INTERRUPTION OF SERVICE (B) Landlord reserves the right to stop the services of the air conditioning, elevator, escalator, plumbing, electrical or other mechanical systems or facilities in the Building when necessary by reason of accident or emergency, or for repairs, alterations, replacements or improvement, which, in the reasonable judgement of Landlord are necessary, until said repairs, alterations, replacements or improvements shall have been completed, provided Landlord (i) uses its best efforts to restore such services as quickly as possible and (ii) perform such work at times and in a reasonable manner so as to minimize interference with Tenant's business. The exercise of such rights by Landlord shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or its agents by reason of inconvenience or annoyance to Tenant or injury to or interruption of Tenant's business or otherwise except if due to the negligence of Landlord, its agents, contractors or employees. Notwithstanding the aforementioned, if the interruption of services continues for more than five (5) days, Tenant will receive a rent abatement for each day services are interrupted. If the interruption of services continues for more than fifteen (15) days, Tenant may cancel this Lease CONDITIONS OF LANDLORD'S LIABILITY (C) i. Tenant shall not be entitled to claim a constructive eviction from the Demised Premises unless Tenant shall have First notified Landlord of the condition or conditions giving rise thereto, and unless Landlord shall have failed to remedy such condition within a reasonable time after receipt of such notice, ii. If Landlord shall be unable to give possession of the Demised Premises on any date specified for the commencement of the term by reason of the fact that the premises have not been sufficiently completed to make the premises ready for occupancy, or for any other reason which is not the fault of the Landlord, Landlord shall not be subject to any liability for the failure to give possession on said date, nor shall such failure in any way affect the validity of this Lease or the obligations of Tenant hereunder. iii. Notwithstanding the aforementioned, in the event Landlord shall be unable to give possession to the Demised Premises within one hundred twenty (120) days after execution of this Lease, Tenant at its sole option may terminate this Lease which time period shall be extended to the extent any such delays are directly attributable to the Tenant. TENANT'S TAKING POSSESSION (D) i. Tenant by entering into occupancy of the premises shall be conclusively deemed to have agreed that Landlord up to the time of such occupancy had performed all of its obligations hereunder and that the premises were in satisfactory condition as of the date of such occupancy, except for latent defects, and punch list items of which Tenant shall have given written notice to Landlord within ninety (90) days of occupancy specifying such punch list items, all of which shall be promptly repaired by Landlord ii. If Tenant shall use or occupy all or any part of the Demised Premises for the conduct of business prior to the Term Commencement Date, such use or occupancy shall be deemed to be under all of the terms, covenants and conditions of this Lease, excluding the covenant to pay rent and additional rent except those charges payable pursuant to Schedule 'C' hereof, for the period from the commencement of said use or occupancy to the Term Commencement Date. ENTIRE AGREEMENT 49. This Lease contains the entire agreement between the parties and all negotiations and agreements are merged herein, except as set forth herein. Neither party has made any representations or statements, or promises, upon which the other has relied regarding any matter or thing relating to the Building, (including the parking area) or the Demised Premises, or any other matter whatsoever, except as is expressly set forth in this Lease, including but without limiting the generality of the foregoing, any statement, representation or promise as to the fitness of the Demised Premises for any particular use, the services to be rendered to the Demised Premises or the prospective amount of any item of additional rent. No oral statement, representation or promise whatsoever with respect to the foregoing or any other matter made by Landlord or Tenant, their agents or any broker, whether contained in an affidavit, information circular, or otherwise shall be binding upon the Landlord or Tenant unless licenses are or shall be acquired by Tenant by implication or otherwise or unless expressly set forth in this Lease. This Lease may not be changed, modified or discharged, in whole or in part, orally and no agreement shall be effective to change, modify or discharge, in whole or in part, this Lease or any obligation under this Lease, unless such agreement is set forth in a written instrument executed by the party against whom enforcement of the change, modification or discharge is sought. All references in this Lease to the consent or approval of Landlord shall be deemed to mean the written consent of Landlord, or the written approval of Landlord, as the case may be, and no consent or approval of Landlord shall be effective for any purpose unless such consent or approval is set forth in a written instrument executed by Landlord. Landlord's consent or approval shall in no events, under any of the provisions of the Lease be unreasonably withheld or denied. VAULT, VAULT SPACE, AREA 50. 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, blueprint or plan, or anything contained elsewhere in this Lease to the contrary notwithstanding. Landlord 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 Landlord 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, provided Tenant continues to use or occupy same. SECURITY 51. Tenant shall deposit with Landlord the sum of $80,000.00 as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this Lease; it is agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of this Lease, including, but not limited to the payment of rent and additional rent, Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which Tenant is in default or for any sum which Landlord expended 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 re-letting of the premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Landlord. In the event that Tenant shall fully and faithfully comply with all the terms, provisions, covenants and conditions of this Lease, the security with the interest thereon, if any, to which the Tenant is entitled shall be returned to Tenant promptly after the date fixed as the end of the Lease and after delivery of entire possession of the Demised Premises to Landlord. In the event of a sale of the land and building or leasing of the building, of which the Demised Premises form a part, Landlord shall have the right to transfer the security to the vendee or lessee and Landlord shall thereupon be released by Tenant from all liability for the return of such security; and Tenant agrees to look solely to the new landlord for the return of said security; and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new landlord. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. For purposes of recording security, Tenant's I.D. number is:_______________________. In the event Tenant is not in default of this Lease beyond any applicable cure period, Landlord shall apply $40,000.00 of the security towards Tenant's rental payment due for the 13th month of this Lease. Thereafter, if Tenant is not in default of this Lease beyond any applicable cure period, Landlord shall apply the remaining $40,000.00 towards Tenant's rental payment due for the 25th month of this Lease. Tenant shall pay Landlord the difference in the rental payment due for the 13th and 25th month(s) at the time such payments become due hereunder. DEFINITIONS 52. The term "Landlord" as used in this Lease means only the owner, 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 the Building, or of the land and Building, the said Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder accruing after the date of such sale or lease, and it shall be deemed and construed as a covenant running with the land without further agreement between the parties or their successors in interest, or between the parties and the purchaser, at any sale, or the lessee of the Building, or of the land and Building, that the purchaser or the lessee of the Building assumes and agrees to carry out any and all covenants and obligations of Landlord hereunder. The words "re-enter" and "re-entry", and "re-entered" as used in this Lease are not restricted to their technical legal meanings. The term "business days" as used in this Lease shall exclude Saturdays (except such portion thereof as is covered by specific hours in Article 5 hereof), Sundays and all days observed by State or Federal Government as legal holidays (which shall not include days when the New York Stock Exchange is open for trading). The terms 'person" and "persons" as used in this Lease shall be deemed to include natural persons, firms corporations, associations and any other private or public entities, whether any of the foregoing are acting on their behalf or in a representative capacity PARTNERSHIP TENANT 53. If Tenant is a partnership (or is comprised of two (2) or more persons, individually and as co-partners of a partnership) or if Tenant's interest in this Lease shall be assigned to a partnership (or to two (2) or more persons individually and as co-partners of a partnership) pursuant to any provision herein, (any such partnership and such persons are referred to in this section as "Partnership Tenant"), the following provisions of this Section shall apply to such Partnership Tenant; (a) the liability of each of the parties comprising Partnership Tenant shall be joint and several and (b) each of the parties comprising Partnership Tenant hereby consents in advance to, and agrees to be bound by, any modifications of this Lease which may hereafter be made and by any notices, demands requests or other communications which may hereafter be given by Partnership Tenant or by any of the parties comprising Partnership Tenant, and (c) any bills, statements, notices, demands, requests and other communications given or rendered to Partnership Tenant or to any of the parties comprising Partnership Tenant shall be deemed given or rendered to Partnership Tenant and to all parties comprising partnership tenant and shall be binding upon Partnership Tenant and all such parties, add (d) if Partnership Tenant shall admit new general partners, all of such new partners shall, by their admission to Partnership Tenant be deemed to have assumed performance of all of the terms covenants and conditions of this Lease on Tenant's part to be observed and performed, and (e) Partnership Tenant shall give prompt notice to Landlord of the admission of any such new partners. SUCCESSORS, ASSIGNS, ETC 54. The covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and their respective heirs, distributees, executors, administrators, Successors, and except as otherwise provided in this Lease their respective assigns APPLICATION OF INSURANCE PROCEEDS, WAIVER OF SUBROGATION 55. In any case in which Tenant shall be obligated under any provisions of this Lease to pay to Landlord any loss, cost, damage, liability or expense, provided that the allowance of such offset does not invalidate or prejudice the policy or policies, Landlord shall allow to Tenant as an offset against the amount thereof the net proceeds of any insurance collected by Landlord for or on account of such loss, cost, damage, liability or expense, provided that the allowance of such offset does not invalidate or prejudice the policy or policies under which such proceeds were payable. BROKER 56. Both parties represent and warrant that Alma Realty Co was the sole Broker brought about this transaction. Tenant agrees to indemnify and hold Landlord harmless from any claims of any other Broker with respect to this Lease. Landlord agrees to pay Broker pursuant to separate agreement and to indemnify and hold Tenant harmless from any claims of any other broker with respect to this Lease. CAPTIONS 57. The captions are included 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 provisions thereof. NONLIABILITY OF LANDLORD 58. If Landlord or a successor in interest is an individual (which term as used herein includes aggregates of individuals, such as joint ventures, general or limited partnerships or associations) such individual shall be under no personal liability with respect to any of the provisions of this Lease, and if such individual hereto is in breach or in default with respect to its obligations under this Lease, Tenant shall look solely to the equity of such individual in the land and Building of which the Demised Premises form a part for the satisfaction of Tenant's remedies and in no event shall Tenant attempt to secure any personal judgement against any partner, employee or agent of Landlord by reason of such default by Landlord RIGHT OF FIRST REFUSAL 59. Provided that Tenant is not then in default of any of the covenants of this Lease, Landlord hereby grants to Tenant during the term of this Lease, the right of first refusal to lease from Landlord any space located in the Building which becomes vacant and available. Tenant shall have fifteen (15) days after notice from Landlord to accept the vacant space pursuant to Landlord's terms and conditions which shall be no less favorable than the terms being offered to a third party. GOVERNING LAW 60. This Lease shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. JURISDICTION 61. For purposes of settling any and all disputes hereunder, each party hereto submits itself to the personal jurisdiction of any court1 federal or state, sitting in the State of New York, hereby waives all objections to the venue of any such court and further hereby waives trial by jury. IN WITNESS WHEREOF, Landlord and Tenant have respectively signed this Lease as of the day and year first written above Witness for Landlord: Golden Union, LLC Landlord by: /George Mitropoulos/ - ------------------------- ---------------------------- Cooper Enterprises, Inc. Member George Mitropoulos, President Witness for Tenant PHONETIME, INC. Tenant by: /Sam Tawfik/ - ------------------------- ---------------------------- Sam Tawfik, CEO President EX-10.64 13 EXHIBIT 10.64 Exhibit 10.64 OFFICE LEASE AGREEMENT OF LEASE, MADE THE DAY OF OCTOBER, 1997, BETWEEN EVERGREEN AMERICA CORPORATION, a New Jersey Corporation, (hereinafter called the "Landlord") and PT-1 COMMUNICATIONS, INC., "Tenant", as hereinafter defined. ARTICLE I -- CERTAIN TERMS 1.01 The following terms shall have the meanings set forth opposite each of them, then provided that if "None" is set forth opposite any term, then the provision of the Lease applicable to such term shall be considered deleted and of no force and effect. "TENANT" - a corporation organized under the laws of the State of New York, and authorized to do business in the State of New Jersey having its principal office at 30-50 Whitestone Expressway, Whitestone, New York 11354 "TERM" -- The period beginning on the Commencement Date and ending at noon on the Expiration Date. "COMMENCEMENT DATE" -- January 1, 1998 or sixty (60) days from the signing of this Lease, whichever is sooner. "EXPIRATION DATE" -- The last day of the calendar month in which occurs the end of a ten (10) year period from the Commencement Date (if the Commencement Date shall occur on a day other than the first day of a calendar month such period shall run and be measured from the first day of the calendar month following the Commencement Date) or ending on an earlier date on which this Lease may expire or be cancelled or terminated pursuant to the terms of this Lease. "FIXED RENT" -- Years One (1) through Five (5) One Hundred Forty Seven Thousand Four Hundred Sixty Eight Dollars ($147,468.00) per year, payable in monthly installments of $12,289.90, (as adjusted in accordance with this Lease). Years Six (6) through Ten (10) - One Hundred Sixty Four Thousand One Hundred Sixty Dollars ($164,160.00) per year, payable in monthly insta1lments of $l3,680.00, (as adjusted in accordance with this Lease). "BUILDING" The Building located in the city of Jersey City, County of Hudson and State of New Jersey and known as One Evertrust Plaza, Jersey City, New Jersey. "DEMISED PREMISES" - That space on the twelfth (12th) floor of the Building delineated on the floor plan attached hereto as Exhibit A, the total area of which is the Tenant's Floor Space. "TENANT'S FLOOR SPACE" -- The total number ot square feet of space in the Demised Premises, which, for purposes of this Lease, the parties agree and stipulate is 5,565 square feet. "TOTAL BUILDING FLOOR SPACE" -- The total number of square feet of space in the Building, which, for purposes of this Lease, the parties agree and stipulate is 314,503 square feet. "TENANT'S SHARE" -- 1.77%; which is the percentage resulting from dividing the Tenant's Floor Space by the Total Building Floor Space. "SECURITY DEPOSIT" -- $24,578.00 deposited pursuant to Article 15 hereof. "PERMITTED USE" - Telecommunication equipment site. "A.C. CHARGE" -- $75.00 per hour for additional air conditioning pursuant to Article 8.01 hereof. "H. CHARGE" -- $75.00 per hour additional heating pursuant to Article 8.01 hereof. "BROKER" -- Dolan Realty, Inc. and Archie Schwartz company which Tenant represents and warrants are the only Brokers with whom it has dealt in this transaction, and based thereupon Landlord agrees to pay a brokerage commission in accordance with a separate agreement between Landlord and Brokers. "REGULAR BUSINESS HOURS" -- 8:00 a.m. to 6:00 p.m. Monday through Friday; 8:30 a.m. to l2:30 p.m. on Saturday, except where such days are observed by the Federal or the New Jersey State government as legal holidays, or as union holidays. "NUMBER OF PARKING SPACES" - Tenant shall have the right to lease three (3) exterior parking spaces at additional rent of $125.00 for each parking space, payable monthly. Notwithstanding the foregoing, Landlord may increase the rent for exterior parking spaces from time to time during the term of this Lease after the first year of the Term of this Lease. In the event Landlord builds a parking structure, Tenant's parking shall be relocated to such parking structure and Tenant shall have the right to lease up to the same number of exterior parking spaces leased by Tenant prior to the building of the parking structure at additional rent as determined by Landlord for each parking space, payable. monthly. Notwithstanding the foregoing, Landlord may increase the rent for parking spaces in a parking structure from time to time during the term of this Lease after the first year of operation of the parking structure. 1.02 Electrical energy consumed by Tenant in the Demised Premises through wall and floor outlets, for lighting and business equipment shall be purchased by Tenant as provided in article 7. ARTICLE 2 - DEMISED PREMISES 2.01 Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the Demised Premises for the Term, for the rents hereinafter reserved and upon and subject to the conditions (including limitations, restrictions and reservations) and covenants hereinafter provided. Each party hereto agrees to observe and perform a11 of the conditions and covenants herein contained on its part to be observed and performed. 2.02 The general location, substantially the size and layout of the Demised Premises are outlined on Exhibit A, but Exhibit A shall not be deemed to be a warranty, representation or agreement on the part of Landlord that the Demised Premises and the Building will be exactly as indicated on exhibit A. 2.03 Nothing herein contained shall be construed as a grant or demise by Landlord to Tenant of the roof or exterior walls of the Building, of the space above and below the Demised Premises, of the parcel of land on which the Demised Premises are located, and/or of any parking or other areas adjacent to the Building. ARTICLE 3 -- PREPARATION OF THE DEMISED PREMISES 3.01 Tenant shall cause to be substantially performed all the work in the Demised Premises as set forth in Exhibit C annexed hereto and hereby made a part hereof (the "Work"), upon the terms and conditions specified therein, at Tenant's sole cost and expense. All of Tenant's duties and obligations set forth in Article 12 (relating to Tenant's duties and obligations in making Tenant's Changes) shall be applicable to and binding upon Tenant with respect to any such work. 3.02 Prior to the commencement of Tenant's work, Tenant shall furnish to Landlord final plans, specifications and drawings for approval by Landlord, which approval shall not be unreasonably withheld or delayed, and upon Landlord's written approval shall be attached hereto as Exhibit C. 3.03 Upon the signing of this Lease by all parties and the payment of the Security Deposit, Tenant shall be allowed access to the Demised Premises to perform Tenant's work to prepare the Demised Premises for Tenant's occupancy. ARTICLE 4-- WHEN DEMISED PREMISES ARE DEEMED READY FOR OCCUPANCY AND COMMENCEMENT DATE 4.01 On the Commencement Date or at such time as Tenant shall take actual possession of the whole or part of the Demised Premises, whichever shall be earlier, it shall be conclusively presumed that the same were as of the Commencement Date or the date or dates of such taking of possession, in the condition in which Landlord was required to deliver the Demised Premises under this Lease, unless within thirty (30) days after such date Tenant shall have given Landlord notice specifying in which respects the Demised Premises were not in satisfactory condition. However, nothing contained in this Section shall be deemed to relieve Landlord from, and Landlord shall perform its obligation to complete, with reasonable speed and diligence, such details of construction, mechanical adjustment and decoration, if any, as Landlord shall be required to perform under this Lease and as shall have been unperformed at the tine Tenant took actual possession, but Tenant shall not be entitled to any rent abatement on account of any such incomplete work. 4.02 Unless the Commencement Date is a date certain specified in Article 1 hereof, on the Commencement Date Landlord and Tenant shall execute and deliver to each other duplicate originals of a Commencement Date Statement, which shall specify the Commencement and Expiration Dates of the Term. Upon execution and delivery, the Commencement Date Statement shall be deemed a part of this Lease. 4.03 If prior to the Commencement Date, Tenant shall enter the Demised Premises to make any installations of its equipment, fixtures and furnishings, Landlord shall have no liability or obligation for the care or preservation of Tenant's property and Tenant shall not interfere with Landlord or Landlord's contractors. 4.04 Landlord agrees to provide access by the telephone company during the course of construction to permit Tenant's installation of telephones. Notwithstanding the foregoing, the parties agree that the failure by the telephone company to complete the telephone installation and to provide service on the date that the Demised Premises are otherwise substantially complete (as hereinabove defined) or occupied by Tenant1 shall not delay or defer the determination of the Commencement Date and the obligation to pay rent thereafter. ARTICLE 5 -- RENT 5.01 Tenant shall pay to Landlord without notice or demand and without abatement, deduction or set-off, in lawful money of the United States of America, at the office of the Landlord as set forth in Article l hereof, or at such other place as landlord may designate, the Fixed Rent reserved under this Lease for each year of the Term, payable in equal monthly installments in advance on the first day of each and every calendar month during the Term; and additional rent consisting of all such other sums of money as shall become due from and payable by Tenant to Landlord hereunder (for default in payment of which Landlord shall have the same remedies as for a default in payment of Fixed Rent). 5.02 Tenant shall pay the Fixed Rent and additional rent herein reserved promptly as and when the same shall become due and payable under this Lease and shall be liable to the Landlord for an administrative charge of 4% for rent paid five (5) days subsequent to the date set in Article 5.01. If the Commencement Date shall occur on a day other than the first day of a calendar month the Fixed Rent and additional rent shall be prorated for the period from the Commencement Date to the last day of the said calendar month and shall be due and payable on the Commencement Date. Notwithstanding the provisions of the next preceding sentence, Tenant shall pay on account toward the first full calendar month installment(s) of Fixed Rent, on the execution of this Lease, the Rent Prepayment specified in Article 1 hereof. 5.03 Whenever used in this Lease, the term (insofar as it pertains to this Lease) "fixed rent", "minimum rent", "base rent", or "basic rent", or any such term using the word "rental", "rents", or "rentals" in lieu of "rent", shall mean Fixed Rent; and whenever used in this Lease, the term (insofar as it pertains to this Lease) "rent", "rental", "Rent" or the plural of any of them, shall mean Fixed Rent and additional rent. ARTICLE 6 -- EXPENSE ESCALATION 6.01 Tenant shall pay to Landlord, as additional rent, Expense Escalation in accordance with this Article: A. Definitions: for the purpose of this Article, the following definitions shall apply: (i) The term "Expense Base Factor" shall mean the Expenses as hereinafter defined for the calendar year 1998. (ii) The term "comparative year" shall mean the full calendar year in which the terra of this Lease commences, and each subsequent calendar year during the Term of this Lease. (iii) The term "Expenses shall mean the total of all the costs and expenses incurred or borne by Landlord with respect to the operation and maintenance of the Building and the services provided tenants therein including, but not limited to, the costs and expenses incurred for and with respect to: water rates and sewer rents; air-conditioning, ventilation and heating; any and all electricity costs for common areas, exclusive of meeting rooms and the cafeteria; maintenance of the Building's exterior surfaces; elevator cabs, lobby maintenance and cleaning; protection and security; lobby decoration and interior and exterior landscape maintenance; repairs, replacements and improvements which are appropriate for the continued operation of the Building as a first-class office Building; maintenance; painting of non-tenant areas; insurance; supplies; employee salaries and benefits; administrative expenses; and the annual fee for management of the Building. The term Expenses shall also include any increases in payments in lieu of taxes or service charges that may be made by Landlord pursuant to the Financial Agreement between Landlord and the city of Jersey City entered into as part of the Fox Lance Tax Abatement granted to landlord for the Building in excess of the payments made in lieu of taxes or service charges for the first year of said tax abatement, provided that the said Fox Lance Act is amended to allow the City of Jersey city to increase said payments in lieu of taxes or service charges from time to time. Provided, however, that the foregoing costs and expenses shall exclude or have deducted from them, as the case may be and as shall be appropriate: (a) leasing commissions and other leasing expenditures; (b) expenditures of capital improvements except those which under generally accepted real estate practice are expensed or regarded as deferred expenses and except for capital expenditures required by law, in either of which case the cost thereof shall be included in Expenses for the comparative year in which the costs are incurred and subsequent comparative years1 on a straight line basis, to the extent that such items are amortized over an appropriate period, but not more than five years, with an interest factor equal to the prime rate of Citibank at the time of Landlord's having incurred said expenditure. (c) amounts received by Landlord through proceeds of insurance to the extent that the proceeds are compensation for expenses which would be or were previously included in Expenses hereunder; (d) cost of repairs or replacements incurred by reason of fire or other casualty or eminent domain; (e) advertising and promotional expenditures; (f) legal fees for disputes with tenants and legal and auditing fees, other than legal and auditing fees reasonably incurred in connection with the maintenance and operation of the Building or in connection with the preparation of statements required pursuant to additional rent or lease escalation provisions; and (g) costs incurred in performing work or furnishing services for individual tenants (including Tenant) at such tenant's expense to the extent that such work or service is in excess of any work or service Landlord at its expense is obligated to furnish to Tenant; If Landlord shall purchase any item of capital equipment or make any capital expenditure designed to result in savings or reductions in Expenses, then the costs for same shall be included in Expenses. The costs of capital equipment or capital expenditures are so to be included in Expenses for the comparative year in which the costs are incurred and subsequent comparative years, on a straight line basis, to the extent that such items are amortized over such period of time as reasonably can be estimated as the time in which such savings or reductions in Expenses are expected to equal Landlord's costs for such capital equipment or capital expenditure, with an interest factor equal to the prime rate of Citibank at the time of Landlord's having incurred said costs. If Landlord shall lease any such item of capital equipment designed to result in savings or reductions in Expenses, then the rentals and other costs paid pursuant to such leasing shall be included in Expenses for the comparative year in which they were incurred. 6.02 Commencing with the second comparative year, if the Expenses estimated in the manner provided in Article 6.03 for a comparative year shall be greater than Expense Base Factor, Tenant shall pay to Landlord, additional rent for such comparative year, in the manner hereinafter provided, an amount equal to The Tenant's Share of the excess of the Expenses for such comparative year over the Expense Base Factor (such amount being hereafter called the "Expense Payment"). 6.03 Commencing with the second comparative year, and each year thereafter for the balance of the Lease term, thirty (30) days prior to the commencement of each comparative year, Landlord will submit to Tenant Landlord's Certified Public Accountant's estimate of projected expenses for such year as provided in Article 6.04. The estimate shall also set forth the total projected expenses, if any, due to Landlord from Tenant for such year pursuant to Article 6.02. The rendition of such estimate shall constitute prima facie proof of the accuracy thereof. If such statement shows an Expense Payment due to Landlord with respect to the forthcoming comparative year, one-twelfth of this amount shall be payable monthly as additional rent, commencing with the first month of such comparative year. No later than sixty (60) days after the conclusion of each comparative year Landlord shall deliver to Tenant a final statement from its Certified Public Accountant as provided in Article 6.04 setting forth the actual Expenses for the preceding year. Within thirty (30) days of Tenant's receipt of such statement Landlord and Tenant will make an appropriate cash adjustment for any underestimate or overestimate of Landlord's Expenses for the preceding comparative year (which underestimate shall result in additional rent payable as herein provided). 6.04 The estimated and final statements of Expenses to be furnished by Landlord as provided above shall be certified by Landlord, and shall be prepared in reasonable detail for the Landlord by a Certified Public Accountant (who may be the Certified Public Accountant now or then employed by Landlord for the audit of its accounts); said Certified Public Accountant may rely on Landlord's allocations and estimates wherever operating cost allocations or estimates are needed for this Article. The statements thus furnished to Tenant shall constitute a final determination as between Landlord and Tenant of the Expenses for the period represented thereby, unless Tenant within sixty (60) days after they are furnished shall give a notice to Landlord that it disputes their accuracy or their appropriateness, which notice shall specify the particular respects in which the statement is accurate. Pending the resolution of such dispute, Tenant as herein provided shall pay the additional rent to Landlord in accordance with the statements furnished by Landlord After payment of said additional rent, Tenant shall have the right, during reasonable business hours and upon not less than five (5) business days' prior written notice to Landlord, to have Tenant's Certified Public Accountant examine Landlord's books and records with respect to the foregoing, provided such examination is commenced within thirty (30) days and concluded within sixty (60) days following the rendition of the statement in question. 6.05 In any such dispute as to said statement Landlord and Tenant or their respective Certified Public Accountants shall select a national "Big six" accounting firm whose determination shall be conclusive in the resolution of the dispute. If the dispute shall be determined in Tenant's favor, Landlord shall forthwith pay to Tenant the amount of Tenant's overpayment resulting from compliance with Landlord's statement and shall pay for tbe cost of the accounting firm. In the event overpayment is greater than five (5%) percent, Landlord shall pay interest to Tenant on such overpayment at the rate of 2% in excess of the prime interest rate as set forth from time to time by Citibank, N.A. from the date of payment of such amounts by Tenant until repayment of such overpayment by Landlord. If the dispute shall be determined in Landlord's favor, Tenant shall pay for the costs of the accounting firm. 6.06 Real Estate Tax Increase Payment. (1) For each Tax Year (hereinafter defined) during the Term after the ending December 31, 2001 Term, Tenant shall pay, as additional rent, the Tax Payment (hereinafter defined) for such Tax Year. (2) Tax Definitions: (a) The term "Real Estate Taxes" shall mean the sum of the real estate taxes and assessments and special assessments imposed upon the Building and the plot of land on which the Building stands (the "Land") and any rights or interests appurtenant thereto payable by Landlord during any Tax Year or any service charges or other payments in lieu of taxes imposed by any tax abatement granted the Landlord and payable by the Landlord. If at any time during the Term the methods of taxation prevailing at the time of the commencement thereof shall be altered so that in lieu of or as an addition to or as a substitute for the whole or any part of the taxes, assessments, levies, impositions or charges now levied, assessed or imposed, there shall be levied, assessed or imposed a tax, assessment, levy, imposition or charge wholly or partially as a capital levy or on the rents, licenses or other charges received with respect to the Term, the Land or the Building, then all such taxes, assessments, levies, imposition or charges payable shall be deemed to be included within the term "Real Estate Taxes" for the purposes hereof. A copy of the tax bill of The City of Jersey City or other taxing authority imposing Real Estate Taxes on the Land or the Building shall be sufficient evidence of the amount of Real Estate Taxes. Notwithstanding the fact that the aforesaid additional rent is measured by Real Estate Taxes, such amount is additional rent and shall be paid by Tenant as provided herein regardless of the fact that Tenant may be exempt, in whole or in part, from the payment of any Real Estate Taxes by reason of Tenant's diplomatic status or for any other reason whatsoever. (b) The term "Base Tax Year" shall mean the tax year ending December 31, 2001. (c) The term "Tax Year" shall mean each real estate fiscal tax year of the City of Jersey City, New Jersey, following the Base Tax Year, any portion of which occurs during the Term. (d) The term "Tax Payment" shall mean Tenant's Share for the Demised Premises of the amount by which the Real Estate Taxes payable for a Tax Year exceed the Real Estate Taxes payable for the Base Tax Year, whether such increase results from a higher tax rate or an increase in the assessed valuation of the Land or the Building, or both or from any other cause or reason whatsoever. Notwithstanding the foregoing, if there is an increase in assessed valuation of the Building resulting from an addition or improvement to the Building by another tenant, then any increase in Real Estate Taxes attributable to such increase shall not be included in the computation of Tax Payment hereunder. (3) With respect to each Tax Year occurring in whole or in part during the term of the Term, Tenant shall pay to Landlord the Tax Payment, in equal monthly installments during the calendar year in which such Tax Year commences in the manner hereinafter described. At any time during the calendar year in which a Tax Year commences, Landlord may furnish to Tenant a written estimate (a "Tax Estimate") of the Tax Payment for such Tax Year ("Estimated Tax Payment") Such estimate shall be determined by Landlord by applying to the most recently announced assessed value of the Land and Building (whether final or otherwise) such tax rate as Landlord shall anticipate is the tax rate to be finally determined for such Tax Year, but such rate shall in no event exceed by more than ten (10%) percent the then current tax rate. Subject to adjustment as hereinafter provided, Tenant shall pay to Landlord on the first day of each calendar month during such calendar year, an amount equal to one-twelfth (1/12) of the Estimated Tax Payment for the Tax Year commencing during such calendar year. If Landlord furnishes a Tax Estimate for a Tax Year subsequent to the commencement of the calendar year in which such Tax Year begins, then (a) until the first day of the month following the month in which the Tax Estimate is furnished to Tenant, Tenant shall continue to pay to Landlord on the first day of each month an amount equal to the monthly sum payable by Tenant to Landlord with respect to the next previous Tax Year. (b) promptly after the Tax Estimate is furnished to Tenant, Landlord shall give notice to Tenant stating whether the amount previously paid by Tenant to Landlord during such calendar year was greater or less than the installments of the Estimated Tax Payment to be paid during such calendar year in accordance with the Tax Estimate, and (i) if there, shall be a deficiency, Tenant shall pay the amount thereof within ten (10) days after demand therefor, or (ii) if there shall have been an overpayment, Landlord shall credit the amount thereof against the next monthly installments of the Fixed Annual Rent payable under this lease, and (c) on the first day of the month following the furnishing of Tenant of the Tax Estimate, and monthly thereafter until the rendering to Tenant of a Tax Statement (hereinafter defined) for such Tax Year, Tenant shall pay to Landlord an amount equal to one twelfth (1/12) of the amount shown on such Tax Estimate. Promptly after the amount of Real Estate Taxes is established for a Tax Year, (i) Landlord shall furnish to Tenant a written statement (a "Tax Statement") setting forth the Tax Payment for such Tax Year, and stating whether the sum of the installments previously paid by Tenant to Landlord pursuant to the Tax Estimate or otherwise for such Tax Year was greater or less than the sum of the installments of the Tax Payment to be paid for such Tax Year in accordance with the Tax statement, (ii) any deficiency or overpayment shall be disposed of in the manner of a deficiency or overpayment in Estimated Tax Payment, and (iii) on the first day of the month following the month in which the Tax Statement is furnished to the Tenant, and monthly thereafter until a new Tax Estimate or Tax Statement is furnished to Tenant, Tenant shall pay to Landlord an amount equal to one-twelfth (1/12) of the Tax Payment shown on the Tax Statement. (4) The Tax Estimates and Tax Statements to be furnished by Landlord as provided above shall be certified by Landlord and a statement thus furnished to Tenant shall constitute a final determination aS between Landlord and Tenant of the Estimated Tax Payment or Tax Payment, as the case may be, for the period represented thereby, unless Tenant within sixty (60) days after the statement is furnished shall qive a notice to Landlord that Tenant disputes the reasonableness, accuracy or appropriateness of such statement, which notice shall specify the particular respects in which the statement is unreasonable, inaccurate or inappropriate. Pending the resolution of such dispute, Tenant as herein provided shall make the Estimated Tax Payment or Tax Payment, as the case may be, to landlord without prejudice to Tenant's position. In any such dispute as to a Tax Estimate or Tax Statement, Landlord and Tenant shall, within ten (10) days after the giving of Tenant's notice disputing the reasonableness, accuracy or appropriateness of such statement, select a national "Big Six" accounting firm whose determination shall he conclusive in the resolution of the dispute. If the dispute shall be determined in Tenant's favor, Landlord shall forthwith pay to Tenant the amount of Tenant's overpayment resulting from compliance with Landlord's statement and shall pay for the cost of the accounting firm. In the event overpayment is greater than five (5%) percent, Landlord shall pay interest to Tenant on such overpayment at the rate of 2% in excess of the prime interest rate as set forth from time to time by Citibank, N.A from the date of payment of such amounts by Tenant until repayment of such overpayment by Landlord. If the dispute shall be determined in Landlord's favor, Tenant shall pay for the costs of the accounting firm. (5) Only Landlord shall be eligible to institute tax reduction or other proceedings to reduce the assessed valuation of the Land or the Building. Should Landlord be successful in any such reduction proceedings and obtain a rebate for any Tax Year for which Tenant has paid installments of the Tax Payment, Landlord, after deducting the expenses incurred in obtaining such rebate including, without limitation, attorneys' fees1 court, or other administrative costs and disbursements, shall credit Tenant's Share of such rebate against the next monthly installment of the Fixed Annual Rent payable under this Lease or in the case of the last month of the Term, pay such amount to Tenant. In the event that the assessed valuation which had been utilized in computing the Real Estate Taxes payable for the Base Tax Year is reduced (as a result of settlement, final determination of legal proceedings or otherwise) then (i) the Real Estate Taxes for the Base Tax Year shall be retroactively adjusted to reflect such reduction; (ii) the monthly installments of Additional Rent shall be adjusted accordingly; and (iii) all retroactive Additional Rent resulting from such adjustment shall be payable by Tenant within twenty (20) days after the rendition of a bill therefor. 6.07 In no event shall the Fixed Rent due under this Lease be reduced by virtue of this Article. 6.08 If the Commencement Date of tbe term of this Lease is not the first day of the first comparative year, then the additional rent due hereunder for such first comparative year shall be a proportionate share of said additional rent for the entire comparative year, said proportionate share to be based upon the length of time that the Lease term shall have been in existence during such first comparative year. Upon the date of any expiration or termination of this Lease (except termination because of Tenant's default) whether the same be the date hereinabove set forth for the expiration of the Term or any prior or subsequent date, a proportionate share of said additional rent for the comparative year during which such expiration or termination occurs shall immediately become due and payable by Tenant to Landlord, if it was not theretofore already billed and paid. The said proportionate share shall be based upon the length of time that this lease shall have been in existence during such comparative year. 6.09 Landlord's and Tenant's obligation to make the adjustments referred to in this Article shall survive any expiration or termination of this Lease. 6.10 Any delay or failure of Landlord in billing any expense escalation hereinabove provided shall not constitute a waiver of or in any way impair the continuing obligation or Tenant to pay such expense escalation hereunder. ARTICLE 7 -- ELECTRICAL ENERGY 7.01 Electrical energy consumed by Tenant in the Demised Premises through wall and floor outlets, for lighting and business equipment shall be separately metered and purchased by Tenant from the utility supplying electricity to the Building. Tenant shall install as part of Tenant's Work on the electrical meter for the Demised Premises. Landlord shall install at its own cost the risers, to the Demised Premises sufficient to provide the Demised Premises with electrical energy, in a safe and suitable manner, equal to 1000 amps. Electricity for heating, ventilating and air conditioning including for any fan used in connection therewith during Regular Business Hours shall not be included on such meter and shall be paid for by the Landlord. Tenant shall pay to Landlord, as additional rent, the cost of electricity for heating, ventilating and air conditioning including for any fan used in connection therewith, in the Demised Premises during other than Regular Business Hours pursuant to Article 8.01. 7.02 Landlord's and Tenant's obligations to make the adjustments and payments referred to in this Article shall survive any expiration or termination of this Lease. 7.03 Tenant covenants and agrees that at all times its use of electrical current shall not exceed the capacity of existing feeders to the Building or the risers, conduits, or wiring installation in the Building, and Tenant shall not use any electrical equipment which, in Landlord's opinion reasonably exercised, will overload such installations or interfere with the use thereof by other tenants of the Building. In this connection, Landlord agrees, at Tenant's cost and expense, as an item of extra material and work, to supply and jnstall an electric meter or meters to measure Tenant's consumption of electrical energy throughout the Demised Premises. 7.04 Tenant may purchase from Landlord, at Landlord's option, all replacements of electric fluorescent tubing and shall pay Landlord for installing same. 7.05 Tenant shall be provided access to Landlord's Emergency Stand-by Electric Generator ("ESEG") sufficient to furnish 200 KW of electric energy from the Building's ESEG. Tenant acknowledges that the Building's ESEG is intended to supply electric energy to the Demised Premises only in the event of a temporary failure of the supply of electric energy to the Building provided by the public electric utility supplier. Tenant further acknowledges that Landlord does not warranty, guarantee or has ever represented that the Building's ESEG will in fact operate to supply the Demised Premises with temporary electric energy in the event of temporary failure of the supply of electric energy to the Building by the public electric utility supplier. Neither Landlord nor any agent or employee of Landlord shall be liable to Tenant, its employees, agents, contractors and licensees, and Tenant shall hold Landlord harmless from any injury or damage to Tenant, including by way of example and not limitation, damage, loss or injury to Tenant's computer hardware, software or computer stored data or interruption of Tenant's business, in the event that the Building's ESEG fails to provide temporary electric energy in the event of a temporary emergency failure of the electric power supply to the Building and the Demised Premises by the public electric utility supplier. 7.06 Landlord, at Tenant's cost and expense, shall cause the Demised Premises to be connected with the Building's ESEG for use in the event of a temporary emergency failure to the electric power supply to the Building and the Demised Premises provided by the public utility supplier. In addition to the connection charge, Tenant stall pay directly to the Landlord, as and for Additional Rent under the Lease, $40,000.00 for access to the Building's ESEG, payable $3,333.33 per month commencing on the Commencement Date and ending on the Lease Expiration Date (the "ESEG Charge"). The ESEG Charge shall be subject to adjustment upward from time to time if the cost of providing same is increased to the Landlord with an appropriate adjustment to the monthly payment of the ESEG Charge. ARTICLE 8 -- VENTILATION AND AIR CONDITIONING 8.01 There shall be installed in the Demised Premises, as part of the work provided for in Section 3.01, the Building heating, ventilating and air-conditioning systems described and designed to substantially meet the following performance specifications: INSIDE CONDITION Cooling Season 75 degrees F.D.B. Heating Season 68 degrees F OUTSIDE CONDITION Cooling season 91 degrees F.D.B./76 degrees FWB Heating Season 10 degrees F. Landlord shall be under no liability to Tenant if such performance specifications should not be able to be met prior to the said systems being balanced. Landlord, at its expense, shall maintain and operate such systems and shall furnish heat, ventilation and air-conditioning in the Demised Premises through such systems, subject to Article 9.07, in compliance with such performance specifications, during Regular Business Hours. If Tenant shall require ventilating and air-conditioning service or heating service at any other time other than Regular Business Hours (hereinafter called "after hours"), Landlord shall furnish after hours ventilating and air-conditioning service or heating service upon reasonable advance notice from Tenant, and Tenant shall pay Landlord therefore, as additional rent upon rendition of a bill, the A.C. charge and the H. charge. The A.C. charge and the H. charge shall be subject to adjustment upward from time to time. 8.02 Landlord will not be responsible for the failure of the air-conditioning system to meet the performance specifications set forth above if such failure results from the occupancy of the Demised Premises with more than an average of one person for each 150 square feet of Tenant's Floor Space or if Tenant installs and operates machines and appliances, the installed electrical load of which when combined with the load of all lighting fixtures exceeds 3.5 watts per square foot of Tenant's Floor Space in any one room or other area. If due to use of the Demised Premises in a manner exceeding the aforementioned occupancy and electrical load criteria, or due to rearrangement of partitioning after the initial preparation of the Demised Premises, interference with normal operation of the air-conditioning in the Demised Premises results, necessitating changes in the air-conditioning system servicing the Demised Premises, such changes shall be made by Landlord upon written notice to Tenant at Tenant's sole cost and expense. Tenant agrees to lower and close window coverings when necessary because of the sun's position whenever the said air conditioning system is in operation, and Tenant agrees at all times to cooperate fully with Landlord and to abide by all the regulations and requirements which Landlord may prescribe for the proper functioning and protection of the said air-conditioning system. Landlord throughout the Term, shall have free and unrestricted access to any and all air-conditioning facilities in the Demised Premises. 8.03 Any damage caused to heating, air-conditioning, and ventilating equipment, appliances or appurtenances thereto as a result of the negligence of, or careless operation of, the same by Tenant or its agents, servants, employees, licensees, invitees, or visitors, shall be repaired by Landlord, and the cost and expenses thereof shall be paid by Tenant as additional rent, within ten (10) days after being billed therefor. ARTICLE 9 -- LANDLORD'S OTHER SERVICES 9.01 Landlord shall provide public elevator service to the floor(s) on which the Demised Premises are situated during Regular Business Hours, and shall have at least one elevator subject to call at all other times. The elevator(s), or any or all of them, if more than one, may be operated by automatic control and/or by manual control, as Landlord shall determine at any time or from time to time. Landlord shall not be obligated to furnish an operator for any automatic elevator and shall have no liability to Tenant for discontinuing the service of any operator theretofore furnished. If Tenant shall require after hours service of elevator(s) or of the loading area in the Building under such circumstances as, in Landlord's reasonable judgment will require service or attention by Landlord's personnel, Tenant shall pay Landlord, or demand, a reasonable charge attributable to such service or attention. 9.02 Landlord shall not be required to clean the Demised Premises provided that Tenant shall keep the Demised Premises in good order. 9.03 Landlord, at its expense, shall furnish adequate hot and cold water at ordinary lavatory temperature to each floor of the Building for drinking, lavatory, and cleaning purposes, together with soap, towels and toilet tissue for each lavatory. If Tenant uses water for any other purpose Landlord, at Tenant's expense, may install meters to measure Tenant's consumption of cold water and/or hot water for such other purposes and/or steam, as the case may be. Tenant shall pay for the quantities of cold water and hot water shown on such bills therefor. In connection with permitted kitchen use, the amount of hot water demand shall not exceed the excess Building design capacity. 9.04 Landlord, at its own expense, and at Tenant's request, shall insert initial listings on the Building Directory of the names of Tenant, and any affiliate, and the names of any of their officers and employees, provided that the names so listed shall not take up more than Tenant's proportionate share of the space on the Building Directory. All Building Directory changes made at Tenant's request after the Tenant's initial listings have been placed on the Building Directory shall be made by Landlord at the expense of Tenant, and Tenant agrees to promptly pay to Landlord as additional rent the cost of such changes within ten (10) days after Landlord has submitted an invoice therefor. 9.05 With respect to parking of vehicles (if parking is provided under Article 1 hereof): A. Landlord represents that throughout the Term there will be a paved, illuminated parking area for the Building with the number of Parking Spaces specified in Article 1. If Landlord so elects, Tenant shall require its personnel and visitors to park their vehicles only in Parking spaces designated by Landlord for Tenant's use for its personnel and visitors on a "first come, first served" basis. Landlord reserves the right at all times to redesignate such Parking spaces. Tenant, its personnel and visitors shall not at any time park any trucks or delivery vehicles in any of the parking areas. B. All Parking Spaces and any other parking areas used by Tenant, its personnel and visitors will be at their own risk, and Landlord shall not be liable for any injury to person or property, or for loss or damage to any automobile or its contents, resulting from theft, collision, vandalism or any other cause whatsoever. C. Tenant shall agree to all requests by Landlord that Tenant and its employees and visitors remove their vehicles from the Parking Spaces to another parking area provided by Landlord at reasonable periods for purposes of cleaning and maintenance of such spaces or as required for purposes of snow removal, provided that Landlord will perform such cleaning, maintenance and snow removal and make such Parking Spaces available to Tenant and its employees and visitors as promptly as possible. 9.06 Landlord shall keep and maintain the public areas and the public facilities of the Building and the grounds clean and in good order, and the sidewalks and parking areas adjoining the Building shall be kept free of accumulation of snow and ice (except any overnight parking area) or unlawful obstruction. 9.07 Landlord reserves the right, without any liability to Tenant; except as otherwise expressly provided in this Lease, and without being in breach of any covenant of this Lease, to stop, interrupt or suspend service of any of the heating, ventilating, air conditioning, electric, sanitary, elevator or other Building systems serving the Demised Premises, or the rendition of any other services required of Landlord under this Lease, whenever and for so long as may be necessary, by reason of accidents, emergencies, the making of repairs or changes which Landlord is required by this Lease or by law to make or in good faith deems advisable, or by reason of unavoidable delays. In each instance Landlord shall exercise reasonable diligence to eliminate the cause of stoppage and to effect restoration of service and shall give Tenant reasonable notice, when practicable, of the commencement and anticipated duration of such stoppage, and if any work is required to be performed in or about the Demised Premises for such purpose, the provision of Section 14.03 shall apply. Tenant shall not be entitled to any diminution or abatement of rent or other compensation nor shall this Lease or any of the obligations of Tenant be affected or reduced by reason of the interruption, stoppage or suspension of any of the Building systems or services arising out of the causes set forth in this Section. ARTICLE 10 -- USE 10.01 The "Permitted Use" of the Demised Premises for the purposes specified in Article 1 hereof shall not in any event be deemed to include, and Tenant shall not use, or permit the use of, the Demised Premises or any part thereof for: (a) sale of, or traffic in, any spirituous liquors, wines, ale or beer kept in the Demised Premises; (b) sale at retail of any other products or materials kept in Demised Premises, by vending machines or otherwise, demonstrations to the public, except as may be specifically agreed to by Landlord in writing; (c) manufacturing, printing or electronic data processing, except for the operation of normal business office reproducing and printing equipment, business machines and electronic data processing equipment incidental to the conduct of Tenant's business and for tenant's own requirements at the Demised Premises, provided that such use shall not exceed that portion of the mechanical or electrical capabilities of the building equipment allocable to the Demised Premises; (d) the rendition of medical, dental or other diagnostic or therapeutic services (e) the conduct of a public auction of any kind; (f) the conduct of a banking, trust company, savings bank, safe deposit, savings and loan association or loan company business; (g) the issuance and sale of traveler's checks, foreign drafts, letters of credit, foreign exchange or domestic money orders (except as incidentally required in conduct of Tenant's normal business activity); (h) the receipt of money for transmission (except as is incidentally required in conduct of Tenant's normal business activity); or (i) a restaurant, bar, or the sale of confectionery, tobacco, newspapers, magazines, soda, beverages, sandwiches, ice cream, baked goods or similar items, or the preparation, dispensing or consumption of food and beverages in any manner whatsoever. 10.02 Tenant shall not suffer or permit the Demised Premises or any part thereof to be used in any manner, or anything to be done therein, or suffer or permit anything to be brought into or kept therein, which would in any way (i) violate any of the provisions of any grant, least or mortgage to which this lease is subordinate, (ii) violate any laws or requirements of public authorities, (iii) make void or voidable any fire or liability insurance policy then in force with respect to the Building (iv) make unobtainable from reputable insurance companies authorized to do business in New Jersey at standard rates any fire insurance with extended coverage, or liability, elevator or boiler or other insurance required to be furnished by Landlord under the terms of any tease or mortgage to which this lease is subordinate, (v) cause or in Landlord's opinion be likely to cause physical damage to the building or any part thereof, (vi) constitute a public or private nuisance, (vii) impair, in the reasonable opinion of the Landlord, the appearance, character or reputation of the Building, (viii) discharge objectionable fumes, vapors or odors into the Building air conditioning system or into Building flues or vents not designed to receive them or otherwise in such a manner as say unreasonably offend other occupants (ix) impair or interfere with any of the Building services or tie proper and economic heating, cleaning, air conditioning or other servicing of the Building or the Demised Premises or impair or interfere with or tend to impair or interfere with the use of any of the other areas of the Building by, or occasion annoyance or inconvenience to, Landlord or any of the other tenants or occupants of the Building, or (x) cause Tenant to default in any of its other obligations under this Lease. The provisions of this section, and the application thereof, shall not be deemed to be limited in any way to or by the provisions or any of the following sections of this Article or any of the Rules and Regulations referred to in Article 20 or exhibit attached hereto, except as may therein be expressly otherwise provided 10.03 If any governmental license or permit, other than a certificate of Occupancy for the Building, shall be required for the proper and lawful conduct of Tenant's business in the Demised Premises, or any part thereof, and it failure to secure such license or permit would in any way affect Landlord, then Tenant, at its expense, shall duly procure and thereafter maintain such license or permit, but in no event shall failure to procure and maintain same by Tenant affect Tenant's obligations hereunder. Tenant shall not at my time use or occupy, or suffer or permit anyone to use or occupy the Demised Premises, or do or permit anything to be done in the Demised Premises, in violation of the certificate of Occupancy for the Demised Premises or for the Building. 10.04 Tenant shall not place a load upon any floor of the Demised Premises exceeding the floor load per square foot which such floor was designed to carry and which is allowed by certificate, rule, regulation, permit or law. Landlord reserves the right to prescribe the weight and position of all safes and vault; which must be placed by Tenant, at Tenant's expense. Business machines and mechanical equipment shall be positioned and maintained by Tenant, at Tenant's expense, in such manner as shall be sufficient in Landlord's judgment to absorb and prevent vibration, noise and annoyance. ARTICLE 11 - ACCESS CHANGES IN BUILDING FACILITIES, NAME 11.01 All walls, windows and doors bounding the Demised Premises (including exterior Building walls, core corridor walls and doors and any core corridor entrance, except the inside surfaces thereof, any terraces or roofs adjacent to the Demised Premises, and space in or adjacent to the Demised Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or other Building facilities, and the use thereof, as well as access thereto through the Demised premises for the purposes of operating, maintenance, decoration and repair, are reserved to Landlord. 11.02 Tenant shall permit Landlord to install, use and maintain pipes, ducts and conduits with in or through the Demised Premises, or through the walls, columns and ceiling therein, provided that the installation work is performed at such times and by such methods as will not unreasonably interfere with Tenant's use and occupancy of the Demised Premises, or damage the appearance thereof, reduce the Tenant's Floor space by more than two (2%) percent (without an appropriate adjustment in rent) or materially affect Tenant's layout. Where access doors are required for mechanical trades in or adjacent to the Demised Premises, Landlord shall furnish and install such access doors at its expense, and confine their location wherever practical to closets, coat rooms, toilet rooms, corridors, and kitchen or pantry rooms. Landlord and Tenant shall cooperate with each other in the location of Landlord's and Tenant's facilities requiring such access doors. 11.03 Landlord or Landlord's agents or employees shall have the right upon request made on reasonable advance notice to Tenant, or to an authorized employee of Tenant at the Demised Premise, to enter and/or pass through the Demised Premises or any part thereof, at reasonable times during reasonable hours, (i) to examine the Demised Premises, or to show them to lessors of superior leases, holders of mortgages, insurance carriers, or prospective purchasers, mortgagees or lessees of the land or the Building, or prospective tenants, and (ii) for the purpose of making such repairs or changes in or to the Demised Premises or in or to the Building or its facilities as may be provided for by this Lease or as Landlord may deem necessary or as Landlord may be required to make by law or in order to repair and maintain the Building or its fixtures or facilities. Landlord shall be allowed to take into and store upon the Demised Premises all materials which nay be required for such repairs, changes or maintenance. However, Landlord's rights under this Section shall be exercised in such manner as will not unreasonably interfere with Tenant's use and occupancy of the Demised Premises. Landlord, its agents or employees, shall also have the right to enter on and/or pass through the Demised Premises, or any part thereof without notice at such tines as such entry shall be required by circumstances of emergency affecting the Demised Premises or the Building 11.04 Landlord reserves the right, at any time after completion of the Building, without incurring any liability to Tenant therefor to make such changes in or to the Building and the fixtures and equipment thereof, as well as in order to the street entrances, halls passages, elevators and stairways thereof, as it may deem necessary or desirable; provided that there be no unreasonably lengthy interference with the use of the Demised Premises or in the services furnished to the Demised Premises, and no reduction in the Tenant's Floor Space in excess of two (2%) percent without an appropriate adjustment in rent. 11.05 Landlord may limit and restrict, as provided in the Rules and Regulations attached hereto as Exhibit B, the means of access to the Demised Premises outside of Regular Business Hours, so long as Tenant's employees and authorized agents have reasonable access to all parts of the Demised Premises. Tenant, and its agents, employees and visitors shall be entitled to access from the Demised Premises to, and the right to use, the toilets, lavatories and powder rooms only on the floor (or floors) on which the Demised Premises are located. 11.06 Landlord reserves the right to select a name for the Building and to make such change or changes of name as it may deem appropriate during Tenant's occupancy, and Tenant agrees not to refer to the Building by any other name than (i) the name as selected by Landlord, or (ii) the postal address approved by the U.S. Post Office. ARTICLE 12-- TENANT'S CHANGES 12.01 Tenant may, at any time and from time to time during the Term, at its sole expense, make such other alterations, additions, installations, substitutions, improvements and decorations (hereinafter collectively called "Changes" and as applied to changes provided for in this Article, "Tenant's Changes") to the Demised Premises, excluding structural changes and changes affecting the mechanical systems, on the following conditions, and providing such changes will not result in a violation of or require a change in the certificate of occupancy applicable to the Demised Premises: (a) The outside appearance, character or use of the Building shall not be affected, and no Tenant's Changes shall weaken or impair the structural strength or, in the opinion of Landlord, lessen the value of the Building; (b) No part of the Building outside of the Demised Premises shall be physically affected; (c) The proper functioning or any of the mechanical, electrical, sanitary and other service systems of the Building shall not be adversely affected; (d) In performing the work involved in making such changes Tenant shall be bound by and observe all of the conditions and covenants contained in this Article; (e) At the Expiration Date, Tenant shall on Landlord's written request restore the Demised Premises to their condition prior to the making of any of the changes permitted by this Article, reasonable wear and tear excepted, and Landlord shall be entitled to additional security pursuant to Article 15 for the performance of Tenant's obligation; (f) At least thirty (30) days prior to proceeding with any change (exclusive of changes in items constituting "Tenant's Property" as defined in Article 13). 12.02 All Tenant's changes shall at all times comply with laws, orders and regulations of governmental authority having jurisdiction thereof, and all rules and regulations of Landlord and Tenant, at its expense, shall obtain all necessary governmental permits and certificates for the commencement and prosecution of Tenant's Changes and for final approval thereof upon completion, and shall cause Tenant's changes to be performed in compliance therewith and with all applicable requirements of insurance belies, and in good and first class workmanlike manner, using materials and equipment at least equal in quality and class to the original installations of the Building. Tenant's Changes shall be performed in such manner as not to interfere with the occupancy of any other tenant in the Building nor delay, or impose any additional expense upon Landlord in the construction, maintenance or operation of the Building, and shall be performed by contractors or mechanics approved by Landlord and in accordance with the Building Rules and Regulations for Trades Conducting Operations, attached hereto as Exhibit C-1 and Insurance Requirements for Trades Conducting Operations in the Building, attached hereto as Exhibit C-2. Throughout the performance of Tenant's Changes, Tenant, at its expense, shall carry, or cause to be carried, workmen's compensation insurance in statutory limits, and general liability insurance for any occurrence on, in or about the Building, in which Landlord and its managing agent shall be named as parties insured, in such limits as Landlord may reasonably prescribe (but not less than those specified in Section l6~02), with insurers reasonably satisfactory to Landlord. Tenant shall furnish Landlord with reasonably satisfactory evidence that such insurance is in effect at or before the commencement of Tenant's Changes and, on request, at reasonable intervals thereafter during the continuance of Tenant's Changes. No Tenant's Changes shall involve the removal of any fixtures, equipment or other property in the Demised Premises which are not "Tenant's Property" (as defined in Article 13), unless Landlord's prior written consent is first obtained and unless such fixtures, equipment or other property shall be promptly replaced, at Tenant's expense and free of superior title, liens and claims, with fixtures, equipment or other property (as the case may be) of like utility and at least equal value (which replaced fixtures, equipment or other property shall thereupon become the property of Landlord, unless Landlord shall otherwise consent in writing. 12.03 Tenant, at its expense, and with diligence and dispatch, shall procure the cancellation or discharge of all notices of violation arising from or otherwise connected with Tenant's Changes which shall be issued by the appropriate department of the municipality in which the Building is located or any other public authority having jurisdiction. Tenant shall defend, indemnify and save harmless Landlord against any and all mechanics and other liens in connection with Tenant's Changes, repairs or installations, including but not limited to the liens of any conditional sales of, or chattel mortgages upon, any materials, fixtures, or articles so installed in and constituting part of the Demised Premises and against all costs, attorney's fees, fines, expenses and liabilities reasonably incurred in connection with any such lien, conditional sale or chattel mortgage or any action or proceeding brought thereon. Tenant, at its expense, shall procure the satisfaction or discharge of all such liens within thirty (30) days of the filing of such liens against the Demised Premises or the Building. If Tenant shall fail to cause such lien to be discharged within the period aforesaid, then, in addition to any other right or remedy, Landlord may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit or by bonding proceedings, and in any such event Landlord shall be entitled, if Landlord so elects to compel the prosecution of any action for the foreclosure of such lien by the lienor and to pay the amount of the judgment in favor of the lienor with interest, costs and allowances. Any amount so paid by Landlord and all costs and expenses incurred by Landlord in connection therewith, together with interest thereon at the lesser of the maximum permitted by law or 1 1/2% per month or portion thereof from the respective dates of Landlord's making of the payment or incurring of the cost and expense shall constitute additional rent payable by Tenant under this Lease and shall be paid by Tenant on demand. If Tenant makes any such payment it shall not be entitled to any set-off against rent due hereunder. Tenant agrees that it will not at any time prior to or during the Term, either directly or indirectly, use any contractors, labor or materials in the Demised Premises, if the use of such contractors, labor or materials would, in the Landlord's reasonable opinion, create any difficulty with other contractors or labor engaged by Tenant or Landlord or would in any way disturb harmonious labor relations in the construction, maintenance or operation of the Building or any part thereof or any other building owned or operated by Landlord or any affiliate of Landlord. 12.04 If Tenant requires Landlord to perform work during other than Regular working Hours, or if Tenant desires to perform work through its contractors, agents or employees during other than Regular Working hours, Tenant shall pay as additional rent, the cost of employing such additional help as shall be required under the rules and regulations of unions employed in connection with the Building. Payment shall be made by Tenant to Landlord within ten (10) days after being billed therefor. 12.05 In the event Landlord does not perform the work for Tenant, Tenant shall pay to Landlord a supervisory fee (which shall include the cost of review of the proposed Tenant's Changes) equal to Landlord's actual out-of-pocket expenses for such supervision. ARTICLE 13 - TENANT'S PROPERTY 13.01 All fixtures, equipment, improvements and appurtenances attached to or built into the Demised Premises, shall be deemed the property of Landlord and shall not be removed by Tenant except as hereinafter in this Article expressly provided. 13.02 All fixtures, furnishings and equipment, exclusive of work performed by Landlord at Landlord's cost and expense pursuant to the provisions of Article 3 hereof, whether or not attached to or built into the Demised Premises which are installed in the Demised Premises by or for the account of Tenant, may be removed by it at any time during the Term; provided that if any of Tenant's Property is removed, Tenant shall repair or pay the cost of repairing any damage to the Demised Premises or to the Building resulting from such removal. Any fixture, equipment or other property for which Landlord shall have granted any allowance to the Tenant as a credit or substitution in kind shall not be deemed to have been installed by or for the account of the Tenant without expense to Landlord, and shall not be considered Tenant's Property. Landlord shall not be obligated to return and/or reinstall any partitions supplied to tenant which are returned by Tenant to Landlord due to enlargement, reduction or change in the Demised Premises. 13.03 At or before the expiration of this Lease, Tenant shall remove, at its expense, from the Demised Premises, all of Tenant's property and shall repair any damage and make any replacements to the Demised Premises or the Building resulting from or necessitated by such removal, and shall pay all other costs of such removal. l3.04 Any items of Tenant's Property which shall remain in the Demised Premises after the expiration of this Lease, may, at the option of the Landlord, be deemed to have been abandoned, and in such case either may be retained by Landlord as its property or may be disposed of, without accountability to Tenant in such manner as Landlord may see fit. Tenant agrees to reimburse landlord for the costs of removal and for the cost of repairing any damage to the Demised Premises or the Building arising out of Tenant's failure to remove Tenant's Property pursuant to the terms of this Lease. ARTICLE 14 -- REPAIRS AND MAINTENANCE 14.01 Tenant shall take good care of the Demised Premises and the fixtures and appurtenances therein, and at its sole cost and expense shall make all repairs thereto, as and when needed to preserve them in good working order and condition except as otherwise provided in Section 14.02 hereof. In addition, Tenant, at its expense, shall promptly make all repairs, ordinary or extraordinary, interior or exterior, structural or otherwise, in and about the Demised Premises and the Building as shall be required by reason or (i) the performance or existence of work by Tenant necessary to suit the Demised Premises to Tenant's initial occupancy or in connection with Tenant's changes, (ii) the installation, use or operation of Tenant's Property in the Demised Premises, (iii) the moving of Tenant's Property in or out of the Building, or (iv) the misuse or neglect of Tenant or any of its employees, agents or contractors. Tenant shall not be responsible, and Landlord shall be responsible, for any repairs to the Demised Premises as are required by reason of Landlord's neglect or other fault in the manner of performing any work provided for in Article 2 which Landlord is to perform in Tenant's changes which may be undertaken by Landlord for Tenant's account or are otherwise required by reason of neglect or other fault of Landlord or its employees, agents or contractors. 14.02 Landlord shall keep and maintain the Building and its fixtures, appurtenances, systems and facilities (including the heating, ventilating and air-conditioning systems and the central or core elevator and plumbing systems), serving the Demised Premises, in good working order, condition and repair and shall make all structural repairs, interior and exterior, except as indicated in the second sentence of Section 14.01, as and when needed in the Building, except for those repairs for which Tenant is responsible pursuant to any other provisions of this Lease, and subject to all other provisions of this Lease, including but not limited to the provisions of Article 22. l4.03 Except as expressly otherwise provided in this Lease, Landlord shall have no liability to Tenant by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord or any tenant making any repairs or changes or performing maintenance services, whether or not Landlord is required or permitted by this Lease or by law to make such repairs or changes or to perform such services in or to any portion of the Building or Demised Premises or in to the fixtures, equipment or appurtenances of the Building or the Demised Premises provided that Landlord shall be reasonably diligent with respect thereto and shall perform such work, except in case of emergency, at times reasonably convenient to Tenant and otherwise in such manner and to the extent practical as will not unreasonably interfere with Tenant's use and occupancy or the Demised Premises. 14.04 When used in this Lease the term "repair" shall be deemed to include restoration and replacements as may be necessary to achieve and/or maintain good working order and condition. ARTICLE 15 -- SECURITY DEPOSIT Tenant has deposited with Landlord $24,578.00 as security for the punctual performance by Tenant of each and every obligation of it under this Lease, including the restoration of the Premises pursuant to Article 12.01. In the event of any default by Tenant, Landlord may apply or retain all or any part of the security to cure the default or to reimburse Landlord for any sum which Landlord may spend by reason of the default. In the case of every such application or retention Tenant shall, on demand, pay to Landlord the sum so applied or retained which shall be added to the Security Deposit so that the same shall be restored to its original amount. If at the end of the Term Tenant shall not be in default under this Lease, the Security Deposit, or any balance thereof, shall be returned to Tenant, within thirty (30) days after the Expiration Date. In the event of a sale of the land and Building or leasing of the Building, of which the Demised Premises form a part, Landlord shall have the right to transfer the security to the vendor or lessee and Landlord shall thereupon be released by Tenant from all liability for the return of such security; and Tenant agrees to look to the new Landlord solely for the return of said security; and it is agreed that the provision hereof shall apply to every transfer or assignment of the security to a new Landlord. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and neither the Landlord nor its successors or assign shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. ARTICLE 16-- INSURANCE 16.01 Tenant shall not violate, or permit the violation of, any condition imposed by the standard fire insurance policy then issued for office Buildings in the area in which the Building is located and shall not do, or permit anything to be done, or keep or permit anything to be kept in the Demised Premises which would increase the fire or other casualty insurance rate on the Building or the property therein over the rate which would otherwise than be in effect (unless Tenant pays the resulting increased amount of premium) or which would result in insurance companies of good standing refusing to insure the Building or any of such property in amounts and at normal rates reasonably satisfactory to Landlord. However, Tenant shall not be subject to liability or obligation under this Section by reason of the proper use of the Demised Premises for executive and administrative offices. 16.02 Tenant shall obtain and keep in full force and effect during the Term at its own cost and expense, Public Liability insurance, such insurance to afford protection in an amount of not less than $1,000,000.00 for injury or death to any one person, $3,000,000.00 for injury or death arising out of any one occurrence, and $500,000.000 for damage to property, protecting the Landlord and the Tenant as insureds against any and all claims for personal injury, death or property damage occurring in, upon, adjacent or connected with the Demised Premises and ANY part thereof. Said insurance is to be written by insurance companies admitted to do business in the state of New Jersey which shall he reasonably satisfactory to the Landlord. The original insurance policies or appropriate certificates shall be deposited with Landlord together with any renewals, replacements or endorsements to the end that said insurance shall be in full force and effect for the benefit of the Landlord during the Term. In the event Tenant shall fail to procure and place such insurance, the Landlord may, but shall not be obligated to, procure and place same, in which event the amount of the premium paid shall be paid by Tenant to Landlord upon demand and shall in each instance be collectible on the first day of the month or any subsequent month following the date of payment by Landlord, in the same manner as though, and same shall be considered to be additional rent reserved hereunder. 16.03 In the event that any dispute should arise between Landlord and Tenant concerning insurance rates, a schedule or "makeup" of rates for the Building or the Demised Premises, as the case may be, issued by the Fire insurance Rating Organization of New Jersey or other similar body making rates for fire insurance and extended coverage for the premises concerned, shall he presumptive evidence of the facts therein stated and of the several items and charges in the fire insurance rates with extended coverage then applicable to such premises. 16.04 Each party agrees to use its best efforts to include in each of its insurance policies insuring the Building and Landlord's property therein and rental value thereof, in the case of Landlord and insuring Tenant's Property and business interest in the Demised Premises (business interruption insurance) in the case of Tenant, against loss, damage or destruction by fire or other casualty, a waiver of the insurer's right of subrogation against the other party, or if such waiver should be unobtainable or unenforceable (a) an express agreement that such policy shall not be invalidated it the insured waives the right of recovery against any party responsible for a casualty covered by the policy before the casualty or (b) any other form of permission for the release of the other party. If such waiver, agreement or permission shall not be, or shall cease to be, obtainable without additional charge or at all, the insured party shall so notify the other party promptly after learning thereof. In such case, if the other party shall so elect shall pay the insurer's additional charge therefore, such waiver, agreement or Permission shall be included in the policy, or the other party shall be named as an additional insured in the policy, but not the loss payee. Each such policy which shall so name a party hereto as an additional insured shall contain agreements by the insurer that the policy will not be cancelled without at least twenty (20) days prior notice to both insureds and that the act or omission of one insured will not invalidate the policy as to the other insured. Any failure by Tenant, if named as an additional insured promptly to endorse to the order of Landlord, without recourse, any instrument for the payment of money under or with respect to the policy of which Landlord is the owner or original or primary insured, shall be deemed a default under this Lease. l6.05 Each party hereby releases the other party with respect to any claim (including a claim for negligence) which it might otherwise have against the other party for loss, damage or destruction with respect to its property (including rental value or business interruption) occurring during the Term and with respect and to the extent to which it is insured under a policy or policies containing a waiver of subrogation or permission to release liability or naming the other party as an additional insured as provided in Sections 16.04. If notwithstanding the recovery of insurance proceeds by either party for loss, damage or destruction of its property (or rental value or business interruption) the other party is liable to the first party with respect thereto or is obligated under this Lease to make replacement, repair or restoration or payment, then provided the first party's right of full recovery under its insurance policies is not thereby prejudiced or otherwise adversely affected, the amount of the net proceeds of the first party's insurance against such loss, damage or destruction shall be offset against the second party's liability to the first party therefor, or shall be made available to the second party to pay for replacement, repair or restoration, as the case may be. 16.06 The waiver of subrogation or permission for release referred to in Section 16.04 shall extend to the agents of each party and its and their employees and, in the case of Tenant, shall also extend to all persons and entities occupying, using or visiting the Demised Premises in accordance with the terms of this Lease, but only if and to the extent that such waiver or permission can be obtained without additional charge (unless such party shall pay much charge). The releases provided for in section 16.05 shall likewise extend to such agents, employees and other persons and entities, if and to the extent that such waiver or permission is effective as to them. Nothing contained in section 16.05 shall be deemed to relieve either party of any duty imposed elsewhere in this Lease to repair, restore or rebuild or to nullify any abatement of rents provided for elsewhere in this Lease. Except as otherwise provided in section 16.02, nothing contained in section 16.04 and 16.05 shall be deemed to impose upon either party any duty to procure or maintain any of the kinds of insurance referred to therein or any particular amounts or limits of any such kinds of insurance. ARTICLE 17 -- SUDORDINATI0N, ATTORNMENT, NOTICE TO LESSOR ANO MORTGAGEES 17.01 Landlord shall cause the mortgagees under all existing and future superior mortgages (as hereinafter defined) and the lessors under all existing and future superior leases (as hereinafter defined) to enter into subordination, non-disturbance and Attornment agreements with Tenant in the form of Exhibit D annexed hereto (the "Subordination, Non-Disturbance and Attornment Agreement"). The Subordination Non-Disturbance and Attornment Agreement with respect to the mortgage encumbering the Building on the date hereof shall be delivered to Tenant no later than sixty (60) days after the execution and delivery of this Lease. Provided the provisions of the foregoing sentence are complied with, this Lease and all rights of Tenant hereunder, are and shall be subject and subordinate in all respects to all present and future ground leases, over-riding leases and underlying leases and/or grants of terms of the land and/or the Building or the portion thereof in which the Demised Premises are located in whole or in part now or hereafter existing ("superior leases") and to all mortgages and Building loan agreements, which may now or hereafter affect the land and/or the Building and/or any of such leases ("superior mortgages") whether or not the superior leases or superior mortgages shall also cover other lands and/or Buildings, to each and every advance made or hereafter to be made under the superior mortgages, and to all renewals, modifications, replacements and extensions of the superior leases and superior mortgages and spreaders, consolidations and correlations of the superior mortgages. This Section shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute and deliver at its own cost and expense any instrument, in recordable form if required, that Landlord, the lessor of any superior lease or the holder of any superior mortgage or any of their respective successors in interest may request to evidence such subordination, and Tenant hereby constitutes and appoints Landlord attorney-in-fact for Tenant to execute any such instrument for and on behalf of Tenant. 17.02 In the event that the lessor of a superior lease or the holder of a superior mortgage shall succeed to the rights of the Landlord under this Lease whether through possessory or foreclosure action or proceeding or through delivery of a new lease, then at the request of any such party, the Tenant shall attorn to and recognize such party as its Landlord under this Lease. In an such event, this Lease shall continue in full force and effect as if it were a direct lease between such party and the Tenant upon all of the terms covenants and conditions set forth in this Lease and shall be applicable after such attornment, except that such party shall not (a) be obligated to perform any work in the Building, including the Demised Premises or prepare them for occupancy; (b) be obligated to repair replace, rebuild or restore the Building, or the Demised Premises in the event of damage or destruction, beyond such repair, replacement, rebuilding or restoration as CAN reasonably be accomplished from the net proceeds of insurance actually received by, or made available to, such party; (c) be liable for any previous act or omission by Landlord; (d) be subject to any liability or offset which shall theretofore accrue to the Tenant against Landlord; (e) be bound by any previous modification or extension of this Lease unless filed with such party and made at arms length, in good faith and in the honest exercise of reasonable business judgment; (f) be bound by any previous pre-payment of more than one month's fixed rent or other charge, or (g) be bound by any cancellation or surrender of this Lease or any eviction of the Tenant by Landlord unless made at arms length, in good faith and in the honest exercise of reasonable business judqnent. 17.03 Provided Tenant has received the subordination Non- Disturbance and Attornment Agreement as required under 17.01 thereof, Tenant agrees to waive the provisions of any statute or rule or law now or hereafter in effect which may give or purport to give Tenant any right of election to terminate this Lease or to surrender possession of the Demised Premises in the event a superior lease is terminated or a superior mortgage is foreclosed, and that unless and until said lessor, or holder, as the case may be, shall elect to terminate this Lease, this Lease shall not be affected in any way whatsoever by any such proceeding or termination, and Tenant shall take no steps to terminate this Lease without giving written notice to said lessor under the superior lease, or holder of a superior mortgage and a reasonable opportunity to cure (without such lessor or holder being obligated to cure), any default on the part of the Landlord under this Lease, ARTICLE 18 - ASSIGNMENT, MORTGAGING, SUBLETTING 18.01 Neither this Lease nor the Term and estate hereby granted, nor any part hereof or thereof, nor the interest of Tenant in any sublease or the rentals thereunder, shall be assigned, mortgaged, pledged, encumbered or otherwise transferred by Tenant by operation of law or otherwise, and neither the Demised Premises nor any part thereof, shall be encumbered in any manner by reason of any act or omission on the part of the Tenant; or anyone claiming under or through Tenant, or shall be sublet or be used or occupied or permitted to be used or occupied, or utilized for desk space or for mailing privileges, by anyone other than Tenant or for any purpose other than as permitted by this Lease, without the prior written consent of Landlord in every case, except as expressly otherwise provided in this Article which consent shall not be unreasonably withheld. 18.02 If this Lease be assigned, whether or not in violation of the provisions of this lease, Landlord may collect rent from the assignee. If the Demised Premises or any part thereof be sublet or be used or occupied by anybody other than Tenant, whether or not in violation of this Lease, Landlord may, after default try Tenant, and expiration of Tenant's time to cure such default, collect rent from the subtenant or occupant. In either event, Landlord may apply the net amount collected to the rents herein reserved, but no such assignment, subletting, occupancy or collection shall be declared a waiver of any of the provisions of section 18.01, or the acceptance of the assignee, subtenant or occupant as tenant, or a release of tenant from the further performance by tenant if Tenant's obligations under this Lease. The consent by Landlord to assignment, mortgaging or subletting, or use of occupancy by others shall in no wise by considered to relieve Tenant from obtaining the express written consent of Landlord to any other or further assignment, mortgaging, or subletting or use of occupancy by others not expressly permitted by this Article. 1.2 Tenant agrees to pay to Landlord reasonable counsel fees incurred by Landlord in connection with any proposed assignment of Tenant's interest in this Lease or any proposed subletting of the Demised Premises or any part thereof, References in this Lease to use or occupancy by others, that is anyone other than Tenant, shall not be construed as limited to subtenants and those claiming under or through Tenant, immediately or remotely. 18.03 Tenant may, upon written notice to Landlord, but without Landlord's written consent, permit any corporations or other business entities which control, are controlled by, or are under common control with Tenant (herein called "related corporations") to use the whole or part of Demised Premises for any purposes permitted to Tenant, subject however to compliance with Tenant's obligations under the Lease. Such use shall not be deemed to vest in any such related corporation any right or interest in this Lease or in the Demised Premises, nor shall such use release, relieve, discharge or modify any of Tenant's obligations hereunder. 18.04 With respect to any proposed assignment of this Lease or proposed subletting at all or a portion of the Demised Premises: (A) Tenant shall submit to the Landlord a request for consent to such assignment or sublease together with the name and address of the proposed assignee or sublessee and such information as to its financial responsibility and standing as Landlord may require upon receipt or such request and upon the furnishing of such information by the Tenant, Landlord shall have the option to cancel and terminate this Lease (i) completely, if the request was for an assignment of this Lease or subletting of all of the Demised Premises, or (ii) if such request was for a subletting of a portion of the Demised Premises, then with respect to such portion. (B) Landlord shall exercise such option to cancel and terminate by notice in writing to that effect to Tenant within ten (10) days from receipt of Tenant's request and the information set forth above, and Landlord's notice shall set forth the date of cancellation, which date shall be no less then sixty (60) nor more than ninety (90) days from the date of the service of Landlord's notice. If such option is so exercised, then upon such date of cancellation the lease for the entire Demised Premises or specified portion thereof, as the case may be, shall cease and terminate with the same force and effect as though the date set forth in the notice were the date set forth in this Lease at the expiration of the Term, and the Tenant shall surrender possession of the entire Demised Premises, or portion thereof, as the case may be, in accordance with the provisions of the Lease relating to surrender of the Demised Premises at the expiration of the Term. If Landlord exercises the option to cancel the Lease, as to a portion of the Demised Premises only, the terms of this Lease shall remain in full force as to the remainder of the Demised Premises, for the balance of the Term, except to the extent that the area of the Demised Premises is reduced with a proportionate reduction in rent. (C) If Landlord does not exercise its option to cancel as aforementioned than Tenant may assign or sublet all or a portion of the Demised Premises, provided that Landlord has given its prior written consent and provided further that: (i) the Tenant is not then in default hereunder; (ii) the rental provided for in such assignment or sublease is not less than the rental provided for herein; (iii) the Demised Premises are to be used for executive offices only by a person, firm or corporation engaged in a lawful commercial business (other than a business operating data processing machinery in the Demised Premises larger than desk top size), or for a similar use as Tenant's, but not for the practice of medicine, (iv) such assignee or sublessee shall be financially responsible and of good reputation; (v) the business of such assignee or sublessees or the use to which such Demised Premises shall be put shall not be violation of any restriction against competition contained in any other lease to which Landlord is a party; (vi) the assignee or sublessee is not engaged in the containerized shipping business or as a governmental agency of a communist agency and (vii) a duplicate original of an instrument in writing assigning this Lease or subletting the Demised Premises, duly executed by the assignor or sublessor and assignee or sublessee, as the case may be, in recordable form, containing therein an assumption by said assignee or an agreement by said sublessee to take subject to (and an agreement by Tenant to remain liable to Landlord for) all the terms and conditions of this Lease on the part of the Tenant to be performed (D) The provisions of this Article 18 shall apply to each such proposed subletting, none of which shall be effective until all of the foregoing shall have been complied with. Notwithstanding any subletting, Tenant and any future sublessor shall remain liable for the full performance of all the terms and conditions of this lease on the part of the Tenant to be performed. 18.05 Tenant shall not offer to assign or sublet either the entire Demised Premises or a specified portion thereof to any other Tenant in the Building or to any party in negotiations with Landlord to lease a portion of the Building. ARTICLE 19 -- COMPLIANCE WITH LAWS AND REQUIREMENTS OF PUBLIC AUTHORITIES: RULES & REGULATIONS 19.01 Tenant shall promptly notify Landlord of any written notice it receives of the violation of any law or requirements which shall, with respect to the Building or the Demised Premises or the use and occupation thereof or the abatement of any nuisance, impose any violation, order or duty on Landlord or Tenant, arising from (i) Tenant's use of the Demised Premises, (ii) the manner of conduct of Tenant's business or operation of its installations, equipment or other property therein, (iii) any cause or condition created by or at the instance of Tenant, or (iv) breach of any of Tenant's obligations hereunder 19.02 Tenant shall promptly furnish to Landlord all information requested by Landlord which may be required for all reports to be filed by Landlord in accordance with any directives of the Secretary of the United States Department of Housing and Urban Development or any statute, rule or regulation of the United States Department of Housing and Urban Development in connection with the Urban Development Action Grant used to finance part of the construction of the Building. 19.03 Tenant and its employees and agents shall faithfully observe and comply with the Rules and Regulations annexed hereto as Exhibit "B" and such reasonable changes therein (whether by modification, elimination or addition) as Landlord at any time or times hereafter may make and communicate in writing to Tenant, which do not unreasonably affect the conduct of Tenant's business in the Demised Premises; provided, however, that in case of any conflict or inconsistency between the provisions of this Lease and any Rules and Regulations changed subsequent to the date of this Lease the provisions of this Lease shall control. 19.04 Nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to Tenant to enforce the Rules and Regulations or the terms, covenants or conditions in any other lease, as against any other tenant unless requested to do so by Tenant, but Landlord shall not be liable to Tenant for violation of the same by any other tenant or its employees, agents or visitors. ARTICLE 20 -- QUIET ENJOYMENT 20.01 Landlord covenants that if, and so long as, Tenant pays all of the Fixed Rent and additional rent due hereunder, and keeps and performs each and every covenant, agreement, term, provision and condition herein contained on the part and on behalf of Tenant to be kept and performed, Tenant shall quietly enjoy the Demised Premises without hinderance or molestation by Landlord or any other person lawfully claiming the same, subject to the covenants, agreements, terms, provisions and conditions of this Lease and to any superior leases and/or superior mortgages. ARTICLE 21-- NON-LIABILITY & INDEMNIFICATION 21.01 Neither Landlord nor any agent or employee of Landlord shall be liable to Tenant, its employees, agents, contractors and licensees, and Tenant shall hold Landlord harmless from any injury or damage to Tenant or to any other persons for any damage to, or loss (by theft or otherwise) of, any property of Tenant and/or of any other person, irrespective of the cause of such injury, damage or loss, unless caused by or due to the gross negligence of Landlord, its agents or employees without contributory negligence on the part of Tenant. Landlord shall not be liable in any event for loss of, damage to, any property entrusted to any of Landlord's employees or agents by Tenant without Landlord's specific written consent. 21.02 Tenant shall defend, indemnify and save harmless Landlord and its agent and employees against and from all liabilities, obligations, damages, penalties, claims, costs, charges and expenses, including reasonable experts' and attorneys' fees, which may be imposed upon or incurred by or asserted against Landlord and/or its agents by reason of any of the following occurring during the Term, or during any period of time prior to the Commencement Date that Tenant may have been given access to or possession of all or any part of the Demised Premises: (a) any work or thing done in on or about the Demised Premises or any part thereof by or at the instance of Tenant, its agents, contractors, subcontractors, servants, employees, licensees or invitees; (b) any negligence or otherwise wrongful act or omission on the part of Tenant or any of its agents, contractors, subcontractors, servants, employees, subtenants, licensees, or invitees; (c) any accident, injury or damage to any person or property occurring in on or about the Demised Premises or any part thereof, or vault, passageway or space adjacent thereto; (d) any failure on the part of Tenant to perform or comply with any of the covenants, agreements, terms, provisions, conditions or limitations contained in this Lease on its part to be performed or complied with. In case any action or proceeding is brought against Landlord by reason of any such claim, Tenant upon written notice from Landlord shall at Tenant's expense resist or defend such action or proceeding by counsel approved by Landlord in writing, which approval Landlord shall not unreasonab]y withhold. 21.03 Whenever either party shall be obligated under the terms of this Lease to indemnify the other party, the indemnifying party may select legal counsel (subject to the consent of the indemnified party, which consent shall not be unreasonably withheld) and shall keep the indemnified party fully appraised at all times of the status of such defense. Legal counsel of the insurer for either party is hereby deemed satisfactory to both parties. 21.04 Except as otherwise expressly provided herein, this Lease and the obligations of Tenant to pay rent hereunder and perform all of the other covenants, agreements, terms, provisions and conditions hereunder on the part of Tenant to be performed shall in no wise be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this Lease or is unable to supply or is delayed in supplying any service, express or implied, to be supplied or is unable to make or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of any Unavoidable Delays, as defined in Section 3.02 hereof; provided that Landlord shall in each instance exercise reasonable diligence to effect performance when and as soon as possible. However, nothing contained in this Section shall be deemed to extend or otherwise modify or affect any of the time limits and conditions set forth in Section 22.03. ARTICLE 22 -- DESTRUCTION AND DAMAGE 22.01 If the Demised Premises and/or access thereto shall be partially or totally damaged or destroyed by fire or other casualty, then, Landlord shall, subject to its rights under Section 22.03 hereof, repair the damage and restore and rebuild the Demised Premises and/or access thereto as nearly as may be reasonably practical to its condition and character immediately prior to such damage or destruction, with reasonable diligence after notice to it of the damage or destruction. 22.02 If the Demised Premises and/or access thereto shall be partially or totally damaged or destroyed by fire or other casualty not attributable to the fault, negligence or misuse of the Demised Premises by the Tenant, its agent or employees under the provisions of this Lease, the rents payable hereunder shall be abated to the extent that the Demised Premises shall have been rendered untenantable from the date of such damage or destruction to the date the damage shall be substantially repaired or restored or rebuilt. Should Tenant reoccupy a portion of the Demised Premises during the period that the repair, restoration, or rebuilding is in progress and prior to the date that the same are made completely tenantable, rents allocable to such portion shall be payable by Tenant from the date of such occupancy to the date the Demised Premises are made tenantable. 22.03 In case of substantial damage or destruction of the Demised Premises, Tenant may terminate this Lease by notice to Landlord, if Landlord has not completed the making of required repairs and restored and rebuilt the Demised Premises and/or access thereto within 12 months from the date of such damage or destruction, and such additional time after such date (but in no event exceed 9 months) as shall equal the aggregate period Landlord may have been delayed in doing so by adjustment of insurance or Unavoidable Delays. In case the Building shall be so damaged by such fire or other casualty that substantial renovation, reconstruction or demolition of the Building shall, in Landlord's opinion, be required (whether or not the Demised Premises shall have been damaged by such fire or other casualty), then Landlord may, at its option, terminate this Lease and the Term and estate hereby granted, by notifying Tenant of such termination, within sixty (60) days after the date of such damage. If at any time prior to Landlord giving tenant the aforesaid notice of termination or commencing the repair and restoration pursuant to Section 22.01, the holder of a superior mortgage or the lessor of a superior lease or any person claiming under or through the holder of such superior mortgage or the lessor of such superior lease takes possession of the Building through foreclosure or otherwise, such holder, lessor, or person shall have a further period of sixty (60) days from the date of so taking possession to terminate this Lease by appropriate written notice to Tenant. In the event that such a notice of termination shall be given pursuant to either of the next two preceding sentences, this Lease and the Term and estate hereby granted shall expire as of the date of such termination with the same effect as if that were the date hereinabove set for the expiration of the Term, and the Fixed Rent and additional rent due and to become due hereunder shall be apportioned as of such date if not earlier abated pursuant to Section 22.02. Nothing contained in this Section 22.03 shall relieve Tenant from any liability to Landlord or to its insurers in connection with any damage to the Demised Premises or the Building by fire or other casualty if Tenant shall be legally liable in such respect. 22.04 No damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Demised Premises or of the Building pursuant to this Article. Landlord shall use its best efforts to effect such repair or restoration promptly and in such manner as not unreasonably to interfere with Tenant's use and occupancy. 22.05 Landlord will not carry insurance of any kind on Tenant's Property, and, except as provided by law or its breach of any of its obligations hereunder, shall not be obligated to repair any damage thereto or replace the same. 22.06 The provisions of this Article shall be considered an express agreement governing any case of damage or destruction of the Demised Premises by fire or other casualty, and any statute or regulation providing for such a contingency in the absence of, an express agreement, now or hereafter in force, shall have no application in such case. 22.07 Landlord shall maintain appropriate insurance for the Building. Notwithstanding any of the foregoing provisions of this Lease if Landlord or the lessor of any superior lease or the holder of any superior mortgage shall be unable to collect all of the insurance proceeds (including rent insurance proceeds) applicable to damage or destruction of the Demised Premises or the Building by fire or other cause, by reason of some action or inaction on the part of Tenant or any of its employees, agents or contractors, then, without prejudice to any other remedies which may be available against Tenant, the abatement of Tenant's rents provided for in this Article shall not be effective to the extent of the uncollected insurance proceeds. ARTICLE 23 -- EMINENT DOMAIN 23.01 In the event that the land, Building or any part thereof, or the Demised Premises or any part thereof, shall be taken in condemnation proceedings or by the exercise of any right of eminent domain or by agreement between any superior lessors and lessees and/or Landlord on the one hand and any governmental authority authorized to exercise such right on the other hand, Landlord shall be entitled to collect from any condemnor the entire award or awards that may be made in any such proceeding without deduction therefrom for any estate hereby vested in or owned by Tenant, to be paid out as in this Article provided. Tenant hereby expressly assigns to Landlord all of its right, title and interest in or to every such award (with the exception of that portion of the award specifically allocated as Tenant's moving expenses, to the extent that the same does not decrease Landlord's award) and also agrees to execute any and all further documents that may be required in order to facilitate the collection thereof by Landlord, 23.02 At any time during the Term if title to the whole or substantially all of the land, Building and/or Demised Premises shall be taken in by condemnation proceedings or by the exercise of any right of eminent domain or by agreement between any superior lessors and lessees and/or Landlord on the one hand and any governmental authority authorized to exercise such right on the other hand, this Lease shall terminate and expire on the date of such taking and the Fixed Rent and additional rent provided to be paid by Tenant shall be apportioned and paid to the date of such taking. 23.03 However, if substantially all of the land or Building is not so taken and if only a part of the entire Demised Premises shall be so taken, this Lease nevertheless shall continue in full force and effect, except that either party may elect to terminate this Lease if that portion of the Demised Premises then occupied by Tenant shall be reduced by more than 25%, by notice of such election to the other party given not later than thirty (30) days after (i) notice of such taking is given by the condemning authority, or (ii) the date of such taking, whichever occurs later. Upon the giving of such notice this Lease shall terminate on the date of service of such notice and the Fixed Rent and additional rent due and to become due, shall be prorated and adjusted as of the date of the taking. If both parties fail to give such notice upon such partial taking, and this Lease continues in force as to any part of the Demised Premises not taken, the rents apportioned to thc part taken shall be prorated and adjusted as of the date of taking and from such date the Fixed Rent and additional rent shall be reduced to the amount apportioned to the remainder of the Demised Premises, and the Tenant's Share shall be recomputed to reflect the number of square feet of Tenant's Floor Space remaining in the Demised Premises in relation to the number of square feet of Total Building Floor Space remaining in the Building. 23.04 Notwithstanding the foregoing provisions of this Article and subject to the interest of any mortgagees or lessor or grantor under any superior mortgage or superior lease, Tenant shall be entitled to appear, claim, prove and receive in the proceedings relating to any taking mentioned in the preceding Sections of this Article, such portion of each award made therein as represents the then value of Tenant's Property. 23.05 In the event of any such taking of less than the whole of the Building which does not result in a termination of this Lease, Landlord, at its expense, shall proceed with reasonable diligence to repair, alter and restore the remaining part of the Building and the Demised Premises to substantially the same condition as it was in immediately prior to such taking to the extent that the same may be feasible, so as to constitute a tenantable Building and Demised Premises, providing that Landlord's liability under this Section shall be limited to the amount received by Landlord as an award arising out of such taking. ARTICLE 24 -- SURRENDER 24.01 On the last day of the Term, or upon any earlier termination of this Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant shall quit and surrender the Demised Premises to the Landlord broom clean, in good order, condition and repair except for ordinary wear and tear and damage by fire or other insured casualty, restored as provided in Section 12.01. 24.02 Prior to such surrender, Tenant shall (a) remove Tenant's Property subject to the provisions of Article 13 hereof, (b) at Landlord's request remove from the Demised Premises all improvements, alterations, additions, fixtures and equipment (sometimes herein called "additional work") other than Tenant's work attached hereto as Exhibit C, whether such additional work was performed by Tenant or by Landlord on Tenant's behalf, and whether such additional work consisted of extra or special work or additional items or quantities of Building standard work, and (c) at Landlord's request, repair any damage and make any replacements to the Building or the Demised Premises resulting from or necessitated by such removal, and restore those parts of the Demised Premises from which the removal referred to in subparagraphs (a) and (b) above occurred, to a condition which will blend with and be comparable to adjacent areas. Tenant's removal and repair obligations hereunder with respect to the Demised Premises shall extend to the core area or any other part of the Building where any additional work was performed by or on behalf of Tenant. If Tenant shall fail to perform as provided in this Section 24.02, Landlord shall have the right to do so at Tenant's cost and expense, without further notice or demand upon Tenant, and Tenant shall indemnify Landlord against all loss or liability resulting therefrom, including, without limitation, any delay in granting occupancy of the Demised Premises to a future occupant. ARTICLE 25-- CONDITIONS OF LIMITATION 25.01 This Lease and the estate hereby granted are subject inter alia to the limitation that whenever Tenant shall make an assignment for the benefit of creditors, or shall file a voluntary petition under any bankruptcy or insolvency law, or an involuntary petition alleging an act of bankruptcy or insolvency is filed against Tenant, or whenever a petition shall be filed by or against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or any future federal bankruptcy act or any other present or future applicable federal, state or other statute or law, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties, or whenever a permanent or temporary receiver of Tenant or of, or for, the property of Tenant shall be appointed, or if Tenant shall plead bankruptcy or insolvency as a defense in any action or proceeding, then, Landlord, (a) at any time after receipt of notice of the occurrence of any such event, or (b) if such event occurs without the acquiescence of Tenant, at any time after the event continues for sixty (60) days, may give Tenant a notice of intention to end the Term at the expiration of five (5) days from the service of such notice of intention, and upon the expiration of said five (5) day period Lease and the Term and estate hereby granted, whether or not the Term shall theretofore have commenced, shall terminate with the same effect as if that day were the Expiration Date, but Tenant shall remain liable for damages as provided as in Article 27. 25.02 This Lease and the Term and estate hereby granted and subject to the further limitation that, (a) whenever Tenant shall default in the payment of any installment of Fixed Rent, or in the payment of any additional rent, on any day upon which the same shall be due and payable and such default shall continue for five (5) days after the giving of notice thereof by Landlord, or (b) whenever Tenant shall do or permit anything to be done, whether by action or inaction, contrary to any of Tenant's obligations hereunder, and if such situation shall continue and shall not be remedied by Tenant within fifteen (15) days after Landlord shall have given to Tenant a notice specifying the same, or, in the case of a happening or default which cannot with due diligence be cured within a period of fifteen (15) days and the continuance of which for the period required for cure will not subject Landlord to the risk of criminal liability or termination of any superior lease or foreclosure of any superior mortgage, if Tenant shall not duly institute within such fifteen (15) day period and promptly and diligently prosecute to completion all steps necessary to remedy the same, or (c) whenever any event shall occur or any contingency shall arise whereby this Lease or any interest therein or the estate hereby granted or any portion thereof or the unexpired balance of the Term hereof would, by operation of law or otherwise, devolve upon or pass to any person, firm or corporation other than Tenant, except as expressly permitted by Article 18 or (d) whenever Tenant shall abandon the Demised Premises, or a substantial portion of the Demised Premises shall remain vacant for a period of ten (10) consecutive days, unless such vacancy arises as a result of a casualty; then in any such event covered by subsections a, b, c or d of this Section 25.2 at any time thereafter, Landlord may give to Tenant a notice of intention to end the Term of this Lease at the expiration of three (3) days from the date of the service of such notice of intention, and upon the expiration of said three (3) days this Lease and the Term and the estate hereby granted, whether or not the Term shall theretofore have commenced, shall terminate with the same effect as if that day were the Expiration Date, but Tenant shall remain liable for damages as provided in Article 27. ARTICLE 26-- RE-ENTRY BY LANDLORD --DEFAULT PROVISIONS 26.01 If this Lease shall terminate for any reason whatsoever, Landlord or Landlord's agents and employees may, without further notice, immediately or at any time thereafter, enter upon and re-enter the Demised Premises, or any part thereof, and possess or repossess itself thereof either by summary dispossess proceedings, ejectment or by any suitable action or proceeding at law, or by agreement, or by force or otherwise, and may dispossess and remove Tenant and all other persons and property from the Demised Premises without being liable to indictment, prosecution or damages therefor, and may repossess the same, and may remove any persons therefrom, to the end that Landlord may have, hold and enjoy the Demised Premises and the right to receive all rental income again as and of its first estate and interest therein. The words "enter" or "re-enter", "possess" or "repossess" as herein used, are not restricted to their technical legal meaning. In the event of the termination of this Lease, or of re-entry by summary dispossess proceedings, ejectment or by any suitable action or proceeding at law, or by agreement, or by force or otherwise by reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the Fixed Rent and additional rent due up to the time of such termination of this Lease or of such recovery of possession of the Demised Premises by Landlord, as the case may be, and shall also pay to Landlord damages as provided in Article 27. 26.02 In the event of any breach or threatened breach by Tenant of any of the agreements, terms, covenants or conditions contained in this Lease, Landlord shall be entitled to enjoin such breach or threatened breach and shall have the right to invoke any right and remedy allowed at law or in equity or by statute or otherwise as though re-entry, summary proceedings, and other remedies were not provided for in this Lease. 26.03 Each right and remedy of Landlord provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Landlord of any one or more of the right or remedies provided for in this lease or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by Landlord of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statue or otherwise, 26.04 If this Lease shall terminate under the provisions of Article 25, or if Landlord shall re-enter the Demised Premises under the provisions of this Article 26, or in the event of the termination of this Lease, or of re-entry, by or under any summary dispossess or other proceeding or action or any provision of law by reason of default hereunder on the part of Tenant, Landlord shall be entitled to retain all monies, if any, paid by Tenant to Landlord, whether as advance rent, security or otherwise, but such monies shall be credited by Landlord against any Fixed Rent or additional rent due from Tenant under Article 27 or pursuant to law. ARTICLE 27 -- DAMAGES 27.01 If this Lease is terminated under the provisions of Article 25, or if Landlord shall re-enter the Demised Premises under the provisions of Article 26 or in the event of the termination of this Lease, or of re-entry by summary dispossess proceedings, ejectment or by any suitable action or proceeding at law, or by agreement, or by force or otherwise, by reason of default hereunder on the part of Tenant, Tenant shall pay to landlord as damages, at the election of Landlord, on demand either, (a) a sum which at the time of such termination of this Lease or at the time of any such re-entry by Landlord, as the case may be, represents the excess of (1) the aggregate of the Fixed Rent and the additional rent payable hereunder which would have been payable by Tenant (conclusively presuming the additional rent to be the same as was payable for the year immediately preceding such termination) for the period commencing with such earlier termination of this Lease or the date of any such re-entry, as the case may be, and ending with the expiration of the Term, had this Lease not so terminated or had Landlord not so re-entered the Demised Premises over (2) the aggregate rental value (calculated as of the date of such termination or re-entry) of the Demised Premises for the same period, or, (b) a sum equal to the Fixed Rent and the additional rent (as above presumed) payable hereunder which would have been payable by Tenant had this Lease not so terminated, or had Landlord not so re-entered the Demised Premises, payable quarterly or otherwise upon the terms therefor specified herein following such termination or such re-entry and until the expiration of the Term, provided, however, that if Landlord shall relet the Demised Premises or any portion or portions thereof during said period, Landlord shall credit Tenant with the net rents such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the expenses incurred or paid by Landlord in terminating this Lease or in re-entering the Demised Premises and in securing possession thereof, as well as the expenses of reletting, including altering and preparing the Demised Premises or any portion or portions thereof for new tenants, brokers' commissions, advertising expenses, attorneys' fees, and all other expenses properly chargeable against the Demised Premises and the rental therefrom; it being understood that any such reletting may be for a period shorter or longer than the remaining Term of this Lease, but in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit for the collection of damages pursuant to this Subsection to a credit in respect of any net rents from a reletting, except to the extent that such net rents are actually received by Landlord, If the Demised Premises or any part thereof should be relet in combination with other space, then proper apportionment shall be made of the rent received from such reletting and of the expenses of reletting. If the Demised Premises or any part thereof be relet by Landlord for the unexpired portion of the Term, or any part thereof, before presentation of proof of such damages to any court, commission, or tribunal, the amount of rent payable upon such reletting shall, prima facie, be the fair and reasonable rental value for the Demised Premises or any part thereof or evidence of damage for failure to collect any rent due upon any such reletting. 27.02 Suit or suits for the recovery of such damages, or any installments thereof, may be brought by Landlord from time to time at its election, and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the Term would have expired if it had not been so terminated under the provision of Article 26, or under any provision of law, or had landlord not re-entered the Demised Premises. Nothing herein contained shall be construed to limit or preclude recovery by Landlord against Tenant of any sums or damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default hereunder or otherwise on the part of Tenant. Nothing herein contained shall be construed to limit or prejudice the right of the Landlord to prove and obtain as damages by reason of the termination of this Lease or re-entry on the Demised Premises for the default of Tenant under this Lease, 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 any of the sums referred to Section 27.01. 27.03 Anything in this Lease to the contrary notwithstanding, if Tenant shall at any time be in default hereunder, and if Landlord shall institute an action or summary proceeding against Tenant based upon such default, or if such default results from non-payment of Fixed Rent or additional rent whether or not such an action or proceeding is instituted, then Tenant shall reimburse Landlord, as additional rent, for the expense of attorneys' fees and disbursements thereby incurred by Landlord, so far as the same are reasonable. ARTICLE 28 -- WAIVERS 28.01 Tenant, for itself, and on behalf of any and all persons claiming through or under Tenant, including creditors of all kinds, does hereby waive and surrender all right and privilege so far as is permitted by law, which they or any of them might have under or by reason of any present or future law, of the service of any notice of intention to re-enter and also waives any and all right of redemption or re-entry or repossession in case Tenant shall be dispossessed or ejected by process of law, or in case of re-entry or repossession by Landlord, or in case of any expiration or termination of this Lease as herein provided. 28.02 Tenant waives Tenant's rights, if any, to designate the items against which any payments made by Tenant are to be credited, and Tenant agrees that Landlord may apply any payments made by Tenant to any items against which any such payments shall be credited. 28.03 Tenant waives Tenant's rights, if any, to assert a counterclaim in any summary proceeding brought by Landlord against Tenant, and Tenant agrees to assert any such claim against Landlord only by way of a separate action or proceeding. 28.04 To the extent permitted by applicable law, Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, or Tenant's use of occupancy of the Demised Premises, or any emergency or other statutory remedy with respect thereto. 28.05 The provisions of Article 8 and 9 shall be considered express agreements governing the services to be furnished by Landlord, and Tenant agrees that any laws and/or requirements of public authorities, now or hereafter in force, shall have no application in connection with any enlargement of Landlord's obligations with respect to such services. ARTICLE 29 -- NO OTHER WAIVERS OR MODIFICATIONS 29.01 The failure of Landlord to insist on any one or more instances upon the strict performance of any one or more of the agreements, terms, covenants, conditions or obligations of this Lease, Exhibits and Riders thereto, or to exercise any right, remedy or election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the same shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. The manner of enforcement or the failure of Landlord to enforce any of the Rules and Regulations set forth herein, or hereafter adopted against the Tenant and/or any other tenant in the Building shall not be deemed a waiver of any such Rules and Regulations. No executory agreement hereafter made between Landlord and Tenant shall be effective to change, modify, waive, release, discharge, terminate or affect an abandonment of this Lease, in whole or in part, unless such executory agreement is in writing, refers expressly to this Lease and is signed by the party against whom enforcement of the change, modification, waiver, release, discharge or termination or effectuation of the abandonment is sought. 29.02 The following specific provisions of this Section shall not be deemed to limit the generality of the foregoing provision of this Article: (a) no agreement to accept a surrender of all or any part of the Demised Premises shall be valid unless in writing and signed by Landlord. The delivery of keys to an employee of Landlord or of its agent shall not operate as a termination of this Lease or a surrender of the Demised Premises. If Tenant shall at any time request Landlord to sublet the Demised Premises for Tenant's account, Landlord or its agent is authorized to receive said keys for such purposes without releasing Tenant from any of its obligations under this Lease, and Tenant hereby releases Landlord from any liability for loss or damage to any of Tenant's Property in connection with such subletting. (b) the receipt or acceptance by Landlord of rents with knowledge of breach by Tenant of any term, agreement, covenant, condition or obligation of this Lease shall not be deemed a waiver of such breach. (c) no payment by Tenant or receipt by Landlord of a lesser amount than the correct Fixed Rent or additional rent due hereunder shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed to affect or evidence an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other remedy in this Lease or provided at law. (d) if, in connection with obtaining, continuing or renewing financing for which the Building, land or a leasehold or any interest therein represents collateral in whole or in part, a bank, insurance company or other lender shall request reasonable modifications of this Lease as a condition of such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or adversely affect to a material degree the Tenant's leasehold interest hereby created. ARTICLE 30-- CURING TENANT'S DEFAULTS, ADDITIONAL RENT 30.01 If Tenant shall default in the performance of any of its obligations under this Lease, Landlord, without thereby waiving such default, may (but shall not be obligated to) perform the same for the account and at the expense of Tenant, without notice, in a case of emergency, and in any other case, only if such default continues after the expiration of ten (10) days from the date Landlord gives Tenant notice of intention so to do. 30.02 Bills for any expenses incurred by Landlord in connection with any such performance by it for the account of Tenant, and bills for all costs, expenses and disbursements of every kind and nature whatsoever, including reasonable counsel fees, involved in collecting or endeavoring to collect the fixed rent or additional rent or any part thereof or enforcing or endeavoring to enforce any rights 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 may be sent by Landlord to Tenant monthly, or presented immediately, at Landlord's option, and, shall be due and payable in accordance with the terms of such bills. ARTICLE 31-- NOTICES -- SERVICE OF PROCESS 31.01 Any notice, statement, demand, request or other communication required or permitted pursuant to this Lease or otherwise shall be in writing and shall be deemed to have been properly given if sent by registered or certified mail, return receipt requested, postage prepaid, addressed to the other party at the address hereinabove set forth (except that after the Commencement Date, Tenant's address, unless Tenant shall give notice to the contrary, shall be the Building), and shall be deemed to have been given on the expiration of five (5) business days after mailing. Either party may, by notice as aforesaid, designate a different address or addresses for notices, statements, demands or other communications intended for it. However, notices requesting after hours service pursuant to Sections 8.01 and 9.01 may be given, provided they are in writing, by delivery to the Building Superintendent or any other person in the Building designated by Landlord to receive such notices, and notice of fire, accident or other emergency shall be given by telegram or by personal delivery of written notice to that address designated for this purpose from time to time by the respective parties hereto, 31.02 Whenever either party shall consist of more than one person or entity, any notice, statement, demand, or other communication required or permitted, or any payment to be made shall be deemed duly given or paid if addressed to or by (or in the case of payment by check, to the order of) any such persons or entities who shall be designated from time to time as the authorized representative of such party. Such party shall promptly notify the other of the identity of such person or entity who is so to act on behalf of all persons and entities then comprising such party and of all changes in such identity. 31.03 Tenant agrees to give any Mortgagee, by Certified Mail, a copy of any Notice of Default served upon the Landlord by Tenant provided that prior to such notice Tenant has been notified, in writing, (by way of Notice of Assignment of Rents and Leases, or otherwise) of the address of such Mortgagee. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the Mortgagee shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary if within such thirty (30) days, any Mortgagee has commenced and is diligently pursuing the remedies necessary to cure such default, (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure) in which event this lease shall not be terminated while such remedies are being so diligently pursued. ARTICLE 32 -- ESTOPPEL CERTIFICATE, MEMORANDUM 32.01 Tenant agrees, at any time and from time to time, as requested by Landlord, upon not less than ten (10) days' prior notice, to execute and deliver without cost or expense to the Landlord a statement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect except as modified and stating the modifications), certifying the dates to which the Fixed Rent and additional rent have been paid, and stating whether or not, to the best knowledge of the Tenant, the Landlord is in default in performance of any of its obligations under this Lease, and, if so, specifying each such default of which the Tenant may have knowledge, it being intended that any such statement delivered pursuant thereto may be relied upon by any other person with whom the Landlord may be dealing. The foregoing obligation shall be deemed a substantial obligation of the tenancy, the breach of which shall give Landlord those remedies herein provided for an event of default. 32.02 Tenant agrees not to record this Lease. At the request of either party, Landlord and Tenant shall promptly execute, acknowledge and deliver a memorandum with respect to this Lease sufficient for recording which Tenant may record. Such memorandum shall not in any circumstances be deemed to change or otherwise affect any of the obligations or provision of this Lease. ARTICLE 33 -- NO OTHER REPRESENTATIONS, CONSTRUCTION, GOVERNING LAW 33.01 Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and delivering this Lease, is not relying upon any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease or in any other written agreement which may be made and executed between the parties concurrently with the execution and delivery of this Lease and shall expressly refer to this Lease. This Lease and said other written agreement(s) made concurrently herewith are hereinafter referred to as the "lease documents". It is understood and agreed that all understandings and agreements heretofore had between the parties are merged in the Lease documents, which alone fully and completely express their agreements and that the same are entered into after full investigation, neither party relying upon any statement or representation not embodied in the Lease documents, made by the other. 33.02 If any of the provisions 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 or provisions to persons or circumstances other than those as to whom or which it is held invalid or unenforceable, shall not be affected thereby, and every 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, Landlord 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. ARTICLE 37 -- INABILITY TO PERFORM This Lease and the obligation 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 Landlord 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 or fixtures if Landlord is prevented or delayed from so doing by reason of strike or labor troubles or any cause whatsoever including but not limited to, government preemption in connection with a National Emergency 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 of supply and demand which have been or are affected by war or other emergency. ARTICLE 38 -- LIABILITY OF LANDLORD Tenant shall look solely to the estate and interest of landlord, its successors and assigns, in the land and Building for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default by Landlord hereunder, and no other property or assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to either' this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use and occupancy of the Demised Premises. Neither the partners comprising Landlord (the "Partners"), nor the partners, shareholders, directors and officers of Landlord or the Partners shall be liable for the performance of Landlord's obligations under this Lease, ARTICLE 39--BROKERAGE Tenant represents and warrant that it has dealt only with Dolan Realty, Inc, and Archie Schwartz Company in connection with this Lease and Tenant does hereby agree to indemnify and hold harmless the Landlord of and from any and all loss, costs, damage or expense (including, without limitation, attorneys' fees and disbursements) incurred by the Landlord by reason of any claim of or liability to any other broker who shall claim to have dealt with Tenant in connection with this Lease. ARTICLE 40--EARLY TERMINATION OPTION 40.01 At any time subsequent to the end of the sixtieth (60) month of the Term of the Lease, Tenant, at Tenant's option may terminate this Lease upon (i) at least three (3) months prior written notice by Tenant of Tenant's intent to terminate the Lease at specified date (hereinafter the "Early Termination Date") and (ii) payment by Tenant to Landlord of an Early Lease Termination Fee equal to all unamortized costs of Landlord, for brokerage commissions and attorneys fees and costs associated with the Lease plus a sum equal to twenty-five (25%) percent of the Fixed Rent for the remaining term of the Lease, 40.02 All of Tenant's duties and responsibilities set forth in Article 24 shall be binding upon Tenant in the event of an early termination of this Lease pursuant to this Article 40. ARTICLE 41--MISCELLANEOUS PROVISIONS 41.01 All work, including but not limited to, waxing or additional cleaning that Tenant does or shall do in the Demised Premises, shall be done by contractors employing union labor, approved in writing by Landlord and shall at all times conform to the standards of the Building and shall comply with all laws and/or requirements of public authorities. Tenant, as additional rent, shall indemnify and hold harmless Landlord against any loss or damage Landlord may sustain by reason of, and against, any order, decrees, judgments, attorney's fees and expenses resulting from, failure of Tenant to comply with the provisions hereof. 41.02 The Article headings in this Lease and the Table of Contents prefixed to this Lease are inserted only as a matter of convenience or reference, and are not to be given any effect whatsoever in construing this Lease. IN WITNESS WHEREOF, the parties hereto have executed this instrument the day and year first above written. LANDLORD: EVERGREEN AMERICA CORPORATION By: __________________________ Witness for Landlord TENANT: PT-1 COMMUNICATIONS, INC. By: __________________________ Its: __________________________ (Title) Witness for Tenant EX-10.65 14 EXHIBIT 10.65 - ------------------------------------------------------------------------------- OFFICE LEASE "NEW WORLD TOWER" - 100 N. BISCAYNE BOULEVARD LANDLORD: NWT PARTNERS, LTD. SUCCESSORS IN INTEREST TO PEOPLES SOUTHWEST REAL ESTATE LIMITED PARTNERSHIP TENANT: STAR TELECOMMUNICATIONS, INC. PREMISES: SUITE 2000 - -------------------------------------------------------------------------------- BASIC TERM SHEET OFFICE LEASE "NEW WORLD TOWER" - 100 N. BISCAYNE BOULEVARD The following provisions and terms are incorporated as Sections 1.2 and 1.3 in the Lease between Landlord and Tenant. 1.1.1 - LANDLORD: NWT Partners, Ltd., successors in interest to Peoples Southwest Real Estate Limited Partnership 1.1.2 - TENANT: Star Telecommunications Inc., a Delaware corporation authorized to do business in Florida 1.1.3 - BUILDING: 100 N. Biscayne Blvd. Miami, Florida 33132 which is currently known as New World Tower and which includes the adjacent parking garage. 1.1.4 - PREMISES: Suite 2000, having a gross leasable area measured in accordance with Section 1.4. 1.1.5 - USE OF PREMISES: general offices, telecommunications or Internet switch facility and other uses consistent therewith, subject to reasonable rules and requirements of Landlord in regard to such switch. 1.1.6 - TENANT'S TRADE NAME: N/A 1.1.7 - LEASE TERM: ten (10) year(s) from the Lease Commencement Date, unless otherwise extended or shortened (if the Lease Commencement Date is other than the first day of a calendar month, the first, partial month shall be added to the following twelve months to comprise the first year of the Lease Term). 1.1.8 - LEASE COMMENCEMENT DATE (SECTION 1.6) ): earlier of (a) October 1, 1997, or (b) date of Substantial Completion of Tenant's Initial Improvements. LEASE EXPIRATION DATE (SECTION 1.6): Ten (10) years from the Lease Commencement Date. 1.1.9 - RENT COMMENCEMENT DATE (SECTION 1.7): the Lease Commencement Date 1.1.10 - FIXED MINIMUM RENT (SECTION 2.1): the aggregate sum of $2,126,250.00 for the entire Lease Term (plus any partial Lease month), payable the first of each month as follows, plus all applicable taxes:
First Lease Year (plus any partial month) $18.00 $189,000.00 /yr 15,750.00 /mo Second Lease Year $18.50 $194,250.00 /yr 16,187.50 /mo Third Lease Year $19.00 $199,500.00 /yr 16,625.00 /mo Fourth Lease Year $19.50 $204,750.00 /yr 17,062.50 /mo Fifth Lease Year $20.00 $210,000.00 /yr 17,500.00 /mo Sixth Lease Year $20.50 $215,250.00 /yr 17,937.50 /mo Seventh Lease Year $21.00 $220,500.00 /yr 18,375.00 /mo Eighth Lease Year $21.50 $225,750.00 /yr 18,812.50 /mo Ninth Lease Year $22.00 $231,000.00 /yr 19,250.00 /mo Tenth Lease Year $22.50 $236,250.00 /yr 19,687.50 /mo ---------- Total $2,126,250.00
------------------------/----------------------- LANDLORD TENANT 1.1.11 - Fixed Minimum Rent Increase(s)-CPI N/A Adjustment Dates (Section 2.2):N/A Basic Standard (Base Month):N/A 1.1.12 - Construction Plans Submission Date:___________ 1.1.13 - Landlord's Contribution: $12.00 per square foot. Upon the execution of this Lease, the parties shall establish a checking account in the SunTrust Bank, 1111 Lincoln Road, Miami Beach, Florida Branch for the purpose of paying for Tenant's Initial Improvements, and Tenant shall deposit therein the sum of $20,000.00 and Landlord shall deposit therein the sum of $10,000.00. Such bank account (the "Improvements Payment Account") shall require two signatures on each check. One signatory shall be a nominee of Landlord and one signatory shall be a nominee of Tenant. The details shall be as set forth in Section 5.3 of this Lease. 1.1.14 - Security Deposit (Section 10.1): $ 25,000.00 1.1.15 - Tenant's Participation In Operating Expenses and Taxes (Section 4.1): Proportionate Share: 4% Base Operating Year: 1997; Base Tax Year: 1997 First Operating Expense Adjustment Payment Date: First anniversary of Lease Commencement Date. First Tax Adjustment Payment Date: First anniversary of Lease Commencement Date. 1.1.1.16 Addresses for Notices (Section 12.1) Tenant: Star Telecommunications, Inc. 233 E. De La Guerra Street Santa Barbara, CA 93101 Attention: Keely Cormir With a copy to: David Reese, Esq. Seed, Mackall & Cole, LLP 1332 Anacapa Street, Suite 200 Santa Barbara, CA 93111 and after the Lease Commencement Date, the Premises, too Landlord: NWT Partners, Ltd., a Florida Limited Partnership 1111 Lincoln Road Suite 800 Miami Beach, Florida 33139 Attn.: David Garfinkle With a copy to: Building Manager New World Tower 100 N. Biscayne Blvd. Miami, FL 33132 1.1.17 - Guarantors: N/A 1.1.18 - Additional Terms: PARKING: Tenant shall have the right (but no obligation to use) six (6) parking spaces in the Building parking facilities, at the then-standard rate for the parking in such facilities. The rate at the time of execution of this instrument is $85.00 per space per month, plus applicable taxes. Tenant may elect, by notice duly given to Landlord, to reduce the number of spaces which it ------------------------/----------------------- LANDLORD TENANT is allotted but, if it does so, Landlord shall not be obligated to increase the number of spaces in the future. MOVING EXPENSE: Tenant shall have the right to engage a moving company of its choice for moving furniture, telephone systems, equipment, supplies and other tangible personal property into or out of the Premises at the beginning of the initial Lease Term and the termination of the Lease; in connection with such moving in of equipment, Landlord shall provide Tenant free access to the freight elevator for all of the equipment of Tenant at reasonable times, not to conflict with other tenants' uses. ASSIGNMENT: Tenant may assign this Lease or sublet all or part of the Premises to an affiliated entity without Landlord's prior written approval, provided it delivers evidence of the assignment or sublease to Landlord. Tenant may not assign or sublet all or any part of the Premises to unaffiliated third parties without the Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. If Tenant requests Landlord's consent to assignment or subletting to an unaffiliated third party, Landlord shall not have a right to recapture the Premises. Landlord shall be entitled to fifty percent (50%) of Tenant's profits (after payment of reasonable transaction expenses) from subleases or assignments to third parties. For the purposes of this Lease, "an affiliate" or "an affiliated entity" shall mean any party which is controlled by, controlling or under common control with Tenant and where the term control has the meaning attached to it under the Internal Revenue Code. SIGNAGE: In the event that Tenant lease the entire 20th floor, Tenant may install its logo or other reasonable signage on the walls of the elevator lobby on the 20th floor and on the entrance doors to the space under lease by Tenant, subject to Landlord's prior approval which shall not be unreasonably withheld. SEE RIDER 1.2 - Exhibit A - Legal Description Exhibit B - Site Plan Exhibit C - Rules and Regulations RIDER AND EXHIBIT A, EQUIPMENT AND OPERATING RIGHTS. ------------------------/----------------------- LANDLORD TENANT TABLE OF CONTENTS
PAGE ARTICLE I LANDLORD COVENANTS; PRIMARY LEASE PROVISIONS; EXHIBITS; PREMISES; USE OF PREMISES; TERM Section 1.1 COVENANTS OF LANDLORD'S AUTHORITY AND QUIET ENJOYMENT................................1 Section 1.2 PRIMARY LEASE PROVISIONS.............................................................1 Section 1.3 EXHIBITS.............................................................................1 Section 1.4 PREMISES LEASED BY TENANT............................................................1 Section 1.5 USE OF PREMISES......................................................................1 Section 1.6 LEASE TERM...........................................................................1 Section 1.7 RENT COMMENCEMENT DATE...............................................................2 Section 1.8 LEASE YEAR...........................................................................2 Section 1.9 ACCEPTANCE OF PREMISES...............................................................2 ARTICLE II RENT Section 2.1 FIXED MINIMUM RENT...................................................................2 Section 2.2 FIXED MINIMUM RENT INCREASE..........................................................2 Section 2.3 LATE PAYMENT ADMINISTRATIVE FEE......................................................2 Section 2.4 ADDITIONAL RENT - DEFINITION.........................................................3 Section 2.5 SALES TAX............................................................................3 ARTICLE III SERVICES Section 3.1 SERVICES OF LANDLORD.................................................................3 Section 3.2 SERVICES OF TENANT...................................................................4 Section 3.3 NO EVICTION..........................................................................4 Section 3.4 SECURITY.............................................................................5 Section 3.5 PARKING..............................................................................5 ARTICLE IV OPERATING EXPENSES AND TAXES Section 4.1 TENANT'S PARTICIPATION IN OPERATING EXPENSES AND TAXES...............................5 Section 4.2 DEFINITION OF OPERATING EXPENSES.....................................................6 Section 4.3 TENANT'S TAXES.......................................................................7 Section 4.4 TAXES INCLUDED.......................................................................7 Section 4.5 RECEIPT OF NOTICES...................................................................7 ARTICLE V TENANT'S INITIAL IMPROVEMENTS Section 5.1 CONSTRUCTION PLANS...................................................................7 Section 5.2 PLANS REVIEW.........................................................................9 Section 5.3 PAYMENT..............................................................................9 Section 5.4 TENANT DELAY........................................................................10 Section 5.5 SUBSTANTIAL COMPLETION..............................................................10 Section 5.6 EARLY OCCUPANCY.....................................................................10 Section 5.7 REVISIONS...........................................................................11 Section 5.8 COMPLETION DUE DILIGENCE............................................................11 ------------------------/----------------------- LANDLORD TENANT (i) ARTICLE VI ADDITIONS, ALTERATIONS, REPLACEMENTS, AND TRADE FIXTURES Section 6.1 BY LANDLORD.........................................................................12 Section 6.2 BY TENANT...........................................................................12 Section 6.3 CONSTRUCTION INSURANCE AND INDEMNITY................................................13 Section 6.4 MECHANIC'S LIENS AND ADDITIONAL CONSTRUCTION........................................13 Section 6.5 TRADE FIXTURES......................................................................14 Section 6.6 RIGHT OF ENTRY......................................................................15 ARTICLE VII INSURANCE AND INDEMNITY Section 7.1 TENANT'S INSURANCE..................................................................15 Section 7.2 EXTRA HAZARD INSURANCE PREMIUMS.....................................................16 Section 7.3 INDEMNITY...........................................................................17 ARTICLE VIII DAMAGE, DESTRUCTION AND CONDEMNATION Section 8.1 DAMAGE OR DESTRUCTION BY FIRE OR OTHER CASUALTY.....................................17 Section 8.2 CONDEMNATION........................................................................18 ARTICLE IX DEFAULT, REMEDIES Section 9.1 DEFAULT.............................................................................19 Section 9.2 REMEDIES............................................................................20 Section 9.3 TERMINATION.........................................................................20 Section 9.4 NO REINSTATEMENT AFTER TERMINATION..................................................20 Section 9.5 RETENTION OF SUMS AFTER TERMINATION.................................................21 Section 9.6 RE-ENTRY............................................................................21 Section 9.7 SUMS COLLECTED UPON RELETTING.......................................................22 Section 9.8 NO EFFECT ON SUIT...................................................................22 Section 9.9 WAIVER OF RIGHTS OF REDEMPTION......................................................22 Section 9.10 USE OF WORD "RE-ENTRY"..............................................................22 Section 9.11 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULTS..........................................22 Section 9.12 LANDLORD'S EXPENSES.................................................................23 ARTICLE X SECURITY Section 10.1 SECURITY DEPOSIT....................................................................23 Section 10.2 PERSONAL PROPERTY...................................................................24 ARTICLE XI ADDITIONAL TENANT AGREEMENTS Section 11.1 MORTGAGE FINANCING AND SUBORDINATION................................................24 Section 11.2 ASSIGNMENT OR SUBLETTING............................................................24 Section 11.3 TENANT'S NOTICE TO LANDLORD OF DEFAULT..............................................25 Section 11.4 SHORT FORM LEASE....................................................................25 Section 11.5 SURRENDER OF PREMISES AND HOLDING OVER..............................................25 Section 11.6 ESTOPPEL CERTIFICATE................................................................25 Section 11.7 DELAY OF POSSESSION.................................................................25 Section 11.8 COMPLIANCE WITH LAW.................................................................25 Section 11.9 RULES AND REGULATIONS...............................................................27 Section 11.10 ABANDONMENT.........................................................................28 Section 11.11 LANDLORD'S LIEN.....................................................................28 (ii) ------------------------/----------------------- LANDLORD TENANT ARTICLE XII MISCELLANEOUS PROVISIONS Section 12.1 NOTICES.............................................................................28 Section 12.2 ENTIRE AND BINDING AGREEMENT........................................................28 Section 12.3 PROVISIONS SEVERABLE................................................................28 Section 12.4 CAPTIONS............................................................................28 Section 12.5 RELATIONSHIP OF THE PARTIES.........................................................28 Section 12.6 ACCORD AND SATISFACTION.............................................................29 Section 12.7 BROKER'S COMMISSION.................................................................29 Section 12.8 CORPORATE AND PARTNERSHIP STATUS....................................................29 Section 12.9 MISCELLANEOUS.......................................................................29 Section 12.10 FINANCIAL STATEMENTS................................................................30 Section 12.11 RELOCATION..........................................................................31 Section 12.12 NON-WAIVER PROVISIONS...............................................................31 Section 12.13 RADON GAS...........................................................................31 ------------------------/----------------------- LANDLORD TENANT
(iii) OFFICE LEASE "NEW WORLD TOWER" - 100 N. BISCAYNE BOULEVARD THIS LEASE ("Lease") is made and entered into as of this ___________ day of _______________________________, 19__ by and between Landlord and Tenant. Landlord demises and rents to Tenant, and Tenant leases from Landlord, the Premises now existing in Landlord's Building, upon the terms, covenants and conditions contained herein. ARTICLE I LANDLORD COVENANTS; PRIMARY LEASE PROVISIONS; EXHIBITS; PREMISES; USE OF PREMISES; TERM Section 1.1 COVENANTS OF LANDLORD'S AUTHORITY AND QUIET ENJOYMENT. Landlord represents and covenants that (a) prior to commencement of the Lease Term, it has good title to the land and Building of which the Premises form a part, and (b) upon performing all of its obligations under this Lease, Tenant shall peacefully and quietly have, hold and enjoy the Premises for the Lease Term. Section 1.2 PRIMARY LEASE PROVISIONS. The provisions and terms of Sections 1.2.1 through 1.2.18 of the Basic Term Sheet are incorporated in this Lease as a part of this Section 1.2, and are subject to the additional provisions of this Lease. Section 1.3 EXHIBITS. The exhibits, riders and attachments described on the Basic Term Sheet are incorporated in and made part of this Lease as part of this Section 1.3. Section 1.4 PREMISES LEASED BY TENANT. 1.4.1 The Premises are leased by Tenant from Landlord. The approximate boundaries and location of the Premises are outlined on the Site Plan diagram of the Building (Exhibit "B"), which sets forth the general layout of the Building but which shall not be deemed to be a warranty, representation, or agreement upon the part of the Landlord that the Building and layout will be exactly as indicated on said diagram. 1.4.2 The portion of the Building to be leased by Tenant. shall be measured upon substantial completion of the Tenant's Initial Improvements using the American Standard Z65.1-1996 as published by the Building Owners and Managers Association International to determine the precise square footage of the Premises. Within ten (10) days following completion of such measurements, Landlord and Tenant shall complete and initial an addendum stating the total number of square feet in the Premises, the total square footage of the Building, and the Tenant's percentages of the Building and the Common Area. Section 1.5 USE OF PREMISES. The Premises shall be used and occupied only for the Use specified in the Basic Term Sheet, and for no other purpose or purposes without Landlord's prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned. Tenant shall, at its own risk and expense, obtain all governmental licenses and permits necessary for such use. Section 1.6 LEASE TERM. ---------------/------------------- LANDLORD TENANT The Lease Commencement Date, the Lease Term and the Lease Termination Date shall be for the period specified in the Basic Term Sheet, unless sooner terminated or extended as provided in this Lease. Section 1.7 RENT COMMENCEMENT DATE. Tenant shall commence payment of Rent at the earlier of (a) the date specified in the Basic Term Sheet, or (b) the date when Tenant shall occupy the Premises for business; the Rent Commencement Date shall be specified by both parties in writing no later than five (5) days after Tenant opens for business, upon request of either party. If the Rent Commencement Date falls on a day other than the first day of a calendar month, the Fixed Minimum Rent for such month shall be prorated on a per diem basis, calculated on the basis of a thirty (30) day month. Section 1.8 LEASE YEAR. For purpose of this Lease, the term "Lease Year" is defined to mean a calendar year (beginning January 1 and extending through December 31 of any given year). Any portion of a year which is less than a Lease Year, that is, from the Lease Commencement Date through the next December 31, and from the last January 1 falling within the Lease Term through the last day of the Lease Term, shall be defined as a Partial Lease Year. ARTICLE II RENT Section 2.1 FIXED MINIMUM RENT. 2.1.1 The total Fixed Minimum Rent for the Lease Term as specified in the Basic Term Sheet shall be payable by Tenant as specified in the Basic Term Sheet. 2.1.2 The phrase "Fixed Minimum Rent" shall be the Fixed Minimum Rent specified above, payable monthly in advance on the first day of each month, without prior demand therefor and without any deduction or setoff whatsoever. Tenant reserves the right to make payment under protest if any charges are in dispute. In addition, Tenant covenants and agrees to pay Landlord all applicable sales or other taxes which may be imposed on the above specified rents or payments hereinafter provided for to be received by Landlord when each such payment is made. Section 2.2 Intentionally left blank. Section 2.2 LATE PAYMENT ADMINISTRATIVE FEE. If a Rent payment is not received within five (5) days after its due date, administrative fees and late charges of $50.00, plus an ongoing charge of 18% (annual rate, which shall accrue on the unpaid Rent including Additional Rent) shall become immediately due and payable from Tenant to Landlord, without notice or demand. This provision for administrative fees and late charges is not, and shall not be deemed, a grace period. In the event any check, bank draft or negotiable instrument given for any payment under this Lease shall be dishonored at any time for any reason whatsoever not attributable to Landlord, Landlord shall be entitled, in addition to any other remedy that may be available, to an administrative charge of Two Hundred Dollars ($200.00). Such administrative fees and late charges are neither penalties nor interest charges, but liquidated damages to defray administrative, collection, and related expenses due to Tenant's invalid payment or to Tenant's failure to make such Rent payment when due. An additional administrative fee and late charge shall become immediately due and payable on the first day of each month for which all or a portion of a Rent payment (together with any administrative fee and late charge) remains unpaid. Landlord, at its option, may deduct any such charge from any Security Deposit held by Landlord and, in such event, Tenant shall immediately deposit a like amount with Landlord in accordance with the terms - 2 - ---------------/------------------- LANDLORD TENANT of Section 10.1. All sums which Tenant shall be obligated to pay to Landlord from time to time pursuant to this Lease shall be deemed part of the Rent. In the event of the nonpayment by Tenant of such sums, Landlord shall have the same rights and remedies by reason of such nonpayment as if Tenant had failed to pay any Rent. Section 2.3 ADDITIONAL RENT - DEFINITION. In addition to the foregoing Fixed Minimum Rent and Fixed Minimum Rent Increase, all payments to be made under this Lease by Tenant to Landlord shall be deemed to be and shall become Additional Rent hereunder and, together with Fixed Minimum Rent, shall be included in the term "Rent" whenever such term is used in this Lease. Unless another time is expressly provided for the payment thereof, any Additional Rent shall be due and payable on demand or together with the next succeeding installment of Fixed Minimum Rent, whichever shall first occur, together with all applicable State taxes and interest thereon at the then prevailing legal rate, and Landlord shall have the same remedies for failure to pay the same as for non-payment of Fixed Minimum Rent. Landlord, at its election, shall have the right to pay or do any act which requires the expenditure of any sums of money by reason of the failure or neglect of Tenant to perform any of the provisions of this Lease, and in the event Landlord elects to pay such sums or do such acts requiring the expenditure of monies, all such sums so paid by Landlord, together with interest thereon, shall be deemed to be Additional Rent and payable as such by Tenant to Landlord upon demand. Section 2.4 SALES TAX. Together with each payment of Rent or other sum on which such tax may be due, Tenant shall pay to Landlord a sum equal to any applicable sales tax, tax on rents, and any other charges, taxes, and/or impositions now in existence or subsequently imposed based upon the privilege of renting the Premises or upon the amount of rent collected. Tenant's liability for such taxes and/or impositions shall be payable whether assessed at the time the Rent payment is made or retroactively, and shall survive the termination or expiration of this Lease. ARTICLE III SERVICES Section 3.1 SERVICES OF LANDLORD. 3.1.1 Landlord shall maintain the public and common areas of the Building, including without limitation, lobbies, stairs, elevators, corridors and restrooms, the windows in the Building, the mechanical, plumbing, life safety and electrical equipment serving the Building, and the structure itself in reasonably good order and condition except for damage occasioned by the act of Tenant, which damage shall be repaired by Landlord at Tenant's expense. 3.1.2 Landlord shall furnish the Premises with (a) electricity for lighting and the operation of standard office machines, (b) heat and air conditioning to the extent reasonably required for the comfortable occupancy by Tenant in its use of the Premises during the period from 8:00 a.m. to 6:00 p.m. on weekdays and from 9:00 a.m. to 1:00 p.m. on Saturdays, except for holidays declared by the Federal government, or such shorter period as may be prescribed by any applicable policies or regulations adopted by any utility or governmental agency, (c) elevator service, if applicable, (d) lighting replacement (for building standard lights), (e) standard restroom supplies, (f) window washing with reasonable frequency, (g) and daily janitor service five (5) days a week during the times and in the manner that such services are customarily furnished in comparable office buildings in the area. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the rental herein reserved be abated by - 3 - ---------------/------------------- LANDLORD TENANT reason of (i) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing service, except as a result of Landlord's gross negligence or willful misconduct, (ii) failure to furnish or delay in furnishing any such services when such failure or delay is caused by accident or any condition beyond the reasonable control of Landlord or by the making of necessary repairs or improvements to the Premises or to the Building, or other cause other than Landlord's gross negligence or willful misconduct, or (iii) the limitation, curtailment, rationing or restrictions on use of water, electricity, gas or any other form of energy serving the Premises or the Building. Landlord shall use reasonable efforts diligently to remedy any interruption in the furnishing of such services. 3.1.3 Whenever heat generating equipment or lighting other than Building standard lights are used in the Premises by Tenant which materially affect the temperature otherwise maintained by the air conditioning system, Landlord shall have the right, after three (3) days notice to Tenant, to install supplementary air conditioning facilities in the Premises or otherwise modify the ventilating and air conditioning systems serving the Premises, and the cost of such facilities and modifications shall be borne by Tenant as Additional Rent. Tenant shall also pay, as Additional Rent, the cost of providing all cooling and heat energy to the Premises in excess of that required for normal office use or during hours requested by Tenant when air conditioning or heat is not otherwise furnished by Landlord. If Tenant installs lighting requiring power in excess of that required for normal office use in the Building, or if Tenant installs equipment requiring power in excess of that required for normal desk-top office equipment or normal copying equipment, Tenant shall pay for the cost of such excess power as Additional Rent, together with the cost of installing any additional risers or other facilities that may be necessary to furnish such excess power to the Premises. Section 3.2 SERVICES OF TENANT. Tenant shall, at Tenant's own expense, keep the Premises in good repair and tenantable condition during the Term, except only for reasonable wear and tear. Tenant shall, at Tenant's expense but under the direction of Landlord, promptly repair (and make replacements where necessary) any injury or damage to the Building and the property of which it is a part ("Property"), including, but not limited to, any and all broken glass, caused by Tenant or Tenant's officers, personnel, agents, employees, servants, licensees, invitees, guests, patrons, or customers. Tenant shall shampoo and replace carpeting, wash walls and ceilings, and otherwise maintain the appearance of the Premises and contents thereof at Tenant's expense as necessary to maintain the Premises in good repair and tenantable condition. Section 3.3 NO EVICTION. The services described in this Article III shall be provided as long as this Lease is in full force and effect, subject to interruption caused by unavoidable delay, force majeure or acts of God, and conditions and causes beyond the control of Landlord. Furthermore, Landlord reserves the right to stop the service of the air-cooling, elevator, electrical, plumbing or other mechanical systems or facilities in the Building when necessary, by reason of accident or emergency, or for repairs, additions, alterations, replacements, decorations or improvements desirable or necessary to be made in the reasonable judgment of Landlord, until such repairs, alterations, replacements or improvements shall have been completed. Landlord shall undertake to diligently commence and work toward completion of all necessary repairs. All discretionary repairs shall be done in a manner and at times, whenever reasonably appropriate, so as not to unnecessarily interfere with Tenant's Use and shall only be undertaken after giving Tenant three (3) days prior written notice. Landlord shall have no responsibility or liability for interruption, curtailment or failure to supply cooled or outside air, heat, elevator, - 4 - ---------------/------------------- LANDLORD TENANT plumbing or electricity when prevented by exercising its right to stop service or by any cause whatsoever beyond Landlord's control or by human occupancy factors, or by failure of independent contractors to perform, or by Legal Requirements, or by mandatory energy conservation, or if Landlord elects voluntarily to cooperate in energy conservation at the request of any Legal Authority. The exercise of such right or such failure by Landlord shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any compensation or to any abatement or diminution of Base Rent or Additional Rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or its agents by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise. Section 3.4 SECURITY. Tenant acknowledges that Landlord shall not and does not have any responsibility for the security of Tenant's officers, personnel, agents, employees, servants, licensees, invitees, guests, patrons, customers, and all others who come on or about the Property related to Tenant or Tenant's Use. Section 3.5 PARKING. If any parking is made available to Tenant by Landlord, Landlord shall not be liable for any damage of any nature whatsoever to, or any theft of, automobiles or other vehicles or the contents of them, while in or about such parking areas, unless such damage is caused by Landlord's gross negligence or willful misconduct. ARTICLE IV OPERATING EXPENSES AND TAXES Section 4.1 TENANT'S PARTICIPATION IN OPERATING EXPENSES AND TAXES. 4.1.1 Commencing on the First Adjustment Payment Date, Tenant shall, on the first day of each month in advance pay to Landlord pro rata monthly installments on account of the amount reasonably projected by Landlord for Tenant's Share of increases in Operating Expenses and for Tenant's Share of increases in Taxes over the Base Operating Year and over the Base Tax Year, respectively, based upon the most recent data available to Landlord, from time to time, for Operating Expenses and for Taxes. By April 1 of each Lease Year, Landlord shall submit to Tenant statement(s) showing the actual amounts which should have been paid by Tenant with respect to increases in Operating Expenses and with respect to increases in Taxes for the past calendar year, the amount of those expenses actually paid during that year by Tenant and the amount of the resulting balance due on either or both of those expenses, or overpayment of either of both of them, as the case may be. Tenant may object to such statements if, and only if, Tenant, within thirty (30) days of receipt by Tenant of such statement, sends a written notice to Landlord objecting to such statement and specifying the respects in which such statement is claimed to be incorrect. If such notice is sent, the parties recognize, as to the Operating Expenses, the unavailability of Landlord's books and records because of the confidential nature thereof and hence agree that either party may refer the decision of the issues raised to a reputable independent firm of certified public accountants selected by Landlord and Tenant (and not previously having performed services for either party), and the decision of such accountants shall be conclusively binding upon the parties. The fees and expenses involved in such decision shall be borne by Tenant unless Landlord's charges are found to be in error by more than five percent (5%). Notwithstanding anything to the contrary in this paragraph, if the amount in dispute is less than $1000 for a calendar year, no third parties shall be utilized, by Landlord or Tenant, whose cost shall be subject to reimbursement by the other party, in which case, Tenant shall have the right to - 5 - ---------------/------------------- LANDLORD TENANT audit Landlord's books at Tenant's expense. Any balance shown to be due pursuant to said statement shall be paid by Tenant to Landlord within thirty (30) days following Tenant's receipt of the statement and any overpayment shall be immediately credited against Tenant's obligation to pay Rent, and/or expected Additional Rent in connection with anticipated increases in Operating Expenses or anticipated increases in Taxes or, if by reason of any termination of this Lease no such future obligations exist, shall immediately be refunded to Tenant. Anything in this Lease to the contrary notwithstanding, Tenant shall not delay or withhold payment of any balance shown to be due pursuant to a statement rendered by Landlord to Tenant, pursuant to the terms of this Lease, because of any objection which Tenant may raise with respect to the statement. 4.1.2 If this Lease expires during a Partial Lease Year, Tenant shall be responsible for its estimated pro rata share of Operating Expenses and of Taxes for the Partial Lease Year. Tenant shall remit full payment to Landlord immediately. If Tenant fails to remit such full payment to Landlord, Landlord in its sole discretion may deduct the amount due from Tenant's Security Deposit and be entitled to all other rights and remedies under this Lease for Tenant's default. Section 4.2 DEFINITION OF OPERATING EXPENSES. The term "Operating Expenses" shall mean (a) all costs of management, operation and maintenance of the Building, including, without limitation, wages, salaries and payroll expense of employees, janitorial, maintenance, guard and other services, reasonable Building management office rent or rental value, power, fuel, water, waste disposal, landscaping care, premiums for liability, fire, hazard and other property related insurance, parking area care and management, fees for energy saving programs, administrative costs, including management fee, and (b) the cost (amortized over such reasonable period as Landlord shall determine) of any capital improvements made to the Building by Landlord after the date of this Lease that are intended to reduce the Operating Expenses or that are required under any governmental law or regulation, not to exceed useful life as determined for Federal Income Tax purposes; provided, however, that Operating Expenses shall not include real property taxes or assessments (which are included in "Taxes"), depreciation on the Building, costs of tenant improvements, real estate brokers' commissions, interest and capital items other than those referred to in clause (b) above. Operating costs shall not include the following: (a) Costs of the original construction of the Building or altering the Building in the future (except as otherwise set forth herein), water or sewer connection fees payable in connection with the original construction of the Building, costs of structural repairs to the Building, costs of repairing latent defects or inadequacies in the design or construction of the Building, the Premises, and/or costs of any other capital nature (including, without limitation, capital improvements, and capital repairs); (b) Costs of leasing commissions, legal fees, space planning, and architecture or engineering fees, construction allowances and costs, permit and license fees, moving expenses, other leasing concessions, or other expenses incurred in procuring or retaining tenants for the Building; (c) Salaries, wages, or other compensation paid to officers, executives, or employees of the Landlord or the Building's managing agent above the level of building manager or who are not otherwise engaged full time in working at the Building (if any employee at or below the level of building manager works less than full time at the Building, such employee's salary, wages, and other compensation shall be equitably apportioned based upon the time spent at the Building and such equitably apportioned amount shall be included as an Operating Expense); (d) costs incurred in connection with disputes with actual or prospective tenants or other occupants of the Building, or with actual or prospective employees, consultants, management agents, leasing agents, purchasers, ground lessors or mortgagees of the Building or the land on which it is located; (e) Costs incurred in connection with the sale, financing, refinancing, or change of ownership (directly or - 6 - ---------------/------------------- LANDLORD TENANT indirectly) of the Building or the land on which it is located; (f) Amounts paid to any affiliate, parent, or subsidiary of Landlord, or to any representative, employee or agent of Landlord, to the extent such amount exceeds the competitive market rates that would be charged by third parties for similar services of comparable quality, provided, however, that an affiliate of Landlord is the management company, and Landlord agrees that the management fee paid such affiliated company shall never be at a higher percentage rate than that charged Landlord for the Base Operating Year; Payment of principal and interest or any other finance charges made on any debt and rental payments made on any ground or underlying lease, except for any interest payments on capital improvements made pursuant to Section 4.2(b) hereof; (h) Non cash items, such as deductions for bad debt losses, rent losses and reserves, and depreciation and amortization, interest on capital investments except for any depreciation, amortization and interest on capital improvements made pursuant to Section 4.2 (b) above; and (i) Costs of any items for which Landlord receives reimbursement from insurance proceeds or any third party. Section 4.3 TENANT'S TAXES. Tenant covenants and agrees to pay promptly when due all taxes imposed upon its business operations, its personal property situated in the Premises, and any and all Occupational License Fees. Tenant shall be entitled to contest any such tax or fee upon posting a bond in amount reasonably satisfactory to Landlord. Section 4.4 TAXES INCLUDED. Should any governmental taxing authority, acting under any present or future law, ordinance, or regulation, levy, assess or impose a tax, excise and/or assessment (other than income or franchise tax) upon or against or in any way related to the land and buildings comprising the Building, either by way of substitution or in addition to any existing tax on land and building otherwise, Tenant shall be responsible for and shall pay to Landlord its Proportionate Share as set forth above of such tax, excise and/or assessment. Section 4.5 RECEIPT OF NOTICES. Failure of Landlord to furnish in a timely manner a statement of actual increases in Operating Expenses or Taxes or to give notice of an adjustment to rent under this Article IV shall not prejudice or act as a waiver of Landlord's right to furnish such statement or to give such notice at a subsequent time or to collect any adjustment to or recalculation of the Additional Rent for any preceding period, provided that such notice is given within one year of the applicable period. Tenant recognizes that Landlord's statements showing the estimate of increases in Operating Expenses and Taxes for any calendar year may be rendered at the end of the previous calendar year or the beginning of such calendar year, or later. If Landlord's statement is rendered subsequent to the beginning of a calendar year, Tenant shall continue to pay the increase in the Operating Expenses and in the Taxes for the prior calendar year and, should a deficiency result by virtue of an increase in Landlord's estimate of the Operating Expenses or Taxes for the current year, Tenant shall pay the amount of such deficiency, if any, in full, in addition to the next monthly rent payment. ARTICLE VARTICLE V TENANT'S INITIAL IMPROVEMENTSARTICLE V TENANT'S INITIAL IMPROVEMENTSARTICLE V TENANT'S INITIAL IMPROVEMENTS TENANT'S INITIAL IMPROVEMENTS Section 5.1 CONSTRUCTION PLANSSection 5.1 CONSTRUCTION PLANSSection 5.1 CONSTRUCTION PLANSSection 5.1 CONSTRUCTION PLANS. - 7 - ---------------/------------------- LANDLORD TENANT Tenant shall complete or cause the completion of Tenant's Initial Improvements as shown on the Final Plans and as more fully described in this Section. At Tenant's sole cost and expense, Tenant shall submit to Landlord its complete and detailed architectural, structural, mechanical and engineering plans and specifications prepared by an architect or engineer, showing Tenant's Initial Improvements ("Construction Plans") within thirty (30) days after the execution of this Lease (time being of the essence) for Landlord's approval. If applicable, Tenant's Construction Plans shall include all information necessary to reflect Tenant's requirements for the installation of any supplemental air conditioning system and ductwork, heating, electrical, plumbing and other mechanical systems and all work necessary to connect any special or non-standard facilities to the Building's base mechanical, electrical and structural systems. Tenant's submission shall include not less than one (1) set of sepias and five (5) sets of black and white prints. Tenant's Construction Plans shall include, but not be limited to, indication or identification of the following: 5.1.1 locations and structural design of all floor area requiring live load capacities in excess of 75 pounds per square foot; 5.1.2 the density of occupancy in large work areas; 5.1.3 the location of any food service areas or vending equipment rooms; 5.1.4 areas requiring 24-hour air conditioning; 5.1.5 any partitions that are to extend from floor to underside of structural slab above; 5.1.6 location of rooms for telephone equipment; 5.1.7 locations and types of plumbing, if any, required for toilets (other than core facilities), sinks, drinking fountains, etc.; 5.1.8 light switching of offices, conference rooms, etc.; 5.1.9 layouts for specially installed equipment, including computers, size and capacity of mechanical and electrical services required and heat projection of equipment; 5.1.10 dimensioned location of: (a) electrical receptacles (120 volts), including receptacles for wall clocks, and telephone outlets and their respective locations (wall or floor), (b) electrical receptacles for use in the operation of Tenant's business equipment which requires 208 volts or separate electrical circuits, (c) electronic calculating and CRT systems, etc., (d) special audiovisual requirements, and (e) other special electrical requirements; 5.1.11 special fire protection equipment and raised flooring; 5.1.12 reflected ceiling plan; 5.1.13 information concerning air conditioning loads, including, but not limited to, air volume amounts at all supply vents; 5.1.14 materials, colors and designs of wall coverings and finishes; 5.1.15 painting and decorative treatment required to complete all construction; - 8 - ------------------/---------------- LANDLORD TENANT 5.1.16 swing of each door, and schedule for doors (including dimensions for undercutting to clean carpeting) and frames and hardware; 5.1.17 modifications of the front door and surrounding area, if any, as may be required for handicapped use; and 5.1.18 all other information reasonably necessary to make the work complete and in all respects ready for operation. Section 5.2 PLANS REVIEWSection 5.2 PLANS REVIEWSection 5.2 PLANS REVIEWSection 5.2 PLANS REVIEW. Landlord or Landlord's consultant shall respond to Tenant's request for approval of Tenant's Construction Plans within ten (10) business days of their submission, prepared in accordance with the terms of this Lease. In the event Landlord or Landlord's Consultant shall reasonably disapprove of all or a portion of Tenant's Construction Plans, it shall set forth its reasons therefor in reasonable detail, in which event Tenant shall revise its Construction Plans and resubmit same to Landlord within five (5) business days thereafter, time being of the essence. Upon Landlord's written final approval of such plans (the "Final Plans")(notice of such approval, or of disapproval, shall be given by Landlord within five (5) business days of receipt of the Construction Plans), Tenant may proceed with Tenant's Initial Improvements, which shall be performed in accordance with the provisions of this Article V. Landlord's failure to approve or disapprove Tenant's plans within such five (5) business day period shall be deemed to be approval thereof. Material Change orders by Tenant (which are defined as any change order which is in excess of $2,500 cost of construction) shall be similarly subject to Landlord's review and approval or disapproval, and notice of either shall be given Tenant within five (5) business days of Landlord's receipt of them. Neither the recommendation or designation of an architect, any general contractor, any subcontractors or materialmen as provided for in Section 5.3, nor the approval of the Construction Plans by Landlord shall be deemed to create any liability on the part of Landlord with respect to the design, construction, functionality and/or specifications set forth in the Final Plans. Section 5.3 PAYMENTSection 5.3 PAYMENTSection 5.3 PAYMENTSection 5.3 PAYMENT. Landlord shall pay for the work depicted on the Final Plans, to the extent and only to the extent the cost of such work shall not exceed Landlord's Contribution. Tenant shall be responsible for and pay all other costs. Promptly following Landlord's approval of the Final Plans, Tenant shall cause the Final Plans to be submitted for bid. Landlord shall assist Tenant in obtaining bids by giving to Tenant a list of general contractors, sub-contractors and materialmen for Tenant to use in soliciting bids. Promptly following Tenant's receipt of the bids, Tenant shall submit to Landlord the estimate of the cost of Tenant's Initial Improvements which exceeds Landlord's Contribution ("Tenant's Extra Cost"). Tenant shall either approve or disapprove the estimate of Tenant's Extra Cost within five (5) business days after submission to Landlord. If Tenant shall disapprove all or a portion of the estimate of the Tenant's Extra Cost, Tenant shall revise the Final Plans to the extent required and resubmit same to Landlord for approval. After approval by Landlord, Tenant shall within five (5) business days resubmit the revised Final Plans to the applicable subcontractors for revised bids. This process shall continue until Tenant approves Tenant's Extra Cost estimate. Tenant's approval of Tenant's Extra Cost shall be evidenced by the payment by Tenant into the Improvements Payment Account of one-half of the Tenant's Extra Cost. At the same time, upon such payment by Tenant, the Landlord shall pay into the Improvement Payment Account an amount of Landlord's Contribution equal to the sum derived by multiplying Landlord's Contribution by a fraction where the numerator is one half of Tenant's Extra Cost and the denominator is the cost of the - 9 - ------------------/---------------- LANDLORD TENANT Tenant's Initial Improvements. The remainder of Tenant's Extra Cost and Landlord's Contribution shall be remitted to the Improvements Payment Account pari passu on an "as-in-place" draw basis subsequent to the application of Landlord's Contribution and Tenant's first one-half payment. Time shall be of the essence with respect to Tenant's obligations hereunder. Tenant shall pay Landlord (which Landlord may pay out of Landlord's Contribution) five percent (5%) of the total cost of Tenant's Initial Improvements for Landlord's coordination and administration, not to exceed $6,000.00 in any event. Section 5.4 TENANT DELAYSection 5.4 TENANT DELAYSection 5.4 TENANT DELAYSection 5.4 TENANT DELAY. Landlord shall not be responsible or liable for Tenant Delay. Tenant Delay includes without limitation any of the following: 5.4.1 Tenant's failure to furnish plans, drawings, and specifications in accordance with and at the times required pursuant to this Article V; or 5.4.2 any delays resulting from the reasonable disapproval by Landlord or Landlord's consultant of all or a portion of Tenant's revised plans and specifications as resubmitted after initial submission; or 5.4.3 any delays resulting from Tenant's disapproval of the cost of Tenant's Extra Cost, which delay shall be deemed to commence upon the date of Tenant's disapproval of the cost of Tenant's Extra Cost and end on the date of Tenant's final approval of such cost; or 5.4.4 Tenant's request for materials, finishes or installations which are not readily available at the time Landlord is ready to install same; or 5.4.5 Tenant's changes in drawings, plans, specifications, or construction submitted to Landlord including at any time subsequent to Landlord's approval of the Final Plans, including any Revisions which Tenant submits to Landlord which result in a delay; or 5.4.6 the performance of work by a person, firm or corporation employed by Tenant and delays in the completion of the said work by said person, firm or corporation; or 5.4.7 Tenant's failure to pay timely for the Tenant's Extra Cost. If Landlord believes that any Tenant Delay can be mitigated or eliminated by the expenditure of additional money or the performance of overtime work, Landlord shall so notify Tenant, and Tenant shall have the right, at its expense, to require such additional expenditure and/or overtime work, provided Tenant pays for same in advance. Section 5.5 SUBSTANTIAL COMPLETION. If the anticipated Substantial Completion Date, as more particularly described in this Article V, shall be delayed by reason of Tenant Delay, the Premises shall be deemed substantially completed for the purposes of the Commencement Date as of the date that the Premises would have been substantially completed but for any such Tenant Delay as determined by Landlord in its reasonable discretion. Tenant shall pay for any additional cost in completing Tenant's Initial Improvements resulting from any Tenant Delay. Any such sums shall be in addition to any sums payable pursuant to Section 5.30 and shall be paid into the Improvements Payment Account within ten (10) days after Landlord submits an invoice to Tenant therefor. Such costs shall be collectible in the same manner as Additional Rent whether or not the Term shall have commenced, and if Tenant defaults in the payment of such cost, Landlord shall have no - 10 - ------------------/---------------- LANDLORD TENANT obligation to continue or pay for the performance of Tenant's Initial Improvements until Tenant shall have cured such default. Such default shall be deemed a default under Article IX of this Lease. Section 5.6 EARLY OCCUPANCYSection 5.6 EARLY OCCUPANCYSection 5.6 EARLY OCCUPANCYSection 5.6 EARLY OCCUPANCY. Except for the purpose of supervising Tenant's Initial Improvements, and as hereinafter provided, neither Tenant nor its agents, employees, invitees or independent contractors shall enter the Premises during the performance of Tenant's Initial Improvements. Upon the granting of consent by Landlord, which shall not be unreasonably withheld, delayed or conditioned, Tenant or its agents may enter the Premises prior to the Commencement Date to perform such decorative or other tenant finishing work as it may desire provided that such work in no way interferes with the performance of Tenant's Initial Improvements and such entry shall be deemed under all the terms, covenants and conditions of this Lease, except the covenant to pay Base Rent. In the event Landlord, in its sole discretion, determines that the performance by Tenant or any of its agents of any such Tenant finish work is impeding or impairing in any way the performance of Tenant's Initial Improvements, then, upon notice to Tenant, Tenant shall cease or cause the cessation of all such work until the receipt of notification from Landlord that Tenant may once again enter the Premises in order to perform such work. Tenant shall indemnify and save Landlord harmless from and against any and all loss, liability, damage, cost and expense, including without limitation, reasonable attorneys' fees and disbursements at all trial and appellate levels, claimed or actually arising from, growing out of or related to (a) any act, neglect or failure to act of Tenant or anyone entering the Premises or Building with Tenant's permission, (b) the performance of such Tenant's finish work, or (c) any other reason whatsoever arising out of said entry upon the Premises or Building. The provisions of this Section 5.6 shall survive the termination of this Lease. Section 5.7 REVISIONSSection 5.7 REVISIONSSection 5.7 REVISIONSSection 5.7 REVISIONS. Tenant shall have the right to make revisions to the Final Plans ("Revisions"). All Revisions shall be subject to Landlord's prior written approval, which shall not be unreasonably withheld, delayed or conditioned, provided the Revisions are non-structural in nature. Landlord shall either approve or disapprove the Revisions within five (5) business days after Landlord's receipt of the submission thereof by Tenant. Landlord's failure to either approve or disapprove such revisions within such five (5) day period shall be deemed to be approval thereof. Without limiting the generality of the foregoing, no Revision will be approved unless (a) all changes to and modifications from Tenant's Final Plans are circled or highlighted as per standard industry practices and (b) said Revisions conform with the requirements of Article V. Tenant shall notify Landlord in writing of the cost of the Revisions, and any Tenant Delay that the performance of the same may entail. If Landlord agrees with the cost and delay of such Revisions, Landlord shall acknowledge Landlord's approval in writing within five (5) business days after Tenant's notice thereof to Landlord. If Landlord fails to approve of the cost of such Revisions within five (5) business days, Tenant shall not make such Revisions. The cost of any Revisions shall be borne solely by Tenant. An additional fee based on such costs shall be payable in the manner and at the times set forth in Section 5.3. Section 5.8 COMPLETION DUE DILIGENCESection 5.8 COMPLETION DUE DILIGENCESection 5.8 COMPLETION DUE DILIGENCESection 5.8 COMPLETION DUE DILIGENCE. Tenant shall, subject to any other cause beyond Tenant's reasonable control, use due diligence to complete Tenant's - 11 - ------------------/---------------- LANDLORD TENANT Initial Improvements as soon as may be practicable. Tenant shall notify Landlord of the date of the substantial completion of Tenant's' Initial Improvements ("Substantial Completion Date") at least five (5) days prior thereto. The phrase "substantial completion" shall mean that, with the exception of punch-list items, Tenant's Initial Improvements shall have been completed in accordance with the Final Plans and all mechanical systems serving or affecting the Premises shall then be in working order. Landlord and Tenant shall thereupon set a mutually convenient time for Tenant and Landlord or Landlord's consultant to inspect the Premises, at which time Tenant shall prepare and submit to Landlord a punch list of items to be completed. Upon completion of the inspection, Tenant shall acknowledge in writing that substantial completion has occurred, subject to any punch list items to be completed. Tenant shall diligently complete the approved work on the punch list items. In the event Tenant shall fail to confer with Landlord with respect to the Substantial Completion of Tenant's Initial Improvements within five (5) days of Tenant's notice setting forth the Substantial Completion Date, (a) Tenant shall have no right to enter the Premises for the purposes of conducting its business therefrom until Tenant meets with Landlord in the Premises and prepares a punch list of incomplete items, if applicable, and (b) Tenant's Initial Improvements shall be deemed completed and satisfactory in all respects, and (c) the Commencement Date shall be deemed to have occurred on the date set forth in Tenant's notice as the substantial completion date. In the event of any dispute as to when and whether the work performed or required to be performed by Landlord has been substantially completed, the certificate of an independent A.I.A. registered architect or a temporary or final certificate of occupancy or completion (as may be applicable) issued by the local government authority shall be conclusive evidence of such completion, effective on the date of the issuance of such certificate to Tenant. ARTICLE VI ADDITIONS, ALTERATIONS, REPLACEMENTS, AND TRADE FIXTURES Section 6.1 BY LANDLORD. Landlord reserves the right at any time to make alterations or additions to the Building in which the Premises are contained and to build additional stories thereon. Landlord also reserves the right to construct other buildings or improvements in the Building or Common Areas from time to time and to make alterations thereof or additions thereto and to build additional office space on any such building or buildings so constructed. Nothing in this section will be construed to permit Landlord to change the leasehold improvements, dimensions, or location of the Premises, or materially adversely affect access to the Premises. Section 6.2 BY TENANT. 6.2.1 Upon receipt of Landlord's prior written approval, Tenant may from time to time after completion of Tenant's Initial Improvements, at its own expense, alter, renovate or improve the interior of the Premises provided the same be performed in a good and workmanlike manner, in accordance with accepted building practices, in full compliance with all applicable building codes and the ADA, with Tenant procuring at its sole cost and expense all permits required for such work, and so as not to weaken or impair the strength or lessen the value of the Building in which the Premises are located. No changes, alterations or improvements affecting the exterior of the Premises or the Building or the Building systems shall be made by Tenant without the prior written approval of Landlord, which may be unreasonably withheld. Any work done by Tenant under the provisions of this Section shall not interfere with the use by the other tenants of their premises in the Building. Tenant also agrees to pay 100% of any increase in the Real Estate Taxes or - 12 - ------------------/---------------- LANDLORD TENANT Landlord's Personal Property Taxes resulting from such improvements by or for Tenant. 6.2.2 All alterations, decorations, additions and improvements made by Tenant, or made by Landlord on Tenant's behalf as provided in this Lease, shall remain the property of Tenant for the Lease Term or any extension or renewal thereof, but they shall not be removed from the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned. 6.2.3 Upon obtaining the prior written consent of Landlord, Tenant shall remove such alterations, decorations, additions and improvements and restore the Premises as provided in Section 6.5, and if Tenant fails to do so and moves from the Premises, all such alterations, decorations, additions and improvements shall become the property of Landlord, who may charge Tenant for storing or disposing of any or all of such property. 6.2.4 Notwithstanding any other provision of this Article VI, Tenant shall be permitted to make alterations to the interior improvements of the Premises with Landlord's prior written consent not being unreasonably withheld, delayed or conditioned if (a) the proposed alteration is non-structural in nature, and (b) the proposed alteration does not cost more than $10,000. Notwithstanding any other provision of this Section, when Tenant requests Landlord's consent to a proposed alteration, Tenant may ask Landlord in writing whether Landlord will require that the alteration be removed on expiration or earlier termination of this Lease. Landlord shall respond to this inquiry in writing within fifteen (15) business days of receipt thereof from Tenant. If Landlord does not respond to such inquiry or states in its response that it will not require removal, then Tenant shall not be required to remove such alteration. Any such alteration, renovation or improvement shall be performed in a good and workmanlike manner, in accordance with accepted building practices, in full compliance with all applicable building codes and the ADA, with Tenant procuring at its sole cost and expense all permits required for such work Section 6.3 CONSTRUCTION INSURANCE AND INDEMNITY. 6.3.1 Tenant shall indemnify and hold Landlord harmless from any and all claims for loss or damages or otherwise based upon or in any manner growing out of any alterations, removals or construction undertaken by Tenant under the Lease Term, including, but not limited to, Tenant's Initial Improvements, and including all costs, damages, expenses, court costs and reasonable attorneys' fees and costs attendant thereto, at all trial and appellate levels, incurred in or resulting from claims made by any person or persons, by other tenants of premises in the Building, their subtenants, agents, employees, customers and invitees. 6.3.2 Before undertaking any alterations or construction, including, but not limited to, Tenant's Initial Improvements, Tenant shall obtain and pay for a public liability and workers' compensation insurance policy insuring Landlord and Tenant against any liability which may arise on account of such proposed alterations and construction work in limits of not less than $1,000,000.00 for any one person, $2,000,000.00 for more than one person in any one accident and $2,000,000.00 for property damage; and a copy of such policy shall be delivered to Landlord prior to the commencement of such proposed work. Tenant shall also maintain at all times fire insurance with extended coverage in the name of Landlord and Tenant as their interests may appear in an amount adequate to cover the cost of replacement of all alterations, decorations, additions or improvements in and to the Premises and all trade fixtures therein, in the event of fire or extended coverage loss. Tenant shall deliver to Landlord copies of such fire insurance policies which shall contain a clause requiring the insurer to give Landlord ten (10) days' notice of cancellation of such policies. In no event shall such - 13 - ------------------/---------------- LANDLORD TENANT insurance be required if the alterations do not cost more than $10,000. As used within this Article VI, such reference to alterations not costing more than $10,000 shall include all alterations made by or for Tenant in any thirty (30) day period, looking forward and backward. Section 6.4 MECHANIC'S LIENS AND ADDITIONAL CONSTRUCTION. 6.4.1 If by reason of any alteration, repair, labor performed or materials furnished to the Premises for or on behalf of Tenant any mechanic's or other lien shall be filed, claimed, perfected or otherwise established or as provided by law against the Premises, Tenant shall discharge or remove the lien by bonding or otherwise, within fifteen (15) days after Tenant receives notice of the filing of same. Notwithstanding any provision of this Lease seemingly to the contrary, Tenant shall never, under any circumstances, have the power to subject the interest of Landlord in the Premises or the Building to any mechanics' or materialmen's liens or liens of any kind, nor shall any provision contained in this Lease ever be construed as empowering Tenant to encumber or cause Landlord to encumber the title or interest of Landlord in the Premises. 6.4.2 Tenant hereby expressly acknowledges and agrees that, except as indicated under Article V, no alterations, additions, repairs or improvements to the Premises of any kind are required or contemplated to be performed as a prerequisite to the execution of this Lease. 6.4.3 Landlord and Tenant expressly acknowledge and agree that neither Tenant nor any one claiming by, through or under Tenant, including without limitation contractors, sub-contractors, materialmen, mechanics and laborers, shall have any right to file or place any mechanics' or materialmen's liens of any kind whatsoever upon the Premises nor upon any building or improvement thereon; on the contrary, any such liens are specifically prohibited. All parties with whom Tenant may deal are hereby put on notice that Tenant has no power to subject Landlord's interest in the Premises to any claim or lien of any kind or character and any persons dealing with Tenant must look solely to the credit of Tenant for payment and not to Landlord's interest in the Premises or otherwise. All contracts of Tenant, including those for extras and change orders, for the construction of any alteration, addition, decoration or improvement including, but not limited to, the contracts of subcontractors and materialmen, shall contain the agreement of the contractor, subcontractor or materialman agreeing to look solely to the Tenant and Tenant's interest in the Premises for payment and waiving any right to a lien on Landlord's interest in the Building or the Premises. Such contracts shall also require the contractor, subcontractor or materialman to provide in recordable form, a waiver and release of lien upon final payment at the completion of construction and a waiver and release of upon progress payment during the construction thereof. Landlord shall be advised by Tenant, in writing, at least ten(10) days prior to the date that work by or for Tenant is to commence or the date of anticipated commencement in order to allow Landlord to post notices of non-responsibility on the Premises. Tenant agrees to allow such notices to remain posted in the Premises throughout the construction period and to notify Landlord is such notices are damaged or removed. The construction work shall be scheduled in such a manner so as to create the minimum disturbance to other tenants in the Building. Any construction causing or resulting in unreasonable noise, dust or other disturbance of other tenants shall be scheduled and performed during the hours of 7:00 p.m. and 7:00 a.m. No building materials, construction tools and equipment shall be stored in the Common Areas of the Building. All trash and construction debris shall be promptly removed and deposited lawfully off the property, or, if a dumpster has been approved for the deposit of trash and construction debris, then such trash and construction debris shall be deposited into the approved dumpster. No dumpster shall be brought on the Property unless the size and location thereof has been approved by the Landlord in writing, which - 14 - ------------------/---------------- LANDLORD TENANT approval shall not be unreasonably withheld, conditioned or delayed. 6.4.4 Any lien filed against the Premises in violation of this Section 6.4 shall be null and void and of no force or effect. In addition, Tenant shall cause any lien filed against the Premises in violation of this paragraph to be canceled, released, discharged and extinguished within fifteen (15) days after Tenant receives notice of filing of the same and shall indemnify and hold Landlord harmless from and against any such lien and any costs, damages, charges and expenses, including but not limited to, attorney's fees, incurred in connection with or with respect to any such lien. Section 6.5 TRADE FIXTURES. 6.2.4 Provided Tenant is not in default under this Lease, Tenant shall have the right, at the termination of this Lease, to remove any and all trade fixtures, equipment and other items of personal property not constituting a part of the Building which it may have stored or installed in the Premises including, but not limited to, counters, shelving, showcases, chairs, and movable machinery purchased or provided by Tenant and which are susceptible of being moved without damage to the Building and the Premises, provided this right is exercised before the Lease is terminated or during the ten (10) day period immediately following such termination and provided that Tenant, at its own cost and expense, shall repair any damage to the Premises or Building caused thereby. The right granted Tenant in this Section 6.5 shall not include the right to remove any plumbing or electrical fixtures or equipment, heating or air conditioning equipment, floor coverings (including wall-to-wall carpeting) glued or fastened to the floors or any paneling, tile or other materials fastened or attached to the walls or ceilings, all of which shall be deemed to constitute a part of the Building, and, as a matter of course, shall not include the right to remove any fixtures or machinery that were furnished or paid for by Landlord. The Premises and the immediate areas in front, behind and adjacent to it shall be left in a broom-clean condition. Should Tenant fail to comply with this provision, Landlord may deduct the cost of clean-up from Tenant's Security Deposit. If Tenant shall fail to remove its trade fixtures or other property at the termination of this Lease or within ten (10) days thereafter, or upon cessation of Tenant's business in the Premises or upon termination of Tenant's rights to possession of the Premises, such fixtures and other property not removed by Tenant shall be deemed abandoned by Tenant, and, at the option of Landlord, shall become the property of Landlord; Landlord may store, sell, or otherwise dispose of such property at Landlord's sole discretion (subject to applicable legal requirements) but at Tenant's expense. Any such removal or alteration shall be performed in a good and workmanlike manner, in accordance with accepted building practices, in full compliance with all applicable building codes and the ADA, with Tenant procuring at its sole cost and expense all permits required for such work. This section shall be subject to the provisions of Section 6.3.1 of this Lease. Section 6.6 RIGHT OF ENTRY. Landlord or its representatives shall have the right, upon 48 hours prior notice to Tenant and with and escort provided by Tenant, without liability, to enter the Premises at reasonable hours during the Lease Term to (a) show the Premises to prospective purchasers, lenders and tenants (who are not Tenant's competitors, except during the last three (3) months of the term of the Lease or any renewal thereof), or (b) ascertain if the Premises are in proper repair and condition, and make repairs, additions or alterations thereto or to the Building in which the same are located, including the right to take the required materials therefor into and upon the Premises without the same constituting an eviction of Tenant in whole or part, and the Rent shall not abate while such repairs, alterations, replacements or improvements are being made by reason of loss or interruption of - 15 - ------------------/---------------- LANDLORD TENANT Tenant's business due to the performance of any such work. If Tenant shall not be personally present to permit an entry into the Premises at the time specified in Landlord's notice or in the case of an emergency, Landlord may enter the Premises by a master key or by the use of force without rendering Landlord liable therefore and without in any manner affecting Tenant's obligations under this Lease. ARTICLE VII INSURANCE AND INDEMNITY Section 7.1 TENANT'S INSURANCE. Tenant shall maintain, at its own cost and expense, in responsible companies (all of which shall be licensed to do business in the State of Florida) reasonably approved by Landlord, combined single limit public liability insurance, insuring Landlord and Landlord's agents and Tenant, as their interests may appear, against all claims, demands or actions for bodily injury, personal injury or death of any one person in an amount of not less than $1,000,000.00; and for bodily injury, personal injury or death of more than one person in any one accident in an amount of not less than $2,000,000.00; and for damage to property in an amount of not less than $2,000,000.00. Landlord shall have the right to direct Tenant to increase such amounts whenever any such increase is recommended or required by the underwriters of insurance on the Building, upon thirty (30) days prior written notice to Tenant. Such liability insurance shall also cover and include all exterior signs maintained by Tenant. The policy of insurance may be in the form of a general coverage or floater policy covering these and other premises, provided that Landlord and Landlord's agents are specifically insured therein. Tenant shall carry like coverage against loss or damage by boiler or compressor or internal explosion of boilers or compressors, if there is a boiler or compressor in the Premises. Tenant shall maintain insurance covering all glass forming a part of the Premises including plate glass in the Premises and fire insurance against loss or damage by fire or windstorms, with such endorsements for extended coverage, vandalism, malicious mischief and special extended coverage as Landlord may require, covering 100% of the replacement costs of any items of value, including but not limited to signs, stock, inventory, fixtures, improvements, floor coverings, machinery and equipment. All of said insurance shall be in form and in responsible companies licensed to do business in the State of Florida, reasonably satisfactory to Landlord, and shall provide that it will not be subject to cancellation, termination or change except after at least thirty (30) days' prior written notice to Landlord. Any insurance procured by Tenant as herein required shall contain an express waiver of any right of subrogation by the insurance company against Landlord and its agents. The policies, together with satisfactory evidence of the payment of the premiums thereon, shall be deposited with Landlord on the day Tenant begins operations. Thereafter, Tenant shall provide Landlord with evidence of proof of payment upon renewal of such policy, not less than thirty (30) days prior to expiration of the term of such coverage. In the event Tenant fails to timely obtain or maintain the insurance required hereunder, Landlord may (but is not required to) obtain same and any costs incurred by Landlord in connection therewith shall be payable by Tenant as Additional Rent upon demand. Landlord shall carry public liability insurance covering the common areas of the Building, including but not limited to the sidewalks, malls and parking lot. Section 7.2 EXTRA HAZARD INSURANCE PREMIUMS. Tenant shall not keep, use, sell or offer for sale in or upon the Premises any article or permit any activity which may be prohibited by the standard form of fire or public liability insurance policy. Tenant shall not knowingly use or occupy the Premises or any part thereof, or suffer or permit the same to be used or occupied for any business or purpose deemed extra - 16 - ------------------/---------------- LANDLORD TENANT hazardous on account of fire, environmental hazard or otherwise. In the event Tenant's use and/or occupancy causes any increase of any insurance premium above the rate for the permitted use in the Premises, Tenant shall pay such additional premium on any policy, as Additional Rent, including but not limited to fire, extended coverage, public liability or any insurance that may be carried by Landlord for its protection against rent loss through fire. Bills for such additional premiums shall be rendered by Landlord to Tenant at such times as Landlord may elect, and shall be due from and payable by Tenant when rendered in writing, but such increases in the rate of insurance shall not be deemed a breach of this covenant by Tenant. Failure to pay amounts due hereunder shall be a breach of the Lease. In determining whether increased premiums are the result of Tenant's use of the Premises, a schedule, issued by the organization making the insurance rate on the Premises, showing various components of such rate, shall be conclusive evidence of the several items and charges which make up the fire and public liability insurance rate on the Premises. Section 7.3 INDEMNITY by Tenant. Tenant shall indemnify and save harmless Landlord and its agents from and against any and all claims and demands, including, but not limited to, attorneys' fees and costs attendant thereto, at all trial and appellate levels, whether for injuries to persons or loss of life, or damage to property, occurring within the Premises and immediately adjoining the Premises and arising out of the use and occupancy of the Premises or Building by Tenant, or occasioned wholly or in part by any act or omission of Tenant, its subtenants, agents, contractors, employees, servants, licensees or concessionaires, excepting however such claims and demands, whether for injuries to persons or loss of life, or damage to property, caused solely by the gross negligence or willful misconduct of Landlord. If, however, any liability arises in the Common Areas because of the negligence of Tenant, Tenant's subtenants, agents, employees, contractors, invitees, customers or visitors, then in such event Tenant shall hold Landlord and its agents harmless. In case Landlord or its agents shall, without fault on its part, be made a party to any litigation commenced by or against Tenant, then Tenant shall protect and hold Landlord and its agents harmless and shall pay all costs, expenses and reasonable attorneys' fees and costs attendant thereto, at all trial and appellate levels, incurred or paid by Landlord or its agents in connection with such litigation. Tenant shall also pay all costs, expenses and reasonable attorneys' fees that may be incurred or paid by Landlord or its agents in enforcing the covenants and agreements of this Lease. Section 7.4 Indemnity by Landlord Landlord shall indemnify and save harmless Tenant from and against any and all claims and demands, including, but not limited to, attorneys' fees and costs attendant thereto, at all trial and appellate levels, whether for injuries to persons or loss of life, or damage to property, occurring within the Premises and immediately adjoining the Premises and arising out of the ownership, use and occupancy of the Premises or Building by Landlord, or occasioned wholly or in part by any act or omission of Landlord, its agents, contractors, employees, servants, licensees or concessionaires, excepting however such claims and demands, whether for injuries to persons or loss of life, or damage to property, caused solely by the gross negligence or willful misconduct of Tenant. If, however, any liability arises in the Common Areas because of the negligence of Landlord, Landlord's agents, employees, contractors, invitees, customers or visitors, then in such event Landlord shall hold Tenant harmless. In case Tenant shall, without fault on its part, be made a party to any litigation commenced by or against Landlord, then Landlord shall protect and hold Tenant harmless and shall pay all costs, expenses and reasonable attorneys' fees and costs attendant thereto, at all trial and appellate levels, incurred or paid by Tenant in connection with such litigation. - 17 - ------------------/---------------- LANDLORD TENANT ARTICLE VIII DAMAGE, DESTRUCTION AND CONDEMNATION Section 8.1 DAMAGE OR DESTRUCTION BY FIRE OR OTHER CASUALTY. 8.1.1 Tenant shall give prompt notice to Landlord in case of fire or other damage to the Premises or the Building. In the event the Premises are damaged by fire, explosion, flood, tornado or by the elements, or through any casualty, or otherwise, after the commencement of the Lease Term, the Lease shall continue in full force and effect at Landlord's election. If Landlord elects to continue the Lease, the damage shall promptly be repaired by Landlord at Landlord's expense, provided that Landlord shall not be obligated to so repair if such fire, explosion or other casualty is caused directly by the negligence or malfeasance of Tenant, Tenant's subtenants, permitted assignees, permitted concessionaires, or its or their agents, servants or employees, and provided further that Landlord shall not be obligated to expend for such repair an amount in excess of the insurance proceeds recovered as a result of such damage, and that in no event shall Landlord be required to replace Tenant's stock in trade, fixtures, furniture, furnishings, floor coverings, machinery and equipment. Landlord may elect either to repair or rebuild the Premises, or the Building, or to terminate this Lease upon giving notice of such election to Tenant within sixty (60) days after the occurrence of the event causing the damage. If the anticipated period for repairing the Premises exceeds 180 days from the date of the casualty, then Tenant may elect to terminate this Lease by providing written notice to Landlord effective 30 days after delivery of such notice. 8.1.2 If the casualty, repairing, or rebuilding shall render the Premises untenantable, in whole or in part, and the damage shall not have been due to the default or neglect of Tenant, a proportionate abatement of the Fixed Minimum Rent and Tenant's Share of Operating Expenses and Taxes shall be allowed from the date when the damage occurred until the date Landlord completes the repairing or rebuilding, said proportion to be computed on the basis of the relation which the gross square foot area of the space rendered untenantable bears to the floor area of the Premises. If Landlord is required or elects to repair the Premises as herein provided, Tenant shall repair or replace its stock in trade, fixtures, furniture, furnishings, floor coverings and equipment, and if Tenant has closed for business, Tenant shall promptly reopen for business upon the completion of such repairs. 8.1.3 In the event the Premises or the Building shall be damaged in whole or in substantial part within the last twenty-four (24) months of the original term, or within the last twenty-four (24) months of the last renewal term, if renewals are provided for in this Lease, Landlord and Tenant shall have the option, exercisable within Ninety (90) days following such damage, of terminating this Lease, effective as of the date of Tenant's receipt of notice from Landlord or Landlord's receipt of notice from Tenant. If any such termination occurs during the initial Lease Term, any options for renewal shall automatically be of no further force or effect. 8.1.4 No damage or destruction of the Premises or the Building shall allow Tenant to surrender possession of the Premises nor affect Tenant's liability for the payment of Rent or any other covenant contained herein, except as may be specifically provided in this Lease. Notwithstanding any of the provisions herein to the contrary, Landlord shall have no obligation to rebuild the Premises or the Building and may at its own option cancel this Lease unless the damage or destruction is a result of a casualty covered by Landlord's insurance policy. Section 8.2 CONDEMNATION. - 18 - ------------------/---------------- Landlord Tenant In the event the entire Premises shall be appropriated or taken under the power of eminent domain by any public or quasi-public authority, this Lease shall terminate and expire as of the date of title vesting in such proceeding, and Landlord and Tenant shall thereupon be released from any further liability hereunder. If any part of the Premises shall be taken as aforesaid, and such partial taking shall render that portion not so taken unsuitable for the business of Tenant, as determined by an independent Florida licensed architect appointed by Landlord and Tenant, and whose fees and expenses shall be paid equally by Landlord and Tenant, then this Lease and the Lease Term herein shall cease and terminate as aforesaid. If such partial taking is not extensive enough to render the Premises unsuitable for the business of Tenant, then this Lease shall continue in effect, except that the Fixed Minimum Rent shall be reduced in the same proportion that the floor area of the Premises taken bears to the original floor area leased and Landlord shall, upon receipt of the award in condemnation, make all necessary repairs or alterations to the Building in which the Premises are located so as to constitute the portion of the Building not taken as a complete architectural unit, but such work shall not exceed the scope of the work to be done by Landlord in originally constructing said Building, nor shall Landlord, in any event, be required to spend for such work an amount in excess of the amount received by Landlord as damages for the part of the Premises so taken. "Amount received by Landlord" shall mean that part of the award in condemnation which is free and clear to Landlord of any collection by mortgagee for the value of the diminished fee. If more than twenty percent (20%) of the floor area of the Building in which the Premises are located shall be taken as aforesaid, Landlord may, by written notice to Tenant, terminate this Lease, such termination to be effective as aforesaid. If this Lease is terminated as provided in this paragraph, the Rent shall be paid up to the date that possession is so taken by public authority and Landlord shall make an equitable refund of any Rent paid by Tenant in advance. Tenant shall not be entitled to and expressly waives all claim to any condemnation award for any taking, whether whole or partial, and whether for diminution in value of the leasehold or to the fee although Tenant shall have the right, to the extent that the same shall not reduce Landlord's award, to claim from the condemnor, but not from Landlord, such compensation as may be recoverable by Tenant in its own right for damage to Tenant's business, fixtures and improvements installed by Tenant at its expense. ARTICLE IX DEFAULT, REMEDIES Section 9.1 DEFAULT. The occurrence of any of the following during the Term shall constitute an Event of Default by Tenant: 9.1.1 Tenant shall fail to pay when due all or any portion of any Rent within five (5) days of the due date thereof; 9.1.2 Tenant shall fail to pay when due any other sums, fees, charges, costs, or expenses which are payable under this Lease within five (5) days of the due date thereof; 9.1.3 Tenant shall, other than in the manner permitted under this Lease, make or permit or suffer to occur any assignment (including any transfer of interest in Tenant which is deemed to be an assignment under this Lease), sublease or occupancy arrangement, conveyance, transfer, conditional or collateral assignment, pledge, hypothecation, or other encumbrance, whether by operation of law or otherwise, of this Lease or any interest in this Lease; 9.1.4 Tenant shall fail in any other way in the performance or observance of any of the terms and conditions of this Lease and within ten (10) days shall not have cured such - 19 - ------------------/---------------- Landlord Tenant default or, if impossible of cure within such time but possible of cure within sixty (60) days, begun and diligently pursued such cure to completion; 9.1.5 There shall be filed by or against Tenant in any court or other tribunal a petition in bankruptcy or insolvency proceedings or for reorganization or for the appointment of a receiver or trustee of all or substantially all of Tenant's property, unless such petition shall be filed against Tenant and Tenant shall in good faith promptly thereafter commence and diligently prosecute any and all proceedings appropriate to secure the dismissal of such petition and shall secure such dismissal within thirty (30) days of its filing; 9.1.6 Tenant shall be adjudicated a bankrupt or an insolvent or take the benefit of any federal reorganization or composition proceeding, make an assignment for the benefit of creditors, or take the benefit of an insolvency law; 9.1.7 A trustee in bankruptcy or a receiver shall be appointed or elected or had for Tenant, whether under federal or state laws; 9.1.8 Tenant's interest under this Lease shall be sold under any execution or process of law; 9.1.9 the Premises shall be abandoned or deserted or Tenant shall fail to make continuous use of the Premises for twenty (20) business days for the Use or Tenant shall have failed to complete the Initial Tenant Improvements and open for business within four (4) months after the execution of this Lease by both parties to it; or 9.1.10 Tenant shall fail to maintain current, duly issued occupational licenses, or any other permit or license required by an applicable Legal Authority for its operations at the Premises, or Tenant shall fail to meet the insurance requirements of this Lease and provide certificates of insurance (and binders and policies, if required) evidencing such compliance. Section 9.2 REMEDIES. In the event of the occurrence of an Event of Default by Tenant, Landlord, at Landlord's option, may elect to do one or more of the following: 9.2.1 accelerate all of the remaining Rent for the Lease Term, in which event all Rent shall become immediately due and payable, discounted to the current value thereof as of the date of default, by using the interest rate on U.S. Treasury securities with a maturity date equal to the number of months from the date of default until the normal expiration of the Term; 9.2.2 terminate this Lease as provided by this section and re-enter the Premises and remove all persons and property from the Premises, either by summary proceedings or by any other suitable action or proceeding at law, or otherwise; or 9.2.3 without terminating this Lease, re-enter the Premises and remove all persons and property from the Premises, either by summary proceedings or by any other suitable action or proceeding at law, or otherwise, and relet all or any part of the Premises. Section 9.3 TERMINATION. If Landlord elects to terminate this Lease after a default by Tenant: 9.3.1 Landlord shall give notice of such termination, which shall take effect ten (10) days after such notice is given, or such greater number of days as is set forth in such notice, fully and completely as if the effective date of - 20 - ------------------/---------------- Landlord Tenant such termination were the date originally set forth in this Lease for the expiration of the Lease Term; 9.3.2 Tenant shall quit and peacefully surrender the Premises to Landlord, without any payment by Landlord for doing so, on or before the effective date of termination; and 9.3.3 All Rent, including accelerated Rent, shall become due and shall be paid up to the effective date of termination, together with such expenses, including attorneys' fees and costs attendant thereto, at all trial and appellate levels, as Landlord shall incur in connection with such termination. Section 9.4 NO REINSTATEMENT AFTER TERMINATION. No receipts of monies by Landlord from Tenant after termination of this Lease shall reinstate, continue, or extend the Term, affect any Notice previously given by Landlord to Tenant, or operate as a waiver of the right of Landlord to enforce the payment of Rent. Section 9.5 RETENTION OF SUMS AFTER TERMINATION. If Landlord shall terminate this Lease, Landlord shall be entitled to retain, free of trust, all sums then held by Landlord pursuant to any of the provisions of this Lease. In the interim following such termination until the retention of such sums by Landlord free of trust, such sums shall be available to Landlord, but not to Tenant, pursuant to and for the purposes provided by the terms and conditions of this Lease. Section 9.6 RE-ENTRY. In the event of any re-entry and/or dispossession by summary proceedings or otherwise without termination of this Lease: 9.6.1 all Rent shall become due and shall be paid up to the time of such re-entry and/or dispossession, together with such expenses, including attorneys' fees and costs attendant thereto, at all trial and appellate levels, as Landlord shall incur in connection with such re-entry and/or dispossession by summary proceedings or otherwise; and 9.6.2 all Rent for the remainder of the Lease Term may be accelerated and due in full, the collection of such sums being subject to the provisions of Section 9.6.3.3; and 9.6.3 Landlord may relet all or any part of the Premises, either in the name of Landlord or otherwise, for a term or terms which may, at Landlord's option, be equal to, less than, or greater than the period which would otherwise have constituted the balance of the Term. In connection with such reletting: 9.6.3.1 Tenant or Tenant's representative shall pay, as Additional Rent, to Landlord, as they are incurred by Landlord, such reasonable expenses as Landlord may incur in connection with reletting, including, without limitation, legal expenses, attorneys' fees and costs attendant thereto, at all trial and appellate levels, brokerage commissions, and expenses incurred in altering, repairing, and putting the Premises in good order and condition and in preparing the Premises for reletting; 9.6.3.2 Tenant or Tenant's representative shall pay to Landlord, in monthly installments on the due dates for Rent payments for each month of the balance of the Term, the amount by which any Rent payment exceeds the net amount, if any, of the rents for such period collected on account of the reletting of the Premises; any suit brought to collect such amount for any month or months shall not prejudice in any way the rights of Landlord to collect the deficiency for any subsequent month or months by a similar action or proceeding; - 21 - ------------------/---------------- Landlord Tenant 9.6.3.3 at Landlord's option exercised at any time, Landlord shall be entitled to recover immediately from Tenant, in addition to any other proper claims, but in lieu of and not in addition to any amount which would thereafter become payable under the preceding subsection, a sum equal to the amount by which the sum of the Rent for the balance of the Lease Term, compound discounted at the current value as of the date of default (in the manner described in Section 9.2.1.), exceeds the net rental value of the Premises, compound discounted at the same annual rate to its then-present worth, for the balance of the Lease Term. In determining such net rental value of the Premises, the rent realized by any reletting of the Premises, if such reletting is upon terms (other than rental amounts) generally comparable to the terms of this Lease, shall be deemed to be such net rental value; and 9.6.3.4 at Landlord's option, Landlord may make such alterations and/or decorations in or upon the Premises as Landlord, in Landlord's sole judgment, considers advisable and necessary for the purpose of reletting the Premises, provided that any such alterations or decorations are not materially inconsistent with the standard of Tenant's alterations and decorations under Article V hereof; the making of such alterations and/or decorations shall not operate or be construed to release Tenant from liability under this Section; the cost of all such alterations and/or decorations shall be paid by Tenant to Landlord as Additional Rent. Section 9.7 SUMS COLLECTED UPON RELETTING. Landlord shall have, receive, and enjoy as Landlord's sole and absolute property, any and all sums collected by Landlord as rent or otherwise upon reletting the Premises after Landlord shall resume possession of the Premises as provided by this Lease, including, without limitation, any amounts by which the sum or sums so collected shall exceed the continuing liability of Tenant under this Lease. If Landlord shall have accelerated Rent payments and collected same from Tenant, and subsequently shall have relet the Premises, then Landlord, after deducting all costs related to reletting, including, but not limited to, those described or anticipated in this Section 9.7 and in Section 9.11, and any other sums due from Tenant to Landlord, shall pay to Tenant the amount remaining which is collected as Rent for each month, to the extent Landlord shall have previously received the Rent for such month from Tenant (but Landlord may retain any such amount, for application to future amounts not yet paid but which may become due). Section 9.8 NO EFFECT ON SUIT. Landlord and Tenant agree that after the commencement of suit for possession of the Premises or after final order or judgment for the possession of the Premises, Landlord may demand, receive, and collect any monies due or coming due without in any manner affecting such suit, order, or judgment. All such monies collected shall be deemed to be payments on account of the use and occupation of the Premises, or, at the election of Landlord, on account of Tenant's liability under this Lease. Section 9.9 WAIVER OF RIGHTS OF REDEMPTION. Tenant waives all rights of redemption which may otherwise be provided by any Legal Requirement in the event that Landlord shall, because of the occurrence of an Event of Default by Tenant, obtain possession of the Premises under legal proceedings, or pursuant to present or future law or to the terms and conditions of this Lease. Section 9.10 USE OF WORD "RE-ENTRY". The words "re-enter" and "re-entry", as used in this Section, are not and shall not be restricted to their technical legal meaning, but are used in the broadest sense. - 22 - ------------------/---------------- Landlord Tenant Section 9.11 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULTS. Whenever and as often as Tenant shall fail or neglect to comply with the terms and conditions of this Lease, Landlord, at Landlord's option and upon ten (10) days' Notice to Tenant (or upon shorter Notice, or with no Notice at all, if reasonable to meet an emergency or a time limitation imposed by Legal Authorities), may, in addition to all other remedies available to Landlord, perform, or cause to be performed, such work, labor, services, acts, or things, and take such other steps, including, but not limited to, entry onto the Premises, as Landlord may deem advisable, to comply with and perform any such term or condition. Tenant shall reimburse Landlord upon demand, and from time to time, for all costs and expenses suffered or incurred by Landlord in so complying with or performing such term or condition, which shall be deemed Additional Rent. The commencement of any work or the taking of any other steps or performance of any other act by Landlord pursuant to this Section shall not be deemed to obligate Landlord to complete the curing of any term or condition which is in default. Section 9.12 LANDLORD'S EXPENSES. In the event of a default by Tenant, Tenant shall reimburse Landlord upon demand for all reasonable expenses, including attorneys' fees and costs for negotiation, trial, or appellate work (including fees for the services of paralegals and similar persons) incurred by Landlord in connection with (a) any litigation or dispute in which Landlord becomes a party or otherwise becomes involved related to the Premises or Landlord's rights or obligations under this Lease (except to the extent Landlord is found to be at fault); (b) all costs of reletting the Premises in the event of Tenant's default, including, but not limited to, brokers' charges, and the proportionate share of the original broker's fees, if any, for which Tenant has not paid all Rent, (c) the enforcement or collection of any judgments, settlements or court awards, and (d) if the leasehold interest of Tenant under this Lease shall be held by more than one person or entity, and if litigation shall arise by reason of a dispute among such persons or entities, then Landlord's reasonable expenses incurred if Landlord is made a party to, or incurred otherwise in connection with, such litigation. ARTICLE X SECURITY Section 10.1 SECURITY DEPOSIT. 10.1.1 Tenant has deposited with Landlord the sum specified in the Basic Term Sheet to be retained by Landlord without liability for interest, as security for the payment of all Rent and other sums of money which shall or may be payable for the full stated term of this Lease, and any extension or renewal thereof, and for the faithful performance of all the terms of this Lease to be observed and performed by Tenant. 10.1.2 The Security Deposit shall not be mortgaged, assigned, transferred or encumbered by Tenant without the prior written consent of Landlord and any such act on the part of Tenant shall be without force or effect and shall not be binding upon Landlord. If any of the Rent herein reserved or any other sum payable by Tenant to Landlord shall be overdue and unpaid or should Landlord make payments on behalf of Tenant, or if Tenant shall fail to perform any of the terms of this Lease, then Landlord may, at its option and without prejudice to any other remedy which Landlord may have on account thereof, appropriate and apply said entire deposit or so much thereof as may be necessary to compensate Landlord toward the payment of Rent or Additional Rent or loss or damage sustained by Landlord due to breach on the part of Tenant; and Tenant shall promptly upon demand restore said security to the original sum deposited. If Tenant should be overdue in the payment of monthly Rent or other sums payable to Landlord on at least two or more occasions during - 23 - ------------------/---------------- Landlord Tenant a year, Landlord, at its option, may require Tenant to increase the amount of Security Deposit now held by Landlord by an amount sufficient to cover at least two months' Rent. In this event, upon receipt of the additional security sum, Landlord and Tenant shall evidence such receipt by a letter signed and acknowledged by both Landlord and Tenant to be incorporated as part of this Lease amending the Basic Term Sheet, stating the "New Total Amount" so held without liability for any interest. Within sixty (60) days after the expiration of the tenancy hereby created, whether by lapse of time or otherwise, provided Tenant shall not be in default hereunder and shall have complied with all the terms, covenants and conditions of this Lease, including the yielding up of immediate possession to Landlord, Landlord shall, upon being furnished with affidavits and other satisfactory evidence by Tenant that Tenant has paid all bills incurred by it in connection with its performance of the terms, covenants and conditions of this Lease, return to Tenant said sum on deposit or such portion thereof then remaining on deposit with Landlord as set forth herein. In the event Tenant has not complied with all the obligations provided for hereunder, Landlord may appropriate a part or all of the Security Deposit as liquidated damages to satisfy Tenant's obligations. ARTICLE XI ADDITIONAL TENANT AGREEMENTS Section 11.1 MORTGAGE FINANCING AND SUBORDINATION. This Lease and all of Tenant's rights hereunder are and shall be subordinate to the present and any future mortgage upon the Building, as well as to any existing ground lease, however, Tenant shall, upon request of either Landlord, the holder of any mortgage or Deed of Trust now or hereafter placed upon the Landlord's interest in the Premises or future additions thereto, and to any ground lease now or hereafter affecting the Premises, execute and deliver upon demand, any such further instruments subordinating this Lease to the lien of any such mortgage or mortgages, and such ground lease, provided such subordination shall be upon the express condition that this Lease shall be recognized by the mortgagees and ground lessors and that the rights of Tenant shall remain in full force and effect during the Lease Term and any extension thereof, notwithstanding any default by the mortgagors with respect to the mortgages or any foreclosure thereof, or any default by the ground lessee, so long as Tenant shall perform all of the covenants and conditions of this Lease. Tenant agrees to attorn to the mortgagee or purchaser or successor or ground lessor, and agrees to execute all agreements required by Landlord's mortgagee or ground lessor or any purchaser at a foreclosure or sale in lieu of foreclosure by which agreements Tenant will attorn to the mortgagee or purchaser or successor or ground lessor. Section 11.2 ASSIGNMENT OR SUBLETTING. 11.2.1 The subject of assignment or subletting is set forth in Section 1.2.18 of this Lease 11.2.2 Any assignment or sublease by Tenant shall be only for the permitted Use or general office use, and for no other purpose, and in no event shall any assignment or sublease of the Premises release or relieve Tenant from any obligations of this Lease. 11.2.3 In the event that Tenant shall seek Landlord's permission to assign this Lease or sublet the Premises or allow additional occupants, Tenant shall provide to Landlord the name, address, financial statement and business experience resume for the immediately preceding two (2) years of the proposed assignee or subtenant or occupant and such other information concerning such proposed assignee or subtenant or occupant as Landlord may require. This information shall be in writing and shall be received by Landlord no less than thirty - 24 - ------------------/---------------- Landlord Tenant (30) days prior to the effective date of the proposed assignment or sublease or occupancy 11.2.4 If Tenant is a corporation or partnership and any transfer, sale, pledge or other disposition of more than fifty percent (50%) of the common stock or partnership interests shall occur, or voting control or power to vote the majority of the outstanding capital stock or partnership interests be changed, such action shall be deemed an assignment under the terms of this Lease and shall be subject to all the terms and conditions thereof. Any breach of the assignment clause by Tenant will constitute a default under the terms of this Lease and Landlord shall have all rights and remedies available to it as set forth herein. Any proposed assignee or subtenant of Tenant shall assume Tenant's obligations hereunder and deliver to Landlord an assumption agreement in form reasonably satisfactory to Landlord no less than ten (10) days prior to the effective date of the proposed assignment or sublease. Notwithstanding any of the foregoing provisions, if Tenant is in default under any of the terms of this Lease, Tenant may not assign or sublet the Premises in whole or in part. Section 11.3 TENANT'S NOTICE TO LANDLORD OF DEFAULT. Should Landlord be in default under any of the terms of this Lease, Tenant shall give Landlord prompt written notice thereof in the manner specified in Section 12.1, and Tenant shall allow Landlord a reasonable length of time in which to cure such default, which time shall not in any event be less than thirty (30) days from the date of receipt of such notice. Section 11.4 SHORT FORM LEASE. Tenant agrees not to record this Lease without the express written consent of Landlord. Section 11.5 SURRENDER OF PREMISES AND HOLDING OVER. At the expiration of the tenancy, Tenant shall surrender the Premises in good condition, reasonable wear and tear excepted, and damage by unavoidable casualty (except to the extent that the same is covered by Landlord's fire insurance policy with extended coverage endorsement), and Tenant shall surrender all keys for the Premises to Landlord at the place then fixed for the payment of Rent and shall inform Landlord of all combinations on locks, safes and vaults, if any, in the Premises. Tenant shall remove all its trade fixtures and any alterations or improvements, subject to the provisions of Section 6.5, before surrendering the Premises, and shall repair, at its own expense, any damage to the Premises caused thereby. Tenant's obligations to observe or perform this covenant shall survive the expiration or other termination of the Lease Term. In the event Tenant remains in possession of the Premises after the expiration of the tenancy created hereunder, whether or not with the consent or acquiescence of Landlord, and without the execution of a new lease, Tenant, at the option of Landlord, shall be deemed to be occupying the Premises as a tenant at will on a week-to-week tenancy and in no event on a month-to-month or on a year-to-year tenancy. The rent during this week-to-week tenancy shall be payable weekly at twice the Fixed Minimum Rent, and twice all other charges due hereunder, and it shall be subject to all the other terms, conditions, covenants, provisions and obligations of this Lease, and no extension or renewal of this Lease shall be deemed to have occurred by such holding over. Tenant's obligations to observe or perform this covenant shall survive the expiration or other termination of the Lease Term. Section 11.6 ESTOPPEL CERTIFICATE. Each party shall provide at any time, within ten (10) days of the other party's written request, a statement certifying that - 25 - ------------------/---------------- Landlord Tenant this Lease is unmodified and in full force and effect or, if there have been modifications, that same are in full force and effect as modified and stating the modifications, and the dates to which the Fixed Minimum Rent and other charges have been paid in advance, if any. For Landlord's benefit. it is intended that any such statement delivered pursuant to this paragraph may be relied upon by any prospective purchaser or mortgagee of the Premises. For Tenant's benefit, it is intended that any such statement delivered pursuant to this paragraph may be relied upon by any prospective purchaser of or lender to Tenant. Section 11.7 COMPLIANCE WITH LAW. 11.7.1 At all times during the Lease Term, Tenant shall, at Tenant's own cost and expense, fully perform and comply with any law, statute, code, rule, regulation, ordinance, order, judgment, decree, writ, injunction, franchise, permit, certificate, license (including any beer, wine or liquor license), authorization, registration, or other direction or requirement of any domestic or foreign federal, state, county, municipal, or other government or governmental or quasi-governmental department, commission, board, bureau, court, agency, or instrumentality having jurisdiction or authority over Landlord, Tenant, and/or all or any part of the Premises ("Legal Authority"), which is now or in the future applicable to the Tenant's particular use of the Premises, including those not within the present contemplation of the parties ("Legal Requirements"), and applicable insurance underwriters' rules, regulations, decrees or requirements, whether or not they shall necessitate ordinary or extraordinary structural changes, improvements, replacements, or repairs to the Premises, or cause any interference with the Use. Tenant acknowledges that the Building is not newly constructed, and Tenant shall cooperate with Landlord in asbestos removal or any other matter which may be necessary or advisable in connection with Legal Requirements. 11.7.2 At all times during the Term, Tenant shall not do, permit, or suffer to be done any act, or cause, permit, or suffer to exist any condition upon the Premises, which may (a) be dangerous, unless safeguarded as provided for by Legal Requirements; (b) constitute a public or private nuisance; (c) make any Insurance void or voidable or cause any increase in Insurance premiums; or (d) involve invasive medical procedures including but not limited to the use of syringes. Landlord may enforce this provision in different ways from time to time, and the permitting by Landlord of certain activities on one or more occasions shall not alter Landlord's rights to prohibit or modify such activities at other times. Tenant acknowledges and agrees that Landlord shall have the right to provide for the comfort of others in the Building and that such right is a significant consideration and inducement to Landlord to enter into this Lease. 11.7.3 Tenant shall: 11.7.3.1 neither cause nor permit the Premises to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce, or process Hazardous Materials, except in compliance with all Legal Requirements; 11.7.3.2 neither cause nor permit a release or threatened release of Hazardous Materials onto the Premises, the air, water or any other property as a result of any intentional or unintentional act or omission on the part of Tenant; 11.7.3.3 comply with all applicable Legal Requirements related to Hazardous Materials; 11.7.3.4 conduct and complete all investigations, studies, sampling, and testing, and all remedial, removal, and other actions on, from, or affecting the Premises in accordance with such applicable Legal Requirements and to the satisfaction of Landlord; - 26 - ------------------/---------------- Landlord Tenant 11.7.3.5 allow access to the Premises by Landlord and applicable regulatory authorities so that they may assure compliance with this Section 11.8; 11.7.3.6 upon the expiration or termination of this Lease, deliver the Premises to Landlord free of all Hazardous Materials; and 11.7.3.7 defend, indemnify, and hold harmless Landlord and Landlord's employees and other agents from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs, or expenses of any kind or nature, known or unknown, contingent or otherwise (including, without limitation, accountants' and attorneys' fees (including fees for the services of paralegals and similar persons), consultant fees, investigation and laboratory fees, court costs, and litigation expenses at the trial and all appellate levels), arising out of, or in any way related to (a) the presence, disposal, release, or threatened release, by or caused by Tenant or its agents, of any Hazardous Materials which are on, from, or affecting the air, soil, water, vegetation, buildings, personal property, persons, animals, or otherwise; (b) any personal injury, including wrongful death, or damage to property, real or personal, arising out of or related to such Hazardous Materials; (c) any lawsuit brought, threatened, or settled by Legal Authorities or other parties, or order by Legal Authorities, related to such Hazardous Materials; and/or (d) any violation of Legal Requirements related in any way to such Hazardous Materials. For the purposes of this Lease "Hazardous Materials" means any flammable explosives, radioactive materials, oil or petroleum products and their by-products, asbestos, polychlorobiphenyls, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials as defined under or regulated by any Legal Requirements, including, without limitation, the following statutes and the regulations promulgated under their authority: (a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.); (b) the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et seq.); and (c) the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. Sections 6901 et seq.). The provisions of this Section 11.7 shall survive the expiration or termination of this Lease. Tenant shall, however, have the right to use and store on the Premises materials (such as cleaning fluids, "white out" and similar substances) used in the ordinary course of its business, subject to compliance with Legal Requirements. Section 11.8 Landlord Compliance Landlord shall defend, indemnify, and hold harmless Tenant and Tenant's employees from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs, or expenses of any kind or nature, known or unknown, contingent or otherwise (including, without limitation, accountants' and attorneys' fees (including fees for the services of paralegals and similar persons), consultant fees, investigation and laboratory fees, court costs, and litigation expenses at the trial and all appellate levels), arising out of, or in any way related to (a) the presence, disposal, release, or threatened release, by or caused by Landlord or its agents, of any Hazardous Materials which are on, from, or affecting the air, soil, water, vegetation, buildings, personal property, persons, animals, or otherwise; (b) any personal injury, including wrongful death, or damage to property, real or personal, arising out of or related to such Hazardous Materials; (c) any lawsuit brought, threatened, or settled by Legal Authorities or other parties, or order by Legal Authorities, related to such Hazardous Materials; and/or (d) any violation of Legal Requirements related in any way to such Hazardous Materials. For the purposes of this Lease "Hazardous Materials" means any flammable explosives, radioactive materials, oil or petroleum products and their by-products, asbestos, polychlorobiphenyls, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials as defined under or regulated by any Legal Requirements, including, - 27 - ------------------/---------------- Landlord Tenant without limitation, the following statutes and the regulations promulgated under their authority: (a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.); (b) the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et seq.); and (c) the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. Sections 6901 et seq.). The provisions of this Section 11.8 shall survive the expiration or termination of this Lease Section 11.9 RULES AND REGULATIONS. Tenant's use of the Premises shall be subject, at all times during the Lease Term, to Landlord's right to adopt in writing, from time to time, modify and/or rescind reasonable Rules and Regulations not in conflict with any of the express provisions hereof governing the use of the parking areas, walks, driveways, passageways, common areas, signs, exterior of Building, lighting and other matters affecting other tenants in and the general management and appearance of the Building of which the Premises are a part, but no such rule or regulation shall discriminate against Tenant. The current Rules and Regulations are attached as Exhibit "C". Section 11.10 ABANDONMENT. Tenant shall not vacate or abandon the Premises at any time during the Lease Term, nor permit the Premises to remain unoccupied for a period longer than twenty (20) consecutive days during the Lease Term. If Tenant shall abandon, vacate or surrender the Premises, or be dispossessed by process of law or otherwise, any personal property belonging to Tenant left on the Premises shall, at the option of the Landlord, be deemed abandoned, and Landlord may sell, store, or dispose of it at Tenant's expense. ARTICLE XII MISCELLANEOUS PROVISIONS Section 12.1 NOTICES. Whenever notice shall or may be given to either of the parties by the other, each such notice shall be either delivered in person or sent by nationally recognized overnight delivery service, or certified or registered mail, in each case with return receipt requested. Notices to Landlord shall be sent to the address specified in the Basic Term Sheet. Notices to Tenant shall be sent to the address specified in the Basic Term Sheet. Any notice under this Lease shall be deemed to have been given at the time it is received or refused by the addressee. Section 12.2 ENTIRE AND BINDING AGREEMENT. This Lease contains all of the agreements between the parties hereto, and it may not be modified in any manner other than by agreement in writing signed by all parties hereto or their successors in interest. The terms, covenants and conditions contained herein shall inure to the benefit of and be binding upon Landlord and Tenant and their respective heirs, successors and permitted assigns, except as may be otherwise expressly provided in this Lease. Section 12.3 PROVISIONS SEVERABLE. If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be illegal, invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those to which it is held illegal, invalid or unenforceable shall not be affected hereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. - 28 - ------------------/---------------- Landlord Tenant Section 12.4 CAPTIONS. The captions contained herein are for convenience and reference only and shall not be deemed as part of this Lease or construed as in any manner limiting or amplifying the terms and provisions of this Lease to which they relate. Section 12.5 RELATIONSHIP OF THE PARTIES. Nothing herein contained shall be deemed or construed as creating the relationship of principal and agent or of partnership or joint venture between the parties hereto; it being understood and agreed that neither the method of computing rent nor any other provision contained herein nor any acts of the parties hereto shall be deemed to create any relationship between the parties other than that of Landlord and Tenant. Section 12.6 ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Rent nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or pursue any other remedy provided for in this Lease or available at law or in equity. Section 12.7 BROKER'S COMMISSION. Each party warrants to the other that it has not engaged any Real Estate Broker or Realtor, except for Cushman & Wakefield (which represents Tenant) and Codina Bush KleinxONCOR International (which represents Landlord) in connection with such party's execution of this Lease and agrees to indemnify and save the other party harmless from any liability that may arise from such claim, including reasonable attorneys' fees by any other broker, realtor or finder. Section 12.8 CORPORATE AND PARTNERSHIP STATUS. 12.8.1 If Tenant is a corporation or partnership, tenant's corporate or partnership status shall continuously be in good standing and active and current with the state of its incorporation and reincorporation, and is qualified to do business in the State of Florida at the time of execution of the Lease and at all times thereafter. Tenant shall keep its corporate status active and current throughout the Lease Term or any extensions or renewals. Tenant shall, when requested, provide Landlord a current copy of the Certificate of Good Standing under Seal. Failure of Tenant to keep its corporate or partnership status active and current shall constitute a default under the terms of the Lease. In the event this Lease is signed on behalf of Tenant by a person in a representative capacity, each of the person or persons signing in such capacity represents and warrants to the Landlord and its successors and assigns that: 12.8.1.1 Their execution and delivery of this lease has been duly and validly authorized and all requisite actions have been taken to make it valid and binding on the entity they represent. 12.8.1.2 The entity they represent will, on the date of the commencement of and at all times during the term of this Lease, be duly organized, validly existing and in good standing in the state of its organization and entitled to conduct its business in the state where the Premises is located. Section 12.9 MISCELLANEOUS. 12.9.1 Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling materials, steam, gas, electricity, water, rain or leaks - 29 - ------------------/---------------- Landlord Tenant from any part of the Premises or from the pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or by any other cause of whatsoever nature, unless caused by the gross negligence or willful misconduct of Landlord. All property of Tenant, including merchandise and furnishings, kept or stored on the Premises shall be so kept or stored at the risk of Tenant only and Tenant shall hold Landlord harmless from any and all claims arising out of damage to same. If Landlord is required to make repairs by reason of any act, omission or negligence of Tenant, any permitted subtenants, concessionaires or their respective employees, agents, invitees, licensees or contractors, the cost of such repairs shall be borne by Tenant and shall be due and payable immediately upon receipt of Landlord's notification of the amount due. 12.9.2 At Tenant's request, if Landlord provides any miscellaneous services and/or supplies to Tenant or Tenant's Premises (including by way of example, but not limited to: keys, directory strips, carpet cleaning, non-standard light bulbs, repairs, locks, parking) all charges for these services imposed by Landlord shall be billed to Tenant and payable by Tenant as Additional Rent. Landlord shall have the same remedies for failure to pay the same as for non-payment of Fixed Minimum Rent. Tenant covenants and agrees to pay Landlord all applicable sales tax or other taxes which may be imposed on the above Additional Rent. 12.9.3 It is specifically understood and agreed that there shall be no personal liability on Landlord, or any of its general or limited partners, in respect to any of the covenants, conditions or provisions of this Lease; in the event of a breach or default by Landlord of any of its obligations under this Lease, Tenant shall look solely to the equity of Landlord in the Building for the satisfaction of Tenant's remedies. In the event of a sale or transfer of the Building or any portion thereof which includes the Premises, or in the event of the making of the lease of the Building or of any portion, or in the event of a sale or transfer of the leasehold estate under any such underlying lease, the grantor, transferor or Landlord, as the case may be, shall thereafter be entirely relieved of all terms, covenants and obligations thereafter to be performed by Landlord under this Lease to the extent of the interest or portion so sold, transferred or leased, and it shall be deemed and construed, without further agreement between the parties and the purchaser, transferee or Tenant, as the case may be, has assumed and agreed to carry out any and all covenants of Landlord hereunder. 12.9.4 The parties hereby waive trial by jury in any action, proceeding or counter claim brought by either of the parties hereto against the other or any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, and/or claim of injury or damage. 12.9.5 In the event of a breach by Tenant of any of the covenants or provision hereof, Landlord shall have, in addition to any other remedies which it may have, the right to invoke any remedy allowed at law or in equity, including injunctive relief, to enforce Landlord's rights or any of them, as if re-entry and other remedies were not herein provided for. 12.9.6 In the event of any litigation arising out of enforcement of this Lease, the prevailing party in such litigation shall be entitled to recovery of all costs, including reasonable attorneys' fees at all trial and appellate levels. 12.9.7 Notwithstanding anything in this Lease to the contrary, Landlord reserves all rights which any state or local laws, rules, regulations or ordinances confer upon a Landlord against a Tenant in default. This article shall apply to any renewals or extensions of this Lease. - 30 - ------------------/---------------- Landlord Tenant 12.9.8 This agreement shall be deemed to have been made in Dade County, Florida and shall be interpreted, and the rights and liabilities of the parties here determined, in accordance with the laws of the State of Florida. The parties agree that jurisdiction and venue for any litigation concerning or arising out of this Lease shall be maintained in the Courts of Dade County, Florida or the U.S. District Court for the Southern District of Florida, and Tenant agrees that service of process in any such litigation may be served upon it, in addition to those procedures set forth in Florida law, in the manner set forth in Section 12.1 of this Lease. Section 12.10 FINANCIAL STATEMENTS. Tenant shall furnish Landlord, within ten (10) business days after Landlord's request therefor, a, current unaudited financial statement of Tenant (provided, that if Tenant becomes at any time during the term of this Lease or any renewal thereof, a publicly held entity, Tenant shall deliver instead a copy of its audited financial statement), but Landlord shall not be entitled to make such request under this section more frequently than twice annually. Unless Landlord has reason to believe there has been a material reduction in the financial worth of any of such parties, such financial statement(s) shall not be required to be furnished more than twice each calendar year as to Tenant. Section 12.11 NON-WAIVER PROVISIONS. 12.11.1 The failure of Landlord to insist upon a strict performance of any of the terms, conditions and covenants herein shall not be deemed to be a waiver of any rights or remedies that Landlord may have and shall not be deemed a waiver of any subsequent breach or default in the terms, conditions and covenants herein contained except as may be expressly waived in writing. 12.11.2 The maintenance of any action or proceeding to recover possession of the Premises or any installment or installments of rent or any other monies that may be due or become due from Tenant to Landlord shall not preclude Landlord from thereafter instituting and maintaining subsequent actions or proceedings for the recovery or possession of the Premises or of any other monies that may be due or become due from Tenant including all expenses, court costs and attorneys' fees and disbursements incurred by Landlord in recovering possession of the Premises and all costs and charges for the care of the Premises while vacant. Any entry or re-entry by Landlord shall not be deemed to absolve or discharge Tenant from liability hereunder. 12.11.3 If Landlord is delayed or prevented from performing any of its obligations under this Lease by reason of strike, labor disputes, or any cause whatsoever beyond Landlord's reasonable control, the period of such delay or such prevention shall be deemed added to the time herein provided for the performance of any obligation by Landlord. Section 12. RADON GAS. Pursuant to F.S. 404.056(8), Tenant is hereby notified that radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. In no event shall Landlord be liable for direct or indirect, consequential or incidental damages arising from the existence or discovery of radon in the Premises. - 31 - ------------------/---------------- Landlord Tenant IN WITNESS WHEREOF, Landlord and Tenant above duly executed this Lease as of the day and year first above written, each acknowledging receipt of an executed copy hereof. WITNESSES: LANDLORD: NWT PARTNERS, LTD., a _______ limited partnership BY: NWT, Inc., a Florida - --------------------------------------- corporation, as General Name: Partner - --------------------------------------- Name: By: -------------------------------- Vice President [Corporate Seal] TENANT: STAR TELECOMMUNICATIONS, INC, a Delaware corporation qualified to do business in Florida - --------------------------------------- Name: By: ----------------------------- - --------------------------------------- Name: Name/Title: --------------------- [Corporate Seal - 32 - ------------------/---------------- Landlord Tenant EXHIBIT A LEGAL DESCRIPTION PARCEL I: Lots 1, 2 and 3 of Smith Subdivision of Lots 4, 5 and 6 in Block 102 North, City of Miami, according to the plat thereof recorded in Plat Book 3, page 5, Public Records of Dade County, Florida. PARCEL II: Non-exclusive right-of-way and easement for a term of years for ingress and egress from Parcel I to Northeast Third Avenue on and over Lot 6, less North 28 ft. thereof, of Smith Subdivision of Lots 4,5 and 6, of Block 102 North, City of Miami, according to the plat thereof in Plat Book 3 at page 5, Public Records of Dade County, Florida, as created by Right-of-Way and Easement Agreement dated September 27, 1979, filed September 28, 1979 under CF 79R275271 and recorded in O.R. Book 10527 at pages 1401-1405, and as assigned by assignment in O.R. Book 10527, page 1394, and as assigned by assignment in O.R. Book 10971, page 1866, and as conveyed by Warranty Deed in O.R. Book 12001, page 960, Public Records of Dade County, Florida. PARCEL III: The South 24.00 feet of Lot 2 and all of Lot 3, in Block 102 North, City of Miami, A.L. Knowlton Map of Miami, according to the Plat thereof recorded in Plat Book B, at page 41, of the Public Records of Dade County, Florida. - 1 - ------------------/---------------- Landlord Tenant EXHIBIT "C" RULES AND REGULATIONS 1. At all times during the terms of this Lease, the Landlord shall have the right by themselves, their agents, and employees, to enter into and upon the Premises during reasonable business hours upon reasonable prior oral or written notice to Tenant for the purpose of examining and inspecting the same and determining whether the Tenant shall have complied with his obligation under the Lease and the rules and regulations contained herein, in respect to the care and maintenance of the Premises and the repair or rebuilding of the improvements thereon, when necessary as modified by Section 6.6 of the Lease. 2. Tenant shall not use the name of the Building for any purpose other than Tenant's business address and shall never use a picture or likeness of the Building or Premises in any advertisement, notice or correspondence without Landlord's advance written consent hereto, which consent shall not be unreasonably withheld, delayed or conditioned. 3. Tenant shall not make or permit any noise or odor that is objectionable to the public, to other occupants of the Building, or to Landlord to emanate from the Premises and shall not create or maintain a nuisance thereon and shall not disturb, solicit or canvass any occupant and shall not do any act tending to injure the reputation of the Building or Premises. 4. Except as otherwise specifically provided in Exhibit A-1, Tenant shall not place or permit any radio antenna, loud speakers, sound amplifiers, or similar devices on the roof or outside of the Building, or within the core area. 5. The sidewalks, entrances, passages, elevators, vestibules, stairways, corridors and halls must not be obstructed or encumbered or used for any purpose other than ingress and egress to and from the Premises. 6. With the exception of initially moving into or completely moving out of the Tenant's Premises, supplies, goods, materials, packages, furniture and all such items of every kind are to be delivered at the entrance point provided therefor, through service elevators or dumbwaiters to the Tenant, or in such manner as the Landlord may provide and the Landlord is not responsible for the loss or the damage of any such property. 7. The Landlord may retain a pass key to the Premises, solely for use in accordance with Section 6.6 of the Lease. The Tenant shall not alter any lock or install a new lock or a knocker on any door of the Premises without written consent of the Landlord or the Landlord's agent, provided, in case such consent is given, the Tenant shall make provisions that the lock is compatible with the Landlord keying system pursuant to the Landlord's right of access to the Premises. 8. Tenant shall, upon termination of the Lease or of Tenant's possession, surrender all keys of the Premises to landlord at the Building office and shall make known to Landlord the explanation of all combination locks on safes, cabinets, and vaults in the Premises. 9. Tenant shall not install any concession or vending machines in the Premises, and shall not sell from the Premises the following items: cigars, cigarettes, tobacco, pipes, candies, newspapers, magazines, or greeting cards. 10. Landlord reserves the right to: (1) change the street address of the Building; (2) install and maintain a sign or signs on the exterior or interior of the Building; (3) designate all sources furnishing sign painting and lettering and, and (4) take all measures as may be necessary or desirable for the safety, protection or preservation of the Premises of the Building. - 1 - ------------------/---------------- Landlord Tenant 11. All persons entering or leaving the Building after normal Building operating hours, 7:00 A.M. - 7:00 P.M.; Monday through Friday, or at any time during Saturdays, Sundays and holidays, may be required to do so under such regulations as Landlord may impose. 12. Draperies and other window coverings installed by Tenant will be of either non-combustible material such as fiberglass, metal mesh, etc. or in lieu thereof have fabric treated with a flame retardant material. 13. Drapery traverse mechanisms shall be so arranged as to permit the full opening of draperies and to provide sufficient over-travel that the stacked draperies in the full open position shall have at least a clearance of either window jam. 14. The Tenant shall not penetrate the exterior walls for any reason. All penetrations of interior walls for book shelves, pictures, or any other reason must have the prior written consent of the Landlord, which shall not be unreasonably withheld, delayed or conditioned. 15. The Landlord at all times shall have the right to reasonably amend, modify or waive any of the foregoing rules and regulations and to make such other and further rules and regulations as the landlord may adopt, but no such amendments or modifications shall be binding upon Tenant until 10 days after Tenant's receipt thereof. The failure of the Landlord to seek redress for violation of, or insist upon the strict performance of, any covenant or conditions of this Lease or any of the rules and regulations set forth above or hereafter adopted by Landlord, shall not prevent a subsequent act, which would have originally constituted a violation. The receipt by Landlord of Rent with knowledge of the breach of any covenant of this Lease or breach of these rules and regulations shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of these rules and regulations as set forth above or hereafter adopted against the Tenant and/or any other tenant in the Building shall not be deemed a waiver of any such rules and regulations. Landlord shall not be liable to Tenant for violations of any said rules and regulations or the breach of any covenant or condition in any Lease by any other tenant in the Building. No act or thing done or omitted to be done by Landlord or Landlord's agents during the term of the Lease which is necessary to enforce these rules and regulations shall constitute an eviction by Landlord. No employee of Landlord or Landlord's agent shall have any power to accept the keys of said Premises prior to the termination of the Lease. The delivery of keys to any employee of Landlord or Landlord's agents shall not operate as a termination of the Lease or a surrender of the Premises. The rules and regulations shall be binding upon heirs, successors, representatives and assigns of the Tenant. - 2 - ------------------/---------------- Landlord Tenant RIDER TO LEASE BETWEEN STAR TELECOMMUNICATIONS AND NWT PARTNERS, LTD., FOR SUITE 2000 NEW WORLD TOWER, MIAMI, FLORIDA R.1. OPTION TO RENEW. 1.01 So long as this Lease is in full force and effect and Tenant is not in default under any of the Lease provisions, and no condition exists which with notice or passage of time would constitute a default by Tenant under this Lease, Landlord grants to Tenant an option to renew the Lease ("Option to Renew") for three Option Periods of five (5) years each, subject to the following provisions. (a) Tenant shall provide written notice to Landlord of Tenant's intent to renew the Lease not less than twelve (12) months and not more than twenty-four (24) months prior to the expiration date of the then-current Lease Term. (b) The Option to Renew shall be void if at any time during the last twenty four (24) months of the then current Lease Term (including, but not limited to, the period of time between the date of the exercise of the Option and the date upon which the then current Lease Term would normally expire) the Landlord, in order to enforce its rights under the Lease has in good faith and with reasonable basis under this Lease and applicable law (i) brought an action to collect Rent from Tenant, or (ii) brought an action to recover possession of the Premises from Tenant; or (iii) brought an action to dispossess Tenant. (c) All other terms and conditions of the Lease shall remain unchanged with the exceptions that (i) there shall be no further option to renew other than the three options which are specified in this provision, and (ii) there shall be no further option to renew if Tenant does not duly exercise its first option to renew, and (iii) there shall be no Tenant's Initial Improvements or other matters specific to the initial leasing of the Premises, and (iv) Fixed Minimum Rent shall be subject to increase during the then-applicable Option Period as follows: Landlord and Tenant agree to adopt as a standard for measuring fluctuations of the purchasing power of its rental income the Consumer Price Index (for all urban consumers)-All Items (1982-1984-100) issued by the Bureau of Labor Statistics of the U.S. Department of Labor ("CPI"). The Fixed Minimum Rent for each year during such Option Periods shall be adjusted to reflect increases in the cost of living as set forth by the CPI figure or any successor or substituted index appropriately adjusted. The CPI Figure for the first month of the last year of the preceding Lease Term is referred to as the "Basic Standard". The CPI for each anniversary date of the Basic Standard is referred to as the "New Index Figure". Adjustments shall be made annually on the first day of each year during the term of each Option Period. These adjustments shall be made and the adjusted monthly Fixed Minimum Rent ("New Rental") for the ensuing year shall be arrived at by multiplying the monthly Fixed Minimum Rent for the first full month of the last year of Initial Lease Term, as described in the Basic Term Sheet, and, after the end of the Initial Lease Term, by multiplying the first month of the preceding lease year, by a fraction, the numerator of which shall be the New Index Figure and the denominator of which shall be the Basic Standard. Landlord shall notify Tenant in writing of the amount of the New Rental and the same shall be due on the first day of the month beginning that same adjustment period and each month thereafter until adjusted again under this Lease, provided however that in each year of the respective Option period, the maximum annual increase in Fixed Minimum Rent payable shall be five (5%) percent and the minimum annual increase in Fixed Minimum Rent shall be three (3%) percent; and, in no event shall the rental due and payable hereunder be less than the annual Fixed Minimum Rent for each preceding year of the Lease Term, regardless of the value of the dollar as reflected by said CPI figure. In the event the amount of the CPI figure - 3 - ------------------/---------------- Landlord Tenant increase is not known until after the first month of the period for which the adjustment is to be made, due to delay in publication of the CPI figure, or any other reason notification has not been made by Landlord, then, upon notification of the increase by Landlord, Tenant shall pay the full amount of the increase which is due for any prior months during the adjustment period, within fifteen (15) days following receipt of Landlord's written notice of the amount due. R.2. CONSTRUCTION OF TENANT IMPROVEMENTS. 2.01. Tenant shall receive a total construction allowance in the amount of $12.00 per square foot of the Premises (the "Allowance"), which shall be applied towards leasehold improvements over the base Building. For purposes of this paragraph, leasehold improvements may specifically include, but not be limited to, construction of Tenant improvement, the cost of Tenant's architectural design services, plans, engineering costs, Tenant's purchase and installation of equipment including telephone and computer equipment and cabling, (provided that none of such equipment and cabling used for by Tenant the purpose of providing its telecommunications business to its customers shall be eligible for such allowance), and costs of Tenant's construction coordinator, and any other applicable internal and/or external costs incurred by Tenant. Tenant may hire its own interior designer/architect to be compensated out of the Allowance. In addition, the cost of any electrical, mechanical, and structural engineering, including all plans, permits, licenses, and fees that are related to the development of the Premises may be paid by Tenant out of the Allowance. The cost of construction of the leasehold improvements shall be paid monthly by Landlord out of the Allowance based upon the draw schedule and work in place. Tenant and Tenant's construction coordinator shall receive a copy of each monthly requisition. To the extent that any portion of the Allowance to be contributed by Landlord under this paragraph does not apply to the initial construction of Tenant's Improvements to the Premises, the remaining funds shall be credited against the first payment of Rent coming due under this Lease. All such payments shall be subject to receipt by Landlord of appropriate waivers of liens by all contractors, subcontractors and materialmen on progress payments and final payment. R.3. COMPLETE STATEMENT OF LANDLORD WORK. 3.01 Landlord shall perform the following work with due diligence, at Landlord's sole cost and expense. (a) upgrade common areas on the 20th floor to comply with applicable codes and ADA; such work shall include the washrooms. (b) (b) the existing buildout in the Premises shall be removed and the Premises made broom clean. (c) lock off the elevators to the 20th Floor. (d) remove the asbestos mastic tape on the 20th Floor HVAC duct work. Except as set forth in this section, Tenant is taking the Premises in its "as-is" condition, existing as of the execution of this Lease, which Tenant acknowledges that Tenant has inspected. R.4. SUBMETERING. 4.01 Tenant shall obtain and pay for at its own expense Tenant's entire supply of electric current by submeter arrangement whereby Tenant's monthly kilowatt hour usage shall be paid by Tenant. Tenant shall pay for the installation of such submeter. Landlord shall read the submeter at the end of each calendar month and forward to Tenant an invoice detailing the amount of money necessary to reimburse Landlord for the cost of electricity used by Tenant for each such month, which amount shall be deemed - 4 - ------------------/---------------- Landlord Tenant Additional Rent. Tenant shall pay Landlord this amount within ten (10) days of receipt of such invoice. R.5. ALTERATIONS. 5.01 The following provisions supplement but do not replace the provisions of this Lease related to alterations and repairs of the Premises by Tenant, now or afterward; where these provisions conflict with the other provisions of the Lease, however, the following provisions shall control. (a) Landlord shall have the right to approve the general contractor, construction manager, subcontractor, architect and engineer which Tenant may select; for electrical work connecting to Landlord's core electrical systems, however, Tenant shall utilize Landlord's contractor(s), provided their pricing is reasonably competitive with other bids, such decision to be made by Tenant within ten (10) days after submission of Tenant's receipt of bids. If Landlord's contractors' prices are not reasonably competitive with other bids, then Tenant shall have the right to solicit independent bids from electrical contractors reasonably satisfactory to Landlord. (b) Landlord shall be entitled only to a five percent (5%) construction coordination fee, not in excess of $6,000, based upon the cost of Tenant's contractors' charges for alterations and repairs. (c) Prior to commencing any alterations, Tenant shall submit plans and specifications to Landlord , which shall be approved or disapproved within thirty (30) business days after submission to Landlord. Landlord hereby notifies Tenant, and Tenant hereby agrees to be bound by such notification, that all fixtures and equipment built or installed by Tenant in the Premises and on the Roof shall be required to be removed by Tenant at the end of the Lease Term, at Tenant's sole cost and expense, in a manner that shall comply with all applicable terms and conditions for the original installation thereof as are in effect at the time of such removal leaving the said Premises and Roof in the same condition as they were at the commencement of this Lease ordinary wear and tear excepted. R.6. EQUIPMENT AND OPERATING RIGHTS; LICENSE FOR ACCESS. 6.01 So long as this Lease is in full force and effect and Tenant is not in default under any of its provisions, Tenant shall, subject to the provisions of this Lease and License and to Landlord's reasonable rules and regulations therefor as promulgated from time to time, have a nonexclusive license (the "License") (a) to install, operate, maintain, repair and replace fiber optic cable within vertical and horizontal shafts of the Building; (b) have the nonexclusive use of the Building risers at such locations as may be required for Tenant's business needs and as reasonably approved by Landlord from time to time; (c) have the right to install at Tenant's sole cost and expense up to Four (4) four-inch conduit risers in the central core area of the Building, to run the height of the Building for the purpose of installing the fiber optic cable described in (a); (d) install one antenna on the Building roof; (e) install one generator and fuel tank; (f) install up to 80 tons of HVAC equipment as set forth on Exhibit A; (g) install electrical system as set forth on Exhibit A; (h) install certain structural changes for the Premises in the Building as set forth on Exhibit A; and (i) install certain life safety systems as set forth on Exhibit A; all of (a) through (i) being for the purpose of Tenant providing telecommunications services to its customers. All of the shafts, risers, roof location and other areas designated by Landlord for such License use are referred to in this Section R6 as the "License Area" and are subject to and shall be installed, operated, maintained, repaired, replaced and removed in accordance with the terms and conditions of Exhibit A, Equipment and Operating Rider, annexed hereto. 6.02 Subject to Tenant's receipt of all applicable governmental - 5 - ------------------/---------------- Landlord Tenant permits and licenses required by law, prior to installation, and at Tenant's sole cost, following notice to and approval by Landlord, Tenant shall have a right to construct in the License Area, where necessary for such purposes, conduit facilities for the provision of public utility telecommunications services in the Building. Such conduits shall be limited in size and location so as not to interfere with the Building systems and to allow other uses deemed reasonable or necessary by Landlord in the vertical and horizontal shafts and all other areas of the Building. 6.03 The license granted in this Rider is not exclusive. Landlord reserves the right to grant, renew or extend similar licenses, and unrelated licenses and agreements for use, to others. Landlord will maintain the Roof in such a manner so as to avoid interference by one tenant of another tenant's rights to the use of the Roof, including, but not limited to, the manner in which any antennae are installed, maintained and aimed. Nothing contained in this Rider shall be construed as granting to Tenant any property or ownership rights in the Building or to create a partnership or joint venture between Landlord or Tenant. Tenant's rights as to all areas of the Building other than the Premises are granted as a license only, and Tenant (notwithstanding the fact that the term "Tenant" is used in reference to it) is a licensee only with no additional rights as might accrue to a tenant under landlord/tenant or any other law. 6.04 Tenant shall use the License Area and Tenant's facilities within it only for the provision of telecommunications services and for no other purpose. If any electrical panels or meters for such facilities are required, they shall be installed only with Landlord's prior consent, which shall not be unreasonably withheld, delayed or conditioned, in accordance with all terms and provisions of this Lease and License, and at Tenant's sole cost and expense, for initial installation, maintenance, ongoing costs, and (unless Landlord requires that such facilities not be removed) removal. 6.05 Prior to the commencement of any work in the License Area, Tenant shall, at its sole cost and expense, prepare and deliver to Landlord working drawings, plans and specifications (the "Plans"), detailing the location, size and type of any facilities and improvements to be constructed or installed in the License Area. Landlord shall approve all such Plans in writing, and no construction or installation shall occur without such approval. All construction and installation shall be done in a safe manner consistent with the highest generally accepted construction standards; shall be done in a manner which will prevent interference with the operation of the Building; shall not begin until all applicable federal, state, and local permits, licenses and approvals have been obtained and all applicable insurance coverage has been obtained and paid for; and shall be in accord with all provisions and terms of the Lease. 6.06 Tenant shall promptly and satisfactorily repair all damage to the Building and its contents caused by or related to or growing out of Tenant's use of this License. Tenant shall comply with all federal, state, and local laws, orders, rules and regulations applicable to the facilities and the License Area and Tenant's use of them. Tenant shall not disrupt, adversely affect, or interfere with other providers of services in the Building or with any of the Building's occupants' use and enjoyment of its premises or of the common areas of the Building. Notwithstanding that the License Area is subject to Tenant's use under a license agreement, Tenant's use thereof is subject to all provisions of the Lease as anticipated or described for the Premises and, accordingly, all references in the Lease to the Premises (except for the provisions which provide that the Premises are leased to Tenant) shall be deemed to include the License Area to the extent that Tenant utilizes such area in any way. By way of illustration but not of limitation, all insurance required of Tenant as to the Premises shall also include the License Area. 6.07 In the event of a default under the Lease, including this Rider, Landlord may, but shall not be obligated to, exercise any - 6 - ------------------/---------------- Landlord Tenant or any combination of rights which it has, as to the License Area, the Premises, or both, as licensor and/or as landlord, in law, in equity and/or under this Lease. 6.08 The License granted in this Section 6 is granted for the additional consideration of $700.00 per month, plus applicable taxes (subject to a CPI adjustment after the first year of the Lease Term and in any extension terms beyond the initial lease term in the manner set forth in Section 1.01 (c) of this Rider). 6.09 All of the above installations except the generator shall become the property of Landlord and surrendered with the Premises upon the termination of this License or Tenant's right to possession under it, or if Landlord elects in its sole discretion shall be removed at Tenant's sole cost and expense. Notwithstanding anything to the contrary in this Lease, a termination of the Lease shall be a termination of this License, and a termination of Tenant's right of possession under the Lease shall be a termination of Tenant's right of possession under this License. 7. REPRESENTATIONS AND WARRANTIES OF TENANT. 7.01 Tenant represents and warrants to Landlord as follows: 1. Tenant is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, in good standing and is duly qualified to transact business in every jurisdiction in which the conduct of its business requires it to be so qualified, and shall take appropriate steps to be qualified to do business in the State of Florida prior to the date upon which it enters into a contract for any construction in the Premises. 2. Tenant has the full corporate power and authority to enter into this Lease (and all exhibits and schedules hereto) and all agreements contemplated herein, to perform its obligations hereunder and thereunder, and to carry out the transactions contemplated hereby and thereby. The Board of Directors of Tenant has taken all actions required by law, its Certificate of Incorporation, its by-laws or otherwise, to authorize the execution and delivery of this Lease, and performance of its obligations hereunder and thereunder. None of the execution and delivery of this Lease by the Tenant, the performance by Seller of its obligations hereunder, the consummation of the transactions contemplated under this Lease will violate any provision of Tenant's Articles of Incorporation or by-laws, violate, or be in conflict with, or constitute a default under or breach of, or permit the termination of, or cause the acceleration of the maturity of, any indenture, mortgage, contract, commitment, debt or obligation of the Tenant, or violate any statute, law, judgment, decree, rule, regulation or order of any court or governmental authority to which Tenant and its activities are subject, or result in the loss of any material license, privilege or certificate benefiting the Tenant. No consent, approval, or authorization of, or declaration, filing, or registration with, any governmental or regulatory authority is required to be made or obtained by the Tenant in connection with the execution, delivery and performance of this Lease by the Tenant. 3. Tenant is presently engaged in an Initial Public Offering of its shares of capital stock under the Securities Laws of the United States. No statement made by or on behalf of Tenant in the documents and instruments by which such offering is to be made is false, misleading or misrepresents any material fact; and all acts done by or on behalf of Tenant in connection with such offering have or shall be done in accordance with all applicable Federal and State securities laws. The financial representations contained in all such documents and instruments are true, correct and complete in all respects. 4. Tenant is not a subsidiary of any other entity, does not have any subsidiaries, and is not a member of a group of companies under common control. - 7 - ------------------/---------------- Landlord Tenant FIRST ADDENDUM TO LEASE BETWEEN STAR TELECOMMUNICATIONS, INC. AND NWT PARTNERS, LTD. DATED JULY 1, 1997 THIS ADDENDUM to Lease, dated as of July; 7, 1997, by and between Star Telecommunications, Inc., a Delaware corporation, as Tenant, and NWT Partners, Ltd., a Florida Limited Partnership, as Landlord, modifies and amends that certain Lease between and among Tenant and Landlord dated July 1, 1997 (the "Lease") as follows: 1. On Page 10 of the Lease, in Section 5.5, the reference on line 10 to Section 5.30 should be replaced by a reference to Article V. 2. On Page 13 of the Lease, in Section 6.3, on lines 4 & 5, the word "Term" should be deleted from the phrase "Lease Term". 3. On Page 14 of the Lease, in Section 6.4.3, on line 31, the word "is" should be replaced by the word "if". 4. On Page 15 of the Lease, in Section 6.6, on line 2, the word "and" should be replaced by the word "an". 5. On Page 18 of the Lease, in Section 8.1.2, on line 9, the words "gross square" should be added before the words "floor area". 6. On Page 25 of the Lease, in Section 11.6, on line 10, the word "Premises" should be replaced by the word "Building". 7. On Page 26 of the Lease, in Section 11.7.3, on line 3, the reference to Section 11.8 should be replaced by a reference to Section 11.7. 8. On Page 30 of the Lease, in Section 12.9.4, on line 3, the word "or" should be replaced by the word "for". 9. On Page 30 of the Lease, in Section 12.9.8, on line 3, the word "here" should be replaced by the word "hereto". 10. On Page 4 of the Rider to the Lease, in Section 2, on line 6, the word "improvement" should be replaced by the word "improvements". 11. On Page 4 of the Rider to the Lease, in Section 2, on line 22, the phrase "pursuant to the terms of Sections 1.2.13 and 5.3 of the Lease" should be added at the end of the sentence ending on line 22. 12. On Page 7 of the Rider to the Lease, in Section 6.09, on line 2, the word "be" should be added before the word "surrendered". 13. As hereby modified, amended and supplemented, the Lease and all Riders and Exhibits thereto are hereby confirmed and ratified in all respects. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this First Addendum to the Lease as of the day and year written opposite their respective signatures below, each acknowledging receipt of an executed copy hereof. WITNESSES: LANDLORD: ___________________ NWT PARTNERS, LTD., a Florida Print Name _________ limited partnership, by NWT, Inc., a ___________________ Florida corporation, as its general partner Print Name _________ By: ______________________ David Garfinkle, as Vice President TENANT: ___________________ STAR TELECOMMUNICATIONS, INC., Print Name__________ a Delaware corporation, qualified to do ___________________ business in Florida Print Name__________ By: ______________________ Name_____________________ Title _____________________ - 8 - ------------------/---------------- Landlord Tenant ADDENDUM TO LEASE AGREEMENT --------------------------- THIS ADDENDUM TO LEASE AGREEMENT is made as of this 1st day of May, 1998, by and between NWT Partners, Ltd. ("Landlord") and Star Telecommunications, Inc. ("Tenant"). WITNESSETH: WHEREAS, Landlord is the successor in interest to People Southwest Real Estate Limited Partnership; and WHEREAS, Tenant and Landlord have entered into a lease dated July 1, 1997 (the "Lease"), pursuant to which Landlord leased certain space, Suite 2000, to Tenant in Landlord's building commonly known as 100 N. Biscayne Blvd., Miami, Florida 33132 (the "Building"), which Lease has been twice amended in the First Addendum thereto dated July 7, 1997 and the Lease Modification Agreement dated March __, 1998; and WHEREAS, the tenant wishes to take additional space in the Building, to wit, Suite 1700, comprising 10,071 square feet on the 17th Floor of the Building; and Tenant and Landlord wish to amend the Lease so as to provide for the additional space and the manner in which Tenant shall take such additional space: NOW THEREFORE, in consideration of the mutual promises herein contained and other good and valuable consideration, the sufficiency of which is hereby acknowledged, Landlord and Tenant agree that the Lease is hereby further amended but only as follows: 1. All defined terms in this Agreement, unless otherwise defined herein, shall have the meanings ascribed to them in the Lease. 2. Effective on the Additional Premises Lease Commencement Date, as defined below, the Premises as defined in Section 1.2.4 shall include both the existing premises, Suite 2000 (the "Existing Premises") and the additional premises, Suite 1700 (the "Additional Premises"). 3. Effective upon the Additional Premises Lease Commencement Date, the Lease Term, as defined in Section 1.2.7 of the Lease, shall be modified to be for ten (10) years from the Additional Premises Lease Commencement Date and the Lease Expiration Date shall be modified to be ten (10) years from the Additional Premises Lease Commencement Date. 4. The Rent Commencement Date for the Additional Premises shall be four (4) months from the Additional Premises Lease Commencement Date. 5. The Additional Premises Lease Commencement Date shall be the date five (5) business days after Landlord shall have given Tenant prior written notice of the anticipated Additional Lease Commencement Date. Landlord agrees to abate all asbestos, if any, currently in the Additional Premises at its sole cost and expense prior to the Additional Premises Lease Commencement Date. 6. The existing Section 1.2.10 shall be renamed as Section 1.2.10 A. The new Section 1.2.10 A shall be modified by adding thereto at the end thereof the following language: "Eleventh Year\$23.00\$241,500.00/yr\$20,125.00/mo". The following Section 1.2.10 B shall be added to the Lease as follows: "1.2.10 B. Effective upon the Rent Commencement Date for the Additional Premises, the Fixed Minimum Rent for the Additional Premises shall be the aggregate sum of $2,309,054.55 for the entire Lease Term (plus any partial Lease month), payable the first of each month as follows, plus all applicable taxes:
Lease Year Annual Rent Monthly Rent First Lease Year $201,420.00 $17,785.00 Second Lease Year $207,462.60 $17,288.55 Third Lease Year $213,686.48 $17,807.21 Fourth Lease Year $220,097.07 $18,341.42 Fifth Lease Year $226,699.98 $18,891.67 Sixth Lease Year $233,500.98 $19,458.41 Seventh Lease Year $240,506.01 $20,042.17 Eighth Lease Year $247,721.19 $20,643.43 Ninth Lease Year $255,152.83 $21,262.74
- 9 - ---------------/-------------- Landlord Tenant Tenth Lease Year $262,807.41 $21,900.62 Total
All Tenant's Improvements for the Additional Premises shall be constructed by the Tenant at its sole cost and expense. Tenant has fully inspected the Additional Premises and Tenant is taking the Additional Premises "As-Is", "Where-Is" and, notwithstanding any language contained in Section R 3 of the Rider to the Lease or in any other part of the Lease to the contrary, without any obligation on Landlord's part to prepare the Additional Premises or to do any work of any kind or nature therein. Nothing has been brought to the attention of Landlord concerning the physical state of the Additional Premises that would materially adversely affect the use thereof hereunder by Tenant; including, but not limited to, the absence of any leaks in any of the windows therein. 7.. The Landlord's Contribution for the construction by the Tenant of the Additional Premises shall be $9.50 per square foot ($95,674.50 in the aggregate); and such Landlord's Contribution shall be paid in the manner set forth in Sections 1.2.13 of the Lease as modified in Section III of the Lease Modification Agreement . 8. The Security Deposit set forth in Section 1.2.14 of the Lease shall be increased to $50,000.00 and the increase of $25,000.00 over the amount currently held by Landlord shall be payable by Tenant to Landlord upon the execution of this Addendum by Tenant. At the end of the second year after the Rent Commencement Date for the Additional Premises, unless during such two year period Tenant has been overdue in the payment of monthly Rent or other sums payable to Landlord (beyond any applicable grace period) on at least two (2) or more occasions, the Security Deposit shall be reduced by $12,500.00 and Landlord shall refund the sum of $12,500.00 to Tenant. 9. Tenant's Proportionate Share as set forth in Section 1.2.15 of the Lease shall be increased to 8% effective on the Additional Premises Lease Commencement Date and the Base Operating Year and Base Tax Year for the Additional Premises shall be 1998 in Section 1.2.15 of the Lease. The First Operating Expense Adjustment Payment Date and the First Tax Adjustment Payment Date for the Additional Premises shall be the first anniversary of the Additional Premises Lease Commencement Date. 10. Effective on the Additional Premises Lease Commencement Date the number of parking spaces which Tenant shall have the right, but no obligation, to use subject to the terms of Section 1.2.18 of the Lease shall be increased to 12. 11. The clause relating to Signage in Section 1.2.18 of the Lease shall be modified to refer also to the 17th Floor. 12. Subsections (a), (b) and (g) of Section 3.1.2 of the Lease shall be deleted as to both the Premises and the Additional Premises, provided, however, that upon Tenant's written request given no later than thirty (30) days prior thereto, and effective as of any annual anniversary date of the Lease, subsection 3.1.2 (g) janitorial services shall be reinstated as to the Premises only, with any and all work necessary to be done to restore such services to be done at Tenant's sole cost and expense, and subject also to Tenant's agreement to hold Landlord harmless from and indemnify it with respect to any claims by Tenant, or any third party claiming by or through Tenant, including, but not limited to, any equipment lessor or equipment financier to Tenant, and all expenses and costs with respect thereto, including, but not limited to, attorneys' fees and court costs attendant thereto, at all pre-trial, trial and appellate levels, arising out of or in connection with the provision of such janitorial service by Landlord or by an independent contractor contracted for by Landlord, it being understood and agreed by Tenant that Landlord assumes no responsibility whatever for any breach of the security of the telecommunications switches and other equipment in the Premises which may arise through the use of any such janitorial service, excepting only Landlord's willful misconduct in connection with such janitorial service. 13. The last phrase of the first sentence of Section 6.3.2 of the Lease shall be changed to read as follows:"...and a copy of such pre paid policy or a certificate from the insurer on Form ACORD 27, shall be delivered to Landlord prior to the commencement of such proposed work." The third and fourth sentences from the end - 10 - ---------------/-------------- Landlord Tenant of Section 7.1 of the Lease shall be changed to read as follows: "The policies or a certificate from the insurer on Form ACORD 27, together with satisfactory evidence of the payment of premiums thereon, shall be deposited with Landlord prior to the day Tenant begins operations. Thereafter, Tenant shall provide Landlord with a certificate from the insurer on Form ACORD 27 and evidence of proof of payment upon renewal of such policy, not less than thirty (30) days prior to expiration of the term of such coverage." 14. Section 6.6 of the Lease shall be amended by adding thereto at the end thereof the following language: "Notwithstanding anything contained herein to the contrary, Landlord shall have unimpeded access at all times to the low rise elevator mechanical area on the 17th Floor (which area is specifically not included in the definition of the Additional Premises), with Landlord using its reasonable efforts to give reasonable oral advance notice of such access to Tenant, with no advance notice to Tenant required in emergencies." 15. Section 12.7 of the Lease shall be modified by adding the following language at the end of the current Section 12.7: "With respect to the Additional Premises, Each party warrants to the other that it has not engaged any Real Estate Broker or Realtor, except for Cushman & Wakefield (which represents Tenant) and Abood & Associates, Inc. (which represents Landlord) in connection with such party's execution of this Addendum and agrees to indemnify and save the other party harmless from any liability that may arise from such claim, including reasonable attorneys' fees by any other broker, realtor or finder." 16. The following section shall be added to the Lease as Section 12. 13: "Section 12.13 Limitations on Liability. In no event shall Landlord be responsible to Tenant, or to any party claiming by or through Tenant, whether under this Lease or otherwise, for any consequential, special, indirect or punitive damages, except to the extent any such liability for damages on the part of Landlord shall be proven to be based solely on Landlord's gross negligence or willful misconduct. This Lease contains all agreements and understandings between Landlord and Tenant on the use and occupancy of the Premises and the relationship of Landlord and Tenant as landlord and tenant. Any agreement of any nature, oral or written, between Landlord and Tenant, including, but not limited to, any one based on custom, usage, acceptance or waiver, purportedly entered into prior to or subsequent to the execution of this Lease is null and void and of no affect whatsoever, unless such purported agreement is specifically set forth in writing in this Lease or in a written instrument executed by both Landlord and Tenant." 17. Section 6.01 (c) of R 6 of the Rider to the Lease and Section 1 (a) of Exhibit A thereto shall be modified to provide Tenant with the right to install at Tenant's sole cost and expense an additional two (2) four (4") inch telecommunications conduits; in the existing chases in the central core area of the Building at an aggregate additional monthly fee, effective from and after June 1, 1999, of Five Hundred ($500.00) Dollars (subject to annual increases in the manner set forth in Section 6.08 of R 6 of the Rider) payable together with the Fixed Minimum Rent due under Article II of the Lease. 18. Section 3 a of Exhibit A to the Rider shall be modified by adding thereto the following language which shall have effect solely with respect to the Additional Premises: "For the Additional Premises only, Tenant will be provided the right and access to 800 Amps of primary electrical power from the Building, which service Tenant agrees to take. Tenant shall pay $125.00 per Amp for such 800 Amps payable in two equal payments of $50,000.00 each, (the first due on June 1, 1998 and the second due on the Rent Commencement Date for the Additional Premises) for the cost of such power availability, including, but not limited to, bringing dedicated electric power - 12 - ---------------/-------------- Landlord Tenant from the Building electrical vault to the third floor main electrical distribution panels of the Building (which are currently under construction) for normal power usage. In addition, Tenant hereby agrees that it shall be responsible for all costs and expenses to bring such electrical service to its Additional Premises from the third floor main electrical distribution panels and for the use of such electrical service, subject to the requirements of the National Electric Code, any Legal Authority, FPL or any other supplier of electricity. Tenant shall be given access (at no additional charge to Tenant) for installation of two additional four inch conduits, the installation of which shall be at Tenant's sole cost and expense, to run Tenant's primary electrical power from the main primary power distribution panel located on the third floor of the Building to the Tenant's Additional Premises. Tenant's use of such access shall be subject to the terms of the Lease and generally shall be effected without any danger or inconvenience to the Landlord or to any other tenants in the Building, and shall not adversely affect the use or value of any conduit and cable currently or hereafter installed in the Building by the Landlord or by any other tenant. Tenant shall supply, at its sole cost and expense, any additional equipment, labor and installation that may be necessary, such as, but not limited to, automatic transfer switches and a main distribution panel circuit breaker of appropriate size, design and manufacturer for the Building main power switch gear, that may be necessary for a complete electrical distribution system. Landlord shall supply a main distribution panel circuit breaker at its cost and expense." 19. Section 3 of Exhibit A to the Rider shall be modified by adding thereto subsection 3 (e) which shall have effect solely with respect to the Additional Premises. "(e) Tenant shall install, at Tenant's sole cost and expense, connections to Landlord's 1500 KW diesel Backup Generator power system which Landlord is currently installing. Tenant shall be given access for installation of two additional four inch conduits (at no additional charge to Tenant), the installation of which shall be at Tenant's sole cost and expense, to run Tenant's backup electrical power from the main backup power distribution panel located on the third floor of the Building to the Tenant's Additional Premises. The automatic transfer switch shall be located within the Tenant's Additional Premises and shall be installed at the Tenant's sole cost and expense, subject to the Landlord's reasonable approval that such equipment is compatible with the Building electrical and backup electrical systems. Landlord shall provide at its sole cost and expense, the main backup power circuit breaker. Tenant's use of such access shall be subject to the terms of the Lease and generally shall be effected without any danger or inconvenience to the Landlord or to any other tenants in the Building, and shall not adversely affect the use or value of any conduit and cable currently or hereafter installed in the Building by the Landlord or by any other tenant. The terms and conditions of use of the Backup Generator are as follows: (1) Tenant is granted the right to use 400 kilowatts of backup power from such Backup Generator, which service Tenant agrees to take, commencing on the date such Backup Generator is fully operational (such date to be determined by Landlord in its reasonable discretion) in the event of an interruption of normal electrical service to the Additional Premises during the Lease Term, provided that: (a) Tenant pays Landlord a one time fee in an amount equal to $500.00 per kilowatt of backup power so reserved, payable $100,000.00 on June 1, 1998, and $100,000.00 upon the date such Backup Generator is fully operational and prior to connection of Tenant to such Backup Generator; and (b) Tenant pays Landlord as Additional Rent under the Lease a monthly sum in an amount to be reasonably determined by Landlord in good faith based upon the amount of backup power reserved by Tenant, and Landlord's costs of operation, use, maintenance, fuel, oil, governmental permits, licenses and fees, insurance, Landlord's profit and administration and other expenses relating to the Backup Generator. The monthly amount of the Additional Rent described in item (b) initially shall be $1.20 per kilowatt reserved per month. In the event backup power is required for extended periods of time (in excess of one 24 hour continuous outage per year) - 12 - ---------------/-------------- Landlord Tenant there will be additional charges for the cost of fuel that will be allocated on a pro rated basis. (2) Each such payment described in subparagraph 3. e (1) (b)above shall be due on the first day of each month with Tenant's other Rent payments, with the first such payment due on the Rent Commencement Date. Such monthly amount may be adjusted annually, in Landlord's reasonable discretion, during the term of the Lease and any extensions thereof. (3) Tenant's use of such backup power shall be in accordance with such reasonable rules and regulations as may be established by Landlord from time to time. (4) Landlord shall repair and maintain the Backup Generator in accordance with the manufacturer's recommendations and industry standards, provided that Tenant shall reimburse Landlord upon demand, as Additional Rent hereunder, for the cost of any repairs or extraordinary maintenance for the Backup Generator necessitated by acts of Tenant or Tenant's employees, contractors, agents, licensees, invitees, assignees or sublessees. (5) The provision of Backup Generator service by Landlord to Tenant shall be subject to the provisions of Article III of the Lease. The Backup Generator may only be used in connection with functional power outages in the primary FPL service. Any other use is not permitted and shall be deemed an act of default under the Lease. In the event of such unpermitted use, Landlord may take immediate action to terminate the ability of Tenant to use such backup power." 20. Section 1 of Exhibit A to the Rider shall be modified by adding thereto subsection 1 (d) which shall have effect solely with respect to the Additional Premises. "In addition to the terms and conditions of this section and of the Lease and the Rider to the Lease, Tenant shall also have the right to run conduits, the number and the location of which shall be reasonably designated by Landlord, stemming from the Tenant's Premises to connect to such other telecommunications tenants or licensees which parties have mutually agreed in writing to such connections, (a copy of each such agreement shall be delivered to Landlord as a condition precedent to each such connection being installed) in the "Meet Me Room" on the third floor of the Building, where Tenant shall rent an area approximately four feet by six feet (4' x 6') for Tenant to place its connection equipment. Tenant agrees to use the Meet Me Room only for the purpose of facilitating interconnections between Tenant's telecommunications systems and the telecommunications systems of such other tenants and licensees of Landlord. Tenant agrees not to keep any equipment of any nature in the Meet Me Room for any other purpose. Tenant agrees not to cause nor to permit its employees, contractors or invitees to cause any interference with or damage to any of the property or equipment of Landlord or of any other tenant or licensee in the Meet Me Room. All installations by Tenant in the Meet Me Room shall be made by Tenant at its sole cost and expense in accordance with the provisions of this Lease for Tenant Improvements. Landlord shall have the right, in its reasonable discretion, to enforce such security measures for the Meet Me Room as it deems appropriate, provided, however, that Landlord shall have no liability to Tenant for any damage or interference caused by any other party to Tenant's equipment or other property installed or located in the Meet Me Room (except to the extent attributable to Landlord's gross negligence or willful misconduct). Tenant shall also pay Landlord a monthly license fee (the "Monthly License Fee") for use of the Meet Me Room, which shall be $750.00 per month subject to an annual 3% increase after the first year of the Lease and in any extension terms beyond the initial lease term in the manner set forth in Section R 1 of the Rider to the Lease. 21. Tenant shall have the right to install 80 tons of HVAC equipment for the Additional Premises. All of the provisions of Section 2 (HVAC Systems) of Exhibit A ("Equipment and Operating Rights") to the Rider to the Lease shall be effective also as to the Additional Premises as if more fully set forth herein at length, except that the references therein to the 20th Floor shall be changed herein to the 17th Floor. 22. All terms, conditions and provisions of the Lease not expressly amended hereby shall remain in full force and effect, and the Lease as hereby amended is hereby specifically approved, ratified and confirmed. Each party confirms that the - 13 - ---------------/-------------- Landlord Tenant Lease remains in full force and effect, that the other party is in compliance with the Lease provisions, and that each party has no defenses, claims or offsets against the other party. Except as specifically modified in this instrument, the Lease as initially executed and as modified and amended from time to time, remains in full force and effect as of the date originally executed and the Lease as hereby amended and modified is hereby specifically approved, ratified and confirmed. This instrument shall become effective only upon execution of it by both Landlord and Tenant. IN WITNESS WHEREOF, the parties have duly executed and delivered this Addendum to Lease as of this 1st day of April, 1998. WITNESS: LANDLORD: NWT PARTNERS, LTD. BY NWT, INC, AS GENERAL PARTNER - ------------------- By: ----------------------------------- - ------------------- David Garfinkle, as Vice President - ------------------- TENANT: STAR TELECOMMUNICATIONS, INC. WITNESS: By: ----------------------------------- - ------------------- ----------------------------------- Print Name and Office - ------------------- - 14 - ---------------/-------------- Landlord Tenant EX-10.66 15 EXHIBIT 10.66 Commercial Lease Between Prinzenpark GbR Kanzlerstr. 4 40472 Dusseldorf - hereinafter referred to as Lessor - arid Star Telecommunications Deutschland GmbH BeethovenstraBe 8 - 10 60325 Frankfurt/Main - hereinafter referred to as Lessee - the following 1ease is signed: SECTION 1 LEASED PROPERTY 1. ACCORDING TO THE GROUND PLAN ATTACHED AS APPENDIX, which forms part of this Lease, Lessor grant Lessee a Lease of the following areas for the establishment of an office Business) within the building Prinzenallee 7, erected on the premises Prinzenallee 5- 21/Hansaallee 101, 40549 Duesseldorf: A) PRINZENALLEE 7, OFFICE AREA ON THE GROUND FLOOR OF APPROX. 1,122.12 M(2) B) PRINZENALLEE 7, OFFICE AREA IN THE BASEMENT OF APPROX. 112,09 M(2) C) PRINZENALLEE 7, STORAGE AREA IN THE BASEMENT OF APPROX. 124.76 M(2) D) 6 PARKING SPACES IN THE UNDERGROUND CAR PARK (NOS. 391 TO 396) E) 2 PARKING PACES OUTSIDE (NO.29 AND 30) 2. In the ground plans attached AS APPENDIX, the leased areas according to sub-paragraph 1 A) TO C) are marked in red outline and determined by the area between the inside of the demarcation walls of the building, so that possibly existing movable lightweight or partition walls and interior stairs as well as other similar building components are not deducted but regarded as leased area Non-usable traffic areas arid suchlike have been taken into consideration when calculating the amount of rent. The areas mentioned in sub-paragraph 1 D) AND E) are determined bindingly by the two parties, so that the location can be taken from plans as well. If a later measurement results in deviations of less than 2.5%, none of the two parties shall be entitled to demand an adjustment of rent for this reason. 3. The ground p1an serves exclusively for determining the situation of the Leased Property. 4. The Leased Property is provided ACCORDING TO THE GROUND PLAN ATTACHED AS APPENDIX, interior works completed. Lessor reserves the right of minor alterations which do not interfere with Lessee's business operation or which are advisable on the basis of conditions imposed by the authorities or technical requirements. Lessee shall take into account the necessary escape routes when establishing and operating the Leased Property - if necessary according to Lessor's instructions - and to keep them permanently clear for unhindered passage. On the occasion of handing over, a handing over protocol shall be prepared. Any possible defects, considerably reducing the Leased Property's suitability for contractual use, are to be listed therein. These defects are to be remedied by Lessor within a reasonable period of time. By taking over, Lessee agrees that in other respects, the Leased Property is in a condition suitable for contractual use. 5. To the extent that Lessee requires alterations to the Leased Property exceeding those of the present equipping and of the GROUND PLAN ATTACHED AS APPENDIX, these alterations are subject to Lessor's prior written consent in each individual case Consent may be denied for substantial reasons only. If consent is granted, Lessee may carry out these alterations at its own expense. Lessee shall have these works carried out in accordance with Lessor's supervision of works. Lessor is entitled to make its consent dependent on compliance with supplimentary terms. 6 Lessor does not warrant that the leased area have been designed according to ground plan down to the last detail. 7 The carrying capacity of the ceilings is: - on the ground floor = 500 kg/m(2) - on the first floor to upper story = 350 kg/m(2) including Allowance for partition walls, SECTION 2 BEGINNING OF LEASE 1. The Lease begins on the handing over date, probably on JANUARY 1ST, 1998 2. The contractual relationship shall begin on signing the contract, the Lease on handing over. 3. The construction period required for special facilities and special requests of Lessee is to be regarded as rental period, unless its execution runs parallel to the completion to be effected by Lessor requiring additional time. SECTION 3 DURATION OF LEASE 1. The Lease is contracted for a duration of ten years. It begins on handing over. 2. LESSOR GRANTS LESSEE THE OPTION TO RENEW THE LEASE FOR ANOTHER FIVE YEARS. LESSEE'S DECLARATION TO EXERCISE ITS RIGHT OF OPTION HAS TO BE RECEIVED BY LESSOR NOT LATER THAN 12 MONTHS PRIOR TO EXPIRY OF THE TENTH YEAR OF CONTRACT. THE DECLARATION MUST BE MADE IN WRITING. 3. WHEN LESSEE REMAINS IN POSSESSION OF THE LEASED PROPERTY AFTER EXPIRY OF THE LEASE, THE LEASE IS NOT TO BE REGARDED AS RENEWED. SECTION 568 GERMAN CIVIL CODE BGB IS NOT APPLICABLE. CONTINUATION OR RENEWAL OF LEASE AFTER ITS TERMINATION MUST BE AGREED IN WRITING. SECTION 4 CANCELLATION 1. Lessor is entitled to terminate the Lease without notice, if and when a) Lessee is in arrears with the payment of rent and/or payment of costs according to Section 6 of this contract despite written reminder, with a sum REACHING the amount of two monthly rents (see Section 6, sub-paragraph 1) or, in the case of incidental expenses, the quarterly payment. b) Lessee continues to use the property in a manner contrary to the terms of the Lease, or it, Lessee otherwise considerably or lastingly infringes the rights of Lessor or other lessees, or leaves the Property to a third party without authorization, and if it fails to take corrective action despite written caution by registered letter specifying a reasonable time limit. c) a petition in bankruptcy or for the institution of composition proceedings has been filed with respect to Lessee's assets, or if a petition in bankruptcy is dismissed for lack of assets or if Lessee has otherwise suspended payments or enters into extrajudicial composition proceedings. d) the contractually agreed type of use is changed without Lessor's consent and no corrective action is taken despite written caution by registered letter specifying a reasonable time limit. 2. LESSEE IS ENTITLED TO TERMINATION OF LEASE WITHOUT NOTICE, PROVIDED LESSOR FAILS TO COMPLY WITH ESSENTIAL CONTRACTUAL OBLIGATIONS DESPITE WRITTEN CAUTION SPECIFYING A REASONABLE TIME LIMIT OR IF CIRCUMSTANCES AS DESCRIBED UNDER SECTION 4, SUBPARAGRAPH 1.C) ARE APPLICABLE TO LESSOR. 3. The notice of termination must be given in writing. It becomes effective on receipt. 4. In the case of premature termination of Lease subject to Lessee's responsibility, Lessee shall be liable for the loss of rent, incidental expenses and other payments for the contractual duration of Lease as well as for any other loss suffered by Lessor due to the premature cancellation of Lease with respect to the Leased area, unless Lessor is indemnified by a new, adequate lease of the rooms. THE COSTS ACCRUED IN THIS RESPECT (IN PARTICULAR INSERTION EXPENSES AND BROKER'S COMMISSION) ARE TO BE BORNE BY LESSEE. LESSOR SHALL MAKE ANY EFFORT TO FIND A SUITABLE NEW LESSEE. IT WILL ACCEPT A NEW LESSEE PRESENTED BY LESSEE, PROVIDED THE NEW LESSEE EQUALS LESSEE WITH RESPECT TO KIND OF BUSINESS AND FINANCIAL SOUNDNESS. SECTION 5 OBLIGATIONS ON TERMINATION OF LEASE 1. On termination of Lease on any legal ground whatsoever, Lessee shall return the Leased Property to Lessor in an expertly renovated and cleaned condition, not later than on the last calendar day of the rental period. The obligation to renovate does not refer to normal wear and tear regarding roof and compartment of the Property. IN OTHER RESPECTS, IT ONLY REFERS TO THOSE ITEMS CLASSIFIED AS SUBJECT TO DECORATIVE REPAIRS ACCORDING TO SECTION 28, SUB-PARAGRAPH 4, SENTENCE 5 II OF THE OPERATING AGREEMENT BV (AS AMENDED ON OCT.12, 1990), AND TO CARPETS, IF THESE HAD BEEN PROVIDED BY LESSOR ON MOVE. 2. By the end of the rental period, Lessee shall have removed any installations and structural alterations executed by Lessee prior to or after moving in, and Lessee shall restore the state of the building originally planned or existing. If and to such an extent as allowed by Lessor, Lessee is entitled not to remove installations or structural alterations. In this case, Lessor is entitled to acquire them wholly or in part, against payment of a reasonable compensation. THIS DOES NOT APPLY TO ANY OBJECTS SUBJECT TO LESSOR'S CONTRIBUTION TO EXPENSES ON FITTING OUT UNDER SECTION 17, SUB-PARAGRAPH 1 OF THIS LEASE. The obligation to execute decorative repairs according to Section 10 remains unaffected. 3. Additionally, Lessee shall indemnify for any loss suffered by Lessor due to delayed return of the leased rooms. 4. On Lessor's demand to remove the installations/alterations Lessee is obligated to restore the original condition, or the condition originally agreed, at its own expense, including each and every necessary secondary work. SECTION SUBLEASING 1. Lessor is entitled to sublease or sublet the Leased Property subject to Lessor's prior written consent, but only a) for the same or similar purposes of use, for which the rooms are leased to Lessee and b) to a sublessee convenient to Lessor. Lessor may reject a sublessee only, if sublessee's person, branch of business or company gives substantial cause for such a rejection. 2. Subleasing for the purpose of a changed use of the Leased Property Acquires Lessor's special written consent. SECTION 7 AMOUNT OF RENT AND INCIDENTAL EXPENSES 1. The monthly rent for the leased areas shown in Section I amounts to a) approx l,122.l2 m(2) x DM 27.50 = DM 30,858,30 b) approx l12.09 m(2) x DM 20.00 = DM 2,241.80 (offices) c) approx l24.76 m(2) x DM 12.00 = DM 1,497.12 (storage area 1) d) 6 parking spaces undergr. c. p. x DM 110.00 = DM 660.00 e) 2 PARKING SPACES OUTSIDE x DM 60.00 = DM 120/00 --------------------------------------------------------------------------- total = DM 35,377.22 LESSOR ALLOWS LESSEE THE USE OF THE LEASED PROPERTY FREE OF RENT FOR THE FIRST THREE MONTHS OF LEASE AFTER HANDING OVER (POSSIBLY EARLIER REGARDING PARTIAL AREAS), NOT LONGER, HOWEVER, THAN UNTIL MARCH 31ST, 1998. THE ADVANCE PAYMENT FOR THE OPERATING EXPENSES IS DUE ON HANDING OVER OF THE RESPECTIVE LEASED AREA (INCLUDING PARTIAL AREAS). 2. The incidental expenses listed in the following are not covered by the rent payment: real estate and building insurance real property tax cost of water and waste water cleaning expenses streets, paths and squares upkeep of decorative elements and of general green areas including purchasing costs of new plants costs of fire alarm and extinguishing systems, safety contrivances of all kinds (if available) costs of caretaker or in-house technician costs of house cleaning costs of the heating system including consumption general current, lamps metering and accounting expenses of consumption elevator costs refuse collection - unless separate agreement cost of ventilation, air conditioning equipment wide band supply upkeep and repair of interior and exterior general areas, except for roof, outer facades and load-bearing elements house management Lessee shall bear these costs according to actual consumption or to the corresponding expenses incurred. Industrial waste, e.g. office paper, overstepping the mark, is to be removed by Lessee. To the extent that costs are apportioned, Lessee shall be treated as equivalent to the other lessees (applying the same basis for allocation), irrespective of the operating expenses. A monthly advance payment of DM 5.50 per M(2) shall be collected for the above mentioned incidental expenses for the offices and the supplementary area. This advance payment is to be effected together with the rent payment. In the case of a change of these incidental expenses or if new real property liens arise, Lessor shall be entitled to reassess the advance payments. Settlement of accounts with respect to the advance payments will be effected once a year. If the settlement of accounts shows an overpayment a corresponding credit note in favor of Lessee will be issued. If the costs to be settled exceed the advance payments, Lessor shall claim a corresponding payment. Provided economically justifiable corresponding supply meters are to be installed for the determination of consumption. Unless a direct determination of such costs is possible, Lessee shall be charged with these costs in proportion of its leased area to the overall leased area of the Property. In the case of a breakdown of the metering devices or if such devices do not work properly, Lessor is entitled to allocate costs by way of assessment. The accounting documents shall he available for inspection according to Lessor's provisions for one month after dispatch of the settlement of accounts to the lessees. 3. Lessee shall pay a monthly flat charge of 1% of the net rent agreed under Section 7, sub-paragraph 1, for the proportionate administrative expenses. 4. In addition to the rent, any value added tax to the extent assessed and due shall be owed by Lessee. This also applies to incidental and administrative expenses listed above. SECTION 8 PAYMENT OF RENT AND INCIDENTAL EXPENSES 1. The rent and the advance payment for incidental and administrative expenses are to be paid to Lessor or to a person or institution authorized by Lessor for acceptance monthly in advance not later than on the third working day of the respective month. For the first time, these payments are to be effected for the period from the day of handing over the Leased Property. 2. On delay in payment, Lessor is entitled to charge default interest of 4% above the respective discount rate of the Deutsche Bundesbank as well as dunning costs to the extent of DM 5.00 PER REMINDER. The assertion of further damages caused by delay remains unaffected. 3. In the case of partial payments on the part of Lessee, Lessor is entitled to offset according to Section 366 II German Civil Code BGB, irrespective of any statements by Lessee. 4. Lessor shall not pay any interests on advance payments for incidental expenses. 5. THE RETENTION OF PAYMENTS TO BE EFFECTED BY THE PARTIES UNDER THIS CONTRACT AND THEIR OFFSET AGAINST ANY CLAIMS IS EXCLUDED, UNLESS ACKNOWLEDGED OR RECOGNIZED BY DECLARATORY JUDGMENT BY THE OTHER PARTY. LESSEE'S RIGHT TO CLAIM REDUCTION OF RENT REMAINS UNAFFECTED. Lessor's banking connection Bayerische Landesbank Account no. 58 301 bank identification no BLZ 700 500 00 SECTION 9 RENT ADJUSTMENT / VALUE GUARANTY 1. The tent agreed under Section 6, sub-paragraph 1 is to be considered as fixed until December 31st, 1998. After that date, it shall be increased or reduced in percentages for the following year according to cost-of-living index of an employee's family of four with an average income of the sole breadwinner, as published by the Statistisches Landesamt NRW (Land Statistical Office of North Rhine-Westphalia) on the basis of 1991 = 100 points, with 75 % corresponding to the increase or decrease of the index. A FIRST ADJUSTMENT OF RENT WILL BE EFFECTED ON JANUARY 1ST, 1999. THE CHANGE OF INDEX FROM DECEMBER 1997 (BASE INDEX) TO DECEMBER 1998 IS AUTHORITATIVE FOR THIS ADJUSTMENT. SUBSEQUENTLY, THE RENT ADJUSTMENT SHALL BE EFFECTED ON JANUARY 1ST OF EACH YEAR OF LEASE, ALSO ACCORDING TO THE RESPECTIVE CHANGE OF INDICES FROM DECEMBER OF THE PREVIOUS YEAR IN RELATION TO DECEMBER OF THE YEAR BEFORE. In the following years of Lease, a corresponding adjustment of rent shall be effected on January 1st, respectively. 2. If in future this adjustment becomes legally impossible for any reason whatsoever, e.g. because this index is no longer officially determined or published or if the connection hereto becomes legally impossible for any reason whatsoever, the contracting parties are bound to come to an agreement on a reasonable adjustment of rent which is permitted by statute and the content of which is economically as similar as possible to the value clause agreed hereunder. 3. The contracting parties are aware of the fact that the legal effect of the above value clause is dependent on the approval by the Land central bank. Lessor will endeavor immediately to obtain such approval. The legal effect of the other provisions of this contract remain unaffected, as long as the approval by the Land central bank has not been obtained or if it is denied. In that ease, the contracting parties are bound to work on a permissible wording in order to achieve a corresponding rent restriction to the development of the cost of living. SECTION 10 MAINTENANCE AND REPAIR 1. On beginning of contract, the leased rooms are handed over to Lessee in a new, perfect condition. Prior to move, any possible defects are recorded in a handing over protocol. During the rental period, the leased rooms are to be kept in a proper unobjectionable condition and are to be treated with care. 2. During the rental period, Lessee shall additionally be responsible for all repairs within the Leased Property caused by its own fault or by inexpert handling (repair, maintenance) and for all the interior decorative repairs. Lessee shall perform expert interior decorative repairs at its own expense at reasonable intervals, not later than every 3 years. 3. Lessee shall remove immediately any damages, he is responsible for. If Lessee fails to comply with this provision within a reasonable period of time, Lessor may have the necessary works executed at Lessee's expense. 4. In the case of damages causing any imminent dangers or in the case of unknown abode of Lessee, a written caution or the fixing of time limit is not required. In such cases, Lessor is entitled to execute damage removal at Lessee's expense. SECTION 11 INSURANCE, LIABILITY 1. Insurance of Lessee's fittings and of stored assets against fire, water, burglary and housebreaking or other damages is within Lessee's responsibility. 2. In particular, Lessee is liable for the following damages to the Leased Property: a) any damages to the fittings and other objects brought in by Lessee, caused by fire or tap water, including the risks of sewage water and inappropriate penetration of sprinkler water; b) any personal injury and damage to property to an extent customary in Lessee's line of business c) broken glass d) any damages resulting from burglary and housebreaking. 3. Lessee shall effect insurances covering the risks mentioned under a-d. Lessor may demand presentation of corresponding insurance policies in regular intervals, including a written declaration by the insurance company confirming that a corresponding examination has not shown a case of underinsurance. 4. Lessor assumes no liability whatsoever for any possible damages to fittings, unless the damage has been NEGLIGENTLY caused by Lessor or by its vicarious agents. LESSOR, HOWEVER, SHALL BE LIABLE FOR ANY DEFECTS, LESSEE IS EXPRESSLY NOT LIABLE FOR ACCORDING TO THE FOLLOWING. 5. In the case of subleasing, Lessee shall indemnify Lessor against any claims to such an extent as such claims against Lessor are excluded for Lessee itself according to the terms of this contract. This also applies to non-contractual foundations for claims. 6. LESSEE IS LIABLE FOR ANY DAMAGES NEGLIGENTLY CAUSED BY ITS FAILURE TO EXERCISE PROPER CARE, INCLUDING WITHOUT LIMITATION, IN PARTICULAR, INEXPERT HANDLING OF SUPPLY PIPES OR DRAINS, TOILETS AND HEATING PLANTS OR OF ELECTRICAL EQUIPMENT WITHIN THE LEASED ROOMS, AND FAILURE TO PROTECT THEM SUFFICIENTLY FROM FROST OR OTHER INFLUENCES. AT ALL EVENTS, OCCLUSIONS OF PIPES ARE TO BE REMOVED BY LESSEE UP TO THE MAIN PIPE AT ITS OWN EXPENSE. 7. IN THE SAME WAY, LESSEE IS LIABLE FOR ANY DAMAGES NEGLIGENTLY CAUSED TO THE PROPERTY BY ITS EMPLOYEES OR SUBLESSEES. IF SUCH DAMAGE IS CAUSED BY LESSEE'S OR SUBLESSEE'S VISITORS OR SUPPLIERS, LESSEE IS LIABLE ONLY, IF IT FAILS TO INFORM LESSOR ABOUT THE FULL NAME AND ADDRESS OF THE VISITOR OR SUPPLIER (SPECIFIC EXECUTING PERSON). LESSEE SHALL MAINTAIN ANY PIPES AND PLANTS RELATING TO ELECTRICITY, GAS AND SANITATION, LOCKS, BLINDS, AND SIMILAR EQUIPMENT IN A SERVICEABLE CONDITION. LESSEE IS FURTHER LIABLE FOR ANY DAMAGE CAUSED BY INEXPERT HANDLING OR WATER, LIGHT AND POWER MAINS, AND FOR ANY DAMAGE TO TOILETS, SANITATION OR HEATING PLANT AS WELL AS VENTILATION, SMOKE ALARMS AND ACOUSTIC EQUIPMENT (IF AVAILABLE) CAUSED BY LEAVING DOORS OPEN, BY STRUCTURAL MEASURE TAKEN BY LESSEE, BY ADVERTISING EQUIPMENT INSTALLED BY LESSEE OR BY FAILURE TO COMPLY WITH THE OTHER OBLIGATIONS ASSUMED BY LESSEE. Lessee is liable to Lessor for any damages to buildings, doors, gates, elevators, parking lots, traffic ways etc, caused by delivery traffic and exceeding customary wear and tear. 8. AT ALL EVENTS, LESSOR SHALL REPLACE AT ITS OWN EXPENSE ANY DAMAGED GLASS PANES AND MIRRORS IF NECESSARY, LESSOR SHALL EFFECT A GLASS INSURANCE. NOT CLOSING TOILETS AND SINKS, CAUSING WATER TO FLOW CONTINUOUSLY THROUGH LEAKY VALVES THUS RESULTING IN CONSIDERABLE WATER CONSUMPTION, ARE IMMEDIATELY TO BE REPORTED TO LESSOR. DELAYED REPORTS MAY RESULT IN DAMAGE CLAIMS. ON REQUEST, ANY POSSIBLE CLAIMS AGAINST THIRD PARTIES AT FAULT ARE ASSIGNED TO LESSOR BY LESSEE. 9. Lessee is responsible for not exceeding the indicated carrying capacity of the bearing plate. 10. Lessee shall immediately remove any damages it is responsible for according to the above provisions at its own expense. On Lessee's failure to do so despite written caution and fixing of an appropriate time limit by Lessor, Lessor may have the corresponding work executed at Lessee's expense. In the case of damages causing any imminent dangers or in the case or unknown abode of Lessee, a written caution of fixing of time line is not required. 11. Lessor shall arrange for the examination of plants jointly used by several leases or belonging to the commonly used facilities. Lessor is entitled to sign the appropriate fully comprehensive maintenance agreements. Costs shall be apportioned to the lessees. The required examination of plants exclusively used by Lessee or installed by Lessee is to be arranged for by Lessee at its own expense. Lessee is obligated to observe and comply with each and every statutory or public law provision with respect to its place of business. 12. Plats and components left for Lessee's sole use are to be maintained, attended to and kept up in such a way, that they are returned in a serviceable condition after termination of contract. SECTION 8 PREMATURE TERMINATION OF LEASE 1. Lessor generally agrees to give its consent to annulment of contract in the case that Lessee demands early termination of contract for substantial reasons, provided that Lessee presents an equivalent and solvent new lessee with whom a contract of lease is entered into, in which the new lessee succeeds to each and every right and obligation under this contract. The new Lessee's use of the Leased Property for other than the previous purposes is subject to Lessor's consent. Lessor may deny such consent, if any non-competitive clauses agreed by Lessor or justified interests of other lessees or the mixture of branches are adverse to such use. 2. Additionally, a precondition for Lessor's consent is that Lessee or the new lessee binds itself by contract with Lessor to bear all the expenses involved in the change of lessee (including commercial agency charges) and finally that Lessee assumes the absolute guaranty for the performance of the financial obligations of the new lessee against Lessor for the time up to the first possible date of termination. SECTION 13 STRUCTURAL ALTERATIONS ARID INSTALLATIONS BY LESSEE 1. Prior to and during the rental period, any structural alterations within and outside the leased rooms are subject to Lessor's written consent. Lessee is entitled to install advertising writings or signs in areas of the Leased Property earmarked by Lessor. In order to achieve a uniform design of the overall property, however, Lessee is obligated to have such exterior advertising approved by Lessor in advance. Any possible official permits are required to be obtained in advance by Lessee at its own expense. Even if Lessor grants it consent to structural alterations and installations, Lessee is obligated to remove such installations and to restore the original condition on termination of Lease. Subject to Lessor's consent, Lessee may leave any objects affixed to the building to Lessor free of charge. Lessee may also have its company name installed in the entrance area of the building at its own expense, uniform with the other users of the building and in accordance with Lessor (a uniform sign board is planned for all the lessees, divided up into individual signs). Lessee is entitled to equip the rooms at its own expense with additional installations and special facilities which are useful and necessary for the performance of its business. As soon as possible after completion of the contract, Lessee shall draw up a catalogue with such items and submit it to Lessor for approval. Planning, installation or delivery of Lessee's special facilities is within Lessee's responsibility. In agreement with Lessor's architect, however, it may make use of his expert assistance against payment of a reasonable remuneration, 2. Regarding the electric installations required and ordered by Lessee, which arc subject to VDE/TUV, Lessee is obligated to entrust an expert company. Upon Lessor's demand, Lessee shall present the electricity plans. SECTION 14 REPAIR AND STRUCTURAL ALTERATIONS BY LESSOR 1. Even without Lessee's consent, Lessor may perform any repairs and structural alterations becoming necessary for the maintenance of the building or of the Leased Property, for averting imminent dangers, for the removal of damages or because of other lessees moving in/out. This shall also apply to works which are not necessary but useful, as for instance modernization of the building and of the Leased Property. DURING THE FIRST TEN YEARS OF LEASE, A MODERNIZATION OF LESSEE'S ROOMS IS SUBJECT TO LESSEE'S PRIOR CONSENT. Lessee shall maintain accessible the rooms concerned. Lessee must not hinder or delay the execution of the works. 2 Provided Lessee is bound to tolerate the works, it is not entitled to rent reduction nor to exercise a right of retention. Lessor, however, is obligated to have such works executed outside Lessee's usual business hours, if possible, in order to avoid a substantial interference with Lessee's business operation. SECTION 15 JURISDICTION AND PLACE OF PERFORMANCE 1. Place of jurisdiction and place of performance is Dusseldorf. SECTION 16 SECURITY FOR RENT 1. Lessee shall provide a guaranty to the extent of SIX NET MONTHLY RENTS to provide security for its obligations under this contract. This guaranty may be effected in the form of a bank guaranty issued for an unlimited period of time. On termination of Lease, the security is returned to the full extent, provided this contract of Lease is perfectly fulfilled and all other obligations in connection with this Lease are complied with. Otherwise the security provided shall be set off against Lessor's claims. Lessor may demand that the suretyship is increased corresponding to a rent increase as per Section 8 of this contract. Accordingly, the security is to be increased on I4essor's first demand in such a way, that it always matches SIX current net monthly rent payments. 2. If the security or an appropriate guaranty is not received by Lessor within 14 days after handing over of contract, Lessor is entitled to withdraw from contract after another written caution of 14 days. SECTION 17 SPECIAL CONDITIONS 1. LESSEE IS GRANTED AN ADDITIONAL CONTRIBUTION TO EXPENSES ON FITTING OUT IN THE GROSS AMOUNT OF DM 350,000.00, IN ADDITION TO THE CONVENTIONAL DESIGN. THIS CONTRIBUTION MAY BE USED FOR FALSE FLOOR, AIR CONDITIONING IN VARIOUS AREAS, ADDITIONAL STEEL DOORS AND FOR ADDITIONAL LAMPS AND OTHER SPECIAL REQUIREMENTS, WHICH ARE NOT INCLUDED IN THE STANDARD BUILDING SPECIFICATIONS. 2. Lessor assumes the obligation of cleaning the pavement including snow removal and gritting in icy weather of the pavements and pedestrian areas in front of the building, complying with the municipality's provisions. The corresponding expenses will be apportioned to the lessees in accordance with Section 6, sub-paragraph 2. 3. Lessee agrees furthermore to clean windows and window frames regularly. This also applies to sun protection facilities. If cleaning contractors are entrusted with attending to the overall property, Lessee may join such an agreement provided it bears the proportionate expenses. 4 The house regulations attached from part of this Lease and shall be signed by the two parties as well. The legal provisions shall apply supplementary to these terms of contract. 5. Annulment, amendments and supplements to this contract must be made in writing. Any verbal agreements, in particular on cancellation of the written form, are ineffective. EACH PARTY IS ENTITLED TO AFFIX ANY AGREEMENTS ON AMENDMENTS OR SUPPLEMENTS REGARDING THIS LEASE TO THIS DEED. 6. If any provisions of this contract prove to be or become legally ineffective, the validity of the o other provisions of this lease shall remain unaffected. The contracting parties, however, agree to ensure that the ineffective provisions are replaced by other, economically equivalent, effective provisions, if possible. 7. The following appendices form part of this contract: a) BUILDING SPECIFICATIONS DD. OCTOBER 23RD, 1997 b) GROUND PLANS OF OFFICE AND STORAGE AREA c) House regulations - ------------------------------------------------------------------------------- Dusseldorf Frankfurt, October 31st, 1997 - --------------------------- --------------------------- Lessor Lessee Appendix to the Lease - ------------------------------------------------------------------------------- HOUSE REGULATIONS 1. Lessee shall handle the leased areas and common rooms with care and instruct its employees accordingly. This applies, in particular, to the interior of the elevators, to the entrance area, and to the handling of mail boxes, the bell system, and of the windows and facilities for the protection against the sun. 2. The building is opened by the janitor at a time to be agreed with the majority of lessees, at 7:00 o'clock in the morning closed at 18:30 in the evening. Lessee or the employee opening the entrance facilities earlier in the morning or later in the evening by means of a key, is obligated to relock these doors. 3. Within its area of lease, Lessee shall provide a sufficient number of ashtrays, in order to avoid burn holes in the carpets. In the general area it has to be taken care that the ashtrays provided are used. 4. Plantings which are only accessible through Lessee's leased area, are to be attended to by Lessee, i.e. regular watering, at least once a week. 5. Any transports of furniture or other, which may require a locking of the elevator, are necessarily to be agreed with the house management in advance and may only be executed in the presence of the competent janitor. 6. The stairwell areas, entrance facilities, basement and outer areas including glass parts are jointly attended to. The respective expenses are apportioned together with the incidental expenses to the individual lessees. Special outer entries (exclusively used by Lessee) are to be maintained and kept free from Snow by Lessee. 7. The usual refuse is collected in a garbage skip and disposed of by the fleet of the municipality of Duesseldorf. Exceptional refuse as for instance larger amounts of paper, are to be disposed of by Lessee itself. If necessary, Lessee shall obtain a paper pressing plant. If several lessees intend to use such a plant together, this may be arranged for by the house management. Dusseldorf Frankfurt, October 31st, 1997 - --------------------------- ----------------------------- Lessor Lessee Appendix 1 to the Lease - ------------------------------------------------------------------------------- BUILDING SPECIFICATION AS TO DESIGN GENERAL On the premises Dusseldorf-Heerdt, Prinzewnallee/Hansaallee, several office buildings are constructed, one of them designed as multi-story office building. This refers to the 1st and 2nd phase of construction of an administration center at the corner Prinzewnallee/Hansaallee. Parking lots and a part of the required technical rooms are planned to be housed in the basements. In general, an up-to-date and well-appointed design of unobjectionable workmanship corresponding to the state of the art, to the DIN standards and to VOB (contract procedure for building works) shall be realized, completely serviceable, and in compliance with all the regulations. FOUNDATION SOIL Gravel, sand, pressure according to ground certificate LOAD CAPACITIES On all office floors, a working load of 350 kg/m(2) including allowance for partition walls is planned, on the ground floor 500 kg/m(2) PEDESTALS Reinforced concrete according to static requirements. TYPE OF CONSTRUCTION Reinforced concrete framework construction in large grid of 7.50/7.50 m,, made of site-mixed concrete or partly site-mixed concrete. The framework of the building is designed to minimize the number of bearers reducing the rooms. A grid of 1.50 m is planned for the facade so that a division into individual offices of different sizes and connections to partition walls is possible in this grid. Axial measure of individual rooms is 3.00 m, of two-man offices 4.50 m. Open-plan and functional rooms are possible, but will require the ventilating system to be complemented or the installation of an air conditioning plant. Parapets and lintel aprons of solid concrete on the outside assembly units and heat insulation of 10 cm Window units as pivot hung windows in high-quality aluminum/timber work construction (outside aluminum, inside timberwork, sides facing the street equipped with sound-insulating glazing. All the widows can be opened for cleaning and airing. The windows are thermically separated and equipped with special insulating glass The semicircular building is cased by a structural glazing facade of high-quality dark glass. The facade shall be equipped with top-hung sash windows for opening. Parapets consist of single-layer mirror glass as cold facade with high-quality insulation. The window systems consist of insulating glass with shading on the outside (gathering-up shutters for shading, to be operated individually.) and a parapet base with eased heating units or convectors installed behind. HEIGHT BETWEEN FLOORS 1st basement 3.52 m ground floor 3.60 m /2.75 m clearance 1st to 5th/6th upper floor 3.60 m / 2.75 m clearance ROOFS All the roofs, except for ceiling of the underground car park are constructed as roofs without vapor barrier insulation with repeated waterproof sheltings, heat insulation and pepple covering. The connections are fixed with connecting two-piece aluminum profiles and sealed. CEILINGS Ceilings of solid reinforced concrete on all floors. The individual office floors shall be equipped with a suspended aluminum sheet grid ceiling consisting of perforated aluminum sheet panels. Elevator anterooms and the entrance area are designed with a suspended gypsum plaster board ceiling with sound protection mats inserted. FLOORS On the ground floor floating floor with heat insulation according to DIN standards. On the upper floors wash floor with an additional built-in multiple duct in the floor along the windows for future requirements by lessee. All the rooms shall be equipped with an upper floor covering of high-quality, roller chair resistant, antistatic carpeted floor (supposed price DM 36.00/m(2)). The semicircular building shall be equipped with a false floor; 60 mm thick (total construction height: 110 mm). All the sanitation rooms and toilets shall be equipped with wall and floor tiles with decorative coloring. The wall tiles are laid from floor to ceiling. The kitchens shall be equipped with a laminate floor covering. WALLS Outer walls of the basements built with concrete according to static requirements. On the outside insulated from moisture, Sound insulation of not less than 27 dBA. Room partition walls are designed as high-quality, flexible partition wall system with plastic-laminated surface (for each m(2) of leased area, 0.5 m(2) of wall are supplied), with edges and door frames rounded, and with painted solid wooden doors. Lessor provides 0.5 m(2) of office partition wails for each 1 m(2) of leased office space. If this amount exceeds lessee's requirements, no credit note can be issued, as a following lessee may assert its claim to a more comprehensive equipment. The entrance halls will convey a prestigious impression. Glass cloth and natural stone coverings will be used as wall covering. Non load-bearing walls of the basement are constructed as fair-faced brickwork and painted with binder (ceilings as well). Stairwell walls and pillars on the individual floors shall also be equipped with fiber glass wallpaper and painted. This also applies to the inner side of the parapets. FACADE The facade consists of concrete assembly units, coated white and special steel cord shall serve as railing. The gable sides of the building are covered with glassed granite plates. DOORS The entrance doors to the floors are provided in glass with door handles made of special steel. Construction according to official conditions. The rooms' internal doors are laminated with white plastic and will have a steel frame. The other doors according to official provision FITTING Built-in cupboards, furniture and curtains are not part of the fitting provided. DOMESTIC TECHNIQUE All the installation systems are to be designed to enable a change of rise of the offices without requiring major changes to the basic installation ELECTRIC INSTALLATION Supply: feed line 4 x 16 mm(2) separately for each lessee. DISTRIBUTION: (within the leased area) each lessee obtains its own subdistribution with a connected load of 30 kVA for the electric power supply of lighting and current outlets in the window sill duct or false floor (circular building). A triple window sill duct run (170 mm steel sheet) will be installed under the windows on the office floors. -duct gait 1 and 2 (with front cover of plastic) to provide space for current wall outlets and connector boxes for telephone and EDP. -duct part 3 (with front cover of steel sheet) for the separation of data cables In the circular building) the installation is laid in the false floor. Lessor installs one double current wall outlet for each double window. It is for Lessee to provide connector boxes for telephone and EDP. SWITCHING: Each individual office is equipped with a series switch with a current wall outlet for cleaning purposes. BELL AND COMMUNICATOR SYSTEM: Each lessee obtains one station (entrance/reception) and a bell key button at the entrance of the building, and at the entrance of the leased area) respectively. TELEPHONE: Within the leased area (near the current distribution), a vacancy is provided for the installation of a telephone splitter. Cabling (from main splitter to lessee's splitter) and the number of individual lines is within lessor's responsibility and to be agreed with "Telecom". The space required for cabling is provided in the form of lines and shafts for risers. Ordering, expenses and the overall installation involved in the operation of the telephone system and providing the telephone system is within lessee's responsibility as well. EDP: Ordering expenses and overall installation with respect to the operation of an EDP system is within lessee's responsibility as well. ANTENNA: In the basement of each building, a connection to cable TV is provided. EQUIPOTENTIAL BONDING: In the individual leased areas, near the sub-distribution, there is an equipotential busbar with a NYAF cable of 25 mm. Any expenses and ordering of an equipotential bonding (unless part of domestic technique) and other protective measures (e.g. against excess voltage) and screens of whatever kind, including but not limited to telephone and/or EDP system are generally to be borne by lessee. A lightening protection system exists. STAIRWELL: Continuous safety lighting. Auxiliary lamps are switched on additionally by means of key buttons/ motion detectors. Illumination not less than 100 lux. FITTINGS Lessor provides 50% of the required large field lamps of 2 x 36 watts and installation according to the grid of the ceiling. ELEVATORS The semicircular building houses 4 panoramic elevators located in glass towers. All the office buildings are equipped with amply dimensioned interior elevators. The floors within the elevators arc designed in granite. The walls are sheathed with special steel sheets or a minor wall. Halogen spot lighting is fitted into the ceiling. Elevators are equipped with a special steel railing. At the facade of the tower building, two glazed elevators run freely up and down. The cages are cased with polished special steel sheets or sheathed with a mirror. The floor is covered with granite. Position indicator and control board are sheathed with a special steel covering. Cage doors; Two-part, all-automatic sliding doors. The cages are sheathed with special steel sheets. Cage walls are glazed. Lighting by halogen spots, installed even with the ceiling. The floor is covered with granite Doors and portals are built in with polished special steel sheets. The cages are equipped with a special steel railing. PORTALS AND ENTRANCES Portals and entrances are constructed as windscreen system, in part two-story, in aluminum flame construction, interior doors of the entrance area as glass-only facilities. The floors of the entrances are to be equipped with a designed granite floor covering with integrated doormat. STAIRWELLS Stairwells are designed as stairwells open to the elevator anterooms, allowing an easy, organizationally important connection between the floors Railings are built as architecturally designed special steel railings. The internal stairs are covered with high-quality granite tiles. The escape stairs are covered with high-quality Quarella tiles and steps. HEATING Heat generation is effected by an all-automatic heating installation with gas-operated low-temperature heating furnaces. The heating system is complemented by a weather dependent flow temperature controller, Staefa with Wilo-pumps. A heat reduction in the night and a weekend program are planned. At each window center line of 1.50 m, modern convectors, equipped with thermostatic valves, are planned to serve as heating units. These heating units dispose of a smooth and elegant front plate, fitting; optically well into these window axis and providing a flexible division of the rooms. SANITATION The cold water pipes are designed in copper. In the room of the house connections, a filter is supposed to keep away any penetrating impurities. Current supply lines are laid to the washstands for warm water supply of the lavatory basins. The installation of a no-pressure hot-water apparatus is to be provided by lessee if so required. All the installations are planned in white color Lavatory basins (56 cm), toilet with plastic lid and built-in flushing box. Each washstand is equipped with a mixing faucet with cam type closure, crystal mirror and chromium-plated towel-rails. In each water closet, a coat hook is planned. In the small kitchens on each floor, kitchen supply is provided for. Here again, a current feeding line is planned for a hot-water apparatus. Drainage of the roof is effected by special roof inlets and drain pipes leading into a well drain. From there, through a pipe system in the ground, the rain water trickles away. In the technical and connection rooms, inlets are planned. VENTILATION All the rooms are mechanically ventilated. Change of air: approx. triple. Additionally, the offices will be equipped with heating units for static basic heating. All the outgoing air gets out through air evacuation valves, ducts and ventilating devices. In the ventilating device, the residual heat of the outgoing air is used by means of heat recovery. This heat is delivered to the fresh air. Each ventilating device disposes of a heater and a cooler, so that according to the outdoor temperature warmed or cooled air is insufflated through the air valves in the intermediate ceiling. COOLING An air cooling plant is provided, which guarantees basic cooling (approx. 4 K below outdoor temperature) corresponding to ventilation. Full cooling of the offices can be retrofitted by lessee at lessee's expense, requiring a comparably small effort. For the purpose of such retrofitting or of EDP cooling, cooling water systems are preinstalled on the office floors. The cooling water system is lead up to the individual floors as closed system including recooling plant, pumps and pipe network. At the transfer spot, a later connection of secondary cooling plants is possible at any time. GROUNDS Parks and gardens with a lot of large trees, numerous bushes, lawns, fountains and works of art in the open countryside, roofs are planted with plants. Amended; October 23rd, 1996 Appendix 2 to the Lease (Additional agreement), Prinzenpark with the company Star Telecommunications Deutschland GmbH - ------------------------------------------------------------------------------ Additionally, Lessor shall assume: 1. False floor of the technical area on the ground floor Prinzenallee 7 at Lessee's choice. 2. The large field lamps (2 x 36 watts) according to the regulations on work places (Arbeitsstatten-Richtlinien) are provided in full and installed by Lessor. 3. On the ground floor to the right, a steel door (cased) is installed and a mobile ramp is provided. 4. As Lessee wishes to bring in its own carpet with its own logo, Lessor shall credit DM 50.00 per m(2). This only refers to the commercial area on the ground floor (not exceeding 300 m(2). 5. A distribution box for the electric installations is supplied and installed. 6. Lessor guarantees Lessee a grounding of [less than or equal to] 1ohm. 7. Lessor provides Lessee a current supply with 3 phases of 65 KW each, but only until Lessee is provided with an own transformer by the city's department of works (Stadtwerke). 8. With respect to infrastructure suppliers, Lessor allows Lessee that the company ISIS or the Telcom are authorized to perform core drillings, in order to be able to insert supply lines. Lessee is obligated to assume the liability for any damages caused by such core drillings. EX-10.67 16 EXHIBIT 10.67 EXHIBIT 10.67 SUMMARY Office and Switch Lease between STAR Telecommunications Deutschland GmbH ("STAR GmbH") and Rentax Gesellschaft Fur Grundbesitzan-Lagen GmbH, Gewerbehof Athen, 30519 Hannover, Germany, for property located at Alboinstrasse 36-42, 12103 Berlin, Germany. The lease term is for a minimum of 10 years beginning on April 1, 1999 and ending on April 1, 2009. STAR GmbH incurs rental charges of approximately 34,565 DM per month and approximately 6,318 DM per month in additional expenses. The leased property is approximately 6,719 square feet. DIENSTLEISTUNGS-SERVICE-UND-BUROFLACHEN-MIETVERTRAG Zwischen GfW Gesellschaft fur Wohnbesitz mbH & Co. KG Robert-Heuser-StraBe 15 50968 Koln vertreten durch: Rentax Gesellschaft fur Grundbesitzanlagen mbH RosenstraBe 1 - 3 1O178 Berlin - im folgenden Vermieter genannt- und STAR Telecommunications Deutschland GmbHP. VoltastraBe 1 a 60486 Frankfurt - im folgenden Mieter genannt- wird folgender Mietvertag geschlossen: SECTION 1 MIETERNUMMER Der Mieter erhalt fur diesen Vertrag die Mieternummer -------------------- -------------------- wird spater bekannt gegeben Der Mieter wird gebeten, diese Mieternummer bei samtlichem Schriftverkehr und allen Zahlungen diesen Vertrag betreffend anzugeben. SECTION 2 MIETOBJEKT 1. Der Mieter mietet ausschlieBlich zum Zwecke der Buro- und techniknutzung in der AlboinstraBe 36-42, die nachfolgend beschriebenen Gewerbeflachen: Linkes Vorderhaus EG Haupttrakt EG rechts Bauteil C Beschreibung der Flache einschl Nebenraumen (siehe Anlage 1) Die angemietete Gewerbeflache inkl. der Nebenraume wird im folgenden "Mietobjekt" genannt. 2. Die FlachenaufmaBe werden anerkannt mit: a) Mietflache Buro 599m(2) b) Mietflache Techni 1.449 m(2) c) Stellpplatz (3 in der TG und 2 5 Stck auf dem Hof d) Betriebskostenflache 2.048 m(2) e) Heizkostenflache 599 m(2)
Die GrundriBzeichnung/der tageLageplan mit den gekennzeichneten Flachen ist Bestandteil dieses Mietvertrages (Anlage 1). Die GrundriBzeichnung/der Lageplan dient allein zur Festlegung der Lage des Mietobjektes, eventuell eingezeichnete Einrichtungsgegenstande, Trennwande, Turen, Fenster, sind nur Vorschlage des Architekten, der Vermieter ist nicht verpflichtet, die Raume so auszustatten. Beide Mietertragsparteien vereinbaren ein gemeinsames AufmaB auf der Grundlage der beigefugten Anlage 2 (Flachenberechnungsmethode) vor Bezug. Das Ergebnis des AufmaBes wird dann zur Grundlage der Mietzinsberechnung genommen. 3. Sonstige Gebaude- oder Grundstucksteile darf der Mieter nur nach vorheriger schriftlicher Zustimmung des Vermieters Benutzen. SECTION 3 MIETZEIT 1. Das Mietverhaltnis beginnt am 01.04.1999 und lauft von da an auf die Dauer von 10 Jahren bis zum 31.03.2009. 2. Dem Mieter wird ein Optionsrecht von weiteren 5 Jahren nach Ablauf der Festmietzeit eingeraumt Der Mieter hat dieses Optionsrecht mittels eingeschriebenen Brief gegenuber dem Vermieter mit einer Frist von 12 Monaten vor Ablauf der usprunglichen Vertragszeit auszuuben. 3. Eine stillschweigende Verlangerung des beendeten Mietverhaltnisses gemaB Section 568 BGB scheidet aus. Der Mieter verzichtet fur sich und seine Erben auf das auBerordentilche Kundi-gungsrecht gemaB Section 569 I BGB. 4. Dem Mieter ist bekannt, daB an dem Gesamtobjekt noch Um-bzw. Ausbauarbeiten stattfinden. Dem Vermieter wird bemuht sein, diese Arbeiten so durchzufuhren, daB die Belange des Mieters dabei moglichst wenig tangiert werden. SECTION 4 AUBERORDENTLICHES KUNDIGUNGSRECHT 1. Der Vemieter kann das Mietverhaltnis ohne Einhaltung einer Kundigungsfrist mit sofortiger Wirkung kundigen. a) wenn der Mieter fur zwei aufeinanderfolgende Termine mit der Entrichtung des Mietzinses oder eines nicht unerheblichen Teils des Mietzinses in Verzug ist oder in einem Zeitraum, der sich uber meher als zwei Termine erstreckt, mit der Entrichtung des Mietzinses in der Hohe eines Betrages in Verzug gekommen ist, der den Mietzins fur zwei Monate erreicht; b) wenn der Mieter seinen Verpflichtungen aus diesem Vertrag gegenuber dem Venrmieter oder in Bezug auf die anderen Mieter des Hauses grob zuwider handelt und diese Zuwiderhandlungen trotz Abmahnung durch den Vermieter vorgesetzt werden; c) wenn der Mieter die fur seinen Gewerbebetrieb geltenden offentlich-rechtlichen Vor-schriften nicht einhalt oder behordlichen Auflagen/Anordnungen nicht folgt; d) wenn gegen den Mieter als Schuldner die Abgabe der eidesstatt lichen Versicherung uber sein Vermogen beantragt wird; e) wenn der Mieter die Versicherungsnachweise nicht innerhalb von 14 Tagen nach Auf-forderung nachweist 2. Die Kundigung hat schriftlich zu erfolgen. 3. Kundigt der Vermieter das Mietverhaltnis fristlos so ist er berechtigt, vom Mieter Ersatz jeglichen Schadens, insbesondere Mietausfall bis zum Ablauf der vorhergesehenen Vertragszeit, der ihm durch die vorzeitig Auflosung des Mietverhaltnisses entsteht, zu verlangen. Die Zahlungen sind zuzuglich Mehrwertsteuer zu erbringen. 4. Falls ein Antrag auf Eroffnung eines Insolvenzverfahrens uber das Vermogen einer Partei gestellt wird, hat die andere Partei ein auBerordenliches Kundigungsrecht. SECTION 5 MIETZINS 1. Der Mietzins setzt sich zusammen aus der Grundmiete, den Betriebs- und Verwaltungskosten jeweils zuzuglich der gultigen gesetzlichen Mehrwertsteuer (Bruttomeite). Der Mieter hat auf die Betriebskosten Vorauszahlungen zu erbringen. Unter Betriebskosten werden auch die Heizkosten verstanden, sofern nicht die Heizungskosten im Nachfolgenden gesondert behandelt werden. Die Verwaltungskosten werden als Pauschale bezhalt. 2. Der Mieter hat ab Vertragsbeginn folgende monatliche Leistungen zu erbringen:
PREIS/M(2) FLACHE/M(2) NETTOMIETE z.ZT. 16% MwSt BRUTTOMIETE Grundmiete * Mietflache Buro 19,00 DM 599 11.381,00 DM 1.820,96 DM 13.201,96 DM * Mietflache Technik 16,00 DM 1,449 23.184,00 DM 3.709,44 DM 26.893,44 DM Stellplatze/Stuck 90,00 DM 5 450,00 DM 72,00 DM 522,00 DM Betriebskostenvorauszahlung: 2,00 DM 2,048 4.096,00 DM 655,36 DM 4.751,36 DM Heizkostenvorauszahlung: 2,00 DM 599 1.198,00 DM 191,68 DM 1.389,68 DM Verwaltungskostenpauschale: 0.50 DM 2.048 1.024,00 DM 163,84 DM 1.187,84 DM INSGESAMT 41.333,00 DM 6.613,28 DM 47.946,28 DM
3. Index: Jeweils nach Ablauf eines Vertragsjahres andert sich die Grundmiete und die Verwaltungskostenpauschale insoweit, als sich der vom Statistischen Bundesamt ermittelte Preisindex fur die Lebenshaltung aller privaten Haushalte (Basis 1991=100) seit unterschrifticher Vollziehung dieses Vertrages bzw. der jeweiligen Neufestsetzung des Mietzinses verandert hat. Die Geltendmachung der Anderung ist nicht an eine Frist gebunden. Die erste Mietzinsanpassung findet im Jahr nach Vertragsbeginn (Section 3 Ziff.1) statt. Der Vermieter legt diesen Vertrag der zustandigen Landeszentralbank zu Genehmigung dieser Indexvereinbarung vor. 4. Sollte die Option gem. Section 3 Ziffer 2 ausgeubt werden so vereinbaren die Parteien, daB uber die Hohe der Grundmiete, Betriebskostenvorauszahlung und der Verwaltungspauschale neu verhandelt wird. Die Parteien verpflichten sich, im Falle der Ausubung der Option gleichzeitig in Vertragsverhandlungen hinsichtlich der Hohe der Grundmiete einzutreten. Kommt eine Einigung zwischen den Parteien nicht innerhalb von 3 Monaten nach Ausubung des Optionsrechtes zustande, so vereinbaren schon jetzt beide Parteien, daB jeder berechtigt ist, einen vereidigten Sachverstandigen einer Industrie- und Handelskammer zu benennen, der dann verbindlich berechtigt ist, einen angemessenen Grundmietzins/die angemessene Verwaltungs-kostenpauschale fur das erste Jahr der Option zu bestimmen, das als Grundlage fur die weiteren jahrlichen Zahlungen dient. Die Panrteien sind sich daruber einig, daB in diesem Falle die Grundmiete fur das erste Optionsjahr nicht niedriger sein darf als der Mietzins im zehnten Vertragsjahr. Dabei haben die Sachverstandigen insbesondere die Ausstattung, Lage und Funktionalitat der Raume sowie das Mietpreisniveau in Berlin zu berucksichtigen Kommen die beiden Sachverstandigen nicht zu einem einheitlichen Ergebnis, bestimmen die Sachverstandigen einen Obmann. Diese Entscheidung soll dann gelten Konnen die beiden Sachverstandigen sich nicht auf einen Obmann einigen, soll der Prasident der Industrie- und Handelskammer Berlin den Obmann ernennen. SECTION 6 OBJEKTUBERGABE Die Ubergabe des Mietobjektes erfolgt im besichtigten und bekannten Zustand. AnlaBlich der Ubergabe wird ein schriftliches Ubergabeprotokoll erstellt. Eventuelle Mangel der Mietsache sind bei der Ubergabe der Mietraume zu protokollieren. Festgestellte berech tigte Mangel sind unverzuglich zu beseitigen. Ein Kundigungsrecht ist diesbezuglich ausgeschlossen. SECTION 7 FALLIGKEIT DER ZAHLUNGEN 1. Die monatliche Grundmiete zuzuglich Betriebs- und Verwaltungskosten sowie der Mehrwertsteuer mussen spatestens bis zum 03. Werktag eines jeden Monats im voraus bei dym Vermieter entweder in bar oder durch Gutschrift auf dessen Konto spesenfrei eingegangen sein. Die Bankverbindung des Vermieters lautet: Bankinstitut: DePfa Bank Bau Bodenbank K()litontimmer: 43 83 11 Bankltitrj hI: 100 104 24 2. Die erste Bruttomiete hat der Mieter vor Ubergabe des Mietobjektes zu zahlen. Nichtzahlung trotz Mahnung rechtfertigen den Vermiete, vorn Vertrag zurukzutreten. 3. Bei verspateter Zahlung ist der Vermieter berechtigt, Verzugszinsen in Hohe von 2% Zinsen uber dem jeweiligen Diskontsatz der Deutschen Bundesbank sowie Mahnkosten pro Mahnung in Hohe von DM 10,00 zu erheben. Aus standiger unpunktlicher Zahlung kann der Mieter keine Rechte herleiten. 4. Alle Zahlungen des Mieters werden in nachfolgender Reihenfolge verrechnet Kaution, sonstige Kosten aus dem Mietverhaltnis, Kosten etwaiger Rechtsverfolgung einschlieBlich Mahnkosten und ProzeBzinsen, Forderungen aus Betriebs und ggf. Heizkostenkostenabrechnungen, fallige Betriebs-/Heizkosten(voraus)zahlungen, Verwaltungskostenpauschale laufende Miete, ruckstandige Miete, sonstige Kosten Entgegenstehende Bestimmungen und Erklarungen des Mieters sind unverbindlich. SECTION 8 BETRIEBS-, HEIZ- UND VERWALTUNGSKOSTEN 1. Alle auf das in Section 2 genannte Mietobjekt entfallenden Betriebskosten gemaB der jeweils gultigen Fassung der Anlage 3 zu Section 27 II. Berechnungsverordnung gehen zu Lasten des Mieters. Die Anlage 3 zu Section 27 II Berechnungsverordnung in der derzeit gultigen Fassung ist diesem Vertrag beigefugt, sie ist Vertragsbestandteil (Anlage 3). Neu entstehende Betriebskosten, die das Mietobjekt oder das Gebaude, in dem das Mietobjekt liegt, betreffen, sind ab Entstehung dieser Kosten vom Mieter zu tragen. Soweit infolge der Benutzung durch den Mieter besondere, nur auf diesen Mieter zuruckzufuhrende Kosten entstehen, werden diese Kosten zusatzlich in voller Hohe auf den Mieter umgelegt. 2. Der Mieter verpflichtet sich, auf die Betriebs- und Heizkosten zusammen mit der Grundmiete monatliche Vorauszahlungen in Hohe von 1/12 des voraussichtlich auf ihn jahrlich entfallenden Anteils zu zahlen Vorbehaltlich der jahrlichen Abrechnung werden diese zunachst auf DM 2,00 je m(2) Betriebskostenflache und DM 2,00 je m(2) Heizkostenflache festgesetzt. Hinzu kommt die jeweils gultige Mehrwertsteuer Es ergibt sich folgende Vorauszahlung.
NETTO 16%MWST BRUTTO Betreibskostenvorauszahlung 2,00 DM 2.048 4.096,00 DM 655~36CM 4 .751,36 DM Heizkostenvorauszahlung 2,00 DM 599 1.198,00 DM 131 68CM 1.389,68 DM
3. Ferner tragt der Mieter alle auf das in Section 2 genannte Mietobjekt enfallenden Verwaltungskosten. Die Parteien vereinbaren einen Veralwtungskostenpauschalbetrag von monatlich DM 0,56 je m(2) Mietflache zuzuglich der jeweils geltenden gesetzlichen Mehrwertsteuer
NETTOPAUSCHALE 16% MwSt BRUTTO - ------------------------------------------------------------------------------------------------------------------------- Verwaltungskostenpauschale 0,50 DM 2.048 1.024,00 DM 163.84 DM 1.187,84 DM
Uber diesen Betrag ist nicht abzurechnen. 4. Die Betriebskostenvorauszahlung und ggf. die Heizkostenvorauszahlung konnen vom Vermieter je nach Hohe der tatsachlichen Kosten jederzeit angemessen herauf- und herabgesetzt werden. Neu entstehende Betriebskosten konnen ab Entstehung angesetzt werden. 5. Uber die Betriebs- und, Heizkosten wird kalenderjahrlich abgerechnet. Sollte sich aus der zu erstellenden Abrechnung eine vom Mieter zu leistende Nachzahlung ergeben, ist diese zu dem auf die Abrechnung folgenden 1. Mietzahlungstermin zu begleichen. Ein etwaiges Guthaben des Mieters wird zu dem gleichen Termin vom Vermieter erstattet. Soweit nach Verbrauch abgerechnet wird und die Ablesegerate einen Defekt erleiden, ist der Vermieter berechtigt, die Betriebs-/Heizkosten zu schatzen und entsprechend umzulegen. Diese Vereinbarung entbindet den Vermieter nicht, die defekten Ablesegerate kurzfristig instand setzen zu lassen. 6. Wird das Mietverhaltnis innerhalb eines Kalenderjahres gelost, so zahlt der Mieter die Betriebs- und Heizkosten in diesem Falle nur zeitanteilig fur die Dauer des Bestehens des Mietverhaltnisses, wobei der Anteil auf folgender Berechnungsgrundlage ermittelt wird: Jahresbetriebskosten X Anzahl der Monate Vertragsdauer im Kalenderjahr ----------------------------------------------------------------------- 12 Monate Der Vermieter ist im Falle der Beendigung des Vertrages berechtigt, bis zum auf den Beendigungszeitpunkt folgenden nachsten Abrechnungszeitpunkt - zur Deckung etwaiger Betriebs- kostennachforderungen fur das laufende Abrechnungsjahr- einen Betrag in Hohe eines zweifachen monatlichen Betriebskostenvorschusses als Sicherheit von der Kaution oder einer sonstigen Sicherheit zuruckbehalte.n SECTION 9 MIETSICHERHEIT I 1. Der Mieter sichert die Anspruche des Vermieters aus diesem Vertrag unwiderruflich entweder durch Zahlung einer mit 2% verzinslichen Barkaution in Hohe von 3 Monatsgrundmieten zuzugglich Betriebskostenvorauszahlung, Verwaltungskosten jeweils gultiger gesetzlicher Mehrwertsteuer (143.838,84 D) an den Vermieter oder durch Hinterlegung einer selbstschuldnerischen, unwiiderruflichen, unbefristeten und unbedingten Bankburgschaft in gleicher Hohe bei dem Vermieter. Die Bank muB sich daruber hinaus verpflichten, auf erste Anforderung zu zahlen. 2. Kaution oder Bankburgschaft sind wie folgt fallig: a) Betragt der Zeitraum zwischen unterschriftlicher Vollziehung des Mietvertrages und Mietvertragsbeginn (Section 2, Ziff. 1) weniger als sechs Monate sofort. Betragt der Zeitraum zwischen unterschriftlicher Vollziehung des Mietvertrages und Mietvertragsbeginn (Section 2 Ziff. 1) mehr als sechs Monate, so ist die Sicherheit spatestens 6 Wochen vor Mietvertragsbeginn fallig. 3. Der Mieter hat keinen Anspruch auf Ubergabe des Mietobjektes vor Erbringung der Sicherheit. Die Miete ist trotzdem fallig. 4. Ruckzahlung oder Ruckgabe der Sicherheit erfolgen innerhalb von 6 Wochen nach Beendigung des Mietverhaltnisses und dessen ordnungsgemaBer Erfullung durch den Mieter Section 8 Ziff. 8 ist bei Vorliegen der Voraussetzung anzuwenden. 5. Die Burgschaft muB der jeweils geltenden Bruttomiete entsprechen. Die geltende Hohe wird gemaB Section 5 Ziffer 2,3 oder 4 des Vertrages ermittelt. Der mieter ist auf Anforderung verpflichtet, die Burgschaft zu erhohen, wenn die summe der Burgschaft unter drei erhohte Bruttomieten sind. SECTION 10 UNTERVERMIETUNG /FIRMENWECHSEL 1. Eine entegeltliche oder unentgeltliche Untervermietung des ganzen oder eines Teiles des Mietobjeketes ist nur mit schriftlicher Zustimmung des Vermieters moglich. Der abgeschlossene Untermietvertrag ist dem Vermieter in Kopie zu ubergeben. 2. Der Vermieter ist berechtigt, die ereilte Zustimmung zur Untervermietung jederzeit zu widerrufen. Der Widerruf der Zustimmung setzt voraus, daB dem Vermieter Grunde bekannt geworden sind, die ihn gemaB Section 549 BGB berechtigt haben wurden, die Zustimmung nicht zu erteilen. 3. Eine einmal erteilte Zustimmung zur Untervermietung verpflichtet den Vermieter nicht, spater bei einer vom Mieter erneut geplanten Untervermietung seine Zustimmung zu erteilen. Der Mieter ist verpflichtet, den Untermieter vertraglich dzu verpflichten, fur eine weitere Untervermietung durch den Untemieter die Zustimmung des Vermieters einzuholen. 4. Fur den Fall, daB das Mietverhaltnis zwischen Vermieter und Mieter endet und der Untermieter noch im Mietobjekt ist, tritt der Mieter bereits jetzt seine Mietzinsanapruche gegen den Untermieter in voller Hohe an den Vermieter ab. Daruber hinausgehende Nutzungsentschadigungs- oder Schadensersatzanspruche des Vermieters bleiben unberuhrt. 5. Bei unbefugter Untervermietung oder sonstiger Gebrauchsuberlassung des Mietobjektes oder von teilen des Mietobjektes an Dritte gilt folgendes: Der Vermieter kann verlangen, daB der Mieter das Untermietverhaltnis unverzuglich kundigt. Ist der Mieter hiermit mehr a;s sieben Tage in Verzug, ist der Vermieter unwiderruflich bevolmachtigt, das Untermieteverhaltnis im Namen des Mieters zu kundigen und alle Rechte aus der Kundugung im Namen des Mieters geltend zu machen, notfalls gerichtlich, und zwar auf Kosten des Mieters. Unabhangig davon ist der Vermieter zur fristlosen Kundigung des Hauptmietverhaltnisses berechtigt. Hat der Mieter unberechtigt untervermietet, tritt er bereits jetzt samtliche Mietzinsanspruche gegen den Untermieter ab. Diese stehen dem Vermieter neben der vom Mieter geschuldeten Miete in voller Hohe zu. Hat der Untermieter in Unkenntnis der Abtretung bereits an den Hauptmieter gezahlt, ist der Hauptmieter insoweit zur Herausgabe verpflichtet. Im Falle einer Untervermietung tritt der Mieter dem Vermieter schon jetzt die ihm gegen den Untermieter zuztehenden Forderungen nebst Pfandrecht - bis zur Hoe der Forderungen des Vermieters - sicherungshalber ab. 6. Bei Firmen gilt ein Wechsel des Inhabers bzw. Eines personlich haftenden Gesellschafters oder eine Anderung der Rechtsform als Uberlassung an Dritte, die der Zustimmung des Vermieters bedarf. Die Zustimmung darf nicht ohne sachlichen Grund versagt werden. Im Falle des Uberganges des Mietvertrages haftet der bisherige Mieter fur die bestehenden und kunftigen Forderungen neben dem Rechtsnachfolger als Gesamtsh=chuldner weiter. Im ubrigen gilt daz zur Untervermietung Ausgefuhrte. Solche Vorange sowie mogliche Anderungen bezuglich eventuell notwendiger offtenlich-rechtlicher Erlaubnis oder in anderen fur das Mietverhaltnis wichtigen Zusammenhangen hat der Mieter dem Vermieter unverzuglich schriftlich mitzuteilen und die erforderlichen Zustimmungen einzuholen. 7. Im Falle der VerauBerung des Betriebes durch den Mieter gilt die voraufgefuhrte Ziffer entsprechend. 8. Gestattet der Vermieter schriftlich die Untervermietung, so ist der Mieter verpflichet, bei der Abfassung des Untermietvertrages disen Untermietvertrag zeitlich der Dauer des Hauptmietvertrages anzupassen. Bei Beendigung des Hauptmietverhaltnisses ist das Untermietverhaltnis ebenfalls zeitgleich zu beenden. SECTION 11 ZUTRITTSRECHT Dem Vermieter oder dessen Vertreter steht jederzeit das recht zu, wahrend der ublichen Geschaftsstunden die vermieteten Raumlichkeiten zu besichtigen. Isr das Mietverhaltnis gekundigt oder will der Vermieter das Grundstuck verkaufen, darf ver Vermieter wahrend der ublichen Geschaftszeiten jederzeit das Mietobjekt mit Interessenten nace Vorankundigung betreten. Der Mieter hat dafur Vorkehrungen zu treffen, daB das Mietobjekt wahrend seiner/einer langeren Abwesenheit durch den Vermieter betreten werden kann. SECTION 12 ZUSTAND DES MIETOBJEKTES WAHREND BESTEHENDEN MIETVERHALTNISSES I 1. Der Mieter wird alle Schonheitsreparaturen im Mietobjekt auf eigene Kosten fachgerecht durchfuhren oder durchfuhren lassen. Die Parteien sind sich daruber einig, daB diese Schonheitsreparaturen wegen der hohen Abnutzung im gewerblichen Bereich spatestens alle 3 Jahre insegesamt durchgefuhrt werden mussen, gegebenenfalls fruher, falls der Grad der Abnutzung die Durchfuhrung von Schonheitsreparaturen ganz oder teilweise unter Berucksichtigung des Geschaftszweiges des Mieters dies erfordert. Die Schonheitsreparaturen umfassen insbesondere samtliche Innenanstriche, das Tapezieren, Kalken oder Anstreichen von Wanden und Decken, das Anstreichen bzw. Lackieren von Heizkorpern, Heizrohren, sonstigen Versorgungsleitungen, der innenturen beidseitig, Fenster und AuBenturen jeweils von innen und auBen. Die vom Mieter in den Buroraumen verlegten Teppichboden werden von diesem in angemessenen Zeitraumen erneuert. 2. Die Mieter hat auf seine Kosten alle erforderlichen Wartungs- und PflegemaBnahmen bei Elektrogeraten und Heizstrangen innerhalb des Mietobjektes durchzufuhren. Die Wartung hat jahrlich durch einen Fachmann zu erfolgen und ist dem Vermieter auf Verlangen nachzuweisen. Fur Betriebsunterbrechungen aller Art und die darus enstehenden Schaden am Eigentum des Mieters durch die Nichteinhaltrung dieser Vorschriften haftet der Vermieter nicht. 3. Reparaturen im und am Mietobjekt und an den Glasscheiben gehn zu Lasten des Mieters. Daruber hinausgehende Reparaturen gehen zu Lasten des vermieters. 4. Samtliche Arbeiten sind sach- und fachgerecht durchzufuhern. UnterlaBt der Mieter trotz Fristsetzung mit Ablehnungsandrohung die Durchfuhrung der notwendigen Schonheits- und Reparaturarbeiten, ist der Vermieter berechtigt, diese Arbeiten auf Kosten des Mieters durchfuhren zu lassen. Der Mieter ist verpflichtet, fur diesen Fall dem Vermieter einen KostenvorschuB in angemessener Hohe auf Anforderung zu zahlen. Weitergehende Rechte des Vermieters bleiben hiervon unberuhrt. Bei Gefahr in Verzug oder bei unbekanntem Aufenthalt des mieters bedarf as einer Fristsetzung mit Ablehnungsandrohung nicht. 5. Etwaige Anspruche gegen Dritte, die die Mietsache beschadigt haben, tritt der Vermieter an den Mieter ab, wenn diesser die Mietsache wieder in den vertragsgemaBen, gebrauchsfahigen Zustand versetzt hat. SECTION 13 BAULICHE VERANDERUNGEN 1. Der Vermieter darf Ausbesserungen bauliche Veranderungen (einschlieBlich Einbauten) im Bereich des Mietobjektes, die zur Erhaltung und/oder Moderisierung des Grundstucks und/oder der Mietraume und/oder zur Abwendung drohendor Gefahren und/oder zur Beseitigung von Schaden notwendig werden, auch ohne Zustimmung des Mieters jederzeit vornehmen. Er ist weiterhin zu allen Anderungen des Mietobjektes befugt, wenn diese Anderungen auf behordlichen Auflagen und/oder Anweisungen beruhen. Diese Regelungen gelten sinngemaB fur ErschlieBungs- und AusbaumaBnahmen an Verkehrsflachen, Versorgungs- und Enstorgungsanlagen einschlieBlich der Hausanschlusse solcher Einrichtungen im und am Mietobjekt. Der Mieter hat hierzu die angemieteten Flachen zuganglich zu halten, die Ausfuhrung der Arbeiten darf von ihm nicht behindert oder verzogert werden. Der Vermieter ist gehalten, zwecks Durchfuhrung der Arbeiten eine zeitliche Abstimmung mit dem mieter zu suchen. Soweit der Mieter die Arbeiten dulden mub, kann er weder die Miete mindern, noch ein Zuruckbehaltungsrecht ausuben, noch Schadensersatz verlangen, es sei denn, der Vermieter hat Vorsatz oder grobe Fahrlassigkeit zu vertreten. Er darf die Arbeiten weder behindern noch verzogern, andernfalls haftet er fur die dadurch enstehenden Mehrkosten sowie fur etwaige weitere Schaden. Eine Mietminderung kann der Mieter nur dann verlangen, wenn es sich um Arbeiten handelt, die den Gebrauch der betreffenden Raume ganz ausschlieBen und erheblich beeintrachtigen und die Arbeiten langer als zwei Wochen andauren. 2. Bauliche Veranderungen der Mietsache durch den Mieter, insbesondere Um- und einbauten, Installationen, Vergitterung der Fenster, Herstellung und Veranderung von Feuerstatten etc. bedurfen der schriftlichen Zuztimmung des Vermieters. Die Kosten treffen allien den Mieter. Dieser ist auch allein verantwortlich dafur, daB die erforderlichen gesetzlichen Bestimmungen eingehalten werden. Der Mieter hat dem Vermieter einen schriftlichen Kostenvoranschlag sowie die Plane fur die geplanten UmbaumaBnahmen zur Genehmigung vorzulegen. Als bauliche Veranderungen gelten auch Veranderungen der vorhandenen Leitungsnetze fur alle Versorgungsleistungen. 3. Dem Mieter ist bekannt, daB der Vermieter etwa ab Beginn der Mietzeit folgende Arbeiten im Gesamtobjekt durchfuhrt: a) Einbau von neuen Treppenhausern (auBerhalb des Mietbereiches) b) Instandsetzung und Erneuerung der Haustechnik c) Teilweise Sanierung der AuBenfassade d) Einbau von mieterspezifischen Wunschen in den daneben und daruber befindlichen Mieteinheiten Hieraus kann der mieter keine Anspruche geltend machen, wenn die Nutzung des Mietobjektes hiedurch nicht wesentlich beeintrachtigt wird. SECTION 14 HAFTUNG 1a) Schadensersatzanspruche des Mieters wegen anfanglicher oder nachtraglicher Mangel der Mietsache sind ausgeschlossen, es sei denn, daB der Vermieter oder grobe Fahrlassig-keit zu vertreten hat. Auch im ubrigen haftet der Vermieter nur fur Vorsatz und grobe Fahrlassigkeit, einschlieBlich des Verhaltens seines Vertreters oder Erfullungsgehilfen. Hiervon unberuhrt bleiben Erfullungsanspruche des Mieters sowie sein gesetzliches Recht zur fristlosen Kundigung. 1b) Der Vermieter haftet nicht fur schaden, die dem Mieter an dem ihm gehorenden Waren und Einrichtungsgegenstanden durch Feuchtigkeitseinwirkung entstehen, gleich welcher Art, Herkunft und dauer und welchen umfangs die Feuchtigkeitseinwirkung ist; es sei denn, daB der Vermieter den Schaden vorsatzlich oder grobfahrlassig herbeigefuhrt hat. Im ubrigen ist die Haftung des Vermieters grundsatzlich auf die Hohe der Haftpflichtversicherungssumme begrenzt. 2a) Der mieter haftet dem Vermieter wegen Beschadigung der Mietraume und des Gebaudes/ sowie der zu den Mietraumen oder zu dem Gebaude gehorenden Einrichtungen und Anlagen, die durch ihn, die zu seinem Betrieb gehorenden Personen, Besucher, Kunden, Lieferanten sowie von ihm beauftragte Handwerker und ahnliche Personen vorsatzlich oder grobfahrlassig verursacht worden sind, soweit er dies zu vertreten hat. Leistet der Mieter dem Vermieter Schadensersatz, so ist dieser verpflichtet, dem Mieter seine etwaigen Anspruche gegen den Verrsacher des Schadens abzutreten. 2b) Der Mieter haftet Dritten gegenuber aus Beschadigungen, die sich aus seinem Gewerbe- betrieb, der eventuellen Installation von Geraten, Apparaturen oder Anlagen ergibt. Der Mieter stellt den Vermieter von allen Anspruchen Dritter frei, die gegen den Verimieter aus einer Verletzung dieser Verpflichtung erhoben werden konnten. 4. Vor der aufstellung von schweren Gegenstanden in den Mietraumen hat der Mieter sich zu vergewissern, daB die zulassige Belastrung des Bodens bzw. Der Stockwerkdecken nicht uber-schritten wird. Eine hierzu im Einzelfall erforderliche statische Berechnung hat er auf eigene Kosten erstellen zu lassen und dem Vermieter auf Verlangen vorzulegen. SECTION 15 VERKEHRSSICHERHEIT 1. Der Mieter ubernimmt die Verkehrssicherungspflicht auf seine Kosten hinichtlich der von ihm eingebrachten Gegenstande, nicht nur im Bereich des Mietobjektes, sondern auch auf den Flachen, die von ihm zusatzlich zum Aufstellen von Waren, Werb etragern, - oder sonstigen zu seinem Betrieb gehorenden Einrichtungen genutzt werden. Der Mieter stelt dem Vermieter von allen anspruche frei, die gegen den Vermieter aus einer Verletzung der Verkehrssicherungspflicht erhoben werden. SECTION 16 KONKURRENZKLAUSEL Vertraglicher oder gesetzlicher Konkurrenzschutz ist ausgeschlossen. Er wird von dem Mieter weder gegenuber dem Vermieter noch gegenuber den ubrigen Mietern des Hauses in Anspruch genommen. SECTION 17 ABFALLBESEITIGUNG / EMISSIONSSCHUTZ 1. Abfuhr von Leergut und Mull erfolgt nach MaBgabe der vom Vermieter erlassenen Anweisungen. Die Kosten dieser ausschlieBlich den Mieter betreffenden Mullabfuhr/Beseitigung des Leerguts gehen zu seinen Lasten. Soweit der Vermieter die Abfallbeseitigung fur alle Mieter durchfuhern laBt, werden die entstehenden Kosten im Rahme der Betriebskosten auf die Mieter umgelegt. 2. Sofern sich aus dem Geschaftsbetrieb des Vermieters besondere Anforerungen ergeben, tragt dieser fur die Abfallbeseitigung ergeben, tragt dieser fur die Einhaltung der Bestimmungen des Abfallbeseitigungsgesetze sorge. Soweit dieser Abfall nicht dazu geeignet ist, im Rahmen der von dem Verimieter zur Verfugung gestellten Mullbeseitigung entsorgt zu werden, ist der Mieter verpflichtet, dafur Sorge in tragen, daB dieser Abfall bestimmungsgemaB entsprcechend Jeweils den geltenden gesetzlichen Bestimmungen/behordlichen Verordnungen entsorgt wird und nicht in die zur allgemeinen Abfallbeseitigung vorhandenen Einrichtungen gelangt. Der Mieter stellt den Vermieter von allen gegen diesen gerichteten Anspruchen frei, er leistet Sicherheit, sofern der Vermieter in Anspruch genommen wird. 3. Auf dem Grundstuck, auf dem der Mieter das Mietobjekt anmietet, sind nur Anlagen zugeslassen, die keine erheblichen verfahrenstechnisch bedingten Ableitungen in form von Gasen, Dampfen, Stauben (RuBen), Aerosolen, Geruche und Larm besitzen . Zugelassen sind Anlagen, von denen nur larm in einer solchen Laustarke ausgeht, daB die in der TA-Larm festgelegten Lautstarkenwerte eingehlaten werden. Daruber hinaus sind Betriebe mit Enissionen, die sich nicht mit einer Wand-an-Wand-Anordung vereinbaren lassen, nicht zugelassen. Unabhangig davon kann der Vermieter auch daruber hinaus verlangen, daB der Mieter die nachbarrechtlichen Belange wahrt. Sollten im Geschaftsbetrieb des Mieters Emissionen verusacht werden, fur die es gesonderte gewerberechtliche oder sonstige gesetzlichen Auflagen gibt, ist der Mieter verpflichtet, die Auflagen einzuhalten. SECTION 18 VERSICHERUNGEN 1. Der Mieter ist verpflichtet, in seinen Risikobereich fallende Verischerungsvertrage abzuschlieBen. SECTION 19 VER- /ENTSSORGUNG Die Vorhandenen Leitungsnetze fur Elektrizitat, gas, Wasser, Abwasser, durfen vom Mieter nur in dem Umfang in Anspruch genommen werden, daB keine Uberlastung der Netze eintritt. Anderungen der vorhandenen Leitungsnetze sind nur mit Zustimmung des Vermieters und/oder des Betreibers des, Leitungsnetzes zulassig. Eine Veranderung der Energieversorgung durch den Betreibe des Leitungsnetzes berechtigt den Mieter nicht zu Ersatzanspruchen gegnuber dem Vermiete. Fur die Elektroversorgung der Technikbereche stellt der Mieter vertragliche Direktbeziehungen zum Versorgungsunternehmen her. Dazo installiert der Mieter in der daufur Vorgesehenen Mietflache (Keller) seine dazu erforderliche Trafostation. SECTION 20 BEENDIGUNG DES MIETVERHALTNISSES 1. Das Mietobjekt ist bei Beendigung der Mietzeit vollstandig geraumt, gereinigt und mit samtlichen Schlusseln, Codekarten etc. zuruckzugeben. Weiter schuldet der Mieter dem Vermieter die Herrichtung der ubernommenen Raumlichkeiten in dem zur Ubernahme des Mietobjekets vorhandenen Zustand. Samtliche Arbeiten sind sach- und fachgerecht durch Fachfirmen durchzufuhren. 2. Hat der Mieter ohne schriftliche Einverstandniserklarung des Vermieters bauliche Veranderungen vorgenomm, so muB er auf Verlangen des Vermieters den rsprunglichen Zustand der ihm uberlassenen Raumlichkeiten auf eigene Kosten wiederherstellen. Besteht der Vermieter nicht auf einen Ruckbau, so verzichtet der mieter gegnuber dem Vermieter bereits jetzt auf Erstattungsanspruche fur von ihm aufgewandte Kosten baulicher Veranderungen. SECTION 21 MINDERUNG, AUFRECHNUNG , ZURUCKBEHALTUNGSRECHT 1. Der Mieter kann gegenuber den Mietzinszahlungsanspruchen des Vermieters weder aufrechnen noch ein Zuruckbehaltungsrecht ausuben oder die Miete mindern. Hiervon ausgenommen sind Forderungen des Mieters wegen Schadenersatz fur Nichterfullung oder Aufwendungsersatz infolge eines anfanglichen oder nachtraglichen Mangels der Mietsache, den der Vermieter wegen Vorsatz oder grober Fahrlassigkeit zu vertreten hat. Mit unbestrittenen oder rechtskraftig festgestellten Forderungen dem Mietverhaltnis kann dcr Mieter aufrechnen bzw. ein Zuruckbehaltungsrecht ausuben. 2. Die Aufrechnung oder die Ausubung des Zuruckbehaltuunsrechts ist nur zulassig, wenn der Mieter sein Absicht dem Vermieter mindestens einen Monat vor Falligkeit der Miete schriftlich angezeigt hat. Die Aufrechnung darf 40% der monatlichen Grundmiete nicht ubersteige, sie hat daher gegebenenfalls in Teilbertragen zu erfolgen. 3. Eine Aufrechnung gegen Betriebs- und Verwaltungskosten oder eine Minderung der Betriebe- und Verwaltungskosten durch den Mieter ist unzulassig. SECTION 22 BENUTZUNG DER MIETSACHE 1. Der Mieter darf die Mietsache in einem anderen als in Section 2 Ziff. 1 vorgesehenen Zweck nicht ohne eine vorherige schriftliche Zustimmung des Vermieters nutzen. Der Mieter ist verpflichtet, wahrend dee gesamten Mietzeit den Geschaftsbetrieb aufrecht zu erhalten. 2. Der Mieter ist verpflichtet, rechtzeitig vor VertragsabschluB auf eigene Kosten zu prufen, ob er den angestrebten Nutzungszweck in dem angemieteten Mietobjekt durchfuhren kann; es obliegt ihm, alle erforderlichen offentlich-rechtlichen Genehmigungen und Erlaubnisse einzuholen und wenn eforderlich - durch alle Instanzen zu erstreiten, Anzeigepflichten und behordliche Auflagen/Bedingungen zu erfullen. Der Mieter hat die Voraussetzungen fur den Betrieb des Gewerbes in der vertraglich vorgesehenen Nutzungsart selbst auf eigene Kosten zu schaffen und zu erhalten. Soltie die Konzession beziehungsweise Erlaubnis aus Grunden, die der Vermieter zu vertreten hat, nicht erteilt bzw. spater widerrufen werden, so wird dieser Vertrag mit der versagung/dem Widerruf unwirksam, ohne daB der Mieter hieraus Schadensersatzanspruche herleiten kann. 3. Andere Versagungsgrunde insbesondere alle Grunde die in dcr Sphare des Mieters liegen, beruhren die Wiiksamkeit des Vectrages nicht. Sie berechtigen den Vermieter auch ohne Verschulden des Mieters zur fristlosen Kundigung des Mietverhaltnisses. In diesem Fall ise der Mieter veipflichet, dem Vermieter den daraus entstandenen Schaden zu ersetzen. 4. Der Vermieter ubernimmt keine Gewahr fur die Erlaubnisfahigkeit des angemieteten Objektes fur den angestrbten Nutzungszweck. 5. Der Mieter darf den Mietzweck nur dergestalt verfolgen, daB weder offentlich-rechtliche noch privatrechtliche Belange Dritter beeintrachtigt werden. 6. Grundsatzlich gelten folgende Nutzungseinschrankungen: a) Es durfen keinesfalls O1, sonstige Schmierstoffe oder andere, das Grundwasser verunreinigenden Flussigkeiten in das Erdreich gelangen. b) Wasch-, Wartungs- und Reparaturarbeiten durfen nur dann durchgefuhrt werden, wenn ordnungsemaBe Einrichtungen nach den gesetzlichen Vorschriften vorhanden sind ( z.B. Olabscheider) c) Eventuelle Kosten fur die mit den Buchstaben a und b zusammenhangenden MaBnahmen tragt der Mieter 7. Der Mieter hat jederzeit dafur zu sorgen, daB sich das Mietobjekt jederzeit in einem ordentlichen und sauberen Zustand befindet. SECTION 23 WERBEEINRICHTUNGEN 1. Im Interesse einer auf den Gesamtcharakter des Gewerbezentrus abgestimmten Werbung bedarf die Anbringung und Ausgestaltung von Einrichtungen, die der Werbung oder der Ver- kaufsforderung dienen (z.B. Firmenschilder, Schaukasten, Verkaufsautomaten usw.) auBerhalb des Mietobjektes der vorherigen schriftlichen Zustimmung des Vermieters. Eine einmal erteilte Zustimmung kann aus wichtigen Grunden widerrufen werden. Bei Beedigung des Mietverhalnisses und bei Widerruf der Genehmigung ist der Mieter verpflichtet, anf seine Kosten den alten Zustand wiederherzustellen. Die gesetzlichen und stadtebaulichen Bestirmungen hat der Mieter zu beachten, die erforderlichen Genehmigungen sind vom Mieter einzuholen, die anfallenden Kosten gehen zu seinen Lasten. 2. Hat der Vermieter eine einheitliche Beschilderungsanlage bereitgestellt oder errichtet er wahrend der Laufzeit des Mietverhaltnisses eine solche, ist der Mieter verpflichtet, diese aus schlieBlich zu benutzen. Wird die Beschilderungsanlage wahrend der Laufzeit des Vertrages geandert, ist der Mieter verpflichtet, bei den erforderlchen Anderungen mitzuwirken. Die Kosten fur die Benutzung der Anlage hat der Mieter zu tragen. 3. Der Mieter ist verpflichtet, die Werbeeinrichtungen bei Beendigung des Mietverhaltnisses auf seine Kosten abzubauen und den ursprunglichen Zustand wieder herzustellen. SECTION 24 PERSONENMEHRHEITEN 1. Mehrere Personen als Mieter, auch Ehegatten haften fur alle Verpflichtungen aus diesem Vertrag als Gesamtschuldner. 2. Tatsachen, die fur eine Person bei Personenmehrheit eine Verlangerung oder Verkurzung des Vertragsverhaltnisses herbeifuhren oder gegen ihn einen Schadenersatz- oder sonstigen Anspruch begrunden wurden, haben fur die anderen Personen die gleiche Wirkung. 3. Sind mehrere Personen Mieter oder Vermieter, so bevollmachtigen sie sich hiermit gegenseitig Willenserklarungen der anderen Vertragspartei mit Wirkung fur den anderen/die anderen entgegenzunehmen oder von ihrer Seite abzugebende Erklarungen, mit Wirkung fur alle, gegenuber der anderen Vertragspatei abzugeben. Fur die Wirksamkeit einer Erklarung der Vermieterseite oder der Mieterseite genugt es, wenn sie gegenuber einem der Mieter oder einem der Vermieter abgegeben wird. 4. Die Parteien vereinbaren unwiderruflich, daB Zustellanschrift fur alle Erklarungen der Vermieterin auch die angemieteten Gewerberaume beziehungsweise die hierfur vorgesehenen Briefkasten sein. SECTION 25 UBERTRAGUNG DER VERMIETERRECHTE Fur den fall, daB Vermieter das Mietvertragsverhaltnis wahrend der Vertragslaufzeit auf einen Dritten als Vermieter ubertragen will, erteilt der Mieter bereits jetzt dazu seine Zustimmung. Hierbei muB der Vermieter sicherstellen, daB bei Ubertragung des Mietverhaltnisses uber die Mietsicherheit abgerechnet wird. Die Mietsicherheit - soweit nicht verbraucht - ist dem Vertragsnachfolger zu ubergeben bzw. auf sonstge Weise mit ihm zu verrechnen. Sobald dies erfolgt ist, endet die Haftung des Vermieters in Bezug auf die Mietsicherheit. Etwaige Anspruche des Mieters auf Entschadigung oder wegen Verwendungsersatz richten sich gegen den Erwerber. SECTION 26 SONSTIGES 1. Der Mieter verpflichtet sich, die von dem Vermieter aufgestellte beziehungsweise noch aufzustellende Hausordnung zu beachten. Diese ist/wird Bestandteil des Vertrages. Gleiches gilt fur eine eventuell vom Vermieter aufgestellte Brandschutzordnung. 2. Vertraglichcr oder gesetzlicher Konkurrenzschutz ist ausgeschlossen. Er wird von dem Mieter weder gegenuber dem Vermieter noch gegenuber den ubrigen Mietern des Hauses in Anspruch genommen. Der Vermieter haftet auch nicht dafur, daB die Ausubung des vom Mieter beabsichtigten Vertragszweckes nicht gegen allgemeine Konkurrenzschutzbestimmungen verstoBt. Dies gilt auch, wenn die betroffenen Objekte samtliche Vermietungsobjekte des Vermieters sind. 3. Samtliche Zahlungen des Mieters einschlieBlich Zahlungen auf Schadensersatz und Nut-zungsentschadigung haben zuzuglich der jeweils geltenden Mehrwertsteuer in erfolgen. SECTION 27 ERFULLUNGSORT UND GERICHTSSTAND Erfullungsort und erichtsstand ist - soweit gesetzlich zulassig - Berlin. SECTION 28 SCHLUBBESTIMMUNGEN Sollten Bestimmungen dieses Vertrages unwirksam oder werden, oder sollte sich in diesem Vertrag eine Lucke herausstellen, so soll hierdruch die Gultigkeit der ubrigen Bestimmungen nicht beruhrt werden. Anstelle der unwirksamen Bestimmungen oder zur Ausfullung der Lucke soll eine angemessene Regeunng gelten, die soweit rechtlich moglich - dem am nachsten kommt, was die Vertragsparteien gewollt haben oder nach dem Sinn und Zweck dieses Vertrages gewollt hatten wenn sie den Punkt bedacht hatten. Mundliche Nebenabreden zu diesem Vertrag sind nicht getroffen worden. Anderungen und Erganzungen zu diesem Vertrag bedfuren zu ihrer Wirksamkeit der Schrifiform. Dieser Vertrag ist doppelt und gleichlautend ausgefertigt selbst gelesen, uberall genehmigt und eigenhandig unterschrieben. Beide Vertragsparteien haben eine Ausfertigung nebst Anlagen erhalten. ANLAGEN: - -------- Anlage 1 - Zeichnung gemaB Section 2 Absaz 1 Anlage 2 - Flachenbergechnungsmethode Anlage 3 - Anlage3 zu Section 27 II BVO Anlage 4 - Vereinbarung zur Mietsache Berlin, den 05.02.99 - ---------------------- ------------------------- Vermieter Mieter Rentax STAR Telecommunications Gesellaschaft fur Grundbesitzanlagen mbH Deutschland GmbH RosenstraBe 1-3 10178 Berlin 60486 Frankfurt am Mian EX-10.68 17 EXHIBIT 10.68 EXHIBIT 10.68 SUMMARY Office and Switch Lease between STAR Telecommunications Deutschland GmbH ("STAR GmbH") and Gewerbehof Athen, 30519 Hannover, Germany, for property located at Am Eisenwerk 29, 30519 Hannover, Germany. The lease term is for a minimum of 15 years beginning on March 1, 1999 and ending on March 1, 2014. STAR GmbH incurs rental charges of approximately 19,869 DM per month and approximately 1,300 DM per month in additional expenses. The leased property is approximately 5,857 square feet. 1 MIETVERTRAG fur gewerblich genutzte Raume und Grundstucke Zwischen Frau Lucia Athen Gewerbehof Athen Am Eisenwerk 11 30519 Hannover Tel. 05118791030 Fax 8790035 Als Vermieterin und Firma STAR Telecommunications Deutschland GmbH Prinzenstr. 7 40459 Dusseldorf als Mieter SECTION 1 MIETSACHE (1) Vermietet werden auf dem Grundstuck 30519 Hannover Am Eisenwerk 11-51 / Am Mittelfelde 27 - 45 das Gebaude mit der Hausnummer: Am Eisenwerk 29, im Gesamtgrundrissplan - Anlage 1 - rot umrandet. Es sollen Geschafts und Technikraume eingerichtet werden und insbesondere sollen Telekommunikationsvernmitt lungseinrichtungen aufgestellt werden. Die Raumlichkeiten haben eine Nutzflache von ca 1.785 qm. Das Gebaude wird noch umgebaut. Die Baubeschreibung ist als Anlage 3 beigefugt. (2) weiterhin werden 6 Parkplatze - grun eingezeichnet - mitvermietet. (3) Mitbenitzt werden durfen: (a) die Grundstuckseinfahrten "Am Eisenswerk" und "Am Mittefelde". (b) die Oststrasse (Bahndamm)die Werkstrasse, die Nordstrasse, und die Strasse unter der Hochbrucke. (c) ausser auf den gekennzeichneten Parkplatze durfen auf den Strassen bzw. Freiflachen keine Fahrzeuge abgestellt oder Waren gelargert werden. Alle Mieter sind zure Offenhalten der Verkehrswege verpflichtet. SECTION 2 MIETZEIT / KUNDIGUNG (1) Das Mieteverhaltnis beginnt am 01 03 1999 und wird mit auf 15 Jahre fest abgeschlossen. Es lauft somit am 28. 2. 2014 ab, sofern es mit einer Frist von 6 Monaten zu diesem Zeitpunkt gekundigt wird. Ansonsten verlangert es sich um jeweils weitere 5 Jahre. (2) Die Kundigung muss schriftlich bis zum 3. Werktag des 1. Monats der Kundigungfrist erfolgen. (3) Schadensersatzanspruche des Mieters bei nicht rechtzeitiger. Freimachnung oder nicht rechtzeitiger Fertigstel 2 lung der Mietsache sind ausgeschlossen. MIETVERTRAG: LUCIA ATHEN - STAR TELECOM - AM EISENWERK 29 - 30519 HANNOVER SECTION 3 AUSSERORDENTLICHES KUNDIGUNGSrECHT (1) Fur die Ausserordentliche Kundigung gelten grundsatzlich die gesetzlichen Bestimmungen. (2) Die Vermieterin kann den Mietvertrag aus wichtigen Grunden mit sofortiger Wirkung insbesondere dann kundigen, wenn: (a) die Mieterin mit der Zahlung eines nicht unerheblichen Teil des Mietzinses langer als 2 Monate im Ruckstand ist, (b) die mieterin oder die fur diese tatigen Personen sich erheblicher Belastigungen gegenuber der Vermieterin, anderen Mietern oder den fur diese tatigen Personen schuldig macht, (c) die Mieterin den vertragswidrigen Gebrauch der Mietsache oder ihre unbefugte Uberassung an dritte Personnen trotz Mahnung der Vermieterin fortsetzt, (d) die Mieterin ihren sonstigen vertraglichen Verpflichtungen trotz schriflicher Mahnung nicht innerhalb angemessner Frist nachkommt. (3) Falls ein antrag auf Eroffnung eines Insolvenverfahrens uber das Vermogen einer Partei gestellt wird, ein ausserordentliches, der Schuldenregulierung dienendes Verfahren eingeleitet wird oder eine dieser Parteien ihre Zahlungen einstellt, hat die andere Partei ein ausserordentliches Kundigugnsrecht. (4) Fur den Fall der ausserordentlichen Kundigung umfasst der Mietzins auch der Betriebskosten und Zuschlage (Nebenkosten). Der Mieter haftet fur den Miet- und Nebenkostenausfall sowie fur alle weiteren Schaden, die die Vermieterin durch die vortzeitige Beendigung des Mietvertrages erleidet. Als Mindestschaden kann die Fortzahlung des vereinbarten Mietzins und evtl. Der Nebenkosten bis zum Ablauf der Vertragsdauer verlangt werden, soweit die Vermieterin nicht durech anderweitige Vermietung des Mietobjektes schadlos gestellt wird. SECTION 4 MIETZINS (1) Der Mietzins betragt mtl.: Zu Section 1 Abs. Halle 1.455 qm 9,80 = 14.259,00 DM Buro 330 qm 17,00 = 5.610, 00 DM Zu Section 1 Abs. 2 0,00 DM Zu Section 1 Abs. 3 kostenlos Alle Betrage zzgl. MWSt. (2) Die Nebenkosten - Wasser, Kanal, Strom, Aussenlicht, Heizung - Gas, Warmwasser, Wartungs- und Reparaturarbeiten der Heizungsanlage, Schornsteinfeger, Mullabfuhr, Grundsteuer, Strassenreinugung, Versicherungen aller Art einschl. Brandversichering, Hausmeister - sind vom Mieter zu tragen. Die Kosten werden nach einem noch zu bestimmenden Schlussel auf die Mieter umgelegt. Auf diese Kosten ist eine mtl. Abschlagszahlung von DM 1.300,00 zzgl. MWSt zu entrichten, die per 31.12. eines jeden Jahres abgerechnet wird. In diesem Betrag ist eine Vorauszahlung auf die Hiezkosten (Gas) i. H. v. 300,00 DM enthalten. (3) Der Mieter ist verpflichtet, fur Schaden an eigenen Vermogensgegenstanden entsprechende Versicherungen abzuschliessen. Die Haftung des Vermieters fur Vermieters fur Schaden jeglicher Art ist, soweit rechtlich zulassig, unter Ausschluss weitegehender Schadensersatzansspruche - gleich aus welchem Rechtsgrund - dem 3 Grund und der Hohe nach auf die Deckung der Haftpflichtversichering der Vermieterin wird einen entsprechenden Versicherungsschutz auf Anfordering nachweisen. MIETVERTRAG: LUCIA ATHEN - STAR TELECOM - AM EISENWERK 29 - 30519 HANNOVER SECTION UMWELTSCHUTZ (1) Auf das Erfordernis der Einhaltung gesetzlicher Auflagen und dergleichen zum Schutz der Umwelt wird hingewiesen. Hierzu gehoren insbesondere: Bundes-Immissions-Schutzgesetz / Gesetze zum Schutz von samtlichen Umwelteinwirkungen durch Luftverunreinigungen, Gerausche, Erschutterungen und ahnliche Vorange / Abfallbeseitigungsgesetz mit Abfallnachweisverordnung, Abfallbeforderingsverordung, Abfalleinfuhr-VO / Technische Anleitung zur Reinhaltung der Luft (TA Luft) / Wasserhaushaltsgesetz Die Mietering verpflichtet sich, die gesetzlichen Bestimmungen zu beachten und evtl. Auflagen auf ihre Kosten fristgemass zu erfullen. Fur eine Inanspruchnahme der Vermeiterin, die durch Nichtbeachtung der gesetzlichen Bestimmungen oder Auflagen seitens der Mieterin verursacht wird, ist die Mieterin in vollem Umfang regresslflichtig. Die Kosten fur die Beseitigung von Industrie- und Buromull ubernimmt die Mietrin. SECTION 6 ZAHLUNG DES MIETZINSES (1) Der Mietzins ist spatestens am 3. Tage eines jeden Monats an den Vermieter oder die von ihm zur Entgegennahme jeweils ermachtige Person oder Stelle, hier Vereins- und Westbank AG, Hannover BLZ 200 300 00 / Kto.: 7537418 Kostenfrei im voraus zu zahlen. Soweit Nebenkosten angefordert werddn sind sie binnen einer Woche zu zahlen Befindet sich der Mieter mit der Zahlung de Mietzins im Ruckstand, sind Zahlungen, trotz entgegenstehender Bestimmung zunachst auf etwaige Anspruche, deren Verjahrung droht, dann auf etwaige Kosten, Zinsen und ubrige Schulden anzurechnen. (2) Bie Mietruckstanden werden ab der 2 Mahnung 15, -- DM zzgl. USt und fur jeden angefangenen Monat des Mietruckstandes 1,0% Verzugszinsen berechtnet. SECTION 7 MINDERUNG, AUFRECHNUNG, UND ZURUCKBEHALTUNG (1) Der Mieter kann ein Minderungsrecht am Mietzins nur austuben, wenn er dieses mindestens einen Monat vor Falligkeit dem Vermieter schriftlich angekundigt hat. Bei Ubergabe der Mietsache wird ein von beiden Seiten unterzeichenetes Protokoll erstellt, in dem der Zustand der Mietsache festgehalten wird. Sofern in diesem Protokoll nichts anderes vermerkt ist, erkennt der Mieter zu dem Zietpunkt der Uberlassung der Mietsache deren ordnungs und vertragsgemassen Zustand an und dass ihm Mietminderungsanspruche wegen etwaiger Mangel im Zeitpunkt der Uberlassung nicht zustehen. (3) Ersatzanspruche nach Section 538 BGB sind ausgeschlossen. SECTION BENUTZUNG DER MIETSACHE, GEBRAUSCHSUBERLASSUNG (1) Der Mieter ist zu einer Untervermietung oder Gebrauchsuberlassung an Dritte im Rahmen seines Geschftsbetriebes berechtigt. (2) Der Mieter tritt dem Vermeiter schon fur den Fall der Untervermietung / Gebrauchsuberlassung die 4 ihm gegen den Untermieter zustenhende Forderung nebst Pfandrecht in Hohe der Mieterforderung des Vermieters zur Sicherheit ab. (3) Dem Mieter ist das Verkaufen und Abieten von Erzeugnissen, die ein anderer Mieter bereits im Hause vertriebt, untersagt. 5 MIETVERTRAG: LUCIA ATHEN - STAR TELECOM - AM EISENWERK 29 - 30519 HANNOVER SECTION 9 SCHILDER, REKLAMEANLAGEN (l) Der Mieter hat, soweit Platz vorhanden, Anspruch auf Anbringung eines Firmenschildes. Der Vermieter weist dafur einen Platz an geeigneter Stelle un geeigneter Form an. Die Ermietrung und benutzung der Aussenwande einschliesslich der Gestaltung der Fenster bedarf gesonderten Vereinbarung. (2) Ist die bEntfernung von Reklameanlagen am Grundstuck erforderlich, so tragt der Mieter die Kosten der Entfernung, Lagerung und notwendige. Wiederanbringung einschliesslich der hierdurch erfordlichen Reparatur an der Anlage. Dem Mieter obliegt die Verkehrssicherungspflict. SECTION 10 BEHORDLICHE GENEHMIGUNGEN Der Vermeiter ubernimmt keine Haftung dafur, dass Genehmigungen mit Ausnahme der baurechtlichen, fur den vorgesehenen Beitrieb und seine Anlagen erteilt bzw. erteilte Genebmigungen forthestehen. Das gilt insbesondere fur Konzessionen. Der Mieter hat auf seine Kosten samtliche Voraussetzungen fur den Betrieb seines Gerwerbes zu schaffen und aufrecht zu erhalten. Dieses gilt auch fur Reklameanlagen usw. die Nichterteilung von Genehmigungen kann nicht als Grund fur eine ausserordentliche Kundigung herangezogen werden. SECTION INSTANDHALTUNG DER MIETSACHE (1) Der Mieter hat in der mIetsache fur ausreichend Reinigung, Luftung und Heizung zu sorgen und die Raume und die darin befindlichen Anglen und Einrichtungen pfleglich zu behandeln und von Ungeziefer freizuhalen. (2) Fur die Beschadigungen der Mietsache oder zu dem Gebaude gehorigen Anlagen ist der Mieter ersatzverpflichtet, soweit sie von ihm oder zu seinem Betrieb gehorigen Personen sowie Untermietern, besuchern, Lieferanten, Handwerkern usw. grob fahrlassig oder vorsatzlich verursacht worden sind. Lasst sich bei einer Verstopfung von Abflussleitungen nicht festellen, welcher Mieter sie verursacht hat, so lasst der Vermieter den Schaden beseitigen. Die Kosten tragen in diesem Falle alle Mieter anteilig, die an dem betrettenden Abflussstrang angschlossen sind mit Ausnahme desjenigen Mieters, der nachweist, dass er die Verstopfung nicht verursacht haben kann. (3) Der Mieter ist insbesondere verpflichtet, auf seine Kosten Schonheitsreparaturen (das Tapezieren, Anstreichen, Kalken der Wande und Decken, das Streichen der Fussboden, Heizkorper einschl. Heizohre, der Innenturen sowie der Fenster und Aussenturen von innen in den Mietraumen in angemessesnen Zeitraumen ausfuhren zu lassen, sowie die Rolladen, Rolltore, Licht- und Klingelanlagen, Warmemesser, Schlosser, Wasserhahne, Klosettspuler, Wasch - und Abflussbecken einschl. Der Zu- und Ableitungen, Ofen, herde, Gas- und Elektrogerate und ahnliche Einrichtungen und Warmwasserbereitungsanlagen die ausschliesslich der Versorgung des Mieters dienen, zu warten verpflichtet, beschadigte Glasschieben auszuwechseln, soweit eigenes Verschulden vorliegt. (4) Naturlasiertes Holwerk darf nicht mit Farbe behandelt werden. (5) Der Mieter ist verpflichtet, die fachgemasse Wartung, Reinigung, und Uberprufung von Durchlauferhitzern, Warmwasserbereitungsanlagen, Ofen und Herden, Elektroanlagen und Rolltoren mindestens jahrlich durchzufuhren. (6) Bei Beendigung des Mietverhaltnis hat der Mieter Mietsache im fachgerechten Zustand zu ubergeben. 6 MIETVERTRAG: LUCIA ATHEN - STAR TELECOM - AM EISENWERK 29 - 30519 HANNOVER SECTION 12 AUSBESSERUNGEN UND BAULICHE VERANDERUNGEN DURCH DEN VERMIETER (1) Der Vermieter darf Ausbesserungen und bauliche Veranderungen, die zur Erhaltung der Gebaude und der Mietraume oder zur Abwendung drohender Gefahren oder zur Beseitigung von Schaden notwendig werden auch ohne Zustimmung des Mieters vornehmen. Dies gilt auch dann fur Arbeiten, die zwar nicht notwendig, aber zweckmass sind, z.B. Modernisierung des Gebaudes und der Mietraume. Der Mieter hat die betreffenden Mietraume zu den Geschaftszeiten zuganglich zu halten. Die Ausfuhrung der Arbeiten darf von ihm nicht verzorgert oder verhindert werden. (2) Der Vermieter ist verpflichtet, die Durchfuhrung von Ausbesserungen und baulichen Veranderungen vorab so rechtzeitig mit dem Mieter abzustimmen, dass etwaige Storungen des Geschaftsbetriebes des Mieters auf ein vertragliches Mindestmass reduziert werden. SECTION 13 BAULICHE VERANDERUNGEN DURCH DEN MIETER (1) Bauliche Anderungen durch den Mieter, insbesondere um-und Einbauten, Installationen, auch die Vergitteerung der Fenster und die Herstellung oder Veranderung von Feuerstatten, durfen nur mit schriftlicher Einwilligung des Vermieters vorgenommen werden. Ertleit der Vermieter eine solche Einwilligung, so ist der Mieter fur die Einholung der bauaufsichtlichen bzw. amtlichen Genehmigung verantwortlich und hat alle Kosten hierfur zu tragen. (2) Etwaiger vom Vermieter ubernommene Betriebs und sonstige Einrichtungen (Werbung) gelten als nicht zur Mietsache gehorig und als vom Vermietereingebaut bzw. eingebraucht. (3) Einrichtungen mit denen der Mieter die Raume eingerichtet hat, kann er wegnehmen. Der Vermieter kann aber auch verlangen, dass die Sachen bei beendigung des Mietverhaltnisses in den Raumen zuruckgelassen werden, wen der Vermieter soviel zahlt, als dem Zeitwert - unter Berucksichtigung der wirtschaftlichen Abnutzung und des technischen Fortschritts - entrsprecht. Meiter und Vermieter haben sich so rechtzeitig zu erklaren, dass Vereinbarungen hieruber noch vor der Raumung getroffen werden konnen. Ubernimmt der Vermieter vom Mieter eingebaute Einrichtungen nicht, so hat letztere bis zum Vetragsblauf den fruheren Zustand einschliesslich aller hierzu erforderlichen Nebenarbeiten wiederherzustellen. (4) Die Anbringung von Aussenantennen bedarf des Abschlusses eines Antennenvertrages. (5) Der Mieter haftet fur alle von im grob fahrlassig oder vorsatzlich verursachte Schaden, die im Zuzammenhang mit dem von ihm vorgenommenen Baumassnahmen entstehen. (6) Der Werkshutz fur den von der mietering ubernommenen Bereich ubernimmt die Mieterin. (7) Die erforderlichen Feuerschutzeinrichtungen sind vom Mieter zu stellen. (8) Der Vermieter stellt einen Wasseranschuss zur Verfugung. Die Abrechnung des Wasserverbrauchs erfolgt uber eine Wasseruhr mit dem Vermieter. Die Instandhaltung der Wasserzu - und ablaufe ab der Uhr ist Angelegenheit des Mieters. (9) Der Vermieter stellt einen Gasanschluss zur Verfugung. Die Gaskosten werden uber Gasuhr mit dem Vermieter abgerechnet. SECTION 14 BETRETEN DER MIETRAUME DURCH DEN VERMIETER (1) Der Vermieter und sein Beauftragter konnen die Mietraume wahrend der Geschaftszeiten zur Prufung ihres Zustandes oder anderen wichtigen Grunden betreten. Bei Gefahr ist ihnen Zutritt zu jeder Tag - und Nachtzeit gesttet. (2) Will der Vermieter das Grund stuck verkaufen, so darf er oder sein Beauftragter die Mietraume zusammen mit Kauflustigen wahrend der Geschaftszeit betreten. Ist das Mietverhaltnis gekundigt, so darf er oder/und sein Beauftragter die Raume zusammen mit dem Mietlustigen wahrend der Geschaftszeit betreten. (3) Der Mieter muss dafur sorgen, dass die Raume auch wahrend seiner Abwesenheit betreten werden konnen. Bei langerer Abwesenheit z.B. Betriebsferein hat er den Schlussel an einer schnell erreichbaren Stelle unter entsprechender Benachrichtigung des Vermieters zu hinterlegen. 7 MIETVERTRAG: LUCIA ATHEN - STAR TELECOM - AM EISENWERK 29 - 30519 HANNOVER SECTION 15 BEENDIGUNG DER MIETZEIT Die Mietraume sind bei Beendigung der Mietzeit dem Vermieter im besenreinen Zustand und mit allen, auch von ihm selbst beschafften Schlusseln, ohne Auspruch auf Entgelt, dem Vermieter zu ubergeben. Anderfalls ist der Vermieter berechtigt, auf Kosten des Mieters die Mietraume offnen, reinigen und neue Schlosser und Schlussel anfertigen zu lassen. SECTION 16 MEHRERE PERSONEN ALS MIETER ODER VERMIETER Vermieter und Mieter haften als Gesamtschulder, sofern es sich um mehrere Personen handelt. SECTION 17 WEITERE VEREINBARUNGEN (1) Die Mullbeseitigung ubdernimmt der Mieter. (2) Die in Zusammenhang mit dem Mietobjekt bestehende allgemeine Verkehrssicherungspflicht obliegt der Mieterin. Diese ubernimmt insbesondere die gelb eingezeichneten Bereiche unmittelbar vor dem Gebaude "Am Eisenwerk 29" zu reinigen, von Schnee zu raumen und gegen Glatteis zu streuen, diese Arbeiten werden von der Hausverwaltung ubernommen und im Wege der Umlagen abgerechtnet. (3) Die Mieterin stellt hiermit die Vermieterin frei von allen Anspruchen Dritter, die aus einer Verletzung der Verkehrssicherungspflicht herruhren. (4) Anderungen und Erganzungen dieses Vertrages gelten nur bei schriftlicher Vereinbarung. SECTION 18 SALVATORISCHE KLAUSEL Sollte eine der Bestimmungen dieses Vertrages ganz oder teilweise rechtsunwirksam sein oder werdden, so wird die Gultigkeit der ubrigen Bestimmungen dadurch nicht beruhrt. In einem solchen Fall ist der Vertrag vielmehr seinem Sinne gemass zur Durchfuhrung zu bringen. Beruht die Ungultigkeit auf einer Leistung oder Tatbestimmung, so tritt an ihrer Stelle das gestzlich zulassig Mass. SECTION 19 GERICHTSSTAND Als Gerichsstand wird Hannover vereinbart. SECTION 20 INKRAFTTRETEN Dieser Vertrag tritt mit Vertragsabschluss SECTION WERTSICHERUNGSKLAUSEL Steigt oder fallt der vom Statistischen Bundesamt ermittelte Preisindex fur die Lebenshaltung von Vier-Personen-Arbeitnehmer-Haushalten mit mitterlem Einkommen (auf der Basis von 1991 = 100%) wahrend der Dauer des Mietvertrages um 10% gegenuber dem fur den 03.99 ermittelten Index, so sind der Vermieter oder der Mieter berechtigt, den Mietzins (Kaltmeite) durch einseitige Erklarung entersprechend der Abweichung zu erhohon bzw. zu ermassigen. Erhohung bzw. Ermassigung treten mit dem Monat in Kraft, welcher dem Eingang der jeweiligen Erklarung mittels eingeschriebenen Briefes bei dem Mieter bzw. Vermieter folgt. Der erhohte bzw. ermassigte Mietzins (Kaltmiete) kann nach dieser Regelung immer wieder um 10% erhoht bzw. ermassigt werden, sobald der Index, der die jeweils vorausgegangene Erhohung bzw. Ermassigugn ausgelost hat, abermals um 10% gestiegen oder gefallen ist. 8 SECTION WESENTLICHE BESTANDTEIL Wesentlicher Bestandteil dieses Vertrages sind folgende Anlagen: Anlage 1 Gesamtgrundriss Anlage 2 Einzelgrundiss Anlage 3 Baubeschreibung Hannover /3.02/ 1999 Frankfurt /03.02/ 1999 ------------------ --------------------- /XXXXXXXXXX/ /XXXXXXXXXXX/ ------------------------------ --------------------------- (Vermieter) (Mieter) GEWERBEHOF ATHEN STAR TELECOMMUNICATIONS AM EISENWERK 11- 51 DEUTSCHLAND GmbH AM MITTELFELDE 37-43 VOLTASTRA(BETA)e 1 A 30519 HANNOVER 60486 FRANKFURT AM MAIN 9 EX-10.69 18 EXHIBIT 10.69 EXHIBIT 10.69 SUMMARY Office and Switch Lease between STAR Telecommunications Deutschland GmbH ("STAR GmbH") and Hamm & Co., Allersberger Str. 185, 90461 Nurnberg, Germany, for property located at Allersberger Str. 185, 90461 Nurnberg, Germany. The lease term is for a minimum of 10 years beginning on June 1, 1999 and ending on June 1, 2009. STAR GmbH incurs rental charges of approximately 18,516 DM per month and approximately 4,987 DM per month in additional expenses. The leased property is approximately 5,454 square feet. MIETVERTRAG fur gewerbliche Nutzung Zwischen HAMM & CO. In 90461 NURNBERG, ALLERSBERGER STRABE 185 als Vermieter vertreten durch und STAR TELECOMMUNIKATIONS DEUTSCLAND GMBH in 60486 FRANKFURT AM MAIN, VOLTASTRABE 1A als Mieter wird folgender Vertrag qeschlossen: SECTION 1 MIETRAUME Vermietet werden auf dem Grunstuck 90461 NURNBERG, ALLERSBERGER STRABE 185 1. folgende Raume im Vorder- Ruck - Seitengebaude Stockwerk (rechts - mitte - links) GEBAUDE O, EG SIEHE ANLAGE 1 MIETFLACHENBERECTNUNG / SIEHE ANLAGE 2 GRUNDRISSE ZUM BETRIEB EINES IN DER BETRIEBSBESCHREIBUNG (ANLAGE 3) NAHER BEZEICHNETEN GEWERBES und folgende Nebenraume: 2. folgende unbebaute Grunstuckflachen DIE HOFFLACHEN SIND NICHT VERMIETET UND DURFEN NICHT ALS ZWISCHENLAGER FUR MULL, KARTONAGEN, WAREN ALLER ART BENUTZT WERDEN, ES SEI DENN, ES BESTEHT EINE SCHRIFTLICHE VEREINBARUNG. GLEICHES GILT FUR FLACHEN AUBERHALB DER MIETFLACHEN UND FUR DIE GEMEINSCHAFTSFLACHEN. zum Betrieb: 3. folgende Inventargegenstande: 4. Ferner werden vermiettt Garage(n) 6 Kfz-Stellplatze 5. Dem Mieter werden fur die Mietzeit folgende Schlussel ausgenhandigt: SIEHE GESONDERTE SCHLUSSELQUITTUNGEN. DIE KOSTEN FUR DIE SCHLUSSEL UBERNIMMT DER MIETER. DIE ZOGANGE ZU TECHNISCHEN EINRICHTUNGEN DURFEN NUR MIT SCHLIEBZYLINDERN DER DORMA~SCHLIEBANLAGE VERSPERRT WERDEN. 6. Schlussel die der Mieter sich auf seine Kosten zusatzlich hat anfertinen lessen, sind nach Beendigung der Mietzeit gegen Erstattung der Kosten fur die Anfedigung an den Vermieter abzuliefern. Andernalls ist ihre Vernichtung nachzuwesen. Die Anfertigung von zusatzlichen Schlusseln zu gemeinschaftlich genutzten Raumen durch den Mieter ist nur mit ausdrucklicher Erlaubnis des Vermieters gestattet. SECTION 2 MIETZEIT Das Mietverhaltnis beginnt*/hat begonnen am 1.JUNI 1999 (SIEHE DAZU AUCH BEILAGE ZUR ANLAGE 8) 1. Vertragsdauer. Der Vertrag lauft auf bestimmte Dauer. Das Mietverhaltnis wird auf die Dauer von 10 Jahren, also bis 31.MAI 2009 abgeschlossen. Wird es nicbt 6 Monate vor Vertragsende gekundigt, so verlangert es sich jedesmal um 5 Jahr(e). (wegen einer Option siehe Anlage 5) 2. Die Kundigung bedarf der Schriftform und muB dem anderen Vertragsteil bis zum dritten Werktag eines Kalenderviertljahres fur den Ablauf des nachsten Kalenderviertljahres zugegangen sein. 3. Fur den Fall der Beendigung der Mietverhaltnisses vereinbaren die Vertragsteile, daB entgegen der Regelung des Section 568 BGB bei Nichtabgabe einer Willenserklarung im Sinne der vorgenannten Bestimmung der Mietvertrag nicht als auf unbestimmte Zeit verlegert gilt. SECTION 3 MIETPREIS 1. Der Mietpreis betragt monatlich DM (AUFSCHLUSSELUNG SIEHE ANLAGE 1) Zusatzlich ist vom Mieter die Mehrwertsteuer zum jeweils gultigen, gesetzlichen Steuersatz zu zahlen. Daneben werden folgende BETRIEBS- UND NEBENKOSTEN umgelegt und durch VORAUSZAHLUNG (MIT ABRECHNUNG) ODER PAUSCHALEN (OHNE ABRECHNUNG) ERHOBEN: alle Betribskosten, wie in Alage 3 zu Section 27 II. Berechnungsverordnung in der jeweils gultigen Fassung aufgefuhrt u. unserer erganzenden Liste, beides Anlsqe 6 Hierin enthalten ist eine Vorauszahlung, fur Zentrale Warm- Order folgende Betriebskosten. 2. Soweit Nebenkosten vereinbart sind, gelten fur deren Umfang bestehende gestehende gesetzliche Bestimmungen entsprechend, insbesondere Alage 3 zu Section 27, 2. Berechningsverordnung und erganzend die Heizkostenverordnung n der jeieils gultigen Fassung. 3. Sowiet nicht anderes vereinbart, handelt es sich bei den monatlichen Nebenkostenleistungen un VORAUSZAHLUNGEN. 4. SIND VORAUSZAHLUNGEN VEREINBART, SO WIRD UBER SIE JAHRLICH EINMAL ABGERECHNET. Der Mieter ist berrechtiht, in angemessener Zeit nach Zugang der Abrechnung die Unterlagen einzusehen. Eine etwaige Differenz aufgrund der Abrechnung zugunsten des Vermieters (Mieters) hat der Mieter (Vermieter) innerhalb von einem Monat nach Zugang der Abrechnung an den Vermieter (Mieter) zu zuhlen. Im Falle des Auszugs eines Meiters wahrend einer Abrechnungsperiode erfolgt die Verteilung bei der nachstfalligen Abrechnung im Verhaltnis der Mietzeit der Abrechnungsperiode. Die Kosten fur Zwischenable sungen tragt der ausziehende Mieter Die Bestimmung des Verteilerschussels bei der Umlage der Betriebskosten steht im billigem Emerssen des Vermieters, soweit der Verteilerschussel nicht vertraglich oder gesetzlich bestimmt ist. Bei einer Veranederung der Sachlage ist der Vermieter berechtigt, den festgelegten Verteilerschlussel an die neuen Verhaltnisse anzupassen. Der Vermeter ist berechtigt, eine Erhohung der Vorauszahlungen unter Zugrundelegung der Abrechnungsergebnisse das voraugsgegangenen Wirtschaftsjahres vorzunehmen. Im Falle eitner Erhohung oder Senkung von Betriebskosten sind die Vorauszahlungen neu festzusetzen. 5. Sofern eine Brutto- oder Teilinrklusivmiete vereinbart ist, ist der Vermeiter berechtigt fur in der Miete beihaltete Betriebskosten Erhohungen anteilig umzulegen. Vereinbarungen nach Section 5 bleiben von dieser Festlegung unberuhrt. 6. Werden offentliche Abgaben neu eingefuhrt oder entstehen Betriebskosten neu, so ist der Mieter verpflichtet, vom Zeitpunkt der Entstehung an, den anteiligen Mehrebetrag zu bezahlen. 7. Fuhrt der Vermieter Wertverbesserungen oder andere bauliche Anderungen surch, so kann er eine Erhohung der jahrlichen Miete um elf von Hundert der fur die Mietsache aufgewendeten Kosten verlangen. Entsprechendes gilt fur offentlich-rechliche Verpflichtungen, die das Grundstuck betreffen, bei einer Erfullung durch den Vermieter. SECTION 4 ZAHLUNG DES MIETPREISES 1. Der Mietpreises ise spatestens am 3. Werktag eines jeden Monats an den Vermeiter oder an die von ihm sur Entgegennahme ermachtigten Person oder bezeichnete Stelle (Bankkonto) DER MIETER ERTEILD DEM VERMEITER EINE EINSUGSERMACHTIGUNG FUR DIE MIETZAHLUNGEN, WELCHE DIESEM VERTRAG BEILIEGT. kostenfrei im voraus zu zahlen. Die Nebenkosten sind zugleich mit em Mietzins su entrichten. Dies gilt auch fur den Fall, daB Nutzungsentschadigung geschuldet ist. Fur die Rechtzeitigkeit der Zahklung kommt es niht auf die Absendung, sondern auf den Eingang des Geldes an, es sei dann, den Mieter trifft am verspateten Geldeingang kein Verschulden. Bei verspateter Zahlung ist der Vermieter berechtigt, neben Verzugszunsen auch Mahnkosten in Hohe von DM ________ je Mahnung zu erheben. 2. Die vereinbarten Betriebskisten sind bei Anfall vom Mieter auch dann zu entrichten, wenn die Gegenleistung (etwa wegen vorzeitigen Auszuges) nicht in Anspruch genommen wird. SECTION 5 MIETPREISSTEIGERUNGEN Bezuglich des Meitpreises zu Section 3 wird folgendes vereinbart (z.B.Wertsichernungsklausel, nur gultig, wenn von der Landesdzentralbank genehmigt): WERTSICHERNUNGSKLAUSEL - SIEHE ANLAGE 7 SECTION 6 AUBERORDENTLICHE KUNDIGUNG Der Vermieter kann das Mietverhaltnis ohne Einhaltung einer Knudigungsfrist mit sofortiger Wirkung in folgenden Fallen kundigren: 1. ween der Mieter uneachtet einer Abmahnubg des Vermierters, einen vertragswidrigen Gebrauch der Mietraume forsetzt, der die Rechte des Vermieters in erheblichem MaBe verletzt, insbesondere wenn der Meiter den Gebrauch der Mietraume unbefugt einem Dritten uberlaBt oder die Mietraume oder das Gebaude durth vertragswidrigen Gebrauch oder Vernachlassigung der ihm obliegenden Sorgfalt erheblich gerahrdet. 2. Wenn der Mieter a) fur zwei anfeinanderfolgende Termine mit der Entrichtung des Mietzinses oder eines nicht unerheblichen Teils des Meitzinses im Verzug ist, oder b) in einem Zeitraum, der sich uber mehr als zwei Jahre erstreckt, mit der Entrichtung des Mietzinses in Hoho eines Betrages in Verzug gekommen in solchem MaBe verletzt, baB dem anered Teil die fortetzung des Mietverhaltnisses nicht zugemutet werden kann. 3. wenn der Mieter seine Verpflichtungen schuldhaft in solchem MaBe Verletzt, daB dem andered Teil die Fortsetzung des Mietverhaltnisses nicht zugemutet werden kann. 4. wenn uher das Vermogen des Mieters das Konkurs-oder Vergleichsverfahren eroffnet wird., 5. ABWEICHEND VON NR. 2 VEREINBAREN DIE PARTEIEN FUT DIE FRISTOLSE KUNDIGUNG WEGEN ZAHLUNGSVERZUG: Die ubrigen fristlosen Kundogungsgrunde bleiben hiervon uberuhrt. SECTION 7 ZUSTAND DER MIETRAUME 1. Die angemieteten Raumlichkeiten einschlieBlich der Zufahrtswege, AuBenanlagen, Gemeinschaftsanlagen, sowie das Inventar sind mangelfrei, mit Ausnahme folgender Mangel: DIE UBERGABE ERFOLGT BESENREIN UND SAUBET. FUR VERANDERUNGEN UND AUSBAUTEN SIEHE ANLAGE 8. Der Vermieter verpflichtet sich, vor dem Einzug des Mieters oder, falls dies nicht moglich ist, bis spatestens zum ____folgende Arbeiten in den Mietraumen vornehmen zu lassen: SIEHE ANLAGE 8. Der mieter verpflichtet sich, vor seinem Einzug oder, falls dies nicht moglich ist, bis spatestens zum ____folgende Arbeiten in den Mietraumen vornehmen zu lassen: SIEHE ANLAGE 8. 2. (Offentlich-rechtliche Auflagen zur Nutzung der Mietsache, insbesobndere nach oder gewerbepolizeilichen Vorschriften, hat - gleich an wen sie ergehen - der Mieter aud eigene Kosten zu erfullen, soweit die Auflagen in der Person oder in der Art des Mieers begrundt sind. SECTION 8 BENUTZUNG DER MIETRAUME, UNTERVERRNIETUNG 1. Der Mieter darf die Mietraume zu andren, als den in Section1 bestimmten Zwecken nur mit Erlaubnis des Vermieters benutzen. 2. Der Mieter ist ohne ausdruckliche Erlaubnis des vermieters weder zu einer Untervermietung der Mietraume noch zu einer sonstigen Gebrauchsuberlassung an Dritte, ausgenommen besuchsweise sich aufhaltende Personen, berechtigt. Die Erlaubnis gilt nur fur den einzelnen Fall und kann bei wichtigem Grund widerrufen werden. Der Vermieter ist berechtit, einen angemessenen Untermietzuschlag zu erheben. 3. Tiere jeglicher Art durfon NUR MIT ERLAUBNIS DES VERMIETERS gehalten werden. Die Erblaubnis kann widerrufen werdon, wenn Unzutraglichkeiten eintreten. Der Mieter haftet fur alle durch die Tierhaltung wntstandenen Schanden. Das Futtern von Tauben ist verboten. SECTION 9 VERKAUFSRAUME Fur den Fall, daB ein Verkaufsraum Gegenstand des Vertrages ist, darf der Mieter nicht wahrend der Mietzeit den Geschaftsbetrieb in dem vermieteten Raum ganz oder teilweise einstellen oder den Geschaftszweig wechslen. Bei Zuwiderhandlung ist der Vermieter berechtigt Zu fordern. Die zusatzlichen Rechte des Vermieters demaB Section 6 diesee Vertrages bleiben davon underuht. SECTION 10 ANBRINGUNG VON SCHILDERN USW. 1. Die Wandflachen an oder im Haus auBerhalb der Mietrauem sinc nicht mitvermietet. 2 Das Anbringen von Schildern, Aufschriften, Markisen und Vorrichtungen zu Reklamezwecken sowie das Aufstellen von Schaukasten und Warenautomaten ist nur in ortsublicher und angemessener Wiese und nut fur eigene Zwecke des Mieters nach vorheriger Erlaubnis des gestattet. Erforderliche behordliche Erlaubnisse sind vom Mieter einzuholen. 3. Der Mieter haftet fur alle Schaden, die Zusammenhang mit Anlagen dieser Art entstehen. Er ist verpflichtet, bei Beendogung des Mietverhaltnisses den fruheren Zustand wieder herzustellen. SECTION 11 BENUTZUNG DER GARAGEN UND STELLPLATZE 1. Det Mieter darf Kraftfahrzeuge, Kraftrader, Motorroller sowie Fahrrader mit Hilfsmotor (Mopeds u.a.) nur auf den hierzu bestimmten und von ihm angemieteten Stellplaztzen oder Garagen abstellen. Die Bebutzung des nichtvermieteten Hofraums, oder von ein- und Durchfahrten neirzu ist nicht zulassig. 2. Die Bebutzung der Garagen und Stellpletze als Lagerplatz ist untersagt. 3. Der Mieter verpflichtet sich, die einschlagigen behordlichen Bestimmungen betreffend der "Garagen- und Einstellplatze" zu beachten sowie eine Vernreinigung der Boden durch Ol und Benzin zu vermeiden. 4. Der Mieter haftet fur alle Schaden, die bei der Benutzung der Garage - des Stellplatzes oder infolge Nichtbeachtung vorstehender oder behordlicher Vorschriften durch ihn selbst, siene Angestellten oder Beauftragten oder durch sonstige Persones, denen er die Benutzung seiner Kraftahrzeuge gestattet hat, verursacht werden. SECTION 12 LNSTANDHALTUNG DER MIETRAUME 1. Der Mieter hat in den Mietraumen fur gehorige Reinigung, Luftung und Heizung zu sorgen und die Raume sowie die darin befindlichen Anlagen und Einrichtungen pfleglich zu behandeln; er hat auch die in den Mietraumen vorhandenen Wasserzu- und AbfluBleitungen in Winter vor den Einfrieren zu schutzren. Die Mietraume sind von Ungeziefer freizuholten. 2. Der Mieter ist verpflichtet, Veranderungen und schaden an und in den Mietraumen an und im Gebaude sowie auf den Grundstuck zu beseitigen, wenn sie von ihm, den zu seinem Hausstand gehorenden Personen, Untermieter(n), Besucher(n), Lieferanten oder Handwerker(n) schuldhaft verursacht wurden. Der Vermieter ist beweispflichtig fur den Eintritt der Veranderung oder des Schadens gegenuber dem Zustand bei Vertragsbeginn. Der Mieter hat zu beweisen, daB die Veranderung oder der Schaden von ihm nicht zu vertreten oder auf einen vertragsgemaBen Gebrauch zuruckzufuhren ist. 3. Der Mieter ist verpflichtet, auf seine Kosten die Schonheitsreparaturen (das Tapezieren, Anstreichen oder Kalken der Wande und Decken, das Streichen der FuBoden, Heizkorper einschlieBlich Heizrohre, der Innenturen sowie der Fenster und AuBenturen von innen) in den Mietraumen in angemessenen Zeitabstanden auszufuhren. (Als angemessene Zeitabstande gelten fur NaBraume 3 Jahre, fur sonstige Raume 6 Jahre, fur Nebenraume (Keller, Garagen, Lager n.a.) 8 Jahre) 4. Der Mieter ist verpflichtet - ohne Rucksicht auf ein etwaiges Verschulden - die Kosten der Instandhaltung von Rolladen, Licht- und Klingelanlagen, Warmemesser, Heizkorperventile, Schlosser, Wasserhahne, Siphons, Klosetts, Wasch- und AbtluBbecken, Ofen, Herde, Gas- und Elektrogerate, Badeeinrichtungen nod Warmwasserbereitungsanlagen sowie zerbrochene Glasscheiben zu tragen bis zu einem Instandsetzungsaufwand von 300,-- DM je sachich abgegrenzten Schaden und einen Aufwandsbetrag von 1500,-- DM in ienem Kalenderjahr. 5. Jeden in den Mietraumen entstehenden Schaden hat der Mieter, soweit er nicht selbst zu dessen Beseitigung verpflichtet ist, unverzuglich dem Vermieter anzuzeigen. Fur einen durch nicht rechtzeitige Anzeige verursachten Schaden ist der Mieter ersatzpflichtig. SECTION 13 VERANDERUNGON AN UND IN DEN MIETRAUMEN DURCH DEN MIETER 1. Veranderungen an und in den Mietraumen, insbesondere Um- und Einbauten, Installatiin und dergl., durfen nur mit ausdrucklicher Erlaubnis des Vermieters vorgenommen werden. Die Erlaubnis kann davon abhangig genacht werden, daB der Mieter sich zur volligen oder teliweisen Wiederhrrstellung des fruheren Zustandes im Falle seines Auszuges verpflichtet. 2. Will der Mieter Einrichtungen, mit denen er die Meitraume versehen hat, bei der Beendigung des Mietverhaltnisses wegnehmem, hat er sie zunachst dem Vermieter zur Ubernahme anzubieyen. Wenn der Vermieter die Einrichtungen ubernehmen will, hat er dem Mieter die Herstellungskosten abzuglich eines angemessenen Betrages fur die Abnutzung zu erstatten. Machtt der Vermieter von diesem Recht keinen Gebrauch und nimmt der Mieter die Einrictungen weg, so ist der Mieter zur Wiederherstellung des ursprunglicheri Zustandes verpflichtet. 3. Der Mieter bringt folgende Gas- nod Elektrogerate in die Raume ein: Weiter Gerate durfen nur mit Erlaubnis des Vermieters angeschlossen werden. Die Erlaubnis kann versagt werden, wenn das vorhandene Leitungsnetz eine zusatzliche Belastrung nicht aushalt und der Mieterrw es ablehnt, die Kosten fur eine entspreshende Anderung des Netzes zu tragen. Erweist sich infolge einer erhohten Inanspruchnahme des leitungsnetzes fur Gas oder elektrischen Strom im Hause eine Vertarkung der vorhandenen Zn oder- Steigleitungen notwendig, so verpflichtet sich der Mieter, einen Mietaufschlag von jahrlich 11% der vom Vermieter aufgewendeten Bau- und Einrichtungskosten in monatlichen Teilbetragen zu zahlen. SECTION 14 BAULICHE VERANDERUNGEN UND AUSBESSERUNGEN DURCH DEN VERMIETER 1. Der Vermitere darf Ausbesserungen und bauliche Veraanderungen, die zur Erhaltung der Mietraume oder zur Abwendung drohender Gefahren oder zur Beseitigung von Schaden notwendig werden, auch ohne Zustimmung des Mieters vornehmen. Dies gilt auch fur Arbeiten oder bauliche MaBnahmen, die zwar nicht notwendig, aber zwecmaBig sind, insbesnodere der Modernisierung des Wohngebaudes oder der Einsparung von Heizenergie dienen. Der Mieter hat die in Betracht kommenden Ranme zuganglich zu halten und darf die Ausfuhrung der Arbeiten nicht hehindern. 2. Soweit her Mieter die Arbeiten dulden muB, kann er weder den Mietzins mindern, noch Schadenersatzverlangen. Diese Rechte stehen ibm nur zu, wenn durch diese MaBnahmen der Gebrauch der Mietraume ganz oder uberwiegend unmoglich gemacht wird. SECTION 15 SCHADENSERSATZ AUFRECHNUNG GEGEN DEN MIETPREIS, ZURUCKBEHALTUNG DES MIETPREISES 1. Die verschuldensunabhangige Haftung des Vermieters fur bei VertragsabschluB vorhandene Sachmangel ist ausgeschlonssen, Section 538 Abs. 1 BGB findet insoweit keine Anwendung. 2. Der Vermieter haftet nicht fur Schaden, die dem Mieter an den ihm gehorenden Waren und Einrichtungsgegenstanden durch Feuchtigkeiteinwirkung entstehen, gleichgultig welcher Art, Herkunft, Dauer und welchen Umfanges die Feuchtigkeiteinwirkung ist, es sei denn, daB der Vermieter den Schaden vorsatzlich oder grob fahrlassig herbeigefuhrt hat. 3. Der Vermieter bezieht Trinkwasser aus einemoffentlichen Versorgungsnetz zyu den Allgemeinen Bedingungen fur die Versorgung mit Wasser (AVBWasserV) und leitet dieses Trinkwasser dem Meiter weiter. Das Wasserversorgungsunternehmen haftet bei Unterbrechungen der Wasserversorgung und bei UnregelnmaBigkeiten in der Belieferung dem Mieter gegenuber in gleicher Weise wie dem Vermieter. Eine faruber hinausgehende Haftung unernimmt das Wasserversorgungsunternehmen weder dem Kunden noch Dritten gegenuber. Der Mieter wird aus unerlauber Handlung keine weitrergehenden Schadensersatzanspruche gegenuber dem Wasserversorgungs-Unternehmen geltend machen, als in den Absatzen 1 bis 3 der Haftungsregelung Section 6 ABVwasserV vorgesehn ist. Einen entstandenen Schaden hat der Geschadigte unverzuglich dem ersatzpflichtigen Versorgungsunternehmen mitzuteilen. 4. Eine Aufrechnung gegun die Miete mit einer Gegenforderung, die nicht aus dem Mietverhaltnis begrundet ist, wird ausgeschlossen, soweit die Gegenforderung nicht unbestritten, bereits rechtskraftig festgestellt oder in einem gerichlichen Verfahren entscheidungsreif ist. 5. Die Ausubung des Zuruckbehaltungsrechts des Mieters ist auf Forderungen aus dem Mietverhaltnis beschrankt. SECTION 16 VERMIETERPFANDRECHT Der Mieter erklart, daB die bei seinem Einzug in die Meitraume eingebrachten Sachen sein freies Eigentum und nicht gepfandet oder verpfandet sind, mit Ausnahme folgender Gegenstande: SECTION 17 BETRETEN DER MIETRAUME 1. Dem Vermieter oder seinem Beauftragten oder beiden steht in angemessenen Abstanden oder aus besonderem AnlaB die Besichtigung der Mietraume zu verkehrsublicher Tageszeit an Werktagen frei. In Fallen dringendcr Gafahr ist ihm das Betreten der Mietraume zu jeder Zeit zu gestatten. 2. Der Mieter hat die Besichtigung der Mietraume im Falle der Beendigung des Mietverhaltnisses zwecks anderweitiger Vermietung oder bei beabsichtigtem Verkauf des Grundstuckes zu verkehrsublicher Tageszeit nach vorheriger rechtzeitiger Ankundigung an Werktagern zu gestatten. 3. Der Mieter muB dafu sorgen, daB die Meitraume auch in seiner Abwesenheit betreten werden konnen. SECTION 18 HAUSORDNUNG 1. Die Hausordnung auf Seite 8 dieses Mietvertrages ist Bestandteildiese Vertrages. 2. Dem Vermeiter ist es gestattet, zusatzliche oder abweichende Regelungen fur die Benutzung gemeinschaftlicher einrichtungen, die Reinigung, die Aufrechterhaltung von Ruhe und Ordnung im Hause usw. Zu treffen, wenn dadruch nicht die uruspruchglich eingeraumten Gebruachsrechte wesentliche Einschrankungen erfahren. 3. Der Mieter ise verpflichtet, die offenlichen StraBen, Gehsteigflachen und FuBwege am und zum Haus sowie die Zugangswege, Durchgange und Treppen nach den ortspolizeilichen Vorschriften im vom Vermieter festgelegten Turnus zu reinigen. 4. Der Mieter ist verpflichtet, das Sandstrunen bei winterflatte, sowie die Schnee- und Eisbeseitigung nach den gesetzlichen Bestimmungen und ortspolizeilichen Vorschriften auf den offentlichen Gehsteigflachen und FuBwegen am Hause und zum Haus sowie auf den Augangswegen, Durchgangen und Treppen im vom Vermieter festgelegten Turnus durchzufhren. SECTION 19 BEENDIGUNG DES MIETVERHALTNISSES 1. Bei Mietende hat der mieter dam Vermieter samtliche Schlusel auszuhandigen und die Meitraume sowie das Inventar im vertragsgemaBen, gebruachsfahigen Zustand (vgl. Section 12) zuruckzugeben. 2. Insbesondere hat der Mieter bei seinem Auszug die Raume zu reinigen, von ihm verlegte oder surch Vereinbarung ubernommene Bodenbelage sowie Tepeten an den Wanden und Decken zu entfernen und Beschadigungen an Unterboden und Wand-oder Dekenputz und am Inventar zu beheben. 3. Endet das Meitverhaltnis vor Eintritt der Verpflichtung zur Durchfuhrung de Schonheitsreparaturen gem. Section 12 Ziff. 3, so ist der Mieter verplichtet, die anteiligen Kosten fur die Schonheitsreparaturen aud Grund eines Kostenvoranschlages eines vom Vermieter auszuwahlenden Maler-Fachbetreibes an den Vermeiter nach der folgenden MaBgabe zu zahlen: Leigen die Schonheitsreparaturen der Wnade und Decken fur die NaBraume (Kuche, Bad und WC) wahrend der Mietzeit langer als 1 Jahr zuruck, so zahalt der Mieter 33%, liegen sie langer als 2 Jahre zuruck, 66%. Liegen die letzten Schonheitsreparaturen fur die sonstigen Raume wahrend der Mietzeit langer als 1 Jahr zuruck, so zahlt der Mieter 20% der Kosten auf Grund dieses Kostenvoranshalges an den Vermieter, liegen sie langer als 2 Jahre zuruck, 40%, langer als 3 Jahre 60%, langer als 4 Jahre 80%. Die anteiligen Kosten fur die Schonheitsreparaturen der Fenster, Turen und Heizkorper betragen bei einer Mietzeit von langer als einem Jahr 16% der Gesamtkosten, bei einer Mietzeit von langer als 2 Jahren 33%, bei einer Mietzeit von langer als 3 Jahren 50%, von langer als 4 Jahren 66%, von langer als 5 Jahren 83%. Die Fristen des Section 12 Ziff. 3 beginnen, unabhangig davon, ob die Raume renoviert oder unrenoviert ubergeben wurden, ab Beginn des Mietverhaltnisses zu laufen. DER MIETER IST BERECHTIGT, DIE ZAHLUNGEN DER ABNUTZUNGSENTSCHADIGUNG DURCH FACHGERECHTE VORNAHME DER ARBEITEN ABZUWENDEN. 4. Der Meiter hat die enforderlichen Arbeiten bis zur Beendigung des Mietverhaltnisses durchzufuhren. Great er mit diesen in Verzug, so ist der Vermieter berechtigt, nach Setzen einer angemessenen Nachfrist mit Ablehnungsandrohung die Arbeiten auf Kosten des Mieters ausfuhren zu lassen. SECTION 20 VORZEITIGE BEENDIGUNG DES MEITVERHALTNISSES Endet das Mietverhaltnis durch fristlose Kundigung des Vermieters, so haftet der Mieter bis zum Ablauf der vereinbarten Mietzeit fur den Mietausfall, der durch das Leerstehen der Mietraume oder dadurch entsteht, daB im Falle der Neuvermietung nicht der bisherige Mietzins erzielt werden kann. SECTION 21 SICHERSTELLUNG DER VERPFLICHTUNGEN Zur Sicherstellung aller Verpflichtungen aus dem Mietverhaltnis stellt der Mieter eine Kaution von DM 30.000,00 als Bankburgschaft an den Vermieter. Nach Beendigung des Meitverhaltnisses erhalt der Mieter nach Erfulling aller vertraglichen Vereinbarungen diese Kaution zuruckerstattet. SECTION 22 PERSONENMEHRHEIT AUF DER MIETERSEITE 1. Mehere Persones als Mieter haften fur alle Verbindlichkeiten aus dem Meitvertrag als Gesametchuldner. 2. Soweit Willenserklarungen gegenuber allen Mietern gelten sollen, mussen se von oder gegenuber allen Mietern abgegeben werden. Die Mieter bevollmachtigen sich jedoch gegenseitg jederzeit frei widerruflich zur Entgegennahme von Erklarungen des Vermieters. Die Vollmacht erstreckt sich auf die Entgegennahme von Kundigungen, nicht jedoch auf die Erklarung einer Kundigung oder auf eine Aufhebung des Mietvertrages. SECTION 23 ANDERUNG DES VERTRAGES Nebenabreden, Andderungen und Erganzungen des Vertrages bedurfen der Schriftform. SECTION 24 ERFULLUNGSORT Erfullungsort fur alle sich aus siesem Vertrag ergebenden Verpflichtungen ist der Ort der Mietsache nach Section 1. SECTION 25 SONSTIGE VEREINBARUNGEN (Erlaubnis zur Untervermietung, Anbringung von auBenreklame, Veranderungen in und an den Mietraumen, Vereinbarungen uber Baukostenzuschusse, die Kosten des Strom- und Gasverbrauches bei gemeinschaftlichem Zahler usw.) Zu Diesem Mietvertrag gehoren folgende Anlagen:
Zu Section Anlage Nr. Thema 1.1 1 Mietflachenberechnung 1.1/1.2 2 Grundrisse 1.1/1.2 3 Betriebsbeschreibung 1.4 4 Stellplatzplan 2 5 Mietzeit/Option 3, 1A 6 Anglage 3 Zu Section 27, II. BV Aufstellung von Betriebskosten A 185 5 7 Wertsicherunhsklausel 7 8 Zustand u. Absbau der Mietraume/ Baubeschreibung 8 9 Untervermietung 10 Konkurrenzschutz 11 Einzugsermachtigung
SECTION 26 WERKSAMKEIT DER VERTRAGSBESTIMMUNGEN Durch etwige Ungultigkeit einer oder mehrerer Bestimmungen dieses Vertrages wird die Gultgkeit der ubrigen Bestimmungen nicht breuhrt. Nurnberg, den 24 February 1999 - -------------------------- -------------------------- als Vermieter Mieter *ZUTREFFENDES BITTE UNTERSTREICHEN BZW. AUSFULLEN EX-10.70 19 EXHIBIT 10.70 EXHIBIT 10.70 SUMMARY Office and Switch Lease between STAR Telecommunications Deutschland GmbH ("STAR GmbH") and Rudolf Geray, Zettachring 6, 70567 Stuttgart, Germany, for property located at Business Park Stuttgart, Zettachring 10, 70567 Stuttgart, Germany. The lease term is for a minimum of 10 years beginning on February 1, 1999 and ending on February 1, 2009. STAR GmbH incurs rental charges of approximately 24,633 DM per month and approximately 3,105 DM per month in additional expenses. The leased property is approximately 3,396 square feet. MIETVERTRAG UBER BURORAUME ZWISCHEN RUDOLF GERAY Zettachring 6 70567 Stuttgart (als Vermieter) UND STAR TELECOMMUNICATIONS DEUTSCHLAND GMBH Voltasr. 1 A 60486 Frankfurt am Main (als Mieter) wird folgender Mietvetrag geschlossen: SECTION 1 GEGENSTAND DES MIETVERTRAGES SIND DIE IM ANWESEN BUSINESSPARK STUTTGART, Zettachring -70567 Stuttgart gelegenen gewerblichen Raume im (siehe Grundrissplan, ANLAGE 3), bestehend aus folgenden Nutzflachen: 1.) Technikflache 5. 0G: 791 qm 2.) Buroflache 4. 0G: 244 qm 3.) Tiefgaragenstellplatze 10 Stck. Nr. 5, 6, 19 - 22, 25-28, 4.) Die endgultige Mieflachengrosse wird nach Abschluss der Werkplanung im Massstab 1: 50 durch den Vermieter ermittelt und dem Mieter zur Prufung ubergeben Mietvertrag zwischen Rudolf Geray / Star Telecommunicationsa GmbH 5.) Ausstattung: - eigener FuBoden mit Star Telecom Logo, Mehrkosten sind Sache des Mieters - Wande und Decken tapeziert - Abgehangtes Lichtsystem nach Arbeitspaltzeinteilung - Isplierglasfenster - Elektro-Installation, Unterflur Stromversorgung mit Leerrohr fur Telefonkabel - FuBbodenheizung - Raumaufteilluna mit flexiblen Trennwanden 6.) Konferenzraume stehen zur gemeinschaftlichen Nutzung nach Absprache mit der Verwaltung, ohne zusatzliche Kosten, fur den Mieter zur Verfugung. SECTION 2 MIETZEIT 1.) Das Mietverhaltnis beginnt mit Unterzeichnung des Mietvertrages durch beide Parteien. Die Ubergabe der Mietraume erfolgt gemass Section 5. 2.) Es ist zeitlich befristet und endet 10 Jahre nach Ubergabe an don Mieter. 3.) Dem Mieter wird eine Option -zu Verlangerung des Mietvertages - auf weitere 5 Jahre eingeraumt. Soll die Option vom Mieter nicht in Anspruch genommen werden, muss spatetens 12 Monate vor Ablauf der fest vereinbarten Mietzeit dem Vermieter schriftlich mitgeteilt weden, dass die Weiterfuhrung des Vertages am Ende der fest vereinbarten Mietzeit nicht gewunscht wird. Ansonsten verlangert sich des Mietverhaltnis um weitere 5 Jahre. 4.) Wird dice Option auf Verlangerung des Mietverhaltnisses ausgeubt, muss der Mieter 12 Monate vor Ablauf der verlangerten Mietzeit kundigen, sonst verlangert sich das Mietverhaltnis jeweils um weitere 12 Monate. SECTION 3 UNTERVERMIETUNG Untervermietung ist grundsatzlich gestattet; sie bedarf jedoch der Zustimmug des Vermeiters, der diese nur aus wichtigem Grund verweigern darf. SECTION 4 MEITZINS 1.) Der Meitzins betragt ab Ubergabe der Mietraume: Technik- +Buroflache DM 23,80 TG-Stellplatze DM 120,00 Jeweils zuzuglich der gesetzlichen Mehrwertsteuer und ist monalich im voraus zahibar, spatestens am 5. Werktag eines Monats (siehe Bankverbindungen im Anhang). 2.) Die Meite bleibt in den ersten 12 Monaten unverandert. 3.) Es wird eine Mietkaution in Hoho von 2 Monatsmieten vereinbart. Diese ist mit der ersten Miete zu bezahlen. Eine Verzinsung erfolgt in Hoho der ublichen) Sparbuchzinsen, die fir Einlagen auf Sparbuchern mit gesetzlicher Kundigungs Frist bezahlt werden. DisKaution kann auch uber eine Burgschaft einer deutschen Bank geleistet werden. SECTION 5 UBERGABE DER MIETRAUME 1.) Die Ubergabe der Mietraume erfolgt zum 01.02.1999. An diesem Tag wird das Mietobjekt dem Meiter zur Nutzung ubergeben. Die Parteien erstellen ein Ubergabeprotokoll, in dem eventuelle Mangel festgesttellt und ausstehende Erganzungs- und Verbesserungsarbeiten (Restarbeiten) erafsst werden. Diese sind vom Vermieter unverzuglich abzustellen bzw. Durchzufuhren. Ander als im Ubergabeprotokoll festgehaltene Mangel werden nicht anerkannt. 2.) Bei Uhergabe vorhandene geringfugige Mangel und Restarbeiten, die den Betriebsablauf des Mieters nichit beeintrachtigen und auch ohno Beeintrachtigung des Betriebsablaufes des Mieters behoben werden konnon, vorzogern die Ubergabe nicht. Sie sind jedoch dann unverzuglich zu beheben. Die vorstehende Regelung gilt entsprechend fur den Fall, dass einzelne Arbeiten noch nicht abgeschlossen sind, die auf genehmigungspflichtigen Umbau-, Ausbau- oder Anderungswunschen des Mieters beruhen. 3.) Dem Mieter ist bekannt, dass die Beseitigung von Restmangeln auch nach Bezug ohne nc Mietminderung durch den Vermieter durchgefuhrt werden konnen. SECTION 6 WERTSICHERUNGSKLAUSEL 1.) Die Miete ist fur die Dauer von 12 Monaten (siehe Section 4) fest vereinbart. Die Miete kann erstmals nach Ablauf von 12 Monaten unter Berucksichtigung der Entwicklung des Lebenshaltungsindexes angepasst werden. 2.) Als Indexierung gilt der Preisindex fur die Lebenshaltung eines 4 Personenhaushaltes mit mittlerem Einkommen. Die Indexierung wird Jeweils nach 12 Monaten entsprechend der Veranderung der Indexzahl angepasst. 3.) Andert sich der vom Stat. Landesamt Baden-Wurttemberg festgestellte Preisindex fur die Lebenshaltung eines Vier-Personen-Arbeitnehmerhaushaltes mit mittlerem Einkommen des alleinverdienenden Haushaltsvorstandes gegenuber dem Stand des Vertragsabschlusses (1991 = 100 %), so andert sich der Mietzins in dem selben Verhaltnis, wie sich der Lebenshaltungskostenindex verandert hat. Die Mietpreisanpassung erfolgt jahrlich, erstmals zum. 01.03.2000. 4.) Wenn aufgrund der vorstehenden Klausel eine Anpassung des Mietzinses durchgefuhrt worden ist, wird die Regelung gem. Abs. (1) erneut anwendbar. Im Falle der Erhohung des Mietzinses hat der Vermieter, im Fall der ErmaBigung des Mietzinses der Mieter, dem anderen Vertragsteil diese Anderung unter Vorlage einer Abrechnung mitzuteilen. Fur den Eintritt des Verzuges bedarf es einer entsprechenden konkreten Zahlungsaufforderung des anderen Vertragsteils. 5.) Werden wegen einer Umstellung des Indexes auf eine neue Basis bereits veroffentlichte Indexzahlen nachtraglich geandert, so bleiben Anpassungen, die nach der alten Reihe bereits unter Vorlage einer Abrechnung mitgeteilt waren, von dieser Anderung unberuhrt. Mit der ersten amtlichen Veroffentlichung der neuen Reihe gilt jedoch der Mietzins, der sich aufgrund der neuen lndexreihe, umbasiert auf die Basis 1991 = 100, ergibt, wobeil die Indexzahlen ab dem Zeitpunkt der letzten Anpassung (nach alter Berechnung) gelten. 6.) Die Vertragssicherungsklausel des Abe. (1) bedarf gemiss Section 3 des Wahrungsgesetzes der Genehmigung der Landeszentralbank in Baden-Wurttemberg. Die Vermieterin wird diese Genehmigung einholen. SECTION 7 NEBENKOSTEN - PAUSCHALE 1.) Der Mieter Zahlt eine Nebenkostenpausohale von DM 3,00 pro qm zuzuglich der gesetzlichen Mehrwertsteuer bis zum 5. Werktag eines jeden Monats an die Hausverwaltung (siehe Bankverbindung im Anhang) fur folgende Betriebskosten: - laufende offentliche Lasten des Grundstucks (insbesondere Grundsteuer) - Kosten der Wasserversorgung und Entwasserung - Kosten fur Personen und Lastenaufzuge - Kosten der Strassenreinigung und Mullabfuhr - Kosten der Hausreinigung und Gartenpflege - Kosten der Hausbeleuchtung und der Beleuchtung der Gemeinschaftsraume - Kosten der Sach- und Haftpftichtversicherunq (Gebaude-Brand- und Haftplfichtversochrung) - Kosten fur Hausmeisterbetreuung - Kosten der Gemeinschatfsantennenanlage sowie des Breitband-Kabelnetz - Kosten fur Bewachung des Objektes - Koston Her Hausverwaltung 2.) Der Mieter rechnet die Kosten fur Strom und fur die selbst ru betreibende Heizung (Elektrofussbodenheizung) direct mit dem Versorgungsunternehmen ah 3.) Der Mieter hat eine Glasversicherung abzuschliessen. Ausserdem obliegt es dem Mieter eine Betriebshaftpflichtversicherung, eine Wasserascaenversicherung, eine betriebliche Feuerversicherung und eine Einbruchversichreung abzuschliessen. SECTION 8 BENUTZUNG DER MIETRAUME, UM- UND EINBAUTEN 1.) Die qemieteten Raume sind als Buro- und Nebenflachen (z.B.Lagerflachen) zu benutzen. Sie durfen ohne vorherige schriftliche Zustimmung des Vermieters weder ganz noch teilweise zu einem anderen Zweck genutzt werden. Die Einholung erforderlicher offent!ich-rechtlicher Genehmigungen fur besondere Nutzungen der Raume durch den Mieter ist in jedem Falle Sache des Mieters. 2.) Der Mieter ist bei Beendigung des Mietverhaltnisses verpflichtet, bei einer Wegnahme von ihm eingebauter Einrichtungen bzw. Einbauten einen ordnungsgemassen baulichen Zustand herzustellen, der es ermoglight, das Objekt weiterzuvermieten. 3.) Vom Mieter auf seine Kosten beabsichtigte Um-, An- oder Einbauten bedurfen der schriftlichen Einwilligung des Vermieters, der diese nur aus wichtigen Grunden verweigern darf. Etwa erforderliche behordliche Genehmigungen hat der Mieter zu beschaffen, wobei der Vermieter seine Unterstutzung zusagt. Samtliche mit der Durchfuhrung der vorgenannten Massnahmen verbundenen Kosten und Gefahren tragt der Mieter. Er hat ebenfalls alle Reinigungsmassnahmen sowie alle Schutz- und Sicherungsmassnahmen zur Sicherung des Geschaftsbetriebes der ubrigen Mieter zu treffen. Der Mieter haftet fur alie Schaden, die im Zusammenhang mit den von ihm vorgenommenen Baumassnahmen entstehen. 4.) Bei Beendigung des Mietverhaltnisses hat der Mieter die von ihm vorgenommenen Veranderungen des Mietgegenstandes auf seine Kosten zu beseitigen, sofern der Vermieter die - ihm vorher anzubietende- Uberahme etwa vom Mieter veranlasster Veranderungen bzw. im Mietobjekt angebrachter Einrichtungen ablehnt, es sei denn, dass der Vermieter auf Ruckbau verzichtet oder diese baulichen Anderunen im Rahmen eines Nachfolgemietverhaltnisses genutzt werden. Soweit aus einem Umbau des Mieters zwei- und/oder dreiachsige Raume entstehen, ist ein Ruckbau der Wande nicht erforderlich. Ist der Vermieter an der Ubernahme interssiert, wird eine Verhandlung uber den Zeitwert gefuhrt. Ubernahmen durch Nachmieter werden direkt zwischen den Mieter und dem Nachmieter veitraglich vereinbart. 5.) Dern Vermmieter ist bekannt, dass der Mieter beabsichtigt, Telekommunikationsgerate in das Mietobjekt einzubringen. Beide Parteien werden nach Abstimmung dafur sorge tragen, dass diese Einrichtungen orgnungsgemass verwendt und geschutst werden konnen. Aus dieser Verpflichtung entstehen dem Vermieter keine Kosten. SECTION 9 INSTANDHALTUNG DER MIETRAUME 1.) Dem Vermieter obliegt auf eigene Kosten die Instandhaltung des Daches, der konstruktiven Teile desGebaudes sowie Aussenmauern, tragende Innenwande, Stutsen und Fundamente sowie der Fassade und technischen Einrichtungen, die den Meitbereich umschliessen. 2.) Minderung der Miete und Schadenersatzanspruche des Mieters wegen vom Vermieter nicht zu vertretender Immissionen oder Strungen der Zugange des Gebaudes oder wegen Baumassnahmen Dritter ausserhalb des Gebaudes, sind ausgeschlossen. 3.) Der Mietgegenstand ist vom Mieter pfleglich azu behandeen, zu reinigen und von Ungeziefer freizuhalten. 4.) AIle Schonheitsreparaturen innerhalb der ausschliesslich vom Mieter genutzten Raume sind von ihm in einem Turnus fachgerecht aauszufuhren, der den Mietgegenstand in einem angemessenen Zustand erhalt. Desweiteren sind vom Mieter die laufenden lnstandhaltungs- und Wartungsarbeiten innerhalb der Mietraume, die der Gebrauch der Mietsache mit sich bringt, zu ubernehmen. Fur die haustechnisichen Einrichtungen (Installationen, Heizung, Luftung, Sanitar, Elektro, Adssenlamellen) gilt dies, soweit sie direkt vom Mieter bedient werden. Daruber hinaus hat der Mieter die laufenden Instandhaltungs- und Wartungsarbeiten fur die Zu- und Ableitungen von/bis zu den Hauptstrangen sowie die vom Mietgegenstand abschilessenden Turen zu ubernehmen. Kommt der Mieter esner der vorstehenden Verpflichtungen trotz Verlangen des Vermieters nicht binnen einer angemessenen Frist nach, ist der Vermieter berechtigt, die erforderlichen Reparaturen bzw. Arbeiten auf Kosten des Mieters ausfuhren zu lassen. Bei Gefahr in Verzuge bedarf er einer Fristsetzg nicht. 5.) Notwendige. Lnstandsetzungsarbeiten fur Einbauten und Gegenstande, die im Rahmen der Gebaudeerstellung vom Vermieter durch entsprechende Firmen durchgefuhrt und fur die eine Gewahrleistungsfrist vereinbart wurde, sind dem Vermieter oder einem von ihm genannten Dritten lediglich unverzuglich anzuzeigen. Die Kosten sind in dieser Zeit nicht vom Mieter zu tragen. Dies gilt nur, soweit es sich um Gewahrleistungsmangel handelt. 6.) Der Mieter haftet dem Vermieter fur Schaden, die durch ihn, seine Angestellten sowie die von ihm beauftragten Handwerker, Lieferanten, Besucher, Kunden und andere zu ihm in Beziehung stehende Personen am Mietgegenstand oder durch Anlieferung und Abholung von Waren mit eigenen odor fremden Fahrzeugen an Gebauden, Toren, Parkflachen und Wegen verursacht werden. Insbesondere haftet er fur Schanden, die durch unsachgemasses Umgehen mit dar Wasser-, Licht- odor Versorgungsleitung an der WC-, Sanitsr- und Heizungsanlage, durch offen stehen lassen von Turen und Fensterm odor Versaumnis einer ubernommenen sonsstigen Pflicht (Beleuchtung,usw.)entstehen. 7.) Soweit der Vermieter zur Behebung von Schaden in den Mietraumen verpflichtet ist, sind ihm solche Schaden unverzuglich anzuzeigen. Fur Schaden, die durch eine verspatete Benachtichtigung enstanden sind, haftet der Mieter. 8.) Verstopfungen von Abflussleitungen hat derjenige Mieter zu beseitigen, der sie verursacht hat. Der Verursacher haftet auch fur etwaige Folgeschaden. Lasst sich bei einer Verstopfung nicht festellen, wer der Verursacher ist, so lasst der Vermieter den Schanden beseitigen. Kosten und Folgeschanden tragen in diesem Fall alle Mieter anteileg, die an die betreffende Abflussleitung angeschlossen sind. 9.) Beschadigte Fensterscheiben und Beschlagteile an den ausschliesslich der Nutsung des Mieters dienenden Raumen ersetzt der Vermieter auf Kosten des Mieters, wenn die Schanden durch den Gebrauch der Sache vom Mieter zu vertreten sind. 10.) Die Parteien sind vorpflichtet, die ihnen obliegenden Instandhaltungs und In standsetzungsarbeiten in einer angemessenen Frist ausfuhren zu lassen. Kommt eine Partei einer ihr obliegenden Instandhaltungs- odor Instandsetzungpflicht trotz Mahnunq und nach Ftistsetzung nicht nach, ist die jeweils andere Partei berechtigt, dringend notwendige Arbeiten auf Kosten der saumigen Partei ausfuhren zu lassen. Bei Gefahr in Verzug ist jede Partei verpflichtet, fur die Gefahr beseitigende MoBnahmen zu veranlassen. 11.) Dert Vermieter darf Ausbesserungen, Verbesserungen und bauliche Veranderungen, die zur Erhaltung odor Unterhaltunq odor zut Abwendung drohender Gefahren oder zu Beseitigung von Schaden notwendig oder zweckmassig sind, ohne Zustimmung des Mieters vornebmen. Der Mieter hat die in Betracht kommenden Raume zuganglich zu halten und darf die Ausfuhrung der Arbeuten nicht behindern oder vetzpgern. Der Vermieter ist berechtigt, jederzeit am und im Gebaude in Abstimmung mit~ dem Mietet Modernisierungsmassnahmen durchzufuhren. Mietminderungsanspruche stehen dem Mieter wegen solcher Arbeiten nur zu, wenn diese langer als 1 Woche abhalten und zu erheblichen Beeintrachtigungen des Betreibes des Mieters fuhren. Entstehen durch die Modernisierungsmassnahmen Kosten, die nicht entstanden waren, wenn der Mieter die Raume buroublich nutzen wurde, qehen diese zu Lasten des Mieters. 12.) Fur vom Vermieter nachzuweisende Klieireparaturen ausserhalb der Mietfalche has der Mieter im Einzelfall bis zu 0,2% der Jahresmiete p.a.zuzuglich Mehrwertsteuer, maximal jedoch 1% der Jahresmiete p.a.zuzuglich Mehrwertsteuer zu tragen. Die Reparaturen an Dach und Fach sowie Grossreparaturen an Anlagen ausserhalb der Mietflache (z.B. Aufzuq, Heizunqs-/Klimaalage), soweit sie nicht vom Mieter zun vertreten sind, tragt der Vermieter. Grossreparaturen ausserhalb der Mietflache sind Instandsetzungsarbeiten, die unter Berucksichtigung normaler Abnutzung und sachgerechter Wartung und Instandhaltung ublicherweise periodisch anfallen und zu einer wesenlichen Verlangerung ger Nutzungsdauer der Anlaqe fuhren. SECTION 10 RUCKGABE DES MIETGEGENSTANDES 1) Der Mieter verpfllichter sich, rechtzeitig vor Vertragsende sur Feststellung des Zustandes der Mietraume mit dem Vermieter eine gemeinsame Besichtigung durchzufuhren. 2.) Die Raume werden bei Beendigung der Mietzeit von dem Vermieter oder dessen Beauftragten abgenommen. Uber die Abnahme wird von den Vertragsparteien ein Protokoll angefertigt, in das samtliche bei der Abnahmne festgestellten Mangel aufzunehmen sind. Hierbei werden eventuell noch zuruckliegende Mangel, die bei Mietbeginn in einem Ubernahmeprotokoll fixiert wurden und zwischen Vermieter und Mieter in gegenseitigem Einvernehmen nicht beseitigt wurden, entsprechend berucksichtigt. Die in das Protokoll aufgenommenen Mangel gelten mit Unterreichnung als vom Mieter anerkannt. Mangel, die nicht in das Protokoll aufgenommen sind, konnen vom Vermieter nur geltend gemacht werden, wenn sie bei der Abnahme, selbst bei sorgfaltiger Besichtigung, nicht erkennbar waren. Erscheint der Mieter nicht zu dem von ihm genannten Abnahmetermin, so gelten die festgestellten Mangel als anerkannt. 3.) Erfolgt eine vertragsggemasse Raumug und Ruckgabe verspatet, so hat der Vermieter Anspruch auf Nutzungsentschadigung und Schadenersatz. 4.) Bei Beendigung des Mietverhaltnisses mussen die Mietraume vollstandig qeraumt und gereinigt (einschliesslich Fensterreinigung) in ordnungsgemassem Zustand ubergeben werden. Des weiteren hat der Meiter alle erforderkichen Schonheitsreparaturen sach- und fachgerecht auszufuhren. Die Schonheitsreparaturen umfassen u.a. das Streichen der Decken, Wande und Turen, sowie die Durchfuhrung von sonstigen Malerarbeiten, falls dies von der Art der Mietsache angezeigt ist. 5.) Dubellocher sind zu verschliessien, beschadigte Fliesenfelder zu ersetzen. Die Sanitar- und alle ubrigen technischen Einrichtunngen mussen voll funktionsfahig und qereinigt sein. Der vom Vermieter gestellte Teppichboden ist zu reingen. Solte der Auszug des Mieters innerhalb einer Frist von weniger ala 6 Jahren nach Ubergabe dsr Mistsache erfolgen, so hat der Mieter dem Vermieter als Ersatz fur die Beseitigung und Entsorgung des alten sowie die Anschaffunq und Verlegung eines neuen Teppichbodens einen Betrag von DM 50,00 je qm zu verguten. Dieser Betrag andert sich in dem gleichen Masss, wie sich der monatliche Mietzins Section 6 verandert. 6.) Alle Schlussel, auch vom Mieter selbst beschaffte, sind iem Vermieter zuruckzugeben. 7) Bei Beendigung des Mietverhaltnissess hat der Mieter von ihm vorgenommene Veranderungen des Mietgegenstandes auf seine Kosten zu beiseitigen, es wei denn, dass der Vermieter auf einen Ruuckbau verzichtet oder diese baulichen Veranderungen im Rahmen eines Nachfolgemietvertrages genutzt werden. 8.) Ist der Vermieter an der Ubernahme interessiertt, werden Verhandlungen uber den Zeiwert (Verkehrswert bei Anschlussvermietung) gefuhrt. 9.) Der Mieter muss bei einer Anschlussvermietung die Ubernahme der von ihm durchgefuhrten Einbauten odoe sonstigen Gegenstanden durch den Anschlussmieter direkt mit diesem - ohne Einschaltung des Vermieters- regeln. SECTION 11 BESICHTIGUNG DER MIETRAUME Der Vermieter darf nach Anzige wahrend der ublichen Geschaftszeiten die vermieteten Raume selbst oder durch Beauftragte, Kauf- odor Mietinteressenten besichtigen. SECTION 12 RUCKSTANDIGER MIETZINS, AUFRECHNUNG, ZURUCKBEHALTUNGS RECHT, INSOLVENZVERFAHREN DES MIETERS 1.) Ist der Mister trotz schriftlicher Mahnung mit zwei Monatsmieten langer als 4 Wochen im Ruckstand, kann der Vermieter das Mietverhaltnis fribtlos kundigen. Der Mieter ist verpfiichtet, dem Vermieter alle Schaden zu ersetzen, die aus der vorzeitigen Beendigung des Mietverhaltnisses entstehen. 2.) Eine Aufrechnung qegen den Anspruche aus diesem Vetrag ist nur mit unbestrittenen oder rechtskraftig festgestellten Gegenanspruchen des Mieters aus diesem Mietverhaltnis zulassig. Das Recht des Mieters zum Einbehalt eines angemessenen Teils der Miete fur den Fall, dass der Vermieter seiner Instandshaltungspflicht nicht nachkommt, bleibt hiervon unberuhrt. 3) Wird uber das Vermogen des Mieters die Eroffnung des Konkrus- oder Vergleichsverfahren beantragt, ist der Vermieter zur fristlosen Kundigung des Mietverhaltnisses berechtigt. SECTION 13 VERWENDUNG DUR GEMIETETEN RAUME ZU GESCHAFTS- ZWECKEN/VERANDERUNG DER RAUME 1.) Gibt der Mieter sien Geschaft auf, ohne das Mietvehaltnis beendigt zu haben, hat der Mieter fur den Rest der Mietzeit Sicherheit zu leisten. Diese Verpflichtung entrallt, wann der Vermieter die Raume entewder selbst oder anderweitig Vermietet. 2.) Versteigernugen oder Ausverkaufe in den gemieteten Raumen bedurfen der schriftlichen Austimmung des Vermieiters. SECTION 14 FIRMENBESCHILDERUNG IM EINGANGSBEREICH Der Mieter wird im Einvernehmen mit dem Vermieter entsprechend dsr hiefur vorgesehenen einheitlichen Gestaltung auf seine Kosten ein Firmenschild im Eingansbereich des Gebuades anbringen. SECTION 15 ABSCHLIESSENDE BESTIMMUNGEN 1.) Mundliche Nebenabreden sind nicht getroffen. Nachtragliche Anderungen oder Erganzungen dieses Vertrages einschliesslich dieser Regelung bedurfen der Schriftform. 2.) Sollte eine Besttimmung dieses Vertrages unwirksam sein oder werden, bleiben die anderen Besttimmung unberhrt. Die Vertragepartner weeden in diesem Fall anstelle der unwirksamen Regelung sine Vereinbarung treffen, die dem Willen der Vertragsparteien bei Abschluss dieses Vertrages am nauchsten kommt. 3.) Zur Wirksamkeit von Rechtsgeschaften, Rechtschandlungen oder Rechtsfblgen genugt es, wenn diese gegenuber einem oder von einem Beteiligten vorgenommen werden. 4.) Erfullungsort fur alle sich aus dem Vertrag ergebenden Verpflichtungen und Gerichtsstand fur beide Vertragsparteien, soweit eins Vereinbarung daruber gesetzlich zluassig ist, ist stuttgarrt. Stuttgart, den - ------- --------------- ---------------------- (Vermieter) (Meiter) EX-10.71 20 EXHIBIT 10.71 EXHIBIT 10.71 SUMMARY Office and Switch Lease between STAR Telecommunications Deutschland GmbH ("STAR GmbH") and Erbengemeinschaft Fiszman, 60489 Frankfurt/Main, Germany, for property located at Solmsstrasse 2-26, 60486 Frankfurt/Main, Germany. The lease term is for a minimum of 10 years beginning on August 1, 1999 and ending on August 1, 2009. STAR GmbH incurs rental charges of approximately 27,911 DM per month and approximately 5,724 DM per month in additional expenses. The leased property is approximately 4,173 square feet. 1 SECTION 1 MIETOBJEKT 1. Der Vermieter vermietet an den Mieter Haleni/Technik- und Buroflacke und 4 aussenliegende Parkplatze (nachstehend Mietobjekt genannt). Lage, Grosse und Ausstattung des Mietobjektes ergeben sick aus den anliegenden - Planen (Anlagen 1 u 2) und der - Baubeschreibung (Anlage 5), die Bestandteil dieses Vertrages sind. Die vermietete Gebaudeflache ist in den Planungsunterlagen orange umrandet. Die Lage und Anzahl der Pkw-Abstellplatze ist in Anlage 2 durch grune Schraffur gekennzeichnet. 2. Der Mieter ubergibt dem Vermieter bis spatestens zum 09.04.1999 verbindliche, unterzeichnete Raumaufteillungsplane und eine Ausstattungsbeschreibung, die alle Merkmale enthalt und beschreibt, die erforderlich sind damit der Vermieter die Mietflache termingerecht nach dem vem Vermeiter vorgegebenen Standard errichten kann (Anlage 5 des Vertrages). 3. Die Mietflachenberechnung erfolgt auf der Grundlage der DIN 277. 4. Der Vermieter wird dern Mieter - spatestens unverzuglich nach Beginn des Mietverhaltnisses das Aufmass eines Architekten zuteiten. Alle Buro- und Lagerflacken werden sodann exakt berechnet Der Mieter ist verpflichtet, nach einem Prufungszeitraum von einem Monat sein Einverstandnis mit dieser Mietflachenberechnung zu erteilen bzw. seine Einwendungen schriftlich darzulegen. Im letzteren Falle werden die Vertragsparteien bei unterschiedlichen Flachenberechnungen Einvernehmen erzielen. Die zwischen Vermieter und Mieter verbindlich festgestellten Flachen gelten insbesondere im Rahmen des Section 5, Ziffer 1 (Mietzins und Nebenkosten). Die dann geltende Mietflache wird in einem Nachtrag zum Mietvertrag rechtsverbindlich fur beide Vertragsparteien festgesetzt. Ergibt sich nach einem Aufmass eine Abweichung von der berechneten Mietflache um mehr als +/- 1,5% so wird der Mieztins angepasst. 2 5. Nach dem verbindlic in Section 1 Ziff 2 festgelegten Abgabetermin geausserte Anderungswunsche des Mieters bezuglich des Ausbaus und der Gestaltung des Mietebjektes wird der Vermieter nach Moglichkeit berucksichtigen, sofern dies im Hinblick auf die Statik und den Charakter des Mietobjektes moglich ist. Ein Anspruch auf Berucksichtigung solchor Anderungswunsche besteht nicht. In jedem Fall ist uber solche nachtraglichen Anderungswunsche des Mieters eine schriftliche Nachtragsvereinbarung zu diesem Mietvertrag zwischen den Ventragsparteien zu treffen. Darin sind mindestens zu regein; - etwaige Anderungen der Planungsunterlagen - welche Vertragspartei die eventuellen Mehrkosten der Anderungswunsche einschliesslich eventuell zusatzlich anfallender Planungs-, Genehmigungs- oder Ingenieurkosten tragt und - im Falle einer Verzogerung des Ubergabetermines an den Mieter die Dauer der Verzogerung und der neue Ubergabetermin Auf Section 5 Ziff 2, Abs 2 wird verwiesen. 6. Der Vermieter wird das Mietobjekt dem Mieter bis zum .01.08.1999 bezugsfertig zur Verfugung stellen. Bei bauverzogernden Anderungswunschen des Mieters (vgl. Section 1 Ziff. 5) gilt der in der Nachtragsvereinbarung festgestellte neue Termin der Bezugsfertigstellung. Das Mietverhaltnis verlangert sich um die Dauer der Bauverzogerung. 3 SECTION 2 MIETZWECK 1 Der Mieter ist berechtigt, das Mietobjekt zu Burozwecken (Geb B/C) sowie zum Betreib und zur Aufstellung von Telekommunikationsanglen (Hallen-Technikflache Geb. D) zu nutzen. Der konkrete Nutzungzweck ergibt sich aus der als Anlage 4 diesem Vertrag beiegfugten Betriebsbeschreibung, die Bestandteil dieses Vertrages ist. Die Aussenflachen durfen nicht zu Lager-, Reparatur-, Wartungszwecken o. a. genutzt werden. Fahrzeuge des Mieters, seiner Besucher und Arbeitnehmer durfen nur auf den ausgewiesenen Platzen abgestellt werden. 2 Der Vermieter ist daur verantwortlich, dass das Mietobjekt general zu dem Ziffer 1 genannten Mietzweck nutbar ist. Erggehen nachtraglich behordlich Anordnungen oder Auflagen oder andern sich die einschlagig offentlich-rechtlichen, so ist fur deren Erfullung der Vermeiter verantwortlich. Der Meiterist ist dafur verantwortlich, dass er spatestens bei Ubergabe im Besitz der erforderlichen behordlichen Genehmigungen fur die von ihm konkret ausgeube Nutzung des Mietobjecktes nach Ziffer 1 und gemass der Betriebsbeschreibung (Anlage 4) ist und dass diese Nutzung auch sonst im Einklang mit den anwendbaren offerntlich-rechtlichen Vorschriften steht. Meiter ist dem Vermeiter schadenersatzpflichtig, wenn diese Voraussentzungen nicht erfullt sind und daraus dem Vermeiter ein Schaden entsteht. Ergehen kunftige behordliche Anordnungen in Bezug auf die konkrete Nutzung des Mietobjekt durch den Mieter, oder andern such sonst die insoweit anwendbaren offerntlich-rechtlichen Vorschriften, so hat der Mieter die daraus such ergebenden Anforderungen auf seine Kosten zu erfullen. 3. Der Mieter kann die gemaB Section 2 Ziff. 1vereinbarte Nutzung nur nach vorheriger, schriftlicher Zustimmung des Vermieters andern. Der Vermieter kann diese Zustimmung nur aus wichtigem Grund verweigern. Sollte durch die beabsichtigte Nutzungsanderung ein (bau-)behordliches oder sonstiges Genehmigungserfordernis oder eine Anzeigepflicht zu erfullen sein, so hat der Mieter dies auf eigene Kosten und auf eigenes Risiko zu erfullen. Soweit die Erfullung solcher Genehmigungserfordernisse bzw. Anzeigepflichten die Mitwirkung des Vermiters erfordlich mach, hat der Mieter alle notwendigen Plane und Unterlagen auf seine Kosten zu beschaffen und dem Vermieter zur Unterzeichnung vorzulegen. Eine Haftung fur die Genehmigungsfahigkeit der beabsichtigten Nutzungsanderung ubernimmt der Vermieter nicht. Auch bei Nutzungsanderungen gilt Section 2, Ziff. 2, Abs. 2 entsprechend. 4. Jeglicher Konkurrenz- und Sortimentsschutz wird ausgeschlossen. 4 5. Noch nicht fertiggestellte Aussenanlagen bzw. noch durckzufuhrende Arbeiten an den Allgemeinflachen im Gebaude berechtigen den Mieter nicht, die Ubernahme die Mietobjektes zu verweigern. 6. Ausser den Tatigkeiten die in Section 2, Ziff. 1 angesprocken sind sowie den damit zusammenhangenden Geraten durfen keine Produkte gelagert oder weiterverarbeitet werden oder Tatigkeiten ausgeubt werden die in irgendeiner Weise fur das Objekt eine Erhohung des Versicherungsrisikos mit sich bringen oder behordlichen Bestimmungen widersprechen. Kosten, die auf die besenderen Tatigkeiten oder Produkte des Mieters (z. B. leicht entflammbare Produkte Servicebetriebe und Ausstellungsbereich Schulungsbereich, Klimatisierung) bzw auf daraus resultierende behordliche, berufsgenossenschaftliche oder versicherungsbedingte Auflagen zuruckzufuhren sind tragt der Mieter. 7 Sollten bauliche oder zwingend erforderliche Massnahmen die Zuweisung anderer Pkw-Abstellplatze wahrend der Laufzeit des Mietvertrages erfordern, so hat der Vermieter in Absprache mit dem Mieter das Recht, vorubergehend andere Platze anzuweisen. SECTION 3 UNTERVERMIETUNG 1 Dem Mieter ist eine Untervermietung oder eine Gebrauchsuberlassung an Dritte nur nach vorheriger schriftlicher Zustimmung des Vermieters gestattet. Die Zustimmung kann dor Vermieter nur versagen wenn ein wichtiger Grund vorliegt. Fur den Fall, dass der Mieter im Rahmen des Untermietverhaltnisses einen hoheren Mietzins vereinbart, als er selbst nach diesem Vertag schuldet, ist der Vermieter berechtigt, seine Zustimmung zur Untervermietung davon abhangig zu machen, dass im Hauptmietverhaltnis eim Zuschlag von 50% des Differenzbetrages zur erzielten Miete des Untermietverhaltnisses vereinbart wird. Der Mieter haftet fur alle Handlungen oder Unterlassungen des Untermieters oder desjenigen, dem er den Gebrauch der Mietraume uberlassen hat, im gleichen Umfang wie fur eigenes Handeln. 2 Im Falles des Verstosses gegen das Verbot der Untervermietung kann der Vermieter das Mietverhaltnis nach fruchtloser Abmahnung und angemessener Fristsetzung ausserordenlich kundigen. 3 Fur den Fall der Untervermietung tritt der Mieter dem Vermieter schon jetzt die ihm gegen den Untermieter zustehenden Forderungen nebst Pfandrechten bis zur Hohe der Forderungen des Vermieters sicherheitshalber ab. 5 SECTION 4 MIETZEIT 1. Das Mietverhaltnis beginnt am 01.08.1999 und lauft bis zum 31.07.2009. Es verlangert sich um 5 Jahre, wenn es nicht spatestens 12 Monate vor Ablauf der Mietzeit schriftlich per Einschreiben gekundigt wird. Die Kundigung muss bis zum 3. Werktag des ersten Monats der Kundigungsfrist zugestellt sein. 2. Bezugsfertigkeit ist gegeben, wenn das Mietobjekt entsprechend den Planungsunterlagen (Section 1, Ziff. 2) fertiggestellt ist, so dass der Bezug und die Nutzung zu dem vertraglich vereinbarten Mietzweck dem Mieter moglich sind. Am Tag der Bezugsfertigkeit wird das Mietobjekt dem Mieter zur Nutzung ubergeben. Die Parteien erstellen ein Ubergabeprotokoll, in dem eventuelle Mangel des Mietobjektes verbindlich festgestellt und noch ausstehende Restarbeiten bzw. zu beseitigende Mangel erfasst werden. Bei Bezugsfertigstellung vorhandene geringfugge Mingel bzw. noch ausstehende Rest arbeiten, die den Betriebsablauf des Mieters nicht wesentlich beeintrachtigen, verzogern die Bezugsfertigstellung des Mietobjektes nicht. Die im Ubergabeprotokoll festgehaltenen etwaigen Mangel bzw. noch ausstehenden Resterbeiten sind von dem Vermieter nach einem festzulegenden Zeitplan zu beheben bzw. durchzufuhren 3. Der Vermieter ist berechtigt die Ubergabe des Mietobjektes von der vorherigen Leistung der Sicherheit abhangig zu machen. 6 SECTION 5 MIETZINS UND NEBENKOSTEN I 1 Der monatliche Mietzins setzt sich wie folgt zusummen: Grosse ca. Art der angemieteten Flachen DM/m(2) DM insgesamt 1.272 m(2) Nutzflache bestehend aus: 1.047 m(2) Hallen-/Technikflache 21,50 22.510,50 225 m(2) Buroflache 24,00 5.400,00 4 Stck. Pkw-Stellplatze im Freien 100,00 400,00 Gesamt-Monatsmiete netto - -ohne Betriebskostenvorauszahlung 28.310,50 Betreibskostenvorauszahlung gemass Section 5, Ziff. 6: 1.272 m(2) Heizkosten 1.272 m(2)sontige Betriebskosten 4,50 5.724,00 Gesamt -Monatsmiete netto 34.034,50 - -inclusive Betreibskostenvorauszahlung Zzgl.gesetzl. MwSt. (derzeit 16%) 5.445.52 Gesamt -Monatsmiete brutto - -inclusive Betreibskostenvorauszahlung 39.480,02
7 2. Mietzins, Betreibs- und Heizkostenvorauszahlung und Mehrwertsteuer sind monatlich ab Bezugsfertig stellung im Sinne des Section 4 Ziff. 2 und 3 dieses Vertrages zu zahlen. lm Falle einer Verzogerung der Bezugsfertigstellung durch nachtragliche Anderungswunsche des Mieter (vgl. Section 1, Ziff. 5) hat der Mieter dem Vermieter den verzogerungsbedingten Mietausfall zu ersetzen; massgebend ist der fur diesen Fall in der Nachtragsvereinbarung gemass Section1 Ziff. 6 festgelegte Verzogerungszeitraum. 3. Mietzins, Betriebskostenvorauszahlung und Mehrwertsteuer sind monatlich im voraus - spatestens bis zum 3. Werktag eines jeden Monats eingehend - auf folgende Bankverbindung BLZ 501 204 00 bei der Berliner Bank AG Frankfurt/Main Konto-Nr. 8 516 199 300 Porto- und spesenfrei zu uberweisen. Fur die Rechtzeitigkeit der Zahlumg kommt es auf die Guttschriff des Bertrages an. 4. Bei verspateter Zahlung ist der Vermieter berechtigt, pauschalierte Mahnkosten je Mahnung in Hohe von DM 10,00, inclusive Mehrwertsteur zuzuglich Verzugszinsen in Hohe des entstandenen Schadens zu berechnen. 5. Befindet sich der Mieter mit Zahlungen im Ruckstand ,so sind Zahiungen zunachst auf Anspruche, deren Verjahrung droht, dann auf Kosten, Zinsen und ubrige Schluden anzurechnen. Bei Zahlungsverzug sind Verzugszinsen in Hohe von 7 % zu entrichten. 6. Folgende Nebenlosten sind im dem vereinbarten Mietzins nicht enthalten und deshalb gesondert zu zahlen:
KOSTENART VERTEILUNGSSCHLUSSEL --------- -------------------- 01. Wasser nach Verbrauch (Messgerate) 02. Kanal/Siel (Entwasserung) nach Verbrauch cbm-Wasser 03. Beleuchtung, Allgemeinstrom nach qm-Mietflache z.B. fur Treppenhaus Hof,Parkplatz,Gemeinschaftsflachen,Aufzu ge Heizung 04. Mullabfuhr nach qm-Mietflache (gem.Rechnungen der Stadtwerke bzw. Contianerdienste) 05. Grundsteuer nach qm-Mietflache 06. Strassen- und Burgersteigreinigung Schnee und Eisbeseitigung, Pflege und Reinigung samtlicher Aussenanlagen wie Grunflachen, Gehwege, Aussenparkplatze, Anfahrtswege usw. nach qm-Mietflache 07. Schornsteinfeger nach qm-Mietflache 8 KOSTENART VERTEILUNGSSCHLUSSEL --------- -------------------- 08. Sach- und Haftpflichtversicherunqen nach qm-Mietflache (dazu gehoren z.B. Feuer-Ltg.- wasser-, Sturm-Vers., Grundbesitzerhaftpflicht-, Glasbruch-, Elementarvers.) nach qm-Mietflache. 09. Hausmeister nach qm-Mietflache 10. Hausverwaltung 4 % der Netto-Miete (Raum-u. Parkpl.-Miete) 11. Personen-/Lasten-Aufzuge nach qm-Mietflache (z.B. fur Vollwartung, Prufgeb., Prufgewichte etc.) 12. Antennen-/Kabelanschluss nach qm-Mietflache 13. Hausreinigung und Ungezieferbekampfung nach qm-Mietflache (z.B. Treppenhau ser, Gemeinschaftsflachen Aufzuge) 14. Heizung nach Verbrauch gem. Messeinrichtunqen im Verhaltnis 70 (Verbrauch) 30 (Grundkosten) 15. Warruwasser nach Verbrauch gem. Messeinrichtunqen im Verhaltnis 70 (Verbrauch) 30 (Grundkosten) 16. die Kosten der Unterhaltung und Wartung von Tocen, Zugangsturen, Entwasserungshebeanlagen, Rauchwarn und Notstromanlagen, Tauchpumpen, Blitzschutzanlagen, Sicherheitsbeleuchtung, Feureloschern, Tank und Lecksicherungsanlagen, Transformatoren, Brandmeldeanlagen, Hydranten. nach qm-Mietflache 17. die Kosten der Bewachung und sonstigen Verkehrssicherung 18. die Kosten der Betriebes der Klima sowie der Be- und Entluftungsanlage 19. Gebaudebewachtung nach qm-Mietflache
Schlussel fur die Kostenaufteilung nach qm-Mietflache ist der prozentuale Anteil des Mieters an der Summe der Gebaudemietflache brw. an der Mietflache des Gesamtobjektes, wenn dieses aus mehreren Gebauden besteht. Kostenarten werden nur berechnet, soweit die vorerwahnten Einrichtungen tatsachlich im Mietobjekt vorhanden und den Mietern zur Nuzung zur Verfugung stehen. 7. Zu den Kosten des Betriebs der zentralen Heizungsanlage und der zentralen Warmwasserversorgung gehoren die Kosten der verbrauchten Brennstoffe und ihrer Lieferung, die Kosten des Betriebsstromes die Kosten der Bedienung, Uberwachung, und Pflege der Anlage, der regelmassigen Prufung ihrer Betriebsbereitschaft und Betriebissicherheit einschliesslich der Reingung des Hauses nach Anlieferung von Brennstoffen, die Kosten der Messungen nach dem Bundesemissionsschutzgesetz sowie die Schornsteinfegergebuhren, soweit diese nicht anderweitig umgelegt werden, und die Kosten die Anmietung oder anderer Arten der Gebrauchsuberlassung einer Ausstattung zur Verbrauchserfassung sowie die Kosten der Verwendung einer Ausstattung zur Verbrauchserfassung einschliesslich der Kosten der Berechnung und Aufteilung. 9 Zu den Kosten der Lieferung von Fernwarme gehoren die Kosten der Warmelieferung (Grund-, Arbeits- und Verrec hnungspreis) und die Kosten des Betriebes der zugehorigen Hausanlangen wie oben. Macht eine Mietpartei von der Heizungsanlage keinen Gebrauch, befreit dies nicht von der Verpflichtung zur Beteiligung an der Heizungskosten. Die Kosten einer notwendig werdenden Zwischenablesung tragt der Mieter. Die vermieteten Raume sind an Werktagen wahrend der Heizperiode (1. Oktober bis 30 April) in der Betriebszeit angemessen zu beheizen, soweit nicht betriebsbedingte andere Heizzreiten notwendig sind. Ausserhalb der Heiper iode kann die Beheizung nur verlangt werden, wenn die Aussentemperatur an drei aufeinderfolgenden Tagen um 21.00 Uhr unter 12 Grad Celsius sinkt. 8. Der Vermieter bestimmt die Hohe der Vorauszahlungen auf die Kosten der Heiz- und Warmwasserversorgung sowie auf die ubrigen Nebenkosten unter Berucksichtigung der letzen Abrechnung einerseits und der zu erwartenden Kostenanderung andererseits nach billigem Ermessen. Die Abrechnung erfolgt einmal jahrlich fur das vorangegangene Kalenderjahr zum Stichtag 40. 6. Hierbei erfolgt auch die Aubrechnung folgenden nachsten Mietzahlungstermin zu leisten. Uberschusse werden innerhalb von zwei Wochen erstattet. Die Belege zur jeweiligen Betriebs und Nebenkostenabrechnung konnen durch den Mieter eingesehen werden. Auch wenn das Mieterverhaltnis innerhalb eines Abrechnungszeitraumes endet, erfolgt die Abrechnung gegenuber dem Mieter und die zeitanteilige Kostenverteilung erst mit der nachsten Nebenkostenabrechnung. Der Vermieter behalt sich das Recht vor, die monatlichen Vorauszahlungen auf Betriebs und Nebenkosten alle drei Monate zu uberprufen und gegebenenfalls aufgrund enstandener Kostensteigerung, zu andern sowie einzeine Vorauszahlungen fur grossere Nebenkostenbetrage zu verlangen, die ebenfalls zum nachstmoglichen Mietzahlungstermin zu zahlen sind. Werden nach Mietbeginn Gebuhren oder sonstige Nebenkosten neu erhoben, die mit der Bewirtschaftung des Gebaudes zusammenhangen, ist der Vermieter berechtigt, die entsprechenden Betrage vom Zietpunkt ihrer Entstehung von dem Mieter erstattet zu verlangen. 9. Der Mieter tragt unmittelbar die Gebuhren und Kosten fur seinen Stromverbrauch in dem Mietobjekt einschliesslich Zahlergebuhren und Installationskosten und zahlt diese direkt an das Versorgungsunternehmen. 10 Der Reinigung der inneren und ausseren Glas- und Jalousienflachen (Rolladenflachen) beauftragt der Mieter auf seine Kosten mindestens viermal pro Jahr unmittelbar an ein Fachunternehman und tragt die dafur anfallenden Kosten. 10 11. Der Vermieter behalt sich vor, den Zeitpunkt einseitig zu bestimmen, ab dem alle sich aus dem Vertragsverhaltnis ergebenden Zahlungsverpflichtungen nur noch in EURO zu erfullen sind. Die Umrechnung von DM in EURO erfolgt auf der Grundlage des durch den Rat der Europaischen Union am 31.12 1998 festgelegten Umrechnungskurses. Die Parteien sind sich ferner daruber einig, dass die Umstellung von DM auf EURO keinen Kundigungs-, Rucktritts- oder Anfechtungsgrund darstellt und keinen Anspruch auf eine Vertragsanderung oder Nachvernhandlung des Vertrages oder einzelner seiner Bestimmungen begrundet. SECTION 6 SICHERHEITSLEISTUNG 1. Zur Sicherung aller Anspruche des Vermieters gegen den Mieter aus den Mietverhaltnis ubergibt der Mieter dem Vermieter als Hauptpflicht aus diesem Vertrag eine schriftliche, unbefristete, unwiderrufliche, selbstschuldnerische Burgschaft einer inlandischen Grossbank, wobeider Burge sich zu verpflichten hat, auf erstes Anfordern zu zahlen, und die Burgschaft eine Befugnis des Burgen zur Hinterlegung nicht enthalten darf. Diese Burgschaft wird ausgestellt in der Form gemass Anlage 3 zu diesem Mietvertrag in Hohe von drei Bruttomonatsmieten (Raum-/Freiflachenmiete, Parkplaztmiete, Betreibs- und Nebenkosten, Mehrwertsteuer), also DM 118.440,06. Die Uberlassung der Sicherheitsleistung hat rechtzeitig vor Ubergabe der Mietraume zu erfolgen. Sofern sich die vorgenannten monatlichen Zahlungsverpflichtungen des Mieters erhohen, kann der Vermieter eine entsprechende Auffullung der Sicherheitsleistung verlangen. Die Burgschaft ist vom Vermieter nach Beendigung des Mietverhaltnisses und Auszug des Mieters Zuruckzugeben, sofern samtliche Verpflichtungen des Mieters aus dem Mietverhaltnis erfullt worden sind. Die Buegschuft wird angemessen reduziert, soweit der Vermieter noch Nebenkosten nach Beendigung des Mietverihaltnisses abrechnen wird und Nachzahlungen zu erwarten sind. 11 SECTION 7 ANDERUNG DES MIETZINSES 1. Steigt oder fallt der monatliche Preisindex fur die Lebenshaltungskosten eines Vier-Personen-Arbeitnehmer-Haushaltes mit mittlerem Einkommen im Bundesgebiet, wie er vom Statistischen Bundesamt in Wiesbaden festgestellt wird, um mindestens 5 Punkte, so steigt oder fallt der Meitzens gemass Section 5, Ziff. 1 entsprechend. Als Bezugsgrosse vereinbaren die Parteien den Lebenshaltungskostenindex im Monat des Vertragsabschlusses auf der Basis 1991 = 100. Die Anderung der Miete wird wirksam zum 1. des Monats, der dem Monat folgt in dem die Voraussetzungen fur eine Anderung des Mietzinses gegeben waren. Die Anpassung des jeweils geschuldeten Mietzinses erfolgt automatisch, so dass der der Anderung des Index angepasste Mietzins per 1. des Folgermonats nach Eintritt der Mietzinsanderung geschuldet wird. Der Vermieter ist verpflichtet, dem Mieter eine Anderung des Preisindex bzw. des Mietzinses anzuzeigen. 2. Wenn aufgrund der vorstehenden Wertsicherungsklausel eine Anpassung des Mietzinses durchgefuhrt worden ist, so wird die Klausel gemass den Bestimmungen des vorangehenden Absatzes erneut anwendbar und ist der Mietzins demgemass erneut anzupassen, sobaid sich der Index erneut gegenuber seinem Stand zum Zeitpunkt der vorangegangenen Anpassung um mindestens 5 Punkte nach oben oder unten verandert hat. 3. Sollte der Lebenshaltungskostenindex 1991 = 100 nicht mehr ermitteit werden, so soil eine Uberleitung durch Umrechnung auf die Basis des nachsten denn jeweils veroffentlichten Lebenshaltungkostenindex erfulgen, im ubrigen aber wie vorstehend verfahren werden. Das gilt bei allen spateren Umstellungen de Lebenshaltungkostenindex auf ein anderes Basisjahr. 4. Sollten sich die fur doe Ermittlung des Lebenshaltungkostenindex zustandigen Behorden andern, so treten deise an die Stelle des derzeit zustandigen Bundesamtes fur Wirtschaft. Dies gilt insbesondere, wenn zu einem sparteren Zeitpunkt innerhalb der EU eine andere Behorde zustandis sein sollte. 12 SECTION 8 OPTION DES VERMIETERS 1. Der Vermieter weist darauf hin, dass er zur Umsatzsteuer optiert hat. Der Mieter sichert zu, dass er die Mietsache ausschlie(beta)lich fur Umsatze verwenden wird, die den Vorsteuerabzug nicht ausschliessen. Der Mieter wird bis spatestens zum 10. Januar eines jeden Jahres dem Vermieter bestatigen, dass er die Mietsache auch in Zukunft nur fur die Erzielung von Umsatzen verwenden wird, die den Vorsteuerabzug nicht ausschliessen. Auf Verlangen des Vermieters ist der Mieter verpflichtet, geeignete Unterlagen dem Vermieter zur Prufung zur Verfugung zu stellen. 2. Der Vermieter wird ausserdem einerc Untervermietung oder einer Uberlassung des Mietgebrauchs an einen sonstigen Dritten dann nicht zustimmen, wenn der Dritte sich nicht verplichtet hat, die Mietsache, die Gegenstand seines Vertrages mit dem Mieter ist, nur fur Umsatze zu verwenden, die Vorsteuerabzug nicht ausschliessen. 13 SECTION 9 VERSICHERUNGEN 1. Die ublichen Gebaueversicherungen (z. B. Feuer, Sturm, Leitungswasser und Gebaude-Haftpflicht) sowie erganzende Versicherungen werden von dem Vermieter abgeschlossen. Die entstehenden Kosten tragt der Mieter im Rahmen der Betreibskosten. Sollte nach Mietbeginn der Mieter bauliche Veranderungen am Mietobjekt vornehmen, so ist es Sache des Mieters, sich daruber zu informieren, ob diese baulichen Veranderungen von den bestehenden Gebaudeversicherungen abgedeckt sind. Wird eine zusatzliche Versicherung erforderlich so hat der Mieter die Kosten der Hoherversicherung bzw. der zusaztlichen Versicherung zu tragen. Sofern es der Mieter versaumt, den Vermieter auf das Erfordenis einer Hoherversicherung hinuweisen, hat der Vermieter einen Anspruch gegen den Mieter auf Ersatz all desjenigen Schadens, der ihm aus einer fehlenden Versicherungsdeckung entstanden ist bzw. Fur den der Vermieter gegenuber Dritten aus diesem Grunde einzustehen hat. EtwaigeAnspruche des mieters gegen den Vermieter, die sich aus dem fehlenden Versicherungsschutz begrunden, sind ausgeschlossen. 2 Wahrehn der Dauer des Mietverhaltnisses ist der Mieter verpflichtet, eine Versicherung zur Abdeckung folgender Risiken im Zusammenhang mit dem Mietobjekt abzuschliessen und aufrechtzuerhalten. a) Eine Haftpflichtversicherung gegen personen-und Sachschaden Dritter im Zusammenhang mit der Nutzung und dem Innehaben der Mietraume durch den Mieter. Die Mindestdeckungssumme hat DM 2 Mio. je Schadensereignis zu betragen. Daneben hat der Versicherungvertrag ausdrucklich folgende Risiken abzudecken; Beschadigung der Mietraume durch Brand, Explosion, Leitungs- und Abwasserleitungsbruch; Beschadigung der Mietraume durch sonstige Ursachen sowie Abdeckung des durch abhandengekommene Schlussel entstehenden Risikos. Die Versicherung muss das Interesse des Vermieters fur den Fall abdecken, dass Anspruche gegen diesen erhoebn werden. b) Der Mieter hat eine Sachversicherung fur samtliche Einrichtungen in bzw. an den Mietraumen, die nicht wesentlicher Gebaudebestandteil sind, in angemessener Hohe abzuschliessen. c) Der Mieter ist weiterhin verpflichtet, eine Betriebsunterbrechungsversicherung auf eigene Kosten abzuschliessen. Die Police ist dem Vermieter unaufgefordert vorzulegen. 14 SECTION 10 AUHICHNUNG, ZUNICLIBEHALTUNG 1. Der Mieter kann gegenuber Mietforderungen nur aufrechnen oder ein Zuruckbehaltungrecht ausuben, wenn er seine Absicht mindestens einen Monat vor der Falligkeit der Miete schriftlich angezeigt. 2. Fur nicht in Anspruch genommene Ausstattungen bzw. Mietbereichsausbauten (siehe Section 1 des Mietvertrages) hat der Mieter keinen Anspruch auf Vergutung bzw. Verrechnung. SECTION 11 BAULICHE GESTALTUNG UND VERANDERUNGEN 1. Veranderungen an und in der Mietsache, insbesondere Um- und Einbauten sowie alle Elektro und Sanitarinstallationen usw. durfen nur mit Einwilligung des Vermieters vorgenommen werden. Vor Durchfuhrung von Veranderfungen ist unter Volrage von unterschrieben Planen und einer Baubeschreibung die schriftliche Genehmigung des Vermieters einzuholen. Der Vermieter kann die Einwilligung aus berechtigtem Interesse verweigern. Der Mieter tragt alle fur die Baumassnahme anfallenden Kosten fur Instandhaltung und Reparatur dieser Massnahmen. 2. Werbeanlagen fur Namens und Firmenschilder an den Gebauden sowie Hinweisschilder im Aussenbereich werden vom Vermieter einheitlich gestaltet und angebracht. Das Bestimmungsrecht liegt bei dem Vermieter, der, soweit eine einheitliche Gestaltung dies zulasst, Wunsche des Mieters berucksichtigen wird. Zusatzliche Hinweisschilder sowie jede sonstige Art von Werbeanlagen im Gesamtobjekt oder an dem Gebaude sind unzulassig. Die Kosten der Beschriftung von Namens-, Firmen- und Hinweisschildern und deren Anbringung auf den Werbeanlagen tragt der Mieter. 3. Der Vermieter darf Ausbesserungen und bauliche Veranderungen, die zur Erhaltung oder zur besseren wirtschaftlichen Verwertung des Gebaudes oder des Mietobjekt, zur Abwendung drohender Gefahren oder zur Beseitigung von Schaden oder fur eventuelle Ubbau- und Renovierungsmassnahmen im Zuge der Neu- und Weitervermietung von anderen Mietflachen im Gebaude oder dem Objekt notwendig werden, auch ohne Zustimmung des Mieters vornehmen. Dies gilt auch fur Arbeiten, die zwar nicht notwendig, aber zweckmass sind (z. B. Modernisierung des Gebaudes oder des Mietobjektes). Der Mieter hat die in Betracht kommenden Raume zuganglich zu halten und darf die Ausfuhrung der Arbeiten nicht hindern oder verzogern; andernfalls hat er die dadurch entstehenden Schaden zu ersetzen. Auf die betrieblichen Belange des Mieter ist Rucksicht zu nehmen insbesondere dadurch, dassdir Vermieter verpflichtet ist, die Storung moglichst gering zu halten und den Mieteruber anstenhende Arbeiten in aller Regel rechzeitig vorab zu informieren. Die Einbringung rind Verlegung von Daten und Kommunikationsleitungen sowie Einrichtungen und Anlagen und deren Instandhaltung Reparatur oder Erneuerung sind Sache des Mieters,ebenso erforderliche Drehstromanschlusse. 15 SECTION 12 INSTANDHALTUNG DES MIETOBJEKTES, HAFTUNG 1 Der Mieter ist verpflichtet, das Mietobjekt schonend und pfleglich zu behandein. Schaden an dem Mietgegenstand sind von dem Mieter, sobald sie bemerkt werden, schriftlich dem Vermieter anzuzeigen. 2 Dem Mieter obliegt die Instandhaltungspflicht bezogan auf die Mietsache. Er hat deshalb alle Massnamen vorzunehmen, die erforderlich sind, um die Mietsache in einem vertragsgemassen Zustand zu erhalten. Schaden sind vorbeugend abzuwehren. Daruber hinaus ist dar Mieter auch rur Instandsetzung der Mietsache verpflichtet. Der Mieter hat insoweit alle auftretenden Schaden an der Mietsache zu beseitigen, die durch den Mietgebrauch (incl.Verschleiss) enstehen. Insoweit treffen den Mieter auch die teilweise oder vollstandige Erneuerung einzelner Teile der Mietsache. Die Instandsetzung und Instandhaltung umfassen u.a. auch die Reparatur und Erneuerung von Elektro- und Sanitarinstallationen, Fenster und Turverschlussen sowie technischen Einrichtungen und Anlagen. Jalousien und Rolladen werden ebenfalls erfasst. Der Mieter ist nicht verpflichtet, wahrend der Mietzeit Schonheitsreparaturen auszufuhren. 3 Dem Mieter obliegen die Sauberhaltung des Mietobjektes sowie die erforderlichen Verkehrssi cherungspflichten fur das Mietobjekt gemass den gesetzlichen Bestimmungen. Unter Verkehrssicherungspflichten fallen z.B. die Pflicht zur Streuung bei Glatteis und zur Schneeraumung. Hinsichtlich des Winterdienstes konnen Absprachen zwischen Vermieter und Mieter dahingehend getroffen werden, dass ein von dem Vermieter beauftragtes Unternehmen den dem Mieter obliegenden Winterdienst auf Kosten des Mieters miterledigen kann. Fur den Fall, dass eine Sonderabsprache getroffen wird, wird hierdurch eine eventuelle Haftung aus Verletzung der Verkehrssicherungspflichten des Mieters nicht beruhrt. 4 Der Mieter hat sich sorgfaltig und regelmassig zu vergewissern, dass die gemass Baubeschreibung zulassige Belastung der Stockwerksdecken und die vereinbarte Stromentnahme nicht uberschritten werden. Bei Zuwiderhandlung hat er jeden dem Vermieter oder Dritten dadurch entstehenden Schaden zu ersetzen. 16 SECTION 13 BETRETEN DES MIETOBJEKTES DURCH DEN VERMIETER 1. Der Vermieter oder ein von ihm Beauftragter kann wahrend der Geschaftszeit, nach vorheriger Benachrichtigung des Mieters, das Mietobjekt betreten, um das Mietobjekt auf seinen ver tragsgemassen Zustand uberprufen zu konnen, die Notwendigkeit eventueller Ausbesserungen festzulegen, um Messeinrichtungen abzulesen etc. Der Mieter hat das Recht, fur diese Besich tigung eine Begleitperson an den Terminen teilnehmen zu lassen. 2. Will der Vermieter den Grundbesitz verkaufen so kann er nach vorheriger Absprache mit dem Mieter das Mietobjekt wabrend der Geschaftszeit betreten. An Sonn- und Feiertagen bedart dies jedoch einer ausdrucklichen Genehmigung des Mieters. Das gleiche gilt in einem Zeitraum von zwolf Monaten vor Ablauf des Mietverhaltnisses fur das Betreten des Mietobjektes durch den Vermieter und/oder einen neuen Mietinteressenten. 3. Der Mieter duldet, dassdie Mietmume jederzeit vom Vermieter bei Gefahr betreten werden konnen. 17 SECTION 14 BEENDIGUNG DES MIETVERHALTNISSES 1. Zwischen den Vertragsparteien besteht das Einvernehmen, dass der Mieter grundsatzlich bei Beendigung des Mietverhaltnisses die Durchfuhrung von Schonheitsreparaturen schuldet. Der Mieter ist verpflichtet, bei Beendigung des Mietvertrages das Mietobjekt mit samtlilchen Schlusseln zuruckzugeben. 2. Der Mieter tragt die Kosten der Renovierung des Mietobjektes bei Beendigung des Mietverhaltnisses. Die Renovierungskosten umfassen u.a. das Tapeziere, das Streichen oder die sonstige Neubehandlung von Wanden und Decken, Heizkorpern und Verkleidungen, Fenastern, Einbauschranken, Innen- und Aussenturen, ferner den Ersatz verbrauchter Teppichboden bzw. sonstiger Bodenbelage sowie die Grundreinigung des PVC-Bodens. 3 Den Umfang der erforderlichen Renovierungsarbeiten sowie die dafur aufzuwendenden Kosten stellt ein von beiden Seiten zu beauftragender Architekt oder ein von der Handwerkskammer zu benennender Sachverstandiger fest. Dabei ist davon auszugehen, dass das Mietobjekt bei Beendigung des Mietverhaltnisses fachgerecht in der Art und Weise und mit den Materialien oder gleichwertigen Ersatzprodukten renoviert wird, wie sic vom Vermieter bei Herstellung verwandt worden sind. Die Feststellungen des Architekten oder sonstigen Fachmannes sind fur beide Vertragsparteien massgebend und verbindlich. Der Mieter zahlt die danach festgestellen Renovierungskosten an den Vermieter langstens innerhalb eines Monats ab Feststellung der Hohe und Mitteilung an den Mieter. Der Mieter ist verpflichtet, dem Architekten oder sonstigen Fachmann und den zur Angebotsabgabe aufgeforderten Firmen rechtzeitig vor Ruckgabe des Mietobjektes spatestens aber neun Monate vor Ablauf des Vertragsverhaltnisses, das Betreten zum Zwecke der Feststellung der Renovierungsbedurftigkeit zu gestatten. 4. Einrichtungen mit denen der Mieter das Mietobjekt vor oder wahrend der Dauer der Mietzeitversehen hat, hat der Mieter unter Wiederherstellung des ursprunglichen Zustandes zu beseitigen, es sei denn, da(beta) der Vermieter sich damit einverstanden erlart, dass alle bzw. einzeine Einrichtungen in dem Mietobjekt bleiben. 5. Der Mieter hat ferner bei von ihm vorgenommenen baulichen Veranderungen die Kosten der Wiederherstellung des fruheren Zustandes zu tragen, falls der Vermieter die Wiederherstellung des fruheren Zustandes verlangt. Des Verfahren und die Feststellung dieser Kosten regelt sich entsprechend Section14, Ziff. 3 entsprechend. 18 SECTION 15 AUSSERORDENTLICHE KUNDIGUNG 1. Der Vermieter kann das Mietverhaltnis aus wichtigem Grund mit sofortiger Wirkung insbesondere dann kundigen, wenn a) der Mieter mit der Zahlung des Mietzises oder mit sonstigen Zahlungspflichen in Hohe von zwei Monatsmieten im Ruckstand ist, b) der Mieter seiner Verpflichtung zur Leistung der Sicherheit gemass Section 6 des Vertrages trotz Mahnung und Fristsetzung nicht nachkommt. c) Jede Partei kann das Mietverhaltnis aus wichtigem Grund mit sofortiger Wirkung dann kundigen, wenn ein Antrag auf Eroffnung des Insolvenzverfahrens uber das Vermogen der anderen Partei gestellt und nicht binnen 4 Wochen zuruckgenomnen wird, die andere Partei die eidesstattliche Versicherung gemass Section 807 ZPO abgegehen hat oder ein Haftbefehl hierzu ergangen ist oder ein aussergerichtliches, der Schuldenregulierung dienendes Verfahren durch die andere Partei eingeleitet wird. 2. Bei einer vom Mieter zu vertretenden vorzeitgen Beendigung des Mietverhaltnisses haftet der Mieter fur den Ausfall an Miete, Nebenkosten und sonstigen Leistungen langstens fur die Zeit, fur die das Mietverhaltnis abgeschlossen war sowie fur alle weiteren Schaden, die dem Vermieter durch die vorzeitige Beendigung des Mietverhaltnisses entstehen. 3 Setzt der Mieter nach Ablauf der Mietzeit den Gebrauch der Mietsache fort, gilt das Mietverhaltnis nicht als verlangert Section 568 BGB findet demgemass keine Anwendung. Dies gilt auch fur den Fall, dass das Mietver haltnis aufgrund einer vertraglichen Vereinbarung bzw. nach erfolgter Kundigung auslauft. 4 Im Falle der vollstandingen Zerstirung des uberwiegenden Teils de Mietobjektes durch ein vom Vermieter nicht zu vertretendes Ereignis (z.B. Feuer), ist der Vermeiter zur Wiederherstellung de Mietobjektes nicht verpflichtet. Beide Vertragsparteien konnen mit Wirkung fur den Zeitpunkt der Zerstorung der Mietsache das Mietverhaltnis fur beendet erklaren unabhangig davon, ob das Mietobjekt zu einem spateren Zeitpunkt neu errichtet wird der Vermeiter dem Mieter vor Vermeitung an Dritte rechtzeitig Gelegenheit zur Stellungnahme bezuglich eines neu abzuschliessenden Mieterverhaltnissess geben. 19 SECTION 16 ANDERUNGEN IN DER PERSON DES MIETERS 1. Andert sich die Rechtsform des Unternehmens des Mieters, treten Anderungen bei der Gewerbeerlaubnis oder in anderen, fbr dieses Mietverhaltnis bedeutsamen Zusammenhangen ein, ist der Mieter verpflichtet, dies dem Vermieter unverzuglich schriftlich mitzuteilen. Dies gilt insbesondere fur das Ausscheiden von personlich haftenden Gesellschaftern aus einem Gesellschaftsverhaltnis. Wird durch solche Anderungen die bei Abschluss dieses Vertrages bestehende Bonitat des Mieters mehr als nur unwesentlich beeintrachtigt, so kann der Vermieter den Vertrag unter Einhaltung einer Frist von sechs Monaten kundigen, ausser wenn der Mieter eine entsprechende zusatzliche Sicherheit in Hohe von drei Brutto-Monatsmieten leistet. 2. Will der Mieter alle Rechten und Pflichten aus diesem Mietvertrag auf einen Dritten ubertragen, so ist dies nur moglich, wenn der Vermieter ausschliesslich schrifltich zustimmt. Der Mieter hat keinen Anspruch auf diese Zustimmung. Etwas anderes gilt dann, wenn der Mieter neben dem Nachmieter mitverpflichtet bleibt. 20 SECTION 17 SCHLUSSBESTIMMUNGEN 1. Der vorliegende Vetrag enthalt zusammen mit den Planungsunterlagen, der Mietflachenberechnung, der Baubeschreibung und der Betriebsbeschreibung samtliche getroffenen Vereinbarungen. Anderungen und Erganzungen dieses Vertages bedurfen der Schriftform. Mundliche Nebenabreden bestehen nicht. 2. Sollten eine oder mehrere Bestimmungen dieses Vetrages unwirksam bzw. nichtig sein oder werden, so bleiben die ubrigen Bestimmungen heirvon unberuhrt. Die Vertragsparteien verpflichten sich, diese unwirksame bzw. nichtige Bestimmung durch eine solche wirksame zu ersetzen, die dem wirtschaftlich gewollten Zweck der unwirksamen Bestimmung am nachsten kommt. Gleiches gilt fur eine Lucke im Vertrag. 3 Dieser Vetrag unterliegt der gesetzlichen Schriftform des Section 566 BGB. Sollte sich nach Abschluss diesos Vertrages ein Mangel in der gesetzlichen Schriftform ergeben, so hat jede Vertragspartei gegen die andere Vertragspartei einen Anspruch auf Nachholung der Schriftform. 4 Gerichtsstand und Erfullungsort ist Sitz des Vermieters soweit dies gesetzlich zulassig ist. Auf diese Vereinbarung findet ausschliesslich das deutsche Recht Anwendung. Ort / Datum Ort / Datum /FRANKFURT M, 1.4.99/ /FRANKFURT / M 31.03.99/ - ------------------------ ------------------------- Unterschrift Vermieter Unterschrift Vermieter ERBENGEMEINSCHAFT FISZMAN STAR Telecommunications Eschborner Landstrasse 42-50 Deutschland GmbH 60489 Frankfurt Voltastrasse 1 a 60486 Franfurt am Main - ------------------------- ------------------------- 21 EX-10.72 21 EXHIBIT 10.72 EXHIBIT 10.72 SUMMARY Office and Switch Lease between STAR Telecommunications Deutschland GmbH ("STAR GmbH") and Kallco Projekt Projektges GmbH, 1050 Vienna, for property located at Duckegasse 15, 1220 Vienna, Austria. The lease term begins on February 1, 1999. The lease may be canceled upon three months' notice by either party. STAR GmbH incurs rental charges of approximately 168,000 ATS per month and approximately 32,580 ATS per month in additional expenses. The leased property is approximately 6,467 square feet. MIETVERTRAG Abgeschlossen zwischen KALLCO PROJEKT Donaufelderhof Projektentwicklungsges.m.b.H. 1050 Wien, Schlobgasse 13 (im folgenden kurz, Vermieter" genannt) einerseits und STAR Telecommunications GmbH 1010 Wien, Parkring 10/5 (im folgenden kurz "Mieter" genannt) andererseits wie folgt: PRAAMBEL Die KALLCO PROJEKT "Donaufelderhof" Projektentwicklungsges.m.b.H. ist Eigentumerin der Liegenschft Wien 22, Duckegasse/Prandaugasse/TokiostraBe/ArakawastraBe, EZ 3723, KG 01660 Kagran, auf der sie eine Wohnhausanlage samt Geschaftsraumen (Buro-sowle Gewerbeeinheiten, Geschaftslokale, Lager) und Gemeinschaftseinrichtungen (insbesondere Tiefgarage) errichtet. Die Wohnungen sowle einzelne Geschaftsraume werden aus offentlichen Mitteln gefordert. Festehalten wird, daB der Mietgegenstand, uber den der Vorliegende Vertrag geschlossen wird, aufgrund elner Baubewilligung vom 11. Oktober 1996 neu errichtet wird. Die Vertragsparteien stellen einvernehmlich fest daB fur den gegenstandlichen Mietvertrag - unbeschadet der Geltung zwingender Rechtsnormen des MRG - ausschlieBlich die Bestimmungen dieses Vertrages und subsidiar die Bestimmungen des ABGB rechtswirksam sind. 1. MIETGEGENSTAND 1.l Gegenstand dieses Mietvertrages sind: Top Nr. II.0.01, EG, Stiege II sowie Top Nr. II.2.01 und Top Nr.II.2.02, 2.OG, Stiege I in oben genannter Wohnhausanlage. Als Mietgegenstand gilt lediglich der Innenraum der genannten Tops. 1.2 Der beiliegende Plan sowie die beiliegende Bau- und Ausstattungsbeschreibung bilden integrierende Bestandteile dieses Vertrages. Die Nutzflache des Mietgegenstandes betragt im EG ca. 1.440 m2 (Top Nr.II.0.01) sowie im 2.OG ca. 461 m2 (Top Nr.II.2.01) bzw. ca. 70 m2 (Top Nr.II.2.02) und ist Grundlage fur Die vereinbarte Miete. Abwelchungen bis zu +/- 3 %gegenuber dem tatsachlichen AusmaB (NaturmaB) nach Fertigstellung gelten als unwesentlich und werden beiderseits tolerlert. Vom beiliegenden Plan abweichende Zwischenwande oder Einbauten innerhalb des Mietgegenstandes haben keinen EinfluB aufdie vereinbarte Mietflache, gleichgultig ob sie auf Kosten des Mieters oder des Vermleters hergestellt wurden. 1.3 Der Mietgegenstand dient zum Betrieb von Vermittlungsrechnem fur die Festnetz-Telekommunikation im EG bzw. zur Nutzung als Buro im 2.OG eine Anderung des Mietzweckes bedarf der schriftlichen Zustimmung des Vermieters. Der Vermieter haftet fur keine uber den beiliegenden Plan sowie die beiliegende Bau- und Ausstattungsbeschreibung hinausgehende Eignung des Mietgegenstandes. Der Mieter hat samtliche zum Betrieb seiner Tatigkeit spezifisch erforderlichen behordlichen Bewilligungen selbst und auf eigene Kosten einzuholen. 1.4 Die KFZ-Einstellplatze in der Tiefgarage sind nicht Gegenstand dieses Vertrages. Ober sie wird eine Gesonderte Vereinbarung getroffen. 2. VERTRAGSDAUER 2.1 Das Mietverhaltnis beginnt mit Obergabe und wird auf unbefristeteDauer abgeschlossen. Das Mietverhaltnis kann von beiden Vertragspartnem unter Einhaltung einer dreimonatigen Kundigungsfrist zum Ende eines jeden Quartals aufgekundigt werden. Von selten des Vermieters kann neben den Kundigungsgrunden des MRG eine fristlose Kundigung gemaB $ 1118 ABGB ausgesprochen werden. Der Mieter verzichtet fur die ersten zehn Jahre auf die Ausubung seines Kundigungsrechtes. Eine Teilkundigung ist nicht zulassig. 2.2 Der Vermieter ist zur Obergabe des Mietgegenstandes innerhalb von vier Wochen ab seine nacriweislichen Kenntnls von der Veftragsunterzeichnung~ verpflichtet. Der Mieter verpflichtet. sich, den im Zustand It. big. Plan bzw. laut Bau- und Ausstattungsbeschreibung fertiggestelltel Mietgegenstand zu dem vom Vermieter zumindest zwel Wochen irn Voraus bekanntzugebendell Tennin zu ubernehmen. Ab dem auf die Obemahme folgenden Monatsersten ist auch das Mietentgelt falIlig. Verweigert der Mieter die Obernahme, ohne daB Mangel festqesteilt wurden die die weltere Adaptierung bzw. die Benutzung wesentlich behindern~ verzogert dies nicht den Eintritt der Falligkeit des Mietentgeltes. Aus Verzogerungen in der Fertigstellung andere Mietgegenstande bzw. der AuBenanlagen erwachsen dem Mieter keine Anspruche. Auch eine berechtigte Verweigerung der Obernabme begrundet eine Schadenersatzpflicht des Vermieters nur bei Vorliegen von grobem Verschulden. 3. MIETENTGELT 3.1 Das Mietentgelt besteht aus dem Hauptmietzins, den auf den Mietgegenstand entfallender Betriebskosten einschlieblich elnem Pflegebeitrag sowie der Umsatzsteuer. 3.2 Der monatliche Hauptmietzins betragt zum Zeitpunkt des Vertragsabschlusses ATS 188.OOO,- exklusive Umsatzsteuer. Der Hauptmietzins ist wertgesichert. Die Wertanpassung erfolgt jahrlich analog derr Verbraucherprelsindex 1996 oder einem gleichwertigen, an dessen Stelle tretenden Index. Der jeweils fur Juni verlautbarte Index wird dabei dem letzten vor Vertragsunterzeicbnung verlautbarten Juni-index gegenubergestellt. Aufgrund der Wertanpassung erhont sich die Miete jeweils mit 1. Janner des folgenden Jahres, wobel aufgrund der Finanzierungsbedingungen elne jahrliche Mindeststeigerung von 2 % vereinbart wird. 3.3 Die Betriebskosten umfassen samtliche Aufwendungen und offentlichen Abgaben, die fur einen ordnungsgernaBen Gebrauch der Liegenschaft nutzlich oder notwendig sind. Nahere Regelungen hlezu werden im beiliegenden Vertragsbestnndteil "Kostenverteilung" vereinbart. Der Mieter tragt die Betriebskosten mit dem auf das Mietobjeki entftallenden Anteil laut Nutzwert festsetzung. Fur samtliche Objekte in der Wohnbausanlage gilt, daB Umbauten innerhalb der einzeinen Mietgegenstande - gleichigultig ob sie vor oder nach der Obergabe durchgefuhrt werden - keine Anderungen des Nutawertes nach sich ziehen, sofern sie keinen EinfluB auf die ubrigen Mietgegenstande haben und auf alleinige Kosten des jeweiligen Nutzers erfolgen. Die Betriebskosten werden jahrlich kalkuliert und in gleichbleibenden monatlichen Teilbetragen vorschuBweise gegen jahrliche Verrechnung bis zum 30. Juni des folgenden Jahres eingehoben. Sollten sich durch unvorhergesehene Erhohungen, aber auch Einsparungen, wahrend des Jahres wesentliche Anderungen der Kalkulationsgrundlage ergeben, ist eine Anderung der Akonti auch im laufenden Jahr moglich. Kosten fur Heizung sowie Warmwasser- und Kaitwasserversorgung sind in den Betriebskosten nicht enthalten und werden getrennt verrechnet. Der Mieter verpflichtet sich zum AbschluB eines Einzellieferungsvertrages zu marktublichen Konditionen mit dem Betreiber dur durch die Fernwarme Wien gespeisten zentralen Versorgungsanlage. 3.4 Gemeinsam mIt den Betriebskosten wird ein Pflegebeitrag in Hohe von 3% des gemaB Pkt. 3.2 zur Vorschreibung gelangenden Hauptmietzinses eingehoben, der zur laufenden Pflege und schonheitlichen Erhaltung des Gebaudes dient. Die Instandhaltungsverpftichtung des Vermieters gemaB Pkt. 6.2 bleibt dadurch unberuhrt. 3.5 Die Umsatzsteuer wird in der jeweiligen gesetzlichen Hone vorgeschrieben. Der Hauptmietzins beruht auf der Geschaftsgrundlage, daB der Vermieter gemaB Section 6 Abs.2 UStG 1994 die Option zur Regelbesteuerung wahmehmen kann. Solite aufgrund gesetzlicher Regelungen oder Anderung der Verwaltungsubung diese Regelbesteuerung nicbt mehr moglich sein, die unechte Steuerbefreiunq in Wirksamkeit treten und der Vermieter nicht mehr die Moglichkeit besitzen, Vorsteuem geltend zu machen bzw, verpflichtet werden, berelts zuerkannte Vorsteuern ruckzuerstatten werden die Vertragspartner einen gemeinsamen Ausgleich treffen. 3.6 Das Mietentgelt ist im voraus bis zum Ersten eines jeden Monats auf das vom Vermieter bekanntgegebene Konto zu Oberweisen, wobel fur die Rechtzeitigkeit der Zablung des Einlangen maBgebend ist. Der Mieter haftet dem Vermieter fur alle durcb verspatete Entgeitzahlung verur- sacbten Kosten. Fur den Fall des Zahlungsverzuges verpflichtet sich der Mieter zur Bezahlung von Verzugszinsen in Hohe der bankublichen Zinsen fur kurzfristige Ausleihungen fur den jeweils aushaftenden Betrag ab Falligkeit. 4. KAUTION 4.1 Der Mieter ubergibt dom Vermieter bei Mietvertragsabscb1uB eine Bankgarantie in Hohe von vier Btuttomonantsmietentgoelten (Hauptmiezins, vorlaufiges Betriebskostenakonto inkl. Pflegabietrag sowie Ust.) das sind zum Zeitpunkt des Vertragsabsclusses ATS 962,780,.--. 4.2 Die Kaution dient zur Sicherstellung des Mietentgeltes, der prdnungsgemaBen Instandhaltung des Mietobjektas einschIieBlich der Beseitigung wertmindernder baulicher Veranderungen durch den Mieter. Derr Vermieter ist berechitgt, trotz Falligkiet nicht belichene Forderungen gegen den Mieter aus oben genannter Kaution zu decken. Dar Mieter ist verpflichtet, im Falle der berechtigten Inanspruchnahme der Kaution die Erhohng auf die verienbarte ursprungliche Hohe zuzuglich Wertsicherung analog dem Hauptmietzins zu veranlasse.n Der Mieter darf diese Kaution keiner zahlungsverpflicbtung, insbesondere auch nicht zur Rerablung von Bezahlung von Mietsinsruckstannden widmen. 4.3 Die Ruckstellung der Bankgarantie erfolgt innerhalb einer Woche nach ordnungsgemaBer Ruckgabe des Mietgegenstandes an den Vermieter gemaB Pkt. 6.5 und Pkt. 7.3. 5. UNTERVERMIETUNG UND WEITERGABE 5.1 Der Mieter darf ohne schriftliche Zustimmung des Vermieters, die dieser nur bei Vorliegen wichtiger Grunde verweigern kann, das Mietobjekt weder entgeltlich noch unentgeltich, weder ganz noch teilweise dritten Personen uberlassan, auch nicht im Wege eines allfalligen Gesellschaftsverhaltnisses, Pachtvrtrages, etc. In keinem Falle ist es dem Mieter gastattet, Rechte aus diesem Vertrag zur Ganze oder tellweise dritten Personen abzutreten oder an solche - in welcher Rechtsform auch immer - zu ubetragen. Eine Ausnabme von diesen Grundsatzen wird hinsichtlich von Konzemuntemehmen ISd Section 15 AktG vereinbart, sofern diese den Meitgegenstand fur den gleichan Gescbatfszweck (vgl. Pkt. 1.3) nutzen. 5.2 Eine allfallige Uberlassung der Mietrechte ist gegenuber dem Vermieter jedendalls erst ab jenem Zeitpunky wirksam, in dem diese Uberlassung dem Vermieter nachweislich mittels eingeschriebenem Brief zur Kenntnis gebracht wird. 6. INSTANDHALTUNG, BAULICHE VERANDERUNGEN 6.1 Der Vermeiter ubrgibt den Mietgegenstand It. Blg. Bau- und Ausstattungs-beschreiltung In neusm Zustand. Liegen sichtbare Mangel vor, so sind diese im Zuge der Obemahme in ceinem Protokoll festzuhalten. Der Vermieter wird daraufhin die Mangelbehebung innerhalb angemessener Frist veranlassen. Werden in dem Protokoll keine Mangel vermerkt, so wird durch dieses Protokoll beiderseits bestatigt,baB keine sichtbaren Mangel vorliegen. Der Mieter hat nach der Ubergabe und wahrend der gesamten Dauer des Mietverhaltnisses auftretende Mangel sowie Schaden am Mietgegenstand - soweit er zu deren Behebung nicht selbst verpflichtet ist - dem Vermieter unverzuglich anzuzeigen. Erfolgt die Anzeige verspatet oder uberhaupt nicht, sodaB der Vermieter nictht rechtzeitig MaBnahmen zur Schadensbehebung veranlassen kann, ist der Mieter schadenersatzpflichtig. Behebt der Vermieter die angezeigtenieigten Schanden bzw. Mangel binnen angemessener Frist, ist der Mieter nicht berechtigt, weitere Anspuche zu stellen oder Rechtsfolgen abzuleiten. Der Mieter ist verpflichtet, den Mietgegenstand pfleglich zu behandeln und haftet gemaB Section 1111 ABGB fur jeden Schaden, der dem Vermieter aus einer unsachgemaBen Behandlung des Mietgegenstandes durch ihn sowie Besucher oder sonstige Benutzer entsteht. 6.2 Der Vermieter ist verpflichtet, das Gebaude, in dem sich die Mietraume befonden, wahrend der Bestandsdauer gegen Brandschaen ausreichend versichern zu lassen, es auf seine Kosten in baulich gut benutzbarem Zustand zu halten und alle notwendig werdenden Instandhaltungsarbeiten, die der Behebung von emsten Schaden der allgemeinen Teils des Hauses dienen, auf seine Kosten vornohmen zu lassen. Notwendige Erhaltungs- und Verbesserungsarbeiten am Haus konnen auch ohne Zustimmung des Mieters vorgenommon werden. Solche Arbeiten sind - gegebenenfalls auch innerhalb des Mietgegenstandes - vom Mieter zu duldon. Die betroffenen Raume sind wahrend der ublichen Geschaftzieiten zuganglich zu machen, wobei eine Vorankundigung zu erfolgen hat (ausgenommen Gefahr im Verzug). Bei Verzogerung oder Verhinderung solchor Arbeiten durch den Mieter ist der dadurch entstehende Schaden vom Mieter zu tragen. Aus der Duldung derartiger Arbeiten ist - sofern der Schaden nicht auf grobes Verschulden des Vermieters zurckzufuhren ist - kein Anspruch auf Scrhadeneratz, Minderung oder Ruckhaltung der Miete ableitbar. 6.3 Der Meiter verpflichtet sich hingegen alle Reparaturen und Wartungsarbeiten, sowie die laufenden Instandhaltungsarbeiten im Innrren des Mietgegenstandes, wie z. B. das Ausmalen der Mietraurme, Instandhaltung der Bodenbeiage, Reparaturen der Gerate, Turen und Fenster an der Innenseite von hiezu befugten Gewerbsleuten ohne Verzogerung sowie auf eigenen Veranlassung und Rechnung durchfuhren zu lassen, und verzichtet auf das Recht, die Instandhaltung im Inneren des Mietgegenstandes vom Vermieter zu fordem. 6.4 Bauliche Veranderungen des Mietgegenstandes, das sind insbesondere Anderungen der GrundriBgestaltung und des auBereb Erscheinungsbildes, durfen nur mit Bewilligung des Vermieters erfolgen. Diese setzt die Vorlage einer planlichen Darstellung der MaBnahme voraus. Der Mieter hat jede von ihm beabsichtige bauliche Veranderung des Mietgegenstandes der Vermieter anzuzeigen. Fur den Fall von mieterseitigen baulichen MaBnahmen vetpflichtt sich der Mieter, der Vermieter samtliche zur Erstellung von Bestandsplanen erforderliche Informationen un Unterlagen uber die endgulitge Ausfuhrung zu ubergeben (insbesondere entsprechende Plane auf Diskette in dxf-files). Bei beendigung des Mietverhaltnisses hat der Vermeiter das Wahlrecht, entweder auf die Wiederherstellung de ursprunglichen Zustandes zu bestehen, wenn der Vermietet sich dieses Recht bei Genehmigung der Veranderung vorbehalton hat, oder die investition des Mieters in den Mietgegenstand analog Section 10 MRG zu ersetzen. 6.5 Samtliche Raume de Mietgegenstandes sind bei Ruckstellung von den eingebtachten Fah nissen zu raumen, der Wandanstrich zu erneuern und ansonsten unter Berucksichtigung einer normalen Abnutzung in neuwertigem und saubberem Zustand besenreln zu ubergeben. Uber diese Ubergabo ist nach gemeinsamer Begehung ein Protokoll zu erstellen. Im Falle der Ruckstellung des Mietgegenstandes ohne Erfullung dieser Verpflichtungen werden die erforderlichen MaBnahmen auf Veranlassung des Vermieters innerthalb angemessener Zeit zulasten des Mieters durchgefurt, Bls zur wiederherstellung des ordnungsgemaBen Zusstandes ist das laufende Mietentgelt vom Mieter weiter zu entrichten. Fahrnisse, die der Mieter bei Ruckstellung im Mietobjekt bbelaBt und im Ubergabeprotokoll enthalten sind, gehen in das Eigentum des Vermeiters uber, der die zuruckgelassenen Gegen stande auf Kosten des Mieters ueiner Verwertung zufuhren kann. 7. BENUTZUNG, WERBEMITTEL 7.1 Bei der Benuzung des Mietobjektes sowie der Anlieferung und Entsorgung ist eine Storung der anderen Mieter durch Larm tunlichst zu vermeiden. Liefertatigkeiten sind auf Werktage im Zeitraum zwischen 08.00 bis 18.00 Uhr (sa 09.00 bis 12.00) zu beschranken. Das Abstellen von Gegenstanden auBerhalb des Mietobjektes ist unzulassig. Motorfahrzeuge jeglicher Art durfen ohne gesonderte Vereinbarung wedee im Gebaude, noch im Mietgegenstand noch sonstwo auf der Liegenschaft abgestellt werden. 7.2 Im Hinblick auf ein geordnetes Erscheinungsbild der gesamten Wohnhausanlage behalt sich der Vetmieter die vorherige Genehmigung samtllicher Beschriftungen, Beschilderungen, Anbringung von Reklame jeglicher Art (im folgenden kurz "Wetbemitte") ausdrucklich vor. Der Mieter verpflichtet sich, die beabsichtigten derartigen MaBnahmen rechtzeitig vor deren Umsetzung dem Vermieter in genauer planlicher Darstellung und Beschreibung zur Abstimmung mit dem vom Vermieter beauftragten Architekten sowie zur Genehmigung vorzulegen. Der Vermieter kann diese Genehmigung nur dann verweigern, wenn die MaBnahmen von der ublichen Beschaffenheit oder dem ublichen AusmaB abweichen, die Werbeerfordernisse anderer Mieter nicht ausreichend berucksichtigt sind bzw. das Erscheinungsbild der Ladenzeile oder der gesamten Wohnhausanlage dadurch gestort wird. Das Verkleben von Fenstern ist untersagt. Der Mieter hat fur die Montage, Wartung, Erhaltung und Erneuerung der Werbemittel, die Einholung der erforderlichen behordlichen Bewilligungen sowie die Begleichung allfalliger Gebrauchsabgaben Sorge zu tragen. Der Mieter ermachtigh den Vermeiter, Werbemittel, die ohne diese Genehmigung angebracht werden, nach vorheriger Aufforderung des Mieters zur Entferung unter Setzung einer angemessenen Frist auf Kosten des Mieters zu entfemen und zu entsorgen. Bei Beendigung des Mietverhaltnisses sind die Werbemittel vom Mieter auf seine Kosten zu entfernen und auf seine Kosten eine allfallige Beschadigung der Befestigungsstelle zu beheben. Bei VerstoB gegen diese Regelung hat der Vermieter nach Setzung einer angemessenen Nachfrist das Recht, die Entfemung und Entsorgung der Werbemittel ohne weitere Ankunndigun auf Kosten des Mieters zu veernlassen. 7.3 Fur die Mietdauer werden dem Mieter die eforderllichen Achlussel ausgehandigt. Die Ubergabe hat in einer Schlusselaufstellung bestatigh zu wreden. Der Meiter ist verpflichtet, bei Ruck stellung des Mietobjektes ale Schlussel, auch zusatzlich angefertigte, dem Vermieter kostelos u ubergeben. Fehlen Schlussel, so sind diese - auf Verlangen des vermieters auch das ganze SchloBayatem - vom Mieter auf dessen Kosten zu ersetzen. Wird das SchloB ernerert, so sind drei Schlussel und die fur die anderen Mieter anorderliche Anzahl von Schlussel zu ersetzen. 8. RECHT DES VERMIETERS, DEN MIETGEGENSTAND ZU BETRETEN 8.1 Der Vermieter oder ein von Ihm schriftlich Bevollmachtigter ist bei Vorligen eines wichtigen Grundes innerhalb der ublichen Geschaftszeiten jederzeituit gegen vorherige Anmeldung berechtight, den Mietgegenstand in Beisein des Mieters zu betreten. Ist In Fallen von Gefar in Verzug der MIctgegenst~nd Meitgegenstand unbeaufsichtigt, und kann der Mieter nicht innerhalb des enforderlichen Zeitraumes verstandigt werden, durfen Organe des Sicherheitsdienstes (Polize,Feuerwehr) auf Kosten des Mieters beigezogen werden. Die Feuewehr bzw. der Brandschutzbeauftragte sind in diesen Fallen berecgtigt, den Zutritt mittels Generalhauptschlussel zu ermoglichen. 8.2 Der Mieterverpflichtet sich, innerhaulb der letzten drei Monate vor Auflosung des Meitverhaltnisses die Besichtigung des Mietobjektes an Werktagen zwischen 09:00 und 16:00 Uhr gegen Vornmeldung im HochstausmaB von Zwei Studen pro Tag zuzulasssen. 9. AUFTECHNUNGSVETBOT 9.1 Der Mieter ist nicht berechtigt, allfalligel Gegenfortderungen - aus welchem Titel immer - mit dem Meitentgelt zu kompensieren oder aus diesem Grund den Mietzins ganz oder teilweise zuruckzuhalten. Vom Aufrechnungsverbot ausgenommen sind gerichtlich festgestellte oder ausdrucklich anerkannte Forderungen. 10. KOSTEN UND GEBUHREN 10.1 Die mit der Errichtung und Vergebuhring dieses Mietvertrages verbundenen staatlichen Gebuhren ttagtt der Mieter. Die Kosten einer allfalliden rechtsfreutndlichen Beratung und Vertretung tragt jeder Vertragsteil fur sich. 10.2 Fur Zwecke der Gebuhrenbemessun witd festgestellt, daB der auf den Mietgegenstand entfallende Gesamtmietzins einschlieBlich Nebenkosten pro Jahr voraussichtlich ATS 2,888,350.--inkl. Ust. Betragen wird. 11. ALLGEMEINE BESTIMMUNGEN 11.1 Der Bestand dises vertrages wird durch die Unwirksamkeit einzelner Best;mmungen desselben nicht beruhrt. Eine unwirksame Bestimmund ist von den Vertragsparteien surch eine andere gultige und zulassige Bestimmung zu ersetzen, die sem Sinn und Zweck der weggefallenen Bestimmung entspricht. 11.2 Anderungen der Anschrift der Vertragspartner sind dem anderen Teil schriftlich bekanntzugeben, widrigenfalls Postsendungen an die zuletzt bekanntgegebene Anschrift als ordnungsgemaB zugestellt gelten. 11.3 Allfallige, vor AbschluB dieses Vertrages schriftlich oder mundlich getroffene Verinbarinbarungen verlieren bei VertragssabschluB ihre Gultigkeit; eine Anderung dieses Vertrages bedarf der Schriftfirm. Das Abegehen vom Erfordemis der Schriftlichkeit kann ebendalls nur schriftlich vereinbart werden. 11.4 Dieser Meirvertrg wird in drei Ausfertigungen errichtet, von denen jeder Vertragsteil je eine Ausfertigung erhalt. Eine Ausfertigung ist fur das Finanzamt fur Gebuhren und Verkehrssteuem bestimmt, dem damtliche Ausfertigungen im Original anzuzeigen sind. 11.5 Fur den des Vermeirerwechsels verpflichtet sich der Vertieter, auch seine rechtsnachfolger an diesen Vertrag zu binden 11.6 Enivernehmlich ird der Vertrag ausschlieBlich in osterreichischer Wahrung ausgefertigt. Der Vermeiter hat die im Vertrag bekanntgegebenen Betrage vor dem 01.01.2002 zusatzlich such ir Euro shcriftlich bakanntzugeben. Wein am _____________________ Wein am _____________________ KALLCO PROJEKT "Doneufelderhof" STAR Telecommunicaitons, GmbH EX-10.73 22 EXHIBIT 10.73 EXHIBIT 10.73 SUMMARY Office and Switch Lease between STAR Telecommunications Deutschland GmbH ("STAR GmbH") and Comptoir Genevois Immobilier, 1211 Geneva, Switzerland, for property located at 10 Chemin du Chateau-Bloch, 1219 Le Lignon, Geneva, Switzerland. The lease term begins on June 1, 1999 and ends on May 30, 2004. STAR GmbH incurs rental charges of approximately 22,463 CHF per month and approximately 865 CHF per month in additional expenses. The leased property is approximately 5,578 square feet. LOCAUX COMMERCIAUX BAIL A LOYER CONVENU ENTRE Bailleu: MONSIEUR LUC PERRET, P.A. ROUTE DU BOIS-DE-BAY 38, 1242 SATIGNY propiertarie de I'mmeuble CHEMIN DU CHATEAU-BLOCH 10, 1219 LE LIGNON represente par: LE COMPTOIR GENEVOIS IMMOBILIER, COURS DO RIVE 7, A GENEVE Locataire: STAR TELECOM S.A.R.L. actuellement domiciliee RUE DU RHONE 14, 1204 GENEVE Objet de la location: LOCAUX DO 1700 M2 ENVIRON, SELON PLAN NO 068 DU 24.02.1999 annexe, ua 1ER ETAGE DE L'IMMEUBLE SIS CHEMIN DU CHATEAU-BLOCH 10,1219 LE LIGNON Les mentiones de surface n'ont qu'un caractere indicatif, les eventuelles differences constatees n'entrainerorr aucune modification du loyer. Destination des locaux: ACTIVITES LIEES AUX TELECOMMUNICATIONS. Dependances: AUCUNE. Duree du ball: CINQ ANS Debut: 1ER JUIN 1999 Fin: 30 MAI 2004 LE LOYER EST INDEXE A L'INDICE SUISSE DES PRIX A LA CONSOMMATION (DUREE MINIMALE: 5 ANS) Le loyer annuel de Fr. 269'556.-- est repute adapte a l'indice officiel suisse des prix a la consommation au jour de la signature du bail, soit: 144.50 points (base decembre 1982 = 100) Sans pouvoir etre inferieur, le loyer peut en cours de bail et sans denonciation preable de ce dernier, etre modifie proportionnellerment a la variation de l'indice officiel suisse des prix a la consommation, moyennant un preavis ecrit d'un mois au moins. II ne peut toutefois etre procede a l'adaptation du loyer qu'une fois par periode do 12 mais Le loyer ne peut etre indexe que si la reference est `iindice suisse des prix a la consommation et si la duree du bail ou celle de son renouvellement en cours est egale ou superieure a 5 ans. RENOUVELLEMENT ET RESILIATION SIX MOIS (six mois au minimum) au moins avant la fin du bail, les parties diovent s'avertir pr ecrit de leurs intentions au sujet de sa resiliatian ou de son renouvellement; lour silence a cet egard sert d'acquiescement a sa continuation pour une duree do cinq annees (minimum 4 mois), toutes les conditions du bail restant en vigueur, et ainsi de suite annee(s) (biffez les mentions qui ne conviennent pas). CHAUFFAGE / EAU CHAUDE / CLIMATISATION En cauverture des frais de chauffage, eau chade et climatisation, le locataire s'engage a verser une somme annuelle divisible et payable aux memes termes et conditions que le loyer a titre: - d'acompte provisionnel, soit Frs. 10'380.-- GARANTIE DU LOYER Pour garantir l'execution des obligations qu'il contracte en verti du present bail et de ses renouvellements, le locataire fournit au bailleuir a la signature du contrat une garantie bancaire de FR. 67389.-, conformement a l'article 2 des conditions generales pour locaux commerciaux. Cette derniere devra etre ecclusivement fournie par un etablissement bancaire de la place. DISPOSITIONS PARTICULIERES LES clauses DU CONTRAT PRINCIPAL ET DES CONDITIONS GENERALES POUR locaux COMMERCIAUX QUI SERAIENT EVENTUELLEMENT CONTRAIRES AUX DISPOSITIONS PARTICULIERES CI-DESSOUS SONT SANS OBJET. ART. 1 TRAVAUX A CHRGE DU LOCATAIRE: Le locataire prendra a charge l'ensemble des travaux figurant d'une part, sur la document intitule "offre forfaitaire de la zone technique", etabli par la bureau Daniel BOTTGE en date du 8 mars 1999 (annexe 3), chiffre a un montant TTC de Fr. 1'243'000.--, ainsi que ceux figurant sur le document intitule "offre forfaitaire de la zone bureaux" du bureau Daniel BOTTGE en date du 8 mars 1999 (annexe 4) pour un montant TTC de Fr. 307'000.-- soit un montant total do travaux estime a Fr. 1;550;000.-- TTC (un million cinq cent cinquante mille francs). ART. 2 GARANTIE TRAVAUX: Le locataire faurnira au baileur avant le debut des travuax une garantie bancaire dort le montant sera egal au cout total des travaux, soit Fr. 1'550'000.-- (un million cinq cent cinquante mille francs). Cette garantie bancaire emise par une banque de premier ordre, garantira au bailleur le paiement par ladite bangue, de tous les frais mentionnes ci-dessus. Elle s'eteindra lorsque les travaux auront ete termines, leur reception definitive effectuee par le bureau Daniel BOTTGE et l'ensemble des factures integralement payees. II est egalement canvenu qu'en derogation de l'article 20, alinea 4 des Conditions generales pour locaux commerciaux, tous les travaux realises par le locataire sort reputes etre amortis sur la duree initiuale du bail et ne donneront par consequent drot a aucune indemnite ou participation du bailfeur, ceci quelle que soit la date a laquelle les locaux seront restitues. La locataire garantit par ailleurs le bailleur qu'aucune hypothegue legale ne sera revendiquee pour les travaux qu'il aura effextues et s'engage le cas echeant, a les faire radier immediatement, a ses frais et sans reserve en cas d'inscription. ART. 3 EXPLOTATION DES LOCAUS:: Le locataire est rendu expressement attentif au fact que l'obtention de tottes les autorisations necessaries quant a l'affection envisagee dans les locaux objet du present contrat, octroyees par les autorites campetentes en la maitere, de meme que la conclusion des assurances indispensables a ladite exploitation, sont de san ressort exclusif, afin de demeurer en taut temps en parfait accord avec la legislation en vigeur. ART. 4 ASSURANCE BRIS DE GLACE: En complement de l'article 25, alinea c) des Conditions generales pour locaux commerciaux, il est precise que le locataire devra egalement s'assurer contre le bris de glace. ART. 5 ACCES AUX LOCAUX: Le locataire conservera au bailleur un libre acces aux locaux, en particulier aux gaines techniques, ceci pour permettre la realisation des travaux d'amenagement des surfaces restant a louer dans l'immeuble. ART. 6 OPTION: Le locataire est mis au benefice d'une option jusqu'au 31 decembre 1999 surr la surface actuellement vacante de 593 m2 au 2(eme) etage de l'immeuble. Le locataire beneficiera d'un mois pour exercer cette option des qu'il aura conaissance d'un tiers interesse a la location de la surface en question. Fait a Geneve en 2 exemplaires, le 8 mars 1999. Le locataire: Le bailleur: STAR TELECOM S.A.R.L. COMPTOIR GENEVOIS IMMOBILE AVENANT AU CONTRAT DE BAIL A LOYER DU 8 MARS 1999 1/2 CONVENU ENTRE MONSIEUR LUC PERRET, proprietaire de I'immeuble sis chemin du Chateau-Bloch 10, 1219 Le Lignon, represente par le COMPTOIR GENEVOIS IMMOBILE, d'une part, St STAR TELECOM S.A.R.L., actuellement domiciliee rue du Rhone 14. 1204 Geneve, d'autre part, ART. 1 TRAVAUX A CHARGE DU LOCATAIRE: Compte tenu des recentes discussions intervenues entre le locataire et le bureau d'Architecte Daniel BOTTGE. Il est precise que le locataire prendra a charge l'ensemble des travaux, figurant sur les deux nouvelles offres forfaitaire, datees du 19 mars 1999 (en lieux et place du 8 mars 1999), respectivernent "l'offre forfaitaire de la zone technique" (annexe 3) pour un montant TTC de Fr. 95O'837.5O, ansi que "l'offre forfaitaire de la zone bureaux" (annexe 4) POUR tin montant TTC de Fr. 374'162.50, soit un montant total de travaux estime a Fr. 1'325'000.--(un million trois cent vingt cinq mille francs). ART. 2 D'entente entre les parties, l'article 1 b) des dispositions particulieres du bail a loyor du 8 mars 1 999 est supprime. ART. 3 GARANTIE TRAVAUX: Comme convenu, le locataire fournira au bailleur avant le debut des travaux, une garantie bancaire dont le montant sera egal au cout total des travaux, laquelle estt donc, compte tenu de ce qui precede, fixee a Fr. 1'325'000.-- (un million trois cent vingt cinq mille francs). ART. 4 RESTITUTION DES LOCAUX: II est d'ores et deja convenu qu'en cas de restitution des locaux, le locataire n'aura pas a les remettre dans leur etat initial, exception faite bien entendu des equipements techniques qui lui sont propres et qui devront etre evacuees. ART. 5 Toutes les autres clauses et conditions du contrat de bail du 8 ars 1999 demeurent sans chanqemnt. Fait et signe en deux exemplaries, a Geneve le 13 avril 1999. Le locataire: Le bailleur: STAR TELECOM S.A.R.L. COMPTOIR GENEVOIS IMMOBILE EX-10.74 23 EXHIBIT 10.74 - -------------------------------------------------------------------------------- OFFICE LEASE "NEW WORLD TOWER" - 100 N. BISCAYNE BOULEVARD LANDLORD: NWT PARTNERS, LTD. TENANT: PT-1 COMMUNICATIONS, INC. PREMISES: SUITE 1900 - -------------------------------------------------------------------------------- BASIC TERM SHEET OFFICE LEASE "NEW WORLD TOWER" - 100 N. BISCAYNE BOULEVARD The following provisions and terms are incorporated as Sections 1.2 and 1.3 in the Lease between Landlord and Tenant. 1.2.1 - LANDLORD: NWT Partners, Ltd. 1.2.2 - TENANT: PT-1 COMMUNICATIONS, INC. 1.2.3 - BUILDING: 100 N. Biscayne Blvd. Miami, Florida 33132 which is currently known as New World Tower and which includes the adjacent parking garage. 1.2.4 - PREMISES: Suite 1900, having a gross leasable area which Landlord and Tenant designate for purposes of this Lease to be 10,353 square feet. 1.2.5 - USE OF PREMISES: For the operation of telecommunications equipment and its related facilities and for general office use. 1.2.6 - TENANT'S TRADE NAME: n/a 1.2.7 - LEASE TERM: ten (10) year(s), and four (4) months unless otherwise extended or shortened. 1.2.8 - LEASE COMMENCEMENT DATE (SECTION 1.6) ): November 1, 1997 LEASE EXPIRATION DATE (SECTION 1.6): Ten years from Rent Commencement Date 1.2.9 - RENT COMMENCEMENT DATE (SECTION 1.7): March 1, 1998 1.2.10 - FIXED MINIMUM RENT (SECTION 2.1): $2,299,535.70 payable the first of each month as follows, plus all applicable taxes:
Lease Year Annual Rent Monthly Rent 1 $191,530.50 $15,960.88 2 199,191.72 16,599.31 3 207,159.39 17,263.28 4 215,455.76 17,953.81 5 224,063.60 18,671.97 6 233,026.14 19,418.84 7 242,347.18 20,195.60 8 252,041.07 21,003.42 9 262,122.71 21,843.56 10 272,607.62 22,717.30
1.2.11 - Fixed Minimum Rent Increase(s)- n/a Section 2.2 is deleted Adjustment Dates (Section 2.2):n/a Basic Standard (Base Month):n/a 1.2.12 - Construction Plans Submission Date:Prior to commencement of construction pursuant to article _______________/ JK LANDLORD TENANT V. 1.2.13 - Landlord's Contribution: $103,530.00 which shall be credited against the amount of Fixed Minimum rent due and payable from the Rent Commencement Date until the amount of the Landlord's contribution shall have been credited to Tenant in full (the "Abatement Months"), provided, however, that any material default under this lease by Tenant shall terminate Landlord's obligation to give any credit hereunder, and the entire Rent otherwise due and payable for the Abatement Months shall become immediately due and payable by Tenant to Landlord, unless the default has been cured by Tenant within the time period provided therefor in this Lease. 1.2.14 - Security Deposit (Section 10.1): $ $31,921.76 plus the first month's rent together with sales tax, in the amount of $16,998.34 1.2.15 - Tenant's Participation In Operating Expenses and Taxes (Section 4.1): Proportionate Share: 3.521% determined in accordance with BOMA Standard Z65.1 - 1996 Base Operating Year: 1998; Base Tax Year: 1998 First Operating Expense Adjustment Payment Date: January 1, 1999. First Tax Adjustment Payment Date: January 1, 1999. 1.2.16 - Addresses for Notices (Section 12.1) Tenant: PT-1 Communications, Inc. 30-50 Whitestone Expressway Flushing, New York 11354 Attention: Mr. Jeffrey A. Hecht after the Lease Commencement Date, the Premises Landlord: NWT Partners, Ltd., a _____________ Limited Partnership 1111 Lincoln Road Mall,Suite 800 Miami Beach, Florida 33139 Attn: David Garfinkle With a copy to: Building Manager New World Tower 100 N. Biscayne Blvd., Suite 605 Miami, FL 33132 1.2.17 - Guarantors: N/A 1.2.18 - Additional Terms: 1.2.19 PARKING: Tenant shall have the right (but no obligation to use) ten (10) parking spaces in the Building parking facilities, at the then standard rate for parking in such facilities. The rate at the time of execution of this instrument is $85.00 per space per month, plus applicable taxes. Tenant may elect, by notice duly given to Landlord, to reduce the number of spaces which it is allocated but, if it does so, Landlord shall not be _______________/ JK LANDLORD TENANT obligated to increase the number of spaces in the future. Tenant Improvements: Tenant shall perform all Tenant Initial Improvements at its cost subject to the terms of Article V as to Tenant's obligations thereunder and as set forth in the Telecommunications Rider. 1.3 - Exhibit A - Legal Description Exhibit B - Site Plan Exhibit C - Rules and Regulations TELECOMMUNICATIONS RIDER CO-LOCATION RIDER _______________/ JK LANDLORD TENANT
TABLE OF CONTENTS PAGE ---- ARTICLE I LANDLORD COVENANTS; PRIMARY LEASE PROVISIONS; EXHIBITS; PREMISES; USE OF PREMISES; TERM Section 1.1 COVENANTS OF LANDLORD'S AUTHORITY AND QUIET ENJOYMENT................................1 Section 1.2 PRIMARY LEASE PROVISIONS.............................................................1 Section 1.3 EXHIBITS.............................................................................1 Section 1.4 PREMISES LEASED BY TENANT............................................................1 Section 1.5 USE OF PREMISES......................................................................2 Section 1.6 LEASE TERM...........................................................................2 Section 1.7 RENT COMMENCEMENT DATE...............................................................2 Section 1.8 LEASE YEAR...........................................................................2 Section 1.9 ACCEPTANCE OF PREMISES...............................................................2 ARTICLE II RENT Section 2.1 FIXED MINIMUM RENT...................................................................2 Section 2.2 FIXED MINIMUM RENT INCREASE..........................................................3 Section 2.3 LATE PAYMENT ADMINISTRATIVE FEE......................................................4 Section 2.4 ADDITIONAL RENT - DEFINITION.........................................................4 Section 2.5 SALES TAX............................................................................5 ARTICLE III SERVICES Section 3.1 SERVICES OF LANDLORD.................................................................5 Section 3.2 SERVICES OF TENANT...................................................................6 Section 3.3 NO EVICTION..........................................................................6 Section 3.4 SECURITY.............................................................................7 Section 3.5 PARKING..............................................................................7 ARTICLE IV OPERATING EXPENSES AND TAXES Section 4.1 TENANT'S PARTICIPATION IN OPERATING EXPENSES AND TAXES...............................7 Section 4.2 DEFINITION OF OPERATING EXPENSES.....................................................8 Section 4.3 TENANT'S TAXES.......................................................................8 Section 4.4 TAXES INCLUDED.......................................................................8 Section 4.5 RECEIPT OF NOTICES...................................................................9 ARTICLE V TENANT'S INITIAL IMPROVEMENTS Section 5.1 CONSTRUCTION PLANS...................................................................9 Section 5.2 PLANS REVIEW........................................................................10 Section 5.3 PAYMENT.............................................................................11 Section 5.4 TENANT DELAY........................................................................11 Section 5.5 SUBSTANTIAL COMPLETION..............................................................12 Section 5.6 EARLY OCCUPANCY.....................................................................13 Section 5.7 REVISIONS...........................................................................13 Section 5.8 COMPLETION DUE DILIGENCE............................................................13 _______________/ JK LANDLORD TENANT ARTICLE VI ADDITIONS, ALTERATIONS, REPLACEMENTS, AND TRADE FIXTURES Section 6.1 BY LANDLORD.........................................................................14 Section 6.2 BY TENANT...........................................................................15 Section 6.3 CONSTRUCTION INSURANCE AND INDEMNITY................................................15 Section 6.4 MECHANIC'S LIENS AND ADDITIONAL CONSTRUCTION........................................16 Section 6.5 TRADE FIXTURES......................................................................17 Section 6.6 RIGHT OF ENTRY......................................................................18 ARTICLE VII INSURANCE AND INDEMNITY Section 7.1 TENANT'S INSURANCE..................................................................18 Section 7.2 EXTRA HAZARD INSURANCE PREMIUMS.....................................................19 Section 7.3 INDEMNITY...........................................................................20 ARTICLE VIII DAMAGE, DESTRUCTION AND CONDEMNATION Section 8.1 DAMAGE OR DESTRUCTION BY FIRE OR OTHER CASUALTY.....................................20 Section 8.2 CONDEMNATION........................................................................21 ARTICLE IX DEFAULT, REMEDIES Section 9.1 DEFAULT.............................................................................22 Section 9.2 REMEDIES............................................................................23 Section 9.3 TERMINATION.........................................................................23 Section 9.4 NO REINSTATEMENT AFTER TERMINATION..................................................24 Section 9.5 RETENTION OF SUMS AFTER TERMINATION.................................................24 Section 9.6 RE-ENTRY............................................................................24 Section 9.7 SUMS COLLECTED UPON RELETTING.......................................................25 Section 9.8 NO EFFECT ON SUIT...................................................................25 Section 9.9 WAIVER OF RIGHTS OF REDEMPTION......................................................26 Section 9.10 USE OF WORD "RE-ENTRY"..............................................................26 Section 9.11 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULTS..........................................26 Section 9.12 LANDLORD'S EXPENSES.................................................................26 ARTICLE X SECURITY Section 10.1 SECURITY DEPOSIT....................................................................27 Section 10.2 PERSONAL PROPERTY...................................................................28 ARTICLE XI ADDITIONAL TENANT AGREEMENTS Section 11.1 MORTGAGE FINANCING AND SUBORDINATION................................................28 Section 11.2 ASSIGNMENT OR SUBLETTING............................................................29 Section 11.3 TENANT'S NOTICE TO LANDLORD OF DEFAULT..............................................30 Section 11.4 SHORT FORM LEASE....................................................................30 Section 11.5 SURRENDER OF PREMISES AND HOLDING OVER..............................................30 Section 11.6 ESTOPPEL CERTIFICATE................................................................31 Section 11.7 DELAY OF POSSESSION.................................................................31 _______________/ JK LANDLORD TENANT Section 11.8 COMPLIANCE WITH LAW.................................................................31 Section 11.9 RULES AND REGULATIONS...............................................................33 Section 11.10 ABANDONMENT.........................................................................33 Section 11.11 LANDLORD'S LIEN.....................................................................33 ARTICLE XII MISCELLANEOUS PROVISIONS Section 12.1 NOTICES.............................................................................34 Section 12.2 ENTIRE AND BINDING AGREEMENT........................................................35 Section 12.3 PROVISIONS SEVERABLE................................................................35 Section 12.4 CAPTIONS............................................................................35 Section 12.5 RELATIONSHIP OF THE PARTIES.........................................................35 Section 12.6 ACCORD AND SATISFACTION.............................................................35 Section 12.7 BROKER'S COMMISSION.................................................................35 Section 12.8 CORPORATE AND PARTNERSHIP STATUS....................................................36 Section 12.9 MISCELLANEOUS.......................................................................36 Section 12.10 FINANCIAL STATEMENTS................................................................37 Section 12.11 RELOCATION..........................................................................38 Section 12.12 NON-WAIVER PROVISIONS...............................................................38 Section 12.13 RADON GAS...........................................................................38
_______________/ JK LANDLORD TENANT OFFICE LEASE "NEW WORLD TOWER" - 100 N. BISCAYNE BOULEVARD THIS LEASE ("Lease") is made and entered into as of this ___________ day of _______________________________, 19__ by and between Landlord and Tenant. Landlord demises and rents to Tenant, and Tenant leases from Landlord, the Premises now existing in Landlord's Building, upon the terms, covenants and conditions contained herein. ARTICLE I LANDLORD COVENANTS; PRIMARY LEASE PROVISIONS; EXHIBITS; PREMISES; USE OF PREMISES; TERM Section 1.1 COVENANTS OF LANDLORD'S AUTHORITY AND QUIET ENJOYMENT. Landlord represents and covenants that (a) prior to commencement of the Lease Term, it will have either good title to or a valid leasehold interest in the land and Building of which the Premises form a part, and (b) upon performing all of its obligations under this Lease, Tenant shall peacefully and quietly have, hold and enjoy the Premises for the Lease Term. Section 1.2 PRIMARY LEASE PROVISIONS. The provisions and terms of Sections 1.2.1 through 1.2.18 of the Basic Term Sheet are incorporated in this Lease as a part of this Section 1.2, and are subject to the additional provisions of this Lease. Section 1.3 EXHIBITS. The exhibits, riders and attachments described on the Basic Term Sheet are incorporated in and made part of this Lease as part of this Section 1.3. Section 1.4 PREMISES LEASED BY TENANT. 1.4.1 The Premises are leased by Tenant from Landlord. The approximate boundaries and location of the Premises are outlined on the Site Plan diagram of the Building (Exhibit "B"), which sets forth the general layout of the Building but which shall not be deemed to be a warranty, representation, or agreement upon the part of the Landlord that the Building and layout will be exactly as indicated on said diagram. 1.4.2 The Premises, for the purpose of this Lease, shall extend to the exterior faces of all walls or to the building line where there is no wall, or to the center line of those walls separating the Premises from other premises in the Building, together with the appurtenances specifically granted in this Lease, but reserving and excepting to Landlord the use of the exterior walls and the roof and the right to install, maintain, use, repair and replace pipes, ducts, conduits, and wires leading through the Premises in locations which will not materially interfere with Tenant's use thereof, or which serve other parts of the Building. _______________/ JK LANDLORD TENANT Section 1.5 USE OF PREMISES. The Premises shall be used and occupied only for the Use specified in the Basic Term Sheet, under Tenant's Trade Name specified in the Basic Term Sheet, and for no other purpose or purposes without Landlord's prior written consent. Tenant shall, at its own risk and expense, obtain all governmental licenses and permits necessary for such use. Section 1.6 LEASE TERM. The Lease Commencement Date, the Lease Term and the Lease Termination Date shall be for the period specified in the Basic Term Sheet, unless sooner terminated or extended as provided in this Lease. Section 1.7 RENT COMMENCEMENT DATE. Tenant shall commence payment of Rent ON THE Rent Commencement Date. If the Rent Commencement Date falls on a day other than the first day of a calendar month, the Fixed Minimum Rent for such month shall be prorated on a per diem basis, calculated on the basis of a thirty (30) day month. Section 1.8 LEASE YEAR. For purpose of this Lease, the term "Lease Year" is defined to mean a calendar year (beginning January 1 and extending through December 31 of any given year). Any portion of a year which is less than a Lease Year, that is, from the Lease Commencement Date through the next December 31, and from the last January 1 falling within the Lease Term through the last day of the Lease Term, shall be defined as a Partial Lease Year. Section 1.9 ACCEPTANCE OF PREMISES. Tenant acknowledges that it has fully inspected and accepts the Premises in their present condition and "as is", except as indicated in Article V and in the Basic Term Sheet if applicable, and that the same are suitable for the use specified in the Basic Term Sheet. ARTICLE II RENT Section 2.1 FIXED MINIMUM RENT. 2.1.1 The total Fixed Minimum Rent for the Lease Term as specified in the Basic Term Sheet shall be payable by Tenant as specified in the Basic Term Sheet. 2.1.2 The phrase "Fixed Minimum Rent" shall be the Fixed Minimum Rent specified above, payable monthly in advance on the first day of each month, without prior demand therefore and without any deduction or setoff whatsoever. In addition, Tenant covenants and agrees to pay Landlord all applicable sales or other taxes which may be imposed on the above specified rents or payments hereinafter provided for to be received by Landlord when each such payment is made. _______________/ JK LANDLORD TENANT Section 2.2 INTENTIONALLY DELETED Section 2.3 LATE PAYMENT ADMINISTRATIVE FEE. If a Rent payment is not received within five (5) days after its due date, administrative fees and late charges of $50.00, plus an ongoing charge of 18% (annual rate, which shall accrue on the unpaid Rent including Additional Rent) shall become immediately due and payable from Tenant to Landlord, without notice or demand. This provision for administrative fees and late charges is not, and shall not be deemed, a grace period. In the event any check, bank draft or negotiable instrument given for any payment under this Lease shall be dishonored at any time for any reason whatsoever not attributable to Landlord, Landlord shall be entitled, in addition to any other remedy that may be available, to an administrative charge of Two Hundred Dollars ($200.00). Such administrative fees and late charges are neither penalties nor interest charges, but liquidated damages to defray administrative, collection, and related expenses due to Tenant's invalid payment or to Tenant's failure to make such Rent payment when due. An additional administrative fee and late charge shall become immediately due and payable on the first day of each month for which all or a portion of a Rent payment (together with any administrative fee and late charge) remains unpaid. Landlord, at its option, may deduct any such charge from any Security Deposit held by Landlord and, in such event, Tenant shall immediately deposit a like amount with Landlord in accordance with the terms of Section 10.1. All sums which Tenant shall be obligated to pay to Landlord from time to time pursuant to this Lease shall be deemed part of the Rent. In the event of the nonpayment by Tenant of such sums, Landlord shall have the same rights and remedies by reason of such nonpayment as if Tenant had failed to pay any Rent. Section 2.4 ADDITIONAL RENT - DEFINITION. In addition to the foregoing Fixed Minimum Rent and Fixed Minimum Rent Increase, all payments to be made under this Lease by Tenant to Landlord shall be deemed to be and shall become Additional Rent hereunder and, together with Fixed Minimum Rent, shall be included in the term "Rent" whenever such term is used in this Lease. Unless another time is expressly provided for the payment thereof, any Additional Rent shall be due and payable on demand or together with the next succeeding installment of Fixed Minimum Rent, whichever shall first occur, together with all applicable State taxes and interest thereon at the then prevailing legal rate, and Landlord shall have the same remedies for failure to pay the same as for non-payment of Fixed Minimum Rent. Landlord, at its election, shall have the right to pay or do any act which requires the expenditure of any sums of money by reason of the failure or neglect of Tenant to perform any of the provisions of this Lease, and in the event Landlord elects to pay such sums or do such acts requiring the expenditure of monies, all such sums so paid by Landlord, together with interest thereon, shall be deemed to be Additional Rent and payable as such by Tenant to Landlord upon demand. Section 2.5 SALES TAX. Together with each payment of Rent or other sum on which such tax may be due, Tenant shall pay to Landlord a sum equal to _______________/ JK LANDLORD TENANT any applicable sales tax, tax on rents, and any other charges, taxes, and/or impositions now in existence or subsequently imposed based upon the privilege of renting the Premises or upon the amount of rent collected. Tenant's liability for such taxes and/or impositions shall be payable whether assessed at the time the Rent payment is made or retroactively, and shall survive the termination or expiration of this Lease. ARTICLE III SERVICES Section 3.1 SERVICES OF LANDLORD. 3.1.1 Landlord shall maintain the public and common areas of the Building, including lobbies, stairs, elevators, corridors and restrooms, the windows in the Building, the mechanical, plumbing and electrical equipment serving the Building, and the structure itself in reasonably good order and condition except for damage occasioned by the act of Tenant, which damage shall be repaired by Landlord at Tenant's expense. 3.1.2 Landlord shall furnish the Premises with (a) electricity for lighting and the operation of standard office machines, (b) elevator service, if applicable (c) lighting replacement (for building standard lights), (d) standard restroom supplies, and (e) window washing with reasonable frequency, during the times and in the manner that such services are customarily furnished in comparable office buildings in the area. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the rental herein reserved be abated by reason of (i) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, (ii) failure to furnish or delay in furnishing any such services when such failure or delay is caused by accident or any condition beyond the reasonable control of Landlord or by the making of necessary repairs or improvements to the Premises or to the Building, or other cause other than Landlord's willful malfeasance, or (iii) the limitation, curtailment, rationing or restrictions on use of water, electricity, gas or any other form of energy serving the Premises or the Building. Landlord shall use reasonable efforts diligently to remedy any interruption in the furnishing of such services. Notwithstanding anything herein contained to the contrary, Landlord agrees to give no less than twenty four (24) hours advance notice to Tenant of any planned interruption of services, except in the case of an emergency interruption, as to which Landlord shall have no such obligation. 3.1.3 Whenever heat generating equipment or lighting other than Building standard lights are used in the Premises by Tenant which affect the temperature otherwise maintained by the air conditioning system, Landlord shall have the right, after notice to Tenant, to install supplementary air conditioning facilities in the Premises or otherwise modify the ventilating and air conditioning systems serving the Premises, and the cost of such facilities and modifications shall be borne by Tenant. Tenant shall also pay, as Additional Rent, the cost of providing all cooling and heat energy to the Premises in excess of that required for normal office use or during hours requested by Tenant when air conditioning or heat is not _______________/ JK LANDLORD TENANT otherwise furnished by Landlord. If Tenant installs lighting requiring power in excess of that required for normal office use in the Building, or if Tenant installs equipment requiring power in excess of that required for normal desk-top office equipment or normal copying equipment, Tenant shall pay for the cost of such excess power as Additional Rent, together with the cost of installing any additional risers or other facilities that may be necessary to furnish such excess power to the Premises. Section 3.2 SERVICES OF TENANT. Tenant shall, at Tenant's own expense, keep the Premises in good repair and tenantable condition during the Term, except only for reasonable wear and tear. Tenant shall, at Tenant's expense but under the direction of Landlord, promptly repair (and make replacements where necessary) any injury or damage to the Building and the property of which it is a part ("Property"), including, but not limited to, any and all broken glass, caused by Tenant or Tenant's officers, personnel, agents, employees, servants, licensees, invitees, guests, patrons, or customers. Tenant shall shampoo and replace carpeting, wash walls and ceilings, and otherwise maintain the appearance of the Premises and contents thereof at Tenant's expense. Tenant shall install, operate and maintain at Tenant's sole cost and expense its own Air Conditioning system and shall pay for the installation of an electrical submeter so that the cost of all electricity to the premise is paid for by Tenant. Section 3.3 NO EVICTION. The services described in this Article III shall be provided as long as this Lease is in full force and effect, no Event of Default by Tenant exists, and no event has occurred which but for notice and/or the passage of time would constitute an Event of Default by Tenant, subject to interruption caused by unavoidable delay, force majeure or acts of God, and conditions and causes beyond the control of Landlord. Furthermore, Landlord reserves the right to stop the service of the air-cooling, elevator, electrical, plumbing or other mechanical systems or facilities in the Building when necessary, by reason of accident or emergency, or for repairs, additions, alterations, replacements, decorations or improvements desirable or necessary to be made in the judgment of Landlord, until such repairs, alterations, replacements or improvements shall have been completed. Landlord shall undertake to diligently commence and work toward completion of all necessary repairs. All discretionary repairs shall be done in a manner and at times, whenever reasonably appropriate, so as not to unnecessarily interfere with Tenant's Use (although Landlord need not pay additional costs in order to make such arrangements). Landlord shall have no responsibility or liability for interruption, curtailment or failure to supply cooled or outside air, heat, elevator, plumbing or electricity when prevented by exercising its right to stop service or by Unavoidable Delay or by any cause whatsoever beyond Landlord's control or by human occupancy factors, or by failure of independent contractors to perform, or by Legal Requirements, or by mandatory energy conservation, or if Landlord elects voluntarily to cooperate in energy conservation at the request of any Legal Authority. The exercise of such right or such failure by Landlord shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any _______________/ JK LANDLORD TENANT compensation or to any abatement or diminution of Base Rent or Additional Rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or its agents by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise. Section 3.4 SECURITY. Tenant acknowledges that Landlord shall not and does not have any responsibility for the security of Tenant's officers, personnel, agents, employees, servants, licensees, invitees, guests, patrons, customers, and all others who come on or about the Property related to Tenant or Tenant's Use. Section 3.5 PARKING. If any parking is made available to Tenant by Landlord (but Landlord does not represent that such parking shall ever be made available), Landlord shall not be liable for any damage of any nature whatsoever to, or any theft of, automobiles or other vehicles or the contents of them, while in or about such parking areas. ARTICLE IV OPERATING EXPENSES AND TAXES Section 4.1 TENANT'S PARTICIPATION IN OPERATING EXPENSES AND TAXES. 4.1.1 Commencing on the First Adjustment Payment Date, Tenant shall, on the first day of each month in advance pay to Landlord pro rata monthly installments on account of the amount reasonably projected by Landlord for Tenant's Share of increases in Operating Expenses and for Tenant's Share of increases in Taxes over the Base Operating Year and over the Base Tax Year, respectively, based upon the most recent data available to Landlord, from time to time, for Operating Expenses and for Taxes. Landlord shall submit to Tenant statement(s) showing the actual amounts which should have been paid by Tenant with respect to increases in Operating Expenses and with respect to increases in Taxes for the past calendar year, the amount of those expenses actually paid during that year by Tenant and the amount of the resulting balance due on either or both of those expenses, or overpayment of either of both of them, as the case may be. Tenant may object to such statements if, and only if, Tenant, within thirty (30) days of receipt by Tenant of such statement, sends a written notice to Landlord objecting to such statement and specifying the respects in which such statement is claimed to be incorrect. If such notice is sent, the parties recognize, as to the Operating Expenses, the unavailability of Landlord's books and records because of the confidential nature thereof and hence agree that either party may refer the decision of the issues raised to a reputable independent firm of certified public accountants selected by Landlord and reasonably acceptable to Tenant, and the decision of such accountants shall be conclusively binding upon the parties. The fees and expenses involved in such decision shall be borne by Tenant unless Landlord's charges are found to be in error by more than five percent (5%). Notwithstanding anything to the contrary in this paragraph, if the amount in dispute is less than $1000 for a calendar year, no third parties shall be utilized, by Landlord or _______________/ JK LANDLORD TENANT Tenant, whose cost shall be subject to reimbursement by the other party. Any balance shown to be due pursuant to said statement shall be paid by Tenant to Landlord within thirty (30) days following Tenant's receipt of the statement and any overpayment shall be immediately credited against Tenant's obligation to pay expected Additional Rent in connection with anticipated increases in Operating Expenses or anticipated increases in Taxes or, if by reason of any termination of this Lease no such future obligations exist, shall be refunded to Tenant. Anything in this Lease to the contrary notwithstanding, Tenant shall not delay or withhold payment of any balance shown to be due pursuant to a statement rendered by Landlord to Tenant, pursuant to the terms of this Lease, because of any objection which Tenant may raise with respect to the statement. If at the time of the resolution of said objection the Term has expired, Landlord shall immediately refund to Tenant any overpayment found to be owing to Tenant. 4.1.2 If this Lease expires during a Partial Lease Year, Tenant shall be responsible for its estimated pro rata share of Operating Expenses and of Taxes for the Partial Lease Year. Tenant shall remit full payment to Landlord within seven (7) days of such bill. If Tenant fails to remit such full payment to Landlord, Landlord in its sole discretion may deduct the amount due from Tenant's Security Deposit and be entitled to all other rights and remedies under this Lease for Tenant's default. Section 4.2 DEFINITION OF OPERATING EXPENSES. The term "Operating Expenses" shall mean (a) all costs of management, operation and maintenance of the Building, including, without limitation, wages, salaries and payroll burden of employees, janitorial, maintenance, guard and other services, Building management office rent or rental value, power, fuel, water, waste disposal, landscaping care, premiums for liability, fire, hazard and other property related insurance, parking area care and management, advertising and promotion, fees for energy saving programs, administrative costs, including management fee, and (b) the cost (amortized over such reasonable period as landlord shall determine) of any capital improvements made to the Building by Landlord after the date of this Lease that are intended to reduce the Operating Expenses or that are required under any governmental law or regulation; provided, however, that Operating Expenses shall not include real property taxes or assessments (which are included in "Taxes"), depreciation on the Building, costs of tenant improvements, real estate brokers' commissions, interest and capital items other than those referred to in clause (b) above. Section 4.3 TENANT'S TAXES. Tenant covenants and agrees to pay promptly when due all taxes imposed upon its business operations and its personal property situated in the Premises. Section 4.4 TAXES INCLUDED. Should any governmental taxing authority, acting under any present or future law, ordinance, or regulation, levy, assess or impose a tax, excise and/or assessment (other than income or franchise tax) upon or against or in any way related to the land _______________/ JK LANDLORD TENANT and buildings comprising the Building, either by way of substitution or in addition to any existing tax on land and building otherwise, Tenant shall be responsible for and shall pay to Landlord its Proportionate Share as set forth above of such tax, excise and/or assessment. Section 4.5 RECEIPT OF NOTICES. Failure of Landlord to furnish in a timely manner a statement of actual increases in Operating Expenses or Taxes or to give notice of an adjustment to rent under this Article IV shall not prejudice or act as a waiver of Landlord's right to furnish such statement or to give such notice at a subsequent time or to collect any adjustment to or recalculation of the Additional Rent for any preceding period. Tenant recognizes that Landlord's statements showing the estimate of increases in Operating Expenses and Taxes for any calendar year may be rendered at the end of the previous calendar year or the beginning of such calendar year, or later. If Landlord's statement is rendered subsequent to the beginning of a calendar year, Tenant shall continue to pay the increase in the Operating Expenses and in the Taxes for the prior calendar year and, should a deficiency result by virtue of an increase in Landlord's estimate of the Operating Expenses or Taxes for the current year, Tenant shall pay the amount of such deficiency, if any, in full, in addition to the next monthly rent payment. ARTICLE V TENANT'S INITIAL IMPROVEMENTS Section 4.6 CONSTRUCTION PLANS. Tenant shall complete or cause the completion of Tenant's Initial Improvements as shown on the Final Plans and as more fully described in this Section. At Tenant's sole cost and expense, Tenant shall submit to Landlord its complete and detailed architectural, structural, mechanical and engineering plans and specifications prepared by an architect or engineer, showing Tenant's Initial Improvements ("Construction Plans") no later than the Construction Plans Submission Date (thirty (30) days after the execution of this lease). If applicable, Tenant's Construction Plans shall include all information necessary to reflect Tenant's requirements for the installation of any supplemental air conditioning system and ductwork, heating, electrical, plumbing and other mechanical systems and all work necessary to connect any special or non-standard facilities to the Building's base mechanical, electrical and structural systems. Tenant's submission shall include not less than one (1) set of sepias and five (5) sets of black and white prints. Tenant's Construction Plans shall include, but not be limited to, indication or identification of the following: 4.6.1 locations and structural design of all floor area requiring live load capacities in excess of 75 pounds per square foot; 4.6.2 the density of occupancy in large work areas; 4.6.3 the location of any food service areas or _______________/ JK LANDLORD TENANT vending equipment rooms; 4.6.4 areas requiring 24-hour air conditioning; 4.6.5 any partitions that are to extend from floor to underside of structural slab above; 4.6.6 location of rooms for telephone equipment; 4.6.7 locations and types of plumbing, if any, required for toilets (other than core facilities), sinks, drinking fountains, etc.; 4.6.8 light switching of offices, conference rooms, etc.; 4.6.9 layouts for specially installed equipment, including computers, size and capacity of mechanical and electrical services required and heat projection of equipment; 4.6.10 dimensioned location of: (a) electrical receptacles (120 volts), including receptacles for wall clocks, and telephone outlets and their respective locations (wall or floor), (b) electrical receptacles for use in the operation of Tenant's business equipment which requires 208 volts or separate electrical circuits, (c) electronic calculating and CRT systems, etc., (d) special audiovisual requirements, and (e) other special electrical requirements; 4.6.11 special fire protection equipment and raised flooring; 4.6.12 reflected ceiling plan; 4.6.13 information concerning air conditioning loads, including, but not limited to, air volume amounts at all supply vents; 4.6.14 materials, colors and designs of wall coverings and finishes; 4.6.15 painting and decorative treatment required to complete all construction; 4.6.16 swing of each door, and schedule for doors (including dimensions for undercutting to clean carpeting) and frames and hardware; 4.6.17 modifications of the front door and surrounding area, if any, as may be required for handicapped use; and 4.6.18 all other information reasonably necessary to make the work complete and in all respects ready for operation. Section 4.7 PLANS REVIEW Landlord or Landlord's consultant shall respond to Tenant's request for approval of Tenant's Construction Plans within ten _______________/ JK LANDLORD TENANT (10) business days of their submission, prepared in accordance with the terms of this Lease. In the event Landlord or Landlord's Consultant shall disapprove of all or a portion of Tenant's Construction Plans, it shall set forth its reasons therefor in reasonable detail, in which event Tenant shall revise its Construction Plans and resubmit same to Landlord within five (5) business days thereafter, time being of the essence. Upon Landlord's written final approval (notice of such approval, or of disapproval, shall be given by Landlord within five (5) business days of receipt of the Construction Plans), Tenant may proceed with Tenant's Initial Improvements, which shall be performed in accordance with the provisions of this Article V. Change orders by Tenant shall be similarly subject to Landlord's review and approval or disapproval, and notice of either shall be given Tenant within five (5) business days of Landlord's receipt of them. Neither the recommendation or designation of an architect, any general contractor, any subcontractor or any materialman as provided for is Section 5.3 nor the approval of the Construction Plans by Landlord shall be deemed to create any liability on the part of Landlord with respect to the design, functionality and/or specifications set forth in the Final Plans. Section 4.8 PAYMENT Tenant shall pay for the Construction Plans, Final Plans, and all work depicted on them. Landlord's Contribution shall only be in the form set forth in Section 1.2.13 above and Landlord shall not pay for any work done directly. Tenant shall be responsible for and pay all other costs. Promptly following Landlord's approval of the Final Plans, Landlord shall cause the Final Plans to be submitted for bid. Landlord may assist Tenant in obtaining bids by giving Tenant a list of general contractors, subcontractors, architects and materialmen, for Tenant to use in soliciting bids, which list need not be used by Tenant. Promptly following Tenant's receipt of the bids, Tenant shall submit to Landlord the estimate of the cost of Tenant's Initial Improvements which exceeds Landlord's Contribution ("Tenant's Extra Cost"). Tenant shall either approve or disapprove the estimate of Tenant's Extra Cost within three (3) business days after submission by Landlord. If Tenant shall disapprove all or a portion of the estimate of the Tenant's Extra Cost, Tenant shall revise the Construction Plans to the extent required and resubmit same to Landlord for approval. Landlord shall within three (3) business days resubmit the revised Construction Plans to the applicable subcontractors for revised bids. This process shall continue until Tenant approves Tenant's Extra Cost estimate. Tenant's approval of Tenant's Extra Cost shall be evidenced by the execution by Tenant of written contracts with the architect and general contractor, or if there is no general contractor, with each contractor, subcontractor and materialman, within ten (10) days thereafter. Tenant agrees to pay the charges rendered by its architect, general contractor, subcontractors and materialmen stricly in the manner set forth in each such contract entered into between Tenant and each such party and as provided by law. Section 4.9 TENANT DELAY Landlord shall not be responsible or liable for Tenant Delay. Tenant Delay includes without limitation any of the _______________/ JK LANDLORD TENANT following: 4.9.1 Tenant's failure to furnish plans, drawings, and specifications in accordance with and at the times required pursuant to this Article V; or 4.9.2 any delays resulting from the disapproval by Landlord or Landlord's consultant of all or a portion of Tenant's revised plans and specifications as resubmitted after initial submission; or 4.9.3 any delays resulting from Tenant's disapproval of the cost of Tenant's Extra Cost, which delay shall be deemed to commence upon the date of Tenant's disapproval of the cost of Tenant's Extra Cost and end on the date of Tenant's final approval of such cost; or 4.9.4 Tenant's request for materials, finishes or installations which are not readily available at the time Landlord is ready to install same; or 4.9.5 Tenant's changes in drawings, plans, specifications, or construction submitted to Landlord including at any time subsequent to Landlord's approval of the Final Plans, including any Revisions which Tenant submits to Landlord; or 4.9.6 the performance of work by a person, firm or corporation employed by Tenant and delays in the completion of the said work by said person, firm or corporation; or 4.9.7 Tenant's failure to pay timely for the Tenant's Extra Cost. Section 4.10 SUBSTANTIAL COMPLETION. If the anticipated Substantial Completion Date, as more particularly described in this Article V, shall be delayed by reason of Tenant Delay, the Premises shall be deemed substantially completed for the purposes of the Rent Commencement Date as of the date that the Premises would have been substantially completed but for any such Tenant Delay as determined by Landlord in its reasonable discretion. Tenant shall pay for any additional costs in completing Tenant's Initial Improvements resulting from Tenant Delay. Any such sums shall be in addition to any sums payable pursuant to Section 5.3 and shall be paid to Landlord within ten (10) days after Tenant's architect, general contractor, subcontractors or materialmen submits an invoice to Tenant therefor. If such costs, or any of the costs of Tenant Improvements to be paid by Tenant under thi8s Article V are not paid by Tenant when due, Landlord shall have the right, but not the obligation, to pay all or part of such costs, and in that event, such costs shall be collectible from Tenant in the same manner as Additional Rent whether or not the Term shall have commenced, and if Tenant defaults in the payment of such costs, such default shall be deemed a default under Article IX of this Lease and Landlord shall have all of the remedies therefore set forth in the Lease. Section 4.11 EARLY OCCUPANCY _______________/ JK LANDLORD TENANT Except for the purposes of administering and managing the build out of Tenant's Initial Improvements, neither Tenant nor its agents, employees, invitees or independent contractors shall enter the Premises during the performance of Tenant's Initial Improvements. Tenant and its agents, employees and independent contractors shall have unimpeded access to the Premises for the purposes of administering and managing the build out of Tenant's Initial improvements. Upon the granting of consent by Landlord, which shall not be unreasonably withheld, Tenant or its agents may enter the Premises prior to the completion of Tenant's Initial Improvements to perform such decorative or other Tenant finishing work as it may desire provided that such work in no way interferes with the performance of Tenant's Initial Improvements and such entry shall be deemed under all terms covenants and conditions of this Lease, except the covenant to pay Base Rent. Tenant shall indemnify and save Landlord harmless from and against any and all loss, liability, damage, cost and expense, including without limitation, reasonable attorneys' fees and disbursements, claimed or actually arising from, growing out of or related to (a) any act, neglect or failure to act of Tenant or anyone entering the Premises or Building with Tenant's permission, (b) the performance of such Tenant's finish work, or (c) any other reason whatsoever arising out of said entry upon the Premises or Building. The provisions of this Section 5.6 shall survive the termination of this Lease. Section 4.12 REVISIONS Tenant shall have the right to make revisions to the Final Plans ("Revisions"). All Revisions shall be subject to Landlord's prior written approval, which shall not be unreasonably withheld provided the Revisions are non-structural in nature. Landlord shall either approve or disapprove the Revisions within five (5) business days after submission thereof by Tenant. Without limiting the generality of the foregoing, no Revision will be approved unless (a) all changes to and modifications from Tenant's Final Plans are circled or highlighted as per standard industry practices and (b) said Revisions conform with the requirements of Article V. Tenant shall notify Landlord in writing of the cost of the Revisions, and any Tenant Delay that the performance of the same may entail. If Landlord agrees with such revisions, Landlord shall acknowledge Landlord's approval in writing within five (5) business days after Tenant's notice thereof. If Landlord fails to approve of such revisions within five (5) business days, Tenant shall not make such Revisions. The cost of any Revisions shall be borne solely by Tenant. Section 4.13 COMPLETION DUE DILIGENCE Landlord shall, subject to Tenant Delays and any other cause beyond Landlord's reasonable control, use due diligence to complete Tenant's Initial Improvements as soon as may be practicable. Tenant shall notify Landlord of the date of the substantial completion of Tenant's' Initial Improvements ("Substantial Completion Date") at least five (5) days prior thereto. The phrase "substantial completion" shall mean that, Tenant's Initial Improvements shall have been completed in accordance with the Final Plans and all mechanical systems _______________/ JK LANDLORD TENANT serving or affecting the Premises shall then be in working order, and Tenant shall have delivered to Landlord a copy of the applicable Certificate of Occupancy or Completion, as the case may be. Tenant shall have no right to enter the Premises for the purpose of conducting its business therefrom until Tenant has complied with the above requirements. ARTICLE V ADDITIONS, ALTERATIONS, REPLACEMENTS, AND TRADE FIXTURES Section 5.1 BY LANDLORD. Landlord reserves the right at any time to make alterations or additions to the Building in which the Premises are contained and to build additional stories thereon. Landlord also reserves the right to construct other buildings or improvements in the Building or Common Areas from time to time and to make alterations thereof or additions thereto and to build additional office space on any such building or buildings so constructed. Section 5.2 BY TENANT. 5.2.1 Upon receipt of Landlord's prior written approval, Tenant may from time to time, at its own expense, alter, renovate or improve the interior of the Premises provided the same be performed in a good and workmanlike manner, in accordance with accepted building practices and so as not to weaken or impair the strength or lessen the value of the Building in which the Premises are located. No changes, alterations or improvements affecting the exterior of the Premises or the Building or the Building systems shall be made by Tenant without the prior written approval of Landlord, which may be unreasonably withheld. Any work done by Tenant under the provisions of this Section shall not interfere with the use by the other tenants of their premises in the Building. Tenant also agrees to pay 100% of any increase in the Real Estate Taxes or Landlord's Personal Property Taxes resulting from such improvements by or for Tenant. 5.2.2 All alterations, decorations, additions and improvements made by Tenant, or made by Landlord on Tenant's behalf as provided in this Lease, shall remain the property of Tenant for the Lease Term or any extension or renewal thereof, but they shall not be removed from the Premises without the prior written consent of Landlord. 5.2.3 Upon obtaining the prior written consent of Landlord, Tenant shall remove such alterations, decorations, additions and improvements and restore the Premises as provided in Section 6.5, and if Tenant fails to do so and moves from the Premises, all such alterations, decorations, additions and improvements shall become the property of Landlord, who may charge Tenant for storing or disposing of any or all of such property. Section 5.3 CONSTRUCTION INSURANCE AND INDEMNITY. 5.3.1 Tenant shall indemnify and hold Landlord harmless from any and all claims for loss or damages or otherwise based upon or in any manner growing out of any alterations or _______________/ JK LANDLORD TENANT construction undertaken by Tenant under the Lease Term, including all costs, damages, expenses, court costs and attorneys' fees incurred in or resulting from claims made by any person or persons, by other tenants of premises in the Building, their subtenants, agents, employees, customers and invitees. 5.3.2 Before undertaking any alterations or construction, Tenant shall obtain and pay for a public liability policy insuring Landlord and Tenant against any liability which may arise on account of such proposed alterations and construction work in limits of not less than $1,000,000.00 for any one person, $1,000,000.00 for more than one person in any one accident and $200,000.00 for property damage; and a copy of such pre paid policy or a certificate from the insurer of such insurance on Form ACORD 27, shall be delivered to Landlord prior to the commencement of such proposed work. Tenant shall also maintain at all times fire insurance with extended coverage in the name of Landlord and Tenant as their interests may appear in an amount adequate to cover the cost of replacement of all alterations, decorations, additions or improvements in and to the Premises and all trade fixtures therein, in the event of fire or extended coverage loss. Tenant shall deliver to Landlord copies of such pre paid fire insurance policies or a certificate from the insurer of such insurance on Form ACORD 27, which shall contain a clause requiring the insurer to give Landlord ten (10) days' notice of cancellation of such policies. Section 5.4 MECHANIC'S LIENS AND ADDITIONAL CONSTRUCTION. 5.4.1 If by reason of any alteration, repair, labor performed or materials furnished to the Premises for or on behalf of Tenant any mechanic's or other lien shall be filed, claimed, perfected or otherwise established or as provided by law against the Premises, Tenant shall discharge or remove the lien by bonding or otherwise, within fifteen (15) days after Tenant receives notice of the filing of same. Notwithstanding any provision of this Lease seemingly to the contrary, Tenant shall never, under any circumstances, have the power to subject the interest of Landlord in the Premises or the Building to any mechanics' or materialmen's liens or liens of any kind, nor shall any provision contained in this Lease ever be construed as empowering Tenant to encumber or cause Landlord to encumber the title or interest of Landlord in the Premises. 5.4.2 Tenant hereby expressly acknowledges and agrees that, except as indicated under Article V, no alterations, additions, repairs or improvements to the Premises of any kind are required or contemplated to be performed as a prerequisite to the execution of this Lease and the effectiveness thereof according to its terms or in order to place the Premises in a condition necessary for use of the Premises for the purposes as set forth in this Lease, that the Premises are presently complete and usable for the purposes as set forth in this Lease and that this Lease is in no way conditioned on Tenant making or being able to make alterations, additions, repairs or improvements to the Premises, unless otherwise specified in this Lease, notwithstanding the fact that alterations, repairs, additions or improvements may be made by Tenant, for Tenant's convenience or for Tenant's purposes, subject to Landlord's prior written consent, at Tenant's sole cost and expense. _______________/ JK LANDLORD TENANT 5.4.3 Landlord and Tenant expressly acknowledge and agree that neither Tenant nor any one claiming by, through or under Tenant, including without limitation contractors, sub-contractors, materialmen, mechanics and laborers, shall have any right to file or place any mechanics' or materialmen's liens of any kind whatsoever upon the Premises nor upon any building or improvement thereon; on the contrary, any such liens are specifically prohibited. All parties with whom Tenant may deal are hereby put on notice that Tenant has no power to subject Landlord's interest in the Premises to any claim or lien of any kind or character and any persons dealing with Tenant must look solely to the credit of Tenant for payment and not to Landlord's interest in the Premises or otherwise. All contracts of Tenant, including those for extras and change orders, for the consideration of any alteration, addition, decoration, or improvement, including, but not limited to, the contracts of subcontractors and materialmen, shall contain the agreement of the contractor, subcontractor or materialman agreeing to look solely to Tenant for payment and waiving any right to a lien on Landlord's interest in the Building or the Premises. Such contracts shall also require the contractor, subcontractor or materialman to provide in recordable form, a waiver and release of lien progress payment during the construction thereof. Landlord shall be advised by Tenant, in writing, at least ten (10) days prior to the date that work, by or for the Tenant, is to commence or the date of anticipated commencement in order to allow Landlord to post notices of non-responsibility on the Premises. Tenant agrees to allow such notices to remain posted in the premises throughout the construction period and to notify Landlord if such notices are damaged or removed. The construction work shall be scheduled in such a manner so as to create the minimum disturbance to other tenants in the Building. Any construction causing or resulting in unreasonable noise, dust or other disturbance of other tenants shall be scheduled to be performed between the hours of 6:00 PM and 7:00 AM. No building materials, construction tools and equipment shall be stored in the common areas of the Building. All trash and construction debris shall be promptly removed and deposited by Tenant lawfully off the Property, or, if a dumpster has been approved for the deposit of trash and construction debris, then such trash and construction debris shall be deposited into the approved dumpster. No dumpster shall be brought onto the property unless the size and location thereof has been approved by Landlord in writing. 5.4.4 Any lien filed against the Premises in violation of this Section 6.4 shall be null and void and of no force or effect. In addition, Tenant shall cause any lien filed against the Premises in violation of this paragraph to be canceled, released, discharged and extinguished within fifteen (15) days after Tenant receives notice of filing of the same and shall indemnify and hold Landlord harmless from and against any such lien and any costs, damages, charges and expenses, including but not limited to, attorney's fees, incurred in connection with or with respect to any such lien. Section 5.5 TRADE FIXTURES. 5.5.1 All trade fixtures and equipment installed by Tenant in the Premises shall be new or completely reconditioned and shall remain the property of Tenant. _______________/ JK LANDLORD TENANT 5.5.2 Provided Tenant is not in default under this Lease, Tenant shall have the right, at the termination of this Lease, to remove any and all trade fixtures, equipment and other items of personal property not constituting a part of the Building which it may have stored or installed in the Premises including, but not limited to, counters, shelving, showcases, chairs, and movable machinery purchased or provided by Tenant and which are susceptible of being moved without damage to the Building and the Premises, provided this right is exercised before the Lease is terminated or during the five (5) day period immediately following such termination and provided that Tenant, at its own cost and expense, shall repair any damage to the Premises or Building caused thereby. The right granted Tenant in this Section 6.5 shall not include the right to remove any plumbing or electrical fixtures or equipment, heating or air conditioning equipment, floor coverings (including wall-to-wall carpeting) glued or fastened to the floors or any paneling, tile or other materials fastened or attached to the walls or ceilings, all of which shall be deemed to constitute a part of the Building, and, as a matter of course, shall not include the right to remove any fixtures or machinery that were furnished or paid for by Landlord. The Premises and the immediate areas in front, behind and adjacent to it shall be left in a broom-clean condition. Should Tenant fail to comply with this provision, Landlord may deduct the cost of clean-up from Tenant's Security Deposit. If Tenant shall fail to remove its trade fixtures or other property at the termination of this Lease or within five (5) days thereafter, or upon cessation of Tenant's business in the Premises or upon termination of Tenant's rights to possession of the Premises, such fixtures and other property not removed by Tenant shall be deemed abandoned by Tenant, and, at the option of Landlord, shall become the property of Landlord; Landlord may store, sell, or otherwise dispose of such property at Landlord's sole discretion but at Tenant's expense. Any such removal shall be performed in a good and workmanlike manner, in accordance with accepted building codes and the ADA, with Tenant procuring at its sole cost and expense all permits required for such work. 5.5.3 All of the foregoing Section 6.5 is subject to Section 6.3.1 of this Lease. Section 5.6 RIGHT OF ENTRY. Landlord or its representatives shall have the right, without liability, to enter the Premises at reasonable hours during the Lease Term to (a) show the Premises to prospective purchasers, lenders and tenants, or (b) ascertain if the Premises are in proper repair and condition, and make repairs, additions or alterations thereto or to the Building in which the same are located, including the right to take the required materials therefore into and upon the Premises without the same constituting an eviction of Tenant in whole or part, and the Rent shall not abate while such repairs, alterations, replacements or improvements are being made by reason of loss or interruption of Tenant's business due to the performance of any such work. If Tenant shall not be personally present to permit an entry into the Premises when for any reason an entry therein shall be permissible, Landlord may enter the Premises by a master key or by the use of force without rendering Landlord liable therefore and without in any manner affecting Tenant's obligations under this Lease. _______________/ JK LANDLORD TENANT ARTICLE VI INSURANCE AND INDEMNITY Section 6.1 TENANT'S INSURANCE. Tenant shall maintain, at its own cost and expense, in responsible companies approved by Landlord, combined single limit public liability insurance, insuring Landlord and Landlord's agents and Tenant, as their interests may appear, against all claims, demands or actions for bodily injury, personal injury or death of any one person in an amount of not less than $1,000,000.00; and for bodily injury, personal injury or death of more than one person in any one accident in an amount of not less than $1,000,000.00; and for damage to property in an amount of not less than $1,000,000.00. Landlord shall have the right to direct Tenant to increase such amounts whenever it considers them inadequate. Such liability insurance shall also cover and include all exterior signs maintained by Tenant. The policy of insurance may be in the form of a general coverage or floater policy covering these and other premises, provided that Landlord and Landlord's agents are specifically insured therein. Tenant shall carry like coverage against loss or damage by boiler or compressor or internal explosion of boilers or compressors, if there is a boiler or compressor in the Premises. Tenant shall maintain insurance covering all glass forming a part of the Premises including plate glass in the Premises and fire insurance against loss or damage by fire or windstorms, with such endorsements for extended coverage, vandalism, malicious mischief and special extended coverage as Landlord may require, covering 100% of the replacement costs of any items of value, including but not limited to signs, stock, inventory, fixtures, improvements, floor coverings and equipment. All of said insurance shall be in form and in responsible companies licensed in the state of Florida satisfactory to Landlord, and shall provide that it will not be subject to cancellation, termination or change except after at least thirty (30) days' prior written notice to Landlord. Any insurance procured by Tenant as herein required shall contain an express waiver of any right of subrogation by the insurance company against Landlord. The policies or a certificate from the insurer on Form ACORD 27, together with satisfactory evidence of the payment of the premiums thereon, shall be deposited with Landlord on the day Tenant begins operations. Thereafter, Tenant shall provide Landlord with a certificate from the insurer on Form ACORD 27 and evidence of proof of payment upon renewal of such policy, not less than thirty (30) days prior to expiration of the term of such coverage. In the event Tenant fails to timely obtain or maintain the insurance required hereunder, Landlord may obtain same and any costs incurred by Landlord in connection therewith shall be payable by Tenant upon demand. Landlord shall carry public liability insurance covering the common areas of the Building, including but not limited to the sidewalks, malls and parking lot. Section 6.2 EXTRA HAZARD INSURANCE PREMIUMS. Tenant shall not keep, use, sell or offer for sale in or upon the Premises any article or permit any activity which may be prohibited by the standard form of fire or public liability insurance policy. Tenant shall not knowingly use or occupy the _______________/ JK LANDLORD TENANT Premises or any part thereof, or suffer or permit the same to be used or occupied for any business or purpose deemed extra hazardous on account of fire or otherwise. In the event Tenant's use and/or occupancy causes any increase of any insurance premium above the rate for the least hazardous type of occupancy legally permitted in the Premises, Tenant shall pay such additional premium on any policy, including but not limited to fire, extended coverage, public liability or any insurance that may be carried by Landlord for its protection against rent loss through fire. Bills for such additional premiums shall be rendered by Landlord to Tenant at such times as Landlord may elect, and shall be due from and payable by Tenant when rendered in writing, but such increases in the rate of insurance shall not be deemed a breach of this covenant by Tenant. Failure to pay amounts due hereunder shall be a breach of the Lease. In determining whether increased premiums are the result of Tenant's use of the Premises, a schedule, issued by the organization making the insurance rate on the Premises, showing various components of such rate, shall be conclusive evidence of the several items and charges which make up the fire and public liability insurance rate on the Premises. Section 6.3 INDEMNITY. Tenant shall indemnify and save harmless Landlord and its agents from and against any and all claims and demands whether for injuries to persons or loss of life, or damage to property, occurring within the Premises and immediately adjoining the Premises and arising out of the use and occupancy of the Premises or Building by Tenant, or occasioned wholly or in part by any act or omission of Tenant, its subtenants, agents, contractors, employees, servants, licensees or concessionaires, excepting however such claims and demands, whether for injuries to persons or loss of life, or damage to property, caused solely by the gross negligence or willful malfeasance of Landlord. If, however, any liability arises in the Common Areas because of the negligence of Tenant, Tenant's subtenants, agents, employees, contractors, invitees, customers or visitors, then in such event Tenant shall hold Landlord and its agents harmless. In case Landlord or its agents shall, without fault on its part, be made a party to any litigation commenced by or against Tenant, then Tenant shall protect and hold Landlord and its agents harmless and shall pay all costs, expenses and reasonable attorneys' fees incurred or paid by Landlord or its agents in connection with such litigation. Tenant shall also pay all costs, expenses and reasonable attorneys' fees that may be incurred or paid by Landlord or its agents in enforcing the covenants and agreements of this Lease. ARTICLE VII DAMAGE, DESTRUCTION AND CONDEMNATION Section 7.1 DAMAGE OR DESTRUCTION BY FIRE OR OTHER CASUALTY. 7.1.1 Tenant shall give prompt notice to Landlord in case of fire or other damage to the Premises or the Building. In the event the Premises are damaged by fire, explosion, flood, tornado or by the elements, or through any casualty, or otherwise, after the commencement of the Lease Term, the Lease shall continue in full force and effect. If the extent of the _______________/ JK LANDLORD TENANT damage is less than fifty percent (50%) of the cost of replacement of the Premises, the damage shall promptly be repaired by Landlord at Landlord's expense, provided that Landlord shall not be obligated to so repair if such fire, explosion or other casualty is caused directly by the negligence or malfeasance of Tenant, or any other tenant, their subtenants, permitted concessionaires, or their agents, servants or employees, and provided further that Landlord shall not be obligated to expend for such repair an amount in excess of the insurance proceeds recovered as a result of such damage, and that in no event shall Landlord be required to replace Tenant's stock in trade, fixtures, furniture, furnishings, floor coverings and equipment. In the event of any such damage and (a) Landlord is not required to repair as hereinabove provided, or (b) the Premises shall be damaged to the extent of fifty percent (50%) or more of the cost of replacement, or (c) the Building of which the Premises are a part is damaged to the extent of twenty-five percent (25%) or more of the cost of replacement, Landlord may elect either to repair or rebuild the Premises, or the Building, or to terminate this Lease upon giving notice of such election to Tenant within ninety (90) days after the occurrence of the event causing the damage. 7.1.2 If the casualty, repairing, or rebuilding shall render the Premises untenantable, in whole or in part, and the damage shall not have been due to the default or neglect of Tenant, a proportionate abatement of the Fixed Minimum Rent shall be allowed from the date when the damage occurred until the date Landlord completes the repairing or rebuilding, said proportion to be computed on the basis of the relation which the gross square foot area of the space rendered untenantable bears to the floor area of the Premises. If Landlord is required or elects to repair the Premises as herein provided, Tenant shall repair or replace its stock in trade, fixtures, furniture, furnishings, floor coverings and equipment, and if Tenant has closed for business, Tenant shall promptly reopen for business upon the completion of such repairs. 7.1.3 In the event the Premises or the Building shall be damaged in whole or in substantial part within the last twenty-four (24) months of the original term, or within the last twenty-four (24) months of the last renewal term, if renewals are provided for in this Lease, Landlord shall have the option, exercisable within Ninety (90) days following such damage, of terminating this Lease, effective as of the date of Tenant's receipt of notice from Landlord. If any such termination occurs during the initial Lease Term, any options for renewal shall automatically be of no further force or effect. 7.1.4 No damage or destruction of the Premises or the Building shall allow Tenant to surrender possession of the Premises nor affect Tenant's liability for the payment of Rent or any other covenant contained herein, except as may be specifically provided in this Lease. Notwithstanding any of the provisions herein to the contrary, Landlord shall have no obligation to rebuild the Premises or the Building and may at its own option cancel this Lease unless the damage or destruction is a result of a casualty covered by Landlord's insurance policy. Section 7.2 CONDEMNATION. In the event the entire Premises shall be appropriated or _______________/ JK LANDLORD TENANT taken under the power of eminent domain by any public or quasi-public authority, this Lease shall terminate and expire as of the date of title vesting in such proceeding, and Landlord and Tenant shall thereupon be released from any further liability hereunder. If any part of the Premises shall be taken as aforesaid, and such partial taking shall render that portion not so taken unsuitable for the business of Tenant, as determined by Landlord, then this Lease and the Lease Term herein shall cease and terminate as aforesaid. If such partial taking is not extensive enough to render the Premises unsuitable for the business of Tenant, then this Lease shall continue in effect, except that the Fixed Minimum Rent shall be reduced in the same proportion that the floor area of the Premises taken bears to the original floor area leased and Landlord shall, upon receipt of the award in condemnation, make all necessary repairs or alterations to the Building in which the Premises are located so as to constitute the portion of the Building not taken as a complete architectural unit, but such work shall not exceed the scope of the work to be done by Landlord in originally constructing said Building, nor shall Landlord, in any event, be required to spend for such work an amount in excess of the amount received by Landlord as damages for the part of the Premises so taken. "Amount received by Landlord" shall mean that part of the award in condemnation which is free and clear to Landlord of any collection by mortgagee for the value of the diminished fee. If more than twenty percent (20%) of the floor area of the Building in which the Premises are located shall be taken as aforesaid, Landlord may, by written notice to Tenant, terminate this Lease, such termination to be effective as aforesaid. If this Lease is terminated as provided in this paragraph, the Rent shall be paid up to the date that possession is so taken by public authority and Landlord shall make an equitable refund of any Rent paid by Tenant in advance. Tenant shall not be entitled to and expressly waives all claim to any condemnation award for any taking, whether whole or partial, and whether for diminution in value of the leasehold or to the fee although Tenant shall have the right, to the extent that the same shall not reduce Landlord's award, to claim from the condemnor, but not from Landlord, such compensation as may be recoverable by Tenant in its own right for damage to Tenant's business, fixtures and improvements installed by Tenant at its expense. ARTICLE VIII SECURITY Section 8.3 SECURITY DEPOSIT. 8.3.1 Tenant has deposited with Landlord the sum specified in the Basic Term Sheet to be retained by Landlord without liability for interest, as security for the payment of all Rent and other sums of money which shall or may be payable for the full stated term of this Lease, and any extension or renewal thereof, and for the faithful performance of all the terms of this Lease to be observed and performed by Tenant. 8.3.2 The Security Deposit shall not be mortgaged, assigned, transferred or encumbered by Tenant without the prior written consent of Landlord and any such act on the part of Tenant shall be without force or effect and shall not be binding upon Landlord. If any of the Rent herein reserved or any other _______________/ JK LANDLORD TENANT sum payable by Tenant to Landlord shall be overdue and unpaid or should Landlord make payments on behalf of Tenant, or if Tenant shall fail to perform any of the terms of this Lease, then Landlord may, at its option and without prejudice to any other remedy which Landlord may have on account thereof, appropriate and apply said entire deposit or so much thereof as may be necessary to compensate Landlord toward the payment of Rent or Additional Rent or loss or damage sustained by Landlord due to breach on the part of Tenant; and Tenant shall promptly upon demand restore said security to the original sum deposited. If Tenant should be overdue in the payment of monthly Rent or other sums payable to Landlord on at least two or more occasions during a year, Landlord, at its option, may require Tenant to increase the amount of Security Deposit now held by Landlord by an amount sufficient to cover at least two months' Rent or greater amount to be determined at the sole discretion of Landlord. In this event, upon receipt of the additional security sum, Landlord and Tenant shall evidence such receipt by a letter signed and acknowledged by both Landlord and Tenant to be incorporated as part of this Lease amending the Basic Term Sheet, stating the "New Total Amount" so held without liability for any interest. Within sixty (60) days after the expiration of the tenancy hereby created, whether by lapse of time or otherwise, provided Tenant shall not be in default hereunder and shall have complied with all the terms, covenants and conditions of this Lease, including the yielding up of immediate possession to Landlord, Landlord shall, upon being furnished with affidavits and other satisfactory evidence by Tenant that Tenant has paid all bills incurred by it in connection with its performance of the terms, covenants and conditions of this Lease, return to Tenant said sum on deposit or such portion thereof then remaining on deposit with Landlord as set forth herein. In the event Tenant has not complied with all the obligations provided for hereunder, Landlord may appropriate a part or all of the Security Deposit as liquidated damages to satisfy Tenant's obligations. Section 8.4 PERSONAL PROPERTY. As additional security for the performance of Tenant's obligations hereunder, Tenant hereby pledges and assigns to Landlord all the furniture, fixtures, goods, inventory, stock and chattels, and all other personal property of Tenant which are now or may hereafter be brought or put in the Premises, and further grants to Landlord a security interest therein under the Uniform Commercial Code. Upon default of the payment of Rent, assessments, charges, penalties and damages herein covenanted to be paid by Tenant, and for the purpose of securing the performance of all other obligations of Tenant hereunder, and at the request of Landlord, Tenant hereby agrees to execute and deliver to Landlord all financing statements, amendments thereto or other similar statements which Landlord may reasonably request. Nothing herein contained shall be deemed to be a waiver by Landlord of its statutory lien to Rent and remedies, rights and privileges of Landlord in the case of default of Tenant as set forth above and shall not be exclusive and, in addition thereto, Landlord may also exercise and enforce all its rights at law or in equity which it may otherwise have as a result of Tenant's default hereunder. Landlord is herein specifically granted all of the rights of a secured creditor under the Uniform Commercial Code with respect to the property in which Landlord _______________/ JK LANDLORD TENANT has been granted a security interest by Tenant, including, but not limited to, the right to take possession of the above mentioned property and dispose of it by sale in a commercially reasonable manner. ARTICLE IX DEFAULT, REMEDIES Section 9.5 DEFAULT. The occurrence of any of the following during the Term shall constitute an Event of Default by Tenant: 9.5.1 Tenant shall fail to pay when due all or any portion of any Rent and shall not have remedied such failure within 5 days after the due date 9.5.2 Tenant shall fail to pay when due any other sums, fees, charges, costs, or expenses which are payable under this Lease; 9.5.3 Tenant shall, other than in the manner permitted under this Lease, make or permit or suffer to occur any assignment (including any transfer of interest in Tenant which is deemed to be an assignment under this Lease), sublease or occupancy arrangement, conveyance, transfer, conditional or collateral assignment, pledge, hypothecation, or other encumbrance, whether by operation of law or otherwise, of this Lease or any interest in this Lease; 9.5.4 Tenant shall fail in any other way in the performance or observance of any of the terms and conditions of this Lease and within ten (10) days shall not have cured such default or, if impossible of cure within such time but possible of cure within sixty (60) days, begun and diligently pursued such cure to completion; 9.5.5 there shall be filed by or against Tenant or any guarantor of this Lease in any court or other tribunal a petition in bankruptcy or insolvency proceedings or for reorganization or for the appointment of a receiver or trustee of all or substantially all of Tenant's or any such guarantor's property, unless such petition shall be filed against Tenant or any guarantor of this Lease and Tenant or any guarantor of this Lease shall in good faith promptly thereafter commence and diligently prosecute any and all proceedings appropriate to secure the dismissal of such petition and shall secure such dismissal within thirty (30) days of its filing; 9.5.6 Tenant or any guarantor of this Lease shall be adjudicated a bankrupt or an insolvent or take the benefit of any federal reorganization or composition proceeding, make an assignment for the benefit of creditors, or take the benefit of an insolvency law; 9.5.7 a trustee in bankruptcy or a receiver shall be appointed or elected or had for Tenant or any guarantor of this Lease, whether under federal or state laws; 9.5.8 Tenant's interest under this Lease shall be _______________/ JK LANDLORD TENANT sold under any execution or process of law; 9.5.9 the Premises shall be abandoned or deserted or Tenant shall fail to make continuous use of the Premises for twenty (20) business days for the Use or Tenant shall have failed to complete the Initial Tenant Improvements and open for business within four (4) months after the execution of this Lease by both parties to it; or 9.5.10 Tenant shall fail to maintain current, duly issued occupational licenses, or any other permit or license required by an applicable Legal Authority for its operations at the Premises, or Tenant shall fail to meet the insurance requirements of this Lease and provide certificates of insurance (and binders and policies, if required) evidencing such compliance. Section 9.6 REMEDIES. In the event of the occurrence of an Event of Default by Tenant, Landlord, at Landlord's option, may elect to do one or more of the following: 9.6.1 accelerate all of the remaining Rent for the Lease Term, in which event all Rent shall become immediately due and payable; 9.6.2 terminate this Lease as provided by this section and re-enter the Premises and remove all persons and property from the Premises, either by summary proceedings or by any other suitable action or proceeding at law, or otherwise; or 9.6.3 without terminating this Lease, re-enter the Premises and remove all persons and property from the Premises, either by summary proceedings or by any other suitable action or proceeding at law, or otherwise, and relet all or any part of the Premises. Section 9.7 TERMINATION. If Landlord elects to terminate this Lease: 9.7.1 Landlord shall give notice of such termination, which shall take effect ten (10) days after such notice is given, or such greater number of days as is set forth in such notice, fully and completely as if the effective date of such termination were the date originally set forth in this Lease for the expiration of the Lease Term; 9.7.2 Tenant shall quit and peacefully surrender the Premises to Landlord, without any payment by Landlord for doing so, on or before the effective date of termination; and 9.7.3 All Rent, including accelerated Rent, shall become due and shall be paid up to the effective date of termination, together with such expenses, including attorneys' fees, as Landlord shall incur in connection with such termination. Section 9.8 NO REINSTATEMENT AFTER TERMINATION. No receipts of monies by Landlord from Tenant after _______________/ JK LANDLORD TENANT termination of this Lease shall reinstate, continue, or extend the Term, affect any Notice previously given by Landlord to Tenant, or operate as a waiver of the right of Landlord to enforce the payment of Rent. Section 9.9 RETENTION OF SUMS AFTER TERMINATION. If Landlord shall terminate this Lease, Landlord shall be entitled to retain, free of trust, all sums then held by Landlord pursuant to any of the provisions of this Lease. In the interim following such termination until the retention of such sums by Landlord free of trust, such sums shall be available to Landlord, but not to Tenant, pursuant to and for the purposes provided by the terms and conditions of this Lease. Section 9.10 RE-ENTRY. In the event of any re-entry and/or dispossession by summary proceedings or otherwise without termination of this Lease: 9.10.1 all Rent shall become due and shall be paid up to the time of such re-entry and/or dispossession, together with such expenses, including attorneys' fees, as Landlord shall incur in connection with such re-entry and/or dispossession by summary proceedings or otherwise; and 9.10.2 all Rent for the remainder of the Lease Term may be accelerated and due in full, the collection of such sums being subject to the provisions of Section 9.6.3.3; and 9.10.3 Landlord may relet all or any part of the Premises, either in the name of Landlord or otherwise, for a term or terms which may, at Landlord's option, be equal to, less than, or greater than the period which would otherwise have constituted the balance of the Term. In connection with such reletting: 9.10.3.1 Tenant or Tenant's representative shall pay, as Additional Rent, to Landlord, as they are incurred by Landlord, such reasonable expenses as Landlord may incur in connection with reletting, including, without limitation, legal expenses, attorneys' fees, brokerage commissions, and expenses incurred in altering, repairing, and putting the Premises in good order and condition and in preparing the Premises for reletting; 9.10.3.2 Tenant or Tenant's representative shall pay to Landlord, in monthly installments on the due dates for Rent payments for each month of the balance of the Term, the amount by which any Rent payment exceeds the net amount, if any, of the rents for such period collected on account of the reletting of the Premises; any suit brought to collect such amount for any month or months shall not prejudice in any way the rights of Landlord to collect the deficiency for any subsequent month or months by a similar action or proceeding; 9.10.3.3 at Landlord's option exercised at any time, Landlord shall be entitled to recover immediately from Tenant, in addition to any other proper claims, but in lieu of and not in addition to any amount which would thereafter become payable under the preceding subsection, a sum equal to the amount by which the sum of the Rent for the balance of the Lease Term, compound discounted at a reasonable rate selected by Landlord to its then-present worth, exceeds the net rental value of the _______________/ JK LANDLORD TENANT Premises, compound discounted at the same annual rate to its then-present worth, for the balance of the Lease Term. In determining such net rental value of the Premises, the rent realized by any reletting of the Premises, if such reletting is upon terms (other than rental amounts) generally comparable to the terms of this Lease, shall be deemed to be such net rental value; and 9.10.3.4 at Landlord's option, Landlord may make such alterations and/or decorations in or upon the Premises as Landlord, in Landlord's sole judgment, considers advisable and necessary for the purpose of reletting the Premises; the making of such alterations and/or decorations shall not operate or be construed to release Tenant from liability under this Section; the cost of all such alterations and/or decorations shall be paid by Tenant to Landlord as Additional Rent. Section 9.11 SUMS COLLECTED UPON RELETTING. Landlord shall have, receive, and enjoy as Landlord's sole and absolute property, any and all sums collected by Landlord as rent or otherwise upon reletting the Premises after Landlord shall resume possession of the Premises as provided by this Lease, including, without limitation, any amounts by which the sum or sums so collected shall exceed the continuing liability of Tenant under this Lease. If Landlord shall have accelerated Rent payments and collected same from Tenant, and subsequently shall have relet the Premises, then Landlord, after deducting all costs related to reletting, including, but not limited to, those described or anticipated in this Section 9.7 and in Section 9.11, and any other sums due from Tenant to Landlord, shall pay to Tenant the amount remaining which is collected as Rent for each month, to the extent Landlord shall have previously received the Rent for such month from Tenant (but Landlord may retain any such amount, for application to future amounts not yet paid but which may become due). Section 9.12 NO EFFECT ON SUIT. Landlord and Tenant agree that after the commencement of suit for possession of the Premises or after final order or judgment for the possession of the Premises, Landlord may demand, receive, and collect any monies due or coming due without in any manner affecting such suit, order, or judgment. All such monies collected shall be deemed to be payments on account of the use and occupation of the Premises, or, at the election of Landlord, on account of Tenant's liability under this Lease. Section 9.13 WAIVER OF RIGHTS OF REDEMPTION. Tenant waives all rights of redemption which may otherwise be provided by any Legal Requirement in the event that Landlord shall, because of the occurrence of an Event of Default by Tenant, obtain possession of the Premises under legal proceedings, or pursuant to present or future law or to the terms and conditions of this Lease. Section 9.14 USE OF WORD "RE-ENTRY". The words "re-enter" and "re-entry", as used in this Section, are not and shall not be restricted to their technical _______________/ JK LANDLORD TENANT legal meaning, but are used in the broadest sense. Section 9.15 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULTS. Whenever and as often as Tenant shall fail or neglect to comply with the terms and conditions of this Lease, Landlord, at Landlord's option and upon ten (10) days' Notice to Tenant (or upon shorter Notice, or with no Notice at all, if reasonable to meet an emergency or a time limitation imposed by Legal Authorities), may, in addition to all other remedies available to Landlord, perform, or cause to be performed, such work, labor, services, acts, or things, and take such other steps, including, but not limited to, entry onto the Premises, as Landlord may deem advisable, to comply with and perform any such term or condition. Tenant shall reimburse Landlord upon demand, and from time to time, for all costs and expenses suffered or incurred by Landlord in so complying with or performing such term or condition. The commencement of any work or the taking of any other steps or performance of any other act by Landlord pursuant to this Section shall not be deemed to obligate Landlord to complete the curing of any term or condition which is in default. Section 9.16 LANDLORD'S EXPENSES. Tenant shall reimburse Landlord upon demand for all reasonable expenses, including attorneys' fees and costs for negotiation, trial, or appellate work (including fees for the services of paralegals and similar persons) incurred by Landlord in connection with (a) any litigation or dispute in which Landlord becomes a party or otherwise becomes involved related to the Premises or Landlord's rights or obligations under this Lease (except to the extent Landlord is found to be at fault); (b) all costs of reletting the Premises in the event of Tenant's default, including brokers' charges, and the proportionate share of the original broker's fees, if any, for which Tenant has not paid all Rent, (c) the enforcement or collection of any judgments, settlements or court awards, and (d) if the leasehold interest of Tenant under this Lease shall be held by more than one person or entity, and if litigation shall arise by reason of a dispute among such persons or entities, then Landlord's reasonable expenses incurred if Landlord is made a party to, or incurred otherwise in connection with, such litigation. ARTICLE VIII ADDITIONAL TENANT AGREEMENTS Section 8.1 MORTGAGE FINANCING AND SUBORDINATION. This Lease and all of Tenant's rights hereunder are and shall be subordinate to the present and any future mortgage upon the Building, as well as to any existing ground lease, however, Tenant shall, upon request of either Landlord, the holder of any mortgage or Deed of Trust now or hereafter placed upon the Landlord's interest in the Premises or future additions thereto, and to any ground lease now or hereafter affecting the Premises, execute and deliver upon demand, and such further instruments subordinating this Lease to the lien of any such mortgage or mortgages, and such ground lease, provided such subordination shall be upon the express condition that this Lease shall be recognized by the mortgagees and ground lessors and that the _______________/ JK LANDLORD TENANT rights of Tenant shall remain in full force and effect during the Lease Term and any extension thereof, notwithstanding any default by the mortgagors with respect to the mortgages or any foreclosure thereof, or any default by the ground lessee, so long as Tenant shall perform all of the covenants and conditions of this Lease. Tenant agrees to execute all agreements required by Landlord's mortgagee or ground lessor or any purchaser at a foreclosure or sale in lieu of foreclosure by which agreements Tenant will attorn to the mortgagee or purchaser or successor or ground lessor. Landlord agrees to obtain a non-disturbance agreement from any mortgagee or Ground lessor. Any such non-disturbance agreement shall be substantially in the form attached hereto as Exhibit D "Subordingation, Nondisturbance and Attornment Agreement." Section 8.2 ASSIGNMENT OR SUBLETTING. 8.2.1 All assignments of this Lease or sublease or subleases of the Premises by Tenant or occupancy of all or part of the Premises by anyone other than Tenant shall be subject to and in accordance with all of the provisions of this Section. 8.2.2 Tenant may not assign this Lease or sublet the Premises, in whole or in part, to a party other than a wholly-owned corporation or controlled subsidiary of Tenant without first having obtained the written consent of Landlord, such consent not to be unreasonably withheld. 8.2.3 Any assignment or sublease by Tenant shall be only for the permitted Use, and for no other purpose, and in no event shall any assignment or sublease of the Premises release or relieve Tenant from any obligations of this Lease. 8.2.4 In the event that Tenant shall seek Landlord's permission to assign this Lease or sublet the Premises or allow additional occupants, Tenant shall provide to Landlord the name, address, financial statement and business experience resume for the immediately preceding ten (10) years of the proposed assignee or subtenant or occupant and such other information concerning such proposed assignee or subtenant or occupant as Landlord may require. This information shall be in writing and shall be received by Landlord no less than thirty (30) days prior to the effective date of the proposed assignment or sublease or occupancy. It shall be a condition to any consent by Landlord to an assignment or sublease or occupancy that Tenant shall pay to Landlord a processing fee in the amount of $125.00 or one percent (1%) of the annual current value of this Lease, whichever is greater, as reimbursement to Landlord for any and all legally-related expenses in connection with the review and preparation of assignment or sublease or occupancy-related documents which may be incurred by Landlord in connection therewith. Payment of such fee shall be submitted along with Tenant's request for Landlord's consent. Any consent by Landlord to any assignment or sublease or occupancy, or to the operation of a concessionaire or licensee, shall not constitute a waiver or the necessity for such consent to any subsequent assignment or sublease or occupancy, or operation by a concessionaire or licensee. 8.2.5 If Tenant is a corporation or partnership and any transfer, sale, pledge or other disposition of more than _______________/ JK LANDLORD TENANT fifty percent (50%) of the common stock or partnership interests shall occur, or voting control or power to vote the majority of the outstanding capital stock or partnership interests be changed, such action shall be deemed an assignment under the terms of this Lease and shall be subject to all the terms and conditions thereof provided , however, that a public offering of capital stock of Tenant shall not be deemed an assignment for the purposes of this section. Any breach of the assignment clause by Tenant will constitute a default under the terms of this Lease and Landlord shall have all rights and remedies available to it as set forth herein. In the event Tenant shall sublease the Premises for rentals in excess proportionately of those rentals payable hereunder, Tenant shall pay to Landlord, as Additional Rent hereunder, all such excess rentals. Any consideration for any assignment of this Lease shall be paid to Landlord. Any proposed assignee or subtenant of Tenant shall assume Tenant's obligations hereunder and deliver to Landlord an assumption agreement in form satisfactory to Landlord no less than ten (10) days prior to the effective date of the proposed assignment or sublease. Notwithstanding any of the foregoing provisions, if Tenant is or has been at any time in default under any of the terms of this Lease, Tenant may not assign or sublet the Premises in whole or in part. Section 8.3 TENANT'S NOTICE TO LANDLORD OF DEFAULT. Should Landlord be in default under any of the terms of this Lease, Tenant shall give Landlord prompt written notice thereof in the manner specified in Section 12.1, and Tenant shall allow Landlord a reasonable length of time in which to cure such default, which time shall not in any event be less than thirty (30) days from the date of receipt of such notice. Section 8.4 SHORT FORM LEASE. Tenant agrees not to record this Lease without the express written consent of Landlord. Section 8.5 SURRENDER OF PREMISES AND HOLDING OVER. At the expiration of the tenancy, Tenant shall surrender the Premises in good condition, reasonable wear and tear excepted, and damage by unavoidable casualty (except to the extent that the same is covered by Landlord's fire insurance policy with extended coverage endorsement), and Tenant shall surrender all keys for the Premises to Landlord at the place then fixed for the payment of Rent and shall inform Landlord of all combinations on locks, safes and vaults, if any, in the Premises. Tenant shall remove all its trade fixtures and any alterations or improvements, subject to the provisions of Section 6.5, before surrendering the Premises, and shall repair, at its own expense, any damage to the Premises caused thereby. Tenant's obligations to observe or perform this covenant shall survive the expiration or other termination of the Lease Term. In the event Tenant remains in possession of the Premises after the expiration of the tenancy _______________/ JK LANDLORD TENANT created hereunder, whether or not with the consent or acquiescence of Landlord, and without the execution of a new lease, Tenant, at the option of Landlord, shall be deemed to be occupying the Premises as a tenant at will on a week-to-week tenancy and in no event on a month-to-month or on a year-to-year tenancy. The rent during this week-to-week tenancy shall be payable weekly at twice the Fixed Minimum Rent, and twice all other charges due hereunder, and it shall be subject to all the other terms, conditions, covenants, provisions and obligations of this Lease, and no extension or renewal of this Lease shall be deemed to have occurred by such holding over. Tenant's obligations to observe or perform this covenant shall survive the expiration or other termination of the Lease Term. Section 8.6 ESTOPPEL CERTIFICATE. Tenant shall provide at any time, within ten (10) days of Landlord's written request, a statement certifying that this Lease is unmodified and in full force and effect or, if there have been modifications, that same are in full force and effect as modified and stating the modifications, and the dates to which the Fixed Minimum Rent and other charges have been paid in advance, if any. It is intended that any such statement delivered pursuant to this paragraph may be relied upon by any prospective purchaser or mortgagee of the Premises. Section 8.7 DELAY OF POSSESSION. If Landlord is unable to give possession of the Premises on the Commencement Date by reason of the holding over of any prior tenant or tenants or for any other reason, an abatement or diminution of the Rent to be paid hereunder shall be allowed Tenant under such circumstances, but nothing herein shall operate to extend the Lease Term beyond the agreed Lease Expiration Date. Said abatement of rent shall be the full extent of Landlord's liability to Tenant for any loss or damage to Tenant on account of said delay in obtaining possession of the Premises. Section 8.8 COMPLIANCE WITH LAW. 8.8.1 At all times during the Lease Term, Tenant shall, at Tenant's own cost and expense, fully perform and comply with any law, statute, code, rule, regulation, ordinance, order, judgment, decree, writ, injunction, franchise, permit, certificate, license (including any beer, wine or liquor license), authorization, registration, or other direction or requirement of any domestic or foreign federal, state, county, municipal, or other government or governmental or quasi-governmental department, commission, board, bureau, court, agency, or instrumentality having jurisdiction or authority over Landlord, Tenant, and/or all or any part of the Premises ("Legal Authority"), which is now or in the future applicable to the Premises, including those not within the present contemplation of the parties ("Legal Requirements"), and applicable insurance underwriters' rules, regulations, decrees or requirements, whether or not they shall necessitate ordinary or extraordinary structural changes, improvements, replacements, or repairs to the Premises, or cause any interference with the Use. Tenant acknowledges that the Building is not newly constructed, and Tenant shall cooperate with Landlord in asbestos removal or any other matter which may be necessary or advisable in connection _______________/ JK LANDLORD TENANT with Legal Requirements. 8.8.2 At all times during the Term, Tenant shall not do, permit, or suffer to be done any act, or cause, permit, or suffer to exist any condition upon the Premises, which may (a) be dangerous, unless safeguarded as provided for by Legal Requirements; (b) constitute a public or private nuisance; (c) make any Insurance void or voidable or cause any increase in Insurance premiums; or (d) involve invasive medical procedures including but not limited to the use of syringes. Landlord may enforce this provision in different ways from time to time, and the permitting by Landlord of certain activities on one or more occasions shall not alter Landlord's rights to prohibit or modify such activities at other times. Tenant acknowledges and agrees that Landlord shall have the right to provide for the comfort of others in the Building and that such right is a significant consideration and inducement to Landlord to enter into this Lease. 8.8.3 Tenant shall: 8.8.3.1 neither cause nor permit the Premises to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce, or process Hazardous Materials, except in compliance with all Legal Requirements; 8.8.3.2 neither cause nor permit a release or threatened release of Hazardous Materials onto the Premises or any other property as a result of any intentional or unintentional act or omission on the part of Tenant; 8.8.3.3 comply with all applicable Legal Requirements related to Hazardous Materials; 8.8.3.4 conduct and complete all investigations, studies, sampling, and testing, and all remedial, removal, and other actions on, from, or affecting the Premises in accordance with such applicable Legal Requirements and to the satisfaction of Landlord; 8.8.3.5 allow access to the Premises by Landlord and applicable regulatory authorities so that they may assure compliance with this Section 11.8; 8.8.3.6 upon the expiration or termination of this Lease, deliver the Premises to Landlord free of all Hazardous Materials; and 8.8.3.7 defend, indemnify, and hold harmless Landlord and Landlord's employees and other agents from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs, or expenses of any kind or nature, known or unknown, contingent or otherwise (including, without limitation, accountants' and attorneys' fees (including fees for the services of paralegals and similar persons), consultant fees, investigation and laboratory fees, court costs, and litigation expenses at the trial and all appellate levels), arising out of, or in any way related to (a) the presence, disposal, release, or threatened release, by or caused by Tenant or its agents, of any Hazardous Materials which are on, from, or affecting the soil, water, vegetation, buildings, personal property, persons, _______________/ JK LANDLORD TENANT animals, or otherwise; (b) any personal injury, including wrongful death, or damage to property, real or personal, arising out of or related to such Hazardous Materials; (c) any lawsuit brought, threatened, or settled by Legal Authorities or other parties, or order by Legal Authorities, related to such Hazardous Materials; and/or (d) any violation of Legal Requirements related in any way to such Hazardous Materials. For the purposes of this Lease "Hazardous Materials" means any flammable explosives, radioactive materials, oil or petroleum products and their by products, asbestos, polychlorobiphenyls, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials as defined under or regulated by any Legal Requirements, including, without limitation, the following statutes and the regulations promulgated under their authority: (a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.); (b) the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et seq.); and (c) the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. Sections 6901 et seq.). The provisions of this Section 11.8 shall survive the expiration or termination of this Lease. Section 8.9 RULES AND REGULATIONS. Tenant's use of the Premises shall be subject, at all times during the Lease Term, to Landlord's right to adopt in writing, from time to time, modify and/or rescind reasonable Rules and Regulations not in conflict with any of the express provisions hereof governing the use of the parking areas, walks, driveways, passageways, signs, exterior of Building, lighting and other matters affecting other tenants in and the general management and appearance of the Building of which the Premises are a part, but no such rule or regulation shall discriminate against Tenant. The current Rules and Regulations are attached as Exhibit "C". Section 8.10 ABANDONMENT. Tenant shall not vacate or abandon the Premises at any time during the Lease Term, nor permit the Premises to remain unoccupied for a period longer than ten (10) consecutive days during the Lease Term. If Tenant shall abandon, vacate or surrender the Premises, or be dispossessed by process of law or otherwise, any personal property belonging to Tenant left on the Premises shall, at the option of the Landlord, be deemed abandoned, and Landlord may sell, store, or dispose of it at Tenant's expense. Section 8.11 INTENTIONALLY LEFT BLANK ARTICLE IX MISCELLANEOUS PROVISIONS Section 9.1 NOTICES. Whenever notice shall or may be given to either of the parties by the other, each such notice shall be either delivered in person or sent by nationally recognized overnight delivery service, with return receipt requested. Notices to Landlord shall be sent to the address specified in the Basic Term Sheet. _______________/ JK LANDLORD TENANT Notices to Tenant shall be sent to the address specified in the Basic Term Sheet. Any notice under this Lease shall be deemed to have been given at the time it is received or refused by the addressee. Section 9.2 ENTIRE AND BINDING AGREEMENT. This Lease contains all of the agreements between the parties hereto, and it may not be modified in any manner other than by agreement in writing signed by all parties hereto or their successors in interest. Tenant shall pay Landlord for any and all legally-related expenses which may be incurred by Landlord in connection with the review or preparation of all lease-related documents including, without limitation, consents, amendments, modifications and assignments therewith. The terms, covenants and conditions contained herein shall inure to the benefit of and be binding upon Landlord and Tenant and their respective heirs, successors and assigns, except as may be otherwise expressly provided in this Lease. Section 9.3 PROVISIONS SEVERABLE. If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be illegal, invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those to which it is held illegal, invalid or unenforceable shall not be affected hereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. Section 9.4 CAPTIONS. The captions contained herein are for convenience and reference only and shall not be deemed as part of this Lease or construed as in any manner limiting or amplifying the terms and provisions of this Lease to which they relate. Section 9.5 RELATIONSHIP OF THE PARTIES. Nothing herein contained shall be deemed or construed as creating the relationship of principal and agent or of partnership or joint venture between the parties hereto; it being understood and agreed that neither the method of computing rent nor any other provision contained herein nor any acts of the parties hereto shall be deemed to create any relationship between the parties other than that of Landlord and Tenant. Section 9.6 ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Rent nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or pursue any other remedy provided for in this Lease or available at law or in equity. Section 9.7 BROKER'S COMMISSION. Tenant warrants that it has not engaged any Real Estate _______________/ JK LANDLORD TENANT Broker or Realtor, except for Abood & Associates, Inc. (which represents Landlord) in connection with its execution of this Lease and agrees to indemnify and save Landlord harmless from any liability that may arise from such claim, including reasonable attorneys' fees by any other broker, realtor or finder, claiming to have represented Tenant. Section 9.8 CORPORATE AND PARTNERSHIP STATUS. 9.8.1 If Tenant is a corporation or partnership, tenant's corporate or partnership status shall continuously be in good standing and active and current with the state of its incorporation and the state in which the Building is located at the time of execution of the Lease and at all times thereafter. Tenant shall keep its corporate status active and current throughout the Lease Term or any extensions or renewals. Tenant shall annually file with Landlord a current copy of the Certificate of Good Standing under Seal. Failure of Tenant to keep its corporate or partnership status active and current shall constitute a default under the terms of the Lease. In the event this Lease is signed on behalf of Tenant by a person in a representative capacity, each of the person or persons signing in such capacity represents and warrants to the Landlord and its successors and assigns that: 9.8.1.1 Their execution and delivery of this lease has been duly and validly authorized and all requisite actions have been taken to make it valid and binding on the entity they represent. 9.8.1.2 The entity they represent will, on the date of the commencement of and at all times during the term of this Lease, be duly organized, validly existing and in good standing in the state of its organization and entitled to conduct its business in the state where the Premises is located. 9.8.2 The person or persons signing this Lease on behalf of the Tenant shall be personally responsible for the Tenant's obligations under this Lease. Section 9.9 MISCELLANEOUS. 9.9.1 Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling materials, steam, gas, electricity, water, rain or leaks from any part of the Premises or from the pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or by any other cause of whatsoever nature. All property of Tenant, including merchandise and furnishings, kept or stored on the Premises shall be so kept or stored at the risk of Tenant only and Tenant shall hold Landlord harmless from any and all claims arising out of damage to same. If Landlord is required to make repairs by reason of any act, omission or negligence of Tenant, any permitted subtenants, concessionaires or their respective employees, agents, invitees, licensees or contractors, the cost of such repairs shall be borne by Tenant and shall be due and payable immediately upon receipt of Landlord's notification of the amount due. 9.9.2 At Tenant's request, if Landlord provides any miscellaneous services and/or supplies to Tenant or Tenant's Premises (including by way of example, but not limited to: keys, _______________/ JK LANDLORD TENANT directory strips, carpet cleaning, non-standard light bulbs, repairs, locks, parking, overtime electricity usage) all charges for these services imposed by Landlord shall be billed to Tenant and payable by Tenant as Additional Rent. Landlord shall have the same remedies for failure to pay the same as for non-payment of Fixed Minimum Rent. Tenant covenants and agrees to pay Landlord all applicable sales tax or other taxes which may be imposed on the above Additional Rent. 9.9.3 It is specifically understood and agreed that there shall be no personal liability on Landlord in respect to any of the covenants, conditions or provisions of this Lease; in the event of a breach or default by Landlord of any of its obligations under this Lease, Tenant shall look solely to the equity of Landlord in the Premises for the satisfaction of Tenant's remedies. In the event of a sale or transfer of the Building or any portion thereof which includes the Premises, or in the event of the making of the lease of the Building or of any portion, or in the event of a sale or transfer of the leasehold estate under any such underlying lease, the grantor, transferor or Landlord, as the case may be, shall thereafter be entirely relieved of all terms, covenants and obligations thereafter to be performed by Landlord under this Lease to the extent of the interest or portion so sold, transferred or leased, and it shall be deemed and construed, without further agreement between the parties and the purchaser, transferee or Tenant, as the case may be, has assumed and agreed to carry out any and all covenants of Landlord hereunder. 9.9.4 The parties hereby waive trial by jury in any action, proceeding or counter claim brought by either of the parties hereto against the other or any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, and/or claim of injury or damage. 9.9.5 In the event of a breach by Tenant of any of the covenants or provision hereof, Landlord shall have, in addition to any other remedies which it may have, the right to invoke any remedy allowed at law or in equity, including injunctive relief, to enforce Landlord's rights or any of them, as if re-entry and other remedies were not herein provided for. 9.9.6 In the event of any litigation arising out of enforcement of this Lease, the prevailing party in such litigation shall be entitled to recovery of all costs, including reasonable attorneys' fees. 9.9.7 Notwithstanding anything in this Lease to the contrary, Landlord reserves all rights which any state or local laws, rules, regulations or ordinances confer upon a Landlord against a Tenant in default. This article shall apply to any renewals or extensions of this Lease. 9.9.8 This agreement shall be deemed to have been made in Dade County, Florida and shall be interpreted, and the rights and liabilities of the parties here determined, in accordance with the laws of the State of Florida. Section 9.10 FINANCIAL STATEMENTS. _______________/ JK LANDLORD TENANT Tenant shall furnish Landlord, within five (5) business days after Landlord's request therefor, an updated, current financial statement of Tenant, Tenant's shareholders, and any guarantors of this Lease. Unless Landlord has reason to believe there has been a material reduction in the financial worth of any of such parties, such financial statement(s) shall not be required to be furnished more than twice each calendar year as to Tenant, its shareholders or partners, and each guarantor. Section 9.11 RELOCATION. Landlord may, at its expense, relocate Tenant to another location in the Building, decorated by Landlord, without releasing Tenant of any obligation under this Lease for the full Term. If Landlord remodels a substantial portion of the Building and deems the Premises to be needed for other purposes than this Lease, Landlord may relocate Tenant in the Building or terminate this Lease. Section 9.12 NON-WAIVER PROVISIONS. 9.12.1 The failure of Landlord to insist upon a strict performance of any of the terms, conditions and covenants herein shall not be deemed to be a waiver of any rights or remedies that Landlord may have and shall not be deemed a waiver of any subsequent breach or default in the terms, conditions and covenants herein contained except as may be expressly waived in writing. 9.12.2 The maintenance of any action or proceeding to recover possession of the Premises or any installment or installments of rent or any other monies that may be due or become due from Tenant to Landlord shall not preclude Landlord from thereafter instituting and maintaining subsequent actions or proceedings for the recovery or possession of the Premises or of any other monies that may be due or become due from Tenant including all expenses, court costs and attorneys' fees and disbursements incurred by Landlord in recovering possession of the Premises and all costs and charges for the care of the Premises while vacant. Any entry or re-entry by Landlord shall not be deemed to absolve or discharge Tenant from liability hereunder. 9.12.3 If Landlord is delayed or prevented from performing any of its obligations under this Lease by reason of strike, labor disputes, or any cause whatsoever beyond Landlord's reasonable control, the period of such delay or such prevention shall be deemed added to the time herein provided for the performance of any obligation by Landlord. Section 9.13 RADON GAS. Pursuant to F.S. 404.056(8), Tenant is hereby notified that radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health _______________/ JK LANDLORD TENANT unit. In no event shall Landlord be liable for direct or indirect, consequential or incidental damages arising from the existence or discovery of radon in the Premises. _______________/ JK LANDLORD TENANT IN WITNESS WHEREOF, Landlord and Tenant above duly executed this Lease as of the day and year first above written, each acknowledging receipt of an executed copy hereof. WITNESSES: LANDLORD: NWT PARTNERS, LTD., a _______ limited partnership BY:_________________, Inc., a _________________corporation, General Partner Name: By: ________________________ Name: Vice President [Corporate Seal] TENANT: PT-1 COMMUNICATIONS, INC. Name: By: /JOHN KLUSARITZ/ Name/Title: GENERAL COUNSEL Name: _______________/ JK LANDLORD TENANT EXHIBIT A LEGAL DESCRIPTION PARCEL I: Lots 1, 2 and 3 of Smith Subdivision of Lots 4, 5 and 6 in Block 102 North, City of Miami, according to the plat thereof recorded in Plat Book 3, page 5, Public Records of Dade County, Florida. PARCEL II: Non-exclusive right-of-way and easement for a term of years for ingress and egress from Parcel I to Northeast Third Avenue on and over Lot 6, less North 28 ft. thereof, of Smith Subdivision of Lots 4,5 and 6, of Block 102 North, City of Miami, according to the plat thereof in Plat Book 3 at page 5, Public Records of Dade County, Florida, as created by Right-of-Way and Easement Agreement dated September 27, 1979, filed September 28, 1979 under CF 79R275271 and recorded in O.R. Book 10527 at pages 1401-1405, and as assigned by assignment in O.R. Book 10527, page 1394, and as assigned by assignment in O.R. Book 10971, page 1866, and as conveyed by Warranty Deed in O.R. Book 12001, page 960, Public Records of Dade County, Florida. PARCEL III: The South 24.00 feet of Lot 2 and all of Lot 3, in Block 102 North, City of Miami, A.L. Knowiton Map of Miami, according to the Plat thereof recorded in Plat Book B, at page 41, of the Public Records of Dade County, Florida. _______________/ JK LANDLORD TENANT EXHIBIT "C" RULES AND REGULATIONS 1. At all times during the terms of this Lease, the Landlord shall have the right by themselves, their agents, and employees, to enter into and upon the Premises during reasonable business hours for the purpose of examining and inspecting the same and determining whether the Tenant shall have complied with his obligation under the Lease and the rules and regulations contained herein, in respect to the care and maintenance of the Premises and the repair or rebuilding of the improvements thereon, when necessary. 2. Tenant shall not use the name of the Building for any purpose other than Tenant's business address and shall never use a picture or likeness of the Building or Premises in any advertisement, notice or correspondence without Landlord's advance written consent hereto. 3. Tenant shall not make or permit any noise or odor that is objectionable to the public, to other occupants of the Building, or to Landlord to emanate from the premises and shall not create or maintain a nuisance thereon and shall not disturb, solicit or canvass any occupant and shall not do any act tending to injure the reputation of the Building or Premises. 4. Tenant shall not place or permit any radio antenna, loud speakers, sound amplifiers, or similar devices on the roof or outside of the Building, or within the core area. 5. The sidewalks, entrances, passages, elevators, vestibules, stairways, corridors and halls must not be obstructed or encumbered or used for any purpose other than ingress and egress to and from the Premises. 6. With the exception of initially moving into or completely moving out of the Tenant's Premises, supplies, goods, materials, packages, furniture and all such items of every kind are to be delivered at the entrance point provided therefore, through service elevators or dumbwaiters to the Tenant, or in such manner as the Landlord may provide and the Landlord is not responsible for the loss or the damage of any such property. 7. The Landlord may retain a pass key to the Premises. The Tenant shall not alter any lock or install anew lock or a knocker on any door of the Premises without written consent of the Landlord or the Landlord's agent, provided, in case such consent is given, the Tenant shall make provisions that the lock is compatible with the Landlord keying system pursuant to the Landlord's right of access to the Premises. 8. Tenant shall, upon termination of the Lease or of Tenant's possession, surrender all keys of the Premises to landlord at the Building office and shall make known to Landlord the explanation of all combination locks on safes, cabinets, and vaults in the Premises. 9. Tenant shall not install any concession or vending machines in the Premises, and shall not sell from the Premises the following items: cigars, cigarettes, tobacco, pipes, candies, _______________/ JK LANDLORD TENANT newspapers, magazines, or greeting cards. 10. Landlord reserves the right to: (1) change the street address of the Building; (2) install and maintain a sign or signs on the exterior or interior of the Building; (3) designate all sources furnishing sign painting and lettering and, and (4) take all measures as may be necessary or desirable for the safety, protection or preservation of the Premises of the Building. 11. All persons entering or leaving the Building after normal Building operating hours, 7:00 A.M. - 7:00 P.M.; Monday through Friday, or at any time during Saturdays, Sundays and holidays, may be required to do so under such regulations as Landlord may impose. 12. Draperies and other window coverings installed by Tenant will be of either non-combustible material such as fiberglass, metal mesh, etc. or in lieu thereof have fabric treated with a flame retardant material. 13. Drapery traverse mechanisms shall be so arranged as to permit the full opening of draperies and to provide sufficient over-travel that the stacked draperies in the full open position shall have at least a clearance of either window jam. 14. The Tenant shall not penetrate the exterior walls for ANY REASON. All penetrations of interior walls for book shelves, pictures, or any other reason must have the prior written consent of the Landlord. 15. The Landlord at all times shall have the right to reasonably amend, modify or waive any of the foregoing rules and regulations and to make such other and further rules and regulations as the landlord may adopt. 16. No furniture, freight or equipment of any kind or nature shall be brought into or removed from the Building or any demised premises without the prior written consent of Landlord. All moving of the same by tenant into, within or out of the Building, shall be done at such times and in such manner as Landlord shall designate. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building. As security for any damage done to the Building or the Premises, by tenant or tenant's movers, contractors, vendors, lessors, or employees, in connection with any move into, within or out of the Building;, tenant shall deposit with Landlord a moving security deposit in the amount of $0.00, which shall be deposited with Landlord (i) at the time of execution of the lease for a new lease, (ii) at least ten (10) days prior to moving out of the Building any furniture, freight or equipment of tenant (by tenant or any lessor to tenant) at the termination of the lease term, or (iii) at least ten (10) days prior to any move within the Building or moving in or out of the Building during the term of the lease any furniture, freight or equipment (by tenant or any lessor to tenant). Any claims by Landlord against such deposit shall be made by Landlord within ten (10) days after the particular move into, within or out of the Building to which such deposit applies. The terms and conditions of Section 10.1 of the Lease regarding the Security Deposit shall apply to this deposit, provided, however, if no claim has been made by Landlord to _______________/ JK LANDLORD TENANT tenant within the aforesaid ten (10) day period of time, or if a claim has been made by Landlord for less than all of such deposit, the balance of such deposit shall be delivered to tenant within fifteen (15)days after the respective move has taken place. If such moving security deposit is not given to Landlord by such tenant within the appropriate time period, Landlord may at its sole, but reasonable discretion prevent any move by tenant of any furniture, freight or equipment into, within or out of the Building. All damage done to the Building by such moving or maintaining any safe or heavy property shall be repaired at the expense of the tenant. In the event a tenant engages the services of a moving company, such tenant shall provide Landlord with a certificate on Form ACORD 27 from such tenant's and such mover's respective insurance carrier (which carrier(s) shall be reasonably satisfactory to Landlord) naming Landlord as an additional insured and stating that such insurance coverage shall not be terminated without at least fifteen (15) days prior written notice having been given to Landlord at Landlord's address for notice in the lease. The exercise of any of Landlord's rights under the moving security deposit shall not diminish or be in lieu of Landlord's other rights against tenant or others under this lease or at law or at equity. The failure of the Landlord to seek redress for violation of, or insist upon the strict performance of, any covenant or conditions of this Lease or any of the rules and regulations set forth above or hereafter adopted by Landlord, shall not prevent a subsequent act, which would have originally constituted a violation. The receipt by Landlord of Rent with knowledge of the breach of any covenant of this Lease or breach of these rules and regulations shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of these rules and regulations as set forth above or hereafter adopted against the Tenant and/or any other tenant in the Building shall not be deemed a waiver of any such rules and regulations. Landlord shall not be liable to Tenant for violations of any said rules and regulations or the breach of any covenant or condition in any Lease by any other tenant in the Building. No act or thing done or omitted to be done by Landlord or Landlord's agents during the term of the Lease which is necessary to enforce these rules and regulations shall constitute an eviction by Landlord. No employee of Landlord or Landlord's agent shall have any power to accept the keys of said Premises prior to the termination of the Lease. The delivery of keys to any employee of Landlord or Landlord's agents shall not operate as a termination of the Lease or a surrender of the Premises. The rules and regulations shall be binding upon heirs, successors, representatives and assigns of the Tenant. _______________/ JK LANDLORD TENANT TELECOMMUNICATIONS RIDER TO OFFICE LEASE FOR NEW WORLD TOWER NWT PARTNERS, LTD. LANDLORD PT-1 COMMUNICATION, INC., TENANT R.1. OPTION TO RENEW. 1.01 So long as this Lease is in full force and effect and Tenant is not in default under any of the Lease provisions, and no condition exists which with notice or passage of time would constitute a default by Tenant under this Lease, Landlord grants to Tenant an option to renew the Lease ("Option to Renew") for one Option Period of five (5) years each, subject to the following provisions. (a) Tenant shall provide written notice to Landlord of Tenant's intent to renew the Lease not less than twelve (12) months and not more than twenty-four (24) months prior to the expiration date of the then-current Lease Term. (b) The Option to Renew shall be void if at any time during the last twenty four (24) months of the then current Lease Term (including, but not limited to, the period of time between the date of the exercise of the Option and the date upon which the current Lease Term would normally expire) the Landlord, in order to enforce its rights under the Lease has in good faith and with reasonable basis under this Lease and applicable law (i) brought an action to collect Rent from Tenant, or (ii) brought an action to recover possession of the Premises from Tenant; or (iii) brought an action to dispossess Tenant. (c) All other terms and conditions of the Lease shall remain unchanged with the exceptions that (i) there shall be no further option to renew; and ii) there shall be no Tenant's Initial Improvements or other matters specific to the initial leasing of the Premises, and (iii) Fixed Minimum Rent shall subject to increase during the first year and each subsequent year of the Option Period at the rate of four (4%) percent per annum over the Fixed Minimum Rent in effect at the end of the preceding lease year. R.2. CONSTRUCTION OF TENANT IMPROVEMENTS. 2.01 As set forth in Section I.2.13 on the BASIC TERM SHEET, Tenant shall receive a total construction allowance in the amount of $103,530.00 (the "Allowance"), which shall be applied towards leasehold improvements over the base Building. For purposes of this paragraph, leasehold improvements may specifically include, but not be limited to, construction of Tenant improvements, the cost of Tenant's architectural design services, plans, engineering costs, Tenant's purchase and installation of equipment including telephone and computer equipment and cabling, (provided that none of such equipment and cabling used by Tenant for the purpose of providing its telecommunications business to its customers shall be eligible for such allowance), and costs of Tenant's construction coordinator, and any other applicable internal and/or external costs incurred by Tenant. Tenant may hire its own interior _______________/ JK LANDLORD TENANT designer/architect to be compensated out of the Allowance. In addition, the cost of any electrical, mechanical, and structural engineering, including all plans, permits, licenses, and fees that are related to the development of the Premises may be paid by Tenant out of the Allowance. To the extent that any portion of the Allowance to be contributed by Landlord under this paragraph by abatement of Rent does not apply to the initial construction of Tenant's Improvements to the Premises, the remaining amount of the abatement of Rent shall be terminated. All such monthly abatements of Rent shall be subject to receipt by Landlord of appropriate waivers of liens by all contractors, subcontractors and materialmen on progress payments and final payment. R.3. COMPLETE STATEMENT OF LANDLORD WORK. 3.01 Except as set forth in this section, Tenant is taking the Premises in its "as-is" condition, existing as of the execution of this Lease, which Tenant acknowledges that Tenant has inspected. Other than as to that the electrical and mechanical systems are in good working order to the mechanical room on the 3rd floor of the Building, as to which Landlord warrants and represents that such systems are as represented, Landlord specifically disclaims all warranties or representations as to the condition of the Premises, including the warranties of merchantability and fitness for a particular purpose, which disclaimer is acknowledged by Tenant as a material inducement to entry into this Lease on the part of Landlord. R.4. SUBMETERING. 4.01 Since Tenant's use of electricity and air conditioning shall be above building standard, Tenant shall obtain and pay for at its own expense Tenant's entire supply of electric current by submeter arrangement whereby Tenant's monthly kilowatt hour usage shall be paid by Tenant. Tenant shall pay for the installation of such submeter. Landlord shall read the submeter at the end of each calendar month and forward to Tenant an invoice detailing the amount of money necessary to reimburse Landlord for the cost of electricity used by Tenant for each such month, which amount shall be deemed Additional Rent. Tenant shall pay Landlord this amount within ten (10) days of receipt of such invoice. Tenant may use a portion of the mechanical room on the 19th floor for its air conditioner condenser unit. R.5. ALTERATIONS. 5.01 The following provisions supplement but do not replace the provisions of this Lease related to alterations and repairs of the Premises by Tenant; where these provisions conflict with the other provisions of the Lease, however, the following provisions shall control. (a) Landlord shall have the right to approve the general contractor, construction manager, subcontractor, architect and engineer which Tenant may select; for electrical work connecting to Landlord's core electrical systems, however, Tenant shall utilize Landlord's contractor(s), provided their pricing is reasonably competitive with other bids, such decision to be made by Tenant within ten (10) days after submission of _______________/ JK LANDLORD TENANT Tenant's receipt of bids. If Landlord's contractors' prices are not reasonably competitive with other bids, then Tenant shall have the right to solicit independent bids from electrical contractors reasonably satisfactory to Landlord. (b) Prior to commencing any alterations, Tenant shall submit plans and specifications to Landlord , which shall be approved or disapproved within thirty (30) business days after submission to Landlord. Landlord hereby notifies Tenant, and Tenant hereby agrees to be bound by such notification, that all fixtures and equipment built or installed by Tenant in the Premises and on the Roof shall be required to be removed by Tenant at the end of the Lease Term, at Tenant's sole cost and expense, in a manner that shall comply with all applicable terms and conditions for the original installation thereof as are in effect at the time of such removal leaving the said Premises and Roof in the same condition as they were at the commencement of this Lease ordinary wear and tear excepted. R.6. EQUIPMENT AND OPERATING RIGHTS; LICENSE FOR ACCESS. 6.01 So long as this Lease is in full force and effect and Tenant is not in default under any of its provisions, Tenant shall, subject to the provisions of this Lease and License and to Landlord's reasonable rules and regulations therefor as promulgated from time to time, have a nonexclusive license (the "License") (a) to install, operate, maintain, repair and replace cable within vertical and horizontal shafts of the Building; (b) have the nonexclusive use of the Building risers at such locations as may be required for Tenant's business needs and as reasonably approved by Landlord from time to time; (c) have the right to install at Tenant's sole cost and expense up to two (2) four-inch conduit risers in the mechanical closets area of the Building, to run the height of the Building to the 19th Floor for the purpose of installing the cable described in (a); (d) install an emergency generator on the third floor of the Building in a location reasonably satisfactory to Landlord; (e) install connections to Landlord's fuel tank and to Landlord's emergency generator in locations reasonably satisfactory to Landlord;(f) install up to __ tons of HVAC equipment as set forth on Exhibit A; (g) install electrical system as set forth on Exhibit A; (h) install certain life safety systems as set forth on Exhibit A; all of (a) through (h) being for the purpose of Tenant providing telecommunications services to its customers. All of the shafts, risers and other areas designated by Landlord for such License use are referred to in this Section R6 as the "License Area" and are subject to and shall be installed, operated, maintained, repaired, replaced and removed in accordance with the terms and conditions of Exhibit A, Equipment and Operating Rider, annexed hereto. 6.02 Subject to Tenant's receipt of all applicable governmental permits and licenses required by law, prior to installation, and at Tenant's sole cost, following notice to and approval by Landlord, Tenant shall have a right to construct in the License Area, where necessary for such purposes, conduit facilities for the provision of telecommunications services in the Building. Such conduits shall be limited in size and location so as not to interfere with the Building systems and to allow other uses _______________/ JK LANDLORD TENANT deemed reasonable or necessary by Landlord in the vertical shafts and all other areas of the Building. 6.03 The license granted in this Rider is not exclusive. Landlord reserves the right to grant, renew or extend similar licenses, and unrelated licenses and agreements for use, to others. Nothing contained in this Rider shall be construed as granting to Tenant any property or ownership rights in the Building or to create a partnership or joint venture between Landlord or Tenant. Tenant's rights as to all areas of the Building other than the Premises are granted as a license only, and Tenant (notwithstanding the fact that the term "Tenant" is used in reference to it) is a licensee only with no additional rights as might accrue to a tenant under landlord/tenant or any other law. 6.04 Tenant shall use the License Area and Tenant's facilities within it only for the provision of telecommunications services and for no other purpose. If any electrical panels or meters for such facilities are required, they shall be installed only with Landlord's prior consent, which shall not be unreasonably withheld, delayed or conditioned, in accordance with all terms and provisions of this Lease and License, and at Tenant's sole cost and expense, for initial installation, maintenance, ongoing costs, and (unless Landlord requires that such facilities not be removed) removal. 6.05 Prior to the commencement of any work in the License Area, Tenant shall, at its sole cost and expense, prepare and deliver to Landlord working drawings, plans and specifications (the "Plans"), detailing the location, size and type of any facilities and improvements to be constructed or installed in the License Area. Landlord shall approve all such Plans in writing, and no construction or installation shall occur without such approval. All construction and installation shall be done in a safe manner consistent with the highest generally accepted construction standards; shall be done in a manner which will prevent interference with the operation of the Building; shall not begin until all applicable federal, state, and local permits, licenses and approvals have been obtained and all applicable insurance coverage has been obtained and paid for; and shall be in accord with all provisions and terms of the Lease. 6.06 Tenant shall promptly and satisfactorily repair all damage to the Building and its contents caused by or related to or growing out of Tenant's use of this License. Tenant shall comply with all federal, state, and local laws, orders, rules and regulations applicable to the facilities and the License Area and Tenant's use of them. Tenant shall not disrupt, adversely affect, or interfere with other providers of services in the Building or with any of the Building's occupants' use and enjoyment of its premises or of the common areas of the Building. Notwithstanding that the License Area is subject to Tenant's use under a license agreement, Tenant's use thereof is subject to all provisions of the Lease as anticipated or described for the Premises and, accordingly, all references in the Lease to the Premises (except for the provisions which provide that the Premises are leased to Tenant) shall be deemed to include the License Area to the extent that Tenant utilizes such area in any way. By way of illustration but not of limitation, all insurance _______________/ JK LANDLORD TENANT required of Tenant as to the Premises shall also include the License Area. 6.07 In the event of a default under the Lease, including this Rider, Landlord may, but shall not be obligated to, exercise any or any combination of rights which it has, as to the License Area, the Premises, or both, as licensor and/or as landlord, in law, in equity and/or under this Lease. 6.08 The License granted in this Section is granted for the additional consideration of $1,200.00 per month, plus applicable taxes (subject to a 4% annual increase after the first year of the Lease Term and in any extension terms beyond the initial lease term in the manner set forth in Section 1.2.11 of the Lease). In the event Tenant does not use its own emergency generator, but uses only Landlord's emergency generator, in accordance with Section 3 of Exhibit A, the monthly license fee shall be reduced to $900.00. 6.09 All of the above equipment installed by Tenant shall, if not removed by Tenant in accordance with Section 5.01 c of this Rider, become the property of Landlord and be surrendered with the Premises upon the termination of this License or Tenant's right to possession under it. Notwithstanding anything to the contrary in this Lease, a termination of the Lease shall be a termination of this License, and a termination of Tenant's right of possession under the Lease shall be a termination of Tenant's right of possession under this License. _______________/ JK LANDLORD TENANT EXHIBIT "A" EQUIPMENT AND OPERATING RIGHTS The following are the specifications and conditions for use in the installation and operation of equipment on the Premises and the obligations of the Landlord and Tenant with respect thereto. 1. CONDUIT/RISER a. Tenant shall have the right to install two four inch conduits ("Main Conduits") in the existing riser space within the mechanical closets in the Building, which shall run the entire height of the Building to connect Tenant's telecommunications facility to its Premises and to other tenants in the Building. Tenant shall also have the right to run feeder conduit, the location of which shall be reasonably designated by Landlord stemming from the Main Conduit to connect to each telecommunications tenant on each floor. There shall be no additional compensation payable by Tenant for such right to use and place conduit and cable except for a monthly charge as set forth and as increased during the term of this License in the manner set forth in Section 6.08 of the Rider which charge shall be deemed Additional Rent, for access to the generator and fuel storage space and all conduit. All such conduits and cable shall be installed by Tenant in accordance with the terms of the Lease, including, but not limited to, Articles V and VI thereof, and shall generally be installed pursuant to local zoning, building and fire safety codes, shall comply with all applicable Federal Communications Commission ("FCC") rules and regulations, and shall comply with all Fire Underwriters' and Insurance Underwriters' requirements. In the event any planned breach in the Chases would compromise the fire safety of the Building, in the opinion of the Legal Authorities or the Fire Underwriters or Insurance Underwriters, Tenant, at its sole cost and expense, shall promptly take those reasonable steps necessary to cure any such problems provided that such cure is effected to the satisfaction of the Legal Authorities, the Fire Underwriters and the Insurance Underwriters; is commenced within ten (10) business days after receipt by Tenant of the notice referred to above; and is completed by Tenant within thirty (30) days thereafter. If such conditions are not complied with by Tenant, Landlord may, in its sole discretion, determine whether to permit the installation of any feeder conduit, and if any feeder conduit is permitted by Landlord, what restrictions must be placed upon such installation, maintenance and operation thereof. No such approval, determination or restrictions set by Landlord shall operate to render Landlord liable for any injury or damage done by any such feeder conduit or opening in the Chases; and Tenant shall remain fully liable for the installation, maintenance and operation of such feeder conduit and openings in the Chases. b. Subject to providing reasonable prior written notice thereof to Landlord at least two (2) business days in advance of any such entry, Tenant is granted the limited right to enter onto Landlord's property for the purpose of carrying out all of Tenant's rights hereunder, subject to the terms of the Lease and generally to be effected without any danger or inconvenience to the Landlord, any other tenants in the Building, or any property in or of the Building, nor to adversely affect the use or value _______________/ JK LANDLORD TENANT of any conduit and cable currently installed in the Building by any other tenant. c. In the event any of the conduit and cable and all the other equipment referred to in this Rider installed by Tenant has not been removed by Tenant upon the termination of this Lease as provided for in the Lease, Landlord may at its option (i) remove the same at the cost and expense of Tenant or (ii) the same shall become the property of Landlord and shall be surrendered with the Premises upon expiration or termination of the Lease as provided in the Lease. 2. HVAC SYSTEMS a. Tenant shall have the right to install up to 80 tons of HVAC equipment for the Premises. Tenant shall be allocated the space in the mechanical room on the 19th Floor, of the Building in which to place all of the condenser units for the HVAC equipment. b. Tenant shall have the right to remove or cap any HVAC system currently in the Premises for the term of the Lease, subject to the terms of Section 6 a of this Exhibit A. c. Tenant shall have the right to install drains for its HVAC equipment either within the mechanical room on the 19th floor or, if not feasible there, to be tied in to the Building's waste sewer system. d. Landlord's approval of this or any other specification or material to be used in the construction of Tenant Improvements under this Rider and the Lease shall not be deemed as a guaranty of the fitness for use or a particular purpose or as a warranty of any of such specifications or material by Landlord. All work done under this Rider shall be done in compliance with all applicable local building, safety and zoning Codes, all applicable Fire Underwriters' and Insurance Underwriters' requirements and all rules and regulations of OSHA and the Americans with Disabilities Act. 3. ELECTRICAL SYSTEMS a. Landlord shall provide access at the main power vault of the Building to 7,000 amps, 277/480 volts, three phase alternating current of electric capacity to Tenant. Tenant shall be given access for installation of two additional four inch conduits to run Tenant's electrical power from the electrical vault to the Premises. Tenant's use of such access shall be subject to the terms of the Lease and generally shall be effected without any danger or inconvenience to the Landlord or to any other tenants in the Building, and shall not adversely affect the use or value of any conduit and cable currently installed in the Building by the Landlord or by any other tenant. b. Tenant shall be provided reasonably adequate space on the third floor of the Building to install at Tenant's sole cost and expense one diesel generator NOT TO EXCEED 500 KW where indicated on the attached Exhibit A-1. c. Tenant shall be provided reasonably adequate access to install at Tenant's expense connections to Landlord's 1500 KW volt diesel Emergency Generator which Landlord is currently installing. The terms and conditions of use of the Emergency Generator are as follows: (1) Tenant is granted the right to use up to ____ kilowatts of emergency power from such Emergency Generator commencing on the date such Emergency Generator is fully operational (such date to be determined by Landlord in its sole discretion) in the event of an interruption of normal electrical _______________/ JK LANDLORD TENANT service to the Premises during the Lease Term, provided that: (a) Tenant notifies Landlord in writing within thirty (30) days following the Lease Commencement Date of the number of kilowatts (not to exceed ___ kilowatts) of emergency power which Tenant reserves the right to use; (b) Tenant pays Landlord, at the time of notification in (a) above, a one time fee in an amount equal to $500.00 per kilowatt of emergency power so reserved; and (c) Tenant pays Landlord as Additional Rent under the Lease a monthly sum in an amount reasonably determined by Landlord in good faith based upon the amount of emergency power reserved by Tenant, and Landlord's costs of operation, use, maintenance, fuel, oil, governmental permits, licenses and fees, insurance, Landlord's profit and administration and other expenses relating to the Emergency Generator. The monthly amount of the Additional Rent described in item (c) initially shall be $1.20 per kilowatt reserved per month. Tenant shall also pay the costs to connect Tenant's Premises to the Emergency Generator as described in Section 4 of this paragraph below. (2) Each such payment described in subparagraph 1 (c)above shall be due on the first day of each month with Tenant's other Rent payments, with the first such payment due on the Rent Commencement Date. Such monthly amount may be adjusted annually, in Landlord's discretion, during the term of the Lease and any extensions thereof. (3) Tenant's use of such emergency power shall be in accordance with such reasonable rules and regulations as may be established by Landlord from time to time. (4) Landlord shall repair and maintain the Emergency Generator, provided that Tenant shall reimburse Landlord upon demand, as Additional Rent hereunder, for the cost of any repairs or extraordinary maintenance for the Emergency Generator necessitated by acts of Tenant or Tenant's employees, contractors, agents, licensees, invitees, assignees or sublessees. In addition, any installation of equipment, wiring or cabling in the Premises or the Building for the purpose of enabling Tenant to access the Emergency Generator shall be performed by Landlord in accordance with plans and specifications approved by the parties in writing in advance, and Tenant shall reimburse Landlord for the costs of such installation, including, but not limited to, design fees and costs of demolition, plus Landlord's administrative fee of 10% of the installation and connection costs. (5) The provision of Emergency Generator service by Landlord to Tenant shall be subject to the provisions of Article III of the Lease. (6) If Tenant elects to use the Emergency Generator as described in Subparagraph c 1 above, but the Emergency Generator referred to in Subparagraph c 1 is not fully operational by the Rent Commencement Date, as determined by Landlord in its sole discretion, Tenant shall have the right to connect Tenant's Premises temporarily to one of the other currently existing emergency generators in the Building, including that installed by Tenant, as designated by Landlord, provided that: (a) all of the terms and conditions set forth in this Rider shall apply to Tenant's right to use power from such other emergency generator in the same fashion as if Tenant had exercised its right to use power from the new Emergency Generator being installed; (b) if such other emergency generator belongs to a party other than Landlord, Landlord has been able to procure consent of such third party to Tenant's connection to such other emergency generator and Tenant shall pay the entire cost of such connection and any other charges levied by such third party; (c) within thirty (30) days following Tenant's receipt of notice from Landlord that the new Emergency Generator is fully operational, Tenant must _______________/ JK LANDLORD TENANT disconnect, at its own expense, Tenant's Premises from such other existing emergency generator and connect, at its expense, Tenant's Premises to such new Emergency Generator, as described in more detail in subparagraph 4 above; and (d) once connected to the new Emergency Generator, Tenant's right to use emergency power from such new Emergency Generator remains subject to the terms and conditions set forth in this Rider. d. Tenant shall have the right to install a connection to Landlord's electrical ground to be accessible on the __ floor, in accordance with equipment specifications and requirements reasonably satisfactory to Landlord, and all applicable laws. 4. STRUCTURAL Landlord makes no warranties or representations regarding the load bearing capacity of the floors in the Premises and the Building generally or the suitability of the Premises for Tenant's use. Tenant has inspected the Premises and accepts it "As-Is" "Where-Is". a. Tenant's floor load bearing capacity needs are as follows: Equipment: 86 lbs./usable sq. ft. Batteries: 480 lbs./usable sq. ft. Office: 60 lbs./usable sq. ft. 5. LIFE SAFETY a. Tenant shall have the right to install a water based fire suppression system independent of the Building's systems. Such system shall be connected to the Building's life safety system, if compatible. Such system shall not use Halon or any similar chemical that may have a materially adverse health affect on human beings. Any such installation and the operation of such system shall be done in compliance with all local building, zoning and safety codes, all applicable Fire Underwriters' and Insurance Underwriters" requirements and all rules and regulations of OSHA and the Americans with Disabilities Act and all Legal Requirements. b. If applicable, Tenant shall have the right to modify the Building's fire sprinkler system serving the Premises to a dry pipe system, if permitted by and in compliance with all applicable local building, zoning and fire safety codes, fire underwriters and insurance underwriters' requirements. 6. OTHER a. Tenant shall have the right if it is then not in default under the Lease to remove any or all of its equipment, including generators, HVAC, batteries, UPS systems, and the like, from the Premises at any time during the term of the Lease. At the expiration or termination of the Lease, Tenant shall either (i) leave the Premises in the same condition as it was on the date prior to any Tenant Improvements being commenced in the Premises or (ii) leave the Premises with all of the alterations and additions and equipment installed therein. Tenant shall notify Landlord of its decision under the preceding sentence in writing no later than six (6) months prior to the date upon which Tenant intends to quit the Premises. _______________/ JK LANDLORD TENANT CO-LOCATION RIDER Landlord acknowledges that Tenant's business to be conducted on the Premises requires the installation of certain communications equipment owned by telecommunication customers and co-locators of Tenant ("Permitted Licensees") in the Premises for the Permitted Licensees to interconnect with Tenant's terminal facilities. Accordingly, Landlord agrees not to unreasonably withhold, delay or condition its consent to Tenant's right to license co-location agreements (collectively, "Permitted Agreements") with, the Permitted Licensees, but the Permitted Agreements shall be subject to the provisions of the following paragraph. Lessee shall provide Lessor with copies of such proposed Permitted Agreements with a request for Landlord's approval thereof, at least fifteen (15) business days prior to the proposed effective date of such Permitted Agreements, and Landlord shall respond to such request within ten (10) business days. Tenant acknowledges that the Permitted Agreements shall be subject and subordinate to this Lease and to any mortgages, deeds of trust, or land sale contracts (collectively, "Encumbrances") now or in the future encumbering the Premises. All Permitted Agreements shall contain provisions (a) unconditionally acknowledging and agreeing to such subordination; (b) requiring the parties thereto to execute such documents as may reasonably be requested by the Landlord or the holder of the Encumbrance to evidence the subordination; (c) disclaiming any right or interest in the Premises or the Lease; (d) affirming that the rights to locate switches and other items in the Premises shall terminate as and when the Lease expires or is sooner terminated; and (e) requiring, notwithstanding any provision of the Permitted Agreement, that the parties thereto comply with all obligations imposed on Tenant under this lease to the extent relating to the portion of the Premises in question, including without limitation, the rules and regulations from time to time in effect under the Lease and the insurance requirements thereof. Tenant shall be liable to Landlord for any violation by its Permitted Licenses of any provisions of this Lease. _______________/ JK LANDLORD TENANT EX-21.1 24 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary Jurisdiction of Incorporation - ------------------ ----------------------------- CEO Telecommunications, Inc. California CEO California Telecommunications, Inc. California Helvey Com, L.L.C. Delaware AS Telecommunications, Inc. Arizona Lucius Enterprises, Inc. California Grupo Bunden, S.A. de C.V. Mexico Grupo Palafox-Toledo, S.A. de C.V. Mexico Servicios Sumosierra S.A. de C.V. Mexico Grupo Industrial Arvilla S.A. de C.V. Mexico PT-1 Communications, Inc. New York Phonetime Technologies, Inc. Delaware PT-1 Long Distance, Inc. Delaware PT-1 Phonecard, L.P. Texas PT-1 Holdings I, Inc. Delaware PT-1 Holdings II, Inc. Delaware Nationwide Distributors, Inc. Delaware Platform Services, L.P. Delaware Investment Services, Inc. Delaware Bayonne, S.A. de C.V. Mexico Morningside, S.A. de C.V. Mexico Milhouse, S.A. de C.V. Mexico PT-1 Communications Canada, Inc. Canada PT-1 Communications Puerto Rico, Inc. Delaware STAR Telecommunications, S.a.r.l. Switzerland STAR Telecommunications (France) Holding, Eurl. France STAR Telecommunications France France STAR Telecommunications Holding, GmbH Germany STAR Telecommunications Deutschland, GmbH Germany STAR Europe Ltd. United Kingdom Romborg Holding, B.V. Netherlands STAR Telecommunications Australia Pty., Ltd. Australia Asian Datanet, Inc. Japan (50%) STAR Telecommunications Japan, Inc. Japan (51%)
EX-23.1 25 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated April 14, 2000 included in this Form 10-K into the Company's previously filed Registration Statements File No. 333-29681 and 333-32083 pertaining to STAR Telecommunications, Inc. 1997 Omnibus Stock Incentive Plan, 1996 Stock Incentive Plan, 1996 Outside Director Non Statutory Stock Option and Employment/Consulting Agreements. ARTHUR ANDERSEN LLP Los Angeles, California April 14, 2000 EX-27.1 26 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS, CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 25,561 1,482 214,110 46,707 1,088 235,086 414,748 (51,659) 807,754 433,007 67,852 0 0 58 277,996 807,754 0 1,061,774 0 1,131,387 1,373 25,003 9,895 (75,943) (12,096) 0 0 0 0 (63,847) (1.12) (1.12)
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